Finance Committee on Feb. 17th, 2016

[The Chair, Liberal, Wayne Easter]

Thank you very much.

Turning to the Canadian Renewable Fuels Association, we have Ms. Kent.

Go ahead. The floor is yours.

[Andrea Kent, President, Canadian Renewable Fuels Association]

Thank you very much.

Thank you to the members of the committee.

It's a pleasure to be here today to talk about the diverse and real opportunities presented both from an economic standpoint as well as an environmental standpoint that a diverse energy mix in Canada can provide, including what we think is essential, and that is the expanded use of biofuels.

For over 30 years, the Canadian Renewable Fuels Association has been the country's leading advocate for the biofuels industry. It is also an industry that generates $3.5 billion in yearly economic activity, has created over 14,000 quality Canadian jobs, and returns over $3.7 billion in investments back to government every year. Biofuels, like ethanol and biodiesel, reduce greenhouse gases by up to 99% compared to fossil fuels and on a life-cycle basis, biofuels are already reducing carbon emissions by 4.2 megatonnes annually, which is the equivalent of removing one million cars from the road every year.

With this committee's work in mind, to look for strategic ways to invest in our economy, as well as the government's stated ambitious targets for reducing greenhouse gas emissions in Canada in combatting climate change, we'd like to briefly offer some ideas that our industry has on how to leverage the successful biofuels mandates that we already have in place in Canada to strengthen the economy, while at the same time helping reach those ambitious greenhouse gas reduction targets.

First is increasing the already successful biodiesel mandate from 2% to 5% by the year 2020. The transportation sector of course accounts for 23% of Canada's greenhouse gas emissions. You hear about this quite a bit. That works out to about one-third of Canada's overall greenhouse gas emissions. Every year Canada's 2% biodiesel mandate reduces those annual emission levels by 910,000 tonnes. Increasing the mandate incrementally year by year by 1% or so would more than double those reductions. Blending more biofuels is also consistent with what consumers have told us they want and what they are looking for in their fuels. We did a recent survey of 17,000 Canadians from across the country. When asked, 88% of them said they wanted to see more renewable fuels products and that they felt that government should be doing more to promote Canada's renewable fuels industry.

In terms of increasing the federal mandate that I just talked about, the majority of Canadians, over 65%, are already in support of seeing more biodiesel in the fuel mix. Interestingly enough, less than 10% really seemed opposed to it.

Second is placing a fair value on GHG reductions. Many provinces have, or are working on, some sort of design for a carbon price system. We support this work and we're fully engaged with the provinces in their leadership on this issue. However, complementary measures from the federal government cannot be ignored and really are needed to be a winning part of the overall equation for battling climate change in this country. These can include a variety of things, such as vehicle efficiency standards, increases to the federal mandate, as well as looking at GHG requirements layered on top of those mandates.

Finally, we think there needs to be increased support for clean technology and the bioeconomy in Canada. We should all be very proud of the fact that we have one of the strongest economies in the G-8, but our long-term economic prosperity is going to be determined by the priority we place on sustainability, innovation, and clean technology. Be it through government programs, tax incentives, or the creation of a national bioeconomy framework similar to what already exists in countries like the United States, the European Union, and Croatia, Canada's public policy must continue to find ways to keep up with the needs and the pace of business.

Those are our ideas. We've kept it intentionally short with the ambitious agenda of this group in mind, but of course, I'd be happy to answer any questions that you have later.

Thank you very much.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Ms. Kent.

Turning to the Canadian Wireless Telecommunications Association, Mr. Eby, welcome. The floor is yours.

[Kurt Eby, Director, Regulatory Affairs and Government Relations, Canadian Wireless Telecommunications Association]

Thank you, Mr. Chair. I'm pleased to be here.

The CWTA represents wireless service providers as well as companies that develop and produce products and services for the industry, including handset and equipment manufacturers, content and application creators, and business-to-business service providers.

My remarks this evening will focus primarily on the pre-budget consultation question that asks: what infrastructure needs can best help grow the economy?

