Industry Committee on March 18th, 2010

[The Chair, Conservative, Michael Chong]

Order, please.

Good morning to members of the committee and good morning to our witnesses.

Welcome to the third meeting of the Standing Committee on Industry, Science and Technology on this March 18.

We'll be meeting for the next two hours and hearing testimony from the minister. I understand the minister has to leave at 10 o'clock, so we'll be hearing from him for the first hour, and then the second hour we'll be hearing testimony from members from Industry Canada.

So thank you all very much for coming.

We will begin with an opening statement from the Minister of Industry.

[Tony Clement, Conservative, Minister of Industry]

Thank you very much, Chair, and thank you for the opportunity to be here with the members of the Standing Committee on Industry, Science and Technology.

Before I begin, I'd like to introduce my team. There is my able and hardworking deputy minister, Richard Dicerni, and my senior associate deputy minister, Paul Boothe. And Kelly Gillis is the CFO. Certainly they can answer any technical questions that I cannot answer.

Let me start by just of course reminding you that last year was a period of considerable economic turmoil. As you know, the global economic situation had seriously deteriorated and Canadians and their businesses were caught in the crosswinds, as it were, facing weakened demand, eroding cost competitiveness, uneven access to capital, and major restructuring in some sectors.

Now, in the face of this global downturn, we coordinated with our G20 allies and we acted decisively, investing almost $30 billion to support the Canadian economy through our economic action plan. This was instrumental in stimulating growth, creating jobs, assisting individuals, renewing our infrastructure, and supporting businesses and communities.

We also focused on building a long-term advantage, based on competitive taxes, renewed infrastructure and skills, a tariff advantage, reduced red tape, and our emergence as a global financial sector leader.

Through these efforts we positioned ourselves to emerge from the recession with a stronger economic advantage than before.

I'm pleased to report that our plan is yielding results—Canada has now returned to economic growth. But given the fragility of the global recovery, we know the job is not yet done. Budget 2010 aims to strengthen this recovery and sustain Canada’s economic advantage. It recognizes that we must continue to seize economic opportunities, create jobs, develop new products and find new markets.

The Budget has three broad goals. Firstly, it confirms $19 billion in federal stimulus to implement Year 2 of our Economic Action Plan. Secondly, Budget 2010 lays out a plan to return to fiscal balance. Finally, it introduces several targeted investments to attract capital, boost innovation, and position us for the economy of tomorrow.

My department, Industry Canada, is active in overseeing and implementing initiatives in support of these goals. Some of the top-of-mind issues that we have been dealing with, and will continue to deal with, include science and technology, manufacturing, and support for small business.

Certainly we're attempting to create a climate that encourages business, innovation, and productivity, and this type of climate is what will allow us to innovate, to move up the global value chain, and to succeed in the competitive global marketplace.

Let me touch briefly on some of these issues. The first is science and technology.

Now, I don't have to tell you that S and T and innovation are at the heart of Canada's value proposition as a player in the international marketplace. Our government has recognized that research and development is a key driver of long-term economic growth and that discoveries stemming from research help improve the quality of life of Canadians.

Canada ranks first amongst the G7 countries in terms of expenditures on research and development in the higher education sector as a share of the economy. Canada's economic action plan built on this strategy by providing an unprecedented $4.9 billion in additional funding for research infrastructure, research, highly skilled people, and commercialization.

Budget 2010 continues this momentum by providing additional funding to support world-class research and researchers. This includes new investments in our universities and colleges to help Canadian researchers make transformative discoveries that contribute to our future well-being and create short-term economic activity and jobs.

From the pacemaker to insulin, Canadian researchers have made discoveries that have changed the lives of people around the world.

To ensure that we continue to be innovation leaders, we have substantially increased funding for Canada's federal granting councils, our most direct means of support for academic research. With Budget 2010, we have increased the funding to the Canadian Institutes of Health Research, the Natural Sciences and Engineering Research Council, and the Social Sciences and Humanities Research Council by $32 million. These funds will enhance our support for new and promising researchers and sustain our overall support for researchers at Canada's universities, colleges, and research hospitals.

Other support initiatives from Budget 2010 include $8 million per year for the indirect costs of research programs to help post-secondary institutions support the additional research activities to be funded by the granting councils and $45 million over five years to the granting councils to establish and administer the Canada post-doctoral fellowships program. When fully implemented, the program will annually fund 140 new, taxable, two-year post-doctoral fellowships valued at $70,000 each per year.

