Finance Committee on Nov. 28th, 2007

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you very much.

Thank you, Mr. Chair.

[The Chair, Conservative, Rob Merrifield]

Mr. Mulcair, you have five minutes.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you, Mr. Chair.

My first question is for Mr. Powell. At the bottom of the first page of his document, in the next-to-last paragraph, he says this:

Too often, tax policy and regulation freeze industry in patterns reflecting yesterday's economy, inhibiting investment and innovation that greater competition would unleash. Whether through complacency or short-term vision, government policy still inhibits capital investment and Canadian companies too often seem slower to invest in their foreign competitors.

Could Mr. Powell give us examples of what he is referring to here?

[David Powell]

Yes. Thank you for asking the question.

An example is having policies that apply across the country. We frequently come up against trade barriers between provinces. A federal-provincial committee has been working to design measures for consumers. In all those years, Canadian governments, provincial and federal, have not managed to come up with a single definition.

In these conditions, an entrepreneur wanting to do business across the country has to deal with varying requirements and contracts. This means higher prices, which inevitably have to be passed on to the consumer; otherwise, our members have no reason to be in business. In our document, we are asking that, as a priority, the federal government act as a catalyst to start a debate across the country on productivity and the need to find more intelligent and productive ways of working.

[Thomas Mulcair, NDP, Outremont, QC]

With the rise in our dollar, the strength of the oil industry is causing an imbalance. Since the Second World War, for sixty years, the Canadian manufacturing sector has grown and provided well-paid jobs. Now it is shrinking because it is caught in a vicious circle.

The Conservative government prides itself on providing tax cuts for business, but an operation in manufacturing, in forestry or in agriculture that is making no profits because of the strength of the dollar gets no benefit from the tax cuts. At the same time, the oil industry is getting the reductions too while generating huge profits, which in itself hastens the destabilization in our economy.

If I understand you correctly, you think that the government would be wrong to design fiscal policies specifically to help manufacturing and forestry which are now in crisis because of the strength of the dollar. You share a little of the Conservative government's vision in that you want to apply the rules to everyone and tell yourself that a free market is going to magically produce solutions for everything.

But we think that the government must be proactive instead. Do you not think that manufacturing and forestry need help and that they could benefit from a targeted government initiative? Or do you think that that would be "freezing industry in patterns reflecting yesterday's economy"?

[David Powell]

I'll answer you in English, just to be more precise.

One element we've come to believe is that a competitive marketplace is a very important component in terms of inciting companies to become more efficient and more productive. Take a sector like the automotive sector. The automotive sector goes through serious challenges--it's going through a serious challenge right now--but the fact that Canada, that Ontario, produces 20% of the automobiles in North America is due to the fact that the industry and its workers, the unions, have seized on an ability to become more productive. They've become more skilled. As skilled labour, they're supporting much higher salaries.

Our argument is that one challenge Canada faces is that we don't have a competitive enough marketplace to incite Canadian companies to become more efficient and productive. If you look at the study just produced two weeks ago by Statistics Canada, it talks about foreign-owned companies operating in Canada. What do you see? You see this:

The plants of foreign-controlled firms are generally larger, have a higher labour productivity, pay more per worker, and have a higher percentage of their employment in white-collar workers...than are domestic-controlled firms. ... A comparison of the extent and impact of innovation activity of domestic- and foreign-controlled firms shows that foreign-controlled firms innovate in all sectors more frequently than do Canadian-owned companies in almost all size categories.

I put that down to the competitive pressures.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

That ends the question and answer part of our meeting.

I would ask the witnesses—I'm going to inform the committee that normally we break as we bring another panel of witnesses, but we're not going to do that—to retreat from the table. I thank you for your testimony.

We will bring the other panellists forward. We will start immediately with our first panellist, because our time is very tight. We have votes that will interrupt the committee's normal flow.

Just to let you know, Mr. Crête, we will be dealing with the motion right after we're done with the panellists and the questioning.

We have, from the Canadian Association of Fire Chiefs, Rick Larabie, fire chief of the Ottawa region.

The floor is yours for five minutes. Thank you very much.

