Finance Committee on May 29th, 2007

[The Chair, Conservative, Brian Pallister]

Thank you.

Mr. St-Cyr, you have five minutes.

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

Thank you very much.

I would like to follow up the discussion with Mr. Nantais. I would like to understand his argument better.

Perhaps I misunderstood, but it seems to me that there is something contradictory in your remarks. On the one hand, you say that the policy will have a negative impact on Canadian industry because people will want to buy other products, and, on the other hand, you say that the policy will not have an effect on the environment because people will not change their purchasing habits. It has to be one or the other: either the policy will have no impact on consumption habits and the industry, or it will have an impact on the industry because consumption habits will have changed.

What is your view?

[Mark Nantais]

I don't think there's a contradiction. And perhaps I did not articulate the position well enough for you.

But all the data show—and I can particularly cite data from Ontario, for instance, showing that when they introduced their tax for fuel conservation, it retarded new vehicle sales by upwards of 3%. And, by the way, Ontario will get hit with that, plus this.

The key thing here in terms of environmental benefit is turning the fleet over. While we may see an increase in sales of one smaller vehicle, for instance, that may receive a feebate, other vehicles will receive a penalty.

So there are several factors that come into play. It does get complicated, but clearly when you delay the fleet turnover, you delay environmental benefit. When you tax the vehicles that are primarily the ones we produce here in Canada, they too get hit with a penalty. And it's not just my member companies, but it's other manufacturers here in Canada as well who produce larger vehicles.

But to the extent that people delay their purchase of a new vehicle because of that tax—again, fleet turnover is delayed, and there is no environmental benefit—they will go elsewhere to get a vehicle, or a nearly new vehicle, that meets their needs. This means they could go to the United States to get a vehicle. Generally, the United States has an unlimited supply of nearly new vehicles, and in many instances, because of the different nature of their vehicle fleet, those vehicles are less fuel efficient, meaning again there is no environmental benefit.

The impact of that, of course, is that to the extent we produce some of those vehicles in Canada, we will produce and sell fewer of them.

We're in a situation now where there is overcapacity globally and in North America, and we will decide to produce vehicles where we can do it the most effective way. If we have a plant that's underutilized in Canada, we'll go elsewhere. Capital is extremely fluid now. We will go offshore to produce vehicles. We are the most open market in Canada. We will produce vehicles offshore and bring them into Canada.

So it does come back down to whether this is a hostile regulatory environment in Canada. The levy side of it presents a real obstacle to creating the most positive business plan or business case you can make to bring new investment into Canada. This is where the negative implications occur.

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

How is it that the vehicles made by the Canadian producers and manufacturers in your association do not meet the program standards? Is it going to encourage manufacturers to build vehicles that do meet the standards, and thereby allow them to take advantage of the rebates and make more sales?

[Mark Nantais]

Actually, all vehicle manufacturers have some vehicles that meet the rebate program. All vehicle manufacturers have some vehicles that receive a penalty under the program. So it's not a question of whether we have and they don't, or they do and we don't.

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

You told us several times that only one met the criteria. Is it one, or several?

[Mark Nantais]

What I have said is that one vehicle receives almost three-quarters of the rebates—one vehicle. It's not an advanced technology vehicle. It's not a vehicle produced in Canada, but one brought in from offshore.

You have another vehicle that directly competes with that vehicle. And by the way, they're both made by recent entrants to Canada in manufacturing. One vehicle sits on the other side of the line and doesn't get the rebate. Yet there is a huge discrepancy in the sales of those vehicles. And the other vehicle, vehicle B, if I can call it that, is one where the company is very concerned that they can no longer compete on a level playing field, to the point where they are actually thinking of taking off vehicle safety equipment in order to be competitive.

That's the perversity of the program, which, in my mind, is not a right thing.

[The Chair, Conservative, Brian Pallister]

Thank you very much, sir.

Mr. Wallace, you have five minutes.

[Mike Wallace, Conservative, Burlington, ON]

Thank you very much.

Thank you to the panellists for coming today. I only have a couple of questions.

I do appreciate the panellists from the area of water quality and the environment, in terms of the oceans. To be fair, we, including myself, did have a number of requests and ideas that we'd like to see in the budget. Obviously, it didn't all get in there. We saw hundreds and hundreds of people last year, and they all had a request. I don't think anybody, or very few, didn't want money for something.

I am very supportive of the national water strategy. It may be just a beginning. It may not meet your needs, but from my particular area it certainly does, on the Great Lakes. It is a start. I will continue to pursue those issues. Also, I was recently nominated for a marine caucus piece, and I might take some interest in what those issues are related to industry.

I do appreciate you coming.

