Finance Committee on Nov. 7th, 2013

[Murray Rankin, NDP, Victoria, BC]

I'm standing up for you, Guy.

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

Thank you.

[Iain Christie]

Okay, let's go.

[The Chair, Conservative, James Rajotte]

Mr. Christie, there's English, French, and the floor.

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

I was saying that your third recommendation concerning manufacturers and exporters is quite intriguing. According to the exchange program, businesses could take the non-refundable income tax credits they are not entitled to because they are not yet profitable, and transform them into subsidies.

An amount of $6.8 billion has been accumulated in non-refundable tax credits. I fear that this money will never be claimed because a good part of these businesses will never have the opportunity of commercializing a research product and of becoming profitable in that way. A lot of these income tax credits will not be claimed and will be transformed into subsidies, which is not a bad thing. I simply want to point out that the cost estimate you drew up which totalled less than $500,000—that is almost a cost of zero—is not quite realistic.

To reach the same objective, have you considered the possibility of transforming the non-refundable tax credit into a refundable tax credit? What financial impact would that have, and what would be the impact on research and development?

[Iain Christie]

It depends on which side of the business you represent, large or small, whether or not you're in favour of extending the CCPC refundable tax credit model to large business. Large business obviously would like to see that.

Since the AIAC represents a collection of both small and large businesses, we don't have a strong opinion either way. It would certainly mobilize that money more effectively, obviously, if it were refundable, but I understand the government's reasons for the current model.

What our recommendation was speaking to was the fact that there is this storehouse of credits that have in fact been earned. They are owed. They could be collected at any time, the timing of which is not dependent on any government policy. It's simply dependent on accounting.

The government has an opportunity to leverage that storehouse of earned but unclaimed credits to its own ends, in a sense, by deciding that increasing our R and D infrastructure is something it would like to support. The government has a tool available, which is fiscally neutral, to effectively encourage that.

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

I meant refundable tax credits for SMEs and not for all Canadian businesses. Thank you very much.

Ms. Cobden, we have worked together in the past, before I was an MP. So I am somewhat familiar with the forestry area, just as you are.

The years 2007, 2008 and 2009 were extremely difficult for the forestry sector. However, that sector of the industry really benefited from several opportunities that cropped up. It transformed the crisis into opportunity. In fact you talked about the transition fund, which was extremely profitable. There are several areas where Canada is no longer competitive, for instance pulp and paper and newsprint, in relation to its foreign competitors.

Could you give us two or three concrete examples of what the industry did to make that transition? The situation is really critical. Canada has to develop new market niches where it can be in the forefront so that it can maximize the power of the industry.

[Catherine Cobden]

Thank you very much for the question. I do appreciate that you have a wealth of knowledge regarding our sector.

For sure we are thrilled by the progress we have made to date. The innovation we have done, by the way, isn't just in the new products, which IFIT is a fantastic tool for, but also in every element of our business. We have literally been innovating our business models.

If you're looking at productivity, here's a concrete example. We are the lead sector in productivity in Canada. The productivity story is an amazing good news story. I've already talked about how we've innovated in marketplaces and about the work we're doing in China. It's truly the envy of the globe in our industry.

In the bioproduct area, the delivery of new, higher-value products is incredible. This is the journey we're on through IFIT: to create something out of trees—a very plentiful and renewable resource—that would traditionally have come from non-renewable sources, for example, carbon fibre.

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

Like Ms. Nash, I'd like to have the opportunity of speaking later. My question is addressed to Mr. Sinclair.

[The Chair, Conservative, James Rajotte]

We are over time. If we could, let's return to it in another round. I do want to move on to other members.

Thank you. Merci.

We'll go to Mr. Adler, please.

[Mark Adler, Conservative, York Centre, ON]

Thank you very much, Chair.

Thank you, witnesses, for being here this morning.

I do have a couple brief questions. The first one is for Mr. Sinclair.

How has our government's low tax policy, which reduces the corporate tax rate to 15%, been of benefit to your members?

