Finance Committee on Oct. 27th, 2011

[The Chair, Conservative, James Rajotte]

Good morning, everyone. I call this meeting to order. This is the 21st meeting of the Standing Committee on Finance. We're very pleased to be here this morning in Saskatoon, Saskatchewan. We want to welcome all of our guests this morning.

I'll start with a couple of logistical matters. Each person has to operate his or her own mike this morning. I know that's different, colleagues, from how we normally do it.

There is translation, for those of you who require it, in either official language.

We want to welcome the four organizations who are presenting in this first panel: the National Council of Women of Canada; the Edmonton Chamber of Commerce; the Canadian Association of Social Workers; and BIOTECanada.

Thanks to all of you for being with us here this morning. Each of you will have up to five minutes for an opening presentation, and then we'll have questions from every member of the committee.

We'll start with Ms. Kozak, please.

[Carla Kozak, Vice-President, National Council of Women of Canada]

Thank you, Mr. Chair and members of the committee. It's a pleasure to be here. Thank you very much for this opportunity to address you.

When we heard about the opportunity to write a brief on what we would like to see in the coming budget, we looked at all our current policies and what would be the most important. The thing we have been addressing since we first began this organization in 1893 is poverty. We're still battling poverty in Canada.

Understand, please, that poverty costs us all. It expands our health care costs. It burdens our policing services and diminishes our educational outcomes. Please look at the possibility of investing in our people, investing in our students.

The subcommittee on cities of the Senate's standing committee on social affairs put out an excellent report in December 2009: “In From the Margins”. We ask you to look at that report, please. Look at some of the recommendations, especially the first recommendation, which says to look at the possibilities of getting people out of poverty instead of maintaining them in their poverty. Give them a hand up out of poverty, rather than a hand-out to keep them poor.

We also would like to remind you that helping people to get out of poverty expands our economy and improves our productivity as a nation. It makes our labour force more flexible.

It expands our economy in a very uncertain world, and expanding our economy right now is probably the most important thing we have to face. The world economy being so very uncertain today undermines our economic growth.

We believe that reducing poverty in Canada and thereby expanding our economy would create very positive waves that would strengthen other nations, as well as Canada, and would improve the world itself.

We've had success with seniors in Canada. We've done very well in getting our seniors out of the deepest poverty. This is an excellent success story. Look at some of those same policies and programs that we've used for seniors and try to apply them to the very poor, and I'm sure we will see an improvement in this area.

The second recommendation we have is to increase support for education and skills development. Simply keeping our students in high school is only part of the problem. A big problem we face today is upgrading our education in a very high-tech and rapidly changing job market. This can be a major barrier. People can be almost qualified for a job, but not quite, and therefore they're kept out of that job. Employers are constantly complaining they cannot find employees who are fully qualified for a job, and these employers, many of whom are operating on a small margin, cannot afford to absorb the upfront cost of training.

So we're asking you to look at the possibility of the federal government subsidizing very short-term upgrading. We're not talking long-term upgrading at all. We're talking about upgrading that would take anywhere from a few hours to a few days and about maybe looking at it from the same standpoint that you have with the summer student program, in which an employer pays part of the cost and the federal government pays part of the cost.

But look at the benefits you would get. You would have a person getting into a job that actually exists, so you would have an employer who fills his job opening, and his company would be more productive, more competitive. The government would win because it would receive more income tax revenue. This is all very revenue positive.

The last thing we would ask is to please look at fairer taxes.

[The Chair, Conservative, James Rajotte]

You have one minute.

[Carla Kozak]

One minute? Okay.

Look at fairer taxes. If you look at our tax situation in the last couple of decades, you'll see that our basic exemption has not kept pace with inflation. We would ask you to look at this possibility: simply raising the exemption would put more money in the hands of lower- and middle-income groups, and their spending in Canada would also bolster the Canadian economy.

So we're looking at three ways to build the economy, to build confidence in Canada, and to relieve the problems and avoid some of the barriers that people find in improving themselves and thereby improving Canada. As we improve our citizens, we're improving Canada. We're looking at ways to invest in our citizens.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll now hear from the Edmonton Chamber of Commerce.

[Martin Salloum, President and Chief Executive Officer, Edmonton Chamber of Commerce]

Good morning, Mr. Chair and members.

I'm Martin Salloum, the president of the Edmonton Chamber of Commerce and the World Trade Centre Edmonton.

With me today is James Merkosky. He's an associate partner in tax services with PricewaterhouseCoopers, and he's also the volunteer chair of our finance and taxation committee. He'll probably be answering all of the questions you ask.

On behalf of our nearly 3,000 business members, the Edmonton Chamber of Commerce is once again pleased to have this opportunity to provide you with our most important federal tax and program spending priorities as they are related to the upcoming budget.

