FINA Committee Report

*Consultations took place during summer 2006 regarding these renewed programs.
Source: Infrastructure Canada, http://www.infrastructure.gc.ca/ip-pi/index_e.shtml.

Each year, the International Institute for Management Development (IMD) compares the adequacy of infrastructure — defined as the “extent to which basic, technological, scientific and human resources meet the needs of business” — across countries. According to the IMD World Competitiveness Yearbook 2006, in 2006 Canada ranked 12th among 61 countries/regions in the IMD’s infrastructure category, dropping from 6th place in 2004 and 9th place in 2005, and lagging countries such as the United States, Switzerland, Japan, Finland, Germany, Norway and Sweden. In the World Economic Forum’s Global Competitiveness Report 2006-2007, Canada ranked 17th among 125 countries in terms of overall infrastructure quality, down from a ranking of 10th among 117 countries in 2005-2006. While aggregated measures such as these are generally based on survey data and should be interpreted cautiously, they do — nevertheless — provide an indication of Canada’s relative performance in terms of infrastructure.

A.        WHAT WE HEARD

1.   Public Infrastructure

Witnesses told the Committee that Canada’s public infrastructure is deteriorating and needs relatively sizable investments. For example, the Association of Consulting Engineers of Canada informed us that Canada’s total accumulated infrastructure debt now exceeds $60 billion and is growing by more than $2 billion annually; in 20 years, about 50% of Canada’s stock of public infrastructure will have reached the end of its serviceable lifespan. A number of witnesses, including The Road and Infrastructure Program of Canada (TRIP), recommended that the federal government commit to long-term and predictable infrastructure funding, and that the government provide $1 million per year for a minimum of five years to the newly created National Round Table on Sustainable Infrastructure (NRTSI).

Moreover, the Federation of Canadian Municipalities urged the federal government to develop, in co-operation with the provincial/territorial and municipal governments, a long-term national plan to eliminate the municipal infrastructure deficit within 20 years. In particular, a national plan with a clear intergovernmental accountability framework and flexibility to meet the specific needs and capabilities of small, rural and remote communities was advocated.

The Canadian Association of Petroleum Producers, among others, observed that governments need to ensure an adequate availability and condition of public infrastructure in order to help maintain Canada’s competitiveness. Consequently, the need for the federal government to continue to work with the provinces/territories in order to ensure that the availability and quality of public infrastructure do not constrain continued economic growth and the development of the oil and gas industry was highlighted.

The Canadian Centre for Policy Alternatives spoke about a study published by Statistics Canada in 2003, entitled Public Capital and Its Contribution to the Productivity Performance of the Canadian Business Sector, that estimated the benefit to business of public investment in physical public infrastructure. The results of this study are shown in Figure 9. A $1 increase in the stock of physical public infrastructure — defined to include transportation systems, public transit, water supply and wastewater treatment facilities — generated, each year between 1961 and 2000, an average of 17 cents in cost savings for Canada’s business sector. The largest benefit accrued to sectors generally regarded as the most intensive users of infrastructure. For example, the transportation sector was estimated to benefit the most from public investment in physical public infrastructure, for which a $1 increase in the stock of such infrastructure resulted in 42 cents in cost savings, followed by savings of about 34 cents for the wholesale and the retail trade sectors, and of about 20 cents for the construction sector.

Figure 9: Marginal Benefit of $ 1 Increase in the Stock of Physical Public Infrastructure, By Business Sector, 1961-2000 Period (average cents)

Source: Statistics Canada, The Daily, 12 November 2003, p. 3.

Witnesses also shared their views about how infrastructure projects should be funded. Some witnesses, including the St. John's Board of Trade, argued that the federal government should explore alternative means of addressing Canada’s infrastructure needs, such as through the use of public-private partnerships. The Road and Infrastructure Program of Canada (TRIP) recommended that the federal government create an office for the purpose of facilitating public-private partnerships using federal infrastructure funds to leverage investment from the private sector. Other witnesses, however, such as the Canadian Centre for Policy Alternatives, cautioned against using public-private partnerships, suggesting that the result would be higher costs.

A number of witnesses, including the City of Saskatoon, recommended that the federal gas tax-sharing program be continued indefinitely. Such witnesses as the Association of Yukon Communities urged expansion in the types of infrastructure projects funded under the program to include municipal initiatives for economic development, sport and recreational facilities such as parks, and cultural and other social infrastructure. As well, witnesses — including the City of Fort St. John and the Winnipeg Chamber of Commerce — argued that municipalities should have greater authority over their financial means, and recommended that the federal government consider other tax-sharing arrangements using the model of the federal gas tax-sharing program in order to provide municipalities with additional revenues.

The Regional Municipality of Wood Buffalo informed the Committee that, as a result of six years of population growth exceeding 8% per year, the community needs infrastructure capacity and infrastructure repair, including wastewater treatment, recreational facilities and landfill sites. Special grant funding from both the federal and provincial governments in order to raise existing infrastructure and services to the standard of other Alberta municipalities was requested. The Fort McMurray Chamber of Commerce urged the federal government to commit the financing needed to meet the special infrastructure requirements of the region of Fort McMurray.

The Committee learned that Halifax is currently developing a bid to host the 2014 Commonwealth Games. Sport Nova Scotia and the Halifax Regional Municipality urged the federal government to support the bid, recognizing that the 2014 Games would have an important impact on Nova Scotia as well as on sport infrastructure and athletic development in Atlantic Canada.

2.   Transportation Infrastructure

The Committee heard about the importance of transportation infrastructure for trade, tourism and competitiveness. Witnesses, including the Saskatchewan Association of Rural Municipalities, told us that transportation costs are a critical determinant of provincial, national and global competitiveness. Witnesses also noted the importance of transportation and border infrastructure for ensuring access to markets, particularly export markets.

Witnesses indicated that transportation infrastructure should be viewed in terms of networks, noting the connections between and among various modes of transportation. Canadian Manufacturers & Exporters — Ontario Division highlighted the importance of federal involvement in working to improve and expand Canada’s transportation networks. The Canadian Meat Council stressed that, particularly because of the perishable nature of meat products, the highly efficient inter-modal transportation systems and dependable transportation infrastructure needed to serve domestic and global markets are important factors affecting productivity and competitiveness.

Moreover, witnesses supported the federal government’s development and financing of the Pacific Gateway Strategy, although Canadian Manufacturers & Exporters — British Columbia Division indicated that additional funding is required to ensure that the Pacific Gateway can become a global hub for logistics and tradeable services on par with Hong Kong, Singapore and Rotterdam. The Prince Rupert Port Authority informed the Committee that it requires one of the following two options to pursue its expansion plans: additional federal funding of at least $100 million or structural changes to the Authority’s governing legislation to improve its ability to raise funds on public capital markets.

The Greater Halifax Partnership observed that Halifax is an alternative to the Pacific Gateway for Asian cargo entering Canada. The Committee was told that the distance between Halifax and Hong Kong is about equivalent to the distance between Vancouver and Hong Kong; consequently, Halifax is already an option for those that ship Asian cargo. The Greater Halifax Partnership recommended that the federal government adopt a two-ocean gateway policy, a suggestion that was supported by the Halifax Regional Municipality.

The Committee was informed that about 90% of consumer goods and about two-thirds of Canada’s trade with the United States are shipped by truck. A number of witnesses, including the Canadian Automobile Association, the Manitoba Hotel Association and the Hotel Association of Canada, identified the need for a strategic plan that includes a significant and long-term federal investment in the renewal and maintenance of Canada’s National Highway System (NHS), and stressed the importance of incorporating intelligent transportation systems and encouraging environmentally responsible driving habits. It was argued that improvements in Canada’s road infrastructure would yield benefits in the form of reduced health care costs, increased trade and tourism, higher productivity, reduced safety risks, and lower greenhouse gas emissions. Several witnesses, including the Canadian Trucking Alliance, suggested that the federal government dedicate a substantial portion of its fuel excise tax revenues to predictable, long-term funding for Canada’s roads and highways.

The Association of Manitoba Municipalities and the Saskatchewan Association of Rural Municipalities told the Committee that the Prairie Grain Roads Program (PGRP) has played a significant role in supporting grain transportation infrastructure. The Association of Manitoba Municipalities explained that the PGRP encourages neighbouring municipalities to identify optimal trucking routes and to shift traffic to these regional corridors. This strategic planning has spin-off benefits, since the use of dedicated routes reduces stress on other provincial and municipal roads.

The Saskatchewan Association of Rural Municipalities identified the creation of a province-wide primary weight haul corridor as important to reducing transportation costs and to expanding market opportunities for rural Saskatchewan. Through PGRP funding, a grain corridor system has been mapped for the province of Saskatchewan. The Committee was told that a new PGRP initiative is required in order to ensure that grain transportation infrastructure is properly completed and maintained in Manitoba and Saskatchewan.

The Canadian Association of Railway Suppliers argued that rail transportation provides an opportunity to reduce the environmental impacts of transportation, while the Canadian Fertilizer Institute observed that rail is the only cost-effective transportation mode available to those — particularly in the resource sector — that ship commodities long distances. The Railway Association of Canada requested that the federal government commit to funding rail infrastructure through the Canada Strategic Infrastructure Fund in partnership with the provincial governments and short-line railways. The British Columbia Chamber of Commerce asked that the federal government include funding for rail infrastructure development in future expansion projects in order to increase rail movement throughout British Columbia.

