Retail Council of Canada

Transcription

1 Retail Council of Canada Pre-Budget Consultations Submission Retail Council of Canada 1881 Yonge Street, Suite 800 Toronto, Ontario M4S 3C4 Telephone (416) Fax (416) RetailCouncil.org 1 P a g e

2 Submission to the House of Commons Standing Committee on Finance Retail Council of Canada welcomes this opportunity to provide the views of the retail industry as the government prepares its first budget. Members will already be aware of the role that Canada s retail sector plays in our economy. Retail employs and self-employs over 2.2 million Canadians i, making ours the largest private employment sector in Canada. With 145,000 storefronts ii, we are one of the very few business sectors with a direct presence in almost every community in this country. Retail sales of $505 billion iii annually make a sizeable contribution to Canada s economic wellbeing. The retail industry shares many issues with other Canadian businesses, including taxation, trade and workforce availability. Other issues are more sector-specific, including credit card payments, the de minimis level for imported goods, and the Customs Tariff on goods for sale at retail. Given the constraints of a 2000-word brief, we have chosen to focus on the five issues of greatest interest to our members. #1 Human Resource Issues CPP Enhancement Human resources issues are important to our sector and we note two initiatives that may have implications for merchants and employees. The first of these is the role of the Government of Canada in developing an enhanced CPP. Retailers see a number of positives from enhancement of Canada s public pension system. We are of course sensitive to the strength of the economy and recognize that long-term pension adequacy may be an important economic driver, especially given an ageing population. We are also in a line of business that requires that our customers have disposable income available to spend on the goods we sell. We are citizens of course and want to live and work in an environment in which Canadians are able to enjoy a good quality of life in retirement. That is why many of our employees already have benefit entitlements that are more generous than any proposals with regard to CPP enhancement. 2 P a g e

3 Cost Issue The first major concern that retailers have about the CPP enhancement is reconciling long-term benefits with the cost of the program. Depending on the generosity of the program, retailers could be looking at an annual cost increase approaching $800 million, before any offsets for existing workplace pension programs. Our employees could bear an additional $800 million cost in a 50:50 shared program, which would be burdensome to many and would create corresponding wage pressures as employees adjust to reduction of their disposable incomes. These costs are substantial when viewed on their own. In a context of rising payroll taxes and premiums overall, the cost is harder to absorb. The average wage in retail is $17.28/hour iv or $3,070/month for a typical employee working 40 hours weekly. On top of this average wage, retail employers could be required to make an additional $406 in payroll contributions. Monthly Employer Payroll Contributions (Ontario Example) $ Employment Insurance v $ Canada Pension Plan vi $ Employer Health Tax vii $ Workplace Safety and Insurance Board viii $ CPP Enhancement (at ORPP level) ix $ When merchants raise the job-creation barrier that payroll charges can create, there is seldom government recognition of cumulative payroll costs. While each of these policy initiatives is virtuous in its own right, it often seems to merchants that one level of government is oblivious to costs imposed by another. Even within a particular government, policy objectives are seemingly pursued without reference to the cumulative impact. Simply put, with implementation of the CPP (at ORPP levels), total payroll contributions for retailers could be around 13% of wages and that is aside from employees own contributions and the income taxes paid into general revenues. As government develops its policy on the CPP, it should be mindful of the aggregated impact and should consider the provision of tax relief to offset the rising burden on businesses and employees. Threshold Issues Retailers recognize that the Government of Canada is committed to proceeding with CPP enhancement if it can obtain provincial agreement. In that context, we want to raise some design issues that should be addressed. 3 P a g e

