Finance Committee on May 26th, 2008

[Jean-Luc Trahan]

I don't have much to add. We've been asking the government to provide an employers' training tax credit creditable against the EI premium. What we believe is important at the moment is to keep workers on the job, so our main focus is to find ways to train those workers to face globalization and what's happening in the marketplace.

I don't want to add anything more than what was said, but that is our primary concern.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Monsieur Crête, you have seven minutes.

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

Thank you, Mr. Chair.

I find it rather interesting to see Mr. Trahan and Mr. Weir seated side by side. Both the employer and union sides sending the same message regarding the manufacturing sector.

Mr. Trahan, you explained very well some of the shortcomings in the current budget, but with respect to the manufacturing industry in Quebec—and I assume the same could apply to Ontario—what are we going to come up against in one year if the federal government does not apply concrete measures now, as has been recommended in the unanimous report of the industry committee, and in the submission you made today? In terms of employment, markets, what are the manufacturers going to be facing?

[Jean-Luc Trahan]

What is very difficult right now for manufacturers is the fact that everything is happening all at once, and very quickly. When the dollar was at 80¢, manufacturers were able to make 12-month projections based on an 80¢ or 85¢ dollar. As soon as the dollar was at par with the U.S. currency, manufacturers were forced to make adjustments. And if that was not enough, energy costs are on the rise, and there is an economic downturn.

There are two categories of manufacturers in Quebec and in Canada. Some were able to foresee things to a certain extent and prepare themselves by investing in worker training and equipment. With respect to upgrading, statistics show that those companies did the right thing. There was an acceleration. I talked about the negative aspects, but a positive one is that a stronger dollar allows us to buy more equipment.

We often hear talk of a level playing field. The United States have adopted the Buy American Act , and manufacturers have to deal accordingly with that market. Right now, we are in strong agreement with unions over the importance of having well-skilled workers and quality training. In Quebec, with the Quebec government behind these efforts, these elements have been put into place to facilitate investment and training. It is a winning theory.

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

Would it not have been better if the $1 billion trust fund had been bigger? The money could then have been transferred to Quebec, which has a manufacturing action plan. If the government had doubled the investments in Quebec, as an example, there would have been a much more significant and positive effect. Do you agree?

[Jean-Luc Trahan]

Absolutely. However, it must pointed out that the budget did contain corporate tax cuts. I think that is an important element.

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

Yet, a number of your members are not making a profit right now and will not really benefit from those tax cuts. It is almost as though the government had put forward an action plan that is semi-functional.

[Jean-Luc Trahan]

That is exactly why we worked very closely with the Government of Quebec, which decided to allow the deferment of tax instalments and free up cash flow.

On the issue of the trust fund, we believe that it was a good idea because there is some flexibility built into it. The program also allows for a variety of things, such as access to broadband technology, something we all agree upon. But revamping the downtown core is not a necessary incentive for the manufacturing sector. We think there should have been more money to assist the manufacturing sector, since there was some leeway. We are not talking about charity, we are talking about investment.

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

What will the situation be in one year or two, if additional measures are not put into place? Will we be bidding farewell to a large part of our manufacturing sector?

[Jean-Luc Trahan]

No, only things will be more difficult, and our development will be delayed. All the OECD countries have put an emphasis on their manufacturing sectors. If one believes what the newspapers say, one has the impression that the manufacturing sector is going to disappear. And that is one of the problems we are facing. That is the worst thing that could happen in Canada. The sector must remain extremely strong. Other countries, such as England or even France, have invested in their manufacturing sectors. We have to find a way. The Government of Quebec, to my mind, has suggested very interesting things. There must be greater involvement; otherwise, we are only going to face more problems. But manufacturers are here to stay.

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

Mr. Weir, would the government have been better off setting aside its non- interventionist approach and adopting a more pragmatic approach to develop these sectors and give them the necessary tools to adapt?

