Evidence of meeting #7 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was infrastructure.
A video is available from Parliament.
The Clerk
I'm sorry. The information was supposed to be displayed in both languages in each place.
Liberal
The Chair Liberal Wayne Easter
They were supposed to be up, Mr. Caron.
Okay, go ahead. You have your time.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Thank you very much.
Let me first turn to Mr. Schetagne.
I would like to follow up on the comments made by Ms. Raitt, who brought up an issue with research and development.
First of all, I must say that I am extremely impressed by an article by Barrie McKenna published last year in The Globe and Mail. That article stated that Canada is now an importer of research and development. That means that we are importing a lot more research and development products than we are exporting. This is the first time this has happened.
I don't think my colleague is wrong in saying that one of the problems with research and development, especially for the private sector, is the lack of entrepreneurship, and perhaps the fact that our companies are too risk-averse.
Furthermore, as you said, it is true that the government's contribution to universities and research has dropped over the past 10 years or so.
How can we solve the problem? Are businesses not investing enough in research and development? The government has reduced its contribution to research and development but we are trying to find our place despite everything. What is the solution? This seems to be an ongoing problem.
The Jenkins report on innovation came out. Does that report provide solutions that the government should adopt right away? Is that the right direction?
Could you take two minutes to summarize that for us?
Associate Executive Director, Canadian Association of University Teachers
That is an excellent question. It is the fundamental debate in innovation: things like trying to identify the sources of innovation, the role of government, the role of private business and other players.
There have been some attempts in the last 10 years. There was one basic one, based on the argument that public money invested in research and development should be used to serve private business, commercialization, and so on. The objective was to increase private investment. With more public investment, it would spark an increase in private investment, hence the idea of partnership we hear so much about. The university invests more money if it finds private partners.
Unfortunately, after 10 years, we have not seen an increase in private investment. According to the data we have available, the formula that demands partnerships, that conducts public research in a targeted way, with the target being the needs of private business, has not provided the result that was anticipated, an increase in private investment. That formula does not work.
In Canada, the preferred formula, compared to the one in other countries, has been to give more and more tax credits for research and development. Our country is one of those that provide them the most. But that formula does not seem to be working either. So where are we headed?
We have to distinguish between what I call market-driven research and curiosity-driven research seeking to discover new ideas.
In the last 10 years, a lot of money has been invested in market-driven research at the expense of basic research. Unfortunately, in order to commercialize an idea, you have to find the idea first. The idea can come from anywhere, including from basic research. We believe that one of the fundamental errors we have made is to decrease investment in basic research.
We must start to invest in basic research again, at least in order to be able to build the system up again and increase our capacity for innovation. We think we have to start there. Afterwards, other measures can be put in place in order to increase Canada's overall capacity for research and development.
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
I have a question that you will have to answer in 10 to 15 seconds.
In your opinion, which countries are doing things well and heading in the right direction in terms of research and development? What examples could we use to our benefit?
Associate Executive Director, Canadian Association of University Teachers
That is an excellent question. We should use the example of countries that support public education, access and research, but also basic research by private business.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Thank you.
Mr. Koss, I liked your presentation very much. It was very interesting in a number of respects. Those issues interest me too. I can see a problem with SMEs and your example is very clear. I have always found that SMEs in particular were often the victims of abuse from others. I will not mention the BDC, because Mr. Ouellette already did so. It is particularly the case with employment insurance. People often make that claim to me, and not just in my constituency, but everywhere.
If we give business owners access to employment insurance, we have to make sure that there are no abuses. In my constituency, I have maple producers whose work is very seasonal. Because they are owners, they have no right to claim employment insurance, even though they are only working five, six or seven months a year, when their business is going at top speed.
It is more or less the same with family business transfers. It has not been described like this, but, at the moment, if you want to transfer the family business to your children rather than to a stranger, you are taxed as if it were a dividend rather than a capital gain. That is a problem. On the other hand, the decision to tax everything like a capital gain gave rise to abuse in the past. That is why we were forced to distinguish between the two types of transaction.
A Liberal member had introduced a bill. We on our side are also studying options. But this is the first time that I am hearing someone say that it should not be taxed at all.
In your opinion, instead of taxing family business transfers like a dividend, should they be taxed like a capital gain, thereby granting a lifetime exemption of $1 million and then taxing half the gain itself, or should we completely remove all tax from family business transfers?
President, Hunter Wire Products Ltd.
A capital gains tax would be an improvement, but I don't know that it's ideal, particularly when we're talking about family-owned businesses such as the family farm, or, in my case, a business that's worth under $10 million.
For instance, it's difficult for my children to come up with the money. They have to go to somebody who's willing to lend them that money, which is difficult, so we may do an “earn-in”. It may be a delayed kind of thing, but if I want to give them true ownership of it, I'm deemed to have disposed of it immediately and taxed immediately, whether or not I have a dollar in my pocket.
That's problematic, and it passes a burden on to the next generation that frankly isn't fair. We worked for however many years. I've worked for Hunter Wire for 30 years. We pay our taxes. We pay all of our employee contributions. We pay all of the other things we have to pay, and then, for the sake of that, we get to pay again so that the next generation can take it over and have the same kinds of struggles.
Those things tend to weaken the business, and it's no wonder that second- and third-generation businesses are so rare. It's so difficult to pass them on, and the burdens get passed on generation after generation.
If you allow those businesses a leg up—say we pay taxes for 30 or 40 years, and now my family can take it over without taking on those burdens again—it makes them stronger. Then we can look at growth, more employment, hiring more people, and investing in more technology. We give them a boost. We give them a head start, rather than penalizing them so that they're starting all over again. It's a like a business game of Snakes and Ladders. You climb that ladder, and then you get to that point and go down to the bottom and start all over again.
