Finance Committee on Oct. 19th, 2006

[Amy Taylor]

In terms of renewables and efficiency, they do not qualify for the 100% accelerated capital cost allowance. They are more on the scale of the conventional oil and natural gas, around 25%. But there are some different rules that apply to that sector, and in some cases they qualify for a 30% capital cost allowance.

So right now I would say renewables are more on the playing field of conventional oil and natural gas, with oil sands receiving the subsidy.

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

All right.

Could an individual who has solar panels or a windmill installed at home receive a tax credit?

[Amy Taylor]

There are some incentives. The wind power production incentive is in place for wind power. Other incentives vary by region. They will be able to write off the capital investment at that 25% to 30% rate.

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

All right.

What you're proposing is a very interesting step toward reducing greenhouse gas emissions. The government will have to want to head in that direction. However, that's not what we're currently seeing. The only person who thought it was important to reduce greenhouse gas emissions was expelled from the Conservative caucus yesterday. That's quite revealing.

The current strategy is to try to confuse the public by associating the fight against smog with global warming. And yet, from what I understand, you can fight smog by filtering emissions and particles that contribute to smog without reducing greenhouse gas emissions, since CO2 would be filtered. The reverse would be more effective, that is to say to reduce greenhouse gas emissions by lowering our fuel use at source, which would have the effect of reducing smog.

Do I have a good understanding of the problem?

[Amy Taylor]

Well, I'm not an expert on climate change or local air quality, but I do understand that when you reduce greenhouse gas emissions you do have an impact also on those other emissions, so you'd want a comprehensive policy to address both the greenhouse issue and the air emission issue.

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

All right.

What does your organization think about the effectiveness of the EnerGuide Program, which was cancelled by the Conservatives? Would you want that program reinstated?

[Amy Taylor]

I'm not in a position to speak to it. I'm not familiar with it.

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

All right.

How much time do I have left?

[The Chair, Conservative, Brian Pallister]

You have one minute left.

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

All right.

How would you answer those who tell you that the taxes that the oil companies aren't paying now, they'll pay later and that, ultimately, this isn't really a gift they're being given?

I don't agree, but I'd like to have your opinion.

[Amy Taylor]

Well, in fact we are, because money today is worth more than money tomorrow, and the thing with this incentive is it allows companies to write off investments faster than they otherwise would. That is a loss of revenue. In fact, the federal Department of Finance has done the study that has quantified the expenditure associated with it.

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

Currently, what's the dollar amount of the gift being given to the oil companies?

[Amy Taylor]

I don't know the answer on a per year basis, but if we look at the Department of Finance's estimate, which is that the expenditure is between $5 million and $40 million for every $1 billion invested in the oil sands, and then we look at the trend in capital expenditure that we've seen, we would estimate that between 1997 and 2005, for example, the expenditure would be between $207 million and $1.65 billion, based on the Department of Finance's estimate.

[The Chair, Conservative, Brian Pallister]

Thank you very much, sir.

It would be wrong of me to refer to anyone who is here in the audience specifically, so I won't mention that Mr. Dykstra's parents are here, and they must be very proud.

Mr. Dykstra, over to you.

[Rick Dykstra, Conservative, St. Catharines, ON]

Yes, thank you, Mr. Chair. Now I'll have to be extremely polite, which is certainly unfortunate as I love to spar with my good partner, Mr. McKay.

I do have a couple of questions, Amy. I guess the big question I have is on the difference between what is happening with respect to the oil sands and the amount of money and infrastructure cost that occurs there versus in a conventional oil field. What analysis have you done that shows how much further investment it has taken to get the oil sands up and running--a project that has not been under construction for the last 30 or 40 years, but finally started--versus conventional oil fields?

[Amy Taylor]

I haven't done the level of detailed analysis that you're speaking of, but what I do know is that the capital costs are higher in the case of the oil sands versus conventional oil. The exploration costs are lower in the oil sands versus conventional oil, because they don't have to drill. They have a good sense of the reserve; they know where it is and how to access it. So there are some trade-offs there, depending on which costs you're looking at.

[Rick Dykstra, Conservative, St. Catharines, ON]

In terms of moving it forward, do you think that investment would have been made in the oil sands had this not been invested or had this policy not been implemented, from a tax perspective?

