Finance Committee on Nov. 28th, 2007

[The Chair, Conservative, Rob Merrifield]

We'll start our meeting at this time. We have enough members here and our witnesses are in place. The clock suggests that we should have started a couple of minutes earlier, so let's get started.

I do not see Michael Bach. Perhaps we will start with the second witness, David Powell, president and CEO of the Canadian Finance and Leasing Association.

We thank you for coming and being here. I'll introduce the rest of the panel as I yield the floor to you.

We have a very tight timeline today. We have votes, so I just want to let the committee know that we will be interrupted. We're hoping to cut our panels a little tighter and to be completed by the time of the vote.

With that, we will yield the floor to you. Five minutes, please.

[David Powell, President and Chief Executive Officer, Canadian Finance and Leasing Association]

Thank you, Mr. Chairman.

We titled our submission to the committee “Reinforcing the Foundations for Growth and Prosperity”. For us the formula is clear: more investment in people and assets leads to economic growth, and economic growth raises the standard of living of all Canadians.

First let me describe briefly what our industry does and the role it plays in Canada's prosperity agenda. The core of what we do is asset-based financing. After the banks and credit unions, our members are the largest providers of debt financing to Canadian businesses and consumers. Our focus is financing specific assets—essentially equipment and vehicles. Our industry has over $106 billion worth of financing in Canada today, an amount that has doubled over the last seven years.

Our members lease everything from aircraft to big rig trucks, cars, recreational vehicles, photocopiers, office equipment, and the printing presses you see in corner printing shops.

Our key message is that the very nature of what we do targets productive assets. The growth in leasing is not a tax-driven phenomenon but efficiency-driven.

So how does our industry specifically fit in the national prosperity agenda? How about the fact that our industry contributed 8% of the total increase in living standards of Canadians over the period of 1992 to 2002, the most recent period studied by an independent economic research firm that does work for the Department of Finance as well. This first-of-its-kind research demonstrated that our industry has a significant impact on raising the standard of living of all Canadians. Specifically, the study found that the “rise in asset-based financing from 1992 to 2002 improved living standards in Canada by 2.3%”.

We asked two noted economists to review this research, Dr. Jack Mintz, then head of the C. D. Howe Institute, and Jim Stanford, chief economist of the Canadian Auto Workers Union. Both of them reviewed the research and supported its conclusions. Dr. Mintz said that the industry “contributes a disproportionate share to higher living standards”.

So we're here today because we believe our industry is an important part of Canada's productivity, economic growth, and national prosperity. We'd like to share with you five messages as you proceed with your work.

The first message is that the public and private sectors must, in our view, concentrate their efforts on growing the economy. The demographics are clear: Canada is getting older and the workforce is getting smaller. How can fewer people generate more wealth to support more people and services? It's through improved productivity.

To do so, Canada must have a highly educated workforce, an efficient public infrastructure, and productive capital assets. A highly educated workforce is mobile and will go where the jobs are. To keep the jobs here, we need efficient infrastructure and capital assets.

Our second message is that investment in equipment is key to greater efficiency and enhanced productivity in today's more competitive marketplace. The appreciation of the Canadian dollar has forced some sectors of the Canadian economy, notably those that depend on export markets, to invest more heavily in machinery and equipment over the last five or six years. Productivity in the manufacturing export sector has seen a cumulative increase of nearly 11% since 2001. New equipment has allowed manufacturers to boost output while reducing factory hours. The high dollar has forced these trade-oriented sectors in Canada to work smarter; domestically focused sectors have not followed suit.

Our third message is that we should enhance the positive strengths of the competitive marketplace in Canada. When I ask my colleagues south of the border what motivates their customers to acquire new equipment to make their businesses more efficient, it comes down to essentially one thing: it's competition, a question of looking over their shoulders at their competition in Florida or Texas or California. If they don't equip themselves with the smartest people and the best equipment, they're not going to be able to compete.

The U.S. experience shows that a competitive national marketplace stimulates innovation, investment, and productivity across the domestic economy. This is a greater motivating force for investment in innovation than any number of complicated government financial incentives. Efforts to encourage more competition in Canada have been less successful, with too many entrenched interests not wanting them to succeed. Government policy still inhibits capital investment, and Canadian companies too often seem slower to invest than their foreign competitors.

