FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, October 1, 1998

• 0913

[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.): I'd like to call this meeting to order. As you know, in accordance with its mandate under Standing Order 108(2), the committee is resuming its study of the report of the Task Force on the Future of the Canadian Financial Services Sector.

This morning we have the pleasure to have with us, from Great-West Life and London Life Insurance: Ray McFeetors, president and CEO; Sheila Wagar, senior vice-president, general counsel and secretary; and Al Edwards, senior vice-president and actuary.

Welcome. As you know, you have approximately 10 to 15 minutes to make your presentation, and thereafter we will engage in a question and answer session. You may begin.

Mr. Ray L. McFeetors (President and Chief Executive Officer, Great-West Life Assurance Company and London Life Insurance Company): Thank you, Mr. Chairman.

Well, it is true I have Sheila Wagar, our general counsel, here. Her job is to prevent me from saying things I shouldn't say, and when I inevitably say them, her job is to deny that I ever did say them. Mr. Edwards is here to answer those tough questions.

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): That's just like politics.

Mr. Ray McFeetors: Yes, it's exactly the same.

At the outset I would offer my commendation to Mr. MacKay and the members of the task force, who quite obviously have invested a considerable effort in the production of the report released on September 15. It will serve as a basis for much discussion surrounding the evolution of financial institutions in Canada.

While the report makes a number of very useful recommendations, it is clear that much additional work needs to be done before some of the recommendations can be implemented. It is clearly Mr. MacKay's intent that the outcome of the recommendations be oriented in favour of consumers; however, there are a number of recommendation that, if implemented, would be counter to the interests of all Canadians.

Despite the fact that the debate over ownership was resolved in 1992 to the satisfaction of all interested parties, the task force has now recommended that financial institutions having shareholder equity of more than $5 billion would be widely held. Essentially, no one could own more than 10% of a class of shares.

• 0915

This recommendation, if implemented, would discriminate against Great-West/London Life in that it would prevent Great-West/London Life from growing in the future by way of making a substantial acquisition. In effect, it would relegate us to trading in Tinkertoys.

It is interesting to observe that the largest Canadian bank is larger in terms of total assets than the three largest Canadian insurance companies combined, and yet four out of five major Canadian banks are seeking to merge, supposedly to remain competitive.

I believe that the success of Great-West Life and London Life demonstrates that consumers of financial products are not at all adverse to dealing with large, closely held stock companies. Further, it appears to be both arbitrary and unnecessary to limit in this way the competitive marketplace for the purchase and sale of financial institutions. I question how the imposition of this arbitrary freeze on future growth of Great-West/London Life could be in the best interests of Great-West/London Life policyholders.

There is ample evidence that demonstrates that financial institutions, whether widely held or closely held, can fail. The major determining factor in the success or failure of any business is the strength of management. Ownership structure is not relevant. What counts is the quality of ownership. In the case of Great-West/London Life, the quality of ownership adds tremendous value to the enterprise in terms of management support, capital support and liquidity support. Indeed, the capital markets would not have supported Great-West's acquisition of London Life were it not for the presence of a strong majority shareholder.

In the past, concern has been expressed that closely held financial institutions might be influenced to make decisions that were not in the best interests of all shareholders, policyholders or depositors. At one time this was possible, but the self-dealing rules introduced in 1992 prevent any such potential abuses.

The task forces expresses the hope that strong financial institutions, presumably Canadian-controlled and -based, will emerge to challenge the hegemony of the banks. If Great-West/London Life is foreclosed from pursuing major acquisitions, this lofty goal will almost certainly be thwarted. The result will be that the banks will become the only buyers of large financial institutions. The demutualized mutuals will be prime takeover targets.

I suggest to you that if, as Canadians, we want to have real consumer choice and Canadian-controlled financial institutions, we should not be arbitrarily, and in advance, legislating ownership limits. If we do as Mr. MacKay proposes, we will be essentially conceding control of the entire financial services sector to the banks.

In short, I believe this proposal would severely restrict competition in the Canadian financial services industry and that this proposal should be reviewed carefully by the Competition Bureau. Accordingly, we recommend that no change to ownership rules be made, other than to provide the minister with the discretion to set ownership limits as he deems appropriate, depending upon the circumstances.

Perhaps not surprisingly, we are also very concerned by the task force proposal to allow banks to retail insurance directly and to use customer information to target market consumers. We believe that while the intent of the task force was to increase competition, there is an enormous risk that competition will be lessened substantially as a result of this recommendation and that consumer choice will ultimately be reduced.

I would start by pointing out that competition is currently very strong in the insurance industry, with approximately 130 companies active in the market. Consumers can choose their agent and insurance carrier based on ownership structure, price, product features, financial strength and distribution channel, and make choices independently of other financial service relationships. Furthermore, competitors' pricing information is easily accessible by agents. This independence of agents and consumers creates significant competitive pressures. Companies like Great-West and London Life must “earn” business from their distribution channels and customers.

For many years, companies have responded to these competitive pressures by continually refining products—for instance, the introduction of universal life, expanded segregated fund products and guarantees, new small-business disability income product—and through prices. And we observe steadily declining term insurance rates. All segments of the market, including small businesses, which have a need for employee benefit plans, and customers with relatively modest insurance needs, are well served. Great-West/London Life, in particular, have focused efforts in those markets and have significant market share.

As noted above, we believe that the end result of this proposal will actually be decreased competition. If banks are allowed to use customer information to sell insurance through their branches, banks can quickly grow market share for the commodity-type products like term insurance. This would drive up unit costs of non-bank insurers in their remaining markets. Pricing in those remaining markets would have to go up, and investment in them—i.e., product and design development and technology—would go down. Those markets remaining for non-bank insurers would involve longer term liabilities and present greater risk. The combination of smaller market share, higher unit cost, and greater risk would create prudential concerns and ultimately would reduce the number of non-bank insurers in the business. Clearly, this outcome would reduce consumer choice.

• 0920

We saw nothing in the MacKay report to indicate that they considered consumer preferences in the area of distribution channels. Our research shows that as much as 50% or more of the population want and need personal advice on financial services and products. We think it is very important to preserve a financial services sector in which this need continues to be served. We consider that as a result of these proposals, there is a real risk that the advice distribution channel, which provides a valued service to consumers, will be considerably reduced. Thus again, the consumer will be disadvantaged.

The task force identified coercive tied selling, privacy of customer information, and licensing of intermediaries as areas in which the public and consumer interest would be at risk with the introduction of bank branch insurance retailing. While we endorse the recognition of these matters by the task force, we are disappointed that the task force has essentially disregarded those concerns in making this recommendation. We note that the task force has proposed that these expanded powers be given to the banks, even in the face of their own consumer survey which shows an alarming number of consumers feel they have experienced or are concerned about coercive sales practices with their banks. This seems to us to be inconsistent with one of the basic thrusts of the proposal, which is to empower the consumer, and that it completely disregards the hard evidence of consumer experience and reaction in favour of the hope that future conduct will be better as a result of strengthened privacy and tied selling rules.

I suggest to you that mere laws of men will not be sufficient to overcome the influence of credit-granting institutions. Bankers, like doctors, elicit tremendous emotional responses in all of us. Indeed, my doctor acquaintances tell me they would like to have the influence of bankers. The reality is that in obtaining a loan, many of us to want to be liked by our bankers. To obtain this approval we are more than willing to offer up transactions we know will win favour with the bank. I know, because I do it myself. Therefore, the only effective way of giving consumers real choice is to limit in law the number of types of financial products a bank might offer. Each new product offered up to the banks only serves to reduce the amount of time it takes until the banks control all the financial products in the country.

We note that the task force was concerned with the matter of providing access to insurance to lower-income Canadians and that it proposed that banks be allowed to retail insurance in order to provide greater access in this market. First of all, this market is currently well served by the insurance industry. A 1996 study showed that 23% of individual life insurance policies were purchased by individuals with incomes of less than $20,000. I also note that the report itself acknowledges that the banks are not effectively providing lower-income Canadians with their existing products, despite a commitment from them to improve their performance in this area. It again seems unreasonable to disregard the evidence of experience in favour of hope.

We believe that implementation of the proposal to allow banks to sell insurance through their branches using bank customer information would result in the erosion of consumer choice, decreased competition, fewer products being offered, and a reduction of the advice distribution channel. Insurers cannot now take deposits, nor is it proposed that they be allowed to do so. Insurers can participate in the deposit-taking industry by owning a bank. We believe that banks should participate in the insurance industry in the same way, by owning an insurance company, as they are currently allowed to do. Should the banks choose to actively participate in the industry on this basis, competition would be increased and not threatened.

In summary, we believe these proposals would ultimately result in consumers having less choice in terms of insurance provider, product, and price. On the other hand, if banks were required to continue to compete in the insurance industry through a subsidiary, there is no increased concern with tied selling or privacy and competition. Privacy and competition would be significantly increased. It is clear that if these proposals are implemented and if as a result an independent insurance industry disappears, as happened with the trust industry and the securities industry, there will be no going back. There will have been a fundamental, irreversible change. Particularly if this process is done quickly and without careful study, the results could prove to be very disadvantageous for Canadians.

• 0925

We were pleased to see the task force express support for opening up access to the payment system as soon as possible. This is necessary to allow the industry to take advantage of some of the expanded powers with which it was provided in the 1992 introduction of the Insurance Companies Act. As electronic commerce grows in importance in Canada, we will need this access to keep our products and services current and competitive for our consumers.

While we support this approach and would like to see the necessary changes as soon as possible, we must recognize that it would take significant time and commitment of capital for the industry to use this access effectively. We simply do not have the in-house expertise in this area, and we will need to make large investments in systems and business processes development.

So while this will benefit the industry in the longer term, we should not overestimate its significance in the competitive marketplace. This will not mean that we can now compete with banks in their core business. It only removes a barrier to us in the evolution of our core business to the age of electronic commerce.

We support the objectives of the task force in serving the interests of consumers through increased competition, protection of privacy, freedom from coercion, and access to basic financial services. We note that the specific recommendations are very ambitious and that some require further definition and direction. As well, it will be important to ensure that the various proposals will prove both beneficial and attainable and not overly cumbersome for industry or consumers. It will also be critical to ensure that there is a need for any particular change. We think it should also be pointed out that there are certainly significant processes in place to protect consumers. Many of these are the subject of provincial legislation raising the issue of the significant practical hurdles imposed by provincial-federal jurisdiction issues in dealing with these matters.

We see as a fundamental flaw in the task force report the view that banks and insurance companies are created equally, and we take issue with that. They are not presently equals, nor will these recommendations make them equals. While banks would be able to retail insurance, insurers would not be able to take deposits.

The vision of the task force, as outlined in chapter 4, calls for increased competition with the major banks, and I quote:

...the Task Force believes that life insurance companies can become very significant forces in the Canadian financial services sector, operating in more product lines and offering much greater competition to deposit-takers, including banks, than they have in the past. Over time, some insurers are likely to become leaders of major financial service conglomerates, as has been the experience in other countries.

We hope the task force is right in these views, but we very much fear that the reality will be that the large banks have too great a size advantage already. Further, we are concerned that the recommendations of the task force will ultimately result in less competition as the banks strengthen their position by acquiring their largest competitors in the industry and by squeezing out the smaller competitors by making their business unprofitable for them. We believe the end result will be a bank-dominated financial services industry.

Thank you, Mr. Chairman.

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

We'll now have a five-minute round, beginning with Mr. Epp.

Mr. Ken Epp (Elk Island, Ref.): Thank you, Mr. Chairman, and thank you to our witnesses for appearing, and also for your patience while we waited for some of the members here to arrive.

I was here last night when we heard from your parent company, so we've gone through a lot of this already, but I'd just like to have your perspective on competition. The task force clearly says it's desirable to have more competition. Yet when I hear your report, you're saying the competition is going to be very one-sided, that the banks are going to be able to take over insurance companies, but the insurance companies, because of their lack of size and lack of ability to take deposits, will not be able to take over the banks. I suppose you're not planning to buy one of the major banks in the near future.

So your contention is, as I understand it, that this will result in less competition, but that is contrary to reasoning, because if right now we have x number of players in, say, the insurance field and if we then add more to it, namely the banks, that looks to me as if that's more competition, because we now have more players in the field than we did before. Reconcile that.

• 0930

Mr. Ray McFeetors: The first thing I'd say is the banks are great franchises—I'd love to own one, for sure—one of the great franchises in the western world.

We, of course, cannot acquire an existing bank because of the limit on ownership, the widely held rule. We'd surely like to be able to see that lifted so that we might have an opportunity to acquire a bank. We of course make the case that we cannot acquire any substantial insurance company, again because of the ownership rules that are proposed.

As I indicated in my prepared remarks, the mechanism that reduces competition, of course, is once you start moving the commodity-type products away from the industry and into the banks, you reduce the capacity of the industry to compete, because there's a lot of volume in those commodity products, such as term insurance, and the revenue that is generated there allows us to build the systems, the underwriting capability, the claims-paying capability, that allows us to do the more complex type of business, whole life and annuity business.

As that moves into the bank, our unit costs will go up and we won't be able to afford to manufacture some of the products that we now do. This is a risk. I think our particular company is going to be able to last a long time, but some of the smaller companies are not. Some have already exited the market in anticipation of this kind of legislation.

So when the products go, there are fewer products available; and as the companies go, there is less competition. It has already happened—MetLife has left; Prudential has left. A number of people have already exited the market, in part because they anticipated—they saw the writing on the wall—and feared this kind of competition. So that's where the reduction in competition will come.

Mr. Ken Epp: It is unusual, though, to hear insurance people talk out of fear. Usually they're very positive and aggressive and everything, and it seems to me that in history, whenever a small company has overtaken a larger one, it's because they've done better what the larger company did.

One of the things we hear is that the banks are going to become over-the-counter, no-advice sellers of insurance. The insurance companies, on the other hand, are so very personal. They're better than doctors; they still make house calls. So we have all this personal advice.

It seems to me that just in straight competition, the people will not run to the banks, because they will not be served properly there, except by price, whereas you will offer a far superior product, though it may cost a little more, and you should be able to compete in that market and maybe even bring your costs down and the consumer will benefit.

Mr. Ray McFeetors: I'd point out to you again and remind you that the banks can now participate in the market if they want to. They can own subsidiaries and sell insurance. So if they wanted to compete on a straight-up basis, they certainly have the capacity to do that now.

Of course, what they want is an advantage, and it's understandable. They want to put more volume through their branches in order to lay off some of the heavy, fixed costs that they have in the branches, and that allows them to bring in other business, a deposit business, a high-margin business.

Frankly, from a consumer point of view, it may well allow bank branches to stay open in some smaller communities longer than they otherwise would. So there's a positive side to it.

But I don't think we speak out of fear. What we're saying is that this is an outcome that we think will happen if this process goes forward, and the result will be reduced competition, reduced competitors, reduced products.

We represent the largest advice channel in the country; we have the largest insurance company. We believe strategically that's the best way to go. Our studies go that anywhere from one-third to two-thirds of Canadians want and need personal financial advice, so we think we're going to continue to provide that and we'll have a market share.

The evidence of other countries is that there tends to be a ceiling on what banks can do through direct selling; it seems to be in the area of about 20%. But if you reduce the commodity products such as term insurance by about 20%, that has quite an impact on the unit costs of the rest of the business. That's the difficulty.

The Chairman: Thank you, Mr. Epp.

Mr. Loubier.

[Translation]

Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): As far as the wide ownership rule is concerned, Mr. MacKay tried to achieve a certain balance between the various financial services sectors, namely the banks, insurance companies, mutual funds companies, etc.

• 0935

As you mentioned in your brief, by suggesting that the financial institutions be decompartmentalized and entitled to join the payment systems, to accept deposits or make loans, he had to come up with equitable rules for everyone. Right now the wide ownership rule that applies to banks is the 10% rule. I don't think that it would have been appropriate had Mr. MacKay said that the wide ownership rule was to apply to the banks but not to the other financial services businesses, including insurance companies. It seems to me that this is what guided Mr. MacKay. I would like you to comment on this matter.

The other part of my question is as follows: Could the 10% rule prevent foreign interests from obtaining majority control over Canadian financial institutions?

[English]

Mr. Ray McFeetors: The widely held rule and the 10% rule refer to the same thing. Widely held means that no more than 10% of your stock can be held by one individual. It was probably originally put in place to prevent foreign takeovers of Canadian banks. That was its intent.

MacKay proposes that the demutualized mutuals would also be widely held, but he goes on to make the recommendation and to express the point of view that a company that does not conform to his definition of widely held would not be able to participate in the acquisition of companies having more than $5 billion worth of shareholders. We think that's unfair and discriminatory. We don't think a company like ours should be restricted from future growth in that way. In a matter of a generation or two it really will result in our company becoming much minimized in the sector, because there will continue to be a lot of consolidation.

Now, I suggest to you that the demutualized mutuals are not going to be able to raise the capital any time soon in order to make any acquisitions. They could merge perhaps with each other, but they won't be able to make an acquisition. The only people out there, other than ourselves, who I think could conceivably make an acquisition of a major financial institution are the banks. If we're foreclosed by legislation from participating, then it's going to fall to the banks to do it, and they're certainly eager to do so.

I hope that answers your question.

[Translation]

Mr. Yvan Loubier: But Canadian banks are subject to the 10% rule, at least they are right now, and they will be until international rules change. You are alleging that the banks will be the only ones that could buy financial institutions. Will they not be restricted by this 10% rule that you have criticized?

[English]

Mr. Ray McFeetors: The banks are widely held now by definition, and that is the 10% rule. So what MacKay says is you have to be widely held in order to make a major acquisition beyond $5 billion. So the banks have the capital and the resources, and they qualify under MacKay to make the acquisition.

[Translation]

Mr. Yvan Loubier: I understand your position and I would like to ask you a question on another subject.

Earlier, you said that these rules would enable the banks to invest in the term insurance market, which would increase your costs for regular insurance. Could you clarify your position on this matter? I would like to know more details.

[English]

Mr. Ray McFeetors: The mechanism as to how it would work is that the banks would want to sell commodity-type products, such as term insurance. They're the simplest products, and they're the ones where they think they could probably make the biggest gains. So as those commodity products are drawn away from the traditional insurers, we lose the revenue that supports our underwriting and our claims paying. So it raises our unit costs for all our other business. That's the mechanism that increases our unit costs and makes us less competitive.

Of course, from the point of view of the banks it's a great deal, because they want to put as much product through their system as they can. They want auto leasing and insurance, so that they can spread their fixed costs, and then at the same time they're probably able to attract other high-margin business such as loans and deposits, and of course they get fees in all of that. So it's a good deal for them, because they're operating at the margin.

The Chairman: Thank you, Mr. McFeetors.

Mrs. Redman.

• 0940

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Mr. Chairman.

One of the cautions you've given us today is to go slowly and examine this. We heard a similar thing from Power Corporation yesterday.

My question is what do you mean by slowly; and in your estimation, are there pieces of consultation or parts of the process that need to be attended to that aren't currently?

Mr. Ray McFeetors: Yes, I think the MacKay report lacks some rigour in some of its recommendations and some of its analysis.

The difficulty is that when you look at the people who wrote the report, it lacks a practitioner's sense or understanding of the process. These are essentially academics who have written this. Translating theory into business takes some time and effort. I think you need to expose this to people who have a lot of experience in the financial services industry and ask how the heck do you take access to the payment system and make that into a viable business? The trust companies tried, and a lot of them failed. They were all absorbed by the banks. Manulife had a bank and couldn't make it successful.

So the translation of theory into practice takes some more time. I think that's one of the weaknesses in the report. It lacks that practical application. A lot of the theory is pretty good, but it doesn't translate well into practice.

Mrs. Karen Redman: A lot of these issues have been around a long time. They've been discussed and debated before, but maybe not brought together in quite the way MacKay has done.

I appreciate what you've said, but my question would still be what is step B, then, in your estimation, to take it to the actual industry as a complete set of recommendations and get feedback? Isn't that why we're having witnesses now?

Mr. Ray McFeetors: Absolutely, and I think it's a reasonably good process.

What you have to do is partition the report or the recommendations into those that can be implemented right away...and some already have, such as the tied-selling rule. On some other things, such as the accounting, there's a very important little section in there that nobody has raised at all. It's accounting for business combinations. Canada has the most conservative accounting for business combinations in the world, and I don't think we need that and cold weather too. MacKay recommends that the accountants change this.

Accountants, unlike parliamentarians, think they make laws of nature rather than laws of men, and they're very slow to change these things. But it has frustrated the banks; it has frustrated companies like ours.

