Finance Committee on Oct. 1st, 2014

[Pierre Patry, Treasurer, Confédération des syndicats nationaux]

Thank you kindly, Mr. Chair.

The Confédération des syndicats nationaux , or CSN for short, would like to thank the Standing Committee on Finance for the opportunity to share its position as part of the pre-budget consultations for the 2015 budget.

The CSN is a trade union federation made up of nearly 2,000 unions representing some 325,000 workers. In my short presentation, I will speak to five themes that, in our view, should receive special attention in the next budget.

In its last budget, the federal government announced recurring and sizable surpluses beginning in 2015-16, as well as the gradual diminishing of the debt. This situation is the result of major cuts to government spending in the name of fiscal restraint. In addition to the impact those cuts had on jobs and working conditions in the federal public service, the government spending reduction strategy hurt public services and programs that are essential to the well-being of Canadians. The strategy's effects on Radio-Canada and federal detention centres are just two examples.

From the CSN's perspective, the government's obsession with balancing the budget and eliminating the debt clearly illustrate the government's desire to diminish the role of government. Government spending as a share of GDP has continued to drop and has hit an all-time low. That said, the federal government's budgetary outlook also denotes a fiscal imbalance with the provinces. As the provinces are called upon to respond to growing demands, the federal government has freed up significant room to manoeuvre by withdrawing their support from a number of programs, at the provinces' expense.

The federal government's unilateral decision-making when it comes to equalization payments and the Canada health transfer have had serious consequences on all the provinces. In Quebec, the fact that two caps have been imposed on the equalization program has deprived the public purse of $8.6 billion since 2009-10. Estimated losses resulting from the changes to the Canada health transfer will hit nearly $10 billion over the next 10 years.

Furthermore, the federal government announced that it would hold the indexing rate for the Canada health transfer and Canada social transfer at 3%. The social transfer helps to fund post-secondary education and social assistance. Even after allowing for inflation, these amounts are lower than they were in the mid-1990s. For Quebec, that means an annual shortfall of some $800 million.

It is clear: the federal government's decisions to pull back from financial commitments represent substantial amounts. The CSN considers this unacceptable. We are calling on the government to enter into talks with the provinces swiftly to rectify the fiscal imbalance. The equalization formula needs to be revised. The federal government also needs to improve health and social transfers.

I will now turn to the second component: jobs. With growth prospects being modest and weak, the state of the labour market is less than stellar. Job growth has been sluggish, and for over a year, any new jobs that have been created have primarily been part-time jobs. It is obvious that the many tax breaks granted over the years have not produced the expected results as far as private investment, enhanced productivity and high-quality job growth are concerned.

Corporate cash flow is not the thing that is lacking; demand is what remains weak. The government needs to change course and develop a true industrial strategy. Such a strategy must promote a strong manufacturing sector and support its development, including in Quebec. And larger investments in infrastructure would, without question, be a way of achieving that.

It is also crucial that the government make it an immediate priority to transition to a sustainable economy that produces fewer greenhouse gases and that it adopt serious measures to that end. The government must also ensure that such a transition generates green jobs.

For a number of years now, the CSN has, together with other groups, been calling for improvements to the EI system. The current state of the job market requires a total overhaul of the EI program, which is clearly not meeting its objective of providing income protection to the unemployed. It is unconscionable for the program to run a surplus when fewer than four out of ten unemployed workers receive benefits. The surplus must be used to enhance the program, not to lower EI premiums.

Today, Canada is among the lowest ranking OECD nations when it comes to the growth of income inequality, a situation that should concern the government. As institutions such as the IMF and the OECD now acknowledge, significant inequality hurts growth.

Before I wrap up, I would be remiss not to mention the government's decision to gradually eliminate the tax credit for the purchase of labour-sponsored fund shares. It is hard not to see the government's decision as an ideological one. Quebec is home to the two largest funds. They were set up by unions and do not focus exclusively on for-profit businesses; they also support social economy enterprises, cooperatives and specialty funds, particularly in the clean technology sector.

That is especially true in the case of Fondaction CSN. As the CSN sees it, the elimination of the tax credit reflects the government's contempt for the Quebec model. It is imperative that the government reverse its decision.

