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.