Finance Committee on Sept. 18th, 2018

[The Chair, Liberal, Wayne Easter]

I call the meeting to order.

Thank you all for coming. Thank you to the witnesses. Welcome back for the fall session and the beginning of our pre-budget consultations for budget 2019.

There are some new members here as well, so there is a little different makeup to the committee. We will have a busy five weeks as we hear from a pretty intensive assembly of witnesses in 10 cities and then get to finalizing our report.

I'd like to welcome the first group of witnesses. We're operating under Standing Order 83.1, pre-budget consultations in advance of the 2019 budget. I know all of the witnesses here have presented submissions, which the committee members have. You will see them looking at your briefs as we go through your presentations.

Welcome again, witnesses. We'll start with the Association of Equipment Manufacturers.

Mr. Mains, go ahead. Welcome.

[Howard Mains, Canadian Public Policy Advisor, Association of Equipment Manufacturers]

Good morning. Thank you, Mr. Chair and members of the committee, for providing the Association of Equipment Manufacturers the opportunity to address you this morning.

The Association of Equipment Manufacturers—AEM—represents companies that manufacture equipment and provide services for the agricultural, construction, forestry, mining and utilities sectors. I tried to count the number of different member companies' equipment pieces represented at the door this morning, but there were quite a few pieces of equipment.

Members include highly successful Canadian companies, such as MacDon and Buhler of Winnipeg, Skyjack and Sellick Equipment of Ontario, Liftking of Vaughan-Woodbridge, DY Concrete Pumps of Calgary Shepard, and Rayco-Wylie of Louis-Hébert. Global companies such as Caterpillar and John Deere are also members. AEM members directly employ some 64,000 Canadians and contribute about $34 billion annually to the economy. They continue to grow and employ more Canadians, such as with Sellick Equipment's new manufacturing facility that opened in Essex County about 10 months ago.

Allow me to touch on three things this morning: the importance of international trade to AEM members, tax measures affecting farm families and small business owners who invest in new equipment, and access to rural broadband.

AEM members operate and export globally, whether they're a small Canadian niche player or a global company. Therefore, international trade and continued regulatory alignment between Canada and the United States is a priority for AEM members.

AEM is a strong supporter of NAFTA and is advocating for a modernized agreement in both the United States and Canada. AEM members continue to spearhead efforts to discourage tariffs that will harm not only manufacturers but their customers: Canadian farmers and small business owners, as well as large business owners. It is of vital importance that construction and farm equipment work seamlessly across the Canadian-American border and that our domestic manufacturers are able to freely export products to other markets.

I'll turn to the need to modernize Canada's tax codes.

The tax treatment for those investing in new farm and construction equipment should be modernized so that it is better aligned with United States tax depreciation rates. Recent changes to U.S. tax treatment of depreciation on capital investment in construction, mining, forestry, and agricultural equipment places Canadian farm families and small business owners at a competitive disadvantage. I understand others will be speaking to this.

We urge the federal government to increase capital cost allowance rates to allow equipment buyers to more rapidly depreciate their investments in new capital equipment. Faster replacement of old equipment increases productivity and profitability, while at the same time providing significant environmental benefits with cleaner, more fuel-efficient engine technologies, and it also improves operator safety, given the new standards. AEM is aligned with others in the agricultural sector, such as the Canadian Federation of Agriculture, in calling for the Canadian government to introduce 100% first-year deductibility for investments in farm equipment.

Another challenge facing manufacturers is access and use of the scientific research and experimental development tax incentive program. This federal tax incentive is designed to encourage Canadian businesses to conduct research and development in Canada. While supportive of the policy goal, few AEM members use the program because the submission process is overly difficult and cumbersome. The cost-effectiveness of the program has been diminished because of the administrative burden placed on applicants. Our recommendation is that the Canada Revenue Agency should be encouraged to root out the problems that discourage companies from using this program.

I'll turn now to rural broadband.

Canada’s agricultural competitiveness depends on increased and enhanced broadband services to rural communities. For Canadian innovation in farming to take root, Canadian farm families need access to broadband in rural and remote parts of the country.

