FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, September 25, 2001

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[English]

The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I call the meeting to order. We'll make sure everybody sits, although we're much more interested in finding out where you stand on issues.

We have representatives from the Mining Association of Canada, the Canadian Co-operative Association, the Canadian Real Estate Association, the Canadian Chemical Producers' Association, and the Hotel Association of Canada. All of you have probably appeared before the committee in the past. You know how it operates. You have approximately five to seven minutes to make your introductory remarks, and then we proceed to a question and answer session.

We'll follow the order outlined in the agenda, and therefore we will start with the Mining Association of Canada. We have two representatives, the president and chief executive officer, Mr. Gordon Peeling, and the vice-president of economic affairs, Dan Paszkowski.

Welcome. You may begin.

Mr. Gordon Peeling (President and Chief Executive Officer, Mining Association of Canada): Thank you, Mr. Chairman.

[Translation]

Thank you for inviting me here today to share with you some thoughts about the economy and the competitiveness in the Canadian mining industry.

[English]

I would also like to note, as you have, that Dan Paszkowski, our vice-president of economic affairs, is here with me today as well.

Several weeks ago we forwarded to the clerk of the committee our pre-budget submission in both official languages. Consequently, we do not plan to repeat every detail, and will simply focus our remarks on key issues today.

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In planning for Budget 2002 and the future the main challenge confronting the government is the maintenance of a competitive and productive economy over the long term. This still must be kept in mind, despite the tragic events recently occurring in the United States.

The OECD recently reported that the federal government should resist the urge to spend more, and instead use surpluses to pay down more debt and cut taxes further. In our view, the federal government should bring down the Canadian public debt burden faster; speed up the reduction in corporate income tax rates for all sectors of the economy, including the mining sector; lower personal income tax marginal tax rates further; eliminate capital taxes, which are among the most growth-constraining of all taxes; keep a tight rein on spending; and orient government spending towards growth-enhancing investments. These recommendations are vital to fostering a globally competitive Canadian mining industry, one which will continue to be the economic base for aboriginal, rural, and remote communities, for whom our industry, in many instances, is the exclusive hope for an expanded tax base and economic self-sustainability.

The statistics you have before you on our production exports, employment levels, and productivity are well known to all of you, you've seen them in our submission. I won't repeat them, except to note that we have grown tremendously in our exports over the last decade, by 70% over the last eight years. We're also one of the leaders in the Canadian economy in respect of productivity and innovation, and we're a significant investor in the economy. It also speaks to the fact that it is not a new economy or an old economy, it's one economy.

Let me turn to debt reduction. While the debt to GDP ratio has fallen to 53%, the net debt of $547 billion is still excessive. Similarly, interest charges on the debt have fallen from 33 to 24 cents of every revenue dollar collected, yet debt service is only projected to be reduced by $500 million to $41.2 billion in the fiscal period 2002-2003. And interest charges on the federal debt still represent a considerable monthly charge of $3.5 billion approximately. Simply focusing on the debt to GDP ratio does not capture the full burden of debt service charges, and it should not divert us from the need to reduce the debt in absolute terms. The Mining Association of Canada recommends a separate target of 15% for debt service charges as a proportion of government revenues, with a minimum amount dedicated to debt reduction in future budgets.

On corporate taxation, Budget 2000 stated, “The business tax system must be internationally competitive to enhance economic growth, increase productivity, raise wages and create jobs.” We agree with this, and consequently strongly disagree with the decision to exclude the mining industry from the 7% corporate income tax rate reduction. We are very concerned with the erosion of Canada's business tax competitiveness as proactive tax reform takes place in competing mineral jurisdictions. Unlike other sectors of the Canadian economy, the mining industry faces a three-tiered tax system, and you do have an handout explaining that: federal corporate income tax, provincial corporate income tax, and provincial mining taxes and royalties. Because of our exclusion from the corporate tax reduction, the challenge of attracting investment capital has become much more difficult for our industry.

A recent KPMG corporate tax rate survey concluded that the United States, Latin America, and the Asia-Pacific regions have average corporate income tax rates well below the OECD average of 32.96%. In sharp contrast, the Canadian average federal-provincial-territorial rate for mining is 47%, which is also higher than the domestic rate of the high-tech services and manufactures sector. I also give you a bar graph situating the Canadian industry as compared to other sectors of the economy.

The rationale for the federal government's exclusion of the mining sector from a corporate tax rate reduction is erroneous and unfair. The Canadian corporate income tax system has long acknowledged the desirability of risk sensitivity through a number of important features that help maintain our competitiveness by reflecting the importance of timing differences, volatile commodity prices, and risks applicable to expiration and large capital investments required in the mining industry. The life cycle of a typical mine, from expiration to mine closure, and its cash flows are unique and unlike any other industrial section.

MAC recommends that the 7% corporate income tax rate reduction provided to other industries be extended to the mining industry and that the current tax provisions provided to the mining sector be maintained. This would have a clear positive impact on investment, productivity, and economic growth, generating significant revenue returns to help offset any loss of tax revenue.

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Turning to capital taxes and other profit insensitive charges, we do note that the federal large corporation tax imposes the greatest economic burden on us in competitive markets. Capital taxes are particularly burdensome for the mining industry because they are applied even before a major project enters production and develops a revenue stream. They also are not related to profits, of course, which hits us with a double whammy during low cycles and when we're in loss positions in terms of commodity prices.

Mining is a capital-intensive industry. It also is why we have a positive productivity and innovation record. Perversely, capital taxes act as a disincentive to productivity improvement and implementation of new technologies to improve those achievements in productivity. According to Finance Canada, capital taxes add the equivalent of 3.6 percentage points to the income tax rate.

MAC recommends the elimination of capital taxes, and we support the finance committee's report, which called for the reduction of cost recovery and user fees.

Because of the highly skilled nature and mobility of the industry's employee base, we support the significant progress made in personal income tax reductions. Further reductions based on resource availability are needed to reduce the tax gap between Canada and the United States. To advance this policy we recommend that the government increase the threshold for the 16% tax rate to $35,000; create a new 22% middle-income tax bracket between $35,000 and $100,000; and reduce the top rate from 29% to 26%.

These changes would provide a healthy response and encourage productivity and economic growth, increasing tax revenues over the long term. The reality of the timing of these suggestions, of course, must be taken into account with the other priorities that the government must address in light of developments in the United States and terrorist activities.

In conclusion, our recommendations are based on the premise that the federal government remain vigilant in the coming months and years to budget in a fiscally responsible manner. Reducing our interest payments on the federal debt will allow the government to use this money year after year to respond to the priorities of Canadians. This process must continue. The current level of taxation is a considerable competitive threat to an expanding global economy. Continued progress and reform is vital if Canada is to capitalize on its mineral growth potential.

Thank you.

The Chair: Thank you very much.

We'll now hear from the Canadian Co-operative Association, Ms. Lynne Toupin and Mary Pat MacKinnon. Welcome.

Ms Lynne Toupin (Chief Executive Director, Canadian Co-operative Association): Bonjour. Good morning. My name is Lynne Toupin, and I'm chief executive officer of the Canadian Co-operative Association. I'm pleased to be able to participate in the House of Commons finance committee's pre-budget consultations. I'm joined by Mary Pat MacKinnon, our director of government affairs.

Our submission was sent to you in late August. I assume you have it with you. I will just briefly speak to a particular program that we want to talk about this morning.

Our organization is the national association of anglophone cooperatives. We are a not-for-profit cooperative ourselves. We exist to promote the growth and development of cooperatives in Canada and internationally. We work closely with the Conseil canadien de la coopération, which serves francophone cooperatives from across the country.