That could be implemented overnight. I'm going to see John Palmer later today, and I know he's very frustrated by it all, too, and would like to see it done.

So that's one thing on which you can go ahead. Other things, such as the ombudsman and some of the things dealing with consumer issues, need to be studied. Is this the most cost-effective way of doing it? You can't argue with the theory; it's good. But there's a lot of that stuff out there now, and more thought needs to be given as to how that should proceed.

I tell you yet again, at the risk of repeating myself, that ownership regime is very punitive and unfair to companies such as ours. It's very helpful to the banks. It certainly doesn't penalize them. I doubt that you're going to get a banker coming here and saying he doesn't like this report—you may; I don't know about that—but it is good to them. That's fine as far as it goes, but you need to get balance.

Mrs. Karen Redman: I guess that's why we have people like you here, and not just bankers, giving us testimony.

Mr. Ray McFeetors: I appreciate the opportunity.

The Chairman: Mr. Szabo.

Mr. Paul Szabo (Mississauga South, Lib.): I think there is a story to be told by the insurance industry and by the auto leasing industry. For very similar reasons, there's a fear of the elephant.

Mr. McFeetors, in business, growing and averaging down your fixed costs is a good thing. If you are into new processes, new technologies, and so on, that allow you to be more productive, have less physical infrastructure, and in fact require less manpower for additional percentages of growth, there is an evolution that takes place, and it's logical and it makes sense.

• 0945

It's clear that the banks are finding themselves with increased technology and that their infrastructure is excessive. They have too many people and too many branches to do what they're doing today, and they have to fill up that infrastructure. So we all understand why they want to get into other lines of business. They're doing exactly what they should be doing. I think we all agree about that. They want to utilize their fixed costs. They want to spread them out. Otherwise, inefficiencies start to build up and ultimately, if nothing happens and we maintain the status quo, they'll have no choice but to close branches and to reduce their labour force through attrition and whatever other means are available to them.

Assuming you agree with me that it's good business practice to do what they're doing in terms of the philosophy and wanting to grow, if allowing banks to get into auto leasing and insurance through their branch system were totally off the table, how would you answer this question: are mergers within the financial services sector a valid and appropriate strategy for all elements of the financial services sector?

Mr. Ray McFeetors: What you state is a Harvard textbook example of how to operate businesses. I can't disagree with a lot of what you say.

I'm not against mergers. I'm in the process of an acquisition and integration of two very large life insurance companies. I think they're good for business. The issue is a public policy one in some cases; that is, what the public policy issues are and if it's good for the economy generally.

My only point is not that the banks are doing anything wrong in their desire to put more throughput through the branches, but only that it threatens the existence of an independent part of the sector. Is that good public policy? That's for you people to decide. That's my thesis.

Mr. Paul Szabo: I think we agree. You're talking about it being within the sector. It does cause problems. It causes certainly fear, maybe fear more of what might happen as opposed to what we know will happen. By the way, I am an accountant, and I'm—

Mr. Ray McFeetors: I'm in trouble.

Ms. Sheila A. Wagar (Senior Vice-President and General Counsel, Great-West Life Assurance Company and London Life Insurance Company): You usually are.

Some hon. members: Oh, oh!

Mr. Paul Szabo: MacKay has basically suggested grandfathering of the ownership rules with regard to your unregulated holding companies. I think it's important for us to know if you agree with that or if there are some potential problems you may have with grandfathering provisions.

Mr. Ray McFeetors: I don't disagree with the grandfathering provisions as far as they go. What I do object to is the limits it places on us for large acquisitions. I don't think that the largest life insurance company in the country, which is only a third the size of the largest bank, should be limited in its acquisition capability. I think that's dead wrong. It's perverse.

Mr. Paul Szabo: By virtue of your answer, then, the answer to the question of whether mergers are a good strategy or an option available for—

Mr. Ray McFeetors: It should be available.

Mr. Paul Szabo: It's good for you, too.

Mr. Ray McFeetors: Sure. It isn't always good in every circumstance.

Mr. Paul Szabo: No, that's understood, such as when there are adverse public interest consequences.

Mr. Ray McFeetors: Right.

Mr. Paul Szabo: There's no question about it. That's probably the most important question we're trying to frame the answer to.

Mr. Ray McFeetors: I agree.

Mr. Paul Szabo: The last point really has to do with the Canadian marketplace. Last night we were speaking with Mr. Burns from Power Corporation about how his customer has changed over time, what is his vision of the customer of today, how they'll change tomorrow, and what needs they'll have. This issue of the advice component—

Mr. Ray McFeetors: That's very important.

Mr. Paul Szabo: —is very important to you. It doesn't sound as if it's as important to the bank, but that's an issue you could debate. It's just business strategy. You to have pick out your vision, your philosophy, and say you're going to follow that business approach.

• 0950

The fact remains that Canada is a country of a certain size, with a certain appetite for financial services, including banking services. We have six major banks who share that market. Not one of them is of a size that could participate in virtually every global deal that was ever put together. That concerns me, because they don't have either the room within their coverages or the leverage to be able to participate. I'm wondering whether or not Canada has to have at least the facility to have somebody in our banking system, our banking industry, who is able to participate on a global basis in major deals of a global nature that in fact have impacts on Canada.

As an example that I can think of, when I was with TransCanada PipeLines as their director of finance, we did a billion-dollar pipeline deal. It was through a consortium of 26 banks, and only one of them was Canadian. So it concerns me that we don't seem to have participated in an equitable or a reasonable share of major deals, and it has mostly to do with size. Does that concern you?

Mr. Ray McFeetors: Well, yes and no. First of all, I think the Canadian banks have grown quite considerably. If you look at the evidence, I think you'll find that they participate pretty actively in any major deal they want to be in. They might like to do more and have more profitability, because that's what it's all about, although they are very profitable on a world scale.

In my view, there isn't any persuasive evidence that says you need to be large to participate. But if you do need to be large, there's no evidence that says you need to be large in your domestic market. The winning strategy for the Canadian banks—and I'm coming up to the accountants again—would have been to expand in the United States. I think most of them would admit that. They argue that they were foreclosed from doing it because of this perverse accounting rule that wouldn't let them account for an acquisition on a pooling-of-interests basis when all the U.S. companies were doing it, and there's some justification to that. However, I think you see that the Bank of Montreal was active in the U.S. with the Harris Bank.

But if these banks are really going to be world-scale players, they have to expand in the U.S. They can consume all the Canadian life companies and it still won't make them world-scale players. Even if these mergers go ahead, they're not world-scale players. I don't think they'll be in the top twenty. And who wants to be as big as the Japanese banks? They're all going bankrupt. There are no brownie points for being just large. You have to be large, smart and profitable.

Mr. Paul Szabo: That's exactly what the Bank of Nova Scotia has said.

Mr. Ray McFeetors: Really? Well, Peter Godsoe is a really bright guy.

Mr. Paul Szabo: Even the banking industry is not a homogeneous position.

Thank you. I appreciate your responsiveness.

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

Mr. McFeetors, success and failure are both part of the economic system, right?

Mr. Ray McFeetors: Right.

The Chairman: I'm just wondering why we focus only on the fact that these big institutions may fail, but we don't give as much attention to the fact that they may in fact succeed and generate the type of economic activity within our economy that may have great benefits for Canada.

Mr. Ray McFeetors: I don't deny that there might be benefits. My thesis would be to ask what gives the greater benefit? Does allowing the banks to consume all the financial services in Canada produce the greater benefit? Or is it better to have more competing firms with perhaps some financial services controlled and operated outside the banking system? I don't know the answers to all this. I don't know who does, but that's what we're trying to find out.

The Chairman: I understand, but the focus of the debate thus far has seen everybody list all of the negative aspects of what happens if these banks fail. I'm saying that the fact they may succeed has not been given much play, nor has the debate really focused on the fact that you may have them succeed and also develop an entrepreneurial environment within Canada. I just want to establish a little bit more balance in the debate, because there's no question that people who have appeared in front of us thus far have focused on an either/or view of things, which quite frankly is not the case.

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In public policy, you can deal with two issues at the same time, can deal with two different consumer or business interests, and can do it in an equitable manner. I'm just concerned about the direction of the debate being that it's either black or white. Quite frankly, the economic system has never been black or white in its history.

Ms. Leung.

Ms. Sophia Leung (Vancouver Kingsway, Lib.): Thank you.

I'm not an accountant, so you can relax.

You made a very strong presentation. I understand that you are one of the biggest in your field.

Mr. Ray McFeetors: The biggest.

Ms. Sophia Leung: And you also support mergers. What is your interrelationship with Power Financial Corporation in financial services?

Mr. Ray McFeetors: Power Financial is the largest or majority shareholder of Great-West Lifeco, which is the public holding company that holds the operating company. It's therefore a majority shareholder relationship.

Ms. Sophia Leung: Do you have access to their information? Do you share information about clients and customers?

Mr. Ray McFeetors: Not a chance. Customer information is largely in the hands of the distribution channels, and they guard it very religiously. We wouldn't even think of it. It couldn't happen, and it doesn't happen.

Ms. Sophia Leung: I understand London Life expanded its business to the Asia-Pacific.

Mr. Ray McFeetors: Yes.

Ms. Sophia Leung: In that situation, specifically in Taiwan, do you have strong competition with any banks?

Mr. Ray McFeetors: We have a very small market share in Taiwan.

What is it, Al, 2% or 3% or less?

Mr. Al Edwards (Senior Vice-President and Chief Actuary, Great-West Life Assurance Company and London Life Insurance Company): It's approaching 1%.

Mr. Ray McFeetors: Yes, so we're very small players, ab initio. We're just a start-up, a green field development over there, and that has been ongoing for a few years. There may be banks that own some insurance companies there, but I'm not aware of any in that market yet.

Ms. Sophia Leung: So you don't have any competition, and you're happy.

Mr. Ray McFeetors: Oh, we have a lot of competition over there. It's huge.

Ms. Sophia Leung: Is that the Shin Fu group?

Mr. Ray McFeetors: Shin Fu, yes.

Ms. Sophia Leung: But I understand that you have local support there.

Mr. Ray McFeetors: Yes, our partner is the Kuomintang.

Ms. Sophia Leung: So you have political support.

Mr. Ray McFeetors: It is political support, but it may be going. I don't know. Politics is a strange thing, you know.

Ms. Sophia Leung: They could be changing.

Mr. Ray McFeetors: They could be changing, yes.

Ms. Sophia Leung: I understand that insurance has already been entered into in the banks. That's a fact.

Mr. Ray McFeetors: Yes, they can own insurance companies now. They can compete with us head-up.

Ms. Sheila Wagar: And some of them do.

Mr. Ray McFeetors: Some of them have subsidiaries, yes.

Ms. Sophia Leung: This offers the users more choices, so why are you afraid of the future?

Mr. Ray McFeetors: It's not that I'm afraid. I think our company is going to survive for a very long time. We're going to be players for generations to come. But the great advantage that the banks have is access to information in the branches. That's what they propose to do, and that's what MacKay proposes to allow them to do: use customer information.

We've done studies that say most consumers, when they understand the issue, don't think very much of the idea of banks using information to target-market them for various insurance products. It's a very large percentage of the population, and it will generate a lot of business for them. The banks know pretty much everything there is to know about you. As Mr. Burns said last night, they know a heck of a lot more than the Department of National Revenue. Knowledge is power. Information is a very powerful tool.

Ms. Sophia Leung: I think you are also powerful enough that you can compete.

Mr. Ray McFeetors: We can compete, but we would like a viable industry out there too. We'd like to be able to grow through acquisition, and I think there's a risk....

It's already happened. A number of companies have exited the market because they've seen the consolidation, they've seen the writing on the wall. They've anticipated that the banks sooner or later were going to have their way with the industry, as it were. They decided they were going to exit. The Met, the Prudential, and Pru of England have gone. Seaboard Life has just sold out. There have been a number of them, and there will be more. They've seen that the playing field has not been level for some time, and they see it tilting even more. We're here to try to balance it.

Ms. Sophia Leung: Thank you.

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The Chairman: Thank you, Ms. Leung.

Mr. Riis.

Mr. Nelson Riis (Kamloops, Thompson and Highland Valleys, NDP): Mr. Chairman, to go back to your question about the large banks, based on the news this morning, one of the largest banks could be in Russia later today. If we're talking about nationalizing an entire banking system, that is of some interest as the day progresses.

Mr. McFeetors, you have given us a very informative presentation this morning, and a number of insights. Rather than repeat some of the points that my colleagues have raised, I have three questions that I'll ask, and perhaps you can then respond to them in whatever order you wish.

The Senate banking committee will be tabling its report later today. It really points out what you said earlier: that having larger banks doesn't necessarily mean we can't compete internationally or with the best banks. I think that might have a profound influence on the outcome of this process.

Based on that fact, have you ever had the feeling that if the Minister of Finance felt he couldn't approve the mergers, he might use you folks as a bit of a pawn in order not to completely disappoint the banks in the end? That's question one.

As question two, you said at the beginning of your report, “There is ample evidence that demonstrates that financial institutions, whether widely held or closely held, can fail.” Again, we are all concerned about stability. Can you elaborate on that just for a moment or two?

Thirdly, you mentioned the coercive powers that the banking system could have over borrowers, and you referred to yourself. You said people like to have their bankers like them, and that you can talk about this with some assurance because you do it yourself. Can you elaborate on that point? How have you felt bankers have intimidated you?

Mr. Ray McFeetors: Sure, and I'll take care of that last question first.

It's not coercive tied selling, it's individuals. It's like going to the doctor's office. Doctors manage us. When you go to the doctor's office, the first thing you have to do is wait. You build up an anxiety because they have pictures on the wall of dreaded diseases. When you finally get in there, the first thing they do is make you undress. You're standing there naked and they come in and ask you a bunch of questions. They're very stern, they poke and prod, and then they say there's good news, you're going to live, but you have to take these pills. You're so relieved that you buy them lunch, you play golf with them, you send them preserves, or whatever. Well, bankers are the same.

When you go into the bank, everybody is selling. I remember going in for my first loan. I gave them a $100 Canada savings bond, and I borrowed $100 because I wanted to establish a line of credit. I was just so thankful that he gave me that loan. If a small businessman is in there, the banker knows what that guy wants. The guy says he'll give that banker his RRSP and would like a mortgage. The banker doesn't have to do anything. It's disproportionate, but that's the emotional sense we all have when we go to banks.

I don't know anybody over the age of 30 who hasn't gone to the bank and had this experience. I do it. I got a loan for stocks, and I have collateral three times the value of the stock. I still want to give them more so that they won't ever call me to say they think we ought to discuss my interest rate, redo my loan, or something like that. I don't want that.

Mr. Nelson Riis: And it's that process that you worry about in terms of allowing the banks to sell insurance.

Mr. Ray McFeetors: Sure, and it's just a very subtle process. It's not coercive because it doesn't have to be coercive. It goes on every day, but it doesn't have to. It's in our own nature. You want to do it. You want to be liked. You don't want that banker calling you or seeing you on the golf course, saying, “Nelson, you ought to come in and have a little talk about that loan you got, because I just don't think your collateral is quite up.” You don't want that, so you give him everything you have. That's the way it works.

Listen, I don't think the minister will trade off anything. I think he's a pretty sharp cookie. He'll play it to get the best result for the economy and the country, based on his judgment at the time. I'm not worried about that.

I'm sorry, but what was the first part of the question again?

Mr. Nelson Riis: You've actually answered it. If he's going to really disappoint the banks, and if they seem to be really disappointed that this isn't going to fly, I'm assuming he is going to have to do something to lighten the load for these folks. I'm wondering if you're not the lightening of the load?

Mr. Ray McFeetors: Yes, the sacrificial lamb. I don't fear that.

Mr. Nelson Riis: I know you can't comment on that, but I just.... Thank you, that's fine.

Thank you, Mr. Chairman.

The Chairman: Thank you very much for your presentation, Mr. McFeetors. You've certainly raised some very important issues. As you know, we're engaged in this discussion of the MacKay task force and are trying to get some precise answers on a number of issues. We're also trying to examine various options as we get ready to make recommendations to the Minister of Finance. Your presentation has gone a long way toward giving us a great insight into the key areas that are of concern to you. On behalf of the committee, I'd like to express to you our sincerest gratitude.

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Mr. Ray McFeetors: Thank you for having us.

The Chairman: We're going to suspend for approximately five minutes, and then we'll be back with pre-budget consultation.

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• 1014

The Chairman: I would like to call the meeting to order and welcome everyone back.

We are now dealing with the pre-budget consultation process. I would like to welcome representatives from the Air Transport Association of Canada, the Amalgamated Transit Union Canadian Council, and the Railway Association of Canada.

We will hear from the representatives from the Air Transport Association of Canada first, Mr. Clifford Mackay and Howard Goldberg. Welcome.

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Mr. Clifford J. Mackay (President and Chief Executive Officer, Air Transport Association of Canada): Thank you, Mr. Chairman.

I would like to start by thanking the committee for the opportunity to speak to you today. Before I present our views on the upcoming budget, though, I would just like to take a second to explain to members what the Air Transport Association of Canada is.

We're the association that represents commercial aviation in Canada. Our membership accounts for over 97% of the over $10 billion of commercial revenue that is generated from aviation in the country. Our members employ well over 46,000 Canadians in numerous professional and high-wage categories. We have members from coast to coast to coast, and we represent a very wide range of interests in the industry, everything from the very large companies, such as Air Canada and Canadian Airlines, down through the charters, the air freight companies, the regional companies, right down to the local flight training school that is probably located at your local airport. Well over half of our members are small businessmen.

Mr. Chairman, the air transport industry is highly competitive and its prospects closely follow the prospects of the general economy. Therefore, the broad fiscal, monetary and tax issues that are dealt with in the federal government's budget are of vital concern to us.

We'd like to make a couple of general points before we turn to some specific matters. In general, we would urge the committee to stay the course with regard to continuing the government's efforts to reduce the debt. In addition, we believe that the tax burden in Canada is too high and it is having an adverse effect on economic growth in general. We would encourage the committee to look for ways and means to reduce this burden, but at the same time not abandon the long-term policy of having debt reduction.

Now let me turn to two matters that are much more specific to our industry that I'd like to bring to your attention today. The first is aviation fuel taxes and the second is user fees.

On aviation fuel taxes, we would urge the committee to recommend that they immediately be reduced to zero in Canada. These taxes are anti-competitive and inequitable, and they contribute nothing to the development and maintenance of a safe and efficient air transportation infrastructure in Canada. In fact, they inhibit this goal by drawing resources away from the broad industry. Numerous experts, most recently the task force on business taxation, have pointed out that commodity-specific excise taxes result in inefficient, and in some cases socially inappropriate, market behaviour and should be eliminated.

They also do not meet many of the standard tests for good tax policy. They are not equitable; they are rarely, if ever, transparent; and in the case of the aviation fuel taxes, they are not being imposed for any defined public policy objective.

In the new world we live in of open skies and intense competition, fuel taxes in Canada are having a detrimental effect on Canada's air carriers. As far back as 1991, the Government of Canada sponsored a study into tax competitiveness in the Canadian air transport industry. That study, conducted by the Conference Board of Canada, revealed that Canadian carriers were uncompetitive vis-à-vis their U.S. competitors with respect to fuel taxes.

A second study by the Transportation Association of Canada came to the same conclusion. As recently as last November, ATAC funded a study conducted by the Van Horne Institute, which again made clear that Canada's fuel tax regime was uncompetitive when compared to that of the U.S. Today, the federal fuel tax is some 260% higher in Canada than in the U.S. for our industry.

Finally, we believe these taxes are job killers. They drain resources from the system without any offsetting benefit, thus reducing potential growth. Many provincial governments have recognized these problems associated with fuel taxes in the aviation sector, and have been moved to either reduce them or eliminate them. Recent examples of decisions of this nature are Saskatchewan and Alberta.

We would urge the committee to look into this matter. This approach to taxation is outdated and, in our belief, is inhibiting sound economic growth.

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Let me now turn to the second subject I'd like to bring to the committee's attention, and that's user fees. ATAC and the industry in general has long supported the concept of user pay for the air transportation industry. We supported the commercialization of Canada's air navigation system through the creation of NAV CANADA and the transfer of Canada's airports to locally based not-for-profit authorities.

This process has been and continues to be successfully implemented. NAV CANADA will be 100% user funded by November of this year. Over 90 airports have been transferred and the taxpayers are no longer providing ongoing subsidies to these facilities.

