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.
4:50 p.m.
NDP
Thomas Mulcair NDP Outremont, QC
This is specifically the difference in price between a Corolla CE purchased in Ontario and the same car purchased in Detroit, Michigan.
4:50 p.m.
Managing Director, Toyota Canada Inc.
Off the top of my head, no, but probably about $1,300.
4:50 p.m.
NDP
Thomas Mulcair NDP Outremont, QC
Would you be surprised to learn that the automatic Toyota Corolla CE, in Canadian dollars with all taxes included, sells in Canada for $20,334.50? This information can be checked at Toyota.ca, which is, I would assume, a valid source. However, when you key in a Detroit postal code, the price given is $15,935. The price difference between the same model of these two cars is $4,500 or, when given in a percentage, more than 25%.
Can you tell me how we can justify such a thing to Canadian consumers when, in fact, our dollar is worth more than the American dollar?
4:55 p.m.
Managing Director, Toyota Canada Inc.
The answer to your question is that the Canadian vehicle has more base equipment in it than the U.S. vehicle. It has a regulatory requirement for immobilization systems, which don't exist in the United States but are required for manufacturers here in Canada. It has available finance rates in Canada that are substantially reduced from those available in normal commercial terms. It has roadside assistance and a variety of other value-added features that are part of the package.
4:55 p.m.
NDP
Thomas Mulcair NDP Outremont, QC
At any rate, Mr. Chairman, Mr. Beatty thought that the equipment that he just spoke about was worth only $1,500. Is he surprised to learn that, in fact, the price difference is $4,500?
4:55 p.m.
Managing Director, Toyota Canada Inc.
You mentioned, of course, that this is a tax-in price as well.
4:55 p.m.
Managing Director, Toyota Canada Inc.
The taxes, of course, would be different between the two jurisdictions.
4:55 p.m.
NDP
Thomas Mulcair NDP Outremont, QC
No, the price in Canada for a Corolla CE automatic, taxes included, is $20,334.50, but it is $15,935 in the United States.
4:55 p.m.
Managing Director, Toyota Canada Inc.
So different taxation in two different jurisdictions apply in this instance.
What we've seen over the course of the last 12 months is an unprecedented rise in the value of the Canadian dollar. The vehicle that sold in the United States may very well be a vehicle that is built at our plant in California, as opposed to being built in Cambridge, Ontario--which is where all of our Canadian vehicles are delivered--and the inherent differences in the specifications of vehicles drive differences in pricing.
4:55 p.m.
NDP
Thomas Mulcair NDP Outremont, QC
Mr. Chairman, the only thing that I need to do now is ask Mr. Beatty how he could have been out by 300% with respect to the price difference. He thought that there was a difference of $1,500 whereas in fact the real difference is $4,500. How can he, as the spokesperson for Toyota, have such a wrong idea about the real price difference?
4:55 p.m.
Managing Director, Toyota Canada Inc.
Of course, when we compare pricing, we do it on a comparably equipped basis. The vehicle based as a CE in the United States is different from the vehicle sold as a CE in Canada.
4:55 p.m.
NDP
4:55 p.m.
Managing Director, Toyota Canada Inc.
But your question was, what is the typical difference? It is about that, on a comparably equipped basis.
4:55 p.m.
NDP
Thomas Mulcair NDP Outremont, QC
I think that we can all understand why the Canadian consumer is frustrated, Mr. Chairman.
Thank you.
4:55 p.m.
Conservative
The Chair Conservative Rob Merrifield
Thank you very much.
Thank you to the witnesses for coming forward. Thank you for the questioning.
We will now suspend for a few minutes while we set up the next panel. Thank you very much.
5 p.m.
Conservative
The Chair Conservative Rob Merrifield
I'd like to call the meeting back to order.
With us for the second session of this study we have ACTRA, the Alliance of Canadian Cinema, Television and Radio Artists. We have the Canadian Labour Congress, the Canadian Vehicle Manufacturers' Association, the Quebec Federation of Chambers of Commerce, and from the University of Toronto by teleconference.... When Roger Martin, Dean of the Rotman School of Management, shows up on the teleconference we will introduce him, but he's not there at the present time.
We are going to proceed the way it is right now with the witnesses we have before us.
Please come to order as a committee so that we can properly hear, first of all, Richard Hardacre.
The floor is yours, sir.
November 20th, 2007 / 5 p.m.
Richard Hardacre National President, Alliance of Canadian Cinema, Television and Radio Artists (ACTRA)
Thank you, Chair. Thank you, committee members.
