Evidence of meeting #37 for Finance in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was industry.
A recording is available from Parliament.
1:20 p.m.
NDP
Judy Wasylycia-Leis NDP Winnipeg North, MB
Thank you.
I'm going on to Mr. Johnston, and then hopefully I'll have time with Amy Taylor.
Thomas Johnston, do you have a position on the income trust matter?
1:20 p.m.
Executive Director, Investment Counsel Association of Canada
Actually, that's a very controversial question, and I don't really have sufficient research on it, other than to say that it's obviously a huge and increasing portion of our capital markets. It's more of a tax deferment issue, but I decline to talk on that.
1:20 p.m.
NDP
Judy Wasylycia-Leis NDP Winnipeg North, MB
Okay.
Would any of your changes take away the interest in or the attractiveness of income trusts?
1:20 p.m.
Executive Director, Investment Counsel Association of Canada
No, they would not have an impact.
1:20 p.m.
NDP
Judy Wasylycia-Leis NDP Winnipeg North, MB
Okay.
Amy, all of us were in Fort McMurray where we saw firsthand the results of a very rapid, and what seemed to be unplanned, oil exploration exercise. In human and economic terms, we heard from the mayor and all kinds of people. It's a real mess, in terms of both human and environmental issues. Has this rapid, massive expansion happened because there are so many subsidies for oil companies? Would it actually help slow things down, so we could plan a bit better, if we moved in the direction you're calling for?
1:20 p.m.
Program Director, Pembina Institute
It's certainly the case that in the mid-1990s, when the royalty regime and some changes to the tax treatment came into effect, they did provide an environment that facilitated the pace of development we're seeing today. More of what's driving it today is the price of oil, so that kind of launched it, and now we're seeing the price of oil as the major factor.
We haven't done the analysis to see what impact removing the accelerated capital cost allowance would have on the pace of development. We believe it may have the effect of slowing it somewhat, but as I said, the price of oil is the major factor there.
If it did have the effect of slowing the pace of development, this could be a good thing from a few perspectives—certainly from the environmental impacts perspective. It would also reduce some of the cost overruns, which we're seeing in new projects that are going through approvals right now, where we're experiencing overruns of up to 300%.
If the pace was slowed, then the scarcity of materials and inputs wouldn't be as significant, so some of those cost overruns would decline, which would mean we'd get royalties sooner, in the case of Alberta, and we'd receive the tax revenue sooner, in the case of the federal government.
1:20 p.m.
Conservative
The Chair Conservative Brian Pallister
Thank you very much.
We'll move to Mr. Pacetti for four minutes, sir.
1:20 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Thanks to all the presenters. We appreciate it.
Again, our time is limited, but I want to ask a quick question to the Pembina people.
Why are the oil sands getting the 100% write-off? Is it because of the location, or because of the kind of equipment they're using?
1:20 p.m.
Program Director, Pembina Institute
Sorry, did you ask why they received the 100%?
1:20 p.m.
Liberal
1:20 p.m.
Program Director, Pembina Institute
They kind of inherited it originally from the mining sector, because they receive 100% capital cost allowance for their developments. Originally most of the oil sands were developed essentially through open-pit mining, so they were treated the same as mining for tax purposes.
Now we're seeing more oil sands development take place through in situ, it's called. This means that they put hot steam into the ground and the oil comes up, and they just transferred the same tax treatment from the mining side to the in situ side in the mid-1990s.
1:20 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Would the mining industry have the same advantage, a 100% write-off?
1:20 p.m.
Program Director, Pembina Institute
Yes, the mining industry also receives the 100% capital cost allowance.
1:20 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
That brings me to my next question.
Mr. Stothart, I see that you're taking some notes. I'm not sure whether you're ready for some answers, but I need to ask a question.
How do you feel about this? Should some of the benefits of writing off equipment be reduced, or should we continue doing what we're doing?
We don't have your brief, but in your proposal I think you've said we should probably relax some of the mining exploration rules and expand, so that you can get at some of the reserves that are actually easier to get at, so that you can become more profitable. I'm not sure where you stand on this.
1:20 p.m.
Vice-President, Economic Affairs, Mining Association of Canada
I think it would have to be viewed in a global sort of context, because these companies compare the tax regimes in different countries around the world. Obviously, in the mining sector they are interested in the geology as well, but companies can invest in different countries and explore in different countries. The projects are capital-intensive, clearly. We have some concerns about the project approval process. We think the federal government has to dramatically improve that.
But the issue for Canada—
1:25 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
I don't mean to interrupt, but the risk/reward is there. It's capital-intensive, but the reward is there. It's like any other industry that is going to invest capital; whether it's in a machine or a piece of equipment, I think it's the same thing.
1:25 p.m.
Vice-President, Economic Affairs, Mining Association of Canada
Yes. The challenge for Canada is that our reserve levels are declining significantly. The mining sector employs a lot of people and pours a lot of revenues back into provincial and federal governments, so there have to be steps taken to increase our reserve levels.
One proposal we have made is the geological mapping, but the second is to provide an incentive for exploration at depth. This issue gets quite technical, but right now, in the areas where our companies would say there is the highest likelihood of finding stuff, there's a disincentive to invest. It's very expensive, because these areas are a thousand metres below ground; it's much more expensive than exploring at surface. So it depends on how badly the government wants to—
1:25 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Thank you.
Mr. Gaffield, in your area of research, social sciences and humanities—something that's not necessarily tangible—you haven't discovered something at the end. How do we determine whether what you're doing is successful? How do we evaluate at the end? What is the ultimate goal? What are we looking for? Do we get value for the money invested? I guess that's the question.
1:25 p.m.
Conservative
The Chair Conservative Brian Pallister
You'll have to demonstrate the effectiveness of the investment in the humanities with a fifteen-second answer to the question.
1:25 p.m.
President, Social Sciences and Humanities Research Council of Canada
I would say it's easy.
In the nineteenth century we invested in public schooling. In the twentieth century we built good universities. In the twenty-first century, it seems, in a knowledge economy, the world of research is the underpinning in terms of our educational system and in terms of building the kinds of individuals who are going to succeed in the knowledge economy.
1:25 p.m.
Conservative
1:25 p.m.
Bloc
Pierre Paquette Bloc Joliette, QC
Thank you, Mr. Chair.
I'd also like to speak to Mr. Gaffield. Unfortunately, the events of this morning disrupted our schedules, and my question may already have been put to you.
Do you feel that the federal government supports the humanities as much as the sciences, for example, or other types of scientific research?
1:25 p.m.
President, Social Sciences and Humanities Research Council of Canada
Thank you, Mr. Chair.
That question concerns a key element and, to a degree, the question previously asked.
It's important for us to bear in mind that underlying all the issues are people and groups. It's unrealistic to separate science and technology, medical questions, the humanities. For us, they form a whole. The humanities must be included in all the questions that are currently being asked.
Technological questions affect the human beings who use the technology. We must always analyze, understand and study human beings, when we ask questions concerning technology or other subjects that affect society. We emphasize the fact that, ultimately, we must understand human beings in order to move society forward.
1:25 p.m.
Bloc
Pierre Paquette Bloc Joliette, QC
You didn't answer my question.
Do you feel you get the same support from the federal government as for all other areas of scientific research, that is the sciences or other fields?
1:25 p.m.
President, Social Sciences and Humanities Research Council of Canada
The question is whether we have been successful in convincing Canadian society of the importance of the humanities, something we're currently working on a great deal. We take it for granted that the impact in certain fields is very concrete, but that's not the case for the humanities.
Our graduates become business CEOs, lawyers and leaders in society. If we can make that contribution apparent, we'll get the necessary support of Canadian society.