Thank you, Mr. Chairman.
Allow me to put in another Atlantic vote for an Energy East.
Good morning, Mr. Chairman. Good morning, all.
Thank you for inviting me today. This is my first visit to this session. I've testified often before this committee and others under prior forums. I see familiar faces and some new ones, and to everyone I say that it is an honour to appear at the first substantive meeting of a committee I have always held in high esteem.
To turn the tables, from the perspective of a witness, welcome to you and welcome all around. This is a very important committee in the parliamentary process.
Now to business. I think we're all aware of the economic and fiscal backdrop, so I won't spend time on it. Instead, I'll suggest a few budget-relevant items from the new government's platform, suggest some areas where more study is needed, and add some substantive suggestions, if I may.
Items that need further study include the notion of an infrastructure bank. The case for it depends on federal borrowing costs being lower than those of subsidiary governments, yet if the federal government is to be a responsible steward, it would have to lend on terms that reflect borrowing costs, plus the borrower's idiosyncratic risks. An infrastructure bank cannot make those risks disappear, and taxpayers would still bear them.
As to prioritizing infrastructure spending, the idea that interests rates are low, so what better time for governments to borrow to finance infrastructure spending, is simply a mirage. Potential projects must always be ranked in declining order of public and private investment—always. Infrastructure projects that improve private sector productivity and build jobs and incomes—for example, transport linkages—are the projects to be preferred; otherwise, we toss good money after bad.
To give an example, the new government's mandate favours public transit, and that might be great. Public transit helps people where congestion is an issue, but it does little for the rest of us, and nothing at all for moving goods or for the international trade and services on which Canada depends. Exhibit A for how to get this profoundly wrong is the disaster of the rail link from Union Station to Pearson Airport in Toronto. This is a predictable and predicted and unprintable financial disaster, and it could stretch into nine figures.
Shifting back to the new government's platform, one item is the maintenance of Income Tax Act provisions for labour-sponsored venture capital corporations. On innovation, businesses in Canada have a mixed record in turning ideas into growth. There are successes and failures. LSVCCs, the venture capital corps, have a clear record on the failure front. They have a financial record of value destruction and as an unproductive tax system subsidy, and alternatives should be sought.
Switching to the more positive side, the personal income tax system hasn't had a serious look in 16 years, and it has grown ornaments in dubious credits and benefits. A top-to-bottom examination of the personal tax system is well overdue.
The corporate tax system last got a serious look in 1997-1998, and that led to useful changes.
Canada's system of international tax got another look in 2008 by way of a federal advisory panel, on which I had the honour to serve. We got some good changes at that time, but there is more to do on the business and international tax front, so I'm looking for a fresh review with an eye to innovation.
There are things we can do that don't involve directly subsidizing R and D, a habit for which we have very little to show. I would rather see us use the tax system to encourage innovation, to encourage the adoption of new ideas by way of a reduced tax rate for business income when we adopt and commercialize intellectual property. What I'm talking about is known as the innovation box, or a patent box, and it taxes business income from innovation at a lower rate than otherwise. This approach is becoming more common among our western European competitors and is on the table in the U.S. Congress as of this past summer.
If I were allowed just two things in this budget, one would be a thorough tax system review, including a tax expenditure review, and the other would be a call for a proper evaluation of the case for an innovation box in Canada's corporate income tax system with an eye to generating the innovation that we say we seek.
With that, I think my time is up, and I thank you for yours.