Our fourth message is that the federal government should lead a national coalition for growth and prosperity serving as a catalyst and its champion. This is our primary message.

We should focus tax policy on investments and productive assets. Tax policy is critical to capital investment. The government should be congratulated for encouraging capital investment in its 2006 and 2007 budgets. We applaud the intent to provide a more favourable climate for businesses to accelerate or increase their investment in machinery and equipment.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move on to the Canadian Health Food Association, to Penelope Marrett, president and CEO.

The floor is yours, five minutes.

[Penelope Marrett, President and Chief Executive Officer, Canadian Health Food Association]

Thank you.

My name is Penelope Marrett. I am the President and Chief Executive Officer of the Canadian Health Food Association, the CHFA.

The CHFA is Canada's largest trade association representing the natural and organic products industry.

The Canadian Health Food Association, also known as CHFA, is Canada's largest trade association, representing the whole supply chain--growers, manufacturers, retailers, importers, distributors, consultants, and other associations involved in a variety of sub-sectors in the industry, including supplements, vitamins, herbals, homeopathic medicines, sports nutrition and organic foods, health and beauty aids, and other organic products.

Natural health products have become increasingly popular as Canadians look for better ways to manage their health. In fact, over 75% of Canadians purchased natural health products in 2005 according to an Ipsos Reid survey. This industry is currently valued at over $2.5 billion, and it is growing. The Canadian organic food industry for its part is one of the fastest-growing sectors in Canadian agriculture, growing at the rate of 20% last year, and boasting sales of $1 billion in 2006. We are very excited about the prospects of our industry as more and more Canadians are seeing the benefits associated with the usage of natural health products and organic foods.

Our industry, though, currently faces important challenges. As the demand continues to expand for these types of products, CHFA believes the government needs to take specific steps to address industry and consumer needs. We ask that the government enable a tax framework that promotes citizens' health while stimulating industry growth.

But first, we'd like to commend the government on its recent announcement to reduce the corporate tax rate for small businesses. This is, we believe, an important step in reducing the tax burden on our members, most of whom are small and medium-sized businesses. We ask that the government continue to support our entrepreneurs to allow them to prosper in the Canadian economy and beyond.

We have a number of tax-related recommendations in our brief. We believe these incentives would provide for a stronger framework for our industry. I would like to recommend, on behalf of CHFA and its members, to the committee that these tax-related steps be taken: first, allow for support to farmers for transition from conventional to organic agriculture, and second, allow natural health products to be recognized as medical expense deductions.

Aside from these tax measures, we are also very concerned with the regulation of natural health products and organics in Canada. We would like to see the committee members consider the importance of providing adequate funding for federal government-regulated bodies. CHFA recommends that A-base funding be provided to the natural health products directorate to ensure it has the necessary resources to implement and enforce regulations that affect the more than 40,000 natural health products currently in the Canadian marketplace.

As a result of the new natural health product regulations that came into force in 2004, the NHPD has had to deal with a serious backlog of licence applications. We recommend that additional funding be provided to the directorate to ensure that the backlog is dealt with quickly and sufficiently. Specifically, a greater number of resources are required for a limited amount of time of two to three years to ensure the backlog of some 20,000 applications are reviewed and processed.

CHFA also recommends A-base funding to the Canadian Food Inspection Agency to ensure implementation, compliance, and enforcement of the new organic regulations. These regulations will give Canada a competitive edge in food exports and will enable Canada to join more than 40 other countries worldwide that already have regulatory frameworks in place. As Canada moves forward on these initiatives, long-term sustainable funding models must be in place to ensure that regulations have meaning. Funding models that provide certainty to regulatory work should be adopted.

Thank you, members of the committee, for giving us the opportunity to be heard. We hope you will recommend tax measures in the next budget that will help our growing industry. We also hope you will recommend that A-base funding be provided to the regulatory bodies in the federal government responsible for the monitoring of regulations pertaining to natural health products and organic products.

Thank you for your attention.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move on to the Canadian Home Builders' Association--Richard Lind, president, who I believe is accompanied by John Kenward.

The floor is yours for five minutes.

