Finance Committee on Oct. 21st, 2010

[James Rajotte, Conservative, Edmonton—Leduc, AB]

Thank you, Mr. Chairman.

I want to follow up on the venture capital issue with GrowthWorks. Prior to the last budget there was a lot of pressure to change section 116 in the Income Tax Act. I'm wondering if you could comment on what impact that's had on the venture capital industry. If there are others who want to comment, please do so.

[Thomas Hayes]

Sure.

Well, first of all, it was a very welcome change. It was one that folks in the business have been working on for a number of years. It was positive in that sense.

It's a little early yet to determine the actual impact of the inflow of dollars, from the U.S. in particular. But one of the problems in attracting outside capital to Canada is that they look for local partners to syndicate deals with. The big challenge we have in Canada is that there are very few local partners who have capital to invest now. That is the issue, and we need to address that.

But certainly the changes to section 116 will help over the long term.

[James Rajotte, Conservative, Edmonton—Leduc, AB]

Okay, thank you.

Mr. Russell, did you want to comment, or anyone else?

[Ian Russell]

I thought it was a good question that you asked. I was thinking about the budget change during Mr. Hayes' remarks, and I would agree with Mr. Hayes that it's probably a bit too early to assess the impact that change has had.

[James Rajotte, Conservative, Edmonton—Leduc, AB]

I appreciate the presentations. I just want to raise the issue of some of the fundamental things that have happened over the last couple of years. I think relative to other countries we've weathered the storm fairly well, but we do have an increase in personal debt, which is a matter for concern.

One thing that is positive but that could have a better impact, if we understood exactly why, is that companies sitting on cash.... That's much more of a problem south of the border. Whenever I'm in the U.S., companies raise it constantly, that they're sitting on cash. I ask them why. They say it's because of uncertainty, that the economic times are very uncertain. They also point to some government policy as well.

So they're not spending, and obviously that's having some economic impact. This relates to the venture capital community, but it relates to investments in the economy as a whole.

Now, some of our analysts at the committee have said in discussions that it's true, this is a short-term problem, but also a longer-term problem for the Canadian and the U.S. economies.

As many of you as want to could comment on that particular problem and offer any advice you may have for addressing it.

[Thomas Hayes]

Well, in terms of the types of companies that we're funding, this is not an issue. They're not sitting on cash; they're seeking cash. They're cash-strapped, in terms of furthering their growth, so it's not an issue. But I get your point.

[James Rajotte, Conservative, Edmonton—Leduc, AB]

But other companies are sitting on cash.

[Thomas Hayes]

Absolutely, more mature companies are, and usually the larger public companies, and that is an issue for sure, but not from the perspective of early-stage companies.

[Ian Russell]

I'd say a similar thing: the larger companies have come to the markets in the last two years and have tended to accumulate fair amounts of cash. Part of it is because of uncertainty, but I also think part of it is looking for opportunity as well.

Particularly when you're looking south of the border for acquisitions, you're waiting patiently, perhaps, for a better opportunity to make that acquisition, so in some cases the delay is strategic. But mid-sized Canadian companies and smaller companies are for the most part cash-strapped. There may be some exceptions, but by and large they don't have that problem. Certainly it's a very different situation from the one south of the border.

[James Rajotte, Conservative, Edmonton—Leduc, AB]

Okay.

Are there any further comments on that?

The next issue I wanted to raise, if I have time, Mr. Chair, is that with respect to venture capital, the tax policy is typically raised, funding is raised.... People point to the BDC fund and say there may be challenges with that fund, but it's something the government should look at doing more and more.

I want to ask about knowledge, because specifically in the Alberta sector—I talk to the venture capital communities there—they say that one of their challenges is that someone presents an idea from, say, high tech or ICT or biotech, and they're folks who have made their money in the energy sector or in real estate, and they're sitting around a table and simply don't feel that they have the knowledge to invest in that different sector.

We had someone who complimented SDTC in the panel prior to this one, and people have complimented IRAP. I wonder whether you could address the knowledge issue as it relates to venture capital.

[Thomas Hayes]

Well, it is an issue. Having said that, if you have a stable of professional venture capital managers who have adequate funding, you tend to attract domain experts onto your investment teams. In the case of GrowthWorks, we have a group of professionals coast to coast. If I'm doing a life sciences deal in Atlantic Canada and I don't know much about life sciences, I can ask one of my team members from the Toronto or Vancouver office, where we have a significant portfolio in life sciences, to help out on the due diligence and the analysis and so on.

It's one of the issues you run into with angels who want to invest. Some of these entrepreneurs have been very successful in their own businesses and industry sectors, but they really don't understand IT or advanced manufacturing or clean tech.

