INST Committee Report

            The Progressive Conservative Party supports the general direction of the report from the House of Commons Standing Committee on Industry, Science and Technology entitled A Canadian Innovation Agenda For The Twenty-First Century.

            For example, we support reform to the Canada Foundation for Innovation (CFI) to eliminate the systemic anti-small university bias.

            It is clear that for Canada to compete in today’s increasingly global, knowledge-based economy that we cannot standby while other countries leapfrog over us with more competitive tax regimes, more rational regulations and their resulting by improved productivity levels. To compete and win in a global economy, Canada’s knowledge based industries need more innovative tax and regulatory reform.

            However, the Liberal government’s track record of the last eight years has included declining investment and productivity, a lower standard of living, record levels of taxation, and punishing regulations and red tape. There is no better barometer of this government’s poor performance on competitiveness than the anaemic Canadian dollar, which has lost 12 cents or 16% of its value since 1993.

            The Liberal response to Canada’s declining standard of living and high taxes is to ask Industry Minister Brian Tobin and Human Resources Minister Jane Stewart to develop a white paper on productivity. It is unfortunate that this paper will reportedly propose significant government intervention, at significant taxpayer cost, but will not propose any reforms to Canada’s tax and regulatory burden that could improve productivity.

            High corporate and personal taxes reduce the incentive to work, save and invest. This hampers economic growth and reduces our productivity and standard of living. It is not just the level of taxation that matters, but also the structure of the tax system.

            Canada needs a new agenda, a plan designed to allow Canadians to fully benefit from the opportunities of the new millennium. This government needs to ensure that the economic fundamentals are in place to allow Canadians to compete and thrive in the global economy.

The Progressive Conservative Party of Canada adds the following recommendations to the report:

            To this end, the Progressive Conservative Party of Canada believes that the corporate tax rates should be lowered to the OECD average, which is to a combined federal and provincial rate of approximately 35 per cent immediately. Given current provincial corporate tax rates, this would suggest a federal corporate tax rate of about 20.5 per cent. Lower corporate taxes means more income for business that can be used to expand and attract and retain Canadian employees.

            Eliminating the personal capital gains tax would attract new investment and new talent to Canada’s new economy. It would help give a leg-up to young Canadian companies fighting against intense competition.

            Canada is losing too many engineers, scientists, doctors, nurses, managers and other professionals to the United States, with serious implications for our long-term economic health. A key challenge of government policy is to end the brain drain as quickly as possible- one this government continually refuses to address.

            The personal capital gains tax damages the health of the economy in a profound way. Today there is no form of taxation that is more harmful in terms of its impact on the new economy than the capital gains tax.

            Furthermore, it is essential that this current government address Canada’s high marginal personal tax rates. Once all of the promised tax relief is in place by the federal and provincial governments, the average combined federal-provincial top marginal personal income tax rate in Canada for 2001 is 45.6 per cent. Most U.S. states have a top marginal tax rate in the 41 to 45 per cent range. Under President Bush’s tax-relief plan, the top U.S. marginal personal income tax rate will be reduced to below 40 per cent in most states by 2003. In Canada, the top tax rate will kick in between $60,000 and $100,000 depending upon the province, whereas the U.S. top rate under Bush’s plan will kick in at U.S.$136,751, or $214,000 in Canadian dollars. The marginal tax rates at lower income levels can be even higher in Canada due to the "taxback" feature of several federal and provincial social benefit programs.

            While the valid purpose of regulation is to protect consumers, the burden of excessive regulation constrains productivity growth, reduces competitiveness and causes higher prices. As we move closer towards a global economy, Canadian firms will face increasing competition. This government can no longer stifle Canadian enterprises- the engines of economic growth- with costly regulations.

            The Progressive Conservative Party believes that every new regulation should be examined in a regulatory budget in Parliament. The government should implement a "Regulatory Budget," which would detail estimates of the total cost of regulation, including the government enforcement costs and the cost of compliance to individual citizens and businesses. The "Regulatory Budget" would also include a risk/benefit assessment of the regulation to enable cost-benefit analysis by parliamentarians.

            The variety of provincial securities regulations continues to complicate efforts of entrepreneurs wanting to raise capital. A uniform set of securities regulations would improve the ability for innovators to raise capital in Canada. We feel it is important that the federal government work with provincial governments to develop a uniform approach to securities regulations.

            The Canadian and global economy has undergone more changes in the past decade than in the previous hundred years. Regional development agencies, in their current form, are "old economy" vehicles that need visionary reform to harness the opportunities of the new economy.

            Economic development agencies should continue to play a role in funding activities, which improve equality of opportunity for disadvantaged regions. In doing so, however, it is important that their activities do not crowd-out private sector investment. In some cases, for example, regional development agencies have encouraged entrepreneurs to opt for government financing when private sector capital financing would have been more beneficial in the long run. While private venture capital investment occurs with a cost of the loss of equity, it brings with it significant and important benefits. These include access to a high powered and connected board of directors, expertise in capital markets and investment banking and the global high technology community. Regional development agencies should be reformed to act as a catalyst to attract private sector venture capital investment in the regions. Access to venture sector capital is more difficult in the rural areas of Canada and we need to tear down impediments to placing this capital in regionally disadvantaged areas. Regional development agencies could work through syndication to build teams of technologically savvy venture capital firms to invest in Canada. Regional development agencies should make it easier for private venture capital firms to invest in Canadian companies by reducing the risk. We feel government should establish a task force compromised of representatives of different industry sectors (high tech, tourism, value-added resources etc.) and the venture capital community, boards of trade, chambers of commerce and other interested parties to develop more effective regional development agencies.

Respectfully submitted by: