FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, June 8, 1998

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[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call this meeting to order and welcome everyone.

As you know, we are beginning the pre-budget consultations early this year. We look forward to the comments of many of the witnesses as to the message we should be sending the Minister of Finance as to what the priorities should be vis-à-vis the fiscal dividend. Today pursuant to Standing Order 108(2) we are resuming the pre-budget consultation process.

We have the pleasure to have with us today from the Retail Council of Canada Mr. Leonard Eisen, chair of the taxation committee, and treasurer of Agora Food Merchants. Welcome. We also have Mr. Peter Woolford, senior vice-president, policy. Welcome. From Osgoode Hall Law School, we have Professor Neil Brooks; and from the Technical Committee on Business Taxation, Mr. Jack Mintz and Mr. Wilfrid Lefebvre. Welcome all.

You are all experts when it comes to appearing in front of the finance committee. As you know, you will probably take five to ten minutes to make some introductory remarks and thereafter we will engage in a question and answer session.

Mr. Peter Woolford (Senior Vice-President, Policy, Retail Council of Canada): Thank you, Mr. Chairman. It's a pleasure to be here this morning. I have a couple of opening remarks.

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We arrived here with some trepidation this morning to find that some of the members of the technical committee are here watching us as we discuss. It will simply make us more diligent and careful in our remarks. Anyway, we are pleased to be here.

In terms of a general view, we believe that the analysis and proposals in the Mintz report are very helpful to this committee and to the Minister of Finance as far as they go. Our concern at the very broad level is that they are undercut by a number of restrictions that the Department of Finance and the minister placed on the committee itself.

First is the requirement for revenue neutrality. In our view the overall burden of taxes in Canada is still too high and so proceeding from the assumption of neutrality is a significant restriction on the committee's ability.

Second, we are concerned that the committee was restricted from looking at the employment insurance program and the Canada Pension Plan, both of which are very major profit-insensitive taxes.

Finally, given that Canada is a confederation, the focus only on federal instruments does limit the report, because there are some real doubts in our minds about how likely the provinces are to buy into this system and whether they would co-operate with some of the directions. As well, provinces and municipalities are major leviers of a number of profit-insensitive taxes, at the provincial level a number of payroll taxes, and at the municipal level, of course, property taxes, where Canada is relatively overly active.

I think the other good important point that comes out of the committee report is the clear exposure of the higher burden that retailers pay in terms of taxes. This is a burden carried by retailers, by wholesalers, and by a lot of other service industries, which are the major growing part of the economy and where jobs are created.

There are a number of reasons why we have adopted the positions we have. We believe that many of the changes proposed in the committee would help to reduce the discrimination against the firms that the Retail Council represents and we would remind the committee that retailing is a very large part of the economy. Retailing is the second largest category after manufacturing, and if you include the wholesaling and distribution portions of the industry it becomes the largest single employer of Canadians.

Our industry already experiences profit levels below those in a number of other sectors. Recent research by us based on Statistics Canada data shows operating profits have consistently represented less than 3% of revenues.

The most recent year for which we have data, 1994 was very much a typical year when you look at the performance of the industry. Between 30% and 40% of all firms of all sizes were losing money. And a similar number of small and mid-size firms actually had negative equity. So this is an industry that's not terribly strong in that sense. Paying higher taxes and particularly some of the profit-insensitive taxes exacerbates the difficulties these firms face and it may well contribute to the high rate of failure we have often seen in the retail industry.

I have a couple of specific comments with respect to the individual recommendations inside the report. We agree with the government that the first priority is a reduction in the personal income tax burden for ordinary Canadians. Particularly from the perspective of retailers, we see very well the damage that the failure of Canadians to enjoy a growth in real personal disposable income has caused for the domestic economy and of course for the retail trade. However, we believe also that the needs of the private sector cannot be ignored. Revenue neutrality should not be the objective in business tax policy. All businesses and especially service firms must get a reduction in their tax burden.

The first area in our view is to tackle profit-insensitive taxes. This is a pressing need in the retail industry because of the low level of profitability. When we appeared before this committee for the pre-budget hearings just before the last budget, we called for a major reduction in employment insurance premiums, which in our view are set at a level that is wholly unjustifiable. The Mintz committee was told not to look at employment insurance because it was not a payroll tax. But the minister's recent comments in this area suggest it is. We believe that a single corporate income tax rate is the way to go and we would support the reduction to around 33% to 35% suggested in the Mintz report.

We have argued with this committee and with provincial governments for some years in favour of the deductibility of capital and payroll taxes against taxable income. We sympathize with the committee's desire to stop rewarding irresponsible provincial policy but we simply cannot support a policy approach that uses damage to taxpayers as the means of changing provincial policy. Businesses must not be made to suffer in order for governments to resolve their differences.

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Finally, we are concerned about the impact on our independent retail members of the proposal to remove the $ 500,000 capital gains exemption. The Mintz committee is correct in recognizing the role of this exemption as a form of saving for retirement, but there is another aspect that is important and that is the role this measure plays for so-called angel investors. This type of investment is very common in retail start-ups and helps many new retailers enter into the market. It is especially valuable given the high risk entailed in starting a new store.

Mr. Chairman, those are our opening remarks. We would be glad to respond to any questions from the committee at the appropriate time.

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

Professor Neil Brooks (Osgoode Law School, York University): It's a pleasure to be here to give evidence before this important committee. I have appeared before the committee several times over the years and it's always a privilege.

I might note that in terms of having my suggestions adopted I'm batting about 0.001 before this committee, but one more time with feeling, as they say.

I was asked to say something about the Technical Committee on Business Taxation, the Mintz report, and I'm pleased to do that. I'll just take ten minutes and make four general comments and then deal with a series of more specific issues in as much time as I have.

My first general comment is that the committee in its report, and maybe it was the terms of reference that required it to do this, linked fairly tightly the question of base broadening and rate reduction and said if you want to broaden the base by closing tax loopholes or removing tax expenditures or tightening the rules, then what you ought to do is use that revenue to reduce the rates.

Those it seems to me are two absolutely distinct questions. The question of what loopholes or tax expenditures ought to be removed from the act is a completely separate question from what the rates ought to be. That is to say there is a whole set of arguments about whether specific tax expenditures ought to be in the act, and they have absolutely nothing to do with what the rates should be. The question as to what the rates should be has absolutely nothing to do with what the base looks like.

The reason I think the committee linked those two questions is that the arguments for closing the loopholes are absolutely compelling and you clearly ought to do that. But then linking the two recommendations that allowed the committee then to piggyback the need for rate reductions on top of the arguments about base broadening meant it didn't have to make a serious argument about what the corporate rates ought to be. That is to say it tried to make it look like the rate reductions just followed logically from the base broadening.

That's just not the question, and my first general comment is that I urge this committee to treat those as absolutely separate questions. Go through each tax expenditure, each corporate tax expenditure, and ask what purpose is this expenditure serving? Is it a legitimate government purpose? Is it a correctly designed subsidy to achieve that purpose? Is there some other policy instrument we could use that would be more equitable, simpler and more efficient in achieving that objective? Once you have done that, have a look at the rates and go through a set of arguments about what the corporate tax rate in Canada ought to be.

Incidentally, the financial press also tries to link those two issues all the time by calling the report a package. I don't think it's a package at all. It's a whole series of quite discrete, quite independent recommendations. There isn't any reason why the government wouldn't go through it, take those recommendations that make sense and ignore those that don't.

There's nothing in this report that would suggest it's kind of a coherent whole that has to be totally accepted or rejected. Quite the opposite. The startling thing about it is that it's just a set of almost random recommendations that relate to the corporate tax system, some good, some bad, but it's clearly not a package and the arguments clearly aren't linked in any way.

The second general point is on one of the major premises of the report. At least this appears to be a premise. I don't suppose it is a premise. You could go through the report and make all the recommendations it suggested or not without tying back into this general premise. But it is a premise that again the business press has picked up and it appears to underlie some of the recommendations. It assumes that the way you make the Canadian economy productive and the way you increase the standard of living of the average Canadian is simply by reducing the cost of doing business in Canada, and in this case reducing the cost of taxes to business.

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There are, of course, two quite basic models of how you increase the rate of growth of output in a modern economy. One of those models suggests that the best way to do it is to increase economic output and reduce the amount of government intervention in the economy. That is, workers will be made more productive if businesses are free to invest wherever they like and in whatever manner they like.

That model for economic growth, incidentally, was set out as clearly as it can be set out in the Conservative government Agenda for Economic Renewal, which it tabled back in 1984. That was the model all of its recommendations for governing were based upon, and the proposals for governing, and it proceeded to implement that agenda.

The tax prescription that model calls for, of course, is lower taxes on savings, lower taxes on investment, lower taxes on high-income individuals and corporations in order to provide incentives to work, save and invest. Most tax reforms, certainly over the time the Conservatives were in government, followed from those basic premises, and so, by and large, does this report.

There is, of course, another model of how you increase the productivity of your economy and how you increase the international competitiveness of your economy. Under that model the public sector plays an absolutely substantial and vital role. The model rests on the premise that what makes an economy productive and what results in a higher standard of living for the average family is a highly trained, well paid, secure and co-operative labour force that is able and willing to adapt to changing technology and innovations; a well developed public infrastructure, an education system, health system, transportation and communication systems that render private investments productive; a professional public sector that is capable of taking the lead in processing and gathering information and in allocating public resources; and a society in which social equality is actively promoted and, therefore, there is a high degree of social cohesion.

I don't want to simplify that debate, but I would make the point that it seems to me the theory and the evidence is overwhelming that it is the second model, not the first, that leads to real higher standards of living for the average family, and yet it seems to me that the report is clearly premised on the first model.

