Finance Committee on Oct. 17th, 2006

[Gilles Séguin]

We would endorse sustaining operating funding over project funding.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you. I appreciate that.

Mr. Murphy, I wanted to come back to a couple of points you made, and I wanted to ask you a very brief question.

My personal position is that you create strength in the economy. You create a robust economy. You create opportunity. You give from a position of strength. I believe that if you open the door, people will walk through it.

Would you agree with where I'm going?

[John Murphy]

Surely, and I think that's fair enough, but people have to have the tools to be able to get through that door.

[Dean Del Mastro, Conservative, Peterborough, ON]

I agree. That's why we've made significant announcements in such things as skilled trades and so forth. A lot of people find themselves in poverty in Canada, and we know that the list has grown over the last decade. We know that there are more people who don't have homes. We know that there are more people who rely on food banks.

One of the things we're working on is bringing skills up. Really, a lot of people have tremendous abilities, but they haven't been trained in skills and so forth so that they can jump from the $8-an-hour job, which does not sustain any kind of living, to the $20- to $30-an-hour job that will provide a living.

You would agree that these are positive steps we're taking?

[John Murphy]

These are indeed positive steps. We need to get more training so that people can get back to work. We need to get those skills honed so that they can begin to contribute to society and look after their families like any one of us.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, sir.

Ms. Cutler, you talked a little bit about an increase to the OAS. A lot of times when there have been increases to the old age security program, it has been a percentage increase and hasn't amounted to very much. Has the OAS even kept up with inflation over the last number of years--real inflation?

[Judy Cutler]

No. The short answer is no, it hasn't. We hear constantly from people who are struggling to make ends meet because the percentage is so out of sync with what the real cost of living is.

[Dean Del Mastro, Conservative, Peterborough, ON]

Right. I agree.

Do you think a majority of your members would prefer a percentage increase or an across-the-board, easy-to-understand increase? For example, suppose we looked at adding $25 a month, something they could actually physically see, onto their pension cheque. Would that be something they would prefer, or do you have a position on something like that? How would you like to see us go about implementing increases to the OAS if we were to do it?

[Judy Cutler]

What we would like to see is some kind of review of the entire public pension system, so that it's not tinkered with here, there, and everywhere, and so that there's a holistic, integrated upgrading of it--of the CPP, the GIS, the OAS--because doing a bit here and a bit there helps a few, but it doesn't really help enough.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you.

Mr. Upshall, you propose setting up a commission. How long would it take to set up something like that if funding were set aside, and what would be the outcomes of such a commission? Would the outcomes be to come back and recommend additional spending? Is that what the ultimate outcome would be?

[Phil Upshall]

I'm not recommending the commission. The Senate Standing Committee on Social Affairs, Science and Technology, co-chaired by Senators Kirby and Keon, did. They worked two and a half years to develop the model and the structure. The development of it could go ahead very quickly, either through Parliament with a bill or through the Privy Council Office.

The establishment of it would be very similar to what the Minister of Health is working on now, the national cancer strategy. As you know, last year you put $276 million into that. I think the model of the commission, the management, will be very similar to that; it's not a cookie cutter, but there is a precedent we can easily follow. We've been working with the government, the Prime Minister's Office, the Minister of Health, and others in moving that forward, but it's very slow, and the issues are always coming back to us. It's to get the money, so that's why we're here today--to get the money.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Mr. Upshall, and thank you all for your presentations and your participation in the discussion today. It's much appreciated, and we thank you again.

We'll invite the next panel to replace this panel in their seats, and we will suspend for about five minutes.

[The Chair, Conservative, Brian Pallister]

We will recommence. I'll invite our panel to be seated and be comfortable and feel welcome.

I welcome you on behalf of the finance committee, who are currently engaged in the onerous challenge of preparing recommendations for the finance minister for his next budget, and we appreciate your time here today. I will signal you when you have a minute remaining in your presentation time, and then when you have less, and we'll cut you off at five minutes in order to allow these people to question you. Look forward to that; I'm sure you'll enjoy it.

We'll begin immediately with the representative from the Ottawa Centre for Research and Innovation, Mr. Jeffrey Dale, president and CEO. Welcome, and proceed.

[Jeffrey Dale, President and Chief Executive Officer, Ottawa Centre for Research and Innovation]

Mr. Chair, thank you very much.

