Finance Committee on Sept. 21st, 2006

[The Chair, Conservative, Brian Pallister]

Thank you very much, Mr. Peacock.

We continue with Michael Cleland, from the Canadian Gas Association. Sir, you have five minutes.

[Michael Cleland, President and Chief Executive Officer, Canadian Gas Association]

Thank you very much, Mr. Chairman. Let me join with my colleagues in thanking the committee for taking the time to hear us today. We appreciate that very much.

Briefly, let me introduce the Canadian Gas Association to you. We're the association that represents the industry that delivers natural gas to Canadians in their communities. Put another way, we deliver about 26% of the energy that Canadians use; we deliver to close to six million homes and businesses from one side of Canada to the other.

Mr. Chairman, in addition to our written submission we have provided some slides that we hope the committee might find useful in its deliberations. In those we lay out four specific proposals. I'll return to the details of the proposals in a minute, but they're basically under two broad themes. The first theme is fuel choice; the second theme is what we call integrated energy systems.

Let me put that in perspective. Looking forward, I think the challenge we face in Canada in our energy system is threefold: we need to increase the reliability of the system, we need to ensure the affordability of energy to Canadians, and we need to deal with environmental impacts across the board. In order to do that, we take the view that we need to look at the energy system as a whole. By the energy system, I mean the whole network, from production at the upstream end through to end use.

There are a couple of things to think about in this regard. What Canadians buy is not energy; they buy the services that energy provides, and we need to start by focusing there, whether it's heat, whether it's light, or whether it's process heat for industry. We have a system that is becoming increasingly integrated, increasingly diverse. Those are two things we need to encourage. We need to think about how that system is most effective and efficient at delivering the services Canadians look for.

The particular interest of my association is the downstream end of that system. Let me talk a little bit about the role of natural gas in that context. As I say, natural gas accounts for something over one-quarter of the energy Canadians use. Most importantly, natural gas has several attributes that lead to that position in the marketplace. Natural gas is the form of energy best suited for delivering heat--for delivering things like hot water, for delivering process heat to industry. We've been very successful over the years at making our way in that marketplace.

Looking forward, we think there are opportunities that could and should be supported by public policy to sustain that position and, in the process, to improve the functioning of the energy system because of natural gas's inherent environmental advantages, because of its affordability advantages, and because of its inherent reliability in its capacity to deliver energy to Canadians when they want it--on demand--with very little fear of disruption.

As I said, we focused on two themes: one we call fuel choice. It is basically to ensure that Canadians have the chance to make the smart environmental and economic choice.

The essential point here is making sure that the gas distribution infrastructure is available to support those choices, and to ensure, when we have energy efficiency programs--which I'm assuming the government will support, looking forward--that those programs also support fuel choice as a viable and appropriate and environmentally preferable option.

The second theme is what we call integrated energy systems. These are systems that bring together different technologies, that deliver a number of energy services, that allow the two grids--electricity and natural gas--and new technologies such as renewables and energy-efficiency technologies to work together.

There are two proposals there: support to demonstration programs to support integrated energy systems, and support to looking at how the capital cost allowance system, specifically class 43.1, can be made more efficient and more effective in ensuring those choices are made.

Mr. Chairman, with that I'll wrap it up. Thank you very much.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Mr. Cleland. Thank you to all of you for your presentations.

Gentlemen, before we move to questions, I have a notification to the committee. Don't run away at the end of this panel's presentation time. We're going to take a couple of minutes at the end just to review our western Canada travel schedule and address any questions you may have on that, just to make sure everyone is clear on it.

We will continue now with questions. We'll begin with a seven-minute round, and Mr. McKay will take the lead.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you, Chair, and thank you all for your presentations.

My first question is to Mr. Barr. Thank you for your kind remarks; they are greatly appreciated. Hopefully that bill will receive substantial support going through the House.

It's code language to say that we need a strategy to arrive at 0.5% by 2010 and 0.7% by 2015. If you were to buy a straight-line basis from, we'll say, the 2007 budget, which will be the next budget, through to 2010, how many dollars would it take, from the 2007 budget to 2010, to achieve your target of 0.5% on an equal, every-year basis?

[Gerry Barr]

I can give it to you, certainly, in percentage terms: it's 18% a year.

