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STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, October 23, 2001

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[English]

The Chair: I would like to call the meeting to order and welcome everyone here this afternoon.

We are, of course, as you know, travelling the country seeking public input on what should be in the upcoming federal budget. So we look forward to your comments. Some of you have appeared in front of the committee before, so you know you have approximately five to seven minutes to make your introductory remarks, and that will allow members of the committee to ask questions thereafter. Since we have many people appearing on this panel, I kindly ask you to speak to your time.

We have the following organizations represented: the Vancouver Board of Trade, the Canadian Association of Student Financial Aid Administrators, Trilennium Mentors Ltd., the Confederation of University Faculty Associations of British Columbia, the Credit Union Central of Canada, and Fuel Cells Canada.

We'll proceed in the manner in which the names appear on our agenda; therefore, we'll begin with the Vancouver Board of Trade. I believe Mr. Darcy Rezak, managing director, and Richard Mahler, director, are here to speak to us.

Thank you.

Mr. Darcy Rezak (Managing Director, Vancouver Board of Trade): Thank you for this opportunity.

I'll just start by saying that the board reiterates its previous commendation to the government on the Economic Statement and Budget Update presented in October 2000. The measures undertaken at that time are particularly welcome, including: the reductions in personal income tax; the elimination of the high-income surcharge; the provision of deferring capital gains from the proceeds of investments and small business, if these are invested in small businesses; the improvement in the Canada tax benefit for low- and middle-income earners; and, the timetable for the reduction of the basic federal corporate income tax and a variety of other provisions for tax relief.

The timing of these measures was fortuitous. The economic slowdown affecting the North American economy in late 2000 and 2001 was offset for Canada in part by these changes. And of course the tragic events of September 11 make these measures even more appropriate.

We support the general and fiscal vision for Canada that the Minister of Finance outlined in his speech to the Toronto Board of Trade in September 2000. At that time he noted that Canada required an economic culture shift, and we support that view.

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We believe that all new measures taken must be consistent with this coherent long-term vision, and the events of September 11 should not deter the government from that vision.

Our recommendations are summarized as follows. Every effort must be made to avoid a deficit in this fiscal year and subsequent fiscal years. It is very important for the Government of Canada to continue its long-term commitment to the reduction of the national debt. Canada's debt-to-GDP ratio has been reduced significantly and it should be brought down to 40% or lower.

We urge the government to stay the course with respect to the announced tax reductions. We recommend that the real per capita spending be held constant, that average annual growth of program spending be approximately 3%, which is the expected growth in population, plus inflation. Reducing spending in other areas should fund any new spending initiative beyond this limit.

Government spending should not be allowed to exceed projections and the government must end its practice of establishing new spending, often retroactively, at fiscal year-end.

We recommend the immediate reallocation of discretionary spending to CSIS, the RCMP, Immigration, and the armed forces. The armed forces spending as a percentage of GDP is amongst the lowest of NATO countries, and we suggest that Canada's defence spending should be increased by 50% over the next five years, with a major commitment to capital acquisitions.

Over the longer term of ten years there should be an objective, a benchmark, of moving defence spending to 2% of GDP, which would be substantially closer to the average of NATO countries. This may well mean that a number of discretionary programs would be reduced or eliminated to accommodate this new, urgent, pressing priority for Canada.

New money in health care beyond existing per capita spending must come from the reallocation of other expenditures. We also believe there are dramatic improvements in productivity that could be made that could lend new resources to the support and function.

We recommend that the government adopt a measurement process, a benchmarking process, in each of the key areas of government expenditure that will ensure a greater degree of value for each dollar spent. This is part of a larger productivity recommendation that we'll be making shortly.

We again communicate our deep disappointment of the introduction of measures to increase employment insurance benefits to seasonal workers. By increasing the subsidy to seasonal workers, at the expense of those who are employed year-round, the government is preventing labour mobility and the efficiency of the economy. It's encouraging government dependency and rooting Canadians in areas of high unemployment.

Furthermore, this type of decision turns the EI program into an income subsidy program and it defeats its purpose as a safety net for unemployed workers. Expenditures such as that could better be spent, in our view, on security and defence.

To remove the inequality between the contribution limits for registered retirement savings plans in comparison with registered pension plans, the contribution limit should be increased from $13,000 to $15,500. From this point onward the contribution limits for both types of plans should be indexed to inflation.

I think it's important to point out that the moneys Canadians have invested in RRSPs are in fact an account receivable for the government. The tax due on the RRSPs, when taxpayers take advantage of them, in fact go to government. On a dollar-for-dollar basis, the government has a huge receivable in that area.

The government recognizes the importance of innovation and increasing productivity as keys to enhancing the economic performance of Canada as well as the well-being of Canadians. It's important to recognize that our productivity in Canada has not yet paced with the United States.

In fact, the terrific lapse in productivity that Canada has experienced in all but the most recent years of the last decade has been compensated by a declining dollar. In fact, our standard of living has become increasingly lower, to the point where the income per capita of Canadians in the richest province is less than the poorest state in the United States. Mississippi and Louisiana have higher incomes than Ontario and Alberta. And that's even if you apply purchasing power parity, which we suggest would be a temporary explanation, in any case, of the difference, because in the long term purchasing power parity tends to smooth out.

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The board recommends that the tax on large corporations be eliminated. This capital tax impedes innovation and productivity by increasing the cost of investing in new technology and equipment.

So there are two major shifts in our presentation this year, Mr. Chair. There is a shift towards a national priority in productivity, which should apply equally to the public sector as to the private sector. There are huge economies to be gained in the public sector through productivity improvement. And there's a huge need in the private sector to reinvest in education, training, management practices, and in new capital, plants, and equipment in order to achieve our place in the world. Our standard of living has been dropping, and this ought to be reduced and reversed as a result of a national campaign to improve productivity.

The secondary shift, of course, is in the area of defence and security.

The Chair: Thanks very much.

We'll now move to the Canadian Association of Student Financial Aid Administrators, and Jennifer Orum, vice-president, coordinator, financial aid and awards, University of Victoria.

Welcome.

Ms. Jennifer Orum (Vice-President, Coordinator, Financial Aid and Awards, University of Victoria; Canadian Association of Student Financial Aid Administrators): Mr. Chairman, members of the committee, the Canadian Association of Student Financial Aid Administrators represents professional and administrative personnel from Canadian universities, colleges, and technical institutions who administer student financial aid and awards programs.

I'm past president of CASFAA and the financial aid administrator at the B.C. Institute of Technology.

The 1998 federal budget generated a number of initiatives that are enhancing accessibility to post-secondary education in Canada. These included Canada study grants for students with dependents, expansion of the interest relief program, tax relief for government student loan interest, broadening the education tax credit to part-time students, permitting tax-free withdrawals from RRSPs, and encouraging families to save for education through the Canada education savings grant program.

As a result of the 2000 federal budget, two developments are assisting students. First, Income Tax Act changes have allowed a $3,000 exemption for scholarships, bursaries, and fellowships. Secondly, revisions to the Canada study grant program for students with disabilities has allowed the grant to cover 75% of the costs of diagnostic assessments for learning disabilities.

In addition to these initiatives, the Canada Millennium Foundation distributes $285 million in bursaries and 900 excellence awards each year.

These initiatives, together with the direct Canada student loan program introduced last year and the integration discussions currently taking place between the federal and provincial governments, will reduce many of the barriers to participation in post-secondary education in this country.

While these developments will go a long way towards reducing student debt and loan default issues that have emerged over the past decade, CASFAA believes there are other measures that could further enhance accessibility to higher education.

Firstly, CASFAA would like to focus on a national work study program. Work study refers to a need-based program of student job creation that provides part-time employment opportunities for students while they are attending classes. It is different from, but complementary to, other effective strategies such as cooperative education and summer employment programs. Work study has been funded at the provincial level in B.C., Ontario, and Quebec for some years.

In work study programs students with high financial needs and the necessary skills are given part-time jobs on or off campus. Positions are related to the student's study program and/or career direction. In addition to offering students an alternate financial resource to limit debt or cover shortfalls in their resources, work study can provide work experience that will enhance their employability at the completion of their post-secondary studies.

Work study is not a make-work program. In addition to assisting students, an effective program can be of substantial benefit to post-secondary institutions through research and project-oriented positions. There can be significant benefits to communities at large if off-campus work study components are established in cooperation with business and non-profit organizations.

CASFAA is recommending a national work study program since it addresses many of the key challenges faced by Canada in the new economy.

Secondly, CASFAA would like to focus on income tax changes. In the year 2000 budget the Income Tax Act was changed to increase the annual exemption for scholarships, bursaries, and fellowships from $500 to $3,000. This was a very welcome change that was a long time overdue.

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As an alternative to ad hoc changes in this exemption level, it would be far more effective to establish an indexing formula that resulted in automatic increases, based on some objective external standard.

CASFAA recommends that as a follow-up to the 2000 increase in the annual exemption for scholarships, bursaries, and fellowships, an indexing formula be established so future increases in the exemption level are tied to the average tuition increases in public universities and colleges in Canada.

Finally, on assistance to part-time students, it is widely recognized that the current federal assistance programs for students required to study on a part-time basis—the Canada student loans for part-time students and Canada study grants for high-need, part-time students—are significantly problematic and inadequate. The issues facing part-time students are complex. It will therefore be prudent to do a full analysis of the current program to determine the extent to which it is meeting the needs of lifelong learners.

CASFAA therefore recommends that in the short term, a comprehensive study be initiated to review the effectiveness of the current part-time assistance programs, and that the medium-term objective should be a major restructuring of the programs to effectively meet the lifelong learning needs of Canadians.

Prior to the results of the review being available and fully considered, we would strongly recommend that if any interim changes are made to the Canada student loans part-time assistance programs, they should not be ones that decrease the funding or access currently available. For example, we hope there will not be any reduction, in the short or long term, to the grant programs now in existence.

Thank you.

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

We'll now hear from Fuel Cells Canada, Brian Josling, president, and Chris Reid, president, Cellex Limited. Welcome.

Mr. Brian Josling (President, Fuel Cells Canada): Thank you.

I am Brian Josling, president of Fuel Cells Canada. Fuel Cells Canada, FCC, is a national association of Canadian fuel cell companies. Our brief presentation is on behalf of our 42 members.

We'd like to thank the members of the Standing Committee on Finance for this opportunity. I think your democratic national dialogue prior to the Canadian federal budget is a commendable process, and we're very pleased to take part.

Fuel Cells Canada is a new national industry association. We are non-profit, formed in February of this year. Our mandate is national, as indicated on the map members received in our written submission, showing the 42 members across Canada. Our home office is in Vancouver and we have a staff of five.

Our members have contributed over $350,000 in private fees, and we are indebted to Western Economic Diversification, the National Research Council, and the B.C. government for early support.

With me today is a chief executive officer of one of Canada's newest and brightest fuel cell companies. Chris Reid is president and CEO of Cellex Power Products Inc., which is a four-year-old Vancouver company developing fuel cell products, with 53 employees.

Denis Connor, who was unable to attend today, is chairman and CEO of QuestAir Technologies, another bright Vancouver-based fuel cell company. QuestAir has 125 employees. Denis sends his regrets.

Perhaps I should explain what a fuel cell is. Fuel cells are electro-chemical devices that create electricity. In a short few years, we will be driving cars powered by fuel cells. We'll be living in homes and working in buildings powered by fuel cells that create the electricity and heat for each building. We'll be doing this, rather than buying electricity from a local electrical utility.

Fuel cells are very efficient and quiet. They have minimal emissions, and they are products with major environmental benefits. Fuel cell products will be for portable use; stationary use in buildings; and vehicles. They will be on the market in the next three to four years. There are many other applications being developed for fuel cell products.

In this era of huge interest in alternative energy, which emanated from the California electricity shortage in 2000, and certainly with the current global concerns of oil dependency in the U.S., fuel cells are now becoming a very major issue. Fuel cell technology is positively referred to as a major disruptive technology. We are talking about products that will cause major beneficial change in our environment.

Now for the positive surprise. Canada is the world leader in developing fuel cell technology and products. Companies like Ballard, Cellex, and QuestAir in Vancouver; H Power and Hydrogen Systems in Montreal; Global Thermoelectric and Dynetek in Calgary; and Hydrogenics and Stuart Energy in Toronto are collectively a leading global force.

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The mandate for Fuel Cells Canada is to advance these companies in the global race for jobs and products. Simply stated, Canada is recognized today as the leader in 2001, and our job is to ensure Canada is on top in 2011.

Our request is for a national strategy for the Canadian fuel cell industry, including a $50 million, five-year national fuel cell demonstration program, which would be delivered by Fuel Cells Canada. This is in addition to other demonstration projects that may have been tabled with the federal government by individual members.

Second, we believe the federal government should commence a program of purchasing and using fuel cell products in government facilities to create successful endorsements of these new products.

Third, we hope the government will assist Fuel Cells Canada in developing skills and training strategies at the many educational institutions nationally. We need graduates.

Fourth, we propose actions to enhance business investment from the private sector. Our intent is for the $50 million federal government program to attract $150 million in private funds, and perhaps support from other governments.

The global market for the three types of fuel cells is conservatively set at $32 billion U.S. annually, starting in 2008. Based on the economic impact study Price Waterhouse is completing for our group, we estimate that will account for approximately 480,000 direct and indirect jobs. As a result, the global race in fuel cells is frantic.

The U.S. government support is $150 million per year at this early stage; Japan is at $70 million; and the European Union is at 70 million euros annually. The U.S. Department of Energy has committed a $500 million program recently toward the cost-reduction strategy for the U.S. fuel cell products.

Fuel cells are at the centre of innovation. They must be a major focus of Canada's innovation strategy. These new products will be a very positive force and a beneficial change, and an eventual $100 billion market for Canadian companies.

We require the action stated because we must not allow foreign companies to hire away our Canadian talent or steal our companies. Canada seldom sees itself as a world leader. Frankly, we're usually too polite. In the case of fuel cells, we are the leader. We respectfully request your leadership to complement our leadership.

Thank you.

The Chair: Thank you very much. We'll now hear from Trilennium Mentors Ltd., the chairman, Mr. Bob Harrison. Welcome.

Mr. R.W. (Bob) Harrison (Chairman, Trilennium Mentors Ltd.): Trilennium is a consulting operation that basically gives advice on strategy and tactical execution to Canadian and international clients.

We made a written submission, and I won't read through it, but let me introduce who's with me here.

Christopher Hebb has a good background in Canadian industry and venture capital investment in Canada—real estate, etc. John Montgomery's background is in engineering—pulp and paper, and other engineering consulting. Conrad Guelke has strategic expertise in electric utilities and emergency management.

Our purpose in coming is to give you access to the people who are on the street dealing with business, and to be able to answer questions. I won't spend a lot of time getting into details, except to say that our submission covers three areas.

The first is competitive taxation as an issue for Canadians, both individual and corporate taxation—corporate to attract and keep companies, but individual to alleviate brain drain.

The next one is in defence of the Canadian dollar. I think it's been mentioned, but obviously it doesn't gain us anything if all the winning we do is dissipated by the value of the Canadian dollar.

The third one is that clearly our future is in encouraging state-of-the-art information-age competence within our citizenry, and especially our youth. As we have said before to this committee, we are going to have to go from exporting resources to exporting, temporarily, educated heads.

We clearly endorse everything the Vancouver Board of Trade stated.

Thank you.

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

Now we'll hear from the Confederation of University Faculty Associations of British Columbia, the executive director, Robert Clift.

Welcome.

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Mr. Robert Clift (Executive Director, Confederation of University Faculty Associations of British Columbia): Thank you.

I also bring greetings on behalf of our president, Darwyn Coxson, a professor at the University of Northern British Columbia in Prince George. He unfortunately couldn't be here today because of responsibilities on campus.

The Confederation of University Faculty Associations of British Columbia represents professors, academic librarians, and other academic staff at UBC, Simon Fraser University, the University of Victoria, the University of Northern British Columbia, and Royal Roads Military College. Our purpose is to advocate for policies and government programs that develop the full economic, social, and intellectual potential of our citizenry.

With all due respect to Mr. Josling and his comments about where the centre of innovation is, there may well be a centre of innovation in fuel cells—I agree entirely—but the crux of innovation has to start with people and good ideas, just as the fuel cell industry started with people with good ideas and people who desired to improve upon those ideas. This is what our universities and our post-secondary institutions are about in this country.

The universities in particular hold, as you well know, a dual, even triple, mandate to provide training and education for all comers. These are primarily young people but are increasingly, as we see retooling of the economy and shifts in our economy, re-entrant learners, adults coming back to upgrade skills or take up new areas of study and direction.

We exist to provide community services through commentary on important issues and through providing research services to the public and to private interests. We also exist for the purpose of advancing knowledge, knowledge that provides products such as fuel cells. This also includes knowledge in understanding ourselves as a country, knowledge for understanding the world around us and being able to interpret and work in that world, a world that is changing every day—as we've well seen in the tragic events of the past weeks.

We certainly support the comments made by all the presenters to this point about the need for a well-educated citizenry and about providing opportunities for education and training when citizens need them.

Unfortunately, we don't have that capacity at present. Recent studies done at the University of British Columbia suggest that the B.C. economy alone needs about 35,000 university graduates a year, and I think we're producing about 16,000 right now. We've really constrained the ability of our economy to grow when future employment patterns have become very clear. And it's not just university education, of course. We need well-trained tradespeople. We need people in paraprofessional and technological positions.

The economy needs all these people in order to grow, and we also need the people who are doing the research out there, that is, people who have pursued advanced studies at the master's and doctoral levels and who are doing advanced investigations for the purposes of generating new ideas.

We can probably trace what has happened in recent years back to the mid-1990s, to the Axworthy green paper and the debate about the fundamental restructuring of the relationship between the federal government and the provinces in areas of post-secondary education and training. As a result, we've seen—this may not be the most appropriate term—a type of Balkanization in the way post-secondary education has been handled in the country.

Once the federal government's involvement through funding and through support for higher education and research allowed a relatively even playing field across the country. That is, if one attended university in Fredericton, one could conceivably have as good an education as someone attending university in Toronto.

This is no longer the case. As the federal government has withdrawn funding or reduced its rate of increase initially to later make cuts in transfers to the provinces, the provincial responses have been varied. Certainly, under the Constitution it is the province's right to do what it pleases, education being a provincial jurisdiction. Provinces with higher priorities to restrain the expenditure of dollars have tended to chip away at education, it being a relatively large expenditure. They've chipped away at educational funding and transferred the cost onto individuals, which has had a dampening effect on people's ability to go on to higher education.

