Finance Committee on Feb. 4th, 2008

[John McKay, Liberal, Scarborough—Guildwood, ON]

There's one other question with respect to the issue not only of NAFTA but also the lumber deal that was entered into. Have you examined this proposal in light of the Canada-U.S. lumber deal?

[Robert Dunlop]

The answer to that would be in the details about how it was done. Depending on how the diversification fund moneys were used, that could be in violation--

[John McKay, Liberal, Scarborough—Guildwood, ON]

What would you have to steer away from? Would it be a notional subsidy?

Let me finish.

[The Chair, Conservative, Rob Merrifield]

You may ask me, but you can't tell me. Finish your question and that will be fine.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I knew you were a fine fellow, Chair.

On that final point, would there be any offence against any subsidy, direct or indirect, on the Canada-U.S. lumber deal?

[Pat Saroli, Senior Advisor, Trade Remedies and General Economic Relations, International Trade Policy Division, International Trade and Finance, Department of Finance]

On the softwood lumber agreement, SLA, the governing provision is article XVII.1. It's fairly clear. It prohibits the taking of any action that has the effect of reducing or offsetting the commitments agreed to under the export measures and commitments under the agreement. To the extent to which you're structuring an offset of some sort, the devil is very much in the details. You could very well find yourself in conflict with the general thrust of the SLA. I think we would have to know a bit more about how this diversification program would work and what it would be targeted at to make a definitive assessment. But I think you are treading on dangerous territory there.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

[John McKay, Liberal, Scarborough—Guildwood, ON]

That was very generous of you, Chairman.

[The Chair, Conservative, Rob Merrifield]

It was indeed. It won't happen again.

Monsieur Crête.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

We do not have any questions at this time. Instead, we will be intervening when the motion is tabled.

[The Chair, Conservative, Rob Merrifield]

Okay, we'll move to the Conservatives. Is there a question over there?

Mr. Dykstra.

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

There may be a couple of questions, Chair. I may share my time with one or more of my colleagues, depending on how long it takes me.

First, what is the federal government currently undertaking from both an ongoing perspective, over the past number of years, and also currently keeping in mind the last two budgets that have had specific program itemized spending lines dealing with some of the issues that are in here, and obviously from the fall economic statement as well?

I'm wondering if you've done a bit of a briefing as to what the government is doing currently against what is indicated here in the motion.

[Robert Dunlop]

Mr. Chairman, in the last two budgets and the economic statement there have been a number of actions taken to support the manufacturing and forestry sectors. The most important of those, the largest of those, is tax relief, which is estimated to provide $8 billion of relief for the manufacturing sectors between now and 2012-13. That includes such measures as targeted accelerated capital cost allowance.

My colleague Nancy can certainly expand on the tax measures.

[Nancy Horsman, Director, Business Income Tax Divison, Tax Policy Branch, Department of Finance]

Sure. I can just enumerate them here.

We have a reduction in general corporate income tax rate to 15% by 2012, from 21% in 2007. The most recent announcements about those reductions took place in the economic statement. The corporate surtax was eliminated for all corporations in 2008. There was an acceleration of the elimination of the federal capital tax by two years, to January 2006. The small business tax rate was reduced to 11% from 12% by 2008. There was an increase in the amount of active business income that's eligible for the reduced small business tax rate, to $400,000 from $300,000 in 2007.

As Mr. Dunlop mentioned, there was a temporary 50% straight-line CCA writeoff for manufacturing and processing machinery and equipment. There was an increase to the CCA rate on buildings used in manufacturing or processing, to 10% from 4%, as well as an increase in the CCA rate for computers, to 55% from 45%.

There was also a financial incentive to provinces to facilitate the elimination of their capital taxes. So far, Ontario and Quebec have announced the elimination of their capital taxes before 2011.

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

Thank you.

[The Chair, Conservative, Rob Merrifield]

There is a further intervention.

[Yves Giroux, Director, Social Policy, Federal-Provincial Relations and Social Policy Branch, Department of Finance]

It was also announced in the budget that $500 million per year would be allocated for worker training, over and above the $2 billion per year the federal government is investing in this area. Older workers will benefit from these initiatives, in the same way as all workers who need training.

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

Thank you.

Before I pass to my colleague Mr. Del Mastro, I have another question. I think Mr. McKay was starting to allude to this, and I don't know whether he got a full answer. That is, what kind of pressure would this put on the federal treasury in the upcoming budget if we were to move forward with such an implementation?

[Robert Dunlop]

Well, the pressure would be the amount of money that the elements cost.

Take the $500 million for Technology Partnerships Canada; that would be $500 million a year, I'm assuming, because it is an ongoing program. The $1.5 billion in reimbursable contributions, if it's $1.5 billion a year, is very large new spending. If, as proposed, the $1 billion diversification fund is delivered by provinces, that would be eligible for spending before the year end, in the same manner that the community development trust is. And the $1.5 billion for measures for workers, again, I'd assume that's an annual expenditure.

That's quite considerable in terms of total federal spending.

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

I guess the only other question I have is just a confirmation. You clarified that these are programs that would not be funded in the current.... In your surplus, they would actually have to be funded out of the 2008-09 budget as program items.

[Robert Dunlop]

That's correct, with the exception of the diversification fund that's described here.

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

Thank you.

[The Chair, Conservative, Rob Merrifield]

Mr. Del Mastro.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, Mr. Chair. I have just a couple of questions.

First of all, to the witnesses, on ad hoc programs such as the one that's being prescribed, do you have any experience that indicates that these are long-term solutions to the types of problems faced by the industry, or is the government better suited to make changes that would actually change the environment in which business is being conducted?

[Robert Dunlop]

That's a hard question for us to answer, because it goes to the heart of different approaches that different philosophies and different political parties have to the proper running of an economy. Strong arguments can be made on both sides.

The position of the government at the moment is that support is best provided through general measures without targeting specific groups to the extent possible. This approach is supported by a large weight of economic opinion and organizations such as the OECD.

On the other hand, you can certainly demonstrate that if a program were designed in such a way that all the funds went to activities that wouldn't have taken place otherwise, the economy could benefit. The difficulty in that approach is in design and delivery. Various countries have tried various approaches with different results.