Finance Committee on Oct. 3rd, 2006

[David Levi]

Thank you. The investments we make are the highest-risk investments of new companies, so we're at the very front end of generating new companies into the economy and trying to expand those economies.

In terms of a cost-benefit analysis, four studies have been done across the country in various provinces as to the effectiveness of investment by the federal government, and they range anywhere from a one- to a three-year payback to governments in new taxes created by the new jobs these companies are creating. The interesting thing about our business is that of the money we take in that's invested, almost all of it goes into hiring people in the high-tech and the life sciences sector and in advanced manufacturing, and very little of it is used on machinery, other than the computers. It's really the brains of the individuals that make these companies successful.

So we're very high in terms of the amount of jobs we create. And the other thing is, as I said earlier, we are completely oriented toward export development. Almost all the revenues come from export opportunity.

To answer your question more directly, the opportunity for government is that it's a very low-cost process for government to create high-paying jobs. A lot of statistical work has been done on the types of jobs being created in the high-tech sector. They're all above-average-paying jobs across the country, whether they're specifically high-tech engineering jobs or the assistance to those individuals.

At the end of the day it's a very low-cost program, but it provides very high-risk capital to build companies that become very profitable and very quickly start repaying taxes to the government.

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

Thank you.

Probably you can't comment on this question about the Crocus Investment Fund in Manitoba. I assume you're involved in some way, but I'm hoping you could say the benefits of venture capital programs, despite some problems along the way, still outweigh the problems.

[David Levi]

There are a couple of interesting things to note. I can talk a little bit about Crocus because our company in the province is trying to provide them with solutions. The first thing to understand about Crocus is that a unique set of circumstances ended up creating the political and economic problems they had, and I won't get into that.

There are two interesting things to note. One, the business community has come out solidly on the side of creating more venture capital within the community and supporting the idea of having another fund in the province and increasing it. Two, through a review panel they've set up, the province itself has been looking at the nature of labour-sponsored funds and how critical they are to the economy. They've come forward saying we must continue to improve the number and the amount of money that's being raised by labour-sponsored funds and pass legislation. Our request was to move up to $10,000 or more per individual, and they've now passed legislation post-Crocus encouraging people to put up to $12,500 into new funds in Manitoba.

Having gone through the worst experience possible in Canada, which is what Crocus went through, you can see you've got very strong support from the business community as well as from the government saying we need to continue to increase this.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Madam.

Mr. Jules, I appreciated your words again today. It's nice to see you again.

The Auditor General and numerous other observers--aboriginal leaders, community members--have commented repeatedly over the last number of years on the relative ineffectiveness of the use of housing dollars. You and I know that many more effective models could achieve better results, not least of all for the taxpayer, most of all for aboriginal people across this country.

In particular, on-reserve housing has been a problem. One of the areas you alluded to briefly and that I'd like you to expand on is the open-market housing models dozens of first nations communities are using. Is that correct, and what are the preliminary indications of the effectiveness of the dollars being used in that model as opposed to, shall we say, the old-fashioned model?

[Manny Jules]

In my community we started with a development with long-term leases. That quickly turned into a situation where we attracted a lot of first nations investing in property on reserve. They realized they would be able to utilize those revenues to get into small businesses--use those housing dollars to invest in themselves and have long-term certainty.

But we've had a lot of resistance from many bureaucrats within the Department of Indian Affairs to move down this path. I've also noticed a lot of disagreement between CMHC and the Department of Indian Affairs over which kind of housing approach should be taken.

The fundamental basis in the long term has to be a proper land title system that will allow first nations to utilize their lands to the optimum--not only individuals. Housing reflects the individual. But it's also important to maintain the underlying interest by first nation governments so they can continue to exert jurisdiction over those lands so they don't become checkerboard reserves. That will ultimately empower individuals, through the utilization of a true market-based housing approach, and allow them to get into first nations businesses and break down the economic barriers that prevent them from occupying any roles in the market-based economy.

First nations are really a huge part of the fiscal imbalance of this country, just the same as the provincial governments--

[The Chair, Conservative, Brian Pallister]

I'll cut you off in the interest of time. I know committee members share interest in these issues. You alluded to the resistance within federal bureaucracies. This is not unheard of, and certainly it's frustrating.