[Rick Larabie, Fire Chief, Ottawa Region, Canadian Association of Fire Chiefs]

Thank you, Mr. Chair.

My name is Rick Larabie, and I'm the fire chief here in Ottawa. I am with you today, however, in my capacity as a member of the National Government Relations Committee of the Canadian Association of Fire Chiefs. On behalf of the association and the almost 1,000 fire chiefs who comprise our membership, thank you for providing this opportunity to present our pre-budget views.

Underlying this brief is our thesis that a prosperous society needs more than just financial security. The fire services regard safety as an inalienable right of all Canadians and a key to national prosperity. An overwhelming 97.7% of our survey respondents said that the federal government has a significant role to play in ensuring that all Canadians receive a basic level of protection against fire and other perils.

The previous standing committee posed three specific questions on various aspects of the federal tax system. Our responses to the committee's questions numbers one and three provide recommendations as to how the taxation system can be used as a tool to improve the safety of Canadians and thus enhance the prosperity. Corporate taxation is not a fire service issue. Therefore, this brief did not address question number two.

The committee's first question was whether changes made to taxes, fees, and other charges should be broadly based or targeted. From our perspective, the safety of citizens and of the fire services personnel who protect them can best be addressed through targeted approaches. We then go on to describe how the tax system can be used to encourage the installation of automatic sprinkler systems in existing non-residential buildings and existing residential high-rise buildings. The tax system can also be used to provide the owners of low-rise residential structures with a tax incentive to install such systems in these buildings.

The third question deals with issues surrounding the personal income tax system. Our major recommendation in this regard is that volunteer firefighters and their officers should be entitled to a personal income tax credit. Of the 3,492 fire departments in Canada, 3,184--which is about 91%--are volunteer departments. Of the firefighting personnel in Canada, 84,314--that's 78%--are volunteers. The volunteer component is facing severe problems relating to recruiting and retaining the personnel required to protect the citizens of their communities.

Without measures to encourage volunteers, municipalities will face either diminished protection or increased taxation, neither of which will enhance their prosperity. Previous versions of this committee have shown themselves to be in favour of additional financial recognition for the work performed by the volunteer fire service.

In its report tabled in the House last December during the previous session of Parliament, the standing committee wrote the following:

The Committee believes that volunteers--and the hours of service they give--are important to the fabric of our nation. In some cases, such as emergency service workers, they provide essential services that otherwise would not be performed, or that would be performed by municipalities and funded by higher tax rates. Volunteer service is, in our view, an activity that deserves recognition.

In the previous Parliament, when the standing committee decided to kill Bill C-273, it said:

Whereas the Committee is generally supportive of the intent of Bill C-273 and feels that those who provide volunteer emergency services should be recognized by the federal government through the tax system, there are unresolved questions.

Therefore, the Canadian Association of Fire Chiefs again recommends that a personal income tax credit be made available to volunteer fire services personnel.

We have provided the standing committee and the finance minister with comprehensive documentation on this issue, and we find it difficult to understand the government's continued intransigence. A major problem facing volunteer fire departments is the hardship experienced by employers, especially those in smaller and family-owned firms, when their employees respond to calls. Accordingly, we have recommended a tax credit for the employers of volunteer firefighters in recognition of the business losses these employers face.

Your kind attention to our concerns is deeply appreciated.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move on to the Canadian Urban Transit Association, and Bernard D'Amours.

[Bernard D'Amours, Director, Public Affairs, Canadian Urban Transit Association]

Thank you, Mr. Chairman.

A solid urban transportation network is vitally important for quality of life, for economic development and for a healthy environment, all of which are of great concern to Canadians.

More and more Canadians are recognizing that an investment in a safe and efficient public transportation system means an investment in our economy and our future prosperity.

Highlights of a 2006 Ipsos Reid poll conducted for CUTA are contained in our written submission, which you may wish to review at a later time. However, I will point out now that according to the results, it is evident that many Canadians are concerned that governments are not striking the right balance to meet their communities' transit infrastructure needs.

It is clear that you as a committee have selected several questions related to the balance of taxation and support of various types of public good provided by countries. CUTA would like to directly address this area of study as it relates to public transit.

