Finance Committee on Oct. 20th, 2014

[Sunil Johal]

That's a big question. We released a report back in February that looks into some of those issues. In the interest of time, I would say that report really contains most of our best advice there. One of the big pieces was certainly the federal government talking to the Ontario government, and other governments that experienced a similar loss, and developing a strategy to address the decline in manufacturing and see where there are opportunities to focus on advanced manufacturing or higher value-added manufacturing, which seems to be the future of manufacturing in Canada.

[The Vice-Chair, NDP, Nathan Cullen]

I think it was in response to a question from Mr. Van Kesteren that you mentioned the IMF report on infrastructure spending. You mentioned it, but does the Mowat Centre or you as a researcher agree with the conclusions that were made by the IMF in terms of the favourable window open for governments to spend on infrastructure right now?

[Sunil Johal]

I'm not an economist, but I would agree. I've read the report. I do agree with the analysis. Given the low interest rates and given the fact that the economy in Canada is not performing up to capacity, this is the perfect time to leverage infrastructure as one of the best uses of public funding to get the economy moving again, so I'd certainly agree with their conclusion.

[The Vice-Chair, NDP, Nathan Cullen]

Great.

Committee members, we're just a little ahead of time. We can break now to take a few minutes to allow our panellists to switch out, unless there are any other burning questions that we have for this panel.

Thank you very much to the panellists for being here.

We'll take a 10-minute pause to reconconvene the next panel.

[The Vice-Chair, NDP, Nathan Cullen]

Welcome back to meeting number 49 of the Standing Committee on Finance to continue with our pre-budget consultations for budget 2014.

I want to welcome our second panel of witnesses this afternoon.

Panellists, you will each have five minutes, after which committee members for the first round will have up to seven minutes to ask questions.

We'll begin with Mr. Joanis, associate professor, department of mathematical and industrial engineering, Polytechnique Montréal.

[Dr. Marcelin Joanis, Associate Professor, Department of Mathematical and Industrial Engineering, Polytechnique Montréal, As an Individual]

Thank you, Mr. Chair.

Good afternoon everyone. Thank you for the opportunity to contribute to your pre-budget consultations today.

I am going to spend my time focusing on the conditions that are necessary to ensure that federal investments in infrastructure effectively encourage prosperity in Canada's communities.

I appear before you today as an individual. My expertise stems from my work as an economics professor and researcher at Polytechnique Montréal, specifically in the research centre on concrete infrastructure, known as CRIB, and the Center for Interuniversity Research and Analysis of Organizations, or CIRANO.

The climate over the past five years has sent two diametrically opposed messages about public investment in Canadian infrastructure. First, these investments played a key role in Canada's fairly good performance during what has been termed the Great Recession. In the years prior to the recession, the federal government had renewed its investment in the area to address aging infrastructure. The timing was good, given that a number of projects were getting under way precisely during the period between 2007 and 2009. And with the recession, the support in the stimulus plan was added to funding that had already been budgeted.

At the provincial level, we saw that Quebec, for instance, which had invested heavily in the wake of the collapse of the Concorde overpass in 2006, fared relatively well. Quebec's infrastructure plan was timely in its support for the economy, given that the recession starting in the U.S. had deflated demand in the private sector.

However, the Commission of Inquiry on the Awarding and Management of Public Contracts in the Construction Industry in Quebec paints a picture of a very troubled public infrastructure sector. The Charbonneau commission and the debate it has spawned in Quebec have forced us to examine a whole slew of solutions to significantly and sustainably improve the effectiveness of the awarding of contracts and public funding, to address the role of politics in the selection process and so forth.

The challenge going forward is implementing all the necessary measures to maximize the economic impact of public infrastructure investment. The importance of achieving that objective cannot be overstated, especially since a number of economic observers have raised the spectre of a new era of weak economic growth. In fact, the IMF underscored that point in recent weeks.

Since the 1980s, economists have been actively studying the impact that investments have on economic growth. The key is to distinguish the direct effects of infrastructure investment from the indirect ones. The initial investment in the construction project, itself, generates jobs, as well as spending on goods and services, but these effects are short-lived. Conversely, the investment's indirect effects on productivity and regional development are long-lasting. Those are known as externalities. It is those effects that are crucial to ensuring Canada's economic prosperity going forward.

As an extensive body of economic literature shows, the public infrastructure sector can be a powerful driver of economic growth. It is important to understand, however, that the types of choices made by public organizations when it comes to infrastructure projects will have fairly significant economic consequences. In some cases, the impact can even be a negative one, as some economists have suggested.

