Finance Committee on Oct. 22nd, 2009

[The Chair, Conservative, James Rajotte]

These are people who strongly support the CBC; they're big fans of the CBC; they like what's being done. They just want to have some more direct contact.

[Lise Lareau]

There are mechanisms for that. There are annual meetings with the public. There's all of that. But I really do think that for the CBC to do this, it has to be part of the memorandum of understanding, if it's an important consideration.

[The Chair, Conservative, James Rajotte]

Thank you.

I want to follow up with Mr. George with respect to research.

The AUCC has said to focus really on funding for granting councils and indirect costs of research. Your submission is more focused on commercialization, and I appreciate that angle. But if you look at research, it seems to me, we fund infrastructures through CFI and through the KIP program in the stimulus package, human resources through granting councils and the Canada research chairs. Then there's the whole commercialization aspect. At the University of Alberta, we have TEC Edmonton.

But it seems as though the more you fund research, the more you need to fund research. You fund research and you have a Canada research chair. For example, U of A is trying to bring someone up from California. You bring that person up, then you have to create the infrastructure around them. Then more people come to the university, who then need more CIHR grants and other granting programs. Then they attract more people, who then need more facilities, and then need more funding for commercialization.

I guess the concern is that it's a sort of never-ending ask. And are we always underfunding one area? The concern now seems to be that we're underfunding the human resource side. But if funding is given to the granting councils, next year are the G13 going to come to the finance committee saying, now you're underfunding on the infrastructure side? And so you have to address that angle. Then two years from now it will be human resources.

How do we find the right proportion among these different areas in a longer, stable program?

[Dr. Peter George]

I think it's a really important question, and I think we've made great progress in recent years with the research agenda, with funding on both the infrastructure and equipment side and on the human resources side: the CRC side, the Vanier scholarships, and so forth. And with the direct funds and the commitment to an indirect cost program, the pieces of the package are there. I think we'll have to be mindful of what international comparators say in these areas, and it is true by international comparators, as recent studies commissioned by AUCC and the G13 have shown, that we are still underfunding, in relative, comparative terms, the full cost of research.

That said, I am quite comfortable with even more emphasis on outcomes measures, especially in those programs that are aimed at the applied and innovation and commercialization end of the research spectrum.

The question of time horizons is extremely important. We must continue to fund basic research, because it is the wellspring of applied research and commercializable technologies and processes. We can apply outcomes measures more directly to the commercializable end of the process than we can to the basic end of the process, where peer review remains the classic comparator of quality internationally. But the outcomes measures and the vehicles for delivering on commercialization—through innovation and research parks, through tech transfer offices, through the co-location of venture capital companies with innovation and research parks, as we have done at McMaster—I think are the way forward.

[The Chair, Conservative, James Rajotte]

Thank you. I appreciate that.

I want to thank you all for coming in this morning. I know it's a short time for a lot of big ideas and good discussion, but thank you all for your presentations.

We will suspend for a couple of minutes and bring the second panel forward.

Again, thank you all for your time.

[The Chair, Conservative, James Rajotte]

We will start with our second panel this morning, on our second day here in Toronto of our pre-budget consultations across the country.

Welcome to all of you. Thank you for being with us here this morning.

We have with us a number of organizations. I'll read the list in order of their presentation to the committee. We have, first of all, the Investment Industry Association of Canada; we have Mr. Andrew Frew, as an individual; we have the Council of Ontario Universities; the Ontario College of Art and Design; we have the City of Toronto with us here this morning; the Centre for Image-Guided Innovation and Therapeutic Intervention; the National Angel Capital Organization; and the Direct Sellers Association of Canada.

We have five minutes for each of you for your opening statement. Then we'll have questions from members, from all parties of the committee.

We'll start with Mr. Russell, please.

[Ian Russell, President and Chief Executive Officer, Investment Industry Association of Canada]

Thank you, Mr. Chair.

I appreciate this opportunity to appear before the House of Commons Standing Committee on Finance to participate in this pre-budget consultation.

Our association represents over 200 members firms, investment dealers that employ over 40,000 Canadians from coast to coast. Our members account for most of the financing and trading activity in Canadian capital markets. Of our more than 200 member firms, just slightly fewer than that number are in fact quite small, with less than $50 million in capital each. They're located in offices right across the country, serving institutional and retail clients.

Our industry really provides four functions: it provides financial advice to retail clients; it facilitates secondary market transactions in equity and debt markets; it advises corporate clients on capital raising and restructuring; and it underwrites debt and equity securities for government and corporations.

Our core function is to channel savings from Canadians to productive investment.

Looking at the current environment, the financial crisis with its aftermath points to two things that are relevant to our submission. One is that it devastated the savings of individual Canadians, and the second is that it has increased the financing difficulties for small and mid-sized companies right across the country.

