Finance Committee on Sept. 29th, 2011

[Maryse Harvey]

For a number of years, our association has definitely been calling for the military expenditure and investment plans made by the Department of National Defence to be more representative of Canadian technological capacities and of our capacity to produce military equipment for our forces. We obviously think it's logical that, if we must spend taxpayers' money on DND equipment, which is obviously very important, the benefits of those investments should be higher for Canadians; they should help create jobs in Canada, and develop Canadian technologies and Canada's sovereignty. We have capacity and talent in spades. Our workers are among the best in the world in terms of aeronautics R & D.

We feel that the expenditures should reflect those capacities and that we should know how to further enhance them.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you.

As for the F-35 project, currently, Canadian companies who took part in the project retain ownership of the intellectual property for all the expenditures made in Canada. Is that correct?

[Maryse Harvey]

For the most part, yes.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you.

In the coming months, the U.S. Senate will make its decision on maintaining the F-35 program. Should the American legislation force the Pentagon to introduce a replacement for the F-35, would our Canadian industry be able to replace the F-35 with another aircraft easily enough?

[The Vice-Chair, NDP, Hoang Mai]

You have 15 seconds to answer.

[Maryse Harvey]

That possibility has not been discussed by our members or by the association. We remain firmly committed...

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Sorry to interrupt, but I would like to put my next question to Mr. Penney, very quickly.

Mr. Penney, you talked about the tax loss- and attribute-transfer system for corporate groups and about corporate competitiveness. Unless I am mistaken, that section has always been in the Canada Income Tax Act, but it has been restricted and regulated as a result of abuses.

[The Vice-Chair, NDP, Hoang Mai]

Could you answer very quickly?

[David Penney]

I apologize for not being ready the first time around.

There are provisions in the act that allow an ad hoc transfer of losses, basically with the tolerance of Revenue Canada. There are not any specific provisions set up to allow it without, for example, amalgamating corporations or winding up corporations, which is a very complicated way to get to the end result.

[The Vice-Chair, NDP, Hoang Mai]

Thank you, Mr. Penney.

Mr. Dan Albas, please.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

Thank you, Mr. Chair.

I appreciated the presentations today. I'm going to keep my questions as brief as I can in order to get as much time in as possible.

During the election I had an opportunity to speak to a number of university and college students from both the Nicola Valley Institute of Technology and Okanagan College. They've supported a lot of the practical measures that we promised during the election. I know this is pre-budget consultation for next year's budget; however, I think it's important for us to find out where we are and what level of support we have for some of our current measures. So I'd like to actually speak in regard to Budget 2011 measures, such as the reforms to the Canada student loan program that doubled the income work exemption.

Mr. Dayler, I appreciate all of the things in your brief, and I'm sure we're going to take some time to absorb them, but specifically to those measures, how have they been seen by your organization? Do you see this as a worthy measure to continue supporting?

[Zachary Dayler]

Thank you for the comment.

Obviously any investment in education is a positive investment, to make it easier for students. In terms of the income work exemption that we sat here last year asking the committee to consider, it has been felt as a positive investment.

That being said, the increase from $50 to $100 is a start. We know that across the provinces.... I believe that in Alberta it's higher and in fact is closer to $200. So it's a start, and while it does free up more money for students on a day-to-day basis, puts more money in their pockets and makes it easier to buy groceries, pay rent, or pay for textbooks, or whatever it may be, we need to consider more mechanisms that are going to put more actual dollars in the pockets of students.

Tax credits and things like that are great when that student graduates, but on a day-to-day basis, having those extra funds to purchase food or textbooks, whatever it may be, is important.

The initial investment that we saw last year is positive. I think the message from my membership would be that we can always do better to make it easier for students.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

I appreciate that. Again, it's a good starting point.

Second, thank you to Sandra Schwartz for her presentation. I found that it was more about supply and the infrastructure that we're going to be looking at to continue to supply those things.

One thing I would like to look at is demand. Bearing in mind that we've had our budget come forward with the funding for the ecoENERGY retrofit for homes, which is something that a lot of seniors in my riding of Okanagan—Coquihalla have enjoyed, I just wanted to hear your comments to see if you feel that's a good measure. Again, is this something that is getting a lot of good feedback from your organization as well?