Many of these newly transferred airports have announced major capital upgrading projects and expansions estimated in total to range between $8 billion and $10 billion over the next 7 to 10 years. These programs far exceed any previous government investments in airport infrastructure and will result in a more solid infrastructure in the country.

Of course, the downside to that is that with all of this activity going on at the same time, this will create significant cost pressures for the industry. In addition, numerous fees from a wide range of services now being provided by government departments have been introduced in the last few years.

The end result is that the air transportation industry is fully paying its way, and in some cases may be paying too much. For example, the Canadian government is now deriving significant revenues from airport leases, with no offsetting expenses to improve those assets in those facilities. This year these airport lease revenues will approach $200 million. User fees are now rivalling fuel costs as a major cost item for airlines in our business.

Having said all of that, you may think we may not be in favour of user pay. We continue to be in favour of user pay. However, this should not be taken as a blank cheque for the service providers, be they either governments or airports.

We are increasingly concerned that service providers are not being required to adhere to sound and transparent charging principles. This is particularly worrisome since in almost all cases these providers of services are in a monopoly or a near monopoly position, and the users—in our case in particular they are carriers—have little or no choice in seeking alternatives for these services. Too often fees are being imposed in an arbitrary manner and without adequate consultation with key stakeholders.

NAV CANADA is an example of the right way to implement charges and fees. There are clearly defined charging principles that must be adhered to in setting these fees, and the company, NAV CANADA, engages in an extensive consultation process before arriving at a fee schedule. In addition, the user is protected from possible abuses through the availability of an arm's-length, independent and binding appeals process should disputes arise.

Unfortunately, I cannot report that similar processes exist for setting charges for services in Canada's newly transferred airports, or for the many new fees that are being imposed on users by government departments.

We believe the lack of a transparent, cost-based, balanced and appealable approach to setting fees will cause numerous problems in the future. I would urge the committee to consider taking up this issue and looking into it in more depth as soon as possible. We believe that now is the time to make sure we put in place the appropriate structures so major problems and disruptions won't arise in the future.

Let me conclude by again thanking the committee for its attention. Just to summarize, ATAC would urge the committee to continue its efforts to reduce the debt, to look for measures to reduce Canadians' tax burden, to abolish the aviation fuel tax at the federal level, and to take action to examine the pricing and charging practices that are being implemented by government departments and recently transferred airport authorities.

Thank you very much.

The Chairman: Thank you very much, Mr. Mackay. That was a very clear presentation. Your objectives were quite clear to all of us.

We'll hear now from the Amalgamated Transit Union Canadian Council, Mr. Ken Ogilvie. Also with him is Al Loney, Regional Municipality of Ottawa-Carleton Councillor.

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Welcome.

Mr. Ken Ogilvie (Executive Director, Pollution Probe; Amalgamated Transit Union Canadian Council): Thank you. I'm going to present on the employer-provided transit pass issue, and I'll touch on environmental health and some of the social concerns and benefits. Mr. Loney is going to focus on business, municipality and transit concerns.

First, I'd like to say that in a very broad context we have a significant problem in this country with smog, greenhouse gases and air toxics all related to transportation. This is not under dispute. We have massive public concern, which is also not under dispute. As recently as June of this year, we heard the Ontario Medical Association, after a very extensive peer review of the science around health issues, calling air pollution a crisis in this country. On top of that, we have very disturbing trends such as rising asthma rates for children, and some of these issues are linked to air quality concerns.

What we're arguing is that there's an inequity out there in regard to the way automobiles are treated in terms of parking and the ability to get a free benefit for parking, while not having a comparable benefit for transit. That forms the basis of our presentation.

We all know the number of cars is rapidly increasing. At the same time, we've made tremendous progress in terms of reducing the per automobile emissions of cars. On the air pollution side, however, we are constantly getting overwhelmed with certain pollutants despite some significant progress on a number of them. We know we have a significant commitment to the Kyoto Protocol in terms of reducing our greenhouse gas emissions, and we have national and regional commitments reducing smog pollutants. All of these are directly linked to the issue of transportation and public transit.

Transportation is the largest single source of Canadian carbon dioxide emissions, with about 30% attributed to transportation across the spectrum and about 65% of the petroleum that's consumed. About half of the transportation-related emissions come from cars and light trucks in cities, where public transit is available. Therefore, we do have a way of reducing emissions from automobiles.

Smog pollutants are some of the few that are in fact increasing in this country. We're faced at the same time with declines in transit ridership, cuts in subsidies from provincial governments to transit, and very serious questions about equity in terms of people's ability to move around in our urban centres.

We believe transit pass deductibility as a tax exemption is a major part of a very broad approach to reducing air pollution in this country. As with any measure on transportation-related air pollution, each one adds up to a small amount, but in aggregate we have to add up to quite a large reduction. The transit pass issue is one that we believe is extremely important in terms of getting on with the job of controlling transportation emissions.

There is precedent for this. The United States offers tax exemptions for transit passes. Based on American data, we expect about a 5% modal shift from automobiles to transit if we offer a comparable benefit in Canada. In cities like San Francisco and elsewhere in the United States, there's good evidence to draw upon, and I don't think there's too much dispute that we will get a significant and meaningful shift if we provide transit pass exemption.

At the end of the day, we think we can reduce transportation-related greenhouse gas emissions by about 2%. If one goes into some fairly well established ways of calculating damage costs of air pollution to health and so on, we might therefore be able to realize a benefit of about $300 million to $400 million in reduced health costs. We estimate the loss in federal revenue from the benefit will be about anywhere from $18 million to $28 million per year.

In terms of equity, 62% of Canadian employees have free or heavily subsidized parking. The estimate is that about 5% or less pay income taxes on this benefit. There is a clear incentive promoting car use and, if the enforcement of parking subsidies was encouraged, a tax loss of about $260 million from this benefit. There are some fairly large numbers on the benefit side, and some reasonably modest costs in our opinion.

By the year 2000, 80% of Canadians are expected to live in urban areas with access to public transportation, so we're talking about a very broad policy tool that will reach out to most Canadians.

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So we believe the process we're in now of cutting subsidies to transit services in this country is very unfair for people who sometimes don't have the option of using a car, or who for various reasons cannot use a car or choose not to; and that it's resulting in adverse health effects, and we can quantify some of those.

Furthermore, the Liberal government in its red book has talked about putting a framework in place in which environmental and economic policy point in the same direction. We believe this is entirely consistent with the promises made by the government, consistent with our Kyoto commitments, and a very good way to green the Hill in terms of providing employees with transit passes in lieu of parking.

The bottom line, in our opinion, is that this is very good for the economy, very good for the environment, and very fair to Canadians. It's totally consistent with national policy and provincial policies toward smog, for example. And this tax exemption for transit passes is something that is very broadly supported through tremendous numbers of sectors of society, from unions to environment and health groups to municipalities to boards of trade and so on. So there's tremendous public support for this. It makes sense. It's not theory, because we have a great deal of experience to draw upon in the United States, and we believe this particular budget should entertain this policy tool.

The Chairman: Thank you.

Mr. Loney.

Mr. Al Loney (Regional Municipality of Ottawa-Carleton Councillor, Chair of the RMOC Transit Commission): Thank you.

Speaking as a chair of a transit commission, and one that affects all of you because you are residing in the capital, I think you'd have to know that the difficulty we're facing in terms of traffic congestion will get a lot worse unless we take some very proactive steps to increase transit.

I'm suggesting to you that traffic congestion increases travel time; I don't think that's rocket science. Parking demand is certainly very high. Vehicle costs and pollution are certainly a very big factor. Improving transit service is a less expensive alternative to adding lanes, widening bridges and intersections, and increasing parking availability.

Municipal governments are very hard-pressed to find the resources to expand the transportation infrastructure. In Ottawa's transportation plan, taxes devoted to transportation will triple if we can't achieve our target of a 5% modal shift. That will cost three times as much if we don't do the right thing for transit.

While Canadians can no longer afford to support an infinite increase in single-occupancy vehicle use, they have very little incentive to choose transit. Most people compare only gas and parking with the cost of using transit. Commuters receiving tax-free parking save an estimated $1,700 annually—a significant incentive to drive.

We're asking the federal government to make employer-provided transit passes a tax-exempt benefit. The balanced budget has increased the finance department's ability to examine and invest in new strategies that promote sustainable transportation. This is a rare opportunity for the federal government to affect public policy at a local level.

The Canadian Urban Transit Association estimates the potential revenue loss to be no more than $18 million to $28 million. Employees who choose a less expensive transit pass over parking would either increase their employer's taxable corporate profits or increase their own taxable income, and this could result in new tax revenues of about $14 million.

Investment from the federal government that results in savings from reduced pollution-related health costs and infrastructure costs ultimately does benefit the taxpayer. The finance department states that exempting employer-provided transit passes from income tax is not an effective means of achieving this objective.

Taxation is already effectively used to influence behaviours—for example, tax increases on alcohol and cigarettes, which certainly have been shown to impact use; tax credits to oil companies for land reclamation costs; and tax deductions for charitable and political donations and RRSPs.

In the U.S. this tax exemption is a proven incentive to use a mode of transportation with lower societal costs. Our finance department, in quoting the U.S. General Accounting Office study, concludes that 75% of employees receiving transit passes were already transit users. This, frankly, corroborates our research, which concludes that employer-provided tax-exempt transit passes will result in an average ridership increase of 25%.

Local actions cannot compensate for the existing economic bias of current income tax policy. Although local and provincial governments can develop transit systems and control land use, fiscal incentives are essential for effective transportation demand management. The Victoria Transportation Policy Institute suggests that any TDM policies implemented at the local and provincial levels will be approximately 20% less effective without this kind of incentive.

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This can be a win-win situation. Implementation requires only a policy change from the federal government. Potential revenue losses are insignificant compared to the societal and economic benefits of supporting sustainable transportation. It's then up to individual transit properties to successfully market the service. That won't happen overnight, but I think it will be picked up very rapidly.

Support for this initiative has grown steadily. There's wide-ranging support from the Saskatoon Chamber of Commerce, to the Toronto Board of Trade, to many other organizations that are mentioned in the brief you have before you.

With the average family spending 14% of their income on transportation, reducing this expense and reducing taxes in an environmentally responsible manner would create an influx of disposable income beneficial to our economy. The cost of peak-period congestion in the Greater Toronto Area is an economic drain estimated at $2 billion annually, affecting on-time deliveries and productivity.

Businesses are voicing their concern over the impact and high costs of supporting single-occupancy vehicle use. Some are interested in reducing their payroll and parking costs by providing a tax-exempt transit pass. Others view this as an important demonstration of the government's commitment to achieving the emission reduction targets agreed to under the Kyoto Protocol.

Encouraging the use of public transit is no longer viewed as solely a transit issue. It's a health issue; it's a social issue. At the national level this proposal is a solid foot forward in the battle to meet our Kyoto obligations. It makes sense, it's cost-effective, and it's been proven in other countries. It's time to make employer-provided transit passes an income tax-exempt benefit. In Ottawa-Carleton alone we have targeted to increase our ridership by 73%. We can't do that—and no transit company, I suggest, can—without co-operation from the senior levels of government.

Thank you.

The Chairman: Thanks very much, Mr. Loney.

Mr. Ballantyne, welcome.

Mr. R.H. Ballantyne (President, Railway Association of Canada): Thanks very much, Mr. Chairman. I always appreciate the opportunity to make presentations in the Railway Committee Room.

You'll see there are some diagrams attached to the back of our presentation. There are references throughout the paper to those. When I come to those points, I'll indicate which of the diagrams in sequential order is relevant. Again, I'd like to thank you for your invitation to appear before the committee again this year.

The Railway Association of Canada represents virtually all railways operating in Canada. Our membership is currently 46 railways, and that's growing almost every week because of the new short lines that are being created. Our members include both freight and passenger railways involved in international, national, regional and short-line operations in Canada. We are also in the transit business in various parts of the country, primarily Montreal, Toronto and Vancouver.

Canada's freight railways move some 4.9 million carloads of freight and international containers each year. Canada's passenger and commuter railways carry nearly 45 million people annually.

We are as a nation heavily dependent on trade. If you look at the first diagram, you'll see that 40% of Canada's exports depend on rail transportation. These exports include automotive and intermodal traffic, industrial products, grains, coal, lumber, pulp and paper, ores, minerals and metals; in short, all the things that underpin the success of the Canadian economy.

While Canada's railways employ some 47,000 workers directly, almost 2 million Canadian jobs are trade related and rely on efficient and economic rail-based transportation. These jobs are both urban and rural. They exist in communities big and small all across the country, at Canada-U.S. gateway communities, in mines, forests, grain fields, manufacturing plants, railway facilities and supplier plants from sea to sea.

Because of Canada's geography, transportation costs are a significant component of many export commodity prices, and therefore competitive modern transportation is key to Canada's continued success as a trading nation in the global markets. Market-competitive traffic, or business that competes with products from other countries that may have either a cost or geographic advantage, or both in some cases, represents more than half of Canadian rail movements. By “market-competitive traffic” we mean commodities like coal. The Japanese can buy coal from Canada, China, Australia and South Africa, so our coal has to be able to be laid down in a market like Japan at rates that are competitive with other world suppliers, and transportation is a very significant portion of the cost of that product, as an example.

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Our industry has increased its productivity mainly through restructuring, by focusing on core business activities, from the application of advanced information and operating technologies, and through the acquisition of new equipment. These initiatives have allowed the industry, after some lag, to largely absorb the price decreases that have occurred. You can see on the third graph the downward trend in prices since the Canada Transportation Act of 1987.

There are ready examples of such railway industry action in this highly competitive economy. These include things like the successful test by Canadian Pacific of the Iron Highway, an intermodal transport technology between Montreal and Toronto. This is really innovative technology that is attempting to take truck traffic off our overcrowded highways in the short haul.

We're using electronic customs clearance of international rail traffic while in transit, and this reduces paperwork not only for the railway companies but also for the customs authorities in both Canada and the United States. In the first phase of the new electronic clearance process, 95% of southbound trains going into the U.S. cleared the border in less than 10 minutes, saving one to two days in freight transit time. Beginning last fall, the same results were beginning to be achieved with northbound traffic. These improvements in continental trade will allow the movement of an additional 25,000 carloads of freight annually, with the same freight car fleet. Other electronic commerce enhancements for customs clearance of transporter traffic moving by rail are anticipated to be made beginning this fall as well.

Because Canadian railways also compete with American railroads and North American truckers for traffic, public policy changes are required too. Railway management and employees cannot meet all these challenges in isolation of public policy. At this time, the competitive environment is neither fair nor balanced, primarily because of long-standing government policies, taxation and regulation.

Our competitors in the U.S., the U.S. railroads, have a natural market mass ten times bigger than our own, and benefit from economies of scale that flow from that larger American economy. Nevertheless, they have also benefited from supportive U.S. transportation-related policies, and I would refer you to the next two diagrams D and E.

A necessary consequence of entering into a trade agreement like NAFTA for a country like Canada is that tax and other government policies need to be harmonized between the participating countries, and that has not yet occurred. For example, Canada's railways pay 51% more in fuel sales and property taxes than U.S. railroads, and that's shown on graph F. Canada's railways pay 4¢ per litre in excise fuel taxes, and you heard the air transport people talk about that a few minutes ago. The American railroads pay approximately one-half that amount. The provinces exacerbate it by provincial fuel taxes that Canadian railways also pay. These taxes are, on average, more than seven times as much as U.S. railroads pay to the 21 northern-tier American states. They average 6.2¢ per litre in Canada compared to 0.7¢ per litre equivalent in the United States.

But these averages don't tell the full story. Provincial taxes for diesel fuel range from zero in Nova Scotia to 15¢ a litre in Saskatchewan. These taxes are in addition, of course, to the 4¢ per litre fuel tax. You'll see that shown on graph G, which shows very graphically the tax burden on a provincial basis.

Canadian Great Lakes vessels, which compete in the same international market for some rail-based traffic, pay no federal excise tax on fuel. There has been some movement on the provincial fuel tax issue, though, by some provinces, and most recently by the Province of Alberta. Alberta reduced its locomotive fuel tax by 3¢ a litre this year, and will further reduce it by another 3¢ in January 1999.

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This kind of action frees up railway funds for reinvestment in the economic future of the province. Examples in the Alberta case are construction of new and expanded intermodal freight and transfer terminals in Calgary, Edmonton and Grande Prairie. This tax reduction also helps make Canada's international trade routes for import and export traffic more competitive than they were before.

Further complicating the railway's competitive issues, though, are railway tax depreciation rates in Canada that are much less favourable than those of the U.S., and graph H shows that. For example, Great Lakes ships can be fully depreciated within three and a half years. Canadian and U.S. tractors and trailers on the highway can be fully depreciated between 5 and 7 years. U.S. locomotives and freight cars can be fully depreciated in 8 years. Yet, under Canadian tax law, it takes more than 21 years for Canadian railway equipment to be fully depreciated.

Rapid technological obsolescence is as much a reality for railways as it is for other businesses, and the excessive depreciation period for the railway industry is a barrier to much-needed investment that will allow Canada's railways to continue to make improvements in safety, productivity, reliability and environmental performance. This in turn will benefit Canada's manufacturers and producers, who can transport their goods to world markets in a much more cost-competitive manner. It also affects the prosperity of the Canadian railway supply industry and the ability of that industry to compete on a world market.

Modal inequities are also a competitive issue for Canada's railways. As you know, railways finance, build, maintain, renew, police, clear snow and pay taxes on their infrastructure. The North American trucking industry, however, benefits from publicly funded infrastructure and related services, and highway cost recovery from intercity trucking is estimated at about 47%, which allows truckers to underprice their services. One effect of that public policy is to put even more big trucks on already congested roads and bridges, and another effect is to continue to shift freight from one mode of transport to another. The next graph shows that long-term shift from rail to truck from 1955 to the present day.

In this post-Kyoto period, the time is right to redress the imbalance for many reasons, including the fact that transportation of freight by rail is between three and four times more fuel efficient for every tonne of cargo moved than it is by truck. Rail freight and passenger operations reduce greenhouse cases, conserve fuel, and reduce road congestion. Last year, for example, Canada's railways moved a record $288.9 billion revenue-tonne kilometres of freight, and we did that with just 3,200 prime movers. That is 3,200 locomotives as opposed to several hundred thousand truck tractors to move a slightly less number of tonne miles. Put another way, modern railways can move a tonne of freight an average of 375 miles per gasoline of diesel fuel, and a 100-car freight train is the equivalent of 275 big trucks on congested roads.

The potential is there for the railways to do more, and to do so with less impact on the environment, on road congestion and on the deterioration of the roads. These costs to society can all be reduced by allowing Canadian railways to operate in a more balanced and competitive environment.

The resolution of these pressing issues requires leadership and direction, especially from the senior level of government, the Government of Canada. The impact of continued inaction adversely affects all Canadian railways, their customers, the railway supply industry, and the Canadian economy as a whole.

Following from that, the RAC offers the following specific recommendations to address the concerns of the railway industry:

- first, Canadian fiscal policies that do not unfairly tilt the scales of competitive balance between the railway industry on the one hand and trucking and Great Lakes shipping on the other;

- second, capital cost allowance rates for rail asset investment in Canada that are comparable to those in the United States;

- third, Canadian excise fuel tax rates that are comparable to those applied to U.S. railroads;

- fourth, least-cost intermodal efficiency rather than a single focus on expanding highway corridors to move growing transborder trade; and

- fifth, the federal reclamation of regulatory control and accident investigation authority over transborder and interprovincial trucking, to be consistent with all other modes of transport in Canada.

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There are more people killed in big truck accidents every year than in all other modes of transportation combined and yet there's no federal involvement in that activity at all, even though there's substantial federal involvement in the safety of all other transportation modes.

In the letter of May 25 that the chairman, Mr. Bevilacqua, sent out, he asked the RAC to address four questions, and I would like to take a few moments to give some responses.

His first question was: “With the budget now balanced, what message do we wish to send to the government as to the priorities it should set for the fiscal dividend?”

Our response is that we believe the fiscal dividend should be used first and foremost to reduce the federal debt to ensure a healthy Canadian economy. Consistent with reducing the debt, the tax burden on individuals and on Canadian corporations should be reduced to levels comparable with our major trading partners.

Since businesses large and small create jobs for most people and because business competition is increasingly global in scope, it is important that tax policies consider the fact that we are in a global competition. In the transportation industry that means public policies that are equitable between competing partners.

We are particularly concerned with the capital cost allowance issue for our industry and we ask that it be addressed on an urgent basis.

Question 2: “What are the appropriate new strategic investments and changes to the tax system that would allow the government to best achieve those priorities?”