[John McKay, Liberal, Scarborough—Guildwood, ON]

It's 18% of what?

[Gerry Barr]

An 18% increase in the aid budget annually, going forward to 2010, will put you at 0.5%.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So the aid budget is roughly $4 billion?

[Gerry Barr]

It's about $4.5 billion.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So it's $4.5 billion times 18%. My math is not up to doing that. It's a lot of money.

[Gerry Barr]

It's a lot of money. It's less money than other files, and—

[John McKay, Liberal, Scarborough—Guildwood, ON]

Is that a compounding 18%, so that it's 18% on top of the increase?

[Gerry Barr]

That's right; it's 18%, rolled in each year for the years between now and 2010.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So the cheapest year would be next year, and then it would be increased the following year, and increased.... So you're going on an exponential basis.

[Gerry Barr]

Effectively so, if you're thinking about cumulative costs. On the other hand, it's very important to remember that the economy is also growing through this period, and that in fact is the reason why the 8% strategy, which Mr. Chrétien initiated and which has been unchanged since, through a range of governments, is inadequate. It's an 8% annual increase rolled into the base, so you have the cumulative costs, yet the economy is growing so rapidly that—

[John McKay, Liberal, Scarborough—Guildwood, ON]

That was based upon an economic increase of about 4% annually, I think, so it was basically double the average. You'd be proposing tripling or quadrupling the average increase in the economy in order to achieve your 2010 target.

[Gerry Barr]

Yes, that's right. I would never say it's not costly, but I think it's very important to note that if you think about the donor community around the world, of which Canada is an important part, the donor community is tracking very decidedly towards this objective. Canada is not; it's going in the other direction, or standing still at best. Out of 22 donor states, 16 have either committed to achieve the 0.5% target by 2010, or the 0.7% target by 2015, or to do better. So it's 16 out of 22, and Canada is not among them. It really ought not to be the case.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I'm an eternal optimist, Mr. Barr, with respect to the commitments. I hope they would be achieved, but I know those are very large sums of money that the government would have to commit to, and it probably couldn't do quite a number of other things it would wish to do.

Anyway, I take your point and I think it's a valid point. I know there's a great deal of enthusiasm, and it does in fact seem to be the right thing to do.

I have limited time and I want to move to other questioners, but thank you for that.

Turning to the business tax reform folks, every year you come in here and ask for relief from capital taxes and you get that, you ask for a reduction in corporate income tax and you get that, you get accelerated capital cost allowances, etc. And every year the performance is the same in R and D. It seems to me, frankly, that the Canadian business community goes south on R and D. We have the best publicly funded R and D in the world. We also find out that foreign-based companies do more R and D than Canadian companies in Canada.

There seems to be some disconnect between the business community's rhetoric and the business community's delivery. You see things like the drive to convert from corporations to trusts. All that is is an attempt to drive out your earnings so that they're not available for things like R and D.

Can you explain to me why there appears to be this huge disconnect between the rhetoric of the corporate community and the delivery of the corporate community?

[Roger Larson]

I'm not an expert on research and development, but I'll try to address your question. Perhaps members of our coalition can supplement after this presentation and give you further information.

I can speak on behalf of my own industry, where our research and development is quite often done on a cooperative basis with the government, with the Department of Agriculture, where we do fund research and development quite significantly. We have a global institute, an international plant nutrition institute, which our industry members fund. It does do agricultural research on a global basis. The Canadian members of that organization put in several million dollars a year in R and D.

I want to take a bit of a different tack. I think the business coalition has very much recognized the moves that governments have made over the last few years in terms of addressing capital taxes and addressing corporate income taxes. We've talked about tax gaps. We've talked about the need to foster investment in Canada. Jay Myers from Canadian Manufacturers and Exporters appeared before this committee recently, and he talked about the fact that investment in Canada has actually declined 5%, if you include depreciation and inflation adjustment, since 2000.

As one of the manufacturing industries in Canada, I can say that we are facing a rising Canadian dollar and high energy costs, and we have to fight for investment with other parts of the world.

[The Chair, Conservative, Brian Pallister]

Mr. Paquette, you have seven minutes.

