Finance Committee on Oct. 23rd, 2006

[The Chair, Conservative, Brian Pallister]

We'll commence. We will not punish those who are on time by waiting for those who are not.

Welcome. Thank you for being part of this process.

The committee and I have been hearing consultations for the last month, and we look forward to hearing your input today. We thank you for the preparation, the presentations that you've prepared for us, and the material you submitted in advance.

We'll keep your presentations to five minutes. You'll understand that's to allow an exchange with committee members. I'll give you an indication, if you wish. If you wish to look up during your presentation, I'll give you an indication that you have one minute or less remaining. I will ask you to conclude right at the five-minute mark.

Very good. We'll commence with Patricia Devine, Atlantic Canada Airports Association.

Welcome. You have five minutes.

[Patricia Devine, Executive Director, Atlantic Canada Airports Association]

Thank you.

Good morning, Mr. Chairman, committee members, ladies and gentlemen.

I believe you have our brief in front of you. I won't bore everyone by reading the brief, but I will speak to our recommendations that are in the brief.

I'd like to thank you for this opportunity to meet with the committee and present the recommendations of the Atlantic Canada Airports Association for budget 2007.

The Atlantic Canada Airports Association represents 14 airports in total, with members in each of the Atlantic provinces. Each provincial government and Transport Canada's Atlantic Region belong to our association. Most of our association and our airports are also members of the Canadian Airports Council, which you heard from last week.

ACA airports vary in size and cover a broad range in terms of passengers served from our largest airport, which serves 3.25 million passengers per year, to our smallest, which services about 15,000 passengers per year. But regardless of size, our airports play an integral role in the economies and the quality of life in the communities served by these airports.

Our recommendations to the committee today relate to the competitiveness of our airports and, by extension, to the businesses and communities that they serve. Each area that I will speak about is directly impacted on by Government of Canada policy and specifically by the choices the government makes in its investment priorities.

Our first recommendation concerns the Canada Border Services Agency, which has a significant impact on the ability of our airports to grow by attracting transborder and international air service. The problem is that CBSA's customs services at airports don't meet the demands.

At some airports, CBSA offers customs service at only certain hours, and at other airports there are none at all. In our region, for example, customs services are offered 24/7 at Saint John, New Brunswick. There are none at all at Deer Lake, and there are services only until midnight at Halifax, which is one of the country's eight largest airports.

If an international flight arrives outside the regular working hours of CBSA, the airport or the airline must cover the costs of having passengers from the flight clear customs and enter our country. As such, Fredericton airport pays $200,000 annually to cover seven Delta Airlines flights that arrive outside CBSA's regular working hours.

When an airport has to contract with CBSA for additional service, the airport may end up losing money because the customs fees paid for customs service may be greater than the revenue from the landing fees. If the airport passes the costs on to the airline, the airline may choose to land at an airport where there are no customs costs. Ultimately, the airport's ability to attract new air service to the community suffers.

The council of ministers responsible for transportation and highway safety agrees that the CBSA cost recovery policy causes a competitiveness problem for Canada's airports and as such have written to the Minister of Public Safety to ask him to address this issue and consider elimination of the policy as one option.

The ACA recommends, because customs is a federal responsibility, that the government allocate increased funding to the CBSA so the agency can provide sufficient customs service to meet the demands of the travelling public at all Canadian airports at no extra cost for after-hour service.

I would next like to address the need for adequate and predictable federal funding for the infrastructure needs at small airports in Atlantic Canada and across the country.

Small airports are those serving fewer than 200,000 passengers. These airports play an important role in the overall transportation system and make significant contributions to local and regional economies. By their nature, airports require extensive and ongoing safety-related capital improvements, for example, for lighting and snow removal.

Accessing capital from operational sources is unrealistic for airports with operational deficits. The airports capital assistance program was created to provide for the infrastructure needs of small airports and was meant to be funded by lease revenue from the airports in the national airports system.

Our recommendation is that the Government of Canada recognize the vital role played by small airports, increase the funding to the airport capital assistance program to a sustainable level, and create a infrastructure program for small airports.

I would finally like to talk about airport rent. Essentially, ACA echoes what the Canadian Airports Council said last week. As an industry, we don't believe in the rent in principle and we believe it should be eliminated.

