FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, November 3, 1999

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[English]

The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): Good afternoon. I would like to call the meeting to order and welcome everyone here this afternoon as we proceed to hearing from witnesses in accordance with our mandate as a standing committee.

We resumed the pre-budget consultation process yesterday, as you know. In London we heard from the Minister of Finance his 1999 economic and fiscal update. These pre-budget consultations, as you all know, will give us an opportunity to get input from Canadians as to the priorities and their views as to how we deal with the projected surplus for the next five years.

This also gives us an opportunity to make recommendations to the Minister of Finance for budget 2000, the first budget of the millennium. In that sense it has an historical component to it, and it's very important that we view these consultations as important steps toward building a brighter future for Canadians.

I want to recognize the following organizations, and then I will introduce the individuals: From the Canadian Federation of Agriculture, we have the president, Bob Friesen; and the executive director, Sally Rutherford. From the Canadian Chemical Producers' Association, we have Richard Paton, president and CEO; and David J. Shearing, senior manager, business and economics. From the Crop Protection Institute, we have Charles D. Milne, vice-president, government affairs. From the Coalition to Renew Canada's Infrastructure, we have their president, Jim Facette; and chairman, John D. Redfern. From the Canadian Construction Association, we have the chairman, Mr. Michael Butt; Katia Strongolos, finance chair; and Mr. Michael Atkinson.

As you probably know, you have approximately seven to ten minutes to make your presentation. Thereafter we'll engage in a question and answer session.

The first presentation will be made by the Canadian Federation of Agriculture, Mr. Bob Friesen. Welcome.

Mr. Bob Friesen (President, Canadian Federation of Agriculture): Thank you very much, Mr. Chairman. Thank you very much for the invitation. I was glad you prefaced your comments by saying we're looking at a $95-billion budget surplus, because clearly the Canadian Federation of Agriculture has some good ideas as to how we could spend that.

As you may know, the Canadian Federation of Agriculture represents approximately 200,000 farmers across Canada. We have tremendous diversity both in agricultural production and in geography, so it is a challenge to come up with agricultural policy, but I'm happy to say our members work very hard in achieving consensus to come up with some very sound agricultural policy.

We have submitted a brief to you, and in that brief you will read about some of the ideas we have for accruing some more dollars back to producers in what I think are some fairly innovative ways. We talk about crop damage compensation. We talk about research tax credits. We talk about capital cost allowance for environmental measures. We talk about the carbon tax, which we don't think should be imposed on farmers as long as other countries that we compete directly against don't do so. We talk about the capital gains exemption, which is very important to farmers, especially at a time when not much of the dollar accrues back to the farm gate, where the only increase in equity they see is perhaps an increase in the value of their farm. We also mention RRSPs, GST reform, and child care.

Having gone through that brief very quickly, I would encourage you to read it thoroughly and to give those ideas some good consideration, but I am unapologetic in saying I would like to spend the rest of my seven minutes talking about farm income and the farm income crisis.

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As you very well know, the four factors that have created the crippling situation farmers find themselves in today are as follows.

First of all, there has been a 60% decrease in farm support. Look at the numbers. In 1992 farmers received $3.7 billion. In 1998, even if you include the agriculture income disaster program, the amount was somewhere around $1.2 billion or $1.3 billion. If you do the math, over the last seven years, that results in approximately $14 billion or $15 billion that the farm gate has contributed to deficit-cutting. Some of that needs to come back.

Another factor that has resulted in the crippling situation is a 40% to 60% decrease in some of our commodity prices.

We've seen an escalation in input costs for farmers. That includes of course a 28% increase in cost recovery that farmers have been hit with over the last few years.

Then of course we have the natural disasters that have happened across Canada, from hailstorms in B.C., which affected the apple producers, to too much water in Manitoba and Saskatchewan, to a drought in the Annapolis Valley, plus some other quirks of nature between those regions.

Those are the four factors that farmers have the least control over, and that is why they feel so helpless. Those are also the factors that threaten to disintegrate the rural farm infrastructure, the rural economy, and the rural community.

Since we've taken a Team Canada approach to developing export markets and increasing domestic production, we feel it is appropriate to take a Team Canada approach to finding adequate assistance to help our farmers through this very critical time. Some of our farmers are experiencing numbers now that rival those they experienced in the Depression in the 1930s. Clearly we have to do something.

As you well know, we designed an agriculture income disaster assistance program some time ago. You are probably also familiar with the fact that we have made recommendations to the agriculture minister for some very important design changes. We have no reason to believe the cabinet is not going to come through for us, because we are confident that they are sensitive to the plight of the farmer, that they understand the situation, and that they will come through.

However, I have to say that at the end of the day, even if the AIDA has gone through some very important design changes, which we feel are imperative, and even if enough money is found to pay the bills for 1998 and 1999, there will still be producers who have fallen through the cracks. At that time, the governments need to sit down, identify that group of producers, and ensure there is adequate compensation for them as well.

You've heard a lot of talk about numbers in the last couple of days, since last week in fact; we have new income projections. As far as we're concerned, in looking at those numbers, the government should not spend any time arguing those numbers. They should spend their time, their efforts, and their energy in coming up with solutions.

We have provided some solutions, and we have to continue to focus on solutions rather than the numbers. Those numbers are nothing but an accounting practice: moving inventories around, decreasing expenses or increasing income for 1999, but then decreasing the projected income and increasing the expenses for the year 2000. So although it makes 1999 look better, the year 2000 looks worse than was projected. We need to concentrate on the real issues and on solutions.

A good example of how we can help farmers without providing extra money through safety nets is a transportation issue that has come up in the west. There are currently $180 million of railway efficiency gains that should have accrued back to the farmer. If that $180 million goes to the producers in the west for transporting their grain for exports, that's $180 million less than what we will need in the future for a safety net package. That is just one of the examples.

As we look at the long-term safety net issues, our government must show confidence in agriculture. They must provide enough money in the safety net package to help our farmers.

You might well ask the question, why do we need that help?

Number one, we need that help because our farmers are more vulnerable now than they have ever been before, especially given all the export development. Our farmers are now for the most part competing in the world market at the world price. That has given them extra vulnerability, and that has added volatility to their income.

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Secondly, if farmers find themselves in the situation they are in today, the fallout will be much worse than just losing farmers. Just as importantly, we will lose small businesses in the countryside, we will lose employees in the countryside, and we will generally lose the rural infrastructure. Bankrupt farmers do not keep small grocery stores open, nor do they build town halls. That is an important issue as well.

Canadian agriculture and agrifood contributes $85 billion a year in revenue—almost 9%—to the GDP. That is important enough to spend a lot of time focusing on. If the farm gate snapped shut, we would lose the potential of that $85 billion.

Thirdly, our producers are increasingly competing against government treasuries in other countries. There must be equity in domestic support. The government must harmonize their fiscal policy with their trade policy. If they agree to allowing other countries domestic spending with total impunity, then our government needs to come up with that money as well.

We are looking at the future of an $85 billion agrifood industry, but more importantly, we are looking at the future of the rural economy and the rural community. That is why it is very important that the government take a Team Canada approach in providing the assistance our farmers need in a very critical time.

Thank you very much.

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

Now we'll hear from the Canadian Chemical Producers' Association, represented by the president and CEO, Mr. Richard Paton, and David J. Shearing.

Welcome.

Mr. Richard Paton (President and Chief Executive Officer, Canadian Chemical Producers' Association): Thank you very much, Mr. Chairman, for the opportunity to speak before you.

First of all I'd like to compliment this committee, because last year I read a report on productivity that was really quite excellent and provided an important perspective on how we should be thinking about the budget and the economy.

With Mr. Martin's presentation yesterday, this committee has a historic opportunity to discuss the whole approach we take to how we manage the surplus in the future, which will have important implications for the programs this government has, the overall expenditures of government, and more importantly, the economic development of the country.

I saw many of you on television listening to that statement yesterday. I was at the other end of the television, listening to and watching the statement. I had a nice statement ready, and I thought, “Well, now what am I going to do with this statement?”, because I just heard a lot of interesting comments from Mr. Martin. So what I'm going to do is take you through a little bit of our industry, but I'm going to make some comments on that statement, based on our industry's perspective.

First, our industry represents 75 companies across Canada. Some of the members of this committee—Mr. Cullen, Mr. Gallaway, and Monte Solberg—are quite familiar with our companies, but others may not be. Our annual output is about $15 billion, inside a broader chemical industry of about $30 billion. Our companies are located at 160 sites across the country in more than 100 communities.

Our industry is what we call a keystone industry. That is, it's very knowledge intensive. Of the chemical industries, it's probably the most knowledge-intensive industry of the OECD countries.

It's very dependent on research and product development. Many of the products, such as nylon and many other products, that we use today are the results of research done 20 or 10 years ago.

We're critical to all sectors of the economy. Our industry produces the products that go into cars, textiles, consumer products, and the pulp and paper process, and that are transported on highways and on railways. We're critical to the economy, and we are part of what Mr. Martin called the innovative economies. Some of my comments will be in that context.

You will be getting a package in a nice blue folder that explains how we do our competitiveness scorecard, analysing each of the sectors of our industry and the pluses and minuses or neutrals of those areas vis-à-vis the Canadian economy and the Canadian government.

You'll see a document called the “keystone” document. You'll also see in that document that we consider ourselves a world leader in environmental responsibility with the adoption of what we call the Responsible Care initiative, which has now been adopted in 45 countries.

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We work constantly with government to make sure that the right regulatory policy regime is in place to improve both environmental performance and economic performance. We do believe there is a win-win out there if governments approach both policy and legislation in a balanced way and get the right kind of regulatory framework that balances with economic performance.

With that background, I would like to comment on Mr. Martin's presentation.

First, we were very glad to see the minister indicate the importance of reducing the debt and to see that financial management was seen as an important foundation of economic growth. Our sector certainly agrees with that. I think you would be surprised to find any sector that doesn't agree.

We agree with the minister that the debt burden must come down, both as a total debt and as a percentage of GDP. Mr. Martin said clearly that debt must continue to fall, year in and year out.

However, up to now we haven't seen a debt reduction plan. Given the fact that 27¢ on every dollar of federal expenditure is debt related, as he pointed out, even though it's less than before, we think we need in this next budget a plan that clearly spells out how we're going to reduce the deficit. It should probably aim to reduce it below 50% of GDP.

On the second point, taxes, we were also delighted to see a strong emphasis on reducing taxes. I was particularly delighted to hear the minister say that he would attack tax reduction with the same zeal that he attacked deficit reduction with. I worked in the government during the period in which we reduced the deficit, as a member of the Treasury Board, and I know how much zeal there was at that time.

We're also very pleased to see that he noted that corporate tax reform was important. Up to now, I can't remember a statement in the last couple of years that has mentioned that. Even though there was the Mintz report, it seemed that corporate tax reform had fallen off the agenda because of the need to have general taxes reduced for the lower and middle classes.

There have been a lot of other very good proposals on tax reduction, by the Chamber of Commerce and others. I think these are very sound proposals and deserve to be considered seriously. The BCNI has also done some very good work on this.

Our association believes it's time to make bold efforts on reducing taxes. The tax level is undermining innovation and productivity and is causing companies considerable problems in maintaining staff and attracting people to work in Canada.

Members, I have come here three times, I think, to appear in front of this committee, and CCPA, to my knowledge, has never talked about personal income taxes. It has not been an issue for us.

But today we are finding that it's very hard to keep employees in Canada and it's very hard to get them back. I just had a conversation with a company executive the other day, and he said, “Richard, the hardest people to get to work in our country are Canadians who used to live here; they will not come back.” They know the tax structure. They will not come back and work in our companies. We are global companies; we need people to move around. This is a very difficult issue for a lot of us.

So notwithstanding the positive comments on tax reduction and on—hopefully—the zeal equivalent to that for deficit reduction, so far the proof is in the pudding. The government has talked a lot, but has still kept the 5% surtax. It hasn't changed the indexation problem, so the level of tax revenue keeps going up as incomes go up. It has reduced UIC very gradually, raising CPP rates at the same time. As a result, I don't know if Canadians have really seen much change in their tax structure—and certainly not in terms of what they take home every week. There is a time and a need to look seriously at tax reduction.

Corporate tax reform, we understand, would normally trail personal income tax changes, which should be part of the reform efforts, and we would like to see this budget say clearly that the government intends to reform corporate taxes and to say how it's going to do it. Even though it may not have to put out all the details, we would like to see a clear commitment and maybe an aim for the 2001 budget for some corporate reform.

Our belief is that corporate tax reform is not a “benefit” for companies. Dave Shearing is here with me today, and we, along with other associations, have done extensive tax models. Corporate tax reform would produce not only a more productive economy, a more competitive economy, it probably would produce both growth and jobs for Canadians.

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So I think it is a win-win for government, for the economy, and for Canadians. The combination of debt reduction and personal tax reform would boost investor confidence and maintain lower interest rates. Corporate tax reform would attract investment, create jobs, and help us be competitive.

There are a few things I did not hear in this presentation yesterday. That worried me. I know that Charles Milne, who is here, will talk about one of them as well. I didn't hear anything about regulatory reform and I didn't hear anything about cost recovery.

Now, in the slides I did see the word “regulation”, but I didn't see it in the text. I hope that's not an indication of how important it is. However, I must say it's the first time in a few budgets that I've seen regulatory reform, so I was happy to see at least something, even if it was on the slides.

Because we are an innovative and knowledge-based industry and we deal with large industries with major capital investments that deal with complex environmental issues, many of our operations are affected by regulations. We've just gone through an incredibly difficult debate on CEPA. There is a very active issue on climate change out there. There are many health issues. Government is being pressured from all sides to do more: to pass more rules, to have more legislation, and to have more regulations.

If government isn't careful, while it is throwing or putting money into investments such as R and D, trying to build up the skill level for our population, and doing something to reduce taxes or debt, it will be adding layers of regulation, which stifle innovation, productivity, growth, and investment. So I think it's very important that government put the kind of emphasis on regulatory reform that it has put on other areas.

Some of you may remember that in 1992, the minister, Mr. Mazankowski at the time, announced a number of regulatory reviews. This committee did an extensive review of competitiveness and regulation and made some very good recommendations. Again, this may be an area that this committee wants to focus on. It certainly would be nice to see the government put a little more focus on it as well.

The same is true of cost recovery. Cost recovery has been a major concern of business. Later on, I believe, you're going to hear from a coalition that has done some extensive work. Charlie and I are both members of that coalition.

Cost recovery is a serious concern for business. It's not because we don't want to pay costs; it's because the way the policy is being implemented impacts very negatively on innovation, investment, and jobs.

I'll just give you a couple of quick numbers. Right now we're talking about $1.67 billion in cost recovery charges to business. We have done an extensive independent study. We believe the economic output impact of that is $2.6 billion. It reduces GDP by $1.37 billion and reduces jobs by 23,000. All of that gets the government $270 million of net revenue. In other words, cost recovery is a losing proposition for government. We have the models and you will hear from the coalition to show that this is an accurate analysis of the situation.

Notwithstanding that, we did not see anything on cost recovery in the last budget. We had a promise from the Treasury Board minister at the time, Minister Massé, that there would be a study and a review. There has been no review. No review has been started. No consultant has been engaged. Nothing has happened on cost recovery, nothing at all, which shows me that either the Treasury Board is not interested in tackling the issue or the government isn't. It surprises me constantly that an issue that's so important to business, that undermines innovation, that undermines jobs, that has little economic value in terms of budget revenue, is getting so little attention from the government.

Only a very strong message from this committee to the government on that particular issue would probably make much of a difference. Only if the budget specifically mentions that it will be reviewed and that something will be done do I think there may be any hope at all of dealing with this issue.