[Sandra Schwartz]

Thank you for your question.

For the ecoENERGY programs related to efficiency, we have publicly supported those programs. When the minister announced.... Most recently, it was the ecoENERGY retrofit program, for example. We have been putting out press releases in support of that. Our membership runs a lot of its own energy efficiency programs, unlike many other sectors where there is product to sell. We also have a commodity that we sell, but we actually very much believe in conserving that product as well, and we work very hard on energy efficiency measures.

Demand, on the other hand, will be increasing. We do have a much larger population now. The infrastructure that we've built--and that our grandparents and parents built--was accommodating about 20 million Canadians. We're now up to close to 35 million Canadians, so even with demand management opportunities, we still will require additional supply to meet that demand.

But certainly, energy efficiency measures are important, and we will continue to support any measures the government may take on that.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

Thank you.

Mr. Chair, I appreciate the time. I just want to say that I think it's important for us not only to look to do more, but also to acknowledge the things that are working well and to make sure that we're continuing to support those things that are having a measurable effect.

Thank you.

[The Chair, Conservative, James Rajotte]

Okay. Thank you, Mr. Albas.

We'll go to Mr. Nicholls, please, for cinq minutes.

[Jamie Nicholls, NDP, Vaudreuil—Soulanges, QC]

Thank you, Mr. Chair.

I'd like to address the first question to Mr. Penney.

In the law of marketing we know that if a product is competing on price alone it becomes viewed simply as a commodity and not a valued good. Surely low tax regimes attract corporations, but global competitiveness takes in many other factors, such as company spending on R and D and corporate capacity for innovation. These are two of the main weaknesses in Canada's competitive economy.

Given the high load of personal debt and our low ranking on national savings as a percentage of GDP, and given that we rank 102 on government budget balance, according to the World Economic Forum, aren't low tax regimes a poor attractor of the most innovative companies that base localization primarily on tax advantage?

So why is it since we have a low tax regime for corporations compared to the United States that we fall lower in terms of innovation? And do you have any ideas about the other factors that could make Canada more competitive?

[David Penney]

Support of R and D initiatives would make Canada more competitive in terms of innovation.

The low tax rates do assist in foreign companies investing in Canada. We usually get the benefit of the technology from foreign jurisdictions if they're going to manufacture or produce something in Canada.

Why are we close to the bottom? I can't really address that question directly for you.

[Jamie Nicholls, NDP, Vaudreuil—Soulanges, QC]

Do you think a lower tax regime for large corporations would help to develop Canada's innovation and productivity?

[David Penney]

I certainly think it would. It makes it an attractive place to do business. In particular if it's a profitable business, if it's taxed at lower rates, more cash is available to invest back into the business.

[Jamie Nicholls, NDP, Vaudreuil—Soulanges, QC]

Okay, but given that we have a lower tax rate than the United States competitively--the United States ranks fifth on global competitiveness whereas Canada ranks about twelfth--and the World Economic Forum has identified the weaknesses in our economy as R and D, and given that corporations are saving money through lower taxes, why are they not re-investing in research and development?

[David Penney]

I expect they are, but we have to remember that things don't happen overnight. Canada's rates have gone into the competitive norm probably only in the last three to four years. In addition, the U.S. economy is the biggest economy in the world, and obviously they have an enormous advantage simply because of the size of their local economy.

In addition to that, although their statutory rate is much higher than our rate, taxes are a function not only of the rate but of the base, and they have some very significant preferences built into their base.

[Jamie Nicholls, NDP, Vaudreuil—Soulanges, QC]

Okay, thank you.

My very quick question is to Ms. Schwartz.

I'd like to ask her what role an electricity-based infrastructure such as electric cars and building Canada's new electricity infrastructure could contribute to innovation in Canada's economy and contribute to productivity in general.

[Sandra Schwartz]

To answer the question, some of the areas Canada could be working in, in terms of innovation, may be around energy storage options, for example. If we are able to store electricity from variable generation, like wind, solar, etc., we'd be able to use that for baseload power, which we can't use currently. You put it into the system, but it can't fulfill the function of a gas or a coal plant.

[Jamie Nicholls, NDP, Vaudreuil—Soulanges, QC]

So what's the greatest obstacle currently to implementing the system?