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37th PARLIAMENT, 2nd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Thursday, September 18, 2003

0935

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

Mr. Randy Williams (President and CEO, Tourism Industry Association of Canada)

0940

The Chair

Ms. Gillian MacDonald (Board Member, Health Charities Council of Canada)

0945

0950

The Chair

Mr. David Hill (Director, Council for Health Research in Canada)

0955

Dr. John Hylton (Executive Director, Council for Health Research in Canada)

The Chair

Mr. David Hill

1000

The Chair

Mrs. Hilary Pearson (President and CEO, Philanthropic Foundations Canada)

1005

1010

1015

The Chair

Mr. Ken Epp (Elk Island, Canadian Alliance)

Mrs. Hilary Pearson

Mr. Ken Epp

Mr. Randy Williams

Mr. Ken Epp

1020

Mr. Randy Williams

1025

The Chair

Mr. Ken Epp

The Chair

Mr. Roy Cullen (Etobicoke North, Lib.)

Mrs. Hilary Pearson

Mr. Roy Cullen

Mrs. Hilary Pearson

Mr. Roy Cullen

Mrs. Hilary Pearson

Mr. Roy Cullen

Mr. Randy Williams

1030

Mr. Roy Cullen

Mr. David Hill

Mr. Roy Cullen

Mr. David Hill

Mr. Roy Cullen

1035

Mr. David Hill

Dr. John Hylton

Mr. Roy Cullen

The Chair

Mr. Shawn Murphy (Hillsborough, Lib.)

Mrs. Hilary Pearson

1040

Mr. Shawn Murphy

The Chair

Mr. Shawn Murphy

Ms. Jennifer Demers (Director, Government Relations, Tourism Industry Association of Canada)

Mr. Shawn Murphy

1045

Mr. Randy Williams

Mr. Shawn Murphy

Mr. Randy Williams

The Chair

Mr. Shawn Murphy

Mr. David Hill

Mr. Shawn Murphy

Mr. David Hill

The Chair

Mr. David Hill

The Chair

Mr. David Hill

The Chair

Mr. David Hill

The Chair

Mr. Massimo Pacetti (Saint-Léonard—Saint-Michel)

1050

Mr. Randy Williams

Mr. Massimo Pacetti

Mr. Randy Williams

Mr. Massimo Pacetti

Mr. Randy Williams

Mr. Massimo Pacetti

Mr. Randy Williams

Mr. Massimo Pacetti

Mr. Randy Williams

1055

Mr. Massimo Pacetti

Mr. Randy Williams

Mr. Massimo Pacetti

Mrs. Hilary Pearson

Mr. Massimo Pacetti

Mrs. Hilary Pearson

Mr. Massimo Pacetti

Mrs. Hilary Pearson

Mr. Massimo Pacetti

Mrs. Hilary Pearson

Mr. Massimo Pacetti

Mrs. Hilary Pearson

The Chair

Dr. Arthur Carty (President, National Research Council Canada)

1110

1115

The Chair

Mr. Guy Mayson (President and CEO, Canadian Film and Television Production Association)

1120

1125

The Chair

Mr. Ken Epp

Dr. Arthur Carty

Mr. Ken Epp

Dr. Arthur Carty

1130

Mr. Ken Epp

Dr. Arthur Carty

Mr. Ken Epp

Dr. Arthur Carty

Mr. Ken Epp

Dr. Arthur Carty

Mr. Ken Epp

1135

Dr. Arthur Carty

Mr. Ken Epp

Dr. Arthur Carty

Mr. Ken Epp

The Chair

Mr. Shawn Murphy

Dr. Arthur Carty

1140

Mr. Shawn Murphy

Dr. Arthur Carty

Mr. Shawn Murphy

The Chair

Mr. Roy Cullen

Mr. Guy Mayson

1145

Mrs. Beatrice Raffoul (Vice-President, External Relations, Canadian Film and Television Production Association)

Mr. Roy Cullen

Mr. Guy Mayson

Mr. Roy Cullen

Dr. Arthur Carty

Mr. Roy Cullen

1150

Dr. Arthur Carty

Mr. Roy Cullen

Dr. Arthur Carty

Mr. Roy Cullen

Dr. Arthur Carty

Mr. Roy Cullen

Dr. Arthur Carty

Mr. Roy Cullen

The Chair

Mr. Massimo Pacetti

Dr. Arthur Carty

1155

Mr. Massimo Pacetti

Dr. Arthur Carty

Mr. Massimo Pacetti

Mr. Guy Mayson

Mr. Massimo Pacetti

Mr. Guy Mayson

Mr. Massimo Pacetti

Mr. Guy Mayson

Mr. Massimo Pacetti

Mr. Guy Mayson

Mr. Massimo Pacetti

Mr. Guy Mayson

Mr. Massimo Pacetti

The Chair

Mr. Ken Epp

Mr. Guy Mayson

1200

Mr. Ken Epp

Mr. Guy Mayson

Mr. Ken Epp

Mr. Guy Mayson

Mr. Ken Epp

Mr. Guy Mayson

Mr. Ken Epp

Mr. Guy Mayson

1205

Mr. Ken Epp

Mr. Guy Mayson

The Chair

CANADA

Standing Committee on Finance

NUMBER 068

2nd SESSION

37th PARLIAMENT

EVIDENCE

Thursday, September 18, 2003

[Recorded by Electronic Apparatus]

¿ (0935)

[English]

The Chair (Mrs. Sue Barnes (London West, Lib.)): Welcome to everyone.

The order of the day, pursuant to Standing Order 83(1), is pre-budget consultations.

For the first panel we have the Tourism Association of Canada, Mr. Randy Williams, together with Jennifer Demers, who is the director of government relations. From the Health Charities Council of Canada we have Gillian MacDonald, board member, and Elizabeth Gyorfi-Dyke, director. From the Council for Health Research in Canada, John Hylton, executive director, and David Hill. From the Multi-Employer Benefit Plan Council of Canada, Bill Anderson, president; they are not here yet. From the Philanthropic Foundations of Canada, Hilary Pearson, president and CEO. Welcome to you all. If other members show up I'll introduce them.

In the meantime, we'll go in order of presentation on the agenda. Therefore, we'll start with you, Mr. Williams. You have up to seven minutes, or thereabouts. Go ahead.

Mr. Randy Williams (President and CEO, Tourism Industry Association of Canada): Thank you, Madam Chair, for the opportunity to speak to you. I want to thank the committee for giving tourism a voice in the federal government's pre-budget consultation process through the Tourism Industry Association of Canada.

I am here on behalf of a $52 billion industry that keeps 1.6 million Canadians working, contributes to the well-being of communities in all regions of Canada, and generates an estimated $17 billion in tax revenues for all levels of government.

Clearly, tourism is important to Canada's standard of living as a nation and to the quality of life of all Canadians. But our industry is going through a very difficult period right now. Tourism is on the front line of the national economy, which is increasingly vulnerable in this era of globalization to the effects of world events.

As Canada has struggled with the fallout of war, disease, the global economic slowdown, a strengthening Canadian dollar, and the ongoing effects of 9/11, no industry has been hit harder than tourism. Year-to-date tourism revenues are down significantly, and there have been thousands of layoffs. Future revenue projections are also affected, and the industry is expecting--I should say, hoping for--minimal growth through 2004.

The federal government can help the tourism industry get on an accelerated track to recovery, and Canada's economy as a whole will benefit. The Tourism Industry Association of Canada has some ideas that I hope you will consider in your budget recommendations.

I want to emphasize that we are not looking for any handouts, no freebies and no give-aways, and we don't have a big shopping list. Rather, we are presenting a number of targeted recommendations developed through extensive consultations with our membership. They are aimed at removing some of the constraints that are hampering Canadian tourism businesses, constraints that in some cases have been caused by federal legislation or policies. They are detailed in a written submission that the committee has already received. I want to draw your attention to several of them today.

Topping the industry's list of priorities is tourism marketing. We need to attract more international visitors to Canada in the face of some pretty stiff competition in the global marketplace. To do that, we have to advertise in markets around the world.

The Canadian Tourism Commission, which is a public-private partnership, is the primary vehicle for federal funding of Canadian tourism marketing, and it's doing a good job. But the CTC's efforts are being challenged by the larger marketing investments of other destinations. Its core budget for 2003 was $83 million. The federal government has now clawed back $5 million at the worst possible time, advising that the 2004 funding will be $78 million.

We are therefore seeking assurances that its current funding, which is already matched one to one and one half times by private sector contributions, will at least be maintained, if not increased. An additional $25 million per year would enable the CTC to more effectively market Canada abroad, keeping in mind that this investment would leverage spending of at least another $25 million from industry and double its impact in the marketplace.

We also urge the federal government to provide fair and equitable funding to the regions for tourism marketing, as the lack of such funding has put tourism businesses in many areas of Canada at a competitive disadvantage.

Infrastructure is another big issue for our industry. It includes highway, border, airport, and national parks infrastructure. We have specific concerns with each of these areas, which are discussed in our submission.

For now, I want to draw your attention to the importance of repairing, maintaining, and improving existing infrastructure, rather than simply investing in new initiatives. This is especially relevant to tourism infrastructure and to Canada's national parks and historic sites.

¿ (0940)

Excessive air travel costs also remain a concern for the Canadian tourism industry. The federal government is taking an extra $800 million a year out of the pockets of air travellers through special fees and taxes, reducing travel and hurting tourism. Again, this is taking place at a time when we can't afford it.

In particular, the air travellers security charge remains bad public policy, even at $14. It is unfair to make air travellers pay for security measures that benefit all Canadians. Air security improvements should be paid for out of general revenues, the same as all the other security improvements that have been made for other modes of transportation.

As a member of the travel industry cost coalition, we continue to seek the elimination of the ATSC, a substantial reduction in federal airport rents, and the removal of the federal excise tax on aviation fuel.

The last area I want to touch on today involves labour market issues. Tourism is a labour-intensive industry that relies on personal attention and service, and our members are very concerned about the imminent labour shortages that will affect all sectors. We therefore urge the government to continue to support the Canadian Tourism Human Resource Council and other sector councils.

At the same time, the employment insurance program needs to be made fair and less costly. For example, gradually equalizing employer and employee premiums, establishing a yearly basic exemption for EI premiums, and refunding employers for their EI overpayments would all help.

I want to thank you for your attention today, and I'll be happy to answer any of your questions.

The Chair: Thank you very much.

We'll go now to the next presenter, from the Health Charities Council of Canada. Go ahead, Ms. MacDonald.

Ms. Gillian MacDonald (Board Member, Health Charities Council of Canada): Madam Chair, thank you for the opportunity to appear before the committee this morning on behalf of the Health Charities Council of Canada.

I am a member of the HCCC executive board and a volunteer with the Canadian Celiac Association. My colleague is the director of the HCCC Secretariat.

The Health Charities Council of Canada represents national health charities of all sizes. Member organizations bring together a wealth of knowledge, expertise, experience, and resources, all of which improve the health of Canadians and strengthen Canada's health system. Individually and collectively, national health charities make significant contributions in key areas of health, including research, information and surveillance, community and patient support, education, disease prevention, and health promotion.

Across the country national health charities comprise thousands of staff and millions of volunteers who serve Canadians in their communities year-round. Formal volunteers contribute approximately 93 million hours per year. Informally, volunteer time is estimated to total 2.3 billion hours. Voluntary organizations represent an important human resource in the Canadian health system. The voluntary health sector is a major stakeholder in the field of health research, raising approximately $300 million each year to support health research.

The HCCC provides a strong voice on common interests. It acts as a resource to member organizations and facilitates networking opportunities. Because of the close ties between national health charities and Canadians, the HCCC provides an important channel for policy-makers and decision-makers to learn of the views and concerns of the people of Canada.

Madam Chair, the government has demonstrated a commendable commitment to the health of Canadians, as demonstrated in the national commission on the future of health care in Canada, the creation and support of the Canadian Institutes of Health Research, and the recent consultations on a national healthy living strategy.

In our presentation today we would like to briefly outline the three recommendations from our submission. First is support for national voluntary health organizations.

