Finance Committee on Oct. 23rd, 2006

[Rob Robichaud]

They have put very little back into the system since privatization or transfer has taken place. We started off with $1.5 billion of assets being transferred to local authorities. To date, they've collected over $2 billion in rent, with very little of that going back into the infrastructure of airports.

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

Thank you.

This is to Tom Hayes of GrowthWorks. Atlantic Canada has produced our share of very successful entrepreneurs, if you look at Sobey's and McCain and people like that. But it's notoriously difficult to raise venture capital in Atlantic Canada. One of the things that the feds have done in the last two years is invest in research and innovation. They set up, through ACOA, the Atlantic investment partnership, and have put a lot of money into innovation in Atlantic Canada. I guess one of the keys for venture capitalists, in order to commercialize that, is that we need to set up some kind of venture capital...[Technical difficulty--Editor]

Do you have any thoughts on that?

[Thomas Hayes]

Certainly we are seeing a number of companies. We looked at over 100 business plans in the first year of operation of our fund. Many of these companies have taken advantage of the Atlantic innovation fund that's managed by ACOA, and that's a good thing. We're also working very closely with the universities in Atlantic Canada. For example, here in St. John's at Memorial University, the Genesis Centre is very active, in the form of a sort of incubator, in supporting a lot of very early-stage companies. So we get a lot of leads through the universities and through organizations that are representative of early-stage companies looking to commercialize technology.

So obviously there's a lot of work done at the early stage. As well, the St. John's Board of Trade has just initiated an angel network, which again is very important in terms of the funding spectrum. But at the end of the day, companies have to have access to a stable supply of equity, of risk capital, and that's what we're trying to do. But we focus on the early-stage side of the development spectrum.

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

We've heard from GrowthWorks across Canada about a lot of the recommendations here that you're mentioning: the $5,000 envelope, the low inflation adjustment. Specifically for Atlantic Canada, is there something specific you need from the federal government, over and above perhaps what the other GrowthWorks companies need in the rest of the country?

[Thomas Hayes]

No, I think if we can manage to convince both the federal government and the provincial governments where we operate to increase that maximum purchase size of $10,000, that will enable us to go back to members, the investment advisers who in particular work for the bank-owned brokerages--the IDA firms--who in recent years have really not been supportive of the asset class simply because they don't make any money selling a $5,000 ticket. And when it comes down to it, that's what motivates them and drives them. So a lot of the money in the earlier years of the labour-sponsored funds did come from the IDA advisers, and we're not seeing that now. So we really have to deal with that issue, and we think it's a real challenge on a go-forward basis, but we've been encouraged by the reception we've been receiving when we talk to officials at both levels of government.

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

Ms. Irvine, of the cultural industries association, I'm glad we've heard from you here in Newfoundland. It is important.

I just wanted to see if you have any more specific recommendations on the general ask that you put in your presentation. Specifically, you mentioned the growth of the social economy and what initiatives the federal government had started on with the social economy, which in Atlantic Canada would be through ACOA.

Can you comment on that?

[Danielle Irvine]

Actually, there aren't any for the social economy through ACOA. On their website, if you go to HRDC, which I've done, it tracks you down to go to ACOA. You go to ACOA and there's nothing there for the social economy. So that is one of the main places we'd like to see it.

Furthermore, I'd like to recommend that there be an investment back into the social economy through the libraries, through the voluntary sector, through the arts and culture. So much of the programming for grants has moved away from core funding since the early nineties. Therefore, you're leaving out a lot of organizations across Canada in the voluntary sector and the cultural sector, which is a subsector of the voluntary sector; you're leaving thousands of organizations who operate project to project, but who then have no money just to pay the rent or to keep a staff.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Savage.

We'll move on to Mr. Dykstra now.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you, Mr. Chair.

The committee had the opportunity to have a tour of the west a couple of weeks ago and now we have the thrill of being out on the east coast for a couple of days, so we appreciate being here and hearing your presentations, and we appreciate your welcoming us here.

I did want to pursue with you, Danielle, the question around the social culture and how those investments directly can be made from a federal perspective. I know that one of the things our government did in the last budget was ensure that those who wanted to make contributions through their investment and securities can now do that without—[Technical difficulty--Editor]—tax on capital gains.

I wonder if that is something you see as positive, and also something that has actually begun to happen here in St. John's,

[Danielle Irvine]

We see it as positive, for sure. It hasn't made a big impact in Newfoundland yet. Corporate investment is really low in Newfoundland, as opposed to other provinces, especially in the arts. It's very difficult to develop those relationships.

[Rick Dykstra, Conservative, St. Catharines, ON]

You were referring to libraries and the social sector. We've had a discussion and presentation with respect to the libraries, and I wonder about something. I'm from the province of Ontario, and the way we work our funding there is that the majority of it comes from the municipality the library is in, and some subsidiary funding comes from the provincial government. There really isn't any federal investment into libraries, at least from an operating perspective. I wondered how that works here, and how the province provides funding to the libraries?

[Danielle Irvine]

I'm not actually sure how the funding works for the libraries in Newfoundland. I speak to that because, to me, it is a symptom of a larger fear that we in the sector have of the social economy not being supported and grown as it could be. So when you have no access as a people, especially in the rural areas, to Internet or to reading materials or learning materials, that has a huge impact with our population, and because the library budgets are so small, any cut, even if it's a small one, is significant.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you.

I did want to ask this. There are a couple of investments that have been made, certainly going back a little bit, and it sounds like what you're looking for is some infrastructure expenditures. I did note that at least over the last few months there have been a couple of announcements, and I wonder what the impact of those would be on the Labrador coast airstrip restoration program. The investment of $1.2 million that was recently announced--how is that perceived in Labrador?

