FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, October 20, 1998

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[English]

The Vice-Chair (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)): Good afternoon and welcome to the hearings of the Standing Committee on Finance.

Today we are following a series of consultation hearings on two aspects. The first part of this afternoon's agenda will be to hear testimony from witnesses on their recommendations, their priorities, for the government vis-à-vis the budget upcoming in February 1999. The second session will hear testimony on the recommendations to the government vis-à-vis the MacKay task force on financial institutions.

I apologize for the delay. We have a little bit of a problem in Ottawa this afternoon. There's an emergency motion being debated, and members of Parliament have been called back and forth to return for the vote—I believe around 5 p.m. or 5.30 p.m. Even Mrs. Wayne has to leave at 5.15 p.m. So we will start, and if anyone else joins us, we'll continue.

For the record, I'd like to state that, in accordance with its mandate under Standing Orders 108(2) and 83.1, the committee resumes its pre-budget consultation process.

I'd like to welcome the following witnesses: from the Federation of New Brunswick Faculty Associations, Professor John Thompson, past president, member of the board, and chair of the mathematics department at the University of New Brunswick; and Dr. Jack Vanderlind, vice-president. Welcome, gentlemen.

From the Group of 12 for Social Justice, I'd like to welcome Madam Isabelle Doucet.

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[Translation]

Thank you and welcome. I think you already know how our proceedings take place.

[English]

First of all, we don't have anyone from the Bloc Québécois, but normally they speak French. Therefore, you have translation devices here. If they show up, you can use these. Channel 1, I believe, is the translation from French to English.

The procedure normally is that we leave five to ten minutes for each group to present its case, and then we'll open it up to questions from the members of Parliament. Who would like to start? All right, it will be Professor Thompson then. Welcome to you again.

Professor John Thompson (Past President, Member of the Board, and Chair of the Mathematics Department, University of New Brunswick): Thank you very much. We do appreciate this opportunity to address the standing committee on matters of particular concern to our organization and our colleagues.

I'm going to make some brief, general remarks in support of the two documents we distributed earlier. My colleague, Dr. Vanderlind, who happens to be the chair of the physics department at UNB, will perhaps cover some details that I may miss.

Universities, as we would like to have them understood and appreciated, prepare people for life. They are an important part of the social fabric of Canada and all other modern nations. What we provide that other post-secondary training does not provide is a broader and deeper base that prepares people for changes of all kinds, whether it be change in workplace, or change in types of employment, change in social circumstances. That's what we especially provide.

But, as our brief stresses, there is a series of important economic aspects to having a university education, both for the country as a whole and for the individuals who receive the education. We think the House of Commons, and the government in particular, should be taking a longer-term view than has been apparent over the last few years on funding the universities through the provinces—where funding transfers have been quite radically reduced. This has caused difficulty for the universities, and it's getting to the critical stage for us in maintaining the standards in our programs, the equipment we need to teach, and our competitiveness with the United States, our chief trading partner.

As members of Parliament may know, across the United States in the past three years or so, virtually every state of the union and the American federal government have been providing substantial increases in funding to the universities, by one device or another, and increasing funding to students—averaging 6% to 8% per annum increases depending on the state—whereas here in Canada we've seen nothing but cuts. As a result, it's going to be more difficult for us to produce people who will be as well prepared as those from many American institutions, if we look ahead to the next five to ten years, because we will not be able to replace sufficiently many faculty who will be retiring. We will not be able to replace equipment. We will not be able to keep our libraries up to date. That has a direct economic impact.

As has been said in the brief of the Canadian Association of University Teachers, which I think you've received, we do appreciate that the government has restored some funding to the higher education sector, both for research and as funds to students. The restoration of funding to the three federal research councils has been very important, and I think long-term benefits will flow from that. It's appreciated that the Canada Foundation for Innovation has been established by the current government, and it will have a big impact. The millennium scholarship fund is certainly a move that we hope will be seen to have a major impact in years to come. But none of these and other recent developments directly address the fundamental problem we have of maintaining our physical plants and of maintaining adequate numbers of trained personnel to teach the students.

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That base funding has an impact on making the funding that's going into the research councils more effective, because it is assumed by the research councils that the universities are providing basic equipment and other support. But that's becoming increasingly more difficult to do.

We expect that the government will be putting some funding back into health care in the next budget, and we look forward to that. We think that's very important. But a relatively modest fraction of that level of funding going back into the post-secondary system would make a huge difference, and we would hope that some serious consideration will be given to that.

Funding to health care will, in fact, disproportionately benefit people of my age. I'm sufficiently old that I could retire early next July, but what about the people who are 20 to 25 years old, who we're all going to be looking forward to leading this country in the next millennium? I think the government must take a longer view on these things and consider the impact on the next two or three generations.

The briefs we've submitted indicate that from an economic point of view, university graduates are nearly all employed. Nearly full employment is the case for university graduates. But no less important, they're the ones who generate employment for many other people in the economy.

Here in New Brunswick, as you may well know—and certainly the leader of the Progressive Conservative Party will know this—a large percentage of our economy is based on the pulp and paper industry. The employees in that industry earn very high wages, and they help drive the entire economy of the province and many other provinces across the country. But the people who design those pulp and paper mills, who supervise the maintenance, are engineers. They're trained in the universities.

The stresses that the university administrations and boards of governors are now feeling are leading them in some provinces to contemplate radically raising tuition fees for professional schools like engineers. We think this would be a mistake, counterproductive for the long-term interests of the country, because it's not simply the graduates who benefit from the university education. If you take away the chemical, mechanical, and electrical engineers, then every one of our pulp and paper mills across the country would shut down. It's the same with the professional foresters who receive degrees in forestry from universities like the University of New Brunswick. These things are very important and go well beyond the obvious beneficiaries.

Another concern we have recently across the country is that part-time enrolment in universities is dropping very sharply because the support systems that these students depend on in various ways through Canada health and social transfers have been declining.

People go back to university to try to complete degrees or get new qualifications in order to become more readily employable. If there is a drop in part-time enrolment—and the latest Statistics Canada information showing percent changes from 1992-93 to 1997-98 indicate something like a 24% decrease in part-time enrolment—what that means in crude terms is that people who would in the previous decade have been making themselves more employable and contributing to the society at a higher level, economically and otherwise, will not be doing this. So we're going to be creating a situation where there will be more unemployable people five years from now than there are now. We think that's a serious issue.

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In addition to the general concerns across the country, there are specific regional concerns here in New Brunswick in particular as a smaller province. Its fiscal capacity is limited, and the universities have had a very important role to play in the social and economic transformations that have taken place here in the last 25 years.

If one were to look in detail at the transformation in Acadian society in New Brunswick over the last 30 years since the founding of Université de Moncton, or the economic impact at the University of New Brunswick here on the Saint John campus—of which I'm happy to say the member of Parliament here has been a very strong, long-term supporter—if you look at the impact, you'll see that this is very important to us, but these institutions are facing very serious difficulties.

So we hope some arrangements can be made with the provinces to restore some of the funding that has been removed. We think you can do this without treading on provincial toes, because it needn't be specifically earmarked, except in a sort of moral sense, and it's not as tightly tied to federal guidelines as the acts governing medicare and health care. So we would urge that consideration be given to doing something to restore funding, which will be important to the next generations of citizens and employees of Canadian society.

Jack, do you want to add anything?

Dr. Jack Vanderlind (Vice-President, Federation of New Brunswick Faculty Associations): I believe my colleague has covered it pretty well. I can't think of too much he has left out here. I could amplify on some of these things, I presume.

On the matter of research funding, he noted that CFI funding has been made available. This does in fact require considerable support in terms of operating funding as well.

I have several members in my physics department, for instance, who have CFI funds but now are in the operation of having to find operating funds. Unless NSERC gets matching funding along the way, it's going to be difficult to make use of all the equipment that has been obtained.

Prof. John Thompson: If I could add one point, some of these new arrangements, like the CFI, in our view, disproportionately benefit the large metropolitan areas in Canada, because most of the sources for the matching funding are in the immediate vicinity of Montreal, Toronto, or Vancouver. We would like to see some consideration be given in future to making sure, by appropriate regulations or more flexible regulations, that this part of the country and the prairie provinces could benefit in a proportionate way.

The Vice-Chair (Mr. Nick Discepola): Thank you, Professor Thompson. You'll be able to give maybe a more in-depth comment on some of the areas of concern when the members of Parliament also ask you questions.

[Translation]

I would now ask Ms. Doucet to continue with her presentation. Welcome, Ms. Doucet.

Ms. Isabelle Doucet (Group of 12 for Social Justice): Good day. I represent the Group of 12 for Social Justice and I therefore cover a significant aspect of our society. We live in a democratic system, but this does not mean that equality and justice prevail within it. It is sad to note how much time, energy and intelligence is spent on small debates, while so many important issues remain unresolved.

We have trouble understanding poverty, but we certainly know the reasons why it exists. First, billions of dollars accumulate in unemployment insurance funds, while many workers live in poverty caused by this injustice.

Second, money is granted to carry out mega-projects, construct nuclear stations and build huge highways, while families go without money to pay for hot water, electricity and food to feed their children, or to buy themselves dentures and glasses. There are even some young mothers who consider turning to prostitution to make ends meet.

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Third, we agree to pay to salvage a ship belonging to the Irving empire, while our old helicopters crash. We discuss providing financial assistance for the big sports teams, while our young world Olympic athletes lack support.

The banks make huge profits. Businesses get away without paying income tax. In 1996, 82,000 profit-making businesses did not pay any income tax. Poor, single-parent families, however, have to pay income tax.

The Auditor General exposes the cost of unreasonable expenses and careless mistakes—costs that might have helped pay down the national debt or found intelligent and just solutions for our Native people.

Furthermore, very generous salaries, pension plans and travel expenses are provided for senators and pubic servants in Ottawa, while our young students go thousands of dollars deeper in debt.

Studies and reports are prepared, and consultations are undertaken with little thought for the major expenses they incur.

We recommend that the Employment Insurance surplus be used to meet EI purposes. We are against big bank mergers. We strongly recommend support for rural development. We demand a budget that would ensure that no child went hungry or cold, or wanted for any of life's basics.

A host of rural development initiatives could be taken. Not everyone can live in the big cities. People like living in small regions. They're fine and they like it. We could do lots of things to help people. In the big cities, there's a lot of pollution and lots of cars. Living in a big city isn't the answer for everybody.

Thank you.

The Vice-Chair (Mr. Nick Discepola): Thank you, Ms. Doucet. I will now ask Mr. Ritz to ask his questions.

[English]

Mr. Gerry Ritz (Battlefords—Lloydminster, Ref.): Thank you, Mr. Chairman.

Welcome to everyone here today. This is certainly a beautiful city to be in on a Tuesday afternoon. I'm sorry it's such a short stay for us.

A couple of questions came to mind while I was listening to the professors and reading through their brief. You have not touched on one thing. You talk about employment for the educated being lower than for other sectors of society. I forget the exact numbers, but it was something like 3.2% are without a job after they've gotten through their higher education.

We've heard a lot in the last little while about brain drain. I would like your thoughts on this. Do you see this phenomenon here in New Brunswick as much as we see it across the rest of the country? What do you attribute this brain drain to? What are the causes and effects of it here in this country? How do we get around this problem, if it really is a problem? In the long run, who suffers the most? Is it the people who leave the country, and leave all of that behind, or the ones left here to continue on? I wonder if I can get your comments on this.

Prof. John Thompson: Culturally, from the point of view of some of us, those who leave may suffer. But, by and large, they're leaving because there are better opportunities—academic, economic, or otherwise.

Just this fall at UNB we lost the senior pulp and paper chemical engineer to the University of Maine, next door to us in Orono. It's just a few hours drive away. We've lost this person's expertise because the University of Maine was able to come up with the funding to supply his laboratory and technical assistance. UNB was having to curtail its funding because our sources of funding are drying up. This is just one example.

At the student level, it's still the case that a great many of our best and brightest students leave. They may be in science, engineering, social sciences, or just about any subject area. They are leaving for central Canada. Also, many of them are going to the United States. They are leaving because in this region there is a shortage of high-level employment. We think it is important to try to stimulate more of that happening here. There have been transformations in the economy here that are quite significant, but there still needs to be more.

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Right now in some of our hospitals there is a shortage of nurses. In the previous few years, because of funding cutbacks and the closing of hospital beds, many of the younger and more mobile nurses with degrees from UNB or Moncton have gone to the southern United States for full employment and higher salaries. This winter, a number of the hospitals in northern New Brunswick are finding they can't adequately staff some of their operations.

One could multiply examples. These are just a representative few. So the brain-drain issue is a problem right across the country. It's either flowing to the centre or to the south. I don't know whether that adequately responds to your question.

Mr. Gerry Ritz: It tells us there is a phenomenon, but how do we get around it? What is the magic answer to slowing the tide?

Prof. John Thompson: That was an important part of the question.

If the university system had even slightly better funding so we could provide better equipment, more technical support to faculty in some of our departments and a higher level of training to the students, it would help retain people within the university system. By the same token, the higher level of technical training leads to the spin-offs of highly qualified employment situations. Let me just give you one example, since you're not from the province.

Thanks to an investment by the Government of Canada and to a lesser extent by the Province of New Brunswick in the early 1960s, UNB started what was the first, and for a long time the only, department in what is now called geodesy and geomatics engineering. It's still the best department in the country. There's only one other in Calgary, which is an offshoot of our department.

From that department has been spun off an organization that supplies very sophisticated, computerized land management systems around the world. They get major contracts from Egypt, the United States, the U.S. defence department, and European countries. They employ roughly 70 people in their main office in Fredericton. All these people are very highly trained and they are employed at quite high salaries. They're an important small part of our local economy.

There are other spinoffs I could name here in Saint John or Moncton that were started by people trained in universities and some of the faculty who trained them. They are keeping these people in the region. But I think we need more support, from both the provinces and the federal government, to have more of these spinoff developments.

Mr. Gerry Ritz: I have one other question for Ms. Doucet.

The HST has been harmonized here in the Maritimes for a couple of years now. Is it a move you would like to see maintained, or should we go backwards on that? Is there a spinoff onto the poorer segment of society?

Ms. Isabelle Doucet: It hasn't helped the poor.

Mr. Gerry Ritz: Okay. So you're saying we should back up and take a different approach.

Ms. Isabelle Doucet: I don't know what the solution is, but it hasn't helped.

The Vice-Chair (Mr. Nick Discepola): In which respect? I am led to believe the overall rate was lower by harmonizing, therefore—

Ms. Isabelle Doucet: We haven't noticed any change in prices. We haven't documented benefits.

Mrs. Elsie Wayne (Saint John, PC): May I just address that?

The Vice-Chair (Mr. Nick Discepola): Sure.

Mrs. Elsie Wayne: It has been very difficult for the poor, because when they harmonized the HST and brought it in, it went on children's clothing and many other articles that weren't taxed before. Those with lower incomes are finding it extremely difficult.

