FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, May 30, 2001

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[English]

The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call the meeting to order and welcome everyone here this evening for a round table of business leaders. That is the order of the day for the finance committee. We have our presenters from the Canadian Construction Association, Canadian Steel Producers' Association, Canadian Trucking Alliance, Canadian Vehicle Manufacturers' Association, and the Mining Association of Canada.

You have approximately five to seven minutes to make your presentation. Thereafter, we'll engage in a question and answer session.

We'll begin with the president of the Canadian Construction Association, Dr. Michael Atkinson. Welcome.

Dr. Michael Atkinson (President, Canadian Construction Association): Thank you, Mr. Chairman. With me today is our director of communications, Jeff Morrison. We at the Canadian Construction Association certainly welcome this opportunity to provide a brief report on the current economic situation and outlook for the construction industry in Canada.

Since 1918 the Canadian Construction Association has been the national voice of the non-residential construction sector in Canada. We have some 20,000 individual member firms right across Canada. Our firms are involved in all aspects of the construction industry, with the exception of the building of single-family dwellings. They carry out industrial, commercial, institutional, road building, and sewer and water main construction; manufacture and supply construction materials; and also build multi-unit residential complexes.

Canada's total construction industry has played and continues to play a major role in the economic well- being of our nation, by building the physical infrastructure on which Canada's future competitiveness, social well-being, and prosperity are greatly dependent. It is important to remember that Canada's construction industry builds not only the nation's highways and roadways, but it also builds the nation's electronic highway.

The construction industry is also one of the largest, if not the largest, industry sector in Canada. We employ nearly 850,000 Canadians and arguably have become the largest single sectoral employer. Indeed, there is no doubt that as the Canadian construction industry goes, so goes the Canadian economy, and vice versa. Construction has always been a significant bellwether of our nation's general economy.

Nationally, the construction industry has just come off a fairly robust year. In the year 2000, construction gross output in current dollars increased by 9.6% over the previous year, with an overall value near $120 billion. Approximately half of that was attributable to the non-residential construction industry.

As you can see from this chart, construction growth rates increased in every province in 2000. The provinces that led the way were Quebec, Alberta, and British Columbia. However, overall employment numbers did not fare as well in 2000. In the same year that gross output went up 9.6%, employment in 2000 went up by only 1.2% nationally. Part of the reason for this was that wages were rising—total construction wages paid out in 2000 were $35.7 billion, up 7.8%. Another explanation for the lower employment growth has been, in fact, productivity gains in the industry. Contrary to a lot of popular opinion, the construction industry is well advanced in efforts at doing much more with less.

According to projections produced by Informetrica Ltd. for CCA in January 2001, it is expected that construction GDP in current dollars will grow by approximately 4.3% this year, which is down from last year's growth rate of 9.6%. The economic downturn in North America is the main cause of this decline in growth, although strong housing starts, a strong commercial construction sector, and slowly increasing government investment in infrastructure will hopefully ensure a healthy year ahead.

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As you can see from this chart, unlike in the past year, not all provinces will experience positive growth. Ontario is expected to lead the way. But some provinces—notably Quebec, Manitoba, Alberta, and the territories—are expected to experience zero or negative growth.

This prognosis has been somewhat verified recently by a first-quarter report issued by the Canadata firm in Toronto. It shows that new construction in the non-residential sector was down by some 18% compared with the same period in the previous year. It also shows the residential sector down some 12%.

The overall prognosis for the industry, however, for the remainder of 2001 and into 2002 is healthy, although certain regions and certain sectors are experiencing more severe downturns. Certainly in the heavy and civil construction area, for example, there is a drop-off. The expiry of the Canada Infrastructure Works Program, as that works through its period of time, will also have a negative impact upon that sector.

[Translation]

Mr. Jeff Morrison (Director of Communications, Canadian Construction Association): Mr. Chairman, employment, on the other hand, is expected to play some catch-up in 2001. Informetrica Ltd. projects that total construction employment will increase by 7.8 % in 2001, or 64,000 people, to reach almost 880,000 Canadians employed in construction. The reasons cited for this high level of employment growth include high wage rates, increased awareness for the need of construction labour, and a decreased demand for labour in industries that will be negatively affected by the North American economic downturn, such as the auto sector and manufacturing.

A Labour Force Survey conducted by Statistics Canada in April confirms that construction employment is rising in the first quarter of 2001. According to that StatsCan report, there were 849,900 people working in the construction industry in April, a 4 % increase over the same month in 2000 and a 5.8 % hike over March of this year.

[English]

Dr. Michael Atkinson: Mr. Chairman, one of the current myths in our industry is that we are presently experiencing a severe, critical skills shortage. While it is true that there are some temporary labour shortages in certain confined, heated areas of the country and in some specific trades, the Canadian Construction Association is satisfied that construction labour requirements are currently being met from a national perspective.

No significant negative impacts have been recorded due to a lack of skilled workers. We are certainly unaware of any project that has been cancelled or significantly delayed as a result of the concern about labour supply.

In certain metropolitan areas where the local economy is growing rapidly, there have been some isolated reports of labour shortages in particular trades. Such trades include bricklayers, carpenters, plumbers, electricians, and insulators. However, interprovincial mobility of labour has partially offset the impact of these localized shortages.

In addition, as I mentioned earlier, productivity gains by the construction industry have lessened the need for skilled workers. There's no question that the number of workers required to do certain skills or do certain activities in the construction industry 10 years ago is not the same today as a result of innovation, technological adaptation, etc.

We do, however, remain concerned over the future supply of skilled labour as we go out over the next 5, 10, and 15 years. There are two main factors causing this concern. The existing construction workforce is older than the population as a whole. Fully one-third of the construction workforce is over the age of 45.

As you can see from this slide, the construction workforce has steadily aged since 1987. As a result, a large proportion of the workforce will be leaving the industry by 2010.

As well, a smaller number of young people aged 15 to 24 are in fact entering the workforce, and fewer of them are becoming certified. Only 14% of current construction workers are aged 15 to 24, compared with 22% in 1987.

We are addressing these concerns through our support of the newly established Construction Industry Sector Council and our continued support of the Canadian Apprenticeship Forum. Both of these have as their priorities the need to enhance interprovincial training standards, such as the Red Seal Program, and to work with the provinces to eliminate remaining interprovincial mobility barriers.

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We are also working with our member associations across Canada to better promote construction as a viable career choice for youth. CCA member associations are actively involved in a multitude of projects designed to spread the message that a career in construction is a wise career choice and not the low-tech career choice of last resort.

[Translation]

Mr. Jeff Morrison: Mr. Chairman, governments in Canada are one of the construction industry's largest customers. Needless to say, as one of Canada's largest industries and employers it is extremely important for the construction industry to have some idea of the construction and spending intentions of governments at all levels for the next several years in order to properly and prudently plan training and labour supply needs. And yet, in almost every case, and particularly with the federal government, governments are not even planning several months ahead, let alone several years.

There is no national highway program in Canada. Our nation is the only OECD country in the world without a multi-year plan for upkeep and upgrade of its national highway system. The current municipal infrastructure program, while a good start, falls far short in both funding and planning to properly address the current infrastructure deficit in this country.

[English]

Dr. Michael Atkinson: Mr. Chairman, we've been before this committee many times during the pre-budget consultations, talking about the dire need for long-term planning and investment in our critical infrastructure in this country. In fact, our association has asked these questions: How can governments help our industry do proper training and planning for our labour force and for our industry? How can we increase productivity? How can we increase innovation in our industry over the next couple of years?

