:
Thank you, Chair. I'm here, of course, with officials from the Department of Finance who can be helpful on any technical questions after I make some relatively brief opening remarks.
Now before I begin, let me congratulate the chair and the members of the finance committee for your hard work over the past few months doing pre-budget consultations. I know you've been travelling across the country to places large and small, and I appreciate the effort you do.
Along with my consultations as Minister of Finance, the finance committee's pre-budget consultation does help ensure that Canadians are heard and that their voices are reported, through you, from across the country.
Recommendations flowing from your pre-budget hearings always inform and influence the ultimate budget document. I urge the finance committee to conclude its pre-budget consultations, and I look forward to reviewing your findings.
[Translation]
First, I want to urge the committee to study and pass Bill , the Keeping Canada's Economy and Jobs Growing Act.
That legislative measure, adapted to today's realities, is an important and positive solution to the current economic challenges. It also prepares Canada to take advantage of tomorrow's economic prospects.
While the economic recovery remains fragile and uncertain, as exemplified by the situation in the U.S. and Europe, Canada will continue to face and feel the effects of global headwinds from abroad. In any event, our government knows that this is not the time to rest on our laurels, as we are still faced with very real economic challenges.
[English]
On economic growth, both the IMF and the OECD forecast that here in Canada we will have among the strongest economies in the G-7 in the years ahead. On jobs, Canada has the strongest job creation record in the G-7, with about 650,000 net new jobs created since the end of the recession in July 2009. Nearly 90% of those jobs are full-time. On our fiscal situation, Canada, based on IMF projections, has and will continue to have by far the lowest total government net debt to GDP ratio in the entire G-7.
On our financial sector, the World Economic Forum has, for the fourth straight year, rated our banking system the best in the world. On fiscal and economic fundamentals, Canada's credit rating, unlike that of numerous other countries, has been affirmed as the highest possible by all three major credit-rating agencies. Indeed, only last week, Standard & Poor's renewed Canada's leading credit rating, declaring, and I quote:
Canada's superior political and economic profile rests...on its policymaking and political institutions, which we see as highly effective, stable, and predictable. Canadian authorities have a strong track record in managing past economic and financial crises and delivering economic growth.
On competitiveness, Forbes, the influential business magazine, ranked Canada—largely due to our low tax plan for Canadian businesses—as the best country in the world for businesses to grow and create jobs. And the list goes on.
As RBC chief economist Craig Wright recently observed, and I quote:
In Canada's case we're well positioned, whether you look at it from our fiscal position in Canada, or indeed from our economic fundamentals. ... ...our domestic economy has a very solid foundation....
Nevertheless, our government recognizes that now is not the time to rest on our laurels, as very real economic challenges persist.
[Translation]
In fact, too many Canadians are still looking for work. As I just pointed out, the global economic recovery is still fragile. That is why our government continues to focus on supporting the Canadian economy and helping it grow.
At the first signs of economic downturn, at the end of 2008, our government responded by introducing Canada's Economic Action Plan. That measure earmarked $60 billion to support employment and growth while the country weathers the worst global economic crisis.
[English]
It is an economic action plan that, according to independent observers, was both appropriate and effective. In the words of BMO economist Doug Porter, it was, and I quote, “arguably one of the most successful stimulus programs in the industrialized world”.
Now, earlier this year, our government further built on the record of accomplishment with Budget 2011, which is the next phase of Canada's economic action plan. The next phase seeks to promote long-term economic prosperity while staying on track to return to balanced budgets and helping Canadian families.
Since March 22, Parliament and all Canadians have examined and debated the provisions included in the next phase of Canada's economic action plan. I'm happy to report that the reaction has been positive. Indeed, Canadians expressed their support for it this past May, and their support for a government squarely focused on helping Canada's economy and job growth.
Today's legislation, the Keeping Canada's Economy and Jobs Growing Act, is an important component of the next phase of Canada's economic action plan, as it includes many of the key provisions from Budget 2011.
While I do not have enough time, nor would I take that much time, to highlight every measure in today's legislation, I would like to provide the committee with a brief overview of some of the measures and how they will assist Canadians.
For instance, the act supports job creation and economic growth by providing a temporary hiring credit for small business to encourage additional hiring; by expanding tax support for clean energy generation to encourage green investments; by extending the mineral exploration tax credit for flow-through share investors by one year to support Canada's mining sector; by simplifying customs tariffs in order to facilitate trade and lower the administrative burden for businesses; by extending the accelerated capital cost allowance for investments in productivity-improving machinery and equipment for Canada's manufacturing sector; and by eliminating the mandatory retirement age for federally regulated employees in order to give older workers wishing to work the option of remaining in the workforce.
The act helps Canada's communities, large and small, by legislating a permanent annual investment of $2 billion in the gas tax fund to provide municipalities predictable long-term infrastructure funding; by enhancing the wage earner protection program to cover more workers affected by employer bankruptcy or receivership; by introducing a volunteer firefighter tax credit for volunteer firefighters; and by increasing the ability of Canadians to give more confidently to legitimate charities by helping combat fraud and other forms of abuse by illegitimate charities.
