[Recorded by Electronic Apparatus]

Thursday, October 24, 1996

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[English]

The Chairman: We will come to order. The finance committee of the House of Commons is very pleased to have with us this evening representatives of some of Canada's most important, biggest and foremost industries.

We have with us: from the Association of Canadian Distillers, Doug Rubbra; from the Canadian Pulp and Paper Association, Steve Stinson; from the Aerospace Industries Association of Canada, Peter Smith; from the Canadian Housing and Renewal Association, Sharon Chisholm; from the Automotive Industries Association of Canada, Dean Wilson; from the Fisheries Council of Canada, Ron Bulmer; from the Brewers Association, Sandy Morrison; from the Canadian Chemical Producers' Association, Richard Paton and Doug Shearing; and from the Mining Association of Canada, George Miller.

I see across the table from me a lot of what Canada is really about. We look forward to your brief presentations, perhaps three minutes for each one of you, and then we'll go to discussion and questions and answers. I'll give each of you as much time as you need after that to put any other points you want on the table. Then we'll try to conclude on time.

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Maybe we could start with you, Mr. Rubbra.

Mr. Doug Rubbra (Vice-President, Operations, Association of Canadian Distillers): All right. Thank you, Mr. Chairman.

Last year I had the opportunity to make a presentation to this committee outlining the issues facing our industry. At that time, that presentation called for a modernization of the present archaic federal excise legislation and regulations and the adoption of a beverage alcohol tax policy consistent with today's attitudes towards responsible drinking and healthy lifestyle, and based on sound economic principles.

In short, we were asking the committee to recommend to the government to tax alcohol as a commodity, not according to the medium that carries it. We were making the point that a drink is a drink, and that alcohol is alcohol, whether it's obtained through vinification, brewing or distillation. We were also recommending that the Excise Tax Act be revamped and modernized.

It's of interest that officials of the Department of Finance, in cooperation with the Department of National Revenue, have been working on a new Excise Tax Act for almost the last decade and to date have been unable to produce a first draft. I regret to say that none of our recommendations from last year appear to have been actively pursued by this committee, and that nothing has been done by this government to save our industry in Canada.

Contraband alcohol is now sold across Canada in increasing volumes; legal jobs in Canada are disappearing, to be replaced by legal and illegal foreign jobs; and smugglers are pocketing millions from this activity. This allows them to purchase illegal drugs and armaments and to pursue the cross-border trade of aliens, which as you know recently resulted in tragic consequences in Cornwall.

If anybody here has any doubt about what I'm talking about, I am going to table a couple of videos tonight. One cassette is a copy of a program produced by CBC Newsworld three or four weeks ago. It's on Witness and is called The Dark Side of Native Sovereignty. It's a profound and sad piece of Canadian journalism, but it is certainly to the point of what we are talking about. I also have a cassette produced by us, which I would encourage you to look at, called The Canadian Spirits Industry: Get Involved. It talks about the same problem.

You may wonder why after so many years we're still trying to get the Government of Canada to lower taxes on spirits in this country. I would also like to table a flyer I have here, which I picked up last week myself in the state of New Hampshire - you've all been sent copies. The flyer states that a bottle of Smirnoff vodka, 1.75 litres, sells for $12.99 in New Hampshire. The same bottle at the LCBO sells for $44.95 Canadian. The flyer states that a bottle of Black Velvet, 1.75 litres, Canadian whisky, is selling for $10.79 in the United States; that's about $14.50 Canadian. At the LCBO, the same bottle sells for $44.20. There were local brands of Canadian whisky for sale at lower prices than the name brands. The price differential is around $30. No wonder honest Canadians who are fed up with taxes don't hesitate to purchase alcohol imported illegally from the United States.

We need some tax relief if our industry in Canada is to survive. We still account for about 15,000 jobs in the country; it used to be 40,000. Unless something is done soon, these jobs will soon be history as well.

In closing, I would like to underline that our industry exports in excess of $600 million in finished goods on a yearly basis. We all know that to protect your exports, you have to grow. To grow, we need a healthy industry at home. We also need government to support and protect our Canadian product. We're not getting any support, quite frankly, from almost any part of the Canadian government.

As an example, we've been asking the Department of Health to strengthen the standard on the food and drug regulations for four years now. It's a simple exercise, merely bringing our standard into compliance with the rest of the world. That hasn't been accomplished yet, although they say they're working on it.

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Rather than supply you with the material I supplied you with last year, I brought a copy. There are nice charts and all the facts and figures. Nothing has changed, and I'm not going to table that with you this year. We do have some other stuff we would ask you to consider: these two videos, some price lists and the Auditor General of Canada's report, which states that the federal government is losing $200 million a year to the underground economy in spirits alone. If you extrapolate that out to the rest of stakeholders, you're looking at a problem of over $1 billion.

So our issues are the same and we would ask that the committee consider them. Thank you.

The Chairman: Thank you, Mr. Rubbra.

Steve Stinson, please.

Mr. Steve Stinson (Director, Finance and Business Issues, Canadian Pulp and Paper Association): Thank you, Mr. Chairman, for the opportunity to once again discuss our views before this committee in its pre-budget consultations.

The member companies of the Canadian Pulp and Paper Association, which I represent, have a keen interest in the state of the nation's finances. The financial position of the Canadian government has a direct impact on one of the most important costs that capital-intensive industries such as the forest products industry face, namely the cost of capital.

In this regard, Canada's forest products firms have suffered a serious competitive disadvantage vis-à-vis their major competitors in the United States and Europe. For example, the real inflation-adjusted cost of capital faced by Canadian businesses has averaged about two percentage points higher than in the United States during the last ten years. This large penalty stems chiefly from the significant deterioration in the financial position of the federal government that took place over this period, as reflected in the sharp escalation of the federal debt.

Obviously an additional investment hurdle of this magnitude, through its negative impact on international competitiveness, undermines the ability of the forest industry not only to create new jobs but to sustain existing jobs as well. For this reason we are pleased with the government's determination to address its fiscal problems.

However, I am here today also to warn that it is premature to declare victory. The federal government must remain steadfast in its efforts to eliminate the deficit and eventually reduce the large federal debt overhanging the economy. In this way the ultimate benefits of fiscal restraint will be realized in lower interest rates, increased investment, more jobs, lower taxes and a sustainable footing for government social programs.

I want to take a moment to put in perspective the importance of the forest products industry to the Canadian economy. As you may be aware, the forest products industry is the largest single contributor to Canada's balance of trade, with a surplus of more than $34 billion in 1995. The industry also sustains direct employment of 247,000 and another 741,000 indirect jobs, about a million jobs in total. Many of these jobs are in communities in outlying regions where the industry is often the main source of employment.

As its main priority in the upcoming federal budget, we would like to see the federal government aim to balance its budget within the next three fiscal years - that is, by the 1999-2000 fiscal year. This is a repeat of our recommendation last year, only pushed out an additional year. It implies a somewhat faster pace than Minister of Finance Paul Martin laid out in his economic and fiscal update earlier this month.

The reasons we think it is prudent to move more quickly are twofold. First, the sooner we begin to reduce the federal debt, the sooner we can reap the economic benefits of lower real interest rates, increased economic growth, sustainable reductions in taxes, and if we should so choose, increased public services. Second, given the possibility of another economic downturn or another adverse economic shock sometime during the next few years, the opportunity to put the nation's finances in order could slip away, putting us back on the treadmill of rising debt and interest payments.

In public debt debate, the linkages between government fiscal responsibility and job creation are not always appreciated. Fortunately we are beginning to see the benefits of the difficult fiscal adjustments we have been going through. Canadian interest rates are now below U.S. interest rates for all but the longest maturities, Canadian exports continue to set new records, and governments are better focusing their limited resources on areas where they can provide the most benefit at the least cost.

To underscore the progress that has been made, most Canadians now believe that the upward trend in taxes is nearing an end. In fact, some politicians are beginning to seriously advocate general reductions in federal taxes. Most Canadians would welcome some tax relief. However, we believe that any net reduction in taxes contemplated for the next budget should be accompanied by offsetting reductions in government spending so as not to jeopardize the key objective of achieving a balanced budget within the next three fiscal years.

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With respect to job creation, interest rate declines as a result of the improving financial positions of both the federal and provincial governments are already having a positive impact on private sector employment growth. However, more can be done to spur employment growth in a productive, non-interventionist fashion. In particular, a reduction in the employment insurance contribution rate would act as a powerful spur to increased hiring. We believe that the current contribution rate is higher than necessary, and that a reduction of 45¢ to 50¢ per $100 of insurable earnings could be achieved while maintaining the integrity of the program.

In summary, I would like to indicate that we are pleased with the direction of fiscal policy and the determined efforts the federal government has made to address its fiscal problems. Although we would still prefer to see the budget shortfall be eliminated more quickly, it would be foolish to downplay the significant progress the government has made to date. However, in light of this progress we urge the government to resist the temptation to spend its fiscal dividend before it has been earned, either through tax cuts or new spending programs.