Finally, I think the framework that Mr. Martin presented yesterday was a very balanced framework. However, our industry is still worried about the expenditure side. We see many proposals out there—including those from some people who are here today—for more spending, and that spending can easily put us in a situation where we were back in 1994, where you don't want to go again.

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I would ask the committee to think about one basic rule when you're looking at any spending proposal. By reducing the debt, you have an automatic return on an investment, as we've seen in the fact that now 27¢ of the budget is debt, as opposed to 30¢ or so before. There's an immediate return on our investment that goes to Canadians. By reducing taxes, I believe there is also a return on investment. More growth will be created, there will be more innovation, there will be more investment. Every expenditure we make, notwithstanding its great value, should pass some of the rigours of these tests. We should look hard at whether these expenditures return the same value as reducing the debt and reducing the taxes.

It's very easy for governments—I know, I worked for government for 23 years—to respond to the needs of many groups to spend more money, but very quickly that very expenditure can lead you to a situation where your economy isn't innovative or productive and tax revenues aren't very healthy because nobody is working or they have no money to spend.

So with that, I would encourage you to look critically at what Mr. Martin has presented, with some pluses, which I think are quite good, but there are some holes. There are holes in cost recovery and on regulatory reform, and I'd like to see a debt reduction plan and a robust, aggressive tax reduction plan.

Thank you very much.

The Chair: Thank you.

We'll now move to the Crop Protection Institute, Mr. Charles Milne.

Mr. Charles D. Milne (Vice-President, Government Affairs, Crop Protection Institute): Thank you very much, Mr. Chairman and committee.

The Crop Protection Institute appreciates this opportunity to testify to the committee today. I must say that my speaking notes that I circulated today depart somewhat from the brief you may have received earlier. We are expanding upon some of the issues that I raised in my brief, and I will be highlighting some of the aspects that Richard Paton mentioned as well with respect to cost recovery.

I'll tell you a little bit about who we are. The Crop Protection Institute is a non-profit trade association representing developers, manufacturers and distributions of plant life science solutions for agriculture, forestry and pest management. We were founded in 1952, and the institute is seen as the voice for our industry and a source of information on crop protection products.

Industry sales are about $1.4 billion in Canada. Our members use science-based knowledge in traditional chemistry and in biotechnology as the foundation for the products they make and sell. Our industry is a supplier of crop protection technology to Canadian farmers. Access to emerging new technology is critical to enhancing agricultural production. The key to accessing new technologies is a responsive and efficient regulatory system.

We're a highly regulated industry. The institute's members became directly engaged with cost recovery in 1995 when a regulation of our industry was consolidated under the newly created Pest Management Regulatory Agency of Health Canada. Our industry recognized that the concept of cost recovery, although a major and costly change, represented the new reality of the times. However, there prevails an inherent expectation for value when money is exchanged. To date, industry's experience has found that cost recovery is not working as intended.

I believe, however, there's a goal within grasp. As highlighted in the recent throne speech and referenced in the finance minister's update yesterday, the attraction of R and D investment is a priority. This goal can be reached through excellence in Canada's regulatory systems. By being the most respected and the most efficient regulators in the world, developers of leading edge technologies would find such a regulatory environment inviting. While market size of other countries will forever overshadow the markets of Canada, the capacity to lead the world by providing fast and globally respected technology registrations could distinguish Canada as a global discovery centre.

Our industry came together with others in some common interests—and Richard made reference to this earlier. We were driven by a commitment to improving the implementation of cost recovery within the federal government. We created a forum of diverse leading Canadian businesses and industry associations known as the Business Coalition on Cost Recovery.

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Earlier this year, the forum produced a very comprehensive study of the federal government's implementation of cost recovery. Many of you should be familiar with it. It was called, Where Does the Buck Stop?. The study was based on the underlying principle that, for the most part, Canadian businesses accept the concept of paying reasonable cost recovery fees on the understanding that we receive value for our money, that the regime is fair, that government engages in service improvements, and that proper processes are in place to ensure accountability and transparency.

In response to the study, as Richard Paton referenced, the President of the Treasury Board wrote to us last February indicating that the government, under the direction of Treasury Board, would be conducting a review of cost recovery policy with a view to making the needed improvements. However, to date, little progress has been made in getting this review underway and identifying some solutions to these problems.

We feel that there is a solution. The Treasury Board review is imperative to get the policy under control, to fix the existing problems, and to establish accountability for future fees. To this end, the coalition has developed some terms of reference for a review, as well as an implementation standard. We request that Treasury Board utilize these documents to commence the important work of reviewing cost recovery to determine whether user-pay principles are being applied universally and whether system efficiencies are being realized. The review is vital towards achieving the goal of economic growth through regulatory excellence.

Copies of the terms of reference and the implementation standards are available from the clerk of the committee. I'd like to thank the committee for its attention and ask you to encourage Treasury Board to undertake this important study and get cost recovery right, because that's the biggest step towards regulatory excellence. As I say, regulatory excellence could be a great lever for economic growth.

Thank you for your attention.

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

We'll now hear from the president of the Coalition to Renew Canada's Infrastructure, Jim Facette. Welcome.

Mr. Jim Facette (President, Coalition to Renew Canada's Infrastructure): Mr. Chairman, if I may, I'll pass it on to my chairman, John Redfern, for remarks. Thank you.

The Chair: Mr. Redfern.

Mr. John D. Redfern (Chairman, Coalition to Renew Canada's Infrastructure): Mr. Chairman and committee members, thank you for the opportunity today.

Since its inception in 1991, the CRCI has participated in these pre-budget consultations. We are happy to participate again, providing a message on the need for a continued long-term plan to address Canada's physical infrastucture needs.

We are encouraged by this government's attention to the physical infrastructure in the Speech from the Throne. The CRCI will support, and does in fact advocate, investment into clean water systems, and safe and efficient roads and highways. We have yet to hear a precise interpretation of physical infrastucture. We believe it to be primarily water systems, roads and highways. Our submission is focused on the need for a national highway program.

This year the committee has chosen to organize the pre-budget hearings around five major themes: the process of budget-making, tax relief and reform, social infrastructure, the new economy, and productivity. Our remarks will focus primarily on productivity.

Providing necessary basic infrastructure is critical for any government that aspires to promote improved quality of life in Canada through economic growth. As the collective voice of a broad-based coalition representing all areas of the economy, we are greatly concerned about the deterioration of Canada's national highway system and its negative impact on Canada's economic growth, job creation and productivity. The evidence, both anecdotal and academic, is clear: investment in Canada's national highway system will net governments a tangible return on that investment, save lives, improve productivity, and contribute to economic growth.

The National Highway System: Condition and Investment Needs Update, completed by both the federal and the provincial governments, reinforced these points. It also confirmed what CRCI has been saying for years, that unless we address this problem now, the cost to rehabilitate Canada's national highway system will continue to escalate.

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The update report demonstrated that despite investments made primarily by provincial governments, the state of the national highway system has gotten worse since 1988. Cost estimates have now escalated from $13 billion to $17 billion due to this neglect. The joint study also indicates that new construction work is required, with the greatest need for twinning many sections.

When the current Liberal administration was in opposition, the Liberal task force on infrastructure recognized the importance of highways in our country. It recommended the federal commitment rehabilitate and expand the then Trans-Canada Highway system. What that task force said then is valid today.

The economic consequences of poor roads is staggering. Studies reveal that the productivity of a region is very much dependent upon its transportation system. Traffic congestion increases the costs of transporting materials, reducing the industry's competitiveness. Bad roads also have a negative impact on tourism, an important sector of the Canadian economy.

In 1997 the House of Commons Standing Committee on Transport came to a similar conclusion. The committee report said an efficient, competitive highway system is one of the fundamental requirements of a healthy economy. It has been demonstrated beyond any doubt how important a safe and competitive highway transportation system is to trade and tourism.

Mr. Chairman, our full brief, which has been provided to this committee, outlines the attractive built-in returns on the investment, including tourism, lives saved, increased productivity, unity, and trade.

Many of the current bilateral agreements have elapsed. Despite sending over $1 billion a year in gasoline taxes to Ottawa, the four western provinces no longer receive any money for highway investment. Despite the more than $1.5 billion in gasoline taxes sent to Ottawa, Transport Canada no longer has any bilateral agreements with Ontario.

The CRCI recommends the federal government adopt a national highway program that would be long term in nature and oversee rehabilitation and expansion, where necessary, of Canada's national highway system.

The all-party support for a national highway program has recently surfaced in the form of two private members' motions, one from Mr. Roger Gallaway, the other from Mr. Bill Casey, each with slightly different wording but both with similar theme. Canada needs a national plan and resources to address the serious deterioration of our national highway system. It is our understanding that because of House procedures, Mr. Casey's motion, M-102, will move forward and could today be selected as a votable motion in the House of Commons.

CRCI is pleased that the issue is receiving its due attention by members of the House of Commons. We urge all members of Parliament to support this motion when it does come to a vote.

In our full submission you would have noticed that we referred to a national highway stakeholders meeting that was co-chaired by the then Liberal caucus chairman, Joe Fontana, and the CRCI. The appendix to our submission lists the participants, including Ministers Martin and Collenette, the broad width of support, as well as some action items.

CRCI has built an alliance of supporters on this issue that includes the Canadian Chamber of Commerce, the Business Council on National Issues, the Alliance of Manufacturers and Exporters of Canada, the Canadian Automobile Association, the Van Horne Institute, the Tourism Industry Association of Canada, the Canadian Portland Cement Association, the Canadian Construction Association, and the Association of Consulting Engineers of Canada.

The United States, our major trading partner, has made a major commitment to their transportation infrastructure. The Transportation Equity Act for the 21st century, also known as TEA-21, which is a follow-up to the multibillion-dollar ISTEA legislation of 1990, will provide for the investment of $217 billion in transportation infrastructure. Of this total, $175 billion will be invested in highways alone.

Quoted in the Wall Street Journal, July 8, 1998, economists state that “the six-year plan could generate more than $450 US billion in economic activity”. In addition, “the huge program's real impact could be more than double its price tag...public works tend to generate even more economic activity than other kinds of government (investments).

Mr. Chairman, committee members, CRCI is often asked how to pay for a national highway program and whether we think public-private partnerships are an option. Our principal response is that the federal government must take a leadership role and commit to a long-term program. For a national system, we need national leadership.

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The Standing Committee on Transport supports this. In its 1997 report, the committee wrote that in cooperation with the provinces, the federal government must make a long-term, secure, sustainable funding commitment to the rebuilding and maintenance of the national highway system.

Also, in June 1998, the Liberal committee on gasoline pricing recommended that joint action between federal and provincial governments aimed at restoring Canada's national highway system must be given top priority, and that appropriate cost-sharing formulae and public-private partnerships be established to undertake repairs at the earliest opportunity.

Finally, in its grain handling and transportation review, the Honourable Willard Estey recommended that the federal and provincial governments collaborate to apply some part of the considerable fuel tax collection to the construction, maintenance, and repair of highways.

In regard to the question of private sector participation in the rehabilitation of the existing 25,000-kilometre national highway system, we think it will be limited. In a report to the council of ministers responsible for transportation and highway safety, a working group studying the applicability of public-private partnerships found that many financial analysts are concerned about the unrealistic expectation that proponents have with respect to the scope and applicability of the public-private partnerships concepts in Canada. However, wherever feasible, we believe it should be looked at in cases where new highways are needed that offer a non-tolling alternative.

The quality of Canada's highways influences corporate decisions regarding location, capital investment, production methods, relationship to suppliers and customers, location and availability of inventory, and access to labour. A long-term plan such as the one laid out by the national highway review policy report and by Transport Canada would carry out reconstruction of our national highway system with maximum efficiency, and create a larger economy.

Mr. Chairman, I'll end here. Thank you very much.

The Chair: Thank you, Mr. Redfern.

We'll now hear from the Canadian Construction Association chairman, Mr. Michael Butt.

Mr. Michael Butt (Chairman, Canadian Construction Association): Thank you, Mr. Chairman.

I am the current chair of the board of directors of the Canadian Construction Association. That is the top volunteer position with the CCA. In my business life, I am president of Buttcon Limited, a general contracting, construction management and design-build company headquartered in Toronto. I am also a director of Armbro Enterprises Inc., a large road builder in Ontario and partner in the Canadian Highways International Corporation, which built the 407 toll highway. I'm a director of Strait Crossing Group Inc., which built the P.E.I.-New Brunswick fixed link, and in my spare time I serve as chairman of the Greater Toronto Airport Authority.

With me today is CCA's chief staff officer, president Michael Atkinson.

Mr. Chairman, the Canadian Construction Association represents an industry that, according to Revenue Canada, has over 200,000 enterprises that employ close to 800,000 Canadians, or approximately 6% of the total workforce in Canada. The construction industry in Canada pays in excess of $25 billion in wages annually, and more than $14 billion in government taxes. As such, we are arguably affected more than most industries by federal fiscal and tax policies. We welcome this opportunity to briefly share our views on what we see as the clear priorities for the upcoming federal budget.

You have been provided with copies of our written submission, so we will not go into great detail. Instead, we will briefly outline our main points and perhaps deal with the details during question period.

Mike.

Mr. Michael Atkinson (President, Canadian Construction Association): Thank you, Michael.

Chairman, this committee, in its call for submissions, asked witnesses to address five primary areas. Our submission attempts to answer the questions raised in each of those areas.

Regarding the process of budget-making, the committee asks whether or not the federal government should set longer-term targets for debt reduction. We couldn't agree more. Targets for debt reduction should be set over a longer period than two years, and we were certainly pleased to see that recognition in Minister Martin's statement yesterday.

• 1620

We would very much encourage the government to apply the same dogged determination to debt reduction as it did to deficit elimination. To achieve this will obviously mean that annual payments to reduce the debt must be greater than simply the unused portion of the annual budget contingency, whether it be $3 billion or $4 billion.

The committee has also asked witnesses to talk about tax reduction. It is certainly the CCA's contention that Canadians are overtaxed and that both personal and corporate income taxes must be reduced. To quote an authority on this:

We have got to bring our taxes down as quickly as we possibly can. They may be a factor in productivity. They may be a factor in the brain drain. But we don't need those reasons to do it.

This was a statement from the Honourable Paul Martin, Minister of Finance in June 1999.

We've outlined some specific tax areas that we think should be looked at. We ask that you pay particular attention to our comments concerning small business tax deferral. The active business threshold limit, which stands at $200,000, is not indexed and has not been increased since 1982. Inflation has eroded the value of this tax incentive to the small Canadian business. I think it's important to underscore, with respect to that particular measure, that it is a tax deferral.

On another tax front, we at CCA also seek substantial reductions in employment insurance premiums. Part of the EI fund surplus, currently at $21 billion, must be returned to the businesses and employees who have contributed to it before the consideration of any new or enhanced uses for the EI fund. While we welcome yesterday's announcement of a 15¢ reduction in the employee contribution for 2000, we can only rest easy if this is merely another step in a series of substantial reductions, and the surplus is not utilized to fund new programs.

I'll turn it back to Chairman Butt at this point.

Mr. Michael Butt: The committee has asked witnesses to comment on how Canada can better strengthen its social infrastructure, improve its standard of living, and enhance productivity. You've just heard from our friends from the Coalition to Renew Canada's Infrastructure, who gave the answer, so I will not dwell on this. Suffice it to say, however, that the most logical and prudent way we as Canadians can ensure the future economic and social well-being of all Canadians is to invest in our physical infrastructure.

Without modern, efficient and safe highways, airports and seaports, our export economy cannot prosper. Without upgrading and maintaining our sewage treatment facilities and water distribution systems, and greening our buildings, we cannot ensure a safe and healthy environment for all Canadians. Without modernizing and maintaining our schools, homes for the aged, hospitals, and health care facilities, we cannot as a nation ensure the social well-being our citizens.