The Keeping Canada's Economy and Jobs Growing Act helps families from coast to coast by introducing a new family caregiver tax credit to assist caregivers of all types of infirm, dependent relatives; by removing the limit on the amount of eligible expenses caregivers can claim for their financially dependent relatives under the medical expense tax credit; and by introducing a new children's arts tax credit for programs associated with children's arts, cultural, recreational, and developmental activities.
The act also makes key investments in education and training by forgiving loans for new doctors and nurses in underserved rural and remote areas; by helping apprentices in the skilled trades and workers in regulated professions; by making occupational trade and professional exam fees eligible for the tuition tax credit; by improving federal financial assistance for students; and by making it easier to allocate registered education savings plan assets among siblings without incurring tax penalties or forfeiting Canada education savings grants.
With that, Chair, I invite questions from the committee. Thank you.
:
Thank you very much, Mr. Chair.
Thank you, Minister Flaherty, for coming here today.
As a finance committee we have been seized with a number of forecasts over the course of the day. The first was from the Governor of the Bank of Canada, who has indicated an economic slowdown this fall. We've had the Parliamentary Budget Officer indicate that in many respects we're already in a slowdown.
The original plan of this government was for an austerity budget and to bring in significant additional corporate tax cuts--billions of dollars--on January 1. We've been hearing as a finance committee that there are needed investments.
With some of the other figures that have come out--for example, the disturbing figures around food banks and record usage, with nearly a million Canadians depending on food banks to make ends meet, and two million unemployed in this country--it's fair to say that we can't really look at the economic situation with rose-coloured glasses.
I was in this Parliament when we were on the boundary of a recession in early 2008, and I recall that your comments were very positive. You said on June 3 in Parliament, “The Canadian economy is strong.” You said on August 15, “I anticipate that over the course of the year we will have positive economic growth.” Of course, we were entering a recession at that point.
Given all of these disturbing indications that we're in an economic slowdown, will you revise the approach that seems to be based on austerity on the one hand and significant additional corporate tax cuts on the other, and work with the opposition to build the kind of job plan we need to see to get through this slowdown?
:
Sorry, I have some additional questions. I appreciate your responding on that, but I think that's scant comfort to the couple of million unemployed in the country.
There have been concerns about the forecasting methods and how accurate they are. On the chances and opportunities of actually balancing the budget in 2014-15, there are two approaches. You can cut and slash out of deficit or you can grow your way out of deficit. Of course, we prefer growing the economy and creating those additional jobs.
There are also concerns about the use of the EI premiums as part of the government's revenue package. We certainly recall, as we were both in the opposition a few years ago, that the Liberals used EI premiums to bolster revenues for the government rather than help the unemployed.
Could you respond to the concerns around the inaccuracy of your economic forecasting and the concerns around using EI premiums, as the Liberals did, as a way to grow government revenues rather than help the unemployed?
My final question is on the current account deficit on balance of payments. Among industrialized countries, as you know, the IMF is forecasting that in 2012 we'll be among the worst, partly through the failed export policy of this government. Could you comment on that?
:
Just so we're agreed on the facts, the economic forecast we make is based on the average of 15 private sector economists. I met with them last Tuesday. They agreed that the forecast we are using is a reasonable basis for fiscal planning in Canada. Other people have other views from time to time, but since 1994 that has been the practice of the Department of Finance. That's what we use. They provide me with useful advice.
We are on track. We are seeing modest growth in Canada this year. This is relatively good. As you know, Europe is going through a very difficult time, and it may well be entering into recession. That is not true in this country. We just had the August GDP figure, which was plus 0.3%. It looks like Q3 will be reasonably good for Canada, and I expect it will continue to grow in Q4 as well.
Canada is doing relatively well, and I'll continue to rely on the private sector economists with respect to economic forecasts.
The danger of debt is real. We see that in Greece, in Portugal, and we see it in other countries in the world. For governments to continue to run deficits and accumulate public debt is a very dangerous thing.
I think Canadians understand that, and that's why they have supported our plan, which is to plan on the realistic moderate growth we expect to have this year and next year and to implement a deficit reduction tax plan. It's not to reduce transfers to the provinces for health or education, and it's not to reduce transfers to individuals who are disabled or elderly and funded by the Government of Canada through the taxpayers of Canada. We're not reducing any of that.
We are looking for at least 5% savings on the operating costs of government, which most people in the private sector tell me they can do over breakfast.
Thank you.
I want to talk briefly about our tax plan and the good news in my riding. In 2008, one of our mills closed down because of competition and the opportunities with more trade. The mill locally put in $25 million, and the community re-employed approximately 250 workers. So I think our plan is working.
Canadians saw the budget in March, and they had an opportunity to spend many months looking at it. I think they have given us a strong mandate to move forward with many of the measures. I'm really pleased with how things have been going in the riding that I represent, but I also see it across the country.