It's a pleasure to be here once again. Our brief is just being handed out to you now. I apologize; we just got the call on Friday. You will find copies of our brief in French and English being distributed to you at this moment.

I'd like to focus in on just two items primarily, for the consultations today. The first one is the SR&ED tax credit and changes that we would like to see in the SR&ED program. The second one is access to capital, primarily limited private equity capital, and structural problems coming in from the United States.

On the SR&ED tax credit system, earlier this year OCRI and ITAC jointly commissioned a paper on how to improve productivity through the SR&ED program. The purpose for doing this was because we have made representations to this committee for the last number of years on changes that are necessary to the SR&ED program, and we have seen some of those changes implemented, but many of them not. I understand the challenges this committee has, because there have been over 13 different submissions made to this committee over the past number of years. What we did was we retained some former officials from the Department of Finance and from CRA to actually help us with this study, to look at all those 13 reports that were produced to come up with what is the main recommendation that we find is consistent among all these reports.

You will find in our brief that what we have is a synopsis of this. The main thing we are asking for is when you take a look at the SR&ED program, which does finance private sector innovation in this country, what we like to see is that all SR&ED claims become refundable, and refundable up to the $10 million in qualified R and D expenditures to a maximum of 20% or $2 million.

Now, we did have officials from the Department of Finance, so the next question that's usually asked is what is the cost of this to the treasury? We cannot estimate it to any fine level because the data are just not available to do that. We do know that there are over 11,000 claimants every year in the SR&ED program, and that a combination of the credits going forward is about $2.6 billion in the refundability. We estimate that the cost to make all claims refundable up to $2 million would be between $500 million and $1 billion. But it would certainly go a long way to encourage R and D performers in Canada to continue to do so, and also to increase that level of productivity improvements.

The second item that we'd like to bring to your attention, which we have done before, is on the venture capital and the private equity side. Ottawa has been very fortunate to attract, on a consistent basis, between 20% and 25% of all the venture capital money that flows into Canadian companies. We are also very successful at getting approximately 50% of all foreign venture capital that comes into Canada. However, that silver lining has a bit of a cloud over it because there are barriers to U.S. limited partnerships investing in Canada that cause them not to. And most of the companies that receive U.S. venture capital financing are forced to go through a very complicated structure to either change their head office to a U.S.-based company or to do something with their shares, which makes it very awkward for them, and very expensive, and typically we lose these companies to the U.S.; they now become U.S. head office companies.

What we are recommending to the finance committee is that you take a look at some of these provisions that are restricting or limiting the foreign limited partners from investing in Canada. Those conditions have been made public in a number of different fora, and through the task force on early stage financing, which functioned a number of years ago, and the main issues here are to remove the barriers to treat the U.S. tax-exempt institutions from investing in Canada in a tax-exempt fashion in Canada; to remove the Income Tax Act provisions that trigger taxation from cross-border mergers; and to remove the IT provisions that trigger withholding tax on capital gains made by foreign investments in private equity.

Mr. Chair, these are not going to cost the treasury very much money because they're not investing right now in Canada. As a result of this, their money is staying offshore and they're forcing Canadian companies to structure themselves to be offshore entities.

Thank you.

[The Chair, Conservative, Brian Pallister]

Thank you very much, sir.

We'll continue with the Co-operative Housing Federation of Canada, Ken Elliott. Welcome, sir, and proceed.

[Ken Elliott, President, Co-operative Housing Federation of Canada]

Thank you very much for giving me the opportunity to be here today.

My name is Ken Elliott. I am the president of the Co-operative Housing Federation of Canada. I live in the Eastwood Housing Co-op in Woodstock, New Brunswick, where for the last 15 years I've had the privilege of raising my children as a single parent and experiencing first-hand what a community, in particular a co-op community, is all about.

Cooperative housing in Canada is a success story dating back almost 40 years. Today, housing co-ops provide over 90,000 safe, secure, affordable homes for over a quarter of a million Canadians in every province and territory. Many of them are in all of your ridings.

About 40% of these households use federal or provincial assistance, paying rents that are set at an affordable level according to their income. Other households pay market rents. Housing co-ops are mixed-income communities and provide good, affordable rental homes for the working poor, seniors, young families, and middle-income households.

