Finance Committee on Oct. 28th, 2014

[Norma Kozhaya]

I think that for the personal income tax rates, marginal tax rates could be lowered. For companies it's more about looking into ways to help them be more productive, so we need to focus on innovation issues because, as we always say, innovation is not only research and development, but beyond that. Try to focus on issues that help companies be more productive by innovating more. Also, it's helping companies to maybe reduce their environmental footprint, which is an issue.

In our discussions with Europe, it is also an important point, as it's part of or an issue of our competitiveness.

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

Thank you.

One of your other points was to introduce an EI contribution credit for training expenses, and specifically expenditures for formal training when new investments are set up.

There's a huge investment by the employer—60% of the EI fund—and the employee is 40%. Are you suggesting that portion could somehow be drawn out of the EI fund and reinvested into training and skills development?

[Norma Kozhaya]

Right. There's always a question of how to encourage employers to invest more in training, so this might be a way.

There's almost $2 billion that is focused on training in the employment insurance programs. We might think, and a lot of people ask, is this an efficient way to do this? Is it being done the proper way?

We think that maybe linking.... It's a bit like the Canada job grant, where there are more links with the employers' spending, a more direct link between the training and what the employer gets by way of an incentive.

[The Chair, Conservative, James Rajotte]

You have about 30 seconds or so.

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

Skills development in the country is a huge challenge. We've seen it time and time again at the table here. The challenge is, how do we have skills development, break down trade barriers between our provinces and still accept all of those skills that are learned in the province of Quebec, Alberta, or in Nova Scotia?

It's tough to bring that horse to the trough and make it drink, I can tell you.

I don't have time for an answer on that, but it's a comment.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Keddy.

We'll go to Mr. Brison, for seven minutes, please.

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

Thank you very much.

Ms. Kozhaya, according to the Parliamentary Budget Officer, the government's decision to keep employment insurance premium rates higher than needed will cost the economy 10,000 jobs over the next two years.

Do you agree that overly high rates impede job creation for your members and businesses in general?

[Norma Kozhaya]

Generally speaking, higher payroll taxes, such as EI premiums, discourage employment and diminish the ability of employers to pay higher wages. When employers have to pay more in payroll tax, it affects the wages they can afford to pay employees.

In the light of the recession, the government had decided to freeze premium rates for a certain period of time. Obviously, making accurate long-term forecasts is always a challenge, but we welcomed the freeze, as opposed to an increase, on EI premium rates at a time when the economy was already weak.

Now, it turns out that the rates were a bit higher. And when you look at the full cycle over a number of years, you see that, on average, it evens out. The government's desire to keep rates stable for a certain period of time, for instance, seven years, is a measure we welcomed.

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

Merci.

Mr. Clark, it's good to have you at the committee. I appreciate your insight as somebody who has spent a lot of time crafting budgets over the years.

On the risk of lower oil prices and the impact on our economy eliminating the surplus in the mid-term, what is the risk of income splitting to the fiscal integrity of the federal government? I think the price tag as proposed is $3 billion.

Also, what would be the impact on provincial fiscal frameworks, given that there's a $1.7 billion cost to the provinces? What would your insight be both on the federal and provincial fiscal situation?

[Scott Clark]

As I read it in the press the cost of income splitting would be a little over $2.5 billion federally and would impact on the provinces to the tune of about $1.7 billion, of which $1 billion would probably fall on lost revenues for Ontario. Given the fiscal situation of Ontario, I don't think Ontario would be particularly happy with that outcome.

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

It's not just Ontario but the provinces in my part of the country are not exactly flush with cash these days either.

[Scott Clark]

Yes.

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

On infrastructure, given that we have interest rates that in real terms are negative, bonds yields at record lows, crumbling infrastructure, and a slow economy with soft employment, do we have perhaps an unprecedented opportunity in decades to invest massively in renewing our infrastructure in Canada?

[Scott Clark]

Let me make two points.

