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I call to order meeting number 52 of the Standing Committee on Finance. Our orders of the day, pursuant to Standing Order 83.1, are for us to continue our 2014 pre-budget consultations.
Colleagues, again we have two panels here, with five organizations or individuals per panel. We're still waiting, I understand, for two; they may be at security downstairs. We do have three present, so we will start with them and move on later to the other two.
First of all, from the Canadian Chamber of Commerce, we have Mr. Hendrik Brakel, senior director of economic, financial, and tax policy. Second, from the Canadian Federation of Independent Business, we have senior vice-president Corinne Pohlmann. From the Canadian Labour Congress, we have Ms. Angella MacEwen, senior economist. From the Green Budget Coalition, we have Mr. Andrew Van Iterson. As well, we have from the Retail Council of Canada Mr. David Wilkes, the senior vice-president.
I'd like to thank you all for being with us this afternoon. You each have a maximum of five minutes for your opening statement.
We will begin with Mr. Brakel, please.
Good afternoon, Mr. Chair and committee members. I'm very pleased to be here on behalf of the Canadian Chamber of Commerce.
I'm so proud and so glad to be here in Canada's Parliament and to see everything back to business after last week's troubling events. I'm honoured to be here with you today.
[Translation]
Thank you everyone.
The Canadian Chamber of Commerce represents 200,000 businesses of all sizes in every industry and every region of the country.
[English]
On today's theme of maximizing the number and types of jobs for Canadians, this is so important for us in the business community. On the demand side, the best thing anyone can do for business in Canada is to have a wealthy, successful Canadian population that is buying lots of goods and services. On the supply side, survey after survey has shown that the number one challenge for Canadian business is not the dollar, or access to capital; it's finding qualified people.
With the U.S. economy picking up, and exports up 12% so far this year, the problem is becoming more acute. How can we make sure that we provide the maximum number of really great jobs for Canadians?
First, we need to make sure that Canada is at the leading edge of innovation so that the new technologies and products of tomorrow are built right here at home. Canada is really good at research, but we lag somewhat at commercialization. That's why we're proposing an innovation box regime for R and D tax. ln lieu of the current scientific research and experimental development program, where we give tax credits for certain R and D activities, the idea is that, instead, a business that creates a patent or innovation right here in Canada would see the revenues that arose from that innovation taxed at a much lower rate. A number of countries, such as the U.K, the Netherlands, lreland, and Switzerland, have adopted this approach. It's worked well, because it's really driving commercialization rather than just having generalized activities.
A second key priority for the chamber and for our members is infrastructure. Over the past 30 years, investments in core public infrastructure have dropped off significantly. According to the Federation of Canadian Municipalities, 30% of municipal infrastructure is at risk. Traffic congestion costs the Canadian economy close to $15 billion per year. Research at the chamber has found that a sustained 10% annual increase in infrastructure investment has the potential to reduce the cost of manufacturing by 5%. It's about getting things to market and getting our components in more quickly. It's really about the future productivity of Canada. We really appreciate the government's Building Canada plan, but we think even more can done.
A third priority for the Canadian chamber is to invest in labour market information. We've all heard a lot about the gap in skills and the labour shortages in various areas in the country. It's a huge challenge for employers and for the government. Unfortunately, we lack sufficiently granular and reliable labour market information in a number of areas. We believe that the job vacancy surveys should be expanded from the level of economic regions to the local level. We'd like to reintroduce the workplace and employee survey so that we can really understand what the skills gaps are in what regions, and where we are having the biggest problems.
That would help us in addressing priority four. We're asking the government to review the impacts from the changes to the temporary foreign workers program. Look, here at the chamber we get it; we understand that this is a very difficult political problem that has received some pretty scathing media attention. It's radioactive right now. But the thing is that the issue has real consequences for Canadian business.
A few weeks ago, the Alberta Chamber of Commerce released a survey showing that of the Alberta businesses using temporary foreign workers, almost 60% of businesses were likely or somewhat likely to reduce their hours of operation; 80% were likely to be unable to grow their business in the future; and 23% were either very likely or somewhat likely to have to close their business in the future.
This is not just an Alberta issue. Businesses from coast to coast are screaming about the changes to the temporary foreign workers program. Canada's remote and northern communities have been particularly affected. We're asking for a review of the impact of the changes. Have businesses been able to cope? Have operating hours been reduced? We're optimistic, but we can only maximize jobs for Canadians if business can prosper and grow.
Thank you very much for the opportunity to speak to you today. I'd be delighted to answer any questions.
You should have on your iPad a slide deck that I would like to walk you through, if possible. If you can search for that on the iPad, I would really appreciate it.
CFIB is a not-for-profit, non-partisan organization representing more than 109,000 small and medium-sized businesses across Canada who collectively employ more than 1.25 million Canadians and account for $75 billion in GDP. Our members represent all sectors of the economy and are found in every region of the country. Addressing issues of importance to this group can have a widespread impact on job creation and the economy. I'm hopeful that you have been able to find the slide deck as we walk through it right now.
On slide 2 you will see that the top issue of concern to small business is total tax burden, which I will get to in a minute, but the second highest priority issue for small business is government regulation and paper burden. We were pleased to see movement on the recommendations of the red tape reduction commission, which included plans to measure overall burden, set service standards, and implement a system of ongoing oversight and accountability. However, while we are encouraged by the one-for-one rule and small business lens, we have concerns that they are not always properly applied, and we had hoped to have a comprehensive baseline count of regulatory requirements made public by now. So there is still room for improvement on red tape, and so we encourage the government to maintain its focus and continue to move forward on this critical file.
