Finance Committee on Oct. 3rd, 2016

[The Chair, Liberal, Wayne Easter]

I would like to bring the meeting to order, please.

We're on the road for pre-budget consultations for the 2017 budget. The people who are here as witnesses understand that one of the areas we're looking into is how to achieve better economic growth in the country.

I'll ask members to introduce themselves, and where they come from because we do come from all across Canada.

I'm Wayne Easter, chair of the finance committee. My riding is Malpeque in Prince Edward Island.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

I'm Richard Cannings. I live in Penticton, just over the hill, down the lake. My riding is South Okanagan—West Kootenay. It goes over to Trail and Castlegar.

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

My name is Dan Albas, Central Okanagan—Similkameen—Nicola. I actually live just across the lake.

I want to welcome all my colleagues here.

Actually, we are in Stephen Fuhr's riding, Kelowna—Lake Country. I wanted to emphasize that.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

My name is Ron Liepert. I'm the member of Parliament for Calgary Signal Hill. I like to think of myself as the only representative of western Canada on this committee. These two guys are only here for this session.

Welcome, everybody. It's great to be in Kelowna, even though it's only a very short stay.

I look forward to your presentations.

[Steven MacKinnon, Liberal, Gatineau, QC]

Good morning, I'm Steven MacKinnon. My riding is an Ottawa-area riding, Gatineau, Quebec.

It's wonderful to be in Kelowna. Thank you all for being here.

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

I am Jennifer O'Connell, and my riding is Pickering—Uxbridge in Ontario. It's just east of Toronto.

[Raj Grewal, Liberal, Brampton East, ON]

My name is Raj Grewal. My riding is Brampton East, about 10 minutes from Pearson international airport.

[The Chair, Liberal, Wayne Easter]

Thank you all.

Before we begin, we do have one housekeeping motion that we forgot to vote on before we left Ottawa. I think everyone will be in agreement with this. It's a normal motion for committees when they're on the road.

It reads:

Notwithstanding any routine motion, during the committee's meetings outside of Ottawa on the subject of the pre-budget consultations in advance of the 2017 budget, the chair shall not entertain any substantive motions.

(Motion agreed to)

Now back to business.

There were two groups, the Canada Green Building Council and the Pacific Salmon Foundation, that were scheduled for the nine o'clock session. Their plane is delayed. When they get here, we will give them the opportunity to speak.

We'll begin with the British Columbia Wine Institute, Miles Prodan.

Welcome, Miles, the floor is yours.

[Miles Prodan, President and Chief Executive Officer, British Columbia Wine Institute]

Thank you very much indeed.

My name is Miles Prodan. I am the president and executive director of the B.C. Wine Institute. I start off all my presentations by stating the fact that I do not have any samples with me this morning but I do know where you can get some, so bear with me.

I want to speak a bit about the B.C. Wine Institute first. We are the trade organization for British Columbia. Our members represent 95% of all production here in B.C., so it's my pleasure to speak before this group, and I appreciate your taking the time to come to visit us.

Canada is ranked as the second most attractive market in the world for wine sales, with growth in wine consumption twice that of the rest of the world. With a strong market and increasing number of free trade agreements, international competition in the Canadian marketplace is intensifying with import products representing close to 70% of all wine sold in Canada. For all wine that's sold here in Canada, 70% of it comes from outside Canada.

The domestic Canadian wine industry currently provides an annual economic benefit of $6.8 billion annually, which is a fraction of the potential value when recognizing that domestic sales account for less than one third of all wine in Canada. The Canadian industry is growing appreciably in all six provinces, including here in British Columbia, offering one of the highest value-added contributions of any agricultural product, and providing enhanced rural economic opportunities. It touches almost every aspect of the value chain in agricultural product, and we're proud of our contribution.

Only through a strategic investment in B.C. and in Canada will the wine industry fully achieve its potential, resulting in higher levels of winery investment and job growth, and providing a significant value to the overall Canadian economy. Here in British Columbia the wine industry is a significant economic driver. For every bottle produced in the province, there is $42 of economic impact generated.