The NDP, I think, typically likes to think there are no measures that will help everyday Canadians in this budget. They seem to think there's nothing there.
As a former health caregiver, I see many items in this budget that I think are very, very important. I have to look, first of all, at the new family caregiver tax credit, which is a 15% non-refundable credit on an amount of $2,000, providing relief to caregivers. We certainly know that more and more often we have challenges in that area. Many families are facing those challenges. We've seen the very, very positive response from the Canadian Caregiver Coalition.
Can you briefly talk about the family caregiver tax credit in Bill and how it will help caregivers in Canada?
As members of Parliament, I think all of us frequently have constituents speaking to us about their responsibilities in caring for infirm parents or relatives. This measure, which is in Bill , addresses that challenge. It proposes to provide new support for caregivers of infirm dependent family members by introducing a new family caregiver tax credit.
Technically it is a 15% non-refundable credit on an amount of $2,000, to provide tax relief for caregivers of all types of infirm dependent relatives, including, for the first time, caring for spouses, common-law partners, and minor children.
Assuming it is passed by Parliament, the measure will apply for the 2012 taxation year and subsequent taxation years. It's estimated that over 500,000 caregivers will benefit from the tax credit, receiving $160 million in new annual support.
I hope you will support this measure in Bill .
:
Thank you, Mr. Chair. I appreciate having the opportunity.
Minister, I was interested to hear you talk about the fundamentals of the fiscal situation in Canada and the strong banking situation, and I may have misheard, but I thought you said now is not the time to rest on the Liberals' laurels.
I agree with you. One of the things you are doing, though, is creating this EI tax increase. One of the reasons that concerns me is that although the date you picked for your selective statistics on employment was at the very trough of full-time employment, if we look at the beginning of the recession, Canada still has over half a million fewer full-time jobs than we had before the recession, and that's with a million more Canadians in the country, many of whom are also looking for work. We are down in terms of full-time jobs compared with where we were in August 2008, and yet this EI tax increase will put an extra burden of $1.2 billion, just in 2012, and $1.8 billion....
When the temporary hiring credit, which was the first in your list of positives, is only $165 million, do you not see this as a job-killing, payroll tax increase that you're putting into your budget?
:
It is a matter of timing. We're looking at a time when we're still under the employment that we had a couple of years ago. Our contention is that having a hiring credit that's less than 10% of the cost you're loading on businesses will be a job killer. We recommend and request that the government change that plan.
A second area I wanted to explore is the idea of the new non-refundable tax credits. I'm not sure if the minister is aware that the former tax credit, the child sport tax credit, is essentially $100 million going to families that earn, on average, 25% more than the Canadian average family earns, and probably 400% or 500% more than the very families that are excluded from that tax credit. Low-income people, people who are at the bottom of the inequality gap in Canada, are the ones being excluded.
We have called for the government to make these refundable tax credits, and yet we now have another series of programs like that—the family caregiver tax credit, the children's art tax credit, and the volunteer firefighter tax credit—doing exactly the same thing as the child support tax credit.
Minister, did you have your officials estimate the scope, the size of dollars that will be going to those tax credits and the incomes of the families receiving them compared with the incomes of those families not benefiting from that reduction in the treasury?
:
Thank you for the question.
Obviously I feel the measures in the budget are the appropriate measures. Making permanent the $2 billion sharing of the gas tax with the municipalities was a request from the Federation of Canadian Municipalities; in fact it was their primary request. It will make it easy, especially for smaller municipalities, not all of whom have been able to do this effectively, to go to their financial partners and leverage the $2 billion share they get every year. This should be leveraged, it shouldn't just be taken as a grant, and especially, as you have accurately described, in infrastructure, which has a long life ahead of it. So it's very appropriate for municipalities to leverage that money.
The other request we had from the Federation of Canadian Municipalities was to launch a discussion, a consultation, with them to develop our infrastructure plan for the future, which is being undertaken by the Minister of Infrastructure. We also have PPP Canada Inc., which we created several years ago, which is approving projects, negotiating public-private partnerships in Canada, and playing a leading role there, and I expect will play a leading role with respect to the commitment to build a Pont Champlain, for example.
:
Thank you, Mr. Chair, and thank you, Minister, for your attendance today.
First of all, I want to thank you for your good management of the economy. My constituents thank you for keeping the election promises in relation to the volunteer firefighters tax credit, and I thank you for reducing my personal taxes, as well as those of my constituents. I appreciate that very much. The children's arts tax credit is especially popular in northern Alberta, as is the hiring credit for small business.
It seems clear that you and your department respect Canadian taxpayers. In particular, you've taken the initiative to close numerous tax loopholes, as well as phase out the direct subsidy of political parties. That, of course, was part of our commitment.
When I first came to this place, and later on, I found it shocking that taxpayers were giving money to political parties without their say-so, and political parties could do whatever they wanted with that. I want to say congratulations on that. The Canadian Taxpayers Federation was recently quoted as saying that eliminating the per vote subsidy is a major victory. It's a major win for taxpayers and for democratic reform.