Our recommendation is that the federal government eliminate airport rents, or at a minimum see the rent tax decline over the life of the leases. As an interim measure, we also support the recommendation that revenues raised by airports to cover debt servicing costs be excluded from the total revenue used to calculate rents, and in particular—

[The Chair, Conservative, Brian Pallister]

To allow further exchange with members and to reserve time for the other presentations, I'll have to stop you there.

We'll continue with Gerry O'Connell from Newfoundland and Labrador Chamber of Mineral Resources.

Welcome, sir, and over to you.

[Gerry O'Connell, Executive Director, Newfoundland and Labrador Chamber of Mineral Resources]

Thank you, Mr. Chairman, committee members, ladies and gentlemen.

Our province's mines will create $2.6 billion of new wealth for Canada this year. Of course, a lot of that will end up in various government coffers through taxation. We have the potential to increase this contribution to the economy through higher levels of investments in exploration, which will lead to new mines.

In this province, all our mines are located in rural and remote areas—of course, that's true for most of Canada—and most of our mineral production comes from Labrador. I'd like to highlight the Voisey's Bay mine in Labrador, as an example of the enormous positive impact that mining can have on rural, northern, and aboriginal communities.

This project alone has stimulated resolution of the Labrador Inuit land claims and progress on the Innu claim. It has resulted in the creation of a large number of aboriginal companies that have received over $500 million in procurement and construction contracts for the project. Some of these companies have continuing contracts with the mine, and some have gone on to seek other opportunities. Currently 52% of the Voisey's Bay Nickel Company workforce in Labrador is aboriginal. Clearly this mine has made a significant difference to the outlook for the aboriginal and other communities of the region.

Now we must stimulate investment in Canadian exploration. We need new discoveries to maintain Canada's pre-eminent position in the global mining industry, and we need to expand the economic opportunity that mining creates for our rural, remote, and aboriginal communities.

There are two things that the federal government can do to help. The first is to invest in geoscience, since up-to-date geoscience data is critical for successful exploration. Unfortunately the resources provided for geoscience surveys by both federal and provincial governments have declined significantly over the past 10 to 15 years. Updated geological information is important for areas of current interest, while parts of Labrador, for instance, have never been adequately surveyed.

We urge the federal government to fund the cooperative geological mapping strategies, CGMS, as soon as possible. It's a 10-year, cost-shared plan that has been developed by the provincial, territorial, and federal governments to fund geoscience. Our provincial government has indicated strong support for this project, and I'm sure if it were approved by the federal government, they'd have their chequebook open.

The second thing is to adopt a mineral exploration tax credit on a permanent basis. This program is often called the super flow-through program, and it is due to expire in 2007. The reason for this is that these days most exploration is conducted by relatively small exploration companies that are dependent on the capital markets to fund their projects. There's fierce global competition for this high-risk capital. The super flow-through program provides a significant incentive to invest in the high-risk grassroots exploration that is critical for new mine discovery. At the same time, this program ensures that the capital remains in Canada to ensure our domestic industry's future.

I'll conclude there. Thank you very much for your attention.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Mr. O'Connell.

We'll continue now with the Association of Cultural Industries of Newfoundland and Labrador. Danielle Irvine. Welcome.

[Danielle Irvine, Executive Director, Association of Cultural Industries of Newfoundland and Labrador]

Thank you very much. It's a pleasure, Mr. Chair, and all the honourable members.

One of the distinct features of Canada is that we are not focused solely on material gain but on quality of life for both our own citizens and those in other countries. We are a reflective people who embrace understanding. This understanding of ourselves and our world comes from an understanding and respect for culture and how that shapes the individual and society.

The difficulty that has arisen in identifying ways to support this industry has come from trying to look at it through the lens of for-profit business. Profit is not what drives culture. It is necessary to make that shift in focus in order to build a support network that will address the needs of the citizens who work in this industry. Our culture is a growing industry, both within the country and abroad. As the nation continues to grow both in population and richness of culture, it's important to make sure this growth is supported and nurtured wisely.