Cooperatives are democratically controlled, member-owned businesses incorporated for the purposes of meeting the economic, social, and/or cultural needs of their members. The cooperative model recognizes the importance of communities in defining their own needs and building upon their existing capacities. Collectively in Canada there are over 10,000 cooperatives, credit unions, and caisses populaires, with over 15 million memberships, 149,000 employees, $160 billion in assets, and 70,000 volunteers.

CCA's members are drawn from all geographic regions and a wide range of sectors, including finance, agriculture, insurance, retail and wholesale, housing, and health. Many of you have probably purchased insurance, gas, groceries, dairy products, or outdoor equipment from our members, who include, among others, Co-operators Insurance, Federated Co-operatives, Co-op Atlantic, Scotsburn, Gay-Lea Foods, and Mountain Equipment Co-op. You may very likely be among the one-third of Canadians who get their financial services from credit unions and caisses populaires. We have left copies of our annual report with committee staff, if you want more detail.

We know that some of our members, including the Newfoundland and Labrador Federation of Co-operatives, the Canadian Worker Co-op Federation, and Credit Union Central of Canada will be appearing before you in the coming days and weeks to discuss their particular public policy interests.

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The current economic uncertainty in the United States and Canada, exacerbated by the tragic events of September 11, underscores the need for the federal government to continue to use a balanced approach, one that reinvests in such important areas as Canadian communities without jeopardizing the firmer financial footing that all Canadians have worked hard to achieve.

We believe one of the most important reinvestments the government can make is to support models that can facilitate the coming together of individuals to strengthen the quality of life in the regions and communities in which they live and operate. We believe the cooperative model, with its emphasis on self-help, is well placed to extend opportunities to all Canadians to both improve their well-being and strengthen their communities.

History teaches us that cooperatives emerged in response to community needs and took root and flourished as a result of the combined efforts of individuals and the state. Given that this combination of partners is needed to achieve a critical mass of new co-op start-ups in Canada, both CCA and the CCC have been pursuing a partnership with the federal government over the last two years to support development in areas that connect with public policy priorities.

Our proposal, the national cooperative development partnership proposal, seeks the creation of a $32 million fund over five years, with an additional in-kind contribution of $7 million that would come from the sector itself. Such a partnership would enable the cooperative sector to provide specialized assistance to start-ups at the local level and would support innovative new practices. It would also allow further promotion and awareness-building of the model itself.

We have just completed the first phase of an agricultural cooperative action research project with Agriculture and Agri-Food Canada that we hope will support agricultural cooperative renewal. In addition, the Canadian Worker Co-op Federation is undertaking a job creation pilot fund, supported by HRDC, that will provide new jobs to underemployed Canadians.

A national proposal will allow us to build on these initiatives along with our successful international development partnership with CIDA, where we have worked for over 25 years to create cooperatives and credit unions that have led to sustainable communities and improvement in the lives of people in over 50 countries in the world.

We believe federal funding for this proposal in the 2002 budget would contribute to a budgetary plan that successfully addresses public policy priorities. This model can help communities, including aboriginal communities, deliver the services they require, facilitate community adaptation, and help people realize the opportunities and face the challenges of this century.

I would like to give you a few examples of some of the innovation already under way, and upon which we can build.

Currently one of our members, Arctic Co-operatives Limited, has entered into a joint venture, ARDICOM, with NorthwesTel and NASCo, an association of four northern aboriginal development associations, to develop and deliver a high-speed digital communications network in the north. This joint venture is helping to deliver such services as telemedicine, distance education, business communications, and the Internet to 58 northern communities.

Agricultural cooperatives are also trying to find new ways to meet the challenges they face. One of these innovations is the new generation co-op model. This model is commodity specific, with the focus on secondary processing. It has a restricted membership, limited to those who purchase delivery rights, and a tied contract that sets out delivery rights and obligations. It is a model that usually requires higher levels of equity investment by members. The model does share common attributes with other co-ops—namely, democratic control, distribution of earnings based on use of service or sales to the co-op, and election of the board of directors by the membership.

As part of this initiative that we undertook, with funding from CARD, the Canadian Adaptation and Rural Development program, a number of emerging NGCs in markets such as nutraceuticals, specialized dairies, and processed egg products have in fact received start-up assistance.

In Ontario, the Seaway Valley Farmers Energy Co-op has recently secured funding to build an ethanol plant in Cornwall that will process member farmers' corn into ethanol. This co-operative, which started almost ten years ago, allows farmers to add value to their production, and at the same time it supports a cleaner environment through the production of ethanol gas.

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In northern New Brunswick le mouvement coopératif de l'Île Lamèque, which includes the Société coop de Lamèque, the Association coopérative des pêcheurs de l'Île, and the Caisse populaire de Lamèque, has received support from the Green Municipal Enabling Fund to explore the feasibility of establishing a wind turbine site in the area. If successful, the pilot project will be set up as a co-operative.

A national co-operative development partnership initiative would also allow communities to further explore the use of the model for the delivery of services. In particular, the model could be used to address community needs that are not being met because of withdrawal or reorganization of state services.

There are already examples of a number of exciting health care co-operatives. One of our members, Community Health Co-Operative Federation, is composed of five co-operative community health centres in Saskatchewan, which serve approximately 80,000 people. Principal features of this model include the provision of a variety of services in one location, group medical practice, better use of other health professionals, and democratic governance. There is also emphasis on prevention and education and promotion of remuneration of health services professionals on the basis of salary or other alternatives to fee-for-service.

In Edmonton you have the Multicultural Health Brokers Co-operative. This was organized by a group of women coming from various ethnic backgrounds to assist individuals and communities in gaining access to health services and supports in their language and culture.

In Quebec co-operatives have been organized to provide home care and health care services in a number of locations across the province, and in fact have formed a federation to advance their growth.

In B.C. we are looking at how the model can become an effective alternative for the delivery of health care in rural communities. This will be done primarily through the provision of community education and information on co-operative health care through a series of forums and workshops in selected rural communities across British Columbia. This is being done with the support of Health Canada's Office of Rural Health.

What I'm trying to convey to you is that co-operatives have made and continue to make significant economic and social contributions to Canada. It is a model that is still very applicable in the context in which we live. Federal funding for this initiative would allow greater use of the model, a model that enjoys a good track record and has attributes that make it an attractive and effective tool for the social and economic development of communities.

Thank you for your time this morning. We look forward to answering any questions you may have regarding our organization, as well as our proposal for a national co-operative development partnership initiative.

The Chair: Thank you very much, Ms. Toupin.

We'll now hear from the Canadian Real Estate Association. We have three individuals here, Gregory Klump, senior economist, Pierre Beauchamp, chief executive officer, and David Humphreys, federal affairs adviser. Welcome.

[Translation]

Mr. Pierre Beauchamp (Chief Executive Officer, Canadian Real Estate Association): Thank you, Mr. Chairman. We are pleased to be invited back again this year.

[English]

You and most, if not all, members of the committee are probably familiar with our association, because you meet once a year at least with realtor members who represent our real estate boards across the country when they come here to Ottawa in the spring in conjunction with our annual political action event. Many of you meet during the year in your constituencies with realtors as well.

As you may know, we have some 63,000 realtor members across the country in 115 real estate boards, 10 provincial associations, and one territorial association. Last year, collectively, these realtors carried out more than 374,000 property transactions through the multiple listing service, representing some $62 billion in economic activity.

