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37th PARLIAMENT, 2nd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Thursday, October 9, 2003

0935

The Chair (Mrs. Sue Barnes (London West, Lib.))

Mr. Jim Roche (President and CEO, Tundra Semiconductor Corporation and member and Past Chair of the Board of Directors of Precarn and a Member of the Board of the CMC, Precarn Incorporated)

0940

0945

The Chair

Mr. Stephen Laskowski (Associate Vice-President, Canadian Trucking Alliance)

0950

The Chair

Mr. Stephen Laskowski

0955

The Chair

Mrs. Nancy Hughes Anthony (President and Chief Executive Officer, Canadian Chamber of Commerce)

1000

1005

The Chair

Mr. Terry Ruffel (President, Canadian Professional Sales Association)

1010

The Chair

Mr. Jeff Ekstein (Chairman,Government Affairs Committee, Canadian Printing Industries Association)

Mr. Pierre Boucher (President, Canadian Printing Industries Association)

Mr. Jeff Ekstein

1015

Mr. Pierre Boucher

1020

The Chair

Mr. Monte Solberg (Medicine Hat, Canadian Alliance)

Mr. Jeff Ekstein

Mr. Monte Solberg

Mrs. Nancy Hughes Anthony

1025

Mr. Monte Solberg

Mr. Stephen Laskowski

Mr. Monte Solberg

Mr. Stephen Laskowski

Mr. Monte Solberg

Mr. Stephen Laskowski

Mr. Monte Solberg

Mr. Stephen Laskowski

The Chair

Mr. Monte Solberg

The Chair

Mr. Pierre Paquette (Joliette, BQ)

1030

The Chair

Mrs. Nancy Hughes Anthony

The Chair

Mr. Pierre Boucher

Mr. Pierre Paquette

Mr. Pierre Boucher

1035

Mr. Pierre Paquette

Mr. Stephen Laskowski

The Chair

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)

Mr. Jeff Ekstein

1040

Mr. Nick Discepola

Mr. Jeff Ekstein

Mr. Nick Discepola

Mr. Jeff Ekstein

Mr. Nick Discepola

Mr. Jeff Ekstein

Mr. Nick Discepola

Mr. Jeff Ekstein

Mr. Nick Discepola

Mr. Jeff Ekstein

Mr. Nick Discepola

1045

Mr. Jeff Ekstein

Mr. Nick Discepola

Mrs. Nancy Hughes Anthony

Mr. Nick Discepola

The Chair

Mrs. Nancy Hughes Anthony

Mr. Nick Discepola

Mrs. Nancy Hughes Anthony

Mr. Nick Discepola

Mrs. Nancy Hughes Anthony

The Chair

Mr. Terry Ruffel

The Chair

Mr. Terry Ruffel

The Chair

Ms. Maria Minna (Beaches—East York, Lib.)

1050

Mrs. Nancy Hughes Anthony

Ms. Maria Minna

Mrs. Nancy Hughes Anthony

Mr. Michael Murphy (Senior Vice-President, Policy, Canadian Chamber of Commerce)

Ms. Maria Minna

1055

Mr. Michael Murphy

The Chair

Ms. Maria Minna

Mrs. Nancy Hughes Anthony

The Chair

Mr. Gary Pillitteri (Niagara Falls, Lib.)

1100

1105

Mr. Stephen Laskowski

The Chair

Mr. Stephen Laskowski

The Chair

Mr. Stephen Laskowski

The Chair

Mr. Stephen Laskowski

The Chair

Mrs. Nancy Hughes Anthony

The Chair

Mr. Stephen Laskowski

The Chair

1115

Mrs. Joyce Potter (Vice-President, Canadian Housing and Renewal Association)

1120

The Chair

Ms. Margo Dewar (Vice-President, Economic & Policy Programs, Brewers Association of Canada)

1125

The Chair

Mr. Bruce Burrows (Vice-President, Public Affairs, Government Relations, Railway Association of Canada)

1130

Mr. John Lynch (Chair, Railway Association of Canada Taxation Committee, Canadian Pacific Railway, Railway Association of Canada)

1135

Mr. Bruce Burrows

The Chair

Ms. Christina Mills (President, Canadian Public Health Association)

1140

1145

The Chair

Ms. Christina Mills

The Chair

Mr. David Martin (Policy Consultant, Nuclear Campaign, Sierra Club of Canada)

1150

1155

The Chair

Mr. Monte Solberg

Mr. David Martin

Mr. Monte Solberg

Ms. Christina Mills

1200

Mr. Monte Solberg

Ms. Margo Dewar

Mr. Monte Solberg

Ms. Margo Dewar

Mr. Monte Solberg

Mrs. Joyce Potter

Ms. Sharon Chisholm (Executive Director, Canadian Housing and Renewal Association)

1205

Mr. Monte Solberg

The Chair

Ms. Pauline Picard (Drummond, BQ)

Mr. Pierre Paquette

Ms. Pauline Picard

The Chair

Ms. Margo Dewar

Ms. Pauline Picard

The Chair

Mr. David Martin

1210

Ms. Pauline Picard

Mr. David Martin

Ms. Pauline Picard

Mrs. Joyce Potter

Ms. Pauline Picard

Mrs. Joyce Potter

1215

Ms. Pauline Picard

Mrs. Joyce Potter

The Chair

Mr. Nick Discepola

Mrs. Joyce Potter

Mr. Nick Discepola

Mr. John Lynch

1220

Mr. Nick Discepola

Mr. John Lynch

Mr. Nick Discepola

Ms. Christina Mills

Mr. Nick Discepola

Ms. Christina Mills

Mr. Nick Discepola

1225

Ms. Christina Mills

The Chair

CANADA

Standing Committee on Finance

NUMBER 081

2nd SESSION

37th PARLIAMENT

EVIDENCE

Thursday, October 9, 2003

[Recorded by Electronic Apparatus]

¿ (0935)

[English]

The Chair (Mrs. Sue Barnes (London West, Lib.)): Order, please.

Pursuant to Standing Order 83.(1), pre-budget consultations shall continue.

We have two panels this morning. Bienvenue à tous.

We will introduce our first panel of witnesses. From Precarn Incorporated, we have Jim Roche, who is the president and CEO of Tundra Semiconductor Corporation, a member and past chair of the board of directors, and a member of the board of CMC. Together with him, we have Walter Stewart, who is the director of business development for Silicon Graphics Canada and chair of the board of CANARIE Inc. Welcome to you for your first appearance here, sir.

From the Canadian Trucking Alliance we have Stephen Laskowski, associate vice-president. Welcome back.

From the Canadian Chamber of Commerce, once again, we have Nancy Hughes Anthony, president and chief executive officer, together with Michael Murphy, who is the senior vice-president of policy.

From the Canadian Professional Sales Association we have Terry Ruffel, president.

From the Canadian Printing Industries Association we have Pierre Boucher, president, and Jeff Ekstein, who is the chairman of the government affairs committee.

Thank you, and welcome.

We also have a finance bill today in the House, so some of our critics will be coming and going, I understand.

Let us commence in order of the presentations as we have you on the agenda. We'll proceed to hear from all of you for up to seven minutes, and we'll start with Precarn Incorporated.

Mr. Jim Roche.

Mr. Jim Roche (President and CEO, Tundra Semiconductor Corporation and member and Past Chair of the Board of Directors of Precarn and a Member of the Board of the CMC, Precarn Incorporated): Thank you very much.

Madam Chair, committee members, ladies and gentlemen, as you heard, I'm the president and CEO of Tundra Semiconductor Corporation, a publicly traded company with headquarters here in Ottawa. My colleague, Walter Stewart, whom you will hear from in a moment, is the director of business development for Silicon Graphics Canada and the global coordinator of SGI's grid computing strategy.

We are joined today by the chief executives of three organizations that are internationally recognized for their contributions to innovation in Canada: Anthony Eyton of Precarn; Brian Barge of the Canadian Microelectronics Corporation, or CMC; and Andrew Bjerring of CANARIE.

We thank you for the opportunity to appear before you today to talk about the important subject of innovation. As a nation, we are facing critical innovation challenges, from the need to increase the commercialization of research, to finding new means to grow those industries with the highest potential for economic growth in Canada.

We are here to propose one important way to overcome these challenges--specifically, the critical role played by what we call “fourth pillar organizations”, organizations with proven track records that stimulate innovation in Canada, generate increased return on R and D investment, and provide greater leverage on current innovation investments. These organizations leverage and add value to the contributions of the other three pillars that make up Canada's system of innovation: the private sector, universities and colleges, and government.

The clerk has provided you with some examples of the accomplishments of these organizations. From our private sector perspective, we have great confidence in the ability of these and other fourth pillar organizations to deliver in the changing conditions of the future.

We have one important recommendation to make today. We recommend that the Government of Canada make a strategic long-term commitment to utilize and leverage Canada's fourth pillar organizations in support of innovation by maintaining and enhancing their effectiveness through sustained funding and regular performance reviews that demand high levels of accountability.

Each of the fourth pillar organizations with us today is a membership-based, not-for-profit corporation funded by the Government of Canada, industry, and other partners to support and enable collaborative R and D. I'm a member and a past chair of the board of directors of Precarn, and a member of the board of the CMC. Walter is the chair of the board of CANARIE. Over the past several years, the volunteer boards and committees of Precarn, CMC, and CANARIE have engaged over 1,000 representatives from the other three pillars: industry, universities, and government research organizations.

The focus of our remarks today and of our written brief is to increase awareness of the fourth pillar role. What Precarn, CMC, and CANARIE do can be stated simply. They create partnerships and collaborations among these other three pillars that would otherwise not happen.

These collaborations serve Canadians in four ways. One, they enable the construction of shared research and development infrastructure. Two, they make complex, high-risk R and D projects feasible. Three, they create the relationships and information sharing needed to commercialize the results. And four, they enable the development, attraction, and retention of highly qualified people.

To accelerate Canadian productivity, competitiveness, and economic growth, it is essential to achieve maximum leverage from all parts of Canada's system of innovation. Precarn, CMC, and CANARIE do just that.

As the head of a company that performs a great deal of R and D, I can speak with confidence of the critical importance of the fourth pillar role. In our current economic climate, R and D performed by industry is often constrained to focus on shorter-term roles. One of my challenges is to maintain a longer-term R and D perspective by tapping into the research systems of the country to find those key next-generation technologies and ideas and the highly skilled people who can help us bring them to market. This is essential for my company to develop the new products and services required to compete in a global economy.

The same logic applies to other fast-moving, technology-dominated fields such as health care, aerospace, environmental technologies, and automotive manufacturing, to name a few. Whether it's developing innovative technology or applying technology in innovative ways, success in business today depends increasingly on R and D, and R and D in turn depends on collaboration.

¿ (0940)

When I look at successful fourth pillar organizations like Precarn, CMC, and CANARIE, several important attributes describe their effective and cost-efficient operations. One, they develop trusting relationships with the firms and institutions they work with so they can bring together communities of interest to exploit important opportunities. Two, they maintain lean, agile operational models featuring active participation by members and partners, allowing them to respond quickly to changes in markets and technology. Three, they each remain independent of any particular company or government, while managing funds and maintaining accountability to investors from both government and industry. And four, they apply rigorous due diligence in choosing where to focus their efforts, so rigorous that their involvement in a project can by itself often help attract private capital.

In short, fourth pillar organizations help companies innovate and get better mileage out of their R and D dollars. They generate higher return on investment for both industry and governments, acting as a trusted broker of collaboration. They help the Canadian economy move forward faster. We need them.

At this point, let me turn it over to my colleague, Walter Stewart. Walter.

¿ (0945)

The Chair: Thank you very much.

Now we will go to the Canadian Trucking Alliance. Commencez, s'il vous plaît.

Mr. Stephen Laskowski (Associate Vice-President, Canadian Trucking Alliance): Good morning, everyone, and thank you for having us here.

The Canadian Trucking Alliance is a federation of provincial associations across Canada. Altogether, we represent about 4,000 trucking companies across the nation.

Trucking employs over 400,000 people in this country and is the largest employer of males. We continue to be the mode of choice, moving 70% by value of trade with the United States.

Recent inflationary factors such as fuel and insurance and non-inflationary factors such as BSE have hit the industry hard. However, the most critical threats to the long-term future of the Canadian trucking industry reside in the area of public policy.

Canada's place in the North American economy, in the opinion of the Canadian Trucking Alliance, is entering a transitional phase brought on by new customs and security requirements, currency fluctuation, and increasing competition from U.S. southern states for investment dollars. CTA believes that if Canada does not respond, its share of the North American trade will contract along with the demand for transportation services.

I'll provide an overview of some of those issues I just highlighted.

As everyone is aware, the dollar has now risen to 75¢ and has injected a shock into the system. The Department of Finance model shows the impact of the dollar will reduce the economic growth of this nation by about 1.2% by mid-2004. On a provincial basis, the provinces of Quebec and Ontario are expected to be hardest hit, as those provinces rely on the U.S. economy. Those two provinces are also where the dominant part of Canadian trucking fleets reside.

This summer the TD Bank identified five key manufacturing sectors that rely on the U.S. economy for trade. They are transportation equipment, machinery, paper, computers, and electronic equipment. The trucking industry hauls between 50% and 98% of these commodities. When these sectors are hit hard, we are hit hard.

With regard to the direct impact of the rise of the dollar on the Canadian trucking industry, most trucking companies in this country are not publicly traded; however, there are a few that are. In one of the most recent statements of one of those publicly traded companies was the statement that the exchange rate fluctuation negatively impacted reported revenue on a year-over-year basis by $9 million, and the effect on profit was $1 million. As a truck crosses the U.S. border every two and a half seconds, and 60% of these trucks are Canadian, the impact of the currency fluctuation on this industry is widespread.

With regard to the border and U.S. business confidence, after September 11 the border lineups and waits have gone back to normal. What normal means is about a one-hour to two-hour wait for trucks to cross the U.S. border. But is normal good enough in this age of just-in-time delivery?