One of the best things governments can do for our industry is to prudently plan for their own construction needs. As was just mentioned, our infrastructure is in dire need of a plan and of rehabilitation, and governments do not have any long-term planning. In order for arguably the country's largest employer to properly train and know what it's going to need in the future as far as a labour supply is concerned, we have to have more long-term planning from our major clients, such as governments, in this area.

We certainly have appreciated this opportunity to present this brief overview of where our industry is currently and where we think we are going, and we'd be pleased to answer any questions as the discussion continues. Thank you very much.

The Chair: Thank you very much, Mr. Atkinson and Mr. Morrison.

We'll now hear from the Canadian Steel Producers' Association, the president, Barry Lacombe. Welcome.

Mr. Barry Lacombe (President, Canadian Steel Producers' Association): Thank you very much, Mr. Chairman. It's a pleasure to be here. On behalf of the association, let me say how much we appreciate the opportunity to present our views.

Basically, we'll describe the current economic situation facing the industry, present the medium-term industry prospects, and then talk a little bit about government policies that we believe are essential to enable innovation, productivity growth, improved competitiveness, and continued improvements in the standard of living of Canadians.

In terms of the current economic situation, the steel sector has been hit by three factors: first, the slowdown in the U.S. and Canadian economies; second, the tremendous surge in unfairly traded imports that entered the Canadian market beginning in the second half of the year 2000; and third, increased energy costs, which have abated somewhat recently.

In terms of the economic slowdown, steel producers, like other sectors of the Canadian economy, are feeling the effects of the weaker U.S. economy. The U.S. economy downturn has been steeper than people had expected, and certainly growth rates are lower than had been initially forecast. There is also growing uncertainty about the near-term outlook.

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The steel industry, as a result, has faced significantly reduced demand from the auto and other sectors. As the Minister of Finance recently pointed out in his economic update, lower growth in Canada reflects much slower growth in the auto sector, which in turn affects the steel producing industry.

Steel shipments in the first two months of this year declined by 9.7%. Exports declined by 13.7%. The industry is operating at about 80% of capacity. Inventories remain high, although there has been some reduction in inventory build-up, and an inventory correction appears to have started. Prices remain depressed, as do margins. The combination of low prices and reduced shipments has contributed to the industry's financial results in the first quarter of this year.

Like other industries, we hope that recent interest rates and tax measures in both Canada and the U.S. will lead to stronger growth in the second half of the year.

The downturn in the North American economy was complicated, reinforced by unfairly traded imports that entered the Canadian market during the second half of 2000. Imports in 2000 were 30% higher than in 1999. Prices fell by as much as $100 a tonne, cutting margins substantially and contributing significantly to the overall poor financial results in the fourth quarter of 2000 and the first quarter of 2001.

In response, the industry has availed itself of trade remedies, and in cooperation with the government has developed a steel action plan. Trade cases have been initiated, and they are proceeding for concrete reinforcing bar, for hot- and cold-rolled sheet, and for galvanized sheet. We trust that these cases will be successful, as have all the cases initiated by the industry since 1983.

In terms of energy prices, energy costs represent up to 15% of the cost of producing steel. The significant increase in natural gas prices over the second half of 2000 added to the pressure the industry was already facing due to the surge in unfairly traded imports and the drop-off in demand.

The medium-term outlook for Canada's steel producers is strong. I know this is going to sound a little bit like a disconnect, but in terms of the fundamentals of the industry, they are exceedingly strong. But there are some things that have to happen if the industry is going to be able to seize the opportunities that lie in front of it.

The reason for its strength is the industry's commitment to innovation, to continued strong productivity growth, to growing the market for steel, and to the ongoing improvement in competitiveness. The industry's voluntary statement of commitment and action shows the industry's commitment to environmental responsibility. There remain, however, structural problems, like world steel overcapacity and continued market-distorting trade practices in other countries that need attention to ensure that the opportunities that are available are fully seized.

In terms of steel demand, demand is growing strongly. You may not realize this, but steel demand grew by about 8.6% a year between 1993 and 2000. Over the same period, real gross domestic product increased at an average annual rate of 3.7%. The demand for steel was one of the fastest-growing demands in the Canadian economy. The industry's innovation, productivity, and competitiveness are the keys to this strong result.

The industry has worked hard to grow demand. Over 50% of the products today did not exist ten years ago. The industry's growth strategy combines expansion in existing markets facilitated by product and process innovation and the pursuit of new opportunities. The industry expects to grow by 20% to 30% over the next decade. A stable steel trade environment and a competitive international tax system are important to fully achieving the industry's strong potential.

Innovation facilitated by research and development includes: ultra-light high-strength steels for the auto industry that improve fuel efficiency while continuing to ensure passenger safety; new high-strength steels for construction, allowing buildings to be erected with 35% less steel than 30 years ago; high-performance steels for bridge construction, resulting in 20% savings in material and easier fabrication; steel-framed houses; and appliance manufacturers note that the increased longevity of appliances is attributable to higher-quality steel. There is a list in our presentation.

The industry works in partnership with customers and with academic and other researchers to ensure that products meet customers' needs and to develop higher value-added products and process improvements. Value added as a share of the value of shipments has increased steadily over the past decade.

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The Canadian steel producing industry has demonstrated strong productivity growth over the past decade. The industry has shown an average annual increase in value added per employee of 14% a year, compared with 1.4% for the economy and 3.2% for manufacturing. This didn't happen by accident. It's a result of the sizeable investments the industry has made, over $4 billion in the past five years. There is a list of activities that have been undertaken by the industry.

I also want to point out that the industry has invested heavily in new technologies, especially information technologies. Nearly $5 billion has been invested. Information technologies have brought tighter production controls, improved quality and consistency, and timely deliveries. The industry is a leader in e-commerce. It was recently rated second to banks in electronic commerce.

The industry is developing new approaches to environmental challenges.

We believe the keys to improving the Canadian standard of living are innovation, productivity, and competitiveness. Canadian steel producers are leaders in these areas. The steel future is bright, with strong demand in productivity growth. Steel making is high-tech and knowledge based. The industry's history of innovation has meant developing and attracting highly skilled new employees and developing the skills of existing employees.

I might point out that the industry has received an award from the Conference Board of Canada for its commitment to lifelong learning of its employees. It's hardly something you would expect from an industry that's perceived to be part of the old economy.

Nevertheless, there are challenges, and here are the areas where we believe the government might act. First, it can ensure free and fair trade in the Canadian market. Strong remedies consistent with the WTO are needed. The government continuing to work with the industry to address world steel overcapacity is essential and we very much appreciate the cooperation that has existed.

We believe there should be no government direct or indirect assistance to increase steel capacity and we think this commitment should be sought from governments internationally.

We believe there should be no government direct or indirect assistance to maintain uneconomic steel capacity, and this commitment should be sought internationally.

The industry wants and welcomes fair competition. This is not about not wanting competition.

The second area we would say is promoting innovation and productivity, including continuing to ensure an internationally competitive tax system and prudent fiscal management and debt reduction.

First, in this area remove the federal capital tax and work with the provinces to lower their capital taxes. These taxes cost investment, jobs, and productivity. This tax is particularly burdensome for capital-intensive industries like steel. I might point out that the OECD review of Canada's economy in 1998 found that capital taxes were, if I can say this, the worst tax of any tax in Canada in terms of costing jobs and in terms of negative economic impacts.

Second, levelling the statutory corporate rates does not level marginal effective tax rates or deal with international differences in effective marginal tax rates between sectors. Steel continues to face an uncompetitive tax environment and this affects investments, productivity, innovation, and competitiveness.

