Finance Committee on May 6th, 2010

[Daniel Paillé, Bloc, Hochelaga, QC]

So it’s the workers and employees who contribute to it who will pay the cost of this new Crown corporation?

[Mark Hodgson]

That's correct.

[Daniel Paillé, Bloc, Hochelaga, QC]

I have a simple suggestion to make to Mr. McCallum.

You on the Liberal Party, with the money from the sponsorships, could pay back the money that you stole.

Well, I apologize.

[The Chair, Conservative, James Rajotte]

I don't think that's a question to you, Mr. Hodgson.

I want to thank you for being with us this afternoon, Mr. Hodgson and Mr. Beauséjour.

We will suspend for a minute and we will bring the other witnesses forward and hear their presentations.

[The Chair, Conservative, James Rajotte]

I call the meeting to order again. I apologize to the witnesses for the shortened time this afternoon, but we did have to finish up discussions with officials.

We have six organizations with us here this afternoon: la Coalition québécoise pour le contrôle du tabac; Genome Canada; Pathways to Education; the Canadian Apparel Federation; the Fédération des travailleurs et travailleuses du Québec; and PricewaterhouseCoopers.

We will have a five-minute opening statement from each, starting with Monsieur Cunningham.

[Rob Cunningham, Senior Policy Analyst, Canadian Cancer Society, Coalition québécoise pour le contrôle du tabac]

Thank you, Mr. Chairman.

On behalf of the Coalition québécoise pour le contrôle du tabac, thank you for this opportunity to testify today.

My name is Rob Cunningham, and I am a lawyer and a senior policy analyst at the Canadian Cancer Society, which is a member of the coalition, together with other groups. Today we want to express our support for the clauses in this bill on tobacco, in order to better control tobacco smuggling.

Having higher prices and higher taxes are very effective ways to decrease tobacco use. All members of Parliament are aware of how we have a significant illegal contraband problem in Canada, and we need solutions.

We support the enhanced tax stamp regime that will be authorized with this bill as a component of an overall comprehensive strategy. It will assist in preventing counterfeiting. There was just recently a seizure in Vancouver of counterfeit products. It will assist with those licensed companies that produce more than they report to government, because each package will have a unique identifier on it, the way money does, with covert and overt features. It will also provide a base for a further step that some countries are doing. We've seen progress along these lines in Brazil, in Turkey, in California, and there have been discussions in other jurisdictions about having a better system of tracking and tracing to help identify a point of diversion. So illegal product is seized, and you can see through the unique identifier what the last point of legal control was before it was diverted illegally.

For other types of contraband such as illegal manufacturing--that's a different category--there are different remedies available. We have recommended to government remedies with respect to other types of contraband.

We urge all members of this committee to support these aspects of this bill. We hope that the government will move quickly with regulations that are effective, and that this component can enhance part of a broader comprehensive tobacco control strategy.

Why are the Canadian Cancer Society and the Coalition québécoise pour le contrôle du tabac concerned about this? We know that kids are getting this, especially in Ontario and Quebec, where the prices in terms of taxes are the lowest but the contraband is highest. It's not because of high taxes. It's because of illegal sources of supply, and we need to control the distribution chain.

Thank you very much. I look forward to any questions.

[The Chair, Conservative, James Rajotte]

Thank you for your presentation.

We'll now go to Mr. Hughes, from Pathways to Education.

[David Hughes, President and Chief Executive Officer, Pathways to Education Canada]

Mr. Chairman, committee members, thank you for the important work you're doing and for the privilege to address you today on behalf of an ever-growing number of students and communities being served by Pathways to Education Canada. Thank you to the federal government for considering an investment in our program, which is lowering dropout rates of at-risk youth and helping them make the all-important transition to post-secondary education and meaningful employment.

Our data proves that investing in our most vulnerable youth and the communities they come from will deliver the best return on investment any community or government can make. It will help close the troubling gap between the haves and have nots and it will result in safer and healthier communities, more informed and engaged citizens, a more diversified and productive workforce, and a stronger economy.

