On behalf of our 25 student associations across the country, representing over 300,000 students, I want to thank you all for the opportunity to appear before you today and to bring forward our recommendations.
Canada needs more educated people with less debt. Canada recently fell from 8th to 12th place in the rankings of the Global Innovation Index and from 19th to 25th place for investment in human capital and research. This shows that compared with other nations, Canada is not investing enough in higher education and research and development to keep pace. While our outputs are good, other countries are catching up.
CASA believes the government should invest in programs that are working and further invest in those that will complement future success.
By 2017, university and college education will be required for 75% of new jobs. The problem, however, is that the costs of attaining an education are increasing at a dizzying pace, a fact that I know everyone in this room is aware of. Since 1991, the costs of education have more than tripled. In the decade between 2000 and 2010, costs of education increased more than 211%.
Given the increased costs, more and more students are turning to loans, both public and private, to fund their education, ultimately driving up their debt loads upon graduation. In 2010, Statistics Canada reported we are graduating students 10 years financially behind. The government can help address this by increasing grant funding through the Canada student grants program.
Since 2010, the CSGP has reduced the average student loan by $461. For a reasonable investment, the government can do even more by increasing available funding by 25% per qualified student. Such an investment will reduce the overall debt for low- and middle-income students, helping some of those with the most need.
Canada's universities and colleges are also magnets for global talent, and as a country, we want to not only cultivate the best and the brightest, but we should also want to attract them. Last year it was announced that 1,000 doctoral students would be accepted for permanent residency under the federal skilled worker program. The value of attracting and retaining international students is found both within the classroom and their contributions to the overall economy. The government should consider extending a similar fast track to the permanent residency program for international master's, undergraduates, and college students in disciplines that would address Canada's labour shortages.
We also need to have a focus on creating opportunity for Canadians. Demographic projections illustrate that one of the most important investments the government can make is in the aboriginal population of Canada, which is forecast to grow to 1.4 million by 2017. However, the program currently structured to support first nations and Inuit students is under a 2% funding cap placed on Aboriginal Affairs and Northern Development Canada. The PSSSP is an example of a program that could ensure future success if better funded. Those who've received funding are accessing and completing their education, and this is a positive.
We're recommending the government remove the 2% funding cap on the post-secondary student support program, fund the backlog of students who've been denied funding, and ensure that the program is adequately funded into the future.
This week is also Open Access Week. Canada needs to ensure that tomorrow's labour force has every means at its disposal to create, manufacture, innovate, and discover. This cannot be ensured through training alone. At present, most of the new findings and information generated through this research are paid for through public dollars, but it is not publicly available. The government should motivate innovation and entrepreneurial spirit by enacting legislation requiring the three federal agencies, SSHRC, NSERC, and CIHR, to ensure that all findings produced with publicly funded research are made available in an open access format.
In closing, I'd like to draw your attention to the importance of creating incentives for youth employment. Finding a job is one of the greatest challenges facing youth and students today. Canada's economy has added jobs, but youth have been left behind. To cover the costs of living, tuition, and academic materials, many students supplement available financial assistance by working during their studies. It has been reported that during the last year of an undergraduate program, 62% of students work, on average, 18 hours per week. Our members were pleased to see the government take action on the income work assessment. Now we ask the committee to take the next step and remove this earnings penalty altogether. No Canadian should be punished for earning a living.
The budget is a reflection of priorities. CASA believes every investment in education is an investment in our future prosperity and is a symbol of what makes Canada great.
Good afternoon. My name is Mark Scholz. I'm the president of the Canadian Association of Oilwell Drilling Contractors.
Joining me today in the gallery are Mr. Doug Strong, president of completion and production services at Precision Drilling Corp., and Mr. Kevin Krausert, business development manager at Beaver Drilling Ltd.
Precision Well Servicing is the largest publicly traded service rig contractor in Canada, while Beaver Drilling is one of the oldest private, family-owned drilling contractors. We represent both of those contractors.
On behalf of the entire membership, thank you for inviting me to speak and participate in these important discussions.
CAODC represents 45 drilling rig contractors and 76 service rig contractors. We represent 100% of the drilling rig fleet in Canada—that's approximately 820 rigs—and 98% of the service rigs fleet, or approximately 1,100 service rigs.
Our membership is committed to promoting a culture of safety excellence in the industry, acting in the best interests of our member companies, their employees, and the industry as a whole, and continuing a strong tradition of leadership and cooperation.
The Canadian drilling and service rig industry is a critical sector within Canada's upstream oil and gas community. We provide a necessary service for our clients—oil and gas producers—to develop Canada's petroleum resources.
The drilling and service rig industry is part of a larger petroleum services sector. It employs thousands of Canadians from coast to coast and significantly contributes to Canada's overall GDP. Moreover, the drilling and service rig community is recognized internationally for its innovation, technology, and training standards.
My presentation will address four major themes: the promotion of a competitive investment destination; labour challenges; market diversification; and the natural gas strategy.
The government needs to continue to promote a competitive regulatory and fiscal regime in order to attract oil and gas investment. Our business relies on oil and gas producers to invest capital into new projects—oil and gas wells—in order to be profitable.
The oil and gas industry is a competitive business. Consequently, the industry is competing globally for this capital. Investors have a range of opinions or options to consider. For Canada to take full advantage of these opportunities, it needs to provide a stable and competitive regulatory and fiscal regime.
When an investment is made to develop Canada's petroleum resources, it is the drilling and service rig industry—along with a multitude of other service providers—that directly benefits from this investment. The investment provides Canadians with well-paid jobs and the raw materials to heat their homes and power their cars. Every rig that is working generates 135 direct and indirect jobs.
On the labour supply, Canada needs to address the critical labour challenges. Canada's oil and gas industry is one of the most expensive jurisdictions in the world to do business in. Although geography is certainly a major contributor to these costs, the lack of labour is a growing concern. If the labour supply is not addressed, it could have significant cost implications through unsustainable wages and inflation.
The existing domestic labour force needs to be utilized effectively. There are regions in the country with an oversupply of jobs, while in other areas there has been an oversupply of people without work.
The government should incentivize Canadians to relocate to where some of these jobs are. This could be accomplished through programs such as employment insurance or other forms of government financial support. Another option would be to provide tax credits for businesses that provide assistance to relocate workers or for travel for seasonal work.
Canadian businesses are experiencing the challenges of a growing retirement population. This will have an impact on future economic growth, as experience and industry knowledge leave the workforce and the industry moves to transition that knowledge to new workers.
The government should consider incentivizing individuals to stay in the workforce longer. This could be done through existing government pension plans, whereby an individual continues to contribute past 65 and receives higher benefits at a later retirement date.
The government needs to address market access for our crude and natural gas products. In western Canada, petroleum products are sold at a discount to WTI and Brent. The result is a significant loss of revenue for the industry and the Canadian government.
The industry requires broader market access, particularly to the emerging Asian markets. Moreover, it requires expanded capacity to the United States and eastern Canadian markets. Canada is not taking full advantage of its resource economy because of the lack of market diversification.
Finally, on the natural gas strategy, over the next several decades, fossil fuels will still be the dominant player in our energy mix. Most major energy analysts are supportive of this fact.
I'm Barb Amsden, director of the Investment Industry Association of Canada, or the IIAC.
I am pleased to share with you some comments from our association, the IIAC.
Our 170 members, with 40,000 employees across the country, range from small regional institutional and retail boutiques to national full-service companies. The interests of our members and the country's economy are closely aligned, with our members raising nearly $130 billion in equity and debt to fund businesses, not-for-profits, and all levels of government last year.
We continue to face a sluggish domestic economy and global recovery, a high Canadian dollar, and turbulent capital markets. Investors are skittish about the markets, and corporations are holding cash in reserve, now 30% of GDP, three times the historical average. The effect is that capital spending on productive investment has declined. In Q3, there were only seven IPOs valued at $270 million, compared with $540 million in 20 IPOs last year. At the same time, household debt is increasing, with base demographic shifts that will demand new ways of thinking to provide for health care and support systems for an aging population.
To cope with these challenges, government must rely on revenue from sustained economic growth and continued efficient program spending. We commend the federal government's continued prudent financial management and recommend that this continue. We urge government to keep the current competitive corporate tax rate level. Lower rates have not led to a decline in corporate tax revenues; in fact, quite the contrary. On the household debt side, we support the government's tough love decision to tighten mortgage lending rules.