For the past year the economy has contracted, which is a reflection of the consequences of the global meltdown last year, and the outlook for Canada is a mixed one. On the positive side, a solid recovery in the developing world augurs well for commodity markets, and Canada will benefit. On the other hand, a very slow recovery in the U.S. and a strengthening dollar obviously dampen the growth prospects for us here in Canada.

In the context of that financial crisis, we support the federal government's response to the crisis. We feel that it acted quickly, it acted judiciously, and it came forward with what we felt was the right mix of fiscal policy to address the crisis. I think the way the Canadian economy has withstood the crisis is testament to that.

The benefits that we have reflect steps taken by both governments, quite frankly: a very strong fiscal position in Canada that really began in the mid-1990s and continued through to date; secondly, a very competitive corporate tax regime that was put in place several years ago; and thirdly, the very solid position in which our financial institutions find ourselves.

But now more than ever before we feel the federal government should encourage productive risk-taking and enterprise by a strategic and careful reduction in the capital gains tax rates. We feel that a reduction in the capital gains tax rates, particularly on common equity shares, would spur business and job creation, enhance productivity, and promote overall wealth creation.

The proposed expenditure and the impact on the federal budget of the lower capital gains tax rate we're proposing would be significantly mitigated if the reductions were restricted to common equity shares, particularly those of small public companies that are ineligible for the lower corporate rates, ineligible for the R and D tax credits, and ineligible for the $750,000 lifetime capital gains exemption. We feel this would really be a boost to stimulating risk-taking in the capital markets and investment in small enterprise and would facilitate capital-raising activities for small and mid-sized companies.

There has been a very significant fall-off in financing by small public companies. This would also create a more level playing field between small public and private companies.

Another initiative we've been looking for and are urging is for the government to confirm a longer-term commitment to the credit facilities put in place just before the crisis, which have worked very well. They are not needed right now, but circumstances could change.

Finally, on the retirement front we recommend adjustments to the tax-assisted retirement savings programs to address the difficulties that older Canadians close to retirement face. We feel these measures would complement the structural solutions, which will have a longer-term impact, that will probably come forward with the task force that will report at year end.

In closing, I would just speak of our economic success, which turns on our ability to compete in global markets. We recognize the challenges faced by the government to promote growth and preserve a strong fiscal position and we recognize the limited maneuverability of finances, but we're convinced that tax policy can be engineered creatively to limit strains on the fiscal position and encourage investment growth.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Russell.

We'll go to Mr. Frew now, please.

[Andrew Frew, As an Individual]

Heaven help the family that depends on a farmer for support. Heaven help the nation that doesn't have that farmer to support it.

Mr. Chairperson and committee members, my name is Andrew Frew, and I'm here as an individual.

I'm a hog producer. I farm with family in Durham region. We raise 325 sows, farrow to finish. I have six family members who rely on our farm as their sole income.

This document refers to a Rod de Wolde, who helped me put this together. Through my not understanding the process, I didn't properly have him entered to help me today, but he is documented here for all the work he has helped with. He is a genetics breeder, supplying breeding stock to other hog producers. He also relies on the hog industry as his sole source of income.

The crisis in the hog industry is well documented. I'll highlight just a few things: the rising Canadian dollar, increasing feed prices, country-of-origin labelling, economic downturn, and finally the H1N1 virus. These problems existed long before the current recession and are no fault of the producers.

We believe the industry is at a tipping point. There are many secondary industries that rely on the hog industry. If our industry fails, these industries will fail also, and this will have a greater effect on the overall economy.

We compete in global markets in the hog industry. There are safety net programs within the government, but they have become ineffective because of this perfect storm that has hit us. As grassroots producers, we believe strongly that the industry needs an ad hoc rescue payment. We understand there are trade issues surrounding this, but we think we've figured a way around them. We think “no” is simply not an acceptable answer.

We have developed a 2008-09 Canadian hog sustainability supplement program. This program could benefit all producers across the country. I'll give an example of how our proposed program would work.

Eligible gross sales of hogs on any farm could be used in this calculation. The reference here for the 2008 payment year would be 2007-08. We have come up with a formula that uses the average eligible gross sales multiplied by the factor that we've derived. Our calculations are based on a farrow-to-finish operation. The expected cost of this program for the 2008 program year is $875 million. Using a 60%-40% federal-provincial split, as is normal, $525 million would be federal and $350 million would be provincial.

We came up with the factor using OMAFRA data that was in the appendices—which may have been taken out, because we didn't translate them to French. We apologize for that. The information was in our document, but it may not be in all of your copies now.

