INST Committee Report
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Canadian Alliance Dissenting Opinion
The Canadian Innovation Agenda
June 8, 2001
The third report of the Standing Committee on Industry, Science & Technology on innovation is part of an on-going study to deal with innovation, productivity, competitiveness and science & technology (S&T) in Canada. While the Canadian Alliance members of the standing committee feel that the main report does address some of the prominent issues concerning S&T policy in Canada, we feel compelled to offer a dissenting opinion in order to identify significant weaknesses in this report.
The most troubling matter is the government's long-standing refusal to acknowledge the failure of its own policies to encourage innovation and productivity. Liberal members who comprise the majority of the Committee do not recognize the role that successive Liberal governments have played in hindering Canadian economic progress and development. This state of denial is negatively impacting on Canada's standard of living, which is currently 30% lower than our American neighbours. (National Post: June 6, 2001)
The Canadian Alliance believes that by preserving a high tax regime, by not formulating a comprehensive and transparent policy on science and technology, and by maintaining its reliance on old-fashioned and unproven public expenditure programs to "fix the problem," the Government will continue to disappoint Canadians on this issue. Until the Government acknowledges its past failures and transforms its perspective, Canada will fall short of its S&T goals.
Canada’s economic performance, when measured against the performance of our major trading partners, continues to be of great concern. Our productivity has fallen in comparison to other OECD countries and in particular at an alarming rate compared to that of the United States. Canada has fallen from 6
th place in 1997 to 9th place in 2001 in the world competitiveness ranking.The preface of the Committee's report asserts that: "Canadian businesses have historically been laggards in conducting R&D."
(p. 3) The Alliance maintains that the fault lies with public policies over the past 30 years that have failed to cultivate a culture of innovation and competitiveness. We further believe that Canadian businesses, given a healthy business environment, would have confidence in the rewards of conducting R&D and would be more willing to take risks on innovation.The Alliance is concerned that having the highest personal income tax burden in the G-7 and the highest corporate income tax rate in the OECD is having a negative effect on research and capital investment. Clearly tax reductions would directly address this issue, yet, the committee did not consider recommending such a policy. The timid planned tax cuts with their long phase-in periods outlined in the last Economic Update do little to encourage businesses and investors to take risks on innovation. Moreover, Canada's major competitors and trading partners are poised to embark on another round of tax cuts, leaving Canada even further behind.
The Business Council on National Issues and the Canadian Manufacturers and Exporters both agree that Canada cannot improve productivity without cutting taxes. Roger Martin, Dean of the Rotman School of Management at the University of Toronto, acknowledged that the Canadian private sector has under performed, but argued that the federal government has also not done enough:
"The Canadian government has done nothing innovative in the past 25 years on tax policy. All they have done is replicate what has been done elsewhere. And in most cases, replicate it not as effectively,"
National Post (June 6, 2001):Jason Myers told the Committee that with the current tax treatment of technology, discouraged innovation:
"… we’ve seen the erosion of the ability of manufacturers to be able to write off equipment, to use tax credits to support their investment in new technology. But I think, more generally, since investment in capital simply follows profit performance, there are a lot of other factors that really affect the bottom line of a lot of companies, particularly smaller companies, that we also have to look at here. It’s beyond that. Tax instruments are an important component of the problem, but certainly not the only one"
(IST meeting #13)He further noted: "One law of economics is if you want companies to do something, businesses to do something, then don't make it more expensive for them to do that."
(IST meeting #13)The Canadian Alliance recommends across the board tax cuts for businesses and individuals. The $1.3 billion capital tax on innovation should also be eliminated.
The Canadian Alliance believes that the Standing Committee on Industry should immediately strike a joint committee with the Standing Committee on Finance and begin hearings on tax policy and the effect of taxes on capital stock, machinery and equipment, new technologies, and the connectivity strategy is having on productivity in Canada.
A Comprehensive Science & Technology Policy
The Canadian Alliance is concerned that the poor overall performance of public policy in S&T is somewhat related to parliamentarians limited knowledge of basic issues in science. Therefore, the Alliance believes the Parliamentary Office of the Chief Scientist should be created and instructed to report directly to Parliament to aid in the formulation of a comprehensive policy on science and technology.
Members of Parliament and Senators come from very different and diverse backgrounds and are often asked to make decisions on scientific issues they know very little about. The Chief Scientist would serve to advise parliamentarians with balanced and objective analysis of science and technology based issues of relevance to Parliament. The office would carry out studies in broad S&T based policy areas such as agriculture, defence, transport, environment and health as well as advise on issues of pure science and research. These reports should be made public.