While good fiscal management, competitive taxes, and balanced borrowing are key parts in the investment cycle, we need increased individual and corporate investment. Just as a circulatory system is vital to the healthy functioning of every human being, the circulation of our savings is critical for our economic health.
At the top of a handout, you'll all have something with squiggles all over it, with a generally blue colour. You'll see a stylized view of the economic circulatory system showing money saved by millions of Canadians becoming productive investments, generating jobs, leading to taxes, and contributing to a better standard of living for Canadians who save and so on. That's the kind of round diagram you see before you.
The second diagram below it shows, within the investment capital formation part of the cycle, the role of seed money, angel investors, venture capitalists, and regulated investment dealers, who are our members. Our members channel savings of Canadians into private and public investment instruments, such as stocks and bonds. Blockages at any point in the system can have serious consequences, and we think there are some blockages at various stages. A number are due to our genetics, our economy's composition. Sixty per cent of the TSX index are energy and financial institutions. Some blocks are environmental, the uncertainty in the U.S. and the eurozone. Others have risen when prescriptions taken to address one problem have caused harm elsewhere.
Neither our large national nor our small regional members can do what they do best without a steady flow of smaller companies growing to the size when the services our members offer come into play, and our members can't do as well as they might at that stage due to increasing costs.
As with our personal health, we need preventive and restorative measures, and we propose antidotes that we think you can recommend, and also rely on your power to draw attention to ones you cannot. The symptom of our weak economy is not enough capital at key stages in the financing cycle, particularly capital-intensive—
The symptom of our weak economy is not enough capital at key stages in the financing cycle, particularly capital-intensive innovative businesses with large research or technology risks that venture capitals don't address, companies with traditional market and other risks that venture funds can financial successfully.
Our diagnosis? While some problems are outside our control, some arise from aspects of financing programs, or their lack, and others from imbalances in the regulatory and tax systems. People must have confidence in the markets and taxpayers must have confidence that taxes will be paid. Not surprisingly, governments have determined that for investors and taxpayers to feel protected, regulation is the answer, but sometimes it's been to the detriment of other parts of the markets. Canada's securities commissions protect investors, but they must also promote fair and efficient capital markets. We have examples where we think the balance isn't right. CRA has a duty to ensure that taxes are paid, but the combined rules and administration that are our tax system also affect the savings to investment processes.
Still too fast?
The remedies we prescribe are in the circle on the back part that I've shown you. First is building up angel networks, setting a net return to Canada requirement. Second is expanding the risk capital for growth businesses. There are a couple of things we can talk about there, but most important is the flow-through share concept, which has been used in the oil and gas industry. Third is fostering the move beyond the growth stage through public-private partnerships, educating owner-operators on financing options. Fourth, at the IPO stage, is the change in capital gains treatment, but only for the higher-risk investments. Fifth is ensuring a better regulatory cost efficiency, better balance of securities and tax rules, improved entrepreneurial financial literacy, and annual checkups.
I'd be pleased to answer your questions later.
We are pleased to have the opportunity to make a presentation to the committee today.
My name is Katie Walmsley and I am the president of the Portfolio Management Association of Canada, formerly known by the acronym ICAC. I am accompanied today by Scott Mahaffy, who is the vice-president (legal) of MFS McLean Budden and who serves as chair of our industry regulation and tax committee.
If you have any questions after the presentation, Scott or I will be happy to comment.
PMAC is composed of over 170 investment firms from across Canada that manage investment portfolios for pension plans, foundations, endowments, and individual Canadians who are saving for retirement. Our total assets under management are over $800 billion and close to $1 trillion, if including mutual fund assets.
Given that much of these assets are in the form of pension or retirement savings, our recommendations today will centre on measures to help Canadians protect, preserve, and grow their capital to ensure they have adequate savings for a comfortable retirement.
I'd like to start by applauding the government for two initiatives that, when implemented, will go a long way to help Canadians grow and protect their savings: first, the introduction of the pooled register pension plans; and second, the pursuit of one common securities regulator.
First, let's start with the common regulator. Why do Canadians need one? What's wrong with the current, fragmented, costly system? According to the recently released 2012 CSA Investor Index, 27% of Canadians believe they have been approached with a fraudulent investment opportunity at some point in their lives, yet among this number, only 29% have reported this to the authorities.
The establishment of one common securities regulator will help improve investor protection against fraud and will ultimately increase investor confidence in the capital markets. We believe the December 2011 Supreme Court ruling suggested that the next step forward is for the government to develop constitutionally sound legislation that supports streamlined securities legislation in Canada. We truly believe that a common securities regulator is in the best interests of Canadians. We therefore recommend that the federal government extend the budget of the Canadian Securities Transition Office for at least another fiscal year to allow them to continue their work, and to work with the provinces cooperatively to make this objective a reality.
Second, we applaud the government for the recent introduction of the pooled registered pension plans. This is a very positive step forward, filling a gap for many Canadians who do not have traditional pension plans. We encourage the government to continue to work with their provincial counterparts to expand the use of PRPPs across Canada. However, given the likelihood that many provinces will not make PRPPs mandatory, we recommend that the federal government introduce specific tax incentives for employers to set up PRPPs or other retirement savings vehicles. Details of these incentives are outlined in our formal submission, but we believe these incentives will help kickstart PRPPs and make them a success.
What other initiatives would help Canadians save for their retirement? For starters, let's look at the tax they're paying for the professional management of retirement savings. There's a value-added tax principle that tax should be paid at the time of consumption. It's very logical. What doesn't make sense to us is why individual Canadians and pension plans must pay GST and then harmonize provinces' HST for the professional management of their retirement savings. They are, in effect, paying tax twice. When HST came into effect in Ontario and Nova Scotia, as examples, the pension plans in those provinces had to pay an additional tax—8% in Ontario and 10% in Nova Scotia—on the management fees. As you are all well aware, pension plans are already struggling with unfunded liabilities. The government has struck a committee that is looking at the taxation of financial services, and in light of the issue and the priority that government has given to retirement savings, we urge them to look holistically at a solution that would simplify the tax for retirement savings and ease the burden for Canadians.
We have one final suggestion. Canadians are encouraged to take the opportunity to invest globally. The government is also making international trade a priority. Many of the emerging markets, however, are not open to ordinary Canadians. On the list of designated stock exchanges, 40% are within North America, 40% are in Europe, and only three are in emerging markets.
The current list does not provide adequate risk diversification and optimum asset allocation and is completely out of date. We urge the government to both update the list and to streamline the process of keeping the exchanges current.
Thank you. Merci.
Good afternoon, honourable members of the committee and guests. Thank you for inviting me back to present our pre-budget consultation recommendations. My name is Steve Staples. I am the president of the Rideau Institute.
The Rideau Institute is a non-profit, non-partisan research, advocacy, and consulting group founded in 2006 with an expertise in Canadian defence and foreign policy, and we do not receive funding from the government or from firms. We are funded from donations from individuals and from consulting services we provide to non-profits and trade unions. I, myself, have been working in the field of defence spending and disarmament for about 20 years.
Our pre-budget submission has three main points for the government: first, to further reduce defence expenditures with a goal of returning to pre-9/11/2001 levels over time; second, to improve parliamentary and therefore public oversight of the military procurement processes; and third, to invest in Canadian industry by providing targeted support to areas of the economy where Canada is a world leader.
Defence spending today in Canada, even with the modest reductions made recently, remains at historically high levels. The dramatic buildup of defence budgets in the last decade, sometimes exceeding 10% a year, has left defence spending roughly 40% higher than before the 9/11 terrorist attacks. I've provided a chart from 2011 that documents in adjusted dollars where the budget is in real spending. We are sixth highest in NATO right now. In adjusted dollars, our defence spending is higher than at any point since the Cold War with the Soviet Union. I've also included that chart in the packages. However, the security situation has changed. We have a budget deficit and economic challenges at home. Our Afghanistan combat mission is over, and Osama bin Laden is dead.
