Finance Committee on Oct. 7th, 2014

[Jayson Myers]

You go ahead.

[Karen Atkinson]

Thank you.

Our members have told us that it has caused reductions in their R and D spending in Canada, both in terms of real jobs and, more importantly, in terms of longer-term projects. Although the SR and ED program is complex and can be cumbersome, the main thing that our members value about the program is that it does offer some predictability and a consistent way of ensuring development across all sectors.

That is true for both large R and D performers, who really are the backbone of innovation, because when those companies grow, fail, undergo changes, they generally spawn new smaller technologies, and for the SMEs because they need the larger companies there to provide support and technological expertise as they fail, which they always do as they go through innovation.

[Jayson Myers]

I'd focus particularly on the elimination of capital expenditures from the SR and ED. I know the logic behind it, at least in the Jenkins report, was to make it easier to file and to remove some of the complication from it. But I can tell you for many of our companies if they're going to make R and D investments the issue is not necessarily whether or not they would make the investments; it's whether they would make the investments in Canada.

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

Thank you very much.

Mr. Myers, making permanent the accelerated capital cost allowance, would that increased certainty help your members invest in innovation and productivity enhancement in Canada over the current situation of two years?

[Jayson Myers]

Yes, I think it would. In many companies, like Lorraine's and Kevin's for instance, the investment horizon or planning cycle may take four or five years to do and, of course, you're not eligible for the accelerated writeoff until the equipment is actually in place.

So there are many companies that can't take advantage of this in their planning cycle and, therefore, revert to the old 30% depreciation rule in their business plans, which makes it more difficult to secure the investment.

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

Great stuff. Thank you very much.

Mr. Murphy, we have two trends right now that I think cooperatives might be able to help us address. One is that 50% of the small businesses in Canada will be sold in the next 10 years, which creates a lot of economic uncertainty.

Secondly, we have sustained high youth unemployment and underemployment issues. Could the cooperative movement and this $50 million be leveraged in such a way that it could help management and workers within these small businesses form cooperatives to succeed and take over small businesses that are currently in play?

[Shawn Murphy]

Definitely. The models that we have used to create this national fund are based on several provincial and regional funds that currently exist. One of the great examples is Arctic Co-op. It's based in Winnipeg, but as the name implies it deals with the territories and it's exactly that. So where a small business in a community, say a local grocery store, is about to shut down and the employees want to develop a workers' co-op to take over that business, this is the exact intention of the fund. It is to help those workers out.

The workers themselves don't have the capital to come to the table and buy the business outright, so they need that extra little help. If they go through a bank or a credit union to get that loan, the banks simply say sorry, and even the credit unions will say sorry. So the fund is to be on the side to assist with that group to access that capital.

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

Thank you very much.

Mr. Mueller, you were saying that Canada is not doing as well as the U.S. in terms of investing in green building. First of all, when the eco-energy retrofit grants and tax credits were operating, did they help? Did the cancellation of those lead to a reduction in those kinds of investments?

Secondly, how can government procurement help create more green investment in general, but also more greening of design and construction in Canada?

[Thomas Mueller]

Thank you.

I think the cancellation of the grant has certainly had an impact on activity, particularly in the housing retrofit sector. It did provide the seed funding to homeowners to do the audit on what needed to be done, and then additional funds to actually see through on the audit. It was advantageous because the homeowner had actually made quite a significant investment in the home to get a better-performing home, particularly on energy.

With the disappearance of the grant, obviously that is no longer the case. Some provinces, I think, are still maintaining a program, but not to the same extent. In terms of the housing retrofit sector, we have 12 million homes in Canada, so it's a big sector with lots of emissions, lots of energy and water use and so on. So it hasn't had a positive effect, and it hasn't really been replaced in a meaningful way with anything that we have seen.

So in housing, there are many homeowners who go through our programs but mainly on the new construction, because we don't have a retrofit program. We're trying to get the new housing stock to be better-performing, but the existing housing stock is in big need, not of figuring out how to do it but actually incentivizing to do it. We know how to do it; we just need the seed funding to actually follow it through. We need money for energy improvements.

On your second question—

[The Chair, Conservative, James Rajotte]

I'm sorry, we are over time. We'll have to return to that.

I apologize, but I'm trying to be fair to every colleague. Sorry.

We'll go to Mr. Keddy, please.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you, Mr. Chairman.

Welcome to our witnesses.

I'll just continue to pick up on Mr. Brison's theme—for a moment, at least.

[Voices]

Oh, oh!

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

I'm not sure that the whole idea of green building is one that we have to sell to Canadians. I think Canadian consumers have already bought in. Your own statistics show that in 2011, 27% or 30% of projects were green. In 2017 you're expecting 71% of projects to be green. People are not putting in oil furnaces, but geothermal heat. People are buying air exchanges now, because the quality and the technology are so superior to what they used to be.

So you know, we can legislate until the cows come home, but how much of this will be consumer-driven?

[Thomas Mueller]

How much of it will be consumer-driven? In terms of the average consumer, who is the homeowner, we estimate that probably about 20% to 30% of homeowners are interested in having better homes. There are more products and technologies available now to green your home, from flooring to all kinds of furnaces and so on. But that's new construction. We talk about the retrofit of existing homes because they are the bulk of the 12 million homes that already exist. How can you improve the performance there? It's quite different; our energy prices are very low, so there are not favourable paybacks for homeowners. There is investment required to actually reduce the energy use. In Canada, because of climate mainly, in heating and cooling loads we do rank fairly high globally in terms of energy use in buildings.

