FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, May 30, 2001

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[English]

The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call the meeting to order and welcome everyone here this afternoon to this round table—as the order of the day says—of business leaders.

The purpose of this meeting, of course, is to get a sense of what exactly is going on in the Canadian economy, and what you think should be happening.

I want to thank everyone for attending. We have representatives from the Aerospace Industries Association of Canada; Alliance Atlantis Communications Inc.; the Canadian Chamber of Commerce; the Canadian Federation of Independent Business; Canadian Manufacturers and Exporters; the Hudson's Bay Company; Rogers Communications; and Canadian Pacific Railway.

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We will begin, as you know, with five-minute presentations, with Mr. Jay Myers from Canadian Manufacturers and Exporters. Welcome.

Mr. Jayson Myers (Senior Vice-President and Chief Economist, Canadian Manufacturers and Exporters): Thank you.

In case anyone's worried, I'm not going to serenade you this afternoon, but I did think it would be better if I stood here to make a short presentation. I'm going to try to do the impossible, which is to run through Outlook for Manufacturing & the Canadian Economy, and these slides in five minutes.

I have provided copies, and I apologize that the French version is not yet ready, but we will send you the French version of the presentation.

It is a fairly long one, and I don't intend to dwell too much on it, only to say that the manufacturing sector is the key sector here that is being affected by the downturn, especially in U.S. markets, and the two markets in particular are the automotive and electronics markets in the United States. Production volumes have fallen by 5% since the beginning of the year, and they're off 8% since the peak of production back in October.

We don't expect production in manufacturing to pick up until perhaps the fourth quarter of this year or into next year. The word we're getting from both the automotive and the electronics sectors is that new orders are not coming in, as they originally expected, that would give some indication of a pickup in the summer.

I think at the beginning of the year that was the expectation. We're not seeing those new orders now. It looks like if we are going to see a pickup in the automotive sector, it probably won't be until the fourth quarter of this year; the electronic sector probably not until into the first or second quarters of next year.

This graph gives you an idea of the importance of various sectors, the automotive sector accounting for 25% of total production; the electronics, computer parts, and telecommunications sector accounting for 15%. These are two very important sectors of industrial production and two very important markets, particularly in the United States.

The next two graphs are the areas of relative strength and relative weakness on a sector-by-sector basis. The aerospace industry is leading the manufacturing sector at this point. Petroleum products are also growing fairly strongly on a year-over-year basis, the petrochemical, chemical sector. Furniture is as well.

Key areas of weakness, though, are the automotive products sector, the wood products sector, and as you can see, computer and electronic products, which are down by over 2%—quite a reversal from the 40% growth we saw last year.

In total, manufacturing on a year-over-year basis by the first quarter of this year is down by 2.2%, and as I said, shipments value has fallen by 5% since the beginning of the year.

On a province-by-province basis, for your reference, the key areas of weakness are in Ontario, which is the most highly leveraged both to those two key sectors and to the U.S. market. British Columbia is being affected by a downturn in wood products, as well as information technology. Quebec manufacturing production has dropped slightly, by about 0.5%. Of course, the one province we're seeing the strongest growth in right now is Alberta, and that is largely driven off the oil and gas sector.

I just want to point out the importance of exports for the manufacturing sector. Over 68% of total manufacturing production today is exported outside of the country. Over 60% is exported into or through our major market, which is the United States. So whatever is happening in the United States is going to be affecting, in a very big way, manufacturing performance and total economic performance here in Canada. And of course, the report of new manufacturing orders for finished goods in the United States being down 5% in the month of April alone does not bode well for new orders here in Canadian industry either.

This is very generally the outlook for manufacturing. As I mentioned, production levels have fallen, and new orders continue to fall in those two key sectors in particular. Inventories are very high and they are being worked down. We saw a bit of a pickup in shipments performance in March. That was because companies were trying to get rid of product on the shelf or in the parking lot.

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Inventories are high. They'll be worked down, but particularly in the high-tech sectors, in the electronics sectors, inventories are also going to become obsolete very quickly, and one of the key problems here is that suppliers, particularly smaller suppliers, are finding it more difficult to finance inventory. They're finding sources of finance, availability of finance, also much more of a problem. We're facing downward price pressures as a result of increased competition, and escalating cost, particularly energy cost. Although I might include here the cost of user fees, as well, since that's an issue dear to my heart.

We'll see continued domestic market strength, and continuing decline in automotive and electronics markets throughout the rest of the year. We're not expecting recovery in key U.S. markets until 2002. In both the U.S. and Canada, we'll see high levels of corporate consumer debt. Profit margins are going to be cut in half this year, and we expect as a result of that a sharp decline in capital investment.

Regarding the outlook for manufacturing, basically the shipments this year will fall by 4.5%, and profit margins after tax will be 2.5% of sales, one of the lowest levels since the last recession the early 1900s. Our economic growth forecast is, as you can imagine, one of the more pessimistic, at 1.8% this year. That means Canada will be very close to recession by the fourth quarter of the year, and there's a very high probability that the economy as a whole will drop into recession, largely as a result of a downturn in investment performance that we expect will fall by about 6.5%.

I mentioned the overall market conditions; there's a tremendous cost squeeze as well. Prices are being driven down; operating costs are going up. This is not unique, but it's more accentuated this year. You can see the increases here particularly on energy cost, but also on everything from wage rates and payroll taxes through the cost structure. The problem is that this has been forcing companies to restructure.

You can see here the type of restructuring that has gone on. There's a tremendous effort to reduce unit cost, and an effort to invest to improve specialization, add value, innovate through new products, and customize service to enter niche markets. This is all continuing. It's a question this year of dropping market demand, increased competition, and accelerating cost, and how rapidly this type of restructuring can continue, because it's what is necessary to offset what we're seeing today in the industry.

That makes productivity extremely important, and innovation, which ties back to the themes this committee has been looking at for some time. You see in the first graph that Canada has trailed the United States since 1989 in terms of labour productivity. One of the macro reasons for that is that we've been trailing in terms of our investment in new technology. In fact, the real value of the technology, the equipment, that is in place in Canadian industry has declined over the past decade, while investment in the United States has more than covered depreciation and obsolescence, and the real value of technology in place has grown by about 20%.

This is, I think, a real issue for industry. Machines are working harder, but the machines that are in place are not really leading to the type of labour-productivity improvement that they have in the United States. This is what this graph shows.

Innovation and productivity are key. The companies that have been innovating, that have improved their productivity, are in a better position today to offset the effects of market weakness. But at the same time, the cut in profitability is going to have a big impact on the trend to innovation and investment, as well as unemployment.

This is a fairly complicated graph, but it shows that capital investment, investment in new technology, follows cash flow. Cash flow is what drives that investment, as well as the availability of financing. As profit margins are cut in half, capital investment will decline this year.

This is my most interesting graph, and I'd be talking about it regardless of my presentation today. This is the relationship between unemployment and profitability. The blue line is the most general profit margin you can come up with, it's after-tax profits as a percentage of GDP. The yellow line is Canada's unemployment rate. The message here is that unemployment falls only when profitability is increasing. Again, we'll see profit margins cut in half this year. That means unemployment rates will rise, and we're expecting an average unemployment rate this year of about 7.2%.

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Let me conclude with this. Innovation is crucial. The market weakness we're facing right now is going to take a cut out of investment, out of that trend to greater productivity and innovation, but Canadian companies can't afford to fall behind. They're facing tremendous challenges over the next three to five years in the form of international competition, the cost and profit pressures I mentioned before, a situation that puts a greater emphasis on the need for productivity. They're facing issues concerned with how to get the best out of technology. More and more design engineering service capabilities are being forced down the supply chain to smaller suppliers, creating a large issue about how to manage those problems.

Companies are facing difficulties in not only the availability of skilled personnel, but in three to five years a wave of retirements, which means it's going to be very difficult to find experienced business personnel as well.

The regulatory environment is always challenging. We need a better, more efficient, and more effective regulatory system. That's why cost recovery is such an important issue for us. There are questions of international market access and, finally, investment and financing.

Thank you, sir.

The Chair: Thank you very much, Jayson.

We'll now hear from the Canadian Federation of Independent Business, Catherine Swift and Garth Whyte. Welcome.

Ms. Catherine Swift (President and Chief Executive Officer, Canadian Federation of Independent Business): Thank you, Mr. Chairman. I would like to address my brief comments today to the six questions this committee put forward as ones they would like addressed.

The first one is whether our economic environment has changed quantitatively since the economic and fiscal update of last fall. The answer is, yes, from the standpoint of the small and medium-sized business community. As you may know, the Canadian Federation of Independent Business currently represents over 100,000 small and medium-sized businesses across Canada. We regularly poll them, as you probably know, on all manner of issues, and the brief publication we circulated today to everyone has our most recent economic survey data. Interestingly enough, we did survey the members last fall, which is our customary time to look at the economic outlook, and given the gyrations in the economy and financial environment over the last few months, we decided to do an update, which we don't typically do, but we thought this year it was timely.

As you can see from the data, which compare survey results—and our most recent survey had over 8,000 responses—we do see something of a lowering in the general optimism of the small and medium-sized business community, but a very small decline. For example, overall, we see about 45% of our members still believing that they will experience a stronger business performance in 2001 compared to 2000—and I think we should keep it in context, 2000 was a great year. So we have almost half believing they'll have a better performance, and almost 40% in addition believing it'll be a similar kind of year. In other words, cumulatively, we have about 85% to 90% of small businesses believing that 2001 will be better or at least the same overall for their businesses. So we were certainly seeing these as very positive findings.

As you look through the other charts in this report, we have disaggregated the data by province in respect of business expectations in figure 2, in figure 3 by two-digit SIC industry—and again, there were declines in a few sectors. We can see, for example, manufacturing dropping a little bit from the level of optimism last fall, but quite minimally really, all things considered.

We also asked the members whether they expected to expand staff, in other words, hire people, maintain roughly the same employment levels, and so on. As you can see in figure 4, the vast majority, averaging over 80%, expect they will either maintain the same staff complement or expand. In other words, we're still looking at a pretty positive overall level.

In figure 5 we've just listed, as a matter of interest, the ten most optimistic sectors and the ten least optimistic. Again I should note that the so-called least optimistic are only relatively less optimistic, but overall they retain a pretty positive outlook for the year 2001.

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The second question you asked us to address concerns whether or not the economic environment has changed qualitatively over the last five to ten years. Certainly I think anybody would have to say a big yes to that question. We're certainly even more international as an economy. More rapid change is facing everyone. And in terms of having economic policy sovereignty, we have less control than we probably ever did, mostly due to international influences. So I don't think anyone can question that we see a much more rapidly evolving economic environment, as well as one that's much more subject to changes in the technological underpinning, which tend to happen pretty rapidly.

The third question dealt with what do we see as opportunities and threats. Certainly the shortage of qualified labour is something we've done quite a bit of research on lately. It is one of the top problems for our members right now, despite the fact that supposedly we've seen a little bit of slackening in the labour force, but again not too much. Our latest survey showed that last year roughly 250,000 to 300,000 jobs went begging because people couldn't fill them.

Our Canadian dollar is a serious problem. We've had a declining dollar over the last 25 years in Canada. It represents a declining standard of living for Canadians over time and clearly needs to be addressed. And our debt levels as a nation, although thankfully being reduced to some extent, still remain a serious concern and we can't let up any vigilance in that area.

In terms of the government's approach to economic management, I think more than ever the small-business community has supported the approach to government policy of setting a fair and level playing field for everyone. This leans away from an approach to subsidies, which our members oppose—subsidies to business, for example—and toward a fair and equitable tax environment and regulatory environment so that every business has the same opportunity to succeed on a level playing field.

On the question of the long-term profound changes that will affect Canada over the next decade or so, one of the things that has changed over the last little while, and we see it continuing, is the role played by the small and medium-sized business community. It currently represents about half the economy in employment. That has increased; that has about doubled over the last 25 years in Canada. We see it happening in other developed economies as well, to varying degrees, and we don't see that trend changing.

We still have a tax system that is oriented more toward the 1950s than the new millennium. We still believe there is a lot of discrimination built into that tax system and regulatory system, which tends to hit the small and medium-sized category of the economy, which is the growing one and the job-creating one, much harder than it does the larger corporate community.

Finally, do we need significant reform in institutions? Again, we would have to say yes. Jayson Myers has already alluded to the whole regulatory and fee regime that has evolved over the last number of years in government. I know this committee has taken a lot of leadership in prioritizing this issue, which is a difficult issue to deal with; it's not a simple one. It's very much a scattergun approach, as we know. There's a proliferation of fees all over the place. We encourage you to continue, as we believe that's an extremely important issue to be dealt with.

Another glaring example for action is the whole employment insurance regime. We still see overcollection of premiums in that area, from both employers and employees, and a system that unfortunately still is much more geared toward a social welfare program than a true employment insurance program.

At this point I will close, and we look forward to any questions you may have.

