Finance Committee on Dec. 7th, 2020

[The Chair, Liberal, Wayne Easter]

We will call this meeting to order. Welcome to meeting number 10 of the House of Commons Standing Committee on Finance. Pursuant to the order of reference of November 19, the committee is meeting for its study on pre-budget consultations in advance of the 2021 budget.

Today's meeting is taking place in a hybrid format, pursuant to the House order of September 23. The proceedings will be made available via the House of Commons website. The website will always show the person speaking rather than the entire committee.

As a reminder to members and witnesses, when you're not speaking, put your system on mute. It's much better for the translators. I will forgo the rest of the rules that apply in order to save time. If all of the witnesses could keep their remarks to roughly five minutes, we'll have more time for questions.

Our first witness is from Aéro Montréal, and Madame Benôit.

Please proceed.

[Suzanne Benoît, President and Chief Executive Officer, Aéro Montréal]

Good evening, Mr. Chair, ladies and gentlemen.

I am very pleased to be appearing before you today on behalf of the members of the Quebec aerospace cluster. We are very grateful for this invitation.

Aéro Montréal, which was created in 2006, is a strategic forum for cooperation among all chief executives from the industry, educational institutions, research centres, associations and unions who are involved in the Quebec aerospace sector. Aéro Montréal's mission is to mobilize sectoral players and to improve the competitiveness of Quebec's aerospace ecosystem.

As you know, the aerospace industry was hit hard by the COVID-19 crisis. Since last March, when the borders were shut down, the vast majority of the global air fleet has been grounded as a result of the decline in air traffic. Thousands of workers in the sector are now unemployed, aircraft deliveries have been postponed or even cancelled, and hundreds of Canadian businesses are struggling to survive.

However, our industry is developing measures that would allow the public to fly safely once again and governments to contemplate reopening borders, as many other countries are doing.

We have created the alliance for aerospace recovery, a strategic committee under Aéro Montréal's direction that, in recent months, has helped to develop a specific action plan that is readily applicable and suited to the industry's needs. The government, however, needs to take a position on it quickly because every day counts. We have already observed a nearly 60% reduction in airlines' new aircraft requirements and do not anticipate a return to previous production levels until 2024-2025. Some are even saying 2027. The situation is therefore highly uncertain.

The global aerospace industry hit unprecedented heights before the crisis. To meet demand, many airlines took on debt so they could continue expanding at pre-crisis growth rates, but their operations have since declined by as much as 50%. Many SMEs now have cash flow problems as a result of those investments and of the extension of repayment terms by nearly all decision-makers in recent months because they too are struggling to survive the crisis.

Businesses have also encountered longer waiting times for export permits, and that has limited access to certain markets. The situation is hurting our industry as more than 90% of our manufacturing businesses export 80% of what they produce.

As a result of the tenuous situation in which our members find themselves, financial partners and major banks are increasingly reluctant to finance aerospace sector businesses given the current risk. It is therefore all the more important that action be taken to address their circumstances. The government must absolutely step in where the banks have stepped away.

Our sector alone generates total revenues of $34 billion and contributes up to $28 billion to the country's GDP every year. It employs 235,000 Canadians across the country and represents hundreds of SMEs and large businesses.

We invest more than $1 billion in research and development every year, thus contributing more than one quarter of total manufacturing R&D in Canada.

We see other countries supporting their strategic sectors because they know that exports of high-tech products will create jobs and wealth. A handful of nations that have an aerospace industry have done the cost-benefit analysis and are adopting dynamic industrial policies to ensure the industry's growth, far more so than Canada is currently doing.

As you are no doubt aware, innovation is key, all around the world.

Our country has the operational and technological assets and the skilled talent to position itself in a green recovery. The industry is prepared to work on innovative solutions, electric and hybrid propulsion for all types of devices and, more generally, ecomobility in aviation. However, it will definitely need the government as a strategic partner in order to stay in the race with other nations.

It is essential that we invest now, as the government recently did in Ontario's automotive sector, to halt our industry's international decline. Deciding not to support the aerospace industry will not preserve our economy. On the contrary, that choice will take us out of the race.