[Richard Lind, President, Canadian Home Builders' Association]

Yes, thank you very much, Mr. Chair.

I am president of the Canadian Home Builders' Association, and I am also a builder in Nova Scotia. As you indicated, I have with me the association's chief operating officer, John Kenward.

The CHBA has made its written submission to the committee and have also updated it to reflect the further 1% reduction in the GST. We have provided copies of our submission supporting housing affordability and choice, as well as copies of an updated edition of our supporting document, The Canadian Housing Industry – Performance and Trends.

The focus of my remarks will be specifically on the submission supporting housing affordability and choice, but I would like to start with a little bit of context.

CHBA does acknowledge the actions of the federal government in several areas, specifically the further reduction of 1% in the GST, which, with the earlier 1% reduction, certainly greatly helps housing affordability across Canada. Further, we do acknowledge that the government has met its commitment on the GST and has illustrated its support for home ownership across Canada.

CHBA also recognizes the government's efforts to address the skilled trades shortages, particularly its new labour market investment strategy and its actions with regard to immigration policy. CHBA also welcomes the federal government commitment to the infrastructure funding, and the industry continues to be pleased with its working partnership with Canada Mortgage and Housing Corporation.

We note that CMHC's value goes far beyond mortgage insurance. Its value is especially significant in technical research, market analysis, information distribution, and project demonstration, particularly in energy efficiency and environmental concerns.

The Canadian Home Builders' Association's pre-budget submission raises five central matters: one, the need to adjust the GST rebate thresholds for new homebuyers; two, the need to expand the definition of a substantial renovation; three, the need to tackle the underground economy head on, which means replacing the contract payment reporting system now in effect and currently grossly ineffective, and also requiring that all businesses have a federal business number; four, the need to reform tax measures for rental housing investment, particularly to examine the zero-rating of investment in housing, rental housing production, and also to re-examine the definition and application of the capital gains tax deferments; and five, the need to monitor federal infrastructure investment to make sure that it does go to the areas of greatest interest to the government and to Canadians—clean air, clean water, clean land, and efficient roads and transit.

I would like to take a couple of those and go into a bit more detail.

With respect to the GST rebate for new homeowner purchases, we emphasize that this input is nowhere near the promise that was made 16 years ago, and housing prices have increased enormously over the past 16 years. For example, in Toronto in 1991, 65% of new home purchasers qualified for the full rebate; and in 2007, only 20%. This situation is common in the large centres such as Vancouver, Toronto, and Calgary, but it's also a serious situation in many smaller centres such as Abbotsford, Ottawa, Montreal, St. Catharines, and Halifax.

With regard to government action to tackle the underground economy, the Canadian Home Builders' Association continues to be disappointed with the lack of effort on the part of the Canada Revenue Agency in this matter.

With regard to the rental housing market, private investment in this area is not meeting projected requirements, simply because the federal tax regime is biased against private investment in rental housing production.

Thank you, Mr. Chair. I hope I have stayed within my five-minute allowance.

[The Chair, Conservative, Rob Merrifield]

You're actually a little over, but that's okay. We've seen worse.

We'll move on now to the Canadian Association for Community Living.

Michael Bach, you're at the table, so we'll hear your five minutes, starting now.

[Michael Bach, Executive Vice-President, Canadian Association for Community Living]

Thank you, Mr. Chair.

My apologies to the committee for being late, but I was stopped by Global media when I came in because of a very distressing case of a woman with an intellectual disability being assaulted on Wheel-Trans in Toronto today. They were asking for comments on that. In fact, that goes to the core of what I would like to talk about today.

Our mission as an association is to advance the full inclusion and rights of people with intellectual disabilities in Canada. We work very closely with the Council of Canadians with Disabilities, the Canadian Association of Independent Living Centres, and over the last year, 90 other disability organizations across the country that came together to produce this national action plan on disability.

This statement represents a consensus agenda of the disability community. We had the opportunity to present it last week to the Minister of Human Resources and Social Development, the Honourable Monte Solberg, and Minister Flaherty, both of whom attended our End Exclusion event last Thursday.