The Chair: Thank you very much, Ms. Swift.

We'll now hear from Peter Smith, from the Aerospace Industries Association of Canada.

Mr. Peter Smith (President and Chief Executive Officer, Aerospace Industries Association of Canada): Thank you, Mr. Chairman.

I believe you and the members have a bilingual version of the comments I'm about to make. I'll give you an abbreviated format, in the essence of time.

On behalf of the chairman, board of directors, and members of the Aerospace Industries Association of Canada, I want to applaud the efforts of the Minister of Finance and the Government of Canada for the effective fiscal performance over the past eight years. We fully support the concept of a balanced approach to addressing this nation's challenge in creating a strategy to invest in the social fabric of this country, reduce taxes, and pay down the debt.

We are equally impressed with the acknowledgement of this government, and even today with the Canadian Manufacturers' Association, that aerospace, along with other sectors like energy, has continued to grow at a strong pace and continues to contribute so significantly to Canada's total economic output. We are encouraged, and share the view that the economy will continue to expand, albeit at a lower rate than previously predicted. We agree with the revised average of approximately 2.4% for this year and next.

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Today, however, I wish to centre my remarks on the government's focus on innovation and its willingness to make strategic investments in this area for the future. I have several points I would like to make about the innovation agenda, and more specifically how the aerospace sector can continue to outperform many of the other sectors in Canada to contribute to this nation's growth.

Canada's aerospace industry is an outstanding success story. Aerospace in Canada is a leading advanced technology exporter, exporting over 80% of its output and generating a cumulative trade balance of over $25 billion in the last decade. Canada's aerospace firms directly employ more than 95,000 Canadians in high-quality, above-average-wage jobs.

Besides the necessity to continue to cuts taxes, reduce the debt, and continue to control spending, there truly is a need to invest in innovation to create knowledge, produce jobs, generate growth, raise living standards, and provide opportunity for tomorrow. Canada faces a daunting challenge to reposition itself as a global leader in the knowledge-based economy.

The federal government's commitment to make Canada one of the most innovative economies of the world and one of the world's top five countries in R and D performance is an important first step. Success demands that Canada move quickly, with clear priorities and a focused strategy that levers its current strengths, as well as selectively exploiting emerging high-growth potential opportunities.

Already, aerospace is a Canadian innovation leader, a pioneer of our knowledge economy. Canadian aerospace innovation contributes to safe, efficient, and affordable air travel and communications solutions that deliver immense social and economic benefits to Canadians and to the world.

Canada's public investment in aerospace R and D has steadily eroded, however. At the beginning of 1990 total public investment in aerospace R and D was nearly $600 million per year. By 1999 public investment in aerospace R and D had shrunk to about $300 million. In 1990 the federal government funded roughly 45% of the aerospace R and D conducted in Canada. In 1999 government's share of aerospace R and D investment was about 25%. This compares with today's government shares of 66% and 50% respectively in the United States and Europe. Canada's aerospace innovation performance is sadly falling behind.

Overall, Canadian investment in aerospace R and D is currently insufficient to sustain long-term competitiveness and growth. For Canada, the status quo is no longer an option. Reinvigorating our aerospace innovation system must be a priority in the drive to make Canada one of the most innovative economies in the world.

Securing Canada's position as a global innovation leader in aerospace demands an innovation strategy that achieves a level of aerospace R and D investment comparable to that of our principal competitors; strikes an appropriate balance between knowledge creation and the application and commercialization of new knowledge; motivates innovation broadly across the whole sector, both vertically and horizontally, especially for small and medium-sized enterprises; targets large foreign development programs that offer platforms for leveraging important technology transfers and provide for market growth; stimulates collaboration to achieve maximum leverage from innovation investments; makes effective use of innovation capacity among universities; and educates and trains the highly qualified people essential for long-term success.

By the year 2005 the government must double its investment in aerospace innovation and R and D. This new investment should flow into three focal points: basic research; pre-competitive technology development and demonstration; and process improvement. Canada must move quickly if it is to achieve the goal of becoming one of the most innovative economies of the world. Success demands a focused strategy that levers current innovation strengths like aerospace.

Thank you, Mr. Chairman.

The Chair: Thank you very much, Mr. Smith.

We will now hear from Nancy Hughes Anthony, from the Canadian Chamber of Commerce.

Ms. Nancy Hughes Anthony (President and Chief Executive Officer, Canadian Chamber of Commerce): Thank you very much.

Good afternoon, members of the committee and guests. I'm here today with my colleague, Michael Murphy, senior vice-president of policy for the Canadian Chamber of Commerce. I must say you've set us a terrible task, to talk about the economy in five minutes, but we'll try.

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Certainly the Canadian Chamber of Commerce is here today representing our members, which include over 350 chambers of commerce in every region of Canada, many business associations, and thousands of corporate members, both big and small. We're here because our members are working hard, growing their businesses, creating jobs, creating wealth, the kind of wealth that helps sustain Canada's standard of living.

I would certainly concur with some of the economic projections that are being made around the table today. The chamber's projection of overall real GDP growth for the year 2001 is at 2.5%, which I think many of us agree on. Today, though, I'm really going to focus very briefly on the question you asked about the government's approach to economic management over the short and intermediate term.

[Translation]

I would first like to congratulate the government for its economic update last week and the two very important actions that the minister of Finance took at that time. The first was the significant contribution to debt repayment and the second was ensuring that the tax policies announced in October last year remain in place and protected. Debt management and a globally competitive tax policy are critical to attracting and keeping investment and entrepreneurs—two key ingredients to a robust economy.

[English]

So I have thrown the bouquet of flowers on those points and now I'd like to raise a couple of other constructive criticisms. As I stated publicly last week following the economic update, the Canadian chamber sees a worrisome trend in increasing government spending, which we have seen over the past number of years, and it's usually above what the government had predicted in its previous budgets. While the finance minister did not give us the final spending figures for the fiscal year 2000-2001, it would appear that once again they will be higher than what was estimated in budget 2000, and again in the October economic update.

Given the forecast produced by the minister, the challenge in the coming years will be to steer taxpayers' resources into areas that enhance growth and productivity while limiting spending in areas that do not. Mr. Chair, I know this committee has suggested developing what you described as a productivity covenant, some kind of filter by which government expenditures can be analysed in terms of their contribution to productivity, and I would stress that governments at all levels have to become more efficient in how they spend taxpayers' dollars, because, as we all know, there is only one taxpayer at the end of the day.

I would add that even though progress is being made on tackling the debt, Canada's debt-to-GDP ratio is still the second-highest in the G-7, and above the average. We cannot lose sight of the goal of bringing this down faster so that Canadians will have more resources available to invest in their future.

[Translation]

Another area, in which the Canadian Chamber has been very active in encouraging the government to do more to facilitate increased economic activity, is trade—international and internal. We believe that the government is on the right track in opening up our economy to increased competition through international trade agreements, such as the FTAA. This will give Canadians the opportunity to increase trade in goods and services, which is key to keeping the economy strong and giving Canadians a better quality of life.

[English]

Internal trade barriers do, however, need to be addressed. Despite the signing of the agreement on internal trade in 1994, there still exist barriers to interprovincial trade and mobility, and many of that agreement's obligations remain unfinished. In my view, Mr. Chair, some parties have not demonstrated the kind of commitment necessary to make that agreement work. Without clear and enforceable rules to govern our domestic market, Canada will lose efficiency and forgo the economies of scale that are required for global competitiveness.

We really feel that a new impetus is needed to turn the AIT agreement, the political agreement, into real economic policy for Canada, and perhaps that is a role where this committee could assist.

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Mr. Chair, in the interest of time, I would like to draw the committee's attention to a document that is in the package for each one of the members of the committee. It is a document the Canadian Chamber released last summer. It summarized our views on specific areas needing priority attention. It's called An Economic Vision for a Strong Canada Creating an Agenda for Change,

[Translation]

An economic vision for a strong Canada.

[English]

In the interest of time, I will not go though that document. It does outline the fundamental challenges facing Canada in our view.

In summary, in order to achieve success the Canadian economy must be placed on a strategic course with an overall objective of strong, sustained growth for the years ahead. Admittedly, this is a huge undertaking but it is achievable if the right elements are in place.

We identify in this document a number of important areas that are necessary, in our view, to move the yardsticks forward. There are seven areas. I'm just going to name each one very briefly. They reflect the priorities of our members of the Canadian Chamber from coast to coast and also the careful consideration of our national policy committees.

First of all, there is the fiscal agenda. I'm sure we can speak about that around this table. Second, as I mentioned, is seizing the opportunities of globalization and breaking down barriers, certainly outside of Canada but also within Canada. Third, we must take advantage of the new economy agenda. And I think on that Canada is on a very positive and good track.

The fourth area is strengthening our labour market through good policies related to education, skills development, and immigration. Retaining high-quality health care, I'm sure this committee would agree, is a matter of social and fiscal policy of utmost importance to the Canadian public.

Also, there is the issue of retirement income security and the question of CPP and how Canadians will be able to save for their future. Finally, we speak about infrastructure development and the need to ensure excellent competitive infrastucture, both technical and related to transportation.

To succeed, the elements of these policies must be coordinated and consistent, and we feel an integrated and comprehensive approach to policy development will go a long way to securing our rightful place in the 21st century.

[Translation]

Mr. Chairman, as I said, I appended to our presentation today a document that sums up our thinking at the Canadian Chamber of Commerce. I would be pleased to discuss it in greater detail if time allows.

[English]

Thank you very much.

The Chair: Thank you very much, Ms. Anthony.

We will now hear from representatives of Alliance Atlantis Communications Inc., Michael MacMillan, chairman and chief executive officer. Welcome.

Mr. Michael MacMillan (Chairman and Chief Executive Officer, Alliance Atlantis Communications Inc.): Thank you very much.

By way of background, Alliance Atlantis is a Canadian broadcaster, producer, distributor, and exhibitor of filmed entertainment. That means that we make and distribute movies and TV shows around the world. We also have an ownership position in eight Canadian specialty television networks. We operate internationally within the film and broadcasting sectors and compete with companies like AOL-Time Warner, Viacom, and Disney.

We consider our industry to be part of what we would call the knowledge-based economy. And that's obviously part of the economy where information is a key asset that has important intrinsic value.

Over the past 20 years or so, Canada has seen tremendous growth in our broadcasting and motion picture industries. Innovative entrepreneurs and exciting developments in technologies combined with sound and supportive government policies and initiatives have all played a role in this terrific growth.

In the Canadian TV and film production and distribution sector today, there are over 115,000 direct and indirect jobs. That does not even take into account the jobs that exist in the broadcasting sector. In fact, Statistics Canada showed recently that the information and cultural industries combined accounted for 620,000 jobs in 1999.

Really, Canada has been part of the worldwide growth of this industry overall. We've seen a shift in the global economy from resource-based and more traditional manufacturing into information and knowledge-based industries. This global growth, as you know, has led to consolidation within our industry and has created some very powerful companies. For an organization like Alliance Atlantis that competes on the international front, this means competition at a very high level.

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Consider that our revenue last year was about $770 million Canadian. AOL-Time Warner's, by comparison, was $32 billion U.S.; Disney posted $26 billion; and Viacom $20 billion. So strong is the growth of these companies in this sector that the products they produce in the U.S. now rank them as the largest export sector of the U.S. economy. That means Bugs Bunny really is bigger than the U.S. aerospace or defence industries.

Ours is a sunrise industry, not a sunset industry. It's an industry that will continue to create excellent jobs and contribute significantly to our international balance of payments. And by the way, these are good jobs. I call them above-the-neck jobs. They require advanced skills and are generally available to young Canadians. New technologies, including high-speed broadband, will continue to propel this business and the growth of this business, and it will be a winner for years to come.

It's our belief, therefore, that this industry is a logical and fertile place for our government to focus its attention. In our view, it makes great sense for government to invest in industries that will pay back big-time in jobs and growth. Our industry provides this.

Consider that every time a new technology is invented, like VCRs, satellite television, or the Internet, it increases the market for our products and makes it easier for people to watch the movies and TV shows we make. This is good. It expands our industry. We expect that the Internet, in general, and wireless technology, in particular, will continue to fuel huge growth opportunities.

Despite what many pundits have said about the recent dot-com meltdown in the capital markets, the Internet, ladies and gentlemen, is not dead. The market has simply been reminded that the Internet does not automatically turn a bad business idea into a good one.

We know that the idea of making and watching TV shows and movies is a good business idea. That's been proven very well for over a century now. I believe that one of the main uses of the Internet, once high-speed broadband is rolled out, will be the delivery of visual entertainment and information.

I know this is a finance committee, but I should point out that our industry does double duty. As well as creating the numerous jobs I've been talking about, Canadian films and TV programs are also essential ways for Canadians to communicate with one another. You can call it culture, communications, or a shared sense of memory, hope or experience, but it's essential that any country in this modern world have popular and useful entertainment and information that reflects who their people are and what they're all about.

