Finance Committee on Nov. 7th, 2013

[The Chair, Conservative, James Rajotte]

I call to order meeting number 5 of the Standing Committee on Finance. Pursuant to Standing Order 83.1, we are continuing our pre-budget consultations 2013.

Colleagues, we have six organizations as witnesses for this first panel, and we will have two panels today as well.

First of all we have the Aerospace Industries Association of Canada, and then the Canada Foundation for Innovation, the Forest Products Association of Canada, the Greater Kitchener Waterloo Chamber of Commerce, and the Sunnybrook Health Sciences Centre. All are with us here in Ottawa, and by video conference from Toronto we have Polytechnics Canada.

Ms. Robinson, can you hear me okay in Toronto?

[Nobina Robinson, Chief Executive Officer, Polytechnics Canada]

I can.

[The Chair, Conservative, James Rajotte]

Thank you. Welcome to the committee.

You will each have five minutes for your opening statement, and then we will have questions from members.

We'll begin with Mr. Christie, please.

[Iain Christie, Executive Vice-President, Aerospace Industries Association of Canada]

Thank you, Mr. Chair.

The recommendation from AIAC today is partnered with one from the Canadian Manufacturers & Exporters: we both made the same recommendation. The purpose of the recommendation is to mobilize and get some more leverage from the money that has already been allocated to the scientific research and experimental development program.

As you know, companies that do not qualify as CCPCs—effectively small Canadian companies—take their SR and ED credits not as refundable tax credits but as non-refundable credits. The net result is that some of them are not in a tax position to claim all or even any of the credits they have actually earned and had approved, and so the money probably sits on their balance sheets as a deferred reduction of taxes in future years until they are in a position to claim it.

Of course, when they do claim it, there is nothing that guarantees that this money will be used to further R and D objectives, because it will simply be a reduction of their taxes and can be used for any purpose they decide.

What we are proposing is that the government offer a targeted program that would allow companies to exchange these earned tax credits for cash contributions to R and D capital projects, in effect offering companies a quid pro quo whereby they could monetize those credits now in exchange for the government having a role in deciding how that money should be spent—in effect, in support of R and D capital projects. Essentially this money would be spent on improving R and D infrastructure.

As you can see in our submission, we believe it is possible to arrange such a program such that is both manageable and fiscally neutral. We think the effect of this will be to make the government's money work three times. Firstly, it will work through the credits that have already been earned—credits that the companies have actually earned by doing R and D. Secondly, it will go towards improving R and D infrastructure, because those credits will then be directed towards R and D infrastructure projects. And thirdly, when that infrastructure has been built, the money will then be facilitating future R and D within the country.

We believe that this is basically giving the government an opportunity to use its money three times to improve the R and D climate in Canada and improve the amount of business R and D done in the country.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Christie, for your opening statement.

We'll go to Monsieur Patry, s'il vous plaît.

[Gilles Patry, President and Chief Executive Officer, Canada Foundation for Innovation]

Thank you, Mr. Chair.

First, please allow me to thank you, as well as all of the members of the House of Commons Standing Committee on Finance, for your kind invitation.

Today I'll be speaking directly to the topic of federal support for research and innovation. In fact, I'd like to start by offering two recommendations.

Number one is that the Government of Canada enhance its support for world-class research and technology development through the federal granting councils. The second, because research infrastructure is a cornerstone of world-class research, is that the Government of Canada provide the Canada Foundation for Innovation with stable, annual, and predictable funding that will ensure that Canada maintains and enhances its hard-won competitive advantage in higher education research and technology development.

Since 1997, the government of Canada has invested some $6 billion in state-of-the-art research facilities through the Canada Foundation for Innovation. Moreover, through its unique funding model, these investments have leveraged close to $8 billion from its funding partners—provinces, the teaching and research institutions and the private sector. This means that some $14 billion were invested in cutting-edge research facilities put at the disposal of our most brilliant researchers.

The Government of Canada's investments in the CFI and in the federal granting agencies are generating the scientific excellence crucial for producing highly qualified people trained at the leading edge of science and technology development who are capable of driving the innovation capacity of Canadian organizations in all sectors. For example, I could talk of Saskatoon's state-of-the-art Canadian Light Source, or CLS, synchrotron. There are also Canada's world-leading research activities in Arctic and marine research, or in the exceptional photonics research centre in Quebec City, and in many other Canadian colleges and universities.

