Finance Committee on Sept. 26th, 2006

[Dean Del Mastro, Conservative, Peterborough, ON]

You can comment on that if you like.

[Doug Reycraft]

I recognize the fact that transfers to the provinces were cut post-1993. As a result, most of the provinces had to reduce transfers to municipalities and most municipalities had to raise property taxes. The deficit that caused the reduction in transfer programs post-1993 has been eliminated, but municipalities across the nation are concerned that the federal government and the provincial governments are talking about cutting taxes, having eliminated their deficits, while we're left still paying higher property taxes that originated from that post-1993 reduction.

On municipal-rural infrastructure funding--COMRIF here in Ontario--it has certainly helped to meet the needs of municipalities in a number of communities. But of all the applications that have been submitted for funding through COMRIF, only one-third have been approved. So for every winner we've had through COMRIF in the first two phases, we've had two losers. We know there's a smaller allocation of funding to be made in the third round than was allocated in the first two, so I don't hold out any hope at all that the needs of municipalities, as expressed by those applications, are going to be met.

We have concerns about the kind of program COMRIF is. It's application-based and project-based. Many municipalities have to hire consulting engineers to prepare the applications for COMRIF, and that costs a lot of money. Those applications are submitted to the COMRIF bureaucracy, which costs both senior orders of government a lot of money.

So when we look at the way that program is structured, consider that it has more losers than winners and is very expensive to apply for and implement, and compare it to the federal gas tax program, which is basically an entitlement program administered directly by AMO for the federal government, we think entitlement programs are a much better way to go.

[The Chair, Conservative, Brian Pallister]

Thank you, sir.

Our next questioner is Madam Wasylycia-Leis. You have seven minutes.

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

Thank you.

I'll start by asking Mr. Lafrenière a question about a concern we've had discussions on before, and that is the push by banks to get into the insurance industry.

I tend to agree with your paper, but one thing we've always heard is that there is much more involvement in the insurance business by the banks or credit unions in the province of Quebec. We're always told that this has not hurt competition. I'm just looking for some way to clarify that situation and what the real facts are.

[Normand Lafrenière]

In my view, it has hurt competition. When you go into a financial institution for a loan, they use that occasion to say they'd like you to meet the person next door, who just happens to be selling insurance. Of course, you can always say no, but it's difficult to say no when you're sitting there asking for a loan or just having your loan approved. You want to keep a good relationship with the person who just approved a loan for you. It's very difficult to say you don't want to meet the person next door. So that's the kind of advantage they have.

Another advantage they have is that whenever you have a loan with the financial institution, they know exactly when that loan becomes renewable and which company you're doing business with at the moment, so they can approach you at the right time of the year with the right information about you and say, “Hey, when your insurance comes due, why don't you do business with us? We have to meet anyway about that loan you have.” So it gives them a tremendous advantage over the competition, and we don't want those financial institutions to have that advantage over us.

When you say it provides more competition, when we look at the banks and the profits they make, I doubt there is much competition among them. If there were that much competition you would see higher profits and lower profits in given years, but you don't see that; they're always very high. So in our view, the competition is not there.

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

I'm not sure we've heard the end of this yet. I think the government has said it's not moving on it. But there's always the possibility that the pressure will mount and we'll see it reopened. In that case, I'm wondering if it wouldn't make sense for the finance committee of the Parliament of Canada to have wide-open consultations before any decision on that front by government.

[Normand Lafrenière]

The white paper that came out of the Department of Finance does not give additional insurance-retaining powers to the banks. But that may change. You will go to legislation, and you may hold consultations at that time. The same can happen at the Senate level. So there are still opportunities for the banks to provide their point of view. We want to make sure that our own point of view is listened to. So if you are to have consultations, we will be participants and we will encourage that.

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

Les, with respect to labour-sponsored investment funds, have there been any ramifications for the association, and this whole field generally, as a result of Crocus in Manitoba?

[Les Lyall]

We view Crocus as an isolated event. Unfortunately, these things happen periodically in business. But I don't think there has been a tremendous amount of fallout, particularly in Ontario, where almost all the funds belong to an association. This was one of the failings found by the Auditor General in Manitoba. So no, we don't see much fallout here. But it's caused us, as an industry and as an association, to take a serious view of the findings of the Auditor General, to take those to heart, and to make sure our members are abiding by good practices.

