Finance Committee on Nov. 22nd, 2007

[Avrim Lazar]

When we have spoken with the finance minister, the industry minister, and the Minister of Natural Resources, they have expressed an informed understanding of our situation and a real interest, even though they're not listening. We have great confidence that the government will do the right thing. I know you want to put them on the spot. You guys should be on the spot; you're the government. Do we believe they will do the right thing and make it five instead of two years for CCA and make refundability a reality? Yes, we have confidence in them.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you.

My next question goes to the mayor of Hearst. Mr. Mayor, have you had the opportunity for any joint action with people in other communities who are going through the same crisis, whether in the north, or even in other provinces, through national organizations, like the Federation of Canadian Municipalities, for example? Your assessment of the situation, namely that entire communities are going to disappear if something is not done, seems to be shared everywhere else but in the caucus of the Conservative Party of Canada. How are you working with other municipalities on the issue?

[Roger Sigouin]

I am the President of NEOMA, which extends from Matheson to Hearst, about a four-hour drive. I represent all the communities in northern Ontario. The way in which our forest industry works means that each community depends on the others for survival. Plants need each other, for wood chips, dust and so on. Everything is interrelated. When one plant closes its doors, the rest of the forest industry goes out of balance. That is where it is important.

I think that the government needs a new vision for the forest industry. Hearst has "gone green" for two years now, with a vision based on the environment, on people and on economic development. The government talks about it, but we need action, we need it to support communities who want to move with the times.

In Hearst, we have the Bio-Com Project, which is designed to provide information on biotechnology, on converting biomass to ethanol, on methanol, on information technology, on automation, on new processes, new materials and value-added products. In our neck of the woods, we are just used to making 2 x 4s, 2 x 6s and 2 x 8s. We have to adapt to demand if our communities are going to survive.

[Thomas Mulcair, NDP, Outremont, QC]

Mr. Chair, to wrap up, I gather from the contributions made by Mr. Lazar and the mayor, Mr. Sigouin, that what is sorely lacking from the government is an understanding that you cannot apply the same solutions everywhere, in all sectors of the economy. It makes no sense to reduce taxes where there are no profits to tax. These communities need more than economic ideology, they need more action and a long-term vision. Converting biomass into methanol could provide a sustainable development option that would meet the needs of future generations. The problem is that the present government has no vision and does not believe in sustainable development in the slightest.

[The Chair, Conservative, Rob Merrifield]

We'll get into that debate once we get into our report. If you are here with the witnesses, I'd ask that you ask the questions to the witnesses, and we'll debate the merits of that afterwards.

[Thomas Mulcair, NDP, Outremont, QC]

That is what I did, Mr. Chair, precisely because there was no answer from the government side.

[The Chair, Conservative, Rob Merrifield]

I think you made your point.

We now have Mr. St. Denis for five minutes.

[Brent St. Denis, Liberal, Algoma—Manitoulin—Kapuskasing, ON]

Thank you, Mr. Chair.

Thanks to all the witnesses for being here. If I have time I'll come back to Mr. Fenn and ask him about the finance minister's much ballyhooed press conference, where he talked about how difficult it was to buy the latest Harry Potter book in Canada—much to his later embarrassment. But we'll come back to that.

I hope I have a chance to ask Chris Jones something about tourism, because I have a northern Ontario riding of 110,000 square kilometres, which happily includes Hearst. I thank the mayor of Hearst for making the long trip to help us out today. I should point out that the mayor of Hearst is the president of the Northeastern Ontario Municipal Association, so he's well qualified to speak for a large number of communities in northern Ontario.

He talked about communities being really stretched and stressed by forestry, and I would add towns like Espanola, for pulp and paper; the Nairn lumber mill, which has closed down; Midway Lumber Mills in Thessalon, which is about to close down; and in Chapleau...he knows all their stories.

Let's say the federal government had a program, Monsieur Sigouin, that partnered with you and other communities to say we're going to be your partner. You have the ideas for economic development. You want to transition to the next cycle of the forestry sector, which means there will be changes. You want to transition to the diamond mining opportunities up in James Bay area. There are other opportunities. It's not hopeless. You know that's why you're here. There is hope, but it requires transition and change. So if you had some federal and provincial dollars in your community, what are some of the things you could do?

[Roger Sigouin]

Last Saturday we started to talk with the first nations people, face to face.

The town council of Hearst and the band council of Countess Lake 92 got together and learned a lot about each other. I think that our future lies in the far north. The solution is to develop the far north, to go and get the resources, while still respecting the First Nations and their realities. We must help them move things forward. There will certainly be ups and downs, but as elected representatives, we have to have mutual understanding and support so that we can move forward.

Today, people in some First Nations in the north are going to pay $8 for a quart of milk. They are living in conditions that are unacceptable. We must try to help them. After all, we are going to benefit from the resources in the far north. We must work together and move forward, while respecting First Nations' culture. Otherwise, we will not be able to move forward, and we will all go under. I think that First Nations are open to the idea of working with us along those lines. It is going very well.

