Good afternoon, Mr. Chairman and committee members.
By way of introduction I'd like to make a few comments about my background as it relates to SR and ED and R and D funding.
I have more than 30 years as a chartered accountant, with a computer science degree and an MBA. In the past I was a full-time faculty member at the University of Calgary and taught the most recent SR and ED courses for the Institute of Chartered Accountants of Alberta. For the past 10 years my practice has consisted of about 10 qualified scientists and CAs who focus solely on the SR and ED area, serving multinational corporations as well as small corporations, mostly in western Canada.
I believe I have a unique multidisciplinary outlook on SR and ED. I am from the trenches. I've also worked with the National Research Council's industrial research assistance program, IRAP, and our firm was the company that submitted the first successful shale gas technology claim in Canada. I've served as the inaugural chairman of the joint CRA and industry information technology oversight committee for the SR and ED prairie region. I am an active participant as an angel investor in western Canada, both through direct investments and also through membership in Venture Alberta, which is reputed to be one of the most active venture forums in Canada. This provides me with further insight into the technology start-up community.
To begin, I would like to summarize the overall impact that we anticipate the changes proposed in Bill C-45 will have on SR and ED performers at the ground level.
Our company has gone through a detailed modelling process to simulate the SR and ED impact of the 2012 budget on our clients, who should be considered to be a cross-section of western Canadian companies. We did this because the microeconomic nuances of how policy decisions affect individual organizations are not always visible from a macroeconomic viewpoint. Our conclusion is that Canadian-controlled private corporations, or CCPCs, are likely to experience a 5% to 10% reduction in investment tax credits, whereas non-CCPCs—those are the big ones—can expect more drastic reductions, on the order of 30% to 40%.
The industry consensus communicated to us both by our clients and by contacts is that the reductions in the SR and ED benefits will unquestionably reduce their overall ability and willingness to conduct research in Canada and will reduce jobs. This should be a concern for all Canadians.
I am also particularly concerned about the impact of the proposed changes on the energy industry, which will have effects nationwide. The implications can be extrapolated to numerous industrial sectors in Canada over the long term.
The primary story of oil and gas in Canada is no longer a story of wildcat wells and exploration uncertainties. It is primarily a technology story, that is, of using new technology to unlock unconventional resources that were previously inaccessible. This fundamental shift is highlighted by the fact that in 2010 oil sands production overtook conventional oil as the leading production method in Canada, with 51.9% of production. The technology needed to turn unconventional resources into producible reserves and a contribution to our GDP is extraordinarily sophisticated and extraordinarily expensive, with sourcing requirements that reach beyond Alberta's borders.
Every day we see Canadian energy companies taking enormous risks to develop new technology. The largest spenders in oil and gas research are most commonly in the non-CCPC category, and they will be the hardest hit by the reduction in investment tax credits. In particular, the reduction in the general ITC rate from 20% to 15% and the elimination of capital expenditure deductions will severely impact these organizations.
In our view, the impact these changes will have on the energy industry warrants re-evaluation of the proposed policy changes. We believe that public innovation policy is best delivered in an indirect form that organically results in leveraging industries in which Canada has a natural advantage in developing, commercializing, and exploiting technology.
There are few other industries in Canada that have advantages such as we have in the energy sector. We are world leaders now and we need to stay there to protect Canada's economic future. We need to enhance our competitiveness in this increasingly technological field to build world champions. Reductions to the SR and ED program will dramatically alter the positive path that we are currently on in the energy industry along with many sectors upon which the industry impacts.
Lastly, I would like to comment on the critical issue of how the proposed changes will affect jobs in Canada.
R and D performers in western Canada tell us that they will react to the concerns outlined above by reducing their research efforts in Canada. This has already started to happen. Research capital is highly liquid, and these companies are not afraid to redistribute their funds to other jurisdictions. They also recognize that we are locked in a global war for talented innovators and that they must either initially attract and then keep our innovators in Canada or go to where these individuals are.
We are deeply concerned that the net effect of the proposed SR and ED changes will be the loss of high-value innovation jobs. This will have significant and long-term negative effects upon our global competitiveness.
Thank you for this opportunity.