We all know the problem. Each year we see thousands of Canadian students making life-altering decisions to drop out of school. In most cases, this seemingly simple and personal decision puts our youth on a downward-spiralling course that affects us all with a ripple effect that leads to lower wages, higher unemployment, a diminished tax base, higher rates of poverty, and greater dependency on social assistance.

Lower levels of education lead to more crime, threatening the safety of our neighbourhoods and putting greater strains on our justice system. It also leads to higher incidence of drug use and teenage pregnancy, putting greater strains on our health care system. The data on this is clear, be it from Statistics Canada or the countless studies from here or abroad. What is less well known is the extent of this problem. Average provincial dropout rates across the country hover between 20% and 30%, and most major cities have low-income communities where the dropout rate ranges from 40% to 60%. We also know that this problem is more severe for a growing number of children of first- and second-generation immigrants and aboriginal families, where we are seeing dropout rates of 70% and higher.

Pathways to Education Canada is a charitable organization with a laser-sharp focus on reducing these dropout rates. We do so by helping at-risk youth complete high school and make that transition to post-secondary education successful, with the goal of helping them achieve meaningful employment and a better future than their historical path might have afforded them.

Our program operates through carefully selected networks of community agencies who deliver a comprehensive set of supports, which include academic support where volunteers provide after-school tutoring in core subject areas; social support where volunteers run group mentoring activities aimed at increasing social skills, communication skills, problem solving, and career planning; and financial supports aimed at reducing barriers to school completion and providing incentives, which include bus tickets and lunch vouchers while in the program and a scholarship that is earned through participation in the program and paid out to post-secondary institutions only on the completion of the program. Plus it has one-on-one mentoring, coaching, and other supports that tie together these various components and serve as a single point of accountability for these students and these individuals who serve as an advocate for the students within the school system.

So that is what we do, but what have we achieved?

Research and evaluation are key components of the Pathways to Education program. We have a highly disciplined approach to outcomes measurement, applying learning from our research to our replication and program improvement process. The early hope for our program was to reduce high school dropout rates of youth to a level that was similar to or better than the city average. To date, results of our initial site in Toronto's Regent Park continue to far exceed that goal. We have over five cohorts, 850 youth, and the dropout rate for this youth group in this community has declined from 56% to now 12%, a reduction of more than 75% and now approximately half of the city of Toronto and provincial averages.

[The Chair, Conservative, James Rajotte]

One minute, Mr. Hughes.

[David Hughes]

Similarly, we have experienced a 93% participation rate in our communities and an increase in participation in post-secondary school, which has risen from 20% to 80%.

Beyond the performance of these students, the Boston Consulting Group has taken an analysis of our program. They concluded that for every dollar invested in it, a minimum of $25 was returned back to society in reduced social assistance costs and increased tax revenues. They calculated that the program would have a $400,000 cumulative lifetime value to each graduate--in other words, a 9.4% internal rate of return. So the $20 million being proposed under this act would in fact lead to a $500 million return to Canadians in the future.

This investment will enable Pathways to Education to expand its program from being a regional program to being a national one, helping us expand to fifteen to twenty locations, to seven to eight provinces, and serving over 10,000 students.

Thank you for considering this.

[The Chair, Conservative, James Rajotte]

Thank you very much.

We'll go to Genome Canada. Mr. Patterson, please.

[Dale Patterson, Interim Chief Executive Officer and Vice-President, External Relations, Genome Canada]

Good afternoon. It's a pleasure to appear this afternoon before the committee.

My name is Dale Patterson. I'm the interim CEO and vice-president of external relations at Genome Canada. I am pleased to be joined by my colleagues, Dr. Cindy Bell, who is the executive vice-president of corporate development; and Guy D'Aloisio, who is the vice-president of finance.

