Thank you very much, Mr. Chairman. Let me say that it is a pleasure to be here on behalf of the members of the Canadian Chamber of Commerce, which is an organization that I think many of you are familiar with in terms of representing a very broad cross-section of business.
Let me commend you and all the members of the committee, Mr. Chair, for undertaking this work. I think it is not only an excellent choice in terms of subject, but it's also very timely.
I will start with a few brief remarks and then I will be happy to engage in a discussion. My remarks today, essentially, will summarize a recent report that the chamber prepared and we entitled it Towards Canada's Prosperity: Tackling the Barriers to Productivity Growth. That is the fundamental question that we think should be on all of our minds, and I know it is on yours. Copies of this report were sent to all members of Parliament in April, and we have brought additional copies today; it is available in both languages.
From the perspective of our membership, it is important that the government send positive signals to investors who want to do business here that Canada is open for business. This includes those investors who wish to invest in manufacturing facilities in Canada.
The sector is currently facing a number of challenges that I think are well known to all of you. I would propose today to not spend a whole lot of time talking about the nature of the challenges, but maybe a little more on some of the prescriptions for things we might be able to do.
I wish to briefly review the manufacturing sector having to cope with the high value of the Canadian dollar, competition from low-cost producers like China, rising input costs certainly, and skilled labour shortages, something that really cuts across our economy and has been particularly acute in some geographical areas, and western Canada would certainly be part of that. Manufacturers are, however, restructuring their businesses in response to these challenges they face in the global marketplace. In the future, competitiveness and growth in this sector will depend on a number of factors, a key one being productivity improvements built on innovation and skills development.
While we understand that the government continues to focus on its five key priority areas in the short term, the chamber and its members also need to look at the economy from a long-term perspective and begin addressing the productivity challenges we face in Canada. We believe that a comprehensive strategy is now required to boost overall productivity in Canada. Growth in productivity serves many goals, so there are many good reasons why we should do this--supporting high levels of income is certainly something that I think is critical, letting businesses pay higher wages and still keep costs down and allowing manufacturers to remain profitable and competitive in a global marketplace.
The government can boost productivity by putting measures in place that promote the incentive to work, save, and invest. The focus should be placed on reducing high marginal tax rates, reducing burdensome regulations, reducing barriers to trade, and investing in productivity-enhancing areas, such as education, skills training, research and innovation, and infrastructure. All of these areas are critical for the manufacturing sector.
To that end, the Canadian Chamber of Commerce and its members would like to recommend that the government create a more favourable condition for productivity-led growth and raise the standard of living for all Canadians for years to come by focusing on a number of areas. I will touch on each one of these very briefly this morning and will be happy to discuss them further.
The first area is fiscal policy. While I know I am in front of the industry committee and not the finance committee, it is hugely important to keep our eye on this particular ball. Improvements to productivity can be achieved in a number of ways in terms of reducing taxes, upgrading personal skills, savings, investment, risk-taking, innovation, and new investment in critical areas such as education and infrastructure. Our fiscal policy can influence all of these areas.
Government needs to create the room, however, to ensure that this productivity level can be reached by controlling program spending, making spending more efficient, and making further reductions to our level of debt.
On the tax side, the chamber and its members believe that a competitive corporate and personal income tax system needs to be the foundation of Canada's competitive edge. If our uncompetitive tax system continues to dampen Canadians' incentives to work, save, and invest, and they stay in Canada, other policy initiatives will become ineffective in achieving their goals.
Let me say a word about corporate income taxes. We have today, in terms of the broader context, the second highest effective tax rate on corporate investments--basically the effective marginal rate on capital investment--in the industrialized world. In terms of the importance of that issue, we are impeding capital investment and foreign direct investment in the country, and I think there are some specific things we can address there.
While corporate tax measures in the recent budget are positive, the implementation period for providing a number of these is extremely lengthy. I think you're well aware that the general corporate tax rate relief from 21% to 19% will not take full effect until 2010 and the corporate surtax won't be eliminated until 2008. Many industrialized nations continue to pursue tax reforms to ensure that they remain an attractive location for both individuals and businesses. There's more to do.
On the personal side, I'll make a very brief plea here. I think we've got to turn our attention to the question of low- and modest-income earners, especially families earning between $25,000 and $45,000 annually. High marginal tax rates are discouraging work efforts. We also believe the threshold at which the top federal marginal rate kicks in should be raised to at least $150,000 from the current $118,000 to attract and retain highly skilled and productive human capital.
I would also note, however, that the chamber was very pleased the recent budget also committed to raise the threshold for small business, from $300,000 to $400,000 next year, as well as reducing the business income tax rate to 11% by 2009.
A second area of critical importance is our relationship with our southern neighbour. With about 80% of our exports going to the U.S., it's vital that our economic competitiveness and the relationship between the two nations continue to be strengthened. The chamber supports the government's efforts towards a more conciliatory tone with our largest trading partner and that longstanding disagreements are coming to a resolution, such as the softwood lumber dispute.
I would like to say a word about the security and prosperity partnership, two very important words packaged together in a trilateral agreement among the United States, Canada, and Mexico. Originally signed in 2005, it provides a vehicle for finding agreement on potentially hundreds of issues that impede North American competitiveness and security. Resolving border issues will be paramount in the SPP exercise. The chamber will want to ensure that the SPP initiative remains a top priority for our government.
I'll say a quick word on trade, both internally and externally. With one in four of our jobs linked to trade, it's important that trade and investment agreements provide rules that are fair, predictable, and transparent. Trade is also an important determinant for productivity growth, it exposes manufacturing firms to global competition, and it ensures higher-valued products for all consumers. We must continue to press for a liberalized trade environment.
On regulation, another key issue, we are still over-regulated in many ways. The longer it takes for a new product to be approved by government agencies, the less likely it is that the new product will be created. The chamber was pleased when Industry Minister Bernier announced in March of this year that Canada is open to business and open to foreign investment, because the current regulatory and legal barriers generate barriers to foreign investment in Canada and the free movement of goods. The regulatory regime needs to be streamlined to benefit all sectors, including manufacturers. The bottom-line message is to create reforms to implement a smart regulation agenda.
On skills, a crucial issue, the country's citizens obviously play a huge role in our productivity performance. Manufacturers across Canada continue to report difficulty in finding skilled labour. Government can do more to ensure that Canada continues to be competitive and has a skilled and qualified workforce by looking at EI reform, increasing investments for higher education, ensuring the work permit system responds to labour needs, and focusing attention on better integrating immigrants into the workplace.
On infrastructure, despite the importance of public infrastructure to productivity, quality of life, and our economy, there remains a serious key issue to be addressed. First, we need to think more strategically about infrastructure in Canada and the spending associated with it. Secondly, delays at the U.S. border have not only the potential today but increasingly to drag our economy down. Third, we'll talk about ICT investment in rolling out broadband in the country also being critically important. We need a solid national transportation infrastructure strategy, which would include, in our view, the opportunity to discuss P3 initiatives in terms of public-private partnerships.
Let me close, Mr. Chair, with a word on energy as another critical issue. We need to develop an energy strategy in support of a competitive business environment in Canada, one that will strengthen Canada's market-based approach to energy and reflect the needs of both energy producers and consumers. As the energy needs in both Canada and the United States continue to grow, it will be increasingly important to consider energy from a continental perspective as well.
With the implementation of some of the recommendations I've outlined here, the chamber believes there will be more opportunities for workers, families, businesses, and overall productivity to get a boost and to increase our standard of living and support the global competitiveness of our manufacturing sector and the Canadian economy as a whole.
I very much look forward to the opportunity to discuss this important issue. Thank you for your time.