I think what you say is absolutely true, but it's not just in Canada. The IMF has said that globally that's what is necessary. There's been a significant decline in public infrastructure globally. The G-20 finance ministers met in Australia and have made a recommendation to the heads of state that new infrastructure and structural reforms should be implemented among the G-20 to raise GDP by 1.9% after five years.

In Canada I think we do. It seems that when interest rates are as low as they are, where you can borrow 10-year bonds at, what, 2%; and 30-year bonds at 3%; and when even the federal government is now issuing 50-year bonds to refinance, it's almost criminal not to borrow. Not all deficits are bad and not all debt is bad. It depends when you borrow and what you borrow for. I think the circumstances now are such that we have an opportunity to finance a new national infrastructure program through borrowing. This is exactly what the IMF says, that you should finance it through borrowing, not through raising taxes, and not through cutting spending, because in most cases the efficient infrastructure pays for itself.

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

Could we also partner government investment, federally and provincially, with pension fund investments? With our pension funds in Canada, we probably have the greatest concentration of expertise in the financing of infrastructure in the world resident here. They're building infrastructure around the world. Could we do more to partner with them here, along with public funds, and working with institutional investors like our pension funds?

[Scott Clark]

I think that would be a distinct possibility. In a national strategy that would be an important element to look into. I think there are a number of other things you could also want to consider. You might want to consider, for example, that because 95% of infrastructure is provincial rather than municipal, a national infrastructure strategy is one where you need federal leadership to make sure the provinces are able to take advantage of it. You could create a federal financing agency that would lend to the provinces the borrowing that we would get as a federal government. That would be a direct benefit to the provinces and would have no impact on our bottom line.

[The Chair, Conservative, James Rajotte]

Okay.

You've got about 20 seconds.

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

Finally, on infrastructure, the Australian model of national leadership involves a 15% kicker for provinces that sell brownfield assets and invest in greenfield.

Do you have any thoughts on that?

[Scott Clark]

It sounds like a good idea.

I don't have any particular thoughts on that.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Brison.

We're going to Mr. Allen for seven minutes, please.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you very much, Mr. Chair.

Thank you to our witnesses for being here today.

Ms. Cook, I'd like to start with you in the chemistry industry. I'm looking at your chart and it makes sense given some of the construction projects I've been involved in in the past. Before you actually buy the hard goods and put the equipment in place, you're talking probably two to three years out. I guess that's the point behind your accelerated capital cost proposal. You're promoting 50% on a declining balance basis. Is that the promotion?

[Fiona Cook]

That's assuming that the current accelerated capital cost allowance—which has been renewed on a two-year basis since 2007 and has been affected—is not renewed. Assuming that it is not renewed, we're recommending this 50% declining balance, but on a permanent basis. We say so because the issue with the two-year accelerated capital cost allowance has been that for the major, $1 billion, projects that we see as potential for Canada, the timeline of two years doesn't provide enough certainty to the investor. They're looking five years out. The measure has to be in place when the plant starts up, five years from when the initial planning begins. That's why we're recommending a 50% declining balance. Again, the 45% would give us equivalent treatment to the U.S., but the U.S. coverage is actually greater. Their class includes land improvements like roads and effluent ponds. They have much better depreciation treatment for rail cars and rail sidings, which are extremely important for our sector. That's why we're recommending the 50%.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Just to carry on, one thing that we've heard a lot about yesterday and today, and in an earlier panel, is the patent box idea. It's the idea that new products could be exported for the patents and the revenues that are generated by them would come with a more favourable tax rate.

Has your industry thought about that?

[Fiona Cook]

No, we don't have a position on that. We would look more at the tax credit system for R and D. In terms of the patents, that's more suitable for pharmaceuticals and different products.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

I want to go to the Quebec Employers' Council, Ms. Kozhaya. I'll just ask the same question. You talked about productivity, innovation, and the environmental footprint. One thing we put in place over the past few years in budgets has been the accelerated capital cost allowance rates for clean energy generation.

Do you agree that those kinds of things are very helpful to the industry? The second piece on that, have you done any investigation on the patent box idea?