Bonjour et merci to the committee for the opportunity to appear before you today.
Here with me today is the chair of our emerging companies advisory board at BIOTECanada, Dr. Paul Wotton, who is the CEO and president of Topigen Pharmaceuticals, located here in Montreal.
This is our third presentation to this committee in recent years, and we appreciate the attention and support that you have offered our recommendations in the past. In particular, we appreciate the leadership this committee has offered in terms of LLC recognition and the scientific research and experimental development, or SR and ED, representations.
Biotech now comprises one-third of the global economy. That's according to Dr. Gurinder Shahi, from the University of Southern California. It initially kind of caught us a off guard, but we thought about it a bit, and taking a look at the breadth of the technology, we've come to realize that in fact this is the reality that technology is bringing to the world.
The biotech industry is the 21st century catalyst for a breadth of all our industries. For example, in the auto industry, we're now seeing soybean oil used to make car seat foams and plastics for bumpers. The forestry industry is finding new technologies to improve their environmental footprint and actually make new products such as nutraceuticals. In health care, we hear of new vaccines and new treatments for debilitating diseases, but also new diagnostics; in food processing, healthier foods with omega-3s and alternatives to things such as trans fats; and in the energy sector, renewable supplies for energy. Biotech is a driving force in modernizing our traditional industry and allowing them to grow their ability to be competitive.
As a country, Canada has long been regarded as an early innovator in leading biotech research and capacity. What we see today is every country in the world racing to catch up and exceed what we have built. Nations that a few short years ago were deemed to be developing economies have launched into capturing the potential of biotech. China has 200 government programs comparable to those of our CIHR and Genome Canada, employing 20,000 researchers. Malaysia has created a research tax incentive program offering 100% tax exemption for 10 years. South Korea has launched a $60 billion investment into its R and D infrastructure.
We cannot afford to be complacent about our ability to compete and win attention. This is why we've focused on modernizing and improving our competitiveness with the SR and ED program.
We are a research-intensive industry. Our biotech industry contributes more than 12% of the entire Canadian business expenditures in research and development. Other countries want this activity. In fact, more than 30 other nations have created research-based investment incentives within their tax regimes. Our Canadian government needs to signal to the world that it means business when it states that it wants to make our economy more globally competitive. Simply put, let's align our incentives with our objectives.
We're recommending two changes on the SR and ED tax credit program: one, remove the Canadian-controlled private corporation, or CCPC, restrictions; and two, increase the expenditure limits that were set in 1985 at $2 million, raising them to $10 million.
Let me explain in a little more detail.
Today the CCPC restriction for refundability is counter-productive to the original goals of the SR and ED program to build capacity here. Our life sciences industry forecast earlier this year highlighted that more than 40% of our companies are looking to secure more than $20 million in their next round of financing. Canada's capital market is simply too small and too risk-averse to provide this assistance directly, so our companies look for other forms of financing such as going public or getting foreign investors. As a result of that, they lose their CCPC status and their refundable credits. So the irony is, just when they get the capital they need to succeed, they lose the business case to keep the jobs here in Canada.
Our second recommendation focuses on the expenditure limit. As I said earlier, this $2 million expenditure limit for refundable credits was established in 1985. It does not accurately reflect the cost of research today, 20 years later. We're recommending that this be raised to reflect inflation and other costs of research, to $10 million.
In summary, a tax system that is entrenched in 1980s economic models is not what Canada can offer the world. We can do better. We must do better.
Thank you.