A third general but incidental point is simply this. The committee devoted some time in the report to analysing, for example, why some corporations seem to pay tax at low effective corporate tax rates, among the many issues it looked at. In fact, we know very little, or at least we have very little useful information about many aspects of our corporate tax system.

Therefore, my third general point contains this suggestion to the committee. I think what this committee should recommend is that all tax returns of corporations over a particular size ought to be public documents. There clearly is no privacy interest in protecting the tax returns of large corporations and it is hard to see how any corporation could be placed at a competitive disadvantage if all tax returns of corporations over a particular size were made public.

It seems to me that the Canadian public simply has a right to know how much our largest corporations are paying to the Canadian government, and from present data sources you can't get any of that information. You can't even speculate about it. We carry on this continual debate about whether large corporations are paying their fair share and so on, and no one knows how much they are paying, at least individual corporations.

All of those corporate tax returns ought to be public documents, and in particular, even if you are not prepared to go that far, at the very least all of the data that relates to the corporate tax expenditures that individual corporations are benefiting from ought to be made public information. That is to say, everybody accepts now that, conceptually, these tax expenditures are identical to direct government spending programs. But if the government delivers a research and development grant, for example, directly, we can generally find out which corporations are getting it and how much they are getting.

But if the government happens to deliver the very same program through the tax system, we have absolutely no information about what corporations are getting, and therefore, at the very least, corporations ought to be required to file a schedule with their tax return that sets out how much these various tax expenditures benefited them and how much tax they paid the Canadian government, and that schedule ought to be a public document.

My final comment, just to keep to my ten minutes, is that the report didn't go nearly far enough in closing corporate tax expenditures or corporate tax loopholes. Frankly, I can't think of one tax expenditure that ought to be left in the act. The corporate tax base ought to be made absolutely comprehensive, as comprehensive as possible, and the rate clearly ought to be reduced somewhat, period. There simply ought to be no deviations from it. There is no question that it would make the system simpler, more equitable and more effective. Indeed, there is no question that the recommendations in the report, which only go halfway in closing some of these tax loopholes, will make the system enormously more complicated without increasing either the equity or efficiency very much.

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I would like to give you a couple of examples to illustrate how you would gain enormous simplicity, fairness and efficiency by actually closing many more loopholes than the committee suggested.

One recommendation of the committee, to take an example that might seem contentious, although it shouldn't be, is that the government retain a slightly modified small business credit. That makes absolutely no sense.

The small business credit is a subsidy program that costs the federal government about $ 2.2 billion, one of the largest in the corporate tax base, which fails on every criterion of a sensible spending program. For example, no one would argue that it is equitable. If you tax corporate source income at only 20% and the individual who owns the business happens to be in the 50% tax bracket, a high-income individual, you have given them an enormous tax break.

If the individual who owns the business happens to be a lower-income person or a middle-income person who is only paying 30% at the personal tax rate, you haven't given them nearly such a substantial break. It is bizarre that you would have a subsidy for small businesses that effectively subsidizes high-income small business people more than low-income small business people.

A criterion that we could all agree on, that any government subsidy program ought to meet, is target efficiency. That is to say, you ought to be able to show that the subsidy, the $ 2.2 billion, is in fact targeted so that those people who come within the rationale are receiving the subsidy and the people who don't come within the rationale are not receiving it. Yet the small business credit is grossly over- and under-inclusive of its rationale, whatever its rationale happens to be.

I would like to know what it is, incidentally. It seems to me that the one we hear most often from small business is that it seems to amount to the fact that they are closer to God than everybody else. But it is hard to know what it would be. Some people say it is to create employment.

The small business sector creates a lot of employment and, therefore, we are going to provide a $ 2.2 billion subsidy to small business. The fact is, as the report points out, 70% of employment in the small business sector is created by only 4% of the firms.

If the government had a direct subsidy program that was that inefficient, small business people would be screaming. Indeed, the great majority of small firms that benefit from this subsidy are simply franchise operations or things like franchise operations, such as doughnut shops, fast food stores, video stores and dry cleaning outlets. There is a whole range of businesses. One could ask the question “Why would we be subsidizing those folks at all?” It is a mystery to me.

Incidentally, the jobs they do create are inevitably jobs in which the workers are unskilled or lower paid. They often have no fringe benefits. They certainly have no security. The layoff rates and job instability are much greater than in large firms. We need those small firms to be providing jobs, but why would we subsidize them and artificially boost, in effect, the amount of employment in that sector of our economy over what it ought to be if we were allocating resources efficiently? It makes absolutely no sense.

The small business credit has distortionary effects. For example, it has the unfortunate effect of discouraging consolidation amongst small businesses, since only one small business can get it. If two small businesses merge, suddenly they lose a substantial amount of the subsidy. It has all the problems with tax expenditures. It encourages complications in the act. It makes the act enormously complicated. It gives rise to an enormous amount of abuse.

The government is not accountable for this spending. It ought to be removed and all small businesses ought to pay at the corporate rate. If the small business doesn't want to pay the corporate rate, then there ought to be an election in the act to allow them to be taxed like a partnership. There just is not a case for taxing those small businesses that happen to incorporate any differently than we tax sole proprietors or partnerships.

This is my basic point. For all of these tax expenditures, the way for the committee to think about them is as direct government subsidies. That is, notionally convert them into a subsidy and say, okay, as a subsidy, does this expenditure program make sense?

Take the one that has already been mentioned, the half a million dollar capital gains exemption for small businesses. In effect, that is a subsidy about which we say to farmers and small business people that we are going to subsidize them to the tune of hundreds of millions of dollars a year. It is a very expensive subsidy. We are not talking peanuts with these programs. We are in effect subsidizing them by hundreds of millions of dollars.

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We are going to subsidize small businesses and farmers, and the way we are going to do it is by giving them a subsidy that is equal to the tax they would have to pay on their capital gain if they sold the business. Now, ask yourself if that is a sensible program.

If someone on the government side were to stand in the House and say “We have a good idea. We think we ought to subsidize farmers by writing them a cheque equal to the amount of tax they would have to pay if they sold their farm”, they would be laughed out of the House of Commons. First of all, what are you doing giving a subsidy to farmers when the only way they can get it is by selling their farm? That makes no sense to me. I would like to hear someone explain the sense of that to me.

Secondly, it is distributed absolutely randomly. It has nothing to do with how good a farmer they are or how long they have farmed. Indeed, the farmers who cash in on it are the farmers around the city of Toronto who are selling out to golf courses and development. My guess would be that the real farmers out in Saskatchewan are getting close to zero benefit from this subsidy.

Indeed, it has the peculiar effect that, when they happen to sell their farm, it depends whether they sell in an upswing or a downswing in the economy. If they sell in an upswing they get a big cheque. If they happen to sell in a downswing, when they really need the money, they get zero because their land might not have appreciated in value.

It is a subsidy that is distributed absolutely randomly. It goes only to high-income people. You have to be a small business or a farmer whose assets have appreciated in value by half a million dollars and have income that hasn't yet been subject to tax in order to cash in on it. It's just a joke.

My point is, take every one of these tax expenditures that you have converted notionally into spending programs and ask this question: Does this tax expenditure meet the criteria that we expect any decent government spending program to meet? Inevitably the answer is no.

This is my final point. I was going to run through some of the other tax expenditures, but I will make this point because it goes a little more to the heart of some of the recommendations.

The committee worried a lot about the partial integration of the Canadian tax system. Again, it is a system where, in effect, what we do through the dividend tax credit and through the one-quarter exemption for capital gains is that we notionally refund to the shareholder who gets corporate source income in the form of a dividend or a capital gain part of the tax that has been paid at the corporate level.

It is a bizarre system that we have in Canada. It is unprecedented around the world.

Eventually what the committee suggested was this. One way we can correct one kind of anomaly, because with this dividend tax credit we are, in effect, often giving shareholders a credit for taxes that haven't even been paid at the corporate level, which looks bizarre, is to have an advance corporate tax at the corporate level. I assume the committee members are familiar with the broad design of that. That means that from now on, at least, we won't be refunding taxes to shareholders that the corporations haven't paid.

But that advance corporate tax hasn't worked well in any country. It is enormously complicated and it is enormously distortionary.

The much better solution is just to get rid of any pretence of integration; that is, get rid of the dividend tax credit, get rid of the one-quarter exemption for capital gains. The system will be enormously more equitable, it will be more efficient and it will be incredibly less complex.

There is no evidence at all that those measures, the dividend tax credit and the one-quarter exemption for capital gains, do absolutely anything for our economy. There is no question they are inequitable. Fifty percent of the one-quarter capital gains exemption goes to the top 1% of Canadians. The last time I looked, something like 20% of the dividend tax credit went to the top one-fifth of 1% of Canadians; namely, those folks earning over $ 250,000. They are enormously regressive measures.

The dividend tax credit is sometimes justified on the basis that it reduces the cost of equity capital for Canadian corporations, but as everyone knows, in a small, open economy there is absolutely nothing you can do to reduce the cost of equity capital for Canadian firms by giving a subsidy to high-income Canadian shareholders because there are so many foreign shareholders investing in Canadian equities. They are the ones who are, in effect, capping the cost of equity capital, and there are many tax-exempt organizations investing in Canadian corporations.

I don't think anyone seriously argues that you can affect the cost of capital to Canadian firms by giving a subsidy either in the form of a dividend tax credit or a capital gains exemption to high-income Canadian shareholders.