We believe the federal government should invest in a $15 million annual A-based funding stream for national voluntary health organizations to better respond to the health needs of the people of Canada. The work that national health charities do for the health of Canadians is critical. In order to continue to respond to the needs of the people of Canada and to meet new challenges as the Canadian population ages, national voluntary health organizations require strong support from government. Sustainable federal funding is critical for such areas as capacity building, developing and delivering programs and materials, health promotion and prevention, and serving the people of Canada.

The result of lack of funding to voluntary organizations has been outlined in many reports, including the recent report Funding Matters by the Canadian Council on Social Development. Lack of funding can result in organizational volatility and decreased stability, even closure of organizations. Closure of organizations would have a large impact on society, including decreases in services and support, an increased burden and demand on the health care system, higher costs to government, and lost volunteer time.

As part of this recommendation, HCCC also recommends that funding to Health Canada be increased by an additional $400 million annually for the next five years to ensure that the department has the funds it needs to ensure comprehensive programs and services that will benefit all people of Canada, including work that is done by national voluntary health organizations.

Our second recommendation is investment in research. HCCC believes that the federal government should continue to provide national leadership in health research. The government should invest aggressively through the Canadian Institutes of Health Research, the pre-eminent vehicle for health research in our country. Specifically, the government should commit to a planned increase in the A-base budget of the CIHR to $1 billion over the next four years and ensure that funding is used for partnering, including flowing funding, through the institutes for partnering or through the Health Research Partnerships Fund.

¿ (0945)

This commitment will support a program of predictable increases in federal government investment in research that will send a strong signal both to researchers and to other research funders. This will allow for effective planning in advance that supports systematic research campaigns. It will ensure that talented scientists and researchers know that they can pursue their important work here in Canada. It will create more opportunities for important synergies among researchers and it will also create funding leverage by encouraging partnering.

The third recommendation has to do with providing quality of life for all people of Canada and equal opportunities to succeed. People with disabilities face barriers in Canada, and the federal government should be addressing these by developing a labour market strategy to address the needs of people with disabilities on such issues as training and employment, creating new funding investments for people with disabilities for transfer to the provinces and territories to invest in disability-related supports such as home care and transportation, and broadly reviewing tax policy as it affects persons with disabilities, including expanding the definition of the disability tax credit to include people with episodic or cyclical disabilities and making the disability tax credit refundable, like the GST, to address the additional costs borne by people with disabilities.

To wrap up, the government has an opportunity to take a strengthened leadership role in these three areas. It can do so with the support and cooperation of national health charities. These areas will help to improve health for all people in Canada.

Thank you for your kind attention.

¿ (0950)

The Chair: Thank you for being on the mark on time, too. You planned it well, both of you.

Next I think we'll go to the Council for Health Research in Canada, and close with the Philanthropic Foundations.

Dr. Hill.

Mr. David Hill (Director, Council for Health Research in Canada): Thank you, Madam Chair and members, for the opportunity to speak to the committee.

I'd like to introduce John Hylton, who is the president and CEO of the Council for Health Research in Canada. I serve as the chair. I'm the scientific director of the Lawson Health Research Institute in London, Ontario. I'm also a front-line researcher. I have a lab that is looking at strategies for the reversal of diabetes, and I am funded by CIHR grants, so I declare my conflicts.

We have had the opportunity to submit a written brief, called “A Critical Point in the Journey: Sustaining the Growth of the Health Research Enterprise in Canada”. I'd like to stress that the point of our presentation is that this is a critical point in the journey.

The Council for Health Research represents all the leading health research institutes and health charities in Canada. Together we probably match CIHR at about 75¢ on the dollar in terms of research funding, so we are a major partner, perhaps second only to the provincial governments, to CIHR.

Together we raise public funds for health research. Our mission is to work with governments to promote the health of Canadians by ensuring that Canada is a world leader in health research.

Since its formation in 1996, the council has been able to appear before this committee every year. We welcome your interest and support and value the opportunity to continue the dialogue.

This year the committee has chosen to focus on what taxation spending and other measures should be taken to ensure progress in investing in and caring for all members of Canadian society. Our members believe that by continuing to invest in health research the government can meet all these objectives: it can help to improve the health of Canadians, it can offer a real opportunity to contain health care costs, and it can also contribute to the creation of knowledge-based jobs and economic growth. By ensuring the long-term viability of Canada's health care system through investments in health research, the government can help ensure our global economic competitiveness and make Canada a better place in which to live.

We believe the government has an important decision to make this year with respect to support for health research. By choosing to sustain the growth of the health research enterprise in the coming years, the government can continue to build momentum and ensure that health research enterprise continues to make a substantial contribution to the attainment of important national, social, and economic goals. However, if the government reduces its commitment, we're certain the momentum will be affected. The enterprise will falter and many of the gains achieved to date will be lost. Specifically, we're asking the government to make a multi-year funding commitment that will see CIHR's funding increase from the current $620 million a year to $1 billion a year by 2006-07.

I think this government has probably done more to advance health research in Canada than any other government in history: $55 million added to CIHR's budget last year, to bring the total to over $600 million a year; $225 million to support indirect costs of research. The Canada research chairs scheme will be completed by 2005, adding 2,000 new chair positions. That's over $3 billion in investment, leveraging a total of $9 billion in investment in infrastructure. That just skims the surface of the many, many schemes that are put in place to help health research.

Government investment really does leverage, so $1 invested in CIHR leads to $7 in additional funds from other sectors, both health charities and the private sector.

The leadership of the Government of Canada is well recognized by the research community and by Canadians. I've provided for you today just a sampling of some of the recent letters that leaders in health research have sent to their MPs to commend the government on its leadership. If you would like, as individual members we can prepare packages relevant to your particular ridings of the letters that have come in from your own research teams.

¿ (0955)

May I make a personal plea? Running my laboratory requires grants from eight separate agencies and health charities. For two to three months of the year, I'm not doing research; I'm filling in paperwork. I'm writing eight different applications and eight different progress reports. I don't need more funding agencies. I would urge the government to further invest in and develop the excellent agencies and brand names you have established and to make CIHR the R and D department to the Canadian health system.

CIHR is now three years old. The government's vision established it, and it's appropriate to ask, do we still need it and is it working? If we just look at this year and at what SARS, the West Nile virus, and BSE have done to the lives and livelihoods of Canadians, certainly we still need it. How has CIHR risen to that challenge? I think we're all very proud that Canadian researchers very quickly cracked the genome of the SARS virus, which will, of course, lead to a vaccination strategy in time. Also, Canadian scientists are working on improved diagnostics for the West Nile virus and, more importantly, screening tools to make sure that the Canadian blood supply is safe from that and other threats.

My own institute has a long-term follow-up study of children who suffered kidney damage in the Walkerton water contamination. Those individuals will need the benefits of health research for the rest of their lives.

But it's not just the disasters and the headlines that CIHR research is directed to. Canadian scientists are working on many other equally important breakthroughs that don't make the headlines. We've been able to document some of those in our brief and also in our report entitled “Health Research: An Investment in Canada's Well-Being”, which was circulated to you a few months ago.

As you know, health is a top priority of Canadians. The public is becoming increasingly aware of the contribution of the Canadian health research community to public health. We've been able to collect just a sample of the Canadian newspaper clippings, mostly from the national press, that have appeared since the creation of CIHR three years ago. It's a very extensive collection. There are some copies available to you. I'd like to ask John to highlight some examples that have come out in the last week.

Dr. John Hylton (Executive Director, Council for Health Research in Canada): Thank you.

The headline on the front page of The Montreal Gazette on Tuesday of this week was “Elderly get wrong drugs”, and one of the section headings in The Ottawa Citizen was “Doctors struggle to help chronic pain sufferers”. Today in The Globe and Mail there's a major story about the lead role of Canadian researchers being profiled in an article in the New England Journal of Medicine. That's in addition to what happens day by day in terms of the leadership role of Canadian health researchers.

As David mentioned, we've compiled just from the last year some of the clippings that have appeared in the national media profiling the success stories of Canadian researchers since the creation of CIHR, and we've left a copy of this binder with the chair. For anyone who is interested in getting their own copy or who would like a breakdown by constituency, including CIHR funding by constituency, all that information is available, and we'd be pleased to provide it to you.

The Chair: Perhaps you could provide that to the researcher, and then anybody could have access to it.

Mr. David Hill: The mandate of CIHR was also to spin off economic activity, and again there's absolute clear evidence that it's working. There are now 23 biotech spin-off companies at the University of British Columbia, employing over 700 people, and McGill has 18 companies employing almost 400 people. Here in Ottawa, there are 10 companies employing over 450 people. Those companies depend on a pipeline of discovery that comes from CIHR-funded research.

Looking ahead, CIHR is a key element in the government's plans for health research, but the staged growth of CIHR to $1 billion per year is central to its success. At present, the limited availability of operating funds through CIHR is a very weak link that's seriously holding back research progress.

In the next year, there will only be $50 million in unallocated funds to fund new research in the CIHR system, and that's because CIHR allocates its funding in three- and five-year blocks to researchers. The actual flexible money in any one year is limited. Not knowing what the budget might be in future years makes future planning very difficult.

The implications of that are, for the first time ever I think, that this year some research that was rated by peer review as excellent could not be funded. Also, to maintain funding for at least some new research, existing commitments were scaled back. My own grants, for instance, were cut back financially by 10% to enable new research to be funded. Programs are suffering at the moment.

There are also implications for the partners of CIHR because this uncertainty about future funding levels makes it very difficult to plan with partners from the voluntary and private sectors. Also, the superb investments that have been made into the Canada Foundation for Innovation and Canada research chairs are not going to be fully realized. It's great to have excellent buildings, laboratories, and new equipment, but if there isn't the finance or the investment to actually do the experiments, then you're not utilizing the investment appropriately.

It's for this reason that we encourage the federal government to announce a 20% increase in CIHR's budget each year for the next five years. This would provide predictable and staged growth. If the increases are not provided, the council believes that CIHR will have no alternative but to continue to scale back programs, particularly in the next two years.

The proposed increase would raise CIHR's budget to $1 billion a year by 2006-2007. Within that, we would now have $200 million in allocated funds that would enable us to fund new research, and then only cost of living increases would be needed. Even at that level, we would move out of the present fifteenth position in national rankings for R and D, but we won't make the fifth place that is the stated objective of the finance minister and others.

To sum up, we support the witnesses who have appeared before various parliamentary committees in the last two years, as well as the recommendations of the Kirby committee, the Romanow commission, and the Standing Committee on Finance. All have unanimously called for a substantial increase in CIHR's budget. You'll hear this message, I think, repeatedly. We heard it from the health charities this morning.

We're grateful to the standing committee for the opportunity to submit the brief. We commend the federal government on the superb progress they've made in developing health research. We encourage them to stay the course and keep the momentum going.

Thank you.

À (1000)

The Chair: Thank you, Dr. Hill.

Now we'll go to Ms. Pearson. She is representing the Philanthropic Foundations of Canada. Go ahead, Ms. Pearson.

Mrs. Hilary Pearson (President and CEO, Philanthropic Foundations Canada): Thank you, Madam Chair.

Good morning. I am the president of Philanthropic Foundations Canada, a national umbrella organization for Canada's independent foundations that includes family foundations, private foundations, and public foundations. We represent a spectrum of foundations, but not community foundations. You'll hear from them separately.

I'm here this morning to give you a brief tour of the world of foundations. Independent foundations and their work are largely unknown to many public officials and lawmakers. Today I want to tell you some stories about what they do.

You may be asking, what does this have to do with advising the Minister of Finance on his next budget? Our answer is in our brief to the committee. In the brief, we make the case for treating private foundations on an equal footing with other charities. I use the word “private” here because we're asking for a tax change that specifically affects private foundations, although I speak on behalf of more than private.

We ask, in the brief, that you recommend to the minister once again, as you have in the past, that the capital gains tax incentive for gifts of publicly traded securities be made fully and equally available for gifts of such securities to private foundations.

What I want to address today are the reasons why private foundations are important to Canadian communities and why public policy, through tax assistance, should support the growth of foundations.

It has been suggested that private foundations only serve their own interests. It is said that foundations disproportionately fund large, non-profit organizations such as universities and hospitals—although they're great institutions—perhaps because these institutions can offer naming rights. It is said that foundations do not take into account the needs of the wider community.

