Finance Committee on Oct. 6th, 2010

[Mark McQueen]

No. If you are a company with 35 employees, and $800,000 is going into your R and D credit application that's audited by your own auditor and then sent to CRA, you might get 90¢ on the dollar of that application, so that's $720,000.

Our recommendation would be to send $1.50 back, rather than send back that discount. So $1.2 million would be the tax credit in that case, and it would go right back into hiring and growing the business.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Interesting.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Pacetti.

Your turn, Mr. Généreux.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you, Mr. Chair.

Thanks to all the witnesses for being here.

Mr. Lajeunesse, your first recommendation mentions three technology demonstration projects at $40 million each. Can you tell us a little more about those projects? Have they already been determined? If so, what sectors are we talking about?

[Claude Lajeunesse]

The three projects have already been submitted to the government. One is on new, composite materials. It is absolutely essential to develop new materials so that aircraft can be made lighter and stronger, and can provide more safety for the passengers.

Another project deals with engine noise reduction. With the increase in air traffic and in the number of people who want to travel around the world, it may be necessary to increase the number of hours during which aircraft can use various airports. This is very important. In Europe, for example, noise conditions are very strict. So one of our projects is trying to improve the noise levels of aircraft.

The last project is quite interesting. It deals with hi-tech vision systems. These are applications that could be used in medicine, in climatology and so on.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

We know that research and development cost a great deal. An amount of $40 million dollars each for projects such as you mentioned is not necessarily very high. Do the organizations that are going to conduct those research projects have access to other resources, such as research and development tax credits? I am sure that we all agree that $40 million per project is not a huge sum.

[Claude Lajeunesse]

Mr. Chair, that is an excellent question. I should have mentioned that the sum is what we are asking the government for. The companies are investing at least the same amount. For example, with the Green Aviation Research and Development Network, the companies are putting in $12 million so that their investment is equal to the government's.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Mr. Simonds, I was a mayor for the last four years, up until last November, that is. Our municipality only had 5,000 people, and we also had difficulty recruiting volunteer firefighters. What led you to set the figure at 200 hours? It can vary considerably, when you consider small or medium municipalities. The municipality of which I was mayor was a medium-sized one, but, in my mind, it was small. We cannot compare ourselves to much larger cities. But it is often in the very small or medium-sized municipalities that you find the volunteers.

What led you to set the figure at 200 hours? What justified that choice for you?

[Robert Simonds]

As far as quantitatively trying to determine the optimum level, that came out of a recommendation from consultation with fire chiefs across the country. However, as previously indicated, in our dialogue with the finance department we indicated that we were absolutely open to having other thresholds so that we can recognize the invaluable contribution to those in smaller towns, villages, and so forth.

The commitment that the Canadian Association of Fire Chiefs makes to government is that we will work with the finance department to find that optimum solution. So whether it's at 200 hours or a variable of that, we will be mindful of that in our dialogue with the finance department. At this juncture it's about getting unanimity of mindset that this is the right thing to do for the Canadian fire service and for the safety and security of Canadians. That's where we're focused today.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

As in any area of personal commitment where people are giving their time, some give more than others. Would there not be variations? You are not suggesting that, to get the same $3,000 amount, there should necessarily be a difference between people who contribute 800, 1,000 or 2,000 hours per year and those who contribute 200.

[Robert Simonds]

Certainly, that is a valid consideration. We recognize that in any organization, with the bell curve, you have those who are contributing much more than those who perhaps are not contributing as much. In our discussions with the senior officials from the finance department, we have spoken about a variety of considerations to recognize those graduated service provisions.

At this juncture, because we've been before government since 2003 with this, our sense of urgency is to get that recognition for the volunteer firefighters. And we have great flexibility in terms of how we can achieve that.

[The Chair, Conservative, James Rajotte]

Thank you.

I just have one clarification, and then we do have to change the panels. I was just asked to clarify, Mr. Lajeunesse, when you mentioned a $12 billion figure. Is this a goal, is this assigned, and this was stated to you by whom? Who stated the $12 billion figure?

[Claude Lajeunesse]

Minister MacKay and the employees within the Department of National Defence have all advanced that figure as a target that was absolutely reasonable and reachable.

[The Chair, Conservative, James Rajotte]

So it's a target. There is nothing written down and there is no--

[Claude Lajeunesse]

No. This is not a traditional IRB program. There is no guarantee of that. The only guarantee is the past, as I mentioned. The past is the guarantee of the future, and our company has exported 80% of its wares. It will continue to do that and it will be successful. It is the most innovative in the world.

[The Chair, Conservative, James Rajotte]

Okay. I thank you for that clarification.

I want to thank all of you for your presentations and your responses to our questions.

We do have to do a very quick turnover with the panels, so, colleagues, we will suspend for a couple of minutes and bring the next panel forward.

Thank you.

[The Chair, Conservative, James Rajotte]

I'll call the meeting to order again. I will ask colleagues and witnesses to please take their seats.

Just for members' information, and also for the information of our guests, unfortunately, we do have votes, at least three of them, at six o'clock. The bells will ring at 5:30 p.m. I'm hoping, if we get unanimous consent, that we can have the committee sit as close to 6 p.m. as possible, but we will be interrupted by votes at that time. I just want to make sure members are aware of that.

We have with us five organizations: the Canadian Manufacturers and Exporters, Option consommateurs, McGill University, 100th Anniversary Grey Cup Festival--some of you may have noticed the Grey Cup in the room--and we have the Centre for Feminist Research.

Thank you all for being with us here today.

We will start with Mr. Myers from the Canadian Manufacturers and Exporters. You each have five minutes maximum for an opening statement.

[Dr. Jayson Myers, President and Chief Executive Officer, National Office, Canadian Manufacturers and Exporters]

Thanks very much, Mr. Chairman.