This agenda lays out four main priorities that our community has identified. Access to needed disability supports--personal attendants, aids, and devices--is the number one priority, along with addressing the poverty of Canadians with disabilities. We recognize that this is the jurisdiction of the provincial-territorial governments, but we call on the Government of Canada to take leadership with provinces and territories to address that issue, as two-thirds of Canadians with disabilities lack one or more needed supports.

The other major area we've come to a consensus on is the need to alleviate poverty. Canadians with disabilities of working age face poverty rates twice the general rate of poverty among Canadians, which is just over 13%. The poverty rate of Canadians with disabilities is about 27%. For people with intellectual disabilities living on their own, over 70%, an astronomical rate, live in poverty.

We think there are some very practical measures the Government of Canada can take within its jurisdiction and within the tax system to begin to take significant steps to address poverty among Canadians. We applaud the steps of the current government to establish the registered disability savings plan, to establish an enabling accessibility fund, and to establish a disability supplement to the working income tax benefit. These are important measures, and I think in implementing them there has been a recognition that much more needs to be done.

The one thing our community is coming together around in this country is refundability of the disability tax credit, and that's what we're calling for. The disability tax credit provides, at its face value, about $6,700. In terms of income tax relief, it provides a value of just over $1,000, approximately, and there are provincial-territorial credits on top of that.

The Department of Finance has said that the purpose of the DTC is horizontal equity so that after disability-related costs, taxpayers pay roughly the same amount of tax. We believe there should be a broader understanding of horizontal equity, meaning that all those who have disability-related costs would be treated equally. Those who currently don't pay tax, the poorest of the poor among Canadians with disabilities, can't take advantage of the disability tax credit.

The organizations you see here, especially the Canadian Association for Community Living and the Council of Canadians with Disabilities, have engaged the Caledon Institute of Social Policy to prepare a costing of what it would mean to make the disability tax credit refundable.

If we did that, we could enable about 650,000 Canadians now living in poverty to take advantage of the refundability. We're suggesting that we take the highest rate of the DTC, which is the supplement in Saskatchewan. That's currently the highest rate, at about $1,700, and that would put $1,700 into the hands of the poorest of the poor among Canadians to address needed disability-related costs that they can't get deducted through the medical expenses tax credit or the disability support deduction.

We think this is a very practical, very focused measure. The costs are significant, and we recognize that, at $1.3 billion, but we have not seen a major investment in disability in this country. Put on the scale of other major transfer programs--OAS/GIS, veterans allowances--for what we recognize as vulnerable Canadians, such as children living in poverty and also seniors, I think it's time to recognize that Canadians with disabilities are another vulnerable group deserving of the kind of attention that those other vulnerable populations have received.

So we would call on this committee to help us take this recommendation forward, and we think it's a very legitimate role for the federal government. We're not calling for a transfer to provinces. We're calling for a transfer to one of the most vulnerable groups in Canadian society.

Thank you for your time.

[The Chair, Conservative, Rob Merrifield]

Thank you very much for your presentation.

We'll now move to the Canadian Institute of Actuaries.

Gary Walters, the floor is yours.

[Gary Walters, Vice-Chair, Member Services Council, Canadian Institute of Actuaries]

Mr. Chairman and members of the committee, on behalf of the Canadian Institute of Actuaries I'd like to thank you for the opportunity to appear and to provide input to this year's pre-budget hearings.

Too few Canadians are saving too little to generate adequate retirement income. Your committee invited feedback on the tax system needed for Canada to ensure a prosperous future. In our view, a healthy private pension system is a crucial component of such a future. The tax system is instrumental in facilitating and encouraging retirement savings, and most importantly company pension plans.

In particular, I am here to talk about defined benefit pension plans. These have seen significant decline in the past decade or more, and we strongly believe that saving and improving them is essential for millions of Canadians. Allowing their continued erosion weakens the whole pension system.

Before picking up on the tax-focused recommendations included in our written submission, who are actuaries and why are they interested? Actuaries are business professionals who are trained to analyze the financial consequences of risk. Much of our work involves the design and pricing of insurance, pension, health, and other benefit programs along with the modelling, measurement, and management of financial risk. In serving the public interest, Canada's actuaries have a history of contributing to key public policies.