Undoubtedly, the path to fiscal responsibility has been a difficult one for the government and for Canadians. Nevertheless, it is the right path. I can think of no other policy initiative that could have a more beneficial impact on the forest products industry than a 2% decline in interest rates. That in effect is what we might expect if the government succeeds in bringing its debt-to-GDP ratio below 50%. All sectors of the economy would benefit from that.

The Chairman: Thanks very much, Mr. Stinson.

Mr. Smith, please.

Mr. Peter R. Smith (President, Aerospace Industries Association of Canada): Thank you, Mr. Chairman, for allowing me to represent the views of the aerospace industry today.

Allow me first to congratulate the government on its performance in reducing the deficit to $28.6 billion, representing 4.1 billion below target. We applaud the $9 billion target for 1998-99, hopefully eliminating the need for the federal government to go to the financial markets to borrow money. The reduction of the deficit by approximately 80% from $42 billion in 1993-94 is indeed impressive, and we encourage strict adherence to the agenda of reducing spending patterns to reach this goal, as outlined in the two previous budgets.

I also want to personally thank the committee for its support last year in recommending to the government the benefits of creating the Technology Partnership Canada program. After less than a year the program is now up and running. Without this partnership you might not have seen the growth in employment and investment in the aerospace industry in Canada that I am about to describe.

Since we last met, the aerospace industry in Canada has surpassed even our own expectations. We have experienced unprecedented production, sales, exports and employment growth. This year alone we will exceed $12.5 billion in sales, exports will reach $9 billion, and employment will be just over 57,000 people nationwide. Finally, we will maintain our investment close to $1 billion in R and D.

We anticipate that our sales will exceed $15 billion by 1999, with exports increasing to $12 billion. Should our growth continue compared with the forecasted decline in other nations, Canada will rank as the fourth largest aerospace sector in the world, surpassed only by the U.S., the U.K. and France.

We are indeed grateful that the government continues to recognize the strategic importance and the valuable contribution this sector is making to the Canadian economy. We are proud of our accomplishments and are even more confident that with this ``Team Canada'' partnership, we will even outperform the already aggressive expectations.

It is regrettable that the first announcement of the Technology Partnership Canada program has generated such negative media coverage. Once again the media have demonstrated a clear misunderstanding of the intent behind the program and the benefits such risk-sharing creates. Canada's contribution in this regard is pale compared to most of our competitors, yet the media either don't understand or refuse to understand that in participating in such a program, the government's share of risk is between 25% and 30% in general. They simply choose to ignore the repayability issue and the leveraging that such assistance provides.

Notwithstanding our efforts to explain the media issues, such programs operate. In the context of the aerospace industry, I need only remind you and others that the defence industry productivity program, which was its precursor, did contribute about $3.4 billion in Canadian government assistance, generating in excess of $100 billion worth of sales.

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As I appear here today, I can proudly state that the total employment in the aerospace sector grew by more than 3,000 employees in 1995, and data recently provided by Stats Canada reveals continued growth patterns for 1996.

The aircraft and aircraft parts sector, the largest of the aerospace industry, experienced an increase of more than 6% between January and July in 1996, representing 2,600 employees. Even in Quebec, where we continue to hear distressing news on job creation and retention, 1,160 new jobs were created between January and July of this year.

Aerospace workers are among the best compensated, due in large measure to the level of education and training and the high degree of excellence required by the industry. In fact, six out of ten employees have post-secondary education.

This growth must not be taken for granted. It must be nurtured so the long-term competitiveness of the industry will be maintained and further developed.

Our message is simple. We want to encourage a growth-oriented investment climate, we want to sustain a world-class capability and we want to encourage enhanced market access to even better our export record.

We should be proud as Canadians that our aerospace sector can indeed attain the status of fourth largest in the world by the turn of the century. We must encourage such progress, not detract from it.

The Chairman: Are you just about winding up there, Mr. Smith?

Mr. Smith: I am.

With particular reference to this committee's deliberations as part of the pre-budget consultations, we recommend the following.

We strongly recommend the government adhere to the current pattern of expenditure cuts. In addition to the already announced expenditure cuts, we recommend a much more accelerated pattern of alternate service delivery to achieve even longer-lasting savings through efficient and cost-effective delivery of government services by the private sector.

Notwithstanding the uninformed criticism, we strongly recommend increasing the Technology Partnership Canada program ceiling, knowing the exposure is minimal and repayability is a factor.

We encourage a sustained and even more ruthless review of regulations, eliminating those that are unnecessary. In conjunction with this, we recommend that a more simplified procurement process be continued and that acceleration of purchases already identified in the equipment requirements of the military be reviewed.

We recommend the continued enhancement of programs to allow SMEs to establish and flourish by reducing the paper burden on them to access shared development programs. We recommend that financial institutions ease up on the requirements for SMEs in need of capital to invest in business, particularly for R and D and equipment.

Finally, we support a user fee approach to the provision of government services. We caution the government, however, in its implementation. Preliminary observations in some cases have disregarded the fundamentals of cost structure before setting revenue targets. Such applications would create enormous increases, which, if applied, would quickly make our products uncompetitive.

Our objectives may seem ambitious. Our recommendations may seem numerous. Our track record of success, however, is indisputable, and our forecasts show that with the measures already taken and with those recommended, the aerospace sector will continue to be a strategic contributor to the economy through the creation of high-tech jobs and increased trade surpluses.

Thank you very much.

The Chairman: Thank you, Mr. Smith.

From the Canadian Housing and Renewal Association, we have Sharon Chisholm.

Ms Sharon Chisholm (Executive Director, Canadian Housing and Renewal Association): The last time CHRA spoke with you, it was to stress the importance of building on the existing social housing assets.

The 1996 federal budget contained an announcement that federal responsibility for the administration of social housing would be devolved to the provinces. The issue of the role for third parties such as CHRA was to be discussed with the provinces and territories, but I can tell you we've not been consulted on such matters, despite the fact that our members collectively own and manage much of the housing under discussion.

Just after last year's budget, CHRA delivered a formal proposal to this government called ``Structure and Logic of a Sectoral Management Model''. This proposal outlines an option for the administration of social housing that would allow the sector to respond more effectively to housing needs. We're more convinced than ever that the sectoral administration model offers distinct advantages over other options. Let me tell you why.

In late August, CHRA sponsored a tri-country conference in Montreal and Ottawa with the theme ``Attracting Private Capital for Public Purpose''. We found that all countries are facing constraints similar to ours. There was a marked difference in Canada, however. The other countries still had some ability within their central government to create new social housing. Unfortunately Canada had none.

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We were further convinced of our message by the message of Habitat II, in which civil society was seen as an important player and given a major role in the implementation of the Habitat agenda.

We in Canada need to reassess the role the community sector will play in a renewed Canada. If the social housing sector is to be a true partner, an important first step will be to gain control over social housing assets so they can be used as leverage for more social housing in the future.

As well, we're concerned about the current discussions at the provincial level on social programs. Why is it that the federal government is risking the leadership role it currently plays in setting standards, and why is it that housing isn't being actively considered when in fact 35% of all social assistance payments go to cover the cost of housing? This amounts to $5.2 billion, and as you know, another $4.1 billion is spent by other governments to cover social housing expenditures.

With over 12% of Canadian households in need of housing assistance, it's not enough to say housing is no longer a federal responsibility. Means must be found to provide tools for those in need to pull themselves into a more secure and healthy housing situation.

It's time for us to consider the use of the tax system to stimulate the creation of social housing for low-income households. Vehicles such as the low-income tax credit program in the U.S. should be investigated.

We also have to communicate the good ideas that already exist to reduce the cost of providing social housing. Here I refer to such ideas as land trusts, public-private partnerships, municipal initiatives and the Homegrown Solutions program, which CHRA is administering on behalf of CMHC. Homegrown Solutions has already generated a number of viable ideas, demonstrating that communities play an important role in solving housing problems. This program should be continued.

We're fortunate in Canada to have some of the best social housing in the world, but it is vulnerable and must be safeguarded. Social housing is a tremendous asset, not only for the residents but for society. The responsibility to protect this stock of housing rests squarely with this government.

Mr. Chair and hon. members, I urge you to take heed of what the outcome of not having a federal housing strategy will mean to Canadians. The social housing sector has demonstrated its resourcefulness, its flexibility and its willingness to operate in partnership with all levels of government and the private sector. I challenge you to come forward with the tools we need to do our job.

The Chairman: Thanks, Sharon Chisholm.

From the Automotive Industries Association, we have Dean Wilson.

Mr. Dean H. Wilson (President, Automotive Industries Association of Canada): Mr. Chairman and hon. members, good evening and thank you for the opportunity to appear before the committee.

The Automotive Industries Association of Canada is a national trade association. Our members include manufacturers, rebuilders, distributors, wholesalers and retailers of automotive after-market parts, accessories, tools and service and repair equipment. The industry employs about 220,000 people, and the volume of sales at the retail level is roughly $13 billion.

