Federal corporate taxes. I am glad he clarified that.
I appreciate the opportunity to address the budget today. Mr. Speaker, I should mention at the outset that I will be splitting my time with the erstwhile member for Portage—Lisgar.
I am the Conservative critic for industry, science and technology. As such, I would like to review mainly the initiatives in this budget that affect industrial policy.
As an industry critic, I have had the opportunity in the last two years to travel across this country and to see many of the industries we have in Canada, whether it is the auto industry, fisheries on the east coast, softwood lumber, the beef industry, the high tech industry across the country, initiatives like the nanotechnology institute at the University of Alberta or the synchrotron institute at the University of Saskatchewan.
I am amazed at the potential this country has and at some of the good things that we are doing. I have to say that what really saddens me is the fact that we need a national industrial policy that recognizes that potential, that unleashes that potential and grasps it. We do not have this because what the federal Liberals continue to do is follow down a path of corporate welfare as their industrial policy. Instead of focusing on genuine research and development through the granting councils, instead of focusing on lowering taxes or putting into place an overall industrial framework that encompasses a big science policy, they insist on following the path of corporate welfare.
The fact is that most Canadian companies are innovative. They put new products on the market or introduce new processes. The problem is that compared with other G-8 nations, we do not innovate at the same pace. It is not our fault as Canadians, but in my view, it is a sense of national policies put in place that have resulted in this.
The fact is our productivity has fallen in comparison to other OECD nations, particularly in relation to that of the United States. Canada has fallen from sixth place in the world competitiveness ranking in 1997 to ninth place in 2001 and now to 16th place in 2003. Canada in fact ranks 14th in per capita research spending of the top 15 industrialized nations.
With respect to Canadian businesses, productivity and innovation, I would characterize budget 2004, with all due respect to Clint Eastwood, as being comprised of the good, the bad and the ugly. To be fair, I will begin with the good.
Government financial support for university research and research training is predominantly made available through federal granting councils: NSERC, the Natural Sciences and Engineering Research Council of Canada; SSHRC, which covers social sciences and humanities; the Canadian Institutes of Health Research; and the largest one, the National Research Council. These councils collectively provide peer reviewed funding for more than 18,000 researchers across the country in many disciplines.
For the most part, these granting councils, particularly NRC, NSERC and CIHR, have had a good track record in science and research investments. We in the Conservative Party want to applaud their work. Therefore, we support the $90 million increase in the budgets to these granting councils, including the CIHR, which falls under the health portfolio.
However, I want to remind the government in a very constructive way that these science and technology investments cannot stand alone in the effort to improve productivity and innovation in Canada. We must ensure that these grants are transparent. They must be made in combination with a broader science and technology policy framework and they need to be made in combination with tax cuts in order to create and encourage innovation in the commercialization of research.
Now let me address some of the bad in budget 2004. Frankly, I consider the venture capital section of the budget to be bad. I would also like to raise some concerns I have over the government's new push to commercialize research in universities.
It pains me to call it bad, but the budget's intention of creating a venture capital fund of $270 million to enhance access to venture capital financing and to be administered by the Business Development Bank of Canada and the Farm Credit Corporation should raise red flags across the country. In my view, the government should not make the BDC the venture capital outlay that it is in this budget and we should in fact rely more on private sources.
The Conservative Party of Canada would like to see more venture capital in Canada. According to Canada's Venture Capital & Private Equity Association, investment activity in Canada's venture capital industry declined in 2003 with disbursements totalling $1.5 billion, down 41% from 2002. However this decline is paralleled in the U.S. which has a much larger venture capital tool than Canada.
The federal government has previously employed other tools other than direct subsidization to encourage venture capital growth in Canada and we urge them to use those tools. For instance, budgets 2001 and 2003 included tax measures that removed impediments to pension fund investments and venture capital markets through limited partnerships, a vehicle that pension funds prefer for such investments.
We could also restore the capital gains exemption to what it was or even beyond that. Frankly, that would enable middle aged people who have paid off their homes to start using some of these investments. We need to invest in people starting up small businesses and who need it.
I would like to finish this section with a quote from Larry O'Brien, a well respected chief executive of Calian Technologies. He says that while it is easy for Ottawa to say it will support early stage development, consequent programs get “...so screwed up in execution that it never works that way and you're better off not doing it”.
The bottom line, from our point of view, is that taxpayers should not replace shareholders as a main source of capital.
Let me move on to the ugly section, and I should warn members that it is truly an ugly section. The fact is that the Liberal government refuses to acknowledge the failure of its own policies to encourage innovation and productivity in Canada. It has had 10 years to improve industrial policy and now it is asking for 10 more years under its so-called innovation agenda. This was the agenda that was so prominent under the former industry minister and now we hear nary a word about it, except that the Liberals want 10 more years to do this.
The reality is that Canada does have the potential, and I have seen it firsthand across the country. We have the potential to be a world leader in innovation, entrepreneurship, science and technology. However this will require the government to make a fundamental policy shift away from policies of corporate welfare.
Before I go into that, I want to quote my friend and a policy expert in Canada, who we should be listening to much more, Jason Myers, the executive vice-president of Canadian Manufacturers and Exporters. He says, “At best this budget was balanced. Anything else is of marginal, minimal impact on Canadian industry”.
In addition to that, a recent C.D. Howe Institute report stated that Canada's effective 31.5% tax rate on capital is leaving the country unable to compete with U.S. companies which face a substantially lower rate of 20.1%.
In combination with an increase in program spending, government expenditures on its own programs will jump 7.6% from last year, and will further increase another $12.7 billion over the next two years. Obviously the government, and the Liberals in particular, have a problem in managing the finances.
Despite these record levels of spending, total gross domestic expenditure on research and development has declined. According to the government's own documents, this drop is largely the result of a decrease in about $729 million in business R and D performance.
Big gains in productivity and research can only be achieved when capital, money and labour, is free to go where the market offers both profits and new and exciting opportunities to workers. The government should be freeing up more money through tax cuts and it should revamp the SR&ED tax credit program, something it has been promising to do for years.
In terms of finishing off this ugly section of the budget, the budget fails to eliminate the terrible policy of corporate welfare. One example is the federal government's program, Technology Partnerships Canada, also known as TPC, which was created in 1996 to replace DIPP, the defence industry productivity program.
We do not question the need for a defence procurement strategy, but we do question corporate welfare and the government's policy of selecting certain companies within certain industries to favour for what it calls investments, what we call grants, or what it sometimes calls non-repayable contributions.