By contributing to efforts to develop the aerospace industry and positioning itself as a strategic partner, the Canadian government will create value and stimulate the economy. It will support an industry that will help our country continue to distinguish itself and to shine on the global stage. The facts are clear: support for our industry is a profitable investment for Canada.

Mr. Chair, ladies and gentlemen, I will now be pleased to answer your questions.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Madame Benoît, and thank you for the brief that you submitted earlier.

From the Chemistry Industry Association of Canada, we have Mr. Bob Masterson.

Please go ahead.

[Bob Masterson, President and Chief Executive Officer, Chemistry Industry Association of Canada]

Thank you, Mr. Chair and members of the committee. It's nice to see many of you again. It is a privilege to appear before you in these unprecedented circumstances.

Before I begin, on behalf of our industry I want to acknowledge and thank Parliament for its work to support Canadians and Canadian businesses as they cope with the impacts of COVID-19 on their health and economic well-being.

I also want to give a brief shout-out to the committee staff for their patience, professionalism and proficiency in these challenging circumstances that most of us aren't used to when we come to committee.

Thank you.

While ready to discuss tonight the impacts of COVID on Canada's chemistry and plastics industries, I would like to take the opportunity to focus more on the future and what this committee and Parliament can and must do to ensure a robust and timely economic recovery.

That recovery must be premised on investment attraction. We know that COVID has put a strong pause on new investments in our sector and other sectors of the economy, but we have to remember that Canada's investment outlook was very troubling even before COVID. This was very well highlighted by the Barton advisory council. As well, it continues to be well articulated by the Business Council of Canada, the Canadian Chamber of Commerce and others.

We would urge you, as the committee, to reflect again on the analysis and recommendations that have come from those groups in the past. I welcome the opportunity to speak on this in more detail during the questions.

Concerning the chemistry and plastics sector in particular, I offer a few observations before turning to our brief recommendations.

First, demand in key Asian countries has already rebounded to pre-COVID levels. Inventories are at their lowest levels in a decade, and despite COVID, there's a return to record global volumes of chemistry and plastics production. While experiencing a short pause due to COVID, this $4-trillion global industry looks ready to return to its normal robust multi-decade rate of expansion, which amounts to nearly 1.5 times the global GDP growth rate each year, as it has done for nearly seven decades.

Second, as you've heard me say many times before, Canada's chemistry and plastics sector holds many advantages. With the right regulatory and investment conditions, we could better and fully participate in the global expansion of the industry and contribute to Canada's economic recovery. Moreover, key provinces, including Quebec, Ontario, Alberta and British Columbia, have all identified and prioritized the opportunities for investment in growth in the chemistry and/or plastics sectors.

However, despite the interest and activities of the provinces, the desired chemistry investments are less likely to occur without increased engagement and improved investment conditions within the realm of federal responsibilities.

We know that Canada's chemistry and plastics investments will make our economy more resilient and more innovative and will provide the critical building blocks for the low-carbon economy. We know there's a huge opportunity to provide the building blocks for a truly circular economy for plastic waste, and my brief recommendations today reflect those opportunities.

First, we recommend that the committee consider extending the full 100% accelerated capital cost allowance that was introduced in the 2018 fall economic statement, with no phase-out to 2030, and, specifically, making it permanent. This will send a signal to companies that have deferred projects because of COVID, or to global investors who are contemplating new investments in response to the provincial interests, that Canada is indeed open for business and respects the lengthy timelines for major capital investments for projects of $10 billion and more.

Second, we recommend that the committee recommend establishing a plastic technology innovation fund, with an initial allocation of $200 million. This will further research and development in circular economy technology applications across Canada. A focused initiative like this at scale will send a signal that Canada intends to be a leader in the development of advanced recycling technologies. The timing of this initiative in 2021 could be the cornerstone of Canada's hosting of the world's circular economy forum.