The very nature of culture is that it's not fixed in stone. Therefore, when you look to citizens who are ready, willing, and able to adapt to growth and change, you need only look at the artists and cultural workers of our country. They have much experience and understanding about being proactive, flexible, and dedicated. Now they are looking to the federal government to think proactively and flexibly to enable them to reach their full potential, a potential that will affect not only each of them but all Canadians everywhere.

We would like to take this opportunity to encourage the federal government to consider and implement federal programs and tax incentives that support the growth of the social economy. Status of the artist legislation is something that the federal government is currently addressing, but immediate action can be taken through tax benefits for those citizens.

Furthermore, we would like to request that the federal government work specifically to address funding programs that would provide core support for the not-for-profit grassroots associations, which are the main infrastructure of the cultural industry.

Thank you very much.

[The Chair, Conservative, Brian Pallister]

Thank you.

We continue with Nancy Griffiths from the Newfoundland and Labrador Science Centre. Welcome.

[Nancy Griffiths, Executive Director, Newfoundland and Labrador Science Centre]

Good morning, ladies and gentlemen. My name is Nancy Griffiths, and I am the executive director of the Newfoundland and Labrador Science Centre. I am here to describe the vision of the Newfoundland and Labrador Science Centre, to talk about the role that science centres play in a knowledge-based economy, and to request your support not only for our local science centre but also for all Canadian science centres.

The Newfoundland and Labrador Science Centre was founded in 1993 to deliver science and technology programs to school children around the province. In 1997 the science centre established a permanent home to host hands-on exhibits, school workshops, and public programming. With a mission to spark curiosity and inspire interest and participation in science and technology, the science centre continues to focus on science promotion and learning through interactive activities both in the centre and around the province.

While the current facility has allowed the science centre to grow, the needs now exceed the available space. Because of this constraint, the science centre has examined redevelopment strategy. The City of Mount Pearl has emerged as a partner that wishes to include the renewed science centre in a proposed multi-purpose recreation complex to be located in that municipality. The Newfoundland and Labrador Science Centre asks the federal government to support this infrastructure project, which will provide inspiring and stimulating experiences for the young people of this province.

Unique in the field, science centres engage children in truly interactive activities. We know that hands-on is the best way to learn, and that through positive education experiences, children are more apt to become confident students who are interested in post-secondary studies in science and technology. Developing a culture of entrepreneurship and inventiveness includes increasing participation in science and technology careers. This is critical for maintaining and improving Canada's competitiveness in an international knowledge-based economy.

The success of the Newfoundland and Labrador Science Centre is largely due to partnerships that have been forged with educational institutions and other like-minded groups. The science centre has long-standing partnerships with many agencies, but most notable are Memorial University and the province's school boards. The Newfoundland and Labrador Science Centre is not alone in its quest to establish a lasting relationship between Canadians and science. The Canadian Association of Science Centres' mission is to increase the capacity of science centres to enhance public understanding and enjoyment of science and technology. The Government of Canada can help, too, by supporting this network of 40 centres that deliver science and technology to new generations through seven million visitors a year.

Thank you.

[The Chair, Conservative, Brian Pallister]

Thank you very much.

We continue with the representative from Newfoundland Ocean Industries Association, the president and CEO, Ted Howell. Welcome, Ted.

[Ted Howell, President and Chief Executive Officer, Newfoundland Ocean Industries Association]

Thank you, Mr. Chair. Good morning, ladies and gentlemen. Thank you for the opportunity to address this committee today.

I am Ted Howell, president and CEO of NOIA. We're an industry association representing the petroleum supply and service sector in Newfoundland and Labrador and in the Atlantic region.

In 2006, Newfoundland and Labrador's budget projected almost a billion dollars in revenue from oil production, translating into some 20% of provincial spending. Beyond direct revenues to the treasury, the petroleum industry provides much-needed economic stimulus to the province. In 2004, the last year for which detailed economic analysis is available, petroleum activity accounted for 24.3% of provincial GDP and 17,000 direct and indirect jobs.

These fiscal and economic benefits are helping and can continue to help the province become a stronger contributor to the Canadian federation. While strong reserves of bitumen are concentrated in Alberta's oil sands, Canada's reserves and production of conventional oil are declining. To foster a secure and diversified conventional hydrocarbon energy supply, continued exploration and development of Canada's highly prospective frontiers here on the east coast and in the Arctic is much needed.

