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37th PARLIAMENT, 2nd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Tuesday, September 23, 2003

0930

The Chair (Mrs. Sue Barnes (London West, Lib.))

0935

Mr. Bob Friesen (President, Canadian Federation of Agriculture)

0940

0945

The Chair

Mr. Barry Lacombe (President, Canadian Steel Producers' Association, Business Tax Reform Coalition)

0950

The Chair

Mr. Pierre Beauchamp (Chief Executive Officer, Canadian Real Estate Association)

0955

1000

The Chair

Mr. David McGuinty (President and Chief Executive Officer, National Round Table on the Environment and the Economy)

1005

1010

The Chair

Mr. Rick Casson (Lethbridge, Canadian Alliance)

1015

Mr. Bob Friesen

Mr. Rick Casson

Mr. Bob Friesen

Mr. Rick Casson

Mr. David McGuinty

1020

Mr. Rick Casson

The Chair

Ms. Pauline Picard (Drummond, BQ)

Mr. Bob Friesen

1025

Ms. Pauline Picard

Mr. Bob Friesen

The Chair

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)

1030

Mr. Bob Friesen

Mr. Nick Discepola

Mr. Bob Friesen

Mr. Nick Discepola

1035

Mr. Bob Friesen

The Chair

Mr. Bryon Wilfert (Oak Ridges, Lib.)

Mr. Pierre Beauchamp

1040

Mr. David Humphreys (Federal Affairs Advisor, Canadian Real Estate Association)

Mr. Bryon Wilfert

Mr. David Humphreys

Mr. Bryon Wilfert

Mr. David Humphreys

Mr. Bryon Wilfert

Mr. David McGuinty

Mr. Bryon Wilfert

Mr. Bob Friesen

1045

The Chair

Ms. Judy Wasylycia-Leis (Winnipeg North Centre, NDP)

Mr. Pierre Beauchamp

1050

The Vice-Chair (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.))

Ms. Judy Wasylycia-Leis

The Vice-Chair (Mr. Nick Discepola)

Ms. Judy Wasylycia-Leis

The Vice-Chair (Mr. Nick Discepola)

Mr. Gregory Klump (Senior Economist, Canadian Real Estate Association)

Ms. Judy Wasylycia-Leis

Mr. Gregory Klump

The Vice-Chair (Mr. Nick Discepola)

Mr. Bob Friesen

The Vice-Chair (Mr. Nick Discepola)

Mr. Roy Cullen (Etobicoke North, Lib.)

Mr. Barry Lacombe

Mr. Roy Cullen

1055

Mr. David Podruzny (Senior Manager, Business and Economics, Business Tax Reform Coalition)

Mr. Roy Cullen

Mr. Bob Friesen

Mr. Roy Cullen

The Chair

Mr. Roy Cullen

Mr. David McGuinty

Mr. Roy Cullen

Mr. David McGuinty

Mr. Roy Cullen

Mr. David McGuinty

Mr. Roy Cullen

Mr. David McGuinty

Mr. Roy Cullen

The Chair

Mr. Tony Valeri (Stoney Creek, Lib.)

1100

The Chair

Mr. Barry Lacombe

Mr. Tony Valeri

Mr. Barry Lacombe

Mr. Tony Valeri

Mr. Gregory Klump

Mr. Tony Valeri

Mr. Gregory Klump

Mr. Tony Valeri

1105

The Chair

Mr. Barry Lacombe

The Chair

Mr. Gregory Klump

The Chair

Mr. Jay Heller (General Partner, VenGrowth)

1115

1120

The Chair

Ms. Sue Holloway (Director of Operations, Go for Green)

1125

Mr. Steve Grundy (Director of Development, Go for Green)

1130

The Chair

Mr. Brian P. Anthony (Executive Director, Heritage Canada Foundation

1135

The Chair

Mr. Murray Elston (President, Canada's Research-Based Pharmaceutical Companies)

1140

1145

The Chair

Mr. Rick Casson

Mr. Steve Grundy

Mr. Rick Casson

Mr. Steve Grundy

Mr. Rick Casson

Mr. Brian P. Anthony

1150

The Chair

Mr. Shawn Murphy (Hillsborough, Lib.)

Mr. Brian P. Anthony

1155

Mr. Shawn Murphy

Mr. Jay Heller

Mr. Shawn Murphy

Mr. Jay Heller

Mr. Shawn Murphy

Mr. Jay Heller

Mr. Shawn Murphy

Mr. Jay Heller

Mr. Shawn Murphy

1200

Mr. Jay Heller

The Chair

Mr. Roy Cullen

Ms. Sue Holloway

Mr. Roy Cullen

Mr. Jay Heller

Mr. Roy Cullen

Ms. Sue Holloway

Mr. Steve Grundy

Mr. Roy Cullen

Mr. Jay Heller

1205

Mr. Roy Cullen

Mr. Jay Heller

Mr. Roy Cullen

Mr. Jay Heller

Mr. Roy Cullen

Mr. Jay Heller

Mr. Roy Cullen

The Chair

1210

M. Nick Discepola

Mr. Murray Elston

Mr. Nick Discepola

Mr. Murray Elston

Mr. Nick Discepola

Mr. Murray Elston

1215

Mr. Nick Discepola

The Chair

Mr. Gary Pillitteri (Niagara Falls, Lib.)

Mr. Brian P. Anthony

1220

Mr. Nick Discepola

Mr. Steve Grundy

Mr. Gary Pillitteri

The Chair

CANADA

Standing Committee on Finance

NUMBER 069

2nd SESSION

37th PARLIAMENT

EVIDENCE

Tuesday, September 23, 2003

[Recorded by Electronic Apparatus]

¿ (0930)

[English]

The Chair (Mrs. Sue Barnes (London West, Lib.)): I'd like to call this meeting to order.

Welcome, everyone. I thank you for accommodating us.

I'd like to get started to make sure you have time to put your testimony on the record. We will go in the order of the agenda.

The witnesses we have before us on panel one this morning are as follows:

From the Canadian Federation of Agriculture, we have Bob Friesen, the president. Welcome to you again, sir.

From the Business Tax Reform Coalition, we have Barry Lacombe, president of the Canadian Steel Producers Association. You're wearing another hat today, sir. Welcome back. And we have David Podruzny, senior manager of business and economics. Thank you, David.

From the Canadian Real Estate Association, we have Pierre Beauchamp, who is the chief executive officer. Bienvenue, monsieur. We have Gregory Klump, senior economist, and David Humphreys, the federal affairs adviser.

From the National Round Table on the Environment and the Economy, we have David McGuinty, president and chief executive officer, and Carolyn Cahill, senior adviser to the president and CEO. Welcome to both of you, also.

We'll start with up to seven minutes, if you please. We'll go through all of the full panel for your testimony before we commence a round of questioning. As you know, this panel will end just before 11 o'clock, and we'll switch to our next panel.

So, Mr. Friesen, commence.

¿ (0935)

Mr. Bob Friesen (President, Canadian Federation of Agriculture): Thank you very much, Madam Chair.

It's certainly a pleasure for me to be here on behalf of some 200,000 farmers across Canada. Through the federation's membership, of course, we have a general provincial farm organization out of every province, as well as numerous national commodity organizations, and represent a tremendous diversity, both geographic as well as in the commodities that are produced across Canada: around 9% of Canada's GDP, close to $30 billion in farm gate receipts, and around $7 billion contribution to Canada's trade surplus.

We have submitted a brief to you. I will certainly not go through it in detail but merely highlight a few points, and I would be pleased to answer any detailed questions you might have later on.

Let me begin by talking briefly about business risk management in agriculture--and of course this is probably no news to anybody. That remains a huge challenge in the Canadian agricultural industry for several reasons. Number one, as you know, historically farmers have always had to face challenges due to factors over which they have no control, such as weather-related challenges, market fluctuations, and variations in income because of those challenges. Of course, the more we go to international and bilateral trade agreements and sign those, the more also we are vulnerable to agricultural policy in other countries, and we must be able to respond appropriately to those policies in other countries because of increasingly open borders.

When it comes to farm safety net programs or business risk management, farmers have always preferred to generate their revenue from the marketplace. But again, because of challenges over which they have no control, there comes a time when there is a need to offer programs that will mitigate the variations in revenue that farmers so often experience, not the least of which is competing against very high subsidies in other countries.

As you may know, our own government calculated that at least 25% of the price fluctuation in the grain and oilseeds sector over the last number of years is as a direct result of high subsidies in other countries. That is currently costing our grain and oilseeds sector $1.3 billion a year.

When it comes to budgeting for business risk management and designing programs, we still find ourselves in a mode where we design programs within a set amount of money. That has created its own challenge in never quite developing a business risk management program that accurately measures the need at the farm gate and then accurately flows money to that need.

Under the current business risk management, our minister has assured us that there is no limit to the amount of money he can flow in one year, because he is able to roll over unused money into a subsequent year, or he has assured us that he is able to borrow money from a future year and bring it back into a current year so that pro-rating will not have to be done. The challenge that creates, of course, if we are committed to that, is that we need to ensure that in the fourth or fifth year of our current agricultural policy framework we don't run out of money. The other challenge that presents, of course, is that provinces as yet have not committed themselves to that same commitment in no pro-rating and in fact either rolling money over or borrowing it from a future year. We continue to work on that.

To sum up the part on the safety net programs, let me say that currently, while we have submitted many ideas for program components that would help us to deal adequately with a crisis such as the BSE, neither current programs nor the proposed business risk management program do in fact address adequately the crisis we have in BSE currently. As long as our implemented business risk management programs cannot deal with those crises, we will have to continue to be prepared to source ad hoc money, as well as develop ad hoc programs, to ensure that farmers will in fact land back on their feet, through the crisis and when the crisis is over.

¿ (0940)

I would also like to say that the administration of business risk management programs is hugely important. We are currently asking the government for a commitment to stay at $70 million in administration costs. Current programs cost somewhere around twice that amount of money, and we've heard that the business risk management programs that are proposed are to cost only $70 million annually. We would like to hold the government to that commitment. In fact, if they have cost overruns in administration, we need to see a commitment that the excess administration funding will come from new money and not from within the current business risk management budget.

When it comes to safety nets and dealing with a crisis like BSE, it's not just about shoring up farmers' incomes. Currently, in the BSE crisis, we have a huge market functionality issue. I dare say that farmers need assurance of compensation, not just to shore up their incomes, but to relieve the pressure so they don't make market decisions based on the revenue pressure they feel. They need to be assured that there will be compensation and that they can make smart decisions, so we don't disrupt the market and we can get the beef market back into a normal process as quickly as we possibly can.

Publicly, you often hear that it's all about business risk management, shoring up farmers' incomes, and stabilizing their incomes, but there's more to this. There are many ways, under the taxation issues, we can help farmers. We can relieve the income pressure on farmers through different taxation provisions. For instance, we know that farmers are going to have to spend more money on environmental sustainability. We propose that we should pursue areas such as the capital cost allowance for environmental investment--and the list goes on. I will let you read it, of course, in our brief.

Certainly there are many ways in which we can mitigate the serious challenges that farmers have, such as offering them certain tax incentives, investment tax credits, five-year income averaging, etc. So it isn't just about adding money to business risk management; it's also about creating an environment in which farmers can work more successfully.

Environment and food safety issues, of course, are going to be very big in the future. Farmers would like there to be a partnership between the industry and governments so they do not have to incur the entire cost of implementing environmental farm plans and food safety plans.

In conclusion, let me talk about trade. All of you know that the WTO ministers met in Cancun a week ago. The fact of the matter is that we clearly have some challenges. I mentioned earlier that the more we open up borders, the more we have to respond appropriately to policies in other countries.

We would have urged our ministers not to sign the ministers' framework text because it would have seriously undermined supply management, and our supply management industries currently do not use any taxpayers' money. Second, on domestic support, it would have created an environment within which the United States wouldn't have had to decrease their aggregate spending at all, yet it would have seriously impeded how Canada provided their farm support.

I believe the trade issue is more serious than we often think it is. Before our agriculture minister and our trade minister sign an agreement, depending on what that agreement looks like, they are going to have to work very closely with the finance minister, because depending on what the agreement looks like, it could actually end up costing our treasury a considerable amount of money.

Having made those very brief points, Madam Chair, I would welcome any questions you might have.

¿ (0945)

The Chair: Thank you very much.

Now we'll go to the Business Tax Reform Coalition and Mr. Lacombe.

Mr. Barry Lacombe (President, Canadian Steel Producers' Association, Business Tax Reform Coalition): Thank you very much, Madam Chair.

David and I very much appreciate and welcome this opportunity to apprise the committee of the views of the Business Tax Reform Coalition. We also want to congratulate both the government and the committee on the work that it has done over the past number of years in terms of establishing strong fundamentals for the Canadian economy. These remain absolutely essential.

What I would like to do this morning, Madam Chair, is tell the committee a little bit about the coalition, outline the coalition's priorities, and explain why these remain important.

The Business Tax Reform Coalition started in the fall of 1999. It emerged out of the Technical Committee on Business Taxation, a major study that was then undertaken by the Department of Finance. We wanted to do this because we wanted to better understand the taxation issues of manufacturing and resource-based industry sectors. We wanted to identify areas of common interest and concern and determine if there are common issues and priorities that we could pursue together. Finally, we wanted to communicate our priorities to governments, which is what we are doing this morning.

Our common goals are those of winning new investments, attracting new technologies, and providing good jobs for Canadians. We have a common concern that the overall corporate tax structure does not provide a clear competitive advantage for Canada. Canada is losing market share of North American foreign direct investment. At the same time, North America is losing out to other regions. The manufacturing base is eroding and re-establishing in China and elsewhere. Canada is an open economy. It must compete globally and it must be measurably better than the competition to attract foreign investment and to commercialize the latest technologies. These concerns brought together the 12 associations that make up the Business Tax Reform Coalition. Combined, the coalition is responsible for production of over $264 billion a year, exports of $177 billion a year, and direct employment of 1.5 million Canadians.

In leading up to this we've heard mixed messages. We've heard the message that the time for tax cutting is past, that all the tax measures have been made. We hear that we have a corporate tax advantage. While a simple comparison of statutory rates shows that a gap will emerge with the U.S., the same federal assessments show that effective corporate tax rates remain higher than in the U.S. for our key sectors. We also hear that corporate tax cuts means that business will not pay its share. It has to be understood that business creates jobs, makes investments, and is doing this against very still global competition for investments and jobs.