It is worth noting that Canada is the only G8 country without a federal policy for predictable, long-term transit investment. This situation prevents Canadian transit systems from achieving their full potential, and it must be addressed.

As finance committee members, you are no doubt aware that a new national transit strategy has been proposed by the Big City Mayors Caucus of the Federation of Canadian Municipalities. Together with FCM, CUTA is urging its implementation by the federal government. Implementing a strategy such as this will be beneficial to all Canadians. It will provide an opportunity to maintain, renew, and expand transit services across Canada; it will provide federal tax incentives for individuals who choose transit; and it will ensure that transit operations are more effective and efficient, among other things.

I cannot reiterate enough just how urgently new investment is needed. Canadian transit ridership grew by more than 10% in the first half of this decade. Many transit systems are serving more riders than ever, while also facing the need to rehabilitate and replace aging infrastructure. Communities nationwide are counting on revitalizing expanded transit systems to help tackle major challenges such as climate change, air pollution, escalating congestion, and the needs of a growing and aging population.

The public transit industry is supportive of federal programs that fund local infrastructure, such as the gas tax fund, and the building Canada fund; however, more investment is needed.

Initiatives like the recently-passed public transit fund and the public transit capital trust provide valuable assistance, but they do not guarantee long-term financial certainty.

Canada's transit systems need stronger leadership from the federal government in order to build an effective long-term transit plan.

In order to entice more and more Canadians to use public transit, it is important to offer more incentives for transit users. Through policy and taxation the federal government can provide incentives that make transit a more attractive choice for Canadians. CUTA supports the new personal income tax credit for transit passes, but much more can be done.

One example that CUTA and its partners, including FCM, have pursued for more than a decade is tax-exempt status for employer-provided transit benefits. In Canada, public transit accounts for approximately 11% of work-related travel. CUTA is again calling on the government to support tax law changes to allow this initiative as a non-taxable benefit.

On behalf of CUTA's members, I would like to thank the committee for today's opportunity.

[The Chair, Conservative, Rob Merrifield]

Thank you very much for being on time, and for your presentation.

Next we have Richard Monk from the Certified Management Accountants of Canada.

[Richard Monk, Chair, Certified Management Accountants of Canada]

Good afternoon, Mr. Chairman, distinguished committee members, and fellow presenters.

I am pleased to be here with you today to represent Certified Management Accountants of Canada. CMA Canada is pleased that the committee is considering how to design a tax system that would ensure the prosperity and productivity of individual Canadians and businesses. We have followed your lead. Our submission makes six recommendations focusing on improving Canada’s productivity record, because we believe productivity growth is paramount to improving the living standards of Canadians.

If we're going to ensure that Canadians are in the top rank of living standards globally and that we have the necessary resources available to invest in areas that improve our quality of life, Canada's productivity performance must be improved. Therefore we focus on the three key drivers of productivity--namely, people, physical capital, and innovation.

Education and training play an essential role in driving productivity. We believe that measures need to be taken both at the highest level of education and at the most basic level.

With regard to post-secondary education, we would like to see the government build on its budget 2007 initiative for promoting Canada as a destination of choice for top scholars from around the world. We ask you to consider the idea of a Canadian brand of scholarship program aimed specifically at attracting to Canada the best and the brightest students in the world. Yes, we already participate in the Canada-U.S. Fulbright program, but why not launch a fully Canadian brand of international student scholarship? And once they are here, let's make it easier to encourage gifted foreign students to stay in Canada after they graduate.

Having regard to training, the most basic literacy skills are essential to Canadians' standard of living. Poor literacy skills act as a drag on productivity growth. We would like to see the federal government examine a wide range of policy instruments that promote the acquisition of basic literacy and numeracy skills. This could range from investing directly in such programs, to using the tax system to introduce a tax system change for employers that would provide a credit for approved training expenditures.

Research demonstrates that there is a close link between investing in information and communications technology, or ICT, and increased productivity. Budget 2007 introduced a positive measure with the accelerated capital cost allowance on machinery and equipment acquired by businesses and manufacturing and processing. We would like to see the government build on this initiative by introducing a dedicated ICT adoption tax credit targeted specifically at small and medium-sized enterprises. Such businesses can become Canada's next international success story. An ICT adoption tax credit was recommended by the telecommunications policy review panel, and we believe it has great merit.

