Finance Committee on May 29th, 2007

[Mark Nantais]

I can only tell you what I know or believe to be the case, which is that ultimately, as it relates to this program and the accelerated retirement of older vehicle program, it is in the hands of Minister Cannon and Transport Canada.

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

Thank you.

To Mr. Dielwart, it is difficult to understand the rationale for deliberately setting out to destroy energy trusts. I think you've already testified that that is your belief. One can think of a number of players who might have influenced the decision. I know we're getting into speculation, but it could be CEOs, some of whom compete with income trusts, it could be finance department officials, it could be the PMO, or it could simply be a minister out of his depth.

Do you have any idea of what ultimately led to this policy in terms of pressures on the government?

[John Dielwart]

It's our view, and of course we don't have firm knowledge, but if you listen to some of the government's own witnesses, people like the Governor of the Bank of Canada, they are suggesting that the model was being extended to areas outside of where it was originally intended. I don't think there's any question there was significant lobbying by CEOs who did not want to become trusts.

As a CEO of a trust you are more accountable to your unit holders than you ever are in a corporate form, and many people like spending the corporation's money in the way they see fit.

I believe the energy trust got captured in the nuclear blast—as you so rightly described the way they have taken an approach to this sector—and that the energy trust sector is perfectly suited for where it is. That's the view we are getting from people like David Dodge, from Dominic D'Alessandro, and from Kevin Dancey. So we are at a loss to understand why we are wrapped up in here, particularly since the government has stated that they acted on energy trusts because these did not exist in other jurisdictions, and that is patently untrue. Not only do they exist, they are growing at a rate that is going to dwarf what's happening in Canada.

[The Chair, Conservative, Brian Pallister]

Merci. We'll continue with Mr. Dykstra.

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

Thank you, Mr. Chair.

I just want to follow that up. I read page after page, yesterday, today, and over the last month, John, about the comments and the doom and the gloom of the industry and where it's not going to be in five or ten years. And then page after page, report after report, not just on front pages, not just in political editorials, but in the finance sections of the newspapers, whether it be an economist at the bank, whether it be from individuals who are experts in the area, say that we have an industry that is strong, we have an industry that is one of the most competitive in the world and is going to be able to compete.

Are you saying your industry is finished because of this one issue?

[John Dielwart]

What we're saying is that the ability to optimize Canada's energy resources for all Canadians has taken a significant hit. If you took the opportunity to review our report, you would see that the maturing western Canadian basin has significant cost issues, and any time you increase the costs of capital in any business, it alters their ability to execute certain types of projects. Those projects include conventional optimization projects and they include carbon capture and storage projects.

We're not saying our industry is going to disappear; what we're saying is we're going to be forced into a corporate model that is not conducive to the nature of the basin today, and we'll be forced to do what all the other corporations are doing: pursuing different strategies that are not for the benefit of small-town Alberta, not for the benefit of Canadians as a whole, and certainly not for the benefit of individual Canadians who are being denied the opportunity to invest in something that's very important to their future.

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

You made the point very clearly that you're now going to have to compete as the rest of corporate Canada does. Is there not some form of fairness when it comes to competitiveness, when it comes to corporate Canada, and when it comes to making sure all of us pay our fair share and pull the weight we're supposed to, to make sure we stay together as a country?

[John Dielwart]

First of all, we're paying more than our fair share. There's no scenario under which you can look at the statistics and see that Canadian individual unitholders are not paying their fair share, so this whole notion of not paying their fair share is just false.

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

All right, John, thanks. I'm sorry I have to interrupt you there; I don't have much time and I wanted to ask one other question.

Paul, you said you weren't in the business of making recommendations but in the business of studying. I look at what's in this budget for the province of Nova Scotia and I hear that it's not enough. When I look at $1.3 billion under the new equalization system, $130 million in offshore core offsets, and $639 million under the Canada health transfer, I see good things for Nova Scotia.

You've said you don't want to make recommendations, but if keeping the accord is something that's going to benefit Nova Scotia, according to you, then why don't they just keep the accord and not enter into the new deal, even though there are a lot of advantages that sit within this budget itself?

[Prof. Paul Hobson]

That is a very good point, and it may well be the decision the province makes. For 2008-09 it may well be that they forgo some benefits under the current recommendations with the new program, but going forward it may well be that they're much better off staying within the fixed framework. The question is whether, over the long term, three different equalization programs will be sustainable.

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

Over the longer term, when you look in the past in terms of equalization, haven't we been having these same arguments as a country since 1867? Isn't this at least a step in the right direction to try to make it more consistent?

[Prof. Paul Hobson]

It is a worthwhile discussion, and I think it needs further study.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Mr. Dykstra. We'll conclude with Mr. Pacetti.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chairman. Again we save the best for the last.

I have just two quick questions. Mr. Dielwart, in your sector, what is your viewpoint? I understand the finance minister wanted to get rid of the income trusts, but he's being inconsistent by allowing the real estate sector to continue to survive. I would understand if he'd put a moratorium and said there would be no more conversions, for example, for the financial sector or the telecom sector, but that's not what happened. What is your viewpoint there? Why did they allow the real estate sector to continue to survive, while the energy sector is very apparently affected by all this?

[John Dielwart]

Certainly we're at a loss to understand how we have not been included under the same basis that the real estate investment trusts were, because it was for real estate and resource properties that the whole structure was originally set up.

What the government stated in their backgrounder was that REITs exist elsewhere; therefore, they need to be exempt. Energy trusts do not exist elsewhere; therefore, we need to get rid of them.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

“Elsewhere” means where?