The future of defined benefit pension plans is at risk. Committee members have no doubt seen news reports that a growing number of companies are converting their defined benefit plans to defined contribution plans. From a public policy perspective this is most unfortunate, given that defined benefit plans provide some certainty to plan members' retirement incomes. A move to defined contribution plans creates uncertainty and makes the plan member responsible for the investment risk and increasing longevity risk. Individual Canadians then face the very real risk that their retirement incomes will run out before they do.

A number of issues have contributed to the shift away from defined benefit plans. For example, court decisions and regulatory changes around surplus ownership have created unanticipated costs and uncertainties for pension plan sponsors.

Funding a pension plan is essentially a very long-term exercise. Short-term fluctuations can be quite significant--witness the recent declines in equity returns that have turned around in just the past 12 months. The long term is much more predictable; however, tax rules that take a very short-term view and limit the buildup of surplus have been a contributing factor to recent deficits and plan sponsor uncertainty. They have limited the ability of plans to maintain consistent contribution levels by using surpluses in good investment years to fund shortfalls in bad investment years.

The institute has designed a 10-point prescription for Canada's ailing pension system, a copy of which is attached to our submission. Three of the points call for changes to tax legislation that would help secure benefits and reduce uncertainty in the defined benefit field.

We believe higher levels of pension plan funding are required to improve the security of member benefits. A target solvency margin that recognizes the volatility of pension plans and their assets would establish a risk-based approach to plan funding contributions.

We recommend that a task force be set up with representation from pension regulators, the Department of Finance, and the institute to review the research and establish a target solvency margin framework. We also recommend that the Income Tax Act and regulations be amended to facilitate the concept of a target solvency margin and permit contributions to fund pension plans up to this higher level.

We believe many plan sponsors would be willing to fund defined benefit plans more securely if they knew they could access surpluses that might arise from their excess contributions. A pension security trust is an innovative way to facilitate this improvement and the concept of the target solvency margin.

Basically, it's a side fund owned and funded by the plan sponsor. Solvency deficiency and other payments beyond normal contributions would be placed in the pension security trust. If subsequent valuations showed that some of the assets in the pension security trust were not required, the excess funds could be released back to the plan sponsor.

So we recommend the establishment of a tax-deductible pension security trust under the Income Tax Act and regulations in order to facilitate these pension contributions.

We believe, considering the volatility in pension returns, the current level of allowed surplus in pension plans is too low. Currently plan sponsor contributions must be suspended when the surplus reaches 10% of actuarial liabilities. We therefore recommend the Income Tax Act and regulations be changed to permit a higher surplus before plan sponsor contributions must be suspended.

In summary, Canada's actuaries are convinced that the loss of defined benefit pension plans ultimately hurts working Canadians.

Thank you for your time.

[The Chair, Conservative, Rob Merrifield]

Thank you very much for your presentation.

Now we'll move on to the Canadian Institute of Chartered Accountants.

Kevin Dancey, the floor is yours.

[Kevin Dancey, President and Chief Executive Officer, Canadian Institute of Chartered Accountants]

Thank you, Mr. Chair.

As in previous years, our analysis, comments, and recommendations are contained in a written submission, which was provided to the committee in August. In our remarks today, we wish to highlight certain areas of that submission that we consider particularly important--debt reduction, sales tax harmonization, and the need for a single corporate tax rate.

Canada's chartered accountants applauded the news that the national debt was reduced by $14.2 billion in the 2006-07 fiscal year and that an additional $10 billion has been committed for debt reduction this year. Despite significant reductions in recent years, the level of federal debt equates to approximately $14,000 for each Canadian, well above provincial debt burdens.

Interest payments currently stand at $34 billion, and based on the government's own estimates, we will not see an appreciable reduction in these yearly amounts over the next five years. Advantage Canada notes that the level of debt charges exceeds combined federal spending on national defence, employment insurance benefits, and international assistance.

We recommend that the government accelerate the pace of future debt reduction beyond that outlined in the economic statement, so that a debt-to-GDP ratio of 20% is reached by or before the 2013-14 fiscal year. In order to achieve this goal, we call for minimum annual debt payments of $5 billion rather than $3 billion.

