Finance Committee on Oct. 1st, 2014

[Merran Smith]

Absolutely.

[Murray Rankin, NDP, Victoria, BC]

Why, then, should Canada, the federal government, subsidize, as per your recommendations, the purchase of electric vehicles?

[Merran Smith]

What we are finding is that 97% of the electric vehicles purchased in Canada were purchased in provinces where there were rebates. The rebates work. Very few provinces have rebates. That's why we're suggesting a federal rebate like the United States has and that we should match that federal rebate. In a place like California, they have a state rebate as well as the national rebate, and now 1 in 40 cars purchased is an electric vehicle, so it's really significantly working.

There are other economic spinoffs for Canada. We have an automotive industry here. We're currently producing component parts for electric vehicles, which would be increased. We did produce electric vehicles. We have an automotive industry. We could again produce electric vehicles. It would help build out that industry here as well.

[Murray Rankin, NDP, Victoria, BC]

My next question is for Ms. Cobden of the Forest Products Association of Canada.

As a B.C. MP, I'm very interested in your industry.

Is climate change adaptation in the forest industry an issue? If so, is there a role for the federal government, perhaps in budget terms, to address that?

[Catherine Cobden]

Yes. Thank you for that question.

Indeed I would say that the forest industry in Canada is at the coal face of seeing climatic impacts in our famous unfortunate scenario of mountain pine beetle. There has been federal support for mountain pine beetle science. I don't remember which budget that came from. Obviously we need to mitigate, but I think we also need to continue to adapt, and that's where scientific support comes in.

Incidentally, part of our ask here would include work to work on further pest infestation response, etc.

[Murray Rankin, NDP, Victoria, BC]

All right.

I only have a minute, so Mr. Douglas of the National Angel Capital Organization, this question is for you. It's a very open-ended question, I'm afraid.

I live in Victoria. We have a thriving high-tech sector. Innovation is happening with universities and industry. It's booming. Some say it's the biggest industry, yet everybody talks about having to go to the United States to get any kind of angel support.

Can you talk about what we as a country should be doing to expand our angel investment portfolio?

[The Chair, Conservative, James Rajotte]

Again, a brief response.

[Robert Douglas]

Very simply, what we are doing is what the mining industry needs to do. We need to find the angels who are hidden away in the shadows, as it were. We have only seen a fraction of those who could be investing in our companies come to the table, form groups. We feel that we have an untapped resource here that we need to mobilize significantly, and I think we'll see a change in the direction of the flow of money.

[The Chair, Conservative, James Rajotte]

We'll go to Mr. Van Kesteren.

This will be the last round.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you to all the witnesses for coming.

Ms. Smith, I just feel that I have to go to you and talk a little bit about energy. What the NDP doesn't tell, the story that isn't told, is that.....

Well, Mr. Brison and I, we went to China I think four years ago. They told us at that point that every two weeks they were building a coal-powered electrical plant. It was stated earlier, either by the NDP or by you, that Canada emits 2% of the world's greenhouse gases.

You know, the economic impact, and I'm not here to suggest...because I think it's important to point out that indeed in Canada, in 2006, $345 million was allocated for green energy, as was $230 million and then $1.5 billion in 2007. I can tell you that in my province of Ontario, in southwestern Ontario, that money was allocated for wind energy. If you come down to my neck of the woods, they're all over....

You must admit that you have some challenges there as well. For instance, we saw that unfortunate circumstance with the tailing ponds and the ducks, but I'm looking at statistics that talk about anywhere from 140,000 to 328,000 birds being killed by wind turbines every year. That's not very often talked about. Again, in my neck of the woods, where there is a huge migration, these are not the sparrows and robins and such; these are many of the songbirds. So there's a real challenge there.

Another challenge that I have to tell you about is the fact that Canada is a humongous country. It's cold in the winter, hot in the summer; we have huge distances to travel, and we have to stay competitive.

The final point is that we are a developed country, and the whole key to development is energy. Although we all want a cleaner and brighter world, I think you really need to give Canada marks for the effort we've made, as small as we contribute to the greenhouse gases...and yet important as it is to our economy.

I'll say one last thing. You're familiar with the acronym PIIGS, which was given to those five countries that were pretty much bankrupt in Europe. PIIGS stands for Portugal, Italy, Ireland, Greece, and Spain.

