Finance Committee on March 10th, 2020

[The Chair, Liberal, Wayne Easter]

I call the meeting to order. Pursuant to Standing Order 108(2), we'll begin our study of corporate subsidies with officials from the Department of Industry, or ISED, as well as individuals from the Canadian Northern Economic Development Agency and the Atlantic Canada Opportunities Agency.

Mr. Davies, I believe you have opening remarks, and then I gather we'll go to questions from members, unless somebody else wants to add remarks with you.

Go ahead, Mr. Davies.

[Mitch Davies, Senior Assistant Deputy Minister, Industry Sector, Department of Industry]

Thank you, Mr. Chair and honourable members.

We are pleased to be here before your committee today.

As we all know, Canada is operating in a global economy that is facing increasing uncertainty.

Slower growth, environmental sustainability, aging demographics and an incredible pace of technological change are just some of the factors that make the job of supporting growth very challenging.

A considered view of policies in other jurisdictions suggests that microeconomic conditions at the firm and industry level need a focused approach, building on strong macroeconomic fundamentals of sound monetary and fiscal policy and competitive general tax rates.

The current structure of our support for business innovation requires modernization to generate greater impact and allow for the flexibility needed to succeed in the challenging global innovation race.

This is the policy direction that the government has been pursuing through the innovation and skills plan.

Over the past four and a half years, our department has led and implemented new initiatives under an innovation agenda to create better jobs, spur cutting-edge technologies and support a culture of innovation across all sectors.

Our department led a broad engagement with Canadians to understand the challenges and drivers of innovation.

What we heard throughout this process was that there were three areas where the government could make a difference.

The first area was equipping Canadians with the skills they need to succeed in the innovation economy, both in terms of developing talent within Canada and attracting and retaining global talent.

The second area was to support technologies by building world-leading clusters, establishing business innovation partnerships and enhancing science excellence.

And, finally, to support and invest in companies to help them scale up and become leaders in global markets.

These were the lenses used to align policy work on where Canada needed to make changes to improve Canada's innovation performance.

With that in mind, the government has focused on equipping Canadians with the skills and access needed to succeed in the digital economy. CanCode, computers for schools and connect to innovate are just a few of the programs supporting that.

To put those skills to use, support was provided to Mitacs to create 10,000 paid internships annually so it could help Canadian students to better prepare for the STEM jobs of tomorrow and bring new talent to Canada.

To respond to the critical talent needs of Canada's high-tech sector, our department helped support the creation of the global talent stream of the global skills strategy, making it easier for companies to recruit in-demand workers from around the world.

To make the most out of the skills and talent base, it was recognized early on that government needed to play a convenor role in bringing the players together.

Partnerships are key to any successful innovation ecosystem, and the evidence supported that we had to improve our rate of collaboration between large and small firms, researchers and other players in the innovation ecosystem. Through the innovation superclusters initiative, we are building ecosystems that will bridge the gaps from science to commercialization, to investment to scale-up, to help Canada grow and compete on the world stage.

Smaller businesses, in particular, have been a key focus of these measures.

Through the innovation superclusters initiative, anchor companies are bringing SMEs into large supply chains, further strengthening the backbone of Canada's economy. Further, in support of SMEs, we studied other jurisdictions and found that when the government acts as a first customer, start-ups flourish and more innovative products are developed. Therefore, the government decided to expand the market for innovation itself, launching the innovative solutions Canada program to encourage innovation and support early-stage research and development and to test late-stage prototypes from Canadian innovators and entrepreneurs.

All of this progress, of course, rests on a foundation of research and scientific excellence that give rise to the innovative ideas of tomorrow.

That is why the government has made significant investments in science.

This support for scientific research is leading to new products and improvements to existing ones, and is generating the talent and new ideas that find their ways into companies, jobs and economic growth.

Companies looking to scale up into globally competitive companies that export and operate at the cutting edge of innovation need a clear point of entry to a streamlined suite of relevant government programs that meet their specific needs.

That is why, as part of the innovation and skills plan, the government undertook a whole-of-government review of business innovation programming. One outcome of the review was to cut the number of programs by two-thirds. Overall funding for direct measures was also increased.

And to make it easier for SMEs and high-growth firms to navigate these programs, we created the innovation Canada platform.

Innovation Canada enables Canada's innovators and entrepreneurs to find the federal, provincial and territorial programs that will help them grow and innovate.

We have also improved services for early-stage innovators and high-growth firms by doubling the number of innovation advisors.

