Finance Committee on Oct. 29th, 2012

[Jayson Myers]

Let me start off by saying it is a concern of ours. I think one of the reasons the SR and ED tax credit worked was that it provided additional assistance to the companies making their own decisions about where best to invest in research and development.

There are some strategic investments where governments should be playing a role. For example, the location of the microelectronic centre in Bromont, Quebec, was an excellent example of where the Government of Canada and the Government of Quebec both made investments and developed what I think is a world-leading centre in microelectronics research commercialization. It is a very important centre for business investment.

Governments have an important role to play, particularly as everybody else is competing for investment. We need to provide that funding, but we also need to provide an incentive for the companies doing the research and development. I'm not so sure government is in the best position to do that.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I will come back to your comments, but I would first like to hear Mr. Davidson's answer to the same question.

[Paul Davidson]

Remember, in the mandate of the Jenkins panel, they asked for recommendations that were net zero in additional spending. So Jenkins was asked to move resources around within a fixed pot. If there were substantial additional resources, leaving SR and ED the same and putting more resources in another direction could be useful. In the work that it did, Jenkins found that the SR and ED was one of the most generous tax incentives in the world, and yet it's very difficult to attribute changed behaviour in research innovation using that tax mechanism. They didn't recommend abandoning the mechanism. They recommended adjusting the balance between the tax credit and the direct spend. And that's the recommendation we think would find merit in the research and development ecosystem we have in Canada today.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Mr. Turk, what do you think?

[James L. Turk]

We've actually been looking at the question of what can be done to encourage more research and development spending by industry for more than 30 years. The problems have always been similar. That is, it tends to be the large corporations that do the bulk of the research and development spending. We have the highest level of foreign ownership. When Nortel went under, we lost the biggest R and D spender in the country. Right now I believe RIM is, and it's in some jeopardy.

I agree with Paul Davidson that the tax credits have proven to be a very blunt instrument, and although among the most generous in the world, they have not in fact changed the situation fundamentally.

There's a variant of direct expenditure, and that is for the government to put the money instead into a grant funding program to which companies can apply and an independent scientific review will determine who funds it.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much.

Mr. Myers, I would like to continue with the tax credit. I want to hear what you think about it because you mentioned it in your brief. I also saw it in the pre-budgetary consultations.

[The Vice-Chair, Liberal, Scott Brison]

You have one minute left.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

What do you think are the consequences of excluding capital expenses in calculating the tax credit for research and development?

[Jayson Myers]

It's especially important for manufacturers and for companies like Pratt and Whitney, Bombardier, and Rio Tinto, who develop prototypes and invest a lot into capital equipment, to do that.

I just think we have to be very careful before taking $1 billion out of the SR and ED, away from the companies that are making these investments. All of these companies can move their investment anywhere in the world. We need to compete for that, and the capital expenditures are a very important part of support for research and development through SR and ED for manufacturers.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you.

[The Vice-Chair, Liberal, Scott Brison]

Thank you, Mr. Caron.

Now we have Mr. Adler.

[Mark Adler, Conservative, York Centre, ON]

Thank you, Chair, and thank you to all the witnesses for being here today.

I want to begin my questioning with Mr. Myers, if I could.

I'm looking at page 6 of the management issue survey, and I'm seeing that in terms of relations with foreign markets.... As you know, we've been very aggressive on the trade front, negotiating nine free trade agreements since 2006, and we have a number of others in the hopper that are currently under negotiation.

What I'm seeing here in these two charts is exactly what I'm seeing in my home riding of York Centre, in that we have a lot of smaller manufacturers, not the General Motors kind, but very small kind of niche marketing manufacturers who are exporting more and more outside of the country. They're not relying so much on the domestic market. There's very aggressive growth beyond Canada's borders. I see that's a general trend throughout.

I assume you're seeing that throughout your membership?

[Jayson Myers]

Yes, we are. What we're seeing today is the need for companies to become very specialized in the products and services they're producing, whether that's new technology, new product, or new service. The more specialized you are, the larger your market has to be. They are looking for new market opportunities, and markets that fit the product and the service. Europe is an especially important one for them.

[Mark Adler, Conservative, York Centre, ON]

Yes, and there is less and less reliance on the U.S. market, isn't there?

[Jayson Myers]

Less reliance and growth in the U.S. market, but again, the more specialized you are, the deeper you're able to go in the U.S. market. Take E.H. Price from Winnipeg. They've gained 30% of market share in the United States by continuing to invest in new products and development of new services over the past four years.

[Mark Adler, Conservative, York Centre, ON]

So anything to enhance free trade, in your opinion, speaking on behalf of your membership....

How many members do you have?

[Jayson Myers]

We have about 10,000 across the country.

[Mark Adler, Conservative, York Centre, ON]

It's safe to assume that probably 100% would be in favour of increased free trade.

[Jayson Myers]

Very much in favour of opening market opportunities, but also making sure that the rules of the game are followed, making sure we have good dispute settlement procedures in place.

[Mark Adler, Conservative, York Centre, ON]

How would your membership feel about the $21 billion carbon tax that the NDP is proposing to impose?

[Jayson Myers]

In short, not very good. The only way we are going to be able to reduce emissions is to increase the rate of investment in new technology that is going to get us there. So before we look at regulations and carbon taxes, let's make sure we have the right incentive system in place that enables companies to increase those investments in carbon-reducing technologies.

[Mark Adler, Conservative, York Centre, ON]

Can I get your thoughts on the Canada-China FIPA?

[Jayson Myers]

I've read a lot of remarks in the press lately. A lot of the concerns are extremely overblown.

We're looking at an agreement where we would have a better sense of how Canadian investment will be treated in China and where we would know that Chinese investment, when it comes to Canada, will be subject to the laws and regulations here in Canada. That's the basis for any foreign investment treaty. This provides Canadian investors and Canadian companies operating in China with a lot more assurance that their businesses will be treated fairly in that market.

[Mark Adler, Conservative, York Centre, ON]

We're seeing an increase in Canadian investment in China. Certainly, China is interested in the Canadian market. But the FIPA sort of codifies the natural movement of things, does it not? That's an important thing to do.

[Jayson Myers]

Yes, that's very important.

It also provides a basis.... Whether it's investment or trade, we have to see this as not simply a bilateral relationship. Canadian companies are now making investments around the world, but their market is global. They'll be partnering with a Chinese company, making an investment in China, or making an investment in Mexico, but working on a worldwide basis. We need a series of investment agreements that work together to give them the assurance that where they put their money, they will be treated fairly.