Wireless technology contributes to virtually every aspect of the Canadian economy, as wireless devices are now indispensable business and consumer tools, and Canadians' preference for wireless is clear. In only seven countries in the world does the average mobile user consume more than one gigabyte of data per month. Canada is one of those countries, and Canadians currently rank as the fourth-highest consumers of wireless data in the world, at more than 1.5 gigs per month.

The cumulative effect of more Canadians using smart phones and connected devices to do more is a massive growth in overall data usage. The latest projections indicate that Canadian mobile data traffic will increase 600% by the year 2020. No other sector of the economy must consistently meet levels of demand growth similar to those experienced by the wireless industry every year.

Demand is met by significant infrastructure investment. The Canadian wireless industry has invested more than $2.5 billion in capital expenditures each year since 2009. The doubling of total data usage every two years keeps the industry in a perpetual investment cycle. The industry has also invested an additional $8 billion since 2014 to acquire the spectrum needed to expand and enhance wireless networks to meet current and projected traffic volumes. As a result, the government currently records more than $830 million per year in spectrum auction revenue. These investments create jobs directly related to network expansion and enhancement and the ongoing delivery of advanced wireless services from Canada's service providers.

In 2014 Canada's wireless industry generated 134,000 full-time jobs and an overall economic benefit of $23.5 billion. Canada's service providers will continue to make record investments to meet the exploding demand for data use and ensure a consistent level of service for all Canadians.

Strategic government policies can facilitate additional investment in wireless network infrastructure and support innovation and economic development across Canada. To further enable investment in wireless network infrastructure, CWTA submits that budget 2016 include an accelerated capital cost allowance from current rates to 50% for classes of depreciable assets that relate to telecom network equipment, including broadband networks. These classes include 8, 42 and 46.

Such a change to the income tax system would return significant benefits to Canadians and the national economy. It is projected that increasing the CCA rate for class 46 to 50% would increase telecom investment by $122 million per year in the near term. If the rate is increased permanently to 50%, the increased investment would total as much as $225 million per year, would create an additional 1,660 full-time jobs, and would add $163 million to the GDP.

CWTA has also consistently submitted that additional capital would be available for infrastructure investment if spectrum licence fees, which are currently 37 times greater than those paid by American service providers on a per-subscriber basis, were reduced.

Finally, CWTA submits that the government review the scientific research and experimental development program with the goal of reinstituting competitive tax credits that were reduced or eliminated through the 2012 federal budget.

Wireless technology innovation and R and D is evolving rapidly as companies compete to pioneer 5G network technology and move the digital economy forward. Much of this innovation will happen in Canada if it provides a competitive environment for facilitating telecommunications innovation and investment.

Wireless network infrastructure expansion and enhancement deliver unmatched commercial and social benefits to Canadians, including job creation, contributing to the GDP, and enabling the mobile and virtual workforce, thereby removing geographical barriers for rural businesses and communities to participate fully in the Canadian economy.

Wireless service also connects all Canadians, allowing for collective participation in society and contributing to our shared national identity.

The government, therefore, can directly contribute to innovation and economic development across Canada by facilitating additional investment in wireless network infrastructure.

Thank you.

I'm happy to answer any questions you may have.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Eby.

We will turn to Donald Angers from the Centre of Excellence in Energy Efficiency. Welcome.

[Donald Angers, Chief Executive Officer, Centre of Excellence in Energy Efficiency]

Good evening, everyone. Thank you for the invitation to appear before you.

The Centre of Excellence in Energy Efficiency, or C3E, is a fund that focuses mainly on investing to help Canadian companies get through what is referred to in marketing as the “valley of death”. We invest a lot of money in research and development and in expending plants to obtain contracts, but between the two lies the “valley of death”. That is where C3E wants to position itself and further what it has been doing since 2009. The Centre of Excellence in Energy Efficiency feels that the only way to make money is to export products and import money.