I have submitted our brief plus a budget analysis we did for all of the federal and provincial governments this year. We hope that will be of value to you.

We believe the single biggest issue the federal government faces is deficit and debt.

First of all, congratulations. It would appear you will better your deficit target of 3% of gross domestic product by 1996-97. We think this means you should be able to better your 2% target for the following year, so we're suggesting you lower it to 1.5%.

It follows that you could have a zero deficit by the year 1998-99 and that you could start paying off the debt by the year 1999-2000, and we would suggest that perhaps 1% of the gross domestic product be targeted to that.

We also feel the federal government should pass legislation prohibiting deficits in future governments, and lastly, we believe the route to achieving your goals is more expense reduction rather than tax increases.

Another important area is assistance to small business. They have the greatest potential for growth in Canada and they are the group that is most vulnerable and needs assistance.

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We would recommend that the small business deduction, which is now $200,000, which qualifies you for a lower corporate tax rate, should be raised to $300,000, because that level was set in 1984 and it has been eroded by inflation over the years. We also believe the federal government should work more closely with the banks to be more user friendly to small business and should perhaps play an ombudsman role. We also believe that regulations to small business need to be minimized to reduce the cost of compliance.

On another issue, the GST and PST, again congratulations for bringing three of the Atlantic provinces on side, along with Quebec. You have some momentum there. We believe you can, hopefully, get the others on board. We would recommend that you try to achieve one common rate of 15% right across the country, except for Alberta, of course. Assuming that you meet your debt reduction eventually, maybe the 15% can come down to 10% or some lower rate.

We believe exceptions and exemptions should be eliminated. We feel the regulations need to be simplified as much as possible, and we believe a tax-out approach is the route to go until you have everybody on side. The reason for that is national companies that have to set price lists for every different province.

We think you've made a lot of progress with employment insurance. We feel that a fund pool level should be set, however, to guard against recessionary times but that once you achieve your level, you should consider rate reductions. We also believe a targeted approach should be taken towards training and retraining, and I cite to you the successful example in our industry of the Canadian Automotive Repair and Service Sector Council, which is very involved in automotive technician training.

We do have a concern, however, about decentralization of federal government responsibilities in training, and we hope apprenticeship programs do not slip through the cracks.

On tools and income tax deductibility for automotive technicians, when automotive technicians start into the trade they spend $15,000 buying tools and another $900 a year upgrading. We believe they should be able to deduct this from income, to encourage careers in our industry. This would increase jobs and encourage growth, which I know is one of the main goals of the Canadian government. The exception has already been set with musicians, artists and chainsaw operators. I understand that one of your concerns would be other apprentice trades across the country in other industries, but surely some sort of approach could be taken to give some relief to encourage young people coming into this industry.

On harmonization of regulations, again I congratulate you for passing the Internal Trade Agreement. Unfortunately, we have seen very little progress in our industry. We believe there should be a cost-benefit analysis for every federal regulation that is passed, and where possible, we believe you should work with industries for self-regulation.

To sum up, I would say, comparing now to a year ago, you've made a lot of progress. We congratulate you for that and hope you can continue the momentum.

The Chairman: Our next witness is from the Fisheries Council, Ron Bulmer. Welcome back.

Mr. Ronald Bulmer (President, Fisheries Council of Canada): Thank you, Mr. Chairman and members. I submitted my paper and a backgrounder on the council earlier. I'll try to be succinct.

The members of the Fisheries Council support the efforts of government to reduce deficits, and remind ourselves to keep an eye on the real objective, which is the federal debt. The government is encouraged to stay the course of fiscal restraint in this upcoming budget, even in light of it probably being a pre-election budget.

We want to note that in past budgets the government, even at a time of fiscal restraint, was able to find significant new dollars to help Atlantic Canadians who were affected by fisheries moratoria. That program, the Atlantic groundfish strategy, was called TAGS for short. It was a $1.9 billion, multi-year program designed to reduce capacity, train people for other employment, and support people's incomes at a time of no fish to catch.

I can report some positive comments this morning from the Fisheries Resource Conservation Council, who are tabling a report to the minister today suggesting the reopening of some groundfish fisheries on the south coast of Newfoundland and southwest Nova Scotia, but at very low quota levels. Also, the report states that many of the other groundfish fisheries must remain closed, like the northern cod stock off Newfoundland. It would appear to be years away from a renewed significant commercial fishery.

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The dichotomy between these two, the program and the only slight reopening of the fisheries perhaps in 1997, means that the support funds will have been spent and very little will have changed. It is very unfortunate that too many people remain onshore waiting for the fishery to open, a fishery that can't support them and will not support them. Therefore, the committee should understand that in my view, a tough political and economic environment exists in the Atlantic Canadian fishery.

In spite of that, the Fisheries Council continues to support government downsizing and subsidy removal from the industry. We're learning to work with less and we have to keep going in that direction.

We certainly urge the government to open up the process of determining cost recovery. It needs to have great improvements in both the transparency of what's trying to be achieved and the consultative mechanisms being used to communicate it. There has to be a better understanding that what is trying to be effected is real change, because most people believe that the government is for the status quo and is just trying to pass on its costs to the industry.

I don't have to remind the committee that in our industry we're 80% export-oriented. We have to be world competitive. When the government decides to download costs onto us, we're in no position to pass them on to the consumer. We take those extra costs and we have to absorb them, which means we have to take income away from some other part of the system. You either lay people off, you pay them less or you make other business decisions. There are no big, fat margins and profits sitting around to pay for these bills. So there has to be better ongoing dialogue and communication between the payee and the fellow who's asking for our money, which is coming from the marketing of the fish.

The Fisheries Council continues to support the need for decreased job-killing employment taxes. We expect that this budget, after the recent meetings with provinces, will have to address the CPP. We expect this will have to go up in some way. We think that should be offset by downward changes in employment income.

The unfortunate story there, of course, is that everybody talks about the $5 billion in excess payments, but we know that the government is spending it as it gets it. There is no pot of money invested. If things turn around, you'll have to come back to the industry and ask for higher payments in the next recession or downturn in the economy. Therefore, we argue that right now, the pot doesn't need to be built up beyond the current $5 billion. We would want to see payroll tax money left in the hands of people to create jobs and by-products and invest in their lives.

Mr. Chairman, let me touch on the Oceans Act, which is in front of the House now for consideration. That is one area where there is a possibility for growth, new jobs and new technology in the coastal communities on both coasts of Canada. The problem we have there is that we would like to see the tax treatment for manufacturing, processing, and research and development also extended out to the 200-mile limit. So as the Oceans Act sets an environment for expansion of business, those businesses that are on the water out to 200 would be treated the same as shore businesses. Right now they're considered business outside of Canada.

Those are the key points. Let me sum up by saying that the tough times for Atlantic Canadians in the fishery are not over. The government tried to institute change with significant money, but unfortunately the social needs of the day undermined the other area of activity.

We note that the government is subsidizing tax relief to Atlantic Canadians in the form of a harmonized GST, and that has some benefit for people's lives. But when you come back to the issues that touch on the fishery directly, much remains to be done. Cost recovery has to be managed better, has to be more open and has to be a more sensitive process. New fishery management processes have to be put in place to let the industry reach economic size. Finally, the government must stay the course of real change both in the fiscal management of the country and in the fishery. Thank you.

The Chairman: Thank you, Ron Bulmer.

We welcome Sandy Morrison from the Brewers Association.

Mr. Sandy Morrison (President and Chief Executive Officer, Brewers Association of Canada): Thank you, Mr. Chairman and members. In the short time for opening comments, I would like to raise an issue that is resulting in a significant loss of revenue to government and a gross inequity to the beer consumer and the industry.

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The Chairman: Is that the same issue Doug Rubbra raised?

Mr. Morrison: In a way.

Canada's beer drinkers face the highest beer taxes in the world: fully 53¢ on every dollar spent in retail. We certainly share the concern about the high level of taxes. In our industry, our consumers also are seeking lower-cost alternatives to what we are producing and selling through the conventional chain. But the issue for brewers is not smuggling. It is an increase in production of unregulated and untaxed beer in Canada.

In the past few years we've seen the development of unregulated commercial breweries in Ontario and British Columbia which face neither government regulation nor taxation. These brew-on-premises outlets now have an 8% share of the British Columbia market and a 3% share in Ontario, which is the largest beer market in Canada. In total, they account for about 10 million dozen-cases of beer a year. The production from these unlicensed, unregulated mini-breweries exceeds that of the micro-breweries across Canada, and certainly in the two provinces concerned.

The brew-on-premises outlets started ostensibly as a way to allow hobbyists to brew their own beer in a remote facility. They have since developed into a full-scale commercial operation that encourages consumers to avoid the payment of government alcohol taxes. The loss of revenue from the production of these unregulated facilities in just two provinces amounts to $20 million for the federal government and a further $49 million at the provincial level...which fail to regulate U-brews. At present eight out of the ten provinces prohibit the operation of these unregulated facilities.