Addressing our nation's infrastructure deficit is not a discretionary consideration. It is necessary, not only for Canada's future economic well-being but for its social well-being as well. It is not a question of whether or not we as Canadians should invest in our physical infrastructure, but a question of when and how much. The longer we defer the decision to act, the more it will cost us, not just in construction terms but also in terms of our social well-being and standard of living.

Thank you, Mr. Chair, for permitting us the opportunity to share with you the views of our 20,000 members across Canada. We would be pleased to try to answer any questions during the question period.

The Chair: Thank you very much, Mr. Butt and Mr. Atkinson. We'll now proceed to the question and answer session. We'll have a seven-minute round.

Mr. Casson.

• 1625

Mr. Rick Casson (Lethbridge, Ref.): Thank you very much, Mr. Chairman. I would like to thank all of you for being here and giving us some very good presentations and some great suggestions as to what we need to do as a country.

Mr. Butt, I notice what you do in your spare time, and I hope you have enough spare time to take care of that airport.

I would like to focus on a few things. I think some of the deferred maintenance of our infrastructure that has gone on in this country for the last number of years is a huge issue with regard to our public facilities, whether they're universities, hospitals, sewage treatment plants, water plants, or highways. It's something we need to address, because the amount of money we've just put off spending is increasing to a point where it's absolutely huge.

I would like to focus my question on Mr. Friesen from the CFA. He pointed out in his brief a number of issues that need to be addressed as far as agriculture is concerned. I think almost everybody's presentation deals somewhat with the cost recovery charges and services charges that are in place and need to be addressed. Mr. Milne came up with some good suggestions on what they should be. If a charge or a cost recovery fee is not associated in any way with the service provided or the actual cost of doing business, then what is it?

Mr. Friesen, we've heard a lot about agriculture in the last little while and the crisis we're facing in this industry. We're fighting short-term problems and long-term problems. We're fighting European subsidies and U.S. protectionism. We have record-low commodity prices. We have a situation in our farm communities that's absolutely grim.

You mentioned a long-term safety net program. I'd like you to expand on that a little and tell us what you think it should be and how we could structure it so it is in place, to take effect when we have these serious downturns. How can we make it acceptable to all Canadians, both urban and rural? How can we do that so it will handle situations such as we're in now?

Thank you, Mr. Chairman.

Mr. Bob Friesen: Thank you.

Let me start answering that question by saying that in the brief we submitted there are some ideas that will help farmers perform better. One of my members said a while ago that as long as farmers aren't given the opportunity to perform, they don't need a safety net. It's only when you allow the performer to climb up on the trapeze and perform that you need a safety net underneath. Clearly it would be the farmers' preference to derive all their money from the marketplace and be able to have some of these incentives we talk about.

As far as a long-term safety net is concerned, we feel there are four very important pillars to a safety net package.

First of all, we have NISA, which is a net income stabilization account that is meant to mitigate slight variations in income between, say, 70% and 100% of a reference margin.

Secondly, we feel we need adequate crop insurance programs to deal with the things that nature hits us with.

Thirdly, we need companion programs so provinces have the ability to address provincial-specific safety net issues.

Then we need what we call a third line of defence, and that is an agricultural income disaster program. We don't call it an income stabilization program or an income guarantee. It is meant to shore up farmers' incomes when the rug gets pulled out from under them.

Of course the current AIDA program is not a rich program; it's a 70% program. Incidentally, if you need any indication as to whether the situation is serious across Canada, AIDA is a good measuring stick. AIDA has $1.5 billion in it, and it looks like it will run out of money for 1998 and 1999—and it's only a 70% program. That's clearly a measurement of the need that's out there.

We feel that if we have those four pillars and enough money is provided to pay for all those things, it should be adequate to help farmers through some very critical periods.

• 1630

The one thing a safety net package will never, ever do—the current one certainly doesn't, and we don't yet know exactly how we're going to deal with it—is provide enough compensation for the current income problem we have across Canada. The safety net package that has been designed to date is a risk management tool; it's not an income guarantee. So aside from the risk management and the money we need to build those risk management tools, if you have a severe income deficiency, that's going to have to come outside the safety net package.

Mr. Rick Casson: With that long-term safety net package, are we talking about an insurance type of structure, where the farmer is putting in and somebody else is helping? How do you have that?

Mr. Bob Friesen: Well, that's of course what NISA does, but what we are finding now is that if in fact all the money is withdrawn from NISA that was triggered in 1998 and will most likely be triggered in 1999, NISA will be out of money, because NISA of course was meant to mitigate slight variations.

As far as an income disaster program goes, we feel enough money must be provided so that farmers make it through to the point where the situation turns around. Presumably there should be enough confidence in agriculture to help them through this period, so that once the agricultural situation is turned around, any fund that has been made available to an income disaster program will build. In good years, that fund could build. Then hopefully—it doesn't look very good for the next three years, but hopefully—we will come to a period where farming will be viable, to the point where farmers will not have to rely on an income disaster program. At that time, that fund could build.

I would like to add one other thing. It deals in some part with the new income projections we saw come out of Agriculture Canada today. CFA has made the point very adamantly over the last while that off-farm income should never be a prerequisite to successful farming. We have no problem with people working off farm, but farmers should not have to work off farm to pay for their production costs or to pay their farming bills.

What adds insult to injury is that in the report of the new income projections, there's a note that says these numbers are underestimated, because they don't include savings and off-farm income. That is tantamount to telling the federal and provincial bureaucrats they should take a 60% decrease in salary because they can go pump gas in the evening, or because their spouse works and they can use that money, or because they've built up a savings account over the last 15 years and they can use it. To us, that is simply not an argument.

Farming should be viable on its own merit, and then the safety net package presumably should carry farmers through this period to better years, when there would be some respite in how much money would be drawn out of those funds.

The Chair: Thank you, Mr. Friesen.

Thank you, Mr. Casson.

[Translation]

Mr. Desrochers.

Mr. Odina Desrochers (Lotbinière, BQ): I would also like to thank each of the panelists for their presentation.

Since this is my first time as a member of the Finance Committee, I will take the liberty of making a brief preamble and saying that the Bloc Québécois was not in London yesterday because we were all here taking part in an important vote. Please be assured, Mr. Chairman, that the Bloc Québécois will continue to follow the Finance Committee's work attentively.

The Bloc Québécois hopes that Minister Paul Martin will be a better listener than he has been in the past. Since I began taking part in the Committee's work, I have noticed that the Minister has had a great deal of difficulty hearing the demands made by the provinces, particularly Quebec.

I would also like to express the wish, Mr. Chairman, that the main points of this Committee's 1999 report should remain confidential until they are officially tabled in the House of Commons, so that we don't read about them once again in the media two or three days before the report is tabled, something that was extensively criticized by most of the opposition parties.

My preamble is now over and I would like to put my question to Mr. Friesen. Yesterday, Mr. Martin spoke about billions, billions and billions of dollars. We all know that there is a persistent agricultural crisis virtually across the country, particularly in Western Canada, and that uncertainty reigns in the farming world over the negotiations that will be starting at the WTO.

• 1635

In a context in which the federal government already has billions of dollars, would it not be preferable for it to act immediately instead of waiting for the next budget, even until the year 2001, before taking action to assist the agricultural industry.

[English]

Mr. Bob Friesen: Yes, they should act immediately, and we have been frustrated over the last year with how slowly things have progressed.

As you well know, two weeks ago the U.S. government approved an extra $8.7 billion in domestic support for their farmers. Yesterday we heard that money will start flowing next week. That's three weeks it took them to start flowing the $8.7 billion. We clearly are getting to the point of urgency, where our farmers need money and need it quickly.

I should say money is being withdrawn out of NISA. That is providing some assistance. And I should also say money is flowing out of AIDA. But it has been a long time in coming. We hope the administration can be speeded up to the point where that will be quicker.

Again, I agree with you 100%: there has to be more money, and we have to be able to define all the producers in need, not just those currently being covered by the programs we have, because as I said earlier, there is a serious income deficiency that cannot be dealt with through the safety net package.

You mentioned the WTO, and that was in part also in answer to the previous question. One of the problems is that in our design of safety nets, we have been seriously constrained by annex 2 in the Agreement on Agriculture. We have fallen over backwards to ensure the program we design is green at the GATT.

You might wonder why we have to be so careful that it's green. It's because we're a very small player against the U.S., so we can't afford to initiate any kind of trade action from the U.S. The U.S. has a program where they are spending billions and billions of dollars, and they are doing it in a program that has been deemed green, so there are no repercussions.

I should also say that if our government had the money—and we talked about this last week at the National Safety Nets Advisory Committee—the government could take $20 billion and arbitrarily spread it all across Canada, and it would be green at the GATT. It's because of our fiscal policy and the constraints with the WTO rules that we have been unable to find a program that suits everybody perfectly in order to compensate farmers adequately.

So it's the constraints of the WTO rules plus our fiscal constraints that have to a large extent impeded us in building what we could call the ultimate program. We are hoping to improve that over the next while, and we are also looking for some changes in the next negotiation.

[Translation]

Mr. Odina Desrochers: Mr. Facette, I share the view you express in your brief concerning the rather pitiful state of the road system. As you are no doubt aware, there used to be a tripartite infrastructure program involving the federal, provincial and municipal governments, and it worked very well and entrusted the labour issue to the provinces. As part of the extension of federal government assistance to improve road infrastructure, would you like the same arrangement to be used or would you prefer to suggest a new one that would be more effective?

Mr. Jim Facette: Thank you very much, Mr. Desrochers. Although Canadian roads have previously been more or less a provincial jurisdiction, there is some debate as to who should control the national highways. A number of municipalities have no responsibility for maintaining national highways. I believe that the best approach would probably be to implement a national plan which would be administered jointly by the federal government and the provinces. However, if it was considered appropriate for the municipalities take part in carrying out the plan, they should be involved to a certain degree.

Mr. Odina Desrochers: Thank you, Mr. Chairman.

• 1640

[English]

The Chair: Mr. Cullen.

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

I'd like to start with the highways group, the Coalition to Renew Canada's Infrastructure, John and Jim.

In the throne speech there was mention of some support for some sort of infrastructure program. There have been discussions along the lines of public-private partnerships and, I guess, a sense of leveraging federal funds with investments from the provinces and the private sector.

John, you commented that the public-private partnerships don't seem to have that much scope or that much potential. How do we then, as a federal government, lever our federal funds with provincial funding in some kind of annuity arrangement other than just the one-off annual federal funding, provincial funding, if we don't have tolls to sustain a fund that might be set up, like they have in the United States? Maybe you could describe what they're doing in the United States and how they perpetuate the fund without.... I know you're going to probably say, well, we need to dedicate the gasoline taxes, but I'm going to try to narrow it down a little bit because we know the problems associated with that. How can we create the leverage with the federal funding with provincial funding and the private sector if the potential for tolling and for dedicated taxes seems to be limited? How do we create this annuity like they seem to have done in the United States, and why won't tolls work in Canada when they work in the United States?

Mr. Jim Facette: Thank you very much for your question. It's a long and difficult one to answer, but I'll do my best in 30 seconds or less.

You have alluded to the fact that in the United States they have a dedicated fund, and they do. In Canada, the problem with looking at the existing 25,000 kilometres that make up the national system we're talking about is that, for the most part, many parts of that are what we would consider low-volume roads in that they don't have the volume that Highway 401 has, which supports Highway 407; they don't necessarily have some of the volume they have in Vancouver. So if you're looking at trying to structure public-private partnership around that, then what do you do?

In a meeting that then chairman of the transportation committee, Mr. Alcock, put together—I believe it was just over two years ago now—and in the stakeholder meeting we co-hosted with Mr. Fontana in April of this past year, the financiers said essentially two things need to happen: one, the projects would have to be pretty much large in scope in order that they be viable; and two, you'd have to look at bulking together some of the roads, that is, some low-volume roads with some high-volume roads, and they would be built around what they've done in England, which I guess you'd have to Canadianize, something called shadow tolling.

I'm hesitant to use the word “tolling,” because shadow tolling alludes to the fact that you're going to put a direct fee to the user on a road that exists right now. That is not shadow tolling. In the United Kingdom they've essentially managed to tell a private consortium that this network of highways is up to you to take care of, you must maintain it to a certain engineered standard, and we as an owner, meaning the government, will return back to you a certain fee per vehicle that is used, on some kind of scale, on a quarterly or annual usage base.

But in Canada the problem is the volume question. You need to have high-volume traffic. So the Canadian version of that, which some of the financiers have looked at, is that essentially the owner, or the provincial and federal government—and there has been some discussion about having a national highway authority that would be the one to administer that kind of role—would essentially pay the consortium an annual or quarterly fee to do just that. The private consortium would take over the responsibility for the maintenance and upgrading of that particular set of highways, both primary and what we call secondary, and they would be paid an annual fee in that respect. So that's how shadow tolling might work in Canada.

Mr. Roy Cullen: Of course, shadow tolling is really a way of amortizing the cost to the public sector.

I know it's a complicated issue, but it's sort of topical. If you have any ideas on how that might be structured—perhaps for you, Mr. Chair—it might be useful to have your thoughts on that as a follow-up to this meeting.

Mr. Jim Facette: I'd be happy to do something later on.

Mr. Roy Cullen: Okay, thank you.

The Chair: Is that it?

Mr. Roy Cullen: That's it.

The Chair: Do you want to share your time with Mr. Szabo?

Mr. Roy Cullen: Sure. Absolutely.

The Chair: It's entirely up to you, Mr. Cullen.

Mr. Paul Szabo (Mississauga South, Lib.): Mr. Atkinson, I believe it was you who talked about the EI fund, the $21 billion surplus, which the notional surplus is. I've obviously been wrestling with understanding what the nature of that beast was. As you know, it does just go into general revenue and is sitting there, and it has been included in the determination of surplus or deficit for each of the fiscal years.

• 1645

Your recommendation is that the first order of business is to eliminate that notional surplus before you do anything else. I think that's what you said. Can you clarify that?

Mr. Michael Atkinson: It was to reduce it significantly. I think the target level we have in our brief is $2 vis-à-vis the employee's contributions. So you're getting there.

Mr. Paul Szabo: You were talking about the $21 billion, though. Did you not make a statement that before you introduced any new benefits—

Mr. Michael Atkinson: We'd want a significant reduction. Our definition of a significant reduction is the $2 employee level before the program was enhanced. So we're not suggesting that you get rid of the $21 billion surplus. We understand there has to be some surplus for the rainy days. But we would like to see a significant reduction, down to the $2 area, as the target before any enhancement of the program occurs.

One of the reasons for that—I think this is extremely important, and I'm glad you raised it—is that when this program was changed some time ago such that it's only employers and employees contributing, and the federal government now only contributes basically through that, and the program was expanded to include such so-called developmental uses as training—this was expanded under the Conservative government—business groups like ourselves were very much opposed to that. We found that to be a non-traditional use of the then UI fund.

Eventually, though, we went along with it when government agreed to give employees and employers a say in the spending of the developmental uses portion of that fund. That's what gave birth to something called the Canadian Labour Force Development Board. That's what that was struck for. Those funds were used to fund some of the training in our industry, the apprenticeship training, etc.

To make a long story short, this government announced not too long ago that it was reducing funding for labour market development, and reducing funding for apprenticeship. Yet it didn't return those funds to the employers and employees whose premiums were increased back in the 1980s when the program was enhanced to include developmental uses.

So the reason we want to see the reductions occur before the program is enhanced is that we're concerned the same thing is going to happen again, that money is collected under the guise of certain programs, and as you quite correctly point out, is then expended in other areas.

Mr. Paul Szabo: Okay.

Just briefly, Mr. Paton, I enjoyed your presentation. I think it's refreshing: Get out there and throw it out.

