Evidence of meeting #122 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was countries.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

Garth Manness  Chief Executive Officer, Credit Union Central of Manitoba
Laura Eggertson  President, Adoption Council of Canada
Martin Lavoie  Director of Policy, Manufacturing Competitiveness and Innovation, Canadian Manufacturers and Exporters
Richard Paton  President and Chief Executive Officer, Chemistry Industry Association of Canada
David Phillips  President and Chief Executive Officer, Credit Union Central of Canada
Karen Proud  Vice-President, Federal Government Relations, Retail Council of Canada
Mike Moffatt  Professor, Richard Ivey School of Business, As an Individual
Rob Cunningham  Senior Policy Analyst, Canadian Cancer Society
Ron Bonnett  President, Canadian Federation of Agriculture
James Laws  Executive Director, Canadian Meat Council
Karen Cohen  Chief Executive Officer, Canadian Psychological Association
Yves Savoie  President and Chief Executive Officer, Multiple Sclerosis Society of Canada

9:55 a.m.

Conservative

The Chair Conservative James Rajotte

You have 30 seconds.

9:55 a.m.

Conservative

Brian Jean Conservative Fort McMurray—Athabasca, AB

—30 seconds left.

Is it fair to say that credit unions have a very competitive situation compared with that of commercial banks?

They are able to give higher interest rates and lower loan and credit card rates to their customers. They have lower fees. They have the ability, obviously, to do customer-focused banking. They have lower fees, better service, and more flexibility to be more competitive with the larger commercial banks—which obviously can't do that. Isn't that fair to say? I'm relating to a website here called “Money Crashers”, which talks about credit unions versus commercial banks. Wouldn't that be fair to say?

9:55 a.m.

Conservative

The Chair Conservative James Rajotte

Respond very briefly, if you can, Mr. Phillips.

9:55 a.m.

President and Chief Executive Officer, Credit Union Central of Canada

David Phillips

There are 348 credit unions, so you have 348 credit union service offerings right across the country.

Credit unions attempt to maintain competitiveness with commercial banks, but it's a tough go. When you look at the level of concentration in the Canadian financial services industry—

9:55 a.m.

Conservative

Brian Jean Conservative Fort McMurray—Athabasca, AB

But would you agree with what I've said?

9:55 a.m.

President and Chief Executive Officer, Credit Union Central of Canada

David Phillips

I don't think I can generalize to that effect. No.

9:55 a.m.

Conservative

The Chair Conservative James Rajotte

Unfortunately, we're out of time. We'll have to come back to that discussion.

We'll go to Mr. Rankin, please.

9:55 a.m.

NDP

Murray Rankin NDP Victoria, BC

Thank you, Mr. Chair.

I'd like to ask either Mr. Paton or Mr. Lavoie about the ACCA. We've heard a lot about it in response to a question from my colleague, Mr. Caron, in particular. But I want to go back to the fact that this two-year extension would appear to be almost a band-aid.

I'm not suggesting for a moment, Mr. Paton, for the reasons you've given, that it's not valuable. I certainly would agree with that. But wouldn't it be much more helpful to have a more permanent solution rather than just going from one year, 2007, and then extending it in the 2008, 2009, and 2011 budgets?

You talk about the Americans, for example, being your major competition, Mr. Paton, with their 60% double-declining balance and a more permanent tax structure. Here we are looking at two years. We're going to come back, presumably, in two years' time, looking again as to whether this ought to be changed. Doesn't it make sense to make this a permanent measure?

9:55 a.m.

President and Chief Executive Officer, Chemistry Industry Association of Canada

Richard Paton

It would be very helpful to look at that option and compare the tax regimes. One thing the government has done in previous budgets is to note that we have to be competitive with the United States. So this is an area where we should look hard at their tax regime—not just their published corporate tax rate, because that doesn't tell you very much about the actual real tax structure—and what it would mean for capital investment.