Since submitting our pre-budget brief to you in August of this year, global economic circumstances have become even more tenuous, and I'm sure we'll all be watching today to see if the market soars or crashes or does nothing in response to the EU announcements last night.

Given these circumstances, and to uphold Canada's so far stellar performance and reputation in fiscal management, the Edmonton Chamber believes it's even more important now that the Government of Canada stay the course with respect to targets and initiatives announced in last year's federal budget relating to deficit reduction and savings via program spending reviews.

Chambers of Commerce have called on the federal government to balance its books by 2015, and to do so by limiting program spending growth to about 1.6% per year, on average, through fiscal 2015-16. It was also recommended that savings could be realized by improving the efficiency and the effectiveness of government programs.

Similarly, it is crucial that we do not undermine the progress that has been achieved to date with respect to income tax reductions. The government must proceed with the legislated 1.5% reduction in the federal general corporate income tax rate, taking it to 15% as of January 1, 2012, and the government must also continue to review and make improvements to capital cost allowances.

However, it is with respect to minimizing tax administration and compliance costs that our members have focused their recommendations for this year's federal budget.

We have three tax recommendations that would essentially be cost-neutral to the government and yet would improve business efficiency and profitability and help to ensure the continuation of job-creating small and medium-sized enterprises that are so essential to our economic stability, recovery, and growth.

The first recommendation is that the federal government introduce legislation requiring the timely assessment of income tax returns, wherein taxpayers' returns are automatically deemed to be assessed as filed and are duly processed after 120 days of filing, thereby initiating the statute-barred period after which reassessment could be issued.

Recommendation two is that the federal government undertake a comprehensive review of the tax provisions affecting estate and succession planning in the next 24 months to determine whether the existing tax regime appropriately considers transfer of family-owned businesses.

The third recommendation is that the federal government establish an expert committee--I've even had it suggested to me by one of your own ministers--and possibly a royal commission that includes key internal and external stakeholders to, within a 36-month period, undertake a comprehensive review of taxing statutes, with the objective of identifying, recommending, and ensuring the implementation of ways and means to simplify tax legislation, to reduce compliance costs, to ensure all taxpayers are treated fairly, and to continuously monitor changes and publicly report progress at least annually.

I will not at this time go into more detail concerning these recommendations. The full background and justification for them was forwarded to you in our August brief to your committee, and it has also been attached as an appendix to my speaking notes, which we brought here for you.

In closing, I'd like to thank you, James, for inviting us to come to speak to your committee today. The Edmonton business community is appreciative of this opportunity to have its voice heard by the House of Commons Standing Committee on Finance. Mr. Merkosky and I are eager to respond to your questions.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

As an Edmontonian, I should also point out that this is the largest chamber in the country.

[Martin Salloum]

Yes, it is, by a substantial margin.

[The Chair, Conservative, James Rajotte]

Originally, these two representatives are both from Saskatoon.

[Martin Salloum]

Yes.

[The Chair, Conservative, James Rajotte]

Thank you very much.

We'll now hear from the Canadian Association of Social Workers.

[Ray Pekrul, Board Member, Canadian Association of Social Workers]

Good morning. My name is Ray Pekrul and I'm the representative from Saskatchewan for the Canadian Association of Social Workers.

The issue that we again want to advocate to you is the improvement of the financial status of low-income and moderate-income women in Canada. We acknowledge that some improvements have been made by this government in previous budgets, such as the working income tax credit, funding for affordable housing and the homeless, tax credits for seniors, tax credits for persons with disabilities, and increases in the guaranteed income supplement.

Although the budget mentions that the federal government is working to improve retirement income for future generations of seniors through a pooled registered pension plan and the development of options for modest increases in the Canada Pension Plan, it is again unclear whether the initiatives will benefit low-income women.

Why is there need for additional policy? When looking at income and wages, we can see that while the overall prevalence rates of low income, as measured by StatsCan low-income cutoffs after tax, are similar for men and women, senior women, female-led families, and unattached women, particularly in urban areas, are disproportionately poorer than men.

The low income of women is further affected by age, ethnicity, immigrant status, and aboriginal status. The average earnings of women relative to men remain in the 65% to 70% range. It is higher for full-time work, but there's still a significant gap.

While the vast majority of adult women are in the paid work force, women's experience of paid employment is different from that of men. More women are in part-time and non-standard work. This pattern dramatically affects their earning capacity. When looking at individual transfer payments, the allowance component of OAS and GIS is available to low-income individuals aged 60 to 64 who are married to low-income pensioners and to low-income widows aged 60 to 64. But low-income individuals aged 60 to 64 who have never married or who are separated or divorced are not eligible.

On employment insurance, women are less likely than men to qualify for benefits when they lose their jobs. They move in and out of jobs more frequently because of family demands. Rules governing voluntary job-leaving also make it difficult for many women to qualify. In addition, sickness benefits are inadequate for women, and women are more likely to be cut off than men.

