Thank you, Mr. Pacetti. It's my pleasure to be here this morning. I have formal remarks, but I'll just talk a bit informally on the substance of my presentation.
I'll preface my remarks by saying that while I think Canada faces some huge challenges in a very competitive global economy, we do have the advantage of having managed our finances prudently and having weathered a serious financial crisis very effectively. I think the upshot of this is that the fiscal measures that we need to get more sustained private sector growth and recovery in the Canadian economy will be less harsh than they will be in other jurisdictions. But that said, I think there are areas where fiscal policy can make a positive contribution.
I want to talk just briefly about recommendations that relate to the savings investment process, and in particular I think there is a pressing need for an incentive to encourage capital formation in the country, especially for small and, I should emphasize, mid-sized companies that need capital.
The Governor of the Bank of Canada in the Bank of Canada October report commented on business investment spending, which is only 5%, really, off the trough. We had a collapse in business investment spending through the crisis and into 2009 and a very modest recovery coming out of that. The governor has attributed that to low profits, to low demand or low capacity levels in business, and he also talked about restricted access to capital. I think that is an important issue. I gathered from the earlier discussions that this is something that witnesses have brought forward as a concern.
I think what we're finding in our industry is that small and mid-sized companies, especially those that want to list on exchanges or those that are already listed, are having a very hard time in finding capital. It's very selective, depending on the nature of the business. If it's a resource company in a particular resource sector, it probably has a better chance. The markets have also been very volatile and the windows of financing have been very short, which have increased the difficulty.
I would draw your attention to the fact that many of these small companies have found it difficult since the removal of the income trust. The income trust proved to be a very critical financing vehicle coming out of the technology market crash in 2002. It benefited a lot of small companies and it also benefited a lot of investors. We haven't had a substitute for an instrument like that since. So I think it's important to be looking at what incentive might make some sense.
Our recommendation to the committee is to perhaps lower the inclusion rate from the current 50% to, let's say, 40%. That would move the effective capital gains tax rate for the higher-income individual from 25% to about 20%. It would have an impact I think as a positive incentive. It would be cost effective, it would send a positive signal, and it would be administratively easy to do, because as we've talked about more complicated mechanisms, I think there's been a lot of push-back for administrative reasons.
Finally, I think we have to find a solution to the capital-raising problem for mid-sized companies. Once these companies reach mid size and they move above those thresholds where government has put in an incentive in terms of tax credits or lower tax rates or the capital gains tax exemption, these companies really have nothing more to go on. And as they get to mid size, they find it difficult to access capital, and that's one reason that we see acquisitions taking place, particularly with companies looking south for partners. So that's the key recommendation we make.
The last thing to say is that we're very pleased at the recommendations the Senate banking committee have brought forward in terms of pension savings, and we would support those recommendations.
Thank you.