The third highest priority from our membership is government debt and deficits. Small business owners understand the importance of paying down debt, and so we are very pleased that the federal deficit is on target to be eliminated in 2015.
As mentioned, though, the top issue of concern to small businesses is their total tax burden. With so many taxes, it is important to understand which have the biggest impact on the growth of their business. As you can see on slide 3, payroll taxes have by far the greatest impact. Why? Because it is a tax on jobs. lt must be paid regardless of whether the business has any profit or not. This is why we spend so much time as an organization trying to address issues related to federal payroll taxes like El and CPP, both of which have had a significant impact on small business employers and their employees.
As you can see on slide 4, lowering El rates and freezing CPP premiums are most effective in maintaining or strengthening business performance, along with reducing the small business tax rate, which I will discuss shortly. Small business owners were relieved that the federal and provincial finance ministers decided not to move forward with increases to CPP last year. ln a survey of small business owners, 72% told us that increasing CPP would lead to increased pressure to freeze or cut salaries, and 55% indicated that it would reduce investments in their business. CFIB strongly recommends that the federal government reject any plans to increase CPP in the future.
As for El, CFIB was very pleased with the introduction of the small business job credit, as it will provide small businesses with a credit that will essentially lower their El rates by 15% over the next two years. As you can see on slide 5, they will use the credit to help pay down debt, increase employee compensation, and invest in new equipment. Another one in five will use it to invest in additional employee training, which I will also discuss a little more in a moment.
However, one of the toughest aspects of El for small business owners is that they pay 1.4 times more than employees. The small business job credit provides a bit of a break for a couple of years, but we would like to see this move to a 50/50 split on an ongoing basis. At one time employers and employees each paid 40% and the government contributed 20%, but about 25 years ago the governments pulled out, stopped paying, and moved their portion to employers. Given that almost 30% of benefits are considered special benefits, those related to parental leave, sickness, and compassionate care, for which employers have little or no say, there is certainly an argument to be made that perhaps El should be more evenly split between employers and employees. We believe 2017 would be an ideal time to lower the employer rates as it would not cause employee rates to increase at that time; in fact, they would still experience decrease.
As you can see on slide 7, 80% of small business owners indicated that a reduction in the small business tax rate would be an effective measure to maintain or strengthen their business performance as well. The value of the small businesses tax rate has gradually eroded compared to the general corporate tax rate. ln 2000, the small business rate was at 12%; the general rate was at 28%. Today, the small business rate is 11%; the general rate is at 15%. ln previous budgets the federal government promised to make further tax relief for small businesses a priority once the budget is balanced. We recommend that the government lower the small business tax rate from 11% to 9% in the next budget.
Finally, I want to share the CFIB research that found, in the first quarter of 2014, 312,000 private sector jobs had gone unfilled for more than four months, representing a vacancy rate of 2.6 percent. This rate has steadily increased since mid-2009. And as you can see on slide 8, the smaller the firm, the higher the job vacancy rate. This is very real issue for the smallest firms.
One way they are trying to address this issue is through training. As small businesses often face different realities than their larger counterparts, the types of training they provide can also be different, more informal, on-the-job-type training. That is why CFIB supports approaches that include investing training dollars in the workplace, as this is the most effective way of getting people trained for the jobs needed in the current labour market. We have provided several recommendations for governments to consider when reviewing the labour market development agreements, which include allowing employers access to LMDA funds for training that are tailored to their needs, recognizing informal, on-the-job training, and including provisions to offset training costs for employers, such as a tax for EI credit focused on training.
The final slide summarizes everything I've brought forward to you today. I thank you for your time, and I'll be happy to answer any questions.
On behalf of the 3.3 million members of the Canadian Labour Congress, we want to thank you for the opportunity to present our views today.
The CLC brings together workers from virtually all sectors of the Canadian economy, in all occupations and in all parts of Canada. The most important economic problem faced by Canadians today is not government deficits, and the solutions are not to be found in returning to balanced budgets too quickly. The most pressing problems faced by Canadians are a sluggish economic recovery, a stalling job market, record-high levels of household debt, along with inadequate employment insurance coverage and a lack of retirement security. Canadians expect their federal government to tackle these problems.
Exports have been slow to rebound after the recession and predictions of stronger economic growth have repeatedly been moved back. Business investments are not where they have been at this point in previous economic cycles. The October, 2014, monetary policy report released by the Bank of Canada suggests that this is because of a semi-permanent loss of capacity in several manufacturing export sectors. We should not expect to see business investment and hiring pick up until it is clear that the Canadian economy is on more solid footing.
The overall labour force participation rate and the employment rate have still not recovered to their pre-recession levels. On the contrary, they have stagnated since mid-2012. The Bank of Canada's labour market indicator shows that labour market slack is larger than just the unemployment rate alone illustrates. Specifically, many economists are concerned about elevated levels of long-term unemployment and involuntary part-time work, as well as high levels of unemployment among vulnerable groups, such as new Canadians and racialized workers. Employment growth has been shallower than labour force growth for core-age workers, and the labour force participation rate is at its lowest level in 10 years.
