Finance Committee on Oct. 6th, 2017

[Dr. Alex Zahavich, Vice-President of Corporate Development and Applied Research, Education, Southern Alberta Institute of Technology]

Good morning, and thank you very much. I'm Alex Zahavich. I'm the vice-president of corporate development and applied research at SAIT.

SAIT is the oldest technical vocational institute in North America. We just celebrated our 101st birthday. We are in the business of applied education. We are members of CICan, Colleges and Institutes Canada, and Polytechnics Canada. We are the largest college in Alberta. We service 45,000 students annually, and have alumni in 160 countries, 220,000 strong around the world. The average age of our student is 25 years. Of our students, 25% come to us already with a post-secondary education and credentials. Today, we have 200 Ph.D. students enrolled at SAIT.

Our collaborative relationship with industry is our strength, and that's part of our brand, because we graduate into jobs. Some 85% of our graduating class last year, 5,000 students, graduated into jobs they were trained for. While education is the jurisdiction of the provinces, we have benefited and collaborated very closely with the federal government on a number of initiatives, both financially and through policy.

Last year, we were recognized by our peers as the top research college in Canada. One of the initiatives of the federal government is the creation of the applied research network among the college sector. Our applied research and innovation services department works closely with industry to develop new products, increase productivity, and commercialize new markets for industry. Our students directly work with those companies, and graduate through those projects into jobs with the companies with which they do the projects.

We're not encumbered by publishing. We don't get hung up on intellectual property. That belongs with industry to commercialize. Because of that relationship, we need to see that reinforced through some recommendations we'd like to put forward today. I know I'm speaking on behalf of my colleagues across the country in the college and polytechnic sector.

From a competitive standpoint, we need to see the tri-council funding expanded. Currently, out of $3.1 billion spent on post-secondary research, the college sector gets 1.7%, $53 million. It wouldn't take much to double that to support more project activity, and to provide indirect cost funding. We have to support our infrastructure through our operating grants. The universities don't have to do that. It is not a we-they. We partner very closely with the University of Calgary and other universities in Canada. In fact, they named us, and we are very grateful to be part of the award on the CFREF grant that came forward. We will be part of the supercluster applications that are coming forward as well.

The second element of competitiveness is an odd one, because people don't realize that the post-secondary education sector is a form of economic diversification, and that form can come through international students. The multiplier on a $15,000 tuition from a student coming from Mexico or China is four times the contribution to the local economy. Global Affairs Canada has a digital strategy that is worth $5 million. That doesn't get you very much in a competitive world. Australia has a minister of international education and tourism. It is serious about what it does. While it is a provincial jurisdiction, there's no reason why Canada cannot have a common front when we go for international students. That will help diversify our economy.

Third, we have worked very closely with the regional funding agencies, in our case, Western Economic Diversification Canada, which is a very strong body here, but we need some predictability, and it needs some predictability in the funding. Annual funding is a very difficult thing with which to work. The industry benefits from western diversification, but there is uncertainty annually about what it has to work with, so we need that stabilized. We are able to leverage that by bringing industry partners to the table to support those funds.

Finally, every once in a while, what comes across our desk is something called a strategic infrastructure fund or knowledge infrastructure program. That should be done annually. There is a capital deficit in the post-secondary system. There are job creation opportunities, but there are also competitiveness and productivity opportunities. We need those facilities to be annually upgraded to meet the needs of industry across the country.

Thank you very much. I welcome your questions.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Alex.

A number of us went to the University of Saskatchewan the other afternoon when we had a couple of hours before our flight. It was rather enlightening to see the Canadian Light Source and a number of initiatives which I imagine you would be familiar with.

I'll turn to the last panellist, Mr. Ogbogu with the Stem Cell Network.

[Ubaka Ogbogu, Assistant Professor, Faculties of Law and Pharmacy and Pharmaceutical Sciences, University of Alberta, Stem Cell Network]

Thank you for inviting me to appear today. My name is Ubaka Ogbogu and I'm an assistant professor in the faculties of law, and pharmacy and pharmaceutical sciences at the University of Alberta. I'm also the Katz research fellow in health law and science policy. I'm here to represent the Stem Cell Network. I have long been a member of this organization, first as a student trainee, and now as a legal and policy researcher and scholar investigating the ethical, legal, and social issues associated with stem cell research.