A number of witnesses — including the Greater Vancouver Transportation Authority (TransLink), the City of Calgary, the Canadian Urban Transit Association and the Federation of Canadian Municipalities — supported the creation of a permanent national urban transit plan that would provide ongoing federal funding for municipalities with transit services. The various programs related to public transit would be integrated under the proposed plan, which could take effect in 2008-2009 when existing federal commitments for public transit expire.

Witnesses, including the Greater Kitchener Waterloo Chamber of Commerce and the City of Calgary, also requested that the Canada Strategic Infrastructure Fund continue to support large-scale projects of regional or national significance, such as inter-city rail links, other rapid-transit projects and urban renewal projects. For example, witnesses mentioned a proposed rapid-transit system within the region of Waterloo's central transit corridor and the revitalization of the Rivers District in the city of Calgary. Several witnesses, such as the Toronto Board of Trade, recommended that the federal government invest an additional $1 billion annually in public transit through the Canada Strategic Infrastructure Fund.

The Fraser Valley KAIROS Group suggested that a larger share of federal gas tax revenues be used to fund the development of transit systems, recognizing that better and more efficient transit systems would lead to increased use of public transit and to fewer personal vehicles on the roads, thereby reducing congestion for commercial traffic. The Greater Vancouver Transportation Authority (TransLink) told the Committee that, in the Greater Vancouver area, recent investments in public transportation have resulted in a 24% increase in transit ridership since 2002.

Witnesses, including the Chronic Disease Prevention Alliance of Canada, the Heart and Stroke Foundation of Canada and the Canadian Cancer Society, supported increases in active transportation among Canadians, such as walking and cycling. The Committee was informed that active transportation has the potential to reduce obesity and improve public health, while contributing to less congestion as well as reduced pollution and greenhouse gas emissions. To promote active transportation, witnesses recommended that 7% of all federal infrastructure funding allocated to transportation be earmarked for active transportation infrastructure, such as sidewalks and trails/paths for biking and walking.

Regarding air transportation, the Greater Toronto Airports Authority (GTAA) supported the recent Open Skies bilateral agreement with the United States, and noted that Canada has negotiated more liberalized agreements with the United Kingdom, India and China. The GTAA recommended that Canada’s international air policy ensure that both passenger and cargo services operate in an open market environment.

While new Open Skies agreements present opportunities for Canadian air carriers and consumers, WestJet and Air Canada reminded the Committee that an open market environment also results in increased competition from foreign air carriers. We were informed that these foreign carriers often pay fewer charges and lower taxes than their Canadian counterparts. Witnesses indicated that Toronto’s Pearson International airport is the most expensive airport in the world for airline operations.

The Committee heard that airport rent harms the competitive position of Canada’s airports, since airport rent is a significant portion of many airport authorities’ expenses and is a determining factor in the setting of annual fees and charges. Witnesses maintained that the new airport rent formula announced in May 2005 — which is based on a progressive rate, from 0% to 12%, of gross airport revenues — resulted in significant rent reductions for most Canadian airports, but that Toronto’s Pearson International airport will — in 2010, at the end of the transition period — be paying more than 60% of the total airport rent collected by the federal government, even though less than 35% of air traffic will pass through that airport.

A number of witnesses from the aviation and tourism industries, including the Regina Airport Authority, advocated a review of the federal airport rent policy and a reduction in, if not elimination of, airport rents. The Greater Toronto Airports Authority maintained that the airport rent formula should be changed so that airport rent would be calculated on the basis of airport revenues net of the cost of servicing the debt incurred as a result of necessary investments in airport infrastructure. Currently, airport rents are calculated on the basis of airport gross revenues, regardless of airports’ cost of servicing the debt raised on public capital markets in order to fund infrastructure investments.

The Atlantic Canada Airports Association spoke about the needs of Canada’s smaller airports, especially airports located in Atlantic Canada. The Committee was informed that airports and air carriers are required to pay for Canada Border Services Agency (CBSA) services when they are provided outside regular working hours, and it was argued that the federal government has not adequately provided for the infrastructure needs of small airports. The Atlantic Canada Airports Association recommended that increased federal funding be allocated to the CBSA in order that the needs of Canadian airports could be met, at no extra cost to them, after the normal hours of service. The Canadian Airports Council made a similar recommendation, and requested increased funding for the CBSA in order to meet the growing needs of airports.

The Atlantic Canada Airports Association also requested that the federal government increase the funding allocated to the Airports Capital Assistance Program and create a small airports infrastructure program.

As well, the Committee was reminded that duty-free or tax-free sales at Canadian airports are available only for persons who are about to leave Canada. The Canadian Airports Council argued that the prohibition on arrivals duty-free sales creates a competitive disadvantage for Canadian airports, reducing their potential revenues from duty-free sales to international visitors and returning residents. Consequently, legislative and regulatory modifications in order to permit arrivals duty-free sales at Canadian airports were recommended.

3.   Water Infrastructure

The Committee was reminded that a safe and reliable water supply is important both for the personal consumption of Canadians and for agriculture and industrial development. Consequently, the Association of Manitoba Municipalities suggested that the federal government create a national program for water infrastructure, with $180 million available over 10 years.

As well, the Committee was told that the National Water Supply Expansion Program was an important source of funding for many water infrastructure projects. Consequently, the Association of Manitoba Municipalities urged the federal government to provide additional funding for Manitoba water infrastructure during the two-year extension of the National Water Supply Expansion Program.

The Fraser Valley KAIROS Group proposed that the federal government create a national water policy that would ban the export of water and the privatization of water services, create national standards for potable water delivery systems, and commit federal funding to help municipalities and Aboriginal communities upgrade their water infrastructure. The National Children’s Alliance observed that, for Canada’s Aboriginal communities, contaminated water is repeatedly identified as a major source of concern and an ongoing cause of illness.

4.   Northern Infrastructure

The Committee learned about the unique infrastructure challenges facing the communities of Nunavut. There are 25 communities in Nunavut, and they are isolated from each another; consequently, it is virtually impossible for communities to share critical infrastructure such as health centres, policing, civic offices, schools, etc. Nunavut Tunngavik Inc. told us that the public provision of a basic level of infrastructure consistent with national standards in every Nunavut community far exceeds the financial capacity of the government of Nunavut. Moreover, we were informed that, in addition to the requirement for new infrastructure, there is a growing need to replace and maintain existing infrastructure.

The Nunavut Association of Municipalities (NAM) informed the Committee about the immense natural resources and mining potential of Nunavut, and noted that while Nunavut is resource-rich, its residents and its communities do not receive significant benefits from their resource wealth under the current federal fiscal regime, since most of the public resource revenues from the resources in the Northwest Territories and Nunavut go directly to the federal government. The NAM advocated better federal resource revenue-sharing with Nunavut through the territorial and local governments, as well as federal financial assistance for the ongoing implementation of community development plans.

The Indian Taxation Advisory Board noted that First Nations have been slow to develop their economic potential because they are unable to finance infrastructure at the level required for profitable business activity. Consequently, the establishment of a First Nations economic infrastructure program that would address policy, fiscal and capacity constraints to infrastructure development for First Nations was recommended, at a cost of $125 million over five years.

As well, the Prospectors and Developers Association of Canada suggested that infrastructure development in Northern Canada is crucial to the mineral industry’s competitiveness and provides opportunities for northern communities to improve their quality of life. The federal government was urged to implement a 20% deep drilling tax credit to encourage exploration below 300 metres in order to discover deeper mineral deposits and to replenish reserves, thereby extending the economic life of existing mines.

Witnesses also highlighted the importance of geological mapping in attracting mineral exploration and discoveries. The Committee was told that more than 70% of Nunavut’s territory remains unmapped, and that some regions of Labrador have not been adequately surveyed. The Newfoundland and Labrador Chamber of Mineral Resources, the Mining Association of Canada and the Prospectors and Developers Association of Canada recommended that the federal government urgently and adequately fund the Co-operative Geological Mapping Strategies across Canada. The Newfoundland Ocean Industries Association (NOIA) requested targeted federal funding for the Geological Survey of Canada in order to develop a marketing program based on geological data reflecting the region off the coast of Newfoundland and Labrador.

Other witnesses, however, were less supportive of mining exploration and development because of potentially negative impacts on the environment. The Yukon Conservation Society and the Green Budget Coalition recommended the cancellation of both the Super Flow-Through Share program for mineral exploration and the Investment Tax Credit for Exploration; in their view, fiscal savings should be reinvested in programs encouraging mineral recycling and conservation.

5.   Border Infrastructure

The Committee heard that delays at Canada-U.S. border crossings reduce economic activity. Several witnesses, including Canadian Manufacturers & Exporters — British Columbia Division and the Association of Equipment Manufacturers, mentioned the need to accelerate investments in Canada-U.S. border infrastructure.