Even where there is demand such as we're experiencing in B.C., the lack of space in the institutions has once again, as earlier stated, constrained our ability to provide the training and education we need. As a result, our ability to expand the economy is also constrained.

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We have long advocated before this committee and through our national organization, the Canadian Association of University Teachers, a restoration of transfer payments. We are aware that since those cutbacks to the CHST there have been several initiatives such as the Millennium Scholarship Foundation, the Canada Foundation for Innovation, and various tax measures, all of which have been welcome. They failed, however, to get at the core issue, which is that if we are to provide equalized opportunity across this country for people to learn and to intervene in their economy with their new ideas and their new knowledge, there has to be a way to get funding for institutions in such a way that they can provide a good level of education. These programs that have come along subsequent to the introduction of the CHST are not getting at that.

We echo the calls being made by the Association of Universities and Colleges of Canada for support to fund research overhead in institutions. However, I think we should recognize that this proposal is a political response to a lack of will on the part of the federal government to put money back into transfers to the provinces. A survey of the AUCC has seen that this is one way to get at this money, which is desperately needed by the universities, but it is not an equalizing measure.

The large research-intensive universities benefit greatly from this money. Smaller regional universities, primarily undergraduate universities, benefit very little, even in situations where specific designations have been made for the small universities. In British Columbia this is of particular concern to the University of Northern British Columbia, which was just getting on its feet at the time this constraint in federal spending was going into effect.

The other points I wish to make are in the written brief, and you can certainly read those. Many of you who served on the committee in past years have heard me go on at length on these matters before. I won't bore you to tears about it, other than to conclude by saying that although the world may have changed in the past number of weeks, there are still fundamentals we need to address if the economy and our society are to be sound.

I might recount that during the Second World War it was suggested we might suspend arts and humanities education at our universities for the sake of contributing to the war effort by providing people in the sciences, technology, and engineering. Although this was well intentioned, I think it would probably eat away at the soul of our country were we to think that that is the only response to international strife. Surely, if we are to maintain ourselves as a society and a people, we must continue to advance on all fronts in the face of adversity.

Thank you.

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

We'll now hear from the Credit Union Central of Canada, with Wayne Nygren, president and CEO of the Credit Union Central of British Columbia, and Richard Thomas, vice-president, government relations. Welcome.

Mr. Wayne A. Nygren (President and Chief Executive Officer, Credit Union Central of British Columbia, Credit Union Central of Canada): Thank you, and good afternoon.

As you said, my name is Wayne A. Nygren. I'm the president and chief executive officer of the Credit Union Central of British Columbia. I'm also on the board of the Credit Union Central of Canada and am chair of its National Legislative Affairs Committee, which I'm representing today.

With me is Richard Thomas, our government affairs vice-president, who is also on the National Legislative Affairs Committee.

On behalf of the credit union system of Canada, we'd like to express our appreciation for this opportunity to participate in this year's pre-budget consultation. I'll just briefly go through some of my notes here. The presentation has been handed out to you or will be given to you later.

Given the events of September 11 and the subsequent global campaign against terrorism, it is clear that Canadians have entered into a different world. Our credit unions are working to help Canada meet the challenges of that world. In keeping with the United Nations regulations and requirements on Afghanistan flowing out of the United Nations Security Council resolutions 1333 and 1373, credit unions are cooperating with provincial regulators to prevent terrorists from using the Canadian financial system to finance their operations.

Credit unions are also diligently working to implement the new anti-money-laundering regime that comes into force on November 8. We expect that this new regime will play an important role in combatting the scourge of global terrorism. New measures contained in the federal government's omnibus anti-terrorism legislation will be quickly integrated into our systems operations when it is adopted.

I'll just tell you a bit about the credit union system in Canada. We have 1,700 locations, 4.7 million members, and approximately $60 billion in assets. It's important to note that in most smaller communities, especially in Saskatchewan, Quebec, and British Columbia, the only financial organization is a credit union. For example, in British Columbia we have $24 billion in assets. We represent 1.4 million members, and there are 39 communities where the only financial organization is a credit union. That's going up by 8, 10, or even 15 every year. As other financial institutions move out, the credit unions have moved in.

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In terms of legislative initiatives and financial services legislation, the Credit Union Central of Canada is no stranger to this committee. Very recently we appeared before you when you reviewed Bill C-8, the financial reform legislation. We are very pleased that Bill C-8 has received royal assent and we continue to work with the Department of Finance on a number of regulations to be adopted under it.

It is crucial that the regulations under development be finalized in short order if credit unions and their centrals are to realize on its promise of a more competitive financial services sector.

From our perspective, there are a number of regulations that are essential to the credit union system if we are able to take advantage of the opportunities made available to us under Bill C-8.

A number of these include the following: regulations regarding substantial investments in associations, an essential item if the credit union system is to continue to exercise cooperative joint control of system entities; additional regulations regarding commercial lending; regulations governing insurance business operations; and regulations detailing the business powers of retail associations.

Currently the credit union systems are pursuing a number of initiatives that will tap the powers available under the act. Part of our strategy is to consolidate the provision of services where it makes sense to do so. For example, in the prairies, Saskatchewan, Alberta, and Manitoba, the credit unions are working to combine their IT operations. In central Canada or Atlantic Canada, they're looking to combine all their operations. The Credit Union Central of British Columbia and the Credit Union Central of Ontario are looking at merging their wholesale financial operations, including treasury and payment systems, into a federally regulated association under the Cooperative Credit Associations Act. This initiative relies on several amendments to the CCA act that will be brought into force by Bill C-8.

However, one change to the Income Tax Act is also crucial to this merger. We are working with the Department of Finance to seek an amendment to section 137 of the Income Tax Act. This effectively, without going into detail, will allow us, as we merge with Ontario, to pay back our retained earnings tax free to our credit unions who generated them for us.

In closing, there are a couple of other issues I'd like to leave with you. One is the crown lending agencies. Another area to which we would draw the committee's attention is the mandates and orientation of crown lending agencies. The Credit Union Central of Canada recently appeared before the agriculture and agrifood committee of the House of Commons when that committee reviewed changes to the Farm Credit Corporation Act. At this time, we indicated that credit unions are pleased to collaborate with crown lending agencies, such as the Farm Credit Corporation or the Federal Business Development Bank, when it is appropriate. However, we also indicated that crown lending agencies should work in a manner complementary to the efforts of private financial institutions rather than compete with them head on. We reiterate that view today.

The chair of this committee has recently openly speculated on the future of federal crown corporations. We would welcome such a debate and recommend that the government and possibly this committee examine the mandate and operations of crown financial institutions to ensure that there is no overlap in their operations, a concern frequently raised by credit unions.

The committee might also consider commissioning a study on the future orientation of the financial crowns. We would be pleased to participate in that also.

In closing, Mr. Chair, I again wish the committee success in its deliberations and offer our support in any way possible. In times of crisis, the importance of the federal government and all parliamentarians is readily evident. Forums such as this serve to refute the efforts of those who seek to use fear to undermine the institutions of our open and democratic society.

Thank you very much.

The Chair: Thank you very much, Mr. Nygren. Now we'll proceed to the question and answer session, and it will be a six-minute round.

Mr. Ken Epp (Elk Island, Canadian Alliance): Thank you, Mr. Chairman. Thank you all for being here. I want to get right to the questions.

First of all, to the board of trade, you indicated that you wanted to avoid a deficit and you encouraged the government to reduce the debt, as they have done to a certain degree. You want to have the tax reductions and yet you want to increase defence spending by 50%. you want to increase CSIS and RCMP. Do you really think all this is possible?

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Mr. Darcy Rezak: We think it's time the government changed its priorities. We think the government has had a decided shift over recent years towards entitlement programs and discretionary spending in areas that could be reallocated.

For example, $1.4 billion was provided for subsidizing heating oil last year. It's that sort of discretionary spending. There has been a dramatic change as a result of September 11. The director of CSIS is on record as saying that outside of the United States, Canada has more terrorist groups operating than any other country in the world. Should that be true...and the evidence would indicate that we have a huge problem. We're participating in an international emergency of war, as some are calling it, in the far corners of the world, with a Department of National Defence that is about 1% of GDP. Peaceful countries such as Norway and Sweden have about 2.1% of GDP.

We've had erosion over the past several years—several decades—in favour of social spending. When the government made a decision to pay seasonal benefits to habitual seasonal workers, which has the decided impact of having them stay in their localities, rather than to move where there are full-time jobs, that's not only a huge drain on the economy, but it's a wanton waste of taxpayers' money.

Mr. Ken Epp: Thank you. I have other questions for you, but I have to rush along.

I want to talk to the student financial aid people. I was an educator for 31 years, so I have a great deal of sympathy for the needs of students. By the way, I also taught at the technical institute in Edmonton. I was there for 27 years, at that time, half of my life. I can't believe it.

Anyway, my question to you is with respect to debt reduction in repayment. I'm not sure I fully understand what you mean by that concept. Is it now in place? Are you asking for it? What is it?

Ms. Jennifer Orum: Debt reduction in repayment was a program that was announced in the 1998 budget, and it was implemented but it has been set up in such a way that it has only helped, I believe, a couple of hundred students. The criteria for it essentially means it doesn't work.