Since its inception in 2001, the Stem Cell Network has been leading and building Canada's stem cell research community. Over the past 16 years, the Stem Cell Network has built a national community that has transformed stem cell research in Canada, and has pushed the boundaries of what was a basic research area towards translational outcomes for the clinic and the marketplace. This has been achieved in areas such as cancer, diabetes, heart failure, and multiple sclerosis.

From 2002 to date, the Stem Cell Network has supported 160 world-class research groups across Canada with approximately 5,000 full-time employees working on Stem Cell Network-supported stem cell research projects. As of 2016, the Stem Cell Network has provided over $90 million for innovative translational research, resulting in partner contributions of $100 million. I'm proud to say that the Stem Cell Network is the main driver behind the emergence of Canada's regenerative medicine sector.

Regenerative medicine, as you may know, uses stem cell-based therapies and technologies to regrow, repair, or replace damaged or diseased cells, organs, or tissues. Just this past spring, the “Global Regenerative Medicine Market Analysis & Forecast to 2021” indicated that the global regenerative medicine market was worth $18.9 billion in 2016, and will grow to $53.7 billion by 2021. This is a market that Canada is well positioned to actively participate in, especially with strategic investments in growth areas such as biomanufacturing, technology scale-up, clinical trials, and translational research.

Countries around the world such as the U.S., Japan, Germany, and the U.K. are making strategic investments in stem cell research because they understand the major health and economic benefits that will result from this research. Canada is well positioned to be part of this global picture. However, it is not just pure economics that will drive our investments in research. There's also a health imperative for being involved in regenerative medicine.

Chronic illness is costing the Canadian economy approximately $190 billion per year in health care costs, not to mention income and productivity losses. Health care expenditures are expected to outpace economic growth by 2020. Regenerative medicine powered by stem cells has the potential to change the narrative in the years to come. That said, new therapies, technologies, and treatments must be proven safe and efficacious before they enter the marketplace. This means that it takes time, patience, and an unwavering commitment by all of us if we are going to succeed in getting novel regenerative medicine to our loved ones.

When you are talking about the health of your mother, your daughter, your husband, or your neighbour, we must ensure the risks have all been accounted for while balancing this timely access to new therapies.

On a personal note, my involvement in the Stem Cell Network, along with my colleagues who work in the health law and science policy fields, has been to provide evidence-based advice to regulators, including Health Canada, on how to address the regulatory and policy issues in this field. We also provide advice to government that would help to ensure that our regulatory system is effective and permits research to move from bench to bedside as efficiently as possible.

I know the government is most interested in how to support productivity in this country. It is a complex question but also a straightforward one. Invest in innovative sectors like regenerative medicine. It is the field that is the future of health care. It is also an area where investors are paying greater attention and putting their money where their mouths are.

A clear example of this is the 2016 announcement of BlueRock Therapeutics, a joint venture between Bayer and Versant Ventures, valued at $225 million U.S. It is one of the largest ever series A financing for a regenerative medicine biotech company. This company has offices and labs in Toronto, Kyoto, and Boston. BlueRock is looking to bring some of these therapies to the market. Its first area of focus is to develop therapies that address heart attacks and chronic heart failure. These are conditions that cost more than $2.8 billion per year to treat, and 50,000 Canadians are diagnosed with them annually.

The two scientist founders of BlueRock are Canadians: Michael LaFlamme and Gordon Keller. Dr. Keller is a member of the Stem Cell Network and has benefited from the Stem Cell Network's support over the years. Dr. Michael LaFlamme is globally respected as a cardiac cell therapy pioneer.

Many impressive scientific minds reside across the country, too many to name. If it were not for strategic investment in stem cell research, they may have chosen to move elsewhere to pursue their careers and their passion. However, because Dr. Keller and Dr. LaFlamme were able to pursue their research in Canada, we can declare BlueRock to be a homegrown success. As Michael Rudnicki, the scientific director and CEO of the Stem Cell Network, likes to say, Canada is at a tipping point and now is the time to double down and invest in regenerative medicine. I agree with this statement and would add that without this support, we run the risk of losing the next generation of young researchers, biologists, engineers, ethicists, and lawyers like me. These are the people that this government understands will drive Canada's knowledge economy.