The Ontario Chamber of Commerce and the Greater Kitchener Waterloo Chamber of Commerce urged the federal government to work with the provincial and municipal governments to expedite improvements to the infrastructure at the Windsor-Detroit border crossing. The Ontario Tourism Council believed that new Canada-U.S. border crossings should be constructed.

A number of witnesses commented on the consequences for trade and tourism of recently implemented Canada-U.S. border security initiatives. Several noted the U.S. Western Hemisphere Travel Initiative (WHTI) and its requirement for a passport or other form of approved documentation at the border. The Ontario Chamber of Commerce urged the federal government to work with the provincial governments and U.S. government officials to develop a comprehensive strategy designed to mitigate the potential economic impacts of the WHTI in both countries. The Greater Kitchener Waterloo Chamber of Commerce recommended that the federal government collaborate with the U.S. government to expand the Free and Secure Trade (FAST) and NEXUS programs, which identify pre-approved and low-risk travellers, with the intention of having them finalized by 2008 or by the land implementation date of the WHTI.

6.   Emergency Service Providers and Preparedness

The Committee heard a broad range of suggestions, from emergency service providers, insurers and others, for improving the country’s preparedness and the safety of Canadians. To recognize the contributions made by emergency service providers, the International Association of Fire Fighters proposed the creation of a national public safety officer compensation benefit that would provide a one-time payment of $300,000 per family to the families of fire fighters, police officers and other public safety officials who are killed or permanently disabled in the line of duty, at an estimated total annual cost of $5.1 million to $6.6 million.

The Committee learned that when municipal resources are used in responding to an emergency, the federal government compensates municipalities that assist in disaster recovery for the use of municipal equipment at the rate of 16% of the cost incurred and municipal labour for overtime only; when contracted or non-municipal labour and equipment costs are incurred, 100% of the costs are eligible for federal compensation. To acknowledge the costs incurred by municipalities and to provide an incentive to minimize the costs of disaster recovery, the Association of Manitoba Municipalities recommended that the rate of compensation for the use of municipal equipment and labour in disaster recovery efforts be increased from 16% to 65%.

The Insurance Bureau of Canada supported the establishment of a natural disaster protection fund that would assist communities in strengthening their capacity to withstand the effects of natural disasters. It was proposed that the federal government contribute between $100 million and $150 million annually. As well, the Committee was told that Canadian communities are increasingly at risk from both natural and human-induced disasters, and that the economic costs of natural disasters in Canada continue to rise, partly as a result of the absence of a national program for disaster mitigation. The Canadian Centre for Emergency Preparedness and the Insurance Bureau of Canada recommended that the federal government invest in disaster mitigation activities and programs on an ongoing basis.

Since the 2001 federal budget provided five years of funding for the purchase of specialized equipment to strengthen Canada’s ability to respond to chemical, biological, radiological and nuclear (CBRN) threats, the five-year period has now almost expired. The Canadian Association of Fire Chiefs identified an acute need for an extension to the program, and recommended that the federal government provide $10 million annually for four years for the purchase of CBRN equipment.

Witnesses also requested federal funding for:

• the purchase of handheld communications devices for first responders;
• the Joint Emergency Preparedness Program to ensure that funding remains responsive to rising equipment costs for fire services;
• a personal income tax credit of $500 for individuals actively serving as volunteer firefighters or officers;
• the establishment of an office of the national fire advisor within Public Safety and Emergency Preparedness Canada; and
• the implementation of the International Association of Fire Fighters’ Hazardous Materials Training for First Responders and Emergency Response to Terrorism Operations programs in Canada.

In addition, the Police Association of Ontario urged the federal government to demonstrate a commitment to policing by funding the introduction of at least 2,500 new police officers in Canada’s cities and communities, and requested that Ontario be given its share of this funding based on population. The City of Calgary proposed that the federal government collaborate with the provincial/territorial and municipal governments to develop a new deal for policing which would define an accountability framework for each order of government in terms of policing roles, responsibilities and expected results from funding.

The Halifax Regional Municipality supported the establishment, by the Department of National Defence, of the Standing Contingency Task Force. This new initiative, comprised of existing maritime, land, air and special operations components of the Canadian Forces, responds to emerging Canadian and global crises. The federal government was urged to ensure that funding is available for the continued progress of this initiative.

The Conference of Defence Associations supported the recent increases in defence funding to meet the capital expenditure needs and the ongoing operational requirements of the Canadian Forces. Nevertheless, concern remains about the long-term sustainability of the Canadian Forces’ capabilities to meet its future foreign, defence and security policy objectives. Consequently, the implementation of a comprehensive long-term strategic defence capability plan, which would explore the remaining Canadian Forces’ capital and operational requirements over the next 15 years, was urged.

B.        WHAT WE BELIEVE

The Committee believes that our nation’s infrastructure — including transportation, utilities, telecommunications, hospitals, schools, libraries and museums — is critically important to the productivity of businesses and individuals, our economy and the competitiveness of Canada. Businesses must be able to move their goods to domestic and international markets, and employees and others must be able to travel to work and to participate in sports, cultural and other activities.

Without sound, reliable infrastructure, the productivity growth and competitiveness that we seek will not be possible. The Committee supports continued and enhanced financing of the range of Infrastructure Funds that currently exists, but we feel that additional actions are also needed.

The Committee believes that there is a need to ensure ongoing sharing of federal gas tax revenues with municipalities through the establishment of a permanent program. Proper planning by municipalities requires the certainty that would be associated with a more permanent program. Moreover, we feel that since infrastructure needs vary among communities and regions of Canada, it is important that funding allocation mechanisms not be based solely on per-capita calculations. From this perspective, and bearing in mind the comments made by the Minister of Finance about public-private partnerships, gateways, border crossings, and long-term, predictable funding and transparent funding allocation mechanisms for infrastructure during his 23 November 2006 appearance before us, the Committee recommends that:

RECOMMENDATION 15

The federal government, in conjunction with the provincial/territorial governments, help to fund existing infrastructure initiatives at a level designed to reduce the public infrastructure deficit.

As well, the government should make permanent a program for the sharing of gas tax revenues with municipalities.

Finally, the government should develop an allocation mechanism for federal infrastructure support that considers not only population, but also the unique strategic and economic development needs of communities.

In the Committee’s view, we now live — and, for the foreseeable future, will continue to live — in an era where international, domestic and personal security are of paramount importance. Certainly, the Royal Canadian Mounted Police, the Canadian Security Intelligence Service, and provincial and municipal police forces, among others, play a significant role in contributing to our security. In our opinion, these efforts must be supported. Lessons were learned as a consequence of the 11 September 2001 terrorist attacks, and hurricanes Katrina and Rita, among other disasters: the ability to communicate and the availability of the proper equipment are critically important. We believe that, at times, relatively small investments can significantly enhance our security. It is for this reason that the Committee recommends that:

RECOMMENDATION 16

The federal government, in conjunction with the provincial/territorial governments, allocate funds sufficient for chemical, biological, radiological and nuclear equipment and training.

The government should also work with relevant stakeholders in order to ensure the development and adequate funding of a national emergency preparedness plan.

ENVIRONMENT

The state of a nation’s environment, and measures implemented to preserve the environment, have implications for prosperity and competitiveness. For example, compliance costs associated with environmental regulation and other forms of government intervention can affect businesses, placing those with relatively higher costs and more stringent requirements at a relative disadvantage. Nevertheless, environmental regulation and compliance costs may induce businesses to be more innovative and to make better use of resources, thereby resulting in higher productivity.

Economic development must be sustainable in the long term. Sustainable development requires both sustainable production and sustainable consumption. From a production perspective, the notion of long-term sustainability has led governments to intervene — through taxes, environmental standards and other measures — to ensure that businesses incur all costs, including environmental costs, associated with their activities, resulting in a level of production that is more socially desirable and sustainable in the longer term.

From a consumption perspective, the notion of long-term sustainability has led governments to provide consumers with incentives to act in a sustainable manner; consequently, governments may encourage recycling, impose consumption taxes, and fund energy conservation programs, among other measures.

A.        WHAT WE HEARD

1.   The Natural Environment

The Committee heard several suggestions for increasing conservation of the natural environment. The Canadian Parks and Wilderness Society and the Green Budget Coalition advocated federal investment in nature conservation in four priority areas:

• Northern Canada’s ecosystems, through a $25 million federal investment over five years, and $4 million annually, in a network of protected areas through the Northwest Territories Protected Areas Strategy, national parks proposals and regional land use plans, with the investment required prior to approving any large-scale developments such as the proposed Mackenzie Gas Project;
• ocean ecosystems, through a $600 million federal investment over five years in an oceans agenda for Canada in order to complete a national system of marine protected areas and to develop an integrated oceans management plan;
• protected areas across Canada, through federal investments over 5 to 10 years, to complete, expand and preserve the national parks system and other federal protected areas and to implement fully the recommendations of the Panel on the Ecological Integrity of Canada’s National Parks; and
• the Species at Risk Act, through a federal investment of $275 million over five years.

Furthermore, the Green Budget Coalition told the Committee that the presence of toxic substances in the air and water is a serious threat to human health, especially for children, and recommended that the federal government:

• increase resources to implement the Canadian Environmental Protection Act;
• measure, monitor and understand the presence of toxins in the environment;
• direct resources to a pollution prevention research fund with a focus on product life cycle; and
• restore and enhance the Great Lakes and St. Lawrence Region.