My name, as you've heard, is Richard Hardacre. I'm a Canadian actor; I'm a professionally trained working actor. I'm also the elected president of ACTRA, the union representing the interests of performers in film, television, sound recordings, radio, and new media. I'm very pleased to bring you the concerns of more than 21,000 members of ACTRA who live and work in every comer of the country; English-speaking artists, all of us, whose performances entertain, educate, and inform Canadians and global audiences through the most powerful media that presently exist.
That's our boilerplate.
What I have to say here today is serious business, because for us, creative art in Canada is serious business. According to StatsCan, in 2002 the culture industries contributed $40 billion to Canada's gross domestic product. More people work in culture than work in agriculture, forestry, mining, and oil and gas combined. In the most recent year for which we have industry stats, the film and television production sector was a $4.8 billion business employing more than 125,000 people.
I hope you have copies of our September written submission. I'll briefly touch on the main points, and then we'll talk about the impact of the high dollar on the film and television industry, Mr. Chair. The clerk informed me that you want to hear specifically about that.
ACTRA made several proposals in our submission, which you have. First, we asked the finance committee to recommend adequate, stable, long-term funding for the Canadian Television Fund, for Telefilm, and for CBC. This is critical to being able to bring Canadian stories to our televisions and cinemas. It's important to us to establish a home-grown industry.
Our second recommendation is to reintroduce income averaging for professional artists. As many reports have observed, professional artists have income that can fluctuate enormously from year to year, and the present tax regime is unfair to creative artists. Just as artists must spread their income over years to survive, we're asking that the tax liability also be spread over years. Canada has previously had income averaging. Many countries still have it and specifically include artists. Quebec introduced a system in its 2004 budget to help artists in that province spread the tax load over several years.
Now I'll provide the committee with some insights from the film and television industry about the soaring dollar. The current surge of the dollar is indeed a serious threat to this sector of film, television, new media, and commercial production.
To understand the impact you need to know that we have two types of production in this country. We have Canadian producers making programs and movies primarily for Canadian audiences. Nationally, less than half our work at the moment is Canadian content. More than half of it is on service productions: making programs, movies, and television commercials, mainly from the U.S. locating in Canada.
This is the type of production that is the reason this country gets dubbed “Hollywood north”. It's primarily this U.S.-based service production moving to Canada for location—this “service production”, as we call it—that's affected by the high dollar.
A 2004 industry report pointed out seven factors that affect Canada's competitiveness as a filming location. Of these, the most important is the value of the Canadian dollar relative to the U.S. greenback. The ratio is simple: the more we lower the dollar, the more work there is; the higher the dollar, the less work there is in service production.
Remember that producers plan their productions well in advance. It can easily take more than a year of planning ahead for big budget films. The superpower strength of our dollar was not anticipated when locations for today's productions were being scouted.
This brings us to 2007 and currently 2008. At the moment, production levels throughout North America have been affected by the run-up to and now the complete strike of scriptwriters in the United States. I'm sure you've heard that the Writers Guild of America is in the third week of its strike. ACTRA supports them, because creators everywhere deserve a fair share of the returns from digital media.
U.S. producers and productions have been anticipating labour unrest for some time. This means that the studios were pushing very hard to complete projects before the writers' strike. Production in 2007 has been artificially inflated, so to date we've been insulated from the rise of the dollar. As the writers' strike continues to affect us, two big productions in B.C. have shuttered already, and more are coming. Canadian actors and crews work on these shows, and the strike has already put as many as 1,000 out of work in British Columbia alone.
So that brings us to the dollar. The full impact of the overheated dollar, the Canadian dollar, will not be felt until the middle or the end of 2008. We know the studios intend to let projects already on the books go ahead. But due to the dollar, they're not planning on many new productions. This will be felt especially in British Columbia, which is in the same time zone as Los Angeles, one of the reasons for its popularity.
But we have suggestions on what you can do to help--three things. Some of them are already in the written brief submitted to this committee. This is what we need to do. We need to build the Canadian industry, build an industry that's not dependent on foreign production moving to Canada. The way to do that is to increase the tax credits and broaden the base of the tax credit system. We've had tax credits in Canada for many years. We know they generate substantial economic activity, and more taxes are created than those that are forgiven.
We have suggested two formulas to increase the tax credit formula. One is for film and television video, the tax credit for domestic productions. Increasing the base is what's really important, so it's not just simply on a small labour component, Mr. Chair.
5:10 p.m.
Conservative
The Chair Conservative Rob Merrifield
Thank you very much. Thank you for being here and presenting that. We'll engage you again, I'm sure, in the questioning.
We have with us, Andrew Jackson from the Canadian Labour Congress.
The floor is yours, sir, for seven minutes.
5:10 p.m.
Andrew Jackson National Director, Social and Economic Policy, Canadian Labour Congress
Thank you, Chair.
