We'll call the meeting to order.
We want to thank the witnesses for coming forward. Pursuant to Standing Order 108(2), we are studying direct assistance measures and the fiscal environment for the forestry and manufacturing sectors, so it's great to have you here with us to be able to share your input with regard to that.
I believe we have short statements from two or maybe three of you. We'll open with your short statements, and then we'll go into a question and answer period and process.
Just to let the committee know, I'll be leaving the committee for a short half-hour and we will have the deputy chair take my place for that period of time. I know everything will go fine during that period of time, so don't be alarmed.
At any rate, with that we will start.
Mr. Avrim Lazar, you will go first, and then we'll go to Jayson Myers and Pierre Laliberté. It's great to have all three of you here.
It's good to start in the forest and work our way into the industrial heartland as we head across the table.
First of all, thank you for inviting us. We know how busy you are, and your interest in this is very important to us.
As you know, the Canadian forest industry is the largest, most successful forest product exporting industry in the world; and we're Canada's largest industrial employer, the largest employer of aboriginal people, and the lifeblood of 300 communities. Even though we've lost 12,000 positions over the last year, we still have 300,000 people directly employed. So we're not quite gone. In fact, we are the largest industrial employer.
You all know we're suffering under very difficult circumstance—the U.S. housing decline, the huge rise in the dollar, the softwood export quotas and tariffs—and I suppose that's why you wanted to chat with us.
The question, no doubt, that is in the front of everyone's mind is, can anything be done about this? The answer is yes, and it requires action from three quarters.
We have to depend most upon markets; the markets have to come back, and the indication is that they will. The demand for forest products globally is increasing very quickly. The U.S. will get through what Warren Buffett calls a recession, though I don't think the Fed has called it a recession yet. But the markets will eventually come back; there will be markets, and we will be in a very privileged position to respond to demand from those markets. Our competitors are having land use conflicts. There will be huge demand for what we make in Canada, so the future, in terms of markets, is very positive.
The second thing we need is to be competitive, and that's industry's job. We have to be top-of-the-world competitive. Our softwood industry in the interior of British Columbia is the most efficient in the world; it is Canada's productivity champion. We've improved our productivity twice as much as the U.S. has each year. And now our pulp and paper facilities are catching up. The number of newsprint facilities in the top global quartile in competitiveness has doubled over the last couple of years. So there've been huge improvements, and the industry is working really hard to get itself to a place where it is competitive.
I can't say it's been a pretty process. It's involved rationalization, it's involved dislocation, it's involved layoffs and people having very, very painful times; but it's worth remembering that it is resulting in much better cost competitiveness and much more sustainable jobs as we go forward.
So the first bit is that markets will come back. And we're working hard at competitiveness, if not in a pretty way. The third piece is a competitive business climate, and there is where your role as government comes in. You can't fix this for us, but you certainly can play your part.
We don't want subsidies; we don't want bailouts. You don't have enough money to fix it this way, and long experience will tell everybody that it simply doesn't work that way. We don't want you to choose one company that's faltering, save them, and have another company that's doing well falter as a result. So no bailouts, no subsidies.
But there is stuff you can do that's positive and constructive. You can attract investment into Canadian mills, and that's why we've been favouring a five-year straight-line extension of the CCA two-year writedown. That costs nothing unless people invest in Canadian mills. Any other tax measures benefit people regardless of whether they invest in Canada. But that measure only—only—takes effect if people do exactly what we need, which is to invest in Canadian mills. That's why we've been hoping that eventually the extension to three years will be made into an extension for five years.
The other thing you can do is to make the tax credits for R and D refundable, so that when companies are in trouble they have access to those tax credits. Right now, you only have access when you're profitable. When you really need access to those credits is when you're not profitable. We don't want people to try to get out of trouble by asking for government handouts, but we want them to innovate their way out trouble. Refundable tax credits for R and D do exactly that. Again, they don't cost anyone a penny unless Canadian enterprises invest in research and technology. It's a very, very highly leveraged measure. I know it can be expensive, but it could easily be capped.
The other things government can do are to invest more in research and our research institutes—right now in Canada we invest less than our competitors do—and to invest more in market diversification and in telling Canada's story outside of the country.