A recent study provides some insight into that question. The study was performed for the U.S. DOT and the Michigan and New York departments of transportation. It examined the border nine months before September 11 and nine months after September 11. It was found that, on a cumulative level, the U.S. production index fell by about 3.66%, so we'd expect trade with Canada to reside in about that area. The study found that imports by land from Canada actually fell by 10.88%. The author of the report stated that the fact that they fell 10.8% may in part be due to U.S. industrial buyers' concerns about the nature of the border now and in the future. The Canadian trucking industry and manufacturers can't have that.

The report identified the current border management system to be costing the U.S. and Canadian economies about $14.3 billion Canadian each year. From this report, the biggest issue in terms of economic confidence was the uncertainties over border times and transit times. This uncertainty will only increase. With new programs on the horizon, these transit times are expected to increase. To be announced this fall or early winter, we expect pre-notification rules from the U.S. for general freight and food, combined with tighter immigration and new driver security requirements. This situation will only worsen in the short to medium term.

With regard to just-in-time delivery, there is an evolution in just-in-time delivery. Following September 11 there was a call for the death of just-in-time. However, with the auto sector saving approximately $1 billion because of this supply chain management system, perhaps it was a bit premature. However, the system has evolved, and this evolution is perhaps not in the best interests of this country.

¿ (0950)

One of the evolutionary developments of just-in-time delivery is called “safety stock” to insulate the manufacturer in case there are border disruptions. In the case of auto, depending on the parts involved, over a period of several months a significant portion of the savings of just-in-time delivery could be wiped out because of the safety stock build-up.

To examine safety stock and to manage it, companies have developed service delivery reliability ratings. This allows them to discover where the dangers are in their supply chain with regard to risk. The border, and the issue of Canadian manufacturers being on this side of the border, does increase their SDR.

This SDR has also increased what's called the “locational shift” in the U.S. economy. This locational shift has helped the U.S. southern economy build an auto sector. This is what has been referred to as “from cotton to cars”. In the last few years, eight auto plants were built in North America, and only one was in Canada. The southeastern United States, Mississippi and Alabama, were primary recipients of these auto plants.

What does CTA recommend? The government has been working with the Canadian Trucking Alliance and others in the past, and the industry is thankful for this participation. We've worked hard to make sure that our goods and commodities continue to increase across the border. Obviously, we need to continue this effort.

However, the industry also believes the tax system needs to be examined with regard to our competition with our U.S. competitors. CTA believes the tax system can play an important role in mitigating the impacts of these issues I just raised. These actions include the changing of CCA rates for the trucking equipment; separate CCA rates for new green trucking equipment; and meal deductibility for truck drivers and an employment insurance premium rate-setting mechanism.

I'll now briefly highlight those issues in terms of what the industry is requesting.

The Chair: Mr. Laskowski, your time is up. I'll give you another minute or so to wrap up.

Mr. Stephen Laskowski: Thank you.

CCA rates vary between the U.S. and Canada. Typically, it takes four to six years in the U.S. for a truck or tractor to be written off. In Canada, we still have about 25% to 20% left over to be written off.

With regard to separate CCA rates for new, greener equipment, in 2001 trucks reduced their smog emissions by 40%. In 2007 we're slated to reduce our emissions by 97%. The cost of these new tractors varies in the range of between $20,000 and $40,000. The CTA is recommending that CCA rates be accelerated on a separate scale for this new equipment to increase our competitiveness with the United States.

With regard to the meal deductibility, this is for the drivers in this industry and the many Canadians who are employed in this industry. Currently in the U.S. they will have 80% meal deductibility for 2007. We are currently standing at 50%. This means between $500 and $1,000 extra a year for Canadian drivers to spend on meals, as opposed to U.S. drivers.

The last issue deals with EI premium rate setting. Currently the accumulated surplus in the EI account is at $40 billion. The chief actuary has estimated between $10 billion and $15 billion would suffice. We're recommending that the rates be reduced to come in line with that level of sufficient surplus.

Thank you for the extra time.

¿ (0955)

The Chair: Thank you, and I notice those are detailed well in your report.

Ms. Nancy Hughes Anthony.

Mrs. Nancy Hughes Anthony (President and Chief Executive Officer, Canadian Chamber of Commerce): Thank you, Madam Chair.

[Translation]

We're very pleased to appear before this committee to define, on behalf of our members, the priorities the federal government should adopt in its next budget and beyond. We're also pleased to submit to you a copy of our brief entitled “Meeting the Productivity Challenge”.

[English]

I hope you all have our brief, “Meeting the Productivity Challenge”, in front of you. There is a list of very comprehensive recommendations. I would draw your attention to those recommendations, in English, pages 19 to 20,

[Translation]

and pages 21 to 23 in French.

[English]

I will not go into all of those recommendations but just highlight a few of the most important areas, Madam Chair.

[Translation]

First of all, we want to emphasize the progressive measures the federal government included in the 2003 budget and to congratulate it for doing so. Those measures are designed to increase the competitiveness of our fiscal policies, to reduce the public debt and to make our economy more productive.

[English]

However significant these achievements may be, the federal government must not and should not give the impression that all is well and that nothing more needs to be done. Indeed, the Canadian Chamber of Commerce believes there is still unfinished business. I believe we are not alone in that belief and that understanding. Recently The Economist magazine stated that Canada has turned its finances around and has become a leader in the G-7 economies, but it warned about much unfinished business. It said, in a nutshell, that Canada still taxes too much and invests too little.

I think this serves to illustrate that in a globally integrated world governments are competing to improve economic opportunities for their citizens and to attract and retain jobs, business, and capital. Those that offer an attractive package, an attractive mix of public programs and tax and regulatory policies, will certainly gain the upper hand.

I should add that fiscal policy is only one element in the policy mix that is important for growth and prosperity. Also important are trade policies; an open and efficient Canada-U.S. border, as the previous speaker just noted; smart regulatory policies; immigration policies. All of these factors are required to come together for a productive economy. But you are the finance committee, so today I will focus on fiscal policy.

I'd like to highlight three areas very briefly: first of all, there is program spending and the need in our view to cap growth in spending at 3% per year; secondly, debt and how important it is to reduce our debt-to-GDP ratio; and third, you won't be surprised, making our taxes more competitive. But you may be surprised to hear we're asking for relief for low-income and middle-income families. So I will address these three items very briefly, Madam Chair.

First of all, on program spending, in our view, we need to make choices and we need to set priorities. Governments cannot keep simply adding new priorities to the current level of spending. We all need to make those choices in terms of our household budgets and in our businesses. In order to help maximize long-term economic growth, the federal government should direct its resources at areas that have a proven result on our productivity and on our competitiveness as a country. What do I mean there? I certainly mean health, education, research--as one of our previous speakers has talked about--and infrastructure.

But on the flip side, this means limiting or cutting spending in areas that do not contribute to this productivity. The most effective way to do this is to undertake a thorough review of all government programs and continue to do so on a regular basis. So in this regard we were pleased to see the commitment in budget 2003 of an ongoing examination of all non-statutory programs over a five-year basis. We were also pleased to see the government commit to some reallocation, which started with a $1 billion reallocation from existing programs in 2003-2004.

We've been waiting a long time, Madam Chair, to see the results of that reallocation. We just saw it at the end of last month. We've seen some figures, and we still, I must say, don't quite understand exactly which programs have been reduced, cut, or modified, but we certainly applaud the concept.

Our submission details the Canadian Chamber of Commerce's recommendation on how program spending should be controlled by imposing an annual cap. We believe the program spending should grow at an average annual rate of only 3%, which we consider is based on anticipated growth in population plus inflation. Clearly the government has exceeded this limit in previous years, and in fact in the last budget spending increased by 20% over three years. You can imagine that our members worry that this level of expenditure is simply not sustainable.

But there are areas, as I mentioned, where government should invest resources, and I would like to point very briefly to cities where infrastructure is in urgent need of renewal.

À (1000)

[Translation]

The Canadian Chamber of Commerce believes that establishing infrastructure priorities requires an appropriate framework and that a national infrastructure strategy developed in cooperation with the provincial and territorial governments is an absolute necessity.

[English]

The second area of fiscal policy I'd like to address is debt. We believe that we must continue to focus on reducing the federal debt, which is still too high. It is amazing to think that 22¢ of every tax dollar goes directly to pay down our debt. It is very important that the federal government continues to allocate the contingency fund, if it is unused, the reserve for economic prudence, and any unanticipated surplus at the end of the year to debt reduction.

We foresee that cost savings realized from lower interest payments could make room for all kinds of budget initiatives that can improve the standard of living for all Canadians. As an initial goal we suggest that Canada should strive to reduce its net federal debt-to-GDP ratio to under 30% by 2010.

The third area I'll touch on, Madam Chair, is taxes. We must make wise choices on the tax front. Here we see that the overall tax burden in Canada, and this really is revenues from all levels of government as a share of GDP, remains substantially higher than in the United States, at 41% in Canada and 31% in the United States. Our tax system must be competitive with that of the United States in light of the large trade flows we have between the two countries. We cannot be radically out of sync.

We believe there are two areas on the tax front that are particularly problematic and need immediate attention. The first is the area of personal income tax. We are extremely disappointed to see that personal income tax cuts have not been on the federal government's agenda. We haven't seen any new measures for almost three years, so we think the time is nigh.

First of all, more needs to be done in terms of providing tax relief for low- and modest-income earners, especially for families earning between $25,000 and $35,000 annually. For these families, high marginal tax rates discourage work, because many of the public transfers, such as child tax credits, that they receive end up being clawed back as their income rises. And for many of these families, their effective marginal tax rate ends up being higher than the rate facing Canada's top income earners. Clearly, this is inequitable.

I'd also point out, Madam Chair, that in our brief we refer to the level of high marginal tax rates for individual incomes, where we'd like to see the threshold be raised from $105,000 to $150,000. I would point out that there are some around this table who may argue that there's no fiscal room to do this. I believe there is some relief that can be made over time if the federal government were to create sufficient fiscal room by keeping program spending increases to 3% per annum.

Madam Chair, I know you'd like me to wrap up. I'd like to draw your attention, in our brief, to the second area of taxation that we consider problematic, and that is Canada's effective tax rates on capital. There are some recommendations in our brief that talk about accelerating reductions in corporate income tax, capital tax, and about accelerating depreciation allowances, which I would draw to your attention.

To sum up, I can't resist quoting Mr. Paul Martin, who said this in front of the Chamber of Commerce in Montreal a couple of weeks ago: “We cannot rest on our laurels. If Canada's economy is to fulfill its potential, we must stop congratulating ourselves, and get on with the job at hand.” This is true for business and it's true for government. We could not agree more with that.

À (1005)

[Translation]

Thank you very much. I'll now be pleased to answer your questions.

[English]

The Chair: Thank you.

I know it's difficult to wrap up a 30-page report in about seven minutes, but we appreciate the written detail that has been circulated to all of our members.

Now we'll go to the Canadian Professional Sales Association. Please go ahead, sir.

Mr. Terry Ruffel (President, Canadian Professional Sales Association): Thank you, Madam Chair.

I'm president of the Canadian Professional Sales Association. Our organization comprises 27,000 members representing all aspects of sales and marketing across Canada. They range from small independent entrepreneurs to the sales and marketing personnel of major corporations.

Association members are located in all provinces and territories, and they make an important contribution to the economic vitality of all Canadian communities of any size. At the same time, they are individuals who sell products and services around the world. And I'm able to state today with confidence that our pre-budget submission reflects the views of these members. A wide cross-section of them was surveyed for their pre-budget opinions this summer.

When the finance minister presented his February 2003 budget, he predicted real GDP growth of 3.2% this year and a 3.5% growth in 2004. Yet a mere four months later he told the Economic Club of Toronto that the GDP forecast had been lowered to 2.2%, with an expected growth in 2004 of 3%.

The second quarter results for Canada's economic accounts were released by Statistics Canada at the end of August, and they confirmed that the GDP had actually contracted in the second quarter. Statistics Canada stated that the SARS outbreak, the mad cow disease scare, and a stronger Canadian dollar were primarily to blame.

The third quarter has seen its own fresh challenges, notably the British Columbia wildfires and Ontario's electrical blackout. At the same time, the dollar has remained very close to its recent high of 75¢, and our border is only now opening up to beef exports.

So in two ways, this scenario is important from the perspective of our pre-budget submission. First, a characteristic that most individuals in sales and marketing have is their virtually unbridled sense of optimism. Yet when asked to indicate their expectations for the short term, the consensus was that our national economy would expand by 2.1% this year and next. This is close to the finance minister's June outlook for the rest of 2003, but it's considerably lower than his 2004 projections.

Whoever is close to being right about the economic outlook in 2004 is less important to the CPSA than our recommendation that the forthcoming budget should be drawn to reflect the fact that the outlook for Canada is in the low to moderate range.

Secondly, the events of the period since February this year have proven the absolute necessity of a contingency reserve and of additional prudence factors to be built into the current budget. These events should have taught all of us that the possibility for unforeseen occurrences impacting our economy is real.

The standing committee has asked how economic growth and job creation and balanced budgets can be achieved. Well, our submission approaches this question from a variety of angles. First among these, however, is the importance of reducing not only the net debt-to-GDP ratio but also the absolute size of the debt, and I echo Nancy's comments in that regard.

Again, more than 20% of our revenue is collected to service the debt, and that certainly impedes the government's capacity to deliver tax relief or to undertake strategic spending initiatives.

To ensure balanced budgets in the future, the CPSA believes that not only should the contingency reserve be retained, but it should also be increased to $5 billion. This would better serve to protect Canadians against unforeseen circumstances and it would still afford prospects for fiscal year-end application against the debt.

Finally, the need to remain vigilant--and I echo this comment again--with respect to public spending is an important facet of promoting economic growth. The finance minister indicated as much in last February's budget when he said that “sound fiscal management requires continually reassessing the value of existing programs so that the government can reallocate resources from low priorities to high priorities.” He said that “it also requires continually looking for new, more cost-effective ways to deliver government programs”.

The finance minister made these remarks as a prelude to introducing his concept of a formal reallocation of funds, and again we echo the chamber's comments in this regard. Reallocation from low priority to high priority will certainly achieve your objectives. Our submission recommends that the standing committee express its strong support for reallocation, and it is our association's belief that the only rationale for growth in spending should be growth in inflation and population.

