Finance Committee on Sept. 21st, 2006

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

No cost-benefit analysis?

[Roger Larson]

No, I think the cost-benefit analysis has been done, and it's been clearly shown that any time there were incentives to invest, jobs have grown in Canada with that investment. The result has been a greater tax take.

Perhaps one of the reasons personal income tax contributions—and I have to pay some of that tax too—have gone up is that people have been employed, and they've been making good incomes and are able to pay increasing taxes.

It becomes a devil's game to say, well, if you increase taxes on corporations and they reduce investment and employment goes down, then we really are in a very difficult situation.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

No, but in most advanced industrialized countries, they look at a balance, and I would suggest to you that our balance is out of whack—that in fact there's got to be a responsibility on the part of the corporate sector and a reasonable share. We've dropped to less than $27 billion out of a government budget of $220 billion. Is that fair? Should it all be on the shoulders of Canadians, which in fact means that individual Canadians get more of a burden because the government has to cut back, since as John McCallum keeps saying, the cupboard is bare and the pie is limited?

[Roger Larson]

I think governments have actually been able to afford to increase their spending.

But I can speak for my own industry, where we did get a tax adjustment a couple of years ago, and potash mining was able to get full deductibility of provincial royalties and a reduction to 21%.

The response to that was announcements by potash companies in Saskatchewan to invest over $400 million and two million tonnes of additional potash production. This is going to keep us as the world's number one producer and exporter of potash—and that's jobs, very good paying jobs in Saskatchewan. These jobs are $65,000-a-year-plus jobs. I think there's clear evidence throughout other sectors as well that what we've asked for works for Canadians—

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

But maybe that's why we should look at it on a selective basis.

[The Chair, Conservative, Brian Pallister]

Thank you, madam. Your time has more than elapsed.

We'll move to the second round with Mr. Savage.

You have five minutes, sir.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Thank you, sir.

Considering the timing of your appearance, I have to congratulate Mr. Barr on the work I know his organization, the CCIC, did on the vote yesterday,

As well, I commend the leadership of our colleague John McKay. I think that's very important.

I don't have a question for you. I support the 0.7%. I did when I was in government. I advocated for it when I had an opportunity and will continue to do so. I know it's a challenging goal. I know it's not easy; I think it is important.

I had that discussion with Mr. Martin when he was the Prime Minister, as you know, and I think for very genuine reasons, he felt that we couldn't commit to it. I think we should. I notice he's now spending a lot of his time in Africa doing some significant development work, and I commend him for that.

I have two questions. First of all, Mr. Sinervo, we've met before and talked about issues to do with research. I wonder if you could comment in both of your capacities at the University of Toronto, and also regarding who you're representing here today. Canada has invested a lot in research in the last five years and has gone a long way in publicly funded research to the top of the G-7 and G-8, but it leaves some holes. I know that you and your coalition have campaigned hard and made a good case for more funding.

One area I would like to you ask you about is the indirect cost of research. As you know, in the economic update last year, the government committed to fund up to 40% of indirect costs, seen as sort of the full indirect cost package. But that didn't pass, and it wasn't brought in on the 2006 budget. Can you comment on the importance of getting to the 40% mark on indirect costs?

[Pekka Sinervo]

Thank you, Michael.

The government has in fact made huge changes in the way it actually approaches research and development. The investments in various mechanisms--CFI, Canada research chairs, and the indirect costs--have been extraordinarily important for the university sector in particular.

As dean of arts and science, I'm responsible for recruiting approximately 50 academics a year to my university, and approximately half of them are outside of Canada. Approximately 30% of our graduate students come from outside of Canada. Approximately 20% of our undergraduates now come from outside of Canada. We see these investments as actually being extraordinarily important in Canada's position within the world as a leader in research and development, and in fact attracting talent to Canada. Most of these people stay and actually contribute to the economy. These are extraordinarily intelligent people.

That's the university sector that is actually playing that particular role. Indirect cost was a very significant element of that investment. I think the 40% goal that was set by the former government was an appropriate goal. It has clearly made a huge difference getting halfway there, and that's approximately where we're at, at the moment.

On the astronomy file, it has made a significant difference to have even the 20% of indirect costs, to really be able to capture all of the productivity and the impact that the university sector is able to add with that.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

I don't want to cut you off. I appreciate the answer. I think you're right.

I do want to ask Mr. Cleland a question from the CGA point of view.

Natural gas is well established in Canada, though not in Atlantic Canada, where it's a new and fledgling industry--the distribution of natural gas. We have gas systems now set up in New Brunswick and Nova Scotia. I don't know if you can answer this question, but in a province like Nova Scotia, with predominantly fuel oil for home heating and predominantly thermal generation of electricity, it would seem to me that natural gas would be important. I think it is important.

First of all, I'm not sure if you could comment on the state of the industry. Is it coming along as well as we had hoped initially? But secondly, are there any specific federal initiatives in greenfield markets like Atlantic Canada that should be employed?

[Michael Cleland]

I think the short answer is that it's not coming along quite as well as we might have hoped. A new market is a tough place because you have to put a lot of pipe in the ground. In a place like Nova Scotia, as you're well aware, it's rock. It's expensive to get that pipe in the ground, and you're working with customers who don't understand your industry or its benefits.

In terms of specific federal initiatives, there is one that we've put in our proposal. We think improving the capital cost allowance treatment of natural gas pipe puts it on a level playing field with other industries, such as electricity, and makes it more likely that we can get the cost of that down and get the kinds of benefits we think gas can deliver.

[The Chair, Conservative, Brian Pallister]

Mr. St-Cyr, you have five minutes.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Thank you for appearing before the Committee today to present your views.

