Finance Committee on Sept. 21st, 2006

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

Thank you, Mr. Chairman.

Thank you all for your presentations. I was impressed by the fact that ultimately, you were all asking for long-term commitments in slightly different areas. What you really want to know is what to expect in the future, in order to facilitate investment.

In my riding, they build subway cars, and I know that when it comes to urban transit, in both urban areas and elsewhere, it is important to know where we're headed. The economic impact is significant.

Ms. Williams, in your second recommendation, you talk about “establishing direct investment in the nation's public transit systems as a permanent program”.

Can you explain what the impact of such a decision would be on the transit industry and how the situation would be any different from now, where business waits to see, depending on whether it's a good or bad year, if it can invest?

[Penny Williams]

That's an excellent question.

We certainly are looking for long-term commitments. We certainly need the investment in public transportation.

CUTA has taken a look at our 2006-10 budget, and we need $20.7 billion. And we need to have a long-term investment so we can plan to increase the ridership, which will go to the core values of the economy and health of cities. We're really looking at the long-term investment, because we need to plan.

Public transit, too, is about more than just the operation of public transit; it's about the public transit business industry we also have--the builders of the subway cars and the builders of the buses and the suppliers. So it really goes to the economy of Canada.

Without a long-term, sustainable funding program, it's very hard for transit operators such as me to make long-term plans to grow the ridership and replace our vehicles and our infrastructure. So long-term, sustainable funding is really paramount to us. It not only goes to the economies of the cities, but also to the parts manufacturers and the builders of public transit vehicles.

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

Thank you.

Ms. Bourque, I'd like to come back to your main recommendation. You're asking for absolute assurances that you will be entitled to tax credits. Clearly, that means that there is now some uncertainty.

Could you elaborate on that?

You've also talked about global competition in this area. In practice, I have seen officials explain the current legislation to business representatives, and I have noted that there is a lack of clarity there. One has the sense that there is a higher level of concern among Canadian businesses.

What specific measures are required to address that?

[Nathalie Bourque]

Let me give you a simple example. Supposing you have revenues of $100 US. After paying everything you have to pay, you have $20 left. You pay taxes on $10 of that and you receive investment credits of $10; that means you are left with $20 in cash. With the appreciation of the Canadian dollar, those $100 US represent only $110, as opposed to the $130 that was the case previously. If you do the math, you end up in the red.

We engaged in R & D on the assumption that we would receive funding in the form of investment tax credits, and yet we're in the red, so we don't pay any income tax. I imagine the government is putting that money aside in anticipation of our future profits. Given that the carry-forward period can be as much as 20 years, it is currently very difficult for companies to know when they will receive the money. People working for biopharmaceutical, information technology, aerospace, defence and forestry companies have all told us that for every one-cent increase in the value of the Canadian dollar, the effect is between $50,000 and $2 million. So that gives you an idea of the impact it can have.

At the present time, amounts of between $10 million and $1 billion are on companies' books, but they are unable to claim these amounts from the government. Of course, if companies are preparing to engage in research and development in Canada but have an opportunity to recover part of those tax credits in another country, they will immediately consider going to that country.

For our part, we are in favour of the idea of continuing to develop our R & D in Canada. We have an excellent reputation globally. However, when we are preparing our records, we have to be sure that we will receive the money promised by the government. In our opinion, that could apply to other monies that we are required to pay out -- for example, for employment insurance or another taxation system.

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

In a way, that is a demonstration of the fact that productivity gains can be more than just a war over wages. Thank you very much.

Since time is moving along, I would like to move now to another witness.

With respect to copyright, you are suggesting the following in your second recommendation: “Introduce a copyright-income deduction for creators, modelled on that used in the province of Quebec.”

In the interests of all Committee members, I would ask that you describe the model currently used in Quebec that you would like to see implemented all across Canada.

[Deborah Windsor]

Thank you for the opportunity to speak to this.

In the province of Quebec there is a tax credit for creators on copywritten material. When a creator creates a piece, let's say an author creates a book, there is no tax paid on the first $30,000 earned, I believe. It is solely a tax credit on copyright income.

A writer's income fluctuates and has peaks and valleys. It may take seven years to create a book, and then the book is published. Initially there is an advance and a great amount of returns, then a valley comes in and that window of sales decreases. So this copyright income tax deduction levels out the amount of income tax paid over the period of creation. It's working very well in Quebec.

[The Chair, Conservative, Brian Pallister]

Merci.