But there is an increasing need for more cooperative housing, particularly in the major urban centres. We believe cooperative housing could provide ongoing affordable homes for some of the 1.4 million Canadians spending more than they can afford for housing. The housing market has failed these people, and the government needs to intervene to provide this assistance. We're asking for government policies that will allow some of the funds flowing through the provinces for housing to be used to create more new cooperative housing.

What's more, we can provide an opportunity for more affording housing in our own existing cooperative housing stock. These co-ops could have the ability to subsidize more households, but unfortunately they do not have access to the federal subsidy intended in the program. Because of a flaw in the administration of the program, the subsidy co-ops receive is lower than it should be. Restoring this lost subsidy to these federally funded housing cooperatives would be a simple, effective, and quick way to create more affordable housing across Canada, as would making additional rent supplements available.

In closing, we strongly recommend that the following initiatives be included in the 2007 federal budget: one, federal funds to support the development of new housing cooperatives, or the addition of new units in existing co-ops delivered through the provinces and territories through capital grants or forgivable loans; two, allocation of funds to the provinces and territories that can be used to provide rent supplements to existing housing co-ops and allow existing housing co-ops to accommodate more low-income households; three, new capital funding that will fix leaky co-ops in British Columbia and housing co-ops in Quebec that were developed under the stringent modesty criteria; four, continued funding for other initiatives that address homelessness, such as the Supporting Communities Partnership Initiative, SCPI.

Affordable housing should be considered part of the infrastructure needed for healthy, safe neighbourhoods and cities. Housing cooperatives are ready to work with you to make this happen.

Thank you.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Mr. Elliott. We appreciate your presentation.

We'll move to Margaret Eaton now, who is here on behalf of ABC CANADA Literacy Foundation.

Welcome. It's over to you.

[Margaret Eaton, President, ABC CANADA Literacy Foundation]

Thank you.

It's a pleasure to address this committee on the subject of adult literacy and its impact on our country. The briefing document for this committee, “Canada's Place in a Competitive World”, asks us to consider whether our citizens have “the proper skills...to work and to save.” At ABC Canada Literacy Foundation, we are very concerned that millions of Canadians do not have the proper skills to work and contribute to our nation in a changing world.

One of the foundations of any nation's competitiveness is the literacy of its citizens. Stats Canada tells us that adult literacy is increasingly understood to be fundamental to an industrialized nation's economic performance, and also to the individual's social and economic well-being, especially in the context of rapid social and economic change.

Here is the heart of the problem: adults with low literacy levels make up 42% of our population. That represents nine million adult Canadians. It's an astonishing number that represents everyone from those who can read and write very little to those who dropped out of high school before earning their diploma, and even to those people who have a diploma but still can't read and write at a proficient level.

Many of these adults are employed but in jobs with a very low literacy requirement, and these jobs are becoming harder to find and keep as the technology and the literacy demands placed upon employees increase. The majority of new jobs in the future are expected to go to people with at least some post-secondary qualifications.

Stats Canada and the Organization for Economic Co-operation and Development state that Canada's low literacy levels have not improved in a decade. We pay a collective economic price for this persistent dilemma of low literacy. Differences in average literacy skills explain over half of the differences in long-term economic growth in the world's richest countries, including Canada.

An investment in adult literacy is a direct investment in Canada's productivity. StatsCan research indicates that a rise of 1% in literacy is associated with a 2.5% rise in productivity and a 1.5% rise in gross domestic product per person. This means that if Canada found a way to increase literacy levels by 10% over a decade, GDP per capita would rise a staggering 15%, equal to roughly $118 billion, in today's terms.

A recent report from the Canadian Council on Learning comes to the conclusion—and we agree—that government has an important role to play in encouraging and facilitating investment in learning by firms and workers. We believe that the federal government, in partnership with the provinces, territories, and business, could play a unique and powerful role in increasing the literacy levels of Canadians.

We have two recommendations to make to the committee as it considers the budget. The first is to adopt a national plan to address Canada's literacy gaps. Last year the seven national literacy organizations worked to create a national literacy action plan. In essence, the plan calls for the development of a quality adult literacy basic education system, so that learners of any age can increase their skill levels.

The United Kingdom is a leader in its creation of the national skills for life program, a broad government initiative that is well on its way to meeting a target of 1.5 million citizens trained by 2007. A Canadian strategy would set national goals and targets, standardize results, and ensure that all provinces and territories reach national goals.