Finally, Mr. Chair, we recommend that as we emerge from the COVID-19 pandemic, all parliamentarians commit to an overall review of the business taxation and regulation regime in Canada. Building back better, simply put, requires an investment into Canada, and it's critical that our tax and regulatory codes be optimized to attract investment in innovation in the 21st century.

I look forward to your questions on these and any other matters. Thank you, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Masterson, and for your brief.

With Environmental Defence Canada, we have Mr. Brooks, I believe, or Ms. Levin. I'm not sure who's up. Whoever is going, the floor is yours.

[Keith Brooks, Programs Director, Environmental Defence Canada]

Thank you, Chair.

Good evening. I'm Keith Brooks, the programs director with Environmental Defence Canada. I'm joined by my colleague Julia Levin, who works on our climate team.

Thank you very much for the opportunity to speak with you tonight. Our comments will focus on Canada's recovery from the COVID-19 pandemic. We'll touch on programs and spending that we think should not be part of that recovery and those those that we think should be central to Canada's economic recovery.

We see that the COVID-19 pandemic has put the livelihoods of millions of Canadians at risk, and the federal government is preparing historic levels of public finance in response. We thank you for that. This stimulus spending will shape our economy for decades to come, which means it's critical that the government uses this opportunity to build resilience to future crises and invest in a green and just recovery that maximizes job creation both today and tomorrow. Our response to this crisis must advance our efforts to tackle the other challenges we faced before this crisis began and that we will still face after it's over—namely, fighting climate change, ending plastic pollution, keeping our water clean and removing toxic chemicals from the products we use. It must also build a more just and equitable society.

With that in mind, Canada's economic recovery should not further entrench our economic reliance on fossil fuels. I am aware and Environmental Defence is aware that the fossil fuel sector has been hit hard by the pandemic. People's lives and livelihoods have been impacted. We recommend that the government focus on creating supports for those workers and communities to help them transition into new jobs and new careers rather than furthering an attempt to prop up the fossil fuel industry. Fossil fuels are a sunsetting industry. BP has recently said that peak oil has passed already. Putting more public dollars into fossil fuels is not going to change that. We think we need to have an honest conversation about the coming energy transition and ways to manage that transition and not try to hold back the tide.

Our first recommendation is that Canada must ensure that government spending, which includes relief, recovery and stimulus measures, does not further entrench or introduce new subsidies for the oil and gas or petrochemical industry. This includes ensuring that support for hydrogen is directed to green, not blue, hydrogen.

In addition to these subsidies, I urge the government to examine the role of Export Development Canada in supporting Canadian fossil fuels abroad. Canada provides more public finance to oil and gas than any other G20 country on a per capita basis. In fact, Export Development Canada provides an average of nearly $14 billion in support to oil and gas companies each year. Guaranteeing loans to these companies, though, is a risky proposition that may end up putting taxpayer dollars on the line.

Our second recommendation is that Export Development Canada's support for the fossil fuels industry should be ended. We should ensure that their new climate change policy aligns with Export Development Canada's entire portfolio and with Canada's climate change commitments.

Now for the spending and programs that we are in favour of and think must be central to Canada's economic recovery. I want to begin by acknowledging that in the Speech from the Throne, the Prime Minister stated that climate change would be at the core of Canada's jobs plan. That's great to hear. I hope all the members of this committee can appreciate that investments in climate action will create jobs and economic opportunities for Canadians. However, so far only a fraction of the spending recommended by the Green Budget Coalition has been committed to. The same goes for the task force for a resilient recovery. The Green Budget Coalition is recommending a first-year investment of roughly $20 billion plus an additional $21 billion over four to five years subsequently. The task force for a resilient recovery also recommended $55 billion over five years.

We note that in the fall economic statement, nearly $7 billion in new climate spending was announced. That's spread over 10 years. We also acknowledge the previous investments of $10 billion spread over three years through the Canada Infrastructure Bank, but these investments are not on the scale needed to really move the needle and push us toward the energy transition and job creation we need. The European Union has committed nearly 550 billion euros to green projects over the next seven years. Germany and France have allocated as much as 30% of their pandemic recovery stimulus toward emissions reductions initiatives. President-elect Joe Biden has promised a $2-trillion green recovery plan in the United States. A similar level of investment in Canada would be on the order of $270 billion. We are expecting to see more details outlined in Canada's forthcoming climate plan as well as in the spring budget.