We took OMAFRA's information for the cost of raising a hog, divided by the value the hog was sold for, to come up with this factor. In 2007 the factor was 1.2, and in 2008 it was 1.3. The average of those years would be 1.25. That would be the additional value the hog producer needs to make up losses.

Given a sample calculation of a farmer who sells 2,000 hogs a year, using his eligible gross hog sales for 2007-08 times our 1.25 factor for that production year, that producer would be eligible for just short of $64,000.

The benefits of a program like this include: it is not a “per hog” payment; the factor is based on industry averages; the calculation is a two-year rolling average; it does not promote production, because it's after the fact; the calculation numbers should be available from AgriStability; it is simple to calculate; and the payment does not pay producers for commodities other than hogs that they may have produced in that reference year.

We carried through for a 2009 program using the same information, and in the same scenario, the overall cost would be around $1 billion to the hog industry.

In summary, in May 2009 the Canadian Pork Council, CPC, presented a request to Minister Ritz for an ad hoc hog payment of $30 a hog. That request was denied, our understanding is, because of trade implications.

In the appendix, there is a backgrounder from CPC. It says the Canadian pork sector contributes significantly to the Canadian economy, 70,000 jobs. Nearly two out of three hogs born in Canada are exported: $500,000 worth of live hogs, $2.7 billion worth of exported pork products. These exports create 42,000 jobs within our economy, $7.7 billion in economic data, and a total of $2.1 billion in wages and salary. These jobs and benefits are at risk.

We cannot afford to lose the hog sector in Canada.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We will now go to Ms. Patterson.

[Bonnie Patterson, Interim President, Council of Ontario Universities]

Good morning, Mr. Chair, and distinguished committee members.

On behalf of the Council of Ontario Universities, thank you for this opportunity to present this morning.

Approximately 42% of all students studying in universities in Canada are in Ontario. These 21 institutions provide a diversity of experiences in academic programs and research opportunities that they provide. Universities are true community partners. They contribute to economic, social, and cultural development that have impact locally, provincially, nationally, and internationally. Whether it is creating new ideas or applying them, universities represent an enormous capacity to solve problems that society faces today and in the future.

In a previous written submission to your committee, the Council of Ontario Universities asked the federal government to invest in three important areas in budget 2010: research, the recruitment of international students, and supports for our aboriginal learners. Investment in all three areas is critical to individuals whose lives will be directly changed by your decisions, but also to communities, our province and country.

I'll focus the remainder of my remarks on just one of these priority areas, and that is research. Put simply: research matters. It matters because it impacts individual lives. It helps us in a global context to see the world from different perspectives, and it awakens individual potential for problem solving and creativity. It matters because it leads to new products, processes, treatments, and services that make a difference for many individuals in society. It matters because knowledge, new and old, is essential to our economic future. It supports a diversified and robust economy based on innovation led by the brightest of minds. The reality of competition in a knowledge-based global economy is that the advantage goes to countries that are innovative, productive, and technologically savvy. In other words, it goes to those that invest heavily in the skills of their citizens.

Canada needs people with advanced skills and entrepreneurial spirit. Universities are primary providers of this talent, and they support the acquisition of leading-edge skills in areas of specialized knowledge needed to drive the economy. Through educational programs and numerous partnerships, universities help Canada's talent pool explore their creativity and imagination, inspiring the possibility of innovation in all aspects of their lives.

Second, in a knowledge-based economy what matters is the ability to acquire knowledge but also to apply it. Canadian researchers must be able to apply their cutting-edge knowledge to tackle the toughest challenges facing Canadian industry today. Centres of excellence and research, universities, play an essential role in the innovation system, and their faculty and students ensure that the innovation pipeline is continually fed.

Let me quickly share a few examples to illustrate the impact of recommendations this committee has made to invest directly in university-based research. Researchers at Queen's University are developing a novel technique for improving the reliability and performance of solar water heaters that can cut heating costs by 50%. The systems are now being installed across North America, and more recently they were installed at Toronto's Hospital for Sick Children. At York University, a public-private partnership involving companies such as IBM and numerous SMEs are establishing a new consortium to develop the next generation of medical device technologies. The York region is currently home to nearly 50% of Canadian medical device technologies.

As a result of collaborations between Lakehead University and Genesis Genomics, early cancer detection products are under development in Thunder Bay. Genesis Genomics is one of Canada's top ten biotech companies. There are many other examples of different types that illustrate successful social and economic outcomes of research that is under way in virtually every university in this province. Many initiatives are developed through successful public and private sector partnerships.

We know that the committee's work is particularly difficult in this current fiscal climate. We also acknowledge the large number of voices competing for scarce resources. The federal government has played a leading role in investing in research and innovation, and we are thankful for those investments. The knowledge infrastructure program is the most recent example. But now is not the time to lose the momentum created by those investments. We need to put them to work and increase the return on investment in the future. We need those investments to compete globally.