So in that context, what can government do to spur economic growth and good jobs? The International Monetary Fund's recent World Economic Outlook suggests that the time is right for governments to make some much needed infrastructure investments. They go so far as to suggest that clearly identified infrastructure needs could be financed through borrowing, without increasing debt-to-GDP ratios, and, in fact, possibly reducing debt-to-GDP ratios faster than would otherwise allow us to do. Since public infrastructure investment increases growth in both the short term and the long term, all of the conditions that the IMF has identified as ideal for public investment are present in our economy right now. We are experiencing an extended period of labour market slack and low business investment. Canada has a very low level of public debt, borrowing costs for the federal government are and will remain very low for some time, and many needed public investments yield a high rate of return in terms of immediate job creation, public benefits, and the growth of private sector productivity.
National economic research has identified major public investments that would be largely self-financing, since the positive impacts on economic growth and on private sector productivity boost future government revenues. For example, the Toronto board of trade argues that major investment in mass transit would substantially reduce business costs due to traffic congestion, boosting productivity. The leading Quebec economist Pierre Fortin calculates that the annual costs of the Quebec child care subsidy is covered by the benefit of the increased labour force participation rate of parents.
The initial costs of a major public investment program could be covered by raising the federal corporate tax rate, which we estimate would raise between $4 billion and $5 billion dollars per year in additional revenues. The current no-strings-attached cuts to the corporate tax rate have had very limited impacts on new private-sector investment, although I would like to note that the CLC continues to support targeted support for new private-sector investments through investment tax credits for write-offs for new machinery and equipment investment.
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Mr. Chairman and honourable committee members, thank you for inviting the Green Budget Coalition to speak to you again. I'd also like to introduce the Green Budget Coalition's co-chair, James Brennan, from Ducks Unlimited, who can also answer questions.
As many of you know, the Green Budget Coalition is unique in bringing together the expertise of 14 of Canada's leading environmental organizations, collectively representing over 600,000 Canadians and ranging from Ducks Unlimited to Greenpeace. Our mission is to present an analysis of the most pressing issues regarding environmental sustainability in Canada and to make a consolidated annual set of recommendations to the federal government regarding fiscal and budgetary opportunities.
The coalition has welcomed the Government of Canada's progress on the GBC's recommendations, including the 's May announcement of the national conservation plan, reductions in tax preferences to the extractive industries, funding for fresh water and infrastructure, and the proposed measures to enshrine the polluter pays principle into law in Bill .
However, many more federal actions are still needed to conserve Canada's natural heritage, to ensure Canadians can live healthy lives, and to play a responsible role in advancing global environmental sustainability
For budget 2015, the Green Budget Coalition is recommending that the Government of Canada pursue three strategic agendas, each of which has a number of associated recommendations. First is energy innovation and climate change leadership with an integrated agenda to capitalize on the blossoming global clean energy economy and to demonstrate leadership on climate change when it is increasingly clear that it its needed. Second is to advance Canada's national conservation plan and make progress on protecting our life-support system starting by meeting our international Aichi biodiversity targets of protecting 17% of our lands and fresh water and 10% of our oceans. Third is to ensure healthy communities for all Canadians, featuring a new environmental health equity agenda to ensure that all Canadians, including vulnerable and disadvantaged populations, can enjoy the same level of protection from preventable environmental health hazards.
Implementing these agendas together could lead to pivotal progress on each of the finance committee's consultation themes, as outlined in the executive summary of our submission, creating prime environmental, economic, and human health benefits.
Given today's focus on jobs, I'd like to outline the key actions we're recommending to accelerate progress on energy innovation and climate change leadership. First is to continue progress on phasing out inefficient fossil fuel subsidies, honouring our commitment to the G-20 by committing to not provide new subsidies to liquefied natural gas or renew the mineral exploration tax credit. Second is to announce and implement a well-designed price on greenhouse gas emissions as has been endorsed by the World Bank, the IMF, the Canadian Council of Chief Executives, our friends here from the Canadian Chamber of Commerce, and, I suspect, others at the table here, in 73 countries and over 1,000 companies. Third is to fund fast-charging stations for electric vehicles around major urban centres and provide accelerated capital cost allowance for all forms of power storage to remove key barriers to an efficient Canadian energy system. Fourth is to play a leadership role in United Nations climate change negotiations, including committing $400 million annually for climate change adaptation and mitigation in developing countries. Fifth is to protect Canadians and our environment from increasingly volatile weather events, building on the funding for disaster protection that was in Budget 2014, by renewing and expanding the adaptation funding under the clean air agenda before it sunsets in 2016 to at least $45 million per year, and to complement that, by integrating adaptation considerations into all infrastructure project planning and assessment under the Building Canada plan.
Before my time is up, I would also like to highlight a few of the other recommendations we're supporting: renewing and increasing implementation funding for the Species At Risk Act; mapping conservation value across Canada to support the success of the government's national conservation plan; promoting the new environmental health equity agenda, by building on a model that's already in place in the United States; and establishing a tax credit to help Canadians remediate radon, which is the second-leading cause of lung cancer, in their homes.
Thank you all for your time.
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Thank you, Mr. Chair, and members of the committee for inviting RCC to present some of the key issues that we had outlined in our pre-budget submission for the upcoming federal budget.