Our response is, number one, simplification of the tax system must be a priority. The tax system should be just, equitable, and easy to administer, and the RAC realizes that this is easier said than done, but a balanced budget combined with new computer communications technology should provide an opportunity to work toward these goals. Number two, all levels of government should further adopt the user -pay philosophy for government-provided infrastructure and services, and this will reduce distortions in the marketplace.

Question 3: “How can we help Canadians prepare to take advantage of the opportunities offered by this new era?”

Our response is that Canadians often, through their government, exhort Canadian businesses to be world class to ensure our success as a trading nation. By the same token, we do need world-class government in terms of policy, taxation, and administration and we would recommend taxation rates and regulatory systems that are competitive on a world basis, and continued streamlining of government administration so that it is lean, nimble and responsive to its customers, that is, to the citizens of Canada.

Question 4: “What is the best way for the government to ensure that there is a wide range of job opportunities in the new economy for all Canadians?”

Our other answers have really addressed that, but in addition, ensure that the tax burden on corporations is internationally competitive; minimize the regulatory burden; develop policies that encourage innovation; further support the international marketing efforts of Canadian business; and where appropriate, encourage public-private partnerships.

In conclusion, Canada's railways will continue to work hard to enhance their competitiveness through innovation and management of factors they can control. However, the reality today is that fiscal policies of governments at all levels have a major impact on the ability of our railways to meet these challenges.

The committee made well-reasoned recommendations last year, and the RAC and its member railways commend the committee for its work and look forward to working with you in the future to ensure that all Canadians benefit from the fiscal dividend.

Thank you.

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

We'll start now with the questions. Mr. Epp.

Mr. Ken Epp: Thank you, Mr. Chairman, and thank you for your presentations. They were all clear and concise. In fact, I taught for 31 years, and when Mr. Mackay was making his presentation, I made a little mental note that this guy could have been a teacher, because he stated his goal, then he expanded on it, and then he reviewed it at the end, which is just really good communication.

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To the points you made, first of all, beginning with the air transportation people, I see that you basically have two suggestions. One is on fuel taxes and the other one is on regulation fees. You'd like to see both of those made competitive with the States and certainly brought more in line. I think that's a fair summary of what you are saying.

I'd also like to underline the fact that you indicated a long-term goal of debt reduction. Why would you say that? What difference does that make to you?

Mr. Clifford Mackay: It makes an enormous difference. As I said in my opening remarks, our industry tends to track the economic cycles quite closely, and if you have an economy that has too great a debt burden, then when we go into the downside of an economic cycle it restricts the flexibility to try to manage through that process dramatically, as we found out in the early nineties. That tends to exacerbate the depth of the cycle, and that in our business tends to exacerbate how far down the market goes for us. So the degree to which we can encourage policies that smooth out the cycle and sustain a steady growth pattern is absolutely vital to our economic prosperity as an industry.

Mr. Ken Epp: I should perhaps apologize for my little outburst. The chairman corrected me on it. When you were making your presentation, at one point I said “Yeah!” That's because I saw the words “Saskatchewan” and “Alberta”. I was born in Saskatchewan and escaped to Alberta and I've been there ever since.

I was pleased to see you were giving some compliments to these provinces for reducing the provincial sales taxes on fuel, and yet I hear from the railroad people that the taxes are still there big time. I guess they're being reduced in Alberta, but Saskatchewan has one of the biggest taxes provincially.

I think, Mr. Chairman, what I've heard from these people here today is that we should have a great reduction in fuel taxes, or at least an equalization on fuel taxes, vis-à-vis the services provided. Of course airplanes don't use roads very much. Railroads don't use roads very much either. They just have little spaces where they cross the road at crossings, where most of us shake in fright when the train comes.

There are indeed huge inequities in the taxes on fuels with respect to trucks, which basically beat up our roads. I'm also an ex-truck driver and I have friends in the trucking industry. There's a balance to be reached here, and I agree we ought to be looking at that.

I have a question for the bus people. Did you come here by bus today?

Mr. Al Loney: We knew you'd ask.

Mr. Ken Epp: That's a good answer.

Mr. Al Loney: We walked.

Mr. Ken Epp: I walked too.

Mr. Ken Ogilvie: You might have noticed I was a bit wet when I came in.

Mr. Ken Epp: I walked to work this morning as well. Actually, I find it quite incredible that in transportation...and since you're a councillor here in this area, I want to tell you something that I have observed. In the last two years we have had great delays between downtown Ottawa and the airport while they were putting another lane on the bridge down there. It occurred to me that if I were the King, I would have solved that problem with a stroke of a pen. You see, we have cabs running in both directions, but with one passenger, and empty the other way because of a silly regulation that says cabs can only pick up passengers if they've bought the licence. So all of the cabs go to the airport empty, pick up their fares, take them downtown, and come back empty. For those who are picking up people downtown, it's the opposite; they're not permitted to pick up fares at the airport.

That has to be changed. I don't know whether that's federal, provincial, or municipal, but I think it would be wise in this case to not only permit them to take passengers both ways—it has all sorts of arguments, economically, certainly with respect to the environment, efficiency, and all of that—but to require them. Tax them if they're empty. That way they'd have to wait there until they picked up a passenger, which I think they would be delighted to do.

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So that's one solution. Besides that—and I'm going to put in a plug for this, Mr. Chairman—there is excellent bus service to and from the airport, and I think more of us should be using it. So I agree with that.

I have a question. You're promoting that there should be tax-free employee-provided passes for people to travel back and forth to work. By far the bulk of the people in my riding aren't anywhere near a bus. They live out on farms. Why should they be paying taxes to provide transportation for people in the cities to go back and forth? I'd like you to expand on that, and please be fast because I have very limited time.

Mr. Al Loney: Let me try.

One of the situations you've got to remember is that even if you live beyond where the buses go—and we certainly have that within the Ottawa-Carleton region—we have park-and-rides, and many people come in that far, get off there, and use the bus. Even if you don't and you drive all the way downtown...if everybody was in a car ahead of you instead of the bus, how much longer would it take you to get downtown? My clear answer to you is that everybody benefits by more people being on transit.

Mr. Ken Epp: Even the guys living way up there in northern Alberta.

Mr. Al Loney: Absolutely, because they sometimes leave there and go to the city.

Mr. Ken Epp: That would be a stretch, but I'll accept that because I do agree with your premise.

I should also say, Mr. Chairman, that this is just fascinating. When you were talking, I remembered this. When I was at university, I used the bus all the time, and in that era, in the 1950s, in Saskatoon the bus fares were 10¢ each, and if you bought tickets you could get 12 for $1. I used to walk two miles to university every day because I wanted to save the money. It's just incredible. But anyway, so much for that.

I would just like to take a few seconds for the railroad. I am a firm advocate of the efficiency of transportation with railroads, especially in Alberta. Between our agriculture and our industrial exports, we are totally dependent on the railways working, and working efficiently. Today is not the day to get into the whole labour union disputes at the ports and the fact that they bog down and our farmers end up paying the costs while the ships are waiting to load up and are in port for a week. They're doing their maintenance and our farmers have to pay for it. That's a whole other day and a whole other subject that needs to be addressed.

I certainly agree with your premise, particularly on the cost of fuel and taxes. I think we should be looking at that.

You made a statement that I want to give you an opportunity to correct, because as I said before, I have trucker friends, and this cannot possibly be true. I'm quoting you: “More people are killed in truck accidents than all other modes of transportation combined.” I can hardly believe that.

Mr. R.H. Ballantyne: I'm not going to change that. Those statistics didn't come from us. I guess originally they came from the various provincial transport departments. They came through a public advocacy group called Canadians for Responsible and Safe Highways. The other statistics on all the other modes come from the Transportation Safety Board of Canada.

I ad libbed that in my remarks today. I didn't bring that material with me. But I remember my presentation to the Senate committee last year, looking at the Transportation Safety Board, the new bill revising their act. When we made that presentation, we got those statistics and I stand by them—the other modes being rail, marine, aviation, and pipeline.

Mr. Ken Epp: So you're not including private cars in that.

Mr. R.H. Ballantyne: No, we're not including private cars. I'm talking about the other commercial modes of transport. I apologize if that wasn't clear.

Mr. Ken Epp: Okay. Well, that changes it dramatically. I do remember when I was driving a truck when I was a kid, there were some close shaves, but they were always because idiot drivers did dumb things like not recognizing the physics of a truck stopping.

Certainly, I agree with what you're saying with respect to capital cost allowance and the discrepancies between your mode of transportation and the others in Canada. I also agree there is a huge inequity between Canada and the United States.

Mr. Chairman, these are all very well presented documents here. They are very good presentations and I think they are very persuasive. I have no further questions. Thank you.

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

Mr. Loubier, do you have a question?

[Translation]

Mr. Yvan Loubier: I will reserve my questions for later on, Mr. Chairman.

[English]

The Chairman: Mr. Riis.

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Mr. Nelson Riis: Thank you, Mr. Chairman.

Actually, they were great presentations. I have a number of questions, but I'll just ask one or two.

First, to Mr. Ogilvie, you provide a very convincing argument for this particular initiative. It seems to be obvious. It has been done in the United States. It's good for the economy, good for the environment, good for Canadians, and good for health. Why haven't we done this before? We allow the deduction for parking. Have I just overlooked something, or is it that you don't want to tell us? It just seems to be such an obvious thing to have done some years ago.

Mr. Ken Ogilvie: I can only speculate, but my sense is that the problem is that the federal treasury gets the money out of taxing transit passes, and it has difficulty, I guess, at the federal level collecting the money on parking, but it doesn't want to give up the revenue. If the revenue is given up, the social benefits far outweigh the cost, but the money goes to other people, and I think maybe we have a little difference of opinion with the finance officials about if that's fair or not. But that's just a personal point of view.

Mr. Nelson Riis: That's fine.

Mr. Ballantyne, in your answer to the first question about the fiscal dividend, you said “ Canada's railways believe that the `fiscal dividend'...”. Why did you put that phrase in quotation marks? Is it because you don't believe that there is a fiscal dividend?

Mr. R.H. Ballantyne: There's no significance to that, and I'm not sure why it was done that way. It's just essentially to highlight it, I suspect. There's no significance attached to that.

Mr. Nelson Riis: I thought that perhaps you were getting in on the debate of the last few days of people questioning if in fact there is a fiscal dividend, considering the EI fund issue.

You say that reducing the debt is your highest priority, and Mr. Mackay says that's the highest priority. You call, then, for a number of tax changes that would result in lost revenue for the government, to be fair. But neither of you mention anything else, such as health care, education, or environment funding. Do you really mean to tell us that you don't think a single cent should be spent by the Minister of Finance on something other than debt reduction and giving more tax breaks to you folks, which you justify well?

Mr. R.H. Ballantyne: From our point of view, yes, we do think those things are important.

Mr. Nelson Riis: But you don't name them.

Mr. R.H. Ballantyne: No, and that's a fair comment. Possibly we should have specified that. Clearly, when presenting a brief, you're always doing a balancing act between, on the one hand, trying to convey the messages that are the most important to you and your industry and, on the other hand, not taking too much time.

But I think we all benefit as citizens, both corporate and individual, from health care and education, those kinds of issues, and clearly various levels of government have to factor those issues into the decisions they make. So I would certainly say, yes, those issues need to be considered by the government in dealing with the fiscal dividend as well as reducing the debt.

I think there is probably some concern on the part of maybe a lot of us in the private sector as to whether governments at all levels are really as committed to debt reduction as they say they are. So I think there is certainly concern on our part about various levels of government staying the course on debt reduction.

I'm trying to analyze why we emphasized that. That's really what's behind it.

Mr. Nelson Riis: Mr. Mackay.

Mr. Clifford Mackay: Just to give you a very brief answer, we didn't get into some of the other areas because of time limitations. We had two or three points we wished to make, so we focused on those points. But on the social policy side, in general our industry is very concerned about education. We believe that we have to maintain the priority on the education side.

We are constantly faced with the need to upgrade employees and to look for very highly skilled and highly trained people for our industry. Unfortunately, from time to time, frankly, we can't find them in Canada, and we've had to go offshore. We find that kind of an approach quite unacceptable. So for the air transport industry, education would be our first priority.

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Mr. Nelson Riis: Is it fair to assume that, had you had another page in your presentation, you would have included that there should be some spending in these areas? Or perhaps “investing” in these areas would be a more appropriate term.

Mr. Clifford Mackay: That's correct, and I probably would have mentioned something about some international trade practices as well.

Mr. Nelson Riis: Thank you, Mr. Chairman.

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

Mr. Szabo.

Mr. Paul Szabo: Thank you.

I wanted to talk about railroads too, and particularly about the graph indicating the effect of taxes on CN and CP, graph F. I'd like to understand more about this because, although we're suggesting that the fuel tax component in Canada versus that in the U.S. is very substantially higher—that's one of the arguments—I'm looking at the rest of the graph and I'm finding that there's a significant difference in the property tax component in Canada versus that in the U.S., and an astounding, very significant difference in the employment taxes in Canada versus those in the U.S. In fact, if I look at the percentages, 30% of the burden in Canada is payroll taxes, whereas in the U.S. it's 67%. That's more than double. I wonder if you could maybe amplify a little bit on this.

I understand the argument on the fuel taxes, but the employment taxes also beg maybe a recommendation or an observation with regard to the burden and the impact. As you well know, the whole question of employment insurance has grasped this place and Canadians in terms of how we approach this. If you look at the relative burden of employment taxes, one would have to conclude that Canada is in fact comparatively lower. Maybe the situation has to be put in context. Maybe you could help us, Mr. Ballantyne.

Mr. R.H. Ballantyne: Yes, that's clearly the situation. Looking at that particular element of taxation, the Canadian burden is lower than the American. I just didn't bring with me today the details backing this particular graph up, so I can't really talk about the details of the U.S. situation in terms of why they're substantially higher than we are, or as to what those particular items are. Whether it's social security or unemployment, I'm just not certain.

I guess the simple answer is that I can't elucidate today, but I will find that information for you and send it on if you wish.

Mr. Paul Szabo: Okay.

I think this next one is a general question maybe for the whole panel.

We have a big debate. We have to get representation from all segments of the economy on some important decisions that the government has to make. I know there was some comment with regard to paying down the debt, and I don't think there's any question that it is a priority that we continue to service the debt on a basis that is fiscally responsible. The question, however, then becomes the balance of tax cuts or spending.

In terms of representing your industries, I think it would be important to maybe get some feedback on where you see that focused on, for instance, the tax cut side. Are EI cuts are preferable to personal tax cuts? Or do you feel that with the way the dialogue is going, the balance with the need to deal with health care, for instance, is equally important? What are you hearing from your industries about the direction? It's important that we hear from as broad a segment as possible.

Mr. Clifford Mackay: Perhaps just to start off, I should preface my remarks by saying we certainly haven't had a specific debate among the members of the association on EI and the current controversy that's been going on in the last couple of weeks.

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But in general, to try to answer the balance question, as I said earlier, we would probably come down with the next priority being cuts in the tax burden, generally speaking, whether it's through personal income tax or through EI. I wouldn't want to comment on that particular question, but in general, we believe that could have a significant stimulating effect on the economy, because in our industry nowadays, it isn't just the business community or the well-off that travel by air; everyone travels by air. I think that would be an important stimulus to our industry.

Notwithstanding that, I did mention education and training. In terms of the social policy side, we would probably put slightly more emphasis on that than we would on health, but we're certainly not experts on that business, and frankly, it's not something about which we would have a terribly informed opinion. But from the point of view of the interest of the industry, education and training is very much an important issue for us.

The Chairman: Mr. Ogilvie? Mr. Loney.

Mr. Al Loney: I would only add that as an employer of approximately 8,000 people in the Ottawa-Carleton region, we would have to say that it would be a high priority for us to see a reduction in the EI premiums, if in fact that's justified—and it appears on the surface to be.

In terms of whether or not debt reduction is the be-all and end-all, I think you have a real wrestling match there with what's the right thing to do. I can only give you a personal observation on that. To get debt under control is one thing; to reduce debt is another. Certainly that's important, but I can say personally that most of the people I talk to think it's also important to increase spending in some of the social areas. We see that at our tier of government because we're delivering social services, and increasingly in Ontario we're also delivery health care in many areas, including ambulance.

I know nobody wants an increase in tax anywhere. I can tell you that none of us—and I think including everybody sitting here today—would throw up their hand if I asked if they wanted the property tax on their home increased. Yet if we throw more things down to our tier of government, property tax is the only base source that governments have in Ontario. That's something you should be careful of in terms of trying to reduce. But if you reduce only at the expense of the property tax base, as I would suggest has been done in Ontario, does it really help if it's coming out of property tax versus income tax? I say it hurts a great deal for people who are not into the income levels that are so high.

Mr. R.H. Ballantyne: I have a couple of comments echoing what Cliff said about the air transport industry.

We haven't had a debate or discussion within our membership specifically about EI or any of the other issues, but I would think the fiscal dividend obviously has to be divided in three parts: first is debt reduction; second is tax relief for society, somehow or other; and third is either increased or redirected spending in specific areas. Certainly some of the social areas—clearly, health care and education—seem to me and to our industry to be at the top of the list.

On the issue of education, towards the end of my written presentation are some words I'd left out of my spoken remarks, about something called the Institute of Railway Technology. This is an issue where we are working with the public sector. We talked about private sector-public sector partnerships, and we are working with community colleges at the moment—beginning in Alberta, but we expect to spread this across the country—to improve the quality of technical training for railway workers in the future. This is something that railway companies have had to do by themselves in the past, but especially with the change in our industry, with the restructuring of the industry and the growth of short lines, the issue of technical training is becoming more urgent for us. So, clearly, that's an area that's important to us as well.

Mr. Paul Szabo: Okay, thank you.

Thank you, Mr. Chairman.

The Chairman: Thank you very much.

I have a question. Increasingly this committee is focusing on the vision for the future, asking where do we want to go and how do we get there? If we were to divide the federal budget into three sections—namely, one section that deals with expenditures that deal with the past, interest on debt and what have you; a second section that would deal with the present; and a third section that would deal with investments for the future—what do you think the priorities should be on the third part of the budget? It would be an interesting exercise to find out exactly how much we are spending in those three areas.

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Mr. Ballantyne.

Mr. R.H. Ballantyne: Talking about focusing on the future, I think it comes back to the comments I just made, that clearly education is something that will affect our future as a nation, and probably that's one of the most fundamental things it will do. That's because we've got to have a workforce, we've got to have a population that can cope in the kind of world we're living in now.

Clearly, in our kind of economy and in our kind of society we have to have a knowledgeable and well-educated population; otherwise our future as a nation is in jeopardy. So it seems clear to me, looking at the future, that education has to be a very high priority.

Obviously health care is up there as well. We have to have a population that is healthy. We have an aging population, which is something very close to my heart at my stage in life. The issues of health care of course are important to our future, and the health care system shouldn't be a financial drain either on individuals or on society as a whole. So there has to be a lot of work done in that area.

The Chairman: In the budgetary process, would you like to see more of that? Would you like to see people outlining a longer-term vision and how the measures taken in any budget relate to that long-term vision? Quite frankly, we're usually limited to a two-year window.

Mr. R.H. Ballantyne: Yes, personally I think it would be useful to have a fairly long horizon as part of the planning process. Now, the further you go out into the future the less definite one can be. So there still has to be this short-term process, dealing with the budget on an annual basis, but I think it would be helpful if there was a longer-term context as well.

I have just one last comment on it also, going back to the issue of efficiency of government. I think in the whole budget process—and again, this is for all levels of government—the issue of efficient administration, and that relates to the budgeting process, is important as well, especially with the kind of global economy we're in. We have to be smart and efficient and nimble as a nation if we're going to be successful in competing.

The Chairman: Thank you, Mr. Ballantyne.

Mr. Mackay.

Mr. Clifford Mackay: Not to dwell on this, I would just say I see education and training very much as a longer-term thing. I spent 20 years as a senior public servant, and I'm very familiar with the government's budgetary processes, and I would very much encourage the committee to look at ways and means of taking a longer view in that context.

The best example I can give you is our sustained effort to try to improve the levels of research and development and technological change in the country. I think that's at the heart of our long-term competitiveness. It links very directly to education and training, and without it I don't believe we will be a competitive society in the future.

You cannot deal with issues of that nature in annual budgetary cyclical processes, and I would very much encourage the committee to look at changes that would allow you to take a longer view in terms of setting the fiscal framework for some of these sorts of issues.

The Chairman: Thank you.

Mr. Loney and then Mr. Ogilvie.

