Finance Committee on Oct. 16th, 2017

[The Chair, Liberal, Wayne Easter]

Thank you very much, Gabriel.

From Mining Industry NL, we have Mr. Moriarity.

Welcome.

[Ed Moriarity, Executive Director, Mining Industry NL]

Thank you.

Thank you for the opportunity to appear before the committee and to participate in this pre-budget consultation.

I'm the executive director for Mining Industry NL. Our association represents 60 members actively engaged in mineral exploration, mine development, mine operations, and the provision of supply and professional services in this provincial mineral industry.

Our industry is a significant economic driver in this province and generates in excess of $3 billion annually in mineral shipments to markets around the world. It directly employs over 7,000 people. We account for 50% of Canada's iron ore and approximately 20% of the country's nickel. Overall, Newfoundland and Labrador ranks fifth in the country in terms of our mineral production, and we produce a variety of minerals here. Copper, cobalt, and gold are particularly relevant in our sector, and we have a promising future, we believe, in base metals and industrial minerals. In fact, in this province we have a 150-year history in mining, with a diverse geology and under-explored mineral endowment. We are confident that our industry has a great future and will make a positive contribution for many years to come.

Canada, of course, is a world leader in mining. Newfoundland and Labrador is also well known for world-class mineral deposits, from Buchans in the interior of the island to the iron ore deposits in the Labrador Trough to nickel, copper, and cobalt up in Voisey's Bay.

Newfoundland and Labrador generates billions of dollars in mining-related economic activity. In order for our industry to remain competitive, measures are needed throughout the mining cycle, from geoscience and exploration and beyond to mine operations.

The mining cycle starts with geoscience, and prospecting and early-stage exploration activity are key to our future. Mining Industry NL recommends that both orders of government maintain a strong public commitment to the advancement of geoscience in the province. Companies, after all, access and use this information to guide their exploration activities. Our association would therefore encourage the Government of Canada to continue and to enhance its commitment to the geo-mapping for energy and minerals program, the GEM program. Recent GEM program work has advanced geological understanding of the mineral potential of Labrador. This work has included detailed geophysical surveys, regional mapping, till geochemistry, and regional bedrock mapping in western Labrador.

Raising capital is very important to our industry. Mineral exploration throughout the country has experienced a strong downturn over the past several years. It's been a tough period for junior companies to raise money and undertake the work necessary to find that next mine. I'm happy to report, though, that there has been a bit of a clear reversal of this trend over the past year, at least in Newfoundland and Labrador. With over 33,000 new claims staked since August of 2016, committed exploration expenditures are expected to rise from roughly $20 million to a forecast of around $30 million. That's the direction we're happy to see at this particular point in time. This is a long way off, of course, from our 2012 peak of $192 million; however, our association is encouraged to see this resurgence in activity, particularly in gold and base metals exploration.

To continue this momentum, Mining Industry NL, along with our association colleagues throughout the country, including MAC, the PDAC, and others, would recommend that the mineral exploration tax credit be renewed for a period of three years and that flow-through shares be maintained to ensure continued interest and investment in the sector. By providing Canadians with a strong incentive to continue to invest in mineral exploration activities, we can support the advancement of new discoveries through to mining projects.

In terms of our Atlantic presence, Mining Industry NL is pleased to participate in the Atlantic trade and investment growth strategy. Collectively, industry and government in the four Atlantic provinces are working together to advance a mining sector investment and export development plan. The strong commitment to this and other initiatives through the Atlantic Canada Opportunities Agency and other federal departments serves to ensure that strategic investments for growth are made throughout the mining sector. Industry-wide activities that attract foreign direct investment into the province and bring Newfoundland and Labrador's mining story to markets in Asia, Europe, and the United States are needed.

Initiatives to address productivity and competitiveness through support for innovation, the introduction of new technologies and processes at our mine sites, and the advancement of clean tech and green mining are critical to our industry's future. Mining Industry NL recommends that the Canada Mining Innovation Council be supported to develop the Towards Zero Waste Mining innovation strategy. This, of course, aligns with the government's innovation, climate change, and clean tech agenda. As a small association, we are pleased and interested to collaborate with our national partners to see our firms achieve zero waste in mining and mineral processing in the coming decades.