B.C. welcomes over 800,000 visitors every year through the wine economy, which generates almost $500 million in economic impact related to tourism employment. That's outside the agricultural sector but directly affects that economic impact I speak of.

More than $298 million in federal-provincial taxes and liquor board markup is generated in the wine industry here in B.C. each year. In taxes alone, the B.C. wine industry contributes $220 million. B.C. wineries capture more general revenue than most agrifood products, by not only crushing grapes and producing wine, but also packaging, marketing, sales, and the rest of the distribution channels.

Our domestic industry is reliant upon B.C. soil and it's firmly rooted in the rural economies across the province; however, its impact extends well beyond direct sales and employment of B.C.'s 260 grape wineries and over 930 vineyards growing wine grapes, with strong linkages, as I said, to tourism, retail sales, bars, restaurants, and the whole retail channel, creating up to 10,000 jobs here in B.C.

Here is the challenge. Over the past decade Canadians have been increasingly making wine their alcoholic beverage of choice. Wine consumption has been increasing by 26%, compared with zero growth for spirits, and an 8.8% decline in beer. As people mature, their taste buds become more mature and they enjoy wine, so we're seeing that growth, and that doesn't go unnoticed by every export or import wine-producing country targeting Canada.

Of the total wine growth here in Canada over the past decade, 75% has been claimed by wine importers. In 2014, Canada became the sixth largest wine importer. As I said, importers see that expansion in the market and are targeting Canada to take advantage of that growth.

This makes Canada the reverse of most wine-producing countries, which appreciate strong domestic sales such as 95% market share in the U.S.; 74% in Australia; and 99% in South Africa, Argentina, and Chile. In fact, even China enjoys 78% of the domestic wine sales. Here in Canada we have only 32%.

It's important to recognize that virtually every country producing grape wine in any significant quantity maintains a more robust program supporting its wine industry than that of Canada. In addition to these financial obstacles, internal barriers to trade have also restricted the Canadian wine industry growth. I know most of us around this table are familiar with barriers to interprovincial trade, and if not, I'd be happy to talk at length about that at another time.

While we recognize that the commitment has recently been established by the Council of the Federation, whereby the provinces have agreed to discuss internal barriers for alcohol, the BCWI asserts that more action is required to seize the current domestic market opportunities.

As for the opportunity, in 2015 global wine expert Rabobank identified Canada as the second most attractive market in the world for wine sales while Vinexpo concluded that growth in wine consumption in Canada is twice that of the rest of the world. I just can't overstate the fact that the market is growing, and we need opportunity to fill that demand. The demand is there; we just need the opportunity to fill it.

With the proper support, the Canadian wine industry will build its market share beyond the 32% to a target of 50%. This is good for the Canadian wine industry. It's good for Canada, and we anticipate the sale of wine growth opportunity to be 50 million litres over the next two years. Based on our economic study, we know that every $1 million increase in Canadian wine sales will lead to $3.1 million in gross output—revenues, taxes, and jobs—all across the value chain. It's an excellent investment in our economy.

How do we propose to do that? We think there is an opportunity for a wine industry innovation program that would deliver an investment grant that supports initiatives to develop the Canadian wine industry through improved operational and infrastructure investments, thereby benefiting economic sustainability, productivity, and competitiveness.

The key objectives of such a program would be to develop and grow the Canadian grape wine industry, increase wine tourism and cellar door sales, foster domestic and export markets, and support business, including innovation skills and training. The area for funding priorities include projects that contribute to the development of domestic and export markets, marketing and tourism development projects, and projects that improve sustainability and production.

The growth program would apply to qualified tangible or intangible investments in every winery business and would be applied to eligible winery investment expenses related to products, processes, technology, infrastructure, and capital assets—buildings, roads, and the rest of it—intended to increase the marketability and competitiveness of the Canadian wine sector. The growth program would result in increased investment, transfer of expertise in technology through the registration of intellectual property, higher levels of employment, a more highly skilled workforce, improved economic conditions in wine regions, more economic activity, and greater future tax revenue.

Based on the average annual growth rate of 11.5% for 100% B.C. wines, the growth program would provide a 17% return on the federal government's investment and double direct and indirect employment.

