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.