Finance Committee on Nov. 27th, 2007

[The Chair, Conservative, Rob Merrifield]

I will call the meeting to order.

I want to thank the witnesses for coming forward. We're into our very aggressive and short period of time with pre-budget consultation. We certainly appreciate your coming in. We have a panel of seven to start in this first half of our meeting.

I will introduce you as I yield you the floor. In the interest of time, we'll give you five minutes, and we hope to keep you to that five minutes as close as possible. I'd ask that the witnesses respect that.

We'll start with our first witness. We have the Association nationale des éditeurs de livres. We have with us Pierre Le François, director general.

The floor is yours, for five minutes.

[Pierre Le François, General Director, Association nationale des éditeurs de livres]

Thank you, Mr. Chairman.

The francophone book industry is significant. It has been successful, but it is also fragile in many respects. It has a market worth three quarters of a billion dollars and represents some 10,000 jobs. It is successful: more than 5,000 titles are published every year. The quality is there and diversity, in terms of the books that are published, is encouraged.

However, it is also fragile because of the small Canadian market, strong foreign competition and the markup taken by the publishers which, overall, is extremely low—hence the need for public and government assistance.

With that in mind—and this is what the brief highlights—we feel that there are four major points to be considered.

First of all, the Canadian government and the federal Parliament should avoid further eroding copyright, which is the engine of creation and is therefore at the very centre of the publishing industry, in the name of what is known as the educational exemption, based on which there should be easy access to all available material over the Internet. Such an approach is of great concern to us.

Furthermore, it is important to strategically position the francophone publishing industry within the digital world, by ensuring that Canada takes its place along side the giants in the field, who are currently going to see one Canadian publisher after another in search of publishing content, with a view to putting that content up on platforms and making it available to users across the globe. We believe that Canada should do what is necessary to ensure that the publishing industry—both francophone and anglophone—benefits from the best possible technologies. A specific initiative is needed to support publishing at an individual level—in other word, individual publishers—and Canadian publishers, collectively.

Furthermore, there is a lack of visibility as far as Canadian books in Canada are concerned, for obvious reasons. Competition is very strong. Are Canadian books reaching Canadian readers through the bookstores, the media, the libraries and the schools? That is not easy to accomplish. Therefore, a considerable effort is needed as regards the promotion and marketing of Canadian books.

Finally, we have proposed the idea of a major national translation program aimed at all books, or as many books as possible, and general literature available in Canada, for all segments of Canadian society, in order that books in French, in English and in Aboriginal languages can be translated into the language of the other communities and, thus, be available to them. In so doing, it would be possible to develop the values and identity that are our strength.

Such a project would also have a significant impact on the economic development of the francophone publishing industry in international copyright acquisition markets. It would allow francophone publishers to introduce partially translated works to our Chinese, Slovak, Latin American or other readers, rather than providing just a notice in English. That would facilitate the expansion of a readership that already includes millions in terms of copyright markets in the francophone publishing industry—an industry which, given that Canada is a small market, should be encouraged, because expanding the industry's international market is an important means of enhancing the success of the francophone publishing industry.

Thank you, Mr. Chairman.

[The Chair, Conservative, Rob Merrifield]

Thank you very much. I certainly appreciate your contribution to the committee.

We'll now move on to our second witness. We have the chief executive officer of the Association of Universities and Colleges of Canada, Claire Morris.

The floor is yours for five minutes.

[Claire Morris, President and Chief Executive Officer, Association of Universities and Colleges of Canada]

Mr. Chairman, I would like to begin by thanking you for inviting us to appear before the Committee today.

Canada is a wealthy, highly developed country with enormous promise. However, over the next decade, Canada faces important labour market competitiveness and demographic challenges. Ensuring the country's long-term economic growth and continued prosperity will depend heavily on the education and skill levels of Canadians and their success in creating and applying ideas and knowledge.

Challenge number one is that Canada must produce enough highly qualified graduates for the needs of the labour market. The talents, knowledge, and skills of master's and doctoral graduates are widely recognized as key drivers of the knowledge economy, as they transfer knowledge from universities to other sectors and inject innovation into the economy.

AUCC estimates that by 2016, an increase of at least 35% in the domestic production of master's and doctoral graduates will be required to meet the growing demand for these highly skilled people and to replace those who will retire.