We note that in the wake of COP21, the Government of Canada has shown a strong interest in decarbonizing the country's economy and in investing more to reduce our carbon footprint. The transport sector is responsible for more than 23% of greenhouse gases in our country. In certain provinces, like Quebec, that figure is 45%. Globally, the figure is 13%. Consequently, we must focus our attention on this matter, but not only on the “transportation” aspect. If certain provinces want to eliminate oil from their plans, and purchase BMS, vehicles and batteries offshore, the loss of trade will simply be transferred to another sector. Consequently, it is important to invest in Canadian innovations so that we can export our products and import currency. That is how we will create wealth here.

Let's look at another issue. We've been discussing transportation. Did anyone come here today without using some means of transportation? Some of you took a plane and others took the train. Personally, I came by car. What can Canadians do to encourage homegrown innovations and help businesses get through the first steps in commercialization? That is exactly where the problem lies. We invest in research and development, but there is nothing left for commercialization. That is where businesses need a hand up to get the first sales and raise their profiles.

Currently, projects are funded in silos. There are budgets for transportation, industry, natural resources, the environment, and there is a desire to invest in all of those sectors. For our part, we invest in the energy efficiency of rail, sea, road and air transportation. We know that the majority of projects concern the road sector, but there are also many applications for the lightening of materials, as well as for managing power, energy and engine power.

According to a study by the International Energy Agency, in 2035 oil will still be used for certain mobile applications. We think it is still possible to improve and increase the energy efficiency of traditional internal combustion engines. Consequently we must invest in our innovations. When it comes to lightening, hydrogen, and electric vehicles, I am convinced that Canada as a whole would benefit if the Department of Transport, the Department of Environment and Climate Change, the Department of Innovation, Science and Economic Development and the Department of Natural Resources were grouped together so as to invest in a program to advance the commercialization of our spinoffs.

For instance, SDTC, Sustainable Development Technology Canada, has quite an impressive budget for technological demonstrations. They show Canadians that things are working. That is were C3E would like to intervene and have a fund to help commercialize the best ideas, the best positionings and these innovations. Once again, the idea is to export products, import money and create wealth here. That is what we want to do.

We need to see initiatives from government as well as policies on industrial technological spinoffs. The Department of National Defence, for instance, buys technology abroad. It is used here to reduce our carbon footprint. Imagine how good the financial picture could be if we did the same thing with our Canadian innovations.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Angers.

Next is Ms. Bell with the Tourism Industry Association of Canada. Welcome.

[Charlotte Bell, President and Chief Executive Officer, Tourism Industry Association of Canada]

Thank you very much.

Mr. Chair, members of the committee, good evening.

Good evening, everyone. Thank you for having invited me to take part in this consultation.

TIAC really appreciates the opportunity to participate in this important dialogue.

Travel and tourism is an $88.5-billion industry. It's Canada's largest service export sector and it generates $17 billion of annual export revenue. It's an economic driver and significant job creator in every riding across this country. We employ more than 600,000 people and we are the largest employers of Canadians under the age of 25.

There are a number of factors that undermine our international competitiveness. We've circulated a brief underscoring the factors that contribute to tourism's underperformance.

Tonight I want to focus my remarks on the need to increase international tourism marketing through Destination Canada..

You may be thinking to yourselves that tourism is one of those industries that's doing just fine and that the low dollar is taking care of this sector, so nothing needs to be done. What the low dollar is doing is keeping Canadians at home this summer. While domestic tourism is vitally important to the economy, we've grown overreliant on this segment. Currently, 80% of travel revenue in this country is derived from Canadians travelling within Canada. This is up from 65% just a decade ago.

While a low Canadian dollar is good for exports, we operate in a global marketplace where we compete with countries which invest significantly more in marketing than we do, and it shows. Globally, travel and tourism is one of the fastest growing economic sectors, surpassing $1.5 trillion in revenues. Our share is only 1.5% of that growing pie.

We need to grow international visitation. That's what generates the export revenue that drives investment, economic stimulation, and job growth in this sector.