Through a significant investment in the three research-granting councils at the federal level—the Natural Sciences and Engineering Research Council, the Social Sciences and Humanities Research Council, and the Canadian Institutes of Health Research—researchers will be able to perform more and better research, move the continuum from fundamental to applied, collaborate with greater speed with industry partners, train more graduates and post-doctoral fellows in the global talent race, and make productive use of the infrastructure investments made recently and over the last decade. This investment will contribute to a prosperous Canada.

Thank you for providing the opportunity to speak with you today. I would be pleased to answer your questions.

[The Chair, Conservative, James Rajotte]

Thank you very much.

We will now go to the Ontario College of Art and Design.

Ms. Diamond.

[Dr. Sara Diamond, President, Ontario College of Art and Design]

Thank you very much for the opportunity to address the House of Commons Standing Committee on Finance.

The Ontario College of Art and Design is a specialized university, a member of AUCC and the COU.

I want to speak about three issues that OCAD addresses in our written submission.

The first is design strategy. Design creates innovative processes, systems, and products and is the fundamental engine to drive intellectual property in Canada.

Countries with a high innovation and competitiveness ranking invest in design at all points in the supply chain. Product design and development, a Canadian manufacturing perspective, identifies design as the critical element in achieving better productivity, and, according to Industry Canada, firms identify design as being of value in affecting time to market, new products' success rates, and the percentage of revenue from new products.

Design drives innovation throughout the digital industries, gaming, mobile applications, and so on, and design transfers research from the bench to commercial product. Design redirects business capacity to new products and markets and bridges cultures to create universal or individualized products.

Canada needs a design strategy, one that will promote Canadian design, invest in design education, and target design research to the granting councils and CECR initiatives in commercialized network development.

We need to create capacity in IRAP to support design innovation and the redesign of business processes and encourage partnerships with Canadian design firms.

Second is our physical and virtual infrastructure. Through public-private partnerships, we need to greatly enhance Canada's broadband capacity, continue to strengthen our country's mobile Internet, and support the super-computing networks that are fundamental to Canada's research and commercialization and post-secondary competitiveness.

A digital strategy for Canada can enable such partnerships and strengthen the delivery of e-learning, provide access to democratic engagement for all Canadians, and bring Canadian businesses online, supporting the success of Canada's digital industries, a highly competitive sector.

OCAD has created a proposal for a digital future centre with a request to the federal government for $12 million toward this unique national beacon. We are happy to say that the province has supported us both through its training and colleges and university sector and research and innovation, and we encourage the federal government to do so.

Next is aboriginal post-secondary education. All significant studies of aboriginal post-secondary education note the importance of developing programs that will engage aboriginal youth while building the capacity and knowledge of these communities in their own right.

Within the larger Canadian context, new generations of aboriginal artists, designers, architects, and media producers and the application of their skills to other domains such as health care will create significant transformative economies and economic benefits for these communities while contributing to Canadian and international cultures.

Despite the well-documented importance of culture to aboriginal well-being, creativity, and economic capacity, there is very limited availability of programs dedicated to aboriginal visual culture, art, design, and commercialization of art and design in this country.

Hence we encourage the federal government to expand university educational opportunities for aboriginal Canadians by increasing financial support to students of aboriginal descent and investing directly in innovative university programs such as OCAD's aboriginal visual culture programs that provide access to aboriginal undergraduate and graduate students.

There is a link between these three points. Investing in aboriginal learning, linking an effective broadband strategy to all regions of Canada, and understanding the critical role of design in fact will help Canada to be truly competitive.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. Diamond.

We will now go to Ms. Carroll from the City of Toronto.

[Shelley Carroll, City Councillor and Chair of the Budget Committee, City of Toronto]

Thank you, Mr. Chair and members of the committee. It's a privilege to be here today to represent the City of Toronto and to share with you the views of Mayor David Miller and city council.

On October 5, FCM presented recommendations to you in P.E.I. The City of Toronto supports those views. Mayor David Miller is also an active member of the Big City Mayors' Caucus, and he strongly supports the recommendations in its 2006 report entitled “Our Cities, Our Future”. We've provided it for you today.

Since 2006, BCMC has requested that the federal government create a national transit strategy, realign roles and responsibilities with appropriate resources, and share revenues that grow with the economies of the cities.

As you know, the economic security of Canada is inextricably linked to the economic strength and stability of its cities. The success of local and regional economies positions Canada within an international marketplace. You'll hear throughout my presentation that all orders of Canadian governments must continue to work together to ensure that the country remains prosperous and provides a high quality of life. In particular, during these difficult economic times we must work together to provide Canadians with needed programs and services.

