Finance Committee on Nov. 7th, 2013

[The Acting Chair, Conservative, Dave Van Kesteren]

You have 15 seconds.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Well, regarding the application of the capital cost allowance to energy storage, how much would that benefit people simply storing energy for backup and how much would it really benefit peak saving or the storing of intermediate renewable energy?

[The Acting Chair, Conservative, Dave Van Kesteren]

We're out of time. I'm sorry, because it's a good question. Maybe somebody else will pick it up.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

I'm sorry. I didn't say it fast enough.

[The Acting Chair, Conservative, Dave Van Kesteren]

Mr. Saxton.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thanks to our witnesses for being here today.

My first question is for Mr. Aronshtam from Deloitte. In your opening remarks and in your submission you suggest an angel tax credit to enhance financial support for businesses during their early stages.

Being from British Columbia, my home province, I am interested to know what your opinion is as to why the angel tax credit has been successful in British Columbia and how it works.

[Natan Aronshtam]

The angel tax credit is a 30% tax credit of up to $200,000 annually. It allows a very young company, which typically funds itself through friends and family, to find people who are more entrepreneurial and have access to funds and to leverage the funds for growth at a very young stage, typically well before an experienced venture capitalist would come in. That's the model.

In our view, the more young and exciting companies you can get into the economy that are well funded at that very young age, the more attractive businesses we will see in front of venture capitalists and then in front of the next tier of investors.

In our experience of watching it in B.C., we can learn a lot of lessons. I think it's a very good program.

[Andrew Saxton, Conservative, North Vancouver, BC]

If we were to introduce something similar on a federal level, how would you tweak it for a federal program?

[Natan Aronshtam]

I would keep it very similar. I think the experience in B.C. is showing that this model, with that ratio of a 30% credit with a cap, works very well. I haven't analyzed the actual cap, as to whether $200,000 is the right amount if you take it federally, but I think it's that model, plus or minus a little bit.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

My next question is for Paul Davidson from the Association of Universities and Colleges of Canada.

Welcome, Paul. It's good to see you again.

In your submission to the finance committee, you recommend that the government provide predictable long-term support for Canada's research granting agencies. Can you explain or expand on how Canadian businesses would benefit from this proposed funding?

[Paul Davidson]

Absolutely. As I mentioned in my opening remarks, the discovery research that granting councils support is absolutely foundational to the whole Canadian research and innovation enterprise. Without discovery research, what is there to innovate? Where is there room to innovate?

Investments in the granting councils will help equip a new generation of graduate students, two-thirds of whom will end up in the private sector, participating in the economy and bringing their most recent skills and knowledge to the marketplace to help grow Canadian businesses.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

The other question, which was touched on earlier by my colleague Mr. Keddy, is this.

U.S. universities have been so successful at raising money from the private sector—huge foundations, billions of dollars. Why is it that we have had more difficulty?

I have to admit that in the last 10 years we've seen a lot more private contributions to universities than we had ever seen in the past, but how can we build on that? How can we create more private interest in supporting our universities?

[Paul Davidson]

There is a different philanthropic tradition in the United States and a different connection between alumni and their alma maters in the United States.

To give you a sense of scale, the endowment of one Ivy League U.S. institution is larger than the entire endowment of all Canadian universities. That's the kind of gap that there is between the two. It's a different political culture, a different culture of giving, a different ecosystem.

You heard from Imagine Canada yesterday about some of their recommendations. Those are ways of facilitating increased philanthropic giving to the universities. In terms of direct, private sector participation in universities, President Cannon referred to the one and a half billion dollars in private sector-funded research. That's a significant contribution to Canada's research enterprise.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you very much.

My next question is for Mr. Gupta, from the Information Technology Association of Canada.

Mr. Gupta, in your submission to the finance committee you called on the government to implement a venture capital action plan. Could you explain how, in your opinion, this action plan would roll out?

[The Acting Chair, Conservative, Dave Van Kesteren]

You have 30 seconds, sir.

[Karna Gupta]

Right now the plan has leverage to grow to $1 billion, including some private-sector funding. That is very good news.

What we don't have is a sense of how it is going to be doled out by each of the sectors and regions; we're still waiting for that. The only way to make it work is to get the recipients engaged in design and implementation, rather than just the money managers. That's what we are asking for: to get the people who are going to use it to be part of the process of determining how best to allocate the funds.

[The Acting Chair, Conservative, Dave Van Kesteren]

Thank you.

Sorry, Mr. Saxton, you're out of time, sir.

Mr. Caron, you have the floor.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you, Mr. Chair.

Mr. Gupta, I'm going to continue on the same topic of venture capital.

We are talking about $400 million. You are quite fortunate in that regard, since there are problems with venture capital in Canada, including in Ontario. However, the two workers' funds in Quebec, the Fondaction and the Fonds de solidarité, submitted a proposal to the Minister of Finance to attempt to convince him not to eliminate the tax credit for contributors. Indeed, venture capital derived from the general public is really rare.

The two workers' funds proposed that the number of shares issued be restricted so as to limit tax expenditures. In addition, $550 million would be invested in private funds in Quebec, and it would be possible to invest everywhere in Canada. In that way, $400 million from these two funds would be invested in private funds outside Quebec, including $120 million in the two national funds included in the Venture Capital Action Plan. Moreover, a sum of $1.05 billion would be invested directly in businesses, in addition to the money from those funds, over the 10 years of the federal action plan.

The Minister of Finance rejected the proposal. Canadian venture capital—we are about talking about Quebec, but also about other areas outside of Quebec as well—lost $200 million a year in investments. That represents $2 billion over a 10-year period.

Would you not have preferred to benefit from these $2 billion, rather than the $400 million proposed by the federal government?

[Karna Gupta]

I think it's a good question. In our submission when the announcement came out, we did go back to the proposal that's on the table from the Quebec government.

Directionally, it has the right approaches. Whether or not the ratios and the numbers exactly need to be replicated, that needs to be revisited. But directionally, it does have some of the elements that the ICT sector is welcoming.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much.

Mr. Lortie, could you comment on what I said? Was it accurate?

[Jean Lortie]

Absolutely. I would say that the workers' funds are effective. They allow Canadians and Quebeckers who contribute to them to have a pension fund aside from the Canada Pension Plan and the Quebec Pension Plan—or another, depending on the province—but chiefly, they allow small and medium businesses who want to grow to have access to venture capital. So it is not necessary to go and raid the pockets of mom and pop. These funds are structured. There are governance rules, and through them, we have managed to create or maintain hundreds of thousands of jobs in the technology sector, green technologies and innovation as a whole. These are very important areas in the Canadian economy. The funds do good work.

Unfortunately, the federal government refused the proposal from the workers' funds. That is really unfortunate, because we are going to have to recreate those funds elsewhere. We may have to start all over again rather than be able to use what had already been done successfully.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

The capitalization of the two funds is currently about $10 billion, is it not?

[Jean Lortie]

That's right.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Can you confirm that thanks to the initiative of the funds, Quebec is now third overall among all OECD members—after Israel and the United States—as to the percentage of GDP allocated to venture capital?

[Jean Lortie]

I don't have that particular piece of information, but I think I saw that recently. I can confirm it.