Ducks Unlimited Canada also made recommendations about Canada’s natural capital, and told the Committee that Canada should adopt a new approach with respect to the conservation and preservation of natural assets in order to maintain Canada’s competitive advantage. Consequently, it was recommended that the federal government establish financial disincentives in order to discourage further destruction or degradation of our natural capital.  Moreover, it was suggested that federal taxation and spending programs related to infrastructure require mitigation for the loss of natural capital on all projects that receive federal funding or that are conducted on Crown lands. Furthermore, Ducks Unlimited Canada recommended that the federal government:

• expand incentives to agricultural landowners and other land managers to protect the quality of source water;
• ensure that the natural attributes of Crown lands continue to provide public benefits for future generations;
• coordinate and fund efforts to measure the value of Canada’s natural capital;
• increase support for conservation cover programs, such as Greencover Canada; and
• consistently apply provisions for the mitigation of wetland loss under the Canadian Wetland Policy.

The British Columbia Real Estate Association indicated its disappointment about the recent federal decision to withdraw $11.7 million in unused funds for the Mountain Pine Beetle Initiative, and recommended that this funding be reinstated. On the other hand, the Forest Products Association of Canada supported the $400 million federal investment for the forestry sector to help combat the pine beetle infestation.

The Committee heard that Canadian agricultural producers are facing challenging market conditions as a result of the relatively strong Canadian dollar, low market prices for commodities, rising energy costs, and challenges related to bovine spongiform encephalopathy (BSE) and avian influenza. Figure 10 shows the decline in realized net market income in the agriculture industry since the 1970s and the importance, in recent years, of government program payments in ensuring that the real aggregate income of farmers is not negative.

Figure 10: Real Aggregate Farm Income¹ in Canada, 1971 - 2004 (billions of dollars²)

Notes:    1. Realized net market income accounts for depreciation of farm assets.

2. 2003 dollars.

Source: Federal/Provincial/Territorial (FPT) Working Group (WG) on Economic Analysis, Long Term Challenges and Opportunities: Future Competitiveness and Prosperity of the Agriculture and Agri-Food Industry, Progress Report, February 2006, p. 17.

 

The Union des producteurs agricoles commented on the deteriorating financial situation of farmers and the difficulties they encounter with rising levels of farm debt and declining levels of farm income, and proposed measures that would assist farmers, including:

• an additional $111 million in federal funding for the grain sector;
• an additional $150 million for the province of Quebec in order to ensure that the province receives its fair share, in 2006, of the financial assistance delivered through the Canadian Agricultural Income Stabilization (CAIS) program;
• reintegrating federal funding into provincial programs; and
• introducing a production insurance program in the livestock sector.

Witnesses, including the Saskatchewan Association of Rural Municipalities and Genome Prairie, spoke about the importance of federal initiatives to encourage value-added agriculture. The implementation of measures designed to facilitate the participation of agricultural producers in Canadian biofuels production was recommended by witnesses, including the Saskatchewan Association of Rural Municipalities. The Committee was told that the emerging biofuels industry, including ethanol and biodiesel, is an economic and environmental opportunity for agricultural producers, especially in the context of low profits in primary agricultural production and the growth in biofuels production capacity in the United States. The Canadian Federation of Agriculture highlighted the potential contribution of increased value-added processing and distribution in the agricultural sector in generating greater wealth, jobs and opportunities in rural communities.

The Canadian Health Food Association mentioned food regulations, and advocated increased funding for Agriculture and Agri-Food Canada for the development and administration of functional food regulations, including for organic food. Moreover, the federal government was urged to provide the necessary support to agricultural producers as they transition to organic farming and to encourage producers to expand sales internationally.

The Canadian Federation of Agriculture also urged the development of a new federal agricultural policy framework, in collaboration with the provincial/territorial governments and the agriculture and agri-food industry, which would be comprised of three pillars:

• the public goods and services pillar, which would consist of environmental programs and food safety programs;
• the business risk management pillar, which would consist of programs that provide stability in situations related to disease as well as climate and major market fluctuations; and
• the strategic growth pillar, which would coordinate policies aimed at generating growth and strength in the industry.

The Canadian Meat Council proposed that Canada adopt a new long-term agricultural policy framework which, instead of being reactive and crisis-driven, would support sustainable growth, innovation, competitiveness and wealth creation for the entire agri-food industry.

Ducks Unlimited Canada supported an integrated approach to agricultural policy which would ensure that environmental implications and agricultural sustainability are considered in the development of agricultural programs. The Newfoundland and Labrador Federation of Agriculture noted the need to build and maintain the stock of agricultural infrastructure in Newfoundland and Labrador in order to enable sustainable growth for the agriculture industry in that province.

Several witnesses commented on the CAIS program. The Canadian Federation of Independent Business indicated that the program requires an excessive amount of paperwork and has many regulatory requirements, leading most farmers to hire professionals to complete their forms. The Credit Union Central of Canada commented on the level of complexity in the CAIS program, and asked the federal and provincial governments to improve the program. The Saskatchewan Association of Rural Municipalities urged the federal government, as it develops a successor to the CAIS program, to consider the need of farmers for a business risk management program that is separate from disaster assistance.

The Credit Union Central of Canada also asked the federal government, on a priority basis, to proceed with reform of the Farm Improvement and Marketing Cooperatives Loans Act, which affects the availability of loans for farm improvements as well as the processing and marketing of farm products.

The Grape Growers of Ontario told the Committee that the grape-growing industry has experienced difficulty in the last three years because of cold winters; the result has been severe crop damage. We heard that, in 2005, members of the Grape Growers of Ontario recorded their lowest crop yield in 58 years. Consequently, the federal government was urged to invest $100 million over seven years in a proposed national replant program, in co-operation with the industry and the provincial governments. The goal of the program would be the renewal of 25% of Canada's orchards and vineyards over seven years, at a total cost of $300 million.

The Atlantic Policy Congress of First Nation Chiefs Secretariat Inc. told the Committee that the 1999 Supreme Court decision in Marshall confirmed a constitutionally protected right of First Nations to access commercial fisheries, thereby allowing many Aboriginal Canadians to become active participants in the Atlantic economy. It was suggested that, in order to build on that success and to increase access and capacity, the federal government invest at least $40 million annually over five years in First Nations fisheries.

The Yukon Conservation Society requested enhanced federal funding for the clean-up of orphaned/abandoned mine sites.

2.   Brownfield Sites

The Committee heard that brownfield sites are often located on prime real estate in Canada’s urban centres and, as such, their remediation would have environmental, social and economic benefits. Since it is estimated that there are more than 30,000 brownfield sites in Canada, the Canadian Real Estate Association suggested that the redevelopment of brownfield sites would yield many benefits, including rising property values and consequently an increased property tax base as well as slowing urban sprawl.

While acknowledging the federal commitment to provide low-interest loan funding for remediation projects, the Canadian Real Estate Association provided suggestions to encourage brownfield site redevelopment, including:

• a coordinated approach among the federal, provincial/territorial and municipal governments for the removal of Crown liens and tax arrears on qualifying brownfield sites;
• federal-provincial/territorial collaboration on the removal of impediments to liability transfer on qualifying brownfield sites as recommended in the report of the Canadian Council of Ministers of the Environment;
• amendments to the Income Tax Act to allow the deductibility of remediation expenses in the year that costs are incurred; and
• an amendment to the Canada Mortgage and Housing Corporation’s mandate to include mortgage guarantees at commercial lending rates for brownfield site redevelopment.

3.   Energy Consumption and Air Emissions

A number of witnesses supported the notion that Canada could increase its long-term competitiveness through development that is more sustainable. The David Suzuki Foundation told the Committee that ecological fiscal reform (EFR) — which is achieved by introducing economic factors and tax incentives into environmental policy-making — could be a tool that would result in improved competitiveness in the long term. We heard that EFR concepts are underutilized in Canada relative to such other developed nations as the United Kingdom, Germany, France, Japan, and the Scandinavian countries.

Witnesses presented a number of proposals designed to improve energy efficiency and to reduce Canada’s air emissions. The Association of Municipalities of Ontario reminded the Committee that the Canadian economy is less efficient in its energy usage than is the U.S. economy, and that investing in energy efficiency results in many environmental benefits.

Canada’s Association for the Fifty-Plus told the Committee that water pollution and air pollution are global problems requiring international collaboration. It was suggested that Canada play a leading role within the global community in creating and protecting safe, healthy and sustainable clean air and water.

The Canadian Electricity Association urged the federal government to establish a federal energy efficiency grant program in order to fund a variety of energy efficiency programs and to give these programs a national focus. KAIROS: Canadian Ecumenical Justice Initiatives believed that the federal government should fund education and incentive programs designed to influence individual behaviours and attitudes toward energy conservation and efficiency.