Mr. Chairman, we are very aware that we are appearing two weeks to the day after the terrorist attack on the United States and, by extension, on our own country. We are keenly aware these days of the close affiliation between the Canadian Real Estate Association and the National Association of Realtors in the United States. We're proud that our American colleagues have contributed $1 million to establish the REALTORS Housing Relief Fund. The purpose of this fund is to help pay the mortgage and rental cost of families devastated by the attacks on New York and Washington, D.C.

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Our members in Canada across the country have also expressed a desire to help. In that connection we've opened the Canadian REALTORS Housing Relief Fund. Contributions from our members will be donated to the National Association of Realtors and added to their fund.

We're keenly aware that economic conditions have deteriorated since September 11. Suddenly the government faces the critical priority of allocating funds to strengthen security and defence services for the protection of all Canadians. I can assure the government that realtors in Canada understand and support this new reality.

Our pre-budget submission was, of course, written and distributed before the terrorist attacks. We have looked at it again very carefully in the changed circumstances. However, we found no need to make substantial change to the fundamental points we had in the first place. In the submission we do not call for further cuts at this time. We do outline, however, the conditions for eventual additional tax reductions.

We're encouraged that, as of last week, Finance Minister Martin felt able to state that the current five-year tax reduction plan will proceed on schedule. The minister also seemed to be preparing us for the need to return to deficit financing. That talk makes us nervous, because it will soften consumer confidence and spending. We profoundly hope this is not the case. We already face the distinct risk of heading into a protracted downturn in consumer confidence. Despite a slowdown in job growth over the first half of the year, we've seen resale housing activity hit record levels, as you know. Confidence is what makes the difference. Without it, economic prospects will dim.

We commend the government for using the fiscal surplus to make meaningful headway in paying down the national debt, having retired some $27 billion of the debt in the last two years. We urged the minister to adopt rolling two-year debt reduction targets and spending limits so that higher-than-expected tax revenues would be used to pay down the debt more aggressively. The minister chose instead to stick with the policy of using the $3 billion contingency fund as the main source of funding debt repayment. Now we can safely say that the $3 billion contingency fund will disappear to the demands of defence and security spending. We're left with a $546 billion debt but without immediate means of further paying it down.

Mr. Chairman, the war on terrorism will force the government to rebalance its spending priorities. The government is now committed to increased spending for the war on terrorism.

The minister says, rightly, that health care and other social programs must remain a priority, but the approaching strain on the government's coffers owing to an aging population isn't going to go away. It is in that context that we urge the government to increase annual RRSP contribution limits to double their current level of $13,500.

The minister told this committee in 1997, and I quote:

...as quickly as circumstances permit, the tax assistance provided to those saving...through RRSPs and RPPs will be improved.

Four years have passed in which there have been record federal surpluses, yet still no changes have been implemented.

We are one of 12 national associations supporting the continuing work of the Retirement Income Coalition. The coalition will be appearing before this committee at a later date. At that time, the coalition will show that RRSP contribution limits lag far behind the increases in other pension benefits.

Between 1976 and 2001—roughly speaking, in the last 25 years—RRSP limits have risen by 145%. However, during the same period the old age security benefit has risen by 225%, and the maximum CPP retirement pension has increased by 390%.

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We're speaking for realtors today, most of whom are independent contractors who depend mainly or even entirely on RRSPs for retirement income.

The Retirement Income Coalition will show that many employees of corporations are also constrained in saving for their own retirement, and these are employees who in no sense can be considered rich.

RRSP contributions are an investment in the future for individuals who save for their own retirement and equally for the government, because they defer taxes to a time when they will be badly needed to support lower-income seniors.

We provided an update in our submission on our proposal to permit tax-deferred exchanges of investment property. We introduced it last year on behalf of our 4,000-member National Commercial Council. These realtors work closely with small-scale investors. They're fully familiar with current conditions in the commercial real estate sector. It was their view that tax-deferred exchanges would offer several advantages. They would provide increased liquidity into an asset class that is lacking in liquidity, and they would provide investors with increased flexibility in managing their investments. We believe another major attraction of this proposal is the opportunity it presents to promote economic activity by small-scale investors throughout the country utilizing the emerging technology of e-commerce.

As you know, since last year we have canvassed the views of members of Parliament on this issue. Many members have told us that we have an interesting concept that deserves additional research.

We've also consulted the Department of Finance. It has been suggested that we provide the department with expert research justifying this proposal in terms of Canadian tax policy and also in terms of broad economic benefits. Mr. Chairman, expert research is now well under way. It's possible that we'll be in a position to provide further information to you during the course of your consultations.

I'll close today by once again reminding the members of the committee of the continuing benefits to Canadians of the home buyers' plan. Last year alone more than 137,000 plan users, Canadians, borrowed almost $1.5 billion from their own accounts to allow themselves to purchase their first home. Since the plan was introduced in the early 1990s, more than one million plan users have borrowed $10.5 billion from their RRSPs for investment in housing. The plan, Mr. Chairman, continues to be of enormous social and economic benefit. It's perhaps not a coincidence that the rate of home ownership in Canada has risen by a percentage point over the life of the home buyers' plan.

[Translation]

Thank you once again, Mr. Chairman, for inviting us to appear before you this morning. We are now ready to answer any questions you may have.

[English]

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

We'll now hear from the Canadian Chemical Producers' Association, Mr. Richard Paton, president and CEO. Welcome.

[Translation]

Mr. Richard Paton (Chief Executive Officer, Canadian Chemical Producers' Association): Thank you, Mr. Chairman. I will start by introducing briefly our association and our industry.

[English]

I will follow with three main points and some concluding remarks.

Like the other presenters here today, we've given you a submission that was developed before the September 11 date as well.

We're also handing out a scorecard we use to compare our competitiveness with other jurisdictions around the world.

Just to introduce you to my industry a little bit, we have 74 members, including all of the chemical producers in this country, representing about 90% of the industrial chemical producing industry. It's about a $20 billion industry. It's represented in many ridings around the country. In fact, several members around the table here have chemical facilities in their ridings. We're a very global industry. In fact, the chemical industry is probably the most global industry in the world. It's a very capital-intensive industry. In Canada it's a very innovative industry and a very productive industry. Those are just general context items for the next points I want to make.

Our brief also talks about debt reduction as a priority, and I don't really want to repeat those comments. They're very similar to those of the Mining Association, the Real Estate Association, and the BCNI, which you heard from earlier. I'd just like to say that we have made progress on debt reduction, and you can see the results of that in the fact that our service charges are now $2.5 billion less than they were a few years ago. We'd like to see continuing progress on debt reduction.

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My next point is on spending. The recent increase in spending is a concern to our association and to many other associations. With the possibility of increased expenditures due to security, this is a concern to us. We would like to see the government focus its spending on those areas that are really high priority and that do produce economic value for the economy, which would then generate productivity and growth.

This committee has been renowned over the years for focusing on issues such as productivity and on the importance of the tax system and how it can improve productivity. There are a number of areas. We've mentioned health in our submission. Obviously the security issue is going to be an area for investment. But how you approach things such as transportation, as we see with the ports and border crossing situation these days, is becoming a critical issue in terms of trade and our economy. So there are areas of our economy where we need to look harder at where investments can produce growth and productivity.

Also, I think this committee over the years has supported a number of areas, such as regulatory reform. There was your excellent report on cost recovery. There are other areas where I don't think the government has made much effort to make progress. I think these areas don't involve a lot of expenditures. They're not as flashy as fibre optic networks and R and D innovation programs, but they really are very basic and important to the economy and to business. So I think there are some opportunities out there for government to make a difference in terms of growth and productivity, without necessarily all the flash that goes with some of the other kinds of programs that are associated with the so-called innovation agenda.