The loss of revenues developed in only a couple of years and continues to grow. It has been in existence about five years. The penetration of the market in those provinces has doubled almost every year.

Current regulations state only that adding yeast to the kettle fulfils the requirement to brew your own beer and therefore pay no excise duties. In reality, even this minimum requirement is not being met.

We believe government should be both regulating and taxing production from these operations, for the following reasons. By ignoring the revenue losses, governments are in effect asking other taxpayers to subsidize those who have found a way to avoid paying their taxes. They're a small minority; less than 5% of the population. One of the explanations given by government for charging Canada's 10 million beer drinkers the highest taxes in the world is to control alcohol and to recover costs for social programs. That reason tends to ring hollow when a significant portion of the alcohol market pays no tax whatsoever and is subject to none of the regulatory restraints applied to the commercial industry.

In addition to fairness for the consumers, there is the question of fairness for the 14,000 people who work for the brewing industry. The growth of the unregulated market threatens to replace high-value, full-time brewing jobs with casual, part-time, minimum-wage employment. The lack of regulation of these commercial brewing operations has led to widespread violations, including sales to those under the legal drinking age, commercial sale of finished products to private functions and parties, and the illicit use of commercially owned kegs for sale and distribution of bulk beer - hardly a story about brewing for your own personal enjoyment.

There really are two choices for government: to reduce existing taxes - and we would have no difficulty with an across-the-board reduction in alcohol taxes, as proposed by the distillers, but at a time when government is seeking to bring the nation's fiscal house in order by cutting initiatives and constraining expenditures on a wide array of social programs, we believe moving into an area that contributes literally billions to the federal and provincial treasuries would be difficult. The other way to approach this, clearly, is to level the playing field and ensure the loophole that allows these commercial facilities to avoid paying taxes is closed.

We also believe the government may want to recognize that there should be some consideration for the smaller brewer, but in our view such segments should include both the micro-brewers - which, after all, have been established in accordance with the full rules, are paying the taxes and adhering to the regulations - and these U-brews, which are in direct competition with the micro-brewers.

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We support proposals that the levy of excise duty for small brewers of all types - the micro-brewers and U-brewers - should be 50% of the prevailing rate. With these changes, people who use these off-premise commercial brewing facilities would pay a federal excise duty of only 60¢ a dozen. We think that is a very small and modest charge, and that levy remains well below the $7.50 to $8 tax included in the price of a commercial dozen of beer acquired through the normal channels. We think through that method the government could recognize the work of the micro-brewers, equalize the playing field, and provide a continuing opportunity for people to enjoy hobby brewing under reasonable terms, without distorting the market and causing increasing growth in this untaxed and unregulated sector.

We have submitted a detailed brief on this, Mr. Chair. Thank you for the opportunity to appear before you.

The Chairman: Thank you very much, Mr. Morrison.

From the Canadian Chemical Producers, Richard Paton and David Shearing.

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

I'll start by providing a bit of context for our industry, so you and your colleagues can appreciate the basis for our views. We have provided a point-form statement as well as some graphs that give an idea of our industry.

First of all, as president of the Canadian Chemical Producers' Association I represent 60 chemical-producing companies, which produce 90% of Canada's chemicals and plastics throughout the country. Our industry has shipments of $15 billion, over 55% of which is exported, and is responsible for over 27,000 direct jobs, which, as with our aerospace colleagues, are high-paying jobs compared with industry averages. We have 378 establishments across the country, and at least 3 times as many jobs are directly dependent on our industry.

Our members are an export-oriented industry. To do that we must be globally competitive. Some of our companies export as much as 100% of their product.

Our industry is also very important to the Canadian economy as a whole. We manufacture the building blocks that are inputs to virtually every sector of the economy. For example, chemicals are an important part of the pulp and paper industry, the textiles industry, and the auto industry. Every single car among the cars you and I drive has about $3,000 worth of chemical products in it, in the manufactured final product.

Our manufacturing is mainly located in Quebec, Ontario, and Alberta.

Our companies are committed to being globally competitive, but I want the committee to be aware that we're also committed to being environmentally responsible. We're a world leader in Responsible Care. Responsible Care is an environmental management program that was started in Canada and has now been adopted in 42 countries around the world. Every one of the CEOs in our association has to commit to Responsible Care or they're not part of our association.

To come back to the competitiveness question, I've submitted for you, Mr. Chair, what we call our ``scorecard''. Our scorecard is something that's often of a lot of interest to members of Parliament and to ministers. Over the years Dave Shearing and our organization have done a lot of analysis of the competitiveness factors that affect our industry, including fiscal policies, tax issues, R and D, and all sorts of other factors this committee is no doubt interested in.

If you take a look through that chart, you will notice several aspects of the Canadian competitiveness environment are an advantage for our industry. For example, we note, if you look down the list a bit, the R and D tax treatment has been an advantage we, and I'm sure other industries, find is a benefit in investment in R and D. In fact, I think we have one of the lowest-cost R and D countries in the world, and that is something we would encourage you to continue.

If you look also at the top of this chart, we consider monetary policies and fiscal policies to be neutral in terms of the overall competitiveness of the industry. A couple of years ago we might have had that little bullet in another spot. It might have been over on the negative side, with our deficit and debt situation.

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If you look at the tax part of this chart, we feel we are marginally tax competitive vis-à-vis our competitors. At the end of this submission you'll see a chart where we've actually gone out and compared ourselves with the benchmark, which is Louisiana, for our investors. Because this is a global industry and we are 1% of the total chemical-producing industry in the world, it is very easy, as the chair would know, for capital to flow to places other than Canada; and it will flow depending on these factors we've outlined in this chart.

This tax chart we have included here illustrates that at this point we are basically on par with Louisiana, except for some parts of the country such as British Columbia. If we maintain that tax-competitiveness situation, we think we can continue, with our hard-working industry people, to attract investment to this country. However, if the tax situation changes or shifts its balance vis-à-vis these other competitors, money will flow, investment will flow, and jobs will flow, to different parts of the world.

Right now the hottest spot in the world for investment is the Far East. The expansion in capacity in the chemical industry in the Far East is phenomenal. That is an issue we as a country and our industry have to deal with.

Our model shows we're marginally tax competitive with the U.S. We would like to keep it that way. We have to recognize that is a huge factor in affecting our competitiveness.

There are a number of other areas on this chart that have an important impact on competitiveness, such as energy supplies, where we have some advantages, and transportation, where we have some concerns about the recent transportation act, which could result in higher transport costs, since transportation is very, very important to an industry that has a very heavy product, one often transported over long distances. We feel the regulatory environment is generally positive, compared with the highly litigious environment in the United States. However, there has been a tendency over the last few years to add new regulations. We're currently awaiting the tabling of the CEPA legislation in the House. We fully support environmental responsibility, but we also think you can improve the environment and still produce an economy that is competitive and that creates jobs. Environmental regulation, health regulation, all sorts of regulation, are important to that.

To conclude, our membership is encouraged by the deficit reduction focus of the government. We encourage you and the government to stay the course on this issue. Canada has gone a long way towards getting its economic fundamentals sound. We believe low interest rates, which are very important to the investor side of our industry, coupled with continuous improvement in the policy environment in areas such as regulation and harmonization of policies across the country...with that policy environment and with the correct economic fundamentals we will be able to continue to maintain growth and job creation in this country.

The Chairman: Thank you, Mr. Paton.

Last, we have George Miller, from the Mining Association of Canada.

Mr. George Miller (President, Mining Association of Canada): Thank you, Mr. Chairman and members, for allowing us to be here.

I'd like to start with a few words on the macroeconomic situation.

The deficit has dropped significantly, which is a welcome improvement for all of us. However, the level of public debt remains alarmingly high and we have to remember it is still growing, year by year. We strongly support the government's efforts to reverse that trend and will continue to support it. However, the fact that interest rates have fallen dramatically is an acknowledgement of the underlying weakness of domestic demand, the domestic economic situation. Consumer confidence is low and the economy is just not operating as it should.

Nevertheless, the Canadian dollar has risen, in part reflecting a strong export performance. My own sector enjoyed a buoyant 1994 and 1995, the result of strong overseas demand and improved prices. Exploration, investment, and industry confidence in Canada have increased, but sustaining this remains a challenge.

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Canadian companies continue their vigorous pursuit of offshore investment prospects. The availability of these attractive prospects offshore underlines the need for Canada to pursue regulatory reform and maintain a positive domestic investment climate. We still face tough competition for the investment dollars.

I'm happy to report that new mining jobs are beginning to appear, notably in Labrador and the Northwest Territories. These new jobs will be highly skilled and highly paid. They use the best of technology, computer control, information science, energy-efficient processes, and environmental know-how.

A few moments ago I mentioned the strong export performance of the Canadian economy. It is worth reflecting for a moment on where that export revenue is being generated.