Ultimately the program could grow the British Columbia wine industry's economic contribution from approximately $2.6 billion to $6.6 billion over the period of 2017 to 2027. It's a great opportunity, we think it has a lot of legs, and the need is definitely there.

By its very nature, wine and grapes provide long-term employment in investments that are inherently tied to the Canadian soil. As I said earlier, there are few value-added agricultural products like wine where a handful of grapes can be converted into world-class wine, as it is here in Canada.

[The Chair, Liberal, Wayne Easter]

Can I have you sum up fairly quickly?

[Miles Prodan]

Unlike manufacturing or service enterprises, vineyards cannot simply get up and move to another country, which ensures that federal investment in the industry is maximized to benefit the Canadian economy, communities, and labour force.

To conclude, the BCWI strongly recommends the introduction of a wine industry innovation program that aligns with government priorities, especially those relating to scaling up innovative industries, investing in environmental sustainability, developing and growing markets, and creating quality job opportunities for young Canadians, all of which will support a sound public investment towards supporting national economic prosperity.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much.

Turning to the First West Credit Union, we have Mr. Dau and Ms. Swinamer.

Please go ahead.

[Ron Dau, Assistant Vice President, Valley First, First West Credit Union]

Good morning, Mr. Chair, and members of the committee.

My name is Ron Dau, and I am joined by my colleague, Alicia Swinamer. We are from First West Credit Union, and thank you very much for giving us time with you today.

First West is a financial co-operative with deep roots in British Columbia. Our reason for being has always been to help middle-class and underserved Canadians access competitive financial services for their personal and business needs.

In a recent statement Minister Morneau noted that the key to a healthy middle class and business community is a strong and competitive financial sector. We agree.

However, today credit unions face increasing competitive challenges due in part to the controversial changes made to the way credit unions were taxed following budget 2013.

For 40 years prior, the federal tax system recognized the important differences between co-operatively owned credit unions and shareholder-owned banks by providing a specific deduction to credit unions. This treatment balanced some of the ways in which the tax system favoured large banks. For instance, as co-operatives, credit unions don't issue shares like the banks do. They aren't able to benefit from the generous federal tax incentives like the 50% capital gains exemption to help build the capital that we need to support loan growth.

In 2013, without consultation or conversation, that historic acknowledgement of these critical differences was thrown out.

The elimination of the historic tax treatment for credit unions resulted in a rise in federal taxes for many credit unions. First West estimates that we alone will pay $3.1 million in additional federal taxes during the phase-out period, and roughly $1.8 million every year after 2016.

The federal change also triggered a provincial increase for B.C. credit unions. As such, and in addition to the federal increase, First West estimates it will pay $4.3 million more in taxes during the provincial phase-out period, and an additional $2.5 million in provincial taxes each year thereafter.

Our presence here today comes with an urgent call to action. We ask this committee and government to once again recognize the unique structure, economic impact, and social mandates of credit unions, and to introduce fair taxation for credit unions. This could take the form of a return to the historic pre-budget 2013 tax arrangement for credit unions, or the creation of a fairer, more progressive tax arrangement that recognizes the distinctive nature of credit unions.

Here is why this matters. Where banks can raise capital from the stock market, credit unions rely almost entirely on their retained earnings to grow their capital. Therefore, the more retained earnings a credit union has, the more it can lend to middle-class families, seniors, first nations, technology start-ups, and small businesses.

First West is proud of our legacy of supporting economic and social prosperity in our communities. For more than 70 years we've helped British Columbians realize their dream of home ownership. We've helped small businesses grow and expand to new markets. We've helped farmers buy and grow farms that feed our fellow citizens, and we've stayed in small towns when large financial institutions have pulled out and moved on.

We're an integral part of our communities and their economies. Last year, First West spent more than $221 million in direct and indirect salaries and benefits, employing the equivalent of 2,366 FTE jobs. In total, First West accounted for nearly $300 million of British Columbia's GDP.

To sustain and grow our economic contribution, it is important that credit unions can work within a tax environment that is fair and appropriate. We are not alone in seeing the problems unfair taxation brings for credit unions. Last September the BC Chamber of Commerce testified before the B.C. Select Standing Committee on Finance and Government Services.