Today the results of this funding speak for themselves. While Canadians make up only 0.5% of the world's population, we are producing almost 5% of the world's most highly cited papers. In fact, in a recent assessment by the Council of Canadian Academies, Canadian research is now ranked sixth in the world for the overall impact of its scholarly activities.

The state-of-the-art research facilities funded by the CFI not only are hotbeds of discovery research but also are open for business. In fact almost 300 research facilities and laboratories in all sectors of research, from social sciences to health research, are set to be part of a new online directory called the CFI Research Facilities Navigator, which will help businesses locate and connect with experts and facilities at universities and colleges across the country.

In these research facilities, companies are finding new ideas to help them develop better technologies and processes to enhance business performance. They also have access to state-of-the-art equipment they would not otherwise be able to afford, and they work with exceptional students and researchers who can apply their skills to real-world settings.

The central challenge for Canada today is how to maintain our competitive advantage in science and technology and continue to perform at world-class levels. The fact is that 21st century researchers simply cannot be globally competitive without appropriate research funding and without access to leading-edge research equipment and facilities. And while we have made impressive gains, as a nation, we cannot afford to be complacent.

The central challenge for Canada today is maintaining our competitive advantage in science and technology and continuing to perform at world-class levels. The fact is that 21st-century researchers simply cannot be globally competitive without appropriate research funding and without access to leading-edge research equipment and facilities. While we've made impressive gains as a nation, we cannot afford to be complacent. Therefore, we recommend that the Government of Canada enhance its investments in the federal granting councils, and at the same time that it adopt in Budget 2014 a sustainable, annual, and predictable funding model for the CFI with investments that are in line with historical investments made by the government over the past 15 years.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll go now to Ms. Cobden, please.

[Catherine Cobden, Executive Vice-President, Forest Products Association of Canada]

Thank you very much, Mr. Chair.

FPAC has made an official submission, so I'll keep my comments brief.

I'll just remind you that the forest industry in Canada is an extremely important part of our rural economy. We are a global player that exports to over 187 nations, but we are also the economic engine of 200 rural communities across the country. In most cases, these communities are almost entirely solely dependent on the forest industry for their livelihoods.

We employ 236,000 Canadians, and we are a manufacturing industry, so it's worth noting that those are jobs that are consistent, well-paid, and not seasonal.

The forest industry has faced significant challenges. We have had the opportunity to describe those to you in the past. As well, though, to respond to those challenges, we've launched a very exciting transformational agenda that is literally underpinned by the adoption of innovation.

Last year, to help understand where this gets us, FPAC launched something that we call “Vision 2020”. By the year 2020, we hope to generate an additional $20 billion of economic activity, hire an additional 60,000 new hires, and further improve our impressive environmental track record by an additional 35%.

The government and all of our partners have been instrumental in supporting this aggressive pathway of change, including support from our embassies, our trade staff, and the pulp and paper green transformation program, and the collective support we've had in funding FPInnovations, which is a world-leading innovation agency based right here in Canada.

However, today we want to highlight a small but effective program that the government established four years ago. The program is called investments in forest industry transformation. We call it IFIT for short. It has a very unique role in ensuring the delivery of all of the innovation systems to the market. It specifically supports the first commercial-level demonstration of these new technologies, so that's at a commercial scale. The risks of trying to do this on your own as a company ensure that these technologies do not actually get adopted.

Our proposal is that this is an area that is critical for government support in order to ensure that we get through this critical stage of innovation adoption. But let me be clear: once the commercial demonstration is proven, the industry is not looking for any further governmental support. This is just so we get to deliver the technology and the innovation for the first time ever to demonstrate it in a commercial setting.

The program has been a great success so far. It was $100 million in its first instance, and the industry proposed projects worth an impressive $2.2 billion. From this significant oversubscription, 15 highly transformative projects have now been supported across this country. For every dollar of IFIT spent, approximately two dollars were leveraged. Of the $100 million, $40 million will be returned back in the form tax revenues. Also, 1,800 jobs have been secured through this program.

These are just some of the metrics of success that IFIT has enjoyed. It is absolutely delivering to the marketplace new products that have never been done anywhere in the world. A few examples are: a bio-based methanol, which is a foundation chemical made from a renewable resource; cross-laminated timber, a phenomenally new building material; nanocrystalline cellulose; and cellulose-based carbon fibres. They are really leveraging the renewal of the resource.

Given that this program is about to sunset, we are asking for a renewal over a longer period of time and for significantly more dollars: $500 million over six years. It's a big ask and we understand that. We have an escalation path that we recommend.

I will close by saying that we have two additional recommendations in our document.

