Evidence of meeting #3 for Finance in the 39th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was dollar.
A recording is available from Parliament.
4:35 p.m.
Senior Vice-President and Chief Economist, TD Bank Financial Group
No, but if I can add another word, I'm just worried about the context. Even if they did, there's not a big impact from interest rate to the exchange rate.
4:35 p.m.
Conservative
Rick Dykstra Conservative St. Catharines, ON
Given the experience in New Zealand, I guess it would be yes, Mr. Beatty?
4:35 p.m.
Managing Director, Toyota Canada Inc.
The answer would be no, but I do think it's important for the government to give an indication as to where its longer-term economic policy is headed.
4:35 p.m.
Conservative
Rick Dykstra Conservative St. Catharines, ON
Fair point. Actually, that's a great place to follow up with Mr. Drummond.
I'd like to follow up a bit on this because I think it delves into a little deeper issue—at least for me, as I've recognized and seen a lot of discussion on this over the last couple of years. You mentioned that even at an 80¢ dollar the manufacturing industry in this country would be in trouble.
Could you comment a little further as to why you would say that?
4:35 p.m.
Senior Vice-President and Chief Economist, TD Bank Financial Group
Yes, because there's one common factor that's been going around the world, in that the emerging economies—China, Vietnam, and South Korea—have basically made an extraordinarily serious run at the lower value-added chains in manufacturing right around the world. You've seen that response. The decline in manufacturing's share of output has accelerated as a trend in virtually every country, particularly in most other highly industrialized countries, who have seen larger percentage reductions of employment in manufacturing than Canada has, particularly the United States, as they move more into higher-value niche markets but are losing....
We've talked a lot about automobile parts. North America didn't import a single automobile auto part from China five years ago, and these parts are now 5% of the market. They're probably going to be 10% or 15% in another five years, because this trend is going to accelerate. As I said, the dollar is exacerbating this. But these trends are going to be there, and would have been there, even without the dollar.
4:35 p.m.
Conservative
Rick Dykstra Conservative St. Catharines, ON
Pursuing that a bit further, the inconvenience or convenience of the dollar issue we're facing at the present time, it seems to me that all of our discussion over the past number of years has been on the influx of China's imports, for example, in both Canada and the United States and the impact they have had on our manufacturing base.
So isn't that where we should be focused, at least from a government perspective, as Mr. Beatty said, given government's responsibility to try to move things forward and to at least show what our plan is? And what would you suggest?
4:40 p.m.
Senior Vice-President and Chief Economist, TD Bank Financial Group
Well, if you're saying how do we respond to that by limiting it, my answer would be no.
4:40 p.m.
Senior Vice-President and Chief Economist, TD Bank Financial Group
How we would respond to the competitive pressure, absolutely, I think that is the be-all and end-all of the Canadian economy.
As I said, they've basically knocked out the lower value-added chains. Actually, the fastest growing imports in Canada, and even in Ontario, our industrial heartland, and Quebec, are capital-intensive machinery and equipment. So they're moving up the value-added chain pretty quickly as well.
If we want to look at Canada five or ten years into the future, we will not have a strong industrial base unless we succeed in this productivity challenge. We're never going to succeed on a wage basis, and we'd never want to try it; we'll only succeed on a productivity basis. And productivity in China, while it's still a lot lower, is growing 6% a year. Ours has been growing 1.1% a year over this decade. That's not a pretty picture, unless we can turn that around.
4:40 p.m.
Conservative
Rick Dykstra Conservative St. Catharines, ON
Mr. Beatty, I know you want to comment; I've got one more question for Mr. Myers, but go ahead.
4:40 p.m.
Managing Director, Toyota Canada Inc.
I just wanted to second the notion that it's productivity that ultimately allows us to be competitive going forward, and I say that from a company that's about to open a $1.1 billion plant in Woodstock, Ontario, next year, with 2,000 jobs and nine additional suppliers coming on board to support that plant. Those investments are there for the long haul. We're very focused on productivity, though, to remain competitive.
However, I did want to raise one other flag for you, which is that in the short term it's not the manufacturing part of our operation that faces some challenges; it's the retail side. Consumers are basically parking. They are thinking that now is not the time to be making a consumer purchase. In terms of pre-budget consultations and movement toward...signals in the marketplace, that's hugely important, because there are jobs at retail that are badly affected by current conditions.
4:40 p.m.
Conservative
Rick Dykstra Conservative St. Catharines, ON
Thank you.
Very quickly, Dr. Myers, maybe this follows up a bit on Mr. Beatty's comments, and Mr. Stanford mentioned it. He and I have discussed this before and certainly will again. I'll get your thoughts on the concept of the corporate tax cuts not having a significant impact on the investment that companies may make, first, and tie into the fact that you've suggested we should extend the accelerated capital cost allowance for the machinery and equipment.
There's not a lot of time, but would you mind making a couple of comments?
4:40 p.m.