We in Canada have the possibility now to build on success. The continued support of federal programs and institutions like the Canadian Television Fund, Telefilm Canada broadcast program development fund, and tax credits for film and TV programs are essential. It's also important to note, in this respect, that Canada is like almost every other developed country in the world—except for the U.S—in which the continued development of this industry is supported by fiscal government policy. In fact, many countries, including the U.K. and Germany, have as recently as this year taken new steps to strategically increase and strengthen their measure of fiscal support for this industry.

The German and British governments, for example, understand very well the economic benefits of investing in their TV and film industries. They know they must claim a leading role in this growing sector. We can do the same and build on our success.

Canada has often said recently that we're going to lay the claim to be the most connected nation on earth. This is a very important goal. However, we must do far more than simply building the hardware and the infrastructure. There's no point in building a terrific highway unless there are vehicles to drive on it. We want to be a connected country, in order to communicate and relate to one another as Canadians, sharing our identity.

I'd like to briefly comment on the issue of foreign ownership in our telecom industry, because much has been said about this in recent weeks. We understand very well that convergence has caused the lines between telecom, cable, and traditional broadcasting channels to become blurred. That presents a challenge for governments that regulate it. However, we believe that any relaxation of foreign ownership rules with respect to telecom in Canada needs to be handled with great caution and careful understanding of the domino implications of such a move.

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Changes to the telecom ownership rules would immediately lead to the perfectly reasonable request by the cable industry for a similar change in its foreign ownership rules. Telecom and cable companies increasingly own broadcast assets—by that I mean TV channels—and it's important that ownership of these broadcast assets remain under Canadian control. Otherwise, we'd need to rewrite our Broadcasting Act, because one of its basic tenets would be ripped out, which is Canadian control of our broadcasting system. This would be a terrible mistake from a public policy point of view. So I urge this committee and all in Ottawa to be very cautious in any review undertaken of foreign ownership rules.

I'd like to just summarize the key points I've attempted to make in the past few minutes. Our industry in Canada will continue to grow because new technologies will continue to expand the market for content. This is part of a global trend in the new knowledge-based economy.

Our industry does double duty making both economic and cultural contributions to Canada. These contributions, to date, have been greatly enhanced by important and strategic government investment.

Looking forward, I encourage our federal government to hold fast to this strategic vision and the key federal fiscal initiatives that have worked so very well in this sector. These financial investments will continue to be necessary; they are well targeted, and they will continue to deliver an excellent return to Canadians.

I'd be happy to answer questions, in due course.

The Chair: Thank you very much, Mr. MacMillan.

We'll now hear from Mr. George Heller from the Hudson's Bay Company, president and CEO. Welcome.

Mr. George Heller (President and Chief Executive Officer, Hudson's Bay Company): Thank you, Mr. Chairman, committee members, and colleagues around the table. I welcome the opportunity to discuss the impact of the government's fiscal policies on the Canadian retail industry, and probably more specifically on large Canadian retailing.

I'd like to focus on the current economic environment, and specific government fiscal policy and its impact on Canadian retail. I'd also ask you to indulge me the opportunity to use this forum to raise issues that impact our industry, but may not fall within the mandate of the committee.

As you may be aware, the Hudson's Bay Company is the nation's oldest company. We just recently celebrated our 331st anniversary of continuous operation. We're Canada's largest department store retailer and general merchant, with over 600 stores from coast to coast, primarily led by our Bay and Zellers retail banners.

Canadians spend 65 cents of every dollar of their disposable income on products and services that are sold within the Hudson's Bay Company family of stores. This incredible breadth of offering provides us with a unique vantage point from which to assess the mood of the Canadian consumer.

Canadians purchase both the items they need and want in our stores. Internally, we refer to this as a continuum of product offering, and call it the Tide to Armani syndrome. We have witnessed, beginning in November of last year, a decline in consumer spending on those items that would be wants as opposed to needs, reflecting caution or concern by families that now is not a good time for increased discretionary spending.

This has manifested itself in stable to strong sales performance in our master discount channel banner, Zellers, and a more difficult five months for the more fashion- and apparel-oriented department store banner, the Bay. Generally classified by needs and wants, Zellers carries products that people need, and the Bay not only what they need but also what they want.

While it is early to be identified as a definitive trend, this caution has led many to “trade downmarket”. Sales of prestige and higher-priced labels are impacted more, shifting to mid-priced or economy brands. Thus, although the same number of units of a commodity may be sold, the total retail dollar spent will be less. This trend is also supported by strong interest in deferred payment and instalment payment offers, more so than in prior years. However, we remain cautiously optimistic that consumer attitudes and corresponding spending behaviour will see improvement in the back half of the year, as we've seen a levelling of the sales and a slight uptake.

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Let me comment on government fiscal policy. A crucial economic measure for retailers is the level of disposable income among Canadians. Currently a Canadian's average disposable income is approximately 30% less than that of an American's. Our ability to withstand downturns in the economy is significantly curtailed vis-à-vis American consumers, as clearly Canadians have less money to spend after they've paid their fixed costs. As retailers, we live off what is left.

The obvious policy instrument available to the federal government is to increase the disposable income level among Canadians through a tax reduction. I applaud your efforts and those of your provincial colleagues in this area. I encourage you to stay the course and to continue to provide real tax relief to Canadians. I assure you, retailers in this country will not shy away from providing Canadians with opportunities to spend their money.

Furthermore, I encourage you to maintain the trend to lower taxes on business, but this should not be accompanied by raising personal taxes. Lower personal tax rates are an incentive for professionals, managers, and entrepreneurs to strive for success. As well, they stimulate retail spending.

I echo the position articulated to this committee by the Retail Council of Canada with respect to the harmonization of provincial taxes with the GST. Canada is not a country with a large population, and yet we continue to see more fragmented provincial regimes. The federal government needs to play a leadership role in persuading provinces to harmonize taxes, regulations, and business policies.

This extends to security markets. A single market makes sense for Canada. The practice of multiple securities filing in every province is a nuisance, serves no purpose, and does not protect the consumer. All it does is add cost. With the trend to coordinate a financial standard amongst all OECD nations, it makes no sense for Canada to have multiple regimes for capital markets, or for the insurance sector, for that matter. Retailers benefit from current policies with respect to inflation targets and lowering debt, and in my opinion this should continue. I also encourage you to continue on the path of debt reduction. The cost of money goes down for those of us in the private sector when the government is out of the debt markets.

Although I know that monetary policy is a subject perhaps best left to the Bank of Canada, I must speak out and inform the committee that unlike some of the colleagues around this table, a low dollar is obviously a negative for both our industry and consumers. As importers, we are very sensitive to fluctuations in the value of the Canadian dollar, the currency in which we realize 100% of our income.

Similarly, although I know this is a message perhaps best delivered to your colleagues in industry and international trade, I must point out that the continued improvements in manufacturing capacity and sophistication in developing countries like China, Mexico, and Brazil, among others, have made the sourcing of goods outside of Canada ever more attractive and necessary to retailers.

Canada has stayed competitive in such selected manufacturing sectors as automobiles, aerospace, and a few others we could name, but this is not the case in apparel, footwear, small appliances, some electronics, and many other general merchandise commodities.

It follows that the Government of Canada's enforcement of international agreements should not result in damage to one sector as a consequence of support to another. As well, there must be symmetry and logic between the industrial policy of Canada and the duty and quota system that is supposedly in place to support our industrial policy. As retailers, we cannot agree with having a quota system that transfers our consumers' money to foreign countries in exchange for not anything to do with supporting manufacturing in Canada that's long since disappeared.

There are two ways the government could be helping. The first is reducing taxes and the debt level. The other one is creating efficiencies within the system, whether those be our rules and regulations or securities filings, and even looking at it and saying that if there is no industry to protect in Canada's manufacturing sector, there should be absolute free trade, not a quota system whereby we enrich other nations at the expense of our consumers. There is no benefit to protecting something that doesn't exist in this country.

I'd also like to take this opportunity to briefly outline the challenges that face our industry in the longer term and the consequences to the economy of Canada, depending on how we respond to these challenges.

With respect and acknowledgement to my round table colleagues, the industry I represent is almost unique in this forum with respect to significant government support, protection, and regulation. We are not a regulated industry. The will of the customer and the demands of the marketplace are the only forces that prevail in Canadian retail. This is not necessarily the case in Europe or in other parts of the world. Within a department store and large specialty store format in this nation, we are among only very few Canadians to remain standing. Our competitors are global retailers whose bases of operation are most often in the United States.

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The point is, the level of innovation and technology infrastructure required to run a large retail network today is staggering compared with where the industry was even five years ago. With the exception of a very few players in the home improvement and grocery sectors, we're the only Canadian company that's investing in innovation in our industry.

Large U.S. retailers with global operations need only establish the back fourth of the required infrastructure to support a retail operation—i.e., all they have to do is execute the technology that was developed and innovated somewhere else. This will result in some jobs at the store level, although I'd argue that just as many, if not more, of the jobs will be lost as numerous small retailers give way to large formats.

The result is that there's little or no investment of intellectual capital in Canada. Retail in Canada is no longer about innovation but about execution of imported concepts and formats. My fear is that this branch plant scenario will erode our ability to innovate and to lead in retail areas, certainly in IT and supply chain, and erode, as a result of that, our ability to effectively compete.

Part of the solution comes from within, and revolves around the elevation of retail as an industry and a career choice in our nation. The Hudson's Bay Company has joined with others in our industry to donate $1 million to Ryerson's School of Retail Management. Although the establishment of a post-secondary degree-granting program in retail is an important step to the goal, Ryerson is the only university in Canada that grants retail degrees. There are 87 equivalent universities in the United States doing so.

We are losing our ability to innovate. We are losing our ability to come up with new products and concepts in this country. It is not my intention to use this platform to launch a campaign to include retail on the list of cultural industries that require protection—trust me—although, as I stated earlier, this is a view taken by many European nations. They see the retail formats and trading patterns of their citizens as an essential component of their national identity. It is my hope that as one of Canada's last left-standing-unprotected industries, you will recognize that there is a consequence associated with the maintenance of our current policy framework with respect to the retail industry in this country.

With that, I'd like to thank you for the opportunity to meet with my colleagues around the table and have a chance to share our views. If there are any questions, or any elaborations required, I'd be happy to respond.

Thank you.

The Chair: Thank you very much, Mr. Heller.

We'll now hear from Rogers Communications. Mr. David Watt, welcome.

Mr. David Watt (Vice-President, Business Economics, Rogers Communications Inc.): Thank you very much, Mr. Chairman.

Perhaps I can start with some background. Rogers is a diversified communications company with revenues of $3.5 billion in 2000—roughly $1.3 billion from its cable operations, $1.5 billion from its wireless operations, and $700 million from its diversified media operations. These consist of 30 radio stations; CFMT, Toronto's multilingual television station; the Shopping Channel; and extensive magazine holdings, including Maclean's, L'Actualité, and Chatelaine. In addition, as you know, last year Rogers repatriated the Toronto Blue Jays from its Belgian owners. Rogers has 12,700 employees working across Canada, from Victoria to St. John's.

In these brief opening remarks, Rogers wants to leave the following messages with the committee. First, Rogers believes in the Canadian economy and is investing huge sums of money in leading-edge communications infrastructure. Rogers will invest $1.8 billion this year in capital expenditures, up from $1.2 billion in 2000. To put this in perspective, just a little less than 50¢ out of every dollar of revenue that Rogers will receive this year will be reinvested into network infrastructure and systems. To put it another way, more than two times the operating income of Rogers will be reinvested.

Second, Canada leads the world in high-speed Internet access capability. This leadership has been achieved through private sector innovation and investment. Cable, telephone, and wireless companies have risen to the challenge. Government intervention is required only in remote locations where market forces may be insufficient to deliver high-speed capability.

Third, regulatory rules imposed on Rogers Cable in the monopoly era are no longer appropriate in today's competitive environment. Cable companies must be allowed to innovate.

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Fourth, consistent with the themes above, the government should continue its policy to foster a competitive communications market. Competitive markets have been achieved in the wireless, cable, and long distance industries. The competitive communications industry structure is creating innovation and delivering advanced digital services to Canadians at affordable prices. We do note a serious concern, however, that one monopoly market remains in Canadian communications, namely the residential local telephone market, which provides the telephone companies with a safe haven from which to compete with cable companies for both TV and high-speed Internet subscribers. We do not have a safe haven. The government must not adopt a “national champion” strategy.

Fifth, given its large expenditures in U.S. dollars on items as diverse as cable modems, digital set-top boxes, and baseball players, Rogers is very concerned about the level of the Canadian dollar in foreign exchange markets. A falling Canadian dollar imposes real costs on Rogers and on all Canadians. With regard to Canadian professional sports franchises, the decline in the dollar, coupled with other factors, puts the very existence of these teams in Canada at risk.

