Finance Committee on Dec. 4th, 2007

[The Vice-Chair, Liberal, Massimo Pacetti]

Thanks, Mr. Alvarez.

Mr. Henwood, in terms of percentage, you said there is 88% that's non-government money. So your ask is about $30 million. Is that what I understood, $1 per person, $32 million or $33 million, something like that? Is that what you're asking for?

[Dale Henwood]

Yes, to be clear, I said the sports sector itself gets 88% of its revenue from non-government sources. The request today is specific to a new investment on the summer program to match what we call on the winter side, “Own the Podium”, which is a winter program. We have not got any new investment on the summer side. We'd like to try to get $30 million annually on the summer side to invest in the programs we call the Road to Excellence.

[The Vice-Chair, Liberal, Massimo Pacetti]

Is that $30 million additional?

[Dale Henwood]

Additional.

[The Vice-Chair, Liberal, Massimo Pacetti]

So what are you getting right now?

[Dale Henwood]

The sport system in the country I think gets $140 million.

[The Vice-Chair, Liberal, Massimo Pacetti]

So what will the Canadian taxpayer get for his additional $30 million?

[Dale Henwood]

They'll get significant new performances, for one thing. I think you'll see a lot more people involved, a lot more kids, deeper down in the system, involved in sports. One of the things I tried to provide in the brief was some reasons why investment in excellence, because excellence is very—

[The Vice-Chair, Liberal, Massimo Pacetti]

I think the problem I'm having...and I don't want to speak for everybody, but I think we understand that we're looking for excellence and we're also looking for participation. But in the end, what is going to be the return on investment, if I can use that expression? How do we know that the $30 million is going to be enough, first of all? I don't even know if it is enough, especially with the number of sports that are out there. If we start including sports teams, how do we draw the line? You're saying summer sports, but summer sports are endless. I think winter sports are probably more controllable. I don't see how even $30 million is enough.

[Dale Henwood]

We have a very comprehensive business plan that's been, again, submitted to the committee, called “Road to Excellence”, which outlines how we arrived at that $30 million figure, how it would be invested in coaches and athletes and R and D and new technology for performance. That whole $30 million is outlined in that program. It's a very comprehensive business plan that was developed over the last couple of years.

[The Vice-Chair, Liberal, Massimo Pacetti]

Okay, and it's been submitted to us.

Have you been working with Heritage on that as well, and Sports Canada?

[Dale Henwood]

Yes.

[The Vice-Chair, Liberal, Massimo Pacetti]

Okay, great. Thanks.

Mr. Zabudsky, can you take me through the R and D, how it works when you're partnering? How is that going to benefit if we increase it? I don't think you mentioned in your brief that you want it to be refundable. Some of the corporations have been asking for the R and D to be refundable. Are we talking about the same program? How is that going to benefit you?

We'll use an example--Nortel. Why would we want to increase and give more money to the Nortels, the Celesticas, the bio-pharms, the aerospace? These are all the companies we saw last week, asking for this money to be refundable.

[Jeff Zabudsky]

What we're talking about is refining the program to drive public–private partnerships between the private sector and colleges, because the advantage to us is that our students then have the opportunity to be working on real-world problems. We've demonstrated through a series of projects, one of which was cited earlier, but there are others, where students were able to work directly with industry in solving a real-world problem. We've done hydrogen buses, cold weather testing in Winnipeg, sustainable building technologies, the MCI project. So what we're talking about is ensuring the program is accessible and is not administratively over-burdened, but we're also expanding it to provide incentives for business to want to work directly with colleges.

We're looking for a hand up as colleges. Universities have had a long history of research. They're known for the research they do. We believe we can leverage the practical, the applied, activity that occurs in a college environment to assist with the innovation agenda.

[The Vice-Chair, Liberal, Massimo Pacetti]

What happens when the technologies are successful? Do you want to commercialize them? Then it's the companies that make the money?

[Jeff Zabudsky]

Exactly. In our case, the benefit to us has been the benefit to our students, their opportunity to work on real-world initiatives. Ultimately, it will benefit the students.

[The Vice-Chair, Liberal, Massimo Pacetti]

So the students get the experience and the companies get the free labour, and then if you end up making money, they get to keep all the profits related to that, through commercialization.

[Jeff Zabudsky]

The economy gets the innovation and the expanded productivity.

[The Vice-Chair, Liberal, Massimo Pacetti]

And meanwhile, the government is going to refund the companies for their R and D. All right, as long as we get to tax the profits on them, I think that's where the key is.

I have one quick question, actually. I think Mr. Alvarez spoke about this as well--the R and D. It's been coming up repeatedly, the streamlining.

Do you have specific examples of how we can streamline the R and D program, make it easier? A lot of companies have been telling us it's not refundable, they have tons and tons of credits, they get audited, but it's not worth anything to them, really. It's just an asset that's lying there, dormant, not working well.

[Pierre Alvarez]

Two issues have come up with us. One is about the definition of what does and doesn't qualify. It seems to be an endless and ever-changing one. Secondly, the audit provisions are to the point where companies simply quit applying, because for the amount of return....

Take Syncrude, for example. I think it's only one out of ten projects they file now, because it's just not worth the hassle. And I think that's definitional as much as anything else, Mr. Chairman.

I can give you other examples, but that's probably the best example I can think of. They just don't bother anymore.

