Finance Committee on Nov. 1st, 2011

[Mark Adler, Conservative, York Centre, ON]

You represent 10,000 companies. So you're where the rubber hits the road. Could you give a couple of examples, specific examples, of how this has helped some of your members?

[Dr. Jayson Myers]

I can, and there are a lot of examples. I mentioned Aberfoyle Metal Treaters, which put in a new heat treating centre and is getting the benefit of the two-year write-off to do that. Harry Hall runs the operation based in Aberfoyle. As a result of that, it is now able to do heat treating for Boeing, for a lot of the large aircraft producers, and this is unique in Canada. It has given it a capability that frankly doesn't exist in the country.

What we're seeing now, I think, on the part of a lot of companies.... For example, Promation in Mississauga, a company that was once an auto parts producer and now manufactures most of what they produce for the energy sector, and in fact is one of the leading nuclear welding companies in the world today.... Again, to get to that point requires an awful lot of capital investment, and again, the fact that we've had a two-year write-off in place now since 2007 was a major incentive for them to make those investments. It was an incentive for Celestica in putting in its new solar panel line, and IBM in Bromont, Quebec, which became a centre of excellence within IBM, the only manufacturing part of IBM left in Canada. It's a centre of excellence in microelectronics.

So there are an awful lot of good examples in terms of capital, but what it also does is free up other cash, so that companies like Alco Ventures out in Vancouver can invest in developing new markets, or Mel Svendsen of Standen's Limited in Calgary can invest more in training his employees in new production technologies or health and safety processes. Those are a few examples. I could go on.

[Mark Adler, Conservative, York Centre, ON]

Those are very similar to the kinds of stories I'm hearing from businesses in my own riding.

Let me switch gears a bit. As you know, under the economic action plan, the government has a plan to keep taxes low, to increase jobs, and to make our economy more stable. We're recognized around the world, we're a leader in the G-8, and the IMF just validated our movement towards a balanced budget in 2014-15. The list goes on and on.

Forbes just gave us a triple A credit rating, and Standard & Poor's--all of that. Could you just explain to those who are in favour of increasing corporate taxes what that would do to your members? What would the effect be?

[Dr. Jayson Myers]

It gives them less money to make investments in new product development or new technologies or training their employees.

One of the things we found in some of the analyses, which I think made a difference in our discussions with the finance minister's view of this, if not Finance Canada's, is that if you look at the amount that businesses across the country, especially manufacturers, have invested in new product development, R and D, machinery and equipment, and expansion in terms of construction activity, those investments have been very, very consistent over the past 30 years as a share of cashflow.

Anything that detracts from cashflow means you're automatically going to reduce the investments in the productive assets you need to be investing in, particularly now as companies need to retool to bring new products to market. I think that's the key thing here.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you very much, Mr. Adler.

We'll go to Mr. Hsu, please, for a five-minute round.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Thank you very much, Mr. Chair.

I want to ask about corporate taxes as well. I heard the remark from Mr. Adler about increasing corporate taxes, and Mr. Myers spoke about the connection between taxes and employment and investment.

The Conservatives raised the EI tax rate, I believe, by something like 2.9% in 2011, and we're expecting something like a 5.6% increase in the EI rate in 2012. Do you think that will have an effect on employment and investment?

[Dr. Jayson Myers]

Any increase in cost is going to have an impact on the amount of money that companies have to invest, so, frankly, yes, it does.

One of our recommendations, though, is to take a look at the EI system. I think you could make a very strong argument that a tax credit could be introduced for companies that are undertaking workforce skills development to provide companies that are investing in their employees with a credit against the increases in employment insurance. That's what I think would be a very effective mechanism.

Right now, you have to lose your job before you get retraining. It would be nice to be able to support investment as it was being undertaken at the workplace itself.

So, yes, we are concerned about those increases as well.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Looking at the markets today and what's happening with Greece, it looks like the government might fall later this week. The bailout package is potentially in trouble.