Sixth, given the capital-intensive nature of its businesses and lack of adequate capital markets in Canada, Rogers believes the issue of increased foreign equity ownership of Canadian communications companies will need to be addressed by the government.

On general economic matters, Rogers has not seen a decline in its growth recently, with the exception of the media operations, where there has been a decline in advertising revenues over the past six to nine months. Cable television and Internet services revenues continue to grow at over 10% per annum. This growth comes principally from Rogers' very successful high-speed Internet service. Since late 1996 when Rogers introduced this service, over 350,000 customers have subscribed to Rogers' service. One out of every six Rogers cable TV subscribers, or 16%, also takes high-speed Internet service from Rogers. This service is provided in major locations such as Toronto, and in smaller towns such as St. Thomas, Ontario. Rogers has been proud to assist the government in meeting its objectives in its connectiveness agenda. Rogers will spend over $650 million in investment in 2001 in its cable plant.

It has been mentioned earlier that Canada has been very successful in high-speed Internet access. A recent OECD report puts Canada second in the world in penetration, behind only South Korea. We have twice the penetration of the United States, and over four times that of Sweden. Canadian industry is doing the job.

In the wireless industry, the story is similar for Rogers. Revenue continues to grow, and Rogers will invest $700 million this year in this industry. In addition to this investment, this spring Rogers paid the federal government $395 million for spectrum acquired in the recently concluded spectrum auction.

Rogers operates in intensely competitive environments. Cable was a monopoly, but today there are over 1.4 million subscribers to direct-to-home satellite, or DTH, providers. At times over the past few years, regulatory rules developed during the monopoly era have constrained Rogers and have not been applied to these new entrants. This cannot continue. Regulations must change to reflect the new competitive world that is here today. Rogers, along with other cable companies, requires flexibility to compete. A specific concern is the current inability of cable companies to own analogue programming channels. Our competitors do not face these obstacles.

Finally, as discussed earlier, world leadership in communications infrastructure and services requires immense capital financing. Funds from internal operations are not sufficient to fund the necessary investment. Rogers must attract significant sums from the worldwide capital markets. The availability of funds would increase, and the cost of these funds would decrease, if increased levels of foreign equity ownership were permitted. Rogers encourages the government to review its policy and supports elimination of foreign ownership limits.

Although Rogers would have no intention of selling, with no foreign ownership rules the public share multiples of Canadian cable companies should become the same as U.S. cable companies, which would assist in raising higher levels of Canadian equity. In this regard, increasing foreign ownership levels need not affect the regulation of Canadian program carriage and distribution. Regulations requiring the carriage of Canadian programming could still remain in place.

Thank you very much, Mr. Chairman. I'd be happy to answer any questions.

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The Chair: Thank you very much, Mr. Watt.

We'll now hear from Dr. Malcolm Cairns, from Canadian Pacific Railway. Welcome.

Mr. Malcolm Cairns (Director of Business Research, Canadian Pacific Railway): Good afternoon, and thank you for the opportunity for Canadian Pacific Railway to participate at this round table.

May I first apologize for the absence of your anticipated speaker Marcella Szel, who was unavoidably detained in Calgary. She has asked for me to stand in on her behalf.

On your questions concerning the changes to the economic environment, CPR has experienced steady financial improvement over the past five years, largely as a result of cost reductions, investment in new equipment, and information technology. Revenue growth has been modest. As a consequence, CPR provides superior rail service at freight rates that are the lowest in the world.

During this period we've seen significant expansion of the short-line rail industry in Canada, which has been of benefit to both shippers and the class one railways. Nevertheless, there's continued pressure on capital investment, particularly for rail, which is the most capital-intensive industry in Canada. High levels of productivity sharing with rail customers, induced by competition, have meant that rates of return remain inadequate.

Railways in Canada continue to be hindered in achieving their economic potential by government policies for western grain, by continuing economic regulation, and by threats of re-regulation.

CPR has seen a softening of the markets of our customers this year, which has led to a decline in anticipated earnings of the first quarter of 2001 and on through April.

In the face of stubbornly high fuel prices and equity markets badly hurt by the decline in technology stocks, CPR has initiated further belt-tightening, including labour reductions in the order of 600 employees.

More than 40% of Canada's export trade depends on rail transport. Some two million Canadian jobs depend on trade, and about two-thirds of the freight volume that Canada's railways move annually is trade-related—transborder or overseas.

Despite globalization, there are ways that Canada can remain open while controlling its own economic destiny. Rail should be seen as a catalyst in helping achieve our country's economic aspirations—which are inevitably trade-related, given our limited domestic market.

CPR sees the absence of tax relief in Canada, in the face of new tax reductions in the United States, as a threat to our customers' competitiveness and to our own competitive position with respect to U.S. railroads.

Today, with a regulatory review underway, we have added uncertainty about possible new regulation that would stimulate inequitable competition. This is a clear threat.

A further slide in the value of the Canadian dollar versus the U.S. dollar would also not be in the long-term interest of Canada. It's a dubious alternative to improving overall productivity.

On the positive side, advances in communications and information technology are an important opportunity to develop new rail services, products, and performance, and to improve our productivity.

The further opening of international trade beyond NAFTA is also positive. Improved access to markets in Asia and Latin America can expand trade flows and the role of rail in serving this trade.

The government will shortly be receiving a report from a panel of experts reviewing the Canada Transportation Act. The Minister of Transport has just begun a blueprint process to consider changes to let transportation legislation meet the future needs of Canadians.

We view these developments as an opportunity to further reduce the burden of economic regulation and prepare Canada's railways to more fully participate in the continental economy and better fulfil their true economic role.

In the short to medium term, as part of improving Canada's tax competitiveness, we continue to urge that the government eliminate the federal excise tax on diesel locomotive fuel through a phased reduction of the tax by one cent per litre per year, and also to equalize the capital cost allowances for railway investment between Canada and the United States. These measures would contribute to competitive neutrality.

CPR also urges the government to revisit its policies with respect to western grain. The logistics system between farm and export ship is dysfunctional. It needs to be deregulated for the benefit of producers and all other system participants.

We also encourage more active engagement in public-private partnerships between government and railways in support of rail infrastructure investment that can stimulate much higher levels of intermodal transport to the benefit of highway infrastructure and all its users, including the trucking industry.

CPR does not anticipate any radical changes in rail technology over the longer term. Productivity will improve, and passenger services will be faster. Overall, railways will increasingly fill their optimal economic potential and be a key part of the total Canadian economy. Rail will increasingly be recognized as a solution to highway congestion and highway spending, and as a way to reduce atmospheric emissions and make a significant contribution to improvements in the environment.

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To achieve its potential, the significance of rail infrastructure must be recognized as critical, together with the need to ensure an economic and sustainable balance between the development of rail and highway infrastructures. To this end, a concerted effort must be made to ensure that the extent of economic regulation of Canadian railways is reduced. This will improve modal balance and produce overall more economically and socially effective outcomes.

Canada's railways not only provide the best overall service at the lowest overall prices of any railways in the world, but their operations and infrastructure are also fully paid for by its users. They are a tremendous asset to the Canadian economy, an asset that should be valued and encouraged by public policy, not held back by regulatory restraints that threaten the future investment and service quality.

Thank you.

The Chair: Thank you very much, Dr. Cairns.

We'll now move to the question and answer session.

Instead of ending at 5:30, we'll push the meeting to 6 o'clock, if that's okay with everybody. However, if you do have to catch a flight or have to leave, thank you very much ahead of time. It's been an excellent panel.

Keep your questions and answers brief and to the point so we can get more in.

Mr. Kenney.

Mr. Jason Kenney (Calgary Southeast, Canadian Alliance): Thank you, Chairman, and thank you to all the panellists.

As there's an embarrassment of riches here, I don't how to find a way to ask all the questions I have in a couple of minutes, but thank you all for the time you've taken to prepare your remarks and appear before our committee today.

I'll ask all of my questions up front. Some are directed to specific witnesses, and then I think I do have one or two general questions.

First I have a specific question for Mr. MacMillan from Alliance Atlantis with respect to the tax credits we have for film and television productions. Let me ask these questions first and then perhaps you can answer in order. If your sector is such a good investment and it's so profitable, why does it need preferential tax expenditures to assist it? Why can't it compete for capital on the same grounds as every other industry? That would be my question to you.

I'd like to ask Ms. Hughes Anthony from the Chamber of Commerce about the interesting allusions she made in her statement to reforming the retirement income system in Canada. I think she's touched on a critically important long-term issue in terms of our fiscal capacity as a nation.

In your paper you said somewhat obliquely that we need to find ways to deal with this in the long-term and that just raising premiums is not going to be sufficient. I tend to agree with you, but I don't think you came out in your paper and suggested a particular possible policy remedy to the demographic challenges we face vis-à-vis a mandatory public retirement income system. I wondered if you could elaborate on what the chamber sees as potential solutions to those demographic challenges.

Then I have a general question. A number of the panellists have spoken about connectedness and the government's policy objectives to increase Canadian access to the Internet and high-speed Internet access, etc. The representative of Rogers mentioned in his statement that the leadership in Canada has been achieved through private sector innovation and investment, that government intervention is required only in remote locations, and that the real challenge your industry is facing is a regulatory burden. Is government more of a help or hindrance in expanding access to the Internet, and what can government do in this respect anyway? Isn't expanding access to the Internet something that will be and ought to be driven by the private sector and private sector investment?

Those are my questions for the time being.

The Chair: We'll start with Mr. MacMillan and then we'll go to Nancy Hughes Anthony and then we'll open it up.

Mr. MacMillan.

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Mr. Michael MacMillan: There are a number of aspects or factors to your questions.

First of all, I should point out that the film and TV production industry is a very portable industry. Our company, for example, this year is producing TV shows and movies in Canada, in Las Vegas, in Scotland, in England, in New Zealand, and in Australia. We're quite typical of most production companies in the world seeking smart places to produce based on geography, language sometimes, other creative issues, and financial instruments and assistance in various locations. Over the past 25 years this has become very common, particularly in the U.K., France, Australia, and Germany. This is a competitive environment we operate in. We're competing with those other locations as well.

The tax credits that are made available to productions in Canada are made available not only to Canadian productions but also to American producers who produce here. It's simply a very portable and competitive industry. We wouldn't have the $4.5 billion to $5 billion of production in this country if it weren't for those tax credits and, frankly, the relatively low Canadian dollar.

But there's another side of this. Some of those productions are aimed at Canada; they're aimed specifically as Canadian shows that Canadians would understand are for them. We're the only country in the world that shares a language and a geography with the U.S. Every other nation either has a language or a geographical barrier. So we have a double challenge in that way, and with a market of 22 million anglophones it often is simply not big enough to produce that kind of production without this sort of stimulation.

So those are the two main factors.

The Chair: Thank you, Mr. MacMillan.

Ms. Hughes Anthony.

Ms. Nancy Hughes Anthony: Thank you for the question.

I think this is one of the most critical medium and long-term issues that Canada faces, given the kinds of demographics that we see ahead as all of us baby boomers will be in the retirement home and hopefully there will be somebody there to take care of us and there will be pensions.

Specifically in relation to the CPP, Mr. Chair, we at the Canadian Chamber of Commerce are currently in the process of elaborating all of the areas you see in this paper before you, and certainly when we look at the background of CPP, we see that there is $428 billion of unfunded liability in the CPP. This you really add up to an unfunded liability in the health care system and you also look at the national debt and you have a pretty frightening picture for the future. We also feel that the CPP at its so-called steady state rate of contribution is really not sustainable, given the demographics of the future. So we do feel it must be substantially reformed.

What we are working on now is a series of options that we hope to be able to put out for consultation with our members of the chamber. They really run the gamut from a tweaking of the current CPP, which I personally don't think will be adequate, going to revising the system completely and providing individual accounts for citizens into which they can contribute. You can appreciate that the transition issues for such a massive overhaul are tremendous. We do feel, though, that there needs to be a discussion and a dialogue about the future of the CPP, and that's why we're going to be putting out our position paper, hopefully in a couple of months.

I would add to this that the other issue that does tend to come up with our members is the issue of increasing Canadians' personal ability to save. That would include raising RRSP limits to the extent possible to encourage Canadians to increase more and more in their RRSP and provide for themselves in future years.

Thank you.

The Chair: Thank you.

From the riding of Vaughan—King—Aurora, Ms. Swift.

Ms. Catherine Swift: Actually it's my colleague, Mr. Whyte.

The Chair: Fine.

Mr. Garth Whyte (Senior Vice-President, National Affairs, Canadian Federation of Independent Business): We chair the RRSP coalition, which is made up of a lot of professions. Most people around this room will have pensions. A lot of our members don't. We're serving our members and asking them, what are the vehicles for your retirement plans? One would be their own business, selling their own business. The other one would be the $500,000 capital gains exemption. And the other one would be RRSPs.

