Finance Committee on Oct. 8th, 2014

[Bard Golightly]

Unquestionably we as home builders and renovators would love to see it down to 0%, as you said. Remember that when we talk about the ramifications of this, potentially the cash economy is not even pulling permits for this. So touching on your comment earlier about safety and quality, there are checks and balances in the system, were the system to be followed.

With respect to our recommendations here today, what we're suggesting as a first step at least is to target it to new homebuyers, maybe new Canadians, aging-in-place seniors, to specific people who are specifically and unintentionally pressed as it stands right now. I think that would be a step in the right direction, and then evaluation can be made to see how that affects inbound tax, outbound tax, and what it does to government revenue. I'm convinced that government revenue will go up, and that the quality and the safety of the work will also improve.

[Mark Adler, Conservative, York Centre, ON]

I suspect you're right on that.

[The Chair, Conservative, James Rajotte]

You have one minute.

[Mark Adler, Conservative, York Centre, ON]

Let me also ask you about the trades themselves. Are home builders finding it difficult to attract the people with the right qualifications to work in the trades in order to build? There's a huge demand out there and there's not enough supply to satisfy all that demand in markets like Vancouver, Toronto, Calgary. That's why we're seeing home prices the way they are. Is there a trade shortage and how do we fix that? And don't tell me it is temporary foreign workers.

[Bard Golightly]

There is a trade shortage and the disappointing part about that is it's difficult for trades to move back and forth across the country into different provincial jurisdictions and have those trades recognized. We need to go past the Red Seal program and have many of the other trades recognized as bona fide and therefore able to work in different parts of the country. I'm not talking about the temporary foreign workers at all. Does that answer your question?

[Mark Adler, Conservative, York Centre, ON]

It's satisfactory for now. Yes.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

On behalf of all the committee members, I want to thank our guests in our first panel for being here. Thank you so much for your presentations and for responding to our questions.

Colleagues, I will take a break in a couple of minutes. I just want to get someone to move the motion for the budget.

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

I'll move it, Mr. Chair.

[The Chair, Conservative, James Rajotte]

It's been moved by Mr. Cullen.

(Motion agreed to)

Thank you so much for that.

We'll suspend for about five or 10 minutes.

Thank you.

[The Chair, Conservative, James Rajotte]

I call this meeting back to order and I want to thank our witnesses for appearing early. The reason for that is that we do have votes at 6 p.m., so this is going to be a condensed panel, and I want to give our guests as much time as possible to present and hear from members of Parliament.

We have five organizations presenting in this second panel here. From the Canadian Council for Public-Private Partnerships, we have the president and CEO, Mr. Mark Romoff. We have the Canadian Life and Health Insurance Association Inc., Mr. Frank Swedlove. We have from KPMG, partner Stephen Beatty. From Union des municipalités du Québec, we have

Mr. Robert Coulombe. Welcome.

From the Wellesley Institute we have director, Mr. Michael Shapcott.

Welcome to all of you and thank you so much for being with us here this afternoon. You will each have five minutes for your opening statement and then we will go to questions from members.

We will start with Mr. Romoff if you are ready please.

[Mark Romoff, President and Chief Executive Officer, Canadian Council for Public-Private Partnerships]

Thank you, Mr. Chair. This is what we call in Canada “just-in-time delivery”. I apologize. It has been one of those days.

Good afternoon, and thank you all for inviting me to come to speak to you today. I'd like to speak a little bit about Canada's public-private partnerships, or P3, experience, the role of the Canadian Council for Public-Private Partnerships and the opportunities we see to expand and strengthen the effectiveness of P3s across Canada, and to take advantage of Canada's experience and expertise and take it global.

Today, all countries around the world are facing large infrastructure deficits at a time of serious financial constraint. In fact, in a recent study the McKinsey Global Institute estimated the global infrastructure deficit at U.S. $57 trillion, and this is likely an understated estimate. Canada too, as you know, is confronting a huge infrastructure deficit across all levels of government.

