Industry Committee on June 1st, 2006

[Paul Darby]

I have just a brief comment, Mr. Chair. With respect to infrastructure, we did undertake a survey of U.S. firms to ask what they saw as the impediments or advantages to investing in Canada. Much to our surprise, our terrible infrastructure surfaced as an issue for them. Our roads are no good; our electricity supply is a problem; the border is obviously an issue.

This came as a bit of a surprise to us, because as Canadians we like to think that we have good roads. Guess what? We don't--not in the eyes of Americans. It's an issue we need to start tackling. It's been a long time since we've invested in infrastructure in Canada, and we've got to start thinking about how to make it a priority.

[The Chair, Conservative, James Rajotte]

Okay. We have Monsieur Vincent, pour six minutes.

[Robert Vincent, Bloc, Shefford, QC]

Thank you for being here this morning. Your presentation was very good and very complete. Several points stayed in my mind. You said that the employment insurance system should be reviewed.

In your opinion, what kinds of changes should be made to the employment insurance system that would enable you to become more competitive and which would help you?

[Michael Murphy]

Mr. Chair, this is a hugely important issue. I would say there's a principle to be put into effect first, and then I can talk about some of the specifics. The principle is that EI, employment insurance, should be just that. It should be an insurance system and not what it has become, which is an insurance system plus. The plus is a whole series of social policy objectives that are being met through increases in the premiums paid by both employers and workers in the country. We now have a situation where about half the premiums that are paid don't go for insurance purposes. We've taken a program that was an insurance system and turned it into something far different.

So the first reform is to acknowledge that we've got to get the system back to what it was intended to do, which is to provide insurance for people who are paying premiums and who find themselves out of work. That's my starting point.

The disincentives we have built into the system today, as a result of.... We saw another example of it this week with the so-called seasonal gappers program, the pilot trial that's coming to conclusion later this year. There are all kinds of examples of where we have to tighten up the program. That was done in 1996 by the government at the time, and our organization certainly supported the changes that were made. That changed again in 2002.

I think from the standpoint of looking at EI as an opportunity to do the job it's supposed to do in terms of providing insurance for people--workers and employers are paying those premiums--we're now at a stage where, with half of the benefits now going for non-insurance purposes, it's time to question the fact that employers--my members and other members, other businesses in Canada--are paying 1.4 times the premium that workers pay today. The rationale for that used to be a case of “Well, you decide when people are going to be unemployed and you make that decision as a company”. Today you have half the benefits going for other purposes that corporations have no control over, so why do we still have a 1.4 premium? That's a serious question.

The other one is that there is a system built into EI for individuals. If you overcontribute because you changed jobs and your second employer starts deducting EI premiums, you get that back through the tax system every year. That's not true for corporations. We think there's a very big bill left on the table where corporations are overpaying on EI. That should be addressed as well.

Those are a few specific comments.

[Paul Darby]

I have a quick, general comment. I think it's important to recognize that EI premiums are a tax on labour. In general, you're lowering employment by doing that. You want to keep that as low as possible. The kinds of surpluses we saw generated on the EI account, which went into general revenues, as you know, from our perspective, were in many ways not excusable.

This is a program, and even if you add some non-insurance aspects to it--and I think Mr. Murphy makes a good point--those non-insurance aspects may be better served through other income support legislation. However, even if you do that, you should recognize that you desperately want to keep that rate as low as you can. You're not serving Canada by having high taxes on employment.

[Robert Vincent, Bloc, Shefford, QC]

If I understood your answer, employment insurance is an insurance which should benefit all workers, because they pay for half the system, and employers pay for the other half.

As it now stands, in the case of layoffs, fewer than half of workers are eligible for employment insurance. What you are saying is that when a worker is laid off, that worker should be eligible for employment insurance and has a right to this money which was set aside for the worker.

[Michael Murphy]

Yes, I think in essence it is difficult sometimes to understand who gets access to the program, in terms of paying premiums for perhaps a very long time. I'll readily admit I'm not an expert in the machinations of how the system works in terms of who's eligible and when they're eligible and those kinds of important questions. But the principle is that we started out with a program, and we've now changed the nature of the program so fundamentally that it's time to step back and take a hard look at it.

We did this in terms of the other component, the tax on labour and looking at the Canada Pension Plan in terms of payroll taxes. We took a long, hard look at that in the 1990s, and we made a very big decision for the country to change the nature of how we were going to fund it.

Whether you agree with the conclusions that were drawn from the reform there or not, at least there was a stand-back, good look at the system to decide what the objectives were and what we were trying to achieve.

I think we need to do that for EI.

[Robert Vincent, Bloc, Shefford, QC]

As far as training is concerned, you also talked about new technologies which enable industries to be more competitive. Do you have any suggestions in that regard?

