Evidence of meeting #33 for Finance in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was information.
A video is available from Parliament.
5:30 p.m.
Conservative
5:30 p.m.
Conservative
Gerald Keddy Conservative South Shore—St. Margaret's, NS
Thank you, Mr. Chairman.
Welcome to our witnesses.
Mr. Hayes, you spoke briefly about economic action plan 2012 and the government's commitment of $400 million to help increase private sector investments in early-stage risk capital. Then, under the venture capital action plan, which you also mentioned, in 2013, it was a more comprehensive plan to reinvigorate the venture capital sector and seek private capital matching funds.
Do you want to expand a bit on the difficulty of finding those private sector matching funds? You mentioned it, but you didn't go into any detail.
5:30 p.m.
President and Chief Executive Officer, GrowthWorks Atlantic Ltd.
If you look at the last 10 years in Canada, there has been a dearth of venture capital generally. The challenge has been trying to get institutional pension funds, endowment funds, and corporations to invest in the asset class.
The federal government has attempted to motivate these groups to match their funding. They are putting their money in and hoping to attract private sector money to match those funds. In concept, this is great, and we support that. I think the issue is going to be how long it is going to take, and whether those players are ready to play ball and match the federal government's efforts in this area. The concern we have is that by eliminating the federal tax credit for the retail investors, there could be a significant gap until those new funds are up and running.
We just don't know how long it's going to be before these new pools of capital will be available for entrepreneurs to access. On paper it sounds great. I hope it's very successful, but we think it's going to be months, and maybe a year, before these new funds have the ability to cut cheques.
5:35 p.m.
Conservative
Gerald Keddy Conservative South Shore—St. Margaret's, NS
The provision in 2013-14 of an additional $100 million in the incubator fund, I think should help to alleviate some of that.
5:35 p.m.
President and Chief Executive Officer, GrowthWorks Atlantic Ltd.
To some extent....
BDC has been quite active, and we're again supportive of their efforts; there's no question. But when you look collectively at the amount of capital that the labour funds have been investing across the country, and in particular in Quebec, that could cause a significant gap in terms of accessibility and availability for entrepreneurs.
5:35 p.m.
Conservative
Gerald Keddy Conservative South Shore—St. Margaret's, NS
Thank you.
Maybe just in closing.... In recognition of your comments on the Atlantic Canada Opportunities Agency, just to blow our own horn for a second, I think the government has done a better job with that. It is now the model for regional economic development across Canada.
5:35 p.m.
President and Chief Executive Officer, GrowthWorks Atlantic Ltd.
They have become an important player for early-stage entrepreneur seed investments, and we're very pleased in the last few years how they've really stepped up in terms of their support for the start-up community. I would agree.
May 8th, 2014 / 5:35 p.m.
Conservative
Gerald Keddy Conservative South Shore—St. Margaret's, NS
Excellent. Thank you.
Ms. Fralick....
That's a good strong south shore name, Mr. Chairman, so there's no question on how you pronounce it.
On the tobacco taxation you covered all of it. The real issue here was of the general domestic rate of excise duty on cigarettes not having effectively changed since 2002. It didn't meet inflation. I think 23.2% is actually what it had to go up by.
I agree 100% with your assessment that this will be a deterrent on cigarette smoking, on tobacco use, period, and will pay for itself in health care benefits. I don't think there's any question on that. At the same time this really isn't part of the budget but there's been a lot of discussion lately, and I'm sure you've heard it amongst first nations, about selling tobacco on-reserve to non-reserve members and charging tax on that tobacco.
Has your group even looked at that even in a cursory way and given some thought to the fact that people are going to continue to smoke, unfortunately, in this country? It may help in many ways to eliminate that underground stream and underground pipeline of tobacco. Have you given any thought to that?
5:35 p.m.
President and Chief Executive Officer, Canadian Cancer Society
Can you just clarify what specifically you're asking? Is that, if we have looked at trying to deter non-aboriginals from going on-reserve to purchase, or the sales to them?
5:35 p.m.
Conservative
Gerald Keddy Conservative South Shore—St. Margaret's, NS
Non-aboriginals are not supposed to be able to buy excise tax duty-free tobacco on-reserve. Of course they do. We're well aware of that. There's a huge underground economy in tobacco. The discussion of late has been amongst first nation chiefs in actually selling legitimate tobacco on reserve, and charging tax on that to non-natives. Given the fact that people are going to smoke, have you even looked at that as a way to get rid of the non-compliant underground economy on tobacco?
5:35 p.m.