So you really have to develop a cadre of experienced venture capital managers, and when we run out of capital, jobs disappear and you lose that expertise.

[James Rajotte, Conservative, Edmonton—Leduc, AB]

So it's more of a challenge with the angel community rather than the venture capital one.

[Thomas Hayes]

Yes, that would be my sense. There are some pretty experienced VC managers in the country. Now having said that, there are a lot less today than there were a few years ago.

[The Vice-Chair, Liberal, Massimo Pacetti]

Mr. Chairman, I'm going to have to cut you off.

Thank you to the witnesses. It's been a very interesting panel. Thank you very much for appearing. We have to set up for another panel, so the meeting is suspended.

Thank you very much.

[The Chair, Conservative, James Rajotte]

We will continue with our third panel here today.

We have six organizations on this panel. We have, first of all, Merck Frosst Canada Inc., the Professional Institute of the Public Service of Canada, the Canadian Retail Building Supply Council, the International Association of Fire Fighters, the Canadian Association of Mutual Insurance Companies, and the Canadian Federation of Independent Business.

You each have five minutes maximum for an opening statement, and we'll begin with Merck Frosst, please.

[Christian Blouin, Director, Public Health Policy and Government Relations, Merck Frosst Canada Inc.]

On behalf of Merck Canada, I would like to thank the committee for the opportunity to present today. My name is Christian Blouin. I am the director of public health policy and government relations for vaccines at Merck. I would like to speak today about the importance of federally funded vaccine programs.

In the last 50 years, immunization has saved more lives in Canada than any other public or medical health intervention. Vaccines have successfully eradicated smallpox, virtually eliminated polio, and substantially reduced the incidence of mumps, measles, rubella, diptheria, pertussis, tetanus, and influenza.

Vaccines have clearly been proven to be a cost-effective tool in Canada to prevent disease, reduce hospitalization and health care costs, and to alleviate suffering so that Canadians are free to live healthy and productive lives.

Under the NIS, the national immunization strategy, Canada has shown bold leadership in addressing the country's patchwork system of immunization funding and in promoting the adoption of new vaccines. Launched in 2003, the national immunization strategy has had tremendous success in achieving equitable access to newly recommended vaccines in Canada. The NIS has contributed to the inclusion of five new vaccines under the publicly funded immunization programs from coast to coast. As a result, twice as many Canadian children were protected against vaccine-preventable disease in 2006 compared with 2003.

We believe that Canada can build on this incredible success. This committee also has a history of supporting federally funded immunization programs. In its December 2006 report, this committee unanimously recommended that the government continue to allocate funds for the national immunization strategy and should establish a dedicated fund for future immunization programs and new vaccines. This committee should be applauded for its bold leadership in this regard.

In 2007 the federal government committed $300 million to support HPV immunization programs across the country through the NIS. With this federal support, HPV vaccination programs have immunized over 450,000 girls in Canada, preventing an estimated 56,000 cases of genital warts, 1,389 diagnoses of cervical cancer, and, more importantly, 617 deaths from cervical cancer.

Unfortunately, NIS program funding expired on March 31, 2010. We therefore are asking this committee to recommend that the Government of Canada continue to encourage the early adoption of new vaccines by reinstating program funding for the national immunization strategy.

This request echos the recommendation of the Canadian Coalition for Immunization Awareness and Promotion, a partnership of 20 national professional health, government, and private sector organizations, such as the Canadian Medical Association, the Canadian Paediatric Society, the Canadian Public Health Association, and many others.

One example of an illness that will benefit from continued vaccine funding is shingles, also known as herpes zoster. It is a disease that can cause debilitating pain, as well as pneumonia, hearing loss, and facial paralysis. Fifty percent of shingles cases in Canada each year occur in people 50 and older. Shingles take a significant toll on our health care system, accounting for over a quarter of a million physician visits, 2,000 hospitalizations, and an estimated $68 million in direct health care costs annually.

In 2008, Canada approved Zostavax, a vaccine indicated for the prevention of shingles in adults 60 and older. The demand for this shingles vaccine in Canada is high, with the majority of older Canadians willing to receive it and the majority of physicians willing to recommend it. However, it is currently excluded from public immunization programs.

We believe that Canada's seniors should have access to leading vaccine technologies that prevent pain and suffering. Shingles is only one example of this type of illness that would benefit from continued program funding.

We therefore respectfully ask this committee to recommend the restoration of NIS funding.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll now hear from the Professional Institute of the Public Service of Canada.

I understand that one of your members is sitting to my left here.

