Industry Committee on Nov. 28th, 2007

[Dr. Dale Orr]

Well, I would say you have to be pretty sure that they're going to pay off. I'd hate to just give a blanket yes and no, because of course you can build bridges and roads to nowhere, and they can be real white elephants to the taxpayer.

You have to make sure that what you're doing is you're providing the infrastructure that's needed for economic development. That's why we're saying if the government were to make it easier to get trucks from different parts of Canada through to the U.S.--you know there's a demand there--and improve that infrastructure, it's really important to the north. You really have to make sure—

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I'm talking about the far north. Should we be doing geological explorations again? Should we be focusing on that and possibly recognize that there's a rich resource there that we can exploit?

[Dr. Dale Orr]

There might be. I wouldn't want to prejudge geophysical surveys and things like that. I'm just making the general point that you can't just say yes or no, because you can waste a lot of money building roads and bridges where the economic payoff isn't there. But likewise, you can forego an awful lot of money that we should be earning by not having the infrastructure there when the demand is there.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

What happens to countries that peg their dollars?

[Dr. Dale Orr]

Generally, the countries that have gone on a floating exchange rate have done better. And back to your other one, countries that have gone into freer trade have done better than those that haven't. Countries that have gone towards more market systems have done better than others.

I should also say, and this is something to think about, that most of the moves the Government of Canada has made over the last 30 years towards more open markets have been fought by the left wing. Most of them today are happy we did them.

I think we have a very good record of market-opening moves. I don't think the NDP would stand up today and say we should impose huge tariffs on imports from the U.S.; we should throw NAFTA out the window; we should throw out Sunday shopping. That's another market-opening move. I'm just saying that I think our record on market-opening moves of all types has paid off, generally speaking, and been well received. And the people that opposed them, I don't see them standing up today and wanting to undo those market-opening moves.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

Thank you, Mr. Van Kesterern.

We'll go to Monsieur Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Thank you, Mr. Chairman.

Good afternoon, Mr. Orr.

With respect with the appreciating value of the dollar, the rise in gasoline prices and Chinese imports, I think we're witnessing a systemic purge of the industry.

The government wants to assist industry, but is still doing it in two ways: it's doing nothing on the one hand and cutting taxes on the other. As Ms. Nash said earlier, tax cuts benefit big businesses.

As regards those businesses that are having trouble with these three issues that I've just named, do you think that a loan guarantee would help businesses in trouble more than tax cuts, if they don't pay any tax? A loan guarantee to buy new equipment, for example, might enable them to re-enter the market and continue their operations.

Could you give me your opinion on that point?

[Dr. Dale Orr]

If what you're saying is should we focus whatever fiscal room we have on making the cost of investment lower, that type of tax break versus a general tax break, the answer is you need to do a little bit of both, because some companies are much more capital-intensive than others, getting back to this point that we want to make our tax environment competitive and we want to make it as even as possible.

That's why we have, and we should continue to have, some tax breaks that are focused on lower depreciation rates, focused on making investment cost less, and then others that are just straight corporate income tax. This is partly because of the problem, as we said, that in any given year some companies can't take advantage of lower corporate income taxes, especially younger companies. So it's particularly good for them to have part of the fiscal room used for breaks on investment. We should have a healthy mix of both.

[Robert Vincent, Bloc, Shefford, QC]

I understand your point of view, except that three industries are in trouble: the textile industry, which has nearly expired; the furniture industry, which is still having problems; and the plastics industry, where problems are already in the offing. You can give them all the tax breaks you want, but, if those three industries make no profits, it won't help them anymore. They're not paying any taxes and they're not making any profits. They're trying to get by and to get through this crisis on lines of credit here and there, except that it's always the same thing year after year. These industries were already in trouble when the Canadian dollar was at 90¢ and the price of gas at 86¢. Now that our dollar is worth $1.05 and the price of gas is $1.12, I'm not sure they can make it.

But wouldn't a loan guarantee be a kind of assistance for these businesses so that they could at least survive until the price of gas and the Canadian dollar fall?

[Dr. Dale Orr]

Yes, I guess as a general statement I would say, of this idea of the federal government helping companies and industries that are in trouble, that you can waste a lot of the taxpayers' money trying to do it. You can also make life much more difficult for firms in the same industries that are better managed.

We've had examples. The government of B.C. goes in and rescues a pulp mill and keeps it alive for a couple of years, basically at the expense of other pulp mills.

Whenever you try to do that, usually to a large extent you're just redistributing, helping out companies that are not as well managed as other companies. I don't think it's a very good.... It's hard to be dogmatic about these things, but as a general principle, most of the time you waste the taxpayers' money by doing it.

