Finance Committee on Sept. 26th, 2006

[Some hon. members]

Oh, oh!

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

You go through a number of categories and then you get into management, which you put in a competitive comparison as either neutral or competent. I wonder whether in fact that's true.

Peter Munk recently made a comment about Inco, Falconbridge, and Teck essentially blowing it and being unable to get a global leader. As a consequence, Inco and Falconbridge have been parcelled up and sold out to Brazilian interests.

I'd like an answer from you, Mr. Paton and Ms. Anthony, with respect to the competence, vision, and drive of our business leaders. I put it to you that in the past 13 years the government has actually done a fairly decent job of getting our fiscal house in order. I haven't seen a similar commitment by management, other than to come in here on an annual basis and say, reduce our taxes, etc. I want to know whether you think Peter Munk's comments are right, that Canada's management isn't up to speed—in 25 words or less, because I have only six minutes and now I'm down to four.

[Richard Paton]

I'll give you a very straight number. The productivity of Canadian chemical industries is 30% better than those in the United States. We've done studies on that; we've worked with Industry Canada. That's a number we can verify.

We're a very small part of the global market, about 1.5% of the trillion-dollar chemical industry. The only reason we survive is because of a combination of good management and access to key resources, such as natural gas.

So every single day, our overall management structure--within the context of global companies--is making major decisions to adjust to all the challenges we face in the economy.

I'll give you a very slight example. We have pharma-chemical industries, which are pharma-based chemicals that go into drugs. When faced with a 22% appreciation in the dollar, meaning that one of our member companies essentially lost 22% of its revenue, because it sells 99% in the U.S. market, how did it adjust? The company quickly adjusted by outsourcing to India, because many of the base products can be produced there at one-fifth the cost.

So they're making those management decisions. Or they're working with Ireland. They're linking up to supply chains worldwide in order to be able to produce the product. If they hadn't done that, they wouldn't be in business today. It would have been very simple.

I don't know what government could last long if it lost 22% of its revenue in a year. It would be quite difficult.

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

That's a good answer on the chemical industry.

But let me go to Ms. Anthony, and as you appreciate, my time is limited here.

As a general proposition, do you think that in fact the Canadian industry is adapting? And is our management up to it?

[Nancy Hughes Anthony]

Absolutely, I do. And I think if you take a broader view and look around the world, you see Canadians in other businesses, which may or may not be Canadian, and you see Canadian businesses in other countries being very competitive. You put your finger on it; you have to understand the intense nature of the competition now.

Mr. McKay, if I may point out, I think this is the wrong attitude to a certain extent. There is an incredible need for businesses and governments at all levels to win this race, to get in there and compete globally. So absolutely we are coming to you to talk about lower taxes, because you're the finance committee of the House of Commons and because yesterday we saw the $13 billion surplus, about which Canadians are saying, hey, maybe that should come back to us. There is work to do on the tax front, but it is not the only item on the agenda.

I would reassure you that particularly now with the high Canadian dollar, the search for world talent, and a need for this incredible cost pressure, which has been pointed out around this table, Canadian businesses are up for it.

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

Would you support an initiative by the Government of Canada to support MBAs who have backgrounds in chemical engineering, for instance, computer engineering, and things other than law and finance?

[The Chair, Conservative, Brian Pallister]

Tackle that in ten seconds, Madam.

[Nancy Hughes Anthony]

I'm not an expert on curriculum. I think I need to go to Gilles Patry about what they do in business schools these days. Obviously, those are the kinds of initiatives where we need to put practical experience in the hands of students.

[The Chair, Conservative, Brian Pallister]

The second questioner will be Mr. St-Cyr.

You have five minutes.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Thank you, Mr. Chairman.

Mr. Paton, in the brief of the Canadian Association of Chemical Producers, I found a short paragraph that I found to be quite a pleasant surprise. I will tell you why.

Since the beginning of our pre-budget consultations, we have heard from many Canadian organizations. I have noticed a strong tendency, even from some of you here today, to call for a stronger, more centralized government that intervenes as much as possible in provincial jurisdiction, whether we are talking about investments in health, prescription drugs or research.

I have noticed that strong tendency since the beginning of our consultations, whereas in Quebec people are calling for respect for Quebec jurisdiction, a solution to the problem of the fiscal imbalance and respect for the choices that Quebeckers make. I always have the impression that I am going into another country when I go across the border, given how differently people talk about these things.

On page 6 of the brief presented by the Canadian Association of Chemical Producers, there is a paragraph calling for the elimination of the fiscal imbalance.

It is surprising that the first organization to tell the committee that the fiscal imbalance needs to be dealt with is the Canadian Association of Chemical Producers. The association's suggestions that the problem be addressed through tax harmonization or perhaps a transfer of tax points to the provinces are fairly much in line with what Quebec has been calling for.

How did you arrive at that recommendation, which may be closer to what Quebec is seeking and is very different from what we are hearing from the other organizations that have appeared here?