The next questioner is Madam Wasylycia-Leis for seven minutes.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

You're skipping the government? That's nice. I don't mind.

[The Chair, Conservative, Brian Pallister]

We'll go with you.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Thank you very much. This is a wonderful coup. Do I get your time too?

I'd like to start with Pam and her very important presentation on pensions. You've identified something that has been talked about for some time, and that is the need to try to stop this movement from defined benefit plans to contribution plans. You've identified the consultation by Finance, and you've identified the support from David Dodge.

I'm wondering if we shouldn't be going further than your recommendation on page one, which is to get them to determine what changes are necessary. Don't we know enough about what changes the federal government could undertake now to put pressure on the private sector to stop this movement and ensure that employees have the benefit of defined benefit plans?

[Pam Went]

I think we do know. We're recommending that the consultation be continued and completed, because it is important that all stakeholders in the process have an opportunity to input. There was a lot of input to the original consultation from the legal community, plan sponsors, and pensioner groups like my own. In the spirit of democracy, I think that should be continued.

If pensioners are invited to the table—and that's one of the points I'm trying to make—during that consultation, we will have a chance to make the story, our views will be accepted, and those changes will be made. Right now there is no one to represent those changes at the table when legislation is written.

There are many federally registered pension plan groups, like Air Canada, that are also willing to come to the table. We represent a lot of pensioners. We'd like to be there, we'd like to see it continued, and we know what to do.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

If there were one step we could take immediately on the legislative front to deal with this issue, where would we begin to look? Can the federal government actually regulate in this area, or does it have to be through incentives?

[Pam Went]

Actually there's a disincentive today for employers to maintain or even create new defined benefit pensions. The disincentive is around the treatment of surplus funds in a pension fund.

We believe the answer is to legislate that there must be solvency at all times. That's law in the Netherlands, and it's been successful. It would take several years to work into it, but I believe there's a way employers can be given incentives to do so by allowing them to use surplus funds in an appropriate way.

There are disincentives today. For example, surplus funds in the pension fund are separate and protected; it doesn't matter how much money is in the pension fund, it can't be touched.

In fact, if the surplus is greater than 10%, a company cannot put any more money into the plan, even if it wanted to. Even if a company felt that five years down the line it looked as if there was going to be a deficit because of decreasing interest rates, it can't do anything.

So there are a lot of reasons the employers or sponsors don't want to be in defined benefit pension plans anymore. They're putting money in there and they can't touch it.

We would propose something similar to what the Province of Quebec is legislating currently, and that is the creation of a reserve fund that would be available when times are bad and yet, in the short term, can be used as an asset of the company.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Thank you. That's very helpful, and your brief is excellent.

Everyone's briefs are excellent. I wish I could ask questions of everyone, but let me go to Elisapee. Again, it is a very important brief.

I'd like to focus on a solution in terms of the north and ask you, if we could do one thing, what it would be.

And then I will also ask you whether or not, as a committee, we should be taking on seriously the whole challenge about how outdated the northern residents deduction is, which was brought in during the 1980s. It hasn't changed at all in all these years. Is that an area we should be touching?

[Elisapee Sheutiapik]

I'm going to have Lynda answer that.

[Lynda Gunn, Chief Executive Officer, Nunavut Association of Municipalities]

I guess the one single most important thing your committee could focus on for Nunavut would be to follow the recommendations of the Expert Panel on Equalization and Territorial Formula Financing report, which was presented to the Minister of Finance. It's an excellent overview of all the challenges facing Nunavummiut today, and it does speak to the need to review the question of resource royalty sharing and how that should be managed in devolution talks. We hope cabinet will give the green light to the Minister of Indian and Northern Affairs this fall for the opening of Nunavut devolution talks.

With respect to the northern residents deduction, yes, that's an area that could very definitely use some review and updating; and in addition to that, a review of GST, because we pay the merchants for the goods in the south to be shipped to us, but then we pay for the transportation of those goods on top of that. That, too, carries a GST burden, so unlike other areas of Canada, we get a double whammy.

There is high unemployment in the north, and really, the federal government has created a dependency. Most of the people who live there are very poor. When you look at the cost of food, the food mail program with Indian and Northern Affairs also needs to be re-evaluated. The food mail program assumes that people are rich enough to carry a credit card or that they even have a bank account. There are no banks in most Nunavut communities.

People are faced with the challenge of how to pay valu-mart down in Montreal or Ottawa or Edmonton if they don't have a bank card or a credit card. First, how can they manage the payment? Second, if someone is living on welfare and their social housing is consuming their small amount of welfare money, there is not even enough money to buy food.