[Gary Corbett, President, Professional Institute of the Public Service of Canada]

That's good. It's always nice to meet a member. There's an election coming up, by the way. You might want to vote for me.

Mr. Chairman, distinguished members, thank you for your invitation today.

Our written submission to the committee addresses three areas: contracting out in the federal government, retirement security for all, and the state of public science in Canada.

My remarks to the committee today will speak to the first of these three items. However, I welcome questions on the other two.

I am speaking on behalf of 59,000 professionals who are members of the Professional Institute of the Public Service of Canada, a majority of whom work in the federal public service.

These dedicated professionals and experienced public service employees work basically in many areas of the public sector. They are the financial experts who regulate Canada's financial systems; auditors and tax specialists at the Canada Revenue Agency who recoup taxes from corporations; and engineers who ensure that our bridges and roads are safe and sound, and so on.

The Professional Institute believes that the scale of growth in government contracting out harms the public interest, wastes scarce resources, and violates the terms of the Treasury Board's own policies. We recommend that the Treasury Board provide clear guidance to departments on how to cut back on outsourcing.

We also recommend that expenditures on professional and special services not be permitted to grow faster than the government's total personnel costs.

The Professional Institute is committed to working with the government to look at ways of finding savings by reducing outsourcing costs. The Public Service is dedicated to delivering the highest quality of service to Canadians at the lowest possible cost. This fall employees are preparing to participate in Treasury Board's pilot employee innovation program, and the Professional Institute has proceeded with its own initiative to develop cost-saving proposals in the workplaces.

Canadians need an intelligent and creative approach to delivering high-quality services more efficiently and at lower cost. Yet the past approach has been to relentlessly squeeze departments' and agencies' finances. Budget 2010 froze operating budget envelopes for federal departments. It also introduced a government-wide review of administrative costs. The budget continues to rotate departments through strategic expenditure reviews extracting 5% savings each year.

At the same time, we are spending millions of dollars each year on externally contracted services that could be provided more effectively and cheaply in-house.

Outsourcing, particularly of personnel, is among the fastest growing budget areas. Let me explain. The growth in government spending on professional and special services, and especially temporary help services, has been more rapid than total personnel costs, particularly since 2005. A recent Public Service Commission study found that the expenditures on temp help services nearly tripled between 1999-2000 and 2008-09, twice the rate of growth of indeterminate employees' salaries. Managers were found to be improperly using temp help services to address long-term staffing needs.

In the PSC's own study, the majority of temporary help contracts were justified by too much work and too little resources. The misuse of temporary help services risks undermining our politically neutral, independent, committed, and professional public service. It is also wasteful.

Managers may find it convenient to avoid the lengthy delays associated with internal staffing processes, but this comes at a high cost. Constant vigilance is required to reign in fees and to contain associated costs. Actual costs are typically higher than specified successful bids, since the winning bid becomes a foot in the door rather than the final amount.

For example, a 2007 management consulting contract at Indian and Northern Affairs was originally intended to last two months and cost $29,000. After 13 revisions of the contract, it ended up costing $243,000 and spanning almost three years.

In another case, Transport Canada made six modifications to a $580,000 IT consulting contract that was meant to last 12 months. In the end, the contract lasted three years and cost just under $3 million.

As managers become more and more dependent on private staffing firms, knowledge and skills are transferred out the door to the private sector. Government can become increasingly reliant on a handful of private firms that provide the outsourced service. Departments and agencies become less flexible in responding to changing needs and technology, and firms are able to charge additional rates for changing technology and services.

Mr. Chairman and members of the committee, thank you for your attention.

[The Chair, Conservative, James Rajotte]

Thank you very much.

We will now hear from the Canadian Retail Building Supply Council.

[David Campbell, Government Relations Representative, Canadian Retail Building Supply Council]

Thank you, Mr. Chair. I'm here today as chair of the government relations committee of the Canadian Retail Building Supply Council, an umbrella organization made up of five of Canada's regional and provincial building supply associations. Our pre-budget submission is supported by the Canadian Hardware and Housewares Manufacturers Association, and a letter to that effect is contained in our brief.

The CRBSC and CHHMA represent 2,300 companies that in 2009 employed 75,000 Canadians and generated some $83 billion in sales. Members include all major aspects of the building materials, hardware, housewares, and lawn and garden products industries. The contents of our submission reflect the views of 451 companies that participated in our pre-budget survey this summer.

The foundation of that submission is our statement that “the housing market, including renovations, should be regarded as an economic driver capable of generating tremendous returns not only for wage earners and businesses, but also for governments at all levels.”

