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37th PARLIAMENT, 2nd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Monday, October 28, 2002

1540

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

Mr. John Stewart (First Vice-Chair and Incoming Chairman, Canada's Research-Based Pharmaceutical Companies)

1545

The Chair

Ms. Zonibel Woods (Director, Government Relations, Action Canada for Population and Development)

1550

1555

The Chair

Ms. Susan Ziebarth (Executive Director, Canadian Dental Hygienists Association)

1600

The Chair

Mr. Jose Kusugak (President, Inuit Tapiriit Kanatami of Canada)

1605

1610

The Chair

Mr. Jose Kusugak

The Chair

Mr. Rahim Jaffer (Edmonton—Strathcona, Canadian Alliance)

1615

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

Mr. Rahim Jaffer

Ms. Zonibel Woods

1620

The Chair

Ms. Pauline Picard (Drummond, BQ)

Mr. Jose Kusugak

1625

Ms. Pauline Picard

Mr. Jose Kusugak

The Chair

Ms. Maria Minna (Beaches—East York, Lib.)

1630

Ms. Zonibel Woods

The Chair

Ms. Maria Minna

1635

The Chair

Mr. Shawn Murphy (Hillsborough, Lib.)

Ms. Susan Ziebarth

Mr. Shawn Murphy

Ms. Susan Ziebarth

1640

The Chair

Mr. Shawn Murphy

Mr. Murray Elston

The Chair

Mr. Mauril Bélanger (Ottawa—Vanier, Lib.)

1645

Mr. Murray Elston

Mr. Mauril Bélanger

Mr. Murray Elston

Mr. Mauril Bélanger

Mr. Murray Elston

1650

Mr. Mauril Bélanger

Mr. Murray Elston

Mr. Mauril Bélanger

Mr. Murray Elston

Mr. Mauril Bélanger

Mr. Murray Elston

Mr. Mauril Bélanger

The Chair

Mr. Mauril Bélanger

Mr. Murray Elston

Mr. Mauril Bélanger

The Chair

1700

Mr. Richard Paton (President and Chief Executive Officer, Canadian Chemical Producers Association)

1705

The Chair

Mr. Richard Paton

The Chair

Mr. Alan Young (Vice-President, Computing Technology Industry Association of Canada (COMPTIA))

1710

1715

The Chair

Mr. Al McDowell (Executive Director, Environmental Technologies Innovation Canada)

1720

Mr. Jack Pasternak (Executive Director, Environmental Technologies Innovation Canada)

Mr. Al McDowell

Mr. Jack Pasternak

1725

The Chair

Ms. Norine Heselton (Vice-President, Policy, Information Technology Association of Canada)

1730

Mr. Graham Hoey (Partner, Ernest & Young LLP; Information Technology Association of Canada)

1735

The Chair

Mr. Andy Burton (Skeena, Canadian Alliance)

Mr. Richard Paton

Mr. Andy Burton

Mr. Richard Paton

1740

Mr. Andy Burton

Mr. Richard Paton

Mr. Andy Burton

The Chair

Mr. Andy Burton

The Chair

Mr. Roy Cullen (Etobicoke North, Lib.)

Ms. Norine Heselton

Mr. Roy Cullen

Ms. Norine Heselton

Mr. Roy Cullen

1745

Mr. Graham Hoey

Mr. Roy Cullen

Mr. Al McDowell

Mr. Roy Cullen

Mr. Jack Pasternak

Mr. Roy Cullen

Mr. Jack Pasternak

Mr. Al McDowell

Mr. Jack Pasternak

Mr. Roy Cullen

The Chair

Mr. Bryon Wilfert (Oak Ridges, Lib.)

1750

Mr. Richard Paton

Mr. Bryon Wilfert

Mr. Richard Paton

Mr. Bryon Wilfert

Mr. Alan Young

1755

Mr. Bryon Wilfert

Mr. Alan Young

Mr. Bryon Wilfert

Mr. Alan Young

Mr. Bryon Wilfert

Mr. Richard Paton

Mr. Bryon Wilfert

The Chair

Ms. Maria Minna

Mr. Alan Young

Ms. Maria Minna

Mr. Alan Young

1800

Ms. Maria Minna

Mr. Alan Young

Ms. Maria Minna

Mr. Al McDowell

Ms. Maria Minna

Mr. Jack Pasternak

Ms. Maria Minna

Mr. Jack Pasternak

Mr. Al McDowell

1805

The Chair

Mr. Andy Burton

Mr. Richard Paton

Mr. Andy Burton

Mr. Richard Paton

Mr. David Shearing (Senior Manager, Business and Economics, Canadian Chemical Producers' Association)

Mr. Richard Paton

Mr. Andy Burton

Mr. Graham Hoey

Mr. Andy Burton

1810

Mr. Richard Paton

The Chair

Mr. Roy Cullen

Mr. Richard Paton

1815

Mr. Roy Cullen

Mr. Alan Young

Mr. Graham Hoey

Mr. Roy Cullen

Mr. Graham Hoey

Mr. Roy Cullen

The Chair

Mr. Bryon Wilfert

1820

Mr. Richard Paton

The Chair

Mr. Alan Young

The Chair

Ms. Norine Heselton

Mr. Jack Pasternak

Mr. Bryon Wilfert

The Chair

CANADA

Standing Committee on Finance

NUMBER 007

2nd SESSION

37th PARLIAMENT

EVIDENCE

Monday, October 28, 2002

[Recorded by Electronic Apparatus]

¹ (1540)

[English]

The Chair (Mrs. Sue Barnes (London West, Lib.)): Welcome, everyone. Pursuant to Standing Order 83(1), we're in the midst of pre-budget discussions. We will be having two panels.

You're our first panel of the afternoon. From Action Canada for Population and Development we have Zonibel Woods and Johanne Fillion; from Canada's Research-Based Pharmaceutical Companies, John Stewart, and Murray Elston, president; from the Canadian Dental Hygienists Association, Susan Ziebarth and Judy Lux; and from the Inuit Tapiriit Kanatami of Canada, Jose Kusugak.

We have received your briefs, they've been translated, and I will ask you to speak to your brief or say whatever you would like to say in seven minutes. Then we'll have a round of questioning after all of you have given your presentations to the committee.

So we'll begin with Mr. Stewart, who is the executive vice-president and general manager, Purdue Pharmaceuticals. Please go ahead on behalf of Canada's Research-Based Pharmaceutical Companies.

Mr. John Stewart (First Vice-Chair and Incoming Chairman, Canada's Research-Based Pharmaceutical Companies): Thank you very much, Mrs. Barnes.

I am incoming chair of Canada's Research-Based Pharmaceutical Companies, also known as Rx and D, and Murray Elston, who is the president of Rx and D, joins me today. We're very pleased to be here today to present to the members of the committee our recommendations with respect to the upcoming federal budget.

Canada's Research-Based Pharmaceutical Companies is the national association representing over 23,000 Canadians who work for this country's 62 research-based pharmaceutical companies. Over 9,500 Canadian medical researchers are employed as a result of the investments that Rx and D members make in Canada, and of this total of 9,500, about 5,100 work at universities, hospitals, and research institutions, while the remaining 4,500 researchers are employed directly by Rx and D member companies. Rx and D member companies have a single primary objective, to discover new medicines to improve the health care that is available for every Canadian.

Let me turn now to the work this committee is currently embarked upon, the consultations leading up to the next federal budget. In the most recent Speech from the Throne the government identified the creation of a health care system for the 21st century as one of this country's highest priorities. Many Canadians would agree, and we too would agree strongly. The government has also established as part of its innovation agenda the overall goal of making Canada one of the top five innovative economies globally by the year 2010. The throne speech addressed some important aspects with respect to this goal as well. Today our industry pledges to play a strong role in meeting both these objectives. In our view, there is a very powerful link between innovation and health care. It's simple: investments in research lead to the discovery of new medicines, and discoveries in the medical field lead to a more efficient and effective treatment of illnesses and to healthier Canadians.

With respect to the innovation agenda, the government's record in this area is commendable. We have applauded the funding of the Canadian Foundation for Innovation, the Canadian Institutes for Health Research, and Genome Canada, as well as the government's decision to cover indirect costs of research in its overall drive to make Canada extremely competitive in a knowledge-based economy. Our member companies encourage this committee and the government to take concrete steps in the upcoming budget that will turn this strong commitment to innovation research and development into concrete results to be enjoyed by all Canadians. This means continuing to invest heavily in research and development, in order to discover new medicines.

Last year alone our Rx and D member companies invested more than $1.1 billion in research and development here in Canada, over a 1,000% increase since 1987. Our industry is, indeed, prepared to do more. On September 24 the Rx and D member companies offered to enter into a partnership with the Government of Canada in the form of a five-point plan to improve the health of Canadians and further advance innovation. At that time we said we could substantially increase our investments in this country if government were able to take action to improve policy and regulation.

The five-point plan I referred to includes the following steps: a federal government commitment to encourage innovation across all sectors; the establishment of measurable performance standards for innovation; the formation of a public and private committee that would zero in on both government and business practices to help implement the government's innovation strategy; an annual innovation progress report to Parliament; and measures by provincial and territorial governments to improve Canadians' access to innovative new medicines.

What are some of the tools that would allow Canada's research-based pharmaceutical companies to maximize their contributions to Canada's innovation agenda? Here are some of the examples we have suggested.

We need the federal government to maintain mechanisms for patent protection and to ensure their effective enforcement.

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Contrary to popular belief, 20 years of patent protection does not mean 20 years of shelf life for a new medication. In fact, industry is very fortunate when it means about half of that, because patent protection begins long before medicines are fully researched, developed, and made available to Canadians.

Next, the government can shorten the time it takes to approve new medicines federally and work with the provinces to reduce the time it takes to have them listed on provincial drug benefit plans. On this point, our industy applauds the government's endorsement of smart regulation in the Speech from the Throne and the recognition that Canada must, if I may quote directly, “regulate in a way that enhances the climate for investment and trust in the markets”. Rx and D member companies could not agree more.

We also welcome the government's commitment in the throne speech to “speed up the regulatory process for drug approvals to ensure that Canadians have faster access to the safe drugs they need, creating a better climate for research in pharmaceuticals”. And this is where your committee can have an enormous and positive impact on innovation in this country. We urge you to strongly recommend that government devote all the funding resources necessary to bring this throne speech commitment to a reality as soon as possible. More research, more innovation, and more timely access to safe new medicines will result in improved health care for Canadians.

Our members also believe the definition of R and D in the Income Tax Act must be broadened, and harmonized with the OECD countries. This will provide an additional incentive for research and development in Canada, particularly in the biotechnology sector.

Finally, we would encourage you to continue investing in broad-based research in Canada to further strengthen the research infrastructure.

These are some of the steps in the plan we have proposed. Acting on them now will create the proper environment to invest, innovate, and compete.

I see that I'm reaching the end of my allocated seven minutes, so I will go to the conclusion.

As I hope you can see from our presentation, Rx and D member companies believe the bottom line is simple: additional investments in research will lead to discovery of new medicines, and discovery of new medicines in the medical field will lead to healthier Canadians.

We want to work with the Government of Canada so that Canada can indeed become a global leader in developing new medicines that will help make people well, help manage our health care system better, create jobs, and have a very positive impact on the economy. Your committee's work and its advice to government can--and will, we hope--lead to specific measures in the upcoming federal budget that will make these benefits a reality.

We appreciate your time today and would be pleased to take any questions.

The Chair: Thank you very much.

Now I'd like to go to Action Canada for Population and Development. Ms. Woods, go ahead.

Ms. Zonibel Woods (Director, Government Relations, Action Canada for Population and Development): Thank you, Madam Chair. We really welcome the opportunity to speak to the committee.

In March 2002, at the UN International Conference on Financing for Development in Monterrey, Mexico, Prime Minister Chrétien committed to increasing Canada's international aid by at least 8% for each of the coming years in the foreseeable future. This increase is projected to double Canada's current nominal aid level in eight or nine years.

The international development community is encouraged by this news. For years it has called on the government to increase Canadian foreign aid and commit publicly to a timetable to rebuild Canadian official development assistance, or ODA. However, we cannot lose sight of the fact that our foreign aid budget has been so severely cut by the present government that to double it over the next eight or nine years would only bring it back as a percentage of gross national product to roughly the level of 1985. This would be far from the commitment of 0.7% of GNP and would only place us at 0.33%.

Canada's ODA has declined dramatically since 1991. Canadian ODA has dropped from a high of 0.49% of GNP in the early 1990s to 0.30% in 1998, and then to 0.23% in 2001. This is the lowest recorded level since 1965.

Drops in ODA spending have happened notwithstanding the fact that Canada is an economic and fiscal leader among OECD countries. Canada now ranks eighteenth among 22 OECD donor countries in terms of generosity.

Foreign aid has been hit harder than other areas over the last decade. Canada's ODA budget experienced a 34% cut in real terms from 1991 to 2001. Many federal program areas of the Canadian budget experienced cuts in the 1990s, but Canadian aid has been hit disproportionately compared with other program areas. For example, defence was cut by only 17%, and the overall federal program spending cut by 9% from 1991-92 to 2000-01.

Most Canadians, however, say that we should be spending more on foreign aid. Over the last four years there has been a major increase in the proportion of Canadians who believe that Canada does not spend enough on foreign aid. This growing belief that Canada is not doing enough to help the men, women, and children around the globe who are living in poverty exists even though most Canadians grossly overestimate the amount of money spent by Canada on foreign aid. When told that this sum amounts to only about one-quarter of one percent of our gross national product, support for more spending surges even more.

Canadians from across the country say that development activities are the right thing to do, the Canadian thing to do. Canada is one of the wealthiest nations of the world, and Canadians believe we must do more to help the millions of people who lack access to safe drinking water, education, and health care, including basic reproductive health care services, and who are suffering or dying from treatable or preventable illnesses and diseases.