Without people, we don't have a mine. Of course, investing in people and communities is essential for our industry. MINL strongly supports the full participation of indigenous peoples in mining through education and training supports, business development partnerships, and employment. Efforts are also being advanced in this province to assess the feasibility of a mining centre of excellence that would help engage and support a coordinated approach to education and training, and to research and development activities within our local industry.

Finally, on the regulatory front, the regulatory environment impacts investment decisions and influences where companies choose to explore and advance their interests. The review of federal environmental legislation, including the Canadian Environmental Assessment Act, must find that balance between the public interest and industry's need for an effective, timely, and coordinated regulatory process. We need to ensure that projects advance with greater certainty and that government has the internal capacity necessary to meet these responsibilities and help avoid delays. An improved compliance framework can reduce project costs and increase our industry's competitiveness in comparison with other jurisdictions around the world.

With that, I close my comments. Thank you for the opportunity to share my views with you this morning.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Ed.

From the St. John's Board of Trade, we have Ms. Keating, chair, and Ms. Healey, CEO.

Welcome.

[Dorothy Keating, Chair, St. John's Board of Trade]

Good morning, and thank you very much for the opportunity to speak with you today.

Nancy and I will be a tag team this morning with our comments for the chair and the honourable members, so thank you very much.

As mentioned earlier, the St. John's Board of Trade did a pre-budget submission in August. I believe you have received a copy of it, but the proposed changes announced in July have overshadowed all sorts of discussions around budget 2018.

The St. John's Board of Trade has been in existence for over 40 years, and never have we seen such outcry from our members. We are receiving daily phone calls in terms of the implications and ramifications of these proposed changes for our members' businesses. The reason is that these changes are so broad, so far-reaching, and have so many unintended consequences.

Honourable members, there is likely not a restaurant or a fish plant or any business that does not have family members working in the business, and almost every single business in Newfoundland and Labrador has the goal of financial stability, with savings of passive income to help through difficult times. In fact, they have been encouraged by their financial professionals to save for these rainy days. It is as though the finance department crafted tax measures that would affect the maximum number of businesses in the most complicated manner, yet has not identified the true revenue that would come from this measure. The amount quoted with respect to income sprinkling is $250 million, but there has been no real communication of what the total tax impact is going to be on the economy or on small businesses.

Here is what our members are worried about. Business owners generally spend their life savings in their businesses. They don't have separate retirement accounts. They don't have that luxury. They accumulate these surplus funds so that they can use them to get through economic downturns or use them for capital investment. We've spoken to one owner who is in the construction business, who says that he needs passive income to grow his business and to weather through these cycles of upturns and downturns. This new proposed tax change is attacking this very measure for him.

If government hits investment income—in Newfoundland and Labrador, that's a 73.88% tax hit—business owners will not have the incentive to retain those investments in their businesses for growth. They'd be better off taking the money out and into their own pockets. This means less investment, fewer jobs, and less of a cushion to make it through the downturn. That means less productivity.

There is a Bank of Canada study called “Productivity in Canada: Does Firm Size Matter?” They say that half the productivity gap between companies in the United States and in Canada is because the companies in Canada are smaller. Smaller companies have less to invest in capital, less to invest in skills. These proposed tax measures are going to cause even less money to be retained for these initiatives.

Imagine a venture capitalist who specializes in green technologies. She takes an equity position in businesses to help those companies grow and to try to start commercialization of environmental technology. These investments are passive investments. If they are taxed at 73.88%, there is going to be very little to help with this initiative.

Try to imagine explaining all of this to foreign investors who want to come into our country and into our province. The apportionment method of taxing passive income allocates income to three pools, a pool for shareholders and pools that you have to keep track of. This complexity is absolutely mind-boggling for professionals who deal in this on a daily basis. Imagine trying to explain this to individuals who are not Canadian and not from this country, but who we want to come in to invest and help us grow. They're not going to come here. They're going to go to the United States or other areas.

What happens as a result of these tax measures? We have fewer jobs. We have less investment. We have less of a cushion to get us through economic downturns, less venture capital, and less foreign investment.

