Finance Committee on Oct. 3rd, 2017

[Darla Lindbjerg]

In the smaller communities, when people need specialists, they come to the urban centres to get their medical attention. When they have routine medical needs or immediate medical needs, they rely on their general practitioner in their community.

With the proposed changes, those practitioners, who are often not from Canada and who are attracted to those remote areas, are going to be seeking other locations that would be more beneficial to their quality of life as well as their bottom line, so, yes, it is going to impact the small communities. Ultimately the taxpayer will be paying the bill. They will be paying it municipally because the municipalities will need to attract and retain those general practitioners, and ultimately property taxes will be the way they'll do it.

[The Chair, Liberal, Wayne Easter]

We'll have to end it there and go to Mr. Dusseault, but I do want to point out that these are proposed tax changes. The consultations ended yesterday, and we will see what the government comes back with, hopefully fairly quickly.

Mr. Dusseault.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you, Mr. Chair.

I also want to thank all the witnesses for being here with us and for their heartfelt presentations.

My first question is for the representative from the University of Saskatchewan, Mr. Miley.

First, I must admit that I was surprised to hear that the University of Saskatchewan campus was the most beautiful campus because I was sure that the Université de Sherbrooke campus was the most beautiful. Maybe I should visit the University of Saskatchewan just to confirm.

My question is on the indirect cost of research.

Last week, I asked a witness a question when we were in Ottawa. He said that the problem remains and that the indirect costs weren't always covered. Do you have any experience with that? What solutions could be proposed in the next budget to settle this issue?

It is all well and fine to invest in research, but if there is no infrastructure such as laboratories to support it, then what is the use?

I would like to hear about your experience in that regard.

[Jamie Miley]

Thank you for the question.

I would agree that for some of these indirect costs, we always seem to be scrambling at certain times for various projects. Sustained, predictable funding is something we always welcome for these facilities. In fact, so that we can plan for the future, knowing where you are at from a financial standpoint is critical for the future of these big science projects. We welcome any support.

It seems that governments and universities, in a rush and in the excitement to build the facilities, actually find the money for the capital investment, and it seems to be that we'll deal with the ongoing expenses later. That's just the nature of the way these projects seem to go. But I would agree, and I think Paul may have some other thoughts on that.

[Paul Davidson]

If I may, I have a couple of quick comments.

First, indirect costs are real costs. They need to be borne, so universities find ways of meeting those costs, and they do it by cross-subsidizing from other parts of the university. That's having an impact on student experience.

Second, we've been advocating for a recovery rate of 40% of indirect costs. Right now we're at about 22% or 23%, and for some of our largest most research-intensive institutions, the recovery is as low as 18%. This is in comparison to our American, Australian, British, and German competitors who are attracting research.

This is an area the Naylor report addressed quite directly in terms of how to return to globally competitive levels with the coverage of indirect costs.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you.

Mr. Bouchard, with you I would like to address the issue of technologies in agriculture. The importance of that sector tends to be forgotten.

Can you elaborate on the access to capital in Canada, which seems to be problematic compared to other countries? What could be done to help these businesses grow and have access to the capital that will allow them to develop new technologies and make them more productive?

Can you elaborate on the problem you raised regarding access to capital and what can be done about it?

[Ray Bouchard]

With regard to access to capital, there are two things in place. Access to capital is one of the components. More important is the access to the technology, and the companies that are required to be successful as you want to move that ag tech forward.

I think the ISI program, the innovation superclusters initiative, which was announced in budget 2017 was a first step in really forcing a collaboration among academia, research, and business.

From a capital perspective, what we find too often is that stage one and stage two companies that are in the ag tech area do not have the Canadian investors there to support them through stage two and stage three. What typically is happening is that they are looking to the U.S. I will give you an example. In the last two months there was close to half a billion dollars invested in Silicon Valley in ag tech alone. I'd be scared to imagine what the number is in Canada today. It's not very high.