Not keeping our ODA promises has devastating implications for those living in poverty throughout the world. Canada's failure to keep its Cairo commitments also has profound effects on those living in poverty.

For example, at the 1994 International Conference on Population and Development in Cairo, Canada agreed, together with other nations, to fund global programs that support reproductive health and rights, population, and sustainable development. The Cairo agenda is a major contribution to the goal of ending poverty. Empowering men and women to make key decisions about their lives, such as deciding whether to have children, when, and how often to do so, is essential to poverty eradication efforts.

Despite improvements in access to health care, over three million deaths occur each year from causes related to reproductive health. The burden of poor reproductive health affects women and men in their most productive years, undermining the economic future of nations and their families. These deaths result from inadequate access to family planning, care in pregnancy and childbirth, and prevention of AIDS and other sexually transmitted infections.

At Cairo it was agreed that the cost of providing basic reproductive health services in developing countries to all in need of them would cost about $17 billion in the year 2000 and $18.5 billion in 2005.

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Based on its GNP, Canada's share is $200 million annually. However, Canada is currently spending only one quarter, or $53 million, of the $200 million pledged to family planning and reproductive health care programs. The fact that Canada and other donor nations are falling short of their Cairo commitments means women and men around the world are not getting the reproductive health services they need, and as a result of this breach of promise, millions are dying from preventable illnesses.

Our message to the committee is as follows. We ask that the Canadian government keep its promises. If Canada does what it has already committed itself to do, it can make a profound difference in the lives of men, women, and children around the world. Canada has been negligent in its generosity for far too long. We are heartened by the fact that the Prime Minister has stated publicly that the government plans to increase Canadian development assistance significantly and is committed to a timetable to rebuild official development assistance. The upcoming budget must reflect this promise.

Indeed, given our healthy financial situation and the fact that we are currently one of the least generous nations around the world, we call on Canada to make even greater progress than promised in Monterrey and recently at Johannesburg towards meeting its international foreign aid commitments. The Prime Minister's Monterrey promise to provide for 8% annual growth in Canada's ODA contribution levels would mean that only 0.33% of GNP would be devoted to foreign aid by 2006-07. In the upcoming budget, we call on the government to commit itself publicly to a timetable to reach our 0.7% commitment.

Strengthening overseas development assistance to the full extent possible must be a priority. It is time for Canada to move from the back of the pack among OECD countries and take steps to once again become a leading aid donor. It is the right thing to do, and it is what Canadians want.

¹ (1555)

The Chair: Thank you.

Now we'll go to the Canadian Dental Hygienists Association. Ms. Ziebarth, go ahead.

Ms. Susan Ziebarth (Executive Director, Canadian Dental Hygienists Association): Thank you.

Good afternoon, and thank you for the opportunity to appear before you today. I would also like to introduce you to my CDHA health policy colleague, Judy Lux.

The Canadian Dental Hygienists Association is proud to represent the voice of Canada's 14,000 dental hygienists. The association serves the public by developing national positions and standards related to dental hygiene practice, education, research, and regulation. CDHA also promotes oral health for the public by working in cooperation with government, health agencies, public interest groups, and other health professions. Furthermore, CDHA provides services to its members, including continuing education, professional development, and representation on various external agencies. Through this work, the association is better able to prepare its members to serve the Canadian public more effectively.

We believe that appropriate federal funding of oral health is crucial for the social, economic, physical, and mental health well-being of Canadians. We have developed a plan for improving the public oral health care system with sustainability in mind. The key aspects of a fiscally sustainable system include oral disease prevention, early detection of oral disease, and population-based oral health promotion. To spend public oral health care money where it will have the greatest impact in containing future costs, the government must invest in health promotion and disease prevention.

I am appearing before you today to urge the federal government to increase its contribution to specific oral health funding across this country. These areas include categorical oral health funding for Canadians in greatest need, increased funding for aboriginal communities, financial support for dental hygiene education, and oral health research. Here are CDHA's recommendations for oral health funding commitments in the next federal budget.

First, we must address the needs of low-income Canadians, seniors, and aboriginal peoples. CDHA urges the federal government to implement medicare coverage for public dental hygiene programs for all low-income Canadians, particularly children and seniors, and to narrow the ever-widening gap in oral health status between the rich and the poor. The federal government needs to revise its reimbursement schedules for public oral health care services so that they are based on an average market rate. This will improve access to oral health services for the neediest Canadians. These people are presently refused treatment by some dentists, who are reluctant to participate in public programs that in some cases provide reimbursements that do not cover their overhead costs.

CDHA recommends that the federal government increase financial support for both the community health and non-insured health benefits, the NIHB, programs of the First Nations and Inuit Health Branch of Health Canada, specifically for dental hygiene preventive programs, in order to reduce the gap in oral health between aboriginal peoples and non-aboriginal peoples. The dental decay rates for aboriginal peoples are three to five times those of the non-aboriginal Canadian population, and it shows that the present funding for this program is woefully inadequate.

CDHA urges the federal government to create new funding for a comprehensive national preventive initiative to address dental disease in young aboriginal children. The present NIHB program wastes money by emphasizing only restorative treatment that does not support long-term oral health. We recommend a new cost-effective preventive initiative that will reduce costs over a person's lifetime by taking into account the fact that children with extensive dental disease have extensive dental disease as adults.

CDHA also recommends ongoing federal support for Health Canada's First Nations and Inuit Health Branch tobacco control initiative and a specific allocation of a portion of this funding for dental hygienists to conduct anti-tobacco campaigns.

Second, we need to balance the investment in dental hygiene prevention programs with the investment in dental disease and cavity treatment. CDHA promotes a lead role for the federal government in implementing prevention programs in schools and long-term care residences. We are suggesting a major shift in how resources are allocated to oral health activities, giving high priority to low-cost prevention activities, without neglecting safety net programs that treat existing disease. The shift in resources will demonstrate to the Canadian public that the old adage “an ounce of prevention is worth a pound of cure” does ring true.

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Third, we need to improve education for dental hygienists so that they can more effectively provide services to the Canadian public. CDHA urges the federal and provincial governments to work together to improve the quality of dental hygiene services in Canada through leadership, direction, and financial support for educational institutions as they move from diploma programs to baccalaureate programs as a minimum entry-to-practice requirement for dental hygienists. This will allow academic institutions to prepare students for entry into an evolving health care system with changing demographics in oral disease patterns, an expanding body of dental hygiene knowledge, and an increased public demand for quality services.

Fourth, we need to improve dental hygiene research so that this specialized body of knowledge is expanded and dental hygienists can use evidence-based practice to provide the public with the best possible services and programs.

CDHA urges the federal government to develop a national report on Canada's oral health status similar to the groundbreaking 2001 report prepared by the Surgeon General of the United States, entitled Oral Health in America. We are counting on the federal government to keep its finger on the pulse of the nation so that we can celebrate the advances in oral health and inform the Canadian people about the opportunities to improve oral health.

The Standing Senate Committee on Social Affairs, Science and Technology recommends that the federal health research budget be increased to 1% of the total health spending. CDHA supports this increase with designated funds for oral health care policy, human resources, and services research.

These are the key policy issues that must be addressed in the next budget. Investing in Canadians' oral health is an investment in the social, economic, physical, and mental well-being of Canadians. I look forward to answering any questions you may have in regard to my presentation.

The Chair: Thank you very much.

Now we'll go to our final presenter on this panel, Mr. Kusugak.

Go ahead, please, sir.

Mr. Jose Kusugak (President, Inuit Tapiriit Kanatami of Canada): Ullukut. Good afternoon, Madam Chair and honourable members. Thank you for this opportunity.

For the record my name is Jose Amaugaq Kusugak, and I represent the national Inuit organization in Canada.

All of you have known us as the Inuit Tapirisat of Canada. We changed the name a year ago and became Inuit Tapiriit Kanatami. We chose to use our own name for Canada to demonstrate that Inuit embrace Canada and its institutions and symbols. We have further changed our national logo to incorporate the four separate Arctic regions of Canada: Labrador, Arctic Quebec, all of Nunavut, and the western regions of the Northwest Territories.

Frankly, I am somewhat torn about what kind of presentation I should make here. I want to be positive and accommodating, because that is generally the way we have done business with the Government of Canada for the last 30 years. On the other hand, I and Inuit across Canada feel that increasingly we are ignored and bypassed by the Government of Canada and many of its departments.

Regrettably, the most recent throne speech itself is a major source of our present frustration toward the Government of Canada. The throne speech received an enormous amount of national attention because of its promise for aboriginal peoples. But for Inuit it failed to reach any of those high expectations. It did offer training programs for participation in major resource development in Labrador and the western Arctic. If and when these developments become reality, we will benefit. But by and large, our present social concerns were once again ignored. The vital programs for health and early childhood development were all specifically targeted for first nations Indians on reserve. In short, our issues, which are fundamental to the health and well-being of the Inuit of Canada, were excluded from the throne speech. Our issues were also excluded from the last budget and the throne speech before that. We are determined not to be excluded again.

We see the Government of Canada moving to a single first nations on-reserve policy. More and more in the government's own terminology “first nations” and “aboriginal” are interchangeable. The throne speech convinced us that we must be constantly educating the government and the senior levels of the public service about just who we are and our place in this country. We do wonder if the government recognizes its responsibility to educate itself and its bureaucracy about Inuit.

In that context I want to take a few minutes to remind you about our efforts and accomplishments over the past 30 years.

Let me be clear on this most important point: Inuit are responsible, taxpaying Canadians who are determined to make a contribution to Canada. We see ourselves as more than first Canadians; we are also Canadians first.

Our 52 communities are small, with only a few hundred or a few thousand people, but they are spread over a land mass that covers 40% of Canada.

Thirty years ago, when Inuit Tapirisat of Canada was formed, we were becoming a colonized people. We became part of a permanent settlement, and in a short period of time our culture, language, and above all even our self-reliance was threatened. In 1971 we assumed responsibility for our future and organized by creating the Inuit Tapirisat of Canada.

We have had our successes with Ottawa, including negotiating and settling comprehensive land claims covering 40% of the land mass of Canada. The financial benefits from our land claims are heavily invested in our regions and communities through fully accountable, democratic development corporations. They employ over 15,000 Canadians, Inuit and non-Inuit. Our land claims corporations are looking to invest in our own rich natural resources, which can provide jobs and training.

º (1605)

Inuit are also looking for national investments in infrastructure, such as roads and resource development.

The agreements all recognize and strengthen our overall objective to remain who we are and at the same time participate in and contribute to our country, Canada. What we want for our people, especially our children, should not be hard to understand, in that in days ahead we simply want a standard of living and quality of life that equals what is available to other Canadians.

I can tell you we have a long way to go. If you look at the government statistics, you will see just how far. Inuit remain at the negative extremes of Canada's socio-economic and health indicators, lowest per capita income, highest rates of unemployment, and highest costs of living. The suicide rate among our young people is eight to ten times the national average, and our life expectancy is a full ten years shorter than that of southern Canadians.

Inuit are determined to make a difference and change those painful statistics. Our solution is to seek a form of partnership with Canada called an Inuit action plan, a plan that will move us toward our goal of self-reliance, but both the Speech from the Throne and the last federal budget indicated to us that the federal government is not living up to its fiduciary obligations toward Inuit for the provision of education, health care, and housing. We do not think the fiduciary responsibility can be met with transfer payments to provinces and territories that may or may not address our socio-economic priorities. The result for Inuit is substandard housing, education, and health services.

We see Ottawa searching for a narrow, one-size-fits-all policy for aboriginal peoples. That approach simply won't work, for the same reasons that a single fisheries policy will not serve Canada's three oceans, the Great Lakes, and all of our rivers. Canada is too large, and our population, including aboriginal peoples, is too diversified for a one-policy approach or solution.

If there has been one constant theme in our relationship with the Government of Canada over the last 30 years, it has been to regain a greater measure of self-reliance among our people and our communities. Inuit take pride in the fact that we are taxpaying Canadians. We are also stewards of Canada's arctic regions. That is the underlying strength of our land claims, our constitutional negotiations, and where we see our future. However, we believe we are lacking a workable agenda and a working relationship with the Government of Canada.

A year ago we were encouraged by the formation of a special cabinet committee on aboriginal issues. Last week, other national aboriginal leaders and I met with that group for only the second time. We have all expressed disappointment because there is no ongoing forum to work directly with the group of ministers and jointly seek specific and workable solutions to the complex problems facing aboriginal Canadians.

As recently as last week, ministers said that the throne speech is a general outline of where the government is going and that the real meat will be in the budget. That's why I'm here. What we seek is a commitment from the federal government to seriously enter into a formal partnership to develop and implement Inuit-specific programs that relate to our own environment, geography, culture, and resources.

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The Chair: Mr. Kusugak, could you wrap up your recommendations?

Mr. Jose Kusugak: Yes, we're just at the end.

We don't like complaining, and we surely don't want to be seen as anti-Indian. We are not trying to take bread out of the mouths of other aboriginal peoples. We are saying to either make a bigger bannock or, better still, work with us to find a new recipe that will satisfy the aboriginal peoples in Canada.

Madam Chair and honourable members, I am simply asking that you carry our message to the government and bureaucracy that, in Canada, there are four groups of aboriginal peoples: Métis, first nations Indians on reserve, first nations Indians whose treaties have not been signed or recognized, and the people I represent, the Inuit. This is a nation that takes pride in being a multicultural society that long ago rejected a melting-pot approach. To begin moving toward a single policy and funding approach for aboriginal people under the first nations banner amounts to a melting pot for aboriginal peoples. Inuit are determined to fight against that. I hope you will help us by ensuring that the next federal budget treats all aboriginal peoples fairly.