I wonder if you can describe to us how that is a major win for taxpayers--I think it's fairly obvious--and how much that major win is year over year. How does the phase-out of this particular subsidy work?
:
Thank you for the question.
It's a good question about possible increases in the Canada Pension Plan, and the ministers of finance have dealt with this at some length at our conference. We commissioned some good research that was done. Jack Mintz led that research team, and it reported back to the federal, provincial, and territorial ministers of finance.
The reality is that we've gone through some economic slowness, and the concern was, and remains, that this would not be the best time to impose an additional burden on business by requiring higher CPP premiums. It is a work in progress, however. I say to the honourable member that this is an issue we continue to discuss. I certainly hear from many on this subject, including the Canadian Labour Congress, which has had a lot to do with the subject, and I welcome its continuing participation.
We have gone ahead with the pooled registered pension plans to address a gap that we have; that is, if you work for a big company in Canada you probably have a pension plan that you're eligible to participate in, but if you work for a small business in Canada, or even some medium-sized businesses, you probably don't. That's the advantage of the pooled registered pension plan.
So we look forward to introducing legislation, I hope, on that subject before too long, again in cooperation with the provinces and territories.
[Translation]
Thank you for being here, minister. It is always a pleasure to have you with us.
[English]
I'm going to ask you about the volunteer firefighters tax credit, just because Ms. Murray did comment about it from the Liberal Party.
Before I do so, I want to take a moment to thank you, Minister. I know my colleague mentioned education. We have three teachers here in the room today from Manitoba. One is from Flin Flon. I know you have a whole bunch of measures in the budget about education, including investing in education in the north. I just wanted to thank you for that and acknowledge that these teachers work very hard. I'm sure this will enable them to help educate the future generation of politicians who come here.
Nevertheless, let's go back to the volunteer firefighters credit. The reason I'm bringing it up is that I work very closely with firefighters as a police officer; as you know, I'm on leave.
I remember when Rick Casson, who used to be a member of Parliament from Lethbridge, brought this forward back in 2002. Many of the firefighters I knew had approached the Liberal government of the day numerous times to say, “Please, help us. We're doing this job.” They put their lives on the line, and really are committed to the protection of families and communities. Yet there was nothing done back then. Then Rick Casson came along, and he put forward a private member's bill to actually address this.
I know you have had a personal commitment to this, sir. I remember reading the Canadian Association of Fire Chiefs press release that said you were the first finance minister in their hundred-year history to meet with fire chiefs and examine their issues and concerns. They thanked you for that. And here we have a Liberal member come to committee today and ask for improvements on this very valuable tax credit, but during 13 years they did nothing to address it.
So I want you to share with us today, sir, how this is going to help our communities, how this is going to help us to preserve the good work of these firefighters, volunteer firefighters for the most part.
Even though they refused to do it--and I'm appalled that they would ask for improvements now, after refusing to do it--please address for us how this is going to help our communities.
The honourable member is absolutely right that Canadian corporations are in strong balance sheet positions, strong cash positions. Now, this is true also in the United States. And it's a challenge, because the view of many is that we're going through a difficult economic time; there's a large degree of uncertainty and a certain lack of confidence.
I must say that in our own country, in Canada, there's good reason to have confidence, for all the reasons I expressed earlier. The world looks at Canada as being in relatively good shape and as being solid, stable, and reliable.
I encourage Canadian businesses to invest. I'm sure they will, over time, as confidence mounts and we're able to see further employment in Canada.
Our unemployment rate is 7.1% now. It's two full percentage points better than the rate in the United States. We haven't been in that situation for a generation.
And thank you, Ms. McLeod.
I'll just make sure I clarify for members. There are 22 parts to the bill, so as the chair, I'm bringing forward officials when it's been indicated to me by members that they want to ask questions on certain parts. Those parts that have been mentioned are 1, 2, 5, 8, 9, 10, 15, 16, and 18. I'll bring the officials forward for each particular part and have questions, rather than keep shuffling people in and out of the witness seats. That's the logic of it.
I hear the bells are going off. As you know, I need unanimous consent to keep going, if members do want to keep going for a few minutes. The vote is down the hall, but I do need that unanimous consent.
:
Thank you for the question.
What the honourable member is referring to is that prior to the introduction of this volunteer firefighters tax credit, there was an exemption under subsection 81(4) of the act for honorariums of up to $1,000 per year. The effect of the exemption was that if a municipality paid $1,000 to the volunteer firefighter, the person would be able to exclude that in computing income.
Under the volunteer firefighter tax credit, volunteer firefighters, if they so choose, are able to get a credit for the amount of $3,000.
