Finance Committee on Oct. 17th, 2018

[The Chair, Liberal, Wayne Easter]

We'll call the meeting to order.

For those witnesses at the witness table who are going to make the formal presentations, I'll just explain what we're going to do now.

When we're on the road—we were in Victoria yesterday and Whitehorse the day before—we give the floor the opportunity to make one-minute opening statements, which we call open-mike statements. That information goes into the record and is considered as part of the pre-budget consultations.

We'll start with the open mikes and Ms. Pam Bryan.

Pam, welcome.

[Pam Bryan, As an Individual]

Good morning, Chair and members of the committee. Thank you very much for allowing me to speak. My name is Pam Bryan, and I am the Canada green corps regional coordinator with the United Nations Association in Canada.

I would like to draw your attention to why I believe it is important that you consider support to UNA-Canada as a strategic lever to address urgent Canadian and international priorities.

UNA-Canada is a historic Canadian charitable organization providing a leading policy voice and is a convener and mobilizer of Canadians. With over 25,000 members, UNAC is a founding member of the World Federation of United Nations Associations with a global reach to over 100 countries.

Our mission is to educate and engage Canadians in the work of the UN and to seek solutions to the critical issues that affect us all. With a reach of five million Canadians a year, our polling confirms citizens strongly believe that an effective United Nations is essential to peace and security and a more equitable, sustainable world. We invest innovatively across generations, bringing empathy-based education to citizenship, youth civic engagement, natural resources, gender, unity and diversity, health, peace and the environment to the most marginalized within Canada and internationally.

Our recommendation is for support to implement a body of work conforming concretely to the objectives and directives to cabinet on defence, foreign affairs, international development, environment, heritage and labour.

An investment of $10 million per year over a period of four years to UNAC will provide constructive and innovative dialogue, research engagement and mobilization for policy research and innovation to provide fleet, disciplined input to defence, diplomacy, development, climate action, populism and exclusion. It will support action, and showcase, count, report and develop educational materials to meet Canada's obligation in the sustainable development goals. It will allow us to engage with UN agencies and bodies in support of Canada's UN Security Council campaign and follow up key issues.

UNAC will bring arm's-length credibility, made-in-Canada solutions, international community innovations and challenges to Canadians and to United Nations voters and agencies. It will mobilize Canadians in understanding and support for Canada's full engagement in the UN, including UN peacekeeping, sustainable development and human rights.

UNA-Canada shares with the Government of Canada the imperative to ensure full participation of women and girls and youth in building a more fair, prosperous and sustainable environment and world.

Thank you for your consideration.

[The Chair, Liberal, Wayne Easter]

Thank you.

Pam, if you can leave your remarks with the clerk, the translation didn't come through, so we'll get your remarks translated and they'll go into the record.

[Susan Roberts, As an Individual]

Good morning, everyone.

My name is Susan Roberts. I'm here to represent Alberta Food Matters, Food Secure Canada and the Coalition for Healthy School Food.

Canada is one of the only members countries of the Organisation for Economic Co-operation and Development without a national school food program. We're asking for your committee to strongly consider financially supporting a cost-shared universal healthy school food program for all Canadian schools, one that is universal and open to all students.

We are asking you to consider a financial outlay of $360 million to contribute to the total bill of $1.8 billion cost-shared with provinces, municipalities, school districts, schools, non-profits, communities and business. The Alberta government has made an investment of $15.5 million in school food for 2018-19 that has directed these funds to high-needs elementary schools and has not addressed the issue of universality. It's a good first step, however. For more information see the “2018 Nutrition Report Card on Food Environments for Children and Youth”, written by the U of A.

The evidence strongly shows the return on investment of a universal healthy school food program is high. Outcomes include improvement in educational outcomes, increased graduation rates, improved mental health and improved student health. The research shows substantial decreases in the incidences of chronic disease, obesity, heart disease and diabetes. It also shows there's a positive local economic impact. The key elements we seek to see in a national universal healthy school food program in Canada are that it is universal—meaning all students can take part—health promoting, respectful, connected, multi-component and sustainable.

Presenting today is timely because just now, in September 2018, the Canadian Food Studies journal published an article on the case for a healthy school food program across Canada. The citation will be at the bottom of some of the materials you will receive.