Canadians probably want to hear a lot of discussion about tax cuts and how it might happen. Obviously, straight fiscal prudence means do it, and do it properly, and do it in a way, as the minister has described, that's sustainable; tax cuts will be there forever.

I think we need some help to get a sense, while knowing that these things will come in over time as time permits, of how.... Tying into some of the concern about the brain drain, etc., given that there are just a little over 14 million people in Canada who actually pay taxes, $100 cash in the pocket would cost us $1.4 billion of our fiscal dividend.

How much has to be delivered in the hundreds of dollars to have any impact whatsoever on the concerns you've expressed?

Mr. Richard Paton: Good question. You know, this issue is so new to us, I don't think I can answer that. Normally on any kind of issue we have an elaborate tax model. We can do the corporate tax and we can tell you all the spin-off effects, but this issue has now come to a point—

Mr. Paul Szabo: We're in the same boat, because $100 is not going to do it, $500 probably isn't going to change my lifestyle or spending habits, etc., and even though $1,000 starts to get a little closer, even at $1,000 now we're talking $14 billion. That's year after year after year.

Mr. Richard Paton: As someone who's worked on budgets, I understand the issue exactly.

• 1650

Mr. Paul Szabo: Given that anything across the board is expensive, as we all know, the minister has suggested some type of targeting in the earlier years so that maybe there would be leverage value. Do you have any thoughts on that?

Mr. Richard Paton: Well, these really are impressions, and they're not things we as an association have worked out, but I've started to talk to our companies about this question. The first company I talked to about this said their first cut of analysis was that in the lower-income areas—up to, say, $70,000 or $80,000—they were not that badly off vis-à-vis the U.S. The health insurance issues factor in and the benefits factor in.

The fact is that we have a very good social program structure, even though it's been eroded a bit in the last few years. Where it really starts hitting you is in the upper- to middle-income categories. Unfortunately, we are a fairly high-paying industry. We have many skilled people. The average is about $55,000, but that means a lot of people are over $80,000.

So it's interesting. I think the answer may be quite different depending on the income level.

As well, I think you're finding the sense that the taxes never go down, even though there's been a little movement down. Even the idea that the government is talking about five years, and going out and saying there's a plan, might have an impact. People would say, well, at least they're going to keep going down over a period of time.

The worry I have, actually, even though they may be lower-income people, is with the young and mobile, who tend not to worry about pensions, who tend not to think about health insurance as a benefit. They are just saying, look, I can make a lot more money over there and now I'm going to make it. I want the money in my pocket. I'd rather have that money in my pocket and do what I want with it now than other ways.

That, if you link it with what Mr. Martin is saying, is the heart of your innovative economy. That's the heart of entrepreneurship.

In the next year I'll do a little bit more work on this—

Mr. Paul Szabo: When you get the answer, get back to us. We'd appreciate it.

Mr. Richard Paton: Yes. Maybe it's worth some research by Mr. Martin and his boys.

The Chair: On this issue of tax cuts, a lot of weight is given to the issue of having more money and putting more money into one's pocket. That's a very valid argument, but I think not enough is given to the issue that reducing taxes signals to the people of Canada, to those who want to risk, to those who want to save, to those who need incentives to work, that in fact they are part of the agenda. I think sometimes we politicians and others fail to recognize that in and of itself, this is very important.

On the issue of the amount, while I agree that $100, as Mr. Szabo said, is not going to change people's lives, I don't think any of us would run a platform on increasing taxes by $100. So you have to look at that.

Those are just comments I want to make. I think the tax cut issue is sometimes viewed in isolation vis-à-vis the amount. Quite frankly, we need to also start sending signals to individuals. That's equally important.

Mr. Richard Paton: Perhaps I can make a comment here. How many people around this table have heard someone say “I really don't want to make any more money because it'll just be taxed”?

The Chair: None of us, but....

Voices: Oh, oh!

Mr. Richard Paton: I have heard that from many people in the last couple of years.

Mr. John Redfern: Don't discount the psychological impact. I think your first move is that finally a trend is being reversed—not a new tax, not an additional tax, not a surtax. I think you then look at the long-term—

Mr. Richard Paton: I agree, the psychology is important.

Mr. John Redfern: —and you say, all right, I'm living under an umbrella where we're paying more taxes, but I'm going into an environment where the difference is going to go down. I think that's as important as the amount.

Mr. Richard Paton: Maybe I'll start working again.

• 1655

The Chairman: Mr. Pillitteri, followed by Mr. Brison.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you very much, Mr. Chairman. I would like a two-part question, with one part to Mr. Friesen and one to Mr. Milne.

Mr. Friesen, on the safety net, you stated that NISA was starting to run out of money. Being a farmer, I participated in NISA personally for years, starting in the early 1990s when there were some good times in farming. Once in a while that does happen, but not too often. They matched almost dollar for dollar contributions from the federal government under the NISA program.

Since you just stated what you did, I wondered if you had any figures. How many have dipped into this part of NISA? Why would the dollars be running out if they're matched from the federal government?

Mr. Bob Friesen: You must have heard the hype a while ago that there was $2.8 billion in the NISA accounts, and questions about why producers don't take that out in order to alleviate the problems they have. First of all, a lot of the contributions that producers made is leverage. Producers at the end of the year, historically, will contribute as much money into NISA as they possibly can, regardless of whether they still have an outstanding operating line of credit. They either borrow the money or they use the cash on hand, but clearly there is outstanding debt against it.

If all the money that was triggered for 1998 were withdrawn, about $1.8 billion would be withdrawn. We're being told that 1999 is going to be worse. Presumably, if you trigger more than $1.1 billion for 1999 and that is withdrawn, now your account is getting very low, and clearly would not be high enough to cover another year such as what we've had in 1998 and 1999.

Mr. Gary Pillitteri: But you don't have exact figures on what percentage of farmers are triggering this NISA. Surely there are some farmers who are not even touching it.

Mr. Bob Friesen: That $1.1 billion is what has been triggered. On the amount of money that's been withdrawn, we have those numbers and I can certainly provide them for you. I went over them a few days ago, but I don't remember exactly what they were.

Mr. Gary Pillitteri: As a follow-up to Mr. Milne, on cost recovery specifically in agriculture, how far are we away in terms of difference from our European counterparts and the Americans? What do they have in place? Or is it totally direct support from the government without any cost recovery in chemicals?

Mr. Charles Milne: I could get you that number, but I don't have it off the top of my head. As I said in my presentation, I think the issue with cost recovery is not so much the cost, but the value that we're looking for. What are we getting for it? I know I'm not answering your question, but that's the issue.

Mr. Gary Pillitteri: To follow up on that, just within small crops, are we as Canadians getting an equal footing? Are we using any of the technology that is available to the Americans in order to have a better-levelled playing field, or are we still doing all our research within chemicals, within crop protection in Canada? Or are we using any research that is done by our counterparts, such as the Americans?

Mr. Charles Milne: The way many of these technologies are developed is that the research is done on a global basis. Some is done in Canada, some is done in America, some is done is Europe, or wherever. Once that research has manifested itself in a new product, the challenge we have is to get it registered in the country. Typically we have not been as current as our major competitors, the U.S., in terms of having availability for that technology. As you point out, that can be very frustrating, especially when maybe some of the research on that technology has been done in Canada. But when it comes to making it available at the same time as to the people who farmers are being asked to globally compete with, on many crops they don't have that advantage, especially on small crops.

• 1700

Mr. Gary Pillitteri: Thank you.

The Chair: Thank you, Mr. Pillitteri.

Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC): Thank you, Mr. Chair.

Thank you for your presentations. It would be great to have about 10 minutes per presenter to explore some of the issues you've brought to us.

Mr. Friesen, first of all, I represent the Annapolis Valley, and it's good to hear you as a representative of a national organization recognizing the importance of agriculture in Atlantic Canada. I think there's a pervasive attitude in Ottawa that if it's not grown in the west, it's not agriculture. But some of these agricultural issues, and you mentioned specifically the drought, are very important.

It's my understanding that the NISA program recognizes 70% of the last four years' earnings, or is it eight years?

Mr. Bob Friesen: For AIDA it's 70% of the last three-year average.

Mr. Scott Brison: That has been of particular concern to the farmers in the Annapolis Valley, because for the last three years they've had the worst drought conditions in over 80 years. Just to bring it to your attention as a national organization, we would appreciate any help in bringing that nuance to the forefront.

Mr. Bob Friesen: That has really been part of our work over the last little while. I said earlier that once negative margins are covered and once we do the design changes there are still producers falling through the cracks, and the producers that are still falling through the cracks are those with a very low reference margin due to either drought or any other crop failures not covered by crop insurance. The reference period has been chosen because of our constraints in annex 2 of the Agreement on Agriculture at the WTO. But that problem is very much alive in our circles, and we are continuing to work on it.

Mr. Scott Brison: With regard to the issue of seasonal workers and the changes in EI, one of the unintended consequences is that there has been a real shortage of farm labour. For instance, it has been a huge issue for the fruit growers, and some of them have left a lot of crops on the vine this past year. So that's an important issue.

Mr. Paton, on the brain drain issue, which you and Mr. Szabo raised, and the issue of what would $100 do, if we utilized tax reform as a vehicle for tax reduction, a significant tax reduction could actually do quite a bit if we targeted the people who are most affected by this phenomenon, recognizing the importance to Canada and to future growth in Canada of keeping them here. One of the issues we've heard repeatedly is that of capital gains, particularly in terms of the degree to which growth companies are using capital gains as compensatory assets and as part of compensatory schemes.

Also, the approximately $60,000 threshold to reach the top marginal tax rate in Canada creates significant disincentives to staying here, given that the top marginal tax rate in the U.S. is not hit until $420,000 Canadian. That could actually be changed. We could raise the $60,000 to $90,000, for instance, and the $29,000 threshold to $40,000, for a cost of about $5 billion per year. Those are some of the changes that could be looked at. Lastly is the 5% surtax, which is about a $583 million per year revenue generator. I'd appreciate your feedback on those.

On the capital gains tax issue, by the way, the reductions in capital gains tax in other countries have demonstrated that they can be almost revenue neutral because of the increased level of activity. So I'd appreciate your feedback on that.

Mr. Richard Paton: Even though politically it's hard to deal with sometimes because it looks as if you're helping a select group of the population, I think all the studies I've seen have argued that the capital gains tax is in fact revenue neutral, and it will produce value.

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The surtax is, I know, a huge irritant for many individual members of my association. As in the case you were talking about earlier in terms of the EI, the surtax was added to deal with the deficit, and now that the deficit's done, why is it still there? In terms of the psychology, which John and the chairman mentioned, it's really a tough one, because I think it really tells the average citizen that the government wants to tax and that something that obviously should be reduced has not been, and it's very hard to explain why it hasn't been done.

Let me give you an anecdote, because unfortunately, as Mr. Szabo mentioned earlier, we don't have a lot of evidence on this, unlike a lot of our other areas. We have a company with 80% of its sales in the United States, and it has a sales force that sells most of its products in the United States. I recently talked to the president of this company, and he said, “I'm having a lot of difficulty with my salesmen.” I said, “What's your problem?” He said, “Well, they go down to the United States and talk to the salesmen down there, who are selling the same product to the same companies, and compare their income. They figure they're making half of what the salesmen in the United States are making. They count up the income tax and the mortgage deduction, which is huge when you start thinking about it, and they've come to me and said, 80% of my sales are in the States, so why don't you move me down there, please?

Now, this is the kind of dynamic that is going on everyday inside of companies. So in answer to your question I think the kinds of reforms you talked about would be huge. I don't know whether we can afford them. Those are big changes in the tax rates, but they would make a huge difference.

Mr. Scott Brison: It would be about a $6 billion revenue loss per year to change those, which is an incentive to keep away from a lot of new spending programs.

Mr. Richard Paton: A lot would come back in terms of more growth and more—

Mr. Scott Brison: Yes.

The issue of the regulatory burden was raised by a couple of you, and I would just like to present an idea. In fact, I have a private member's bill to this effect. There would be a regulatory budget, if you will, a red tape budget. Effectively, what would happen with this is that every new regulation—and there are 600 to 1,000 new regulations introduced every year by the federal government—would have to be costed, including the cost of implementation; the cost of enforcement; and, the third and most important cost, the cost of compliance. Once a year, parallel to the spending budget, a regulatory budget would be tabled in the House of Commons, which could be debated. It would increase the level of parliamentary scrutiny of the regulatory budget and the role of the member of Parliament.

One perspective on this is that a regulation is very similar to a tax in that a bureaucrat can tell a minister or a politician that it would be a good idea, for instance, to have a lawn sprinkler on every lawn in Canada and that one way to do that would be to raise taxes and for the government to use those revenues to put lawn sprinklers on every lawn in Canada, and the other way would be to create a regulation that forces every Canadian to put on a lawn sprinkler on their lawn. But either way, it forces an allocation of scarce resources and public money based on a bureaucratic or political whim.

I would appreciate your feedback on that kind of initiative, if it could be done, and whether it would help in reining in the regulatory burden growth in Canada.

The Chair: It's not the lawn sprinkler he's talking about.

Mr. Scott Brison: No, we're not talking about lawn sprinklers.

Mr. Richard Paton: I'm quite familiar with your concept of a regulatory budget, because I was in charge of regulatory policy in the Treasury Board for five years. I know it's a concept that the Americans have tried to work with. I think it's a complex way to deal with the issue.

On the other hand, now that I'm in the private sector and have seen the frustration of guys like Charlie dealing with both regulation and cost recovery, I'm more attracted to the idea as some way to put some fiscal discipline on regulations, because there is a very strong tendency, as you suggest, to not deal with regulations in terms of their costs on the economy. We see that in many bills. There are many regulatory regimes that are simply very, very inefficient and that hurt business a lot. There are regulatory impact statements, which are developed of course by the government. They are generally not very good. They're often done by people who know nothing about economics or business, so there's very little real appreciation for the impact on business. A lot of small businesses are being affected by these regulations.

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In the final analysis, maybe the government should start looking at anything that would help produce more discipline. If it was a regulatory budget that seemed to be one of the few ways to do it, then maybe it's something government should start looking at.

The Chair: Thank you, Mr. Brison.

Mr. Harris.

Mr. Richard M. Harris (Prince George—Bulkley Valley, Ref.): Thank you, Mr. Chairman, and thank you, gentlemen, for your presentations.

Mr. Paton, you asked why do we still have things like surtaxes and bracket creep. I'd probably like to volunteer the reasons, although I'm not the government and I'm sure they'd like to answer this. I think it's probably there because they like it, in the first instance, and secondly, because somebody else put it in, not them, and they feel they can escape the blame for it.

I want to direct a question to Mr. Atkinson and perhaps you, Mr. Paton. This refers specifically to middle- and upper-middle-income wage earners who are probably pretty predominant in your two respective industries. They're not only the biggest group of personal income tax payers into the government coffers, but they're also the biggest group of spenders in our marketplace.

For some strange reason, it appears that, as long I can remember, when it comes to taxes, the governments have continually ignored the fact of the value of these wage earners. I think in a large part you could almost accuse governments of discriminating against them because they're hard workers and they're trying to raise families and take advantage of promotion opportunities within their company. They take extra training courses so they can secure their jobs, but when it comes to taxes they still end up getting no breaks.

You mentioned some instances about cross-border talk. In your opinion, why do you think the government—maybe you could both respond quickly—has continued to ignore this very large and very important group of taxpayers in our country?

Mr. Michael Atkinson: I think part of the problem has been that it's very easy to attempt to raise additional revenues through a system that, as you mentioned, is status quo to a great degree.

I'd like to return to the unemployment insurance fund as an example of that. The group that was hardest hit by the government's withdrawal from labour market development funding, and which then lost its access to those funds it helped build, was the group of young men and women entering the in-classroom portion of their training under apprenticeship programs.