A number of countries have lowered their corporate tax rates to attract investment. We need to be very competitive, in fact have a Canadian advantage, in terms of corporate taxes if we're going to continue to create the jobs and have the economic progress so essential for social and environmental progress.

Our priorities are the following. First, maintain a balanced budget. We know that there are spending pressures, and to the extent that these pressures need to be met we argue that they should be done through reallocation, a robust process of reallocation. The second is tie spending growth to GDP growth. We cannot sustain double-digit increases in spending. Third, lower the corporate tax burden. Open up a clear Canadian advantage, lower the corporate tax rate to 17% to do that. Review and adjust capital cost allowance, use it as more of an economic policy tool. And three, accelerate the elimination of a capital tax, and at the same time eliminate the corporate surtax. The corporate surtax, as committee members may recall, was introduced as a deficit-fighting measure.

Why are we worried about these things, and why are we making these recommendations? First, we're concerned that spending has been in double digits recently, and that is simply not sustainable. There is a continuing need for tight control on spending. Second, user fees, another form of taxation, are out of control. There is increasing reliance on user fees and little oversight on the establishment of those user fees. Third, there is a tendency for new policy not to be costed out when it is introduced. All the estimates appear to be lowball estimates, and then the reality turns out to be much higher.

¿ (0950)

Security and access to the U.S. market are paramount issues, and we realize these may take some resources, but they will also take on opportunities to embellish the relationship between Canada and the U.S. and our NAFTA partners. So we don't want to risk slipping back into deficits. We want to make sure that we're staying clear of deficits and that we can address our debts.

Finally, our share of foreign direct investment is falling, and this needs to be addressed.

All of this is occurring at a time when the rest of the world is not standing still. For example, in the U.S. they're reviewing relief for the minimum tax, further R and D tax credits, shortened depreciation schedules, and new investment write-off, which would occur within a year, and they're developing a pro-manufacturing agenda.

We need to be aware of these. So from our point of view, while excellent work has been done, much more remains to be done if we're going to have and continue to have strong economic fundamentals and continue to create jobs and investments in Canada.

Thank you very much, Madam Chair.

The Chair: Thank you very much.

We will now go to the Canadian Real Estate Association.

[Translation]

Go ahead, Mr. Beauchamp.

[English]

Mr. Pierre Beauchamp (Chief Executive Officer, Canadian Real Estate Association): Merci beaucoup, madame la présidente.

Many MPs on the committee would undoubtedly be familiar with the Canadian Real Estate Association and its representations on behalf of realtors as well as property rights and homeowners. Our membership at the moment, Madam Chair, stands at 69,000 members throughout the country. Last year these members collectively carried out more than 464,000 property transactions, which were worth over $87 billion in economic activity. All of you know realtors in your constituencies. They, as you know, see you in Ottawa when they attend our annual political action meetings, and they see many of you at this time of year, in the fall, when they speak to you about our representations connected with pre-budget submissions.

As a national association, the Canadian Real Estate Association continues to provide significant funding to the parliamentary internship program, which we believe provides tremendous advantages for young Canadians.

I'll speak very briefly about five issues today, Madam Chair, in the order in which they're going to be discussed. Firstly, we'll talk about RRSPs, then affordable housing, municipal finance, brownfield redevelopment, and, lastly, fiscal policy.

With regard to RRSPs, Madam Chair, we applaud the modest increases in RRSP contribution levels that were outlined in the 2003 budget. However, we urge the committee to recognize that even with these increases, many Canadians who rely on RRSPs won't be able to achieve a retirement income equal to 70% of their earnings. When realtors raised these points with their own MPs last spring during our political action exercise, they really got two main messages from members of Parliament. The first was that we should keep this issue on the radar screen, but we shouldn't expect any additional progress until after the next election. The second message was that many people don't max out their RRSPs even with the current limits. Therefore, people are unlikely to take advantage of even higher limits.

Madam Chair, we're talking about two different groups of Canadians here. Just because some taxpayers won't use a benefit, that is no reason in effect to deny that benefit to others who will use it. This is particularly true when you consider that those who will tax-shelter the higher amounts will also provide higher tax revenues for the government when baby boomers are retiring. This will be exactly when the government will need all the revenue it can get to fund pensions for those who are not in a position today to make higher RRSP contributions.

Our submission makes clear that realtors can be part of the solution to the affordable housing issues around the country. Our members are working both to expand access to existing housing stock and, in special circumstances, to expand the supply of new affordable housing. We want to emphasize that the vast majority of low-income earners are in fact housed by the private sector. Why is it, then, that public policy largely ignores this reality? Instead, it focuses on supplying more and more newly constructed public housing.

Madam Chair, I'd like to underline one recommendation in our submission today. CREA, the Canadian Real Estate Association, urges the government to amend the Income Tax Act to allow capital gains and capital cost allowance rollovers when the proceeds of the sale of an income property are reinvested in another income property. A cap is proposed to ensure the benefit is targeted to small-scale investment. A tax rollover of this kind enjoys, as you know, broad support. We've provided you in our presentation with a list of some 12 organizations that in fact favour a rollover with application to affordable rental housing units. In addition, the Liberal caucus task force on urban issues and federal-provincial-territorial housing ministers support the study of tax deferral in reinvestment situations.

Our particular proposal was very well received by members of Parliament who met our representatives last March. A majority of members of all parties expressed support for the rollover. Some expressed surprise, in fact, that the operation of rental units cannot be treated as a small business for income tax purposes. Some said more information is required on the costs and benefits of such a proposal.

¿ (0955)

We have now commissioned a nationally known and respected firm to conduct such a cost-benefit study. Their work is well underway, and while I regret I cannot make the results official and available to you today, I can assure you that we will, as soon as it is available, make them available to the committee. Meanwhile, we urge you to read our submission, which is based on our own experience. It points to the benefits of a rollover and those benefits to investors, to renters, and to the economy as a whole.

We draw your attention to the disappearance of rental units to demolition and to conversion. This is a consequence of existing tax policies. The Ontario Non-Profit Housing Association has reported that for every 100 new rental units built in Ontario, 144 were lost to demolition and to conversion.

We outline three other priorities that we see as a foundation of a balanced housing policy. These are: number one, to continue the residential rehabilitation assistance program, known as RRAP; secondly, to encourage innovative ways to allow more Canadians to enjoy the benefits of home ownership; and thirdly, to provide public support to help those in greatest need of all, those who are homeless and require shelter.

Now, Madam Chair, I turn briefly to the financial crisis that many cities are experiencing at the moment. Our members in Toronto and in Saskatchewan are particularly concerned about the deterioration of infrastructure and upward pressure on property taxes and municipal levies. These are the inevitable results of the downloading of responsibilities onto municipalities without the revenues to pay for them.

There really is only one Canadian taxpayer in this country, and that's you and me. And when our communities deteriorate, when they become less desirable places in which to live, and when social problems increase, there is only really one loser, and that's you and me again.

We recognize that the federal government acknowledges the problem. However, we do feel that the government in this particular case has a unique opportunity to accept a leadership role. We urge you to encourage the government to support the recommendations of a Liberal task force on urban issues that we have outlined in our submission.

Speaking of the quality of life in our urban communities, the revitalization of brownfield sites has the potential to strengthen the citiy's tax base and to contribute to the community's well-being in so many ways.

Former finance minister Martin asked the National Round Table on the Environment and the Economy to come up with a strategy for brownfield redevelopment. As you well know, the strategy group has now completed its work and there appears to be clear consensus that tax changes are required to kick-start that redevelopment. We urge you to continue to support the remediation of brownfields.

Finally, Madam Chair, we applaud the government's use of the fiscal surplus to pay down the debt, but we think more can and must be done, both to continue paying down the debt and to control spending.

In this submission we are recommending that repayment of debt principal, not just interest, should be included explicitly in the calculation of each budget. This explicit tax reduction would ensure it remains as a priority for the government. It would also remove prevailing uncertainty about whether higher than anticipated revenues will be used to increase spending.

As a similar guard against increased spending, we advocate rolling two-year spending limits in the budget. We think this would only increase the credibility of fiscal policy in the same way as inflation targets have enhanced the credibility of monetary policy.

On that note, Madam Chair, I thank you for the opportunity to be here with you today and for the opportunity for CREA to present this viewpoint.

À (1000)

The Chair: Thank you very much.

Now we will move to the National Round Table on the Environment and the Economy. Please go ahead, sir.

Mr. David McGuinty (President and Chief Executive Officer, National Round Table on the Environment and the Economy): Thank you very much, Madam Chair.

Bonjour à tous les députés et aux membres du comité ce matin.

Madam Chair, in seven minutes we're going to try to deliver the results of three years of work in four or five different theme areas.

Let me begin by saying that it is the contention or the foundation of the work of the national round table to assert that healthy ecosystems are one of the major producers of wealth in Canada. We can forget about running a long-term prosperous economy if we continue to damage the ecosystems providing us with the clean air, clean water, stable climate, and all of those other crucial goods and services that we simply can no longer take for granted and leave unvalued.

An example of how things are changing is the ratification of the Kyoto Protocol. Although it may seem like another one of the 90 multilateral environmental agreements Canada has signed on to, it's a little bit like Sesame Street: one of these things is just not like the others. Why it is different from the others is because it finally internalizes something that's remained external to most of our economic decision-making since the industrial revolution. What the Kyoto Protocol has done for us is simply to have monetized carbon. That is perhaps its single most important contribution.

What it really does is to start placing a value on our natural capital. Natural capital is a term we are increasingly trying to insert into the Canadian lexicon. By capital, we're talking about those assets or entities, such as buildings and equipment, that assure economic production in the future. We know that the environmental assets that provide the ecological services that make our lives possible are at least as important, if not more important, to the future economy—and just as important as factories, machinery, and our human capital.

So the basic message here is that we are going to have to start explicitly including consideration of all kinds of capital in our budget-making decisions.

This year's submission focuses on taking natural capital into account in three areas: first of all, let's get an information system in place that properly tracks how much natural capital we actually have, and one that is linked to economic data; secondly, let's help rural and aboriginal communities protect the natural capital upon which their economies depend; and finally, let's take a look at how natural capital in urban communities can play a role, so that we have a better quality of life going forward in these urban settings.

The first key theme is the need to have better, more consistent information about our natural capital. Like every other OECD country, we rely every year on various macroeconomic indicators, and like every other OECD country, our system of national accounts was designed in the 1920s or the 1930s at best. Times have changed, and events have overtaken us. We now need to increase our reporting to Canadians, so that we can give Canadians a sense as to whether our current economic activity, for example, is affecting the prospects of our grandchildren and our great-grandchildren's quality of life.

This is precisely why the Government of Canada, through its former Minister of Finance, Paul Martin, asked the round table nearly three years ago to work with Statistics Canada and Environment Canada to come up with a small number of national indicators that will supplement—not supplant or replace, but supplement—the GDP and other economic indicators.

We've now developed those indicators, and we're waiting for a response from cabinet. We are recommending, however, that proper funding be provided to allow these to be reported within the federal budget statement, along with other key macroeconomic indicators.

The selected indicators we've come up with measure—sometimes for the first time on a national basis—where we stand on this question of natural capital. Imagine this, we're a nation built on rivers and trees, but we cannot tell you in many instances where we stand on this question of natural capital. But we did come up with a number of indicators, including for air quality, water quality, greenhouse gas emissions, and the extent of two types of key ecosystems, forests and wetlands. We also included one indicator of human capital, educational attainment, in the final list. It will tell us how our investment in a well-educated workforce will help us understand, as well our ability to compete in, a global knowledge-based economy.

À (1005)

Why do we need to track natural capital? Wetlands are a fantastic example of why we have to. These are perfect, free, 100-million-year-old filters, kidneys and lungs of the planet. They filter and purify water, store large quantities of carbon, help control floods, reduce erosion, and protect the shorelines that provide habitat. They're a hotbed of DNA. They indirectly support a range of economic activities such as fishing and farming and recreational activities. Despite all of this, we're in the process of draining many wetlands out of existence.

An unexpected outcome of our work was Stats Canada's realization that data on all types of capital should be connected to our system of national accounts--that's the information system that supports key macroeconomic indicators. If we did so, Canada would be a world leader in analyzing the connections between the environment and the economy. So we're also calling for regular funding and support be made available to Stats Canada to expand its accounts to include data on natural, human, and eventually social capital.

Creating these accounts is going to require more national-level data on natural capital. This leads to one of our strongest and most alarming findings. We were truly and incredibly astonished at the lack of good quality, regularly updated, good old-fashioned environmental information. We don't have basic environmental information on trees. We don't have basic environmental information on waters and rivers. Therefore we're going to have to build, and in some cases rebuild, our information systems in the area of the environment. That is why we're also supporting the Canadian information system for the environment at Environment Canada.

Moving on to nature now, our natural riches are unparalleled. They're on our currency, our hockey teams, our flags. We have 25% of the world's wetlands and virgin forests. We have a huge opportunity and a huge responsibility to act as a global steward. It's no longer just about bears and bunnies; it's about bio-prospecting, bio-mimicry, the DNA in the 21st biotechnology century. Our natural capital's at risk. We're rapidly losing opportunities to create a lasting legacy, for example, for our wild places.

If we're going to protect more of our natural heritage, who will pay for it? This question is understood by the people who live in our rural communities and who work for the resource industries that often form the basis of these rural economies. They're often blamed for habitat destruction. No one seems to be willing to help pull away from the old “loggers versus tree huggers” dynamic. It's been corrosive and divisive over the last 30 years.

Aboriginal communities face particularly strong tensions. While resource development provides all kinds of economic opportunities, it's bringing huge risks, such as the further erosion of traditional ways of life and cultural cohesion.

On examples of measures we're calling for, we should be partnering with the Tourism Industry Association of Canada, which is well disposed to creating a national sustainable tourism strategy so we can compete with the Australians, the Germans, and many emerging European countries.

We should be looking at the question of financial incentives for farms, so they can get financial assistance to purchase farm equipment that protects our natural capital, either through accelerated capital cost allowance or cost sharing.

We should be enhancing the federal government's eco-gifts program, to get with the program. The United States has been ahead of us for 25 years. Since 1995 we have supported the donation of ecologically sensitive lands for conservation purposes. We can adjust the eco-gifts program, bear down on it, dig deeper and wider, and do more yet again for natural capital.

We've also flagged problems in our working landscapes--you know, those portions of public and private lands we allocate for industrial uses, forestry, mining, oil and gas exploration, hydroelectric development, and others. In particular, we are flagging the need to deal with the Mackenzie Valley, one of the last remaining semi-pristine tundras on the face of the planet. It is under huge development pressure, and teetering on the edge of major industrial development.

