Evidence of meeting #46 for Industry, Science and Technology in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was patents.
A recording is available from Parliament.
12:50 p.m.
Conservative
Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB
I don't know if anyone else wants to jump in on that.
Mr. Lavoie, would you like to?
12:50 p.m.
Director of Policy, Manufacturing Competitiveness and Innovation, Canadian Manufacturers and Exporters
If I may, but more on the first part of your question.
We have calculated how much is taken out of SR and ED and how much has been announced in new measures in the budget. So far, you can't really compare IRAP and what is taken out of SR and ED. As we said, $750 million was taken out of SR and ED. A big part of it is for large businesses.
In the new budget announcement, only four programs will have money available for private companies: NRC-IRAP, business-led networks of centres of excellence, venture capital, and the Western Economic Diversification innovation fund. But they don't make up the same amount. We were told that there's something else coming up. But of these four programs, only one—the business-led networks of centres of excellence—is actually available for larger companies.
12:50 p.m.
Conservative
The Chair Conservative David Sweet
Thank you, Mr. Lavoie.
We're now on to Mr. Regan for five minutes.
12:50 p.m.
Liberal
Geoff Regan Liberal Halifax West, NS
Thank you again, Mr. Chair.
Mr. Lavoie, you say in your report that the manufacturing sector is responsible for more than 50% of research and development expenditures in Canada. We have already talked about the difference between large businesses and small and medium enterprises. However, I would like to talk more about that subject.
What proof is there that the job creation benefits arising from expenditures that are made by the government in this area stay in Canada? Is there a difference between large businesses and others?
12:55 p.m.
Director of Policy, Manufacturing Competitiveness and Innovation, Canadian Manufacturers and Exporters
To answer that question, I would remind you that someone appeared before your committee on this study. I believe he said that there was a study showing that 60% of businesses that had received venture capital in Canada were bought out by foreign companies and went elsewhere.
These are things that can perhaps be commercialized here but that do not necessarily stay in Canada. That is the risk you take with small businesses. They have to be assisted in commercializing their products. They have to be assisted in growing, but they also have to be assisted in staying in Canada, I hope, and eventually expanding. When they grow, that is where they will have an impact on research, development and employment.
On this point, Mr. Gupta talked about the pattern box model, which is a model used in the Netherlands and Great Britain. That could be a tax incentive for commercialization in Canada. I also suggest you look at the $400 million that will be invested in venture capital. Other countries such as Israel use these funds as matching funds. Will we increase the likelihood that a small business will remain in Canada if it receives $20 million in venture capital funding and another $20 million from a multinational company established in Canada that will assist it in commercializing these items? There may also be another option, the matching fund criterion in venture capital. That seems to work in other countries. We talked about Israel. That country put its first fund in place in 1993. Today, businesses in that country spend more on research and development as a percentage of GDP than in any other country in the world. I am not saying that this is the only thing to do. We discussed other tax measures in our report, but this is definitely one to look at once this fund is put in place.
12:55 p.m.
Liberal
Geoff Regan Liberal Halifax West, NS
Your members include large Canadian companies and also multinational companies. Is there a difference? I imagine that, when a multinational company conducts research and development in Canada, that does not necessarily affect direct long-term benefits in the creation of jobs here in Canada that will go elsewhere in the world. Do you have any comments on that topic?
12:55 p.m.
Director of Policy, Manufacturing Competitiveness and Innovation, Canadian Manufacturers and Exporters
According to the surveys of our members, the majority of businesses that do not have their head offices in Canada but that have subsidiaries in Canada, make their decisions on what are called global product mandates at their headquarters.
When you consider 40% to 50% of manufacturing sector companies whose headquarters are outside Canada, the reduction in research and development tax incentives will definitely have an impact where the decision is made because those companies have a more global perspective.
I do not mean that companies based in Canada do not necessarily have the ability to go and see what is going on elsewhere. As I said earlier, companies such as Magna and Bombardier are able to conduct research and development in other countries. Those are decisions that are made based on a host of factors, but the research and development tax credit, that is to say the return on investment from a tax standpoint, represents something important. Eventually, I believe that, when these decisions are made, whether the head office is in Canada or not, the generosity of the tax credits will definitely be discussed. There can be no doubt about that.
12:55 p.m.
Liberal
Geoff Regan Liberal Halifax West, NS
On the one hand, I heard one Conservative colleague say that the government had not reduced research and development expenditures or spending on the SR&ED tax incentives program. On the other hand, the parliamentary secretary spoke about the efforts to reduce the deficit that the Conservatives created before the recession started.
What is the situation based on your report? How did you determine that it had been reduced?
12:55 p.m.
Director of Policy, Manufacturing Competitiveness and Innovation, Canadian Manufacturers and Exporters
Basically, there is a $663 million reduction in federal money for the SR&ED tax credit. There is an injection of $333 million in new direct funding, which will be available to private businesses.
There have been other announcements. For example, the granting councils have received new funding. The Canada Foundation for Innovation has received some as well. However, private businesses will not have access to that money. So those aspects cannot be compared.
Thus far, $633 million will be withdrawn and $333 million reinjected annually. That is a ratio of two to one. Will other measures eventually be announced? I do not know and we cannot really rely on that. What we are also hearing from our members—and if there is one criticism that should be made it is this—is that we cannot base our future investments on what we do not know. What we do know is that SR&ED will be reduced. We do not know whether there will be new types of direct sectoral investment.
1 p.m.
Conservative
The Chair Conservative David Sweet
Thank you, Mr. Lavoie and Mr. Regan.
That's our meeting for today. We'll see you next week.
The meeting is adjourned.