Finance Committee on Oct. 19th, 2017

[The Chair, Liberal, Wayne Easter]

We'll call the meeting to order. As everyone knows, these are the pre-budget consultations in advance of the 2018 budget.

I first want to welcome everyone. For those who are at the table, we have what's called an open mike session for 15 minutes or thereabouts before we start, depending on how many witnesses we have, and for half an hour after the last panel at 12:15.

We'll start with the open mike session, which is really, for those who don't know, a one-minute statement at the mikes. There are no questions, but it does give people the opportunity to get their point of view on the record and be part of the pre-budget consultations.

We'll start first with Jerome St-Denis.

Welcome, Jerome. Go to one of the mikes and you're away.

[Jerome St-Denis, As an Individual]

Honourable members, 130 million girls are out of school. That is 130 million potential engineers, potential entrepreneurs, and potential political leaders the world is missing out on.

The African continent is on the cusp of a demographic transition. By 2050, the continent will be home to nearly two in five of the world's youth. Sub-Saharan Africa's working-age population is set to triple to 1.25 billion and its population is projected to rise to over two billion. The potential of a demographic dividend can be an immense economic opportunity for Africa and for the world, but this opportunity can only be hastened if we take action now.

Today, we ask Canada to contribute to the financing of the Global Partnership for Education in 2018 as part of the solution so it can help millions of girls in the poorest countries get the education they deserve.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Jerome, and congratulations to one who has had a presentation at every panel hearing, I believe, including in Yellowknife.

Mr. Ron Watt is next.

Welcome, Ron.

[Ron Watt, As an Individual]

Thank you, and good morning.

My name is Ron Watt. As you may have guessed, I'm a senior and I worked for the Canadian public service for 35 years. When I retired, I joined an organization that is now known as the National Association of Federal Retirees. I joined here in Windsor, am a proud member, and I continue to serve as the past president of that organization. We have about 850 members locally, and nationally we have about 180,000. That includes 60,000 ex-military personnel.

Today we have three points that we would like to leave you with for your consideration in the 2018 budget: one, secure retirements; two, strong health care; and three, a national seniors strategy. We feel these are the best ways to help seniors and their families.

On retirement security, I urge the government to scrap Bill C-27. This bill would introduce a new type of pension plan and target benefit pensions, while taking away retirement security and killing off a good defined benefit plan that people have worked for and that bring benefits back to their communities and their families.

For budget 2018, I believe the federal government should lead a national seniors strategy that builds on the home care and seniors housing investments that have been made so far. The strategy needs to include a national palliative and end-of-life care strategy and better pharmacare for seniors, and it must continue to tackle infrastructure investments with age-friendly communities and universal design standards in mind. To ensure residential needs are met, the government should appoint a minister responsible for seniors. This would allow public policy to be heard that impacts our age group.

In summary, these actions would lead to better productivity and a stronger economy, not just for seniors but for their families and Canadian communities.

Thank you for giving us the opportunity to appear. Good luck with your ongoing work.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Watt.

We turn then to Kamal Mann.

[Kamal Mann, As an Individual]

My name is Kamal Mann. I am here as a volunteer on behalf of Engineers Without Borders Canada.

In budget 2018, we ask that Canada commit to a timetable of predictable annual increases to its international assistance envelope that would bring Canada's development assistance to 0.31% of GNI within the government's first mandate.

Canada's current level of development assistance is 0.26% of GNI, and it's the lowest in recent history. While development assistance globally has increased 9% in the past year according to the OECD, it is disappointing that Canada's own contributions have declined by 4%.

Increasing aid will help Canada achieve the sustainable development goals and increase economic growth. Forthcoming research from the Canadian International Development Platform suggests that countries receiving development assistance tend to import more Canadian goods than they would without aid.

We hope that budget 2018 can correct this downward spending trend so that Canada can fulfill its global commitment. Thank you very much for your time.

[The Chair, Liberal, Wayne Easter]

Thanks very much, Kamal.