Thank you, Madam Chair.

The Chair: Thank you very much.

We'll go to six-minute rounds, with Mr. Jaffer starting.

Mr. Rahim Jaffer (Edmonton—Strathcona, Canadian Alliance): Thank you, Madam Chair, and thanks to all the presenters for being here today. I appreciated all the information you have brought to us. There is never, unfortunately, enough time to follow up with all of you when it comes to questions, but I'll do my best in the short time I have.

I'd like to start with two questions to the Rx and D group. I missed some of the presentation, but I know some of the issues you raised in your presentation, and if I have time for a further question after this, I will ask it.

The drug approval times issue is something you talked about in your submission, but what I'd like to know specifically is how current drug approval times in Canada compare to those around the world, if we are lagging behind, and if this puts us at a huge competitive disadvantage compared to some other countries that obviously compete for the research and development money. It concerns attracting some of the companies here and, obviously, having a healthy environment for companies to be able to do their work here, especially when it comes to drug approval times.

Alongside that, when it comes to the SR and ED tax credit, many people have pointed to it as being something Canada does quite well, in that it encourages investment here in the country, especially in the areas of research and development, but at the same time, people have said there haven't been as many companies or groups taking advantage of that tax credit, for a number of other reasons. That leads me to believe that maybe alongside having an aggressive R and D tax credit plan, we have to focus on issues like capital gains tax and reducing overall taxes in order to supplement what's being done on the tax credit side.

I wonder if you would address those two issues as briefly as you can, because I'd like to hear what other measures the committee should be considering for tax incentives.

º (1615)

Mr. Murray Elston (President, Canada's Research-Based Pharmaceutical Companies): I have two points. The first is on drug approval times. We are roughly at an average of 750 days in Canada. In other jurisdictions, such as the United States, it is a couple of hundred days less than that, in some cases even more, where they have expedited the review of important drugs. In Europe they also have a much more efficient process, which is substantially below even the United States in some cases. We are lagging behind those.

The issue is not only of a competitive nature, attracting the research dollars, although that is an important one for us. It means, on average, that Canadians themselves have to wait that extra time to get access to products being put on the market in Canada. We are lagging, in some cases, more than a year, sometimes more than two years, behind people in the United States or Europe in getting access to a new product.

Those two areas are extremely critical to us, the health of Canadians, because of delayed access, and second, when we compete for research dollars, people look at the climate here and say, it's going to take us longer, we'd better go to the place where we can get our products approved more quickly. Remember that the clock is ticking on the running out of the patent, and if we have anything that delays it, then obviously we're going to lose time when we can market.

I should just repeat something Mr. Stewart indicated, that there has been a genuine interest over the last several months in trying to find ways to reduce the drug approval times, but we're really interested in the budget recommending ways the resourcing can be done, so that can be carried through. Obviously, that's one of the reasons we're here.

The SR and ED tax program has been relatively successful in its current iterations. There have been several people involved in working groups trying to fine-tune it. For instance, if there are chairs put in place for research purposes at Canadian universities, not all of that money is available for what we call SR and ED tax credits, and as a result, a realignment of the definition of some of the items that are eligible for SR and ED would permit us to perhaps even expand our investment in that area. Some people are more reluctant to go as highly into the chairs as they might be if the SR and ED application were made.

You have to also understand that about 38 of our companies actually sell products, but the balance of our members don't. Some of them actually do research on contract, but others are the so-called biotech companies that are still researching their products. With companies that don't have income, a tax credit isn't nearly as helpful as being able to find ways to get financing that permits them to roll out the research and development. In fact, it's absolutely critical to have money to do research. So in that way, while SR and ED is good and particularly helpful in some ways, and with an expanded definition, it would be better, for new companies that are looking for products to put on the market, you need to go beyond that to help innovation and to help people find new medications.

Mr. Rahim Jaffer: My time is almost up, so I'll just have a really quick question to Action Canada for Population and Development. I think I would agree that Canadians do generally support foreign aid, but what they have often been critical of is the way that foreign aid is administered by governments, especially if it's government to government, or organizations that may not be credible in the international scene, especially on the ground in some of these countries. What sort of work do you do to ensure that some of this foreign aid money, with the groups you deal with, goes actually to the people who need it the most? Maybe the focus is more with NGOs than government-to-government dealings.

Ms. Zonibel Woods: One of the problems is that when we talk about the effectiveness of aid, we're usually talking about large-scale projects and large infrastructure projects people know to be the white elephants, that sort of thing--large things get built overseas, they're no longer used, and so on. What is really effective is community development, investing in local communities, in health, water, and sanitation. At the moment the development community is quite concerned, because for the last year the Canadian International Development Agency has been examining and going through a consultation process on strengthening aid effectiveness. One of the concerns we have is the lack of focus on the role of civil society organizations, which are often the ones that are working with fairly small budgets, but have delivered quite a bit in terms of social development.

So what we would like to see is a greater investment in social development organizations and community-based organizations. Of course, government-to-government overseas development assistance has a place, but we'd also like it to go along with good governance.

º (1620)

[Translation]

The Chair: Thank you.

Ms. Picard, please go ahead.

Ms. Pauline Picard (Drummond, BQ): I apologize for being late; I was delayed in the House. So unfortunately I was not able to hear your presentations. I can read the briefs you left with us.

I have a short question for the Inuit representative. It seems to me that what you said earlier is the same thing I heard 10 years ago when I arrived here in Parliament in 93-94. At the time, I was the official opposition health critic, and we had been asked to do a study on the health and well-being of aboriginal children. I remember that representatives for the first nations and perhaps the Inuit had told us they were tired of hearing about studies on their social conditions every time there was a change of government and legislature. At the time, they had been promised that the report would not fall on deaf ears, that it would not be shelved. I am surprised to see that 10 years later, and after yet another study--there was the commission of inquiry--you still do not have the programs to provide the services you need.

I would like you to expand on that. You are promised many programs and other help, but you either don't get the funding or there are problems administering the different programs. Is that the current situation?

[English]

Mr. Jose Kusugak: It is true. I don't know who it was who went to you 10 years ago. Our problem has been trying to get statistics on tuberculosis, suicide rates, contagious diseases, and so on. The latest statistics Health Canada was able to come out with were very useful to us, and that's why I could actually come to you with certain numbers.

The biggest problem we have right now is the housing issue. Even though they say they've transferred that responsibility to the Nunavut government, for example, the dollars just can't reflect the need for housing in any of the regions amongst the Inuit. They certainly can't kick people out of housing, otherwise they'll freeze. I'm amazed to see people in Ottawa who can actually survive on the streets. We just can't afford to do that. And sometimes not very nice people get taken into a family. The government staff housing in the north certainly doesn't have that problem, but Inuit really do. Home problems are related to overcrowding, contagious diseases are related to overcrowding, tuberculosis too. Some sexual assaults on young people and so on are caused by people who can't go anywhere else and get taken into a house because there's no alternative in leaving those people out.

So that is, in my opinion, the biggest problem we have. In the last couple of budgets and throne speeches, any time they were talking about aboriginal people, they always qualified it by saying “first nations on reserve”, which excludes the Inuit immediately. I'm glad for the Indian people, because they need that help, and they are getting that help, but it seems the Canadian people, when they hear “aboriginal”, think it includes Inuit, and it doesn't. That's why I'm here to plead.

Canada has a great policy on multiculturalism, and we just need some. You're absolutely right, something should have been done, but they did a lot of it for the first nations on reserve, which excludes Inuit altogether.

º (1625)

[Translation]

Ms. Pauline Picard: It is true that we don't tend to make the distinction between first nations and the Inuit, but I don't understand why your status is different from that of the first nations. Why is it that you are not recognized by the Department of Indian and Northern Affairs when it comes to funding? Is it because you have a special status?

[English]

Mr. Jose Kusugak: No, we really don't have a status at all. I want to encourage Indian and Northern Affairs to change its name to reflect other aboriginal people in Canada. It's called Indian and Northern Affairs because of the treaties and so on. They have responsibility and they give quite a sizable core budget to them. We get maybe 8% of our budget from Indian and Northern Affairs, but we actually go through newspapers, for example, looking for things the federal government wants to do and write proposals. We take about 70% of our staff time writing proposals, and it's all based on what the government wants to do, not what Inuit necessarily want to do, but that's the only way we can get access to some federal funds.

It is frustrating, because there are real things they are doing for Indian people, but Inuit are not recognized; there's no special recognition at all. And very often they think, because they've done land claims and Nunavut became a reality, they've done everything they can, but it's just a beginning of the process we're trying to undertake to get ourselves back to self-reliance in Canada.

The Chair: Merci beaucoup.

The Honourable Madam Minna, followed by Mr. Murphy, followed by Mr. Bélanger.

Ms. Maria Minna (Beaches—East York, Lib.): Thank you, Madam Chair.

I will be directing my questions to Ms. Woods and Mr. Elston, in that order, and I'll try to get at them as quickly as we can, given the time.

First of all, I want to table the fact that Mr. Jaffer's comment with respect to moneys being wasted government to government is not true. Canada's aid is not given government to government. We have agreements with governments; we do not hand over money to governments. And on his comment that they should be delivered through NGOs, in fact that's what happens. Partnerships with private sector and civil society is how Canada delivers its aid on the ground.

Ms. Woods, you made reference to the new strengthening aid effectiveness report or direction, saying there's a lack of focus on civil society. I find that interesting because, as you know, I did the consultations and listened to that all across the country, and it was quite not true. While the report itself didn't talk at length about civil society, it quite acknowledged the fact that regarding the civil society in Canada, the international NGOs that work with us, in many cases the aid is delivered primarily through those organizations.

So I agree with you entirely with respect to the aid levels; I'm not going to argue with that one. But I do want to ask you exactly what you would change when you say civil society is not giving focus, when most programs are in fact delivered through NGOs. Would you say we should stop doing governance, human rights? Which programs would you pull out of?

º (1630)

Ms. Zonibel Woods: Actually, in the new strengthening aid effectiveness document there is very little reference--even though I agree that civil society was consulted throughout last year--to the important role that civil society plays. That has been a criticism of the Canadian Council for International Co-operation, which is a coalition of over 100 NGOs, and of which ACPD is a member.

I think what we're saying is, and I'm sure you remember, we very much welcomed when you introduced the social development priorities and the increased funding to those social development priorities. That definitely was a step in the right direction.

It's not about decreasing the existing support for the things you mentioned, for example, human rights, good governance, and so on. One of the things that concern us is that in the funding that has been allocated for NEPAD, for example, for the new partnership for Africa, as a result of the initiative of the Prime Minister, 25% of that funding will go to private sector development and to promote foreign direct investment. We feel this amount is actually way too high, and we would like to see that going to social development priorities rather than promoting foreign direct investment. So those are the kinds of things we are concerned about at the moment.

As you know, the role of NGOs has been extremely important in countries where civil society is not able to participate in the development of social development priorities in those countries. In the country I come from, El Salvador, none of the work that Canadian NGOs were able to do would have happened had Canada not supported Canadian NGOs' work in that country. So that is extremely important, and I hope that continues.

Our concern is, with the new poverty reduction strategy papers that the World Bank is promoting and with the new sector-wide approaches, many of the really grassroots work and innovative work will not happen.

The Chair: You have very little time left.

Ms. Maria Minna: Okay. The time goes by too fast.

I guess I'm not going to get to Mr. Elston this round; maybe later.

Just very quickly, this area is very complex, and it's too difficult to throw around PRSPs at this kind of table when you can't get into a debate. I just want to say, though, that it's not as simple as saying that we need to not get into poverty reduction plans, or we have to give more here or more there. The fact of the matter is, we are in a global situation and we do have to work with countries.

I was in El Salvador, and Canadian NGOs have a tremendous impact in the developing countries that we work with. But we also have to foster indigenous ones from the different countries and start working with them as well in terms of untying aid directly. So while the poverty reduction plans are not perfect, I don't think it's fair to assume that the Government of Canada or future Canadian operations would be strictly at the expense of the civil society, or that there would be no consultation. I think it was clearly understood, in the report I read, that civil society would be part of the consultation and that we would approve the PRSPs only at such time as the consultations had taken place, to our satisfaction.

At any rate, this is a discussion that would take quite some time to get into, and it would be a little bit too complicated for just two or three minutes of back-and-forth here.

Thank you.

º (1635)

The Chair: Thank you.

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

Mr. Shawn Murphy (Hillsborough, Lib.): Thank you very much, Madam Chairman.

My first question is to Mrs. Ziebarth on the whole issue of oral health in Canada.

I've read your report, and it seems you're trying to push some of these issues into the medicare envelope, and aboriginal funding. First of all, do you think this is really an issue of more money, or is it more public education? Of course, more public education, by necessity, requires more funding from some body. Second, is there any international best practice, or is there any country in the world that Canada can look to for best practices, with the best methodologies, with the best outcomes in this whole area?

Ms. Susan Ziebarth: I'm sorry, Mr. Murphy, I didn't hear the first question.

Mr. Shawn Murphy: Is the issue really one of more money or is it more public education? My second question is whether there are international best practices.

Ms. Susan Ziebarth: In terms of education, I think it's more than straight education, and in terms of money, it's a shifting of money. Right now oral health care is traditionally outside of the general health care area, so what has happened is that the mouth has become disconnected from the body. We're proposing that the mouth get reconnected.

It takes more than straight education. It takes a commitment and an understanding of behaviour--disease prevention, technical skills, and education--to help improve oral health status. The current focus is on restorative care and treating problems after they arise. As we have considerable research in other health care areas as well, it's very clear that if we can prevent the oral disease from starting, we can continue that path along the way.

