Finance Committee on Oct. 26th, 2009

[Dr. Rainer Engelhardt, Past Chair, BIOTECanada]

Thank you, Mr. Chairman and members of the committee.

I'm here representing BIOTECanada as a director on the board and its past chairman.

You have an information package in the folder that was provided to you. I'm going to go through my presentation with some highlights of information relevant to the slides that you have. More details are on the slides as well as in the formal submission that was made to committee this August.

BIOTECanada represents a large body of the biotechnology industry in Canada. This is an industry that, I want to expound here, is in distress at the moment. What they ask the committee to consider in the budget for 2010 is, in three quick points: to address the cash crunch through a loan program; to sustain a vaccine funding program, which is already in place but needs renewal; and to grow the SD Tech Fund, the sustainable technologies fund administered by SDTC. The amounts are as listed there.

The primary reason for this, as I said, is that the industry is in distress at the moment, but the second and major reason is that the return on investment for past government investment is at high risk of being lost unless those actions are taken.

The industry is not a small or a new industry in Canada; it's a significant one. Industry contributes over $78 billion in GDP to Canada's economy on an annual basis. It's really of roughly the same size as the oil and gas sector and the automotive sector, yet it's an industry that has frankly very little profile in a consolidated industry setting; let's put it that way. It's an industry that is fractionated; this next slide shows you that. It's composed of therapeutics, ag-bio, industrial, and so forth. The pie chart shows the distribution. The growth sectors for it are in the ag-bio, industrial, and environmental areas, the very things government is wanting and needing to promote in Canada.

A quick word about the vaccines component, because it's really quite specific. The vaccines support—the $100 million that has been provided by government regularly—has had a major impact on the health of Canadians and on the reduction of overall health costs in the country. We are firmly convinced that the same rewards will be gained by the country at large through continuing that program. As we all know when we read about H1N1, which is a viral disease, and others is that infectious diseases are an issue in the country.

The general Canadian public is not uninformed about the importance of science and technology. The question was asked whether people had concern about the global competitiveness of our country in science and technology. Certainly the majority of the general population, as shown on slide 5, feels that this is something very important to them. When you get a little more specific and ask, as we did in this year's Nanos survey, whether or not biotechnology has a contribution to make to that future prosperity, 90%-plus of individuals contacted in Canada feel that biotechnology makes a major contribution to the overall future expectations of the country.

Then what is the problem? The industry is in trouble because by definition this industry has an ongoing need for capital. It goes through capital financing cycles, and those financing cycles are dead at the moment. In particular, those that are affected are, as shown on this slide, the emerging companies of Canada, those at the cusp of making a major value increment to the country. It is simple, and there are more details here showing you that venture financing, market capitalization—the traditional sources of capital for the biotechnology industry—have become fragmented, have decreased, or are no longer available.

One might say let the chips fall where they may, but if we don't recognize our ROI from R and D investments in the country, the industry will not be sustainable. It is leaving the country as it is. There is an attrition happening at a very rapid rate, and at the same time we seem to be seeing the biotechnology industry, in future years at least, as less and less competitive. In other countries with which we compete, that is not the scenario. They are increasingly funding biotechnology advances and are making a very strong and concerted effort to support that industry within their own country.

We'll slip to the details on the last slide.

These global initiatives in the economic platforms of the U.S., Australia, China, India, Taiwan, and on and on are having a major impact now on growing that industry in those countries for future expectations. As an industry association, we feel that it is a major loss. Basically, every month that passes it's a major loss. If we go a year or two, into next year, there's a very high probability that biotechnology in this country will become second-rate rather than the first-rate it is right now.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much.

We'll finish with the Railway Association of Canada.

[Cliff Mackay, President and Chief Executive Officer, Railway Association of Canada]

Thank you, Mr. Chairman.

My name is Cliff Mackay. I'm the president of the association. Let me thank the committee for the opportunity to speak to you today.

Railways, as you know, are an integral part of the Canadian economy. We move approximately 75% of all the freight, by weight, in the country to domestic and international markets. We employ over 35,000 people, and we pay over $1 billion in taxes every year. The RAC represents essentially all the operating railways in the country. That includes freight railways large and small, intra- and intercity passenger railways, regional railways, and tourist railways.