Mr. Al Loney: This morning I've heard comparisons with the U.S., and I'd like to make a further comparison with the U.S. Coming to it rather lately, the U.S. federal treasury has been putting substantial amounts of money into transit. I believe public transit is something you need to make a commitment today for, in order to protect the future.

There's a comparison I would make sort of in reverse to what I've heard some of my colleagues making here today. Yes, it's important to have a competitive tax rate and so forth, but isn't it also fair to consider the other side of the equation—what are they spending the money on? And if the federal government doesn't give some impetus to this, I suggest that you're into a situation where you're not showing leadership that backs up the Kyoto commitment, as an example. I don't think enough people are sufficiently aware of the difficulties we'll have 20 years down the way if we don't sufficiently tackle some of these issues now.

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Certainly, public transit and the impact it can have on the whole transportation network and the significant influence that has vis-à-vis the gases and problems we're trying to deal with is tremendous. Anything the federal government can do.... What we've asked for today I say is a very small piece. If you ask for the wish list of what we should do in the future, I think the federal government should be putting more money, substantially more money than they have ever before, into what I think is a very necessary thing of the future, and that's public transit. I won't get into the other issues because of time.

The Chairman: Thank you.

Mr. Ogilvie.

Mr. Ken Ogilvie: Personally, I think we should look at all expenditures as investments if you're going forward. What we have is a distorted system of choice, based on misallocation of public policy to some extent and transportation. I think we've overinvested in some aspects of transportation and underinvested in others. And to the extent that we have environmental expenditures, they sometimes result from those distortions, where we have to then clean up the unintended side effects. That's where we get into expenditures.

But if you take a very careful look at balancing the economic, social, and other environmental factors in a forward-looking way, I think we're talking about investment in the future. Some of the distortions of the past have left us a bit of legacy that we're getting over, and the cleanup costs are enormous. We don't have to have those, and I think the forward look is to think of it as an investment and not as an expenditure, in terms of the environmental investment.

The Chairman: I want to take this opportunity to thank the panellists. It was of course very interesting, and the issue of transportation is one this committee understands to be a very important one as we try to establish a competitive and efficient society that serves people well.

On that note, on behalf of the committee once again, thank you.

We'll suspend for approximately two or three minutes and then we'll be back.

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The Chairman: I'd like to call the meeting to order and welcome everyone back.

We have the pleasure to have with us representatives from the Certified General Accountants' Association of Canada: Mr. Mark Boudreau is vice-president of public and government relations, and Mr. Don Goodison is chair of the tax policy committee. We also have representatives from the Federation of Canadian Municipalities: René Danis, counsellor, Gloucester township, and James Knight. From the International Association of Fire Fighters we have Sean McManus, and Rick Miller, Ontario municipal employees retirement system board member.

We will begin with the representatives from the Certified General Accountants' Association of Canada.

Welcome.

Mr. Don Goodison (Chair, Tax Policy Committee, Certified General Accountants' Association of Canada): Thank you, Mr. Chairman.

The Certified General Accountants' Association is pleased to appear before your committee again to provide you with our perspective on what Canadians need to see in the next federal budget.

We've already provided you with our brief, so in the five minutes we've been allotted I'm merely going to point out to you some of the key recommendations in our submission.

CGA Canada represents over 55,000 certified general accountants and CGA students right across Canada. Many of our members are tax and accounting practitioners who serve Canadians on Main Street. Others occupy financial and administrative management and policy positions in governments, financial institutions, charities, and corporations, many at the senior levels.

As financial professionals, we have a duty to provide advice and insight into how our country is managed. On a less altruistic level, our members are directly affected by the budgets in their daily professional activities.

First, we'd like to congratulate the government and the finance minister on successfully eliminating our deficit. Unfortunately, though, our work has just begun.

We must stick to our long-range game plan. We believe that despite Canada's strong economy, our dollar's current volatility is a sign that the end of the business cycle is on the horizon. It is a time to be vigilant, to focus on a plan to reduce the debt to solidify our economic future.

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CGA Canada shares the view that the day-to-day management of economic instruments such as our dollar is the domain of the Bank of Canada. The federal cabinet, on the other hand, sets the longer-term course of national economic policy to provide a framework for such day-to-day management, and it needs to consider very carefully its long-term objectives. That is a key message in our recommendations.

CGA Canada is concerned that the government is missing a window of opportunity to tackle the debt. The finance minister must establish a comprehensive debt reduction plan, setting clear debt reduction targets now. Last year, we called on the minister to earmark 50% of any budgetary surplus to pay down our $583 billion national debt. This year, we repeat that advice in the strongest possible terms.

We need to invest in areas that improve and promote our productivity. We may still be performing relatively well in international competitiveness, but much of that is due to the value of our currency. Our lower dollar acts as a shock absorber and masks our productivity weaknesses.

CGA Canada is continuing to call for broadly based tax cuts, as we have in the last two budgets. Our studies, including our 1996 timely blend tax study—which is still relevant—demonstrate that a broadly based tax cut will increase gross domestic product and create jobs with very little actual resulting loss in our tax revenue—and that study is included in the brief that we distributed to you earlier. Two years ago we were almost alone in our call for tax cuts. Now we find ourselves with many allies.

We have also called on the finance minister to improve the current $200,000 small business deduction by increasing the small business tax rate and limit by five percentage points for each $50,000 of taxable earnings above the current limit until the general tax rate is reached.

Last year we called on the minister to reduce employer EI premium contributions and to have the finance committee identify upper and lower caps for the employment insurance fund. We believe any surplus in the EI fund should first be dedicated to ensuring the solvency of that fund and the social policy objectives it fulfills. EI fund surpluses above that established cap should be used to reduce premiums to both employers and employees.

CGA Canada applauded the provincial and federal governments when they took action on removing interprovincial trade barriers. We now seem to be stalled, however, and that is unacceptable.

We continue to be deeply concerned by high unemployment levels, particularly among young people. We have called upon the federal government to take a Team Canada approach to youth unemployment and to engage the same partnership and commitment that Team Canada missions make to trade. We are facing a growing crisis, one which not only affects youth but our ability as a country to stay competitive. Just one of the symptoms we can see is the brain drain, where our young people are leaving the country for the United States or other lower-tax jurisdictions.

CGA Canada also sees electronic commerce as one of the key issues in the coming years. We support the federal government's recent focus on electronic commerce, and we will be working closely with governments to face these challenges and opportunities.

To sum up, we have three major directions that we are recommending to the finance minister. First, lay out a clear and aggressive national debt reduction plan similar to the successful plan for deficit reduction, while engaging the key players in our economy in that effort. Second, introduce modest, prudent, broadly based tax cuts in the next federal budget. Third, develop a comprehensive, priority focus on youth employment, including measures for youth at risk to ensure our economic future.

In closing, I would like to refer you to our brief for greater detail on our advice, and I thank you for considering CGA Canada's recommendations. We hope to see them in the next federal budget.

The Chairman: Thank you very much.

We'll now hear from the Federation of Canadian Municipalities, and Mr. René Danis.

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[Translation]

Mr. René Danis (Member of the Executive, Federation of Canadian Municipalities): Thank you, Mr. Chairman. My name is René Danis and I am a city councillor for the City of Gloucester. I'm testifying here today on behalf of the Federation of Canadian Municipalities. I'm a member of the board and a member of the executive committee of this organization. Unfortunately, our chairman cannot be with us today.

Given the large number of associations who have appeared before you today, I have shortened my remarks so that we can discuss the highlights of our presentation.

The FCM has been recognized as the national voice of municipal governments for the past 60 years. Membership includes approximately 630 municipal governments from every province and territory. FCM is an association dedicated to improving the quality of life in Canadian communities. Municipal governments understand that healthy communities are determined by the positive interplay of social, economic and environmental factors.

Today's presentation focuses on three main factors: core infrastructure, transportation and energy systems.

[English]

Core infrastructure. The FCM-inspired $6 billion tripartite Canada infrastructure works program was a major success for the federal government, provincial and territorial governments, municipal governments, and particularly for Canadians. It achieved its dual objective of job creation and infrastructure renewal and construction.

FCM and municipal governments are seeking a longer-term extension of the CIWP in the 1999 budget. The development of community assets, as identified by the municipalities themselves, that support social, economic, and environmental well-being are an investment in the overall health of Canadians.

In 1999 municipal infrastructure programs should be sufficiently flexible to accommodate equally the needs of both rural and small communities and focus on the following: waste management systems, including waste diversion, product stewardship, upgrades of existing landfill sites, methane capture, upgrading of incineration technology to meet the new requirements for dioxins and furans and mercury emissions; water treatment, including water conservation, sewage upgrades to further reduce contaminants in water effluent, and water treatment alternatives such as settling ponds and wetlands; alternative energy sources, energy efficiency, vehicle emissions testing, and public transit; and finally, mobility, including investment in road repair and upgrades, commuter rail, and advanced technology public transit.

[Translation]

Transportation, mobility and accessibility: Communities across Canada have been hard hit by the federal government's unprecedented withdrawal from transportation, particularly those communities outside of the Quebec-Windsor corridor. These unprecedented cutbacks in transportation are fuelling regionalism and alienation.

National transportation infrastructure is critical to the economy and to our quality of life. For communities, a strong holistic transportation system means national mobility and access to goods and services, trade and tourism. For northern and remote communities, it can very often mean access to emergency services and supplies.

In particular, FCM supports a federal-provincial-territorial National Highway Program because of its importance to commerce, trade and tourism. The urgency grows as railway rationalization and off-loading of federal airports and seaports continues. Freight and passenger loads on highways are increasing. This affects municipal and provincial road costs, as well as the environment.

Canadians are well aware of both the enormous revenues derived from fuel taxes by the federal government, and the federal government's lack of financial support to Canada's national highway system. FCM strongly urges the federal government to make employer transit passes an income tax-exempt benefit.

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In the context of Kyoto's commitment, GST and excise tax for urban and inter-urban transit should also be explored. In almost all developed economies, national governments contribute to transit. In Canada, the federal government only taxes it.

[English]

Community energy systems. Alternative energy production is an important part of moving towards sustainable communities and enhancing quality of life. The FCM and the Canadian Centre for Mineral and Energy Technology have taken a leadership role in promoting the benefits of community energy systems to municipal governments. District energy systems meet space heating and cooling and hot water needs from a central energy plant, replacing individual furnaces, air conditioners, boilers, and chillers. The key to any community energy system is the transmission network linking the energy source to the customer. The high capital cost of installing these piping systems can be a barrier to realizing the benefits of increased energy efficiencies: greater community control over energy costs and reduced emissions of pollutants causing smog, acid rain, and climate change.

Two federal initiatives would support development of community energy systems in Canada: extending class 43.1, accelerated capital cost allowance, to district heating or cooling systems meeting set performance criteria relating to carbon dioxide emissions. While class 43.1 would assist municipalities in attracting private investors, municipal governments also require assistance. The lack of financial resources often results in a municipality putting aside a viable CES project and continuing to use fossil fuels.

Both class 43.1 and the up-front repayable contributions should also be available to existing projects requiring modernization, as many of these projects are operating with outdated boilers and inefficient systems.

Finally, it is important to note that the federal government controls, leases, or owns property across Canada. Its cooperation is instrumental in helping municipalities move forward on CES by securing a large customer.

Support for FCM's environment, transportation, and infrastructure programs would set the stage for a long-term commitment to the health and well-being of Canadians and the communities they live in.

Mr. Chairman, you indicated earlier to this committee that you are interested in not only the past and the present but equally the future. You mentioned that you were particularly interested in initiatives beyond that two-year window. The programs the FCM is proposing to you today will contribute in a very real way to making progress towards sustainable communities. The investments identified in this paper will create jobs, will reduce pollution, will save taxpayers money on the cost of health and environmental damage, will improve the efficiency of the economy, and will make Canada more competitive and innovative. We believe that these investments will also go a long way to make Canada a world leader in meeting the Kyoto commitments. FCM urges the federal government to seriously consider these proposals and to work with our members to implement these initiatives as quickly as possible.

[Translation]

Thank you, Mr. Chairman.

[English]

The Chairman: Thank you very much, Mr. Danis, for your insightful presentation. I must admit, though, that having Mr. Wilfert as the member of Parliament next to me.... As you know, he has a great involvement in the Federation of Canadian Municipalities. You can rest assured he was advocating those points every time we met. Thank you.

Mr. René Danis: If I may, Mr. Chairman, I'd like to greet our past president on behalf of our association.

The Chairman: Thank you.

Now we will hear from the International Association of Fire Fighters, Mr. McManus.

Mr. Sean P. McManus (Canadian Director, International Association of Fire Fighters): Mr. Chairman, members of the committee, good morning. My name is Sean McManus, Canadian director for the International Association of Fire Fighters, the union representing over 225,000 professional firefighters and emergency medical personnel in Canada and the United States. The IAFF represents 17,000 professional firefighters and emergency medical personnel in Canada.

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With me this morning is Erik Leicht, chair of the pension committee for the Ontario Professional Fire Fighters Association, which is the IAFF affiliate here in the province of Ontario, with a membership of over 9,800 members. Also with me this morning is Rick Miller, the firefighters' representative to the Ontario Municipal Employees Retirement System, or OMERS.

It's wonderful to be here on Parliament Hill this morning with fire prevention activities taking place right out front, and we're proud to say that members of the International Association of Fire Fighters are leading the way with respect to fire prevention here in Canada.

On behalf of the IAFF general president, Al Whitehead, we are very pleased to be here this morning to provide the IAFF's position on the specific issue of pension reform as this government prepares its budget. The IAFF's proposed changes to the regulations of the Income Tax Act would provide a fair and equitable retirement for this nation's firefighters and emergency medical personnel, plus it would allow those vacated positions to be filled by new hires to Canada's fire service.

Attached to our statement this morning is a strong letter of support for the IAFF's position from the Canadian Police Association. The CPA represents 35,000 police officers across Canada, and it is equally concerned about the inequities of the current pension accrual rate found in the Income Tax Act regulations.

In reviewing the criteria for presentations that was set forth by this committee, we note with interest items 2 and 4, which address ways that progressive changes to Canada's tax system will ensure that there are job opportunities for all Canadians. The change being proposed by the IAFF speaks to those very issues.

By way of background, firefighting is a demanding occupation. Because firefighters and emergency medical personnel are routinely exposed to communicable diseases, hazardous materials, and toxic combustibles, there is increased mortality that can be directly related to the occupation. The simple and tragic fact is that firefighters die younger than the rest of the Canadian population.

This fact was highlighted in July 1997 with the Plastimet recycling plant fire in Hamilton, when over 100 firefighters were exposed for 4 days to the fumes of over 200 tons of burning polyvinyl chlorides. Many of these firefighters experienced health problems immediately after the fire, but many of the serious illnesses, which no doubt will be experienced by these same firefighters, will not surface in the forms of cancer and heart disease until a number of years in the future.

Another example of the fragile mortality of firefighters can be found in the aftermath of a landfill blaze that took place 16 years ago in the city of Saskatoon. The University of Saskatchewan had deposited every year about 30,000 kilograms of hot waste at a site in Saskatoon from the mid-1970s until the blaze in 1982. The waste included small amounts of carbon-14 and other radioactive material, acids, and anti-cancer drugs. Of the dozen firefighters who attended the fire scene, at least six have already died of cancer, and two others have been diagnosed with leukemia. All but one of the WCB claims filed have been denied. Almost half of Saskatoon's firefighters have died of cancer, and the average lifespan for them is 55 years, which is 20 years less than for the rest of the Canadian population.

In 1994 the Ontario Industrial Disease Standards Panel released a report after conducting a study of mortality among Toronto area firefighters between the years 1950 and 1989. The study concluded that there was a probable connection between the occupation of firefighting and cardiovascular disease, brain cancer, lymphatic cancer, colon cancer, bladder cancer, and kidney cancer. Unfortunately, when the Harris government was elected, the panel was disbanded, and the recommendations of that report have never been implemented.

Studies consistently show that firefighters die of some types of cancer and of heart disease at a higher rate than would be expected for similar groups in other occupations.

Against this tragic backdrop, the change the IAFF is advocating would allow Canada's firefighters to retire before the rigours of the job pose a threat both to the individual and to fellow firefighters. The change would allow firefighters to have made adequate pension contributions for his or her retirement. Timely retirements would allow young Canadians to fill those positions.

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Canada's Income Tax Act regulations define firefighting as a public safety occupation. Pursuant to that definition and the wording of the regulations, Canadian firefighters are able to retire at age 55.

The regulations also stipulate the maximum benefit accrual rate for years of credited service is 2% under a defined benefit pension plan for all occupations. Canadian firefighters, therefore, have the ability to retire earlier than most other occupations, but are financially penalized for doing so as contributions, or credit for years of service, cease on retirement. In other words, there is no opportunity for firefighters to make up the reduction in retirement income.

In correcting this inequity, the IAFF advocates this committee recommend to the government that firefighters be allowed to contribute to their registered pension plan at the higher pension accrual rate of 2.33%, thus allowing firefighters to retire with dignity and with adequate financial provisions made for their retirement.

As we have stated, with the retirement of those firefighters, young Canadians would have the opportunity to enter the fire service and contribute to the economic well-being of the country.

This government already recognizes that firefighters have to retire early by virtue of its definition of public safety occupation in the regulations. The IAFF is advocating that the change to the Income Tax Act would allow firefighters the opportunity to contribute more into their registered pension plan, rather than individual registered retirement pension plans, which would help offset the lost income resulting from a shortened career. This change would also utilize the current tax assistance levels for pensions more efficiently, and more importantly, create employment opportunities for young Canadians across Canada.

This government already acknowledges that fact, both in the regulations and in correspondence we have received from the finance minister. As an example, firefighters in the United States are recognized for their shortened careers with a higher pension accrual rate of 2.5% for each year of credited service. Recognition of this issue without a resolution rings hollow to Canada's firefighters and emergency medical personnel.

In conclusion, the IAFF urges this committee and the government to take the equitable course of action by allowing firefighters to contribute 2.33% to their registered pension plan. It is time that something concrete is done to rectify this inequity. Too many premature funerals of firefighters have already occurred without the necessary changes being made to the Income Tax Act.

We appreciate the opportunity to appear before you this morning and are prepared to answer any questions you may have.

Thank you.

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

We will now go into the question and answer session.

We'll start with Mr. Epp.

Mr. Ken Epp: Thank you, Mr. Chairman, and thank you all for your very lucid presentations. I particularly appreciate the written submissions because I like following what you're saying with what you've written and then highlighting immediately the things that concern me.

I'd like to begin with the accountants. I always appreciate their penchant for numbers. I want to expand a little bit on the suggestion made that the government should implement a debt reduction plan similar to its highly successful deficit reduction plan.

Now, that's just oozing with congratulations to the Liberals, and I would like to know, since I was never able to identify what actual plan they had in deficit reduction, since it seems to have happened by accident, what you mean by this deficit plan.

A voice: Did you read the red book?

Mr. Ken Epp: I read that red book. I could never see a plan on this.

Mr. Don Goodison: I'll answer your question as best I can. The government did have rolling deficit reduction targets over the last number of years and did meet those or exceed their targets in that period. We feel the same effort should be put into the debt, whereby they target a certain amount of money to reduce that debt each year. Those targets, whether they were met accidentally or not, were met. That's what we're recommending they do, that they set out targets and reduce the debt in that fashion.

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Mr. Ken Epp: Okay.

This is extremely interesting, and I want this on the record, because in the House of Commons we tried to get the minister to state the targets and he never did. There was never a stated target. It was always, well, we'll do the best we can; we want to do better than we've done now; those are our rolling targets.

As a result of huge increases in tax revenue by the government, such as an increase of over $25 billion a year in tax revenue since 1993, we now have a balanced budget with that and other measures that have happened: reduced interest rates, which is more or less an accident; and taking huge amounts of money out of the EI fund.

You accountants should understand this. There's a book balance there, but they've taken money away—which actually is even in violation of legislation—from the EI fund in order to balance this budget. Are you suggesting that they should now take more money out of the EI fund in order to start reducing the debt?

Mr. Don Goodison: Absolutely not. We have suggested that the EI fund be capped and that any excess over a certain cap that is required to meet the needs of the EI fund be returned to the employees and employers. We are absolutely against any taking of the EI surplus and applying it to the debt. That should go back to the people who contributed to it.

Mr. Ken Epp: Okay. I agree with you on that, and I remember that you said that. It seems to me.... Well, we shouldn't get into a political discussion here. We have to talk about what you're proposing. So I'm going to cut off that line of attack here, right now.

