Welcome to the Standing Committee on Industry, Science and Technology.
This is our 48th meeting, and pursuant to Standing Order 108(2), we are studying the recent economic performance of small and medium-sized enterprises in Canada.
If you look at your orders of the day, you'll find that from 3:30 to 4:30 we'll have the Honourable Minister, Diane Ablonczy, Minister of State, Small Business and Tourism, and witnesses
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Marie-Josée Thivierge, Assistant Deputy Minister, Small Business and Marketplace Services;
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Coleen Volk, associate assistant deputy minister, industry sector; John Connell, director general, small business and tourism branch; and Patrick Hurens, director of service industries directorate. Then from 4:30 to 5:30 we'll continue with the National Research Council.
For now, what we'll do is open it up to our witnesses. It'll be a 10-minute presentation, if you like, and we'll continue with questions afterwards.
We'll begin with Minister Ablonczy. Thank you for being here today.
:
Thank you, Mr. Chairman.
Congratulations on taking charge of this important study. I congratulate the committee on doing this study of small business services. It's an area near and dear to my heart, so of course I was very pleased that you're taking the time to do this study.
I have a few remarks, and I may be telling you things you already know, but they're worth going over again in order to emphasize how important this sector is.
In addition to the services sector, which is about 75% of small businesses, I want to give you an overview of the 30,000 street views, so to speak.
The current state of small business in Canada is a good place to start. I don't think it's any secret to you that small business is the backbone of our economy. In fact, they account for 98% of businesses in our country, which is enormous. They employ one in every six Canadians. Here's a very interesting statistic: on average, over 350 new small businesses are started each day in Canada.
Of course, we're all aware that the last year has been a turbulent one for the global economy, but small businesses, although they've encountered some significant challenges, have really been successful in turning these challenges into opportunities. In fact, colleagues, our economic slump would have been far worse without the performance they have turned in.
Consider this. Over the 12 months ending in October of this year, small business employment fell by less than 2%. That's compared with employment in large firms, which fell by more than 10%. It's fair to say, therefore, that the small business sector has out-performed the rest of the business economy.
I was pleased to learn that you had representatives from the Canadian Federation of Independent Business before you last week. I quote Ted Mallett, who said to you:
What we've found over the years is that the small-business sector has been one of the most important stabilizers in the Canadian economy over time from a macro basis.
The CFIB member survey shows that SME business confidence remains strong, and a small business report by CIBC Economics in October, only a couple of months ago, tells a similar story. I quote from that report:
Against all odds Canadian small- and medium-sized enterprises (SMEs) were not only able to endure the recent recession with less damage than in any other postwar recession, but also to outperform their larger, more established, peers.
Canada has a lot going for it, colleagues, when it comes to starting and growing a business. Compared with other countries--and that includes European countries and the U.S.--our birth rate of new firms is higher than the business death rate. That's always a good thing. That really means that our pool of entrepreneurial potential is constantly being replenished. The survival rate of new firms is very strong, and what's especially interesting is that the proportion of firms that experience high growth is also reasonably strong.
I'm sure you're wondering where government fits into all this, because you are part of law making and policy making. What government really is here to do is to ensure that the conditions are right for businesses to start, to prosper, and to grow. The role of government is to understand small business needs and to create a positive business environment. Businesses, in other words, are the lead economic actors. We merely play a supporting role.
How has government delivered recently in this way?
As you know, support for SMEs was a large part of the government's economic action plan that was designed to stimulate our economy. This was important and proper because SMEs are a big part of our economy. There were several measures to help small businesses as they lead Canada into recovery. The plan lowers taxes, cuts red tape, and increases access to financing, which is a huge issue for small businesses. All of that provides small businesses with the tools necessary to fuel economic growth and job creation all across the country.
I want to expand on this a bit. The reduction of taxes was a top priority. The small business tax rate was lowered to 11%. It had been 12%. The business income threshold at which a business would pay the small business rate is now 11%. It used to be $300,000, and it has now gone up to $500,000. This allows small business to keep more of their hard-earned money, which they can use to reinvest and to grow their business.