The standing committee has stated that it wishes to hear how we can ensure that Canada's urban, rural, and remote communities are good places in which to live and work. And we believe there is an even more fundamental issue the committee should look at. That issue is the degree to which Canada's large urban communities are facing unprecedented financial challenges. Until such time as changes are made in the manner in which tax revenues are generated within Canada, and then fairly distributed, these challenges will remain unresolved. We argue that the standing committee is the perfect place to look at this reallocation and to examine this issue.

À (1010)

Our pre-budget survey asked CPSA members to assess the impact that personal income tax reductions introduced in the United States will have on our competitiveness. More than 79% of them believe that there's a negative impact. The tax regime that places uncompetitive personal income tax burdens on Canadians, compared to Americans, is dangerous for the Canadian economy, we believe. Therefore, we've urged the standing committee to recommend a reduction in the upper income tax bracket from 29% to 27% in the forthcoming budget and an elimination of the bracket in 2005 and 2006.

I want to conclude my remarks by sharing with the standing committee an idea whose time has come. As much as friends in the trucking industry think that meals are essential, and we do as well, automobiles are also essential to many CPSA members. A large portion of these vehicles are owned by self-employed individuals who use them in part for business purposes. If such individuals were permitted a reasonable deduction cost per kilometre for their auto expenses, this could mirror the prescribed rates already established in the Income Tax Act. At the same time, this step would greatly ease the compliance burden for owners of automobiles used in business. Accordingly, we urge the standing committee's pre-budget report to adopt the concept that a reasonable cost-per-kilometre deduction be established for individuals using their car for business purposes.

I look forward to discussing these comments and your other questions later. Thank you.

The Chair: Thank you very much.

Now we will finish this panel with the Canadian Printing Industries Association. Please go ahead, sir.

Mr. Jeff Ekstein (Chairman,Government Affairs Committee, Canadian Printing Industries Association): Thank you very much, Madam Chair and members of the committee.

Allow me to introduce myself. I'm Jeff Ekstein, and my volunteer position is that of chairman of the Canadian Printing Industries Association government affairs committee. My real full-time job is president of Willow Printing Group, a third-generation, family-owned, mid-sized printing company located in Concord, Ontario, which next week will be celebrating its fiftieth anniversary.

With me today is Pierre Boucher, president of CPIA.

Mr. Pierre Boucher (President, Canadian Printing Industries Association): Madam Chair, CPIA welcomes this opportunity to appear before the House of Commons Standing Committee on Finance.

[Translation]

CPIA has been the mouthpiece of the printing industry since 1939. We have 800 member corporations. Our industry employs 98,000 workers, and the annual volume of our printed products represents a commercial value of approximately $11 billion a year. It should be noted that 75% of our member corporations employ fewer than 20 employees and 3% have more than 100 employees. We export $20 billion worth of printed products to the United States every year.

We are ranked fourth in the manufacturing sector in Canada.

[English]

Madam Chair, in 2002 Canada's growth in real gross domestic product was 3.4%, and employment grew by a resounding 500,000 jobs. Canada has also had six consecutive federal budget surpluses.

Unfortunately, the picture in the printing industry is not as glittery. For the first time since 1993, the printing industry experienced declines--in 2001 by 0.8%, and in 2002 by 4.1%. The forecast for the near future is a modest growth rate of approximately 1.2%; however, much of our future success is dependent upon our ability to compete internationally and with other forms of media. Taxation, training, and our regulatory framework are key factors having an effect on the health of the printing industry in Canada.

Mr. Jeff Ekstein: Thank you, Pierre.

Madam Chair, the main issue I'd like to discuss is capital cost allowances with the depreciation schedule of computer-based equipment. This is not the first time that CPIA has brought this issue to the attention of this committee. Last year we were hoping it would be the last. The committee was good enough to endorse our position in the previous two reports to Parliament by making the following recommendation, and I quote:

That the government undertake the research necessary for a comprehensive reform of the capital cost allowance (CCA) rates to better reflect the pace of technological change and the ever-shortening economic life of modern machinery and equipment.

Unfortunately, this recommendation has been ignored by our government, as there have been no provisions addressing the issue in the most recent budget. We are not here to simply repeat our submissions from previous years. We have new disturbing information to share with you, particularly as it relates to the gap that's increasing in capital cost allowance between us and our greatest trading partner, the United States. I'll touch on that in a moment, but I can assure you that the situation is deteriorating quite quickly.

Madam Chair, for the printing industry to grow and fully contribute to the government's goal and objective of ensuring progress and investing in, and caring for, all members of Canadian society, it has to maximize its level of innovation and productivity by being able to acquire the latest technology available. In a recent survey conducted by CS/Resors Consulting Ltd., a firm located in British Columbia, an overwhelming number of respondents--86% of them--indicated that their response to the changing environment in our industry would be to invest in new technology.

This response presents a serious challenge for companies that are struggling financially, or for smaller companies that do not have the financial resources to support major capital investment. The larger firms also need to compete on a larger scale and internationally. Thus, without the latest technology they risk losing their competitive edge. Unfortunately, Canadian printers are at a disadvantage due to the outdated tax policy we have with respect to capital cost allowance.

The current depreciation schedule, based on a declining balance rate, which also contains a half-year rule, is a major obstacle imposed by the Department of Finance. Currently, it can take in excess of seven years before computer-based equipment is substantially depreciated for tax purposes. Considering the fact that the actual useful life--and that's the important term here, actual useful life--of most of the equipment in question is approximately 18 to 36 months, the situation is simply unacceptable. In fact, not only does the current policy restrict the ability of the printing companies to depreciate obsolete equipment from their balance sheets and increase their cashflow positions, it also limits access to favourable financing from banks and other financial institutions. The rapid obsolescence of equipment, together with Canada's multi-year capital cost allowance schedule, makes it difficult for companies and their financers to create capital financing packages that reflect the reality of business needs and the pace of technological change.

Madam Chair, in 2002 the U.S. introduced a stimulus package that provided for a 30% tax reduction in the first year. This served to increase the gap between Canada and the U.S. Prior to this change Canadian companies were already at a 5.5% tax disadvantage when compared to our U.S. counterparts. In May of this year, through the Jobs and Growth Tax Relief Reconciliation Act, the U.S. increased further the gap between Canada and the U.S. regarding CCA by introducing a 50% allowable write-off in the first year. This is quite a contrast to the half-year rule during the first year that we have here in Canada. U.S. companies can annually write off $100,000 in depreciable assets in the first year of ownership, subject to an annual purchase cap of $200,000. By contrast, Canadian tax law and CCA rates mean that less than 60% is written off after three years of ownership, and there is still more than 20% on the books for tax purposes after five years.

The tables included in our brief on pages 3 and 4 illustrate the current difference between Canada and the U.S. in the area of capital cost allowance. These recent changes jeopardize the trade surpluses we've had with the United States, which were achieved in the last four years. Therefore, it is only by introducing a new CCA rate schedule that we stand the chance of maintaining our trade surpluses in the future. This is especially true with the recent rise in the value of the Canadian dollar to 75¢, which is predicted to approach 80¢ in the near future.

Finance Minister John Manley has recently written to CPIA on this issue and stated the following, as indicated in the 2003 budget:

The government will be reviewing various aspects of the tax structure in order to improve the efficiency of the tax system and strengthen the Canadian tax advantage, including assessing the appropriateness of capital cost allowance rates.

À (1015)

We therefore urge the committee to once again restate its recommendation and to call upon the government to take immediate action in this area. An accelerated depreciation schedule based on the actual useful life of computer-based equipment is certainly the best tool available to our industry to ensure economic growth and job creation.

Madam Chair, I'd love to share with this committee a real-life experience, but time doesn't permit. Hopefully during question period I'll have that opportunity. However, I'd like Pierre Boucher to quickly touch on training.

Mr. Pierre Boucher: Thank you, Madam Chair.

In the budget plan 2003, the following was stated:

To compete internationally, and provide a better standard of living for its citizens, Canada must continue to make investments to ensure an increasingly well-educated, adaptable and skilled workforce. Advancements in skills and learning will be vital to improve productivity and competitiveness and to a better quality of life for Canadians.

Madam Chair, the federal government has confirmed many times over in its white paper that it has a role to play in the area of skills development. The problem is that it has not been able to implement any program of significance in the last few years. It withdrew its role from apprenticeship and has kept all the money from the EI account.

We propose that the government does one of two things: we propose that it transfer more money to the provinces to help them implement programs, or that it put in place programs that will have a true impact on skills development in Canada.

Madam Chair, we propose tax incentives to help employers do more in-house training within their plants and facilities.

That concludes our presentation for this morning, given the time that we were allocated. Thank you.

À (1020)

The Chair: Thank you very much.

Some of our members are in the House debating, so they may or may not be back on time to do their questions, and I was asked to give you their apologies.

We'll start with Mr. Solberg, who's already spoken on this bill. Go ahead, sir, up to seven minutes.

Mr. Monte Solberg (Medicine Hat, Canadian Alliance): Thank you very much, Madam Chair.

Thank you to all of you for your presentations.

Maybe I'll pick up where the printers left off. I'm very interested in hearing your story, Mr. Ekstein. You wanted to relate a personal story, and I'd be interested in hearing that. But let me say at the outset, as part of the official opposition, that we're also frustrated with the fact that your schedule has not been changed to reflect the reality of your industry and how quickly technology changes. So I'll simply echo your call for a schedule to be altered to reflect that.

One question I have, and I didn't see a reference to it in your presentation, is can you give us some rough idea of what the tax expenditure would be to alter that schedule? I'm not entirely certain what you're asking for. Are you asking for it to go to three years from seven, is that what we're looking for?

Mr. Jeff Ekstein: Correct. We would like to see a 50%--25% and 25%--write-off in three years. It still would not be keeping pace with what the U.S. has introduced, but would certainly be an improvement to the current situation. It's very important because the equipment becomes obsolescent as quickly as it does.

There's a real-life example you said you'd love to hear, which I'd love to share with you. The latest technology in our industry is digital printing, and there have been a lot of start-up digital print companies that have come onto the scene in the last three or four years. And the ones that have been up started strictly as digital printers are struggling very much because of their equipment. These companies are on the bleeding edge, as opposed to the leading edge, because there's new technology and it's changing quicker than the 18 to 36 months.

Personally, I've been looking at one of these companies that's struggling financially, because it would be a nice fit with my existing commercial printing operation. When looking at the balance sheet and when looking at their debt-ridden situation, they have a piece of equipment they purchased two years ago where the loan that's still outstanding on the equipment is more than double the value on the open market for that piece of equipment, which makes it very difficult for that company to survive, considering they've already had to update to the next latest and greatest piece of equipment. They're so cash-strapped that there's no way this company can survive in its current state. That's the reality of the situation, which is a good illustration of how the useful life of a piece of equipment in our industry can choke a company.

Mr. Monte Solberg: To the Chamber of Commerce, I share your concern about the rapid increase in spending over the last number of years. You had a very good, thorough presentation, and I appreciate some of the graphs in there. You have mildly taken the government to task for the fact that it really hasn't followed through on reallocation yet. Do you have any ideas on where the government could trim, cut, reallocate? To be fair to the government, which I hate to be, it's always easy to say that you should cut and reallocate, but it's a little more difficult to actually come up with the specific cuts themselves. Do you have some ideas on things you might want to do?

Mrs. Nancy Hughes Anthony: Yes, absolutely, Mr. Solberg. We get asked that question all the time.

I think there are a number of areas we would focus on, and I think we've been on record with this committee for a number of years talking about those. Some of the programs that our members think are ineffective are regional development programs, industrial development programs that we think should be analyzed and questioned in a more detailed manner.

There are questions, obviously, that we have about the level and type of expenditure under the employment insurance fund, about whether that's appropriately placed under the employment insurance fund, which should technically be an insurance program for those who are unwillingly out of work.

We also, of course, have a great respect for the Auditor General, and we've seen a lot of suggestions and advice and reports the Auditor General has put forward that unfortunately the government has not followed through on. We feel there definitely is some fodder there.

But the fact is that we really stress this idea of some kind of fiscal discipline. You don't just spend all the money that the taxpayers will give you; you need to put some kind of cap on it, some kind of objective, some kind of target, as we all do, as opposed to just spending up to the last dollar that the taxpayers give you. I think that's the view of our members.

À (1025)

Mr. Monte Solberg: Thank you.

Mr. Laskowski, I was surprised that in your list of recommendations you didn't mention infrastructure. I'm sure you have some definite views on that.

Mr. Stephen Laskowski: We will be coming back to the government on that. Our board is currently reviewing an infrastructure policy, and we'll have more to say on infrastructure later this year or in the coming year.

With regard to the current spending, the industry was thankful for the $350 million that went to the Windsor border, and they've made a series of recent announcements with regard to borders across the nation. With regard to specific spending regarding infrastructure, there's a wish list across this country for highways into the northern borders and into more rural communities.

I think all of them are wise investments, but as Nancy says, there have to be priorities, and that will come down to, in the opinion currently of this industry, access to key trade corridors.

Mr. Monte Solberg: I have one more question for Mr. Laskowski.

A subject I'm interested in, which has been raised with me by someone who's involved in the industry, is rulings by the Canadian Human Rights Commission respecting pre-employment drug and alcohol testing. My understanding is, and I'd like you to confirm this, that the Human Rights Commission has said it is no longer permissible for you to ask people you're about to hire if they will take a drug and alcohol test. Is that correct?

Mr. Stephen Laskowski: There are rulings in other sectors, and the applicability of those rulings on other sectors has yet to be determined. But the fact of the matter remains that if Canadian truck drivers want to do business in the United States they must be subject to those rules, to the drug and alcohol testing program.

Mr. Monte Solberg: Is the danger though that the Human Rights Commission will not allow that in Canada, I'm not quite understanding what you're saying? I thought the Human Rights Commission--

Mr. Stephen Laskowski: The ruling I believe you're referring to was not related to transportation but I believe was in the banking community, and the courts will have to determine its applicability to other sectors.

Mr. Monte Solberg: So at this point the testing goes on.

Mr. Stephen Laskowski: That's correct.