In conclusion, if you want to provide incentives that will spur productivity and create high-quality jobs, you don't need to look very hard. I encourage the government to invest in this sector that is ready to make a difference for Canada and Canadians.

Thank you very much for the opportunity to speak with this committee. I look forward to your questions.

[The Chair, Liberal, Wayne Easter]

Thank you very much.

We'll turn to questions, and we'll have to go to six-minute rounds.

Mr. Fergus is first.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

First of all, I would encourage everyone to wear their earpiece.

I might have two or three questions to ask. I'll try to be brief.

I will start with you, Mr. Holden. I found your presentation very interesting. We have a productivity problem in Canada. Before being elected, I worked for the federal government, in Ottawa, for quite a while. Since the end of the 1980s, this issue has really been a concern for us.

I know that when Mr. John Manley was minister of industry, Canada's productivity rate always lagged behind and was lower than that of the United States. It seems that the only time it went up was when we signed the Free Trade Agreement with the US. In your presentation, you mentioned that we had a problem and that the manufacturing sector was not investing in new equipment. In your opinion, what can we do differently from what we've been trying to do for the past 25 years in order to increase our productivity rate in Canada?

[The Chair, Liberal, Wayne Easter]

Mr. Holden.

[Michael Holden]

Thank you for your question. When I lived in Ottawa, a few years ago, I spoke my second language a lot, but after living here for six years now, I need to practice it more. So I will answer in my first language.

Obviously, the issue of productivity isn't one that has an easy answer, otherwise people would have come up with it already. It's something that Canada has struggled with over a number of years. There are a number of specific challenges, and I think this government has put forward a few good ideas to help out. I mentioned in my presentation the strategic innovation fund being a step in the right direction. Some work on the innovation clusters and the Canada job grant were a step in the right direction because, as I said, we need to have the right people in place to make use of the manufacturing technologies that are available.

In terms of why it is, there are a few challenges which I think we need to overcome. One is that in the manufacturing sector specifically, if you look at the size of the average company in Canada, we skew to the small end. We have a lot of branch plants of large American companies or European companies, and the domestic manufacturing base is smaller than it is in other countries. I think that, in some ways, the smaller organizations have a more difficult time with financing, with understanding what new technologies are, and the costs, both in terms of the dollar-value costs and the costs of potentially getting it wrong, are much higher for smaller companies. I think there are some challenges there that we need to overcome.

One of the others related to the size issue is that.... Excuse me for a second here. I'll have to come back to the size issue in a second. I apologize for that.

You mentioned that Canada only made progress during NAFTA, during that period of time, and I think that is true. The big gap that we saw with productivity growth between Canada and the U.S. in particular took place in the aftermath of the NAFTA period. We had good productivity growth then, but the gap opened up in the late 1990s and early 2000s. I think part of the reason for that was the relative lack of adoption of the new digital technology that took place in the United States, and so we saw a large, widening productivity gap. Since that time it has not really gotten worse, not in the last five or six years at least. Canada has been kind of running parallel to the U.S. In recent years the growth levels have not been as bad, but we're not closing the gap that existed before.

As I said when I started my response, there aren't any easy answers to these questions, but I think that business size.... The other point that I forgot before, and I just remember now, is that I think there's a role for the tax system to play in fixing this problem. Specifically, from the corporate perspective, simply speaking, you have the general corporate tax rate and the small business tax rate. Nobody's arguing against a small business tax rate, but the problem we have is that we effectively encourage companies to be small. We don't encourage them to grow. I think that one of the things that we would like to see as part of the tax reform that I mentioned before is exploring innovative new ways to reward companies for growing and for investing in their labour force and their capital.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

I know.

Thank you very much.

[The Chair, Liberal, Wayne Easter]

You have time for one very quick question.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Actually, it's not a question.

I'd simply like to recognize the work of the Southern Alberta Institute of Technology.

Doctor Zahavic, I had the opportunity to visit your institution on a few occasions with David Ross. I was really impressed with the work that is performed there. I hope that we can always support your work and that of your colleagues in post-secondary institutions.

[The Chair, Liberal, Wayne Easter]

Thank you.

