Evidence of meeting #171 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was airports.
A recording is available from Parliament.
9:20 a.m.
Liberal
The Chair Liberal Wayne Easter
Thank you, Jim.
From the Saint John Board of Trade, we have Dean Mullin, treasurer.
Dean.
9:20 a.m.
Dean Mullin Treasurer, Saint John Board of Trade
Thank you.
Chairperson Easter, committee members, fellow witnesses, good morning.
Thank you for the opportunity to appear before this committee to discuss what the Saint John Region Chamber of Commerce, the chamber, feels are considerations that should be included in the next federal budget.
During the recent provincial election, the New Brunswick boards of trade, chambers of commerce and other associations created a platform called We Choose Growth, which has five pillars that lay out what our members, the province and the country need to be successful. These five are private-sector driven economy, responsible resource development, responsible financial management, improved export performance, and labour force development. I will try to focus on most of these this morning.
First I'll talk about private-sector driven economy.
New Brunswick is the best place to live in Canada. However, a competitive tax and regulatory environment is needed to attract new businesses, as well as allow current businesses to grow in this current global competition for capital and talent, regardless of the size of the organization. Our federal small business tax rates are competitive when you look only at the corporate level of taxation. However, with the additional consideration of personal tax rates and a top marginal rate in excess of 50%, there is a disincentive for business owners to achieve their full potential when more than 50% of what they earn will be paid in tax. This disincentive is worsened when a business is subject to the general tax rate of 29% in New Brunswick.
The recent changes in the small business deduction rules related to the amount of passive income one earns can double the income tax burden on many successful small businesses and remove growth capital from that business. As well, the wide-ranging changes that have occurred over the last several years have increased every business owner's accounting and legal fees just to remain compliant. Therefore, we recommend all recent tax changes be put on pause and a robust and complete review of the tax system, including tax rates, be undertaken to ensure that it is fair and equitable to all. Any review will, and should, take time.
However, New Brunswick and Canada need immediate action now to encourage investment, to stop the capital drain and to encourage growth. We suggest an immediate writeoff of capital expenditures as a start. This can be enhanced with a super deduction of 125% of the expenditure to allow a further incentive for investment and growth. For everyone, a reduction in the top marginal rate to below 50% would be positive. Further, a positive amendment to the recent changes to the tax on split income rules would be to provide for a spousal exemption, or raise the age it applies to for those under 25, and revert back to the rules that had worked effectively since the early 1990s. This would eliminate complexity and reduce risk for the business owner who wants to do things right, but has no idea how to apply the new, overly complex rules.
As New Brunswick is an aging society, current business owners are faced with succession issues. Many would love to transfer their business to family members, but the current rules make it nearly impossible, as most business owners cannot efficiently transfer their business to the next generation without significant tax costs. We suggest that a mechanism be introduced to allow the rollover of a family business to the next generation that would allow the current owner to enjoy the same benefits as if they sold to an arm's-length person.
Next is responsible resource development.
New Brunswick was built on the riches that the land and sea have provided to us, and the hard work of those who took risks with no guarantee of success. The current regulatory framework appears to be in constant flux and causes significant issues for anyone trying to start or grow a business utilizing these natural resources. The creation of any major piece of infrastructure, such as a pipeline, would draw in more business opportunities and give local businesses the opportunity to gain valuable experience that they can then take and use elsewhere. It would grow New Brunswick's tax base.
With this uncertainty, it is not surprising that we have no new private projects that bring new enterprises to New Brunswick that not only create immediate jobs but the lasting infrastructure that attracts additional new investment. Rules should be established that are reasonable and realistic, in collaboration with industry and stakeholders, and that don't pit opposing parties against each other but look at the national good. These rules should then be consistently applied to any project review in its development so that we can get something built in Canada.
To confront climate change by offering beneficial tax treatments, immediate writeoffs, super deductions or better refundable tax credits for modernization of pollution control equipment, upgrading to new efficient equipment or the installation of renewable energy sources, as opposed to charging carbon taxes, would create better results. Everyone in Canada is taxed out and can't afford any new taxes. Incentivize behaviour. Don't punish when there is no alternative.
Next is responsible financial management.
A fiscally strong, stable federal government helps Canada sell itself as a good place to invest. Running extreme deficits and accumulating debt with no clear plan to return to a balanced budget is not sustainable. Neither is trying to balance a budget through tax increases as we have passed the point where more taxes generate more income.
Therefore, we recommend that the government work to live with less, focus on the expenditure side of the income statement and don't balance the budget through tax increases. Every year that goes by that we are not dealing with this makes it harder to correct and puts Canada at risk of not being able to ride out the next inevitable downturn.