Despite this, the government continues to commit to expensive procurement programs such as the F-35 and the shipbuilding program. It's evident from the analysis provided by the Parliamentary Budget Officer and the Auditor General that the costs of these programs have not been properly assessed by the Department of National Defence, and are not likely affordable, even with the increased spending commitments within the Canada First defence strategy. The National Defence budget must be brought into line.
As well, improved parliamentary oversight over major crown projects would increase transparency in defence procurement and accountability of the government and military contractors. A dedicated parliamentary committee for major crown projects would provide Canadians with additional confidence that public dollars are being used wisely, fairly, and efficiently.
For instance, on the F-35 stealth fighters, the public has been greatly confused by statements made by the government on costs that are frankly unpredictable, contracts that don't exist, and job opportunities that are little more than a hope and a prayer.
Establishing a parliamentary committee or a subcommittee responsible for major crown projects would help avoid the mistakes and complications that have arisen in many of the department's projects and help cut through some of the spin from the defence contractors and ministers.
Finally, defence procurement strategies have not reflected the government's goal of economic recovery and growth in key areas of the economy. The lack of a competitive process in sole-sourcing contracts has not guaranteed the industrial regional benefits that are essential for Canadian employment in these projects. For instance, there are no requirements for investment and job creation in the F-35 program, and I ask, what about the equally large shipbuilding program now? Where are the guarantees for jobs and investment there? Investments should be made where they stand the greatest chance of long-term benefit.
Media reports have suggested that the government is interested in a defence industrial strategy. This just doesn't make sense. With defence budgets declining globally, respected financial analysts such as PwC point to the commercial market as the best bet. Canada's future is in Bombardier's passenger jets, not Lockheed Martin's fighter jets.
Thank you, and I look forward to any questions you may have.
My first question is for Mr. Scholz and Ms. Amsden.
Thank you both for being here and for your presentations.
In those presentations, you made almost the same comment. It was about how to reduce debt to 28.5% in one case and 25% in another. Reducing debt is not in itself a bad thing. Mr. Scholz suggested reducing corporate tax in order to get business to a competitive level. But, since 2000, the tax on businesses in general has been reduced. The tax rate at that time was 28% or 29%. It has been reduced; it think it will be 15% soon. That meant quite a substantial decrease in revenue for the federal government, partially made up for by increases elsewhere.
Basically, it was a substantial drop. Some things have been mentioned. Some people have said that it resulted in idle money piling up. Others have said that investments were going to increase. The reality is that, if you compare the present situation with the situation in 2000, 2001 and 2002, real investment has been stagnant for a long time. The logic used by a lot of economists is to think that reducing taxes will increase investments and everything will be fine. In reality, we have not seen that direct correlation at all.
I would like your comments on that. You can start, Mr. Scholz. You can answer afterwards, Ms. Amsden.
Yes, sure, and thank you for the question.
I would like to maybe go back to the experience that we had in 2008, particularly in Alberta, where we had the provincial government make some changes in the royalty structures for oil and gas producers. This directly affected the amount of activity that we saw and were used to in previous years.
The message I'd like to give is that what investors are looking for...and we benefit from that investment. When investments are made, we go to work and we put people to work. What we have seen is that when the government can put in place a stable and predictable regulatory regime, on the taxation side as well as making sure that there's a clear process for regulatory review, it benefits our operations. We've seen that when governments make—
I'd like to welcome all the witnesses here this afternoon. It's great to see you. Your testimony is very important. Unfortunately, we only get five minutes to talk, so I don't get to talk to everybody. I know I'd like to talk to Mr. Scholz and Ms. Amsden, but I won't get time to get there, so I'll talk afterwards. Your labour issues and some of the comments you made are definitely issues in Saskatchewan.
Ms. Walmsley, I want to focus on you and some of the suggestions you made in your recommendations. One of the recommendations that stuck out a bit was the list of stock exchanges. Can you give us some background information on how that list is created? How should that list be modified? Is there a process we need to be going through to see that list being updated all the time, so that it's always fluid, instead of being static and getting looked at every number of years?
That's an excellent question.
We've been exploring this issue with the Department of Finance, both the background and options to keep the list up to date. I'm not clear on the history of the list. What I am aware of is that the process today to add exchanges to the list is very complicated. Foreign exchanges have to go through an application process and in effect prove their regulatory controls are in place and prove their worthiness to Canada. The challenge with that, as the committee I'm sure is well aware, is that Canadian tax law is not well known around the world. A lot of the exchanges that are not listed are in the emerging markets, and it's probably not a priority in their mind to get on the Canadian list. In the last five years, to my knowledge, there have only been two exchanges added to the list: Bermuda and the Canadian National Exchange.
Our recommendation to the government is to look at an alternative process, because we don't think the current process is working and we don't think it is going to maintain the list; and look at other third-party options to validate the process, look at whether they're IOSCO members and OECD members, and look at whether Canada has a signed tax treaty with the country. We think there are a lot of options to make the list more relevant.
My final point would be that, because we have a list, it almost looks as though we are endorsing certain exchanges. The exchange list is predominantly, as I said, Canada, the U.S., and Europe. Our recommendation is to make sure the list is kept modern and up to date, and to allow Canadians to diversify their retirement savings and to have options beyond the more traditional western markets.
Thank you very much, Mr. McGuinty, for allowing me to talk a little bit about this.
I think we have a huge opportunity here within Canada. Right now we have an abundance of natural gas, which is one of the cleanest-burning fossil fuels. The price point for this fossil fuel is tremendous. I think we should be encouraging the adoption of natural gas into electrical power generation. I think we should be looking at incentives to look at converting commercial trucking fleets to natural gas, where we can....
Frankly, from our perspective, in terms of what we're drilling, 80% of our wells are oil. When we have fluctuations in the cost of oil, and we don't really have much as an alternative to drill for, if we can provide some incentives on the supply side and the demand side of natural gas, I see a tremendous benefit for our industry, just as I do on the side of our attempts as a country to reduce our greenhouse gas emissions. That's certainly an incredibly important piece for Canada to pursue—our carbon emissions.
That's exactly where I wanted to take you next, Mr. Scholz.
The American chamber of commerce's 21st century research institute on energy is now advising both political parties on Capitol Hill that the United States is going full steam ahead into natural gas, including shale gas and shale oil.
The Chinese have found massive deposits of natural gas in the southwest. They are building pipelines to their cities on the eastern side of the country.
I wanted to ask you about the need to address natural gas, and about how we can do that if we don't actually have an adult discussion in Canada right now about a national energy strategy.
For example, we don't know how fossil fuels will connect to renewables, which will connect to hydro, and connect to nuclear, and connect to biofuels going forward. We don't know, with regard to the existing fiscal measures that are in place, what the net effects will be on our energy future. We don't know what the programmatic expenditures are having on our energy future. We certainly don't know how any of this is connected to Mr. Harper's promise to reduce greenhouse gases by 17% in absolute terms in the next 13 years.
Now, we're way behind every other OECD country that we've looked at. How do we do a natural gas strategy in the absence of a more fulsome national examination of what our energy future is all about?
That's a tremendous point, Mr. McGuinty.
In fact, our association is extremely supportive of a national energy strategy. I think we need to look at what our energy mix looks like 10, 20 years down the road.
Natural gas, from our perspective, is a tremendous alternative to be pursuing, particularly with electrical generation. Right now, just to give you an example, on our rigs we are in fact being extremely innovative, powering some of our equipment with natural gas and bi-fuel technology, whereby we can actually take some of the natural gas right from the wellhead to power our rigs. That's in fact directly reducing our carbon footprint.
We have to think critically on this. I agree that we need to sit down and have an adult conversation about how we can best utilize the abundance of natural resources on the natural gas side, and wind, nuclear, and hydro.
You're right. The conversation needs to happen.
I was expecting to take the next round, but I'll gladly take this round.
Thank you all for coming. It's good to see you all.
Mr. Scholz, I want to remind you about the national energy program the Liberals introduced back in the seventies and what a great resounding success that was. I would like to say as well that when we talk about a national energy program, we have gone far beyond that, I think, as a government. We've proven it. I think you'd probably agree, too, that when we talk about gas, we need markets. And especially for the gas you refer to, in northern B.C., transportation is going to be the biggest issue.
The route we are closest to, of course, and we are closer than anyone, is to the east: Japan, Korea, and China.
