Finance Committee on March 5th, 2008

[Avrim Lazar]

As we said, there are things the federal government could usefully do to help the forest industry in terms of spending, one of which would be research, another of which would be market development, another of which would be to replenish the ecoENERGY initiative so that there's enough money there for new projects to get going. Another is that we could extend the Canada wood program, which is running out of money. All of these are within the federal responsibility.

We want the provinces to do what they have to do and the federal government to take on more responsibility in managing its own affairs.

rather than telling the provinces, “Go do it”.

[The Vice-Chair, Liberal, Massimo Pacetti]

Merci, monsieur Laforest.

Mr. Dykstra is next, and then Mr. Turner.

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

Thank you, Chair.

I'm going to jump right in, because I only have five minutes, and I hope you will be as short as you can in your answers, because I have about four questions.

Jayson, you guys issued a release that really slammed us. I'm not going to pull any punches here. You really took a hard shot at us, saying we weren't doing enough. You called it “Disadvantage Canada”. Mr. Lazar today said Advantage Canada is the right thing to do; it's not moving quickly enough, but he said it's the right thing to do.

You call it “Disadvantage Canada”. Do you disagree with Mr. Lazar's perspective on this?

[Dr. Jayson Myers]

No, I think the strategy that you set out is correct. Our point of view in saying that this was “Disadvantage Canada” was just to say that not making these crucial investments puts Canadian companies at a global disadvantage.

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

Do you think we're not making investments?

[Dr. Jayson Myers]

Our assessment of the budget was that the tax measures in this budget and the investments weren't adequate to meet either the challenge or the urgency of the situation.

[Avrim Lazar]

Our press release said exactly that. It was in that ilk, that it was inadequate.

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

Mr. Lazar, let me take this a little further. The whole aspect you pointed out about Advantage Canada is that it is moving too slowly, that we need to pick up the pace—despite the fact that the dollar went up in the percentages you talk about pretty much in six months. But having said that, Mr. Myers indicates that with the accelerated capital cost allowance we moved far too quickly, that it went too fast and companies aren't going to be able to react that quickly, because they can't engage as quickly as they should.

So I'm hearing you say it's not quick enough; I'm hearing Mr. Lazar say we need to extend the program, because companies can't move quickly enough to pick up on it.

[Avrim Lazar]

No, not quite: you're ending it too quickly; you're not doing it too quickly.

The capital cost allowance two-year writeoff needs the longer window for people to gather the cash and do the projects. If Advantage Canada were moving with more aggressiveness and more speed, you would have done exactly what Jay says.

The only difference between his point of view and mine is language. He was reacting to the fact that the budget wasn't as aggressive in terms of business climate as it could be. I'm reacting to exactly the same thing. We both agree you're doing the right thing. You're just not doing enough of it, given the gravity of the situation.

Is that fair?

[Dr. Jayson Myers]

Our response to the budget was certainly aggressive. It was maybe a little angry, but it was a reflection of some of the disappointment and frustration that—

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

Jayson, I don't dispute the emotion that comes out of your organization, based on what they're up against right now. That isn't my issue.

My issue is that if we read the report we have here today, in 1996 this country was in the top three or four in the world in producing automobiles. Now we are languishing at seventh or eighth. That's over a 10-year period; we've been in government for two years. I'm not trying to make excuses here. We've been in government for two years and have had three budgets. Every single one of these budgets has taken an aggressive approach to making sure that corporations have an opportunity not only to exist here in this country, but to be competitive.

I would ask, if you've been making these presentations for the last 10 years, who was listening to you? I'd submit that we certainly are.

[Avrim Lazar]

I'd say that as a country we're negligent. The Liberals got the deficit under control and took steps, and you guys have been taking steps. But as a country we're just a little too comfortable: the provincial governments are too comfortable, industry was too comfortable when the dollar was low, and as Canadians we tend to take our standard of living as a birthright. We're all waking up.

We're all facing exactly the same thing. I'm just as aggressive with my own members in terms of the need to work harder and faster.

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

I appreciate hearing that, because it's going to come collectively—

[Avrim Lazar]

But it doesn't let you off the hook. You're just part of the Canadian culture that thinks we don't have to--

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

And we need to change that culture, because it obviously hasn't worked for the last 15 or 20 years. We need to get more aggressive, and I think we are. We have the three budgets sitting here. I recognize that all you guys want to get more aggressive and start moving in that way, and I look at your comments about the billion dollars to the provinces and to the territories. One of the fundamental reasons we did that is that if you think the federal government wants to give a billion dollars to provinces and territories and take all the credit for doing it, no, we don't. The reason we did it is that we have to set up the programs, and you know how long that takes federally. Provinces and territories have programs in place. We can fund the money directly to them, put it in a trust fund, and have them implement the programs immediately. We don't get the credit for it. We did it because it was the right thing to do, to put $216 million in Quebec, to put $325 million or $350 million in Ontario.