Certainly for some of the communities that I did express concern about--for instance, seniors--the situation perhaps was not as difficult in the past, when a lot of seniors had all of their teeth extracted. Now we're seeing situations in nursing homes, for example, where seniors actually have teeth in their mouth and the caring staff don't even know they do because their gums are so infected they actually cover the teeth. That is a dire situation, and it ties in with the rest of the body in terms of not being able to eat, not being able to swallow, or having other diseases that arise because of the acute infection in the mouth. It causes difficulty in terms of communicating, in terms of social problems, and in terms of such things as malodorous breath.

So I think it's more than just education. There is a component there as well of technical skills and of being able to do preventive therapy for individuals.

In terms of best practices, there is an international dental hygiene federation that does in fact look at best practices. Although there are not national dental hygiene programs in place, there are certainly areas within the United States, for example, that have excellent programs and that look at specific populations and their oral health outcomes.

California is an excellent example of that, where the population has direct access to dental hygiene care, with no gatekeeper role. They can see a dental hygienist and have the preventive and health promotion activities.

º (1640)

The Chair: Mr. Murphy.

Mr. Shawn Murphy: I have a quick question for Mr. Elston again. This issue of drug costs has been discussed and debated and it has been the subject of Senate committees and House of Commons committees, but--and this is a general question as to the relationship between the drug companies and the Canadian public--you're asking for less regulation. The price restriction regime inhibits innovation. But when we go to the public in the street and have our public forums and round tables on health care--and you know this from talking to the public--one of the biggest complaints we get is about the price of drugs. It's escalating tremendously every year. We pay more now on drugs than we do on physicians.

Do you think this trend is going to continue? The advice we're getting from the public is that the drug companies should be regulated more, not less. I know your answer is going to be--and again this is one of communications--that hospital stays have decreased dramatically because of the drug companies, that we have a higher life expectancy because of the drug companies. All of these are factors. I don't think that message is getting out there, this relationship between the drug companies....

The story we're getting is: “I was taking a drug. My physician prescribed an alternate drug or a different drug. It's costing me $80 for ten pills, and I don't have the money.” That's the problem we're having. I know it's going to be discussed with Romanow and I know Kirby has come forward with a catastrophic plan, but this is the issue politicians are faced with.

Do you have any comments to make on that?

Mr. Murray Elston: I have two things just very quickly. One is that we're not asking necessarily for less regulation; what we're looking for is efficient regulation. We haven't made the point that there should be no regulation of our products. We understand the need to have safety and efficacy as a primary element.

One of the issues that goes into the price of the development of our products is in fact an increasingly sophisticated regulatory environment. We now have clinical trials that stretch for several years, but if you go back only 40 years ago into the 1950s, that was the very beginning of the first clinical trials. So in fact we are not asking for less.

With respect to the issues around pricing, I think it's pretty clear now that some of the most major advances that have been taking place recently have come as a result of a very intensive, high-level investment of resources towards finding the new products. For instance, we don't just have people now who are in biology or chemistry or physics at our benches; we have people who are working very closely with sophisticated electronic hardware, software programs from the IT sector of our economy. We in fact are very heavily resource-intensive research bases.

So I can tell you that probably we will continue to have to invest increasingly higher amounts of money. In fact, not that long ago it cost about $500 million U.S. on average to find a new product. A recent study by Tufts University updated that to the point where it is now on average about $800 million to find a new product. Increasingly, we are looking at the sophistication it takes to find not only the gene therapies that might apply to helping people with disease situations, but now we're into proteins as well. So the more sophisticated we become, I think there will be an opportunity to invest more resources.

On the other side of that, as we get more precise with the ability to apply products, we will probably end up being able to tell, for instance, that I won't be able to take advantage of a certain product, that it will be designed for other people; but they may be able to design a product specifically for me and people who, like me, have a particular gene that is expressed.

So we will get more efficient in the application of our drug therapies. We will still find ways of advancing the types of programs you identify: the reduction in hospitalization; more work being done in home care, which we understand is a very interesting area to a number of people, not only to Senator Kirby but also Commissioner Romanow. At the end of the day, while it may cost us more, I think we will be more productive, we will be more efficient, and we will save money in other parts of the health care system to offset those costs.

The Chair: Thanks very much.

Mr. Bélanger.

[Translation]

Mr. Mauril Bélanger (Ottawa—Vanier, Lib.): Thank you, Madam Chair.

My first comment is for Ms. Woods. It is not a question. I just want to tell her that this year I had the opportunity to visit projects in Africa on two occasions. Like her, I have come to the conclusion that the smaller projects seem to be the most beneficial.

For example, I attended the inauguration of a well in a village, and we had the opportunity to talk to the villagers. It was clear that the $25,000 or so that had been spent on the project was a tangible boost to a village of approximately 1,100 residents, and in more than one respect. So I think we should focus more on smaller projects.

I also agree with Ms. Woods that we should increase our foreign aid, but I also support the government's intentions as described in the throne speech: over the next few years, our foreign aid will increase by 8% per year. That means perhaps a little over 0.33%. It currently stands at 0.23% and our objective is 0.7%. I think that by increasing the aid by 8% per year, in a decade we will be closer to 0.5% than 0.33%, as she says. But it is a question of numbers, and we could discuss it at length. In two, three or four years, if our economy is doing well, we may be able to further increase our foreign aid, but the economic outlook for the next two years is not very good, so I think the 8% increase is really quite substantial.

That is all I have to say to this witness.

[English]

I have some questions for Mr. Elston. Can you, sir, tell me what the measures are by which the companies in your industry measure whether or not they're succeeding properly, if they can report to their shareholders that they've managed well the assets of the shareholders? What are those measures?

º (1645)

Mr. Murray Elston: There are several measures. Obviously, because most of our companies are commercial, they require a report that there is a return on the investment. In some cases, I think, particularly recently, as we've become more intensely resource-driven in our research projects, the reports to shareholders and to other investors concern the development of the so-called pipeline. The prospect of success in the research end of the companies is an extremely important element for them. That, of course, is our entire future. If there is no likelihood of success in moving forward with the research and the partnerships with universities, hospitals, and institutes towards making gains in finding new medicines, it's fair to say that measure would say the company has not been successful in targeting where it puts its expertise.

At the other end of the scale, away from business, if I can put it that way, there is a measurement in relation to how well they've been able to find relief for the patient population. Their ability to treat people really means they have a definition of the success of their medication on another side. I would advise that the degree of acceptance of their products in the market is a measure of how successful they have been in researching an end to a disease or the use of a medication for chronic disease management.

Mr. Mauril Bélanger: Thank you. I'm cutting you off here, because you've taken much longer to answer questions than I to ask them.

Mr. Murray Elston: It's a difficult question.

Mr. Mauril Bélanger: Mr. Stewart said in his address that the industry as a whole has spent $1.1 billion in medical research and development--perhaps you could specify how much in research and development--a 1,000% increase since 1987, and he put a lot of emphasis on that. That's fine, but could you tell me how that $1.1 billion compares to the objectives the industry accepted as objectives to invest in Canada, given the changes in the patent legislation?

Mr. Murray Elston: First, the $1.1 billion is per year.

Mr. Mauril Bélanger: Yes.

Mr. Murray Elston: We've attained that as a scale. It is, in fact, beyond what was committed to at just above 10%--we committed to 10%--but that is with respect to a very limited definition provided under the Income Tax Act. You've probably heard us speak about this before, Mr. Bélanger, but in the OECD countries they have a much more expansive definition of research, which, in our view, puts us in Canada at a very big disadvantage when people compare us. But ultimately, we are exceeding our investment. We were at one time at 12%, now we're slightly below that, but this is only for companies that are reporting in the PMPRB. Other members of our organization that don't sell products don't get to the PMPRB, they are just researching. So we have huge amounts of other investment that would put us at an higher level.

º (1650)

Mr. Mauril Bélanger: I just want to make sure this is understood. It's 110% of the stated objectives since 1987, then, and not 1,000%—

Mr. Murray Elston: No, it's 1,000% over the 1987 investment, but our commitment was to invest 10% of sales on average. We've not only hit that, we've exceeded it in several years, to the point where we are still exceeding the 10% investment target per year in relation to sales.

Mr. Mauril Bélanger: So the sales have been increasing tremendously then.

Mr. Murray Elston: Sales have been going up because there has been an increase in the number of discovered products.

Mr. Mauril Bélanger: Okay, that's what I was trying to get at. Your companies are not suffering.

Mr. Murray Elston: No, but we are suffering under an increasingly expensive world of investing in research. It's becoming much more extremely difficult to discover new products. The investment it takes and the average time it takes is growing extremely long.

Mr. Mauril Bélanger: May I ask a final question, Madam Chair?

The Chair: Yes, and that will be the last question for this panel.

Mr. Mauril Bélanger: How much shorter can the process to certify medication be without bordering on the unsafe?

Mr. Murray Elston: We could be the same as the European Union, for instance. They have a safety record that is as good as and better than ours. Our time could be as short as the time taken by the FDA, which likewise has shorter time periods. We could considerably reduce the time it takes to review our files. In fact, we've urged Health Canada and others that we've met with to consider the European model and that of the FDA. In fact, from time to time, Health Canada has accepted an invitation to discuss with the Europeans and with the United States perhaps a sharing of roles in terms of drug approvals. We think the chemistry here would be the same as chemistry in the United States or chemistry in Europe, for instance, in terms of doing very basic review activities.

We think the safety issue would be very well handled if there were more international cooperation, but also certainly a more efficient conducting of the reviews. Even the KPMG study done for Health Canada indicated that their biggest problem was that the files didn't get picked up. In other words, there was a long queue time.

So we think a lot of progress can be made without affecting anything in safety. To be quite honest, our companies don't want anything to be implemented that would affect safety or efficacy testing in Canada.

Mr. Mauril Bélanger: Thank you, Madam Chair.

The Chair: Thank you very much.

To all the witnesses, we thank you for putting together your briefs, and also for taking the time to appear before us not only to present but to answer the committee members' questions. We appreciate that, and we'll let you go on your way.

We'll suspend for just a minute to clear the table so that we can get ready for our second panel of witnesses.

º (1654)

º (1659)

The Chair: We will resume our pre-budget discussions.

Welcome to our second panel of witnesses for the afternoon: from the Canadian Chemical Producers' Association, Mr. Richard Paton and David Shearing; from the Computing Technology Industry Association of Canada, Alan Young; from Environmental Technology Innovations Canada, Jack Pasternak, executive director, and Al McDowell, also executive director; from the Information Technology Association of Canada, Norine Heselton, who's vice-president, policy, with Mr. Graham Hoey from Ernst & Young.

We've received your briefs, they've been translated, we've read them, so if you could speak to your brief for up to seven minutes, that will allow some time for questioning before our meeting is over.

We'll start in the order you came.

From the Canadian Chemical Producers' Association, Mr. Paton, go ahead.

» (1700)

[Translation]

Mr. Richard Paton (President and Chief Executive Officer, Canadian Chemical Producers Association): Thank you very much, Madam Chair.

Thank you for giving me the opportunity to make a presentation on the federal budget. I represent 72 companies that produce chemicals that are essential for various industries.

[English]

With me is David Shearing, our senior manager of business and economics. I believe David has arranged for the distribution of what we call our scorecard, which I'll refer to a few times in the presentation.

Because we are a $16 billion global industry encompassing 70 companies, and we compete with investment with so many other locations, we maintain this up-to-date scorecard, based on our analysis of the factors affecting our competitiveness, judging them as positive, neutral, or negative for growth and investment. This gives us a comprehensive understanding of where we are in relation to the key factors that affect our growth and innovation. I'll refer to the scorecard a few times in the presentation.

First of all, I'm very pleased to be here again this year. In the past years, I've complimented this committee on the excellent work it has done on the budget. I am going to do that again this year. At CCPA, we read your reports very carefully. Of course, we look for quotes from us in it, but everybody does that. We have noticed, though, that the reports provide a very strong and clear agenda for the kinds of changes Canada needs to maintain its strong growth, investment, and innovation in our economy, while addressing budget issues related to social and environmental issues.

We agree with many of the recommendations the committee made last year on capital tax, cost recovery, and debt management. In many ways, your reports have done what, unfortunately--and this is going to be the theme of my presentation--government policy has not done, and that is provide a coherent and consistent approach to policy that does support innovation.

On the theme of our report, rather than speak to all the specific issues we might want to address as an association, I see that the committee is trying to look at the broader policy agenda and how it affects the economy and innovative nature of the economy. So I'm going to re-address my theme to Canada's policy agenda: conflicting messages.

We picked this theme because, as a global industry that competes every day for investment, we sometimes feel as if we're fighting a losing battle. In some policy areas we see progress by the federal government, and in some other policy areas we find that the policies actually contradict or counter investment and innovation.

The most serious problem we've found in the past number of years is that the government often seems unable to recognize that one policy contradicts or counteracts another. It won't recognize that, and is certainly unable to engage in a real discussion of the options.

Canada is a very small, open economy operating in direct competition with the world's best. Over 78% of our product, for example, in our industry is exported. About 85% of that export goes to the United States, and we are less than 2% of the world market. We're very similar to a lot of other industries you're going to hear from, in that we're a small-market company with a huge export of our product.

Without that domestic market, we have to be competitive to survive and grow, and we must export to be competitive. Without growth there is no future for our industry, and we will attract a dwindling share of foreign investment.

If you look at that scorecard, you can see that in the way it's organized there are a number of pluses, neutrals, and minuses. Canada has a lot of assets that will lead us to be able to attract investments; that's why we are a $16 billion industry, whereas in 1990 we were about a $12 billion industry. We have access to feedstock, such as natural gas; a skilled workforce; excellent management; a strong R and D tax credit, which I know is of interest to a number of other speakers here today; and our country has definitely made progress on fiscal management. We are close to the world's largest and most dynamic economy, the United States.