The proportion of the Canadian population holding an undergraduate degree is at record levels, and the number of prospective graduate students in other countries intending to study abroad is increasing. Canada must attract more domestic students into graduate programs and attract more top international graduate students to fuel Canada's pipeline of highly qualified personnel and strengthen economic and diplomatic ties abroad.

AUCC recommends increased financial support for both Canadian and international graduate students in order to attract top students from abroad, keep talented students in Canada, provide opportunities to hone their research skills, and increase their contributions to the labour market through postgraduate internships and co-op placements.

Challenge number two is that the Canadian economy is increasingly dependent on international trade--a highly competitive, innovative, and knowledge-driven enterprise. Sustaining Canada's leadership in public R and D performance is key to meeting Canada's competitiveness challenge. In the university sector, public investments support the four foundational elements of research: new ideas, highly qualified research talent, cutting-edge research infrastructure, and institutional support for the research effort.

The least visible and least understood of these is the support for the institutional or indirect costs of research. These are real costs that universities must meet to create the conditions for research excellence. They include the costs of operating and maintaining research facilities, managing the research process from preparation of proposals to accountability and reporting, complying with regulatory and safety requirements, managing intellectual property, and promoting commercialization.

Numerous studies have demonstrated that for Canadian and American universities, these costs are at least 40% of their direct research costs. In the U.S., the median negotiated rate of reimbursement is 52%. In Canada, the overall rate of reimbursement in the federal indirect costs program is about 25%, placing Canadian universities at a significant disadvantage.

AUCC recommends renaming the current indirect costs program as the Canada research competitiveness fund, and supporting it at internationally competitive levels in order to maximize returns on public investments in university research and to derive full value for Canadians. AUCC remains committed to improving the visibility, accountability, and transparency of federal investments in this area.

The third challenge relates to the fact that over the next two years, more Canadians will depend on fewer workers. In order to tackle that demographic problem, Canada has to increase its labour force and enhance its productivity. That will mean increasing the educational attainment of the Canadian population as a whole and, in particular, guaranteeing university access to traditionally under-represented groups.

Canadians are increasingly concerned about the fact that the Canada Millennium Scholarship Foundation's mandate will be ending in 2008-2009, given that it now provides needs-based non-repayable student financial assistance of $350 million annually. The AUCC is recommending that the federal government continue to provide students with support that is at least comparable to what is now available, in the form of needs-based non-refundable financial assistance, with a particular focus on improved access to graduate studies for traditionally under-represented groups.

Mr. Chairman, AUCC is currently working on specific proposals to the government for investments in each of these three areas. I'll be pleased to share them with this committee once they're finalized.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Now we'll move on to the Canadian Dental Association. We have the president, a good Albertan who lives very close to the beautiful riding of Yellowhead.

Dr. Darryl R. Smith, the floor is yours for five minutes. I just had to put that in.

[Dr. Darryl Smith, President, Canadian Dental Association]

Good afternoon, Mr. Chairman and honourable members. Thank you for inviting me to address you today. I am the current president of the Canadian Dental Association, and I live and practise dentistry in Valleyview, Alberta. If anyone doesn't know where that is, it's in the very northwest part of Alberta.

Traditionally, we submit a written brief in addition to this presentation, which we also intend to do this year. But because of the short notice for our appearance, we'll be submitting it after our appearance before you today. It will contain several recommendations that we feel will improve the oral health of Canadians.

For today, I would like to focus on one recommendation, which Mr. Andrew Jones, who is with me today, spoke to this committee about last year. We are calling it the personal wellness investment fund, and it presents a unique way that financial and tax policies can have an impact on dental health and on health in general. I'd like to start by explaining the context, and then I'll give you a few details about how we would see it working.

Imagine it is the year 2017 and you've just retired from a satisfying career with a large communication company. You are at a dinner, but just as you're taking your first bite you hear a nasty crunch and your 20-year-old dental crown drops into your lap. From your dentist's perspective, it's no problem. We already have the technology to replace a tooth with a dental implant. But you would have a problem even today. According to recent polling data collected by the Canadian Dental Association, you and 73% of your peers do not have a plan for dental care beyond retirement. Even if you happen to be in the 27% of people who have given it some thought, two-thirds of those people are counting on their former employer to continue to offer post-retirement dental coverage. Unfortunately, that benefit has begun to peter out. In 2006 alone, Bell, Sun Life, Sears, Nortel, and Manulife Financial all announced significant cuts to the dental plans they offer employees post-retirement.

