Thank you, Mr. Chair.
I'm conscious of the fact that as last witness, I'd better get a move on. I'm sure you want to ask some questions, so I'll be fast.
Thank you for your invitation to comment on the tax measures that ensure the prosperity and productivity of residents and businesses in Canada.
Our submission addresses your first question: What criteria do you believe guides federal decisions about the changes that should be made to taxes, and about whether they should be broadly based or targeted to a specific group of residents or sectors?
The volunteer sector in which we work contributes significantly to our economy. In fact, it represents almost 8% of our GNP and employs more than 1.5 million people. The specific mission of our association is to foster a social and regulatory environment that encourages philanthropic participation, and to assist Canadian communities in realizing their full potential.
We believe that philanthropy illustrates the benefit of using targeted tax measures. Our first recommendation to you is to continue to expand the use of such targeted tax incentives to promote individual giving to Canadian charities.
An important criterion for employing targeted tax measures is in those circumstances where there is an identifiable link between the tax measure and the resulting individual actions that would not have been undertaken otherwise. An excellent example is provided by the donor response to the new tax incentives for gifting of assets to charities. We want to thank this committee, and the government, for endorsing the elimination of the capital gains tax on gifts to foundations and charities. This is a cost-effective and targeted way of increasing individual giving to our communities, giving that would not have occurred as much or as quickly without it.
We believe the government could introduce further targeted incentives, as done by governments in other jurisdictions such as the United Kingdom and the U.S., to provide indirect flows of private capital to the sector, in addition to direct flows though grants and contributions. Therefore, our second recommendation is to encourage the government to launch an examination of targeted tax measures to increase the flow of investment capital from private sources to the charitable sector.
A comprehensive examination of how to promote greater indirect flows of finance to small organizations operating in the non-profit sector is long overdue. We think it would be very valuable to conduct an external review of instruments in use in other sectors and jurisdictions to support such investment. Such instruments would include tax credits, dedicated lending instruments, and intermediary organizations to support the capital needs of charities.
One of the most important challenges to productivity that is faced by the Canadian non-profit sector is limited access by organizations to investment capital. Charities need debt finance and investment capital to finance their facilities, to bridge finance the acquisition of equipment, and to invest in soft capital such as business plans. That capital simply isn't there.
The federal government could help to bridge this gap and increase non-profit productivity by reviewing its tax incentives and the regulatory framework that enables and encourages the creation of community finance instruments. Grants and gifts alone cannot provide sufficient funding, particularly as we look into the future and see an increasing need for social and labour market services for an aging and declining population, a smaller group of contributing taxpayers, and new inflows of immigrants who need integration into the shrinking workforce. We urge the government to proactively initiate measures that will increase capital investment in the non-profit sector.
In other countries, government policy has evolved to support this goal. I want to offer examples from the United Kingdom in particular, which offers an integrated framework of government policies to support community sector financing through increased private sector flows, not government flows. In 2000, the U.K. government did what our government did this past year; it enhanced tax incentives for individual donors by eliminating capital gains tax on donations of assets. They went further, in 2002, by introducing a tax credit for individuals investing in community development finance institutions. These institutions provide financing to businesses operating in disadvantaged areas, or to groups that are disadvantaged in the labour market and that want to establish businesses.
Access to capital and banking services for charities has been facilitated by the government through the Financial Services and Markets Act. Since 2002, U.K. charities have been able to access loans through a charity bank and mezzanine financing program through Venturesome.This is a social investment initiative that provides risk capital and advice to small and medium-sized charities. Both of these structures are supported by grants from charitable foundations, as well as by individual donors. In addition, charities can use a dedicated banking facility to create deposit accounts and access banking services.
Finally, in 2004, the U.K. created a government-backed independent fund called Futurebuilders, to offer access to loan capital for non-profit organizations delivering public services on behalf of government. Most organizations have never borrowed before, so Futurebuilders provides support to ensure that investees have the right financial, managerial, and governance structures to take on a loan and successfully compete for contracts in the public sector.
All of these measures, and others, have been introduced in the U.K. as part of a comprehensive government effort to unleash new sources of private and institutional investment in charities. The U.K. example illustrates what is possible when government and the community work together.
In conclusion, as a priority, we urge the committee to recommend an external review to enhance the flow of private capital to communities and complement the very welcome new tax incentives for individual giving introduced by the government in the past two budgets.
Merci beaucoup. Thank you.