Finance Committee on Nov. 7th, 2024

[The Chair, Liberal, Peter Fonseca]

Thank you.

We'll get right to members' questions. Each party will have up to six minutes in the first round of questions.

We are starting with MP McLean, please, for the first six minutes.

[Greg McLean, Conservative, Calgary Centre, AB]

Thank you, Mr. Chair.

Welcome to our guests.

My first questions are going to be for Mr. Terry Rock at Platform Calgary.

Mr. Rock, thanks very much for your testimony today.

I focused on what you brought to the table here about what it takes for a successful innovation company: team, capital and customers. I'd like you to go through that in a little more detail for us, please.

What does “team” mean, and how does the team get rewarded for being in a tech company? What are the choices they make when they decide to be in a tech company versus being somewhere else, please?

[Dr. Terry Rock]

Thank you for the question, through the chair.

Behind me are 600 member companies. In a given year, we would have up to 700 people taking programs to become entrepreneurs in these tech companies.

We focus on the founder and then the first five people. We have a café downstairs, and it sells instant ramen for a reason. A lot of these folks are leaving high-paying jobs. They're pursuing the creation of a business that can create prosperity and more jobs into the future. They're giving up things. They're giving up steady incomes. A lot of times, it will take the people here three to five years to hit a point where they can start to pay themselves properly, but they're taking risks so that they can do that—

[Greg McLean, Conservative, Calgary Centre, AB]

Mr. Rock, I'm sorry, but I have only a little bit of time.

The issue is that they take lower pay because they get options in the companies.

[Dr. Terry Rock]

That's correct, exactly.

[Greg McLean, Conservative, Calgary Centre, AB]

Thank you very much.

It's a choice.

Likewise with capital, can you explain the motivation for capital to invest in companies that are start-ups that you incubate there, please?

[Dr. Terry Rock]

They're looking.... Venture investment would be a very high-risk investment. They will make a portfolio bet, investing in 20-plus companies and hoping that one or two of those will be big successes. The other ones they're expecting to write off. They will hold that investment for over a decade and hope to get the return after that.

They are not paid. They're giving up interest. They're making a significant choice to invest in a high-risk area. It's the only way these companies can grow as fast as their potential.

[Greg McLean, Conservative, Calgary Centre, AB]

Over the last number of years, how well has Calgary in particular done through Platform Calgary in attracting venture capital to your companies?

[Dr. Terry Rock]

Alberta has been on a roll. We have been one of the fastest-growing venture jurisdictions in Canada. Just last year, in Q3, in Alberta we were at $577 million. It was $714 million last year. We had an extended run of year-over-year increases.

What's really important is that we keep that going. That's the most important thing for us. We're just getting started here in catching up to the rest— Ontario, Quebec, British Columbia.

[Greg McLean, Conservative, Calgary Centre, AB]

Thanks, Mr. Rock.

Is it safe to say that a change in the way people are rewarded, both at the employee level and at the investor level, is going to change the amount of investments and the amount of founders and innovators who are working in your space?

[Dr. Terry Rock]

Yes. It is already happening.

[Greg McLean, Conservative, Calgary Centre, AB]

Can you give us some data quickly on what you're seeing on that aspect?

[Dr. Terry Rock]

I don't have specific data. I do know of companies that are being attracted to the U.S., and when their first investment comes from the U.S. they become more likely to move there. I prefer not to say who the people are who are dealing with this.

The majority—58%—of the venture capital that was invested in Canada in the first three quarters of this year came from the U.S. We need local investors to keep these people here. We're talking to investors. They are frustrated with the current state.

[Greg McLean, Conservative, Calgary Centre, AB]

Thank you.

The last thing I'm going to ask is about the whole notion of government workarounds.

When government changes the tax structure in the way they've done it here, it really demotivates your investors and your employees who are in your companies. What other governments get involved in programs and everything else, and what is the effect of friction caused by that?

[Dr. Terry Rock]

There are two pieces of friction.

One is that the rules of the game are changing, and people are reallocating their capital all the time.

The other part of it is that the market will work if we set up the incentives properly up front. These people do not like applying for programs or cutting through multiple different exemptions. They're really looking for a straightforward market set-up with clear rules that will allow them to deploy their capital with certainty.

[Greg McLean, Conservative, Calgary Centre, AB]

It's safe to say that the simpler you make this, the easier it's going to be to get innovation and growth in this country. Is that true?

[Dr. Terry Rock]

Yes.

[Greg McLean, Conservative, Calgary Centre, AB]

Thank you.

My next question is going to be to David Clarke over at the TMX Group.

Mr. Clarke, you talked about 3,000 companies that are represented on TMX Group. You talked about the mining exploration tax credit. Would you say that the mining exploration tax credit is grossly affected by the increase in capital gains?

[David Clarke]

Yes, I would.

[Greg McLean, Conservative, Calgary Centre, AB]

Can you explain quickly to the committee that it effectively nullifies the whole gain, the whole reason for having the METC, the mineral exploration tax credit?

[David Clarke]

The whole point of the credit is that it de-risks the exploration investment for the company because it allows the company to flow the—

[Greg McLean, Conservative, Calgary Centre, AB]

I'm sorry. I just have to finalize here.

The issue is, of course, that by increasing the tax, the capital gains tax, you more or less nullify the motivation for being in the mining exploration tax credit. Am I correct?

[David Clarke]

It decreases the incentive, certainly.

[The Chair, Liberal, Peter Fonseca]

Now we go to MP Baker, please.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thanks very much, Chair.

Thanks to all the witnesses for being here. I won't have time to ask you all questions, but I appreciate your testimony and your time and your input, and we've taken note of it all, so thank you.

I'll start with Mr. Clarke. David, it's good to see you.

I have a question about the SR and ED program.

First of all, thank you to you and your colleagues at TMX for your advocacy around the SR and ED program. I was listening to your testimony, and one of the things that you also have in your written submission is a request to expand access to the SR and ED program to smaller companies. This is how I understood what you said earlier.

For the folks who may be watching at home who aren't familiar with the benefit of extending access to the SR and ED program to smaller businesses, could you talk briefly about that? Why is that worthwhile? It's basically an investment of taxpayer dollars in smaller businesses. Could you talk about why that's a good idea, in your view?