Our second recommendation is a call to restore the funding to the national literacy secretariat, funded through the Department of Human Resources and Social Development. This program has just undergone a significant reduction in its budget, due to the federal spending cuts announced on September 25. The program budget was cut by $17.7 million. These are funds that previously supported the provincial and territorial literacy coalitions—organizations that are fundamental to the development and implementation of adult literacy services across the country.

The cuts have been severe, and I'll tell you about a few of them. The Yukon Literacy Coalition programs are jeopardized, and unless additional funds are found, the coalition will close its doors. The Northwest Territories Literacy Council has seen one-third of its budget cut. Literacy BC will lose support of a number of its activities, including the development of literacy practitioners in the field. Half of Literacy Alberta's funding is cut, and the Saskatchewan Literacy Network reports that it's in immediate jeopardy of closing its doors. Literacy Partners of Manitoba will lose 80% of its funding. I could go on and on. Every single coalition is hurting because of these cuts.

We would ask that the $17.7 million be restored in the next budget. We would also ask that provincial and territorial groups be reinstated as eligible recipients of funding through this program. These groups are really the backbone of our nation's adult literacy programs.

Literacy and essential skills upgrading is fundamental to Canada's economic prosperity and competitiveness, as I have pointed out. Other western nations are waking up to the challenges of adult literacy and the implications for their nations in the longer term.

If Canada is to maintain and increase its competitiveness, it must address the millions of Canadians who struggle with basic literacy. We live in a world where those who read and write with proficiency will be highly sought and those who do not will be left behind.

Thank you.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Ms. Eaton.

As our next group, we have the Investment Funds Institute of Canada, Mr. Jamie Golombek. You have five minutes, please.

[Jamie Golombek, Chair, Taxation Working Group, Investment Funds Institute of Canada]

Thank you very much.

I have a day job as the vice-president of tax and estate planning with AIM Trimark Investments. AIM Trimark is also a member of the Investment Funds Institute of Canada, so I also volunteer with that organization and head up their taxation working group. It's in that capacity that I come here today to make some comments specifically on what the Investment Funds Institute of Canada is looking for as recommendations on tax policy.

Specifically, we really believe that as a country we need to address the issue of secure retirement for all Canadians. We have an increasing number of Canadians who are reaching retirement age, the baby boomers—you've been reading about that in all the local media—and we have a number of recommendations, which I'll take you through. They're fully in our brief, which we've circulated earlier. We want to encourage Canadians themselves to sit in the driver's seat when it comes to saving for their own retirement, as opposed to relying solely on government programs or even partially on government subsidies.

We have a number of recommendations that specifically focus on incentives that will encourage and enable all Canadians to save for their own retirement. In fact, we have divided our five recommendations into two sections. We have a number of recommendations on non-registered investing—this would be investing outside of a pension plan or an RRSP or RRIF—and we have a number of recommendations for registered investing.

Firstly, on the non-registered side our first recommendation is to maybe do some further research and perhaps implement the tax pre-paid savings program or TPSP. This was talked about a couple of years ago and is very similar to a Roth IRA that exists in the United States. This type of savings vehicle would allow every Canadian to contribute to a tax-deferred vehicle. They wouldn't get a tax deduction for those contributions, but while the money is inside the plan it would grow on a tax-deferred basis. The added benefit is that when the money comes out, it is also non-taxed. The real benefit here is that if it's non-taxable on the way out, it will probably encourage lower-income Canadians to start saving for retirement.

The current problem you're all familiar with is the very convoluted clawback system we have for the guaranteed income supplement. There have been numerous studies that show that for lower-income Canadians it doesn't make sense to save inside a registered plan, because every dollar they take out of that plan directly impacts their government support. If they were able to save in a different type of vehicle, such as a tax pre-paid savings plan, having the withdrawals come out on a tax-free basis might encourage them to save for their own retirement.

Furthermore, we would recommend introducing some type of grant program—similar, let's say, to the RESP education savings grant of 20%. Let's say a low-income Canadian, defined as someone getting under $35,000 or so a year, could contribute $1,000 to this type of vehicle. Perhaps there'd be a 20% matching grant by the government of $200, to encourage all Canadians to save for their own retirement.

Our second recommendation would follow up on the suggestion that was made in the run-up to the recent election by the Conservatives, which was the elimination or at least deferral of the capital gains tax. We certainly know, in looking at behavioural finance studies, that one of the biggest impetus for people reallocating assets is the inherent capital gains. As the Conservatives suggested in their election brief, the ability to defer capital gains tax if you reinvest the proceeds within six months is a very attractive idea.

