Finance Committee on May 26th, 2008

[Jean-Luc Trahan]

That's not wrong. I think any measure that makes it possible for companies to be competitive will be helpful to the manufacturing industry. We have to get a new perspective on the fact that over the past few years, globalization has taken on a meaning that did not previously exist. People talked about globalization, but did not really know what it was. It was easier to sell to our neighbours to the south, but those U.S. markets are no longer guaranteed.

The businesses that are doing better are those that invest in ways of differentiating their products. That includes research and development, but marketing must be looked at as well. Companies have to market their products and meet customer needs. Businesses that are doing well are those that have understood that. They thus produce products that meet the client's specific needs. The problem we are facing is that the client in question might be located anywhere in the world, and that's when we find ourselves creating what we call global products. For example, the BlackBerry was invented in Ontario but certainly not invented just for Ontario, but for sale in all parts of the world. That is where our market is.

So loan guarantees are necessary, but they have to encourage manufacturers to invest in manpower training and equipment modernization. That is the winning formula.

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

You also mentioned the $1 billion trust. I'm not sure, but I believe you said it should have been more than $1 billion over three years.

That $1 billion was announced specifically to help the manufacturing and forestry sectors. Most of the manufacturing and forestry jobs that were lost were from Ontario and Quebec.

Mr. Godbout, a researcher at Sherbrooke University, appeared before the finance committee about a month ago. His analyses showed that the $1 billion was allocated on a provincial per capita basis. Since the number of jobs in the manufacturing sector was higher in Ontario and in Quebec, the distribution per lost job came to some $2,000 in Quebec and Ontario, but to some $20,000 per job lost in Alberta, where far fewer jobs were lost.

Did you know that?

[Jean-Luc Trahan]

When we were told about the plan, we recognized that the trust was a good vehicle to provide assistance, but we also recognized that the two most deeply affected provinces were Quebec and Ontario. If the strategy was designed to help the manufacturing industry, it should have taken those factors into account and the funding should have been distributed with more money going to areas that had the most problems, rather than being distributed equally across Canada.

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

When the government set up programs to help farmers after the BSE crisis, those programs targeted areas where the crisis had hit hardest. However, the same approach was not taken with the manufacturing industry.

[Jean-Luc Trahan]

We believe that there should have been more money. And as you say, the program should have targeted the provinces hit hardest by the crisis, Quebec and Ontario.

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

Thank you.

That's all I have, Mr. Chairman.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move to Mr. Dykstra for five minutes.

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

Thank you, Mr. Chair.

I wanted to follow up, actually, on the tax-free savings account.

One of the comments Mr. Boshcoff made tempts me to go down this road a little bit. One of the comments he made was that it's in our blue book of 2005. He's actually incorrect, because the book was actually completed prior to the 2004 election. Most of us will recall that we weren't successful in forming a government in 2004, so our new platform, with respect to a reduction in gas tax, was formulated on the basis of a 2% reduction in the GST.

Garth, I can't argue with you in terms of the positions you take. You certainly have the prerogative, and based on your membership's perspective on this, I guess the challenge laid out to you by your members is to make sure you continue to come back to the government on these issues. But I certainly want to point out that the 2% reduction in the GST also impacted a dollar's worth of gas. So we did see, in fact, a bigger reduction than we committed to in 2004, a bigger reduction in the cost of gas, or at least in the tax that the federal government charges on gas.

I just wanted to make sure we got that on the record and that you have a chance to comment.

[Garth Whyte]

Thank you. That's a good point; and yes, we acknowledge that.

Some of you were at this committee when we were asked to come to an emergency committee in 2005 on the fuel crisis. It was going up to a dollar a litre. We were all asked to come in, because people were asking what we were going to do. We did some surveying and found that 20% of our members said that they were going to have a difficult time hanging on. Agriculture, trucking, forestry—by the way, we have 13,000 manufacturing members—were all having difficulty at a dollar a litre. Now, no one is talking about it.

And yes, two cents was taken off. But it is, on average, $1.30. In some places it's $1.39. In Quebec it's quite high. We'll have to weather this storm. There's no question. This is a lesson for all policies, whether we go back to EI, whether we go back into a tax, or whether we go into tax credits. Let's not exacerbate the problem; let's try to find ways to alleviate that problem.

So yes, I acknowledge it, but I will say that we have a major issue here. It reminds me of the time we tried to talk to the Conservative Party about the GST and how it was going to be a problem bringing in the GST during a recession. Well, I feel that same sense right now, the same circumstances, about additional taxes on gas right now.

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

I find your final comments quite interesting, and I certainly appreciate your points, but it was a Liberal Party in 1992 and 1993 that actually promised to get rid of the GST. Now we have a Liberal Party that's talking about a carbon tax on top of whatever gas taxes we have today. So while I find Mr. Boshcoff's comments interesting, I find them perhaps in or out of character for the Liberal Party. But certainly to suggest that the Conservatives haven't done anything with respect to the gas tax would not be fair.

[Garth Whyte]

I didn't suggest that.

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

You didn't, sir. I want to make that clear. You didn't, but Mr. Boshcoff did.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

Mr. Chair, on a point of order.

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

It's my time, actually, Mr. Boshcoff.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

Actually, it would be, because Mr. Dykstra referred to a carbon tax, and there isn't....

[The Chair, Conservative, Rob Merrifield]

That's not a point of order.