You should focus on the labour side of it, the side of those workers who are suffering, and make sure that we get them retrained, relocated, and into better jobs. Focus on the workers, not on trying to keep the plant going or the firm going. Focus the assistance on helping the workers make the adjustment and find new, better-paying, more secure employment.

[Robert Vincent, Bloc, Shefford, QC]

You say we have to help the other businesses, that the other businesses are taking advantage. But when you give the oil companies $100 million in tax cuts, unlike the T-shirt factory, for example, which receives nothing, are we favouring the worker or the industry?

If we consider the oil industry, which is already making billions of dollars in profits and which we want to give another $120 million, I'm not sure that's the right solution.

[The Chair, Conservative, James Rajotte]

All right, Mr. Vincent.

Are there any other questions?

Make it just a brief response, Mr. Orr.

[Dr. Dale Orr]

Yes, generally I'm not in favour of giving firm- or industry-specific.... What we've done in oil is probably not appropriate; that could be.

[The Chair, Conservative, James Rajotte]

Merci.

We'll go to Monsieur Petit.

[Daniel Petit, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Thank you, Mr. Chairman.

Good afternoon, Mr. Orr.

I listened to your analysis attentively, at least to what you said about the high dollar we're living with right now. I would like to ask you two or three questions, and you can decide on the order in which you want to answer them.

I'm from Quebec, where there's a problem with employee relocation. One of the reasons for that is that, in the construction industry, for example, Quebec's Act respecting manpower vocational training and qualification prevents workers from Ontario, Alberta and all the other provinces from working in Quebec. However, I could go and work outside Quebec, but when people know that they can't come and work in Quebec, they don't hire me to go work for them. That's the first problem, and I'd like to know your opinion on that subject.

Second, you mentioned “apart from employee relocation”. I pay my taxes in my province in Canadian dollars. I pay approximately 50% of my salary in income tax, and the Quebec government takes my money to pay down a debt in U.S. dollars. I'm currently giving the same amount, 50% of my salary, but it repays the amount of the debt twice as fast. The Quebec government isn't complaining right now because this suits it. It's paying its debt like it never did before. Quebec has $112 billion in debt, and we can pay, precisely because of the appreciating value of the Canadian dollar.

Third, as a government member, how can I do or suggest anything when our monetary policy depends on the Bank of Canada? It's supposed to be independent from us. We aren't even supposed to make recommendations to it. So, from what I understand, how can I do anything today, even something minor, to influence the value of the dollar, if we have to influence it?

Those are my three questions.

[Dr. Dale Orr]

Okay.

On the first one, yes, there are interprovincial barriers, I think it was mentioned, to certain occupations and trades. I know the government is working, I think with some success, in reducing those barriers. That's an excellent effort and it requires a lot of cooperation. As you may know, the B.C. and Alberta people have signed that TILMA agreement and I think it's a good example for others to follow.

As for the high Canadian dollar paying off U.S. debt faster, as you pointed out, yes—and I'm not sure there was a question there--I guess it's a benefit. I know, as you sit here as a committee, you always hear an awful lot more from people who are hurt by something or another. There could be five people who are helped for every one that's hurt, but you're going to hear from the one who's hurt, and I guess this is an example. There's a big benefit of the high dollar.

On the Bank of Canada, I appreciate what you're saying, which is the bank is at somewhat arm's length. You can always talk to them, but you don't have any power over them. But it's not that this would do you a lot of good, because the Bank of Canada's ability to influence the Canadian dollar is pretty limited. I've often said, only somewhat facetiously, that about the only thing they can do is if the governor says something really stupid, the dollar can fall, temporarily. Fortunately, we have an excellent governor and we have had excellent governors and they haven't done that. That's one reason why we pick good people, and we're very fortunate.

It's much more difficult for him to cause the dollar to go up. They'll tell you this, that they have one instrument and that's the change of the interest rate, and in fact they really only have half the instrument because most of the impact of the change in the Canadian interest rate is dependent on what is happening to the gap between Canadian and U.S. rates. If the Bank of Canada lowers the Bank of Canada rate by a half a point and the next day the Fed lowers by half a point, not much is going to happen to the dollar.

So, again, the bank likes to tell us we have all this sovereignty because we don't have a common currency, but you can have quite a debate about that, because if we had a joint North American central bank at least we'd have a voice at the table. Right now we have no voice as to what the Fed does, and that's half the equation, so I'm saying it's a debatable point. Whether we'd have more or less influence in our interest rate changes under a common currency is a debatable point, because it's that gap that has a lot of the impact right there.

So don't feel too bad about not being able to talk to the bank, because their power is limited.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Orr. I'm sorry, I'm just trying to keep all members on time here.