To put it simply, not all projects are good ones. It is necessary to foster a culture of evaluation across the public sector. Every project must be subjected to a systematic economic assessment in order to ensure that investments are always made in the best possible place.

We must not bury our heads in the sand about the fact that public investment decisions are often very politically motivated. We must make every effort to see to it that projects are always chosen and prioritized according to a thorough economic assessment, not political or electoral needs. Political objectives can conflict with the long-term vision that infrastructure development and maintenance require. You are probably thinking that I have some nerve to be saying this in front of all of you, but in an election year, in particular, I feel it is important to step up efforts to prevent the Building Canada plan from being used for partisan purposes.

The federal government can lead by example in its approach to the infrastructure projects under its authority. Government contracts can play a major role in stimulating innovation. The rules for awarding government contracts should reward continued innovation in practices and processes to make sure that every dollar spent generates the best possible economic return for society.

Mr. Chair, how much time do I have left? A minute or just a few seconds?

[The Vice-Chair, NDP, Nathan Cullen]

You have just a few seconds remaining.

[Dr. Marcelin Joanis]

I will conclude by stressing the importance of subjecting the public infrastructure sector to research and study, especially academic research. That type of analysis requires data, and it is incumbent upon public organizations to make that data available, in other words open data, so that the process can be assessed on an ongoing basis.

Thank you.

[The Vice-Chair, NDP, Nathan Cullen]

Thank you, Mr. Joanis.

Ms. Cobden, could you present for up to five minutes, please.

[Catherine Cobden, Member, Board of Directors, Executive Vice-President, Forest Products Association of Canada, Canadian Climate Forum]

I'm very pleased to be with you today. My name is Catherine Cobden, and I am a new board member of the Canadian Climate Forum.

I want to point out that I have Dawn Conway with me today. She's the executive director of the CCF, and she can help with answering questions if we need to.

Thank you for the opportunity to address your theme of prosperous and secure communities.

At the CCF, we believe that for communities to prosper and to be secure they must be forward looking and resilient, able to act on opportunities, and to anticipate and adapt to a changing world. Many such risks that they face are climatic or weather-related. Some are immediate, like heat waves, ice storms or coastal flooding, while others are yet longer term, like permafrost softening, melting of glaciers, or the introduction of invasive species.

The scope of climate change is of course global, but here in Canada it will impact our economy, our security, our food and water supply, our employment, and our health, and its costs will increase as productivity, jobs, and people are affected. A recent study by the Insurance Bureau of Canada demonstrated that insurance losses due to severe weather events cost the Canadian industry $3.2 billion in 2013, three times that of 2010. This is a dramatic increase. Further to that estimate, the damages from last year's Alberta flood totalled $5 billion. The last major Prairies drought saw losses topping $3.6 billion for farm communities and 41,000 Canadians were put out of work.

We now know that extreme weather events are on the upswing. As climate change strengthens its grip on the planet, there is no doubt that communities, Canadians, and our governments have a big challenge ahead. We will need to collectively rely on deep, dependable information to help us anticipate, cope with, and adapt to this change. Fundamental is up-to-date information on weather conditions, climatic trends, and their potential impacts. Businesses, municipalities, and provincial and federal decision-makers must have the critical understanding gained from real-time data and predictive capacity on changing weather patterns, return rate and severity of events, etc.

The Canadian Climate Forum has submitted a brief that proposes three key measures, which I'll quickly describe. One, increase investment in obtaining this key information through monitoring, observation, and analysis of information on weather, oceans, forests, agriculture, etc. Two, proactively adapt to different climatic futures that await us by anticipating those future infrastructure needs, for example, under extreme flooding, and establishing codes and standards geared to such a future. Three, strengthen our strategic planning frameworks to incorporate approaches that actually embed climatic resilience.

Let's get a bit more granular and consider a few steps. First of all, I'd like to congratulate the government for the five-year climate change and atmospheric research program it established in budget 2011. This program has been extremely valuable, but is unfortunately now fully subscribed two years ahead of schedule. You could consider that for extension or you could add additional funding to enable the momentum of this important work.

Second, we propose the concept of incentives to encourage communities, corporations, and departments to build climatic resilience into their strategic planning, for example, by planning now infrastructures to meet anticipated conditions, whether it be through flood management or flood response, or even possibly to actively discourage construction in vulnerable flood plains

Finally, we would welcome the opportunity to work with government to support the goal of better translation of all this complex science to high-quality, accessible results that can help citizens, communities, and businesses take action in the face of these changing conditions.

