Finance Committee on Sept. 21st, 2006

[The Chair, Conservative, Brian Pallister]

Welcome to our witnesses.

I'll invite any of our members, witnesses, or guests today to turn off their cell phones or put them on some silent capacity.

The House of Commons Standing Committee on Finance is mandated by the House of Commons on an annual basis to consider and make reports upon proposals regarding the budgetary policies of the government.

This year the theme of our consultations is Canada's place in a competitive world. As Canada's future is in part characterized by rapid technological change and the emergence of new trading partners, the committee is looking to receive from Canadians their views respecting the means of ensuring a prosperous economy by adopting the latest technology, having the necessary skills, seizing market opportunities, and making certain that tax regimes are enabling us to attract workers and foreign investments in order to maximize our potential as a nation.

The Committee will hold hearings in Ottawa and will travel to other centres across Canada, from Whitehorse, Yukon to St. John's, Newfoundland. It will hear from more than 400 witnesses between now and the end of October. It will gather testimony from a broad range of groups and citizens, from daycare promotion associations to the manufacturers and exporters of Canada.

We welcome you here today. We thank you for the briefs you've submitted. I assure you that those committee members not present immediately will be here forthwith. They do review your briefs in detail, and also the testimony and the presentations you make and the questions we share responses with later on.

You have been asked to keep your presentations to just five minutes. I hope you understand the format. It's difficult for us to give you the time we would like to give you, but we will be hearing from over 400 groups and presenters, and so the five minutes is by way of an introductory commentary.

If you care to look during your presentation, I will give you a little hand signal that there's about a minute to go or a little less, and at that point in time I'd ask you to wind up your presentations to allow time for questions and comment thereafter.

We welcome you all, and thank you again.

We'll begin with the Writers' Union of Canada, Deborah Windsor, executive director. You have five minutes, Madam.

[Deborah Windsor, Executive Director, Writers' Union of Canada]

Welcome and thank you.

The chair of the Writers' Union, Ron Brown, will speak on behalf of the union.

[Ron Brown, Chair, Writers' Union of Canada]

Thank you very much for inviting us. I am here as chair of an organization that represents 1,600 of Canada's best authors.

What do these authors do, actually? Well, we may not show up on Oprah, but we do tell Canada's stories that would otherwise remain untold. What would we know about Canada's Arctic exploration without authors like Ken McGoogan? Joy Kogawa reveals the hardships of Japanese-Canadians during World War II. Pierre Berton has praised the valour of our soldiers at Vimy Ridge.

But we're pretty good for the economy too. Writers help drive a cultural sector that contributes more to Canada's economy than forestry, farming, or mining. What do we get in return? A median income of just $12,000 a year. But I'm not here to ask for money.

There are, however, some changes that you can make. Writers' incomes fluctuate wildly. They're high when our books are published and low while we're working on the next book, yet just guess which income rate we're taxed at. To reduce that inequity, we're asking to change tax laws to allow back-averaging for writers' incomes in order to even that out.

We're also asking for copyright income deduction for what we earn on those books. This has proven workable and popular in Quebec.

We would also like to be secured creditors when publishers go bankrupt—it happens, you know. This would let us put a lien on copies of our own books that would otherwise be stuck in a publisher's warehouse.

We would like employment insurance extended to writers who are self-employed. Royalties don't last forever; neither do publishers.

And we would like heritage minister Bev Oda to honour her campaign commitment to double funding to the Canada Council for the Arts. These funds help develop writers' skills and promote their works. Every tax dollar invested in the arts brings five tax dollars in return.

These points and others are all in our brief, which I know you're anxious to rush out and read.

But I would like to close by giving you a scoop on a new literacy initiative the Writers' Union is starting. Last summer, Canadians were riveted by the plight of Africa's AIDS orphans when the Stephen Lewis Foundation brought the grandmothers to Canada. Therefore, the Writers' Union is asking Canada's children's book writers to donate books they have written to this AIDS orphanage. We will be coordinating and shipping these books to an AIDS orphans' school in Nyaka, Uganda. The first shipment will take place in November.