The Vice-Chair (Mr. Nick Discepola): Even if you were to take the overall basket of goods that somebody would use and with a reduced rate, it still didn't come—

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Ms. Elsie Wayne: Yes. For example, you never had to pay any tax on babies' diapers before, but you pay it now. Issues like that have been of major concern to those who are living below the poverty line. May I just say something else?

The Vice-Chair (Mr. Nick Discepola): Sure, Elsie, go ahead. We can come back to Mr. Ritz afterwards.

Ms. Elsie Wayne: There is a young lady who is going to receive an honorary degree from the University of New Brunswick here in Saint John this week. This lady has been living in poverty herself, but because of the type of outreach and work Pam Coates has been doing, the university is recognizing her and how she has tried to bring forth to government the problems that exist.

She is not always condemning, but she is out trying to make her point that we have to give our people their dignity. So Pam is going to receive an honorary degree. I don't think that's ever been done before at any of our universities for someone like Pam. I think it's really wonderful. It shows the type of people we have.

We have a number of universities here in the maritime provinces and Newfoundland. They've been rated as the top universities across Canada. You've heard from Professor Thompson how in Calgary, Alberta, they are borrowing some of our expertise and programs. People don't know that. I want to ask the professor some questions.

There has been a great change since the cutbacks in the transfer payments for education, and that's where this comes from. The biggest problem I have when I'm in Ottawa is that I see that the government of the day doesn't always understand the maritime provinces, what they have to offer, what they've done in the past to build this whole country from coast to coast, and what they will have to offer in the future. If we do not get more money put back into education through the transfer payments, what impact will that have on our young people, this region, and Canada? If they're not working, then they're on welfare or UI, and that costs every taxpayer money.

Prof. John Thompson: In the long term it will lower the standard of living across the entire country, including Ontario, because if we're not well employed we can't buy cars from Oakville or Windsor or any place in Ontario, and one can go on to include a lot of other commodities. We are loyal Canadians, as I'm sure the member from Saint John appreciates as much as anyone else, but this region of the country was the wealthiest part prior to Confederation. We lost by national arrangements that have been made in the subsequent century or more.

We think our people can compete in any market, whether it's intellectual, economic, or otherwise. I've demonstrated this in the past and currently. However, given the circumstances, we need to have some tangible support from the central government in order to continue to develop this area so our younger people will have the same opportunities, or at least equivalent opportunities, as elsewhere in the country. I fully support the member's comments here.

Ms. Elsie Wayne: This issue of transfer payments is very important, and the three areas that are so important to all of us across the nation are health care, education, and social programs. I think it's something this committee must address to the minister.

We have been exporting brains into central Canada and across this nation longer than anyone knows—and I'll just make this point very quickly. When I was mayor I sent out invitations because we were going to have a reception in Toronto, and the reception theme was, “You should see us now”. It was at the Hilton. We had on one wall pictures of old Saint John and on the other wall pictures of Saint John today. We asked businessmen and people from the university to come to talk. We had 75 businessmen who paid their own way to go. I sent out 1,500 invitations and 1,000 people came. The invitations went to all of those who were educated here and had gone to Ontario—Toronto and that area—to work.

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Cedric Ritchie, the former CEO of the Bank of Nova Scotia, said it was the best event he'd ever attended. He said, “When I look in this room, Elsie, I'm mighty proud of our people from Nova Scotia and New Brunswick.”

This is why I say we have so much to offer, but the image is not as positive up there as it should be. I feel we have a real job to do.

I wish you had more time to stay here with us for two or three days, Mr. Chairman. The whole committee could come and visit the university, because the one we have here is very exceptional. It's the arm of the University of New Brunswick in Fredericton, but it reaches out; it brings in students from all around the world. We have taken the leadership role to bring them in from all around the world and we've been recognized for that. But we must have some help, because the cutbacks are really negatively affecting us.

The Vice-Chair (Mr. Discepola): Any comments? Professor Thompson?

Prof. John Thompson: The member from Saint John has said it as well as we can. It's very important to us in this region; it's important for our cultural diversity, for our social and economic stability, and for the future of the people coming behind us.

It's one thing for people my age to make arguments for things that will indirectly benefit us if we have better equipment and better facilities, but we have every day to meet students who are 20 years old, and a lot of our computers at UNB won't handle the software they need to be properly instructed. So I spend time every day, and I'm sure Jack does as well in his department, telling students, well, if you go to that lab what you're supposed to do won't work. You have to go to another building and hope that by waiting three hours you can get to sit at a terminal that will support the software.

One could go on listing examples, but we think our region was disproportionately harmed by the cuts in the transfer payments, whether it be universities or the rest of society. We think the measures the current government has taken to restore some funding to the system are disproportionately benefiting Toronto, Montreal, and Vancouver.

The Vice-Chair (Mr. Nick Discepola): Professor Thompson, you've stated that two or three times and I've taken note.

Prof. John Thompson: Okay.

The Vice-Chair (Mr. Nick Discepola): I've heard about how you feel that funding.... You were also quoted saying that funding in health care disproportionately benefits, and I believe at that point you were saying one age group, and you referred to yourself being able to start in July versus another age group.

I'd like you to state how you feel that disproportion...as well as what you said right now, that funding, for example, or even the cutbacks were disproportionate throughout the region. I think the cutbacks...and I'll get into it afterwards, but I would like to hear your viewpoint as to why you feel you were impacted disproportionately.

Prof. John Thompson: On the health care situation, we have an aging population overall across the country, and the biggest demands on the health care system are going to be made by people like me in the next ten years or so.

The Vice-Chair (Mr. Nick Discepola): If we get sick—and God forbid, I hope not.

Prof. John Thompson: Well, I hope not, but on average, I will, speaking as simply a typical individual.

The Vice-Chair (Mr. Nick Discepola): But do you have demographics that show the Maritimes, for example, have a disproportionate age group and consume more in health care than some areas in other parts of the country?

Prof. John Thompson: I'm sure your other witness can amplify that, but where there are pockets of poverty, you find there are greater demands on the health care system, because people who don't eat properly and don't have adequate training to manage their lives in a whole variety of ways tend to get ill more often. There are a lot of studies like that.

One of my colleagues at UNB, who holds a funded chair in the education faculty, has done detailed statistical studies of Canadian and American data that show children who do less well in school are therefore less employable and more sick over their lifetimes. And a lot of other adverse things that happen to people happen disproportionately if they get a bad start early in life.

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I refer you to the work of Professor Douglas Wilms. I think your staff might be pleased to look this up for you, or we could supply it. There's lots of information. I'm just giving you a skimming of that.

The Vice-Chair (Mr. Nick Discepola): Then I would argue that it's not disproportionate. I would argue that you are going to find more poverty, more requirements on education and health care, in the larger centres. You just have to visit my hometown in the Montreal area, for example, or go down to Toronto. We know the problems the homeless and the poor are facing there.

“Disproportionate” may not be the correct word. I think you're going to have to look at the demographics of each area. In a country such as ours you're going to have to address the problems where they occur. It's not to say that because of each region we must...and obligate ourselves to spend equal funding throughout the country. You have to attack the problems at their source.

I come back to Mrs. Wayne's suggestion and your suggestion also—and I'm not only hearing it from the Maritimes. I think the sentiments of concerns with health care, with education and social programs, are echoed throughout the country. No matter where we go we hear the concerns. But is it always a question of funding? If I take a look at your suggestion again, last budget we increased the funding for the three granting councils by more than $400 million a year. So by the year 2000-2001, we'll have increased it by over $903 million. What's the appropriate limit?

Another example I'll argue is that we had a national forum on health that consulted Canadians. This wasn't a group of politicians. It was professionals in their field. It was chaired by the Prime Minister himself, who said that the appropriate funding levels for health care should be at $12.5 billion. And what did we do as a government? The first thing we did was we took $1 billion at the first opportune moment we had and we put it back in funding.

When I take a look at my home province, Quebec, which has a disproportionate number of beds per capita compared to Ontario, the neighbouring province, and when I take a look at some provinces that spend a disproportionate per capita amount on education, I say, is it really—to quote some of my Bloc Québécois members—la faute du fédéral, or is it a priority that provinces have chosen to establish for themselves? Why is it that Alberta, which was one of the first provinces to introduce massive cuts, did not find themselves with billion-dollar surpluses in their budget? Isn't it a question of allowing the provinces to establish their priorities? Is it just a question that the federal government should give, give, give? And when you said we needn't be worried about earmarking funds for specific areas, it sent shivers down my spine to hear you say that.

If we're going to give money to the provinces—I'd like to hear your opinion, both of you maybe—shouldn't it be specifically earmarked for targeted areas? If we're going to say we have to reinvest in education, as a federal politician I want to make damn well sure that it goes to education. If we're going to earmark money for poverty, I want to make damn well sure that the right groups get it.

Comments, please.

Prof. John Thompson: I'll be happy to comment on that.

We agree with you that funds in an ideal world should be earmarked, and if you can find a device to do that you won't find any objection from us. All we're saying is that the federal government should not let recalcitrance from provinces interfere with taking appropriate steps, because you'll get a different attitude from New Brunswick than you will in Alberta, for instance.

In terms of the disproportionateness, of course we've all seen homeless people in Toronto, which we attribute to the breed of the populace, because Toronto, by and large, is extraordinarily affluent compared to almost everywhere in the country, and we do appreciate that Montreal has been much more disadvantaged than certain other regions of the country in the past couple of decades or so. We think that something should be done there too. But I think if you look at the problem on a per capita basis, you would find a higher overall percentage of economic distress in this region than you would in most other provinces on a per capita basis.

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In terms of restoring funding to NSERC and the other two federal granting councils, we think this was really a marvellous development. What are the appropriate comparisons then, you ask? Should there or shouldn't there be limits, and what should they be? We are still not devoting to research in Canada anywhere near the levels on a per capita or GDP basis that most of our competitor societies are devoting. So I think that should be the target.

But again, on the funding of the research councils, the councils expect that the universities that are the recipients of these grants provide back-up. They don't pay the professors; NSERC does it. They don't pay the technicians in the laboratories. They buy some of the equipment, but they don't pay for the water. We have superb marine biologists and fish biologists at the campus here in Saint John and at the campus in Fredericton. These people in their laboratory set-ups use huge quantities of water. The university has to cover that sort of thing. And every year the funding base is eroded.

Again, on the eroding of the general university funding base, it's true that Ralph Klein, in his wisdom or lack thereof, slashed funding to the universities by roughly 20% in Alberta three years ago, and his friend in Ontario slashed the universities there roughly 15% to 17% in their operating grants. But they started much higher than we did. So when our government here in New Brunswick, over the past three years, cut us a total of 6% to 7%, that has a much more deleterious impact on us than cutting the University of Toronto or the University of Alberta.

The Vice-Chair (Mr. Nick Discepola): Sorry, I don't want to monopolize the conversation, but do you have any other questions? Otherwise I can continue.

Gerry, do you?

Mr. Gerry Ritz: I just have one comment I'd make on your suggestion, Mr. Chair, that the federal government must safeguard the provinces' discretionary spending; that Big Brother knows best. In terms of the ultimate device the professor alluded to—what device do we have to earmark funds—I guess that ultimate device would be the taxpayer/voter. If they see money going to places they don't want it to go, they're certainly not going to patronize that government a second time around. In terms of the whole idea that the taxpayer sends in the money and then we decide what pigeonhole it's going to be put to, we need to listen a lot more to the people who are sending the money in and maybe not to some of the departments.

The Vice-Chair (Mr. Nick Discepola): Any comments?

Dr. Vanderlind.

Dr. Jack Vanderlind: I have one short comment just to illustrate perhaps a little bit of what's going on in the universities. In my department we have a woman who's doing world-class research on fibre optics. In fact, she's probably the most highly regarded researcher in the field, and she has good connections with industry and various other things. At the same time in our department, while ten years ago we counted 15 members, we're down to nine members. She's supervising four students within the department directly in her research, and she has several contracts outside. It is absolutely vital that this whole research effort get expanded, because she is in fact at the forefront of research. In the meantime, we find ourselves squeezed. She has to do more teaching. We all have to do more teaching every day. The infrastructure is just not there to support this any more. I think it's absolutely vital that the base funding to the university be increased.

The Vice-Chair (Mr. Nick Discepola): To the level that you're saying other OECD or G-7 countries have as a percentage of GDP—is that your recommendation?

Prof. John Thompson: Yes, ultimately, especially on the research funding. Their funding base for the operating expenses are really two budgets. One is research granting from a central agency that's there on a competitive basis, and that's fine. But for the operating funding we think the best comparison is the United States right now, especially the state institutions. But even the much-vaunted private institutions in the United States of America get enormous amounts of money from their state and federal governments through a whole variety of devices.

The Vice-Chair (Mr. Nick Discepola): But with the greatest respect, I don't know if you can compare the United States.... When I see my wife's cousins, for example, who send their children to small universities, having to spend $16,000 or $17,000 a year for each of the children, I count myself very fortunate when I only have to spend $2,500. If the universities had that kind of leverage, then maybe they wouldn't need as much funding.

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I open the question up. Is it fair to compare...?

Dr. Jack Vanderlind: If I may comment on that, my son is currently attending MIT, where the fees are $23,000 a year. On the other hand, let me also say that he gets financial assistance to the tune of $21,000 per year, so I actually pay less for his fees than I do for my other son who attends UNB.

The Vice-Chair (Mr. Nick Discepola): At what level? Post-graduate?

Dr. Jack Vanderlind: No, both are undergraduates.

Prof. John Thompson: I know the Association of Universities and Colleges of Canada has collected a lot of statistics in recent years. Mr. Herb O'Heron is their staff person who has the data, and he has collected public American statistics. What he has demonstrated is that the typical student at MIT, where Jack's son is, or at Harvard or wherever you want to name—including a lot of these small, elite colleges—doesn't pay the full shot. Some of them do, but a great many students get either very large scholarships—whether on the basis of marks or need—or they get employed by the college at a very good hourly rate and are doing routine work that doesn't interfere much with their studies.

So it's true that some people are paying twenty-some thousand in tuition. As Jack says, though, a lot of them aren't.

The Vice-Chair (Mr. Nick Discepola): Yes, but it's the exception. I think if you include—

Prof. John Thompson: No, the exception is the other way.

Dr. Jack Vanderlind: If I may comment a little bit more on that, MIT has in fact studied the debt load of its students when they have finished their four years. The average debt load is almost $17,000 at MIT. At Canadian universities, I believe it's running toward $30,000 at graduation.

Mrs. Elsie Wayne: I have a question on that, Mr. Chairman.

I have a major concern about a two-tier educational system. I feel that because of what is happening, that is exactly what we are going to have. Those who have the ability to go but cannot afford to be $20,000 or $30,000 in debt when they are finished aren't going to go any more. They will then also be a liability for us, which we don't want. I'm therefore asking you if you see this two-tier system happening.

It was two-tiered when I graduated. Those who were wealthy could afford to go to college. Those who were not wealthy went on to vocational school. Of those people who went on to vocational school, their ability exceeded that of those who had the money to go to college. Do you see that happening again, Professor?