Before beginning my specific remarks, I would like to take time to express the condolences of our association, as well as those of mine personally, for the losses to our military last week. As Corporal Cirillo is laid to rest today, I think it's important to take time to pause and reflect on that.
I would also like to reiterate what was said by my colleague and thank the members of this House for getting back to work so quickly. I've often said that it is an honour and a privilege that part of my job allows me to be here in these buildings and take part in this process, and I'm very glad that we're back to work. So, thank you very much.
As many of you well know, the Retail Council of Canada is the voice of retail across this country. Let me illustrate three key facts that demonstrate the importance that the retail industry has to the economy of this land. Retailers sell over $486 billion worth of goods in communities from coast to coast. Our employees, within our membership and within our industry, generate over $53 billion in salary on an annual basis. We are the country's largest employer employing over 2 million Canadians, or one in nine jobs across the country.
The Retail Council of Canada represents some 45,000 store fronts and our members include grocers, specialty retailers, clothiers, and electronic retailers. Our membership ranges from small independent retailers to large multi-store companies.
As we sat back with our members and developed the recommendations that we wanted to bring forward to the committee, we ensured that we focused on those areas that were identified as the themes. One, we wanted to bring forward recommendations that would support families and help vulnerable Canadians; and two, provide opportunities for improving taxation policies that govern our land.
Mr. Chair, we have focused on two key areas that are consistent with these themes. First, we want to recommend further elimination of import tariffs that are no longer serving their original purpose of protecting domestic manufacturing and are just adding costs or taxes to the system. Secondly, we want to ensure that the budget commitment that was made in 2014 to lower interchange fees from merchants, that started with credit card costs, is brought to its closure and fruition.
Let me focus the majority of my introductory remarks on tariffs. As members of this committee may recall, in Budget 2013 there was an initial reduction of $79 million in tariffs for baby clothes and certain sporting goods. This has had a real impact on Canadian families and shortly I'll show you the savings by way of example that have been generated for hockey equipment. We believe the time is now for more tariff free elimination because of a couple of other factors that are being introduced in the economy in the coming year. The first and probably most significant is the transfer of over 72 of our trading partners from GPT tariff status to MFN. This includes large trading partners like China, India, and Brazil, and by the government's own calculation will result in $333 million more in additional tariffs across the economy.
I'd also like to highlight a tax or an import levy that the Minister of Agriculture is considering on fresh raspberries and strawberries, as well as some other products, which could add an additional $2.4 million in cost for these basic products that Canadian families rely on every day to have a healthy diet.
I just illustrate these by way of example that there is an opportunity to level this playing field to continue to reduce costs for Canadians and to continue to update our taxation policy.
The Retail Council has highlighted four areas which are noted on the screen here—children's clothing, linens, gloves and mitts, and footwear—where we believe there is an opportunity for further tariff relief. The criteria that we have used is articulated in the box on the left-hand side.
As I mentioned, we have seen real benefits for our consumers. For the youth hockey player that you equip from helmet to skates, a family that was doing that would save approximately $51 in cost.
Our story on tariffs is an important one because Canadians are not only looking to shop around the corner, but we're seeing that more and more Canadians are going online to research and purchase their goods. It is vital that we continue to level the playing field between our two economies.
My final slide is a quick one. We are appreciative of the government's commitment to address interchange fees. This need has only grown since that time and we're looking forward to conclusion on this file.
Mr. Chair, thank you very much. We are very keen for the questions and discussion that follow, and I thank you for the opportunity to present our views.
To Mr. Wilkes and Mr. Brakel as well, thank you for your comments at the opening of your statements. I think they're well received, certainly by myself and my colleagues.
The work continues. So now we've heard from the restaurant association, from Mr. Wilkes and his association, as well as from Ms. Pohlmann, on these merchant fees, these pesky merchant fees. Help us understand exactly the prescription that we need to write.
Ms. Pohlmann, maybe you can start us off. Why is this such an intractable problem? Why is it so hard to stand up to these credit card companies and the banks that collect the fees, and help Canadian consumers out? Why has the government struggled with this?
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Thank you very much, Mr. Chair. I appreciate those extra 30 seconds.
Thanks to our witnesses for being here. I appreciate all your kind comments with respect to getting back to business in committee and in the House.
I would like to start with the Canadian Chamber of Commerce. Mr. Brakel, I'd like to pick up on the innovation box a little bit. If I heard you right—I won't put words in your mouth—I think you said “in lieu of” the SR and ED. I guess I just want to push down on that a little bit more.
We heard from our witnesses yesterday that there are different ways that this innovation box has actually been implemented in different countries. It's simply a matter of one way versus another. When I look at a small business, they might do a lot of patent work with respect to a process within their business, and that doesn't lend itself well to a product that they're actually selling. With that in mind, they would never be able to take advantage of this if you took out the SR and ED completely. So I'd be concerned that you'd say “in lieu of”, because that would completely eliminate that away from them.
How have other countries been successful in implementing it? If you're going to pursue this, it seems to me that it would take a little bit of time to figure out how to implement it, and to implement it properly.
Thank you all for being here today. We really appreciate your input. We've had a very fulsome discussion over the last number of weeks.