Today I want to put forward three recommendations, which are also included in our written submission.

The first concerns federally regulated defined benefit pension plans. To mitigate the impact of significantly higher contributions to federally regulated DB pensions in 2009 and beyond, we recommend that the federal government permanently increase the solvency deficiency funding period from five to ten years for all current and future solvency deficiencies, without any conditions.

It is critical that meaningful and permanent changes to the regulatory framework be made in 2009 to address the onerous and frankly very volatile nature of the solvency deficit contributions required under the current rules. RAC member railways, which are federally regulated, include both Class 1 freight railways--CN and CP--and the intercity passenger service--VIA Rail.

The temporary solvency funding measure announced in the 2008 economic and fiscal update was welcomed by the RAC members. However, it's insufficient for a number of reasons. This temporary measure does not address the continuing, onerous nature of the five-year solvency funding rules.

The RAC acknowledges the critical importance of the security of pension plan members' benefits. We strongly believe that the best security for plan members is a financially strong plan sponsor and that our proposed lengthening of the solvency deficit funding period is critical to ensuring that member railways remain financially strong. Therefore, we urge the government to permanently lengthen the solvency deficit funding period. RAC member railways require more certainty on future pension contributions as they proceed to develop both their capital and operating plans. In addition, unless meaningful, permanent changes are made, the ability of our members and other Canadian firms to maintain their current pension plans will be severely challenged.

The second issue I want to raise with you concerns section 36 of the Income Tax Act. This section applies exclusively to railways. This section operates to require capitalization, for income tax purposes, of costs incurred in respect of the repair, replacement, or renovation of depreciable property to the extent that such costs are capitalized pursuant to the uniform classification of accounts prescribed by the Canadian Transportation Agency.

The CTA is in the process now of reviewing its regulatory accounting policies, including those for the treatment of the costs I just mentioned. The objective of the CTA review is to modernize the regulatory reporting rules for railways to align its rules with generally accepted Canadian and/or U.S. accounting practice. If the CTA were to proceed without the Department of Finance correspondingly repealing section 36, it would result in a very significant and unintended increase in the annual income tax payable by Canadian railways.

Therefore, we are recommending that the federal government proceed to delink the Income Tax Act from the regulatory reporting requirements by repealing section 36. A significant increase in income tax payable on an annual basis will decrease the investment capacity of railways, resulting in obviously negative economic impacts.

The last thing I want to mention, Mr. Chair, is the continued funding of gateways and corridors. The Canadian rail system continues to be well positioned as a facilitator of international trade in North America. The federal contribution to these gateways is an extremely important piece of the puzzle. We want to commend the federal government for the $1 billion it's already invested in the Asia-Pacific gateway and the $2-billion plus that has been made available for the Ontario-Québec continental gateway and the Atlantic gateway.

To date, however, the allocation of these funds to rail and intermodal infrastructure has moved very slowly. After more than two years, the budget allocation for Ontario-Quebec and Atlantic has not been spent at all. With regard to the west, there have been a number of announcements recently, which we very much welcome, but there is again more work to be done.

Many jurisdictions in North America are moving quickly to support their rail infrastructure and their port infrastructure, including short-line rail. We have to keep pace with these jurisdictions.

With respect to infrastructure investment, we are currently in a race with the United States. The American Recovery and Reinvestment Act of 2009 funds U.S. passenger and freight railways and ports to the tune of $27.5 billion. All of these programs must be moving before September 30, 2010. This is a significant competitive challenge, and we need to continue to focus on our infrastructure.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll now go to questions from members.

We'll start with Mr. McKay, for seven minutes.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you, Chair.

Thank you, witnesses; very good presentations and no time to ask all the questions I'd like to ask.

I'll start with Boys and Girls Clubs. I have in my riding the East Scarborough Boys and Girls Club, chaired by Ron Rock. They do a fabulous job. I'm very proud of the work they do.

The $350 million you're asking for seems to me to be well-placed money. It seems to me that nipping crime in the bud is a much better strategy than piling up minimum mandatories, and therefore piling people into jail, and therefore adding jail capacity as our solution to some homelessness problems.

Is the $350 million you're asking for fresh money, or is that consolidated from moneys that are already being invested?