Third, ensure balance in much-appreciated government programs to promote innovation by recognizing the importance of manufacturing industries. A recent Industry Canada study said manufacturing had grown faster than the rest of the economy. GDP in manufacturing accounted for 16% of total output in 1983. This increased to 18% in 1997. A number of the programs to promote innovation seem to be directed at sectors other than traditional manufacturing sectors. This balance needs to be examined so that true balance in these programs for all sectors is available.

Fourth, Canada has lagged behind U.S. investments in new machinery and equipment. This gap has been identified as contributing to Canada's lower productivity growth and living standards compared with the U.S. Clearly the tax structure affects investment and needs attention. Consideration should be given to a tax credit for investments that revitalize machinery and equipment, if you will, that introduce advanced manufacturing technologies and/or improve environmental performance.

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Finally, the scientific research and experimental development program is an essential and important program. Consideration might be given to how this program might better reflect international research partnerships, which again Industry Canada said are key to continuing strong innovation in the Canadian economy and staying on top of innovations, and also in taking account of so-called shop floor research.

Third, skills development. The only point I'd like to make here is that Industry Canada again has noted that in the manufacturing sector the importance of advanced technologies and the needed associated skills to make effective use of these technologies is much greater for large plants than they are for small ones.

Canadian steel producers spend between $25 million and $30 million a year on training and developing employees. The Canadian Steel Trade and Employment Congress is an important joint initiative of the Canadian steel producers, the United Steelworkers of America, governments, and educational institutions to ensure a supply of highly qualified workers.

We support the recommendations of the Prime Minister's Advisory Council on Science and Technology and its expert panel on skills for the knowledge economy, including improving the links between our best science and business minds. These modern skills are essential throughout the economy and provide economy-wide benefits. Consideration might be given to recognizing the contribution that the private sector makes by providing an incentive for job training.

The last area, number four, is myth versus reality. The steel producers myth is that we're old technology, smokestack, unskilled, declining demand, low productivity, and old economy. If we weren't here, we could say one or two words to show that's not correct. The reality is that the industry is high technology and knowledge based and has highly skilled workers and substantial investment.

One of our members buys over 50% of the output from Hewlett-Packard every year. It's innovative, innovative in terms of both its products and processes. As I mentioned, it's seen as a leader in e-business. It has research partnerships with McMaster, UBC, Queen's, and McGill in Montreal, and we find it difficult to break into the government assistance area because “We're the steel industry”.

It's high productivity. I think the productivity record is among the best in the Canadian economy. We have growing demand and strong growth potential and we have environmental commitment in action.

In summary, Mr. Chairman, we appreciate this opportunity and we look forward to the discussion. Thank you very much.

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

Now we will hear from the Canadian Vehicle Manufacturers' Association, Mr. David Adams. Welcome.

Mr. David C. Adams (Vice-President, Policy, Canadian Vehicle Manufacturers' Association): Thank you, Mr. Chairman and committee members. We certainly appreciate the opportunity to appear before you today as part of this round table.

The Canadian Vehicle Manufacturers' Association has a 75-year history of representing Canada's largest automakers. Its largest members include Daimler-Chrysler, Ford, and General Motors. I have provided a presentation to you that's a number of slides, which I'm certainly not going to try to work my way through at the moment, but I'd like to try to hit some of the high points and some of the statistics in terms of providing you with a bit of an update on the state of the automotive industry and the Canadian economy.

The Canadian automotive industry is a key driver of the Canadian economy. It employs some 600,000 Canadians. In particular, we've invested as an industry more than $22 billion over the course of the last 10 years. In Ontario the automotive industry is particularly important, representing 41% of all the province's exports and 5.5% of the province's GDP. On a national level, the GDP for the automotive industry is about 2.5% and when you include a lot of the related industries and employment it affects, that can rise as high as about 7% of GDP.

The industry purchases from some 13,000 suppliers and has 3,600 dealers across the country.

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With respect to automotive production, there has been growth of around 54% from 1990 through the year 2000. This is quite impressive, but it's not quite as impressive as Mexico, which has increased its automotive production by 102% from 1995 to 2000, and represents a real challenge to Canada.

Currently, production in Canada is down 17%, on a year-over-year basis, from the year 2000. As Mr. Lacombe alluded, that's a function of the downturn in the U.S. economy.

What I'm trying to stress here is that we operate in a North American environment, and certainly the U.S. buys what Canadians produce as far as automotive products are concerned. Our industry has been integrated since 1965 with the signing of the Auto Pact, and 85% of what is produced in Canada, as far as automotive production is concerned, is exported. The majority of that is exported to the United States.

With respect to parts production, there has been dramatic growth over the course of the 1990s. It's more than doubled since 1993. That too is due to...well, the economic success, I guess, of the U.S. economy.

With respect to U.S. sales, they've grown steadily from 1991 through the year 2000, an increase of 38%, and therefore Canada has benefited. The U.S. had record sales last year of 17.8 million units. For this year we expect that to go down. Estimates vary from 15-plus million units to potentially 16.5 million. I think what you have to realize is that the decrease in sales in the U.S. would be the equivalent of the total sales in the Canadian economy.

With respect to the domestic market here in Canada, we have had weak growth throughout most of the 1990s. We're the only OECD country to sell fewer vehicles in the 1990s than we did in the 1980s. Our recovery in Canada started five years later, around 1996, so what we do have is some residual demand for replacement vehicles. For example, 30% to 40% of our fleet has been replaced versus about 60% to 70% in the United States.

An interesting statistic, although you might not notice it on city streets, is that almost 36% of the vehicles on the road are 11 years old or older. Now, that's a bit of a testimony to the quality of the vehicles we're building these days, but I think it's also a symptom of the fact that Canadians are finding it challenging to be able to afford new vehicles.

The tax cuts have been helpful in that regard. However, consumer confidence remains fragile, especially in communities where production and employment and whatnot have been affected by the U.S. slowdown. There's increased personal debt as far as most Canadians are concerned, lower savings rates, and a lower Canadian dollar. There is an affordability challenge despite the fact that vehicles in Canada, on a common currency basis with the United States, are priced roughly $3,500 lower. Needless to say, by the time taxes are added in they end up being about the same. It takes approximately 29 weeks for a Canadian to purchase a vehicle versus about 23 weeks in the United States.

I'd like to draw your attention to a chart—I believe it's the tenth slide in—called “Health of the Canadian Consumer”. It takes a look at personal disposable income. Personal disposable income has grown but not at the same pace of growth in the United States. It's interesting to note that in 1991, Canadian personal disposable income was 83% the rate in the U.S. However, in 2000 it was only 54%.

I also want to highlight the face of the domestic market. This has a lot to do with the affordability challenge that Canadian consumers face. We sell in Canada about twice as many smaller vehicles in our market than they do in the United States, and about half as many sport utility vehicles. Affordability, as I mentioned, is the real driver there.

Where are we going as far as the future is concerned? We are looking at production going down 11% from last year, to about 2.65 million units. You should be mindful, however, that last year we had the second-best production year on record. As well, with respect to sales, it looks as though sales will probably come in around 1.5 million units or slightly higher, which would be down about 1.3% to 1.5% from the 1.55 million units sold last year.

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We anticipate—still anticipate—a recovery in the second half of 2001. With respect to the future going forward, we anticipate that vehicle sales will be around 1.5 million units for the year 2002 and that production will start to recover.

In terms of the challenges that face the industry, certainly Canada has to remain competitive. There are 20 million units of overcapacity in the world today, which represents about 80 assembly plants. This overcapacity means there are 20 million more units being built than there are purchasers. What we need to do, I think, is ensure that Canada not only grows but also finds ways to maintain its production capacity here in Canada.

