Mr. Chair, thank you for giving us the opportunity to make a presentation before the Standing Committee on Finance, here in St. John's.
My name is Ian Russell. I am the president and chief executive officer of the Investment Industry Association of Canada.
It gives me great pleasure to be before this standing committee, to present to you as you proceed with your budget consultations. As some of you may know, I represent an industry that employs 40,000 individuals and is a source of high-paying jobs. It raises capital for governments. Last year, the industry raised $200 billion in debt capital for Canadian federal and provincial governments, and another $96 billion for Canadian corporations. We are also very significant contributors to the Canadian economy beyond employment, in terms of taxes paid. It's an industry that has been very generous in terms of charitable donations throughout communities in Canada.
I am going to constrain my remarks primarily on comments related to the small business sector in Canada. It's an important policy agenda for you as a committee and for the government to deal with. I just want to sketch one aspect of a problem and then talk about some possible remedial action.
Quite rightly, in last year's budget, the government put a priority on trying to augment the sources of equity capital for small and mid-sized businesses. The statistics would show that the amount of capital flowing to small and mid-sized Canadian businesses has declined, particularly in the public venture marketplaces, where we've seen a significant decline in the amount of financing, the transactions, the volume of financing, and the turnover activity generally. We have seen that the private equity market has had virtually the same level of financing over the last five or six years. This is a combined result that is not satisfactory in the context of a growing Canadian economy.
We can get into the reasons for that as we move forward, but our view is that there is an opportunity here. It's one we've reiterated, not just with this government but with previous governments. There is a need for a robust, proactive reform or initiative to boost financing in the country.
In the last couple of years, we have advocated the Canadian equivalent of the U.K. enterprise investment scheme. It's a scheme that does not rely on a particular expert running a venture capital fund or labour-sponsored fund who is somewhat detached from the investment, but it's a scheme that is open to all British citizens. That would be the equivalent in Canada: an incentive that would be available to all Canadians to invest in small businesses, businesses they are familiar with, primarily local businesses. They would receive a personal tax deduction. In the U.K., it's 30%. If they held the investment over three years, it would be exempt from capital gains tax.
It's a program that has been in place for over 20 years. It has provided financing for 26,000 companies. It has raised over 26 billion pounds, and it's been audited by the U.K. treasury. For that reason, we thought that this is a well-run, proven incentive for small business.
But I am coming to you here with another idea. The second idea I have is what I would term a “rollover provision”. There is an opportunity, through this incentive, to accomplish two things. First is to unlock capital so that it can be directed to small business. Second, it's a way that would not impact on the federal treasury, and that's been one of the biggest concerns around this.
The two big concerns have been around the tax break to encourage Canadians to invest in small businesses and a perception that there's a political undertone of benefiting wealthy Canadians. I might add that, on that score, if you look at the U.K. enterprise investment scheme, all the investments are in small amounts, and there are a lot of small investors that are active in that particular program.
The rollover provision, simply put, is that if you have a building, an asset, or possibly a financial stock, the idea would be that you would be able to sell that investment and as long as you rolled the proceeds into an eligible asset—that would be defined obviously by the incentive itself—and into small or medium-sized businesses with maybe a proven track record that could be defined, then there would not be capital gains tax on the proceeds.
Now when I say “not”, I'm saying a deferred capital gains tax, because the tax certainly wouldn't be paid at the time the funds were reinvested into small business, but over time as those investments grew, obviously capital gains tax would apply when the ultimate assets were eventually sold. The reason I'm saying the deferral should be something that's acceptable is that without the deferral, you probably wouldn't see the assets sold to begin with. So those revenues would not accrue to the government unless somehow you felt that the assets would be sold. In some cases they are, but in many cases they are not.
That's just a second idea that I put forward. I'm happy to discuss those proposals and any of the background related to the small business sector or the economy in general.
Thank you, Mr. Chair.