These are people who, in order to perfect their skill and to get recognition in their trade, go to an in-class portion of their training that complements their on-the-job training. These individuals are not unemployed; they are in fact paying EI premiums while they are working, etc., but have a temporary leave, if you will, to resume their studies.

Until the time this change was made, these individuals were funded for the normal two-week waiting period, and the provinces that were delivering the training essentially were not really charging these employed people a tuition or a charge for entering those schools. We are talking of people who are in their mid-twenties who've invested three to four years in their education and their training to get this and have had their pre-apprenticeship training. So these aren't young kids; these are people with young families, etc.

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Then to have a situation where their EI premiums were increased in order to—they thought—supplement their training, supplement their ability to better themselves, and then to have that taken out from under their feet and yet see no reduction in their EI premiums was a double whammy. And then the provinces, to make up the lost revenue, put tuitions on the in-classroom portion of their training.

So in that situation I think there are changes, tinkering, things being done that really don't look at what the ultimate impact is with respect to those particular individuals.

I'm glad you mentioned bracket creep, because there's no point in dealing with tax brackets if that isn't fixed as well. Otherwise it's just a band-aid solution. In our submission, if you want to talk about what happens where you don't have certain tax incentives or tax measures indexed, look at what's happened to the so-called small business incentive for CCPCs. You have a $200,000 active business income threshold that hasn't been touched since 1982. Any incentive that was there for small business is long gone.

The Chair: Thank you, Mr. Harris.

Mr. Richard Paton: I'll try to answer.

I think it might be because it's easier to raise the revenue. However, I must say that I have a number of friends who are dentists, who are consultants, and they pay their taxes differently from the average wage earners, who get their cheque every two weeks and have a deduction. They end up paying it in chunks, every month or two months or three months. These people, when they pay that money, are absolutely outraged, and some of those are the people you really have to worry about in terms of their support for the tax system in Canada.

There aren't really many tax breaks left anywhere, so I'm not sure it's just the wage earner. I think pretty well this affects all Canadians pretty equally. It's just somewhat different for different people.

The Chair: If we were to use this as our major objective, that we wanted Canada to become the best country in the world to invest and do business in.... By that, I mean I'm a believer that if you increase productivity in a country it results in higher incomes and greater opportunities. Everything we've stated in our report is basically consistent with my philosophy of where we ought to go as a country.

If you put it into a global context, you have to ask yourself: if that's what we want to achieve, then we have to look at what we are competitive in and what we are not competitive in. There are some concerns about, for example, personal income tax. There's some concern about R and D expenditures, when we compare ourselves with other countries. Then of course there's EI, so-called payroll taxes or levies.

I agree with you, there was a point in time when I think expenditure for developmental uses and so on was fairly high, in the billions of dollars, and now it's not there; and quite frankly, the government withdrew its part of that. Yet when I read reports that make international comparisons, they tell me that we're very competitive when it comes to payroll taxes. There is a lot of confusion about whether a fund exists, about whether it's a general revenue issue. There are a lot of things about this particular issue that create much confusion.

The question I'm entertaining is this: Do we as a government say, look, for this UI fund the money goes straight to general revenues; essentially this is the price of doing business, a payroll tax? If you work in Canada as a firm, as an employer or an employee, this is the amount of money you pay, and these are the benefits you get. To put an end to this debate about whether it's a $21-billion or $25-billion surplus, if in fact we are competitive with payroll taxes—and according to studies I've seen, we are—then of course we have to ask ourselves...if we are competitive on payroll taxes and we are not on income taxes, then income taxes should become the priority.

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Mr. Atkinson, you've commented on EI.

Mr. Michael Atkinson: There's a simple answer to that question, Mr. Chair. If that's the way we're going to go, don't call it an employment insurance fund; call it what it is.

The Chair: I'm not saying that's the way we are going to go. I'm just asking, do you think that would clarify things?

Mr. Michael Atkinson: I think the problem relates to what Mr. Redfern was saying before about the environment and perception, etc. Quite frankly, the perception of many Canadian people is that the EI fund is a segregated account—that funds go in there, they are levied on employers and employees for specific purposes, and that's what the money will be used for, those specific purposes. So when the premiums go up to fund a deficit or to enhance more new programs, Canadians expect and perceive, wrongly obviously, that those moneys are going to be used for the purposes for which they were levied in the first place.

What happens when they find out, no, there's not a surplus there, a revenue dollar is a revenue dollar, and whether we collect it from you that way or at the gas pumps or somewhere else, it just goes into one big cookie jar and is spent, etc., I believe they get a little annoyed and irritated. The perception is, well, no, you told us, or we were told by a previous government, that the reason we had to pay more was to fund these things we believed the money was going for. Now when we find out it just goes into a bottomless black pit and could be spent on anything and everything, we have a problem.

You see, we didn't really have a say in the first place as to increasing this amount here. We might have agreed with it because we thought it was going to be used for that purpose, but then when the money is siphoned out or used somewhere else, we get a little cynical about the whole process.

From my perspective, if that's the price you have to pay to be employed or to be an employer in Canada, then call it that. Call it an employment tax; call it whatever you want to call it. As long as any government is up front on why they're collecting the money in the first place—this is what we're going to use it for and we're just going to put it into a big cookie jar and use it for whatever we and Canadians feel is important—then fine, but call it like it is.

I think that's the problem. You see, those young apprentices I was referring to earlier, when they were asked to put more money into the EI fund, they thought it was to help develop their training, to contribute to their professional development, etc. That's what they thought the money was going for.

The Chair: Any further comments?

If the nation has clear objectives and the objective is to create conditions where we can generate greater wealth—I think everybody would agree with that—and it comes to the point where we have to admit to ourselves that we are competitive on the payroll taxes and that other things have to take priority.... I understand the perception, I understand the psychology, I'm a big believer that psychological impacts of the decisions made by governments are very important to the growth of a country. But what do you think? What can we do with this to clarify this EI challenge that we face?

Mr. Richard Paton: I think it's very interesting that you're comparing payroll, corporate—if you throw in corporate—and income. I guess our quick analysis of this is that in payroll and in corporate we're in the ball game; we're not terribly out of line with the U.S. In income, we are. Of course that depends on what state you're in, because some states don't even have some taxes. It certainly depends on whether you're into the capital gains or you're not into the capital gains, but there we're out of line significantly. So I think that might help shape your priorities, at least in the short term.

The Chair: Any further comments?

On behalf of the committee I would like to thank you very much. As you've probably noticed, if we were to act on all the recommendations made, we'd be spending quite a few dollars tonight. The point I'm making is that the unfortunate reality of budget-making is this: there are trade-offs. Trade-offs have to be made all the time, and tonight is no different. We'll make some people happy and others not as happy. We're trying to achieve a balanced approach. As you probably know, that's the government's agenda and that has been the agenda of this committee as well.

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We'd like to thank you for your input, but I also want to be very clear that this issue of generating wealth to improve the standard of living for people is very important to this committee, and it has been for a number of years. That is more or less the issue we're really focusing on this year.

We're going to take a 33-minute break. We'll be back.

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The Chair: I'd like to call the meeting to order and welcome everyone here this evening.

As you know, we're the finance committee and our business is pre-budget consultation. Many of you have been here before. You have approximately seven to ten minutes to make your presentation. Thereafter, we will engage in a question and answer session.

I take great pleasure in introducing members of this panel. From the Low Impact Renewable Energy Coalition, we have Mr. Frederick Gallagher, managing director, Vision Quest Windelectric Inc., and director of the Canadian Wind Energy Association; and Mr. Jeff Passmore, executive vice-president, Iogen Inc., and vice-president, Canadian Renewable Fuels Association.

From the Canadian Environment Industry Association, we have Colin Isaacs, chair, national policy committee, and president, contemporary information analysis; and Ms. Rebecca Last, director of programs and policy for the association.

From the Canadian Pulp and Paper Association, we have Mr. Steve Stinson, director of finance and business issues.

From the Solar Energy Society of Canada Inc., we have Stephen Pope, past president.

From The Pembina Institute for Appropriate Development, we have Mr. Matthew Bramley, senior policy analyst, climate change program.

From Climate Action Network Canada, we have John Bennett, director, atmosphere and energy, Sierra Club of Canada; and Mr. Rick Finlay, Pollution Probe.

Welcome, everyone. We of course look forward to your comments. You're going to have to help us, because we have a great challenge ahead of us in figuring out what budget 2000 is going to have in it. We look to you for guidance as to where we can make the best investments in that particular budget.

Without further ado, we'll go in order and begin with with the Low Impact Renewable Energy Coalition. Will Mr. Gallagher or Mr. Passmore speak first?

Mr. Frederick M. Gallagher (Representative, Low Impact Renewable Energy Coalition): Mr. Gallagher.

The Chair: Mr. Gallagher, welcome.

Mr. Frederick Gallagher: Thank you very much.

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Thank you, ladies and gentlemen of the committee, for having us speak with you this evening. It's our pleasure to be able to address you with respect to a number of opportunities and issues that we see within our industry.

To start off, I'll give you a quick background as to who the low-impact renewable energy sector is so that you'll have some understanding of it.

First of all, it consists of renewable energy associations representing a series of energy sources that are low-impact—meaning low environmental impact—that are eco-friendly, and that do not trade one environmental benefit for another environmental degradation somewhere else. As well, the sources we represent can provide immediate environmental benefits in terms of reductions in air pollution, toxins, and greenhouse gas without economic penalties.

To give you a snapshot of those particular technologies, we're talking about solar energy, wind energy, run-of-river hydro energy, earth energy, and biomass fuels, all of which are defined under the environmental choice program of Environment Canada.

There are several contributing organizations to this particular coalition: the Canadian Wind Energy Association; the Solar Energy Society of Canada Inc.; the Earth Energy Society of Canada; the Canadian Solar Industries Association; and the Canadian Renewable Fuels Association. In addition, the coalition is supported by a series of independent power-producing associations across the country, specifically those in Alberta, Ontario, Quebec, and British Columbia.

With that to start off, we also represent thousands of small businesses across Canada that are very much engaged in the debate about both climate change and the new energy future for Canada.

The purpose of the coalition is to try to present a consistent viewpoint by that group of industries to accurately express key proposals and issues facing the industry sector.

We want to present what we believe to be economic and highly positive emissions reduction opportunities that governments can take action on immediately. Especially because of those opportunities, we feel there are some key aspects to this.

The most important aspect, in our mind, is growth without liability. What we're talking about, of course, is a major international commitment that Canada has with respect to the Kyoto agreement. Many industries and many associations in this country have talked about this as being an economic Armageddon. In fact, we believe it is not an economic Armageddon but indeed an opportunity for our country to develop resources that have not yet been developed and for which we have a significant and rich amount of resources.

What we're talking about are ways in which consumers can become engaged in the debate, and how consumers can start to make choices, healthy choices, choices that make a difference to the environment in their everyday choices of energy source.

Our philosophy is to utilize market-based instruments to seek Canadian investment and participation in developing those solutions.

Ladies and gentlemen, I am a businessman. I have spent more than ten years in the oil and gas industry and five years in this particular industry. I see this as a large opportunity for Canada and Canadians, not dissimilar to what the Auto Pact meant to Canada many years ago.

To address the standing committee's primary themes, we tried to put many of our suggestions into those themes so that we can help you understand how we believe it impacts on those themes.

First and foremost, I'll start with tax relief and reform, as we don't have any comment on the first particular item.

What we're looking for when we look at tax relief and reform is to provide tax relief and reform to those people who are making appropriate choices with respect to the economy—selecting more environmentally sustainable solutions, more environmentally positive energy sources, and making choices with respect to energy efficiency and improving energy efficiency. For that, we're recommending that the government develop a set of consumer tax incentives for the purchase of renewable energy such that both the consumer and the government would share in the development of these facilities.

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We're also talking about mitigating barriers to competition induced by the tax system. Currently there are several rules within the tax system that were developed in isolation with respect to energy. As a result, we see significant differences between the fossil fuel and renewable energy industries with respect to the tax system.

Additionally, we see within the renewable energy sector major discrepancies that are business fairness issues between businesses that have large taxable income and are able to utilize the write-offs currently provided and those small and growth-oriented companies that don't have taxable income and are unable to use the write-offs and the beneficial effect of those.

So under the question of tax relief reform, we see the main theme as providing tax relief and reform in areas that encourage appropriate and sustainable development.

Under social infrastructure, we've looked at our various technologies and how they would be employed. What we're getting at here is reducing the health costs that are right at the root cause of health difficulties. As a result, we believe there are significant health cost savings available there, specifically with respect to smog precursors, and that's regardless of the effect on greenhouse gases. In fact, in our study, which I believe all of you have, we've indicated some of the numbers that we're talking about in terms of the number of dollars per year that would come as a benefit from that.

With respect to social infrastructure, our industry represents a growth opportunity with respect to skilled and non-skilled job opportunities in sustainable low-environmental-impact industries.

I'd now like to address your other theme, the new economy. Essentially, what we're looking at there is what we believe is Canada's ability to maintain competitiveness. Clearly we believe a domestic market in low-impact renewable energy will result in a significant ability for Canadian industry to start to manufacture these facilities here in Canada and begin to develop a competitive industry that will allow Canadian electrical energy to be generated from these resources at the lowest possible cost.

As well, I'd like to talk very briefly about the wind industry, from which I come, and specifically with respect to the facilities we're currently putting in place. This is one of the fastest-growing industries in the world today in terms of energy industries. It's growing at some 40% per year. By 2020, according to a European wind energy study, it could be approximately 10% of world capacity and represent an industry of $150 billion a year.

Currently it's dominated by two main countries, Germany and Denmark. We believe this is a significant manufacturing opportunity for Canada, because Canada has significant manufacturing technology as well as capability and a very efficient and low-cost workforce in comparison with those specific countries.

I'd now like to turn the discussion over to Jeff Passmore to briefly discuss how the new economy affects some of the other renewable energy groups within Canada.

Mr. Jeff Passmore (Representative, Low Impact Renewable Energy Coalition): Thanks, Fred.

I'd like to thank the chair and this committee for coming to listen to our presentation.

I want to address my comments exclusively to item four, the new economy. I have circulated to everyone two documents: a Ford brochure called “Fueling the Future with Ford—The Ethanol Way”, and a recent article from Foreign Affairs magazine called “The New Petroleum”.

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Basically my message is a simple one. There are economic opportunities associated with meeting Canada's obligations on the environment, in particular, the Kyoto obligations. Cars are available now that can burn, in the case of the vehicles that are in here, the Ford Taurus and the Ford Ranger truck—and General Motors, Volvo, Volkswagen, and other automotive manufacturers have similar vehicles—up to 80% ethanol and 15% gasoline blends. So the cars are available now.

The federal government has something called the Alternative Fuels Act, which says that by 2004 75% of Government of Canada vehicles should be alternatively fuelled where cost and operational feasibility are not barriers. So my message to Finance is, first, encourage the federal government to implement the Alternative Fuels Act, because with respect to these vehicles, cost and operational feasibility can no longer be used as reasons for not proceeding. The ethanol option on these vehicles is an additional $200, which I would suggest is not a barrier on a $25,000 vehicle.

Secondly, there is something that the federal government has called the national biomass ethanol program, which was put in place back in 1994-95. The application date for it expired December 31, 1998, and I would encourage again the government to renew and extend the application deadline for that program. The money had been set aside, but it was undersubscribed because the ethanol industry was not ready at that time to take full advantage of the line of credit that was established for building ethanol plants, and unfortunately Canadian bankers are very conservative and want all kinds of guarantees before they'll lend you the money to build plants.