Please consider our request for the federal government to cost-share with provinces, municipalities, communities, schools and school districts. A national food program has been recommended also by the Senate's social affairs committee, the Ontario Healthy Kids Panel, a former House finance committee, the former chief public health officer, and a motion by Senator Art Eggleton, motion 358, which recommends federal funding for a national school food program.

With so many benefits, health, social, economic, as well as mental health outcomes for our universal school food program in Canada, everybody wins, but especially our children. I really look forward to the support that you might give this idea across Canada. It's been fun to work with all these organizations across Canada. There are over 120 organizations that are part of this movement, so I would hope you would support it in some way.

Thank you very much for your time this morning, and welcome to Alberta. Go Oilers. They won last night in overtime, 5-4. I'm just saying.

[Voices]

Oh, oh!

[The Chair, Liberal, Wayne Easter]

Thank you, Susan.

Last of the open mikes is Ms. Margaret Schoepp.

[Margaret Schoepp, As an Individual]

Thank you.

Good morning to the committee and Mr. Chair.

My name is Margie Schoepp. I'm representing CASFAA, the Canadian Association of Student Financial Aid Administrators.

CASFAA represents many personnel across Canadian post-secondary institutions who are dedicated to helping Canadian students achieve financial wellness. To build Canada's economic growth and ensure our competitiveness, we have three recommendations to help ensure student success. First, allow students adequate time to establish stability before beginning the regime of student loan repayment by reinstating the Canada student loan interest subsidy for the six months following the completion of studies.

Second, empower post-secondary students who acquire Canada student loans by requiring mandatory entrance and exit loan counselling, and third, reduce the educational gaps between indigenous and non-indigenous Canadians by providing a Canada student grant program for indigenous students.

CASFAA believes that these measures will help develop financial literacy in our students and position them to immediately engage our economy when they have completed school.

Thank you for your time and consideration today.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Margaret.

As I indicated, those comments will go into the record and be considered.

We will start the formal aspect of our meeting. As everyone knows, this is the finance committee doing pre-budget consultations for the 2019 budget.

For the witnesses, those who have presented submissions prior to August 15, we have those. Those are considered as well. They're on people's units, and they will be referring to them from time to time.

Before we start, just to give you a little bit of an idea where people come from on this committee, I will go around and ask members to introduce themselves.

Perhaps, Peter, we'll start with you.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

I'm Peter Julian. I'm the vice-chair of the committee. I hail from New Westminster—Burnaby on the coast of British Columbia. I confess, I am an Oilers fan, but I am not an Eskimos fan.

[Matt Jeneroux, Conservative, Edmonton Riverbend, AB]

You're not an Eskimos fan, shame.

I'm Matt Jeneroux, member of Parliament from right here in Edmonton. It's good to be home but also good to welcome the entire committee and crew along with us to Edmonton.

Thank you, witnesses, for taking the time to come to the committee. It's important work that we do, and I'm proud that we've chosen to come to Edmonton today.

[The Chair, Liberal, Wayne Easter]

It is nice to see Edmonton and Calgary sitting together, guys. That wasn't always easy in the past.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

I got some kind of special permission to come here.

I'm Pat Kelly, and I'm the member of Parliament from the sunny riding of Calgary Rocky Ridge. I'm delighted to be here with my committee colleagues and with today's presenters, as well as the members of the public who have come to be with us today.

[Michael McLeod, Liberal, Northwest Territories, NT]

Good morning. My name is Michael McLeod. I represent the Northwest Territories.

[Kim Rudd, Northumberland—Peterborough South, Lib.]

I'm Kim Rudd, member of Parliament for Northumberland—Peterborough South. For context, that is a rural riding in southeastern Ontario. It's great to see Lynette and Mark after my last trip and the great tours you gave me in July.

I'm glad to be back.

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

Hello. My name is Greg Fergus and I am the Liberal MP for Hull—Aylmer, just outside Ottawa in Quebec. Several members of my family live in Edmonton and I am very pleased to be back here.

[The Chair, Liberal, Wayne Easter]

I'm Wayne Easter, member of Parliament for Malpeque, Prince Edward Island, on the government side.

