Finance Committee on Feb. 17th, 2016

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

The reason I ask that question is that we have introduced legislation to review the NEB process. We need a National Energy Board process that has the confidence of Canadians and of stakeholders. It is the right measure to take. Whether it takes two or three extra months or two or three months fewer, we have to get it right, and we have to get the approval system in place correctly.

I've actually worked with NEB employees, and they are very good; I completely agree. But we need to get the process correct to get that discount down, to narrow it and eliminate it and get those tax revenues. The Canadian economy is losing money from this discount. That's why it's so important, in my view and in our government's view, that the NEB process have the confidence of all Canadians.

For my second question.... We're experiencing a supply shock on the oil side. Demand is actually still increasing. You don't see that written as much, but demand is still going up. But we've hit a supply shock, in terms of shale oil and gas in the Middle East...well, Saudi Arabia, Iran, and Iraq. Do your organizations see this as a temporary phenomenon or a permanent phenomenon?

[Alex Ferguson]

I'll comment first and then let Chris jump in.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Could you answer quickly, please.

[Alex Ferguson]

The one thing that's important to note is that Saudi Arabia did not create this problem. This problem was created primarily in the United States and Canada with our technology development and our inability to get beyond Canada's borders with our product. A little bit of South America has created some of that supply problem that we have, but it is not a Saudi Arabian or Iranian problem on the supply side. They have not increased their supply substantially. We just can't get out to other markets.

[The Chair, Liberal, Wayne Easter]

Does Mr. Bloomer want in here as well? Okay.

Go ahead, Mr. Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

If you'd like to add to that for 10 or 15 seconds....

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Bloomer.

[Chris Bloomer]

I would concur. Things are going to improve over time but—broken record—we need to have access to markets.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you.

Switching gears to home care and prescription drugs, we have a health care system in Canada that's great. We all know its merits, but it's missing one last piece of the journey in terms of prescription drug costs.

There's a cost here of a billion and change for the program you've outlined. Have you estimated the benefits of going to this? There are families who can't afford prescription drugs and who end up going to emergency afterwards.

[A voice]

That's right.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Also, I want to get your general comment on refundable versus non-refundable tax credits. It's shameful that the system is structured as such, because if you are in the lower income brackets and you don't have taxes payable, you don't benefit from it. It's a shame, and it's actually a tragedy.

More on the prescription drug side, could you add some comments there, please?

[Dr. Cindy Forbes]

If I understand your question, you're asking me if we have some sort of cost analysis of what is being saved by funding the.... I think the answer to that is no, but there is definitely a cost to patients not filling their prescriptions and not treating their diseases, whether it be diabetes or heart disease.

As for whether we can actually cost out the patients who didn't fill their prescriptions and ended up in emergency or having heart attacks, I don't have that number for you, but we know there's a human cost—along with a system cost—of not filling the medications. Our suggestion was that, at the very least, a catastrophic coverage of no one having to pay more than $1,500 a year would certainly be a start in working towards making sure that all Canadians who need their medications can obtain them.

[Toby Sanger]

I want to follow up on that. Analysis by some professors at the University of Ottawa has found that overall savings from a national pharmacare program would amount to about $10 billion. There are other savings, in the fact that if you have common social programs like that, it increases mobility. It's the same thing with the Canada pension plan. If you expand that, it increases mobility between jobs as well.

[The Chair, Liberal, Wayne Easter]

Mr. Genuis, you have five minutes.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Thank you, Mr. Chair.

I want to direct my questions to Mr. Ferguson and Mr. Bloomer.

I have the pleasure of representing the riding of Sherwood Park—Fort Saskatchewan, which is really Canada's hub for energy-related manufacturing. We have the industrial heartland, and I'm very proud of our region and the jobs that are created there, but also across the country.

I did want to pick up on the issue of accelerated capital cost allowance, because I was a bit concerned by some of the comments made by the Liberal member. I think this is a good opportunity for us to talk further about just what accelerated capital cost allowance is and how important it is for creating jobs in my region and across the country. So many of the products we use on a regular basis come from energy development. Even the election signs that we use are a derivative of a petroleum product that is in plastic. Even Liberal and NDP election signs come from the energy sector in some sense.