The last budget pointed in some of these directions. The CCA was extended by one year. In the next two years a phase-out will basically take that back, so it will be an eight-year writeoff instead of a two-year writeoff. So in effect, it's been a one-year extension. We recognize that and appreciate it, but frankly, the capital planning cycles are such that people would have to move at a speed that is just not practical to take big advantage of that.
There was $10 million for market outreach; that's a pretty small number for Canada's largest industrial employer. We're very grateful for it, but we don't think it went as far as the government could do; it was quite a bit less than what was given to the Olympic torch relay. Quite a few of my members called and said, come on, Avrim. So it was a good gesture, but we also know this is not the end of the government's actions; the government has done many, many positive things in the past, and we're looking forward to many, many positive things in the future.
I'll leave it at that. Thank you.
Thank you very much, Mr. Chair, and thank you, members of the committee, for inviting us here today to speak on such an important issue.
As Avrim was saying, we're representing a sector of the economy that is really the most productive, the most innovative, the sector that is at the edge of international competition and may be today paying the price for that because of the impact of the Canadian dollar.
This is the manufacturing sector in Canada, the forestry sector. This is the source of high-paying jobs within the sector, and across manufacturing there are two million people still employed. But we often forget how dependent the high-value and high-paying services jobs are on manufacturing--whether it's transportation, communications, financial services, business services, you name it--and in the resource sector, how much that depends on adding value to our resources, to our skills, to the R and D that we do in this country.
This sector is at risk. We all know we're facing tremendous challenges from newly industrializing markets. We all know we have to specialize. We all know we have to become much more customized, much more responsive, much more innovative. Canadian companies are being forced to do all of that at a time when the value of the Canadian dollar has risen 66% against that of its major trading partner. It's the only manufacturing sector anywhere in the world that is putting up with these currency fluctuations at the same time as it has to respond to the longer-term competitiveness issue in the economy, at a time when commodity and energy prices are coming up and both of those factors are constraining profitability.
In an average eight-hour production shift at the end of last year, it took manufacturers seven hours and fifty-four minutes on average across the country to cover operating costs, pay their taxes, cover depreciation costs, and then pay their financial charges. They had six minutes to make money--six minutes out of every eight-hour production shift--and that's the money that goes into the new product, the new market, the new training, the new organization that everybody knows they have to invest in in order to continue to grow. The biggest problem right now is cashflow in the industry. It's the cashflow that's constraining investment in research, that's constraining investment in new productive assets, that's constraining investment in R and D.
The recommendations that were put forward by the industry committee of the House of Commons and were unanimously accepted by that committee and unanimously supported by this committee went some way in offsetting those cashflow constraints. That's why they were so necessary. We have made the point that the corporate tax rate reductions that the government has introduced have been very important. This gets you in the game. But right now, given the condition of the cashflow, the condition of our key value-adding sectors, you need much more in order to compete in a game where countries around the world are subsidizing; providing tax incentives; investing directly in skills, in innovation, and in productive assets--assets that actually produce things of greater value.
So the recommendations--the five-year extension of the window of eligibility for a two-year CCA, the tax credit for employer training, the refundability of R and D credits--were important because they were incentives to encourage manufacturers to invest in innovation, in productive assets, in skills. And I think that is still essential if we're going to remain in the game. As Avrim was saying, the five-year window of eligibility for the two-year writeoff was particularly needed, just in order to give companies the time required to make a decision about investing in new technology--getting the technology, customizing it, having it delivered, and putting it in place. All of this has to be done before a company can take advantage of the streamlined writeoff. These were important issues.
To conclude, I agree with Avrim that government can't solve the economic problems that the manufacturing sector is facing. They can't do anything about China. They can't do anything about the faltering U.S. economy. They can't do anything to bolster the U.S. dollar. The onus falls on manufacturers and businesses themselves to make these decisions on competitive adjustment. But governments can do a lot to create the business environment that encourages investment in productive assets, innovation, and skills. That's essential if we're going to continue to build the world-class competitive manufacturing sector that we need to build in this country.
Good afternoon. Thank you for this invitation. It was significant enough for us to brave the storm and travel here today. Obviously, this is not the first time we are appearing before you, and there is a feeling of déjà vu. That in itself is not necessarily good news.