We'll start with the Alberta Chambers of Commerce, Mr. Kobly, president and CEO.

Welcome, Ken.

[Ken Kobly, President and Chief Executive Officer, Alberta Chambers of Commerce]

Good morning, Mr. Chair and members of the committee. Thank you for the opportunity to appear before the finance committee again.

To put into context the organization that I represent, we have 126 community chambers in the province of Alberta who, in turn, represent in excess of 25,000 businesses. About 95% of those businesses are small and medium-sized enterprises. All community chambers operating in Alberta are members of the Alberta chambers and the Canadian chamber so we have a tremendous amount of integration from the local to the provincial to the federal level.

Policies come from our community chambers and are debated at their AGM. Once adopted they become our policy.

I understand that you have our submission, and I'm assuming you reviewed it. I'm prepared to answer any questions you may have on it, but there are a few things I'd like to touch on.

We have five recommendations. The most important one to us is the establishment of a royal commission to review the Income Tax Act. At the last Canadian chamber AGM two years ago this received 99% support among the delegates. If fairness and simplicity is desired, a royal commission is needed. The last royal commission occurred in the 1960s, I believe, about 50 years ago. The current act is an outdated piece of machinery with multiple pieces welded on the side that don't work well with each other. If we're looking at progressing into this century, perhaps we should look at a full review.

We need to be mindful of cost layering on small and medium-sized businesses. Even if a change appears small in budget deliberations, that adds costs onto small and medium-sized businesses. You need to be cautious. We've seen a continual layering of costs from the municipal, the provincial particularly, and the federal level. All those small changes added one on top of the other have a major impact on small and medium-sized businesses. For example, the implementation of enhanced CPP in 2019 will have a cost impact on small businesses.

We would appreciate it if you would implement the Standing Senate Committee on Banking, Trade and Commerce recommendation and fund the University of Calgary's proposed northern infrastructure corridor or transportation utility corridor. It is imperative that we do future viewing planning as to how we're going to move product across this country.

As the Alberta Chambers of Commerce—I don't think you'd expect anything else from us—one of our recommendations is to get the federal budget balanced. It has a tremendous impact on costs that are moved down to various businesses.

One other thing that is probably up for consideration this year in the budget will be national pharmacare. I would caution you to take a very clear look at the cost impact of this. The Canadian chamber submitted a submission to the Government of Canada suggesting that if you are considering national pharmacare, to address the gaps, not to introduce a full national pharmacare program on all. Currently 1.8% of Canadians do not have coverage either through their employer or through a provincial program, so rather than changing the entire system, we would caution you that that would be very costly and before you proceed with anything, you understand the cost implications.

It was very fortuitous that yesterday the Senate Committee on Banking, Trade and Commerce released their report “Canada: Still Open for Business?”. Specifically within that report is the Senate committee's support for, one, a royal commission; two, reducing corporate tax rates and temporarily allowing the full and immediate deduction of all capital costs to be in accord with the United States; three, improving Canada's regulatory regime to ensure that a project can get approved and be completed, for example, the Trans Mountain pipeline.

Bill C-69, in my opinion, is definitely not the way to go if you're looking at bolstering or coming up with a very strong regulatory system that has any chance of success. Hal Kvisle, the former CEO and president of TransCanada PipeLines suggests that any pipeline company under Bill C-69 would be foolish to apply for any type of pipeline project.

You should improve Canada's trade infrastructure, for example rail, pipelines, roads and ports. A classic example here in Alberta is that we have only one 24-hour border crossing, whereas other provinces have multiple 24-hour border crossings. That impacts us greatly, as far as trade goes. That 24-hour border crossing is in the far west side of the province. Anything that is coming up from the central United States has to go out of its way to get back into Alberta.

We should negotiate and implement free trade agreements with fast-growing economies, and while we're at it, reduce interprovincial trade barriers. In some cases, it's easier to trade with the United States than it is to trade across this country.

Those are my prepared comments, Mr. Chair. I'm prepared to answer any questions.

[The Chair, Liberal, Wayne Easter]

Thank you, Ken.

With Alberta's Industrial Heartland Association, we have Mr. Plamondon and Ms. Tremblay.

Welcome.