With respect to the EI contributions, you said they should be capped. You've also indicated that 50% of surpluses should be used to repay the debt. Presumably, that's to reduce interest payments. Is that what you're—

Mr. Don Goodison: That's correct.

Mr. Ken Epp: So there's more money available, then, for government programs and tax reductions and things.

How important are tax reductions to you?

Mr. Don Goodison: I think they're very important. One of the things that has surfaced in the last while is that the biggest single expenditure of any Canadian is income tax or taxes of all sorts. Over 50% of income coming in gets taxed in one way or another.

We're seeing a lot of people leaving the country, and I see it quite frequently in my profession, because they can get lower tax rates in other jurisdictions, such as the United States.

We're seeing people deliberately setting out their affairs not to reduce tax but to avoid them, committing criminal acts to avoid taxes simply because they feel they're overtaxed. If we can reduce taxes, we'll probably see a lot less underground economy. I've heard estimates that it's at least equal to the above-ground economy, which I find a little hard to believe, but I've seen a lot of it. If we can get that under control, we'd probably see a more smoother-running country.

Mr. Ken Epp: By the way, I'd like to correct one statement on page 5 of your written submission. You said, “two years ago, we were almost alone in our call for tax cuts”. I don't think you were alone at all, because certainly our party was advocating it. But you weren't alone in the sense that we heard from literally thousands of Canadians who were calling for that; it's just that the message wasn't being heard. I think your concerns there are very important.

I'd like to move along. Unfortunately, we have limited time for each of the presenters.

I want to go next to the municipalities. I have some serious questions.

The FCM-inspired $6 billion tripartite Canada Infrastructure Works Program was a major success for the federal Government.

My question is, on what do you base that? How do you measure success? In Alberta, for example, I know of a number of municipalities that faced the conundrum of not having the money to put up their one-third. The province was eager to balance its budget and reduce its interest payments, and it was forced to forego the money, which we were sending to Ottawa, because they didn't reduce our taxes if we opted out—there was no such provision.

So we had to pay into Ottawa. Ottawa sent some of that money back, but we had to then turn around and match it.

It's as if I go into a store and the guy says to me, okay, we'll give you a 50% discount on this item if you allow us to double it first. If you know any math at all, you'll end up paying more for it.

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I know that even in my own riding there were some projects undertaken that would not have and perhaps prudently should not have been undertaken, simply because otherwise we would lose the money. Now how can that be a good fiscal plan?

Mr. René Danis: I'd like to use your analogy of a store. Any time a store puts on a sale, it invites people to purchase. You're not obligated to purchase at all. However, those people who are in a position to take advantage of that sale would benefit from the savings and then they would also turn around and probably go elsewhere and make other purchases.

What I'm suggesting to you is that although you're quite right in that probably not all the municipalities throughout Canada could afford the one-third that was being suggested here, I know, based not only on the Auditor General's report but also on the federal government's review of the program and the FCM's review of the program, that this indeed was probably the most successful tripartite program ever undertaken by all three levels of government.

Mr. Ken Epp: But I believe the Auditor General had some very serious questions about it.

Mr. René Danis: The Auditor General had some questions, but I'm sure the member will have read the report. The Auditor General also praised that program in a lot of respects.

Mr. Ken Epp: Of course, the difference between a store having a sale and the federal government having a sale is that if a store has a sale and I don't want to buy the object, I keep my money in my pocket. In the case of the Ottawa sale, they took my money and then they said, now, if you want some back, come up with another double amount of it. That's really what they did. For every dollar we got back from Ottawa, as a municipal and provincial taxpayer, I had to match yet another dollar. So they took the 50¢ by force. That's exactly what happened, and I had quite a few people express real concern about that.

I just want to be clear and on the record. You are asking the government in the upcoming budget to have another $6 billion infrastructure program, at the price of perhaps increasing our debt?

Mr. René Danis: Let me say two things. First, you spoke of the constituency you represent. I would say to you that one of the member associations of the FCM, the Alberta Urban Municipalities Association, overwhelmingly supports the renewal of an infrastructure program with the government.

Some hon. members: Oh, oh!

Mr. René Danis: What I'm saying to you is that the FCM has not placed, nor has it earmarked, a dollar amount for the infrastructure program. What we are suggesting here is a movement away from the hard services program that was promoted in the last infrastructure program to a green infrastructure program, which I believe is the core of the presentation before you today.

Mr. Ken Epp: Okay. So in other words, you would like to have Alberta's money...actually, I think what you are saying is really quite wrong. The reason Alberta supports it as it is perceived is because of the fact that it's the only way we can get our money back, by participating in it. The federal government sets that out as a rule. If you don't participate, you can opt out, but it won't give us back in tax relief one-third of the cost.

In other words, if they would put back one-third in terms of the amount they tax us, then that would be a fair offer. But the only way you can get the money back that you've already sent to Ottawa is by participating in the program. If that's interpreted as being supportive of the program, then it's like having a gas station saying that every time you drive by you must pay $1. If you actually stop in and fill up with gasoline, then we'll construe that as being supportive of this program we have.

I take exception to that, and I think in saying that I'm quite accurate in representing the riding I'm in.

Are you suggesting $6 billion in this budget? Do you have a number you're suggesting?

Mr. James W. Knight (Executive Director, Federation of Canadian Municipalities): I would just state that the first program was an excellent model. In that program the federal contribution was at the rate of $1 billion per year for two years and then it was topped up a little bit, triggering matching contributions both from the provincial governments and from the municipal governments.

That seemed to be large enough that it could be absorbed by the country, but not so big that it overstimulated the construction industry. So it was a good starting figure.

Mr. Ken Epp: Okay. Thank you. I'm sure the Liberals will hear you on it.

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I'd like to go next to the International Association of Fire Fighters. I have some questions for you. You are proposing that firefighters and police—what do they call them now, police people, police persons, safety officers, peace officers?—be set as a special category and be permitted to accrue their pensions at 2.33% instead of 2%, in order to give them an earlier retirement. I can't believe you're suggesting this.

By the way, the written record won't show the tone of my voice, so let me just insert here, right now, that the member from Elk Island is saying this with gobs of cynicism and sarcasm.

Are you really suggesting that firefighters and peace officers should be able to accrue at 2.33% when members only get 4% per year?

Mr. Sean McManus: I think that was loaded with a tinge of sarcasm, so I don't—

The Chairman: By the way, this is televised, so we can see his facial expression.

Mr. Sean McManus: Yes. We are suggesting that a public safety officer, who is already defined within the regulations of the Income Tax Act...it already provides for that early retirement. We are suggesting and advocating that because of that, and recognizing that studies show that firefighters die earlier than the rest of the Canadian working population, you allow the opportunity for those firefighters to contribute more during their working lives so that they are able to retire early without being financially penalized.

Mr. Ken Epp: I understand that fully. Have you discussed or examined any other ways of doing this? I have a little bit of a problem with saying that it applies to firefighters and peace officers. The next thing we'll have is the nurses who work 12-hour shifts and who certainly are under a lot of stress. It will go on and on to all of these other groups, saying they want this ability to put more money into their pension plans and RRSPs.

The accountants might agree that those limits, in both cases, are too low in order to adequately provide for one's retirement, and certainly for a retirement that right from the beginning is planned to be an early retirement. There have to be ways of accruing benefits at a higher rate.

Have you looked at any other ways of doing that that would avoid setting you apart? In other words, should we perhaps increase the limit to RRSP contributions for all Canadians? Could you then arrange with your employers to get a little higher salary so that each firefighter could then put more money into an RRSP, with appropriate limits being increased? Have you checked that out at all?

Mr. Sean McManus: There are a couple of other avenues we are pursuing. Presently before the House is a private member's bill, Bill C-395, dealing with CPP reform for firefighters and police officers.

Additionally, the question often comes, why should we make this change when there are other occupations out there that face stress and are subjected to it? Our response to that is when everybody else is running out of the burning house, firefighters are going in. The studies show they die earlier. There is stress and everything else, but it is more a question of the cancers and heart disease that are becoming more and more prevalent with the types of blazes like Plastimet last year. Within provincial legislation you have the right to refuse unsafe or dangerous work. Firefighters, practically, do not have that ability. They can't say “Ooh, it's too hot; we're not going in”.

Mr. Ken Epp: Okay, but you didn't really answer my question in terms of whether you have examined other avenues of achieving this goal.

Mr. Sean McManus: As I said, we have the bill before the House. Quite honestly, it's a question of collective bargaining. You can't start bargaining for extra when you're prohibited by the regulations under the Income Tax Act from going for the extra. You need this change made. Once this change is made, it's not a guarantee you are going to get it, because that can only come about through collective bargaining. This change will allow the parties to sit down and, if they can come to an agreement, allow for that extra contribution.

Mr. Ken Epp: Thank you. Mr. Chairman, I had better let someone else have a chance.

The Chairman: Thank you very much, Mr. Epp, especially when your time is up.

Mr. Ken Epp: Yes, I think it is.

The Chairman: Mr. Loubier.

• 1215

Mr. Yvan Loubier: Thank you, Mr. Epp.

[Translation]

As was suggested by Mr. Epp, I will limit myself to the economic analysis and brief presented by the chartered accountants. I will not play politics. My intervention will be very serious because I have detected, on one page of the brief alone, on page 3, serious analytical shortcomings and even contradictions. Some of the affirmations that have been made in this brief are quite contrary to what we see in reality.

I will zero in on only a few of the facts and I would like your comments. I have tremendous respect for accountants when it comes to accounting, but I will not tolerate such blunders when it comes to the economic analysis.

I would refer you to the second paragraph, where you state:

We also believe that, despite Canada's strong economy, our dollar's volatility is a sign that the end of the business cycle is on the horizon.

As we speak, this is the fourth consecutive month that the GDP has fallen. A week and a half ago, Statistics Canada announced that, for the first time in two years, the composite index had dropped, which means that there will be a considerable downturn in the economy. With the world crisis, everyone is talking about global deflation and Canadian deflation, which we have, to some extent, created with our monetary policy. It's wonderful when the rate of inflation is under 1%, but this could also signal deflation. When deflation occurs, the forecasts for prices—I will try to simplify—are so poor that investors stop investing because the profits that they are hoping to achieve through such investments are not there. Instead, they are leaving themselves vulnerable to losses because of the decreases in price growth rates.

How can you say that the economy is strong and that the dollar's volatility is a sign that the end of the business cycle is on the horizon? Your analysis is seriously flawed, and does not reflect current economic growth.

Let's turn to the subject of monetary volatility. Contrary to what you stated, there is more than one reason to explain why the Canadian dollar is volatile; it's not merely because of the Asian crisis, followed by the Russian crisis, the volatile international markets or speculation. There is also the action taken by Minister Martin, action that you have praised. However, such action has had a devastating impact on the Canadian dollar. I would remind you that, in the past 15 months, the Minister of Finance has taken $20 billion of the surplus he achieved, plus the $3 billion contingency reserve, to pay down part of the debt. You promote repayment of the debt, even when the current economic climate is uncertain.

By using this $20 billion in this manner and by buying back bonds or other securities on the market, the government has itself flooded the money market with Canadian dollars. It also exerted pressure causing the Canadian dollar to drop. During these months, it asked the Bank of Canada to intervene with its reserves to buy up massive quantities of Canadian dollars to shore up the value of the dollar, which had dropped to 64 cents. At the same time, it asked the Bank of Canada to take action which had the opposite effect, which put downward pressure on the Canadian dollar. So how can you talk about the volatility of the dollar without taking this fact into account, while at the same time heaping praise, a short while later, on a policy which, in the current context, amounts to paying back the debt?

The third major point that is presented as a fact—a fact devoid of meaning—is that the objectives of debt reduction will send a clear and positive message to both Canadian and foreign financial markets. May I tell you that the clear message that we have been sending to both the Canadian and foreign markets over the past three years is that we are going to reduce the deficit. We have managed to bring the deficit down to zero and to create a surplus which should reach $15 billion by the end of the 1999 fiscal year, providing there is no recession, although according to us, the risk of this occurring is high. Despite all of that, the Canadian and foreign market say: "We are speculating on the Canadian dollar. The Canadian dollar is not a sure thing. We are trading in our Canadian dollars for American dollars."

• 1220

Today, people are fed up with these clear messages to the financial markets, particularly since approximately $2 billion per month is being added to the surplus. That makes $7 billion for the first four months. We are not against debt reduction, but given the current situation, which I spoke about, it would be wiser to use this money to stimulate the economy.

I will now go back to your first paragraph on page 3, where you talk about maintaining economic growth and stimulating productivity. Right now, there is no longer any economic growth. We are, at the very least, in a period of stagnation or at least in a slowdown, if we base ourselves on the latest figures, and our productivity is 30% lower than that of our foreign neighbours.

The best thing to do would probably be to table, very quickly, a special budget and to use the accumulated surplus to decrease taxes, as you mentioned, but not for just anybody. We need to cut taxes for middle-income people, who are in a position to stimulate the economy, and we must also reduce employment insurance premium rates. Why wait for the next budget, as you are suggesting, when we can do it now? We must stimulate economic growth so that we don't find ourselves, 10 months down the line, facing a recession.

These are the comments that I wanted to make to you. For some time now, because we have had deficits for the past 25 years, we have forgotten that the Canadian government can act as an economic stabilizer, that it could use its money to introduce measures other than those taken over the past few months.

A senior official at the Department of Finance recently said, and this angered me a bit, that Canada was the only country in the world that was currently paying back its debt. This senior official, whom I will not name, should have asked himself, given his characteristic cleverness, why the others were not doing this, why they were waiting to see how the Asian crisis would resolve itself and why they were not using their money to flood money markets.

I would like to hear what you have to say on this matter.

[English]

The Chairman: Who would like to comment? Mr. Boudreau.

Mr. Mark Boudreau (Vice-President, Public and Government Relations, Certified General Accountants' Association of Canada): First of all, I think we came here today with a message that we're seeing a great deal of volatility around the world. A good part of the world economy is in recession, and we are not immune to that volatility. We can see it flowing over our own borders.

The picture we tried to paint in our brief is one of caution. We're not advocating that the government go on a spending spree or that it just solely concentrate on the deficit. What we have tried to say in our brief is that a balanced approach is needed. That's why we have said 50% of any kind of surplus should go towards the debt.

We've taken a very strong position that the UI fund is a UI fund. It's not a debt reduction fund. It's not a health care fund. It's a UI fund, and the Minister of Finance should treat it that way. Any of those surpluses should be going back to workers and to small businesses. When he takes 50% of his surplus in terms of applying it to the deficit, we're not advocating that it should be taken out of the UI fund. Obviously, I think there is something there that the government has to sort out.

That's also why we said there should be modest tax breaks. The minister started with low-income Canadians last year. If “modest” means that's all we can afford, then let it continue on that path. As we know, there are still too many children living in poverty in this country. So let him continue on that path.

The third point is that we have to continue to reinvest. That's why we said that with another quarter of the fiscal dividend, we need things like health care and education, which will bring longer-term benefits to Canadians.

So what we did try to advocate in our presentation is caution, a balanced approach to the upcoming federal budget.

[Translation]

Mr. Yvan Loubier: Mr. Boudreau, if I have understood your answer correctly, you are dropping the section in your analysis that talks about the vigorous economy, because you have just admitted that the economy is not as strong as you depicted it in your brief. Moreover, you are condemning the government policy which consists in spending all of the dividend in 15 months, namely, paying back $20 billion of the debt. We are no longer talking about using 50 or 25% of the surplus.

• 1225

You are saying that caution should have dictated that we use part of this money to pay back the debt and the other part for stimulating the economy. This is what you said. But Mr. Martin's policy has not done that.

Despite the commitments he has made, over the past 15 consecutive months, he has spent the money as it has come in, including money from the employment insurance fund. He used this money to pay back the debt, to pay back the debt exclusively. One hundred per cent of the money has been used for this purpose. You don't agree with that?

[English]

Mr. Mark Boudreau: We reached a balanced budget. Three years ago, as we all know, this country was hitting the fiscal wall. Whether we liked it or not, some hard choices had to be made, and we think the right ones were made, in the sense that this country is now on a good, solid economic footing. However, as we can see, there's a lot of volatility in the global market and we're not immune to that, and we have to be cautious about where we go in terms of not upsetting the balance.

Our association is not saying that we don't need to make some strategic investments. This committee has to choose. We have a lot of competing priorities out there, between health care, child poverty, special taxation.

[Translation]

Mr. Yvan Loubier: Mr. Boudreau, my question was as follows. Over the past 15 months, the Minister of Finance has used all of the dividends for managing public finances, all of the surplus, to reimburse part of the debt, namely $20 billion. He took all of the money to do this.

If I base myself on what you said earlier, what you have written down here is contrary to what you are advocating. Uncertainty and caution should have dictated that he use a portion of this money to reimburse the debt, but not everything. That's what you said earlier.

[English]

Mr. Mark Boudreau: I think we're mixing apples and oranges. We were talking about the deficit; now we're talking about the debt. The fact is yes, the Minister of Finance used any savings that were made from the reduction in the size of government—

[Translation]

Mr. Yvan Loubier: Mr. Boudreau, you didn't understand me properly.

[English]

The Minister of Finance used, for the last 15 months, all of the surplus created to reimburse a part of the debt—not the deficit, the debt. One hundred percent of the surplus was used by the finance minister to reimburse the debt.

Mr. Nelson Riis: How could he do that?

Mr. Yvan Loubier: Do you disagree with that?

Mr. Nelson Riis: Explain how he did that. Explain how that was done.

Mr. Yvan Loubier: You said that we could suggest to the finance minister to use 50% of surplus created each month—

Mr. Mark Boudreau: Yes.

Mr. Yvan Loubier: —to reimburse a part of the debt and the other 50% to increase the transfer for social worker programs, for example, or to reduce taxation.

In the last 15 months, Paul Martin didn't follow that. Paul Martin used all of the surplus to reimburse and only reimburse the debt. That's it. You can't agree with that.

Mr. Mark Boudreau: That's a case we don't know. He hasn't brought down the budget saying what he's going to do with the fiscal dividend. The fiscal dividend is occurring now.

Mr. Yvan Loubier: No, no. The ministry of finance every month publishes certain data, and this summer he announced every month that he used surplus to reimburse the debt. That's it. These are public data; they're not my calculations. That means you disagree with the finance minister.

Mr. Mark Boudreau: We've said that there should be a balanced approach, that 50% should go toward the debt, 25% toward tax cuts, and 25% for social expenditures. We're on the record as saying that.

Mr. Yvan Loubier: Okay. You disagree.

The Chairman: Thank you, Mr. Loubier.

Mr. Wilfert.

Mr. Bryon Wilfert (Oak Ridges, Lib.): Thank you, Mr. Chairman, and thank you for your comments. It is rather fortuitous that I walked in at this moment. I just wanted to make a few comments.

The Chairman: Timing is everything.

Mr. Bryon Wilfert: Yes, in politics timing is everything.

Mr. Chairman, last night I went to hear a discussion with the Minister of Natural Resources and Environment on the issue of climate change. Clearly the presentation by the Federation of Municipalities, even though I wasn't here for most of it—I know it all by heart in any event. I also want to indicate that clearly this was probably the most successful program ever initiated by three orders of government in Canada.

• 1230

But we still do have a $40 billion deficit in terms of infrastructure. What better way is there than for all three orders of government to work in harmony to deal with the impact of water, sewers, and bridges in terms of improving not only our environment, but our economic competitiveness across this country?

It would seem to me a program that was initiated when the Government of Canada had a $42 billion deficit and was able to do that then.... Now we hear the Government of Saskatchewan and the Government of Alberta.... I'm sure if the councillors and mayors in Mr. Epp's riding heard him today, they'd probably have a stroke, but there's no question they are in fact on board. The associations, both rural and urban in Alberta, are on board. We know this is a program that works. We saw that through the Auditor General's report, through the McGill report, through the government's own analysis, and through FCM's analysis.

So for me, that aspect makes tremendous sense, because it also assists us in our Kyoto approach and in terms of district energy systems. In fact, I heard the Minister of Natural Resources last night say we have to do more with cogeneration; we have to do more with district energy. Therefore, again, the presentation today is in line with that.

My friend across the way here, Mr. Riis, has a private member's bill dealing with the issue of benefits of an employer-provided, tax-exempt transit pass. I couldn't agree with you more that we need to move in that direction. The Americans already have it; the Europeans in western Europe have it. It makes sense to make it fair and to promote it.

So I would certainly commend the presentations in that regard. I think we as a government showed tremendous leadership in 1993 when, after 10 years of knocking on the door, the FCM presented these arguments to the government.

