Finance Committee on Oct. 28th, 2014

[Mark Adler, Conservative, York Centre, ON]

Our bilaterals that we have negotiated?

[Corinne Pohlmann]

Again, the European free trade agreement in particular and the agreement with the United States for sure have been very important.

[Mark Adler, Conservative, York Centre, ON]

I asked the restaurant association yesterday when they appeared before the committee, and I'm going to ask you, Ms. Pohlmann, about premium cards. Many of these cards issued by the credit card companies went to people who already had a basic MasterCard or Visa card and then they were all of a sudden awarded the premium card, which had all kinds of bells and whistles and now costs consumers, etc., a higher fee.

With the introduction of premium cards have you found that people are spending more on purchases in an average basket of goods because they may have more credit than they did before the introduction of this premium card, or has it stayed relatively the same?

[The Vice-Chair, NDP, Nathan Cullen]

We have just a little less than a minute, Ms. Pohlmann.

[Corinne Pohlmann]

This would be anecdotal, but from our evidence from our membership they are not spending any more. These cards are being distributed to anybody who wants them, in our opinion. We see them all over the marketplace. It really doesn't matter what level of income somebody has, it's about how much they spend. So we have not necessarily seen an equation between having a premium card and spending more money. It just costs more.

[Mark Adler, Conservative, York Centre, ON]

Mr. Wilkes, could you respond?

[David Wilkes]

We have seen an increase in purchases made by credit, now being about 50% of total purchases. We have seen that shift.

We have seen two major shifts within that, the increase of premium cards being almost 30% of the credit card volume. We've seen a shift to smaller and smaller purchases being put on credit. So we do believe this reinforces the need to fulfill the commitment that was made in the last budget.

[The Vice-Chair, NDP, Nathan Cullen]

Thank you, Mr. Wilkes.

Thank you, Mr. Adler.

Thank you all for your remarks.

We are going to break for five minutes and invite our next panel of witnesses in.

Thank you all.

Thanks, everybody. We'll suspend for five minutes.

[The Chair, Conservative, James Rajotte]

I call back to order meeting number 52 of the Standing Committee on Finance, with our second panel here today discussing the 2014 pre-budget consultations.

I want to welcome our guests for the second panel. We have first of all Mr. Scott Clark, the president of C.S. Clark Consulting. Welcome. We have Ms. Fiona Cook, the director of business and economics with the Chemistry Industry Association of Canada. We have from Metcalf Foundation, Metcalf Fellow Mr. Tom Zizys. Am I pronouncing that correctly?

[Tom Zizys, Metcalf Fellow, Metcalf Foundation]

I have trouble pronouncing it, but yes.

[The Chair, Conservative, James Rajotte]

Thank you.

We have from the Quebec Employers' Council, the vice-president of research and chief economist Madame Norma Kozhaya. Bienvenue. From Startup Canada, we have co-founder and chief executive officer Ms. Victoria Lennox. Welcome, bienvenue à tous. You will each have five minutes for your opening statements. I encourage you to use the earpiece for translation and to hear members' questions.

We will begin with Mr. Clark, please, for five minutes.

[Scott Clark, President, C.S. Clark Consulting, As an Individual]

Thank you, Mr. Chairman.

First, let me apologize for not having a written submission for members of the committee. However, I am going to make a few comments in the time I have. If members wish to find out more background on what I'm saying, they can go to a blog that I co-author with Peter DeVries of 3D Policy. Also, we have a regular opinion piece every Tuesday on iPolitics that deals with issues of public policy and public finance.

I know your deliberations are very important now. The government has a surplus on the horizon—and I'll come back to that in a minute—so there are lots of expectations being created externally in the public, and no doubt internally in the government, about what to do with that surplus. I have been in government long enough to know that managing a surplus, in my experience, is probably more difficult than managing a deficit, given the demands that everybody puts on the government. I would like to address a number of cautions that I would propose for the committee to think about in going ahead in terms of how to use that surplus.