So we believe the potential of our industry for our country is considerable. It's even possible to see that we could double our size in the next 10 to 20 years with the right kind of policy framework. However, achieving that development and its benefits in a small-market country that is heavily dependent on exports requires that the policies of the federal government all fully work to reinforce innovation and investment: fiscal policy, economic policy, environmental policy, labour policies, and other policies.

» (1705)

What we see is Canada sending mixed signals in many of these areas. In fact, it seems to aggravate the conflict among these policies, which sometimes should probably not even exist. I'm going to touch on a few examples where I see these policy conflicts, which you might think about as you're addressing your budget submission this year.

The federal government has not addressed the corporate tax level for the manufacturing area, which remains at 21%. In our brief there's a listing of the members of a coalition who support a reduction of federal corporate tax to 17% across the board.

The fact is--and this is an example of a policy conflict--Canada wants more investment. It knows investment is critical to productivity and growth. But with 85% of our trade going to the United States, we are essentially competing against U.S. jurisdictions for that investment, and therefore our tax structure is competing against the United States for that investment. So in our view our industry and many other industries in Canada need a Canadian tax advantage. A level playing field is not enough for a market share of a sector that is 2% of the world economy. We're not achieving the level of investment we should get in North America. Even though we are very highly productive and more productive than many of our U.S. counterparts, that investment still doesn't flow to our country because of our small domestic market and the small size of our global industry.

Another example of policy conflict is that government talks about productivity, yet it maintains the capital tax. The capital tax discourages the very investment that is critical to productivity. Combined with that are a number of regulatory structures that increasingly add unnecessary costs and reduce that productivity.

As this committee has written in two of its reports, the federal government maintains a cost recovery policy that the coalition on cost recovery has clearly demonstrated works against investment and product innovation in Canada, yet seems unable to come up with a policy that balances the need for innovation and competitiveness with cost recovery. This committee has recognized that, and we're still awaiting a Treasury Board policy that does recognize that.

The federal government advocates innovation but, for example, maintains regulations on the introduction of new chemicals, what we call new substance notification, or NSN, regulations. That puts us at a competitive disadvantage with the United States and limits the introduction of new chemicals, which are not only essential for various sectors--paint colours would be an example or additives that go into various drug manufacturing... Not only are these chemicals limited for coming into the country, many of them are more environmentally friendly than the chemicals we have. Yet we have a regulatory regime that essentially causes a lot of costs and limitations on the introduction of those chemicals.

The Chair: Mr. Paton, perhaps you could wrap up. You're over your time.

Mr. Richard Paton: Yes, I'm doing that right now.

Finally, as the most pre-eminent example of policy conflict, the federal government continues to advocate growth and innovation but at the same time claims that Kyoto can be ratified with a plan that requires a 30% reduction in energy use and does not recognize any of the investments or productivity and environmental performance of many of the companies in my sector.

To conclude, our association believes that industry sectors such as ours can work with government to come up with better policy solutions. We believe that environmental performance can be improved substantially while economic growth and investment are enhanced. We believe there's significant room for improvement in tax policies, cost recovery policies, and regulatory policies. However, we're exceptionally disappointed that the federal government doesn't seem to be able to put together the policy framework that does in fact support innovation.

Thank you.

The Chair: Thank you very much.

We'll now go to Mr. Young from the Computing Technology Industry Association.

Mr. Alan Young (Vice-President, Computing Technology Industry Association of Canada (COMPTIA)): Madam Chair and honourable members of the committee, thank you for inviting the Canadian public policy committee of the Computing Technology Industry Association, or COMPTIA, to appear before you this afternoon. We welcome the opportunity to present our views as you continue your pre-budget consultation with Canadians. I trust you have all received a copy of our written submission, which was delivered to the clerk in September.

COMPTIA is a global, not-for-profit industry association representing more than 600 Canadian members. Members range from multinational computer hardware and software manufacturers to small businesses specializing in the service and repair of computer and communications equipment. COMPTIA membership also includes solutions providers, retailers, and training organizations. With more than 13,000 members in 89 countries, COMPTIA is the largest vendor-neutral certifier of technology skills in the world.

COMPTIA's Canadian public policy committee, with members from the east coast to the west coast and various points in between, believes Canada enjoys a strong foundation from which to foster economic growth, increase opportunity, and enhance the prosperity of Canadians. We have made impressive strides in reducing personal and corporate tax rates, keeping inflation in check, and running five successive years of federal budget surpluses.

Despite the sound economic fundamentals, we cannot be complacent and ignore the challenges that lie ahead. One of those challenges is to improve Canada's productivity performance, but this is not a goal in and of itself. The real goal is to improve Canadians' standard of living, which is linked directly to productivity.

The initiatives proposed in COMPTIA's submission are aimed at improving Canada's productivity performance. Strategic investments are required in people, in equipment, and in policies aimed at making Canada a more desirable place to invest and conduct business. I will not go into them in detail this afternoon because they are in our written submission. In the few minutes I have, let me summarize the proposed initiatives.

The evidence is clear that steps must be taken to ensure that Canadian companies have a sufficient number of skilled IT workers to meet demands. Introducing a training tax credit deserves serious exploration as a means of helping to meet this demand. A training tax credit regime could be directed specifically at meeting IT training needs. There is a direct link between the use of information and communications technology and improved productivity.

An investment in IT training could be structured as a tax credit delivered through the Income Tax Act. Alternatively the cost of training could be offset against employment insurance premiums. As a first step, the government could establish pilot projects to determine the effectiveness of the training tax credit before expanding the regime across Canada.

As we consider what could be done, we should be mindful of international developments. The State of Arizona established an IT tax credit in 2001. An IT training tax credit bill is pending in the U.S. House of Representatives and in the U.S. Senate. The United Kingdom is also examining tax credits as a means of updating the skills of those already in its workforce.

Improving IT training for Canadians is one step in developing a more highly skilled and adaptable workforce. A second step would be to introduce a new type of apprenticeship program in Canada: an IT apprenticeship. Such a program would focus on new entrants to the workforce and on those who are in a position to retrain, and would be one tool to confront the shortage of skilled IT workers.

COMPTIA has received a grant from the U.S. Department of Labour to develop an IT apprenticeship program for the U.S. COMPTIA has formed a volunteer committee to develop the program framework, including classroom instruction, on-the-job training, and certification. This framework is presently being tested in several pilot sites. When the pilots are competed, COMPTIA will submit its recommendations to the U.S. DOL for registration.

COMPTIA is also presently exploring IT apprenticeships with the Province of Ontario. We would be pleased to work in partnership with the Government of Canada and other interested partners to test a pilot IT apprenticeship program for Canada, and to work toward its implementation across the country.

In addition to investing in education and skills, it is important that Canadians have the equipment and machinery needed to be innovative and productive. Computers and manufacturing and processing equipment have a capital cost allowance rate of 15% under the Income Tax Act in the year of purchase, with a 30% rate applying in subsequent years. After seven years, approximately 10% remains undepreciated. Information technology, however, is generally replaced every two to three years, and is considered to have a useful life of three to three and a half years. The rate at which CCA can be deducted on IT equipment should be accelerated to reflect more accurately the depreciation of the equipment while it is in productive use.

Last year, this committee recommended that the government undertake the research necessary for a comprehensive reform of the capital cost allowance rates to better reflect the pace of technological change and the ever-shortening life of modern machinery and equipment. Unfortunately, the government was not in a position to accept this committee's recommendation last year. However, it continues to be an important recommendation.

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The Income Tax Act currently requires income to be included for payments received for services that will be rendered in a future period. For software and hardware maintenance agreements, in situations in which payments are received for an entire year of service toward the end of a tax year, the vendor must include the entire amount in income. At this time, relatively few costs or expenses may have been incurred in respect of those contracts, but tax is payable on the entire amount of revenue received, with no deduction for costs or expenses that will be incurred. Vendors of these essential services should not be penalized by income inclusion rules that do not reflect the work actually performed in any given year. Pro-rating these fees and including in income only the portion of the fees pertaining to the current tax year should resolve this issue.

Madam Chair, our final proposal relates directly to an issue addressed so well by the finance committee last year. Capital taxes were described in this committee's 2001 pre-budget report as discouraging investment, reducing productivity, and disproportionately affecting capital-intensive industries. Moreover, last year's report noted that capital taxes target the pool of financial capital out of which the bulk of new equipment is financed. As a result, this committee recommended that capital taxes be eliminated. We supported the committee's recommendation last year, and we hope the committee will be disposed once again to propose that capital taxes be eliminated or, at the very least, phased out over a short period of time.

In conclusion, your committee is a vitally important voice in promoting policy initiatives that will help Canadians to be more productive and innovative and will make Canada a more desirable place to invest and conduct business. We would be pleased to work with you and other policy-makers in the months ahead to turn creative ideas into innovative action.

Thank you.

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The Chair: Thank you very much, Mr. Young.

I'm now going to go to Mr. Pasternak and Mr. McDowell, from Environmental Technology Innovations Canada.

Who is going to speak? Or are you doing a tag team?

Mr. Al McDowell (Executive Director, Environmental Technologies Innovation Canada): Good afternoon, Madam Chair, ladies and gentlemen.

We're here to seek your support on our specific proposal to achieve matching funds to carry out research in areas of environmental preservation and sustainable development.

ETIC has been incorporated as the successor to ESTAC, a consortium of leading Canadian companies, universities, and government committed to world-class, commercially relevant research in the area of environmental preservation and sustainable development. The consortium was established in 1985, but ceased operations in 2001. During that time it had grown from 3 companies and 1 university to 26 Canadian companies and 25 universities. Examples of the companies would be Syncrude Canada, Trojan Technologies, and Dow Chemical. Examples of the universities are McMaster, Alberta, Trent, Laval, and New Brunswick--basically, across the entire country.

ESTAC brought companies, universities, and the federal government together with a mission to carry out innovative, leading-edge research. The research priorities were based by the consortium on commercial priorities of its company members. This was transmitted to the university professors, who submitted proposals to meet these needs. I can give you some examples of the research that was completed over the years.

We have an innovative land treatment strategy for the disposal of organic industrial wastes. This was a study of the physical properties and the chemical properties of soil, soil pre-treatment, the organic waste pre-treatment, and microbial selection. The application of the lab results has produced increased efficiencies, more rapid degradation, and higher rates of application. This process has been commercialized for seven years by one of our members, and there is considerable financial benefit. There is also reduction of CO₂, because we're not incinerating or transporting material.

The University of Guelph has a project on scented geraniums, which repel small animals like squirrels and rabbits, but these materials are being propagated because they absorb toxic heavy metals from soil. You can take the metals out of contaminated soil, you can then harvest the plants and incinerate them to get the ash out. This is a patentable process, and it has high impact.

Another project that shows how we involve lots of companies and universities is eco-study on reclaimed oil sands. The researchers and professors of the University of Saskatchewan, the University of Windsor, Simon Fraser University, and the University of Waterloo are all working together with the four oil sands companies, and also with input from the three potash companies in the west. Basically, the oil sands companies are committed to returning the mined areas back to the condition in which they found them, which is a mixture of forest and wetlands. When the first artificial wetlands were reconstructed, it was found that they were quickly repopulated by wildlife, and this prompted the companies to talk to the universities about studies to examine the health of the insects and the animals that are repopulating these areas. Studies are under way both in the artificial wetlands themselves and in undisturbed wetlands. Teams from the Canadian universities are making studies right along the food chain, from midges and black flies up to frogs, swallows, ducks, American kestrels. Currently, we're going through a number of generations to see if there is any impact on their health.

One last project I'd like to talk about is at the University of Toronto, where a researcher has come up with a new laser sensor that can measure on-line, at 1700 degrees Celsius, the off-gases from furnaces, so you can control the feed, improve the efficiency of the furnace, and reduce the amount of CO₂ per unit of heat that is generated.

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Mr. Jack Pasternak (Executive Director, Environmental Technologies Innovation Canada): During its 16-year lifetime ESTAC funded 192 such projects, using $27 million. In addition, 800 scientific papers were published, 700 graduate students were funded, and networking was achieved between member companies, university professors, and their graduate students, leading to job opportunities for the graduate students.

The government ended its participation in ESTAC in 1999, with the sunset of the technology outreach program at Industry Canada. While government officials unanimously supported and continue to support ongoing participation in ESTAC, there is no vehicle available to facilitate ongoing government participation, because there are no government programs in place aimed at supporting consortia that work in the transitional mid-stage of the R and D continuum. Yet it is at this stage that intensive collaboration between university professors and industry personnel enables practical science to be merged with corporate reality to achieve new processes and products.

Let me amplify. In the R and D continuum, where fundamental science is converted into commercializable technology, programs such as NSERC, CFI--the Canadian Foundation for Innovation--and those involved with the creation of new tiers are aimed at providing funding for basic research and infrastructure at universities, which are at the very early stages of research, while programs such as TPC, or Technology Partnerships Canada; NRC's IRAP, the industrial research assistance program; and SDTF, the sustainable development technology fund, are aimed at funding the later-stage demonstration of development projects that are nearer to commercial reality. In addition, programs such as TPC and SDTF do not support government participation in the mid-range of the R and D continuum. While they enable the government to partner with the private sector, these programs only provide funding for individual proposals and thus, by definition, preclude consortia approaches to broader research and development initiatives.

Mr. Al McDowell: In order to take the last step to self-leveraging, requiring growth to about 50 companies, ETIC requests one last block of new funding from the federal government in the amount of $10 million over the next five years. This amount will gain an additional $10 million in private sector funds to ensure that this important environmental and industrial research continues to be undertaken at universities throughout Canada. This will allow ongoing research at the mid-stages of the R and D continuum to be carried out, thus enabling a pipeline to be established to deliver new research-proven ideas ready to be commercialized. The federal government must fund the cooperative research performed by universities to ensure that innovative ideas continue to be commercialized.