The question is implementation. There have been a number of ideas suggested on how this might work. One was by the C.D. Howe Institute, suggesting that there might be a capital gains deferral account. While this idea is certainly intriguing, the implementation administratively might be complex. Perhaps the government wants to go back to re-examine something like an exemption for capital gains entirely. That would really simplify the system.

Turning to the registered plans side, we have three recommendations. The first one is simply to increase the age at which you are required to take money out of an RRSP. With Canadians living longer, and also with Canadians working longer, it might make sense to increase that age, which is now at 69, and bring it up to maybe 73.

Second of all, for low-income Canadians we would like to exclude any RRSP and RRIF withdrawals, when they're taken out, from income—in other words, from income in terms of the GIS clawback. We would like to see, if lower-income Canadians withdraw money they've managed to save for their own retirement inside an RRSP or RRIF, that those withdrawals are excluded from the calculation of the guaranteed income supplement, so that they would actually be encouraged to save for their own retirement.

Finally, here is our last recommendation. Although we found that the RRSP contribution limits have been increasing over the last number of years, what we would recommend is that we continue to allow further increases to the RRSP limits, so that Canadians who need to save on average about 70% of their earnings to be able to have retirement income would be able to also maximize their opportunities.

Thank you very much.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Golombek.

From the Canadian Courier and Logistics Association, we have Mr. Cormier. You have five minutes, please.

[Al Cormier, Executive Director, Electric Mobility Canada, Canadian Courier and Logistics Association]

Thank you, Mr. Chair.

I am Al Cormier, representing Electric Mobility Canada, which is an organization of industry members that are devoted exclusively to the promotion of electric mobility as a readily available made-in-Canada solution to our country's increasingly complex energy and environmental problems. Accompanying me today is Phil Cahley, president and CEO of the Canadian Courier & Logistics Association, as well as the chair of my government relations committee, Mike Elwood.

We are here to talk about the possibility of accelerating the use of hybrid electric technology in Canada's commercial fleets. The current situation is that we don't pay enough attention to commercial fleets in terms of their contribution to the environment. They operate mainly in urban areas and in constant stop-and-go traffic. They frequently stop for deliveries and pickups, and there is a lot of idling involved. They consume large quantities of fuel and produce significant amounts of smog-related emissions. Our research shows that even though they only drive about 12% of the mileage, they contribute about 25% of the ground-level emissions.

Hybrid electric vehicles in commercial fleets can be an important contributor to a reduction of smog and an improvement in air quality. They can reduce overall fuel consumption by 40% to 50%. An important point to remember is that when it is idling, the engine in the hybrid electric vehicle shuts down. There is no fuel consumed, and therefore zero emissions while idling. We estimate that running about 10,000 commercial electric hybrid vehicles would have the same environmental impact as removing all cars from the streets of Toronto for 30 days. To put it another way, one commercial hybrid electric van equals 17 Toyota Priuses in terms of emission.

Our member companies produced the technology used in these vehicles. The technology is used in several types, including the delivery vans used mainly by our members of the Canadian Courier & Logistics Association. Canada has a vibrant but nascent industry in this field, involving names like Orion Bus in Mississauga; Nova Bus of Saint-Eustache; New Flyer Industries Canada, of Winnipeg; Overland Custom Coach of Thorndale, Ontario; Unicell Ltd. of Toronto; Azure Dynamics of Vancouver; and others who provide products for commercial hybrid electric vehicles. They have invented these leading technologies, but are not yet at a commercial mass production stage.

As with all new technologies, their initial premium costs are high, due to low sales volume. Currently extra costs for these vehicles range between $25,000 and $200,000, depending on their size. We're talking from delivery vans right up to urban city buses. The payback period is therefore up to 8 years, which is not really acceptable for most commercial decisions.

That's why we are here today. We're proposing to you a three-year program of financial incentives for commercial vehicles, to reduce the premium cost of the hybrid electric technology to acceptable levels so that the payback period could be three years, which is acceptable for most commercial decisions.

We're proposing a three-year financial incentives program for commercial vehicles to offset the high cost associated with the use of electric hybrid vehicle technology.

