Proceedings of the Standing Senate Committee on
National Finance
Issue 21 - Evidence - November 20, 2014
OTTAWA, Thursday, November 20, 2014
The Standing Senate Committee on National Finance met this day at 1:55 p.m. to study the subject matter of Bill C-43, A second Act to implement certain provisions of the budget tabled in Parliament on February 11, 2014 and other measures.
Senator Larry W. Smith (Deputy Chair) in the chair.
[Translation]
The Deputy Chair: Honourable senators, this afternoon, we are continuing our study on the subject matter of Bill C-43, A second Act to implement certain provisions of the budget tabled in Parliament on February 11, 2014 and other measures.
[English]
In our first panel this afternoon, we are pleased to welcome officials from the Royal Canadian Mint: J. Marc Brûlé, Interim President and CEO; Sean Byrne, Vice President, Operations; André Aubrey, Interim Vice President, Administration and Finance; and Simon Kamel, Interim Vice President, Corporate and Legal Affairs and Corporate Secretary.
Mr. Brûlé, I understand you are the spokesperson for the Royal Canadian Mint. You will be addressing Part 2, clause 98, which can be found at page 278 of the bill; and Part 4, Division 8, clause 185, which can be found on page 341 of the bill. Please begin.
J. Marc Brûlé, Interim President and CEO, Royal Canadian Mint: I want to thank the honourable chair and the members of this committee for inviting the Royal Canadian Mint to appear before you today.
[Translation]
I want to thank the honourable Chair and the members of this committee for inviting the Royal Canadian Mint to appear before you today.
[English]
We also welcome the opportunity to explain how the Mint has evolved from a public institution with a narrowly defined role in the early 1900s to a financially robust, self-sustaining model of diversification and innovation. Allow me to share an overview of today's Royal Canadian Mint.
The Mint is a commercial Crown corporation, mandated to make a profit for its shareholder, the Government of Canada.
We are also required to run the Mint in anticipation of profit, as we are expected to operate at arm's length from the government and be self-financing. As a result, we do not receive any appropriations from the government.
[Translation]
We are very proud that the Mint extracts fair value for all its products and services so that it does not rely on taxpayer support to generate meaningful employment for workforces located in Ottawa and Winnipeg, to innovate and to invest in its long-term growth and sustainability.
[English]
We are primarily responsible for the production of circulation coins for Canada, and the Mint is also unique in the world in managing the national coin forecasting and distribution systems. By ensuring no coin shortages and maintaining adequate inventories in the right locations, the Mint's performance in this critical area is the envy of the rest of the minting community.
We also successfully operate three other business lines in highly competitive environments: numismatics and collectibles; bullion, refinery and exchange traded receipts; and, finally, foreign coinage, which is the provision of a wide spectrum of coin products and services to foreign central banks and mints.
Winnipeg is the home of our Canadian circulation and foreign coinage business lines, which supplies Canada and foreign customers with the most advanced and secure circulation coins in the world. We are proud that many of our innovations born from our research and development arm of this facility are the cornerstone of our reputation and success in the minting industry, which is increasingly challenged to respond to the world's coinage needs.
We developed our revolutionary, multi-ply, plated steel technology, which plates a steel core with alternating layers of copper and nickel to create highly resistant coins with unique security and cost control advantages for Canadian circulation coins. This compelling alternative to 100 per cent alloy coins has attracted over 30 international customers since its debut in 2001.
[Translation]
Canadian circulation coins were also the first to feature colour, with the launch of the 25-cent poppy coin in the fall of 2004.
This colour technology was further gradually perfected to include enhanced wear resistance, starting with breast cancer, and oriented colour applications to precisely surround the contours of an engraved design found on coins like the heroes of the war of 1812. We remain the only Mint, out of 48 national Mints around the world, to offer this exceptional technology.
[English]
In tabling Economic Action Plan 2010, the Government of Canada tasked the Mint with modernizing Canada's circulation coinage by changing the composition of its $1 and $2 coins to the Mint's multi-ply plated steel technology, incorporating a number of visible and covert security features.
After their launch in April 2012, these security features received international recognition as the best new coin innovation in the Excellence in Currency Awards program presented by the International Association of Currency Affairs.
This endorsement by a group that speaks for the global currency industry means one thing: The Royal Canadian Mint produces the most secure circulation coins in the world.
What we have done to secure the integrity of Canada's coinage system is a powerful proposition for global jurisdictions, and it was made possible by a concerted strategy of reinvesting part of our profits into long-term research and development and modern manufacturing equipment.
[Translation]
We proudly opened a new dedicated research and development centre as part of a major expansion of our Winnipeg facility in 2013. From this world-class facility, we are able to develop new non-cyanide-based plating technologies that will attract a wider field of international customers, customize technology applications, and develop new ones in partnership with universities and technology suppliers.
[English]
These and other successes have allowed us to invest in the kinds of things which make a positive difference for Canadians and for coin users around the world. That thinking, which is embedded in the culture of the Mint, is easily reflected in the Ottawa side of our operations where the world's purest and now most secure bullion coins are produced, in addition to award-winning collector coins and, finally, a prestigious variety of medals, which include virtually all of the military honours for Canada's Armed Forces.
The Mint was the first to refine gold to a 99.99 per cent purity, which is called ''four nines,'' in 1982 and upped the bar by introducing the five nines pure Gold Maple Leaf coin in 2007. We are also unique among competing mints for having a vertically integrated precious metals operation, which controls the refinery and manufacturing process from end to end.
We are proud to be a refiner of choice to Canadian mining companies, to whom we also offer best-in-class assay services, and we have also leveraged our core competencies to grow our secure precious metals storage business and even launch gold and silver exchange-traded receipts on the TSX.
We invested heavily in our refinery and production facilities to allow us to compete in the global bullion market of today. Our Gold Maple Leaf brand holds top market share for gold bullion coins, while our Silver Maple Leaf is second only to the U.S. Silver Eagle.
We count on maintaining that position by raising the stakes on bullion security. For example, this year we premiered the prototype of our bullion DNA anti-counterfeiting technology at the Berlin World Money Fair. This is the world's first device which will allow distributors and dealers to verify in-store the authenticity of Canadian Gold and Silver Maple Leaf bullion coins by scanning a new micro-engraved security mark on the coin's reserve side.
Making the world's purest and most secure bullion coins is yet another tangible expression of the Mint's commitment to our customers across the full spectrum of our business.
[Translation]
Innovation is also a huge driver of our numismatics and collectibles business line, which consists of collector coins, metals and medallions. Capitalizing on the momentum created by our Vancouver 2010 Olympic coin program, we have grown our collector coin business by approximately 170,000 Canadian customers.
We achieved all-time record revenues of $167 million last year, also selling out a record of 70 coins from over 200 different products released in 2013.
[English]
The domestic and worldwide appeal of our collector coins can be credited to a number of award-winning technological innovations such as our glow-in-the-dark and Murano glass coin technologies. Our success is also anchored in concerted investments in customer acquisition efforts and marketing campaigns which introduce and convert thousands of new Canadians to coin collecting.
The Mint commemorates and celebrates Canada's history, culture and values with great pride on both our collector and circulation coins. This is particularly important as we have completed the first year of a six-year commitment to honouring our veterans and ordinary Canadians who lived through the transformative experiences of the First and Second World Wars. We started in January with a 2014 silver dollar remembering the one hundredth anniversary of the declaration of First World War and followed with milestones, such as the seventieth anniversary of Canada's D-Day landing in Normandy and the centennial of the Canadian Expeditionary Forces.
[Translation]
Our commemorative circulation coin program has evolved into a unique and powerful tool for telling the story of Canada to Canadians old and new. Our coins circulate our stories from coast to coast to coast, including the new ''Wait for me, daddy'' two-dollar circulation coin, issued in October, and which current Canadians are currently looking for in their change.
We look forward to celebrating many remarkable moments that shaped our nation, as Canada rapidly approaches the one hundred and fiftieth anniversary of Confederation in 2017.
[English]
Over five years, the Mint has adopted a clear and ambitious vision to be the best mint in the world. This bold statement is not an end in itself; rather, it is a journey and a declaration on the way we have chosen to run the Royal Canadian Mint. We are determined to keep leading our industry for the benefit of all our stakeholders, which includes Canadians, customers, the shareholder and our employees.
Once again, record revenues of $3.4 billion and profits of $48 million validated our approach in 2013, and our continuing strong performance this year reinforces our belief. It is also worth noting that approximately 85 per cent of our revenues are generated internationally as the Mint competes globally in three of its four business lines. By achieving consistent and sustainable profitability, we have grown our employee head count from 865 employees in 2008 to more than 1,250 by the end of 2013. That's more than a 40 per cent job growth at the Mint since the days the global financial crisis took hold, whose aftershocks are still being felt by many manufacturing businesses in Canada. In the same time frame, we returned a record $135 million in dividends and corporate taxes to the Government of Canada.
[Translation]
At a time when departments and agencies of the federal government are being asked to achieve savings, we are pleased that we are managing our performance in a way that allows us to make a positive contribution to the government's bottom line.
[English]
With the continued support of our board of directors, we aspire to maintain our strategic vision, which has provided us with the means to keep investing in our unique businesses which supports Canadian trade and commerce with efficient and secure coinage, while also generating positive value for our shareholder; being there for our customers; celebrating Canadian innovation, culture and values through our coins at home and abroad.
Ladies and gentlemen, my colleagues and I will be pleased to take your questions. Thank you.
The Deputy Chair: Thank you very much. Mr. Brûlé, maybe you can go over the budget Bill C-43 in terms of the clauses that affect the Mint in terms of your operation moving forward and tell us what the implications are?
Mr. Brûlé: The first clause perhaps I could speak to would be the one in respect to producing goods and services for the federal government at cost versus a cost and a profit element. Right now that would involve certainly the production of the Canadian circulation coinage. We produce all of the Canadian coinage — not the notes, that's the Bank of Canada — and currently we produce that coinage under an agreement with the Department of Finance. It's typically a three-year agreement referred to as a memorandum of understanding.
