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.