Then there is $15 million per year to the college and community innovation program to support additional research collaborations between businesses and colleges. There is $222 million over five years to support research and commercialization activities at TRIUMF, Canada's premier national laboratory for nuclear and particle physics research. There is also $75 million in 2010 for Genome Canada to allow it to launch a new targeted research competition in a priority area and sustain funding for the regional genomics innovation centres.

Our government recognizes that increasing business investments in research and development will be crucial for our long-term competitiveness. Accordingly, Canada's economic action plan provided $1.1 billion over two years to commercialize technological advances and encourage businesses to invest in innovation. This includes: $200 million in enhanced funding for the industrial research assistance program; $400 million to support advanced clean energy research, development, and demonstration; $400 million to accelerate the adoption of transformative clean technologies in the forestry sector; and $63 million to support advanced technology development by Canada's space industry.

Government investments constitute one part of the equation. The other part, of course, involves the private sector adopting innovative technologies that can help advance their businesses. Budget 2010 builds on these investments with over $260 million in new funding to encourage Canadian businesses to invest in research and development and to commercialize these innovations into new products and services.

New resources provided through Budget 2010 include: $135 million over two years to foster regional networks of innovation across the country through the National Research Council technology cluster initiatives program; $30 million over two years to enable applied research collaboration between colleges and local firms through the college and community innovation program; $40 million over two years for a pilot small and medium-sized enterprise innovation commercialization program, under which federal departments will demonstrate the application of innovative products and technologies developed by smaller companies; and $8 million over two years to extend the international science and technology partnerships program, which provides seed funding for private sector partnerships on industrially oriented science and technology projects with commercialization potential.

As many Canadians recognize, some of our best applied science comes from our efforts in regards to Space. For modern economics, space technologies are an increasingly critical element of basic infrastructure transforming our work and leisure activities and the government's ability to protect sovereignty and the safety of our citizens. To support enhancements in space technology, Budget 2010 announced that $497 million will be invested over five years in the RADARSAT Constellation Mission (RCM), Canada’s next generation of Earth observation satellites.

RCM is being built by Canada’s space sector, providing industrial opportunities, enhancing global competitiveness, and securing knowledge-intensive jobs in Canada. This Government’s investment in space will strengthen Canadian Science & Technology excellence, foster industrial innovation and commercialisation, and position Canada for continuing economic growth in the global knowledge economy.

To ensure that federal funding is yielding maximum benefits for Canadians across the country, the government will be conducting a comprehensive review of all federal support for R and D to improve its contribution to innovation and economic opportunities for business. The review will inform future decisions regarding federal support for R and D. In moving the economy forward, we're determined that Canada be a leader in the digital economy, and this will take the concentrated efforts of governments, academia, and business all working together.

We will focus on enabling the ICT sector to create new products and services, to accelerate the adoption of digital technologies, and to contribute to increased cyber security. As a key step, Budget 2010 announced that the government will launch a digital economy strategy. As part of our broader strategy to make the Canadian economy more competitive, our government will also open Canada's doors further to foreign investment in some key sectors, including the satellite telecommunication industry, giving Canadian firms access to the funds and expertise they need to compete effectively on the global stage.

Our government is also committed to strengthening the competitiveness of our manufacturing sector. If S and T innovation is at the heart of our economic growth, our manufacturing, of course, is the backbone. Canada's manufacturing sector directly contributes about 15% of our GDP and employs close to 1.9 million Canadians, mostly in full-time jobs. I don't have to tell this committee that the sector has faced some challenges recently. But we are looking forward and are taking action on a range of critical measures to further investments in productivity-enhancing equipment and machinery.

The elimination of 1,541 tariffs on manufacturing inputs and machinery and equipment will position Canada as the first country among its G20 partners able to boast that it is a tariff-free zone for manufacturing.

This means that Canadian manufacturers will be able to import goods for further production in Canada without the burden of tariffs and the costs of complying with certain customs rules such as rules of origin.

Estimates from standard economic models suggest that these measures could help create 12,000 jobs over time.

When combined with other Canadian advantages, such as a solid financial system and the lowest overall tax rate on new business investment in the G7, this initiative will make Canada an even more attractive place for business investment.