Thirdly, without trying to provide a prescription, I would invite the department and the members of this committee to consider other options, such as possible minimum levels of ethanol content in low-level fuel blends, or production tax credits similar to those that exist in the United States, or other market instruments. Fred mentioned market-based instruments, that we were happy with that approach, and I would only say, yes, if the market signals are correct, in other words, that today's externalities are internalized in the price.

As I say, my focus is exclusively on the new economy. There are enormous economic opportunities associated with delivering on the environment. We don't have to trade off meeting our environmental commitments with somehow suffering on the economic side.

The Chair: Thank you, Mr. Passmore. Thank you, Mr. Gallagher.

We'll now move to the Canadian Environment Industry Association, Mr. Colin Isaacs and Rebecca Last. Welcome.

Mr. Colin Isaacs (Chair, National Policy Committee, President of Contemporary Information Analysis, Canadian Environment Industry Association): Thank you very much indeed, Mr. Chairman and members of the committee. It's a pleasure for me to be with you this evening.

I apologize on behalf of our chairman, Mr. Chris Henderson, that he's not able to be with you. He is suffering from pneumonia. I am the chair of the national policy committee, which is the committee that actually developed the brief that we have submitted to you, and I'm pleased to appear here on his behalf.

Our members were very pleased, I might even say delighted, perhaps even ecstatic, about the Speech from the Throne and about the extent of the environmental issues that were addressed in that speech. By our count, there were 22 environmental commitments in the Speech from the Throne, far more than in any previous throne speech. Now we look forward to a budget that turns those commitments into action.

We're an industry association. We represent the more than 5,000 companies in Canada that provide the technologies and services that will resolve the environmental challenges facing our planet. Those challenges will not be resolved by talk; they require action, fundamental action in the way we plan and operate our economy and our society. Like this government, we are firmly committed to the principles of sustainable development, which benefit the economy, the environment, and our society.

Fifteen years ago Canada was a world leader in environmental management and in sustainable development. Today our country's position has slipped. We're no longer the leader, and we may not even be in the top five. Restoring our sustainable development leadership position requires leadership from government. One of the most important places to provide that leadership is by moving towards sustainable development in our economic planning.

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We're not proposing new regulations that inhibit economic growth. We would not support a massive increase in government environmental spending, and we would certainly not support hiring thousands of public servants to study and research environmental policy. In our brief to you we're proposing a private-sector-oriented solution. We're proposing federal budget initiatives to encourage research and development into eco-efficient technologies that will make the most of the resources we use. We're proposing that the federal government demonstrate the benefits of environmental technologies through a federal green procurement program.

In addition, we specifically want to make you aware of our support for the national environmental infrastructure program proposed by the Federation of Canadian Municipalities.

We're proposing that the federal government stimulate business opportunities from the climate change agenda that will help to make Canada more productive and more competitive, and help us achieve our Kyoto Protocol targets.

We're proposing increased and better federal investment in environmental export development and promotion.

We're proposing to involve business and consumers to work together to protect the health of future generations through a healthy homes initiative.

With leadership from government, our environment industries, in partnership with the academic community, can restore Canada's position as a world leader in environment and sustainable development.

Our brief to you provides much more detail. We'd be pleased to answer your questions, and we look forward to a year 2000 budget that reflects the same enhanced commitment to action on environment and sustainable development that we saw in the throne speech.

Thank you very much.

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

We now move to the Canadian Pulp and Paper Association, with Mr. Steve Stinson, director, finance and business issues. Welcome.

Mr. Steve Stinson (Director, Finance and Business Issues, Canadian Pulp and Paper Association): Thank you. The Canadian Pulp and Paper Association once again welcomes the opportunity to participate in the pre-budget consultation process.

I would like to begin with a little background on our membership and the Canadian forest industry. The members of the Canadian Pulp and Paper Association account for the bulk of pulp and paper production in this country, as well as about half the production of wood products. The forest industry as a whole remains one of Canada's most important, if somewhat neglected, industries. It is the largest single contributor to Canada's balance of trade by a wide margin and sustains over a million direct and indirect jobs across the country, many in remote regions. Moreover, it is a high technology industry and a key purchaser of technology, historically accounting for roughly one-quarter of total capital spending by the manufacturing sector on machinery and equipment. As a result, the fortunes of Canada's forest industry are critically linked to the success of Canada's so-called “new economy,” if such a distinction can be made.

Canadian forest products operate in a highly competitive global market. Three-quarters of their output is exported. Thus, the impact of government policies on their international competitiveness is of paramount concern to our members.

In our submission, which we made in early September and which I hope has been distributed, we lay out four broad recommendations for economic policy in general, and budgetary policy in particular.

First, given the strong external orientation of the Canadian economy, it is imperative that we ensure that our tax system is internationally competitive. There is a growing consensus among not only business but individual Canadians as well that our tax burden is too high. This reflects the increasing evidence that our high tax burden is preventing the Canadian economy from achieving its potential. Thus, substantial cuts in federal taxes on both the personal income and corporate tax side are highly desirable. What's more, they are becoming increasingly feasible.

The first priority, however, should be to reduce personal income taxes. High marginal tax rates not only impede the ability of Canadian business to attract and retain qualified personnel as well as head office functions in this country, they also raise its cost of capital. This puts capital-intensive industries such as pulp and paper at a significant competitive disadvantage internationally.

In fact, in the PricewaterhouseCoopers study, which we refer to in our submission, differences in personal taxes are found to almost entirely account for the 11% gap in total effective tax rates levied on investments in paper production in Canada versus those made in the United States.

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At the business level, we must also be mindful of the even larger tax gaps that exist relative to other countries, such as Finland, Brazil, Japan, and Indonesia. At 73%, the total effective tax rate borne by Canadian pulp and paper companies is more than twice that faced by their competitors in Brazil and Indonesia.

I might also add that when the time comes to move forward on the business tax side, we have to be very careful of how we approach it. I know there is a growing body of opinion, largely traced back to the Mintz committee report, that suggests the service sector is discriminated against. We have to be very careful, when we look at the tax system, that we look at the whole picture, not just the federal picture in isolation.

While the case can perhaps be made that there are elements of the tax system that do tend to favour resource industries as well as the manufacturing sector, on a total basis, our numbers show the forest industry is taxed at roughly 70%. This is distinct from the PricewaterhouseCoopers study, which also includes the personal income tax side. Even the banks, which assert that they are the most heavily taxed sector, face tax rates in the range of 55%. So we'd have to be very careful if we were to proceed in that direction.

Our second recommendation pertains to the budget process. While the federal government is to be commended for its achievement in bringing balance to the nation's finances, the task of bringing order to the public finances is not complete.

Our main concern is that with the federal budget now in balance, spending has been ratcheting progressively higher, greatly exceeding the spending estimates of preceding years' budgets. Although the adoption of a five-year planning horizon, as was outlined in the economic update yesterday by Finance Minister Martin, should help, as much attention needs to be given to not exceeding the spending estimates in the budget as is now given to meeting the projected surplus.

Our third recommendation, briefly stated, is to let markets work. Governments must learn to resist the temptation to be the principal actor in every important economic decision taken in this country. This tendency by government to second-guess every major investment decision by the private sector, whether it be to close an uncompetitive paper mill or to invest in one region and not another, is undoubtedly a major factor behind our lagging productivity growth.

Finally, we would like to advocate that the government take a more holistic approach to public policy, economic policy in particular. In many respects the economy is like an ecosystem in that all of its elements are inextricably linked. Thus the fortunes of the pulp and paper industry also affect the fortunes of Canada's new economy.

As Canada's most capital-intensive industry, we are one of the biggest customers, if not the biggest customer, of process control and environmental technologies. To a large extent, the success of our suppliers in the global marketplace depends on having a pulp and paper industry with the means to invest in leading-edge technologies. High tax burdens and our poor profitability over the last decade, however, diminish the contribution we can make.

To conclude, we hope the Canadian pulp and paper industry can continue to play a key role in Canadian economic development in the years ahead. The industry is by no stretch of the imagination a sunset industry. With the growing importance of the Internet and the proliferation of new information technologies, we are witnessing growing demand for paper and paper products. But to capitalize on these trends, Canadian tax burdens need to be brought in line with those of our competitors. If the industry is to attract the investment, it needs to stay competitive.

To this end, government needs to be careful not to embark on any major new spending initiatives that will interfere with its ability to achieve significant tax reductions.

A healthy forest cluster is good news for the economy, living standards, and the people and communities that depend on it.

Thank you.

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

We will now hear from the Solar Energy Society of Canada Inc., represented by Mr. Stephen Pope. Welcome.

Mr. Stephen Pope (Past President, Solar Energy Society of Canada Inc.): Thank you, Mr. Chairman.

Good evening, members of the panel.

The Solar Energy Society of Canada is a volunteer organization that comprises members from the academic community, members from the industry, and members from the general public who are interested in looking at more sustainable ways of running our lives.

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As contributing authors to the LIREC document, we haven't provided a separate submission, but we would like to reinforce some of the points Mr. Gallagher raised and develop the specific solar energy side.

Solar energy is a particular set of technologies. There are about seven major groups of technologies within that one name, four of which are extremely successful in the Canadian conditions, those four being: photovoltaic electricity; solar thermal air heating; solar thermal water heating; and passive solar. Passive solar itself is quite an interesting state because it's a bridge technology; it bridges energy efficiency in buildings and renewable energy in terms of solar harvesting that's specifically designed by the disposition of building elements.

To follow the themes from the committee's work, starting with number two—tax relief and reform—from the perspective of the Solar Energy Society of Canada, it's very important to reward positive actions towards reduction of greenhouse gas emissions and to discourage the negative actions.

This, for us, because solar is a site-specific technology, is best expressed through a consumer tax credit. The on-site character of solar systems means not only purchasing green electricity generated by wind or biomass but being able to get credits on things like high-performance windows for passive solar, which is extremely important. Also, if it can be adequately demonstrated that the design work has calculated the benefits of passive solar in the disposition of mass within the building, perhaps even credits for the design work would be justified.

Second is the social infrastructure. Job opportunities are extremely strong, as the LIREC document pointed out: 36 jobs per million dollars spent in energy efficiency and 12 jobs per million dollars spent in renewable energy. Of those two figures, solar will blend a number. Without a significant level of energy efficiency within buildings—and this applies to both residential and commercial building—solar cannot work. So when you buy solar, you actually buy energy efficiency and a good understanding of how the sun heats your buildings.

The new economy will, in a solar world, be a very diverse energy economy. As I mentioned, there are four separate solar technologies that work well in Canada. There are also a great variety of other renewables that will be more or less successful, depending on the specific applications and the area. That distributed-energy economy will depend on distributed generation. This has a big impact on retail electricity and the deregulation of that industry.

Finally, because of the distribution or the distributed character of the energy generation, there's a requirement for service industries, widely spread, to follow that distributed pattern. This is another benefit of renewable energy. Because of the site-specific character, especially of solar, you need people in every region who understand how to maintain the equipment, how to bring new equipment on line, and how to keep it up. That big development of the diverse job base underwrites the growth without liability.

Energy efficiency and solar energy contribute to the kinds of advances that have been seen in things like the Canadian R-2000 homes program, the Canadian C-2000 program for advanced commercial buildings, and advanced houses programs. These programs have demonstrated significant energy advantages with current equipment, current Canadian know-how and building, and current Canadian manufacturing. That has to be supported.

The final request from the Solar Energy Society is that the finance department follow the trends for accountability for federal departments that develop programs and, in their wisdom, see that the directions are appropriate. The programs should not be cut unnecessarily by the finance department. The programs, especially those supporting renewable energy, should be developed and encouraged. They are currently significantly undersubscribed.

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

We'll now hear from Mr. Matthew Bramley. Welcome.

Mr. Matthew Bramley (Senior Policy Analyst, Climate Change Program, Pembina Institute for Appropriate Development): Thank you, Mr. Chairman.

I'm representing the Pembina Institute for Appropriate Development, a non-profit research, advocacy, and consulting organization. We have participated in 9 of the 16 ongoing issue tables in the national climate change consultation process.

[Translation]

I would like to begin by showing you the transparency illustrating the challenge that Canada must meet in reducing its greenhouse gas emissions to comply with the commitments it made in Kyoto.

We are following a curve that is rising and will continue to rise. According to Natural Resources Canada's projections, to meet our Kyoto commitments, we will have to achieve a distinct reduction by about the year 2010. We will have to follow this curve rather than continue to increase our emissions.

[English]

I'd like you to bear that in mind in getting a sense of the urgency of measures to reach Canada's Kyoto commitments. We've as yet seen nothing significant to meet that emissions gap by the period 2008-12.

I mean to speak briefly about four measures, which are being proposed as part of the package presented by the Canadian Climate Action Network. The Pembina Institute has contributed these four measures to the Climate Action Network's package. They are the first four in that document, which I believe you all have a copy of.

The first measure is about putting the federal house in order on climate change, through two approaches. One is to reduce the federal government's energy use in its own buildings. The second is to stimulate the market for renewable energy by moving to a target for the federal government of energy purchased from renewable sources.

The first proposal is made in the context that the federal government currently spends some $800 million annually on energy in its buildings. Studies suggest that there's a potential to save $160 million of that $800 million. What we're proposing is to boost the federal buildings initiative by $5 million a year in order to retrofit 50% of federal government floor space by the year 2005. That $5 million is essentially to increase the staffing, the capacity, of the federal buildings initiative in order to help federal departments proceed with energy retrofits of their buildings.

The second part of this first measure would be to aim for 20% of the federal government's purchases of electricity to be from renewable energy by the year 2005. We calculate that this would be a cost of $18 million. Once again, it has to be seen in the context of potential savings of $160 million from energy efficiency in federal buildings.

The second part of this—20% renewable energy in federal purchases of energy by 2005—will help to stimulate some of the industries whose representatives have already spoken. For example, Germany has some 30 times more installed wind energy capacity than Canada. It's time that Canada started to make up some of that gap. We also estimate that this measure would create over 12,000 new jobs in Canada.

The second of the four is to try to stimulate penetration of the market by making grants to consumers for innovative energy-efficient and eco-efficient products that currently do not have significant market share. Here, we're looking at products such as homes like, for example, R-2000 homes, or purchases by consumers of green energy where that is available from their utilities, or purchases of energy-efficient appliances and automobiles.

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We're looking here at targeting products that exceed normal energy standards by something like 30%. This can be compared to an initiative proposed over the last two to three years by the Clinton administration, the climate change technology initiative, which has a proposed cost of $3.6 billion over five years in tax incentives. This is something that the Clinton administration is moving on, and we think this would be a good way to kick-start some of Canada's progress towards meeting the Kyoto gap.

The third measure is a capacity building, knowledge building, research funding measure that would address the need to develop economic tools and knowledge for sustainable development in coming years. There is a need for research in Canada on alternative ways to measure human development and human progress other than the gross national product, things such as the valuation of environmental services, life cycle value assessment, green fiscal tools, and we're proposing a research centre or network of centres that would cost something in the region of $5 million to $10 million per year based on similar existing programs. This is work that is being initiated by the U.S. government, by the OECD, and by the European Union, and it's time that Canada got up to speed on this side of things as well.

The fourth measure, which I'm going to describe briefly, in fact is the one that would realize the largest greenhouse gas emission reductions, and it would be to stimulate investment in energy efficiency in commercial and institutional buildings in Canada. There are approximately 430,000 such buildings across Canada.

Typical energy efficiency potential savings just in building shells alone are from 30% to 60% of energy used. There's a huge potential out there. The Toronto Better Buildings Partnership has provided a marvellous example of what can be done: 150 buildings have already been energy retrofitted with that program in Toronto, and in fact there's been a return on the city's investment of almost 25% a year.

