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Evidence of meeting #6 for Finance in the 39th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was students.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Pierre Le François  General Director, Association nationale des éditeurs de livres
Claire Morris  President and Chief Executive Officer, Association of Universities and Colleges of Canada
Darryl Smith  President, Canadian Dental Association
Bob Harvey  Member, Tax and Fiscal Policy Committee, Certified General Accountants Association of Canada
David Bradley  Chief Executive Officer, Canadian Trucking Alliance
Pierre Sadik  Senior Policy Advisor, Sustainability Specialist, David Suzuki Foundation
Nathalie Bourque  Vice-President, Global Communications, CAE Inc., SR & ED Tax Credit Coalition
Peter Look  Vice-President, Tax, Nortel, SR & ED Tax Credit Coalition
Carole Presseault  Vice-President, Government and Regulatory Affairs, Certified General Accountants Association of Canada
Susan Mullin  Vice-President of Development, Association of Fundraising Professionals
Margaret Lefebvre  Executive Director, Canadian Association of Income Funds
Chris Tabor  Manager, Queen's University Bookstore, Canadian Booksellers Association
Michael Atkinson  President, Canadian Construction Association
Gerry Barr  President and Chief Executive Officer, Canadian Council for International Cooperation
Amanda Aziz  National Chairperson, Canadian Federation of Students
Mark Yakabuski  President and Chief Executive Officer, Insurance Bureau of Canada

4:10 p.m.

Liberal

John McCallum Liberal Markham—Unionville, ON

I have one last quick question.

4:10 p.m.

Conservative

The Chair Conservative Rob Merrifield

No, I'm sorry. It's a very complex issue, but your time is gone.

Monsieur Crête, please.

November 27th, 2007 / 4:10 p.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

Thank you, Mr. Chairman.

Mrs. Bourque, it seems to me that your comments are especially timely. Last year, I sat on the Standing Committee on Industry, Science and Technology, which made 22 unanimous recommendations. One of those recommendations was important and dealt with the refundable tax credit. I have tabled a motion proposing that the Standing Committee on Finance pass the tax-related recommendations. It is possible we will be debating that motion tomorrow.

In your brief, you clearly lay out its economic advantages. However, the government is concerned about costs. Could you give us a quick comparison, telling us what would happen if your recommendations were implemented, as opposed to what would happen if they were not?

It seems to me that, fundamentally, we should be seeing this, not as an expenditure, but rather, as an investment. I would be interested in your views in that regard.

4:15 p.m.

Vice-President, Global Communications, CAE Inc., SR & ED Tax Credit Coalition

Nathalie Bourque

Certainly, Mr. Crête. We haven't seen each other for quite some time.

There are two things to be considered. First of all, if we cannot carry on research and development in Canada as we are now, companies that are world leaders, such as Nortel, CAE and a number of others, will lose their advantage and will not be in a position to maintain either their sales globally or all the jobs they now provide in all areas, not just R&D.

Finally, our research and development is very beneficial to many other companies. SECOR, a well-known corporation, was asked to carry out a study. Every investment of $1 billion represents 10,000 jobs that are either gained or maintained. That corresponds to $175 million in economic activity and $200 million more in tax revenues for the federal government. I believe that research and development has very positive spinoffs.

Finally, we provide work to a great many other companies. If I am not mistaken, Nortel was saying today that it affects about 1,000 other companies. In our case, it's approximately 600 companies in the forestry sector that carry out a great deal of research. AbitibiBowater alone spends $200 million a year on research. When it shuts down one of its plants in a town, the entire town shuts down.

It's important that people realize that and understand the economic impact of research and development in Canada.

4:15 p.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

In your brief, you say that this makes companies vulnerable to TOBs. Could you tell us a little bit more about that?

4:15 p.m.

Vice-President, Global Communications, CAE Inc., SR & ED Tax Credit Coalition

Nathalie Bourque

Well, when we're not successful…

4:15 p.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

What is a TOB?

4:15 p.m.

Vice-President, Global Communications, CAE Inc., SR & ED Tax Credit Coalition

Nathalie Bourque

It is a takeover bid, or the purchase of a firm by another firm, which can be either hostile or friendly. When you are sitting on a lot of money and a company can come along and buy you out and take the profits, you have no opportunity to agree.