Moreover, the report indicates that we are not sure who is paying this corporate tax. Maybe the corporate tax is paid by Canadian consumers in the form of increased prices or maybe it's paid by Canadian workers in the form of reduced wages. So we are not sure who pays that corporate tax, but if that's right, if that corporate tax is passed forward to consumers or back to workers, then this dividend tax credit looks even more bizarre because now what you are doing is in effect giving a tax refund to shareholders for tax that's been paid by Canadian consumers. It seems to me pretty silly.

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It certainly makes our system a whole lot more inequitable. There isn't any evidence that it makes it more efficient. If you want to simplify the act, what you do is just abolish those and just do what the Americans do, just a straight corporate tax, reduce the rate if you want, get the rate where you think it ought to be and don't make any pretence about it.

I was going to run through some other corporate taxes but I think I'll stop there, Mr. Chairman.

The Chairman: Thank you, Professor Brooks.

Mr. Jack Mintz (Chair, Technical Committee on Business Taxation): Mr. Chairman, thank you very much again for welcoming me back to the finance committee for a presentation.

Since I have already had quite a lengthy time with you before, I'm not going to try to repeat what I talked about last time. I would like to do is raise a couple of points that have arisen out of the various discussions I have had with Canadians on the report with various business groups and also colleagues who have been experts and who have evaluated the tax system.

I'm not going to try to comment right now on either of the presentations. I don't feel that would be my appropriate role at this point. However, if any of you wish to ask me questions on some of the things that were raised by either Professor Brooks or by Peter Woolford, I would be happy to respond.

I have now actually presented this report at 18 different forums since early April, and my committee members have made at least another 15 presentations. I'm not quite sure of the exact number but it's been close to that.

We have really talked about this report with various business groups ranging from the Retail Council of Canada, the Alliance for Manufacturers and Exporters, the Canadian Bankers Association, the list goes on. We have talked to some of the members at different conferences, such as the Conference Board and also the Canadian Economics Association meetings, the Canadian Public Economics Group and things like that. There's been a lot of discussion about the report.

Overwhelmingly the view that has been taken is that the two principles the committee has suggested for business tax reform are the right ones, moving toward neutrality and reducing tax rates so that they are more consistent with international competition.

I have not heard anyone say let's raise rates and narrow bases. No one has rightfully said that. They all view that this is actually the right way of going.

We did have a package that is revenue neutral, and so some of the comments that Professor Brooks made I don't think apply to really what we did. We did not feel that raising taxes on businesses is going to create economic growth and job creation. There are lots of countries such as the Scandinavian countries that provide all sorts of very important expenditures to individuals, such as in education and in infrastructure that supports businesses. They also have corporate income tax rates at the 28% level and they also have tried to keep their systems cleaner.

I think in today's world this is where we are going and I think one of the important issues we have to remember is that we are trying to particularly keep jobs in those industries that could be threatened by international competition in the future. In particular that applies to the service sectors.

Most business coalitions with which we have spoken have agreed with these basic principles, but it's not been easy for them to come to a single view of the report. The report is so balanced that they find that some of their members benefit from the proposed package while others do not. But we should not lose sight of what we need to accomplish.

The report's recommendations are not to pit one sector against the other. It is just the opposite. Businesses trade with each other through their normal practices. High taxes on one sector can hurt other sectors as well and the best way to tax businesses is to ensure a level playing field so our tax system does not affect sound economic decisions. In this regard I think Neil Brooks and I would agree in terms of where one would like to move the system.

It is also consistent to keep our tax rates, especially our corporate income tax rates, to a level that does not result in significant base erosion for federal and provincial governments. That I think is really one of the most important underlying themes in our report that we discussed and which I raised with the committee last time I was here. I think that is a very critical issue.

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I have been asked repeatedly in various forums if governments will cherry-pick the proposals to raise revenues without reducing corporate tax rates. My response has been that governments do not want to increase the business tax burden. This action would not be consistent with the aims of job creation and economic growth.

On the other hand, businesses should not cherry-pick the report either. Even though there are recommendations to curtail some incentives, the package is very balanced and would result in improved prospects for job creation and economic growth by making the tax system more neutral while counterbalancing base erosion arising from excessively high tax rates.

I have also been asked many times if governments can wait to follow through with the report's recommendations and my answer is simple and threefold.

First, our unemployment rate is still 8.4% and about four percentage points higher than the American rate. We need to improve our business tax structures so that more jobs will be created here, especially in the knowledge-based service sectors where international competition is increasing and growth prospects are highest.

This is a point where I would disagree with Professor Brooks in his discussion. We have to remember that the business tax structure has a very significant impact on the ability to create jobs in Canada. If you look at what many countries are doing today, they are trying to have a business tax structure that is conducive for economic growth and job creation while at the same time sustaining sufficient revenues for governments so that they can provide education. Frankly, it is of very little use to this country if we are to educate our workforce only to be used by other countries; in other words, people going off to other countries with the education we helped them with here. What we want to do is make sure that people we educate in Canada are able to work in Canada and enjoy the prospects for economic growth and job creation in this country.

Second, there are significant and more immediate problems in terms of the erosion in the tax base. Tax base erosion is best countered by lowering corporate income tax rates. However, we also need to take other actions into account, such as modernizing the taxation of international income in Canada and improving the integration of corporate and personal taxes so that the tax base is not substantially eroded in the next few years. In the case I talked to you about last time, the lifetime capital gains exemption is now being used by many large businesses and there is significant base erosion that will arise as a result of it. These issues cannot wait a long time.

Third, actions must be taken with respect to the EI surplus. Our proposal for experience rating would impose a tax on those firms that would cause lay-offs and is best achieved when the EI contribution rates are being reduced. As everyone in this room would understand, the best time to undertake reform measures that make our economies more efficient and dynamic is when the overall amount of tax collected can be reduced. In fact, tax reform is best achieved in any country when you are at the same time reducing taxes. In our EI proposal in terms of moving to experience rating, the ideal time is right now, when we are thinking of reducing EI rates over time.

The report of the Technical Committee on Business Taxation provides a framework for business tax reform without reducing government tax revenues. Should the government act on this report, it will encourage job creation and economic growth as well as counter any potential base erosion. We can always wait until later to deal with these themes established in this report, but only to Canada's loss. I hope the government will decide to move on this report in the next two years.

The Chairman: Thank you very much, Mr. Mintz. Now we will proceed with a question and answer session.

Mr. Dick Harris (Prince George—Bulkley Valley, Ref.): Gentlemen, thank you for coming today. I want to address a couple of questions to you. The first one would be to Mr. Woolford and I appreciated your statements.

It is clear that the disposable income for Canadian families has decreased substantially over the last five, six, seven years. I think the most recent figure is about $ 4,000 per Canadian family since 1993.

I would imagine that retail business in Canada has seen the impact of that. I want to see if you could give us a comment on that and as well the effect payroll taxes have on small business operations, as to their viability and their ability to expand their infrastructure or hire additional employees through expansion plans and business promotion.

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Mr. Peter Woolford: I will make some comments and it may be helpful to ask Mr. Eisen to make some comments as well. While Agora is a corporate organization, it has a lot of franchisees affiliated with it who run independent businesses. Leonard may have some insight into how this affects independent operators as well.

On the personal disposable income side, we certainly have seen in the retail trade some of the implications of that very slow growth in personal income. With the recovery of the economy after the recession in 1990-91, a lot of other sectors of the economy snapped back actually quite quickly. It was the domestic economy that came back very slowly and that was driven by very slow growth in consumer demand. Even though it's a period of low inflation and considerable stability in prices, consumers have shown a great deal of reluctance to increase their spending, and it's for exactly the reason you mentioned, that personal disposable income has gone nowhere. That has been a continuing concern for the retail trade.

We will be releasing fairly shortly a bit of an historical review of the performance of the retail industry for about 10 years. We are finding that sales did grow slowly. The other side is that because of the slow growth the retail industry has been under very intense competitive pressure. Firms have been really forced to compete at new levels of urgency, if you will, to attract customer dollars. That seems to have reduced the profitability of the industry somewhat over time. That's a natural link to your second question on payroll taxes.

As I mentioned in my opening remarks, we found when we did our research that I think between 30% and 40% of our small and mid-size members had negative equity, and between 30% and 40% of firms of all sizes, large, mid-size and small independent, were losing money in 1994. What that means is that roughly one-third to a little more of the firms in retailing were paying taxes at a time they were losing money and many of them had negative net worth.

So they are in a very difficult situation. They are required to make their contribution to the public coffers at a time when they have negative net worth in many cases, and in many other cases they are not earning the revenues to pay those taxes. That's a very heavy burden for a firm to carry and that's the reason we identified profit-insensitive taxes as being so important.

That being said, our sense still is that the number one priority really is to get the tax burden on ordinary Canadians down. We still feel that in terms of getting the domestic economy going that's where the first attention should be paid. That also has the benefit of being a progressive instrument as well, so it could be designed in a way that ensures that money is put back in the pockets of ordinary Canadians more quickly and more effectively, and relatively less quickly and less thoroughly into the pockets of upper-income Canadians.

Mr. Leonard Eisen (Chair, Taxation Committee, Retail Council of Canada): Looking particularly at the franchise food industry, where you have small operators that are in many cases family-run enterprises, if you look at the cost of labour as a relative cost of the total operations, that could range anywhere from 10% to 12% of revenue. If you look at that as a percentage of gross profits, it could run anywhere from 45% to 55% of gross, which leaves roughly 50¢ on the dollar to pay all the other costs, including taxes, so that the ability to grow and develop is pretty limiting. A fair piece of that expenditure is related to employment tax, payroll tax, be it employment insurance, Canada Pension, workers' compensation and all other non-profit-related costs.

