Finance Committee on Oct. 31st, 2011

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Yes, but what you're also saying is that if we look at the figures, there is a deficit that is larger than the funding that is provided now. That deficit increases, obviously, unless the federal government provides new funding that it isn't providing right now.

[The Chair, Conservative, James Rajotte]

A brief response, please.

[Richard Joy]

I think we're seeing that the quantum of investment over the last five years or so is historic. It actually is getting us in the right direction. It's only that it's not long-term.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

Thank you, Mr. Julian.

We'll go to Mr. Adler, please.

[Mark Adler, Conservative, York Centre, ON]

Thank you, Chair, and thank you to the witnesses for appearing here today.

I want to begin my questioning with the Canadian Chamber of Commerce.

We see that corporate tax revenues are up in this country. More corporations are investing in Canada. This morning StatsCanada announced that the economy grew by 0.3% in the month of August. Forbes has rated Canada the best place to do business. The Economist Intelligence Unit has said the same thing. The World Economic Forum has said the same thing. Today in the Financial Post we see that Canada is named a hot spot for entrepreneurs.

Can you explain why all these conditions exist in this country and how our government policy has contributed to these beneficial conditions for business and how lower taxes and fighting the deficit will enhance those conditions moving forward?

[Tina Kremmidas]

Yes. Thank you for your question.

There's no doubt that the actions taken by this government as well as previous governments of all political stripes, not only at the federal level but at the provincial level as well, have done a lot to enhance Canada's competitiveness, in particular Canada's tax competitiveness.

As we know, corporate income taxes are the most destructive taxes that exist from an economic policy perspective. They have detrimental impacts on productivity and job creation, on investment in general. Jack Mintz, for example, has done a number of studies to illustrate that, and there are also studies from Finance Canada, the OECD, the World Bank. Many organizations have shown the detrimental impacts of corporate taxes.

It's the combination of the reduction in the general corporate income tax rate and the elimination of capital taxes at the federal level. And a lot of provinces are almost there in terms of eliminating their capital taxes. There are very favourable capital cost allowance rates and the elimination of tariffs on imported manufacturing and processing equipment. All that has combined to result in Canada having the lowest effective tax rate in the G-7, and that in itself is going to provide a tremendous boost to business investment. We've already seen that in job creation in Canada on a going-forward basis.

[Mark Adler, Conservative, York Centre, ON]

You would agree then that increasing taxes at this point and increased deficit spending would be reckless, to say the least?

[Tina Kremmidas]

Increased deficit spending at this point would be detrimental, not only in terms of causing a deterioration in consumer business confidence, but also in terms of Canada's long-term growth potential. It would be the wrong way to go.

[Mark Adler, Conservative, York Centre, ON]

Since 2006 our government has negotiated about nine free trade agreements, and we're also talking at the moment to China and India. The official opposition party has been against all trade agreements that this government has negotiated. Could you talk about how important free trade is to your members?

[Tina Kremmidas]

Trade is obviously extremely important to our members, but the issue that's critically important at this time is to diversify trade.

As we know, the U.S. economy has slowed significantly. But on a going-forward basis, I don't think we're going to be seeing very aggressive economic growth in the U.S. It's going to be moderate growth at best over the next five years at least. We need to diversify our trade away from the U.S., and Canadian businesses have been doing a lot to diversify trade.

Exports to the U.S. now count for about 70% of Canada's exports, which is significantly down from the 80% we're used to seeing.

We need to put a lot more emphasis in terms of aggressively pursuing free trade agreements with countries in Asia, but also to ensure that we have a successful conclusion to the European trade agreement. Tremendous benefits for Canada will stem from that.

[Mark Adler, Conservative, York Centre, ON]

It is clear that the government's on the right track then in diversifying away from the U.S., as you have indicated. You agree with that.

[The Chair, Conservative, James Rajotte]

Okay. Thank you, Mr. Adler.

We'll go to Mr. Brison, please.

[Scott Brison, Liberal, Kings—Hants, NS]

Mr. Chair, to Mr. Adler's point, we had a 0.3% increase in the economy and GDP in August, but if we had not had the 2.8% growth in the energy sector, we would actually have had a decline. We've had a decline, in fact, in wholesale trade, in manufacturing, in utilities, and in tourism. Retailers are finding it tough in places like Ontario and the Maritimes.

There continues to be a real challenge with the emergence of two economies in Canada. You have the natural resources-based economies in Saskatchewan and Alberta and some parts of Newfoundland. And the other parts of the country are falling behind. There continue to be real challenges.

Ms. Brisebois, I'd like to ask you about payroll taxes. Your organization has been active on the payroll tax issue. The government is currently planning to increase payroll taxes by $1.2 billion in January. With unemployment rates still quite high in large parts of the country, and continuing to be higher, in fact, than they were three years ago, is your organization against any increase in payroll taxes at this time?