It is a bit of a problem to keep extending this for two years. It is a definite benefit and my companies are very pleased it's there. It is having an impact on investment. But for a company that's actually thinking about an investment five years from now, it can't factor that in. The way a company operates, if it's looking at an internationally competitive situation, it will say, is this on the table or not on the table? And we could say, they kept extending it every year and it's pretty certain that it will be extended. Sorry, I can't count that. The accountants can't count that way. You either have it or you don't have it.

Right now we can count it to only 2015. So it would be better to have it as a longer-term solution and to have that kind of discussion with the government.

There is an opposite view out there that you must have a tax system that links to depreciation, and there are some sacred cows out there on this subject. We need to have that kind of discussion as to what is really required to get long-term major capital investment in the manufacturing industry.

10 a.m.

NDP

Murray Rankin NDP Victoria, BC

Thank you.

Do you have anything to add, Mr. Lavoie?

10 a.m.

Director of Policy, Manufacturing Competitiveness and Innovation, Canadian Manufacturers and Exporters

Martin Lavoie

To go back to what he just said, I think you at least want to have a level playing field, with rules that allow depreciation similar to that in the U.S. I think as long as the U.S. has its bonus depreciations, which he referred to and which were renewed last December for another year I think, you want to get this ACCA the way it is.

When we go back to the traditional method of amortization, I think we need to look at that more as being within a productivity framework than as being an economic stimulus. I mean that you might even be looking at the classes of assets that have the most potential for increased productivity. I'm thinking here of ICT equipment used in production facilities and stuff like that, not only because you want a level playing field with the U.S., but also keeping in mind that a piece of ICT equipment used in a plant might not have a life cycle of 12 years. It might actually have a life cycle of four or five years, so you want to reflect that as well.

10 a.m.

NDP

Murray Rankin NDP Victoria, BC

It sounds like an argument for a major study on the whole ACCA regime in Canada, but that's a bigger question.

In the time available, Ms. Proud, I'd like to ask you a couple questions if I could.

In your opening remarks you talked about a couple of things I wouldn't mind a little bit of elaboration on. You talked about specific product exemptions, and you used the canned tuna example.

Have you given any thought to what criteria you might use for such a class of exemptions? They could be sort of ad hoc: tuna here, sandals there. Have you given any thought to what those criteria might be?

10 a.m.

Vice-President, Federal Government Relations, Retail Council of Canada

Karen Proud

We are in the process—and we have told the department this as well—of developing another submission around the GPT in which we would look at exactly that. Certainly one criterion would be that there are no alternative sources for these products. So for tuna, there are other sources, but we know that canned tuna is a staple for many Canadian families so we're trying to be reasonable working with what the government has proposed. But the areas in which we think it's going to have the most impact on Canadians and consumers, in which we fear cross-border shopping might be driven by it, are the sorts of areas in which we would be looking for product exemptions.

10 a.m.

Conservative

The Chair Conservative James Rajotte

Go ahead very briefly.

10 a.m.

NDP

Murray Rankin NDP Victoria, BC

I was going to take you up on something you talked about in response to Mr. Brison, which was reduced costs to help people in the cross-border shopping area.

I wonder, given that these tariff changes are allegedly going to mean 3% greater costs on affected items, whether a wholesale review might be required in order to adjust the reduced costs? What other things could you do?

10 a.m.

Conservative

The Chair Conservative James Rajotte

Could we have a brief response to that, please?

10 a.m.

Vice-President, Federal Government Relations, Retail Council of Canada

Karen Proud

We had asked the department to do an impact study on what these changes might mean for consumers. We're doing it ourselves, and we will provide some of that information when it's complete.

10 a.m.

Conservative

The Chair Conservative James Rajotte

Thank you.

Go ahead now please, Mr. Leef, for your round.

10 a.m.

Conservative

Ryan Leef Conservative Yukon, YT

The first question will be for the CME. In your opinion are the countries that have been removed from the GPT generally considered to be developing countries?

