Finance Committee on May 18th, 2017

[Brian Kingston]

The real hope is that this bank will spur on projects that haven't been done already. These would be projects that the federal, provincial, and municipal levels have not been able to deliver for whatever reasons, so that includes megaprojects. I'd note, too, that it's not just pension funds that would be interested in some of these projects. There's a lot of private capital out there looking for returns.

So, if the right project comes to fruition and this model is what delivers it, I think you'll find a lot of interest from private sector investors and pension funds. I don't want to speculate on what those projects would be, but we know that there is a list of megaprojects.

[Brenda Shanahan, Liberal, Châteauguay—Lacolle, QC]

Have you done analysis around the kind of spinoff economic development that could happen with that kind of public investment and private—

[Brian Kingston]

We haven't done the analysis ourselves, but we know from past infrastructure spending that there are massive spinoffs going into the steel industry, into employment, into the construction industry. Infrastructure will inevitably be a big boost to the overall economy.

[The Chair, Liberal, Wayne Easter]

Okay, we'll have to cut it there to wrap it up.

Mr. Dusseault, you can ask one short question.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

It's very short. It's for Mr. Hindery.

Do you know the BlackRock investment company?

[Leo Hindery Jr.]

I do, sir.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

You said you would be worried if Goldman Sachs was behind an infrastructure bank in the U.S.

Would you be as worried if BlackRock designed this bank in Canada?

[Leo Hindery Jr.]

There are two BlackRocks.

There's one that seeks very high rates of return, and it does have its own low interest rate, fixed-income portion of the bank, of the institution. As we were saying a moment ago and earlier to your two colleagues further down, the only thing that matters to me is size, impartiality, and low rate of return on the capital of the institution. Wherever it comes from, if it's in that 2% to 3% range, then I'm comforted.

[The Chair, Liberal, Wayne Easter]

Okay, we'll have to leave it at that. We are slightly over time, cutting into the next panel.

I thank all the witnesses for their presentations and for their answers.

We will suspend for two minutes while the next panel comes forward. Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you all for coming.

As you know, we're dealing with the budget implementation act, Bill C-44.

We have presentations from five groups during this round. If you could hold your presentations as close to five minutes as possible, that would be helpful.

We'll start with the Canadian Chamber of Commerce, Mr. Brakel, senior director for economic, financial and tax policy.

Welcome, Mr. Brakel.

[Hendrik Brakel, Senior Director, Economic, Financial and Tax Policy, Canadian Chamber of Commerce]

Thank you very much, Mr. Chair and honourable members.

Thanks so much for having us. It's an honour and a pleasure to be with you today.

We really appreciate the opportunity to provide input, because the federal budget is of vital importance to our network of 200,000 businesses across Canada. We want to make a couple of quick points.

Firstly, we're concerned about the competitiveness of Canada. We've had nine consecutive quarters of falling business investment. We've had two years of zero export growth. Back in 2015, we could have attributed the weak business investment to declining natural resource prices, but in recent quarters we’ve seen weakness spreading into a variety of investment sectors: machinery and equipment, software, R and D.

It may be that the renegotiation of NAFTA is having a chilling effect, but we think it's absolutely critical to improve Canada's competitiveness and bring down the cost of doing business in Canada. Our members tell us all the time that Canada is a great place to do business, but it's an expensive place. Wages are high; taxes are rising—provincial corporate taxes, CPP contributions, carbon levies, and El stuck at high levels. At the same time, many countries are lowering corporate tax rates, including Japan, Spain, Israel, Norway, Italy, the U.K., and most importantly the United States. Our competitiveness challenges will become acute if and when the U.S. is able to lower corporate income taxes, and this will impede our ability to attract and retain foreign investment. Urgent action is needed.

At the Canadian Chamber of Commerce we've tried to develop recommendations that would make a difference. A patent box regime would be a game-changer by creating a 5% tax rate on profits derived from patents developed in Canada. That would be a huge incentive for companies to develop and commercialize innovative technology here. We also ask you to increase the 100% writeoff of business investment in the first year. That would be a big boost for Canadian investment.