Mr. Chair, I think I have a couple of minutes left, so I will scan through the rest of my notes. I will certainly take any questions you have about small businesses--perhaps I can leave that to the Q and A--and how we are addressing small business issues and making sure that the needs of these credit-worthy businesses are taken into account as the economy recovers. I can certainly talk about the vehicle and equipment financing partnership being undertaken by the BDC as well, and talk a bit about venture capital, if the committee so desires.

I just want to close by thanking the committee.

I'd like to thank you for your time this morning.

Let me reiterate that I think Budget 2010 sets us on the right course. My department is working diligently to deliver on these priority initiatives. We will ensure that due diligence is completed and that our actions are accountable to the Canadian taxpayer.

And we will continue to pursue measures that best position Canada to be a leader in the economy of tomorrow.

At this point, Chair, I am interested in answering any questions the committee may have. Thank you.

[The Chair, Conservative, Michael Chong]

Thank you, Minister.

We will begin with Mr. Garneau.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you, Mr. Chair.

Thank you for being here to speak to us this morning, Mr. Minister.

Thank you to Mr. Dicerni, Mr. Boothe and Mrs. Gillis.

I will get to my first question right away.

You spoke, Minister, about the importance of the government's economic action plan. I would like to see clarification on one particular table in the economic action plan that is extremely important. It is Table A1.1, called “Expenditure and Tax Multipliers”. It's an important table, because I believe it makes certain assumptions that are important in projecting future GDP growth and jobs. Those multipliers are given in table A1.1.

[Tony Clement, Conservative, Parry Sound—Muskoka, ON]

Could you tell me the page number?

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

It's on page 281, sir.

[Tony Clement, Conservative, Parry Sound—Muskoka, ON]

Thank you.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

I have copies here if anybody wishes to have them. Unfortunately, because my assistant is sick at the moment, I only have English copies. I know that I need to have copies in both English and French, but if people want copies, I have the English version.

Minister, on page 281, a number of expenditures are tabled on infrastructure investment, housing investment measures, and EI premiums. To the best of my knowledge, these are temporary and will cease at the end of March 2011. I assume I'm correct on that.

For the multipliers, if one looks at the comment in brackets at the top, it reads “dollar impact on the level of real GDP of a permanent one dollar increase in fiscal measures”. My question is about the word “permanent”. The assumption is that these are permanent, and yet many of the expenditures are supposed to end on March 31, 2011. Would that not call into question the multipliers and their use in terms of projecting future GDP growth and jobs?

[Tony Clement, Conservative, Parry Sound—Muskoka, ON]

Let me try to answer your question to the best of my ability. I'm sure the finance minister will have a perspective on this as well.

Part of the answer may lie in the fact that when you invest, particularly in capital infrastructure, it can provide full-time permanent jobs. For instance, last week I was in Hamilton, Ontario, for the opening of the David Braley Cardiac Vascular and Stroke Research Institute, which had a contribution of about $45 million from the federal government. There was no contribution by the provincial government in this particular case, but there was certainly a contribution from David Braley, who, as a philanthropist, put $10 million into that project. They expect 200 full-time jobs from the institute being in place. It's a world-class institute for cardiac vascular and stroke strategies. It's one example.

Within the knowledge infrastructure program, Mr. Garneau, I can certainly tell you that these buildings that are rising in our colleges and universities will employ researchers, trainers, and others involved in making sure our economy is innovative and competitive. There are permanent spinoffs as a result of one-time funding. It could be part of the explanation.

I don't know whether anyone else wants to add anything.

[Paul Boothe, Senior Associate Deputy Minister, Department of Industry]

Yes. I basically think the term “permanent” refers not to the length of time for the spending measure but to the impact on the economy. For example, when spending measures are directed at consumption or at things that will have a short-term impact, the impact on GDP is temporary. When spending is aimed at capital stock, it increases the capacity for workers to contribute more productively in the future.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Mr. Boothe, in the case of housing investment measures, is that not a temporary measure?

[Paul Boothe]

No, because when you look at the calculation of GDP, GDP measures housing as a flow of services over time. The impact on measured GDP would be for the life of the capital that's produced, the housing stock.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

I would appreciate a more detailed answer. If I could, may I ask for a more detailed answer on this through the committee? The word “permanent” is used here and it seems to imply that the expenditures are of a permanent nature.

[Tony Clement, Conservative, Parry Sound—Muskoka, ON]

We'll have to contact Finance to get a more detailed answer for you.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you, Mr. Minister.