The idea is an excellent one. What we're doing is encouraging the Ministry of Finance and HRDC to get together and look at ways to make it work. We have made in our written submission some very specific recommendations as to how to make it work.

We believe enough time has gone past with the announcement of this as a good thing that we'd actually like to see it acting like a good thing. So we're optimistic that over the next few months that work between Finance and HRDC can occur. I think it needs a little push.

Mr. Ken Epp: Is this something like income contingency loan repayments?

Ms. Jennifer Orum: Actually it is a fair bit different. What it means is when a student finishes school and five years have gone by, and during that period they have not been able to come into a financial situation where they can repay their loans, under that program they can have a portion of their loan cancelled and it will be paid by the crown.

Mr. Ken Epp: The other thing I find interesting that you did not mention was with respect to bankruptcy claims by students who are in default of their loans.

Maybe you're not involved with this, because by the time this happens the students are far gone from your jurisdiction. But in years past this committee heard over and over again that having students hang onto their debt for ten years, whereas other bankruptcies have three years, was a very onerous situation. Yet you didn't even mention that. How come? Has the problem been solved?

Ms. Jennifer Orum: No. It has not been solved. It is an issue that has been brought forward by the Canadian Federation of Students and other groups. There are many issues that relate to the area I'm in. Our group has chosen not to pursue that particular issue. It does not mean it's not meaningful. It just means we have chosen other areas to put forward.

Mr. Ken Epp: Thank you very much.

I have more questions, but I want to ask one of the Fuel Cells people with respect to the cost of energy. We're in a climate here in Canada, north of the 49th for the most part, except for Ontario and parts east, that's cold. It's cold up here. So we need a lot of energy. I wonder whether you've done any study with respect to the efficiency of your systems as opposed to what we presently have.

• 1415

Our fuel bills in the northern part of North America, in Canada, have gone up dramatically in the last couple of years. Do you offer us any hope of our bills going down? Or are you going to offer us only higher and higher bills in the hopes of reducing pollution? That is a very fine goal. But are our bills going to be higher?

Mr. Brian Josling: Fuel Cells Canada, as I indicated, is only six months old. So the answer to your first question is, no, we've not done any studies.

Secondly, the technology studies that I have read, as I've just come into this industry, indicate that fuel cells are a very efficient use of fuel, dramatically more than you have today.

Thirdly, I gathered while I was at an international conference in London, and certainly in the various discussions within Canada and with the American fuel cell companies, that there's a full recognition by all these companies that we are going to have to be selling cost-competitive products. If we are going to eventually compete with and remove the internal combustion engine in terms of the automobiles, you're only going to do it on the basis of what that costs. So there's no intent here of the fuel cell product surviving on any basis other than market forces, which of course involves being cost competitive.

But in terms of the efficiency in the use of fuels such as the natural gas and ethanol that actually do power the fuel cells, very definitely there is a much more efficient factor.

Mr. Ken Epp: It's curious that you want to have $50 million from the federal government. It seems to me that with the glowing future you imply here investors would be beating your doors down to bring money to your place.

Mr. Brian Josling: Alternative energy is the hot new area for the VCs, the venture capitalists, across the world and certainly in North America, and specifically within alternative energy fuel cells is number one. There has been a dramatic amount of private capital raised in Canada and certainly worldwide. But we are caught in a huge, competitive, global battle because of the $100 billion markets that are forthcoming. We have competitive governments that are providing the demonstration funds for their companies. We are requesting the Canadian government to assist us in that respect, but not on a sole basis. We're certainly competing and attracting private capital as well.

Mr. Ken Epp: Thank you. And of course when you do well you'll pay your $50 million back.

Thank you, Mr. Chairman.

The Chair: Thank you, Mr. Epp.

Mr. Roy Cullen (Etobicoke North, Lib.): Was that a yes or a no?

Mr. Brian Josling: We'll provide options if you wish.

The Chair: That's always a good thing.

Mr. Nystrom.

Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP): My first question is to my fellow Saskatchewan farm boy, Mr. Nygren.

What is the latest in the debate across the country in the credit unions for what they call the national bank of credit unions and making it easier for credit union members to access services coast to coast? Is there anything we should be aware of there in terms of the finance committee?

Mr. Wayne Nygren: As you know, our business is changing. One of the things we're finding in talking about a national community bank and how we come together more is that the feeling we came to after all the debate was that credit unions still want to stay independent, they want to have their autonomy, and they want to stay in their local communities.

If you look at our numbers now with ourselves and Desjardins and the caisses, we have about 3,000 locations, and the vast majority are in rural Canada. So we're trying to develop a system whereby we can keep all those credit unions autonomous. The only way we could do that, keep them autonomous, is if we get national infrastructures to support them, like national technology, national payments, national clearing systems, national liquidity pools, and national support

So that's what we're trying to develop. That's how we're getting around a community bank whereby credit unions stay local, they stay autonomous, they stay independent, but the suppliers, rather than be local or provincial, are now becoming national suppliers. That's why we're having to work with federal regulations and we're moving a lot of our business from provincial jurisdiction to federal jurisdiction. That's effectively the choice the system has made, to stay local, stay independent, but move to a national infrastructure to support them.

Mr. Lorne Nystrom: Do you envision any need for any national legislative change as you go along this process, or can it all be done with regulations within existing statutes?

Mr. Wayne Nygren: We've been given the assurance...and that's what I mentioned this afternoon. We need to see some of the regulations to actually make sure they work for us, especially with the ownership of the control issue and the whole area of commercial lending. Certainly, with some of the changes we're making as we merge the centrals together and redistribute the income, we need some changes to the Income Tax Act to allow us to pay back retained earnings we've built up over the years, on which we've already paid taxes, to credit unions and to start over again as new entities.

• 1420

Mr. Lorne Nystrom: What's the relationship now between the credit unions across the country and the caisses populaires?

Mr. Wayne Nygren: As time goes on we're becoming very close in terms of trying to define relationships. We're trying to put some of our backroom functions together. We're working together on our mutual fund business and our treasuries. So even though we're both independent, we're trying to merge a lot of our activities in terms of operational structures that support credit unions and caisses populaires.

Mr. Lorne Nystrom: Mr. Clift, you mentioned that you have 16,000 graduates per year in British Columbia and that you need 35,000. How does this compare with other provinces? Are you below the national average or above it? Are you the bottom province in the country? Put it in some kind of context for us.

Mr. Robert Clift: In terms of strictly undergraduate degrees, B.C. graduates about 80% of the national average. We've estimated that just to reach the national average over the next seven years we would need to put about 14,000 more graduates, or a university about the size of Simon Fraser, into the province. The last figure I saw indicated that we were at the bottom. We switched back and forth between nine and ten a couple of times.

In terms of overall participation, British Columbia is about in the middle of the pack in terms of people attending all types of post-secondary education, such as vocational training, paraprofessional training, technical training, etc.

With regard to university undergraduate education, we have a wide variety of ways you can get that in British Columbia. BCIT, for instance, offers degrees, as do a number of university colleges in the province and the Open Learning Agency. Still, with all those options, we are far below the national average, even though that's where we see the most growth happening in terms of what employers are demanding for credentials.

Mr. Lorne Nystrom: Has it been getting better or worse over the last 15 or 20 years? Why would B.C. be so low? B.C. is one of the three so-called “have” provinces in the country.

Mr. Robert Clift: It all goes back to an unfortunate decision in the seventies about the nature of higher education in British Columbia whereby the government of the day decided that the best policy would be to import the educated people we needed into the province, as opposed to fully providing those people from within the provincial educational system.

As far back as 1988 moves were made by government to start to change that policy. However, although the efforts to date have brought us up somewhat, we were in such a significant deficit at that time in terms of university graduates that we're only at the 80% mark, and it's insufficient. We're actually at a time now, as I think you will know from travelling the country, when well-educated people are needed everywhere. It's no longer the case that we can attract a university graduate from Saskatchewan, because there are opportunities for them in Saskatchewan as well.

Mr. Lorne Nystrom: You did before.

Mr. Robert Clift: We did before, and that was before that policy.

Mr. Lorne Nystrom: My last question is to the board of trade. You talked about doubling the military budget in the country and going from 1% of GDP up to the Swedish or Norwegian level of 2%. What timeframe are you looking at here?

Mr. Darcy Rezak: That would be over a 10-year period. We think an increase of 50%, about $5 billion over five years, would be a reasonable start.

Mr. Lorne Nystrom: What's your recommendation for this fiscal year? If Paul Martin were to phone you in the next five minutes and ask you how much money should be put into the military this year, what would you recommend?

Mr. Darcy Rezak: Going toward that goal you might want to front-end load it, given that we're involved in a conflict.

But we have an urgent need for equipment. It's amazing that we have patrol aircraft, such as the Aurora, flying around with navigation systems that are 20 years old and that were taken out of an old tank. There are lots of areas where we urgently need to upgrade our capital equipment. Fortunately, our navy is in very good shape. With new helicopters we'll probably have the most modern navy in the world—not the biggest but certainly a very capable navy. The air force and the army urgently need capital expenditures.

Mr. Lorne Nystrom: Our navy is certainly bigger than the Afghan navy.

Mr. Darcy Rezak: Yes, it is.

The Chair: Mr. Pankiw.

Mr. Jim Pankiw (Saskatoon—Humboldt, PC/DR): Thank you, Mr. Chair.