The recession in Toronto has hit very hard. The unemployment rate is up, with more people relying on EI. There are more people in vulnerable housing situations, and more families are without child care that would enable them to participate in the labour market. When the recession first hit, the City of Toronto quickly responded with an action plan to support the most vulnerable and to secure and create jobs. Now all governments are playing their part to boost the economy by investing in infrastructure.

Today the City of Toronto wants to thank the federal government for its commitment to improving Toronto's public infrastructure through its Building Canada plan and the economic action plan. Together we are addressing the negative effects of the recession and making a positive impact on the economy with leveraged stimulus spending.

We see three key areas where we could continue to work together to prepare Canada to lead in the new economy.

First is investing in our people and public infrastructure. We look to the federal government to help Torontonians with meaningful employment, obtaining the skills they require for the knowledge economy to come, and having equal access to income support programs such as EI until they gain access to the labour market.

Affordable housing and support for families to raise their children while working full time are essential programs that will help Canada remain competitive at this time. With this in mind, we recommend that the federal government enhance the employment insurance program to ensure equal access, create a national housing strategy with predictable and long-term funding for affordable housing and homelessness services, create that national transit strategy, and provide permanent support for early learning and child care systems.

The second key area we see is support for the green economy. The City of Toronto will begin implementing a sustainable energy strategy to help meet our greenhouse gas reduction targets, which includes a component to help accelerate the retrofit of buildings, transportation systems, and energy infrastructure throughout our city.

We estimate that 14.2 permanent jobs can be created for every $1 million spent on energy conservation, renewables, and the modernization of our energy distribution network. Federal support is needed for the green economy in areas such as labour market development and support programs for green building development and renewable energy sectors; building retrofits, such as support for multi-residential retrofit; and job creation initiatives, like the mayor's tower renewal program. Support is needed here to drive broad environmental, social, economic, and cultural change by improving Toronto's concrete apartment towers and the lands that surround them. It's a very innovative program, and we've provided materials on that. Under the green economy we also support an investment in the agricultural sector.

A third key area is a federal policy focus on entrepreneurship, self-employment, and small and medium enterprises. We think you know the statistics. This is a growing trend, and we need infrastructure and training support so this can be a key area of employment growth in the nation, particularly in Toronto.

In summary, I will reinforce for FCM and BCMC, and I think I speak for all of the GTA based on our votes, that a key component we need coming out of the recession is that one thing you have been asked for, for a very long time—all parties, because it's not about parties. It's about populations and turning points in cities. Revenues that grow with the economy allow us to get on with the growth as we come out of the recession, and your commitment will be to work on your deficits.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. Carroll.

We will now go to the Centre for Image-Guided Innovation and Therapeutic Intervention.

[Dr. Peter Kim, Lead, Centre for Image-Guided Innovation and Therapeutic Intervention]

Thank you, Mr. Chair and members of the committee. Thank you for having us today.

More than 10,000 times this year, a mother in Canada will learn that her child has a birth defect. Those with severe abnormalities often die or remain disabled for life. Fortunately, many of these defects can now be treated successfully. As a pediatric surgeon, I have seen how surgical techniques have evolved and advanced over the past 20 years. However, children's surgery has its own challenges.

Operating on children, with their tiny spaces and highly sensitive organs, presents its own unique set of challenges. These giant machines and tools developed for adults just aren't equipped to work effectively. From my own experience and talking to my colleagues from all across Canada and the world, it has become clear that we're not reaching the limits of what can be done with traditional surgery. And it's increasingly becoming an issue with respect to access to appropriate care.

This is where the CIGITI comes in. CIGITI stands for Centre for Image-Guided Innovation and Therapeutic Intervention. We're a multidisciplinary group of surgeons, engineers, scientists, and software developers from all over Canada, working together to develop and market new medical technologies while creating new knowledge.

CIGITI is based at Sick Kids hospital in downtown Toronto. Today I want to specifically talk about a project that we have focused on for the past three years. It's called Kidsarm. Kidsarm combines minimally invasive surgery with imaging technologies and medical robotics. Think of Kidsarm as pediatric surgery's answer to the space shuttle's Canadarm. It's nimble and can handle the smallest patients to the largest with precision and safety.

The technology gives us clear, real-time images of a child's internal organs. The surgeon needs only to make a small incision and then he or she can quickly navigate to the region of treatment, avoiding blood vessels and critical structures before quickly performing the necessary procedure.