I'm going to start with Ms. Pohlmann. Under our government we have the lowest debt-to-GDP ratio here in Canada, at 32%. Getting down to 25% by 2021 is our goal, the lowest in the G7. We have a AAA credit rating. It's been reaffirmed year after year. Bloomberg has said that we're now going from the sixth-best to the second-best place country to be doing business with. These are all laudable accomplishments of our government.
However consumers and people on the street don't have that in mind when they go out to spend money. What they do have in mind is that they now pay 5% blended HST, rather than 7%. They know that they have more money in their pockets because our government has lowered taxes about 160 times. They know that they have more money to spend.
My question to you is this: lower taxes benefit both business and consumer, is that correct?
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Thank you, Mr. Chairman.
First, let me apologize for not having a written submission for members of the committee. However, I am going to make a few comments in the time I have. If members wish to find out more background on what I'm saying, they can go to a blog that I co-author with Peter DeVries of 3D Policy. Also, we have a regular opinion piece every Tuesday on iPolitics that deals with issues of public policy and public finance.
I know your deliberations are very important now. The government has a surplus on the horizon—and I'll come back to that in a minute—so there are lots of expectations being created externally in the public, and no doubt internally in the government, about what to do with that surplus. I have been in government long enough to know that managing a surplus, in my experience, is probably more difficult than managing a deficit, given the demands that everybody puts on the government. I would like to address a number of cautions that I would propose for the committee to think about in going ahead in terms of how to use that surplus.
I say that because I have years of experience. I was a deputy minister of finance during the good years of the 1990s and the bad years of the 1980s, so I've lived through both fiscal crises and the management of surpluses.
There are a number of cautions I want to focus on. No doubt many of you have also been reading about them and been seeing them on television. They have to do with the state of the global economy first.
The IMF, the International Monetary Fund, at its recent meeting in early October came out with some pretty sobering conclusions and observations that I think we all need to take account of. In its report, which was just released two weeks ago, the IMF reduced, once again, its forecast for the global economy to 3.3%. That's down 0.4% from last April. China makes up one-third of that. If you exclude China, they're suggesting the global economy will grow about 2.5%.
I want to put that in perspective. In the second half of the 1990s, when the Liberal government at that time had lots of surpluses, the global economy was growing at between 5% to 5.5%. The prospect going forward for the next decade, at least, is for a very moderate growth in the global economy.
The reason is pretty simple. The euro area is about to enter its third recession since 2008. It's going to take years and years for the euro area and the EU to recover into a sustainable economic growth entity. The Chinese economy is dramatically slowing. Russia is about to enter another recession. Certainly if oil prices fall to $70 or stay below $80, the Russian economy is going to be in serious difficulty. Finally, the developing economies are stalling. The global economy is not doing well.
I think it's worth my quoting, if you will, from the IMF. The IMF is saying that growth will be mediocre and stagnant going forward:
Downside risks have increased since the spring. Short-term risks include a worsening of geopolitical tensions and a reversal of recent risk spread and volatility compression in financial markets. Medium-term risks include stagnation and low potential growth in advanced economies and a decline in potential growth in emerging markets.
For Canada, the IMF has said that growth will be 2.3% for 2014 and 2.4% in 2015, but this was before oil prices started their dramatic decline. We all know what the implication of that could be for Alberta and Saskatchewan, which have been driving the economy for the past number of years.
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I have one minute. Okay, I'll just quickly move on, then, to concerns about the surplus.
In my view, if you are going to use the surplus, I'd be very prudent. The outlook is too risky to get rid of all that surplus. In my estimation, if oil prices stay below $80 for the next three years, you could lose up to $4 billion to $5 billion annually in your revenues, and that would pretty much take away much of the surplus.
If you are going to continue to use the surplus, consideration should be given to using it in a way that stimulates economic growth and creates jobs.
In my view the government needs to reconsider the tax changes it is proposing, because none of them achieve that objective.
Furthermore, in my view the government needs to look to building a domestic growth strategy, one built on infrastructure spending. Finally, based on the IMF and its research, I would suggest that this be financed through debt rather than raising taxes.
Thank you.
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Thank you very much, Mr. Chairman, and members of the committee, for the invitation to speak to you today on behalf of the Chemistry Industry Association of Canada.
CIAC is the voice of Canada’s chemistry industry, which a $50 billion a year industry for this country. Our member companies apply knowledge to take resources, such as natural gas, electricity, minerals, and biomass, and convert them into high value products that are used to produce other manufactured goods and consumer products. In essence, we provide the building blocks, technology, and services needed by many other Canadian industries. These range from clothing and pharmaceutical companies to natural resource developers and manufacturers of energy-efficient housing and cars. I should mention that, although fairly invisible, we are Canada's fourth largest manufacturing sector.
The business of chemistry employs 82,000 Canadians directly and supports another 400,000 jobs in the Canadian economy. So we have a fairly large multiplier. One job in our sector creates another five elsewhere in the economy.
The United States is our largest customer. The bulk of our exports, about three-quarters, moves there. For many years we enjoyed a competitive advantage when it came to natural gas feedstocks and electricity. Until recently, about two years ago, the U.S. chemical industry was actually in decline. Once that country's leading export industry, it had slipped into a negative trade balance and most global investments were gravitating to China.
That is changing. Shale gas is shifting the competitiveness equation. Canada no longer has a natural gas advantage, and the shift to cheaper natural gas-fired electricity generation in the U.S. is increasing the competitiveness of manufacturing there in general, and increasing the demand for chemical inputs as well. Our electricity rates are no longer cheaper than jurisdictions in the U.S.