4 First, we note that at $3,500, the basic exemption has remained unchanged since Inflation-indexation alone would have grown that $3,500 to over $5,000 today x. The existing CPP has suffered from underfunding problems historically, which may explain the lack of inflation-adjustment. By contrast, CPP enhancement would presumably be done on a pay-asyou-go model which would not need to over-collect to compensate for past deficiencies. At $3,500 or even at $5,000, a low basic exemption demands premiums from employees who can least afford them, and who will have comparatively strong income replacement in retirement through the combination of CPP, OAS and GIS. This group of employees can also expect to see claw-backs on OAS, GIS and provincial income-tested benefits when they do eventually receive additional income from the CPP. A more effective approach would be to collect CPP premiums at a relatively higher rate but to place the threshold further up the scale than is currently proposed in Ontario, thereby exempting a greater proportion of the income of those who can least afford the premiums and who would benefit least as CPP recipients. Early Career Workers Retail is typically the first job for many young Canadians and retailers are proud of our role in offering first employment and experience to people who might otherwise have little or no opportunity or attachment to the labour force. Given that many of our workers are students in their teens and early twenties and that the accumulation of the full CPP pension maxes out at 39-years of contributions, we question the need for barrier-creating premiums in the early years of a person s working life. It would make more sense to enroll people in the ORPP in their mid-twenties, with a 40-year run to presumed retirement around age 65. Students would face lower payroll deductions at a time when they most need money for their education. Employers would be able to create more jobs to give vital first experience. To this end, we propose that there be an age 25-threshold before a worker is required to be enrolled in an enhanced CPP. Existing Benefit Programs A substantial number of retail workers already participate in RPPs or in profit-sharing or stockownership plans. While some are enrolled in defined-benefit plans, more are in directcontribution plans, as is now typical across the private sector. We understand the government s preference for defined-benefit plans but note that CPP enhancement is apt to be less generous than many existing workplace plans. 4 P a g e

5 If it is the government s determination to seek a CPP enhancement, we propose that the plan should exempt those employees on whose behalf pension contributions or investment savings are already being made above the rate contemplated for the CPP enhancement. We look forward to seeing detail on the proposals under discussions between federal and provincial governments, and to working collaboratively to attain the best outcome. #2 Human Resource Issues Employment Insurance The other HR-related issue of note is the government s proposal to permit more flexible EI maternal/parental benefits and presumably, parallel leave provisions in provincial statutes. We understand that there are two elements to this commitment. The first would allow these benefits to be taken at a reduced rate over a period of up to 18-months. The second, and the one that raises greatest concern, is the potential for EI benefits to be divided into several periods over 18-months. Provincial legislation requires that an employee taking maternal/parental leave is entitled to return to the same or a comparable position at the end of that leave. Retailers cover off these leaves with existing staff or hire additional staff on a temporary basis. This requirement is challenging, especially in specialized roles and in-store settings, in terms of training and re-training and in the availability of qualified staff. This challenge could become increasingly complex were mat leaves to be permitted on an intermittent basis over 18 months. RCC would like to be afforded the opportunity to participate in federal-provincial discussions on this issue. #3 Trade and Tariffs Retailers are highly supportive of trade initiatives undertaken by the Government of Canada, at the bilateral level and through multilateral agreements under TPP and CETA. We encourage the government to continue on a path that benefits consumers and exporters alike. Members may be familiar with our industry s position on the Customs Tariff, under which duties are applied to imported goods for sale at retail. These duties, which cost Canadian consumers over $4.5 billion annually xi, may historically have had the underlying rationale of protecting nascent or vulnerable Canadian manufacturing. Given the specialization of manufacturing, there are very few instances where that remains true. For most goods, the import duty today is nothing more than a hidden tax on consumers. Retailers look forward to duty relief under the multilateral trade agreements of course, but those reductions proceed slowly. 5 P a g e