I do have one question to begin with for the professor from Nova Scotia. We based our results, basically, on the O'Brien report, who I don't think was hired under the Conservatives but rather under the Liberals to do the math. Based on the numbers that I have, there actually is a difference, and I believe they've gone with the new formula, I'm pretty positive of that, for this year, and then there's a decision to be made, which I think was referred to earlier.

Could you explain to me where O'Brien was wrong in his formula, compared to what you have in your formula?

[Prof. Paul Hobson]

First of all, let me say I don't have a different formula. I'm not here advocating anything. All I want to say is that Bill C-52 goes well beyond O'Brien. The O'Brien formula is part of it, but there are three formulas at work in the proposals in clause 80 of Bill C-52. O'Brien did not recommend the continuation of the status quo. O'Brien did not recommend a formula in which there's zero inclusion of natural resource revenues, and yet these are all parts of the proposals.

O'Brien had nothing to say about the offshore accords, and yet there are major changes in the language of the offshore accords, in how calculations will be made. That was not part of O'Brien. So I don't think we can hide behind O'Brien.

[Mike Wallace, Conservative, Burlington, ON]

I'm not hiding behind the O'Brien report. In fact, I think the O'Brien report was a lot stronger in those areas, in terms of offshore accords, and that we had made a commitment that we were going to honour them if that was the choice of the provinces, and that's why they got added. I think we're doing more for those areas of Canada than what the O'Brien report would have reported. If we had gone by it very strictly, if the finance department had gone strictly by it, the option likely would not have been there.

I think you're absolutely right, we're not hiding behind it. Actually we're improving on it. I appreciate that piece.

In all your work in your 25 years of doing equalization, what have you done to recommend to the province that they become a have province and not require equalization anymore?

[Prof. Paul Hobson]

I'm not in the business of making recommendations to the province.

Let me just make the point that in a situation where you have wide disparities of natural resource revenues across provinces, there will always be provinces that are have and provinces that are have not.

[Mike Wallace, Conservative, Burlington, ON]

My next question is for my acquaintance from the automotive area. It's nice to see you again. The numbers you quoted, are they based on current sales with no actual change? I think you said it was an overall uptake of $55 million; I forget what the number was that you mentioned earlier. Is that with the status quo based on last year's sales, or where do you get that figure from?

[Mark Nantais]

It's based on 2006 annualized sales.

[Mike Wallace, Conservative, Burlington, ON]

So there's no change to the actual sales. So whatever cars I sold of whatever make last year, it would be the same this year.

[Mark Nantais]

That's the assumption. We don't have the data to project outward.

[Mike Wallace, Conservative, Burlington, ON]

This is along the lines of Mr. St-Cyr's question—and I'm not sure if we discussed this before or not, but I think we have. You're convinced that the incentive program will not get people to buy more of the cars on the list. I think there are cars that are manufactured in Canada on the list. I'm not saying there couldn't be more, and I think, to be frank with you, that there are likely some adjustments that could be made over time to help improve that piece. It's difficult to argue that there'll be no change—

That's five minutes?

[The Chair, Conservative, Brian Pallister]

I think so, yes. Five minutes and four seconds. Merci.

Mr. Dielwart, I have just a quick question for you. One of your colleagues in the trust sector pointed out an issue of concern to him yesterday, and I just wanted to get your views on this. This was in terms of not having a road map for future reorganizational possibilities set out in the tax act. He said section 82, perhaps, of the tax act.

[John Dielwart]

Section 85, I believe.

[The Chair, Conservative, Brian Pallister]

Section 85, thank you.

Do you share that concern? Is that something that you suggest work has to be done on?

[John Dielwart]

Absolutely. If the ultimate conclusion is that we must be forced to become corporations, then there has to be a tax-effective mechanism to do that without penalizing all of our investors on what we would view as an arbitrary forced conversion.

So there are very clear issues on what are the rules going to be for us to morph into whatever we have to become, all the while saying that the industry should be left in its current form, of course.

[The Chair, Conservative, Brian Pallister]

Certainly. Thank you, sir.

We are going to go with three more questioners. In an effort to get them all in, I'll just say Mr. McCallum, three minutes.

[John McCallum, Liberal, Markham—Unionville, ON]

Three minutes. Why not five minutes?

[The Chair, Conservative, Brian Pallister]

Because I want to start the next panel on time and we also have to break for lunch. So I am going to end up giving you about three minutes for lunch, if I go three minutes, or no time. This is an effort to get one of your colleagues in, by the way, Mr. McCallum, so we'll go with three minutes and some ten seconds.

[John McCallum, Liberal, Markham—Unionville, ON]

One question for Mr. Nantais.

I've heard that the Minister of Transport says the program belongs to the Minister of Finance and the Minister of Finance says the contrary. Do you know who's in charge of this program?