Today rural broadband deployment across the country does not meet the need of the high data transmission requirements of precision agriculture and other data-rich services deployed by farmers. Just this month, CBC News reported on Ontario farmers facing steep economic and financial difficulty because of poor access to broadband services.

In April of this year, the Standing Committee on Industry, Science and Technology published a report on this subject and called for Innovation, Science and Economic Development Canada to develop a comprehensive rural broadband strategy in collaboration with key stakeholders.

AEM supports these recommendations and joins other agricultural associations, such as the Ontario Federation of Agriculture, in calling for increased funding for broadband Internet expansion in rural and remote areas.

Now as we enter the next phase of farming, which is often referred to as “Farming 3.0”, precision agriculture, big data and artificial intelligence will be critical and revolutionary. Recently, AEM commissioned a study analyzing the future trends of agriculture over the next 10 to 25 years. Technologies such as satellite image analysis, in-field monitoring, real-time soil testing, plant-by-plant analysis, robots and predictive analytics will be at the core of Farming 3.0. As Canadian farmers become more digitally advanced, data will be at the centre of the farm as these tools become more commonplace. In this context, the government should continue to support technological development and innovation, and rural broadband is a key tool for Canadian farm families to be globally competitive.

In closing, thank you for considering AEM's submission and recommendations, and we look forward to your questions.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Mains, especially for sticking to the topic of ensuring competitiveness.

With the Canadian Chamber of Commerce, we have Mr. Stratton.

[Trevin Stratton, Chief Economist, Canadian Chamber of Commerce]

Thank you, Mr. Chair and members of the committee. I am very pleased to be here today.

The Canadian economy is facing some incredible challenges these days. Over the past year, the confluence of trade uncertainty, regulatory complexity and the tax burden have impacted the competitiveness of our businesses and our economy. In 2017, Canadian foreign direct investment hit its lowest level since 2010. Cross-border mergers and acquisitions generated a net withdrawal of funds for the first time since 2007. Compared to a year ago, more than two-thirds of business leaders view Canada as a less competitive place to invest and do business than the United States.

In my work at the Canadian Chamber of Commerce, I get to hear from businesses of all sizes in all sectors of the economy and in all parts of the country. What I'm increasingly hearing from our members is that there is an urgent need to reduce the cost of doing business in this country to make Canada more competitive, help attract investment and keep companies here. In a changing economic landscape, Canada must implement pro-growth strategies to scale our businesses, encourage investment and protect our economic interests and prosperity.

The Canadian Chamber's message to governments at all levels is simple: this is a time for us to be laser-focused on ensuring our businesses can compete and win at home and abroad. If we want the resources to create a more inclusive economy, we must tackle the problems that sap our competitiveness and hurt those very businesses we count upon to create wealth and economic opportunity.

To achieve this, to help Canadian businesses thrive in an increasingly competitive global economy, the Canadian Chamber recommends the federal government concentrate on five key areas in its 2019 budget: international trade, regulation, taxes, innovation and human resources.

A good place to start—

[The Chair, Liberal, Wayne Easter]

I'll get you to just slow down a little bit for the translators.

[Dr. Trevin Stratton]

A good place to start is concluding a modernized NAFTA at the earliest possible opportunity to defend Canadian export interests. At the same time, Canada urgently needs to diversify its export markets to facilitate the movement of products, services and people more quickly, reliably and cheaply to key markets in the world.

As Canada continues to make the case for freer trade among nations around the world, it is important we not forget there are still too many barriers to trade within Canada. Our complex network of overlapping regulations from all levels of government creates a costly and uncertain environment for business. Regulatory reform is a low-cost way to improve Canada's long-term economic growth and its competitiveness.

Tax policy is another area where Canadian competitiveness is rapidly eroding. Canada's corporate income tax rate is now higher than both the U.S. and the OECD average, and Canada lags behind G7 countries, the U.K., the U.S. and France.

