Finance Committee on Oct. 22nd, 2009

[Daniel Levi]

The dramatic drop actually occurred in 2001, 2002, and 2003 in terms of hard dollars. In other words, we dropped from $4.5 billion to probably $2 billion over about a three-year period, but the drop continues to occur.

In the U.S., what we saw was a dramatic drop in 2001, 2002, and 2003, but then, starting in 2004, it started to come back again, and they actually achieved almost the same amount of venture capital in terms of fundraising as they had in 1997 and 1998. It became a very healthy market. In Canada, what we saw was a consistent decline in the venture capital market, and that is what we have seen since.

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

Then it wasn't related to the current economic crisis.

[Daniel Levi]

No.

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

What were the main causes, then?

[Daniel Levi]

Well, there were a variety of reasons for it.

The first one was obviously the bubble bursting in 2001 in terms of the high-tech community.

The second one was that the rates of return in particular institutions, pension funds, and others that had invested were not that good. There's a bit of a herd mentality there, so they always leave when times are bad, when they actually should be investing. There was a severe decline in interest from pension funds.

The third one was that the Province of Ontario decided that it was going to phase out this program for retail investment, and that had an impact right across the country, with the exception of Saskatchewan and Quebec, where the program remains very strong.

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

My understanding is that U.S. pension funds invest quite heavily in this area and Canadian pension funds don't. Is this an innate Canadian conservatism at work, or is there some other reason why...?

[Daniel Levi]

You have struck the chord right there. The difficulty in Canada is that there is not a culture of risk, and certainly there is no culture of risk in the pension funds in Canada, below the largest seven or eight pools that exist. Most pension funds in Canada are too small to be able to bear the kind of risk and the research that's inevitably required for them to make investments. There's no fund of fund advisers in Canada of any significance, and so our large portion of funds that are in small pension funds simply do not invest.

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

What about the larger ones, such as CPP or Teachers'?

[Daniel Levi]

The CPP and Teachers and others are investing, but in a very limited amount compared with what they were investing in the late nineties and 2000-01.

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

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McCallum.

Mr. Wallace, please.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

I want to welcome our guests and thank them for coming this morning.

I'm going to start with President George, whom I've known for a few years now. For those who don't know him, Mr. George will be leaving his post as president at McMaster. He's done a great job of elevating “Mac” and the quality of education there; he has done a really good job.

I tease the president a little bit about his ability to be a lobbyist/advocate for his school, but I use him also, when he's not around, as an example of somebody who does a really great job while doing it.

So I appreciate your coming today.

I do have one question for you, though. We've heard from student associations, but I'm going to ask you this question. There is a perception--I want to know whether it's just a perception or reality--that the transfer that goes through the social transfer that is for education doesn't go to education.

Is that actually true or not?

[Dr. Peter George]

Yes, I....

Thank you. I will be looking for a job after July 1.

[Voices]

Oh, oh!

[Mike Wallace, Conservative, Burlington, ON]

Do you want to handle constituency problems?

[Dr. Peter George]

This is a complicated issue, but let me say that I believe it's true. That's why so much of the focus on the part of AUCC and COU and the research-intensive universities, the G13, has been on the indirect costs of research. When we receive research grants, which only provide for the direct costs of research, the indirect costs must come from within the universities' operating budgets. That imposes a tax, if you like, on the funds originally intended for the educational mission of the university.

So I do believe the point is well taken. If we could get funding for the full cost of research, it would help us immeasurably to address the quality-of-education issues that many of the student groups and colleagues of mine and I myself continue to address. There is an implicit tax there.

[Mike Wallace, Conservative, Burlington, ON]

Okay, I appreciate that.

Mr. Smith, I have a question for you.

I don't think you're out of your element. You're coming here with an idea for us, and we're looking for new ideas. I have first a request and then a question for you. My request is that you put it in writing and send it to us. You don't have to do this right away, but send it to the clerk. The clerk will tell you how to get it to us.

I just want to be clear, based on your view of your position that, if you take somebody off the unemployment roll—they're actually collecting EI, or are they on welfare?—you would be able to keep, as a business, the business portion of the deductions you have to pay per employee. Do you have a length of time for that?

[Chris Smith]

Yes. It would be an incentive. It's strictly the employer's portion; it wouldn't be EI or anything like that, because that obviously needs to be used for other issues. It would strictly be the employer's portion of the source deductions.

[Mike Wallace, Conservative, Burlington, ON]

Give me some examples of source deductions. How much money is it we're talking about?

[Chris Smith]

We're talking about, say, probably $500 on a $3,000 payroll or something like that. If you're paying something like $3,000, you're looking at about $500.

Yes, it would be clawed back—basically scaled back—over a three-year period. All it's doing is allowing people to re-enter the workforce.

[Mike Wallace, Conservative, Burlington, ON]

Right. And it's not somebody who has left one job and gone to another, but somebody you would be taking on to—

[Chris Smith]

No; that is why it would be key on the additional employees on your payroll. That's why it's easy to measure: the Receiver General has that information. They know how many employees I have today, and they'll know how many I have tomorrow. If I just replace somebody, that's not an additional employee.

[Mike Wallace, Conservative, Burlington, ON]

Right.

Here is a question for the student association. We've seen the federal student association representing Manitoba, Ontario, the national group, with basically the same sort of concept; just a little bit different.

On the issue of the silo that would be created specifically for post-secondary education, you used examples of the other transfers we make; the health transfer, for example.

Are you aware of the strings that are attached to the health transfer now? If you could tell me what they are, I would be happy to hear them.

[Joel Duff]

Yes. We want strings. We think there should be strings.

Look, the Stats Can report that came out two days ago that looked at tuition fees across the country shows that in Ontario, students are paying about $6,000 on average, and students in Newfoundland or Quebec are paying less than $3,000. Just by accident of birth, there's an inequality of access across the country.

If you want to go to law at the University of Toronto, it's $21,000. At McGill University in Quebec, for a Quebec student, it's just over $3,000. Would anybody say that McGill is a second-rate law school? I don't think so.

It's about priorities, but it's about having our federal government play a role in establishing national standards for fairness, for equality of access across the country.

There are other quality benchmarks as well. I think Mr. George would be happy--as would Ms. Patterson, who has just joined us--to see some benchmarks for quality. But we would like to make sure that the money the federal government sends to the provinces for post-secondary education gets used in the way that it's supposed to.

[Mike Wallace, Conservative, Burlington, ON]

I think my point is that if you look at the health transfer, the actual strings attached by the federal government are fairly weak, really. The money goes to the provinces; they deliver health care. They have to meet the five criteria of the Canada Health Act, but other than that there's not a whole lot.

That's why you would be slightly different, if we had a bunch of strings on a transfer.