Finance Committee on Oct. 21st, 2009

[Professor Robert Mann, President, Canadian Association of Physicists]

Good morning. My name is Robert Mann and I am the president of the Canadian Association of Physicists.

With me is my colleague Dominic Ryan, who is the president of the Canadian Institute for Neutron Scattering.

The CAP represents physicists across the broad spectrum of physics: pure and applied, industrial, government laboratory, and academic physics in universities.

In our brief we present three recommendations: one is an increase for funding in basic research via NSERC's discovery grants program; the second is for a design study of the Canadian Neutron Beam Centre, which I will let my colleague Dominic Ryan speak to; and the third is for new funding for major infrastructure.

To speak to the first recommendation, we contend that basic research has been squeezed in recent budgets.

We are very grateful and appreciative of money that has come in for science. There has been money for the Canadian Light Source in Saskatchewan. There has been money for the Canada Foundation for Innovation. In my own city of Waterloo there has been money for the Institute for Quantum Computing. As a physics community, we are very grateful for all of this.

However, if you are able to look at the graph I supplied in the written material I gave, targeted research in the budgetary trends will go up 62%, but basic research, the pure curiosity-driven research, is going to be down by 3.5%. Basic research, we argue, is essential for society not only because of its intrinsic value--part of being human is in fact understanding and discovering new things--but also because of its importance for the marketplace, in that it keeps the marketplace alive with new ideas and prevents society from being locked into particular technological options.

Lasers, for example, arose out of curiosity about how light and matter worked. Today we see them used everywhere, from grocery store scanners to entertainment devices such as CDs and DVD players to medical applications in eye surgery. All of this came about because people were curious about the interaction between light and matter.

Curiosity about how electrons move through materials gave rise to semiconductors, which are essential for computing as we have it today.

A 2005 NSERC study indicated that $3.5 billion in revenue from spinoff companies emerges from NSERC's $1 billion budget. That's a 3.5:1 rate of return, so homegrown curiosity-driven research does indeed generate spinoff companies. It stimulates local industry to do more research and it educates the next generation of students. These students, who are graduate students and include post-doctoral fellows, are best thought of as apprentices. They are not only learning; they are also contributing to the Canadian economy through their process of getting advanced masters and doctoral degrees in the sciences.

We have argued for a 10% increase in this funding. That increase would be $40 million per year. With that, in recommendation three, we've argued for the need for new money for infrastructure. We need this money because we have to maintain and leverage the maximum benefit from the essential investments that the Canada Foundation for Innovation, NSERC, and other groups indirectly--the Institute for Quantum Computing, CLS, and so on--have made. If we don't keep up money for infrastructure, then the discovery-based money will not achieve its maximum value. This infrastructure money pays for lab equipment, for facilities, and so on. We estimate the total there to be $96 million.

Dominic, would you like to continue?

[Professor Dominic Ryan, President, Canadian Institute for Neutron Scattering, Canadian Association of Physicists]

Australia built their reactor between the time we first started asking for a new reactor and now, and theirs is operating and we still don't have a replacement. The NRU is down again; it has a leak. It has precipitated yet another isotope crisis, and these are warnings that we need to deal with the problem. It's a very compressive reactor. It has done a lot of important work. It has been a leading facility in Canada. It has dominated the isotope production business around the world. We've been producing about 80% of the available molybdenum 99, and it's been a critical resource, but now it needs to be replaced.

The construction of a new multi-purpose reactor, one that will provide medical isotopes, enable cutting-edge materials in engineering research, and provide a solid knowledge-based foundation for the development of the next generation power reactors, is a national issue that transcends the mandates of individual departments or agencies. It relates to science, industry, health, energy, environment, international relations, and education. And only a multi-purpose research reactor will fully support the variety of missions that are currently carried out at NRU.

Generation IV nuclear reactor designs, which allow us to use all the energy available in uranium, will allow us to take what is now a 60-year energy reserve in Saskatchewan and turn it into a multi-thousand-year energy reserve if we use it efficiently in generation IV designs.

Nuclear medicine underpins all modern health care. I'll bet every person in this room knows at least one person who has benefited directly from medical isotopes produced in NRU, whether to treat thyroid problems, heart problems, or cancer. Not having the supply is a problem. Industrial research, neutron beam research, and so on are all extremely important; they're in my brief.