The Committee was presented with a range of suggestions regarding household energy consumption. The Canadian Real Estate Association commented on the cancellation of the EnerGuide programs in May 2006, and indicated that the programs had potentially important social, environmental and economic benefits. The Canadian Real Estate Association and the Yukon Conservation Society recommended that federal funding for the EnerGuide for Houses and the EnerGuide for Low-Income Households be reinstated.

The Green Budget Coalition and the David Suzuki Foundation proposed the implementation of an appliance feebate — Switch Green: ENERGY STAR — in order to reduce the energy consumption of household appliances. The appliance feebate would offer a 6% rebate on appliances that meet the ENERGY STAR criteria and would levy a 6% fee on those appliances that do not comply, thus eliminating the price discrepancy between energy-efficient and -inefficient appliances.

The Toronto Disaster Relief Committee recommended that federal funding for housing renovation be increased in order to assist low-income homeowners and tenants with energy conservation. The Canadian Housing and Renewal Association suggested the introduction of a federal energy efficiency program for low- and moderate-income households. The Canadian Gas Association proposed that the federal government review its current programs intended for Canadian homeowners, landlords and tenants, particularly those with lower incomes, to ensure that opportunities to realize energy efficiencies by switching household energy sources are fully explored.

With respect to motor vehicles, the Canadian Vehicle Manufacturers’ Association told the Committee that the most effective means of reducing air pollution in Canada is to remove older, higher-polluting and less fuel-efficient vehicles from our roads and replace them with newer, more environmentally friendly vehicles. The Committee learned that vehicles manufactured about 20 years ago emit 37 times more emissions than current vehicles, and that there are more than one million of these older vehicles on Canadian roads at this time. The Canadian Vehicle Manufacturers’ Association recommended the introduction of broad-based consumer incentive programs for the purchase of advanced technology vehicles.

The Canadian Courier and Logistics Association and Electric Mobility Canada advocated a tax credit or funding program in order to facilitate the adoption of hybrid-electric and electric vehicles in large commercial and metropolitan fleets. The Committee learned that the impact of 10,000 new hybrid commercial vehicles on the roads — which could be achieved with a federal investment of about $200 million — would be a reduction in greenhouse gas emissions of 109,870 tonnes.

The Green Budget Coalition and the David Suzuki Foundation suggested the implementation of a company car tax shift program — Drive Green — which would encourage employees who drive a company car to choose lower emission vehicles. Currently, employees who receive company cars pay additional income tax based solely on the cost of the vehicle. The proposed program would give a tax reduction to employees driving a lower emission, more energy-efficient vehicle while those employees choosing less efficient cars would be taxed at a higher rate.

The Canadian Vehicle Manufacturers’ Association noted that motor vehicles that use alternative fuels, such as propane and natural gas, have received only limited consumer acceptance because of inadequate access to fuelling infrastructure. Consequently, the federal government was urged to implement measures designed to encourage the development of the infrastructure needed to support alternative fuel vehicles. Furthermore, the Fraser Valley KAIROS Group recommended that the federal government improve fuel efficiency standards and provide a tax incentive for those who replace an existing vehicle with a vehicle that is more fuel efficient.

Witnesses also discussed climate change and greenhouse gas (GHG) emissions. The Canadian Fertilizer Institute supported the need for a “made-in-Canada” plan to reduce GHG emissions as well as efforts to reduce other air emissions. Enbridge Inc. suggested that the GHG emission targets for Canada in the Kyoto Protocol are likely unattainable, and favoured broad-based programs that would encourage the replacement of less-efficient industry infrastructure with infrastructure that is more efficient. La Chambre de commerce de Québec argued that the federal government should give corporations more recognition for their environmental initiatives; recognition could take the form of a refundable tax credit for any business investment undertaken to improve corporate environmental performance.

Other witnesses supported the inclusion of indoor air quality in the federal plan to reduce air pollution. The Canadian Lung Association told the Committee that air quality is closely related to lung health, and requested a federal commitment to address environmental effects on lung health by supporting the inclusion of indoor air quality in Bill C-30, An Act to amend the Canadian Environmental Protection Act, 1999, the Energy Efficiency Act and the Motor Vehicle Fuel Consumption Standards Act (Canada’s Clean Air Act). In addition, it was requested that the federal government participate in the National Lung Health Framework in order to estimate the cost and impact of air quality on the lung health of Canadians.

Some witnesses highlighted the importance for Canada of meeting our commitments under the Kyoto Protocol. The Canadian Labour Congress believed that Canada’s plan to address climate change should be consistent with the nation’s Kyoto commitments. The Registered Nurses’ Association of Ontario said that the federal government should reaffirm Canada’s dedication to the Kyoto Protocol and should continue to fund programs related to climate change that are found to be cost-effective. KAIROS: Canadian Ecumenical Justice Initiatives advocated federal regulation of GHG emission levels by industry, with financial penalties for non-compliance. The Green Budget Coalition urged the federal government to implement a regulated GHG emissions targets-and-trading system for large industrial emitters, effective January 2008. The Canadian Renewable Fuels Association and the Canadian Petroleum Products Institute suggested that all carbon credits associated with renewable fuels be tradeable, not just those generated by blending biofuels in excess of the level required by government regulation.

The Canadian Council of Professional Engineers requested increased federal funding for climate change research in order to enhance the reliability of scientific data used by engineers. The federal government was urged to invest in such existing initiatives as the Public Infrastructure Engineering Vulnerability Committee (PIEVC), which is conducting a comprehensive assessment of the vulnerability of Canada’s infrastructure to the impacts of climate change. The Yukon Conservation Society advocated continued federal involvement with the United Nations Intergovernmental Panel on Climate Change and the Arctic Council's Arctic Climate Impact Assessment.

Several witnesses supported the proposed tax credit for public transit passes, and some — including the Canadian Urban Transit Association and the Greater Vancouver Transportation Authority (TransLink) — suggested that the proposed measure be expanded to include employer-provided transit passes; currently, employees who receive employer-paid transit passes must include the value of this benefit on their tax return while employees who receive free parking from their employer do not have to include the value of such a benefit. An extension of the age of eligibility of the proposed credit to 23 years was also requested.

4.   An Energy Strategy

A number of witnesses supported the development of a national renewable fuels strategy. The Canadian Renewable Fuels Association and the Canadian Petroleum Products Institute believed that a renewable fuels strategy should be founded on internationally competitive tax treatment of the biofuels industry as well as fair and equitable rules for all sources of renewable fuels and marketers of fuels.

Witnesses also advocated incentives to encourage the production and adoption of renewable energy. For example, Enbridge Inc. urged the continuation of the Renewable Power Production Incentive, or an equivalent tax-based measure, with the eligibility criteria broadened to include alternative energy.

As well, the Committee was told that the Wind Power Production Incentive (WPPI) is an efficient fiscal measure that induces businesses to invest in the development of wind power energy, currently the fastest-growing source of electricity generation in Canada. Since the WPPI is currently being reviewed, the federal government was urged to continue the WPPI or to implement an equivalent tax-based measure in order to encourage continued growth in wind power production capacity, with a goal of 10% of total electric power generation capacity in the country.

Other witnesses argued that the federal government should recognize and encourage new technologies for producing renewable fuels. The Forest Products Association of Canada recommended the establishment of a direct incentive program that would support investment in both thermal and cogeneration biomass technologies, noting that industrial conversion to renewable energy requires major capital investments and that Canada’s government-sponsored incentives for renewable energy are not internationally competitive.

The Canadian Gas Association recommended increased federal funding for the demonstration, deployment and adoption of integrated energy technology solutions in order to address Canada’s environmental challenges and energy needs. The Committee was informed that natural gas fuel cells, combined heat and power systems, and compressed natural gas vehicles are examples of such integrated technology solutions.

Several witnesses urged the development of a Canadian energy strategy. The Canadian Fertilizer Institute informed the Committee that demand for natural gas has been growing in North America, and urged governments to support natural gas exploration or the development of new sources of supply; secure and cost-effective energy is needed in order to ensure the future competitiveness of energy-intensive industries. We were also told that nitrogen and potash producers depend on a steady supply of natural gas, and a streamlined federal process for regulatory approvals for energy and pipeline projects was recommended

The Halifax Regional Municipality spoke to the Committee about the Community Energy Project which would, if implemented, generate electricity using clean-burning natural gas; as an indirect benefit, it would provide steam and hot water heating for government and university buildings. We were told that a federal investment of $20 million — which would match the province of Nova Scotia’s commitment — is required in order to bring this project to fruition.

The Canadian Association of Petroleum Producers told the Committee that the federal government should provide increased funding to the Petroleum Human Resources Sector Council in order to allow the Council to continue and to expand its contribution to addressing the long-term labour force needs of the industry. The Committee heard that a growing shortage of skilled workers is becoming a serious impediment to investment in the oil and gas industry.

The Pembina Institute told the Committee that while subsidies to the oil sands sector accelerate economic growth, they are not socially beneficial because the sector is associated with large and rapidly growing GHG emissions. Such witnesses as the Yukon Conservation Society and KAIROS: Canadian Ecumenical Justice Initiatives recommended that the federal government reduce, if not eliminate, subsidies that support the oil and gas industry and nuclear power. Furthermore, increased federal investment in non-fossil fuel and non-nuclear energy production, through tax incentives and a new energy policy, were urged.

