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STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, October 31, 2001

• 1715

[English]

The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I call the meeting to order and welcome everyone here this afternoon.

We have the pleasure to have with us, from Ducks Unlimited, Barry Turner, director of government affairs, and Brian Gray, director of conservation programs.

We will have a presentation, and then a question and answer session will follow.

Mr. Turner, welcome.

Mr. Barry Turner (Director, Governmental Affairs, Ducks Unlimited Canada): Mr. Chairman, thank you very much. We're very grateful to have a chance to speak to you about an issue that we think has large environmental, economic, and financial implications for the whole country.

I wear two hats—there's one you didn't introduce me as. I'm chairman of the Canadian Association of Former Parliamentarians, and our association looks forward to welcoming all of you someday, whether it's voluntary or involuntary retirement.

The Chair: Not so fast.

Mr. Barry Turner: I understand.

My colleague, Dr. Brian Gray, is going to give a power-point presentation. It will take about 16 minutes, and then we'll have lots of chances for discussion. I'm going to turn it over quickly to Dr. Gray, in the interest of time.

Mr. Brian T. Gray (Director of Conservation Programs, Ducks Unlimited Canada): Thank you. It's a pleasure to be here on Halloween, of all times.

We've provided you with a fairly comprehensive proposal. I understand you're all very busy, so I think it would be useful for us to breeze through an overview of our proposal before we begin a discussion with questions and answers on this.

First are the key issues. Why are we here to discuss the ecological integrity of agricultural landscape? I suggest there are several things happening that have been happening on the landscapes for quite awhile that are causing environmental problems. They include tillage of marginal or highly erodible soils, wetland drainage, over-grazing of native pasture and riparian areas, removal of vegetative buffer zones along waterways and field margins, and the over-application of fertilizers and pesticides.

Essentially there are five key issues that we feel are driving the need or urgency for our proposal. All of these issues have associated costs. Some of these costs are quantifiable in standard economic terms and some of them are not, but that doesn't mean we should ignore them.

The first one is marginal soil cultivation. When we cultivate marginal soils, it is not ecologically sustainable, and in most costs, I would suggest, it's not economically sustainable as well. It results in increased sediment and nutrient loads within the associated watercourses. In the prairies, in saline areas, it causes increased salinization of associated uplands. So essentially you're spreading the marginality into soils that are actually good.

The second key issue is the loss of wetlands. When wetlands are drained or filled, we lose flood protection, the potential for groundwater recharge, water filtration and the purification functions of those wetlands, and the associated fish, wildlife, and human benefits.

The third key issue is the loss of riparian buffer zones. Agricultural activities that reduce or impact riparian buffer zones along waterways affect fish and wildlife habitat, nutrient and sediment loading of the adjacent water courses, and especially the rates of surface runoff. All these factors, in turn, affect quality and quantity.

The fourth key issue is the loss of biodiversity. Without native plant communities, riparian and field margin buffer zones, and wetlands we lose biodiversity and increase the number of species at risk within agricultural landscapes. We need to keep common species common. We don't want to create a growth industry, if you will, for endangered or threatened species.

Finally, the fifth key issue is Canada's greenhouse gas budget and our commitment to that. The conversion of native prairie to cultivated crop lands, the excess tillage of marginal land, and drainage of wetlands all lead to the production of greenhouse gases, and in turn to a greenhouse gas effect.

That brings us to our proposal and why we're here. For some time we have believed that the benefits that accrue to society, through the conversion of riparian areas and marginal agricultural land to permanent vegetative cover, significantly outweigh the cost to do so. I want to emphasis that I'm talking about benefits and cost to society, not to the private landowner.

• 1720

In the past, ecosystem services have not been fully captured in commercial markets or adequately quantified in terms of comparable economic services or manufactured capital. In fact, they've been given too little weight in Canadian policy decisions. We're hoping, through our demonstration of the net benefits associated with this program, we can demonstrate that this program will provide ecosystem services to society.

Who should lead this program? That's probably the crux of our proposal. This is happening on agricultural lands, so Agriculture and Agrifood Canada needs to be at the table. But this is where we part company with previous attempts to develop cover programs.

We're saying this is something that needs the five NR, the five natural resource ministries of Canada. Natural Resources Canada needs to help shape this. We have issues of carbon storage and carbon emissions that we just highlighted. Environment Canada needs to be there from the standpoints of stewardship, biodiversity, and species at risk.

The Department of Fisheries and Oceans has a “no net loss” vision for aquatic habitat. They need to be at the table to help form and shape this program. Finally, Health Canada should be there because human health is at stake. We know all too well from Walkerton and North Battleford that agricultural lands and agricultural practices have an acute effect on human health.

The provincial counterparts of these five NR also need to be engaged, as well as organizations like ourselves and other producer interest groups.

We're essentially talking about two things here. We're talking about the protection and restoration of riparian zones. Riparian zones are those areas that are the interface between water and aquatic systems and the upland systems. They're very complex ecosystems.

What we're talking about, conceptually, is taking a system that might look something like what's on this slide and changing it into something like what's on this slide. On a more tangible example, this system might be providing good services to the private landowner and they might be making a lot of money from that scenario, but I suggest society would be losing.

So we are envisioning something where we have societal benefits being produced by the landowner as well as their own benefits through the economies of farming.

The second thing—and we're focusing on the prairies in this—is providing incentives to landowners to convert marginal agricultural land to conservation cover. We used Agriculture and Agrifood Canada's definition of marginal land in these analyses. We're talking about looking at a landscape and changing it into something that's good for agriculture and good for the society around that.

On a couple of key points we brought out in the proposal, these lands need to be managed to enhance the provision of environmental goods and services. So the end points, the reason you'd be doing this, are for the provision of environmental goods and services. We can get into that in more detail during the question and answer period.

We're talking about long-term securement here, preferably perpetual. We've met with Ministry of Finance staff and discussed this issue. I'd like to touch on that a little more during questions and answers as well.

If you're looking at the end points and clearly define them, we're suggesting this land not be used for agricultural purposes unless those agricultural purposes actually help you meet the end point for the environment. In some cases they would.

The analyses for this proposal essentially came from two sources. I was heavily involved with one and co-authored this paper. We developed an economic instrument analysis as part of a working group for the National Round Table on the Environment and the Economy. We tabled this report in September.

We looked at three areas for case studies. We looked at a watershed in Saskatchewan and Manitoba; one in Ontario, the Grand River; and the Mill River system in P.E.I. We wanted to get an idea of an up-close in-depth assessment of costs and benefits of the program. Our shop developed all land-base calculations using existing data and acquiring our own data.

Essentially, if you look at these two sources of data, the in-depth case studies have provided us with a fairly detailed cost and benefit estimate per unit area per hectare. The land-base calculations have provided us with estimates of how much land we are talking about, where it is, and what it looks like. By taking the two, you can scale this up to give you an idea of the national program, if a national program were to happen.

• 1725

These tables were all in the appendices. What we're talking about here is marginal land for this proposal, which just came from the prairies. Well, you'd say, what about the rest of Canada? Eighty-six percent of all agricultural cultivation happens in the prairies, so we're capturing most of that. In our analysis, we realized there were about 2.5 million hectares of marginal lands currently being cultivated, so what we've done here is take half of them out.

We also looked at riparian areas, estimating the entire band of zones within cultivated agricultural areas. So we took half of that and rolled it in the program. There's nothing sacred about the half figure, it's just easy to do the math. If you said it was a quarter, you'd only have to divide that by two, and if you say it should be twice as much, then you multiply it by two. This gives you an idea of how much land we're talking about.

Looking at the Maritimes, Quebec, and Ontario, our analyses indicate that the total benefits of this program would be in the order of $198 per hectare per year. There are costs associated with that, and in the tables the costs are broken down by province or area: the Maritimes, Quebec, and Ontario. If you look at the net benefits, the bottom line, then these are the dollars per hectare per year: for the Maritimes, $108; for Quebec, $115; and for Ontario, $67. So I suggest that we're on to something here. We're not talking about throwing money down a hole.

Looking at the prairie provinces, total benefits per dollar per hectare per year are $68. The costs associated with that are about $34, so the net benefit to society is $34 per hectare per year. That's if you do this on an annual payment basis—which we're not suggesting, but we're just keeping it simple as a building block.

If we scale this up and look at the country, taking half of what we've estimated out, we're talking about 2.4 million hectares, benefits of about $200 million and costs of about $103 million. So the net benefits to the government and society would be in the order of $93 million per year, at least. These are conservative estimates, but good estimates.

The policy implications: we know from our own work that this would be a green-box initiative under WTO. It targets environmentally sensitive land. It does not promote forage conversion. We want to be very clear on that: we're not talking about converting this to another agricultural use.

We also believe that the protection of the environment and the long-term sustainability of agriculture are complementary government objectives. They just haven't got it together yet—and we think this is an opportunity to do that. We believe—as does the agriculture and agrifood community—that branding Canadian agriculture as environmentally responsible is necessary to get agriculture to move to the next level. This is certainly part of that brand.

The Speech from the Throne in January mentioned high standards of environmental stewardship in the agricultural sector. So this fits in with that. More recently, the federal, provincial, and territorial agricultural ministers developed a national action plan when they met in Whitehorse. I understand from discussions with the deputy minister today that all 10 provinces and one territory have signed off on this plan to make Canada a world leader in food safety, innovation, and environmental protection. The press release after Whitehorse indicated that they want to enhance the sector's environmental performance through accelerated adoption of sound environmental farm practices. We believe this is a very tangible first step for the government.

In appendix B, we've listed 15 or 16 key issues, reasons why this can succeed. In developing this program over the last couple of years, our experience has been that senior civil servants tend to focus on why something can't happen, especially if it's something they haven't developed. But what we need to do is focus on why this can work. We have 16 years of experience from the USDA's conservation reserve program, which is similar. They've been through three farm bills, they're on their fourth now, and it looks like CRP is going to be strong in that. So we are reinventing the wheel here.

• 1730

What we're talking about here is voluntary enrolment, with financial incentives and no regulations. These are highlighted in detail in your appendices. The focus is on retiring lands to provide environmental services, rather than as a technique to reduce commodity planning. One size can't fit all, yet we have to keep this fairly simple, because the more detailed it is, the more sizes there are, then the more administrative costs there will be.

We should maximize environmental benefits relative to cost. The 1996 U.S. Farm Bill did that—developed environmental benefit indexes for enrolment, because their enrolment has 1.5 times the money this program has to distribute. So there was a huge uptake on the program.

Incentive payments need to be sensitive to site-specific markets. We need to encourage input from wildlife organizations like us. As I said earlier, we need to decide what environmental end points we want in each area. They're going to differ from P.E.I. to British Columbia and everywhere in between. They aren't going to be the same. We feel that environmental organizations such as ours have a lot to contribute to that decision.

Enrolment should be limited by region, so that large areas are not taken out of production. In the U.S. CRP, 25% is the cap in any county. The concern there is that they don't want the entire county to enrol in this, because then the rural infrastructure might go away.

Environmentally significant or marginally productive lands should be addressed. Again, this is why GATT and the WTO would approve of this. And marginally productive land should be protected in perpetuity with one-time payments. I mentioned this earlier too, and I'd like to talk about it again during the discussion.

We need to link program enrolment contracts with Canada's commitment to the Kyoto protocol. We feel there's an opportunity for industry to help pay for this. The people in industry I've talked to are interested.

As well, we need to link program enrolment with the vision for agriculture held by the federal, provincial, and territorial ministers. We've already covered that. And we need to bring together the federal government's five natural resource ministries and their provincial counterparts to build this program.

As well, we could enhance program funding and administration through NGOs. As an organization, we are totally prepared to help deliver this program. We have offices in every province.

But when we implement the program, we need to use adaptive management. We can't be paralyzed by perfection; we can't wait until we have the silver bullet before starting this program. We need to clearly identify our end points, get started, measure our objectives, measure how we're doing on the end points, and then fine-tune the program as we go. For one thing, we should ensure that it doesn't enhance production and that it's compatible with trade agreements such as NAFTA, WTO, etc.

So our recommendations today are really quite simple. We're asking for two things. We feel that the five federal natural resource ministries should work together to develop a national conservation cover incentive program that addresses the environmental issues and concerns of the associated departments. We feel that this proposal has hit on all their key issues. In return, DU wants to work in partnership with these ministries to develop a program that incorporates our suggestions.

Finally, we are prepared to contribute significant financial resources to a program that supports the concepts we've presented here.

That concludes our formal presentation. Now we'd be very happy to discuss this with you in more detail.

The Chair: Thank you very much. That was very thorough.

We'll now hear questions from the members; we have a half hour. Mr. Epp, you can start.

Mr. Ken Epp (Elk Island, Canadian Alliance): Thank you. I would like to confess my ignorance: I'm a math-physics major, and I have no idea what “riparian” means. Can you give me the definition?

Mr. Brian Gray: Riparian areas are the interface zones between the upland, where it's dry all the time, and the aquatic zone, where there's water—a river, wetland, or lake. So you have this transition zone that's not wet all the time and not dry all the time. It's a very distinct ecosystem.

Mr. Ken Epp: Thank you. I grew up on a farm in Saskatchewan, so I know most of the terminology—though I'd never heard of riparian before. But of course we have those zones all over the place in Saskatchewan, where the sloughs meet the farmland.

Okay, my questions. First of all, how do you determine which lands you would classify? What are your criteria?

• 1735

Mr. Brian Gray: For the marginal lands?

Mr. Ken Epp: For either. You're proposing to give a payment per year to producers.

Mr. Brian Gray: Actually, no, we're not proposing that. We used the annual payment to get this into economic terms, so we can see the cost-benefit ratio. We would actually suggest a capital investment at the beginning, as the most responsible thing for government to do.

Let me give you an example. When we invest in infrastructure, such as bridges, highways, roads, or public buildings, the capital investment depreciates—and after thirty years we have to build the road or the bridge again. But if we invest in this, it's a one-time capital investment—maybe, we would suggest, through conservation easement. If we do that once, we won't have to reinvest for thousands and thousands of years, because Mother Nature will take care of it.

So we would advocate putting this into a permanent—

Mr. Ken Epp: Answer my question directly, then. I'm a farmer in Saskatchewan. I have some land I'm trying to farm and make a living from, and I also have some sloughs. Now, if you declared that this riparian area is in the zone you want to convert, what are the criteria? What I'm asking is, first, how would you decide to pick me? Would I apply for it? Second, how would you compensate me, as the farmer who owns the land? Would it be a one-time payment or an annual payment?