At the same time, sound modern infrastructure is key to Canada's productivity and economic growth and ultimately central to a more prosperous and globally competitive Canada. This reality has placed a premium on innovative approaches to infrastructure development and this has led to public-private partnerships, or P3s as we call them, moving increasingly to centre stage in Canada. In fact, Canada enjoys one of the most active P3 markets in the world with 219 projects in procurement, under construction or in operation, with a value of over $68 billion.

I've included a chart in my notes from which you'll see that these projects are active right across Canada in a broad range of sectors. This large and diverse portfolio of projects has also enabled our domestic industry to develop the experience and expertise that is now positioning itself as a recognized and respected global player. The timing is excellent as international P3 markets, notably in the United States, are now taking off.

What are public-private partnerships? Simply put, P3s are partnerships between governments and the private sector to build public infrastructure, like roads, bridges. hospitals, schools, or to deliver services. P3s can be structured in different ways, allocating varying degrees of responsibility for design, construction, financing, maintenance, and sometimes operations to the private sector while always remaining in public ownership and control

Experience has shown that P3 projects are delivered on time, on budget, and at less cost, and are better maintained than those projects procured using the conventional design-bid-build approach. This translates into greater value for money for Canadian taxpayers. With our large portfolio of projects and our track record of success, Canada is today seen as a global leader in P3s with a model that is recognized internationally as best in class, and other countries looking to establish P3 programs regularly come to Canada to study our approach.

Why is this? There are several reasons: We have learned from experience in other jurisdictions—particularly the U.K. and Australia, where this model was initiated—and adopted their best practices that have clearly strengthened the Canadian approach.

Canada does P3s for the right reason. Value for money is the key factor in determining whether P3 is the best procurement option. P3s are not a panacea, but when they demonstrate best value for money, they consistently deliver high-quality outcomes.

Canada also has strong public sector institutions in British Columbia, Alberta, Saskatchewan, Ontario, Quebec and New Brunswick, and federally with PPP Canada, all with dedicated P3 expertise and robust procurement practices that lead to efficient, open, and competitive bidding. No other country has this governance structure in place.

[The Chair, Conservative, James Rajotte]

You have one minute left.

[Mr.Mark Romoff]

Most important, however, our P3 projects are achieving results. I've already mentioned some typical measures. P3 projects are coming in on time. They're on budget and at less cost, but Canadian projects are delivering economically as well.

We did an assessment of the last 10 years of P3s and found the following results. These projects have created more than 290,000 jobs. They've contributed more than $25 billion to the Canadian GDP, and they've led to $7.5 billion in tax revenues for the federal and provincial governments, and produced $9.9 billion in savings over traditional procurement.

A number of issues are important I think for this committee to consider with respect to the 2014 budget. There are five I have listed here. One is municipal and aboriginal capacity-building. These two communities across Canada are the generation of next projects and they have capacity issues. The model is also complicated for small projects. We need to look at developing a P3 light model. I mentioned Canadian expertise, and I think the opportunity is excellent now to go global with our capability, and we're working with government on that. We're very focused on the next generation of talent, including women and infrastructure, young leaders and infrastructure, and students across the country to ensure they can come out of those institutions ready to go.

Finally, Mr. Chair, I would mention that it's important for the Government of Canada to address the P3 funding disincentive, which is a product of the different allocation of funding depending on whether you make application through the new Building Canada fund or the P3 Canada fund, because one provides funding up to 33%, and the other only 25% so it disadvantages P3s.

I'll finish by saying that we commend the Government of Canada for the long-term infrastructure plan, which is a huge move in the right direction. The new Building Canada fund and the replenishing of the P3 Canada fund are outstanding initiatives. We continue to find the government a great partner for us.

[The Chair, Conservative, James Rajotte]

Thank you so much.

[Mark Romoff]

Thank you, Mr. Chair, for your patience.

[The Chair, Conservative, James Rajotte]

I appreciate that very much. Thank you so much.

We will move on to Mr. Swedlove please.

[Frank Swedlove, President, Canadian Life and Health Insurance Association Inc.]