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

Thank you.

Let me just ask Cynthia and Barry.... Ducks Unlimited has a wonderful centre in Manitoba. You do great work in that province. I'm having a little trouble sorting out, through your brief, what would be.... You have four big areas you'd like to see changes in. What should we focus on if we had to choose? What would be the most important thing we could recommend in this budget process?

[Cynthia Edwards]

There are a couple of issues that could be addressed quickly, one of which is the disincentives I mentioned in my verbal remarks. Moving to a disincentive through taxes is essentially an incentive in reverse. If there were tax benefits to maintaining natural areas, this would encourage more retention of them.

Most of the area that we work in has to do with privately held lands, a lot of which is in the prairies. Tax incentives have worked there in the past in some of our pilot projects. That's a big area of focus, as well as the mitigation I mentioned in my verbal remarks.

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

I would like to ask Ian about immunization. You've made some recommendations that seem pretty modest. What we should have--and I think some provinces have raised this--is a national immunization program in which the federal government would provide the necessary funding right across this country, regardless of vaccine and province. Maybe that's the first place we should be stepping in, as opposed to a national pharmacare plan or a national home care plan. So I'd like your thoughts on that.

[Dr. Ian Gemmill]

An ounce of prevention is worth a pound of cure. We all believe that. So we should be investing in prevention. And it's worked. The data is unbelievable. In epidemic years, we had thousands of cases of measles and diphtheria, and now we have zero. It's remarkable.

We actually have a national immunization strategy. It is sunsetted--next year if I'm not mistaken. It's been helpful in trying to coordinate vaccine programs across the country. It involves such things as vaccine procurement for the provinces and vaccine safety. We strongly believe it has to be continued.

I don't really care how the vaccine is made accessible to kids, as long as it is. If the national government wanted to buy all the vaccine and give it to provinces, that would be just fine. If they wanted to do a trust fund like they've done before, that would be fine as well.

But you're right, it needs to be linked to a national immunization strategy and program. This would provide the underpinning. It would keep the discussions on track that are now going on among provinces' vaccine experts, so that we keep the coordination and no child in this country is lost through the cracks because of a bureaucratic set-up.

[The Chair, Conservative, Brian Pallister]

Thank you.

Mr. Lyall, the labour-sponsored venture capital funds have been relatively ill-received by the financial journalist class of this country, as you well know. The Crocus Fund performance in Manitoba and the fact that thousands of small investors lost everything there has been an incredible black eye to your industry. I know you're here representing the Ontario branch, but you also know that this is not something we can create an interprovincial border around.

So I'm surprised to hear you say—I don't want to say dismissively—that yes, your group is learning and has taken the lessons of Crocus, and that's it. A number of people are calling for a full public inquiry of the Crocus investigation in Manitoba. The whole fund failure needs to be investigated in the minds of some. What is your view on that particular proposal?

[Les Lyall]

Thank you for the question.

I have to be straightforward and clear and declare that at the firm I work for, GrowthWorks, we're somewhat conflicted, because we're involved in a proposed transaction to take over the Crocus Fund. So if I may, I'll limit my remarks to things that would represent the industry and the industry's view.

The Crocus matter represented some failings in the nature of governance of that fund and the structure of that fund as a consequence. In Ontario, the structure is somewhat different, such that the manager and the fund are totally independent, the fund has a totally independent board that reports to the shareholders and the investors, and there's a contractual relationship with the manager. That, by and large, is the experience in Ontario.

While we heed the Auditor General's remarks—and indeed, it was my predecessor who wrote the report on behalf of the Auditor General making recommendations on how to correct the problem in the future—I think you'll find that in Ontario most, if not all, of those recommendations are a matter of practice in the industry, and we don't really encounter that issue.

[The Chair, Conservative, Brian Pallister]

Thank you, sir.

Mr. Savage, you'll have five minutes.

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

Thank you, Chair, and thank you to our witnesses.

I'd like to talk to Mr. Lyall a little bit. Venture capital is always a tough business. It's particularly tough where I come from in Atlantic Canada. It's very hard to get. Small companies that go looking for VC from private investors often get asked where the government is on that file and what help they are getting.

Now, we have a magic bullet in the form of Tom Hayes in Atlantic Canada. He, as I'm sure you know, is with GrowthWorks in Atlantic Canada and has done a lot of work putting his team together.