[Lynette Tremblay, Manager, Government Relations, Alberta's Industrial Heartland Association]

Thank you, Mr. Chair and committee members, for this opportunity. Welcome to Edmonton.

My name is Lynette Tremblay and I am the Director of Government Relations.

As you mentioned, with me is our Executive Director, Mark Plamondon.

Alberta's Industrial Heartland Association is a non-profit economic development organization of five municipalities that represent a 582-square kilometre, $40-billion, value-added energy cluster, here in the metro Edmonton region.

Our cluster model minimizes industry's environmental footprint, makes use of petrochemical by-products and maximizes the benefit for Canadians.

Petrochemicals touch every corner of our country and every sector in our economy.

The petrochemical industry creates fertilizers for potato crops in PEI and packaging to keep Ontario and Quebec dairy farmers' products fresher longer. The industry provides lightweight, durable plastics used in auto manufacturing to make buses and cars more fuel efficient.

Whether a child visits the B.C. Children's Hospital in Vancouver or the Stollery, here in Edmonton, they are receiving first-rate medical care. This is in thanks to petrochemicals that make IV bags and sterile tubing that deliver life saving blood and medicine, stethoscopes, aspirin and even diapers.

The tech supercluster in Waterloo wouldn't exist without petrochemicals, which make up over half of the components in smart phones, tablets and computers.

Canada imports $53 billion in petrochemicals each year, mainly to British Columbia, Alberta, Manitoba, Ontario and Quebec. We have the resources, the talent and the opportunity to manufacture more of those products here at home.

In fact, we have the chance to attract $30 billion in new investments to Alberta's industrial heartland alone, by 2030, but only if we have a competitive investment climate. We have some work to do on that front.

The competitiveness gap between Canada and the United States has been growing over the past decade, with the introduction of targeted investment attraction programs and tax initiatives south of the border.

The implementation of 100% immediate capital cost depreciation in the U.S. has been the most recent and significant measure. Over a 10-year period, that measure alone is forecasted to increase GDP by 3%, increase capital stock by 8.3%, and boost the wage rate by 2.5% and the number of full-time equivalent jobs by 575,000.

But for us, it's not just about numbers. It's about the contribution to our communities and about the people who depend on these high-skilled, middle class jobs that will exist for decades after these facilities are built.

For example, the $200,000 Shell Skills Centre at Fort Saskatchewan High School will help us get more youth interested in the trades and help close the skills gap. Cenovus' $200,000 donation to 22 libraries and 19 aboriginal communities will help promote learning and literacy. Inter Pipeline's polypropylene facility in the heartland—the first ever in Canada—is bringing us new technology, construction jobs and much needed work for local steel fabricators, like Dacro and Cessco.

For every job created in the heartland, five more jobs are created in the broader Canadian economy because of the multiplier effect of the petrochemical sector. Not only do these investments bring jobs and community benefits, but petrochemical production in Canada, from clean, natural gas liquids, will result in lower global greenhouse gas emissions, than if produced elsewhere from oil or coal. Moreover, production of these necessary products at home will reduce the need to import them, further reducing global emissions.

This is the future of our energy economy in Canada. It will help lead the world in the transition to a lower-carbon economy. We have to be willing to work together, at all levels of government, to ensure the jobs and economic benefits end up here in Canada and not across the border. With the change in government and subsequent environmental policies in the United States, it's more important now than ever that Canada ensure these facilities are built here, where we are environmental leaders.

To that end, our recommendations for increasing and extending the accelerated capital cost allowance and modifying the strategic innovation fund are two measures that can have an immediate and significant impact on our ability to attract investments in Canada.

We look forward to your questions. Thank you for your time today.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Lynette.

Turning then to the Canadian Association of Oilwell Drilling Contractors, we have Mark Scholz, president.

Welcome, Mark.

[Mark Scholz, President, Canadian Association of Oilwell Drilling Contractors]

Thank you again, Mr. Chair. It's great to be back.

I hope the weather improves on the island so you can get those wonderful potatoes out of the ground. We have experienced some interesting weather here in Alberta, as well.