We also increased the life-time capital gains exemption for small business owners from half a million dollars to three-quarters of a million dollars. That was the first time this had been raised since 1988, so it was long overdue, especially in the view of small business.
We've also been working hard to cut red tape, and we're proud that in March we were able to announce that the goal of reducing the paper burden by 20% had been reached. This was achieved, colleagues, by listening attentively to small business. In fact, the CFIB, which represents small business, was a co-chair of the paper burden reduction committee. It was an advisory committee made up of both the private and public sectors. It's an important achievement, but I view it as just a start. We can't rest on our laurels. We will continue to look for ways to reduce the paper burden on the small business sector.
There are also some exciting new services such as BizPal and the new Canada Business network. These tools help entrepreneurs to start their business, to grow their business. We also are ensuring that remittance of corporate taxes is now done annually or quarterly, instead of monthly, which saves a lot of time and effort for small business. We raised the maximum amount of loans under the Canada small business financing program from $250,000 to $350,000, and to half a million for real property.
Also, we know that we need to start young businesspeople, young entrepreneurs, off on the right foot if they're going to become the entrepreneurial leaders of tomorrow, so under the economic action plan we invested $10 million in the Canadian Youth Business Foundation. That's a tremendous agency. If you haven't talked to them, it would be worthwhile having the CYBF come in to tell you about their mentoring and support programs for the next generation of entrepreneurs. It's an inspiring success story.
I also know that you heard from the president of the Business Development Bank of Canada, who works closely with small business clients, provides them with a wide range of financing tools, and offers advice on productivity enhancements and other business strategies. As part of the economic action plan, a lot more funding was allocated to the BDC and the EDC, Export Development Canada, to support small business activity and growth.
I also want to point out that we are also assisting SMEs with their labour needs. The Minister of Human Resources and Skills Development recently introduced legislation to provide employment insurance benefits to the self-employed, who were previously unable to participate in the EI program.
Just this week, there was a new agreement announced on foreign credential recognition. This is to ensure that foreign qualifications are assessed and recognized in a timely manner and to enable newcomers to maximize their talents and their participation in our small business sector and in other sectors of the economy. It also allows business to find the skilled labour they need to grow their business. We want these initiatives to go ahead.
Mr. Chairman, I could go on at length about the support for small business, but I prefer to focus on the questions that are of most interest to my colleagues.
I want to talk a bit, though, about the code of conduct for the Canadian credit and debit card industry, because I know all of us have been hearing quite a bit about that from small business. The concerns that were raised were folded into this code consultation, which is taking place right now. We want to make sure the code does help small businesses and merchants to ensure fairer practices and accountability and to encourage choice and competition.
So, monsieur le président, our SMEs are leading Canada into growth and clearing the way for positive economic times. Our government is fully committed to helping them grow and prosper.
To speak specifically for just a moment about the services sector, because that's the focus of your study, all of my remarks about SMEs apply fully to the services sector. Our economy is increasingly a services sector. As I mentioned, about 70% of Canada's GDP is accounted for by the provision of services. That's pretty much a majority. One example of that, which is near and dear to what I do, is the service activities in the tourism industry. Tourism, of course, is a key economic driver of our economy and accounts for two-thirds of a million jobs, about 2% of GDP. Tourism brings more to Canada's wealth than forestry plus fisheries plus agriculture, those three combined. The visitor economy is a big part of Canada's future economic success.
The vast majority of tourism businesses, in fact 95% of them, are SMEs. They are crucial to the industry and help to define the experiences of domestic and international visitors, and also place Canada on the world tourism map. There were a number of measures in the economic action plan to support Canada's visitor economy: $40 million for the Canadian Tourism Commission to promote domestic tourism and new activities in emerging markets such as India and Brazil; $100 million to marquee festivals and tourist events that draw a lot of tourists into Canada; and $150 million to enable Parks Canada to improve and enhance national parks and historic sites, which are another big draw to our country.