The concept is a fund that provides mainly securitization for loans to owners of commercial buildings who wish to conduct energy retrofits and, of course, harvest the savings that come from that. We're suggesting $5 million per year for the operation of this program, and it would require a one-time $75 million seed fund, which would mainly play the role of securing the loans that would be made by private institutions. We think this could lead to 80% of commercial institutional buildings in Canada being retrofitted and save something in the range of possibly up to 14 megatons of this emissions gap of 185 megatons. Those are figures that have come from the buildings and municipalities issue tables of the national climate change consultation process.

Just to wrap up, these are really quite timid measures in the context of this emissions gap. The clock is ticking, and the 2000 budget is really an ideal moment to start taking measures to move to close this gap. These measures I've outlined here and the remaining five in the Canadian Climate Action Network package are just a beginning. But they're things that can be done immediately and I commend them to your attention.

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

We'll now hear from Climate Action Network Canada, Mr. John Bennett and Mr. Rick Finlay. Welcome.

Mr. John Bennett (Director, Atmosphere and Energy, Sierra Club of Canada, Climate Action Network Canada): Thank you very much, Mr. Chair and members of the committee, for inviting us.

The Canadian Action Climate Network has over 100 members in every province and most of the territories across Canada. They are mostly environmental groups and there are some individuals, but they have one thing in common: they understand that what we're talking about here isn't changing the curve on a graph; we're talking about a global experiment that's uncontrolled and that could be considered second only to global nuclear war in its impact on humanity.

So when we're talking in terms of the measures we've heard tonight, Matthew is absolutely correct, what we're asking for is really nothing compared to what we should be doing. But we wanted to make sure, at least from CANet, that we put forward some practical beginning kinds of suggestions for the government to start doing something.

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Over ten years ago in Toronto, at the changing atmosphere conference sponsored by the Canadian government, scientists came together and concluded that we had to do something about climate change. We had to reduce our CO₂ emissions. Our CO₂ emissions now are at the highest they've ever been at any time in the history of the planet. In pre-industrial times there were 275 parts per million carbon dioxide in the atmosphere. There are now 360 parts per million in the atmosphere. If nothing is done before the year 2000, we will have more than 550 parts per million.

If that occurs, we will see things such as the die-back of a substantial portion of the tropical forests in Brazil. We'll see as many as 94 million a year displaced because of floods throughout the world. We've already seen the impact of what floods can do in Canada, both in Quebec and in Manitoba.

We've also observed an increase in the frequency and severity of national disasters around the world between 1986 and 1995. According to the Munich Reinsurance Institute, costs of weather-related disasters reached a record high in 1998 of more than $92 billion. That's a 50% increase over 1996. The disaster losses for the entire decade of the 1980s was only $78 billion.

I just wanted to put in context, before we talked about the measures, why we're doing this. This is the most important environmental issue we're ever going to face. If we want to have a legacy for our children, we're going to have to do something to curb our emissions.

With that said, I'd like to pass it over to Rick Finlay, who's with Pollution Probe, to go over the remaining five proposals.

Mr. Rick Finlay (Climate Action Network Canada): Thank you, Mr. Chair. As has been indicated, the first four measures have been addressed by Matthew Bramley and I'll speak to the remaining five of the CANet brief.

Measure number five is described as being an alternative transportation fund. What we want to suggest is that any future infrastructure spending programs contemplated by the federal government should include a component that would support sustainable transportation infrastructure. Such a component could be related to and quite supportive of the Federation of Canadian Municipalities' quality of life infrastructure program proposal. The kinds of specific measures that could be supported under this broad category are described in our brief. I won't go into them in any more detail.

Measure number six speaks to the end of subsidies for the Canadian nuclear industry. We believe we need to place the nuclear industry on the same kind of level playing field that other energy sources need to operate under. This includes ending any kind of fiscal or other federal subsidies to the nuclear program. But in addition and probably just as importantly, we want to advocate that we move to a very sound accounting and management practices system for the nuclear industry that would take an independent full cost accounting approach to looking at the contribution of the Canadian nuclear industry to this issue.

Issue number seven speaks to district energy systems. Here we're describing an approach whereby centrally operated heating and cooling facilities could be used for communities to provide more efficient and more cost-effective heating and cooling systems. Certainly this is an important measure for reducing emissions of greenhouse gases. In addition, we find there are about 23 potential projects that are ready to go in Canada that need a slight incentive to move ahead. If they did move ahead, this would create about 7,000 construction jobs and 2,500 permanent jobs as well.

Measure number eight is entitled “Incentives for producers and generators of renewable energy”. Here we would like to suggest a renewable energy fund, which would be a federal fund to assist private industry with the commercialization of new near-market technologies. This would be in support of many of the other measures that others today have been speaking to, in terms of renewable energy and alternative energy sources.

• 1850

Finally, we strongly suggest that a community-based home retrofit advisory service would be a very wise investment. This is already in place in many communities across this country under the banner of the green communities initiative. We feel that modest investments in the order of $5 million or $6 million would have a large return on investment in this area. It would likely create around 2,000 jobs and reduce emissions of greenhouse gases by quite significant amounts.

With that, I will close on the CANet brief.

If I could step aside from the brief for one moment, Mr. Chairman, as a representative of Pollution Probe, I would just remind the committee of the importance of the transit-pass-exempt initiative that has been discussed many times, I'm sure. This is a measure that is effective and a clear indicator of the federal government's commitment, should it be supported. I think it should have full consideration in this debate.

The Chairman: Thank you, Mr. Bennett. Thank you, Mr. Finlay.

We'll now proceed to a question and answer session. It'll be a five-minute round, starting with Mr. Forseth.

Mr. Paul Forseth (New Westminster—Coquitlam—Burnaby, Ref.): Thank you very much, Mr. Chairman.

Seeing as I only have five minutes, I'll address the question to Mr. Steve Stinson of the Canadian Pulp and Paper Association.

You say on page 6 of your brief:

...growing demand for paper is assured well into the next century. But to capitalize on these trends, Canadian tax burdens need to be brought in line with those of our competitors, if the industry is to attract the new investment it needs to stay competitive in this technologically-sophisticated, capital-intensive industry. To this end, government must be careful not to embark on any new spending initiatives, if they were to interfere with its ability to achieve significant reductions in total tax burdens.

That's quite a statement. I just want you to be specific as to how that is relevant, particularly to you. Then perhaps you can give us a couple of specifics. We know we can't solve all of Canada's financial problems in this one meeting, but you might be able to at least give us one or two specific examples of adjustments you would like to see in the next budget.

Mr. Steve Stinson: As I stated in my presentation, I think the priority should be on the personal income tax side, because that impacts in terms of the overall effective tax rate our industry faces.

I think the real challenge here, in terms of the budget process, is to balance the needs and expectations of Canadians with respect to public services and social programs, and ensure that the programs we establish and retain are delivered in as cost-effective a manner as possible and contribute to the overall productivity of the Canadian economy. I think we need a process to sort these things out to ensure that a lot of these things don't just continue on the basis of the fact that they've existed before. The preference would be to phase out existing programs to find new moneys for additional programs.

I recognize that the budgetary position of the federal government has substantially changed over the last number of years and we're in a new era. If tax levels continue on the current basis, we will have a significant amount available for new programs, for paying down the debt, or for tax. I just want to say we should ensure there is that balance and that we give consideration to the competitiveness of our tax system; that we don't impose these burdens on Canadian businesses to ensure that the investment is forthcoming.

Our industry, as I mentioned, accounts for about 25% of all investment in machinery and equipment, and that investment is strongly correlated to our profitability. To some extent there's a realization that our returns have been so poor that it'll be very difficult to ensure that investment is forthcoming again in the future.

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Mr. Paul Forseth: There's an interesting mix of people's views here at the table.

Let's talk about your industry specifically, to perhaps get to a new barrier of environmental acceptability of the activities of the pulp and paper industry, and your specific suggestions. Is there anything specific that you would like to see in a budgetary way, rather than a regulatory way, that would help you become much more environmentally friendly down the road?

Mr. Steve Stinson: I think we've made enormous strides over the last decade. We would be a little bit reluctant to bring to this table a shopping list, as many of the other industry associations are doing. They're looking for government to basically kick-start their industries. I certainly think government has a role in terms of the regulations it sets for operating.

With respect to the pulp and paper industry, we've made huge investments in environmental technologies over the last five to seven years—billions and billions of dollars. That has resulted in an incredible improvement in terms of the amounts of effluent. I'm probably not qualified to talk on it, but I have heard of 95% and 97% reductions, depending on the type. With respect to global warming and greenhouse gases, the conversion of much of our energy—and we're a very energy-intensive user—to biomass has resulted in our being below 1990 levels today.

One of the things we're looking for is credit for early action. We don't think the starting point should be today; it should be relative to 1990, to recognize the gains we have made.

In many respects the forest industry and forest products are part of the solution, because the forests act as a carbon sink. We want to ensure that our forests are managed on a sustainable basis and that we maintain and perhaps even enhance the amount of fibre we might have in the future. We also want to ensure that government works with the industry to perhaps reclaim lands that are not forested and work toward that.

The one caveat is that if we move in a significant way, we have to ensure that the burden is shared among industry and in terms of the lifestyles of Canadians. We also have to ensure that they recognize the characteristics of our capital investments, which tend to be of long duration.

The Chair: Thank you, Mr. Stinson.

Mr. Cullen.

Mr. Roy Cullen: Thank you, Mr. Chairman.

Mr. Stinson, just picking up on the forest industry and the Canadian pulp and paper industry, there's been a lot of discussion lately about the trend in commodity prices over a number of years or decades. The trend of commodity prices is down, and that may be negatively affecting the Canadian dollar.

I wonder if you could comment on that. Does your industry have any strategies to try to deal with that?

Mr. Steve Stinson: I don't think the fact that the secular trend in real commodity prices is down poses any significant problem, because in many respects it's due to the fact that Canadian forest products farms and those around the world are using the resource much more efficiently. They are applying technology and increasing the scale at which they produce.

I don't really see the link to the Canadian dollar, unless we lag behind producers in other countries. We've discussed our view of the Canadian dollar, and I think you might be surprised if you were to talk to some of the senior finance people in our member companies. There really isn't this desire to see the Canadian dollar go down. We don't see that as being the saviour for our industry.

In many respects we already operate in other currencies, since so much of what we produce is exported. We're a capital-intensive industry and we depend on sources of capital throughout the world. So if three-quarters of your production is going to the United States and a lot of your machinery and equipment is imported, then the value of the Canadian dollar in itself is not a problem.

We have some concern about this policy of benign neglect toward the Canadian dollar. I think there's a tendency for government to use that as an excuse for not addressing some of the more fundamental issues. We're a highly regulated industry, but we operate in globally competitive markets. Many of our cost factors are controlled by government, and that's where we need to work with government in order to address the cost of fibre, to address the cost of energy, to ensure that our transportation costs are competitive. So the Canadian dollar in itself is not a problem.

• 1900

Mr. Roy Cullen: Thank you.

I would have to beg to differ with my colleague Mr. Forseth on the performance of the forest products industry in Canada in regard to the environment. I think you've made great strides, although obviously more can be done.

Are you seeing any trends in terms of substitutes for pulp and paper products or wood products? Obviously there's a debate about value added and what the real opportunities are. In terms of the commodity prices generally trending down, is there anything within it that is causing this that you can see as an industry?

Mr. Steve Stinson: As I mentioned, I think the cost of production is lower on a global basis. Our challenge is to make sure we are competitive with producers in other countries.

In terms of the opportunities and threats to our products, that has been a constant fact of life for decades. In packaging venues, in building products, we're competing with other materials. The industry has also been very adaptive to it. Given the increasing demand for cut-size papers, you're seeing some of our member companies enter into the market for branded products, and you will find them on the shelves of Future Shop and the like. So they're using that as an opportunity.

In building products, we're looking at ways of using the fibre more efficiently. We've come up with new products such as a medium-density fibreboard and others that use species that were not used before. This ensures that no fibre is wasted. So we're adapting.

Mr. Roy Cullen: Thank you.

I have just one final one. I don't mean to concentrate on the pulp and paper industry, but I spent some time in it, so it's a subject dear to my heart.

I noticed in your brief this perennial problem about inefficient capacity and governments continuing to prop them up. This issue never seems to go away. We have a pulp mill, I think it's in the Prince Rupert area. What's that area called...?

Mr. Steve Stinson: Skeena.

Mr. Roy Cullen: Skeena, yes.

Is there any hope that this situation will ever be remedied as long as we have politicians around propping up inefficient mills? And do you actually really mean what you say when the industry says the government should just let them go and let the inefficient capacity be weaned out of the system so that pricing can be better for the rest?

Mr. Steve Stinson: Yes, on an individual basis, I think you know that if it's your mill, you're going to put your hand out if money is available, although there is this realization that it doesn't help the industry in the long run. But as an industry, I think we are opposed to that kind of intervention.

This practice on the part of Canadian governments is not unique. It happens elsewhere in the world in the developing countries. In emerging markets, government's hand is involved in terms of supporting the investments into the industry. So government interference in the industry is with us wherever.

But one of the things we have to realize is that while we may save a few jobs in a particular mill, it just heightens the possibility that we'll have problems in another community. If our scarce capital goes into a mill that will never operate at an optimal level of efficiency, then we're misdirecting the use of capital and undermining our productivity.

Mr. Roy Cullen: Thank you.

The Chair: Thank you, Mr. Cullen.

[Translation]

Ms. Girard-Bujold.

Ms. Jocelyne Girard-Bujold (Jonquière, BQ): Ladies and gentlemen, I would like you to know that I've listened to all your testimony this evening with immense interest. We could write a book on everything you have told us this evening and on the suggestions you have offered and no doubt submitted to the Minister of Finance.

As you know, the Canadian government has sharply reduced the Department of the Environment's budgets since 1993. In the Throne Speech, however, it expressed its intention to invest more in environmental protection.

I wish to emphasize that the Bloc Québécois has expressed its support for green energy sources. Implementing all the proposals you have made this evening would demand a 180-degree shift by the government if it wants to achieve the objective it set for the year 2004 at the Kyoto conference. Unfortunately, I do not believe we are on the right track since greenhouse gas emissions have increased 20 percent in Canada since 1990.

Consequently, I support your point of view. If the government wanted to commit itself to taking the necessary measures to achieve its objective, you may it would have to agree to incur expenditures in the order of $100 to $200 million.

As Mr. Bennett indicated earlier on the subject of what is really going on, your remarks are not alarmist; they reflect the actual situation.

Did the Canadian government representatives genuinely listen to your proposals or were they just being polite? Is it essential that the government opt for the solutions you have proposed to it?

[English]

The Chairman: Who would like to answer that question? Go ahead, Mr. Bennett.

Mr. John Bennett: Well, we can all read tea leaves one way or another. However, we have met with some key ministers and some key officials. We are getting every kind of indication that they are going to attempt to keep their commitment to Kyoto, and the throne speech did imply that there will be action on reaching the Kyoto commitment. In fact, that's why I would think you're seeing very modest, very practical proposals rather than wide, sweeping ones. They're saying, here's the wrench, here's the screw, here's how to get this going in an orderly fashion.

What we have to remember when we think about climate change is that in 1938 Canada had about 25,000 people in the armed forces. If you had asked any economist if Canada could afford to have a million people under arms, half a million of them in Holland alone, six years later, they would have said it was impossible. But it wasn't impossible, and they paid for that by 1955, by the way, with no debts left over.

It's that way that we have to approach climate change. I would say 2000 is year one for mobilization, in which we just get started. Maybe if we just take the $100 million that we're wasting on nuclear power and put it into renewable energy, that will be enough to kick-start things.

The Chair: Any further comments? Mr. Isaacs.