Mr. Brian Gray: First of all, it's voluntary. You don't have to enroll in it if you don't want to. Second, we have to offer an economic incentive that you would look at and say, yes, I would voluntarily enrol in that because the benefits to me are greater than the costs—greater than what I'm doing right now with that chunk of land. Now whether that would be an annual payment or a one-time payment in a conservation easement—that part of the design is open for discussion. The CRP program in the United States is an annual payment.

In our example, we took the average lease rate per hectare of land as the average rental payment, so we're assuming that the cost might be as high as actually renting the land on an annual basis. That's where our annual argument came from.

Mr. Ken Epp: Okay. Now I want to refer to your slides with the numbers. Thank you for giving us a hard copy of those, by the way, because us old guys can't see such little letters that far away.

I'm looking at your heading “Estimated Costs and Benefits of the CCIP”. It's broken down by areas: the Maritimes, Quebec, and Ontario. The next one is the prairie provinces. These benefits and costs...I would like to ask you to explain these numbers. For instance, a benefit is a reduced program cost, $46 per hectare per year. Where do you get the figure of $46? What is that? What program costs are being reduced?

Mr. Brian Gray: That's from a larger paper I was involved with.

Mr. Ken Epp: What kind of programs are you talking about—present agricultural subsidy programs that you will no longer have to pay for?

Mr. Brian Gray: Yes.

Mr. Ken Epp: Okay. I can understand some of the others, but how do you come up with $37 for reduced GHG emissions? We know this undoubtedly would reduce greenhouse gases, because there wouldn't be tractors running any more. But how do you come up with $37 as a value per hectare?

Mr. Brian Gray: That's a good question. Technically, it's reduced greenhouse gases—not only reduced emissions, but sequestering more out of the air. So that's a net drop in greenhouse gases, a combination of reduced atmospheric carbon through reduced fossil fuel consumption and the sequestering of carbon. This has been vetted by economists from three of the five NR, and certainly from Agriculture and Agri-Food Canada. It was $10 per tonne of sequestered carbon. That's largely what makes up that $37.

• 1740

Mr. Ken Epp: Okay. Just above that, you have “Increased Wildlife Viewing, Fishing, Hunting and Recreation”, and that's worth $80 per hectare per year. Did you subtract from that, to get a net number...the amount of fuel that is burned and the greenhouse gases emitted...on all of these tourists from the city who drive out to the country to view the wildlife, who do the fishing and the hunting and the recreation with their snowmobiles, their ATVs, and all that? Where do you get this arbitrary number, this $80 per hectare per year, from?

I'm really confused about these numbers. It seems to me you've just pulled them out of the air and made it look as if that's fairly good. You have $198 of benefit, and then you break it down. The total costs are $90 to $131, depending on where you live, so you have a net benefit. I think your numbers are arbitrary and capricious.

Mr. Brian Gray: I appreciate where you're coming from. Dr. Ken Belcher, Cynthia Edwards, and myself submitted this 54-page paper to the national round table. Those are the economic numbers that drove this proposal. That was vetted through a blended number of academic and civil servant economists. Their comments were that these were the best available estimates. They were honest, and as far as we knew, they were accurate. And the accuracy might be plus or minus 10%. We're not off in order of magnitude here. We're on track. This has been vetted. Everybody's comfortable.

Quite honestly, I'm not prepared to get into the minutiae here on this particular number. I can't tell you right now off the top of my head where that $80 came from.

Mr. Ken Epp: Okay. You're going to assure me that the $80 per hectare per year is a defensible number. If you and I could sit down for three hours, you could eventually convince me that this is a really good number in terms of those benefits?

Mr. Brian Gray: Okay, let me back up. For this larger paper that we developed for the round table, we had three estimates for each of these parameters. We broke it down in more detail. We had a minimum estimate, we had a maximal estimate, and we had a best estimate. We chose the best estimate for each of these. We didn't take this very high estimate, so we didn't inflate these values.

Largely, these numbers came from the United States and they came from regions that were similar. So from this one, I presume, it came from somewhere in the northeast, from economic studies associated with conservation reserve programs. So they went into areas where they had a similar program and they tried to estimate the value of these CRP programs in bringing about increased wildlife viewing, fishing, hunting, and recreation.

Mr. Ken Epp: On the next question, you have here—and I understand this quite clearly—an item called “Payments to Producers”...the Maritimes, Quebec, and Ontario, three different numbers. Those are the costs of your program. It's explicit here.

So when I ask you, “How are you going to be compensated?”, I expect you to say, “We're going to pay the people in the Maritimes $87 per hectare per year for every hectare they are so designating, and in Quebec it's $80, and in Ontario it's $129”. And I won't even get into the amount you're offering western producers, $32. There's a huge disparity there between Ontario and the prairies, which I would seriously ask you to defend on behalf of the constituents I represent.

Mr. Brian Gray: Could I comment on that now?

Mr. Ken Epp: Secondly, it is quite clear that you're saying that's a payment per hectare per year. Am I right or wrong in saying that?

Mr. Brian Gray: Okay, I'll draw your attention to table A.1 in the appendix. That is essentially what the payments to producers are, as we said.

If we went out again and did this on an annual basis, what would be a reasonable place to start for an annual payment? We felt the average rental rate per hectare per year was a reasonable starting point. So those numbers reflected the average rental rate per hectare per year for each of those geographic or geopolitical areas. So the economies of those systems were driving the variation in rental rates.

We're just saying in order to get uptake in Ontario, we're going to have to offer possibly $129 per year. To get the similar uptake in the prairies, it would probably take $32.

• 1745

Mr. Ken Epp: I will ask you how you think you'll be able to persuade farmers to buy into this when, with any amount of luck at all, even at today's low grain prices, a farmer should be able to earn between $100 and $150 per hectare per year. There would be perhaps some variation on that, the expenses can vary, etc., depending on where you are and so on. You're offering those on the prairies $79, yet you're saying this is very viable. Do you think you can pull that off?

Mr. Brian Gray: We're offering on the prairies $32 per hectare per year, not $79. I don't know where $79 came from.

Mr. Ken Epp: I took it off your slide.

Mr. Brian Gray: Okay. There are two things.

To the first part of your last comment, on our case study in the U.S., the Conservation Reserve Program, I'll reiterate that there are 1.5 times more producers wanting to enroll in that voluntary incentive-based program than there is program money—34 million acres in CRP in the United States, $1.7 billion in annual cost. It is a very successful program. So we don't think agriculture producers are that much different south of the border from what they are in Canada.

The second thing is our own practical experience. Outside of Agriculture and Agri-Food Canada I'd suggest no other organization or agency has as much experience with producers in Canada as we have.

We have worked with 2,600 producers where we have developed management agreements in the last five years. A lot of that has been either leased land, rotational grazing agreements, or some sort of management agreement.

We know, at least, what a lot of producers will do as far as...providing the ecological services and we know what moneys we've had to pay...or offer them to do that. So we're confident there will be uptake in this program.

Mr. Ken Epp: Have you talked to the farmers directly?

Mr. Brian Gray: Yes. I can't talk to all of them, but we're doing our best. Just last week I spoke to APAS, the Agricultural Producers Association of Saskatchewan. Do you know who they are?

Mr. Ken Epp: Yes.

Mr. Brian Gray: Most people don't. I spoke to their board last week. I had an opportunity to meet with their president earlier in the year and then the following day I was in Brandon as a guest speaker at the Agriculture Renewal Alliance. We're trying to get the word out. Everywhere I'm going there seems to be a lot of support.

Mr. Ken Epp: Thank you, Mr. Chairman.

The Chair: Okay.

[Translation]

Go ahead, Ms. Bourgeois.

Ms. Diane Bourgeois (Terrebonne—Blainville, BQ): Thank you, Mr. Chairman. Good evening, Mr. Gray.

I'm somewhat familiar with Ducks Unlimited Canada, as this organization has an office in my riding.

First off, your brief contains a reference to economic incentives:

    Provide economic incentives to landowners to convert marginal agricultural land to conservation cover.

Could you elaborate further on these economic incentives? You've already discussed the subject briefly with my colleague, but I would like additional information. By economic incentives, I assume you mean more than just funding of conservation initiatives. You must have some other measures in mind.

Secondly, I'd like to know if DUC has submitted this proposal to Quebec, since some of its offices are located in that province. It's a very nice proposal, but have you submitted it to Quebec?

Thirdly, in your submission - unfortunately, the pages aren't numbered - you talk about the benefits that would accrue to the Maritimes, Quebec and Ontario through a conservation plan. Among other things, you mention reduced water treatment, flooding and air pollution.

• 1750

As a Quebec MP, I have long been calling on Canada to reduce air pollution and to attempt to reach on agreement of some sort with the US on air pollution and greenhouse gas emissions. You talk about benefits. Are you aware of what happened to maple trees in Quebec?

Lastly, if I understood correctly, you talked about protecting riparian zones. No doubt you're aware that on the issue of marine conservation areas, Quebec objects to any federal involvement in areas under provincial jurisdiction. Do you have any views on the matter? Have you anticipated some of the problems that might arise with Quebec?

These are my questions, Mr. Chairman. Thank you.

[English]

Mr. Brian Gray: As I understand it, your first question is you want to know, besides incentives, what other measures we might have. Is that correct?

Ms. Diane Bourgeois: Yes.

Mr. Brian Gray: Largely, this program is focusing on incentive-based programs, on volunteering to enroll in the program. Then, if you enroll in the program, you get remunerated because you're providing societal benefits.

Based on my discussions with producers and my knowledge of our dealings with producers across the country, not just in Quebec, if the benefits to them for doing this outweighed the costs or were equal to the cost, they would do it right now. They want to be stewards of the land. It's their land. They take great pride in their land and they want to do the right thing, but they can't. So we need to provide enough of an incentive to do that, and the government's responsibility is to not overpay.

Concurrent to that, we're doing all sorts of other things and we're helping in farm planning, we're helping in rotational grazing and fencing, which are all good things for the producer, for the environment, and for society. That's all I can really comment on your first question. I don't know what else—

[Translation]

Ms. Diane Bourgeois: Can I continue, Mr. Chairman?

What exactly do you mean by "economic stimulus"? You use another expression in your brief. What exactly are you talking about? Are you referring to grants, or salaries? Are you referring to tax incentives? Could you be more specific?

[English]

Mr. Brian Gray: Yes, I don't know where in the paper we said “economic stimulus”, but what we're talking about is a payment for a private landowner to provide economic goods and services to society. We're offering them a payment for that. We're saying let's decouple that from everything that's happening on the farm. It's not a subsidy. It's not a commodity reduction mechanism. It is recognizing that in a lot of the landscapes in Canada we get our drinking water from rivers that flow through agricultural systems. So agriculture wants to brand food as being safe.

Like it or not, the water we have to drink comes off their agricultural lands. Everybody wants that to be safe. So we're saying society needs to help secure that land to provide clean water.

I'll give an example of New York City. A lot of people don't realize that New York City draws its drinking water right out of the land, right out of rivers, lakes, and groundwater. They don't have, for most of the city, a huge infrastructure to clean the water. They don't have pipes; they don't have scrubbers.

Ten years ago, they had an opportunity. They said, okay, we're starting to see trace forms of bacteria, chemicals, fertilizers in the water. We're at the point where we have to do one of two things. We have to invest in capital infrastructure to build a water treatment facility for the City of New York, or we can invest in the land and let Mother Nature clean the water the way she's been doing all of our lives.

• 1755

The bill for the capital works to build this water treatment facility was $6 billion to $8 billion. They figured they could go out and buy the land, secure conservation easements on the lands they did not buy, and create farming practices in these areas, invest in all this, and actually achieve the same ends. They did it for $1 billion. So, again, we're not subsidizing these people to do that. We're paying them to provide those services, because in New York, they just saved the taxpayers $6 billion.

The Chair: Thank you, Ms. Bourgeois.

Mr. Cullen.

[Translation]

Ms. Diane Bourgeois: I'm sorry, Mr. Chairman, but the witness did not answer all of my questions. I asked a total of four questions, but he only answered one of them.

[English]

The Chair: Excuse me, but the time is up, and I have to move on to the next questioner, who is Mr. Cullen.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman, and thank you very much to the presenters.

I must say I think this is an intriguing and very well thought through proposal. Whether we like it or not, we have marginal farmlands in Canada—

An hon. member: Plenty of them.

Mr. Roy Cullen: —plenty of them—and all you have to do is look at those that come forward with, let's say, 15 years of tax losses, and they try to convince the tax department there's a reasonable expectation of profit. And of course they have a job in the town.

I think this deals with this question of marginal farmland in a way I've never seen before. If you look at how we have to compete internationally with the Americans and the Europeans on subsidies, we just won't get there. I think this is a real dose of reality.

Obviously, in your modelling you've looked at the societal benefits and cost to the public sector, and I think you have, obviously, some experience also at the micro-level, so in terms of take-up, you've organized a number of these agreements already. Is that correct?

Mr. Brian Gray: Yes.

Mr. Roy Cullen: In terms of marginal farmland, my understanding is that you took marginal farmland, which is defined by someone, Agriculture Canada, whoever, and you used that in your modelling. It would be a voluntary program. What you're saying, though, based on your experience, based on those numbers, is that there would be a huge take-up. And based on the experience in the United States, there has been a huge take-up.

Mr. Brian Gray: Yes. And since these are marginal lands, we suggest the uptake should be good because we think our estimates of average rental payments are conservative, i.e., we think they're higher than what we would have on CLI 6 or CLI 7 lands, the more marginal lands.

Mr. Roy Cullen: Now, in terms of greenhouse gases, it sounds, from what you're saying, like there's a double whammy. This actually increases our stock of carbon sinks?

Mr. Brian Gray: Yes.

Mr. Roy Cullen: It does, yes.

Mr. Epp made an interesting point that I'd like to follow up on—and I don't know if you have that data. Who are the people who take advantage of these wetlands? As he said, they have people driving out in trucks and this creates an environmental issue on its own. Maybe you could elaborate on that.

Mr. Brian Gray: The people who would take advantage of the wetlands, the riparian systems, or these uplands would be largely people in outdoor recreation, whether they be consumptive, such as hunters and fishers, or whether they be the growing recreational community that likes to bird watch, or likes to go out and hike, bike, or canoe. Those are the people who would be coming and using those areas.

Mr. Roy Cullen: Okay.

In looking at the benefits and costs, in business you have income statements and cashflow statements. I don't argue with your benefits and cost data. It would take hours, months I suppose, to go into it. Based on what you've told me, who you've spoken to and who has vetted these numbers, I have confidence they're probably within a reasonable degree of accuracy.