I've distributed to members of the committee a short paper. There was a group of economists from the labour movement that met with the Bank of Canada this morning. This was prepared as a background note for that meeting.
In our view, the Canadian dollar is greatly overvalued compared to economic fundamentals. We see the key need now as being an interest rate cut by the Bank of Canada. That is by no means the entire solution to the problem. It's the immediately available solution that would be of most use in dealing with the problem. I think in the longer range there's a whole series of issues bound up with the international currency regime. The fact that the currencies of China and most other Asian countries are tied effectively to the U.S. dollar fundamentally makes the problem of overvaluation for us significantly worse.
In our view, an exchange rate at or above parity will destroy cost competitiveness for large and important sectors of the Canadian economy—not just manufacturing, but also, as my colleague has alluded to, cultural industries, tourism, anybody selling goods and services into the U.S., and for that matter, the Asian market, given their tie to the U.S. currency.
I think history teaches us that exchange rates can and do overshoot the level justified by fundamental economic factors, and that can persist for long periods of time with permanent structural damage being inflicted. One view of that damage can be seen by looking at the United States and what has happened to its manufacturing sector over the past few years as the U.S. dollar was overvalued.
How do we assess or correct the exchange rate? One way would be by purchasing power parity, which would take you to the low 80¢ range. Another really important benchmark for the manufacturing sector is the exchange rate that's needed to equalize unit labour costs between Canada and the U.S., and by most estimates that would be in the low 70¢ range. That's just given our lower level of productivity than the U.S. The fact is that now, in dollar terms, wage rates in Canadian manufacturing are equal to the U.S. Unless on average you have an exchange rate that offsets the productivity disadvantage, you're going to see significant shrinkage of the Canadian manufacturing sector.
In round numbers we've lost 300,000 jobs in the manufacturing sector already. That reflects the exchange rate appreciation that's taken place over the last two years. These exchange rate impacts operate with a lag for a number of reasons. It would be our estimate that if the dollar persists at parity, we're going to lose something in the order of another 300,000 jobs over the next two or three years, unless it falls back earlier.
So what is causing the surge of the dollar? Well, the conventional explanation, of course, is that it's an oil price effect, that Canada's dollar is a petrodollar, that this is what has driven the upward appreciation of the exchange rate. In point of fact, it's a misperception that the Canadian currency is a petrodollar. Only 12% of Canada's exports consist of oil and refined oil products. Energy exports are larger, but that includes natural gas. Natural gas prices have not been shooting out of sight. They're no higher than they were a year ago.
The fact that our dollar adjusts so quickly in relation to oil prices is, on the face of it, rather absurd. If it was the case that the increase in the price of oil was improving our balance of payments by increasing our exports, an oil price effect would be to improve our balance of trade. In fact, what we're now beginning to see is the emergence of a huge and growing manufacturing trade deficit, and a severe deterioration in our trade balance reflects in the overvaluation of the currency. Just look at the trade figures from last month.
The other factor that is driving the appreciation of our dollar is the fall of the U.S. dollar. And yes, this is indeed important. But over 30% of the depreciation of the U.S. dollar, in terms of their basket of trade with the rest of the world, is accounted for by Canada alone. We are bearing 30% of the brunt of the depreciation of the U.S. dollar. Most other major exporters into the U.S. market, from China through Japan through the developing Asian countries, have tied their currencies to the U.S. dollar, so they're not affected by this depreciation.
In fact, as our export share of the U.S. market falls, it's not being filled by U.S. domestic production, by Asian exporters, just as the U.S. is not gaining in our market as their dollar depreciates. In fact, that is going to Asian imports.
So what is the explanation? Why has our dollar surged so high just recently?
5:15 p.m.
National Director, Social and Economic Policy, Canadian Labour Congress
The commodity price, the relative appreciation.... The fact of the matter is that the Bank of Canada has raised interest rates by a quarter of a percentage point, while the U.S. has cut policy interest rates by three-quarters of a percentage point, so policy decisions have closed the interest rate gap by one percentage point.
Now, the U.S. was higher at initial levels. The Bank of Canada did that because of its outlook for inflation for the Canadian economy, but the fact of the matter is that this relative alignment of interest rates has had a big impact in this recent surge. It's up to the Bank of Canada to close that gap, which it can and should do.
5:15 p.m.
Conservative
The Chair Conservative Rob Merrifield
Thank you very much.
As I said, we give you five minutes and we hope you keep to it. I don't want to cut people off, but I will if it goes too much further than that.
We have with us Mark A. Nantais, president of the Canadian Vehicle Manufacturers' Association. The floor is yours, but before I yield you the floor, I just want to do a sound check.
We have with us Roger Martin. Roger, can you hear us?