It's an expensive project: $800 million to $1 billion. It would generate all that activity in Canada. The construction happens here, the design happens here to support the industries in Canada.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Ryan. I know it's a very big topic for a short time, but I know you will get questions on it.

We will now go to the Association of International Automobile Manufacturers of Canada.

[David Adams, President, Association of International Automobile Manufacturers of Canada]

Thank you very much, Mr. Chair and committee members.

As you know, the AIAMC is the national trade association that represents the Canadian interests of 14 international automobile manufacturers that manufacture, distribute, and market vehicles in Canada.

As you're all aware, this year has witnessed tumultuous change in the automotive sales and production industries in North America, which has been exacerbated by the global recession. Automotive sales are currently down by 3.5% through the third quarter, which is an improvement compared to the second quarter, in which they were down 18.3%, and the first quarter, in which they were down 21.8%. For comparison's sake, sales in the U.S. were down 27% through the third quarter, despite the infusion of a $2.88 billion “cash for clunkers” program, which was responsible for just over 690,000 vehicle sales in the U.S. over the July and August period in which the program was operational.

The U.S. bankruptcies of both GM and Chrysler, combined with the recession, severely impacted vehicle production in Canada, which is down almost 40% from last year through the end of September.

The production contraction has not affected all companies equally, however, with the production at Toyota and Honda contracting 1.3% and 37.3% respectively, according to automotive news production data, through the end of September. These two manufacturers have a higher percentage of their production sold to Canadians and produce the two top vehicles that were purchased by consumers in the U.S. under their “cash for clunkers” program.

That said, with the recent resurgence of the Canadian dollar, the Canadian automotive market is more susceptible than at any time in the last year to a resurgence of cross-border purchases from the U.S. To encourage Canadians to continue to purchase Canadian vehicles from Canadian dealers, who are still struggling to secure appropriate credit and financing lines, we reiterate the recommendations from our August pre-budget submission as a means of bringing greater parity to Canada and U.S. vehicle pricing.

Our first recommendation was to reduce the finished vehicle tariff on imported passenger vehicles from 6.1% to 2.5% on an applied basis, which is consistent with the tariff on imported passenger vehicles into the United States. This tariff reduction would provide the opportunity for manufacturers to pass on savings of $900 to the consumer, assuming a $25,000 value for duty. Tariff reductions would also assist all manufacturers, not just our own members, in meeting the pending fuel economy regulations, as North American production facilities cannot be converted to the production of new fuel-efficient vehicles in the short term.

The second recommendation we made was to eliminate the green levy excise tax that has been applied on vehicles, with the exception of pickup trucks, that have a combined fuel consumption rating of more than 13.0 litres per 100 kilometres, which was introduced in the 2007 federal budget. While the eco-auto rebate component of the vehicle efficiency initiative introduced in that budget was eliminated at the end of 2008, the green levy continues as an excise tax applied to the vehicle manufacturers. While our members are strong proponents of fuel-efficient vehicles, on a matter of principle it is incongruent that the government would retain one component of the vehicle efficiency initiative while cancelling the incentive component that encourages consumers to make more fuel-efficient choices when purchasing vehicles.

The third recommendation we made was to eliminate the $100 excise tax on air conditioning, which has been in place since the 1970s. When the tax was implemented, at the time very few vehicles had air conditioning and it essentially represented a luxury tax. Currently the vast majority of vehicles sold in Canada are equipped with air conditioners, so it now represents a tax grab.

I'll leave it at that and wait for your questions.

Thank you very much, Mr. Chairman.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Adams.

We'll now go to the Canadian Association of Income Funds.

[Peter Carayiannis, Director, Legal and Government Relations, Canadian Association of Income Funds]

Thank you, Mr. Chair.

My name is Peter Carayiannis and I'm the director of legal and government relations with the Canadian Association of Income Funds. On behalf of the association's members, I thank the Minister of Finance, this committee, and its members for undertaking the important and significant work of a cross-country consultation in advance of the 2010 budget.