But the clock is ticking. I have just written the minister and the Prime Minister with regard to an extension of the program. I think we need to have a three- to five-year, much more long-term vision in terms of infrastructure, because it's like that hole in the roof: if you've got a hole in the roof and you don't attend to it, it gets bigger and bigger. Had this program been done 10 years ago...it was about a $17 billion debt.

I would just like to ask a quick question through the Chairman to Mr. Danis.

In terms of the issue of class 43, in terms of district energy, on which we have seen repeated presentations, there's a concern that somehow this would create unfairness with regard to other forms of energy by providing some kind of special assistance to people in this area in terms of the accelerated capital cost allowance.

Would you comment on how this in fact would not be discriminatory if it were extended in this regard?

[Translation]

Mr. René Danis: Mr. Chairman, I will ask Mr. James Knight to answer the question.

[English]

The Chairman: Mr. Knight.

Mr. James Knight: Yes, Mr. Chairman. Thank you for that question.

If the tax and investment climates were conducive to district energy systems in the current format, we'd see more of them. But we don't see enough of them. There are some pilot projects, but they're getting started with some special help.

The European experience is clear. You need a favourable economic and tax regime to make these systems go. In the long term you save. The costs of operation are lower, clearly the energy efficiency level is higher, and the greenhouse gas emissions are therefore reduced. But all experience points to the need for a better fiscal climate, a better tax climate, a better financial climate.

Let's be clear. Broadly speaking, fairness or unfairness, if Canada is going to come anywhere near close to meeting its targets for Kyoto, we'll need more than just a level playing field; we're going to have to tilt the playing field a little bit in favour of energy efficiency. That's perfectly clear.

Mr. Bryon Wilfert: Thank you.

Thank you, Mr. Chairman.

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

Ms. Bennett.

Ms. Carolyn Bennett (St. Paul's, Lib.): Thank you, Mr. Chair.

• 1235

My question is to the CGA. The second item in your summation says “introduce modest, prudent, broadly based tax cuts in the next federal budget”. Would you see increasing the personal exemption as the best way to go about that, or do you have other ideas?

Mr. Don Goodison: That would be one way of doing it. Pretty much any method of tax reduction would be acceptable. For example, the middle rate is at 26%. That's not a middle rate, because 17% is your low and 29% is your high, so the middle rate would be 23%. There could be a reduction in that. That middle rate is the part of the economy that's really getting squeezed, so there could be something done along that line. An increase in the basic exemptions, yes, that would be one way of doing it, or you could reduce UI. It's what people wind up with in their pocket at the end of the day that matters, not what form it takes. So anything that can be done would be very appreciated. Let's put it that way.

Ms. Carolyn Bennett: For the firefighters, I was interested in your comments about the death rate. I want to know if you also believe that there's more that we as a federal government should be providing through Health Canada in terms of occupational health and safety. Is there something we should be doing? It seems frightening that we would just accept this and that there aren't other things that could be done.

As you know, I have expressed concern that the same fireman was sent to Plastimet four days in a row. Our understanding of what causes cancer and other diseases is that it seems to be dose-related. So perhaps you could call firemen from all over the area to go to a toxic fire so that each fireman would have to go only once.

Is there anything the federal government should be doing in terms of national standards in occupational health and safety?

Mr. Sean McManus: That's a very good point, and actually, we are working on and advocating that.

Coming out of the Plastimet experience, what we found is that once a provincial government decides there is going to be no inquiry, that's the end of the story. Presently, at the federal level there is no ability to investigate these types of blazes in order to find out what went right and what went wrong and to set some national standards. So one of the things we are advocating is some type of federal agency with the ability to make those recommendations, not as a witch hunt but to find out what went right and what went wrong and to come up with recommendations.

In the situation at Plastimet the municipality of Hamilton said that was a provincial matter. The provincial government has abandoned responsibility for it, and we look now to the federal government maybe to step in and come up with those national standards. Again, we run into the roadblock of jurisdiction, but because it is a health and safety issue, I think we should not get bogged down in jurisdictional arguments. We should be able to have national standards that would benefit all workers, particularly firefighters, who do, as you say, increase chances with increased doses.

Thank you.

The Chairman: Mr. Pillitteri.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you, Mr. Chairman.

I'd like to first make a comment. I see Mr. Loubier is kind of upset that the government eliminated the deficit and maybe retired a little bit more debt than we had anticipated. That's what he was getting upset about. But, of course, this is the goal of this government.

I want to ask a specific question, Mr. Boudreau and Mr. Goodison. You mentioned that the EI fund is for Canadians who have paid into it from the employee and employer sides. In my lifetime I have been both, but of late I've been an employee. We talk about the fiscal dividend, and of course it's coming mostly from the EI fund. There's a notion out there that it's a fund sitting there with $20 billion in it. That's what the Canadian people are sometimes led to believe, either by the media or by the accounting terminologies you use, saying it's money that is sitting there waiting to be spent. On the other hand, as I understand it, it's a fund that has been under general revenue since 1986. There's no specific fund, except on paper—not any one fund with money sitting there. Given that, something has to be done with the fund reaching a certain point.

• 1240

We set out so much in prior budgets for social programs, a quota for reduction of the debt, and tax cuts. My question to you, and I want to be specific, is, if the fiscal dividend is not as large as possibly anticipated—and it could be not as large, as we do know with the downtrend in the economy. Someone failed to say it's not only the world but also internal, and maybe I'll even mention that Quebec's instability sometimes can have an effect here in Canada.

If you had a choice of making a recommendation to this committee, would you want to go to a reduction of EI? If, let's say, there was a $6 billion dividend, would you want to reduce that by reducing the EI premiums by 70¢, which would go down to $2, which would give $5.4 billion, $5 billion, or would you want to have a tax cut across the board by raising the allowance for Canadians—and it would affect every Canadian—by reducing the UI fund? By reducing the EI, it would affect approximately 10 million to 12 million people by giving an across-the-board tax reduction, by having more Canadians at the lower-income end pay less income tax. Which one would you choose, sir?

Mr. Don Goodison: That's a good question. Quite honestly, I'd probably choose the increase in the basic deduction because it does affect a lot more people.

EI does not affect the self-employed individual who does not contribute or receive benefits from it, and there are a lot of those out there.

An increase in the basic deduction would assist those people. So I would say, given the choice I would go with the increase in the deduction.

Mr. Gary Pillitteri: But increasing the basic exemption does help, and the self-employed would benefit too.

Mr. Don Goodison: Yes, that's correct. It benefits a lot more people across the board.

Mr. Gary Pillitteri: Thank you.

The Chairman: Thank you.

Mr. Riis.

Mr. Nelson Riis: Thank you, Mr. Chairman.

In light of the issue—just to pick up where Mr. Pillitteri leaves off—and the interest in your brief in terms of a modest, prudent, and broadly based tax cut, one of the tax cuts the government could consider that would affect everybody, self-employed and virtually everyone, would be a GST cut.

I'll just make that point, as opposed to asking for your response.

Mr. Boudreau, you have drafted a very thoughtful presentation. On page 3, at the very bottom, you refer to the first question the chairman poses, and that is, what priority should we set for the...and you use the term “so-called”. Then in quotation marks you put “fiscal dividend”. Why did you use the word “so-called”, and why did you put fiscal dividend in quotation marks?

Mr. Mark Boudreau: Again, I think we wanted to move with caution here. Some large numbers have been floating around, that we have a fiscal dividend of anywhere between $6 billion and $20 billion. I've heard numbers of $15 billion and $20 billion.

I think we will get a fiscal dividend. How large? Right now, we're really in some very turbulent times globally. As a trading nation, we're really susceptible in terms of what can turn on a dime over the next coming months, which I think is going to make it very difficult for the finance minister. He'll probably be looking at his budget right down to the final day when he has to deliver. I just think there's a lot of turbulence out there that could move that dividend from being a very large one to being a very small one. That sort of sets you up for different budget scenarios that you'll have to look at.

• 1245

Mr. Nelson Riis: With all due respect, Mr. Boudreau, that might help explain why you would put “fiscal dividend” in brackets, but I don't know why you would call it “so-called”.

Mr. Mark Boudreau: I said “so-called” because that's what economists...I guess I was just using an economist's term. They call it the so-called fiscal....

Mr. Nelson Riis: It implies that it's not real; it's so-called.

Mr. Mark Boudreau: It's real; it will be real.

Mr. Nelson Riis: Why don't they just call it the real fiscal...?

Anyway, I don't want to dwell on that point.

I want to disagree with my friend, Mr. Epp, in terms of the infrastructure program. I can say without any hesitation that in the communities I represent, both large and small, it has been used prudently. I would be surprised if you would find a single person, even a Reform member, who would disagree with the value of these projects. I don't think any of them would have proceeded without the tripartite funding.

I support your call for an expansion of the program. I wouldn't necessarily want to see it as limited as you suggest, but I appreciate why you're.... These are obviously crucial areas. I just want to give a strong endorsement to your recommendation.

I have a question for Mr. McManus about the proposal. When you referred to the public safety occupations.... Would you suggest that if we're going to change that figure to 2.33% we should presumably include police as well as firefighters and perhaps others in the emergency services? We're talking presumably about people whose lives are on the line. As a result of the hazardous or dangerous work they do, their lifespans are almost by definition shorter than other Canadians.

Mr. Sean McManus: The definition within the regulations right now provides for police offers as well, so those categories of employees are also there. There are about five categories of employees who are caught by that definition presently.

Mr. Nelson Riis: Can you give us a general idea of what difference this would make to a retiring firefighter, someone who has been on the force for, say, their entire life and is retiring presently, what a typical retirement income would be—I guess, Mr. Miller, I'm aiming this towards you—and what difference it would make if we had changes over the years to 2.33%?

Mr. Rick Miller (Ontario Municipal Employees Retirement System Board Member): That's a very good question. First of all, the Income Tax Act does recognize five occupations. They also say in the Income Tax Act that firefighters—I'm going to use firefighters as an example—can retire five years before all other occupations in Canada. For anybody who's enrolled in a defined benefit pension plan, they can only accrue the 2% for every year of service. If you were hired as a clerk and I was hired as a firefighter the very same day, and in my particular case I have a mandatory retirement age of 60 and you have a mandatory retirement age of 65, first, you have a five-year window where you can make up any type of loss of income or increase your pension income by working five years longer. Just by the nature of our occupation, we're five years shorter by the mandatory retirement age, which has been upheld by the courts. If you read the human rights case, they've even recommended a much lower retirement age.

Second, this will allow a firefighter to increase their contributions to their defined benefit pension plan, and at the same time it would reduce the limit they can put into their RRSPs. So as a federal government you'd want to be concerned with the tax assistance levels. We're not asking that the tax assistance levels be changed. We're saying we can better utilize the current limits by contributing more to our registered pension plan so that we will have enough pension income to retire before that mandatory retirement age. That's what we're asking for here.

I take exception to Mr. Epp's remarks earlier in the House. As far as costs go, I put it to him this way. What is wrong with me putting $500 more into my registered pension plan? It reduces my RRSP room by that amount of money, and by leaving before my mandatory retirement age of 60, it creates a job for a younger Canadian. That's what it does. It creates efficiency within the current system. None of those benefits have spoken about that at all.

• 1250

Mr. Nelson Riis: Could you give us an actual dollar value to give us some indication of the two?

Mr. Rick Miller: I'll use an example. If you have a firefighter who has $40,000 a year as their pensionable earnings—their highest five years—if they work 30 years right now they get 2% for every year, so 60% of that $40,000 would be a pension of $24,000 a year. If they had 2.33% they would be utilizing the .33% by leaving five years earlier than their normal career, and this is again if they have the ability to work to age 60. In that case, it would be 70% of their final average earnings, which would be $28,000 a year. So it would increase their pension by $4,000 a year, in this particular example 10%.

What you are basically doing is utilizing the retirement provisions that are already in the Income Tax Act so that the firefighter can afford to do that. That was the intention back in the 1980s when they established this special designation. Unfortunately, firefighters have been caught and they haven't been able to get the pension income to do that.

The question is, why is there an early retirement window in the act now? The reason it's there is for us to retire early, but we have to do so with a penalty, and I don't think that was the intention of the government. What we're saying is let's utilize the current system. We don't want any special privileges; we want to pay for it.

Finally, keep in mind that even if the government did this, it would allow us to do it under the Income Tax Act. The registered pension plans in each jurisdiction would have to make it available as a supplementary agreement, and the employees can pay the full cost, just like they do for their current RRSPs. So why don't we want to create employment and better utilize our current tax limits? That's the question I pose.

Mr. Nelson Riis: Thank you.

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

Thank you, panellists, for an excellent presentation. As you know, we really count on your opinion to help us shape the recommendations we give to the Minister of Finance. So thanks again on behalf of the committee.

I would just like to inform the members that earlier today there was a motion, and I'm going to read it:

Mr. Speaker, I believe you will find consent for the following motion: that the following standing committees be permitted to meet later this day for the purposes of Standing Order 106.

Our committee was cited, Finance at 1 p.m., and Public Accounts at 3.30 p.m., which basically means, according to our clerk, that this is going to be the striking committee.

But before we get to that meeting, I would like to take this opportunity as your chair to thank the clerks, the interpreters, members of our staff, the researchers, those individuals who make sure our rooms are ready and functional—to everyone who is part of the parliamentary process through the standing committees. To them, on your behalf, I would like to express our warmest and sincerest gratitude for their excellent work.

I also want to give a recap of what we have been able to achieve as a finance committee. We've had 118 meetings from September 1997 to October 1. We have tabled seven reports: the report on the pre-budget consultation Keeping the Balance: Security and Opportunity for Canadians; Bill C-2, the CPP Investment Board Act; Bill C-28, the Income Tax Amendments Act 1997; Bill C-36, an act to implement certain provisions of the budget tabled in Parliament on February 24, 1998; we also dealt with the issue of tied selling, an amendment to section 459.1 of the Bank Act, where we as a committee clearly stated that the law is certainly on the side of the consumers; Bill S-3, an act to amend the Pension Benefits Standards Act, 1985, and the Office of the Superintendent of Financial Institutions Act; we also dealt with Bill S-9, an act respecting depository bills and depository notes and to amend the Financial Administration Act.

One of the issues that I think has been very impressive has been the number of people that have participated. To date, 985 witnesses have participated in our hearings, and over 4,000 people have participated in hearings, including town hall meetings. We, of course, held meetings with the Bank of Canada on monetary policies to decide other issues.

• 1255

Since we are in the middle of a consultation process on the issue of the MacKay task force and the pre-budget, I want to cite for you, and also for Canadians who participated in these town hall meetings throughout the country, the impact this committee has had on the 1998 budget.

The finance committee's pre-budget report entitled Keeping the Balance: Security and Opportunity for Canadians contained a number of recommendations that eventually made their way into government policy. Most were announced in the 1998 federal budget tabled on February 24, while some were announced prior to the budget.

The following, I think, documents the fate of the committee's recommendations. On the issue of budget-making, the committee recommended that the government continue to use two-year rolling targets for its budgets, that the economic assumptions used be more prudent than those of the private sector, and that a $3 billion contingency reserve continue to be employed. The committee further recommended that any unused portion of the contingency reserve be applied to debt reduction and not to spending increases or tax relief. That was found on pages 28 and 29 of the report.

All of these recommendations have been accepted by the government, as outlined on page 8 of the budget speech. The prudent assumptions presented by the government on pages 40 and 41 of the budget plan 1998 are consistent with the recommendations of the committee noted above.

The issues of granting councils, the information highway, supplemental health benefits, youth unemployment, student debt, and tax relief once again found their way into the budget. The measures that were introduced prior to the budget dealt with EI premiums, the Canada Television and Cable Production Fund, and the increase in tobacco taxation.

On behalf of the committee, I would like to thank the thousands of Canadians who participated in that pre-budget consultation. It is evident to me that their voices are being heard by the Government of Canada, through the recommendations of this committee.

At this point I would like to hand over the meeting to the clerk, Mr. Lahaie.

The Clerk of the Committee: Members of the committee, I see a quorum in conformity with Standing Orders 106(1) and 106(2). Your first item of business is to elect a chair. I'm ready to receive a motion to that effect.

[Translation]

Members of the committee, I see a quorum. Pursuant to Standing Order 106(1) and (2), the election of a chairman is the first item on the agenda. I am ready to receive a motion to this effect.

[English]

Mr. Paul Szabo: Mr. Chairman, I would like to place the name in nomination of Mr. Maurizio Bevilacqua as chair of the Standing Committee on Finance.

The Clerk: It is moved by Mr. Szabo that Mr. Maurizio Bevilacqua do take the chair of this committee as chairman. Is it the pleasure of the committee to adopt the said motion?

[Translation]

Mr. Yvan Loubier: Mr. Chairman, I would like to debate this motion.

The Clerk: When it comes to electing a chairman, the clerk is not authorized to accept motions other than those pertaining to the election of a chairman.

Mr. Yvan Loubier: It seems to me that we can do this under sections 106 and 116.

[English]

The Clerk: No, the clerk can only receive motions for the election of a chair. The clerk cannot receive any other type of motion and cannot entertain points of order nor participate in a debate.

[Translation]

Consequently, the clerk cannot receive other motions.

Mr. Yvan Loubier: Subsection 106(2) states:

(2) Each standing or special committee shall elect a Chairman and two Vice-Chairmen, of whom two shall be Members of the government party and the third a Member in opposition to the government, in accordance with provisions of Standing Order 116, at the commencement of every session and, if necessary, during the course of a session.

Section 116 of the Standing Orders states:

116. In a standing, special or legislative committee, the Standing Orders shall apply...

Consequently, according to the Standing Orders of the House, when a motion has been tabled we can debate it.

...so far as may be applicable, except the Standing Orders as to the election of a Speaker, seconding of motions, limiting the number of time of speaking and the length of speeches.

• 1300

So it seems clear to me that we can debate motions dealing with the candidacy of committee chairmen, according to these same House of Commons Standing Orders. This is stated in section 116.

The Clerk: No, I'm sorry. This interpretation is not accepted when it comes to the election of parliamentary committee chairmen.

Mr. Odina Desrochers (Lotbinière, BQ): What are you basing yourself on when you state that?

The Clerk: On Beauchesne.

Mr. Yvan Loubier: What section?

The Clerk: I don't have it here, but we can—

Mr. Yvan Loubier: I would like you to indicate which section you are referring to.

The Clerk: It's because in the House, we adopted special rules for the election of the Speaker of the House, namely the secret ballot. These are rules that apply to the election of the Speaker.

Mr. Yvan Loubier: Yes, and section 116 states clearly that in committees, the Standing Orders shall apply "except the Standing Orders as to the election of a Speaker", meaning the Speaker of the House. It is therefore possible to debate any other motion according to the regular Standing Orders. You were referring to the Speaker of the House, but it is clear. Section 116 states:

116. In a standing, special or legislative committee, the Standing Order shall apply so far as may be applicable, except the Standing Orders as to the election of a Speaker, seconding of motions, limiting the number of times of speaking and the length of speeches.

Which section are you using to prevent us from debating the motion pertaining to Mr. Bevilacqua's candidacy?

[English]

Mr. Nick Discepola: I have a point of order, Mr. Chairman. You've accepted the point and now you're allowing debate to proceed, so I would ask that you rule and let's go on.

[Translation]

The Clerk: I am not authorized to receive points of order or to allow a debate on the issue. We are electing a committee chairman. We have a motion and we should proceed with this motion.

Mr. Yvan Loubier: I asked you a question.

Mr. Nick Discepola: There's no debate.

Mr. Yvan Loubier: In compliance with which section? According to what? I would like to know.

The Clerk: In compliance with the parliamentary practice of all House committees.

Mr. Yvan Loubier: No, not according to parliamentary practice. I'm asking you which Standing Order section or which comment in the sixth edition of Beauchesne you are referring to.

The Clerk: Pursuant to Standing Orders 106(1) and (2). It has always been the clerk's role to interpret these sections and to receive motions in order to elect a chairman. My role stops there. The clerk cannot receive point of orders or participate in a debate.

Mr. Yvan Loubier: Mr. Clerk, I would ask that you refer once again to Standing Order 106(2). Subsection 106(2) states:

Each standing or special committee shall elect a Chairman and two Vice-Chairmen, of whom two shall be Members of the government party and the third a Member in opposition to the government, in accordance with the provisions of Standing Order 116, at the commencement of every session and, if necessary, during the course of a session.

Mr. Nick Discepola: On a point of order, please.