To summarize the severity of the problem, during this period of global growth, Canada lost 350,000 jobs in the manufacturing sector, of which 140,000 jobs were lost in Quebec alone: this is of great concern to the FTQ. The situation in Quebec has changed radically. To illustrate the importance of the change in the manufacturing sector, the province of Quebec once recorded a trade surplus of $9 billion, and is now running a deficit of $10 billion. The manufacturing sector provides for 85% of exports leaving Quebec. This is not minor. Often, it is said that we are now in a service-based economy, and that the manufacturing sector, or even the natural resources sector, are part of the old economy. However, as is reflected in annual reports, it can be shown that it is within the manufacturing sector where we are on the winning side of commercial exchange with our economic partners. Therefore, this is a major concern, not only for the people we represent, but for society as a whole.
The appreciation in the value of the Canadian dollar is a major factor, and increases the competitive pressure under which our businesses operate. Some say that this is not so bad because such a situation provides for business incentives and the possibility of upgrading technological equipment in Quebec and throughout Canada. In Quebec, we observed that capital expenditures in the manufacturing sectors for 2007 hit record lows since 1994. In comparison with the peak cycle, this represents a rather considerable decline of 40% since 2001. Generally speaking, the investment we would like to see in equipment is not necessarily being made. This does not mean that this is consistent throughout all sectors, but generally speaking, and in actual fact, investment in capital and equipment is simply not being made.
As we speak, the problem in Canada is that we tend to generalize. People say that unemployment rates are not so bad. Overall figures on investments lead some to believe that things are not so bad. Presumptions are being extended as a result of what is going on in the resource sector, mainly the oil and gas sector, and even the construction sector.
I wanted to provide you with that context and state that we are here again today because the problem remains ongoing. We are now facing a looming recession in the United States which could have a domino effect on other economies, including ours, since the U.S. is our main trading partner. This is not a particularly rosy outlook.
What can we do from a tax perspective? From the outset, I would say that I personally am in full agreement with Mr. Lazar and Mr. Myers. Their comments on capital cost allowances and refundable tax credits are absolutely relevant. The same applies to investments in research and development. We believe all of these must be enhanced. In that regard, the status quo is worrisome.
For several years now, Canadian exports have been increasingly comprised of non-processed products. Yet, up until the early part of this century, value-added products had been consistently increasing throughout the country. I firmly believe that we must take advantage of the lead that resulted from the resource sector boom and allocate a portion of the revenues being generated by this economic activity to help sectors that are under pressure.
The focus is truly on the issues of value-added products and productivity. It would be more appropriate to take a sectoral approach, given the respective histories and dynamics of each sector. I think we all subscribe to this idea.
We wish to emphasize two or three points. Obviously, there is the issue of training. Employers are the first to state that there is a shortage of skilled workers, and if the shortage is not evident yet, it soon will be. We have noted with some concern the proposals to open the doors to temporary workers, whereas there are many workers who are under-utilized, and who worked in now defunct industries. These very people could be trained for other jobs and trades. Yet, the money is not there. It is as simple as that.
Right now, under the provisions of the Employment Insurance Program, the federal government could invest almost one billion additional dollars to be distributed to the provinces for the purposes of training. Let us recall that we have been running a $2 or $3 billion surplus for several years now. This is not a trivial issue. For example, a mine in the area of Level-sur-Quévillon is bringing in 200 workers from Tunisia, and yet there are 300 forestry workers living in the community, who are more or less unemployed. Aberrations such as these are occurring, and make no sense. We need the resources now, not in five years.
For several years now we have been calling for the strengthening of the Employment Insurance Program. The objective is not to encourage people to wait for a handout. The program was originally conceived to help people in difficulty make a new start. One cannot plan for relocation when one is lacking time and necessary resources. This factor must be taken into consideration. Once again, we are disappointed. We've been calling for measures to be taken for years now. New budgetary surpluses being announced each year prove that we have the means to take action.
Obviously, one component of the problem we are confronting is monetary in nature. We have already had the opportunity to speak briefly on the Canadian dollar. The Bank of Canada slashed rates yesterday, which was the right thing to do. I do not know if this issue falls within the jurisdiction of this committee; however, this topic must be discussed.
Thank you, Mr. Chairman.
Thank you to the witnesses for appearing.
Up until the last comment, I was very pleased to hear you speak, Mr. Laliberté, because you proposed a few solutions. The committee is trying to formulate measures regarding direct assistance and tax measures to be recommended to the Minister of Finance. Two other people have raised points that we have already heard.