Now, what we've done in terms of drafting the law is to make a consequential amendment to subsection 81(4) of the act, which says that the person takes “the lesser of $1,000 and the total of those amounts, other than, if the individual makes a claim under section 118.06 for the year, amounts received in respect of duties as a firefighter”. Where it is advantageous for the volunteer firefighters to claim the exemption instead of the credit, they would be able to do so. The intent of the--
:
Well, I think I'd first like to answer the question about the firefighters tax credit. The important thing to understand about the firefighters tax credit is that it is an alternative to the existing tax exemption, and the policy behind it had not so much to do with this other fund that the honourable member has mentioned as it did with recognizing the fact that the existing exemption of $1,000 didn't get you much if you weren't being paid anything in the context of being a volunteer firefighter. As the word “volunteer” implies, that was often the case.
Hence, there were some recommendations to the government to introduce instead a tax credit that would offer relief to those who didn't receive compensation for their volunteer firefighting, and those are in the alternatives. Someone said earlier, if you don't have your 200 hours, isn't this worse than what you had before? It absolutely is not, because what you had before is still an alternative. You can have one or the other, but you can't have both. So that's the answer to that question.
In terms of the analysis of the effectiveness of the accelerated capital cost allowance, we're really sort of delving into advice to the minister that we've given in the course of developing Budget 2011. As was indicated before, these things are really the purview of the Minister of Finance, and with regard to that, I think it's obvious that the government considers an extension of the accelerated capital cost allowance to be a good and worthwhile idea.
I suspect you're thinking that maybe it should be made permanent, but the government has had a policy for the last several years of trying, for the most part, to keep capital cost allowance rates in line with economic depreciation. This is a drastic divergence from that policy, and it's done on a temporary basis as part of the economic action plan, but not as part of a long-term policy for the government.
:
I call this meeting back to order.
I want to thank our guests for being so patient. I really do appreciate that.
We do have four presenters. We have first, as an individual,
[Translation]
Jean-Pierre Laporte, Pension Lawyer. Welcome.
[English]
Second, from the Federation of Canadian Municipalities, we have Mr. Vrbanovic and Mr. Buda. Thank you so much for coming.
Finally, from Canadian Manufacturers & Exporters, we have Mr. Jayson Myers, the president and CEO.
We are on a very tight timeline. I'm going to ask you all to present an opening statement, but if you could do that within five minutes, I'd appreciate that very much. Then we'll have questions from members.
[Translation]
We will begin with Mr. Laporte. Go ahead.
:
Thank you for this opportunity to provide the standing committee with some observations about certain aspects of the proposed legislation contained in Bill .
By way of background, I am a pension lawyer and I currently practise in the city of Toronto with the law firm of Bennett Jones, LLP. I've been specializing in the area of pensions and benefits since 2001, and I have a particular interest in pension law reform. Some of the committee members who served on this committee in the last Parliament may remember that I have made presentations to parliamentarians on reforming the Canada Pension Plan in the past.
One particular element of Bill that may be of interest to this committee is the provision of new rules affecting individual pension plans. I have written one of the very few academic papers on individual pension plans in Canada. In March of 2007 the Estates, Trusts & Pensions Journal said of individual pension plans, “Are they worthy of a second look?”
In the brief time allotted to me, given the relative dearth of expertise in Canada on IPPs, or individual pension plans, I thought it would be a most judicious use of your time to focus my remarks on two proposed changes that could impact IPPs.
I don't want my remarks to be overly technical. I'm sure the officials from the Department of Finance are quite capable of explaining the current regime and how the proposed new laws would work, and I leave that to them. But I want to make some general comments. My intervention is simply as a private sector service provider who's acquired familiarity with these pension rules and how they interact with the day-to-day lives of Canadians.
The two changes I want to talk about are those relating to buy-back restrictions and forced distributions at retirement. I propose to comment briefly on both.
In terms of the buy-back restrictions, this is the ability that someone has under a registered pension plan to buy back years of service at a time the plan wasn't in existence. By way of illustration, if you have an employer, for example, an individual who has incorporated a company, a small business owner who has been carrying out that business for a number of years and then decides to set up a pension plan, an IPP, if it's a defined benefit plan, which most IPPs are, the actuary for the plan would say that's going to cost, say, $600,000. In order to fund that $600,000 hole in the pension fund, you would have to transfer moneys from your existing RRSP or other registered sources, like a defined profit-sharing plan. If there isn't enough money in the RRSP, the company could make a tax deductible contribution to make you whole, so that the pension fund has enough moneys to pay the pension that was promised.
The proposed new rules would force you to not only use the money in your current RRSP, but also to use up any RRSP unused contribution room you have. This would mean that at the end of the day you would be left with no ability to tax shelter in excess of what is in your pension fund. That is a change in the law that I think may not be to the advantage of small business owners, the very people who are usually tasked with the job of creating employment and creating economic activity. So that's one concern I have with the buy-back.
The other is the new rule that would force the moneys that have accumulated in the pension fund to be distributed as if the pension fund was a registered retirement income fund, or RRIF.
Currently, in the Income Tax Act and regulations, there are some rules that say that if you have a RRIF, based on your age you have to start taking parts of it out, and of course you get taxed on that. My concern is that if the RRIF rules are such that you're forced to take more money out of the pension fund than what the pension plan itself contemplates, you're creating a bit of a deficit, because the fund was supposed to last for a number of years. Now you're increasing the amounts that are coming out of it, so you're creating an imbalance between the moneys that you had set aside for retirement and what they're supposed to do for you.
