Mr. Speaker, I am pleased to rise in the House to discuss and debate Bill C-4, the second budget implementation bill.
This is yet another omnibus bill, which, at second reading, is again the subject of a time allocation motion. Our debate will therefore be limited, which will also be the case at the Standing Committee on Finance, of which I am a member. Indeed, we will have only two meetings to discuss a bill that is over 300 pages long and that amends a great many pieces of legislation, and not just budget-related legislation or legislation related to the nation's finances.
We strongly object to this way of proceeding, as we have from the beginning of the last session of Parliament, when the government decided to make a habit of this.
I would like to focus my remarks on one aspect in particular of Bill C-4, that is, the elimination of the tax credit for labour-sponsored venture capital funds, which was announced in budget 2013. This is an extremely crucial measure. On the one hand, the government claims that it will save $355 million over five years. On the other hand, it wanted to please private investors and decided to invest $400 million in private venture capital funds. However, the two kinds of funds are very closely related, and I will expand on that in my speech.
This measure constitutes an attack on a tool that is crucial to economic development in Quebec: labour-sponsored venture capital funds. These funds are considered a crucial tool for economic development, not only by those who benefit from them—mainly small and medium-sized businesses—but also by the Quebec business community, which objected immediately and still opposes this measure. These funds play a major role in Quebec. Eliminating this tax credit will hit Quebec particularly hard, which is why I am focusing my remarks on Quebec. In fact, 90% of the investment by labour-sponsored funds is currently in Quebec.
I will focus my remarks on the Fonds de solidarité FTQ in particular since it has been around for more than 30 years. Fondaction CSN is another very active fund in Quebec, but the Fonds de solidarité FTQ has a 30-year history of economic investment. It has benefited corporations in Quebec as well as small and medium-sized businesses. That will be the focus of my remarks.
In the last 10 years alone, the Fonds de solidarité FTQ's investments have created or maintained over half a million jobs in Quebec.
I was saying that this is related to venture capital funds too. That is extremely important. The Fonds de solidarité FTQ is currently investing not only in Quebec companies and in starting up or rescuing companies in jeopardy that have the potential to contribute significantly to Quebec's economy, but it is also investing in private venture capital funds. Currently, the Fonds de solidarité FTQ is investing in 47 different funds. Some are international funds, but they are opening offices in Quebec.
Another dozen or so are Canadian funds, including the Ontario Venture Capital Fund, which was created by the Government of Ontario in the 2000s when the Ontario tax credit was eliminated. Venture capital invested in Ontario's economy had plummeted. Ontario tried to offset that by creating this agency, and the Fonds de solidarité FTQ invested heavily in it. Obviously there are also venture capital funds in Quebec that are invested in Quebec.
There are private venture capital funds, but there are also funds of funds. The largest fund of funds in Canada at present is Teralys Capital with access to $700 million. Some $250 million of that amount was invested by the Fonds de solidarité FTQ. In total, the Fonds de solidarité FTQ has invested over $1 billion in all private venture capital funds combined in Canada.
Consequently, the measure announced in Bill C-4 by the Conservatives affects more than just the ability of labour-sponsored funds, such as the Fonds de solidarité FTQ and Fondaction, to directly invest in small and medium-sized businesses in order to help them start up and grow.
It will have a serious impact on the ability of the Fonds de solidarité and Fondaction to contribute to the success of private equity funds.
This is one of the major reasons why Canada's Venture Capital & Private Equity Association is opposed to this Conservative measure. I will say it again: it opposes this measure.
The government tried to appease them with a $400 million investment, but the association understands the negative impact this measure will have on their activities, namely using venture capital to fund businesses in Canada.
I would like to quote the president of Canada's Venture Capital & Private Equity Association:
Namely, that eliminating the credit could put regional investment at risk, as [labour-sponsored venture capital corporations] are particularly active outside the main centres of economic activity. And, [the second concern is] that these vehicles “play a structural role” in the venture industry, and are frequently co-investors. “By eliminating the federal tax credit, a critical piece of infrastructure may be stripped from the entrepreneurial and venture capital eco-system,”....