Our association made a key request to the finance committee in 2007 on the question of providing a legal framework for the conversion of income trusts to corporations without suffering any additional negative consequences. Our request in 2007 was endorsed by the finance committee in its final report, and I would note at this time that the request was directly in line and entirely consistent with all statements made by the Minister of Finance on the subject of conversion of income trusts to corporations.

The government released draft legislation in this regard in July 2008 and, in a notice of ways and means motion tabled in November 2008, proposed legislation to facilitate the conversions to corporate form along with certain other rules, both tightening and relieving the provisions surrounding such conversions. This motion, however, died on the order paper when Parliament was prorogued last year. However, in considering that motion, which died last year on the order paper, the association is cognizant of the fact that the legislative proposal, as it was tabled and which we have now twice reviewed over the past two years, makes it clear that the relieving provisions are strictly temporary in nature, given that the tax-deferred treatment on conversion terminates at the end of 2012. This deadline was never discussed or raised as an issue by the Minister of Finance in any public statements concerning the issue.

In establishing the deadline of December 31, 2012, with the result of requiring income trusts to convert to corporations or lose the tax-free rollover, the government is putting income trusts at a further disadvantage, and it is a disadvantage inconsistent with the government's stated goal of levelling the playing field. To this end, the association respectfully requests that this committee adopt a motion recommending that the conversion deadline of December 31, 2012, be eliminated.

Thank you for your time. I'd be pleased to take questions at your convenience.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll now finish with Mr. Hall, please.

[Jim Hall, Vice-President, Sales and Marketing, Hoffmann-La Roche Limited]

Thank you, Mr. Chair.

My name's Jim Hall. I'm vice-president at Hoffman-La Roche, and it is my pleasure to be here in front of the committee today. Hoffman-La Roche is a global biopharmaceutical company that provides medications for oncology, rheumatology, transplantation, metabolic disease, and infectious disease.

All of us are acutely aware that we're in the middle of a global influenza pandemic, and what I'd like to talk about today is being prepared, not only prepared for the current H1N1 pandemic but for any future pandemic that may come along. To that end, the federal government must ensure the appropriate renewal of budgets for pandemic planning and preparedness, set to expire in 2011.

Pandemics and other outbreaks of disease are known to have serious and devastating health and economic impacts. In economic terms, the potential impact of a severe worldwide flu pandemic could cost the global economy $3.1 trillion and reduce GDP by 4.8%. Canadian Manufacturers & Exporters estimated in 2006 that the impact of a future pandemic could cost the Canadian economy as much as $60 billion. A more recent study conducted by RiskAnalytica forecast the impact of a moderate pandemic in Canada and predicted that a moderate pandemic could increase hospitalizations by over 67,000 people, increase absenteeism of health care workers and emergency service providers by 25%, and impact the production that occurs within the Canadian economy by over $11.9 billion.

The Government of Canada has recognized the importance of pandemic planning and has invested heavily in this area since 2006. This investment has meant that we are better prepared as a country to respond to an infectious disease outbreak than ever before in our history. However, while this planning has allowed us to better respond to this pandemic, we must remember that we are fortunate currently to be in a mild pandemic. The risk of a future, more serious pandemic has not decreased with the emergence of H1N1. Given that H1N1 virus will continue to circulate for a number of years, and given that the H5N1 virus, or the avian flu as it is more commonly known, continues to circulate, the risk of a more serious pandemic continues to be high and should prompt us to be more vigilant, not less.

We must commit ourselves to continued emergency preparedness planning. Budgets for pandemic planning, set to expire in 2011, must be renewed. It is imperative that the government provide sufficient funding to ensure that all the necessary measures, including antiviral stockpiles and emergency response infrastructures, are capable of dealing with this current outbreak in addition to all future outbreaks.

The current pandemic plan has at minimum impressed upon us the importance of being properly prepared for an emergency or health crisis and to take nothing for granted. Canada's pandemic plan, which has allowed us to respond to the H1N1 outbreak in a coordinated way, outlines a response strategy that relies on antivirals and vaccines to protect the health of Canadians. The plan states that antiviral drugs like Roche's Tamiflu remain the only medical intervention available during an initial pandemic response until a vaccine is made available. I would add that even after a vaccine becomes available, antivirals will remain the best option for treatment for those who fall ill despite the efforts of a vaccination campaign.