The third theme is cities. I think we just heard eloquently that we can no longer afford to ignore cities, and we do so at our peril. There is rapid urbanization and deteriorating infrastructure--if we needed any further proof. This shows the importance of maintaining quality of life in Canada's urban areas. In a major report, we're unmasking the fiction that the federal government is not in the city business. Judy Sgro, in her report, roughly estimates there is $55 billion a year in federal expenditures on Canadian cities.

We are looking now at federal fiscal policies--at how the federal government taxes and spends is a disincentive. This is very influential in cities. However, this influence is almost always unintended. It's usually unplanned and rarely examined. We're trying to address these inefficiencies, and our submission is talking about a clearer, more consistent role for the federal government in urban environmental quality, such as urban form, urban transportation, and energy use in urban buildings.

À (1010)

We have recommendations that deal with, for example, GST rebates for municipalities. We also speak to community energy systems and GST rebates on residential renovations.

Finally, we just heard a bit about the national brownfield redevelopment strategy that we devised and released about six months ago. This is a plan for cooperation where all government and industry come together to let the full force and effect of the market clean up 33,000 sites in our cities. We're losing a minimum of $4.5 billion--closer to $7 billion--a year in public benefits by sitting on brownfields in our urban settings. The City of Toronto is losing a minimum of $100 million a year in municipal tax revenues because we haven't cleaned up our brownfield sites. There is a series of specific measures put forward--for example federal liens and tax arrears, mortgage guarantees, and insurance provisions.

This concludes my presentation, Madam Chair. Each of you has previously received copies of the four reports I've referred to throughout this presentation. We're going to also be sending out an updated, more detailed presentation and submission to you in the next two weeks.

Thank you very much.

The Chair: Thank you very much.

I hope there's the executive summary of some of these reports too. It's very important for you to realize that all of the reports you've put forward and given to the clerk are translated and turned around to all of the members of this committee, not just those who are present here today.

We'll now go to seven minutes of questioning. We'll start with Mr. Casson. Go ahead, sir.

Mr. Rick Casson (Lethbridge, Canadian Alliance): Thank you, Madam Chairman.

Thank you all very much for being here. I have a question for Mr. Friesen, and then I'd like to ask a question of Mr. McGuinty.

I'd like to compliment you, Mr. Beauchamp--your organization--on the job they do when they come to Parliament Hill on their lobby day. They are people from our own areas who come. They're well prepared, well briefed. They're concise. They don't take up a whole lot of our time, but they get their message across. There are few like that, and we appreciate that organization.

Mr. Friesen, there a couple of issues I'd like to raise with you. The first, I suppose, is the disaster component of any support program. I think yesterday we saw the provincial agriculture ministers come to Ottawa looking for some help in dealing with the BSE issue, and a certain aspect of the BSE issue, the culled cow problem.

When this thing hit in May, we were into a budget year. What do you suggest the government do to be prepared to handle these extraordinary issues that come forward? Are we looking at a set amount? Are we looking at a discretionary fund? How do you suggest these extraordinary disaster situations be budgeted for and be prepared for by the government?

À (1015)

Mr. Bob Friesen: We would like to see a business risk management program designed to address crises such as BSE. I have to qualify my comments by saying that the programs we've had over the last five years wouldn't do the job to address the BSE crisis either, so it's not a matter of old programs against proposed programs. It's simply that we haven't designed them to the point where they can handle that sort of crisis. There are ways to do it, and that would be our preference--to design the program in such a way that it can handle the crisis, and then, if extra money is needed to handle the crisis, it can flow through the program that's in place. Then, of course, we also wouldn't raise the attention of the U.S. with potential countervail, etc. That would be our preference. Failing that, we definitely will have to continue to react to crises such as BSE through ad hoc funding and ad hoc ways of flowing the money.

But the culled cow situation is a little different from, as I mentioned earlier, a farm income problem. It is that, but it is also a matter of market of functionality. It's very important that farmers across Canada have the assurance that they will be able to land on their feet, and we have to do whatever we can to make sure the markets function properly. So we would like to create an environment within which farmers can make smart market decisions, not make decisions based on the pressure they are currently feeling. Unless some of the components we suggested are added to business risk management, we will have to continue to deal with crises such as BSE in an ad hoc way.

Mr. Rick Casson: Thank you.

My next question is to deal with your comments in your presentation on the Species at Risk Act, endangered species, the compensation for affected land owners. I'd then like to get Mr. McGuinty's comments on that as well.

How would you suggest this compensation be applied? Are we talking about full market value? Are we talking about some kind of a formula? What have you worked on, or what are you saying as far as this compensation for affected landowners is concerned?

Mr. Bob Friesen: First of all, let me say that we have on several occasions received the assurance of the environment minister. We believe it's implicit in the Species at Risk Act that farmers will be compensated. What we're simply saying is that farmers try to be very responsible, but if it's a situation where a farmer has to sacrifice, perhaps, taking off his crop because of a species at risk situation, or if land has to be set aside due to species at risk, then absolutely they should be fully compensated. They should be fully compensated to the level of the discount they then experience in the value of the land, as well as any reduction in revenue because they are taking part in the species at risk program.

We would prefer it to be incentives. We supported the species at risk legislation because we believe there is enough about incentives in there, and there's enough about partnerships between the industry and governments. But as far as compensation for loss of revenue or loss of equity, while it was implicit, we would have preferred it to be more explicit in the act.

Mr. Rick Casson: Madam Chair, if I may, I'd like to ask Mr. McGuinty what his position is on compensation for affected landowners through this endangered species provision.

Mr. David McGuinty: The round table membership doesn't have a position on those specific provisions. It has been following and tracking the regulatory debate around the issue. One of the things the nature report we released called “Securing Canada's Natural Capital, A Vision for Nature Conservation in the 21st Century” does flag, however, is that with the rural drift into urban settings, with immigration levels of new Canadians arriving and staying in urban areas, it won't be the citizens of our downtown cores who will be at the interface on our working landscapes, for example, with nature. We will have to devise go-forward strategies that deal appropriately with rural communities, some of which are gateway communities, for example, around park systems.

The views of the collective group that worked on this across the country, including industrial groups and the five largest conservation organizations, are that there's a bit of fundamental fiction at play, which is that rural Canadians should always pay. If there is a public trust, a public good here, if we believe that there are forms of natural capital that ought to be preserved, and not, as I said earlier, because we like bears and bunnies—although that is important—but because it is an inherent part of our economic well-being in the future, we're going to have to find ways to compensate.

À (1020)

Mr. Rick Casson: Thank you, Madam Chair. Do I have more time?

The Chair: No, I'm sorry. Thank you very much.

[Translation]

Next up is Ms. Picard.

Ms. Pauline Picard (Drummond, BQ): Thank you, Madam Chair.

My first question is directed to Mr. Friesen. I come from a region that accounts for 15 per cent of all dairy production in Canada. Of course, my region is also home to cattle farmers who are presently in very dire straights.

Let me just give you one example involving dairy farmers. I don't have the exact figures, but in the past, a cow that no longer produced milk could be sold for approximately $800. Now, the same cow is valued at only $200, or $100. That's cause for concern indeed. I'm sorry if I'm a little emotional, but the region is experiencing a full-blown crisis. Dairy producers have to feed their cows. When they are able to bring their cows to market, they sell for only $100, instead of $800. Producers' pens are full of meat animals.

Do you favour a second phase to the financing plan, as requested yesterday of the Minister of Agriculture and Agri-food Canada, and as requested by provincial ministers as well? If not, what steps would you take at this time to help producers?

[English]

Mr. Bob Friesen: Absolutely. We definitely are in favour of a BSE strategy.

Let me just outline the challenges both the dairy industry and the cattle industry are going through. We have areas where cow-calf producers at this point can't sell their calves. Some of them can't afford to feed the calves because they're not sure what the market price is going to be once they can sell. Others who are in a drought area and who have been in a drought area for several years can't afford to buy feed to feed their calves, and we definitely don't want this to become an animal welfare issue.

Second, what we are now hearing from parts of the industry is that they're concerned that we're suddenly going to have a wave of cattle come to market. Let's be clear about one thing: Canadians cannot eat themselves out of this crisis. We have been proposing, first of all, a no-interest cash advance so that farmers can relax, they can feed their cattle, and they can have the time to make smart market decisions. As well, to avoid trying to force Canadians to eat ourselves out of this crisis... because what will happen is that this will start seriously impacting other commodities. We're already very concerned that if there is a surge of pork and hog exports into the U.S., there is no question that they will initiate a countervail action.

We're proposing, to maintain the current breeding herd in Canada, that there be some incentive, first of all, for farmers to get some compensation, because there is very little value in the market for these older livestock. Then find constructive ways to develop markets for whatever product we need to get rid of so that we don't force ourselves into a situation where we have far too much protein on the Canadian market and have to try to dig ourselves out of it. Then, to backstop the cash advance, we would like to see some sort of price deficiency in place.

Now, we're not encouraging that farmers should get money from all sorts of sources. The fact of the matter is that the price right now is fairly good in parts of the cattle industry, and if the price is strong enough, of course the price deficiency wouldn't kick in. Second, if a farmer would receive compensation through the price deficiency, that would offset money they would get through the business risk management. So it wouldn't be double-dipping in that one would simply offset the other. There's not much risk, then, in providing a price deficiency program.

Finally, we would like to have a long-term debt restructuring program implemented so that where farmers have to come up with their own money to defer the negative impact of this crisis, they are able to defer it over a longer period of time.

Absolutely, there is no question, we're not out of this crisis yet. While we're very thankful for the partial opening of the border—the minister worked very vigorously to get that done—and we're also thankful for the compensation that was paid during the summer, which was a very important step in the right direction, clearly we have to continue to develop a strategy to get us out of this. In fact, we're working closely with the minister as well as the Liberal rural caucus in trying to come up with a way to do that.

À (1025)

[Translation]

Ms. Pauline Picard: I agree with the recommendations you've just put forward. I apologize for belabouring the point, but many farmers are on the verge of bankruptcy, in Western Canada, in Quebec and pretty much everywhere else in the country. Producers, processors and virtually every sector of the industry are affected because problems tend to snowball.

Aside from the principles stated or recommendations formulated, have you thought of any pressure tactics or concrete ways of getting the minister and the Government of Canada to respond immediately to the crisis besetting the agricultural industry?

[English]

Mr. Bob Friesen: Yes, we have done that, and certainly we would be willing to send you a copy of our proposal, which has been developed among the CFA members in coalition with organizations such as the Ontario Cattlemen's Association, and of course UPA, as well as Western Stockgrowers Association. But I agree with you: this is more than just about shoring up farmers' incomes. There's going to be a serious loss of equity in the industry as well.

I was talking the other day to a young farmer who started farming twenty years ago. Their farm is fairly diversified—diversified to the point where under normal circumstances they would have a level of risk management. This gentleman and his brother started farming twenty years ago. He told me they had done debt restructuring and were now starting where they started twenty years ago. They farm with their 67-year-old father. He said, “My father is now starting where he started fifty years ago.” Certainly the loss of equity is going to be huge, even if we fill the hole of market functionality, as well as loss of revenue.

[Translation]

The Chair:: Thank you.

You have seven minutes, Mr. Discepola.

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): Thank you, Madam Chair.

For Ms. Picard's benefit, as I understand the situation, the Government of Canada has already announced a $190 million agreement. However, four provinces have refused to sign on and are delaying the negotiations.

Therefore, my question to Mr. Friesen is

[English]

what's the bottle-neck preventing this agreement with the provinces? It seems to me, as Ms. Picard rightfully said, it's an urgent situation. Having some friends in Saskatchewan still, I know that livelihoods are at stake. As you mentioned before, they're coming into a crucial period of time when they would sell their livestock in order to prepare for the next year, and so there are cashflow problems occurring.

But it seems to me also that when we're in a crisis situation, people should pull up their sleeves and start negotiating. I don't understand why the provinces are putting their backs against the wall and refusing to negotiate. I think there are four provinces—I don't know which ones they are; there's an article in the Globe and Mail today. What is the stumbling block to accelerating a common solution to a problem that's urgent, in my opinion?

À (1030)

Mr. Bob Friesen: If you're referring to some provincial agriculture minister's resistance to signing the implementation agreement, that is currently clearly in their hands. The provinces are going to have to decide whether they sign the implementation agreement. The reason some of them have been hesitant is that they do not have the level of comfort in the new business risk management proposal that they would like to have. Their members in the province are telling them they don't have a level of comfort that the program is adequate.

Secondly, as I mentioned earlier, the BSE crisis, with the current business risk management proposal, cannot be handled through the program. They're really two separate issues. Signing the implementation agreement, again, is in the provinces' hands. But signing the implementation agreement will not implement a program that can deal with the BSE crisis.

There are also some detail problems. Say, for example, a cattle producer sells his cattle and the banker does not give him a new line of credit, because the bank is insecure about what the cattle market will do. This farmer will in fact have sold his cattle and will not be able to replace his inventory but will have generated more revenue than his five-year reference margin and in fact will not trigger the program.

So there are some real detail problems with the program. But as long as we don't have a business risk management program that can deal with the BSE crisis, those two are really separate and need to be dealt with separately.

Mr. Nick Discepola: I'd like you to elaborate a little more on some of your recommendations. You indicate that the federal government should address tax implications—regulations concerning off-farm income, or restrictive farm losses. Do you have any precise recommendations for the committee?

Mr. Bob Friesen: That's an issue that has come about, as you well know: that farmers are increasingly relying on off-farm income because the environment in agriculture isn't such that they can make a living from their agricultural activities. In fact, in some cases they need off-farm income to pay for their farm input costs.

The problem comes from when a farmer has off-farm income and, depending what level that off-farm income reaches, is restricted in how much of the farm loss he can calculate against the off-farm income. We feel that if we have an environment in Canadian agriculture where farmers are forced to go to off-farm income, they should get a break when it comes to writing off losses against that off-farm income.

Mr. Nick Discepola: One of your other recommendations is reinstating the five-year income averaging. I like some of the recommendations, but my only hang-up is when we use the tax act and target only a particular sector, whether it's the RRSP limits, for example, where we're increasing to $27,000, which targets only a precise beneficiary of that, or in your case... For example, we had representations before from an artists' cultural group who wanted copyright material to be exempt up to $60,000. Then there was another recommendation.