In partnership with other government officials, these innovation advisers offer the accelerated growth service, a whole-of-government advisory service delivered directly in boardrooms, stores, plants and communities across Canada.

Another of the key outcomes of this review was the creation of a streamlined business innovation program in our department. It's called the strategic innovation fund.

It supports projects that have the potential to help companies grow and strengthen Canada's position in industries like automotive, aerospace, clean tech, digital technologies and life sciences.

Of course, accessing venture capital has been a persistent challenge for many Canadian firms that are ready to take the next step.

That is the reasoning behind the $450-million venture capital catalyst initiative, which makes that all-important late-stage capital more accessible

There is strong evidence that foreign investment infuses companies with fresh capital investment, introduces new technologies and provides Canadian companies with access to global value chains. As a consequence, programs were introduced to secure critical investments by multinationals.

Canada needs a clear path for growing larger, globally competitive companies.

By helping firms attract investments, scale up and access federal programming, the innovation and skills plan established a focus on execution and new policies to build momentum, working with the private and public sectors.

We are always looking at new approaches to improve our efficiency and effectiveness, and to provide the tools that businesses need to succeed.

We know that there is no one answer and that it is important to debate and assess what is the right approach for Canada.

We look forward to your report and interest in how supporting businesses plays a part in pursuing long-term prosperity.

Thank you, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Davies.

Just for the information of committee members as well, we have the witnesses on your sheet. As well, there are two individuals from the Department of Finance here should there be questions that need to be answered from their perspective as well. The assistant deputy minister, economic development and corporate finance branch is here, as well as the director general, business income tax division. If need be, we'll call you folks to the table.

With that, we will turn to the first round of questions. It will be a six-minute round.

Mr. Poilievre.

[Pierre Poilievre, Conservative, Carleton, ON]

Thank you.

The supercluster initiative cost a billion dollars, is that right? It's $950 million.

[Mitch Davies]

That's correct, sir.

[Pierre Poilievre, Conservative, Carleton, ON]

All right.

How many jobs does it kill to take a billion dollars out of the private sector economy and put it into the government's hands?

[Mitch Davies]

Again, as I mentioned in my opening comments, the purpose of the initiative of bringing together large and small companies, the research base, is to be additive to the Canadian economy.

[Pierre Poilievre, Conservative, Carleton, ON]

But it must first be subtractive. Isn't that right? You have to take the money out of the economy in the first place to spend it. Do you have any research on how many jobs it costs when you take $950 million out of the economy to spend?

[The Chair, Liberal, Wayne Easter]

We will give Mr. Davies equal time to respond, Mr. Poilievre.

[Pierre Poilievre, Conservative, Carleton, ON]

Sure.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Davies. Finish your first answer, if you like.

[Mitch Davies]

I don't have any specific information or research from the department that I could provide to that question, at least in respect of that particular initiative, but I understand the premise in terms of needing to raise taxation to provide those programs and make those investments in the future of the economy.

[Pierre Poilievre, Conservative, Carleton, ON]

You do acknowledge, then, that the government had to take the money out of the economy in the first place.

[Mitch Davies]

I acknowledge that there's obviously tax-raising, general revenues used to finance all government initiatives of this kind, all the programs that our government offers. The programs offered through the department, obviously, have to be justifiable that they will ultimately deliver the objective, which is to deliver growth, to deliver innovation in the economy in the long term.

[Pierre Poilievre, Conservative, Carleton, ON]

The government can't give anything to the economy without first taking it away, as you acknowledged by saying that the money had to be raised through taxation. That means 950 million fewer dollars for the small businesses that had to pay the taxes so that your department could spend them.

How is it possible for your department to do a cost-benefit analysis of this program if you don't know the real cost to the people who paid the bills?

[Mitch Davies]

In a general way, I think there is a sound body of economic research in respect of the particular advantage to a society. This is to say that we can gain wealth as a society by making particular investments, and certainly those in the area of research, development and technology in any jurisdiction around the world are areas where governments are making those investments because of the demonstration that this leads to long-term prosperity.

We also sit next to our nearest and important trade partner, which also deploys massive resources to support research and development. This ultimately benefits firms but then provides overall support to the economy, so there is research to demonstrate this is a sound investment.

[Pierre Poilievre, Conservative, Carleton, ON]

There's no doubt that investment creates wealth, but let's remember that you subtracted $950 million of private sector investment when you took that money out of the economy in the first place. As you point out, the government needed to tax that $950 million. That means that those are dollars that private firms will no longer invest in innovation and capital acquisitions and other things.

Why do you think your department is better at investing other people's money than those people would be at investing it themselves?