[The Vice-Chair, Liberal, Massimo Pacetti]

Mr. Zabudsky, the colleges are not part of the application process, correct?

[Jeff Zabudsky]

No.

[The Vice-Chair, Liberal, Massimo Pacetti]

Okay, that's great.

Thank you to the panellists for coming before us. We appreciate it.

We'll suspend for a couple of minutes till the next panel comes up. Thank you.

[The Vice-Chair, Liberal, Massimo Pacetti]

Let us start.

Good morning to the panellists. We're here in the second part of the first panel here in Calgary.

I'm going to allow you five-minute time intervals to present your briefs or memoirs, to make your opening statements. Then the members will be asking questions.

As you can see, there are not too many members around the table. That's because we had some problems getting in yesterday. Some of the members got snowed in or snowed out, whichever expression you want to use. We also had some other problems: there's a budget bill going on, and the same committee is responsible for that budget bill. There are problems in planning by the Conservatives, but we're not going to get partisan.

In case any of you want to swear, you cannot swear, but to comfort with respect to your testimony, everything you say will be recorded. All your testimony is going to be on record for all the members to look up and review; everything is on record.

We have somebody filming. To whoever is going to be the first presenter—I think it's going to be Mr. Andrew—he'll be filming you for the first minute. Don't feel the pressure; it's just a camera.

Let's get started. From the Coalition of Canadian Energy Trusts, we have Mr. Andrew.

Go ahead, for five minutes.

[Bill Andrew, Co-Chair, Coalition of Canadian Energy Trusts]

Thank you very much, and thank you to the members of the committee.

My name is Bill Andrew. I'm the president and CEO of Penn West Energy Trust, and I'm presenting here as co-chair of the Coalition of Canadian Energy Trusts.

Over the past year, many members of our coalition have been in front of you on a number of occasions. We've also had the opportunity to meet privately with committee members and the committee as a whole, in the hope that we could influence some change to the federal government's decision to tax income trusts.

I note that Mr. Pallister, the chair of the Standing Committee on Finance, is from Whitecourt. Our company, Penn West, conducts a lot of business in Mr. Pallister's riding. We employ a total of 1,100 employees in western Canada, 75 of whom live in and work around Whitecourt and 600 of whom drive trucks made in the Golden Horseshoe area of Ontario.

Our ability to do business and to sustain these jobs has been significantly challenged since October 31, 2006, due to the downward pressure on our unit price caused by the reaction to the government's decision to change the rules regarding income trust taxation. I'm sharing this with you not to tug at your heartstrings but to bring home a story that is being played out in ridings across western Canada among people living with the consequences of your government's decision.

Mr. Chair, the oil and gas sector brings significant benefits and tax revenues to towns and rural areas throughout western Canada, towns and rural areas that are home to the hardworking Canadians the government loves to single out for recognition. The actions of this government have significantly reduced the ability of energy trusts to access capital and are putting many energy trusts firmly in the sights of foreign interests. It follows that these actions, which replaced a made-in-Canada solution that fit our mature oil and gas asset base, and the potential fire sale of these assets, clearly cannot be in the best interests of Canadians.

The federal government has asked us to speak today on the tax system needs for a prosperous future. We'd like to reiterate one more time the Coalition of Canadian Energy Trusts' main points regarding the need for a continuation of the income trust structure, which fits the energy industry reality in Canada.

Firstly, we believe it is the responsibility of government to formulate policies in a transparent manner. We are dismayed and continue to be dismayed at the government's continued refusal to provide documentation and evidence concerning how the Department of Finance arrived at the decision to implement the tax fairness plan.

Secondly, as expert witnesses at the finance committee's hearings have testified, the Conservatives' one-size-fits-all approach to the income trust decision was not the most appropriate model for the Canadian economy. Many witnesses have cited the need to consider sector-specific exemptions to the policy. We continue to believe there's a strong case for this made-in-Canada solution, which would keep our energy assets in the hands of Canadians and provide options for accessing capital to companies working to extend the economic life of western Canada's energy industry.

Thirdly, the federal government has “unlevelled” the playing field. We believe the corporate tax model should be competitive with those in other countries. This is one of the reasons for our objection to the October 31, 2006, decision. Contrary to the government's assertions in the tax fairness plan, oil and gas exploration businesses and development and production businesses do continue to qualify for similar treatment in the U.S. In fact, since the Halloween announcement, the size of the U.S. MLP sector has grown dramatically. The sharp devaluation of the energy trust sector since October 31 has imposed a significant cost of capital disadvantage to Canadian entities relative to our U.S. counterparts. This puts the entire sector at risk of increased foreign ownership of Canada's energy resources.

Fourthly, from an investor's point of view, there has been a significant and detrimental effect on the growing population of Canadian seniors, who had come to rely on revenues from income trusts as a legitimate income stream. These investment decisions were made in good faith, based on a promise made by Canada's current Prime Minister. The Conservative government's decision not to keep this election promise betrayed our investors and caused incalculable damage to their long-term fiscal well-being and to Canada's financial reputation on the world stage.

In conclusion, the Coalition of Canadian Energy Trusts again urges the Standing Committee on Finance to revisit the recommendations that emerged from the committee's investigation into the income trust decision, namely, to extend the period from four to ten years for all entities currently operating as income trusts, and, secondly, to consider sector-specific permanent exemptions from the policy, based on precedents being set overseas and as in the United States, where they've done so through the MLP structure in the energy sector.

Thank you very much.