I encourage the government to invest in FedNor so that we can move projects forward, especially in communities that are in trouble and that need help. At the moment, there is a lot of bureaucracy. My apologies if I am insulting anyone, but the bureaucracy is awful. We get nowhere. Often we get money from the province, but the federal government steps on the brakes rather than help us. I think doors should be opened so that northern Ontario receives the help it needs to move forward.

[Brent St. Denis, Liberal, Algoma—Manitoulin—Kapuskasing, ON]

Mr. Lazar, you mentioned that the forestry sector provides the greatest number of jobs for our aboriginal citizens compared to any other sector. I think that's a revelation to a lot of people. That's good news in good times, but it also brings with it tremendous challenges.

I know your organization represents the employers, particularly the major employers. I know that the communities are important to your employers too. When they lose their tradespeople in down times to the oil fields, or the diamond mines in the Northwest Territories and other places, that hurts you in the long run.

But you did say that this is going to come back in about thirty months, give or take? Do you think it will be the same industry in two to three years, or will it be a changed industry?

[Avrim Lazar]

On aboriginal employees, even more interestingly, we do business with about 1,600 aboriginal-owned businesses. So in addition to them being a large part of our labour force, there's a lot of business-to-business activity, and it's very successful.

The industry is going to be different. There will definitely be fewer and more efficient plants. There will be small and medium-sized brilliant niche players, and there should be some very large economies-of-scale players. But we will not succeed by trying to hang on to the status quo. We have to go through the adaptation process, which is why we said don't subsidize; don't get in the way. When the industry is trying to go through a transformation, painful though it is, let us do that, but help with the investment and innovation.

We're talking about switching to biomass. The industry is now powered 60% by renewable biomass. The government can help speed the transformation there. New products, processes, and markets—all of that sort of work is supported by SR and ED tax credits that are not accessible to us, not that I want to beat that horse a little bit.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much. I think we got the point.

Monsieur St-Cyr, you have five minutes.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Thank you all for being here.

When one of you started, he said that things were getting a little repetitive and that we were probably always hearing the same things. I must tell you that that is so. But personally, I am happy about it. I hope that it will open the eyes of the government and of theMinister of Finance. Such a jolly fellow he is, always saying that things are going well and that there are no problems.

It is the same story with the 22 recommendations made by the Standing Committee on Industry, Science and Technology that we talked about earlier. None have been adopted although there has been plenty of time to do so. There was time in the 2007 budget, and there was time in the recent fiscal update. Again, nothing. Two or three weeks ago, the Bloc Québécois presented a motion in the House. It asked the government to intervene. The government voted against it. It seems not to see the urgency in the situation.

Were we on the wrong track when we said that the situation was urgent and that immediate action was needed? We listened to experts—and you all are the experts in this area—who told us that the present situation is in good part a result of the rise of the dollar to 80c and that the worst is yet to come. Are we right to say that action is needed now and that we can wait no longer? Is that correct? Am I wrong in saying that?

[Avrim Lazar]

We agree with you completely. This is very urgent; it cannot wait.

It's simply because people are deciding today where to invest. The decisions are being made day by day: is Canada a place to put your money, or should it be put in mills in the south? So the faster we act on the all-party manufacturing committee recommendations, the more money gets invested in Canada. There's a tendency to look at the job figures and say this is how things are going. That's where the puck was yesterday. Where the puck is going is where the investment is going, and we can't move too quickly. It is very urgent that we make these changes.

To be fair, the government has done a lot of good things, and we respect that very deeply. To be fair, the unprecedented impact—at one point it was up 65% over five years; that almost never happens. In Germany, their currency has gone up 10% and the minister of finance was saying they've got to worry about this, they can't have a currency that fluctuates that way. The head of the European Bank started to talk about the impact on industry of a 10% change in the euro relative to the dollar. We seem to have sat back, and I'm not criticizing anyone in particular on this. I think as a politically light group of economists, we've sat back and said this is what happens. It shouldn't happen.

I don't agree that the government can't do anything about the dollar. There is a philosophy behind what the Bank of Canada does. It's a philosophy based upon the single value being the control of inflation and a belief that intervention can't work, but when Mr. Dodge and Mr. Flaherty expressed serious concern, the speculators got the message and the dollar started to come back down.

So I think we need to take more responsibility for our currency, because our currency is the base of our economy. I'm not talking about fixing the dollar or intervening in a way that sets it somewhere where the economics don't make sense, but the relative economic strength of Canada relative to the U.S. doesn't change 20% a year. Our productivity hasn't zoomed up so we can explain a 20% raise. Theirs hasn't dropped. The dollar's movement reflects speculators, not basic economics. Of course, it shouldn't be at 70¢, but neither should it go up that much that quickly. It should reflect basic economics, not the greed of speculators.