Dr. Jack Vanderlind: Oh, very definitely. In my day, for instance, I could earn enough during the summer to finance my education. I don't think any student can do that any more, so now there are only two choices: either you have rich parents or you end up with a big debt when you graduate.

Mrs. Elsie Wayne: That's right. Thank you.

The Vice-Chair (Mr. Nick Discepola): I would like to come back to the CHST, and I'll reiterate the frustration I have as a federal politician on how little latitude the federal government actually has in the administration of health or education. It's one of the problems you've highlighted, and it really goes back to the administration of education, which is a provincial responsibility.

We can criticize the new system, and I think the results of the last election made evident how frustrated maritimers are with the new system. Under the old system, though, the government essentially had its hands tied even more. There were two components, one of which was taxation points—what the provinces can raise in terms of additional tax revenue. To quote Professor Thompson, you stated that a small province has a fiscal capacity that is very limited. I agree with you. So what we did, then, was change the system. The cash portion was being reduced to a significant level, and the taxation points were being increased.

What this really meant was that the federal government, over time—I think it was ten years at the time—would have had no say in any of these programs. This means that even if we had wanted to invoke the guarantees provided in the Canada Health Act, for example, we would have had no leverage. In terms of the leverage Minister Marleau had in threatening Alberta if it went to a two-tier health system, she wouldn't have had that leverage because she wouldn't have had the funding in order to be able to withhold it. By changing to the new system, we have increased the cash component but have also guaranteed the provinces that we will give them stable funding afterwards, as per their request.

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We always see the one side of the equation, which is that we're getting $7 billion less. That's true over five years, but for all of the provinces in Canada, not just one province.

The other side of the equation is that additional revenues have come in because of an improved economic situation, to the tune of roughly $2 billion. The provinces don't say anything about that. They don't mention the fact that we've been able to address our fiscal situation and keep the interest rates very low, thereby reducing the debt payments from most of these provinces that have a deficit, a debt. My home province of Quebec, for example, benefits with over $650 million in reduced debt servicing.

So our hands are really tied. The only leverage that we may have—and this was espoused in the agreement by the premiers, in what I think was called the Saskatoon Agreement—comes from the fact that if we're going to renegotiate a new social union, we have to make sure the funds earmarked for a particular area have to be spent in that area. We may be able to address some of the concerns you have then.

If the federal government has no leverage and all it's doing is acting as tax collector, then because of their capacity to tax more, the richer provinces are going to get richer. What happens then is found in the concern Mrs. Wayne has. You are going to have two levels of education, definitely, but, God forbid, maybe two levels of health care also. That's what we have to be cognizant of as a country when we move towards a new social union. So I sympathize an awful lot with your concerns and with what you have echoed. However, not too many people are hearing our side of it, which is that, damn it all, our hands are tied.

I think there should be national standards in education. Are we ever going to achieve that goal with some of the recalcitrant provinces? Isn't it a shame that my son or daughter can't go to a similar university in another province because they have different levels and, as a result, they would either gain or lose a year? It even happens in high school. Will we ever move to that point?

Prof. John Thompson: We think all of these problems should be solvable, but it takes some will on the part of the federal government. You may appropriately blame some of the recalcitrant provincial governments for being uncooperative. On the other hand, it was a Liberal government that started the untying of these transfer payments back in the late 1970s. You referred to the old system, but there was an old, old system in which the EPF funding had much clearer earmarking. That was removed.

The Vice-Chair (Mr. Nick Discepola): But if you did the analysis of that system, you would find out that per capita spending on education in New Brunswick was a hell of a lot more than in some other provinces, and you have to ask yourself why that was so. In Quebec, under those systems, some premiers of that province decided they would much rather spend money on asphalting roads just prior to every election, you see. That was the dilemma we faced. I am being very facetious, but that's actually a fact. That's why I believe that if we are going to negotiate anything, as we should, then we have to make sure we have more redistribution of the “health wealth, education wealth, and social services wealth” distributed throughout. The federation allows that.

Additionally, the opposition members will very often eliminate the transfers and equalization payments very conveniently. I disagree with that, because it really distorts the overall picture. When you look at the composition of every aspect of the transfers to the provinces, they haven't done that badly. Otherwise, why do seven out of ten provinces almost have balanced budgets? Has the méchant fédéraliste in Ottawa really been that bad? It's a question of priorities, and some provinces move much more quickly than others, my home province being one of the later ones.

Right now, I believe we are starting to get this debate because we are able to agree on deciding what our priorities are. I believe, as Mrs. Wayne has heard, that Canadians are saying that reinvesting in health, education, and other social programs is a priority. I think that's what we have to do as a committee. We have to make sure we echo those priorities in our report.

Mrs. Wayne.

Mrs. Elsie Wayne: Mr. Chairman, I would like to ask Isabelle Doucet a question.

I noted that we have a Romero House—it's a soup kitchen—here in Saint John. They have served more meals per month in the past two years than ever in the history of any soup kitchen we've ever had in this city.

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I want to ask her, what do you think, and how do you see us? We won't eliminate it, but we will try to eradicate some of the problems we have there. I was appalled, Mr. Chairman, the last time I went; it was the first time ever I had seen people bringing in babies, to get milk for the babies.

So, Isabelle, what do we do?

Ms. Isabelle Doucet: One suggestion I would have, but it wouldn't be an immediate solution, is to have collective farms for rural areas, where the people who are on social assistance could work for the money they're getting. Products would be distributed to the people in need—collective farms, perhaps in an area of 50,000 people, like the péninsule acadienne.

Another thing would be workshops where we as families and single parents could learn mechanics. We can't afford to pay $35 or $40 an hour to go to a garage, but we could go to a workshop and learn to do our own mechanical repairs. There are all kinds of solutions.

Mrs. Elsie Wayne: So are you in favour of what is known as workfare? The ones on welfare work, and they get paid for their work.

Ms. Isabelle Doucet: Yes, absolutely—the ones who can.

Mrs. Elsie Wayne: The ones who can.

Ms. Isabelle Doucet: I've looked at the judicial system, and I know in the health system we could save enormous amounts of money if we could recapture our autonomy. That's the word, isn't it?

Mrs. Elsie Wayne: Yes.

Ms. Isabelle Doucet: Autonomy; our self-worth.

Mrs. Elsie Wayne: I guess I'd have to ask this. Have you seen more people who need health care because of the cutbacks in social programs? Are they becoming ill?

Ms. Isabelle Doucet: Yes, because there's greater stress. Greater stress brings on more smoking, more alcohol use, criminal activity—into the drugs just to make ends meet, anything at all. It's a fact; it's a reality.

Mrs. Elsie Wayne: Thank you.

[Translation]

The Vice-Chair (Mr. Nick Discepola): Thank you, Ms. Wayne.

Ms. Doucet, you recommended that the surplus from the Employment Insurance fund be used to meet needs in that very area. Is the converse also true? If there were a surplus, should we not give it back to those who contributed to it?

Ms. Isabelle Doucet: To those who need it.

The Vice-Chair (Mr. Nick Discepola): The current debate is about the fact that, for all sorts of reasons, including a lower unemployment rate and a larger number of workers who are paying into the Employment Insurance fund, between $5 and $7 billion is being added to the Canadian surplus. The members of the opposition, just like you, I think, are asking us to give this surplus back to those who paid into the fund, that is, businesses, whose contribution amounts to 60% of every dollar paid into Employment Insurance, and workers, who pay 40% of the contributions, rather than to those who receive Employment Insurance benefits.

You recommend that the Employment Insurance fund be used for this purpose. Wouldn't you prefer this surplus to be kept to deal with the problems you have identified, such as poverty, instead of giving surplus amounts back to employers and employees?

Ms. Isabelle Doucet: Under the new system, there are a lot of workers who...

The Vice-Chair (Mr. Nick Discepola): Who are not eligible.

Ms. Isabelle Doucet: ...who are not eligible for benefits. Some of them have not worked enough hours.

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The Vice-Chair (Mr. Nick Discepola): The members of the opposition have got together and unanimously say that we should give the $7 billion back to the employees and employers. I would like you to clarify your point of view. Would you suggest that we give them back a certain percentage? Should we perhaps reduce contributions by 10¢ or 20¢, as was already done four years ago? Should we use another part to broaden the eligibility criteria, by reducing, for instance, the required number of hours worked?

Ms. Isabelle Doucet: Yes.

The Vice-Chair (Mr. Nick Discepola): Should we keep the remainder to deal with problems in the health and education systems?

Ms. Isabelle Doucet: I have no objections to some of this money being invested in health or maybe even in the legal system. That's a wink.

The Vice-Chair (Mr. Nick Discepola): No, I am acknowledging the fact that he wishes to speak. Please continue.

Ms. Isabelle Doucet: I agree that these amounts should be used to improve the situation of many workers who live in poverty and to improve the health system. I am in favour of preventive measures, but I am opposed to the building of new hospitals.

The Vice-Chair (Mr. Nick Discepola): Personally, I totally support your second recommendation. I am opposed to bank mergers.

Furthermore, we strongly recommend firm support for rural development. I am often struck by this concern because I represent a fairly rural riding. In your opinion, how could we maintain and even improve support for rural areas? This is a matter of enormous concern, particularly in Quebec.

There are MPs and political parties that raise the case of regional development programs which exist, including the Federal Office of Regional Development - Quebec and the Atlantic Canada Opportunities Agency here in the Maritimes. These programs were really designed to help and support regional development. They receive plenty of criticism. Sometimes they work well, and other times they don't. Do you have any suggestions for maintaining and even increasing support for development in these regions?

Ms. Isabelle Doucet: It must be realized that we don't all want to live in big cities. It would be ridiculous and illogical to want to crowd everyone into a few large cities across Canada. My suggestions concerning rural development apply to any region in Canada.

Among the suggestions I brought to the attention of Ms. Elsie, there were workshops, a collective farm, basically initiatives to keep people at home while giving them back their autonomy. They could be given a garden, trained to do car mechanics and so on. These would be very practical, realistic, everyday things.

[English]

Mrs. Elsie Wayne: I'd like to clarify something.

The Vice-Chair (Mr. Nick Discepola): I'll recognize Mr. Ritz—I think he's been patient—then you, Elsie.

Mr. Gerry Ritz: I'm wondering again about the professors. We got into a little bit of a debate here on the CHST. Whose is it to allocate, and then how should the money distribution be done?

I'm wondering if you put any validity into the idea of devolvement of some of the powers and so on back to the provinces themselves, so the tax dollars never really go to Big Brother in Ottawa; they stay right here in New Brunswick. It cuts out one level of bureaucracy, if you will. It gets the dollars closer to the need.

Is there any merit in that type of idea? You can have national standards, and then maybe we get around the problem of his daughter going to the university they both want, whether it's in New Brunswick or Saskatchewan. The national standards would take care of that, but the funding itself would stay more in the home area.

Prof. John Thompson: We don't think that's the best solution. The fiscal capacity of provinces varies over time. As I mentioned earlier, this part of the country once had the greater fiscal capacity. It happens now that Alberta is sitting on oil and gas wells, which will last for another couple of decades, and so they've got lots of fiscal capacity.

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But as John Kenneth Galbraith is fond of saying in some of his recent books, there's often the mistake made by individuals of confusing the presence of money with native intelligence. I think there's so much variability and randomness in fiscal capacity at the local or provincial level that it's important to have an overall structure with real power. I agree with the chair of this committee that this should not be abandoned and should be strengthened.

We've also noticed, historically, in Canada that some provinces, if they happen to get a more extreme provincial government in power, end up diverting a lot of money suddenly from one operation to another, doing long-term damage. The only brake there is on that potentiality, which actually happens occasionally, is the federal government having some serious, tangible role. We're concerned with regard to the educational system that there always be an important federal presence.

Mr. Gerry Ritz: I'm not saying do away with the federal presence, but the federal government is certainly not above spending money before election days either. It's just the nature of the beast. That's politics in action. But is there not a middle of the road somewhere that let's us cut out a lot of the overhead expense that the governments tend to create?

Prof. John Thompson: A lot of overhead expense has been cut out in recent years at various levels of government. One can name many examples—the environmental and health protection areas being some of them—and this deregulation and depopulation of trained personnel in appropriate departments is putting everyone's health and safety at risk.

Mr. Gerry Ritz: But overall, government spending has continued to rise and rise and rise. So are the dollars just not going into the right pigeonholes?

Prof. John Thompson: There are many debates. You say the expenditure levels rise, rise, and rise—everything is relative. If you compare the expenditure levels in the early seventies, the dollar was worth a different amount in terms of what it would purchase then than it is now. So one has to be very careful about saying that expenditures are going up and up.

Mr. Gerry Ritz: But net income is also going down and down—

The Vice-Chair (Mr. Nick Discepola): As a matter of fact, if you measure the powers of one level of government versus another, as a percentage of their budget, you will see, historically, as Professor Thompson has pointed out, that the federal government's total overall spending has been reduced drastically.

I don't know the exact figures; I haven't been on finance for two years. I had these figures at the tip of my tongue before, but the federal government spending, maybe in the seventies, represented 60% or 70%, and now it's the reverse situation. The provinces have an overall higher spending, which means, as you have stated, that maybe the overall powers are really transferred indirectly, if you measure it as a percentage of spending.

I think, Mr. Ritz—

Mr. Gerry Ritz:

[Editor's Note: Inaudible]

The Vice-Chair (Mr. Nick Discepola): Well, you could use it that way, but you forget one very important thing. Professor Thompson has rekindled my faith in the federation.

I was in British Columbia in January 1994. We had our caucus there, and the first opening remarks by some of the people in British Columbia were that they were fed up with not getting their fair share of the federation. We hear that from the “have” provinces quite often. Even though my province has benefited over the past several years, the separatists have always downplayed that benefit.

A federation is a federation. It's like a family. When one member of your family is down, you get up and help them. When another member is fortunate and has a job, then that member helps the family.

I think if we followed your example, and your party's example, we would see five different regions, and I doubt if you could see the strength we have in our country. You really have to consider that very strongly.

You represent the west. I ask you, if our Fathers of Confederation hadn't made the commitment they did to British Columbia, to tie the east and west with a national railway, would British Columbia be enjoying the prosperity it enjoys today?

In the late thirties, the federation came to the aid of Alberta during the Depression. Now it's Alberta's turn, and maybe British Columbia's turn, to help the rest of the members of the family. That's what the federation is all about. We've got to help each other and focus less on saying, what do I get out of the federation as a province. When we do that, we then live with the uncertainty that I've lived with for 35 years in Quebec. That's how this movement starts. If you always demand and exact something from your family, you start splitting up the family.

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We're getting into a philosophical situation here. I'm not supposed to do that, obviously.

Mrs. Elsie Wayne: No, you're not supposed to do that, Nick. You're in the first city incorporated by royal charter, so it's all right today.

I just want to go back to Isabelle for a minute. I want to explain to you, Isabelle, why the leaders of the opposition were saying we should cut the premiums for those who are working now and paying into EI.

We should cut their premiums. For the business community, we should cut their premiums. This was so that for those who paid in, that money would go back into their pockets. The worker has a little bit more money to feed his children, pay his mortgage, and so on.