In addition, the government said in budget 2007 that it is committed to moving forward with the five provinces that have not yet harmonized their sales tax regimes with the GST. We strongly support this initiative and look forward to learning the steps that the government will be taking to encourage this to happen.

We think of the third key driver of productivity, innovation, in pretty simple terms. It really means doing things smarter. Innovation is reinforced by investing in human and physical capital as well as by encouraging competitive markets and protecting intellectual property rights.

Another key public policy measure to encourage innovation is the scientific research and experimental development tax credit. The SR and ED program is well known in the business community. While this program is generally recognized as being generous, Canada continues to underperform in business research and development.

One change to the program that we think would encourage greater investment in R and D by our business community is to extend the refundability provisions currently available only to the smaller businesses to claimants of all sizes. An alternative is to permit larger claimants to offset the tax credit against other government levies, such as the EI premium. The objective is to have our larger companies, with significant resources, make better use of the program, and thereby help drive greater innovation in Canada.

Our second proposal is to boost innovation to combat the counterfeiting and piracy of intellectual property. Your colleagues on the public safety committee and the industry committee made several excellent recommendations earlier this year to protect holders of IP rights. I am pleased that the government has replied favourably to these two committees. We believe an important contribution to this work could be made if you were to recommend that adequate resources be made available to those departments and agencies that are on the front lines of the fight against IP piracy.

Mr. Chairman, we thank you and your colleagues for your interest, and look forward to responding to any questions you might have.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move on to the Direct Sellers Association of Canada, Ross Creber, president.

The floor is yours for five minutes.

[Ross Creber, President, Direct Sellers Association of Canada]

Thank you, Mr. Chairman.

Mr. Chairman, honourable members, on behalf of the fifty member companies of the Direct Sellers Association and 600,000 independent sales contractors or direct sellers across Canada, I want to thank you for the opportunity to participate in this consultation.

Direct selling companies and the independent sales contractors market a wide variety of products and services directly to the consumer, usually in the consumers' homes rather than in traditional retail establishments. The industry's combined labour force earns an estimated $966 million in income, of which $772 million was paid for in bonuses and commissions to these independent direct sellers, based on retail sales of $1.96 billion.

The DSA applauds the federal government for the further reduction of the GST as an important step in getting money back into the pockets of Canadians. We also applaud the personal and business income tax reductions announced in the finance minister's October economic statement. These reductions are necessary to promote economic growth, job creation, and international competitiveness.

The direct selling industry is a vital part of the small business sector in Canada, investing in entrepreneurial and human capital. The direct selling industry has a tremendous capacity to create jobs and to promote entrepreneurial activity amongst Canadians. We also provide accessible business opportunities with little or no investment, usually less than about $500, that is open to all Canadians, without restriction with respect to gender, age, education, knowledge, or previous experience. This business opportunity is accessible to all men and women everywhere in Canada, whether they live in urban, suburban, or rural communities.

While the DSA applauds the government for its reduction in the GST rate, there is one GST-related issue that we believe needs to be addressed--namely, the discrimination that currently exists with the goods and services direct sellers mechanism.

The direct sellers mechanism is based on pre-collection by the direct selling companies of GST or HST on the suggested retail price. It removes a considerable burden from both the independent sales contractors and the Canadian Revenue Agency. Without the direct selling mechanism, independent sales contractors would have to be GST-registered and collect and remit the tax to CRA. The direct sellers mechanism eliminates that step, resulting in administrative efficiencies and a cashflow advantage to the government, with no underground economy with respect to the goods and services tax in the direct selling industry.

While the GST direct sellers mechanism is operating in a positive fashion, it discriminates against the 20% to 25% of the industry operating as independent sales agents, who are currently excluded from the mechanism.

I want to emphasize to the committee that this amendment would be revenue-neutral. The government would continue to receive “tax at the max” with no risk, and there would be no cost to the federal government.