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We have been approached by government on numerous occasions to get education out to the general public, to let them know that CPP shouldn't be your only vehicle for retirement. If you look at retirement as a house, you've got CPP, then you have your OAS, and then you have RRSPs. So we talk with the other two, we talk about retirement planning, then we move to RRSPs, Mr. Chairman, and all of a sudden it's a tax issue. It's no longer retirement planning, it's a tax expenditure.

We've been pushing for quite a while the idea that one of the goals should be a fair pension for all. That means you've got to have RRSPs go up with other pension plans. Whether it's a government pension plan or a registered plan, they should go up. We've had a lot of road blocks in that area. We do need to look at that issue, because as Nancy pointed out, CPP is there, but some people are solely dependent on that, and it's not going to fill those needs. We really do have to look at this issue and raise the limits. We as a coalition have put forward to this committee, and we will again, different strategies on RRSPs.

You asked another question, whether government is a hindrance or a help with access to the Internet. Nancy, myself, and others, were on e-business Team Canada, we're part of that issue. Again we've surveyed our members, and 70% are now on the Internet. More and more they're using it for more than the kids playing, 60% are using it for business applications, and it's increasing.

We asked our members, what should government do? One thing is infrastructure, that came out loud and clear, but the other is to be a model user, get your own house in order. In some respects they have, with businessgateway.ca. With that announcement, it makes it easier for business owners to access the Internet. Rather than going to multiple departments, they can go to one area. Government online initiatives are really important. The government should get a pat on the back for that and at least keep going in that direction.

The other thing, finally, to this committee before we've talked about the Y2K accelerated depreciation, and Industry Canada and the Department of Finance introduced that model—it was a huge take-up. We've been pushing, as a committee, a similar model for e-business, a Y2K accelerated depreciation type model for e-business, to heighten awareness and get people to do it. It's a deferral of revenue, it's not a loss of revenue for the government, but at least it may accelerate capital expenditures in that area. That may help kick start people, at least people in our sector, to get into this more quickly.

The Chair: Mr. Smith.

Mr. Peter Smith: I'd like to add to my colleague's views on the connectedness and the importance of the Internet, and inform Mr. Kenney that one of our biggest concerns in the aerospace industry is the plight of the small and medium-sized enterprises, often the disbelief that we're in this world. Unfortunately, the large original equipment manufacturers have centralized their procurement, put it on an Internet, myairplane.com—you've seen it referred to in the newspaper and other places—where the centralized procurement demands their ability to be very much part of the knowledge-based economy.

I've been impressed with the work that both the chamber and the independent business council have done in a number of areas demonstrating this disbelief. I think the government, as they were encouraged to do by my colleague, must continue to say, this is a real world we're working in. If not, they will simply be discarded. There will be other sources of supply capable of interfacing electronically, and it's a major concern we're facing in Canada today.

The Chair: Thank you, Mr. Smith.

Mr. Watt.

Mr. David Watt: As I mentioned in my remarks, we think private industry is providing the infrastructure. We do note that there undoubtedly are some locations in the country that will require assistance. If not simply for the local infrastructure within the small town in a very remote location, much of the cost comes in connecting that town back to the Internet backbone.

As for the role of the government, we believe it has been useful in its SchoolNet programs, public access programs, promoting the use of the Internet to individuals who might not otherwise be able to connect to the it. Another role we have seen usefully provided, I think, is in the R and D area, through CANARIE, where research professionals at universities can use a very high speed connection. The facilities have been put in place by private industry, but the educational institutes, I believe, can use the assistance to pay for their use of that facility. So we think there's a role for both.

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The Chair: Are there any other comments?

[Translation]

Mr. Brien, do you have a question?

Mr. Pierre Brien (Témiscamingue, BQ): Yes, thank you.

One of the things that concerns me greatly, and that others have mentioned, is the weakness of the Canadian dollar and an issue flowing from it, namely the agenda for research and development stimulation. The document provided by the Canadian Chamber of Commerce states that the expenditures of the private sector are not all that high in Canada.

Of course, the government has a role to play, but the private sector has a role to play as well. I have repeatedly heard say that what we need is a plan, an overall vision. Beyond concepts, what concrete means could be put in place so as to stimulate innovation and productivity through research and development? More specifically, what are your expectations regarding an agenda for stimulating research and development?

I put my question first to the Canadian Chamber of Commerce since it is the group that brought the issue up, but if there are other witnesses who have something to say, I would be very interested in hearing their views.

Ms. Nancy Hughes Anthony: Mr. Chairman, with your permission, I will begin.

It is obvious that the private sector has a very important role to play. Frankly, I applaud the government which, in its recent pronouncements, has spoken of a will to increase research and development substantially, but it can obviously not do this alone.

For example, in Canada we have our tax credit system for research and development which is not that well used, especially not by small and medium size businesses. At the Chamber of Commerce, we have given ourselves a challenge: that of communicating more and more with our members so as to explain the advantages they offer us and that it is not only the large corporations that do research and development and that they too can contribute to the effort.

I would add that there are certain basic requirements, for example very good intellectual property legislation, with clear and easy to follow rules. This is one element of the climate of confidence that we need in Canada. Also, as was earlier mentioned, there is the technical infrastructure. There are perhaps other experts who would like to comment. I believe that we are on the right track in Canada, in the sense that we are well connected. One has only to think of what is currently being set up by minister Tobin in the area of high speed access.

I will now hand the mike over to anyone else who wishes to comment.

[English]

Mr. Peter Smith: If I might comment from the aerospace industry sector, I simply want to indicate that, as I mentioned at the outset, the sales this year are expected to exceed about $23 billion in aggregate across Canada. Happily, the aerospace industry invests very heavily in R and D, and innovation, obviously, is an output. The track record, I think, is there, if you take a look, for instance, at Bombardier releasing one aircraft per year since 1992, Pratt & Whitney, another example, an engine or derivative per year, and the list goes on, when you take a look at the various contributors to that 12% in R and D.

One of the biggest challenges we have today is to make sure we have an aggressive introduction of lean manufacturing techniques, Six Sigma process improvements. We talked about the introduction and constant use of e-commerce. These are things that I think are absolutely critical to ensure the installation of innovative techniques, so we can remain competitive in Canada.

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The last comment I would make is that the aerospace industry contributed, with the National Research Council, towards the establishment of the advanced manufacturing technology facility in Montreal, again targeted more to a small or medium-sized enterprises, to ensure that they can learn the various techniques required to remain competitive in this field.

The Chair: Thank you, Mr. Smith.

Mr. Whyte.

Mr. Garth Whyte: Thank you, Mr. Chair.

First, the issue is how you measure how severe the problem is. We used to measure training, and they said small business isn't trained. Then we realized they didn't measure informal training, they only measured formal training. Once you measure informal, which is the highest level of training, we are doing some training. So we have to figure out what we are talking about with R and D? What exactly are we talking about in innovation?

As Nancy pointed out with regard to the R and D tax credit, small businesses aren't picking that up because they've been advised by accountants that it's not worth it—for $10,000, it will cost $6,000 worth of advice to fill out the forms. We've recommended that you should have an “R and D light” form, rather than the same one-size-fits-all.

The other issue, of course, we've talked about at this committee, so I won't spend a lot of time on it, because this committee has been very supportive. This is the matter of government fees. There are certain circumstances where a business will be waiting up to twice as long, let's say, as in another country to get their product certified, so they're going elsewhere. The R and D is being done elsewhere, on veterinarian drugs, on a lot of pharmaceutical issues. So that's another impediment this committee knows intimately and has made recommendations to deal with.

Another issue is the shortage of skilled labour. You want to have good employees. It was mentioned, again by Nancy, but there's supposed to be a labour mobility agreement, an internal trade agreement, July 1. We know there won't be one. Between Quebec, Ontario, and Manitoba there's no free flow of the skills and the people you need. I can pick every sector. I'm just skimming across the generic stuff, rather than talking about each sector specifically. That hurts innovation. We asked our members, with the shortage of qualified labour, how that hurts their long-term growth? And 70% said it hurt their long-term growth. That could be a very positive issue we could work at collectively to help our productivity and innovation.

The Chair: Thank you.

Mr. Myers.

Mr. Jayson Myers: I agree with everything that's been said around the table about how to stimulate innovation. I think we have to keep in mind that if you're looking at a national plan for innovation, it's a bit of a contradiction in terms. What we should be doing is building a framework that allows innovators to innovate and business to succeed. On the fiscal side, I think, and on the tax side, take a close look at the CCA treatment of capital equipment, of investment in new technology, as well as capital taxes that apply to investments in new technology. These are key issues I think.

On the regulatory side, I think almost everyone here has mentioned issues. That's extremely important with the problems that exist now in the R and D tax credit system. Many come down not only to the complexity of administration, but to the fact that the regulation of the system, the rules of the tax credits, keep changing and then are applied retroactively. So nobody really knows what the base is. Also, we must make sure we have a regulatory system that is reflective of the fact that we are operating in a global environment and that much of our R and D effort comes from the fact that we are able to import technologies and import the results of research and development from other countries. We don't do it ourselves.

Education and skills are extremely important, making sure that we have an innovation infrastructure, with the people in the university research organizations and the investment going in there. There's going to be a huge turnover in R and D personnel in industry, but also in the academic and R and D institutions across Canada. Let's make sure those investments at the research level result in commercialized products that lead to jobs at the economic level, at the business level. I think a balance there is very important as well.

The Chair: Thank you, Mr. Myers.

Mr. Nystrom.

Mr. Lorne Nystrom (Regina—Qu'Apelle, NDP): Thank you very much, Mr. Chair. Thanks for recognizing me now, because I have to speak to some students at five o'clock. I apologize to my Liberal colleagues for jumping the queue on this one.

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First of all, thank you for participating in the round table.

A few weeks ago we had a round table on the environment and the green economy. I want to ask you about the environment. There was an interesting article in Le Monde in Paris on Monday of this week entitled La croissance contre l'environment, the growth vis-à-vis the environment. They've issued a paper called Le perspective de l'environment de l'OCDE talking about the environment. What they're suggesting is that despite some improvements in technology in terms of reducing pollution—i.e., automobiles—the fact of the matter is we have so many more cars in the world that automobile pollution is still increasing. My general question to you as business leaders is what can you do to improve the environment?

The OECD report suggests a reduction in the subsidies for heavy polluters. They single out, for example, the petroleum industry and the energy industry. They're talking about coal, nuclear energy, and oil and gas in terms of reduced subsidies from governments around the world. They're also talking about using the taxation system and having taxes related to the environmental losses around the world in terms of what you might call green taxes.

What advice can you give us as to (a) what you can do in the private sector and (b) what we can do as a government or a Parliament in terms of having a greener economy? We are getting worse and worse in this country in terms of our environmental record, and the whole world, of course, is getting worse and worse. It's a big issue. If you go into the schools, that's the thing the students are always asking about. So, Catherine and others, what are your words of wisdom? You are the leaders today in the private sector. What can you do to improve the situation, and what advice do you have for us as to how we can improve it in terms of our rules and regulations and the common good?

The Chair: Mr. Smith.

Mr. Peter Smith: Mr. Nystrom, on the aerospace side, I simply want to note that we're very heavily regulated and certainly would have to comply with ICAO standards, which have worldwide application. Those have become subject to considerable scrutiny, and pressures are being put on ICAO by European and other nations, as seen by some of the comments in the newspaper that you've just raised. I can assure you that the noise and emission levels must be complied with, and we cannot sell product unless they are certified to those particular standards.

As well as ensure those are complied with, we'd like to use the innovation agenda we've talked about to exceed, if you will, those particular standards. These are some of the things we were referring to as far as concrete examples are concerned. We would like to ensure that engines and/or noise and other things are going to be above the national or international standards.

The Chair: Mr. Whyte.

Mr. Garth Whyte: I'm going to jump in to say that we are working on an environment report right now, and we're having difficulty getting a meeting with the minister and getting on to the committee that's looking at SARA, the Species at Risk Act, right now. So it's kind of frustrating.

We surveyed our members, and we want to release a report that shows our members are very concerned about the environment. They're closely aligned with Canadians in all areas, whether it's water, air, species at risk, or pesticides, going down the list. We surveyed our members, and we asked them, do you care about the environment? They said yes. Should economic development be at the expense of environmental goals? Only 12% said yes. Should environmental goals be at the expense of the economy? Two percent said yes. Eighty-five percent said you have to do both.

Then we asked, have you done your own plan in certain areas? They said yes. We asked them, what was the impetus for your own plan? Regulation was at the bottom of the list. It was the owner's personal views, followed a distant second by the views of their employees, followed then by regulations. If there's a message for this committee as to what we can do it's educate them and don't treat businesses and business owners as the enemy.

I'm going to move from air to species at risk. We have a lot of landowners as members. If you want to save the burrowing owl, you need the farmer to save it, because the first person to see the burrowing owl is the farmer. If we go the route of the United States and penalize them and say, let's confiscate their land, that burrowing owl is going to disappear.