As for businesses, you know and I know that if businesses see more money, then they look to see how they can expand, because they're always taking on the competition. If they can expand, they create more jobs.

But the one concern I have is the change in the formula for the workers to qualify for UI. Many people you're referring to in the Acadian Peninsula, and others as well, including some of our people here, no longer qualify.

There has to be a better understanding. As the chairman said, we help each other. We have a lot of people here who are seasonal workers. They don't want to be seasonal. They would like to be working 12 months a year, but that's the way it is because of the climate we have.

So we're saying this money is theirs. We must put that money back in their pockets and in the pockets of businesses to create jobs for the people. That's where we're at. I'd just like to know what you think of that.

Ms. Isabelle Doucet: I agree that it needs to circulate.

Mrs. Elsie Wayne: Yes.

Ms. Isabelle Doucet: If it's going to be in programs other than UI, it needs to be preventative, like health or social—

Mrs. Elsie Wayne: Or training?

Ms. Isabelle Doucet: Yes, training. But I don't mean projects in little classes in which they're really laughing at our intelligence.

Mrs. Elsie Wayne: If you had proper training for people, with some of the funds that would then produce jobs down the road for them and they would be trained to do those jobs—

Ms. Isabelle Doucet: We can do it.

Mrs. Elsie Wayne: I would just like to end with this, Mr. Chairman. I have two brothers who are businessmen in the United States. One is in Palm Springs. He has four or five businesses. He tells me that when they're going to employ someone, if a Canadian applies for the job, he usually takes them just like that, because of their work habits and the way they've been trained back at home here. He said that's how the people in the United States see them. All across the U.S., they'll take our people first.

We don't need a brain drain. We need to just keep them here.

Ms. Isabelle Doucet: It's the same thing in Ontario. They'll hire hard workers from the Maritimes. It's noticed. It's recognized.

Mrs. Elsie Wayne: Yes, and out west they'll do that indeed.

Ms. Isabelle Doucet: Yes.

Mrs. Elsie Wayne: I have a son out there. He's been there for 18 years. He'd sure like to come home.

The Vice-Chair (Mr. Nick Discepola): I want to jump in on this conversation.

Mr. Ritz, do you have anything else?

Mr. Gerry Ritz: I guess the only thing I'd add to what Elsie was saying is that you have to remember something. I know the government is portraying the fact that 60% of this money is going back to large corporations, big business. That's a bit of a fallacy in that the majority of businesses owned in this country are privately held. They employ four to five people. Those are small numbers. Those are the businesses that will create one more job. It isn't General Motors, the Ford Motor Company, or Bombardier for that matter that does that. It comes from the small businesses. It's the little muffler shop down the street. It's the little restaurant down the street that with that money coming back in will create one more job.

That's what we need. There are more than a million small businesses. If they all hire one person, we have no more unemployment. That's the whole purpose of putting the EI funds back into where they've been dedicated. It's sitting in a trust account. Neither other taxpayers nor the government have put a penny in, so it should go back to where it came from. That's the way it's done.

Mrs. Elsie Wayne: You can see, Mr. Chairman, that the two opposition members don't quite agree on this issue.

Mr. Gerry Ritz: Well, there's a pot of cash there and everybody wants to get their fingers into it, but you've got to remember where that cash came from.

The Vice-Chair (Mr. Nick Discepola): If I can jump in here, let's be very clear that there's no account sitting there with $20 billion in it.

Mr. Gerry Ritz: No.

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The Vice-Chair (Mr. Nick Discepola): That's a fallacy. Since 1986, the Auditor General has said that you must group it into your general revenues. Why did he say that? Because until 1994-95, it was running at a deficit position. Therefore, the Auditor General wanted to make sure that by grouping it to general revenues, you indicate clearly that there's a responsibility on the part of the government to come up with the shortfalls when they happen.

For 10 out of 17 years, the fund has operated at a deficit. This means that for those 10 out of the 17 years, who really picked up the slack? Canadians did.

Now we're saying no because it's running at a surplus. We're saying let's give it back to businesses.

I'll tell you that there's not one small business person in my community who said they wanted me to give them back 70¢. That's what we would have to give back. The actuarial studies show that instead of $2.70, it would have to go down to about $2.10. Then the fund would run at a break-even projection. If you give back all these small businesses the full 70¢, do you know what it means to Canadians? It means now we have $6 billion less left in our revenues. Right away, if you don't get your additional sources of revenue, you're now $6 billion in the hole. We'd go back to a deficit position.

Second, there's not one business person in my community who's saying they want this back. I think I can speak for all of them. We got very strong support from the Canadian Federation of Independent Business, for example. We would have to give back $3.6 billion to give this back to all businesses. I don't categorize small versus large ones. If you're saying you've got to give back to those who contributed, then in fairness, you've got to give back $3.6 billion to businesses.

So that means now there's $2.4 billion again that we've got to give back. Who are we giving it back to? It's for those who, thank God, were fortunate enough to contribute. It's means they're working.

I don't hear that here. Even Mrs. Wayne said maybe we should reinvest more in retraining. We should reinvest more in social programs, for example. Maybe we should reduce the premium by a certain amount to help businesses.

But that's not what the opposition is crying for. They're saying we should give back that full $6 billion, because to quote some of my Bloc Québécois colleagues, c'est du vol, you're stealing it from them.

No, it's been used to write down our deficit and debt. Now we're in the fortunate situation that we can debate and say what our priorities are. I don't think the solution should be to all of a sudden give back $6 billion with the uncertainty we face today. This would put back at risk all the efforts Canadians have made over the last four or five years.

I would much rather see that money used for enhanced and improved benefits, for example. As for those who don't qualify, well maybe we should stretch the elastic band so they can qualify. Maybe we should invest more in job creating, for example, for some people. That's what everybody seems to be talking about. If we do that, though, where do we get the funds for it? Not by giving $6 billion back to people, or businesses especially.

Ms. Isabelle Doucet: There are funds for emergency projects and classes that, as I said a while ago, are really laughing about our intelligence and capabilities. So somewhere there are funds.

The Vice-Chair (Mr. Nick Discepola): Where are you going to get the money from if you're saying the first thing to do is return the $6 billion?

Ms. Isabelle Doucet: I'm not saying you should return the $6 billion. You can't quote me as saying that. I'm saying there needs to be—

The Vice-Chair (Mr. Nick Discepola): I wasn't quoting you; I was quoting members of the opposition.

Ms. Isabelle Doucet: Okay.

Mrs. Elsie Wayne: I want to clarify something. We said there should be an independent commission that looks at this funding because it gets the politics out of it. Nick, you know and I know—we've been around long enough to know—that just as soon as we say we're going to give some money for something, whether it's training or this or that, the next thing you know, somebody who's contributed to the party that's been governing wants to do the training. So whether or not they can do the training, they get the grant anyway.

This is what you need to have. That money is there. We're at a crossroads in our society right now. You've seen it here. Right here today, when it comes to education, health care, and social justice, we all know about it.

The Vice-Chair (Mr. Nick Discepola): But Mr. Ritz has said he wants to see less government intervention, less bureaucracy. You're not going to create a new “independent” bureaucracy with a new administration. You'll need to have—

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Mrs. Elsie Wayne: Their money stays in general revenues, but—

The Vice-Chair (Mr. Nick Discepola): No, no, you said “independent”, Elsie.

Mrs. Elsie Wayne: No, it's an independent commission. We're saying—

The Vice-Chair (Mr. Nick Discepola): So then, they can't go to general revenues—

Mrs. Elsie Wayne: No, no, no. It's an independent commission, but they have control over—

The Vice-Chair (Mr. Nick Discepola): You can't—

Mrs. Elsie Wayne: You and I will have a cup of coffee later anyway—

The Vice-Chair (Mr. Nick Discepola): Talk to the Auditor General. If you want independence, then they can't be included in general revenues.

Mrs. Elsie Wayne: No, he's already said that—

The Vice-Chair (Mr. Nick Discepola): No.

Mrs. Elsie Wayne: —you have to have it in an independent account. It's an account.

The Vice-Chair (Mr. Nick Discepola): Are there any comments? Otherwise, we'll adjourn. If you have any last-minute comments, I'd welcome them at this stage. If not, I'd like to thank—

Dr. Jack Vanderlind: I have perhaps a slightly snide comment. Realizing that much of the federal deficit came from surpluses on the employment insurance fund, think of what a cash cow it would be if we could put 97% of our workforce into employment. That's roughly what education is doing for them. So I think it would be an excellent investment.

The Vice-Chair (Mr. Nick Discepola): You have to look at last year's budget. With the means we had, I think it was called an education budget. I can give you many examples. You yourself cited the R and D. We gave $2.5 million in scholarships, which will help.... It was a good step, and I hear the message loud and clear.

Professor Thompson.

Prof. John Thompson: I have just one additional point, going back to your earlier remarks. Our hope, I guess, is that the federal government will not allow the difficulty in getting the provinces to agree to particular arrangements to be an excuse to then do nothing. The federal government should act in these areas.

The Vice-Chair (Mr. Nick Discepola): We did. The best example was the millennium fund. Because the Province of Quebec would always, I guess, claim we were impinging on provincial jurisdiction, we made it as an independent body, which then circumvented the possibility of a little constitutional problem the Quebec government would have alluded to.

So we have. And I think that's a very clear message also, that there are priorities, and to quote the Minister of Finance, “come hell or high water” we've got to address those priorities with or without the cooperation of the provinces. But we live in a federation, and you have to cooperate.

Prof. John Thompson: Indeed.

The Vice-Chair (Mr. Nick Discepola): As the Canadian government, we can't unilaterally.... The best example, I think, was the child care program, where we made the mistake—and I say that as a politician—of having that program be contingent upon participation from the provincial government. So we already dealt with provinces that didn't want to come on board.

So you see, there has to be a dialogue; there has to be communication. And the best, I guess, reassurance we have is that out of the Saskatoon declaration, to paraphrase the Calgary declaration, there seems to be a unified voice amongst the premiers to rework social unions for the benefit of all Canadians. Even the premier of our province stated anything that's earmarked for any particular thing should go to that particular sector, whether it's education or not. That's a great step. He's never admitted that in the past.

A voice:

[Editor's Note: Inaudible]

The Vice-Chair (Mr. Nick Discepola): Well, they've always opted for their opting out or their own parallel program. That's my fear when you try to establish an independent body for unemployment insurance, for example, because you'd have to have representation from the provinces, big business, small business, the union, the labour movement—all of a sudden you've created another bureaucracy.

And God forbid if that ever happened to my province. You know what would happen. Quebec would opt out, like they did with the Canada Pension Plan. And then you have some demagogue, like a Parizeau, on the eve of a referendum, claiming to usurp the $19 billion to sustain....

So there's not very much reassurance from me, as a Quebec member, that I'd ever trust any provincial government for an independent body. But I'm getting off the track again.

[Translation]

Ms. Doucet.

Ms. Isabelle Doucet: This is a final comment. I'd like you, as members, to take up the challenge of looking at the issue of poverty and to go and meet the people who are experiencing hunger, cold and debt.

The Vice-Chair (Mr. Nick Discepola): I admit that this is probably one of our greatest shortcomings as a society, particularly when it is claimed that our society is supposedly the best in the world. We have a lot of work to do in this area.

Thank you very much.

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[English]

Thank you for your insightful representations on behalf of your regions. Our challenge, as members of Parliament, is to put all this down in a report and prioritize what we've heard throughout the country so that our government can make a better informed decision as to echoing the priorities of Canadians in the next budget. To that end, I want to thank the committee members and also the staff.

In the past five years, the Minister of Finance has maybe not necessarily heeded on 100% of the recommendations, but I would say that our batting average is almost .600 or .700. What you've recommended certainly doesn't fall on deaf ears. It's reflected in the report, and it will be out hopefully by mid-December, in time for the Minister of Finance to then read it and regurgitate it and massage it for his ultimate consumption as it will be echoed in the budget in February 1999.

Thank you once again.

We will suspend until 3 p.m., or until the next witnesses appear.

Thank you.

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• 1406

The Vice-Chair (Mr. Nick Discepola): Good afternoon. We are now resuming the prebudget consultation process, in accordance with this committee's mandate under Standing Orders 108(2) and 83.1.

At this time I'd like to welcome witnesses from the New Brunswick Chamber of Commerce and in particular Bill McMackin; from the New Brunswick Student Alliance, Anthony Knight—welcome, Anthony; from the Newfoundland and Labrador School Board Association, Myrle Vokey; and from the Saint John Board of Trade, Linda Forestell—but I think Michael Murphy is going to be presenting—and Mr. Smith. Welcome to all.

The format is that we hear from each of you, with roughly five to ten minutes for your presentations. Then we will open it up to questions from the members of Parliament. If there is someone who would like to volunteer, I'll choose that person; if not, then I'll go alphabetically with the list.

Mr. McMackin.

Mr. Bill McMackin (President, New Brunswick Chamber of Commerce): Thank you very much for giving us the opportunity to be here today. This is the third opportunity I've had to speak to this group, three or four years running. I think it's always important for you guys to hear from your customers, maybe even a little more than once a year.

I'm here in my capacity as president of the New Brunswick Chamber of Commerce, which works with the local chambers and boards to work on federal, provincial, and regional issues on behalf of our members, almost 6,000 businesses in the province of New Brunswick.

Earlier in the summer, in June or July, I wrote a submission that responded to your four questions. To preface those, a lot of things have changed since July, at least on the world financial and economic front. We've seen a lot of turmoil, and I think some of the great expectations of huge surpluses have been dampened a little bit since then.

I would also preface my comments by saying that most of what I have to say here is a cautious, prudent, stay-the-course approach, and I would recommend that we continue on that path because to do otherwise would probably just result in short-term gain for long-term pain.

With that, I would like to respond to the four questions that were posed prior to these hearings.

The first one was, with the budget balanced, what message do we want to send to the government with respect to priorities for the fiscal dividend?

It is our opinion that the dividend has been achieved as a result of mainly a period of high taxes and somewhat reduced government services. Yet although spending has been restrained, we're not sure that spending has been cut into deeply in all areas.

The dividend also depends greatly on a lot of factors that are outside the federal government's control, whether it's the dollar, interest rates, and so on, and the current world situation accentuates how that can be negatively impacted quite quickly without us being able to do much about it. We live with a large level of debt and are vulnerable to these factors because of that.

• 1410

Therefore, the New Brunswick chamber strongly suggests that restraint must continue, that we should have a strong emphasis on fine-tuning government expenditures, reducing them where appropriate, reducing duplication from federal and provincial levels of government, and focusing those savings and what surpluses we have on debt reduction. That would be our biggest priority at this point, to continue to work on debt reduction areas for the federal government.

As well, and with that in mind, I think everybody in Canada recognizes we're very highly taxed, and as the debt begins to be pared down over the next number of years, there's a need to relieve taxes on really all Canadians, but specifically those probably at some of the lower income levels and small business. We've been working for a while at looking at ways that taxes could be reduced on small business, specifically looking at the small business deduction as one way to improve the growth opportunities for business, at least in our province.