On infrastructure, the Canadian Chamber of Commerce is supportive of the government's efforts to address Canada's infrastructure deficit. But it's crucial that we be strategic. The commitment of $60 billion in new funding for green, social, and transit investments over the next decade is certainly needed, but in our view the federal plan lacks some balance. The trade-enabling infrastructure, the stuff that enables the movement of products, services, and people through Canada and to markets around the world, represents around 12% of the new plan.

With 60% of Canada's GDP tied to trade, this category of infrastructure can improve our productivity, our long-term global competitiveness, and our economic well-being. As Canada's trade infrastructure is showing signs of strain, our competitors are aggressively investing in improvements to trade infrastructure. We've been urging that trade-enabling infrastructure, these roads and ports and airports, be made an equal priority alongside the green, social, and transit infrastructure.

We're optimistic about the Canada infrastructure bank. In our view, one of the biggest potential benefits of the bank could be its intelligence function. If the new institution is able to take a national view on identifying Canada's long-term infrastructure challenges, our choke points and gaps, and create export corridors in a strategic manner, it could be very valuable in the long run. We also think it would be a win if the bank could help speed up the time it takes to get major projects moving and pull more private sector funding into these projects.

Let's take a real example. VIA Rail has an interesting proposal to create a dedicated passenger service along the Ottawa-Toronto-Montreal corridor. We're not talking about high-speed rail; we're just talking about normal rail. Right now trains can travel a maximum of 50 miles per hour because they're sharing those tracks with cargo trains. Dedicated passenger rail would enable them to basically double the speed, so you would get from here to Toronto in about two and a half hours. This is big bucks—about $3 billion or $4 billion. We think that's something the infrastructure bank could leverage or could provide guarantees on to attract private sector investment so that it's not our tax dollars.

I'll stop here with one additional point, which the chamber will continue to make. If the government wants to make it easier for the private sector to invest in infrastructure, we also have to reduce regulation. It's not just pipelines. Regulatory uncertainty and delays of privately funded infrastructure projects are a problem that still needs to be addressed when it comes to attracting investment capital to Canada. Efforts to reduce federal-provincial duplication or to have environmental reviews completed in a defined time period would be hugely appreciated. We could also maybe fast-track approval processes for certain types of green energy investments.

Thank you so much for listening. I'm happy to take any questions.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Brakel.

Turning to the Canadian Federation of Students, we have Ms. Arte.

Welcome. The floor is yours.

[Bilan Arte, Chairperson, Canadian Federation of Students]

Thank you so much.

Good afternoon, members of the committee, and thank you so much for having me here on behalf of the Canadian Federation of Students.

With the release of budget 2017 on March 22, students welcomed investments for indigenous learners and part-time students. However, we felt that the budget lacked an innovative vision for higher education overall. I'm going to take you through that right now.

First, on the issue of funding for indigenous learners, the 2017 federal budget promised $90 million in funding over two years for the post-secondary student support program. This program is a federal initiative that distributes non-repayable financial support to indigenous students attending post-secondary education institutions.

While this commitment still fell short of the government's 2015 election promise of injecting the program with $15 million in funding annually, the injection of funds was nevertheless welcomed by students, and will permit an additional estimated 4,600 indigenous students to obtain funding for post-secondary education.

However, while removing the 2% annual funding cap on the post-secondary student support program, and injecting $90 million in new funds over two years, the program continues to fail to provide full zero-cost access to post-secondary education to all indigenous learners, a treaty right guaranteed in several foundational nation-to-nation treaties and reaffirmed as a constitutional right in the Canadian Constitution Act, 1982.

In order to address the backlog in applicants to the post-secondary student support program, whose funding has been capped for two decades, the government would need to invest an additional $420.8 million over three years, or an investment of $141 million per year. Additionally, eligibility for the program continues to exclude Métis students, something the federation would like to see changed.

Second, I wish to speak on the expansion of eligibility to the Canada student grants program. A second area of progress made in budget 2017 was with respect to the Canada student grants program, which will now include part-time students and those with dependent children, beginning in 2018-19.