Mexico is certainly a challenge. I think when we're looking at comparisons often the industry is compared with the United States. We need to be mindful that we are in a global industry and that there are other countries that are certainly challenging Canada for the production mandates.

A number of the initiatives undertaken by the government have been helpful. Certainly the R and D tax credits have been helpful. We're looking at ways to recreate the auto industry, and as a society I think we need to come up with a new strategy for the automotive industry in Canada. The old way, which was the Auto Pact, as many members of committee have heard from me and others in our industry, went by the wayside on February 19. We're looking at a new way to try to grow the automotive industry.

We made a choice back in 1965 to focus on production and production jobs. Other countries may well find they have better cost structures and whatnot for their production jobs, so I think the key is, first, how do we capitalize on the fact that we do have bright graduates coming out of universities with engineering degrees, looking to stay in Canada, and second, how do we utilize their skills and creativity in an industry that is significant to the economy of Canada?

That probably represents the bulk of my comments. I would close by saying that the industry itself is shifting significantly, not only in terms of how vehicles are made—you hear lots about lean production—but also in terms of how vehicles are repaired. We're moving from a vehicle that had a mechanical system not that many years ago to a vehicle that now can be much more electronic than mechanical, certainly. You're looking at a whole new skill set that needs to be developed, honed, and utilized.

Certainly one of the items we've raised before at this committee is how to get new people into this industry, not only onto the factory floor—a lot of the people who came into the industry when the Auto Pact was signed and the factories were built, in 1965, are now retiring—but also at the dealership level in terms of mechanics.

I think others around the table have said the auto industry can be looked at as being old economy, too, but it's not. It's high-tech, it's innovative. Unfortunately, however, a lot of the skills we're looking for in people are the same ones other industries are looking for. So we're vying with other industries for skilled people—namely, for the technicians we need to service our vehicles.

In that regard, as I mentioned a few minutes ago, one of the things we have brought in front of this committee before is that any mechanism possible that would look at tax deductibility for technicians' tools and this type of thing would certainly be a step in the right direction in terms of encouraging young people to enter this field and embrace the new technology and new industry.

Thanks very much.

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

We'll now hear from the Mining Association of Canada, the vice-president, Mr. Dan Paszkowski.

Mr. Dan Paszkowski (Vice-President, Economic Affairs, Mining Association of Canada): Thank you, Mr. Chairman. I'm very pleased to be here. I'm replacing Gordon Peeling, our president and chief executive officer. While he was on some international travel he picked up some kind of bug, as happens once in a while, and is extremely ill at the moment.

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The Mining Association of Canada is basically involved in the exploration, development, mining, smelting and refining of minerals and metals in Canada. We represent the largest mining producers in Canada, which are many of the largest multinational miners in the world, such as Noranda, Barrick, Inco, Placer Dome, Cominco, etc. Mining has long been an important part of Canada's economic backbone, from the mining and mineral processing of ore to the services supplying the mining industry. And we make a significant contribution to the Canadian economy, often in areas that are remote northern and aboriginal communities where there is no other form of economic development.

Some of the statistics I have listed here are quite interesting. We directly employ about 400,000 people, which is one out of every 37 working Canadians; we represent three of the top 50 largest employers; we account for 13% of total Canadian exports valued at $49 billion; and we export 80% of all production in Canada to foreign markets. And that level has stayed relatively stable over the past number of years. Our value of exports has actually increased by 60% since 1993.

From a transportation perspective, we represent 69% of annual port volume and about 58% of annual rail freight revenue. So we are extremely linked to other export sectors of the Canadian economy in terms of enhancing their competitiveness in getting their products to market. Our productivity growth has been phenomenal. We're among the top three top leading industries and we have tripled the Canadian total economy productivity growth record over the 1984-1998 period. We represent nine of the largest R and D investors in Canada and five of the top 50 private research and development investors. So we feel we make a significant contribution to the Canadian economy.

However, we are price takers in the international marketplace, with a significant reliance on export markets. Therefore, the economic slowdown in the United States and weakened prospects for global growth since the last economic statement in October have negatively impacted our economic performance.

We've been facing a significant economic downturn, which began in 1997 during the Asian financial crisis. We were hopeful that we'd have some form of recovery in mineral demand and renewed global activity last year, which we hoped would lead towards higher metal prices. Unfortunately, the recovery was incomplete. We weren't compensated for the Asian downturn, and what has essentially resulted in a cyclical industry is that we're in the trough and we basically missed a full mineral price cycle. So things have been difficult.

We're also facing a number of other challenges. Over the past decade, rising expectations of customers, consumers, public authorities, society in general, and investors have resulted in increased competition for capital; new financing requirements; a trend towards larger companies through mergers and acquisitions; and, significant industrial modernization, innovation, and productivity gains, which we've met, to be able to compete internationally.

However, these challenges and the industry's economic hardship took place while the rest of the Canadian economy was enjoying strong economic growth, which was based in part on the fiscal policies at the federal and provincial levels. We commend the government for having established a solid foundation for economic success by reversing the pattern of deficit spending. There have been impressive gains, but there are important challenges that still have to be confronted.

To help Canada compete in today's new global reality requires sustained improvements in our regulatory processes, balanced reductions in both debt and taxes, and modest strategic spending on key areas of public policy.

A more efficient regulatory environment would help to improve the consistency in application of legislation and regulations, eliminate duplication of activities among departments, enhance the process of harmonization between the federal governments and provincial-territorial jurisdictions, and remove unnecessary delays and costs built into the current process.

Our debt-to-GDP ratio ranks among the highest in the industrial world. Therefore, we support the policy of the Minister of Finance when he appeared before this committee and stated “There is recognition that when you have a national debt as big as ours, the more you pay down the debt, the better it is”. We support this policy and we also support the $15 billion contribution to debt from the surplus for the fiscal year just ended.

We're also encouraged by the government's acceleration of tax reductions announced in the October 2000 economic statement. However, we also look forward to new options for cutting taxes.

To integrate the new economy into the traditional economy we recommend that the federal government include the mining industry in future corporate tax reductions, and reduce capital taxes like the large corporations tax, which are fundamentally in our view a tax on productivity and innovation.

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Just for interest, the mining and oil and gas sector, the oil sands, which we also represent, is responsible for about 12% of capital investment in Canada, which amounts to about $24 billion per year and comes second only after the housing sectors. We are large capital investors. We invest a lot of capital. In the cashflow situation we're in we make a lot of that investment before we even pull out one pound of copper, or one ounce of gold.

In Budget 2000, a key statement in our view was that the business tax system must be internationally competitive to enhance economic growth, increase productivity, raise wages, and create jobs. We're encouraged by this policy thrust since many rural, remote, aboriginal, and northern communities across Canada depend exclusively on mining, oil and gas, forestry, or tourism as their key prospects for economic development.

We're also encouraged by the policy direction noted in the most recent Speech from the Throne, which had an emphasis on rural, northern, and remote communities and the desire to work with aboriginal people to help strengthen their entrepreneurial and business expertise. This is an area in which we have played a significant part in Canadian society.

However, we're very concerned that in Budget 2000, as followed up in the October economic statement, the reduction in corporate income tax rates of 7% was provided to most sectors of the Canadian economy except mining, forestry, oil and gas, and related resource industries. These are the very sectors that provide hope and economic opportunity for these segments of society and in these parts and regions of Canada.

