Finance Committee on Oct. 18th, 2006

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

Thank you.

I want to go on to another area of questioning. But I have to put on record that although we may agree, I think our agreement stops there.

[David Stewart-Patterson]

Surely one agreement is enough for one day.

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

Exactly.

But I have to say that your statements in the past and today in terms of federal-provincial relations are appalling. Excuse me, but I have to say that your suggestions in the past were to eliminate the GST and abolish transfers for the provinces for health and social programs, and today you're suggesting that we make any fiscal arrangements or agreements to deal with the fiscal imbalance contingent upon harmonizing the sales tax and a single regulator for the securities markets.

It might be some kind of manoeuvre room that you're trying to create because you want to get something done on those fronts. But in effect, you're saying we should pay no heed to the ties that bind this country and to the role of the federal government in terms of a national health program, national housing standards, and national education programs.

Maybe we disagree in terms of core programs. You think core programs are something altogether different. I happen to think they are the very programs that deal with quality of life and help people to achieve their fullest potential.

[The Chair, Conservative, Brian Pallister]

Thank you so much for illuminating us on that.

We're now going to move to Mr. McKay.

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

Thank you, Mr. Chair.

[The Chair, Conservative, Brian Pallister]

For four minutes, sir.

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

Thank you for saving Ms. Wasylycia-Leis. We're observing a wonderful relationship about to explode on the political scene.

Mr. Stewart-Patterson, you seem to be a popular guy today. But there is one question that has been nagging this committee and nagging me in particular.

In large measure over the past number of years, the government has done what corporate Canada wants done, through lowering tax rates, improving CCAs, paying down debt, and all of the big whistle things, and yet our productivity keeps on slipping and slipping. At one point or another, you have to go to corporate Canada and ask them why they aren't picking it up. What's the answer?

[David Stewart-Patterson]

Yes, it's a fair question. Of course, I think part of the answer is that we don't operate in isolation. What we do within the Canadian economy has an impact internally, but we're not a closed economy. Therefore, the fact is that we've done some things right--and we've done a lot of things right--on the other hand, when you look at the economies that have flown past us, maybe they're doing more things right. In terms of broad fiscal policy, again people keep coming back to the Irish example.

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

In terms of broad fiscal policy, I'd stack our government record, the previous Liberal government record, against any American government in the last 10 years. Look at the mess they're in. They are defying fiscal gravity, and yet their productivity is much better than our productivity. I don't understand it.

[David Stewart-Patterson]

Again, some of it is structural. Any amount of academic energy has gone into these questions. Obviously there are structural differences. They're a bigger market. They're a market that has proportionately more larger companies. They're an economy that structurally has a lot more companies in the business of information communication technology, which in turn has been a big driver of productivity.

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

But we arguably have the most generous R and D regime in the world. I think we are number one in the world. We have public research that is unparalleled and that has reversed the brain drain, and yet corporate Canada still seems to keep on slipping.

[David Stewart-Patterson]

I think that's one of the really important policy questions. I don't have an answer for you on that. Why aren't the R and D tax credits, as generous as they are, not having more of an impact?

I think there are a number of suggestions being put on the table, one of them being, of course, the fact that they're not refundable to companies that are in the early stages and not making any profits. The refunding of those tax credits may be an issue.

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

But that strikes me as being on the margins.

[David Stewart-Patterson]

Well, I don't know. I haven't seen any solid research on why they aren't working. All I know is that given the generosity of the support provided, we should be getting more activity than we are. Whether it's a function of the structure and too many small companies can't benefit from them, whether there are other issues on the treatment of intellectual property, or whether there are regulatory barriers, any number of reasons may be out there, but I haven't seen anybody come up with one good reason.

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

Okay. Maybe there isn't one good reason, but there is a culture here that is a problem.

I'd like to switch to Mr. Beauchamp. In one of your recommendations, you want the government to restore EnerGuide for houses and low-income houses. I agree with you in that respect. What kind of program would you like to see the government introduce to replace the one that's been cancelled?

[The Chair, Conservative, Brian Pallister]

You have about 20 to 30 seconds, sir.

[Pierre Beauchamp]

Basically, the recommendation is to restore the funding for EnerGuide for houses and low-income houses.

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

Is it a program that was working?

[Pierre Beauchamp]

We believe it's a program that was working. We believe the program, however, should remain a voluntary program. It should not be imposed; it should be voluntary.

[The Chair, Conservative, Brian Pallister]

Excuse me, gentlemen, we must move on.

Mr. Paquette, pour continuer.

[Pierre Paquette, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Mr. Stewart-Patterson, you’ll certainly earn your pay check this afternoon!

You talk about fiscal federalism. You are probably referring to the debate surrounding the fiscal imbalance, without actually saying it. Your association wrote this about the federal government:

[...] it should use its leverage to persuade the provinces to reduce their corporate income tax rates, eliminate capital taxes more quickly and convert remaining provincial sales taxes to a value-added base.

I find it hard to imagine the kind of measures that the federal government could take to do this. Naturally, the federal government can have a negative impact. For example, in the case of Quebec, Mr. Audet has announced that capital taxes will be cut by half over the next three or five years, if I remember correctly. At the same time, cutbacks to the daycare assistance program which brought about a shortfall of 800 million dollars per year were being announced. I can understand why he’s reducing capital taxes more slowly.

What kind of measures are you thinking about?

[David Stewart-Patterson]

In effect, I'm suggesting that we know there's a big discussion going on in terms of the fiscal balance or the fiscal imbalance, depending on your preferred term.

We've tried to say it's important to respect provincial jurisdiction, and this speaks to the question from Ms. Wasylycia-Leis as well. In our view, it is equally important for the provinces to understand the broader national interest and to make a contribution to that as well.

In terms of the specific things that we'd like to see the provinces doing, Quebec has already done a great deal. It already has a value-added tax at the provincial level. That's not the problem.

[Pierre Paquette, Bloc, Joliette, QC]

As you probably know, Quebec has done it, but Quebec has never received any money whereas the Atlantic provinces have received some funding. Shall we say that the incentive is not too strong when we take this into account.

[David Stewart-Patterson]

Yes. I want to recognize the action that has been taken on capital taxes. The most serious problem is the fact that four provinces still have provincial sales taxes that apply on business input and essentially act as a huge tax on new capital investment, which comes back to the issue of why companies aren't investing more and why we aren't getting more growth on that front.

Essentially, you're saying there's a big discussion here. Provinces want things from the federal government, and it's okay for the federal government to want something back.

[Pierre Paquette, Bloc, Joliette, QC]

My question is directed to the Canadian Printing Industries Association.

We learned, a few years ago, that the basic Canadian stamp, the stamp that cost 50¢ at the time and 51¢ today was printed in the United States. I know that your Association has led a wide-ranging campaign to see to it that these contracts are awarded to Canadian businesses. Do you know if this is now the case?