Mr. Kelly.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you.

Again, those were great presentations.

We've heard a lot about regulatory systems and how they impact competitiveness in the Canadian economy. Competitiveness is one of the things that we're here to talk about, and it was a theme that contributors were asked to address.

I want to talk very specifically about the news yesterday that was quite devastating to much of the business community as well as employees and people who are looking for work and struggling in Calgary, and that is the withdrawal of the energy east pipeline. The applicant was very clear that they withdrew because of regulatory changes to the process. Yesterday in the House of Commons, the minister, in response to a number of questions about the changes that were made to the regulatory process, insisted that this was not, in fact, the case. He said, “...nothing has changed in the regulatory process. The same rules that applied and that led to the approval of billions of dollars of investment in the energy sector, as well as tens of thousands of jobs, still existed and would have to the energy east pipeline.” He want on to say, “The rules did not change, not at the beginning, not in mid-stream, and not at the end.”

Mr. Bloomer, I'd like you to comment on what had changed and how this project managed to be withdrawn.

[Chris Bloomer]

Thank you, Mr. Kelly.

Yes, that was a blow yesterday for Canada on many fronts—jobs, investment, and so on. It is instructive to look at the letter that TransCanada sent to the NEB with their notice of withdrawal from the project. They're pretty clear about what drove their decision.

The narrative that energy east was treated exactly the same as the other projects in the review process is not quite true. I think it was a big surprise when the panel came out and spoke about upstream and downstream emissions in a way that was really outside their jurisdiction. That was not the narrative that was put forward during the other pipeline reviews, and I think it's wrong to say that there was a total equivalency there.

The decision by TransCanada is just one example of this regulatory uncertainty that is impacting the industry negatively. This is an industry that drives a lot of the Canadian economy, and this uncertainty is driving investment away. Yesterday was just another example. We lost 15 billion dollars' worth of investment in this country yesterday. That's a problem. I think we really need to come to grips with that. Rather than trying to parse what the cause was, let's look at solutions.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

We've heard today in this committee about the devastating effect that the downturn has had on this city, but this project was about much more than jobs in Calgary. This is about jobs in Atlantic Canada. This is a nation-building exercise. Perhaps you could comment further on the benefits of the project and the damage that mixed signals on regulation and mixed signals about how we feel as Canadians about these important projects have to our economy across Canada.

[Chris Bloomer]

It's pretty obvious that we've lost this investment. It is across Canada. It's not just Calgary. It has a ripple effect across the country, in the pipeline industry and also in the trades. It will affect middle-class folks who are welders, service providers, inspectors, arborists who maintain the rights of way, and so on; there's a whole slew. There's a very deep impact across the country.

It's been said many times that these are the engines of growth. When the Prime Minister went out and approved the two projects, he stated that these projects are in the national interest, that they are necessary to access markets. It's important to understand that these are national impacts.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

I would agree that a bold statement needs to be made in the budget that we support energy projects in Canada. The signalling, the mixed messages going out, all of this is having a devastating effect on the investment climate because, as was said in your presentation, policy-makers, economists, and decision-makers on financing projects do not decide to invest in uncertain jurisdictions.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you.

Mr. Bloomer, you said we should look at solutions. I have circled in your presentation the same part that Mr. Kelly referred to. What are some of the solutions that would allow us to bring certainty to the regulatory regime? Industry needs to know where it's at, for sure. In a very quick statement, I would like to hear what you think some of those solutions are, because I think we have to address this issue in the report.

[Chris Bloomer]

Thank you for the opportunity. Very directly, we need to get this next phase of regulatory reform right. It is still unclear, both on the NEB modernization piece and the environmental review piece where those things are going to come down. There's a lot of direction that they're giving, but there's not a lot of specifics.

We have an opportunity now, and it's the moment, because the government is forming its opinions. The government needs to listen to what industry is saying and what the country is saying now, in terms of developing their policies going forward. They want to implement new changes by 2019, which is ambitious, and they are determined to do that, but we need to get this right.

This is not an election cycle issue. This is a long-term national issue that we have to get right. We can't be changing these things every four years, and then moving the goalposts within that. It is a very serious issue. Clarity is really needed.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Bloomer.

Mr. Dusseault.