Any pandemic strategy response must ensure the protection and safety of health care workers and emergency service providers, who will be on the front lines working to contain an outbreak and minimize the negative effects to Canada's health and economic well-being. The Canadian plan provides that antivirals will be used for early treatment for those who fall ill and to protect health care workers through prophylactic use in a very limited way. Emergency service providers such as police, firefighters, and paramedics will not be given antivirals as protection from infection, according to the plan.

In conclusion, the Government of Canada must continue to devote needed resources to pandemic planning and preparedness and ensure that our health care workers and emergency service providers are protected with appropriate preventative use of antivirals.

To that end, Hoffman-La Roche recommends, one, that the federal government must renew and increase its funding for emergency preparedness and response, particularly in the face of current response demands and those that will be required to meet future public health threats; and two, that the Canadian government should commit to increasing its stockpile of antiviral drugs to ensure that front-line health workers and emergency service providers are protected during a pandemic.

Thank you very much for your time.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Hall.

We'll now begin with members' questions, starting with Mr. McCallum, please.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you, Mr. Chair, and thank you to all of the panellists for being with us today.

Beginning with the Ontario Coalition for Social Justice, the National Council of Welfare, and the Wellesley Institute, I certainly agree with the thrust of what you have said. I think it's also true that while the recession may be technically over, economists in general are in agreement that the unemployment rate has not yet reached its peak, that it may go to 10%, so your concerns are particularly valid at this time.

I'd also point out that we're committed to the 360-hour rule for employment insurance, not necessarily on a permanent basis, but during the time when unemployment is high.

Since I agree with you and since my time is limited, I think I'll have a question for Mr. Howard. I certainly agree with you that pensions are a huge issue going forward in terms of their coverage, their adequacy, and their security. I agree with the idea of a summit, but I thought the definition of summit was the leaders, the Prime Minister and the premiers, so why are you asking for a sort of mini-summit of finance ministers rather than a real summit on this subject?

[Robert Howard]

Well, I think it is a real summit in that these are the people who have direct responsibility for pensions across the country. In fact, there are only four provinces that have pensions led by a finance minister. In Manitoba it's Labour and Immigration, in New Brunswick it's Justice and Consumer Affairs, and so on. So these people have never met, and by bringing together a single-purpose summit of the provincial leaders, plus the federal Minister of Finance, then we have all the people responsible for pensions all across the country together in one meeting.

[John McCallum, Liberal, Markham—Unionville, ON]

I don't disagree, except I would have thought that the subject is so important that maybe we'd initially have this mini-summit of those people you described, to be followed by a meeting of the leaders, because it's effectively the leaders who are required to take the decision.

[Robert Howard]

We certainly wouldn't have any objection to two meetings rather than none, which we have now. The issue is a very complex one, and it's important to get together the people right across the country to come up with proposals that will reform our pension system so that it can exist in the long term, and so that we have more harmonization across the country.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you.

To the physicist, Mr. Mann, we certainly criticize the government for downgrading science and for cutting funding to the research councils. How did you define targeted research in your chart?

[Prof. Robert Mann]

Targeted research is research that is directed typically towards a very particular goal. In the case of the Institute for Quantum Computing, for example, which I can speak to since it's at my own place in Waterloo, that institute's mission is to try to understand the basics of quantum information theory and how it can be applied to perhaps change computers as we know them now, as well as cryptography, communications, and all kinds of things. It's very directed towards a goal, whereas the discovery grants program is fundamentally curiosity-based research—in other words, people trying to find knowledge for its own sake. These two things are not completely disjointed, of course; there is healthy exchange between them. But if you starve one or decrease one at the expense of the other, then to invert a phrase of a well-known Newfoundlander, we have short-term gain for long-term pain.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you very much. I certainly agree with that. As a former academic, I know we always used to prefer the research grants with no strings attached, rather than the kind where the government tells you what you have to do. My own view is that the academics generally know what's the most important academic subject, and they know that better than the government does.

Here we have the curiosity-driven grants on a down trend, and the directed ones on an up trend, and I agree with you that it's not a happy situation.