A comprehensive review of our cumbersome and inefficient tax system is needed. With sufficient political will, Canada can create an internationally competitive tax system that rewards entrepreneurship and encourages investment in the technologies, skills and capacity businesses need to grow. Exploring innovative tax solutions, such as implementing accelerated capital cost allowance, can also have an immediate impact on our business investment.

A highly competitive venture capital industry can also incentivize investments in technology companies and start-ups, including SMEs, through tax credits and exemptions.

In an increasingly innovative economy, Canada should focus on implementing digital infrastructure policies that facilitate the deployment of new technologies, patented inventions, intellectual properties and innovative processes.

Canada needs to know what skills are in demand so we can train our young people and bring in the people we need for the industries of today and the future. Our members have repeatedly told us skills gaps and the challenges of finding the right workers are some of the biggest issues they face. They need the right people at the right time in the right place. This means building and keeping talent at home as well as attracting the best and brightest from around the world.

Let me conclude with the following: There is no greater priority today than improving Canada's competitiveness. Simply put, competitive companies are profitable companies. When businesses are profitable, they grow. When they grow, they invest in new technologies, new processes and new products. They retrain their employees and they hire new staff. That's good for business, good for government and good for Canada.

Thank you for the opportunity to meet with you this morning.

I look forward to our discussion.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Stratton.

We'll turn to the Canadian Federation of Independent Business, represented by Mr. Kelly, president and CEO.

Welcome.

[Daniel Kelly, President and Chief Executive Officer, Canadian Federation of Independent Business]

Good morning.

Thank you so much for seeing us this morning. We're happy to be here.

We have several ideas that we wanted to share with you for the 2019 budget, of course, and for the election platforms that your respective parties will be putting together. We want to start by talking about some of the challenges that small and medium-sized firms, our members, are facing in Canada right now.

Obviously trade is a big worry for many of our members. We have looming ahead in January five straight years of Canada Pension Plan premium increases facing every employer in the country, reducing payroll budgets for every small business in the country. On the positive side, we do recognize last week's idea that employment insurance rates are going to come down next year. I do want to add that employment insurance rates are going to go down by about 5¢ per $100 of payroll for small firms' employers, whereas CPP rates next year are going to go up by 15¢ per $100 per employer, so the net effect on payroll taxes is still a negative one.

We had, of course, the uncertainty created by last year's round of small business tax changes, new carbon taxes coming into effect, or higher rates in several provinces, and of course a growing shortage of labour facing small and medium-sized firms.

In terms of what we're asking your committee and government and political parties to focus on, we have several ideas.

Our biggest worry right now, of course, on the tax front is what's happening with respect to CPP premiums in the months ahead. We believe there are two ways that government can help address the burden of Canada Pension Plan premiums. One of them would be to implement a permanently lower rate for small and medium-sized firms under employment insurance rules. As you know, in the case of corporate taxes, you pay a lower rate under $500,000. We suggest that you could establish a permanently lower rate of employment insurance—under, say, $500,000 in payroll—at which the level would be that of the employee.

Another way to do that would be to resurrect the Liberals' election commitment to implement an EI holiday for hiring young people. The 2015 election platform of the Liberal Party included a commitment to allow employers not to pay employment insurance premiums when they hire a young person between the ages of 18 and 24 for three straight years. Unfortunately, that election commitment was ditched in the 2016 budget.

Looking at competitiveness with the U.S., I do want to underscore the recommendation that was made a moment ago by the Association of Equipment Manufacturers. We believe the time is right to implement a full cost deduction for investments in business equipment and productivity-enhancing tools. This was started under the Obama administration at $500,000; you could deduct that amount in your very first year. The Trump administration has raised that to $1 million, and we don't have a similar measure in Canada. We think the time has come to do this. The nice thing for the finance committee is that small and medium-sized firms, I think, would benefit and be optimistic if you were to implement a multi-year plan to get there. It doesn't have to cost the treasury massive amounts of money in its first year. You could implement a plan, and then raise that threshold, as has happened in the United States.