Looking at the cost of food, a thing of KOOL-AID in a Pond Inlet, Nunavut, store is $51. Cranberry cocktail juice is the same amount. You're paying for the weight, and then it's just not viable.

They've done things in the food mail--

[The Chair, Conservative, Brian Pallister]

I'm sorry to have to cut you off at that point, but time has elapsed for this member.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Thank you very much.

[The Chair, Conservative, Brian Pallister]

I have to move on to Madam Ablonczy. You have seven minutes, Madam.

[Diane Ablonczy, Conservative, Calgary Nose Hill, AB]

I don't know. I'm so glad to have an impartial chair here.

Thank you to all of you for your presentations and the background material you've provided.

I'd like to ask a question of Mr. Kelsall. Please say hello to Jake Epp, a fellow Calgarian, for me. I always enjoy talking to Jake.

You mention, of course, this need for donations in kind, and to have those covered in the regime. Can you give me some idea from the consultations you've done and the talks you've had of just how widely you think this measure would be taken up by the suppliers of medical goods and services?

[John Kelsall]

Health Partners International of Canada currently interfaces with all five major sectors of the Canadian health care industry: the research-based companies; the generic companies; the over-the-counter group, NDMAC; the biotech Canada group of companies; as well as the medical devices and medical supply companies. All have indicated support that with such an incentive in place in Canada, which is currently in place in the United States, the volumes of needed specified medical aid would greatly increase in Canada.

Right now--I don't know whether you're aware of this--medical aid donations are treated, from a tax point of view, as if the product has been destroyed, and yet we have companies manufacturing for us. We send product overseas dated 2009, 2010, 2011, and yet the product, which is what you'd find in drug stores here today, is, according to the tax treatments, similar to being destroyed. All sectors have said that if Canada endorses this tax incentive system they will come to the plate.

[Diane Ablonczy, Conservative, Calgary Nose Hill, AB]

You know, given the crying need, especially in the developing world, for medical goods and services, I guess I'm curious as to what push-back you get when you propose this.

[John Kelsall]

There is some push-back from some of the international agencies that prefer to have money with which they can go and buy. Here we are offering, with our partners, to provide high-quality Canadian medical aid, similar to what you'd find in Canadian drug stores.

I'll tell you just one little story to give an example. President Karzai will be here tomorrow. We have shipped medical aid to Afghanistan. The World Health Organization in Afghanistan has told us it's the finest medical aid shipment that Afghanistan has received from the international community.

I've been to Afghanistan. I've toured the hospitals. When I toured the hospitals, the doctors were saying that the Canadian medicines work. They actually heal people. And I asked what was going on. They said that when they receive money, they are required to tender to the low-cost generic producers in neighbouring countries, and that when the product comes in, it is low-quality, is often placebos, and often the capsules are empty.

I just met with one of the key ambassadors in Africa, who said it's well known in Africa today that the poorer the country, the poorer the quality of the product that it can purchase. It's a terrible situation that's going on.

[Diane Ablonczy, Conservative, Calgary Nose Hill, AB]

Well, that's very interesting and very helpful. I'll most certainly be looking at that.

I wanted to turn quickly to the writers, because my favourite activity is reading. You all, of course, make that possible. We do appreciate the brilliance and the creativity that go into writing.

You mentioned specifically this need to be a preferred creditor when publishers go bankrupt. I just wonder how widespread that problem is. You mentioned it as third on your list, so I assume it's an important problem. I wasn't aware of it, so fill me in.

[Deborah Windsor]

Okay. The catalyst for this was the fall of the Stoddart empire in publishing. When Stoddart went into receivership, they were not only publishing books but they had general distribution under their umbrella, and that was the distribution of all of the books as well.

We tried to identify what the loss in royalties would be to the writers for all of the books that had been in the stores or were in warehouses, because writing, as you may or may not know, is basically a consignment industry. The books go from the publisher to the stores, the stores hold them for up to 90 days, and they have an opportunity to return them after that. So the sale has not happened for probably about six months from the time the book leaves the distributor until it is seen on a royalty statement for a writer.

When publishers go bankrupt--and Stoddart being the main one--millions of dollars are lost to the writers. The shippers, the bookstores, the printers, the book binders, all of those people can secure their credit status; the writer cannot. Yet he or she is the foundation of the industry. So by securing that status, we are able to ensure that at least after the banks, after the book binders, the writers will be in that list somewhere with some credibility.