Thank you very much for the opportunity to address the committee. I represent oil and gas well drilling and wells servicing contractors from across the country. These are the hard-working men and women who spend their days on drilling and service rigs, drilling holes in the ground that eventually become the producing wells that supply us with affordable and reliable energy.

Canadians are proud of their oil and gas industry, and the majority of us support its responsible development. This industry has a long history of building Canadian businesses and allowing Canadian families to prosper. They recognize that new pipelines represent thousands of jobs, a bright future for Canada's economy, and a safer way to transport our ethical resources, both domestically and to the rest of the world.

The lack of market access for Canadian oil and gas is an enormous short-, mid-, and long-term liability to the Canadian economy. Without new pipelines, we are not competitive in global markets, and we are losing investment opportunities.

Over the past 18 months, our members have moved over 20 high-spec drilling rigs, including Canadian skilled labour and management teams to the United States. We are losing jobs, talent, market share, margins and our industry, because we cannot compete.

In 2014, there were approximately 800 drilling rigs and 1,200 service rigs in Canada. Today, there are only 600 drilling rigs and 900 service rigs, a difference of 500 rigs. In 2019, we are estimating the rig fleet count to decrease again, to only 550 drilling rigs, a 30% reduction since 2014.

These statistics should alarm policy-makers, because every active drilling rig represents 135 direct and indirect jobs. It means that an estimated 54,000 high-value jobs have disappeared from the Canadian economy and are not coming back because of the relocation of these assets.

Unfortunately, given Canada's recent track record and the looming prospects of Bill C-69 and Bill C-48, we do not see a bright future for the competitiveness of the Canadian oil and gas industry. What perhaps is worse is the fact that as we sit paralyzed, fretting over the most regulated, safe and environmentally conscious hydrocarbon jurisdiction in the world, countries such as the United States have incentivized investment in their own oil and gas sector. For example, the recent tax reforms in the United States have provided businesses with the ability to immediately expense 100% of investments in machinery, equipment and qualified approved property in the same year of purchase.

With our world-class standards, Canada has an opportunity to play a significant role in shaping the world's energy future responsibly, yet, rather than enabling our industry, we continue to place roadblocks in front of it. In addition to falling behind regarding market share and investment, our egress challenges cost Canadians $40 million per day in pricing discounts. Canadian lose up to $50 per barrel compared to WTI, depending on the grade of crude, and the majority of these discounts are due to transportation bottlenecks.

In 2016, the federal government removed the fuel excise tax exemption on heating oil from my members. This decision had an effect of increasing costs at a time that our membership could least afford it. We're asking the federal government to reinstate this exemption.

The carbon tax in Alberta and British Columbia, as part of Canada's climate plan, has increased operating costs significantly. A prominent oil and gas producer in Canada stated that it cost over $100,000 in carbon taxes alone to drill a single well in British Columbia. The increasing cumulative costs, however, do not factor in the lost jobs and opportunity costs that are missed as our industry begins to dig itself out of the downturn.

In the meantime, our equipment, people and capital are being redeployed to other oil and gas-producing jurisdictions, such as the United States. Over-regulation has shuttered Canadian oil and gas firms, and in turn harms, not advances, global action on climate. A failed Canadian oil and gas industry cannot help to assist in the reduction of global emissions through the displacement of hydrocarbons from jurisdictions with lagging environmental standards.

In summary, our association is calling on the federal government to do the following. First, defeat Bill C-69 and Bill C-48 in the Senate. Second, reinstate the federal excise tax exemption on heating oil for drilling and service rigs. Third, consider incentives such as allowing firms to expense 100% of their investment capital in the first year.

Fourth, focus Canada's climate strategy around reducing global emissions and not just domestic emissions. Fifth, defend and promote the benefits of our industry, including our world-class standards and technical expertise. Sixth, appeal the lower Federal Court's decision on the Trans Mountain project to the Supreme Court of Canada.

Finally, stand firm in the position that pipeline construction falls under federal jurisdiction and that getting Canadian oil and gas to Canadian and world markets is a priority.

Thank you very much.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mark. Thank you for your directness in that submission.

From Canadian Manufacturers & Exporters, we have Mr. Holden, chief economist.

[Michael Holden, Chief Economist, Canadian Manufacturers & Exporters]

Good morning, Mr. Chair and members of the committee. Thank you for the opportunity to speak here today.