Our largest key market is the U.S., so we're going to focus on that for a moment. Canadians are very conscious of the value of their currency. It's the topic of almost as many conversations at Tim Hortons as the weather is. But the vast majority of Americans are unaware of currency exchange. They base their travel decisions on value. Travel options are advertised to Americans in U.S. dollars. The effectiveness of the advertising campaign and the value proposition is really what's attracting them.

Canada has not had a significant marketing presence in the U.S. for at least five years. Last year TIAC requested $35 million annually to re-enter the U.S. leisure market and we received $10 million a year over three years. We're very grateful for the investment, but it does fall far short of the request. It's further compounded by the fact that we're experiencing a 30% loss in buying power in the U.S. because of the currency exchange.

Since 2002 Canada has fallen from eighth to seventeenth in the world in terms of visitation. Our marketing budget has dropped from $98 million to $58 million and we've shed four million international visitors a year.

Market conditions are now optimal to drive demand.

National tourism brand advertising is not only an effective way of promoting tourism but it's a powerful vehicle to communicate a country's values, including quality of life, cultural diversity, and environmental stewardship. Advertisements depicting Canada's magnificent geography, cultural diversity, and modern cities will not only drive visitation to Canada but will go a long way to setting straight the global impression of Canada as a leading progressive nation.

The travel and tourism sector is experiencing optimal market conditions when other sectors are struggling with global commodity prices. Increased advertising in key source markets would generate significant return within the same fiscal year at a time when government revenues and cash flow are vitally important.

TIAC is therefore asking for Destination Canada's marketing budget to be increased to $150 million. In 2001 the budget was $98 million, when Canada's visitation levels were at their highest. That converts to $127 million in today's dollars. We believe this amount should be increased to $150 million to compensate for the loss in buying power in key markets attributed to currency exchange.

Mr. Chair, members of the committee, the low dollar should not be seen as a solution to the tourism industry. It's an investment opportunity that really shouldn't be missed.

On behalf of Canada's travel and tourism businesses, I want to thank you for the opportunity to participate in the pre-budget consultations and look forward to your questions.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Ms. Bell.

Turning to the video conference from Roberval, Quebec, we have the Agence interrégionale de développement des technologies de l'information et des communications.

Mr. Nepton.

[André Nepton, Coordinator, Agence interrégionale de développement des technologies de l'information et des communications]

Thank you, Mr. Chair.

I thank the committee for inviting our group, a non-profit organization dedicated to the development of information technologies in rural Quebec.

We are here today to speak on behalf of the communities affected by this problematic situation. We are talking about half a million Canadian men and women who, in 2016, still do not have access to cellular telephone technology or mobile Internet. And yet we know that by 2018 this technology, through smart phones and tablets, will dominate the Internet sector worldwide.

Satellite coverage is already rather good in Canada. However, in terms of performance and cost, we believe that this technology will soon become obsolete. Because of this, development in the North, in Canada in particular, will be adversely impacted. By 2019, average speeds will quickly reach 20 to 43 megabits, which is beyond current capacity.

As you know, Canada's topography and its vastness hamper the development of affordable wireless Internet. Infrastructure sharing has brought down costs for users. However, this had an adverse effect on rural communities deprived of services by discouraging, to some degree, telecommunications carriers from developing new sites.

We want to see dynamic services in all of Canada so as to ensure the security, retention and development of resources, in addition to maintaining the competitiveness of businesses. Elected representatives say, and have confirmed to us verbally, that they favour a technology that will be able to keep pace with upcoming developments. This will have to be wireless telephony, because it is and remains the only sustainable technology that can provide fixed and mobile broadband internet, and, collaterally, cellular telephony, which is a very important factor in some communities.

We cannot overemphasize the importance of developing a fibre optic backbone and alternative networks in the North. They will become the support structure of all future telecommunications in the Canadian North.

Today, telecommunications infrastructure has become just as strategic as our roads and bridges, particularly for our rural municipalities, located far from large centres, devitalized, often mono-industrial, and having rather undiversified economies.