You have a copy of our pre-budget submission. It recommends four major tax measures that we think would help to encourage investment in productive assets in research and development, new machinery and equipment, new technology, and workplace training, as well as a tax credit that we think would facilitate compliance with regulatory initiatives.

These are extremely important tax measures, we think, particularly for manufacturers and exporters, the leading sector in terms of productivity growth, the leading edge of competitiveness, the group that does 75% of our R and D and that brings 90% of our new products to market. Also, these are important tax measures for encouraging investment, innovation, productivity growth, and economic growth for the Canadian economy as a whole to sustain standards of living and to pay for all of the other social services and public services that Canadians expect and receive.

What I wanted to share with you today very quickly is the analysis upon which our recommendations are based in a series of graphs, one showing the track of business investment in R and D and business investment in new machinery and equipment, but the most important thing here are these graphs on page 2 of the handout.

This really shows the importance of cashflow for business. It's cashflow that drives R and D spending, and it's cashflow that drives investment in new technology. For me, as an economist, if you can see a relationship on a graph...you'd know that it's a very close relationship here, but it's also a very consistent relationship in that businesses and manufacturers in Canada spend a fairly consistent share of their cash in terms of new technology and R and D.

For public policy, if we are going to strengthen that performance, what we have to do is take measures to leave more money in the hands of the companies that are making these investments by boosting cashflow through tax measures that also increase the rate of return and make these investments more attractive. This is the analysis that stands behind our recommendations.

Both myself and Jean-Michel Laurin, who's accompanying me--Jean-Michel is our vice-president of global business issues--would be happy to answer any questions.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

Now we have Option consommateurs.

[Michel Arnold, Executive Director, Option consommateurs]

Mr. Chair, ladies and gentlemen, I am the Executive Director of Option consommateurs. Today, I have with me Ms. Anu Bose, who looks after our Ottawa office.

I would like to thank you for giving us the opportunity to provide our observations and recommendations for the 2011 budget.

Option consommateurs is a not-for-profit association based in Montreal whose mission is to promote and defend the basic rights of consumers and ensure that they are respected. Each year, we meet hundreds of consumers for whom the direction of and the decisions made in the budget have very concrete implications. We have shared our recommendations with you in a brief we submitted last August. Today, we would like to present some of them to you.

[Anu Bose, Head, Ottawa Office, Option consommateurs]

Our submission in August was based on more optimistic forecasts of recovery.

In his speech to the Windsor–Essex Chamber of Commerce, Bank of Canada Governor Mark Carney indicated that even though our recovery was far stronger than that of our G-7 peers, it was due largely to short-term recovery in housing and consumer spending and to the federal government's two-year stimulus program.

Consumer spending and government spending are not expected to provide the same degree of stimulus to the economy as before. The Conference Board of Canada recently reported that the consumer confidence index fell for the fourth straight month. Currently it is at 18.5 points below where it stood in January, when the recovery was stronger.

[Michel Arnold]

Canadian households are carrying an increasing amount of personal debt. Debt as a proportion of disposable income of Canadian households has reached a high of 146% in the first quarter of this year. This means that for every dollar earned, a Canadian household owes $1.46. Meanwhile, the rate of personal bankruptcies has increased significantly. According to the latest report from the Certified General Accountants Association of Canada (CGA), it rose from 20.5 per 10,000 inhabitants in 1990 to 56.6 in 2010. Today, many families are afraid of being unable to repay their mortgages or to meet their other obligations. Obviously, this has an impact on their behaviour as consumers. Consumer spending accounts for more than 60% of Canada’s GDP.

The same report by the CGA noted that households are increasingly using credit to buy the same quantity of durable goods and more likely to use credit to finance their current consumption. The situation of vulnerable consumers is more troubling. By this we mean the unemployed, working poor, single parent families, seniors and students.

In Canada, the recovery in employment is modest. According to Mr. Carney, if the country has regained all of the 400,000 jobs lost during the recession, this statistic should be interpreted with caution as often many of the jobs generated are part-time. Furthermore, well-paid jobs in manufacturing are now a thing of the past.

According to the demographics, an aging population will result in increased spending for health care, retirement benefits and other benefits for these citizens. Retirement incomes have been adversely affected by the economic downturn, even in the middle class seniors with savings. In addition, older workers have difficulty finding employment. The harmful effects of long-term unemployment on family dynamics are well known. According to Citizens for Public Justice, approximately 500,000 Canadians have exhausted their EI benefits without finding new work. The same source reports that food and shelter prices have increased faster than the overall consumer price index.

[The Chair, Conservative, James Rajotte]

You have one minute.

[Michel Arnold]

Option consommateurs is concerned about the widening social inequality in the country and, as a result, I would like to make a few recommendations for the budget.

The first recommendation is to eliminate the employment insurance waiting period and extend the benefit period to meet the changing nature of unemployment in Canada.

Then, our second recommendation is to convene a job creation summit with participation of all stakeholders, from provincial premiers to representatives of unemployed workers.

It is also important to rigorously assess all retraining programs for relevance to the job market and for value for money for taxpayers' dollars. Literacy, numeracy and financial literacy should be part of all retraining programs.

We propose increasing the maximum benefit payable under the GIS (guaranteed income supplement) program, to increase the GST credits and, finally, to use the powers given to the Minister of Finance to reduce the imbalance between large institutions and individuals by ensuring that issuers of credit cards increase minimum payments balances.

Of course, you'll find more recommendations in our submission, particularly on safeguarding and improving the health and safety of consumers, the terms and conditions for student loans, eliminating the problem of chronic underemployment among highly skilled immigrants.

I am now ready to answer your questions.

[The Chair, Conservative, James Rajotte]

Merci beaucoup.

We will go next to McGill University, please.