When I look back at the small business tax changes last year, I don't think I would be helping the committee if I were hiding the fact that the anger level among small and medium-sized firms with respect to the measures, with respect to the government's actions on that front, remains extremely high. Yes, we are pleased the rate is coming down, but you're going to see another round of heat over this issue when the audits of the 2018 tax year kick in because of the new rules around splitting income with family members. I would say most businesses in Canada have taken no action to address the new rules and there will be thousands and thousands of small firms that will be caught outside of the rules on audit, not because they're trying to skirt their tax obligations but because these new rules gave them no time to factor them into their business decisions.

On that front, we are recommending the new rules be delayed, that you indicate to the CRA to give 2018 as a year of grace for small firms to catch up with the new rules to avoid these audits that we expect to start very soon.

On the passive investment front, we are pleased that there were some modifications made in the 2018 budget, but again it's created a new group of losers, sadly, as a result of passive investments. We're hearing from firms that have saved up passive investments from the past and were told by the finance minister that they were going to be grandfathered. Unfortunately, now that is not the case, and we will be seeing higher taxes for many of those firms. Unfortunately, that is not the case now, and we will be seeing higher taxes for many of those firms. A member of ours in Newfoundland and Labrador has estimated that he will pay $80,000 a year more in taxes as a result.

We are also asking you to consider a full exemption for spouses. I wrote a column in today's National Post about the importance of the spouse in a business environment, and we do believe there are some possible relief measures there.

We're pleased to see some progress on the regulatory reform front, both interprovincially and at the federal level, with respect to lowering the red tape burden. We have some recommendations in our deck. I won't dwell on those.

As has been noted by Trevin, we do see the shortage of labour ticking up in Canada. We have a couple of ideas there: implementing a training tax credit or a pathway to permanent residency for temporary foreign workers to ensure that they can provide some relief to the economy on that front.

Last, we are deeply worried about the state of debt and deficits. Small and medium-sized firms know that today's deficits are tomorrow's taxes. We implore you to introduce a multi-year plan to tackle Canada's growing deficit and debt problems.

On an optimistic note, the last thing I will raise, hoping the committee comes in behind the government initiative, is that one of the few elements of the 2017 small business tax reform package that we like was the concept that you would allow small and medium-sized firms to sell their businesses to the next generation without getting clobbered with a whole bunch of new taxes. That has been a problem for some time. There was some hope that this might happen as a result of the 2017 tax package. Emmanuel Dubourg, a Liberal member, and Guy Caron from the NDP have both put forward private member's bills; we ask you to look at the inspiration behind these bills and put something together as a recommendation from the finance committee in the months ahead.

I have lots of other recommendations, but I'll conclude with that. Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much.

We'll turn to the Canadian Home Builders' Association and Kevin Lee, the CEO. Welcome.

[Kevin Lee, Chief Executive Officer, Canadian Home Builders' Association]

Thank you.

As you've mentioned, the theme of this year's pre-budget consultations revolves around enhancing Canada's competitiveness. The quality of life offered by Canadian communities, frequently rated as among the highest in the world, is a competitive advantage, and it's closely tied to the reasonable prospect of owning your own home. Canada's enviable quality of life contributes directly and substantially to our nation's desirability and our ability to attract and retain the world's best and brightest.

This national competitive advantage is under threat. Due to declining affordability and mortgage rule changes, the rate of home ownership in Canada is falling, a particular problem for younger Canadian families and new Canadians. With the dream of home ownership in decline, so too is the desirability of our Canadian communities and our country as a destination.

In a recent CHBA national survey, three of four Canadians polled said that owning a home is a hallmark of being middle class, yet three-quarters of those polled think that with the way things are going, only the rich will be able to own a home in the future, and 81% see today's housing affordability problem as a potential failing of Canada's socio-economic system.

Canadians expect governments to do better. Only one in 10 Canadians thinks governments at any level are doing a good job of addressing the problem. They are looking to government to provide the solution. Two in three Canadians think that younger and new Canadians should be given more flexibility when it comes to buying their first home.

The federal government can address this issue without creating undue risk in the financial system or fuelling home price increases. It can expand the home buyers' plan, back innovative financing tools such as shared-appreciation mortgages, and even return to 30-year mortgages for well-qualified first-time buyers seeking entry-level homes.