In 1995 minerals and metals posted a $15 billion positive trade balance, the amount by which exports exceeded imports. Energy products, forestry, agriculture, and automobiles also generated trade surpluses. On general industrial goods Canada was just about in balance, but in machinery and equipment, including computers and high-tech electronic goods, we faced a $27 billion shortfall, including $5 billion in integrated circuits alone. Consumer goods were $16 billion in the red.

The lesson from these numbers is clear. In large measure we depend on our resource industries to keep Canada afloat. Moreover, the same industries represent the economic base for regions outside Canada's major cities. Let us not lose sight of the fact - and Mr. St. Denis will not argue with this - and let's not be ashamed of it, that the resource sectors and the related downstream activities are our economic bread and butter, particularly in the regions.

Let me turn briefly to five specific areas for consideration by the committee in the pre-budget context. Naturally our comments reflect our strong conviction that economic and fiscal policy must recognize the need to keep our primary industries competitive.

The Chairman: You would have surprised me had you dwelt on any other topic.

Mr. Miller: You know me too well, Mr. Chairman.

First, in the 1996 budget the Minister of Finance announced a technical review of business taxation. You held some hearings on this subject last July and we appeared at those hearings. The review has not yet appeared and we await it. The chair of the technical review, Mr. Jack Mintz, on several occasions has espoused a rob-Peter-to-pay-Paul approach in terms of weakening the tax treatment afforded the mineral sector and other resource sectors. I can only say the adoption of such an approach would be short-sighted. If we evaluate the export performance underpinning the Canadian economy, hobbling a well-performing sector such as minerals would be short-sighted and counter-productive.

Let me move on to the question of tax cuts. As much as we all decry the personal tax levels in Canada, we think the time for an across-the-board cut has not yet come. However, I would like to bring one specific tax to your attention. If your committee is to recommend areas for targeted cuts, as opposed to across-the-board cuts, I would recommend that capital taxes are a worthy candidate. They penalize capital formation, they penalize the investment that creates jobs, and they are regressive and unfair.

My third area involves environmental issues. In the 1996 budget the minister requested a review of the mine reclamation trust fund concept and whether it might be extended to other sectors. In principle we agree that the reclamation trust fund concept might be expanded. However, as we have continued to point out - and this view was partially reflected in research work undertaken by the National Round Table on the Environment and the Economy - the concept will not work unless fund build-up is accompanied by a deferral of tax on the fund earnings.

This committee may also hear about climate change and the case for carbon taxes. The so-called scientific consensus around climate change is in fact a controversy. It has been declared a consensus but it really is not. What is clear is the direct links among jobs, economic growth, and carbon emissions. Canada badly needs jobs and growth. However, increased economic activity is likely to be accompanied by CO2 emissions in the short term, although efficiency gains are offsetting some of this increase. Canada's economy is energy intensive, given our geography, climate, and industrial structure. Moreover, economic modelling shows that carbon taxes or other emission restrictions will penalize Canada more than many of our trading partners or competitors. Before Canada makes any new commitments on this front, this committee should be consulted.

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My fourth concern is regulatory reform. Last year we urged this committee to reinforce the need to press ahead with regulatory reform and to streamline inefficient and ineffective regulatory systems. I reiterate that need now. In the past year the federal and provincial governments have renewed discussions on environmental regulation, but meaningful and substantive action is still lacking.

My final point concerns cost recovery, user fees, and other non-profit-related taxes and charges.

Recent studies have demonstrated the job-dampening impact of non-profit taxes such as payroll taxes. The level of employment insurance premiums is currently under debate and we have urged the government to reduce the rate to no higher than $2.80. This would allow a reasonable surplus to be maintained in the EI account, but the difference in rates could reduce the burden on employers and it would help to create jobs.

About cost recovery, governments everywhere are seeking to recoup costs from the users of government services. However, cost recovery and user fees risk becoming just another form of non-profit taxation if not correctly structured. Mr. Bulmer made some very good points about the need to be competitive internationally. These charges are not responsive to profit levels and they go right to the bottom line.

Our central concern is the potential economic and competitive impact, clearly, of that growing array of fees and charges. Equally important is the process by which such charges are determined. The user-pay, user-say principle should be followed. This committee could usefully reinforce this principle and three other important ones in cost recovery: user fees must not dump base-load services onto users; the pursuit of cost reduction and efficiency must be primary in assessing the costs; and users must not be charged for services they do not need or want.

My conclusion is to support the broad directions government policy has taken in improving the country's economic fundamentals, to urge you to stay the course, and to urge you also that tax and economic policy experiments must not be allowed to hobble the healthy economic performance of our export sectors.

The Chairman: Thank you, Mr. Miller.

We start the questioning with Mr. St. Denis.

Mr. St. Denis (Algoma): Thank you, Mr. Chairman.

Thank you all for being here and helping us help the finance minister prepare for the next budget, which we expect to be in February.

When the finance minister appeared before this committee a couple of Wednesdays ago, he gave us an update on what was happening in the country's fiscal situation. Even though he was able to report many positive developments, some of which you've alluded to tonight - real progress in the area of the deficit, low interest rates, a very stable and low inflation rate, and so on - he expressed his concern, and it's a concern of all parliamentarians of all parties, about the issue of jobs. Because the finance minister gets blamed, I think unfairly, when the job situation seems to worsen in a given month, I think it's our responsibility as a finance committee to seek to help him to the extent we can.

I would like some of you to comment on the job situation you see in your particular sector, because you probably represent hundreds of thousands of workers across this country. How do you see the job situation in your industry? What are the prospects? Are there elements within the economic structure of our country that maybe bear a closer look as being brakes on the creation of jobs?

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I know there has been allusion to taxes or regulations and so on. I hope the government isn't to blame for 100% of the fact that jobs are not being produced as quickly as they are. There are other factors, such as literacy of the workforce, training in general, consumer confidence, particularly at the retail level, maybe just time lags between interest rates going down one day and the creation of a job another day down the road.

So I wonder if you could try to help us better understand the job situation in your sector and advise us on some of the specific measures you would take if you were sitting in our chairs or the finance minister's chair at this critical time in the history of our country. That's my first question.

Mr. Smith: I simply want to comment on the size of the aerospace industry. It's interesting to note that between 1984 and 1994 there was a plus 12% in overall Canadian employment and a plus 23% in the aerospace industry. This is despite the improvements in productivity as a result of increased technology and the application thereof. I simply want to state that throughout a very difficult period in Canadian aerospace, particularly in the early 1990s, the real numbers have gone from 42,000 in 1984 to 57,000 today.

You asked about the prospects. I think the prospects are excellent, in the sense that for every $100 million in aerospace sales about 1,000 jobs get created. As I mentioned in my opening statement, the encouragement of the government in partnership with the Technology Partnerships Canada program has indicated....the most recent announcement was this week, with Bombardier-Canadair, with the CRJ-X.... It has indicated 1,000 jobs would be created as a result of that particular initiative. The government put in 25% of the investment, the company put in 75%. These kinds of jobs are the ones that will certainly be stable, in a high-tech area. We have to appreciate that those particular skill sets, as was indicated by some of my colleagues, are highly mobile.

We have every expectation it will be a very positive picture in the aerospace industry until the turn of the century.

The Chairman: Would it be appropriate to ask that question of everyone at the table: do you expect to see an expansion in employment over the next five years?

Mr. Rubbra: My mother told me if I don't have anything good to say, I shouldn't say anything. But our industry has shut down 19 distilleries over the last 20 years. Only a dozen or so are left, and those are working at 50% to 75% capacity. I cannot offer you any solace in the job area, barring some major turnaround in the declining sales.

Mr. Stinson: If you look at the performance of the forest products industry in general over the last decade, and the pulp and paper industry in particular, there certainly has been some shrinkage in direct jobs within the industry. You also have to keep that in perspective. The industry's share of manufacturing shipments has increased over this period, and that implies value is being added to our products by other industries. That would include mainly the ``new economy'' industries that would be providing things such as process controls, satellite remote sensing, and that sort of thing. I think it's a mistake to look at the industry in isolation from its linkages from the rest of the economy.

About the prospects for the industry, certainly nothing is holding it back in terms of global demand growth. We're expecting continued growth in paper consumption in the developed economies and we're witnessing accelerating demand growth in the developing regions.

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Canada's ability to capture its traditional share of that, though, I think is not assured. If you look at the returns that have been earned in the industry...and I refer to some of the points George Miller was making, about the resource industries being the core industries in Canada in their export orientation and their contributions to the Canadian economy. Unfortunately, I think there's this perception that they are sunset industries and we perhaps have something to be embarrassed about in relying on our resource products for our economic well-being.

The fact remains that notwithstanding the fact that lumber prices are at record levels, pulp and paper prices have come off. We experienced a very good year last year, but the industry's profits are down considerably this year.