Announced investments for the chemistry industry in the U.S., currently at $120 billion, will increase production by 30% to 50%, which represents at least $250 billion a year. This wave is cresting in 2017 and it has not yet washed ashore in Canada. If we want to catch that next wave and be part of the reshoring of manufacturing we need to act now. I circulated a couple of charts there which will show you what's going on. There's one that shows the investment trends, Canada versus the U.S., and you can see there that the investments are shooting up in the U.S. and have yet to show a similar trend for Canada.
The opportunity for investment is real and immediate here as well, but at this point we have not even seen a proportional number of announcements. We estimate that there is a potential for $10 billion worth of new projects in Canada by the end of the decade, but we cannot attract that when the playing field is not level. U.S. companies enjoy a depreciation allowance that allows companies to write off the cost of new projects at roughly twice the rate of Canada, and this time value of money is very important for investments that can take up to six years from initiation of project analysis to commissioning and startup. Again, I circulated a chart which just gives you an idea of how long it takes to start when you start even thinking about a chemical project to when the production actually starts.
You have our pre-budget submission and our case for why Canadian manufacturing needs a permanent or long-term greater than five years depreciation rate that at least matches the U.S. A recently released independent study calculates that a 45% declining rate would only match the current and permanent U.S. rate, and coverage for the U.S. projects is much broader. So, to match that coverage differential we urge this committee to recommend a permanent 50% depreciation rate for manufacturing machinery and equipment. It will bring new investment and jobs to Canada.
Thank you very much.
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Thank you. I would like to thank the committee for inviting me to participate in your deliberations.
I am an independent labour market analyst. I am also an innovation fellow with the Metcalf Foundation, a charitable foundation dedicated to helping Canadians build a just, healthy, and creative society.
My message is a simple one: high-performing workplaces, ones that offer good jobs and career opportunities, are the way to maximize the number and types of jobs for Canadians. To achieve that requires engaging with employers in what are called demand-focused initiatives.
Let me elaborate. Much of what we do in Canada to ensure better labour market outcomes is focused on the supply side of the equation, that is, how people become ready for work. We place a great deal of emphasis on securing the best education, we provide employment services so individuals can find vacant jobs and present themselves as attractive candidates to employers, and we encourage individuals to upgrade their skills through continuous learning throughout their lifetimes.
Here's an important fact: among all the industrialized countries in the world, Canada has the highest proportion of workers with post-secondary education, yet Canada also ranks first for having the highest percentage of post-secondary degree holders working in jobs where they earn half or below half the median income, the commonly accepted cut-off point for the poverty level.
At the same time, a frequent complaint of employers is that they cannot find skilled job candidates. Some studies have concluded that there is little evidence in the labour market data to indicate a skills shortage, apart from certain specific geographic areas and apart from certain specific technology and skilled trades occupations.
I don't think we can so easily dismiss the views of so many employers. Through my work, I do numerous surveys of employers, and the challenges they face finding employees is real. The biggest shortcomings about job candidates that employers express in these surveys are lack of experience and lack of so-called soft skills such as personal communications, working in teams, and understanding the culture of a business.
The fact is that these are the skills that one acquires on the job—experience, obviously, but also many of the soft skills, many of which involve dealing with the particular circumstances of that job. In short, we have more of an experience shortage than a skills shortage, and to overcome an experience shortage, we need the active engagement of employers.
Canadian employers invest less in workplace training than many of our competitor countries. As it turns out, our workforce also has lower levels of productivity growth as well as lower levels of innovation. These are all related: skills are acquired through workplace training and mentoring, and skills are one of the essential ingredients for productivity growth and for innovation.
Studies show that there's a direct positive return on employer investment in workforce training, through less employee turnover, lower recruitment costs, less absenteeism, fewer days lost to accidents, greater employee engagement, greater consumer satisfaction, and on and on. Training also typically leads to higher wages and improved productivity, and higher wages contribute to a stronger economy.
There are understandable reasons that many employers do not undertake workplace training, from cost and convenience to inertia and managerial competence. For some, their business model relies on lower wages and little training, and they accommodate the staff turnover that goes with it.
How do we get more employers to invest in their workforces? The answer has three parts. First, there are technical barriers: concerns about cost, poaching of workers, the value of training, what kind of training. Part of the solution is education and advocacy. Second, there are institutional challenges. Intermediary bodies that advocate for training, that undertake research into best practices, that match employers to the right training institutions, that bring together groups of employers in the same industry are all ways to make workplace training more accessible and less costly through economies of scale.
:
Good afternoon. Thank you for the opportunity to appear before the committee today.
I would like to start by saying that the Quebec Employers' Council welcomes efforts by the federal government to balance the budget by tightly controlling public spending, while preserving transfers to the provinces.
The council invites the federal government to make balanced and strategic use of future budget surpluses by, first of all, reducing the corporate and personal tax burden and, second of all, investing a significant portion in government programs that exert structural leverage on productivity, innovation, marketing, reduction of the environmental footprint and, of course, infrastructure. I will come back to that.
With respect to transfers, we underscore the particular case of health transfers. The council feels that tying health transfers to growth of GDP does not reflect the needs of an aging population. Furthermore, an in-depth review of the Canada Health Act should be undertaken.