[Rob Robichaud]

I can't speak specifically for that particular one, but any investment in airports is welcomed by the Atlantic Canada Airports Association. The difficulty we have is, going back to an earlier question, today if we were to ask airports what they need in addition to what they've received, I think the amount would be significant. There's another portion to that, and that is the portion of funding they would need on a go-forward basis. Now, we're talking about infrastructure that is related to safety, security, and those types of things. We're not asking for infrastructure that would help the airport to go forward on, let's say, an operational basis in terms of revenue generation and so on.

[Rick Dykstra, Conservative, St. Catharines, ON]

On another investment I noted related directly to safety, Minister Hearn made an announcement on March 27 regarding the airport capital assistance program and funding for projects at Deer Lake and Stephenville airport. Based on your point about safety, how are we trying to move in that direction?

[Rob Robichaud]

I believe the number I've heard that's currently in the ACAP is $35 million. That is only accessible by small non-NAS airports, with less than 200,000 passengers. We know it has been underfunded for years and airports have extreme difficulty in accessing it, and when they do, it's oversubscribed. So generally speaking they don't get what they need.

Then there's another group of airports that I mentioned. The small NAS airports across Canada are struggling today for access to additional infrastructure capital through the federal government. That is just not possible under the current regulations.

[Rick Dykstra, Conservative, St. Catharines, ON]

You talked about tax incentives that would drive further revenue and, hopefully, investment in research and development. I wonder if you have a couple of examples of what they might be.

[Ted Howell]

The relevant points here would be from our comments about diversification of Canada's energy resources. While the country is very rich in resources, with substantial reserves in Alberta, reserves and production are declining here on the east coast in conventional oil and gas in general. We have not had a significant discovery in over 20 years here in Newfoundland and Labrador. Much of the exploration activity that did take place in the late 1970s and early 1980s was pursuant to federal programs, petroleum incentive programs in particular. So while we're not advocating that sort of direct subsidy, we believe that some sort of fiscal incentive would be appropriate to encourage investment here in offshore regions where the costs of exploration and production are much higher.

We've done research on other jurisdictions, and they create balance in tax programs that allow investment attraction to be competitive on a global stage. We're suggesting that there be consultation between both levels of government and industry in order to keep this jurisdiction competitive on a global scale.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Dykstra.

Madam Wasylycia-Leis. Good morning.

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

Thank you to all of you. I'm very happy to be here in this province. I love the rain. It's better than the snow we're having in Winnipeg.

I want to start with a comment to Mr. Hayes. The whole issue of investment is one that our committee really has to tackle. We're all searching for ways to ensure investment by Canadians in Canada that will make our Canadian businesses grow. So far, investment policy seems to be characterized by creating tax havens offshore, so our money goes there. Through our own pension money we invest in companies in Europe and other places, which helps those countries. We create loopholes for corporations to invest in income trusts without paying taxes. None of those things are helping us at all.

I think what you're offering is an avenue to reverse that. It's small in comparison to the big investment picture, but it points the way to the future. I just want you to talk a bit about the payoff. You talk about it costing $20 million a year. Clearly there are all kinds of benefits, long-term spin-offs for our economy. Can you describe them? Can you talk a bit about the whole investment scheme and what venture capital and growth funds can do in that context?

[Thomas Hayes]

Certainly.

Just to set the table, there is over $22 billion of venture capital in Canada under management, and more than a third of that is represented by the labour-sponsored asset class, and over a million Canadians have invested in labour-sponsored funds to date. A number of studies have been done to show the payoff back to both federal and provincial treasuries in terms of the benefits that accrue to the economy as a result of the number of companies that have been helped, the number of jobs that have been created.

In our case, in Atlantic Canada, our goal is to raise the fund to be in the area of $100 million. We think it's going to take five to seven years in order to do that. When we looked at the historical fundraising in the rest of Canada relative to the population size here, we thought that number was very doable. However, what we have experienced, as I mentioned earlier in my presentation, is resistance, particularly by the larger brokerage firms, to dealing with purchases in the $5,000 range.

This is an opportunity to enable, particularly here in Atlantic Canada, residents of the region to invest back into their own region. It's very unusual for retail investors such as you and me to get exposure to venture capital as an asset class. We're not suggesting that people over-weight in venture capital. It would form a very small percentage of an individual's portfolio. But because the asset class, because the purchase is RRSP-eligible, what you find is a lot of folks investing in venture capital through their retirement savings. We have to be very diligent in terms of the kinds of companies we invest in. But in GrowthWorks we have a philosophy—and I think this is very welcomed by governments—that we play at the early-stage end of the spectrum, because we think that's where the real longer-term opportunities are for us in terms of returns to our shareholders.

So given the work we've done nationally, and regionally here since we have started the fund, I think folks are really believing that there will be a stable supply of VC available now in Atlantic Canada that wasn't available before. I should say that VDC is active in the region as well. Quite often, we partner with their venture capital division when we look at investment companies.

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

Aside from the cost to the treasury, which we have to take into account, is there any other downside?

[Thomas Hayes]

Is there any other downside? There is not, from our perspective. I'm not sure what it would be, obviously—

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

Do you hear anything—[Technical difficulty--Editor]

[Thomas Hayes]

No. There was some concern when we had discussions with officials in the Department of Finance. They were projecting a huge loss in revenue to the treasury, but what they didn't appreciate was that in fact in most provinces there are sales caps on the amount that can be raised annually. That's how you control it. So we think the so-called cost would be quite minimal, but the benefits would far exceed those costs.