[Erin Weir]

Yes, you are correct. Things are going to get worse if the government does not do anything. In my presentation, I stated that for the entire country, one out of every six jobs in the manufacturing industry has been lost since November 2002. In Ontario and in Quebec, the ratio is one out of five. The situation is very bad. I believe that Mr. Trahan is right: it is a good idea to have a tax credit for real investments made in the manufacturing sector, and tax cuts benefit industries that are already doing well, but are an inadequate measure for the others.

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

I have one last comment, which is addressed to Mr. Whyte and Ms. Reynolds.

I represent a region where there are many seasonal workers. For 15 years, taxpayers have contributed to reducing the deficit in an absolutely extraordinary way. They have never received a return on their investment, in any way whatsoever. I want to make sure that employers are ready to say that this program has two components. You can try and squeeze the very last drop out of the lemon, reduce contributions and not pay out reasonable benefits; but this will jeopardize the program's equilibrium.

I would like to hear your comments on that. What is the solution? I feel that right now, we are not far from the funding limit. We are being told that there is no drop, and that the unemployment rate is very low. We have to be very careful, because historically, high unemployment rates have always been cyclical and have returned, and unfortunately this will happen again. Some people are going through some very hard times. There are families that are living on $25,000 per year. Try it: it is quite difficult.

[Garth Whyte]

This is why, beyond the discussion of the agencies, we say that we need to fix EI. When you have 15% of employers saying they have used the job creation partnerships and the rest don't even know about it, or 13% saying they had never heard of the self-employment program, per page 12, there's a problem. We need to fix it to deal with the changing workforce and to deal with seasonal workers. Let's look at it.

Right now, if you look at page 11 and where the money has been allocated, 44% has been going to benefits and the rest to other things, and it's the training programs that concern us. What concerns us about the training program is that the department measures take-up, not outcomes. In other words, it will measure the number of people who took the self-employment assistance program, but it won't track the number of people who became self-employed. So is the program working, or isn't it?

Then we transfer money to provinces. So P.E.I. then says they want to do what the federal government did. What works? What do they tell P.E.I.?

So we have a program that isn't changing. We're working on the immigration program, we're working on training. We were just at the annual meeting of the Association of Canadian Community Colleges in Prince George. It's happening now. We're working with them.

I say this because we have to look at changing our labour market programs, and EI needs to be changed to deal with exactly what you're talking about—and I think employers are open to that.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move on to Mr. Del Mastro. You have seven minutes.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, Mr. Chairman.

Thank you, witnesses, for appearing here before us today.

Mr. Whyte, I'm just going over the small business report card that you circulated. I'm pretty happy with some of the results there, to be perfectly honest with you. I indicated before the meeting started that as a former operator of a small business in my riding, I participated in a lot of these studies for years. Certainly I remember an awful lot of surveys that I completed, which went towards making them. I appreciate the efforts the CFIB makes in that regard.

You correctly point out in your submission that with the way the EI program was operating, EI was merely a tax. That's what it was: a payroll tax. I'm surprised that property taxes were third among the forms of taxation that affect the growth of your business, because they're taxes that businesses pay whether they're profitable or not. Payroll taxes and property taxes have both increased in a fairly significant fashion.

I recall surveys at least a decade old, in which EI was the lead issue for CFIB. Is that correct? Is that your experience as well?

[Garth Whyte]

Yes, it's one of our major issues. With others, we put this EI surplus on the map. We talked about it when it was $15 billion and we presented to this committee, and when it was $16 billion, when it was $20 billion, when it was $30 billion, when it was $40 billion. We said you have to do something. Others got more engaged, and the labour movement got engaged, because it wasn't fair.

Now there's a reverse fairness. I have to say that to say that it's all gone and all of a sudden we're going to start with just $2 billion is wrong. That's where we're in violent agreement. I must say I didn't say it was a perfect system back then, but I agree that the government needs to backstop this more. The bill has to backstop it, I believe. If it goes below $2 billion, and all of a sudden our members have to pay additional premiums and their employees have to pay additional premiums after paying $54 billion, that's inappropriate.