In Quebec, companies must invest 1 per cent of their payroll if it exceeds $1 million. Do you think it would be possible to implement such a policy throughout Canada in order to increase our competitiveness?

Some sectors don't invest a penny in new technologies. So they end up operating with outdated technologies and eventually close their doors or stop being competitive compared to emerging economies.

So should we have a new measure to that effect?

[Michael Murphy]

In terms of technology investment, I think it's one of the things that is so important, whether it's information and communications technology or other types of technology. We talked a little bit about what kinds of programs are available through capital cost allowance regimes and so on. You start there--and I'll come to training in a minute.

You look at those kinds of incentives. We very much support the idea of ensuring we have the kind of economic structure that says it makes sense to invest. What we've seen more recently is a pretty significant change in terms of the level of investment of companies in Canada in machinery, equipment, and technology. There are a number of reasons for that. The dollar is probably one of them.

In terms of training--if I could just go there for a minute--we've given this a lot of thought in terms of looking at how much companies might benefit from.... And we have tons of incentives in our economy built in today; some of them, I might argue, we should think about getting out of our economy.

This is an area where I think it's worth talking about, in terms of saying, without having the solution, should we be doing some work to think about what kind of incentive might exist to enhance the training opportunity for certain companies? And part of the reason I say that is the nature and the structure of our economy. We haven't talked a lot about small business today, but that is the Canadian economy in terms of firms tending to be very small, and I think everybody around this table in this committee knows that.

So there's a challenge that perhaps doesn't exist in some other economies, including that of our friends south of the border who have many more medium and large firms than we do.

So we do think it's worth talking about.

[The Chair, Conservative, James Rajotte]

Mr. Darby, just briefly.

[Paul Darby]

Again, I have a very brief point.

When we compare the appetite for high-technology investment between Canada and the United States, the real problem is with the uptake among small and medium-sized enterprises in Canada compared to the United States. In the United States, small and medium-sized enterprises have a much higher appetite to innovate, to adopt the latest technology, to invest in the latest machinery and equipment.

So I have to definitely support what Mr. Murphy has said. We need somehow to try to tackle the issue of how to get small business in Canada much more willing to undertake high-tech investment to remain competitive.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Shipley.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Mr. Chairman.

Interesting, and I appreciate your presentations, Mr. Murphy and Mr. Darby.

I come from a rural background, and obviously my interest is in agriculture, one of the largest industries we have in this nation and across our province of Ontario. I'm interested in your comments in terms of regulations. And in your last comment--I didn't get it down—how do we become more competitive and collect that investment in the technology?

I can tell you that in the agricultural industry, those people in my area and across this country that I visit—and I farm—who are in the industry likely have become efficient faster than in many industries. They have adapted technology; they have become more proficient, and more efficient, but they have no way of recapturing that. A comment was made: you can go back to that marketplace when you bring in your innovations and your technologies and you can often recapture that because you're in competition. In agriculture that doesn't work, because the only marketplace on the Chicago Board of Trade outside of supply management is the free marketplace. It has very little respect for the business person in agriculture, quite honestly. Some brief comments about that, and then I'll go to the regulatory issue.

We are overregulated. And if we're ever going to remain competitive, one of the first things we need to consider and talk about is, how do we level that playing field?

Our people in agriculture are unable to use products used by our largest competitor. We don't always have to agree with the Americans, but we should always respect them. If you do 80% to 85% of your business with someone, it doesn't mean you have to agree with them--nor should you on certain policies--but you should always respect them because they are your trading partners.

How do we overcome this hurdle if we can't use products to help level the playing field when we spray our crops, for example? One of the problems is that other nations, whether it's the United States, Indonesia, Asia---we're bringing in all these types of foods that obviously have product on them that we don't use in Canada. What can we do to help level that field? We've now created one of the most unlevel playing fields.

We just had a long debate the other day on the Pest Management Regulatory Agency on an issue...it's about global. We talk about environment, yet we talk about how important it is to protect our own health and safety. And we all agree, health and safety is really important and so is the environment. But we can't overregulate ourselves and take us out of competition because of regulation. I'd like some suggestions on how we can move ahead on that, and some thoughts on it, because we have one industry that's actually captured outside of many other industries.

[Paul Darby]

This is an extremely challenging and clearly difficult task to undertake. I have just a few comments. Again, I can't claim to be an expert in agricultural regulation, but I could make a couple of comments.

One, whereas health and safety and the environment are obviously critical, and there are, I imagine, potentially going to be some effects to the use of some not such safe products in some of the countries you mention, I think what we need to move toward in the regulatory framework is at least an acknowledgement that there are also economic costs to the regulations and that we can't necessarily assume that the health or environmental costs or benefits are infinite. We need to do some kind of net accounting on the regulations.