I'm here, as mentioned, on behalf of Canadian Manufacturers & Exporters, our 2,500 direct members across the country, and the broader manufacturing and exporting community. Our membership network accounts for an estimated 82% of manufacturing activity across Canada, and 90% of the country's exports.

I'd like to begin my remarks by highlighting three related trends that deeply concern our organization.

First, Canadian businesses are under-investing in their operations. Canada has one of the worst records in the entire OECD when it comes to business capital spending. Non-residential investment is 13% below its 2014 peak and is at almost the same level now as it was just six years ago. In the manufacturing sector, the numbers are even worse. Capital investment intentions for 2018 are 15% below 2015 levels and 7% below 2008 levels.

The second issue is that Canada is losing out on foreign direct investment. Global investment flows into Canada have fallen by more 64% since the pre-financial-crisis period. Meanwhile, south of the border, investment has risen by 48%. On top of that, we're seeing a massive outflow of investment dollars from Canada into the United States. Four years ago, Canada had a positive investment balance with the U.S. of about $15 billion, so that's $15 billion more U.S. investment into Canada than investment going in the other direction. Since then, U.S. investment in Canada has dropped by nearly half, southbound investment has more than tripled, and we now have a net investment outflow of about $60 billion.

The third issue is that value-added exports are stagnant. According to the WTO, Canadian exports have risen by an average of about 2.5% per year since the year 2000. That represents one of the worst export performances in the entire OECD and places Canada second to last in the entire G7, ahead only of Japan. Making matters worse, most of the export growth we have seen over that period is from higher-volume crude oil shipments. Since 2000, value-added exports have grown by just 0.7% per year. That's well below the rate of inflation over that period.

These three problems—flat investment, declining FDI and stagnant exports—are all the results of our uncompetitive business environment. Business costs in Canada are high, labour supply is tight, the tax and regulatory burden in increasing, and we have too many small companies and not enough large ones.

In our formal submission to this committee, we put forward a number of recommendations to address these issues. With the time I have remaining, I'd like to highlight a few of them.

First, we need to improve our tax competitiveness. Canada needs to match the current capital cost allowance provisions in the United States, which give U.S. businesses an immediate 100% tax writeoff on qualifying capital asset purchases. Longer term, we need fundamental tax reform. Canada's business tax system needs to be simplified and structured in a way that rewards companies for growing—unlike the current system, which rewards them for being and staying small.

Second, we need to reinvest all carbon tax revenues collected from manufacturers back into the sector. A recent study by Canadians for Clean Prosperity has made headlines by saying that if carbon tax revenues were used to finance annual dividend payments most Canadian households would be better off than if there were no carbon tax at all. This only works because those dividends are financed through an implicit wealth transfer from businesses to households. Penalizing businesses for polluting but rewarding households for the same activity makes no sense. Carbon tax revenues collected from manufacturers need to be recycled into programs that increase investment in emission-reducing machinery, equipment and technologies—dollar for dollar.

Third, we need to improve our export market penetration. Among our recommendations, we ask the government to improve awareness and funding of existing government-support programs and make them more business-friendly, to introduce a national manufacturing export accelerator program to help prepare SMEs for new markets, to address company-specific export barriers, and to adjust the corporate tax structure so that companies pay a lower rate of tax on profits generated from exports.

Finally, labour and skill shortages continue to plague the sector. In a recent CME survey, about 70% of respondents said they face labour and skill shortages today, and almost three-quarters expect such shortages to arise within the next five years. We are already working with the federal government to improve female representation in manufacturing, and this is a solid first step. Other measures that would help include enhanced work-integrated learning programs that better link post-secondary institutions to the private sector, and steps to expand and improve the Canada job grant.

In closing, let me say that we need to act quickly and with urgency to improve business competitiveness in Canada. If we don't, we risk being left even further behind our global competitors.

Thanks for your time. I look forward to any questions you might have.

[The Chair, Liberal, Wayne Easter]

Thanks very much, Michael.

He now have Ms. Lane with the Canada West Foundation.

Welcome.

[Janet Lane, Director, Human Capital Centre, Canada West Foundation]

Good morning, Mr. Chair and members of the committee. Thank you for the opportunity to make this representation.