So that's another kind of issue with the proposed rules, and I just wanted to make sure that this committee had a chance to think about that, because, again, IPPs are really targeted at small business people, and those are the very people to whom we're trying to give a break, so they can keep employing people, etc.
That's about it.
:
Thank you very much, and good evening, Mr. Chairman and members of the House finance committee.
On behalf of the 2,000 member cities and communities of the Federation of Canadian Municipalities, I want to thank you for the opportunity to speak to you again this evening as you consider Bill , and in particular part 9 as it relates to the gas tax legislation.
Our central message is brief and has three points.
One, the government's recent budget commitment to develop a long-term infrastructure plan, which would provide permanent long-term stable funding, holds great promise for Canada's cities and communities.
Two, the gas tax fund should be the cornerstone of this new infrastructure plan.
Three, as this new plan is developed, we must ensure that the gas tax fund is indexed to protect its purchasing power over time.
[Translation]
That's the only way for all the governments to continue reversing our infrastructure decline. The gas tax fund was a great way to address the infrastructural issue in Canada.
[English]
From 2005 to 2014, the fund will invest $13 billion in municipal infrastructure, from new drinking water facilities to public transit, from roads and bridges to waste water facilities. The GTF has gone a long way to slowing the decline of our economic infrastructure.
We all know how inflation, no matter how mild at the moment, erodes buying power. For example, between 2005 and 2009, the construction price index, tracked by Statistics Canada, increased by 21%, more than double the consumer price index we're familiar with. Without indexation, the gas tax fund will effectively shrink while infrastructure costs rise. In fact, the gas tax fund will lose one-third of its purchasing power over the next 20 years. That means the fund will be able to invest in one-third less infrastructure in 2030 than it does today. That means our cities and communities will be back to juggling priorities and delaying much needed infrastructure investments.
Let me be quite clear. We applaud the government's economic action plan and its commitment in the budget to developing a new long-term infrastructure plan. The success of the economic action plan demonstrated that when governments work together we can provide better value, services, and programs for Canadians. We know that if governments work together we can restore aging roads, bridges, water systems, and public transit and still provide people with the everyday services they need. We can continue to do all this if we work together to develop a truly long-term, fully financed plan to invest in our country's public infrastructure.
Financing is the foundation of any long-term infrastructure plan, particularly long-term financing. Infrastructure projects are long-term projects requiring long-term commitments, so we need a frank and serious discussion about protecting the value of the gas tax fund into the future. The most appropriate venue for this discussion is the long-term planning process being led by Minister Lebel, and I fully hope and expect that this discussion will occur.
Without an infrastructure investment plan that protects the value of the gas tax fund, we will see the recent advances slow and then reverse. Our cities and communities will be left without a long-term predictable funding source they can count on, and that will have a significant impact on all of us.
[Translation]
Canada needs first-rate and efficient public infrastructure to maintain its quality of life and its economic competitiveness.
[English]
To build and maintain that infrastructure we need that long-term plan, the cornerstone of which needs to be a permanent gas tax fund indexed to protect its value over time.
Thank you. Merci beaucoup.
Ladies and gentlemen, I want begin by thanking you for the invitation to come and talk about this bill.
[English]
I'd like to specifically address the issue of the two-year write-off for manufacturing and processing of machinery and equipment investments that the bill would extend to the end of 2013. This is something that is very important. Manufacturers, and many businesses generally, and the Canadian Manufacturers and Exporters strongly support and congratulate the government for extending it in the budget.
I have provided some material that shows you our response to the budget, particularly with respect to the two-year write-off. I've provided you with a great deal of analysis as to why that was important, and that's the analysis we provided the finance minister as well as the people in the Department of Finance. I've provided you with a quick slide deck just because I want to refer to a couple of slides and graphs that I think are extremely important.
As you know, manufacturing and exporting business sectors have been faced with quite a few big challenges over the past few years, to say the least: rapid appreciation, volatility of the Canadian dollar, rapidly rising costs, and a recession that within six months took out 30% of production in manufacturing. Now we're regaining that. We're about 10% lower than where we were at the mid-point in 2008. It's been a slow recovery, a faltering recovery thanks to issues like Japan.
I think we've learned a few things from the recession. First is that we don't create wealth in an economy by spending other people's money around and around and around again. You create wealth by producing real products and services that customers value.
The second thing is that going forward, let's face it, governments and consumers are pretty much maxed out. We can't continue to borrow our way to economic growth. We have to focus on two main areas: business investment and exports. The two are interlinked because the investments are what improve productivity, competitiveness, innovation, and drive export success.
We also have to realize that we're facing some long-term challenges in terms of demographics, health care, and environmental issues, and we're going to have to depend on innovative businesses, manufacturers in particular, that bring 82% of all new products to market to solve some of those problems.