With that, then, we will turn to our witnesses. I know a couple are coming in late. Mr. Fisher just got here. I know he was flying in through Detroit. In any event, we will start with presentations in one moment.

Just to begin, to give an overview of the makeup of the committee, this a subcommittee of the finance committee. The full membership doesn't travel. To give an overview, to know where people come from and where they represent, I'll get members to introduce themselves, going around the table.

I'm Wayne Easter, member of Parliament from Malpeque, Prince Edward Island, which is the middle riding in P.E.I., between Summerside and Charlottetown.

We'll start with our Ontario folks and Mr. Grewal.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Chair.

My name is Raj Grewal. I'm the member of Parliament for Brampton East. I'm happy to be back in Windsor. I spent my first year of law school here at Windsor law school before I transferred out. I always appreciate its charm.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Hello. Good morning. I'm Jennifer O'Connell, member of Parliament for Pickering—Uxbridge, on the east side of Toronto.

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

Good morning. My name is Greg Fergus, and I am a Liberal Party member representing the riding of Hull—Aylmer, which is very close to Ottawa.

[The Chair, Liberal, Wayne Easter]

On the translation devices, I think English is likely 1 and French is number 2.

Mr. Albas is next.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you, Mr. Chair.

Good morning to everyone. My name is Dan Albas, and I am the member of Parliament for Central Okanagan—Similkameen—Nicola in the interior of British Columbia. I was here in Windsor last year doing some tours of local businesses with my interim leader, and certainly found it to be a very vibrant city. I'm looking forward to hearing the testimony today.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

I'm Tom Kmiec. I'm the member of Parliament for Calgary Shepard.

[The Chair, Liberal, Wayne Easter]

Go ahead, Alexandre.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Good morning, everyone. My name is Alexandre Boulerice, and I am the member for Rosemont—La Petite-Patrie, a riding in downtown Montreal.

[The Chair, Liberal, Wayne Easter]

Thank you, all. We'll start with the first witness, the City of London, and Mr. Helmer and Mr. Thompson.

Welcome. The floor is yours.

[Jesse Helmer, Councillor, City of London]

Thank you.

Chair and members of the Standing Committee on Finance, thank you for the opportunity to appear before you today. I'm joined today by Adam Thompson, who is our manager of government and external relations with the City of London.

As the largest urban centre in southwestern Ontario, London provides economic and social opportunities for all 2.5 million residents in the region. Southwestern Ontario is a very large region of 2.5 million people. We are embracing our role by providing infrastructure, jobs, and amenities that citizens rely on every day. Those of you who have been councillors in the past know how municipalities are delivering at the local level.

We recognize that we rely on our entire region's success much the same as the region relies on our success as one of the big mid-sized cities in the region, and we do want to speak to some regional aspects today.

Southwestern Ontario, as you may know, is really a region of mid-sized cities. We don't have any one dominant city, but a number of mid-sized cities fairly close together.

To ensure London and southwestern Ontario continue to prosper, we have identified three areas for partnership with the federal government in the 2018 budget, and I want to speak to those today.

Our number one priority is for the city to continue to bring rapid transit to London. We're looking at a bus rapid transit system. We are the largest city in Canada that does not have rapid transit already in planning or in operation. “Shift” is what our rapid transit is called, and it will really unlock our full potential and make it easier for people to move around the city in an affordable way. It will connect our education and health care institutions, universities and colleges, the hospitals, major employers downtown, and our really great neighbourhoods that are scattered throughout, especially at the core of the city, where they're very transit-supportive.

We're expecting about 43,000 new jobs and a lot more people to move to the city of London over the next two decades, so making sure that we do not run into paralyzing congestion problems is very important for our long-term economic success and future competitiveness. Doing rapid transit now before it's, frankly, more expensive and more disruptive is very important for London.

In the last budget, $81 billion was advanced for municipal infrastructure, and we certainly were glad to see that. We're expecting more details to come in the coming months, and we're ready to bring that transformative change to London through rapid transit.