6 Retailers are aware of the fiscal constraints facing government and recognize that there will be a reluctance to forgo duty revenues. What we propose is to begin with tariff reduction on those items in which there is a duty delta between Canada and the United States, which is a particular irritant, as it exacerbates the cross-border shopping problem. #4 De Minimis On trade, the greatest issue of concern to retailers is the de minimis level, below which courier or postal shipments into Canada are exempt from sales taxes and duties. US-based online merchants and the US air freight industry have been pushing hard for an increase to the $20 de minimis level, having failed to obtain one during negotiation of the TPP Agreement. RCC speaks forcefully to this issue at all meetings with government, noting that a major increase to the de minimis level would initiate massive online cross-border shopping and consequent losses of sales and employment in Canada. Our industry does not understand the policy calculation that would confer a tax advantage of 13%-15% on a US warehouse seller employing few if any people in Canada, at the cost of a Canadian employer who creates jobs and economic activity here, whether in bricks and mortar stores or online. Such a move would jeopardize the investments being made by Canadian retailers in establishing online offerings, also impacting high wage jobs in IT. Internal allocation of capital would also become an issue for US and foreign firms operating in Canada, as it would be difficult to persuade headquarters of the need to invest in Canada when customers could just as easily be serviced from the US or offshore. Lastly, Members should note that tax revenues forgone by Canadian governments, including provincial governments, would be substantial. This would not merely be the HST/PST revenue on existing levels of courier and postal shipments but also the future loss of revenue on displaced goods that would otherwise have been sold here. Add this to the lost income tax revenues from reduced Canadian retail operations and employment. #5 Payments Issues One of the most pressing issues for retail merchants is the high cost of credit card acceptance, relative to other forms of payment and indeed, relative to credit card fees in most other countries. Total credit card fees charged to merchants in Canada are now in excess of $5 billion, of which interchange (the amount paid to issuing banks) accounts for more than $4 billion. 6 P a g e

7 Costs of credit card acceptance have increased dramatically since MasterCard (2006) and VISA (2008) IPOs, due especially to the increased issuance of high-fee premium cards. In addition, through extensive campaigning by banks and card companies, we have seen consumers significantly increase their use of credit cards, even for smaller purchases and non-traditional ones like groceries. Many countries have taken steps to regulate lower interchange. For example, France limits interchange rates to 28 basis points on credit. Australia limits interchange to an average of under 50 basis points and is looking at reducing that level still further. The UK has just reduced its fees to 30 basis points. By comparison interchange rates in Canada average 150 basis points, even after the voluntary reductions made by the networks in Interchange fees are non-negotiable and the card network duopoly sets them at levels far above what the cost of processing transactions would suggest or where they would be in a competitive market. The impact is felt directly by consumers in the form of higher prices at retail. There is a reverse-robin Hood problem in which modest income Canadians buying basic goods like groceries with cash and debit are cross-subsidizing more affluent premium and super-premium cardholders. Retailers believe that the 2015 voluntary reductions in interchange fees were completely inadequate, leaving us with rates five times those in the European Union for the provision of the same services to merchants. Government needs to step-up and regulate these rates in line with most of our economic peers. This concludes our summary of the five key policy issues for retailers. RCC would be delighted to discuss these or other policy matters with the members of the Committee, whether in the context of these hearings or otherwise. Karl Littler Vice President, Public Affairs klittler@retailcouncil.org P a g e

8 Endnotes i Labour force estimate of 2,210,500 in Statistics Canada, Labour Force Survey. ii 145,971 retail locations in Establishment counts adapted from Statistics Canada s product Canadian Business Patterns by JCI iii $ billion in Annual trade data adapted from Statistics Canada, CANSIM by JCI iv November Statistics Canada, Survey of Employment, Payroll and Hours (SEPH). $17.28/hour is the average hourly earnings for employees paid by the hour within the NAICS category Retail Trade. v Using Employer EI contribution rate for 2016 of 1.337% vi Using CPP contribution rate for 2016 of 4.95% of income above $3500 vii Using 2016 Ontario EHT contribution rate of 1.95% of payroll viii Using 2016 WSIB average for employers with annual payroll > $450,000 (i.e., not rate group-specific) ix Using full ORPP contribution rate of 1.9% of income above $3500 x $4, as of March, 2015, using the Bank of Canada s Inflation Calculator xi $4.581 billion in Department of Finance Canada, Annual Financial Report, About RCC The Voice of Retail in Canada since 1963, RCC represents over 70% of core retail (i.e., excluding vehicle and gas station sales) by volume. We are a not-for-profit, industry-funded association representing small, medium and large retailers across the country. Our members operate in all retail formats, including department, grocery, specialty, discount, independent stores, franchises and online merchants. Unlike other groups that may be organized on the basis of business size or geographic location, ours is a strictly sectoral focus. 8 P a g e