For the past few years, the CICA has been calling on the federal government to lower corporate taxes as a means to enhance the productivity, competitiveness, and overall growth of the Canadian business sector. Prosperous and growing businesses generate jobs and tax revenue, and that benefits all Canadians.

We were therefore very encouraged by the business tax reductions outlined in the economic statement. The government's commitment to reduce the general corporate tax rate to 15% by 2012 is a positive step.

The question of who bears the burden of corporate income tax is an interesting one. Some would argue that the impact falls only on corporations themselves. That tends to be the political spin, but there is a growing body of evidence that suggests otherwise. Studies show that businesses deal with taxes like any other cost. They either pass them on to consumers in higher prices, force them back onto salary and labour costs by reducing wages of employees, or reduce returns for owners and shareholders.

Looking back to 1998, conclusions reached by the finance department supported the economic argument that businesses ultimately do not bear taxes but simply pass them on. Increasingly, there is evidence that corporate tax ultimately falls primarily on labour incomes. A recent study in the U.K. suggests that any increase in corporate tax is passed on in the form of lower wages. Another study in the U.S. conducted last year confirms that wages are significantly responsive to corporate tax rates.

Closer to home, the Institute for Competitiveness and Prosperity puts it in relatively simple terms: corporations don't pay taxes, people do. The evidence is clear. High business taxes reduce wages for employees, and this is particularly true in small open economies like Canada's.

Reducing corporate taxes should be a bipartisan issue. Many countries around the world on all sides of the political spectrum are coming to this realization and aggressively reducing corporate taxes. Canada cannot be left behind. Accordingly, we'd like to see a faster action aimed at moving the corporate tax rate in line with the lower small business rate. In short, we would like to see faster, deeper cuts.

A single rate would bring much-needed simplification to the tax system by eliminating the rules currently needed to differentiate between large and small business income. Moreover, there is evidence that reducing the corporate rate could actually increase corporate tax revenues. Finance should ensure it models the true costs, if any, of further tax cuts. This would increase the effectiveness of the government's fiscal management.

Our submission also calls on the federal government to renew its efforts to make sales tax harmonization a reality across Canada. The economic statement notes that provincial sales tax harmonization would substantially improve our business tax competitiveness. We urge the government to move aggressively to provide the financial incentives necessary to complete this process.

Finally, the government must continually monitor capital cost allowance rates to ensure that they correspond to the economic life of the asset, which will encourage investment.

The combination of lower corporate taxes, sales tax harmonization, and appropriate CCA rates would greatly assist Canadian businesses, particularly manufacturing businesses, in dealing with a stronger Canadian dollar and the productivity challenge they face. It would also directly incent businesses to become global champions, with their head offices in Canada, which is a key priority.

Mr. Chairman, this concludes our comments in support of our written submission.

Thank you for the opportunity to speak to you today.

[The Chair, Conservative, Rob Merrifield]

Thank you very much for your presentation.

We'll move on to the Railway Association of Canada.

Bruce Burrows, vice-president of public affairs and public relations, the floor is yours, for five minutes.

[Bruce Burrows, Vice-President, Public Affairs and Government Relations, Railway Association of Canada]

Good afternoon. Bonjour.

The Railway Association of Canada, or RAC for short, is pleased to have the opportunity to submit the views of its membership regarding measures that the Government of Canada must take to improve the competitiveness of Canada's rail system and the economy as a whole.

Railways are an important part of the Canadian economy, moving approximately 65% of toll freight to domestic and international markets, employing more than 35,000 people, and paying more than $1 billion in taxes. The RAC represents some 60 freight, passenger, short-line, and regional railways--virtually all of the railway system in Canada.

The RAC has reviewed the questions pertaining to Canada's tax system, as outlined by this committee. Though the RAC will concentrate on tax issues specific to the Canadian rail industry, we believe Canada's tax system must be internationally competitive, encourage investment and savings, and attract foreign investment. In particular, the RAC would like to see the Canadian tax system reflect the Government of Canada's overall public policy to improve air quality and protect the environment. Such a tax system will better enable rail to make investments that will yield significant public benefits. Railways enjoy an intrinsic fuel efficiency and emissions profile advantage over the other transport modes.