Let me tell you about the work of some of the private foundations of Canada. Foundations are unique and creative funders of new ideas and new approaches to social problems. They address today's public policy issues in ways that can contribute to long-lasting solutions. Here's an example of what I mean.

In Toronto, the Maytree Foundation, a small, 20-year-old foundation focused on social policy, has chosen to make a difference in the area of immigrant and refugee integration in greater Toronto. It created a program called CARE for Nurses that grew out of a shared concern of many, including hospitals and long-term care facilities, regarding the high rate of failure of internationally trained nurses, immigrant nurses, who were writing the licensing exam in Ontario.

Over a two-year period, Maytree brought together key players such as the licensing bodies, the professional association of nurses, community colleges, and universities to design a series of steps for these nurses. The program design was then funded by the provincial government, so it was taken over by the Ontario government.

The goal for Maytree was to change a failure rate for immigrant nurses of 66%--that is, 66% of the nurses who were trying the licensing exam were failing it. Their intent was to turn that into a success rate. The program now boasts a success rate of over 90%. It has totally turned around. It means that the nurses, who were coming in as immigrants and perhaps ending up in $15,000-a-year jobs because they couldn't get work as nurses, are now making $45,000 a year. Following the program, 90% of the nurses are licensed and are able to work in their careers--this in a profession that has a critical shortage of trained people.

Maytree did this by using its convening assets and convening abilities, not necessarily its granting money. It did this in a very creative way. The provincial government paid attention, has taken over this program now, and is beginning to apply it in other professions. This is a very direct way of helping the immigrant population in Toronto and perhaps across the country.

Foundations are great investors in the creation of knowledge. This can be as simple as a single research project and as complicated as funding multiple individual projects. I'm going to tell you a story in French now about a foundation that's based in Montreal, but it will be well known, I think, to most of you.

À (1005)

[Translation]

The J. W. McConnell family foundation, in Montreal, a large 70 years old foundation, has undertaken a funding program en 1998 to support the strategic repositioning of Canadian universities. Obviously, this support would benefit large institutions, but not for the purpose of giving the name of the foundation to a building, something most foundations choose to do.

The McConnell Foundation made a decision to help universities in this country explore new ways to achieve their basic goal, which is to adequately prepare future graduates for their professional life and their life in society in the 21st century. Eleven institutions were given millions of dollars for projects to advance theories and teaching methods like self-directed learning, experiential learning, international studies, integrated and interdisciplinary learning, and learning through investigation.

The concepts of these kinds of grants are quite different from those of more traditional forms of investment in research establishments or scholarships. The assessment of results is more difficult than that of student financing or lab building. The impact of the funds is not yet known, because the program is still being assessed.

But the McConnell Foundation was prepared to make a new kind of investment, because it was convinced that teaching models raised difficult challenges for practically all teaching institutions in the 21st century, and that it was worthwhile to experiment new and promising avenues in this area.

[English]

Foundations also look for ways to support the application of existing knowledge to social and community issues. I want to tell you another story now about a foundation in London, the Lawson Foundation, which is a 50-year-old family foundation. I'm giving you examples of foundations that are very different but do equally interesting things.

The Lawson Foundation devotes itself to supporting sustainable community-based programs that positively influence the quality of life for Canadian families. That's their broad mission. For some years it has invested in early childhood development. In 1997 the foundation decided that while there was much research about how young children learn, there was not enough in the way of the practical application of research in the real world of children and parents on how to bring the researchers and the kids together.

So the Lawson Foundation began a national project to support community-based initiatives, local initiatives to develop the early language and reasoning of very young children. This project took place in seven different communities, urban and rural, across the country, from Nova Scotia to Alberta. It was locally driven. That is, the communities were free to choose and to develop programs suited to their own context. They were free to learn from their own evolution, including their own mistakes.

Now, after five years of effort, the project has already changed a whole group of people who are involved in the early childhood field. They are not just the kids; they're the parents, the educators, and they're the researchers. They've seen another way to work together. The children have benefited and the foundation is making sure that all the lessons learned are captured and disseminated to the wider community of teachers, parents, and researchers for lasting impact. This is a critical point. Foundations of this type are trying to disseminate their results as broadly as possible.

Finally, foundations take risks. They fund projects that no one can or will fund. Not all of these projects are in Canada. Many are in the global community. I'm going to tell you a last story about a foundation, again in Montreal, so I'm going to tell it to you in French.

À (1010)

[Translation]

The Daniel Langlois foundation, in Montreal, a small and recent foundation established by a man who is still actively involved in his career, Daniel Langlois, has had a tremendous impact since the beginning, in 1997. The foundation's goal is to improve artistic and scientific knowledge by bringing closer together art and science in the realm of technology. Practically, it means that the foundation provides direct support to artists who use digital technologies, for the gathering and dissemination of resources in digital art, and to smaller agencies who have difficulties in the world cultural community. The Langlois foundation is supporting agencies in emerging areas of the world where resources are scarce.

Two years ago, the foundation came into contact with a record collector in a small town in Ghana, Africa. For years, he had tried to get the support of the Ghana government to find ways to protect and present his 18,000 records of Ghanaian traditional music. The foundation helped him with funds, equipment and training to restore and digitalize his collection. For the first time, this material was made available on the Internet, a priceless contribution to music and to the world heritage. Thanks to the support from the foundation, the Ghana government paid attention, and it is now supporting this project. This goes to prove that philanthropy at the international level can have useful spin-offs in terms of respect, credibility and financial investments from other contributors.

[English]

Would any of these projects have been funded by public funders? Probably not in the initial stages. Does it make a difference to public policy that they were undertaken? Yes, because they brought new ideas to the table, highlighted avenues for further investment and exploration, acted as a signal to public funders that there was something there to investigate. Is this important to the public? Absolutely, because there is a huge need for imagination, creativity, and original thinking about issues of community in a local and global context.

These are just a few of the many stories I could tell you about the work that foundations do. It's not just these foundations that do this unique work. There are a hundred examples of important grant-making going on across the country.

I have some of these stories in our annual report, which I've included in a package that's been distributed to you. The blue-sky philanthropy is illustrated by the stories that we tell in this report, and there are many others.

Big foundations make big grants, but they do have to start somewhere. Now I'm coming back to the point: How do we get these foundations started? How do we promote their growth?

In conclusion, we ask that you once again urge the Minister of Finance to provide a signal of public support for the work of private foundations by putting donors of securities to private foundations on an equal footing with donors to all charity. The change in tax policy we are suggesting is not a major one, it's not a new one. The tax incentive is already in place.

Foundations are charitable organizations, subject to public regulation and accountability as all registered charities should be. Let private foundations be treated equally and fairly by public policy.

I'd be happy to answer questions on this or the arguments that we make in the brief.

À (1015)

The Chair: Thank you very much. Thank you also, all of you, for getting your material in early so it could be translated and distributed. All of the members of the committee have it in their offices now, so they'll be able to review it.

We'll start the questioning today with Mr. Ken Epp. Welcome, Ken, back to the committee.

Mr. Ken Epp (Elk Island, Canadian Alliance): Thank you.

I'd like to thank you all for being here and for giving us some valuable input.

I have a number of questions. Most of them are individual. I would like to actually start with the last presentation, from Ms. Pearson.

You said that you want to change tax policy so that these foundations are treated equally with other charitable giving. What do you mean by that? In what way is it unequal, and what change are you promoting?

Mrs. Hilary Pearson: We're promoting a change to the measure that was introduced in 1997 by the Minister of Finance. It's capital gains tax assistance on donations of listed securities to charities and to public foundations. What we're saying is that the tax assistance that is given to donors who choose to give to a registered charity is more generous than the tax assistance that is given to a donor to a private foundation, and we're asking for equal treatment.

Mr. Ken Epp: I remember now.

Let me go back, then, to the tourism people. I listened with great interest to your presentation. Of course, some of the things that you talked about we've been talking about in our party for a long time. For example, we've advocated that the air traffic security tax should be borne by all of the citizens of the country, remembering, as I've said so often, that on September 11 most of the people who died were not in airplanes.

Security is a benefit to all of us. However, there is, of course, a whole plethora of fees and taxes and rents that affect the aircraft industry and I suppose other transportation modes as well. What would happen if we just cut all these taxes? Would it make a difference significant enough so that you would do better or survive instead of going down? How critical is just the tax component and the fee component of your total costs?

Mr. Randy Williams: Our estimates tell us that a 1% drop in taxes and fees will increase sales by 1% or revenues by 1%. We predicted that the 5% or 6% increase that the ATSC represented on the cost of an airline ticket would decrease travel by an equal 5% to 6% because of the increased tax. Our projections were proven accurate, as travel was reduced by 10%. Further, the government received much less in tax than they expected, because, as we predicted, revenue from airplanes would be reduced because of the introduction of the tax.

So we're saying to you, members of the committee, that a 5% to 10% decrease--that's what this $800 million represents--would help increase travel by 5% to 10%. It would get some people off the couch, out of their homes, visiting friends and family across the country, spark some travel. And that 5% or 10% for many companies is the difference between their viability or their failure.

Mr. Ken Epp: I can see your reasoning there.

I have another question for you. You asked for the government to promote and increase tourism marketing. Are you suggesting that they should be advertising in other parts of the world--that is, the federal government should be advertising, come to Canada, here are the nice places to see, here are the things to do? Or should we leave that to the private enterprise, the tourist agencies, the different attractions in the country, to advertise themselves?

Now I want to give a quick example. One of my friends had a business in Alberta where he took mostly American tourists up north fishing and hunting. He ran that business for a number of years very successfully, but really found a downturn when the American tourists started getting hassles at the border because they were bringing in rifles that weren't registered or they were suffering because of other regulations and so on. And then, of course, our federal government didn't exactly endear us to Americans in the last year or so, and his business went way down because of that.

I can see those are steps where the federal government perhaps could take positive steps, but are you suggesting that we actually ask the government to increase its advertising in other countries?

À (1020)

Mr. Randy Williams: The federal government of Canada, through Industry Canada, has been involved in marketing Canada for many years. In 1995 you formed a partnership with the private sector and formed the Canadian Tourism Commission, which meant that the dollars the government was spending were now going to be matched: in order for them to be spent, they had to be matched by private industry. The budget was increased to $50 million in 1995 and then was increased to $83 million before the turn of the century.

You are involved in the marketing of tourism and Canada as a destination because it makes business sense. You have more revenue because of your investment in marketing, as do other jurisdictions. That's why, throughout the world, every government is involved in marketing their community and their province or their country as a destination. We contribute back $17 billion, $9 billion of which goes to the federal government. Through every dollar that's spent on tourism, money comes back to the federal government. You return $83 million this year and $78 million next year to tourism marketing. The private sector matches the government's $83 million by another $120 million in tourism marketing.

Illinois, for example, is investing over $100 million; Las Vegas as a city is investing $300 million a year in tourism marketing. Canada as a country is investing $83 million from the federal government. We've slipped in relation to the Australians. In 1990-91, we were investing $15 million as a federal government, and in 1995 it went to $50 million. The Australian government was investing less than we were at that time. Now they've surpassed what we spend; they see the benefit. The Australia market is actually growing globally by leaps and bounds.

We're the ninth most-visited country in the world, so we are a player in the world. I should say too that the travel deficit alone in this country, in 1995 when the CTC was formed and we were only investing $15 million in marketing, was $3 billion. That's the difference in the amounts spent travelling out versus travelling in. We have, since 1995, because of the added investment in marketing, reduced that to just half a billion dollars. So there's a $2.5 billion turnaround in the travel deficit just with the increased investment in marketing. So yes, you should continue to invest. You need to ante up more, especially at this time.

If I could take just one more second here, the government is already making some hits on the Canadian tourism industry. Take a look at the Montreal Grand Prix, for example—your decisions relating to tobacco advertising. We're not going to get into that discussion, whether we agree or not, but there must be a recognition that the DuMaurier Classic that used to be held in Ottawa and attracted people, the events that were being held in Canada that were supported by tobacco advertising, the Montreal Grand Prix, which interests thousands of visitors every year, are gone.

You've introduced, since September 11, when the tourism industry was just crippled, a tax to consumers of $400 million that you didn't introduce at ports for cruises, or at borders for land travel: you hit the air travellers with a $400 million tax. Now you're clawing back from the CTC $5 million. The government needs to understand that some of the policies you have are crippling us and that you need to reinvest in marketing and be careful concerning those other things you are hurting us with.