In closing, we encourage the finance committee to consider the highly compelling major issues—water scarcity, extreme weather events, coastal flooding, etc.—in its budget deliberations and to promote decisions that will prepare communities and Canadians for conditions in the longer term.

The Canadian Climate Forum promotes the use of weather and climate information and we stand ready to assist.

Thank you.

[The Vice-Chair, NDP, Nathan Cullen]

Thank you, Ms. Cobden.

We'll go to Mr. Orb, for up to five minutes, please.

[Ray Orb, Vice-President, Saskatchewan Association of Rural Municipalities]

On behalf of the Saskatchewan Association of Rural Municipalities, or SARM, I would like to thank you for allowing us the opportunity to participate in this year's pre-budget consultations.

I am Roy Orb, vice-president of SARM and reeve of the RM of Cupar No. 218.

We appreciate the occasion to discuss the three overarching recommendations that we put forth in our written submission to the committee for consideration in the development of the 2015 federal budget, all of which fit well with the pre-budget hearing on ensuring prosperous and secure communities, including through support for infrastructure.

As an association that represents all 296 rural municipalities in Saskatchewan, it is not surprising that the issues of the utmost importance to SARM are those that impact the quality of life and resource development in rural communities. Consequently, the three areas in which we have formally asked both Finance Canada and this committee to consider providing funding in this next budget centre on the access to reliable and well-designed road infrastructure that rural residents and industry depend on daily.

Before I raise those three recommendations, I'd like to thank the federal government for the new Building Canada plan. We appreciate the indexed payments through the gas tax fund, which is well utilized by our member municipalities, the goods and service tax rebate, as well as the continued commitment of the government to the new Building Canada fund.

This leads me to our first general recommendation. RMs in Saskatchewan are relatively unique in that they have small populations, large land bases, and a growing responsibility for the country's exports. Resource-based industries, which are vital to the Canadian economy as a whole, depend on rural roads and bridges for the safe and efficient transportation of personnel and inputs, and to transport goods to market. Without adequate funding, rural municipalities are less likely to be able to afford to keep up and build, as needed, the safe and efficient infrastructure to support the country's economic drivers.

ln order to ensure that funding under the national Building Canada fund supports Canada's economic drivers, SARM would like to recommend that: one, applications to the fund allow for road and bridge infrastructure that supports our natural resource sector; two, a portion of the funding under the provincial component be earmarked for solely rural communities so that rural projects are not always competing with cities and towns for the same funding package; and three, future federal infrastructure programs continue to include a small communities component, but population thresholds for these be reduced to better represent the realities of rural communities.

SARM was also pleased that beginning in 2014-15, the plan included $1.25 billion over five years for a renewed P3 Canada fund to continue supporting innovative ways to build infrastructure projects through public-private partnerships, or P3s. Unfortunately, the current criteria for eligibility under existing federal funding programs for P3 projects, such as the P3 Canada fund, severely limit the ability of Saskatchewan rural municipalities and industry to access the fund.

To better facilitate the utilization of P3s across Canada, SARM recommends that the P3 Canada program give more consideration in the eligibility criteria for less densely populated areas in rural Canada, thereby making it easier to access government funding for such essential rural infrastructure projects.

The final recommendation made in our submission is meant to ensure that the much-needed and appreciated funding allocated by the government for disaster mitigation is utilized most efficiently. SARM commends the federal government for allocating $200 million over five years to establish a national disaster mitigation program, or NDMP, to build safer and more resilient communities. Funding for both certain structural and non-certain structural mitigation projects will reduce the likelihood of initial and repeat losses from disaster events.

To ensure that mitigation projects are strategically and effectively undertaken, SARM recommends that: one, both structural and non-structural mitigation projects be funded under the NDMP; two, non-structural projects eligible for funding under the NDMP include the development of flood mitigation strategies, which would likely include baseline data-gathering—such as hydro-mapping—engineering and planning support, and feasibility studies; and three, structural projects, including dikes, costs associated with raising properties, and channels dug for flood protection be eligible for NDMP funding.

To close, I would like to thank you once again for the opportunity to appear before the committee.

[The Vice-Chair, NDP, Nathan Cullen]

Thank you, Mr. Orb. You read my mind.

Mr. McKenna, we'll move over to you for five minutes, please.

[David McKenna, Member, President, Brewster Travel Canada, Tourism Industry Association of Canada]

Mr. Chair, and members of the committee, good evening and thank you for the opportunity to be part of this important dialogue on strengthening Canada's economy.

My name is David McKenna. I am the president of Brewster Travel Canada.