Accelerated capital cost allowance is not a cost to government. In fact, it's an economic incentive that creates opportunities for the government to generate revenue, because it allows companies that make major investments in energy-related manufacturing to write off the cost of that capital earlier on. It creates jobs, but it also creates an opportunity for revenue.

Given the situation right now in Alberta, with relatively higher unemployment than we've seen in the past, it just seems to me that now is a very good time to create incentives for these kinds of projects. Now is a very good time for more activity in the downstream sector. I know that we have you gentlemen here representing the upstream sector and the transportation part of our energy resource sector, but I wonder if you could talk a little more about the importance of accelerated capital cost allowance and maybe the kinds of things that we could include in the budget that would create incentives for the downstream sector for energy-related manufacturing.

[Alex Ferguson]

Sure. Maybe I'll start by quickly.... The capital cost treatment, or the depreciation schedule, is a means for an operator or business to manage risk in a project. They're more prepared to take a riskier project if they can write off that risk sooner so that they gain more confidence in a shorter time window. Large, significant capital projects, given the time that's required to actually deploy them and see some kind of return, inherently have a lot of risk through construction and the upcycle of getting started. It's not a loss on government revenue; it's a timing process for government revenue through the depreciation schedule that you would front-end load. But it's more an opportunity for those riskier projects that we think are important for Canada and for the economy, and moving our product, whether it's an LNG plant, or whether it's a refinery, an upgrader, or any significant resource development. Having the ability to write off those riskier projects sooner is a way of freeing up capital that can be deployed elsewhere.

[The Chair, Liberal, Wayne Easter]

Chris.

[Chris Bloomer]

Yes, I would agree with Alex's comments. I think on the large pipeline side there is a rate-based component to it, but it does figure into the economics and it does figure into the de-risking of capital investments.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

Thank you very much. I think you make the point very well. But this isn't a cost to government. It's like a pipeline. These things are cost-free economic stimuli that create economic activity through an economic incentive, but they don't cost the government, at least not in the long term.

There's another point I want to ask you to comment on. I'm from Alberta. We hear so much about the importance of the energy sector. It's something that through friends and people in my constituency I'm hearing about every day. I wonder if you could talk specifically about the benefit for jobs and opportunity in other parts of the country. What are the ways in which jobs are created through energy development and through pipelines in Ontario, in Quebec, in the Maritimes, in B.C., in all regions of the country?

[Alex Ferguson]

I will give a good example to frame that. Just from an oil sands perspective, our members that operate in the oil sands sector track the number of businesses that they purchase products from elsewhere in Canada. I did have some numbers here. For example, in Ontario there are approximately 1,100 to 1,200 suppliers that are supported by oil sands development. I think in Quebec the number is approximately 800 for the different companies that supply products to the oil sands. Just from a supply perspective, there is a lot of movement of economic benefits across the country that you may not know about. I'll give you a very specific one. Around the greater Toronto area there are approximately 40 to 50 pallet manufacturers. These people provide a good opportunity for jobs, especially for new Canadians, in that kind of sector where almost every product, other than huge equipment, moves on a pallet. When we buy a product from a supplier in Ontario, it has to be loaded onto a pallet that needs to be manufactured in Ontario and moved to Alberta. We do have the numbers; I'd be happy to share them more specifically if anybody's interested. We do have a pretty wide breadth in the economy.

[The Chair, Liberal, Wayne Easter]

We're well over time, Mr. Genuis.

Mr. Bloomer, do you have anything you want to add to what Alex had to say?

[Chris Bloomer]

Yes, please, just a short comment. I think the nature of pipeline infrastructure is that those benefits are translated right across Canada, and the scale of investments we're talking about are significant and are spread across Canada. I will say that on maintenance alone in the existing system, there's also probably $3 billion a year that's spread across Canada. Those benefits are transnational and they're long term.

[The Chair, Liberal, Wayne Easter]

Okay. Thank you very much, Mr. Bloomer.

Thank you to all the witnesses who appeared. There has been a lot of information, a couple of testy moments, but that's what happens at committees from time to time. I appreciate everyone's presentation.