But I want to point out--and this was our rationale, our argument, to the Minister of Finance--the importance of cashflow, the importance of profitability, both in boosting employment and in generating investment growth.
If I could draw your attention to page 2, there are two graphs in particular. I apologize; I'm an economist by background and I can't move without graphs here. But I do want to show you this. The top is the relationship between after-tax profitability of Canada's business sector as a whole and the unemployment rate. What this shows me is that there is a very close relationship. In fact, profitability changes before the unemployment rate. But what it shows me is that when businesses have money, they invest, they grow, and they employ more people.
The second graph shows the relationship between after-tax cashflow, which is--and I'm sorry for the technical details here--before-tax profits minus corporate taxes, plus capital consumption allowance. But you see here a very close correlation: cashflow drives investment activity. We are seeing business investment activity increase by 3.5% in the first quarter alone and by 3% in the second quarter. Business in manufacturing investment is up by more than 10% over the first half of this year, which is an indication that the cashflow is improving. I think it's also an indication of the importance of the two-year write-off at this time.
The tax structure we have, I think, should be geared to leaving more money in the hands of companies that are making investments in productive assets, in technologies, in new production technologies, in research and development, in new product development, and in upgrading the skills of our workforce. Those are the investments that are going to make a difference for the Canadian economy going forward.
So the budget that was introduced in March and in June that included the extension of the two-year write-off up to 2013 was really important because it's a tax deferral. What it does is move cashflow up front. It provides the whole manufacturing sector with about a 12.5% additional return on investment in the first three years of that investment.
That's what's so important today, when we need to replace technologies very quickly and we're competing with the rest of the world to do that. It was a badly needed infusion of cash, especially in the midst of recession, and extending it for a two-year period gives companies a period of certainty so that they can make investment decisions.
That's why Soprema in British Columbia made a multi-million-dollar expansion. That's what has helped Celestica move into solar panel manufacturing. It has helped Prévost bus lines in Quebec develop a new robotic system. And it has helped Aberfoyle heat treating, a 10-person operation, get a new contract with Boeing to do heat treating for Boeing aircraft. This is so important. It was supported by 47 industry associations, as well as by the Canadian Labour Congress.
We definitely support this measure in the bill. In our view, it should be made permanent. It makes sense to make it permanent, simply because we need these investments in order to grow the economy.
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That's very concerning. One of the arguments we make is that pensions are deferred wages, and we can argue that. Sometimes in bankruptcy situations you have almost a pool to tap into to pay other creditors.
This caution is very disturbing. Again, I want to thank you for that.
I'll go to Mr. Vrbanovic.
What I heard from your presentation is that there is a need for a long-term infrastructure strategy, and we certainly agree. Obviously, we need a clear assessment of what the needs are going forward. We have our differences on corporate tax breaks and that kind of thing.
In Hamilton, where I come from, and I'll use the word “neglect”, we have a $2 billion deficit in our sewer systems. That's the kind of thing we're facing. The decisions made by city council over a number of years weren't proper.
On the other side of it, you have places such as Whitehorse and others with populations that can't sustain the infrastructure. So it's very clear that going forward it's going to require an investment on the part of the government as part of a plan.
It occurred to me, when we talked about those corporate tax breaks, that you're not going to see those businesses, which are reaping those rewards, investing in our infrastructure. Really, it is fundamental, as I see it, that there be a better balance between the corporate tax breaks that are out there and the investment required. There are certainly situations in which the lead must be this government. Would you agree with that?
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Thank you, Mr. Chair. I do have to make a quick comment before I go into my questions.
I find it profoundly interesting when the opposition expresses concern over EI, which is a sort of self-sustaining loop, but at the same time votes for a 45-day work year that would have an incredibly detrimental effect. I find those two concepts very hard to align.
I simply had to say that. I won't ask you to express your opinion on that particular view, Mr. Myers.
What I would really like to do is focus on the FCM. Certainly, as a former mayor of a small town, I appreciate the challenges around infrastructure, even the one-third, one-third, one third, and the capacity of communities. I wasn't a mayor when the gas tax came in, but I know I would have welcomed it with open arms.
We did hear from the minister earlier in terms of hoping that municipalities don't simply treat it as a grant but use it to leverage. I guess I have a couple of questions. Past practices show it has been mostly used as sort of a grant. Is that because it wasn't legislated and you couldn't count on it long term, and will legislating it make a difference?
Could you maybe talk about what enshrining the permanent gas tax fund in legislation will represent to municipalities, and a little bit about whether they are currently leveraging to some degree?
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I believe it's very important to emphasize that one of the clear messages we heard from our members was the need to have reliable, stable funding that they can count on toward dealing with the capital infrastructure investments they need to plan for going forward.
One of the challenges that occurs when you have blips in funding, which happen for very good reason--for example, under economic stimulus and so on--is that you run the risk of potential inflationary pressures and so on, because there isn't the capacity at times in the marketplace to deal with some of those issues.