Canada's Venture Capital & Private Equity Association understands the havoc and destruction that will ensue as a result of this Conservative government measure, and it is not the only business association to oppose this measure.
The Fédération des chambres de commerce du Québec opposed the government's intention to abolish the tax credit as soon as it was announced in budget 2013.
I would like to share two quotes from Françoise Bertrand, president and CEO of the Fédération des chambres de commerce du Québec.
Before the government's announcement, she was already praising the positive impact of labour-sponsored funds, including the Fonds de solidarité FTQ.
This is what she had to say on March 1, 2013, before the government announced that it was going to abolish the credit:
They understand your business. On innovation, they’re still there. The Fonds has been involved in digital technology. It’s not easy; the banks are not there. The Fonds was really ahead of the game. One thing we should say is the extent of their interest and participation in businesses in the different regions of Quebec. They have been very active in making sure that they have not been missing any opportunity.
When the government announced in budget 2013 that it intended to abolish tax credits for labour-sponsored funds, there was an immediate reaction from the Fédération des chambres du commerce du Québec. Françoise Bertrand said:
These funds are important to the economic development of Quebec, and if the government cuts these tax credits, it will eliminate an important tool for promoting business start-ups.
Were those the only negative reactions? No. Michel Leblanc, the president and CEO of the Board of Trade of Metropolitan Montreal, denounced this measure the day after budget 2013 was tabled:
The contribution of labour-sponsored funds is invaluable for our economy. These funds make long-term investments in small and medium-sized businesses in sectors that tend to be less well served by private funds. What’s remarkable is that their investments are countercyclical, because they maintain a high level of investment during economic slowdowns. Plus, the return on investment for the federal government is amply recouped, whether in terms of tax and quasi-tax revenue or recovery time.
What does that mean? Mr. Leblanc looked at two studies. One was conducted in June 2010 by SECOR Group, which was led by Marcel Côté, who is now a mayoral candidate in Montreal.
SECOR Group analyzed the return on investment of these tax credits for the Quebec and Canadian governments.
SECOR concluded that the tax credits were very positive for both governments. On average, the governments recouped the investment they made by way of this tax credit in less than three years. This means that in less than three years, these governments earn back the revenue they lost.
A second, quite recent study was conducted after the government announced the abolition of the tax credit. This study was carried out by IREC and was revealed by the Board of Trade of Metropolitan Montreal. In Canada, for every dollar of tax credit going to savers who invest in labour-sponsored funds, the government receives in return the equivalent of $1.26 in additional tax revenue. This is a gain.
For Quebec, this measure is even more important, because for every dollar that goes to savers in tax credits, the Quebec government receives $2.05 in tax revenue. Any company with an opportunity to make a similar return would jump on it. With this measure, the Canadian government is killing the goose that lays the golden eggs. Clearly, the Conservative government does not really understand either the impact labour-sponsored funds have on the Québec economy or how they work.
The member for Beauce and Minister of State for Small Business and Tourism, and Agriculture tried to defend the decision announced in budget 2013 by saying that only 11% of the capital in the Fonds de solidarité FTQ is invested as venture capital.
That is not true. In fact, Quebec law requires both funds, the Fondaction CSN and the Fonds de solidarité FTQ, to invest at least 60% of their assets in venture capital, which means in businesses. This is unsecured venture capital. It is risky, because it is low in the creditor pecking order should the investment go bad. That is why they also call it risk capital. Currently, the Fonds de solidarité FTQ invests 67% of its assets.
When he refers to the 11%, the Minister of State for Small Business and Tourism, and Agriculture and member for Beauce is all confusion. This relates to new investment made last year. Obviously, when you invest in a business and it prospers, the FTQ can give up its shares in the business and reinvest elsewhere. There is constant turnover.
The fund’s total investment is 67% of its assets. There are businesses from which the Fonds de solidarité FTQ withdrew its funding in order to invest the 11% elsewhere.