Lastly, I think what our members have said is once we've gotten to the point where we've reduced some debt and we've had an opportunity to perhaps reduce some taxes, the priorities are fairly clear for where Canadians want their money spent. They want it focused into the areas of health and probably some basic infrastructure improvements. The message is quite clear to the federal government: start to focus more clearly on your priorities in those areas.

So in a one, two, three order, it's debt reduction, tax decreases, and looking at some minimal spending in the future, when we can afford it, on health and infrastructure improvements.

The other question I respond to is how we can prepare Canadians to take advantage of the opportunities offered in this new era. I think the government made a few efforts last year in the budget to provide opportunities for higher education. It was billed as the education budget, and a number of changes were made. I think those were positive in the sense that they did provide for some education opportunities. But my belief is the government has to stop feeling that it can take a role in every aspect of our lives. Canadians seem to have boiled down their desires to having a strong education system and a strong health care system, and we will continue to help those in need in this country who can't necessarily help themselves. We want a strong public infrastructure, and we want reduced debt so we can hopefully stop being taxed to death. I think those are the priorities that, if we focused in on those, will provide the best opportunities for Canadians into the future.

The last one was, what's the best way the government can ensure there's a wide range of job opportunities in the new economy?

I think it has been the chamber's stated position for a lot of years that ultimately it's the private sector that creates jobs. As long as the government continues to manage their situation a little better than past years, to eliminate the deficit, which at this point has been done, but to reduce debt and reduce the impact of taxes on our lives, Canadians will create jobs for themselves in some cases, but business and the economy will prosper in a way that will create opportunities for Canadians.

So once again we come back to this: a reduced level of debt, which will attract business investment into Canada; reduce personal income taxes so people who are earning some wages today can get to keep a little more of them; reduce small business taxes so businesses can expand and grow and use a little bit of their equity to leverage it and hopefully to grow their businesses; and begin to start looking at EI and other premiums that are really having a negative impact on job creation, and start to reduce those premiums to a level that's more reflective of the cost of providing those services. Then I think what will happen is, if we let the private sector go to work, the jobs will be created, and I think we're starting to see that they are if we keep focusing on those fundamental areas.

Those thoughts were really put together to try to address your four questions. It's very much summed up by saying let's continue to manage in a prudent sense, to focus in on the debt reduction and tax decreases that we hope are in our future, and for you folks in the federal government to focus even better your priorities on things that really matter to Canadians. If we do those things, I think a lot of the rest of the challenges we face will start to fall in line.

The Vice-Chair (Mr. Nick Discepola): Thank you, Bill. That was very clear and concise. It's not the quantity; it's always the quality, and I thank you for your explanations. You'll get a chance to elaborate more on an awful lot of those points as we turn to questions.

Mr. Knight, please.

Mr. Anthony Knight (President, New Brunswick Student Alliance): Thank you, Mr. Chairman.

I'm here to represent the organization that represents all university students in the province of New Brunswick. That's at all seven campuses here in the province. We're actually the only student group that represents all the provincial student associations in the country.

• 1415

In our submission, our major centrepiece was based upon the need to address the literacy problem in the country, and we feel that the federal government can play a significant role in addressing the literacy problem faced by both this province and the rest of the country.

Our literacy initiative consists of two components. One, it consists of something called the literacy corps, which we believe addresses two major problems in at least the maritime provinces. In the Maritimes, students who graduate from programs where education degrees are granted are entering the labour market and are faced with a 22% unemployment rate. Coupled with that, a recent survey of New Brunswickers found that more than 60% of New Brunswickers were classified as being below an internationally accepted level of literacy.

We believe that by placing these teachers who are faced with a desperate situation of unemployment in communities where literacy centres could be established, and pairing these unemployed teachers with those who are upgrading their literacy skills, it will allow for a clear and focused investment in New Brunswickers and Canadians.

We also believe that once these individuals who are upgrading their literacy skills have attained the accepted level, government should encourage these individuals to further pursue education, either by obtaining a high school diploma, community college certificate, or a university degree. We believe that by doing that we are promoting both economic prosperity and wellness for the individual.

The second component of our literacy initiative is based on the idea that the federal government make literacy a priority for the national government. We believe it can do that by doing three things: first of all, by setting a target for literacy levels among Canadians and achieving that target, and then working to exceed it; secondly, by instating a senior minister in charge of the state of literacy in the country, one who would have the political and policy influence in cabinet, which would begin to address the literacy problem in this country; thirdly, by increasing funding from the federal government for the National Literacy Secretariat—and the initiatives taken on by the national secretariat should be better than successful, they should be encouraged.

In addition to our literacy initiative, we also believe that New Brunswick universities are severely underfunded. We feel that action needs to be taken through the Canada health and social transfer. The federal government should leave the envelope that is the Canada health and social transfer alone and allow the provinces to divide that envelope among health, education, and welfare.

We'd also encourage the federal government to continue working toward a harmonized student loans program. We feel there are considerable savings in working towards that type of a goal. We also believe the federal government has promised this for at least four to five years, and we'd like, firstly, an update on whether or not the federal government is going to act on this promise.

We would also ask that the federal government begin to review and also amend the federal bankruptcy legislation that was instituted back in the spring, which requires that students who have graduated from university not have the ability to apply for bankruptcy until ten years after graduation. We feel, and we believe, that this legislation classifies students in the same light as fraudulent criminals. We'd ask that the federal government review the legislation and hold public consultation on the reasoning and the intention behind such legislation.

In addition, in our submission we also go into several other areas. We believe the registered education savings plans require further review. In addition to the program, there are several areas that we believe could better the program itself. First of all, we feel that the overall program is targeted to a small portion of Canadians, that too many people can't afford to put away money in RESPs. We're not sure how that can be addressed, but we feel that certainly the plan only addresses a small portion of Canadians.

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We'd also bring to the attention of the committee the initiatives in the private sector, where pooled funds are gathered. There are limitations for the families who are saving to access that money should the young person choose not to pursue a post-secondary education that is recognized.

We'd also encourage the committee to look at the opportunity of allowing catch-up payments for families to help save for their children's education. This would be much like the RRSPs that are available to all Canadians.

We would further ask that the committee explore opportunities to work with employers and businesses to help their employees save for their children's education and to match or to help work towards matching savings for their children's education.

That's a basic summary of our submission.

The Vice-Chair (Mr. Nick Discepola): Thank you for those suggestions. They're quite nice. I'm following some of them myself. Thank you.

Mr. Vokey. Welcome.

Dr. Myrle Vokey (Executive Director, Newfoundland and Labrador School Board Association): Thank you, Mr. Chair. Thank you for the invitation to come to this wonderful province and make a presentation to your committee.

The Newfoundland and Labrador School Board Association represents all of the children in our province from K to 12, and I'm speaking from that perspective as well as for all of the other children in Canada, especially the most vulnerable, who probably are not able to speak for themselves.

Nine years ago, the House of Commons unanimously passed a resolution—it was a noble but unachievable goal to date—to eliminate child poverty by the year 2000. Not only have we failed to reach that goal, but the record shows that we're falling farther behind.

In 1995, 21% of all Canadian children—1.5 million—lived in poverty, and the number of poor children has increased by 58% during the intervening years from 1989 to 1995.

In 1997, a couple of years later, our government allocated $850 million to create an enriched and simplified Canada child tax benefit plan, and in 1998 the budget approved an additional $850 million in two steps, one in July 1999 of $425 million and another one the following year, July 2000, of $425 million. While this is encouraging, we contend that our efforts must be accelerated.

The United Nations has judged Canada to be the best place to live in the world. However, this is true for only some of our citizens. The United Nations Committee on Economic, Social, and Cultural Rights produced a set of priority concerns, which will be asked during the third periodic report on Canada. They had very specific questions related to food security for both the federal and provincial governments. In my province, for example, they were specifically concerned about the right to food for Newfoundland residents, considering that the cost of food in our province is 84% of the social assistance rates.

Federal budgetary decisions have profound impacts at every provincial level. In my province as well as others, the new qualification periods of EI mean that many people now must resort to social assistance when they no longer qualify for EI. Here in eastern Canada we're certainly very much aware of the cod fishery decline and the impact that has had on unemployment and the need for social assistance.

In my province again—and I'm speaking from that perspective—over 18% of families, representing one-third of the children in our province, are below the poverty line. Indeed, the average poor household in Newfoundland would need an extra $5,300 to bring it up to the poverty line in my particular province. I suspect there would be similar statistics from other provinces as well.

We just had a royal commission on education in Newfoundland. I would like to read one quotation from it. It follows:

When children are not adequately fed, they miss valuable instruction time. They fail to keep up with their school work and are very likely to drop out of school early. Whatever the cause of the hunger, it will affect children's health and educational achievement in the short term and their economic security in the long term.

• 1425

Another statistic is that in March 1989 in our country, 329,000 people used local food banks, and in March 1997, eight years later, that number had doubled to 669,000. The highest rates, by the way, were again in Newfoundland, where 47% of those assisted were children.

Let me make a few comments on the hunger and learning connection and absenteeism. Children who have insufficient or no food between their evening meal and lunch the following day have actually fasted for about 18 hours. The body of a normal child responds to this type of fasting by a drop in blood sugar, resulting in a decrease in energy. Protein is required in the diet to retain desirable blood sugar levels, which in turn facilitates alertness. Alertness, as we all know, is essential for learning.

In my presentation to you in written fashion, sir, there are many statistics that I will, in the essence of time, omit. I will refer to just one study for illustration purposes.

A study conducted in the U.S. over a 20-year period examined the effects of missing breakfast. The research demonstrated that breakfast improves children's academic performance, and the negative effects of no breakfast or fasting conditions were shown in relationship to arithmetic performance, reading ability, emotional behaviour, and overall late-morning problem solving.

In addition to not being able to learn, poverty and child hunger affects attendance. We all know that malnutrition affects children's learning and behavioural functions, and the compromised immune system of undernourished children causes them to have difficulty fighting infection. Therefore, they are more likely to become sick and tend to miss school, and hence fall behind in their work.

I know statistics are disturbing and boring, perhaps, but the faces of despair and the voices of depression are even more disturbing. Let me give you a couple of quotations from a report, which is not yet published but is contained in my submission to you.

This is the story of Annie, who has two children in school:

Annie and her two children are on social assistance. In 1997 she and her two children got by on exactly $9,576. Stats Canada figures show the national poverty line for a three-person household stands at $26,637. Last year she had to pay roughly $700 out of her money toward the electric bill. “It's either you starve and you keep warm, or you freeze to death and you eat. That's your choice, one or the other.” Annie's girls never go to school hungry. On days she can't afford lunches, she keeps them home.

One other quotation is from a married couple working on minimum wage, with three dependants:

Now we are living below the poverty line and I'm ashamed to even say we have to go a food bank. But what else can we do? Three children are a lot to feed, you know. When we get our cheques we try to buy meats. Mom helps out by giving us some vegetables. Most of the food we get at the food bank is in cans. You know, soup, wax beans, ravioli, stuff like that. I can't say that it's nutritious, but it helps when you are hungry.

We reckon the government faces a myriad of needs of Canadians from coast to coast, and the cost of providing programming to feed hungry children is considerable, but we point out strongly that the cost of not intervening is very much higher.

Further, my friend just speaking spoke about literacy, and I have a quotation here on that. In an international literacy survey that was conducted in 1994 throughout Canada, it was shown that almost half of Canadians lacked the literacy skills necessary to comprehend a bus schedule.

When I was preparing this report on Thursday past, there was an editorial in our paper back home; it's attached to this submission. The title of the editorial of Thursday, October 15, says “A Third World in Canada's Backyard.” One of the quotations says “The living conditions of Canada's natives”—and I'm just referring to that because it's in the editorial here, although it is a very important part of our concern—“are on a par with the poor of Ukraine, Venezuela, Panama or Poland.” In our opinion, speaking from the Labrador perspective, that is not an exaggeration.

• 1430

Society will eventually bear the cost of these children who, because of poverty and undernutrition, are denied equal opportunities in education. The only question is when we will bear the cost. Do we pay now for intervention and prevention, or do we pay to deal with the inevitable results? While poverty and hunger may often remain a hidden problem, the consequences are frequently painfully obvious. We can only ignore these problems at an even greater cost, the cost of unproductive lives.

We have two recommendations for your committee to consider, sir. One pertains to money, and I think the other one is equally important, if not more so. It doesn't pertain to money, it pertains to planning. I'll read both recommendations to you and that will be the conclusion of my address.

We strongly recommend that the federal government allocate an additional $425 million to the national child benefit for 1999 in the 1999 federal budget, along with a similar amount in the year 2000, thereby doubling government's commitment to addressing this crisis.

As our second recommendation, we strongly urge that the Government of Canada set out a strategic plan and set clear goals on how we can proceed to meet the target outlined in the House of Commons resolution of nine years ago. In the development of a comprehensive plan of action that would involve research and program components, we would expect and urge that the federal government partner with respective groups in our society, including school boards, to implement and deliver the much needed assistance to these children, the most vulnerable of our Canadian society. If we all work together and are successful in achieving our objective, it will be a win-win situation. If we fail to do so, all Canadians will be the losers, especially the potential leaders and productive citizens of tomorrow.

Thank you for the opportunity to make those comments to you.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Vokey.

I'd like to now turn to Mr. Murphy or Mr. Smith. Mr. Smith.

Mr. Gary Smith (Vice-President, Saint John Board of Trade): Thank you, Mr. Chairman.

Good afternoon, ladies and gentlemen. My name is Gary Smith. I'm the vice-president of the Saint John Board of Trade. I'm sitting in for our president, Linda Forestell, who was unable to be here this afternoon. I also have with me Michael Murphy, who is chair of the board's pre-budget task force.

We have attended the pre-budget round tables held in Fredericton for the past several years, and we are very pleased to be here again today. The Saint John Board of Trade welcomes the opportunity to present our views regarding the development of the upcoming federal budget.

The Saint John Board of Trade is greater Saint John's largest business organization, a partnership of more than 900 businessmen and women representing more than 600 firms and organizations in the community. It serves as a dynamic advocate for its members on a wide variety of issues, and works to encourage the economic development potential of the Saint John region. The Saint John Board of Trade's mission is to be the principal voice for the businesses in greater Saint John, and it is dedicated to fostering an economic climate that enhances growth, prosperity, and an improved quality of life in the community. It has represented the business community of the greater Saint John region since its establishment in 1819, and has members from throughout the region and beyond.

Before we provide you with our views, we would like to discuss the definition of “small business”. When small business is mentioned, one normally thinks of a company with fifty or more employees and with revenues in the order of $5 million annually. This is not the norm in Atlantic Canada, and it's certainly not the norm for our members. What we're really talking about in New Brunswick and in Atlantic Canada is micro-business. When you are developing your recommendations for the next federal budget, we hope you will keep this concept in mind. To amplify this concept, it is instructive to consider that 65% of the members of the Saint John Board of Trade, the region's largest business organization, employ fewer than thirty people. Our views, then, embody what we believe is best for those very small micro-businesses.

