Good afternoon, Mr. Chairman and committee members. It's a pleasure to be appearing back before your committee.
I'm Michael Conway, and I'm pleased to present Financial Executives International Canada's views on the forthcoming federal budget.
FEI Canada is a voluntary professional association organized into 11 chapters across Canada. Our 2,000 members represent a broad cross-section of Canada's most senior financial executives. Our recommendations are the result of the collective effort of our tax committee, represented today by Grant Smith, senior manager, taxation, at Ernst & Young's Ottawa office.
Our submission focuses on three key recommendations that will protect Canadians' quality of life: one, stimulate economic growth and job creation; two, increase access to capital and cashflow, especially for entrepreneurial initiatives; and three, monitor government spending and restrain deficit growth.
Canada faces serious economic challenges, and the solutions to these problems must be prudent and fiscally responsible. The budget must be rebalanced before major non-recovery initiatives are contemplated. We believe our recommendations encourage competitiveness, savings, and investment; foster innovation, productivity, and initiative; and enhance the economic and social well-being of all Canadians.
To stimulate economic growth and employment, economic initiatives should be timely, targeted, and temporary. They should be designed to achieve the desired results. The focus should change from short- to medium-term policies, designed to alleviate the immediate negative impacts of the recession, to catalyst-type investments, which will stimulate self-perpetuating growth.
In addition to needed physical infrastructure spending, recovery investments should also focus on knowledge-based infrastructure, technology incubators, and public-private partnerships, all of which create an environment that will unlock entrepreneurial initiative and ingenuity. Government should encourage the creation of Canadian research and development champions, the corporations recognized worldwide for creative and innovative approaches to employee skills development. We need to create more technology leaders that become tomorrow's employers, like Research In Motion, Open Text, WestJet, and Porter. We encourage your committee to recommend that the government balance spending between infrastructure and the knowledge economy.
Two other critical issues facing the Canadian corporate sector are decreased availability of affordable credit and declining cash flows. An FEI Canada survey earlier this year indicated that about half of respondents felt there had been a significant decrease in the availability of both working capital and long-term financing. While credit availability has improved somewhat since then for larger issuers, smaller businesses continue to face challenges.
Capital formation is critical to economic development and growth. Whereas government can create employment and sustain the economy for a short time, the private sector will generate long-term economic growth and increased employment. Action is required on several fronts. A national securities regulator is imperative, and we are pleased to see the creation of the Canadian securities transition office to further this important initiative.
Start-up funding is required for Canadian technology companies, especially those engaged in innovative R and D. Government-sponsored lending agencies should increase existing loan limits, streamline the application process, and create new types of loans that tailor terms to recession-plagued corporations. Corporate cash flow could be improved if the time limit for funding defined-benefit plan solvency deficits were extended from five to fifteen years.
Because many Canadians have suffered steep declines in their pension plans and must now consider working beyond their expected retirement date, we urge your committee to recommend measures to encourage Canadians to save more for their retirement. We have included various suggestions in our recommendations summary, including providing a 125% super-deduction on the first $5,000 of RRSP contributions and expanding the tax-free savings account annual limit.
Finally, on the issue of government spending, we recognize government had to take action on the recession; a temporary deficit was therefore inevitable. Having said that, there are two critical questions of concern to our members: who will pay for the current spending and when the payment will occur. Government must ensure we do not slide down the slippery slope to a permanent structural deficit.
Due to our aging population, the health and retirement benefits Canadians enjoy will consume an increasingly greater percentage of government spending in future years. To ensure Canadians continue to receive the benefits they are accustomed to, we must reduce expenditures in other areas.
Our concern is simple. Will repayment of today's government spending happen within the medium term, and more specifically before the next economic downturn, or will our children and grandchildren bear the burden of this debt? FEI Canada believes now is the time for prudent and fiscally responsible action.