Supposing CAE were to be bought by a U.S. company which decided that, in future, it would do most of its R&D in the U.S., India, China or somewhere else. The fact that we are unable to cash in those credits brings down our earnings per share, or EPS. Of course, our share price drops on the stock exchange, which has a direct impact. We become a target for a number of companies, and that can quickly have an effect.

4:15 p.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

In your brief, you quote from the Conservative Party's 2006 election platform.

It is unacceptable that Canada's expenditure on R&D, at 1.9 per cent of GDP, is below other G-8 countries and well below the OECD average of 2.3 per cent.

I gather that what you are recommending would allow Canada to move back into the forefront or, at the very least, reach the average for G-8 countries?

4:15 p.m.

Vice-President, Global Communications, CAE Inc., SR & ED Tax Credit Coalition

Nathalie Bourque

We believe that such a measure would greatly assist us. The people who decide where R&D will be carried out are not laboratory researchers, but rather, boards of directors that have one goal in mind: value for shareholders. So, when they look at this, if they see benefits, they will want to do more.

4:15 p.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

The government has announced general corporate tax cuts. However, in your brief, you say that many businesses do not make enough profit to benefit from tax credits for the research they conduct. If I were a business owner, I would do research for a year or two, but if I were unable to get any money back, I would stop doing it, for lack of money.

I would be interested in hearing your comments.

4:15 p.m.

Vice-President, Global Communications, CAE Inc., SR & ED Tax Credit Coalition

Nathalie Bourque

In our industries, we have to continue to do research. Companies such as Nortel Networks, Abitibi-Consolidated and Kruger have tax credits going back seven, eight or nine years. That is the case for most companies.

However, as I mentioned earlier, we are doing business in highly competitive industries. At the present time, many companies borrow $100 million from the bank to conduct research, pay interest on it, and so on. They then turn to the government and ask, having done that research and benefited from a program, whether they can reap the positive spinoffs they were expecting—in other words, the investment tax credit. However, for all sorts of reasons, there are no profits.

Some industries—forestry, in particular—are having problems these days. That is also the case for the information technology industry, all across the globe. Aerospace and defence are key sectors where enormous sums of money have to be invested. It is extremely difficult at the present time to benefit from tax credits.

4:20 p.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

Mrs. Bourque, does that mean that the general tax cuts alone are not enough to allow the manufacturing sector to ultimately sell products at a competitive price?

4:20 p.m.

Vice-President, Global Communications, CAE Inc., SR & ED Tax Credit Coalition

Nathalie Bourque

They are certainly a step in the right direction, but they are not enough.

4:20 p.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

In closing, I would like to come back to the non-refundable tax credits. Companies have tax credits with their bank that they cannot use, but you have proposed a specific approach, and I would like you to say more about that, because I didn't really understand your proposal.

4:20 p.m.

Vice-President, Global Communications, CAE Inc., SR & ED Tax Credit Coalition

Nathalie Bourque

Madam Clerk, I would like to ask Mr. Peter Look, from Nortel, to answer that question, if you don't mind.

4:20 p.m.

Conservative

The Chair Conservative Rob Merrifield

Be very quick. We only have 15 seconds.

4:20 p.m.

Peter Look Vice-President, Tax, Nortel, SR & ED Tax Credit Coalition

Thank you.

Our proposal is to take the historic pool of tax credits and allow companies to earn them off, so that over time the rules will not change and the companies will stay in Canada, become profitable, and ultimately benefit from the past.

The proposal is to make the prospective R and D credits refundable. In a fashion, that would provide an incentive for current R and D to be done in Canada, and jobs will remain. That's very succinct.

4:20 p.m.

Conservative

The Chair Conservative Rob Merrifield

Thank you very much.

We'll now move to Mr. Dykstra for seven minutes.

4:20 p.m.

Conservative

Rick Dykstra Conservative St. Catharines, ON

I have a number of questions. We have a very good panel here today.

Ms. Bourque, you've had a lot of TV time today so I'll go quickly.

I don't think there's any argument that the SR and ED tax credit moving forward would be a positive thing for industry and business. We're talking about a potential $8 billion investment over five years.

I would like to think that based on the fact that the finance minister has put a group together to study it and come back with some recommendations, moving forward without making sure you have the proper plan would not be a wise thing for the government to do.

4:20 p.m.

Vice-President, Global Communications, CAE Inc., SR & ED Tax Credit Coalition

Nathalie Bourque

I would think the finance department is also looking at this very closely. We are in contact with them.