Unfortunately, there also is little chance that a public plan will cover you either. According to recent statistics from the Canadian Institute of Health Information, although the proportion of public spending on health care has remained relatively stable, the dental portion has been shrinking steadily to the point that less than 5% of the $9 billion spent on dental care annually is now publicly funded.

In many provinces, this public funding is devoted entirely to children's dental programs, and in many cases there have been cutbacks to these programs as well. Unfortunately for seniors, with the exception of Alberta, which is showing some leadership in this area, only limited public funding goes to maintaining oral health beyond retirement. We also know that Canada is entering a period of accelerated population aging that will see the share of seniors aged 65 and over increase from 13% in 2005 to 23% in 2031.

We have a recommendation that's not a cure-all but would be a step in the right direction. The idea is for the government to create a process that would allow for tax incentives for people to put away funds earmarked for health spending. This would include any legitimate health expenses not covered under provincial health plans--dentistry, of course, but also perhaps prescription drugs, home care, and the like. We have referred to this fund as the personal wellness investment fund.

Our backgrounder lays out a few possibilities on how this fund might work, and details will be included in our brief. Essentially, we see it as an RRSP- or an RESP-like entity. Individuals with a registered fund could make contributions to it during their working years, either out of pre-tax or post-tax dollars, with a government top-up. These funds would remain dedicated for health care spending, presumably post-retirement, in the absence of an applicable insurance plan. Some might say that the fabric is already stretched thin. How are people going to put away for an RRSP, RESP, and a PWIF all at the same time?

As we see it, RESP contributions for most people will occur in the early part of their lives. By contrast, the PWIF would probably appeal more to those whose children have left home and are finished their schooling. So it could work out nicely from both a household spending and government planning perspective. At the time that RESP contributions draw to a close, a similar amount of money could simply be switched to a PWIF contribution.

As I mentioned earlier, CDA has many other thoughts and recommendations aimed at improving the oral health of Canadians. Because time is limited, we decided to speak to you today about just this one aspect. But of course we're happy to discuss any other areas of oral health funding, either today or at a later date.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Now we have the Certified General Accountants Association of Canada. We have Bob Harvey, who is a member of the tax and fiscal policy committee.

The floor is yours, for five minutes.

[Bob Harvey, Member, Tax and Fiscal Policy Committee, Certified General Accountants Association of Canada]

Thank you very much, and good afternoon, Mr. Chairman and honourable members.

Thank you for the opportunity to appear today and to address issues that matter most to Canadians, all built around the theme of prosperity. Our brief contains a four-point plan, which I believe is available on the table, to build a more prosperous and competitive Canada.

My comments today will focus specifically on tax reform and interprovincial trade.

First of all, I'd like to congratulate the government on the recent Speech from the Throne and the economic statement. We are pleased to see that the federal government shares our views relating to tax reductions and improved internal trade.

The recently announced tax relief plan is a welcome departure from the ad hoc targeted tax cuts and special provisions directed to particular groups or sectors, to which Canadians have grown accustomed. This $60 billion plan is long overdue. The government has the fiscal room and can afford to reduce the tax burden on Canadians. Moreover, economists, business leaders, academics, think tanks, and well-respected national organizations have all been calling for lower taxes, including broad-based tax relief, for several years now.

There is consensus. We know that lower personal and corporate income taxes are the key ingredients to more investment, increased productivity, better jobs, and a higher quality of life, so the government's tax relief plan is a step in the right direction. However, CGA-Canada does not believe it goes the distance.

After years of tinkering with tax legislation, we are still left with a system that remains unnecessarily cluttered, complex, inconsistent, and it is not serving its purpose efficiently or effectively. We need tax reform, and we need a panel of experts to do the work, to consult widely in a public forum, to debate the issues, and to offer informed, independent advice to the government. The appointment of an expert panel is the centrepiece of our submission.

An expert panel would be indispensable to improving Canada's taxation and regulatory regime, to developing and advancing Canada's tax advantage in global world markets, to ensuring that national prosperity and economic growth are the end result, and to reshaping our system so that it is fairer, simpler, more efficient, and competitive. Canadians deserve nothing less.