À (1025)

The Chair: Mr. Epp, you're a couple of minutes over, but I think those answers were important to put on the record, so thank you.

Mr. Ken Epp: If I can, I'd like to have another round, because I'd like to ask the health people some questions as well.

The Chair: Yes, we'll try.

Mr. Cullen, go ahead; you have seven minutes.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Madam Chair, and thank you to all the presenters.

This committee submits its report every year, and we've had some success. I think this last year, if my memory serves me correctly, the minister adopted something like two-thirds of the recommendations in our report. We can always do better, but I hear some broken records here in terms of some of these recommendations.

I'd like to start first with Ms. Pearson from Philanthropic Foundations Canada. I listened with great interest to a lot of the stories about the great work private foundations do, and I think it's time we leveled the playing field with the capital gains tax treatment of marketable securities.

My riding is 65% new Canadians. The Maytree Foundation is very active in my riding, and they do some amazing work with new immigrants. I'm wondering whether in your process with the Department of Finance, trying to convince them to level the playing field, there have been any new developments over the last year, or is it still status quo there, with them still dug in on one position?

Mrs. Hilary Pearson: I wish I could tell you there has been some progress, but no, there hasn't been. We did communicate with tax policy officials in April of last year. We sent them a detailed set of suggestions to try to deal with the concerns they have, which we've set out in our brief to you. We thought it was important for you to know that this is what we're trying to suggest to the department.

In making these suggestions we're not alone. The charities section of the Canadian Bar Association has repeatedly made these same recommendations and proposals to the department. I'd be the first to say I'm not a tax expert—I'm not a tax lawyer—but I trust people who spend a lot of their professional life in the area of tax, and all of them have supported us in making these recommendations to the department.

We think there are feasible ways of dealing with the concerns the department has raised, which have to do mostly with a continuing control of the shares that are donated to a private foundation. We feel that the key is not to prevent the money from going into the foundation in the first place. If there are concerns about how to deal with potential abuses, you deal with that after the money is in the foundation, and you regulate the foundation, which we completely agree with.

Mr. Roy Cullen: And are these foundations all open and transparent, in terms of their reporting and...?

Mrs. Hilary Pearson: Well, they're all required, as every charity is, to report fully to the Government of Canada every year, and that reporting is accessible, yes.

Mr. Roy Cullen: Good. I know we went along with your recommendation last year at this committee. I hope we'll do the same again this year and maybe make some progress.

Mrs. Hilary Pearson: We hope so too.

Mr. Roy Cullen: Mr. Williams, Ms. Demers, in your brief you said you weren't here with a long shopping list, but I looked at all your recommendations. If the government implemented all of those, it would be quite a sum of money.

Concerning the tourism commission, I'm puzzled. Maybe you can take me back through the.... It wasn't so long ago that the government was topping up the amount to the Canadian Tourism Commission. Then there was some money, was there not, directed to the CTC in relation to SARS. You can correct me on that. Now you're saying they're trying to claw back money. Is that part of the $1 billion clawback across all departments? Would that be the contribution you would provide to it through the Department of Industry?

Could you just give me the story? It went up, and now we're clawing back. Was there some additional SARS money? Did that go to you people?

Mr. Randy Williams: Yes, there was an additional $10-million one-time fund from the federal government, and then another $4 million from Industry Canada, specifically from Alan Rock's department. That represented $14 million, but that was one-time funding. It was just to beef up the promotion of Toronto and Ontario and some other parts of Canada. At the same time, though, they've taken the core funding from $83 million that they've only had for about the last three or four years and asked them to cut that back to $78 million.

The problem with that is, marketing of Canada—marketing of any product—needs to be done on a long-term, consistent basis. The one-time stuff is okay. Some would argue about whether it had that great an impact, post-SARS, but we would argue it's better to ante up over the long term and know you have consistent funding than to do these one-off, quick-shot deals.

À (1030)

Mr. Roy Cullen: It seems to me it's an area we should be investing in.

I'd like to go now to the Council for Health Research, Mr. Hylton and Mr. Hill. Concerning the amount the government has focused on health research, we're hearing a lot of good feedback—your presentation included—and I'm glad to hear it. Certainly for Etobicoke North I'd be interested in the breakdown of the CIHR and information on some of the major breakthroughs. I know we have a lot of health-related high-tech companies in Etobicoke North, but I'd certainly be interested in that kind of analysis.

Concerning the commitment to reach the $1 billion by a certain year, just remind me again. I think we recommended that last year in our report, didn't we? But is what you're saying that the government didn't follow through on it, didn't adopt that recommendation to commit to $1 billion by that year?

Mr. David Hill: The rise in budget last year was a $55 million addition. If you extrapolated that rate, you would not reach the $1 billion target by 2006-2007. You essentially need to double that investment for the next two years. There is a graph attached to the speaking notes that shows the progression. It really needs about $130 million addition for each of the next two years; then in fact you can start to reduce the increase. On that sort of plan we would get to the $1 billion by 2006-2007.

Mr. Roy Cullen: But was there not...? I suppose you could argue that at certain times the contributions could balloon as long as you were still focused on meeting that commitment of $1 billion by 2005-06. Do you have any confidence that the government is still committed to that type of target?

Mr. David Hill: I have every confidence in the vision of the government in meeting that target. I think the important issue is how do we best take advantage of the investment that's been made to date to get the best productivity out of the system? First we have to....

Remember, when the CIHR was formed it had a hugely increased mandate compared with that of the old Medical Research Council. It was to get away from concentrating on bench research, laboratory research, and to really take that research out into the health care system, to evaluate health services research and also to do an audit, if you like, of population health research, to make sure that in fact our interventions were actually delivering better community health. That is a huge mandate, and CIHR really took a grip of that mandate and invested heavily in those new areas. Because of that, the budget now is stretched in all areas, including the traditional area of basic research.

I think the other very important issue is that there's a balanced portfolio that the government has strategically designed to increase and upgrade infrastructure through the Canada Foundation for Innovation, to make sure that our best scientific talent stays in Canada or is recruited back to Canada through the Canada research chairs. You have to balance that now by providing adequate operating funds, absolutely under peer review scrutiny, to enable those scientists to use their intellect to the full in their now good, modern infrastructure. It's by getting that balance right, where we leverage one against the other, that we'll get both the maximum return on investment and of course the maximum spinoff of that intellectual property into the private sector in the creation of new companies.

Mr. Roy Cullen: Then I presume you'd support Dr. Friesen's thinking, which I think is that rather than looking upon health care in Canada as a burden and as something that's just draining a lot of money, we can look at it as a way of growing our economy, as levering some of the huge strengths we're starting to build in terms of health research and turning that into a mega industry.

À (1035)

Mr. David Hill: We very strongly support the concept of that and the Canadian Institute for Health Innovation.

John can probably better comment on that.

Dr. John Hylton: As Dr. Friesen and his colleagues have pointed out, our spending on health care is roughly $110 billion and ramping up every year. If you take the ratios that apply in other countries and you apply them in Canada, and you look at the economic spin-off activities associated with those investments, we have something in the order of a $7 billion shortfall in Canada, if we were to take the ratios from other countries. So it's very significant.

But as we all know, in any knowledge-based industry, the R and D department is critical to innovation and to the commercialization of products and services, and what we're really talking about with CIHR is the R and D department for the health system. So we have $110 billion in services through the health system and at the moment we have $600 million in our R and D department. I think the question is whether that is going to be sufficient to get us where we need to go to close that gap of $7 billion and to be much more successful in commercialization.

Without the investment in the R and D, we're not going to have the kinds of products and services that people around the world are going to want to buy. If we increase our investment in the R and D, we'll be able to be much more successful in the commercialization of those products and services and we'll be able to reap the rewards from that $110 billion, roughly, of public investment.

So all of this ties together in a very integrated way.

Mr. Roy Cullen: Thank you very much.

The Chair: Mr. Shawn Murphy, please.

Mr. Shawn Murphy (Hillsborough, Lib.): Thank you, Madam Chair.

Like my colleague, I want to thank everyone for their presentations here today.

My first question, for Ms. Pearson of Philanthropic Foundations Canada, is with regard to the capital gains incentives that exist now. As you know, this is fairly recent. It's not something that was there five years ago, and it came out of a recommendation of this committee. It was made temporary by the government and then permanent. I think it's fair to say that it follows from some of the excellent presentations we've received from your organization, and David Johnston in particular.

Now, in the last month we've had a couple of authors--Professor Bill Innes is one, and the name of the other escapes me right now--who've been very critical of this policy, basically saying it's ill-founded and it hasn't really increased donations to public charities. I guess the bottom line is that they question the government's policy in this regard. Do you have anything to say to that?

I should add, by the way, that I've read only the media reports on Professor Innes' presentation, not the whole presentation.

Mrs. Hilary Pearson: I actually have read them. I say I'm not a tax lawyer, but with the amount of reading I do on this, I feel I should be.

There are articles in the Canadian Tax Journal on this topic. They had a forum on the issue of the capital gains tax measure and whether it did indeed result in significant, measurable benefits to Canadian charities. Professor Innes is actually in favour of the measure. David Duff and Lisa Philipps are the two professors who are critical of the measure in the same issue of the Canadian Tax Journal.

I think it's fair to say that the criticisms they make are essentially criticisms of the Department of Finance for not proving its case. The Department of Finance, as you know, issued the tax expenditure report last October--this was a year after the measure was made permanent--and in it they evaluated the experience up to the year 2000 with the measure. They concluded that on a number of grounds it had met the test that the minister had set for it, that it had increased donations, that those donations had been distributed to large and small charities, and that generally speaking there was more money going into the charitable sector as a result.

What the tax experts are suggesting is that the data has not been analyzed objectively enough. The suggestion is that an independent assessment be made--that is, an assessment commissioned by neither the charitable sector, which is an interested party, nor the Department of Finance, which is also an interested party.

This is a perspective I'm not sure I agree with. I think the Department of Finance does have the capacity to analyze its own tax measures and to assess whether they've been effective or not. We happen to think.... And I know a number of organizations across the voluntary sector are going to be talking to you about this, so you'll be hearing about this again. A number of us have looked at the data that is available, which to some extent the Department of Finance in fact has custody of, and have agreed with the conclusions of the department. We've anecdotally and qualitatively agreed with the conclusions of the department that, yes, more money has gone into the sector as a result of the measure, and that it has been distributed to charities, both large and small.

What we argue, of course, is that private foundations, which give to large and small organizations, have not had the same bump-up in terms of assets that they could have built. Individuals, all other things being equal, have made choices to give securities to public charities rather than to foundations.

À (1040)

Mr. Shawn Murphy: Madam Chair, I'm wondering if I could ask the researchers to get that material from the Canadian Tax Journal and have it circulated to the committee.

The Chair: Yes, that's probably useful.

If you would, perhaps after the meeting you could give us the correct volume, and we'll make sure those articles are distributed to committee members. Thank you.

Mr. Shawn Murphy: This is an issue we'll have to.... Before we advance the argument on the public-private foundations, I think we're going to have to look at some of the materials that have been analyzed and at what has been done.

Turning to the Tourism Industry Association of Canada, as you know, this committee recommended, although not to the full extent that your association is presently, the yearly basic exemption. I certainly support that myself, and I think it's something that will be pursued, hopefully, by the Department of Finance this year. It makes excellent sense for your industry, and for the food and restaurant association as well, as you're both labour-intensive industries, and hopefully it will see the light of day at some point in time.

My question is on the air travel security charge. I read your submission. I don't think any MP has spoken out against this more than I have, when it was implemented first at $12. However, it's been decreased to $7. I don't have a problem with the system of user fees if it's based upon accurate costs...and it's something that's not of benefit to the general public, which I think this is.

Now, whether $7 is the correct figure.... In principle, I don't have a problem with the charge. I had a real problem with the $12, because the finance department didn't give us any information to support that at all. They wouldn't. They basically sat here and said they wouldn't give it to us.

So are you saying it should be eliminated altogether?

Ms. Jennifer Demers (Director, Government Relations, Tourism Industry Association of Canada): Yes, we believe safety and security should come from base taxes, as they do for all other modes of transportation. Mr. Epp brought that up. More people died who were not in airplanes on 9/11, so to have this brought in.....

