Finance Committee on Oct. 20th, 2014

[Michael Roschlau]

We're really not sure, because this new consortium is something that's just been created in the last month. The reason for having it here, really, is to let you know that we are starting this new consortium, this new partnership, and we're looking to the government to be one of the partners.

The contributions or the support could come from a variety of different areas. We've started exploring those with various federal departments just in the last couple of months. It could very well be that the initiatives that could be mobilized to contribute to this consortium going forward are there already. We certainly hope that's the case.

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

Mr. Mahar, do you want to comment on that as well with respect to the research and development fund?

[Michael Mahar]

I think it is a huge part of the industry. Certainly travelling around North America in particular, you'll see products manufactured in Canada that are very well respected.

It provides good jobs and certainly green jobs. That's where the industry is going, and I think it is a very well-supported industry as a result of that.

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

My next question is for both Mr. Roschlau and Mr. Mahar.

It is troubling, and the buy American provisions in the United States are a huge obstacle. There is no question about it for Canadian businesses wanting to compete in the American market. We have signed free trade agreements with a number of countries around the world. We have almost duty-free access to about 50% of the world's business, but it definitely is an issue. It continues to be an issue. The Americans continue to be protectionist. There is no way around that.

You're suggesting that we move strategically to negotiate a way through this, when really it's against the spirit of NAFTA to begin with, so what other ways could the government pursue to get through or around buy American provisions?

Mr. Roschlau, do you want to go first?

[Michael Roschlau]

First of all, I should say that we'd prefer to have real free trade.

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

We would too.

[Michael Roschlau]

We have this situation where in particular public transit rolling stock are subject, or those that are federally funded in the U.S. are subject, to the 60% U.S. content and final assembly rule, which was in place even before the NAFTA was negotiated. When you look at the success of the Canadian manufacturing industry, the two go hand in hand in trying to find a way to keep the lid on that 60%, because our supply chain is so integrated across North America and so much effort has gone into complying with that 60%, and at the same time supporting the R and D and the innovation that our industry needs to be doing here in Canada in order to stay at the cutting edge.

Whatever options there may be to come up with an agreement with the U.S. that allows Canadian and U.S. markets to be harmonized in a way that satisfies some of the concerns that I think exist in the U.S. about global competition and protecting the North American market, I'll say for now, against competition from other parts of the world, may have the potential for striking a chord.

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

We have a unique situation with the U.S., where we build things together.

Mr. Mahar, with the Amalgamated Transit Union, you represent folks on both sides of the border. I think in some 44 American states you have a unionized presence. From your side of this dialogue, what can you folks do to actually prevent some of the worst of the buy American strategies that we continually see in every sector, but specifically in your sector?

[Michael Mahar]

With respect to manufacturing, we're more in the operations end of it, in the support behind the scenes end of it. We're not directly involved with the manufacturing in most areas.

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

I realize that, but you still have a heavy political force.

[Michael Mahar]

We do, and there's also a reason why we have the Canadian Council of the Amalgamated Transit Union. There are so many things that we see the same, and then there are some things where we differ. Certainly the Canadian Council supports the Canadian manufacturing end of it, and the Canadian operation end of it too.

I really do think it's an industry that is, without question, going to grow. There's opportunity to provide good meaningful jobs across the board in Canada. There's a valid reason, I think, for trying to support and maintain that in Canada as much as we possibly can.

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

I guess my point is that buy American rules distort not just the spirit but I think the letter of NAFTA. The reality is that it will take more than simply negotiations. It will take some political force. It will take whatever pressure we can apply to our American colleagues, quite frankly.

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

Or if you're waving your hand around....

[The Vice-Chair, NDP, Nathan Cullen]

That's it; if you're waving your hand around like a good man from the east coast.

Let's go to another one: Mr. Brison, you have up to seven minutes, please.

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

Thanks to each of you for your presentations today.

I'd like to begin with you, Mr. Johal, on a question about the EI rates and the recent PBO report that suggests that higher-than-necessary EI premiums could cost 10,000 jobs in Canada. Given the fragile employment market today, particularly in terms of youth unemployment and underemployment, what are your thoughts on EI premiums and whether higher-than-necessary EI premiums make sense during a time of soft employment?