You also have to remember that all the money put in R and D is also touching universities and all sorts of other programs.

Peter, you might—

4:20 p.m.

Conservative

Rick Dykstra Conservative St. Catharines, ON

No, that's fine. That's great, thanks.

I just want a bit of acknowledgement there in regard to the fact that we need to move forward to make sure we do the right thing, because we're talking about billions and billions of dollars. I appreciate that.

Moving over to Ms. Morris, I do have to say, I don't recall your mentioning anything about what was in the 2007 budget that identified a number of requests. Numerous student, university, and university teachers' organizations requested in the last budget that they should be there.

I'd like to think we made a pretty darned good first step, in fact probably the biggest step in terms of investment in university and colleges that a government has ever made in one fiscal year: $800 million, beginning in 2008-09, for provinces and territories to strengthen the quality and competitiveness of education; $35 million over two years for scholarships that didn't exist before in health-related studies.

I will just move on: $510 million to the Canada Foundation for Innovation; a $120 million investment to CANARIE Inc.; $10 million over two years to the Canadian Institute for Advanced Research, to help Canadian students in research to participate in leading, ground-breaking research on the international stage.

It goes on: $85 million per year for the federal granting councils; an additional $15 million per year to cover indirect costs of research.

I can continue, because I'm not even halfway through. The investment the government has made in universities and colleges certainly has to be seen as a positive step; it is finally being recognized after the gutting that universities and colleges took in 1994-95.

4:20 p.m.

President and Chief Executive Officer, Association of Universities and Colleges of Canada

Claire Morris

Thank you.

If you were to look at the press release we issued the night of the budget announcements, and many utterances after that, you would see that we did recognize the investments that were made and deeply appreciated them.

In coming to the committee today, we were asked to address the following: what are some of the challenges the country faces as we look ahead, particularly to sustaining a robust tax base? Our presentation today and the brief you would have received this summer are very much oriented to the future.

Again, I'm happy to send you our comments on the S and T strategy and on the 2007 budget, because we were very appreciative of the gestures that were made.

4:25 p.m.

Conservative

Rick Dykstra Conservative St. Catharines, ON

I appreciate that. I actually did have a chance to read the presentation you sent in the summer and also the press release. I just wanted to make sure to get it on the record here.

Mr. McCallum perhaps wants to play a little politics here and suggest we're not focused on universities. I didn't want him to use you as a pawn to do that. So I appreciate that.

Mr. Bradley, I appreciate the presentation you made. This is a pretty good description of the direction the industry wants to take and the difficulties you face.

One of the things I see that could potentially be helpful to us as a committee—I know it was last year—is that whenever we had organizations make presentations to us, they often would talk about, well, if you were to implement this strategy in full, this is how much it would cost; therefore it may take multi-year funding to do so.

One thing that would be appreciated, if you do have it, or if you don't have it today.... If we were to take some first steps in this direction, what types of numbers would we be talking about with respect to finance and the type of percentage impact that would have in terms of removing greenhouse gases off the road?

4:25 p.m.

Chief Executive Officer, Canadian Trucking Alliance

David Bradley

I have a chart that was handed around that in fact does that. It's a little bit complex, because we're looking at a variety of technologies, and it's how you package them together.

I will say this to start. First, if we're going to see a program, for us a prompt launch is more important than the duration of the program. We've got a very definitive date coming up with the 2010 model-year engines, and we would want to avoid a pre-buy situation in 2009. The paper I gave you suggests that it depends on what percentage the federal government was prepared to invest. For example, for a simple package that would have the smog-free truck plus two or three of the fuel efficiency measures, we're looking at a Government of Canada investment at, say, 15% of about $56 million, compared to an industry investment of $320 million. I give some other examples at 20% and 100%.

Probably the best practical example is that initially there was a similar program for auxiliary power units in the trucking industry. These are electronic units that keep the engine running, as opposed to diesel. You use those to prevent idling and those sorts of things. There the federal government invested 17% of the cost, compared to the industry's 83%, and that was enormously successful.

As for us, we know that billions of dollars aren't going to drop from the sky. We have to replace our equipment at some point anyway, and we do have a vested interest in improving our fuel efficiency; what we're talking about is accelerating that investment. I think the government can do that with a rather modest investment that will see significant returns in terms of GHG reduction.