The Chair: Can I clarify that? It's uncertain to the chair. When you're talking about the Human Rights Commission, is it the federal Human Rights Commission, or a provincial Human Rights Commission? Could you clarify that, because it's a little confusing.

Mr. Monte Solberg: It's federal; it's the Canadian Human Rights Commission.

The Chair: Thank you very much.

Monsieur Paquette.

[Translation]

Mr. Pierre Paquette (Joliette, BQ): Thank you, Madam Chair.

First I would like to apologize to the witnesses for my comings and goings. Bill C-48 on the taxation of natural resource businesses will be debated later this morning. As my party's finance critic, I had to take part in that debate. I went there, but it was too early. So I'll have to return.

I nevertheless had the time to read most of your recommendations. I'm not surprised by them, but I find it interesting that at least three briefs have addressed the employment insurance fund. So I would like to ask you some questions on that subject.

All kinds of recommendations have been made, by the Chamber of Commerce, the printers and the Canadian Trucking Alliance. I believe everyone agrees that the federal government has gone too far by diverting $45 billion from the employment insurance fund, something that was done to the detriment of small- and medium-size businesses, workers and the unemployed.

You propose each of those solutions. I wanted to make a suggestion to you and hear from those who have already spoken, and the others as well. Wouldn't the best guarantee that the employment insurance fund will serve the purpose for which it was created, that is to ensure a degree of income security for people who temporarily lose their jobs, be to create an independent fund managed by those who contribute to the fund, that is the employers and workers? Is that an option worth exploring? In that way, we would ensure not only that the premium rate and coverage correspond to what is negotiated between the labour market partners, but also that the fund plays its own role, not the role it has been forced to play in recent years. I would like to hear from you on that idea.

À (1030)

[English]

The Chair: Madam Anthony.

[Translation]

Mrs. Nancy Hughes Anthony: You've raised a number of points of interest to the Chamber of Commerce. The program as it currently stands is not really an insurance program as it was originally designed. According to our members, we should have a truly independent fund, the purposes and objectives of which would be to help workers who are unemployed.

We ask a lot of questions, as may be seen in our recommendations, on premium rates, the employer multiple currently in the program and so on. We ask all kinds of questions. It would be a pleasure to do more research on the option you're proposing, of introducing a truly independent fund. We believe that the fund currently constitutes a kind of social program used for many purposes which may be of value but don't really have a place in an employment insurance program. I find your idea very interesting.

[English]

The Chair: Go ahead, Mr. Boucher.

[Translation]

Mr. Pierre Boucher: As you saw in our brief, CPIA, like a number of others, advocates the reform of the employment insurance program. We've offered eight recommendations, and we hope the government will undertake a reform or a consultation process, which should have been done a number of years ago. As you mentioned, the program as it stands is no longer what it should be.

At first glance, I believe CPIA would view your proposal in a positive light.

Mr. Pierre Paquette: I would like to add that there are currently three law suits against the federal government. One was instituted by the CSN, the Confédération des syndicats nationaux, another by the Fédération des travailleurs et travailleuses du Québec and a third by the FSSA, to have premiums be used to pay benefits and not to achieve all kinds of other purposes.

The Government of Quebec has also filed suit against the federal government to recover the portion that should be invested in parental leave. I believe we all agree that parental leave exists. However, it should not be financed through the employment insurance fund. If we're entitled to maternity leave, it's not because we're unemployed or sick but because we just had a child.

I would like to say a word to the Canadian Printing Industries Association. I believe I previously met representatives of your association on the subject of a very specific problem. That was that a certain number of your stamps are printed in the United States. A NAFTA tribunal was to render a decision on the subject. The stamps distributed on a large scale, the ones bearing the little maple leaf, are printed in the United States, and NAFTA was to render a decision stating whether, under NAFTA rules, each stamp had to bear the inscription “Printed in the United States”.

I don't know whether there have been any developments in that matter.

Mr. Pierre Boucher: Madam Chair, the stamps are unfortunately still being printed in the United States and they are then imported to Canada without any inscription stating that they are printed in the United States.

The Canada Customs and Revenue Agency, which is responsible for these regulations, is considering the matter. Unfortunately, no official decision has yet been made. That was to be done last May. Subsequently, in June, we were told that the decision was imminent, then we were told in August that the decision was to be announced at the end of the month. I contacted the persons responsible last week and I was assured that a decision would be made soon.

The only development that I can inform you of is that there was a contract with an option to extend it for two years. The Crown corporation decided not to extend the contract for those two years. It called for tenders. The requests for qualification were already submitted and a new contract should be awarded by the end of the year.

We hope that will solve the problem of our stamps in Canada. However, we want to inform you that we're very disappointed by the answers we've received from the Crown corporation and from the government to date.

À (1035)

Mr. Pierre Paquette: I would like to inform you that we're ready to provide follow-up in this matter. As soon as the decisions are made, I would like you to notify us, the committee and myself, so that we can question the minister in charge if necessary.

I now turn to the representative of the Canadian Trucking Alliance. Let's talk about the truckers' meal deduction. You say that there's a rule in the United States that appears to be more generous than in Canada.

I'd like you to explain to us in greater detail the importance of that deduction, which is 80%, if I understood correctly.

[English]

Mr. Stephen Laskowski: What it means in terms of dollars and cents is between $500 and $1,000 per year, per driver.

In the early 1990s, Canada rolled back the meal deductibility to 50% to come in line with the United States, because they did the same. The Clinton administration introduced a bill, which was passed, that phased in incremental increases to get to 80%, which it will get to by 2007, which means in 2007 truck drivers in the United States will be able to deduct and put in their pocket between $500 and $1,000 more per year than a Canadian truck driver.

As I said in my opening remarks, the truck driver occupation is the largest for Canadian males. So this measure that we believe the Government of Canada should adopt would have wide impact and a beneficial impact for the majority of Canadian working males in this country.

The Chair: Thank you very much.

[Translation]

Mr. Discepola has the floor for seven minutes.

[English]

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): I'd like to thank the presenters, because I think we've received some excellent suggestions. So rather than grandstand, I'll get right into them.

On the capital cost allowance, I echo your recommendations, the sentiment. I think we have to have a major review of all the classes. But as a small-business person, I often wonder what's in it for me if I have an accelerated capital cost allowance.

Maybe you can correct my first premise, that even if an asset class doesn't have the expected life value that the amortization allows for, once you dispose of it in year three, for example, as opposed to year seven, you can write the balance of it all off in that one year. So in your example, if some of the printing machinery is amortized over a life cycle of seven years and most of it is between 18 and 36 months, if you dispose of it in year three, the balance of the unamortized portion you can write off anyway.

So the bottom line is that an accelerated capital cost allowance--whether it's for the trucking industry, for the printing industry, for the railway industry--I find gives you as a small-business person a false sense of insecurity, or security, whichever way you want to look at it. If your industry is bleeding, then having an extra $10,000 or $20,000 in expenses is going to make your bleeding worse, because your balance sheet and income statements are going to have a greater loss. So your banks are going to come in, and if any loans are guaranteed by your assets, you're going to even perpetuate the problem.

So why have to review it all, and what's the advantage of having it accelerated?

Mr. Jeff Ekstein: With the quick change in technology, you're right, at year three--and this is the key here--if you dispose of the piece of equipment, then it's off your books and that's it. Because of the fact that there is no resale value for a lot of this equipment, printers are like boaters, because they use this excess equipment as boat anchors.

You don't just throw out a piece of equipment. It may not have any further life in its form, but there are lasers and boards and other things you might be able to take out of it. Whatever piece of equipment you buy to replace this now obsolete piece, if you find that you're in a down situation, you're able to take parts out of the older technology to keep running. You weigh the odds of disposing of it, where you're going to get zero because it has no value, or keeping it. Keeping it means I keep it on my books, but at least when I'm down I have access to parts that I might be able to salvage out of my old piece of equipment to keep me running.

À (1040)

Mr. Nick Discepola: But from a tax point of view, what benefit is there?

Mr. Jeff Ekstein: From a tax perspective?

Mr. Nick Discepola: That's what you're asking us to change.

Mr. Jeff Ekstein: We are asking.

In the case that you don't dispose of it.... Because you can dispose of it and write it off completely only if you've actually disposed of the piece of equipment, correct?

Mr. Nick Discepola: Answer my question.

Mr. Jeff Ekstein: I am.

Mr. Nick Discepola: The only thing it does, regardless of the example, is that you have x thousands of dollars extra, and your GL code says depreciation of fixed assets, which now reduces your bottom line by even more. It's only advantageous, from what I see, when you've made a profit, because then instead of making $100,000 profit, you're going to make $110,000 profit, and now--because you're a small-business class, for example--you have a little bit of extra cash.

When I was in business, when they told me I made $130,000 profit, I didn't see $130,000 in my bank account, because much of it was from intangible things, like depreciation.

Mr. Jeff Ekstein: I thought the goal in business was to make a profit.

Mr. Nick Discepola: I'm not denying that.

How does it help you by accelerating one expenditure?

Mr. Jeff Ekstein: Following the example I was making earlier, if after three years we dispose of the piece of equipment, you can write it off. Looking at it from a tax perspective, if I don't dispose of it and I need it for year three, four, five, or six--because according to the tax schedule, I can't write it off until year seven if it's not disposed--then it's still on my books. I don't want to part company with it because of the fact that I could use it, because if I go to resell it I'm going to get nothing for it. It's of more value to me to be able to take parts out of it in the future than to get nothing for it and take it off my books. That's a trade-off you make at that particular juncture.

Looking ahead, if you do dispose of it, then it's fine, but if you keep it in those circumstances, then it's there for seven years. When the bank does look at financing new pieces of equipment--because you do have to buy a new piece of equipment to replace this boat anchor that you're keeping around only for spare parts--then you're in the situation where they'll look at the book value of that piece.

Mr. Nick Discepola: I have very finite time and I want to get on to other things. I'd like to debate it more, because I don't....

À (1045)

Mr. Jeff Ekstein: No problem, any time.

Mr. Nick Discepola: I will take a general view--and please, anybody can correct me--that everyone is for a balanced budget; we can't go back into deficit. Not very many people have said it, with the exception of the Canadian Professional Sales Association, that we have to rebuild and continue to recommend to the Minister of Finance prudence, whether it's in terms of economic growth or revenues. And most of the presenters would agree that we have to plan for a contingency reserve.

One of you, the Canadian Professional Sales Association, for once said we should go up $5 billion. I'd have a hard time recommending that. I'd like you to maybe elaborate on why.

Everyone has made the recommendation that we should limit spending. I agree totally. I brought that up last year in Halifax when the minister made his economic statement. I saw the graph going up and up and up. And notwithstanding that our revenues were increasing, and some expenditures were lower, especially the debt payments, we still spent a lot more--I think 12% or 13% more.

I find your recommendations 6 and 7 conflicting.

Also, to the Chamber of Commerce, when you recommend we should do ongoing program review and target priority spending, it goes against the grain of saying let's just have a general increase of 3%, or it goes against the grain of public spending being within targeted population growth and inflation growth.

It seems to me that in business you say here are my priority areas, and if I need an extra 10% in that area, but overall I can save it elsewhere, then I'll put in 10%. But if we make a recommendation generalizing and saying leave it to population growth and inflation, I know what every department is going to do: they're going to take that 3% and say they can increase their budget by 3%.

I don't think that's the approach. I don't.

Mrs. Nancy Hughes Anthony: If I could just clarify our concept of this 3% cap, first of all, it's a maximum. It can be zero growth; it can be minus 5%. We're just saying there needs to be some kind of upside discipline. Certainly I would expect this would be a government-wide goal--not an individual departmental goal that “Oh, yippee, we can go up 3%”, but a government-wide goal.

So the government struggles—which I know it does very effectively in this committee—with the new needs that might come forward on different programs, with different areas that taxpayers consider to be top priority, including crises or situations that may arise. But if you keep a discipline of a maximum of 3% on your overall growth, you will have to reallocate; there's absolutely no doubt about it. That's where we get into the kinds of tough choices that will affect individual programs and individual departments.

But I certainly didn't mean to suggest that every department just adds that to the top, because I don't think that arithmetic will work in any way, shape, or form.

Mr. Nick Discepola: Okay, I have another small question.

I just want to make a comment on the EI fund, because there is no separate caisse de l'assurance-emploi. As a matter of fact, I did the numbers last week, and I believe that with the net revenues versus the net expenditures from that fund, we're probably taking in about $3 billion more than we're spending out. So we're probably at the actuarial level where you have to allow for some prudence.

I take exception to the grandstanding, which I don't think serves anybody's purpose, that there's a $45 billion fund that has been misappropriated and has been going on to....

A voice: No.

Mr. Nick Discepola: Well, that's the impression given with the previous question. I wanted to clarify that, because even if the three unions, referred to by the previous questioner, win, let's not forget that at the end of the day, a judge would have to say, “Well, out of that $45 billion, $30 billion would have to go to businesses, because they contributed two-thirds, and one-third would have to go to employees”.

So I think the whole debate should be behind us. We're very intelligent people and must realize that the money has been used for excellent things, such as health care, reducing the debt, balancing our budget, which everybody has benefited from. So to reopen that whole scenario and say that we're stealing from l'assurance-emploi.... Anyway, that's all I wanted to say.

I don't know if anybody wants to comment.

The Chair: Ms. Hughes Anthony would like a brief comment.

Mrs. Nancy Hughes Anthony: I just have a brief comment.

I think, though, you have to understand that this is one of the most fundamental taxes that all of our members and their employees see every two weeks on their paycheque.

Mr. Nick Discepola: Yes, but it's gone down.

Mrs. Nancy Hughes Anthony: And they see it going down—

Mr. Nick Discepola: It's gone down for seven consecutive years.

Mrs. Nancy Hughes Anthony: Absolutely, but they have no say when the government says we're going to do a program for such and such a group, and let's fund it out of the employment insurance revenues.

They want a program that is defined to the objectives originally stated for the employment insurance fund. If the government wants to raise some money and set up other kinds of programs outside, and be responsive to the wishes of the taxpayers, that's okay. But they still feel they're paying for things that don't relate to what they think it should on that paycheque every two weeks.