Mr. Yvan Loubier: As for Standing Order 116, it states:

116. In a standing, special or legislative committee, the Standing Order shall apply so far as may be applicable, except the Standing Orders as to the election of a Speaker, seconding of motions, limiting the number of time of speaking and the length of speeches.

Accordingly, the Standing Orders apply to the motion tabled with respect to Mr. Bevilacqua's candidacy. We're not talking about electing a Speaker of the House. We would not have been able to discuss a similar motion in Mr. Parent's case. It's not clear. You have not convinced me.

The Clerk: As I explained earlier, the House adopted a special voting procedure, namely the secret ballot, for the election of a Speaker of the House, and this applies exclusively to the election of the Speaker of the House.

Mr. Yvan Loubier: That's right.

The Clerk: Here, in committee, the clerk is not authorized to receive motions, to debate—

Mr. Yvan Loubier: With respect, Mr. Clerk, I asked you where it is written, in Beauchesne, that, pursuant to the sections I quoted to you or other sections, the motion to promote the candidacy of an individual to the position of chairman or vice-chairman of a committee cannot be debated. Standing Order 116 clearly states that any motion can be debated, with the exception of the motion pertaining to the election of the Speaker.

Mr. Paul Szabo: This is a debate. Let's get to the question, please.

The Clerk: We are already debating the issue. If you are not in favour of the motion, you must—

Mr. Nick Discepola: You have a procedure to follow.

Mr. Yvan Loubier: I would like a recorded vote for this motion. Secondly, I would like to say why I am going to vote one way rather than another. It seems to me that this only makes sense.

• 1305

The Clerk: We will ask the question again for the purposes of the vote.

Mr. Yvan Loubier: Quiet!

The Clerk: Mr. Szabo moves that Mr. Bevilacqua become chair of the committee. Does the committee adopt the motion?

Mr. Yvan Loubier: I would like a recorded vote. I am saddened by what you have done because you did not indicate which provision you are using to forbid me from—

The Clerk: We are proceeding with the election of the chairman. I'm sorry.

[English]

We have ten for, two against, and three abstentions. I declare Mr. Bevilacqua duly elected chair of this committee and invite him to take the chair.

The Chairman: Thank you very much for the vote of confidence. I certainly appreciate it and will remember this wonderful day.

We move on to the election of the vice-chairs.

Mr. Ken Epp: I nominate Dick Harris for the position of opposition vice-chair.

Mr. Yvan Loubier: Oui, oui. Bravo.

Mr. Charlie Penson (Peace River, Ref.): I second the motion.

Mr. Ken Epp: You can't do that. You can have only one motion on the floor at a time.

The Chairman: We'll deal with Mr. Harris first.

Is it agreed that Mr. Harris...?

Mr. Ken Epp: A recorded vote, please.

The Clerk: It is moved by Mr. Epp that Mr. Harris be elected vice-chair of this committee.

(Motion agreed to: [See Minutes of Proceedings]

The Chairman: The motion is carried. We will have an election on another vice-chair.

Mr. Pillitteri.

Mr. Gary Pillitteri: Thank you Mr. Chair. I would like to place the name of Mr. Nick Discepola as vice-chairman of this committee.

The Chairman: Okay. Do we need to have a role call for this?

• 1310

Some hon. members: No.

The Chairman: It's unanimous.

Congratulations to the vice-chairs.

Now we want to adopt some routine motions. We could apply the ones we had in the past, and if you need some clarification as to what they were, perhaps the clerk can give me the list. These are basically routine motions that deal with the steering committee, the research staff, meetings in the absence of quorum, the questioning of witnesses, witnesses' expenses, and working luncheons.

Mr. Roger Gallaway: I'll move that all the motions that were in force at the time of the dissolution of this committee ten minutes ago be reinstituted.

The Chairman: Is it agreed?

[Translation]

Mr. Yvan Loubier: No.

One moment, please, this motion allows me to go back to one of the reasons that prompted me not to support you, Mr. Chairman. By the way, we are not sore losers and we offer you our congratulations, although we are very disappointed.

During the last in camera discussion held on September 21, we had wanted to table a motion to separate the two types of work done by the Finance Committee, namely, the pre-budget consultations and the consultations with respect to the MacKay report, so that we would be able to give some thought to extending and broadening the MacKay Report consultations, including the approval of additional budgets that this would entail and the required decision-making.

Today I received the minutes for this meeting. These minutes do not contain any allusion to the fact that a deliberate decision was made—and I say deliberate because you asked us to do this, Mr. Chairman—to set aside the motion that we had tabled with the clerk because a steering committee meeting was planned in order to discuss the possibility of broadening the MacKay Report consultations and of obtaining an additional budget for this purpose. The report that was submitted makes absolutely no reference to the discussion we had on September 21. Since then, no steering committee meetings have been held in order to determine the relevance of our request to broaden the debate and lengthen the time period for the MacKay Report consultations.

We have really been had, Mr. Chairman. No mention of this is made in the report for the September 21 meeting. In addition, we have just learned that since this was an in camera meeting—and I had forgotten about that—we cannot get the minutes of the discussion held on the motion we withdrew at your request.

This is a case of breach of trust. Consequently, in the future, Mr. Chairman, don't count on us anymore for agreements or resolutions on a handshake. Don't count on us anymore for any private little discussions, because neither you nor your gang is trustworthy.

From now on, all resolutions are to be put on the table. As for any resolutions that were already agreed by the old committee, I want them to be put back on the table so that we can discuss them and vote on them once again. That's it. I can tell you that, in the future, we will not be so quick to co-operate as we have been in the past.

[English]

The Chairman: Mr. Loubier, you can act in any way you want to act. That is your own personal choice. I remember quite clearly that throughout the summer that particular schedule was distributed to everybody so that they could make comments on it.

[Translation]

Mr. Yvan Loubier: One moment, please. I seem to have lost the interpretation.

[English]

The Chairman: I also remember clearly the motions that were approved. I thought they were crystal clear. As a matter of fact, the fact that they appeared in the minutes—and as you probably know, I don't write those minutes—tells me that my interpretation of what occurred was indeed correct. I'm not saying you can't have your own interpretation. It's your democratic right to have it. You can express yourself freely as you wish. You do what you want, and you act as a member of this committee as you wish. It is not for me to tell you how to behave.

One thing I will tell you, though, is that a few meetings ago there was language used and directed toward me that I found not to be parliamentary. I expect a certain respect for each other as members of the committee. I think we're all honourable members and we need to address each other in such a fashion. As chair, I will tell you that I will not tolerate that type of behaviour in the future. If anyone comes here to insult any other member, I will take whatever steps are necessary to restore decorum.

• 1315

[Translation]

Mr. Yvan Loubier: Mr. Chairman, you are muddying the waters—

[English]

The Chairman: I'm not finished yet.

[Translation]

Mr. Yvan Loubier: I will let you finish—

[English]

The Chairman: That's right.

[Translation]

Mr. Yvan Loubier: —and then after you'll give me the floor. You are twisting the question around completely.

[English]

The Chairman: I think you will see that. The meetings are run the way they are. The results of the finance committee are self-evident when you look at the work we do, the number of meetings we have, and the impact we have on issues like the budget and other issues.

So I'm quite comfortable, and I look forward to working across the country to improve the quality of life, because that's the only thing that drives me here in this committee.

As for you, Mr. Loubier, don't ever repeat the words you said last time because I'll rule you out of order, and I will not recognize you until you apologize.

[Translation]

Mr. Yvan Loubier: Mr. Chairman, give me the floor. First of all, where have I ever been recorded speaking in unparliamentary language? These are insinuations. Show me the evidence.

Secondly, you have just twisted the question around completely. I do in fact want to work seriously, and we have been doing so moreover for the past five years in this committee. My party, my colleagues and I really want to contribute to the work done by the committee here. However, we want to do this in a climate of trust. On several occasions, both in the past and recently, you have broken the trust that both I and my party have in you. I will ask the same question again: why is it that no mention whatsoever was made of my request during the discussions between the leaders and the whips and in the minutes of the meeting held on September 21?

[English]

The Chairman:

[Editor's Note: Inaudible]

[Translation]

Mr. Yvan Loubier: Let me finish; I let you finish just a few moments ago. You have said all kinds of things. I'm asking you to answer the question. Why did Odina Desrochers and I agree to withdraw our motion to separate the pre-budget consultation work from the work on the MacKay Report, when you assured us that at the following meeting of the steering committee, the possibility of expanding the consultations on the MacKay Report and allocating the necessary budget would be discussed. Today I find out that there are little games going on, and the message went nowhere that we were opposed to working on the two issues simultaneously and that we would table two reports at the same time, on the 3rd of December, one on the pre-budget consultations and the other on the MacKay report?

[English]

Mr. Charlie Penson: I have a point of order, Mr. Chairman.

[Translation]

Mr. Yvan Loubier: And we find out that the motion wasn't even dealt with.

[English]

The Chairman: Mr. Penson.

Mr. Charlie Penson: Mr. Chairman, I thought we were here this afternoon at this point in time to discuss the routine motions and the procedure we're going to be using. My colleague, Mr. Harris, wants to make a suggestion, and I think it's incumbent upon the committee to hear that suggestion on how we can improve the routine motions portion of this agenda. I would move that we move to that now.

The Chairman: Okay.

[Translation]

Mr. Yvan Loubier: Mr. Chairman, please.

[English]

The Chairman: I'm going to be doing that. We'll go to the routine...you're right.

Mr. Harris.

[Translation]

Mr. Yvan Loubier: Mr. Chairman, could I have a few more seconds? Mr. Chairman, frankly, you're starting your mandate off on a good foot. Congratulations.

[English]

The Chairman: Mr. Harris.

[Translation]

Mr. Yvan Loubier: Mr. Chairman...

[English]

The Chairman: I'm recognizing Mr. Harris.

Mr. Dick Harris (Prince George—Bulkley Valley, Ref.): Well, let me just get this over with.

Mr. Chairman, I want to comment and ask for the consideration of the committee regarding routine motion number three. Is there any way we can strengthen the time allocation for the witnesses to give their presentations? In other words, can we discipline it a little in any way to fall within that ten-minute mark? I know in the last couple of weeks we've had some witnesses go on. One went on for over half an hour. I think they could give us a full report as a handout and deliver an executive summary. I think you know what I'm talking about.

The Chairman: Yes. This is the 118th meeting. It happens once in a while, but overall you can rest assured that we do keep a fairly punctual.... As you probably notice, I'm usually the first guy here. So we're going to—

Mr. Dick Harris: No, I'm talking about the time the witnesses have.

• 1320

The Chairman: Yes, of course. They are told when they are called by the clerk and the people who invite them that their presentation shouldn't really exceed ten minutes.

Mr. Dick Harris: Well, “shouldn't” probably is the key word there, Mr. Chairman.

The Chairman: They usually don't exceed ten minutes.

Mr. Dick Harris: Then the experience I've had in the last two weeks has got to be far from the ordinary, because we have been running over ten minutes in many cases. Anyway, I guess we'll leave that up to you to enforce, Mr. Chairman, if that's the case.

I'd like to introduce two additional motions at this time. I think we've given notice that these were coming.

The first one is that pursuant to Standing Order 111(4), whenever an order in council for appointment or a certificate of a nomination for appointment is referred to the committee, the clerk shall obtain and circulate to each member of the committee a copy of the resumé of each appointee.

The second motion is that the committee agrees, when a private member's bill is referred, to put the bill on its agenda at the earliest possible time in order to invite the member to explain the bill to the committee and to decide on its work plan.

I'll submit those two motions to the clerk.

[Translation]

Mr. Yvan Loubier: Mr. Chairman, I don't understand how we can be talking about routine motions when we don't even have a copy of them. We're starting a process to change routine motions, but you don't even have a copy; you're borrowing Mr. Harris' copy. This really takes the cake.

[English]

The Chairman: We can make photocopies. It happens from time to time that people do present these motions, but if you don't want to deal with it until we have.... I could read it if you like or we can make photocopies of it.

[Translation]

Mr. Yvan Loubier: I would rather that we moved on to questions, and someone can get us copies before we come back.

[English]

Mr. Nelson Riis: I have a point of order, Mr. Chairman. I like the idea of considering these motions and having some notice. Could we agree amongst ourselves to convene 15 minutes earlier than the slated time for hearing witnesses this afternoon to deal with these motions?

The Chairman: You said 15 minutes?

Mr. Nelson Riis: Yes.

The Chairman: Is that okay? Agreed?

[Translation]

Mr. Yvan Loubier: Can you assure us that we will have a copy of these motions on the table when we come back?

[English]

The Chairman: Yes, of course, I'll give you enough time.

Mr. Epp.

Mr. Ken Epp: I would like to say that as a new member of this committee I have rather enjoyed it so far.

Because we have to work together and learn to love each other, I would like you to in no way construe my absenting myself from the vote as not having confidence in you. I did in fact want to discuss a few things too. It was just a matter of wanting to discuss it, and that's why we decided to abstain from the vote.

I bring quite a wide experience from different committees over the last several years. I found in the other committees that it worked much better for the debate and the examination of the witnesses if there was a lobbing back and forth of questions instead of a couple of questions here and then down the whole row over there. It keeps the interest going.

The very last phrase here is going to be “at the discretion of the chair”. But I would like to move that witnesses be given ten minutes for their opening statement and that during questioning of the witnesses in the first round, the time allocated should be seven minutes for questions from the Reform Party, the Bloc, and the first questioner from the Liberals. Then there would be five minutes for the remaining members over here and another Liberal. In the second round there would be five minutes for everybody, but going in that same order.

I have that formally written out and we can give that to you, for consideration at five o'clock, before the next meeting.

It seems to me, in speaking in favour of this, that it would just keep all of us more involved and it would limit us. I am quite prepared to say I'll go five minutes. When that time is up, we need to then tell our witnesses that we have those time constraints so that they keep their interventions short as well.

• 1325

I'd like the committee to consider that, just as a way of improving the way the timing works. The very last sentence here is that this is done, the alternating of the order between opposition and government members, at the discretion of the chair, so you would still have the control. If someone is on a roll and goes one minute over, nobody is going to object. This is, shall we say, a fairly firm guideline.

The Chairman: Okay, I appreciate that. I just want you to know that the way we handle the question and answer session now was also established by the committee.

Mr. Ken Epp: But I'm asking you to consider changing it.

The Chairman: So this is an amendment to that, and we'll deal with that.

The clerk has raised an interesting point in that the witnesses will be here at 3:30 p.m. and provided we can handle all these issues within a 15-minute span, I think that's the right thing to do. If not, then we'll have to wait until the end of the meeting this evening to deal with it.

Mr. Nick Discepola: And if we can get it over with in 15 minutes, why delay it?

The Chairman: You mean deal with it now?

Mr. Nick Discepola: Right now.

The Chairman: Okay. But we need the copies from the....

[Translation]

Mr. Yvan Loubier: At 3:10?

Mr. Nick Discepola: Out of respect for the witnesses, we should be finished before they arrive at 3:30, but what will we do if we haven't finished? Should we delay their appearance another time?

Mr. Yvan Loubier: Listen, these are routine motions.

Mr. Nick Discepola: If they are so routine, why have we been discussing them for 40 minutes now?

Mr. Yvan Loubier: Why don't we table a motion on his election?

[English]

The Chairman: Order, please. We have these routine motions that I thought were going to be dealt with, because we've had these for the last session as well. Now, of course, there are some issues that you want to raise in reference to all these. It's going to take a little bit longer.

My advice is that since we have witnesses at 3:30 p.m., if we cannot deal with this issue in 15 minutes, then we have to meet at the end of the day, because I'm not going to impose on the witnesses who come here to tell us what we should be doing as legislators.

Mr. Nelson Riis: Mr. Chairman, I have a point of order.

[Translation]

Mr. Yvan Loubier: Let's meet at 3:10. Since these are routine motions, we should be able to deal with them in 20 minutes, that's it, that's all.

[English]

The Chairman: Well, if it's 20 minutes then why don't we deal with it now?

Mr. Dick Harris: Mr. Chairman, could I just say something?

The Chairman: We have the copies of the motion right here. Now we'll deal with them. We'll do the meeting right now.

We're going to deal with number 3 on the steering committee, that the chair and the two vice-chairs and the parliamentary secretary and representatives of each of the Bloc, the New Democratic Party, the Progressive Conservative Party do compose a subcommittee on agenda and procedure.

(Motion agreed to)

The Chairman: Research staff—that the committee retain the services of one or more research officers from the Library of Parliament as needed, to assist the committee in its work at the discretion of the chair.

Agreed?

[Translation]

Mr. Yvan Loubier: No.

[English]

The Chairman: You don't agree?

[Translation]

Mr. Yvan Loubier: No.

[English]

The Chairman: Okay.

[Translation]

Mr. Yvan Loubier: I would like to have a recorded vote for each motion.

[English]

The Chairman: Sure. On number 4? On the research staff?

The clerk has said that he wants to get the sheet prepared. Can we deal with meetings in absence of quorum then, number 5?

Mr. Nelson Riis: Mr. Chairman, have we got a list of these?

[Translation]

Mr. Yvan Loubier: We don't even have it.

• 1330

[English]

The Chairman: So we're going back to number 4, then, on the research staff, and Mr. Loubier wants a recorded vote. Is that correct?

[Translation]

Mr. Yvan Loubier: Yes.

[English]

The Chairman: Okay.

[Translation]

Mr. Yvan Loubier: For all the motions, Mr. Chairman.

[English]

The Chairman: You want to do it for all of them. Okay. So we'll deal with number 4 first. Number 3 was agreed upon. So we're now going to do 4, 5, 6, 7, and 8. Then we'll deal with the ones from the Reform Party.

[Translation]

Mr. Yvan Loubier: You're going to hold a recorded vote?

[English]

The Chairman: The clerk is getting prepared.

[Translation]

Mr. Nick Discepola: Could we group motions 4 to 8 and have a single recorded vote rather than individual votes?

[English]

The Chairman: After number 4 is completed, I could certainly ask if the vote could be applied to 5, 6, 7, and 8. Then we'll deal with the routine motions from the Reform Party.

I'm just waiting for the clerk to get the voting sheet. We'll now do the roll call for number 4.

(Motion agreed to: [See Minutes of Proceedings]

• 1335

The Chairman: Can we apply the vote taken in number 4 to 5, 6, 7, and 8?

Some hon. members: Agreed.

The Chairman: Okay.

Now we have other business to deal with that comes under 9, and this is the motion by the Reform that pursuant to Standing Order 111(4), whenever an order in council appointment or a certificate of nomination for appointment is referred to the committee, the clerk shall obtain and circulate to each member of the committee a copy of the resumé of each appointee; and that the committee agrees, when a private member's bill is referred, to put the bill on its agenda at the earliest possible time in order to invite the member to explain the bill to the committee and to decide on its work plan.

Mr. Dick Harris: Mr. Chairman, just briefly speaking to the motion, I want to state that these motions have been introduced very successfully in other committees. They've been accepted by the government, and I believe they're quite in order and quite reasonable and legitimate motions to put forward today.

The Chairman: Is there going to be a roll call again?

Mr. Dick Harris: There will be one unless you all want to just say it's unanimous. I'll go for that.

The Chairman: No, it's not done unanimously because there are some.... We'll have to go with a roll call.

An hon. member: Nobody asked for it, so we can just have a hand vote.

The Chairman: All those in favour?

(Motion agreed to)

The Chairman: Those are the only items I see.

Mr. Ken Epp: Did you handle my motion already?

The Chairman: Yes.

Mr. Yvan Loubier: No problem.

Mr. Ken Epp: Mr. Chairman, if we're going to deal with that, it really amends motion 6, which we just passed, as I understand, and I want to speak strongly against this motion. I think it differentiates clearly between political parties, and that's not the way to build congeniality around the table. If we're going to allocate it on the order of size, then the Liberal Party should have at least half of the questioning time. Once we get into allocations on the basis of political party size, we break down what we've established in here.

The Chairman: Over time it has worked quite well vis-à-vis the number of minutes people have. Also, sometimes a member has a good number of questions he wants to get answered, and everybody benefits from the discussion.

Mr. Ken Epp: Mr. Chairman, I understand. I was just told that while I had to duck out for a few minutes to see if I was on QP, you already voted on this. So it's a done deal and I gladly withdraw it.

But I would like you to consider, as the chairman, the issue of bouncing back and forth. Would you consider that unofficially? I think it says that it's alternating between opposition and government, and you've been sort of making the big alternate. It's us, then it's all of them, and then it's us. I think it would be perhaps more effective if we were to alternative back and forth, speaker to speaker. That's my suggestion, but I leave it to you.

The Chairman: Thank you.

The meeting is adjourned.