We can therefore see to what extent the Fonds de solidarité FTQ plays a crucial role in Quebec’s economic development. It has existed for 30 years, but in the last 10 years alone, over $6.3 billion has been invested in Quebec businesses, private venture capital funds and funds of funds. Some 2,239 businesses in Quebec and Canada have benefited from this, and 80% of them have fewer than 100 employees. We can therefore see the impact on SMEs.
I suggest that my Conservative colleagues listen carefully, because they are always talking about their interest in promoting SMEs and helping them develop. The Fonds de solidarité FTQ plays a crucial role in the development of SMEs. Today in Quebec, it is estimated that 171,000 jobs have been created or maintained through the efforts of the Fonds de solidarité FTQ.
The tax credit does not go to the Fonds de solidarité FTQ; it goes to the savers who decide to invest in it. It is estimated that the immediate result of this Conservative measure will be the loss of about 20,000 jobs in Quebec alone. The measure will not create jobs; it will destroy jobs that Quebec and, by extension, Canada desperately need at this time. Labour-sponsored funds of this kind, and in particular the Fonds de solidarité FTQ, have also created funds that operate regionally. That is another crucial point.
This has extremely useful spinoffs regionally. In the Quebec City area, 70,000 savers are currently contributing to the fund and receiving the tax credit, which is an incentive to save for them and an economic development lever for the fund.
The fund has invested about $1 billion to date in the Quebec City area. In the last three years alone, this has benefited 400 businesses, and 45,000 jobs have been created or maintained in the area. In my own case, for example, 25 businesses in the Lower St. Lawrence region are receiving support from the Fonds de solidarité FTQ.
Why are these businesses especially concerned? Because the fund invests largely in the regions, where private venture capital and the banks do not dare to go.
Let us think about where we would be now if we had not had help from this fund, given the number of small and medium-sized businesses that need a hand with their economic development, particularly in the regions.
This is where the Conservative government fails to understand the real consequences of its actions. It is my impression that either in the Prime Minister’s Office or in that of the Minister of Finance, they told themselves that this was a labour-sponsored venture capital fund with connections to the union and they could score a big hit by abolishing the tax credit and returning it to the private sector, which will do things better. On the other hand, people in the private venture capital field understand the importance of such funds. They protested against the move. Is the Conservative government listening? No. It is proceeding with the measure.
I would like to talk about these funds from another angle that is extremely interesting: the saver’s angle. Savers currently benefit from a 15% tax credit on their investments in the Fonds de solidarité FTQ or the Fondaction CSN. This is a necessary and crucial incentive. The government tells itself that they will be able to reinvest elsewhere if they want to and that the Fonds de solidarité FTQ is now big enough, with its $9.6 billion in assets.
However, these funds have a specific role to play that private venture capital funds do not. Their particular mission is to invest in higher-risk areas. Their return is therefore much more uncertain. Sometimes—although this was not the case during the last economic recession—they may have a lower return because less than 30% of their assets is invested in the speculative market. Nearly 70% is invested in venture capital.
This is therefore a real deterrent to savings. Now, if savers seek higher returns, they will be much more inclined to turn to private funds such as mutual funds, venture capital funds or something else that will assure them of less uncertain, more stable and higher returns. This is why the tax credit is there in a complementary role.
I do not understand this decision by the Conservative government, which is determined to eliminate the tax credit. The Fonds de solidarité FTQ and the Fondaction CSN are two key drivers in the development of the Quebec economy. They have proven their value and they are needed. The Fédération des chambres de commerce du Québec and the Board of Trade of Metropolitan Montreal recognize the need for these development tools. The Conservative government is jeopardizing all this by eliminating the tax credit.
I would like to know why no one is taking the trouble to study this particular measure, which will have such a significant impact on the Quebec economy. The Conservatives are fond of saying that they work to ensure that they walk the talk. They should therefore conduct an impact study to assess the real effect of this measure, because it will have serious consequences.
I therefore expect to be able to discuss this measure in the Standing Committee on Finance. I hope to have informed questions from my colleagues. They should understand that this goes against the government's plan—and it is a plan, we certainly hear it often enough—for Canada's economic development.