As for improved export performance, we are an export-focused economy, primarily through the U.S. We must expand to other markets. The federal government should provide better financial backstops for businesses wishing to enter new export markets.
However, it will take years to develop any new markets. The trade issues between Canada and the U.S. must be stabilized to maintain the free flow of goods to the U.S. Many New Brunswick companies that employ thousands currently depend on the U.S. market for their survival. Any disruption to cross-border trade would be devastating.
In the five minutes we've had, I have only touched on four of the five pillars of growth. There is much more to discuss.
Thank you for this opportunity to appear before you. I welcome any questions you may have.
9:25 a.m.
Liberal
The Chair Liberal Wayne Easter
Thank you, Dean.
Turning to the University of New Brunswick, we have Eddy Campbell, president and vice-chancellor, and David Emerson.
9:25 a.m.
Dr. H.E.A. Eddy) Campbell (President and Vice-Chancellor, University of New Brunswick
Thank you very much for the invitation to appear before you. It is much appreciated.
You are consulting with us on issues with respect to economic growth, and I want to speak to you about what I believe to be the critically important role of universities and colleges across the country in helping with economic growth. In particular, I am going to focus on New Brunswick and my university, and the role that we are trying to play in returning New Brunswick to sustainable economic growth.
For me, a minimum bar of achievement for our province would be to become a “have province”. I think that's actually a pretty low bar, but let's recognize that 36 cents of every public dollar that is spent in this country is from equalization payments. I think that part of our political discourse should be around how we wean ourselves off that dependence on our friends in the rest of the country.
Our university has some 10,000 students—2,000 of them here in our campus at Saint John, and another 8,000 in Fredericton. We are 233 years old, the oldest English language university in the country, and we were found to be the country's most entrepreneurial university by Startup Canada in 2014. They've never held that competition again, so we'll wear that title forever, I hope.
It is a challenge for us to maintain the activities that led to that award. In particular, I want to tell you about the development of clusters in engineering and computer science, and in fact, in our faculty of arts, where we have built alliances with industries, both global companies and local firms.
For example, in the smart grid, we have a collaboration between Siemens Canada, New Brunswick Power, Emera—the Nova Scotia holding power company—and IBM. The smart grid is all about the efficient and best use of electricity as we build micro-generation facilities that will feed power back into the grid. There are very complicated intellectual and technical problems involved in that. The president of Siemens Canada, Robert Hardt, articulated the vision for this group as building the global utility operating system for the future, right here in New Brunswick.
This is the kind of ambition that we have. We believe we have many solutions in hand. We are working with a JDI firm to build an advanced manufacturing cluster. We want the manufacturing sector here in New Brunswick to be globally competitive. As Jim was suggesting earlier, we have to keep our eye on that ball—being globally competitive. That means our manufacturers need access to the latest and greatest in technology, in materials and in manufacturing techniques.
Our faculty have that expertise, and it can be brought to bear on their needs. We believe we have solutions in hand. Our challenge is to scale them up.
I would argue that economic growth and competitiveness across the country demand sustained investments in research and development by our federal government. You have many programs that are doing that and doing very well. I would suggest that they do need attention, and they can always be tweaked to make them better.
I would particularly mention the Atlantic Canada Opportunities Agency. It has been around for a long time. It has been viewed here in this part of the country as largely successful, to the point where the previous government, in fact, duplicated those economic development agencies in other parts of the country. I would suggest to you that a very good idea on the part of the federal government would be to increase investments in ACOA.
They know what they're doing. They know the players. They have their established and understood systems of due diligence, and they are becoming better and better at making the right investments in the right people and the right institutions, particularly since—I have to say this —Francis McGuire has become the president. There is somebody who's doing a really great job for the federal government at the moment, on the economic development front.
Finally, we have an economist at the University of New Brunswick by the name of Herb Emery. He has done some work on what he refers to as the innovation gap. There is about $100 million in additional investment flowing into Nova Scotia, a province of similar size to New Brunswick. We are $100 million down in investment in R and D in our province, and we refer to this as the innovation funding gap. Again, I think this could be usefully addressed through ACOA.
There's a whole system of innovation support that we have here in Atlantic Canada, and the federal and provincial governments co-operate very well on that front.
I welcome any questions you may have. Thank you for your time and attention.
9:30 a.m.
Liberal
The Chair Liberal Wayne Easter
Thank you.
It's 9:34 on a Tuesday morning. Who is the government at this time of day today?
Greg Fergus, we'll go to seven-minute rounds initially.
9:30 a.m.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
Thank you for that fine question, Mr. Chair.