[Art Sinclair]

It's good. It's positive. We've always had this discussion in our organization and every other organization about the relative level of corporate taxation in a recession. I think generally there's a feeling that we're probably at about the right level. I recall Minister Flaherty brought in a program of tax cuts back in 2007 and we've pretty well maintained that level for about the last six years. It's been at that rate. Now compare that to the Province of Ontario, in which essentially they introduced a schedule in 2009 for cuts going into 2013. They cancelled the last year. I think that was a disappointment to a lot of our members. Of course, if you are told in 2009 what your rate is going to be for 2013 and then in 2012 the government states that it is not going to implement that tax rate as scheduled three years ago, that's a problem.

But I think generally there's been strong support. There was a program introduced back in 2007 and it's been maintained. As I said before, we're pretty well at the right level. There are some people—I know we have accountants at the chamber—who said we should be paying off the credit card first. There are varying degrees on the proper levels of corporate taxation. But, I think at the federal level we're at a pretty competitive rate relative to the rest of Canada.

[Mark Adler, Conservative, York Centre, ON]

And the freezing of EI premiums is all good news to you and your members?

[Art Sinclair]

Yes.

[Mark Adler, Conservative, York Centre, ON]

The elephant in the room is BlackBerry or RIM.

[Art Sinclair]

They've had issues.

[Mark Adler, Conservative, York Centre, ON]

Let's just flip that around a bit. All the people who are being laid off from BlackBerry are really smart people. They're very creative, very technologically adept. Now all these people are being released into the marketplace.

[Art Sinclair]

Yes.

[Mark Adler, Conservative, York Centre, ON]

How do you see that as a benefit to the Kitchener-Waterloo area? There are people here now who can start their own businesses and these are very smart, creative young people.

[Art Sinclair]

Yes. Generally we project that there are probably about 1,000 to 1,500 jobs available right now in the technology sector in the Waterloo region. These are the small start-up companies. A lot of them are three guys who knew each other back at the University of Waterloo five years ago; they had an idea in school and now they have a product that's on the market. So you have them. Then there are the larger companies like OpenText that only two days ago mounted a major acquisition of a company down in Maryland. We have an ecosystem now in Waterloo Region where we hope a lot of those people who will be exiting or transitioning from BlackBerry will be picked up by other companies.

In fact, we like to consider that BlackBerry came out of the ecosystem in Waterloo region. BlackBerry didn't create the ecosystem; the ecosystem was there. A lot of it is based on the unique relationship that we have in Waterloo region between the universities and business.

Governor General David Johnson mentions this quite frequently. Essentially, the University of Waterloo came about because the business community—the manufacturers—wanted engineers, and the life insurance companies wanted actuaries. So we had one of the first truly technical universities in Canada. The first president of the University of Waterloo was a gentleman named Gerald Hagey, who was a senior executive of one of the tire companies. He wasn't an academic. So we've always had that unique relationship between academia and business that I think has built that ecosystem that's produced a company like BlackBerry.

[Mark Adler, Conservative, York Centre, ON]

What lessons can be taught by Kitchener-Waterloo to other parts of Canada to replicate that model?

[Art Sinclair]

I think a lot of it is simply that relationship between businesses and the post-secondary institutions. We like to think of ourselves as a chamber of commerce that's a facilitator in a lot of cases. People come to us saying: “Okay, what services can the university or what can Conestoga College provide for us?" It's really breaking down those barriers and building that relationship, because going forward I think that is going to be key in a knowledge-based economy. We've had the discussion here on that. In a lot of cases it's taking technology and putting it out in the market. If you don't have that relationship, it's going to be a lot more difficult.

[Mark Adler, Conservative, York Centre, ON]

So building partnerships is really the key, and not operating within your own silos.

[Art Sinclair]

Exactly.

[Mark Adler, Conservative, York Centre, ON]

That's great. Thank you very much.

Thank you, Mr. Chair.