My question is essentially the same one I will also ask of Mr. Myers and Mr. Lazar. It is certain that the challenge, if everyone is placed in the same basket... Even in Quebec, one cannot state that the entire manufacturing sector as a whole is in crisis. For example, the aerospace sector is not experiencing difficulty. We are looking for ways and solutions which will help the sectors that are in most need of aid over the next year. However, we have to earmark this assistance to a given industry or sector for more than a year. Otherwise, we will find ourselves with the same problem the year afterwards.
You talked about staff training. We can invest in training, but we will not see the results of this training for one or two years, depending on the type of training provided. I prefer the solution suggested by Mr. Lazar and Mr. Myers, that is to invest more money in R and D and provide businesses with refundable credits. This is a very positive measure.
What can we do immediately to help industries and businesses in need? People believe that the situation is uniform throughout Quebec, but thas is not true.
You mentioned that the markets will come back. I'm wondering which markets and what regions. Your sector is faced with challenges as well. I don't believe some of those markets will ever come back. You have to correct me if I'm wrong.
Mr. Myers, it's the same thing. I think you have a challenge where certain industries in central Canada are doing well and some are tied to the fact that we're doing quite well in the resource area. But as Mr. Laliberté said, I'm not so sure the solution is to take money from the resource area just because they have money and give it to the people who need money.
I'm looking to you guys for more concrete answers--something we can put on paper. You guys have the solutions. We've already addressed the R and D situation. With the accelerated CCA, I think the government has made one step forward.
You're here today because we're trying to conduct a study on direct assistance and measures. I haven't really heard that, other than building skills. I think that is going to be more of a long-term solution than a short-term solution.
Thank you, Mr. Chairman.
Thank you for accepting to appear before this committee again one and a half weeks following the tabling of the budget. You could have had the option of saying that we never listened to you well enough the first time, that you had done your job, and that you were tired of repeating the same message to people who were not listening. But instead, you decided to come back and continue trying to convince us.
I'd like to digress briefly. For us, direct assistance is not necessarily synonymous with subsidies. There are forms of direct assistance, such as Technology Partnerships Canada, among others. The debate is not about that.
If the government does not react to the additional demands being made, what type of impact will this have in the future? In a news release issued yesterday, the Bank of Canada stated, and I quote:
At the same time, there are clear signs that the U.S. economy is likely to experience a deeper and more prolonged slowdown than had been projected in January [...] These developments suggest that important downside risks to Canada's economic outlook that were identified in the NPRU are materializing and, in some respects, intensifying.
These are the words of the same people who, three or four months ago, were saying that there was no problem. This shows me that a catastrophe is in the making if the government does not do its utmost. I believe that we should have invested a portion of this year's surplus, among other measures. Please tell us if you have anything to add with respect to this issue.
On the other hand, what will the consequences be if we do not have a more robust and aggressive action plan to assist the manufacturing and forestry sectors?
I think, first of all, the half percentage point cut we saw in the Bank of Canada rate yesterday was probably a good indication of looking ahead and thinking, things don't look too good. Four or five months from now, demand in the U.S. economy is expected to be very weak, and our key export markets are already in recession.
But I'll respond to your question and build on the previous question. There are new opportunities in western Canada for manufacturers in Quebec, Ontario, and across the country to take advantage of the development of energy resources and infrastructure spending in western Canada and in energy markets in the United States. There are new markets. The global economy, even with the downturn in the U.S., is growing by six Canadas a year. There are a lot of business opportunities. But in order to take advantage of those opportunities, companies have to invest in new products, in market development capabilities, in new skills, and so forth.
When we're looking at targeted investment measures, or targeted measures to assist here, I think we need to change the terms of the debate. We shouldn't be subsidizing companies. What we should be doing is looking at those measures that encourage investment in some very significant areas, like productive assets. There's a difference between store shelving and equipment. Store shelving is an asset that actually gets better CCA treatment than equipment, without the two-year writeoff. Equipment produces things. Manufacturing technologies produce things of greater value; they should be more important than other assets.
Skills development is an important investment. Innovation is an important investment. Wherever companies are selling, whether it's in the United States, in other markets, or in western Canada, they're going to be successful because they're specialized and because they're innovative. These are the key investments that we should be making in order to assist those companies make the adjustments they have to make, because the business world is very different today. I think that's where we really should be focusing our measures.