The essence of our submission today is contained in our July letter that was submitted during the call for written input at that time. I will now ask Michael Murphy, who is with the Bank of Montreal and who chaired our pre-budget task force that prepared the board's July letter, to briefly review it for you.

Mr. Michael Murphy (Chairman, Pre-Budget Task Force, Saint John Board of Trade): Thank you, Gary.

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Mr. Chairman, honourable members, in a letter written to you in July 1998 we mentioned that “any surplus should be dealt with carefully, as many factors which contribute to the `dividend' are not controllable.” Factors mentioned then included the potential for rising interest rates, and the economic effects of the ongoing Asian flu, causing us to say that restraint must continue. We strongly suggested a continued emphasis on productivity improvements, along with the continued focus on reducing duplication between federal and provincial levels of government. As well, we also indicated that reducing the debt should continue to be the government's first priority, and that if there was a fiscal dividend, some portion of that dividend must be put toward the debt. These continue to be our first priorities.

The global turbulence in financial markets since July has, in our view, jeopardized the possibility of a fiscal dividend. In Atlantic Canada, our economy is often the last to heat up when things are good for the rest of the nation, and we tend to be the first to cool down when problems arise. All these things together make it even more urgent, in our view, that we stay the course.

However, should there be any surplus, we mentioned in our July letter a number of matters that we believe would help our small micro-businesses here in New Brunswick and Atlantic Canada. We believe it is vitally important to reduce small-business taxes and to cap the accumulating surplus in the EI fund, returning any surplus in excess of that cap to both business and to their employees in the form of lower premiums.

In addition, we believe Canadian taxpayers have made huge sacrifices in the past several years in order to get us where we are today. That burden should be relieved. Both corporate and personal taxes should be reduced.

Finally, we said that any increases in program funding should be applied to health care and infrastructure. On these items we have not changed our view should there be any surplus with which to work.

In closing, we leave you with this thought: In September we participated as host to the 69th annual general meeting of the Canadian Chamber of Commerce, held here in Saint John. In addressing the delegates at the opening ceremonies, Prime Minister Jean Chrétien's main message was to stay the course. Subsequent to his remarks, the delegates debated a number of resolutions, including dealing with the national debt, the EI fund, and corporate and personal tax relief, and resoundingly supported the points we've just made to you here today. Those resolutions are now the official policy of the Canadian Chamber of Commerce, and you will no doubt be hearing a similar message from them on these same points in the very near future. Just remember that you heard it here first.

Thank you for the opportunity to be here today, and we would be pleased to answer any questions you may have.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Murphy.

I'd like to now call upon Mrs. Wayne to open up the questions.

Mrs. Elsie Wayne: I do have questions, Michael, but I'm going to put my questions to Gary or Bill, because I know where you work. You work for the bank. I want to ask them about bank mergers.

What do you see as the effect the bank mergers will have on independent insurance brokers and car dealers if the banks are able to get into the insurance and auto leasing businesses, as they wish?

The Vice-Chair (Mr. Nick Discepola): We're going to have a problem here, Mrs. Wayne, because the current reference is to hold hearings on pre-budget consultations.

Mrs. Elsie Wayne: Okay, so you don't believe it isn't?

The Vice-Chair (Mr. Nick Discepola): No, but after these witnesses we will hold hearings on the task force. I know you have to leave, so my problem would be how to get their testimony in for the other one.

Mrs. Elsie Wayne: Okay, I'll ask another question.

You just heard from Mr. Vokey, a representative from Newfoundland. As business people, how do you see us addressing those major concerns? We don't have problems to the depth they have them in St. John's and other parts of Newfoundland, but we do have problems here as well. I don't think there's any one of you sitting who wants to see a child go hungry, but what he has stated has an effect on your health care system, your educational system, on all of the systems, if you like, because those who can't learn may become a burden on society.

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What do you see that we should do with that—any one of you?

Mr. Gary Smith: If I could start off, Mrs. Wayne, I believe all businesses have some responsibility to deal with the issue of poverty, and I believe here in Saint John we currently have a very significant number of business people involved in that process, trying to address the issue of poverty in our city.

I personally have been involved in some of the meetings. There's no easy answer to that. However, through the process and by sitting down and addressing the very significant issues around poverty, I believe there are results, and we can't always rely on the government to come to bat in terms of resolving those issues.

So I think it's incumbent upon the business community, and certainly one of the areas I have an interest in is to be involved in that particular issue. As we go forward, I believe we will resolve some of the issues, possibly not all of them, but business has to be there.

Mrs. Elsie Wayne: You will recall that at one time in our city we had a substantial debt. And do you recall—and I say this humbly—when I came before you people I told you people at the board of trade and others that I had three presentations made to me by my commissioner of finance to eliminate the debt. I asked him to tell me the impact on all of the workers and on the community of doing it in five years, and then to give me one for eight years, and then one for ten years.

You will recall, Gary, when I looked at the five-year one, it was slash, burn, and cut, just like we've been doing up in Ottawa. The impact was so negative on this community and on those people out there that I wouldn't do it. So we did it over a longer period of time. And you can balance that out when you take the human dimension into consideration, and as businessmen.... I have major concerns. I really do. I've listened to this, gentlemen, and I have major concerns.

Mr. Bill McMackin: I should respond as well. I guess you've posed the question to both of us.

With respect to the timeframe we've been working on, the financial situation of Ottawa, I see it going back probably to 1982 or 1983, which means we've probably been working on it fifteen years, more so than just the last two or three. So probably we have spread that over as much of the last number of years as we can possibly prepare to stomach.

But dealing with the specific question about the poverty issues and many of those challenges, as a starting point, I think one of the things we have to face in this country is that a lot of the people who are making very, very low wages are also being taxed very heavily. To start with, if they could get to keep a little bit more of what they earn, they'd be one heck of a lot better off.

Mrs. Elsie Wayne: So you'd like the insurance premium surplus to go back, and we'd cut the premiums for employees and employers?

Mr. Bill McMackin: I think we have to recognize that right now the EI premiums are going into general revenue, which means they're going to pay for a whole bunch of other things first, so it's going to take a while before we can fix some of those problems over the next bit.

If we're going to look at tax decreases for people over the next little while, I'd like to think everybody in Canada could benefit from them—but that's probably a bit of a fantasy—and that some of the people at some of our lowest income scales at this point, people who are making and trying to make a living on a basic living wage or minimum wage jobs because that's what they can get right now, deserve to keep every penny they can get their paws on. They need it to pay their heat and to buy their food, and we need to lower the taxes at those places as much as possible.

For the business people, the benefit is that at least those people are going to need it; they're going to spend it; they're going to go out into the community and generate some activity out of it because they need to live off it.

The Vice-Chair (Mr. Nick Discepola): To play devil's advocate here, I think what Mrs. Wayne is saying is that for the past four or five years we've heard the business community say your focus has to be eliminating the deficit.

No sooner do we eliminate the deficit than now we hear the same community, three out of five here, say your focus has to be the debt. That's your first priority. Your second priority is tax reduction, and then everything else seems to be, well, after you've done that, we wish you luck and maybe you can attack what Mr. Vokey is saying, child poverty, and what others have been saying, health and social programs.

• 1445

I'm playing devil's advocate here, but what's the benefit to Atlantic Canadians if we solely focus our effort on debt reduction, for example, as your recommendation? How does it benefit Atlantic Canadians?

Mr. Bill McMackin: At this point, and correct me if I'm wrong, 25% to 30% of our expenditures annually go into debt service.

The Vice-Chair (Mr. Nick Discepola): It's 27¢ of every dollar.

Mr. Bill McMackin: That's 27%, so I wasn't far off.

The Vice-Chair (Mr. Nick Discepola): You're right.

Mr. Bill McMackin: It's like me managing my household. Over the long term, if I can't get my wages up right off the bat, if I can't earn more money, one of the best ways I can help put more money in my pocket, if I have some, is to try to eliminate some of my mortgage costs and reduce some of those interest-carrying charges, or consolidate some of those things.

We've gone beyond what we can afford right now in terms of our overall spending. If over the next number of years we can pare the debt down to some extent, allow inflation to reduce it as a proportion of GDP and a proportion of our overall budget, those debt service costs, it will free up some additional money for other initiatives in the long run.

What are the long-term easy answers? I don't know. You guys got us into this mess, and you guys have to get us out. You have to make some of the tough decisions about how we reduce the debt in the short term to try to help out all the people who need it.

The Vice-Chair (Mr. Nick Discepola): But to use your analogy, what you're saying now.... You're a small-business person, like I was, and am, maybe. It's okay to have a working line of credit. It's okay to have a loan with your bank, as long as you can still make profits and meet your repayment criteria. It's okay to have a mortgage, as long as you can pay that mortgage monthly and religiously so your bank manager doesn't come. But why is it that now we must focus on paying down the mortgage more than we have to, at the expense of maybe providing an inferior quality of life for our family members, for example, to paraphrase you? When does the time come when the business community is going to say all right, the proper balance is achieved?

It seems to me, just like yesterday, all of a sudden the deficit was a priority, which we agree. And personally I think I share an awful lot of your comments, because I am a small-business person, I have four children, and I know the costs associated with everything. The first thing I tell my children is pay down your credit card balances, because that costs you 19%. And I tell them if you have a mortgage, pay down the mortgage, because that saves you net, after tax, 9% or 10%, which is like 18% invested anywhere else.

It seems to me now we've come to a crossroads in our country where we have to start looking at a more equitable balance. Where is that balance we're trying to look for? As per your recommendations, should all our efforts and all our surpluses be geared directly to reducing the debt load and the debt, or should we now take some time and say maybe our priority should be reinvestment in child poverty and health care and in other social programs?

Mrs. Elsie Wayne: I'm so glad you jumped on board with me.

Dr. Myrle Vokey: I hope you read my report, because it was put together by other members. One sentence that I didn't read is “In addressing this very urgent challenge for our Canadian society, [we are] of the opinion that we are at the cross-roads of decision-making”. That just quotes you there.

First of all, as I listen I think of the balance. It's like the man up by the wall trying to stop the leaks coming out and reaching either way. I suppose we had to make a choice either to try to reduce the debt now, as my friends are saying, to release some money from our overburdened tax dollar, 27%, so that we can put more money into health further down the road and to education and children, take that balancing act, or we can take less of the debt-load reduction and put it into preventive and remediation work right now and deal with children.

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Let me make one more comment. I mentioned the two resolutions here. Certainly the one of money is important, but throwing money at the problem and feeding children, as important as that might be, is not the answer either. It has to be planning at the community level, at the provincial level, and at the federal level. We have to involve business. We have to involve educators and parents. It's an education program and it has to start now. And it has to be a collaborative, cooperative, well-planned and strategized effort.

The Vice-Chair (Mr. Nick Discepola): Could you elaborate on that? In Newfoundland I asked the same question, and a lot of people said it's not just a question of throwing more money.

Dr. Myrle Vokey: That's right.

The Vice-Chair (Mr. Nick Discepola): It may not solve the problem, frankly. You'll throw good money after bad, or it's like maybe throwing a penny in a lake: it's just a ripple effect and nothing comes of it.

You've made a good recommendation here, which is that we should elaborate a strategic plan. I think we have the wherewithal within Canada to elaborate that plan, but how do we go about bringing together all the parties involved so that we can come with a concrete commitment and solve the problem? I'd like to complete the thing once and for all. I don't think we'll ever be able to, but at least we might address the problem in a concrete manner.

We introduced $850 million, as you outlined, and we doubled that to another $850 million. We're hoping the provinces come on board. You're saying another $425 million. Will it all help until we see a concrete plan and work, all of us, towards it? That's what I mean.

Dr. Myrle Vokey: I don't have a plan in my mind. I don't think anybody does right now. But in our committee at the provincial level in Newfoundland—I'm going to use that as an example—we at our last meeting decided to incorporate businesses in our towns and communities in this province. And by the way, the businesses are there and ready, willing, and able to help out as much as they can.

You have parents' councils, you have municipalities, you have all sorts of organizations that can join the fight, and education I think is a big part. A lot of parents, single parents and two-parent families, are in my opinion very anxious to help their children if they had the wherewithal and the knowledge to be able to provide nutritious lunches, to be able to be educated into the propriety and the importance of nutrition.

Right now our parents and our adults who are caring for children are hanging on by their fingernails. They're following the line of least resistance. We see thousands of children come to school with a bottle of pop and their bag of chips. School boards are having canteens with that kind of stuff in it because if they don't do it there's going to be a confectionery store right across the road that's going to make the bucks in place of the children spending the money.

It's heartbreaking to see the sparse dollars not being utilized as effectively as they can be. So it's education, it's planning, it's communities, it's municipalities, it's parents, it's school councils, it's school boards, and these are the people who are going to have to work together to attack this problem.

Mrs. Elsie Wayne: Mr. Chairman, a few months ago, right here in Saint John at Romero House one of our retired bank managers brought together our business community and ourselves. There were representatives locally, myself, and others. They broke us into different groups and we came back with priorities on what we thought should be done, what needed to be done, and the urgency of these being addressed and so on.

These committees are ongoing. Some of the men sitting at this table tonight are still involved with it. It is working. They can tell you about that, Dr. Vokey, before you leave.

I think what bothers me, Mr. Chairman, is I have never seen—and I can only refer to our area—so many children who are going hungry. I have never seen so many in food banks before, particularly right here. I have never seen it. I don't know why it is this way.

When you talk about illiteracy and literacy, I want to know from this young man what is wrong with the system that when you graduate from high school you're not literate, because you should be in every way. So what's wrong with the system? There has to be something wrong with the system.

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Mr. Anthony Knight: Having already gone through the system, I think it's dated. I don't think it responds to the expectations of our business people, of the people who are going to provide opportunities for the young people who graduate and go into the workforce looking for opportunities. I think the partnership that we've all talked about so far is needed in structuring a curriculum that helps to prepare the young person.

Mrs. Elsie Wayne: Anthony, could it be because the computer does the spelling these days instead of the child? I see that with my two grandchildren.

Glory be to God, we had to spell it ourselves, by God. And we learned how to spell, and we learned how to write, and we learned how to speak, and so on, and composition was another thing. But the computer does it for them. They don't know a thing when they're through. It's something I have to tell you, and it's going to be a very controversial one.

I don't have a problem with controversy, so I'd take that one up any time when it comes to the computers. It wouldn't bother me one bit, because something has to be done. We have young people going through our school systems who are not fluent when they come out. And I mean that, they are not. When it comes to literacy, it is a shame. I interviewed young people to work for me, and after I asked them to write a letter I can tell you four out of five didn't get the job.

Mr. Anthony Knight: That's why what we've always recommended is that we.... Back in the 1950s, at least so I'm told—

Mrs. Elsie Wayne: You weren't around then, but we were.

Mr. Anthony Knight: Not at all yet. But we made grade 12 the generally accepted level of education that everybody should have.

Mrs. Elsie Wayne: It was equal to anything you have today when it comes to a BA.