We estimate that the investment of $167.2 million over four years will make an additional 10,000 part-time students and an additional 13,000 students with children eligible for these grants as of 2018.

Once again, while this reform is definitely a step in the right direction, we believe that Canada student grants program eligibility should also be expanded to include graduate students. Further, the federal government should take this one step further and eliminate interest rates on student loans, through the Canada student loans program, while providing two-stage assistance for all Canada student loans program borrowers five years after graduation. In the last academic year alone, we know the federal government profited by over $580 million in interest off public student loans, affecting the most vulnerable, impoverished groups in Canada. We believe this government must end this practice.

Third, we also saw that budget 2017 committed investments in co-operative education and work-integrated learning programs. These investments were welcomed by students. However, we feel that the government's focus on programs in the science, technology, engineering, and mathematic fields alone demonstrates a narrow understanding of innovation, and leaves many students behind.

Additionally, we were pleased to see, in budget 2017, progress in our fight to end unpaid internships. However, we will continue advocating until all unpaid internships are eliminated, including those that are part of a formal educational program.

[The Chair, Liberal, Wayne Easter]

Slow down a bit, please.

Don't worry about the time. We'll give you the time.

[Bilan Arte]

Okay, thank you.

Students hope this will set an example for other youth employers as there continues to be an estimated 300,000 people working in unpaid internships every year in Canada.

Fourth, on investments to Canada's research capacity, budget 2017 saw investments to establish new research chairs and the establishment of a chief science advisory, among other welcome initiatives. However, budget 2017 missed an opportunity to restore and invest in basic fundamental research and include bold reinvestments in the tri-council agencies that would allow the granting councils to adequately support the research endeavours of graduate students and researchers across all disciplines.

Finally, despite some improvements made in the area of indigenous access to education through funding for the post-secondary students support program, expanded eligibility for the Canada student grants program, and investments in co-operative and work-integrated learning programs, students contend that budget 2017 and its subsequent implementation fails to address the crisis of post-secondary education funding in Canada. Canada's post-secondary education sector is financed increasingly through student debt, part of a larger trend of household debt leveraging our economy as a whole.

In 2015, household debt exceeded the size of the Canadian economy at $1.6 trillion, or 171% of household disposable income. Between 1999 and 2012, student loan debt alone rose by 140%, a product of systemic underfunding and under-prioritization of federal and provincial governments. Budget 2017 fails to comprehensively address mounting student debt, which has collectively reached over $28 billion.

The Canadian Federation of Students has proposed a bold plan for Canada's post-secondary sector through our budget submission, which can be realized through clear budget prioritization of post-secondary education. This plan proposes the elimination of all tuition fees in favour of public funding. We advocate for this funding to be governed by a federal act modelled after the Canada Health Act, recognizing the lack of a clear federal role in post-secondary education in our country. This investment in our country's future would yield billions in return through direct spending and taxation, advantages of social indicators, and general economic growth.

Canadian expenditure on post-secondary currently sits at approximately 2.5% of GDP through a complicated patchwork of programs rather than a more efficient and progressive universal system. We believe these monies can be better allocated to support a tuition-free universal system of access for all. We hope to see this kind of bold direction through the implementation of budget 2017 where possible, and certainly in budget 2018.

Thank you, committee members, for your time. I'm happy to take any questions.

[The Chair, Liberal, Wayne Easter]

Thank you, Ms. Arte.

From the Petroleum Services Association of Canada, Ms. Elizabeth Aquin, the floor is yours.

[Elizabeth Aquin, Senior Vice-President, Petroleum Services Association of Canada]

Thank you, and good afternoon, committee members.

I am Elizabeth Aquin, senior vice-president of the Petroleum Services Association of Canada, or PSAC. Thank you for the opportunity to be here today to provide you with some comments. I understood that you wanted comments on the abolition of the Canadian exploration expense, so that's where my comments will be focused.

