Good morning.
I'd like to say a few words about investing, a program that is working effectively in an industry, and two or three quick recommendations to put out to the committee for review.
The first thing is about the first principle of investing, that being that investment flows to businesses or sectors with the highest returns in relation to the inherent risk of the venture. So that's relevant in harvesting our science and technology resources, which are primarily, as Dan Mothersill mentioned, invested by the government to develop a commercialization of our knowledge-based industries. So a good example of an industry that attracts commercialization capital is the resource industry.
In 2006, over $1.1 billion was invested in new publicly listed mining and oil and gas resources through flow-through shares on the TSX Venture Exchange. That amount is only on the Venture Exchange. These flow-through shares enable taxpayers to reduce their income through the deduction of Canadian exploration expenses, Canadian development expenses, and Canadian renewable and conservation expenses. This program helps attract capital by mitigating the risk of drilling or mining a dry hole.
So it's interesting that this flow-through share program, the $1 billion in investment capital, is primarily going to the provinces of British Columbia, at 48%, and Alberta, at 28%. Provinces like Ontario receive less than 16% of the investment funds. It should be noted that eastern Canadian provincial treasuries are indirectly subsidizing other provinces, often in sectors that may actually be less friendly to sustainable development.
One reaction to this example would be to question the need for the program in the resource industry. I would argue that this very successful program is a best practice that should be used to mitigate risk and attract private capital in the knowledge-based industries, and further that $1 billion a year times five would go a long way to dealing with the valley-of-death stage Dan mentioned that Sustainable Development Technology Canada has identified.
We have learned some lessons from this resource example: strong investment returns attract large capital flows, tax incentives that reduce risk and improve return on capital attract capital, and strong sector food chains attract early-stage capital as investors know there will be a well-defined exit.
The significance of the resource example ties into the following three recommendations for the standing committee, to attract capital for the knowledge-based businesses. There are many ways of doing this, but here are three successful programs:
Establish an angel co-investment fund. We put a number at it in our report, but the principle is that we need this if it's important for public policy to commercialize. We give an example of the State of Ohio very effectively using this program.
We also talk about the innovation and productivity tax credit, which is successful in eighteen U.S. states and five provinces in Canada, soon to be six. The federal government should join in this program.
The third thing is to help establish angel groups across the country. We list in the appendix some groups that support these recommendations, like the Conference Board of Canada, the Canadian Federation of Independent Business, etc.
On that, Mr. Chair, I guess I've said my words.