[Sunil Johal]

Thanks for the question.

My view and the Mowat Centre's view would be that the EI program has a lot of flaws. The premium rates are certainly one of those flaws in terms of funds that are being reallocated unnecessarily from EI and not going to workers who need the support from that system.

I think in the most recent figures from August, in many cities, in the greater Toronto area, the eligibility for EI for unemployed workers is hovering around 20%. That's a significant issue. I think that's one of the bundle of issues that the federal government needs to look at with the EI program in terms of eligibility and what those funds are being used for. The appropriate level of premium rates is one of those as well.

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

Your recent report on income splitting tells us that on top of the $3-billion cost to the federal treasury, there is a $1.7-billion price tag for provinces.

With Canadian provinces facing significant fiscal challenges right now, do you think that the new proposal on income splitting being put forward by the Conservatives—and I'm speaking of income splitting, not pension splitting, just in case there is any confusion here—is a good use of resources?

[Sunil Johal]

Our report specifically focused on the fact that the provinces are going to be compelled to go along with the federal income-splitting proposal if it is introduced as a result of their having signed on to tax collection agreements over the past number of years, which were intended to increase the efficiency of the tax collection system in Canada.

I think a number of commentators from a variety of research organizations across the country have looked at income splitting and have raised very legitimate questions about whether that's the best use of $3 billion from the federal government and almost $2 billion from the provinces, and there are a host of reasons.

One might question the proposal in terms of equity. Is this really targeting families most in need? Most of the benefits are really going to very wealthy families, and very few of the benefits would be going to families who would likely most need assistance from that type of program.

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

Your recent report, “Rebuilding Canada: A New Framework for Renewing Canada’s Infrastructure”, discusses asset recycling as one means to leverage government funds to create or build more infrastructure.

Given the use of asset recycling in Australia and the U.K., with our system of federalism with the provinces, how do you think asset recycling policy could help build better infrastructure in Canada?

[Sunil Johal]

From our perspective, asset recycling is one of those tools that hasn't been explored very much in Canada.

For those who aren't aware of what it is, essentially it's a case where governments will dispose of old assets that aren't fulfilling their original public policy purpose.

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

[Inaudible—Editor] type assets?

[Sunil Johal]

Yes, and essentially take the proceeds from the disposition of that asset and then put it toward the construction of a new asset that might be more in keeping with the needs of the country at the current time.

I don't really think there is an issue in terms of our federal system standing in the way of asset recycling, but I do think it's something we haven't seen a lot of in Canada. It's one of those tools, along with infrastructure banks, community benefit agreements, that the government should look at.

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

As part of the issue there is a tax disincentive for provinces to divest of certain assets.

I believe that in Australia the federal government provides a 15% kicker as an incentive to states to divest of brownfield assets that are easy to sell to institutional investors, but then to build greenfield assets that are less easy to attract investment.

On Canadian pension funds, Canadian construction and engineering companies are building infrastructure globally. We probably have the greatest concentration of expertise in the design, construction, and financing of infrastructure in the world resident in Canada.

What can we do in terms of federal policy? I believe that Mr. Roschlau mentioned this earlier. What do we need to do to get our pension funds investing more in Canada? They're building infrastructure around the world and yet there isn't much activity here in Canada. What is the federal leadership role that can help achieve that?

I'd be interested in either of your perspectives.

[Sunil Johal]

I can answer that briefly, and then perhaps Mr. Roschlau may want to chime in.

There are huge pools of capital that we're not really tapping into, so the first real issue is that the federal government needs to bring the pension funds to the table and talk to them about some of these issues. I don't know if that's been happening or not, but private investment in infrastructure has been lagging in Canada for a number of years.

This all goes back to the fact that there really is not a national infrastructure strategy, and I think that the role of pension funds putting capital on the table is one of those issues that could be addressed in a strategy.

[The Vice-Chair, NDP, Nathan Cullen]

Mr. Roschlau, if you could make a brief response of 40 to 45 seconds, that would be great.