Brewster was founded in 1892 and is now a leading travel and tourism provider that owns and operates four of the biggest attractions in the Rocky Mountains, including the new Glacier Skywalk. Known out west mostly as a touring motorcoach operator, Brewster is a vertically integrated tour and travel company with a transportation division, hotels, attractions, and an inbound tour company. Annually our company books tens of thousands of overseas travellers into Canadian experiences that extend from the Maritimes, to Quebec, Ontario, the Prairies, the Canadian Rockies, and the west coast.

Based in Banff, Alberta, we have 900 seasonal and 450 year-round employees, with offices or agents in the United Kingdom, Australia, China, Japan, and several located within the United States.

I am a member of the Tourism Industry Association of Canada, and am here on their behalf to provide insight into challenges the industry faces, as well as the Connecting America proposal.

Our sector generates annual revenues of $84 billion, $18 billion of which are service exports. We employ over 600,000 people. We are in every riding of the country, and are the largest employer of young Canadians.

As travel and tourism is outpacing nearly every other sector of the global economy, the opportunity is enormous. There was a 5% increase in international travel across the globe in 2013. Unfortunately, Canada is lagging behind at 1.5% growth on the same measure. Simply keeping pace with global growth would have added well over half a billion dollars to our economy and over $80 million in federal government revenue last year alone.

International visitors are key to economic stimulation and job growth. Currently 80% of travel revenue is derived from Canadians travelling within Canada, up from 65% just a decade ago. While domestic tourism is healthy and that is a good thing, we are losing ground with the high-yield international visitors, a key export commodity.

Since 2002, Canada has lost almost 3.5 million American overnight visitors each year. In simple terms, Brewster saw international business peak in the early 2000s. Analytically, the key source market declination was within the United States and that is currently showing a delta deficit of over 100,000 annual travellers to Banff and Jasper from the peak of 2000.

The reality is that the systemic reduction in most key markets is directly linked to a wider availability of global product opportunities, but it is primarily linked to the health of the source market economy, GDP, relative dollar strength, and the periodic status changes in consumer confidence. For those reasons, key stakeholders within the tourism and travel industry across our nation are ready to invest in the tremendous export potential that conveniently rests just south of our border.

As Americans continue to travel and their economy recovers, the time is ripe for Canada to re-enter this lucrative market. The barriers to U.S. travel have shrunk significantly in recent years. Our currency is stabilizing below par; U.S. passport ownership has doubled, and we have open air access links.

With the introduction of the electronic travel authorization for Europe and other visa-exempt countries, the U.S. is the only country exempt from supplementary travel documentation requirements, and that is either an eTA or a visa.

While TIAC and our industry partners continue to work within the federal tourism strategy to resolve policy barriers for foreign growth markets such as visa requirements, aviation cost structure and air access, the fastest way to 5% growth is through our anchor tenant, the U.S. market. This is why TIAC is seeking a government co-investment in Connecting America, an industry-led, strategically designed, and nationally aligned marketing campaign to re-energize U.S. visitation to Canada.

This proposed three-year pilot would create a $35 million a year federal investment matched entirely by funds from the tourism sector and other levels of government. The program would pair U.S. and Canadian markets that have direct air or ground access, and introduce Americans to a wide range of interesting and exotic experiences within a flight or drive of a few hours from home.

The buy-in for this project is widespread. The industry has responded with enthusiasm, commissioning a study on the U.S. market and market trends, and Tourism Toronto has already committed $1 million in principle.

At the federal-provincial ministers' meeting in September there was a consensus to commit to the first steps in developing a collaborative approach to the U.S. market. Now we need a federal commitment to act as a catalyst in aligning further partner support.

Moving to the conclusion, I speak to you today as a business person. The return on investment is immediate with any investment by the government being returned to the federal treasury within the same fiscal year via projected associative accretive GST and HST revenues. That is a three-year dollar-for-dollar ROI into a national export product readiness from a federal, provincial and riding-by-riding perspective.

The increased visitation will also generate thousands of additional seasonal and year-round jobs that are critical to ensuring our youth have access to work while they study and in an industry in which, as I can attest, you can build a wonderful career. That is why today we are asking the committee to recommend a federal marketing co-investment in the Connecting America proposal.

We appreciate the ability to be part of the pre-budget consultation process and look forward to your questions.

[The Vice-Chair, NDP, Nathan Cullen]

Thank you very much, Mr. McKenna.

Mr. Caron, you have seven minutes.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much, Mr. Chair. Thank you to our witnesses.

I will start with Mr. Joanis.