I think it's fair to say it's extremely important going forward that we have reliable funding that we can count on. It will certainly give municipalities what they need to be able to plan financially, in terms of the work that needs to be done, and to balance out the various responsibilities they have.
From the people I've spoken with, I can tell you that everyone recognizes the importance of those infrastructure dollars, those gas tax dollars, and so on, going to that very purpose. The process is set up in that way, to ensure that it goes to those purposes in our municipalities.
I think Mike may want to add a little bit to this as well.
I think in two ways, from a manufacturing point of view. This is the sector, by the way, that across the country has realized a 12% reduction in overall emissions since 1990, far surpassing the Kyoto target here, and the emissions were reduced primarily as a result of investment in new technology, which was also energy-efficient technology. So if you can provide incentives for that type of investment, it certainly makes a lot of sense from a business case. But also, of course, there are tremendous opportunities for companies supplying alternative energy projects across the country.
We've been talking about infrastructure, but the challenge to Canada over the next five years is going to be the following: how do we support the clean or carbon-based energy? How do we support the mining, forestry, shipbuilding, and upgrading projects that are across the country? There is tremendous opportunity for manufacturing and tremendous opportunity for clean energy and for clean technologies as part of that, because it's all going to be very tightly regulated, of course. But those are the infrastructure demands that we're going to be facing; there are tremendous strains already in terms of availability of labour and increasing costs.
So we have to figure out a way to ensure that those investments, which come from business, by the way, continue to be made. And the incentives, like the clean energy technology and the two-year write-off, are very powerful instruments that help those investments.
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Okay. I'm going to take the final round as the chair and wrap up the questioning.
I wanted to address Mr. Myers and come back to the accelerated capital cost allowance, one of my favourite topics. Six years ago, you proposed to me that the industry committee look at manufacturing. Dave Van Kesteren was on that committee, and I thought all committee members, the industry, and the witnesses did an outstanding job. It was interesting. We had agreement from labour, from industry, all sorts of people telling us what the challenges were and how to meet them. This was our first recommendation as a committee, one of the unanimous recommendations.
The challenge has always been to prove the economic impact to people who are skeptical of it. Mr. Adler addressed this very well. I can't tell you how many plants I've been through where the plant manager will say, “That $1 million piece of equipment is there because of the government, and now we're much more productive.” But they always say it's part of a whole series of measures. You mentioned work sharing and corporate taxes. But the one thing they raise with accelerated capital cost is the timeline. They need a timeline, because businesses don't operate under six-month schedules; they operate on a multi-year timeline.
I want you to address, first of all, the impact of this measure, taking into account the corporate tax argument. Frankly, your organization has done one of the best pieces on the benefits of corporate taxes. I can't understand why people still say it's like giving money to corporations. They talk as if Parliament is taking a bag of money, giving it to your members, and telling them to go have fun in Las Vegas. This is completely contrary to what really goes on.
I want you to talk about the impact of the CCA and to refer to your study on the corporate tax reductions and the benefits it brings, taking into account that businesses have already factored these corporate taxes for January of 2012 into their business plans.
First, I'd like to recognize your leadership on this issue as well. It was six years ago that we started talking about this and started asking what the most important measure to boost investment would be.
As you say, if you visit companies across Canada, they can show you the benefit there. It's not just the piece of equipment; it's what that has enabled their employees to do. It's the fact that their employees are still employed and the fact that their employees are in better jobs as a result of the greater profitability of the company. And that's important.
Frankly, I'd suggest that there might be too many tax economists in the Department of Finance and that maybe we should take all of them out to visit a few plants as well and show them what really goes on in business and what happens on a shop floor, because I think that's the type of technical experience and background that a lot of our policy-makers, especially in the Department of Finance, need.
Under the old system of depreciation, there is a 30% declining balance based on the economic life of an asset, and as long as the asset is generating money for you, it should be depreciated over that period of time. That's why we have 40-year-old boilers in place, and that's why we aren't moving to more energy-efficient systems. That's why the whole name of the game today is to compete on a very timely basis as new technologies emerge and you want to accelerate that capital turnover.
If we didn't have corporate taxes, in the best of all possible worlds, the manufacturing sector would be making a return on their investment in a period of three years. So when we implement a corporate tax system, wouldn't you want the rate of depreciation to sort of match the natural rate of return on the asset? That's what this effectively does. To me, this matches the rate of return for investors to exactly the rate of return they'd be expecting in the marketplace. They need certainty over a period of time, because it may take three or four years before the initial plan is put in place and the capital is installed.
That's why the two-year extension is important. It gave us three years here, and as I say, we'd like to make it a permanent part of the tax system, because it's a tremendous advantage. But, again, you need certainty, and I think right now, as you say, many companies have been factoring in tax reductions as part of their investment plans.
But I can also tell you that the combination--and it's a pretty powerful one--of a low corporate tax rate, a two-year write-off on manufacturing equipment, the introduction of the HST in most provinces, and the elimination of tariffs on imported equipment is a very powerful message to send to a lot of international companies in Europe and especially the United States.