In that agreement we lay out not only the coinage we will produce, but also the services we will provide, as I mentioned, in terms of the forecasting for demand and managing the distribution throughout about 12 different centres across Canada.
Currently, we provide those services with a profit element. The current legislation is considering removing the profit element from that particular provision of goods and services.
The other elements that it would seem to touch on at this point would be the production of medals that I mentioned mostly for DND or various celebrations. Today, as an example, we bid for that business against other commercial corporations that wish to provide that product to — let's call it the Department of National Defence, and in the past we've been very successful at winning those contracts.
I would assume, from a best-value perspective, being both price and quality, and in those contracts there again there is a profit element to us producing those products. Based on the current legislation, that would suggest that we, should we be engaged in doing those activities, would produce that kind of product at our cost to the customer.
The Deputy Chair: You outlined some of the potential impacts, but what impact does this potential change have on the management of the organization and how you manage yourselves moving forward?
Mr. Brûlé: If you speak to Canadian coinage, we will still be producing Canadian coinage. It will have very little impact on our employee base as well as on the management of the corporation, I believe.
We will continue to produce the coinage demanded by trade and commerce as we always have, and I would expect we will continue to manage the forecasting and distribution systems.
With respect to the medals programs, they are not a significant part of our business. Whether or not we continue to provide those goods in the future will have little impact on our business.
The Deputy Chair: Let's move on to some of our colleagues.
Senator Wells: Thank you, gentlemen, for appearing.
I have a question about your business model. I think you said last year you returned $135 million to the federal government; is that correct?
Mr. Brûlé: That was over a five- or six-year period, since 2008.
Senator Wells: With the new mandate being amended there is a prohibition on earning a profit that applies specifically to the provision of goods and services by the Mint to the federal government, now part of our legislation discussion, the amount that went to the federal government in provision for those goods and services. How will your business model change with respect to how the government is charged for goods and services provided by the Mint? Or is this simply an accounting exercise with respect to a transaction?
Mr. Brûlé: I would say that there would be no change in the delivery of the product or service to the government, subject only to the medals business, as to whether we would want to continue to be in that business and not earn a profit on that one. But when it comes to the Canadian coinage, which is our raison d'être, we would continue to produce all of the coins necessary and provide all of the requisite services. It would be simply, as you might put it, an accounting exercise where the billing to the government for those coins and services would be at our cost without any profit element.
Senator Wells: That's the answer that I expected to hear.
You are a corporation that can still make a profit with your other business lines, so will that change? Will what you charge other customers change because you're now not to make a profit from the goods and services you provide to the federal government? That revenue will still come back to Canada.
Mr. Brûlé: Correct. What you charge other businesses or other customers for your products and services obviously changes from year to year, but the intention of making a profit based on those goods and services that we provide in the other three business lines does not change at all. In fact, we continue to believe that we are going to grow those business lines.
Senator Wells: To finish the point, the reduction in your profits — let's assume you'll have a profit this coming year — all things being equal the only reduction would be the amount of profit you made from the federal government?
Mr. Brûlé: All things being equal, correct.
The Deputy Chair: What amount would that be of the $48 million that you reported back as your résultats avant impôts to the government?
Mr. Brûlé: I believe the Department of Finance provided you with some information that we estimated after tax. Our after-tax profits of last year were about $36 million. We estimate today, given the current discussions we are involved in with the Department of Finance, that is in a range of $7 million to $10 million, so about 25 per cent of our profits.
Senator Wells: Essentially, when it's all boiled down, it's an accounting adjustment exercise that you won't make that $7 to $10 million from us that you would pay us in your profits at the end of year anyway?
Mr. Brûlé: It's a movement of profitability from one point to the next, yes.
Senator Wells: Thank you.
[Translation]
Senator Chaput: Mr. Chair, although some of my questions have already been answered, I would like to ask one more.
As a result of the amendment to section 3 of the Royal Canadian Mint Act, I assume that, in your next annual report, you will be amending the corporation's mandate and objectives.
Your report mentions that you want to conduct your affairs in anticipation of profit. Are you going to keep the same mandate, because you can always make a profit on things other than coins?
[English]
Mr. Brûlé: When it comes to the annual report, we will need to probably modify the statement in anticipation of profit from all business lines, let's say. It will depend on the final wording of our legislation in terms of how we would look at modifying that particular statement, I guess.
[Translation]
Senator Chaput: In terms of the Mint's profitability, the report indicates that negotiations under way with the Department of Finance should clarify that general statement. Does that mean that, before this amendment of your act was worked out, there were discussions with the Department of Finance?
[English]
Mr. Brûlé: There has been an initial meeting with the department at this point in time, yes, to look at what cost actually means. If you think about the provision of coinage and services there are different levels of costing, and we need to sit down. Where we didn't have to worry about that before in terms of giving a price for goods and services, now we have to discuss the cost elements that go into providing all the goods and services we provide.
We have initiated discussions with them, and these discussions will be ongoing as the clarity around the words and the change in the legislation occur.
[Translation]
Senator Hervieux-Payette: Could I ask you a major strategic question? What do I do with my pennies? I have hundreds of them, I do not know what to do with them, and I am probably not the only one.