You can go ahead, Mr. Dykstra.

I'm sorry, you're out of order, sir.

Mr. Dykstra.

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

I appreciate your comments on the tax-free savings account. One of the things that is certainly noted is that in the first five years, it's estimated that over three-quarters of the benefits of the savings found within the credit itself will go to the individuals in the two lowest tax brackets in our country. I just wanted you to perhaps comment on that. Because there certainly have been those other comments made, not based on a foundation but based on perhaps some spin or political advantage, that perhaps only the rich are going to enjoy the benefits of this account. I think it's important to get it on the record who is actually going to be benefiting from this next program for the first five years.

[Barbara Amsden, Director, Capital Markets, Investment Industry Association of Canada]

You're correct that it is expected, certainly at the beginning, that it will be those who are at the lowest end. They may just be starting out in jobs or may have lower-paying jobs. They wouldn't get the tax deductions from RRSPs against their income to allow them to get the true benefits, and therefore TFSAs may be better for them. That's been a long-standing issue that I believe all parties have recognized.

The second major beneficiaries would be seniors who have to change their RRSPs into RRIFs and then have them paid out. For those who may be able to save a little bit extra for economic downturns, when their portfolios and their RRSPs may not be doing so well, this allows them to save in the good times to hopefully get them through some of the bad times, when the markets are not doing as well.

So certainly at the beginning we think that some of the major beneficiaries will be the young and the old and those with lower levels of income.

[The Chair, Conservative, Rob Merrifield]

The time has gone. I know we wanted a quick answer there, but his time has gone, and in fairness I'm going to go to Mr. Silva.

You have five minutes.

[Mario Silva, Liberal, Davenport, ON]

Thank you very much, Mr. Chair.

I want to thank the witness for coming forward and making an excellent presentation.

I forget which witness came before the committee and spoke on the tax-free saving account; it might have been Ian Russell. But I understand your statement is about the fact that maybe the government should treat it like an RSP. Right now, a lot of my constituents are having some confusion about what exactly this is all about. It's very minimal money—we're talking about $5,000—and we really don't know what the benefits to people are, and it's not set up at all like an RRSP.

There's a little bit of confusion, and I don't really see what the benefits are. Maybe you could explain to us what you think is putting value to this.

[Ian Russell]

I'll take a stab at it.

Ms. Amsden talked about how these things will benefit lower-income Canadians, in distinction from RRSPs, because of low incomes and the inability to use the deductions to save. But the other benefit these instruments have is the flexibility surrounding them, whereby you can save in your after-tax income, you can withdraw at any time, and you can replenish the funds over time as well. So there's a great deal of flexibility in the instrument that the RRSP doesn't have.

Yes, it's a small amount, rising incrementally, but somebody who, let's say, for the first few years, especially a younger person, doesn't take advantage of them will accumulate that annual contribution room. That benefit is coupled with the fact that it's likely that the allowable annual contribution will rise. Being able to put in that accumulated contribution means that these could be quite significant as a savings vehicle.

They are a little different from an RRSP, that's true, in that you invest in them in your after-tax income, but you don't pay tax on the way out and you generate the interest income, gains income, and dividend income tax-free in the account. So they are similar in that respect.

While there'll be a bit of confusion at the beginning, in the U.S. there are similar types of tax-assisted vehicles, and I think the public will adapt pretty quickly. As I mentioned in my remarks earlier, our industry is already seeing a lot of interest from Canadians in opening these accounts.

Do you want to add anything, Barb?

[Barbara Amsden]

One thing is that the areas in which we think they should be like RSPs are very much on the operational side. Individual investors will expect them to be very similar to RSPs. For example, one of the points Ian made in his presentation was that upon the death of a TFSA holder, we'd like to see treatment similar to that given to the RSPs.

As an example, you can designate in your RSP that money would go directly to your spouse and not have to go through any kind of extended process whereby the intermediary would have to track and potentially report income to that individual.

This is an area that crosses borders, and so we will be trying to work with the provinces to clarify it as well. But from an operational perspective in delivering them and from an investor perspective in understanding them, this is why we would like them to be similar to RSPs.

Just to follow on one point Ian made, the other benefit we see from these is that these are ways by which an individual may be saving not just for retirement but could be saving up to either invest in their own small business or make the purchase of their first house. It may be for them more important to have the raising of this money in TFSAs instead of in their RSP, because it may be worse to take out money from their RSP. There would not be the same type of downside from taking it out from a TFSA.

[The Chair, Conservative, Rob Merrifield]

Mr. Whyte would like to follow up with an answer as well.

[Garth Whyte]

The last sentence stole my thunder. With our membership, we were pushing for some vehicle. A lot of our members and their employees do not have a pension. They have RSPs, or they sell their firm and there's a big succession issue. That's another thing we've mentioned to this committee.

So it's useful to build up this space over time to enable their sons or daughters to have some money to invest and buy the business over time, and also to help top up the RSPs or at least have that space. We found that it's a small amount, but it's a welcome amount.

I think you bring up a good point, in that people are still confused: how do I use it? I want to make sure it's simple to use. I think that's a big point too. We're trying to find some vehicle that was administratively simple and cheap. One of the issues with funds is that there's a high administrative fee, and we wanted to see whether there was something else that could be done.

[The Chair, Conservative, Rob Merrifield]

The time has gone. Thank you very much.

Mr. Wallace.