Our second priority relates to providing safe and secure homes for Londoners. It has certainly been encouraging to see governments at all levels focusing greater attention on issues of poverty reduction, affordable housing, and homelessness prevention. Increases to the federal homelessness partnering strategy and support for enumeration events will help us to understand and improve capacity and provide concrete data about what's going on in London when it comes to homelessness. As the homelessness partnering strategy is reviewed in advance of 2019, we would certainly encourage the federal government to commit to an increase in the total funding allocated to the strategy, particularly for mid-sized cities such as London that address regional needs in their communities.

Just to give you a sense, because we have a series of mid-sized cities in southwestern Ontario, we have a disproportionate burden, in that a lot of people from rural areas will move into the bigger cities when they run into issues around precarious housing. Support services are just not available in rural places, so they come to places like London. Unfortunately, sometimes the partnering strategies can be designed for very large cities like Toronto or Montreal, and they don't necessarily work as well for a mid-sized city like London. Those mid-sized cities have particular challenges, and we hope that the partnering strategy recognizes that.

I also want to speak about affordable and social housing, and what we would consider to be a crisis there. I know it's discussed many times in the context of bigger cities, but also in mid-sized cities it's a significant issue. In London we have 3,200 social housing units. In Ontario, the responsibility for that infrastructure was downloaded to the municipalities years ago, and our property managers at the London and Middlesex Housing Corporation are telling us, after doing an audit of the condition of the buildings, that we're looking at maybe a $225-million infrastructure problem in terms of repair and maintenance of those social housing units. That's just in the city of London that $225 million is going to be needed over a 20-year to 25-year period.

A lot of these housing units were built around the same time, so the problem is happening all at once. It is not unique to London; it's common across many mid-sized cities and larger cities.

To begin addressing this looming deficit, we need to start now. It's, frankly, cheaper and easier to start fixing some of these issues now before they get worse. We are looking at for a 10-year, $20-million investment from the federal government, over and above existing funding. That's $20 million a year over 10 years.

Finally, I wanted to speak to public infrastructure. The way we travel, the water we drink, and the spaces where we connect have a profound impact on every aspect of our lives, so we were certainly glad to see phase one of the Investing in Canada fund, which has enabled a number of important infrastructure projects. We have a lot of construction projects under way in the city of London, and I've certainly been hearing about it from residents. Construction is great and the infrastructure renewal is great, but it's also pretty disruptive in the summer, as everyone knows. The reason we have so many under way is the money that was made available in phase one.

We're making some important improvements through the public transit infrastructure fund, the green infrastructure fund, and the community culture and recreation fund.

The PTI funding, the public transit infrastructure fund, has allowed us to make significant improvements to support that rapid transit project. Even in phase one it's helping us do that and it's helping us look at highly congested areas. As an example, we have a number of at-grade rail crossings through the middle of the city and we have a freight rail line running through there for both CN and CP. We're able to deal with some of those issues as well with that federal funding, which is helpful.

The green infrastructure fund is going to contribute for sure to the long-term sustainability of our city and help us address some of the bigger environmental concerns in the region. In particular, I want to talk about the Canada–U.S. domestic action plan for reducing phosphorus in Lake Erie. This is a major regional concern. Frankly, it's of international concern. That's why we have the provinces and the states in the Great Lakes region talking about it, municipalities all over the Great Lakes region, and the federal government and the Government of Ontario and the Government of Quebec and other areas are really working on this issue.

The targets are very aggressive in Ontario. We're talking about a 40% reduction in phosphorus loading into the lake. That is going to require some significant expenditures, and it cannot be done by municipalities alone. The federal government and the Ontario government have set out targets, and we would like to see that funded through the green infrastructure fund but not with the municipal allocation. We don't want it to displace all the other things we need to do around climate change adaptation and green energy. There are all kinds of things that need to be done with that fund, and specifically for the investments we need to make around the domestic action plan and phosphorus, we'd like that to come ideally from the provincial allocation.