Mr. Dick Harris: Thank you, Mr. Eisen.

Mr. Brooks, I wanted to talk about a couple of things you mentioned. I was a little taken aback by the way some of your wording and your phrases appeared to be beating up on small business.

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Having been in small business myself for over 20 years, I couldn't find much joy in the tax regime that the government was offering me all through those years. I felt, as a matter of fact, almost like a second-class citizen because of the level of taxes that I had to pay.

We are probably going to disagree on whether small business should be beat up in the way that you are suggesting.

I want to talk about your definition. You seem to classify all tax benefits that are available to business in Canada as tax loopholes. I would like to think that there are in our system some legitimate tax benefits that are extended to Canadian business in return for their investment, the fact that they are risking capital to get into business. They are hiring people, creating jobs. They are paying taxes. They are contributing to the economy overall. Unless I misheard you, I think it is unfair to describe whatever tax benefits they may have as being loopholes.

I know there are some pretty wild tax benefits out there that could legitimately be called loopholes and I think it is the government's responsibility to plug them up, to make sure that the tax system demands a reasonable contribution of tax from business.

Am I right in understanding that you consider all tax incentives or benefits given to business as tax loopholes?

Prof. Neil Brooks: This is my point. It probably doesn't matter much what we call them. Some folks call them loopholes, some folks call them tax expenditures. Maybe some of those terms are more pejorative than others.

This is the basic point. When you enact a special tax measure for some industry or for some type of activity, the tax measure that you enact is equivalent in terms of its economic effect to a direct government subsidy. That is to say, if the government decides to subsidize small businesses or if the government decides to subsidize research and development, it has two ways of doing it. It can say “What we will do is write you folks cheques”, or it can say to anyone who does research and development, “If you do something that counts as a research and development expenditure, we are going to pick up 50% of the cost by writing you a cheque for 50% of the money you have spent”. Everyone would say “Yes, that is a spending program. Let's worry about who is getting it. Is it effective? Is it equitable?” All of those things.

The government could do it that way, which would clearly recognize the spending, or it could say to the firm, “We are going to pick up 50% of the cost of your research and development, but rather than write you a cheque, what we will allow you to do is simply offset the cheque that we would otherwise write to you against your tax liability, we will put it in the tax system, and it will be called a tax expenditure”.

In terms of economic effect they are absolutely identical.

My argument is that virtually all of those so-called tax expenditures in the tax system ought to be taken out. Most of them don't serve a legitimate government purpose. If they do, they can almost always be designed more effectively as a direct spending program, and it is the same with the small business credit.

So you are right. I don't think we should join issue on what we are going to call them, but as long as we both agree on what we are talking about, you are absolutely right.

I think they ought to be taken out of the system. I think our economy suffers enormously because the government distorts the effective allocation of resources by providing particular sectors with these broad, uncontrolled, unaccountable spending programs.

Mr. Dick Harris: Let me ask you one quick question. If in fact the government follows what you are suggesting and eliminates all the tax incentives or tax subsidizes, as you call them, for business, what would be a possible way to offset that?

As you probably know, Canadian business is overwhelmed with regulations. The latest numbers I have seen are that these regulations are costing Canadian business about $ 6 billion a year. That might just refer to some of the insane regulations, I'm not sure.

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If the government was to start to eliminate some of those tax incentives, could that withdrawal be offset by the elimination of a lot of the regulations that are out there, which would in fact get the government more out of businesses' face and allow them to increase their bottom line?

Prof. Neil Brooks: It seems to me that each one of those questions ought to be treated separately. We ought not to see them as being trade-offs. We ought not to say to business, “We have this really inefficient spending program by which we are now subsidizing small business. We are going to remove that, but in return we are going to stop sending regulators in to visit your fast food outlet once a week to make sure that your food is fit to eat”. That is a bizarre kind of trade-off.

It seems to me that both of those things ought to be assessed independently. If we have regulations out there that aren't serving their purpose, they ought to be removed no matter what you do with the tax subsidies.

The same goes for the corporate tax rate. If our corporate tax rate is too high, it ought to be reduced, no matter what you do with the tax base. On the other hand, if we have a whole lot of spending programs in here that make no sense, they ought to go out, even if you are in favour of keeping the corporate tax rate where it is.

All I am saying is that they are absolutely discrete questions.

[Translation]

Mr. Gilles-A. Perron (Saint-Eustache—Sainte-Thérèse, BQ): All members of the panel have one thing in common: they believe that reducing the tax burden of businesses would contribute to economic growth and job creation. I remember Mr. Mintz saying that high- technology jobs needed to be created for the brilliant young brains we have here in Canada. Do you not think that personal income tax should also be reviewed at the same time, because there might be a brain drain towards the United States if we require Canadian workers to pay practically twice as much taxes. What can we do about personal income tax to stimulate job creation and ensure economic growth?

[English]

Mr. Jack Mintz: I will make my comments as Jack Mintz, professor of the University of Toronto, as opposed to chair of the technical committee, because this is not an issue that the technical committee dealt with in its report.

I think the personal tax issue is an important one and there are a number of areas in the personal tax system that we have to think about in terms of what we want to address.

First of all, we have to worry about the working poor because, on an after-tax basis, their income can be in fact less than what people on social assistance get. As a result, we really do have to worry about what we are doing to our working poor in this country and what kind of help we can give them.

We have to worry about the young people. I am not sure what people mean by middle class, but there are young people who are starting off and they might be earning incomes somewhere in the range of $ 30,000 to $ 80,000. They are the ones we have to worry about, particularly in terms of keeping them in Canada. I think that is where the personal tax issues become important.

In terms of which personal taxes should be cut, we have to remember that payroll taxes, including employment insurance premiums, are a form of personal tax as well. They are paid by the employees. I am not talking about the employer's portion, I am just talking about the employee's portion. If we cut employee contribution rates, that would be equivalent, in my view, or at least largely equivalent, to cutting personal income taxes for low-income and lower-middle-income Canadians because it would affect people, particularly up to the $ 40,000 level.

Currently under the personal income tax system a lot of these individuals have savings that are sheltered from taxation. Either they own a house, which is effectively not taxed in terms of the return on investment, or they put money into pension plans or RRSPs, which are also a form of tax-sheltered savings.

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So there is really little difference, in my view, between an employee insurance premium cut and a personal income tax cut if you are homing in on individuals with less than $ 40,000 in income. They will have almost the same economic impact. I think that one has to look at which ones you want to deal with, in terms of that income level.

If you are getting into the upper-income groups, where we worry about international competitiveness and high-tech industries, then only the personal income tax cuts will help in that regard, in terms of the upper-income categories.

I am not saying that we should reduce taxes for people earning $ 150,000 to $ 200,000 in income, which is, by the way, roughly where you start looking at the high income tax rates in the United States. What I am saying is that those lower-income individuals who are still making relatively good money are the ones we have to worry about in terms of the high-tech industry and we should think about reducing personal income tax rates in those categories.

[Translation]

Mr. Peter Woolford: We agree with you, Mr. Perron, that the economic situation of Canadian consumers is important, and this is why we stressed in our introductory remarks how important it is to reduce personal income taxes.

Secondly, as Mr. Mintz mentioned, we recommend a reduction in EI rates. If EI premiums were reduced to a level where income and expenses would be equal, the personal income tax reduction would be of about 1% of their annual salary. Average-income Canadians would benefit directly from this reduction, as the maximum amount is approximately $ 38 000 or $ 39 000. For average-income Canadians, this would represent a significant tax reduction. As for personal income tax, we are concerned about the level of personal income of Canadians. Reducing their tax burden would contribute very efficiently to increasing their capacity to invest and buy goods. It is our feeling that this would be a relatively important first step for the federal government.

[English]

The Chairman: Are there further comments from the panel?

[Translation]

Mr. Wilfrid Lefebvre (member of the Technical Committee on Business Taxation): I will speak in my own name and on behalf of the Technical Committee on Business Taxation, which I represent, since personal income tax auditing was not part of our mandate. I totally agree that in an ideal world, both business taxation and personal income taxes would be reviewed at the same time to meet the objective. As a member of the Technical Committee on Business Taxation, I was surprised at first to realise that the unemployment rate in Canada was around 9% at the time and that it is still over 8% today, while in the United States, it was around 4%, and that Canada was competitive in many areas but at a disadvantage in the specific area of services.

Immediate adjustments were therefore needed. Since the report proposes neutral adjustments, i.e. tax revenues would be almost equivalent to what they are now, I believe it is appropriate to proceed with the reform as soon as possible, whether independently of the personal income tax reform or in conjunction with it.

[English]

The Chairman: Mr. Riis.

Mr. Nelson Riis (Kamloops, NDP): Thank you, Mr. Chairman.

This has been a fascinating set of presentations this morning.

I will try to confine myself to three questions. Perhaps I will just ask three questions and then ask you folks to respond.

The first one concerns employment insurance. With the surplus this year being as high as $ 19 billion, perhaps we should start thinking about expanding the benefits to some of the people who ought to qualify for some benefits, recognizing that most people who lose their jobs don't get any benefits and they paid into the fund.

Just looking at it from the job side, my first question would be to Mr. Woolford. Mr. Mintz's report describes the small business sector as being very small in terms of size, and you mentioned your franchise operation. If we were to lower those payroll taxes even substantially, do you really see those family operations going out and hiring more people?

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Neil Brooks, your comment I thought was interesting on the mythology or the mystery surrounding corporate taxes, that a way to bring some transparency to this would be to make tax returns public. I think that's an interesting suggestion, which we will pursue.