First, I would like to thank all the witnesses who have appeared today. I found their presentations very interesting. Unfortunately, as the chair mentioned, I only have seven minutes to ask my questions and receive the answers. So I would ask everyone to forgive me if I don't have time to speak directly to some of them.
My first question is for Mr. Campbell from the University of New Brunswick. I would like to ask him for some clarification.
At other meetings of our committee across the country and in Ottawa, Universities Canada, your own institution and other universities have all mentioned the importance of investing in research and development. Our committee is well aware of this need.
However, in presenting your third recommendation, which is to fill the innovation gap, you mentioned a gap of about $100 million. What does this gap represent? Can you elaborate a little more?
If we decide to invest more, perhaps through the Atlantic Canada Opportunities Agency, what are you actually proposing?
9:35 a.m.
Dr. H.E.A. (Eddy) Campbell
Thank you for the question, Greg.
As you are well aware, these are important issues for Universities Canada. What I see as particularly useful investments by the federal government have been in university-industry partnerships and alliances. I include colleges when I say that. The power we have when our faculty and our staff and our students are interacting with companies such as Jim's, companies that are really focused on being globally competitive, is a very powerful alliance.
When our students are acquiring the experiential learning, the work-integrated learning, they become better students. They understand the needs of industry better. Our faculty members understand the needs of industry, and we're getting better and better at this.
In particular, this investment at that interface between the universities and colleges and our industries is making us much more receptive. We better understand the needs of business, although it's not always easy. There are different cultures and different ideas of what amounts to a deadline.
In an nutshell, I would also want to suggest that programs like Mitacs, which the federal government has invested significant funding in recently, as well as new investments in the National Research Council and its IRAP program, are really good programs. They are functioning very well.
I would suggest to you that scaling them up would allow us to get after the kinds of opportunities that we have much faster. That would be my argument.
9:35 a.m.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
Thank you very much.
Mr. Irving, we have also heard from several companies about the importance of an accelerated capital cost allowance. As you mentioned, this could be very useful, and you think it could stimulate investment in New Brunswick. Can you give us some examples to illustrate how this allowance would really be beneficial for your company, and certainly for this region?
9:35 a.m.
Co-Chief Executive Officer, J.D. Irving, Limited
The capital-intensive businesses, particularly in the resource sector—pulp and paper, mining, oil and gas—are commodity businesses for the most part. If you take the forest products business, it's highly volatile, cyclical, globally competitive, and the Canadian dollar and the commodity prices are moving around all the time. Mr. Trump put a tax on our lumber going to the U.S. at the present time. There's always some competitive thing taking place out there, so in the commodity business you have to be a low-cost producer. You're obviously after good quality, good service, and so on and so forth, but you have to be a low-cost producer, because at the bottom of the trough you get taken out.
The way to do that is to have it very competitive: Have the best technology, good equipment, good IT, if that's what it is. We think if we can get people spending their money.... Frankly, they say nothing moves quicker than a million dollars. If you have to depreciate it, in Canada it's seven years; if you can put your investment in the U.S. and write it off in one year, you have a better chance of being more competitive over time.
We need to have a stronger industrial base in this country. We're blessed with these resources. Everybody in the world is envious. We should get that, make it easy to invest, because once you have the investment here, the bricks and mortar are here. They're not going to put wheels on them. They're not going to move. Nobody's going to move a pulp mill or an oil rig or a mine, so get it here. Get the jobs. Those are all high-paying jobs. They sustain the economy.
However, there's a general frustration today over the tax burden and the regulatory burden and all these other burdens. It's snow in front of the plow. You can only put so much snow in front of the plow before the plow stops.
9:40 a.m.
Liberal
9:40 a.m.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
Okay.
I apologize, Mr. Cyr, I had a question for you, but I would simply ask that it be recorded in the minutes.
Mr. Thomson, investments in access to broadband Internet are truly very important. Why do you think the model of giving money to and working with small businesses in this industry is the best way to proceed? I ask you this question because yesterday, we heard a proposal that those investments be practically nationalized by the government and that the municipalities be allowed to manage the projects.
Why do you think it is important to use the private sector for this type of project?
9:40 a.m.
Chief Executive Officer, Canadian Communication Systems Alliance
There are a couple of reasons.
One is the one that I mentioned in my remarks, which is that local private sector entrepreneurs are used to making money work for them, stretching a dollar, particularly in smaller communities where costs are already higher than in urban communities. They're used to serving their customers in a way that they're going to squeeze every bit out of every dollar they can. It's the most efficient use of the government's money in that respect.