Some of them, though, are softer benefits. Some of them are cash and some are non-cash. Have you looked at it from that perspective? For example, if you're looking at reduced greenhouse gas emissions, increased wildlife viewing—and I know there are proxies on how you get at that kind of number—there are some cash costs and benefits and some non-cash. Have you looked at it from that point of view? How does it stack up?

• 1800

Mr. Brian Gray: Yes. For example, on the question that I had trouble answering for Mr. Epp, on the increased wildlife viewing, fishing, hunting, and recreation, there are hard and soft estimates in there.

The hard estimates are we know how many fishing licences are purchased. We know how many hunting licences are purchased. We know how much the average hunter or fisher spends in a year pursuing their recreation. Those are hard costs.

The softer costs come in as how much you would pay if this were built. If we were to build it, would you come, and how much would you expend? Would you stay in a bed and breakfast in the area? Would you buy a new canoe to go canoeing there? Those are the softer things. Actually, we didn't include the canoe example. But the travel, the average dollar spent getting there in their car...those are the types that are a little softer.

Mr. Roy Cullen: Those are the proxies you use when you do an exercise like this.

You said your organization is prepared to make a significant financial contribution. Can you define better what “significant” means?

Mr. Brian Gray: Yes.

We are governed by a board of directors, and I can't say anything definitively, but I can say what I'd recommend to my board and what I think they would entertain very seriously. If it were something like what we're proposing here—the more environmentally good it is, and the more perpetual it looks, versus an annual payment, the better—we'd be prepared, or I'd be prepared to recommend to my board $10 million a year to get this thing rolling.

I would argue that if the government were serious about this, we would do everything in our power to go to the United States federal government, to Congress, and try to get the North American Wetlands Conservation Act moneys, which flow to Canada every year and are administered by the North American Waterfowl Management Plan, made higher. The cap on the appropriations is $45 million. It's only happened once in 10 years. We think if Canada started investing in this, we could get the U.S. to invest money to match it. So that could go up from $10 million a year to feasibly $15 million to $20 million a year.

Mr. Roy Cullen: As I understand it, what you're saying with your proposal is there needs to be cooperation with the provinces and territories, and there will have to be discussions and negotiations. You're saying the federal government should take the lead and launch this initiative, and then on the basis of that, design the program more specifically and get the various stakeholders participating. Are there any short-term budgetary requirements you're looking to the federal government for, moving into a budget this December?

Mr. Brian Gray: Yes, it would be nice to get the program started next year, next budget year. How much money? I don't know. My recommendation is let's make it enough to make it significant, but we're not going to finish it in one year. We can't. I go back to adaptive management. Let's start spending the money, deriving the environmental end points, moving forward evaluating those, and building it as we go. I'd see a five-year window to get it started, at least.

Mr. Barry Turner: Mr. Cullen, it might come as a surprise to a lot of you that Ducks Unlimited Canada is financed by about $25 million a year from the U.S. Congress. This surprises an awful lot of people.

We get a lot of money from Ducks Unlimited Inc. in America as well. The breeding area for waterfowl in this country is for the most part Canada, but the birds winter in America, so it's a shared resource.

The comfort level of U.S. legislators will rise significantly in terms of allocating more moneys, as Dr. Gray mentioned, through the North American Waterfowl Management Plan, which is a joint Canada-U.S.-Mexico undertaking, if Canada is seen as doing more to protect habitat and conservation cover. They have said that to us, that they're willing to entertain sending more money north of the border if this government does more to protect.

Secondly, you mentioned the provinces. Agriculture is a shared jurisdiction, as you all know. We have been discussing this initiative with all of the provinces including,

[Translation]

the province of Quebec. We met with Quebec Environment Minister André Boisclair. Ducks Unlimited Canada has an office in Quebec. We also met with government officials. I think the Quebec government believes that in principle, our initiative is a sound one.

[English]

So we've met with all of the provinces, because it's a shared jurisdiction. If the federal government gives leadership on this with the five NR departments—Environment, Fisheries and Oceans, Natural Resources, Health, and Agriculture—and in cooperation with the provinces, this is not an expensive undertaking, taking into account moneys from Ducks Unlimited as well.

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As Dr. Gray has said, we're not quite ready to start this yet. If you look at the executive summary of our proposal, it clearly says we're asking for two things right now. We'd like the Government of Canada and the five NR departments to agree to develop this kind of national program.

Secondly, we'd like the government to do it in cooperation with us and other conservation partners. What that initial cost might be is probably quite minimal. Down the road, whether it will have to be revisited in terms of the numbers Mr. Epp was talking about and the numbers in our slides—per acre, per land, how much the uptake by landowners will be in the first two or three years—we don't know. But we'll learn as we go. That's why the adaptive management approach would have to be taken. If you share the cost between the federal government, the provinces, and Ducks Unlimited, we're not talking about a lot of money. We are, however, talking about significant environmental benefits to society.

The Chair: Thank you, Mr. Cullen.

On behalf of the committee, I want to thank you very much. It was a very thorough presentation. We of course have to also satisfy the needs of Mr. Epp when it comes to analysing numbers and what have you, but I can tell you that it was a very thoughtful presentation. Certain things I knew about already, but you brought up some new items I thought were also quite interesting.

Of course, the committee can just hear your presentation right now. We'll need a little more time to review it before we can make a recommendation to the Minister of Finance. I can tell you that you raised some very valid points and that you've given us a lot to think about.

Thank you very much.

We'll suspend for approximately two minutes.

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• 1813

The Chair: Let's call the meeting to order. Welcome everyone here this afternoon—or rather, tonight. I'm not sure; it's around 6 o'clock.

Mr. Woolford, it's nice to....

Mr. Peter Woolford (Vice-President, Policy Analysis and Government Relations, Retail Council of Canada): Good evening Mr. Chair. This is just a reminder of everything we're all missing tonight.

Voices: Oh, oh!

Mr. Peter Woolford: I brought treats.

The Chair: You brought treats; that's great.

On that note, we'll begin with the Brewers Association of Canada, and I hope they brought treats.

Voices: Oh, oh!

The Chair: Mr. Morrison, welcome.

Mr. Sandy Morrison (President and Chief Executive Officer, Brewers Association of Canada): Thank you, Mr. Chair. I apologize, but I didn't bring treats. We had treats last night for some members.

Thank you very much for the opportunity to appear before you.

Our association represents 28 Canadian brewing companies responsible for over 99% of the beer produced in Canada. Our members include the large national brewers, the regional brewers, and the micro-brewers.

For over a decade our industry has been seeking special excise duty relief for small brewers, who face special challenges in competing in an increasingly open market with foreign competitors that enjoy preferential tax advantages. Our specific request is for a 60% reduction in the rate of excise duty on the first 75,000 hectolitres of production for Canadian brewers producing less than 300,000 hectolitres annually. While this submission supports a special provision for small brewers only, it's important that the committee members understand that all members of the BAC are unanimous in their support for this recommendation.

• 1815

As you learned last evening, our case is also supported by the Canadian Federation of Independent Business, who have recognized how important these small brewers are to the economic well-being of many small Canadian communities.

I have two members with me who are uniquely well-qualified to speak to the issue: André Dion, president of Unibroue from Chambly, Quebec, and president of the Quebec small brewers association; Howard Thompson, president of Creemore Springs Brewery Limited in Creemore, Ontario, and also president of the Ontario Small Brewers Association.

I'd like to call on Monsieur Dion first to speak to our brief, and then Mr. Thompson will speak.

[Translation]

Mr. André Dion (President of Unibroue Inc; Brewers Association of Canada): Thank you, Mr. Chairman.

First of all, I'd like to know if committee members have received a copy of this table, because it's very important. Our presentation will be brief, and this table illustrates the situation quite clearly.

I'd like to start by quoting some figures on the brewing industry. Worldwide, 10 international breweries control 65% of the global market. Obviously, national borders have disappeared. We are now operating in a global economy. Small breweries like mine face competition, not necessarily from Canadian breweries, but increasingly from foreign breweries. Governments, particularly the Canadian government, can no longer legislate without taking this situation into account.

I'm speaking to you as the head of 19 small Quebec companies and 62 Canadian microbreweries. Take Unibroue, for example. The table you have in hand illustrates a very unique and telling situation. If some of you haven't received a copy, we'll be happy to give you one. The table shows the situation Unibroue might encounter if it was operating in Boston, Massachusetts, instead of Quebec, Canada.

Unibroue exports 30% of its production worldwide, for instance to China, Europe, Australia and South America. In the past four years, Unibroue's exports have grown at an annual rate of 33 per cent. Obviously, Unibroue isn't fazed by the challenge. It has captured just about every brewing medal awarded in the world. Unibroue isn't fazed, provided of course that it enjoys the same competitive conditions as other foreign brewers.

Canada is one of the very few industrialized nations that has refused thus far to grant any kind of special privileges, fairness or equity in terms of excise duty paid by small brewers, whereas France, Germany, Belgium and in particular the United States grant a 60% reduction in excise duty to their small brewers.

This table, which was prepared for Finance Minister Martin, describes the scenario if Unibroue decided to move its operations to Boston tomorrow.

In Canada, Unibroue produces 6,500,000 litres of beer and boasts sales of $21,400,000. In terms of excise duty, the federal rate charged is 28 cents per litre. Last year, Unibroue's excise duty payments totalled $1,820,000. Had Unibroue been based in Boston, the excise duty rate would have been 9 cents per litre. Thus, its excise duty payments would have totalled $585,000.

Despite a reduction in excise duty in Quebec in recent years, the province is still charging 21.6¢ per litre, for a total $1,404,000. These figures represent actual amounts paid by Unibroue in the year 2000. Had Unibroue been operating in the United States, it would have paid $273,000, or 4¢ per litre. Furthermore, the province levies a 7.5% surtax on all beer sales in bars and restaurants. Therefore, overall - and these are not projections, but actual amounts - Unibroue paid $3,545,000 in excise duty last year, compared to the sum of $858,000 that it would have paid had the company been based in Boston, which is located only several hundred miles away.

This is our main point of contention. The minister had asked us to do a comparative analysis to assess equity within the industry. This table clearly illustrates the differences that exist.

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In my opinion, the situation, which has existed for years, is totally unfair and is becoming increasingly untenable. Successive US governments over the past 20 years have continued to grant the same benefits to US breweries.

Only three years ago, there were a total of 19 microbreweries in Quebec. Today, only six remain. Five went bankrupt, three shut down operations, two were sold and three are experiencing what we hope are only temporary problems. It's vitally important that some decisions be made immediately. Increasingly, we're asked by people why they should continue to invest in an industry like this in Canada, whereas they would benefit tremendously by relocating their operations to Boston.

Contrary to what some people might think, we're not asking for a handout or for subsidies. We're simply asking for a level playing field so that we can face our everyday competitors head on.

Thank you. I will now turn the floor over to Mr. Thompson.

[English]

The Chair: Mr. Thompson.

Mr. Howard Thompson (President and Chief Executive Officer, Creemore Springs Brewery Limited; Brewers Association of Canada): Thank you, André.

As Sandy mentioned, my name is Howard Thompson. I'm president of Creemore Springs Brewery, and I'm also chairman of a group of small brewers in Ontario called the Ontario Small Brewers Association. I've been involved with both of those endeavours for just a little over 11 years now.

Largely because of the crushing nature of the excise tax on small businesses within the beer industry, we're asking that you consider a change in the excise tax program as it currently exists.

I emphasize “small” businesses. There are dozens of small business success stories that are waiting to be told in this country. One of them I can tell you from my own experience. Some partners get together and they invest a million dollars in property, plant, and equipment. They generate business for their product. They reach near-capacity levels for their plant, and in doing that they attract revenues of between $1.5 million and $2 million. They employ 10 to 15 people in the local community. For most small businesses that would represent significant success. There would be profit generated, and there would be a return on investment to the original shareholders.

That's not the case for a small brewery. In fact, at that level of revenue or at 7,000 hectolitres, this represents about a break-even level for a small brewery in Canada. Imagine generating $1.5 million or $2 million in business, recording no net income, yet having paid the federal government a little better than $200,000 in excise tax.

I know that story well because that was Creemore Springs 11 years ago. We survived and we grew. The effects of excise tax are relentless, however. This year we will sell just a little better than $10 million worth of beer, we now employ about 42 people, and we'll pay in excess of $800,000 in federal excise tax. To put it in perspective, it costs more in excise tax than it does in labour to produce the beer. At $28 a hectolitre, that tax competes directly with capital required for reinvestment in property, plant, and equipment and for hiring more people.

This has been an issue for a number of years. The time to address it is now, as it is quite urgent. Through the Ontario Small Brewers Association I represent a number of companies that hover right at the break-even level in Ontario. These companies should be success stories. We should be reading about successful regional breweries and community breweries, because by selling 7,000 hectolitres or $1.5 million worth of beer they have competed effectively in a market dominated by giants. However, they are simply breaking even.

The federal government is alone in not recognizing that. Through our work in the provinces we have seen commodity tax relief, we've seen it south of the border, and we're here to ask for a similar consideration from the federal government. We're not asking not to pay tax. We understand in the beer business that taxes are a way of life. What we're asking is that the federal government recognize that small businesses within the beer industry are distinct and should simply be taxed accordingly. We are all willing to pay our fair share. What we're interested in is seeing that the share we pay is in fact fair.

I thank you for the opportunity to speak to you tonight.

The Chair: Thank you very much. I must also tell you that Paul Bonwick said to say hi.

We'll now hear from the Coalition for the Elimination of Capital Taxes: Satya Poddar, director, tax policy services, Ernst & Young; and David Penney, general director of tax, General Motors of Canada Inc. Welcome.

Mr. David Penney (General Director of Tax, General Motors of Canada Inc.; Coalition for the Elimination of Capital Taxes): Thank you, Mr. Chairman, and distinguished members of the House of Commons finance committee.

• 1825

We would like to thank you for giving us this opportunity to make an appearance on these important pre-budget consultations. As you mentioned, my name is David Penney. I'm general director of tax at General Motors and with me is Mr. Satya Poddar, director of tax policy services at Ernst & Young LLP.

We're here today representing the Coalition for the Elimination of Capital Taxes. The Coalition for the Elimination of Capital Taxes represents major Canadian companies from the manufacturing and resource sectors. These companies share a common concern about the detrimental effects of federal and provincial capital tax on investment, capital formation, and productivity. It is for this reason that these companies have joined together to add their voices to the broader call for the elimination of taxes in Canada.