This is an observation that CRBSC has consistently made in its pre-budget submissions to the standing committee. It was forcefully confirmed by the Canada Mortgage and Housing Corporation in its 2010 Canadian Housing Observer, released in late September. It reported that household spending totalled $307 billion in 2009 and accounted for 20.1% of total GDP. A major portion of that total came from new home construction, renovations, and resales.

Our brief referred to the CMHC's May edition of its quarterly national housing outlook, which estimated 679,300 total housing starts and resales that year. That total was revised downward to 648,700 units in the August 30 issue of that publication. Estimates for total starts and resales for 2011 remained unchanged at 632,000. These projections are broadly consistent with the results of our pre-budget survey. Our submission states that the standing committee should recognize that the outlook for the housing market through the end of 2011 shows no signs of robust growth.

In its report to the House of Commons, the standing committee should emphasize that low interest rates and strong levels of consumer confidence are the key determinants of both a healthy housing market and overall economic growth.

Of our retailer members and our supplier members, 91% and 78.7% respectively reported that the home renovation tax credit had a positive impact on their companies. While not recommending a resurrection of the HRTC, we do suggest that the standing committee bear in mind that in the event of another general business slowdown, the HRTC was an existing model for creating activity in the housing market to the benefit of the national economy.

Our submission recommends that the standing committee support two measures that would prove beneficial to the housing industry. First, the withdrawal limit of the first-time homebuyers program should be increased and its principle extended to include residential repairs and renovations. Our pre-budget survey demonstrated clearly that financial incentives are the best way to motivate Canadians to become more environmentally friendly as well, with education being the second most favoured method. Our second recommendation is to emulate the success of the Energy Star program with other initiatives to facilitate environmentally responsible consumer behaviour.

Much has been made of the estimate that the budget will return to surplus in fiscal year 2015-16. Much less has been said about the fact that, as the summary statement of transactions contained in the recent economic and fiscal update show, the federal debt will increase by $107 billion to $626 billion in 2015-16. Our final recommendation, therefore, is that a contingency reserve of at least $3 billion be reinstated as a budget line item commencing with Budget 2011.

Thank you for your attention to my remarks. I look forward to discussing them further with you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Campbell.

We'll now hear from the International Association of Fire Fighters.

[Scott Marks, Assistant to the General President for Canadian Operations, International Association of Fire Fighters]

Thank you, Mr. Chairman. I appreciate this opportunity to share our views on behalf of the 21,000 men and women who belong to the International Association of Fire Fighters in Canada.

There are two issues I'd like to raise with you today, both of them very important to professional fire fighters and our families, as well as the public we serve.

The IAFF has pursued the establishment of a national public safety officer compensation benefit for fallen fire fighters for close to two decades in Canada. We continue to pursue this benefit because we strongly believe there is a clear role for the federal government in ensuring that the families of fire fighters who die in the line of duty do not have to face financial hardship at the same time as they are dealing with their grief. It is a matter of dignity to the families.

What currently exists in Canada is a patchwork of line-of-duty death benefit provisions. A minority of local fire fighter unions in Canada have been able to negotiate a line-of-duty death benefit at the local level. Of these, only a handful provide an amount of compensation sufficient to assist the surviving family in the long term. Typically the negotiated benefit is two years' continuation of salary and benefits, which is enough to keep the surviving family in the family home for two years.

We believe Canadians would want better for the surviving family of fire fighters who have made the ultimate sacrifice while protecting the lives and properties of their fellow Canadians. The dignity and financial security of a fallen fire fighter's family should not be dependent on the uncertainties of the collective bargaining process, especially in a climate in which employers are more likely to attack such employee benefits than award them.

I urge you to recommend that the next budget include funding for the public safety officer compensation benefit in Canada. The benefit should apply to fire fighters, police officers, and other first responders who are identified under existing income tax regulations as members of the public safety occupation.

We propose an indexed benefit in the amount of $300,000 that would be paid directly to the family in addition to any other benefits that may be available, thus establishing a minimum level of financial security available to the families of fallen fire fighters equally across Canada.

In the past 10 years, an average of 13 IAFF members have died in the line of duty annually, and an average of 7 police officers. With these figures, we can estimate that the national public safety officer compensation benefit of $300,000 would cost the government $6 million annually. As you consider a benefit of $300,000, I note that the average age of professional fire fighters who are killed in fire ground accidents in North America is 43. If that fire fighter had worked until the age of 60 at an average salary, the family would have benefited from salary in the area of $1.5 million over those 17 years.

I'd ask you also to recognize the spirit of Motion No. 153, which was adopted in the 38th Parliament. This motion, which called on the Government of Canada to establish such a benefit, was adopted by a vote of 161 to 112 and was a clear indication that a majority of MPs, representing a majority of Canadians, believed this benefit should be established.