When we point this out, government has said repeatedly, “This is not our intention. It's really about the high-income earners.” I'm confused, because whatever the intention may be, the real consequences of what are proposed through these tax changes will be on small businesses and on the Canadian economy, and it will be negative. Ask any financial accountant professional in the country and they will tell you the same thing.

Ladies and gentlemen, the St. John's Board of Trade has been around for many years, and we have seen some bad ideas. This unequivocally is the worst. That's why we're urging the government to put these changes on hold, take these proposals off the table, launch meaningful consultations with the business community, and address the shortcomings in the tax policy without unfairly hurting unintended victims.

[Nancy Healey, Chief Executive Officer, St. John's Board of Trade]

Thank you, honourable members.

Taxes are not the answer. For the past several months we've been focused on these senseless federal tax proposals. It's an unfortunate distraction, because the real problem is not the amount of tax that the federal government collects but the amount of money that it spends. Every business owner and every individual person is willing to pay their fair share of municipal, provincial, and federal tax; what grates on us, though, is how inefficiently it is spent.

We know there is waste. We know there is little innovation, and we know that governments are afraid of unions. The level of debt in this country and in this province is staggering, and it seems to be the dirty little secret that every politician is afraid to face. The federal government is liable in this regard. Canada's debt is $652,303,967,376.95. That was as of Friday, so it's probably gone up a bit more since then.

Each Canadian's share is $17,898.98. This is only the federal portion. In 2016-17, interest payments on the federal debt totalled $25 billion, which is more than what Ottawa spends on transfers to Canadian families in the form of children's benefits—$22 billion. It's also equivalent to the federal government's planned budgetary deficit of $25 billion. To put it differently, in the absence of the federal interest payments, Ottawa could wipe out its deficit this year, despite its marked increase in program spending.

Now let's add in the sub-sovereign debt. If we combine our sovereign debt—the federal government's—and the sub-sovereign debt, we have one of the worst levels of debt per capita amongst the advanced economies of the world. Each Canadian is not only responsible for servicing the federal debt; we have to service the provincial and local government debt too. When we add up just the interest payments on the various forms of governments across the country—federal, provincial, and local—the total in 2015-16 was $63 billion, approximately equal to the $64 billion Canada spent on primary and secondary education in 2013-14, which is the latest year of available data.

This charade over the past few months by finance minister Bill Morneau has been a great distraction for him and his officials in finance. Instead of trying to generate more revenue, why not better spend the money you already have? Where is the commitment to cost savings? Where is the commitment to reducing debt? Governments should be much more meagre with our money and our children's money, and now, I fear, regretfully, our grandchildren's money.

We don't have the luxury of optimism for the future without commitment. The business people who I represent at the St. John's Board of Trade want Newfoundland and Labrador and Canada to be successful. They are committed to innovating and improving. They have chosen to invest here. They have chosen to employ people here. They have chosen to raise their families here. They are part of the solution. Are you?

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you both. I've seen that debt number. I've been to Washington a number of times. If you go into the Blue Dog Democrats' offices, you see a TV on the wall that shows the U.S. debt minute by minute. Ours is scary. Theirs is far worse, I'll tell you.

In any event, we'll turn to questions. Mr. Fergus, we'll have a six-minute round.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you very much, Mr. Chair.

I would like to thank all of the witnesses for their statements.

My questions are addressed to Ms. Rowe and Mr. Miller.

I will begin with you, Mr. Miller. We did a tour of the Canadian west last week. In Saskatoon and the Northwest Territories, witnesses spoke to us about the importance of investing in the social sciences. As we know, between 2006 and 2012, there were cuts of about 7% to the Social Sciences and Humanities Research Council of Canada, for instance. Canada has fallen behind in social sciences research, as compared to its international competitors.

Can you explain to us why it is important for Canada to increase its investments, but also how this research could improve the lives of Canadians?

[Gabriel Miller]

Thank you very much, Mr. Fergus.

I am going to speak French first, but I may speak English afterwards.

In my opinion, there are two main reasons why it is important for Canada to increase its support for the social sciences and humanities.

First, it is increasingly obvious that this will be essential for our economy. Over the past 10, 15 or even 20 years, some people have maintained that our economy and future depended entirely on the physical sciences, or new technologies.