Now we have the 2010 Olympic Games in Vancouver-Whistler, and right now the Olympic torch is crossing our great country. So we have a once-in-a-generation opportunity to show the world what this country has to offer. Of course, we as Canadians are very proud of the great work our thousands of small businesses are doing welcoming the world to Canada during the Olympics and beyond.
Mr. Chairman, let me conclude my remarks by saying there is so much potential for this dynamic, resilient, and capable small business sector. The government will continue to work hard to support the SME sector across Canada as they innovate, create jobs, and generate wealth in our communities.
I'll now turn the floor back to you.
Thank you very much. Merci.
:
Mr. Chairman, colleagues, we have, as you know, programs in essentially three areas. One area is to assist small business in continuing to get the financing they need in order to continue and grow their business.
Secondly, we have programs to reduce the regulatory and paper burden on small business, to free up their time and efforts to be invested back in their business, and then we have programs that provide tools to small businesses to again save them time, but also to give them positive input and information.
On the small business financing side, we have put into place considerable additional money to the BDC, as I mentioned. This is under the credit availability program, and we put more money into both the BDC and the EDC to allow them to increase their.... For the BDC, their loan rate was up 54% over the same period last year. So they're putting out significantly more money.
The small business financing program is also working somewhat better. We have increased the threshold that businesses can apply for and have also made the program easier. We continue to look for improvements to that program as well.
I mentioned some of the things we've done to reduce the paper burden. We've reduced the paper burden by 20%, and we're looking for changes and new improvements to that.
With respect to tools for small business, we have the BizPal program, which I hope you all know about. Essentially, it's a one-stop shop for businesses to run out a list of the licences and permits that they're going to need if they want to establish a new business or grow their business. That's a huge time-saver.
We also have just launched the new Canada Business network, which is an online portal, although it can also be accessed in person or by phone, that tells all about the government programs and services that assist small business. It also gives them positive tips about staff management and about a number of skills they are going to need in order to succeed.
If you haven't checked out the Canada Business network, I urge you to do that. I think the committee would be interested to test it out. If you have feedback for us, we are of course happy to hear that. We've put a lot of improvement into that.
So, colleagues, those are some of the measures we have in place.
:
I appreciate you raising that. Mr. Masse had mentioned some of those issues as well.
We have been very active in all the areas you mentioned on border issues. As you know, in the U.S., security trumps all, so access to the border has been an issue for visitors both to and from our country.
We have made some progress with our counterparts in the U.S., and the Minister of International Trade and the Minister of Public Safety have taken the lead on that. They've built some good bridges and are working on a number of issues, including alternative documents to passports, and more infrastructure has been put on the border to provide more space to move visitors back and forth more quickly.
With respect to attracting visitors from the U.S., I think we have to be cognizant of the fact that the U.S. was hit by the global downturn to perhaps an even greater extent than other countries, so that has had an impact to some degree on their travel decisions. But the Canadian Tourism Commission was given $40 million, over two years, in the economic action plan, and they have stepped up their promotional activities in the U.S. We see that there have been some positive results from that.
By the way, the Canadian Tourism Commission's advertising campaigns have garnered significant kudos right across the world. In fact, their latest campaign, “Locals Know”, has been rated by Forbes as one of the 10 best promotional campaigns. So they've been a real asset to us in the tourism industry.
At the same time, our tourism industry itself, as you know, colleague, has really stepped up to the plate and has been determined to compete at the top of its class. So it is refreshing its products, animating its products. A number of communities are using community adjustment funds to scrub up their tourism image and products and make themselves a real compelling destination for the world.
I think it's going to take action by a whole group of players in order to move this industry forward, but I do see that action happening, including, of course, our own federal government becoming more coordinated and focused with the federal PRISM strategy.
:
Mr. Chair, members of the committee, as a productive and internationally respected research and development organization, the National Research Council, or NRC, continues to bring advanced knowledge and new technologies to Canadian industries, helping them to compete more effectively on the world stage.