So what are authors good for? We reveal Canada's stories, we help drive a vital economic sector, and we try to help Canada's image abroad. With your help, we can continue to do all these; without that help, not so much.

Thank you very much.

[The Chair, Conservative, Brian Pallister]

We continue with a presentation from the Bell Pensioners' Group, Pam Went, president. You have five minutes.

[Pam Went, President, Bell Pensioners' Group]

Thank you, Mr. Chairman, and good morning, members of the committee.

The Bell Pensioners' Group is a federally registered, not-for-profit organization that advocates on behalf of the retirees of Bell Canada. We'd like to thank you for recognizing the importance of the pensioners' perspective by inviting us here today, because we are not always included or invited to the table.

To illustrate that point, last May the Conference Board of Canada held a pension summit and there were over 200 participants. The chair of the summit went on at length to say that it was very important to have all the stakeholders at the table, and yet over two days, not one presentation was on the perspective of the pensioner, and of the 200 participants, there was only one pensioner there.

We're grateful to have the opportunity to dialogue on a critically important topic: Canada's place in a competitive world. We agree that if Canada is to have a meaningful place in the world of the future, then citizens and businesses, and by extension the economy, must prosper. Canada's pension plan system is crucial to our future not only as individual citizens, but also because it supports our economy in very important ways.

Pension funds are now the largest institutional investor class among G-10 countries. The vast resources of these funds are available for the kinds of long-term infrastructure investments that are critical to Canada's long-term economy. If we peel that pension plan system back one more layer and look at private pension plans, like the one I have, it is also a critical pillar in the national pension system.

Private pension plans allow the transfer of risk from individuals to collectives, and by doing so they achieve what David Dodge has described as a more efficient allocation of savings. These large funds are able to take risks that individuals cannot. They have experienced, professional asset managers who are equipped to make informed decisions. They are also, usually, examples of very good corporate governance.

What will happen if these investment machines are no longer in place? Recently we have seen a decline in defined benefit pension plans. If this continues, the transfer of financial return and longevity risks back to individuals could be quite painful for our country. Individuals are less able to manage and absorb losses. This could result, ultimately, in increased financial assistance that would have to be funded by the taxpayer. Also, if there are fewer defined benefit pension plans available, the capital required for long-term infrastructure investment will not be available, and that will impact our growth potential.

If these are not good enough reasons to act now, consider this. In the 1990s, income from private pension plans grew in importance from 18% to almost 30% of total retirement income. This significant shift suggests that it is timely to re-examine the assumptions on which current legislation and regulations are based at the federal level, but also at the provincial level.

What can this committee do? In our brief we made five recommendations, but I feel that the first two are the most crucial.

First of all, you can ensure that Finance Canada is tasked and adequately resourced to follow through on a 2005 consultation paper entitled “Strengthening the Legislative and Regulatory Framework for Defined Benefit Pension Plans Registered under the Pension Benefits Starts Act, 1985” in order to determine what permanent changes are required, in particular, to action the recommendation that pension plans be solvent at all times.

We would also ask for your support for modification to key legislation such as the Canada Business Corporations Act, the CCAA, and the Bankruptcy and Insolvency Act to recognize that retirees are key stakeholders, and to ensure that pension benefit entitlements receive maximum protection should a pension plan sponsor fail.

In closing, pensioners are important stakeholders in the determination of our country's future. The Bell Pensioners' Group is available and willing to represent the views of the Canadian pensioner at any time.

Thank you.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Madam Went.

We'll continue with a representative from Health Partners International of Canada, Mr. John Kelsall.

Mr. Kelsall, welcome. You have five minutes.

[John Kelsall, President, Health Partners International of Canada]

Good morning. My name is John Kelsall. Unfortunately, the Honourable Jake Epp, our chair of the board, is unable to be with us today.

As we all know, Canada enjoys an enviable reputation as a prosperous and compassionate nation. We are mindful of our responsibilities in helping those less fortunate around the world to meet the most basic of human needs. HPIC is honoured to be part of the solution that Canada presents to some of the world's most daunting humanitarian challenges. We hope our proposal will result in a clear commitment to the creation of incentives that will radically increase our capacity to meet critical health needs in the developing world.