It stated that government had placed a welcome emphasis on encouraging small business growth; however, the change in the tax status of credit unions is a measure that works against this by reducing credit unions' ability to invest in communities and small businesses.

Credit unions like First West help local economies and communities with their hands, hearts, and resources. We believe in paying our fair share of taxes. As a leader in small and rural communities, it's important that we share with you the serious consequences posed to economic growth if past budgetary tax decisions are not reconsidered, or if new solutions are not identified.

Thank you, again, for the opportunity to share First West Credit Union's perspective with the committee, and to have early input on the 2017 budget. We look forward to engaging in a conversation with you today.

[The Chair, Liberal, Wayne Easter]

Thank you very much.

From First Nations Finance Authority, we have Mr. Daniels and Mr. Berna.

[Ernie Daniels, President and Chief Executive Officer, First Nations Finance Authority]

Thank you very much.

I just want to say, “Go, Blue Jays, go!” It's going to help our economy.

Thank you, committee members. My name is Ernie Daniels. I have Steve Berna here with me. I'm the president and CEO and Steve is the COO. We're with the First Nations Finance Authority, also known as FNFA.

FNFA is a non-profit organization that operates under the authority of the First Nations Fiscal Management Act. It's an act that was legislated in 2006. It was created with all-party support at the time. Although established by statute, the FNFA is not a crown corporation. The FNFA is governed solely by the first nations communities that join as borrowing members, first nations bands and governments. The FNFA was a first nations-led idea. Our mandate is to work exclusively with first nations governments making available financing tools that other levels of government in Canada take for granted. Since 2012, our three publicly issued debentures raised $297 million in loans to our members, all supported by the first nations-owned revenue sources. Besides providing low-rate loans, we allow the communities to choose whichever repayment terms keep their budgets healthy.

As well, the FNFA model promotes capacity building whereby the internal governance capacity of each first nations member is enhanced to a municipal standard. The intent is to create an environment that manages sustainable growth and wealth management. Essentially, the FNFA functions like a provincial treasury department, but solely for first nations in a not-for-profit manner.

We are here today because the original projections estimated 100 first nations would join the act after 10 years. In only four years after our first loan was issued, we have reached 205 first nations that have joined the FMA, and that number is growing rapidly.

Fully one third of all of Canada's first nations across eight provinces and one territory have voluntarily requested to use our services. This success story brings with it some challenges. To operate like a provincial treasury department, FNFA must retain the confidence of the capital market investors who buy our debentures.

As such, all debt issuers need to manage an adequate capital-to-loan ratio. Our growth rate is straining this capital base. Canada originally provided $10 million in capital to the FNFA in 2012. This was based on projections that the FNFA would reach 100 members. This original membership target of 100 has long since been surpassed. FNFA's debentures are rated by two rating agencies, Moody's and Standard & Poor's. Both have commented that the exceptional growth of FNFA's membership has put a huge strain on the capital base to continue to meet FNFA members' projected future loan demands.

FNFA is requesting an additional amount for this capital base so that future loans can continue to meet the projected loan demand. This capital is not loaned out, nor is it touched by FNFA. Instead, it acts as a temporary secondary backstop in case a loan service payment by one of FNFA's members is late or insufficient in amount. This capital adequacy is a mandatory item to allow continued capital market access. To date, since our first loan issued in 2012, all FNFA members have paid their loans on time and in full. The capital base, however, is required because of the what-if scenarios since debentures are long term. FNFA debentures are usually 10 years in length.

Our membership is continuing to grow, and as it continues to grow, the FNFA's capital base must keep pace. Our 2015 budget submission requested that FNFA receive an additional $40 million. This amount was based upon our membership growth forecast and what other local government debenture issuers had in their capital bases.

In 2016, the federal government acknowledged our request and supported the work of the FNFA. Instead of an additional $40 million, budget 2016 invested a further $20 million of capital, raising the original $10 million to $30 million. Immediate tangible benefits resulted from this additional capital.