On the issues you raised about the practices that are in place now, how could this committee assist you and others with your concerns, and move forward to adopt these kinds of best practices across the country? In terms of furthering the adoption of these kinds of practices, what specific suggestions would you make to the committee?

[Manny Jules]

One of the requests we've made to the Department of Indian Affairs is to allow us to develop the tools that are required for first nations to get into a true market-based housing approach. That's been resisted by the Department of Indian Affairs bureaucracy. That would allow first nations to develop building codes so there isn't a mould situation across the country.

We recommend utilizing tax revenues so we can build proper infrastructure in communities to deal with water quality, sewage, and the like.

We also recommend having a model that we can transport to first nations right across this country. I think that's critically important, so there is an institution in place that facilitates a true market-based approach to housing.

[The Chair, Conservative, Brian Pallister]

It also wouldn't download the obligation to prepare the bureaucratic structure on each first nation.

[Manny Jules]

That's right. In dealing with CMHC, one of the problems they have is this whole notion of uncertainty in investing on first nations land. So that attitude has to change as well.

[The Chair, Conservative, Brian Pallister]

Thank you, sir.

Mr. McKay, you have four minutes, sir.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you for that pathetic amount of time, which I now have to split with Mr. McCallum for his last 40 seconds.

I'm going to focus entirely on the board of trade. In the 13 years of Liberal government--and actually in the last year--you'd be interested to know that program expenses went down almost one full percentage point of GDP, from 13.7% to 12.8%. In absolute terms that's an almost $1.5-billion reduction in expenses.

One of your main thrusts is the reallocation of 5% of program spending. What program spending are you referencing here? I ask that because 25% of the federal government's revenues are transfers to persons, 20% are transfers to other orders of government, public debt is 16.2%, and national defence is 7.2%. So you're really left with about 16.6% for programs.

Do you think the current--and hopefully not very long-living--government will focus its 5% out of that area, or out of the entire $220 billion worth of revenue?

[Dave Park]

I would suggest that the broader perspective is the appropriate one. So for example, to the extent that debt is paid down, it frees up additional moneys for other purposes. I wouldn't restrict it to the core. I think the government has to look at everything and ask whether what they're doing, including for example the amount of debt they're carrying, is appropriate.

You've mentioned the armed forces. We aren't spending enough there, so in fact reallocation is a part of it. Certainly, if we look at our obligations opposite our partners in NATO, we should probably be closer to 2% of GDP rather than the 1.1% or 1.2%--

[John McKay, Liberal, Scarborough—Guildwood, ON]

Would you take money out of pensions in order to be able to do that?

[Dave Park]

There are so many good things we could spend social funds on. We have to look at it, step back, re-evaluate it all, and balance it. That's a job that is tricky and very difficult for government. We're just saying that you have to look at the existing programs and cut far more than $1 billion a year out of them.

[John McKay, Liberal, Scarborough—Guildwood, ON]

The previous government committed 8% increase for CIDA funding. Would you roll that back?

We committed 6.5% increases in health care funding. Would you roll back that?

We committed a 4% increase in funding for equalization payments. Would any of that be touched? Because that's where the real money is.

[Dave Park]

I think we should start with health care and reform the system, so you're able to do it. You can't do it under the current system. As long as you're stuck with a lot of existing parameters, you're going to handcuff yourself from being able to do some of these things.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. McCallum.

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

Thank you to my colleague for his unprecedented generosity.

I would like to say that I know the manufacturing sector, with the high dollar and high energy costs, is in trouble. I really like the idea, at least in theory, of the faster depreciation--the two year.

At the risk of sounding petty or crass, can you tell us how much that would cost?

[Werner Knittel]

It would be $5 million over the...[Technical difficulty--Editor].

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

These things tend to be expensive. I know the weakness of the manufacturing sector in many parts of the country is a huge issue.

If you had just one thing that the government would do, would that be at the top of your list?

[Werner Knittel]

That would be number one.

If I could turn the question around, Mr. McCallum, I think the cost to the Canadian economy of not doing it and losing another 200,000 jobs, which we've already lost over the last several years, would far outweigh the--

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

Yes, I know that kind of answer, but I'd still want to know how many jobs it would cost.

Thank you very much.

[Werner Knittel]

I will get you that answer.

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

I think it's a great idea.

[Werner Knittel]

Thank you.