That same sort of principle applies to all the environmental files. We have to work together on this file, rather than get caught up in this we-versus-they approach to the environmental agenda. Again, the other part is education.

The Chair: Ms. Hughes Anthony.

Mr. Michael N. Murphy (Senior Vice-President, Policy, Canadian Chamber of Commerce): May I jump in, Mr. Chair, just briefly? There are a couple of points I'd like to make, and then I'd like to come back to the rules question in terms of how we establish rules in this area.

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It's not only a matter of what the business community will be doing but also what it already is doing. There are initiatives such as VCR, the voluntary challenge and registry program, which our colleagues at NRCan can speak to in some detail. We have a growing list of members not only from the Canadian Chamber of Commerce but also from businesses in the country generally that are participating in this program, and more and more are signing up all the time. These companies are basically engaged in voluntary actions to reduce greenhouse gases and deal with other environmental issues. It's a wonderful program, and it's growing. I'm not here to give do a commercial for it, but I did want to point out that it's part of the reality in the business world today.

Secondly, in terms of sustainable development strategies, the business community has been very active. It has been working with individual government departments in terms of the role they can play there. A number of companies within the chamber are actively engaged in dealing with eco-efficiency as a business practice. More and more of them are looking at specific indicators there.

This leads me to a particular project, which I think is going to be an important one nationally, and that is developing national sustainable development indicators. I know that some money was put in the last budget. The business community is now an active participant with government and NGOs in terms of developing those kinds of indicators, and I think they're going to play a big role in how we measure economic output in the future.

Finally, I'd just like to make a quick point with regard to the rules of the game that business has to live with. This is yet another one of these areas where federal-provincial harmonization is a significant issue for us. We probably could spend an awful lot of time in this area. There are many examples in terms of the climate change issue—and I'm not picking on that—and also the implementation of CEPA and the Canadian Environmental Assessment Act where we have issues in terms of the levels of government and the variety of involvements there. I think there's an opportunity there for some increased harmonization.

I'll leave it at that, Mr. Chair.

The Chair: Thank you very much, Mr. Murphy.

Mr. Myers.

Mr. Jayson Myers: I'd just like to echo that today environmental management and resource management are very significant issues for business. We're talking about greenhouse gas reductions. Not very many people know that Canadian industry has actually achieved a 2% reduction of greenhouse gases since 1990. I think that the investment in new technology, the innovation that has led to that, the efficiency, and the drive for lower energy costs are a very important part of that. I agree with what has been said around the table about environmental management and the economics of business going hand in hand. That's extremely important.

Again to echo what has been said, consistency in regulation within departments as well as between jurisdictions is extremely important. You don't reduce sulphur emissions easily without bringing in much more energy-intensive technology. I think we need a comprehensive view of how we regulate in the environment and how all of this is tied together across the country.

The second point is that many of the environmental problems we're facing, at least in terms of the way industry is run and the processes that are used, are changing as a result of capital replacement and the introduction of new technology. So I see environmental management as an extremely important part of the government's innovation agenda. We have to look at how we can improve the rate of capital replacement and the rate of investment in new technology, because I think that's ultimately how we then improve the use, the process, and the resource management at the industrial level.

The Chair: Thank you, Mr. Nystrom.

Go ahead, Mr. Cairns.

Mr. Malcolm Cairns: Thank you.

I'd just like to remind the committee about the opportunity for railways to participate in helping to remove a large number of the heavy trucks off our highways and thereby reduce the environmental damage.

As you already know, there's a considerable amount of imbalance between the rail and road modes in terms of the way they're financed. Our company has to build and finance the complete infrastructure, whereas all the highways are financed indirectly through governments. We would see quite a good opportunity for additional private-public partnerships where you might see greater financing of the rail infrastructure.

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We have a new service operating in the corridor here in eastern Canada called Expressway, which helps to remove trucks from the road. It's a cooperative program with trucking; it's called Expressway and it can help considerably.

Unfortunately, we do have congestion and a capacity problem on our infrastructure and we do need to develop it. Unfortunately, with the imbalances that exist we can't expect to be investing as much as you might expect to get all those trucks off the highway. So we are looking for some help in this area and we'd like to see some greater understanding of the balance that's needed between the two modes.

The Chair: Thank you very much.

We'll have to move to Mr. Gallaway, followed by Ms. Barnes, or the other way around.

Ms. Barnes, go ahead. You go first.

Mrs. Sue Barnes (London West, Lib.): Thank you, Mr. Chair.

Thank you for your presentations.

Everybody would agree that having people, especially self-employed people, maximize their retirement savings benefits would be beneficial. But I always keep hearing the presentation and the pitch for higher contribution levels. And as a self-employed professional in a prior life, one of the easiest mechanisms by which you can maximize that final dollar is, instead of waiting until the end of the tax year, to contribute right on the first day of the tax year.

I know from the stats that very few people use the maximum contribution right now. I want to know from both the chamber and the Canadian Federation of Independent Business exactly how much you're doing to educate your own members about this very simple tool that can make a huge difference in total final outcome on registered income to Canadians. Because every time I raise this—and I think of the real estate boards coming before me every year raising this—I say this to them and ask them what have they done to inform their members or push their members to go in this direction, but I never get any real answers. I'd like you to tell me what you're doing to do this very simple measure with your self-employed people.

The Chair: Ms. Swift.

Ms. Catherine Swift: What we increasingly find ourselves doing as an organization is educating our members on a wide range, because, as I'm sure you know from your former life, there's no possible way a typical self-employed small-business individual can be aware of not only the constantly changing tax and regulatory environment they're faced with, the myriad of regulations from different jurisdictions and on and on, but as well of the basic sensible things such as you're talking about.

We do actually disseminate quite a lot of business 101 type of information to our members, some of which is on sensible retirement planning, and we usually get them authored by an expert in that area. We've always done that, and we find in this day and age we're doing it more and more as an organization. A lot of it's on our website, and if it doesn't happen to be on our site at any given moment it's available to members.

So we have been doing a lot on the education side. I might say, though, what we're striving for.... The whole RRSP regime in particular is vitally important to the small-business sector. They don't have access to corporate plans, public sector plans, whatever. All we're asking for is equity.

Right now the RRSP level does not permit the amounts of tax-protected savings.... This is just deferred taxes, let's not forget, it isn't tax evasion, avoidance, or whatever you want to call it; it's deferred taxes until you reach that retirement point.

Right now the large corporate RRSPs, certainly the public sector pension plans, are way richer, as we know, than the RRSP regime. In fact, some data came out recently that showed that public sector plans increased fourfold in the last 25 years, while RRSP limits changed not at all.

I think the context is important. No one is asking for any kind of special bonanza here. What we're asking for is fairness and equity of the RRSP plan, which is all that's available to many parts of our society, not just small business, but that's one. We're asking for just equity and a level playing field with these other segments of society.

The Chair: Mr. Murphy.

Mrs. Sue Barnes: Can I have a direct answer to that question?

Mr. Michael Murphy: I'll jump in very briefly.

We're an organization that's very much got a grassroots focus like the Canadian chamber's. As Nancy mentioned earlier, in terms of our 350 local chambers, what we do is we bring business representatives from each of those communities together every year at our annual meeting. That becomes the start of a 12-month process on a variety of issues. Last year we had a very interesting debate about RRSP levels. That started the process from our standpoint, and I think we can get into some specific recommendations with respect to what should happen there. But I'll defer on that for a moment.

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The purpose of having those kinds of discussions with business representatives from each of the communities is that they themselves act as representatives of the broader business community in their communities and in their various regional locations.

We proposed as a result of the work we did there, and follow-up work in terms of communicating the outputs from that meeting to a variety of government sources, that there is a greater level of understanding. We've raised the profile of the issue within our membership.

With the number of companies we have as members, we're talking about literally hundreds and hundreds of thousands of employees of these companies. So each of them is, through their company involvement in the chamber, getting some information with respect to how the RRSP system needs to work and how it can help you in your own individual planning.

We then specifically looked at what small business can do, and there was a recommendation that was accepted by our members in terms of taking money out of your business and being able to use it for your RRSP. We made a solid recommendation to the government on that as well.

So that's the profile we've tried to bring. What we'll continue to do is try to get some changes made to the RRSP regime in Canada, because I think they're necessary.

The Chair: Thank you.

Ms. Barnes?

Mrs. Sue Barnes: I have a final question.

Last week in the riding I had a round table on the skills and learning agenda. It had the involvement of the chamber, the business trades, the president of the university, the college, some of the boards of education, and some industry representatives, of course. One of the things they talked about was the industry not wanting to do training, especially in the small-business sector, not because of the tax credit or the financial component of it, but because every time they had a trained person they got head-hunted away. It really was somebody training, investing in skills and learning, and the ability to do the job, and then somebody else benefiting.

I want to know how much a job problem this is in each of your sectors. I hear Mr. Heller. I happen to have seen Ryerson's program on this recently. I think that's a tremendous thing, and we should be going there. The conversations have to go with what our needs are for the future.

So maybe all of you could tell me. I'd be interested, Mr. MacMillan, in knowing whether in your area, which is a different type of skills set, you're still having the same problem, or if it's just numbers, not enough numbers being trained fast enough.

The Chair: Mr. MacMillan, you'll go first.

Mr. Michael MacMillan: We don't have enough being trained fast enough, that is a problem. Also, unfortunately, because of how portable this industry is, they get good and then they go away. They often go away to the U.S. So it is a distinct issue for us. I'm not sure I have any particular solution to it.

There are more training programs now than there were ten years ago, for certain. They're at Ryerson and York, and there are a number across the country. That's a help. Our company actually has set up a finance executive training program in cooperation with the Banff School of Management. It's been operating now for two years. It's going through I think its fourth session of 30 students. We're financing that for the industry to benefit from, because there simply aren't enough training mechanisms out there.

The Chair: Ms. Hughes Anthony, followed by Smith, and then we'll go to Mr. Whyte.

Ms. Nancy Hughes Anthony: I think there has been some focus recently given on this issue, certainly by Minister Stewart. I believe the Conference Board and perhaps another couple of organizations have identified specific areas of skill shortage.

I think in this area it probably is going to get worse, given our demographics, looking forward, and given the sort of ever-shrinking nature of the global economy when everybody is just looking for talent, and Canada is a great place to come and look for talent.

I do think that perhaps there are a couple of factors we could reflect upon. One is I do think there is a need for a strong partnership between employers, large and small, and labour leaders. I think in this area that is critical. I think to make this picture work we do need the involvement of unions and of labour leaders.

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I would also say here that this is one of the examples of how, once again, we frequently get hung up between federal and provincial jurisdictions to the detriment of the overall picture. There are some tools that are clearly in the hands of provincial governments, things like apprenticeship, or training generally speaking, and those kinds of things. There has been a lot of talk about issuing national standards for certain things, promoting mobility of people across....

In the business community, we frequently do find it difficult to deal with those kinds of federal-provincial conflicts, and if we could find a way to set up mechanisms, perhaps through sector councils, which are quite useful mechanisms, so we can work for the benefit of the sector regardless of federal or provincial boundaries, I think that would serve us all well. Otherwise, we're not going to get a handle on this problem.

The Chair: Okay, I'm going to Mr. Smith, Mr. Whyte, then Mr. Myers.

Mr. Peter Smith: I simply wanted to indicate that from the aerospace sector's perspective, one of the biggest impediments to our growth is the availability of experienced, skilled labour. As you can appreciate, it takes a considerable number of years of competency to work in this field, because it is highly regulated.

A positive side is an initiative we've been working on with the Canadian Aviation Maintenance Council, which with the human resources department was able to establish a national competence standard that made Canadian aviation maintenance employees portable right across Canada. It's been interesting, and I don't have the statistics, but certainly I would suggest about two years ago we lost a considerable number of people to job availability south of the border, certainly with Boeing coming in and aggressively recruiting, primarily because of the exchange rate and favourable tax rates south of the border. That has stopped—not entirely, but it certainly is not as an alarming portion as it was before.

The last area I want to suggest is that I've also been very curious in looking at...we have a large number of small and medium-sized enterprises in our association, and it is true that they do train for higher levels of salary as well as promotional opportunities in a challenging environment. There is a tendency for these young folks to see much more career opportunity in larger companies. When I look at the owners of small and medium-sized enterprises, they generally come from the large companies, perhaps in frustration of not wanting to work in this large corporation and deciding to set up their own.

So there is a cycle here, but I don't think we've had the empirical data to be able to suggest to you that it's a no-brainer, in the sense of a loss or a gain. But we are certainly looking at the success of the Canadian Aviation Maintenance Council on the maintenance side to see whether there are applications in other skill sets that we can make. And this is one way in which, in our particular case, we can overcome some of those regulatory impediments that some of my colleagues were talking about, if we have a national standard in certain areas.

Thank you.

The Chair: Mr. Whyte.

