Industry committee report addresses needs of hard-hit industry sectors
July 8, 2009
An Industry committee study of selected industrial sectors hit hard by a high value Canadian dollar and the economic recession has failed to find unanimity on a range of recommended actions, underlining the difficult nature of committee work under a minority government. The report by the subcommittee of the Standing Committee on Industry, Science and Technology includes dissenting opinions from all four major parties.
The Bloc Quebecois and Conservative parties were particularly vociferous in their criticism with the latter accusing opposition members of the subcommittee of making recommendations that are "politically motivated or unclear".
Entitled A Study of the Crisis Faced by Certain Industrial Sectors in Canada, the Industry report contains 17 recommendations some of which are sector specific. One issue that appears to have consensus is the scientific research and experimental development (SR&ED) tax credit program, with calls to make it fully or at least partially refundable. The committee opted to endorse the call for partial refundability as well as other unspecified changes to increase private sector R&D.
The inclusion of other recommendations such as the call for a long-term space plan are somewhat mysterious. While the aerospace committee made the request, it's common knowledge throughout the industry that a plan is in development at the Canadian Space Agency (CSA). Curiously, the dissenting opinion from the Conservative Party failed to mentioned the plan in development, citing instead the fact that the committee did not hear from the CSA.
The report is a follow-on to a previous 2007 report by the full Industry committee called Manufacturing: Moving Forward — Rising to the Challenge. An update was considered essential given the profound economic changes that have transpired over the past two years and growing consensus that the recession offers an ideal opportunity to re-think industrial policy prior to recovery.
The sectors covered by the committee are all highly dependent upon exports and therefore sensitive to currency fluctuations and global demand for their products. Sectors include aerospace, chemicals, energy, forestry, high technology (information and communications technologies, biotechnology), minerals and metals and railway equipment suppliers.
Recent statistics on the manufacturing sector indicate that productivity gains are being made through labour force reductions rather than investments in machinery and equipment (M&E). In 2008, sector employment declined 13.8% from its 2002 level while its contribution to GDP declined 2.1% in the same period, while labour productivity increased 1.7%. The committee didn't delve into the reasons behind weak M&E activity, although it does note that access to financing remains an impediment to growth.
"Canada's manufacturing sector will continue to be challenged to raise its labour productivity levels by investing in new M&E rather than continuing on the current path of directly reducing employment. Public policies must reflect this new fundamental reality," states the report.
With 2007 revenues of $22.7 billion and employment of 82,000, the aerospace sector anticipates continued growth despite the recession and high Canadian dollar. To help it better compete, it is requesting full refundability for SR&ED, a stronger SADI program that supports the full spectrum of the industry, a long-term space plan and action to reduce the trade-impeding effects of the International Traffic in Arms Regulations legislation.
The chemicals industry estimates shipments of $50.6 billion in 2008 and employs more than 78,000. Although it exports about $31 billion worth of products annually, Canada remains a net importer of $10 billion worth of chemicals and chemical products. With increased competition from other nations including those in the Middle East, the industry is requesting reform of environmental and energy policies, removal of barriers to competition in the Canadian railway industry and greater accessibility to SR&ED taxi credits.
The plight of the energy sector is linked to declining commodity prices and high exploration and production costs, reducing cash flow and triggering widespread layoffs. Industry requests to the committee include an improve flow-through share regime to help the junior sector raise capital and clarification of future regulations on climate change and greenhouse gas emissions.
Perhaps the hardest hit industrial sector after automotive, the forestry sector has been hit by several trends including a declining US housing market, lower demand for newsprint, a credit crunch and a rising Canadian dollar. The industry is requesting increased funding for R&D, fully refundable SR&ED tax credits and improvements to rail transport.
The high technology sector in Canada is dominated by information and communications technologies (ICT) which employ nearly 600,000 and had 2007 revenues of $150 billion. The broad biotechnology sector (the bioeconomy) has revenues of $78 billion annually. Both industries are facing a severe cash shortage and the committee received seven requests for improvements. These include a new loan program at the Business Development Bank which companies can access, secured by tax losses, an extension of SR&ED, capital gains exemption for new R&D investments, government as a model user of high tech and an update of the Copyright Act.
- Establish regulatory consistency & predictability and keep consumer and payroll taxes low;
- Establish a clear and predictable regulatory framework for oil and gas, mining and chemical production sectors;
- Review fiscal and regulatory measures relating to clean and renewable energy sources and foster R&D;
- Make SR&ED tax credits partially refundable;
- Review procurement policies, especially those relating to acquisitions by the Department of National Defence;
- Examine the flow-through share regime to stimulate greater access to capital for exploration in junior oil & gas and mining;
- Explore measures to increase foreign venture capital investment;
- Maintain and expand Strategic Aerospace and Defence Initiative while continuing to offer refundable loans;
- Identify a replacement or alternative program for Technology Partnerships Canada;
- Develop a long-term space plan;
- Develop innovation policies for the forestry sector including R&D investments in greener technologies such as cellulosic ethanol and forest biomass
- Review all recommendations made by committee witnesses