Furthermore, the government put $2.2 billion into safety and security in the 2001 budget, and air travel was the only segment of that security budget whereby the travellers were having to pay for it. Furthermore, even though the fee has been reduced to $14 for a round trip, we're paying for things that the government has on a two- to three-year waiting list. For instance, we yet don't even have the explosives detection system. We're paying for something that's not even there yet.

The government, when they introduced this tax, also conducted their own surveys within the department. Those surveys themselves showed the price elasticity, the negative impact essentially, that this tax would have, and then they completely disregarded those surveys when they went ahead and did it.

So we do think it should be eliminated completely.

Mr. Shawn Murphy: Thank you very much.

The EI issue is a big issue for the whole industry and for a lot of the parts of the country dealing with a seasonal economy. Some of your operators would suggest that they wouldn't be able to operate without the EI system as it is right now. Are there any recommendations from your association--and it's come from other organizations--regarding using this fund for certain training allowances for the people who pay into it?

À (1045)

Mr. Randy Williams: No, we haven't discussed that option as yet. We've got three recommendations under EI, beyond the premium reductions, which the government's responded to over the last two budgets, which is great.

Mr. Shawn Murphy: You've hit the nail on the head here with the whole issue of labour shortages, skills training, where we're going in the future, and I know some of your members, especially in the western part of Canada, are having severe difficulties right now. What do you see as the answer?

Mr. Randy Williams: There's not going to be one answer to that problem. Most of the research we've looked at has shown that there's going to be a shortage of one million Canadians for filling the jobs that are required in the next 10 years. Our industry is so reliant on human resources. It is a service industry, whether you're in hotels, airplanes, or restaurants. So we're looking at all kinds of ways to mitigate the challenges, the use of technology, retention strategies, career information to track people to our industry, enhanced training, enhance professionalism of the standards developed by industry, and so on.

The Canadian Tourism Human Resource Council does receive support from the federal government through the Department of Human Resources. We feel that needs to be continued, and if not, we should have that increase, so that we're able to fight this challenge coming up. This challenge is obviously going to exist in other sectors, but our sector definitely is very reliant on human resources.

The Chair: Thank you very much. Did you have one more question?

Mr. Shawn Murphy: I have a quick question to Mr. Hill, if I may. You mentioned in your presentation that your organization at present makes applications to eight funding councils, and I can appreciate some of the challenges that would entail. Are more than one of these funding councils--I know one of them is CIHR--federal?

Mr. David Hill: Certainly. The funding for my laboratory, which is not even institutional, but my own, and typically has about ten scientists and trainees working in it, is two grants from CIHR, some funding from the Canada Foundation for Innovation, some from two provincial funds, and the remainder comes from health charities, such as the Canadian Diabetes Association.

Mr. Shawn Murphy: But you're not advocating any kind of merger between CIHR and CFI?

Mr. David Hill: No. What I'm suggesting is that we have some very good, effective agencies created by the federal government that are doing the job. They're very strong brand names, and we should continue to develop those. If their mandate needs to evolve as the world changes, we should do that, rather than creating additional parallel funding agencies.

The Chair: Dr. Hill, your agency is in my hometown. For the record, how many researchers are in Lawson Research now?

Mr. David Hill: I was talking there about my own laboratory, for which I am responsible. Within the whole institute we have over 300 investigators, both clinical and basic scientists.

The Chair: So are you saying to the committee that those 300 people would probably be putting in two months of their year also?

Mr. David Hill: Yes, that would probably be accurate.

The Chair: And that's replicated across the country?

Mr. David Hill: That is replicated across the country.

I'm not saying they should not produce business plans and be evaluated, but I think the system could be more efficient, so that they spend more time actually doing the research and less time doing the paperwork.

The Chair: Thank you.

Massimo Pacetti, please go ahead.

Mr. Massimo Pacetti (Saint-Léonard—Saint-Michel): Thank you, Madam Chair.

There were a lot of presentations. Thank you, everybody. It's hard to keep track.

I have a question for Mr. Williams. With this famous airport tax, or travel security charge, what are the other countries doing? I go down south every year, and I'm always hit with a surprise every time I get to the airport. I'm about ready to leave, and not only do I have to pay a fee, but I have to pay them in the correct currency with the correct denominations. I just wondered what the competition is doing.

À (1050)

Mr. Randy Williams: Thank you for the question; it's very appropriate.

Not all countries have an air travellers security charge, and there are some countries that don't have one that are a lot more challenged with security issues than Canada is. We have one of the highest in the world, or the highest, depending on whether you are calculating the international, which is $24, or now the $7.

Additionally, because of the downturn in tourism since SARS, the Iraq war, and a number of other things, the federal government in the United States removed the tax, for a period of time at least. That helped to at least provide some relief to the industry. No action has been taken by the federal government in Canada that matches that of the U.S. The U.S. is already only at $2.50 one way and $5 maximum, while we're still at $7. Even if you do the math on the currency exchange, which you don't need to do, because we're buying Canadian products, it's still higher than in the U.S., but they have removed theirs.

Mr. Massimo Pacetti: Do they collect it on the ticket, after you've cleared customs, or prior to clearing customs? Do they collect it the same way?

Mr. Randy Williams: They collect it when you purchase the ticket. You're not thinking of the airport improvement fees?

Mr. Massimo Pacetti: That's another thing.

Mr. Randy Williams: That ATFC is also charged on the ticket.

Mr. Massimo Pacetti: Okay, I'm getting confused with that.

I'm just wondering, though, whether it really makes a difference when somebody is buying a ticket if there is an extra $14 or $7. Let's take the American example. Has it really brought about a significant increase? Has it given them a significant boost or increase in travel?

Mr. Randy Williams: Again, the $2.50 in the U.S. is fairly negligible, but all tourism industry associations in the United States are opposed to the security charge as well, as being unfair and damaging to their industry. It's just another tax. I had a call from a tour operator in England called Canadian Affairs. They bring 100,000 people to Canada every year. They are afraid that is going to drop by 10,000 people this year. Their customer is a leisure customer, and most of their groups are families of four or groups of four or more; it represents to them $24 each, that's $100 more. When you have a tourism industry in the world where you have £99 to get to Florida--that's the promotion they're doing--$100 more to come to Canada makes a difference to a family of four. When you're selling Canada and you have to add $100 on, when you're competing against £99 to go to Florida per person, you have to understand the elasticity of the leisure traveller. That makes a big difference. Yes, it does hurt.

Mr. Massimo Pacetti: It depends on the month, I guess, you want to come to Canada.

You were talking about the labour market, and we're facing skill shortages. I'm not really sure how decreasing the unemployment rate or decreasing taxes will help the skill shortages. I think we're going to have a problem with immigration. I think that is an immigration issue. Can you expand on that?

Mr. Randy Williams: Definitely, our challenges in human resources are related to immigration. Some of the immigration policies that have been passed are going to also have a negative impact on our ability to attract increased staffing. A lot of the immigration is geared to professional individuals with high incomes and the ability to pay to come to Canada. Some of that is going to have a negative impact. We support high immigration into Canada, we support increasing the Canadian population strategically through immigration, and not in one centre or two centres of the country. Obviously, tourism is an industry that needs a workforce throughout the country, because we're in every community.

À (1055)

Mr. Massimo Pacetti: I wasn't going to bring it up, but you talked about the Montreal Grand Prix. Do you have any numbers on how much economic spinoff there is? In Montreal we talk about anywhere from $70 million to $80 million. I'm wondering about the spin-off, because I know there are a lot of people who come to Montreal, then go off to Toronto or elsewhere. Are there any statistics on that?

Mr. Randy Williams: There are statistics available, I just don't have them with me right now. I can send them to the committee, if you would like to know the tourism impact, direct and indirect.

Mr. Massimo Pacetti: I have a quick question to Ms. Pearson. What are the numbers for the public donating public securities to a private foundation and a public foundation?

Mrs. Hilary Pearson: The difference is in the capital gains tax reduction on the donation.

Mr. Massimo Pacetti: So if I give it to a public foundation, it's 100%--

Mrs. Hilary Pearson: What you get is 25%, rather than 50% reduction. You still get the incentive if you give to a private foundation, that's certainly true. What we're saying is that it's a less rewarding incentive.

Mr. Massimo Pacetti: It's 25% instead of 50%. I couldn't remember.

The private foundations, where do they get the majority of their funds? Is it through donations? Is it private families? Is it through public shares? What is their major source of funding?

Mrs. Hilary Pearson: Private foundations have been created typically by individuals or families. The definition in the Income Tax Act doesn't define private foundations, it defines public foundations, so anything that is not a public foundation goes into the private foundation category. It's essentially a question of how much capital. It doesn't really matter where your capital comes from, but if more than 50% of the capital of a foundation comes from a single source or a family source, it is a private foundation.

Mr. Massimo Pacetti: I understand, but from your experience, do the majority of the private foundations result from these transfers of public securities, or is it because they were initiated by generous donations or fundraising activities? I guess that's my question.

Mrs. Hilary Pearson: It's a mix. There's no single answer to it. A lot of families choose to put cash into creating their foundations. The largest foundation in Canada now is the André Chagnon Foundation of Montreal, which I understand was created by a donation of cash.

Mr. Massimo Pacetti: It was done when they sold out on Vidéotron. That's what I'm thinking, if there are a lot of those.

How about your experience with the U.S.? The U.S. has a lot more publicity behind their foundations. Is that because their situation is more generous, or is it because there's more money available in the United States.

Mrs. Hilary Pearson: Both. Obviously, there is a lot more money in the United States. We have argued that the foundation sector in Canada is quite underdeveloped relative to what it should be. It's true that with Canada and the United States, you're comparing an elephant and a flea, but proportionately speaking, we should have more foundations than we do. There are different reasons for that, and one of those may be tax; it's not entirely tax, but it's partly tax. There is less incentive from a tax point of view to create a private foundation here.

The Chair: Thank you, both of you.

Our time has come to an end, so on behalf of the committee members, those here and those who are otherwise occupied in the House with the financial debate that's going on today, I want to thank you. We will take your material and your questions and answers into consideration in our debate.

I'm going to allow you to go back to your residences or offices right now. We're going to suspend for a minute, then bring our next presenters up. For the information of committee members, we had three presenters, and one of them has just contacted us to advise us that they can't make it, so we're going to have two presenters. We'll resume in five minutes, and we'll probably finish a little earlier.

We're suspended. Thank you very much.

À (1059)

Á (1108)

The Chair: We'll resume with panel two this morning. We're very pleased to have with us, from the National Research Council of Canada, Dr. Arthur Carty, the president. Welcome once again to our committee.

From the Canadian Film and Television Production Association, we have Guy Mayson, who is the president and chief executive officer, and Beatrice Raffoul, who is with him at the table today.

I'm going to go in the order in the agenda, starting with you, Dr. Carty. If you'd like to take one or two minutes more than usual because the other person isn't here, I can accommodate that. So that's seven to nine minutes.

Dr. Arthur Carty (President, National Research Council Canada): Thank you very much, Madam Chair.

Á (1110)

[Translation]

Good morning, ladies and gentlemen. I want to thank you for this opportunity to address the committee today. I also want to thank the committee for its support to the NRC in recent years.

[English]

Every year, for me, it's very tempting to use this time to tell the committee about the wonderful science, the exciting discoveries, and the innovative companies that the NRC laboratories and programs support for the benefit of Canadians across the country. However, I do respect the need to focus on priority issues at this meeting. I'll content myself by extending an invitation to the members of the committee, as a group or individually, to visit some of our leading-edge facilities either here in Ottawa or at our centres across the country.

The brief we submitted to the committee earlier has raised three intertwined issues and presented three specific recommendations for your consideration in these pre-budget consultations. I'll review those in a minute. However, I would like to begin by stressing that all three of these recommendations reinforce the same basic message: the need for a balanced approach and long-term vision in any national innovation strategy.

That may sound to you a bit like a motherhood statement, but it has specific implications. For the National Research Council of Canada, it means that we must strive to support a diversified innovation portfolio that reaches into all regions and communities of the country but is coordinated and supported by the framework of a coherent, compelling national vision and plan. To that end, we work with our partners and our clients to establish research and innovation priorities and we support them on a national basis.

