Thank you, Mr. Chairman, and thank you to members of the committee for the invitation, and welcome to Halifax.
When appearing before previous iterations of this committee, I would have been ready to talk about the need for measures to ensure a stable and efficient housing finance system in Canada. I'm not going to do that today, because it is not immediately on our agenda, but it is in the air. If we can come back to that, then it would be a very good discussion to have.
I would like to address questions that were put to us in the context of pre-budget consultations quite directly.
The pre-budget consultations asked three questions: How should the federal government help Canadians generally—and the unemployed and indigenous peoples and so on—to maximize their contributions to economic growth? How do we help businesses in all regions and all sectors do the same? How do we ensure that urban, rural, and remote communities make their best contributions to growth? Those are really one question posed three different ways: how do we best boost growth?
We used to call this the productivity agenda. Now we call it the innovation agenda. That's okay; whatever we call it, the generic description remains. We perform best when government finances are stable; when Canadian's job rates aren't being swamped by government indebtedness; when taxes are low and stable, and do not stifle growth; and when our social supports are consistent and generous, but not so generous as to build dependence and complacency.
I'll add open markets for goods and services, and free flows of labour and capital, and I would read in everything that Ms. Pasher said about the importance of airports to trade, people, and goods. Free flows of labour and capital and free exchange rates permit competitive markets to do their work, and individual Canadians can steer their efforts to where our work is most valuable.
This points more than anything else to the value or the importance of trade, especially for the Atlantic economy, where access to markets is crucial. We have two pending trade deals, the Canada-European Union Comprehensive Economic and Trade Agreement and the trans-Pacific partnership. Each of these deals is at risk as they head into their respective ratification processes. Canadians and the government should be aggressively promoting them in every possible forum.
Trade is not only international; it is also domestic. Trade barriers across provinces are too common and too high. The Atlantic provinces are working collectively to harmonize and lower their barriers. Other provinces are making their own efforts. The federal government should aggressively support these initiatives, and it should use its jurisdictional powers to help them along and to lower the barriers that lie within the federal realm. This means a hard look at our agricultural and agrifood policies in particular. International and domestic restrictions on agricultural trade and supply management in Canada restrict growth and innovation across sectors and regions, and we can fix this.
When it comes to innovation and the innovation agenda, the most powerful tools rest firmly in the hands of the federal Department of Finance, and I am referring to the tax system. Canada has generous tax supports for research and development by way of generous deductions and credits, and even refundable credits. There are issues with the way we do it, such as favouring spending on labour as opposed to capital investment, which is needed for serious R and D, and favouring spending by small businesses as opposed to the larger or growing ones.
The biggest issue is that the supports we have are targeted on spending and on R and D, which is different from rewarding innovation. Innovation is what happens when ideas are adopted and commercialized in new ways.
We could do much better by rewarding innovation more than spending on R and D and by lowering the income tax rates applied to the fruits of innovation. The mechanism for doing so is known as the patent box, or the innovation box, and models exist in the U.K. and elsewhere in the EU.
The process is simple. Firms track the share of their incomes that can be traced to eligible intellectual property, such as patents, spending on R and D, and know-how. The income traced to eligible IP, intellectual property, has been taxed at a lower rate than other income.
Recently the provincial governments in Quebec and Saskatchewan put the innovation box squarely in their budget plans, and these are admirable initiatives. They would work even better if they were nested within a similar federal plan. A federal innovation box system would limit balkanization across provinces and across provincial tax systems. More to the point, it would strengthen Canada's international tax advantage and attract the most productive sort of foreign investment, namely spending on innovation, which generates spillovers that benefit all of us.
One key message is that there is a very short list of useful things that a federal budget can do, and supporting trade and innovation is firmly on that list.
With that, Mr. Chairman, I think my time is up, and I thank you very much for yours.