One is to continue the innovation support. It has been tremendously important to us. We have 120 university professors and 400 post-grads supporting our transformation. This is critical.

We ask and urge the government to look at the SDTC next generation biofuels fund. It's been around for six years. It's $500 million. It continues to be unspent. As you can tell from our ask, we have a tremendous need for support for those first commercial demonstrations. It feels unpalatable to have a fund sitting there not being spent. We urge that it be reviewed.

Thank you very much for your time. Working together, we look forward to accomplishing Vision 2020.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

Now Mr. Sinclair, please.

[Art Sinclair, Vice-President, Greater Kitchener Waterloo Chamber of Commerce]

Thank you very much, Mr. Chair. Thank you to the committee for the invitation to appear again this year.

Our submission this year is not so much focused on recommendations but more on an approach of stay the course. There have been a number of significant developments over the last year that we are quite supportive of.

First and foremost, as a business community our success depends on being able to open up new markets and sell products, whether they be services, wireless communications, or manufacturing technology. So within that perspective, certainly the recent announcement of the new trade agreement with the European Union is a very significant advancement for the Canadian economy, particularly for us in the Waterloo region.

I'd like to quote a letter from an organization that Mr. Christie mentioned, the Canadian Manufacturers & Exporters. The Canadian Manufacturers & Exporters wrote a letter to the premiers recently and the president and CEO of the CME, Jayson Myers, pointed out that this is a particularly important deal for Canada because it provides a market for Canada's advanced manufacturing products. It creates new markets and allows small and medium-sized businesses to develop new partnerships overseas and to help them commercialize new technologies and enter new markets.

That pretty well summarizes the position of our community and, I think, the business community across Canada. We'd like to congratulate Minister Fast and his staff for being able to finalize this agreement.

Second, as the Canadian Chamber of Commerce has pointed out in some recent correspondence and media releases, this is probably a significant development in terms of future agreements, primarily with Pacific Rim partners, Korea and Japan as well. Again, it's important to keep that momentum going.

When we were here a year ago we recommended the extension of the FedDev Ontario agency, the Federal Economic Development Agency for Southern Ontario. Again, we were quite pleased by Minister Flaherty's budget last March that extended that program for an additional five years, until 2019.

In particular, we are quite supportive of the $200 million that has been specifically allocated to advanced manufacturing. I know Minister Goodyear and his staff have been meeting with a number of manufacturers across southern Ontario this summer, gaining some consultations and feedback on how that program should operate. We look forward to that starting in April 2014. Again, we would like to commend Minister Flaherty and the government for recognizing the importance of the southwestern Ontario economy and particularly advanced manufacturing.

The third point I would like to briefly mention, which is what I focused on over the summer and in my brief submitted last August, is the area of workforce development and training, particularly for the manufacturing sector. If we're moving toward advanced manufacturing, where essentially we're looking at robotics machinery or highly advanced equipment to do the work that assembly lines used to do, these use advanced materials and are advanced products, and a specialized skill set is required for maintaining these operations.

Of course, we have seen reports from economists on Bay Street and the academic community who talk about productivity and efficiency. From the perspective of the manufacturing sector and a lot of businesses in our community, if the machinery is not working at an optimum level then we're not meeting our productivity and efficiency levels. Again, there is a requirement for having personnel trained to maintain and operate the equipment in advanced manufacturing.

We are supportive of the Canada job grant program to the extent that it identifies certain areas where there are significant job shortages and it will provide the assistance to people who want to move into those fields.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Sinclair.

We'll now go to Mr. Julius, please.

[Dr. Michael Julius, Vice-President, Research, Sunnybrook Health Sciences Centre]

Thank you very much, colleagues. On behalf of Sunnybrook Health Sciences Centre, I bring greetings and thank you for the opportunity to present before the committee.

Sunnybrook is one of Canada’s largest and most critical care facilities that are research intensive—and in fact we're dedicated to inventing the future of health care. The concept in the brief I presented to this committee focuses on health care, and actually positions health care as one of the largest expense items that we as a nation are involved in. It's in excess of a $200 billion a year business in terms of taxpayers' dollars.

The focus of the brief is on how can we better capitalize on the largest business that this country is in? How can we better monetize the investments made thus far? The concept presented is that of discovery to clinical impact through the medical marketplace.

Just to skip to the bottom line, research is in fact not an expenditure. It truly is an investment. The research and the innovation it drives is fundamental to solutions for our increasing national health care expenditures: bending the cost curve; increasing cost avoidance; and supporting a material economic upside with private sector partnerships, company creation, and job creation.