The DSA has had positive discussions with the Department of Finance and the Minister of Finance's office in order to find a straightforward technical amendment so that the direct sellers mechanism applies throughout the industry without discrimination. We believe all parties are in agreement on how to correct this shortcoming, and of course, Mr. Chairman, we would greatly welcome an endorsement by this committee that the government should proceed with this amendment.

Mr. Chairman, the Direct Sellers Association and its member companies appreciate the opportunity to participate in the pre-budget consultation process. As always, we are prepared to provide our support to the government to help it achieve its goals.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll move back up the list to the Canadian Real Estate Association. Pierre Beauchamp has now joined us at the table.

The floor is yours, for five minutes.

[Pierre Beauchamp, Chief Executive Officer, Canadian Real Estate Association]

Thank you, Mr. Chairman.

On behalf of the 95,000 members of our association who are realtors in this country, I wish to thank you for allowing us to present before your committee today.

Our members, Mr. Chairman, are small business people who are involved in their community and contribute to both the life and the economy of that community. Our association also owns, as many of you would know, the familiar MLS and Realtor trademarks. These are marks that are used by our members and indicate their strict adherence to our code of ethics.

In our pre-budget submission document already submitted to you, we list several specific recommendations that have tremendous economic and social benefit. These include establishing a comprehensive federal housing strategy, raising the borrowing limit for individuals under the home buyers' plan, allowing deferral of capital gains tax and recaptured capital costs for real property investments, and action to address what can only be described as an aboriginal housing crisis.

Mr. Chairman, we believe Canada can never fully achieve its economic potential unless its citizens have access to suitable housing. The way to do that is with the development of a federal housing strategy. A federal strategy would tie all existing and new initiatives together, and emphasize that housing and shelter are national priorities that are beyond any jurisdictional debate.

That federal housing strategy should outline the government's plan to combat homelessness, provide assistance to those in housing need, maintain national housing standards, and promote home ownership as the preferred option for most Canadians.

Any federal housing strategy should also include support for the national homebuyers plan. It is a true government policy success story that combines savings for a home with savings for retirement. We're asking that the borrowing limits under the plan be raised for the first time in 15 years, just to cover the rate of inflation.

A federal housing strategy would also spell out how the government's proposed first nations market housing fund can help to ease the aboriginal housing crisis.

Mr. Chairman, I'd like to also highlight a specific tax policy recommendation that would improve the prosperity and productivity of both citizens and businesses. This is our proposal for the rollover of capital gains tax to encourage reinvestment in Canadian communities.

We are talking about investments by ordinary Canadians. These are our neighbours. They are people who invest in duplexes, other types of rental housing, and small commercial properties. From time to time, some would like to sell and reinvest either in another community or in a different type of property, but they are not selling because they're trying to avoid the tax penalty known as the “lock-in” effect.

Our proposal would make the federal government an active and effective partner in the regeneration and intensification of urban neighbourhoods. It would help generate more affordable rental housing. It would not be limited to housing rentals, but would apply to all small-scale investments generating both social and economic benefits.

Some think that capital gains tax deferrals only benefit the wealthy.

Research prepared for our association has produced some interesting evidence showing that, in fact, the opposite is true. For example, recent data obtained from Statistics Canada shows that in 2005, two-thirds of all taxpayers reporting real property gains had an annual net income of $50,000 or less. These are the small-scale middle-class investors at the centre of our proposal.

Mr. Chairman, the capital gains tax deferral issue also remains an unfulfilled campaign promise. Canadians know that complex files such as these require careful analysis, consideration, and, most importantly, the clear support of all parties, particularly in the context of a minority Parliament. We urge you to recommend that it be a priority item for next year's federal budget.

Thank you very much, Mr. Chairman.

[The Chair, Conservative, Rob Merrifield]

Thank you for your testimony.

We'll now move on to the Heart and Stroke Foundation of Canada, and Sally Brown.

Sally, you used to be a regular at the health committee. Are you lost...?

[Voices]

Oh, oh!

[Sally Brown, Chief Executive Officer, Heart and Stroke Foundation of Canada]

I thought maybe you were lost, Mr. Chair.