Furthermore, these very industrial sectors are the exclusive hope for an expanded tax base in many Canadian regions, including the Canadian territories, which are starting to expand significantly in terms of mineral development. Our mineral tax regime is under intense pressure from competing jurisdictions as the global economy becomes much more global. The speed and extent of corporate tax reductions in other countries, combined with the growing mobility of capital in the global economy, poses a serious threat to Canada's future growth. This is not simply a mining tax competitive issue, it is linked to all facets of the Canadian economy from the export of Canadian wheat via a competitive port or railway system to our industry's significant connection to the high-tech community. The economic repercussions are real, and very serious.

Just by way of example, the Deputy Minister of Industry Canada recently met with us and noted that in meetings with the president and CEO of IBM he questioned him as to who his largest consumers were. Very clearly the president said that it was the resource industry and the mining industry that are the largest consumers of their product. These high-tech new economy industries are service providers and it is the resource sector, the steel sector, etc., that are the purchasers of the services they provide.

In conclusion, ensuring long-term economic growth and boosting the Canadian standard of living and quality of life must be a fundamental objective of the federal government. To help our industry compete internationally we believe the government should promote change within Canadian institutions to improve government's knowledge of global challenges and help create the policy environment required to attract investment to Canada.

We believe the government should: create a more efficient regulatory process, including enhanced harmonization with provinces and territories; reinforce the plan for debt reduction by clarifying the targets and making stronger commitments to allocate funds for this purpose when surpluses are available; limit spending to areas of high public priority, particularly those that strengthen the economy and enhance Canada's long-term international competitiveness; improve our mining tax regime by extending the corporate income tax rate reduction provided to other industries in Budget 2000 to the mining sector; and continue to reduce the federal corporate tax rate to open up a clear Canadian advantage.

We also believe the provinces have an important role to play in this too. They should maintain the current tax provisions for the mining sector that make the system sensitive to variations in risk, and reduce capital taxes, which we believe are a tax on productivity. We also encourage the federal government to work with the provinces on capital tax reduction, to reduce profit-insensitive taxes and user fees, which were mentioned in the last segment of hearings, and continue the process of personal tax reductions.

Thank you, Mr. Chairman.

The Chair: Thank you very much. We'll now proceed to the question and answer session. Any member who wants to can ask a question and everybody can have a ten-minute round.

Mr. Kenney.

• 1905

Mr. Jason Kenney (Calgary Southeast, Canadian Alliance): I thank you all very much for being here, for being willing to start late, and for these excellent presentations.

One issue I think several of you have raised is the question of the capital tax, and it sounds like there's something close to unanimity about the desire to either reduce it or eliminate it. I wonder if you could give politicians pointers about how to sell a tax reduction/elimination, which is easily perceived and understood as a tax on rich, profitable corporations. In other words, could you put into layman's terms the beneficial effects for ordinary people and the economy in general of reducing or eliminating the capital tax? That would be my first question.

I have a particular question for Mr. Lacombe from the steel association with respect to the trade issues related to your industry. You're asking for the government to assist you in ensuring that there's free and fair trade for steel products produced by Canada. I'm not familiar with the situation in terms of steel exports or imports to Canada. I know that the United States is once again looking at countervailing duties, and I think the recent changes in the Senate probably won't be very helpful in that regard given that people like Senator Rockefeller will now be leading the agenda on steel in the United States from the Congress.

So I wonder if you'd comment on that. Are we subject to, or likely to be subject to, bogus anti-dumping measures in the United States, and how is Canada negatively affected by de facto subsidies or dumping from foreign competitors?

My final question relates to the Canadian dollar. A number of people did mention the negative effect that the dollar's having on your respective industries. I wonder if you could elaborate and comment on how you would be affected by the revaluation of our currency closer to the level of the U.S. dollar.

The Chair: Who would like to start?

Mr. Jason Kenney: Actually, I had a specific question for Mr. Lacombe. Why don't we start with him.

The Chair: That's right.

Mr. Barry Lacombe: We're very fortunate tonight because with me is Don Belch, chair of the CSPA trade committee. Maybe we could start with the trade issue first, Mr. Kenney, if that's fine with you.

Mr. Donald K. Belch (Director, Government Relations, Canadian Steel Producers' Association): Your first question related to the potential of a U.S. section 201 complaint, which is being driven, as you said, by Senator Rockefeller. Now that there is a realignment of the parties in the Senate, it's much more likely there will be a Senate-driven section 201 complaint that the House of Representatives would also support. I think our federal government has been able to explain to the U.S. administration why that would be the wrong route to go down. It has less leverage with the Senate and with the House. Canada should nominally be excluded from a section 201 investigation by the U.S., but the terms of the NAFTA that would allow this exclusion would require you not to be amongst the top four or five suppliers to the U.S. and not to have increased your volume. As it works out, Canada is, in at least four of the five major product groups, a major supplier to the U.S.

We would probably have to defend our interests if a number of those investigations went forward. I would expect that at the end of the process we might be able to get out of the remedy side of it, but you may know that the whole issue of how you provide for exclusions for Canada or Mexico has been challenged at the WTO and we certainly do have a risk there. It's not well understood how it might play out.

Mr. Barry Lacombe: If I might add to the second part of your question, on how subsidies and dumping into the Canadian market affect the Canadian industry, what we have done is since 1992 the industry has taken on a number of trade cases, all of which have been successful. There's a period of investigation and that's a period during which one looks to see whether there was dumping or subsidy. It's usually about a three-month or four-month period, something like that. So for cases from 1992 up until 2000 we just calculated using the CITT information on what the loss to the Canadian industry was, and it came out in the order of about $1.2 billion.

• 1910

Before you can bring a trade case, there's a longer period than that during which the industry has to suffer injury. That's not scientific, that's just taking the CITT numbers and running them through and making that estimate.

Mr. Jason Kenney: My next question was on the capital tax.

Mr. Dan Paszkowski: I'll answer that.

The question was how do you sell a capital tax reduction or work toward repeal of capital taxes. Many industries in Canada are cyclical, including our own. You pay capital taxes whether you're at the top of the cycle or whether you're in the trough of the cycle. When you're in the trough, the capital taxes eat away at any possible profit you may have.

Most industries today are export-dependent in Canada and we compete in a global economy. We have to be the most innovative and the most productive. A capital tax is a tax on productivity.

We have to meet new environmental regulations. To meet those regulations we have to make significant investments. In many cases we supersede the regulations, which require more investment. Capital taxes make it extremely difficult to invest the hundreds of thousands if not millions of dollars in new capital to meet emission or effluent reductions.

Capital taxes have an impact on employment. We believe they're a tax on employment, because if we can't make a profit, we can't employ Canadians. We have to invest in capital.

Taking a look at the large corporation tax and some of the research we have done, we can't find any other jurisdiction in the world in the mining industry that has a large corporation tax implemented on them.

We did some work in terms of some hypothetical models. We repealed the large corporations tax and then we tried to identify what would the increase in the federal corporate income tax have to be to get our internal rate of return back to what it was before the repeal of the large corporations tax. What we found was that you'd have to increase the federal corporate tax by 20%, which is equivalent to a repeal of the large corporations tax. The reason for that is that for those capital-intensive industries such as mining, we have to invest the capital before we pull the ore out of the ground. So from a life cycle perspective, it has a very significant impact on our industry.

Taking a look at that corporate tax example and productivity and environmental benefits, I think it's probably not that difficult to go to Canadians and say let's take a look at reducing capital taxes.

Dr. Michael Atkinson: I would absolutely agree. It is definitely a tax on employment. It's a disincentive to innovation. I think it's critical to get across the point that those corporations pay that tax regardless of whether they're in the black or not. It's a disincentive to investment.

It's a disincentive to all the kinds of innovation and the right kind of investment that we need in Canada to make our companies and to make our businesses and to make our country more competitive, more environmentally friendly, etc. That's the kind of investment you have to make in order to do that.