The potential is enormous. Consider a birth defect such as a large tumour called sacrococcygeal teratoma, which grows on the back of a little baby. Although the tumour can be removed after birth, this creates a significant complication and sometimes the tumour itself can threaten the baby's life in the mother's womb, necessitating an urgent surgery while the baby is in the mother's womb. Kidsarm, for instance, and its navigation technology can obviate and make such a procedure into a minimal and scarless technique. This obviously means less trauma and suffering and much better outcomes.

There are also other benefits, particularly to the health care system. Treating abnormalities early on means lower long-term health care costs. Today children with birth defects represent 25% to 30% of all hospitalization costs in Canada, and the number of cases will increase as women wait longer to have children and families.

As well, there are so few opportunities to train in pediatric and fetal surgery. Kidsarm will also help to train the next generation of surgeons so that knowledge isn't lost. In much the same way as flight simulators were and are used to train pilots, we would have technology-trained pediatric surgeons anywhere in Canada with a virtual simulation of the exact child they would be treating.

However, Kidsarm does not only mean advances to medicine. It's also about creating high-value, knowledge-based jobs commercializing these new technologies. CIGITI has already developed two potential technologies for pediatric medicine and brought them to the market. They are technologies that will save at least $250,000, for instance, at Sick Kids in terms of health care costs, while reducing the wait time from eight or ten weeks to a few days.

We have an ambitious plan to patent and license some of these products and reinvest the proceeds in new research. The market for these technologies at the heart of CIGITI's work amounts to more than $25 billion, with a projected growth of between 9% and 20% each year. By completing Kidsarm, we expect to be on our way to becoming financially self-sustaining.

However, I am here because we need your support. CIGITI has secured $5 million from the Canada Foundation for Innovation toward the design and construction of the Kidsarm prototype. To complete the project, CIGITI needs an additional $10 million to make it a reality and an additional $20 million to construct a special operating theatre that's equipped with the MRI to run pre-clinical and clinical trials for these and other technologies that are being developed. It will make the transition from idea to research and bench to bedside even faster.

I've talked to you today about the benefits of Kidsarm—less suffering for children, lower long-term health care costs, improving access to appropriate care, training future surgeons, more high-skilled jobs, commercialization opportunities, and the potential to make Canada a world leader in surgical innovation. But for me personally, the biggest part of this endeavour is about giving hope to the parents of these small babies I've been treating for the last 15 years and passing on what I've learned to the next generation of surgeons.

We have key pediatric surgical leaders, from UBC to Montreal to IWK, who wanted to come here and couldn't, but they have sent letters of support.

I hope we can count on your support in this year's budget, and I look forward to any questions you may have.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll now go to Mr. Wilkes.

[Andrew Wilkes, Chairman, Board of Directors, National Angel Capital Organization]

Good morning, Mr. Chairman and committee members. Thank you for inviting us to speak to you today.

My name is Andrew Wilkes, and I chair the National Angel Capital Organization, a non-profit association of angel investors and investor groups from across Canada. NACO has 5,000 angel investors and 35 angel groups.

Last year we had the pleasure of speaking at some length to the House of Commons Standing Committee on Industry, Science and Technology. During that testimony we outlined many of the policy alternatives available to stimulate early stage enterprise investment and subsequent growth. Our approach is to create jobs and generate revenue for the taxpayer. We appreciate the opportunity to reiterate and expand on these alternatives and to comment on what is working well.

To begin we'd like to briefly establish who we are and on whose behalf we speak. Angel investors are often serial entrepreneurs who have built one or more successful companies. Typically they mentor and invest their own personal capital in early-stage companies to commercialize our Canadian intellectual property. They provide the oldest, largest, and most-often-used outside funds for entrepreneurs. They are the key to the commercialization of innovation by SMEs, our main source of employment growth.

Angels invested roughly $2.2 billion in early-stage companies in 2004--I'm sorry I don't have more data after that--which compares to around $546 million by VCs, venture capitalists, in 2008. Angels are becoming organized, formalized, and professional in their approach.

The problem we are here to address is the $5 billion to $8 billion annual funding gap in the financing of early-stage companies, the number one problem for innovation. Investments by venture capitalists in early-stage companies are declining drastically. Early-stage is the valley-of-death stage; it is the most challenging search for financing that entrepreneurs face. Canada is losing out, as entrepreneurs are seeking financing out of the country.

Our first recommendations are very modest. Traditionally, angels demand that entrepreneurs make the most of what they have and that they run a tight ship. We think the problem can be addressed with well-leveraged, modest expenditures, and we propose the following.

First, we propose an angel community development initiative of half a million dollars a year for four years. The fund would help boost investment through education, best practices, training, networking, and collaboration. It's modelled after Ontario's very successful angel network program.