As many of you may be aware, Genome Canada is a not-for-profit corporation that acts as the primary funding and information resource relating to genomics and proteomics research in Canada in a unique model of collaborative federal-provincial partnering. Genome Canada has adopted a bold yet systematic approach that focuses its activities exclusively in the areas of genomics and proteomics research, with an emphasis on the delivery of tangible and measurable results. This approach has positioned Canada among the world leaders in the fields of human health, agriculture, environment, forestry, fisheries, and new technology development. Furthermore, Genome Canada continues to play a leadership role on the ethical, environmental, economic, legal, and social issues—referred to as GE³LS, associated with genomics and proteomics research.

One of Genome Canada's strengths is its network of regional centres across the country. Six have been established since 2000. The centres are independently incorporated and act as focal points for local expertise and interests by facilitating access to top-flight science and technology innovation centres and by assisting researchers with project development, management, and fundraising. Centres and scientists also work together to secure co-funding for each project at the level of 50% or more of the total project cost.

While we are proud of our track record, we are also looking forward to our future, and to this end, the recent federal budget provided $75 million in additional funding to Genome Canada, for which we are thankful.

At our March 2010 board meeting, the board of directors of Genome Canada moved quickly to ensure that these new funds would be invested in areas of key importance to Canadians.

First, we announced that $15 million would be directed toward an open competition in support of the science and technology innovation centres. This is in addition to $9 million in existing funding, for a total of $24 million.

Second, up to $60 million will be directed toward a combined open and targeted large-scale project competition that will emphasize a high potential for economic return. At least $30 million will be targeted to research in the areas of forestry and the environment, and up to $30 million in support of strategically important research in Genome Canada's other sectors: agriculture, fisheries, and human health.

We want to get these funds directly into the hands of the researchers as quickly as possible while ensuring that we are funding the best of the best. As a result, we are moving fast to put competition guidelines in place in the coming weeks.

Excellence is the only standard that Genome Canada will accept or fund. That's why every project must first be peer-reviewed by an international panel of experts, ensuring that Canada's best research is the world best research, with the potential to produce meaningful applications through knowledge transfer and technology development.

Genome Canada's formula for success has not gone unnoticed. When Spain created its genome foundation, it modelled itself on Genome Canada.

Genome Canada has also been very cognizant of its accountability requirements with respect to the funding it receives from the federal government and has had a number of third-party reviews of its operations over the past five years. These have included a compliance audit by Industry Canada, a formal third-party summative evaluation and performance audit, the results of which are posted on the Genome Canada website. Through the regional genome centres, recipient audits are also undertaken on funded projects to ensure compliance with the formal terms and conditions of funding. These are in addition to complying with the detailed terms and conditions of the formal funding agreement with Industry Canada.

Since its inception, Genome Canada has been in the news: mapping variations in the human genome, identifying risk factors for type 2 diabetes, sequencing the SARS virus, making a major breakthrough in breast cancer treatment, creating new tools to diagnose organ transplant rejection, designing new biotechnologies that minimize the environmental impact of oil sands production, creating hardier varieties of wheat in response to climate change, and sequencing the salmon genome to improve breeding selection for commercially important traits. This has happened thanks to the support of parliamentarians including many of you around the table. A number of our success stories are included in the package we've issued.

Finally, a word on a number of additional changes at Genome Canada.

Genome Canada is governed by a board of directors who serve renewable two-year terms. A key priority for us is board renewal and recruitment, which is currently under way. In addition, following the departure of our founding president and CEO, we have retained an executive search firm to assist us in undertaking a search for his successor.

We look forward to answering any questions you may have in relation to Genome Canada. Thank you for your time and for this opportunity.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Patterson.

We'll go to Mr. Kirke, from the Canadian Apparel Federation.

[Bob Kirke, Executive Director, Canadian Apparel Federation]

Thank you, Mr. Chairman, for the opportunity to address the committee. I'm pleased to be here to provide our comments on Bill C-9.