Mr. Rezak, to me anyway, you brought a very good breath of fresh air compared with some of the other presentations that have been made to the committee. As I'm sure you can imagine, every conceivable socialist group has been lobbying the government for more handouts. Your comments were all grounded in common sense.

• 1425

When you talked about the EI benefits, one thing you didn't mention, though, is the overpayment and the fact that approximately one-third of the EI payments are just dumped into general revenue and spent on these discretionary programs that are counterproductive. I don't know if you want to comment on that. I just wanted to compliment you, and then I'm going to move on. But if you have something to add, go ahead.

Mr. Darcy Rezak: There's no question that the money from the EI fund and the surplus have been treated as general revenue and discretionary spending. You can point out lots of areas where that has been spent, such as HRD grants. We don't think that's responsible in a time of emergency.

Maybe we could be persuaded that surplus should be dedicated to defence and security for a short time. We don't have a policy on that at this point.

But in the long term there's no question that the EI program ought to enhance the efficiency of the labour market, not inhibit it. It does now. There's no question about that. Certainly, continuing to pay fishing provisions under EI benefits, for example, where the fishers will work just long enough to qualify for EI....

But if you want to look at how to fund programs, there are all kinds of discretionary areas. A study was done not too many years ago comparing Iceland with Canada in the fishing sector. At that time I think we had 6,000 fishing officers. We had about the same volume of catch as Iceland. They had 200 fishing officers. I think it has been well-documented by Peter Pearse and others that the fishing sector is a net economic drain.

It's time we faced up to some of those expenditures and asked ourselves whether they make sense and whether they make sense in a time of a national emergency. Perhaps we ought to bell the cat and do what government should do, and that's firstly to protect the country.

Mr. Jim Pankiw: I have limited time, and I do have a question for the Fuel Cells people.

You mentioned enhancing efficiency. Are you with the chamber of commerce?

Mr. Darcy Rezak: No, I'm with the board of trade.

Mr. Jim Pankiw: The marginal tax rate, in its simplest form, basically penalizes success and rewards failure. Do you guys have any position on stopping people from going into high brackets just because they're making more money? They're paying, therefore, a disproportionate share of taxes.

Mr. Darcy Rezak: Our view increasingly is that we operate in a world economy and that our income tax regime has to be competitive. I think we all grew up in a time when people fled the U.K. to come to Canada, and it was largely because of high taxes. The tax rates are now lower in the U.K.

In fact, the per capita income is higher. Our per capita income is drifting down to the middle of the pack of the OECD. When we were growing up, we were used to being up there with Switzerland and the U.S. We're losing ground year after year, and a large portion of that is tax.

Probably the most dramatic evidence of the tax penalty we pay is in the university sector, where with the eroding Canadian dollar and the high tax rates, it's very difficult to attract top-flight professors to our institutions, and we're losing top talent in Canada to world universities.

Mr. Jim Pankiw: I'll just try to finish up with one more question, Mr. Chair.

Mr. Clift made a point to Mr. Josling that despite the leading-edge technology that fuel cells may represent, the funding of basic research is an important role of government. As you move from basic research to applied research, at some point the government ought to back out. So on your request for $50 million, I'm just wondering how you see that. As Mr. Epp pointed out, if you're that close to having this as a commercial, viable industry, why would government put money into it? Or are you not there yet?

• 1430

Mr. Brian Josling: We're not there yet.

Fuel cells have been under development now, starting with Geoffrey Ballard, for about 12 years. We are, as I said, three to four years away from market. There are massive amounts of capital chasing the development of fuel cell technology and fuel cell products across the world.

The reason for the request of the Canadian government is simply to protect the leadership we have. We have about 3,000 jobs in Canada today in the fuel cell industry, and we certainly would like that to be 50,000 or 75,000 five years from now. If there is not the support to assist in the final—and we're talking about pre-commercialization demonstration funds, not the early research stuff. That's handled, as you know, through NRC and whatever.

If we don't have that assistance, we are going to find many of our Canadian companies moving to the U.S. and elsewhere where it is being provided, by DOE, in the case of the U.S., or in Japan or Europe. We are in a competitive battle, and the competitive activity is that other foreign governments are spending a huge amount of capital to assist their companies. The reason we need the demonstration programs comes back to the earlier question. It's called cost reduction.

We have fuel cell cars coming in today that are not price competitive. We have to bring the cost of a fuel cell driven car down roughly about $20,000 to $25,000. That can and will be done, but only through more research and more demonstration projects.

Mr. Jim Pankiw: Thank you.

The Chair: Ms. Barnes, followed by Mr. Cullen.

Mrs. Sue Barnes (London West, Lib.): Thank you for your presentations, gentlemen and madam.

I want to talk about capital tax right now. Maybe, Mr. Harrison, you can start on this and perhaps the Vancouver Board of Trade would like to chime in.

First of all, I know there are seven provinces that have capital tax on corporations. Is B.C. one of those provinces?

Mr. R.W. (Bob) Harrison: B.C., to my knowledge, had it.

Mr. Christopher Hebb (Project Associate, Trilennium Mentors Ltd.): British Columbia did have corporation capital tax. It has now eliminated this tax except in the case of financial institutions.

Mrs. Sue Barnes: That leads to my second question. The CBA has been asking repeatedly for elimination of capital tax on financial institutions, and I would like to hear your viewpoint on that. I'll give you my perspective. I see it as a good regulatory measure, and they need it for the requirement of holding capital in their institutions for all of our collective stability. I take it from the board of trade's presentation you're asking only for its elimination on corporations. You're not venturing into financial institutions.

Mr. Darcy Rezak: No, we aren't.

Capital tax imposes on bank profits, and we've all seen the history of savings and loans institutions in the U.S. when banks were not profitable. We saw the history of banks in Japan and the problems there.

Bank profits go to three places. The first place they go is to the shareholders. The biggest shareholders of Canada's biggest banks are union pension funds, widows and orphans—and that's through dividends. The second place bank profits go is to income tax. Seventy percent of all income taxes are transferred to individuals. The third place bank profits go is into retained earnings to do more of the two above.

So we're against anything the government would do to inhibit bank profits, because so many Canadians benefit from profitable banks.

Mr. Christopher Hebb: On the capital tax side, for seven years I've invested capital on behalf of Canadian pension funds and business-investor immigrants. A couple of years ago, the federal government took steps to try to have reporting of foreign assets. The opinion of the immigrant investors was that they were suspicious of the federal government, that this was the first step toward personal capital tax. They could already point to the fact that corporation capital taxes were in effect in Canada.

Capital taxes are inherently unjust and I think denigrate the credibility of the Canadian tax system.

Mrs. Sue Barnes: So you're in favour of dismissing them on both financial institutions and corporations?

Mr. Christopher Hebb: I'd eliminate them altogether.

Mrs. Sue Barnes: And Mr. Harrison?

Mr. R.W. (Bob) Harrison: Yes, same thing.

Mrs. Sue Barnes: All right.

You talk about the board of trade's perspective on increased military spending. I want to get a feeling of what your ultimate goal is here. Are you doing sufficient spending, in your estimation, to bring us into a military power situation, or to just bring us to being a credible contributor to engagement? There's a difference, and I'm trying to get where you're going here.

• 1435

Mr. Darcy Rezak: Well, Mr. Chair, if you take a look at our spending, I think it was 0.9% of GDP last year. I think we're comparable with Luxemburg. We're members of NATO. We're a treaty signatory of NATO. We're treaty signatories with the North American Air Defence Agreement. We have coasts on three oceans.

For the sake of argument, when you take a look at 1% of GDP being spent on defence, and you take a look at our soldiers being tasked with virtually every UN engagement since the Second World War, we're stretched pretty thin. We've been taking advantage of our soldiers. We've been overcommitting them. We were involved in the Gulf War. We're involved in the war against terrorism. But we're a country that harbours terrorists, and the response to that has to be part military, part police, and part intelligence.

We're not up to the task by any international benchmark or standard, so we're suggesting starting with a $10 billion budget and increasing that by $5 billion. Even if that were increased in one year by $5 billion, it still wouldn't consume the federal surplus of last year. That could have been done within the federal surplus. Transfer payments alone are $12 billion, so I'm not talking about a $50 billion increase. I'm talking about a modest increase over time that even then wouldn't bring us up to the standard of a country we'd like to compare ourselves with socially or economically, like Sweden or Norway.

What I'm saying is, why don't we find some countries in NATO or elsewhere around the world that we would like to compare favourably with in terms of how they protect their citizens, and establish that as a benchmark. I don't think any Canadian would accept that our military are in a position to protect us.

Let me say one thing. When British Columbia joined Confederation, one of the requirements was that there would be an army in British Columbia. We have no regular army in British Columbia. The last regular army we had in British Columbia was at Camp Chilliwack, the Royal Canadian School of Military Engineering. It was full of technicians, engineers, heavy equipment graders, and so on. It was all moved across the mountains to Edmonton. We're in an area where we can expect to have tsunamis, earthquakes, floods, and volcanoes, and we'd have to go to Edmonton for the rescue work. In fact, we'd go to the National Guard in the United States. That's where we'd go.

