Finance Committee on Oct. 29th, 2012

[Jayson Myers]

We also support a number of recommendations in the Jenkins report. I guess our concern, though, is the dilution of the SR and ED tax credit system and the impact that has on our top R and D performers in the country that are looking at, not necessarily whether or not they're going to do R and D, but whether or not they're going to do R and D in Canada. We're competing for every cent of investment.

We would have liked to have seen the Jenkins panel look at other direct funding mechanisms and how we can work more closely in collaborative research with the universities and colleges. I think there's a very large pool of government money that is going into supporting academic research that could also be used to leverage business collaborative research and development.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

I'll stick with you, Mr. Myers.

Certainly a number of manufacturers have had challenges in the last number of years, and we're hearing from the opposition, in terms of wanting to raise the taxes, that some industries are diseases and others are better.

Can you first of all talk about why competitive tax rates are important for your businesses? What would happen if we did raise taxes?

[Jayson Myers]

Today, especially for manufacturers and exporters, the two sectors that were hardest hit by the recession, it has become very difficult to raise financing. Working capital is really at a premium. It's cashflow that drives investment activity, whether that's in training, or R and D, or in new technology.

The tax measures the government has taken are leaving more money in the hands of the businesses making these investments, and I think that has been extremely important.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

I think your comment was “cash is not dead money”.

Could you talk a bit further in terms of that particular concept and thought?

[Jayson Myers]

With regard to the cash balances that are growing on the part of businesses, and manufacturers as well, some people say there are better uses than holding cash. Some people have referred to this as “dead money”.

I don't see that at all. What companies are doing is borrowing more. They have more short-term liabilities. They need cash to be able to—

[The Vice-Chair, Liberal, Scott Brison]

Mr. Myers, that's it for Mrs. McLeod, but luckily, out of respect for Mrs. McLeod, I'll continue with the same line of questioning. I have this round now.

Mr. Myers, we've had both the Governor of the Bank of Canada and Minister Flaherty speak of this dead money that you're not investing. Despite lower corporate taxes, ample incentives for investment, including accelerated capital cost allowance and the SR and ED program, the Governor of the Bank of Canada and the finance minister for Canada refer to dead money in the corporate sector.

Are you saying they're wrong?

[Jayson Myers]

When they say that businesses have more cash balances on hand, that's true. When they say that's dead money or that businesses are not investing, that's not true. Companies are making investments. In fact, today they need to hold more cash because that's the only way the banks are financing investment—on higher cash balances.

If you look at figure 5 on the graphs that were distributed, what you see in manufacturing is that cash balances are up slightly. But what is really up are the net capital assets of the sector. These are the investments that are taking place.

[The Vice-Chair, Liberal, Scott Brison]

If the Canadian Bankers Association were here representing chartered banks, would you say they are being more conservative in their lending now, and that these cash balances are required in order to do debt financing, as an example?

[Jayson Myers]

There are a number of reasons that I think banks have become more conservative. That's not in all cases, and not necessarily on all projects. But companies have also been drawing from their lines of credit, and that's why they need the short-term assets in the form of cash.

[The Vice-Chair, Liberal, Scott Brison]

Citizens have been as well.

Is there a risk in moving towards direct funding and away from, say, the SR and ED program, where governments will be making decisions in terms of which types of research to invest in, as opposed to companies?

[Jayson Myers]

I don't think governments always make the best decisions in terms of the types of technologies that should be supported. The SR and ED program was a program that provided, and could provide, direct support for foreign companies that are making investments in light of the best use of their assets and the best type of research for the businesses they're undertaking.

I am concerned by a move into more direct spending programs. Some of those are very important strategic investment funds. I think they are very important today, in a targeted way. But I think we need to be very careful in the way we construct these, so we do not construct something that is overwhelmed by bureaucracy and administrative costs and overhead, and is not flexible and not responding to business requirements.

[The Vice-Chair, Liberal, Scott Brison]

Thank you, Mr. Myers.

Mr. Murphy, I'm intrigued by the idea of using RRSP amounts to liberate some of that foreign investment into cooperatives. That's something we could take a look at as a committee.

I have a question on the education side, because we have university teachers here, colleges and universities represented, and we also have Mr. Audla's presentation. I think it's important. Regarding Inuit people and the aboriginal and first nations people in Canada, this whole issue of education and the imperative of having your fastest growing and youngest population—also the most economically and socially disenfranchised.... What level of investment does it really take to fix this? If we don't fix it now, it's a time bomb, demographically, socially, and economically. Do we need to go back to a Kelowna-type discussion again? Call it what you may, but do we need that kind of partnership again, and what level of investment is it going to take to really address this in a substantive way?

[Terry Audla]

I can try to answer that. I mentioned earlier, in answer to Mr. Marston's question on the strategy, that ITK is trying to work with the different jurisdictions across Inuit Nunangat. You have the Northwest Territories, Nunavut, northern Quebec, and Newfoundland and Labrador. There have been great strides made towards implementation of the strategy, but we still need federal buy-in to try to get that off the ground. We are working continually to try to get Minister Duncan and the Department of AANDC to work with us, but again, jurisdictional matters get in the way. This is where we're trying to make headway.