It is a tax on jobs as well, on employment, because it goes right to the bottom line in the sense that it's not a tax on profit.

The other complicating factor, or the other factor that makes it even more insidious, is that the federal government now has a ceiling on the deductibility of the capital tax that you pay. So from that perspective it becomes compounded.

The Chair: Mr. Lacombe.

Mr. Barry Lacombe: The only thing I would add.... We fully agree with that.

One might try a simple kind of example. It's as if you or I invested and we had this investment and then we had to pay tax on the sum of the investment, regardless of what the yield on that investment was. I don't know whether it's possible to come up with simple examples like that to kind of draw a parallel for the “average Canadian”, but I don't think anyone would feel very happy if they bought their GICs or whatever and then found they were taxed on the $100 GIC as well as the 4% or 5% coupon rate they had on it. I think they'd kind of say, geez, that doesn't strike me as being very fair.

The Chair: Are there any further comments? Mr. Adams.

Mr. David Adams: The only thing I would add is that it's been mentioned, not only in this session, but in the previous session, that we need to come up with an internationally competitive tax system in Canada. I think getting rid of the capital tax is one component of that. I think the auto industry would certainly echo the comments that have been made, especially if you look at the sectors that are before you today. They are the capital-intensive industries in Canada.

• 1915

The Chair: Mr. Kenney.

Mr. Jason Kenney: I had also asked about the currency issue. Before you get to that, if any of you have done research in your industry associations as to how much your industries pay collectively in capital tax, I would appreciate knowing that. But go ahead with the dollar question, if you don't mind.

The Chair: Who wants to answer the dollar question?

Dr. Atkinson.

Dr. Michael Atkinson: Our economy to a great extent is driven by our exports, and you're talking today with a number of resource-based industries, sometimes called the old economy. I would argue it's the new economy. Without the healthy success of these industries here, there is no new economy.

From that aspect, I think it's important to realize that while the dollar gives us a certain competitive edge, the dollar is not necessarily a disincentive to our ability to compete. What's more important, I believe, for our members and our industry, is to have the right kind of climate that allows us to be innovative, to be productive, to grow, and thus to compete.

That's a competitive tax environment, basically. That's an environment where inflation is under control. It's one where we not only have prudent fiscal management in terms of paying down the debt, etc., but we also begin to address the other long-term deficit we have in this country that we aren't currently addressing, and that's our physical infrastructure in terms of both municipal waste water and national highways. I mean, if we have a situation where, as Mr. Adams has said, we have, on average, 11-year-old vehicles on our highways and roads, I would hate to think what the condition of our current roads is doing to those automobiles.

The Chair: Mr. Lacombe.

Mr. Barry Lacombe: We would agree with comments made in the earlier session about innovation and productivity, and about the debt as being key. From the point of view of the steel industry it's pretty well a wash. We have to buy machinery, we have to buy inputs from the U.S., and so on, so for us it's pretty well a wash.

There is another dimension to currency, however, which is that because we're all talking about the U.S., the Canadian currency has been comparatively strong in terms of currencies other than the U.S. That also has a competitiveness impact on us. In something like steel, where a lot of the imports are coming from other countries, that does have some impact on us.

The Chair: Mr. Adams.

Mr. David Adams: I'd just like to comment that in the automotive industry, certainly a lower dollar helps in terms of producing and selling vehicles stateside. As I think I mentioned in my presentation, autos being sold in Canada are not even sold to really recover the exchange rate. They're around $3,500 less on a common currency basis.

I guess this poses some challenges to our market. When you have certain vehicles, especially vehicles that are selling very well, in the Canadian market, it becomes a situation where there's an incentive for people to export those vehicles back to the U.S. market. That causes all sorts of problems for not only the dealers who might unwittingly sell vehicles to somebody who's going to turn around and export it but also for the manufacturers, who are allocating product to the Canadian market and to the U.S. market. So it's an issue there as well.

The Chair: Mr. Paszkowski, go ahead.

Mr. Dan Paszkowski: Just very briefly, we export 80% of our product, and we export in U.S. dollars, so obviously a low Canadian dollar does provide some upside benefit. A 1% appreciation or depreciation of the Canadian dollar means, for some companies, millions of dollars. It has provided a cushion for us in times when we're in the trough. When mineral prices are low, a low Canadian dollar does provide a cushion for us, but it's not something that we attract investment on.

I mean, we're looking more at good, solid, macroeconomic fundamentals within the Canadian economy to be able to attract investment, and a competitive tax regime to attract investment. The Canadian dollar isn't really an issue that people look at when they're trying to establish a mining operation in Canada.

The Chair: Thank you, Mr. Kenney.

Ms. Barnes.

• 1920

Mrs. Sue Barnes (London West, Lib.): Thank you, Mr. Chair.

Thank you very much for your presentations. I know a lot of you sat through the prior presentations. It's going on four hours for this one meeting today.

Overall, people's sectors are very healthy. It's been a relatively good-news story on a lot of fronts, and we're pleased about that. But what I've heard time and time again, not only from you but from the other presenters before you, is get the taxes down; let's do more tax incentives for my sector; let's get the debt down; and let's spend some money on infrastructure or some other programming.

Every time you give a tax break in an industry it's another form of spending, essentially, and I want to recap for our audience as much as anybody else—because I'm sure you're very aware of this—that we have done $100 million worth of tax cuts. Or rather, $100 billion.

Mr. Jason Kenney: You were right the first time.

Mrs. Sue Barnes: It's $100 million, sorry. I am getting tired, Jason.

The Chair: You were right the second time.

Mrs. Sue Barnes: We are heading toward the goal of 40% of GDP for debt reduction. I think that's laudable, and I think everybody's happy about that. But I also heard you say we should budget for more debt reduction. Well, at the federal level here, any money that is left over automatically goes down to debt reduction.

In my constituency, the number one concern before debt reduction and tax reduction is people's health care, still their education, and moving up very rapidly over the past year is this top-of-mind issue on environment. So there are costs for our lifestyle here in Canada. It is the balancing technique.

If we keep going, to take all of your arguments—and it's not just yours, but you happen to be sitting here at this point in time—with tax cuts, tax cuts, tax cuts, at some point there won't be the surpluses, when we have to do our necessary spending, to do the debt reduction. And I believe debt reduction is very important.

So I need to hear some appreciation of the fact that we are doing all of these things right now, and doing them, in actual fact—contrary to what I've heard earlier today—faster than the Americans have done them in terms of implementation. We're already there and they've just passed them. We're doing a pretty good job, and so are you in your productivity.

I know, for instance, the mining industry is being a lot more environmentally sensitive. I know the steel industry is doing innovative work, which has an impact on how clean that environment has become over time. So I think we're all doing our jobs.

As for more roads, I think that's a situation.... An earlier presenter, for instance, talked about having EI. I know how important those spending policies are to the construction industry.

So I want you all, in a sense, to acknowledge that your voices are being heard and that in reality what you're asking for is being done at this point in time. That is the reality, and most people agree with that. It's not the flat tax regime of another party. Come on, that's the reality.

Mr. Lacombe, perhaps you can start off. You should have some knowledge about revenues and other issues.

Mr. Barry Lacombe: We obviously appreciate what the government has done with the tax reductions—corporate tax reductions, reductions in personal income taxes, the shift in the tax brackets, and so on. That certainly has been very helpful. Similarly, debt reduction has moved along much quicker than had been initially forecast. We're very happy about that, because that takes pressure off the capital markets, obviously.