For Portugal, it was interesting. Much of their demise came from building roads. But did you know that Spain's basic demise was solar energy? They will tell you this, that they switched over to solar and it pretty much finished their economy.

I want you to explain to us...but first I have to ask you this question: what do you drive?

[Merran Smith]

I have a Toyota, a RAV.

Sorry, I'm not really a car person.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

So you don't drive an electric car either.

[Merran Smith]

I don't yet. I'm waiting for that rebate to come online.

[Voices]

Oh, oh!

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I suppose most Canadians are.

Quickly, to put the square peg into the round hole, how do you suggest that we as a world economy continue to be productive and be competitive if we make that switch too rapidly without taking these things into consideration? Take into consideration the fact that you don't drive an electric car yet.

[The Chair, Conservative, James Rajotte]

One minute, please.

[Merran Smith]

That's a lot of questions.

I'll just say that I actually live in a walkable community. I walk to my office. I walk to my kids' school. I walk to my grocery store.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

You have no relatives in other cities?

[Merran Smith]

Oh, no, I'm not saying I don't. I'd be the first to buy an electric vehicle when that rebate came online. I'd be the first in line.

There's a lot of questions there, and I'll try to answer them as quickly as I can.

[The Chair, Conservative, James Rajotte]

You have about 40 seconds now, so try to wrap up in that time.

[Merran Smith]

You went to China four years ago. Things have changed significantly in China. If I have only 40 seconds, I think that's what I will focus on.

China is now the biggest investor in solar and the biggest investor in wind. They have built the most in wind and are almost at the most in solar. They have declared a war on pollution because of air pollution issues. They are now putting up a windmill every hour. They are not building coal at the same rate they used to. They have put more investment into clean energy and renewable energy electricity than fossil fuel electricity.

That's what Canada needs to take heed of. It's not that people aren't using fossil fuels. I hope you haven't heard me say today that I think people will stop using fossil fuels in the near future. They won't. What they're doing is they're transitioning, far more rapidly than we're taking note of, to clean and renewable energy.

I'm also saying that there's a huge opportunity for the Canadian business sector in that. We need to actively take action to get a piece of that pie, or others in the world.... Our competitors are going there. The United States, China, and the EU are going there. They're going to be developing the technologies and we'll be buying them from them.

[The Chair, Conservative, James Rajotte]

Thank you.

I'm sorry to have to cut this discussion off, but perhaps the two of you could continue this off-line.

I want to thank all of our panellists for being here, for presenting on our pre-budget consultations.

Colleagues, we will suspend for a few minutes and bring the second panel forward.

[The Chair, Conservative, James Rajotte]

I call this meeting back to order.

I want to welcome our second panel of guests to the pre-budget consultations 2014.

Colleagues, we should have four presenters. I see three now. I think the fourth is on the way.

First of all we have, from the Canadian Vehicle Manufacturers' Association, the president, Mark Nantais. Welcome back to the committee.

We also have with us Pierre Patry, the treasurer for Confédération des syndicats nationaux.

Welcome once again, Mr. Patry.

From Downsview Aerospace Innovation and Research, we have the executive director, Mr. Andrew Petrou.

We are expecting the U15 Group of Canadian Research Universities. I believe their chair is on the way.

You will each have five minutes for an opening statement, and then we'll have questions from members.

We'll begin with Mr. Nantais, please.

[Mark Nantais, President, Canadian Vehicle Manufacturers' Association]

Thank you very much, Mr. Chairman, and thank you as well, honourable members, for inviting me here today for this important discussion.

I represent Chrysler, Ford, and General Motors Canada. Collectively our members account for approximately 60% of all vehicles produced annually in Canada. We operate five assembly plants and multiple engine and components plants, and have roughly 1,300 dealerships across the country.

Why does auto manufacturing matter to Canada? I'm not going to go through my entire list. Let me highlight a couple of things, if you wouldn't mind.

First off, motor vehicles are the number one manufactured good. We directly employ about 115,000 employees and each of those assembly jobs creates nine other jobs in the economy. It has a job multiplier second to no other manufacturing sector.