[Richard Paton]

Thank you, Mr. Chairman. I'll try to answer that quickly. I'm not quite sure that the statement in paragraph 7 is exactly what you say it's saying. I think what is important is that when you look at the tax system, you find that the federal government reduces a tax--fantastic--and then the province adds a tax. So as Nancy was pointing out, when you're looking at the costs or the challenge for investment for that particular company or plant, it's not only a Quebec tax but it's a Quebec tax plus a federal tax and sometimes a municipal tax, which all add up together. Therefore, we believe you have to look at the total fiscal package together in terms of taxes. If you look at Quebec's tax regime over the last four or five years, it has deteriorated in terms of its favourability to business. For example, capital tax is a classic area where you have federal and provincial capital taxes. It's very complicated. If you eliminate one and don't do it at the provincial level, you actually gain nothing. Hence, we do encourage a holistic look at the tax structure, and that, of course, ends up including spending and revenues, etc.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

So you are not talking about fiscal imbalance as such. But that is what you mentioned in your brief. On page 6 of your brief, where you talk about addressing the provincial fiscal imbalance, are you simply talking about harmonizing taxes or are you really looking at transferring tax room from Ottawa to Quebec and the provinces, as Quebec is calling for? If so, have you done the calculations on that? Do you have an idea of what that would cost?

[Richard Paton]

No, I don't. We haven't costed it out, and I guess nobody else has. But if you're referring to the statement, “The government’s recently announced intentions to develop fiscal arrangements with the provinces to increase transparency and accountability are welcome”, yes, we totally agree with that.

The statements that were in the last budget, the principles they had pointed out to use in looking at the fiscal balance issue, we strongly support, because it was an empirical analysis of what budgets governments have and an accountability linking expenditures to areas of jurisdiction better.

To go into another area, I have seen areas, and climate change is an example of this--and I know it's not one of your favourite areas--where the federal government started to move fairly deeply into other jurisdictions and put out lots of expenditures.

It's harder and harder with that kind of approach to expenditures to link accountability to expenditures. So we totally support the principle that was in the last budget on that.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Along the same lines, I would like to turn to the other witnesses, for example, the Canadian Association of Retired Teachers.

Points 5, 6 and 7 in your recommendation summary also deal with jurisdictions that belong to Quebec and the provinces. How is it that your organization and a number of others are coming to Ottawa to appear before a federal committee to ask the government to interfere more and more in provincial jurisdiction? Would not it be more effective and more sensible to ask the provinces directly to do these things, if they like?

[The Chair, Conservative, Brian Pallister]

Mr. St-Cyr, your time has expired.

The next questioner will be Mr. Turner, and you will have six minutes, Mr. Turner.

[Garth Turner, Conservative, Halton, ON]

Thank you.

I have a question for Catherine and Garth--such a lovely name. It's nice to have you here.

You guys have given us 30 recommendations. As you know, we can only count to five, so I'm wondering if you could really narrow down what are the top few things you're asking us to do.

[Catherine Swift]

On the tax front, personal income taxes currently are our members' number one priority. That tends to ebb and flow over time, but right now they have prioritized PIT. As I mentioned, there are a number of ways that could be accomplished: increasing basic personal exemptions, lowering rates, and on and on and on. So our members certainly realize that lowering taxes for everyone is the most effective way to do it.

They welcomed the GST decrease, mind you, just to clarify that point, because that was widely discussed, but our members feel the next step should be on the PIT side.

I didn't get to really talk about the whole succession planning issue; this again has tax implications, obviously, but we see the same demographics in the small business community as we do in the overall population. Naturally, we're going to be facing a really large group of our business owners retiring, handing their businesses off in one way or the other over the next little while, so we've made a few recommendations in the capital gains area that we feel, for example, are very important.

I guess the third main area is the paper burden and red tape. Garth is co-chairing this committee right now with Industry Canada. We're really hopeful that in this round--which is about round 35, at least as far as we can tell--we will see some..... We want to talk about productivity today; that is, a low-cost productivity measure that everybody can buy into.

[Garth Turner, Conservative, Halton, ON]

All right, thank you.

Very quickly, does CFIB support the kind of special interest group cuts we saw yesterday, yes or no?

[Catherine Swift]

We don't actually have member feedback on them, but I think in general we feel a lot of those programs could certainly be cut, yes.

[Garth Turner, Conservative, Halton, ON]

And the application of government budgetary surplus to debt reduction, yes or no?

[Catherine Swift]

Absolutely. We made that statement, actually, because our members prioritized debt reduction first and foremost, as I mentioned in my remarks.

[Garth Turner, Conservative, Halton, ON]

All right. On a GST cut versus an income tax cut, if you had to choose, which side would you come down on?

[Catherine Swift]

You've already had one point off the GST. Right now, personal income tax would be our number one.

[Garth Turner, Conservative, Halton, ON]

Okay, great.

Helen, on pension splitting, which is obviously a little favourite of mine, can you enlighten the committee on your point of view of the costs of this to the federal treasury?

[Helen Biales]

The figures that we figure would be about $250 million to $300 million, and we have to remind you that it would not be an escalating cost because pensions will not have such a big differential as we go on.