Finance Committee on Oct. 19th, 2017

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Great. So much the better.

The figure is quite impressive: $225 million for the maintenance and renovation of social housing in your municipality. I have a similar question for you. Does the funding set aside to reach that objective over the next few years seem to cover the current needs?

[Jesse Helmer]

I have a different answer for that one: no.

This is a very difficult challenge for all municipalities, including London. It's an unfunded issue right now. We don't have the funding set aside in capital plans to deal with the maintenance and repair. The province doesn't and the federal government doesn't. Nobody really has a good plan for dealing with the social housing units that exist and need to be repaired and maintained.

The difficulty in Ontario is that when these units were downloaded, there was not a lot of consideration for the long-term maintenance and repair of that infrastructure. It became a very large liability on the books of the municipalities. We need to do better in terms of planning for that infrastructure. As I mentioned earlier, on the engineering front, we've done a very good job of planning out on that front. On the social housing side, we should have done better and need to do better. Similarly, we're going to need all levels of government to get involved in funding that because it's a major issue.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

I have one last question for you, gentlemen.

You talked about the homelessness partnering strategy and you said that it was developed for large cities such as Toronto and Montreal, but it is less adapted to the needs of medium-sized cities like London. Could you give me a more concrete example, so that I can see the difference?

[Jesse Helmer]

For homelessness funding, I will give you an example. This is nothing against Hamilton. However, the way some of the funding flows is that cities are put into broad categories, so if you're larger than a certain size of population, you get a certain amount of money. It's larger per person if you're in a bigger city. The expectation there is that the demands are larger on larger centres, so more money is going to flow there.

Hamilton is over the threshold, and London is just under the threshold. Hamilton is one category and we're in the other category. Hamilton has, let's say, 550,000, and we have almost 400,000. Frankly, our needs are not that different, and they get 10 times as much money. There's a bit of inequity there in terms of how it's designed, and if it was per capita it would be more fair.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Thank you, Mr. Helmer.

Mr. Fisher, you talked about a number of needs in your presentation. Thank you for that. It was very clear. You also talked about the transportation system and about research and development. I will come back to the research and development issue with Mr. Baker afterwards.

You also talked about a qualified workforce. A qualified workforce is a demand or a need expressed throughout Canada. Every region has a lack of skilled labour in a number of sectors. Business owners are constantly telling us about how difficult it is to recruit qualified people. I just want you to explain what you meant by “mobile”.

Does it imply going to work far from home, being able to move or change provinces? For families with young children, for example, it is easier to obtain information than to be extremely mobile. What exactly do you mean by that?

[Mark Fisher]

Thank you for the question. It's a very good question.

When I talk about being mobile, I talk about it in three perspectives. One is mobility in Canada, and how we look at accreditation and certification of skilled labourers in Canada from province to province. That is an issue that in part can be addressed through the new Canada free trade agreement. At least, that's where it needs to be discussed.

The second component is very much a Canada-U.S. cross-border mobility issue. For a long time, upwards of 4,000 nurses from Windsor and southwestern Ontario have been commuting across the border every day to work in Detroit and Michigan hospitals. They're a unique class of professional in having that accreditation that enables them to move seamlessly across the border. We need to be doing more of that. If there's high demand in Buffalo or in the greater horseshoe around Toronto for plumbers, welders, pipefitters—you name it— there's no reason we can't be serving each other's economies better by having that skilled labour force moving across the border.

Thirdly, there's the global dimension. As global trade becomes more borderless, so does mobility in terms of people seeking out medium- and long-term work. When we look at the Canada-EU trade agreement or the trans-Pacific partnership agreement, mobility is going to be a key element of looking at our competitive advantage in the long term. It's about how we attract global professionals to work in Canada, but also how we look at Canadians whose talent and services we want to export around the world. There are really three parts to that mobility question.

[The Chair, Liberal, Wayne Easter]

Thank you.

You had a question for Mr. Baker as well, did you?

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Yes, Mr. Chair.

We were talking about not losing entrepreneurs to the United States or other countries.

Mr. Baker, applied and basic research is underfunded in Canada, as indicated in the Naylor report. Are you also worried about Canada losing researchers, scientists and young minds who will go work in the United States because laboratories here are closing or are underfunded?

[Dr. Robert Baker]

Absolutely, there's just no question that when many of our best students leave, the States looks better. There's often better research funding and more opportunities for them there. We lose people.

I just came back from Silicon Valley a while ago, and I met with the Canadian Club at Stanford University. I met an awful lot of graduate students from Canada, and I was asking them if they wanted to come back. Virtually every one of them said they'd love to come back, but we don't have the opportunities in Canada. Yes, it's a big problem.