[Pierre Paquette, Bloc, Joliette, QC]

Thank you, Mr. Chairman. Thank you for your presentations. Once again, we are just as frustrated as you are not to be able to request clarifications from each of you.

My first question is for Mr. Barr, because we talked about the legislation passed yesterday. We also talked about the motion tabled by MP Caroline St-Hilaire with respect to 0.7 per cent of GNP-GDP.

On the other hand, there is one topic we have not talked much about in recent years, and I think it's time we did. I'm referring to Canada's role in such institutions as the International Monetary Fund and the World Bank. These institutions have been severely criticized for the programs they've implemented, programs that do not focus on human rights and poverty eradication. I'm thinking, in particular, of the structural adjustment program.

Does Canada have a role to play in reviewing charters that date back to the end of World War II, with a view to refocussing them on the real objectives for which they were originally developed?

[Gerry Barr]

By passing legislation to that end, Canada would be in a better position to act at the international level in areas such as poverty eradication and human rights, and in so doing, would enhance its accountability with respect to international aid.

It would be a great help to Canada to have a legislative framework that sets out very clearly the objectives of Canada's aid spending. It's the first step for accountability. It's the first step for clarity, for understanding how we are spending aid and to what effect. It would improve enormously the quality of our aid contribution. It would determine, I think, in some measure, the role we play on the international stage with the international financial institutions.

You can't have this kind of vision of aid spending and accept, as, for example, the British are--they are increasingly accepting less--the sort of lumberyard of conditions being applied to developing country economies for loans and international assistance. We need to do that whole thing better, and the approach we have to take to it is to focus on aid effectiveness and human rights. That is the way to get at poverty globally.

[Pierre Paquette, Bloc, Joliette, QC]

Thank you.

I very much appreciated the brief presented by the Coalition for Canadian Astronomy. It contains very precise figures which are clearly predicated on the long term plan that has been developed. However, no figures are provided for the Canadian Space Program.

First of all, you are asking that a new Canadian space program be developed, but you don't actually state whether the Canadian government should be required to invest money in this new program once it has been established. Your second point has to do with the reallocation of the Canadian Space Agency's current resources. I have a feeling that the government will focus on the second point, and forget the consequences of the first.

Is that just an oversight? Will you be providing us with information subsequently, or are you not able to tell us the specific amount of public funds that need to be invested in space research?

[John Keating]

Thank you for giving me the opportunity to speak on the subject.

Actually, the reason we didn't come to the committee with specific numbers in mind is that we don't see this as being an issue of money being provided to an industry to do something. We view it completely differently. What we're saying is that space provides value to all Canadians in a plethora of ways: in terms of security, in terms of environmental protection, in terms of helping our industry, our agriculture, and enabling communications.

What we're saying is that it's up to the government, along with the stakeholders of all the various government departments and the interested stakeholders on a national basis, to ask what we want to do. You start with that first; then you ask what it might cost. Clearly, from a finance committee perspective, eventually you need to address that, but it's way too early in the process to do it.

What we know is that the investment Canada has made over the last 40 years in space has had dramatic effects on the value of life of Canadian citizens and has developed a world-beating industry where, from my own company's perspective, we export 90% of everything we make and create high-paying, high-value jobs.

The truth of it is, though, that even if I weren't here representing the industry, what I would say is that Canada has lost its way in terms of defining a national space plan: what does Canada need and what sort of programs does it need to put in place? What would come from that is funding.

It would be, I think, foolish of me to say it ought to be x, or y, or z, because I don't know what the stakeholders would determine. I have, as we all have, lots of ideas about how we could make this country safer and healthier and improve the well-being of all of us. If we implemented all of my ideas, we'd spend billions of dollars. Clearly, that's probably inappropriate and Canada can't afford to do it. But we're willing to engage in a dialogue among all the stakeholders and put forward suggestions for potential programs and hopefully from that do something that is within the affordability envelope of Canada.

[Pierre Paquette, Bloc, Joliette, QC]

It would have been wiser to emphasize the point that the Government of Canada has responsibilities with respect to investment. Once a plan has been developed and a specific amount has been determined, the government should step up to the plate, considering that it is responsible for supporting space research and development, and that the Space Agency is located in the Montreal region, which is the heart of the Canadian aeronautics industry.

If I have any time remaining, I will have a question for Mr. Peacock...