Second is an innovation productivity tax credit limited to $100 million per year and matched by the provinces. The credit would encourage individuals to take a risk in early-stage SMEs, which could become our economic champions. It's modelled after existing tax credits in five provinces in Canada, the U.S.A., and abroad. These programs have proved to be successful around the world--in over 18 U.S. states, Belgium, Bulgaria, France, Germany, Greece, Ireland, Luxembourg, Russia, Sweden, Switzerland, and I could go on. Studies show that similar investment repays the taxpayers in two to three years.

Let me emphasize that these are programs that provide returns to the taxpayer by accessing further capital to grow our businesses. Indirectly, this is a public-private partnership.

Third, we advocate leverage and emulation of best practices found elsewhere with the national angel co-investment fund: $100 million invested by government and matched by private investors. That would match approved angel group investments in eligible small businesses. This would result in significant leverage to grow businesses. The aim is to achieve Canada's strategic economic goals as set out in the science and technology strategy. This is another proven policy with counterparts in Scotland, Ohio, and so on, and it will harness private interests for public benefit.

This committee has also asked what is working well and what could work better. We're happy to provide a clear answer to both. To begin with, the National Research Council's industrial research assistance program works. Traditional stimulus may only displace private endeavour; however, IRAP's assistance to innovative companies provides leverage that is not matched by traditional programs. Investments in innovation and skills meet future needs for growth and confidence in new markets. Investment in innovation and skills preserves entrepreneurial initiative and accountability.

As to what could work better, we believe research grant funding could have an even greater multiplier effect. Basic research is critical, a catalyst of economic growth.

Present granting funding, however, does not prepare researchers to take on the risks and rewards of commercialization. Thus, few Canadian innovations reach the marketplace. Research granting could achieve an economic multiplier effect if they included requirements for goals and milestones specific to eventual commercialization in their guidelines.

Let me close by saying that the subject of capital formation is important to all sectors, but especially the SMEs, which are the engine of growth in Canada.

Thank you for asking me to appear before your committee. On a personal level, I have a mission to take Canadian intellectual property globally. We are all needed to be aligned in this endeavour.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you for your presentation.

We'll finish with the Direct Sellers Association of Canada.

[Ross Creber, President, Direct Sellers Association of Canada]

Mr. Chairman and honourable members, on behalf of the Direct Sellers Association of Canada, I want to thank you for the opportunity to appear before the committee today.

Since 1954, the Direct Sellers Association has established and upheld rigorous standards, ethics, and good business practices as the recognized voice of our industry.

As an industry that connects more than 1.3 million Canadians to entrepreneurial opportunity and enrichment, we provide assurance of member company integrity and a foundation of trust for independent sales contractors and consumers.

Our 43 member companies, which include such well-known names as Amway, Avon, Mary Kay, Tupperware, and their ISCs, market and distribute a wide range of products and services directly to consumers, usually but not exclusively in the consumer's home rather than from traditional fixed retail locations. Generally these products and services are sold in the context of group presentations, generally known as party plan, or on a personal consultation basis.

Direct selling contributes significantly to the Canadian economy. Our labour pool includes 3,900 permanent employees and 1.3 million ISCs, who earned an estimated $1.1 billion in income. In a socio-economic impact study conducted by Ernst & Young, when using an income multiplier, the industry's total impact on the Canadian economy was in excess of $1.57 billion—a very significant direct economic impact of the industry's activity in Canada.

As I stated earlier, more than 1.3 million individual Canadian women and men were engaged in operating their own direct selling businesses with more than $2.2 billion in sales. It should be noted that 88% are women, 81% are married, and 56% have full-time jobs and use the business opportunity to earn extra income. Additionally, 15% work part time with no other occupation.

Despite the challenging economic times, direct selling in Canada is performing reasonably well, with sales and independent sales contractor participation growing in most areas, which is somewhat counter-cyclical to the current economic conditions we face.

People enter direct selling for a variety of reasons, including unemployment. In fact, the socio-economic impact study I referenced earlier found that 11% of direct sellers were unemployed prior to entering the direct selling industry.

Our industry has an enormous capacity to create income-earning opportunities and to change lives, including transitioning individuals from dependence on EI to independence. We regard direct selling as a legitimate and accessible form of self-employment or income-generation, a fact that is acknowledged by the Canada Revenue Agency, the Department of Finance, and the Competition Bureau, all of whom we have worked with very cooperatively for many years.

However, on the matter of transitioning from EI benefits to self-employment, we have not experienced the same legitimacy. On that point we have heard anecdotal evidence from members over the years that causes some concern. Members have told us about being refused access to HRSDC-sponsored job fairs, company information not being allowed in EI centres, and about individuals on EI benefits being discouraged from entering direct selling.

