Finance Committee on Nov. 21st, 2012

[The Chair, Conservative, James Rajotte]

As Mr. Jean correctly pointed out in a point of order earlier, members have to ask for a recorded vote. The chair cannot do recorded votes on their own. It did pass on division.

We will therefore move to clause 9.

(On clause 9)

[Kevin Lamoureux, Liberal, Winnipeg North, MB]

Mr. Chair, on a point of order, is there not an obligation to look around the table to find out if in fact a member wants to be able to—

[The Chair, Conservative, James Rajotte]

I've looked around the table, and I've never been accused of moving too quickly in my entire life. I don't know, but if you can't keep up with me, you might want to put some jets on the feet there, my friend.

We are moving on to clause 9. I have Liberal amendments 22, 23, 24, 25, and 26. I have NDP-1. I have LIB-27. I have NDP-2, Liberal-28, and NDP-3.

I am advised that because they're all being moved, we start with the official opposition. I will go to Ms. Nash for five minutes.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you, Mr. Chair.

We have focused our amendments on substantive changes to this omnibus bill, Bill C-45, because we believe that Canadians would want us to debate the substantive issues here.

We're very concerned about the changes to the SR and ED tax credit, the research and development tax credit, in clause 9 and later on in clause 27. In essence these changes will cut $500 million annually to research and development for business in this country. We already know that our business expenditure on research and development intensity, which is a key factor in productivity growth, is less than half of our U.S. neighbours and well behind the OECD average, and it is declining.

We live in a challenging global economy and we must innovate in order to compete, but sadly the Conservatives are taking Canada in the opposite direction. These changes will hurt innovation in Canada, and as we've heard from companies, it will drive them to reduce the research and development activities dramatically or shift their activities to other jurisdictions.

The changes we are proposing will give more time for consultation and a more balanced approach to improving the SR and ED program and other government supports for innovation. There has been talk about offsetting the changes to the SR and ED program with possible future funding, but, sadly, we haven't seen that, and businesses are making decisions right now. We think that any attempt to try to balance the books at the cost of innovation, at the cost of research and development, will just harm our economy and is short-sighted and poor economic management.

Some of the specific changes that are included here in these cuts, for example, would eliminate the eligibility of capital expenses and reduce the eligibility of contract payments to just 80%. These cuts will total more than $100 million by the Department of Finance's estimate, but as we've heard from the Canadian Manufacturers and Exporters, they believe the true cost might even be as high as double that amount.

In our proposed amendments NDP-1, NDP-2, and NDP-3, we would delay the Conservative changes by five years. We disagree with the Conservative rush to impose these major cuts to support business research and development at a time when our economy needs greater investment in innovation.

The cut to the amount of contract payments for eligible SR and ED credits from 100% to 80% will hurt specialty research and development businesses and contractors. It will also increase the cost of R and D initiatives for companies and could push the marginal projects to other jurisdictions, which would cost Canadians jobs, reduce our innovation outcomes, and further erode the business expenditure on research and development.

We also oppose the cuts to capital eligibility, which we believe will disproportionately hurt sectors that depend on capital-intensive R and D, such as pilot plants, and given the increasing competition from low-wage countries, Canadian manufacturers must increasingly innovate.

We've heard from the Canadian Manufacturers and Exporters, who conducted a survey of their members, that 69% would reduce their R and D spending and 18% would relocate R and D activities outside Canada as a result of these Conservative cuts. That's why we believe these cuts should be postponed. We need to consult more and we need to have a practical plan to boost research and development and innovation and not cut business opportunities and jobs here in Canada.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Nash.

We'll go to Mr. Hsu, please.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Thank you, Mr. Chair.

First of all, I want to say it's a real pleasure to be here to talk about something that I care about, namely research and development and in particular research and development in our private companies.

I have been speaking to a number of companies in my riding of Kingston and the Islands, small and medium-sized enterprises, that rely very much on it, and they've told me that their companies have benefited enormously from the scientific research and experimental development tax credit. They always take the credit and plow it right back into their business, and they create jobs in my riding, Mr. Chair. They do that. There are other companies across the country that are creating jobs.

I want to say that the difference between a tax credit for research and development and simply an overall tax cut on corporations is that you can imagine just cutting taxes on corporations and increasing the amount of cash that they have in their balances, but the company doesn't need to take any risk. They could simply take that extra cash and pay a dividend.

On the other hand, a tax credit that incentivizes the taking of risk by investing in research and development encourages companies to take risks, to do the research and development that can make Canadian workers more productive and give them a leg up on the competition from other parts of the world over the coming decades.

