The Fédération des chambres de commerce du Québec is a very significant network.
Let's get to the real issues. Why do forestry and manufacturing companies need financial support from the government?
Whenever we talk about financial assistance for companies, two economic ideologies come into play. Some people believe in giving the market free rein, because they maintain that market mechanisms will redistribute the resources in the most effective way, and provide the highest net profit and gain for the population as a whole. Others maintain that the government should to some extent intervene, and believe that job creation and economic development require government support.
At the outset, I would like to say that the Fédération des chambres de commerce does not deal in ideology. Our members face real, tangible economic problems, and we believe that pragmatic approaches are required to solve those problems. The Fédération believes there are four reasons justifying direct government assistance and tax relief for the forest and manufacturing industries. First, competitiveness and investment; second, economic diversification; third, an even playing field for competition; and fourth—I think the two preceding speakers will be happy to hear this—regional development.
With regard to competitiveness and investment, everyone knows that since the early 2000s, foreign competition has led to significant restructuring in Canada's manufacturing industry, which was driven even harder by the very rapid rise of the Canadian dollar. The Fédération believes that the restructuring is both normal and healthy. The government should not take action to prevent it, but provide some support for companies as it occurs, and help them meet the challenges that it entails.
We believe that companies need help. At present, the restructuring is going ahead at a very rapid pace. This is a new phenomenon—we have never seen foreign competition invade both the domestic and foreign markets in this fashion. Fluctuations in the dollar are having some—and even a great deal of—impact on companies' business decisions. Similarly, because of the strong Canadian dollar, investments are becoming less profitable, when in the past, the relative weakness of the dollar gave us a comparative advantage. Nowadays, we have to focus on the competitiveness of our companies. Productivity and competitiveness are vital—they are the key.
The problem is that companies in the manufacturing and forest industries are hesitant to invest. The dollar is generating some instability, but also reduces their profit margins somewhat when they export products.
We believe the government has a role to play. First, the government should further reduce the tax burden on businesses. We therefore applaud its commitment to gradually bring corporate taxes down to 15% by 2012. However, we believe that the GST reduction made it impossible to lower corporate taxes more quickly, something that in our opinion and in the opinion of most financial experts in Canada and elsewhere would have been much more profitable for the Canadian economy.
The second good reason for which the government should provide assistance to the manufacturing and forest industries is economic diversification. Here again, I won't be teaching you anything new in saying that, because of rising prices in raw materials and the improved position of the dollar, manufacturing and natural resources industries—and indirectly the service industry—have expanded in Canada because of the wealth effect, while the rise in the Canadian dollar has had a negative impact on the manufacturing industry.
In our view, it is essential that the government make every effort to ensure that the Canadian economy remains diversified, for a very good reason—the natural resources boom can only be temporary. Some day the price of natural resources may drop, and in any case the resources will one day become exhausted.
Thus, in order to ensure Canada's long-term growth, we have to prevent the country's de-industrialization. That word might be a little strong, but we are now seeing a drop in production, jobs and investment in Quebec's manufacturing industry. We might begin to believe that we are in fact seeing de-industrialization.
In order to prevent that, the government must, in our view, maintain and improve its industrial policy. We recommend that industrial policy be geared to fostering more competitiveness. There must be investment in high-benefit projects. For us, competitiveness is a high-benefit approach, and we believe the government should focus on that aspect.
The third reason for which the government should support the manufacturing and forest industries is a level playing field for competitiveness—levelling the playing field is a sound economic argument. Some industries, like Brazil's aeronautical industry, are strongly subsidized. Embraer, for example, receives a great deal of government funding.
If we want to give Canadian businesses a chance to perform well internationally, we have to give them financial support. It's unfortunate, but the fact is that they are at an immediate competitive disadvantage on global markets because other countries subsidize their industries. It seems somewhat frustrating to be in the position of having to subsidize multinationals, but we have to accept the evidence and take a pragmatic approach. Other countries do it, and if Canada does not, it will lose businesses that are vital to its economy.
We talk about supporting the manufacturing and forest industries, and that involves the whole aspect of regional economic development. I won't be telling you anything new when I say that most governments have a long history of intervening in regional economic development. In fact, it is incumbent upon them to limit social disparities, balance economic development, and distribute wealth within their borders.
There are basically three instruments through which a government can do those things—taxation, transfer payments, and sector-based assistance. In recent years, other countries—particularly the U.S. and European countries—have focused sector-based assistance on manufacturing, among other things because of competition from countries like China. The third regional economic development instrument—sector-based assistance—has two goals: to protect economic sectors that are significant for the regions, and to strengthen competitiveness in the regions by supporting leading-edge and growing industries.
In our view, those two goals are complementary. The Conservative government did something very good in providing sector-based assistance to regions affected by the forest and manufacturing industry crisis. In the 2008 budget, that assistance is provided under the Community Development Trust. The funding will be used to restructure companies and industries that are in difficulty, and that are important for the regions because their production is based on regional assets. Those are companies that have a sound and well-justified economic foundation. In addition, the funding will be used to recycle workers who have lost their jobs in those industries, helping them to enter growing economic sectors, particularly mining.
However, we find it unfortunate that assistance provided to the forest and manufacturing industries through the Community Development Fund was not high enough. Quebec's share is lower than the relative economic weight of Quebec's manufacturing industry in terms of production and jobs. We have pointed out that the assistance to Quebec must be increased and also that the distribution formula must be changed. In this particular instance, apportioning the funding on a per capita basis makes no sense, since Quebec's manufacturing sector accounts for a larger percentage of the Canadian economy. So we did find the form that assistance took somewhat regrettable.
We were also surprised by the $250 million given to the automotive sector in the last budget, in the form of a fund for innovation. We know that the automotive sector is very highly concentrated in Ontario. Mr. Flaherty said that the amount would be used to create tomorrow's green automobile, or at least to design it. To our knowledge, however, there is not much automotive design in Canada. We therefore wonder whether the funding could have been better invested. We believe that the benefits of innovation might have been greater if the focus had been on life sciences or the aeronautical industry, sectors where Canada is involved in research and development, and where we really do see product design.
Since every taxpayer expects to be supported by the government if he or she does not have the resources to make ends meet, the Fédération des chambres de commerce du Québec believes that Canadian and Quebec businesses should be able to count on government assistance when they encounter difficulties that are to some extent outside their control. For example, they had no control over the recent rise of the Canadian dollar, something that caused them great difficulty. They are asking themselves a number of questions, one of which is whether they should continue to invest in Quebec or Canada.
Thus, the Fédération des chambres de commerce du Québec strongly urges the government to formulate temporary assistance policies aimed specifically at helping businesses that are in financial difficulty. Obviously, there must be a balance so that the government does not end up subsidizing industries that no longer have an economically justifiable raison d'être. The Fédération des chambres de commerce du Québec has long been asking the Canadian government to establish a competitive tax system that fosters wealth creation, and to formulate structuring policies, particularly assistance policies, that foster competitiveness and the long-term prosperity of the Canadian economy.
Thank you very much.