The issue of internal trade has been a longstanding concern to CGA-Canada. We have examined this issue from all angles. We have written policy briefs and spoken to the issue before parliamentary committees. CGAs themselves have used the agreement on internal trade to eliminate certain restrictions such as access to public accounting.

We have reached the following conclusion. In this era of ever-increasing globalization, where Canada's exports totalled $524 billion, representing 36.4% of our gross domestic product in 2006, it is ludicrous that the movement of goods and services across our provincial boundaries still remains a challenge. We are encouraged by the federal government's pledge to play a leadership role in the strengthening of the economic union. We also welcome measures adopted by the Committee on Internal Trade and the Council of the Federation.

CGA-Canada believes all governments must work together to create a fully functioning and effective domestic market, where goods and services move freely. It would be easier and less costly to do business. It would remove obstacles to growing Canadian businesses. It would make our economy more productive and more competitive. In short, it would be of tremendous benefit to all Canadians.

Here is the remedy we propose: establish a set of open trade principles and an internal trade tribunal, and implement panel findings through an enhanced and enforceable dispute resolution mechanism. CGA-Canada has joined forces with several other national organizations to seek improved interprovincial trade. We are anxious to work with the government towards this goal.

To conclude, we wish to urge the committee to consider the recommendations put forth in our submission, namely, appoint a panel of experts to review the tax system so that it is simpler, transparent, and fair, with low internationally competitive tax rates, and to tear down trade and labour barriers within Canada. Other elements of our four-point plan include capitalizing on Canada's knowledge advantage and further supporting small and medium-sized enterprises and entrepreneurs.

We believe our plan is reasonable and achievable and would provide a solid base to build a more prosperous and competitive Canada.

Mr. Chairman, thank you for your time. We welcome any questions the committee might have on these or other recommendations contained in our brief.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move on to the Canadian Trucking Alliance, David Bradley, chief executive officer. The floor is yours for five minutes.

[David Bradley, Chief Executive Officer, Canadian Trucking Alliance]

Thank you very much, Chairman and members of the committee. I thank you for the time.

In my brief few moments I'll concentrate on two issues: one is a matter of environmental significance; the other is a matter of tax fairness and competitiveness.

We are on the verge of an era of the smog-free truck in Canada. By law, the 2007 model-year engines reduce the emissions of particulate matter by 90%, a precursor of smog that is linked to respiratory disease. In 2010, by law, the other major precursor of smog, NO_x, will be reduced by 95%. I can tell you that it's not too far-fetched to say that the air coming out of the exhaust of the new trucks is cleaner than the air in most of the cities in Canada at the present time.

However, there are some challenges. One, these new engines are much more expensive to purchase, in the order of 7% to 10%, but as importantly--this is an example of the state of the technology--there's a fuel efficiency penalty associated with the new engines. So while we're becoming ultra-clean, at the same time our performance in terms of GHG is being denigrated, and that really is a reflection of the fact that we did not have a broad-based policy going forward when looking at these issues.

We can't, obviously, survive with a reduction in our fuel efficiency, so what has happened in the industry is that they've put off purchasing these new smog-free engines. There was a huge pre-buy in 2006, and we anticipate there'll be another one in 2009, unless something changes.

We can invest in equipment. We must now invest in equipment that's attached to our tractors and to our trailers that will allow us to recoup and enhance our environmental performance. They, too, don't come cheaply.

However, in marrying the two technologies under something we're calling the enviro truck initiative, we can, if only half of the new heavy trucks that are purchased in Canada each year, meet the enviro truck criteria. We would not only see the virtual elimination of smog emissions from heavy trucks in Canada, but we would see fuel efficiency increased on a net basis by 22%, we would save almost 1.5 billion litres of diesel fuel per year from these trucks, and greenhouse gas emissions would be reduced by 4 million tonnes.

This is not a pipe dream. These are real gains that can be made. However, as I indicated, the investment climate present in our industry does not lend itself to it; the cash simply isn't there for us to be able to move in any sort of a concerted way to the new equipment. If this is all about the environment, what we should be seeking to do is to accelerate the penetration of those new vehicles into the marketplace.

We're suggesting that this be done through a program similar to the vehicle efficiency initiative that was introduced in the last budget for light duty fuel-efficient cars, or something similar to the Energy Star program, which has worked extremely well for the appliance sector.