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

Thanks to all our witnesses for being here today.

I'd like to get back to the Hotel Association of Canada and the issue of Airbnb.

Inasmuch as we'll try to make recommendations to the minister of finance, I know that many people were happy, last year, to see that the federal government had targeted Uber in the Budget Implementation Bill. As a result, some people might be hopeful that Airbnb will find itself the focus of the minister of finance. This being said, I would like to get a better idea of the situation and to know who would pay the GST in this case.

We saw that the province of Quebec will impose an accommodation tax, which is not the QST. I wonder who will end up paying in the case of a sales tax like the GST. Will it be the property owner or the Airbnb multinational? In your opinion, how will taxes be paid?

[David Kaiser]

Thank you for the question.

In terms of who would pay the tax, our specific recommendations are around Airbnb collecting the HST on the commissions that they charge for the host. We also believe that hosts who are above that $30,000 threshold—and that's a growing segment. We have many what we call commercial operators, those being hosts who rent out entire homes, and probably the fastest growing segment, multi-unit owners that are really operating like hotels. They should obviously be paying GST as well. Again, there's a big gap in tax revenue that's not currently being collected there, and it's growing exponentially.

We applaud what's happened in Quebec. We have a similar tourism levy here in Alberta. We also believe that platforms like Airbnb should be collecting on that. Those types of fees and taxes are invested in tourism and help to drive visitation to our country. The beneficiaries of that visitation are in fact the hosts of some of these short-term rental sharing operations.

Again, we're not asking for special treatment; we're just asking for a fair, level playing field for operators who compete directly with our business.

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

This thoroughly answers my question. In fact, I hadn't thought of the commission, which is actually paid back to the company. I was going to ask another question regarding the $30,000 threshold to have to remit taxes to the government.

I will now turn to Mr. Ogbogu to ask him a question regarding stem cells.

I'm lucky that neither my closest and dearest nor I have needed to really access the health system to this day. As a result, I don't know much about regenerative medicine. Could you give us an example of a more specific application? You were talking about chronic diseases, with which you obviously associate economic costs. People who suffer from them stay at home instead of being in the labour force, sometimes for extended periods of time.

Can you give us a specific example of what this regenerative medicine could do in the case of chronic diseases, which are more and more frequent in the population?

[Ubaka Ogbogu]

Thank you very much for that question.

Stem cells work in two ways, really. The goal of the research has resolved into two main avenues. The first is to actually understand human biology and through that to understand how the cells in our bodies act and how they become damaged or diseased. That understanding then allows researchers to develop therapies and create models to study diseases and understand the diseases better.

Then there's the other really exciting avenue, which is that you can use stem cells to develop treatments to regenerate tissues, organs, and cells in the body. You can grow the cells outside of the human body in labs and use them to regenerate organs or tissues or cells that have become diseased or damaged in our bodies. These two avenues really deal with basic biology. Developing treatments is what researchers are working on. The target for these two avenues is to address diseases that currently have no cure, diseases that we spend money on managing in the health care system and for which there is no cure, things like cancer, Parkinson's, MS, heart disease, things that cost the Canadian health care system billions of dollars. That's the hope.

Canada is well positioned to actually be a leader in this field. Stem cells were discovered in Canada. We have a very enviable research community in Canada, made up of the top experts in the world. The government has actually in fact been very supportive of the area, and our hope is that the government will continue to be supportive as we're moving now very steadily towards the clinics. The research is getting to the point now where we're beginning to see translation, and the hope is that the government will support that in this regard.

[The Chair, Liberal, Wayne Easter]

Mr. Sorbara.

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

Thank you, Mr. Chair. Bienvenue à tous et toutes.

These have been great presentations by everyone. It's been a very informative day. I've seen sort of a theme among some of our presenters even going back to when we had pre-budget meetings in Ottawa.

This one is for the CME, and it deals with accelerated capital cost depreciation.

A few presenters, I think almost half a dozen, have requested that we look at enhanced depreciation rates, that we extend accelerated capital cost depreciation, or that we introduce tax credits on that front. We've heard it from a number of organizations. Is this the magic pill that we're looking for on productivity? Is it a step in the right direction? This is a theme I've seen to date.

Can you please comment on that, Mr. Holden?