PSAC is the national trade association for the service, supply, and manufacturing sectors of the upstream petroleum industry, representing over 160 companies that employ over 30,000 workers. These are the companies that provide the innovation, technological advancement, and in-the-field experience to Canada's energy explorers and producers, helping to increase efficiency, improve safety, and protect the environment.

The oil and gas industry is a significant contributor to the Canadian GDP. According to a 2015 Canadian Energy Research Institute report, over the next 25 years Canada's oil and natural gas development is expected to contribute $7.6 trillion to Canada's GDP. However, with the collapse in commodity prices, capital investment in this sector plummeted from $81 billion in 2014 to $31 billion in 2016, and tens of thousands of workers were laid off. The situation has been exacerbated by the lack of access to tidewater and global markets for our resources. While we appreciate the approval of pipelines and other infrastructure projects such as LNG facilities, it will take years to get them built.

At this point, I will say that we do appreciate the $30-million one-time payment to the Government of Alberta, which today was translated into $235 million by way of a loan to the Orphan Well Association, so it will be repaid by industry, thereby creating thousands of jobs for workers that are much needed. Thank you for that.

The world still needs oil and gas, and Canada has one of the most robust regulatory regimes in the world, along with stringent environmental standards. We are already reducing GHG emissions per barrel of oil produced from the oil sands down to 30% of the 1990 levels. While Canada is said to be lagging in R and D, the oil and gas sector is the exception. According to the Government of Canada's Science, Technology and Innovation Council's report “State of the Nation 2014”, over the past 16 years, R and D investment in the oil and gas extraction industry has risen dramatically, increasing almost fourteenfold from 1999 to 2015. Ninety-four per cent of PSAC members report investing in R and D, with 45% planning to increase their budgets over the next two years and 22% already pursuing clean tech to reduce emissions.

If Canada is to play a meaningful role in reducing global emissions while the world still needs oil and gas, it should continue to supply those resources. If not, we will be faced with carbon leakage and the green paradox, where nations with far less concern for our environment produce the oil and gas that the world needs, and emissions will rise as a result.

Canadians need oil and gas, too. Today we import over 800,000 barrels of foreign oil. If we continue to discourage investment in this industry, we will end up importing more and contributing to greater emissions. Instead, let us continue to innovate, reduce carbon emissions, responsibly develop our vast natural resources, and not discard an industry that is vital to our country now and to those parts of the world that will benefit from our expertise, care of the environment, and energy supply to rise out of energy poverty.

We disagree that the Canadian exploration expense is a subsidy. Rather, we believe it is an important incentive in attracting capital to higher-risk exploration activity, comparable to R and D spending in other sectors, and a basic part of tax policy intended to incent investment that creates jobs and economic benefits while recognizing the risks involved. We believe that the term “fossil fuel subsidy” refers more to those countries that provide deep discounts to consumers through low prices for the purchase of fuels such as gasoline and kerosene, not to economic incentives to producers of the resource, where world markets dictate prices regardless of the cost to develop and produce the resource.

With less exploration per se versus development taking place today, abolishing the CEE sends a negative signal to investors that Canada is not supportive of this vital industry. Capital is mobile, and investors can easily choose to invest south of the border where investment is being welcomed, along with other places. This would be a loss for all Canadians, so we urge you to reconsider.

Thank you again.

[The Chair, Liberal, Wayne Easter]

Thank you, Ms. Aquin.

From the Vancouver Economic Commission, we have Mr. Shepheard, director, Vancouver Film Commission.

[David Shepheard, Director, Vancouver Film Commission, Vancouver Economic Commission]

Thank you very much, Chairman.

I'm pleased to be here today on behalf of the Vancouver Economic Commission and our CEO, Ian McKay. He sends his direct apologies, but the Prime Minister is in Vancouver today and he's hosting him at some events, so I'm here on his behalf.

The Vancouver Economic Commission is the economic development platform for Vancouver. As many of you are aware, for several years now Vancouver has led the nation in GDP growth and in job growth, and it has the most diversified economy in Canada. In that context, we're delighted to speak in support of Bill C-44.