I'm going to turn to my main point, which is the third area I'd like to discuss. We believe, like some of the other associations and the committee, because the committee recommended in 1999 that corporate taxes be reduced.... As a very global and capital-intensive industry, investment is hard for us to achieve in this country. We have to compete against practically every country in the world that has a chemical industry. We're a small market. We represent something like 2.5% of the world chemical economy. We have to compete directly with the United States, and 60% of our products are exported somewhere else. Basically, if we're not even or better in terms of our competitiveness factors, we don't get the investment.

Members of this committee have probably seen the investment curves across this country in terms of foreign direct investment in this country, and they're going down. I know Mr. McCallum has made speeches on this in the past. The numbers are going down, and if we think they're going to be turning up quickly, I think we'd be mistaken. They're not going to turn up quickly unless we put in place some of the basic building blocks to increase investment and make this economy a bit more attractive in terms of competitiveness and growth.

Notwithstanding all the demands, if there is an opportunity in this budget to advance quickly the corporate tax reductions that have been announced, but only for the services area, to 21% and then move all corporate tax down to a rate of about 17%, it would open up a potential advantage for us as a country in terms of competing jurisdictions and investment.

We believe, and I know the committee has mentioned this in the past, that capital taxes are job killers. The capital tax system was introduced in the late 1980s to fight deficit problems, such as the surtax, which thankfully is gone, and here we are 10 or 12 years later and we still have the capital tax. I noted in the Valeri report, which was given to the Liberal caucus, a very interesting point. Business investment and innovation cannot be divorced from consideration of the economic environment created by taxes. That is no more true than any other area. In the capital tax area that is absolutely true.

What the Canadian government is doing is talking about productivity and investment, and then when it turns around and takes a look at what it does, it basically taxes investment and all the things that produce productivity and growth. At the same time, it says that we have to spend a lot of money on R and D and investment in universities and all these other areas. It should look hard at itself. It should look hard at its own tax system and how it does affect these areas.

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The federal capital tax brings in about $1.4 billion in revenue. So we're not talking about $5 billion here. We're talking about a fairly manageable amount of money. We have done all the tax modelling with many other organizations and talked to the Department of Finance about this. If you start getting into what the capital tax does to reduce growth and investment, it's hard to argue that you're probably getting revenue out of it. You're probably losing it in the long run in terms of lost opportunities for investment.

We think we have to stay the course on debt reduction, limit spending, and focus spending on the key priority items, such as the social and health areas, and particularly on the economic priorities that are going to focus the government on productivity and growth in the economy.

Finally, we think the corporate tax area needs to be accelerated in terms of reductions, hopefully to 21% for the service area and down to 17% for all areas. We think that serious consideration needs to be given to eliminating the capital tax, largely because it is a job killer and a disincentive to growth.

There's one other little point I would make. I listened to the environmental groups earlier talk about environment and investment and whatever. Most capital investments in our industry result in better technologies. They result in more environmentally friendly chemical industry plants. That's true probably of all the sectors. Yet, guess what? The government taxes it very heavily. So here we are again not only producing growth problems but actually countering environmental objectives. We need to think hard about how these kinds of taxes actually produce unintended environmental and economic consequences for the economy and for Canadians.

[Translation]

Thank you very much for your attention.

[English]

The Chair: Thank you very much, Mr. Paton

We will now hear from the Hotel Association of Canada, Anthony Pollard, president.

Mr. Anthony P. Pollard (President, Hotel Association of Canada): Thank you very much, Mr. Chairman and members of the committee. It's a pleasure to be back here again and to see a lot of familiar faces. I think many of you know who we are. We meet with you individually over the course of the year. We also host a reception here annually, which we all look forward to.

I think you know that we're a federation of provincial and territorial hotel associations as well as corporate hotel chains and suppliers. Our mandate very simply is to stimulate and encourage a free market accommodation industry. Last year we generated $10.6 billion for the Canadian economy. The value added generated by our industry was some additional $9.6 billion. There are 237,000 people working for us, and that generates about $4.5 billion annually in wages.

I've included in your kit today a little chart, which is very simple. It tells you all about it. It was prepared for us by our friends at KPMG.

The important figure I'd like to reinforce for you, and I think I've told you this before, is that in the year 2000 the revenue, or you might want to call it taxes, generated by hotels was $3.94 billion. The federal government received $1.8 billion, the provincial governments $1.4 billion, and municipalities $639 million.

Ladies and gentlemen, I'm here today to help you to help us. We submitted a brief to you, as most others did, at the beginning of the summer. But then the world changed on September 11. On many occasions when I've appeared before this committee the chairman has said, there are the good-news guys, the good-news industry. Frankly, we're very proud of that. Why? Because we bring in revenue and generate jobs. Yes, we are continuing to do this, but we want to tell you what the world is like today for us.

Since September 11 the impact on hotels has been great. Our meetings and convention business is down; individual travel is down; downtown hotel business is down; and resorts are down, in some cases as much as $10 million in individual areas. But eventually this is going to rebound. We've been there before. We were in situations like this in 1991 and 1992. We can do it with the public and private sectors working together.

Historically, this is our track record, but immediately there's more action that is required by all of us.

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To start, the Canadian public must be convinced of their own safety and security, period, end of discussion, point final. And I'm talking about beyond leaving their homes, schools, and places of employment. The Government of Canada must immediately commit additional and significant resources to facilitate all aspects of safe and secure travel to and within Canada. We know this is happening. We follow what's going on. But we encourage you so much to do this. Until a person feels safe and secure, they are not going to go anywhere, period.

Necessary funds must go to the Canada Customs and Revenue Agency, Citizenship and Immigration Canada, Transport Canada, and others. We must enhance our close relationship with the United States while maintaining our values. And I note with pride that many of the members here are wearing lapels that have the Canadian and U.S. flags, from all parties. But even more than committing the resources and taking action at the earliest, the government must be seen to be taking action. They must show the leadership. Only when the public sees our leaders travelling confidently will they feel the security to do the same.

In Canada, we're proud of the achievements of the Canadian Tourism Commission. In fact, the Canadian Tourism Commission is applauded globally—and why not? Let's look at a couple of very simple figures. The travel deficit in Canada in 1994 was $5.6 billion. Now it's at about $2.2 billion. This isn't an insignificant return on investment of $75 million annually, thank you very much.

Since the onset of the terrible tragedy, we've been in regular communication with the CTC. In fact, Jim Watson, the president of it—and I know many of you know him—and I discussed the hotel industry again yesterday, shortly before a session with the Minister of Industry, Brian Tobin. The Canadian Tourism Commission listened last week when we recommended that most advertising and promotion be redirected from the United States to marketing of Canada. It will be Canadians who will initially stimulate the growth of travel.

This leads us to our second recommendation. The Government of Canada, through the Canadian Tourism Commission, can greatly assist all of the travel and tourism industry by forgoing the matching funding requirements from industry for the next few months. This will help all of us get back on our feet. The federal government must increase its share of the marketing budget in a material and meaningful amount. This will encourage and instil confidence to travel in Canada. Ladies and gentlemen of the committee, we will all benefit.

Thank you very much.

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

We'll now proceed to the question and answer session. We'll begin with Mr. Epp. It will be a five-minute round.

Mr. Ken Epp (Elk Island, Canadian Alliance): Thank you. And thank you to all of the presenters. You gave us some good stuff there.

I want to start out with the Mining Association and your graphs here. If you would just give me a little explanation, on the third page, where you have corporate taxes, January 2001, you're saying that the average Canadian tax rate is 33.3%. These are corporate provincial and federal taxes here?

Mr. Dan Paszkowski (Vice-President, Economic Affairs, Mining Association of Canada): Yes. We've taken the average federal and provincial corporate tax rates and divided by the number of jurisdictions to come up with 33.3%. We put that on this chart to reflect where some of our major competitors are located. The concern we have is that a lot of our competitors would be to the left of that bar. So it includes both the federal and the provincial.

Mr. Ken Epp: Okay. And then on the next page, the last page of your submission, you have the federal-provincial corporate tax comparisons. I don't understand the first two. One says mining 21%, the other one says mining 28% rate. Is it because of the fact that the rates have gone down that you're projecting this?

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Mr. Dan Paszkowski: This graph was based upon a number of meetings we've had with members of Parliament over the past number of months. Budget 2000 reduced the federal corporate rate from 28% to 21% over the period to 2004. However, it excluded the resource sector from those reductions.

What we've done here is we've taken a look at the different sectors of the Canadian economy. Focusing in on the two you have just mentioned, currently the mining sector is at a 28% federal corporate rate. If you reflect back to the first page of these charts, Gordon's comments were that we do face three levels of taxation in Canada. The mining industry faces a federal corporate tax rate, a provincial corporate tax rate, and on top of that we face provincial mining taxes and royalties.

If you take a snapshot of those rates after the resource allowance, if we were charged a 28% rate, the yellow bar would be 2001, at 47%, and it would drop down to 45% because a number of provincial jurisdictions are starting to make some tax reductions. If the mining tax rate were 21% today, that would be the combined federal-provincial rate that we would pay, including the mining provincial taxes and royalties. This would be an average of all the jurisdictions.

Mr. Ken Epp: What confuses me is that you have 41% on that last page, but on the preceding page it says the average Canadian rate is only 33%. I don't see anything here that goes into that range, so to me the graphs are incompatible.

Mr. Dan Paszkowski: What we were looking at in the first graph doesn't include mining taxes and royalties. We took a look at what the average of the jurisdictions of only the federal and the provincial corporate rates would be after the resource allowance calculation. In the next chart we took a look at the mining corporate and federal taxes and then we added on the mining taxes and royalties, which boosted it up to 47%.

Again, this is just a snapshot, because what we are trying to identify here is what the investors would be looking at if they took a look at the mining industry compared to other sectors. The tax system is much more complex across Canada and within each jurisdiction. It's extremely complex for the mining industry. So we're taking a simple snapshot of the federal and provincial rates and average of the jurisdictions to show that if I have x number of dollars in my pocket and I want to make a decision as to where I'm going to invest, when I take a look at the mining sector compared to other sectors of the economy, this is likely what an investor would be looking at. The point is that being at a 28% federal corporate rate when all other sectors are on their way down to 21% suggests that we pay a higher corporate rate. It also provides the implication that possibly the government views the mining sector or the resource sector somewhat differently than other sectors of the economy in terms of policy direction.

It is a significant concern to us in terms of the differentials in the rate. We believe we should come down to a lower rate. The point here is that we also face three different tiers of taxation, which most other sectors of the Canadian economy do not face, because the provinces have the constitutional jurisdiction over the resource.

Mr. Ken Epp: You're talking about the Mining Association, and I'm thinking of the chemical producers. I think they face the same tax regime. When I talk to them in my riding, they have federal and provincial taxes to pay. They have a corporate tax. They have the same rate of taxation as the miners, I think. Or am I wrong there?

Mr. Richard Paton: Mr. Epp, we don't have the mining equivalent of the royalty, or what do you call it, the mining—

Mr. Dan Paszkowski: Provincial mining tax.

Mr. Richard Paton: Provincial mining tax. The chemical industry is a manufacturing industry, not a resource industry in the sense of mining and forestry.

Mr. Ken Epp: Okay, but that's a provincial tax; that's not a federal tax. Is that not correct?

Mr. Gordon Peeling: That's correct, but we have to look at the overall tax burden, irrespective of which level of government it goes to.

Mr. Ken Epp: So when you come to this committee in the federal government and you bring forward this idea, all you're saying is you'd like the federal government to put pressure on the provinces to reduce their taxes. Is that...?

• 1245

Mr. Gordon Peeling: No. In actual fact there are certain things we would like to see jointly done. For instance, although some provincial governments have now moved to remove their capital tax, or large corporation tax, we would like both the federal and provincial government jurisdictions to remove it because of the disincentives to investment in technology and to productivity improvements.

So there are things they have to do together. It is also incumbent upon the federal government, when it is looking at the tax burden carried by various sectors of the economy, to understand the overall tax burden, not just the federal tax burden.

The Chair: Perhaps I can interrupt for a second. Just as a point of clarification, this committee, as you know, has called for the elimination or reduction of capital taxes, but most capital taxes are applied at the provincial level.

Mr. Gordon Peeling: Yes, that is correct. The heavier burden does come at the provincial level. We see some improvements in that regard in a couple of jurisdictions, but I guess we would encourage finance officials, as we have done to date, to carry this issue strongly, just as we are carrying this issue strongly to provincial governments, that this is in actual fact not a wise tax. It's a disincentive to growth, to innovation and productivity, to investment, and it's certainly not helping the long-term future of the country.

The Chair: Thank you, Mr. Epp.

Mr. Ken Epp: Is that the end of my time?

The Chair: It is.

[Translation]

Mr. Loubier and Mr. Fournier.

Mr. Yvan Loubier (St-Hyacinthe—Bagot, BQ): Am I mistaken, Ms. Toupin, or is the federal government much less inclined to invest in the co-operative sector and to promote what you call the co-operative model than the Quebec government has been, for example? The latter is still interested in this sector and has introduced rather dynamic measures to promote the co-operative model. Could the federal government not be more involved in this area and support projects of the type you described this morning?

Ms. Lynne Toupin: Thank you, Mr. Loubier. Yes, in our view, it would be useful for the federal government to look at what the Quebec government has done to support co-operatives, both in the past and more recently as well. If I understand correctly, the Quebec government is undertaking a vast consultation process to develop an integrated policy framework to support this sector further.

I think Quebec recognizes that co-operatives can support community development and contribute to economic and social development. So the timing is right. At this time, we are asking for a modest amount of money to help co-operatives develop more, so that they have the structures and resources they need in order to develop. We have seen that this approach has produced some significant results in Quebec.

Mr. Yvan Loubier: My colleague would like to ask a question about mining.

Mr. Ghislain Fournier (Manicouagan, BQ): Thank you, Mr. Chairman.

I listened to all the briefs carefully. They were very good. You will understand that my particular interest is mining.

In my region, 90 p. 100 of the development is imputable to mining, and 10 p. 100 to forestry and fishing activities. There are four major companies in my riding that produce over 50 million tonnes of iron ore a year and employ over 8 500 people. There is IOC, which is well known to everyone. There is also QIT, Quebec Cartier Mining and Wabush Mines.

As you know, these companies are experiencing incredible problems at the moment. I therefore support the brief presented by the Mining Association of Canada.

I am told that Quebec Cartier Mining will have a shortfall, or a deficit of over 20 million dollars. The company had to close down three times in the year 2000, and it is now announcing a temporary closure, unfortunately, and over 200 job cuts.

Wabush Mines is located in the Sept-Îles region. One of its shareholders went bankrupt, and this represented 15% of the production purchased and 15% of the shares. So Wabush Mines will be producing only two of the three lines in Pointe-Noire. The company will be closed for a month and will be cutting 200 jobs.

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There is also IOC, which is investing 350 million dollars at the moment to reopen its pelletizing plant. Questions are being raised about this at the moment, because there is a downward trend from day to day. We were told recently that there would be a drop of at least 500,000 tonnes of iron ore, and that this could go as high as 5 million tonnes. There is also QIT, located in Havre-Saint-Pierre.

In passing, I would like to point out that these four companies are among the largest producers of iron in the world and that QIT, in Havre-Saint-Pierre, is the largest producer of titanium in the world. These companies have been in operation for 50 years. They have been involved in the region's economy, in Quebec and in Canada. Now, there must be some intervention.

My political party, in which I have great confidence, has only one objective: the interest of citizens and that of corporations. Tomorrow, in caucus, I am going to inform my colleagues of this situation in order to obtain their full support.

I can say, Mr. Chairman, that I fully support the Mining Association of Canada's brief. For example, I am looking at page 3. I too would like to point out my strong disapproval with the decision to exclude the mining industry from measures designed to reduce corporate taxes by 7%. Corporate taxes are being reduced by 7% and the mining industry, which is in my opinion a very important one, is being excluded.

Mr. Yvan Loubier: That is unfair.

Mr. Ghislain Fournier: On page 4, for example, we mention a study by KPMG, a well-known accounting firm, which talks about a tax rate of less than 32.96% in the United States, in Latin America and in Asia. In Canada, we are still at 47%, while we employ almost 400,000 people in total, directly and indirectly. We have always been told that for each direct job there are four indirect jobs.

So you can count on me. I represent citizens. That is my second mandate. I would not say that in a press conference, but we are currently facing a crisis. Last Thursday, I attended a breakfast with representatives of mining companies in Sept-Îles, economic stakeholders from the City of Sept-Îles and representatives from the regional municipal county. There are three RMCs in my riding, which is very large. They were all present and they were all calling it the war council. They said they were ready to declare war because over the past 50 years, they have contributed significantly to the various levels of government through income taxes, municipal taxes, and school taxes, and that now they needed help.

During the last election campaign, not to name names, someone promised in Abitibi, where there are several mines, a 350-million-dollar fund for northern Quebec. For my part, I said that I would ask for at least $100 million to help with the transformation and to help companies make it through the crisis.

We have an industry that is doing well, because I must point out that apart from that, it is going well: and that is Aluminerie Alouette. We are going to try and speed up the second phase.

Mr. Chairman, my comments are simple: I support this brief. You can count on the support of the Member for Manicouagan, who lives in the mining sector, and also on the support of the Bloc Québécois, I am assured.

Thank you, Mr. Chairman.

[English]

The Chair: You're welcome. That was quite a preamble.

Who wants to answer the question?

[Translation]

There are no further questions.

A voice: Thank you for your support.

[English]

The Chair: Okay. That's very interesting.

Mr. McCallum.

Mr. John McCallum (Markham, Lib.): Thank you.

I have a question for Mr. Paton, a double question. First, I agree with you about capital taxes and corporate taxation, subject to availability of funds, which isn't in the greatest shape as we speak today. But looking at your competitiveness report, I have two questions.

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First, when you look at the R and D in science and technology everything looks wonderful, in the sense that we have the best tax treatment, we have the lowest cost per researcher in the G-7. Then it says proximity to headquarters, preference for R and D at headquarters outweighs other advantages. That could be interpreted as saying that foreign ownership in your industry trumps everything and precludes R and D being done here, no matter how favourable the conditions are. Is that the right interpretation?

My second question is similar. If you look at this thing here, you see that we have the highest productivity in the G-7 in your industry. That's great. We have costs lower by 10% to 40%. That's great. Yet you say nothing much is going on. So why not?

Mr. Richard Paton: Those are good questions as usual, Mr. McCallum.

On the first, we do have significant R and D in Canada, notwithstanding the fact that headquarters proximity is definitely an issue. We think the R and D tax treatment has helped ensure that R and D does stay in Canada. So we have companies like Bayer and Dupont. Dupont of course, is in the Kingston area. It's very significant R and D on a global basis. Other companies, like Novo, are doing significant R and D in the Sarnia area, for example, in Roger Gallaway's riding. However, I think the realities are that most companies see R and D as part of their corporate strategy, how they think about the future. As you go down to places like North Carolina and Raleigh and you go to various places around the world, you see an extremely high concentration of research industries and research facilities all linked together, linked up to universities. It's hard for us to compete with that scale, that size.

So I think the short answer to your question is, the R and D tax credit helps. We are creating R and D in Canada. However, we don't want to be naive here. Even if we have, as we do, a great tax regime, the fact is that many companies, headquartered in other countries, yes, are going to have their R and D facilities located closer to their headquarters, in their world centres around the world. So as usual, we have to fight for our share, and our companies do fight for their share. Companies like Dupont and others have been relatively successful in doing that.

As for the second question, we have had significant investment in the last three or four years, mainly in Alberta. That's being somewhat limited now because of concerns about feedstock and natural gas prices. The pipeline issues are very relevant to future investments in our industry. But as I've heard you say on this subject, the fact is we're a small market and we have a very small domestic market. We have to export into the big markets, which is largely the U.S. So thank goodness we have a productivity rate that's 30% better than our American neighbours, because otherwise we would really not have very many dollars flowing into this country.

So it just makes the point that you've got to put all of those factors together, productivity, the tax structure, the nature of your employment base, the skills you have, to put you in the best possible position to attract that investment and get the growth. Even with that, we have been attracting a lower share of what we figure is a $40 billion investment market in North America than we think we deserve. We could make that better if the tax regime was better—hence the focus on capital taxes—if things like cost recovery weren't limiting products coming into the country through the new substance notification process. We've created a number of barriers in this country to that investment that we could probably minimize, therefore improving that investment.

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

Mr. Cullen, and then Mr. Brison.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman. Thank you, presenters.

I have a question first for the real estate board, Mr. Beauchamp. One of the challenges in Canada, as you may or may not agree, but it certainly seems to me and, I think, many of my colleagues, is the issue of affordable housing and the lack of affordable housing, certainly in some markets, Toronto being one of them. Do the proposals you have put forward address the lack of affordable housing stock in certain centres in Canada? If they do, how? If they don't, are there any tax policies that would encourage the formation of a greater inventory of affordable housing?

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We sometimes hear from realtors and developers that if you create incentives for developers generally, then it will increase the stock of affordable housing and all varieties of housing. A lot of us don't buy that argument. If we're going to increase affordable housing stocks, we need targeted measures to achieve that. I wonder if you could respond.

Mr. Pierre Beauchamp: Mr. Chairman, our proposals are specific. As you heard, two of them deal with RRSP contributions. Another one deals with the tax deferral project.

To answer the question specifically, our concern is always that three factors be in balance in order to create affordability for Canadians. One of them, obviously, is interest rates. As you well know, low interest rates create affordability within the Canadian market. Employment is always a very important factor, along with job creation. In that particular context, so far this year we've enjoyed a comfortable situation with the record we've been able to indicate for the first two quarters of the year. Those two together work to produce consumer confidence, and that is probably key. If those first two factors, interest rates and employment, are not there, consumer confidence declines, and then you end up with a situation where real estate may not be seen by some as affordable and where sales are going to be impacted.

Again, we have to hope that the short-term downturn that may be felt in the various industries that have reported to you here today and on other days as a result of the events of September 11 will be of short duration and that we'll be in a position to have it go back to what it was before. Our view is that if interest rates continue to be at an all-time low and if we are able to deal with job creation the way we have seen in the last 18 months and therefore are able to create consumer confidence, yes, we will end up with a market in Toronto and other parts of Canada that is going to be balanced and that will lead Canadians to continue to buy homes and trade.