In general, it's often the case that the economic costs are never taken under consideration. If the regulation is seen to have any kind of protection of health or the environment, then it's adopted on that basis, without any accounting of what it might mean in terms of lower efficiency, higher costs, or a burden to industry. Those costs are difficult to measure. It's very difficult to do that kind of net accounting, but it is really something we need to start looking at very carefully.

Second—and Mr. Murphy may have something to say on this as well—one of the goals for the agricultural sector in Canada would be to make an effort to move up the value-added chain; in other words, do our best to move away as much as possible from simply producing raw material and then shipping the raw material abroad. That will always be an important part of our trade activity in Canada. But we need to really also consider to what extent we can encourage moving away from the production simply of raw material to processing that raw material in Canada using some of the latest technology and then exporting at a more finished or more processed level in terms of the industrial supply chain.

There are great challenges to doing this. Part of it has to do with our scale. In agricultural production, a tenth of a cent per unit is a fortune in terms of your competitiveness often. On a can of soup, if you're a tenth of a cent more expensive than your competitor, you're not selling. It's a tough business, and scale is important. But again, if we can do something about some of our interprovincial barriers to trade, we may be able to get the scale up to the point where we can become a lot more efficient with respect to some of our processed food industry, which is a very important manufacturing sector in Canada today. I sense it could be far more important if we were to take some of the barriers away.

Another issue for the processed food industry is the shortage of labour. Often there are skilled trades involved in, for example, meat processing, in meat packing. Butchering is actually a skilled trade. There are many other skilled trades in the processing of foods in Canada where we're facing great shortages and where we really have to try to do some work if we're going to move up that value-added chain in food processing.

[The Chair, Conservative, James Rajotte]

Mr. Murphy.

[Michael Murphy]

Thank you, Mr. Chair.

I'll very briefly add on each of the points. I think Mr. Darby's point on value-added is very important in terms of the agriculture component of the answer.

You mentioned the benefit of free markets, and I think that's hugely important. If you look at those two concepts together, and I'll use wheat and barley as an example in western Canada in terms of the way the Wheat Board operates today, the crunch issue for many in the farming community in western Canada is their ability to do what wheat growers in Ontario can do, which is find our market, have an opportunity for a greater value-added contribution to be made in western Canada, and do something positive for the economy there. That doesn't happen today as a result of the single-desk model we have with the Canadian Wheat Board.

On regulation, one of the things I would encourage the committee to do.... I don't think any of us has to start from scratch on this issue. There's been a lot of good work done. Certainly, the external advisory committee report on smart regulation, which I think members would be familiar with, was released in September of 2004. Gaétan Lussier chaired a very good piece of work.

There's a lot of work going on inside government today in terms of implementing that report, work that we think needs to continue because it's going to require a culture change inside the system. But one of the really important things that report did was to give you a sense of...why don't we pick a few targeted examples of things that we can actually try to do something about? You can decide what they are, whether it's in the energy area or in pharmaceuticals or in processed food, as Mr. Darby was saying. There's a bunch of things that you could immediately point to, and we could think about mutual recognition, if we're talking about Canada-U.S., or we could think about how we do the fed-prov component better, where in environmental regulation, for example, we have both levels of government doing the same thing in many cases.

They have already identified a number of things that would be very good starters, as examples of saying let's do some of this. So I would certainly say that's the right way to go--that and coupling it with what you need to do to change the culture, in terms of saying it isn't just regulation because we can do it; it should be because it's the right thing to do.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Ms. Chow.

[Olivia Chow, NDP, Trinity—Spadina, ON]

Thank you, Mr. Chair.

I have three areas of questions. The first one is on employment insurance and training programs. The second one is on immigrants and our immigration policy and our workforce. The third area is on the infrastructure--transportation and public transit.

On the first one, recently TD Economics said in one of its reports that because of the changing labour market realities, it's leaving a large group of the labour force uninsurable under EI and a complementary set of programs is urgently needed to fill the gap. One of the recommendations from the recent report that came out, Time For A Fair Deal, is that we need to reform EI so that your workers would actually get coverage.

In big urban centres like Toronto, where I'm from, only 22% of the workers get coverage. The rest of the money goes elsewhere, as you have noticed. I understand your suggestion that it should really be an insurance program. When they contribute to an insurance program, when they need it, the workers should get it. That's my number one question, whether that is an area that needs to be changed.

The second area connected with it is that the money the workers and employers put in could be used for a lot of the training programs that we all know are needed. One of the other recommendations that came out is that we know that a lot of the training programs, such as apprenticeship programs, mentorship, job coaches, and on-the-job training, are all filled to the brim right now. We desperately need more skilled labour, especially in the service sector, because if they don't get skilled, given how small a population we have, we're never going to be productive.