For example, we have heard that for individuals considering entering our industry while on EI benefits, the program will count time spent establishing a direct selling enterprise against the hours available for work. This will result in a reduction of benefits despite the fact that there may be no income generated in the preliminary weeks of this new enterprise.

This creates a disincentive to pursuing this type of self-employment prior to the end of the benefit period. However, HRSDC does recognize self-employment and has created a self-employment benefit for individuals starting a business, including a home-based business but not a direct selling business nor a business that is commission sales based.

Since our submission to the committee, Minister Finley has already responded to our submission, which we had copied to her, and I recently met with the minister and officials from her department.

There was agreement that further dialogue is necessary to discuss possible program improvements to ensure that there are no artificial impediments to pursuing a variety of self-employment opportunities while on EI benefits.

I want to thank the minister for her support and genuine interest in providing Canadians with a variety of income-earning opportunities.

The other issue I want to raise today has to do with the GST direct sellers alternate collection mechanism used by our industry. This unique mechanism was developed at the time GST was introduced in 1991 and has been a shining example of industry and government cooperation in tax policy development.

The direct sellers mechanism allows for the pre-collection of GST/HST by direct selling companies at the time of sale to their independent sales contractors based on the suggested retail price. The ISCs do not have to be involved at all.

The result is administration savings, not only for the ISCs in terms of the cost of operating their own small business but also for CRA in not having to administer the GST for hundreds of thousands of small and micro-entrepreneurs.

It has been a win-win-win for everyone, with the government getting tax at the max in a timely and secure manner.

The problem, however, is that the mechanism currently does not allow the growing proportion of the direct selling industry, which operates on a sales representative model as opposed to a buy-sell model with the ISCs.

Recognizing this inequity, the DSA has been advocating before this committee and the Department of Finance for more than a decade now for an expansion of the mechanism in order that it will apply to all the direct selling industry. As you can readily appreciate, the DSA applauded the government in a press release on January 27 of this year for announcing amendments to the DSM in the most recent 2009 federal budget.

The changes announced in the budget are intended to benefit thousands of additional independent sales contractors in the industry; however, as is often the case, the devil is in the details, with the government now preparing to implement the recommended change in a budget implementation bill. For the January 2010 start date, there is still one outstanding technical issue.

We have been in discussion with the department and the minister's office to finalize this technical issue, but we remain concerned that it may not be achieved. We are hopeful, however, that the government, having made it clear that this is an appropriate policy change, will ensure the technical matter is dealt with in order to ensure this measure will have the effect intended by the government, by maximizing its use for the benefit of direct selling companies, the ISCs, and the federal government. Otherwise we are very concerned it will not achieve its intended objective.

In this respect, Mr. Chairman, we ask for and urge the committee's support on this final point.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll now go with questions from members.

We'll start with Mr. McCallum.

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

Thank you, Mr. Chair.

Welcome to you all. Thank you for taking the time to be with us this morning.

The first comment is that I noticed that both the Council of Ontario Universities and the Ontario College of Art and Design recommended special funding for aboriginal students. I definitely agree with you on that.

My first question is for Ms. Patterson.

I don't think you mentioned it, but your second recommendation is that we have an international student recruitment strategy. I agree with you a thousand per cent on that, because I think other countries, notably the U.K. and Australia, have been eating our lunch. I'm told that the U.K. has ten times more foreign students than Canada does, and it's less than two times bigger than us in population. And they have major campaigns for branding and advertising in India, China, and Indonesia. Why have we done so badly?

I mean, I support your recommendation, but is it because of the provincial jurisdiction for education? Is it perhaps because of our immigration system? I don't know. Can you tell me why we have done so badly compared with other countries?

[Bonnie Patterson]

Mr. Chair, thank you for allowing me to answer some questions.

I think there are many reasons. In the first instance, we've been trying to manage what has been an increasing demand for access domestically. That has taken significant investments across the country, whether it's in B.C. or Quebec or Ontario or the Atlantic provinces. I guess in part it has been where the growth has occurred and at what time demographically.

Australia got out very much early in the process of their recruitment of international students. They made a very strategic decision to invest in international recruitment into Australia and also to take higher education offshore into other countries.

So it was a direct investment strategy that was put in place.

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

Okay, thank you.

Anyway, we certainly could do better. We need to have a strategy. I agree with your recommendation.

My next question is for Mr. Russell, on pensions.

I think pensions are a huge issue and will become even bigger over time with our aging population and the various inadequacies of our system. I don't necessarily disagree with you, but I'm wondering if your recommendation of a lifetime pension allowance--tax relief on that--would do very much.

I don't know the exact number, but I think about 90% of the room that Canadians have for RRSPs is not used. Do you think your proposal would make a big difference in terms of Canadians' ability to prepare for their pensions in the future, their income while in retirement?