When you look at the countries that belong to BRICS, in particular, China, India and, to a certain degree, Brazil, you really get the sense that they are spending enormous amounts on infrastructure, especially road, rail, aviation and port infrastructure.

Despite the investments we've already made and those that have been announced, are we not lagging behind these BRICS countries making huge infrastructure investments?

[Dr. Marcelin Joanis]

As I mentioned earlier, this past month, the IMF indicated that, according to international organizations, the time had come to take steps to encourage infrastructure investment. I am not fundamentally worried that we are falling behind developing countries. But we do need to ensure we maintain our situation here, in Canada.

Data provided by international institutions, such as the IMF, has shown that the quality of Canada's infrastructure could be better, particularly its road network. Of course, a large part of that falls under provincial jurisdiction. Through the Building Canada plan, however, the federal government can play a key role in helping the provinces improve the quality of their networks.

That's an important theme that I tried to highlight earlier. The IMF also stated the importance of investing in the right projects. Not every investment is necessarily a good one. We must equip ourselves with a proper process for selecting projects, one that allows us to boost economic productivity. That is the real challenge. That is the case not just for developing countries, but also, most certainly, for us, in the North American context.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

That's the second point I wanted to raise.

You said that not every investment was worthwhile, and I find that intriguing. Under the Building Canada plan, funding is allocated to municipalities. Although they have needs, they don't necessarily have the financial resources to meet those needs other than through provincial contributions and property taxes. Conversely, some larger funding components may seem inadequate in light of the considerable needs that exist, in road and port infrastructure, in particular.

Would you agree with that as well?

[Dr. Marcelin Joanis]

If I understand the question correctly, some needs fall within the provincial domain.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

What I am trying to say is that, right now, we seem to be getting it mixed up. We are helping municipalities develop infrastructure, rec centres, curling clubs and such, and we are calling them infrastructure investments. A significant portion of the Building Canada funding is dedicated to projects of that nature.

Conversely, we seem to be placing less importance on major projects, be they highways, export ports or railways. Large investments are not necessarily flowing in that direction. It seems to me that we're putting a lot of emphasis on helping municipalities, which is commendable, and less on the major infrastructure renewal initiatives that need to be undertaken.

[Dr. Marcelin Joanis]

I have to admit that I haven't looked closely at how that funding is broken down. Again, what I would like to see is a broader conversation that takes into account that question and others, one that would examine how projects are selected. An analysis of how projects are prioritized is needed. What tends to happen—and not just in Canada, mind you—is that projects are prioritized according to parameters that would not necessarily enter into a proper cost-benefit analysis by an economist. Political considerations, for instance, often tend to factor into the mix.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

One of the previous witnesses said that it seemed priority was being given to shovel-ready projects, rather than to those that still had to be developed, owing to their complexity.

I know this was not part of your presentation, but you have done a lot of research on equalization. I have a few questions about that.

We often hear that provinces such as Alberta and Saskatchewan are currently funding Quebec's social programs through equalization. What do you think about these regularly made statements? When talking about Quebec and Ontario—which also receives equalization payments—people say that those provinces' social programs are funded in this manner.

[Dr. Marcelin Joanis]

That's an excellent question.

I think it's false to say that social programs in central Canada are funded by other provinces. I think it would be important to recognize that Quebec's social programs—which are somewhat more generous—are certainly funded, as is the case in other provinces, through federal transfers, but also through higher taxes. So those are collective choices. I support this demonstration, which was done by some of my colleagues. Most of the different collective choices made in Quebec in terms of expenditures are funded through different choices made in terms of taxation.

In a federation that respects itself and operates properly—and that is the case not only here but also in other countries—equalization programs are in place to help any entities that are struggling, as is currently the case in central Canada. I want to emphasize that. This is a problem in Quebec, but it also increasingly applies to Ontario. This raises questions about equalization, which has become something of a zero sum game between Quebec and Ontario and, of course, some of the eastern provinces, as well.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Equalization is often considered in terms of provincial spending, but, ultimately, it is much more related to revenue and especially the revenue provinces can generate through investment and economic growth.

[Dr. Marcelin Joanis]

Equalization payments are determined based strictly on the difference between provinces' fiscal capacity and not based on the choices made. That's why I am once again stressing the importance of equalization programs that get the job done. I think there is reason to believe that Canada's current equalization program can be greatly improved. There are some problems that restrict the program's redistributive capacity. For instance, I am thinking of the caps that are currently imposed on the program.

In the context of a properly operating federation, I think consideration should be given to whether or not it is appropriate for the federal government to try to isolate itself as much as possible from the pressures associated with equalization fluctuations.