B.        WHAT WE BELIEVE

The Committee believes that climate change and environmental issues are continuing — and will continue — to have both significant and long-lasting effects. We also feel that these effects will have an impact on the quality of life enjoyed by Canadians as well as on our nation’s productivity and competitiveness. Ongoing vigilance will be required to ensure continued progress toward meeting our environmental objectives and commitments while facilitating the productivity growth needed for our future. In our view, clean air and water should be a right enjoyed by all Canadians in all regions of the country. Moreover, economic sustainability will, we believe, be tied to environmental sustainability.

The Committee also feels that the federal government should continue to lead by example: by purchasing fuel-efficient vehicles for government use, by ensuring energy efficiency in government buildings, and by encouraging public servants to use public transit. As well, the government should continue its efforts to redevelop federal brownfield sites.

While there are a number of environmental issues that require action, the Committee believes that renewable energy measures as well as incentives for energy efficiency and conservation are particularly important at this time. For this reason, and bearing in mind the comments made to us by the Minister of Finance on 23 November 2006 regarding clean air, environmental technologies, renewable energy and energy efficiency, the Committee recommends that:

RECOMMENDATION 17

The federal government, in conjunction with the provincial/territorial governments, conclude a Canadian energy strategy and an associated plan for implementation no later than 1 January 2008.

This strategy should be developed in the context of Canada’s Kyoto objectives and the need to reduce greenhouse gas emissions. It should also recognize the importance of a diverse energy supply and the need for enhanced incentives regarding renewable energy sources, including biomass, biofuels and wind. These incentives should include the Renewable Power Production Incentive and the Wind Power Production Incentive or equivalent tax-based measures.

The government should also explore incentives for enhanced energy efficiency and conservation by consumers and businesses, including measures to promote home and building energy efficiency and the purchase of fuel-efficient vehicles. The incentives should include renewal of energy efficiency assistance programs for Canadians.

The Committee is concerned about the future health and prosperity of our agriculture and agri-food industry, which continues to suffer from relatively high levels of farm debt, low commodity prices, rising input costs and — at times — international trade challenges. We believe that all sectors of our economy have an important role to play in our future competitiveness and must be supported. In the context of our agriculture and agri-food industry, we feel that support should include the development of an agricultural policy framework and agricultural programs that truly meets the needs of farmers. From this perspective, the Committee recommends that:

RECOMMENDATION 18

The federal government, in conjunction with the provincial/territorial governments and stakeholders in the agriculture and agri-food industry, ensure that the program developed as the successor to the Canadian Agricultural Income Stabilization program contains business risk management measures that are separate from disaster assistance measures.

Finally, the Committee feels that a variety of measures could — and, perhaps, should — be taken to preserve better our natural habitat. In our view, our natural assets contribute to our competitiveness and must be protected. We are not convinced, however, that incentives are sufficient to bring about the desired result: disincentives are, we believe, needed. For this reason, the Committee recommends that:

RECOMMENDATION 19

The federal government establish financial disincentives in order to discourage continued destruction or degradation of the nation’s natural capital. Moreover, federal spending programs related to infrastructure and agriculture should require mitigation for the loss of natural capital on all projects that receive federal funding or that are conducted on Crown lands.

CHARITABLE GIVING AND THE VOLUNTARY SECTOR

Charities and volunteers contribute to the well-being of Canadian communities, playing a role in such areas as poverty relief, immigrant integration, health and wellness, arts and culture, international development, and sports and recreation, among others. As such, a society that supports charitable giving, and in which individuals volunteer their time to help others, is likely to have a higher quality of life and, consequently, higher productivity and competitiveness.

In recognizing the role that charities and volunteers play in society, the federal government has developed incentives and supported activities in these areas. Figure 11 shows the number and types of non-profit and voluntary organizations in Canada. At this time, there are more than 80,000 charitable organizations in Canada registered under the Income Tax Act.

Figure 11: Number of Non-profit and Voluntary Organizations, Canada,

By Primary Activity and Charitable Status, 2003

Source: Statistics Canada, Cornerstones of Community: Highlights of the National Survey of Non-profit and Voluntary Organizations, 2004, Tables 1.1-1.2, pp. 13-14.

 

The federal government provides tax assistance for charitable donations, and donations of publicly listed securities and ecologically sensitive lands to public charities receive preferential tax treatment.

A.        WHAT WE HEARD

1.   Charitable Giving

Witnesses — including Philanthropic Foundations Canada, the Canadian Association of Gift Planners, Imagine Canada and the Association of Fundraising Professionals — made recommendations about the capital gains tax on charitable donations. The Committee heard proposals about extending the exemption from capital gains tax to donations of other asset classes, such as real estate or appreciated assets more generally, and to certain donations to private foundations. Witnesses argued that the preferential tax treatment that exists for donations of publicly listed securities and ecologically sensitive lands has resulted in an increased level of donations in Canada, and urged the federal government to build on that success by extending the preferential treatment to donations of real estate and to donations to private foundations.

Non-tax-related suggestions for increasing levels of charitable giving were also proposed. For example, the Association of Fundraising Professionals advocated the creation of a federal government-sponsored national philanthropy day to recognize and increase public awareness of the importance of the voluntary sector and charitable giving.

Imagine Canada proposed that the $200 threshold on individual donations be eliminated, resulting in the 29% tax credit being applied to all donations. The Committee was informed that this change would increase the incentive for Canadians to make their first $200 worth of donations, and would simplify donor tax calculations and planning by eliminating the need to pool donations with a spouse or to accumulate receipts over multiple years in order to access the higher tax credit rate.

The Multiple Sclerosis Society of Canada proposed that the requirement to mail tax receipts by first-class mail be removed, which the Committee was told would result in estimated savings of 40%. The Multiple Sclerosis Society of Canada and the Health Charities Coalition of Canada also suggested that registered charities be exempt from the requirement to issue receipts for income tax purposes when donations are less than $250. As well, the Health Charities Coalition of Canada argued that donors should be permitted to make charitable contributions for 60 days beyond the end of the calendar year for inclusion in that year’s income tax return.

VON Canada and the Canadian Association of Retired Teachers argued that charitable donations, like political contributions, should be permitted to be claimed as a tax deduction rather than as a non-refundable tax credit.

The Committee learned that a lack of clarity in Canadian law has deterred the use of Charitable Remainder Trusts (CRT), which allow donors aged 65 years or older to create a trust, retain a life income and have any remaining interest go to charity upon their death; a current tax receipt for the future value of the capital in the trust is received. A number of witnesses, including the Canadian Association of Gift Planners and the Canadian Bar Association, encouraged the federal government to implement the necessary changes — legislative or otherwise — to promote donor and advisor confidence in CRTs while ensuring their proper regulation.

Proposals designed to reduce operating costs and the regulatory burden for registered charities were also presented to the Committee. The Canadian Bar Association noted the increased complexity in the regulation of registered charities under the Income Tax Act, and urged the federal government to eliminate unnecessary complexities and inconsistencies.

2.   The Voluntary Sector

The Committee heard that the work of volunteers and voluntary organizations throughout Canada makes a significant contribution to the Canadian economy, totaling about 7% of Canada’s Gross Domestic Product in 1999. Witnesses, such as the Canadian Cancer Society, the National Children’s Alliance and VON Canada, recommended that the federal government provide funding to the voluntary sector in order to support civic engagement and volunteerism in Canada.

A number of witnesses advocated the creation of a sector investment strategy for the community not-for-profit sector, which would address the sector’s urgent need for capital infrastructure investment. Imagine Canada told the Committee that there is no long-term, comprehensive federal framework for investment in the voluntary sector, with resulting inconsistencies and inefficiencies both for the sector and for the government. As well, we learned that the types of investment that are urgently needed are not consistent with the current federal funding model for not-for-profit organizations. Philanthropic Foundations Canada encouraged the federal government to examine alternative financing instruments and other measures to increase public or private capital infrastructure investments in the charitable sector.

The Committee also heard other suggestions with respect to the voluntary sector. The United Way of Canada advocated greater coordination among federal departments and agencies that work with the voluntary sector. The Community Services Council Newfoundland and Labrador proposed that the federal government employ technology better in its relationships with the voluntary sector. The Sports Matter Group proposed renewed funding for the Canada Volunteerism Initiative, which was implemented in 2002 and funded for five years, while the Social Planning Council of Winnipeg and Quinte United Immigrant Services commented on the recently announced elimination of support to the Canada Volunteerism Initiative and the Canadian Policy Research Network.

Finally, the Committee learned that the federal government intends to cease its funding of International Social Service Canada, which is a not-for-profit organization that provides worldwide linkages to social service agencies and that helps to resolve individual and family issues resulting from the international movement of people. As a result, International Social Service Canada told the Committee that it will be forced to terminate its operations unless the federal government agrees to provide funding of $150,000 annually for three years.

B.        WHAT WE BELIEVE

The Committee believes that charitable organizations and volunteers provide important services to Canadians, and are generously supported by the charitable giving of Canadians. We support the federal incentives that exist to encourage charitable giving by individuals and corporations, and are pleased that Canada is a nation in which individuals care for one another through their charitable and volunteer activities. These activities benefit volunteers, donors, charitable organizations and the recipients of the charitable organizations’ and volunteers’ activities.