Mr. Garth Whyte: Mr. Chairman, there's a tendency to jump in because we live and breathe this stuff, and I'd like to hear more also from people who run businesses. But we do 3,500 small-business visits per week, week in, week out, so we hear about this stuff. That's why we get kind of excited about it.

You asked about shortage of qualified labour, and it's quite an oxymoron because you said small business don't train because they lose their employees. The reason they lose their employees is because they're getting trained. There's informal training that's happening; that's why...they want them to go. But once they see how they're working in a small firm, they say let's grab them, because they're already trained. But there's a multifaceted problem here.

There's a paper that Minister Stewart has been using and people have been talking about—our paper on the shortage of qualified labour. We're finding that one out of two of our members are saying there's a shortage qualified labour, but we're also finding they can't find people or it's taking longer to find those people and it's taking longer to train. So there's an education issue, an immigration issue, and a demographic issue, in that the average age for our skilled trade is 50. There's also a youth issue. We found that between the ages of 15 and 24, one out of four had never had a job. So there's a co-op education issue, to bring it into your industries. I mean, how do they know about it?

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So there are challenges we need to look at here at all levels. And to me, it's an opportunity rather than a threat. This is a great opportunity for all of us to get our act together to deal with this issue.

Mrs. Sue Barnes: Obviously you can't be productive in any real sense unless you have people working to help with that productivity.

Mr. Garth Whyte: It's hurting long-term growth; it really is.

The Chair: Mr. Myers, I think you're the last one on this one.

Mr. Jayson Myers: I think the problem that you recognize is a long-standing problem that has affected the apprenticeship programs right across Canada for a long time. It's one of the reasons they are so weak. The other area is the question about whether we're training people with the right skills, particularly as technology changes so rapidly.

What we're finding now, though, is that more businesses, large and small, are forming partnerships in order to overcome some of the problems you've mentioned of companies bidding away well-trained employees in everything from manufacturing, management, and technical skills for small companies. The program set up by Palliser to help service small companies, small suppliers, in the Winnipeg area is an excellent example of that—sharing resources in a joint training program for technical people to work in the furniture industry and similar types of industries. There are also a number of programs underway working with colleges and universities.

But that all takes time to develop, and although there are a number of these partnerships we can point to, there aren't nearly enough of them. I think this is going to be a long-standing issue.

We asked our members what sort of qualifications they're looking for, and it's not just technical skills. It's communication skills, literacy, and more and more it will be business experience, because we're going to be losing, just because of the demographics, a lot of people with a tremendous number of years of business experience, and that's not going to be replaced easily.

We've counted on immigration, especially in the manufacturing sector, to fill the skills and experience gaps, and I think we're going to have to continue to do that for the foreseeable future.

The Chair: Ms. Hughes Anthony, then we'll go to Mr. MacMillan, and then we'll have to move to the next questioner.

Ms. Nancy Hughes Anthony: Mr. Chair, as a last point to add to my intervention, I really think the government also has to examine quite clearly the impact of employment insurance.

The Chamber of Commerce spoke to the committee on Bill C-2 against the amendments that have been adopted for seasonal workers. We see tangible evidence of employers who cannot get the labourers, even unskilled people, to take jobs in certain areas of the country because the employment insurance, if you will, psychology is so deeply embedded.

In terms of our analysis of this problem, I think we have to add employment insurance to the picture and analyse the kinds of messages it gives to people. I think the message we want to give people is that you have to retrain, you have to upgrade, and it's a constant process. Employment insurance doesn't really do that.

Thank you.

The Chair: Mr. MacMillan.

Mr. Michael MacMillan: Many of the individuals who work on our productions are freelancers, and they might come to work for two, six, or nine months, or a year, whatever. We found actually that our best ally in terms of training is the half dozen Canadians guilds and unions to which many of these individual freelancers belong. We've had a number of very successful training programs where the trainees are placed in each one of our productions at a variety of different levels. It's very cooperative, with the Writers Guild, ACTRA, the Directors Guild, and so on. We've found guilds and unions to be major allies in this.

The Chair: We'll go to Mr. Gallaway now.

Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Thank you, Mr. Chairman.

I want to follow up on what Ms. Barnes has been talking about. I think what I'm hearing from you is that the issue of skilled trades people is one of the problems, one of the shortages in the workplace.

Ms. Anthony, you've talked about the unemployment system being somewhat of a disincentive for these people. Interestingly, skilled trades people—I'm not talking about seasonal workers—by virtue of the nature of that work are often unemployed for short periods of time, and the unemployment insurance system is necessary for them. We have people who build the infrastructure of this country—whether it's bridges or buildings—in an industry of a specialized nature, and they don't work 52 weeks of the year; it's the nature of construction. So what would you do then with the unemployment insurance to address their needs?

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Ms. Nancy Hughes Anthony: I certainly had a very thorough going over by the parliamentary committee at the time of Bill C-2, in terms of these kinds of questions. As a point of principle, we would like to see the employment insurance program there as its stated purpose. In other words, it is there to support Canadian workers at the time of unintended unemployment.

I think the concern our members have is that in setting up situations where the employment insurance program really becomes a kind of a social support program, you are providing a concrete disincentive for people to retrain, work, seek to train, change locations, or do whatever they do to work in the economy. So I'm not ruling anything out.

There may be a construction worker who is off for a month and needs EI. That's fine, but if we're putting in place a conscious mentality where people actually say “Oh, I can't take that work in the EDS call centre that's being set up in Nova Scotia because I'm going to lose my EI”, it is very counterproductive to the long-term economic advantage of that particular community.

Mr. Garth Whyte: We'd just like to contribute here on this point. We made a presentation to the committee and we've been involved with EI changes, as you know, and we have a few questions for the committee.

In Newfoundland there is 17% unemployment in certain areas, yet one-third of our members can't find.... There's a shortage of qualified labour. There's a disconnect, and we have to work on that.

Also, whatever we do, let's not put policies in place that exacerbate the problem. Let's talk about the shortage of qualified labour and the fact that 80% of businesses have less than five employees, but no one thought about how devastating it would be to a business to lose a key employee for a full year because of the extension of parental leave. How does that help the shortage of qualified labour?

On one side it helps a particular goal, but we didn't think of the offset to that goal. Meanwhile, those businesses have to pay EI for the replacement worker. Is that fair? Maybe there should be an alleviation on that payroll tax to help deal with that offset. We have to make consistent policies, whether it's through EI or not, that cut across all sectors. We really have to think about these things in a bigger picture, rather than one off on EI and now there's a shortage of labour, when they're both connected.

The Chair: Just very briefly, Mr. Smith and Mr. Myers.

Mr. Peter Smith: There are some encouraging signs. Who would have ever thought that in Lunenburg, Nova Scotia, there'd be an aerospace company, and there is one named Composites Atlantic. I simply want to indicate that most people would bring fishing to mind when they thought of Lunenburg.

The challenge of that particular institution was to capture the unemployed and train them themselves, using very modern techniques of either simulation or computer-assisted training. Obviously they attracted the highest potentially skilled people, and will likely not lose them easily because they're the highest paid in the community. I think you have to use some ingenious ways to assist, and that happens to be a star we use as an example. It may be an exception, but it just brings to mind some of the challenges that some business people have to face, and how they can overcome them in little places like Lunenburg, Nova Scotia.

The Chair: Mr. Myers, and then we'll go to Ms. Leung.

Mr. Jayson Myers: We've spoken about the disconnect between provincial and federal programs in a number of areas. The EI fund is one area where we are seeing a disconnect developing between the training side and the income support side.

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Our association administers a very successful relocation program for technically skilled workers on EI. They use their support to be retrained and relocated to other businesses. It's a very successful program. We're finding, though, now that the provinces really have responsibility for the administration of training programs, these funds are being used more in the way of welfare support and not for the original idea, which is support for training. That is an example of where we have a disconnect, and where we really have to take another look at our labour market policies and make sure we have an integrated approach to both training and income support.

The Chair: Thank you, Mr. Gallaway.

Ms. Leung, and then we'll have to go to Mr. Brison and Mr. Kenney.

Ms. Sophia Leung (Vancouver Kingsway, Lib.): Thank you, Mr. Chair.

The Canadian government has been committed to establishing the FTAA by 2005. I would just like to know how that would affect your industry. I would also like Catherine, Nancy, Mr. Myers, Mr. Smith, Mr. Watt, and Mr. MacMillan to comment.

The Chair: Mr. Myers, Mr. Smith and Mr. Watt.

Mr. Jayson Myers: First of all, if you look at the impact of free trade on manufacturing and on exporting, of course, I think the result has been extremely positive for Canadian industry. That's not to say there weren't extreme difficulties in the transition, but I certainly think the opportunities of a larger market and the need to become more competitive and restructure, in view of the competition that's there, has certainly led to the success we've seen on both the export side and the manufacturing side over the past decade. I don't think we would have the number of Canadian companies in either sector operating or the strength we've seen, if it were not for free trade.

In 1993, when we surveyed our members, a large majority said the Canadian government should proceed with NAFTA negotiations, but 40% saw NAFTA as a potential threat to their businesses. Today that number is down to about 4%, and 75% see NAFTA as a real benefit to their businesses. I think that's the way they view the FTAA negotiations, as well.

Canadian companies have much more to gain by opening markets in Latin America, by negotiating the rules of the game and particularly the transparency of regulations in Latin American markets in Mexico, as well as in South America and the Caribbean.

So I think the outlook is very good. We've certainly been pushing strongly for those negotiations to proceed as quickly as possible.

The Chair: Mr. Smith.

Mr. Peter Smith: As far as the aerospace industry is concerned, there are very few countries now that would impose tariffs, in the sense of the aircraft or aircraft parts and components. Where those exist, we are encouraging the government to enter into either bilateral or multilateral negotiations. I would echo the comments Mr. Myers has mentioned.

Our biggest concern is not with respect to the benefits associated with the trade agreements that are settled between respective countries, but what exemptions there are or what protectionist attitudes can grow from these particular agreements. I refer to problems we had last year with ITAR, the International Traffic in Arms Regulations, which basically closed the border to sensitive technology that should have been available to Canadian companies operating as subcontractors to American companies. That was a reaction to another action that was taken by the government in other areas.

We also see from time to time—and again I use the United States as an example—where in their best view they set up a small business set-aside, which was to be beneficial for their particular companies, but small business in the United States is defined at 500 persons and below, which is about the average size of our larger companies in many regards. So the difficulty is that particular part of an agreed-upon clause within FTAA basically eliminates us from competing.

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There are a whole bunch of little things like this, but not so little in the sense of the impediments they create. As associations representing the various members, I think we have to ensure that we work with the government to ensure those particular impediments don't exist for longer...or we negotiate arrangements, hopefully, in the case of the United States because of the close proximity geographically and the geopolitical affiliation we have in many respects.

The Chair: Thank you, Mr. Smith.

Mr. Watt, followed by Ms. Hughes Anthony.

Mr. David Watt: Rogers is essentially a Canadian services company, so we really do not export any particular products.

In terms of our acquisition of infrastructure, the majority of it does come from the United States and Canada. So there may be some minor benefits to us as reduced prices flow through, principally to the States, but it is not a big issue for Rogers.

The Chair: Ms. Hughes Anthony.

Ms. Nancy Hughes Anthony: I think many of us have been active in talking about the advantages of pursuing this trade area of the Americas. It is clear that Canadian business has profited greatly from the North American Free Trade Agreement. We just have to look at our increase in exports, which has gone from 20% to 45% or so of our GDP over a very short period of time, to understand that it is to our advantage to broaden our export markets, and also, I would submit, to diversify to the extent that we can beyond our good partner, the United States. But now that many Canadian businesses are learning to work in Mexico, for example, it's a very logical extension to go down a little bit south of our backyard and work in the free trade area of the Americas.

That said, having been in Quebec City, I realize this is not going to be an easy negotiation. There is a lot of difference in the many countries, the 34 countries that are involved in this negotiation. We will have to be very patient, and I think the business community will have to be very involved over the next four years or so, in order to try to strike some kind of agreement that will not only, of course, bring advantages to Canadian business, but will also be perceived by the other countries in this union as an advantage to them. Certainly there are many countries that want to do business with Canada and see Canada as an extraordinary role model in terms of our ability to export not only goods, but services as well.

I wouldn't give up if I were Mr. Watt. I'd send Rogers Cablevision down to maybe Panama or El Salvador and see what you might be able to set up down there. It's a tremendous market.

The Chair: Thank you, Ms. Hughes Anthony.

We'll go to Ms. Swift, and then Mr. Brison.

Ms. Catherine Swift: Our small-business members have consistently been supportive of freer trade initiatives, from the FTA right through to the current FTAA initiative.

I'll also echo, though, what Mr. Smith was saying, that how that is achieved is hugely important. We still hear problems with our members being held up by U.S. Customs, by difficulties even getting into that market, and so on.