We're also asking you to recommend funding for the establishment of a national office for fire service statistics in Canada. The IAFF Canadian office in Ottawa receives calls on a regular basis from fire service and public safety stakeholders asking us for even general statistics about fire service and fire protection in Canada. They're shocked when we tell them these statistics don't exist.

Public safety advocates, the scientific community, equipment manufacturers all voice the need for national fire service statistics in Canada, but they simply don't exist. Statistics Canada compiles and reports comprehensive national crime and justice numbers annually. Health Canada tracks diseases such as H1N1 or the West Nile virus, thereby giving local health authorities the information they need to properly protect citizens. But no one is putting together national fire statistics for Canada.

Currently the fire data is the responsibility of provincial authorities. The unfortunate reality is that some provinces are years behind in their statistics at the provincial level. The provinces don't use standard reporting criteria, nor do they capture the full range of statistics we believe would be useful in advocating public safety. We believe there's a clear role for the federal government in this area.

I wish to add a final comment about the budget for pandemic planning, which is set to expire in 2011. Professional fire fighters, as front-line medical responders, are closely affected by elements of pandemic planning as they relate not just to fire fighter safety but public safety as well.

We are one of the many stakeholders who urge the committee to recommend a continued pandemic planning budget beyond 2011, to ensure that the Government of Canada is doing everything in its power to protect Canadians in advance of the next influenza pandemic.

I thank you again for this opportunity, and I welcome any questions you may have.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Marks.

We'll now hear from the Canadian Association of Mutual Insurance Companies.

[Normand Lafrenière, President, Canadian Association of Mutual Insurance Companies]

Good day. Thank you for inviting me here.

The Canadian Association of Mutual Insurance Companies represents 91 companies. They are property and casualty insurance companies, and they are also mutuals. They're mutuals in the sense that instead of being stock companies, they're owned by their policyholders. The policyholders decide the direction of the companies. They also get refunds at the end of the year if there is a surplus being generated by the company. They also direct their companies to make contributions to the communities they live in.

The total number of companies that we have generated $4.6 billion of sales last year, which is 11% of the Canadian market. The Canadian market is mostly foreign-owned. We represent 25% of the Canadian-owned Canadian market.

We have four issues that we'd like to bring to the table. First of all, the economic stimulus program is scheduled to be terminated by March 31 of next year. We would like that to be continued for sewer systems and roads and bridges.

There is also the 2012 review of the financial services legislation. In this review we would like to maintain the ban on banks selling insurance in their branches.

We would also like to see the government exercise more control over the level and types of fees charged by Schedule I banks.

And we would like the government to address the significant difference there is in the retirement benefits afforded to public sector employees as opposed to private sector employees.

Concerning the first item, sewer backup-related claims have increased significantly over the last 15 years. We went from an average of $5,000 per claim to $55,000 per claim. Because of that significant increase, claims related to water damage are now the number one type of claim we have in P and C insurance companies. The water damage related to sewer backups is partly due to the sewer system, which is deficient in Canada. The federal government has put $4 billion into the sewer system over the last couple of years. This has been added to the money spent by provincial as well as municipal governments. The total amount spent was about $12 billion. This is much less than what is needed, which is about $125 billion because of the deficit we have created in the sewer system.

The Bank Act will be reviewed in 2012. We have created in Canada a banking system made to be an oligopoly. We created it back in the 1960s, 1970s, and 1980s, when we protected our banking sector from foreign competition. Because of that, we now have a banking system that is very strong and can put in place basically whatever fees they want to see in place.

They got into the insurance business a few years ago and they would now like to sell insurance inside their branches. We're saying that if they were to be allowed to sell insurance inside their branches, they would have an advantage over the P and C insurance companies, one we don't have. What they want to do is get the client and explain to the client that they cannot only have a loan, but that the bank can also sell them insurance inside the branch. They want to be able to use the personal information they have on their clients to target their marketing of insurance products. And they want to be able to sell insurance on their banking websites. These are the types of advantages they want to maintain and to have in the future.

Moreover, the banks have recently introduced fees for receiving electronic transfers. These banking fees amount to $25 per company, for a total of $300 a year, which is an important revenue stream for the banks but a major expense for small businesses. They now have to pay fees in order to receive payment transfers, which used to be done at no cost.

We would like to see the federal government set limits: not only do we need to ensure that banks are solvent, but we also need to control fees, the type and level of fees, that banks can impose.

Finally, the current public sector pension plan is much more generous than what one finds in the private sector, generally speaking. It is something that we would like the government to look at. Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation. Finally,

the Canadian Federation of Independent Business, please.