I say that because I have years of experience. I was a deputy minister of finance during the good years of the 1990s and the bad years of the 1980s, so I've lived through both fiscal crises and the management of surpluses.

There are a number of cautions I want to focus on. No doubt many of you have also been reading about them and been seeing them on television. They have to do with the state of the global economy first.

The IMF, the International Monetary Fund, at its recent meeting in early October came out with some pretty sobering conclusions and observations that I think we all need to take account of. In its report, which was just released two weeks ago, the IMF reduced, once again, its forecast for the global economy to 3.3%. That's down 0.4% from last April. China makes up one-third of that. If you exclude China, they're suggesting the global economy will grow about 2.5%.

I want to put that in perspective. In the second half of the 1990s, when the Liberal government at that time had lots of surpluses, the global economy was growing at between 5% to 5.5%. The prospect going forward for the next decade, at least, is for a very moderate growth in the global economy.

The reason is pretty simple. The euro area is about to enter its third recession since 2008. It's going to take years and years for the euro area and the EU to recover into a sustainable economic growth entity. The Chinese economy is dramatically slowing. Russia is about to enter another recession. Certainly if oil prices fall to $70 or stay below $80, the Russian economy is going to be in serious difficulty. Finally, the developing economies are stalling. The global economy is not doing well.

I think it's worth my quoting, if you will, from the IMF. The IMF is saying that growth will be mediocre and stagnant going forward:

Downside risks have increased since the spring. Short-term risks include a worsening of geopolitical tensions and a reversal of recent risk spread and volatility compression in financial markets. Medium-term risks include stagnation and low potential growth in advanced economies and a decline in potential growth in emerging markets.

For Canada, the IMF has said that growth will be 2.3% for 2014 and 2.4% in 2015, but this was before oil prices started their dramatic decline. We all know what the implication of that could be for Alberta and Saskatchewan, which have been driving the economy for the past number of years.

[The Chair, Conservative, James Rajotte]

You have one minute.

[Scott Clark, President, C.S. Clark Consulting, As an Individual]

I have one minute. Okay, I'll just quickly move on, then, to concerns about the surplus.

In my view, if you are going to use the surplus, I'd be very prudent. The outlook is too risky to get rid of all that surplus. In my estimation, if oil prices stay below $80 for the next three years, you could lose up to $4 billion to $5 billion annually in your revenues, and that would pretty much take away much of the surplus.

If you are going to continue to use the surplus, consideration should be given to using it in a way that stimulates economic growth and creates jobs.

In my view the government needs to reconsider the tax changes it is proposing, because none of them achieve that objective.

Furthermore, in my view the government needs to look to building a domestic growth strategy, one built on infrastructure spending. Finally, based on the IMF and its research, I would suggest that this be financed through debt rather than raising taxes.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Clark.

We'll go to Ms. Cook now, please, for your presentation.

[Fiona Cook, Director, Business and Economics, Chemistry Industry Association of Canada]

Thank you very much, Mr. Chairman, and members of the committee, for the invitation to speak to you today on behalf of the Chemistry Industry Association of Canada.

CIAC is the voice of Canada’s chemistry industry, which a $50 billion a year industry for this country. Our member companies apply knowledge to take resources, such as natural gas, electricity, minerals, and biomass, and convert them into high value products that are used to produce other manufactured goods and consumer products. In essence, we provide the building blocks, technology, and services needed by many other Canadian industries. These range from clothing and pharmaceutical companies to natural resource developers and manufacturers of energy-efficient housing and cars. I should mention that, although fairly invisible, we are Canada's fourth largest manufacturing sector.

The business of chemistry employs 82,000 Canadians directly and supports another 400,000 jobs in the Canadian economy. So we have a fairly large multiplier. One job in our sector creates another five elsewhere in the economy.