Over the last few years we have been pursuing these fields and priorities through initiatives that foster and mobilize regional and community strengths. We've enjoyed tremendous support and built important new partnerships in many areas of Canada as a result of these efforts.

We're very proud, for example, of our role in the plant biotechnology cluster in Saskatoon, in the fuel cells cluster in Vancouver and biopharmaceuticals in Montreal. We have launched new initiatives and constructed new facilities in partnership with other federal agencies, industry, universities, and provinces, in collaborations such as the new NRC Aluminum Technology Centre in Saguenay and the National Institute for Nanotechnology in Edmonton, Alberta.

In Atlantic Canada, our decision to establish a new e-business and information technology presence in New Brunswick has met with tremendous support and complementary action by the community and our partners, and we are extremely excited and grateful about that.

The recent announcement that NRC would establish its first-ever research presence on Prince Edward Island has been greeted by great local and regional response. I know some of you are aware of that.

So we're very grateful indeed for the support of members on all sides of the House and of this committee for our technology cluster strategy, and I believe you would agree with me that it makes eminent sense to build upon regional strengths and engage regional partners.

We very much welcome these new resources, particularly the creation of new facilities and programs in the regions, as recognition of NRC's unique capacity to catalyze technology-based economic growth, jobs, and innovation in Canada. It may surprise you, for example, that NRC has many more facilities outside of the national capital region now than it has in Ottawa. But as you may know, most of these initiatives have involved only short-term funding, and all have been for targeted incremental responsibilities. Moreover, these additional responsibilities and new initiatives have been built and supported by NRC's existing operations, our nationwide infrastructure and our cross-country networks.

It's here that we are beginning to run into serious difficulties, because we are trying to manage a much larger organization with essentially the same A-base resources as ten years ago, in 1994-95. In fact, in real terms, our base funding for core programs has declined significantly over the last decade.

This base has been further eroded by a doubling of utility costs by a nearly 50% increase in payments in lieu of taxes, by scientific inflation, and by incremental salary and employee expenses that are covered for government departments but are not covered for NRC as a separate agency

Now, for NRC these costs are magnified of course by the expense of carrying out forefront scientific research and doing business in what is now a globally competitive environment. We've sought to address these ongoing pressures and uncompensated costs through internal measures, including reallocations, revenue generation, and increased efficiencies. But the financial shortfall in our A-base is now well beyond the budget of an entire research institute, and the situation is just no longer sustainable. We are taking actions through a number of reductions across the council in this fiscal year, including an across-the-board budget cut, and we will be making more permanent adjustments in the future.

You may ask, why is this a problem? Well, in reality it constitutes a weakening of our capacity to provide the underpinning foundation and framework for the pursuit of regional innovation priorities, cluster development, and the commercialization of new technologies. More generally, it severely hinders us in putting science and technology to work for Canada. The NRC would welcome this committee's support in our efforts to seek recognition of this continued erosion of our base funding. The recommendations in our brief speak directly to that issue. At the very least--at the very least--we would ask that you explicitly and forcefully endorse the concept of a balanced national strategy that provides funding for specific new initiatives while ensuring that there is a firm foundation upon which to build and support them.

Therefore, given this backdrop, I would like to ask the committee to support our three recommendations. First, we recommend that the government continue to invest in NRC's technology clusters and community innovation initiatives through ongoing funding for clusters launched under previous budgets and programs such as the Atlantic investment partnership. We also believe that there is a major opportunity to build on successes to date by targeting new cluster initiatives in communities where there is the potential for significant growth in selected technology areas.

Second, we recommend that the government establish reference levels for NRC's national programs and base budget that recognize its true costs as a facilities-based research organization. This means addressing those issues I talked about earlier: increased utility, property management, and operational costs as well as mandated international obligations.

Finally, we would repeat our support for the proposal to double innovation assistance to small and medium-sized enterprises through the NRC industrial research assistance program, NRC-IRAP. You will remember that in response to a request to double IRAP's budget over five years, the February 2003 federal budget provided funding that will only maintain the NRC-IRAP industrial technology adviser network and ensure that the program's budget for contribution to firms is sustained at current levels. In addition, NRC-IRAP has received some short-term funding from the regional agencies to help contributions to firms in those respective regions. Together, this additional funding that's being provided in the budget and the funding from the regional agencies provide IRAP with a solid foundation, but we do know that IRAP reaches only a very small percentage of the technology-based SMEs in Canada. We need to do much more to stimulate innovation in our small businesses and, importantly, to grow our medium-sized firms into large, globally competitive companies. This is critical if Canada is to achieve its goals in the innovation strategy.

IRAP, I remind you, has a proven record of success to do this, but it certainly needs more resources to fulfill the demands and the potential for what is an absolutely critical part of the Canadian economy. In all three cases we are looking to achieve a balance between increasing our service and presence across Canada with our capacity to maintain a national framework and a base for our efforts.

Á (1115)

[Translation]

I am asking once more to the committee to explicitly support the financial requests of the NRC so that it can keep promoting innovation in the communities and build a stronger Canada.

Thank you for your attention.

[English]

The Chair: Thank you.

Now we'll go to the Canadian Film and Television Production Association. Mr. Mayson, please go ahead.

Mr. Guy Mayson (President and CEO, Canadian Film and Television Production Association): Good morning, and thank you, Madam Chair and members of the committee, for inviting us to appear before you today.

[Translation]

Good morning to all, and thank you for this opportunity to discuss the challenges before us.

[English]

This is not the first time our association has had the privilege of appearing before the committee. We appreciate your efforts to consult with our industry on our priorities and on where we feel our industry can contribute to the economic prosperity and quality of life in this country.

The CFTPA is a non-profit trade association representing almost 400 Canadian production companies involved in television, film, and interactive media production. We are a $5.1 billion industry responsible for 53,000 direct jobs and 84,000 indirect jobs.

We submitted a brief in advance of the meeting and have circulated today bilingual copies of our “Profile 2003”, our seventh annual industry profile. It's a report produced by ourselves and l'Association des producteurs de films et de télévision du Québec in conjunction with the Department of Canadian Heritage and in association with Nordicity Group.

I will get right to the point. The immediate priorities of the CFTPA remain the government's continued investment. Number one would be the government's continued investment in the Canadian Television Fund. In fact, we are here to urge this committee to restate an earlier recommendation and recommend that the government's commitment to the fund be restored to the previous levels before the reductions in budget 2003. The CTF is a linchpin incentive to realizing the creation of high-quality Canadian content in both English and French-language markets. Independent analysis of the CTF has shown that it is a great success, but demand greatly exceeds available resources.

At a minimum, a five-year commitment of $100 million annually needs to be reinstated in next year's budget. We would also urge the government to review its annual commitment in light of the increased demand that has been put on the fund by both the government and industry in meeting both public policy objectives and the demands of a larger broadcasting system.

Our second major recommendation for the committee relates to budget 2003, where the government restated its commitment to solving the issues related to the Canadian production tax credit. After many months of discussion, negotiation, and consultation, a package of measures has been agreed to by the CFTPA, the APFTQ--the Quebec association--and officials of the Department of Finance and the Department of Canadian Heritage as well as members of the unions and guilds. We ask that members of the committee, perhaps through the chair, write a letter to the Minister of Finance in support of the early resolution of this matter, which dates back to budget 2000. We've been very encouraged by these developments and we certainly need your support on this.

We would also urge that the committee recommend to the Minister of Finance that the corporate objectives of the tax credit program be reinforced and that producers be allowed to retain a larger portion of their tax credits for corporate development purposes when dealing with public funding agencies like Telefilm Canada and the CTF.

Third, we want to urge this committee to continue to reiterate its support for resources being invested in training and skills development. An industry that expects to grow and prosper must be able to meet the demands for skilled human resources.

In the film and television and new media production sector, the CFTPA currently administers two publicly funded programs as well as four privately funded mentorship programs that ensure that approximately 100 young people annually are able to integrate into the production workforce. We're very proud of those mentorship programs and we would like to see them expanded.

I would also like the committee to recommend measures that would help with the long-term viability of the production sector. I'll draw your attention to “Profile 2003” and just make a few key points on the statistics. The financial indicators on page 8 show that the volume of production in film and television remained the same as in previous years. We saw Ontario's production level increase by only 1%, B.C.'s actually decreased by 7%, the prairies' decreased by 4%, the Atlantic region's increased by 3%, and Quebec's production increased by 5%.

Job levels have remained stable with only a very slight increase. The export values of Canadian production actually decreased by 14%, and treaty co-production was relatively stable, increasing by only 1%.

Real GDP for the sector increased by 4.9% in 2001--ahead of the economic average, I might add--showing that even though production spending has slowed down to some degree, production distribution and post-production companies in Canada continue to increase their value-added to the economy.

What do these numbers all add up to? What do they really mean? Well, they're not necessarily discouraging after a period of extended growth, and there has been a protracted period of growth in this industry. They do reflect that the level of growth has certainly slowed down.

Á (1120)

We have already begun the collection of data for the profile of 2004, and we are anticipating some further slowdown in production levels, both in domestic production and foreign location shooting. So it's a trend that may continue, in fact.

In light of these realities and the recent reports on drama, Canadian content, and the state of the broadcast system, the CFTPA has used the summer to examine those findings. We are in the final stages of the preparation of a strategy for change, focusing on strengthening the producer's role as an instrument and objective of government policy, as well as fostering a business environment for further growth.

Government funding policy has focused heavily in the past on encouraging the creation of Canadian content production, and producers have been a central instrument to that objective. We have been very supportive of those objectives.

One of a producer's primary functions is to organize and control the creative and financial package for the production. In the last year, the independent production sector has struggled, as we have seen. In an environment of increased demand for production generated by broadcast regulatory requirements, but with insufficient financing resources to assemble the finances, broadcasters are under increased pressure to provide high levels of Canadian programming. The resources really aren't there to support them. Broadcast licence fees traditionally can only cover a relatively small portion of the budget, and other funding sources are limited. Compounding this has been a sizable downturn in the international market, a market that traditionally helped to provide a significant portion of production financing for Canadian content. Our industry has been a very aggressive and successful exporter, so we are very sensitive to changes in the international market—of which there have been many.

Simply put, financing production has never been harder, and the risk and responsibility of assembling and financing have always fallen, and will continue to fall, on the producer. Increasingly, producers are assuming major lending liabilities themselves, simply to ensure that a project is completed. What we are seeing is that many companies do not have the corporate financial strength to do this on a continuing basis. Companies also lack the resources to assume the massive development costs, including script rights, script development, script acquisition, talent commitments, all of which go into production. In comparison to the American industry, where millions and millions of dollars are spent on these, Canadian producers simply lack the resources to do these on an ongoing basis.

In our view, viable production companies are central to the government's cultural policies, and are an important economic sector in themselves. What we do is culturally significant and it is a business as well.

In addition to a long-term commitment to the CTF, and to ensure that the sector continues to grow, government can look at corporate incentives for production companies, to encourage private investment in them; facilitate access for production companies to more traditional sources of institutional financing and venture capital; and ensure that production companies return at least a portion of their eligible tax credits for corporate development. Currently, funding agency policies tend to force them into the financial structure, and very little is left for the actual company. In addition, government can recommend that funding agencies adopt as a priority the acceleration of paperwork, and the flow of cash into productions on a risk-management rather than a risk-averse basis. Funding agencies, frankly, need to treat producers more favourably in their recoupment policies. We'd also recommend much greater transparency and accountability in funding agency policies, and a more equitable division of rights between the independent producers, broadcasters, and funding agencies.

With that, I thank you for your time. I'd be very happy to respond to your questions. Merci beaucoup.

Á (1125)

The Chair: Thank you for your presentations, both of you. And thank you for getting them in early, so we could get them translated and distributed. All members of the committee have those presentations.

Now we'll go to Mr. Epp, please, for ten minutes.

Mr. Ken Epp: Thank you very much for your presentations.

I'd like to begin with the NRC. Is it true that the NRC gets 100% of its funding from various governments? Do you not get some from the private sector?

Dr. Arthur Carty: Yes, we generate about $120 million a year from activities with partners, including industry, which is certainly our largest partner, and other government departments like National Defence. We have collaborations internationally and with universities in Canada. So partnership is a fundamental principle of NRC these days. We work very much with others.