The role of technology development commercialization is fundamental to getting our discoveries to our patients. It's high risk and high cost. The need for private sector partnership is absolutely essential, and this mutually beneficial initiative is a rate-limiting step.

Health research is uniquely positioned to lay the foundation for a more innovative and productive society with very clear deliverables. We're not there, but we're getting closer: improving health training for the next generation of health researchers and practitioners; building an evidence-based sustainable system that delivers state-of-the-art health care; and of course driving the development of new products, services, and attracting investments and creating jobs.

To achieve the full gambit we must integrate these activities and resource all stakeholders along the continuum from discovery to clinical impact through the medical marketplace. We're not doing that now. Our investments are currently profoundly imbalanced.

The three recommendations highlighted are not intended to solve world hunger; they're intended actually to make a very positive step forward in rebalancing public investment in this continuum. It focuses on where the gaps are and how they may be better addressed towards doing this business better.

The first one relates to fueling the discovery engine, and I will be very brief on this as my colleague, Gilles Patry, has already highlighted the need for the infrastructure. But we need fuel to fund this engine.

We applaud the Government of Canada for initiating and for its ongoing and continuous support of sustainable funding for the Canada Foundation for Innovation. That gives us place.

We congratulate the government for the Canada research chair program and its ongoing support. That gives us people.

So we have wonderful infrastructure, we have some of the best minds in the world, and when we drive up to the gas station, there's no gas.

Funding to the Tri-Council has not kept pace with the growth in other dimensions, and our first recommendation is to increase that budget. I have to tell you that this is a modest request of $300 million over the next three years to benefit our investments already made in other arenas.

The second recommendation deals with research as well. In order to spend a dollar that any one of us gets from the Tri-Council, it costs another 45¢. Everybody around this table agrees that the full cost of research needs to be funded and once we've achieved that unanimity, eventually everybody leaves the table.

Right now we've made a good start in the indirect cost program. The challenge is how those dollars are deployed. The recommendation is rather than making this a capacity-building program, send the money directly at a flat rate to where the research is happening.

The final recommendation also relates to FedDev. Here, congratulations to the government. Our recommendation is that given the size of the business of health care and medical research, a greater proportion of that FedDev envelope should be applied to medical research.

Sunnybrook is capitalized, it's expressed in the brief, it is an economic driver.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Julius.

We'll now hear from Ms. Robinson, please.

[Nobina Robinson]

Good morning.

Thank you very much, Mr. Chair, for permitting me to join you by video link from Toronto, and for the invitation to present our ideas for the next federal budget on behalf of Polytechnics Canada.

I hope you've noted our August submission to your committee. While I am pleased to discuss our ongoing ideas about improving Canada's prosperity and productivity through support for research and innovation, that is, the theme you have invited us to address today, I will also say a few words at the end about the other critical thing we have presented recommendations for: maximizing employment opportunities for Canadians.

Since we met last year, I am pleased to report that our association has now grown to 11 research intensive colleges and polytechnics, with new members from Saskatchewan and Manitoba. These leading institutions of training and industry innovation are addressing Canada's skills gaps and lags in innovation performance. We are very proud to report to you that our 11 members alone counted over 11,100 students involved in industry-driven R and D projects last year, up from 9,500 students the year before. This represents a growing cohort of students armed with vital innovation skills for the benefit of our industry partners in all sectors. This is the best outcome of the modest funding for federal college research.

Our members are heartened that the 2013 federal budget recognized our recommendations, particularly those relating to college research and apprenticeship. Inclusion in federal programs and equitable treatment of colleges in the research spectrum are two principles that members of this committee have endorsed, and for that we are most grateful. As you have seen in our submission, though financially modest, our ideas for the next budget are practical and actionable because we understand that the fiscal cloth is limited.

We propose two specific research and innovation related recommendations.

First, my colleague made mention of the indirect costs program. Polytechnics Canada was invited to participate in the review of this program, as announced in Budget 2013. Yet a quick analysis shows that the very same college research program I mentioned above, the college and community innovation program—the program that enables us to do industry driven R and D—is not eligible for the indirect costs program. We can find no policy rationale for this. The decade-long exclusion leaves the misplaced impression that college and polytechnic applied research does not meet the standard of excellence that the indirect costs program is designed to foster. We are not advocating an increase in the size of the existing $332 million program, but we hope the committee will support the principle that all those post-secondary institutions that are conducting R and D activity are treated fairly under the program.