The Chair: Thank you very much.

Mr. Terry Ruffel: Madam Chair, there was a question on the recommendation on the contingency reserve.

The Chair: Yes, on the $5 billion. I noticed that one too.

Mr. Terry Ruffel: It's the same sort of theme we're talking about.

First off, we're a bunch of sales folks, so if there are optimists in the world, we should be the group. The optimism is for low to moderate growth this year and next year, but with lots of shocks to the economy. So our only recommendation there is, don't budget for large growth, and allow for contingencies, just as we've seen four or five different major shocks this year.

And again, if there is money left over, we should apply it to our national debt and work that down, and release those interest payments we're making right now.

So it's just really a cautionary note that there are maybe more coming, and let's allow for this.

The Chair: Thank you very much, and I guess we'll get an economic update on November 3 that might give us some more information on that.

Now we'll go to the Honourable Maria Minna, followed by Mr. Pillitteri.

Ms. Maria Minna (Beaches—East York, Lib.): Thank you, Madam Chair.

I had something else to say, but I want to pick up on where Mrs. Anthony left off with my colleague Mr. Discepola, in respect of the EI fund.

You made a comment on the government wanting to use the fund for this or that, or for some other programs. Can you elaborate on what you meant by that?

À (1050)

Mrs. Nancy Hughes Anthony: I think in the past number of years there are certainly some examples that have come forward. The most recent ones relate to parental leave programs; assistance for certain industries, particularly fishing industries; and compassionate leave, which is a program that has been announced but has not yet been implemented.

These may be fine and good programs, but I think for the millions of either employers or employees who pay into this program and want protection against unemployment, these are seen as sort of extras or other kinds of programs, some of which, as I said, could certainly have some merit.

Our members certainly feel that the employment insurance program should be restored to the original intention. That is the view of the members, and I think we hear that very frequently.

Ms. Maria Minna: Some of the programs that are under EI, of course, have to do with training and labour management and so on.

I come at it completely differently. I don't think those programs, whether they're assistance to the fishing industry, compassionate leave, or others, are inappropriate, because they do have to do with the labour force. To me, I think it's an excellent fund to assist government to manage the labour force in all of its vagaries and different requirements across the country, and in terms of other issues. It's maintaining an active labour force, maintaining skills in the labour force, and maintaining mobility in the labour force. I think that's fundamental and important in those programs. I think we differ on that.

I just wanted to clarify, to see where you were going with those programs and which ones were bothering you.

I want to continue with the fund for just a moment. You say you want to reintroduce the intensity rule. Could you explain to me why exactly, and what benefit you see in reintroducing that? I found it to be a rather negative piece, and I fought to get rid of it, so I want to know why you want to bring it back.

Mrs. Nancy Hughes Anthony: I'm going to ask Mr. Murphy to answer that question.

Mr. Michael Murphy (Senior Vice-President, Policy, Canadian Chamber of Commerce): Sure.

The rule, essentially, as it was modified in 1996--and we certainly supported that--basically started to address one of the fundamental problems here in terms of repeat users of the system across the country. In terms of coming up with reforms to the system, we thought the government did a very good job in 1996. Those changes were reversed in Bill C-2.

I think the problem you're trying to cope with here when you have an issue like this is that the amount of time that was allocated to actually try these.... And there were actuaries and others who had looked at this. There was some interesting study work that came out that described the fact that we really were just getting started on this when the 2000 election happened and we reversed it. So we were on the train to finding a situation where we were going to have a meaningful impact. What we were talking about--the reintroduction, as we are suggesting--is a fairly modest change on a half point per percentage as you move along, taking the benefits from 55% down to 50%.

From the standpoint of making an improvement, trying to improve a system the government thought needed improving in 1996, and making the change, we thought we were on the right track. The OECD said that. The IMF said that. And we switched it back.

We just think it's one of the things we should be doing.

Ms. Maria Minna: On that point, I had difficulty with the 1996 bill and didn't vote for it. So we're on opposite sides of that equation. That was partly because I felt it was too punitive--the intensity rule, especially to people who.... In today's market a lot of people are self-employed. The permanent jobs, long-term jobs with one employer, don't exist any more. They're not as common as they used to be, as I think you and I know. There are seasonal workers, whether we like it or not. We have to understand there are industries in our country, like the construction industry, for instance, that would lose tremendous skills if we forced their employees not to be on EI for the short period of time they sometimes are and said they must go to work elsewhere and be retrained. Now they have a shortage of skills, and we're asking what do we do with that? Now there's a huge lobby trying to deal with apprenticeship and immigration and so on, because the industry has a huge shortage. It's just an example, but there are other industries too.

I wanted to understand why you wanted to introduce this. I felt it was too punitive, and was quite pleased to see it was actually withdrawn. How would you address the seasonal employment of certain industries? Do we just punish those people and say you've been on EI, so now you go down and down and down? People were being cut to the point that they were not able to survive. There are problems with the way it was structured.

À (1055)

Mr. Michael Murphy: I could give you a kind of glib answer and say our rationale for wanting to support the change was the same rationale the government used to make the change in 1996.

From the standpoint of, as I mentioned, the amount of change that's being suggested here, I would think by anybody's standards it is very modest. But I think it would be a step in the right direction in terms of talking about what we think does need to be changed about EI, which is this notion that somehow, as Nancy was mentioning earlier, it has become a bit of a grab-bag program for a bunch of things, not just its intended purpose.

When you look at the specific purpose of it, you say all right, what are the things that are absolutely essential here? What we know is that the employees and employers making these contributions believed very strongly that the system needed to be tightened up. I think the government at the time agreed with that, in 1996.

The changes that were made as a result of Bill C-2 were very modest in the sense of saying we didn't even really give it a try; we didn't say let's see what happens here. I think there was good motivation for going ahead and doing that.

We really didn't get a chance to get that thing rolling to see if it was going to actually affect behaviour in the marketplace in terms of what certain people would do in deciding whether this program was going to be something they would depend on as much as they had been or not, despite the fact that the change--and I'll repeat it--was very modest.

Our proposal here is to go back to exactly that very modest decrease.

The Chair: Did you want to do a final wrap-up comment? You're just about a minute over right now.

Ms. Maria Minna: Just one last question. I was going to go back to EI, but I won't.

In terms of natural resources, would the tax cuts include the oil industry, and how does that square with our Kyoto commitment?

Mrs. Nancy Hughes Anthony: I think in the last budget Mr. Manley already indicated he would be narrowing the gap on corporate income tax between the oil and gas and mining sectors, which had been exempted from certain tax reductions, and the rest of the world.

That process is now in train. It was, as I said, announced by Mr. Manley that over a--I think I'm right--five-year period, the tax reductions for the oil and gas and mining sectors that they did not get in the previous budget would be put in place. We just feel that gap is very wide, and if there is an opportunity to reduce it, to put the oil and gas and mining companies on the same footing as other companies, we would recommend that take place.

The Chair: Thank you very much. That's a bill that's being debated in the House right now, and it's why some of our members can't be at this meeting at the same time.

So Mr. Pillitteri, you have the last round of questioning on this panel.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you very much, Madam Chair.

Good day, everyone. It's good to see many of you back here. I don't spend as much time as I used to listening to some of the presentations, because it's now been ten years that I've heard these presentations, and a lot of things become repetitive.

My question this morning is on something that has started to bother me on the issue of EI. As I recall, 40 years ago, when I entered the workforce, I could have been guaranteed 35 years of work in the same factory, General Motors, and retirement with an excellent pension--or anyone else, for that matter. But I understand that today, if I were to enter the same workforce, about every five years I would have to be retrained.

Today I'm a small-businessman, and when I look at the EI fund it really does not bother me so much. Let me explain to you why. Really, I think you're bunching everybody together when you say EI is starting to bother employers. I'll tell you why it really doesn't bother me so much.

First of all, I've seen it going downwards for the last ten years. From $3.07, we're down to $2.27 or $2.30 now. When I take a look at it, who benefits most from the extras within EI? Take a look at work-sharing. I don't do work-sharing. That's mostly done by larger corporations. They are the ones who pay the largest amount of EI, yet they're the first ones to get into work-sharing.

We also talk about work training within the industries, even within the tourist sector, and so on, because as things change in this world people need to be trained. They of course take more of the work-training money.

Yes, there are some social programs that go into it, like youth at risk, or some training. I don't know about other parts of the country, but I see in my area a lot of training and retraining today. I can see it in the colleges training individuals to go into the private sector to be the entrepreneurs of tomorrow, and I see how the EI fund is being used. Maybe we should have put it all in different pockets, with so much for EI, so much for training, and so on. But realistically, it's not individuals like me, as a small-businessman, who benefit most from these programs; it's the larger groups of employers--yet they are the ones who are complaining the most about EI. Maybe it's because of the lump sum of so many in the package they're paying for, and it affects them. So I want you to comment on that.

On individuals on work leave, yes, it hurts to replace them, but the cost factor is not that much, because it comes out of the whole fund when somebody takes maternity leave, and so on. As a small-businessman, it's harder to replace people, but I don't mind that really, because when you have a happy workforce, as individuals we prosper more.

Before you answer that, I want to go to Mr. Laskowski. You mentioned the federal government and the infrastructure. You talked about Windsor, at $350 million. You could have also mentioned the second-largest crossing point, the Niagara Peninsula--Niagara Falls, Queenston, and Fort Erie--and the $160 million that was also announced for that, and to improve the corridor of the Queen Elizabeth Way and the bridges crossing over: Lewiston Bridge, Peace Bridge, and so on.

Á (1100)

My question to you, sir, is this. You talk about the meals, the work, and so on. I remember years ago, when I was working at General Motors, they were always talking about parity with the United States. It seems to me you're making almost the same presentation. But today we no longer talk about parity. Do you know why? It's because the Canadians are earning more than the Americans, and they have better benefits than the Americans. The Americans actually had to take a much larger pay cut in order to stay competitive and keep those plants open. I want you to know that.

Another thing you haven't brought forward is how many organized truckers we have in Canada. Most of the truckers in Canada are organized. A large percentage of truckers in the United States are independents. I surveyed the Toronto market, and all of the ones bringing fruit and vegetables up here were independents.

How much does it cost those independents to pay for their own benefits? They have no benefits, meaning medicare, auto insurance, private insurance, and so on. Have you ever done a study on that? If you haven't, sir, the next time you make a presentation I would like to see that.

Á (1105)

Mr. Stephen Laskowski: You will get that presentation, because it's coming. In fact, it will correct some of your assumptions here. Even taking into consideration the education and health aspects, as a trucking industry we are at a significant disadvantage to our U.S. competitors. That will dispel the myth that we are somehow still at an advantage, with regard to health and education.

The Chair: Is this being done right now?

Mr. Stephen Laskowski: Yes. It's in draft form and will be finalized, as I said, in late fall or early winter.

The Chair: At that time, perhaps you can send a copy to the clerk and we'll distribute it for you.

Mr. Stephen Laskowski: We will.

The Chair: Ms. Hughes Anthony is next to answer Mr. Pillitteri's question.

Mr. Stephen Laskowski: If I may, there was an open question on the CCA rates and the benefits. If I can just take one minute to answer that open question from--

The Chair: You can speak after Ms. Hughes Anthony. We're over time on this panel. There are five people waiting.

Mrs. Nancy Hughes Anthony: I'll just be brief.

It's interesting, because I think more of the comments we receive from our members, Mr. Pillitteri, come from the small-business side than the big-business side.

On the issue of the employment insurance program, when we look at the latest information on what things are being paid out under the fund, regular benefits are now about 60% of total payouts. A lot of my members just look at the number they are required to pay and say “I am being overcharged. I don't want to pay for those extra things. If the government wants to do those things, that's fine. They can figure out ways to establish those programs, and the light of public opinion will shine upon them. But I don't want that on my paycheque. I'm being overcharged.”

I'm just bringing those views forward to this table. They are views we still hear very frequently from our members.

The Chair: Thank you.

Mr. Pillitteri, do you want to say anything? No.

I will give Mr. Laskowski one minute.

Mr. Stephen Laskowski: Thank you very much, Madam Chair.

The question was on the benefits of CCA rates, and why give them. Accelerated CCA rates will allow the trucking industry to introduce trucking equipment that is more environmentally friendly. The government's plan for cleaner air will be achieved faster through accelerated CCA rates.

The second notion on profitability assumes a company is profitable. What wasn't taken into account is that we compete with the United States. Without accelerated CCA rates we won't free up financial capital to make reinvestments in the company. It won't make presidents or owners richer; it will make Canadian companies more viable, so we can continue to employ Canadians at the rate we do.

Thanks for the extra minute, Madam Chair.

The Chair: Thank you very much.

As you know, that was one of our recommendations in last year's report. But I do understand the point from a business point of view, and the banking aspect of it that Mr. Discepola.... I thought that was a very fine point.

On behalf of all the members here present, and those who are in the House and at other locations at this moment, I wish to thank you for providing your briefs. I thank you for your travel here today and for answering our questions.

We will suspend.

Á (1108)

Á (1112)

The Chair: We will continue with our second panel of the morning on pre-budget consultations.

Bienvenue à tous.

From the Canadian Housing and Renewal Association, we have Joyce Potter, vice-president, and Sharon Chisholm, executive director. Welcome to both of you.

From the Brewers Association of Canada we have, once again, Margo Dewar, and Gordon Lafortune, senior consultant. Both of you, welcome.

From the Railway Association of Canada, we have John Lynch, chair, Railway Association of Canada Taxation Committee, Canadian Pacific Railway. That's your employer. And you have with you Bruce Burrows, vice-president, public affairs and government relations. To the two of you, welcome.

From the Canadian Public Health Association, we have Christina Mills. It's nice to see you back.

And from the Sierra Club of Canada, we have David Martin, who is a policy consultant on the nuclear campaign.

All of you are going to have your full seven minutes. If I have to cut the time, I will cut it from the questioning. I would ask you to please be cognizant of this fact. That way you can get your statements on record.

We'll go in the order we have on the agenda and we'll start with the Canadian Housing and Renewal Association.

Commencez s'il vous plaît.