Rapid action is needed to protect home ownership, one of Canada's most compelling economic strengths, and its close tie to our quality of life.

In addition to improving access to home ownership via smart mortgage rules, the government can improve the competitiveness of Canada's communities through authoritative data and analysis.

In addressing its concerns over rising debt and housing price acceleration, the government has largely focused on measures that constrain demand. These measures have made it more difficult to become a homeowner, making Canadian communities less attractive, but tighter mortgage rules overlook the primary driver of home price increases in our larger urban centres: a prolonged and significant shortage of housing supply and ever-increasing development taxes.

The chronic shortage of more modest and affordable family-friendly, ground-oriented homes in our largest cities results mainly from public policy. A lack of serviced land coupled with complex regulatory processes make it impossible to respond to market demand. The result is higher home prices, too many buyers, and too few homes.

The federal government needs to support research to quantify how provincial and local zoning, regulations, processes and approval times affect housing supply; to ascertain how well cities are doing in these areas; and to identify best practices. This research can provide the necessary objective reporting that governments need to properly recognize the challenge, identify the issues and develop effective policies and solutions to truly address affordability to make our cities more competitive.

It is also time to make housing affordability a building code objective. CHBA is a strong supporter of the national building code, which is developed via a rigorous, open and evidence-based process, and Canada is widely regarded as having one of the best building code systems in the world.

Currently, however, the system is under stress, as an unprecedented number of changes are contemplated. Governments are seeking solutions to key policy issues like climate change adaptation and mitigation, accessibility, and more through regulation. However, there is a real danger that an accelerated pace of change without simultaneously providing affordable solutions will further impair housing affordability, adding many tens of thousands of dollars to the price of every new home.

The government should therefore ensure that affordability is a clear objective when code changes are considered. Currently costs may be looked at, but affordability is not a code objective in and of itself. We have reached a point where it needs to be.

Finally, to truly address climate change in housing, the government can enhance competitiveness not through excessive regulation but through an energy retrofit tax credit.

Within the government's aggressive climate change goals there has been excessive emphasis on what could be very costly changes to the building code, yet new housing is very efficient and will continue to get even better, as it has for decades, on a voluntary basis. However, the old existing housing stock on average is very inefficient and holds a great deal of potential for cost-effective improvement through retrofits.

Through an energy retrofit tax credit based on use of the EnerGuide rating system, Canadians would improve the energy efficiency of their homes, benefiting themselves, the economy and national competitiveness.

It is also important to note that a tax credit need not simply be a cost to the government either. CHBA analysis has shown that much of the cost of such a program is recovered through a conversion of underground-economy cash jobs to tax-revenue-generated above board jobs.

Thank you very much. I look forward to answering any questions you may have.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Kevin.

Turning then to the Canadian Housing and Renewal Association, we have Mr. Morrison, executive director.

Welcome, Jeff.

[Jeff Morrison, Executive Director, Canadian Housing and Renewal Association]

Thank you, Mr. Chair.

Good morning to you all, and thank you for the invitation to appear before this first panel of the committee.

As some of you may know, CHRA represents the social, non-profit, and affordable housing sector in Canada.

What we are talking about in these public hearings is competitiveness. Unless everyone living in Canada, regardless of their economic status, has access to safe and affordable housing, there can be no competitiveness. People cannot be competitive if they do not have a roof over their heads. Housing is such a fundamental part of the economy and of a functional society that it cannot be overlooked in budget policy.

In November 2017, the federal government made a major stride forward in supporting housing for low-income people with the release of the national housing strategy. The strategy contains a number of measures designed to protect and expand the affordable housing sector in Canada. Although CHRA welcomed the strategy and we worked very closely with the federal government in its development, the fact is that there remained barriers and gaps both within and outside of the strategy, preventing people from accessing safe and affordable housing. I'll identify four such gaps.

First, the most glaring gap in the NHS was the lack of an indigenous housing strategy.