While we're not sure what the cost per tonne is for those other programs, the cost per tonne for our program is somewhere in the order of $55 to $75 per tonne of GHG removed, which we're told is really very attractive compared with some of the other programs I mentioned previously.

The second issue concerns the fact that the government has been talking about the need for the provinces that have yet to harmonize with the GST to take their sales taxes, particularly the sales taxes on business inputs, and harmonize those with the value-added goods and services tax, something with which we agree wholeheartedly.

However, at the same time, the federal government still has some vestiges of its own archaic regressive tax system in the form of excise taxes. I'm particularly speaking of the excise tax on commercial diesel fuel, which was introduced in the mid-1980s for the express purpose of reducing the deficit, or helping out with the government's fiscal imbalance.

While we have an imbalance now, it's the other way, and that tax is not serving any policy purpose other than to generate revenue. We're arguing that if there is an effort to harmonize provincial sales taxes with the GST, this would also be the time to eliminate the regressive excise taxes on commercial diesel fuel and harmonize those as well with the goods and services tax.

Things such as lowering corporate income tax rates and those sorts of things are very helpful, obviously, and certainly in terms of Canada's competitiveness worldwide are helpful. However, in a low-margin industry such as trucking, they are not particularly helpful; we're not generating huge profits.

But to have these sorts of taxes continue to be levied upon our business—and upon the second-largest component of our operating cost—without any concern for profitability is regressive, and we think it's time to make the change.

I thank you for the time. We've submitted our materials previously. I'd be happy to answer any questions you might have.

[The Chair, Conservative, Rob Merrifield]

Thank you very much. That was very interesting, indeed.

We'll move on to the David Suzuki Foundation. We have Pierre Sadik, senior policy advisor, a sustainability specialist.

The floor is yours for five minutes.

[Pierre Sadik, Senior Policy Advisor, Sustainability Specialist, David Suzuki Foundation]

Thank you, Mr. Chair.

Thank you to the members of the committee for inviting me here today.

The belief that there is a trade-off between the environment and the economy still exists in some quarters, but this belief is in steady decline. Instead, there is a growing realization that our economic prosperity is closely linked to the protection of the environment as well.

We live in a market economy, and whether we like it or not, more and more the economy also determines the quality of the air we breathe and the water we drink.

For example, right now many goods that take a very heavy toll on the planet's climate are produced without any charge for the greenhouse gas emissions associated with the final product. Ultimately, the cost of these emissions is borne not so much by the polluters, but by all Canadians in the form of climate change impacts, including drought, severe weather events, pine beetle infestation, and West Nile virus.

Presently, the economy is often biased in a way that actually makes the environmentally responsible choice more expensive than the unsustainable choice. That's because the true environmental costs of most products are not reflected in the price we pay. This means that every day most of the millions of purchases that Canadians make end up actually harming the environment to a greater or a lesser extent.

No one sets out to harm the environment; no one wakes up in the morning and figures they're going to harm the environment. But people do so because of the limited choices they currently have.

These millions of environmentally harmful choices are driven right now by the market economy. The market is a powerful force.

So why, as an alternative, don't we harness the power of the market instead of trying to change it? It's easier to use the flow of the river than to redirect the river. That way, every time consumers make a choice, they will be making a positive environmental choice as well. We'll have millions of Canadians who feel like environmental champions every day.

One obvious way for us to use the market is to put a price on carbon to help rein in climate change. You and I have to pay $90 a tonne to dump waste at the municipal landfill, but anyone can dump thousands of tonnes of greenhouse gases into the atmosphere without charge, because we have not put a price on carbon.

We hear that a carbon price will take a heavy toll on the Canadian economy. The David Suzuki Foundation recently conducted a study that shows that Canada's greenhouse gas emissions could be reduced by 20% below today's levels by 2020 with a carbon price of $75 a tonne. The National Round Table on the Environment and the Economy conducted a similar study for the government late this summer. Both studies found that the macroeconomic cost—in other words, the GDP impact—of the $75-a-tonne carbon price is that the GDP would be lower by only 1.1% by 2020 than it would be in the absence of a climate change policy.

I think this raises an important question. Is Canada going to forego making a real reduction in greenhouse gas emissions because of a difference of 1.1% in GDP by 2020?

Thank you. Those are my submissions.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move on to our last panellist. We have, from SR & ED Tax Credit Coalition, Nathalie Bourque, vice-president of global communications. The floor is yours.