Capital taxes are detrimental in several ways. They discourage investment, they reduce productivity, they prevent strong employment growth, they are inequitable, and they hit hardest when companies are at their weakest point. Capital taxes by their very nature are a tax on capital accumulation. Capital taxes are applied to the amount of money that is invested in a company to purchase land, buildings, or equipment to operate the business. Many provincial governments have recognized the adverse effects on job creation these taxes have and are taking a lead role in eliminating them. It is essential that the federal government do the same.

As capital taxes apply with no regard to a company's performance, in times of economic slowdown they reduce the company's ability to weather the storm and erode their opportunity to respond when the economy rebounds.

Companies need to inject more cash into their operations to meet shortfalls that occur during economic downturns. Capital taxes undermine the effectiveness of these actions by taxing these cash infusions. By reducing the funds available for investment, these taxes reduce international competitiveness and job creation. All of these factors will lead to an even slower economic recovery.

One disturbing trend is that capital taxes are representing a much larger portion of government business tax revenues in economic downturns. It is important that government take measures that help business grow and invest in the future of Canadians. Capital taxes are applied regardless of the economic cycle and actually discourage investment and job creation when it is most needed. There has never been a better time than now to get rid of these job-killing taxes.

Nationally there's a growing recognition, not just among the business community but within governments as well, that capital taxes must be eliminated. The federal government has recognized the need for business tax cuts and has made positive strides in reducing corporate income tax rates to assist Canadian business to be more competitive. However, corporate income tax reductions that have occurred in the past have largely benefited the service sector. The highly capital-intensive manufacturers and resource-based industries that employ significant numbers of Canadians feel the adverse effects of capital taxes the most. Although these taxes were introduced at the federal level as deficit reduction measures, the government has made no move to reduce or eliminate these taxes in spite of substantial improvements in the government's fiscal position since their introduction.

Mr. Chairman, you have heard many of these arguments before. One issue of concern, however, is the new risk at the border. Investors are deciding where to locate. We want to give them a clear signal to look at Canada positively. Abolishing the federal capital tax would be a powerful signal to that end.

I will now turn it over to my colleague and allow him to elaborate more on the detrimental impacts of capital taxes and why it is important for the government to act now.

Mr. Satya Poddar (Director, Tax Policy Services, Ernst & Young LLP.; Coalition for the Elimination of Capital Taxes): Mr. Chair, in many ways we are repeating your own words back to you, so we don't have to go into a lot of detail. You have made statements, and in a way we are here to support your cause, but let me just give you an illustration.

Last night when I was preparing for this committee meeting I got a call from a telecom company. Here is the situation. For the past 10 to 15 years they've been in business, they've been losing money hand over fist. Their equity is negative $1.1 billion. This is an accumulated loss that has wiped out their equity and they are now in a negative position of $1.1 billion. They had to borrow $3 billion to finance their operations and their losses. For capital tax purposes they are deemed to have a positive capital of $3 billion debt, minus equity of $1.1 billion. On that $1.9 billion of capital they had to pay federal and provincial capital taxes of $8 million to 10 million per annum. They haven't made a penny for the past 9 or 10 years. It's a business decision to continue the operations, to look for opportunities in Canada, and they have to pay these taxes day in and day out with no relief whatsoever.

• 1830

It is this situation that really is a cause of concern. Let me elaborate on two or three issues that David Penney mentioned.

Number one, the losses inflicted on the economy by capital taxes are very significant. In fact, studies done by the Ministry of Finance indicate that capital tax is the worst tax of all taxes in Canada, or anywhere else in the world. In fact, Don Drummond, who was a former official of the Ministry of Finance wrote a column in the Financial Post, and his quote is, “I think beyond any shadow of a doubt that capital taxes are the worst of any taxes we've got.”

Why are these taxes bad? To indicate why, for every $1 of revenue raised in capital taxes, output in the economy goes down about $6 to $7. That compares with an output loss of 17¢ for a GST-type tax; about 25¢ for a payroll tax; 50¢ for income tax; and, $1.55 for the corporate income tax. So there's a $7 loss in output for every $1 raised.

Why is the loss so heavy for the capital taxes? There are four reasons: one, they're directly a tax on investment so they discourage investment; two, they drive investment out of the country because foreign countries, our trading partners, don't have these taxes. Canada is unique in having these taxes. If you want to raise revenues through income taxes...the U.S. has them and we have them and they can be compared, but the U.S. doesn't have the type of capital taxes we do at the levels we do.

Three, because these taxes are profit insensitive they discourage risk taking. It's like you go to a casino and there's no prize for the money you put in there. If the government doesn't share in the losses, if the taxes don't come down when you lose money, it really has a very significant adverse impact on risk taking.

Last, they distort allocation of investment between capital-intensive industries, which pay very heavy capital tax, and other industries where the capital requirements are not that heavy. Capital taxes tilt the playing field against manufacturing. Historically, for the past two or three decades manufacturing and the resource industries have had a favourable tax system because of global competitiveness considerations.

Now the government has levelled the playing field on the corporate income tax side, because the corporate tax rate will be the same for manufacturing as all other firms, but you have capital tax in place. Capital tax is disproportionately burdensome for manufacturing and resource industries where the capital requirements are very heavy. So by levelling the corporate income tax playing field and leaving that capital tax in place, you have tilted the playing field against manufacturing and resource industries, and I don't think governments want that system to continue.

This is the last point I want to make. Most of the people you have talked to say, we agree with all that, but is the time right for eliminating capital tax? Why is the time not right? Perhaps it's because of the revenue considerations. Mr. Chair, we want to emphasize that the capital tax issue is not a revenue issue. The revenue costs are modest and they can be finessed through appropriate transition rules. What is needed is a clear signal to the community. What is needed is a structural reform to the corporate tax system in Canada that sends a signal to the investors that Canada is a good location and a competitive location for investments. And this is also needed to level the playing field against capital-intensive industries.

There are several ways of managing the revenue cost of the capital tax elimination. The total federal revenues from the large capital tax are less than $1 billion. If the $1 billion is an amount that is considered too large in the current environment, I think if you want to phase that tax cut out over four or five years, that's manageable. This will send a signal to the investment community that the tax cut is gone and they'll plan their investments on the basis of the tax being gone even though it'll take two, three, or four years for it to go.

Alternatively, you can make the corporate income tax creditable against the capital tax; so it's not a double tax, but it's a minimum tax. If you pay a substantial amount of corporate income tax you should not pay the capital tax, and by making it fully creditable against that capital tax, your regular income tax, you can provide some targeted relief at least in the short term.

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There are various ways of finessing the revenue considerations, so revenue is not an issue. The issue is really getting the tax structure right and sending a clear message in the current situation of an economic downturn while investors are deciding where to invest. And we'll get out of this downturn mainly through more investment.

Thank you very much.

The Chair: Thank you very much.

And I agree with you.

We'll now hear from the Retail Council of Canada, Mr. Peter Woolford, without his costume.

Mr. Peter Woolford: Yes. I thought you might take me a little more seriously if I took my hair off.

The Chair: That's very good.

[Translation]

Mr. Peter Woolford: Thank you, Mr. Chairman.

We are pleased to have this opportunity to present our views to the committee, along with the solutions favoured by Canada's retailers. We did not prepare a written submission this year because we wanted to monitor the state of the domestic economy up until the very last minute. Therefore, over the weekend, I put together some observations that I would like to share with you this evening. The figures are accurate to the end of last week.

Our observations are based on the experience of our members. Our recommendations relate to two taxation areas, namely payroll taxes and the GST.

[English]

Let me start by talking, first of all, about our members' experience to September 11. After a very strong 2000, our growth in retail sales in 2001 dropped off significantly to around 3%. We also saw that there was a weakening trend over the first eight months of this year. So where we started off relatively weaker than 2001, we've also seen that situation gradually deteriorate over the course of the first eight months.

The rate of about 3% hides a significant degree of variation, with some sectors being much stronger than that and some being significantly weaker.

[Translation]

The immediate effect of the September 11 attacks was a sharp drop in revenues in all retail sectors. September figures were the bleakest ever compiled. The third quarter has been extremely difficult for all of our members.

[English]

I'd like to turn now to what has been happening since September 11 and take you through in some detail. I spoke with the chair and got his permission to go a little over time. I think it might be helpful to the committee to hear in some detail what is in fact happening in retail stores, up to as recently as this past weekend.

Our members report that they did see a recovery back to the relatively weak normal they had been experiencing prior to September 11 fairly quickly. In most cases, our members reported that their sales were back to normal within a week or so of those tragic events. But a significant minority of our members report that the sales recovery took quite a bit longer, into October, to come back to the lower levels we were talking about prior to September 11.

This would suggest, on the surface, that September 11 was a blip. But our members believe the behaviour they're seeing in the consumer marketplace is showing a very different set of circumstances and a consumer who is becoming much more cautious, and for reasons that are new. And that's a key message I want to try to put across this evening.

The signals our members see suggest we are facing a new phenomenon, not like a normal cyclical downturn, and it's quite worrisome for them. And it's somewhat uncertain in terms of their planning and their forecasting.

Let me run through some of the elements of that. The pattern of recovery has been highly varied. There have been shifts in merchandise. What we are seeing is that the non-discretionary, the consumable items, the things you do in your weekly shop, have been holding up fairly well.

However, discretionary items are moving much more slowly. And that seems to occur at a variety of different price points. It's not just that the high-end expensive merchandise is not moving; we're also seeing, for example, that music has been hit since September 11 quite hard. So it's at different price levels where you're seeing this effect.

On the other hand, entertainment products, DVDs, big-screen TVs, remarkably, are doing well and continue to do so. The only conclusion our members can draw from this is that Canadians are drawing back in, are cocooning, perhaps substituting for travel or other entertainment outside the home, entertainment inside the home.

We see consumers trading down in terms of store type they're visiting and in terms of the merchandise they're buying. The Canadian consumer always has been very price conscious, but they're even more so now. They are buying on sale much more and they're buying for value.

• 1840

We're also seeing consumers cherry-picking the sale items. Typically, when a consumer goes to a store, perhaps drawn by sale offers, they will also buy some merchandise that's offered at full price. Our members are finding now that the customer comes in, buys the sale merchandise, and leaves.

One key exception has been furniture and appliances, which are still very hot. Our members are not really quite sure why this sector of retail has stayed as strong as it has. They think it may be related to the very strong housing market that we're still seeing. The only other conclusion they can come to is that it's not sustainable.

There have been shifts as well in terms of their pattern of shopping. Store counts, the number of people who walk through the doors of a store, are off by double digits for many of our members in many circumstances. At the same time the average basket for many of our members, the amount each individual consumer spends in the store, is up. What that suggests is that consumers are shopping less often and that when they do, it's on a larger scale. As well the sales are choppy. You'll get a good Thursday and Friday, and then the weekend will be bad. So there's a very uneven pattern.

We're also seeing more touchy-feely signals of a loss of confidence that are not directly attributable to the economic circumstances we face. Our members report both customers and associates are openly expressing concern about their own confidence and the confidence of their peers. Customers and associates are also showing more conservative behaviour in their economic practices.

So what does this mean for retail? Our members feel that sales may well hold up through the rest of this year, but, clearly, margins and profitability will be off. Our members continue to open stores, but this fading profitability will mean that fairly soon investment will have to dry up. Sales declines, if they occur in any volume whatsoever, will lead to less employment, fewer people, and fewer hours.

Just to turn to the border for a moment, our members did report some significant problems at the border right after September 11. However, those seem to have diminished significantly. However, our members are still concerned about the reliability of the supply chain as we are now entering into the busiest sales time of the year for retail. In particular, our members are concerned that they will be able to get access to their merchandise in time for the holiday sales period.

Most of our members believe they have their inventories under control, and they are not too concerned about ballooning out of control in that area. I know that in very recent days a number of our members have taken steps to reduce the orders they have placed with suppliers.

[Translation]

I would now like to discuss our projections for the holiday season. It is very difficult to predict the outcome of the holiday season because of the unusual circumstances that we are experiencing.

We are in unchartered waters. Consumer confidence is the key. September 11 resulted in far more uncertainty than we would normally see during an economic downturn. International political events have affected our clients in a major way.

Furthermore, it's important to recognize that it would have been difficult anyway to surpass last year's results. Sales figures for the year 2000 were very high. It would have been a major challenge to beat these figures.

[English]

Now let me turn to our policy advice. We believe that governments, especially the federal government, must address two issues at this time: consumer confidence and consumer disposable income. The confidence-enhancing measures must address the concerns we've mentioned that go beyond the specific economic worries of Canadians.

About all we can say, Mr. Chair, is that it is important to assure Canadians that their government understands the situation we face, has a clear plan, knows what is required, is prepared, and will act. It's difficult for us as retailers to go much beyond that, but we feel we should try to set out for you the challenge we know our political leaders face at this time.

Let me talk a little bit about sustaining incomes. That can operate in two ways: one, by reducing the tax burden and, two, by sustaining employment. I want to point out the difference between sustaining employment and creating employment. I think we are in a circumstance now where the jobs that Canadians hold today need to be sustained. Many of them, I think, feel those are under a degree of threat.

We do recognize the positive impact on personal incomes of the reduction in interest rates. That three-quarter-point rate drop last week was a very important measure. It will put money on to the bottom lines of many Canadian households. It is a very important step. We also recognize the positive effect of the income tax reductions announced in Mr. Martin's economic statement last year.

• 1845

Nonetheless, we would still welcome whatever measures the government might take to put more money in consumers' pockets. Our members' preference is for tax measures over spending so that Canadians can make the choices on where they allocate their dollars. Our preference is also for measures that will continue over time, as opposed to short-term, one-off initiatives.

Finally, with regard to the deficit, our members believe that Canadians made a huge personal economic sacrifice in the 1990s to pay off government deficits, and we as retailers are not prepared to go back there. We would not support any initiative that would take the fiscal situation back into deficit.

Let me now talk about the two specific tax areas, payroll taxes, first of all. There's no doubt that payroll taxes are job killers par excellence, and I believe Mr. Martin has publicly acknowledged that on a number of occasions. Clearly, if there is any room for fiscal movement, this is the place to begin.

The Retail Council strongly recommends, as a member of the coalition, the establishment of a $3,000 yearly basic exemption for the employment insurance program. This is something that was positively supported by the House of Commons committee on human resources development. It would increase take-home pay, it would benefit low-income workers the most, and it would lower the cost of employment.

Our president met with Mr. Martin last week, who indicated that this proposal was simply too expensive at this time. We are very sensitive to the fiscal circumstances of the government. He did promise to look at this in the future and suggested we try to find some lower-cost alternatives.