Where we're coming from—and obviously we're going to come at it from an industry perspective—basically we're talking about measures that will improve the standard of living of Canadians. That's why we're focused on innovation and productivity. You know, even in those areas the government has done a lot, for instance with the money they've put into the innovation area—

Mrs. Sue Barnes: [Inaudible—Editor]

Mr. Barry Lacombe: —exactly—and a number of areas, a number of initiatives, ranging from university chairs to climate change technology research funding and so on.

The only point we, or at least I, would like to make there is that in many instances these have been pitched at the high-tech sectors and/or aerospace and—in deference to my good friend David—automobiles. A number of sectors have been left behind, and we'd like to see some balance in that.

• 1925

As we tried to point out, the steel industry does a lot of research. In the case of the SR and ED program, we made use of it.

Mrs. Sue Barnes: It's the only program, Mr. Lacombe, that doesn't have a cap on spending. As long as you qualify, it's not like we've run out of money and you can't do any more R and D.

Mr. Barry Lacombe: Absolutely.

Mrs. Sue Barnes: The industries in this country have an advantage that no other OECD country has on R and D.

Mr. Barry Lacombe: Absolutely, and I might say that it was a very well-managed program.

What I'd like to say on that one is as we move now to more international partnerships in research, how does the program deal with that kind of manifestation of research—or can it? The second is shop floor, which is not new, and we know that CCRA is working on these. In fact, as we are talking here, they're having a conference in Ottawa on SR and ED—

Mrs. Sue Barnes: Today, actually.

Mr. Barry Lacombe: —dealing with those issues. We just want to give encouragement that they continue to deal with them.

In terms of the capital tax, as others have said—and I think we all agree on this—you can look at it as a tax cut, which it obviously is, or you can look at it as something that's key to improving innovation and productivity and therefore the standard of living of Canadians. We prefer to look at it as improving the standard of living of Canadians.

Let me give you an example from the steel sector. The steel sector wages relative to the average of manufacturing are much higher, and over the last decade they have grown much more rapidly than they have for all of manufacturing. That's just because of the growth in productivity spilling over into higher wages, therefore a higher standard of living, and so on. That's kind of what's driving us.

The steps the government has taken we fully appreciate. There should be no misunderstanding. We're in a position now that we certainly weren't in as a country in the early 1990s. We've come a long way.

Mrs. Sue Barnes: I actually agree with having a tax system that uses tax policy to direct economic policy or to encourage some industry, and that's what you can't get if everything is equal or flat or whatever words you want to use. You can encourage development, you can encourage economic activity through your tax system, which is essentially a policy system.

You wanted to add something.

Dr. Michael Atkinson: First of all, I want to say that when we're given five minutes we can't always talk about all the good things the government is doing. We want to concentrate and try to give you some positive criticism. And I'm about to give you some more positive criticism.

When you talk about infrastructure being important to the construction industry, our infrastructure is important to Canada. When you talk about the priorities of health care, education, and environment, none of those priorities or objectives could be met without a safe, sound, environmentally friendly infrastructure. We're the industry that has to provide that for Canadians.

Certainly when investing and reinvesting in our infrastructure, it's not “spending”; it's trying to do it in a prudent manner so that when that bill comes it's not unaffordable. Right now the Federation of Canadian Municipalities puts our current municipal infrastructure deficit at $44 billion.

Your government has made some steps in that area to address municipal infrastructure in this country. It's a good start, but we're far from having a long-term strategic approach to how we're going to deal with that vital physical infrastructure in terms of ensuring that we have clean air, safe water, a safe and environmentally friendly place for our children to go to school, that we have the health care facilities that we need, etc. We are far from putting a plan together in Canada, let alone looking at what it's going to take in terms of an investment, reinvesting in that. We need a plan.

Similarly, with our national highways, which are so important to our exports, so important to economic productivity in Canada and our own standard of living, we have absolutely no plan, let alone talking about how much we're required to spend.

I never hear from any Canadian anywhere who ever says we really don't need to invest in infrastructure; let our roads crumble, let our bridges fall, let our sewage treatment facilities go to waste; let's not be concerned about clear air or clean water.

So it's not a question of whether or not we as Canadians are going to reinvest in our infrastructure; it's a question of when and how much. And the longer we allow the clock to tick, the worse it gets.

As far as we are concerned, we do not see infrastructure reinvestment and infrastructure planning in this country being opposed somehow to health care, education, and the environment. It is all part of the same picture, all part, unfortunately, of the same puzzle. We have to start putting together some kind of plan in this country on how we're going to address it.

• 1930

This government has taken certain steps to ensure that this is going to happen, but we are far from having a plan, a strategy, in this country. And that's what we really have to get to first. The money—how much is required and when it is required—comes after. Having a plan in place makes it a lot easier to address in terms of leveraging private investment, in terms of ensuring that we can do it in an efficient manner, and as I mentioned in my opening comments, ensuring that we have the right training and the right innovative approaches. We need the plan first.

Mrs. Sue Barnes: I'm glad you acknowledge that after the plan comes the tax dollars to pay for the plan. That's really important, and we agree on that.

I'll let you add your points.

The Chair: Go ahead.

Mr. Dan Paszkowski: Thank you.

I also think it's difficult in five minutes to identify all the positive things this government has done over the past number of years. We're quite thrilled with the direction the government has taken in terms of moving on, enhancing, and accelerating tax reduction—and for all Canadians, not just corporate Canada. We put debt reduction as one of our number one priorities in an overall plan, because we're paying $41 billion per year in interest payments, which is $3.5 billion per month. I think your constituents would love to have a piece of that, as would all Canadians right now.

When we have low interest rates, as we do right now, I think that's a perfect opportunity to pay a larger part of the federal debt, because the threat is that if interest payments rise, then things come to risk. Our tax reductions are at risk and our health policy is at risk, because you no longer have the funds to make those investments. So we do think that debt reduction is a number one priority and that spending has to be strategic, whether it's in health care, education, or productivity and innovation.

From a corporate tax perspective, we're looking for a rate reduction. All other sectors of the economy were invited to a 7% tax reduction party, and we're being asked by officials at the Department of Finance to pay a price to get the 7% reduction. We do think that's unfair. We're competing in a global economy, as is everybody else. The capital dollars that are out there, the investment dollars, are limited, and we have to compete with every other sector of the global economy for those dollars.

If you're taking a look at a mining project in Canada versus a mining project anyplace else in the world, a board of directors requires a certain internal rate of return. The current Canadian tax system has to be competitive to get that project in Canada.

Unlike other sectors of the economy, there are a lot of uncertainties in our sector. We don't know what the environmental regulations are going to be tomorrow and how that's going to affect our bottom line. A mine could be in operation for seven years, and we have to invest a significant amount of capital. And no mine is the same. Unlike building a building, the engineering feats are significant. That all has to be factored in.

Those are additional risks above and beyond global competitiveness for taxation. Other sectors are ramping up very quickly to get that investment. Canada was the number one tax-competitive jurisdiction in the world to attract mining investment. Others are ramping up, and we're getting close to being equal to everybody. We feel that we should have a competitive advantage.

Mrs. Sue Barnes: Thank you very much, Mr. Chair.

The Chair: Thank you, Ms. Barnes.

Before I wrap it up, I want to express to you our sincerest gratitude. I know it's kind of late in the day for this type of discussion, but you know, we could go on all night. The topic is very interesting.

I want to say to you that this committee has heard your message on capital tax. As a matter of fact, it was one of the things we recommended, as you probably know, in the last Budget 2000 report. We too believe it's a tax on innovation and productivity.