[The Vice-Chair, Liberal, Scott Brison]

Thank you, Mr. Audla.

I apologize to the other witnesses. The chairman can't allow Mr. Brison's round to go longer than the other members, and Mr. Brison can be very verbose from time to time.

In any case, perhaps Mr. Hoback wants to continue Mr. Brison's questioning.

[Randy Hoback, Conservative, Prince Albert, SK]

Yes, it's a pass-off. Actually I will, but I'm going to go after the financing of cooperatives.

Mr. Murphy, this summer when you presented in front of the committee, you talked about investment institutions' and banks' lack of understanding about the role of cooperatives and how to properly finance, which was restricting the growth of some cooperatives in expanding their operations, obtaining capital for investments, for example, and buildings and other structures.

What would you tell this committee in regard to educating us on the education of the financial sector in the uniqueness of co-ops?

[Shawn Murphy]

Again, it's an age-old hurdle where we've seen some cooperatives succeed. They've figured out how to manage to raise the capital necessary in order to grow and prosper. Others simply, in trying to use—let's call them—traditional business models, fail miserably.

It's almost a case-by-case, person-by-person situation, where you approach one particular financial institution, whether it be a bank or a credit union, and you have people who understand your cause, and they are able to assist you and navigate you, and other people who might not understand the cooperative model, and therefore it creates the roadblocks. Even within current federal programs, there are many that are technically open to cooperatives, but when you start down that path, suddenly you face a lot of brick walls because the people asking the questions don't understand the cooperative model, or the idea of bringing all of these people around one table to bring forward an idea.

[Randy Hoback, Conservative, Prince Albert, SK]

Have you looked at using the cooperative strengths across Canada to self-finance amongst other cooperatives? For example, the cooperative out of Prince Albert would maybe put forward some cash for a smaller cooperative in another region or area. Have you looked at those types of partnerships?

[Shawn Murphy]

By all means, there is cooperation among co-ops. A few years back there was—let's call it—a legacy where they were hoping to develop a $100 million fund that would self-fund cooperatives. Obviously they were hoping at that time for the federal government to come to the table. We understand, as a sector, that the financial climate has changed dramatically. At the same time, we, as a sector, also have to come to the table and say that if we want to do something, we have to show a willingness. From our end at the moment, we're working internally to try to get a fund off the ground that would self-finance co-ops within and across the country, so that if someone wants to start one up, they could apply to receive a fund and receive capital that way, knowing full well that they still need to try other areas. It's not just, “Well, we want to go there.”

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Mr. Murphy.

Mr. Davidson, you talked about the importance of foreign students coming to Canada and about how important it is for us to have our students go abroad. Are there any initiatives that need to be tweaked or changed to allow this to happen? Are there any hurdles that are preventing students from coming into Canada?

I know the Governor General was down in Brazil and in the Caribbean promoting Canadian universities. We are well respected around the world. But I'm just curious, is there anything we should be doing to make that even better?

[Paul Davidson]

First, as to attracting international students to Canada, we are known around the world for a very high-quality system. We can never lose sight of that. Things can be improved, but it's a very high-quality system. Second, it's an affordable proposition for families around the world to come to Canada. Third, they're welcomed into safe, secure, and welcoming communities right across the country. So those are elements of our competitive advantage in attracting international students to Canada.

I also want to underscore the importance of what those international students bring to Canadian classrooms. Students who will never travel abroad get the chance to meet people from another country, learn another language, and be engaged in research and learning activities.

With respect to opportunities, you mentioned the Governor General travelling to Brazil. We were delighted that he led a mission to Brazil, along with 30 university presidents. It's interesting to see what Brazil is doing. The Government of Brazil committed 75,000 scholarships for Brazilian students to study abroad, and their private sector immediately kicked in another 26,000 scholarships. They're doing that because they recognize that to take their economy to the next level they need a generation of young people who have those kinds of international and transnational skills.

In Canada, we have a long way to go. In Amit Chakma's report this summer, the expert panel looking at an international strategy for Canada, he and his colleagues recommended that Canada aim by 2022 to initiate a program that would move 50,000 Canadian students annually internationally, and that's a goal that we endorse strongly.

[Randy Hoback, Conservative, Prince Albert, SK]

On a per capita basis, that's a substantial number of students compared with Brazil.

[The Vice-Chair, Liberal, Scott Brison]

Thank you, Mr. Hoback.

I can't be rude with Mr. Brison and then allow you to go on like that.

[Randy Hoback, Conservative, Prince Albert, SK]

You're as tough as the other chair.

[The Vice-Chair, Liberal, Scott Brison]

Monsieur Caron.

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

Thank you very much, Mr. Chair.

Mr. Davidson and Mr. Myers, I would like to hear what you have to say about the scientific research and experimental development program. I understand the reasons and motivation for the Jenkins report. But by moving away from a tax credit and toward direct subsidies, I am concerned that, at the end of the day, we are asking the government to choose winners. Is this a concern for you?