The United States is our largest customer. The bulk of our exports, about three-quarters, moves there. For many years we enjoyed a competitive advantage when it came to natural gas feedstocks and electricity. Until recently, about two years ago, the U.S. chemical industry was actually in decline. Once that country's leading export industry, it had slipped into a negative trade balance and most global investments were gravitating to China.

That is changing. Shale gas is shifting the competitiveness equation. Canada no longer has a natural gas advantage, and the shift to cheaper natural gas-fired electricity generation in the U.S. is increasing the competitiveness of manufacturing there in general, and increasing the demand for chemical inputs as well. Our electricity rates are no longer cheaper than jurisdictions in the U.S.

Announced investments for the chemistry industry in the U.S., currently at $120 billion, will increase production by 30% to 50%, which represents at least $250 billion a year. This wave is cresting in 2017 and it has not yet washed ashore in Canada. If we want to catch that next wave and be part of the reshoring of manufacturing we need to act now. I circulated a couple of charts there which will show you what's going on. There's one that shows the investment trends, Canada versus the U.S., and you can see there that the investments are shooting up in the U.S. and have yet to show a similar trend for Canada.

The opportunity for investment is real and immediate here as well, but at this point we have not even seen a proportional number of announcements. We estimate that there is a potential for $10 billion worth of new projects in Canada by the end of the decade, but we cannot attract that when the playing field is not level. U.S. companies enjoy a depreciation allowance that allows companies to write off the cost of new projects at roughly twice the rate of Canada, and this time value of money is very important for investments that can take up to six years from initiation of project analysis to commissioning and startup. Again, I circulated a chart which just gives you an idea of how long it takes to start when you start even thinking about a chemical project to when the production actually starts.

You have our pre-budget submission and our case for why Canadian manufacturing needs a permanent or long-term greater than five years depreciation rate that at least matches the U.S. A recently released independent study calculates that a 45% declining rate would only match the current and permanent U.S. rate, and coverage for the U.S. projects is much broader. So, to match that coverage differential we urge this committee to recommend a permanent 50% depreciation rate for manufacturing machinery and equipment. It will bring new investment and jobs to Canada.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. Cook.

We'll go on to the next presentation, please, with the Metcalf Foundation.

[Tom Zizys]

Thank you. I would like to thank the committee for inviting me to participate in your deliberations.

I am an independent labour market analyst. I am also an innovation fellow with the Metcalf Foundation, a charitable foundation dedicated to helping Canadians build a just, healthy, and creative society.

My message is a simple one: high-performing workplaces, ones that offer good jobs and career opportunities, are the way to maximize the number and types of jobs for Canadians. To achieve that requires engaging with employers in what are called demand-focused initiatives.

Let me elaborate. Much of what we do in Canada to ensure better labour market outcomes is focused on the supply side of the equation, that is, how people become ready for work. We place a great deal of emphasis on securing the best education, we provide employment services so individuals can find vacant jobs and present themselves as attractive candidates to employers, and we encourage individuals to upgrade their skills through continuous learning throughout their lifetimes.

Here's an important fact: among all the industrialized countries in the world, Canada has the highest proportion of workers with post-secondary education, yet Canada also ranks first for having the highest percentage of post-secondary degree holders working in jobs where they earn half or below half the median income, the commonly accepted cut-off point for the poverty level.

At the same time, a frequent complaint of employers is that they cannot find skilled job candidates. Some studies have concluded that there is little evidence in the labour market data to indicate a skills shortage, apart from certain specific geographic areas and apart from certain specific technology and skilled trades occupations.

I don't think we can so easily dismiss the views of so many employers. Through my work, I do numerous surveys of employers, and the challenges they face finding employees is real. The biggest shortcomings about job candidates that employers express in these surveys are lack of experience and lack of so-called soft skills such as personal communications, working in teams, and understanding the culture of a business.

The fact is that these are the skills that one acquires on the job—experience, obviously, but also many of the soft skills, many of which involve dealing with the particular circumstances of that job. In short, we have more of an experience shortage than a skills shortage, and to overcome an experience shortage, we need the active engagement of employers.

