Thank you very much, Mr. Chairman.
I thank the committee for the opportunity to share with you some of the challenges facing our $26 billion chemical industry, which is a significant part of the overall manufacturing sector in Canada, and to make a few suggestions for the upcoming federal budget.
We believe the committee's focus on competitiveness is the right priority at this time, so I compliment you on that. However, up until now our association and other manufacturing-based associations have been of the view that the federal government and some key provinces have not recognized the seriousness of the competitiveness challenges facing manufacturing. We're very pleased that the Standing Committee on Industry, Science and Technology is reviewing the manufacturing issue and we're looking forward to their recommendations.
I have a very simple message for you today. It is consistent with the presentation that the Canadian Manufacturers and Exporters Association made, as well as an earlier presentation by the Business Coalition for Tax Reform. The message is that manufacturing in Canada is in trouble. The loss of manufacturing, jobs, and investment will flow through our economy and have a tremendous impact on jobs, communities, and governments.
The question that governments face today--that your committee faces and that particularly a budget faces--is whether the federal government can and should do something about it that makes sense in terms of sound and effective policy. I will argue that the federal government does play a key role in shaping the business environment of manufacturing through a range of policies, including energy, environment regulation, and tax, some of which the Federation of Independent Business touched on as well. Right now the key area in which the federal government can help our industry and other manufacturing industries adapt and respond to global and domestic challenges is in the tax area related to capital investment.
What's the problem? When I spoke to this committee last year, I noted that the manufacturing floor of the world is shifting to China and probably India as well. I also pointed out that out of more than 100 petrochemical plants being built in the world right now, not one is being built in North America. That tells a story just by itself. These profound global changes are already showing up in the loss of 236,000 manufacturing jobs in Canada between 2000 and 2006, 196,000 of those in Ontario and Quebec. One would think that with that kind of job loss, governments would have figured out that there might be a problem here.
In the past two years, in our industry alone, we've had seven plants announce they're closing. The most recent was the Dow Canada announcement that they would be ceasing operations in Sarnia. These plant reductions involve real jobs in real communities.
What's causing this problem? To simplify it, there are two major categories of issues resulting in the manufacturing challenge. The first is changes in the world economy, with the emergence of China and India as major growth areas and with petrochemical investment in the Middle East based on cheap feedstock. These global changes are inevitable and profound.
Second, domestic cost and policy pressures are affecting the cost of doing business in Canada. In our industry we're seeing changes to our companies every day. As plants age and new investments need to be made, companies are making the hard decision between building a plant in Canada, where the costs are higher for energy, or making the investment closer to the huge and growing markets of Asia or the Middle East, where the cost of energy is cheap. They're also facing major new costs due to the high dollar and other energy costs. These factors, plus the cost of natural gas and the price of electricity, are the major reasons we've seen seven plants announce closures in the last two years.
What's the solution? We do a score card every year on the competitiveness of our industry vis-à-vis other locations. As all the members know, investment is a relative business; it's how well you can do compared to somebody else. If you look at that list in our brief, you'll notice some nice pluses on fiscal policy and monetary policy. There are even some improvements in corporate tax, but when you get to energy, energy supply, pricing, feedstocks, transportation, and manufacturing-based issues, there are a lot of negatives, and in fact we're declining in relative investment priority.
In the past decade we got some of these pluses because we made some significant improvements in the investment environment. Our strong macroeconomic fundamentals helped: balanced budgets, low interest rates, and the recent tax changes that will eliminate the capital tax and reduce the corporate tax rate to 19%, albeit very gradually. However, we have faced some significant new costs that definitely resulted in the loss of chemical plants and manufacturing jobs. These are energy costs, feedstock, and appreciation of our dollar. These costs make it harder and harder to justify investments.
What's the solution? We're not advocating subsidies to business. We're not advocating picking winners and losers, but we do think when you balance out all the costs and advantages and disadvantages of investment, you have to look at the tax structure.
Our suggestion is that to increase investment, turnover of capital stock, productivity, and agility, we should change the CCA tax rate to a two-year writeoff, which would accelerate investment, increase productivity, and allow our industries and companies to be able to adapt to these global challenges. Business working on innovation and tax structure will make for better investment, a stronger manufacturing sector, and help the country and the economy.
Thank you.