Although Mr. McGuinty is correct in saying that the Chinese have huge reserves—I think they're the second largest in the world—they still have to manufacture all those pipelines. We have this window of opportunity, don't we, that we can...?
Again I say that rather than talking about an energy program, we're already moving in that direction. One of the things we have acted on is one project, one review.
I wonder if you could just comment on that and tell us how important that is.
Thank you. We certainly are very encouraged by what's happening in the natural gas field.
Mr. Dayler, I want to speak to you. It's good to see you again.
You've mentioned that we've missed an opportunity. You've acknowledge this too, but I just want to mention that our government, since 2006, has invested more than $10 billion annually in students and education, including $3 billion in transfers to the provinces. Of course, the provinces administer education.
We've heard repeatedly in testimony from a number of different organizations and different fields, especially in the extraction industries, be it mining or oil or gas, about the shortages they are experiencing right now and about the shortages looming in the future.
What have we done wrong? Are we missing the boat? Are we not producing the people we need for these areas? And where is the shortfall? Is there something we can do federally, maybe, to coordinate a better plan in our post-secondary education?
Thank you for the question.
I think what's important is investing in education, generally, to get people educated.
We're looking, in a lot of cases, at fewer jobs for people who are not going to school. During the recession there were 433,000 fewer jobs created for those without an education. When we're talking about labour gaps, from our perspective and from our members' perspective, whether it be pursuing university, college, or a specific trade, it's getting people in the door and ensuring that they're not leaving heavily indebted, so that they can pursue work opportunities.
I'll continue with Mr. Dayler.
You say finding a job is one of the greatest challenges facing youth and students today. Yesterday we had the Canadian Federation of Students come before this committee. When we asked them whether things have been better or worse for students in the last six years, they said they have gotten worse.
When we look at the rate of unemployment, which is double for youth, and when we look at student loans, which are going up, what is your take on how things are going for youth and students?
I think there are a lot of questions about where the government is on the seven steps they announced earlier this year. There has been some moving around of those priorities. They had a terrible time trying to find a firm that was going to provide some kind of independent analysis of this.
We were very much looking forward to greater scrutiny of it at the public works committee, which I think was going to do it at the sitting after the summer break. That was squelched, and there has been very little discussion over the last few months about what's happening in the secretariat. We think there needs to be much more oversight on this, and the government needs to be clearer.
For instance, we've had ministers talk about a contract. There is no contract for the F-35.
The price estimates have swayed dramatically, and they've had to change some of those estimates.
The public just doesn't know what's happening. There was a media report recently that quoted a Lockheed Martin registered lobbyist commenting on F-18s, yet the media report didn't identify that he was a registered lobbyist for Lockheed Martin. He was just presented as an expert, and the public is confused by that. That story ran across the country. We tried to catch up and change it.
But I think greater parliamentary oversight, which would inform MPs like you, and journalists, is really required on this file.
Broadly, certainly an industrial strategy is required. I think the government has a role in assisting industry and making investments in key areas where we can do that. I think there are lots of areas where that can happen.
My particular area is in the high-tech field of defence procurement, which involves a lot of aerospace aspects. In particular, as I mentioned, the government is talking about doing a defence industrial strategy. That's not really the way to go at this point. As I mentioned, PWGSC is projecting that defence expenditures across the globe are going down. Those countries that are still involved in major defence procurement, like the U.S., are looking for jobs at home. They don't want to see F-35 jobs coming to Canada or Italy or other places.
Let's look at the commercial side. Where we do defence procurement, let's make sure we have industrial regional benefits, and make sure Canadian companies can compete, but let's focus on the commercial side. Bombardier's jets, I think, hold a lot more promise than fighters.
I cannot comment directly on that study right now. In terms of support versus financing, you can't throw funding at an issue and not put the support there, whether it be on-the-ground support, actually on reserve, through a friendship centre, or wherever it may be, to help these young people get access to the appropriate information.
I mentioned earlier that we did a study, “The Illiteracy of the Literate”, that showed there's a good portion of misinformation out there about where to get even simple information about accessing. Once you have that, then the funds come into it.
This is 100% an issue in terms of first nations/Inuit populations for the PSSSP, to work with that community and with that group to identify what supports are needed, as well as what funding is there.
When we look at it in terms of what we can do to increase our overall productivity in our tax base, this is absolutely a population that needs both support and funding. So I'm not sure I can separate the two.
Thank you very much to all the presenters. It has been very interesting listening to your thoughts and ideas about things that need to be done.
It's interesting to note that whether it's as a result of the favourable corporate tax rates or an unwillingness to invest, the Governor of the Bank of Canada has also recognized that there is upwards of half a trillion dollars sitting in cash in bank accounts that corporations are sitting on. The government, to date, appears unable to get that money out, to get it invested, as it was intended, for capital, for hiring, or for whatever.
I'm wondering if you have some suggestions on what can be done. What incentives could government use to try to get some of that money out and working in the economy?
I think you all have a perspective on this issue, different points of view. Why don't we start with Steven and then head down the list.
I have a small order and a big one. I'll start with the small one.
There was a tax change made in 2008 that inadvertently hurt small western investment dealers. It was a tax change that made a great deal of sense, which was to tax traditional warrants as income, even though it hadn't actually materialized.
There is something called “broker warrants” out west, which are usually used instead of cash for some of our smaller western members to invest in new opportunities. Instead of paying 100% cash for underwriting fees, you would take broker warrants and join in or participate in the potential growth.
We don't think this costs a lot. It was inadvertent—we know that from having talked with Finance—but it takes a lot of time to reverse something.
The other one, which I mentioned before, was flow-through shares. We think that directing them at new types of industries, biotech and so on, is a great area, both for driving jobs but also for potentially getting our industries out of energy and financial institutions only and into new areas that could help growth more generally.
There are a number of other areas—
The Chair: There are about 45 seconds left.
Ms. Barbara Amsden: I'll give you the hard copy version later.
That is, funded by the general taxpayer? Okay.
I want to follow up on the money and corporations issue. It's a very lively political discussion around this topic, which Mr. Chisholm was raising.
Ms. Amsden, I'm not going to take up my time here today, but if there's anything further on that by way of analysis from your association—or from Ms. Walmsley as well—we'd certainly appreciate it as a committee.
It's a real pleasure to see Precision Drilling in the room. They have a big facility in Nisku, in my area, and it's nice to see the connection between the oil and gas sector and then all the resulting economic spinoff.
I want to follow up briefly on the gas issue. I was at one of Precision's rigs in northeastern B.C. a couple of years ago. Given the reality of gas prices being so low, what kinds of incentives could you do, mainly on the upstream side, to encourage more drilling until that price rises substantially?
On the downstream side, I take your point, and I think Mr. Jean is absolutely right that you could do incentives for vehicle conversion and so on. But what could we do on the upstream side to incent more drilling?
I appreciate that. I did want to just touch on a couple more issues in my time remaining.
I take both of your associations' comments very seriously on the national regulator. With the change in the position of the provincial government of Alberta on this, I think there could be an opening.
I did want to follow up, Ms. Amsden, on your responses to the questions with respect to conversion, moving the conversion from RRSP to RRIF, from 71 to 73, removal of the minimum annual withdrawal limit from RRIF, and the elimination of the RRSP/RRIF income from the GIS clawback.
Can you just make your arguments here for those recommendations you made to the committee?
Thank you. I appreciate that very much. I'm very strict on others' times, so I'll be strict on my own. We appreciate you being here and responding to our questions. If there's anything further you'd like us to consider, please do submit it to the clerk.
Just before I suspend, colleagues, you've been distributed two motions for two respective budgets, one for our pre-budget consultations and one for our study on . Are there any questions related to these budgets?
Can I ask someone to move, first of all, the pre-budget consultation motion?
It is moved by Mr. Hoback.
(Motion agreed to)
The Chair: Can I ask someone to move the motion on Bill C-377.
It is moved by Mr. Jean.
(Motion agreed to)
The Chair: Thank you. I appreciate that very much.
We will suspend for a couple of minutes. Keep your visiting to about a five-minute break and then we'll bring the next panel forward. Thank you.
I'll call this meeting back to order.
I welcome our new panel to the table and the two guests we have from Calgary by video conference.