Therefore, NOIA maintains that a portion of royalties and other government revenues derived from petroleum production should be reinvested in the industry in order to contribute to its growth and success for the benefit of the province and the country as a whole. Although the Atlantic accord enables the Government of Newfoundland and Labrador to manage key aspects of petroleum resources off our shores, the Government of Canada retains significant areas of responsibility and authority, and therefore can establish policies and target investments to stimulate offshore activity, foster development, and strengthen the industry.

NOIA recommends that the federal government invest in three key areas: attracting exploration through geophysical marketing initiatives and appropriate fiscal incentives, providing new resources to the Canada-Newfoundland and Labrador Offshore Petroleum Board, and establishing a petroleum-focused office of Natural Resources Canada in St. John's.

On exploration attraction, our offshore is critically under-explored, with 132 wells drilled, as compared to 3,500 wells in the North Sea, an area of approximately comparable size. Without exploration, development cannot occur and no new production comes on stream to replace rapidly depleting reserves. To encourage replacement-level reserve growth and avoid a gap in development, new investment is urgently needed.

Consistent with Gerry's comments, NOIA recommends that the Government of Canada provide direction and targeted funding to the Geological Survey of Canada for collection and analysis of geophysical data on Newfoundland and Labrador offshore for distribution to potential investors.

Further, as matured jurisdictions around the globe are implementing changes to their fiscal regimes to attract exploration, Newfoundland and Labrador is at risk of falling further behind in global competition for its investments. NOIA recommends that the Government of Canada work with industry to develop and implement an appropriate and effective fiscal incentive program, with the goal of attracting exploration investment to the east coast offshore region.

With respect to the C-NLOPB, the C-NLOPB is the federal-provincial authority that administers, monitors and regulates every aspect of offshore petroleum operations to ensure that our resources are developed safely, strategically, and to the best benefit of the people of the province and the country.

The industry has grown substantially since 1985, when the board was established. NOIA recommends that the Government of Canada provide funding to ensure ample resources for the C-NLOPB, matched to the growth of the industry.

With respect to the Natural Resources Canada office, the Atlantic accord recognizes the important role the Government of Canada plays in offshore development. Section 49 of the accord commits to establishing regional offices with appropriate levels of decision-making for all departments directly involved in activities relating to offshore areas. The department most directly involved is Natural Resources Canada, particularly in terms of its role of providing input to the C-NLOPB. NOIA recommends that a Newfoundland and Labrador office of the energy branch of Natural Resources Canada be established to facilitate decision-making and industry growth.

In conclusion, by investing a portion of revenues derived from oil and gas production, the Government of Canada can strengthen the province's petroleum industry, stimulate activity offshore Newfoundland and Labrador, and foster sustainable resource industry development for the benefit of the province and the country as a whole.

Thank you, ladies and gentlemen.

[The Chair, Conservative, Brian Pallister]

We'll now continue with GrowthWorks Atlantic Ltd., Thomas Hayes, president and CEO. Welcome, sir, over to you.

[Thomas Hayes, President and Chief Executive Officer, GrowthWorks Atlantic Ltd.]

Thank you, Mr. Chairman. Thanks for the opportunity to address an important economic development issue for Atlantic Canada.

I would like to request that the federal government increase the tax credit limit so that a purchase size of $10,000 would maximize the tax credit limit for investors in the GrowthWorks Atlantic venture fund. Atlantic Canada has a growing need for increased venture capital to be raised and invested in this region. While we have 8% of the population of Canada, we have less than 2% of the venture capital assets under management available to our entrepreneurs; $1.2 billion leaves this region annually during RRSP season, and for the most part, those funds are managed and invested outside Atlantic Canada. Our young people are receiving outstanding educations at our universities and community colleges, which have great reputations, but then they are forced to leave for job opportunities elsewhere, particularly in western Canada. We need to provide greater economic opportunities both to keep our young people here at home and to draw back those who have already left. Fostering more venture capital in the region is one of the best and most effective ways of doing this.