Á (1115)

Mrs. Joyce Potter (Vice-President, Canadian Housing and Renewal Association): Madam Chair, thank you very much.

Committee members, thank you very much for the opportunity to appear before you today. We are here to talk to you about affordable housing in this country. We have provided a brief, which hopefully was circulated to you in advance. I intend to highlight some of the recommendations that appear in that brief.

We start off in our report describing some of the causes and the situation with respect to the lack of affordable housing in this country. I really don't intend to spend very much time on that today, because I presume that every one of you in your ridings is seeing some of the symptoms of the lack of affordable housing. In fact, in the city of Ottawa, where we are today, one needs to go no further than a couple of kilometres to see families who are being raised in emergency shelters, who are victims of the shortage of affordable housing.

As the national voice for affordable housing in the country, the Canadian Housing and Renewal Association has been advocating for some years to try to improve the housing situation in this country. One of the things that I think is quite interesting now is that we are being joined not just by social advocates but also by a wide range of people, including many in the private sector. They are recognizing the need for more affordable housing as a solution to the kinds of economic problems that are facing our cities and the kinds of social problems that are persisting in many communities across the country.

The federal task force on urban issues led by Judy Sgro was one that identified affordable housing as one of two key requirements in order to promote health in Canada's cities. Most recently, I must say, we were surprised but very pleased to see the TD Bank, of all organizations, coming out and calling for a national strategy on affordable housing.

It is the case that the federal government has taken action to deal with the affordable housing crisis and we have been extremely pleased with some of the responses of the government in the last couple of years. The homelessness initiative, the new affordable rental housing program, and enhancements to the rehabilitation program have all been very welcomed by our sector. Unfortunately, they are not enough. We still see ourselves and we see cities and communities across this country struggling with the crisis of affordable housing.

We have five recommendations that are highlighted in our brief, starting on page 7. The first of those is to increase the funding and to change some of the parameters of the affordable housing program that was announced and that is being implemented through a series of federal-provincial arrangements. We believe that the funding for that program needs to increase to approximately $625 million annually, as opposed to the $675 million spread over three years in the current commitment.

Our second recommendation calls for changes to the mortgage insurance program administered by Canada Mortgage and Housing Corporation. That, in effect, would require a review of their mandate and a look to try to allow that fund, which is growing in the Canada Mortgage and Housing Corporation, to be used to support more affordable housing initiatives.

Thirdly, we think we should take a look at an initiative that is being introduced in other countries around the world, including the United States; that is, a system of tax credits that can allow for private sector investors to be helpful in supporting affordable housing.

Fourthly, we believe there's a need for additional support for rental assistance. There are many people who are living in units that are perfectly adequate, but they are paying 30%, 40%, or 50% of their income in order to do that. These families and individuals are not just those people on social assistance, so this not a problem that can be solved by only dealing with social assistance, although that certainly is one solution.

One of the charts in our brief demonstrates that even if you are two full-time wage earners, if you're earning minimum wage, you can't afford to pay for a two- or three-bedroom rental housing unit in many cities in this country.

And finally, Madam Chair, we are recognizing that there will be some savings accruing to the federal government as a result of declines in current mortgage commitments for the existing stock of social housing. It is our plea to the government that those savings be reinvested in more affordable housing, as those savings start to accrue as early as 2005.

Madam Chair, those are our recommendations. Again, we thank you very much for your attention.

[Translation]

We'll be very pleased to answer your questions in both official languages. Thank you.

Á (1120)

The Chair: Thank you very much. We'll now hear from the representatives of the Brewers Association of Canada.

[English]

Ms. Margo Dewar (Vice-President, Economic & Policy Programs, Brewers Association of Canada): Madam Chair, members of the committee, thank you for the opportunity to appear before you today.

The Brewers Association of Canada is the national trade association that represents the brewers of over 98% of the beer produced in this country, enjoyed by more than 10 million Canadian beer drinkers.

Before delving into the topic of interest to us today, I want to thank the committee for your support and for your recommendation to have the federal excise duty on beer reduced for Canadian small brewers. That still remains a vital issue for some of our members, and we encourage your continued support and your influence as we approach the next federal budget.

We are hoping we can count on your support, however, on another important but completely different matter. We have come here today to ask for the elimination of the tariff and quota mechanism applied to barley and malt. Before explaining why, let me give you some background on the Canadian brewing industry as well as some of the information on the tariff rate and quota system. From there I will move to discuss the implications of implementing our request and explain why it is critical to Canadian brewers.

Canada's brewers have a significant impact on Canada's economy. The production, distribution, and sale of domestic beer contribute about $13 billion a year to Canada's gross domestic product. The economic activity generated by Canadian brewers in the form of jobs, purchases, and tax revenues touches every region of the country.

More closely related to the request we are tabling today, every year Canada's brewers purchase more than 360,000 tonnes of Canadian malting barley, which translates into one-third of Canada's malting barley sales. The other two-thirds are exported. This is a special ingredient, the single most important one in the brewing process after water, accounting for 65% of raw materials. There is no substitute, which is to say, “No malt, no beer”. It is so important to a brewer's recipe that months of testing and pilot brewing are antecedent to any change in variety or specifications.

Further, there is only one source of supply: the Canadian Wheat Board. Unlike other inputs, there are no risk management tools available to domestic purchasers of malting barley. Normally, risk management tools include things like multiple suppliers, exclusive contracting, hedging, futures, and the like.

The need to manage risk became a reality with the prairie drought situation last year. The industry took stock of the risks it was exposed to, and realized that the domestic shortage brought on by the drought could just as easily have been brought on by crop disease or by a drop in seeded acreage. As a result, brewers were forced to look at the cost and the feasibility of alternative sourcing, the only realistic one being buying malt from Europe. Along with a host of logistical and economic costs associated with importing, we identified one cost that is punitive and unnecessary: the tariff applied to malted barley and the quota mechanism that triggers the tariff.

In the spring we tabled with the Finance Canada, Agriculture Canada, and DFAIT the request we are making today. We did so because in the event of another crisis situation, we cannot be faced with paying what amounts to an onerous tax on what would be an already costly situation, for which we have no alternative, and because the industry needs to be given the tools to stay internationally competitive.

We are especially interested in the removal of the tariff and quota on malt. In terms of both costs and logistics, importing malt would be less problematic than importing barley. However, because Canadian malting companies would be faced with many of the same issues in a shortage situation, the tariff on the quota on barley should also be removed so that these companies can meet domestic and export commitments.

The quotas are filled on a first come, first served basis. For malt, the quota is 19,000 tonnes, or 14 times less than the industry uses in a year, and an amount that one major Canadian brewer could fill with just one order. Such an order would leave all other Canadian brewers faced with paying an over-quota tariff of $157 per tonne, more than a third of the cost of the malt. Even without the tariff, the freight and storage costs on imported malt are prohibitively expensive, and would amount to between $175 and $200 a tonne. The combined freight, storage, and tariff costs add up to more than the value of the grain.

Sourcing domestic malting barley is the preferred course for Canadian brewers, for obvious economic and logistical reasons. Additionally, we are familiar with Canadian malting barley and know how it behaves in the brewing process. Canadian brewers have invested millions of dollars in research on malting barley varieties in Canada and in brewing techniques, through both industry and non-industry research centres. Moving to unfamiliar suppliers and incurring the extra costs makes sense only when the domestic supply is in jeopardy.

The purpose of the tariff is to protect Canadian growers from unrestricted import competition. We submit that it is unnecessary, because the brewers' processes are geared to domestic varieties, and obviously the storage and freight issues make any kind of competition from imports ridiculous in the normal course. Importation only makes sense when we cannot get a domestic source, and when we need it to ensure we can get beer to our consumers.

Thank you, Madam Chair.

Á (1125)

The Chair: Thank you very much.

Now we'll move to the Railway Association of Canada.

Mr. Bruce Burrows (Vice-President, Public Affairs, Government Relations, Railway Association of Canada): Thank you.

Good morning. Thank you for inviting us today to lay out a road map that would allow Canada's railways, under a modernized fiscal structure, to do more and help Canadians achieve not only a more prosperous future for their many exporters--who depend, by the way, on fast, inexpensive, and efficient rail to get to market--but also to help achieve an environmentally sustainable future as well.

You have before you a 16-page deck, and I want to focus on two features dealing with capital cost allowances and excise tax. Before I get to those recommendations, along with my colleague, Mr. Lynch, I'll give you a little bit of background about the rail industry.

We're an $8 billion industry. Our over six million car loads worth of traffic represents over 60% of Canada's goods moving by surface. We have about 60 railways in the country, all types, passenger and freight. We've seen quite a resurgence of rail in recent years, spurred on by the government's proactive measures to deregulate. We now have the lowest rates, for example, in the world.

On productivity, the good news is that rail has been much faster than most other segments of the Canadian economy in adopting new technologies and implementing better business practices. We've had a 200% improvement in the last ten years. I would also point out that we have a new dynamic short-line sector, over 40 railway companies. This is now 30% of the originated railway traffic in the country. However, their physical capital is deteriorating, and they have little room to reduce costs further on their low-density lines. They thus have a diminished ability to reinvest, and hence the need for partnership-based infrastructure support, a key platform that they are advocating.

On the theme of resurgence, with passenger we've seen tremendous growth, 12% to 15%, since the early 1990s in passenger ridership, both with VIA and also with the three key intra-city commuter rail companies, in Vancouver, Toronto, and Montreal, and now in Ottawa as well.

Rail also contributes to Canadian economic prosperity. We employ over 37,000 people directly, and we are paying over $640 million in federal and provincial taxes, so we are a net contributor to government revenues. However, we must do more to fully catch up with our U.S. competitors, a growing issue as markets integrate further under NAFTA. And one reason we must do more is so we, as a society, can capture more of the environmental benefits of moving freight and people by rail. This is potentially very significant.

We can reduce land use consumption; we operate over dedicated corridors and thus can help remove freight and passenger traffic away from congested roadways, both urban and inter-city. While facilitating economic activity over 60%, as I mentioned earlier, rail is only generating 4% of transport greenhouse gas emissions. This, by the way, is after a 30% growth in traffic since the base year 1990. In essence, we are almost Kyoto compliant.

The railways have been creating momentum to move forward, and the potential to do more is great. But while the public and their governments are recognizing the benefits of rail, and are asking us to play a larger role in achieving things such as reduced road congestion, reduced pollution, and reduced fuel consumption, historical regulation continues to constrain our ability to compete against U.S. railways in particular and get on with the job.

There are two areas of uncertainty I want to highlight, the first being economic regulation. There is before the House as we speak a bill, Bill C-26, which as proposed calls for changes to the Canada Transportation Act. It is something the industry is supportive of, yet its passage is very uncertain, and there are even threats, we hear, and rumours about some interests wanting to re-regulate rail further, beyond the bill, and impose things such as mandated running rates. If this were to occur, certainly it would raise the spectre of significant investment uncertainty with our railway companies from coast to coast.

The second issue is our overall tax policy, and that's what we'll get to in just a quick moment--it's continuing to discriminate against railways. So our vision for the future is along a different track from what we see today. We see an integrated multi-modal future, and there are two key issues needed to obtain that future. One deals with capital cost allowance, and the other with federal excise tax.

Mr. Lynch, I'll now ask you to speak to those issues.

Á (1130)

Mr. John Lynch (Chair, Railway Association of Canada Taxation Committee, Canadian Pacific Railway, Railway Association of Canada): Thank you, Bruce.

The committee has our handouts, so I wanted to highlight some of the points in that material. On tax depreciation and capital cost allowance, I wanted to highlight the discrepancies between Canadian railways and our competing modes.

Canadian railways basically have a 15% capital cost allowance rate, and leasing companies a 13% CCA rate. Competing modes are much higher, not even the same category; trucks, for example, are at 40%. U.S. railways are basically off the radar screen. Now they have a bonus depreciation they can access. So their base rate is equivalent to about a 30% CCA rate, but with the bonus they get, our CCA rates are not even in the same league as they are.

In terms of the need for CCA reform, I think this committee has referred, back as recently as November 2001, to the need to look at CCA rates. There seems to be broad support for CCA reform. I understand Paul Martin has spoken favourably about this issue as well.

I refer you to our charts, which further illustrate the discrepancy between Canadian CCA rates and the U.S. tax depreciation for modes that compete with the Canadian railways.

Another issue Bruce referred to, and which we wanted to bring to the committee's attention, is the federal fuel tax, federal excise tax. Canadian railways are paying approximately $70 million annually in the federal excise tax. This was brought in during the 1980s, when there was a deficit, and currently remains in place. The railways do not see a benefit coming to the railways, as perhaps the truckers would, from paying a federal excise tax. Railways are capital-intensive; we essentially pay for our own infrastructure, and again get no direct benefit from the federal fuel tax.

In summary, in regard to the federal fuel tax, what the Railway Association is recommending is that the federal fuel tax be reduced to U.S. levels, which are less than half of Canadian levels for railways, about 1.6¢.

I'll turn over to Bruce to summarize.

Á (1135)

Mr. Bruce Burrows: Thank you.

In conclusion, at the beginning of the 21st century, and as Canada asserts itself more vigorously both with its trading partners and on the environmental front at large, the deployment of new energy-efficient and productive assets will be critical. We spoke earlier about a new vision, an integrated multi-modal vision for the future. I'll quote from Judy Sgro's report on urban issues:

Canadians want to have more and better transportation options. Fast rail networks should be part of an intermodal transportation network to carry people and goods more efficiently and quickly to their destinations.... This is the key to economic prosperity.

Railways are still paying twice as much tax as U.S. railroads and almost 30% more than our major Canadian competitors, the trucking industry. The tax changes proposed today offer significant leverage benefits to the economy and society, making it net-positive for the government.

The Chair: Thank you very much.

Now we'll move to Ms. Mills, Canadian Public Health Association.

[Translation]

Ms. Christina Mills (President, Canadian Public Health Association): Affiliation: présidente with a lower case p Good afternoon and thank you very much for inviting me once again. I'm wearing another hat today, however, that of President of the Canadian Public Health Association.