Our particular contribution is in the area of health care. HPIC supports hundreds of Canadian physicians and non-governmental organizations that work tirelessly in the developing world by providing high-quality medicines, vaccines, and supplies. These are generously donated by Canadian companies and assembled for shipment in our own facilities. Some of our major programs are operated on behalf of the Government of Canada, including our response to natural and man-made disasters.

At the invitation of the WHO, the World Health Organization, we met in Geneva with officials of the WHO to determine the most effective ways of providing medical aid. We're working to develop new guidelines for coordinated and effective emergency responses. HPIC has played a significant role in providing needed medicines, vaccines, and supplies in places such as Indonesia, Pakistan, and Sri Lanka. More recently, again in collaboration with the WHO, we were significant participants in the early response to medical needs in Lebanon.

The overall need, however, is greater than our capacity to provide medicines through philanthropic programs alone. While we readily acknowledge the Canadian health care industry's wonderful support, we know all too well the extent of suffering that occurs in many countries. The tax action we propose will substantially expand Canada's capacity to respond appropriately to a growing need from nations bearing the burden of poverty and disease. Some of the largest Canadian NGOs are currently sourcing their products in the United States and Europe, because the Canadian policy framework is less favourable to product donations. Often, developing countries are obliged to procure low-cost products of inferior, if not inadequate, quality. This is of great concern to the WHO.

In many ways, Canada's economy is tied to those of developing and in-crisis countries, including those in Africa and elsewhere. Our government actively supports their development to reduce poverty and to contribute to a more secure, equitable, and prosperous world. This includes measures to enable access to essential medicines and medical supplies.

To add gift-in-kind donations to the mix of solutions would provide evidence at home of the public and private sector partnerships the government seeks to foster. Therefore, HPIC's proposal invites the government to include, in its next budget, donation incentives that would encourage the private sector to provide, and if necessary manufacture, products that are most urgently required, perhaps including ARVs needed to combat the scourge of HIV/AIDS. It must be noted that there is currently no economic incentive for companies to give gift-in-kind donations out of inventory.

The strongest benefit of our proposal, we believe, is that it encourages companies to donate humanitarian aid for use in countries targeted by government programs, while reducing the real cost of aid underwritten by the government. Rather than spending money to purchase goods, government would incur a substantially lower cost by combining the cost of the incentive with CIDA funding for handling and shipping, where appropriate. The purchasing power of actual cash donations to buy product is minimal in comparison to the much larger volumes of goods that can be obtained for charitable purposes through product donations. The application of this incentive to medicines donated by the Canadian health care industry, which is the sector with which we are most familiar, would have the effect of generating $20 in product for every dollar of tax incentive based on wholesale values.

We are aware that such a change to tax policy for the purpose of increasing the donation of pharmaceutical products would create a demand for other products to be included. It is reasonable that the government would be concerned about the cost of such an incentive. Nevertheless, our position is that the government should consider for inclusion only those products that support the government's own priority programs in the developing world. Moreover, we suggest that consideration only be given to products that are easily valued and that are essential for saving lives.

This initiative would take the form of a cost-effective incentive in addition to the current provision, which allows a donor company to deduct the cost base of inventories but does not serve as an incentive to donate goods to charity. In the United States, there is a program of tax incentives; it is working very well and is adding huge value to that country's aid programs. As a result, proportionally speaking, the U.S. ships much more donated aid than does Canada.

I would just wind up by saying that this our fourth appearance, Mr. Chairman, before the finance committee. On each previous occasion, our proposal received positive comments from all parties and committee members. We're saying that it's time to act.

[The Chair, Conservative, Brian Pallister]

Welcome back.

We'll continue with the representative from the Business Group for Improved Federal SR & ED Tax Credits. Nathalie Bourque, welcome; you have five minutes, please.

[Nathalie Bourque, Vice-President, Global Communications, CAE Inc., Business Group for Improved Federal SR & ED Tax Credits]

Thank you, Mr. Chairman, and good morning to the honourable members of the committee.

My colleagues and I represent a group of Canadian business leaders from various regions and industries with a common cause: to improve the federal scientific research and experimental development tax credit, or SR and ED tax credits.

