Coast Forest Products Association Presentation to: Select Standing Committee on Finance and Government Services September 17, 2012 Surrey, B.C. 1

Introduction 2 Coast Forest Products Association is pleased to have been invited to share its perspective on the business tax environment with the Select Standing Committee on Finance and Government Services. We are committed to supporting a thriving and competitive forestry sector on the BC coast, a major economic driver in our province. Dialogue such as this one is imperative to the success of the forest industry, the Province and all British Columbians today as well as in the future.

Overview 3 Market Overview of BC Coast Forest Industry Strategic Approach Market Conditions Competiveness Agenda Investment in Innovation Getting There: Recommendations 1. Reduce Corporate Income Tax 2. Foster Research and Development 3. Reduce Municipal Taxes 4. Conduct a Review of the Carbon Tax 5. Made-in-BC Value Added Tax Conclusion

4 Market Overview of Coast Forest Industry in BC Strategic Approach Three strategic areas of growth: 1)Offshore markets for wood products in both mature markets like Japan and emerging markets like China, Korea and India. 2)Non-residential markets in North American leveraged offshore. 3)Value Added – Specialty, niche and bio-economy

5 Challenges in financial performance occurred between Forest products markets are facing uncertainty due to poor global economic prospects compounded by high $CDN currency valuation: U.S. is showing signs of slow recovery in housing market (ex. July 2012 housing starts decreased 1.1%) Japan’s introduction of consumption tax negatively impacts housing China’s housing policies, credit and slowing GDP is decreasing lumber shipments EU/UK’s sovereign debt crisis impacting global markets including forest product markets Also, the Pulp & Paper markets for newsprint and directory paper, key coastal products, remain weak. Market Overview of Coast Forest Industry in BC Market Conditions

Market Overview of Coast Forest Industry in BC Competiveness Agenda 6 BC coastal forestry is an export-oriented industry competing in global commodity, specialty and niche markets. Government legislative, regulatory and policy framework have a large influence on competitiveness especially in the B.C. forest industry. The return to PST will add costs across the supply chain. Regulatory framework including tax policy has a large impact on competiveness.

Market Overview of Coast Forest Industry Investments in Innovation 7 Coastal industry is undercapitalized due to poor return on capital over several market cycles. Tax environment should facilitate “commercialization” of new products/technologies and investments in innovation. Future opportunities involve large capital investment in new markets, products and technologies. These include: 1.Industrials sound abatement, treated wood, oil field matting 2.Non-residential focussed on heavy timbers and building systems 3.Bio-economy bio-fuels, bio-products like NCC, lignum, smart papers, green building products, forest management expertise.

Reduce the corporate income tax rate from its current level of 10%. This would have the effect of countering the increase in METR caused by a return to the PST/GST tax regime. 8 Getting There: Recommendations for Tax Change #1. Reduce Corporate Income Tax

9 Getting There: Recommendations for Tax Change #2. Streamline the PST Exemptions from a range of business inputs for capital intensive export industries should be explored in the medium term to reduce supply chain costs and encourage investment. Streamline and reduce “exemption” rules. Expand PST Exemptions on capital and technology to include the transportation and telecommunications. Reduced input costs position BC-based exporters to succeed in the global marketplace. PST exemptions to encourage investment in capital equipment and productivity improvements.

10 Getting There: Recommendations for Tax Change #3. Foster Research & Development Provision of direct Research and Development grants or refundable tax credits with a focus on the fields of new forest product development, bio-energy, bio-fuels and greenhouse gas and energy reductions.

11 Getting There: Recommendations for Tax Change #4. Foster Investment in Innovation Introduce a “refundable plant modernization” tax credit (with carry forward provisions) to attract investment by manufacturers in innovation and productivity-enhancing equipment and technologies as well as GHG reduction investments needed to meet legislated GHG targets. Apply towards investments in Capital Cost Allowance asset class 43. Allow for faster write off of capital projects and continue to work with the federal government to enhance and expand application of Capital Cost Allowances to increase capital investments in innovation and productivity.

Conduct a Provincial Property Tax Review of all non-residential categories with the view to streamlining and simplifying the entire municipal taxation system in B.C. Restrict the multiple or ratio of business property taxes to residential rates at the municipal level similar to what has been done is some other NA jurisdictions. Provide transition financial assistance to communities that wish to make changes to Class 4 tax levels (i.e. Catalyst Paper in Powell River). 12 Getting There: Recommendations for Tax Change #5. Reduce Municipal Taxes

13 Getting There: Recommendations for Tax Change #6. Conduct a Review of the Carbon Tax The Canadian forest industry has targeted 2015 as the year by which it will achieve carbon neutrality. Carbon Pricing stalled in North America BC Carbon tax negatively affects competitiveness in forest sector because it is not revenue neutral and increases supply chain costs.

14 Getting There: Recommendations for Tax Change #6. Conduct a Review of the Carbon Tax (continued) Coast Forest is working with the Business Council of British Columbia and supports their 7 policy recommendations: 1.Conduct a comprehensive review of climate change programs 2.Freeze the carbon tax, maintain the tax base, and consider reducing the tax 3.Maintain revenue neutrality provision develop clear policy for tax benefits 4.Work toward a pan-Canadian approach to carbon pricing and climate policy 5.Ensure BC’s carbon tax is factored into the federal sectoral regulatory approach 6.Review Alberta’s GHG technology fund 7.EITEI policy in place for 2012/14 budget

The benefits of a value-added tax are well known. It remains the single best public policy lever to enhance competitiveness of the B.C. economy. Much of the opposition to the HST was based on giving up control of provincial tax policy and having to harmonize with federal government GST rules. A “Made in BC” VAT would deliver many of the same economic benefits as the HST, in particular, by reducing or removing sales tax on most business inputs though this would not be harmonized with the GST or administered by the Canada Revenue Agency. Lets have a public dialogue. 15 Getting There: Recommendations for Tax Change #7. “Made-In-BC” Value-Added Tax

The future is bright… 16 …for a thriving and sustainable BC coast forest sector.