[The Chair, Conservative, Rob Merrifield]

Thank you very much, and thank you, Mr. St-Cyr. Your time has gone.

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

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

Thank you.

I want to continue on that. We can play politics here around who's moving fast enough, who's not doing enough, who should do more, and the government needs to do what. It's a minority government; it's not a majority. We can't implement everything we'd like to because we have to work with our colleagues. Every once in a while we have to remind the opposition of that.

You raised a very good point, and that is the intense escalation. It's interesting, because the reason you're here is to talk about the issue around the dollar, and we spent very little time talking about that today. We spent a whole lot of time on recommendations on what we should do in terms of improving the individual sectors you represent. It's fascinating and it's helpful because we are also doing pre-budget consultations.

To return to the issue of the dollar, the intense escalation is not based on anything other than, I guess, speculation of investors. That happens and there's not much you can do about it. The fact is, when things happen this quickly, it's very, very difficult for any business, or government, for that matter, to react in a way that isn't just going to be reactionary, to try to put on a band-aid and fix it, but to try to be substantive in terms of looking forward in the long term.

You touched on the fact that the dollar escalated so quickly. Is it not fair to say that if we're going to move forward, we need to make sure we do what's right rather than just what seems to be urgent?

[Avrim Lazar]

I certainly won't argue with doing what's right, but we also have to do what's urgent. Put differently, we have to do what's right urgently. Are we going to urge you to do stuff that's short-term easy and long-term stupid? No, we don't want that. We don't want subsidies. We don't want you to interfere in the economy in a way that would undermine our competitiveness. There are things you can do urgently that would support a competitive business climate.

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

I know this gets back to improving the scientific research and experimental development tax and making it fully refundable. We at least launched consultations on how to make it work, how to make it better. I'm assuming you've presented on those as well. If we're going to do it and we're going to make that big an investment, we want to make sure we do it right and there's actually going to be a benefit to the companies you represent, because if you just charge ahead and make announcements, it may seem to be proficient in the sense of saying something, but if it's not doing anything, it's not going to help any of your industries.

[Avrim Lazar]

Due diligence is a wonderful thing as long as it leads to action in the end. We certainly respect the due diligence and doing the research as long as we see action at the end.

And you have to understand that the towns that depend upon these industries going through transformation are saying that if the investment goes to the U.S. tomorrow, it's not going to come back the next day when the committee reports. So time does mean something.

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

There's no doubt about that. But when a dollar charges up 10¢ in less than 10 days, it's pretty hard to be able to say, okay, we're going to implement the following policies, so that they're immediately going to have a significant benefit to a company, because they're not.

Even the research dollars we're talking about, even if you make them fully refundable, you still have to put them out. At the beginning you have to see what the product is going to be, and then you're going to get that refund back at the end. You still have to make those investments, and if companies aren't making a profit, they're not going to be able to do science and research because they don't have that money to begin with.

[Avrim Lazar]

I'll just check with my chief economist. We're investing $4 billion a year?

So the money is going in. The way it works is that the tax credits accumulate so investments from the past can be recognized. They would be recognized at the time of profitability. We're saying recognize them now at the time of adjustment.

We know you don't have a magic wand. We know the tooth fairy isn't part of the government and that you're not going to make it all go away. But we know that most of the adjustment has to come from us, that we have to transform. All we're saying is create a business climate that makes it a little easier, that's all.

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

Well, the 2006-07 budgets certainly tried to do that. I have them right here. I looked through them as we were talking and before preparing for the meeting. The economic statement and all of these things are drivers and indicators that this government is trying to help business—trying to make sure we're competitive and trying to get a tax rate down to the lowest in the G-7. What all of this tells me is that we need to continue to work together, obviously, and we need to continue to come up with results that are going to benefit.

Mr. Jones, I know I don't have much time, but I have a very quick question to you. You mentioned marketing in the United States. I am one of those you alluded to, in terms of being from Niagara. Obviously, I appreciate your doing that and standing up for the tourism industry, not only in Canada but specifically in Niagara.

I'm intrigued with the marketing part of it. If it is going to have a direct benefit, could you very quickly describe what that might be?

[The Chair, Conservative, Rob Merrifield]

Very quickly.

[Christopher Jones]

What we've detected in the last few years is that there has been a population shift and a shift of economic wealth away from the northeastern United States into the southwest, the midwest—the Rocky Mountain range—in the States. Those people are deemed to be mid- to longer-haul U.S. markets. They're not border states. To get to those people we need to market in Nevada; we need to market in Colorado. We need to market to places that aren't necessarily adjacent to Canadian provinces.

The Canadian Tourism Commission needs funds to get into those places and to market to those people who, when they're thinking about taking a holiday, instead of going to Mexico or the Caribbean, may decide to come up to Canada.

So we need more funding for the CTC. We want to commend the government, though, for the announcement on the Olympic funding. That was very helpful.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. McKay, five minutes.