Do your members need that increase in the EI rate in 2012, or do you think it would be safer to delay that?

[Dr. Jayson Myers]

I don't think that increase in EI rates is going to have an overall impact on the rate of employment. I think what we need above all is stability and certainty in the tax system, and in the economy, period. Right now there's a tremendous amount of uncertainty as a result of what's happening in Europe, and of course the impact on China and North America.

In fact, if you look at concern about the economy, I think the perception and uncertainty is running ahead of actual business. Orders are pretty good, and a lot of sectors are expanding right now. That is what's going to generate employment growth here.

Again, anything today that is adding to the uncertainty around investment I think is certainly not a good thing, at a time, in my mind, when we need to be laser focused on what it takes for companies to make these investments and to grow. That's what is going to be important. No company is going to increase employment if they don't have customers, financing, and if they are not making the right investments in new products or skills development or new technologies. I think that's the first consideration here.

[The Chair, Conservative, James Rajotte]

You have one minute.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Let me use my minute to be clear that your members prefer that the Conservatives not increase that tax.

[Dr. Jayson Myers]

Right.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Hsu.

We'll go to Mr. Van Kesteren, please.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Mr. Chair.

Thank you to everyone for coming tonight.

I want to thank the Federation of Canadian Municipalities. During the past couple of years we've had an interesting relationship, at least in Chatham-Kent. I'm sure everybody could share the same types of stories with their federal, provincial, and municipal counterparts. I know that in Chatham-Kent we manage to do an incredible number of projects that are going to benefit the municipality for years to come.

I got your message on the index. I think that's a consideration. I can't emphasize enough that in Chatham-Kent we probably have more bridges than most municipalities, because it's flat and there are tons of bridges. We've seen expansion in sewage and water treatment, and the non-traditional, like the YMCA--things we had to do. We've made those contributions in the knowledge that infrastructure...again, the municipality.

Can you comment on how important that has been, and how that's going to affect your municipalities in the years to come?

[Berry Vrbanovic]

I think it's fair to say that nobody can call into question the fact that there has been significant progress made in municipalities over the last few years in tackling the infrastructure challenges that local governments across this country have. Having said that, I think we equally can't underestimate the incredible importance of continuing to invest in infrastructure in our communities going forward.

The reality is that Canadian municipalities are responsible for over 50% of the infrastructure in this country. As you know, based on a tax system that gives municipal government roughly 8¢ out of every tax dollar collected in this country, it is just not sustainable for us to be able to tackle those challenges and at the same time, together with you and with the provincial and territorial governments, ensure that we put our communities and this country on the kind of economic footing that's necessary going forward if we're going to be able to compete in this global marketplace.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I wouldn't disagree with you, but what I'm trying to lay across are the partnerships, and what worked and what didn't work. I could be wrong, but I don't see any stories of boondoggles; there was just this unique camaraderie. I'm encouraging you to look at those things to see what worked and what didn't work, so if this happens again in the future we can follow that same path.

Mr. Myers, you gave us some good examples of the write-offs and why they are important. You gave us some good examples of companies that took advantage of them.

I want to ask you about free trade and its importance. This government has made it a priority to secure free trade agreements, and we don't always get support for that. If you think that's important, why is it important?

[Dr. Jayson Myers]

It's probably more important than ever before, particularly given the fact that our major trading partner is going through such economic difficulty today. We are seeing companies that are looking for new markets and new customers. In fact, we've seen quite a shift in expectations and priorities, at least in the manufacturing sector. Maybe three years ago the emphasis was on productivity; now everybody is trying to find new customers as well. So those things are more important than ever.

We need to negotiate a new type of trade agreement. The issues are no longer tariffs and simple non-tariff barriers, like quotas. They're much more insidious. There are procurement restrictions, like Buy American, for example, that affect the municipal level and uncovered state levels that are not part of the NAFTA. There's the use of IP, export controls, regulations, and standards. All of these are being used by countries around the world to protect their own domestic industries and effectively put up barriers to trade.