We think the following three sets of recommendations will benefit low- and moderate-income women in Canada.

Looking at old age security, the guaranteed income supplement, and the allowance, the combined amount of OAS and GIS for those who have no other sources of income in old age should be at least at the level of the after-tax LICO, regardless of where women live. The additional benefits outlined in the 2011 budget will still leave many women in poverty in urban areas.

To address the problem of the denial of GIS benefits to those with small amounts of personal savings, higher amounts of income should be allowed before cutting back on GIS benefits. The 2011 budget maximum top-up of GIS for single women presupposes an income of $2,000 from income sources other than OAS and GIS. We think that amount should be at least doubled.

Since the CPP retirement pension is available at age 60, it would make sense to eliminate the marital status limitation in the allowance of the old age security system and make benefits available to all low-income persons aged 60 to 64, regardless of marital status.

Looking at the Canada Pension Plan, to improve CPP retirement pensions for low-income individuals, the replacement rate could be increased from 25% of average earnings up to 50% for those with earnings at or below the year's maximum pensionable earnings. Increased replacement rates could be financed by increasing the upper level of contributing earnings from the current amount, which is roughly equivalent to the average wage, to a factor of twice the average wage.

The burden of high CPP contribution rates for lower-income earners could be addressed by increasing the tax credit for CPP contributions or making it a graduated credit geared to income. This would also help multiple job holders whose earnings at any one job are below the year's basic exemption and who wish to make CPP contributions.

A caregiving dropout should be implemented in the CPP, similar to the dropout for children, to allow for those years to be exempt when women come to claim their CPP benefits.

Looking at employment insurance, there could be a gradual increase of the maximum weeks for sickness and compassionate care benefits, with the potential to increase the benefits period further. We could expand the definition and categories of “just cause” for voluntarily leaving a job to provide more flexibility to interpret what constitutes just cause, and we could increase the weekly benefit amount of a claimant's average weekly earnings in their best 14 weeks of earnings during the most recent 12-month period.

We think these recommendations would go some way towards improving the income level of women of low and moderate incomes.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll now hear from BIOTECanada.

[John Hyshka, Chief Financial Officer and Chief Operating Officer, Phenomenome Discoveries, BIOTECanada]

My name is John Hyshka. With me is Cate McCready. We will represent BIOTECanada.

First of all, I want to thank you for the opportunity to appear today and to speak to you on the action plan that BIOTECanada has developed.

I'm going to discuss three main points.

As I've said, my name is John Hyshka. I'm a co-founder of a company called Phenomenome Discoveries, based here in Saskatoon. I would consider us one of the Canadian success stories. We started in 2000 with our own money, which in biotech doesn't happen very often. We got local investors to put in angel capital and were able to get venture capital as time went on.

We also believed in a philosophy of growing with our cashflow. Because of our experience in this sector, we had a platform that enabled us to do contract research in agriculture and in pharmaceuticals. We continue to do that to reduce our dependence on venture capital, because there is none in Canada for biotechnology.

Our company focuses on disease prevention. We have 15 blood tests that will tell you your risk of having a number of diseases. Our first to come to market is a colon cancer test, which we're hoping will replace the existing screening methods for colon cancer. We have pancreatic tests, tests for ovarian cancer, tests for Alzheimer's, for Parkinson's, for MS.... I could go through the list, but the first one that will be coming out is for colorectal cancer; then the others will be for ovarian and pancreatic cancers.

We also have a therapeutic side: we believe that we have an Alzheimer's drug that will prevent close to 80% of the people who get dementia and Alzheimer's from ever getting it.... Our focus is on prevention, because we believe that as time goes by, drugs are going to become more and more expensive and it is going to become more difficult for health care systems to afford drugs. If you can prevent diseases from ever happening...that's what the idea is. Early detection is the key to that.

I'll be throwing in examples of Phenomenome in my discussion with you, and if you have further questions, I'll be more than happy to answer them.

I have the pleasure to speak about the Canadian biotechnology industry and how it contributes to a long, sustainable economic development future for our country, because we are the knowledge-based industry of the future.

Innovative technology entrepreneurs like me need an alignment of public policy to help us feel that we should be in Canada rather than in other jurisdictions around the world. Since the Canadian dollar has appreciated and our costs have increased dramatically over the last six to seven years, it is becoming harder and harder to justify why we're doing this in Canada and why we're not doing it in the United States, Europe, or Asia. It's getting to the point that you really wonder why you're in Canada, especially since there is no venture capital investment capital within the country compared with other jurisdictions.

Our industry believes that we're going to need $1 billion to $1.5 billion in annual investment over the next few years. Phenomenome Discoveries could use $750 million of that ourselves, so I don't know where they're getting this number. There is a major lack of capital within this country.