I don't think this is the end of the cycle. I think it's a temporary lull in pulp and paper and the prospects are reasonably good, although they will be constrained by things such as the quotas that were agreed to for lumber exports to the United States - we hope that will encourage moving up the value chain to higher-value-added products - and constraints on fibre. In this area it's a provincial responsibility.

Ms Chisholm: The housing industry has really suffered over the last number of years. Housing starts in Canada have virtually been cut in half. There are a number of ways of bringing about a change there.

Social housing, which is what I'm interested in, creates a significant change in the economy not only by putting forward benefits for people who are going to live in the housing but by creating jobs, to the point of two person-years of employment per unit of housing created. It's a very effective way of stimulating the economy, of taking care of health concerns, of taking care of concerns about rising child poverty rates in Canada, where we have 1.3 million children living in poverty. The increase in the number of unaffordable rental units has been 60% from 1989 to 1994. A lot of concerns would be addressed through investment in housing.

Investment in renovation is even more effective. This government has supported the RAP program, which comes to an end at the end of this fiscal year. It's an incredibly effective way of bringing about partnership with the provinces, with the municipalities, and with home owners and land owners. It's also a very effective way of spending money that will turn around and generate employment. Not only do you get the multiplier effect in the community, but it's almost the most effective way of creating employment. That program comes to an end at the end of the fiscal year, and I think it should be extended.

The Chairman: Dean, the after-market for automobiles.

Mr. Wilson: I mentioned earlier that our industry employs roughly 220,000 people across Canada. The last two years have been very positive for our industry. People are still fixing their cars. They're using them, obviously. We tend to be less cyclical than other industries. What the future holds, I think, is positive.

I realize jobs and growth are important to the federal government, but I think you should not lose sight of your main task, which is to get rid of the deficit and start paying down the debt. There are no short-term fixes to jobs and growth. Once you get the deficit under control and you start reducing the debt you're going to see a much improved economy in Canada, which will create jobs.

I mentioned some other things you can do. The vast majority of our members are small businesses. These are entrepreneurs who need help in getting started up and growing. If you could increase that $200,000 threshold for small business to $300,000, that would be of assistance. If you can help the banks be more user-friendly towards small business, I think that would be successful.

I also mentioned helping automotive technicians. When you take your vehicle to a garage or a dealer or whoever you're going to, you want it fixed right the first time. Cars are very sophisticated now. Technology has advanced very rapidly in our industry. You have electronic ignition, automatic braking systems, and so on, and people need to be trained properly to fix those vehicles. I mentioned the employment insurance program. You can help target some of that money to industry to make sure automotive technicians are trained properly.

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Part of the trick is to encourage young people to come into the industry. If they have to spend $15,000 to buy a set of tools to do their job, surely you could give them a bit of a break on their income tax to help encourage them to get into the industry.

These are some of the things you can do to help our industry be more competitive, because it's going to benefit you. They'll do a better job for you.

The Chairman: Ron, I hate to ask you what the prospects are for employment in the fisheries, particularly for the Atlantic fishermen.

Mr. Bulmer: The numbers are pretty public. In the mid-1980s we provided about 100,000 direct jobs, on a national basis. Almost 30,000 people have been on income support in Atlantic Canada. Somewhere between 7,000 and 10,000 people in British Columbia have been asking for a similar program, although nothing has been instituted at this point. The $1.9 million earmarked for change is going to run out within a year and very little has changed. Everybody in those communities is waiting to come back into the fishery. No scenario is ever going to put 100,000 people back into the fishery. Something like 50% of those 30,000 to 40,000 people are never going to come back into the industry.

As I said, the good news is that there are opportunities in ocean industries and technology growth on the coast. Those are going to go to younger and better-educated people. All we've asked for there is some general tax relief to the 200-mile limit so those industries can continue to grow.

It's not very rosy.

The Chairman: Sandy.

Mr. Morrison: Mr. Chairman, the brewing industry in Canada has gone through a dramatic change over the last ten years. For over a hundred years in this country it operated on a very regionally directed, provincially governed basis. With free trade it had to face and make dramatic changes in its structure across the country, frankly to become competitive with a wide-open market internationally. It has gone through that transition. Plants have been closed. The regional character of the industry at the larger brewery level has changed.

The good news, though, is that it has also spawned an outbreak of a lot of very entrepreneurially driven micro-brewers that didn't exist before. They are setting up breweries and operating in a lot of parts of Canada that have not had breweries for a long period of time. These are in Quebec, Ontario, British Columbia, and some on the prairies, in Alberta. Brew pubs have also developed and evolved in this ten-year changeover.

So the employment has changed in its nature. Our concern is that the people who are building these micro-breweries, putting up risk capital, and investing millions of dollars in a single micro-brewery to get it up and running - these are operations such as Sleeman in Guelph - are put at considerable risk when there is a whole new sector that does not face the regulation, is totally untaxed, and can attract consumers with product prices that are less than half what they can possibly produce, just by virtue of the tax bite. The ability to stabilize and mature a new sector in the brewing industry that in fact is providing a different mix, is providing employment opportunities in the regions away from the major centres, is very dependent on giving these entrepreneurs and investors the opportunity to get a return on the significant sums they are investing.

Mr. Paton: I'll follow the good news-bad news format my colleagues have been using. I'll start with the bad news.

The bad news is that we're employing fewer people than we were in the early 1990s. That's the result of the recession of the early 1990s, the result of re-engineering and the efforts to get costs down so our products are globally competitive. That's still more than we were employing 10 years ago, but at 27,000 we've actually dropped around 4,000 to 5,000 people in total employment.

Also, as part of the bad news, we are like a lot of other manufacturing industries; in manufacturing, employment totals are going down. Ours are not going down as rapidly as those of the general manufacturing trends, but right now we're building a $1 billion plant in Alberta that will be operated by, I think, 28 employees. So one of the realities of the modern manufacturing enterprise is.... If you go to one of these sites, which I visited quite recently, you can hardly find anybody. There's a little control room with computers; chemicals are flowing through, are being heated up and cooled down and being separated, but there aren't a lot of people involved in the employment area.

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So Mr. St. Denis, I think you're asking a very important question. I know it's something that worries me as an individual: where are the jobs?

On the good news side, investment is happening. I think it's partly because the economic fundamentals are better. The billion-dollar plant we have being built in Alberta is being built because the feedstocks are at a good price, the tax climate is a good situation, the interest rates are a good situation, the regulatory environment is good. Putting all those things together, you can get investment in this country. Even though it will be only a dozen or more people working in that plant, it's a lot of money going into construction, and once the plant is built there are people who are going to transport the product, there are people who are going to use the product for the plastics industry or for other industries in the country, which will create jobs.

There are jobs out there. We would expect our employment numbers will go up. Certainly our investment numbers are going up. In fact, I'm appearing here today instead of being down in Millhaven, where Hoechst Celanese Canada is opening a plant today that will produce those nice little plastic bottles you get your Coke and Pepsi in. They will be widely exported into the U.S.

There are jobs in construction, there are jobs in operations, although not too many, and certainly jobs in the multiplier effects. But unless you actually have all the fundamentals correct, it's hard to track the investment and get those jobs.

Mr. Miller: I'm not a trained economist, but it does seem to me Canada still has a number of rigidities in its economic system. It was mentioned here today that the free trade agreement across Canada is not what we had hoped. We also have uneven distribution of employment, or uneven distribution of unemployment. There are pockets of high unemployment among the aboriginal community in many regions of Canada where jobs have shrunk, and clearly among the young. In some cases those pockets of unemployment are associated with skill deficits. The basic reading and number skills, the ability to read simple instructions at the grade 10 level, are not universal in Canada. I agree with my colleagues there is probably no quick fix. Human resource development policies and programs offer a way to the future, but it will be a long road.

Sectorally, this is the first time for quite a while we've had good news to report. Throughout the 1980s and early 1990s there was heavy investment in our industry to automate and mechanize operations. The result of that was a doubling of productivity per man, a doubling of output per man. It hasn't run its course, clearly, but I think the slope of the curve is different now.

For the first time in a very long time we have a large number of mines opening. There will still be a few closures as the mines are exhausted, but a quick count shows something like 13 new operations that are either committed and in construction or virtually committed. That would total some 3,500 direct jobs, with construction jobs and the ripple effect to be added to that. The current workforce in the primary producing sectors is around 80,000 employees. That is quite a bit less than it was in 1972, and it has been going down, but for the first time in all those years we will see an increase.

Those figures don't include all the people working for junior mining companies. Prospecting is both a high-tech activity and a fairly labour-intensive activity. So all the thousands of claims that have been staked in the Northwest Territories and Labrador have people crawling all over doing the prospecting, and that's another source of employment.

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The very fact that we've been able to interest people in working in Canada again after such a long hiatus is important.

The Chairman: Thank you, Mr. St. Denis. An excellent question.

Mr. Duhamel.

[Translation]

Mr. Duhamel (St. Boniface): Thank you, Mr. Chairman.

[English]

First of all, I want to apologize. I had to be away at another meeting, and I have not yet found the secret of being in two places at one time.