At this point our coalition is still working on our final package of advice for the minister, but our first preferred option would be a yearly basic exemption of $3,000 for the 2.3 million workers under the age of 25. The cost of this alternative would be less than a 5¢ premium reduction, but it would focus the benefit on a group of employees who really need it. I know this committee is well aware that the youth unemployment rate in this country is twice that of other adults.

I would remind the committee that without some movement on employment insurance costs, Canadians will experience on January 1, 2002, the largest increase in payroll taxes since the recession. That will be as a result of the 40¢ increase in the CPP. This is no time to be increasing taxes on jobs.

Let me turn now to the goods and services tax. A reduction in the GST would be the fastest and most visible way to return money to Canadians, and the econometric analysis suggests that it has the greatest stimulative impact after payroll taxes. We would not support a short-term holiday or a reduction to boost holiday sales. This would simply skew dramatically the pattern of sales, causing enormous difficulties for retailers in planning and problems in relations with consumers at the point of sale. We do not believe it would generate net additional new demand. We would simply be buying sales forward, and administratively it would be very difficult for our supply chain partners.

We would oppose a cut that targeted specific merchandise sectors or limited the application to a certain dollar threshold, all purchases under x, for example.

We believe these economic policy measures should not be used to try to adjust Canadians' buying choices.

Our strong preference would be for a permanent cut in the GST rate. We recognize that a one-point cut would put about $3.5 billion into consumers' wallets, although the cost to the government would be somewhat less.

The signal that such a huge injection of cash sends in the short term may work more on confidence and overall personal disposable income than on stimulating individual personal purchase decisions, but we believe it has very positive medium- and longer-term benefits.

If a permanent cut is not possible at this time for fiscal reasons and the government is considering a temporary measure, we would urge that cut be for at least six months to try to minimize that problem of surges of purchasing behaviour.

We will be sending a similar message of restraint and a focus on consumer spending to the provincial governments in our submissions to them.

Mr. Chair, those are our opening remarks. We'd be glad to answer any questions.

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

We'll now hear from the Canadian Manufacturers and Exporters, Mr. Jayson Myers, senior VP and chief economist, and John Allinotte, director of corporate taxation, Dofasco Inc. Welcome.

[Translation]

Mr. Jayson Myers (Chief Economist, Canadian Manufacturers & Exporters): Thank you very much, Mr. Chairman.

• 1850

Ladies and gentlemen, thank you for this opportunity to share with you the Canadian Manufacturers & Exporters' economic outlook further to the events of September 11 and our recommendations with respect to the federal budget.

As you know, Canadian manufacturers and exporters account for 75% of the activities of the industrial production sector, as well as for 95% of all R&D activity in the private sector in Canada.

[English]

I'm sure you're also aware of the importance of both the manufacturing and exporting sectors to the Canadian economy. Manufacturing employs 2.2 million Canadians, and one out of every three jobs in this country depends on exports.

Many things have changed in the wake of September 11. The manufacturing sector was already in recession. I provided an analysis to this committee before the summer, but by the end of the summer the manufacturing sector had already fallen into recession. I think the general expectation at that time was that conditions would begin to improve very gradually throughout the rest of the year or throughout the fourth quarter of 2001, but the aftershock of the terrorist attacks will prolong and deepen the recession in Canadian industry.

Conditions will worsen in key sectors that were already experiencing market weakness before September: the automotive sector, the electronics sector, and the resource-processing sectors. But also we're going to see a reversal of fortunes in those sectors where performance in terms of shipments, production, and employment had been doing very well before September 11, sectors like the aerospace industry, the petroleum refining industry, and the chemical industry.

Certainly there's too much uncertainty today to make any firm predictions, but on the basis of the production closures, the lost contracts, and the layoffs we've already seen over the past two months, at the present time we're expecting manufacturing shipments to fall by 4.5% in 2001, with a net job loss in this sector of 85,000 jobs.

With over 62% of manufacturing production sold into the United States, conditions in the U.S. market will be the key factor in determining how deep the downturn will be in Canadian industry and when we can expect any recovery to take place. For manufacturing, that recovery should not be expected now before 2003.

The impact will be felt throughout the Canadian economy, and it will have immediate implications for fiscal planning. We advise the government to be cautious in this respect. We believe real economic growth will average 1.2% for 2001 and only 0.8% for 2002. We've yet to see the full impact of layoffs that have already been announced, and most of those layoffs will be taking place before the end of the year.

That predication is also based on the assumption that no further economic disruptions are caused by the war on terrorism. It's a pretty pessimistic outlook, I think, on the part of most manufacturers today. There isn't very much good news in this sector at the present time.

The economic conditions have also been aggravated by disruptions and delays at the Canada-U.S. border. In today's very highly integrated economy, businesses depend on the movement of people and just-in-time delivery of goods and services. The disruptions we've seen at the border and at airports not only mean extra cost, but have meant lost contracts and production closures. It also threatens Canada's long-term potential to attract and retain investment, product mandates, and production lines. Border disruptions are the priority concern of our membership in the wake of September 11.

As chair of the Coalition for a Secure and Trade-Efficient Border, we're working closely with 40 other business groups and with public officials in both Canada and the United States to ensure that concrete steps are being taken, or will be taken as soon as possible, to strengthen security and expedite low-risk traffic crossing Canada's borders. These dual and very complementary objectives underline the point that both the physical and the economic security of all Canadians is at stake. The coalition will be tabling its statement of objectives tomorrow, and we'll make sure that statement is tabled before this committee as soon as it's publicly available.

• 1855

All this has led to a tremendous and very widespread feeling of uncertainty across Canadian industry. It has been caused by heightened security concerns, the economic downturn, and the disruptions at the border, and it is affecting the confidence of consumers, investors, and businesses that depend on travel and access to international markets, particularly the American market, and the confidence of all Canadians with respect to their physical and economic security.

This year's budget will not only set the direction of government fiscal policy but will make a very important statement with regard to the government's response to the economic and security concerns of Canadians in the wake of the September 11 terrorist attacks.

The budget should have both short- and long-term objectives. The more immediate objective is to sustain and build confidence. For that reason, we believe the budget should aim to strengthen investor confidence by reaffirming the government's commitment not to fall back into deficit and by setting out a fiscal plan that will ensure the budget remains in balance. That plan should include a comprehensive review of government spending programs, with the objective of reducing, reallocating, and postponing expenditures in order to meet short-term fiscal targets.

The budget must also aim at strengthening consumer and business confidence. The most effective way of doing this is to reaffirm that the government will stay the course with respect to its personal and corporate tax reduction plan, including planned reductions in employment insurance premiums.

The budget must also provide for additional expenditures for security, customs, immigration, international development assistance, and for Canada's military commitment in the war on terrorism, in order to reassure Canadians that our physical security will be protected. In order to reinforce the confidence of businesses and Canadians whose economic livelihood depends on access to the United States and other international markets, the budget must also make provision for adequate staffing, infrastructure improvements, and the implementation of new screening and data management technologies and preclearance programs to expedite the movement of low-risk travel and shipments across Canada's borders.

Confidence-building should be the government's most immediate fiscal priority, but we believe the budget should also have a clearly stated long-term objective: to strengthen the competitiveness and the innovation potential of the Canadian economy. In fact, this objective is more important today than ever before. Businesses will have to become more innovative and more competitive simply to weather the current economic storm and ensure their prospects for long-term growth.

There's also a more urgent need for governments across Canada to go further and faster with respect to tax and regulatory reforms in order to ensure that Canada remains an attractive location for businesses to locate, invest, employ, and grow. The federal government can and should take immediate and concrete steps to improve the business environment for investment and innovation in this country. These are measures that do not entail massive new expenditure. They're measures that should actually improve the management of government by making it more efficient and more effective at the same time.

Specifically, we believe the government should, first, take further steps to improve the administration of the scientific research and experimental development tax credit system by simplifying its rules and ensure the benefits of the program are not neutralized when applied against the consolidated results of larger multinational companies operating in Canada.

Secondly, we think it's important that the government implement the recommendations of this committee and its unanimous report on cost recovery. We see no progress being made on this issue in the ongoing—and I would say, never-ending—Treasury Board review. Yet the problems of deteriorating service standards and the lack of control and accountability with respect to user fees remain, and they are more acute than ever before in this period of economic weakness.

Thirdly, we believe the government should initiate a comprehensive review of federal regulations to ensure that Canada's regulatory processes are as efficient, effective, and conducive as possible in promoting innovation. In this review, attention should be specifically paid to reducing paper burden, simplifying rules, lowering compliance costs, streamlining product approval processes, and harmonizing compliance procedures as much as possible across federal, provincial, and international jurisdictions where common regulatory objectives can be achieved.

There are also a number of steps that the CME and our members recommend the government take as soon as possible to improve and build a sounder environment in Canada for investment and innovation. We believe these steps should be taken when economic conditions are right, and, as Mr. Poddar has mentioned, if there are certain rule changes that can minimize revenue impacts, then these measures should be given a more immediate priority.

• 1900

In terms of tax reductions, in our budget recommendations we recommend the following changes be made. Mr. Allinotte will be available to address any of these issues during the question period.

We're in total support of the Coalition for the Elimination of Capital Taxes. We believe capital tax is a tax that penalizes companies that invest in productive assets and innovation. This tax just doesn't make sense and should be eliminated.

We should see a reduction in the corporate income tax levied on manufacturers and processors to 17%, in line with previously announced cuts in the general corporate income tax rate.

We should also provide for a simplified means of accelerating the depreciation of manufacturing equipment than those currently available under existing CCA rules.

The government should move to eliminate the withholding tax on interest, dividends, and royalties between Canada and the United States on a reciprocal basis. These steps would establish a more competitive tax regime in Canada. The business climate would be more conducive to making investments in new and improved products, technologies, processes, and skills.

CME has also made a number of recommendations in its business case for innovation, intended to strengthen Canada's innovative capacity. We approach the challenge of innovation from a strategic business point of view. We stress that while investments in research are extremely important, the economic benefits of productivity improvement and employment growth will only come as a result of the commercialization of new products and services, the application of new and improved technologies, and new ways of doing business.

From our point of view, businesses, governments, and educational and financial institutions have to work together to address a number of key priorities ranging from better business management to skills development, research transfer, financing innovation, and strengthening the capabilities of small and mid-size companies in this country.

CME is working closely with Industry Canada, HRDC, provincial governments, and academic and research organizations to design and develop concrete actions that all parties can take to improve innovation in Canada. Much of what must be done depends on building on the success of existing programs, like the National Research Council's Industrial Research Assistance Program, measures that have a bottom-line impact for industry because they deal with real business, real shop-floor issues.

CME is currently undertaking a series of consultations across Canada with manufacturers and partners in innovation. We'll be making more specific recommendations early in the new year.

The intent is not to recommend major new spending programs, but to identify ways that businesses, government, schools, research organizations, and financial institutions can work more closely together to strengthen Canada's research and commercialization capabilities.

Innovation, productivity, and competitiveness are key long-term challenges for the Canadian economy and Canadian industry. We applaud the efforts of this committee in focusing the attention of the government and the public in general on these crucial issues. We look forward to continuing our work with you, in making Canada a preferred location for manufacturers and businesses in general to invest, innovate, employ, export from, and grow.

Thank you very much.

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

We'll now hear from the Canadian Association of Retired Persons, Mr. William Gleberzon and Rolf Calhoun. Welcome.

Mr. William Gleberzon (Associate Executive Director, Canadian Association for the Fifty-Plus): I guess we're on the other end of all of these gentlemen, dealing with a whole different group of people and problems.

I want to thank the committee for allowing us to address them this evening.

As you said, my name is William Gleberzon. I am the associate executive director of CARP, which we now call Canadian Association for the Fifty-Plus. I am joined by Rolf Calhoun, who is CARP's representative here in Ottawa.

Since we've been asked to limit our comments in order to allow for questions, I'll begin with a short description of CARP for those who do not know who we are. A lengthier brief is in the material that has been handed out to the members of the committee.

CARP, the Canadian Association for the Fifty-Plus, is the largest national association of mature Canadians in our country, representing nearly 400,000 members who are 50 and older, retired, and still working.

We are a non-profit organization. CARP does not receive operating funds from any level of government in order to maintain its independence and neutrality. Our mission is to express the concerns of mature Canadians and our mandate is to provide practical recommendations for the issues we raise.

• 1905

I should note that you referred to us as the Canadian Association for Retired Persons, and we've retired that descriptor. To be more accurate, because our members are 50 years of age and older, we call ourselves the Canadian Association for the Fifty-Plus.

I'd like to begin by pointing out it's the concern of our members that the interest of seniors has not received high priority on the federal government's agenda, and we're concerned that the priority that does exist may be lowered even further in light of the new contingencies faced by the nation since September 11. We trust this will not occur.

Many of the issues our members have brought to our attention continue to concern them, despite what happened on September 11. Therefore we feel they warrant the consideration of this committee, even during these stressful times.

We've brought many of these issues to the attention of the committee in the past and would like to present what we hope the committee will consider recommending to the Minister of Finance.

The first major issue of concern to our members, and to all Canadians, is our health care system. It appears that Mr. Martin will not be increasing funding to the provinces and territories for health care. We urge him to reconsider this policy. To not do so will contribute to the further erosion of our national health care system and will result in the imposition of user fees, greater privatization, and ultimately, the creation of a two-tiered system.

For people who are retired and living on low or fixed incomes this can be a major problem, especially as they grow older. The ultimate consequence will inevitably be the destruction of the principles of the Canada Health Act, and with them our unique made-in-Canada health care system, which is acknowledged to be one of the principal defining criteria of Canadian nationalism.

We made this same appeal yesterday to the Standing Senate Committee on Social Affairs, Science and Technology, in its study of Canada's health care system, but we think this is also a proper venue to make the same appeal.

There are a number of issues we would like this committee to consider, and I'll treat them very briefly. As I say, there is a more detailed analysis in our brief.

The first is on the guaranteed income supplement. As I'm sure you understand, it is a top-up to old age security provided to seniors with low incomes. We are recommending that the entire guaranteed income supplement system be reviewed and reorganized and the claw-back system be reformed. Again, we have the suggestions and recommendations in our brief.

In effect, we're saying the 50% claw-back should be replaced with at least the 15% claw-back rate used on old age security. Just to remind you, seniors—and there are over one million seniors—who receive old age security and guaranteed income supplement look at an income of $12,648 a year. Anything above that is clawed back on the basis of 50%.