Could you comment on steps that the United States has taken in terms of closing off some corporate expenditures that we might want to consider in our context?

Mr. Mintz, would you react to the proposal by Professor Brooks about one way to perhaps bring some more confidence back into the system in terms of how large corporations particularly are using the tax expenditure programs, the proposal that these returns be made public so that people will see how the tax system is actually being used and what levels of taxes or to what extent corporations are paying their fair share.

Mr. Peter Woolford: With respect to the impact on employment of lower payroll taxes, I think the answer is yes, you would see an increase in revenues, in incomes paid to Canadians.

In the retail trade you might not see additional new people being hired in individual businesses. What you are certainly likely to see is that individual businesses would give their staff more hours per week. Retailing is heavily dependent on part-time employees and typically those people will work somewhere between 15 and 25 hours per week. In many cases the retailer would like to have those people in his or her store for a longer period of time but simply can't afford it.

So I think one of the first things we would see is an increase in the number of hours that part-time staff work. That's fairly important because in many cases those part-time staff are students paying for education or individuals who are new to Canada and starting out their career. Retailing is very much a gateway industry. A lot of Canadians get their first job there, whether a woman returning to the labour force after raising a family, a new Canadian, a young Canadian just starting out their working life. Those people are just entering into their career. Most of them do not stay in retail but they rely on retailing to give them some of the basic job readiness skills that will serve them well in later life.

By allowing retailers to have a slightly larger payroll budget that they can allocate to paying people as opposed to paying taxes would give those people more hours, give them more experience in their stores.

In talking with our members we find that in many cases the nature of competition in the industry means that an employer has an employment budget that he or she notionally sets aside, a certain amount of money used to cover their human costs over the course of the year.

Out of that must come everything. Out of that must come employment insurance, the salaries of individuals, workers' compensation premiums and any other costs attached to the employment relationship. The greater amount that governments take, of course, the lesser amount the individual gets. And so if governments were to back off their take in that area, I think it's fairly likely that those extra revenues would flow to the individuals in the firms.

Prof. Neil Brooks: Let me just mention one thing about the payroll tax. The committee concluded after reviewing all the evidence that payroll taxes don't affect employment. Payroll taxes come out of wages. It suggests they might in the short term, but clearly in the long term they don't. They are just paid by workers. They come out of wages.

We have one of the lowest payroll taxes in the world as a percentage of GDP. I think it's even lower than the U.S., last time I looked. It's clearly one of the lowest of the industrialized world and so I'm not sure why we are all hung up about this payroll tax. I rather suspect that business centres went after the payroll tax and particularly the unemployment insurance payroll tax because what they really wanted to do was make sure that benefits didn't increase again. One way to try to drive down benefits is to try to convince people that you lose money or you lose jobs if you have a payroll tax and therefore we have to reduce the payroll tax to create jobs and therefore we have to reduce the benefits of our unemployment insurance.

But the evidence on the effect of payroll taxes on jobs, it seems to me, is pretty conclusive. They don't affect jobs. In the long run all they do is reduce wages. If they reduce wages, they can't affect the level of employment in the economy.

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There is another thing in terms of reducing taxes and creating jobs, and this is an important point. Everyone wants to reduces taxes. It's like asking if you want to pay less for the car you are about to buy. Who doesn't? Of course you do. You want to pay a lower price, but the question is are you prepared to take a lower-quality automobile. No, I'm not.

The question can never be do you want to reduce taxes; the question always has to be what government services do you want to reduce, the comprehensiveness of our health care coverage, the amount of government spending in education, public pensions, the safety of streets and cities, the livability of your cities? If you want to do that, the way to do it is cut taxes.

None of those things come cheap. You have to pay for them. It's pretty clear if you just reduce taxes for small businesses, for example, by reducing payroll taxes, and that creates some employment, at the same time you have presumably taken some money out of your education system, your health system and created unemployment over there. It's just a question of allocating those jobs across the economy. What do you want, more Nintendo games and more private swimming pools or more recreational facilities and a better education system?

What you are buying with your taxes is public goods and services and you are also discharging your moral obligation to other people in your society who aren't as well off as you are, and it seems to me that traditionally those are things that Canadians have really valued. So we ought not to be under any illusion here that there's a free lunch by cutting taxes. There isn't.

In terms of your thing about the U.S. provisions, it's been a while since I looked at this. This is not in my short-term memory.

Massachusetts requires some disclosure of corporate tax returns and other states do as well. If we want to go to the U.S. system, the U.S. has lots of measures we could adopt. For example, the U.S. prohibits the deduction of most business lobbying expenses, both direct lobbying expenses and grassroots lobbying expenses. There is a lot of money in that measure.

It is not so much for a technical tax reason, it's largely on the grounds of equity. If the government is to be subsidizing lobby groups, people who are lobbying the government, why should you only underwrite business lobbying? That's effectively what you do when you allow it a business deduction. It was done largely on account of a constitutional argument, that if the government is going to subsidize people who are lobbying government, it ought to do it to everyone or no one. If you're going to do it to no one, then you ought to disallow the deductibility of those expenses.

The Americans disallow the deductibility of executive compensation over a certain amount. They certainly deal with intangible expenses in a much different way. They do not go nearly as far as I would. For example, one of the things that's always been a mystery to me is why we allow businesses to write off as a current expense their advertising costs. It's pretty clear that a lot of advertising costs that lead to brand recognition, for example, are capital expenditures. They ought to be amortized. They ought to deduct them over future years. Why would we ever tolerate a tax system that in effect had a bias in favour of firms spending their money advertising as opposed to doing things that are much more productive?

Mr. Dick Harris: Have you ever been in business, Mr. Brooks?

Prof. Neil Brooks: I have not, no.

Mr. Dick Harris: Try it some time.

Prof. Neil Brooks: If you think that discredits everything I say, there you go. I'm not saying they should pay more or less. I'm just saying we ought to do it fairly.

We ought not to be subsidizing some business people and not others. We ought not to be subsidizing those business people who advertise and not those business people who in effect try to earn their income by spending their money in more productive ways. We in effect subsidize the advertising when we allow them to deduct it as a current expense and don't force them to amortize it.

I picked up on this issue 15 years ago. This is a trivial little point, but I'll say it one more time. I don't know why we allow business people to deduct 50% of the cost of their business meals and entertainment. That makes absolutely no sense. When business people go out for a business meal or to a Blue Jays game, they presumably enjoy that game as much as the person sitting beside them. That is the personal benefit of that experience, likely equals its costs. That's the most fundamental basic tax principle. People ought not to be able to deduct things they derive personal benefit from.

If interested in preventing corporate tax evasion or business evasion, that would be the first one I would go after. Ninety percent of Blue Jays season tickets are tax deductible as a business expense. Yet go to any Blue Jays game and folks are sitting there having a good time with their friends and their family. I'm fond of saying there's likely more fraud being committed by business people at any Raptors game or any Blue Jays game than there is any welfare office in this country, without question.

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I'm still smarting about this one a little so I'll mention this. I came down today in the aircraft and Jack was sitting up in first class. It's always a bit of a mystery to me why we allow business people to deduct the expenses of first-class travel. You go out to the airport and what you discover is that the back end of the plane gets there at about the same time as the front end. I don't think we are getting any competitive advantage by having these folks sit up in the front end of the plane.

I guess, Nelson, my general point is simply that there is a whole range of measures. It seems to me that we could in effect broaden the corporate tax base, and not only make it more equitable but at the same time make our economy more efficient because the tax system would not be distorting business choices. We would say to business people, “You go out there and invest where you think you can earn the highest rate of return. Don't invest where you think you can get the biggest tax deduction. Forget about the tax system, worry about making profits”. If you want business people to worry about making profits, you have to get your tax system right and you don't get it right when you have all these goofy exemptions and loopholes in it, favouring some business people over others.

Mr. Jack Mintz: I always get entertained by Professor Brooks' comments, but two that I dislike the most are when he misquotes me and when he comes to some sort of “we and they” conclusion that is totally incorrect. I just want to mention that I paid out of my own personal resources my own consumption item, my upgrade certificate to be in the business class today. I think that was a low blow.

Prof. Neil Brooks: I didn't mean to imply you were deducting.

Mr. Jack Mintz: I'm surprised, Neil, that you would even do that today.

Prof. Neil Brooks: I didn't mean to imply that you did, but business people do it all the time. That's my point. That can't be denied.

Mr. Jack Mintz: You were giving an example and I just want to say I think it was quite inappropriate.

The other comment Neil made was about employment taxes and I want also to dispel his comment. I think you have to read a bit more carefully our report, because what we said about employment taxes and payroll taxes is the following.

They do to a large extent fall on lower wages and so the employment impact, although it may discourage people from wanting to work because it can discourage work effort, is lessened as a result. However, there are areas in which we believe payroll taxes can impact on employment not just in the short run but in the long run. This is why at some wage levels, the low-income wage levels, you can't simply push the wage levels down any further. So payroll taxes that are, let's say, at $ 7 an hour would tend to get shifted in terms of less employment as opposed to lower wages. And so there is some impact for some sectors and there are particular sectors that would get affected.

In our report we point out that if you look at the retail trade sector, agriculture, for example, there are a lot of low-wage workers in those sectors. If you cut employment taxes there I suspect it would help in terms of employment for those sectors, and so I can understand the concerns raised by the Retail Council of Canada with respect to that.

With respect to Mr. Riis's question about publishing reports, this is not a question I have particularly given a lot of thought to. I'll say a couple of things but I may ask my legal friend, who is more knowledgeable about some of these things than I am. Perhaps Wilfrid might expand on some of the points.