Mr. Chair, members of the committee, I am very pleased to have the opportunity to be here today on behalf of the Canadian Life and Health insurance Association to participate in the pre-budget consultations.

The CLHIA is a voluntary association whose member companies account for 99 % of Canada's life and health insurance business. The industry provides a wide range of financial security products such as life insurance, annuities and supplementary health insurance to almost 27 million Canadians and manages about two-thirds of all Canadian pension plans. The industry has over 1.2 trillion dollars in assets invested globally, with roughly $615 billion invested in Canada.

My remarks today will focus on the importance of supporting infrastructure investment in Canada and will highlight measures that we believe the federal government can take to increase the supply and attractiveness of infrastructure assets for large institutional investors like Canada's life and health insurers.

This is one of three topics, Mr. Chairman, included in our pre-budget submission. The second was to establish a tax credit of 15% for long-term care insurance. This will provide a clear message to Canadians that they need to take responsibility for their long-term care, as this is not covered under the Canada Health Act.

The third item was to seek elimination of capital taxes on insurance companies. We are the only G20 country that has such a tax and it is inconsistent with encouraging insurance companies to build up their capital. I will not make any further comments on these two items, but if there are any questions during the Q & A period on these matters, I would be pleased to respond to them.

Getting back to infrastructure, Canada's life and health insurers are one of Canada's largest and most stable investors in long-term assets, including infrastructure. Our strong appetite for such assets is driven by the fundamental nature of our business. Life insurance and pension products often result in several decades—up to 50 years or so in some cases—of the insurer receiving premiums prior to paying related claims. As well, a number of life insurance products have investment returns as a core component of their design and are used by Canadians as an efficient way to save for retirement or other needs.

Insurers must invest the premiums they collect from policyholders to pay claims and benefits on their policies, and to cover their operating and capital costs. To the greatest extent possible, insurers seek to match the term of their liability with their assets. The importance of a robust and well diversified long-term investment market in Canada for life and health insurers cannot be overstated.

In 2012 Canada's life and health insurers held almost $540 billion, or roughly 90% of our total domestic assets, for the long term. These investments often support longer-term capital investments, including infrastructure investments, which are critical to creating economic growth.

Canada's life and health insurers also invest directly in infrastructure assets. Currently, the industry holds roughly $6 billion in infrastructure assets. This only represents about 1% of our total investments, and we have a strong desire to do more.

Estimates suggest that Canada currently has somewhere between a $350 billion and $400 billion infrastructure deficit. This infrastructure deficit will need to be addressed if Canada is to realize its full growth potential in the coming decades. The importance of encouraging investment in infrastructure and other long-term investments has also been recognized internationally by the G20. For example, at the G20's most recent meeting of finance ministers, they agreed to create the global infrastructure initiative to increase quality investment, particularly infrastructure. We are very supportive of this international initiative and Canada's role in it.

Closer to home, we believe there are a number of areas where the federal government could play an important leadership role in helping to close the infrastructure deficit. At the most basic level, governments in Canada need to ensure that infrastructure projects are brought to market in a timely and predictable manner. Undue delays and uncertainty around decisions regarding whether a project will proceed hinder the private sector's ability to play a strong partnership role in helping to finance infrastructure projects.

One important way that the private sector helps finance infrastructure is through public-private partnerships or P3s. P3s are an attractive funding mechanism for long-term infrastructure projects such as hospitals, airports, roads, bridges and government facilities.

They have been shown to deliver projects on time and within budgets. In addition, P3s are an attractive funding option for governments because they limit the upfront investment required by governments to build public infrastructure. That is another advantage P3s offer governments.

The Canadian government has played a very helpful and proactive role in promoting and incenting P3s across Canada through the creation and funding of P3 Canada. We applaud the government for this, but believe more can be done.

In particular, we note that the majority of the infrastructure need in Canada is at the municipal level, as Mr. Romoff has noted. These projects tend to be relatively small. The current P3 model in Canada is not well suited to smaller projects like these. Some of the challenges relate to the complexity—

[The Chair, Conservative, James Rajotte]

Could I ask you to conclude, please?