The other primary reason relates to local knowledge. Smaller community-based companies that have their head offices in the communities rather than, say, Montreal or Toronto, know the needs of their customers. They see them every day at Tim's or on the weekend at the local arena, and they hear their concerns directly from them—what their needs are, how successful the company is in serving them. That particular local knowledge of the needs of the community is invaluable when it comes to trying to figure out how best the government should spend its money.
9:40 a.m.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Thank you.
I'm going to start by asking Mr. Mullin a very quick question, because for this committee it's sometimes best if we get very clear recommendations that can carry forward to the government.
Based on number three, I think, in your five-point presentation, in this government's budget, do you recommend this next budget, unlike the last one, contain a timeline and a schedule for return to a balanced budget?
9:40 a.m.
Treasurer, Saint John Board of Trade
The message I would send to the investment community is that there's a focus on making sure the financial house is in order, and to communicate to the global community that Canada's serious about making sure that its financial house is in order and that in the next downturn to come we will be able to weather it effectively and efficiently—
9:40 a.m.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
I don't want to dwell on this too much. Do you think they should commit to a balanced budget or at least some type of a timeframe?
9:40 a.m.
Treasurer, Saint John Board of Trade
I think that it would be very wise to commit to such a timeframe.
9:40 a.m.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Thank you.
I want to get back to some of the competitiveness items that both you and Mr. Irving talked about.
Both of you talked about resource development. In fact, Mr. Mullin, you talked about the shifting of goal posts, the changing of regulations midstream, and just how difficult it is to facilitate any kind of application for any kind of large resource project.
Can you comment on how that affects the competitiveness of the Canadian economy when an investor really has no idea of what they are even getting into when they apply for permits to build projects?
9:45 a.m.
Treasurer, Saint John Board of Trade
Uncertainty is the death knell for business. If a potential investor looks at a project and is not really sure what the requirements will be on their initial study, it will kill it on the boardroom table without going beyond a preliminary investigation. If they can't put some degree of certainty around a project, then the project doesn't really get legs and doesn't get the sponsorship behind the approvers.
9:45 a.m.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Thank you, Mr. Irving, for bringing to our attention the OECD numbers on permit times. We're 34 out of 35. I will let you weigh in again on what you think about that in terms of competitiveness and whether you have some concrete recommendations for this budget in that area.
9:45 a.m.
Co-Chief Executive Officer, J.D. Irving, Limited
It's easy to talk. People complain about governments, about this government or that government. It seems like the political landscape is changing every four years now. At least in New Brunswick you would have a new premier every four years, or we think we have a new premier in New Brunswick right now. We're not 100% sure, but we think so.
I tell you, it's a tough job being a politician. You folks know that. There are lots of pressures. With all the public communication today in the digital world, everybody has an opinion and everybody's an expert. We say public opinion becomes public policy after a while if we don't have it right.
I think it's quite important, because we see it when we go to Fredericton or to Ottawa and have a defined problem. I tell our folks, “When we go see the government, don't go in just to complain”—because everybody goes to the government, at whatever level, to complain—“Go with some concrete, well-thought-out suggestions, and say, 'Look, this is what we need to do to be competitive' or 'This is the answer.' ”
Everybody can put a political spin on it at some point. There are lots of experts on that, but how do we get the facts? When the facts are right, we'll be successful. This country is built on that.
I'm quite focused on how we help the governments. In the case of New Brunswick, provincially there has been no money. There's a big squeeze on. The bureaucracy gets cut, and when a problem arises, we don't have the resources to really be analytical about what the right thing to do would be. Things get looked at through the political lens rather than the practical lens.
9:45 a.m.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Do you have any suggestion, though, right now? You have the floor. This committee is going to prepare a report for the government. What exactly should this government do to improve competitiveness?
9:45 a.m.
Co-Chief Executive Officer, J.D. Irving, Limited
There are two things. In the short term we talked about accelerating depreciation. That is something that attracts. That's hard dollars and cents. That's a calculation.
The other thing is the state of the climate for investing. We have to have consistency about reliability. You mentioned it to Dean here. We have to get rid of the uncertainty.
I think businesses shouldn't feel like they're being...you know. Business should feel welcome. They should want to invest. We have the resources here. We have the skill. We have the political will to really make it happen.
9:45 a.m.
Conservative
Pat Kelly Conservative Calgary Rocky Ridge, AB
Okay.
Do you have any comment on competitiveness in the resource sector when, for example, the West Texas Intermediate, I think, crossed $75 yesterday? Western Canadian crude gets about half of that right now. We are leaving enormous amounts of money on the table at a cost to the treasury, at the cost of being able to fund public services, all through the sheer paralysis of our ability to construct transportation networks for energy products.
We have about 45 seconds left. Do you have any further comment on that?