We directly contributed over $16 billion to GDP in 2013. We uniquely have the ability to generate very high value-added jobs. The auto trade itself accounts for nearly $100 billion in two-way trade between Canada and our primary trading partner, the United States.

The Canadian auto manufacturing industry plays a critical role in Canada's economy through its ability to provide jobs for families, contributions to the fiscal sustainability of communities, and literally millions and millions of dollars of tax revenues to all levels of government. The industry contributes to a vibrant research, development, innovation, and commercialization presence in Canada. CVMA member companies' auto research facilities undertake leading developments in powertrain, lighting research, fuel economy and light weighting, cold weather testing, and stationary emissions reductions, as well as advanced vehicle engineering, design, testing, and analytic activities.

Canada's competitiveness in research and development, innovation, and commercialization, with emphasis on commercialization, is directly related to its competitiveness as an auto manufacturing jurisdiction of choice. Given the increasingly aggressive competition for automotive investment globally, it is critical that the government have informed discussions with industry, such as we are having today, related to our competitiveness. What is important is that we look at competitiveness challenges as connected dots and not view issues in isolation.

Auto manufacturing and research are a continuum and Canada needs to be competitive on both of these fronts. As such, the automotive investment fund, the scientific research and experimental development credits, and the accelerated capital cost allowance need to be compared and be responsive to aggressive incentives offered by other jurisdictions as part of connecting the dots.

Before we focus on the challenges, I want to highlight a couple of the advantages that Canada offers for investment. First off, Canada has a strong foundation of automotive assemblers and suppliers with proximity to North American markets. It has leading-edge automotive research and development facilities in these selected fields. The government has kept corporate tax rates low, which has been especially important. The government's support of Canada's apprenticeship system leads to a well-trained automotive workforce, including the skills trades. All of these factors lead to Canada's well-deserved reputation for quality.

The government's continued support of the Canadian Automotive Partnership Council, CAPC, also provides benefit in that all five manufacturers here in Canada come together with labour, researchers, and levels of government to collaborate in the best interests of the industry as a whole. CAPC released an important report a year ago that examined the current global competitive environment and provided recommendations to both the public and the private sector that would better equip Canada to compete in this time of heightened global competition for auto investment. I sent the “Call to Action II” report to all of you last November. I would encourage you to refer to that report as part of your deliberations.

The office of automotive and vehicle research at the University of Windsor reported that automakers spent $17.6 billion around the world in 2013 to increase vehicle-making capacity, but virtually none of this was placed in Canada. Save and except for today's Ford announcement, which has been in the works for some time, this marks the third year in a row that Canada has missed investment decisions, underlining the need to put invigorated focus on ensuring the right incentives and policies are in place to support Canada's competitiveness for auto investment going forward.

Given the intense global competition to attract these economically beneficial automotive investments, it is critical for Canada to have a competitive investment support strategy in place to secure reinvestment in its existing automotive production footprint.

The automotive investment fund has an important role to play in commercialization. It needs to evolve into a predictable investment support program that is competitive with other jurisdictions to ensure that Canada has the most competitive tools, including the magnitude and form of the AIF, which is a fully repayable loan, its tax treatment, required conditions, and speed of approval.

Additionally, the current AIF tax treatment, which stipulates that the repayable loan must be taxed in the year the loan is received, results in a federal incentive that is uncompetitive when compared with cash incentives offered by other jurisdictions in North America and globally. By changing the tax treatment, there would be virtually no cost to the government, as the loan is currently taxed in the year received and deducted from expenses in the year it is repaid.

As such, the net revenue impact to government is zero, but the tax treatment does significantly reduce the benefit to industry. I would encourage the government to consider this closely as part of your deliberations.

The fact that several large investments were made outside of Canada should be a signal to Canada's automotive innovation fund that it needs to evolve in order to become competitive. Making an enhanced and globally competitive AIF permanent would also improve Canada's ability to compete for future investment decisions by providing certainty and predictability in a business climate where these decisions are made.

Mr. Chairman, I'll stop there. We do have other recommendations in terms of accepting the CARI proposal, which is in our submission, and a few other comments with respect to SR and ED credits and how they should also evolve in response to other programs in other jurisdictions that are getting new investment.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

Mr. Patry, you have five minutes. Please go ahead.