I understand the need for taxes, but to go back to your point about targeting, let's target it. It doesn't have to apply to everybody, but certainly to small businesses at a certain threshold. Maybe we scale that so that as a business gets larger, the tax percentage that is payable is higher, but for a lot of small businesses that are worth a few million dollars, I think we can forgo those taxes to give them an opportunity to survive long into the future and change the statistics of second- and third-generation business survival, which are so poor .
Liberal
Liberal
Raj Grewal Liberal Brampton East, ON
Thank you, Mr. Chair, and thank you to all the panellists for coming today and providing your testimony. My first question will be to Manuel.
I found your recommendation to tax the manufacturers of sugary drinks really interesting. You can correct me if I'm wrong, but I believe you recommended the percentage be based on volume and sugar content. You said there would be an estimated $2 billion worth of revenue. You also said that there's a correlation between an increase in taxes and a decrease in the purchase of sugary drinks in other countries that have implemented this tax on sugar.
Are there any studies of the impact on the manufacturing sector, in terms of job losses, because of this new tax? The reason I ask is that when I used to work as a financial analyst for a corporation that provides sugary drinks, I always knew that if you decrease revenues by increasing taxes, there will be an offset somewhere in the chain, whether it's job losses, cutting the input product, or something else.
Is there any indication in the studies to show that if we do this to ensure there's less sugar being consumed by the Canadian public, we may suffer x number of job losses?
Director, Health Policy and Advocacy, Heart and Stroke Foundation of Canada
That's a very good question.
What we've learned in the past is that businesses have to innovate all the time. They have to change their product lines in response to new consumer demand or a changing business environment, etc. The reality of the matter is that with changing consumer demand, a lot of companies are now going to sugar-free products, so if you do apply a tax to sugary drinks, there's a great bonus in terms of health for Canadians, there's great revenue generation, and those companies will innovate. They always assume costs on an annual basis to develop new products. Simply, their money and investments would go into the production of new products that consumers are more interested in, such as sugar-free products and diet drinks.
There is no evidence of any job losses across the world as a result of a sugary drink tax, whether in Mexico, Finland, or most recently in Berkeley, California.
Liberal
Raj Grewal Liberal Brampton East, ON
I agree with the innovation argument, and there is an uptake in diet beverages and beverages for a more health-conscious consumer. I just think your business case for implementing a tax is strengthened if there's a study done on that. That's my personal opinion from a financial perspective.
My next question is for you, Mr. Lee. Thank you very much for talking about evidence-based policy. I think we all benefited from your quick yet rather informative PowerPoint presentation, and I look forward to reading the slides.
On the municipal revenue and spending slide, from what I read really quickly, revenue increased by 11%, and spending increased—
Assistant Professor, Carleton University, As an Individual
Population increased by 11%.
Liberal
Raj Grewal Liberal Brampton East, ON
Okay. My question was on population growth over the period. [Technical difficulty—Editor]
Sorry, Mr. Lee.
What's going on, Mr. Chair?
Liberal
Raj Grewal Liberal Brampton East, ON
My apologies.
What was the revenue growth in terms of municipalities over the same time?
Assistant Professor, Carleton University, As an Individual
I'm sorry. What was the question?
Assistant Professor, Carleton University, As an Individual
Spending went up by 43% in the last 10 years, in that 10-year period, whereas population growth is a proxy for needs, right? If the population grows by 11%, ceteris paribus—all other things being equal—revenues and expenditures should grow by that much or by some approximately equivalent level, but it went up by four times the population growth. I'm not going to get hung up on the precise and exact 43% or 41% or whatever. My point is that I don't think the argument made by municipalities across Canada that they are desperately short of revenues is supported empirically by the evidence.
Let me just do a follow-up to that, very quickly. I obviously have a very personal interest in this. I say “obviously” to me, because here in Ottawa I was the one who led the fight against Lansdowne Park, which involved $300 million of public funds from us, the taxpayers of Ottawa, to build a football stadium, when the mayor admitted that we had $300 million of deferred obsolete sewers sometimes dumping raw human waste into the Ottawa River. My fear now is that if we give municipalities a lot of unaccountable money, they will spend it in a profligate and irresponsible manner.
Now, I had a vested interest. I was opposed to the development of Lansdowne Park because they were using $300 million of our money to build a frivolous thing. I'm not anti-football—in fact, I'm a huge football fan—but I don't want to pay for it. I want the millionaires and the billionaires to pay for the football stadium, not me. I want our money to go to sewers or roads or ports.
I put those numbers in there to caution you, because I'm seeing that some of the mayors are saying every night on Power & Politics, “Give us the money, no strings attached.” That really makes me extremely nervous, having gone through the experience with Lansdowne. We ended up suing the city of Ottawa. We lost. We appealed to the Court of Appeal in Toronto, lost again, and finally gave up, but only because courts are very reluctant to overturn legislators, as you know.
My larger point is that I think you should proceed very cautiously in giving a lot of money to municipalities with no strings attached. That's my underlying message.
Liberal
Raj Grewal Liberal Brampton East, ON
I appreciate that. To an extent I agree with the message as well, but there are always going to be strings attached.
Liberal
Raj Grewal Liberal Brampton East, ON
The thing is, the government position is that the funding formula needs to be changed because, as in your other argument, there's too much regulatory burden right now on the funding transfer and on the one-third agreement for federal, provincial, and municipal funding.
The problem I have with your empirical data on that slide is that it's too short-sighted. I'm sure there might be more backup, and once I get a chance to review it, I'd love to touch base offline, because in my opinion there is actually a great deal of pressure on municipalities in regard to infrastructure spending and the infrastructure shortage across the country. I know—