Mr. Jack Pasternak: To summarize, one final block of federal funds is required to reinstitute the viability of the consortium approach involving the university community and Canadian industry that ESTAC pioneered, to foster ongoing research at the mid-stages of the R and D continuum, to stimulate membership in the areas of mining, steel, coal, pulp and paper, forestry, areas that share similar environmental technology issues as members in the petroleum, petrochemical, oil sands, potash, and environmental areas.

In its 2001 budget the government committed itself “to encouraging and supporting excellence in university-based research across Canada and to promoting the commercialization of research to university and private sector partnership and consortia”. For 16 years ESTAC pursued these goals with commercially relevant results. Two choices are thus referred to government, a final contribution to the ETIC consortia to continue to develop this important transitional R and D in Canada, or the abandonment of the consortia forever.

We thank you for listening to us.

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The Chair: Thank you for your presentation.

We'll go to our final presenter of the evening, from the Information Technology Association of Canada. Norine Heselton, please go ahead.

Ms. Norine Heselton (Vice-President, Policy, Information Technology Association of Canada): Thank you. We're working as a tag team as well.

Thank you very much, Madam Chair and committee members, for allowing ITAC to come here today to reiterate its support for the government's innovation agenda.

It's clear from the innovation strategy that the government seeks to position Canada among the leaders in the new global economy based on knowledge. The information and communications technology industry is in the vanguard of Canada's transition to an innovation-driven, knowledge-based economy. The industry is accountable for $132 billion in annual revenue. The recent downturn our industry has experienced is certainly well publicized, but what is not widely known is the immense contribution we have made and continue to make to the growth of the Canadian economy. Even with the downturn, ICT today is significantly more important to the economy than it was at the end of 1996, when it accounted for 4% of economy activity. Our share of GDP rose to 7% by the end of 2000 and still accounted for 6% by the end of 2001. We employ over half a million Canadians, and while it's true that we employ fewer now than we did in 2000, our overall job growth since 1996 is 156,000 jobs. We are, by a large margin, the largest investor in private sector R and D in the economy, more than $5 billion a year.

We understand the fundamental importance of the pursuit of new knowledge, have considerable experience in transforming that knowledge into wealth, and are a global industry. The ICT industry produces $44 billion in exports annually. We face established and emerging competitors in the marketplace every day, and we succeed. Our success ensures that Canadian innovations are prominent among the choices available to customers throughout the world.

With these credentials, my colleague Graham and I respectfully submit our suggestions to help Canada fulfil its aspirations for improving its stature as an innovative, knowledge-creating nation.

I'd like to begin by talking about the scientific research and experimental development tax credit program. The refundability of this tax credit is limited to Canadian-controlled private corporations. The program is highly effective for some Canadian-owned private companies, because these smaller Canadian companies receive the refund irrespective of their profit or their loss position. However, a large established company can use non-refundable tax credits to lower its effective corporate tax rate only if the company is profitable and generates taxes payable. In an economic downturn these non-refundable tax credits have very limited usefulness as an incentive to do R and D in Canada.

Universal refundability, the same rules for all claimants, no matter the size of the business, the country of control, or whether the company is listed on a stock exchange, will help keep the SR and ED program competitive, not changing the total amount of credit, but only the timing of its payment. Through an increase in the incentive value of the credit, the Canadian economy will achieve a much higher benefit from the same amount of tax credit granted.

ITAC has also proposed in its pre-budget brief that we light up the Canada-U.S. border with a fibre optic network that would link the 113 land border crossings. The network would ensure that all border crossings are equally well equipped to manage information-intensive new technologies, such as biometrics and programs for pre-clearance of customs, as well as to meet the demands for information that are so central to the security of our nation and our neighbour to the south. A fibre optic network would enhance security and demonstrate Canadian leadership on the issue. It would also accelerate the free flow of legitimate commerce across the border and help apprehend illegitimate activity.

But there are benefits beyond these. It will deliver tremendous economic benefits to the communities adjacent to the border crossings, because of the high-speed infrastructure itself and the impetus this infrastructure will provide to commerce, to health care, to education, to governments, all of which benefit from broadband connectivity. Additionally, and with no apologies, ITAC would like to point out that this project would be a stimulus to the Canadian ICT industry.

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ITAC is also calling for an internationally recognized scholarship program to attract the best and the brightest scholars from around the world in the fields of natural sciences, mathematics, computer sciences, and engineering.

The advanced technology industries have attempted to raise the alarm about the shortage of highly qualified people for some time now, but with each passing year the problem grows more acute. At present rates, Canadian universities will graduate less than one-third of the highly qualified people necessary to fuel industry growth, notwithstanding the government's ambition to boost R and D investment. And the faculties that produce these highly qualified people are shrinking at the same time.

Clearly, then, a major intervention is necessary to overcome the shortage of these folks and to simultaneously build a stronger culture of science and technology in Canada.

Now I'd like to turn it over to my colleague, Graham Hoey.

Mr. Graham Hoey (Partner, Ernest & Young LLP; Information Technology Association of Canada): Good afternoon, everyone.

Of the three or four areas I wanted to cover, Alan Young in fact has already covered two quite well, so I'll cut down my remarks in those areas.

ITAC recommends that the government adjust the current capital cost allowance structure to better reflect the true speed of depreciation of ICT equipment. That's the same issue Alan spoke about earlier. Clearly, the system doesn't reflect the depreciable life of ICT equipment. Studies have suggested that the useful life of a desktop computer is about two and a half years. After two and a half years, about 60% of the remaining cost of the computer is still sitting in an undepreciated pool balance.

ITAC recommends, as an adjustment to the system, that assets worth up to $5,000 Canadian would be fully deductible in the year of acquisition. That would obviously cover laptops and desktop computers and other items. Purchases above that amount, we believe, should form part of a new pool with a 50% capital cost allowance rate so that it's written off over two years; with the half-year and the year of acquisition, that would be three years in aggregate. This CCA rate would underscore the fact that investment in ICT equipment is an enabling force for all sectors of the Canadian economy, and there are great benefits to be derived from encouraging its use.

As well, ITAC continues to call for new rules for employee share ownership to allow more Canadians to have a direct stake in their employers' businesses and to provide for more modern forms of compensation. The government did respond to this issue by adjusting the tax treatment of employee stock options in the February 2000 budget, where some taxpayers were allowed a deferral of the tax payment until the shares were sold rather than when the options were exercised. Unfortunately, the determination of the employment income is still calculated at the date the option is exercised as opposed to the date the shares are sold. Some highly publicized public companies, of course, have had quite a difference there.

Canadian tax problems arise when the individual exercises his stock option and holds on to the shares, but then the shares subsequently decline in value. The rules lock in the employment benefit at the time of exercise, basically as 50% of the difference between the fair market value at that date of exercise and the strike price on the option. If the shares decline in value, that represents a capital loss, and that capital loss can be used to offset that employment income.

Those employees, of course, who sell their shares immediately after they exercise their option don't have this problem. However, many employees cannot sell their shares because of various lock-in provisions that might exist within the terms of their option. We realize it's a compelling case to say that those individuals should simply sell their shares when they exercise their option, but as I say, in many cases they're not able to do that.

So we believe there's a compelling need for statutory relief for these individuals. The tax system should address the economic hardship where there's been no economic gain as a result of the exercise of the option and the subsequent sale of the shares. ITAC is repeating its call for the government to address this area where there are unintended consequences. And under the issue of fairness, we believe it's appropriate that losses encountered in such an arrangement should be permitted to us in that benefit.

The next area I want to talk about is the area of payments related to maintenance contracts. Again, Alan quite sufficiently covered that, so I won't go into it other than to reiterate that many software companies that provide maintenance contracts have to include that in income, and cannot claim a reserve, because there are no scheduled upgrades, updates, or code fixes. Those are done on a needs basis, and therefore there's a mismatching of income and expenses and a prepayment of taxes as a result of including that entire amount in income.

ITAC also supports the call by many business groups to eliminate such taxes on capital as the large corporation tax, or LTC. Canada has made important gains in the reduction of federal income tax rates, and many of the provinces have followed suit, but LTC continues to be a disincentive to investment in Canada. Canada has the dubious distinction of being the only industrialized country that applies capital taxes to business investments at high rates. These taxes do discourage investment in plant and equipment. We believe the elimination of that would significantly incent our global competitiveness.

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That concludes what we wanted to cover. We invite you to review our complete submission, which I believe you have, and welcome any questions.

The Chair: And thank you very much for submitting them by the date. It allowed us to have them translated and into the members' offices so they could read them in anticipation of your report today.

We'll start our six-minute round of questioning with Mr. Burton, please, and then, so far, I have Mr. Cullen, Mr. Wilfert, and Ms. Minna.

Mr. Andy Burton (Skeena, Canadian Alliance): Thank you, Madam Chairman.

I appreciate the opportunity to be here, even though it be for a short time. I'll try to get my head around what's going on here. I have developed a couple of questions for the chemical industry, if I may.

Maybe you could expand a bit on how the current legislation overall is affecting the industry, and especially in terms of the impacts you see from the proposal or the trial football, I guess I'll call it, out there over the Kyoto Protocol. How do you see that potentially affecting your industry? I know that could be a fairly lengthy and complicated answer, but I'd appreciate hearing from you on that.

Mr. Richard Paton: Thank you very much for that question.

We've done extensive analysis with the various investment models we have of what would be the impact of the actual proposals, the large emitters proposal, of the federal outline to a plan, based on either $10-a-tonne carbon or $50-a-tonne carbon, depending on the range of costs that would be imposed in our industry.

As you know, there's a very strong emphasis on the federal outline of a plan on large industry. I think it would be fair to say we bear a disproportionately large amount of the reduction targets, whereas consumers, transportation, other sectors that will be more, say, politically difficult to deal with have not seen nearly as much attention.

To put it in real, stark terms, we have a company out west that has just built a huge $1 billion plant, state-of-the-art technology, world-class technology, the best technology you could possibly build a plant in, a huge number of jobs, in Joffre, Alberta. We've done a calculation on what it would cost them with the plan the federal government has, which is that, no matter how good your technology is, you have to pay 15% of.... You subtract your total emissions, and you have to make up the 15% difference, no matter how good your technology. That is going to cost them between $100 million and $200 million over 20 years. That's in a price-per-pound business competing with the U.S.

In other words, take a look at that company. That company is saying to itself, why would we invest in this country?

Our presentation was policy conflicting signals. Here is a conflicting signal. We should grow. We need investment. We need state-of-the-art technology. That's all the signals the government sends. Then it sends a signal that, if you do grow and you do invest and you do produce state-of-the-art technology, what we're going to do is punish you with a cost and we're going to make it hard for you to compete.

So in real terms, broadening that out to our industry, at a higher level of cost per tonne of carbon, investment in our petrochemical industry stops and simply shifts to Mexico, China, the Middle East, and all the other countries that don't have to deal with Kyoto. That's not because we want it to shift, but that's what happens.

Mr. Andy Burton: To expand on that a little bit, then, I know this is not your industry that I'm talking about now, but how would you extrapolate that onto other industries in Canada? Do you see a similar effect on, for instance, the auto industry in Ontario, the tar sands in Alberta, the B.C.--

Mr. Richard Paton: I work with 25 other industry associations in this business, so it's auto, steel, petroleum, all these groups. They all have serious trouble with the 15% problem. Each industry, of course, has its own difficulties, but generally the overwhelming consensus is that investment would be seriously disadvantaged.

It's probably not widely known, but many of these industries are already losing investment. In the auto industry, as you can see, there are significant shifts taking place right now. They're working hard to maintain that. Steel has had import dumping problems, serious problems with price. Other countries have lower costs of production because of all kinds of government involvement. So, basically, many industries would face exactly the same problem as we do.

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Mr. Andy Burton: Can you put any sort of number on what may have been lost to the Canadian economy already because of the uncertainty over Kyoto?

Mr. Richard Paton: No, I can't do that. It's definitely true that people are reconsidering investments. Certainly, when you start getting into pipelines and major plants, one of the realities in most of these businesses is that investment is on a 25-year timeframe, and people are looking at the total range of costs. Even when people say that the first Kyoto period is only going to be...well, you know, you're going to have to deal with this...they're already thinking of the second and third. They need some business certainty to be able to make the case to their investors, who are looking for return on investment over a long period of time.

Mr. Andy Burton: How much more time do I have, Madam Chair?

The Chair: You have 15 seconds for your question and the answer. You'd be pretty good if you could do it, Mr. Burton.

Mr. Andy Burton: I thought you said 50 seconds. Okay, we'll let it go. Thanks.

The Chair: Thank you very much.

Mr. Cullen is next for six minutes.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Madam Chair, and thank you for your presentations, ladies and gentlemen.

I'd like to go to Ms. Heselton and Mr. Hoey. In your presentation, you talk about the need to look at the refundability. Some call it “the shred”, which is an interesting way to express it. I know the government runs all these models in the Department of Finance. It's not a tax expenditure loss, it's more of a deferral. This has been raised before by other groups, and I think it makes some sense. But do you have any idea how much this would cost, in terms of cashflow, or any implications?

Ms. Norine Heselton: The Department of Finance is looking at the numbers right now, not surprisingly, but our estimates run between roughly $300 million and $1 billion in terms of making it refundable. But again, it's changing the timing of the tax credit.

Mr. Roy Cullen: Okay, $300 million to $1 billion--is that over a number of years?

Ms. Norine Heselton: We're also discussing with Finance options on how to administer any changes, and there are a number on the table.