We have a long history of scientific breakthroughs such as the atomic clock, the Canadarm, and the synthetic meningitis C vaccine, to name just a few. While these achievements are important for NRC and the country, they represent only one aspect of NRC's impact. NRC's day-to-day interactions, support, and research collaborations with small and medium-sized enterprises result in the creation of new technologies, new jobs, new firms, and greater prosperity for Canadians.
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NRC works closely with Canadian SMEs in a number of ways, from collaborative research projects between Canadian firms and any one of our 21 research institutes, technology licensing, the creation of new firms, and most significantly through the work of our Industrial Research Assistance Program, IRAP.
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NRC also operates a national network 15 industrial partnership facilities, or IPFs, as we call them. These are specialized business incubators affiliated with our research institutes across the country. Companies, often start-ups or SMEs, link to our R and D capacity, our expertise, and our specialized equipment, and benefit from the synergy that comes from interaction with our advisors from the industrial research assistance program, IRAP.
In 2008-09, 13 firms graduated from our facilities, bringing their innovations to a higher level of technology readiness. We currently have 137 companies incubating in these facilities. It is worth noting that graduates from NRC's industrial partnership facilities tend to enter the commercial market on a stronger footing and have a higher survival rate than the regular startup.
As I mentioned earlier, our most significant interaction with SMEs is through NRC's IRAP program. IRAP is delivered by 240 field staff located in 100 communities across the country. On average, NRC-IRAP works with 8,000 small and medium-sized firms each year. NRC-IRAP provides non-repayable contributions on a cost-shared basis to Canadian technology-based SMEs focused on growth in Canadian and international markets. NRC-IRAP also provides mentoring support and business support to these firms. NRC-IRAP's partner organizations also receive contributions to provide technical and research assistance to Canadian SMEs.
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The program supports the government's Youth Employment Strategy with its internship program which provides firms with support to hire post–secondary graduates. Both firms and graduates benefit from these programs: firms benefit from the graduates' expertise in a diverse variety of disciplines and graduates gain valuable work experience that will help open the doors for future employment.
In 2008-2009, NRC-IRAP signed financial contribution agreements worth more than $70 million with more than 1,400 Canadian SMEs. IRAP worked with another 6,349 firms to provide technical, research and business assistance. These contributions translated into close to 5,740 new jobs and employment for 540 youth graduates.
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An example of one of the countless successes emanating from NRC-IRAP's SME collaborations is Vancouver-based Angiotech Pharmaceuticals. As a small firm, Angiotech began a working relationship with NRC-IRAP in 1993. Within five years the company had developed technology to help control chronic inflammation and angiogenesis and had signed a $30 million licensing agreement. Today Angiotech has more than 1,500 employees worldwide, with operations in Canada, the U.S., and Europe.
This year, as part of the Government of Canada's economic action plan, NRC-IRAP was allocated an additional $200 million over two years to provide supplementary support to SMEs. This includes $170 million to double its financial contribution to firms, with a goal of reaching an extra 1,360 SMEs over the next two years, and $30 million to help companies hire over 1,000 new post-secondary graduates.
l'm pleased to report that as of October 31, this funding has already reached over 1,200 firms and created 4,536 new jobs, on top of the 455 new graduates that were hired in 376 firms.
To mention a few examples of SMEs that will receive funding as part of this initiative, AV-BASE Systems, a London, Ontario-based company, will receive over $348,000 to develop state-of-the-art maintenance and inventory-control software for the aviation industry. Clear Flow Consulting will receive close to $125,000 to develop environmentally friendly polymers to treat waste water from both aquaculture ponds and rural, small-scale waste water treatment plants.
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In conclusion, I hope that I have made clear that the National Research Council is committed to working with small and medium-sized enterprises, boosting their growth and competitiveness while they realize their full potential.
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After all, NRC's role is all about turning knowledge and innovation into strategic opportunities, jobs, and prosperity for all Canadians.
Thank you, Mr. Chairman.