The awareness of the program has to be enhanced, the threshold for eligibility has to be increased, and the amount of payment also has to be increased. We made this similar argument last week to the House's Standing Committee on Human Resources Development, but again, we feel this is a proper venue to bring the same arguments forward.

In regard to old age security, we recommend, as we have in the past, the claw-back be removed entirely. We realize the limit for the claw-back is going up gradually, but we believe it would be a very symbolic gesture to remove the claw-back and allow those with higher retirement incomes to have that taxed according to the progressive income tax in operation.

• 1910

In regard to the retirement savings plan, we would like to recommend that the contribution limit be increased. It is very important that those who are able to can make a maximum contribution much higher than the $13,500 that exists today. The Retirement Income Coalition is going to be making a similar argument tomorrow, I believe, and we support what they're going to say.

I'd also like to point out that in regard to RRIFs, registered retirement income funds, the reduction of interest rates to 2% has a profound impact on low-income seniors who live on fixed incomes. Whatever small amounts of money they are able to generate through their investments have been cut in half for many of those people, especially those with GICs, for example. We also believe that for the registered retirement income fund, RRIF, the mandatory withdrawal rate should be revised and reformed to make it more in tune with the needs of people who have that instrument.

Another area we'd like to bring to your attention regards locked-in funds or life income funds, LIFs. These are funds that individuals who are part of a corporation and corporate pension plan and who decide to leave the plan are able to take out and roll over into their personal RRSPs. The federal regulations on LIFs for employees of federally regulated companies have not been changed over the last couple of years. Indeed, we strongly recommend that they be harmonized with the most current reforms in provincial legislation on LIFs. Tremendous changes have occurred right across the provinces, which the federal government has not incorporated.

Another area we'd like to bring to your attention concerns Canadians who receive U.S. social security, that is, Canadians who worked in the States and have returned back to Canada. We strongly urge the government to reconsider the current 85% taxable rate on U.S. social security for those Canadians and to replace it with a more progressive taxable rate that starts at 50%, which had been the taxable rate four years ago.

We'd also like to recommend some income tax reforms that have a profound impact on seniors, older Canadians. One recommendation that will a profound impact on everybody is to simplify the tax forms. We've been told there's one sentence that apparently runs on for 42 pages, so I think that sort of thing has to be looked at. For people on limited incomes who can't afford to hire people to do tax forms for them, this is a tremendous burden.

We'd like to recommend that full exemption be allowed for employees' contribution to CPP and QPP. We'd also like to recommend that income tax policies that are punitive for older Canadians be reformed; for example, artificially high income levels as determined by dividend tax credits. Another recommendation is that marriage breakdown preconditions in RRIFs and employee pensions should be harmonized with treatment for married couples in RRSPs and CPP/QPP.

Another area of tremendous concern to us deals with informal caregivers in the health care system. As you know, the health care system has shifted profoundly over the past 10 years from institutional care to home care. The backbone of our new health care system is the informal caregiver, that is, the family member and others who provide health care at home for relatives, neighbours, and friends.

I will bring to your attention, in the material we handed out, three major reports that we've undertaken. The most recent is a report card on home care in Canada. This, generally speaking, gives home care across the country a failing grade despite all the money and all the changes that have occurred over the past five or six years.

• 1915

To enhance the vital service that informal caregivers provide in Canada's new health care system, we recommend that the federal government adopt the following fiscal policies, among others that are laid out in the material in the reports that I've mentioned.

Increase the current tax credit for informal caregivers, which is about $450 a year—a minuscule amount that many of these people pay out of their own pockets.

Extend coverage for them under employment insurance and CPP. About 12% of the roughly 500,000 to 700,000 or 800,000 informal caregivers have to give up work to provide care at home on a full-time basis. When their job is done, they have nothing to show for it other than dependence on a guaranteed income supplement, which as I've said is a very low amount anyway.

We believe the informal caregivers should be provided with direct compensation.

We believe that funding for the other recommendations in our various reports and in our most recent report card on home care should be enhanced.

One other area that I'd like to bring to your attention is affordable rental accommodations. There is a crisis in our country with regard to affordable rental accommodations, that is, the lack of it. In the material we've handed out, there is a major article that appeared in our magazine, CARP News Fifty-Plus, called “No Vacancy”. That is the case right across the country, including Ottawa. In fact, Mr. Calhoun will be giving a talk to the Council on Aging in Ottawa in a couple of weeks about what CARP is recommending should be done about building rental accommodations.

Briefly, we recommend that this committee recommend to the Ministry of Finance increased federal funding on a long-term basis to the provinces and territories to provide subsidies and grants to them to foster and induce the building of affordable rental accommodations. Another recommendation is to institute tax credits, rather than just short-term grants. Another recommendation is to provide funding to provinces and territories for rental subsidies for Canadians on low and fixed incomes. There are other recommendations that will follow shortly when we produce our report on affordable housing.

The crisis is now and action is required now. There have been numerous studies done. In our office, I would say we have probably a foot of various studies that have been done by different organizations—it's a foot high. No more studies are necessary.

To quote the Honourable Paul Martin, who said in 1991 when he was in the opposition, “All Canadians have the right to decent housing, in decent surroundings, at affordable prices.” There is currently a vacuum in federal policy and direction. Only the national government has the financial resources to address the full dimensions of the needs of the country in this matter. What was said in 1991 applies 10 years later.

The lack of affordable rental housing undoubtedly contributed to Canada's reduction from first to third place in the United Nations' most recent report on the best country to live in the world. The Prime Minister acknowledged that the federal government must take positive action to combat poverty, which includes affordable housing.

In conclusion, we believe our recommendations are practical and feasible if the government chooses to implement them. We believe our recommendations will create greater fairness for all seniors and provide seniors who live on low and fixed incomes with a better standard of living.

Our recommendations will also enable seniors to improve their purchasing power, which is, of course, a great problem for low-income seniors who spend the majority of their income on purchasing—for rent, for example—particularly in a market that's very tight. This in turn will stimulate the economy at a time when consumer spending, which is the major factor in priming the economy, is very mixed.

A portion of the funds the government invests in our recommendations will return to it in the form of various types of taxes. We believe our proposals represent a win-win for all concerned.

Thank you.

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

We'll now proceed to the question and answer session. We'll give seven minutes to Mr. Epp, and then we'll go to Mr. Pillitteri, and then we'll come back to you.

Mr. Ken Epp: Thank you, Mr. Chairman, and thank you to all of you for your stimulating presentations.

The Chair: Can we allow Mr. Pillitteri to ask his question first? Is that okay?

Mr. Ken Epp: Sure.

• 1920

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you. I've never asked for this, Mr. Chairman, but I do have to go.

More than a question, I want to make a comment. By the way, Mr. Thompson, Paul Bonwick told a lot of us to say hello to you, so you have a lot of friends on this side of the House tonight.

In the micro-breweries, I understand.... I also have one of them in my riding in Niagara Falls. Besides that individual having the brewery in the riding, they also produce a lot of the tanks. They do that right across the country, where they employ quite a few people. They have quite an expertise in providing the manufactured products in order to make the product.

But on the issue of taxation, when I take a look at your presentation, I think we are not too far apart, my wine industry and the brewing industry.

In our industry, two groups control 85% of the market. There's a monopoly with the liquor control board, a monopoly with two individuals, and then 85% is some 80 different groups. By the same token, four companies produce some 20 million hectolitres where the rest of the micro-breweries—55—have only very little. They really employ a lot of people, not only within the manufacturing of products to get these plants in place. They also really touch the local markets, not only in competition. They really touch the people in communities all across the country. They even sometimes manufacture a better product than the large ones. The reason is that we have to be better in order to be competitive in the brewing industry, and also in other industries, specifically in the wine industry.

I totally agree with you. And I've spoken about this at length with the minister, trying to get this tax down not only to 60%—I would like to see that—and 50% for individuals who don't have an opportunity. Per capita, they employ more than three or four times the people than they do in the beer industry, because they don't employ as many people.

Also, I find there should be more than this, the home brews. I don't like to see them in a sense taxed to the same degree as would be the smaller breweries or the small wineries. But I'd like to see them somehow registered to a point where we could see how much they're really producing. My understanding is, and I do know this, that when some licences were given out, there is more illegal stuff being sold—I don't know about your industry, but certainly in mine—through the auspices of home brew than there is legally in some places. Therefore, personally I would like to see those registered, see how much they produce, and pay a minimal charge.

Do you agree with me? Would you like to see that with the home brew? I don't think we're trying to tax them, people who cannot afford to buy a case of beer or a six-pack. But I think there should be some control within the small home brew—there are some things in there we should have control over and we don't have control now.

Mr. Howard Thompson: I agree with you on all your points. Certainly, the small brewing industry is labour-intensive. The point we didn't make earlier around that is that the revenue impact on this excise change to the federal government is minimal relative to the total excise gathered, simply because the amount of beer these small breweries produce is small.

On the other hand, 97% of the breweries in Canada are small. So the impact it would have on a lot of businesses is genuine and significant.

• 1925

On the issue of home brew, we talked about this in the province of Ontario where there was quite a bit of bootlegging both on the wine and the beer side. Our position has always been, if you can provide for a profitable and sustainable industry—and the small breweries represent an industry—that helps provide for better governance within that industry as well...because people are paying attention to what's going on, they're successful, and where home brewers cross the line it's going to be more apparent.

I think you're right, there are people who should be able to brew at home or make wine at home. I can't comment on the taxation of that industry. It's not our industry. What I do understand is there are little breweries out there that are involved in an industry where most of the distribution and regulations are garnered toward bigger companies and what we're looking for is some recognition of those small breweries within the industry.

Mr. Gary Pillitteri: Just to follow up, you have my full support. But I don't want to touch the brew at home. Whatever they make in the house, be it wine or beer, I don't want to touch that. All those individuals who go into a register where they can put in the yeast and they have beer the next day, those are the individuals I'm talking about who should be under control.

Thank you, Mr. Chair.

The Chair: Thank you, Mr. Pillitteri. I was very happy to accommodate your schedule.

Mr. Cullen.

Mr. Roy Cullen: Thank you very much.

Thank you to all the presenters. Yes, Paul Bonwick worked me over as well and made a strong case, and I think it's a good case. I'd like to come back to that in a moment.

Jayson Myers, you talked about innovation. The government is working on the innovation agenda at Industry Canada. It sounds as if your sector has some initiative going on and you're going to have results to report after the timing of the budget. What should the government be doing in terms of the innovation agenda?

I don't know if you've seen it. I haven't personally—I don't know what's in there. But should the government be looking at that as a priority in a budget that would come out in early December? You haven't even got your thoughts together on it, I gather.

Mr. Jayson Myers: We've certainly identified the issues that are priority issues for the membership. I think the objective of the government's innovation agenda was to take some stands or identify some actions that would not necessarily be done overnight but would basically identify or define a strategy forward for the promotion of innovation. In our view, this goes well beyond simply the research and development part of it but also to commercialization and to the actual improvement of the competitiveness of business.

I think we see our initiatives very much in line with where the government is going. As an association that represents industry across this country, we also are in a unique position to identify the common interests and common challenges industry is facing and to begin to pull together, not only federal government programs and initiatives, but also provincial initiatives as well—what our academic and research organizations and our financial institutions are doing across the country—and at the same time to begin to set an agenda of how businesses themselves can begin to address some of these issues in real, live, on-the-shop-floor, in-the-management-office actions.

I don't see this as coming out after the fact. I think it's very much an attempt to begin to bring together these initiatives and to give them a little bit more focus on the real concerns of business. Our consultations are really aimed in that direction, not to reinvent the wheel in terms of concocting new programs, but how can we bring these programs together in a way that fits much better with what business is doing and what other jurisdictions are doing as well.

• 1930

We've been working closely with both Industry Canada and HRDC in the development of their strategies.

The Chair: Thank you very much, Mr. Cullen. I have to move on. Mr. Epp.

Mr. Ken Epp: Thank you very much, Mr. Chairman.

I'd like to begin with the Coalition for the Elimination of Capital Taxes. I'm impressed with the unanimity we've had in this round of hearings of the committee, in that just about everybody who represents any kind of business or manufacturing organization or has any attachment to them has made this an agenda item. I think you have a conspiracy going here; that's what I think. That's my theory: that you decided everybody should come to bombard us with this.

I have a question. You said it would probably be okay to, say, phase it out over five years. Yet some of the presenters have said to us that actually, if you look at the stimulus to the economy this would provide, the net loss to the government would be considerably less than the $1 billion a year that is derived from that particular tax. Some have suggested it might even be close to zero in terms of giving at least a $1 billion stimulus to the economy.

Do you have any evidence on that, since you're the coalition and are probably the best organization to represent the capital tax coalition here? What is your projection on the actual loss to the government? And if it is so low, why don't you just say “Let's do it and forget about phasing it out over five years”?

Mr. Satya Poddar: We'd welcome an immediate phase-out. In terms of the loss in revenues—if you believe these Finance numbers, that for every dollar of revenue raised you lose $7 in income—suppose nationally the government is collecting 20¢ per dollar in tax on every dollar of output. If the $7 of output that is disappearing because of tax were preserved because of elimination of capital tax, you could collect seven times 20¢, which is $1.40. For every dollar of revenue given up in capital tax, you could collect $1.40 in additional taxes because of the $7 of additional output.

So if you really do the analysis in a dynamic context, and if you believe Finance's own numbers, you can have a net revenue cost of zero—or one that's positive, in the sense that you have a revenue gain as opposed to a revenue loss.

Mr. Ken Epp: I was surprised that as a coalition you didn't make that case a little more strongly, because some of the other presenters have.

Mr. Satya Poddar: We were really trying to echo our chair's comments, so I thought with a seat along the side, all we had to do was say “We are with you.”

Mr. Ken Epp: I have some questions for the Retail Council. First of all, again, I'm somewhat pleased with some of your presentation in that it does compare favourably with what we've heard from others. Payroll taxes are job killers—you've got that on. You're suggesting this $3,000 exemption for EI. But what I'm really surprised at is that you tackled the GST, because there are some economists who suggest to us that the GST—in fact a consumption tax, a sales tax—is a more efficient, that is, a less-harmful-to-the-economy tax than an income tax. Most of the others are promoting a reduction in income tax: personal income and corporate income taxes. You're among the very few who have indicated you would reduce the GST. Why did you choose that?

Mr. Peter Woolford: First of all, it's always nice to be a ground breaker, Mr. Epp, so we're delighted to be at the leading edge of the wave.

I would note that in my opening comments I said we would welcome any measures that put money back in consumers' pockets. So certainly, however the government chooses to proceed in that direction, we would support it.