[Marlene Deboisbriand]

Our understanding is that the current budget with the NCPC program, the national crime prevention program, is about $46 million. In conversations with our colleagues at NCPC and with other youth-serving organizations that do this kind of work, we believe that needs to be increased. Initially we thought tenfold; we landed on eight. There's no magic number. There's no magical way to arrive at a number that's adequate.

Certainly if you look at the overall dollars that are spent in the justice system, this is a piece for youth prevention. We've given it a lot of thought, and like all Canadians we watch the news. We actually support some of the harsher positions on crime that have been taken recently, but in terms of youth crime we think the answer lies in prevention.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you.

Go ahead, Ms. Schwartz.

[Sandra Schwartz, Public Policy Advisor, Boys and Girls Clubs of Canada]

I was just going to add to that.

I think it's important to keep in mind, too, with the bills going through Parliament right now on fighting crime, that some of those will be moneys that will have to be spent on more policing, more correctional services, etc.

We're saying, just like the Horner commission suggested many years back, that at least 5% of the moneys that are invested in crime in Canada should be invested in crime prevention. We're saying a portion of that needs to be directed at youths in children-serving organizations like ours. We're not suggesting that the full 5% should be directed to them, but that a portion of it should be.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I agree with you. This is a bit like the horse out of the barn: you're trying to give money to police, to jails, to everywhere else except to the youth.

Keeping with that theme, to the folks with disabilities, the issue here is that folks with intellectual disabilities in particular are overrepresented in jails. Do you happen to know what that percentage might be?

[Anna MacQuarrie]

That's not a statistic I have. I'm not entirely clear on the statistic involving intellectual disability versus learning disability versus.... I mean, there are a number of ways it can be sliced up.

[John McKay, Liberal, Scarborough—Guildwood, ON]

That's a good clarification. My vague recollection was that people with learning disabilities were certainly overrepresented in jails, and my recollection was something in the order of 70%. Does that sound reasonable?

[Anna MacQuarrie]

It does, in keeping with the experience that we've had, but it's not a particular focus that we've been working on.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Okay.

This registered disability savings plan on the face of it sounds like a good idea. The problem for parents is that if in fact they wish to give a bequest or moneys to a person, particularly with intellectual or mental disabilities, schizophrenia, things of that nature, every dollar they give gets taken away from their pension, particularly people with disability pensions. Where is this registered disability savings plan on that particular issue?

[Anna MacQuarrie]

There's been a significant amount of success for the registered disability savings plan in regard to clawbacks. I believe almost every province, P.E.I. being an exception at this point, has agreed not to claw it back or has at least suggested that they would forbear to do so.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Williams, with respect to your 15-year issue with clunkers in our country, it seems to me that African jurisdictions are the only ones that have relatively new Japanese vehicles, under 15 years old, that aren't allowed to drive on Japanese roads. Is that correct?

[Huw Williams]

Yes, we've seen a broad array of Asian countries stop the imports. Australia has also done so, and the EU has moved in that direction as well. So you're looking at select examples in Africa and South America.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So we rank right up there with Malawi.

[Huw Williams]

Yes. It's just one of those ridiculous anomalies that we're letting these cars come into the country while paying to take them off our roads.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you.

Mr. Rudolph, the ecoEnergy for Renewable Power program is fully allocated one and a half years ahead. To me, this would mean that it has been a very successful program and that it's oversubscribed, if you will.

Is that a correct assumption?

[Mark Rudolph]

It's been wildly successful. Indeed, leading up to last year's budget, we were lobbying the government to put more money into the pot. We knew it would run out.

[John McKay, Liberal, Scarborough—Guildwood, ON]

What made it so successful?

[Mark Rudolph]

You have to realize that the industry is made up of some large players and a lot of smaller players. For smaller players looking for financing from a bank, it's a very bankable proposition to have a piece of paper from the federal government saying they're going to give you 1¢ for each kilowatt hour you produce over 10 years. You can take that to the bank and then get capital financing to build your projects.

Because of this program and its predecessor programs, we've seen the renewable industry in Canada move from about 100 megawatts of power to about 4,000 megawatts of power.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Essentially, the industry wants some certainty.

[Mark Rudolph]

Exactly.

[John McKay, Liberal, Scarborough—Guildwood, ON]

You're looking at a financial horizon of 25 years or something of that nature?