In conclusion, I want to express our concern over the fact that, in recent years, the government has made a habit of introducing mammoth budget implementation bills that very often contain measures unrelated to the budget. We question the use of such a practice in a democratic system.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll now hear from Mr. Petrou, please.

[Andrew Petrou, Executive Director, Downsview Aerospace Innovation and Research]

Mr. Chair, I would first like to thank you for this opportunity. I am here today representing DAIR, the Downsview Aerospace Innovation and Research consortium. The consortium represents four leading academic institutions along with nine industry leaders which have come together with the mandate of establishing an aerospace hub at Downsview Park.

DAIR's mandate is a direct reflection of the Emerson aerospace review as cited in recommendation 17 which states that such a hub “would leverage Ontario's very best educational institutions in a unique partnership designed to develop innovative new technologies, aid in workforce training and skills development, and participate in supply chain development activities.” It goes on to say that this hub would provide an anchor point to a proposed aerospace technology corridor between Toronto and Montreal and across Canada to enhance the capabilities of all.

DAIR's mandate and the Emerson report indicate that Canada's aerospace sector is at a turning point and there is action to be taken in order to ensure that Canada can continue to meet industry needs and maintain a competitive advantage in the global aerospace sector.

Currently, Canada is among the leading aerospace nations in the world. Its aerospace industry is the fifth largest, and the second largest relative to the size of the economy.

The industry generates $22 billion in annual revenues, employs a workforce of 66,000, exports 80% of its output, and is the second most research-intensive industry in Canada. It includes the world's third largest commercial aircraft manufacturer, Bombardier, and a wide range of global leaders. It is a strategic sector in every sense of the term.

Yesterday's achievements, however, are no guarantee of tomorrow's success. The conditions that have prevailed over the last several decades are being replaced by new and fundamentally different global trends that are dramatically changing the competitive landscape. Examples include an industry that is set to double by 2020, but has the challenges of an aging workforce. For example, the Bombardier facility in Toronto which currently employs 4,000 people will have one-quarter of its workforce who will be eligible for retirement within the next five years.

Other challenges that we are facing include competing global markets, and a need to move small and medium enterprises up the supply chain, as future major platforms prefer to deal with large companies.

DAIR has proposed the development of an aerospace hub at Downsview Park as the solution to the challenges previously mentioned. The proposed hub is a place where aerospace industry and academic stakeholders can co-locate for the purpose of increased collaboration and enhanced opportunities for advanced R and D and commercialization. There are three primary building blocks of the Downsview aerospace hub: academic institutions, industry, and the DAIR innovation centre.

Downsview Park, under Canada Lands Company, is considered a strategic location as it is endowed with ample area for development within city limits, an existing runway, close proximity to expanding TTC and GO transit, and a current Bombardier aerospace presence which is expanding to include two new assembly lines.

The Department of National Defence and Defence Research and Development Canada are also on site. Downsview Park has a long history tied to the Canadian aerospace industry as it houses the historic de Havilland building. To date, the province has awarded Centennial College $26 million towards the repurposing of this historic building to develop a training facility for our future workforce.

The DAIR working group meetings have already been productive with space and aerospace companies collaborating, and universities and colleges looking at the creation of hybrid programs and research projects that will benefit multiple stakeholders. DAIR has also assisted the province in promoting aerospace to potential international companies as they look for expansion into Canada. At a local level, the Downsview hub would have a positive impact on the surrounding neighbourhoods, with several having been identified as high priority.

In order for the hub to become a success and strengthen Canada's position as an aerospace leader, DAIR is requesting a financial commitment from the federal government of $60 million over five years towards the repurposing of existing facilities at the Downsview site in order to create this hub.

According to the business case written by KPMG in January 2014, the creation of the aerospace hub at Downsview Park is projected to facilitate the development of up to 14,400 sustainable jobs and provide direct, indirect, and induced benefits of up to $2.3 billion over the next 20 years. Therefore, it is evident that the creation of the aerospace hub can provide a viable and sustainable solution to the skilled labour needs and will increase the competitive advantage in the aerospace industry for both Ontario and Canada.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll now hear from our last presenter, Mr. Feridun Hamdullahpur.