Mr. Ken Epp: You indicated in your report that your costs have escalated. I guess every business and household knows the increased cost of utilities, taxes, and all of these other variations here. If I read you right, you're suggesting that whereas other government departments have means to cover those additional costs when they arise, you're like a senior on a fixed income.

How would you propose solving that? What should the Government of Canada do to address the issue of escalating costs?

Dr. Arthur Carty: Thank you for that question, Mr. Epp. It's a good one.

We are what could be described as a custodial department because we own our facilities and our land. That essentially means that PWGSC does not pay for the cost of our utilities and infrastructure, nor for changes to those. When in fact the price of electricity, gas, or water goes up significantly, as it has in the last few years, we have to find that out of our A-base budget, whereas another department, which would be under PWGSC, would have it paid. So there is, in a sense, an inherent unfairness in that, I would say. It is hitting us very hard.

Á (1130)

Mr. Ken Epp: You really didn't answer the question, though. The government is mostly responsible for funding your operations. Your costs increase year over year, and because those costs have to be paid, you in essence end up deflecting money that should be spent on research into paying your light bill.

Dr. Arthur Carty: That's correct.

Mr. Ken Epp: Is there a mechanism you might ask for? I'm going to suggest one. When you were talking about this and when I read about it in your report, I thought that perhaps you should separate those direct costs, the contributions in lieu of taxes and things like that, and you could propose to the government that they should fund that directly and work through Public Works.

Dr. Arthur Carty: Yes, that could work.

I should add that we essentially haven't had any increase in A-base budget for inflation over this long period of time. Of course, inflation itself might only be 2% or 3%, but over a period of years it does hit you hard.

Mr. Ken Epp: My next question has to do with an area you didn't refer to in your report. I know some of the areas in which you conduct research, but nowadays there is a lot of emphasis on and interest in developing new methods of producing energy. I would like to know what proportion of your work has to do with innovative energy sources.

Dr. Arthur Carty: We have a significant investment in fuel cells. We have an institute in Vancouver that is entirely devoted to fuel cell technologies. We are working very closely with the emerging fuel cell industry in Canada, the small companies and the Ballards of this world, to help move that forward as a commercially viable technology. So there is that aspect.

We're developing programs in alternate fuels, and we'd like to be able to invest more in that area. A number of the institutes contribute indirectly to this by developing new catalysts that might be used in the conversion of one form of energy source to another. For example, on helping to transform heavy oils and bitumen, we've contributed significantly to that through work we've done with Syncrude Canada in developing new nozzles that make the coker processes work much more efficiently.

We have helped a company in Ottawa called Iogen, which is a very innovative small company, to develop industrial enzyme catalysts, which help the pulp and paper industry. It reduces the amount of chlorine they would use in bleach in producing pulp and paper.

Those are some examples. All of these things contribute in a modest way to energy.

On the other hand, I'd have to say that there was a time in the late 1970s when NRC was very heavily involved in wind generation, and that was a big effort. I don't know if any of you have seen the pictures of the NRC wind fields in those days. In the early 1980s that responsibility was transferred to NRCan. The same was true of photovoltaics, which we were doing in those days.

We try very hard not to duplicate what other department's mandates are and to do things that are unique to the National Research Council and Canada's needs.

Mr. Ken Epp: Being a math and physics major, I have quite an interest in this type of stuff. I think, especially this weekend, if we could harness the wind energy we would do well, wouldn't we?

Á (1135)

Dr. Arthur Carty: Yes, right.

Mr. Ken Epp: Getting back to the budget--this is a pre-budget consultation--you've asked for the doubling of the funding for the Industrial Research Assistance Program. I may have missed it, but how much is it now, and how much are you asking for?

Dr. Arthur Carty: This was a request that was put to the cabinet by Minister Rock last year. I think it was pretty well a universal disappointment that essentially what happened in the budget was that the sunsetting funds for IRAP were restored, so the A-base of IRAP was maintained, but there was essentially very little new money provided.

The budget of IRAP itself is about $120 million per year. In addition to that, I should add, there is a program that extends the regular IRAP further towards commercialization. This is a program with Technology Partnerships Canada called IRAP/TPC. It's delivered by the National Research Council and IRAP, but it involves significantly larger amounts of money and is on a repayable basis. So if you add the $30 million that is a joint contribution, IRAP/TPC, the total program would amount to about $150 million, at the moment. The proposal was to stage the increase so that the doubling occurred over a period of five years to allow ramping up.

I do want to repeat that IRAP A-base is the best program of its type in the world, and that's widely recognized. Secondly, it reaches only a small fraction and provides support to only a small fraction of the companies that need help. A very large percentage, 99% of Canadian companies, are SMEs. Now, they're not all technology-based SMEs, but this is a critical part of our industrial structure. With the resources at hand, IRAP does a good job. But if Canada is to reach its target of becoming one of the most innovative countries in the world, that program has to have more funding to enable it to happen.

Mr. Ken Epp: Well, my time is up. I'll be interested in seeing what my colleagues opposite will ask from the other group. If they don't ask any, then I would like to request to be back on the second round.

The Chair: We'll let them get their time first.

Mr. Murphy, go ahead. You have ten minutes, sir.

Mr. Shawn Murphy: Thank you very much, Madam Chair.

I don't plan to take my entire ten minutes. I have only a couple of questions to Dr. Carty on the NRC. Some of them are more comments than questions.

I want to congratulate your organization on a lot of the initiatives that have been taken since I got elected in 2000. You've played a major role in the innovation strategy in this country, including getting out of the Ottawa region and right across Canada. All the sectors you're involved with right across the country are tremendous. I'm quite aware of the situation in New Brunswick. Again, the partnerships that your organization has been able to effect with the universities and other community colleges have been nothing less than tremendous. I was at a meeting yesterday with several university professors, and they were very complimentary about the whole NRC initiative.

My question, and you alluded to it, is that Canada has a very aggressive innovation strategy to become in the top five of R and D spending in the world. Of course, one of the pillars of that strategy is the NRC, together with the granting councils. How do you see the country making out in that direction? How do you see the country reaching that goal? I know it's not an immediate goal, Dr. Carty, but do you see progress?

Dr. Arthur Carty: Yes, I think some progress has been made since the initial days of those discussions.

Briefly, for the committee, in order to get to fifth in the world in terms of R and D intensity and one of the most innovative countries, government investments in R and D need to at least double and industrial investments in R and D need to triple by 2010.

Now, let me focus particularly on the latter and what I think the government has done over the last five years. There's been a very significant investment in the knowledge end of the R and D spectrum--that is, generating knowledge--and less of an investment on the innovation side of the spectrum, and this of course is the principal role of industry.

In order to complete that continuum, there's no question in my mind that we need to invest more in the commercialization of knowledge and the results of research and development. In other words, Canada needs to invest more on the industrial innovation side at this point, to complement what has been done on the knowledge end.

That is why I think that supporting programs such as IRAP, which cater directly to industrial innovation by helping small companies with their R and D and helping get ideas and products into the marketplace, is so crucial.

I think Canada has made progress. I think it has a lot more to do on the innovation end of the R and D continuum, and I would argue that the priority in the next few years should be on that side, while acknowledging that investing in knowledge is continuous and you can't cut it off.

Á (1140)

Mr. Shawn Murphy: Over the last three years, what has been the general trend in your organization's budget?

Dr. Arthur Carty: What has been the general increase in our budget? Certainly our budget is significantly larger now than it was, say, in the mid-1990s. Part of that is because we've doubled our revenues. But I have to say that we've received $110 million over five years from the Atlantic innovation investment and we have received $220 million for other clusters across the country, again over five years. So you can say that it's in the order of $400 million over five years, $50 million a year that we've received for technology cluster strategies in Canada.

Mr. Shawn Murphy: Thank you, Madam Chair.

The Chair: Thank you very much.

Mr. Cullen, please.

Mr. Roy Cullen: Thank you, Madam Chair. Thank you to the presenters.

Mr. Mayson and Mr. Raffoul, you talk about the tax incentives, the Canadian production tax credit. I know it can get quite technical, but could you remind us what the problem was you were trying to address and what's in the package that is currently now in front of the minister and the department?

Mr. Guy Mayson: Thanks for the question. The tax credit program was put in place actually back in 1995 to basically have a labour-based incentive program for production. It replaced the old capital cost allowance system for private investors to invest in production and is basically a much more efficient, effective kind of thing and a much better use of government dollars and widely supported by the production sector.

The problem we found as we started to work with it, though, was that it was a very complicated design. There was a sort of a double cost calculation, some general tax policy measures that were put in place that we found very difficult to work with in terms of making the credit work effectively and move paper quickly.

I have to say that the Department of Finance was very open to reviewing it, and after a considerable amount of discussion with them back in 2000, a simpler design was proposed, a single calculation. Those discussions went on and on, so right now we're at a stage where we're basically resolving that process that started about three years ago.

It has all been done in good faith. It hasn't been anyone purposely delaying anything. Part of the problem was ourselves in terms of making sure that what we were asking for was actually what we wanted. But we're at a stage now where I think we have a high degree of consensus. It's a much simpler process, a very efficient process, and we understand there are recommendations before Mr. Manley. We'd just like to see it move ahead as quickly as possible, because I think it's basically a more effective process. There will be some benefit to some productions if it's implemented this year, so we're very keen to move it forward.

Á (1145)

Mrs. Beatrice Raffoul (Vice-President, External Relations, Canadian Film and Television Production Association): There are some measures that involve raising the cap of what's allowable, making it simpler to calculate and include more, also giving a slight increase to the percentage of the tax credit. That has all been agreed to by the industry at large, as well as the officials, and it rests with the minister now. We're actually looking for support, because there was a commitment that they would address in the budget of 2003. They recognized that this was still outstanding. So we would like to get this resolved now for this year.

Mr. Roy Cullen: It seems to me three years is probably time enough to finalize this and get it going.

With the way the Canada-U.S. exchange rate has been developing, let's say the Canadian dollar moves to--I don't know what it could move to--80¢ or 85¢. How does that affect your industry--or does it?

Mr. Guy Mayson: It especially affects what we call the service sector, the sector that is basically encouraging production from, primarily, Los Angeles to come north and shoot in Canada. The studios generally are very astute about shopping around the world looking for the best possible deal, particularly for their larger budget feature films. Certainly, when the dollar was rising rapidly earlier in the year, there was a lot of speculation that once it moved out of the 75¢ range towards the 80¢ range, we might cross the line where studio executives might decide that maybe Australia was a better place to shoot, or Europe. That whole area of attracting Hollywood production has been very aggressive and competitive around the world, as you may know.

I think you'd find industry concern building once it crossed the 75¢ line, but it remains to be seen, because there's still a huge convenience in shooting in Canada; there's a high level of expertise in crews, and it's very convenient to shoot in Vancouver or Toronto or Montreal. They like dealing with Canadians, they like Canadian crews, etc. So it's more than just the exchange. If you moved into the 80¢ range, though, there would definitely be an impact.

Mr. Roy Cullen: Dr. Carty, in your presentation you talked about some of the A-base budget pressures, and you used the term scientific inflation, which I've never heard before. What exactly is scientific inflation?

Dr. Arthur Carty: I think there's a good deal of evidence for this. Inflation in the scientific world means the cost of instrumentation, for example, high-tech instrumentation for measurements, of facilities, the cost of chemicals, including biochemicals. The change in the cost of these over time is much greater than with general inflation, so it hits a scientific organization particularly hard.

Mr. Roy Cullen: So it's the role improved technology plays in creating more inflation.

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Dr. Arthur Carty: You have to keep up to date if you can with the latest in instrumentation. It costs you to be at the forefront.

Mr. Roy Cullen: Yes.

My colleague Walt Lastewka has been very anxious to see IRAP fully funded. He was puzzled as to whether the budget had been restored or not, or whether it was new money. I think the latest probably reflects what you just said, that it re-established the A-base budget, but perhaps not much more than that. It seems to me that productivity in Canada is increasingly an issue, especially with our U.S.-Canadian dollar exchange rate. As the SMEs are the engines of growth, it seems to me IRAP is an area where the government can make some sound investments in increasing productivity and targeting also small and medium-sized enterprises. Correct me if I'm wrong, but if we're going to be more innovative and become more productive, not only do we have to form new, innovative companies, we also need to improve the performance of existing companies. In my riding I've had some good experiences with IRAP working with local companies, helping to make them more productive. I imagine you have a lot of success stories with IRAP that are probably in all the material that is available.