I see some of your recommendations applying in general. For example, income averaging could apply to artists who have fluctuating incomes, or even real estate agents who have high commissions one year and low commissions another year. But I don't know how that tax measure would actually benefit anybody, because all you're doing is getting back one year some tax that you paid the previous year. Overall, your net income, I guess, is not enhanced in any way.

The other measure that you introduced has been discussed and proposed by several members of the panel in the past and is the different capital cost allowance classes. I'm wondering whether those classes, which have probably been established for decades and decades, should not be reviewed totally with a view to modernizing them. I mean, industries have changed. We see very many technologies implemented in what we think older.... I mean, computers are everywhere, so if you take a look at the printing industry, they're not old printing presses as we traditionally know them; they're really computers. And you can apply that to many numerically controlled systems.

In view of that, would you subscribe to the idea that maybe we should review the whole classification question, including, possibly, some of the classifications that the real estate board mentioned in terms of classes of buildings, for example, and modernize them? I mention this because I don't know when was the last time it was modernized.

À (1035)

Mr. Bob Friesen: I certainly can't speak for other sectors; I can only speak for the agricultural sector. One of the things farmers are very conscious of, and I mentioned this earlier, is that they do not want to rely predominantly on what we call safety net money. They prefer to generate their revenue from the market. They would also prefer for us to create an environment within which they can be successful, rather than relying on safety net money.

When it comes to tax incentives, when it comes to the five-year averaging, what that does is help the farmer manage his cashflow in light of the different challenges he has to face. Anything we can do to help farmers manage their cashflow, to help mitigate some of the negative effects of challenges by giving them tax incentives, is very helpful. For example, they are very keen on developing on-farm environmental farm programs; they are very keen on making sure they comply with the new environmental standards that have been set. And if we can create incentives through the tax system for them to go there, it creates an environment within which they have a better opportunity to do that without increasing the need for more money in safety nets.

While safety nets are going to continue to be the cornerstone in mitigating variations in revenue, farmers would clearly also like to see us consider how to create an environment in which they can better manage their cashflow, in which they can do things through incentives rather than simply asking for money when their margins are non-existent.

The Chair: Thank you very much. Your time is up.

Mr. Wilfert, please. You have seven minutes.

Mr. Bryon Wilfert (Oak Ridges, Lib.): Thank you, Madam Chairman.

As to your presentation, Mr. Beauchamp, I'm usually pretty agreeable with a lot of what you said, although I'm a bit disappointed on the RRSP contributions. I always love it when I hear that it's only a modest increase, and yet I get all these other things in your presentation that say you want tax cuts, you want this, you want that. Obviously we're not going back into a deficit, so yes, I think we've signaled that we'd like to continue to go in a certain direction, but it would always be nice to hear at least some modest praise, that at least the issue on the RRSPs was in the right direction.

The fact is, you're disappointed. Well, I guess that's life. The fact is, it's always about balancing priorities.

I am interested in hearing from you on the brownfield redevelopment. We have a green enabling fund in which there's a rollover provision through which we have municipal governments come and make proposals. That's very well administered through the Federation of Canadian Municipalities. I'm wondering what your thoughts might be on a similar type of program with regard to brownfield redevelopment. I'm going to ask that question to another member of the panel as well.

On the issue of fiscal policy, I think you can be assured that we want to continue the contingency reserve—but as you've heard, with BSE, SARS, and everything else, this is not a science, unfortunately, in building a budget, and there's always that need, but certainly debt repayment, and so on.

On the issue of brownfields, can you comment as to the view that maybe we establish something like a green enabling fund, in order to start off? As you know, we've put 250 in there, and we've added another 250 in the recent budget.

Mr. Pierre Beauchamp: Thank you for your question. On brownfields, we certainly acknowledge the government's efforts in that particular direction--as, by the way, we also do for RRSPs, and I may come to that a bit later--but we believe we should go beyond that. We believe the report that has been presented by our friends here contains some very sensible and important tax measures that would probably accelerate that particular process. It's in that connection that we urge the government to support those recommendations to accelerate the process.

I will ask David Humphreys, who is our federal affairs adviser, to maybe expand on that part.

À (1040)

Mr. David Humphreys (Federal Affairs Advisor, Canadian Real Estate Association): I think the feedback we've had from our commercial people is very much in line with the report of the strategy group on brownfields. The feeling was that in order to really get the process moving we would have to go to tax incentives. I think the idea you mentioned of expanding the fund would be well accepted.

Mr. Bryon Wilfert: In your particular recommendations on section 18 and subsection 20(1) of the Income Tax Act, what are the cost implications if we go the route you're suggesting on brownfields?

Mr. David Humphreys: We don't have that.

Mr. Bryon Wilfert: Can you provide that to the committee at some point?

Mr. David Humphreys: No. We would be able to check with the strategy group. I would emphasize that our commercial chair has participated in the work of the strategy group, and our people on the ground in places like Hamilton have told us that the application of the report of the strategy group would have beneficial impact in those communities. We have not done original research and do not intend to do it, because that has been done by these other folks.

Mr. Bryon Wilfert: Okay.

To follow up with the National Round Table on the Environment and the Economy, I'd like your comments with regard either to a similar green enabling fund or revolving fund for brownfields. Can you comment on that?

Mr. David McGuinty: Thank you.

Yes, the round table is favourably disposed to the notion of expanding the “catchment”, if I can use that word, of the green municipal enabling funds. I would go further and say that this strategy, which was produced at the request of the former Minister of Finance, goes well beyond simply expanding the green municipal enabling funds. Within it four or five strategic barriers are identified and addressed. They deal with such things as how we're going to overcome the joint and several liability problems that are provincial in nature, which is a major impediment to actually moving to redevelop brownfields.

In our submission, we are making a series of very specific recommendations to Finance Canada on the kinds of balanced submissions that would hopefully open the redevelopment of brownfields and let the full force and effect of the market do what it does best, which is clean the darn things up.

I guess maybe I'd close by saying that there are some 30,000 to 35,000 such brownfields in Canada. There are about 780,000 to 800,000 in the United States, and well over 1.3 million in Europe. One of the reasons the former Minister of Finance, Mr. Martin, asked the round table to do this work was that Canada is losing in terms of a huge market opportunity for us, both domestically and internationally.

Mr. Bryon Wilfert: Okay.

Mr. Friesen, I don't tend to be an expert on agricultural policy, but I keep hearing how we have all these wonderful programs that either nobody seems to benefit from or they slip through the cracks or they don't address the issues. Should we blow them all up and start from scratch? What is it that we are...?

The people I know in the farming business want to participate in the market. They want to be able to contribute. At the same time, when we have these funds available, we either get into federal-provincial squabbling or we get into situations where it doesn't even address this particular issue. It must be terribly frustrating.

So what is it we should be doing? Is it time to revisit the programs that have been in place for a number of years, to sit down and have a frank discussion on how we can move forward to benefit those very people who, for whatever reason, need it, whether it's a crop insurance issue or whether it's BSE or whatever it is? I mean, we have lots of programs, but nobody seems to benefit.

Mr. Bob Friesen: Thank you for that question. On this one I could go on and on, but I'll try to keep it brief.

As you may know, we actually did think we were doing exactly what you suggested--that is, revisiting programs that were in place, making sure that we could learn from the mistakes of the past and develop programs that would work better. Unfortunately, we believe there are currently some serious holes, first of all, in the way the commitment was made by both levels of government, that they would partner with the industry in developing a new business risk management proposal. Consequently, we have come up now with a new business risk management proposal. The industry feels that they did not have the input, that the consultation that happened was gratuitous, and that we have some serious inadequacies in the program that currently is being proposed and the program that some provinces have already signed implementation agreements on. In fact, one of the biggest problems we had with the income disaster program over the last five years we have inherited in this new program.

So certainly we went there to redevelop, and we feel that we're not nearly there. We think there's potential to address in a program even such crises as BSE, but we haven't arrived.

À (1045)

The Chair: Thank you very much.

Colleagues, we have a second panel, and I have three people left on my list. It is now the turn of Ms. Judy Wasylycia-Leis, followed by Mr. Cullen, followed by Mr. Valeri. We'll take those questions and then move on to our next panel. Thank you very much.

Go ahead, Judy.

Ms. Judy Wasylycia-Leis (Winnipeg North Centre, NDP): Thank you, Madam Chairperson.

I'd like to ask all the presenters this morning, or whoever is willing to answer, about fiscal policy in general, specifically relating to Paul Martin's recent statement. As you know, we're operating in a bit of a vacuum with respect to budget planning. We're not sure what the government-in-waiting stands for. We're not sure what Paul Martin's agenda really is. But he did make the curious statement last Thursday of a preference for decreasing the debt-to-GDP ratio to 25%. As folks here know, that would have a significant impact on the kinds of initiatives people are talking about, on the kinds of areas that need government investments. So I want to ask generally about feelings about that recommendation by Paul Martin, and specifically I want to ask three quick questions related to that.

To the Real Estate Association, how does your statement on fiscal policy for maintaining the contingency reserve actually meet our objectives and your objectives of affordable housing? I also have some trouble reconciling the focus on increasing the contribution rates with the RRSP program when in fact it does, in my view, affect so few people and cost so much.

To the Round Table on the Environment and the Economy, I'd love to hear your thoughts on fiscal policy generally, but also I'd like you to elaborate on your comment to use fiscal policy to ensure the continued productivity of our natural capital.

And then to Bob Friesen who is dealing with so many critical situations right now, I really would like to know what the Federation of Agriculture believes in terms of fiscal policy with respect to the appropriate debt-to-GDP ratio and to the continued existence of a contingency fund that invariably ends up going against the debt and that has very little impact in terms of shifting that ratio, but that has a huge impact in terms of the government's flexibility to deal with natural disasters, emergencies, and the serious crisis facing the agricultural sector.

Mr. Pierre Beauchamp: Mr. Chair, I'd like to first address the RRSP issue. I'm going in the reverse of what you asked us, and then I will ask Gregory Klump, our senior economist, to address the questions of fiscality you have raised.

On our RRSP recommendations, those recommendations are largely based on our belief that the budget now and what is available is really insufficient to allow Canadians to retire with 70% of their pre-retirement income, as is often recommended in financial circles. So basically we look at this as an issue of fairness and equity. And to support that, we have provided in our report a number of examples of why it is we feel as strongly as we do. We have created and provided an international model that compares Canada in its treatment to what is done in the United States and in the U.K. Many questions were asked in that particular respect as to the difference in tax systems and so on.

We now have evidence, which we believe and we'll be happy to share with you soon, that indicates that we are still very short in terms of the treatment that we provide Canadians in this particular area. And that brings it all back, if you wish, to the issue of fairness. The $13,500 to $18,000, as is planned now, is not moving fast enough. We are, as you know, recommending that this be increased immediately to $19,000 and in steps try to reach $27,000 as quickly as it can possibly happen. We have huge support from the Retirement Income Coalition, a group of some 19 organizations that will be presenting to this committee in the very near future.

We do believe that the issue of fairness is one that has been missed. I think we have to consider, as I mentioned in my presentation a little earlier, that the individuals we're targeting here are people who will in fact, yes, benefit from tax shelters, but when they tax-shelter higher amounts, they will provide those additional tax revenues when they're needed down the road when baby boomers are retiring. It's a long-term approach to an important problem. We truly believe this. Why is it that a particular class of Canadians is being singled out? They are a class of Canadians who pay high taxes to the Government of Canada.

I will now shift to Mr. Klump.

À (1050)

The Vice-Chair (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)): Very briefly.

You have five minutes... if you want Mr. Friesen to also answer, Ms. Wasylycia-Leis.

Ms. Judy Wasylycia-Leis: Before we do that, could we just get a quick comment from the round table and Mr. Friesen, and then maybe if there's time we'll come back to the real estate folks.

The Vice-Chair (Mr. Nick Discepola): Well, I think I'm chairing the meeting, so maybe if you wouldn't mind...

Ms. Judy Wasylycia-Leis: Oh, I'm sorry.

I'm just saying that I put three questions.

The Vice-Chair (Mr. Nick Discepola): Maybe if you wouldn't mind, I'll let Mr. Klump go ahead, and then Mr. Friesen.

Very briefly, Mr. Klump.

Mr. Gregory Klump (Senior Economist, Canadian Real Estate Association): Thank you very much.

With respect to Paul Martin's remark about wanting to target the debt-to-GDP ratio to 25%, it's currently about 40%. We think that's definitely a move in the right direction.

Ms. Judy Wasylycia-Leis: It's apparently 34%, according to the recent reports.

Mr. Gregory Klump: Very well. Okay.

We think that's definitely a move in the right direction. What we propose in the budget itself, though, is that there be an explicit line under public debt charges, before the underlying budgetary balance, for the repayment of debt principle. As it stands right now, the contingency and economic prudence reserves are only available for debt paydown if they're not required for their primary purpose—which makes debt repayment of the principal a second-string priority. We think increasing the priority of debt repayment of the principal is important because it would reduce public debt charges, and the savings would then be available for expenditure or tax cuts.

In the 2001 budget—

The Vice-Chair (Mr. Nick Discepola): ...[Inaudible—Editor]... Mr. Friesen.

Mr. Bob Friesen: Thank you.

Fiscally, I believe Canada is in much better shape than the U.S. We essentially have a free trade agreement with the U.S. That has put our farmers in a position where they are competing against the government treasury in the U.S. As a percentage of the value of farm gate production, the U.S. is still spending over three times the amount of money in farm support we are.

Investment in agriculture is exactly that—it's an investment, not a cost. We have on average a multiplier factor of 6:1 in Canadian agriculture, meaning that for every $1 invested in agriculture, $6 is contributed to the Canadian economy. That's an important point to keep in mind.

The Vice-Chair (Mr. Nick Discepola): Mr. Cullen, please.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chair.

Thank you to all the presenters.

Mr. Lacombe, you're a busy man these days. We saw you the other day in your capacity with the steel industry.

I have a question. In the resource sector in particular there has been a move to reduce the statutory rate from 28% to 21%, to bring the sector in line with other sectors of the economy. But in doing so there were some trade-offs and the resource allowance was eliminated. In lieu of it, an exploration tax credit was put in place. It's good, of course, if you're exploring and developing, but if you're not, the saw-off is not quite as equal. In addition, I think it was understood that in the mining sector in particular there might be some winners and losers—potash perhaps being a bigger winner and the ferrous metals group not coming out quite so well in terms of the way the 28% to 21% actually came out.