What do people do to get rid of them now? Do you buy them? Can I just bring them to you?
[English]
Mr. Brûlé: When you mention copper coins, I assume they are pennies.
Senator Hervieux-Payette: Right.
Mr. Brûlé: The pennies can be redeemed at financial institutions. There are also Coinstar machines that sit in many commercial enterprises, mostly grocery stores. They have even shown up now at branches of financial institutions, where you take your change and dump them into the machine. They will count the coins for you, deduct a commercial fee for doing so, and provide you with a net receipt that you may be able to cash in.
Senator Hervieux-Payette: That's why I'm not bringing it to them. Actually, if my cent is worth more in copper than the cent, I don't see why they should charge me. I'm kidding.
In terms of the product, do you proceed a bit like Canada Post to decide to make all these fancy pieces, whether it is $20, $50, 25 cents, whatsoever? What is the mechanism? Is it your own decision or do so or do you have organizations that are asking you, for example, to celebrate a one-hundredth anniversary? What is the mechanism and the decision-making process? Some people might be interested, so let's provide them with the information.
Mr. Brûlé: There are a number of ways that we come up with our designs and our ideas around what type of story and cultural components we wish to put on coins. People do approach us to celebrate different events, so some of that happens that way.
We also have our own group of people who think about the designs and do research around what kind of commemorative events are occurring, such as war celebrations. The one hundred and fiftieth, as an example, is one that's on our radar right now. Part of the process is that we develop the designs and then submit them through to the minister for approval.
Senator Hervieux-Payette: My deduction is that these pieces are mostly as collector items when it comes to $20 or $50 or $100. It is not something we put in our pocket. The 25 cents, yes, but not the big ones. These ones are, I would say, outside of the marketplace. They are kept by maybe your grandchildren to whom you are giving them.
How much money, in fact, is in the pockets or the closets of Canadians that were produced by you but are not in the marketplace? Do you evaluate that?
Mr. Brûlé: You are referring to our collector coins, which is the numismatic business line. I don't know that we have a good handle on the face value those coins would have in the marketplace today.
They are truly collector coins, though, and that's the intention. In fact, one of the important aspects to collectors oftentimes is an increase in value in the aftermarket, because there are limited mintages to these coins. That is the kind of business we are in, producing collector coins. That business has grown significantly over the last five or six years, whereas when I joined the Mint in 2007, it was not such a booming business back then.
Senator Hervieux-Payette: The international market for that, are they contacting you via the Internet to order these pieces and so on? How do you conduct that business?
Mr. Brûlé: We have several sales channels for that product. Certainly the Internet and mint.ca is our most successful and growing sales channel now. We call that ''direct channel.''
In Ottawa, we also have a call centre where we have people who will take inbound calls from our customers, and we have an outbound sales group.
For the other international markets as well, we have what we call dealers — people who will buy coins from us and then resell to the consumers in Europe, Asia and all around the world. They will carry not only Royal Canadian Mint coins, but they will carry other mint coins as well.
Senator Hervieux-Payette: What is the lifespan of the new bill — not paper, but I don't know what you call the material.
Mr. Brûlé: The polymer?
Senator Hervieux-Payette: Yes.
Mr. Brûlé: That's the note, the polymer note. I think the Bank of Canada would be better to answer that. I know it's supposed to last longer than our cotton paper note, but I don't know the life expectancy that they expect out of those.
Senator Hervieux-Payette: I want to know if you won the contract at DND.
Mr. Brûlé: The contract? What we do is they put out tenders for making certain products for them, and we would bid on that tender. It would depend on which tender you're speaking of.
Senator Hervieux-Payette: The one you talked about several minutes ago.
Mr. Brûlé: Those are several contracts over several years. Annually they come out with contracts or bids for medals.
Senator Hervieux-Payette: Where do you buy your metal? Of course, there is a composition of different metals in the same piece, but where did you buy the metal, whether it's silver or gold? Is the procurement only in Canada? That's my question, in fact.
Mr. Brûlé: I will begin that question and maybe ask Sean to finish.
You have base metals and you have precious metals. The base metals are what we use in the circulation coinage, both in Canada and for other countries, and that is bought on the world markets. When it comes to gold and silver, we have refineries ourselves in the basement of the castle just down the street. We have a silver refinery and a gold refinery, which produces quite a bit of feedstock that we use for our gold and silver products.
Sean, would you care to say anything further?
Sean Byrne, Vice President, Operations, Royal Canadian Mint: I'm not sure that I have a lot to add to what Marc said. But, as he described, we have four very diversified businesses. The two circulation businesses were renowned for having the multi-ply steel circulation coins, which saved the government significant amounts of money, moving from alloys to steel based. That steel is largely procured from the United States. Because of the difficulty of that business, a lot of steel companies have migrated into the United States.
In terms of precious metals, as Marc said, we have a refining operation. We do get precious metals from Canadian mines, but we also get them from elsewhere — in the United States and South America as well.
Those are our two main inputs as it relates to precious metals and raw materials.
The Deputy Chair: What is the impact? You grew from 800-plus employees to 1,200. Is that all from 2007, the growth? What were the reasons for the rapid growth? The second question is: What type of change will this mean to the employees of the Mint?