Second, for too long we have focused on the technological and manufacturing sectors as the priority for R and D, when Canada’s GDP relies heavily on the service sector as well. More specifically, we believe the time has come to focus on the social sector in terms of lagging innovation. The committee should urge the Social Sciences and Humanities Research Council to harness the diverse and deep strength of colleges and polytechnics in social sector innovation, something the current college program is not geared to do. Whether on matters such as early childhood education, nursing practices, or aboriginal community development, we see evidence of colleges collaborating with social organizations to put innovative practices into operation, leading to improved outcomes for all. Yet these kinds of activities are not considered high research. A small pot of competitive funding for colleges to address this demand would benefit many communities.

As I mentioned, Polytechnics Canada also has budget recommendations on your employment theme. We applaud your committee’s decision to undertake a study of youth unemployment and underemployment. Our relevant recommendations in this area relate to labour market information and to modernizing Canada’s rusted-out apprenticeship system, with as easy an opening of a program like Canada's student loans program to mature Red Seal apprentices. Without a sense of jobs in demand, without restoring dignity to vocational training, employment opportunities are being lost for Canada’s youth.

You know that research and innovation lead to highly qualified skilled workers. The time has come to link government support for R and D to government support for learners and workers. No sector can be left out of the innovation game.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. Robinson.

We'll begin now with questions from members. There will be five-minute rounds.

Ms. Nash, please go ahead.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you, Mr. Chair.

Welcome to all of the witnesses.

Thank you for the good work all of you are doing.

I'd like to ask three questions.

My first, for whomever would like to comment, is on the Conference Board of Canada's latest report on innovation performance. Their report card gave Canada a “D” in innovation. That's our topic today: research and innovation. The Conference Board explained the grade as follows:

...Canada remains near the bottom of its peer group on innovation, ranking 13th among 16 peer countries...It performed poorly on most of the 21 indicators.

I won't go on, but I'm sure you're all familiar with the Conference Board's report.

Would anyone like to comment on why Canada is doing so poorly when there are so many initiatives in place already?

Mr. Patry, would you like to tackle that?

[Gilles Patry]

It's a very complex issue.

If I had the answer to that question, we would all be looking at implementing the elements of the solution.

In many ways, it's related to the lack of innovation and productivity that might be taking place within the private sector. A report called Paradox Lost was released two weeks ago by the Council of Canadian Academies. Co-authored by Peter Nicholson and Marcel Côté, formerly of SECOR, it essentially tries to identify the reasons why some in the Canadian business sector may not have been as innovative as they should have. In essence, one of their conclusions is that our greatest trading partner, the U.S., has been a privileged trading partner for us, in the resource industry in particular. Also, Canadian businesses—and my colleagues from the Canadian business sector can talk about that more precisely—

[Peggy Nash, NDP, Parkdale—High Park, ON]

I'm sorry, I'm going to have to interrupt.

[Gilles Patry]

—have been as innovative as they needed to be to address the situation.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you for that.

[The Chair, Conservative, James Rajotte]

You have two and a half minutes.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Okay. Thank you.

I'll have to take a look at that study.

Thank you for raising that.

Ms. Robinson, I want to pick up on the last point you made about apprenticeships. That's something many of us are recognizing. There's a skills shortage in some parts of the country. There will be a generational change exacerbating that skill shortage. Yet, not enough of our young people choose the apprenticeship track as a career path.

What are community colleges doing to reach out to high schools and to young people, to encourage them to consider the trades?

[Nobina Robinson]

Thank you very much, Ms. Nash, for the question.

There are many answers. Across the country, a diverse set of ad hoc solutions is being done by community colleges.

[Peggy Nash, NDP, Parkdale—High Park, ON]

What are the two or three key things that would need to be done?

[Nobina Robinson]

When you have the K-to-12 system abandoning shop class, the first thing we need to do is to get young people to know how to hold a hammer or hold an auto part. That is called pre-apprenticeship. You have to remember that you can't become an apprentice unless you have an employer, and the employer is not going to hire you if you don't know how to do some very basic elements at the technical, first level of the apprenticeship. A lot of colleges are getting into the notion of pre-apprenticeship and exposing grade 7 and grade 8 students to that, or doing a kind of foundational course. That happens in a very patchwork way, sometimes though only very little funding for that activity. That's one.

But before we worry about getting more youth into apprenticeships, the bigger issue is what to do about the 400,000 youth now in the system who are not completing these. If they do not get their final level of certification, then they cannot be the master craftsmen from whom the young will learn. That's the nature of apprenticeship. I encourage you to look at both ends of the spectrum.