Dr. Arthur Carty: Yes, we do have a large number of success stories, you're quite right.

There are several issues about SMEs. First, generally speaking, they do not have the resources to invest heavily in R and D. That's not quite the same for the medium-sized enterprises, but the SMEs need help in order to do the R and D and in order to get their products closer to market. They also need help in investing in capital, because they've not been doing that enough, and that's directly related to productivity, in other words, information technology etc., computers. The third thing they have great difficulty doing, which IRAP is also helping them with, is taking a global perspective. It is essential, if small companies are going to grow and become players in the world marketplace, as opposed to just players in Canada, that they reach out, go abroad to establish the partnerships, see the opportunities, and IRAP helps them do that. Again, it's on a modest scale and could be significantly expanded, but one of the problems for SMEs is often that they look inwards, rather than looking outwards. It's not true of all of them, of course, but there's a lot to be done there.

Mr. Roy Cullen: Thank you.

In your brief you talk about clusters. You'll recall, probably, when Michael Porter did his ten-year update of Canada at the Crossroads, he basically reviewed how Canada is doing in becoming more competitive, and he concluded that at the macro level we've made significant progress, though there's always more work to do, but at the micro level it was different. That included the regulatory environment, but it also included an additional emphasis on clusters as a way of leveraging strength and moving forward. You talked about the need for supporting the existing clusters, but you said there is also the possibility of developing new clusters. Do you have any particular technologies or industry groups in mind?

Dr. Arthur Carty: There are some areas in which we'd like to see new investments made, new technology areas. One of them is the one I mentioned earlier, the alternative energy technologies, bio-fuels, bio-products, the bio-economy. There's no question that this is going to be an area of growing business. It's something Canada has a big stake in, and that's one area where we think there should be an investment.

Another area, which some of you may have experienced, is computational biology and materials science, using the computer essentially as an experimental tool for designing new drugs and showing routes to new materials. This is again an area of rapid development, and I think Canada has considerable expertise there we could harness.

You've probably heard about the genomics revolution. Coming after genomics is proteomics, the study of proteins produced by genes. Of course, the action biologically is done by the protein, so it's very important that you have not just genomics activities, but a major effort in proteomics.

I've given you just three examples where I think there could be a significant investment.

Mr. Roy Cullen: I was just going to say, on proteomics, there's a company in Etobicoke North, MDS, that is very much interested in pursuing that.

Dr. Arthur Carty: Yes, that's correct, and we have at least two collaborations, with MDS Sciex and MDS Proteomics.

Mr. Roy Cullen: Good. Thank you.

The Chair: Mr. Pacetti.

Mr. Massimo Pacetti: Thank you, Madam Chair.

Dr. Carty, I missed the beginning of your presentation. What would be the difference with the NRC and the R and D tax incentive program? Would there be a doubling up of the monies, because one would be direct and the other one would be indirect?

Dr. Arthur Carty: An investment, for example, through IRAP would be a direct investment in a partnership mode with a company. The general rule of thumb with IRAP is that one-third of the money comes from the program, IRAP, and the company has to put up two-thirds. The company's two-thirds, of course, they would be able to claim as an tax credit for their contribution to research. That would be essentially the same for a research partnership with one of our institutes. If it were a 50-50 partnership between a company and NRC, the company's contribution would qualify, generally speaking, for a tax credit.

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Mr. Massimo Pacetti: Do most of the companies that qualify for the IRAP end up qualifying for the R and D tax incentive?

Dr. Arthur Carty: Yes. In fact, over the years there's been a relatively close collaboration between the Canada Customs and Revenue Agency and IRAP. Because we do due diligence on all the awards that are given out, the SR and ED tax credit people will consider that as, in a sense, a qualification for the program.

Our industrial technology advisers do the due diligence to ensure that the investment is worth while and a good investment for Canada. Doing that due diligence about the company--finding out whether the company is stable, whether it has the resources to do this, or whether it's just a sham--is a very important part of it.

Mr. Massimo Pacetti: That's interesting. It's good to know, because I think the IRAP is a good starter, and then you can sort of work with the R and D afterwards.

Mr. Mayson, I have just a quick question for you, as well. I know there are a lot of recommendations, but just to recap, is the industry looking for tax incentives, or cash? I think you hit both ends, if I'm not mistaken. You're looking at $100 million annually, and then toward the end you're looking at tax incentives.

Mr. Guy Mayson: We're basically looking for both. It's a good question. There are two fundamental components of the funding. You have the government's involvement to date in the funding area. One is a direct equity involvement through agencies like Telefilm Canada, which has now become part of the Canadian Television Fund. The other major component is a tax rebate program based on, up until recently, production costs or labour.

There's some overlap, but they are quite separate, in terms of the public equity that's involved. It has generally been focused on a very high level of Canadian content, extremely Canadian stories, and very distinctly Canadian programming, whereas the tax incentive has a little more flexibility, in terms of the use of foreign performers and foreign stories--that type of thing.

Certainly the majority of the activity that's considered to be Canadian content goes through the tax side. Roughly about $1.5 billion goes through the tax side; about $600 million or $700 million goes through on the Canadian Television Fund side, or the public equity side. So the tax incentives, in terms of economic leverage and importance to the industry, are greater in many ways. The Canadian Television Fund, though, is sort of essential to more distinct Canadian programming.

Mr. Massimo Pacetti: Does a tax incentive mean a tax shelter, where people would invest and get quicker write-offs?

Mr. Guy Mayson: No, that's all gone now. It's a little bit like the R and D program in scientific research. It's basically a rebate on eligible expenditures to the company.

Mr. Massimo Pacetti: It goes to the actual company investing in the film.

Mr. Guy Mayson: Yes. The problem I was alluding to is that generally, when there's an overlap with the public funding agencies, those credits are forced into the financial structure. They're doing very little to help companies grow.

Mr. Massimo Pacetti: I have just one more quick question or comment. In the highlights of the 2003 edition, you indicate, “The export value of Canadian production decreased by 14% to $2.3 billion”. What does that mean? Did we export fewer shows?

Mr. Guy Mayson: It's basically a measure of distribution sales of Canadian programming and Canadian films around the world. It has dropped by a certain percentage. It's one of those things that grew steadily--several hundred million dollars.

Mr. Massimo Pacetti: But that's money that would have come back into Canada from foreign sources.

Mr. Guy Mayson: That's right. Without getting too sort of “film business technical”, it's essentially a measure of foreign presales. As a producer, you're trying to sell your show before you actually make it. So it's a combination of presales, distribution, and returns.

Mr. Massimo Pacetti: Thank you.

The Chair: Thank you very much.

Mr. Epp.

Mr. Ken Epp: Thank you.

I want to ask the CFTPA people a couple of questions. First of all, is it accurate to say there are now fewer productions from American companies in Canada than there were, say, five years ago? Are fewer contemplated?

Mr. Guy Mayson: That's something that fluctuates annually, and it's always tricky to track. But in terms of overall volume, it has generally increased over the last few years. What we're seeing, though, is some plateauing in that, and the actual number of projects may be coming down slightly. The trend seems to be for much larger budget feature film productions to be shot in Canada, as opposed to television productions, which are slightly smaller budget. So in terms of the number of projects, I think you'll find there is a slight trend down, but the actual activity level has grown steadily and is just starting to plateau now.

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Mr. Ken Epp: Where is that production primarily focused? What cities or regions does that primarily occur in?

Mr. Guy Mayson: The obvious centres for that are Vancouver, Toronto, and Montreal. Toronto has certainly seen some downturn this year. Having said that, there's been quite a bit of activity because of Toronto's problems this year with other things. You probably read in the press that some major productions have moved out to places like Winnipeg and down east in some cases. Part of that is driven by the provinces themselves, with fairly aggressive tax credit programs as well, trying to attract foreign production to their respective provinces. So it's a little bit competitive. I think Toronto has suffered just for obvious reasons this year on a number of fronts, but we're also seeing signs that's coming back now, too.

Mr. Ken Epp: The Americans obviously have a vested interest in keeping these productions back in their own country, since it generates economic activity there, and one of the big reasons I would think Americans would come here would be the value of the Canadian dollar. The amount of goods and services, and even people who they hire on site, would be much less expensive in American dollars than if they did it back home. But the Government of the United States is countering this with arguments and also I think with some incentives as well.

What do you see in the long term in terms of our ability to attract American production companies to do their work here?

Mr. Guy Mayson: I think there's no reason to think they will stop coming as long as Canada maintains the kind of dollar value it has, the sorts of levels of incentives it has. It's still a very attractive place to U.S. producers.

I think the kind of coverage you're seeing about the campaign against shooting in Canada that's come up has been very guild driven, union and guild driven in Los Angeles, and has as much to do with encouraging the State of California to put suitable kinds of incentives in place as anything. Our understanding is that the L.A. industry is actually functioning very close to capacity in fact, and the issue of Canada being a problem has never come from U.S. producers. They will retain an interest in going anywhere where it's effective to shoot, and Canada will continue to be an effective place to shoot for them. I think this year has just been problematic on a number of levels for various reasons, but we're still optimistic that activity will be quite high for the forseeable future.

Mr. Ken Epp: So in the long term you're optimistic?

Mr. Guy Mayson: Yes.

Mr. Ken Epp: Then my final question has to do with revenue that your member companies experience from Canadian broadcasters. You indicated that this was a bit of a problem, there's a crunch there. They're paying less and demanding more. Also, I would like to know your comments on how you're working out with the cable companies and with the two major satellite companies in Canada.

Mr. Guy Mayson: On the broadcaster front it's always been a traditional issue that broadcasters, from a producer standpoint, have never really paid an adequate licence fee for what they're getting. It's always a relatively small portion of the production budget. Broadcasters will say that's all they can really afford; it's much easier to acquire a foreign program. They can buy foreign programming for the network at a fraction of what the negative cost is of producing a Canadian show. So this is a traditional issue, and I think it's an ongoing issue that we'll continue to raise with the heritage department, as well as the CRTC.

It's one where I think the bottom line is the broadcasters need to be paying a fairer share of the actual production costs--perhaps not the entire production costs, obviously, as it's always going to be a partnership, but they need to be increasing their licence fees for sure. That's been a traditional issue, and it will continue to be that way. So we'll be fairly aggressive about that.

Your point about paying less and demanding more is very true, because as broadcasters look to acquire content, the value of content on the Internet, for example, is yet to be determined, but they're being very aggressive, grabbing things like Internet rights as a condition of their licence fee. The business of growing companies in the production business is very much like intellectual property of any kind, and you want to hang on to as many rights as you can. You don't want to be selling them all away for the sake of a portion of your licence fees.

I'm sorry, Mr. Epp, you had a question on cable and satellites.

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Mr. Ken Epp: Cable and the satellites--do you get revenue feedback from them adequately?

Mr. Guy Mayson: They're big contributors. Both satellite and cable are very big contributors to the Canadian Television Fund, what I was alluding to earlier. That fund is referred to as a kind of public-private partnership where the government makes a significant annual contribution each year. We'd like it to be bigger, obviously.

Telefilm Canada makes a contribution. The other big participant, actually the largest participant now, is the cable and satellite industry. Their licensing requirements under the commission, the CRTC regulations, basically put a stipulation that a certain percentage of their annual revenues is going back into production. So they are a big participant in that area.

The Chair: Thank you very much. Thank you, to both of you.

You'll notice that this year, instead of doing like-minded panels, we've decided to juxtapose different interests from different spectrums, put them together. I think it helps to show Canadians too the different value judgments that have to made, the prioritization, and that everybody has a worthwhile cause when they put their message on the table. I'm glad that you were here today to put on the record your needs. Also I want to congratulate you both on very good industries that are both needed in this country. I appreciate it.

My city lost a production effort that would have been there last year because of cuts. We were sorry to lose it. Likewise, I know there are many clusters that could even grow this country and grow its research. Both of you have given us good messages today. Thank you very much for your attendance.

We're adjourned till Tuesday. For members, I'll give some information off the record.

The meeting is adjourned.