I want to build on Mr. St. Denis' question. I've heard in the testimony presented while I was here and I noticed in glancing at your particular presentations a number of comments about what might be done in order to assist you in thriving, in reaching new goals, creating more employment. I think we would acknowledge that you're all leaders in your own sectors. What I'd like is an indication of the order of priority you see in what the government might do to help you.

You've addressed your specific sectors, and that's useful. But I've heard: Well, you have to tackle the deficit and the debt. The regulatory burden in another sector is too much; it's really killing us. You have to target certain areas, because more jobs are produced in that particular area - I suspect that's true. You have to reduce taxation - well, yes, but then if you're attacking the deficit and the debt, that's going to happen. You have to improve training and retraining programs. You have to get more government investment within our sector, because it will lever other funds.

All of that is probably true - I think - but I'd like to get your views on that.

Let's assume you are the government. You don't have a prime minister. You don't have a minister of finance. You don't have ministers; you don't have anybody. You just decide what you are going to do to assist society, if you wish - government, Canada - in producing more jobs, quite apart from your own sector. You've shared that with us, and it's been very useful.

I don't know if everyone wants to answer that or just a few want to take a shot at it.

The Chairman: I would ask that you probably not repeat anything you've already talked about, because we have gone over some of these things. Does anybody wish to add?

Mr. Wilson: If we were the government today, I think we would want to run the government like a business, as any of our members would run their business, and not spend more money than we have. That's the key issue: creating an air of confidence in the people in this country that you're doing a good job of managing the business of government.

Mr. Duhamel: What does that mean to you, sir?

Mr. Wilson: That means don't have deficits, and get rid of the debt. In other words, don't spend any more money than you have, first of all.

The second thing is to try to make it easy for people to do business. There are too many regulations federally, provincially, and municipally that make it very costly for businesses to operate. So simplify the regulations. I know you're always being pressured by groups to create regulations to protect the public, but if you have too many regulations you reach the point where you're hampering businesses from operation. So then they can't. If you assume you could relieve $500 of regulatory burden off every business in Canada, think of the money that would be generated to hire more people and kick-start the economy.

A little common sense in running the government just like a business would go a long way.

Mr. Duhamel: So deficit and debt and regulatory burden. Are your colleagues in agreement with that? Those would be the two priorities if they were in government for a day or a week or a month or a year?

Ms Chisholm: I might be a little out of sync with this crowd, but no, I would come up with a different approach. I think this government has to think about what a full-employment policy means in Canada. We've heard today from a lot of people talking about moving toward efficiency and automation and creating less employment. Well, how do we create more employment? How do we look at getting more Canadians out to work? Perhaps some of the solutions are going to be a little more difficult. Perhaps we have to look at mandatory overtime and what that means in certain industries, and perhaps eliminate that, as a way of bringing more people into the workforce. Perhaps we have to look at areas in which government has to invest or provide tools to communities so communities can move forward and create jobs and get people back into the workforce.

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A lot of the new directions are in forming partnerships, but the partnership doesn't stop with government and business; it also has to move into the community level. I would like to see more partnerships with communities, to look at how communities can generate economic development.

Other approaches have to be considered.

Mr. Bulmer: I guess we are going to disagree, because if you want to look at an industry that proves you can't legislate jobs, look at the fishery. That's exactly why they're in a mess: because down there, where there were no other engines of economic growth, the government took every policy decision, all based on whether there were fish or not: let's create jobs, share it, do it different ways. It just doesn't work.

If I were government for a day, the minute I thought there was one nickel beyond what was needed to stay on the track of deficit reduction and so on, I'd start putting the changes in place to leave that money in the hands of people, whether it's in taxes on alcohol, on the EI I talked about, or whatever. Our great fear is that as soon as we do turn the corner, the government is going to get right back into it: let me get my hands on it and let's invest in 47 new social-oriented programs; I know better what to do with it. I say leave it in the hands of the people, and the people will decide whether to buy a TV, educate their kids, or whatever, and that will be the engine for growth and jobs in this economy.

Mr. Smith: I want to add one other element that certainly has been very effective in the aerospace business, and that is everything that can be done to promote the exportability of our quality products.

Two examples that might be of interest to you in the sense of the corresponding linkages are these. In 1993 Bell Helicopter Textron was building 150 helicopters. In 1997 it will be 300. That's a result of Team Canada approaches. It's a result of regulatory changes, particularly at the borders, in the sense of trans-border crossing of parts, etc. That translates from about 1,200 jobs to close to 2,000. Similarly, last year Bombardier-Canadair manufactured 111 models. This year it's 232, with a corresponding increase in the employment generated.

So I would say certainly it's a matter of running the government as a business, reducing the debt and the deficit, but also of taking a look at some of the silly things we happen to do. One happens to be Revenue Canada and Customs, where they've taken some innovative approaches and trusted industry, based on a post-audit, to have trans-border parts come across without paper, without someone having to be there on the site. The amount of money saved, making the products competitively priced, is something we might want to consider.

Mr. Paton: Maybe I could speak more globally than for my own particular industry for a moment. I joined the chemical industry just recently. I used to work with the government, so I appreciate Mr. Duhamel's question.

Earlier George Miller gave us some numbers on the export-import imbalances. They're pretty revealing numbers. Basically our Canadian economy still is pretty well living off our resource base. We have some nice developments in the aerospace industry and other industries, but we are still pretty heavily a resource-based economy. When we're running those kinds of trade deficits in some of these other areas, that means the jobs are somewhere else.

If you look across the country, we've made efforts in the trade missions, we've made efforts in the IT area, some nice efforts are being made by the government technology fund, but we still have one heck of a lot of work to do to make this economy more diversified and more innovative. This goes back to Porter's famous studies on competitiveness. We're still importing a lot of machinery. We're still importing a lot of electronics. There is still a lot of work that could be done to build better linkages with our industries. The chemical industry happens to be one industry that links well to a lot of other industries.

So governments can work, though not without spending a lot of money, on a framework to keep the economic fundamentals correct to move our economy onto a better world footing. That's one thing I've noticed coming into this business: how global the international business world is. That money just flows. If we don't build the right regulatory climate, we don't get harmonization, we don't get economic free trade in this country, then how the heck are we going to compete on a world stage? We're not going to be able to compete.

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So I think there are a number of things we as a country can do to put ourselves in a better position.

Mr. Duhamel: Mr. Chairman, these witnesses have shown concretely why it is that the job you and I have is very, very interesting.

The Chairman: I have a question for Steve Stinson, George Miller, and Dean Wilson.

Messrs. Stinson and Wilson, you've said we should get to zero deficit, or a balanced budget, a year earlier. At the same time, Mr. Stinson, you said we should cut EI premiums by at least 40¢, and Mr. Wilson, you said we should increase the small business tax deduction and we should allow deductions for tools and spend more money on training. George Miller, you said we have to hold the course, but we have to cut capital taxes and payroll taxes. So I ask the three of you, where would you suggest we get the money to achieve these fiscal goals? Where would you cut?

Mr. Stinson: One area where we've indicated in the past governments could make savings is completely eliminating subsidies to business. They have reduced business subsidies considerably, but they still exist. Certainly if you offer them, any company would be foolish not to take advantage of them. It's not really a double standard that they do, but the fact that they exist.

The Chairman: Which business subsidies are you talking about, ones that still exist and that we could get rid of?

Mr. Stinson: I'm not sure of the exact figure, but certainly several billion dollars still go towards business.

The Chairman: No, we've cut them from $3.7 billion to $1.3 billion, and most of those that are left are in the agricultural sector. Anyway....

Mr. Stinson: But certainly in the past the very existence of them has actually tilted investment decisions in the wrong direction.

The Chairman: We agree with you. In this committee we've always believed we should get rid of business subsidies, except we had to create a level playing field for the aerospace industry, so we've gone from a grant program to a royalty or pay-out loan program or whatever. If you know specific business subsidies that affect you and that we could get rid of, or others, I'd be delighted if you get back to me on that.

Mr. Stinson: Yes, okay.

I think the specific issue with employment insurance is that in effect it really is a tax.

The Chairman: I understand that. We understand the arguments against it. We've had the small business people, we've had the chamber of commerce, we've had everybody here, and there are a lot of people who want to get rid of it. I want to know how we replace it to get our deficit down to zero one year sooner, as you've asked, so instead of being at $9 billion in that year we'd be at zero.

Mr. Stinson: I suggested the 1999-2000 fiscal year. The projections of the finance minister only go out two years, so that's one year after.

The Chairman: In his latest statement he said we'd be down to a $9 billion deficit by the year 1998-99.

Mr. Stinson: I don't know what he intends for the following year, but I assume it's -

The Chairman: You want it by zero that year. You said you wanted it by zero that year. So we have to find another -

Mr. Stinson: By 1999-2000 is what I said.