Mr. Colin Isaacs: If I might, I'd like to comment very briefly on this matter of government spending to achieve the Kyoto targets and other environmental objectives. I'm very heartened by the honourable member's interest in this area. It's the view of our association and our member companies that massive government spending is not required, that many of these initiatives can indeed be self-financing. They are eco-efficient technologies.

We're in a situation today in which the private sector is waiting for a signal. Many of our member companies have climate change projects ready to go; some of our companies have clean development mechanism projects ready to start. But no investors in their right mind will put money into those projects until there is credit for early action; until they know that by spending that money they are going to generate some credits that have value, either to the company in helping it to make its targets, or to the company as a saleable document that can be transferred to others who need those credits in exchange for cash. It's that credit for early action, that signal that if they start today they will indeed benefit from the actions they take, that they really need as soon as possible.

This does involve the Department of Finance and the budget, because it is developing an entirely new form of economic instrument that this country, and indeed the world, has never before seen. So we need the infrastructure from government to make it happen, but once it starts happening, the taxpayer won't have to shell out huge amounts of money.

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The Chair: Thank you, Mr. Isaacs.

Mr. Gallagher, and then Mr. Pope.

Mr. Frederick Gallagher: I'd like to echo what Mr. Isaac said, and also what Mr. Stinson said.

Credit for early action is the glue that sticks all of us together. We've spoken with the gas industry, the chemical industry, and the pulp and paper industry. They're all waiting for that kind of an instrument to allow climate change action to make sense.

In fact, in further addressing your question, we don't see the need for government funding for a period of extensive length. We see that we're currently in a zone of transition. We're in a no-man's land at this point in time. There is no signal out there in the economy for people to make efficient choices around climate change, like Mr. Stinson over here and his industry, and there's no opportunity for the renewable industry and other eco-efficiency sectors to make those investments.

Until we can work through those problems and those difficulties of bringing in major economic instruments such as what we're talking about, credit for early action, we need to have some form of opportunity that allows us to get moving, to get rolling, so that we can meet that challenge at the lowest possible cost by the time we need to have it, which would be within the next five to ten years.

The Chair: Thank you, Mr. Gallagher.

Mr. Pope.

Mr. Stephen Pope: I'd like to reinforce the importance of the demonstration of political will and interest in these issues in levelling the playing field and getting the players all running on the same approach.

The current structure in federal energy matters is extremely overbalanced on oil and gas, not to mention the nuclear issue. More than one-third of Natural Resources Canada is concerned with oil, gas and coal. The renewable sector is very badly represented within that part of the civil service.

Unless there is that clear interest and development, support for programs like C-2000—and I must confess I do contracts for an architect with Natural Resources Canada for C-2000—support for integrated design, support for the kinds of demonstration projects that show the private sector that renewable energy works, that the energy efficiency is affordable....

The best example is that an R-2000 house can receive up to 40% of its space heating through passive solar means. In Ottawa the upgrade, the premium charge, for an R-2000 house is between $2,000 and $5,000. That's a drop in the bucket.

It's not a money issue. The political will issue is very important.

The Chair: Mr. Passmore, and then we'll go to Mr. Brison.

Mr. Jeff Passmore: On the question of signals that government can send, and getting back to my comment earlier about government fleets, the federal government currently procures 2,200 vehicles a year. There's no reason why most of those vehicles couldn't be energy efficient and use clean fuels such as I was talking about earlier. The fuel we could use would be the forest residues from Mr. Stinson's members. The ethanol would come from agricultural and forest residues, which, by the way, according to the U.S. Department of Energy, reduces greenhouse gas emissions by 99% compared to gasoline on a life cycle, carbon cycle, basis.

The Chair: Thank you, Mr. Passmore.

[Translation]

Ms. Jocelyne Girard-Bujold: Mr. Finlay, you recommend in your brief that subsidies to the nuclear industry be terminated. As you know, Mr. Chrétien takes the oppositive view. He supports the sale of nuclear reactors which contribute to the reduction of greenhouse gases. Last week in Bonn—you are aware that a meeting of finance ministers is being held there—Canada moved that nuclear reactor exporting countries be entitled to emissions credits. I am very pleased that you have made this recommendation, but I don't know whether the Minister of Finance or Mr. Chrétien will want to comply with your request. Thank you.

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The Chairman: Mr. Brison.

[English]

Mr. Scott Brison: Thank you, Mr. Chairman.

Thank you all for your positions tonight. It's been very helpful.

I'd like to start with Mr. Stinson.

You mentioned the Mintz report. I'd appreciate your feedback on one specific area of that. You talked about the distortionary nature of our corporate tax system that Jack Mintz identified. In fact, you disagree with his position on the distortionary side, or there are some distortions he recognized that are not in fact legitimate. Is that right?

Mr. Steve Stinson: If you're going to look at the business tax system, I think you have to look at the entire system. What the Mintz committee did was focus largely on the corporate side, which is about 22% to 25% of the total revenue business pays to government. There are many other payments business does make to government, whether it be on the cost recovery side for use of government services or for municipal taxes as well, which affects those with physical capital as opposed to, say, a knowledge capital and falls far more heavily on those types of industries.

So in our case, when we look at it, I won't disagree that the banks are heavily taxed, but if you look at the total they make and the effective tax burden, it comes in at 55% or 56%. When I look at the numbers for our industry over the last ten years, we're up at 70%. That does not include payments to government for the use of fibre.

So you're only getting part of the picture. Many of those elements in the federal tax system explicitly recognize these other elements. When you look at what's happening with oil and gas, for example, they recognize that there are significant payments made to provincial governments, and that's partly an offset for those payments.

What you also have to consider—and I think it's very difficult to define tax neutrality—is why do taxes tend to be lower on goods-producing industries that trade internationally vis-à-vis service industries that primarily are domestically oriented? There is an historical reason for that. Every nation is doing the same, and they're trying to compete.

So if we were to shift the burden toward the manufacturing sector away from the service sector, especially for such price-taking industries as the pulp and paper industry, I think you'd have a huge impact. I don't think the amount of growth that might result for the service sector would be sufficient to offset it.

Now, if we look at the evolution of the economy, it's undeniable that there has been a shift toward services, and I do think we have to rethink this in our tax structure, but it would be a mistake, without taking all these other things into account, just to say, well, let's even things out.

Mr. Scott Brison: I suggest it would be helpful if we were to have a meeting to discuss some of these issues. I don't think I completely agree with you, but I want to hear more information on that.

It's great to have such a wide range of input on environmental issues, and it's great that you are at this table as opposed to the environment committee or somewhere else, because any legitimate economic analysis that ignores environmental issues fails to be legitimate from an economic perspective. Far too often we isolate or put into boxes economic arguments or issues and separate them from environmental issues. It's so helpful to have you here.

The whole notion of internalizing the externalities at some point, preferably at the time of production, is something I think our tax system has missed for a long time now. There is some concern and trepidation relative to the notion of green taxes. Part of that emanates from the fact that from an overall perspective Canadians on the corporate side, at a personal level, are already heavily taxed.

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Instead of creating new taxes, in what way could we actually create incentives to reduce taxes for, in particular, environmentally sound behaviours? That would be my first question.

The second question would be to what extent you have studied the impact of trade on the environment. I know there's a lot of discussion now at the WTO level, and there's a recent paper from the WTO that recognizes there are positives and negatives. There's significant potential from trade in terms of environmental issues, but there are costs as well.

I would appreciate your input on how we can use our trade levers more effectively at the WTO level or through any other multilateral....

The Chair: We'll have Mr. Gallagher and then Mr. Isaacs.

Mr. Fred Gallagher: I'd like to address your first question on what kinds of incentives there are. Essentially, there are two ways to handle this problem. One way is to punish the bad polluters and those industries that are unable to deal with the issue. I don't think that's a viable political solution. The other way is incentives for the appropriate behaviour or the appropriate industries. Our philosophy, at least from the Low Impact Renewable Energy group, is that we should be engaging the consumer in this particular debate. The consumer needs to start to internalize the fact that he's ultimately responsible for the fact that this chain of emissions occurs.

As a result, if the government starts to provide an incentive to the consumer to actually go out and make a sustainable choice, whether it be for green energy or whether it be for the installation of more efficient home insulation and home construction.... There are some really key elements in here, meaning that we start to move the whole society towards a knowledge of reducing energy use and utilizing energy that's more sustainable.

Mr. Scott Brison: To what extent would labelling play a role in that in terms of products?

Mr. Fred Gallagher: It's very interesting that you mentioned that. I just came from an Independent Power Producers' Society of Ontario meeting. Labelling on the electricity bill is a key issue in Ontario. There are some very interesting survey results that indicate that most people think their electricity comes from hydro. In fact, 88% of Ontarians think their electricity comes from hydro. Nuclear is only about 30% in their mind. I know this doesn't add up, but on a statistical basis, it's very clear that Canadians don't know where their energy resources come from.

Mr. Scott Brison: I'm from Nova Scotia and we get ours from coal.

Mr. Fred Gallagher: In fact, across Canada the impression is that 80% of the electricity comes from hydro, which is incorrect in Alberta and Nova Scotia. It's only correct in Manitoba, B.C. and Quebec.

You're right. Very clearly, we have to start educating the Canadian public, and there are two ways to do it. One is through information and the other one is through providing incentives that will allow Canadians to realize they can make better choices.

The Chair: Thank you, Mr. Gallagher.

Mr. Isaacs.

Mr. Colin Isaacs: Thank you, Mr. Chairman. The honourable members asked some fairly extensive questions.

Many of our members serve on the Environmental Sectoral Advisory Group for International Trade and participate in assisting and advising the government in the development of policy with regard to such things as the WTO. It's worth sharing very briefly the importance of exports to our industry. Our industry as a whole has annual sales in Canada and overseas in excess of $19 billion, contributing about 2.2% to Canada's GDP in 1997. Those are Statistics Canada numbers.

We employ about 220,000 people in the environment sector, which is more people than those who are employed in oil and gas, chemicals, logging and forestry, pulp and paper, or the textiles sector. It's true we're a new industry, it's true we're a very diverse industry, but we are a big industry sector.

Our exports exceed $1 billion annually. We're extremely dependent on international trade in goods and services and are therefore very enthusiastic about further liberalization in these sectors, both for environmental goods and for environmental services, under the proposed new GATT agreement. We've discussed this at great length and made presentations to the House of Commons Standing Committee on Foreign Affairs and International Trade.

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The global market for environmental products, services, processes and technologies is estimated to be approaching $1 trillion. So we currently have 1/1000 of the global pie.

We believe there are tremendous opportunities for growth, and of course that growth must be based on actions we are taking at home. It's extremely difficult to sell something that you don't do at home. Therefore the fundamental infrastructure that we have here and the need to incorporate improved environmental performance into our domestic economy is absolutely essential for the continued success of our industry.

In terms of incentives, yes, we are very interested in economic instruments. A few years ago a special committee set up by Minister of Finance Paul Martin took a look at that area and made some recommendations, some of which have been implemented and some of which have not. We would certainly be prepared to provide you with copies of that report. It's still a very useful document. It is a complex area.

The kinds of incentives that are currently being studied and implemented in other jurisdictions tend to deal with reduced requirements to ensure compliance, that is, easier approval processes, less frequent inspection processes and things of this kind that relate to the environmental regulatory structure, rather than to the financial structure or the taxation system. The big issue, particularly in the climate change agenda, continues to be the economic approaches, the economic instruments and all of the tools that can be applied in this area.

They've been very well studied as part of the national issues table process that others have mentioned. A lot of work has been done, and we're certainly very eager to see Canada move ahead with the infrastructure for those kinds of economic instruments to address climate change and to address other environmental issues.

The Chair: Mr. Passmore.

Mr. Jeff Passmore: I have a quick practical suggestion, Mr. Brison, regarding externalities and who causes them. As Fred said, you and I do, consumers do, by what we demand. So why not put a line item on the personal income tax return that rewards green consumption? Basically, you get a tax credit for purchasing the following number of kilowatt hours of green electricity or the following number of litres of green fuel. You get a receipt from your utility or a receipt from your petroleum company and you get rewarded for reducing the environmental impacts of your consumption. It could be part of a whole federal initiative to show leadership on the house-in-order program on the one hand and encourage the customers to get engaged on the other.

The Chair: If there are no further comments, on behalf of the committee, I would like to thank you very much. This has been a very interesting round table. You can rest assured we'll certainly reflect upon the points you raised this evening and they will be reflected in the report, which will be tabled the week of December 10, 1999.

Mr. Forseth.

Mr. Paul Forseth: I just have one technical supplemental question.

The proceedings are being recorded and there will be transcripts and so on. For further research, I just want to provide people who may be looking at these in the future.... You talked about a credit for early action, a special new instrument, and I just wonder if you could quickly give a definition on the record of what you are specifically talking about.

Mr. Colin Isaacs: I would be very happy to do that, Mr. Chairman.

The Kyoto Protocol discusses three different types of economic instruments for climate change. Those arise from the clean development mechanism, which are joint projects with developing countries. Under that process, a certain type of instrument is to be generated and is to be traded internationally as well as domestically in those countries that choose to implement domestic trading programs.

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Secondly, joint implementation, which is joint projects between two developed countries, will generate credits to be shared between the two countries that have invested in the project. Again, there will be a carbon credit that is tradable and that will ultimately be used in meeting a country's commitments under the Kyoto Protocol.

Finally, there are international credits generated by nations that are signatories to the protocol—the developed nations—that will allow countries to choose the most economically sound route to meet their commitments. If it is cheaper to purchase credits from another country rather than to implement all of the commitment requirements in the host country, then that international trading scheme will allow that to take place. Any or all of those can be incorporated into a domestic emission credit trading program.

I should add that we fully recognize that there are concerns in some sectors of the public and generally a lack of understanding in the media and among the general public as to how those schemes work. They sound like trading in pollution credits. They're not trading in pollution credits; they are trading in credits for emission reductions that have been achieved and that will benefit all the nations of the world in meeting the global targets of the Kyoto Protocol.

Canada needs to play a role in the development and implementation of those international trading schemes so that our companies, the companies that ultimately will be helping Canada to meet its commitments, can play a full role in the international system.

The Chair: Thank you, Mr. Isaacs.

We'll go to Mr. Bennett and then Mr. Finlay.

Mr. John Bennett: Mr. Isaacs did a good job of explaining the mechanisms, but he didn't answer your question: what is credit for early action?

Under the Kyoto Protocol, the commitment period is between 2008 and 2012. As Mr. Stinson pointed out, the pulp and paper industry has already exceeded the goal for that period, but they did it since 1990. How are we going to score that? Are we going to score it starting in 1990, or are we going to score it starting in 2008? How do you give credit for those who act before they actually have to act?

That is one of the issues the table is having the greatest difficulty in coming to some kind of conclusion and recommendation on. How do you determine where you draw the line, and how do you give credit so that you encourage companies and individuals to act before they're required to? We have to figure out some way of registering that and making sure they get credit for it so that they'll go ahead and do it.

The Chair: Thank you, Mr. Bennett.

By the way, Mr. Isaacs, what you said sounded great.

Voices: Oh, oh!

The Chair: Mr. Finlay.

Mr. Rick Finlay: I agree with you, Mr. Chairman. I just wanted to add that it is quite possible to come up with definitions that would establish what “credit” means in the eyes of investors in Canada right now, so that they can go out and make the practical, day-to-day business decisions they need to make to be able to put some of these projects on the books and register them so that they can obtain a credit for reductions they might achieve right now. That's what the early action part of the credit concept is all about.

The federal government could come up with underpinnings for that concept right away that would certainly enable investors to move down the road towards the kinds of wise investments we're talking about today.

The Chair: Thank you.

Obviously what I said earlier applies again, except that I have to thank Mr. Finlay, Mr. Bennett, and Mr. Isaacs for the extra comments.

Thank you very much. The meeting is adjourned.