CPHA is a non-profit voluntary organization with a broad membership, and in our nearly 100 years of existence we have been in the forefront of efforts to promote health and prevent disease in Canada. Our members include the public health professionals whose daily work protects and promotes the health of Canadians in partnership with individuals and organizations in many sectors.

That's why I'm actually very pleased to be on a multi-sectoral panel instead of on a panel that is concentrated simply in the health sector, because I believe that in the bad old days public policy decisions were made simply on the basis of economics. If you think of a circle in a Venn diagram, economics was the be-all and end-all formally in terms of making public policy decisions. Then we added another circle, quite appropriately, which was the environment. Now I think we have to add the circle of health.

[English]

If we sacrifice any one of those circles in the Venn diagram at the expense of the others, then we'll have problems today. And if that intersection of those three sectoral decisions is not done in a balanced way, then that third dimension, which is the sustainability, the intergenerational equity that we need.... None of those sectors will be well served.

It's a mixed blessing to be talking to you the same week that the Naylor committee reported. I was pleased to see that Dr. Naylor's committee recommended many of the same things that the Canadian Public Health Association has been advocating all along: a national public health agency led by a chief public health officer; substantial investment in public health infrastructure, including a public health human resources strategy and a national immunization strategy; comprehensive legislative reform and new accountability mechanisms. But Dr. Naylor's mandate was to provide a third-party assessment of current public health efforts and lessons for infectious disease control, so his report necessarily didn't pay much attention to the explicit needs and benefits of public health population-based prevention in other health areas. Hence, I think his estimates were conservative.

Today I'll speak a little bit about why the proposed agency for public health must address more than infectious disease control and emergency response. If our health care system is to be sustainable, we need to pay explicit attention to chronic disease prevention. This was recognized by Senator Kirby's previous committee, in recommending $125 million for a chronic disease prevention strategy.

In the handouts you have I've outlined that I'll be talking about the case for prevention. I won't address the slides dealing with health and economic impact, because you did hear at some length last week from members of the Chronic Disease Prevention Alliance about those points. I'll only say that together the leading five contributors of economic burden account for about two-thirds of total direct and indirect costs in Canada.

The goal of prevention is not only, as has been said--I can't remember who said it, to give the proper attribution--to add years to life, but to add life to years. So we're not talking just about saving costs and extending lifespan; we're talking about quality of life, people being healthy, more able to participate and contribute to society.

What are the opportunities? What's the scope for prevention? The major causes share modifiable risk factors. Almost two-thirds of Canadians, and 85% of Canadians over the age of 65, have at least one modifiable risk factor. Can we do anything about that? Definitely, yes. Prevention is feasible and cost-effective. Health promotion and disease prevention interventions can in fact lead to improved health and quality of life, reduce medical care costs, and enhance workplace productivity. Preventing disease and disability can extend life and reduce the need for health care.

But we can't depend on clinical prevention alone. That only addresses the small proportion of the population who are already identified as being at high risk, and we know that a large number of people at low or medium risk contribute many more cases to the system than a small number of people at high risk.

If you will look at the slide on North Karelia--I believe it's slide 11--you'll see how one country has been able to shift their risk factor profile in a favourable direction and the associated incidence of chronic diseases dramatically dropped.

Typically, the cost-effectiveness of clinical interventions is measured in hundreds of thousands or millions of dollars per year of life saved. Many preventive interventions are in the range of a few dollars or a few hundred dollars per year of life saved or even cost saving.

So why do I say that prevention is the foundation of sustainability? The next four slides show what happens in the absence of effective primary prevention efforts. One of the implications of our aging population is that there will be increasing numbers of cases, hospitalizations, and deaths from aging-related diseases even if population risk remains stable or even if risk declines somewhat. And unfortunately, the major chronic diseases are also strongly age-related.

Á (1140)

So you'll see with the slides displaying trends for the numbers of deaths up to 2011 that the only opportunity for actually reducing that top line is in reducing that bottom line, in changing the actual rate or risk of those diseases. We cannot do anything about the age structure of the population. We cannot do anything about the population growth--that would be another whole discussion. But we can do something about the rate change or the risk of Canadians for those diseases. And I believe that these slides clearly illustrate that the sustainability of our health system depends on effective population-based primary prevention. Because if those trend lines do not change, you can see that no matter how good our health care system is, we won't be able to cope eventually.

That's why we call public health a strategic investment. We've seen the fruits of our predecessors' strategic investments in successes like the eradication of smallpox, the elimination of polio, and the reduction of motor vehicle traffic fatalities and tobacco-related disease to public health measures--all this for about two cents on the health dollar.

Public health has brought about more than twenty years on our increase in life expectancy. It's not an alternative to health care, it's a complement to it, and it's the only way we can contain the increasing demand over time.

To protect the health of Canadians we need a comprehensive health system with both strong public health and health care components. And we need to work with other sectors that also influence health, such as those that are represented here today. We need robust international partnerships and we need to collaborate across sectors, jurisdictions, and disciplines. SARS has reminded us that public health, like the girl guides, needs to be prepared. The just-in-time ethos is fine for a widget distributor whose paramount concerns are to maximize profits by cutting warehousing costs, but it's just not suitable for public health.

In order to be prepared for the next natural or man-made threat that comes along and to ensure sustainability, we need a seamless pan-Canadian system. Our system is only as strong as its weakest link, so we need capacity at all levels, and there are a number of conditions that need to be present for this to be successful: a harmonized regulatory framework that acts as a road map rather than as an obstacle course; sustained and reliable funding--

Á (1145)

The Chair: Ms. Mills, our translators can't keep up, and you're quite a few minutes over your time right now. I'll let you wrap up in one or two sentences, but you cannot beat the clock by making it difficult to translate.

Ms. Christina Mills: Okay.

We need sustained and reliable funding, mechanisms to account to Canadians for how we spend it, and, most of all, a spirit of collaboration. The public is demanding it. The voluntary sector is ready. We've had enough talk about why it can't be done; we need to talk about how we're going to do it.

Thank you.

The Chair: The final presenter this morning is from the Sierra Club of Canada.

Mr. Martin, the floor is yours now.

Mr. David Martin (Policy Consultant, Nuclear Campaign, Sierra Club of Canada): Thank you, Madam Chair.

I'm senior policy adviser with the Sierra Club of Canada. It's a national environmental group with chapters across the country.

Atomic Energy of Canada Limited, AECL, is the federal crown corporation that designs and markets CANDU reactors. The title of my talk today is “Fifty Years of Futile Funding is Enough”.

It's a fact that AECL is a financial basket case that has received $17.5 billion in subsidies already, and now it wants more. The reality is that after a 50-year track record of technical and financial failure, it's safe to assume that this pattern won't change.

Together with the members of the Green Budget Coalition, the Sierra Club supports a phase-out of government subsidies for nuclear power and a shift to incentives for renewable energy and energy efficiency.

Government subsidies to AECL reached the highest level since 1987 in 2001-02, at over $211 million. The preliminary total for the last five years, from 1999 through to the current year 2003-04, is now $794 million. On September 23 an additional $46 million subsidy was given to AECL in the supplementary budget.

We're also here opposing the federal subsidies of over $2 billion for the proposed ITER fusion reactor, and we're also opposing the restart of the federal fusion research program.

Nuclear power is neither sustainable nor a viable solution to climate change because of its high cost, its poor performance, and unsolvable environmental problems, radioactive waste and emissions, and the risk of catastrophic accident.

Fifty years of direct taxpayer subsidies to AECL, from 1953-2002, totalled $17.5 billion. In March 1996 this government committed to cap AECL subsidies at $100 million per year. The finance minister was Mr. Martin. That was supposed to begin in the 1998-99 fiscal year. That budgetary commitment was never fulfilled.

I have a table there, but I won't go into the numbers. It compares the budgeted subsidies for AECL to the final subsidies in the last five years. Those subsidies have routinely been increased through the supplementary budget processes. Most dramatically, in 2001-02 the increase was 40%, up to $211 million. This kind of supplementary budget process subverts good planning and reduces the opportunity for parliamentary and public input.

Ongoing subsidies for AECL have been justified with the false claim that there's a nuclear renaissance. I'll perhaps skip over a little of that, but suffice to say that the reason there is no nuclear renaissance is the simple fact that nuclear plants cost twice as much as natural gas plants.

With no public debate, on September 23 cabinet gave AECL $46 million to design a new prototype reactor called the advanced CANDU reactor, or ACR. We don't even know what the total cost will be for this reactor, or how much has been spent already. The bill will be certainly well over $200 million.

AECL claims it will be cheaper and it will find a ready market, but we've heard all that before. We've heard it with the organic cooled reactor in Manitoba. It was a technological dead-end. We've heard it with the CANDU boiling light water reactor at Gentilly-1 in Quebec. It used ordinary water as a coolant, just like the ACR. It was a disaster that operated for less than 200 days, and it cost taxpayers $126 million.

There are other examples. I've listed them in my brief.

AECL is focusing on this new reactor design because of the absence of new reactor sales. Only 12 reactors have been sold, fewer than 3% of the world total.

Skipping down to the ITER reactor, a cabinet decision is imminent. Indeed, it may be made today by the cabinet committee on the economic union. This is the ITER, or International Thermonuclear Experimental Reactor. It's a $19 billion experimental fusion reactor proposed for Clarington, Ontario. With no parliamentary or public debate, the cabinet will decide whether or not to provide half of a $2.3 billion subsidy for ITER.

The federal government's also being asked to restart its fusion research program. That could cost another $900 million, pushing the federal subsidy for fusion to more than $2 billion. This amount could exceed the $2 billion budgeted to meet Canada's Kyoto commitments.

Á (1150)

Even if cabinet chooses not to support construction of ITER in Canada, it may support construction of ITER in Japan or Europe, requiring a 10% contribution, which could be up to $2 billion, or $1 billion from both the Canadian and Ontario governments.

Let me stress, ITER is experimental, and will produce no electricity. As a long-term energy strategy, it makes no sense. There are cheaper, cleaner alternatives.

In conclusion, AECL celebrated its 50th anniversary last year, along with MAD Magazine and Sugar Frosted Flakes. Unlike those two profitable businesses, AECL's most notable achievement in 50 years has been its ability to suck up huge subsidies from the federal government, like a nuclear-powered vacuum cleaner. After 50 years of futile funding, it's time to pull the plug.

Thank you very much.

Á (1155)

The Chair: Thank you very much.

Thank you to all of you.

Mr. Solberg, go ahead, for seven minutes.

Mr. Monte Solberg: Thank you very much, Madam Chair.

Thank you to all of you for your presentations.

I guess we know, Mr. Martin, where you stand on AECL. You made that pretty clear.

Actually, if I can just start with you, you point to a couple of interesting things that I think need to be discussed a little more deeply. First of all, it seems to me that under Kyoto, nuclear power really gets a bit of a pass, doesn't it?

If you were France, for instance, who produces so much of their electricity by nuclear power, I think it's essentially Kyoto-compliant already. But they are producing all kinds of radioactive waste and that kind of thing, which is a huge problem. I guess I'm just making a statement on that, which you can react to if you wish.

One legitimate thing that people have raised, which I'm interested in how you will respond to, is that some people say that nuclear power is the way to help us produce more hydrogen to use for hydrogen-fuelled vehicles, for instance. What's your view on that, or how do you respond to that?

Mr. David Martin: Thank you, Mr. Solberg.

It's a similar problem. I'm sure you've heard of the proposal to use CANDU reactors in the tar sands out west. The problem comes back primarily, but not exclusively, to economics. The simple fact is that nuclear power is far, far too expensive. AECL is now trying to sell us a pig in a poke by saying “Trust us. Our new reactor design, this advanced CANDU reactor, will be cheaper. And it will be cleaner, and it will be more effective.” As I said, we've heard all of that before. When do we stop buying the soft sell, and when do we start to say “Let's invest in the things that really make sense”?

The international community decided conclusively that nuclear power was not the solution to climate change, primarily because of cost—but also because it's not ethically acceptable to substitute one environmental problem, such as radioactive waste, for another environmental problem, such as carbon dioxide emissions.

So on all of those counts, there are better ways to go for both climate change and hydrogen. Hydrogen is really problematic. It's an energy product that has to be produced, whether from natural gas, or from electrolysis, such as is being proposed with nuclear power. It's a very high-cost energy product. It may make sense if it's produced with renewables; it doesn't make sense if it's produced with nuclear power.

Mr. Monte Solberg: Mrs. Mills, I'm just curious how public health will be affected if the finance minister comes here on November 3 and says he has less than the $2 billion in the surplus and therefore that money will not forthcoming for health care, as proposed in the agreement he signed with the provinces. What's your view on that? What would be the impact of that on public health if he's not able to produce?

Ms. Christina Mills: Well, we've already seen with the SARS situation that our public health system is in serious trouble. It has suffered from years of neglect.

As you know, the health sector was relatively protected from the budget-cutting frenzy of the mid-1990s; but within health, public health was neglected in order to satisfy the needs of health care. Unless we make a strategic investment in public health, we're going to be paying down the line; it's pay now or pay later.

You hear metaphors like “You can keep pulling people out of the water, and you can put a fence around the cliffs, so that people don't fall in”. Well, it's public health that keeps people from falling into the water, but no matter how good our health care system is, unless we do a better job of that, the demand and expenses are just going to keep on increasing over time.

Â (1200)

Mr. Monte Solberg: Time is very short, so I'm going to have to just skip along here and ask as many questions as I can.

I'll just go to the Brewers Association. I'm interested in your presentation and am wondering if you are advocating that barley be removed from the Canadian Wheat Board, so that you can go ahead and make contracts on your own with growers as you see fit. That seems to be a problem. Is that something you're advocating?

Ms. Margo Dewar: No.

Our submission is based on recognizing the market as it is today, including the reality of the Canadian Wheat Board. This has no reference at all to the Canadian Wheat Board, in fact, but is strictly a crisis management tool for when the Wheat Board has no malting barley to deliver.

Mr. Monte Solberg: You were suggesting that they have their contracts and export a lot of barley, so you may therefore end up being short. At least that's what I gathered from your presentation. Is this not also an option, though, so you may go ahead and make your own contracts, and you won't have to worry about depending on the board?