What we did was identify the goods and services tax, because it's the area where, if a government does want to take counter-cyclical measures, the effects can be shown in consumers' behaviour and in their pocketbooks very quickly. It shows up immediately every time they make a purchase, and that money flows through. As well, because consumers see it as they make their purchases, we believe it has a stronger stimulative effect.

• 1935

That's the reason we've gone that way. We do recognize, as I said in my opening remarks, that a one-point reduction is a big hit at this point.

Mr. Ken Epp: One thing you said was you did not favour that this be a temporary thing; rather, that it should be a long-term thing. Yet I think in terms of an immediate stimulus to the economy, if you tell people there's a GST holiday of 2%, say—“We're going to take it back to 5% for maybe six months”—people would rush out to buy things right now, because they would have a deadline to meet.

Are you simply saying “We're looking ahead six months down the road; we don't want the big brake on the economy then, when the GST is put back up”—is that your reason? Or what would be your reason for that?

Mr. Peter Woolford: That's correct, Mr. Epp. Our concern is that a short-term sales tax holiday like that would only buy forward sales. As I said, our members are concerned that this is going to be a recession of longer length. They are concerned that if you put it on for six months or less we would still be in a down point of the cycle, and when that incentive disappeared the end result would be that we would suffer a significant loss of sales after it came off.

The other key point, though, that I think should be noted is the GST is a value-added tax. Retailers are used to adjusting their tax rates and their tax bases as finance ministers change their policy decisions. The other partners in the supply chain—wholesalers, importers, manufacturers—are not accustomed to doing that and would have a great deal of trouble with it. You'd have a high degree of administrative problems and inefficiency if you took this off for only a short period of time.

Our point is that if the government does wish to proceed with a temporary reduction, it needs to be one of long duration, so you get out of those problems of surges in behaviour and the additional administrative costs of having to go through this for a short period of time.

Mr. Ken Epp: Now I want to talk a little bit to the brewers. I have to begin with an apology. I know this may sound strange from a man who's over 60 years old—and I'm glad that Mr. Pillitteri left—but I am one who, in his entire life, has not had a single drop of beer. It's just the choice I made, and I've stayed with it. I'm a stubborn guy, my wife says.

I think you guys have it made. According to my calculations, based on what you've said, you are persuading each adult in Canada—including me—to drink 138 litres per year. It seems to me you have a huge amount of income. I don't know much about it, but I have noticed in the airplanes when people in my section buy beer they pay $5 for it, and it's much less than a litre that they get for it.

Why would you complain, then, about your excise taxes, which I estimate to be 30¢ a litre, based on the numbers in your report? Are you not just simply—and I hate to say the word—whining?

Mr. Sandy Morrison: Do you want to have a go at that, as a small brewer, Howard, and then André?

Mr. Howard Thompson: Sure. Canada is a beer country. There's no question that people like to drink beer in this country.

Mr. Sandy Morrison: I'm out of it.

Mr. Howard Thompson: I don't apologize for it. It's a wonderful business, and the small brewery side of it often represents communities that are outside of major urban areas. It's heavily labour intensive; we employ a lot of people. It's also manufacturing intensive, so it has a lot of capital input.

What we are complaining about is the fact that yes, a lot of beer is sold per capita in Canada, but over 90% of that is through two companies, fine Canadian companies, and the excise tax rates—in fact most of the regulations and tax situations regarding alcohol or beer in this country—were generated around very large businesses within the industry. What has emerged is this terrific, distinct part of the industry that's made up of small businesses, and the tax regime simply doesn't represent the reality for small businesses within the beer industry.

Mr. Sandy Morrison: What we're proposing here is a tax break that would cover 53 out of 57 companies but would in fact cost the treasury less than 2% of the excise duty. It is those small companies we've attempted to describe that are in a critical position—through economies of scale, through the competition coming in from products imported from countries that offer these kinds of incentives and tax breaks to their own brewers and compete under uneconomical terms, putting our small brewers at a distinct disadvantage.

• 1940

So the ask is very narrow. Our major companies are supporting this; they're not asking for any tax relief at all. This is targeted toward a very small sector that represent 53 communities across this country and employs a large number of people and plays a vital role in the community in their provinces.

I think André Dion in Chambly has made an incredible contribution to that community and the area around there with the development of Unibroue and what he's brought to that community. André, you might....

[Translation]

Mr. André Dion: I would just like to add something further. On average, Canadians consume 71 litres of beer each year. In some countries, for example Germany, beer consumption per capita is 140 litres per year. In total, Germany has 2,135 breweries, all of which are small companies. The largest German brewer ranks only 37th among all brewers. However, Germany does produce quality beers.

In countries where people consume large amounts of beer, alcoholism is less of a problem. However, alcoholism is a problem in countries which boast high sales of spirits. Take Russia, for example. Our beer is now marketed in Russia, a country where alcoholism is a serious problem. Young people are now opting to drink beer. Russian leaders see this as a positive development. They prefer to see young people drinking beer instead of 40 or 50 proof spirits.

Beer has been around since the dawn of Christianity. During the Middle Ages, beer was recommended for pregnant women. Today, some companies add so many chemicals to their product that beer is no longer recommended for pregnant women. Nevertheless, beer is enjoyed in most world countries.

The national consumption average in Canada and the United States is comparable to the international average. Unibroue has adopted the slogan “Drink Less, Drink Better”. That's the message we're delivering to our clients around the world.

If one day we had to produce something other than beer, then we would adapt. However, with globalization, all Canadian retailers are selling imported beer today. Foreign beers like Corona and Heineken currently hold an 8% share of the market. Why is that? Because they are distributed by the major brewers who control domestic distribution. The situation is extremely deceptive.

For the past eight years, the Canadian government has been complaining about the Americans, arguing that they do not abide by NAFTA rules by protecting their small breweries. The US government always tells the Canadian government to follow its own advice and to leave them alone. For the past eight years, we have been demanding fair treatment. If the small American breweries paid the same excise duty as we do, then we wouldn't be here today. Our situations would be totally different. As far as the Americans are concerned, there are no borders. Sam Adams beer is retailed here in Canada and enjoys extremely favourable tax treatment. The rate of excise duty is lower by 60 per cent. The company pays 9 per cents litre in duty compared to 28 cents per litre. There are no borders. At some point, we have to fight back If the playing field were level, we would be able to hold our own. You made a choice, just as I did. I chose to make beer, and fine beer at that.

[English]

Mr. Ken Epp: You're saying a 30¢ tax represents 50% of the wholesale price of your product; is that what you're saying? Because based on your numbers on the tax—

[Translation]

Mr. André Dion: In the brewing sector, taxes account for 58% of the retail price. Excise taxes represent 16% of the retail price, whereas in the United States, they represent only 4% of the final price. A small Canadian brewery pays four times the excise duty paid by a small US brewery—and I can name them all—operating in Boston or New York, and five times the duty that a small California brewery would pay. We have to fight these breweries. Borders are a thing of the past. They are operating at an advantage and we have waited long enough. All we want is a level playing field.

[English]

Mr. Ken Epp: Thank you.

I have a question for the Association of Retired Persons. I have had, as a member of Parliament, a number of representations from different people who are in tough straits because of their retirement years. They don't earn enough money. Those who have had RRSPs find the tax rate is so high on them they're afraid they're going to run out of capital, and some of them do. They're worried about what's going to happen. There's a lot of anxiety that I hear of.

One thing I'm rather surprised we never hear from groups—and maybe I'm just listening to the wrong five people in my riding, but I hear a lot, particularly from widows whose income in many instances is cut in half when their husband passes away. It certainly is as far as the pensions from the government are concerned, minus, of course, the small death benefit that's paid if it's on the Canada Pension Plan.

• 1945

I wonder whether you have any input into that particular question with respect to retirement. When a couple has been living together for 70 years and one of them dies, should that income be brought more in line with what it actually costs to maintain an apartment or whatever?

Mr. William Gleberzon: The situation that exists today is that the majority of people who have received the guaranteed income supplement are older women, and poverty in that group is among the highest in our country.

Now, it's much better than it was say 20 years ago because of government public pensions. There's no question about that.

However, for example, the basic amount for the guaranteed income supplement has not been reviewed in 15 or 20 years.

So what we are saying—and we go into detail in the brief—is that major basic review has to be undertaken. These are women who chose to stay at home. They are of a generation in which women did not go out to work generally, and in their older age, as you say because their husband has died, they're living on a very basic minimum.

The low-income cutoff line in this country is around $17,000, and here you have a large percentage of women living at say just $12,500. This is of grave concern to us, and we have made a number of representations to this committee, to Mr. Martin, and to others about the need to have this changed and improved.

Mr. Ken Epp: So the fact you didn't bring it up this year is not to be interpreted by us that the problem is now solved.

Mr. William Gleberzon: Oh, no.

Mr. Ken Epp: It's just that you had a number of other issues.

Mr. William Gleberzon: It's really timing. We just had so much time and we could only talk about so much. But if you take a look at our brief, you'll find in appendix one a major argument about the need to improve the guaranteed income supplement and how that can be done in a way that will be equitable for everyone.

The Chair: Thank you, Mr. Epp.

Mr. Ken Epp: And I thank you, Mr. Chairman.

The Chair: Madame Bourgeois.

[Translation]

Ms. Diane Bourgeois: Thank you, Mr. Chairman. Good evening, sirs. I will try to keep my comments brief.

Mr. Dion and Mr. Thompson, I enjoyed your presentations very much. If I understood correctly, you support each other's position.

You mentioned that there were 19 microbreweries in Quebec. I don't know if my figures are correct or not. How many such breweries are operating in Ontario? Mr. Morrison talked about 53 small businesses. I'd also like to know why, in your opinion, the Canadian government is refusing your request for equity on the excise tax issue. Finally, do you anticipate even more serious repercussions for your industry as a result of NAFTA? That's all.

I would also have a question for Mr. Penney.

If I'm not mistaken, you work for General Motors. I represent the riding of Terrebonne—Blainville, which is home to a GM plant that is slated for closure soon. Your group, like Mr. Poddar's, maintains that the worst kind of tax is the tax on capital and is asking that it be exempted from paying this tax.

I'd like to play devil's advocate for a moment. Your industry has received substantial subsidies. In light of this fact, isn't it normal that you should pay tax on capital?

My next question is directed to Mr. Myers who spoke on behalf of Canadian Manufacturers & Exporters.

• 1950

Firstly, are your members experiencing any problems in sectors such as softwood lumber, steel and its derivatives?

Secondly, I don't believe I received a copy of your brief. Could you possibly send me one? I'd enjoy reading it. In light of your current woes, I would imagine that NAFTA could cause you some problems. I'd like to hear your views on the subject.

Lastly, I have a question for the witness representing the seniors' organization. You talked about improving living conditions for our senior population. According to your estimates, how many Canadian seniors are currently living below the poverty level?

Thank you, Mr. Chairman.

[English]

The Chair: Who do you want to start with?

Monsieur Dion.

[Translation]

Mr. André Dion: There are 20 small regional breweries in Ontario, 20 in Western Canada, including Big Rock in the Calgary area which is owned by our friend Bob King, and two in the Maritimes.

I see that you represent the riding that is home to the regional brewery Les Brasseurs du Nord—Boréale which, like us, is fighting for its very life.

Regarding NAFTA, we have been experiencing problems for some time now. Because of NAFTA, goods move freely on markets. The agreement has had rather catastrophic results for us because we find ourselves at a disadvantage compared to small American breweries.

We too have looked into the possibility of the Canadian government giving special treatment to small breweries. The Minister of International Trade, Mr. Pettigrew, has assured us that his department was not opposed to this suggestion.

We're not afraid of NAFTA, because we are capable of producing products that are extremely advantageous from a comparative standpoint. We want to be able to market or produce our products at competitive prices and to obtain the same advantages as the small American breweries currently enjoy.

[English]

The Chair: Who's going next?

Mr. David Penney: To respond to your inquiry on subsidies, it is true we've had subsidies in the past, in particular in Quebec, but the quid pro quo for that is we undertook certain investments and kept those investments in place within the terms and conditions under which the subsidies were offered. So I don't think that payment of capital tax is in any sense a payback for those subsidies. The investments were made to earn those subsidies.

The issue with respect to capital tax is more in line with being a disincentive to invest, at least with respect to a multinational like General Motors. One of the issues with respect to decision-making on locating plants is that you have to be as good as your competitor. Our competitor is the United States, and the United States does not impose capital tax.

Again, our point is that Canada has to have as good a tax regime as the United States. We have an anomalous structural problem with respect to capital taxes, and that's why we want them eliminated.

The Chair: Who else would like to comment?

Mr. Myers.

Mr. Jayson Myers: Yes, I wanted to first say that I believe our submission has been circulated to the committee. We'll make sure you have that.

I didn't understand the first question. Was it with regard to the wood products industry?

[Translation]

Ms. Diane Bourgeois: We realize that there are many problems with softwood lumber, steel and its derivatives. You are greatly affected by this situation. What steps do you plan to take?

[English]

Mr. Jayson Myers: There are problems in these industries. First of all, there are problems caused by the economic slowdown, and the commodity producers have been particularly affected. This is not a marketplace right now, though, that is only being affected by the downturn in demand for these products. As in many other sectors, the problem is that there is such overcapacity and competition that prices are being driven down, and in some of these sectors, as a result of imports coming into the country, prices are driven down as the costs of business are increasing. That is why there's such pressure on the bottom line right now and why the restructuring is so important. Some companies are able to restructure, other companies are not and are facing severe financial difficulty as a result of that current circumstance.

• 1955

There's a third set of problems, though, and those relate to border issues. Certainly the softwood lumber industry across Canada has very real concerns about the implementation of duties at the Canada-U.S. border or other penalties, anti-dumping penalties, for this product coming into the United States. The impact on Canadian lumber producers could be and will be quite severe. It runs in relation to a number of other concerns we have about a number of trade disputes with the United States, where these have become politicized and where there are new barriers to trade and to access with this very important market. So, yes, it is a problem.

Maybe I could ask John Allinotte to speak with particular reference to some of the trade problems in the steel industry.

Mr. John M. Allinotte (Director, Coalition for the Elimination of Capital Taxes): Yes, if I may. This issue wasn't addressed in our brief, but I'd be happy to explain to the committee the significance of the recent actions of the Canadian International Trade Tribunal. They're finding that harm had not been done to the Canadian steel industry by cold-rolled steel dumped into this country.

This committee is very familiar with implementing legislation, be it tax legislation or finance legislation. In addition to introducing it, it has to be administered in a way such that the intent is felt in our country.