We have five organizations presenting during this panel session: we have the Canadian Association of Social Workers; the Canadian Renewable Fuels Association; the Greater Kitchener Waterloo Chamber of Commerce; from Calgary, by video conference, we have the Calgary Chamber of Commerce; and we have the Small Explorers and Producers Association of Canada.
Thank you all for joining us here today.
You each have five minutes for your opening statement, and then we'll have questions from members.
We'll start with Mr. Phelps, please.
Thank you very much. Good evening.
I'd first like to thank the Standing Committee on Finance for the privilege today of presenting the views of the membership of the Canadian Association of Social Workers, which will hopefully serve to inform the direction and decisions of Budget 2013.
The Canadian Association of Social Workers exists to promote the profession of social work in Canada and to advance issues of social justice.
As highlighted in our pre-budget submission to the Standing Committee on Finance, CASW is committed to reducing the growing income inequality gap in Canada, and social workers are seriously concerned that legislation and policies recently adopted by the Government of Canada may run contrary to this objective.
To this end, CASW strongly recommends a reversal of the gradual increase of the eligibility to old age security from 65 to 75 and an investment of an additional $400 million on top of the $300 million per year committed in Budget 2011 in support of seniors solely reliant on old age security and the guaranteed income supplement living with deserved dignity and respect.
Social workers do recognize that the Government of Canada has taken some very useful initiatives in recent budgets and economic plans to increase employment and job creation through apprenticeship tax credits, foreign credential recognition, and targeted initiatives for older workers.
In terms of challenges being faced and addressing these challenges, CASW commends the Government of Canada on the delivery of “Changing Directions, Changing Lives: The Mental Health Strategy for Canada”, and now seeks the commitment of the Government of Canada to see its recommendations realized into action in order to increase productivity in Canada.
With national leadership and provincial partnerships, it is possible to implement a coordinated national strategy for mental illness and mental health in Canada. Consequently, CASW fully supports the solutions grounded in the recommendations of the government's own national mental health strategy for Canada, including increasing the proportion of health spending that is devoted to mental health from 7% to 9% over 10 years; increasing the proportion of social spending that is devoted to mental health by two percentage points from current levels; setting up an innovation fund to assist provinces and territories in developing a sustainable mental health infrastructure across Canada; and, finally, ensuring that the five key principles of the Canada Health Act be applied fully and formally to mental health services, as they are critical to achieving equity between mental health and general health services.
Social workers firmly believe that the Government of Canada also has a critical role to play when it comes to funding health and health care, as well as developing accountability and equity in the delivery of social services beyond the announced 6% annual increase to the Canada health transfer and the 3% annual increase in the Canada social transfer through to 2016-17.
As the fifth largest provider of health care in the country, the Government of Canada has the opportunity and, some would say, the obligation to both lead by example in areas of direct federal responsibility and to coordinate shared accountability through the Canada health transfer and the Canada social transfer.
CASW recently released a comprehensive report on the Canada social transfer aimed at bringing attention to the lack of accountability inherent in its receipt and delivery. The “Canada Social Transfer Project - Accountability Matters” report outlines recommendations on renewing accountability for the billions transferred annually from the federal to provincial governments in support of social services, child care, and post-secondary education.
The Canada social transfer is inarguably a largely unconditional transfer that has no accountability measures for ensuring the level of adequacy with respect to social programs across Canada. Given that recent budgets and their consequent implementation bills have been used as a mechanism to realize changes in broad areas of legislation, policy, and regulations, CASW recommends that the accountability crisis inherent in the current model of financing social programs through the Canada social transfer be addressed in this next budget.
Thanks for your time in listening to the perspective of social workers. I look forward to responding to any questions the committee may have.
Thank you very much, Mr. Chair, and good evening.
On behalf of the Canadian Renewable Fuels Association, I want to thank you for the opportunity to speak to you here today.
CRFA member and supporting organizations provide Canadians with renewable, clean-burning ethanol and biodiesel fuels that help fight climate change and combat pollution, like smog. At the same time, our members provide the platform to develop the next generation of biofuels. With the committee's questions in mind, I would like to move directly to our recommendations.
Given the current climate of fiscal restraint, the CRFA understands that it has become increasingly vital to ensure existing economic programs continue to be efficient and are achieving their desired goals for economic growth and job creation. Over the past decade, government programs and grants supporting renewable fuels production have created some 14,000 full-time jobs and billions of dollars in economic activity.
The ecoEnergy for biofuels program, which has been a central element of this government's renewable fuels strategy, is one that I would like to highlight. Encouragingly, this program has been shown to be highly effective at generating industrial expansion and job creation in Canada's ethanol industry. However, in terms of renewable diesel, there is more work to be done. To this end, we believe modest changes to the program are necessary to ensure that the objective of building out 600 million litres of biodiesel production can be met.
Specifically, the CRFA recommends that the government reopen the ecoEnergy for biofuels program for renewable diesel fund to new project applications, and require existing program projects that were not substantially completed by September 30—the cut-off date—to reapply. As detailed in our submission, we would also like to see attached conditions to new applications to demonstrate their viability.
I want to be clear that our recommendations are in no way intended to detract from the tremendous help the government's ecoEnergy program has been in creating a vibrant and competitive biofuels production industry in Canada. However, the unfortunate reality is that the contribution agreement period for biodiesel has lapsed and only one new biodiesel plant has been constructed as a result of the program.
I think it's important to emphasize that these modest adjustments would require no new federal dollars. We believe that the funds committed in previous budgets can be directed to shovel-ready projects that are prepared to move forward in Canada today. Doing so could generate more than 1,350 direct and indirect jobs and could contribute almost 400 million additional litres of new production capacity in the Canadian market by the end of 2014.
Expanding Canada's biofuels industry creates jobs and environmental benefits that all Canadians can profit from. This is why the government must continue to ensure that the right conditions are in place to drive innovation and attract job-creating investment dollars to Canada. We have seen the success of an operating incentive as part of an integrated strategy aimed at stimulating the creation of ethanol plants and believe that the same support for next-generation ethanol projects would provide the security needed to attract private capital investment during the critical commercialization phase.
For this reason, CRFA proposes an operating incentive of 15¢ per litre for next-generation ethanol projects that can be funded directly by using the unused ethanol money remaining as part of the ecoEnergy for biofuel program, which we estimate to be at approximately $50 million. Here we are asking for previously allocated funds for ethanol to be redirected to benefit next-generation ethanol producers.
Another area of vital interest to our industry is Sustainable Development Technology Canada. Our members have relied heavily on programs like the SDTC NextGen Biofuels Fund. While there is no doubt that the global recession has slowed the development of some exciting technologies, there continues to be considerable advancement by the Canadian renewable fuels industry. It is our understanding that over 60% of the $500 million allocated in the NextGen Biofuels Fund is already committed and that many project announcements are imminent.
Moreover, by the end of this year, we understand that the fund will be almost 80% committed. Knowing that the program was originally designed to run until 2015 and pay out beyond 2017, I would posit that we are on the right track. Not everyone shares that view, however. Despite planned investments and commitments from the SDTC board, some stakeholders from other sectors have asked the government and this committee to recommend reprofiling the program fund sector into other areas outside the renewable fuels sector. Regardless of what others may suggest to you, those funds are not idle. The CRFA believes it would be a mistake to reposition these already committed funds at this critical time and that doing so would send a very negative message to innovators, private investors, and Canadian clean-tech entrepreneurs. We recommend that the fund and the qualification for applicants be preserved as is.
I sincerely appreciate this opportunity to speak to you on behalf of the Canadian renewable fuels industry, and I'll be happy to answer any questions you may have.
Thank you very much, Chair. Thank you to the committee for allowing us to make our recommendations on the 2013 budget.
I'd also like to acknowledge the efforts of our local MPs: Minister Goodyear, Harold Albrecht, Peter Braid, Steven Woodworth—
A voice: They are great guys.
Mr. Art Sinclair: They are great guys, yes, absolutely.
Every year, for the last number of years, they have also conducted pre-budget hearings back in our community of Waterloo region with all the different interests. Of course, for an organization like ours that isn't based in the immediate Ottawa area or close to a provincial capital, our relationship with the MPs and MPPs is critical. Again, we are very fortunate to have excellent representatives. We thank them for their ongoing support and their participation in the annual budget process. It is a lot of work.