One of the critical issues I think in any development of any text in the administrative system, whether in this country or any other country, is to make sure people are willing to comply with it. If we undermined that compliance we would undermine the whole tax system, because voluntary compliance is extremely important.

One of the gains in publishing the tax forms of large corporations is you might believe it might add to voluntary compliance of the tax system if people believe that this is making the system more fair. On the other hand, if you do publish that kind of material you can impact actually on the behaviour of individuals. Why do we do this only for large businesses? Why don't we publish tax forms for small businesses? Why don't we publish tax forms for high-income individuals?

The reason we don't do that is that by letting people feel that if they reveal a lot of their own secrets, whether it's a business in terms of competing with other businesses or individuals who have their own particular lifestyle or whatever, so it won't get misinterpreted like some people have done next to me a few minutes ago...you want to actually make sure that people are willing to comply with the system. Otherwise, if they know their information is going to be published, then they are going to start doing things that perhaps may not help very much.

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I could tell you about some of the game playing that went on, for example, in Ontario when it published salaries of public sector employees who made over $ 100,000. That seemed like a really fair thing to do, except that there were a lot of people who were playing games in order to keep below the $ 100,000 level. For example, they were turning their income into research income. That way it looked like they were not being paid over $ 100,000 and their name did not appear on the list. There were all sorts of things that happened with that.

That doesn't help very much in terms of what we are trying to do. It hurts compliance and it can have a negative impact. It is something that you want to think about very carefully because, even though there may be two states in the U.S. that do it, most governments do not publish that kind of information.

Mr. Wilfrid Lefebvre (Member, Technical Committee on Business Taxation): I think that is the case.

If that issue is opened up, I think it should be subject to another committee and another study. But, obviously, opening up what is ingrained in our system, the confidentiality of tax returns and tax information, should be looked at in terms of what our competitors are doing.

The vast majority of states are not required to disclose that information. In France and in many other countries there is no such requirement.

As Mr. Mintz pointed out, if we asked that of public companies, why not ask it of anybody receiving what Mr. Brooks calls a tax subsidy or a tax preference? It raises a whole host of issues.

Mr. Leonard Eisen: Mr. Chairman, there are two issues that I think should be commented on. One is the reference to the employment reduction and the employment tax. By reducing some of the stress on the retailer, it provides a pool of funds that retailers could use either to increase wages or to provide more benefits that currently are not available, particularly health and welfare type benefits, which are today very costly and quite restrictive.

The second comment I would like to make concerns the question that Professor Brooks referred to as advertising and amortization. You have to differentiate between brand identification advertising and price advertising. Most retailers are in the price advertising field. They advertise products competitively and, therefore, communicate to the world what their price is on a particular product.

I certainly feel that is part of the communication system and part of what the retail customer has come to accept and look for. Therefore, without being able to advertise, the retail customer has no knowledge as to what the best prices are and how to achieve a low-cost item.

The Chairman: Are there further comments?

We will move to Mr. Szabo.

Mr. Paul Szabo (Mississauga South, Lib.): Thank you, Mr. Chairman.

This morning I had the opportunity to read Lehman Brothers' Global Weekly Economic Monitor of April 17, 1998, and it was on the subject of Canada's debt management. It concluded by saying that what Canada was doing was good news and that it would continue to put downward pressure on real, inflation-adjusted interest rates, which, as all the witnesses know, Canada has been enjoying for some time. It is, in my view, probably one of the most significant tax breaks, as it were, or the equivalent of a tax break that you could ever deliver to all Canadians who are investing or to businesses for their capital programs, etc.

I was curious why none of you wanted to talk about the propriety of the debt repayment strategy and whether or not there is a balance point of debt repayment as opposed to allowing the debt-to-GDP to take care of itself and reach a sustainable level of debt simply through growth. I think it is important that we have your views on the importance of maintaining a clear, focused strategy on debt reduction, at least to get it to a sustainable level of debt.

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Mr. Leonard Eisen: Mr. Chairman, speaking on a personal basis, I quite support debt reduction. However, I believe there has to be a balance between the reduction of personal income tax and debt reduction. Otherwise, we carry forward a burden into the future that our young people will carry as they attempt to build their futures.

What is the correct number? That is up for debate. However, I agree that you cannot rely totally on the growth of GDP to bring it into balance.

The other concern is, as you reduce debt you reduce the market for bonds. You reduce the ability to finance or invest as the market continues to shrink. Therefore, I think there has to be a balance between debt reduction and the ability to invest in offshore and increase the RRSP component and other important investments, which will then bring some balance. As you look to the future, with the proposed investment strategies of the CPP, there will not be sufficient investable assets of a quality that will meet the requirements of both pension funds, private and the CPP.

Mr. Peter Woolford: Mr. Chairman, in our pre-budget submission last year we expressed some concerns about the balance the government had reached. In our view there is still some room for the government to reduce its expenditures further and put the money from that expenditure reduction into a pool from which funds could be reallocated to higher-priority uses.

We weren't necessarily arguing that the total revenue in that way should be reduced, but the government probably needed to go through and reassess again its appropriate mix of spending.

We would strongly support both a tax reduction, for the reasons we identified earlier, and some continued strong efforts to get the level of debt down.

Where we would like to see the government not put additional resources is into additional spending. In our view, if there are new priorities that the government has on the spending side, those priorities should be financed from existing resources through some efforts to remove resources from low-priority areas and reallocate them to higher priorities.

The Chairman: Are there any further comments from the panel?

Mr. Jack Mintz: Mr. Chairman, on the issue of tax versus debt reduction, first of all, I think the government in the last budget had a fairly good strategy. The $ 3 billion contingency fund that is in the budget, as long as it meets the balanced budget for that year, means that automatically there will be a $ 3 billion reduction in debt. Whether you want to add another billion or two surplus on top that, I think one can debate that issue, but I think it is a fairly wise strategy and we will be bringing down the debt as a result of it.

I have to remind people of what the tax-to-GDP ratio was like in 1980 and what it is today. In 1980 it was about 30% and it was only a bit higher than the U.S. tax-to-GDP ratio. Because of the large deficits and the huge pile-up of debt that we have created in this country, we have now a tax-to-GDP ratio of 37%, which is far greater than it is in the United States.

I think that as we bring our debt down and our debt-to-GDP ratio down, even with the $ 3 billion designated from the contingency fund per year, we will have room for tax cuts. In fact, we should have room for tax cuts because we have to remember that the significant expenditure line that will be coming down will be public debt charges that the government will be able to save out of bringing down the debt.

Tax cuts will be on the way. Then the question is, how are we going to do these tax cuts over time? What is the best strategy?

For this I think the government must have a framework for bringing down taxes in this country over time. Every step that we move along, year by year, should be a baby step toward some overall proper framework for reducing taxes.

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I think we will be able to afford those taxes, even if we don't change the amount of expenditure by the federal government very much, because that public debt service charge is going to be coming down over time. I think that will be an important ingredient in terms of budget strategy over the coming years.

Mr. Paul Szabo: Mr. Chairman, I want to ask a question about one last area and it has to do with the EI fund. Most people who have talked about some sort of relief for Canadians opt first for EI as opposed to tax reform or rate reduction, simply because it is difficult to nail down the number of what it would cost, even to reduce a rate by a nominal percentage, as Mike Harris has found out.

To deliver reasonable dollars or noticeable dollars to people you have to cut rates fairly substantially.

I want to ask about the motivation. It seems to me that the motivation of the EI cut is linked to a notional surplus more than anything else. The attitude is that it must be there and, therefore, we should push it back down.

If you were to start an EI system today, would you set up the system as purely an insurance plan whereby you would put in premiums and all you would charge back against those premiums in this notional fund would be benefits paid out and the administration of the program, period? Or is it and has it become, in fact, a system that is meant to promote not only security, the insurance value, but also the job creation aspect of it, for training and development and all the other things that governments do? I am thinking of things like the millennium scholarship fund, possibly the Foundation for Innovation, and technology partnerships, all of which are directed at promoting employability, and some in the longer term. Technology partnerships certainly would create real jobs in the shorter term, which would relieve the burden and unemployment would be lower.

I am wondering whether part of the solution in dealing with the whole EI situation is to clarify its purpose and maybe to clarify the act under which it operates. Should the act be modified to reflect the true values so that we don't start arguing or worrying about whether some notional account is somewhere when in fact the objects may very well be more than simply providing benefits to the unemployed, but something broader like creating real jobs or promoting employability?

Mr. Peter Woolford: It would seem to me that there are a couple of things within that question. If, indeed, the intention is to find funding for a much broader package of labour force measures, it would seem to us that the best way to do that would be through a tax system that is more neutral in its impact. That would drive you, much more naturally I would think, to the corporate and personal income tax systems, which are designed as progressive instruments, particularly the personal income tax side, and out of the payroll tax side, which, for reasons that we have described already, is an inferior way of collecting taxes.

I am not sure we would want to go in that direction. In our view employment insurance is an insurance program. It is there to protect individuals against the loss of their job and I think that it probably rightly should be kept there.

If the intention is to continue to tax employers and employees on the basis of salary and payroll, or wages and payroll, then it should be limited to that insurance side.

If the government wants to put together a much broader package of employment measures, then it probably should be paid for through a broader measure of taxation, and certainly one that doesn't have the deficiencies that a profit insensitive, income insensitive or individual welfare insensitive tax has.

Prof. Neil Brooks: I would like to respond to that, Mr. Chairman.

On the payroll tax side, I think it is the case that if you are not going to experience rate it in the way that the Mintz committee suggested, then it ought to just be converted into a general payroll tax. That is, we ought not to make any pretence that this is a premium for social insurance. It is just a payroll tax and we use it to fund general government revenues, and like many other government programs, employment insurance is funded out of general revenues.