Canada has a serious problem with its low rate of productivity growth. The problem is compounded by our high degree of economic integration with the United States, which has considerably stronger productivity growth and is outperforming Canada in the race for investment.

Globalization may be an overused term, but as business leaders, we see firsthand how capable some emerging economies, such as India and China, have become in advanced technology development and manufacturing. Global supply chains have emerged, and individual Canadian companies must find their places in this new marketplace. Information and communications technologies are advancing so rapidly that R and D is being performed all around the world wherever highly qualified personnel are located. This is an unprecedented threat for Canada. It is also an unprecedented opportunity for Canada provided we, as a nation, can get the investment climate right for innovative companies.

This committee will be hearing a considerable body of advice from many quarters. Economists are debating the solutions to the productivity challenge. Included in the debate is the OECD, which recently completed a survey of the Canadian economy. The OECD has established that innovation is one of the key determinants of productivity growth.

As business leaders, our perspective comes from the boardrooms of some of Canada's leading companies, where we deal with investment decisions against the standard of adding shareholder value. We deal with questions about where to perform R and D, and the after-tax cost of performing R and D in Canada or elsewhere is a key factor.

As Canadians, we have a bias towards performing R and D here in Canada if we can justify it in the global context in which we operate. With the Canadian dollar rising from 70¢ to 90¢ in three years against the U.S. dollar, Canadian locations for R and D and manufacturing are increasingly difficult to justify.

The SR & ED tax credit is a well-established program that is well known to Canadian business. However, it is not enough to tip the scales in Canada's favour as the country of choice for R & D. Statistics on the private sector's performance with respect to R & D speak for themselves.

The main issue with the SR & ED tax credit is its unpredictability when a decision has to be made to undertake an R & D project. Many businesses do not know whether they will have sufficient tax earnings in future years to be able to claim the credit. Also, they tend to discount the value it brings when making the decision whether or not to invest in R & D.

Businesses may be unaware of the SR & ED tax credit because they are just starting out in the research field, or are investing in R & D in anticipation of future gains or during an industry slowdown. They may also be part of an international group and are joining with foreign companies for tax purposes.

Mr. Chairman, if Canada wants to catch up as regards innovation, this type of business must be encouraged. But the current program penalizes them. The solution is quite simple. The refund should be provided to businesses that have invested in R & D but are unable to convert the SR & ED credit into cash, as is the case for small business. A refund must be offered for all potential but unclaimed tax credits, as well as for all creditable R & D activities. In that way, the uncertainty surrounding the tax credit will be lessened, which will immediately enhance R & D economic activity here in Canada.

This solution could be implemented immediately, with no additional administrative costs for either government or the private sector. Canadian business will then be better positioned to attract R & D mandates.

Thank you for giving us the opportunity to appear before the Committee.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Ms. Bourque.

Our next witness is Ms. Penny Williams, on behalf of the Canadian Urban Transit Association. You have five minutes, Ms. Williams.

[Penny Williams, Representative, Canadian Urban Transit Association]

Thank you, Mr. Chairman. As somebody responsible for the day-to-day activities of public transit in Windsor, Ontario, I'm thrilled to be here.

As many of you know, transit has been a focal point of public policy deliberations at the federal level from the last decade as legislators, like you, have increasingly recognized that, fundamentally, investment in safe, efficient public transit is an investment in our economy and the future prosperity of Canada.

Given the tightly focused mandate of the committee, I've chosen to be very direct in terms of our presentation and address the committee's specific items of reference put in place. The only preface to my remarks is to highlight that the federal investments in public transit are well positioned to address the finance committee's core concerns regarding Canada's health, the competitive tax regime, and the need to create sound infrastructure that will allow businesses to succeed. We are here to make the case that federal action and support of public transit delivers on all of these factors.

I will turn first to the committee's core question regarding specific federal tax measures that should be implemented in the upcoming budget to ensure that our citizens work for their benefit and for the benefit of the employers. Frankly, Mr. Chairman, we love this question. The entire public transit industry was supportive of the federal government's 2006 budget that allowed individuals to claim the cost of a monthly pass for commuting on transit. This innovative tax measure is a tangible first step in ensuring that citizens have the basic mobility required to work. Urban mobility is a key component in ensuring that workers can build individual prosperities and then benefit their employers.

