Good morning, Mr. Chairman, distinguished committee members, and fellow presenters. I am pleased to be with you this morning.
CMA Canada is pleased the committee has made Canada's place in a competitive world the core theme of its pre-budget consultations. We firmly believe that Canada's competitiveness in the world and the standard of living enjoyed by Canadians are linked directly to our ability to improve our labour productivity performance. In leading the way with budget surpluses, debt reduction, low inflation, strong employment growth and relatively solid GDP growth, Canada's economic fundamentals are enviable.
There is, however, some troubling news in an otherwise impressive story of economic performance: Canada's recent record on labour productivity growth and its impact on Canadian competitiveness.
If we want to continue having one of the best standards of living in the world, and if we want to maintain the resources we need to invest in programs that improve our standard of living, we must improve our productivity. This is why we focus on productivity-related issues, particularly on the role played by people, physical capital and innovation.
Numerous initiatives could be undertaken to improve labour productivity performance. We are mindful, however, of the government's determination to maintain balanced budgets, reduce debt, and lower the rate of growth in government program spending. Accordingly, we recommend selected investments in people, human capital, and innovation that should build a more productive and competitive Canada.
We therefore propose the six following initiatives:
One, increase the small business tax threshold to $500,000. We were pleased Budget 2006 raised the threshold for the small-business tax rate from $300,000 to $400,000, effective January 1, 2007. This initiative recognized that small businesses are key drivers of employment and economic growth, yet are constantly struggling with resource scarcity. We recommend that Budget 2007 continue to encourage small business by boosting the threshold to $500,000. This threshold increase would encourage small-business owners to invest even more in their businesses, including greater investment in information and communications technology, a key driver of labour productivity.
Two, establish a special capital cost allowance rate on information and communications technology equipment. The tax system has a considerable impact on business investment, and the tax treatment of capital property is particularly important. Capital cost allowance rates can influence the timing and level of investments made in machinery and equipment, including information and communications technology.
With the recent budget, the capital cost allowance system has been enhanced in Canada. However, the useful life of assets can change over time. It is therefore essential that CCA rates be assessed on a continuing basis. Given the amount of investment in upgrading ICP skills to improve productivity, we urge the government to make targeted improvements to the CCA system.
Three, provide a refundable investment tax credit for upgrading employees' ICT skills. An essential corollary to encouraging greater business investment in information and communications technology is ensuring that employees receive the training necessary to use that technology to its greatest benefit. This increased knowledge base can yield significant dividends through innovation and increased productivity. We therefore encourage the government to introduce a refundable tax credit to assist with the cost of training.
Four, raise the lifetime capital gains exemption to $1 million. Small-business owners, as you know, are eligible for a lifetime capital gains exemption of $500,000. Although it has undergone fluctuations, the $500,000 exemption level was first set for individuals in 1985 and was extended to corporations in 1987. It is not unreasonable, therefore, to increase the level of exemption after 20 years. We believe it should be doubled to $1 million. Such an increase would enable small-business owners to reinvest the tax savings into the economy in the form of “angel” money for existing family business enterprises or venture capital to help start new businesses.
Five, introduce a fellowships program to support businesses in all sectors.
Very few types of investments can generate the economic benefits of education. According to OECD estimates, adding one year to the education level can increase per-capita GDP by at least 5%. Education and training are one of the fundamental requirements of a productive, innovative economy. Competitive businesses have skilled employees.
Our brief to the committee also includes several recommendations to enhance the operation of the SR&ED tax credit. I won't go through them now because I'm mindful of the time.
Mr. Chairman, I thank you and your colleagues for your interest this morning, and I look forward to responding to any questions you may have dans les deux langues officielles during the question and answer session with this morning's panel.