As our companies grow, we generate billions in sales and add jobs for Canada. To give you an example, our colon cancer screening test global sales could be up to $1 billion a year. That's global sales for one test. I'm telling you that our companies will bring jobs in industry and taxes to this country. Entrepreneurs, once we've been successful, will invest in and develop more biotechnology companies in the future.

But I have three major points to bring up.

Point one: expand the ability to create capital formation in this country. We have no venture capital. So for anything from the flow-through program, which BIOTECanada has talked about before, to other tools relating to it, please look at that seriously.

Next is SR and ED. If we did not have it, we would not be in Canada. It has enabled us--through contract research and the SR and ED payments--to stay in this country. It has kept 30 people employed in this city, so when you're looking at changing SR and ED, you think about.... I think it should be expanded, and the percentage should be expanded, and do not get rid of equipment, because we wouldn't be able to afford equipment if you changed that. We like what you're doing with SR and ED.

The third point is to buy Canadian. In particular, we're talking about vaccines, but you should also look at helping to buy diagnostic tests and buying drugs that Canadian companies are developing first, because this makes things a lot easier when we talk to multinationals about selling our products abroad. If our country, our national government, is buying them, that will make it a lot easier for us to sell in the future.

In closing, I'll say that the biotechnology and life sciences sector in Canada creates more than a million jobs. It accounts for more than 8% of the GDP. We believe the Canadian government needs to develop policies to encourage and support us in this vein.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you for your presentations.

We'll begin members' questions with Mr. Mai, for a five-minute round, please.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Thank you, Mr. Chair.

Thank you to all the witnesses for your presentations and for your briefs. They were very interesting.

I want to say that this is my first time in Saskatoon. It's a pleasure to be here.

I'd like to start with the National Council of Women. We've been asking the government to address the poverty issue and also the fact that there is an increased gap between the rich and the poor. We have had the answer that corporate tax cuts benefit everyone, and that this is the way the government has been addressing the issue, or most of it. I'd like to have your view on that.

After that, I would like hear from the Canadian Association of Social Workers.

[Carla Kozak]

Are you asking me specifically whether corporate tax cuts benefit the poor?

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Yes.

[Carla Kozak]

In general, they do not. For the most part, corporate tax cuts benefit the people in the executive suite. We have seen that over and over again in Canada. What we need in Canada to benefit the poor and the lower middle class is various means to get money into their hands.

One of the means I have suggested is to raise the basic exemption from income tax. That's a very simple means, and it actually would be revenue-positive, because as you get money back into the hands of the middle and the lower classes, they spend their money in Canada on Canadian goods and services. That spending in turn expands our Canadian economy.

You'll find that a number of studies have shown that the very rich spend their money outside of Canada on very expensive toys, on property outside Canada, on activities outside Canada, and so on. So if you're looking to expand the economy, get more money into the hands of the lower and middle classes.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Let me turn to the Canadian Association of Social Workers.

[Ray Pekrul]

In response to your question, the Canadian Association of Social Workers is on record as asking the federal government to develop a poverty reduction strategy federally and work with many of the provincial jurisdictions that already have instituted poverty reduction programs. We would see this kind of initiative sending a very clear signal to begin a very active process of addressing a whole range of constituencies in the populations of the poor.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Let me have a quick answer. Do you think the government has been doing enough on that issue?

[Ray Pekrul]

My indication is that a couple of years ago there was much more discussion of poverty reduction strategies at the highest levels in the government. Lately there hasn't been much of an initiative that I'm aware of, although the provincial governments, particularly New Brunswick's now, are active in developing a poverty reduction strategy for their provinces.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Thank you.

BIOTECanada, you've mentioned that the increased value of the Canadian dollar has an impact. Can you expand a bit on what the impacts are?

[John Hyshka]

I can just tell you how it impacted our company, because we work contract research to keep our company going. When we started, we charged, say, $100,000 U.S. to Pfizer for a project. Back then, our Canadian dollar was at 62¢, so it actually worked out to be about $138,000 or $140,000. We continue to do contract research, and we still charge in U.S. dollars internationally, but we're trying to decide whether that is the best way to go anymore.

Also, in regard to cost, which is important, people have to realize that when we started out.... Because of my background in economic development, I knew how regions would provide incentives to Phenomenone in other countries. We were recruited to locate in the States, but you would be paying a research scientist in Boston the equivalent of about $130,000 or $140,000 Canadian, whereas in Canada we'd pay $50,000 to $60,000, roughly, or maybe $70,000, for that same scientist.

The salaries are getting closer. All our costs are getting to the point that you would wonder.... The capital is in San Francisco, Boston, and New York, and every time you go out to meet investors, they ask why we don't locate in San Francisco. They say they would be more interested in investing in us if we were there. We used to have a major cost advantage, but now we don't.