Finance Committee on Sept. 15th, 2009

[The Chair, Conservative, James Rajotte]

Thank you.

Monsieur Roy.

[Jean-Yves Roy, Bloc, Haute-Gaspésie—La Mitis—Matane—Matapédia, QC]

Thank you, Mr. Chairman.

My first question is for Ms. Groetzinger. Afterwards I would like to go back to Mr. Davies because I found his presentation very interesting.

For several years, I was the president of the local branch of an organization devoted to multiple sclerosis. You referred to a tax credit for disabled persons. The definition used by Revenue Canada is extremely narrow. A person with multiple sclerosis has to be in a wheelchair in order to be recognized as a disabled person.

How many people with multiple sclerosis can benefit from the disabled persons' tax credit? You are asking for a refundable tax credit, but very few people with multiple sclerosis can benefit from it. Revenue Canada does not recognize you as disabled unless you are in a wheelchair.

[Deanna Groetzinger]

You make a very good point in terms of the criteria for qualifying for either Canada Pension Plan disability benefits, the disability tax credit, or other programs. I'm happy to say that because of the work of organizations such as mine and many others, there has been an understanding of expanding the definition of what it means to be disabled for the disability tax credit.

One of the obstacles people face is that when they reach a level of disability, they have to go through two assessments for the disability tax credit and the Canada Pension disability benefit. In our view, those should be harmonized. That would be a very sensible way to approach allowing people to claim disability benefits, if they qualify, and the disability tax credit.

We're talking a lot about employment insurance around this table today. People who have an episodic disability, who have periods of illness at times but then they get better, are the people who really have a problem trying to stay in the workforce. But they support themselves in the periods when they are ill and when they're disabled. So going forward, this is the kind of thing where we're looking for much more flexibility in terms of existing programs and to actually look at how the programs can work together.

I think there's an opportunity perhaps to do a bit of work in this upcoming budget in looking at some specific areas. We would also like to see the federal government take a leadership role in looking at all the disability programs and sit down and say okay, what needs to be done--not just to make a few small changes but actually look at all the programs that people with disabilities need.

[Jean-Yves Roy, Bloc, Haute-Gaspésie—La Mitis—Matane—Matapédia, QC]

Thank you.

Mr. Davies, I liked your presentation very much. You made a distinction between applied research and basic research as well as between innovation and invention. Earlier we talked about business competitiveness. In Canada, the majority of these businesses are small and medium ones. As you said, these businesses do not have the means to do research and development.

I would like to put a very simple question to you. Do you consider that in Canada we have a sufficient number of research centres to meet our businesses' needs?

I will give you a very concrete example. In my region, a timber producer who had decided to market an electrically processed ecological log had to have his research done in Finland, because it was impossible to have it done here.

Can you tell me that there are enough applied research centres here and that the government invests as much as is needed in this area? Is that not the root cause of our competitiveness problem?

[The Chair, Conservative, James Rajotte]

You have about one minute, Mr. Davies.

[John Davies]

Thank you very much for the question.

I think we would certainly agree that there is a great potential in the polytechnic institutions like the one I represent. We are big institutions with tremendously talented students and tremendously talented faculties and we are very close to our industry partners. Every single program that we actually run has an advisory committee.

We're really close to SMEs. We know the challenges that SMEs have in terms of research, development, and the infrastructure you need. We can be responsive to SMEs in a way that other post-secondary institutions cannot. So we're making the case, I think quite modestly here, that we actually can help in the productivity issue that was mentioned earlier, because if, for example, we provide vouchers to SMEs for commercialization, we operate at that late stage and help SMEs at that late stage of commercialization, which is the example you're raising. I could give you several that we are engaged with.

We think we can make a difference in that we are very unique institutions, we're willing to do this work, and we are growing in our research capacity. What we're suggesting here, compared to the numbers we've heard from other people, is actually quite modest, but it would in fact make a start and move us along a track that we think is very good for Canada and very good for SMEs in particular.

[The Chair, Conservative, James Rajotte]

Merci.

We'll go to Mr. Menzies, please.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Chair.

Thank you, once again, to all of our presenters. As we had said before, we would like to have much more time to flesh out your proposals, but we are all very tight on time here.

We've had a lot of discussions here today about employment insurance. There have been some very inaccurate comments made. We need to remember--and I think Mr. Yussuff did make the point--that this is insurance, employment insurance, and every insurance program is funded through premiums and shared between employers and employees. That's a critical point.

This $54 billion notional surplus is in the past. We need to deal with the present. That money is no longer there, so we need to deal with the present. That's why, in budget 2008, we froze premium increases. We froze the premiums where they were. This was before there was any recession even on the horizon. We realized we had to do that to protect employees, employers, and the potential unemployed. We can't claim that at that point in 2008, in the budget, we saw this recession coming to the degree that it has hit us. That's why we established an arm's-length board: so that notional surplus could never again be borrowed by politicians. It will remain an arm's-length board and that's where it needs to be, but this has to be actuarially sound, so after a two-year period the premiums will increase. But this board has been given a mandate to limit the increases. I just wanted that on the record.

I do want to ask a question. We've talked--and Mr. McKay raised the subject--about productivity, but the other point is competitiveness. We have made an effort to reduce taxes in this country, to lower the overall marginal effective tax rate to stimulate business, to make us competitive, and to hopefully improve productivity. That's a difficult one to put a handle on and to analyze. Will the fact that we've set the goal to get to the lowest marginal effective tax rate in the G7 by 2015 help the chamber?

I will refer my question to you, Ms. George. Will that help with productivity?

[Shirley-Ann George]

That's a very important step. It's recognition of the cold hard reality that we now live and work in a global marketplace and that the ability for jobs and capital to move freely exists.