President, Canadian Manufacturers & Exporters
I think the lower corporate tax rates are extremely important in making sure that Canada is an attractive location for global investment. That's an essential thing to do, but the point is with other jurisdictions around the world taking some very active measures to encourage investment in innovation, investment in new technologies, and investment in skills, that itself just gets us in the game. The issue is how we ensure that those investments....
As Don says, everybody is going through this, so we've got to make sure we have an industrial base that is as competitive as the best in the world. I think we do, but government, in my view, cannot do anything to offset the dollar appreciation. It can set a business environment that makes it a lot easier for companies to make these investments, to adjust in the short term, and then to compete in the long term.
November 20th, 2007 / 4:40 p.m.
Liberal
Garth Turner Liberal Halton, ON
Thank you very much.
First, Mr. Beatty, you've made an interesting comment about books and about books being the visual symbol of what consumers were expecting. Of course, we all remember the Minister of Finance standing up there with his Harry Potter book and talking about what he paid for it here and in the United States.
My question to you is this. Do you feel that the Minister of Finance has had an impact on driving consumer expectations in terms of pricing?
4:40 p.m.
Managing Director, Toyota Canada Inc.
I think much of the public debate, no matter who's been involved, has driven public expectations about pricing, and right now consumers are frankly having a hard time understanding what a good value is.
4:40 p.m.
Liberal
Garth Turner Liberal Halton, ON
Right, but he's the Minister of Finance. He speaks for the Government of Canada, and it seemed that was his message during that press conference. Didn't he warn retailers and Canadian manufacturers, distributors, and wholesalers that they had to bring their prices down, and the government seemed to expect that? I'm just wondering if you and maybe any of your colleagues would care to chime in, because it seemed that the minister was telling the guys at your end of the table that you were gouging consumers.
4:40 p.m.
Managing Director, Toyota Canada Inc.
Everyone is entitled to their opinion about fair pricing. I think the point is that if it raises concerns in the mind of the consumer, then as a consumer-facing industry, we're obliged to get out and talk to that consumer.
I will say that on my way here today I stopped at a couple of auto dealerships along the seaway. They're seeing business down by about 50% compared to last year, so it's very clear that the current speculation, no matter who's involved, is causing those concerns.
4:45 p.m.
Liberal
Garth Turner Liberal Halton, ON
It's important to know.... There are some drivers.
Mr. Stanford, do you have a comment on this?
4:45 p.m.
Chief Economist, Canadian Auto Workers Union
I think the symbolism of the finance minister's stunt that day was not helpful in terms of the adjustments of Canadian industries who are trying to preserve their footprint here. That was clearly trying to position himself as a vanguard battler on behalf of consumers. It will make absolutely no difference in the long run.
4:45 p.m.
Liberal
Garth Turner Liberal Halton, ON
Thank you.
Mr. Drummond, it's nice to see you again, sir. It's been a while.
Mr. Drummond, I have a question for you about the GST cut. I have a bit of concern that the GST cut may actually be successful in doing what the government wants it to do, which is to drive consumer spending further, perhaps to be a bit inflationary, perhaps to cause the Bank of Canada to be concerned a bit about its inflationary targets, and maybe to lead to higher interest rates and a higher dollar. Is the GST cut inflationary? Is it perhaps going to accelerate this unfortunate advance in the currency?
4:45 p.m.
Senior Vice-President and Chief Economist, TD Bank Financial Group
Cutting the GST is a wonderful way of giving back tax money to people because this is a wonderful income distribution, but it has no other redeeming qualities, in my mind.
Vis-à-vis the economic challenges we talked about, particularly in the manufacturing sector, the forestry industry, or particularly the more general implications for productivity in Canada, it does absolutely nothing on that front. It can only stimulate consumption.
We have, quite frankly, the Bank of Canada saying that with a 5.8% unemployment rate, we don't lack for any consumption, so we have a very slow savings rate.
We do have other problems that, to its credit, the government has acted on I think very positively on the corporate tax side.
I think our remaining huge problem on the tax side is the extraordinarily high marginal effect of tax rates on families up to about $50,000 of income. If they contemplate earning an additional dollar, they only get to keep about 30¢ of it, and it just destroys any of the incentives to work, save, and invest.
It takes about $10 billion to address that, and there I think is the sad irony of the GST cut, because that's over $10 billion that could have been put more profitably to that purpose.
4:45 p.m.
Liberal
Garth Turner Liberal Halton, ON
Mr. Stanford, do you believe the American economy is going inevitably into a recession?
4:45 p.m.
Chief Economist, Canadian Auto Workers Union
No, I don't think it's inevitable at all. In fact, monetary policy in the American context has been consistently very flexible. They have not bound themselves with a particularly narrow vision of inflation targeting. They've given themselves the flexibility to respond to circumstances as they arise. They've responded quite quickly in this current credit crunch, as they have in others.
I am hopeful they will not enter a recession, and their policy response from that side has been more appropriate than ours.
