Finance Committee on Sept. 29th, 2009

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Okay, thank you.

Moving on to the Capital Power Corporation, to clarify your recommendation, is it reasonable to say that you're trying to rephrase the existing legislation so that it would include other pieces of capital that would add to the productivity or capacity of your business; that rather than leaving legislators specifically identifying certain pieces of equipment, the definition would more broadly allow capital expenditure that's going to improve a business? We had some presenters earlier today asking for an addition to the exemption as well, so that they could continue to increase investment in their business and in turn hopefully increase productivity. Or is that something different from my understanding?

[Tony Scozzafava]

The changes we're asking for are for incremental property and investment that would be over and above the costs associated with building a conventional power plant. They would in fact be additional investments. They would create additional jobs and spending in the economy, as well as growing the capacity of Canada to export power and rely less on imported power.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Okay.

Mr. Schmeiser, I want to follow up on my colleague across the floor concerning family farmers in Alberta. I was born here in Edmonton, and my family has been here for many generations. I know that the cost of some of those big pieces of equipment is astronomical. Are you saying that floor financing, as we heard from the RV dealers and the marine association, is still an ongoing issue?

[John Schmeiser]

Absolutely.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

And what have you proposed to the minister—anything, recently?

[John Schmeiser]

Farm Credit Canada provides a retail finance program that, quite frankly, is second to none in the industry.

We see them involved as they are now right now within the industry, in providing equipment financing. They have a partnership with the Canada West Equipment Dealers Association. We see them as being in the business already, and the next logical step would be to finance the inventory and just oversee all the financial arrangements coming from the factory to the dealership. Their cost of funds is low, so we think they have a very small barrier test to entry into the market.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Cannan.

To wrap up, I want to clarify a few things. Number one, with respect to any recommendations the committee gets for deferring taxation or flow-through shares, is that the big challenge for us—you can respond quickly now or respond later—is that the finance department or the finance minister will always want a sense of what kinds of economic benefits flow and how quickly they flow. The challenge with deferred taxation is that if the benefits flow back to the treasury two years later, there obviously is a challenge, especially given our current fiscal situation.

You may want to comment on that from a benefits perspective. I know you've said CAPP will outline the first proposal, but....

[Gerry Gilewicz]

CAPP is the initiative behind the first proposal. The question concerning flow-through shares has been in front of the minister for a few years now.

[The Chair, Conservative, James Rajotte]

The question I always get, though, is, when do the benefits arrive, and how much, and how do we trace them? That's the question I'm asking you to answer.

[Gerry Gilewicz]

That's a difficult one to answer, because—

[The Chair, Conservative, James Rajotte]

Yes, it's tough for me.

[Gerry Gilewicz]

But you're generating the equity right now, currently, to be spent in the communities, across Canada. It's not just an Alberta, a Saskatchewan, or a B.C. issue; it's across Canada now.

The tax deduction that is foregone, because the company gives those up to the investor—it essentially sells them through the flow-through share program—is only realized when that junior oil and gas company becomes taxable.

[The Chair, Conservative, James Rajotte]

Which may be farther down the line.

[Gerry Gilewicz]

It could be. Or when the investor, on the other hand, sells those flow-through shares, there is recovery to the fisc when those shares are sold and there is revenue coming back into the government.

Now, the life of any junior oil and gas company is fairly short: if you're around for four to five years, that's about it.

Does that give you some general parameters?

[The Chair, Conservative, James Rajotte]

Yes. I'm just saying that this is the question we have put to us, most often.

I also want to turn to accelerated CCA. We get some very specific recommendations, which obviously are valid points, but in general the committee may have to recommend just that CCRA and Finance do an ongoing review of CCA rates, because it's hard for us as members to say that it should be class 8 or class 10. I just want to make that point.

Do you have any brief comments on that, Mr. Schmeiser?

[John Schmeiser]

We are very supportive of a review that makes sure the equipment is in the right clause, absolutely.

[The Chair, Conservative, James Rajotte]

Thank you.

I'll let you answer this as well, because I do want to follow up with Capital Power. I certainly take your point, Mr. Lewin, that we need a variable supply. I don't think it's feasible for Alberta, Saskatchewan, or Nova Scotia to see coal not in its energy production future, in the foreseeable future. But the federal and provincial governments have, I think, shortlisted your project with Enbridge in terms of CO₂ capture, transportation, and storage. So there will be some concern, I think, that you're asking for changes to CCA at the same time that there are moneys being provided through federal and provincial departments. So can you address that for me, and can you also address the other CCA issue?

[Tony Scozzafava]

In terms of the changes to CCA, I think it's important to keep in mind that any changes would be available to all future developers of similar projects. While it's important for early developers, because of the risk they're taking on, to have access to that lower cost of capital—and whether it's by way of government funding or CCA, all those sorts of things—what we're proposing is something that would put everybody on a level playing field thereafter, so that they can continue to develop similar projects.

[The Chair, Conservative, James Rajotte]

This is across energy fields?

[Tony Scozzafava]

It would be across the electricity industry, so for whatever entities would like to construct a similar facility thereafter, those rules would be available to them. There is a declining cost, obviously, to building them after the very first one, but it's still going to be a very sizeable risk that companies would take.

[The Chair, Conservative, James Rajotte]

On the question of your asking for both tax changes—and you're asking for federal and provincial support for the project—I know it's a question we're going to get, obviously.

[Tony Scozzafava]

In terms of asking for both, I'd remind you that it isn't one of those things where you're going to get both, because to the extent that you're getting government funding, that's going to reduce your amount eligible to claim capital cost allowance against anyway. So it's not a matter of double-dipping per se or anything like that. You're only going to get one or the other, and the funding is a one-time window. We don't view that as being a permanent thing that you would take on forever. This is something to encourage ongoing investment in clean coal use. We are in Alberta, so we don't really have the ability to do large-scale hydro or a lot of these other things that can go on. Of course, wind is unreliable, and we're of the view that continued use of coal is a reliable way to generate electricity.

In terms of the other question you raised, I think our ask is quite transparent. I think the deferral of tax would only be...if you went to 50%, it would be a two-year deferral in 2015-16, and then it would be repaid in the year after. There is no transferring of that tax to anybody else; it's all very transparent.

[The Chair, Conservative, James Rajotte]

Thank you.

I have many more questions, as we all do, but unfortunately our time is up.

I want to thank you all for your presentations, your submissions to the committee, and your responses to all of our questions. We hope you enjoyed this session.

Thank you very much again.

We declare the meeting adjourned.