I am going to be brief in my comments. I had prepared speaking notes, but in the interest of ensuring that all the points are made, I am going to condense my presentation somewhat.
The first issue I would like to raise is the accelerated capital cost allowance for manufacturers. Our region—the Waterloo region—is still a home to a number of manufacturing organizations. There are approximately 1,500 manufacturers employing 55,000 people. The manufacturing industry is still a very viable component of the southwestern Ontario economy. It still employs a lot of people, and they pay a lot of municipal, provincial, and federal taxes.
In past submissions to this committee, we have been supporters of the government's accelerated capital cost allowance for manufacturing and processing. It was brought in by in 2007 as a one-year measure, and it has been extended a number of times since then. We concur with the Canadian Manufacturers and Exporters, who have proposed that in fact this particular initiative be made a permanent fixture of the tax system. We would support that.
This is a measure that probably provides about $500,000 per year to Canadian manufacturers to invest in new equipment. Academic reports and other analyses that have been conducted on the manufacturing sector keep referring to productivity. This money is used for productivity enhancement to make Canadian manufacturers more competitive, efficient, and more productive. Again, we would support having that particular measure be made permanent.
The second point we would like to advance is... As many of you in Ontario are aware, four years ago, Minister Flaherty announced the southern Ontario development program, which evolved into FedDev Ontario, which has been operational since August 2009. It was originally intended as a five-year program with $1 billion. We're three years, or 60%, through the program. In meeting with a number of stakeholders that are community partners throughout the Waterloo region and in southwestern Ontario...there is a lot of support for this program. It has provided some valuable funding to start up businesses in our community and the Waterloo region, primarily young, growing firms in the IT sector. It has provided a lot of assistance to a lot of stakeholders, such as municipalities and universities throughout southern Ontario. We would like to see this program extended in some form beyond the original five-year mandate.
The third point we would like to bring forward is something that was brought forward in the previous panel by Ms. Walmsley; namely, pooled registered pension plans. We are, as a chamber, also highly supportive of this initiative. As Ms. Walmsley said, to make this program successful, it requires the support of the provincial governments as well as the provincial finance ministers.
We have written to Ontario Finance Minister Dwight Duncan. He indicated that the Province of Ontario is reviewing this measure; however, they would be in further contact with their federal counterparts. Our message to the federal government is that our business community, and the business community across Canada, supports this program. That would be the message that we would like the federal government to take forward in negotiations with the provinces: that there is support amongst the business community for this program.
Certainly, we have a lot of small businesses that are members of the Canadian Chamber of Commerce in our area. They have told us there aren't a lot of options available, particularly viable, cost-effective options, that they can offer to their employees in terms of retirement plans. This addresses a lot of their concerns, so we very much would still like to see the provinces get on side, and particularly the Province of Ontario.
Again, thank you very much for the opportunity to present our recommendations.
Hello there. Thank you very much for the opportunity to present today. My name is Ben Brunnen. I'm director of policy and government affairs, and I'm chief economist with the Calgary chamber.
The Calgary chamber represents about 2,200 businesses within the Calgary region, and I'm speaking today on their behalf as we assist you in creating the best environment for Canadians: to live, work, invest, and raise their families.
My remarks today are based on three main themes from our pre-budget submission: principled expenditure management, employment insurance amendments, and enhanced foreign investment rules.
First, from a principled expenditure management perspective, with a favourable debt-to-GDP level and reasonably strong economic growth, Canada is the envy of the developed world. However, the risk of a global recession is higher than it has been since 2008. As such, we cannot be complacent. The chamber urges the federal government to apply prudent fiscal management policies to program expenditures, positioning Canada for stable long-term growth. This approach is beneficial in that it establishes future spending parameters in the context of the current fiscal climate and spending constraints. It also sends a credible signal to the business community that the federal government is committed to returning Canada to balanced budgets.
The chamber suggests that the government adopt a bandwidth approach to spending by targeting expenditure increases within a range delineated by population and inflation growth and real GDP and inflation growth, also known as our smart spending bandwidth, which we presented previously as well. This range is between 2.6% and 3.0% for 2013-14, using a five-year average.
Second, I'd like to talk about amendments to federal employment insurance. With demographic pressures and a strong investment climate, labour shortages are expected to be a long-run concern for the Canadian economy and a top priority for Calgary chamber members. The chamber suggests that the federal government introduce amendments to the EI program so that it is structured as a true insurance program similar to car insurance. The social program aspects should be moved to other programs, but still funded, similar to the Quebec government's parental insurance program. This restructuring of the EI program would facilitate the reduction of EI premiums, thereby reducing real wage costs to employers and increasing the real wages received by employees. This would create a stronger link between amount paid and benefits received.
We also encourage the federal government to adopt variable premium payments for the EI program, based on the program’s 58 established economic regions. Areas of consistently high unemployment, with correspondingly higher benefits paid, would pay relatively higher premiums, and vice versa. This would eliminate the implicit redistributed properties of the EI program that discourage employers and employees from finding solutions to chronic unemployment challenges and would facilitate labour mobility. Our end goal is to improve the labour market and reduce distortions in the job market, ultimately positioning Canada for a more competitive and economically prosperous future.
Finally, I'd like to talk about enhanced foreign investment rules. Expanding trade agreements and encouraging foreign investment in Canada is critical to our long-term prosperity. A recent focus on foreign interest in the Canadian energy sector has once again called into question Canadian government policy regarding foreign investment and acquisition of Canadian resources by foreign investors. In the last decade, approximately half of all merger and acquisition activity in Alberta's oil sands involved foreign companies, and that's a value of $30 billion.
Foreign investment is particularly critical for the oil sands because of the capital-intensive nature of the industry. Without it, there could be as much as 40% less oil sands investment in our province. With Alberta recognized as having among the largest proven oil reserves in the world, foreign interest in the oil sands is increasingly coming from emerging economies, particularly in Asia, whose growth trajectory suggests a long-term insatiable demand for energy.
However, Canada needs to update the Investment Canada Act to be able to respond and embrace foreign investment in our country. The recent decision to postpone the $6 billion Petronas takeover of Progress Energy has raised concerns around the clarity of the net benefit test and the interest regarding state-owned companies and Canadian natural resource assets. Looking ahead, the proposed $15 billion acquisition of Nexen by state-owned CNOOC is likely only the beginning of a long line of potential foreign takeovers of Canadian energy assets.
The Calgary chamber is asking the federal government to undertake a comprehensive, stand-alone review of the 1985 Investment Canada Act. We recommend that it be separate from the Budget Implementation Act and provide a broad and fulsome public debate. Specifically, we'd like to see the government clarify the net benefit test, as outlined in section 20 of the act, to streamline the wording, prioritize and focus the essence of the test, and establish parameters therein. We also recommend including parameters around reciprocity and the net benefit test, increasing substantially the threshold at which the federal government is legislated to undertake a review, improving the transparency of decisions so that third parties considering deals can assess their chances at meeting requirements, and setting specific criteria for state-owned companies to meet net benefit requirements in order to protect the Canadian economy from potential foreign government interference.
The current challenge for investors and Canadian companies is that nobody knows exactly how the rules will be applied in their particular case or how they should interpret the act and what they can do better in the future.
Thank you very much for inviting the Calgary chamber to present to the House of Commons finance committee. I look forward to responding to any questions you might have.
Thank you very much, Mr. Rajotte.
Thank you to the members of the committee for inviting our association to speak with you.
My name is Gary Leach. I am executive director of the Small Explorers and Producers Association of Canada. On January 1, by the way, we'll simplify our name to simply the Explorers and Producers Association of Canada.
We brand ourselves as the home of Canada's oil and gas entrepreneurs. Our membership is 300 companies. These are oil and gas companies that started here in Canada, they're headquartered in Canada, and they invest here in Canada.
These member companies of our association contribute to the Canadian economy each year in new investment some $6 billion to $8 billion invested in new oil and gas and oil sands production facilities. This sum, by the way, is equivalent to the entire value of all the building permits issued each year in the greater Toronto area. So while you can see all the condos and office towers and industrial buildings going up in the Toronto area, you don't see the same visual image from our investment in the country because ours goes underground rather than up. I hope it gives you some idea of how much our association members are investing in this country each year, contributing to the economy and sustaining tens of thousands of well-paying jobs, primarily in rural areas of Canada.