[Dean Del Mastro, Conservative, Peterborough, ON]

I suppose, but I would argue that if you've acknowledged that EI has been nothing more than a payroll tax--and that's what you acknowledged--and certainly—

[Garth Whyte]

Certainly keeping up with the benefits—

[Dean Del Mastro, Conservative, Peterborough, ON]

I challenged this on the floor of the House of Commons when opposition members stood up and said, when we were running unprojected $13 billion and $14 billion surpluses, that this was flexibility. In my mind, that encouraged very poor spending habits on the part of the government and drove inflation. When you put this off into a separate account, first of all, the money isn't gone. I think this is the suggestion by labour, and it's the suggestion by business. I don't recognize the money as being gone. The money has gone towards paying down Canada's national mortgage. That's where the money has gone.

Now, people can argue whether that was ethical. I am sympathetic to that argument. I didn't like, as an employer, paying into a massive fund a tax that I paid whether I made money or not. You correctly point out that employers do pay a higher share of that. I think that's often forgotten about.

The money isn't gone. The money went towards paying down Canada's national mortgage. I think it's more the ethical side that you're taking it up on. The government should have been honest and said that this is nothing more than another tax we're charging. Is that accurate?

[Garth Whyte]

That's correct. But I'm throwing a new ethical issue on the table. It's ethically wrong to build it up to $54 billion, with people assuming it's an EI surplus, on which the government paid interest, and then changing it with a quick stroke of the pen to say that, okay, now that's gone, and now we're going to set up a very minor amount of $2 billion, and if we go into an economic downturn.... Ethically, I think the government needs to backstop it more. Employees and employers shouldn't be on the hook if it goes below that $2 billion surplus.

[Dean Del Mastro, Conservative, Peterborough, ON]

This is my next question. I notice on your report card there are really good grades with the exception of an F, and I wanted to talk to you about the F. I think it's really important. The F is on fuel taxes. Now, we've actually reduced taxes on fuel, as you know, by reducing the GST, although, as you correctly point out, there's still a tax on taxes on fuel.

How do you think the membership of the CFIB would respond to a carbon tax?

[Garth Whyte]

We're actually working with the Liberal Party now. We have meetings with them tomorrow. And we've worked for the B.C. government. We've said a few things.

We've sent a survey to all our members on whether we should have a revenue-neutral carbon tax. It's coming back in June. Corinne and I just came back from B.C. yesterday. As you know, we do 4,500 small business visits every week, and we talked to our salespeople and district managers in B.C. following the B.C. carbon tax. There's growing opposition to it.

When people talked about a carbon tax before, they talked about it at $1. I've put this question on the table: Did anybody ever envision a 30¢ carbon tax, because now it's $1.30 a litre?

We visited one member in Fredericton during the flood. People remember the vision of the flood. We were actually in a hotel that was shut down the next day. She has a nursery and lost five of her greenhouses, but that's not what she wanted to talk about. She wanted to talk about the fact that her fuel costs have gone from $40,000 to $140,000, and what people are going to do about it. It's a big issue.

[Dean Del Mastro, Conservative, Peterborough, ON]

My point on this—and I'd love to hear from the restaurant association as well—is small businesses do what they can to reduce their energy bills, and the price of energy encourages them to save energy. How will the restaurant association make up for the fact that they use natural gas and there are going to be massive taxes on natural gas?

Revenue neutral just means that the government's going to spend what it takes out; it doesn't mean it's revenue neutral on small business. It sounds like a big small-business tax to me. How does the restaurant association view this?

[Joyce Reynolds]

We don't have a specific position on a carbon tax yet--our board meeting is coming up soon--but I can tell you that the restaurant industry is under tremendous pressure with food costs rising, energy costs rising, and labour costs rising.