Canada has a higher standard of living, and that makes our costs higher. We have to be very smart and very crisp about how we form our businesses and our government in order to compete in this marketplace. The lowering of the taxes is a critical step.

On the point about productivity, it is something we all, including you, have all struggled with. I'm sure you've looked at the issue for a while. We had a lower dollar, which encouraged us to hire more people as opposed to investing in more machinery and equipment. Those days are over, which is forcing a systemic change inside of Canadian businesses as we search for new ways in order to compete. It is a tough environment out there.

[The Chair, Conservative, James Rajotte]

You have about a minute and a half, Mr. Dechert.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

I have a question for Mr. Facette.

I was very pleased to hear your presentation. I represent the city of Mississauga, which of course includes Pearson airport. I know what a great contributor to the local economy that is.

I'm very interested in your suggestion about free trade zones. You asked us in your presentation to take whatever measures are necessary to create foreign trade zones in Canada. I wonder if you could outline for us what some of those measures are. Also, could you comment on how such a policy would benefit our still fragile but emerging and recovering manufacturing sector?

[Jim Facette]

I believe I have less than a minute to do that.

[The Chair, Conservative, James Rajotte]

Yes. You have 45 seconds.

[Jim Facette]

Mr. Chair, I'm not sure I can do that in less than a minute, but what we mean is that we don't have a legislative framework right now in Canada that would permit the creation of geographic foreign trade zones in Canada. We have what some would say is a suite of programs that allow manufacturers and exporters to do certain very limited tariff-free activities. There are some restrictions under NAFTA in what can and cannot be done.

We're looking for more than that. We're looking to go beyond that. We're looking for a legislative environment that would actually allow things to be brought into Canada that would never, under tax law, be considered to have been in Canada. Manufacturers could add some value to it and then ship it off somewhere else.

The chair of the Canadian Manufacturers and Exporters Association, Dr. Fung, has a great way of showing how global the economy really is: you take one part in one part of the world, put it on a cargo airplane, land it in Canada, and do something to it, and it goes somewhere else. The final product is a multiple-steps process. We're looking for a legislative environment that allows Canada to actually have these geographic regions.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Ms. Hall Findlay, please.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you, Mr. Chair.

I have to start by taking a little bit of an exception to something somebody else said. Despite the tremendous respect and affection I have for my Conservative colleague, I do want to remind him that not too long ago, and in fact very recently, at least a dozen Conservatives in the House of Commons got up and repeatedly said that an increase in EI premiums would be a job-killing tax. That was relatively recently.

[An hon. member]

[Inaudible--Editor]

[Martha Hall Findlay, Liberal, Willowdale, ON]

I would also like to then move to a compliment to Mr. Davies and Ms. Robinson for being here and for the good work that you and the polytechnics do. Seneca College is in my riding of Willowdale, and we're very proud of the work that Seneca does and of all that you do. I want to thank you for your presentation and detailed recommendations.

My questions are to the two representatives from the Chamber of Commerce. One earlier comment was that the government had “emptied the piggy bank through stimulus spending”. I will remind you that in fact, before we even knew a recession was about to hit, the piggy bank had been run dry with the two largest-spending budgets in Canadian history.

I would ask for your thoughts on three things. One is the reduction in the GST as it contributed to what we are now seeing in fact as a structural deficit. Second is on the challenge of the increase in employment insurance premiums, which is for all intents and purposes a tax increase and is being recommended now by the Conservative government, and what that will do to your members. Third, if you have time, if we as a government are to deal with the deficit and encourage a return to surplus, which I as a Liberal feel strongly about--and I am very proud of the record that we have from the 1990s and 2000s--without raising taxes and without cutting transfers to the provinces, do you have any recommendations on what specific programs to cut?

[Tina Kremmidas]

Your question with respect to the GST is a good question.

From an economic policy perspective, all taxes are not created equal. It's extremely important to think about the incentives and the impact that each type of tax has on the economy before deciding what is the optimal tax rate to cut. In our view, cutting the GST was not necessarily the right tax to cut. That's simply because it's a consumption tax, and consumption taxes do not result in negative impacts to productivity, for example, or incentives to work, and things like that.

It relates to the structural deficit issue, which was your question. We think a structural deficit can be avoided if we do the right things. Did it result in deficits being larger than otherwise? Of course it did. A 1% cut in the GST is about $5.5 billion. It certainly had a big impact on government revenues.

With respect to EI, the Canadian Chamber of Commerce has put out a paper on reforming Canada’s employment insurance system. I would be very happy to forward it to the committee.

We believe the overriding goal when it comes to employment insurance reform is to ensure that the costs do not escalate to a point where it becomes very costly and unattractive for employers to hire new workers, and ensure at the same time that the benefits are not enhanced to such an extent that there's very little incentive on the part of employees to go out and look for work.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Can you comment specifically on the government's proposed increase in the EI premiums, which is, as I said, for all intents and purposes an increase in tax?

[The Chair, Conservative, James Rajotte]

You have about 45 seconds, please.

[Tina Kremmidas]

The EI premiums will have to go up simply because there has been a freeze for two years and simply because of the recession. The maximum they can go up is 15¢, and we anticipate that likely they will increase by that amount.

[Shirley-Ann George]

We don't like it, but given the fact that it's now a fund and it has to be self-financing, unfortunately it appears to be inevitable.

[The Chair, Conservative, James Rajotte]

You have 10 seconds, if you have a very quick last one.

[Martha Hall Findlay, Liberal, Willowdale, ON]

I would just note, then, on this whole question of a fund, that it seems to me that the government's deficit projections include, in fact, moving EI premiums into general revenue, thus helping their deficit numbers.

I just leave that on the table.