[The Chair, Conservative, Rob Merrifield]

Maybe we're both lost.

All right, you have five minutes.

[Sally Brown]

The Heart and Stroke Foundation is one of Canada's leading health charities, investing some $60 million a year in peer-reviewed health research and stroke research and actively engaging in every community to promote healthy living. It is a proud lead partner in the development of the heart health strategy and action plan for Canada, at the request of Minister Clement.

You have our brief, and I'll be much briefer today. I will begin with how we believe the federal government can help address obesity through tax policy and targeted infrastructure investments. I will finish with our recommendation on how it can better support donor investments in health research.

Mr. Chair, you know from your former leadership of the health committee how serious, daunting, and potentially expensive the obesity epidemic will be if we don't seriously begin to address it now. The mechanisms we're suggesting in our brief for the federal government to help address this epidemic are not new: tax policy and targeted infrastructure funds.

In terms of tax policy, the federal government has used this mechanism effectively to promote health in the past. Perhaps most notable has been its use to disincent and reduce smoking in Canada. The government's recent introduction of the children's fitness tax credit is another example. So too is the tax deduction for the purchase of public transit passes. In terms of infrastructure funds, this has been a popular tool by several federal governments to incent provincial and municipal investments where gaps have been identified and needs have to be dealt with.

We are asking the federal government to once again use tax policies and infrastructure investments to enhance health. Let me be a bit more specific. For the overweight and obese, which includes some 60% of us, tax policy provides an incentive to support needed behavioural change. Research has demonstrated that foods that are health-promoting are considerably more expensive than low-nutrient, energy-dense foods. As one step, we would suggest that the government revisit the current application of the GST on foods to ensure that it is applied in a manner that facilitates healthy eating. While overall GST reductions are helpful, more selective reductions will have a greater health impact.

Improving access to physical activities, such as equipment, can help encourage Canadians to engage in physical activity more. Tax policy can provide an economic incentive for consumers to make the healthier choice. It's particularly relevant to Canadians of lower socio-economic status, where affordability is more of a barrier. To that end we recommend that the government improve the children's fitness tax credit for children and youth in the various ways that we have outlined in our brief, and that it remove the GST from products that promote physical activity, such as exercise equipment, bikes, skates, hockey gear, and other sports equipment.

Another important measure of addressing obesity is to create a dedicated infrastructure fund that can facilitate physical activity. Numerous studies have found a relationship between the design of our communities and obesity levels. Specifically, these studies have demonstrated that individuals living in communities that are more walkable, more easy to cycle in, are more likely to reach recommended levels of physical activity, and thus are more likely to be at a healthy weight.

The federal government has a role to play in facilitating the development of this type of health-promoting infrastructure, such as sidewalks, bike lanes, parks, and recreation centres. We thus urge the federal government, following along the report of the Standing Committee on Health on healthy weights for healthy kids, to dedicate a specific percentage of existing infrastructure funds--not new funds, existing infrastructure funds--towards the development of infrastructure that promotes physical activity. Our brief outlines those funds that could be targeted.

Tax policies and infrastructure are obviously not the only ways in which we can address obesity, but they are important when combined with other measures.

Finally, let me turn to how the federal government can better support donor investments in health research. About five years ago, the federal government recognized its responsibility to fund the indirect as well as the direct costs of research. The federal government's indirect costs of research program was the new mechanism chosen to meet this responsibility and fill this need. However, this program does not cover health charity funded research, even though by health charities' investing to the tune of some $200 million a year we are meeting a need and filling a gap that the federal government would otherwise need to fill. This is counterproductive to the program.

I should add, Mr. Chair, that I'm not here to ask for that money for the health charities. I'm here to ask that the money be given to the 13 Canadian universities and their affiliated teaching hospitals to which 80% to 90% of our money goes.

Canadian donors cannot be expected to pay these costs. They already contribute to university overheads through their taxes. This is a government role. Currently the program means that charities are at risk of being double taxed.

Thank you, Mr. Chair, for this opportunity.

[The Chair, Conservative, Rob Merrifield]

Thank you.

We'll now move on to the National Aboriginal Achievement Foundation, and Roberta Jamieson, president and CEO.