The community culture and recreation fund is the last thing I'd like to speak about. That really helps us to do things at a local level that make the city more livable and improve the quality of life. To give you one example, we have a great river valley bike trail, very similar to the one you'd see in Edmonton, for example, but it's disconnected from east London, which is the blue-collar working-class side of our city. There's just a gap. You can't get across the river, so people in east London are really blocked from that area. This kind of funding is going to allow us to do things like connecting those folks with the existing recreation corridor.

I would like to thank the committee for inviting us here today. We're certainly very excited about the infrastructure funding. We also want to make sure that it flows in a practical way that allows us to execute on the projects quickly. As phase two is coming up, the details of that phase are very important in terms of how we deliver the projects.

I would certainly be happy to answer any questions. We really hope that London and southwestern Ontario will be a priority in the budget process.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Jesse.

Turning then to McMaster University, we welcome Mr. Baker.

[Dr. Robert Baker, Vice-President, Research, McMaster University]

Thank you.

My name is Rob Baker. I'm the vice-president for research at McMaster University. I want to thank the committee for the opportunity to speak to you today about McMaster and our views on the country's productivity and competitiveness.

At McMaster, we put a lot of emphasis on integrating research and learning, helping our students develop the skills they will need to move into the workforce. The federal government's investment in research and education drives productivity by developing a talented workforce who discover innovations and address tomorrow's big challenges.

This year we have a real opportunity. The Minister of Science commissioned the fundamental science review, which highlights the critical role of scientific research in shaping a dynamic society and a competitive economy in Canada.

The fundamental science review recommended changes to funding programs, governance, coordination, and budgetary recommendations. It is quite simply a road map for research.

At McMaster, we support the review's recommendations for the further investment in the tri-councils, those being CIHR, NSERC, and SSHRC. The review also recommends a stable annual budget for the Canada Foundation for Innovation so that we can continue to reap the benefits of our world-class research infrastructure, which enables us to attract world-class researchers and train tomorrow's innovators and helps us discover the solutions to tomorrow's challenges.

Lastly, the fundamental science review calls on the federal government to fund the full cost of research by increasing investments in the research support fund. We strongly support the science review's findings and recommendations and believe that they are a critical way to increase productivity and Canadian competitiveness.

At McMaster, our researchers find new solutions to Canada's big challenges. We have several areas of expertise that align with Canadian priorities, areas where we would encourage government investment. One example is our research on antimicrobial resistance. At the Michael G. DeGroote Institute for Infectious Disease Research, our researchers have helped position Canada as an international leader in drug-resistant infections. The institute has cutting-edge equipment and leading experts working on global solutions to the ongoing threat of these very dangerous microbes. Addressing this challenge will reduce health care burdens and costs.

Another significant research initiative at McMaster is our longitudinal cohort studies. The 2016 census showed that there are more Canadians over the age of 65 than under the age of 15 for the first time ever. This demographic shift will create new challenges that can be addressed only by understanding issues facing aging Canadians. Improving the quality of life and enabling Canadians to make positive, healthy choices are federal objectives that will directly impact Canada's productivity.

McMaster's longitudinal cohort studies study many large groups of participants over an extended period of time in order to determine the effects of various risk factors on healthy aging from birth to death. Due to their length, these longitudinal studies often face difficulties in securing consistent funding over the entirety of the study period. McMaster encourages you to consider alternative methods of providing long-term funding.

McMaster also leads in advanced manufacturing research, working with industry partners to develop more innovative solutions to industry problems. McMaster leads Canadian universities—all Canadian universities—in industry-sponsored research. Over the last five years, we have attracted over $588 million in corporate research money, which helps drive competitiveness in our region and the country.

We also leverage targeted government funding to attract international investment. One example of this is McMaster's biomedical engineering and advanced manufacturing project, supported by FedDev, other government partners, and Germany's Fraunhofer Institute.