Nevertheless, in the Committee’s view, changes could be made to the tax treatment of charitable donations to bring about even greater levels of generosity. We believe that greater flexibility regarding the asset classes and the charitable organizations to which the preferential capital gains provision applies should exist, and that such a change would result in higher levels of charitable giving. Moreover, we feel that charitable donations should be treated in the same manner as Registered Retirement Savings Plan contributions: donations made in the first 60 days of a taxation year should be able to be claimed in the previous taxation year. Consequently, the Committee recommends that:

RECOMMENDATION 20

The federal government amend the Income Tax Act to eliminate, on a five-year trial basis, the capital gains tax on donations of publicly listed securities and ecologically sensitive lands to private foundations. The extent to which charitable giving to these foundations has increased should be assessed after five years, and the measure should be made permanent if suitable.

The government should also amend the Income Tax Act to eliminate the capital gains tax on donations of real estate and land to public charities as well as to private foundations during the five-year trial period and beyond if deemed to be appropriate.

Finally, the government should allow donors to make charitable contributions for 60 days beyond the end of the calendar year for inclusion in the previous year’s income tax return.

The Committee believes that volunteers — and the hours of service they give — are important to the fabric of our nation. In some cases, such as emergency service workers, they provide essential services that otherwise would not be performed, or that would be performed by municipalities and funded by higher tax rates. Volunteer service is, in our view, an activity that deserves recognition. From this perspective, the Committee recommends that:

RECOMMENDATION 21

The federal government study the feasibility of a tax measure that would recognize and reward the hours of volunteer activity. This study should be completed no later than 30 September 2007.

ARTS AND CULTURE, AND THEIR INFRASTRUCTURE

A region’s artistic and cultural life may be an important factor in attracting and retaining employees and businesses, who may be drawn to locations with artistic and cultural amenities that enhance well-being, quality of life, diversity and prosperity.

A 2002 study published by the Canada West Foundation, entitled Culture and Economic Competitiveness: An Emerging Role for the Arts in Canada, identified several ways in which arts and culture can contribute to global economic competitiveness:

• urban areas with a strong arts presence tend to undergo community revitalization and urban redevelopment relatively more quickly;
• strong arts and culture tend to increase community identity and to favour demographic diversity, which help to attract and retain employees and residents;
• the arts and cultural sector generates substantial economic activity; and
• by helping to attract employees, the arts and cultural sector contributes to the development of new technology hubs and inflows of venture capital.

A.        WHAT WE HEARD

1.   The Contribution to Society and the Gross Domestic Product

Witnesses told the Committee that the value of the arts and cultural sector to Canadian society, and to Canadians, is inextricably linked to enhancing our overall quality of life, including our cultural, social and economic well-being. The Association of Cultural Industries of Newfoundland and Labrador spoke about the demonstrable benefits of public spending on culture — which may take the form of higher levels of employment, greater access to cultural products, enhanced cultural tourism, and increased Canadian pride and identity — and argued that the benefits eventually exceed the initial investment.

The Committee was informed that the arts and cultural sector’s contribution to the Canadian economy is significant. The American Federation of Musicians of the United States and Canada noted that between 1996 and 2001, the arts and cultural sector’s contribution to the Gross Domestic Product (GDP) was almost 4%. Furthermore, the total contribution to the arts and cultural sector by the federal government increased from $2.8 billion in 1998-1999 to $3.5 billion in 2003-2004, the latest year for which data are available. Figure 12 shows federal expenditures on cultural activities in Canada, from 1998-1999 to 2003-2004, by sector.

Figure 12: Federal Government Expenditures on Cultural Activities, Canada, By Sector, 1998-1999 to 2003-2004 (millions of dollars)

Source:  Statistics Canada, CANSIM Table 505-0001.

Recommendations made by witnesses about arts and culture, and their infrastructure, tended to be of three types: development or renewal of artistic and cultural infrastructure; investment in, or incentives for, the production of artistic and cultural goods and services; and a reduced tax burden on producers and suppliers of artistic and cultural goods and services.

2.   Artistic and Cultural Infrastructure

To encourage the preservation and restoration of heritage buildings, the Heritage Canada Foundation recommended that the federal government develop a tax credit or institute an accelerated capital cost allowance rate for the costs of redevelopment/restoration on the completion of a conservation project. The Committee learned that there are about 20,000 revenue-producing heritage buildings that could potentially be eligible for such a rehabilitation incentive. Furthermore, the Heritage Canada Foundation pointed out that while a tax incentive is important for revenue-producing buildings, approximately 70% of heritage buildings in Canada are owned by not-for-profit organizations, institutions and private individuals who would not be eligible for the proposed tax incentive. As a result, a federal program of direct funding to assist not-for-profit organizations, public agencies and private individuals in the stewardship of heritage buildings was advocated.

The Yukon Historical and Museums Association commented on the Commercial Properties Heritage Incentive Fund, which is now fully subscribed and has not been renewed. The Committee was told that this fund is very important for the preservation of Canadian heritage places and should be renewed.

A number of witnesses — including the Canadian Museums Association, Visual Artists Newfoundland and Labrador and the MacBride Museum — told the Committee that the Museums Assistance Program, which currently operates at 1972 funding levels, requires additional resources to address the challenges of ageing museum infrastructure. The Canadian Museums Association told the Committee about its disappointment that federal funds allocated to the Museums Assistance Program will be reduced by $4.6 million.

Witnesses, including the Ontario Museum Association, advocated the development and implementation of a new national museums policy, and recommended more predictable, long-term funding for national and community-based Canadian museums. The Town of Morden, in Manitoba, argued for increased funding for museums and heritage sites in rural Canada, suggesting that an equitable distribution between urban and rural regions must occur.

The Independent Media Arts Alliance noted that many arts groups and organizations locate in less expensive neighbourhoods in Canadian cities, seeking affordable space in vacated, formerly industrial buildings. Often, however, these neighbourhoods are revitalized and the arts groups — frequently the cause of the revitalization — are unable to afford the increases in their rent. Therefore, it was suggested that the federal government increase capital support for arts groups seeking to purchase their spaces and institute a program for guaranteeing mortgages for arts and cultural organizations. Furthermore, New Media BC urged the federal government, in collaboration with industry partners, to create a world centre for digital media to be a meeting place for digital companies.

The Committee was told that libraries have become more than a location to consult and borrow books; libraries are the most heavily used sites for public Internet access. The Community Access Program, created in 1995, has been instrumental in expanding access to the Internet in libraries across Canada and in developing the skills needed to use the Internet properly. The Canadian Library Association advocated renewal of the Community Access Program in order to ensure that individuals and communities will not lack access to the Internet and communication technologies.

According to the Canadian Association of Science Centres, at the base of an innovative society is a society with wide knowledge and significant interest in science. The Committee was informed that science centres foster an interest in science for students and allow them to develop their own relationship with science. With this concept in mind, witnesses — including Telus World of Science — Calgary and Creative Kids Museum, the Newfoundland and Labrador Science Centre and the Canadian Association of Science Centres — recommended a federal financial commitment to Canada’s network of science centres, recognizing that current sources of funding for science centres are limited. Moreover, the Boîte à science told us that Québec City is the only city among the largest 20 Canadian cities that lacks a science centre. The Boîte à science requested a federal commitment of $38 million over 10 years to fund its project to build a science centre for Québec City.

The Ontario Tourism Council maintained that Canada is losing market share as a tourist destination. Furthermore, the Committee was told that investment in tourism marketing increases tourism, which in turn creates new jobs and increases tax revenues. A number of witnesses, including the Tourism Industry Association of Canada, Tourism Saskatchewan, the Hotel Association of Canada, the Tourism Industry Association of the Yukon and the Ontario Tourism Council, recommended that the federal government increase the annual funding for the Canadian Tourism Commission by $100 million.

Finally, the Canadian Conference of the Arts supported the proposed Children’s Fitness Tax Credit, and noted that the proposed credit would likely capture some artistic activities, such as dance and some circus arts. Nevertheless, the Canadian Conference of the Arts and Visual Artists Newfoundland and Labrador urged the federal government to include all artistic activities in the proposed credit.

3.   Artistic and Cultural Goods and Services

A number of witnesses told the Committee that funding for the Canada Council for the Arts should be increased in light of significant year-over-year increases in the number of applications from arts and cultural organizations as well as from individuals seeking funding. Such witnesses as the Canadian Arts Coalition, the Mouvement pour les arts et les lettres, Opera.ca and Orchestras Canada urged the federal government to invest an additional $100 million in new arts funding through the Canada Council for the Arts. Witnesses also stressed the importance, for the arts and cultural sector, of a stable and predictable source of long-term funding, which could be achieved by making permanent the proposed funding increase for the Canada Council for the Arts.

The Canadian Conference of the Arts, the Visual Artists Newfoundland and Labrador, and the Canadian Independent Record Production Association supported the Tomorrow Starts Today initiative under the Department of Canadian Heritage. Witnesses, including the Literacy Press Group of Canada, suggested that funding for the program be made permanent, and an additional investment of $50 million per year for the program, with an emphasis on the Canada Music Fund, was also proposed.