What's your sense of it? There was a clear desire to get to the 21% statutory rate for the oil and gas and the mining sector. Has it come out as well as you would like, or are there still some problems as you see it?

Mr. Barry Lacombe: We're here on behalf of the coalition, so I think handling the response to that question is best left to the mining association and the natural resource sectors.

Mr. Roy Cullen: Okay, but they are your members, nonetheless.

We have the bill coming up before us in the not-too-distant future. Just for the record, I gather there are some problems for the ferrous metals. I guess the view of the oil and gas and mining industry is to try at the very least to accelerate some of the things you've talked about, the capital tax reductions and some of the other provisions, to get them on a more equal footing more quickly.

À (1055)

Mr. David Podruzny (Senior Manager, Business and Economics, Business Tax Reform Coalition): I could mention that the participants, the mining association, the forest products association, and a few others who are going to benefit from this, had specifically kept the details of their concerns in that direction off this coalition, wanting to stick only to the areas where there was full consensus. They were intending to bring forward their views separately. I believe they are scheduled to appear later this week.

Mr. Roy Cullen: Okay, thank you.

Mr. Friesen, regarding off-farm income and restricted farm losses, you're aware there's a provision in the Income Tax Act saying that you're allowed to deduct expenses as long as there's a reasonable expectation of income.

Part of the challenge, it seems to me, for some farmers is that when you have 10 years of farm losses and 10 years of off-farm income, it becomes difficult to develop a rationale for your having a chance to make farm income. But I'm hoping that in contemplating that, and in considering the plight of farmers, the revenue agency has been reasonably accommodating; otherwise some farmers could be in a more difficult position. I know I had the problem with restricted farm losses as they relate to horse racing and horse breeding. A number of us have fought for changes there, because there are in fact opportunities now with horse racing and breeding to make money. Some are just in it for a hobby, but others are actually making money from it—although they cannot deduct the farm losses in some of those bad years. So I hear what you're saying.

With respect to off-farm income, has the revenue agency been reasonably accommodating to farmers, or not?

Mr. Bob Friesen: Yes, I believe they have.

We've had this discussion with them. We're still in the process of determining whether we're better off with having a grey area on that issue, or whether we're better off having an explicit definition of what that should be.

Clearly, you're right: we're not here to push that issue for hobby farmers; it is clearly for situations where farmers are seriously farming and they have to have an off-farm income to be able to sustain their life on the farm. It's because of the very low prices, etc., that they're running into that problem. Certainly we're not talking about hobby farmers.

Mr. Roy Cullen: Can I have one quick one?

The Chair: Yes.

Mr. Roy Cullen: Thank you.

Mr. McGuinty, you said at the outset that you're presenting three years of work in seven minutes. Perhaps that explains the rather brief set of recommendations with respect to brownfields.

Now, you say here in your brief that you'll be including some more detailed recommendations in the greening of the budget submission. So that's not what this is--that comes later?

Mr. David McGuinty: Yes.

Mr. Roy Cullen: Oh, I see. And who do you present that to?

Mr. David McGuinty: It will ultimately be presented to the Prime Minister, to every member of cabinet, the Minister of Finance, and this committee.

Mr. Roy Cullen: Well, this committee is holding its pre-budget consultations right now.

Mr. David McGuinty: Yes.

What you have in an addendum to this is simply a listing of the measures. The details around those measures are being worked out now, as we speak.

This is an ongoing process with us. We work with Finance Canada very closely. An ADM from Finance Canada was part of the process to arrive at the brownfield strategy, for example. We're now working out some additional details. We'll have that to you within two weeks.

Mr. Roy Cullen: Okay. So that will be sufficient time?

Mr. David McGuinty: I hope.

Mr. Roy Cullen: What you've cited here, some of the three bullets really don't go into it in enough depth. We all know the problem, especially with urban brownfields. The polluters have often left or they're bankrupt. So it takes a concerted effort by all orders of government and the private sector to bring these sites back into production. In Toronto we have many companies going into greenfield sites, leaving these sites vacant because of avoidance of the legal liability. It's not getting us any further ahead.

So I hope that in your main brief you spell this out in more detail, and I hope the committee has the benefit of that, because I think we need to do something more aggressive on brownfield sites.

The Chair: Thank you very much.

If you give those reports to the clerk, of course they'll be distributed to everyone.

Our final round of questions is to Mr. Valeri. Mr. Valeri, go ahead, sir.

Mr. Tony Valeri (Stoney Creek, Lib.): Thank you, Madam Chair.

I have a couple of questions directed to the Business Tax Reform Coalition.

In the priority issues you talk about maintaining a balanced budget and wanting to tie spending growth to GDP growth. Most organizations that have come before the committee have suggested tying spending to population plus inflation. I was wondering whether you mean to equate those two, or whether GDP growth is something different from population plus inflation. GDP growth traditionally may be 3%. Population plus inflation may be a different number. Perhaps you can clarify.

I'll put a couple more questions out before you respond.

The second question I have for you is under your priority issues. You talk about reducing the federal rate further, to 17%. Then you also suggest eliminating the federal corporate surtax. From an economic standpoint in terms of economic development, which of the two do you feel would have the greatest impact in a world of trade-offs with which we live? I'm not sure that we can do both of those things.

Shifting our current approach to CCA to more of an economic policy tool is something I agree with and something that I think does speak to the productivity issue. So I'd agree with that.

Perhaps I could have the Business Tax Reform Coalition respond, and then I just have a quick question for the Canadian Real Estate Association.

Á (1100)

The Chair: Not a problem.

Go ahead, Mr. Lacombe.

Mr. Barry Lacombe: Okay, let me do this quickly.

The reason we've chosen GDP is just to keep the same share of the economy for spending. If you use GDP as your growth, you're not going to be increasing the federal government's share of GDP. That's kind of basically why we fixed on that particular view.

In terms of the corporate tax measures, my view would be to eliminate the capital tax. That's clearly the tax that's seen to have the biggest drag. There was a recent finance department analysis of this that showed that the capital tax has the largest economic drag. I would then go to the surtax, because I think that could be done. It was put in place for deficit reduction. Then I would say the 17%. It may take a year or two or three or four to move to that 17%, but we have to start moving in that direction.

That would be my order of priorities.

Mr. Tony Valeri: So with respect to GDP growth, there's no accounting for the inflationary pressure that might exist in the spending envelope?

Mr. Barry Lacombe: Well, it depends on what measure of GDP you're using. If you're using real GDP, you're right. If you're using nominal GDP, of course you would have that. Basically, what we would be looking at, I assume, is nominal GDP.

Mr. Tony Valeri: Okay.

This is for the Canadian Real Estate Association. I want to address the spending side of the equation here. You suggest that rolling two-year limits should be legislated to boost fiscal policy credibility—I'm referring to spending now. In supporting that argument, you suggest inflation targets, and the work of the Governor of the Bank of Canada is an example we should consider with respect to the spending envelope.

But inflation targets are not legislated, so I'm a bit unsure as to why you would be suggesting we legislate spending limits. I think I know what you're getting at, but is there not another method of attaining that kind of credibility in fiscal policy than legislating spending limits? I think most governments that legislate things like that spend a lot of time trying to work their way around that piece of legislation.

Mr. Gregory Klump: Thank you for your question.

With respect to the spending limits proposal in there, other than legislating them it's difficult to see how they wouldn't be tinkered with from year to year. The contingency reserve, for example, was legislated—that's my understanding—in terms of what it was to be used for. That was why, in looking at the inflation targets and the contingency reserve, it was considered that the best approach might be to legislate them.

Mr. Tony Valeri: But the contingency reserve was not legislated; it was something that—

Mr. Gregory Klump: In terms of where the money was to be spent, it was my understanding that it was.

Mr. Tony Valeri: What you had—and you still have—was a finance minister and a government suggesting where the money would be going.

My concern with legislation is that you're not able to deal with any type of emergency or out-of-the-ordinary circumstance; it's probably too rigid. I don't want to put words in your mouth, but if you're looking for a fiscal anchor.... The deficit was our fiscal anchor: we had a timetable; we had a strategy and a percentage reduction in place when dealing with the deficit. Now people seem to be talking about how you attain some type of other fiscal anchor to keep everything on track.

What I'm hearing here is spending: you want to legislate; the Business Tax Reform Coalition wants it tied to nominal GDP growth. But I'm really concerned about legislating that type of thing. Perhaps I can also hear from other members of the panel whether there's a consensus built around that, because this is a very critical component of any economic model going forward. If there's consensus out there by Canadians that we should be legislating spending, then I think we really need to hear that consensus. I put that to you. I understand your position; maybe I should hear from other members of the panel.

Á (1105)

The Chair: Mr. Lacombe, do you wish to comment?

Mr. Klump, did you wish to say anything? No?

If not, I will wrap this up so that we give courtesy to our next panel.

Mr. Barry Lacombe: If nobody is going to do it, then I'll do it.

I'm speaking not necessarily for the coalition, because this is an issue we have not discussed as a coalition. We believe there has to be very significant and tight spending restraint, but I'm not sure we would favour legislating spending limits. The reason for that is that you're going to need the discipline in any event, and even if you have legislated spending limits, there are probably ways of getting around those limits.

I think the critical thing is to be upfront on what the government is going to spend and then stand behind it. In our view, that should be constrained significantly. If there are new priorities, the way to address those is through a serious process of reallocation, which I still do not believe exists in the government.

The Chair: Thank you very much.

Mr. Klump, I'll give you the last word because our time has expired.

Mr. Gregory Klump: Thank you.

Just to follow up on what I was saying earlier, I couldn't agree more with his comments. If there's one underlying motif, it's that spending discipline has to be maintained. That, whether it's legislated or not, would be the central message.

The Chair: Thank you very much.

On behalf of all the members of all the parties on our committee, thank you for your presentations. Thank you also for getting your briefs in early so we could get them out to the members.

I will suspend for two or three minutes while the next panel comes up, so that we can give them our attention also.

Á (1107)

Á (1112)

The Chair: We will resume, with panel 2, our Standing Order 83(1) pre-budget consultations.

We have: from VenGrowth, Jay Heller, general partner—welcome; from Go for Green, Steve Grundy, director of development, and Sue Holloway, director of operations—bienvenue; from Heritage Canada Foundation, Brian Anthony, executive director—welcome again, sir; and from Canada's Research-Based Pharmaceutical Companies, Murray Elston, president. Thank you very much for joining us today.

We received all of the briefs, and they have been translated and distributed. We will hear presentations in order.

We will go with Mr. Heller. Go ahead, sir, with your presentation.

Mr. Jay Heller (General Partner, VenGrowth): Thank you, Madam Chair, ladies and gentlemen. It's a pleasure to have the opportunity to appear before you this morning.

I'm with VenGrowth Capital Partners, one of Canada's largest venture capital firms. We have roughly $1.2 billion of venture capital under management and we currently hold investments in 60 small Canadian companies.

I'd like to speak this morning about the importance of small and medium-sized firms to Canada's economy, the challenges these firms have in raising venture capital, and some steps that the federal government can take to increase Canada's pool of venture capital.

Small and medium-sized firms drive productivity and economic growth and outperform the rest of the economy in sales, exports, R and D spending, and most of all, job growth. I'll give you some statistics to back this point up. A study by the Business Development Bank concluded that emerging Canadian companies financed with venture capital generate employment growth that's 20 times faster than the economy as a whole and 8 times faster than Canada's 100 largest companies.

It's a similar story south of the border. A recent U.S. study concluded that over the 20-year period ending in the year 2000, U.S. companies financed with venture capital outpaced other companies in sales, taxes paid, exports, and R and D.

Clearly a vibrant entrepreneurial sector is critical to the economy. Many leading U.S. firms are the result of entrepreneurial vision backed by venture capital, including Cisco, Intel, Microsoft, and Federal Express, and here in Canada many of our own leading companies have followed a similar path, including, we hope, the 60 firms currently financed by VenGrowth.

The question is, why does Canada not have more of these companies? We believe the answer is that Canada simply does not have enough venture capital. Small and medium-sized firms looking for financing, and by this I mean anywhere from a few hundred thousand dollars to seven or eight million dollars, always have a difficult time raising money, for a number of reasons.

First, they're too small for the stock market and the big banks don't like them. Second, funding an entrepreneur is an active or hands-on process. An investor needs to work closely with an entrepreneur on an ongoing basis to advise him or her on the challenges that confront every growing business. Most investors don't have the expertise, or frankly, the time for this. They prefer passive investments where if things are not going well they can simply sell and move onto the next deal.

Finally, investors generally want liquidity, and there's an interesting statistic: the average U.S. mutual fund holds each stock in its portfolio for less than one year. By contrast most venture capital investments are held for three to five years, many for much longer than that.

In summary, to invest in venture capital you need a high tolerance for risk, sophistication to monitor an unusual asset, and a long investment time horizon. Who meets these criteria? The answer in short is big pension funds. The U.S. has many large pension funds and they provide the vast majority of venture capital in the U.S. Canada, by contrast, has only a small number of big pension funds and consequently we suffer from a significant undersupply of venture capital.

The problem would be even greater in Canada but for the important role played by governments in bridging the gap. This support takes a variety of forms, most significantly through financing of public entities that make venture investments, such as the Business Development Bank, and indirect support for private fundraising by labour-sponsored funds whose shareholders receive tax credits.

If we look at the numbers, from 2001 through June 2003, 14 times more venture capital was invested in the U.S. than in Canada, and there is currently 15 times more money under management available for future venture investment in the U.S. than in Canada.

These multiples would have been 21 times but for the role of government in bridging the gap. There is more detailed analysis of these statistics in my written submission, but overall I think it's safe to conclude that while Canadian governments have played an important role in bridging the gap between Canada and the U.S., they still need to do more.

That brings me to the final portion of my remarks, four things that the government can do to increase the pool of venture capital available in Canada.

First, we have two suggested changes to the labour-sponsored fund program. As many of you are aware, labour-sponsored funds are a uniquely successful public-private partnership. The government provides tax credits to individuals who invest in labour-sponsored funds, which must then use the money to finance small and medium-sized businesses. The program has been very successful at making venture capital available, particularly to small Canadian companies. Thirty-two per cent of all venture investments of less than $5 million in the last two years in Canada were made by labour-sponsored funds.