Mr. Roy Cullen: Mr. Hoey, you mentioned the desirability of involving employees in share ownership. I'm familiar with the issue you discussed about some of the problems some employees have run into, and I think the Department of Finance was looking at that. I gather they weren't able to make an accommodation. But my review of employee share ownership, beyond just stock options--just broadly-based employee share ownership--has a huge potential to increase productivity.

Would you support changes in our tax system, like they have in the United States and the United Kingdom, to support ESOPs, employee share ownership plans?

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Mr. Graham Hoey: Absolutely. Canada tends to use the stock option system to promote employee stock ownership because there are tax incentives for stock options within the current system, whereas there aren't tax incentives for ESOPs in Canada. So certainly, similar incentives to what we have for options for ESOPs would be viewed as a significant advantage.

Mr. Roy Cullen: Good. Thank you.

Mr. Pasternak and Mr. McDowell, I share your concern or your interest in making sure we have the amount of risk capital we need to grow what I'll call the new economy, for lack of better words. I'm just trying to get a feeling for where the need is, to which you're pitching your request.

There are a lot of universities that have set up corporations that act as intermediaries between the universities and the commercial sector. I can't remember all their names, but I remember doing some work in that area. There are venture capital corporations, but in our review then there was this gap, and it almost related to a dollar figure and taking the technology or the idea to a certain kind of investment banking grade.

Where does your proposal fit more precisely, in terms of that continuum?

Mr. Al McDowell: We fit somewhere in the middle of the continuum, between basic research and development. I think if you look at the kinds of corporations that have been set up by the universities, they are generally research projects that have been initiated by the academics, and then brought through their organizations. Then they have gone out and looked for some places to actually sell the products.

In our case, we've operated at a different sort of level. We've had the industry people present a whole series of actual problems that existed in Canada in these companies--mostly related to pre-competitive situations, environment--and then the university people, where they've had interests, have come in and actually said where they could do something by applying their technology to these areas.

I don't know if I'm answering your question exactly. It's sort of hard to say where we fit in with venture capital.

Mr. Roy Cullen: Mr. Pasternak.

Mr. Jack Pasternak: Let me amplify that.

The way in which we've always operated has been by going to our member companies and asking them what their most immediate problems are that they would like to get new ideas on. We collect these and issue them to all the universities across Canada. The professors then look at these and say they have expertise and new ideas in a certain area. If we fund them, they say, they will deliver up to a given point. That's quite different from starting from an idea and selling it to industry. When we then select work to be done, we actually put an industry person in as an adviser to the professor. Here, then, you get the basic work being applied directly to a problem that needs a solution.

Mr. Roy Cullen: It's similar to developing a performance package or a business case, then. Is that part of it?

Mr. Jack Pasternak: That would work. That's right. The company would say it wants to make a prototype but doesn't have enough information or any new ideas in an area, and it would ask what we can do. We would go back to the universities and ask for someone who may have an idea that could help out in this file.

Mr. Al McDowell: What we didn't mention in our talk here—but I think we put it in the handout—is that all the intellectual property is owned by the researcher or the university, depending on how they function. What would happen is that if a series of patents were to result, then they would be run through the research administration in the university, and then through some of these corporations that you've talked about. It would be on a right-of-first-refusal basis with our members, so our members would actually be in a bidding position with other people.

Mr. Jack Pasternak: And if our members didn't pick it up, it would then go to somebody else to be picked up.

Mr. Roy Cullen: Thank you.

The Chair: Thank you very much.

Mr. Wilfert, please, for six minutes.

Mr. Bryon Wilfert (Oak Ridges, Lib.): Madam Chair, I certainly thank everyone for coming. I must say that I don't think there's anything more important than developing a strong innovation strategy. Of course, the Minister of Industry has been very clear on that through the strategy he announced back in February of this year.

There are a couple of things I wanted to talk about, Madam Chair. First, the OECD report—the one with the seven indices that they came out with earlier this month—ranked Canada very strongly in terms of the economy. The one area in which we are continually weak is research and development, and you've touched on that. Obviously, that's one area the minister has talked about in terms of improving, about doubling our R and D investments and ranking us among the top five R and D performers in the world.

Mr. Paton, I was struck by your comment about the policy framework for innovation and what you said about the fact that, really, we're not there. I wondered if you were suggesting that you're at odds with what was announced in February. What initiatives or measures would you suggest are required to enhance this strategy? I also wanted to come back to a comment that was made regarding training for tax credits, either through EI or through income tax. I think that's a very interesting approach, and one I think we should be looking at.

I'm a strong believer in the view that corporate tax structures have to be brought down in order to make sure we're providing the right environment, particularly when we're looking at our competitors in the G-7. One of the issues, as well—I won't touch on it today, but it is one of my favourite subjects—is the problem of foreign ownership in Canada, and the fact that a lot of the foreign ownership that is controlled.... I don't mean foreign investment. I'm all for foreign investment. But when it is not in the hands of Canadian owners, then a lot of that R and D goes south or elsewhere, and that has implications.

If you could very quickly touch on some of those areas that I've outlined, I'd be interested in your comments.

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Mr. Richard Paton: I'll start.

First of all, we welcome the innovation strategy. It is very important to focus this country on innovation, and we've contributed a paper on the innovation strategy.

One point I would pick up on is that one of the assumptions in the innovation strategy is that if you do R and D, growth will follow, that there's a kind of linear process. When we went to our companies, they said that when they are being economically successful, they will do R and D. That's very interesting. It's a slightly different way of looking at this.

So some of the policy issues that I raised are part of economic success. One of them in particular is regulation. If it takes longer to put a product on the market in Canada than it does somewhere else, if there's more cost in doing that—and with cost recovery, Mr. Cullen has an excellent bill on this subject—if there are more impediments to commercializing that technology, and if some of the incentives that we've heard about here in terms of taxes and write-offs and depreciation are not there, then you're fighting a little bit of an uphill battle as a small-market country with a small domestic market and with a lot of headquarters functioning outside the country. There's no doubt about it that this is a reality for our business.

To counter that, I think you have to put a lot of things together that make this country not only a place to do R and D with the R and D tax credit, which is an advantage, but which link that R and D to commercializing and developing the product. I think we're very weak on the other side of it.

In the case of our new substance notification, frankly, when you talk to officials in Environment Canada about this being an impediment to innovation, they don't care: “It's none of our business, that's somebody else's problem. That's the Department of Industry's problem. That's not our issue. Our issue is protection”. We think we can get both, but that means the innovation strategy has to be more than an Industry Canada strategy. It has to be something the government itself really endorses and looks through, examining its whole policy suite to see how it can fit together.

Mr. Bryon Wilfert: Mr. Paton, are you suggesting a more cross-departmental approach?

Mr. Richard Paton: Absolutely, and I saw a little touch of that in the Speech from the Throne, which was nice. But I used to be the head of regulatory reform in the federal government, so I know how hard it is. It is very hard. It would take tremendous effort and focus on the part of the government to really improve its regulatory environment.

Mr. Bryon Wilfert: Okay, thank you.

Madam Chair, I think Mr. Young raised the issue of training and the issue of tax credit regimes.

Mr. Alan Young: Yes, COMPTIA also had a submission to the government on the innovation strategy, but some of the issues that we addressed before this committee today were also included in our innovation submission. We think they've been well received, but we're interested in selling these ideas to different audiences.

With respect to the training tax credit, it really is something governments in other countries have been looking at. We think there's a made-in-Canada solution out there. What we're really trying to do is plant the seed of the idea that this is a good thing for us to experiment on and make an effort to increase training in. We're trying to say, “Here's a method to do it.” Look at what others are doing and create a solution that works for us. There are many possible variables that could be put into a training tax credit regime, such as the number of employees that would be covered and the total number of dollars that might be devoted to it. There are a number of other variables that could be looked at.

So we think it's worthy of experimentation, and we would welcome the interest of this committee in promoting the concept of the training tax credit and working with other governments to put it into effect.

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Mr. Bryon Wilfert: I will come back to that one in another round.

Very quickly, I just wondered about something on which you obviously would have to get information. You said something about both the Senate in the U.S. and the American House of Representatives. I agree with you on a Canadian, made-in-Canada approach. Do you have any idea of the cost?

Mr. Alan Young: Again, it depends on what the variables are, what the amount of the credit is, and how many people it applies to. I wouldn't necessarily propose this, but in the case of Arizona, which has a tax credit now, they put an overall cap on the dollars that will be devoted to it. That's a strategy that could be adopted.

Mr. Bryon Wilfert: Did you say you had provided information to this committee on that, or that you will provide it?

Mr. Alan Young: We did provide it in our detailed submission that was provided to the committee.

Mr. Bryon Wilfert: I need to review that.

One quick comment on the issue of approvals, by the way, is that one of the problems—and I use the drug industry as an excellent example—is that the provinces are approving and the federal government has to approve, and that's why it costs us hundreds of billions of dollars more. Too many governments are involved. One of the things we need to do is eliminate that. I see the premiers have agreed with the federal government, at least in theory, to get to one approval. Why do we have approvals that are different? It takes longer in Ontario, which is the worst when compared to British Columbia. Why do we have that? If Ottawa approves it, that should be enough. Canadians should have one drug approval process. Otherwise...

So I think that's part of the issue that you raise. As a former head of regulatory, I should ask you...

Mr. Richard Paton: —[Editor's Note: Inaudible]— compared to other countries?

Mr. Bryon Wilfert: Yes, absolutely. When people look outside here they probably think it's a crazy regime.

Thank you.

The Chair: Ms. Minna, then Mr. Burton again.

Ms. Maria Minna: Thank you.

I wanted to get back to the issue of productivity, and also training. In the presentation productivity was linked to the problem of capital taxation and other regulatory regimes, but also, if I'm not mistaken, productivity is affected by the lack of labour flexibility, turnover, and ability to use a labour force in a more comprehensive manner. Mr. Young, you talked about EI and the tax credit, which we were just discussing. In what way are you suggesting the use of the EI when you say “offset to EI”? It was presented earlier by another group, but maybe in a different manner.

Mr. Alan Young: We have suggested a couple of different options for financing the cost of the training tax credit. One would be to use the Income Tax Act to provide a straight tax credit. Maybe a more creative approach would be to look at using in some way the premiums employers pay for employment insurance to encourage them to encourage their own employees to undertake training, permitting the employer to offset the cost of that training against their EI premiums. That would be one mechanism for funding the cost of the training.

Ms. Maria Minna: One other suggestion that was made by labour when they were here recently was that rather than lowering the EI premiums, we could leave them as they are, and the amount by which we would have lowered them would be put aside in the EI system for apprenticeship training and that kind of thing. But that's not what you're talking about, right?

Mr. Alan Young: Not specifically. We have put forward a couple of different ideas, as I said earlier. What we're trying to do is plant the seed of the idea and convince people that this is something worth exploring, and then work with you and others to put the details on it.

¼ (1800)

Ms. Maria Minna: Where does the role of business come into this, their responsibility with respect to apprenticeship and training of their own employees, keeping their labour force updated, upgraded, trained, and so on, but also training and taking the new apprenticeship programs of other employees they need? When I was on the immigration standing committee, we had a problem--and my colleague Mr. Bélanger would remember that as well--with respect to ITs, trying to increase the number of people coming in, to facilitate more quickly the entry of specialized and trained people from outside the country. In my meeting with the association of IT workers, they seemed to be saying they don't get training, the companies are not that interested, they're not that well paid compared with those in other countries. So where does the industry responsibility come into this as well?

Mr. Alan Young: There certainly is responsibility on the part of employers to encourage employees to receive training. The idea we have put forward about an IT apprenticeship program is novel, I think, for Canada. It's something that is being explored in the U.S. right now. I don't propose that we adopt holus-bolus things that happen in the U.S. or other countries, but I think we definitely should be aware of interesting policy developments in other countries. The fact is, of course, the U.S. is our next-door neighbour and a lot of our exports go south of the border, so we need to be conversant with strategies they are adopting. I think a training tax credit and IT apprenticeships are a couple of approaches we should consider.

Ms. Maria Minna: Don't misunderstand me, I support apprenticeship and I think we have to do a great deal more of it in this country in all different fields, in addition to this one. I don't think we do enough of any of it, as we don't have sufficient national goals and objectives in the area of apprenticeship. I think that's something we need to look at.

With ESTAC, Mr. McDowell, it seems the partnership you had with industry and government in the work you were doing was successful, but what happened exactly, why was the partnership dropped? At this point I gather you're at a crossroad of some kind.

Mr. Al McDowell: I think what happened at the end of 1999, when the federal top funding sunsetted, was that the members stayed interested and so did a number of government agencies, like Industry Canada, and there was some activity that led everyone to think there was going to be further funding. As we proceeded into 2000 and 2001, we had a number of SMEs, small and medium firms, that we had sought out to bring among our members. These people started to run into financial difficulties as the economy turned down, and they withdrew from ESTAC. This orphaned a whole series of projects that we had. Our larger members at that time thought maybe they should just end the organization and, as best they could, pay off all the projects and take care of that, because they could see this just becoming a worse situation, where the last person standing would be picking up all the costs.

Because we're funding students, all the money goes to graduate students--I don't know if I pointed that out--for their education, equipment, and travel. Since we're usually committing funds for two or three years, it was important for us to think what we were doing and end it in such a way that we didn't strand people.

Have I answered your question? That's why we ended, basically.

Ms. Maria Minna: It's just that in 1999 the economy was starting to pick up. The timing seemed strange.

Mr. Jack Pasternak: Not from the perspective of some of the small companies we had. They just bailed out, even though they had promised.... The way we operated was that everybody promised to stay in at least two years, because our projects were of one to three years, an average of two. So if everybody stayed in for the two years they promised, there was no problem. The fact is, they left.