[Nathalie Bourque, Vice-President, Global Communications, CAE Inc., SR & ED Tax Credit Coalition]

Good afternoon.

My name is Nathalie Bourque.

I am accompanied today by representatives of Canadian Manufacturers and Exporters and the Information Technology Association of Canada.

I represent a coalition comprised of companies from across Canada, covering virtually every sector of the economy.

Those sectors include forest products, information technology, biopharmaceutical companies and the aerospace and defence sector.

The private sector represents half of all R and D dollars spent each year, and our member companies are at the vanguard of some of Canada's proudest business achievements. We're also nation builders through the technologies and the innovations we create that will allow Canada to grow and prosper. We're pleased that the federal government is committed to modernizing Canada's R and D strategy, as demonstrated through the Competition Policy Review Panel, Advantage Canada, and the S and T strategy.

Over the last few months, many industries have suffered tremendously. We believe corporate R and D is in need of assistance through Canada's tax system. In order to enable innovation, we're asking the federal government to enhance the SR and ED tax credit by making the tax credit refundable.

The benefits of making the SR and ED tax credit refundable don't end at helping Canadian businesses grow faster in the global economy. Indeed, it is not being the slightest bit alarmist to suggest that many of Canada's corporate innovators who provide high wages and quality employment to hundreds of thousands of skilled Canadians are facing an alignment of forces that is unprecedented in our history, jeopardizing our country's ability to compete.

Consider the marketplace dynamics in which Canada's R and D companies are attempting to compete: low-cost and high-quality foreign labour, high energy prices, complex non-tariff barriers, and the rapid rise of the Canadian dollar. Now add to this mix the fact that some of Canada's global competitors offer lucrative enticements to lure Canadian R and D offshore.

The SR and ED investment tax credit has been the federal government's primary mechanism to stimulate corporate R and D in Canada, but it is underperforming because many companies lack sufficient taxable income to take advantage of the SR and ED tax credits. Companies are accumulating pools of earned but unclaimed tax credits. Consequently, this increases the cost of innovation, creates business uncertainty, and undermines competitiveness. Full refundability for SR and ED tax credits earned in calendar 2007 and onward would eliminate uncertainty and stop the discounting practice of existing R and D performers, stimulating investment in R and D.

Furthermore, since many of the tax credits banked in previous years are on the verge of expiring, we're also asking the federal government to allow companies with banked SR and ED credits to use banked credits first to offset taxes applied in 2007. This practice of using banked credits first should be allowed to continue into the years following 2007, thereby allowing companies to empty pools of earned credits gradually and with minimal impact to the federal treasury.

As innovators, we prefer to speak in terms of opportunities and possibilities. We turn today's dreams into tomorrow's achievements. But before I talk of opportunity, I would like to share with you some facts.

Fiscal 2006 was not a good year for corporate R and D in Canada. Last year, companies invested $11.4 billion in R and D, a decline of 3.8% over the year before. Of the top nine corporate R and D investors in Canada for 2006, six companies reported decreases in their R and D spending. Research intensity, or R and D spending as a percentage of revenue, dropped 6.9%. These numbers should be seen as a warning sign, warranting the federal government's attention.

But let's conclude on a note of optimism.

To highlight the economic opportunities created by the SR and ED tax credit, a group of leading Canadian businesses commissioned an independent study in 2006 that showed that for every $1 billion in additional SR and ED tax credits, we create 10,000 new jobs, $200 million in additional tax revenues are generated, and $675 million in new economic activity and other spinoff advantages are generated.

A recent Department of Finance paper also demonstrated the net economic gains derived from the tax credits extended beyond the performers, trickling to other firms and sectors of the national economy. Spillovers were calculated to be 46¢ per dollar of tax expenditure. The cost of the credit was estimated to be 36¢ per dollar, a gross economic gain of $1.11 for every tax dollar spent.

As Canadian business leaders, we want Canada to become the destination of choice for long-term investment and growth.

So, we have a vision: Canada can become a global centre for research and development. We hope that our government will see fit to give us the tools we need, so that we can all say that the brain drain is no longer a factor in this great country.

Thank you, Mr. Chairman.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Now we'll move to questioning.

We would like to start with Mr. McCallum. The floor is yours for seven minutes.

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

Thank you, Mr. Chair, and thank you to all the witnesses.