However, today, we are not sure how we will develop those technologies in the future. We need flexible employees who are able to meet different challenges. They have to have the intellectual and personal skills that allow them to work effectively with many people, using different approaches that allow them to communicate

and to think critically. That's the first thing.

I think that increasingly we're going to need more adaptive and more innovative people to succeed in a world where technological change is so fast and, frankly, so hard to predict.

The other thing, as this government knows well, is that the country has many social challenges that are issues we want to address as Canadians, not only because we care about our quality of life and justice but also because they have real financial implications. If we take indigenous reconciliation as an example, not only have we made a commitment as a country to reconcile and confront the legacy of that history but there are also potentially huge economic benefits for Canada as well. If we can learn how to free up the potential in those communities and empower those people, they have an enormous contribution to make to our economy.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you very much.

Ms. Rowe, thank you very much for your testimony. Of all the witnesses who came before the committee, you are the first to have spoken about the importance of the volunteer sector. And yet, it is important for the well-being of our communities.

You mentioned the main suggestions you have for the federal government as regards the upcoming budget. However, I did not understand your second recommendation. Could you repeat it and give us more details, please?

[Penelope Rowe]

The recommendation was that career development and learning opportunities be incorporated into all employment programs financed by the Government of Canada.

Is that the question you're asking?

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Yes.

[Penelope Rowe]

Very often job creation programs simply create a job.

One of the things we have learned from our colleagues recently, for example, is that the skills link program, which represents a huge financial contribution by the federal government, is really not working very well. There are a lot of stumbling blocks with it that need to be reviewed. Its purpose is to provide career development, but it does not seem to be working well.

Second, I would make the argument that for some people, being put into a job is just not sufficient. Some people can clearly walk into a job and cope, but if we really want to fully engage all of our citizens, then we have to recognize that some people really need an early first step. As you're developing job creation programs and expanding such things as the Canada summer jobs program, perhaps there's a way of more fully integrating career development. For example, for one of the programs we did this year, there was a requirement for employers to release the funded employees for 25 hours during their summer employment specifically for career development opportunities. In our review with those young people, they told us that this was probably the most important part of their job. That was the point I was trying to make. I hope that clarifies things.

I also want to come to the bigger question that you posed to Gabriel. You may have noticed in my submission that I was the vice-chair of the Social Sciences and Humanities Research Council for many years, so I fully support the notion that being able to support that type of research will lead us to more socially innovative ways to deal with our complex problems. Canada is not just about technology; it's about how we do so many other things. With our increasing age and demographics, social problems, and changing economy, we need people who can think critically, as you put it, and who are good at collaborating and finding ways of doing things strategically.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you very much.

[The Chair, Liberal, Wayne Easter]

I want to mention that Mr. Butler has to leave in 15 minutes, so if anybody has a quick question they want to lever in, we'll let them into the lineup before he leaves.

You have one right now.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

My comments are addressed to Mr. Butler.

In Ottawa, some 20 or 25 years ago, I worked on the cod fishing dossier, helping to create programs for that fishery here in Newfoundland and Labrador.

Mr. Butler, you indicated that there are three different approaches to the fisheries. Do you think we should encourage the third approach, the one you described, which is a value-driven model for fisheries products?

[Derek Butler]

I think it is the best model.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Yes?

[Derek Butler]

Absolutely.

I'll turn to English more quickly than Gabriel did.

Absolutely. Here are my concerns. I'm in the business community. I'm seated at the far right of the table, and some will say appropriately so. I always joke that I have never been green about much, but I'm green about fish. We have the experience of poor fisheries management combined with the ecosystem change. We didn't just lose directives fisheries—as the chair will know full well—we also lost non-directive species. When the moratoriums hit in 1992-1993, it wasn't just commercial fisheries that were missing because we had overcaught or because the ecosystem had changed; we lost species that we had never had a directive for, that didn't come up in the fall surveys. We have the experience of collapse. It's a historical model of collapse, a horror story of collapse, and the world is watching now to see if we get it right this time around.