[The Chair, Conservative, Michael Chong]

If you could direct it to the clerk, she'll then distribute it to all members of the committee.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

One of the things I've been doing is going across the country and speaking at universities. The one single issue that universities have probably talked more about than anything else is on the need to fund indirect costs of research. Yet I notice that only $8 million is allotted for all of Canada's universities for the year, which is, if I can put it plainly, less than a drop in the bucket. Have you not been told by the universities that indirect costs are their single, most important priority, Mr. Minister?

[Tony Clement, Conservative, Parry Sound—Muskoka, ON]

I don't remember them saying the “single, most important” priority. It's always raised year in, year out, and where we can, we try to be helpful. Certainly, that $8 million is an investment the federal government has made in this budget for indirect costs of research.

The feedback we're getting on Budget 2010 from the university sector, for instance, has been very positive. They appreciate the increase to the granting councils and they appreciate the measures devoted to big science, like TRIUMF, for instance. Generally, it's been very positive out there. Allan Rock signed a letter on behalf of the University of Ottawa, for instance, thanking the federal government for its major investments in universities and colleges.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Of course, $8 million for all the universities for one year is really almost insignificant, Mr. Minister, certainly by my estimation.

The president of the CME, as you know, said recently that the reduction in tariffs that you announced in your budget, to quote him, would do very little. When we heard testimony from him at a round table we held in January, he said the most effective measure would have been to do more with the accelerated capital cost allowance, either in terms of loans to allow people to invest or perhaps making it a five-year program.

What is your response to that? That comes from Mr. Jayson Myers, the president of the CME.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Garneau.

Just briefly, Minister.

[Tony Clement, Conservative, Parry Sound—Muskoka, ON]

The elimination of the manufacturing tariffs has been applauded throughout the country by experts, economists, and manufacturers, so I think that is going over relatively well. We're the first in the G20 to do that. It speaks well to our economic leadership worldwide.

The other things we're doing...we are obviously keeping business taxes the lowest in the G7, which is very positive for our manufacturers. For small businesses, changing the rules in terms of venture capital to make it easier for American and other venture capitalists to invest in Canadian companies here in Canada is I think going to be very positive in the manufacturing field and in other fields as well.

[The Chair, Conservative, Michael Chong]

Thank you.

Monsieur Bouchard.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chair.

I too would like to thank the Minister for being here. I would also like to welcome Mr. Dicerni, Mr. Boothe and Ms. Gillis.

Mr. Minister, from what you say, everything seems to be going well. My view is different from yours, particularly when it comes to the manufacturing sector. I would like you to give the committee members some information about the situation in the manufacturing sector, particularly in terms of job losses.

I would also like to know what measures have been proposed by your department. What measures are you thinking about taking in future to reduce the number of jobs lost? It seems that between November 2002 and January 2010 the manufacturing sector lost hundreds of jobs.

I would like to know your opinion on this. I think this sector is very important, but the fact is it has lost hundreds of jobs.

[Tony Clement, Conservative, Parry Sound—Muskoka, ON]

Thank you, Mr. Bouchard.

This period has indeed been very difficult for the manufacturing sector. However, I can say that our measures in the 2009 and 2010 budgets support the sector in terms of its need for innovation. For example, there are funds, funding, credits for adopting innovation measures. Today we are saying that the rating system for the manufacturing sector is being eliminated. That mainly affects the manufacturing sector.

For small manufacturing companies, there are measures at the Business Development Bank of Canada, for example, to support the SME manufacturing sector. Our budget, our Economic Action Plan, includes all sectors of the economy.

However, I said it is important to support the manufacturing sector and that our economy is not based only on the innovation and knowledge sector. It is important to have a manufacturing sector in the future as well.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Minister. You talked about your economic recovery plan. I am going to tell you honestly that it seems to me to have been designed for Ontario and western Canada.

You spoke briefly about forestry in your statement. My question will not be on that subject. Nonetheless, I would like to say this: your supposed aid to forestry is chickenfeed. This is not the way to rebuild the forestry sector. That is the message I wanted to give you about forestry, as an aside.

My question will deal with the manufacturing sector. In February alone, 11,000 jobs were lost in this sector in Quebec. Earlier, I spoke to you about the manufacturing sector overall and the hundreds of thousands of jobs lost.

Let's talk about the measures. These measures you have proposed do not meet the needs, do not create jobs. Do you not consider it urgent to implement the refundable research and development tax credit to help the manufacturing sector?