We believe the program works well, but as I noted, we have two suggestions for improvement. First, for several years the federal tax credit for investors has been fixed at 15% of the amount invested to a maximum of $750 per year per investor. This effectively caps the commitment by each investor at $5,000. We recommend the government raise the maximum credit to $1,500 per year at the existing credit rate. This would facilitate investments as large as $10,000 per year by individual investors. We think this is one of the most effective ways the government could leverage an investment in increasing the pool of venture capital, because every 15¢ invested by the government grows the Canadian pool of venture capital by one dollar.

Á (1115)

Second, we suggest that the Tax Act be amended to remove restrictions on labour-sponsored funds, making so-called sub-debt investments. By sub-debt we mean loans with equity characteristics that are typically made to manufacturing or services businesses with some earnings history. Existing rules in the Income Tax Act that discourage labour-sponsored funds from investing in sub-debt are very much over-broad and have the effect of reducing access to capital for many emerging firms in traditional sectors. We suggest that these rules be changed to simply restrict labour funds from making senior revolving loans of the kind banks generally make. This change would have regional development benefits, since sub-debt investment opportunities are relatively more likely to be located outside major cities. So it would spread the pool of venture capital a little more evenly across the country in different geographic regions.

Our third recommendation is that the government remove some of the barriers to foreign investment in Canada. In recent years we have seen some increased interest from Americans in investing in Canadian venture capital founds. Unfortunately, there are numerous technical tax hurdles that have impeded these transactions. I don't propose to go through them in detail now. They're all outlined in my written submission. Suffice it to say, solving these problems would not cost the federal treasury a dollar, and it would increase our pool of venture capital coming from outside the country.

Our fourth and final recommendaiton is that the governement ease the so-called association rules in the Income Tax Act, insofar as they're triggered by the relationship of venture capital firms to the companies they support. What these rules effectively do is prevent venture-backed companies from benefiting from federal research and development tax credits if their venture backers are “in control”, which, as many of you know, is a very vague test in the Income Tax Act. The result is perverse. Every dollar of venture capital raised puts dollars of R and D tax credits at risk, which effectively shrinks the available pool of capital for affected companies.

That concludes my prepared remarks this morning. Thanks again for the opportunity to speak to youk, and I look forward to answering any questions you may have.

Á (1120)

The Chair: Thank you very much.

Now we have Go for Green, Ms. Holloway.

[Translation]

Ms. Sue Holloway (Director of Operations, Go for Green):

Thank you.

Good day. My name is Sue Holloway and I'm the Director of Operations for Go for Green. I'd like to thank the committee for the opportunity to put forward some recommendations aimed at improving the health of Canadians and the health of the environment.

Go for Green is a national, not-for-profit organization that encourages Canadians to engage in outdoor physical activity with an emphasis on environmental citizenship, that is on choosing walking, cycling, and cross-country skiing over all-terrain vehicles and snowmobiles. Not that there is anything wrong with these modes of transportation, but they are not our bailiwick. We are the only national agency in Canada the ultimate goal of which is to get people involved in physical activity and the environment.

[English]

In our twelve-year history we have been recognized for innovative and creative programming through a broad base of delivery partners in every province and territory. Many of our programs started as grassroots programs, and then we developed them into national programs. At the federal level we work closely with our partners in planning transportation, recreation, health, and environment, and we'd like to note that we have had a particularly long and productive relationship with Health Canada. We have also been very efficient and effective in leveraging those moneys we get from various sectors, including government, with those that we manage to get from corporate Canada.

Go for Green created the term “active transportation” in 1992 to describe community transportation systems that support walking, cycling, and other human-powered transportation as a preferred mode of travel. The term is now widely used around the world, and Go for Green is committed to acting as a catalyst for moving active transportation forward as a key part of sustainable transportation.

[Translation]

Go for Green has spearheaded numerous transportation initiatives. In 1995, we lobbied municipalities to allocate funds under the Canada Infrastructure Program. As a result of our modest efforts, over $250 million was spent on the construction of sidewalks and bike paths.

[English]

In the fall of 1996 we made our first presentation to the Standing Committee on Transportation, and at that time we discussed the importance of infrastructure and its interrelationship with transportation, trade, and tourism.

Our most recent success story was in April 2002, when we coordinated and hosted the first ever national round table on active transportation. This round table brought together 31 different people from government at provincial, municipal, and federal levels, non-governmental organizations, and corporate Canada. We looked at ways we could work together to advance active transportation as an alternative to automobile use in Canada. The ideas that were developed and created there are the basis of our recommendations today.

I'm going to turn it over to Steve Grundy, who is our director of development.

Á (1125)

Mr. Steve Grundy (Director of Development, Go for Green): You may wonder why an organization that is focused on outdoor physical activity is dealing with transportation issues today. The reason for that is quite simple. The transportation systems we have in place in our communities and across the country have a tremendous impact on physical activity, health, and the health of our environment across Canada.

Consider this. Traffic fatalities are the largest cause of death in children in Canada. The tremendous increase in childhood obesity and childhood diabetes has coincided with a time in our history where more children than ever are driven and bused to school. The Canadian workforce has more cars per capita than it has ever had in its history, at the same time as one in seven adults is considered obese.

You may have seen a news story on The National with Peter Mansbridge last week where it highlighted the fact that those who live in urban centres where they can walk and cycle to destinations, according to a new study, are likely at least three kilograms less heavy than those who live in areas where it's less easy to walk or cycle.

Emissions from automobiles are increasing the number of smog days in our urban centres, causing severe health concerns for our children and for those with respiratory problems. It's clear that our transportation systems are causing a long-term health disaster for Canada if we're not careful.

These same travel patterns are causing environmental concerns of which you are well aware, but Go for Green would like to point out that many of the health and environmental concerns we face today can be addressed by a national act of transportation strategy.

For example, Environment Canada's challenge to Canadians to reduce emissions by one tonne can be achieved almost entirely by implementing simple act of transportation strategies. Health Canada's healthy living agenda can be addressed in large part by walking and cycling for 30 minutes of accumulated physical activity each day. If the total working population shifted from the current average of 8% walking or cycling to work, like they do in Halifax, for example, to a national level of 10%, which is common in a couple of other centres, the total number of vehicle-dependent passenger trips would drop by about 100 million annually.

Last year Go for Green was honoured to present to this committee, and it presented eight recommendations, three of which I would like to highlight.

One was that there be a requirement that 7% of all infrastructure funding for transportation be allocated to forms of active transportation infrastructure like bike paths, sidewalks, cycle lanes, and so forth. We also recommended policy changes when funds are transferred to municipalities for transportation projects, that 7% of those projects include active transportation infrastructure. Finally, we recommended that the federal government set a goal of 20% participation in active transportation over the next 10 years.

At the active transportation round table, which was a watershed event here in Canada this year, we received two primary recommendations. One was to establish immediately a national clearing house for active transportation in Canada. This advice came from some of the best thinkers on transportation, sustainable communities, and health in Canada and internationally. This was the first recommendation from that group. The second was to work towards establishing a national centre of excellence.

To this end, our first recommendation to you as a finance committee is that a leadership role be taken by the Government of Canada through Transport Canada in supporting the establishment of a national clearing house for active transportation. To that end, our second recommendation is that a strategic investment be made in this year's budget of $250,000 in the establishment of a national clearing house for active transportation.

I know you deal with big budget figures around this table. That may seem insignificant, but it is a very strategic and necessary investment in this issue. It isn't the end of the issue. If we can establish a national clearing house for active transportation this year, we will begin the work that will lay the foundation for a national centre of excellence in this area within two years. That would be our third recommendation, to work towards the establishment of a national centre of excellence in active transportation within two years.

If you accept these recommendations and we implement them, here's what you can expect for Canada. A single portal to active transportation information in Canada will be established, linking all stakeholders together and directly to Canadians. This single strategic intervention will help the federal government address its issues in transportation, health, environment, natural resources, and infrastructure. Addressing issues of urban congestion, physical inactivity, diabetes and obesity, climate change and air quality, depleting our natural resources and the use of fossil fuels, and livable and safe communities for our children should be a primary concern for all of us.

Á (1130)

International and domestic best practices in active transportation will be collected, studied, evaluated, and shared with Canadians. A national strategy for active transportation will be developed. National goals and objectives will be established. Appropriate measures and indicators for successful active transportation initiatives in communities will enable the federal government to provide strategic and directed supports to national, provincial-territorial, and community initiatives. Research gaps will be identified. Systems will be established to monitor progress and measure the success of our active transportation initiatives. A special emphasis will be placed on interventions for our youth to lay the foundation for behaviour change in the next generation.

We're not asking for a huge investment; we're asking for a strategic investment that will get us on the road to a more sustainable and healthier Canada. Thank you.

The Chair: Thank you.

Now, from Heritage Canada Foundation, Mr. Anthony.

[Translation]

Mr. Brian P. Anthony (Executive Director, Heritage Canada Foundation: Madam Chair, members of the committee,

[English]

I greatly appreciate the welcome opportunity of appearing before you again this year in the course of your 2003 pre-budget deliberations.

Heritage Canada Foundation has regularly been involved in your consultations. I want to thank you for the interest and support that you've manifested not only during these pre-budget hearings, but in recommendations made in your recent reports to the Minister of Finance. Your support is vitally important to us and highly valued.

[Translation]

The Heritage Canada Foundation, as you know, was created by the federal government as a non-governmental, not-for-profit organization with a mandate to promote the preservation of the built heritage of Canada. The foundation works to fulfill its mandate by a wide variety of program activities, including education, communications, research, conferencing, awards and prizes and support to local groups.

Now celebrating its thirtieth anniversary, the foundation is governed by a board of trustees elected by the membership on a provincial and territorial basis and is administered by a professional staff located in Ottawa.

[English]

Committee members are familiar with the problem we are collectively facing as a nation. Between 1970 and 2000, Canada lost between 21% and 23% of its historic building stock--21% in major centres and 23% in smaller or rural communities. In some cities, the rate of loss was nearly double those national averages.

That breathtaking attrition rate continues unabated, and I'm sure that each and every one of you can immediately think of at least one example in your community of an architecturally or historically significant landmark needlessly lost, and upon further reflection could think of many more local examples of this regrettable national trend.

[Translation]

In past submissions to, and appearances before, the Standing Committee, the Heritage Canada Foundation has recommended the use of the federal tax regime to provide incentives that would serve to encourage the retention, restoration and adaptive reuse of our heritage building stock. Thanks in large measure to the support of this committee, we are seeing promising signs of progress in this area. The reference in the February 2000 budget, the 2001 announcement of the Historic Places Initiative, and the resources provided for in the February 2003 budget to test the mechanisms designed to support eventual tax incentives are all encouraging, if gradual, developments.

[English]

Committee members know that Heritage Canada Foundation strongly supports the historic places initiative. It is an important first step towards developing the national capacity to be effective stewards of our built heritage resources, and anything this committee can do to recommend that the progress experienced to date continue at pace would be most appreciated.

However welcome and important the historic places initiative may be, it is admittedly only a first step and will not respond to many aspects of the challenge we are facing. More steps are required, then, and the sooner those steps can be taken, the sooner we will halt the erosion of our built heritage resource base.

We therefore recommend that in addition to bringing forward the rest of the historic places initiative and its supportive legislation, and the tax incentives we have brought to your attention in the past and possibly others, the federal government proceed to implement programs of direct support and other mechanisms to serve those categories of heritage properties beyond the anticipated reach of the historic places initiative.

We also go much further in recommending that the Government of Canada implement a pan-governmental policy that would embargo any federal activity of any kind that would in any way compromise any aspect of the built heritage of Canada and would, to put it more positively, also place a priority on those activities that would contribute to the retention, the restoration, and the adaptive reuse of our heritage resources.

Á (1135)

[Translation]

The Heritage Canada Foundation believes that these recommendations relate very closely to the objectives and themes of your current pre-budget consultations, as detailed in our brief, and we therefore recommend them to you for what we hope will be your favourable consideration.

[English]

In closing, let me say that I've long believed, as doubtless many do, that the injunction “first do no harm” was part of the Hippocratic oath. I recently discovered that such is not the case, but Hippocrates did, in one of his other writings, urge something even better, saying--and I quote--“Make a habit of two things--to help, or at least do no harm”. That is what we want the Government of Canada to do in all its manifestations and all its activities in regard to the preservation of the built heritage of Canada: to undertake as a matter of policy and practice to help, or at least do no harm.

[Translation]

Thank you for the opportunity of appearing before you today as part of your 2003 pre-budget consultations, and for your ongoing interest and support.

Merci beaucoup.

The Chair:: Thank you very much. Next up is Mr. Elston.

[English]

Mr. Murray Elston (President, Canada's Research-Based Pharmaceutical Companies): Thank you, Madam Chair.

I'm Murray Elston, president of Rx&D. I want to thank the members for permitting me to make some remarks concerning the federal budget here today.

The federal government is committed to establishing Canada as one of the most forward-looking, innovative nations in the world, and at the same time, a strong, viable health care system is of high priority to Canadians and their governments. The nexus of innovation and health that our member companies represent we believe places us in a singular position to help transform Canada's health care system into an economic driver and a key element in Canada's strategy for a more modern economy of innovation and ideas.

The fruits of our work, innovative pharmaceuticals, are a sound investment for governments and patients. New medicines are proven cost-savers, as they help Canadians live longer, more productive lives, reduce costs related to employee absenteeism and disability, and lessen demand on other more expensive areas of the health care system, such as hospitals. A Columbia University study shows that every dollar invested in new medicines relieves the health care system from expenses seven times greater than other medical areas. Another study shows the strong correlation between pharmaceutical spending and longer life expectancies and lower infant mortality. You have access to each of these studies. We have sent them previously.

Patent and prescription medicines bring relief to patients and their health care system, yet account for only 6.3¢ of every health care dollar. The federal government itself will have invested a total of $11 billion in research and innovation between 1998 and 2005, most of it at universities, colleges, and research hospitals. The Government of Canada has established Genome Canada, the Canadian Institutes of Health Research, and the Canadian Foundation for Innovation to lead their innovative investments. We are happy to see the government invest in this area, as the innovative pharmaceutical industry has done for many years. These investments must continue. We need to push the agenda forward and further, because the dividends are just too important.

Our industry wants to partner with the government on innovation, but doing so requires a clear signal that the government is serious about moving forward on pharmaceutical innovation. While we think our companies can be more competitive, more research-intensive, and more likely to achieve life-enhancing medical breakthroughs, we feel constrained by an environment that inhibits innovation. Japan, Australia, and several European countries, for example, are in the process of developing innovative health models to increase their attractiveness to research investors. What we are seeing is a situation where investments that should come to Canada are now going to places like the United States, which has recently surpassed the European Union as the world's leading pharmaceutical innovator. It's safe to say that today our real competition globally is right here in North America.