Not only were we able to improve our debentures and credit ratings, and diversify and expand our investment base from 13 to 22 large capital market investors, but the subsequent new FNFA loans were leveraged into 71 community houses. We remediated 30 houses to address mould issues; a new school was built; there were three green energy projects, with hydro, wind, and solar technology; infrastructure and administration buildings; economic ventures; and land purchases to expand reserves. We are now requesting a budget for 2017 of a remaining $20 million. If this request is approved it will enable the FNFA to continue providing increasing loans, all supported by first nations' own revenues, to grow their infrastructure basis and economy.

In conclusion, the FNFA fully supports the areas of focus that the standing committee identified for the pre-budget submission process and feel that our work directly aligns with those objectives, especially as they pertain to first nations communities. I would also like to reference and will make available to the clerk of the committee a July 19, 2016, special report by CIBC, “FNFA: Soaring on Sound Financial Principles”. This report provides an excellent in-depth review of the FNFA, the environment we operate in, and the accomplishments to date.

I want to thank you for the opportunity to appear today. I wish you well in your efforts to advise the minister on the scope and scale of budget 2017, and look forward to any questions you may have.

I just want to add that for every dollar that's spent on a reserve the economic impact is about six to 10 times for the rest of the economy.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much for that presentation.

I'll turn now to the Low Carbon Partnership with Mr. Morrice and Mr. Gilmour.

[Mike Morrice, Executive Director, Sustainability CoLab, The Low Carbon Partnership]

Thank you so much.

You'll have to walk through some paper slides as I go along the way.

[The Chair, Liberal, Wayne Easter]

The slides are on our iPads as well already. We've got I think 472 presentations on our iPads here but they're hard to find.

[Mike Morrice]

Again, thank you for the opportunity to be with you this morning. My name is Mike Morrice. I'm the executive director of Sustainability CoLab. I'm joined by Brent Gilmore, the executive director of Quality Urban Energy Systems of Tomorrow, or QUEST. He and I are here on behalf of the Low Carbon Partnership, which comprises The Natural Step Canada, Climate Smart Businesses, QUEST, and Sustainability CoLab.

Late last year, these four leading environmental organizations came together. Each of us was already on the ground with climate solutions across the country. We were encouraged by the promise of climate action by the federal government, which was demonstrated when the Government of Canada signed the Paris agreement and kick-started the Vancouver declaration here in B.C., back in March. We recognized the need for regulation in carbon pricing, but we also knew this wouldn't be enough to engage business in meeting our carbon commitments. With this in mind, we came together to form the Low Carbon Partnership. We are four organizations that together can help Canadian businesses drive clean growth, reduce carbon emissions, and foster a prosperous green and healthy future in communities across the country. Together we already work with over 1,000 businesses across the country worth a combined $100 billion in revenue, and we're combining our individual organization strength to help government meet its climate goals.

We've set for ourselves an ambitious goal, which is to connect more than 5,000 businesses with the support they need right across the country to innovate and deepen their own carbon reductions.

We know that we are better together. Sustainability CoLab and Climate Smart Businesses work with businesses directly by providing them with the tools and training they need to measure, manage, and reduce their carbon output. Working with end-users isn't enough if we don't rethink how we plan our communities. Having QUEST in our partnership ensures solutions that can fit our land use in community energy planning by getting local governments, utilities, and builders to work together to develop clean growth opportunities.

Going a step further, having The Natural Step Canada in the partnership allows us to consider new ways of thinking about how we do business by bringing their rigorous science-based approach to sustainability and a structured approach to fostering innovation that accelerates the system's change around energy, the circular economy, and natural capital.

As per our submission to this committee, we're proposing a $30-million investment to help scale up proven tools and programs, and make them more accessible to companies and communities across Canada. Collectively, we believe this model will not only reduce GHG emissions, but spawn new businesses, create new jobs, and contribute to building the resilient businesses and communities we need to transition to a low-carbon economy.

We've built up broad support. You can see some of those folks and the 52 endorsements from across the country to date. These are organizations we already work with every day from Suncor to Dalhousie to the Vancouver Port Authority.

We feel that with our unique strength we bring to the table we are ready with relationships, trust, and programs on the ground in communities across the country.