Consequently, to support the initiatives of our municipalities and their citizens, who are willing, in co-operation with telecommunications carriers, to develop innovative solutions, and even to contribute financially to the cost of the services they need, AIDE-TIC believes that the current government could, in its next budget, include the following three measures to support these local initiatives.

First, the definition of broadband infrastructures should be amended in the Building Canada Fund to incorporate fixed, mobile and voice Internet. The objective is to allow our municipalities to have access to development projects. I am referring here to cellular technology.

Next, given the vastness of Canada and limited municipal means, we suggest increasing the federal share from 33% to 50%, thus reducing municipal participation and encouraging the creation of such initiatives.

Finally, despite the low volume of users, we must ensure that our roads remain safe and usable. In rural areas and the Canadian North, that is important. We believe that a tax incentive or a capital cost allowance rate of 55% should be provided to telecommunications carriers willing to service interregional access roads. This would enable the geolocation of users in danger on our roads, as well as 911 emergency services.

Mr. Chair, thank you once again for having invited us.

If members of the committee have any questions to complete the brief we tabled, we will be pleased to answer them.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Nepton.

We'll turn to the first round of questions. Mr. Grewal, for six minutes.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you to all the panellists for coming to testify today.

I'll be splitting my time with the parliamentary secretary, if that's okay.

My first question is for Alex Scholten.

There are few things that all three parties actually agree on. One is a small business tax reduction from 11% to 9%. I'm sure your association is happy about that.

You mentioned a few things on which I wanted a little bit more clarification. On the merchant fees, you said we pay some of the highest merchant fees in the G-8. I've been to a lot of convenience stores; there's a lot of them in my riding. They also charge us an additional fee if we're paying by credit card. Doesn't that offset whatever the merchants are charging them?

[Alex Scholten]

I'd be very surprised if they're charging you a surcharge, because their contracts with the credit card companies do not allow them in Canada to charge that.

[Raj Grewal, Liberal, Brampton East, ON]

Okay. Maybe I have to do some private investigation.

[Alex Scholten]

I would say though that the taxis in Ottawa do have the ability to surcharge.

[Raj Grewal, Liberal, Brampton East, ON]

Okay.

[Alex Scholten]

If you use your credit card, it's an additional $1.50. That was a decision of the municipal government here in Ottawa.

[Raj Grewal, Liberal, Brampton East, ON]

Is that to offset the merchant fee basically?

[Alex Scholten]

Exactly.

[Raj Grewal, Liberal, Brampton East, ON]

Also, there is a workaround. Rather than getting the merchant to reduce it, it could be industry imposed.

[Alex Scholten]

Yes, and that's been introduced in Australia, for example, but not very effectively. What happened there, and it's one of the downfalls of that proposal, was that merchants use that as a means to generate additional revenues and they charge more than the cost of the credit card fees.

[Raj Grewal, Liberal, Brampton East, ON]

Okay.

Is there any study on what happens if a convenience store stops taking credit cards and the impact it would have on that business?

[Alex Scholten]

It would certainly have an impact, because the convenience store across the street is going to be accepting those, so it will take business away.

We do know to what extent credit cards are used in various categories. In the gasoline category, for example, up until about six months ago about 55% of transactions were made with credit cards. If a store were to stop accepting those, a good majority of those customers would probably go elsewhere.

[Raj Grewal, Liberal, Brampton East, ON]

Yes, that makes a lot of sense.

The second question is on tax on tobacco and on the underground black market on tobacco.

Is there any study on the lost revenue in terms of what the convenience stores specifically are losing to that market?

[Alex Scholten]

Yes, from a convenience store perspective, it would impact sales of tobacco products certainly, but also secondary products within the store, because tobacco customers will typically buy other products.

The amount that our industry has looked at was about $2.5 billion. The last time we looked at that was about four years ago when the amount of lost revenue that governments across Canada were experiencing as a result of contraband tobacco was in the range of about $2 billion.