When Canadians pause and take a look at the risks, not only from natural disasters but the risk of terrorism that now is so prevalent...I don't think we're in a position to respond, particularly when we're sending our soldiers halfway around the world—we have three ships now that have been sent abroad. We've had a navy frigate integrated full-time over the last five years with the U.S. battle group in the Persian Gulf enforcing the UN embargo against oil exports out of Iraq. Does anyone know that? It's part of the U.S. aircraft-carrier battle group.

We're stretched pretty thin. We don't have enough sailors to man our ships. We don't have enough equipment. We don't have any regular armed forces presence in the north, so there is no protection for the Arctic Ocean at all.

What I would suggest is that we do an objective assessment with a broad cross-section of Parliament or Canadians, or an inquiry, just to see where the shortfalls are in terms of defence. They're pretty glaring under the cold light of terrorism, and I think we have to respond, at least in some reasonable measure. We're suggesting a 50% increase at the outset and then 2% of GDP in the long term.

Mrs. Sue Barnes: I wasn't here for this presentation last year from the board of trade. This wasn't a priority for you last year at all, and probably wasn't part of your presentation in previous years either.

Mr. Darcy Rezak: No, Mr. Chair, it's changed. I guess, like most Canadians, we can see lightening and hear thunder. Something happened on September 11, so I think we should respond.

• 1440

Mrs. Sue Barnes: What I have been hearing, and why I'm asking you about this military power versus contributor aspect, is that in my area there is lots of support for spending on security and less support for spending on military. But I think most people around this room have seen a reason to increase military spending. It's a question of proportion and where you put your resources, because they're not infinite. You're saying clearly you don't want to go into a deficit even in a cyclical nature or even as a percentage of debt-to-GDP ratio. You're not even allowing or wishing the government to go that way. Yet from the way you present, you want us to be a much greater power. I'm telling you that what I've heard is more to the security aspect as opposed to the defence aspect. Perhaps I need to hear from somebody else.

Mr. Darcy Rezak: May I just have one last word here.

Let's put in perspective what we're talking about—the $5 billion. It's $5 billion on a $175 billion federal budget. We're not talking $25 billion. We're talking $5 billion over five years.

Mrs. Sue Barnes: Mr. Hebb.

Mr. Christopher Hebb: I do believe that Canada ought to have sufficient military capability to be a contributor to North American defence, so that you do have a say in what goes on in NORAD and what goes on in NATO and you can play an appropriate role. I have no doubt that Canada has the capability to properly participate. After all, at the end of World War II, Canada had the third largest navy in the world.

In more recent times we've seen that our Canadian military really can perform. I was down at a navy reunion in 1993 and had a tour of the HMCS Iroquois after it had been refitted as a result of the Gulf War. The technology that was being employed on that destroyer was in advance of the American technology. At the same time, the Russian fleet interfered with two cruisers and a couple of destroyers for the first time in Halifax harbour since 1945. They were so interested in the Canadian technology that they brought with them 23 admirals. It was the Canadian Navy's job only to disclose the appropriate amount of technological information.

It shows that we can be world leaders with our military by the application of very advanced technology. Military expenditure is certainly a good way to generate technological capabilities for our young people in this country as well as enabling the country to be a proper contributor in international military affairs.

The Chair: Thank you.

Mrs. Sue Barnes: Am I out of time?

The Chair: Out of time, are you kidding me?

Mrs. Sue Barnes: I have unanswered questions, but we'll leave it at that.

The Chair: That was earlier this afternoon.

Mr. Cullen.

Mr. Roy Cullen: Thank you, Mr. Chairman, and thank you to the presenters.

There are a number of people here this afternoon and not enough time. I would concur with my colleague, Ms. Barnes. In a time of scarce resources, it seems to me, in terms of value for money, that putting this huge investment, as you're proposing, into conventional defence may not be the wisest thing to do. Most of the military experts I've read say the world has changed and conventional warfare, although perhaps not a thing of the past, has certainly altered significantly.

What I'm hearing as well is for an increased effort in security and intelligence, but a massive increase in our defence capabilities.... We actually co-run NORAD as it stands right now. Now in NATO I agree we're probably not carrying all our freight.

Just for the record, the surtax on the capital financial institutions was eliminated in December 2000. We still have a capital tax. I agree with you there's no real policy rationale for it. But our capital tax federally is about $1.2 billion and in the provinces it's about three or four times that. So we need to work cooperatively with the provinces.

I had a question for Ms. Orum. In your brief you have a heading, “Assistance for Part-time Students”. In our party's election platform we talked about the registered learning account. I don't know whether you've heard of it. I have lost track of where it is in terms of development. In fact, given the events of September 11, it may be a while coming, I'm not sure. How do you see that working? Do you have any ideas on how that might be structured, particularly in the context of your remarks in your brief about the need for a review and a reconfiguration of assistance to part-time students?

Ms. Jennifer Orum: In fact, that's one of the things we would hope would come out of such a review. There has been discussion for some years on the issue of something such as a registered learning account. The Association of Canadian Community Colleges recently had a task force and one of the recommendations that came out of this task force was very similar to the registered learning account.

• 1445

We are certainly supportive of that idea, but we believe there has to be a comprehensive review of the full picture for the lifelong learner. What we're hoping will not happen is that there will simply be an announcement of a number of new policy initiatives without appropriate thought. There have been cases in the past, not with this government but with other governments, where things were announced and then it has taken years to recover from them, because there wasn't the consultation upfront.

Basically, our plea is that it's a complicated area and a very important aspect of the economy to make sure that people are lifelong learners, to meet many of the needs that others have talked about. We're just saying (a) it should be studied—I know most people say let's have action, not study—but at the same time we're saying (b) don't go and monkey with the programs in the short term before you know what you're doing. Indeed, the learning account is an excellent idea. The success will be in the details.

Mr. Roy Cullen: Are you plugged into the process of designing the registered learning account?

Ms. Jennifer Orum: No, we have not been contacted on that. We understand there are a number of discussions going on in HRDC, and the Canada student loans program folks are looking at part-time assistance. But it's all under wraps. We have not been informed of what's going on at the moment. I believe we sometimes are not part of that, because it has political implications. We very much would like to be.

Mr. Roy Cullen: Thank you. Well, I think you should be, given your expertise in that area.

Mr. Harrison, in your brief your firm strongly recommends more attention from the central government, including budgetary measures, to stabilize our dollar's value. We all worry about the dollar. It tends to be more a story of the strength of the U.S. dollar. But what, specifically, in concrete terms would you suggest we do about it?

Mr. R.W. (Bob) Harrison: When we prepared the brief we had 15 or 20 mentors debating how close or how far we get to being Americans.

The issue really is everybody in the country, especially in Parliament, has to be conscious that whatever you do in legislation to make us slightly less competitive basically undermines the Canadian dollar. If you undermine the Canadian dollar, you encourage the brain drain and it's a slippery slope. Our idea is you have to be cognizant of what the solution is to bring it back up. One of the comments I didn't read before but I was going to make in the opening statement was that there's no more room for monetary policy in Canada, as there's no interest left.

You have to do everything with fiscal policy. What could you do in a fiscal policy sense to strengthen the Canadian dollar? One of the comments we spent a fair bit of time discussing was an example such as labour legislation to try to get costs down.

One of the points we've been making to this committee over the last two or three years is you have to recognize that technology is what improves productivity, not more employment, unfortunately. I understand the political necessity of employment, but the issue is technology.

Going back to a previous question, Canada—AECL—invented irradiating technology. That's a Canadian technology, and the only place we're selling it—to my knowledge and I may not be exactly right—is to Johnson & Johnson in the United States to irradiate bandages.

But in effect when the Postmaster General in the United States says we're going to irradiate the mail, he's talking about Canadian technology. We're the only people who have that technology, and what it involves is just killing all the bacteria on anything that passes through what is in effect a tunnel. We have that technology. We may be leading edge in other technology that people haven't figured out.

That's where productivity comes from. Productivity comes from good technology. In that sense, holding on and protecting labour may in fact be costing us a lower dollar. We might have to actually bite the bullet and do the shifts and go back to the point we were talking about before about keeping people in the wrong geographic areas, etc. I understand the politics of that, but it is the answer. The answer is we just have to get competitive. It's competitiveness that will basically strengthen the Canadian dollar.

Mr. Roy Cullen: I have just one question for Mr. Josling. The fuel cell story is an amazingly good one, and congratulations to you and all your members. Mr. Epp asked about repaying the $50 million. Maybe he partly had his tongue in his cheek, I don't know, but you know the program, Technology Partnerships Canada—

Mr. Brian Josling: Absolutely.

Mr. Roy Cullen: —which has helped Ballard and maybe others—

Mr. Brian Josling: Yes. DuPont has a big presentation there right now. DuPont is a member.

• 1450

Mr. Roy Cullen: Yes.

Why would we not as a federal government want to support your sector through that vehicle, on a one-off basis, where there is a chance actually for the federal government to pick up a royalty, rather than lumping $50 million under your administration? I'm sure you can do a great job with it, but why would we go that route rather than a TPC approach on a one-off basis?

Mr. Brian Josling: As a guy who has paid more taxes than I care to think about, the answer is, I would be fully open to any kind of discussion of that nature, because it's what I believe in.

The reason we suggested Fuel Cells Canada as a potential funding agency is that we're doing it today with a $6 million fund we have from the B.C. government and WED for demonstration projects for the B.C. companies. We were asked to do that, and we felt we might be asked by the federal government to be the funding agency, because we could provide independence and ensure that the funds are allocated in a fair and equitable manner across the country, so that there would be no concern on the part of the public about the federal government favouring individual companies or individual areas of the country. But frankly, we would be open to any kind of a funding program that would be beneficial to the members, and most importantly, would benefit the attraction of more private capital into this industry.