Our third recommendation is that Canada should invest in climate solutions that will create jobs and stimulate Canada's economy. Canada's recovery from COVID is an opportunity for this country to invest in the climate solutions that we need and advance the transition to a clean economy.

My final recommendation concerns an area that has received less attention. It's what might be called a “blue” recovery, which is about investing in our fresh water.

Canada has 20% of the world's supply of fresh water. Investing in water protection should also be part of our stimulus package. Evidence from a decade of investments in the Great Lakes restoration initiative, a federal U.S. spending program launched out of 2009 financial crisis, demonstrated a 300% return on investment. With regard to the benefits of the projects in the States, they generated $3 of economic activity for every dollar invested. They have supported over 5,000 jobs in Great Lakes states. Canada should follow suit and invest more in our fresh water to create jobs and economic opportunities for more Canadians.

The fourth and final recommendation is for Canada to invest $1.2 billion over five years to implement the recommendations of the Great Lakes-St. Lawrence action plan for 2020-30.

I'll conclude there and invite any questions that you may have for me or my colleague, Julia.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Brooks.

I'll just give you a heads-up of the list of questioners for the first round of six minutes each. It will be Mr. Falk, followed by Ms. Koutrakis.

Last on this panel will be with the federation of woodlot owners, Mr. Miville.

[Vincent Miville, General Manager, Fédération des producteurs forestiers du Québec]

Mr. Chair and members, my name is Vincent Miville, and I am general manager of the Fédération des producteurs forestiers du Québec. The federation's aim is to promote the interests of 134,000 forest owners of our province. I also sit on the board of the Canadian Federation of Woodlot Owners, which represents 450,000 small and large woodlot owners in Canada.

Although we submitted two recommendations during the pre-budget consultations on behalf of the Fédération des producteurs forestiers du Québec, I would like to emphasize that the Canadian Federation of Woodlot Owners also supports them. We recommend that the government implement a Canadian program for reforestation and forest management work and that it develop tax measures that encourage silvicultural activities in private forests.

Tens of thousands of Canadian forest owners conduct forest management activities every year.

[The Chair, Liberal, Wayne Easter]

Mr. Miville, will you slow down somewhat? The translators are having difficulty keeping up with you.

[Vincent Miville]

Of course.

[The Chair, Liberal, Wayne Easter]

Go ahead.

[Vincent Miville]

Tens of thousands of Canadian forest owners conduct forest management activities every year. Private forests represent only 6% of Canadian forests but generate one tenth of the volume of wood harvested across the country.

Forest owners can actively join in the fight against climate change by managing their forests so that they can sequester more carbon. Even better, thanks to silviculture, they can improve forest stands so they can meet the needs of the forest industry. Lastly, harvesting wood for processing also means that carbon is stored in the finished product, while generating structural economic activity for the country's rural communities.

The Canadian government's commitment to planting two billion trees across the country constitutes progress as it should help more owners develop their woodlots. However, it is essential that allocated funding guarantee that forest stands are improved and protected.

Although the purpose of this program is to create new forest areas, that constraint could limit its application as few areas in private forests in the Maritimes and eastern Canada are ultimately conducive to reforestation. Large numbers of fallow areas in those regions have been the object of reforestation campaigns in the past.

The program should also assist in quickly returning to production forests that have been devastated by natural disasters or epidemics such as spruce budworm. When these forests die, they quickly become a source of carbon emissions. If the objective is to increase forest carbon capture, the government should then fund all silvicultural work that assists in achieving it, not just reforestation.

The planting of two billion trees is an ambitious objective, but the success of the initiative will be determined by what we can do with those forests over the longer term. This creates conditions conducive to our second recommendation, which is that the government develop a tax system that encourages silviculture.

Developing private forests provides principal and supplemental income to tens of thousands of Canadian forest owners. However, various factors, including low profitability, discourage most owners from investing in silviculture.