If you want specifics, apart from the ones that we've been giving, consider investments in research establishments that focus on transferring research to industrial applications. Industrial innovation is important. Manufacturers bring 80% of the new products to market. We invest billions of dollars in the research. Why don't we assist in connecting that research to the industrial applications, the solutions, that businesses are trying to bring to the market? Without those linkages, it's very easy, frankly, for the Americans, the Chinese, the Japanese, and the Europeans to step in.
We are asking our businesses to take action with very little leeway. As was said earlier, it takes seven hours and 54 minutes for them to barely cover their costs. This statistic is most appropriate. Businesses perhaps need exactly that kind of leeway.
I agree with the general philosophy that is emerging here. We must help our businesses become more innovative, and competitive, and not unduly hand out subsidies to lost causes. I think everybody agrees on this.
I think we also have to see if there are not other tools available right now. Some of our trading partners comply with the rules, others do not. For several years, we have been pointing out that some sectors deserve safeguard measures. For example, as we speak, in Montreal, not very far from the FTQ headquarters, 600 female workers at Golden Brand are being laid off. They will be losing their jobs in a matter of weeks.
Generally speaking, the government could have shown more willpower to protect these rights. This does not mean that we need to protect the garment and textile industry indefinitely and forever, but we could have given the manufacturing sector a chance to retool itself and carry on with business. From this point of view, we are not entering the market with equal weaponry. This is obvious. Monetary and trade policies are also important factors.
Thank you, Mr. Chair, I appreciate that.
Mr. Myers, I appreciated your presentation. I just have a couple of things I want to talk to you about.
In Advantage Canada, I've gone around and made a lot of presentations, and one of the things I've talked about is the need for the government to create the proper environment for business to flourish. I really think that's government's role. You've mentioned specific targeted initiatives, targeted investments that governments should make. I think we're making those. I think they're the right thing to do as well, in particular if you want to encourage investment into new machinery and technology and keep Canada on the cutting edge so we can compete.
Advantage Canada speaks of five different measures. So with the knowledge advantage, certainly manufacturing and industry has to appreciate the amount of money the government is investing into post-secondary and trades: a 40% increase in last year's budget, a further inflationary increase this year, plus new grants and loans to help students and help train people. With the infrastructure advantage, obviously we've brought forward Building Canada, a $33 billion fund; we're talking about things like the new Windsor-Detroit crossing, which is critically important for manufacturing. With the tax advantage, we've already talked about moving to the lowest corporate tax rates in the G7, a 15% total tax; we've brought forward accelerated CCA rates for manufacturing, and we've extended that. With the entrepreneurial advantage, we're looking at trying to reduce the burden on business. Certainly as a person who was in small business, employing about 20 people, I know what it's like to meet a payroll and I know what it's like to have to put up with bureaucratic red tape. And of course we're working to pay off debt.
Specifically I wanted to speak to you about a couple of issues. First of all, I assume you're aware that yesterday--and I would argue that this plan is making real progress--we had a very significant announcement from ALCOA of a $1.2 billion funding for operations in Baie Comeau, Quebec. It will create 7,000 new jobs. Obviously we know that will have an exponential effect on spinoff jobs in Quebec. I'm very excited about that.
It seems to me that the environmental changes we're making are working in attracting investment. Do you agree with that?
I think, giving full credit to the government for lowering the corporate tax rate, introducing the two-year writeoff last year in the budget, making the commitment to improve regulations to invest in infrastructure and the borders, and investing in R and D and schools and things like that--these are all extremely important things. Are there things that could be done better? Sure. Often this isn't an issue of funding; it's an issue of actually getting it done and connecting the dots and making sure that research gets into the hands of industry. That's not a fiscal issue; it's an issue with how the programs are implemented.
Going to the CCA issue, there's one particular issue at play here. I think we all have to realize that when Finance talks about CCA, its fundamental idea is that the depreciation, the capital cost allowance, should mirror the useful life of the asset. I don't think that's right and I think it distorts business decisions. On average, a company will get a return on the investment to cover the cost of an asset from a particular product line in about three years. Really what we're talking about here is not on the tax side, not government redirecting revenue to provide a benefit; it's just taking less money away from business. It's leaving money in the hands of the businesses that can spend it best. So I think the idea of the useful life of an asset is a good model; it extends the writeoff period to a time far beyond the financial payback the company itself sees. So there are some fundamental policy problems here. The five-year window was very, very important, just to ensure that the two-year writeoff works.