[Frank Swedlove]

—and lack of standardization in the P3 project documentation.

The lack of standardization and documentation limits the attractiveness of smaller P3 projects for potential investors, as the size of the potential deal may not be adequate to compensate for up-front costs. The complexity of structuring smaller P3 deals is also a barrier of potential insurers who may not have the requisite expertise to navigate through the P3 process.

As a result, we believe Canada should embark on a program to harmonize P3 documentation. We recommend that P3 Canada take the lead by developing standardized P3 documentation for P3 projects under $50 million.

Another initiative to help increase the potential fit for P3s for smaller deals—

[The Chair, Conservative, James Rajotte]

Mr. Swedlove, but I'm sorry, we are way over time here. I have to move on.

Could I ask you to conclude, please?

[Frank Swedlove]

Okay, can I complete it?

I'm sorry—

[The Chair, Conservative, James Rajotte]

I think you'll want to hear from the members' questions.

My recommendation is that you conclude your presentation and we'll move on.

[Frank Swedlove]

Can I complete just what the recommendations are then?

If I can't, then I'll do that.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

We'll go to Mr. Beatty, please.

[Stephen Beatty, Partner, KPMG]

Thank you.

We, in this generation, have been the beneficiaries of the foresight in investment of our parents and grandparents, and I truly hope that as we move forward we are able to give that to our children and grandchildren as well. This is a real challenge in today's environment. Our perspectives have shortened, and we are working very closely with what's happening today rather than what's happening in the distant future.

Most of us have spent the majority of our adult lives in times of relative excess capacity, and now we're moving into times of relative scarcity. That means we have to ask different questions and to seek different answers.

It's often useful to think of infrastructure in three different areas: social infrastructure, economic infrastructure, and the infrastructure deficit. The infrastructure deficit is perhaps the most insidious. It's beneath our feet. It's under our streets. It's in the walls. We really haven't invested what we should have invested over the last decades, and we face a big bill. If we ignore the maintenance needs of our existing infrastructure, we do so at our peril. This is something that I think the committee needs to take into account as it looks at new projects versus existing projects.

The other part of the infrastructure deficit lies in things where capacity increases have been postponed, and that puts a brake on the Canadian economy. It keeps a friction in the system that keeps us from achieving our true potential.

If the last 20 years of infrastructure investment have focused on interurban development, the next 20 years will focus on cities. Nowhere is the infrastructure challenge facing cities greater or more evident than in urban mobility, whether it be pedestrians, cyclists, transit, cars, goods movements, or service movements, and these last two are often forgotten in the discussions. It is truly important that we allow the cities to flow in the way they have the potential to flow. Be it economic inclusion through the ability to get to a job, or the ability of a small electrical contractor to get to a customer, both are equally important.

What we really need in cities are a couple of decades, not a couple of years, of serious investment to allow cities to reach their true potential. We need to achieve a national consensus on the need to invest in infrastructure—its benefits, its costs. And we're seeing this around the world as countries develop national infrastructure plans that lay out a prioritized set of projects and programs that allow people to address social, economic, and the infrastructure deficit issues.

Consensus is very hard to achieve and very hard to maintain, but that can be an incredibly powerful way to guide progress. Similarly, when things change in the external environment, it also allows you to change directions. I would take you to the experience of the U.K. They've now completed their second national infrastructure plan, and they have changed directions quite severely. Had they not had that first plan, they would have been at a complete loss as to what to do.

The final point is about paying for it, and there are two concepts that are quite useful for your deliberations. These two concepts generally get muddled up by 70% or 80% of the people who talk about these issues. One is called funding infrastructure, and that's who ultimately pays for it, be that the taxpayer or the user. The second part is the financing of infrastructure, which pertains to how to pay for the initial construction. When those two terms get muddled up, the debates end up completely at cross purposes. I would ask as you go through your deliberations that you please remember those two concepts.

Now is a brilliant time for Canada and for Canadians to be investing in infrastructure, and I believe we owe it to those who follow on to make those investments today and for the next two decades.

Thank you.