Mr. Brûlé: I think the period that I was comparing to was from 2008 to 2013. Certainly it has been a challenge to manage that kind of growth. Where has it come? We have been very successful, mostly in our business lines that are not the Canadian circulation business line. The demand for Canadian coinage has remained relatively flat over that period of time. Therefore, servicing that business has not grown significantly.
I mentioned the numismatics business line. In 2007 we were doing something like 50 products a year. This year we're close to 300. We used to have revenues of around $50 million. We are probably going to hit $175 or $180 million this year.
The Deputy Chair: Your numbers say that you had just under $3.4 billion in sales last year.
Mr. Brûlé: That's the second one. That's the bullion business line. That is, of course, selling and reselling gold and silver, mainly these one-ounce gold and silver Maple Leaf coins. Since the financial crisis in late 2008, investors and pension funds decided to complement what I would call their portfolios with precious metals. So the demand, as an example, for gold and silver over the period I am talking about, gold has probably tripled and silver has almost gone 10 times in volume. When you have $3 billion of revenues, built into that revenue number is actually the price of the gold that you are selling. So when you sell a one-ounce gold coin today for $1,200, that is the revenue. Then you have about $1,198 of costs in there.
The Deputy Chair: Just so I understand, you have listed here under 2013, $3.37 billion, if I understand correctly.
Mr. Brûlé: Yes.
The Deputy Chair: Is your total revenue for the Mint?
Mr. Brûlé: That's correct.
The Deputy Chair: What amount would be government business out of that $3.37 billion? I'm trying to get a sense of the scale of the change to your business.
Mr. Brûlé: It's about $135 million.
The Deputy Chair: Okay. So it's not material, really, in terms of —
Mr. Brûlé: Well, it's material — okay. So a large part of the business is driven by the bullion business line, but it's very thin margins.
The Deputy Chair: Okay.
Mr. Brûlé: So in terms of revenues, the Canadian business line is not material. When it comes to income or profits that we were talking about before, it's right now at about 25 per cent of our profits.
The Deputy Chair: Okay. What about the change element to your people?
Mr. Brûlé: We've managed it very well, I believe. We have a much younger workforce as a result of it. We have a young management team. We have outgrown the facility in downtown Ottawa. So we have, as an example, rented a building on Murray Street in the market where we now have many of our corporate and administrative functions. We've had to migrate some people up from the basement floor to put the supervisors on a second floor which had administrative people on it, so we've had to make some modifications around space.
In Winnipeg, we also completed in 2013 a major expansion where we essentially doubled the size of our plating capacity, which is wrapping, which is this multi-ply plated process, and we pretty much doubled our capacity in Winnipeg. We added about 70,000 square feet of facility in Winnipeg. Within that 70,000 square feet, we're devoting about 5,000 square feet to what we are calling a research and development centre of excellence where we are concentrating and continuing to develop new products for not only circulation coins but also for our bullion and numismatic business.
Senator Wells: I have a couple of questions. I'm just reading in your annual report, and I have to say I've read hundreds of annual reports in my life, and I've never read something like:
The Mint's numismatic success took on heroic proportions . . .
That's on page 10.
So I thought I would just comment on that, because I've never seen anyone self-describe a heroic anything, and it may be unbecoming of an annual report. That's my thought.
The second point I wanted to make, I'm from St. John's, Newfoundland and Labrador. When you introduced the new alloy loonies three years ago, four years ago —
Mr. Brûlé: Multi-ply plated loonies, yes.
Senator Wells: The multi-ply plated. They didn't work in the meters of St. John's. It may be funny now, but it cost a lot of people at least a loonie. Altogether it cost the taxpayers of St. John's more, because they had to replace the meters.
When you go with a new alloy or a new product that has direct effect on consumers, what level of consultation do you have with stakeholders who use that and use it in machines, like parking meters?
Mr. Brûlé: I can start on that one and maybe Sean might be able to help.
So when the government mandated us to move to plated coinage, we took about two years, one to develop it and two to communicate the change that was going on.
So that would be the municipal parking. As well, the other very large stakeholder was vending machines. We held sessions across the country many times to speak about what is coming. I know with the vending industry, we gave them prototypes so they could modify their machines in order to accept the new composition of coin.
I'm not clear exactly how the communication went to the municipalities. Maybe Sean might have something to say.
Mr. Byrne: I would say there are two things. First, we chair what is called the national coin committee, which is composed of all of the major financial institutions in Canada, as well as all of the armoured car companies. So Brinks and Garda, for instance, who work with many of the major municipalities, and so there is a lot of education that goes on via that committee.
In addition to that, we not only have consultation with many of the major coin processors in the company, so at the time that would have included phone companies, but also parking, vending and retail industry. I would say that it's very extensive. We also participate in what's called CAMA, which is the vending industry in Canada.
Having said that, there's always some resistance because of the cost in terms of changing the equipment or the internal mechanisms whereby they would read these coins.