We will suspend for five minutes while the next witnesses come forward.

[The Chair, Liberal, Wayne Easter]

Pursuant to Standing Order 108(2), we'll reconvene our hearing on pre-budget consultations for budget 2016.

Welcome to all the witnesses. Thank you for coming on relatively short notice.

We'll start with Mr. Scholten from the Canadian Convenience Stores Association.

Welcome. The floor is yours. Try to keep your remarks to five minutes, please.

[Alex Scholten, President, Canadian Convenience Stores Association]

Sure.

Good evening, ladies and gentlemen. My name is Alex Scholten, and I'm president of the Canadian Convenience Stores Association. Thank you for giving me the opportunity to speak with you tonight on behalf of the convenience store industry in Canada.

Our trade association represents the 26,000-plus convenience store operators in Canada and the 230,000 employees we employ in this industry in rural and urban communities from coast to coast to coast. Many of these stores may be small businesses, but together we contribute significantly to the economic well-being of Canada. We serve at the centres of many communities.

To give you an idea of the economic footprint of our industry, Canadians purchased from our stores, last year alone, in excess of $51 billion in goods and services. Those sales also resulted in $18 billion in taxes being collected on behalf of federal and provincial governments.

We're also significant employers of new Canadians, providing these entrepreneurs with an opportunity to own and operate their businesses.

Our association is encouraged by a number of small business measures announced in the recent election platform, particularly around lowering small business taxes by two percentage points. As this committee will likely hear through consultations, small businesses are the first to be positively impacted by these types of initiatives, so we are appreciative of them.

Two of our biggest priorities in working with the Department of Finance are the impact of excessive merchant credit card fees and the persistence of illegal, untaxed tobacco that is sold in Canada.

On the first issue, merchant credit card fees, the Canadian Convenience Stores Association works with a coalition of 24 other trade associations, the Small Business Matters coalition. This coalition came together to provide government with the concerns and direction of over 98,000 small businesses operating in Canada. It's no secret that merchant swipe fees in Canada are among the highest in the world, and have risen sharply over the past number of years.

Last year saw the introduction of an average credit card merchant fee rate of 1.5% under a voluntary agreement between the Canadian government and credit card providers. Unfortunately, this was not enough to create any real difference to Canada's small businesses. In an effort to support their small business merchants, several other countries have lowered their rates to 0.3% to 0.5%, or one-fifth or one-third of the average rate imposed under the voluntary code of conduct. We think these examples from other countries would serve as an excellent model for Canada.

We need to do more for small businesses so that expense savings can be used for hiring more staff, making capital investments in our businesses, and lowering consumer prices. We also would like to see this committee put forward a recommendation to implement greater enforcement behind what currently remains a voluntary code of conduct on swipe fees.

With respect to the issue of illegal and untaxed tobacco, the Canadian Convenience Stores Association and our four regional counterparts regularly engage government to advocate against additional tax increases on tobacco products. We do this because of the impacts such increases have on illegal tobacco activity in Canada. The issue of contraband tobacco has consistently affected our sector, as we view ourselves as being a partner with government in the controlled sale of legal tobacco products. Not only do our members keep tobacco out of the hands of youth, but we also collect taxes on behalf of federal and provincial governments. In 2014 that amounted to in excess of $4.7 billion.

Tobacco tax increases are often advocated as a way to reduce smoking rates, particularly youth smoking rates. The reality, however, is that once taxes become too high and prices skyrocket, consumers simply purchase their products elsewhere, that is, in the illegal and uncontrolled environment.

In December of last year, Prime Minister Trudeau himself acknowledged, when discussing the potential of taxation on marijuana products, the potential for illegal market activity if taxes rise too high. He stated that by taxing a product too much, it inadvertently creates or fuels a black market. An increase in the illegal market also diminishes the impact of tobacco control measures.

Our association has long advocated for greater deterrence measures against the illicit market, including additional resources for the RCMP, Canadian Border Services Agency, and other investigative bodies.

Additionally, it is important to note that fines levied against illegal tobacco traffickers are very often not collected. This is an incredible source of lost revenue that this committee should strongly pursue as a means of deterring criminality while also recouping lost government revenue.