While most of my comments today will focus on division 20, on the invest in Canada act, I'd like to quickly address some of the components of the bill.

Regarding division 5 on the creation of a pan-Canadian artificial intelligence strategy, we support this initiative unequivocally. At the same time, to be clear and on the record, Vancouver and British Columbia boast some of the best world-class capacity in AI disciplines at the University of Victoria, UBC, and Simon Fraser University, as well as globally recognized clusters of quantum computing companies such as D-Wave and 1QBit. Vancouver is well positioned to lead the country in groundbreaking innovation in the quantum field, but most importantly from a national perspective, it's imperative that Canada continue to develop and retain some of the world's best researchers in the field of AI.

In the brief coming on division 8, on increasing the threshold of significance for the review, we support this measure. It's in line with previous practices, and is moving at a rate in line with GDP.

On division 20 regarding the invest in Canada act, the creation of a Canada-wide investment hub comes at a time when Canada's brand as a destination for global capital flows is at an all-time high. Political stability, fiscal strength, globally recognized post-secondary educational institutions, and a multicultural population have created a platform for 21st century innovation that is among the world's best.

Canada's ability and capacity to attract a bigger share of foreign direct investment must be a major priority for the Government of Canada, and the investment hub must demonstrate to the international investment community that Canada is a clear, cohesive, and comprehensive value proposition to attract further FDI.

While Canada's brand will undoubtedly open the door to conversations with investors from all over the world, the federal government's investment hub needs to be structured and resourced in a way that recognizes that investment capital lands in cities, regions, and communities across the country, and in most cases it is these local ecosystems and the regional clusters that make the investment possible. In that sense, Canada currently has 13 mini investment hubs, the big cities economic agencies alliance, and I know you just heard recently from Mike Darch, the president. Vancouver, through our CEO, who is the current chair of the CCCA, Consider Canada City Alliance, works closely with the trade commissioner service at Global Affairs Canada to brand Canada to international investors through our city-based platforms. It's a great partnership and a model that needs to be expanded and improved in the new investment hub.

In my own personal experience, I recently relocated from London to Vancouver to take on the role as its inaugural film commissioner. From that perspective, we're seeing how Canada's global brand value, equally weighted by Vancouver as a destination, is experiencing high levels of investment attraction from across the globe in the digital entertainment and technology sectors, based on big infrastructure projects and investment in companies.

VEC, through its daily work, is witnessing some of the same factors across all the main economic sectors that are part of the strategic focus for the city. The ongoing work of the city economic development agencies is delivering daily on what will surely be some of the key targets and outcomes for the investment hub. From that respect, it will be a valuable strategic partner for the success of this initiative.

Thank you very much for your time.

[The Chair, Liberal, Wayne Easter]

Thanks very much, David.

We turn now to the Canadian Labour Congress.

Ms. MacEwen, senior economist, you get to be the one to wrap it up.

[Angella MacEwen, Senior Economist, Canadian Labour Congress]

Thank you very much.

I'd like to thank the committee for the opportunity to appear before you today.

The Canadian Labour Congress is Canada's largest labour central, bringing together Canada's national and international unions, along with provincial and territorial federations of labour and 130 district labour councils. We represent 3.3 million Canadians who work in virtually all sectors of the Canadian economy, in all occupations, and in all parts of Canada.

The 300-page budget implementation act, or Bill C-44, which was introduced on April 11, implements a variety of commitments contained in budget 2017. There are too many that are relevant to workers in Canada for me to comment on them all. I want to briefly highlight a few concerns.

Bill C-44 strengthens the Special Import Measures Act in several areas, as Canadian steel producers and unions had urged, but disappointingly, no mention is made of improving the standing of trade unions and establishing their right to bring trade complaints, which was promised in the text of budget 2017.

Division 11 deals with amendments to the Employment Insurance Act and the Canada Labour Code maternity and parental leave and benefit changes announced in budget 2017. We have argued consistently that the best way of expanding real options for working families, and women in particular, is for the federal government to commit to long-term, stable funding for universal, affordable, high-quality child care across Canada. I want to emphasize that the changes to EI parental benefits that are proposed in the bill are no substitute for concerted action to address the child care crisis in Canada.