Mr. Roy Cullen: If we have those conditions, I can see how it could create interest in developing housing stock. But if the margins for the builders and developers are greater in medium-priced or high-end housing stock, how can we be assured that we're going to get affordable housing, which is where the need is greatest?

Mr. Pierre Beauchamp: You're talking in large measure of a demand-and-supply factor. We live in a private enterprise system that has built-in competition. As we have seen in the last decade, the building of homes and the prices of resale homes in our industry will always reflect that supply and demand. We feel that those factors will continue to be at play with a view to producing sufficient housing for Canadian consumers.

Mr. Roy Cullen: The government announced during the last election that we would work with the provinces, and we came out with a kind of direct investment, cost-shared program. It seems not to be going that far because it requires the cooperation of the provinces, and some provinces want to play and a lot of them don't. In the meantime, we're not getting any more affordable housing. Are there any tax policies that would encourage the construction of lower-cost housing? Are you saying that there aren't any? There certainly aren't any in your brief. Are there none that you're aware of?

Mr. Pierre Beauchamp: The Canadian Home Builders' Association usually makes a presentation before this committee, and I have no idea what recommendations they have. They usually have tax measures as part of their recommendations. I am not aware of the recommendations they may make to this committee this year.

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Greg is our senior economist. Greg, would you care to comment?

Mr. Gregory Klump (Senior Economist, Canadian Real Estate Association): The only comment I was going to make—and thanks for mowing my grass—is that it is the Home Builders' Association that would be best positioned to talk about tax policies as a disincentive for social housing, which as I understand it is a provincial responsibility.

Mr. Roy Cullen: Well, you call it social housing; I call it affordable housing. There are a number of different ways to skin the cat. We'll look forward, or certainly I will, to their brief.

Do I have more time?

The Chair: Yes.

Mr. Roy Cullen: To the Mining Association,

[Translation]

You will perhaps recall that in the budget for 2000, the government had announced measures for flow-through shares, to encourage exploration in the mining sector.

[English]

That was a government response to a very difficult problem. If we look at the reduction of the 28% to 21% in the corporate rate, of course one of the rationales is that there are other incentives or other tax benefits that the mining industry and the resource sector industry generally enjoy: the resource allowance, the tax credits for exploration, accelerated capital cost allowances, etc. I just wanted to put that on the record. I don't think the government just forget about the mining industry or the oil and gas industry or the chemical producers.

One has to look at the tax burden of the mining industry, because it involves not only the federal government, but provincial governments and local government. I'm wondering if you could respond, Mr. Peeling or Mr. Paszkowski, as to what work you've done in looking at the total tax burden of the mining industry in Canada compared with other countries, particularly countries where we know we have a lot of competition—Chile, Australia, New Zealand, etc.

Mr. Gordon Peeling: Yes. On that one chart, we do show it. Unfortunately, it only shows two legs of the stool, because this gets very complicated, in the sense that in looking at other jurisdictions outside of Canada against whom we are competing for investment dollars in resource development, it is only able to look at the federal and provincial corporate tax rates. If we were to be truly reflective, if we had the information available, it should go all the way down to local municipal taxes, mining tax royalties, user fees, water charges, employee fees, etc. Unfortunately, that is impossible. We don't know whether anybody has done that. The best study that is available is what you have in front of you. There's another study that has been done at the University of Colorado, at the Colorado School of Mines, but it replicates that same information that we put in front of you.

That's what we have, and of course that's a dynamic. Although that bar shows you that we are in a tough competitive situation at the moment, in general terms, other jurisdictions continue to reduce their rates and change their national mining laws to make themselves more attractive to foreign direct investment. Canadian companies have also taken advantage of those opportunities. We have a very large investment abroad. We're one of the leading sectors for investment abroad. That has also created markets for Canadian machinery, equipment, and engineering services and environmental technology, which has gone with that investment.

It does remain that Canada has an economic challenge to be competitive, to have an investment climate that is attractive for the future, and that's what we are trying to address today. It is a very complex situation. We have one of the most complex jurisdictions in the world, with every provincial jurisdiction and territorial jurisdiction stacking up slightly differently in terms of its overall tax burden. It's a complicated message to sell to international investors. We are in favour of simplifying the tax system and reducing that compliance cost. That's another benefit that can come from some of these activities.

I want to just touch on a point, because there is a research and development issue here. We have one of the most incented R and D structures in Canada. We have five mining companies, the five largest, that are within the top fifty in terms of their overall R and D. One of the peculiarities, though, is that most of our R and D incentives have gone toward product development, whereas our investment tends to be in new process technology, process improvement. They do not receive the same level of incentives and recognition within that R and D component. So with a small adjustment, we could see that helping to also keep Canada at the forefront of a very productive and innovative mining industry in the world.

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Mr. Roy Cullen: Thank you.

Mr. Paton, your brief mentions the manufacturing and processing rate. I'm wondering whether the vast majority of your members are eligible for the manufacturing processing rate.

Second, you mentioned that the manufacturing processing rate, which we take great pride in here in Canada, according to published reports, is the second highest in the G-7. I wonder if you could share that with the committee, because it certainly goes against the grain of everything I've heard.

Mr. Richard Paton: Mr. Cullen, you've asked me a question I can't answer, but I have a man here who can. This is Dave Podruzny, our senior policy manager in the business and economics area. He's done a lot of these comparisons internationally and across the country.

Mr. David F. Podruzny (Senior Policy Manager, Business and Economics, Canadian Chemical Producers' Association): The manufacturing and processing tax in Canada, at the federal level, is probably quite competitive with the tax rates at federal levels elsewhere. As was pointed out earlier, what we do try to do as much as we can is look at all levels of taxation, put them all together.

In addition to the corporate income tax rate, there is another factor that weighs in very heavily for the manufacturing industry in making major capital investment, namely the capital tax, which at the national level is unique to Canada.

A third thing is that the capital cost allowance available to the chemical industry is at one-half the rate that it is in the United States for directly competing investments. Therefore, the new technologies that are invested in can be written off that much more quickly, and you can go into higher risk technologies on a much quicker write-off basis.

So there are some factors other than just the M and P corporate income tax rate, which in Canada is 21% for virtually all our membership. Some of our members have a service factor included, so they were at the higher rate, but are coming down. They are enjoying the benefit of the reductions at the federal level.

Mr. Roy Cullen: So the federal M and P rate is very competitive, looking at it on its own.

Mr. Dave Podruzny: The corporate income tax rate is at 21%. We are urging, because we do have to attract investment from outside the country, that the rate go lower, because if we're “the same as”, we're not going to get any investment. We need to be “better than” when we're attracting outside investment. Frankly, our market share of North American investments has been coming down steadily since the mid-eighties.

Mr. Roy Cullen: Thank you.

The Chair: Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC/DR): Thank you, Mr. Chairman.

I thank each of you for your interventions.

I agree with both the mining association and the chemical producers on capital taxes and their impact on investment and thus on productivity.

On the issue of corporate tax and the response of the federal government to the Mintz report and the recommendations to lower some of the tax burden on some of the other sectors more quickly, or accelerate that lowering, so that there would be an equality or a less distortional corporate tax policy in Canada prior to broad-based corporate tax reduction, do you disagree with the notion of having an equal corporate tax burden on all Canadian industry, regardless of whether it's service based, manufacturing, or resource based? Doesn't it make sense to have an equal corporate tax burden all on sectors from a tax policy perspective and from the perspective of wanting a less distortional tax code than we have right now?