Mr. Anthony Knight: That's what you had to have. Now we have to at least make the first two years of a program after high school as accepted as grade 12 was back in the 1950s.

Mrs. Elsie Wayne: Right.

Mr. Anthony Knight: We have to move on. That was a long time ago when we said that, and I think we have to begin to change that idea of what is accepted as our accepted level of education. I think our business people are saying, from my experience anyway, that we don't have the skilled workforce. We have one of the lowest percentages of university graduates in our workforce in the province of New Brunswick, compared with the rest of the country.

Why is that? I don't think it's because of the brain drain. I think it's because we're not making post-secondary opportunities after high school as available to our young people, and that's because of the costs of education. That's because of the perception of what an education is within the family, and whether or not they can save for it, and whether or not they feel it is for them. And there's a perception problem among New Brunswickers about what an education will do for them, and whether or not it's something that's available for them.

I think our government has a role, and so does our community, not just our business but our community groups and our parents and our students, in changing that perception.

The Vice-Chair (Mr. Nick Discepola): Thank you, Anthony.

I think you also have to touch on the drop-out rates. There's a tremendously high percentage of students dropping out.

Dr. Myrle Vokey: I'd like to make a suggestion to you, and this is personal, not representative of my committee necessarily.

I've been in education all my life, with teachers' organizations, school boards, and so on, and we've met before at other functions. But it's been long a wonderment to me why we don't have a national office of education. This is a personal thing here. I think we're the only country in the free-speaking world without a national office of education.

I know it's a provincial jurisdiction, but we also know that at the post-secondary level, with language education and so on, the federal government puts a lot of resources into education at the provincial level. And in partial answer to the question of strategizing and preparing to spend our dollars wisely on poverty and children—if we do put money into that, and I know we are, and hopefully we will find even more resources to put in—I would suggest that part of the strategy would be a recognition of the fact that our federal government does have a role to play in the education of our children, and of our adults as well, and that we put some structure and some organization at the federal level to harness, to coordinate, and to collaborate with the provinces on the delivery.

That's a personal comment. I always believed that, in my career in education.

The Vice-Chair (Mr. Nick Discepola): Thank you very much, Mr. Vokey.

Anyone else? Mr. Smith.

Mr. Gary Smith: I would like to elaborate a little bit on your comments earlier about what you viewed as business's preoccupation with reducing the debt.

The Vice-Chair (Mr. Nick Discepola): I have another question on that, which I'd like you to answer at the same time.

Mr. Gary Smith: Okay.

The Vice-Chair (Mr. Nick Discepola): I just want to stay on this existing topic, if you don't mind, and then—

Mr. Gary Smith: I'll incorporate that, if I may.

The Vice-Chair (Mr. Nick Discepola): I'll ask my question later.

• 1500

Mr. Gary Smith: In terms of establishing the balancing act that is necessary, I think it's important to remember.... Certainly the boards of trade and chambers of commerce throughout the country represent small business, and yes, they are preoccupied with ensuring that small business does prosper, because small business is the largest employer in this country.

When you look at the fact we alluded to in our presentation that small business in Atlantic Canada is smaller than small business elsewhere in the country, there are a lot of small businesses that are burdened with excessive government costs, such as EI premiums. So when you're looking at how do you balance this thing, I think it's important to recognize that when you're looking down the road, yes, reducing the debt is very important. We expect the government to behave as business does. No business wants to have excess debt either. So there is a responsibility that goes with reduction of debt—not at the expense of everything else, not to the point where everything else is excluded.

There are a few things that can be done. Obviously, if the incentives are there for small business to expand and to grow, there are more opportunities for jobs. If the proper educational system is put in place, obviously there's more incentive for employers to hire the right quality of people, who actually do know how to spell.

The Vice-Chair (Mr. Nick Discepola): But what we're saying is shouldn't business, who stands to benefit from a well-trained labour force, also assume some responsibility in the educating of that labour force?

Mr. Gary Smith: I do believe business, if properly approached in an organized way, would definitely partner in both the issues of education and poverty, but it can't be a segmented approach. It's got to be organized. As Mr. Vokey mentioned, maybe it does require a special office or special commission to deal with that, but what happens is we do it in a very fragmented way. It might work in Saint John; it might not happen anywhere else.

We don't have any national approach to involving business in any of these issues. We'll continue to parade about the national debt because....

The Vice-Chair (Mr. Nick Discepola): If I may play devil's advocate again—and I don't want any of the media quoting me on this—could it be done through a special poverty tax to business that business would voluntarily participate in? Obviously it's a question of funding. Businesses can't get into the administration of poverty programs, for example. Is that what you're implying?

Mr. Gary Smith: I'm not suggesting a tax. I'm suggesting that you need to get a process in place where you get the interest groups together, the stakeholders, and deal with the issue. I believe business would embrace a properly formatted approach to dealing with poverty in this country.

The Vice-Chair (Mr. Nick Discepola): The reason I bring that up as an example is because in my home province of Quebec, last year I believe—correct me if I'm wrong Richard—the government introduced a special tax on payroll. A portion of it was specifically designed for manpower training programs. It's a small, minute percentage, but from the total salary paid out each year by small business it amounted to quite a bit. It is being criticized quite heavily. Yet the government was well intentioned. We want to have a better-trained and a more highly competitive labour force; therefore, let's get some money and earmark it for that. What we're saying is maybe to address some of the other priorities and problems we should possibly introduce something like that, but it doesn't seem always to work.

Mr. Gary Smith: I guess to the point—and I can only speak personally, and not necessarily for the board of trade—if you're looking at the surplus in the EI, which is largely funded by small business, 60%, then maybe that's where those surpluses should go. Put them in those directions, rather than impose another tax on small business.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Smith.

We will now hear from Mr. McMackin.

Mr. Bill McMackin: Which point are we on now, at this point?

The Vice-Chair (Mr. Nick Discepola): Whatever you want, or I can turn it over to Mr. Ritz, and I'll come back to you.

Mr. Bill McMackin: I guess I really wasn't given the opportunity to respond to your question—the same one Gary responded to a moment ago—as to where do we draw the line with this, with what we've been saying about debt reduction. We did focus very much on deficit elimination over the last number of years, and now have really switched gears onto what we believe is the next logical issue. They were all being talked about in the previous years.

When do we stop and start? Well, I turn back to your initial analogy, which is what you would advise your own children to do. You answered the question right on the money. You'd tell them to make their payments on their credit cards, and more than their minimum one, I would bet. You would tell them to try to reduce some of their personal debt.

• 1505

That same logic holds as to how much we do over the next number of years. It depends upon you putting forward some type of logical and concrete schedule that says you'll commit to a timeframe over the next five or six years and how much you think you will reduce for the next few years.

The Vice-Chair (Mr. Nick Discepola): But we did.

Gerry, do you mind if I continue?

Mr. Gerry Ritz: Oh, sure.

Mr. Bill McMackin: Was it in terms of specific debt reduction targets?

The Vice-Chair (Mr. Nick Discepola): Yes. I'll give you the example.

Mr. Bill McMackin: Okay. If that's the case, that's great. We should commit to those over the next number of years. If you can create additional surpluses over that, we can start to approach the other priorities.

The Vice-Chair (Mr. Nick Discepola): We haven't committed to rolling targets, as we did with the deficit.

Mr. Bill McMackin: No, you have not.

The Vice-Chair (Mr. Nick Discepola): Okay. But I'll come back to it. I want to be fair to Mr.—

Mr. Bill McMackin: The difficulty is that the impression we get is that we've had surpluses for the last ten years and we've been sitting here beating the drums saying “Pay down the debt”. We haven't even reached the date when we'll actually declare the first surplus. I think it's some point in March.

The Vice-Chair (Mr. Nick Discepola): The minister did it last week.

Mr. Bill McMackin: Yes, but it doesn't really come into effect until—

The Vice-Chair (Mr. Nick Discepola): No, that was for the fiscal year ending 1998.

Mr. Bill McMackin: Last March.

The Vice-Chair (Mr. Nick Discepola): That's right. There was a $3.5 billion surplus.

Mr. Bill McMackin: But that's the first one. That's the very first one you've had in a long time.

The Vice-Chair (Mr. Nick Discepola): No, we're budgeting two more consecutive ones.

Mr. Bill McMackin: That's great. So in a few years we can talk about it further.

The Vice-Chair (Mr. Nick Discepola): Mr. Ritz.

Mr. Gerry Ritz: Thank you, Mr. Chairman. I scrawled so many notes here I'm not sure where to start, so forgive me if I'm a little disjointed.

Thank you for your presentation. It was very thoughtful and insightful, as we've seen from the debate here today.

One point the chairman raised was that being a small-businessman, he understands deficit and debt and so on. Of course being a small-businessman myself, the line of credit I carry is my deficit and the bank loans I carry are my debt. The federal government in their logic hasn't quite made that distinction. When I deal with the bank they insist on targeted payments. They will not let me carry my loans in perpetuity. So the government also has to come to terms with that. That's part of that long-term strategy you've all alluded to. That's one common theme. Small business has had to refocus and spend smarter, and governments at all levels have to do the same thing.

That leads me to another common thread that a lot of you were talking about, which is the duplication we see at all levels of government. There is a misuse of funds because everybody's doing the same thing and trying to stuff the same square peg into the same round hole. It doesn't always work.

More money is not the answer. We've seen more money thrown at a lot of programs. It hasn't fixed them. We've seen child poverty really initialize in 1989, and it's become worse. How do we spend smarter? How do we get governments to direct the funds to the right places?

Indian and Northern Affairs was talked about. We're looking at a $7 billion budget. Of that, $3.3 billion gets to the reserves. Where does the rest go? The money that goes to the reserves doesn't go to the right spot. How do we put strings on a lot of this money? Who oversees it? The Auditor General has set up red flags on a tremendous number of departments. Is anybody really looking? Does anybody really care?

I'll start you off with that and then I'll get into the taxation thing after.

Mr. Michael Murphy: In our committee, through our discussions and the evolution of our thoughts, we thought the right people to administer the new funds would be the small businesses and the personal clients of the Government of Canada through reduced taxes. There's no infrastructure attached to that. Let the people who receive the money through reduced taxes spend the money on either job creation or food, clothes and so on.

It seemed to be a bottom-line approach, and that was the direction we were coming from. That also is included in our discussion—not just a focus on debt reduction. We still consider it important to protect what we have to allow us to go the next level, and then to protect at that level, and continue that step upward at each stage to protect the new or regained social benefits we as Canadians have enjoyed.

Mr. Gerry Ritz: We'll move on to the tax relief that everybody has talked about. Should that be a targeted package? Should it be across the board? What kinds of dollars should be allocated to tax relief? What's it going to take?

Newfoundlanders need $5,000 just to get to the poverty line and things like that. We have a myriad of different tax procedures we can target. We have bracket creep, where the deindexation of a lot of things has caused everybody to bump up a bracket or two. Some of the surtaxes were done away with last year. How far do we go there? There are personal and corporate income taxes. The small business.... Of course private industry is the engine of the economy.

• 1510

What kinds of targets should we set?

You guys are talked out.

Mr. Bill McMackin: In our discussions around the province, with some chambers at least, a lot of people have recognized that really, if we're going to try to focus in on some tax relief, then for the average Canadian, to give them a small decline or reduction, like some of the ones we've seen in recent years that put a few pennies in their pockets at the end of the year, it almost becomes a bit of a joke. I've heard people actually joke about it.

So put it to the people who are going to benefit the most. We've talked to some of the people who are making the lowest levels of income. These are some of the poorest people. Look at where child poverty comes from. It comes from poor parents who can't find decent working conditions or take enough money home. Certainly if we could give them a tax structure that allowed them to keep more of that money in the first place, then that's a good start.

From a small-business perspective, one of my personal fights has been over a tax arrangement called the small business tax deduction, which basically only impacts those businesses up to about $5 million. Well, it would impact, in some cases, some of the people Gary mentions in his remarks. A lot of growing smaller businesses are finding that the tax impact on them as a result of changes to the capital cost allowance, deductibility, and a number of different things over the last number of years has made it to the point that they're getting up into a 46% or 50% taxation bracket very quickly.

So what, people will say; if they're making money, they should pay their fair share. And they should, but it creates the situation whereby some very small businesses that are growing can't keep enough of their own money internally in their companies to allow them to grow. They can't keep enough equity on their balance sheets to be able to go to the bank and borrow more. They can't do the things that allow them to then go forward.

Now, a lot of the businesses that qualify for the small business tax deduction, which is currently about $200,000, I believe, and would benefit from an increased one are those companies that are growing. These are the ones that are at the 30 or 40 employee level. They might grow to 60, 70, or 80 employees over the next five or six years if they could keep a little bit more of their money in their companies so they can grow. That's certainly a pet project of ours.

The Vice-Chair (Mr. Nick Discepola): But you haven't answered Gerry's question.

Mr. Bill McMackin: Oh, shoot, I've forgotten what it was. What was it, Gerry?

The Vice-Chair (Mr. Nick Discepola): An awful lot of your counterparts are saying that there should be general, broad-based tax relief if there is any. The Canadian Federation of Independent Business and Mr. Thomas d'Aquino have called for that. Some of the other chambers of commerce have called for that.

In your answer, I detected that maybe what you're saying is that we should have targeted tax relief that's targeted to the small, lower income—

Mr. Bill McMackin: The Canadian Chamber of Commerce has said we should rewrite the whole Income Tax Act and revise the whole structure. In an ideal world, I can't disagree with that; but this isn't an ideal world, and I don't think you guys figure you can deliver on that. If we start rewriting the Income Tax Act, we'll be here talking about it in another 15 years.

Mr. Gerry Ritz: We keep adding to it.

Mr. Bill McMackin: You can provide some relief where it's going to most help some people and also strategically help some of the other people who are here asking for help, whether it's small business—

Mrs. Elsie Wayne: We could put the EI surplus back or give them a cut.

Mr. Bill McMackin: Will the EI surplus come back too?

Mrs. Elsie Wayne: All right.

Mr. Bill McMackin: I think we're eating our cake twice here.

The Vice-Chair (Mr. Nick Discepola): Oh, maybe the Conservatives are going to change their minds and not call for the total refund to the business community. Maybe, Elsie, there's still hope.

Mrs. Elsie Wayne: Maybe 60% of it.

The Vice-Chair (Mr. Nick Discepola): Mr. Vokey.

Dr. Myrle Vokey: I hesitate to answer or respond to your question, sir, because I'm not a financial person at all. But let me reflect on a few thoughts with you.

I grew up as a young boy in an environment in rural Newfoundland that I guess was not unlike rural areas in many parts of Canada where men and women would literally crawl on their hands and knees over broken glass to avoid a handout from government. It was distasteful. It was disgraceful. We still have Canadians like that in Newfoundland and elsewhere. But with decentralization and winding up the outports and unemployment like it is, I'm afraid to say that in many parts of Canada, Newfoundland included, the answer has been to sit back and take a handout. A lot of Canadians don't like that.