So our trade agreements have to focus on those areas, and those are the areas that we're negotiating with the United States in procurement and border issues, and with Europe. I hope we'll continue to do it with other countries too.

[The Vice-Chair, NDP, Hoang Mai]

Thank you, Mr. Van Kesteren.

We'll go to Mr. Marston.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Thank you, Chair.

Mr. Laporte, I want to thank you for the cautions you've given us here today. I think they're significant. If I heard you correctly, by treating the pensions like a RRIF, we could actually build a systemic deficit into a pension plan. Did I hear you correctly?

[Jean-Pierre Laporte]

It's possible, yes.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

That's very concerning. One of the arguments we make is that pensions are deferred wages, and we can argue that. Sometimes in bankruptcy situations you have almost a pool to tap into to pay other creditors.

This caution is very disturbing. Again, I want to thank you for that.

I'll go to Mr. Vrbanovic.

What I heard from your presentation is that there is a need for a long-term infrastructure strategy, and we certainly agree. Obviously, we need a clear assessment of what the needs are going forward. We have our differences on corporate tax breaks and that kind of thing.

In Hamilton, where I come from, and I'll use the word “neglect”, we have a $2 billion deficit in our sewer systems. That's the kind of thing we're facing. The decisions made by city council over a number of years weren't proper.

On the other side of it, you have places such as Whitehorse and others with populations that can't sustain the infrastructure. So it's very clear that going forward it's going to require an investment on the part of the government as part of a plan.

It occurred to me, when we talked about those corporate tax breaks, that you're not going to see those businesses, which are reaping those rewards, investing in our infrastructure. Really, it is fundamental, as I see it, that there be a better balance between the corporate tax breaks that are out there and the investment required. There are certainly situations in which the lead must be this government. Would you agree with that?

[Berry Vrbanovic]

I don't think I'm going to get into the debate about what the priorities of this government should be in terms of one issue versus another. What I will make a strong case for is what the Canadian municipal government sector needs in communities of all sizes, from our smallest towns to our largest city, the city of Toronto. The reality is that all of our communities have significant needs in terms of infrastructure. As your colleague, Mr. Van Kesteren, said earlier, without a doubt, the kind of partnership we saw in the last couple of years, with the three orders of government working together, is what I believe Canadians are looking for from all of us as elected leaders, so that they can deliver the kind of work that needs to be accomplished going forward.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

I absolutely agree. And part of what the strategy must be is how we come together and how we find that balance. Without throwing anything at the other side, it's very clear that we have to find a balance.

Mr. Myers, I'd like to go to you for a second. In your conversation, you talked about the cashflow of business. One of the things we've repeatedly heard, which I've raised in this committee several times, at least, is the $500 billion estimate of the capital that is being held because of the fear of a credit crunch. How do we find a balance with what the government should take a lead on to encourage business to release some of that money? Do you have any thoughts on that, sir?

[Dr. Jayson Myers]

I'm not sure, in an operating cashflow sense, where that pool of capital is. The numbers actually show that investment is picking up, along with cashflow, and that there has been a consistent share of the cash being invested in capital. Cash on a finance basis, short-term cash, has increased significantly, but so too have short-term liabilities and all liabilities. I think what we may be seeing here are companies holding more short-term cash rather than long-term investments. That's a reflection of maybe how difficult it is to get the money on a long-term basis.

All that being said, the worry right now is that we may be facing another cash crunch and a financing crunch, so companies are tending to be very conservative here. We are seeing investment plans, particularly employment plans, being postponed only because of concern about what may lie ahead as a result of the European crisis. We're seeing right now many of the same signs we saw in 2007, particularly when it comes to customer financing.

The availability of money right here in Canada is a little tight, but it is especially so in the United States. So we're seeing some of those signals already.