We are open.

Mr. Roy Cullen: Thank you.

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

I have a couple of questions, very quickly, for all panellists.

How important is it that Canada remain in a non-deficit position in upcoming budgets? In other words, let's not return to the deficit. How important is that?

Mr. Christopher Hebb: I think it's extremely important. That will give confidence in the Canadian dollar and will avoid further erosion. After all, a deficit is just making things worse down the road and trying to load the problems onto your children and grandchildren. So it's essential that that national debt get reduced and we avoid any kind of deficit.

The Chair: Anyone else?

Mr. Wayne Nygren: I agree that the government should do everything it can do to stay out of a deficit position. We have to pay it back later on, and I think the public is confident that the country is moving forward, even though we're in difficult times now. I would certainly discourage you from going into any deficit financing or any deficit programs.

Mr. Brian Josling: I would certainly agree as well. The government is starting to show some progress in the last four or five years. Your problem, of course, is that you're caught in the current environment. It may be very difficult to maintain a surplus strategy.

Mr. Richard Mahler (Director, Vancouver Board of Trade): From the board's point of view, we invented the debt clock, as you know, and our concern has always been that the first bump in the road is where the real mettle of the government is going to be tested. We think that in the international markets, as well as with Canadian confidence, the lack of a deficit is extremely important.

The Chair: Anybody else?

In reference to the budget, how important is it that we perhaps contemplate the idea of going earlier than a February budget?

Mr. Richard Mahler: Mr. Chairman, one of the things we were concerned about was the economic statement being followed by approximately 18 months of no budget. If a budget is brought down earlier, I think the board would certainly support that. If it's simply going to be an economic statement where there's a limited amount of public discussion and policy on spending matters, I think we would prefer to see a budget.

The Chair: Mr. Clift.

Mr. Robert Clift: Certainly, the economic statement without budget follow-up was a lost opportunity for discussion about what should be the priorities of the government's renewed mandate. The other side of it, though, is that given the way things have changed, I think we need to be clear about what it is we're going to do, not simply to issue a budget for the sake of having a budget. There are a lot of tough decisions to be made in all sectors, particularly with respect to defence and security, and I think we need to have some of those answers, or at least some of those processes set up, so we're on the way to an answer, before issuing a budget, and that may take more time than you have right now.

The Chair: Mr. Hebb.

Mr. Christopher Hebb: It seems to me we've gone through such a radical change with international terrorism in the last short while that I would expect the government would take a few months to reorder their priorities. Obviously, you've got to figure out which governmental programs are going to be shelved or eliminated as you reorder those priorities towards internal security and a military capability.

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Mr. R.W. (Bob) Harrison: Just to add a point, the issue we haven't discussed yet is that of border access and the fact that we're in effect a company, as a country, with one major client called the United States.

We have to keep that client happy; otherwise we have no business for that part of our economy, which is a major part. I think the budget has to be used for the purpose of reassuring the customer that in effect we've understood the message and are basically putting our house in order in a way the customer's happy with. Don't forget, we have one customer.

Mr. Wayne Nygren: I think it's important that you don't react to circumstances by putting budgets in place when they're not due. I think you should take your time; think what the circumstances are; use the institutions that were set up to help the economy—such as the Bank of Canada, with what they're doing today by dropping interest rates—use that environment rather than a budget itself.

I think it's important to bring in a budget, but it's difficult to bring in a budget when circumstances are changing so rapidly. I think it's a mistake to try to react at that moment. You're better to sit back and try to analyse what the situation is. Use the institutions that are set up to provide the support to the economy—as David Dodge did this morning.

The Chair: Anyone else?

I want to go back to an issue raised earlier. I think it was Mr. Harrison who brought up the issue of productivity. We all know that productivity is a large determinant of the standard of living we enjoy as a country.

If you were to look at some of the economic fundamentals—if you were to make a list of what the proper economic fundamentals would be for economic growth—you'd probably say low inflation, low interest rates, the elimination of the deficit, the lowering of the debt: all things that, more or less, Canada has done.

Now, there are those who will advocate lowering the debt even further, and I don't think you're going to get anybody to say that's not important. I think it is important, particularly as we see that the most recent reduction has freed up $2.5 billion in interest payments, giving us greater flexibility to deal, for example, with a national security package or whatever other priorities we may have.

The lowering of the taxes by approximately $100 billion I think sends a very strong signal to people that you're in fact rewarding their efforts, creating an environment where people want to invest and save.

So I think the signals are right. The macro picture, in fairness, since the year we had a $42 billion deficit, has improved.

I think the private sector in Canada also has to do some soul-searching. By that I mean that in the 1980s the Americans were investing heavily in technology, and the benefits were self-evident in the 1990s. That's why you've had the productivity gains and also the phenomenal economic growth of the United States.

When we look at that picture, we understand what the responsibility of the government is. I think it's been made very, very clear. But where do you think the responsibility of the private sector lies? Why haven't we, for example, made the investment in technology or human capital that is required to compete, first and foremost, within the continental market, and secondly, globally?

Mr. Richard Mahler: I'll take the chance to answer just a portion of that question. It's a very good question. In fact our committee met this morning, and we debated it at length.

Ten years ago we had a 90-cent dollar. Today it's worth 64 cents. The government has done a lot of things. In fact, our inflation performance has been better than the U.S.'s in that intervening period. You're correct; taxes have come down. It seems in the case of every piece of news that hits the Canadian dollar, when the bad news goes away—such as news about energy prices—the dollar doesn't recover. It just accepts bad news and then keeps dropping lower.

We had an economist in town last week who referred to the exchange rate not as a floating exchange rate but as a sinking exchange rate. Who knows where the floor is going to go?

I think productivity is the issue. I don't think it's solely a government issue. The government has done—the federal government particularly—a pretty good job in that area. I wouldn't say there isn't more improvement that can be made, any more than that there isn't more improvement to be made anywhere else. I think the private sector has to do a lot.

• 1500

The trouble with the dollar falling as precipitously as it has—and it coincided with the free trade agreement, almost at the same time—is that it has basically allowed Canadians to compete without having to bite the bullet on productivity. When you're an exporting company, as most of the companies in Canada are, you can simply live off the falling exchange rate.

At some point the private sector is going to have to bite the bullet. Somebody talked about pegging the exchange rate. If that were to happen, it would force it, but there would be a lot of hue and cry in the economy. Growth would stop for a period of time; unemployment, for sure, would go up; the government would be extremely unpopular. It's a question of when we want to make that move.

I think that move is going to have to be made. It's either going to be made for us, or we're going to have to do it ourselves. It's a good question. I don't have the answer to it, but I did want to support the view that the private sector absolutely has to make a lot more investments and become a lot more productive.

The Chair: Without making it more complicated than it actually is, if a firm is operating on a 63- or 64-cent dollar, one simple experiment or practice could be to ask oneself, “If the dollar were at 75 cents, would I be in fact competitive? How do I benchmark my company at a 75- or 80-cent or an 85-cent dollar and act accordingly?” By that I mean perhaps purchasing more productive machines or training workers better. Do you know what I mean? These are exercises I think the private sector needs to do for its own future planning, to challenge itself before the big macro-picture changes.

Mr. John S.R. Montgomery (Project Associate, Trilennium Mentors Ltd.): I would just reinforce what Richard said. It's a bad catch-22 for many of the traditional industries, because in fact they have been saved by the low dollar, and there will have to be a difficult adjustment of reinvesting in productivity improvement that will cause some dislocations initially. So it's a catch-22; it's a “chicken and egg” question. Are we going to fix the dollar first hoping that will force the investment, or will these changes happen in parallel? But there are industries here that, if you look at their unit costs and their unit consumption to make their products, aren't competitive any more, and it's largely because they've had the benefit of the low dollar.

So there will be that price to pay. We still have a lot of good resources and a lot of good people who can deal with the situation, but there will be a dislocation initially, and many gut-wrenching decisions having to be made by the private sector to address it.

The Chair: Mr. Hebb.

Mr. Christopher Hebb: I think part of the issue may relate to labour mobility and the ability of labour situations to change. I think about the province of Newfoundland after the cod disappeared. They had all the federal help going in there for a period of time. That was fine. Everyone sat around and ate off the federal plate. When that stopped—very quickly after that—Newfoundland developed a far more efficient and larger fish-processing industry than they've ever had. They're processing more fish today than they ever have—mind you, with fewer people.

What happened to the other people? Well, 20,000 of them are out in Fort McMurray, and they're participating in one of the most efficient industries: we're world leaders in terms of the tar sands. If we can move our people around in this country to really work in the areas where we can be productive, I think that's going to help. Every time you hear about some union saying “We don't want to contract out”, you know somebody can do it more efficiently and more productively out there, and that union doesn't want it to happen.

Those are the signals you get.

The Chair: Mr. Clift.

Mr. Robert Clift: I just might note—specifically on the Newfoundland example, of course—that a great deal of that technology is developed at the Marine Institute at the Memorial University of Newfoundland.

A voice: [Inaudible—Editor]

Some hon. members: Oh, oh!

