Under most cooperative acts, and in conformity with the cooperative principles, capital receives a limited financial return. Most shares have a par value, that is, the value of the share is the same on the date of purchase and on the date of redemption. So there is no potential for capital gains. In a corporation, the primary goal is to maximize return on capital for the owners and to generate an increase in the value of their shares. In many cases, on the selling of these shares, the small business owners are eligible for the capital gains exemption, which encourages them to invest retained earnings in their enterprise.
In seeking capitalization, emerging cooperatives have two barriers that conventional corporations do not face. First, the democratic structure of one member, one vote, and the limited returns on capital mitigate against the usual sources of venture capital, which require high returns and significant control of the enterprise. Second, because co-op par value shares do not generate capital gains, members do not receive the same tax incentive from the government to reinvest in their enterprises.
There are various approaches that are designed to address these barriers.
The Canadian Co-operative Association is currently leading an initiative to develop a national co-op development fund to invest in cooperative expansions, conversions, and in the emerging cooperatives as a legacy project for the international year. The fund to attract co-op sector capital is designed to provide a market rate to its investors. Hence, it will have to manage its portfolio risk carefully. This means that it will have to limit its involvement in the emerging co-ops and focus primarily on expansions and conversions. Because of this limitation in the fund's ability to address the needs of the emerging co-ops, the CCA had discussions with the Government of Canada requesting a $70-million contribution, which would give the fund, in combination with its sector investments, the capacity to meet the needs of the emerging co-ops in Canada, and in the long term to generate a constantly growing pool of capital.
With the wish to return to a balanced budget after the recent recession, such a large investment is now unlikely. However, I would urge this committee to recommend to the government a more modest investment of at least $20 million. This contribution by the government would eventually be returned to the government treasury through increased employment via personal and corporate taxes. As one of the key legacy projects for the International Year of Cooperatives, this is an opportunity for the Government of Canada to invest in the future of cooperatives all across this country.
Another opportunity to support the development of co-ops is to balance the capital gains exemption with a cooperative investment program. This would be essentially an investment tax credit for the investment into equity shares in the cooperatives.
Hazel will now speak about the RSP issue.