Lastly, McMaster's nuclear reactor is in a critically important position with the upcoming closure of the reactor at Chalk River. Chalk River and the McMaster reactor supply Canadian and international researchers with neutrons for research in environment, energy, medical sciences, and nuclear physics. Our reactor is the only facility in the country able to absorb some, but not all, of this research demand. At McMaster, we are constantly working to improve neutron access for Canadian research and building national and international partnerships to ensure this critical research continues. Without access, we will lose industries, business, and our competitive basis in this most critical area.

I want to thank the committee for the invitation to speak to you today and I look forward to any questions you may have.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Baker. Just as a point of clarification on the fundamental science review, is that the same thing as the Naylor report?

[Dr. Robert Baker]

Yes.

[The Chair, Liberal, Wayne Easter]

Okay, great. I think we've heard, at every stop, about the Naylor report. It's just so we're talking the same language.

Next we have the Sarnia Lambton Chamber of Commerce.

Welcome, Ms. de Silva and Ms. Shepley.

[Shirley de Silva, President and Chief Executive Officer, Sarnia Lambton Chamber of Commerce]

Thank you.

The Sarnia Lambton Chamber of Commerce is a nationally accredited membership organization, representing over 700 businesses that together employ 17,000 employees in the Sarnia-Lambton area. This chamber has been fostering prosperity in our community for over 112 years by empowering business to succeed and by initiating major tourism, health, and education projects that have a lasting impact to this day. We thank the Standing Committee on Finance for inviting us to comment on the 2018 federal budget.

Over 95% of our members are small businesses, and what we've heard from them is that they are finding it increasingly difficult to succeed because of increasing costs and regulations, labour market changes, and trade uncertainty. These factors can lead to profoundly negative consequences, including job losses, inflation, and business closures. There's much to be said about how the federal government can tackle these challenges, but the past couple of months, and especially this week, have made it very busy for us, and I must first address the most recent events, which have left our members confused and uncertain, which is never a good thing for business.

As you know, about two and a half weeks ago the government concluded its rushed dead-of-summer consultations on the most significant corporate tax changes in 50 years. Then it was revealed that Revenue Canada was going to start taxing employee discounts. There was a huge outcry, and the government backtracked. Now this week, which also happens to be Small Business Week, the government announced a small business tax reduction and its intention to rethink the proposed corporate tax changes. The government appears to have heard the enormous outcry by business organizations and is scrambling to make improvements. After months of uncertainty, we are now informed that the capital gains on intergenerational business transfers will not be touched, that income splitting will be permitted for family members involved in a business to some degree, and that a maximum of $50,000 annually can be invested passively into a company, but that's all that we know. The details remain to be seen, and other announcements are expected this week. As you can understand, we've been a bit preoccupied and are cautiously waiting to see what will happen.

Of course, we're pleased to see that finally the federal government is fulfilling its campaign promise to lower the small business tax rate to 9%. It's something that chambers of commerce and boards of trade across Canada have been calling on for years. It will indeed help our members reinvest back into their businesses and the economy and to become more competitive. Unfortunately, it will not come soon enough. The reduction is already late by two years, and it will not be fully implemented until 10 months after the next federal election. It's hard to say how much it will offset the new costs of the proposed corporate tax changes.

We're also pleased to see that the federal government appears to be backtracking on the flawed and unfair corporate tax reforms. When the government released its white paper in July, our members were left reeling, not just by the measures proposed in the documents but also by the tone and language used. We welcome further improvements, but it must be done in consultation with the business community. The devil is actually in the details, and we know that it will take the expertise of accountants, tax preparers, and those affected to understand the real impacts.

In fact, what would be fair to business and to all taxpayers would be a full, independent review of the tax system. Chambers and boards of trade across Canada are calling for an immediate and thorough review. The United States is conducting one, so it is critical that Canada do the same to remain competitive. We cannot risk losing professionals, entrepreneurs, and start-ups to the U.S.

Before my time is up, I'll quickly mention a number of other priorities that we think the 2018 budget could address to help business.