Ms. Margo Dewar: Well, it's a true situation that if there were no Canadian Wheat Board controlling supply, the risk management tools you would normally have in terms of acquiring your necessary inputs would be there. They're not.

We don't expect that anything dramatic is going to change in terms of the Wheat Board's mandate, so where we're at is looking at how we deal with that reality.

Mr. Monte Solberg: Mrs. Potter, I'm just curious about the tax credit proposal being used in the U.S., and I would like to learn more about it. Time probably doesn't permit this right now, but if you could say a word on it....

Before we get to that point, I'm also just wondering to what degree capital gains taxes impede the ability of people to build apartment buildings in the numbers ultimately necessary to ensure there is affordable housing in Canada. It is my understanding that has been a real problem: if somebody wants to build an apartment building, it's very difficult to sell it again because of capital gains. For obvious reasons, you end up taking a big hit in capital gains.

Is that something you're advocating, that you perhaps would allow the rollover of a capital gain, so that it could go into the investment of more rental housing?

Mrs. Joyce Potter: Mr. Solberg, thank you for the question. I'll discuss your second question first, and perhaps Ms. Chisholm can deal with the tax credit issue, which she knows more about than I do.

Many advocates have been looking for changes to the capital cost allowance system with respect to housing. In fact, a number of people would like to see us go back to the kinds of tax regimes that were in place a number of years ago, when there was a greater stimulus to the private sector to produce more housing.

Because we are particularly concerned with production of affordable housing, one of the cautions we have is that if you just produce more and more rental housing, it doesn't necessarily serve the people we think are in greatest need. It doesn't help those families being raised in shelters to move out of those shelters into affordable housing. So some of the data we have shown in our brief indicates there's a real dearth of housing at the affordable rental levels, and less so at average or higher market rents.

Other than a very targeted proposal, changes to the tax system really deal more broadly with trying to generate more housing, and not necessarily affordable housing.

I'll ask Ms. Chisholm to deal specifically with the tax credit matter.

Ms. Sharon Chisholm (Executive Director, Canadian Housing and Renewal Association): I think you've covered it somewhat, Joyce.

We're just beginning to investigate tax credit proposals, and would like to do a lot more work on them.

In the States, they've been able to use tax credits productively to target housing to certain neighbourhoods needing improvement. This has allowed them to bring more partners to the work of doing affordable housing; they brought in private sector partners, who worked together with community groups and others to make sure affordable housing is built in some communities. I think it's been helpful and successful in broadening the constituency of support for developing affordable housing.

In Canada, we're looking at a couple of different measures. One of them would be to do targeted tax credits, which would not be broad-based, but would target certain communities and certain kinds of housing to ensure that the benefits went to low-income households.

The other investment vehicle we're looking at is where ordinary Canadians could invest, as they do with labour-sponsored funds, or whatever, in a fund that would have a guaranteed rate of return. There would perhaps be some kind of tax benefit to them, as there are with our RRSPs. Those funds would be made available to affordable housing producers at a rate that would generally be lower than the market mortgage rate.

Â (1205)

Mr. Monte Solberg: I see.

The Chair: Thank you both.

Madame Picard.

[Translation]

Ms. Pauline Picard (Drummond, BQ): Thank you, Madam Chair.

I would like to congratulate all the witnesses on the quality of their briefs. I found your contributions very interesting. I congratulate you all.

I would like to ask everyone questions, but unfortunately there isn't enough time. I'm going to start with the Brewers Association of Canada.

You're asking that the Department of Finance eliminate the tariff quota on barley and barley derivatives. I would like to know your reaction to the fact that the federal government is preparing to grant tax cuts of $240 million to the large oil companies and at the same time is closing the door to the microbreweries which manufacture local products, thus preventing them from being competitive in other markets. They're simply requesting a reduction or elimination of the excise tax.

What, in your opinion, will be the government's response to your request to eliminate the tariff quota? It's closing the door to micro-breweries. I know that you may have trouble responding to certain aspects of the question because there appears to be a conflict between the Brewers Association of Canada and the Association des microbrasseries du Québec. Whatever the case may be, I would like to have your reaction on the subject.

Mr. Pierre Paquette: People drink all kinds of beer.

Ms. Pauline Picard: Yes.

[English]

The Chair: Madam Dewar.

Ms. Margo Dewar: Madame Picard, I'm uncertain of the direction of your question. There is no conflict between the Brewers Association of Canada and the small brewers. On the issue of excise taxation, the two organizations are aligned.

On the removal of the tariff, this is not a revenue issue for the federal government at the moment, because in a normal situation, those tariffs are not imposed. If they were to be imposed, they would be imposed on both the large and small brewers, or any brewer who had to import to meet input requirements.

In summary, I don't understand how there is a perception that there is a conflict between our large members and our small members.

[Translation]

Ms. Pauline Picard: Thank you. I'd like to ask Mr. Martin the same question.

The government is preparing to grant the large oil companies tax cuts of $240 million. How do you react to that, in view of your positions and the existence of the Kyoto Accord?

[English]

The Chair: Mr. Martin, please.

Mr. David Martin: Thank you.

I should refer you to a presentation that will be coming from the Green Budget Coalition. There are about 20 members of that coalition, including the Sierra Club of Canada, who have put forward a position opposing subsidies both for fossil fuels and nuclear power, suggesting that those funds could be redirected more productively to green energy sources, such as renewable energy and efficiency. But I'll defer on the specifics of fossil subsidies to my colleagues.

Â (1210)

[Translation]

Ms. Pauline Picard: So you're opposed to Bill C-48, which is currently being debated in the House of Commons and grants the major oil companies tax cuts of $240 million. Those companies previously obtained a tax credit of $140 million. Are you opposed to that?

[English]

Mr. David Martin: Yes.

[Translation]

Ms. Pauline Picard: Thank you. I'd like to ask Mrs. Potter a question. Something isn't clear. I'm not talking about your testimony.

On the one hand, there's the federal affordable housing creation program and, on the other, new housing is being built. The public doesn't know where to turn.

I'd like to know the difference between the programs. What does the affordable housing program represent for you? What permits this program? What are the public's current needs for new housing creation?

Mrs. Joyce Potter: I believe that most of the Canadian public is well served by the private housing market.

The situation is tough for people who can't afford to pay average rents or rents that are greater than 30% of their incomes. That's an important indicator for us. However, if a family or individual does not spend more than 30% of income on housing, we feel they are well served by the private market.

Ms. Pauline Picard: Is there enough affordable housing right now? We know that new housing is constantly being built for the public as a whole. In my region, for example, they don't stop building; housing construction records are being beaten.

However, is enough housing being built for the poorest citizens? From what I know, affordable housing is often run down housing that's being renovated. Under the government program, owners receive a grant to renovate their housing and to rent it for a certain time to people who are receiving income security benefits.

Then, once that period is over, they can rent it to other individuals who have higher incomes. I've been told that that's the problem. We need new housing for low-income families. That's what's lacking.

Mrs. Joyce Potter: When we look at the numbers, we see that many people live in suitable housing but have to spend too large a portion of their income on their rent.

Others live in terrible conditions. The situation requires that a lot more renovations be done. However, that depends on the communities. In some villages and towns, a lot of housing is available, but at too high a price. In other cities and towns, there's a general lack of housing, regardless of price. So it depends on the communities.

But we've looked at the numbers, and, to meet the needs of the Canadian population, 25,000 new housing units must be built each year.

Â (1215)

Ms. Pauline Picard: That's not a lot.

Mrs. Joyce Potter: Indeed.

The Chair: Mr. Discepola, over to you.

[English]

Mr. Nick Discepola: Thank you, Madam Chair.

I have three questions, and maybe I'll just continue with Ms. Potter while we're on the subject.

Some stakeholders in my riding made a suggestion, and I want to pass it by you and your group and have your comments on whether you think it could stimulate more rental housing, affordable or not. Also, I'd like your opinion as to whether some of these rent controls that exist in quite a few provinces are beneficial or whether they're an impediment to the creation of more rental housing.

The suggestion that was made was that maybe what the government should do is either forgo the GST revenues--or PST, as in my home province of Quebec--on new affordable housing, for example, or defer the payment of that over say ten years. I'm wondering if that kind of stimulus would be beneficial or not.

Mrs. Joyce Potter: Thank you very much for the question.

I think it's fair to say anything that reduces the capital cost of housing is beneficial. Therefore, reduction or elimination of the GST and the PST would be beneficial. But in and of itself, it certainly would not be sufficient to produce housing that is affordable for the people we think are most in need. So it is one measure that could be packaged with a series of things, but in and of itself it would not solve the whole issue.

With respect to rent controls, it's a very controversial matter. I think there are a number of opinions, and I'm not sure whether our association has an opinion. Ms. Chisholm may correct me if I'm speaking out of turn.

My own personal opinion, as someone who has been involved with housing for many years, is that rent controls can be problematic for allowing the normal private market to function as it should.

As I was indicating earlier, the majority of Canadians are well served in their housing needs by the private market, so there's no need for us to get in the way of that market functioning in that fashion. The real need is for us to provide assistance for the people who are not well served by the private market. In my view, rent controls don't assist in that fashion.

Mr. Nick Discepola: Thank you.

For the Railway Association of Canada, on the question of cost allowance, I tried to ask the question and get clarification in the earlier panel. In your case, I think I know the advantage of accelerated cost allowance, because most of your equipment is leased; therefore, the leasing company factors in the lease rates based on how quickly they can amortize their asset over the period of time. So I see the benefit to you, but in general, I don't see a benefit to someone or a business to be able to write off an asset over five years versus eight years.

In the early stages, for example, of start-up companies, writing those assets off means that they normally lose...their balance sheet is obviously lower and their profitability is often lower, because they have an extra expense--and it's a quasi-intangible expense. I mean, when I saw it on my books, I had $24,000, $30,000 in depreciation expenses, but when I looked in the bank, I didn't have $20,000, $30,000 more.

It's become almost an obsession, because many groups have asked for it. I think the recommendation we made last year will probably be reinforced this year. But what competitive disadvantages do people have in not being able to have the same write-off rates as in the United States?

Mr. John Lynch: That's a very good question. I think ultimately what it boils down to is cashflow. Speaking for the railway sector, the railway sector is very capital-intensive, and if less income tax is paid, less cashflow is deferred, and that cash can be used to invest in equipment, basically.

So it's really a cashflow issue.

Â (1220)

Mr. Nick Discepola: But it's really accelerated, so you benefit from that over a shorter period of time.

Mr. John Lynch: Right.

It may vary from industry to industry, but for an industry like the railway sector, which is very capital-intensive, the deferral of income taxes can last quite a few years, so there's really quite a cashflow benefit.

Mr. Nick Discepola: Thank you.

For the Canadian Public Health Association, I just want to clarify one thing Mr. Solberg stated. The last agreement the Prime Minister had with the provinces on health care funding was a commitment to refund to the tune of $3 billion, but it was conditional upon the projected surplus of x amount, including the contingency reserve. So the figure Mr. Solberg used of $2 billion is more like $5 billion. I think your conditions for the success of comprehensive legislative reform, accountability, sustained funding, and the spirit of collaboration are bang on.

My assessment is that we can probably only achieve one or two of them as a federal government, because when we talk about accountability and we're given ideas for direct funding in certain areas, it's perceived by the provinces as if big brother, the federal government, is imposing restrictions on their ability to deliver. In certain areas they're probably correct. Certain priority areas, such as health care funding for seniors, in one province may not be the same as for another province because the demographics may be different.

I don't see the spirit of collaboration that is required. It seems to me there's always a confrontational attitude when dealing with the provinces. The best example is that I think the provinces won the communication war in the last series of negotiations. If you talk to anybody in my riding, they'll tell you the federal government only contributes 14%, because they won that war, despite the fact that we know it's substantially different.

What can the federal government do to get that accountability? It's not accountability in the form of saying that we're going to watch you, mark you, and rate you on a report card. It's more that Canadians want to know where their tax dollars are going. Several years of trying to inject more funds doesn't seem to be solving the problem. We need transparency, accountability, and collaboration, as you say, but I don't know how to go about doing it. Do you have any suggestions?

Ms. Christina Mills: I think those governments will also be hearing from their constituents. I think Canadians generally have had enough of jurisdictional turf wars. They just want things to be better, and I think they're giving the message to their elected representatives at all levels. We're asking the federal government to use the powers and resources it has as levers for change.

I haven't seen the actual report yet, but I heard on CBC this morning that the Conference Board of Canada report is saying that the federal government is projecting surpluses for the next twenty years, and the provinces are projecting deficits. That's an opportunity for leadership right there. It also shows that if we're looking at something as foundational to Canadian society as the public health system, there has to be a strong contribution from the federal government for it. But it can't go into that morass of health care, because health care can just suck up money endlessly. It has to be targeted specifically to public health capacity.

Mr. Nick Discepola: So you would reinforce the accountability factor in there.

Ms. Christina Mills: We'd certainly need to have negotiation and discussion about the mechanisms for that in a collaborative manner. I think we encourage collaboration by being collaborative.

Mr. Nick Discepola: On November 3 we'll probably find out a bit more, when the minister presents his economic update. But in response to Mr. Solberg's question, what is the federal government to do, and what should we recommend to the minister if he can't meet his $3 billion commitment to the provinces? Do you think it's important and urgent enough that we should create either a $1 billion or $2 billion deficit this year, or should we absolutely and categorically maintain a balanced budget, even if it means not meeting that commitment?

Â (1225)

Ms. Christina Mills: Since I'm not familiar with the other centres that are competing with it, I can't really comment on that. Sometimes we can create a false dichotomy when we're looking at something that is a strategic investment, and we know that if we don't invest now we're going to be paying much more down the line. Then it would be shortsighted to trade it off because of a consideration that is a temporary situation.

You can fill the house with buckets to catch the water from a leaky roof, but eventually you have to fix the roof. We saw that with SARS, and we'll be seeing it again and again.

The Chair: Thank you very much.

On behalf of my colleagues who are in the House doing a budget bill, and those who have been in and out here today, I thank you very much for not only getting your briefs in so we could translate and distribute them to all the members, but for being here today and answering our questions.

With that, we are adjourned.