I want to start out with that overall idea for why it's important to have these tax cuts.

First of all, I want to say that we agree with the NDP amendments. They are very similar to the amendments that we have proposed. I'm concerned about the decrease to the credit for third party expenditures from 100% of the expenditure to 80% of the expenditure. The reason for doing so is that we don't want to give a tax credit for the profit margin of the third party, but some of the third parties could be, for example, universities or other not-for-profit organizations, and in those cases it would be inappropriate to make that change. I believe we're going to be discussing that more a little later in the evening.

The exclusion of capital expenditures penalizes certain sectors. In particular, for example, in my riding there's a company that works in factory automation. You can just imagine that there's a lot of capital expenditure involved in that.

It's not the same case for another company in my riding, for example, that takes advantage of the SR and ED tax credit. It's a software company. They do software for customers around the world. They may not care so much about capital expenditures, but my local company that works in factory automation may care a lot.

The other sector that really cares a lot about capital expenditures and that would be hurt by exclusion of capital expenditures from eligibility for the scientific research and experimental development tax credit is the sector that includes oil and gas technology companies.

The interesting thing about oil and gas technology companies is that we extract a lot of oil from, say, the oil sands in Alberta, but we have this problem of not having enough pipeline capacity to get the oil to market. However, we are also world leaders not only in the amount of oil and gas we have in the ground but in oil and gas technology.

[The Chair, Conservative, James Rajotte]

You have one minute.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

I can see that on my timer.

[The Chair, Conservative, James Rajotte]

Good.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

To export that technology, you don't need pipelines, in fact. We don't want to hurt this particular part of the oil and gas sector, which exports around the world, which has a world-class reputation, in which Canadians are developing world-leading technology to make oil and gas extraction more efficient, more safe, more healthy, more environmentally sensitive.

I think it would be a real shame, Mr. Chair, if here in Canada we excluded capital expenditures and hurt this very important sector of the economy which, as everybody in this committee knows, is creating jobs all across the country.

Those big tires that are on the trucks that carry bitumen with sand are made in Nova Scotia. We know that the jobs come from all over the place. It's very important that we not exclude capital expenditures from eligibility for the SR and ED tax credit.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your intervention.

We'll go to Mr. Jean, please.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

I have heard it all now: the Liberal Party and Liberal members standing up for the oil sands and the Northern Gateway pipeline.

Their policy is against the Northern Gateway pipeline, so all those patents that we have in northern Alberta wouldn't happen if the Liberal Party had their way. The bluntness of the position that they put forward is unbelievable, but I will say this. When we heard testimony earlier, about a week ago, I asked Mr. Cook, I think it was, this very question as to what would happen with the money that was taken off the SR and ED tax credit to improve SR and ED, and it was that it was going back into direct funding. Any money that would be saved from these amendments by the government would actually go directly back into direct spending, so there are no cuts here. There are no changes as far as the money that goes into R and D is concerned. It's just simply a matter of a reallocation and a streamlining.

I really appreciate your standing up for Alberta and the oil sands, and I would appreciate if you would talk to your leadership hopefuls about doing the same.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Jean.

I will move now to votes, and I will start with—

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Mr. Chair, excuse me. I really have to interrupt you. Because of what happened last time, I'd like to ask for a recorded vote.

[The Chair, Conservative, James Rajotte]

Okay.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

My colleague wasn't fast enough, so I just want to make sure I get in there and—

[The Chair, Conservative, James Rajotte]

I just want to be clear. Do you want a recorded vote?

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Yes.

[The Chair, Conservative, James Rajotte]

I was a little uncertain.

On Liberal amendment 22, we will have a recorded vote.

(Amendment negatived: nays 6; yeas 5 [See Minutes of Proceedings])

We'll move to LIB-23.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

I would like a recorded vote, please.

[The Chair, Conservative, James Rajotte]

We will have a recorded vote.

(Amendment negatived: nays 6; yeas 5 [See Minutes of Proceedings])

Next is LIB-24.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

I would like a recorded vote, please.

[The Chair, Conservative, James Rajotte]

We will have a recorded vote.

(Amendment negatived: nays 6; yeas 5 [See Minutes of Proceedings])

We'll move to Liberal amendment 25.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

I would like a recorded vote, please.

[The Chair, Conservative, James Rajotte]

We will have a recorded vote.

(Amendment negatived: nays 6; yeas 5 [See Minutes of Proceedings])

Next is LIB-26.