Finance Committee on Oct. 22nd, 2009

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Is there an advertising component that is not--

[Lise Lareau]

Yes, there is an advertising component.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

That's what makes up the...?

[Lise Lareau]

That's what makes up the difference. That's what has enabled the CBC to run. But it's also, at the same time, a double-edged sword to have advertising. It makes it more commercial. It makes ratings the imperative. It creates a different landscape of choices when you start relying on advertising.

That isn't what the public broadcaster is here to be.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you.

[The Chair, Conservative, James Rajotte]

We'll go now to Mr. Dechert, please.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Thank you, Mr. Chair.

Thank you for your presentations. We really do appreciate your taking the time to make these very instructive presentations and provide us with your views and comments.

I'd like to start with Mr. Irwin of GrowthWorks Capital.

Having previously been in the business of helping companies obtain venture capital and other forms of capital to commercialize their technology, I know how difficult it can be, especially in Canada. I'm sure part of it, as you pointed out, is that our resource funding market is so large here, and that a lot of our institutional and other capital goes there.

I take your point about the maximum investment for RVCs not having been increased since 1985. First of all, can you give us some comments on perhaps some successful RVC investments that have happened in Canada over the last few years, so that we get a sense of how important this is to Canadian businesses?

Secondly, what is your view on the appetite for these kinds of investments in the current marketplace, given what's gone on in the markets in the last year or so?

Thirdly, what is the U.S. government doing to encourage and enhance venture capital investments? You mentioned that the venture capital market per capita is so much larger in the U.S. Maybe you could give us a sense of what, if anything, the U.S. government is doing to encourage it.

[Daniel Levi]

Let me start off with a brief example that you will all know well. The current war that you see between the cable companies and the telephone companies is because cable is capable of putting telephones over cable systems. You are all aware of that. The technology that allows them to do that was created by a company in Vancouver about eight or nine years ago, and it was sold to the company that has 90% of the desktop boxes. In other words, all cable companies use this chip, from a company called Broadcom in the United States. It's that Canadian technology that allows all the cable companies in North America to compete.

When we started, there were six employees. There are currently more than 200 employees working for that company. Today it is one of the centres of excellence for Broadcom in the development of the technologies they use to allow what is called Voice over Internet Protocol.

That would be one company as an example. The money we earned—that the government earned—on capital gains taxes from that one investment was more than the entire amount of money that was put into the program in British Columbia up to that time. So it is a big win for everyone, the employees as well as the government, in terms of rates of return.

Your second question was on appetite. Really, you are right in saying that the appetite of Canadians has been a bit depressed over the last number of years. Part of the reason for that is due to the change in the way investment advisers get paid. Ten years ago, investment advisers were paid equally whether they put in a small ticket or a large ticket. As you can see from our brief, what has happened is that large, bank-owned institutions in the investment advisory area are trying to get people to move away from small transactions. They are discounting the amount the investment adviser will be paid, and therefore the investment adviser looks toward other investments.

One of the things we're suggesting is that we need to reinvigorate the interest of investment advisers, because financially they are penalized within their organizations for selling this product. We need a bit of a kick-start for individuals, and that's why we're recommending that you match what the provinces have done and take it up to about a 40% credit. Then, as historically we have seen with the federal government before, as the funds start to come in and you see people reinvigorated, you can start to reduce the credit from 40% to maybe 35%.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

You believe the cost to the government would be about $100 million over three years?

[Daniel Levi]

Yes, because we expect we would raise about $300 million more each year for the next three years.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Is the U.S. government doing anything to encourage investors in this market?

[Daniel Levi]

The U.S. government has a number of programs. Most of them are defence-related, so there is a kind of hidden agenda that occurs down there, in terms of research and development, that is very helpful.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Thanks very much.

I'd like to ask a question of the Canadian Federation of Students and maybe get Professor George's comment on it as well.

This has to do with your comment that we should eliminate education tax credits. My concern is what that does to part-time students. We're trying to encourage older workers to upgrade their skills in the new economy. Have you done any study of the impact this proposal would have on part-time students?

[Joel Duff]

I'll take that and I'll try to be quick.

The fact of the matter is that part-time students are currently ineligible for Canada student loans. They don't get the interest-free loans that full-time students get, and they are ineligible for the grant system that the government has now created—the grant system that we think is good but that could be improved by including part-time students.

These are measures that better address and target part-time students.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Would they qualify, if it's means tested, though, as you're suggesting?

[Joel Duff]

There are different ways to provide assistance, but of course the biggest barrier to all students, full- or part-time, is the up-front cost. The point Shelley was making was that providing back-end tax credits doesn't really provide access to a program, because you have to come up with the money up front. The idea is that simply taking that money and putting it up front—i.e., reducing the cost of the program—is, if the goal is to ensure that everybody has universal access, the best way to deliver.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Just quickly, Professor George, what are your comments on that?

[The Chair, Conservative, James Rajotte]

I'm sorry; we are way over time, so in the next round we'll have to do that.

We'll go back to Mr. McCallum, please.

[John McCallum, Liberal, Markham—Unionville, ON]

I have a question for Mr. Sinclair.

As I imagine you know, in the government's latest budget document there are proposed substantial increases in employment insurance premiums, starting in 2011. These increases have a significant effect in terms of bringing the deficit down. Calculations by an economist, Dale Orr, suggest that the additional EI premiums will cost a two-earner family $1,200 and will cost a small firm employing 10 people an additional $9,000. I think those are large increases, and when employment may still be quite fragile, they could be damaging to the recovery of jobs.

There's a trade-off. I think we all believe EI should be balanced over the cycle, but this is a relatively short cycle. Achieving balance over a small number of years is giving rise to these very large EI premium hikes. The alternative would be to define the cycle as a few more years and have more moderate EI premium hikes.

Are you, as a Chamber of Commerce person, satisfied with these large EI premium hikes, or would you rather see it done more gradually?

[Art Sinclair]

I would suggest it should probably be done more gradually. Again, we're at a very difficult point right now, in that we don't really know what the numbers are going to look like in the immediate term. For example, based on a recommendation from the Canadian Chamber of Commerce, I was suggesting that spending growth will be at 2% to 3% by 2012-13. Just this past Tuesday, Don Drummond and Derek Burleton, from TD Bank Economics suggested it would take until 2015-16 to reach that level, so there's still a lot of uncertainty right now.

However, with respect to your original question on EI premiums, yes, I think we would like to see the growth in premiums take place over a longer period of time. Hopefully over that period of time we'll have some economic stability and in fact will be able to address the deficit and the debt more appropriately over that time.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you.

Mr. Rae, my understanding is that the current disability tax credit is not refundable, in the sense that if you have relatively low income and pay no tax, you get no benefit. Is that correct?

[John Rae]

That's correct, sir, so the people who most need it don't benefit from it. That's why we're suggesting it become a real refundable tax credit.

[John McCallum, Liberal, Markham—Unionville, ON]

I certainly agree with that 100%. As you said, disabled people are often people with low incomes, and you want the benefit to reach the lowest-income people most. This one doesn't. I agree with you that this is something that should be changed.

[The Chair, Conservative, James Rajotte]

You've got two minutes, Mr. McCallum.

[John McCallum, Liberal, Markham—Unionville, ON]

Mr. Levi, I certainly agree that a lot of the old jobs aren't coming back and that the new jobs depend on new ideas and creativity and commercialization and venture capital. With regard to the dramatic drop from 2001 to 2008, was a big part of that drop in the latest year and related to the crisis, or was it a steady decline?