My first question is for Mr. Peacock, who is with the Association of Fundraising Professionals.

Earlier this week, representatives from Philanthropic Foundations Canada appeared before the Committee. I imagine that you work fairly closely with them. Indeed, my understanding is that you work for them. I would like to get some clarification with respect to your recommendations.

When they appeared before the Committee, their primary recommendation was abolition of the capital gains tax on publicly traded securities that take the form of donations to private foundations. They talked about applying the capital gains exemption to securities donated to private foundations.

However, you have talked about completely eliminating the capital gains tax on donations of both land and real property to charitable organizations.

Why this difference? Do you support their demands all the same?

[Rob Peacock]

We totally agree with the capital gains exemption for private foundations. In fact, I just inserted that at the end of my remarks. We do support them.

I think it's the Canadian Association of Gift Planners that may have been here earlier this week, so we're in total agreement. We're taking it a much larger step further. With my comments to the committee earlier this year, I actually tabled the whole notion that in addition to the capital gains on marketable securities, the committee recommend to the government that in the budget we also include land and property.

Part of that is because in 1995 ecological lands were brought in and could be donated. In 2000, the capital gains exemption was provided for ecological lands. What we said in our position paper to the committee, and are saying here today, is totally congruent and consistent with what we've been saying since 1995.

So there are four aspects of giving, and I'll try to make this very brief. If you open up all the different opportunities to provide, I think we need to provide an opportunity to give on a level playing field. So on giving capital gains exemptions for marketable securities for private foundations, there is no reason private foundations couldn't receive the same kind of tax treatments, and so forth. That would just increase capacity.

Individuals who hold private land and/or property--of which there are billions of dollars' worth--should be provided with an opportunity to give to charity as well. So no matter what kind of security and/or ownership you have, we'll be treating everybody the same. This is not dissimilar to what happens south of the border in the United States. So nobody is disadvantaged.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Fine, thank you.

My second question is for Mr. Larson from the Business Tax Reform Coalition. The Bloc Québécois has always favoured targeted tax relief that has a productive effect on society, particularly accelerated amortization of capital assets. On the other hand, lower taxes across the board reward both good and bad investors, particularly since corporate taxes have already been cut significantly. The corporate tax rate dropped from 28% in 2000 to 21% in 2004.

If the Committee were to make only one recommendation to the government, either to reduce asset depreciation or lower the federal tax to 17%, which one would you recommend?

[The Chair, Conservative, Brian Pallister]

Could you please make it a ten-second answer?

[Roger Larson]

Yes, thank you.

Amortization of capital cost allowance...because this is not a tax reduction; it is a deferral of taxes. We will still end up paying the taxes. The only tax adjustment we're asking for is one that won't take place until 2011.

[The Chair, Conservative, Brian Pallister]

Mr. Del Mastro.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, Mr. Chair.

Mr. Larson, Jack Mintz of the C.D. Howe Institute concluded that taxation reduces the economic gains from work, investment, saving, and risk-taking, undermining a country's overall competitiveness. Further, research by the Atlantic Institute for Market Studies demonstrated that high taxes discourage economic growth and investment, and today's competitive, wide-open economy requires precisely the opposite approach.

Perhaps with this in mind, and recognizing that a lower tax rate would encourage significantly greater foreign investment, would a lower tax rate necessarily mean lower tax revenues? In fact, doesn't it often lead to exactly the opposite--higher tax revenues--even though the rate is lower?

[Roger Larson]

Thank you.

Yes, I agree with you that lower tax rates equal more tax revenue, because of the investment that will take place, the growth in the economy, and the increased number of jobs that will flow through that.

If I can just supplement and return to one of the previous questions very briefly, on R and D, in my industry the president of the international institute of plant nutrition that I referred to is a Canadian, and the vice-president for Asia programs for that institute is a Canadian. These people are both professors at the University of Saskatchewan as well, and they have invested in R and D in partnership with the agricultural community in Canada. I think it's important to recognize that much R and D is in fact global, and what we're talking about when we talk about investment is the application of that technology. Quite often we are using global technologies to foster our investments.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you.

I have another point that I really need to get to here. In fact, a lot of the shift we see in overall taxation revenues.... We know that the revenues of the government have actually expanded quite greatly over the last number of years, and there has been a redistribution, but I think we could argue--and perhaps you'll agree with me--that that this is partially due to the fact that personal incomes have increased, hence personal income taxes. Also, in a strong economy that is built on corporate investment, we have seen consumption taxes rise.

So all these other areas of taxes tend to go when corporate investment is encouraged in the country.

[Roger Larson]

Yes.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you.

Mr. Keating, I have a real quick question for you. What types of programs used to exist that no longer exist in R and D for your industry?

[John Keating]

The industry has grown. It's not that any specific programs have gone away, it's just the amount of money available that's going to programs is going down in real terms.

It's what I call a policy of benign neglect: we don't know what's going on; we just ignore it; we just fix the budgets and eventually it'll sort of disappear. And I think that's a huge mistake.

[Dean Del Mastro, Conservative, Peterborough, ON]

So do you have any numbers as to what the budget used to be versus what it is now, approximately?

[John Keating]

Yes, well, there are some detailed numbers, but it's more complex than that because you start with an A-base budget, which was $320 million, and over years and years the effective buying power of that is reduced. Second to that, this money is taken out for other things. In fact, I think maybe even some of the generic work that's going on at the moment is talking about taking money out of the budget, which is amazing to me. The net result is the amount of money available to actually execute on programs, launch satellites, and do good things is less than it used to be.