It's a great announcement about ALCOA. We have other investments that are coming in. I would guarantee, though, that ALCOA will not be able to use the two-year writeoff. I think we need to--
That's excellent. We have about 900 companies from across the country coming out to do business in Alberta.
When you look at the issue of interprovincial trade, I think it's a good case study of what we have to do to remove some of these cross-border issues.
Some companies cannot install equipment—they can't use welders from Ontario, Quebec, Atlantic Canada, anywhere outside Alberta, to work in Alberta itself, because of compulsory certification in Alberta. There are transportation regulations that impede the movement of trucks across the country. Because of the lack of mutual recognition of product standards, you can't manufacture outside Alberta to go into Alberta, without going through more regulatory red tape. If you're trying to operate competitively across the country, this doesn't make a lot of sense.
When you're out there, ask about some of the difficulties. It's a great case study to identify these interprovincial trade barriers, and we should be working together to eliminate them.
...do its part. You are right, this falls largely under provincial jurisdiction and is indeed a responsibility of the minister. The situation is being turned upside down in communities, and is yet another concern that is being added to the ones we are talking about.
Mr. Laliberté, Mr. Myers, and Mr. Lazar, in light of the difficulties we are aware of, I would like to know if there are any innovative ideas that are being studied using available resources. For example, I can think of different technologies which are currently being developed and some which are being used. There is the SilvaGas process that is used in the United States, but there are others which are being developed, using forestry biomass energy to replace combustible energy. We are trying to come up with a form of energy that could be used and transported, given the fact that roads, bridges, and human resources are already in place. If a factory can no longer be used as a mill, it can perhaps be retrofitted and used for different purposes.
Have you looked into that?
The use of ecoENERGY and the general approach to biorefineries--thinking of a tree as a source of all sorts of chemicals--is something we've been working on quite aggressively.
There are two things that can be done right now that would speed that progress. One is the government's ecoENERGY renewable initiative for renewable power. The government did a very good job of extending it from wind to biomass. That's helped mills move to renewable energy and stay competitive. That fund is almost empty. It's a great program, but it's going to be useless in a couple of months because it's empty.
If that were refurbished with more cash, it would help more mills switch over to renewable energy. There is no problem with countervail, it improves our greenhouse gas performance, and it makes us more competitive. That is something that can be done right now--I don't know if any of those guys are listening--with a cash infusion into what is a brilliant program, which you guys created, that is now oversubscribed.
A second thing could be done right now to help move to a better use of bioenergy or the biological capacity of trees. Our Canadian Forest Innovation Council is doing research on how to extract not just more energy but more biochemicals from the trees we have in order to get more value from every tree cut down. Some contribution from the federal government to that institute would make a big difference.
Finally, and this is quite interesting, they have technology, which they have already developed, that some of the companies are not adopting because they are in such desperate shape that they don't have any receptor capacity. So funding extension workers from the institute who would go out and help companies understand and use this new technology would be very useful.
None of these are hugely expensive. All of them could be done today or tomorrow. None are anti-competitive. They are all pro-competitive, and all would make an impact.
Advantage Canada is fabulous. It's just too slow. Finance has it right in its direction. Your government has it right in its direction. But what we're facing is a marketplace that's moving much faster than Advantage Canada is. We're in a terrible global bloodbath in which everybody is trying to take everybody else's job. And now our largest customer is heading to a recession. Our currency relative to our largest customer has gone up 36%. And we're moving at a measured pace towards the right place, but we have to go faster. It's not that you're doing the wrong thing; you're doing too little of it.
The Finance officials who are saying that we're going to be insulated, that it's all going to be fine, are depending on the petro-dollar, and that's not a good place for a country to go. Let's enjoy every penny we can get from oil and gas, but let's not become completely dependent on it. That's a fundamental economic mistake.
We're saying yes to Advantage Canada, but we're saying yes, please, let's get at it at a much faster pace. Let's not pretend that we are insulated. Let's not pretend that our current well-being is our birthright. Let's realize that, just as industry has to work really hard and fast to adapt to a high dollar, the government's business climate policy has to work just as hard and just as fast.
When we close a mill and put all these people out of work, we want to see you doing something just as painful to government finances. There's no way for us to sit still, wait, and hope that we can do it at a slow pace. We've been suffering pain and working really hard. You're doing the right thing, you're just doing it as if the world was unfolding at a stately pace. And it's moving at a vicious pace.