What we've taken upon ourselves is to work with the provincial government in Manitoba, and we're talking to organizations in Saskatchewan. I believe the federal government could play a co-partner role in helping to establish a broader venture capital strategy for ag tech as we go forward.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you.

I would like to move on to another topic.

There is a lot of talk about support and tax credits for mining companies. I wonder how important mining exploration is. I know almost nothing about the mining sector. I wonder how important it is to companies to conduct mining exploration in order to find new deposits.

Could you say a few words about the tax situation for mining exploration companies?

[Pamela Schwann]

I would start by saying a predictable regulatory system is probably more important than tax breaks. The mineral exploration tax credit that I believe you were referring to is an innovation that was developed in Canada when Minister Goodale was minister of natural resources a long time ago. It has done well in terms of helping junior companies attract investment to find new deposits.

Since we've had very prolonged and depressed commodity prices, these junior companies really need everything they can to attract investment, particularly uranium prices in Saskatchewan. Our exploration basket pretty much is uranium. There's a bit of gold and some base metals, but it's primarily focused on uranium. We have over 100 million dollars' worth of investment in uranium exploration on an annual basis, so it's very significant.

The best exploration new deposits in Canada for the last couple of years have been found in Saskatchewan's Athabasca Basin by companies using tax credits. It has been helpful in identifying new deposits in Saskatchewan and across Canada. For the junior companies, they're critical to attracting investment and helping them in the further development of properties through the exploration cycle.

[The Chair, Liberal, Wayne Easter]

Thank you all.

I'll come back to you, Mr. Bouchard, for a minute.

In your proposal here, which certainly shows that industry is doing its part, you're requesting a co-investment ask of the federal government of $155 million over five years, which in terms of the federal government's budget is not a lot. I see industry being there, but how do you see the process to roll that out from the federal government? You mentioned the clusters, etc., but how would you see the federal government coming in to do what you're requesting be done under these six points?

[Ray Bouchard]

The $155 million ask that we have of the federal government is made up of a $125 million ask in the supercluster initiative we submitted under the LOI. We still are not sure if we're moving to stage two. We're hoping to hear that any day now, but we believe we'll be asked to move forward with two other ag proposals in western Canada. That's where $125 million is. We're also talking to AAFC about a $30-million investment over five years. That's where the $155 million comes from, part from a supercluster initiative and part from a direct investment from agriculture. Those are the proposals that we have on the table today.

We use the SDTC model, which is funding 50¢ on the dollar, so we look to the private sector to invest a dollar. We look at projects that are impactful, scalable, and immediate.

Included in the spin on that $155 million is roughly $20 million for training. We have a working group with universities and colleges to work on assessing curriculum in terms of what the gaps are from a machine learning and AI perspective, and to help with development of those curriculums as well.

[The Chair, Liberal, Wayne Easter]

That's helpful.

Mr. Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Mr. Chair.

Welcome, everyone.

This is my first time in Saskatoon.

That's enough French for the morning.

I have a couple of comments for Darla from the Chamber of Commerce. It was nice to meet you this morning in the elevator.

I wanted to let you know that there was a consultation period that we just finished on October 2. I come from a riding in the city of Vaughan. It has about 13,000 small, medium, and large businesses and manufacturers. I've met with a number of them. From my prior background working on Wall Street and Bay Street, although raised in a small town, and having met with a number of tax accountants, I'm fully versed in the potential unintended consequences, and I also understand that tax fairness is something which many Canadians care about. We need to get it right. We need to be judicious and diligent, and we are listening on that front.

I'm turning to the Naylor report. Three of the presenters this morning spoke about the Naylor report. I'd like you to quickly—and I mean in 30 seconds—re-emphasize how important fundamental research is to the Canadian economy in terms of our competitiveness versus our neighbours to the south or our neighbours on the other sides of the Pacific and the Atlantic. I'll throw that over first to Mr. Huber, please.