In fact, a strong Canadian natural gas resource sector has been one of the main pillars of our nation's relatively strong performance compared to other G-7 economies. The oil and gas industry alone is the largest, by far, private sector investor in the nation and has become Canada's largest export industry by value.
As you may know, the upstream sector generates annual top-line sales of $100 billion per year and reinvests each year more than half that amount. There is no other industry in the country that remotely approaches the level of investment in Canada of the oil and gas industry.
We think it's time to let the private sector drive the nation's economic growth while Ottawa focuses on reducing its deficit spending and withdrawing stimulus that it has introduced to the economy in the last few years.
We think the federal government has done the right thing to reduce corporate tax rates because we think this will draw more investment by the private sector—helped along by those provinces that choose to align their tax regime with the federal one—and this investment will lead to more jobs and higher wages for Canadians. However, the wealth that can be generated for Canadians from coast to coast by our oil and gas industry, whether you measure that in well-paid jobs or taxes or royalties paid to government, is seriously impaired by our lack of access to markets outside North America. This reduces the value of Canada's energy exports by tens of billions of dollars per year. We only get to sell a barrel of oil one time, and if we don't get the best price for that barrel when it's sold, the opportunity is lost forever.
We therefore support the goal of streamlining the project review process in Canada, particularly for major pipeline infrastructure projects. Canadians are quite capable of conducting project reviews with thorough consideration of environmental, social, and economic impacts in a reasonable timeframe. We don't need 10 years to conduct a review of a project like the Mackenzie Valley gas pipeline—which didn't survive the review process. Ten years doesn't add anything to the knowledge base that couldn't have been learned in two or three years in a properly managed process. Businesses investing in Canada are entitled to a government review process that's efficient, effective, and has a decision point within a reasonable period of time.
We also endorse continuing steps by Ottawa to reduce the burden of too much regulation and red tape imposed by government on small business. I'm sure many of you know that trying to understand and comply with overly complex regulation is far more costly per employee for a small business than large ones. A recent survey suggested thousands of small business owners in Canada said they would not have started their business if they had realized how much time was spent dealing with governments instead of keeping their customers happy.
For small and mid-sized oil and gas companies, a serious additional challenge is raising enough capital to fund their growth plans. This has particularly been the case since the financial market crisis of 2009, and it has been made worse by weak natural gas prices and the heavy discount that I referred to a few minutes ago that Canadian oil sells for in the North American market.
The amount of equity financing raised for Canada's oil and gas industry is down 44% this year to the mid-point of the year, compared to the first half of 2011, dropping to just over $4 billion from a $7 billion record raised in the first half of last year.
The amount of money borrowed for oil and gas investment has increased 25% over that same time period. However, of the $4.1 billion in equity financing raised in Canada so far this year, about $104 million—so a little over 2%—was from the issuance of flow-through shares.
Thank you very much, all of you, for your presentations.
I'll concentrate my questions on you, Mr. Brunnen—and maybe Mr. Sinclair, but you especially, as an economist. I'm an economist myself, and I'm really interested in macroeconomics. There are many issues I would like to tackle. I'll try to do that within the five minutes allocated.
In terms of productivity, we've been seeking to try to increase Canadian productivity for a long time. I still remember the free trade debates. We were told that the gap between Canadian and U.S. productivity could be reduced, or “will” be reduced, thanks to the agreement. Yet the gap never really got any slimmer between both countries.
The issue of Canadian productivity has been a problem since forever, I think. We've looked at many ways, including investment in research and development and so on, to try to improve on productivity, but nothing seems to work.
My first question—then I'll have a second question, before I give you a chance to answer—is why can't we seem to find a real solution on the issue of productivity, regardless of the prescription that is being either given or implemented by government?
The second point relates to taxation. The question is that, in especially the corporate sector, taxation has been reduced significantly since 2000, and even since 2006, since we've had this current government. At the time, I think the rate was 22%. Now it's 15%. The main argument for it is that if we are reducing tax rates, then that money will actually be reinvested and there will be economic growth in general.
It makes sense, except that in reality.... We've all heard about “dead money”. Even Mark Carney, the Governor of the Bank of Canada, has mentioned it. We also have a problem where, if we're looking at the real investment rate in this country since 2000 and since 2006, it's been pretty flat. So we don't necessarily see that money going into investments in real terms.
I just want to know why you think that is, and if you think that prescription has actually fulfilled all the potential its promoters actually put forward.
Definitely I think we can get rid of the first section there. If we need clarity on the second part of your question, perhaps we can get into that.
In terms of productivity, where we're talking about strengthening productivity, you....
I mean, basically you've solved it in five minutes, right?
Voices: Oh, oh!
Mr. Ben Brunnen: The reality is what I'm calling for right now: we're looking at expanding trade agreements as a means to enhance productivity. We see that as beneficial for a number of reasons, but in the budget submission we made to you, there's actually a citation from StatsCan when they presented to a standing Senate committee. They basically found that businesses that export have increased their productivity as they entered export markets, have grown much more rapidly after doing so, and have introduced new technologies more quickly.
Basically what we see in this regard, from a productivity perspective, is that accessing new markets creates access to new ideas, new technologies, new business sectors, those types of things, and at the end of the day creates more competition.
I think competition drives productivity very effectively. One of our challenges from a productivity perspective traditionally, not in recent years, has been that low Canadian dollar. There was a little bit of complacency, from a productivity perspective, that we could just rely on our currency position. That's changed a little bit. I think you'll see a bit more of an enhancement in productivity as a result of necessity in that regard.
Deregulation, ICT investment, and competition in that sector will enhance that as well, but opening up new markets, I think, is the fundamental key to doing that, because then we're able to bring in some competition, understand issues a little bit more, and innovate, if you will.
Mr. Thurlow, I'd like to go back to some of the testimony you presented earlier. There is no national energy strategy for the country. We have other strategies being pursued by the government. The Conservative members like to say, for example, that this is some kind of national energy program, while they pursue other important industrial strategies across the country. This is about an energy strategy for the country—where we are, where we're going, what it looks like. It's not the mischaracterization of some plan to fetter the free market.
You are heading up an association. It's an important one, a growing one around the world—
Thank you, gentlemen, for being here this afternoon.
I understand Mr. McGuinty's frustration with Iogen being in his riding. Iogen was proposed to go to my riding in Prince Albert and set up this facility. In fact, they did a lot of groundwork and they brought in a partner by the name of Shell. Once Shell was brought into the picture, all of a sudden it seemed like everything was a stop sign. It's unfortunate, but that's what happened. It's unfortunate that they tried to relocate I think to Portage la Prairie, and even then they couldn't justify the numbers.
I think the reality in the region is this, and it goes back to what Mr. Jean and I have been saying. When you look at doing business in parts of Saskatchewan now, the labour shortage is so severe that it drops the cost of production, and the cost of construction goes up. I have a pulp mill going on in Prince Albert right now. I need 300 employees just to run it. I don't know where to get them. I need 400 employees just to do some construction inside this pulp mill, and this is actually the same pulp mill that Iogen was looking at to make into biofuels. So I can understand why they went to Brazil. There are probably some economies of scale, there are probably some feedstock prices that are cheaper in Brazil. There are other commercial activities going on in the background of their decision.
I think we can take pride in knowing that technology was developed here in Canada, and it's still going to be redeveloped and redefined. I can still see a day when Iogen is going to build a plant here, somewhere, either in Ontario or Saskatchewan. I look forward to that day.
It leads into one question I have, and that's on the $500 million. We have that $500 million fund sitting there that never really did get take-up. Is there anything we should be changing in that fund to actually get it utilized?
I share your sentiment as it relates to the Iogen technology. That technology will find its way back into Canada, there is no doubt about that. And Shell is also one of my member companies, so I'm in a somewhat precarious situation.
In all seriousness, absolutely, we would like to see the ecoEnergy fund reopened, the $500 million, to ensure that we get the most viable projects going forward. What I would like to see, first of all, is a performance bond of some kind so that when and if the program is reopened, would-be applicants have to put forward 25% of the production based on their first full year of capacity. That 25% would be repayable when the major equipment is ordered and put in place.