What we are seeing with regard to the trade laws we administer here in Canada and the most recent decision with regard to the cold-rolled steel being dumped into this country is that it's to the detriment of the Canadian steel producers. In fact, in the decision and the arguments as to why it wasn't being dumped, they turned to us, the company I'm employed by, because we were profitable and one of the only profitable steel companies in this country. We weren't hurt.

Our margins have been reduced by 70% because we've had to match the prices of steel coming into this country, and I would suggest to you, though the trade issue may not fall under the finance committee, your associates should be reminded that a healthy steel company has done a lot in the past for this country and will do so in the future. So I thank you for your question.

The Chair: Thank you, Madame Bourgeois.

Ms. Leung.

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

I think all of you made a very strong presentation on tax cuts. We all hear that loud and clear. We know we are facing right now an increase in national spending on military and defence and security, plus our commitment to health and education. Suppose we go along with some of your recommendations but our choices mean going back into deficit. I heard some of you say also that Canadians have sacrificed for many years to get out of deficit. So I'm interested. How many are willing for us to go back into deficit? Just say yes or no.

The Chair: One at a time now. We're going to do a roll call.

• 2000

Ms. Sophia Leung: Yes, a roll call.

I'd like to know, because we listened, and some of your arguments on tax cuts are excellent. I sometimes support that too, but I would like to know the other consequences.

Mr. Satya Poddar: If I can add, our argument is not so much for the tax cut but getting the tax structure right.

Capital tax has no place. It's a double tax, a tax on one of the productive resources in the economy, which is investment. As the question was asked, a tax like this can cost you a hell of a lot more than what the government is trying to collect. So in some cases, deficit or no deficit, governments have to keep the tax system competitive and rational, and I think the revenue issues can be managed without asking if the Government of Canada can afford it because the deficit is a big issue and the revenue cost is huge. Manage the timing well—

Ms. Sophia Leung: But I want to hear from—

Mr. Satya Poddar: —but clearly send a signal to the investors that this bad tax is going to disappear.

Thank you.

Mr. Jason Myers: I would add that I think, first of all, the government is working on budget planning assumptions that take into account the tax reductions it has already committed to. I think it's important to follow through with that.

Secondly, you're absolutely right, we're going to be seeing increased demand for spending in a number of other areas. Income support programs are another area where we will see increased spending, and particularly employment insurance as unemployment rates increase.

I think our argument is, let's ensure that all these tax changes, tax reductions, are important. But at least from the point of view, very generally, of our members, they would prefer to postpone some of those tax reductions until we are sure the budget does not go back into deficit.

That being said, it's also very important for the finance minister to undertake again a review of existing spending programs, because I think there are many that we should take a second look at and perhaps postpone some of the major expenditures until better economic circumstances prevail.

The Chair: Mr. Morrison.

Mr. Sandy Morrison: I would just make the observation that in our industry, on our product, in aggregate, 55¢ on every retail dollar goes to tax.

We were very careful in bringing forward this request that it was a tiny fraction applying to a very small portion of our industry, a very modest decrease in revenue to the government, but that it would be of tremendous benefit in assuring the economic viability of small businesses operating across the country. So it's very measured.

Our major companies that produce over 90% of the beer sold in Canada are seeking no reduction at all and I think generally are very supportive of the government's achievements in eliminating the deficit and would not be supportive of going back into deficit.

[Translation]

Mr. André Dion: I have a question for the member. Who will pay for the soldiers, for social security and for health care if Canadian businesses go under because of a poor taxation system which doesn't allow them to stand up to foreign competition? This question cannot be ignored.

[English]

Ms. Sophia Leung: I want to comment to Mr. Myers about your—

The Chair: I think it was a question he was asking.

I think you got the answer. She agreed with you.

Ms. Sophia Leung: I asked you a question.

The Chair: Go ahead with a final question.

Ms. Sophia Leung: You expressed some concern about the border crossing. I am very pleased that the coalition expressed interest and that CCRA has already taken a lead to work on that.

• 2005

Recently we passed Bill S-23, and I'm the parliamentary secretary on that. That's good news you probably already know, and we intend to introduce a lot of new initiatives or programs to expedite the transport of goods for business and trade and also for travellers and passengers. As a matter of fact, our minister is heading to Washington tonight. We've been working with you quite a while now, and we certainly welcome you to join us in working with you and with business.

Thank you.

The Chair: Thank you.

Mr. Roy Cullen: Thank you, Mr. Chair.

I know it's getting very late. I had a lot of questions, but I'm not going to get into all that. I'm going to throw out a few questions, and maybe they'll be rhetorical, given the chairman's and everyone's desire to get out of here.

Mr. Gleberzon, you presented quite a list. Given the fiscal capacity of the government right now—just adding it up in my head, it was in the multiple millions, maybe billions—if you had a chance to pick one, what would it be? That would be an interesting thought.

Mr. Penney, in terms of the capital taxes...[Technical difficulty—Editor]...there's no real policy rationale, but I understand also that it brings in about $1 billion a year. In fact, the provinces bring in about three or four times that. But I think you present an interesting case that the timing might be good to send out a signal, particularly with cross-border issues, that the tax on capital should go.

I'm not sure whether, if the federal government took the lead in that regard to announce a phase-out, the provinces would move in that direction as well. It would be important if they did, but we can't always wait for them. I think you've made a good contribution to the debate.

I'm going to have to move quickly to the breweries. You make a strong case. In terms of the competitive issues, there are a number of different issues here: a micro-brewery coming from the United States will take market share; shareholders have a reasonable expectation to get a reasonable return; and micro-breweries here in Canada might decide to invest in the United States instead of Canada if there's an excise tax difference that makes a big competitive difference. Could you just elaborate, Monsieur Dion and Mr. Thompson, on exactly what the competitive issue is that you're facing.

Mr. Howard Thompson: In the brief that was presented we mentioned an exercise where we compared a small brewery in Canada to a small brewery in the United States, making the assumption that each of those small breweries would export 10% of their product. Mr. Dion can talk to the reality since they are heavily into the export part of the market.

What it demonstrated quite clearly is that a brewery in Canada will pay $27, almost $28, a hectolitre at the excise tax rate. The effective excise tax rate for the American brewery is $11 per hectolitre. That puts $16 per hectolitre into the pocket of the small brewer in the United States to compete more effectively in their home market and also to compete more effectively in our market. We do not get the same treatment.

Mr. Roy Cullen: [Inaudible—Editor]

Mr. Howard Thompson: Absolutely. Of the imported products into Ontario, 15 come from small brewers in the United States that would benefit from tax relief on their federal excise level.

Mr. Roy Cullen: So you are seeing evidence in terms of market share from U.S. micro-brewers in Quebec and Ontario.

Mr. Howard Thompson: Sure.

Mr. Sandy Morrison: Imports generally have more than doubled in the last decade, while the market share of Canada's micro-brewers has essentially been stalled. An American small brewer can come into Canada and can, from a tax standpoint, compete on equal grounds, but if a small Canadian brewer goes down into the United States, he has to pay close to three times the tax his competitor in the United States pays.

The question came up about NAFTA and whether NAFTA is a problem. NAFTA itself is not a problem, but the fact is that the Americans aren't honouring NAFTA. They have discriminatory tax provisions in support of their small brewers that penalize Canadian brewers. That is part of the argument that says, we need to get the ground levelled.

Mr. Roy Cullen: Thank you.

• 2010

The Chair: Ms. Bennett.

Ms. Carolyn Bennett (St. Paul's, Lib.): I just wanted to ask this to the witnesses from CARP. You have 4,000 members. What's the actual policy process in the organization? Do the recommendations have a gender-based analysis, seeing that two guys have come tonight?

What we'd heard from the National Association of Women and the Law about the informal caregiver credit was that they were concerned that quite often this caregiving is given by women, yet the tax credit goes to the man. They asked, should there not be a way of making sure the $450 or the increase you're asking for actually goes to the people doing the caregiving?

Even though you boast that you don't receive operating money from the government, I notice that each one of your forums was well supported by Environment Canada, Industry Canada, and Health Canada. I realize this money is not operating dollars, but it seems in the backgrounder...a little misleading maybe.

Mr. William Gleberzon: You asked about our process. We have 400,000 members, and I can tell you that a large percentage of them contact us about their concerns. All the concerns—

Ms. Carolyn Bennett: Do you know what percentage of your members have access to the Internet?

Mr. William Gleberzon: What percentage? No, but I do know that around 18% of seniors have access to the Internet. I don't know what percentage, but communication is not only through the Internet, it's through phone calls, letters, and faxes. The Internet is only one portion of it, although it takes up a lot of time to answer those e-mails.

Anyway, what we are doing is responding. We're reflecting what these people have told us right across the country. All the issues I have presented—I was asked by Mr. Cullen to prioritize them—are the issues that are of concern, based on what people have told us.

Just yesterday—I was working on the weekend and two days before, so I didn't have a chance to get to my e-mail—I had about 70 e-mails I had to answer, which is not uncommon, from people on different issues. These are the kinds of issues they talk about, and we're reflecting to you what they have said to us.

In terms of prioritizing, if I were to give them a kind of one, two, three, guaranteed income supplement would be number one. That's a major concern to a lot of people. Then there are affordable housing and informal caregivers. In regard to the informal caregivers—and if I can answer in part what Mr. Cullen asked—many of the issues we're raising aren't going to cost the government a penny. For example, with respect to people who do have to give up work and aren't covered by either employment insurance or CPP, all we're saying in regard to CPP is to extend to them the same coverage a mother gets when she's given birth. For the first seven years she has stop-out, and we're saying the same kind of arrangement should be made to allow people to contribute so that when they do retire it's averaged into the amount of the CPP they'll receive. It's not really an expenditure.

I'm trying to answer both questions at the same time.

With regard to operating funds, as you've said, we do not receive any operating funds. We have—and this is a new policy—been getting grants from various ministries, many of whom approach us, asking us if we'll do this. We think this is something that has to be done with regard to home care or the environment. We also get grants from private industry. We're not fussy. We'll take your money whoever you are because we think what we're doing with it is well worth it.

You asked how we can guarantee that tax credits go to the people they were intended for. For a lot of the people who are providing informal caregiving, the tax credit wouldn't make any difference because they're not making any money. The whole point about home care by informal caregivers is that it's very cheap in comparison to institutional care. Why? Because in any institution 80% of expenditure is on labour. You're not paying these people, the informal caregivers, to provide the labour they provide 24 hours a day, seven days a week, for as long as that care is needed.

• 2015

We're saying greater equity has to be incorporated. And if you take a longer view of their lives, when they are finished—and often the process of providing care for that adult could take five or ten years—at the end of this time they're unemployable and they have used up their savings.

As Mr. Epp said, their husband—it may be a husband or a wife.... The point is 80% of informal care providers are women, and what we have is a perpetuation of poverty for about 43% of older women.

The Chair: Go ahead, Mr. Penney.

Mr. David Penney: I'd like to follow up.

Mr. Cullen, you made reference to the provinces. The federal government would like to see the provinces take some lead with respect to capital tax.

I would bring to your attention that the B.C. government reduced its capital tax by half and will be out of it by 2002; Alberta has abolished all capital tax; Ontario has increased the threshold as to where it will apply. The Ontario Minister of Finance, Mr. Flaherty, has referred to the Ontario capital tax as the job-killing capital tax. They have some commitment to move out of that regime as well.

So the provinces have in fact taken the lead. We're asking the federal government, for the same reasons, to get out of the capital tax business.

The Chair: Thank you very much.

I'll take this opportunity, if I may, during this wrap-up to outline for you some thoughts I've gathered over the few weeks and months we've been consulting with Canadians, and also to express some of the agreement that has already been struck on both sides of the table in this committee.

One thing for sure is that we will certainly be very aggressive with some of the messages. One of these will be that we simply do not want to go back into a deficit position. We have to take whatever measures necessary not to go back into a deficit position, because we understand the impact it has on consumer and business confidence. It's self-explanatory.

We want to remain committed to the $100-billion tax reduction plan—that is a base for us—and to the federal transfer to the provinces as outlined in the October 2000 statement as it relates to health care and education.

There's a very strong commitment from this committee to support the government initiative on a national security package. If there is one issue we found across the country it was this: Canadians need to regain a sense of security. And an economy cannot function very well if people are not feeling personally safe or that their business is safe. That's very important.

We're also very open to the fact that perhaps, depending on how the economy grows, there may be a day where we even have to contemplate cutting or deferring or reprofiling or reallocating some of the planned expenditures to accommodate other expenditures. That's very much in the world of this committee. We may have to actually make these fundamental tradeoffs.

Those are the immediate concerns. I don't want people to leave here thinking that we're captured only by the immediate concerns we are facing because of the events of September 11. But in the long term, let us be very clear that we as a committee are very much committed to a pro-growth agenda.

This means we will be recommending and advocating policies that speak to improving the productivity of our country and the standard of living of Canadians, because we are fully aware of the challenges we face in those two particular areas. This goes back to the issues raised by many of you, issues like capital taxes and the challenges facing the micro-breweries.

• 2020

We're very mindful of these and we're going to do our very best to make sure Canadian businesses and individuals are given the opportunity to succeed.

If there's anything we do in this committee, you can rest assured it is to make sure Canada continues to be—or develops into—a culture of opportunity. This is the type of magnet that is going to attract people, make them prosper, and provide us with the quality of life to which we've all grown accustomed.

I must point out to these panellists an emerging theme that was also very prevalent in our travels. It is the issue of our relationship with the United States of America. September 11 has brought on a sort of redefining and it's made a few things quite evident to us, self-evident, whether our trucks are stopped at the border.... It's also made us understand how integrated our economies truly are. I predict that in the next few years you will see movement on these particular issues, and this is necessary because they need to be debated.

Whether you call it North American integration or the development of a North American community, the public debate needs to address some of these fundamental issues. In the coming years we as Canadians will experience the pressure of convergence and harmonization on a number of issues, whether energy and the environment, labour mobility, tax competitiveness, electronic commerce, intellectual property, security, immigration. We're going to need to have a national debate on all of these issues, a national debate that will benefit Canadians and one that we simply cannot run away from.

So while you leave tonight—and I thank you very much for your input—I also want you to know we're going to be back to you in the very near future to help us sort out some of these key concerns and issues. But I don't think we should do it with fear or apprehension; we should do it with eyes that are wide open and that look to the future, because we need to engage in this type of debate. It's really worth having, and in many ways it will define the type of future we have as a country.

I want to thank you for your attention.

This meeting is adjourned.

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