Canadian employers invest less in workplace training than many of our competitor countries. As it turns out, our workforce also has lower levels of productivity growth as well as lower levels of innovation. These are all related: skills are acquired through workplace training and mentoring, and skills are one of the essential ingredients for productivity growth and for innovation.

Studies show that there's a direct positive return on employer investment in workforce training, through less employee turnover, lower recruitment costs, less absenteeism, fewer days lost to accidents, greater employee engagement, greater consumer satisfaction, and on and on. Training also typically leads to higher wages and improved productivity, and higher wages contribute to a stronger economy.

There are understandable reasons that many employers do not undertake workplace training, from cost and convenience to inertia and managerial competence. For some, their business model relies on lower wages and little training, and they accommodate the staff turnover that goes with it.

How do we get more employers to invest in their workforces? The answer has three parts. First, there are technical barriers: concerns about cost, poaching of workers, the value of training, what kind of training. Part of the solution is education and advocacy. Second, there are institutional challenges. Intermediary bodies that advocate for training, that undertake research into best practices, that match employers to the right training institutions, that bring together groups of employers in the same industry are all ways to make workplace training more accessible and less costly through economies of scale.

[The Chair, Conservative, James Rajotte]

You have one minute.

[Tom Zizys]

Third, there are attitudinal barriers, which include the view that employees are a cost to be constrained as opposed to an asset to be invested in and developed. We can establish different standards regarding attitudes towards training.

We have placed increased expectations on job seekers when it comes to the labour market. It is also appropriate to increase our expectation of employers, because access to good jobs, increasing productivity, and supporting greater innovation are important public policy goals. A recent commission in Great Britain, the UK Commission for Employment and Skills, characterized it as raising employer ambition. I think that's an approach worth pursuing.

Many Canadian employers do invest in their employees, creating high-performing workplaces. That is what delivers good jobs and a strong economy. We need strategies to encourage more Canadian employers to adopt such practices.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We now turn to the Quebec Employers' Council. Ms. Kozhaya, you have five minutes. Please go ahead.

[Norma Kozhaya, Vice-President of Research and Chief Economist, Quebec Employers' Council]

Good afternoon. Thank you for the opportunity to appear before the committee today.

I would like to start by saying that the Quebec Employers' Council welcomes efforts by the federal government to balance the budget by tightly controlling public spending, while preserving transfers to the provinces.

The council invites the federal government to make balanced and strategic use of future budget surpluses by, first of all, reducing the corporate and personal tax burden and, second of all, investing a significant portion in government programs that exert structural leverage on productivity, innovation, marketing, reduction of the environmental footprint and, of course, infrastructure. I will come back to that.

With respect to transfers, we underscore the particular case of health transfers. The council feels that tying health transfers to growth of GDP does not reflect the needs of an aging population. Furthermore, an in-depth review of the Canada Health Act should be undertaken.

On the revenue side, we would like to point out the online sales problem, which is not only depriving the federal and provincial governments of tax receipts, but also doing harm to the competitiveness of Canadian companies.

Moreover, skills training is essential in order to better match labour market requirements and improve workforce productivity. In this connection, the council sees the introduction of an employment insurance contributions credit for training expenses, especially for formal training when new investments are set up, as another way for the employment insurance program to help maintain and create quality jobs.

We would like to stress that it is not necessary, in our view, to enhance the Quebec and Canada pension plans because the need is not widespread.

Another point I would like to make regarding labour is that the recent changes to the temporary foreign workers program, despite their laudable objectives, make the hiring process much more complicated and expensive.

[The Chair, Conservative, James Rajotte]

I'm sorry; we have a point of order.

Mr. Van Kesteren.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Am I the only one who has lost translation?

[The Chair, Conservative, James Rajotte]

Is the simultaneous interpretation coming in?

Does everyone have translation?