On behalf of the committee, welcome. You may start your five-minute presentation.

[Dr. Feridun Hamdullahpur, Chair, U15 Group of Canadian Research Universities]

Ladies and gentlemen, thank you for the opportunity to appear before the committee.

I'm here as chair of Canada's U15 group of research-intensive universities, a role I fulfill in addition to my role as president of the University of Waterloo.

As you may know, this is the second time our organization has appeared before the committee. The first instance was an appearance last year by my colleague Elizabeth Cannon, U15 vice-chair and president of the University of Calgary, to advance our proposed advantage Canada research excellence fund. I would again like to thank the Government of Canada for delivering on this recommendation by way of the Canada first research excellence fund in budget 2014.

Canada's U15 universities serve as a collective voice of Canada's research-intensive universities, representing $5.3 billion in university research undertaken annually in Canada. Our role is to advocate for the provision and sustainability of a robust environment for Canada's research-intensive institutions, as these universities deliver immense value for Canada through knowledge creation and innovation, and through partnering with government and industry to give Canada's economy a competitive edge in the global marketplace.

U15's intent in appearing before the committee today is not to deliver a specific ask to the panel's members. Rather, our goal is to emphasize the achievements resulting from Canada's support for our overall research and innovation ecosystem. This is the ideal venue to do so, as it is fundamental to the committee's mandate of considering how Canada can increase competitiveness through knowledge mobilization, increase the global reach of Canadian businesses, and build new national digital competitive advantages.

I would like to emphasize that over the last several years, Canada's research-intensive universities have undertaken critical steps to better align our research environment with other national priorities, including government and private sector needs. We have delivered on this while steadfastly preserving our perspective that universities are knowledge creators and educational facilities first and foremost.

Canada's research-intensive universities' biggest contribution to the country's innovation ecosystem and to knowledge mobilization is the development of a talented and innovative workforce. U15 institutions alone graduate more than 110,000 people annually, including more than half of Canada's master's degree holders and more than 75% of its Ph.D.s. These graduates find employment with many Fortune 500 companies, in upcoming SMEs across all sectors that are on the cutting edge of developing new technologies, in all levels of government, and in the not-for-profit sector.

Businesses turn to research-intensive universities to help them develop new products and services through faculty consulting, the use of the state-of-the-art facilities available on our campuses, and contract research. U15 institutions conduct more than 80% of private sector contracted university research in Canada.

World-class research excellence is what also allows U15 institutions to create critical international networks and opportunities, and to serve as national strategic assets in helping Canadian businesses to compete. Research-intensive universities develop rich international networks of students, alumni, faculty, researchers, and institutions through research collaborations and partnerships, and through student, faculty, and researcher mobility.

These global networks and the export of research services strengthen and spread Canada's brand as a leading knowledge economy and can create channels for Canadian businesses to take their products and services into new markets.

[The Chair, Conservative, James Rajotte]

You have one minute.

[Dr. Feridun Hamdullahpur]

In conclusion, I would like to emphasize for this panel the critical role the federal government plays in supporting the full spectrum of discovery and applied research and in enabling the development of highly qualified and competitive graduates. This robust partnership between the federal government and Canada's universities is essential to Canada's economic strategy and central to any discussion of research, development, innovation, and commercialization in Canada.

In the excitement generated by CFREF, we must remember that Canada’s granting councils and CFI require sustained, predictable investments to maintain this indispensable foundation for research excellence.

I will conclude my comments by reiterating U15's commitment to supporting Canada's economic competitiveness through strong and extensive research partnership activity with both the private and public sectors, and through fostering a policy and funding environment conducive to innovation and knowledge mobilization.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll begin our five-minute round of members' questions with Mr. Cullen, please.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Thank you to all our guests today.

This will be a bit rapid-fire, so let's go through it. There are a lot of topics on the table today.

Mr. Nantais, with the possible exception of, although not to exclude it, the announcement from Ford today, the thing that stood out most for me in your presentation was your quoting from the Windsor study at the office of automotive and vehicle research that nearly $18 billion was invested worldwide just last year in the building and enhancing of automotive plants around the world, but none of it here in Canada.