Go ahead, for five minutes.

[Chief Roberta Jamieson, President and Chief Executive Officer, National Aboriginal Achievement Foundation]

Good afternoon.

Greetings to you, Mr. Chair, to all members of the committee, and, through you, to the people of Canada you represent.

I'm here to talk about Canada's future--specifically, that the investment of federal resources to realize the potential of first nations, Inuit, and Métis youth is essential if Canada is to have a prosperous future.

Currently, aboriginal youth are noted for two things: the fastest-growing demographic in the country and the most poorly educated in Canada. The unacceptable gap between high potential and low achievement will not close by itself. Indeed, it will widen and be passed on to the next generation and will be a costly burden for Canada to bear financially, socially, and politically.

According to research done by the Centre for the Study of Living Standards and announced just last week, if we could close the gap between the education of aboriginal children and youth as compared to the Canadian population as a whole, $71 billion would be added to Canada's gross domestic product over the next 10 years. Then, every year after, the increase would be $8.3 billion. Far-reaching economic and social benefits would result, infused into the Canadian economy, and enjoyed by all Canadians.

In this context, the cost of providing aboriginal youth with access to better educational opportunities is a handsome investment in the very near future and one that will reap benefits for generations to come.

There's another important dividend, and that's alleviating the challenge of labour shortage that reduces economic activity. Many thousands of aboriginal children entered kindergarten this year. If these children, and those who follow, are able to have the same educational outcome as other Canadian children, Canada's GDP will increase $21 billion when these children enter the labour market. First nations, Inuit, and Métis could be 7% of Canada's labour force if the gap is closed. Remember that aboriginal people will account for nearly 30% of Canada's annual natural population increase between 2001 and 2017. If we do nothing for these children, the gap will surely widen.

For example, aboriginal individuals 15 and over with degrees increased over the period between 1996 and 2001 from 7.9% to 8.9%. Over the same period, non-aboriginal Canadians with degrees went from 20% to 21.8%. While more aboriginal youth were completing university, the gap between the two groups was widening.

Closing the gap is too complex for the federal government to do alone. I understand that. The federal government is a key leader, but we also need the strong commitment of provincial and territorial governments, aboriginal communities, organizations, professional associations, the private sector, unions, and employers. The National Aboriginal Achievement Foundation provides an essential factor in that equation, indeed the ideal mechanism to apply to the interrelated objectives of ensuring that every first nations, Métis, and Inuit young person is motivated and confident to realize their potential, and that each one who wants to advance is not denied the opportunity for lack of funds.

The foundation already provides more scholarship funding to aboriginal youth than any other agency in Canada outside the federal government, at about $3 million annually, but we can and must do more.

And we get results. We measure the impact of everything we do. We have a monitoring and tracking system, with the best database in the country on aboriginal post-secondary students. Our results demonstrate we are making a meaningful difference, so far providing to 7,000 recipients more than $27 million in financial assistance.

We are a registered charity with an eminent and professional board, and we are publicly accountable.

We receive money from corporate donors, aboriginal and other organizations; from the federal, provincial, and territorial governments; and from individuals. And we can and do leverage the contributions of one to achieve matching contributions from others.

We consider ourselves much more than another competitor for the federal dollar. Having demonstrated that we improve the return on investment in education of first nations, Inuit, and Métis youth, in closing we ask that this House committee on finance recommend that the government use the foundation's capabilities to convert problems into solutions for post-secondary education and training for aboriginal youth to help meet Canada's labour needs.

Finally, we ask the committee to recommend to the Minister of Finance and to Parliament that the foundation be utilized by the Government of Canada as a means of assuring that every aboriginal student who is accepted for post-secondary studies has the means to realize their dream.

I'd like to say thank you very much for the opportunity to present a written submission, which you all have, and to speak here today.

Nia:wen kowa.

[The Chair, Conservative, Rob Merrifield]

Thank you very much for coming and presenting.

We now will move on to our last presenter, from Philanthropic Foundations Canada, Hilary Pearson, president.

The floor is yours for five minutes.

[Hilary Pearson, President, Philanthropic Foundations Canada]

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.