Under the TAGS program the chair referred to, $5 billion in income supports was spent in Atlantic Canada. Is that sustainable? Was that the best way forward? Are we prepared to do it again in the face of shellfish collapse? We take the basket that Mother Nature delivers to us and we need to fish from it sustainably.

My concern is with the first model, which is harvest-driven to derive wealth. I think we've run the experiment with the lowest population or birth rate of any province in the country or state and an aging population, and nobody is coming here from Manila for 10 weeks' work in rural Newfoundland and Labrador. That model will not run. That dog won't run. I think the third model will prioritize sustainable fisheries. It will allow more rent extraction from ministry participants so we can manage fisheries better. We can do better science and take the right removals from the ocean, and, I think, derive more value from them. I think that's the only model that can be sustainable. Make it environmentally sustainable. Do the right science and derive more value from the marketplace. We owe that to the ecosystem. Our history there is quite sad.

[The Chair, Liberal, Wayne Easter]

I know others want in, such as Mr. Boulerice and Ms. O'Connell, but we'll turn to Mr. Kmiec first, and then come back to the other two for the questions for Mr. Butler.

Go ahead, Mr. Kmiec. You have seven minutes. We'll do your round, and then we'll fit the others in.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

I want to start with the St. John's Board of Trade and Mr. Moriarity.

I used to work for the Calgary Chamber of Commerce as the manager of policy and research. I just want to commend you on the 28-page report you wrote on the small business tax change specifically. In your 28 pages, you're one of the few chambers or boards of trade that actually have many examples.

On page 22 you talk about the double taxation of estate tax, and you have a graph there that demonstrates what happens as you follow through these new tax proposals. I want to commend you on it, because I know how difficult it is to put together, and I've had many tax accountants tell me that these are complicated proposals.

Tell me about the business mix in Newfoundland. You know this better than I do. How many small businesses are there compared to the larger ones? What's the percentage that you have? Right here in the city, what do you see? Is it 70% or 80% of all businesses here? Is it 90%? I heard that Newfoundland actually has the highest percentage of any province in Canada in small businesses.

[Nancy Healey]

We have 850 members in the St. John's Board of Trade. The vast majority, 90%, have fewer than 25 employees, and 80% have fewer than 10 employees, and that's indicative of the entire province. I would hazard a guess that about 90% of businesses in Newfoundland and Labrador are small businesses. On occasion we count the large employers. A business with over 100 is a huge employer in Newfoundland and Labrador, and there's a handful of those.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

On these tax proposals of the federal government, we're waiting for some announcement today. We don't know exactly what the contents of that will be at this point.

You said you've had the most feedback from your membership that you've ever received on any issue. What type of feedback have you received from people?

You talked about foreign investment and how difficult it is to attract. Has any of that been related to attracting new businesses? Have people told you that they were going to open a business, and now they're not going to do that because they don't know what will happen? Tell me about that.

[Nancy Healey]

She has several stories.

[Dorothy Keating]

Those pages are an actual truncated document that we've sent, because there are several more examples. We hear from members every single day with respect to the concerns they have.

In terms of public companies, there is only one public company in Newfoundland and Labrador now. There used to be a couple, but there is only one, so as Nancy said earlier, the bread and butter here is the small business owners.

We have seen, through oil and gas in the province, the introduction of international companies that are interested in coming into Newfoundland and Labrador. For those international companies, the Canadian taxation system is extremely complex. For any international company coming into Canada, let alone to Newfoundland and Labrador, there are a number of complexities that they have to learn and they have to understand with respect to the various levels of taxation through the provincial and federal governments.

What we're seeing now with respect to our members is that they're trying to entice those dollars in and trying to get individuals to come and invest in our province. When you have tax complexities that already exist and are extremely difficult, and now they are being expanded with further difficulties and restrictions with respect to passive income and investment income, we are hearing from our members that the traction they were trying to make is being met with resistance because of the uncertainty.

The actual tone of the document that was released by the federal government was not business-friendly. That is not an environment that invites individuals outside this country to come here and invest and help individuals in our province and in our country grow. There is very much a significant issue around the enticement of investment dollars.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

I'll move to Mr. Moriarity.

Can you tell me what the opportunity is for new mines in Newfoundland?