One of the themes this committee has taken up is the issue of productivity, because quite frankly we feel it is perhaps the most important issue facing our country. Our standard of living and quality of life at the end of the day really stem from that particular issue.

That said, in a recent report entitled Canada at the Crossroads, by Michael Porter—you've probably heard of him—and Professor Martin, if I'm not mistaken, from the University of Toronto, they said that a lot of progress has been made at the macro level, meaning that governments are doing the right thing. They're reducing the debt, they've lowered taxes, and they're working on reducing business taxes. But at the micro level in Canada, the authors said, we haven't really seen the productivity gains we should.

• 1935

Now, I understand that maybe your industries are not the ones we're referring to. How important is productivity to your industry? Is this a top-of-mind issue, Mr. Lacombe?

Mr. Barry Lacombe: It's more than top-of-mind, it's absolutely essential for the industry to continue to be competitive. So a lot of time and effort and energy is devoted to productivity. It doesn't matter whether it's through improving the skills of the employees, where the industry has spent a considerable amount of time, where CSTEC, as I mentioned, plays a critical role, the level of investments to improve productivity, or process improvements. In fact, one of the big benefits of e-business is not e-business itself, but the way in which it forces you to rethink your supply chain and your value chain, those kinds of benefits that flow from it. So for the steel industry it has absolutely been crucial.

The steel industry is an interesting example, because, as you'll recall, in the early 1990s the industry was not very well positioned. It had to invest heavily. It had significant productivity gains, significant improvements in competitiveness, and it had to upgrade skills while letting employees go at the same time. It had to manage this whole adjustment in that period, which it handled very successfully, working in conjunction with the unions. But productivity is just absolutely top.

I might also add one other point. I believe it's actually York University that Professor Martin's from, and you might be interested in knowing that one of the members of the CSPA sponsored the conference that concluded before the Porter report that there was a micro need for culture of innovation. That was done also at that particular university. So this is on the mind of everybody in the steel industry.

Dr. Michael Atkinson: For people in the construction industry, productivity is a major concern. Our industry is comprised of 90% small business. It's very much a small business industry, Canadian-owned. It's a very competitive industry domestically as well. With challenges like a concern about future labour supply, productivity becomes an even bigger issue to deal with, to make sure that you are on the leading edge of technology, to make sure that you adopt technology the best way you can. There's no question that e-business and e-commerce are having a major impact on the construction industry.

As well, as our clients change, in the private sector particularly, and drive a demand for faster, cheaper, more efficient, etc., it is becoming a need for the industry to be very responsive to that. So there's no question that productivity is a major concern. But when you ask small business how they can become more productive, what are the kinds of incentives they need to become more innovative, become more productive, to adopt technology faster, etc., they rarely say it's going to be done through a government-assisted program, or through some kind of government program. They always come back with the same answers: give me a climate in which the tax regime is fair, in which I can manage my business and look at the future with certainty, in regulation, in respect of interest rates, in monetary policy, etc. So a certainty about the marketplace and where it's going, without concern or fear of government intervention, quite frankly, is a major thing we hear back from our members.

Yes, then, productivity is a major concern, but at the same time, we are certainly not hearing from our members that productivity is a magic wand somebody can wave over an industry and make it all better. It is something that industry itself will take. Small business is very productive, very innovative, and can take those advantages in the marketplace. It has in the past, and it will continue to do so.

The Chair: Let me follow up. North American economic integration is becoming more and more prevalent. It goes above and beyond government's knowledge, because at the end of the day, it's people in businesses that trade and enter into business agreements. We, I guess, set up the framework for the trade to occur and collect data that tell you Canada has exported x amount of dollars worth of goods and services to the United States, for example.

• 1940

Are we concerned about the gap between United States and Canada in productivity?

Dr. Michael Atkinson: First—and maybe some others would like to comment on this—we talked to the Governor of the Bank of Canada about this, and with the concerns the Bank of Canada raised with us about not seeing the productivity increases and enhancements they would have expected to see in the Canadian economy now, as compared to when the American manufacturing regime went through its revival, if you will, one has to question some of the measuring sticks that we use and are inherent in the manner in which productivity is measured, particularly in our industry.

I think that's a starting point, because I can tell you that if you talk to any of the 15,000 to 20,000 member firms we have in our industry and our membership and you ask them how their firm is now compared to even five years ago in regard to what they need by way of the various inputs, all of them will show tremendous changes towards better efficiencies, etc. So when you get out on the street and away from the ivory tower economic “push the buttons and punch the numbers”, we're just not seeing it lagging, at least from the point of view of the Canadian construction industry.

The Chair: Mr. Paszkowski.

Mr. Dan Paszkowski: Productivity is critical in our industry, particularly over the past ten years, as a lot of developing countries are becoming mineral producers as a form of economic development. Most of our mine deposits are 3,000, 4,000, or 5,000 feet under the earth's crust, and in most developing countries, which are fairly new to the mining industry, you can basically trip over that mineral deposit. We can still produce and get that ore out of the ground at a lower cost than they can in many instances and be at the lower quartile of production costs.

That's about the only thing we control. We don't control our prices on the international marketplace, we don't control energy prices, which are killing us right now, we don't control a number of our input costs. So the one thing we do have control over is our productivity, and that's an area we've excelled in. We've out-performed most countries, including the United States, but it's not something we can say cheek in mouth. We have to work at this year over year over year, and now we're exploring GPS, satellite technology, etc. So the investments we're putting into research and development are paying off quite fruitfully in respect of our productivity.

We hope we can continue a 3% annual growth in productivity into the future, but it is one of the only ways we can compete in the global marketplace. That's one of the reasons capital taxes are so important, because as you become more productive, you have to invest more in capital on an annual basis. If we can lower the capital taxes, we can enhance our productivity, employ more people, and be able to compete for many decades to come.

The Chair: Thank you. We'll now hear from Mr. Adams and have a final comment from Mr. Lacombe.

Mr. David Adams: With the automotive industry being a multinational industry, any studies I've seen on it indicate that multinational firms operating in Canada tend to have higher productivity levels. I think that is a function of certain technology that is used in an auto production facility and can be transplanted into any jurisdiction. Productivity is central in the auto industry, and J.D. Power makes a living out of measuring the productivity of various assembly plants across North America. It becomes a real yardstick by which our industry is measured and by which product mandates may be allocated, on the basis of how productive a plant is.

Productivity at the assembly plant is one area of productivity in our industry, but you can also see, as was mentioned before, e-commerce flowing over into the supplier chain, with the whole Covisint, which is the e-commerce portal, I guess, for automotive suppliers, and potentially, into the distribution area as well. I know that represents a challenge between ourselves as manufacturers and our dealers as to how we work out that relationship, but productivity really involves the whole automotive industry in that regard.

The Chair: Mr. Lacombe.

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Mr. Barry Lacombe: I have two quick points, Mr. Chair. First, with the productivity gap between Canada and the U.S. in the steel sector, the U.S. is the country that has the gap, not Canada.

I think one of the interesting things is that sometimes we get lost in the macro statistics, and we don't have a good sense of where strengths have been developed and how these have been developed. I'm sure that if you were to visit one of Michael's operations, or David's, or Dan's—and certainly we'd invite you to visit a steel mill—you would be surprised at the degree of investment that has gone into them, the technology that's at play, and just how productive they really are. Sometimes when people use all the numbers, you lose sight of areas where things are not exactly the way the aggregate numbers would display them.

The Chair: That's an excellent point.

On behalf of the committee, thank you very much. It has been a long evening, but well worth our while. Of course, we'll be inviting you again to appear in, probably, September or October, when we hold our pre-budget consultation, but this has been great.

Thank you very much.

The meeting's adjourned.