It begins to look very strange when we keep calling it an employment insurance premium when it is not that at all. It doesn't bear any relationship at all to the benefits.

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But I would be in favour of that. I think what the government should do is take that tax and just convert it into a sensibly designed general payroll tax. I don't think general payroll taxes are so bad. They are, in effect, consumption taxes. As consumption taxes, I would argue that they are much better than the GST, for example.

Therefore, it seems to me that one option the committee ought to consider is just taking that tax and converting it into a general payroll tax, de-linking it entirely from employment insurance benefits.

With respect to the debt, just to reiterate a point I made earlier, we sometimes talk about debt reduction, tax cuts and so on as if there is not a cost to all those things. There are benefits and there are costs. The question is, what is the cost of having that large debt?

One cost, as you mentioned, is that maybe it keeps our interest rates up because the debt percentage to GDP is so high. The fact is, because we have such a large debt, the interest rates are higher than they otherwise would be because the ratio is so high. If we brought the debt down we could bring interest rates down even further.

I would make the general point that I don't think there is much evidence that debt levels have much to do with interest rates in a country. Again, in a straight, simple-minded kind of comparison, our debt ratio is clearly much higher than that of the U.S. Our short-term interest rates now are lower.

But there is a cost. Are we better off as a country spending $ 6 billion more a year to bring down the debt, so that, whatever the numbers are, instead of it being 40% of GDP in 10 years it will be 40% of GDP in 7 years? Whatever those numbers turn out to be, are we better off doing that, or are we better off doing something else with the $ 6 billion? For example, we could put it into a national day care program.

I would argue that, at the end of the day, in the long run, your economy will be more productive, your society will be more equitable and you will have more social cohesion if you put the money into a national day care program rather than paying down the debt. By paying down the debt, I don't think you have bought very much, frankly.

The Chairman: I have a question in relation to the World Economic Forum standings vis-à-vis Canada's competitiveness. We rank fifth. Actually, we have slipped by one position. But as far as corporate tax rate competitiveness is concerned, we are forty-third.

Mr. Brooks, do you have any comments on that? What do you think the implications of that are?

Prof. Neil Brooks: I don't think the implications are very good. I think when you look around the world and you compare the amount of taxes that different countries impose on their corporate sector, and compare that to almost anything else that you care about, you don't find much correlation.

It is always misleading to take a little snapshot, like one year, because these things change dramatically over time.

I have run these numbers just for fun. It is the case that if you take, for example, through the 1970s and the 1980s, those countries that imposed the greatest amount of taxes on corporations—and this isn't statistically significant or anything—it happened to correlate with economic growth. It happened to correlate with labour productivity growth even stronger. Of course the country that imposed the highest taxes on corporations was Japan throughout the 1970s and 1980s.

There is always a problem when you take these kinds of one-year snapshots.

Incidentally, as you probably know, that report is prepared by a couple of folks from Harvard. They have a big hand in it, and as with everything else in the world, most people would argue that it is enormously ideologically driven.

Jack may know what the numbers are. I haven't done them recently.

A couple of years ago the Department of Finance published a graph that showed the amount of taxes on the corporate sector as a percentage of GDP in industrialized countries, and Canada was at the low end. That is, if you take payroll taxes on employers as being a tax on the corporate sector and you collect all those taxes, Canada is at the low end.

I haven't looked at those numbers recently. You can get some crude numbers from the OECD revenue statistics and do that, if you look at the individual tables for countries. But, traditionally, we have been low. So I am surprised that in this report we came forty-third. I don't know what they were measuring.

Mr. Jack Mintz: Mr. Chairman, first of all, there are a lot of things that explain economic growth in a country and there are a lot of factors that can affect it. Taxes are one. They are not the only factor. In fact, our report was very careful about that.

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Some of the studies that have been done by the World Bank and some other organizations have shown that high levels of tax on investment impact on productivity and result in lower economic growth, when factoring in other factors.

You cannot simply take a little diagram and say “Here is the growth rate of a country and here is the level of tax. How are these related?”, because other things are going on. For example, Germany and Japan had relatively high growth rates in the 1970s and 1980s. However, we also know that Japan and Germany are not stars in the 1990s.

There are things to explain that which go beyond the tax system. There are large countries that have made heavy investments in education and in research and development. They have also done a number of other things that have led to strong economic growth. Taxes have not been the contributor to their economic growth. The high level of taxes on corporations has not been the contributor to their high economic growth.

Italy, Japan, Germany, all three countries, have high taxes. They are higher than in Canada. The rest are much lower than us. But those three countries are now all contemplating tax reforms that would lead to sharp reductions in their corporate income tax rates.

Italy is looking at eliminating the regional corporate income taxes in favour of a form of value-added tax on businesses. That would result in a very sharp reduction in the corporate income tax rate in Italy.

Japan is talking about a 40% corporate income tax rate, rather than the current level, which is over 50%.

Germany has talked about tax reform. It has been derailed in the past year as a result of other political issues that are occurring in Germany. We will have to see what happens after the next election in Germany, but it has been talking about sharp reductions in corporate income tax rates.

Do they affect the prospects for economic growth and job creation? Absolutely. There is no question about it. Most people have found that in the studies and you will see it in all the studies that have been done over the past 10 years.

Therefore, I don't think we should sit back and say that countries that have high taxes are also high-growth countries, because that is not what is happening today.

In fact, if you look at countries like Sweden and some other countries that have better growth rates, they try to encourage their business sector in their economy. They do it by having low rates and broad bases. That is the best way to go. That is the way Chile has gone, that is the way Sweden has gone, as well as many other countries.

That is what this report says, and we advise the governments of this country, federal and provincial, to move in that direction.

The Chairman: I have a general question on taxation. As you know, we will be making recommendations in reference to the entire issue of taxation.

I would like to know from the panellists what should be the priority for the upcoming budget. Should it be reducing EI premiums, excise taxes, the GST, corporate income taxes, or personal income taxes? What should be the appropriate balance between these taxes, and should this committee recommend across the board tax cuts?

Who wants to start?

Mr. Leonard Eisen: I will put my foot forward, Mr. Chairman.

It seems that the engine that drives the economy is the consumer. Until the consumer has more disposable income, the ability to grow and the need for products and productivity will be be limited.

In answer to your broad question, I guess one could say yes to everything, but initially it would seem to me that you have to put more disposable income into the hands of the consumer. In spite of what Professor Brooks said, you have to provide incentives for business to invest and continue to grow. You have to be able to put forward a concept of encouraging investment, the ability to expand operations and modernize, to become more efficient and competitive.

We saw what happened in the retail sector when the large U.S. companies came to Canada. Many firms folded because they did not have the resources to compete effectively.

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In answer to your question, given a choice, I would start with the reduction of personal income tax, make some contribution toward reducing the employers' employment insurance premiums, and reduce the debt, as a threefold thrust.

Mr. Peter Woolford: It is a brave association person who disagrees with his chair, but I wouldn't mind adding a couple of thoughts.

Leonard has stated the case very well. We believe that the first piece that should be done is on the personal income tax side.

The other consideration the committee may want to bear in mind when it looks at the employment insurance program is that it is, in fact, a regressive tax. It falls relatively more heavily on low-income Canadians than it does on high-income Canadians. That was part of the burden that I mentioned in my answer to Mr. Perron. For that reason alone it is an area that the committee should look at very hard.

The other thing that the committee and the government may want to look at is the experience of the government in the late 1980s. It made a number of changes on the PIT side, I believe in 1988, and then introduced the goods and services tax in 1990. Canadians did not understand the implicit trade-offs or the balance the government was trying to get at that time.

I raise that because, if the government wants to make any changes on the corporate income tax side, it probably makes sense to put together a balanced package, even if it covers several years, so that at the same time as popular changes to the personal income tax system or the employment insurance system are being made, if there are some necessary changes this committee or the government feels should be made on the corporate side, I think from the point of view of selling them to Canadians and getting acceptance for those less easily sold elements of tax change, it makes sense to put them together as a package.

The changes need not necessarily all fall contemporaneously, but if the government intends to bring forward some changes on the corporate side it would make sense to package them with whatever changes the government was planning on the personal side so that they don't get out of sync with each other. It is simply a tactical consideration rather than a tax policy consideration.

Prof. Neil Brooks: I think that our problem is not that our taxes are too high; I think the problem is that we don't have our tax system right and we ought to do a lot to get it right, and a lot of that involves implementing some of the recommendations of the Mintz committee report.

Again, I would make the general point that you don't make people better off when you cut their taxes and reduce government services. All it means is that rather than buying goods and services, paying tax and getting it delivered through the public sector, you now force them to pay for those goods and services by paying prices. We have learned that in Ontario. I don't think anyone in Ontario would suggest they are better off because of the tax cuts, because now they are spending their money on all sorts of goods and services that used to be provided by government.

I volunteer in a public school and I see that dramatically. As special education is cut back in the school, it means that parents have to bear directly the cost of providing special services for their children. They are not better off. They are a whole lot worse off.

When people say, for example, “We can't afford to pay for a national day care program through our tax system”, I have no idea what they are talking about. Do they think that we are not now paying for child care? Of course we are. But we are paying for it in the form of prices, individually, or we are in effect forcing women, in most cases, to do it unpaid in their own homes.

Therefore, rather than spreading the cost of child care, which we all benefit from equitably across the tax system, what we are doing is simply imposing it on people who can't escape the cost. We haven't saved anything, we have just shifted the cost.

I have maligned Jack, so let me malign other folks who are not here to fight back or insult me.