Canada West Foundation is a non-partisan think tank based here in the west. Much of our recent work has had direct impact for Canadians and businesses in the changing economic landscape. Specifically, we have made recommendations about removing the barriers to building the infrastructure that is much needed for economic diversification and success, and we have published guides for businesses about how they can participate in CETA, CPTPP and the new USMCA trade agreements. The trade commissioner service partnered with us on the CPTPP, and we've offered recommendations for bringing private sector supply chain intelligence into national trade infrastructure planning and prioritization.

We also did the foundational research for the plant protein supercluster with support from WED. We've been working on a multi-year project to document some of the economically successful partnerships between natural resource firms and indigenous communities across the west, and we will soon release a paper on how to achieve an integrated western electricity grid.

But now for something completely different. My focus in being here today is to stress to you all the critical importance of increasing productivity and economic growth to improving the basic cognitive skills of the workforce. Much is being made about the importance of having a skilled workforce with an emphasis on the STEM skills that we believe will help us become more innovative and enable the diversification of the economy. However, advanced technical skills are impossible to build without basic cognitive skills, and 40% of the workforce does not have adequate levels of these basic skills. These working-age adults must be assisted to improve their basic skills now.

I present three compelling reasons.

One reason is that 42% of young people aged 16 to 25, including recent graduates of our education systems across the country, do not have the literacy and numeracy skills to continue to learn effectively and efficiently or to function fully and productively in 97% of the jobs in the Canadian economy.

The second reason is that, in today's workplace, jobs are changing quickly and machines or algorithms are replacing some tasks. This makes the ability to adapt the most important skill of all, but adapting is about learning and applying new skills quickly, and this takes adequate levels of literacy, numeracy and language skills. Without this capacity, many people currently in the workforce will not be able to keep their current jobs or find new ones.

Here is the most compelling reason. Recent analysis of the international adult skills data has found that increasing the literacy skills in the workforce by an average of only 1% would, over time, lead to both a 3% increase in GDP and a 5% increase in productivity.

What's more, this research also shows that improving the skills of people at the lower end of the scale, levels one and two on a five-level scale, will have more impact than improving the skills of people who are already at level three or higher. As the people most at risk of losing their entire job to automation are the people employed in low-skilled jobs, this would have the added advantage of assisting them to find a new higher-skilled job.

There is no doubt that increasing the basic cognitive skills, literacy and numeracy of the Canadian workforce would help to grow the economy. A 3% increase in GDP over time would amount to, in today's dollars, $54 billion a year every year. While this would not happen overnight—it would take years to reach that steady-state return on investment—some returns would be available as soon as we started to improve the skills of our workforce.

How do we do that? There are four main ways. First, obviously, we must stop allowing our youth to graduate from high school and post-secondary programs without adequate levels of cognitive skills. I realize that this is not the purview of the federal government, but this government can require that literacy skills be embedded in all federally supported workforce education and training initiatives for both youth and working-age adults.

It can also encourage or even incentivize employers to improve the skills of their workforce by, first, changing work processes to increase the knowledge and skill demands of current jobs, which will help employers to keep up with foreign competitors and also assist their employees to be prepared for the ongoing automation of jobs.

Second, assess the skills of job applicants with tools that reliably certify skills and competencies so that employers can make better hiring decisions. This should reduce the skill mismatches that are happening in today's workplaces and avoid the skill loss that happens when people work in jobs that do not use all their skills.

Third, employers should be investing in literacy, numeracy and problem-solving skill upgrading for current employees by embedding it into all other training.

Fourth, work processes should be adjusted to ensure that the skills gained through training and upgrading are put to use and do not stagnate or deteriorate.

Lastly, the federal government could make sure that the new government-funded future skills centre is mandated to incorporate basic cognitive skills into its research program.

I close by saying that there is an urgent need to prepare today's workforce for the increasing skill demands of the new economy. The more urgent necessary prerequisite for this is an investment in increasing literacy and other basic cognitive skills for the people who most need it. Fortunately, this investment will have the added benefit of dramatically increasing productivity and, ultimately, GDP.

Thank you. I look forward to your questions.