[Mitch Davies]

To come to the question in terms of the rationale, a number of studies, I think.... Obviously the committee is undertaking this work and will want to explore this information. We point to recent OECD work. They've studied this question over many years, providing supporting evidence that these sorts of long-term investments do return well for the economy. It's a separate question, and I'm not in a position to answer. It's not our area of expertise in essentially providing a tax environment that's conducive for investment to not have an effect where you're slowing current growth, current investment, to favour future longer-term investment. Again, I think that's a matter of tax policy and fiscal policy, which isn't in my domain.

[Pierre Poilievre, Conservative, Carleton, ON]

When the government gave BlackBerry $40 million, the company said it didn't need the money, so there would have been no incremental job benefit as a result of this cost.

In that case the government took $40 million out of the economy and gave it to a company that said it didn't need the money. How many jobs would that kind of exchange have killed?

[Mitch Davies]

I'll ask my colleague if there's time to provide details on the benefits associated with the investment in BlackBerry QNX. I'll give the context. This is an investment that isn't available at any time around the world. It's really a turning point in automotive. We're investing now in this country in the future technologies that will underpin mobility and transportation, of which BlackBerry is a very key company.

As for the question of need, I think the CEO said what the CEO said. He also said in the same news conference that the department was a very strong negotiator in the process to secure the benefits that we did, which was quite an unexpected acknowledgement, not planned at that point.

I also think the question of need is a question of nuance. No CEO would say, if they have a balance sheet with cash on it, that they need it in that way, but that doesn't mean it cannot accelerate or doesn't secure that investment in our jurisdiction, which is really our concern, to see that done here versus done elsewhere. It's quite integral, and what we see now around QNX and BlackBerry, which is just west of us in Ottawa, is a whole ecosystem. Ford Motor Company is there and Delphi, a number of companies are building up around that, so we think it has a spillover to the overall economy.

[The Chair, Liberal, Wayne Easter]

Thank you to you both. We'll bring you in a little later if we can, Ms. Johnston.

Mr. Fraser.

[Sean Fraser, Liberal, Central Nova, NS]

Thank you very much, Mr. Chair.

I'll start by tackling an issue you raised in your opening remarks when you said the microeconomic concerns sometimes at the firm level need a focused approach, in addition to a competitive environment at the macroeconomic level.

In the first few years as a member of Parliament, in the last parliament I sat on the status of women committee and during a study on the economic inequities that exist in Canada, the lack of access to capital and lack of a network for women entrepreneurs in particular was signalled as stifling growth.

Can you comment on the women's entrepreneurship strategy to showcase how we might be tackling this issue to create wealth in the economy from a relatively untapped source, which is women entrepreneurs?

[Mitch Davies]

The government introduced a women entrepreneurship strategy aimed at this very objective, which is to have more inclusion, more participation, in being able to create growth in the economy and address specific circumstances faced by women in securing capital, securing support for their businesses. The significant financing in that support is not in my direct care or responsibility, but I know resources have been dedicated.

Many initiatives have sprung from that, and Canada along with the U.K. is working on international standards with regard to lending to women entrepreneurs, to create new standards overall for business in general, to make that issue a thing of the past, to bring more people in and to be able to bring forward untapped potential in the economy.

[Sean Fraser, Liberal, Central Nova, NS]

I will pivot to our guest from ACOA. During Mr. Davies' opening remarks, he mentioned the superclusters initiative to help bridge the gap between science and commercialization. I think that's how he framed it.

In Atlantic Canada, we benefited from the Atlantic innovation fund, which serves a similar purpose. I can think of one investment in my own backyard at StFX university, which is Dr. Risk's Flux Lab. It has led to the commercialization of a technology that detects gas leaks in energy infrastructure. It can reduce emissions by up to 20% and increase production by that amount because they're not losing it into the atmosphere.

I'm curious if you can highlight other examples in the Atlantic region where this particular fund has translated the incredible research taking place at our universities into jobs in the Canadian economy.

[Daryell Nowlan, Vice-President, Policy and Programs, Atlantic Canada Opportunities Agency]

I'll let my colleague talk a little about the examples, but it's important to point out the innovation fund that the member refers to. The agency invests in the neighbourhood of $30 million to $40 million a year, depending on the year, in projects exactly like that. They are largely partnerships between research institutions, like universities, and the private sector.

When the innovation review happened, which my colleague mentioned earlier, and there was a reduction of innovation programs, the Atlantic innovation fund was one of the programs that was retained by government because it recognized the impact it has in Atlantic Canada.

Did you want to speak to this?