Quite frankly, that money can be spent now. It doesn't have to wait for programs. It doesn't have to wait for budgets to be passed. We all agreed it was the right thing to do.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Dykstra.

Mr. Turner, five minutes, please.

[Garth Turner, Liberal, Halton, ON]

I'm wondering if you might be able to clarify two points. One relates to our exchange rate, the Canadian dollar. We conducted a few hearings into the Canadian dollar here in the finance committee in November.

I'll read you a couple of paragraphs. This is when we had one of our meetings and the Minister of Finance was here:

OTTAWA - Finance Minister Jim Flaherty says problems associated with Canada's high dollar are diminishing, although there is no quick solution on the horizon.

After Tuesday's hearings before the finance committee in which manufacturers pleaded for relief from the impact of the strong loonie, Flaherty said while the Bank of Canada and the government have “some tools,” there's no quick fix for currency fluctuations.

But he said he's pleased that retailers are beginning to pass on some of the savings from the strong dollar to consumers.

That was November. Now we're into March. Was the minister right? Were the problems diminishing from the impact of the high Canadian dollar? How do you guys assess it now?

[Dr. Jayson Myers]

Perhaps I could go first. This time last year the Canadian dollar was at 84¢. I think when those hearings took place it was probably close to $1.10. Nobody could have foreseen that, and that rapid surge in the dollar has overwhelmed most companies. Most exporters will be in a loss position in their last quarter of last year, and we're beginning to see the consequences of that now.

I think looking forward the risk is on the upside for the Canadian dollar, even with the aggressive interest rate cut we've seen, and it has nothing to do with the Canadian dollar. It has everything to do with the weakness of the U.S. dollar and the fact that the banks of China and Taiwan and Singapore and Japan have better places to put their money than in the U.S.

[Garth Turner, Liberal, Halton, ON]

I understand that. The salient point, and why we had the Minister of Finance here, was that we were trying to explore the role of government and how government influences currency. There is some impact on the influence of currency, and certainly our finance minister spent a long time talking about the strong Canadian dollar, and it struck a number of us that this was not the language you want to use in a world of currency fluctuations.

[Avrim Lazar]

If I may, we appeared at one of your hearings and we said there is some room for flexibility in where the dollar goes. There is a range within which government can responsibly influence, and as a small, open exporting economy, we should influence it toward the bottom of that range.

I was very happy to hear for the first time, about a month ago, the Minister of Finance talk about a reasonable range. That was a recognition, and the bank seems to be migrating that way too, but there's no doubt the dollar is not a commodity, like pork bellies, that should be treated as if it has nothing to do with the.... It is the very deep structure of the economy.

Manipulating in a way that doesn't reflect the relative productivity of the two economies would be a long-term bad thing to do, but within the range it should be driven as low as is responsible. We've been saying that purchasing parity probably provides a good benchmark, which is more in the 88¢ range than in the 98¢ range.

[Garth Turner, Liberal, Halton, ON]

I understand that, but my simple question, yes or no.... I'm running out of time, but a finance minister of a country certainly has an impact on currency markets, and every word and syllable that he utters does so. So I'm hearing you saying that you prefer to see the finance minister talk the dollar down than talk it up.

[Avrim Lazar]

It all depends on the circumstances. There's no yes and no to that one.

[Garth Turner, Liberal, Halton, ON]

Okay, good enough.

The housing market in the United States is obviously a major impactor upon your industry, and also in Canada. I'm just reading a report here that has been published by RBC, the Royal Bank of Canada, on home buying intentions, and I wonder if you might comment on it.

The survey has indicated that, as regards people planning to buy a home, those intentions have gone down in the past four weeks, and we're now at the lowest level in Canada in the past 15 years in terms of home buying intentions. That's only going to exacerbate your situation. Is that correct?

[Avrim Lazar]

What really exacerbates it is the lack of intention in the States, where they have so much surplus, because we export most of what we make. But yes, of course the lack of demand in Canada exacerbates it.

The reason we're so worried about this recession and wanting to see so much more aggressive action is that usually the way the U.S. gets itself out of a recession is an interest rate drop, which leads to an increase in housing starts. But because the problem is centred in housing, the interest rate drops are not having that kind of effect.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Turner.

Next is Mr. Wallace, and then Mr. McKay, for five minutes each.