The NHS did commit to work with first nations, Métis, and Inuit to develop three distinctions-based housing strategies, and we expect those three strategies to be unveiled this fall. However, there has been no commitment to developing a housing strategy for the 87% of indigenous peoples living in urban, rural and northern settings. The fact is that indigenous peoples living in urban and rural centres face core housing needs and homelessness at much higher levels than the non-indigenous population.

CHRA's indigenous housing caucus has developed proposals for the content, structure and governance of an urban, rural and northern indigenous housing strategy. We'd be happy to share copies of that with the committee.

Second, one of the measures contained in the national housing strategy was an extension of the federal lands initiative. This program transfers surplus federal lands and properties to housing providers to encourage affordable housing development. Under the NHS, its budget was increased to $200 million over 10 years, up from $2 million per year. Although a tenfold increase is, of course, welcome, an average of just $20 million a year remains insufficient.

Furthermore, many communities in Canada, particularly smaller communities, simply don't have federal lands or buildings to be transferred. CHRA is calling on the federal lands initiative to be expanded, and for its mandate to be expanded, so as to allow the program to acquire surplus provincial, municipal or even private lands and buildings, which could then be transferred to affordable housing providers.

Third, as part of the National Housing Strategy, a new program was announced, the Federal Community Housing Initiative, which will extend rent subsidies until 2027 for housing providers whose operating agreements end before then. This is an important program, but we are concerned about how it might work. According to certain CMHC proposals, providers whose operating agreements end after 2020 will not automatically have their funding extended. They will have to apply and demonstrate that they will be self-sufficient before 2027.

Self-sufficiency will simply not be possible for all housing providers, particularly those providers who serve the most vulnerable and low-income tenants. As a result, CHRA is asking that all housing providers currently under federal operating agreements be grandfathered into the new program and that there be assurances from the federal government that there will be a continuation of federal operating subsidies to housing providers beyond the 10-year window envisioned in the housing strategy.

Lastly, the NHS contained a new program, the national co-investment fund, that will invest up to $16 billion over 10 years to renew and repair existing housing and build up to 60,000 new units of affordable housing. Again, although 60,000 new units are most welcome, over 10 years that only averages out to about 6,000 units per year. Of course, as you all know, the demand for affordable housing greatly exceeds this number.

As an example, in the city of Toronto, the wait-list for affordable housing is well over 82,000. In Montreal, it's well over 25,000.

We need new policy tools and proposals to improve the affordable housing available. There are funding and operations management models, both locally and internationally, that we can consider. We would be pleased to discuss these models with the members of the committee.

Mr. Chair, again we appreciate that the federal government is once again taking leadership in affordable housing through the national housing strategy, but even with this strategy, there remain gaps and improvements that can be made to federal policy to stimulate greater affordable housing capacity, which leads to greater competitiveness for all Canadians.

We look forward to working with you to address those gaps.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you, Jeff.

Turning now to the Intellectual Property Institute of Canada, we have Mr. Lynds, president.

[Grant Lynds, Council President, Intellectual Property Institute of Canada]

Thank you, Mr. Chair and members.

As mentioned, my name is Grant Lynds. I'm the president of the Intellectual Property Institute of Canada, frequently referred to as IPIC.

Thank you for inviting IPIC to present to you our recommendations for budget 2019 and to answer any questions that you may have about our recommendations.

As you may know, IPIC is the Canadian professional association of patent agents, trademarks agents and lawyers practising in the area of intellectual property.

As this government continues to take steps to support Canadian innovation and economic growth, we believe that our membership is uniquely positioned to help support the government’s objectives. Our members help protect investments in innovation that businesses of all sizes make, thereby forming the backbone of this country’s innovative industry.

IPIC was also excited to hear that this committee has chosen to focus the theme for the pre-budget consultations on how to ensure Canada’s competitiveness. I’ve often been asked over the past few months, especially over the summer, for my thoughts and impressions on the national IP strategy. I always start by providing credit to Minister Bains and other members of government for recognizing the importance of IP to every stage in the life cycle of a business’s growth, and therefore its importance to Canada’s economic growth.

Quite frankly, our members are extremely excited that we have a national IP strategy. It's the core of what we do every day, and to have it enshrined in a strategy makes us very excited. They see their ambitions and their clients' work product to be a part of the government's agenda.