[Amy Taylor]

I think there's no question that this policy was important in the early stages of development, when the price of oil was much lower than it is today. But now, with the increased price of oil, we feel this incentive is no longer needed. In the mid-1990s they put the tax and the royalty regime in place to spur the development. It was needed at the time. It's no longer needed.

[Rick Dykstra, Conservative, St. Catharines, ON]

Actually, we were recently out west on our consultations, and I'd never been to the oil sands before. We were in Fort McMurray, and one of the things that caught me with surprise, shaking my head, was the equipment that's needed to produce the...and obviously to go through the process. A lot of it, within a year or two, basically needs to be replaced. This suggests to me that you actually need to have an accelerated depreciation, because within 12 or 24 months a lot of the equipment is actually not in use and needs to be replaced. Aren't we talking a little bit more about the fact that we actually need to accelerate it, based on the time of use of a lot of the equipment that's used there?

[Amy Taylor]

Well, there's a lot of room between the 25% and the 100%, the 25% being that which conventional oil and natural gas receives. Perhaps it would be worth doing an assessment to see where exactly we need to fall on those different pieces of equipment. But given the price of oil, we certainly don't think the 100% is justified.

[Rick Dykstra, Conservative, St. Catharines, ON]

You're driving your message well, I can assure you.

I think my dad will appreciate this question, and it's in regard to the offshore. In one of your recommendations, Thomas, you talk about the fact that there are abuses in offshore tax avoidance, and you're suggesting the proposed legislation is too complex and it impacts companies.

There's a company in my riding, Port Weller Drydock. It is in pretty significant financial difficulty, based on the fact that they simply cannot get work because the shipping industry, by and large, is flying flags of convenience, and a lot of it falls under this. I wonder if you could comment on that.

[Thomas Johnston]

Well, the offshore investment rules really are complex. Tax lawyers in the big downtown Toronto firms are scratching their heads at understanding them, and the problem is that they've been changed so many times. Every time they've fixed some of the rules problems, they've created new ones.

Let me give you an example, to show you how ludicrous some of these provisions are. Actually, on the way down here, I was sitting next to John McNaughton, who was the chair of the Canada Pension Plan, which is the second-fastest pool of money on the earth. Again, the gravity of this issue is affecting our money. When they invest abroad and they want to use a trust, if they invest in a trust that has less than 150 unit holders, if that trust holds a single stock.... Let's say that trust was an international equity fund in Germany and it had 150 stocks in it, if one of those stocks has a preferred class of shares or had a preferred class of shares or acquired a company with a preferred class of shares, the one investor, in this case the Canada Pension Plan, would deem that offshore German fund to be doing business in Canada, liable for tax on its worldwide income, and it means his non-taxable pension plan will be jointly and severally liable. That's absurd. That needs to be changed.

This has an international aspect, because the entire global financial community is looking at Canada. It's the only country in IOSCO that doesn't have a national security regulator, other than Bosnia and Herzegovina. We have a restricted banking regime, and all these foreign managers are having problems, but more importantly, our Canadians are not being given the ability to invest.

[The Chair, Conservative, Brian Pallister]

We'll move now to Madam Wasylycia-Leis.

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

Thank you very much.

I apologize for missing some of your briefs. I had to go and vent in the House against the Liberals' opposition day motion, so I feel much better again.

Let me start with Mr. Chad Gaffield. If you look through the cuts of the government—I know it's been a couple of weeks—and you add up all the different research-related things, health policy research, Law Commission, the social economy initiative, the social development partnership, court challenges, the Canadian Policy Research Network, you're looking at about $80 million of lost research capacity under the social sciences and humanities umbrella. What's that going to do, in terms of your ability to partner with other groups, to make the money go further? And what do you need to make up for that gap, that vacuum?

[Dr. Chad Gaffield]

Mr. Chair, obviously it's the challenge today in advancing knowledge about society and developing talent, and in fact we do partner between the university and the campus. One of the most exciting aspects of research we've seen in recent years is the way in which campuses are joining with groups outside the campus, in terms of defining research interest and identifying how we can move some of our research findings into everyday life. I think those sorts of partnerships are really essential.

In fact it's not simply within Canada now. Just before coming here this morning, I had a meeting with a series of presidents from Dutch universities. Increasingly now, the kind of challenges we're all facing around the world are being addressed through what we're thinking about as global research networks. So we're trying to connect the campus and the community within Canada and internationally as best we can, to try to come to grips with some of the very difficult challenges we're facing that touch all sectors in our society.