On the revenue side, we would like to point out the online sales problem, which is not only depriving the federal and provincial governments of tax receipts, but also doing harm to the competitiveness of Canadian companies.
Moreover, skills training is essential in order to better match labour market requirements and improve workforce productivity. In this connection, the council sees the introduction of an employment insurance contributions credit for training expenses, especially for formal training when new investments are set up, as another way for the employment insurance program to help maintain and create quality jobs.
We would like to stress that it is not necessary, in our view, to enhance the Quebec and Canada pension plans because the need is not widespread.
Another point I would like to make regarding labour is that the recent changes to the temporary foreign workers program, despite their laudable objectives, make the hiring process much more complicated and expensive.
:
Back to temporary foreign workers.
Despite laudable objectives, the changes to the program, in our view, may have negative repercussions on employers who are facing real problems.
Turning to the need to improve business productivity, the Industrial Technologies Office could support strategic innovation programs for manufacturing companies. And, of course, companies would appreciate continued implementation of the measures bringing regulatory and administrative relief and simplification.
Investment in infrastructure remains a major concern for employers in Quebec and Canada. In Quebec, a major infrastructure project is being undertaken, the replacement of the Champlain Bridge, and we encourage the federal government, the government of Quebec and the stakeholders to initiate a constructive dialogue to arrive at financing solutions. Even though the council agrees with the principle of tolls, it is important to have a harmonized approach and to take into account the fact that this is the replacement for an existing infrastructure. The federal government should also invest in public transit and related projects.
The situation regarding airports is another structural problem that needs examining. Particularly because of the various charges being imposed, the current situation puts Canadian airports at a clear disadvantage.
In addition, maximizing job creation is achieved through openness and market diversification. Therefore, the Quebec employers we represent are delighted at the various trade agreements and discussions, whether the Comprehensive Economic and Trade Agreement between Canada and the European Union, discussions with Korea or the Trans-Pacific partnership.
Finally, the Quebec Employers' Council would like to reiterate the importance for the federal government of stepping up its efforts to more effectively combat the smuggling of tobacco products in Canada. It is equally important that the government not yield to pressure to limit innovation in the industry, which would be to the detriment of consumers who might benefit.
Thank you.
I'd like to thank the committee for inviting me to discuss the issue of maximizing jobs in Canada. I'll make a brief statement and then I'll answer questions you might have afterwards.
I'm the co-founder and chief executive officer of Startup Canada, which is a grassroots, entrepreneur-led movement that brings together, celebrates, and gives a voice to Canada’s entrepreneurship community.
In 2012 we completed a cross-country tour during which we visited 20 cities and received input from 20,000 startups and entrepreneurs, from mompreneurs and artisans to manufacturing and high-growth tech entrepreneurs. With the feedback from these entrepreneurs we launched an entrepreneur connect strategy to improve entrepreneur access to support, mentorship, and resources and to help entrepreneurs communicate and connect experiences as they grow their ventures.
We have become a voice for entrepreneurs over the last two years and now are the go-to social media site for entrepreneurs in Canada. We have piloted startup communities across the country to strengthen community support for entrepreneurs and to share best practices. We're in Fredericton, Quebec City, Montreal, Ottawa, York Region, London, Sault Ste. Marie, Winnipeg, Calgary, Nanaimo, and other communities.
We've heard from entrepreneurs that it's difficult for them to know where to go to access support for their businesses. Essentially what has been missing is an umbrella organization to connect the entrepreneur support infrastructure in Canada.
This is where Startup Canada plays a role. Startup Canada connects accelerators, incubators, colleges, universities, co-working hubs, entrepreneurs, mentors, investors, and the necessary elements that foster an entrepreneurship culture and community in Canada. We have a mission to create jobs on an entrepreneurial basis.
We know that the rate at which we produce major entrepreneurial successes is directly correlated with the presence of a strong entrepreneurship community and culture. That's why we submitted a budget submission to this committee to ask for a partnership of $15 million over three years to help us reach more entrepreneurs.
Our Startup communities are led by entrepreneurs with a mandate to drive economic activity through entrepreneurship in their communities. They identify weaknesses and strengths in their communities and fill gaps as needed.
Many rural communities simply don't have the resources that urban communities have. For example, earlier this year Startup Smithers launched a venture fund with the local forest council to support entrepreneurial investment and retention in Smithers.
The communities across Canada are interconnected. They can leverage resources from each other and learn from each other. For instance, the strength of Waterloo in the high tech sector can benefit the strengths of the resource sector in Calgary.
Connecting entrepreneurs to this wealth of knowledge and these connections can help in creating jobs and innovation in Canada. We currently have 20 Startup communities in Canada. If we're successful in our budget submission, we will launch more than 100 Startup communities in urban and rural municipalities. This is the first pillar of our strategy.
The second pillar of our strategy is called Startup Connect. This is an online website that provides a one-stop shop for entrepreneurs to quickly and easily find and access support, space, finance, mentors, talent, events, news, and opportunities to grow their startups and grow jobs. Startup Connect helps entrepreneurs to easily identify and access support within and outside of their communities. We are already in talks with NRC concierge service to position Startup Connect as a communications vehicle and lead generator for federal government services for entrepreneurs.