By introducing 10,000 electric vehicles into the marketplace for commercial vehicles, our members believe we would reach a tipping point that would bring us to mass production levels and reduce the cost and the payback period. Our proposal calls for a program of $200 million over three years, which would lead to an average of about $20,000 per hybrid vehicle purchased by commercial fleets. That could be in the form of tax credits, direct funding programs, or other vehicles. Such a program would reduce GHG emissions by about 110,000 tonnes and NOx by 1,700 tonnes.

Investments we propose can be used now to acquire technology that will bring the desired result now in a measurable and quantifiable way. Other countries have many similar programs. We'd be glad to provide you with details, which were submitted in our detailed proposal.

In summary, we're advising that commercial hybrid vehicles are a practical solution to environmental problems. They are available now; the technology is proven, it's Canadian made, and it can make a major and quantifiable impact on air quality. Canadian companies are leaders in this area, but need government support to fully commercialize their technology and create jobs in industrial development in our country.

Establishing the financial incentive we propose would be a win-win situation for our environment and the economy. The Canadian courier industry is a major client of this kind of technology. For example, Purolator has purchased 20 of these already, and are planning to get another 110. They are already realizing a fuel saving of 40%. The technology is available. The interest is there. The benefits are quantifiable and supportable.

Thank you for your time.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Cormier.

From the Credit Union Central of Canada, Mr. Tarr. I understand you have two and a half minutes, but if you want to take an extra 30 seconds or a minute that's fine, because one of the witnesses didn't show up.

[Mike Tarr, Chair, Board of Directors, Credit Union Central of Canada]

Thank you.

My name is Mike Tarr, and I want to thank you for allowing us to appear before you. I am the chairman of the board of Credit Union Central of Canada, or Canadian Central, as it's usually known. I too have a day job, and it's CEO of Northern Savings Credit Union, located on the north coast of British Columbia.

Canadian Central is a federally regulated financial institution that operates as a national trade association for the 504 affiliate credit unions we represent through nine provincial centrals. Our credit unions employ more than 24,000 Canadians who serve almost five million members across the country. At the end of the second quarter of this year our affiliated credit unions held close to $91 billion in assets. Between the second quarter of 2005 and 2006 our growth was approximately 10.5%

I'd like to spend a few moments talking about some concerns and focus that we have in terms of specific budget recommendations.

First is agriculture policy. Credit unions have a very strong presence in rural Canada. In Saskatchewan, for example, they represent probably 40% of the total financial services marketplace, and they have a growing book of agriculture business. So we are concerned with the agricultural economy. In particular, the credit union system supports the federal government's efforts to promote the biofuels sector, and more specifically the government's commitment to implementing a 5% average renewable-content requirement in transportation fuel by the year 2010.

We believe this is a very important step. We applaud the government for the direction it's taking, but we believe the framework that is put together for this has to include more than simply loan guarantees and the traditional roles government sees the private sector play.

We think tax policy, trade policy, environmental policy, research and development backed by the government, and financial incentives to lenders have to work in a coherent fashion so they make sense and then they can result in the leverage that's necessary for this initiative to move forward.

We have also been active and participating in consultations aimed at reforming the Farm Improvement and Marketing Cooperatives Loans Act. We look forward to proposed reforms being tabled in the near future. We agree in principle that a revised program could usefully target new farmers and intergenerational farm transfers while also seeking to expand the relevance of agricultural cooperatives.

In terms of tax policy, the credit union system is also engaged in lending to small and medium-sized enterprises across the country, or what is often called small business. On a consolidated basis, credit union participation in the SME market equals about $18 billion, which is only $2 billion less than the leading lender to small business in Canada, the Royal Bank.

Credit unions would like to strengthen that engagement with the sector, but lenders are concerned that federal tax legislation and Canada Revenue Agency practices act as impediments. Specifically in reference to the CRA, we are concerned with their policy that is eroding the quality of security that borrowers pledge to lenders. This is particularly true in the case of crown super-priorities. For example, in situations where lenders must sell assets of a small-business debtor, it is common for the CRA to come forward after the sale of assets and claim an interest in the proceeds of the sale because the SME was in arrears to the crown.

Compounding this problem is the fact that it is difficult to obtain accurate information from the CRA regarding the status of a business borrower's obligation. Clearly we get hit both in the front end and the back end of this policy and practice. If the government is concerned with the growth of the SME sector, as I think it ought to be, it should address these issues. These are, in our view, unnecessary impediments.