How much time?

[The Chair, Conservative, James Rajotte]

You have two minutes.

[John McCallum, Liberal, Markham—Unionville, ON]

Mr. Ryan, it looks as if the government has no interest at all in replacing the reactor at Chalk River. If that is the case, can you describe what you think would be the consequences?

[Prof. Dominic Ryan]

Well, you lose your isotope supply immediately and then you become beholden to whoever is going to sell it to you. We lose 50 years of leadership in nuclear power. We were the first to build power reactors outside the U.S. We did all the fundamental work on power reactors for the Americans.

We lose our leadership role in neutron beam research, the triple-axis spectrometer that was recognized by Bertram Brockhouse's Nobel prize, the engineering stress scanner that was used as part of the accident investigation of the Challenger accident. All of that disappears, and there's no prospect of further innovation. We're unable to support our own industries.

We have an example from Saskatchewan, a company manufacturing rolled steel. It may be a boring product, but they developed a new way of making bigger sheets. It wasn't by a recognized method, so they couldn't get it qualified for use in bridges. We were able to demonstrate by doing the neutron measurements on these things that they were equivalent to the existing products and get the standard rewritten. So now they can use it in the 30,000 to 40,000 new bridges and refurbishment projects throughout Ontario. There's a big market. It's a small contribution, but it's a big market that we open up every time we do one of these experiments.

You lose people; you lose the expertise. It'll all go.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you.

I think my time is almost up. I'll just make a very brief comment with regard to income trusts. I think you know we're on the record as being committed to undoing as much of the damage to that sector as possible, which was caused by the government when it broke its promise on taxing income trusts.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Okay. We'll leave that as a very non-partisan statement.

Monsieur Laforest, s'il vous plaît.

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

Thank you, Mr. Chair.

Good morning to you all. Thank you for coming here to make your presentations. I would like to speak to Mr. Argue first.

The Ontario Coalition for Social Justice has some recommendations for us. You also feel that some employment insurance reform is a priority. You want to bring the number of hours needed to 360. I am sure that you are aware that, of the people without jobs at the moment, almost half have no access to employment insurance.

I am a Bloc Québécois MP. We have made proposals to the government, but, up to now, they have not paid any attention. It is as if they do not give a hoot about the unemployed, the people with no access to employment insurance. But there is an important point to consider. In the last 15 or 20 years, governments, both Conservative and Liberal, have taken $57 billion out of the employment insurance fund in order to fight the deficit. Now the deficit is going to go up again. The Conservative government is looking for a surplus in the employment insurance fund in the next few years, and eventually, in contributions.

I feel that it is important to include in your recommendations that the government absolutely must stop taking that money and must put an end to its plans to pay off the deficit with employment insurance money, in other words with the money contributed by workers and companies. I feel that it is important.

Do you have any comments on the matter?

[John Argue]

Let me first say that I apologize for not being able to respond in French. However, I'm sympathetic to what you say.

I think the groups within the coalition and the labour unions that participate in the Ontario Coalition for Social Justice think it's vital that a greater number of people who are unemployed have help during their unemployment, to help them and their families avoid the consequences of poverty and the difficulties of losing housing and not having enough to eat.

Second, of course, there are the effects on the communities, too, of not enough money being spent. I think it's clear in various economic studies that in fact people at the lowest level of income are spending money that goes directly into the Canadian economy and therefore benefits the economy generally to the greatest degree.

So we're very sympathetic to what the Bloc Québécois would be recommending. Thank you.

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

I particularly urge you to add to your recommendations that, in the future, the government should not take money from the employment insurance fund in order to pay down the deficit. Recently, the people who have paid into the employment insurance fund have paid down the deficit to the tune of $4 or $5 million dollars per year. Those amounts came from the surplus generated by the employment insurance fund. The government absolutely has to refrain from doing the same thing in the future.

Do you agree with that? Anyway, my suggestion is that you include it in your recommendations.

[John Argue]

Thank you for the recommendation. I didn't speak to it directly because it's not a clear issue in our policies, but I have no doubt that the members of the Ontario Coalition for Social Justice would agree with you.

So thank you. I will bring that back to our group.