Should we not spend some more of that EI money, both back to the workers--aside from your first three recommendations, reducing the premium and all that--and also do really clear labour market targeted training so that we can get the workforce we need.

We can talk about immigrants in a few minutes. That is the first area of my questions.

[Michael Murphy]

I'll try to be brief in terms of the suggestions here.

If you accept the principle that in EI we have gone well beyond the traditional insurance program that was originally designed, I think the fact that we have other objectives to meet in society doesn't mean we should look at EI as a panacea for all of this. Too often we've decided to do that.

When we talk about a shortage of skills, let's be very clear that we're talking about skills at all levels of the economy. It doesn't matter what you're talking about; we have a problem today in Canada.

I'll use apprenticeships as a very good example. I think if our friends from the trucking association were here, they'd tell you that they'd like to find 40,000 drivers today. In terms of apprenticeships, we've got some issues among the provinces in terms of labour mobility issues that we need to resolve as well, which are totally independent from how much funding we do. Are we in favour of increased funding in terms of driving apprenticeships? We are, and we've been on the record as saying that. We think it's critically important to do that.

From our standpoint, the skill sets that so many of our members need cut right across all sectors of the economy and all parts of the geography. As part of the skill shortages that we have in the country, there's a virtual crisis today. Go to Alberta and it is the first conversation you're going to have in terms of the oil patch and meeting its needs or in terms of someone running a service industry in Alberta, or elsewhere in Canada, where they can't get people to do the jobs.

Yes, I would very much support that.

One of the things this gets into, and it's always a tricky part of living in this country, is that you're again into the federal-provincial situation in terms of labour market development and the role the provinces play. It always tends to complicate the issue. You'd have to do this in a way that works in terms of the feds working with provincial governments.

I'll stop there.

[The Chair, Conservative, James Rajotte]

Mr. Darby, do you have something to add?

[Paul Darby]

To support what Mr. Murphy said, if you are going to take EI money and any surplus that exists in the account and apply that money to apprenticeship programs, one would argue that at least it's directly supporting employment in the future. In some sense, it would still meet Mr. Murphy's principle of trying to use EI money in order to support employment opportunities and a bridge from one job to the next. It sounds like a great plan to me.

As Mr. Murphy said, I think the issue is that you've got to work it out with the provinces as well.

[The Chair, Conservative, James Rajotte]

Ms. Chow, do you have further questions?

[Olivia Chow, NDP, Trinity—Spadina, ON]

Yes, I have two other areas.

One is on the skills shortage. We bring over a lot of immigrants. For the jobs where we need the skills, in the construction industry, for example, we know there's a housing boom in the urban centres of Calgary, Montreal, Vancouver, and Toronto. It's a desperate situation, but the immigration policy of the point system right now doesn't work.

I see that some of your recommendations talk about the work permit system and the immigration intake system, and I agree with you that there needs to be a complete reform. Have you come up with some kind of program that actually says here are the ways the point system should work so that it's completely connected to the kind of skills we need, not just for professionals?

Secondly, I see recommendations about accreditation, which is a huge problem right now. I see four recommendations there. Are there some specific programs that you think we should focus on that would really help in the skills shortage area?

[Michael Murphy]

The first point I'd make is on immigration. Given our demographic realities--and we haven't talked a lot about demographics and the impact this is going to have on our economy so far, but it's huge--we know where the labour force growth is coming from. It's going to come from immigration, and we've been pushing for years for reforms here. I think the government did, in 2002, when the reforms were brought in.... We spent an enormous amount of time at that time talking about the selection grid and the point structure, and it did get amended as a result of a number of discussions at that time. I think it's far better now than it was prior to that--yes, absolutely. So we've made some real progress there.

We're not an organization that says let's create an overall target for the quota system, for example. It's more a case of saying, between Human Resources and Social Development and Citizenship and Immigration--because the two departments need to work together here--and the business community, how do we made sure we define our needs as sharply as possible? The biggest single issue I think we need to address is the speed with which we get people who we need into the country. And where are we getting most of our immigrants today? From Asia. And where are we taking the longest to get our immigrants? From Asia.

We have an absolute, fundamental need to look at resourcing in that area. So that's one of the specific things we've recommended that the government take a look at. We have to make sure we have some efficiencies built into the system so that when you're in the target areas, because that's where immigrants are coming from, we do this most efficiently, because this is a competitiveness issue for our country, no question.

[The Chair, Conservative, James Rajotte]

Are you satisfied, Ms. Chow?

Sorry, Mr. Darby.