Evidence of meeting #41 for Finance in the 45th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was services.
A video is available from Parliament.
Liberal
Bloc
Xavier Barsalou-Duval Bloc Pierre-Boucher—Les Patriotes—Verchères, QC
Thank you, Madam Chair.
Good morning to all the witnesses.
Thank you for being with us today.
Ms. Bak, in the documents you sent to the committee, there is a slide that I found very interesting. In it, you mention that, over the past 10 years, from 2011 to 2022, Canadian SMEs have exported more than Canadian coal, oil and gas producers combined.
I found that very interesting, because sometimes we get the feeling that the government is constantly focused on oil, when the facts show that SMEs are much more significant in terms of exports, and probably also in terms of jobs and economic potential.
Do you think prioritizing SMEs over the oil sector would produce better results?
As an Individual
Thank you for the question, because it's very near and dear to my heart. I think it's really at the core of how we see ourselves.
As it happens, SMEs employ nearly two-thirds of Canadians. At the same time, they are up to the job when it comes to exports, and they have the potential to do more. Overall, these companies continue to increase exports without the obvious volatility of the oil sector and elsewhere.
It's not one or the other; it's both. In Brussels, where I am right now, my conversations with people from the European Commission are about a harmonized vision and priority given to SMEs as a fabric of resilience in the economy.
Bloc
Xavier Barsalou-Duval Bloc Pierre-Boucher—Les Patriotes—Verchères, QC
In your remarks, you also talked about the capital of major Canadian institutions, particularly pension funds, capital that flows mainly to the U.S. Without suggesting that should change, because we need to diversify our investments and investing in U.S. markets is almost inevitable, how can we attract more institutional investors here?
A number of people have mentioned a problem related to access to capital for SMEs. Is there potential there?
As an Individual
I described the four asset classes that are alternatives. One of the asset classes is infrastructure. The government put up its hand and said that this asset class was important to it.
I propose that we do the same thing with the private lending asset class. Private lending is an asset class that, by its nature, is geared toward Main Street.
We are talking about a potential ranging from $100 billion to $200 billion. We are also talking about attracting investment to Canada by institutional investors, who would have a Canadian alternative for their private lending mandates, as well as European investors with whom I spoke last fall. They're looking for markets to fulfill private lending mandates that are North American but not American. That means Canada.
Bloc
Xavier Barsalou-Duval Bloc Pierre-Boucher—Les Patriotes—Verchères, QC
Thank you again.
I'm going to continue in the same vein with the representatives of the Council of Canadian Innovators.
You raised the issue of access to capital a little earlier, and there's a growing trend there. More and more, we are seeing a number of small investors, individuals, wanting to manage their portfolios themselves. However, they don't necessarily have an easy way or opportunity to invest in companies like SMEs, because they're not publicly traded and it's not open to the general public. It's really a niche market, and it's not very well known. However, I'm sure there would be an appetite for that.
Have you thought of solutions that would make it possible to be more open or accessible to people who want to invest in these innovative companies? They have a bright future, but are often not well known.
Laurent Carbonneau Vice-President, Policy and Advocacy, Council of Canadian Innovators
Absolutely.
That's a very good question. I might switch to English when I use technical vocabulary.
One of the things we've proposed is a tax credit modelled on the Qualified Small Business Stock in the U.S. It focuses on what you just talked about. Investors are encouraged to invest in small companies, which can involve high risks, but the tax rates on their assets and returns are lower. Basically, it's an exemption on the return on the assets.
All of this is to say that the goal of this policy would be to incentivize investment into riskier assets for investors who, obviously, are sophisticated, and to expose them to, potentially, the upside they're looking for in riskier asset classes such as investments in intangibles, heavy enterprises.
As well, this would be of benefit to founders. Presently, in Canada, we have the lifetime capital gains exemption, which is not as generous as the U.S. equivalent, so that is something we're looking to harmonize.
Thank you.
Liberal
The Chair Liberal Karina Gould
Thank you, Mr. Carbonneau. We're going to have to conclude it there.
We're going to continue now with Mr. Williamson for five minutes.
Conservative
John Williamson Conservative Saint John—St. Croix, NB
Thank you very much, Madam Chair.
Ms. Vega, I have a couple of what I'll call “lightning questions” to set the table, so pretend that you have 10 to 15 seconds per question, like your last question. Who benefits from the slow rollout of open banking, consumers or the big banks?
Conservative
Executive Director, Fintechs Canada
The likely conclusion is that the incumbents do, but there is a big element of, just, inertia. Our market really needs to activate and pursue this change for the benefit of consumers.
Conservative
John Williamson Conservative Saint John—St. Croix, NB
To cut through it, large banks...to the detriment of consumers, in your opinion.
Conservative
John Williamson Conservative Saint John—St. Croix, NB
Has the failure to act quickly on fintech competition cost Canadians money, do you think?
Executive Director, Fintechs Canada
It costs Canadians a lot of money. The Competition Bureau did a study on the savings that Canadians would derive, just from open data and insurance alone, and we're talking in the billions of dollars. Yes, this is a real cost that Canadians bear every day.
Conservative
John Williamson Conservative Saint John—St. Croix, NB
All right, so it's working against us by protecting our large banks.
Are federal rules protecting incumbent banks from competition done at the expense of consumers?
Conservative
John Williamson Conservative Saint John—St. Croix, NB
Sure. Are the federal rules—the guidelines, the oversight, the red tape—that protect the incumbent banks and their privileged position from competition being done...? Are consumers, families and businesses paying the tab for this, do you think?
Executive Director, Fintechs Canada
I think everybody pays the tab for this failure to act, but I wouldn't say that it is necessarily a strategic ploy to achieve this goal. There's also, as I mentioned, a lot of inertia.
To my earlier point, the bias for overcorrection to eliminate risk has meant that we have moved very slowly, to the detriment of competition.
Conservative
John Williamson Conservative Saint John—St. Croix, NB
We can deduce from that, then, that it is.... When you say inertia, you're talking about policy-makers, who aren't moving to update and modernize regulation so that there's a more level playing field. It's not like the weather. It's not just happening. There's no action to correct it.
Executive Director, Fintechs Canada
I think we need to look at it from where we came from. We came from a decade when there was, perhaps, not a lot of movement in this industry, for multiple reasons. I can't necessarily point to one specific reason that this happened.
Again, I think we came from a financial crisis from which Canada emerged very solid, and there was no real sense of urgency, as in, “Why do we need to fix it if it ain't broken?” However, we have realized that our failure to act has really been to the detriment of consumers but also to innovation. It's made us less competitive. We're now at a point when reforms are happening, and they're happening quickly, so, really, the focus should really be on implementation to get out of that period we're emerging from.
Conservative
John Williamson Conservative Saint John—St. Croix, NB
There's no time to wait. Thank you.
Would you say that the current government has made it easier or harder for fintech companies to compete with the big banks?
Executive Director, Fintechs Canada
It is a much better environment today than it was, even just a few years ago. Again, to go back to my comments and to the points that our industry has made, it's all about implementation. Right now, we're right in the thick of regulatory development, which will define how open banking and all of these reforms actually take effect.
Conservative
John Williamson Conservative Saint John—St. Croix, NB
All right. Is Canada the last country in the G7 to really implement robust open banking?