[Garth Huber]

As the report and other studies have documented, there's a whole ecosystem of innovation, from fundamental research all the way to the economy. Of course, if you don't fund that first step, then you starve the later steps too. In 30 seconds, that's how I would describe that important incubation first step.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

I'm not a scientist and I will never pretend to be one. I've always burned down the chemistry lab before doing anything else—by accident, of course. Are most innovations or most patent applications that are filed based on fundamental research first?

[Garth Huber]

There's a mix, but there are certainly many examples in which that has been the case. The transistor is a very good example, as is the laser. Those came completely out of fundamental research. They were not anticipated beforehand.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Mr. Bouchard.

[Ray Bouchard]

I would just add, in order to reinforce, it is the first step, but making sure that we integrate business is also extremely critical as we move forward.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Okay.

Mr. Root or Mr. Norris, do you want to chime in?

[Dr. John Root]

Neutron scattering sounds very fundamental. We do quantum material research and things like that, but we also measure stresses in an industry component.

A customer of ours, Nemak, a Canadian company, makes motor blocks for cars all around the world. It's a major company, and they had a question: do they have to spend this much money to make their part more reliable? It's a big question, because it's a factor-of-two change in their cost of production. The neutron beams enabled them to get the knowledge they needed to make an objective assessment of whether that step was needed, and it had a big impact on their competitiveness.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Good.

Mr. Davidson, please.

[Paul Davidson]

I'll make a couple of points.

One is that the relationship is non-linear. That's why we speak about the research ecosystem and why having a strong and healthy research ecosystem is so important.

I'll point to three quick examples that did not happen quickly in Canada but that really are transforming our economy.

The first is the discovery of pluripotent stem cells in Toronto on a Sunday afternoon in August 1960. It has led to the development of personalized medicine and has created a whole new economic sector in Toronto.

Think of the advances—I mention Geoffrey Hinton—in artificial intelligence, work also being done at the University of Alberta, in Montreal at McGill, and at Dalhousie University and others, whereby artificial intelligence is being applied to the agricultural sector. For many years, if you were only thinking about a narrow approach to research, that would not have been possible.

The third is the battery technology being developed out of Dalhousie, where Jeff Dahn has been recruited by Tesla, which is investing in Halifax.

Those are three very distinct areas in which fundamental research has led to a transformed economy in Canada. We can't predict where those breakthroughs will be, and that's why we need a strong research ecosystem.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Even just work on computer chips and materials, when we talk about materials, is also done on a fundamental basis.

I want to go to the Saskatchewan Mining Association with my last bit of time.

I always find this important. If you were to describe what I might call the sentiment or tone for the mining community in Saskatchewan or across Canada, how would you describe it in terms of investment levels? I ask this question to inform myself, and I think it's worth pursuing. What is the community feeling? Are we competing against areas such as Australia or South America—with Chile, for example, in copper, and with Australia for many other things—and other jurisdictions? Where do we stand? How can we do it better? Where are we getting it wrong?

[Pamela Schwann]

Thank you for the question.

I want to note that eight of the 10 presenters have asked for money in this presentation. I'm not asking for any money for the mining industry. I'm primarily looking for a good regulatory system that will help us generate wealth. It's not that the other presenters don't deserve the funding they have requested, but you need to generate wealth somehow, and you do that through a primary industry such as mining.

I would describe our environment, particularly in Saskatchewan, as being really buttoned down. Our commodity prices are very low right now. We've gone from highs in potash of more than $800 a tonne to now $220 a tonne in eight years. Uranium prices have had a similar decline.

Companies across the board have done all the cutting they can do. We're in survival mode in many cases. We are the world-leading producer of potash in Saskatchewan, and also the only producer in Canada and the second-leading producer of uranium. Our competitors are global. In potash, they are Russia and Belarus. They don't have the same regulatory system or the same tax structure to deal with. With all of those costs, we have to somehow be more cost-competitive than they are.

Similarly on the uranium front, many African countries and Kyrgyzstan are primary uranium producers. They do not have the same regulatory framework. They do not have the same tax structure. Specifically, when I talk about new tax structures, I am talking about the carbon levy that's going to be coming.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you. I think I've gone over time.