I'm also sometimes asked if there's anything I believe is missing from that national IP strategy. In response, I usually say that the strategy is missing what we would call financial policy incentives to encourage Canadian businesses to develop, protect and commercialize their IP.

In last year’s Standing Committee on Finance report in preparation for budget 2018, the committee recommended that the government create an incentive for businesses to protect their IP by creating a first patent program with a design that is similar to that launched by the Government of Quebec provincially. This program would assist with the expenses incurred by small and medium-sized businesses when obtaining their first patent.

The committee also recommended last year that the government establish incentives for IP development and commercialization through a commercialization coupon for researchers receiving federal grants, as well as an innovation box tax incentive for business revenue derived from commercialization of the IP. The expression “innovation box” or “IP box” that you've likely heard comes from a check box on tax forms to identify revenues derived from exploiting or leveraging intellectual property and applying a reduced tax rate to that revenue.

These recommendations last year ultimately were not adopted in budget 2018, but we believe that the need still exists, now more than ever, and certainly aligns with that national IP strategy. In fact, there was one recommendation about the need to modernize the Canadian tax system to ensure it drives investment and innovation that came from this government’s advisory council on economic growth in the third report, I believe, in December of last year. That was titled “Investing in a Resilient Canadian Economy”. The statement there certainly recognized this advancement, stating:

While investing in physical capital such as factories and equipment once was the primary driver of economic growth, today it is intellectual capital that powers the economy. The value of intellectual property licensed in Canada, for example, has risen from $56 million 30 years ago to over $4.5 billion today—an 80-fold increase. Moreover, Canadian companies increasingly must compete with companies based anywhere in the world.

That report continued by recommending that Canada:

...introduce favourable tax treatment of intangible assets and intellectual property; put all sectors of the economy on a level playing field; maintain competitive corporate tax rates in the face of changing global conditions....

IPIC encourages this committee to once again call on the government in your report to create financial incentives for Canadian businesses to generate and protect their IP. Many countries around the world are starting to see success from introducing this type of IP box tax incentive, and Canada’s major trading partners are starting to notice.

As an example, just last year the United States introduced a new tax incentive, often referred to and called “patent box light”, as they lowered the corporate tax rate on foreign-derived income from licensing IP. It's sometimes called “patent box light” because the U.S. did not go as far on the IP box incentive as some jurisdictions, such as the United Kingdom.

We submit that this presents an opportunity for Canada to ensure our competitiveness by adopting an IP box tax regime in Canada that would be comparable to that of the United Kingdom, not focusing just on revenue derived from patents but also on other forms of intellectual property.

Therefore, our recommendation for the creation of an IP box tax incentive through budget 2019 is enshrined in our written submission.

The second recommendation focuses on what we call the “first patent”. This is really a recognition that we're recommending a rebate for small and medium-sized enterprises or businesses that are starting up to take that important first step of attaining patent protection.

Quebec launched its first patent program in 2015. It offers to eligible small and medium-sized businesses a subsidy on expenses related to obtaining their first patent, meaning they had not previously attained a patent. They want to encourage those SMEs to take that step and, if you will, get on the patent regime. The demand for that program was so great that the funds were quickly exhausted in less than a year.

Our submission is that a similar program at the federal level would allow Canadian start-ups and SMEs that are at the critical point of developing an invention but may not yet have the financial resources to do so to seek that patent protection. By protecting their inventions early and allocating their resources to the commercialization of their business, they will be better placed to establish their business and in the future improve their chances of scaling up their business and growing it both in the country and internationally.

In fact, as a patent and trademark agent and a lawyer practising in this area, I often consult with new clients who don't even recognize sometimes that what they're doing may be subject to patent protection and that they have the ability to seek that first patent. It is a real education when dealing with this, and a first patent program would certainly help those SMEs get on the patent program and learn what it takes to commit the resources, financial and otherwise, to get into the patent regime.

We recommend that the federal government create a first patent program through budget 2019.

