I am President of the Canadian Chemical Producers' Association.
I would like to start by thanking committee members for inviting us to address them today.
I would also like to note, in opening, that given the continued economic challenges faced by the manufacturing sector today in Canada, CCPA believes that the committee's decision to focus on taxation to improve productivity and ensure prosperity is the right focus.
I would also like to commend the committee for having recognized the recommendation of the industry committee's report on manufacturing. As you know, their study identified three key challenges that Canadian industry faces today: the high Canadian dollar, sustained high energy prices, and intense competition from emerging economies such as China and India.
When we submitted our brief this past August, we identified two key priorities to improve Canada's tax competitiveness: extend by a further five years the new accelerated capital cost allowance for machinery and equipment, and, as a longer term priority, set a schedule to reduce the federal corporate tax rate to 17% and open up a clear Canadian advantage in today's global economy.
Enormous progress has been made federally and provincially towards elimination of capital taxes, and the recent corporate tax reductions announced by Mr. Flaherty went beyond what we expected. The idea of a 25% tax rate overall, in our view, is very attractive, and we hope this key change would help manufacturing provinces such as Ontario and Quebec to meet their competitiveness challenges.
In looking back a little further to the last budget, the government responded to the industry committee report--in fact, it was the number one recommendation of that report--by introducing an accelerated capital cost allowance for the manufacturing of machinery and equipment. Unfortunately, it was limited to two years, so I'm going to focus all my presentation just on this particular issue.
We were very encouraged when the Minister of Finance announced that change. In fact, it was a bit of a surprise because we knew there were a lot of opponents to making that change. When we sat down and met with our members and pointed out that this new measure was there and they could now perhaps make some new investments in machinery, equipment, plants, and productivity or environmental improvements, they basically said to us it was of absolutely no use to them. So we tried to find out a bit more why.
The reality is that large-scale projects typical of our industry and most of the manufacturing sector take at least five years to plan and execute, from initial planning approvals to putting the actual machinery and equipment in place. In some cases, for example, Ontario, it takes a year and a half just to get a certificate of approval for new technology.
So in our discussion with MPs, when we've advocated the extension of the capital cost allowance by a further five years, many members of Parliament have said, “Well, explain to me better why five years is so important to you.” So what I'm going to do today is give you an example of why that's important.
You should have this list in front of you, this one page--“North Sable Extraction Plant”. This is a real-world example of the timelines involved in major manufacturing investment. What you're looking at is the schedule for a plant to be built by Aux Sable in Alberta. This is a real project plan. It's a very simple project in the context of our typical projects, because it's new; it's not a refit of an existing plant. The unit will remove ethane, a key chemical industry feedstock, from the natural gas stream, and then upgrade it into petrochemicals--a very, very important investment to value-added growth in our economy.
When the project was announced in May it was scheduled to start up in mid-2010, but typical of these kinds of projects, it has already been delayed to 2012. In the context of this project, the CCA that was announced in the last budget is totally irrelevant. In other words, they can't say, “I'm going to make a financial decision on this project taking into account the CCA”, because all the expenditures are out beyond the timeframes of the CCA, which are only two years.
If you look at this chart, you see that it takes time for project engineering, and this is after you have approval, which usually takes a year or two. There's a long consultation process with any of these projects. They involve communities, discussions. There are regulatory issues, and then you go to detailed engineering, site preparation, mechanical construction. This is probably the most optimistic schedule you would get in any of these kinds of projects.
For another one, which I've been talking to members about, it took them two years to simply do the labour agreements, because most new refits of plants reduce the number in the workforce or change the jobs. Even labour agreements are affected.
Our recommendation is for the committee to reinforce the recommendation that was made by the industry committee, which was originally for a five-year accelerated capital cost allowance, and to move forward with that recommendation, because it's essential to the growth of our industry.
Thank you, sir.