The third pillar of our strategy is the installation of 1,000 community connect points across Canada. Community connect points are business support kiosks equipped with local community resources and online access to Startup Connect installed in business, economic development, and academic community spaces across Canada, including rural Canada, where support systems may be less accessible.
Together, Startup communities, the Startup Connect website, and physical access points across Canada will go a long way in building the foundations to connect Canada's entrepreneurship infrastructure and improve entrepreneurs' user experience of it.
In the past five years alone, the Government of Canada has invested billions of dollars to support innovation, commercialization, small business, and entrepreneurship. The Canadian accelerator and incubator program is a good example of this. However, investments to date are made in individual organizations, programs, industries, demographic segments, and regions, which while strengthening the individual nodes fails to connect entrepreneurs into these nodes and connect these nodes to each other.
I want to highlight that this failure is not government's alone, but also the private sector community's. We believe that by working together we can connect Canada's entrepreneurship ecosystem to ensure that every dollar invested is maximized to its fullest potential. A strong entrepreneurship ecosystem will only generate more economic activity, and this will create more jobs.
As closing remarks, we support any investments or measures that foster an entrepreneurship culture in Canada. We believe that cultivating a better ecosystem for entrepreneurship will lead to better and more jobs for Canadians.
Thank you.
:
Generally speaking, higher payroll taxes, such as EI premiums, discourage employment and diminish the ability of employers to pay higher wages. When employers have to pay more in payroll tax, it affects the wages they can afford to pay employees.
In the light of the recession, the government had decided to freeze premium rates for a certain period of time. Obviously, making accurate long-term forecasts is always a challenge, but we welcomed the freeze, as opposed to an increase, on EI premium rates at a time when the economy was already weak.
Now, it turns out that the rates were a bit higher. And when you look at the full cycle over a number of years, you see that, on average, it evens out. The government's desire to keep rates stable for a certain period of time, for instance, seven years, is a measure we welcomed.
:
I certainly think it's a step forward.
One point I make is that there's a lot of evidence that shows that training is beneficial to individual businesses. What has been striking to me in my research is why more employers don't train. I think there are a lot of reasons, as I mentioned, a lot of legitimate reasons. Sometimes it's cost, sometimes it's convenience, sometimes it's knowing the training.
The Canada jobs grant is only addressing one aspect of the issue. There are technical barriers like cost, but there are also institutional barriers. For example, it would be good to target something like the Canada jobs grant to specific industries where we want to make a difference.
It's not large enough to have a broad effect on the labour force, so targeting. Encouraging more linkages with educational institutions, so that we're changing the business culture, we're developing partnerships around training, so it's not just the one individual employee who's getting trained, but we're trying to actually make a systemic change.
Thank you to all the presenters.
Mr. Zizys of the Metcalf Foundation, I wanted to plug the excellent report that you did entitled “Better Work: The path to good jobs is through employers”. You gave me a real paradigm shift as you spoke today, and in that report, about focusing on what you call the demand side, the employers, rather than, as we traditionally do, the supply side, the employees and the job seekers.
I was taken in your report—and I see it in my constituency all the time—by the fact that we have the highest proportion of workers with post-secondary education, but we have the highest rates of people with those degrees working in jobs that are way less than what they are qualified for. That is something we really must address head on.
I want to throw an idea at you that I threw at the Chamber of Commerce earlier that comes from work that's going on right now with university presidents meeting with Israeli entrepreneurs here in Ottawa. Their concept is that we ought to give small business owners co-op students or paid interns because they will perhaps bring the innovation ideas to the employers. Those employers don't have an incentive to hire full time. As you point out, they often hire contractors instead. The idea would be to provide a subsidy perhaps, or a tax credit, to those employers to hire people for a few months so they could benefit from that expertise. I would assume that idea fits in with your thinking.
I would also like to thank all of the witnesses for being with us today.
Ms. Kozhaya, I don't want to put you in the hot seat, but our previous panel of witnesses included business groups as well. And some of the requests we have heard are quite similar. Generally, business associations such as the Quebec Employers' Council ask for a tax reduction. You are asking for a reduction in payroll tax. At the same time, you want more investment in areas such as infrastructure, which is entirely commendable. Your organization, like the Canadian Chamber of Commerce, whose representative I questioned earlier today, would like the government to balance the budget and repay the debt.
I am trying to wrap my head around how we can lower revenues by eliminating or reducing payroll taxes, or corporate taxes, and significantly increase investments, while working towards a balanced budget and paying down the debt.
:
In 1994 the Department of Finance produced a purple book and a grey book that I think are still two seminal, outstanding documents about the dangers of debt, about the need to address a debt situation, the need to lower interest rates, and the need to lower taxes, which I think formed a lot of the policy-making that's come out of the department—I think even until this day, frankly.
Those documents talked about a transition from a higher growth economy to a lower growth economy. Frankly, I think that's true today, but we're looking at growth rates that are even lower, so it is going to be a big challenge for countries like Canada, with modest growth rates here in our country, in North America, and across the globe. It is our big challenge. You combine that with our demographic challenges of an aging population and not enough people producing themselves domestically, for lack of a better phrase. That's going to be a challenge going forward.
Realistically, you present the challenges in terms of the global model. If say we doubled the infrastructure program we have, which is a 10-year, pretty ambitious plan on infrastructure, what could you expect in terms of a better growth rate for Canada, in your view?