[The Chair, Liberal, Wayne Easter]

If I can come in, what does it take to change that?

[Dr. Robert Baker]

The development of more of an innovation economy and entrepreneurship across all of Canada. One of the things we're trying to do with our students, partly because of demand from students, is more entrepreneurship training and business skills.

[The Chair, Liberal, Wayne Easter]

Thank you.

Go ahead, Mr. Grewal.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Chair.

I want to start with Mr. Fisher. You spoke about the importance of NAFTA. I don't think anybody at this table across partisan lines is going to disagree with how important NAFTA is to the Canadian economy. Obviously, everybody at the table also agrees on how challenging the negotiations have been thus far, and probably will be in the next year or so.

You spoke about its modernization. Can you give me three points you think the Government of Canada should focus on to ensure that this deal benefits the Canadian economy and people?

[Mark Fisher]

You'd like three points. That's a tough one.

[Raj Grewal, Liberal, Brampton East, ON]

It doesn't have to be limited to three points.

[Mark Fisher]

In no order of preference or priority, as we move to that innovation economy and we are looking at the movement and storage of data, data localization is increasingly going to be an important issue for both the Canadian and the U.S. economies. I think we have to be open to unique possibilities around what that would look like in a trade agreement.

Obviously IP is attached to that in many ways in terms of how we support innovation and entrepreneurship. What we see often is co-creation of IP, particularly in multinational companies and universities, which are increasingly shared, so thinking about modernized approaches to IP will be important.

Beyond the innovation ecosystems that we share in regions like the Great Lakes and the ways in which we support those, we need to continue to move forward on regulatory alignment and look at unique ways of finding opportunities to align the enforcement and the inspection of how we regulate. I think doing that will be an easy win. It wasn't in the original NAFTA; it should be in a modernized NAFTA in terms of institutionalizing the way that we look at regulations.

Freeing up the border is a constant struggle in terms of security versus trade facilitation. The bottom line is that this region is responsible for roughly 50% of the total value of goods that cross the border between the United States and Canada every single year. We have to get the security and the trade facilitation right. I think developing a smart border and using technology, including single-window systems, will ultimately help enable that future.

The new pre-clearance agreement that was signed by the two governments a couple of years ago, as well as an examination of the way we pre-inspect goods coming into North America, Canada, and the U.S. together, will help free up that border.

I would say that those are probably the three biggest challenges we face, outside of what I mentioned in terms of how we deal with labour. The categories of labour in NAFTA are woefully outdated, as you know. Jobs that exist today were never even contemplated when NAFTA was written, nor was the service economy, so we need to update the labour chapter in NAFTA to reflect the nature of work today, and we also need to look at the mobility piece. If we could look at having enhanced mobility across the border, I think we'd be doing ourselves a major favour in terms of supporting competitive growth, which is missing in the region.

[Raj Grewal, Liberal, Brampton East, ON]

Would both recommendations apply to Mexico? It seemed as though your testimony was really based on a Canada-U.S. relationship, but Mexico is important, especially when it comes to the auto industry. It's essential to ensure that there's a clean flow between all three countries.

[Mark Fisher]

I would say that it applies very equally to Mexico. I would be the first to say that most people have an outdated view of Mexico. Before I took on this job, I was the lead adviser for North America for the Privy Council Office, and it was astonishing to me how outdated people's views are on Mexico. It is an up-and-coming economy. There are going to be 30 million new customers in Mexico in the not-too-distance future. They are a skilled economy. They use high technology.

Are there issues around labour and wages? Absolutely, and they need to be addressed. Are there issues around the environment and environmental standards? Absolutely, and they need to be addressed. I think there's talk of doing that in a modernized NAFTA, but no one should think for a minute that Mexico is some backwater economy. They have more trade agreements than the United States does. All those modernization issues equally apply to Mexico. There are definitely some more things we need to do to get Mexico up to par, but they are a thriving economy. We need to think about Canada and the U.S. and how the Great Lakes fit within that, but the Great Lakes region is equally connected to Mexico, and we need to take advantage of that.

[Raj Grewal, Liberal, Brampton East, ON]

How would you say our government could ensure that we maintain our competitive advantage in the region, especially with rumours down south of a major corporate tax reduction rate coming forward from this administration? How can we ensure that if we modernize NAFTA, we'll keep our corporations here in Canada and they won't get up and move to the States to take advantage of that 15%?

[Mark Fisher]

I think it's positive news that they seem to have moved away from a border adjustment tax. That's a good thing. You never know in the U.S. system whether or not it will be brought back, but for now there's less talk of a border adjustment tax.

In terms of domestic tax policy, obviously it's something that as a government we need to consider because of the interconnected nature of our economies and what the tax structures will mean for multinational businesses as well as for small businesses that are looking to scale and grow and export or import. I think we have to keep a watchful eye on where that conversation ends up.