GrowthWorks Atlantic venture fund was started in January 2005 and is truly an Atlantic Canadian initiative. We raise all our funds from residents here in Atlantic Canada and we invest exclusively in businesses located here in the region. The fund has local management, has a local board of directors, and we have offices in Halifax, Fredericton, and here in St. John's. We have broad support from the governments of Nova Scotia, New Brunswick, and Newfoundland and Labrador, and all four provincial federations of labour serve as the fund's sponsors. We have $28 million in assets and we currently have 12 companies in our portfolio. We are committed to investing in entrepreneurial Atlantic Canadian companies, helping to grow and diversify the economy and provide jobs here at home.

To increase the amount of venture capital raised and invested in Atlantic Canada, the tax credit limit for GrowthWorks Atlantic venture fund should be increased from a purchase size of $5,000 to $10,000. Since the program was established in 1985 nationally, there has been no increase in the purchase size to maximize tax credits for investors. The RRSP contribution limit, however, has increased from $5,500 in 1985 to $15,500 today and will increase to $18,500 in two years. Part of the problem with the $5,000 maximum tax credit purchase size is the compensation grids brokerage firms now use to pay investment advisers. A recent survey, which we just had done, of 200 investment advisers across all four Atlantic provinces revealed a common complaint for advisers who are not selling the fund due to the small ticket size. There have been changes in recent years to these grids that now result in advisers getting paid up to 75% less on a $5,000 purchase compared to a $10,000 mutual fund purchase. A number of the large investment dealers are also proposing to remove purchases under $10,000 from the compensation grid completely, effectively cutting off any source of income to the adviser for the purchase of our fund.

We are concerned that if the tax credit is not increased to apply to a purchase size of $10,000, the amount we are able to raise and therefore invest in Atlantic Canada may effectively be cut off. By increasing the tax credit limit on the maximum purchase size for our fund, we will be able to raise larger amounts of capital for investment in Atlantic Canada, enhancing the economy and providing more and better job opportunities in the region. We estimate the cost to the federal treasury to be approximately $20 million, due largely to sales caps that are in place across the country, with the exception of Ontario and here in Atlantic Canada. If Ontario dramatically increased in sales--something we don't think will happen--a cap could always be instituted there as well.

We would be happy to work with Department of Finance officials on studying this issue. By encouraging and raising the investment of venture capital here at home, in Atlantic Canada, we can provide economic growth and better job opportunities for the entrepreneurs in our region. To ensure that the capital is raised here, we need to have an increase in the tax credit limit to a maximum purchase size of $10,000, so that advisers are not discouraged from selling our fund to their clients, and so that we can continue to raise money for investment in the Atlantic provinces.

Thank you.

[The Chair, Conservative, Brian Pallister]

Mr. Savage.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Thank you, Mr. Chair, and thanks to all the panellists. It's very nice to be back in St. John's again.

First of all, Ms. Devine, on the small airports recommendation infrastructure program, I'm trying to get a sense of what has been invested. Is this the number: $229 million since 1994?

[Patricia Devine]

Yes.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

So that's just 1994. It says, “Transport Canada's reinvestment in Canada's small airports has totalled less than $229 million, which amounts to less than one year's net result.” Do you have a sense of what that should be?

[Patricia Devine]

I don't. Our president might be associated with that.

Rob.

[Rob Robichaud, President and Chief Executive Officer, Atlantic Canada Airports Association]

The federal government is determining exactly what it is that each airport individually requires so that we can put together something across the country.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

There's obviously quite a range of private airports in Atlantic Canada. I'm just wondering what's the smallest airport in this area.

[Rob Robichaud]

The smallest one would be Charlo.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

I know there used to be an airport at Yarmouth. How many airports have we lost over the last 10 to 15 years?

[Rob Robichaud]

We've lost two for sure: Yarmouth and St. Leonard. Charlo is in danger of being lost. In fact, they're working on an amalgamation with the city of Bathurst. There are a number of small NAS airports--less than 200,000 passengers--that are suffering in terms of capital requirements. They in fact are using the aeronautical fees that they collect for their daily operations.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

You don't have a sense of what the percentage should be for small airports?

[Rob Robichaud]

No.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

So 12% of Transport Canada's accumulated revenue—