The first is increasing the GST/HST tax filing threshold for small businesses from $30,000 to $50,000, and indexing it to inflation. The second is developing a national bioeconomy strategy so that communities like Sarnia-Lambton could attract new businesses and develop bioeconomy clusters. The third is enabling VIA Rail to improve its financial position and services by supporting its plan to invest in a high-frequency corridor using dedicated tracks. The fourth is establishing a task force to harmonize the transportation of oversized load shipments across the country.

I would be happy to answer any questions. Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Shirley.

Then turning to 3M Company Canada, we have Ms. Rayner and Ms. Maheu. Welcome.

[Elise Maheu, Director, Government Affairs, 3M Company Canada]

Thank you. On behalf of 3M Canada, I'd like to thank the Standing Committee on Finance for the opportunity to appear before you as part of the consultations of the 2018 budget.

Ranked as the third most innovative company in the world, behind only Apple and Alphabet, 3M remains focused on utilizing technology to meet Canada's current and future needs in key areas such as energy, health care, safety, automotive, aerospace, and general industrial.

Research and development is at the very heart of 3M. That is why we reinvest 5.8% of sales annually into science. This investment helps 3M produce more than 3,000 patents each year. In collaboration with our customers, 3M is helping solve the world's toughest challenges by leveraging the power of 46 technology platforms to create better, safer, and more economical solutions for different market spaces. Headquartered in London, Ontario, since 1952, 3M Canada continues to invest in science, research, innovation, and talent.

There are several federal measures that would help Canadian businesses become more competitive.

One of the most powerful levers any government has at its disposal is taxation. Taxation can and should be used as a tool to incent investment in Canada and drive innovation. In an increasingly globally competitive environment, both manufacturing and research and development investments are subject to competition when it comes to choosing one jurisdiction over another. Half of 3M Canada's sales are generated by our nine Canadian manufacturing facilities, and the great majority of these sales—more than 85%—are exported to the United States.

3M Canada must compete with other countries around the globe for manufacturing capital investment. In 2012, the “Global Tax Competitiveness Report” ranked Canada the 19th-highest tax burden on new business investment among 34 OECD countries. By 2014, Canada had moved up to the 14th place. Consequently, the proposal that we will highlight today focuses on incentives to attract investment in Canada.

The most impactful proposal, in our opinion, is to implement an innovation box system, also called a patent box system. To help accelerate the commercialization of intellectual property developed in Canada, we echo the recommendations set out by the Advisory Council on Economic Growth in February 2017 to create a patent box. A patent box would incent R and D investment in Canada and encourage businesses to develop and commercialize patents in Canada. It provides a preferential tax rate to manufacturers on income derived from patents and other intellectual property.

More than 12 countries now have some form of patent box. A version of this plan has also been introduced in Quebec and in Saskatchewan in 2017. The Quebec program applies an effective tax rate of only 4%, and Saskatchewan 6%, on qualifying patent income. While action at the provincial level is needed and most welcome, action is also required at the federal level to develop a truly effective and compelling Canadian patent box system to help attract manufacturing and R and D investment.

In addition to a patent box, we also recommend a permanent accelerated capital cost allowance reduction for environmental and advanced manufacturing technologies to allow manufacturers to claim an immediate first-year writeoff of all qualifying capital expenditures, including software.

Another tax measure to spur investment would be to expand the Atlantic Canada investment tax credit program to the rest of Canada and increase the tax credit rate from 10% to 20%.

Finally, as NAFTA negotiations continue to be top of mind, we would like to take this opportunity to further emphasize the importance of negotiating a successful NAFTA trade agreement and avoiding trade retaliation measures that could impact integrated supply chains. 3M is committed to Canada and will be part of its growth in the long term. We have a long-standing history in both Canada and the U.S. and would like to see that strong trading relationship continue. We have a fully integrated North American operation. 3M Canada is a net exporter from Canada to the U.S., and more than 1,000 of our Canadian employees' jobs are dependent on our ability to sell globally.

In conclusion, thank you for the opportunity to present to you today. I look forward to your questions.