In conclusion, our members certainly support the government's goals of pushing Canada forward to be leading innovators in today's competitive world economy. A recommendation of an IP box tax incentive would help spark innovation across the country through lower tax rates, with similar programs already offered at home in Quebec and Saskatchewan, as well as internationally—for example, in the United Kingdom.

Our recommendations on the first patent program would help the start-ups and SMEs protect their initial IP and give them the confidence and expertise to build an IP strategy within their core business plan.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Lynds.

We'll have to go to five-minute rounds for questions. We'll have Mr. Sorbara first and then Mr. Richards.

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

Thank you, Mr. Chair.

Welcome and good morning, everyone.

I think it's probably best, since we're beginning our pre-budget consultations, to discuss where we're at in our economy right now. Having read some of the data and read over Senior Deputy Governor Wilkins' speech from September 6, I'm just going to quote from the speech: “The Canadian economy is now on a solid footing....” I'll stop there.

Second, I quote:

...overall Canadian economic performance has been solid and broad-based. Growth has been running close to potential, the rate at which the economy can grow on a sustained basis without sparking too much inflation.

We're seeing growth now in the two batons that the Bank of Canada expected: exports and business investment are taking hold and driving GDP, so we're doing not too badly. I fully understand the need to always push forward and ensure that, we are doing everything we can be doing with reference to any sort of response to what the U.S. did at the beginning of the year.

Yesterday BMO put out this chart entitled “U.S. Fiscal Finances: Feel the Chill”, which recorded a deficit in the U.S. of 5% of their GDP. Our deficit is much lower than that. I believe it's less than 1%. I believe it's about 0.7%, maybe even a bit lower than that, when you think in terms of a $2.2 trillion economy. I know we need to be prudent, be measured, maintain our strong fiscal finances, and ensure that we are making real progress for middle-class Canadians. I think if you look at our record.... I've heard a lot of suggestions today in terms of what we should be doing. I think we do need to do things on the regulatory front, such as capital cost acceleration, but at the same time, I don't think we need to let our knees become weak.

Those are my comments. My question is first of all for the AEM.

You did mention my riding of Vaughan—Woodbridge, so naturally I have to start with you. In capital cost allowance, what would be the bump? Everybody's talking about it. I've had conversations with the chamber, with Perrin and all the folks, and everybody's talking about that one measure. How powerful would it be for what I would call the non-service side of the economy—they're still a service, but the non-service side of the economy—like your members?

[Howard Mains]

If I could turn to an example on the agricultural side, as anyone who has some agriculture in their constituencies would know, the equipment that farmers buy today is priced on a global basis. Their commodities that they sell are on a global basis as well, and the prices are set in Chicago for all intents and purposes. A Canadian farmer, when he's competing, is competing against his competitor, whether it be in Michigan or Iowa.

Now if a Canadian farmer buys a combine.... In August, I checked the statistics, and this year to date there have been 599 combines sold in Canada. Those combines typically run around $600,000—

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

I'm going to interject.

What we're really speaking to is looking at capital cost allowance, not only the rates but what's included—what items can and cannot be included in terms of being eligible for the rates or for the CCA.

[Howard Mains]

Right. I'm only using an example of a typical Canadian farmer—

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

Yes.

[Howard Mains]

—and we can extend that to other sectors.

With regard to a typical Canadian farmer who would buy a $600,000 combine, in the first five years they would be able to write off only 80% of the cost of that acquisition, whereas his competitor in the United States who's selling corn and soybeans at the same price, as set in Chicago, gets to write that off in year one. That competitiveness issue comes into play.

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

Thank you, sir. I do want to move on.

[The Chair, Liberal, Wayne Easter]

You have 30 seconds.

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

Kevin, very quickly, housing affordability is the biggest issue facing millennials in Canada.

Do you have recommendations?

[Kevin Lee]

We need to get more supply on track. We need to find ways to help them with down payments and we need to do something about the mortgage rules we have in place right now to recognize that first-time homebuyers are the lowest-risk group of people of all ages in terms of risk and default.

We really need to look at supply, at mortgage rules, and at making sure we don't pile more on in code costs.