Merci, Monsieur Petit.

We'll go now to Mr. Valley, please.

[Roger Valley, Liberal, Kenora, ON]

Thank you, Mr. Chair.

Thank you for coming today.

I'm looking at your document here, and you mentioned you'd been here before. I think you said you had a decade or more of experience coming to committee at different times.

In your forecast for the Canadian dollar, you show the last year and for the next two years you project. If you'd have come here three years ago, how accurate would your projection have been?

[Dr. Dale Orr]

What were we projecting three years ago for the Canadian dollar?

[Roger Valley, Liberal, Kenora, ON]

If you'd have been here, yes, how accurate?

I have to be honest, I'm not trying to be too chippy, but your projection isn't much. I can draw a straight line, that's all.

I just want to know how you would have done if we were looking at a document you provided three years ago.

[Dr. Dale Orr]

I'm only guessing, and I haven't looked, but clearly we were not forecasting par. Neither was anybody else.

As I say, it's very difficult to forecast the dollar because, among other things, it depends very heavily on the price of energy and oil. And if you can't get that right, you're not going to have the dollar right.

Basically, we can provide a lot of value to clients by helping them focus on adjusting to changes in the dollar and helping them understand how changes in the value of the dollar affect their companies and they can do their contingency planning. To try to give a pinpoint estimate of where the dollar might be, you have to go with that with an awful lot of modesty, as I have learned over a lot of years of experience, because so many things can affect the dollar. It's very difficult, but we do the best we can with the information we have.

I should say in regard to our forecast that you see in the chart there that just yesterday I got a forecast from a consensus of economists, and this is pretty close to consensus, for whatever that's worth. But I'm going to say it's very difficult to forecast.

[Roger Valley, Liberal, Kenora, ON]

Thank you for that.

You notice that we're a little sensitive about the topic of moving workers around. You know, we're national politicians. This committee is embarking on a strategy to help nationally. We have to look at the national situation. We have to look at the big picture, but we're elected locally. We face those people you're talking about moving. It's very difficult for us.

[Dr. Dale Orr]

Yes, I appreciate that.

[Roger Valley, Liberal, Kenora, ON]

I would like to ask you to give me your advice on a very specific thing, and I will use my riding, the riding of Kenora.

We have a huge pulp and paper mill sitting there. It's a brand-new facility from a brand-new investment of about $350 million in the last few years. It's very similar to what's out in Prince Albert. There is a bright future for these things. You mentioned--and I don't think you meant to--that forestry is tied dramatically to the housing crisis in the United States right now. Well, that's just one factor. A factor equally big is what's going on in B.C. with the pine beetle, energy costs, and high fibre costs. All the things we know, and what forecasters like you say, is that out in the future there is going to be an industry there for us.

I live in Dryden. We had 1,200 workers in the plant five years ago. We have 300 now working half-time. That facility will run full-time, so you can't move those workers out. I think we've put words in your mouth, maybe, by saying “relocation”. I'm not sure that's what you meant. You meant move them to where the jobs are, but hopefully not forever.

What I want to know, before you answer, because I'm going to be cut off, is what you do in situations like that. There is a place for the federal government, especially when it has resources. They can help those companies. They can help them get ready through technology upgrades. If you're familiar with the term “closing the loop”, in big pulp and paper mills.... The pulp and paper mill that's there cannot run by itself. It's facing tough issues in softwood, meaning that if they can't sell lumber close by, they can't get the cheap chips. These are integrated systems. They all have to work together so they work properly.

So what do you do in a circumstance like that? There is opportunity. The government does have money. They can do the technology upgrades and close the loops, protect the environment, and protect the water resources that are there. That's what should be done now, because 24 to 36 months out, there will be jobs in those communities.

[Dr. Dale Orr]

As I say, it's a problematic thing, and really tough questions have to be asked. If the shareholders of that company aren't willing to finance the upgrades, why should the taxpayers of Canada do it? I also make the point that if that particular plant has been online and operating for three or four years now through taxpayer assistance, it probably means that there's some other plant in Canada that has fewer employees than it otherwise would have. And you always have to take that into account.

I don't have a magic answer. But I'm saying that there are tough questions that should be asked about that before the taxpayers' money goes into it. And so much of the discussion and the profile is given to the benefits, not to the opportunity costs of using that money. Those dollars, they could have been used to reduce poverty. They don't fall from heaven. They could have been used to reduce taxes across the board. As well, what I'm saying is that very often the output of that plant is at the expense of some other plant whose shareholders were willing to make the investment rather than go to the taxpayers for it.

That's why it's problematic. I'm not trying to say that there's a yes-or-no answer here. These are tough questions, but those are the sorts of things I hope get a good discussion.