Interestingly, I think one of the benefits of the multi-ply steel technology is it's less likely to wear down over time. If you recall historically, when you would put a loonie in a vending machine and it was made out of alloy, because that alloy would wear down over time, it would get rejected as well. When we changed to the multi-ply, that range of what we call EMS, or electromagnetic signal, was tighter, which resulted in exactly what you described, Senator Wells.
The consultation is extensive, with lots of education, and I would say it goes on for longer than 12 months in advance, lots of testing, giving them samples. We work with the vending industry, the people who develop the vending systems themselves, but nonetheless, you do —
Senator Wells: Would that include parking meters? Is that part of the vending industry?
Mr. Byrne: Yes. The parking meters are provided by two or three major suppliers, and we work with them, but if you don't make the investment to re-calibrate or to change your equipment, you run into the problems that you described.
Senator Wells: Thank you. I recall it very well, because it was a story in Newfoundland, and they seemed either unaware — well, they said they were unaware and, therefore, unprepared, and it's a very tactile event for a person pulling up to a parking spot.
I know it will more likely than not be a political decision, but is the production of five-cent pieces going down in relation to quarters and $1 and $2 pieces? I'll go on to the next part of my question: Are we very soon going to see the end of the nickel, just based on those proportions of production?
Mr. Byrne: So when we eliminated the penny, typically what we would have expected to see is an increase in the usage of five-cent coins. Initially, we didn't see that. One of the reasons we didn't see that was because of how extensive the recycling network is in Canada. As people were bringing back their pennies, they were also bringing back their five-cent coins and their 25-cent, so as a result, they were returning because of the efficiency of our distribution system.
Having said that, in the last three to six months we are seeing an increase in the usage of five-cent coins, but not significantly. I would say in the range of 5 to 10 per cent, if I'm going high level.
As it relates to replacing the five-cent coin, it is a political decision, and it's certainly, I think, within the mandate of the government to decide that.
Mr. Brûlé: And we just follow.
Senator Wells: I recognize that. I was wondering, because what you would know is the proportion of use and, therefore, production perhaps.
Mr. Byrne: It's slightly up now, but not materially.
Senator Wells: Thank you.
Senator Gerstein: I would like to go back to the penny, if I may, for a moment. As you know, we studied it in this committee.
What I wanted to ask you, sort of to complete the entire study, is what stood out in my mind when we held the study on the possible discontinuance of the penny was, try as we might, we could not find a single witness from any stakeholder that spoke against it.
Have there been any unintended consequences as a result of having discontinued the penny or did it go as smoothly as you thought it might go?
Mr. Byrne: I have to say we probably learned lessons from the transfer to multi-ply and consultations and education with vending. The consultations were extensive, both through the National Coin Committee and vending and retail. So there was very little negative commentary or reaction from the public that we're aware of and it's gone quite smoothly. I think we had estimated 6 billion pieces being in circulation. To date, we've recovered about 5 billion of those pieces and are on track to do 6 billion by next year.
You asked the question earlier about copper pennies. One of the challenges when we undertook this was that we have copper pennies, zinc pennies, zinc-plated pennies and steel-plated pennies, so the challenge was separating the three to get the maximum value for the three types of alloys. We worked with a Canadian supplier to be able to separate those, so we were able to develop a solution to be able to not only collect the pennies through our distribution system, which is incredibly efficient, but also to get the maximum value in terms of disposing of them.
Overall, an incredible success is how I would describe it, with, really, no negative reaction or publicity from it.
Senator Gerstein: I feel I have closure on the whole matter now. Thank you.
The Deputy Chair: Thank you, Senator Gerstein. Mr. Aubrey, you look very lonely over there.
From a financial management perspective, as VP of administration and finance, what do these changes mean to you in terms of financial statements, production statements, communication of results and even your participation in creating an annual report?
André Aubrey, Interim Vice President, Administration and Finance, Royal Canadian Mint: I guess, from a financial standpoint, as Mr. Brûlé mentioned, we're looking at a quarter of our profits going. Certainly, we'll be looking for efficiencies in the future, but, as such is mentioned, we'll still be producing the actual coins in Canada, distributing the coins and managing the inventory.
At this point, I don't see any significant impact, other than the financial. Therefore, I think, going forward, we will have to look at trying to get more efficiencies. But, as we've mentioned, we've been growing our other business side, and we intend to continue to grow the other three lines of business.
The Deputy Chair: Thank you. Mr. Kamel, do you, as corporate secretary and with involvement in corporate legal affairs, deal with the board? If so, do you see changes to your board and how the governance of your business will be affected in any way, or is it status quo?
Simon Kamel, Interim Vice President, Corporate and Legal Affairs and Corporate Secretary, Royal Canadian Mint: Not from these changes. They would not affect the governance structure of the board of directors, as it currently stands.
The Deputy Chair: Okay. Will there be changes in the board? Have people said that because there's a profit element taken out of the business they're not necessarily going to sit on the board anymore?
Mr. Kamel: Not to my knowledge. In fact, what this legislative change does is basically clarify that services to the Government of Canada will be done at cost, not for profit, but profit still remains for the lucrative business lines, which are numismatics, bullion and foreign circulation business lines. At least, the amendment makes it clear where the profit can be gained for the Mint.