CUTO would like to highlight two improvements to this tax measure. The first focus is on employer-provided transit benefits. This measure differs from the current tax credit in that employer-provided benefits would be non-taxable dollar amounts given by the employers to the employees to subsidize the costs of commuting by transit. This is a targeted tax measure that specifically aims at promoting transit use where employers and employees need it the most.

In the United States, exempted transit benefits from taxation has been in use for 20 years to encourage transit use. Starting in 1984, eligible employers could give workers up to $15 monthly in tax-exempt transit benefits. Transit ridership increased 25% for participating employers.

Highlights of recent studies undertaken by CUTO are contained in our written submission. You may wish to review this at a later time, but I want to point out two key findings. First, in terms of the annual economic impact, the study found that there would be external congestion cost savings of between $30 million and $112 million. The second key finding was projected reduction in commuter travel of between 1.7% to 6.3%.

A final technical point highlighted in our brief is the need to change the current eligibility of parents to claim the transit tax credit for dependent post-secondary children over the age of 19. The current tax credit does not allow parents to claim a tax credit beyond the age of 19. This age seems to be an arbitrary cut-off and does not recognize the reality of parents supporting post-secondary students.

Turning now to the committee's question regarding program spending measures that would be implemented to assure Canadian businesses are competitive, you all know that efficient and effective public transit is vital to the movement of people and goods in Canada's urban economies. Without public transit, many of our urban centres would be even more gridlocked than they are today. Investment in public transit is one of the best strategies for limiting congestion and keeping our economy strong.

In March 2006, Transport Canada released the results of a study entitled The Cost of Urban Congestion in Canada, which conservatively estimates the cost of recurrent congestion in urban areas between $2.3 billion and $3.7 billion a year. Transit efficiency has huge implications in our cities and our economies. In dozens of the studies around the world, higher transit ridership consistently correlated to greater overall economic success and a higher standard of living.

I invite you to review our written submission, which highlights studies published this summer by the Conference Board of Canada and Queen's University that make it clear that federal government investment should focus on modern transportation and a funding model to ensure that transit keeps the economies in our cities moving.

Finally, the committee has asked how we can ensure that the government is able to afford measures and ensure prosperity. Simply put, Canada cannot remain economically competitive on a global basis if we fail to adequately support public transit. When viewing public federal policy in the context of other OECD nations, it is significant to note that Canada remains the only OECD country without a long-term predictable federal investment in transit. As an example, in the United States legislation provides $52.6 billion for public transit over the six years 2004 to 2009. That's $9 billion annually.

In closing, the federal government has a unique opportunity to play a pivotal role in the lives of Canadians while addressing important economic objectives.

On behalf of CUTA members, I'd like to thank you for this opportunity.

[The Chair, Conservative, Brian Pallister]

Thank you very much for your presentation, Madam Williams.

We'll continue with the representative from the Nunavut Association of Municipalities, Elisapee Sheutiapik.

[Elisapee Sheutiapik, President, Nunavut Association of Municipalities]

Ullakut. Good morning, Mr. Chair and members of the Standing Committee on Finance. Thank you for giving the Nunavut Association of Municipalities, NAM, the opportunity to appear before you today.

My name is Elisapee Sheutiapik. I am NAM's president. I am the mayor of the city of Iqaluit, which is Nunavut's capital. Here with me today is our CEO, Lynda Gunn.

NAM is a member of the Federation of Canadian Municipalities and serves the interest of 25 municipalities of Nunavut, 24 of which are not tax-based communities.

Nunavut's population is 29,000 people, approximately 85% Inuit. People of Nunavut refer to themselves as Nunavummiut, the people of Nunavut. Nunavut's footprint makes up one-fifth of Canada's land mass and is rated tenth among 64 resource-rich regions in the world by the mining industry.