I think the consumer-driven approach will be limited just because of the low energy prices; it will be until they go up. The driving comes actually from the commercial sector right now. It's the developers, it's the landlords who want to make a bigger investment in buildings. They want to have access to better and better technologies that are homegrown and where they don't necessarily have to deal with technology and products that come from China and Europe. If there's a big issue, they can be better serviced and they also get the results they're looking for.

You're talking about very low-energy buildings. For very advanced buildings, where investments are at half a billion dollars per building, they want to be very high-end. The strive is to be net zero, to be net positive, across the commercial office sector right now.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

I appreciate that, but I have to cut you off there for a second, because my point was that a lot of this will be consumer-driven. I truly believe it is consumer-driven, and I would disagree on the energy prices. Energy prices may be inexpensive when compared with other jurisdictions around the planet, but energy prices are expensive compared with what they used to be in Canada.

Even on retrofits and new rebuilds, you're putting in thermal pane windows and doing everything you can do to bring your energy costs down. In jurisdictions like New Brunswick, like Ontario, like Nova Scotia, where energy costs are high, you'll do everything you can, and that should feed into your business all by itself. I'm not sure if government regulation of it is just some overkill.

But I appreciate your—

[Thomas Mueller]

We're not asking for regulation; we are asking for market-driven solutions. The council is well known. We do not ask for regulation. We certainly support increases in the building code, as they apply to all buildings in Canada, but we are really looking for market-driven solutions, because as I said we know how to do it. We know how we get a return on the investment. Just home retrofit is not a place where you have a big return on your investment. In the other sectors you do get that.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you. I appreciate that.

Mr. Myers, welcome back to this committee. It's good to see you. One of the asks you have is that the 50% straight-line depreciation rate be made permanent. If we look at that, make it sustainable, make it predictable, do you have any numbers that would prove what you see, to predict what the increase in use by business would be? I guess that is the question I want to ask.

[Jayson Myers]

Since 2007, we've seen approximately 8,000 manufacturing establishments disappear from Canada as a result of the recession. Yet on the other hand, we're at record levels right now of investment in new machinery and equipment. That investment has increased from approximately $8 billion to $15 billion over the last five years. So I think a great deal of that is the need to retool and to invest in new technology. I wouldn't want to say that the accelerated depreciation has been the only factor, but I think it has been a very important factor in that. There are some companies where it doesn't figure into a long-term investment decision, and I think giving some certainty there would help to secure even more investment as a result of that.

The best case would be to make the existing system permanent. I think we also need to take a look at it more strategically in the way that, if we do go back to some form of a declining depreciation system, at least we are as competitive as the United States. Frankly, if we do go back to a declining depreciation balance, that would mean a 45% rate on a declining balance. That would make us at least competitive. I think we should be more competitive.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

Thank you, Mr. Keddy.

We'll go to Mr. Rankin, and we're going to do five-minute rounds.

[Murray Rankin, NDP, Victoria, BC]

Thank you, Mr. Chair.

Thank you to all of the witnesses.

I'd like to start with Mr. Mueller of the Canada Green Building Council and invite you to complete the answer to my colleague, if you can remember what the question was. If not, I have an open-ended one that might get you there.

[Thomas Mueller]

I do remember the question. It's a very easy answer. I think that the Government of Canada is one of the largest building owners in the country, if not the largest one, and the Government of Canada also leases a lot of office space and so on. It's an opportunity through procurement to require high environmental standards for the office space, or the spaces that it leases. It doesn't make sense for all building types, but for office space it certainly does, because that contributes not only to your pocket book, but it also contributes to the well-being and productivity of the employees who work in those buildings.

[Murray Rankin, NDP, Victoria, BC]

I was trying to formulate a question for you as well on a broader level. You came and your presentation was excellent—your brief, that is—and you say Canada is not very aggressive in this field compared to Australia. I think those were your words. You said that you are seeking market-driven solutions. You mentioned that the building code is one change that you might be interested in. So I guess my open-ended question to you is this: what should the federal government do, beyond the procurement idea, to incent the green building revolution?

[Thomas Mueller]

There are two items that come to mind immediately. One is to establish a centre of excellence around research in sustainable construction. I know there are federal programs around a centre of excellence. I mean there's the NRC that has the Institute for Research in Construction. Invest in that more, because there's a commercialization component to it now, which is very good, working directly with the industry as these technologies and products are applied.

The other one is the Energy Star program that's now in Canada and has been applied through Natural Resources Canada. It provides benchmarking services to the industry. That again is a program that could be in the next budget, that could be further supported and expanded, as well as consideration of techniques and practices such as building labelling, which would really help in driving this market forward.

[Murray Rankin, NDP, Victoria, BC]

Thank you. I appreciate that.

Mr. Myers, your fourth recommendation was for the establishment of a capital investment fund, and I was a little unclear about that. Are you suggesting a joint industry-government program? How much money were you thinking of, and is this open to the criticism that governments are being asked to choose winners, which is oft criticized?

[Jayson Myers]

First of all, I think governments around the world are playing a role as a partner in investment, and often that money doesn't have to be that large. Here we have maybe three major funds that have been put aside that support very important sectors of industry, particularly the automotive investment fund and the aerospace funds. They're structured so that the government can play a role in securing an investment, and it's important if that's a strategic investment that drives an awful lot of suppliers and service companies. The footprint of those investments are very large. Our recommendation is to have a discretionary fund, a structured fund, where the government can play a role in an investment. Perhaps a quarter of a billion dollars per year would allow the government to actively make an investment where necessary.