The Deputy Chair: Mr. Brûlé, how would you rate the overall impact of this change on your business? Is it business as usual, or is it business with small change? What's the impact of this?
Mr. Brûlé: For the most part, I think it's business as usual. These are decisions that are made that we will just adapt to and move forward with. As I've said, we're going to continue to provide the services in the coinage, so operations shouldn't be materially impacted.
We may have to be a little more aggressive than we've been in other business lines to try to make up this shortfall over the short term. I know our board of directors is going to be looking for us to do that, and, in fact, we have board meetings starting on Monday next week, where I'm sure we'll have some discussions around all of this. You were wondering about board changes. We're, as well, waiting for a new chair of our board, and I think there's an empty seat on the board at this time as well that is looking to be filled.
The Deputy Chair: Any other questions from any members of our committee? If not, gentlemen, thank you very much. Very informative. Thank you for giving us an overview of the Canadian Mint.
Mr. Brûlé: Our pleasure.
[Translation]
The Deputy Chair: Let us resume, please.
We are very pleased to welcome Monique Moreau, the Director of National Affairs for the Canadian Federation of Independent Business.
[English]
Ms. Moreau will be speaking to Part 4, Division 14, clauses 225 and 226, which begin on page 370 of the bill.
Ms. Moreau, would you like to start? Do you have an opening comment?
Monique Moreau, Director, National Affairs, Canadian Federation of Independent Business: I do, thank you.
The Deputy Chair: Please go ahead.
Ms. Moreau: Thank you, honourable senators, for having me here today. The CFIB is a not-for-profit, non-partisan organization representing more than 109,000 small- and medium-sized businesses across Canada, who collectively employ more than 1.25 million Canadians and account for $75 billion in GDP.
Our members represent all sectors of the economy and are found in every region of the country. Addressing issues of importance to them can have a widespread impact on job creation and the economy.
You should have a slide presentation in front of you that I'd like to walk you through in the next few minutes.
As you may know, CFIB polls its members regularly in order to identify their top issues of concern when running their business. As you can see on slide 2, the top issue of concern to small business is the total tax burden, which I'll address in more detail shortly. The second is government regulation and paper burden, and the third-highest priority is government debt and deficit. Small business owners understand the importance of paying down debt, so we're very pleased that the federal deficit is on target to be eliminated in 2015.
As mentioned, the top issue of concern to small businesses is their total tax burden. With so many taxes, it's important to understand which have the biggest impact on the growth of a business. As you can see on slide 3, payroll taxes have, by far, the biggest impact. That's because it's a tax on jobs. It must be paid regardless of whether or not the business makes any profit. This is why the CFIB spends so much time trying to address issues related to federal payroll taxes, such as Employment Insurance and CPP/QPP, both of which have a significant impact on small business employers and their employees.
We recently polled our members on what would help them maintain or strengthen their business performance. As you can see on slide 4, lowering EI rates and freezing CPP or QPP premiums are the most effective in maintaining or strengthening business performance, along with reducing the small business tax rate. Small business owners across Canada were pleased when Minister Oliver introduced the small business job credit in September to address EI premiums, and they were also relieved last December when federal and provincial finance ministers decided not to move forward with increases to CPP.
We were very pleased with the introduction of the small business job credit as it will provide small business owners with a credit that will essentially lower their EI rates by 15 per cent over the next two years. As you can see on slide five 5, business owners told us they will use the credit to pay down debt, increase employee compensation and invest in new equipment. Another one in five will use it to invest in additional employee training, critical at a time when labour shortages are still a challenge for small business owners across the country.
However, one of the toughest aspects of EI for small business owners is that they pay 1.4 times the employee amount. The small business job credit provides a bit of a break for a couple of years. We would like to see this moved to a 50-50 split on an ongoing basis.
At one time employers and employees both paid 40 per cent and the government paid 20 per cent, but about 25 years ago the government stopped paying and moved their portion entirely to the employers alone. Given that almost 30 per cent of benefits are considered special benefits, such as parental, sickness and compassionate care leave for which employers have little or no say, there is certainly an argument to be made that perhaps EI should be more evenly split between employers and employees.
We believe 2017 would be an ideal time to lower the employer rate, as the account is scheduled to come back into balance and it won't cause employee rates to increase. In fact, employees would still experience a decrease in premiums at that time as well.
In conclusion, we are asking you, honourable senators, to implement the measures of Bill C-43 that support the small business job credit and consider implementing a 50-50 split in EI premiums between employers and employees as soon as the account reaches a break-even rate and comes back into balance. These recommendations are summarized on slide 7.
Thank you for this opportunity and I'm happy to answer any questions you might have in French or English.
The Deputy Chair: Thank you very much, Ms. Moreau. First up we have Senator Bellemare.
[Translation]
Senator Bellemare: Ms. Moreau, I am pleased to meet you as the representative of the Canadian Federation of Independent Business. I know that the federation has always believed that payroll taxes hurt job creation. With that in mind, I am personally not at all opposed to the government's measures. I think they may provide you with some relief.