You've challenged Canadians to make contributions to your 2006 pre-budget considerations on how to strengthen Canada's economy, economic health, and prosperity. You say we must be prepared and must be proactive, and that decisions must be taken today to ensure that we are able to do what is needed today. Today, NAM and its members are prepared to participate proactively with the rest of Canada in attaining that vision of prosperity.

Since we appeared before this committee last fall, we have proposed a strategic sustainable development plan to our community governments, which they have endorsed and have directed us to proceed with. To proceed, however, we need some key decisions by the federal government that recognize the unique challenges facing the communities of Nunavut.

In NAM's submission to the Expert Panel on Equalization and Territorial Formula Financing, we pointed out that the “expenditure needs gap” in the territorial formula financing, the TFF, is not just a measure in accounting ledgers; it can also be measured in inadequate housing, poor health, low education, and inadequate infrastructure.

The expert panel's report cited many examples of how Nunavut is even more challenged by conditions associated with poverty than its sister territories and said that an adjustment to the TFF is not sufficient to address specific gaps in programs, services, and infrastructure in Nunavut.

It concluded that:

Without urgent concerted action to improve housing, health, education, and quality of life for people living in Nunavut, particularly Inuit people, there is little hope that things will change for the better. The Panel urges the Government of Nunavut, the Government of Canada, Inuit leaders, and a wide range of organizations, groups and agencies to come together to address these issues before the situation gets even worse.

While Nunavut is resource-rich, its people and communities will not receive significant benefits from their resource wealth under the current federal fiscal regime. All the public resource revenues from the Northwest Territories and Nunavut's resources flow directly to the federal government.

Canada's public accounts show that during the last five years reported, the federal government took $830 million of northern resource wealth out of the north over and above federal taxes. In 2004 and 2005 alone, it took half a billion dollars.

The expert panel spoke to this issue as well, saying:

The potential of resource developments in the territories is perhaps the best opportunity they have to achieve their dreams of self-sufficiency and self-reliance. Provinces with rich natural resources are able to benefit from those resources. The same principle of net fiscal benefit should apply to the territories.

Nunavut cannot afford to let its resources be taken without fair compensation. Moreover, it is NAM's position that the communities of Nunavut need a direct and fair share of revenues. International development agencies refer to a common phenomenon called the “resource curse”. It is the paradox that natural resources can generate enormous wealth, yet communities in resource-rich regions have poor economic growth, inadequate investment in health, education, and sanitation, and poor social conditions.

The resource curse is integral to northern resource development history: profits go to outside investors; business goes to outside services and suppliers; wages go to outside labour; public revenues go to central governments; and the vast majority of local people are barred from participation by poor education, poor infrastructure, and inadequate services.

Interestingly, one group that recognized the curse and is proposing means to eliminate it is within the mining industry. The International Council on Mining & Metals, of which the Mining Association of Canada is a member, has taken an initiative on sustainable community development in mining regions. Its chairman, who is also the chief executive officer of Newmont Mining, recently said: “...central governments have failed to use tax revenues from mining companies effectively to fund basic public services and empower local governments.”

The need to strengthen local governments in mining areas outlines the importance of a partnership approach. Local agencies are the best means of improving the services and facilities available to affected communities, but they cannot expect to suddenly have the capacity to plan and implement large community development plans. Most national governments must take the lead in supporting these bodies and be assisted by international donor organizations and companies. The companies can also help by planning their own projects, infrastructure, and social investment as part of their regional development. This can raise the chances that prosperity will follow through to the region, and also avoid a cycle of local dependence on companies and social programs.

In conclusion--

[The Chair, Conservative, Brian Pallister]

Yes, thank you.

[Elisapee Sheutiapik]

--to that end, we need informed decisions in the next budget that address the critical service and facility gaps in Nunavut communities, fairly sharing Nunavut's resource revenues with Nunavut through its territorial and local governments, and financial support for ongoing community economic planning and implementation, leading to sustainable communities.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Madam

We move to questions. First round to Mr. McCallum, seven minutes, sir.

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

Thank you, and thank you all for very interesting presentations. I think since my time is limited I will focus mainly on issues of research and public transit. Certainly, in my riding I often say public transit is second in importance only to health care. Many of the citizens suffer from traffic gridlock, environmental concerns--this is in Markham. So I totally agree with Ms. Williams that it's extremely important.