The current federal tax system offers little encouragement to owners to develop their woodlots because it fails to consider three factors. The first factor is the asynchronous nature of income and costs: forest management costs are incurred in the initial years, whereas income is generated decades later, when mature trees are harvested. The second factor is the uncertainty and long-term nature of profits, because the fact that the production period is spread over decades is truly unique to the forest sector. The third factor is the importance and intermittent nature of forest income: since producers do not harvest every year, that supplemental income is taxed at a higher marginal rate, thus diminishing the appeal of production.

This is why we propose that a personal silviculture savings and investment plan be created to enable woodlot owners to shelter forest income from tax to permit necessary investments in the management of their woodlots. This would encourage more Canadians to develop their woodlots, to harvest wood and to vitalize permanently the economic activity generated by the forest sector in rural areas. It would also permit the investment of harvest income in activities designed to improve the resilience and yield of forest stands. Lastly, it would help synchronize forest management expenses with income from harvesting to lower the marginal tax rate and reduce uncertainty.

Our two recommendations would enable Canadian owners to develop the silvicultural potential of their woodlots to its fullest extent and help the Canadian government reach its greenhouse gas emissions reduction targets. They would also help the Canadian forest industry guarantee a long-term supply of wood from private forests and the forest sector to contribute to Canada's economic recovery.

[The Chair, Liberal, Wayne Easter]

Thank you very much for your presentation.

Before I turn to Mr. Falk, I have a question for Mr. Brooks.

I do worry about how some things get translated out there in the real world, Mr. Brooks. You indicated that EDC support for the fossil fuel industry has to end. You said a number that was in the billions of dollars.

As for EDC, just so we're clear—or maybe I'm not clear, and you can correct me if I'm wrong—that is really a guarantee of the monies to be paid by foreign countries or others for the products that are sold out of the fossil fuel industry. Is that correct?

[Keith Brooks]

I will let my colleague, Julia, answer that question.

[The Chair, Liberal, Wayne Easter]

Julia.

[Julia Levin, Climate and Energy Program Manager, Environmental Defence Canada]

Yes, part of what Export Development Canada does is a financial package of tools to guarantee loans. Of the nearly $14 billion, just to clarify, 30% of that is to domestic oil and gas companies, and 70% is international. COVID will change that balance and skew it more towards the domestic. Given what we know about the financial standing of these oil and gas companies, those loans are then backed by taxpayers. If companies begin defaulting on their loans, which is entirely possible, then the government is gambling with our taxpayer money through Export Development Canada.

Also, one last thing: a chunk of that $14 billion is also funds administered...[Technical difficulty—]

[The Chair, Liberal, Wayne Easter]

We lost you, Julia, somehow.

[Julie Dzerowicz, Liberal, Davenport, ON]

She's frozen.

[Keith Brooks]

We'll be happy to follow up in writing with the brief about the details of Export Development Canada programs.

[The Chair, Liberal, Wayne Easter]

Yes.

I don't want the impression to be left that a subsidy to the fuel industry is.... EDC does the same for aerospace, for potatoes, for grain and for many products exported from Canada. It's basically a guarantee for the sale. I just don't want to be misinterpreted.

Mr. Falk, the floor is yours for six minutes.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Easter. I was concerned for a moment that you were sharing my time.

[The Chair, Liberal, Wayne Easter]

No, I'm not.

[Ted Falk, Conservative, Provencher, MB]

All right.

Thank you to all of our panellists for your presentations. They were interesting and informative.

I'll start right at the top with Ms. Benoît and the aerospace industry.

In your organization's response to the fall economic statement, you indicated that there hasn't been adequate engagement with some of the actors throughout the supply chain for the industry. I'm wondering if you could elaborate a little more on that.

What do you mean by that?

[Suzanne Benoît]

Would you please repeat your question? You're referring to a lack of communication with members of the supply chain, but I don't remember saying it that way. That may be a somewhat inaccurate interpretation.

[Ted Falk, Conservative, Provencher, MB]

Yes, sure.