The Chairman: You said we had to get there one year more quickly. Maybe I misinterpreted -

Mr. Stinson: No, in my recommendation I pushed it out an additional year from what it was last year. I suggested 1998-99 last year, and now I'm suggesting 1999-2000. Given the path we're on -

The Chairman: So according to you the minister is on target on the deficit.

Mr. Stinson: I would like to see him move more quickly, but I suspect he doesn't intend to -

The Chairman: Just a second. He's either on target or you want to see it move more quickly. I'm sorry -

Mr. Stinson: More quickly than he's likely to follow in his -

Mr. Duhamel: You're sounding like a politician.

Mr. Stinson: He hasn't indicated what it will be in year three, but -

The Chairman: No, he said it would be $9 billion in the year before the turn of the century.

Mr. Stinson: I'm taking the current fiscal year as a given.

The Chairman: I want to know what the position of the pulp and paper industry is, then. Do you want the deficit as Mr. Martin has predicted it will be in the year 1998-99 or do you want it at zero?

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Mr. Stinson: No, not zero, although lower than the $9 billion he has indicated.

The Chairman: Oh. So it's -

Mr. Stinson: We haven't put together precise numbers, but we would hope the deficit would be eliminated by the following year.

The Chairman: Okay, that's the third year out. I'm not sure where that leaves the Pulp and Paper Association on the deficit, but I think I have a little better an understanding.

Dean Wilson, where would you get us some money? You were very clear that you wanted a zero deficit by 1998-99.

Mr. Wilson: Exactly. The government was targeting 2% of the gross domestic product in 1997-98.

The Chairman: I know that. I'm just asking you a very simple question.

Mr. Wilson: I'm saying you can get it to 1.5%. If we assume interest rates stay low, I believe with very little change you can hit the 1.5% target, and I think a year later you can hit zero. If you have to have more cutting, cut more programs.

The Chairman: That's why I'm asking which we cut, because you've also asked for tax cuts. You've asked for the small business tax rate, you've asked for a reduction for tools, and you've also asked for new expenditure on a program for training.

Mr. Wilson: I don't think increasing the level from $200,000 to $300,000 is going to be that big a drain on your revenue flow. I'm not an economist and I don't have the figures, but I think you should check it out to see what it would cost you. Maybe it's not $300,000 -

The Chairman: We'll find out.

Mr. Wilson: - maybe it's $250,000 or some other figure. The whole point is that I think you can reduce program expenditure to hit a 1.5% target and then a zero target.

The Chairman: This is what I'm asking about. Which programs would you like to see us cut?

Mr. Wilson: Across the board in government departments. We work very closely with DFAIT in export development programs. We work with Industry Canada. A couple of years ago some of those departments were finding it very difficult to figure out how they were going to do it, but I think after two years now they're operating fine. They've found different ways to do things. They're relying more on industry and industry associations to achieve their goals. I think you need to continue on that path.

The Chairman: It has been tough on Ottawa, but there have been major cuts here.

Mr. Wilson: Nobody ever said it would be easy, that's for sure.

The Chairman: George Miller, did you have some suggestions for where we might cut further?

Mr. Miller: May I make one general comment about a criterion you might want to use in making that judgment?

The Chairman: Sure.

Mr. Miller: For a given amount of revenue you could pluck the goose in different ways. With payroll taxes and capital taxes you can very easily trace a direct impact on job creation. The higher those non-profit-related taxes are, the more unstable your employment situation is going to be, because there are business cycles. Collecting the same amount of revenue with a profits-based tax is responsive to the cycle and doesn't impact on employment at the bottom of the cycle.

The point is that if you cut out employment at the bottom of the cycle, you never regain it. That has been the experience in our industry. We're a highly cyclic industry. In a ten-year period the price of nickel went through a cycle of a factor of four between the lowest price in that period and the highest price.

So the criterion is what form of taxation has the most benefits for stability of employment? Non-profit-related taxes are the worst form of taxation.

Mr. Stinson: I would add to that statement for the forest products industry too. It's not a question of the amount of tax so much as the type of tax. Certainly the non-income-sensitive taxes that governments have increasingly relied on actually exacerbate the cycles within the forest products industry. It's not a particularly cyclical industry in production and employment, but it is in profitability and the prices that are received for the product, and that unnecessarily exacerbates the volatility in employment.

The Chairman: You know what? I agree with you. I certainly accept that point of view. I think we have some taxes out there we've stuck on business because we've had a terrible problem with the deficit and debt, and we're asking you to do maybe more than your share of deficit reduction. Corporations had gone through a pretty tough time. They weren't paying much in corporate taxes.

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I hope we can get a tax system that is more responsive to this thing, recognizing that as politicians one of the biggest things we hear is ``don't cut our programs''. There is a pot of gold out there...corporations used to pay 20% of all the tax revenue and now they're down to 8%. It puts us in the position of having to defend either your non-profitability or your non-contribution to dealing with the deficit problem.

A witness: [Inaudible - Editor]

The Chairman: It means we have to understand each one of you better so we can try to make that case. We have found cases of rip-off and abuse, as you will with us.

Peter Smith.

Mr. Smith: Mr. Chairman, I agree Ottawa has done a remarkable job in responding to the cuts that have been made. I believe there are some marginal adjustments that could still be accrued from further examination.

In my opening remarks I commented on the positive aspects of further aggressive review of alternate service delivery mechanisms, of programs that could be operated much more effectively or efficiently by the private sector. I think the example of the air navigation system is one where the government received money for the assets it has, and it will be a success, starting November 1, with the new corporation taking over - something that perhaps was not even dreamt of several years back.

There are many examples, both in the Department of National Defence and in other departments, where packages of programs could be bundled up and they would be of interest to industry to deliver in a much more effective and efficient way. Rather than concentrate singularly on cuts, there are alternatives there that may not necessarily result in the loss of appointments which perhaps an overall 10% cut might result in. There are packages of delivery services that might be improved.

Mr. Bulmer: Mr. Chairman, I want to take this argument to one of the points I had raised. I've just heard it summed up here better than I had thought my way through it.

I think that's the whole problem with cost recovery by government. It's not a scalpel and it's not a broad-axe. It's a tax, non-profit related and without any feelings, sympathy, or mechanism. You just empower the bureaucracy to put a tax on people, whether they can afford it or it relates to the size of their business or their capabilities, etc. That's why people are reacting to it the way they are. If you need the money, there must be a better way, one that is profit related, than the system in there now.

I read it was $23 billion. It's bigger than the GST as a source of revenue. Cost recovery by governments in Canada is now bigger than the GST.

The Chairman: Don't say that. People might get upset with it. Then we might have to scrap it.

Mr. Paton: I have a comment that's perhaps slightly different from the other views that have been presented here. Even though I think the economic fundamentals are critical and things like employee taxes are dysfunctional, we also have to recognize that government has a useful role to play in the economy. We in the chemical industry are facing some provincial governments that have literally no staff who know anything about the chemical industry. There is a point where reduction becomes counter-productive. We need good transport policies. We need good trade policies in this country. They help us.

So government not only has to balance the deficit reduction goal, which is very important, but it also has to do it in a way that what government preserves - and we hope it's as little as possible; you have to focus on the core requirements - is very important to the economy; it's not just overhead, it's important to the economy. I do encourage government to think very hard about what it does cut, because some areas are being cut in such a way that the cuts actually do end up being counter-productive for the economy.

The Chairman: Thank you very much.

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We've heard some tales of real woe and difficulty tonight, and we've heard some tales of real promise. I know all members of this committee, from all parties, want to work with individuals and with various industries to help promote them, to make them successful, to make them great taxpayers and great employers. This is where our future lies.

We've heard some expressions of perhaps perceived inferiority from our resource-based industries. I think any Canadian who looks at them will know this is what made Canada and they are still major creators of wealth in our country. In a lot of cases we are seeing that the jobs are changing dramatically, that the value-added may not be there. All of us look forward to working together to try to take great advantage, or better advantage, of this heritage that we have and that our resource industries have developed. We know that is your goal too. It's one of ours.

Others who are here around the table.... Doug, you are in a hard place. I'm not sure what we can do to help you, but I would like to talk further with you about this particular issue. We know there is probably a better way from a tax point of view and a fairness point of view to deal with both beer and wine and liquor. I'm not sure there is a political will among politicians or Canadians are prepared for major changes in these areas, or the industries themselves, but I'll work with you further on it, and I think other members will.

Sharon Chisholm, you've given us more to think about. We have withdrawn from social housing. We have frozen the budgets in these areas. We do have a stock of social housing now, and there may be some things we can do with that stock and in working with you which might help you achieve some of the goals you want to reach, even if it no longer means an active funding of new developments by us. I think we can work with you in those particular areas.

Ron Bulmer, keep fishing.

Mr. Bulmer: Stay out of the boat.

The Chairman: On behalf of all members, let me tell you it was important for us to hear from you - sectors so important to every one of us and to every Canadian. We will work with you.

Thank you very much for being here and for your contribution to us.

The meeting is adjourned.

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