The Prime Minister, following consultations with the Opposition Parties, appoint a Chief Scientist to serve and advise parliamentarians on science and technology issues of relevance to Parliament.
Transparent Criteria for Science Funding
The Canadian Alliance has always believed in the importance of investing public money in S&T. The granting councils have had a good track record in S&T investment and we applaud their work. However, science and technology investments must be transparent and must be made in combination with a broader S&T policy framework, in addition to tax cuts, in order to create an overall environment more encouraging to innovation.
Alliance members are concerned that the current Government chooses to spend public money without a comprehensive, long-term S&T policy or regard for the outcome of spending initiatives. For example, the branding strategy currently being employed by Industry Canada has not been made public, and therefore we have no way of measuring the success or failure of the program. Moreover, the spectre of Government picking scientific winners and losers is troublesome, particularly in light of its poor track record and the leeching of partisan politics into expenditure programs in the past.
There are several "big science" projects that are currently being funded by or seeking funding from the federal government. These are projects that require large initial capital investments and long term plans in order to sustain competitiveness and funding and also employ many individuals. These projects include the light source synchrotron, the long-range plan for astronomy, the Sudbury Neutrino facility, the Canadian Neutron facility, Genome Canada, Iter, etc.
The Alliance is unclear as to what, if any, decision-making process is employed by the Government to support one big science project over another as there are no apparent criteria for decision making in this field.
Industry Minister Brian Tobin initially told the Committee that big science decisions were made away from the Cabinet table based on advice from agencies such as NRC or NSERC:
"All of the decisions on all of these programs are made at arm's length from me, from members of cabinet, from members of Parliament, from government generally. I think it takes a certain reserve and a certain determination, when you have a block of funds, as we're seeing this fiscal year — and we could use a big chunk of it to pay down the debt but part of to make strategic investments — to resist the temptation to go out and do the shopping list or wish list of projects that members, including me, might want to propose. Instead, we could say to an expert panel — in the case of Genome Canada, a panel from outside the country — of international experts, "Give us your best advice, based on the applications before us, as to where these strategic investments across Canada should go".
(IST-3)However, the Minister also said on the same issue:
"These are the questions that would be determined by cabinet, specifically because they're large stand-alone projects."
(IST-3)The Alliance believes that making decisions on big science projects on an ad hoc, and potentially partisan basis is a poor policy practice. If there were a clear set of criteria, it would be much easier for scientists and parliamentarians to carry out their work. The Auditor General has examined this issue (December 2000) and discovered that the government does not have a structure to manage the approval, implementation and reporting of big science projects involving several departments and agencies. Clearly as we move into the next generation of science and health with the mapping of the genome, and as we move towards attracting more science and technology investment to Canada, the pressures to fund big science projects will continue.
The Canadian Alliance agrees with the Auditor General that a framework for handling big science proposals is needed. This framework should include, but not be limited to, a full and public cost/benefit analysis conducted by a non-government agency and a peer review panel, situating the projects in reference to Canada’s overall science and technology priorities, community impact assessments, briefs on the scientific nature of the project by the Parliamentary Office of the Chief Scientist, establishment of clear lines of accountability, and annual public reports.
Canada has the potential to be a world leader in innovation and entrepreneurship, and in science and technology. However, this will require the Government to engage in a fundamental public policy shift. In order to address our real public policy concerns, the Government should lower personal and corporate taxes, ensure that research and development funding occurs within an overarching long-term financial plan and establish clear criteria for large-scale science projects.
We must ensure that Canadian productivity does not slip any further behind the United States and other countries. Very specific actions must be taken by the government to ensure innovation and S&T are a significant part of the Canadian economy. Canadians have huge potential in this area, and given the right environment, will take up the challenge and succeed.
The Canadian Alliance hopes that the Government can muster the courage to tackle Canada's problems of low productivity and innovation. However, this cannot be done if the Government continues to deny to its own mistakes in this area. It's time for the Government to be truly innovative in creating an effective science and technology policy instead of relying on old-fashioned expenditure programs. Lower taxes, a Chief Scientist and transparency in government investment in S&T will go a long way to re-build the confidence of Canadian businesses and investors and to re-ignite the pioneering spirit that built this country.
Charlie Penson, M.P.
James Rajotte, M.P.