I think we glossed over this a little bit in terms of Canada's trading position or use of this as a better leverage position for our ability to sign free trade agreements. Can you expand on how removing them from the GPT will enhance these free trade agreements or trade positions with those countries?

10 a.m.

Director of Policy, Manufacturing Competitiveness and Innovation, Canadian Manufacturers and Exporters

Martin Lavoie

As I mentioned, our view in most domestic policies that relate to an international negotiation is that you want to have at least the same treatment for foreign companies as for Canadian companies abroad. If we don't have that, why would another country sit down with us? What would be in it for them? That would be my first statement about that.

I would like to go back to the point about no other sources of supply, because there's great potential in manufacturing right now with new innovations, with new machinery, with new ways to set up your plants. You can actually repatriate some of the work from developing countries. You're seeing that not only in the U.S but in Canada as well.

One of our members in Montreal, Mega Bloks, which makes toys, has actually invested $30 million in its plant. So it has been able to repatriate two lines of production from China, because labour costs are also going up in China.

The argument that there are no other sources of supply doesn't mean there couldn't be another source of supply in Canada, if we could get the right tax treatment of capital expenditures and stuff like that. I want to be careful with that. What's in China now is not going to be in China for 2,000 years. With the right machinery and with the right people, we might actually repatriate some of it in Canada. I think there's potential there we need to keep in mind as well.

10:05 a.m.

Conservative

Ryan Leef Conservative Yukon, YT

Mr. Paton said that the ACCA keeps us in the game and that our corporate tax structure—or rate—is far less than that of the United States. In fact it's almost half of that. But are there other things that keep us in the game beyond those two things? For example, do we have a skills advantage that we can deploy? Does Canada have better geography or access to shipping? What other things beyond these two things keep us in the game, and what can the Government of Canada do in terms of legislative or policy development to help make sure that we keep our place in the game? And where can we improve?

10:05 a.m.

Director of Policy, Manufacturing Competitiveness and Innovation, Canadian Manufacturers and Exporters

Martin Lavoie

I will mention one thing the government can look at in particular, which is the complete elimination of capital expenditures used for R and D purposes. Under the SR and ED program, this will be completely eliminated starting next year. This year you might see an increase in capital expenditures for R and D because it's the last year that companies can take advantage of it.

When I looked at the list of 26 countries that provide tax incentives for research and development, only four out of 26 don't have some kind of capital incentive for R and D purposes. You may want to consider either keeping the capital expenditure under the current SR and ED program, given that it costs $50 million a year according to Finance, or you can do what four other countries like the U.K. are doing: use the ACCA mechanism for machinery and equipment used for R and D purposes, not for processing or production. I think it would be a tax incentive.

As I said, Mega Bloks didn't bring back its fabrication here without having some knowledge of the way to set up their production lines and what kind of machinery to use. That would be my suggestion. This is the only place where Canada doesn't have anything.

10:05 a.m.

Conservative

Ryan Leef Conservative Yukon, YT

Ms. Proud, you talked about modifying the rules of origin. Can you explain that for me, as it's not really clear to me?

10:05 a.m.

Vice-President, Federal Government Relations, Retail Council of Canada

Karen Proud

It's highly complex, but when countries are removed from the general preferential tariff treatment, there could be an effect on products that are sourced from countries that are considered the lowest developed countries.

The government answered our request to look at the rules of origin for that, and they've addressed that in textiles and apparel, and we're grateful for that. We've asked them to take it one step further and look at the rules and origins for other products. This is part of what we're doing in working with the department to try to put forward a list of the areas we're really concerned about, where they might want to consider making those changes.

That's where the percentage difference is highest. It's not the 3% on the changes from the Chinas, but the 18% to 20% where there's currently a zero tariff rate, that we're most concerned about.

10:05 a.m.

Conservative

Ryan Leef Conservative Yukon, YT

And your initial list was positive—