The second thing we'd like to see is a very transparent and very timely and prompt window for new application submissions and selection, and then the final contribution agreement approvals. From the cash side of the equation, we'd like to see the existing production incentives for all renewable diesel projects in the program right now extended to March 31, 2017, and to review all of the other unused funds in that ecoEnergy program. This is a program that was absolutely successful as it relates to ethanol, and we want to see that success emulated on the biodiesel side.
Absolutely, and thank you very much for the question.
Some of my member companies are currently looking at that next generation of technology. For the most part, this next generation is going to be feedstock agnostic. So whether it's waste from agriculture or whether it's traditional pulp and paper products, or the waste from those products, these can go into what we would call a cellulosic ethanol. Through a traditional gasification process, enzymes will break down this wood waste or this biomass into a product that can be consumed.
That process is ongoing. The companies that are in Quebec are using the SDTC programs to develop that technology. My member companies are spending their research and development dollars right here in Quebec and Ontario to develop that technology.
It's certainly something that we have on our radar.
Thank you very much. If you ever need encouragement for your research, if you want to get funding for it, you will find me a willing ear.
Mr. Sinclair, Mr. Leach and Mr. Brunnen, Canada has recently lost 500,000 jobs in the manufacturing sector. We have a balance of payments deficit of almost $50 billion. Our economic strategy at the moment is to produce raw materials as quickly as we can and export them completely unprocessed.
Paradoxically, Canadian businesses have never been so well capitalized. The Governor of the Bank of Canada has said that about $600 billion have not been invested.
What can we do together to stimulate investment into secondary and tertiary processing for our raw materials?
I want to ask a few of you one question, and I'll get back to you, Mr. Sinclair, in a second.
Mr. Thurlow, the NDP has called for a $21 billion carbon tax, which we say will raise the cost of everything—the price of food, the price of fuel, the price of everything, and workers and everyone else will have to pay that increase. It's on page 4 of the NDP party platform of 2011.
The Socialist International, of which the NDP is a member, calls for a carbon tax. In Hansard on December 5, 2011, the NDP revenue critic, Mr. Mai, even called for a carbon tax.
Could you please comment on that? Would that be beneficial to the industry or not?
Thanks to the presenters for coming in today. Taking time out of your undoubtedly busy schedules to present your ideas to this committee is very important.
I want to begin with Mr. Phelps.
You raised the issue of income inequality. It's not only income inequality between people; it's also income inequality between provinces and between regions in this country. It's a serious problem.
In particular, you raised the issue of the fact that one in five Canadians are impacted by mental health, and it's been estimated by the commission that this represents a cost to the Canadian economy of $51 billion annually. I'd like you to comment, please, if you think there is something the government can do to begin to address this.
I appreciate your coming and making those points.
I want to go to Mr. Brunnen now.
You raised some concerns about the confusion created by the lack of clarity on the whole net benefit test. That's a question that members of my caucus have been raising in the House of Commons now for several weeks—well, actually longer than that, a few years now, but it's certainly come to a head of late.
The minister tells us to go to the website and that it's very clear there what the net benefit test is. But I think what we're beginning to recognize, and maybe what the government is beginning to recognize, is that people who are representing businesses that are affected by this are concerned about the lack of clarity and are asking for a comprehensive review.
I'd like you to give me some indication that you feel the government is going to start paying attention, recognizing the danger of not having more clarity with such an important issue as the net benefit test.
And thank you to the presenters.
I'm going to start with Mr. Sinclair.
Mr. Sinclair, you were talking about the accelerated capital cost allowance and the fact that it should be made permanent. I reflect back to the home renovation tax credit that we put in. Did it ever get people out there. They were renovating, and there were probably more kitchens and floors and whatever....
Is there a danger that because it's temporary it is psychologically spurring action now that might not have happened? That is my first question.
Sure, and let me be clear: if it wasn't for the government's investment in the renewable fuel strategy, our association wouldn't exist. It is important, this government's investment.
The ethanol expansion program was the first step. Using the ethanol expansion program, we built out several ethanol facilities in the country. The key behind that program was ensuring that the renewable fuel standard of 5% was going to be met by domestic production, so that the value-add, which is the creation of the renewable fuel, happens here domestically, in our country.
That's what we'd like to emulate with the renewable diesel or the biodiesel standard. Over the last couple of years we haven't seen the same build-out that we've seen with ethanol. There's a confluence of reasons for that. We think what we'd like to do is just reopen that program for projects that have the money, the investors, and the proven success in the marketplace to generate this type of biodiesel so that they have a shot at this ecoEnergy funding, to help make sure that the government can meet its objective of 600 million litres.
I know there's one firm, called Miovision, that has received a couple of rounds of funding. They do information technology application to municipal traffic planning. Probably in the last three years they've gone from 20 employees up to 50 employees. Again, it's in that IT sector. University of Waterloo graduates came up with an idea in university, and they were able to carry it forward and commercialize it.
It's not just in the business sector, I think. The universities and the community colleges across southern Ontario particularly have benefited as well, not only in terms of funding directly to the institutions but also the partnerships they've developed with private sector partners. Again, a lot of those are in the knowledge economy—high tech, biotechnology, and of course biotech.
Like you, we're from southwestern Ontario, and agriculture is important to us. That's a key area. From our perspective, I think the three areas that we're interested in are IT, agriculture, and manufacturing, probably similar to your riding as well.
But yes, the successes are pretty significant.
I want to go to Mr. Leach and to the Calgary Chamber of Commerce.
In my riding of Chatham-Kent—Essex, we have seen a significant decline in manufacturing. We all know—we've spoken about this a number of times—the importance of the extraction industry and how that has generated huge revenues. Indirectly, I think, 20% of the GDP can be attributed to what's happening in the extraction industry.
Much of that, of course, is in your neck of the woods. I wonder if you can tell us if there are some programs that are in place to....
We have a vast array of very qualified people in the manufacturing sector. I'm wondering if there is communication, and if the federal government can help maybe improve that, between the cities so that a community like Chatham-Kent will know what's available, what's being called upon by the industries in your area, and can subsequently take advantage of that, and we can all benefit.
I guess Gary passed that one over here.
Yes, without a doubt, I think there are a number of initiatives going on. In thinking about this piece, we know there are efforts from Alberta companies, and our City of Calgary as a matter of fact, to reach out to Ontario communities to promote Alberta as a destination and a place of prosperity and job growth. Those do happen. We have Calgary Economic Development. The economic development arm has a specific initiative in that regard.
We are moving forward collaboratively as well, as a group of associations and industry professionals, trying to raise awareness of the labour challenges and the various opportunities out there, from strengthening the immigration piece, tapping into underutilized talent.
The last piece I'll share with you relates to...actually, from a federal government perspective, there are two things. The first is reforming the EI system: remove the distortions in the market, encourage people to migrate from areas of high unemployment to areas of low unemployment. Secondly, it's about conveying the message of the strength of the Canadian economy as a whole and the role the energy sector plays in that. I think it's important. Often perception is reality, and if we can ensure that the message is positive and collaborative across our provinces, I think that would go a long way to helping people with their mindset about moving to areas such as Alberta for employment opportunities.
Okay. I appreciate that.
I want to move on to Mr. Sinclair, on the manufacturing issue. You pointed out that Minister Flaherty had it in the 2007 budget, but before that, a couple of us were members of an industry committee that recommended it unanimously—in fact, by all parties. I always believe strongly in committee work, so I think that was some excellent work.
You're absolutely right. It was recommended by the Canadian Manufacturers and Exporters and a whole host of other organizations.
The challenge is—and members of the opposition will point this out—if you have corporate tax reductions, if you have accelerated capital cost allowance...the challenge is for industry and companies to show that they are investing as a result of these initiatives. You've stated it's working. If you can tell your member companies that the more evidence we have as members of Parliament to go to the finance department and to say extend this or make it permanent.... They will raise the argument: what evidence do you have as parliamentarians that companies are actually making investments as a result of these changes, specifically with respect to the accelerated capital cost allowance?
Do you want to address that issue? I know we're going to get challenged on it as MPs if we recommend it, so what would you say in response to that?