[John Dielwart]

They exist in the U.S., Australia, and elsewhere. The fact is that the U.S. has an active flow-through entity model very much like this, and they are patterning it in the upstream resource sector on the success of the Canadian—

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Is there a hidden agenda? Is there a reason that...?

[John Dielwart]

It is difficult to understand what the agenda is, because they will not discuss it with us. As we try to consult with them and try to offer them feedback on their reasons for acting, they will not engage. Is there a hidden agenda? I don't know, but we certainly don't know what the agenda is.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you.

Mr. Nantais, on the whole feebate program, is there another solution that could be useful to your industry? For example, I'm thinking about taking some of the money and using it to take old cars off the market. Is that a solution, or are there other solutions that we're not thinking of?

[Mark Nantais]

I agree. One solution is to get the older, higher-polluting vehicles off the road. In fact, what has been announced actually detracts from one of the other options the government announced, which is the accelerated retirement of older vehicles program. So you basically have one program detracting from another.

We submit that the $30 million that was put aside for the early retirement of vehicles program is actually extremely underfunded. We'd be better off putting more money into that program, but also looking into fuel diversification, like ethanol from cellulosic processes ultimately, and getting more distribution out there.

They've done the right thing by adding more to the production side of renewable fuels like ethanol. But we're coming up short on the distribution side of it--on getting more stations out there, like in the United States. Brazil has been doing it for years, and Sweden is doing it now. We're falling way behind compared to some of these other countries and what they're doing in renewable fuels and their distribution. So we could make more progress going that route.

[The Chair, Conservative, Brian Pallister]

Thank you very much to all our witnesses. It was a very interesting panel and we appreciate your participation.

We'll invite the second panel to gradually make their way to the front. We'll suspend briefly for some lunch.

[The Chair, Conservative, Brian Pallister]

We will reconvene.

Thank you to our witnesses for their patience in allowing the committee members to get that sustenance they need to probe deeper into the pros and cons of this year's budget. Thank you for being here.

Perhaps you were here earlier, so I will just outline quickly. I know you've been given a mere five minutes to make your opening remarks, but then we'll move to questions from committee members. I do appreciate you being here, and thank you on behalf of the finance committee for doing so.

We'll begin with Richard Jock, who is here from the Assembly of First Nations.

Richard, welcome. Five minutes to you.

[Richard Jock, Chief Executive Officer, Assembly of First Nations]

Thank you.

It's the submission of the Assembly of First Nations that the Government of Canada has missed an important opportunity with this budget. We feel that, to a large extent, our efforts to see the concerns of first nations addressed and to implement a first nations plan for creating opportunity remain unanswered.

It is further our point of view that without a comprehensive plan to tackle the comprehensive issues facing first nations, this leaves first nations governments and first nations peoples managing desperate situations. Therefore, we urge the committee to recommend significant amendments to Bill C-52 to reflect these urgent concerns, and we summarize our recommendations as follows.

Funding growth must be commensurate with other jurisdictions. By our estimation, this is 6.6% through equalization and CHT and CST payments to provinces, and it ranges up to 10% for the territories.

Secondly, any new legislation must recognize its financial impact on communities and be funded sustainably with reference to inflation and population growth, as well as other pertinent cost drivers.

Thirdly, discriminatory funding practices must end, and specifically I refer to the fact that within the Department of Indian Affairs' budget the provinces are paid at the provincial rates for such things as tuition agreements in the area of education, and similarly, in child and family services, which leaves comparatively less money within those same budgets for first nations to run their own services. This, in our view, is highly discriminatory.

A second example of such discriminatory practice is in terms of pension and benefit plans for band council employees. We feel that those must meet the standards of other jurisdictions and be transferrable and comparable if we're to retain and recruit capable staff. For example, many such plans are done as sort of wraparound plans, which take into consideration such things as non-insured health benefits, which then simply drive up government costs in other areas.

The fourth point is that the federal government must create a real planning basis for funding, and to do so we feel it's extremely important that with first nations there be the establishment of performance standards, which includes funding to meet those standards.

We also feel that an important part of this, again with first nations, is to look at structural changes to the machinery of government to address some of the inherent conflicts of interest that currently exist and to bring then much more independence and fairness into the fiscal relationships. This was also referred to in the RCAP report, where it talks about setting up a department that would be in charge of policy interests and a separate department that would be in charge of service delivery.

We are pleased to see that this government is renewing and expanding programs in two areas where first nations are leading the way in creating solutions for themselves and their future. Those are the aboriginal justice strategy and the aboriginal skills and employment partnership initiatives. However, these two programs and an investment in the maritime fisheries, much as those are very much needed, are not really an overall comprehensive plan.

The total investment in Bill C-52 for the next two fiscal years, then, is just under $60 million, for an average of $30 million a year.

Also in the budget we've seen reference to $300 million for market-based housing, which does deal with part of the continuum of need for housing. However, it should be noted that this was part of last year's budget announcement, and we feel that further investments in terms of social housing and other elements of that housing continuum are also necessary.

I refer you to the PowerPoint presentation that was distributed to you before the meeting, which summarizes the Canada cost drivers study, which was completed by the Department of Indian Affairs last year.

We feel the study was prompted by some of our own research in the area. I would say that to a large degree our view is that the study is based on correct figures, but our analysis is that it potentially understates some of the real circumstances.

In terms of overall approach, though, it's important to state that beyond those critical investments, we do feel it's important to address some of those historic gaps in well-being, to invest in those, but also at the same time to seek structural change. We've put forward a comprehensive plan to do that, which we'd be happy to discuss with you.

[The Chair, Conservative, Brian Pallister]

Thank you very much, sir.

We'll continue with Diane Urquhart, who is here as an individual. Welcome again to committee, and five minutes to you.