You're not hearing from just four organizations. We each represent a network of networks connecting to thousands of businesses across the country that are ready and keen to take action on climate. We are represented from coast to coast to coast.

I want to give you four quick examples of our existing work. Through Sustainability CoLab, just one of our eight target-based assembly programs with businesses for regional carbon initiatives in the Waterloo region engages 67 companies that are employing 14% of that workforce. In just four years, they've committed to reduce over 47,000 tonnes of carbon. They've already reduced 18,000 tonnes, and 90% of them are on track.

Programs in our network also operate in Ottawa and Pickering.

Climate Smart Businesses has their business energy and emissions profiles, BEEPS. These are dashboards that have already helped eight municipalities in B.C. alone understand where their emissions are coming from, because once you know that, then you can slice and dice, and be strategic about where to take further action.

QUEST's smart energy communities have already engaged in implementing community energy plans across Canada by removing the barriers for business and local governments to implement clean technologies and renewable projects, create jobs, and strengthen local economies. In just four pilots, in Calgary, Waterloo, and Campbell River, they're working to hit four megatonnes in GHG reductions.

The Natural Step, through their Energy Futures Lab in Alberta, has brought together unlikely bedfellows to foster new innovations, businesses, and technologies and to build the system conditions to help participants scale their already developed solutions to our energy challenges. Early examples you'll see on our slide include Iron & Earth, the oil sands workers who are retraining for the green economy, as well as the geothermal oil wells.

To recap and close, the Low Carbon Partnership will accelerate Canadian clean growth while reducing carbon emissions across the country. We've already been doing this for years as individual organizations in hundreds of communities and businesses across Canada, and we've come together to help the government deliver on its commitment.

In closing, we want to offer a few specific examples of how a federal investment could scale up these proven programs.

For example, we could launch new target-based sustainability programs for businesses in 10 communities across the country. We could launch 100 of these BEEPs, the business energy and emissions profiles, across Canada. We could establish 10 new smart energy communities. Also, we could advance the work of the Alberta-piloted Energy Futures Lab to spawn new sustainable business ventures for national markets. Beyond these individual opportunities, we can identify ways to more tightly integrate our programs and offerings so that any company, sector, or community can come to us for a custom combination of our programs.

We came together inspired by your leadership, and we stand before you today ready to bring our assets to help the Government of Canada follow through where we feel we can be of most service.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mike.

We'll turn to questions. I understand that the other two groups have landed, so when they come in, we'll fit them in.

Mr. MacKinnon, let's go to five-minute rounds.

[Steven MacKinnon, Liberal, Gatineau, QC]

Thank you, Mr. Chair.

Thanks to all of you. It's wonderful to be in the Okanagan, and I thank my colleagues across the table for their warm hospitality.

One of the great things about kicking it off here in Kelowna this morning is how specific all of your proposals were to the objectives we've set. We are in a lower-growth environment. We are looking for ways—targeted ways, in many instances—where we can get the kind of growth out of this economy that we know Canada has the potential to deliver.

I do want to acknowledge the ongoing efforts of my friend Mr. Albas with respect to interprovincial trade barriers. I think all of us have identified that as an unnatural or artificial impediment to unlocking some of Canada's growth.

To that end, Mr. Prodan, although I know it wasn't the focus of your remarks, I want to give you the opportunity to perhaps tell us briefly and tangibly what the impact of those barriers is in terms of growing the B.C. wine industry.

[Miles Prodan]

Thank you.

I will first acknowledge Dan Albas and his colleague Ron Cannan for their instrumental work in getting the illicit liquor act of 1928 set back and in opening it up.

Alcohol distribution is a provincial matter, and we've had some success. B.C. was the first to step forward and open our borders to other Canadian wines from Saskatchewan, Manitoba, and Nova Scotia. Most recently, the Council of the Federation also opened it up in a somewhat limited way in Ontario and in Quebec, although there it still needs to go through the liquor board.