The first question I have for you is this. New Brunswick has the New Brunswick Investment Management Corporation or something—and I realize you're Ontario, so you may not be able to answer this—where a certain percentage of publicly administered pension moneys go into venture capital; it seems to me it's a limit of 5% or something. The return has been pretty good. I don't know whether other provinces do that. I wonder whether you have a view about this being an effective way for government to seed new businesses.

[Les Lyall]

Thank you for the question. I am familiar with Atlantic Canada because I was responsible for a period of time until we started a new fund out there and Tom took it over. So thank you for that.

Venture capital sources in Canada generally, and in Ontario, as I mentioned earlier, come from two sources. One is retail venture capital, where we raise money from the retail public primarily through the labour-sponsored investment program. The other source of capital is pension funds. You referred to New Brunswick Investment Management Corporation as one example, where public institutions' pension money is managed and they allocate a certain percentage to venture capital.

Until a few years ago, and up until the tax act was changed, those allocations stayed in Canada and were invested in Canada and were managed by Canadian venture fund managers for investment in Canadian early-stage technology companies and so on. With the change in the foreign tax credits, those pension funds are now able to invest their money worldwide.

Their view of the world—and I think it's the right view—is that they ought to seek the best returns possible, and if that means investing in venture capital funds in the United States or in Europe or in Canada, or wherever it may be, it's their job to pursue the best returns.

The frank fact is that Canadian venture capital is a very young industry. It has barely gone one cycle in the investment cycle we live in, and our investment cycle runs anywhere from eight to twelve years. In the United States it's a 50-year-old industry, with a much better, well-developed track record and much more experienced managers, and therefore their performance has been better. So you find that those pension fund moneys, by and large, are invested in the United States now.

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

First of all, I think Tom Hayes has done a great job, and I think there is a role. In fact, I think ACOA is actually involved in the fund in Atlantic Canada. It does even the playing field, because it's very hard to raise venture capital in Atlantic Canada. We have some great start-up companies that are looking for assistance. So thank you for that.

This is to Mr. Gemmill.

We've heard from other witnesses about the importance of the continuation of the national immunization program. That was $300 million, $100 million a year, starting in 2004.

[Dr. Ian Gemmill]

My understanding was that provinces could draw on this fund for new vaccine programs, based on their population, over a period of three years, yes.

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

I think we all hope it will be continued, but I certainly hope we expand that.

When you hear stories, as I did the other day, about the human papillomavirus vaccine for cervical cancer, I think, there's some tremendous potential to further expand that vaccination program. I think the recommendation from somebody was for another $300 million over three years. That may be in your brief as well.

What is the potential for vaccines? Is it virtually unlimited? I mean, the payback is obviously very good, and you've monitored the payback as well as you can for some of these. But what is the potential for vaccines in Canada?

[The Chair, Conservative, Brian Pallister]

Mr. Gemmill, you have approximately 30 seconds to respond.

[Dr. Ian Gemmill]

Thirty seconds, okay, thank you.

It varies from vaccine to vaccine and from time in history to time in history. I'm glad you raised the papillomavirus vaccine, because there's the chance of wiping out--virtually wiping out--cervical cancer using this vaccine and screening. That's a women's health issue and it needs to be addressed.

I think we need to have a set amount of money that can be used and perhaps reserved from year to year so that as new vaccines come along, if we don't spend it one year, it will be available for the next year. For example, there's a rotavirus vaccine against diarrhea, a childhood diarrhea that keeps kids out of day care and keeps parents out of work, that I think is going to be an important one for us to consider implementing across the country as well.

[The Chair, Conservative, Brian Pallister]

Thank you, sir.

Mr. St-Cyr, you have five minutes.

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

Thank you very much, and thank you for appearing before us today.

My question is for Mr. Gauthier from the Canadian Automobile Dealers Association. I looked over your proposals on the GST as it is applied in used car sales. However, it is not charged when the seller is a retailer or an individual.

In one short paragraph, you say that the input tax credit system put in place in 1991 produced inequities when compared to the situation of unauthorized car sellers, and that the previous system is preferable to the one in place today.

I would like to hear a more detailed explanation of the input tax credit system, the inequities it produced, and who these unauthorized used car sellers are.