I also think that in terms of our own approach to taxation, we've been very competitive on reducing taxes for machinery and equipment. We need to continue to find unique ways of doing that. We need to find unique ways of providing credit to and recognition of large companies like 3M that invest heavily in R and D, and we need to figure out how to use tax credits to attract foreign direct investment.

I think we're doing okay. Obviously there are some challenging conversations today about taxation, but I don't think it's all bad. We just need to keep a watchful eye on what the U.S. is doing and continue to innovate in terms of that tax policy structure.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Fisher.

To the chamber of commerce, thank you so much for your testimony. I sense the frustration, from your voice and from your testimony, on the uncertainty of the tax proposals. I've said the same to other panels. When it comes to government consulting with stakeholders and its citizens, there's a balance there. This is especially when it comes to tax policy. Even if you put forward an idea that's intended for legislation or that's just to get feedback from the Canadian public, it's inevitable that if it's tax policy or any finance measure, there will be a level of uncertainty created. However, there is also the balance there that good policy is created in this country when you get feedback from businesses, chambers of commerce, and Canadians from coast to coast to coast.

At the finance committee we've had a unique three months on the finance proposals. We've heard some great ideas. I think the government is taking them back and ensuring that we get to a fair balance when it comes to putting these proposals forward. Your voice is being heard. Democracy works best when you participate in the process, so I want to thank you for your comments.

That's it for me, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

You're over time anyway, so that's good.

Before I turn to Mr. Kmiec, perhaps I can ask a question of 3M.

How do we stack up? You mentioned that we're now in 14th place on highest tax burden. How do we compare with the United States?

Second, you mentioned the commercialization of international property and what the Barton report said. There's no question that we're great innovators but terrible commercializers in this country. How do we go about getting there? What do we have to do to get to that comparable position with some other countries on the patent box?

[Nicole Rayner, Senior Manager, Taxation , 3M Company Canada]

Unfortunately, I don't have the study in front of me to tell you where we rank with the U.S. Obviously our corporate tax rate is lower.

As to how we keep innovation, attract innovation, and attract new manufacturing through the patent box, first, does everyone understand what the patent box does? Yes? Not sure? Okay.

The patent box is a tax regime that applies a preferential tax rate, obviously a lower tax rate, to taxable income earned from the sale of property that includes an intellectual property component. That intellectual property component was either developed in Canada and licensed exclusively for use in Canada or else acquired by a Canadian company. This IP could be a patent. We call it a patent box, but it doesn't always have to be a patent. It could also be a copyright that relates to computer programming code. It could be trade secrets. In certain cases it could be plant breeder rights.

The patent box is used in over 12 countries already, and, as we mentioned, in Quebec and Saskatchewan, but not one jurisdiction uses it in exactly the same way. They tailor it to meet the needs of their country. Our recommendation is that we implement a patent box model such that.... 3M Canada does not own the R and D that we are developing here in Canada. It is owned by our parent, which is a regular situation with multinationals, but we would be licensing it back. If we can put forth an argument that we should be charged a lower tax rate if we manufacture and commercialize that IP, it makes Canada more competitive when 3M is making the decisions about where their manufacturing mandates will be located around the globe.

[The Chair, Liberal, Wayne Easter]

Okay.

We'll go to Mr. Baker and then Mr. Fisher on this one.

[Dr. Robert Baker]

On this concept that we're good innovators but not good at commercializing, we certainly believe that's very true.

There are two other points I'd like to bring up that we discuss in universities an awful lot. One is the procurement of devices and infrastructure that are made by our innovators. One of the great difficulties, of course, is they're not going to ramp up their profits or their sales internationally if the various provinces and the federal government don't bother to support them. If they don't buy it out of Canada, why would we invest it in another place? I would like to see some kind of policy that would lead to better procurement of IP that's generated at home.

The other issue we see—and perhaps this is peculiar to McMaster, because of its strength in medical research—is that there are a number of government programs that support the development of IP and commercialization. Many of these programs, however, are too short in duration for that to come to fulfillment. If you think about putting anything in a person's body—drugs, devices, or anything like that—there is an incredible range of analysis and hoops and jumps that you have to go through, particularly for things like clinical trials. These take years and years and many millions of dollars to do. Frequently it takes more than five years to run through all the clinical trials that are needed. By that time, the funding has run out and there's no place to go when the project fails.

Many of my colleagues in medicine say we need something like a seven-year runway on some of these programs before we can really figure out whether something is going to work or not. Five years is just too short.

As a contrast with other technical things, if someone is developing an app or a small technical thing in their basement, sure, five years is great, but in the more complicated things, you need more time.