Finance Committee on March 5th, 2008

[Thomas Mulcair, NDP, Outremont, QC]

Mr. Lazar, I can only tell you that in the eight months since I first set foot in this place, I have resisted becoming accustomed to the glacial pace of the public administration in Ottawa.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Mulcair.

[Thomas Mulcair, NDP, Outremont, QC]

Quebec City has a public administration that is a Lamborghini compared to the Ottawa civil service, which is a 1956 Chevrolet.

[The Vice-Chair, Liberal, Massimo Pacetti]

Okay. Thank you.

[Avrim Lazar]

And they'll all use biofuel.

[The Vice-Chair, Liberal, Massimo Pacetti]

Order.

We're into the five-minute rounds. We'll have Mr. McCallum, Mr. Laforest, and Mr. Dykstra.

Go ahead, Mr. McCallum.

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

To follow up on that point, I might say that the federal civil service under the Liberals moved at lightning pace compared to the glacial pace we've been observing recently.

That was meant to be a lighthearted comment.

I thank you all for being here. My apologies for being a little late. It was partly because I went to the wrong room.

I would like to start off with the issue of the capital cost allowance. I notice that Mr. Lazar and Mr. Myers both, at or near the top of their list, have been asking for an extension of five years. What the government did was extend it to three years, essentially for 21 more months, and then it looks like it's being phased out.

This is my question. I would have thought, having such a short lead-in time, that it's not always terribly useful, because it takes a lot of time to make plans for these investments. Moreover, I thought the annual cost was in the order of $560 million, and they seem to have budgeted far less, which means that maybe the government itself doesn't think there will be much take-up.

I'd like to ask what your overall view is and how much difference it makes between having this measure in for three years versus five.

[Avrim Lazar]

It's an enormous difference. You have to raise the money, you have to buy it, and you have to put it in use. To say that it could be done with one year's or 18 months' notice, it's just not going to happen.

I was told the government was thinking that if we made it short, people would act quickly and bring cash quickly into the Canadian economy. It's a good sentiment, but it's just not the way the world works. If people know they have a bit of time, they can actually do big projects. It is important.

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

Mr. Myers.

[Dr. Jayson Myers]

I agree with what Mr. Lazar has just said. Continually extending it by one year doesn't give you that much additional certainty for planning your investments. For many companies, apart from those companies that were probably going to make investments anyway in off-the-shelf technology, some of those investments will go ahead, but for any major investment, especially in the processing sectors, these do require three, four, or even five years sometimes even to get regulatory approval to put the equipment in place.

Right now for many companies making an investment decision today for equipment that won't be put in place for another two or three years will be outside that extended window anyway.

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

Mr. Laliberté, do you share a similar point of view?

[Pierre Laliberté]

Absolutely, it is not often that our union is in favour of tax cuts. In this particular case, we are in full agreement, as we are with the credits.

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

It is therefore unanimous.

Is it fair to infer that in a sense the government agrees with you by the fact that it budgeted so little for that additional year? Otherwise, if they thought there had been a take-up, would they not have had to similarly budget a larger sum?

[Dr. Jayson Myers]

If you look at last year when the government introduced the two-year writeoff and looked at the fiscal cost that it estimated, it was estimating that somewhere around one-quarter of the investment would be covered by the two-year writeoff. I think there was perhaps some indication that this wasn't long enough for some investments to take advantage of it.

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

We in our party have proposed a partial refundability for SREDs for the reasons that you have advanced, but we put in the word “partial” because we don't know what the overall fiscal situation will be. We'd like to make it as much as possible, but we don't think we'll have the money to do it fully.

The government did something on SREDs in the budget, but as far as I recall, it wasn't refundability. Can you indicate your view of your refundability request as compared with what was in the budget on SRED?

Mr. Myers, would you go first this time.

[Dr. Jayson Myers]

In the budget the government did two things around the R and D tax credit system. It committed to improving the administration of the system, which is extremely important. We'll see how that works out, because that's been in the works for some time.

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

Probably at glacial speed.

[Dr. Jayson Myers]

In terms of the additional allowances, there was an increase in the allowance for small Canadian-owned companies to take advantage of the credit. I think the estimated benefit is around $70 million over a period of two years.

What we were looking at was to make the tax credit refundable, or at least partially refundable, so companies that are making investments in R and D today get the credit today for those tax measures. The changes that were made will provide marginal benefits for some of the smaller R and D performers, but certainly fell short of that refundability.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

The question is for Mr. Laliberté.

Earlier, you expressed agreement on Mr. Lessard's and Mr. Myers' proposed measures to address the problems affecting the manufacturing and forestry industries, particularly for Quebec. In Quebec, the forestry industry is more greatly affected than the manufacturing sector, even though the later is also experiencing problems.

The federal government unveiled a $250 million trust fund to assist the manufacturing and forestry sectors in Quebec. Quebec's share will be $250 million spread over three years; yet in an effort to contain the same crisis, the Government of Quebec invested close to $2 billion in the last years.

Everybody knows there is an urgency. We know it, you are saying it. If nothing is done, things will get worse. Gathering from what everyone is saying today, more must be done. Do you believe that this one billion dollars is enough?

Money that has not been used to pay down the debt is available. The government's intention, as stated in the budget, is to take the $10 billion to service the debt. Indeed, there are financial resources, and we are in a period of crisis.

[Pierre Laliberté]

Listen, it depends on what the government wants to do with the billion dollars. When we break down the amount of money in the trust over three years, it represents about $70 million per year. We cannot go very far with that. Really, this is a transfer to the Government of Quebec for it to solve the problems that have surfaced, and God knows there are many.

Within the forestry industry, many municipalities will cease to exist if mills shut down. These problems could even result in the shutting down of entire cities and villages and the relocation of entire populations. From a different perspective, we regret that...

[The Vice-Chair, Liberal, Massimo Pacetti]

Pardon me, Mr. Laliberté. I do not wish to interrupt you. I will give you time to finish your answer.

Do you mean to say that you do not approve of the distribution of funds through the provinces?

[Pierre Laliberté]

No, no. And that is not what I meant at all, on the contrary. I'm simply saying that in light of the new problems we face, there are no clear objectives. There's a community trust fund. This will cushion a part of the fallout communities are experiencing. That is it. Given the magnitude of the problems, I have a hard time telling you if it will cost $2 or $3 billion because we do not know the point of all this. Yet, what I can say is that rather than allocating $10 billion to the debt, it would have been good to acknowledge the urgency of the situation and allocate a portion of the money to setting up a fund that will help our industry become more competitive and help our workers receive training for new trades. This was not done.

In Canada, renewing infrastructure has to be done rather urgently. We've left the problem unresolved for years, and now is the time to act. Given this, your organization has issued an interesting proposal to create a Canadian purchasing policy, similar to the American one. To my mind, this is necessary given the inevitable slowdown in housing construction. This is an interesting idea that is totally absent from the current discussion.

I will conclude on that, but want to impress upon you that the means used to date are insufficient.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Mr. Lazar.

[Avrim Lazar]

Giving money to provinces is something I've never quite understood; it's not part of our life. But it's different from doing the job as a federal government. The provinces should do what the provinces do, and the federal government should do its job. Its job is to create business conditions that draw investment into Canadian mills.

If you want to give money to provinces, I hope they use it well, but it's not the same thing as doing the federal government's job.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Let's discuss the use of the surplus, Mr. Lazar. Do you also support the use of $10 billion to pay down the debt despite the fact that nothing was provided in the budget to support the manufacturing sector and, mainly, the forestry sector?