But if money is limited, you can't do everything. The previous budget having been very rich, I fear that for the next budget money will be quite limited and choices will have to be made. You've really advocated both of two approaches to public transit, the first approach being tax credits of various kinds to encourage use, and the second approach being direct government investment to support transit.

In my riding I've pushed for and succeeded in getting additional funding for various kinds of public transit over the years, and I think that's been very effective. I'm skeptical about tax credits, nice though they are. If your primary objective is more public transit, the evidence, for example, is that on this path 95% of the people would be using it anyway. So 95% of the money goes into the pockets of people who are there anyway and has no effect on public transit. So I'd like to do both, but not having funds for both, I think the priority should be direct investment or support by the government for public transit investments.

So my question for you is--I don't know if you agree with me or not--if you had the choice of just one or other of these two approaches and not both, what would be your choice?

[Penny Williams]

That's a hard question for somebody who operates on day-to-day activity, but certainly any investment in public transit is welcome.

We do have significant infrastructure needs: remaining in and continuing with the Canada Strategic Infrastructure Fund, remaining in and continuing with the funds that have already committed to public transit. Quite frankly, what we need is investment in the infrastructure, because we need to have the infrastructure there in order to have ridership growth.

The employer-provided taxes are specifically targeted to the employers and help the economy, which is one of the platforms. Because this tax investment helps people get to work, it certainly improves the economy.

If I had to choose between the two...they're both equally important. One is important to the economy of the cities, and the other is important to the environment by having the infrastructure there. It's a really hard choice. But we do appreciate any investment provided to public transit, because it helps the economy of the cities, it will help the environment, and it will help us be competitive.

Speaking for 120 different public transit systems...we'd all have our different views as to what is the most important aspect of this. The employer provided tax credit is important in order to grow the ridership, and we suggest that because of the recent investment in transit, the employer-provided tax would not be as expensive as it perhaps was in previous years.

In Windsor, I have a bus fleet age of 14 years. Until the investment from public transit came into being, I was running buses that were 35 years old. Now I'm able to reduce that fleet age to 10 years.

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

Thank you very much.

So you'd like both?

[Penny Williams]

Certainly—

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

Let me now move on to research. This is another area in which I am in 100% agreement that if Canada is going to prosper in the future, research innovation and new ideas are absolutely crucial.

The issue here is that Canada has the most generous public support for R and D, at least in the G-8, if not in the OECD, yet the performance by the private sector in R and D, compared with other countries, can best be described as mediocre. So you're asking the support through this program for R and D to become more generous. We already have the most generous in the world, with results that are not wonderful.

So can you tell us why we should be confident that this would bear fruit, given the facts that I've just outlined?

[Nathalie Bourque]

Around the world, there are some countries that are as generous or even more. I would take Japan as a major one.

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

Not in terms of the money put in. Canada is definitely number one in government R and D support relative to GDP among the G-8 countries, including Japan.

[Nathalie Bourque]

We also have some biopharmaceutical companies that have transferred all their R and D all to Germany because they thought it was advantageous.

The point we're making is that with the dollar exchange having changed so dramatically in a short period of time, it's very hard for us to adjust.

The other point is that it's very hard to make business decisions when you're told that you can get some investment tax credits, but it turns out that once you invest and then try to claim the tax credit, you cannot make this into real money because they postpone it year after year.

We acknowledge that the federal government has made an important step in increasing the time to claim those credits from 10 to 20 years, but it has to be available at some point. As you know, and as we said, when you're negotiating with companies who have a choice of investing in Canada, the U.S.A., India, or anywhere else around the world now, they look at how much it will represent on the bottom line.

It used to be a lot more positive when our dollar was stronger, but now we are in a deficit situation and it's hurting R and D. This is why we're asking the government to make this into more monetary terms, instead of just against tax credits. It can be against other taxes that we pay. We're just suggesting that the government see a possibility to help the R and D companies that want to continue doing R and D in Canada.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Ms. Bourque, and thank you, Mr. McCallum.

We now move to Mr. Crête.

You have seven minutes, Mr. Crête.