It's easier for us to ship wine to Hong Kong, to China, and to the U.S., frankly, than it is for us to ship wine to our friends and neighbours in Alberta, for instance. We think that just doesn't make a whole bunch of sense. That's obvious. It's a Canadian product and there are Canadian consumers, and we want to be able to access that for them.

That growth I speak of is huge. As I said earlier, the market in Canada is huge. The wine market is huge, and we have every foreign producer targeting Canada. They see that growth. They're heavily subsidized by their governments for access to that.

We think it makes total sense for us to be able to ship a Canadian product to a fellow Canadian. There's heavy work yet to be done. We've had some progress, but we're saying 100% B.C. wine or 100% Canadian wine and that's it. The rest of it is irrelevant. Those liquor control boards would never carry such a small quantity product anyway. It's a simple win, but not easy.

[Steven MacKinnon, Liberal, Gatineau, QC]

I know some of my colleagues will want to explore in greater detail with you your specific proposal on investment in the sector.

I'm going to the First Nations Finance Authority. It's an impressive story you tell in terms of, really, not only serving as a catalyst for growth and investment in first nations communities, but also for serving a pedagogical role in terms of enabling these communities to better access financial markets and having them better understand, I assume, the consequences of their actions.

You did benefit from a $20-million investment last year and are looking for us to essentially repeat that investment. Can you tell us, perhaps in more specific terms or even right down to the granular level, what kinds of economic activity could we expect from such an investment, were we to replicate that in the coming budget?

[Ernie Daniels]

It's really interesting. Canada is so big and all the different economic activities from the different regions are different but very similar. A lot of first nations are really catching up. Infrastructure is a big thing. I think, number one, infrastructure for roads, for schools, for houses, for water, waste water, those are the biggest things that first nations invest in, because we all know the conditions of a lot of reserves, especially in the northern parts of the country.

Then there are other first nations where the opportunity really exists, as in Ontario where we have a lot of first nations getting involved in alternative energy projects, such as solar and wind. Quebec first nations, for sure, are involved in that. Then other first nations, like the Osoyoos, are involved in winery. Those are the types of things.

To sidestep a bit, I think the best thing about it is that first nations have to bring their financial governance up to a certain level of operating like a municipality. They go through a pretty rigorous process in order to get there, so by the time they get to us, they know the benefits and they see the hard work that they've done.

The other thing that's really good is that the education process we had to go through when we first started was getting the investors interested in this. That was a challenging thing. I'm going to let Steve talk about that, because he actually ran the Municipal Finance Authority of British Columbia for a number of years and was very instrumental in the investment part of it.

[Steve Berna, Chief Operating Officer, First Nations Finance Authority]

Good morning, everybody.

The infrastructure and economic needs have grown to the point at which first nations have said that rather than stand in line and hope the federal government points at you and says “It's your turn“, they have said they're willing to start putting up their own money to try to solve the infrastructure gap.

When you take a look at the Canadian population on average, it's growing here, but first nations population is growing there. To stand in line means that every year you're falling further behind. A prime example of what our loans are doing can be seen if you drive south to a town called Penticton. If you look on the Penticton lands, you'll see that where there used to be land, there's now infrastructure and housing being built. One of the most wonderful stories was a report from their CEO, who said here's the number of jobs our community members got for the construction; here's the number of jobs that are going to continue; here's the number of trades that were developed.

We are at the point where we have 205 first nations standing in front of our door. The capital markets are saying that is much more than anybody expected. It's a great story, but in order to maintain confidence that those 205 have an adequate cookie jar behind them in case something goes wrong—and nothing's gone wrong in four years—but in the what-if scenario is sometimes growth begets demand. For us to continue to duplicate the Penticton story across all 205, we're at the point at which our balance has to grow with the client demand.

If you say, “Why don't they just go to banks?”, the first question is where do banks get their money? They get their money from the capital market, the same place, so if you go to a bank, they borrow it and mark it up. When you start marking up loans for profit—which is what a bank and credit union should do, because that's how they survive—the dollars go less far when you build.

We go directly to the capital markets. We lend at cost. We only cover our costs, there's no profit motive because we're not-for-profit, which means the infrastructure gap comes down quicker. Certainly, it's the first nations' demands themselves that cause us to be here today.