Ms. Maria Minna: As a contribution to the Kyoto process, once it's ratified, it seems to me that your particular type of work would be pretty important, especially when you're talking about high tech.

Mr. Jack Pasternak: That's exactly why we're here. However you can help here, it would be tremendous.

Mr. Al McDowell: A lot of the projects we didn't talk about. As we said, we funded over 200 projects. A number of them were for improving the growth of trees when you're replanting, reforesting, so that their nodules fix nitrogen into the soil. These are popular in speckled alders. That's one thing we're doing.

We have projects on membranes, better ways of removing carbon dioxide from flue gases, and so on. There's a lot of talk now about taking the carbon dioxide out and putting it underground, so there's a lot of work that's necessary in that area. We have people who are working on improved distillation. Distillation is basically moving something from here up through a stack and back down, but it uses a lot of energy. Maybe 10% of the energy used in the chemical industry is involved with distillation. Any improvements you can make in doing that helps the Kyoto Protocol.

Ms. Maria Minna: Thank you.

¼ (1805)

The Chair: Thank you very much.

Mr. Burton, second round, six minutes.

Mr. Andy Burton: To finish up with Mr. Paton here, we're talking a little bit about the effects of Kyoto, the concerns, so I guess it's fair to say that right across Canada, industry-wide, there is some real concern about what this could mean. Is that correct?

Mr. Richard Paton: Yes.

Mr. Andy Burton: Thank you.

I have a question now to any of the witnesses. We heard quite a bit about taxation, depreciation allowances, capital taxes, that sort of thing. If we look at what happened in Ireland as an example, how they reduced taxes and red tape and how it's really stimulated their economy, do you see this sort of approach as a possible solution for Canada? And if so, how would you suggest that we go about it? I use that as an example.

Mr. Richard Paton: I just came back from Ireland about three weeks ago. I met with our equivalent chemical industry over there. I wouldn't propose this for Canada, it would be unbelievable. They have a 10% corporate tax rate. They don't have a federal tax rate and a provincial tax rate, they have a 10% rate. What has that meant? Also, they did a tremendous amount of work on the regulatory process.

I think we had the most exports to the U.S. Maybe Dave could handle that, to show you what the impact is on exports.

Mr. David Shearing (Senior Manager, Business and Economics, Canadian Chemical Producers' Association): Canada used to be the largest exporter of chemicals to the United States of all the countries in the world. Now Ireland is, on a dollar basis. That just happened over the past few years.

Mr. Richard Paton: It's an example where you put a policy package together. You've focused on the cost to do business and the regulatory framework. They very carefully niched their industry. They don't have huge energy reserves, so they didn't pick an industry that required a lot of heat and energy consumption. They picked the pharma-chemical industry, which is linked to the drug manufacturing business and is less energy intensive.

They were nowhere in 1970. But 25 years later they're the biggest exporter of chemicals to the United States. It's the biggest growing part of their economy and the biggest source of job growth.

Mr. Andy Burton: If any of the others have any comments, Madam Chair, I'd like to hear them.

Mr. Graham Hoey: The other thing I would add is that Ireland created a series of incentives. Ireland's tax rate is 10% for various types of businesses. For instance, in the Shannon area they developed an incentive rate of 10%. Also, they developed an incentive rate for the use of intellectual property. Ireland has in fact moved their tax rates up quite dramatically because of European Union pressure to have them more in line with the other EU jurisdictions. What they've done is kept incentive rates for particular selective industries, including that part of the chemical industry and intellectual property. It's a selective system but a very successful selective system.

Mr. Andy Burton: Going back to Richard Paton, do you think a selective system would be the answer for Canada, or a more broadly based lowering of tax, period?

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Mr. Richard Paton: I would not be in favour of a selective system, because I think you do end up with distortions in the economy. I would rather go for a general lowering of the rate to 17%, which I think we've argued for in our coalition, and then let industries work within that context. Then you will find that everybody will benefit--the service industry, the IT industry, and the manufacturing industry.

Just to add one comment about Ireland, the R and D base was not there before this industry expanded. It's only now that they are doing the R and D with the universities. They started by creating the incentives that created the growth, and now that they have the growth and the money is being made, they're linking up to the universities.

The Chair: You have a minute left, if you wish to use it.

Mr. Andy Burton: That's fine, Madam Chair.

The Chair: Thank you.

Mr. Cullen and then Mr. Wilfert.

Mr. Roy Cullen: Thank you, Madam Chair.

Mr. Paton, thank you for your support of my private member's bill, which now has been drawn.

Mr. Richard Paton: I heard that.

Mr. Roy Cullen: Now we just have to get it votable.

I was in my riding a week or two ago and met with BASF Canada, whose head office is in my riding. They went on at some length about this new substance notification process. They were going to give me something on it, and I hope that's coming. I got involved in this issue many months ago. There has been some movement, but it sounds as if it's still creating problems. It's sort of like a double-jeopardy type of process. Perhaps you could you explain what this new substance notification process is and why it's a problem for you.

Mr. Richard Paton: Sure. We've commented to Industry Canada in the innovation paper process on this very specifically.

Any new chemical substances used in Canada have to be reviewed and approved on a list, and they go through several stages of review. Interestingly enough, those stages are cost-recovered. That's quite different from the U.S. system, where industry does its tests and the government does not in fact cost-recover those tests.

Now, what is significant about the new substance notification in terms of cost recovery in particular is that once that chemical is registered, anyone can produce it. So it's unlike drugs, where you have a licence or a patent, or whatever, and you have a right to use and sell that drug. The costs go up to $200,000 or $300,000 for the registration review process.

So if you can imagine, Company A wants to use this chemical and Company B says to itself, “Well, Company A is going to go through the process, so I'll just wait around until they're done and then I'll start with a $300,000 advantage”. Now, many of these chemicals are very small chemicals used to add to a product to make something more supple, a different colour, a different texture, or whatever. It's a very small market, so $300,000 may be your rate of return for four years. Hence, the company says to itself, “Why bother with that product in Canada? Maybe what I'll do is manufacture it in the U.S., put it in the product, and bring it into Canada”.

On top of that, especially for our pharma-type industries, time is money. This can take a year or two years. It makes it hard for them to talk contract with other companies and say, “I will have that product and be able to use it to put into your product”. Therefore, they may say, “Well, thanks very much, but I'll go and deal with somebody else”.

So it's a very, very demanding process that we don't see as adding a lot of value. You could basically go with, say, accepting a U.S. evaluation. That would be one way to go. Another would be cost recovery. That would be one way to solve it. A third way might be to have two streams--ones that look more dangerous and have to be reviewed more, and ones that seem fairly straightforward and can be fast-tracked.

It seems to me there are ways to solve this. For BASF--I don't know how many products they have, but it's something like 30,000, a huge number--they could have a number of these in process at any given time, creating all kinds of turmoil and difficulty.

¼ (1815)

Mr. Roy Cullen: Thank you.

I have one quick question.

Mr. Young, you talked about prepaid maintenance. I know that sometimes tax rules and accounting rules are different, but for these payments to be brought into income for taxation purposes in the year in which they're received, even though they're for a future period, would seem to fly against general accounting principles. But then we have to look at it, I suppose, in the context of Xerox or WorldCom, where they started to get into problems because they were actually bringing items into revenue more quickly. I think they were really going against conventional accounting.

Why is it that the tax department says that if you receive this income, even though it's for a future period, it has to be brought into income for tax purposes? I don't get it.

Mr. Alan Young: Perhaps my friend Mr. Hoey could go into the details. I don't get it either--

Some hon. members: Oh, oh!

Mr. Alan Young: --so we're on the same wavelength.

Mr. Graham Hoey: The simple answer is that there's a specific provision in the Income Tax Act that requires it to be brought into income. Normally any amount that a company receives has to be brought into income, but then you can claim a reserve against that income for future things you have to do. So if you provide a warranty and you get warranty experience or something like that, you claim a reserve that offsets the income.

The problem in this case is that the software company has no timing in terms of when it specifically has to do these certain things. There will be upgrades in the future, but you don't know when those upgrades are going to happen. There will be code fixing in the future, but you're not sure when that code fixing is going to be needed, so you have no way of calculating this reserve and therefore cannot claim this reserve.

So the short answer is that there is a specific provision in the Income Tax Act that says you can bring it in here. The provision has been there for many, many years, and it was not really there to deal with the IT industry; it was there to deal with manufacturing industries or other things where there were warranties and such things.

Mr. Roy Cullen: Are the provisions in the U.S. similar or different? Do you know?

Mr. Graham Hoey: I don't know.

Mr. Roy Cullen: Okay, thank you.

The Chair: Thank you.

May we go now to Mr. Wilfert?

Mr. Bryon Wilfert: The Minister of Finance has talked about Canada as a northern tiger, and he wants to make sure we continue to do that. Obviously, some of the key elements are the fact that we've had five balanced budgets or better; we're the only G-7 country paying off the national debt, another $8.9 billion now; our job performance is outstripping the United States at the present time; and the gap is improving with regard to taxation issues in the United States, particularly in some of the key areas, although in personal income tax we're still about the middle of the G-7. There are some very positive signs, and clearly, one of the things from my perspective and, I know, the minister's is that we will not go back into a deficit.

When we hear presentations before the finance committee, all of them are of value, I'm sure, and all of them are worthy of funding, of course, or assisting in some tax measure. That's obviously why we get so many recommendations to make as a committee, and the minister is only able to see to some of them.

Obviously I support a lot of the measures suggested today, including phasing approaches, which I think are important. We have to send a certain signal. So we may not go to 17% tomorrow, but if we could send the right signal and we continue in that direction, I think that's important.

We should also not just look at the G-7 countries, in my view, but at Korea and Japan in terms of R and D issues. If we look at the dollars those countries make, or Taiwan, in comparison, how do they rank on R and D versus us?

But if you were to prioritize some of the issues that you have in terms of our only being able to recommend one of them.... I go back, for example, to Mr. Paton, who suggested a number of key areas, and I'm sympathetic in a number of the things you've talked about. But the question is, we can only deliver on maybe one of them, because we're not going to go back into a deficit and we don't intend to go to a situation where... We want to be able to deliver, because I believe strongly the climate needs to be conducive for business to invest and expand, to send the right signals out to the consumer and continue to get that debt-to-GDP ratio down. It's now below 50% and continuing to go down.

In a nutshell, what is it each of you would like to see us do that would not only keep those parameters in mind, but also address very clearly particularly the issues of R and D and productivity?

¼ (1820)

Mr. Richard Paton: I'll start out. First of all, I've spent a good part of my career in the federal government getting rid of that deficit, so I'd never want to see that deficit return. I totally agree with the Minister of Finance and you on that. In fact, I would argue that any budget should have a piece with a debt reduction number in it. So I totally agree with that.

A lot of the proposals I've made today, however, fortunately don't cost money. They are more regulatory reform, cost recovery, making a realistic plan on Kyoto, and so on. However, if I had one priority, I guess I would pick capital taxes, and I'll briefly give you the reason why. I think we should, as a country, pick those areas that will probably generate growth in revenue and investment. Therefore, you will get a stream of revenue out of that. It's not a straight cost to the economy, and it fits the objectives of productivity and innovation.

So that would be number one, and then I guess number two would be to go to the corporate tax rate reduction.

The Chair: Mr. Young, go ahead.

Mr. Alan Young: We'd be delighted if this committee was able to deliver on Mr. Paton's first choice. We think having a talented, skilled, adaptable workforce is critically important to improving innovation in this country. I haven't really tested priorities with people in the association, but I know there is a very high value placed on improving productivity through investments in people.

The Chair: Ms. Heselton.

Ms. Norine Heselton: From the perspective of ITAC and its members, we fully support the notion of debt reduction. You have to have money in order to spend on programs. It can't be all or nothing. But in terms of priority, my vote would go with SR and ED, simply because it's not a cash outlay; it is a timing of tax credits.

There was a study done a few years ago by the Department of Finance, and then Revenue Canada, that, using very conservative measures, showed that for every dollar forgone in tax, it generated $1.38 in additional SR and ED for the country. If truly we're going to ratchet Canada up from fifteenth to fifth, we need that kind of stimulus to do it.

Mr. Jack Pasternak: — [Editor's Note: Inaudible]— the ETIC priority here. That's precisely right. It's a very low-cost priority in helping to move new ideas toward commercial reality while growing, while achieving self-leveraging, self-sufficiency. We were well on the way toward that when... Everybody thought there was a mechanism to move funds toward ETIC at the end of 1999 and into 2000. When we got into the details of the program, though, the bottom line was that there was no such mechanism, so we came to a roadblock.

Mr. Bryon Wilfert: I thank all of you for your comments.

Of course, $10 million is relative. It doesn't sound like a lot when I've seen some people come in and ask for $100 million here or $1 billion there. But $10 million versus $10,000 is all relative.

I think it's in terms of the outcomes that we're looking at. What objectives do we want to see? What are the desirable outcomes? I'm a former educator, so trust me that when you talk about objectives, you want to know what it is that you're going to be looking at, what the desirable outcomes are, and what tools are necessary for you.

I agree with the comment on the debt. If we save $3 billion a year on interest, what does that mean? We can use it for social programs and other worthwhile incentives, notwithstanding the fact that we also have health care and Kyoto to examine. But you don't need to talk about that today.

Thank you very much.

The Chair: Thank you very much, Mr. Wilfert.

As chair, on behalf of all the members of this committee, I'd like to thank you for putting the time both into your briefs and into taking the time to present today. I know you can't touch every item written in your briefs, but you should be assured that all of these briefs go to all of the members of the committee. It would be really easy if it was easy to make those priority choices, but as we work through our report, it's really important that we glean from you the ideas that can help this economy to be more productive and innovative.

So thank you very much, all of you.

Colleagues, we are adjourned until 9:30 tomorrow morning.