President and Chief Executive Officer, Canadian Cancer Society
I'm not familiar with any work going on in that particular area. If I might with the permission of this committee turn to my global expert Mr. Cunningham and just make sure that I have that right...?
May he just sit for a second and address it? This is the expert globally.
5:40 p.m.
Rob Cunningham Director, Public Issues and Senior Policy Analyst, Canadian Cancer Society
There's been a very good example in the province of Manitoba where first nation governments with agreements with the province have prices equal to that and it includes provincial tobacco tax. The full amount is included. The first nations get the revenue. There's no tax leakage. There's no abuse by non-natives of the first nations credit.
5:40 p.m.
Conservative
Gerald Keddy Conservative South Shore—St. Margaret's, NS
I have just a quick comment to Mr. Howlett.
You raised a number of points on the nature of the underground economy and the difficulty of catching tax cheats. When it comes to tax non-compliance, a lot of it is extremely sophisticated. People who are sheltering money offshore and who have millions of dollars to shelter find expensive ways to be non-compliant.
It's difficult to find. It's difficult to assess. To a degree, in your comment, it sounded like maybe it was easier than it is.
5:40 p.m.
Conservative
5:40 p.m.
Conservative
5:40 p.m.
Voices
Oh, oh!
5:40 p.m.
Conservative
The Chair Conservative James Rajotte
We'll have to come back to that, Mr. Howlett. Unfortunately, Mr. Keddy is out of time.
Mr. Dubourg, the floor is yours for seven minutes.
5:40 p.m.
Liberal
Emmanuel Dubourg Liberal Bourassa, QC
Thank you, Mr. Chair.
I'm going to speak slowly because I'm going to ask my question in French.
I want to begin by thanking the witnesses. Their presentations were very insightful, including that of Ms. Tedds, who is in Victoria.
My first question is for Mr. Hayes.
In Budget 2013, the government announced the phasing out of the labour-sponsored venture capital corporations tax credit. However, that tax credit is very important in Quebec. It is said that over 80% of those regulated businesses are in Quebec. You talked about other provinces and the many challenges investors are facing.
Can you tell us what kind of an impact those measures will have on the economy?
5:40 p.m.
President and Chief Executive Officer, GrowthWorks Atlantic Ltd.
We agree. In particular, as you pointed out, in the province of Quebec there are two major funds, Solidarity and Fondaction, that have played a very significant role in providing financing across all sectors of the economy, and in particular, I guess to some extent, the technology sector. This could have a pretty dramatic impact in terms of their future investing in the rest of Canada.
There are only about eight funds that are left in this asset class, and already we've seen evidence that some of these funds are having liquidity issues, or will have liquidity issues. This is why it's important, in a transition, to provide rules that negate the negative impacts for shareholders and portfolio companies.
We're quite concerned that the VCAP program, while great in principle, is taking longer to get up and running, as I said earlier, and to actually create these pools of capital for Canadian entrepreneurs. This is why we would ask the government to reconsider its decision.
We accept the decision, but we would prefer to have a longer runway in terms of the phase-out of the tax credit, in order to give us more time to nurture the companies and get to liquidity events, which will negate the impact of this reduction of the tax credit.
5:40 p.m.
Liberal
Emmanuel Dubourg Liberal Bourassa, QC
Thank you very much, Mr. Hayes.
My next question is for Mr. Howlett.
In your presentation, you talked about electronic funds transfers and the new measures on whistleblowing. As far as funds transfers go, my understanding was that you were favourable to that measure. However, other stakeholders we heard from earlier indicated that the legislation is not really clear. There are not enough measures, and this adjustment is left entirely in the hands of the Canada Revenue Agency. That could be an issue. The fact that this measure is not clear and that relevant information is lacking has a major impact.
What do you think about that?
5:45 p.m.
Executive Director, Canadians for Tax Fairness
Particularly with the offshore tax informant program, the provisions for the protection of informants is not clear enough. I know this from personal experience, having talked to several people who had information they wanted to come forward with. As you know, some of the tax cheats using tax havens are connected to criminal organizations, so these people have a very real fear for their lives—I have talked to them—yet they feel they should do the morally correct thing and come forward with this information.
I don't think there is sufficient protection. As a previous witness mentioned, there may be provisions that would apply if it's a criminal case, but in a civil case that is not there. There are some significant improvements that are still needed.
What's also not clear is what the staffing capacity is going to be to implement this program. In the United States they have 40 staff in the IRS Whistleblower Office. We know Canada is a smaller country, so maybe we don't need that many people, but I've heard that government was thinking of only having one or two staff. I don't know if that would be adequate to roll this program out in a good way.