Mr. Robert Clift: Actually, I think the university there might have a larger navy than...certainly Afghanistan. There's no doubt about that.

• 1505

But you're right, Mr. Chair, entirely, that Canada—for whatever reason—historically has a low private sector investment in research and development. There have been several programs over the years to try to improve it.

I believe I saw an article today—I don't know if it was in The Star or The Globe and Mail—that suggested the current tax credit scheme doesn't seem to be working to full effect. I don't know the answer to that. I know there's a research group at Simon Fraser that's been working on those questions for years, and also, I believe, another research group at Queen's. That information needs to be looked at by the people who are expert in this and know how to do it.

But we also have, historically, a low public sector investment in Canada in research and development. Your government's own goal of going from fifteenth to fifth place in investment in research and development is admirable, and it's something we need to make steps towards. I've not seen the most recent figures, but I know that a few years ago OECD figures put us only above Italy in terms of the amount of GDP put into research and development. That wasn't a good place then. It still isn't a good place. We need to be better.

The Chair: What's not a good place: Italy, or the placing?

Mr. Robert Clift: Italy is a wonderful place, in terms of investments and.... Italy's a wonderful place.

Some hon. members: Oh, oh!

Mr. Robert Clift: For the record, the university community in British Columbia thinks Italy's a wonderful place!

With respect, going back to the Newfoundland example and the federal aid that went in there after the collapse of the fishery, this is another example where the support policy and the education policy didn't quite mesh, because a lot of the support money went into short-term training programs for what were thought would be important skills at the time. So we had a lot of fishers learning how to use a computer and a computer keyboard. Then, ultimately, that's not where they went, because that's as far as their education went.

If it were part of an integrative economic development strategy to develop a particular high-tech industry.... That's the way that discussion and the support should have gone. But what happened is that training support was limited to calculating “How much could we do in this amount of time for this amount of money?” and didn't do anything but serve to keep people off the welfare rolls for a time, as opposed to equipping them with skills for retooling themselves for a new economy in Newfoundland.

The Chair: I just want to ask a final question in reference to the issue related to the integrated or—it's becoming more and more integrated—the whole North American economy. Canadians have for many years enjoyed what I consider a very generous social safety net and have grown accustomed to it. That is not the story, of course, in the United States. They don't have the type of safety net we've had for many decades.

But, of course, what has happened in the United States is that, for whatever reason—and this is only my reading of the situation, by the way—there seems to be a greater entrepreneurial spirit, an entrepreneurial spirit that has of course now a greater impact on our own economy, because we're competing with them as the two economies become more and more integrated.

Where do you feel we are in terms of entrepreneurship in Canada? Is being an entrepreneur something you're born with? Or is it something the economic conditions and economic framework of the nation lead you to become? We share a lot of things with the Americans; perhaps we don't share that. We're not as entrepreneurial, I don't think, as Americans.

Mr. R.W. (Bob) Harrison: Maybe I could lead off, just by adding to your question more than answering the question.

When I describe the history of Canada to outsiders, I always say, you have to remember we've always been agents to other people's investments. We basically have been the bankers and the lawyers and the insurance companies and the employees, but we've always lived off some foreign investment coming in to create the project.

In a sense, it's breaking that mould and getting to “We have to have our own projects; we have to own our own activity” that has been very difficult for Canada since Confederation. I remember 30 years ago being in this kind of forum complaining about the fact Canada has no entrepreneurs. This problem is not new. It's focused in a basic fact that's partly to do with the way investment is formed, and in the fact that we don't have a lot of investment formed here.

A good example of solving it, in a way, is that of the Caisse du Dépot of Quebec grabbing the pension funds and trying to get them directly into backing entrepreneurs and getting something done. It's a very basic Canadian problem.

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Mr. Darcy Rezak: Yes, I think we have a different social history. Canadians, when they're in trouble, tend to go to the government. Americans, perhaps, tend to go to family. The American market is ten times larger than Canada's.

The best way to spawn entrepreneurs in Canada, in my view, is to have a competitive tax regime—in particular, high marginal tax rates should be competitive—and to ensure that we have free and ready access to the U.S. market.

The concern we have right now, of course, is that containers are being routed to Tacoma, Seattle, and Long Beach that would ordinarily come through the Port of Vancouver and onto a train directly to Chicago. That's not because CN and CP are being held up at the border, because they're not.

It's the perception that the U.S. is unhappy with our lax refugee system because we're the only country in the world I'm aware of that will allow anyone to come in as a foreigner and have full rights of a Canadian citizen. A refugee without papers is given a lawyer, a hotel room, welfare, and a date to appear in a couple of years. Nobody else does that. So the Americans are very upset with that and are making it difficult at the port.

We at the board of trade have championed what we called the PACE lane, which became the CANPASS system. It allowed people with preclearance to drive right through the border and just drop off a card listing any purchases to be charged against a credit card. That's been eliminated. We've been informed by U.S. and Canada Customs that will not be reinstated. We don't know why, because it's a more secure system than having people go through a lineup where there's no kind of preclearance.

Part of the reason for that, we're persuaded, is because the U.S. has this view. So if we can take steps, through budgetary and policy measures, to ensure access to the U.S. border, then Canadians having access to that large market can be encouraged, with a good tax regime, to become more entrepreneurial.

Our universities here in British Columbia are, in fact, doing a good job at focusing on entrepreneurialism and teaching that at Royal Roads, UBC, and Simon Fraser that I'm aware of. I'm sure there are others.

The Chair: Mr. Reid.

Mr. Christopher Reid (President, Cellex Limited): I have just a couple of comments.

I think everything that was said is valid, but the question you ask is an extremely involved and complicated one. It has a lot to do with the culture in this country, and the way people go through the various cycles in what they're taught and what they learn.

We don't necessarily have a culture of reaching for the brass ring in this country—of driving to the end. We don't really have a culture of standing up and saying, “Hey, we're going to be the best at something and this is what we're going to go through with”. These are fundamental issues we just need to address, through programs we are talking about here that Brian is arranging, access to capital, and how we raise money to fund our companies.

When we get to a certain point in our development cycle, we tend to kind of hand the ball off when it's the final lap of the race to finish it off. We can raise so much money here before we have to go somewhere else to raise the rest of the capital.

We take our technologies to a certain point, and our universities are instrumental in getting us there, but then just when it becomes really important to drive toward that commercialization, we don't seem to be able to garnish a collective will to do that.

I think it's a great question and has a lot to do with the culture, reaching for the brass ring, and the mentality of the people. It has to go through the systems in this country.

The Chair: Thank you.

Mr. Hebb.

Mr. Christopher Hebb: In terms of the entrepreneurial spirit, I'm very optimistic about our immigrant communities. You talked about how in the 1960s and 1970s that whole safety net was built in Canada. These immigrant communities are far more interested in internal security. After all, they came over here to escape the Triads, the Tamils, and the Islamic militants. They came from very small sort of entrepreneurial family-run businesses. You see that as you travel through China—all of their industries are really cottage industries.

I think their priorities are going to be very much different from what we've seen in Canada in the 1960s and 1970s—sort of the Trudeau age. They are going to be asking the government for more internal security to protect them from the terror being imported into this country.

• 1515

Forget about our social safety nets; they can handle things with their own families. After all, particularly the Chinese are very genealogically oriented. Out of a country of 1.4 billion, they know who all their relatives were, all the way back through the lines.

The other thing, Chris, in terms of what you were talking about in reaching for the brass ring, certainly in our Chinese community you see that with those students. They'll be the top medical students, the top lawyers, the top in any of these fields. So the concept of reaching for the brass ring is going to return in our community. I'm optimistic that our immigrant communities will help to really drive this entrepreneurial spirit in this country.

The Chair: Mr. Reid.

Mr. Christopher Reid: I would like to quickly add—and I think the board of trade has hammered on this quite a bit—don't forget that a big portion of entrepreneurial spirit has to do with greed, and the rewards have to be there for people to take the risks.

The Chair: Mr. Clift.

Mr. Robert Clift: Following up on Mr. Reid's points, in the analogue in the university community, we have people who are grasping after the brass ring all the time, but we're sometimes losing those people because they can't get the support for the basic research they need to be done here—the research that sometimes turns into the new products, the new drugs, the new methods of conducting medicine and such. We lose them to the U.S., which frankly does a much better job of funding basic research.

We have home-grown people ready to do the work here, but we lose them because we can't provide them with the support to do that basic research. We see this analogue throughout both the private and the public sectors.

Mr. Brian Josling: I don't quite agree that there isn't a strong Canadian entrepreneurial spirit. If you ever want me to arrange it, I can help you meet 12 or 14 Canadian presidents of Canadian fuel cell companies, and these guys will blow you away. Chris is one of them. There are a lot of them here. We're looking for the environment in which we can develop more. Collectively, that group of companies employs about 3,000 Canadians today.

By the way, last week three American corporations, with huge logos you and I would recognize, invested roughly $450 million U.S. in two of those companies. That's what we have to stop. We don't want them stealing our talent or our companies.

The Chair: You're not going to get much disagreement about the fact there is an entrepreneurial base. But the fact that you said we require more speaks to the point I raised that we need to be more entrepreneurial.

I want to thank you very much for your input. Obviously these are difficult questions, but there's no question in my mind that we need to change some things, and that's what the development of a country is all about.

Thank you very much. We look forward to seeing you again, I hope soon.

The meeting is adjourned.

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