Before I begin, please allow me to introduce our association and our industry. The Canadian Apparel Federation represents over 400 Canadian companies that are active in the apparel industry. The industry itself produces a wide range of women's, men's, and children's apparel. The industry directly employs approximately 50,000 people, with the largest concentration in the Montreal area. Other areas of concentration include Toronto, Winnipeg, and the Vancouver area. We are one of the few manufacturing sectors found in all provinces and territories.

Many Canadian firms have become market leaders and successful exporters in the past decade. They have made major inroads into the U.S. market, in particular. Despite our successes, the Canadian apparel industry faces immense pressures and challenges, including one of a domestic nature; that is, duties of up to 14% on imported raw materials.

Our association last appeared before this committee in 2004 on this issue. Duties paid on these imported raw materials represent the most significant policy issue for the industry, as companies need to have access to competitively produced raw materials to meet the needs of the Canadian consumer and our export markets. Since 2004, we have seen some progress on this issue. But currently, our industry pays approximately $65 million in import duties on raw materials on an annual basis.

The clothing industry is one of the truly global manufacturing industries. Clothing is made in virtually all countries. And in developing countries, it is seen as a key strategic industry. Our firms understand globalization, because they know that they are competing with manufacturers from around the world who are keenly interested in our domestic market and our major export market, the United States.

Canadian firms can compete based on superior design and innovation combined with superior customer service. However, if we are to remain competitive, we must have a policy framework that ensures that we are not working at a disadvantage to our competitors internationally.

As we have mentioned in previous appearances before this committee, our most important industrial policy issue has been the duties paid on imported raw materials. I am happy today to support the passage of Bill C-9, because it contains the elimination of these duties.

Last year, the Department of Finance initiated a consultation on input tariffs, including textile tariffs. The Canada Gazette notice on September 19, 2009 set out the government's intention to eliminate duties on imported raw materials. From our perspective, it is a balanced approach, as it applies to the apparel and textile sectors. Fabric mills will benefit from the removal of duties on their inputs, namely yarns and unfinished fabric. Apparel producers will benefit from the removal of duties on inputs they use to manufacture, primarily finished fabrics.

In the current economic climate, this is the most effective policy at the government's disposal to lower the costs of domestic manufacturing. It eliminates an unnecessary financial burden on domestic manufacturers, namely the 14% duty on raw materials.

Our members have made dozens of individual submissions to the Department of Finance requesting tariff relief on literally hundreds of different tariff lines.

I have provided the clerk of the committee with a summary of our association's submission. The bottom line is that we strongly support the passage of Bill C-9. We also support the red tape reduction initiatives contained in the budget.

We also believe that the government should establish a mechanism to review various proposals that came up in this process relating to other tariff relief measures, such as outward processing. These should be reviewed on a sector-specific basis.

I thank you for your time, and I'd be happy to answer any questions.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

Now it's the turn of the Fédération des travailleurs et travailleuses du Québec.

Mr. Ducharme, please, go ahead for five minutes.

[Michel Ducharme, Vice-President, Fédération des travailleurs et travailleuses du Québec]

Mr. Chairman, committee members, on behalf of the Fédération des travailleurs et travailleuses du Québec, I thank you for allowing us to express our opinion, in particular on Part 24 of this bill.

With respect to the employment insurance account, I would say, from the outset that, for the FTQ, eliminating the employment insurance account is an unconstitutional act, contrary to democracy. Bill C-9, An Act to implement certain provisions of the budget tabled in Parliament on March 4, 2010 and other measures, states: “The account in the accounts of Canada known as the Employment Insurance Account is deemed to have been closed at the beginning of January 1, 2009 and removed from the accounts of Canada at that time.”

The bill adds that only those premiums and other amounts collected under the employment insurance plan as of January 1, 2009 will be included in the new employment insurance operational account. To take this kind of action, the Conservative government assumes it has constitutional authority to cancel public accounts, the amounts contributed and counted for employment insurance plan purposes of $57 billion in the employment insurance account. And yet, in its previous budget, the government was compelled, following a judgment by the Supreme Court of Canada in the challenge by the Syndicat national des employé(e)s de l'Aluminium d'Arvida and by the CSN, to have the premium rates for 2002, 2003 and 2005 passed by the House of Commons in accordance with the imperative democratic rules provided for under the Constitution of Canada. The purpose of the government's efforts at the time was clearly to adopt premiums for the purposes of the employment insurance plan, not a general tax.

