Thank you, Mr. Chairman.
My name is Cliff Mackay. I'm the president of the association. Let me thank the committee for the opportunity to speak to you today.
Railways, as you know, are an integral part of the Canadian economy. We move approximately 75% of all the freight, by weight, in the country to domestic and international markets. We employ over 35,000 people, and we pay over $1 billion in taxes every year. The RAC represents essentially all the operating railways in the country. That includes freight railways large and small, intra- and intercity passenger railways, regional railways, and tourist railways.
Today I want to put forward three recommendations, which are also included in our written submission.
The first concerns federally regulated defined benefit pension plans. To mitigate the impact of significantly higher contributions to federally regulated DB pensions in 2009 and beyond, we recommend that the federal government permanently increase the solvency deficiency funding period from five to ten years for all current and future solvency deficiencies, without any conditions.
It is critical that meaningful and permanent changes to the regulatory framework be made in 2009 to address the onerous and frankly very volatile nature of the solvency deficit contributions required under the current rules. RAC member railways, which are federally regulated, include both Class 1 freight railways--CN and CP--and the intercity passenger service--VIA Rail.
The temporary solvency funding measure announced in the 2008 economic and fiscal update was welcomed by the RAC members. However, it's insufficient for a number of reasons. This temporary measure does not address the continuing, onerous nature of the five-year solvency funding rules.
The RAC acknowledges the critical importance of the security of pension plan members' benefits. We strongly believe that the best security for plan members is a financially strong plan sponsor and that our proposed lengthening of the solvency deficit funding period is critical to ensuring that member railways remain financially strong. Therefore, we urge the government to permanently lengthen the solvency deficit funding period. RAC member railways require more certainty on future pension contributions as they proceed to develop both their capital and operating plans. In addition, unless meaningful, permanent changes are made, the ability of our members and other Canadian firms to maintain their current pension plans will be severely challenged.
The second issue I want to raise with you concerns section 36 of the Income Tax Act. This section applies exclusively to railways. This section operates to require capitalization, for income tax purposes, of costs incurred in respect of the repair, replacement, or renovation of depreciable property to the extent that such costs are capitalized pursuant to the uniform classification of accounts prescribed by the Canadian Transportation Agency.
The CTA is in the process now of reviewing its regulatory accounting policies, including those for the treatment of the costs I just mentioned. The objective of the CTA review is to modernize the regulatory reporting rules for railways to align its rules with generally accepted Canadian and/or U.S. accounting practice. If the CTA were to proceed without the Department of Finance correspondingly repealing section 36, it would result in a very significant and unintended increase in the annual income tax payable by Canadian railways.
Therefore, we are recommending that the federal government proceed to delink the Income Tax Act from the regulatory reporting requirements by repealing section 36. A significant increase in income tax payable on an annual basis will decrease the investment capacity of railways, resulting in obviously negative economic impacts.
The last thing I want to mention, Mr. Chair, is the continued funding of gateways and corridors. The Canadian rail system continues to be well positioned as a facilitator of international trade in North America. The federal contribution to these gateways is an extremely important piece of the puzzle. We want to commend the federal government for the $1 billion it's already invested in the Asia-Pacific gateway and the $2-billion plus that has been made available for the Ontario-Québec continental gateway and the Atlantic gateway.
To date, however, the allocation of these funds to rail and intermodal infrastructure has moved very slowly. After more than two years, the budget allocation for Ontario-Quebec and Atlantic has not been spent at all. With regard to the west, there have been a number of announcements recently, which we very much welcome, but there is again more work to be done.
Many jurisdictions in North America are moving quickly to support their rail infrastructure and their port infrastructure, including short-line rail. We have to keep pace with these jurisdictions.
With respect to infrastructure investment, we are currently in a race with the United States. The American Recovery and Reinvestment Act of 2009 funds U.S. passenger and freight railways and ports to the tune of $27.5 billion. All of these programs must be moving before September 30, 2010. This is a significant competitive challenge, and we need to continue to focus on our infrastructure.
Thank you, Mr. Chair.