Months after Kirby, Romanow, and the health care accord, discussion about the future of Canada's medicare system is as intense as ever. What is at stake, above all, is the health of Canadians. That is why Rx&D supports the government's commitment to innovation. We submit that the government must take steps quickly to enhance our international competitiveness by acting in a number of areas that are crucial for bringing pharmaceutical discoveries to Canadian patients. The first is creating an environment in which our companies can attract investment and generate a return on that investment and where sound regulation prevails. The second is providing better intellectual property protection. The third is improving Canada's drug approval time. The fourth is bringing our tax treatment of R and D in line with the OECD countries.

The strengthening of Canada's knowledge economy and the fostering of opportunity are essential for remaining competitive in today's global marketplace. With government as a catalyst, research-intense sectors such as Rx&D can help make Canada an international leader, both in unlocking the economic power of innovation and helping people get and stay well.

Let me discuss for a moment our challenges in attracting investments and generating returns on those investments and the need for clear and efficient regulation that allows us to bring new medicines into the hands of Canadian patients. As you know, it takes 10 to 12 years to develop a new drug. In a 20-year patent term our member companies often only have 8 to 10 years of shelf life for their medicines in which to recoup their costs before the generic firms claim the drugs as their own, and it costs, on average, $1.3 billion Canadian to develop a new medicine. The risk, as you may know, is substantial. One in 10,000 molecules actually makes it through to product development, and 7 out of 10 products brought to market fail to recoup the R and D investment made in them.

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Our CEOs in Canada will tell you that their chief competitors for research investment dollars are not other pharmaceutical firms but their counterparts within their own global companies in other countries trying to attract those same investment dollars. And let's be clear, this is about generating investment for Canada, investment that generates research and ideas, generates jobs and wealth, generates tax revenues, and generates further investment.

In Ontario alone, for example, Rx&D members paid $69 million in provincial taxes in 2002. But to be ahead of the game, let alone to be in it, we need the proper tools. We need to have a favourable environment where people want to come and invest. One of those tools is our ability to generate better returns on our investment, and another is sound and efficient regulation that can be monitored for effectiveness.

To be candid, investments made outside of Canada are investments that we were not able to attract here. We weren't able to make the case that Canada has the best investment environment. And with every investment we lose, the benefits of employment in Canada, tax revenues, land and equipment purchases, and partnerships with universities and hospitals all go elsewhere.

I invite you to consider the brief, entitled “Improving Health Through Innovation: A New Deal For Canadians”, that Rx&D presented to the government last September 24. Members have received it. The brief outlines a number of concrete areas requiring action.

On intellectual property protection and in terms of Canada's patent regime, we would like the federal government to maintain, even reinforce, mechanisms for adequate patent protection so that Canada can be competitive and encourage further innovation. While this very committee last year acknowledged that strong patent protection is essential, another committee of government is currently seeking to weaken it by removing the linkage regulations under Canada's Patent Act.

Further, Canada is the only country in the G-7 without patent term restoration. This makes Canada's effective patent term shorter than that of other countries and reduces its attractiveness as a location of choice for global pharmaceutical investment.

With regard to drug approval times, we were pleased to see the February budget allocate $190 million over five years to improve the timeliness of Health Canada's regulatory processes with respect to pharmaceuticals for humans. The most recent figures indicate that it takes Health Canada almost two years to approve a new medicine, about double the department's own target and much longer than in any other of the jurisdictions, such as the United States, Australia, the EU, and Japan.

While we agree wholeheartedly with the principle that safety be of paramount concern, we wonder why, several months later, we have yet to see much at the departmental level in the way of concrete follow-up action. We would respectfully ask that this committee strongly recommend that the government honour the commitment as quickly as possible on drug approval times.

Finally, in the area of tax policy, our members believe the definition of R and D in the Income Tax Act should be broadened and harmonized with the OECD definition, which would help attract research investments to Canada.

In conclusion, we congratulate the government on its innovative strategies. We encourage them to take steps to implement those strategies and to coordinate the policy throughout its various departments. We look forward to being partners, actively, in moving Canada into the new innovative economy.

Thank you.

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The Chair: Thank you very much.

I thank everyone for their presentations.

I will commence with Rick Casson from the Alliance Party.

Mr. Rick Casson: Thank you, Madam Chairman.

Thank you all very much for your presentations. I'll try to get to all of you, but I'd like to start with the Go for Green folks.

In your brief you give some statistics on what it would mean if we shifted by only 1% or 2% the number of people who would leave their vehicles at home in the morning instead of driving them to work. You indicate that it would drop “vehicle-dependent” passenger trips, as you call them, by 100 million annually in Canada.

I think a lot of Canadians are looking for some way to contribute on the issue of climate change. Do you have some statistics on what it would mean for each individual who did that, on the amount of emissions that would be taken out of the air by just that small amount? It could be only once a week, or once every other week, taking the public transit system or a bike, or walking or whatever. How big is that, or do you have those numbers?

Mr. Steve Grundy: It's part of the quandary of where we are in history right now, and why we want to set up the centre of excellence. We have indicators that show us that we can probably contribute significantly through active transportation measures to the one-tonne challenge, for example, to reduce emissions by one tonne for each Canadian. But we can't give you those statistics right now. We need to do that research. That's why we need the clearing house initially, to establish the baseline and understand how an investment in active transportation compares with an investment in, say, vehicles technology.

Just by what we're seeing in terms of what's possible in families and the percentage of trips that can be reduced, our indicators seem to suggest that we can make a significant impact, that perhaps most of the one-tonne effort could be made by simply looking at daily initiatives in active transportation.

Mr. Rick Casson: That information is not available to you from Environment Canada or from any place you've tried to access it?

Mr. Steve Grundy: The only thing we would have right now is some of the initiatives that will add up to the one tonne.

We have a couple of stats here.

If 38% of Canadians walk to work most of the time--this is the resulting implication of that--it would increase from 38%, by 10%, and that would take it to 41%. If the Canadian population in 2001 was roughly 31 million, the total number of kilometres would be five kilometres. Using Environment Canada's model, you can calculate reductions in pollution and do a personal environmental assessment. So there are ways to measure it personally, and we would want to be able to say that as a nation. At this point we just don't have that available to us.

Mr. Rick Casson: Thank you.

Mr. Anthony, in your recommendations, do you have a number to attach to that, the numbers of dollars it would take to do what you're asking for? I'm from the west, and it seems to me that every time we get a building that's getting close to a hundred years old, we either tear it down or burn it or get it out of the way somehow for development, and I think it's a crime. I don't know if it's something the federal government should initiate. Municipalities seem to have the control over development and what happens within their boundaries.

Mr. Brian P. Anthony: We've had a look at the costs associated with the tax incentives we have been proposing to the committee for a number of years now, and your point about municipal governments is well taken. But we feel that each order of government has a role, indeed it does, in preserving the build heritage of Canada, and it has a responsibility to work with the other orders of government to that end. We look to the federal government, obviously, to set an example because it is the national government, and anything it does is applicable to the country as a whole.

On the tax incentives we have been asking for and discussing with the Department of Finance, there's a handy set of comparisons to be made with the United States. In the same period of time that we've lost so much of our build heritage, they, a long time ago, 30 years ago, put in place a tax credit system that has not only saved thousands and thousands of individual landmarks but also whole historic neighbourhoods and districts. Indeed it has created an industry. There are now brokers who specialize in putting together build heritage projects and investors who want to line up to get involved in order to recoup the tax benefits that flow therefrom.

Rutgers University, the Center for Urban Policy Research, has done a study of the economics of all of this, and they have shown that the heritage preservation activity spawned by these tax credits creates more employment, more economic benefits, and more tax returns than does new construction. Indeed they've gone further to measure the tax returns from this restoration activity, the tax returns to the federal government alone, and the cost of the tax incentives to the federal government and the returns to the federal tax system are equal. So it's a wash; it's a revenue-neutral proposition. So since the kinds of things we're talking about here in this context are being modelled on the American experience, we expect the same to apply.

Some of the other programs will cost, yes, but those have yet to be discussed.

I did promise last year, Madam Chair, when I appeared before you in Montreal that I would come back this year with a stronger recommendation. And certainly the recommendation that the federal government adopt, on a pan-governmental basis, a “help but at least do no harm” policy would cost the federal government nothing. In fact, it might save a lot of money.

I'll give you an example of how not to go about spending federal money. Last year the landmark Eaton's building that had been there for a hundred years--and it would have lasted hundreds more years--was demolished in favour of an entertainment complex. I've just come from Winnipeg where we had our annual conference. I looked at the construction site last week. It's to weep. That deal would not have gone through had the federal government not committed $25 million through the Infrastructure Canada-Manitoba Agreement.

I tracked that whole thing. I fought all the way to Treasury Board. Had the federal government not put in $25 million, the deal would have fallen apart and some other use would have been found for the Eaton's building. So in that way the federal government would have saved money and it would have gained prestige.

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The Chair: Mr. Murphy.

Mr. Shawn Murphy (Hillsborough, Lib.): Thank you, Madam Chair. Like Mr. Casson, I want to thank all the presenters here today.

I have a few questions for you, Mr. Heller, but first I have a question for Mr. Anthony, and that is on historical preservation. I've raised this before, maybe to yourself or maybe to Public Works.

One of the biggest obstacles I see in this whole area is the activities of the federal government and the many crown agencies. We have a developer who has spent a lot of money in developing property downtown, but he, she, or the company is bound by the municipal heritage bylaw. They can't change the windows, they can't change the doors, and they have very limited discretion as to what they can do with the interior of the building. Once they get it developed, one of the biggest tenants across Canada in every city is of course the federal government and its many crown agencies, and what does the developer find but that his washrooms aren't quite big enough, that he doesn't have enough windows per square metre of leasable area, and that he's not able to find the 1.5 parking areas per 100 metres. These are very rigid requirements, and you can appreciate that they cannot be met in a heritage complex. There is always going to be one little stickler.

That drives development out to the suburbs. The developer builds a cheap building out there. We have all kinds of examples; you've seen them, and we have them right here in the Ottawa region.

I know there's been some talk of this, but I think it would be a major prong in heritage retention right across Canada if the federal government had a very clear policy to use designated heritage properties for a certain portion of their space requirements.

Are you aware of anything going on, and is your foundation taking any steps in that regard?

Mr. Brian P. Anthony: Thank you for the question.

We strongly support the federal government, which is, as you know, a major property owner and leaser. We strongly support the notion of the federal government adopting a “heritage first” policy in acquiring by purchase or lease additional space for its requirements. Look first to heritage properties in the downtown core; as you know, most communities, large and small, need that kind of investment.

We would strongly recommend and would strongly support such an initiative. Indeed, the historic places initiative goes some way towards that, which is why we would like to see it advanced as quickly as possible.

In regard to the issue of code and so on, there are alternate forms of accommodating the building code. Many historic buildings don't have stairways as wide as the building code recommends, or they don't have their elevators or fire exits situated in the same way modern buildings do. There are alternate forms that meet these requirements provided for in the code, but building inspectors often aren't familiar enough with those alternate forms of compliance to delve into them. You'll find in many communities where there is a large grouping of historical buildings that has remained intact that many building inspectors have in fact begun to specialize in alternate forms of compliance. The restrictions in the building code aren't as binding as they would seem at first glance.

In terms of what you can and can't do to a heritage building, the federal government, in collaboration with the provincial governments, has developed, as you know, national standards and guidelines for heritage conservation. These would be used by all orders of government. It's a very wonderful exercise, based to some extent on the American experience.

Basically, it says if you're going to benefit from any tax incentives we may see, you're going to have to follow these rules. We feel that if you are going to constrain people in terms of what they can or cannot do to a heritage building, they need that incentive to provide a counterbalancing effect.

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Mr. Shawn Murphy: In my remaining time I have a few questions for you, Mr. Heller.

We talked about the labour-sponsored venture funds. They've been around approximately ten years now, I believe. What has been the growth level of these companies?

Mr. Jay Heller: Do you mean the funds themselves or the companies we back?

Mr. Shawn Murphy: The funds themselves.

Mr. Jay Heller: The funds themselves have grown significantly to the point where fundraising across the country is stable at between $600 million and $700 million a year. That's where the industry as a whole has been the last few years.

I think the most important point is that it has been pretty stable, which has allowed the funds to ramp up and build investment teams that are capable of getting the money invested on a timely and efficient basis. The rule of thumb in venture capital is, for every billion dollars you have it takes roughly twenty people to manage the money, as opposed to one person for every billion dollars in the normal money management business. What we have is a significant group of investment professionals who have grown to manage the business.

Mr. Shawn Murphy: Now, the funds all have a retention time period of, I believe, five years; they have to keep their money in the funds for five years to get the tax credit. What has been the experience for retention after this period is up?

Mr. Jay Heller: The five-year hold actually was extended a few years ago to eight years, and the experience is sort of mixed. With the eight-year hold, the eight-year money doesn't come up for redemption for another year or two, so we're in that three-year period now, in transition between the two sets of rules.

We believe the five-year money, which started coming up for redemption largely in 2000-01, has largely stayed in the program. Some of it has gone from one fund to another, but by and large, the financial advisers who have counselled their clients to invest in the program have stuck with it and have encouraged their clients to roll over.

Mr. Shawn Murphy: On these tax credits that are out there, which are obviously paid for by the taxpayer, do any of your members or associations that aren't labour-sponsored funds feel this is unfair government subsidization?

Mr. Jay Heller: I don't think you hear much of that. The truth of the matter is it's a tough case to make when you see Canadian companies, deserving Canadian companies, that can't raise money, and the pool of capital in Canada is so much smaller than it is in the United States.

Nobody wants competition, but the truth of the matter is the money we're allegedly competing with simply doesn't exist. We believe it's really because some of the big pension funds in Canada just haven't turned to this asset class the way they have in the U.S.

Mr. Shawn Murphy: Lastly, it has been a year or two since I've reviewed a lot of the information prepared by the association on the level of venture capital in Canada, but when I did review it last, it appeared to me that there is a certain amount of concentration in the Toronto, Montreal, and maybe Vancouver areas. Are there any recommendations you could make that would help move some of this money out into the regions?

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Mr. Jay Heller: Yes, and yes. There is significant concentration in the major urban areas. There's an interesting statistic: in 2002 one-third of the venture capital invested in Canada was invested in the Ottawa area.