My parents, who are both retired, live on public pensions. They live a relatively decent life, quite frankly, on public pensions. I have a choice. Do I want to pay more taxes and, in effect, let my parents support themselves on public pensions, or do I want to pay less taxes and have my parents living with me? Do you know what I mean? That choice is pretty simple for me, and a whole lot simpler for my parents, I might add, just so I don't malign them too badly.

For our taxes we are deriving enormously valuable services. It is the way that collectively we decide how we want to provide goods and services to one another, and generally I think we get some of our most valuable services through the public sector. I, for one, am prepared to pay for them. Anyone who thinks that by reducing taxes you are, in effect, saving people money is under an enormous delusion. What worries me is that in the process of doing that we will end up destroying not only the social fabric of this country but some of the best services we have provided to ourselves.

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The Chairman: So you don't feel that taxes are high.

Prof. Neil Brooks: No. Absolutely not. Our taxes aren't too high. They are distributed wrongly and we can correct the system to take out some of the inefficiencies, but again, as everyone knows, by international standards our taxes are lower than average and traditionally have been much lower, incidentally. Furthermore, they are only high now, and we are still below the average industrialized country, because we are burdened with these enormous interest charges. We are paying on the debt, and those grind down.

Everyone knows where the hell those came from. Those came from the Conservative government's monetary policy in the late 1980s and from the government's tax cuts back in the 1970s. I hesitate now to say anything about Jack, because I don't mean to malign him. We are friends and I'm surprised he took my comment so personally. I just happened to see him sitting up there and....

Mr. Jack Mintz: Do you want to keep this up, Neil?

The Chairman: By the way, Professor Brooks, I just want you to know there are no first-class flights between Toronto and Ottawa. There's only business class.

Prof. Neil Brooks: Business. That's what I mean. Why in hell are we subsidizing the business class? That's my point. Get rid of that business.... I get tired of....

Mr. Jack Mintz: Finish your point.

Prof. Neil Brooks: Okay.

The Chairman: What are the priorities for the upcoming budget? Where should we be focusing on? You touched on all sorts of areas, but I have yet to understand where you would like to go.

Prof. Neil Brooks: Mr. Chairman, I came here to talk about the Mintz committee report. If you want me to come back and talk about how the government should be spending its money I would be absolutely pleased to do that.

One of the things I think is just disastrous is the attempt to target these government spending programs. The attempt to save money by targeting old age security I think is just going to be disastrous at almost every level. I would put this money back into making some of these programs universal, including old age security. What a disaster that's going to be. And to base it on family income....

This committee is at fault for doing this, so I might mention this. The committee thought maybe it was doing a good thing in its last report to the government, where it suggested it target the zero rate of tax, or the new increase in the zero rate of tax, or that we ought to target.... There were two or three things you targeted by having them taxed back, phased out. It creates enormous complications in our tax system. It creates enormous inefficiencies and disincentives in there when you have people earning $ 25,000 facing incredibly high marginal tax rates, much higher than any faced by high-income people because of these goofy phase-outs.

The first thing I would do is get rid of all those phase-outs. You don't make high-income people any worse off if you increase their marginal tax rate slightly and in effect restore these benefit programs to them. One place I would start is by undoing a whole bunch of things you recommended in your last report. Then I would be absolutely pleased to come back and talk about that, since you asked.

Mr. Jack Mintz: I guess I have the same vantage point as Professor Brooks in that I did not expect to talk about tax cuts today. I'll probably have a lot more to say about this over time, but not related to our report.

Just going back in terms of what we are suggesting, at least in terms of the business taxation side, one can do an awful lot to improve the system without necessarily reducing revenues. That's really one of the major points in our report. If you decide you want to cut slightly taxes on businesses in order to make the report sell better because you create more winners that way and reduce the number of losers, I think that could be done and at very little cost. But I'm not sure I would necessarily be as concerned about that, because I think what we are suggesting is that a lot of things could be done in the proper way.

In terms of employment insurance, I have to agree with previous speakers when they responded to that point. If we want to base employment insurance on insurance principles, then the experience rating we recommended in our report is exactly the right way to go, and the fact that you want to basically cut the average employer premium and employee premium level to balance the fund because you don't need to accumulate a surplus that's too large. So if you are moving to the insurance principle or keeping the insurance principle, then that is the approach I would use. I think there will be a priority on cutting the employment insurance program.

If you don't believe you want to blow up the account, let's say, and not have the insurance principle apply any more, then I think Professor Brooks is absolutely right. The current EI payroll tax is a lousy payroll tax. It's full of distortions. If you are to have a payroll tax, the correct way is to have a general payroll tax. I totally agree with that point. However, you still have to look at that relative to other taxes and see whether that's the level you want, or how high a payroll tax you want to have.

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On employment insurance, my view is that we probably would want to put a priority on reducing the level of premiums there. I think we should keep the insurance principle and I think we should be lowering the premiums.

If you try to move to experience rating, as we suggested in our report, it's going to take a little time to put that into effect. You have to, in a sense, delay some of those premium reductions really with the idea that you are going to give a bonus down the road in terms of the experience rating system.

In terms of the personal income tax cut, I reiterate that if you are going to cut taxes on the personal side, that would be another pressure point. But we have to remember that we collect so much personal income tax in this country that we will be able to afford cuts in personal income taxes over time, after we have dealt with the employment insurance problem. We would then have enough reduction in the public debt charges that we could actually reduce some of the tax on the personal income tax side that we once had enjoyed in terms of a lower level.

In order to reduce those personal incomes taxes, I suggest that if the idea is to mainly take off taxes of very low-income and middle-income individuals with less than $ 40,000, you are not getting that much, you are not buying that much compared to cutting employment insurance premiums for employees.

You are getting about the same thing. So I would suggest where the personal income tax cuts are really important is when you start hitting at some of the higher income levels. That will be a pressure point because of the issues that we have to deal with in the United States.

Neil Brooks made the comment that we are a little less than average in terms of our tax-to-GDP ratio compared to most OECD countries. That's true. We are about average. But we are much higher than the United States and there are pressure points as a result of the kind of economic integration that we have with the United States that we can't stop. That's just the way the world is going to operate. Bringing personal income tax levels down is going to be a priority.

I reiterate that in terms of surplus I would spend some of it bringing employment insurance premiums down, but you might want to delay that to bring in experience rating. I would bring personal income taxes down because we will be able to afford to do that without inhibiting some of the expenditure lines of governments. I don't think we should start spending fortunes of money and not have any tax cuts at all as those public debt charges go down.

We still have a lot of very good social programs in this country, I think, with summary investment in health care, education. I even agree with some of the comments that Neil made about targeting some of these social programs a little less than what we have done. We made them too tight over time. I think we could still afford doing that plus having some tax cuts.

I think the strategy is really doing all three of these things in a reasonable way.

Mr. Dick Harris: Mr. Chairman, I couldn't sleep tonight if I didn't say to Mr. Brooks that he reminds me so much of a lady in B.C. by the name of Maureen Maloney, who in all self-belief made the statement some time ago that success in business and creation of wealth is simply a matter of luck and it has no relationship whatsoever to hard work and good business decisions.

In my opinion, a tax by any name is a tax, whether it's a payroll tax, an income tax, a corporate tax, whatever. A tax is a tax. Mr. Brooks, there is such a mountain of historical evidence that clearly shows that lower taxes contribute so much to the economy by increasing consumer spending. People have more disposable income. Lower taxes contribute to the economy by increased investor spending and investor expansion, which in turn create jobs, which in turn add tax revenue through the sale of goods and service to government coffers. Most important, lower taxes increase our country's competitiveness in the supply of goods and service in the international marketplace.

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Everything you said has disregarded the historic evidence that supports that particular statement, and I find some of your testimony astounding. The only thing I can suggest is there are probably four factors that take away from the credibility of your comments.

You have apparently never had to meet a payroll, in good times or in bad times. Try it in bad times. You have never had to meet suppliers' terms for the supply of product to a business. You have obviously never had to sit down with your accountant and plan out your business strategy for the next year and try to figure out how to improve your bottom line so you didn't have to lay off employees. Most of all, you have obviously never had to go to your banker at year end and tell him why your plans had not met the expectations you had and try to get him to co-operate with you for yet another year.

That's more of a comment, Mr. Chairman, but as I said, I couldn't sleep tonight unless I finished off with that.

Mr. Nelson Riis: Mr. Chairman, I want to make a response to my friend Mr. Harris. I appreciate the sleepless nights he would face if he did not make these comments.

We invite witnesses to come before us to share their views. I think it's fair to say that all of us don't always share every witness's views. But I think to criticize witnesses for whatever reason, sleeplessness or not, is rather low rent and inappropriate. All of us would be well advised to listen to our witnesses and question them if we like. But to select one witness and say that somehow this person is less appropriate because of his inexperience in business is, quite frankly, wrong.

I didn't ask Mr. Mintz about his business experience but, quite frankly, I don't care. I don't have to sit on a hot stove to know it's not a good idea. I think it's fair to say we can figure out what's good or not without being there ourselves.

I had to say this, Mr. Chairman, because we are starting this round of pre-budget consultations and we will be doing it for many months. If we feel free to attack our witnesses on a personal basis, I think it's wrong.

The Chairman: Thank you, Mr. Riis. Thank you, Mr. Harris.

I thank you, panellists, for your contribution to the hearings. As you know, this will be a long process and we will hear from witnesses with different opinions but who will offer different perspectives that we all find quite insightful and helpful as we try to make the best recommendations possible for the upcoming budget. Thank you very much.

The meeting is adjourned.