Now the government is clarifying the scope of the amendments adopted in previous budgets respecting the setting of the premium rate with respect to cumulative surpluses in the employment insurance account. These are cumulative surpluses, remember, reducing access to employment insurance for thousands of workers in Canada, with all the negative effects that result from that for those people and the communities to which they belong, and systematically setting premium rates distinctly higher than the atrophied employment insurance system through various cuts since the early 1990s.

Moreover, all stakeholders who have had to analyze the premium rate setting process, in particular, have observed that rates have been set based on other imperatives than the financial imperative, essentially the employment insurance plan. The Canadian Institute of Actuaries did it, as did Judge Gascon of the Superior Court and Judge LeBel of the Supreme Court of Canada. Judge Gascon held that the fact nevertheless remained that, despite their scope—he talked about cumulative surpluses—criticized by the Auditor General of Canada and the Chief Actuary of HRSD, one searches through the evidence in vain for justifications and explanations for maintaining these surpluses at the level where they stand. Judge LeBel held as follows, on behalf of the Supreme Court of Canada: “In my opinion, those amendments had a significant effect on the validity of such levies in the circumstances in which they were adopted, that is, at a time when government representatives could not have helped but see that employment insurance revenues in fact greatly exceeded what the system required and that those revenues no longer had an actual connection with the system.”

In 2005, the government put a legislative framework in place to exclude the cumulative surpluses in the employment insurance account from the premium rate-setting process. It also altered the premium rate-setting parameters by stating that the rate had to be set based on the estimated costs of the plan for the subsequent year, not on the basis of the maintenance of a reserve to prevent upward fluctuations in premium rates at the time of an economic slowdown, a role that cumulative surpluses were officially supposed to play in the employment insurance account.

Despite this new rate-setting mechanism, the rates adopted since 2005 to cover only the costs of the employment insurance system, with the exception of 2010, nevertheless had the effect of increasing the cumulative surpluses in the employment insurance account by nearly $8 billion. However, Judge LeBel of the Supreme Court did not see fit to comment on the legislative amendments since 2005 because they were not directly concerned by the legal issue.

[The Chair, Conservative, James Rajotte]

You have one minute left.

[Michel Ducharme]

One minute left? I’m going to go right to the conclusion.

Let’s go back to Judge LeBel of the Supreme Court. In his view, the fundamental reason to rule on the constitutionality of the amounts collected and accounted for was to maintain a connection in the act between the needs of the plan and a certain rate stability. These principles maintained an allocation policy, a balance in the collections that preserved their constitutional characteristics as regulatory collections. This action is based on the idea that the government can do what it wants with the cumulative surpluses in the employment insurance account. However, that claim was not allowed by the Supreme Court because appropriate accounting had been kept.

In conclusion, we consider that the government must abide by the Constitution. The section of Bill C-9 repealing the employment insurance account does not appear to be a legislative choice authorized by the Constitution of Canada in that it retroactively alters the nature of the amounts collected and entered in the account.

We demand that the planned increases in premium rates be used to restore the employment insurance plan, enabling it to adequately cover workers’ unemployment risk on a permanent basis, and we ask the House of Commons and the Senate to block the coming into force of this repeal of the employment insurance account—

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Ducharme.

[Michel Ducharme]

—and to require the government at least to check in advance with the Supreme Court—

[The Chair, Conservative, James Rajotte]

You’ll have some questions from members.

[Michel Ducharme]

May I add something else?

[The Chair, Conservative, James Rajotte]

Thank you.

[Michel Ducharme]

Six minutes goes by fast!

[The Chair, Conservative, James Rajotte]

Mr. Firth, for the final presentation, please.