In the interest of brevity, I'll leave it there. How it's done is hugely important, but we're certainly supportive of the thrust.

The Chair: Mr. MacMillan.

Mr. Michael MacMillan: In our area there really are no material barriers to the free flow of the products. We make movies and TV shows really anywhere in this hemisphere. In fact, the vast majority of movies and TV shows in this country don't originate here, in any event.

The only thing, though, is we'd still want to see in this new agreement the same cultural exemption that existed under FTA and NAFTA, in order that we and the other countries can have local rules and incentives as we see fit, mostly for supply-side initiatives. But there are no real barriers to the free flow of these products back and forth anyway.

The Chair: Thank you.

Thank you, Ms. Leung.

Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC): Thank you, Mr. Chairman, and thank you to each of you for your interventions today.

My first question is on the Canadian dollar. We've seen the Canadian dollar lose approximately 11 to 12 cents of value since 1993. I believe Ms. Swift described it as a tax cut for all Canadians, and that's very accurate—this despite the Bank of Canada actually maintaining what could be described as a high-dollar policy in terms of inflation targets relative to those tolerated by the Federal Reserve.

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First, how would your sectors be impacted by a stronger Canadian dollar if we were in fact successful at utilizing fiscal and regulatory prescriptives to address some of the productivity issues that are causing a weaker dollar?

Secondly—perhaps I should have asked the second part first, but I'm very interested in the effect, particularly on the film production industry in terms of Canadian industry—what fiscal and regulatory prescriptives, or just a couple significant ones, do you feel could have a positive impact on strengthening productivity ultimately and strengthening the Canadian dollar?

Those would be my first questions.

The Chair: Who would like to start? Mr. MacMillan?

Mr. Michael MacMillan: For the film and TV industry, if the Canadian dollar rose materially—by that I mean more than 8¢ or 10¢, perhaps—it would have a very negative impact on the industry, particularly in British Columbia. The majority of the industry in British Columbia is an imported one. It's service work: Americans bringing their barrels of cash, employing Canadians, and then exporting the shows. So it would be a negative for sure.

For my company, the impact would actually be neutral, because we're a net exporter. So that would hurt us, because we'd be earning fewer Canadian dollar equivalents. On the other other hand, as the industry overall saw a downturn, our labour costs would decline. There has been strong upward pressure on labour costs over the past decade because of the influx of American production.

So for us it would be neutral. The pro and con would balance. But for the broader industry, it would be very negative.

The Chair: Mr. Smith and Mr. Myers.

Mr. Peter Smith: I suspect you're going to get a variety of answers from the various participants today.

In the aerospace industry, fortunately for us, being a manufacturer of aircraft and components, we trade in U.S. dollars, so the advantage of a low dollar is very beneficial, of course. We export in excess of 80% of our product, so fluctuations in the dollar do mean an awful lot to us.

On the other hand, I should state that certainly being such a global industry, the weak Canadian dollar does not bode well for this nation in the sense of the perceptions it leaves in world markets as to whether there's something systemically wrong with our economy. That's where I think there has to be an appropriate balance with respect to the setting of the dollar. But certainly from our perspective today, it's beneficial to our industry at this stage.

The Chair: Okay.

Mr. Myers.

Mr. Jayson Myers: Mr. Smith is right, there are a variety of views across the sector. Even in the exporting sector, the more you export, and especially if you're exporting in U.S. dollars, and the more your costs are domestic costs, the more you benefit from a low dollar.

That being said, our largest exporters are also some of our largest importers. With the increasing cost of technology, of high-value components, of services, and the increasing cost of losing well-qualified personnel to American competitors, I think even the most important exporters in this country also see a low dollar, or a dollar where it is at right now, or a falling dollar as a disadvantage. The level at which the dollar would re-establish cost parity would be somewhere between 75¢ and 78¢ right now.

But, Mr. Brison, your question was, if we could do something to improve productivity, how would Canadian industry react to a rising dollar? I think that's really the key, because if you can improve productivity, not only would the dollar rise, but Canadian companies would be in a better position to withstand the cost of a rising dollar and in a better position to compete. So the productivity and innovation question is the key to what's happening on the currency.

Apart from what we can do to stimulate innovation, though, there are three things to keep in mind. More and more companies, if they are operating globally, are operating in U.S. dollars, not in Canadian dollars. And more and more Canadians are also earning money, saving money, and investing money not in Canadian dollars, but in American dollars. This means that the Canadian dollar, at least for global business, is becoming more of a marginal currency. That means there is considerable downward pressure on the Canadian dollar itself. The only way to overcome that is to make sure there is much more investment made in Canadian dollars in this country.

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I think of two ways to do that. One is to bring down our level of debt because every time we refinance the debt there's tremendous downward pressure on the dollar. The second thing is to make sure that we have the most attractive tax system in North America, to attract foreign investment and retain Canadian investment in this country.

I don't personally think that our tax system right now, particularly in the tax treatment of innovation, nearly comes close to that of the U.S. We have to be much better than the U.S. if we want to attract investment away from this very, very large market to the south.

The Chair: Mr. Murphy, followed by Ms. Swift.

Mr. Michael Murphy: Thank you, Mr. Chair. Without getting into the specifics of some of the sectors of the economy—and I think you've just heard nicely from a variety of them—you've got some general issues here as well.

Clearly there is this two-edged-sword side. You can imagine that, for those whose capital expenditures are made in terms of buying from offshore suppliers, clearly there's an issue there for some companies. I think, as Jay just explained, it can work the other way for some players as well.

If you look at the differences, I think most economists get right back to the notion of the subject of commodities. Specifically, I think the non-oil commodity price levels have really taken a front-row seat here in terms of why we have a difference in our dollar. From our standpoint, if you look at the economy of Canada, the capacity here, and the structure of the economy, and you compare them with the United States, I think part of the explanation for the continuing lag is found there.

You also have, I think, more recently, and you see this periodically without reflecting on other currencies.... You could hear from Australia; you could hear from others. It's not just the Canadian dollar. We've also had this safe haven mentality that the American dollar is the place for the safe haven investor, and we've seen some examples of that.

The Chair: Ms. Swift.

Ms. Catherine Swift: Really, I'd like not to reiterate what others have said, but I certainly do agree that a more aggressive approach on our debt would be a major beneficial factor to our international competitiveness. To some extent our prosperity through the 1990s has been bought at the expense of a steadily declining currency. Clearly that can't go on forever.

I agree with the band around, say, 75¢ or so because it's a question of how much we want it to appreciate as well. I don't think the notion of parity is at all realistic in this day and age, but there's no question that productivity enhancements are not as strongly motivated when you have a lower currency. A higher currency would put more focus in business on having to improve productivity. One reason it's lagged is because we've bought our growth somewhat cheaply with a lower currency but to the detriment of our economy in a long-term sense.

The Chair: Mr. Brison, do you have any further questions?

Mr. Scott Brison: We have a unique opportunity now in Canada, with surpluses for the first time in quite some time and some level of tax reduction beginning to occur, for major tax reform to be introduced without creating the winners and losers typically associated with tax reform. When we combine tax reform with tax reduction, it can be a great, serendipitous situation.

Now I'd be very interested, from your perspective—not from a political perspective, but from purely a productivity-driven perspective—where you'd like to see the major level of tax reform focus be placed. We have corporate taxes, capital taxes, capital gains taxes, payroll taxes, and income taxes.

Whenever we get into this debate in terms of what government should do about tax reform, we always seem to end up with the politically palatable result, except in the early 1990s with the introduction of the goods and services tax. That was certainly a case where political palatability did not play a significant role in that particular tax reform, but it did not necessarily have the best possible effects on my party at that time in the 1993 election.

I'd be very interested in your perspective on where the attention should be in terms of tax reform focused on productivity.

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The Chair: Mr. Myers.

Mr. Jayson Myers: I think the views of where the appropriate emphasis should be placed in tax reform would be many, given the number of people around the table from industry as well. Everyone would see it differently for their particular company or their particular sector. I think that if you step back and look at where tax reductions would have the greatest impact on investment and innovation, it would be around the area of capital taxes, at least for the manufacturing sector.

Again, it's not only at the federal level, but at the federal and provincial levels. Taxes that are charged on investments in new technology don't make any sense when you're trying to provide an incentive for that type of investment.

But saying that, every other tax measure you've.... Reductions in those areas are important as well for employment. Some of our largest companies, when they make an investment decision, just say “We look at the nominal tax rate. Canada doesn't stack up, and we don't go any further. We don't look at the other tax measures underneath that.” So it really depends on the sector, but a concerted tax strategy aimed at innovation I think is what's necessary.

The Chair: I'm ready to release all the panellists, but everybody else wants to answer questions, so that's fine.

Mr. Smith, then we'll go to Dr. Cairns and then Nancy Hughes Anthony. It's very interesting.

Mr. Peter Smith: One of the things that is not commonly known about the aerospace industry is that over 60% of the companies operating in Canada are foreign-owned, primarily U.S. From this particular sector's perspective—I think it's something that was mentioned by Jayson and others—we have to look very, very carefully as to the competitiveness, if you will, of the tax regimes that we're dealing with for the transfer of employees, for the location of greenfield and/or expansionary motives, and certainly for research and development.

So we often use the example—and it's not always well received—that we might want to take a look at the tax rates that are being charged in the United States because, for our sector, and I'm sure for many others, the largest market happens to be the U.S., and that's where the flow of north-south is. So we look at that very, very seriously.

The Chair: Okay.

Dr. Cairns.

Mr. Malcolm Cairns: Yes. I just wanted to reiterate what Mr. Myers is saying. From our company's perspective, it would be capital taxes that are the most important situation to deal with.

The Chair: Ms. Hughes Anthony.

Ms. Nancy Hughes Anthony: Just to be brief—because this is a subject very dear to all of our hearts, so we could go on for hours—I do reiterate what others have said in that capital taxes are very definitely an issue. At the right time, we will come to the government and specifically talk about eliminating the federal capital tax.

As well, personal income tax, I think—particularly at the high end, and not only the rate, but the threshold at which it kicks in—continues to be a real issue. Clearly, the competitive analysis there is with the United States. Obviously, when the dust settles as well on President Bush's tax package in the United States, those comparisons will probably be even more odious.

We would also include in any of our analyses that we would like to see corporate tax rates accelerated and deepened beyond Mr. Martin's plan. As well, we do have a particular concern about the creeping level of payments for CPP and the payroll tax area, which is counteracting any decreases that we've seen in employment insurance rates over the past couple of years.

That said, I'd just like to reiterate that the economy is clearly in a rather fragile state at this particular point. I think all of us are watching and noting exactly what is happening. We have confident economic projections, but I think we do need to see what is happening for the next number of months because clearly tax cuts cannot be put in on a temporary basis. They need to be permanent and long-standing. People need to have confidence that that competitive tax regime is there forever and is constantly being improved.

So we are hopeful that there will be a budget in February, and perhaps, Mr. Chair, you could confirm this for us.

The Chair: Already?

Ms. Nancy Hughes Anthony: And perhaps you might be calling for some specific suggestions at that particular time.

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The Chair: Thank you very much.

Mr. Whyte.

Mr. Garth Whyte: Rather than repeat stuff, I just want to say that I think what we pushed for was a five-year plan—which we got—because we want to see total tax burden go down in aggregate.

What we had in the past was that we'd lower one tax, and then another would increase more than that. We'd lower the EI premiums, but at the same time CPP went up more. Then there are new types of taxes coming to the table, and those are called “government fees”, which are now collecting $40 billion in revenue.

I would really charge this committee—and I know you've said this—to at least list the fees. It's a major line item. From our members' point of view, and I think one of the dividends.... We were to talk about whether there's a recession or not. We're saying there isn't, and one of the dividends is a healthy small and medium-sized business sector.

What's happened is that governments at all levels are depending on profit-insensitive taxes and not on profit taxes. That's the big problem. There's a tendency to rely on these profit-insensitive taxes so that, when there is a downturn, those taxes never go down. You make sure you get your revenue, but it's tougher on the firms. That's the worst possible time to have these taxes.

I have to say that EI is incredible. The fact that we're taking out $6 billion a year, and the surplus will be $40 billion by the end of this year, is outrageous. I think that's one we've got to look at.

The Chair: Thank you very much, Mr. Whyte. The government's response on the cost-recovery report will be coming out soon, I hope.

I want to thank everyone involved in this panel. We went a little bit over time, but that usually happens when you're discussing important issues. You certainly added a great deal of value to the debate in which we will be, of course, active participants, as will you, during pre-budget consultation.

I was happy to see that the word “productivity” has been repeated on and on again. That's very encouraging. It's an agenda that I think is extremely important to this committee and, more importantly than that, to the country if we in fact want to improve our standard of living.

So once again, I want to thank you very much on behalf of the committee.

We'll take a five- to ten-minute break, because we do have another group of individuals who have been so kind to wait for us as we complete this one.

Thanks very much.