One of our recommendations in the submission I've given this committee today deals with that point, which is the subject point. It's a bit of a technical point, but essentially the government wants labour-sponsored funds to provide true risk capital.

They're right to want that, but the rule that implements that in the Income Tax Act is overly broad and it inhibits labour-sponsored funds from funding emerging companies in basic manufacturing and services, because we can't go up the balance sheet. Essentially, what we'd like to be able to do is some deals that are a bit lower return but a bit less risk, and the tax act inhibits us from doing that. So the recommendations we've made today would be to ease that rule to allow us to do that.

We think that change would have regional implications. In our firm we see deals all the time in smaller centres that are basic manufacturing, investments that we'd like to do, but the risk-return characteristics aren't there. If we could take a little less risk we'd invest in those companies. So we think if this recommendation is adopted you'll see a bit more of a regional reallocation of capital.

The Chair: Thank you.

Mr. Cullen, please.

Mr. Roy Cullen: Thank you, Madam Chair.

My first question is for Go for Green. I applaud your objectives. I'm curious about your organization. You're located in Ottawa. You have how many staff, and who funds this organization?

Ms. Sue Holloway: We have a staff of approximately 10 people. We have significant funding from Health Canada, and then we look to other corporate and provincial partners to provide the rest of our funding.

Mr. Roy Cullen: Thank you.

On your proposal for the centre of excellence and this clearing house, have you taken that to Transport Canada? Have they been receptive?

Mr. Jay Heller: Yes, we have taken the proposal to Transport Canada for both the clearing house and the centre of excellence. So far, initial steps have been receptive. It's in the works and we're hoping it will go further.

Mr. Roy Cullen: Okay.

In the city in which I live, Toronto, how do you deal with getting people on bikes or walking to work, dealing with safety issues on the road? Although Toronto has a lot of green spaces, when you get on the city streets it's kind of a spooky experience, especially in my area where you have to cross Highway 401 to get to my office. That's a whole other exercise.

Also, dealing with urban sprawl, in some of these European cities, things are much closer in. If someone wants to ride a bike to work from Mississauga to downtown Toronto, they have a big, big hike. How do you deal with that, and is there a way to find solutions that deal with these sorts of questions?

Ms. Sue Holloway: Absolutely, and that's what this clearing house would do. It would bring all those ideas together, and there are some great examples. I live in Ottawa and I bike to work. I live in the south end and have to go out to the east end. There are ways to do it.

So we do have some great examples, and often those are regional ones, where it comes from the grassroots, where one city or one area has been able to do it. This would share that information across the country...and from international examples as well. We would bring all that information together.

That's why the clearing house would be a very important step in making sure that you're not reinventing the wheel, that when people say it can't be done you can say, well, it can be done. There are ways, when you're building a new development, to make it people-friendly instead of car-friendly. It's a mind shift that we're trying to encourage.

You have to make it easy for people to do. As you say, if it's not easy, people won't do it. This would bring together all those ideas of how it's been done and how it would work in different areas.

Mr. Steve Grundy: I can give you two specific examples of that, Mr. Cullen. We have produced information, called “Retrofitting Communities for Sustainable and Healthy Active Transportation”, that deals with the urban sprawl issue and how you can retrofit a suburban community for active transportation. One of the program ideas you probably have heard of--though maybe not our organization--is the walking school bus. This initiative allows children to walk to school safely through escorted walks, involving parents, volunteers, and so forth. That's now operating in over 450 schools on International Walk to School Day and is ongoing throughout the year in over 400 schools.

Mr. Roy Cullen: Thank you.

Mr. Heller, why is it that pension plans in Canada are not following the trend in the United States of making venture capital investments? Are there certain prohibitions, or is there less of an appetite for that kind of risk?

Mr. Jay Heller: Well, that's really the $64,000 question of the industry. I would think the biggest reason is that there is just a smaller number of pension funds that are of a critical mass. If you look at the really big pension funds in Canada—OMERS, the teacher fund, les caisses, and CPP—they do make significant commitments to venture capital that are comparable to funds of that size in the U.S. You just don't have enough funds of that size in Canada.

If you're looking at a smaller pension fund—and the numbers here don't seem real to normal people, because a small pension fund is something that's less than, say, $100 million—there's no way a fund of that size would ever put more than, say, 10% of their assets in venture capital. Now you're looking at a $10 million or $8 million investment in an unusual asset class. It's a lot different to manage that than stocks and bonds, and it may not be worth investing in the manpower to be able to monitor that investment properly.

So that's probably the biggest reason, but there is also an innate conservatism in pension fund trustees in Canada. We're seeing some change, but it moves at a glacial pace in that business.

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Mr. Roy Cullen: Thank you. That's a good segue into my next question.

In terms of the size of investments that venture capital organizations will make.... I mean, there's a need for venture capital for smallish-type firms, and of course there's a need for angel capital up to a certain point. Are you able to deal with the small or medium-sized enterprises satisfactorily, or are you able to pool those? There's a cost, of course, of due diligence, and I know there's a trade-off when you get too small. How can you help these small and medium-sized enterprises in getting access to venture capital? What are you doing about it?

Mr. Jay Heller: The labour-sponsored fund program has traditionally focused on the smaller end of the spectrum—not entirely seed, but if you look at venture capital across the country, last year the average investment size was somewhere above $3 million. The average investment by a labour-sponsored fund was probably about $1.6 million to $1.7 million, so significantly smaller than average.

There's a continual tension between... I think looking at dollar sizes is not necessarily the right way to measure it. You might be looking at stage and... If a business plan for a complete seed investment comes before a venture capitalist and it looks like a good plan but it requires a lot more capital, the deal size gets skewed. It looks like you're investing more dollars, but the truth is it's a seed opportunity.

If you were able to measure other than on the basis of dollars, I believe you would see that people are funding earlier- and earlier-stage opportunities, because that's really where the upside comes from that can offset the risk. It's been mitigated somewhat by the decline of the public markets, but I think the Canadian venture capital community is doing earlier-stage deals, generally speaking, than they have over the past several years.

That said, there's another whole set of angel incentives and seed money apart from venture capital. Certainly I haven't spoken to that point today, but I would encourage this committee to look into that and adopt measures that encourage that as well.

Mr. Roy Cullen: This committee recommended the tax free rollover for eligible investment. The government enacted it in the year 2000 and then broadened it in Budget 2003.

Mr. Jay Heller: That's an excellent measure.

Mr. Roy Cullen: It seems to be working well.

Mr. Jay Heller: I think it's too soon to tell. I think it's working well. There's certainly a community of entrepreneurs who have been successful and who, given where they came from, are inclined to support growing businesses. The recent tech bubble has hurt the investable assets of that group of people. I think we'll only really be able to tell the effectiveness of that measure once the markets have recovered somewhat and have been recovered for a year or two. Then we'll really be able to see. But certainly the angel investors we see, many of whom are veterans of tech companies that have sold or gone public and have been successful, want to be able to back other companies, and having that tax incentive in their pocket will certainly help them do so.

Mr. Roy Cullen: Thank you.

The Chair: Mr. Discepola.

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M. Nick Discepola: Thank you, Chair.

I have a question for Mr. Elston. One of my pet peeves is the HPB drug approval times. Whether we fund them additionally, as we did in the last budget, it doesn't seem to me that the times are being improved upon. I'm wondering if your organization has costed out what that costs our economy and determined what we have to do to maybe shake these people. Is it a question of just funding? My impression is that no matter how much money we put into it, it's not necessarily going to lead to a shorter payoff period. So I'm intrigued to know how much it actually costs, not necessarily your industry but the economy, in knowing that we are delaying by upwards of two years the approval of some of these drugs.

Mr. Murray Elston: I can't give you that number. We haven't actually done that type of tally. But if you go back to the Columbia University study, it says that for every dollar you invest in a new medicine, you save $7 against other expenditures in medical practice. So if you consider that there's a two-year delay getting to a new medicine and if it's a product that's worth $1,000, then you're missing out on savings of $7,000. If it's $1 million, it's $7 million. Most of the successful products are going to be multi-million dollar products. We've never put that together.

But a lot of people are working on trying to improve it. Just as Mr. Cullen goes out...because that whole area of drug review is part of the cost-recovery exercise, his process, where we get performance tied to the cost-recovery issue in his bill in particular, is helpful at moving people along to a point of accountability. I think that's really one of the key issues. It's not just about more resources, but it's about ensuring that the resources that are allocated are actually being spent on the reviews.

It's also about renewing people inside the department. There are lots of plans, we are told, to move to new processes, but those processes have not yet materialized. While we know that there are a number of committed people who have indicated that they're working hard toward a solution, the solutions have not yet arrived.

I think what's disappointing to me, having been in a similar position as you have, is that once you see something in a throne speech and a budget, you like to see delivery, and so far the delivery has not come. But I can tell you that we have been in consultation with a number of people who are indicating that they want it to happen sooner rather than later, and we really wish it was much sooner.

Mr. Nick Discepola: Are you reassured? I'm not reassured in having testimony especially from Treasury Board—

Mr. Murray Elston: I think some new people have recently been doing some more work in the area, and that appears to have initiated a new level of activity. Having said that, when asked the question by other people in the department, I said the same thing. The activity is great, but the product is what we're looking for. It's delivery. If you can't close the deal in the last 10%, it doesn't matter that you've accomplished 90%, because if you can't deliver the full package, then you haven't delivered anything at all. So I support the initiative of the new individuals who are there. I want them to deliver. I'm just waiting for it to happen. Our people are going to be advantaged if they can go to their head offices and say this regulatory environment has improved and here's the example. We've basically been selling the throne speech and the budget this year to the folks in other jurisdictions to show movement, but they're saying, so where is it?

Mr. Nick Discepola: One other source of frustration for me is often hearing that a drug has been approved in the United States, but not in Canada. There are delays, again, in Canada. Is there any mechanism in place where you can share or exchange clinical trial data, research data, between the United States and Canada, or do you have to go through a whole new process in Canada?

Mr. Murray Elston: Generally, the process right now is similar in each place, in that you have a proposal put to each of the regulatory authorities. In Europe, the United States, Canada, Australia, Japan the materials are generally the same, although there may be slight variations. In the United States the process is somewhat different, because they basically take the application, tear it apart, and then rebuild it. In Canada the process is not quite as extensive as that. They may do sample areas, where they anticipate issues, and then do something similar.

There are places where in fact Health Canada officials have been attempting to make arrangements whereby they would end up with multiparty recognition agreements, so that if somebody has done a piece of work on a file, they could take that as advice, could review the results, and accept it if it was found to be in good condition. We are urging them to develop further partnerships with the people in the FDA and the European Medicine Evaluation Agency, the MEA. We think that would be helpful, and it makes more sense to go through things like the chemistry reviews, for instance, because chemistry here is chemistry there is chemistry globally. We think there are efficiencies to be gained, so those steps we support.

We would like to be a better partner with the people here in Canada. In the United States and in Europe there is a stronger relationship, trouble-shooting between the regulator and others: if you're going to do this, we want you to determine that A, B, and C happen, so let us help you do the protocol work, so that we can get the outcome that assures us that our questions are going to be answered. That would be helpful, and if we could develop that sense of partnership, I think it would really help at the end getting the product through the review system and then to the patient. For quite obvious reasons, a product in our companies that doesn't get to the patient is of no help to anyone. A product that is delayed getting to the patient as safe and efficacious help is no good to the regulator at Health Canada either. So we should work together to make sure we have one target--good, safe products for the patients.

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Mr. Nick Discepola: Thank you.

The Chair: Mr. Pillitteri, please.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you, Madam Chair.

To Go Green, let me say that I live in the most wonderful, beautiful area in Canada, Niagara-on-the-Lake. You could walk from Lake Ontario along the Niagara River and bike or rollerblade all the way to Lake Erie. I don't think too many places have that much space to enjoy life. But the municipalities along the way and regional government, any time they're resurfacing or repairing the road, they widen the paths. Have you taken this up with your regional government here, and in all other parts of Canada, because it's almost a given to us now that any regional road or municipal road that is resurfaced is extended another four to five feet into bicycle paths? So that's one question.

Mr. Anthony, again because of the heritage in my area, especially in Niagara-on-the-Lake, when I was on council, we always came up with the problem that the region or the province always held the upper hand. The buildings of governments, provincial or federal, do not have to comply with heritage district areas. Though you needed a designation from those locales, they were not made to comply. Do you think we should have some regulation whereby in a designated heritage district both levels of government should comply with those jurisdictions? I'd like your views on that.

Mr. Brian P. Anthony: I think it's called leading by example. We would encourage that in all orders of government. As I mentioned earlier in a response to another question, it's particularly to the federal government that we look to set national standards and set the national example.

I must say that I'm greatly encouraged by the progress that has been experienced on the historic places initiative, which is not simply a federal initiative, although the federal government took a leadership role in it, but it has involved all provinces and territories in its promulgation and it has involved key municipalities. I've been in the cultural sector now for 30 years and I've never seen anything quite like it in terms of intergovernmental cooperation. It's a remarkable piece of federal-provincial-territorial-municipal collaboration. I think it bodes well for the future.

This I think betokens the awareness on the part of the officials involved in the development of the historic places initiative, as it is to date, that the rate of loss we're experiencing requires all governments to work together to come up with the ways and means by which that rate of loss can be arrested. I'm very encouraged by that.

I appreciate some of the points you made. I'm hopeful that out of this experience of working together on the historic places initiative all governments, federal, provincial, territorial, and local, will start to look to their own practices in terms of the stewardship of the properties they own or rent.

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Mr. Nick Discepola: I just want to make sure you answer the first part of the question.

Mr. Steve Grundy: By the way, you do live in a beautiful part of the country.

The answer is yes, we have approached municipalities. During the first infrastructure program we made a direct approach to all municipalities in Canada to educate them about the benefits of adding that strip along the side of the road. We did an analysis, and unfortunately it's not applied evenly across the country. In terms of infrastructure spending in the first infrastructure program on facilities for active transportation, it ranged anywhere from 0% of the transportation infrastructure spending up to 13% in the province of Quebec. So it's applied very unevenly across the country. It's one of the reasons we've recommended the 7% allocation for active transportation infrastructure within transportation budgets.

Mr. Gary Pillitteri: Thank you.

The Chair: Thank you very much.

On behalf of all of our members, and as chair, thank you for coming today. We appreciate your testimony. The evidence you've given is on the record. Also, this process does help advise Canadians of the conflicting priorities the government faces with not an unending source of money. So thank you very much for your contribution.

We are adjourned.