I'd like to begin with Madame Bourque, because for us I think the SR and ED idea is a good one. We have the idea that it's good to create a Canadian economic advantage now that we've lost our currency weakness advantage. The first point would be significantly lower corporate tax rates, and the government followed suit on that in the economic statement.

I notice that Mr. Del Mastro dumped all over our proposal as pandering to Bay Street tycoons, but he may have realigned his view after the government announced they were going in that same direction.

I think SR and ED is also possibly creating an important Canadian advantage, as the place to do R and D is Canada and we have tax advantages. We've traditionally believed we have those advantages over the rest of the world. My question to you is whether these advantages may have been eroding, or maybe that is not the reality. Why do you think it's important for us to move in that direction?

[Nathalie Bourque]

Thank you for the question.

When the program was put together, I think companies were probably making better profits. The program is now 20 to 25 years old. Now we're facing not only a stronger Canadian dollar, but we're facing companies that are doing business in India, China, Brazil, Germany, and France, where research and development costs are much lower than in Canada. I think the program in itself is good. But in order to make sure that Canadian companies have all the incentives to continue to do the R and D here, we have to help them out.

Right now, we, just the 22 companies in the coalition, are sitting on about $2.5 billion of earned but unclaimed tax credits. Between the 22 of us we do $3.5 billion per year of R and D, but we can't continue just to accumulate the tax credits. This is why I think we're losing some of our competitive edge.

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

Thank you very much.

Mr. Sadik, I'm interested in whether you could comment briefly on whether the David Suzuki Foundation has a view as to the leading role our Prime Minister played at the Commonwealth conference over the past weekend.

[Pierre Sadik]

I haven't formulated an opinion on that. The foundation may put out a press release around that, but I don't have an opinion on that, Mr. McCallum.

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

Thank you.

Mr. Harvey, you're a tax expert. On this subject of interest deductibility, we had some discussions in the finance committee. I believe seven experts told us they thought the thing to go after was something called debt dumping rather than something called double dipping. I wonder if you have a view on that issue.

[Bob Harvey]

Thank you for the question.

I'm not familiar with debt dumping or double dipping specifically, but I can comment that the deductibility of interest and the rules surrounding it are one of the most extremely frustrating issues we have to deal with.

We would like to see the expert panel that we suggested address this particular issue as well as the many other issues on simplification. And the other issues are actually suggesting the expert panel.... When you're advising a client who asks you, “Is my interest going to be deductible because I've refinanced, I've done this, that, and the other thing”, it's very difficult to give him a solid answer and know that you're absolutely right under those circumstances.

It is an issue, however, that our association would be pleased to address, and we can bring more information to the table.

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

Thank you very much.

Ms. Morris, as one who spent more time in university than politics, I certainly have a built-in bias in favour of supporting universities. I know that this government cut several hundred million dollars in funding for both granting councils and the indirect cost of research. It's not obvious to everybody why it's important to Canada to support the indirect cost of research at universities. It's not a particularly politically sexy idea that obviously gets votes, and maybe it doesn't get votes. But can you explain why you think it's important, not just for the universities you represent but for the country, that there be enhanced government support for the indirect cost of research?

[Claire Morris]

Thank you for the question.

It is a fundamental part of supporting the research enterprise. We've long argued, and it's in our brief that you would have received late this summer, that this is one of the key components. We have good support to attract talent and we have the infrastructure that is created through the Canada Foundation for Innovation--the direct costs of research--and those indirect costs are the ones that support the environment in which the researchers work. If we're going to be truly competitive, if we're going to attract the best and the brightest researchers and retain them, they need to know they're working in an environment that can support them with those very real costs that I outlined earlier in my statement.

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

Thank you.

If you're going to get through to this government on this subject, I think you have to use fairly simple language. So maybe you could explain to us what would be the consequences if there was no support for indirect research. What if the government simply said zero for that? What would happen to the universities, and what would that imply for Canada?

[Claire Morris]

What would happen is that researchers looking at where they're going to be able to do their work would begin to look elsewhere very seriously because they would be operating in an environment that didn't support them. The reality is that when the universities don't get fully supported in the indirect costs, they then have to draw from their operating funds and thereby affect the quality of the teaching and the educational process for students. So it's robbing Peter to pay Paul.

It really is such an important part of the whole research endeavour, and when we look at our competitors around the world, they have all recognized the support that's needed.