[Diane Brisebois]

Again, I seem to be repeating myself. There are two answers to that question.

First, retailers, when asked, would always be against an increase in the payroll tax. However, saying that, retailers also understand that in fact a healthy system should have a reserve and should not be relying on a deficit, and the rates shouldn't be moving up and down like a yo-yo, depending on the economy. So while it's a difficult pill to swallow, and while it will have some impact on the sector, it's even more important to build a system that will have a longer shelf life, so to speak, and a healthier reserve.

[Scott Brison, Liberal, Kings—Hants, NS]

Would you propose that we have a longer horizon for self-balancing in the EI fund, as opposed to having an EI fund that has to effectively raise rates during times of high unemployment? Would it be better to have a longer horizon for self-balancing?

[Diane Brisebois]

On that topic, we've been part of some very interesting discussions about EI with the employer groups. I think everyone agrees that if we could have a substantial reserve fund within a short period of time, it would be the best-case scenario. But obviously it would have an impact on employers and employees.

I think that generally there is a consensus that a five-year horizon would be appropriate. I think the best solution for employers is transparency, predictability, and obviously an ability for them to employ more people versus fewer.

There is an understanding that there's a deficit and that it needs to be addressed. Most importantly, we need to make sure, as you mentioned, that it doesn't go up and down constantly.

[Scott Brison, Liberal, Kings—Hants, NS]

In terms of building infrastructure and bringing in investments at the community or regional level, do you support the proposals we've seen for green bonds? They would be part of a public-private partnership approach to helping fund some of these municipal and in some cases provincial investments in green infrastructure.

[Richard Joy]

I certainly think that bond instruments are things we support. But ultimately, they have to be paid back, so there has to be a strategy to pay for those as well. That's something we've certainly raised, particularly with the provincial government.

[The Chair, Conservative, James Rajotte]

Go ahead, Mr. Gilmour.

[Brent Gilmour]

QUEST recognizes that communities across Canada have a challenge in how they might be investing in those bonds if they have already utilized their existing capital resources, or as in one case, potentially, their assets, in terms of what's available from reserves. That stated, one of the key things we would be encouraging is the acknowledgement that bonds are a good way, because they provide an alternative financing mechanism. They would provide diversity for communities across Canada and in the provinces that are engaged with those communities.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

Thank you, Mr. Brison.

We'll go to Mr. Jean, please.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Thank you, Mr. Chair.

And thank you, witnesses, for attending today and answering our questions.

My first question relates to the infrastructure question that Mr. Julian asked earlier. We had a $123-billion deficit identified by the Federation of Canadian Municipalities back in 2004. Of course the Conservatives took over government in 2006 and tried to identify and deal with that infrastructure deficit through the $33 billion of infrastructure stimulus or another $12 billion of infrastructure stimulus, and brought about a mechanism of making the gas tax permanent. In fact, that goes back to 1999 or 2001, to James Moore, when he first suggested that. Of course he's the Minister of Heritage now. But it was a great suggestion, and think we've implemented that.

Notwithstanding that, I think we all know—and Mr. Julian's smiling, because he knows what's coming next—that the NDP voted against all of those measures. In fact if they had been the government at the time, none of that would have happened. None of the $45 billion stimulus would have happened.

The mechanism itself for the $2 billion ongoing security for municipalities, the gas tax fund, is that a good mechanism to look at other avenues as the delivery mechanisms for communities and to get the money back right to the source?

[Richard Joy]

I think the gas tax mechanism is effective. It flows, in the case of Ontario, through the Association of Municipalities of Ontario, and is distributed with fewer strings attached on a project-by-project basis, which I think is something that is seen as very good and positive. So if that were the mechanism for increasing a commitment to urban infrastructure, to transit infrastructure in particular, I think that would be very positive.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Thank you.

Now in relation to post-secondary education, Mr. Smoke, I have a question for you.

I'm from northern Alberta, so I'm not from the big city, I'm from a small place. I have three children. I've encouraged them all to stay out of law—I'm a lawyer. I've encouraged them all to not get an MBA—I have one of those. And I've encouraged them all to stay out of the sciences. That might not be a popular thing, but the reality is the jobs in my area are all jobs with hands on, operating Cats. People make more money driving a truck than they make as a lawyer, and I've encouraged them to do so. Many of my relatives are aboriginal, as well, the Dene Band and the Cree Band, Janvier Indian Band, and almost 15% of Syncrude's workforce is aboriginal at this stage and a great success story in that area.

Do you not see the opportunities for post-secondary education being more along the trades line for the future of Canada? Ultimately, we need people from all sectors of life and all types of jobs, but the reality is the future for Canada, at least in the west, is primary resource industry, and that's where the money is. Would you not encourage those people to do that?

[Patrick Smoke]

I'd actually disagree. There's this argument, you know, get into the trades, there's a void that needs to be filled, but we're trying to meet the needs of our communities. What use is a plumber when you don't have running water in your community?