Mr. Gordon Peeling: First, let me say that we think it's essential and appropriate that those other sectors of the economy move down to the 21% rate. Ultimately, we'd like to see everything go down to 17% when the economy and the governments are capable of doing that.

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One of the problems of the Mintz report was that he had a particular scope, which didn't get the mining tax and royalties. So his basis of putting people on a level playing field unfortunately was not complete in its analysis. That's why we suggest that in actual fact it would be appropriate to move down from 28% to 21% with the mining taxes or the corporate tax for the mining industry and the resource industry in general, because there is a level of taxation, and that doesn't get to user fees and those other types of taxes that corporations face.

I think there are a number of things you have to think about very carefully before concluding whether one simple tax might be appropriate in the level playing field. I'm not sure what the answer is, but one of the things I would look at, and which I think might give you pause for caution, is that the competitive circumstances domestically and internationally are not the same for each sector of the economy. And we have to keep in mind what driving issues are facing this particular industry vis-à-vis others.

The other side of this is that historically we've had a very clear recognition for the peculiarities or the uniqueness of resource developments, which take place over a very long timeframe in terms of upfront expenditures to simply find the resource, the costs that have to be dedicated to environmental assessment, feasibility studies, the fact that we do not control the price of our product at the end of the day, as we sell it in an international marketplace.... We have a small domestic market, so most of it goes outside the country. We're a price taker, and we can only compete on costs. That's where we have to focus on staying competitive. Those costs embody things such as having the latest technology, being the most innovative, having a very skilled and educated workforce. We pay the highest wages in the country.

So there are a number of challenges that make us unique. And because of the price cycles, we have very wide swings in our revenue flows. The tax system has historically recognized those differences in risk associated with this. I think they themselves dictate a slightly different approach from other parts of the economy. This is not like a shoe manufacturing plant or a grocery store; it is a quite different set of circumstances.

Mr. Scott Brison: The issue of user fees and regulatory burden was raised earlier. The government hasn't really demonstrated a lot of interest in addressing that government by stealth that is occurring with the growth and regulatory burden, so I appreciate your feedback in terms of how it's affecting or impacting your own industries.

Mr. Pollard, the current issue before the government pertaining to Air Canada certainly would have an impact on your industry. As such, I would expect you would have commensurate interest in the outcome. If the question is whether we provide to Air Canada $150 million, or that cost that is directly a result of the September 11 events and subsequent impact, or pursue a $4 billion range of bailout, what recommendation would you make if you were faced with those choices, if in fact the result of not providing the $4 billion would mean that Air Canada would not be able to continue in its current form?

Mr. Anthony Pollard: I would like to answer it by going back to what my original submission was, and that is that people need to feel safe and secure before they're going to go anywhere. When you boarded the aircraft and went back down to Halifax on I'm assuming the Friday after September 11 and you went through Ottawa airport, you probably were looking around and feeling a little bit nervous. But when you came back to Ottawa on the Sunday evening or the Monday, you were probably feeling a little bit better. I think that most people around the table were feeling the same way. I know I've travelled since then.

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I will let my colleagues from the Air Transport Association of Canada put forward their submission to you and respond to it.

What I will say on behalf of the hotel sector is that we need to have viable airlines operating in Canada because we depend directly on them.

The Chair: Are there any further comments?

Mr. Richard Paton: Could I respond to Mr. Brison's point?

The Chair: Of course.

Mr. Richard Paton: First of all, thank you for your support on the capital taxes issue.

On the regulatory burden, I'd just make a very general statement. The regulatory burden is increasing constantly. It's affecting the mining sector and us. It's affecting costs, and then you add cost recovery to that.

It requires very hard work to get this right. You're trying to balance social, health, environmental, and business priorities. I still do not feel that we as a government are really making much of an effort to get it right. I know you've proposed things such as regulatory budgets, which I initially had doubts about, but we'd welcome anything that will put some attention on this and make sure that people understand that this is a major cost that we're not dealing with very well.

The Chair: Thank you, Mr. Brison.

On behalf of the committee I would like to thank you very much. You can rest assured that this committee will continue on its course, and we'll make sure that we use discipline and that we're focused on maintaining the fiscal integrity of this country.

With regard to the issues of deficit, debt, and taxation, we want to stick with the $100 billion tax cut plan, if it's possible. But during this time we'll not only look at the fact that we have to stick to the $100 billion tax cut plan, but we'll also want to dedicate a bit of our energy toward a tax mix, because tax cuts are just as important as the tax mix. Smart taxation is extremely important in a pro-growth strategy. As you pointed out, Mr. Paton, this is also a good time to look at the whole issue of regulations. As you know, this committee has dedicated a lot of time to the issues of productivity and regulation. We're going to keep focused on those goals that speak to generating the type of economic growth that will eventually improve our standard of living.

Thank you very much.

We're now going to move to an in-camera session.

Mr. Jason Kenney: I have a point of order. Mr. Chairman, I've given notice to the clerk of two motions I'd like to move.

First, I move that pursuant to Standing Order 108 this committee send for the Secretary of State for International Financial Institutions to appear before the committee to report on the status of Canada's compliance with international covenants regarding the financing of terrorism.

I would also like to move separately, or I could move it jointly, that, pursuant to Standing Order 108, this committee send for the Superintendent of Financial Institutions and the director of the Financial Transaction and Reports Analysis Centre of Canada to report on compliance with policies regarding the financing of terrorism.

The Chair: I was under the impression that we were in agreement that we were going to deal with these issues under future business in camera. But if you want to get on the record.... You know that I said I would agree with that type of proposal. But if that's the way you want to deal with it, that's fine.

Mr. Jason Kenney: If I could speak to my motion, Mr. Chairman, the reason I move this is because on Thursday last we had given notice for a motion to call before the committee the Minister of National Revenue and his commissioner. Unfortunately, somehow members of the government on the committee all disappeared, thus removing quorum, so the motion couldn't be put. I know that didn't happen at the encouragement of the whip's staff. Earlier today a similar motion was put, and again the debate was dribbled out until four government members became nine and unfortunately voted against it.

Mr. Chairman, I would just like to say that in the House the Prime Minister has encouraged the committees to seize for themselves the issues arising from the September 11 attacks. These ought not to be partisan issues.

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All of the principal committees of the British Parliament and Congress in the United States have done nothing but hear from ministers and senior officials on these matters. I would prefer not to bury this in an in-camera proceeding and delay it to some indefinite point in the future. These are matters of highest priority for this country and this Parliament and this committee, I would hope. I therefore move this motion.

The Chair: Of course we'll accept the motion, but I'm going to set the record straight here. First of all, you've been around long enough to know that we don't comment on the presence or absence of people, because then I would have to comment also on your absence on this committee, and I don't want to do that. So I think we have to be very clear that there is a certain decorum we have to follow. You're also inaccurate in saying that members were not present. In fact the motion was, as you said, defeated, so obviously somebody must have voted against it.

I'd like to proceed as we had originally agreed, which is to move in camera—and it's evident because it is on the agenda. I'm one of those individuals who would like to see the commissioner of the RCMP, the director of CSIS, and ministers responsible for a number of issues appear. So I think we should stick with the program as we outlined it. We're going to deal with all of these, and I think you will find broad support from all parties because we all want to understand what the concerns are. If we as a committee are going to advocate for greater funding and support for CSIS, the RCMP, and Defence, then I think it would be wise to invite those individuals who are responsible to appear.

[Proceedings continue in camera]