To follow up on that point, I might say that the federal civil service under the Liberals moved at lightning pace compared to the glacial pace we've been observing recently.
That was meant to be a lighthearted comment.
I thank you all for being here. My apologies for being a little late. It was partly because I went to the wrong room.
I would like to start off with the issue of the capital cost allowance. I notice that Mr. Lazar and Mr. Myers both, at or near the top of their list, have been asking for an extension of five years. What the government did was extend it to three years, essentially for 21 more months, and then it looks like it's being phased out.
This is my question. I would have thought, having such a short lead-in time, that it's not always terribly useful, because it takes a lot of time to make plans for these investments. Moreover, I thought the annual cost was in the order of $560 million, and they seem to have budgeted far less, which means that maybe the government itself doesn't think there will be much take-up.
I'd like to ask what your overall view is and how much difference it makes between having this measure in for three years versus five.
The question is for Mr. Laliberté.
Earlier, you expressed agreement on Mr. Lessard's and Mr. Myers' proposed measures to address the problems affecting the manufacturing and forestry industries, particularly for Quebec. In Quebec, the forestry industry is more greatly affected than the manufacturing sector, even though the later is also experiencing problems.
The federal government unveiled a $250 million trust fund to assist the manufacturing and forestry sectors in Quebec. Quebec's share will be $250 million spread over three years; yet in an effort to contain the same crisis, the Government of Quebec invested close to $2 billion in the last years.
Everybody knows there is an urgency. We know it, you are saying it. If nothing is done, things will get worse. Gathering from what everyone is saying today, more must be done. Do you believe that this one billion dollars is enough?
Money that has not been used to pay down the debt is available. The government's intention, as stated in the budget, is to take the $10 billion to service the debt. Indeed, there are financial resources, and we are in a period of crisis.
I'm going to jump right in, because I only have five minutes, and I hope you will be as short as you can in your answers, because I have about four questions.
Jayson, you guys issued a release that really slammed us. I'm not going to pull any punches here. You really took a hard shot at us, saying we weren't doing enough. You called it “Disadvantage Canada”. Mr. Lazar today said Advantage Canada is the right thing to do; it's not moving quickly enough, but he said it's the right thing to do.
You call it “Disadvantage Canada”. Do you disagree with Mr. Lazar's perspective on this?
If I may, we appeared at one of your hearings and we said there is some room for flexibility in where the dollar goes. There is a range within which government can responsibly influence, and as a small, open exporting economy, we should influence it toward the bottom of that range.
I was very happy to hear for the first time, about a month ago, the Minister of Finance talk about a reasonable range. That was a recognition, and the bank seems to be migrating that way too, but there's no doubt the dollar is not a commodity, like pork bellies, that should be treated as if it has nothing to do with the.... It is the very deep structure of the economy.
Manipulating in a way that doesn't reflect the relative productivity of the two economies would be a long-term bad thing to do, but within the range it should be driven as low as is responsible. We've been saying that purchasing parity probably provides a good benchmark, which is more in the 88¢ range than in the 98¢ range.
The housing market in the United States is obviously a major impactor upon your industry, and also in Canada. I'm just reading a report here that has been published by RBC, the Royal Bank of Canada, on home buying intentions, and I wonder if you might comment on it.
The survey has indicated that, as regards people planning to buy a home, those intentions have gone down in the past four weeks, and we're now at the lowest level in Canada in the past 15 years in terms of home buying intentions. That's only going to exacerbate your situation. Is that correct?
Sure, and I can probably do it relatively quickly.
The Competition Bureau reviews applications for companies to merge. Their job is to make certain that merging will not lessen competition in Canada and lead to a rise in prices. Because most of what we do is exported, most of the time they're dealing with a very small part of our activities and, as a result, make us less competitive in global markets.
So we're saying the Competition Bureau should have as a presumption to let the marketplace happen and let the mergers happen, because you have two competing public goods: a theoretical risk that prices will rise, and a demonstrable risk that jobs will be lost. Each time we've had a merger, prices have actually gone down, because our customers are bigger than us and they just turn the screw and take a bit more out of us, so that theoretical threat is actually just theoretical. When we don't merge, when we don't become large enough to compete globally—because, remember, we're selling in foreign markets 80% of what we're making—jobs are lost.