Division 18 of part 4 would enacts the Canada infrastructure bank act, which establishes the Canada infrastructure bank as a crown corporation. The bank's purpose is to invest in and seek to attract private sector and institutional investment to revenue-generating infrastructure projects. In our pre-budget submission, we suggested that the federal government could accomplish this in several ways.

The government could issue green bonds in order to fund projects, such as the electrification of transportation, electric vehicle charging stations and networks, smart grid technology and transmission lines for renewable energy, and renewable energy storage. The government could also facilitate and fund innovative financing arrangements to ensure that financial institutions and utilities guarantee loans to municipal governments for property tax-based and utility-based “on-bill” financing for retrofits. The government could also develop a plan to re-establish postal banking through the Canada Post Corporation, and use this to finance green investments and spread local renewable energy generation in Canadian homes and small communities. The federal government could simply take advantage of its ability to borrow at remarkably low rates in order to provide low-cost access to capital for public infrastructure projects.

As many observers have pointed out, the case for the infrastructure bank, as it is described in budget 2017 and in this budget implementation bill, is not compelling. Yields on a 30-year Government of Canada bond currently sit at around 2%, which means Ottawa can borrow at much lower rates than those available in the private sector.

We agree there is a need for improved financing tools, but there is no case for a Canada infrastructure bank, which is simply a vehicle for massive and costly privatization.

There is further concern that the stated needs of pension funds for returns in the 7% to 9% range would mean increased user fees, which would be untenable for already expensive transit operations in most large urban centres.

Finally, infrastructure investment that is driven by the need for high returns would put socially useful investments in environmental infrastructure or affordable housing on the back burner for cash-strapped municipalities.

As CUPE economist Toby Sanger phrases it, “No homeowner in their right mind would commit to a...mortgage at a rate of 7 per cent or more when they can borrow at 2.5 per cent—especially when it involves locking in over 10, 20 or 30 years, and paying close to twice as much in total costs.” So, why would the federal government make the Canada infrastructure bank rely only on higher-cost private finance to fund what will have the public sector holding the risk if it fits, or if the right projects don't get funded?

Thank you very much.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Angella.

With that, we will go to questions. We will go to five-minute rounds in order to hold it pretty tight, starting with Mr. Fergus.

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

Thank you very much, Mr. Chair.

Thank you to the witnesses for coming. We heard a broad range of views today, and I was glad to hear them. Some of the comments were, of course, focused on what is in the budget implementation act, and some was on what is missing from the budget implementation act. You'll forgive me for focusing on the former rather than the latter, just so that it can help us in our process of eventually going through this implementation act clause by clause later in this process, if we ever get there, Mr. Chair.

My first question would be for Mr. Shepheard. I'm quite familiar with the work of the.... I've met with your CEO, who brought to my attention the importance of trying to direct the Government of Canada's attention toward great and innovative companies such as D-Wave and General Fusion.

How do you see the aspects of the invest in Canada provisions of the budget leading toward attracting more investment into, frankly, what could be world-changing technological innovation?

[David Shepheard]

For companies like those that are at the cutting edge of the technology that they're developing and creating, the investment attraction part of it and having a Canada-wide focus on how to attract those international investors are quite important because we're obviously globally competing for that kind of attention.

It is that combination of how organizations like ours can work on the ground with those innovative companies and bring them into a national and global context along with the provisions and outcomes of something like the investment hub would do. It would raise the game on the companies we work with every day and would then be celebrating Canada's innovative economy and showing us to be at the cutting edge of some of these amazing technologies that are being created in small companies right across the country, of which we have many in Vancouver.

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

Going further in terms of creating these strategic innovation hubs, do you have any concerns about whether...? Specifically for your neck of the woods, would Vancouver be the innovation hub for energy, or would you be part of the ecosystem? As we know, Calgary is certainly an energy leader, but we've also seen Toronto being headquarters to many energy companies. How do you see Vancouver placing itself within that ecosystem?