Is it your contention that it's the way our tax code works right now and that if it were shifted, Canada would gain greater access to this investment?

[Mark Nantais]

In very simple terms I think the answer to that would be yes.

One thing that I didn't get a chance to mention was the SR and ED credit system. Changes were made to that program which made it less effective than it had been previously.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Specifically what changes? The committee is looking for—this is to all of our witnesses—very specific recommendations that we will forward to the government.

[Mark Nantais]

The changes to the program, to reduce the credit and eliminate capital and other required expenditures from the total, make it less of an incentive to draw and secure new research and development in Canada. For instance, the ability for large companies to exchange unused SR and ED tax credits for direct funding when used for new R and D projects would be an improvement. Ideally, this would include capital assets for research and development facilities, building of new R and D facilities, and/or investment in machinery and equipment for R and D purposes.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

This question is for you, and then Mr. Hamdullahpur. What are the challenges with regard to research and development, particularly in the private sector? Why does Canada seem to lag so consistently behind our competitors with respect to private sector research and development? Maybe Mr. Hamdullahpur will suggest public contributions in research and development also is to the mid or lower range of the OECD.

I have one final question for you, Mr. Nantais, around the single window option. For somebody who is a bit of a neophyte with respect to your industry, why would that be so imperative, and why would that put us on par with places like Mexico and others?

[Mark Nantais]

The single window approach, with ProMéxico as an example, is exactly that: it's a government agency that basically works with all levels of government. It removes any sort of regulatory impediments. It coordinates the incentives that would be given as part of a package, a single package. That would include virtually everything from cash on the table to tax incentives to infrastructure incentives.

We have in Canada—

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Excuse me for interrupting, but is it between the different levels of government as well?

[Mark Nantais]

Correct. Municipal, state, federal: all of these levels of government come together under ProMéxico, as an example. Similarly, Tennessee has done that, and they've been very successful in bringing new investment. Why? They can process applications more quickly. They respond to the companies' needs. Quite frankly, they are very hungry for new investment because of the economic spinoffs that come from automotive investment.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

In terms of that $18 billion that went globally last year, Canada, as it presents right now, is a harder place to land that money simply because the investors, the companies themselves, have to wade through the different levels of government in terms of offers and supports and tax initiatives and translate all of that. Hence, Korean automakers, for example, are building in the U.S. They're building in Mexico. They are not building in Canada as of today.

[Mark Nantais]

Correct.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Okay.

Mr. Hamdullahpur, I wanted to come to you with that question. I pose it as a sincere question. Why does Canada so consistently lag behind, or find itself in the middle of the pack with respect to private sector R and D? Particularly, would you make any connection...?

There have been billions of dollars in tax cuts made to corporate Canada over the last number of years. The previous finance minister noted that this wasn't being recycled back into research and development from those same companies that received the money in tax breaks. Is there any way we can incentivize that as well as support programs like yours?

[Dr. Feridun Hamdullahpur]

This question is the right question. We see this as one of the missing pieces in this entire research ecosystem. It does exist, but it doesn't exist at the level that we believe will really provide a very energetic research environment in Canada.

One of the main reasons, we believe, is that this is a cultural issue before anything else. The private sector will have to understand that innovation will have to be the core of their businesses. If you do not innovate, regardless of how successful the business currently is today it will not continue to be successful in the future.

For many companies around the world, the private sector institutions that collaborate with universities, this is the primary purpose of the collaboration. They're in a constant search for innovation and are trying to find new ways, new methodologies, and new products through university-based research. There are—

[The Chair, Conservative, James Rajotte]

Very briefly, please.

[Dr. Feridun Hamdullahpur]

There need to be policy changes. Nevertheless, I believe it requires a major cultural shift in the private sector in Canada.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Thank you, Mr. Chair.

[Dr. Feridun Hamdullahpur]

I didn't know that I was limited by time in answering the question, so thank you.

[The Chair, Conservative, James Rajotte]

Yes, we're all limited in our time. It's the one constant.