We're thinking the Competition Bureau's mandate is 10 years behind the times, because it doesn't take into account that we are a small, open exporting economy that needs to be able to bulk up to fight all the other bulky competitors in the global marketplace.
I had a breakfast meeting with the mill manager in Dryden a couple of weeks ago. I was so depressed at the end of the meeting, because things were sounding awfully grim, that I decided to pick up the bill.
An hon. member: And for John to do that--wow, it was bad.
Hon. John McKay: Anybody who knows me knows that's an unusual occurrence.
I want to ask Mr. Myers and Mr. Lazar how useful it is to have a finance minister running around the countryside saying, “Don't invest in Ontario.” I can't imagine that does anything for the issues you folks are advocating for.
As far as the international markets are concerned, whether they are financial markets, forestry companies that might wish to invest in Canada, or manufacturing industries that might wish to invest in Ontario, the kind of spitting that's going on can't possibly be regarded as useful. Certainly the finance minister has the prerogative to express his views, but when he expresses his views in such a fashion, it can only put a damper on the investment climate, particularly in Ontario.
Have you had any direct consequence from the finance minister's insensitive commenting?
I guess we've seen the similarities between the federal Liberals and the provincial Liberals, and they both seem to think that raising taxes increases the investment environment. Of course, we know that this isn't a fact.
An hon. member: We'll let you go on.
Mr. Ted Menzies: I do have to apologize to our witnesses that they got caught in this sort of partisan question--
An hon. member: You'd never do that.
Mr. Ted Menzies: I wasn't interrupting when my colleagues were speaking, so I would ask them to....
My point is that the role of the finance minister--now that we've started down that road--is to encourage investment in all of Canada. When he sees a weak point, then it's his job to encourage them--and that's all the finance minister is doing--to get on board with where the rest of the provinces are headed, and that's in lowering corporate taxes to make a stronger argument for you in encouraging investment.
That being said, Avrim, you piqued my interest when you were talking about other uses for wood. Quickly, if you could elaborate on that, where are we at on pine beetle? What are we going to do with all this wood? The forest industry is strapped for cash right now. We realize that. We have a huge forest fire potential coming upon us this year and in the next few years.
Can you please update us on where we are on that?
The pine beetle epidemic is proceeding apace. They've been slowed down a little bit by weather. We don't know where they're going to go or how far, because the specialists in this area have been wrong almost every time. The numbers have exploded to such an extent that what is a very small-probability event of a pine beetle's jumping species or moving geographically becomes almost a certainty when you go from millions to billions.
A lot of that wood is good for pulp; a lot is good for bioenergy. There are programs afoot to do that. The difficulty is that as governments create incentives to use it that way, that also creates distortions in the marketplace that aren't always healthy. For a lot of that wood, the economics of transporting it to an energy plant don't make sense, but sometimes you need to just get it out of there.
So there is nothing simple on this, and it's not the sort of thing that's easily amenable to a federal program. Is it hurting us? Yes, it is. Are we trying to cope? Yes, we are. Will it hurt specific towns badly? Yes, it will.
If there's any lesson in it, it's that investments in research on the impacts of climate change on Canadian forests is well worthwhile, and we should increase our money for adaptation research.
The other lesson in it is the sort of research that's done by our innovation institute. Right now they're working quite hard on new ways to use the beetle wood. That kind of investment would be useful too.
Just to go on the record, we're against the beetle.
Some hon. members: Oh, oh!
I think that's right. We've certainly been in support of value-added taxes as the way to go, rather than embedded taxes. In many cases this is a fixed cost that industry has to pay. That's not the way to run an efficient or effective tax system.
Another set of fixed costs—here's the segue into what I wanted to rephrase—is the user fees charged by government departments. Four years ago the User Fees Act was passed unanimously, supported by this committee. It was a very good piece of legislation.
We are still faced with user fees, without any accountability in terms of the standard of regulation that is enforced by government departments. In some cases this is a monopoly position. I would love to go to the competition commissioner and ask her whether government departments should be charging a fee in a monopoly position, except that if I did that, they would charge me $60,000 for the opinion. This is not an efficient way to run public finance.
The Auditor General, as you may know, is reviewing the User Fees Act and compliance with it. I would urge this committee to work on the Auditor General's report when it becomes public to ensure that all user fees in all departments are in compliance with the User Fees Act and that they are publishing internationally competitive regulatory standards and not charging a fee unless they cannot meet those standards.