Let me speak specifically to the issue of capital cost allowance for rail rolling stock. The rail industry is highly capital intensive. Canada's railways are spending over $2 billion in order to maintain their infrastructure and ensure they can move their goods in a safe and cost-effective manner. The RAC supports the recommendation of the standing committee in their 2006 pre-budget report to complete a comprehensive review of CCA rates to determine three things: the extent to which similar asset classes are equitably treated, whether Canada's rates are comparable with those of other countries, and whether these rates reflect their useful life. Further, the RAC supports the recommendation of the Standing Committee on Finance to permit rail equipment that reduces noise pollution and vibration to be reduced at a faster rate than their useful life.

It's also important to note that the House of Commons Standing Committee on Industry made similar recommendations. They were very supportive of moving rolling stock rates to over 30%. The current CCA rate for rolling stock is just 15%. It takes 20 years for any new piece of rolling stock to be fully depreciated. The current CCA rate is not in line with similar asset classes, such as truck tractors and other modes, which are all in the 30% to 25% range.

Railways are also in direct competition with U.S. roads. Containers arriving from Asia can be moved by U.S. or Canadian routes. The depreciation rate for rolling stock in the U.S. is approximately 30%. As such, U.S. roads can fully depreciate their rolling stock in eight years, versus twenty years for Canadian railways. This puts us at a significant disadvantage.

In fact let's look at a few statistics. RailPower Technologies, which is based in Montreal and uses state-of-the-art technology developed in Canada, manufactures hybrid locomotives. They reduce emissions by 80% to 90%, including GHGs, and they can save up to 150,000 litres of fuel per year per locomotive. RailPower is Canada's own.

The current CCA rate does not reflect the useful life of rail rolling stock. Locomotives contain a great deal of electronic systems, which are replaced or upgraded every three years. Every system and component under the hood is replaced in three to eight years. The RAC has undertaken a cost-benefit analysis of increasing the CCA rate for rail rolling stock to at least 30%. With $400 million in spending every year, it's estimated that the fiscal cost to the government will be in the range of $5 million to $6 million in year one, moving up to $20 million to $25 million on a fully phased in basis. This is very modest.

The benefits of increasing the CCA rate would accrue, not only to Canadian rail companies, but supply and component companies, which would increase production to meet the industry's new spending requirements.

As outlined above, the current 15% CCA rate for rail must be increased to at least 30%. This would be very much in line with their useful life, be comparable with other assets, and ensure that we are internationally competitive.

Technological change is sweeping every facet of our industry. Our prime focus here today is to emphasize the need to finally modernize the CCA tax treatment of rail equipment in Canada. This will attract the additional investment needed to address our environmental and innovation challenges.

Thank you very much for allowing the RAC to appear before you today. It should be noted that the RAC has also outlined some further recommendations to the committee.

I'd be pleased to answer any questions you may have.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We will now move to the question and answer part of the meeting. We were going to do five minutes....

Go ahead.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

A point of order, Mr. Chair.

I would like my motion that appears under the heading "Committee Business" at point 2 of the Orders of the Day to be dealt with immediately. I would like it to be discussed immediately and put to a vote right away. Otherwise, there will not be the time to do so because there are a number of votes in the Chamber this evening. So I am asking you to move there directly so that the motion that I have tabled can be debated.

[The Chair, Conservative, Rob Merrifield]

I won't accept that as a point of order.

We'll now move to the questioning for five minutes.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

We have no problem with that, Mr. Chairman. If there's no debate, we have no problem with it.

[The Chair, Conservative, Rob Merrifield]

I realize the issue. I'm not going to allow a motion on the table. I talked to the mover about this earlier.

Are you going to start with your questioning?

Mr. Telegdi, you have five minutes.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

This is on the point of order, Mr. Chairman. It's because all the slots have been moved.

[The Chair, Conservative, Rob Merrifield]

You cannot move a motion on a point of order.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

We're not moving a motion.

[The Chair, Conservative, Rob Merrifield]

I believe that's—

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

I have asked for the motion be dealt with now. My point of order was about dealing with the motion now.

[The Chair, Conservative, Rob Merrifield]

You're moving it, isn't that right?

I'm not accepting that.

Mr. Telegdi, you have five minutes. Go ahead.