The Association of Canadian Publishers told the Committee that Canadian publishers lack adequate access to financing because financial institutions are reluctant to offer credit to most publishing firms as a consequence of the nature of the industry. It was proposed that the federal government develop a federal loan guarantee program for the publishing industry, in consultation with major financial institutions and industry associations.

The Committee was told that, since 1998, there have been about 365 independent bookstore closures in Canada. We heard that independent bookstores are important for Canadian writers, since they tend to order a higher percentage of Canadian literary titles and a wider diversity of Canadian-authored titles than bookstores from major commercial chains. In order to ensure that Canadian booksellers remain competitive, the Canadian Booksellers Association and the Association of Canadian Publishers requested continued funding for the Book Publishing Industry Development Program. The Canadian Printing Industries Association commented that some publishers receive funding under this program but have their books printed outside of Canada; consequently, it was suggested that recipients of subsidies provided to publishers be required to manufacture all components of the resulting books in Canada.

According to Magazines Canada, Canada Post intends to withdraw its $15 million financial contribution to the Publications Assistance Program, which the Committee was told would result in a 31% increase in postage costs for an average magazine. The Committee was urged to recommend that Canada Post’s financial contribution be maintained until a proper review is conducted.

The Committee learned that a number of festivals and other events are experiencing financial difficulty, in part because of the elimination of tobacco advertising and the sponsorship program. The economic impact of festivals in Canada is substantial in terms of benefits to communities from tourism and taxes, and the Canadian Festivals Coalition recommended that the federal government create a development program for Canadian festivals with annual funding of $50 million; the program would be governed by eligibility criteria based on the number of years of existence, the proportion of government funding in relation to the total budget, the duration of programming and anticipated tourist attendance.

A number of witnesses — including the Writers Guild of Canada, the Alliance of Canadian Cinema, Television and Radio Artists and the Directors Guild of Canada — recommended either sustained or increased funding for the Canadian Television Fund (CTF), with some witnesses seeking — at a minimum — a permanent extension of the current funding level of $100 million per year indexed for inflation and others seeking a sustained increase of $95 million.

Regarding Telefilm Canada, witnesses recommended that funding levels remain at least stable at $230 million annually for a five-year period, indexed for inflation. As well, the Writers Guild of Canada urged the federal government to increase funding to the Canadian Feature Film Fund and the Canadian New Media Fund, both administered by Telefilm Canada. The former fund helps to develop and promote Canadian feature films, while the latter fund contributes to the development, production, marketing and distribution of interactive or online Canadian cultural new media works.

A number of the Committee’s witnesses, including the Writers Guild of Canada, the Directors Guild of Canada and the Friends of Canadian Broadcasting, recommended increased federal support for the Canadian Broadcasting Corporation (CBC), noting that the organization’s funding was reduced by $400 million, or approximately 33%, between 1993 and 1997. Although funding for the CBC has been increasing in recent years, witnesses argued that the increases have been insufficient to restore the level of funding that was provided in the early 1990s. In addition, the Friends of Canadian Broadcasting requested that resources be deployed across the country rather than concentrated in the CBC’s Montréal and Toronto operations.

Witnesses also made recommendations about tax incentives available to the arts and cultural sector. A number of witnesses recommended that the rate of the Canadian Film or Video Production Tax Credit be increased from the current level of 25% to 30%, and that the Film or Video Production Services Tax Credit be broadened to cover all expenditures on Canadian goods and services, rather than labour costs alone. The Alliance of Canadian Cinema, Television and Radio Artists also suggested the development of a new labour tax credit for film development in order to encourage producers to hire Canadian writers, directors and other creative professionals.

The Committee heard that arts and cultural organizations, although fully supportive of accountability measures, find it increasingly difficult to deal with support the administrative burden placed on the recipients of federal funding. We were informed that staff and board members in these organizations — often volunteers — have difficulty finding the resources needed to fulfill their primary role, which is to produce plays, orchestra and ballet series, festivals, and media and visual arts exhibitions. In their view, an inordinate amount of time is taken from their primary role in order to meet administrative requirements to access funding. Consequently, the Canadian Conference of the Arts, the Canadian Independent Record Production Association and RIDEAU recommended that the federal government address their concerns about an excessive administrative burden.

The Northern Native Broadcasting, Yukon, spoke about Aboriginal broadcasting, and urged the federal government to recognize Aboriginal contributions to Canadian public broadcasting. The Committee heard that core funding for the Northern Native Broadcasting, Yukon, has not kept pace with inflation, and that there is no funding available for the upgrading of transmission and production equipment.

Odyssey Showcase asked the federal government to contribute financially to the presentation of a bilingual production called A Musical Taste of Our Canadian Heritage/Notre Héritage Canadien, Une Odyssée Musicale, which would be presented permanently in Ottawa at the National Arts Centre. This production would also be presented in Montréal for 10 shows and in Vancouver for the 2010 Winter Olympics.

4.   Artistic and Cultural Producers

The Committee heard that many Canadians, particularly those working in the arts and cultural sector, are self-employed and combine multiple sources of income in order to meet their financial needs. Witnesses, including the Union des artistes, argued that self-employed cultural performers need fiscal measures tailored to their particular circumstances. We were told that the social and economic situation of performing artists has stagnated in the last 20 years, and remains inferior to that of many other occupations.

A number of witnesses, including the Alliance of Canadian Cinema, Television and Radio Artists, the Writers’ Union of Canada, the Canadian Conference of the Arts and the Union des artistes, shared their concerns about the personal taxation of artists. Witnesses — including the Writers’ Union of Canada — recommended that the federal government implement a system of income averaging as a means of providing, in their view, fair and equitable tax treatment for self-employed Canadians in the arts and cultural sector whose incomes tend to fluctuate from year to year.

Witnesses — including Visual Artists Newfoundland and Labrador, the Independent Media Arts Alliance and the Canadian Actors' Equity Association — also urged the federal government to provide a tax exemption for income derived from copyright, neighbouring rights and/or other income derived from the sale of any creative work. Some witnesses suggested that this tax exemption be limited to annual copyright income of $30,000, while others suggested a limit of $60,000 and a further tax exemption for subsistence grants awarded to artists by the Canada Council for the Arts.

The need for training for the cultural workforce was also mentioned. The Committee was told that ensuring that artists and cultural workers are properly trained is vital in order for Canada’s cultural industries to remain competitive in global markets. The Cultural Human Resources Council requested that the federal government continue its ongoing support for it, while the Canadian Independent Record Production Association proposed a federal investment of $10 million annually for national arts organizations to support professional development seminars and workshops across Canada.

B.        WHAT WE BELIEVE

The Committee believes that Canada’s arts and cultural sector contributes to our productivity, to our national prosperity and to our competitiveness in a number of important ways. The sector itself contributes to our Gross Domestic Product, and a vibrant arts and cultural sector fosters a sense of community and enhances our social and economic well-being as a nation. Moreover, we feel that a country that supports its arts and cultural sector may be viewed as a desirable location in which to undertake business investment and to which to emigrate.

The Committee feels that there is a need for increased federal support of the arts and cultural sector — broadly defined to include the symphony, live theatre, opera, books, magazines, television, movies, radio, museums, science centres, aquariums, zoos, fairs and exhibitions, among other activities that occupy the leisure time of Canadians — and believes that support should be predictable, stable and long term. Moreover, in our view, the arts and cultural sector requires infrastructure and other investments. Given the breadth of undertakings in the sector, we also feel that there is a need for ongoing dialogue among all sector participants.

In the Committee’s opinion, the existence of a healthy arts and cultural sector adds value to the lives of Canadians and to the international community. We also believe that a higher quality of life leads to higher productivity growth and improved competitiveness. It is from this perspective that the Committee recommends that:

RECOMMENDATION 22

The federal government increase funds allocated to the arts and cultural sector. In particular, funding increases should be considered for the Canada Council for the Arts, the Canadian Broadcasting Corporation, the Canadian Television Fund and Telefilm Canada. Funding for the Canada Council for the Arts should reach $300 million over two years.

The government should also increase the funds allocated to the federal regional development agencies and to projects for Canada’s northern territories in order that they have the resources to finance, to a greater degree, the infrastructure and growth needs of such entities as zoos, aquariums, fairs, exhibitions and festivals. The amount of the increased funding and the manner in which it will be allocated should be announced no later than 30 April 2007.

Finally, the government should identify ways in which the current federal tax and spending initiatives supporting the arts and cultural sector could be simplified and better coordinated, as well as develop a plan for the long-term financial sustainability of the sector.

Finally, the Committee believes that we have a moral responsibility to preserve and restore our heritage buildings for future generations. In some sense, we are the temporary stewards of these buildings, and must safeguard them for the enjoyment and benefit of our children and our children’s children. Consequently, the Committee recommends that:

RECOMMENDATION 23

The federal government review the range of federal measures and programs that support and encourage the preservation and restoration of heritage buildings.

The review, which should be completed no later than 30 April 2007, should focus on the eligibility of not-for-profit organizations, public agencies and private individuals for the measures and programs.