I would like to hear your comments on the broader discussion of payroll taxes and the funding of social programs. As we see in your questionnaire, it is not just employment insurance that causes concern in the minds of businesses, the QPP, the CPP and all the social programs do too. I have thought about this matter a lot myself, when I was a university professor, when I was with the Employers' Council and when I was a consultant for other groups. As I see it, these payroll taxes are not really taxes; rather, they are remuneration for the employees. The logic that leads me to that thought is that all those programs — whether they provide protection for retirement, health or security insurance, or even unemployment insurance — saw the light of day as a result of private activities. Before the government became involved, employers provided their employees with protection that was considered as remuneration. The remuneration was not simply the hourly pay for the time worked; it also included the benefits that were once private. There are still companies that provide good pension schemes and top up employment insurance.
If we look at social programs as remuneration, we must, in my opinion, try to find mechanisms so that the remuneration, which is funded by both employees and employers, does not have a negative impact on small businesses. I understand your point of view; you are right to say that, since this funding is a fixed percentage up to a maximum amount, the effect is that small businesses pay a larger proportion of their labour costs for these programs than large companies. Large companies basically pay 5.5 per cent for the QPP and CPP. After the maximum, the contribution for the employees as a percentage of the payroll goes down.
It would be interesting for you to think about funding social programs, whether employment insurance or the Canada Pension Plan, in a little more progressive way, because, basically, they are insurance schemes. They have to be paid anyway, so we have to see them as part of the employees' compensation, as a protection for when they are not working.
So I invite you to consider a progressive contribution rate, increasing the maximum insurable and perhaps building in a small exemption for small and medium businesses. In my opinion, that would provide a way to fund social programs that would significantly encourage job creation without penalizing small and medium businesses at all.
If you ever want to talk about that with me some more, please give me a call and we can chat about it.
The Deputy Chair: Do you have a comment, Ms. Moreau?
Ms. Moreau: It is a very interesting idea. I have taken a lot of notes and I might well try out the idea on our members. That is what we do to sound out our members; we take ideas from various policies and we receive our mandate from them.
I have some comments about your suggestions. Basically, our members are supporting the social programs you describe. In the 1980s, when the CPP fund was not in good shape, our members voted to sustain it. However, there is a difference between paying into a surplus and sustaining. We are looking for the balance between providing the employees with these contributions and further damaging the spirit of entrepreneurship among small and medium businesses in Canada. As you very rightly say, this has an impact on the paperwork. Any payroll tax has a more detrimental impact on small businesses than on large companies, or even medium-sized ones, because they are often their own bosses. Sometimes, they act as their company's lawyer and accountant, as well as running it. It is interesting as an idea; what we are looking for is any opportunity to reduce payroll taxes while maintaining the programs.
[English]
The Deputy Chair: Maybe you could review that because some of us are not as close to the EI issue as you are, obviously. On your page 7 slide — implement a 50-50 split — you gave the history of how the split will change. Review, if you could, where it started and where it evolved to get to today's situation, just so we have those numbers one more time.
Ms. Moreau: My understanding is that in the early 1980s, the government sought to play a role in the employment insurance program. When they created the rate, employers paid 40 per cent and employees paid 40 per cent and the government paid 20 per cent. For reasons that are unknown to me but may be known to your colleagues who might be able to intervene, the government withdrew its role in sharing the cost. Instead of sharing the cost equally between employers and employees, which is how they do it with CPP, they dumped the 20 per cent onto employers. The math is from the CRA and the rate is established every year such that employers pay 1.4 times the amount employees pay. We support the creation of the small business job credit because the effect will be to reduce the payment to about 1.2 times what employees pay.
When small business owners do the payroll each month, they figure out the rate for employees and multiply it by 1.4, which is their portion of EI premiums to be paid. With the small business job credit, the procedure is the same but instead of 1.4, they'll multiply by 1.2. It effectively reduces their payment if they qualify for the credit, of course.
The Deputy Chair: If I understand correctly, you fully support the EI move in Bill C-43 but you would recommend a 50-50 split in terms of premiums; is that correct?
Ms. Moreau: Correct. This will bring the rate into balance around 2017 from the projections we've seen in the recent economic update. Of course, if the rate comes to break even sooner, we would like to see that happen sooner. As long as there is a surplus in the EI fund, we don't think it's fair that small businesses should be bearing the brunt. Essentially, the introduction of the credit has given small business owners a small head start so they feel like the reduction will start next year, not in 2017.
[Translation]
Senator Bellemare: Ms. Moreau, a dozen or so years ago, the chief actuary consulted employers' associations and unions while establishing the annual rate for employment insurance. At that time, I participated in those discussions, which took place annually, on the employers' side. At some stage, that way of doing things ended, when the account was in deficit. At the moment, do employers and employees have a voice in discussing the contribution rate? There used to be discussions, but, at some stage, they stopped. We were promised that they would start again. Did they?
Ms. Moreau: Not to my knowledge. I will check with our chief economist, but I imagine that those are the kinds of issues for which information has to be shared. Twice a year, we used to look forward to the data from the Finance Committee, from the finance department and from the chief actuary that would tell us the rates. I would say no, to my knowledge.
The Deputy Chair: Ms. Moreau, thank you for your information and explanations.
(The committee adjourned.)