We have to talk about people's self-esteem, self-concept, and pride. That's part of the educational process I was talking about a little while ago. That was the property chain. I think that most Newfoundlanders, most Canadians, don't want handouts; they want a hand up. They want to be independent. When we have a system like we have in Newfoundland, where people literally can't afford to go to work because they'll lose money, there's something wrong. When they can live better by sitting on their bottoms and watching TV rather than going out to work at minimum wage because they can't afford to go work, by gosh, there's something wrong with the system!

• 1515

Again, I hesitate to speak. You've asked such a mouthful that I can only look at a little bit of the picture, but I think that's part of the solution we have to come to grips with.

The Vice-Chair (Mr. Nick Discepola): What you say is very true, Mr. Vokey. We tried to address some of those weaknesses, but we may have failed in other areas. I think we now have to come back and maybe have the pendulum swing back to the middle.

Mr. Ritz.

Mr. Gerry Ritz: To follow up on what you're saying and to get back around to the whole poverty situation and so on, the government has basically taken over that envelope. By changing charitable statuses and so on, they've really taken it away from private enterprise. There are tremendous amounts of charities, community groups, service clubs and things like that out there that would do more or could do more.

We talk about kids having pop and chips and so on for lunch at school. Is there an increasing role for the old parent-teacher associations that used to be around years ago but which have now gone by the wayside? Do we need to see those types of community groups reinstituted? Do we need to look at this problem community by community instead of trying to do it nationally?

Dr. Myrle Vokey: In our province we've just come out with a new strategic plan that some of you may have heard of. It's called “People: Partners Equals Prosperity”, or something like that. It's a very far-sighted document that we believe will do some good. We're going to divide our province into zones, and we're going to be talking about community capacity-building and solutions to problems at the regional level. I believe it has great potential.

One of the speakers we had in just a few weeks ago came up with a statement that made me sit up straight in my seat, and I'll just throw it back at you. He said that one of the oversights in our Canadian communities is that we put our older people in those little senior citizens' complexes, we lock the doors and turn our heads, and we sort of ignore them except for making sure they have food, water, and lodging and so on. He said that these people are tremendous teachers. They have value. They have something to contribute as well.

Again, now, that's not the answer, but I'm talking about community capacity-building, where you bring in all of the resources. Those include educators, health, industry, commerce, senior citizens and so on. I think these will all help to contribute to a changing attitude and an improved self-concept.

Mr. Gerry Ritz: They're all parts of the puzzle.

Dr. Myrle Vokey: Yes, they're all parts of the puzzle.

Mr. Gerry Ritz: Thank you.

The Vice-Chair (Mr. Nick Discepola): Anyone else? Mr. Ritz?

Mr. Gerry Ritz: No, I think I'm done.

The Vice-Chair (Mr. Nick Discepola): Mr. Knight, one of your recommendations was that the government should be more vigilant with the use of RESPs or should help people or investors invest in them. In looking at them for the first time in my lifetime—I have a 12-year-old, so I have to decide before he turns 13—my experience was that if you do pool the resources, you actually get a higher benefit. Obviously, the investors can take all the pooled resources and invest them in one lump sum, as opposed to not pooling. You've shown some concern over that pooling. What areas of concern do you have?

Mr. Anthony Knight: Through the preliminary research that we've done, we think there is need for increased monitoring of actions taken by financial institutions in the country in handling RESPs. We've found that the incentive is just as you mentioned in the pooled plans. There is an increased benefit that comes from pooling your resources with others, but there is a loss of income if your child either chooses not to pursue a post-secondary education at a recognized institution or just decides he's going to work.

The Vice-Chair (Mr. Nick Discepola): Okay, and there shouldn't be a penalty. If you withdraw from that pooled resource, you don't get any benefit. Fine, I understand. Thank you.

I'd like to get back to the balance on the debt. I think most Canadians listened to the Minister of Finance in his economic update on October 14, but I'd like to quote from it:

If we assume nominal GDP growth at the rate of 4% annually and we continue with balanced budgets, by the year 2002-2003 the debt-to-GDP ratio itself would fall below 55%.

In other words, there would no more cutbacks, we'd just let growth handle it. This is much like some people thinking that we could grow our way out of the deficit. If we assume a nominal economic growth of 3.5%, the debt-to-GDP ratio would be about 57% by the year 2002-03. Isn't that sufficient for the business community? How much further do we have to go? And what balance do we try to achieve?

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And don't forget that year after year we have also budgeted a $3 billion contingency reserve that has gone directly toward reducing the debt. This year we've reduced it by about $9 billion. If we continue to budget that $3 billion contingency reserve as we have done, we could reduce it by another 3.5%. It seems to me that we could be at the crossroads, as I mentioned before. We could use growth to naturally reduce our debt-to-GDP ratio while also being prudent administrators.

For the past five years the vocabulary has used the words “deficit elimination”. I wouldn't want to see that turned into a new vocabulary that uses “debt elimination”, because I think what we have to see is debt management. Isn't that level and that process good enough for the business community?

Mr. McMackin.

Mr. Bill McMackin: I'm not a person who would be a proponent of debt elimination. None of us would probably ever borrow money to buy a home if we subscribed to that theory, and we wouldn't be able to afford one until we didn't need it any more. It's a flawed approach to things.

I've listened to Mr. Martin's projections out to 2003, and I guess one of the difficulties I have is that 4% of GDP is fairly aggressive. It's much more aggressive than what he has tended to use in most of his past budgets. He's been a fairly conservative person with respect to the economic numbers he's used in his budget the last few years. I think 4% would be higher than those, if I remember correctly.

The Vice-Chair (Mr. Nick Discepola): But I gave you the figure. Even if we used 3.5% growth, we're going down to 57%.

Mr. Bill McMackin: Yes, but he hasn't used 3.5% either.

The Vice-Chair (Mr. Nick Discepola): I don't want to get into the details, but—

Mr. Bill McMackin: No, nobody does, do they?

The Vice-Chair (Mr. Nick Discepola): Well, we can't project. You said it yourself in your opening statements. The statement you made in July is totally different from what you would say now. I'm sure our report that we reflect in December will be totally different from the circumstances that will lead up to the budget in February. But there is an undercurrent of opinion that we could possibly manage the debt by itself through economic growth, so maybe we should turn to other priorities at this stage.

Mr. Bill McMackin: You have no control over economic growth, though. It would be like me sitting here and saying that I'll just allow my expenses to run amok with the hope that inflation takes care of my revenue. We have no control over anything like that. We can't do it, so we have to exercise discipline over the factors we do have an impact on—spending and what we do with it.

The government has lost a lot of its control over its taxation ability because we're really taxed to the maximum level that most of us in this country can stomach. I think the prudent approach that has been put forward isn't unreasonable. With a normal financial forecast in a more normal environment—we haven't had anything very normal with the financial situation over the last few months—with more prudent forecasts for economic growth over the next four or five years, there may be some funds left over for spending other than just debt reduction.

The Vice-Chair (Mr. Nick Discepola): So you maintain the status quo.

Mr. Bill McMackin: Sure do.

The Vice-Chair (Mr. Nick Discepola): Keep the course, keep on.

All right, then let me get back to the other question that Mr. Ritz brought up—and I think Mr. Murphy alluded to it also.

You're all business people, and you seem to understand your numbers. On the $6 billion that are generated in this EI surplus fund, I am hearing different recommendations from you. I want to try to clarify them. There's one train of thought that says we should return it to the small-business community, whether it's in the 60%-to-40% ratio or whether it's in retraining programs, for example. There's another train of thought that you've evoked, that being that we should reduce personal income taxes.

As small-business people, you understand first of all that if I return the $6 billion to its “rightful owners”—to quote the opposition—I now automatically have $6 billion less in revenue. There are therefore two outcomes. Either I have to reduce spending again by $6 billion to keep balanced budgets, or I have to increase taxes to make up for that windfall. Then, and only then, can I invest in some other key initiatives that you've mentioned, such as reducing taxes or investing in health care. So what's your priority?

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Mr. Gary Smith: Well, I guess the surplus in the EI fund is what they call ill-gotten booty. It's really something that came as a result of increased premiums, which probably weren't appropriate in the first place.

The Vice-Chair (Mr. Nick Discepola): We have decreased premiums since 1993-94, successively 10¢ each year.

Mr. Gary Smith: The fact of the matter is that you have amassed a surplus. Is that surplus being used in the way it should be used? That's why we're here. We're going to get back to the business we're advocating, and yes, you will have to come up with that $6 billion someplace else. We feel it's an unfair position for the government to take in terms of the way the EI fund is being funded. Therefore, the money should go back to the employers. If you want to come up with another inventive way of getting that $6 billion back, then I guess you're going to do that, whether it's through increased taxes or whatever. But this is not the way to do it.

The Vice-Chair (Mr. Nick Discepola): Do your priorities then change? You're saying take this $6 billion and give it back, 60% to the employers and 40% to the contributors—in other words, the working Canadians. Then what do we do with debt reduction? Do your priorities change?

Mr. Gary Smith: If you have your surplus—

The Vice-Chair (Mr. Nick Discepola): You don't have a surplus. You have a $6 billion shortfall to make up, first of all. You're proposing some form of increase, somehow.

Mr. Gary Smith: We're not advocating that. We're just saying that the way the EI fund is handled is wrong.

The Vice-Chair (Mr. Nick Discepola): Well, let me use your business analogy. You've generated say $1 million in revenues, and $60,000 of that $1 million has come from another product line. You had initially targeted that $60,000 to a special project in your company. Now, all of a sudden, you realize that you should return that $60,000 to something else. Are you following me? It's not as easy as saying.... Maybe I haven't used the right example. It's not as clear cut as saying you're going to have a $60,000 shortfall, first of all, if you then take that money and earmark it for what you want.

Mr. Gary Smith: The point we're trying to make, Mr. Chairman—and again from a personal perspective—is that you can't put the onus on the business community to make up for other shortcomings of the government in terms of the way it spends general revenue. There are a lot of other areas, such as were alluded to today. In Indian Affairs and Northern Development we have $7 billion earmarked and we don't know where $3 billion of it has gone or how it's being handled. Go there, but leave small business alone.

Mrs. Elsie Wayne: When you return that money to these small businessmen, they are then going to take that money and see how they can expand when they have a little more money in the bank. They're going to create jobs, and when they create a job, those people then pay taxes. You will get more money back through the tax system in the end because of what they're doing. You're telling the private sector it should be creating the jobs anyway.

I'm going to tell you right here and now that we just heard Paul Martin tell us a month ago that we're looking at a recession, and nobody has addressed it. By God, I'm going to tell you, we're in a recession. We've got hungry children now. We had better find a way of sitting down right away, because we don't want any more little children starving to death. We don't; not in Canada.

I'm going to tell you right here and now that the only way you're going to be able to turn this country around is to cut those premiums and give them back some money. They've got to have some money in their pockets or they're not going to create jobs for those unemployed people out there who need them. That's the only way they are going to do it. That's a tax cut to them. When you cut those premiums for them and you put more money in their pockets, that's a tax cut to them.

The Vice-Chair (Mr. Nick Discepola): For the average small business with 67 employees, a cutback of 70¢ in their employment premiums will mean how much per employee to the small business community? Have you done a calculation? It's about $200 per employee. Are you telling me that $1,400 to the business community is a much better investment than attacking the deficit and the debt and keeping the interest rates down so that your $70,000, $80,000 or $90,000 line of credit will cost you only 6% or 7% versus 8% or 9%? What's more beneficial to the business community?

Mr. Bill McMackin: I've been quiet because I kind of....

This is a conundrum, because we've treated EI premiums as general revenue, just like we used to treat CPP as general revenue. There's no immediate, snap our fingers, do a quick fix over the next year.

If there's a consensus in this country that EI has to be taken to more of a revenue in, revenue out self-sustaining program, then over the next number of years we need to develop a plan to do that. The government will also need to learn to find other sources of revenues or ways to reduce expenditures in that respect. There's no quick fix to this. We have to decide whether that's what we want, and I think that's more practical.

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Our federal governments in this country have always shied away from tied taxes. We paid exorbitant amounts of taxes on our gasoline this year and, God knows, probably diddly of them will go into our roads. For years we paid into the Canada Pension Plan with no real sense of whether what we were paying in was covering the cost. We now see the same thing happening with EI.

I think part of moving the federal government to a more balanced, more prudent approach to managing the funds that come in includes focusing in on EI and saying that over the next five to ten years or whatever it takes—maybe it will only be two to three years—we'll move it to a self-sustaining program. Decide what surpluses are realistic and start to move in that direction. I'd be in favour of more taxes that are tied directly like that. If we could tie the bloody gas taxes down directly to the roads I'd be happier too. It makes you guys a little more honest in terms of actually matching up the revenues generated with where they're supposed to go.

The Vice-Chair (Mr. Nick Discepola): I concur, and also I think the EI fund has been used for too many things over the years. It has been used for regional development programs, for maternity benefits, for social benefits, for disability. Those should be factored into the full equation before we decide how to redistribute EI.

Mr. Bill McMackin: I understand, but the reason I found it very difficult to respond to that issue was that I don't know that I've heard a lot of small-business people come out in the past number of years asking for the premiums to go up. It's been the other way around.

The Vice-Chair (Mr. Nick Discepola): They have been progressing downwards.

Mr. Bill McMackin: I mean in the years it's been spending more than was being put in, if there were any.

The Vice-Chair (Mr. Nick Discepola): But in the ten years when it was in a deficit position, we didn't ask the business community or Canadians to make up those shortfalls later.

Mr. Bill McMackin: That's what I mean. We weren't asking for that.

The Vice-Chair (Mr. Nick Discepola): It's 4.30. We have other witnesses, and Mrs. Wayne has to leave at five. I'll therefore take a quick question from Mr. Ritz and a quick question from Mrs. Wayne, and then I'll ask you to wrap it up, please.

Mr. Gerry Ritz: There are a couple of points I'd like to go through.

You talked about it being in a deficit position for a few years. I think that was because the system had been exploited because of all of the extra benefits you talked about that really bankrupted the program.

Business certainly does benefit from a well-trained workforce. Nobody's going to discount that. But it also reflects that benefit in increased payroll for its workers. When I hired carpenters and so on, if a guy was a journeyman I had to pay him more than an average labourer. So you certainly do pay for that training in other ways than just paying for the training itself.

When you look at a surplus in the EI fund of $6 billion to $7 billion and you're talking about putting $3 billion of that on the debt, workers and businesses themselves are paying down the debt when you use that analogy. You've also talked about a $3 billion surplus or contingency fund that would go toward the debt. If you already have a $3 billion surplus and you're talking about a $6 billion to $7 billion surplus, then where is the other $6 billion to $7 billion going, or where has it gone?

The Vice-Chair (Mr. Nick Discepola): Are you asking me the question?

Mr. Gerry Ritz: Well, I'm just throwing it out there. It's on the floor. Does anybody have—

The Vice-Chair (Mr. Nick Discepola): If it's directed to me, I'll answer you by saying that the EI fund revenues have gone into consolidated revenues, as have all revenues, as per the request by the Auditor General of Canada in 1986. He's supposed to defend Canadians' interests. So they're part of general revenue.

Mr. Gerry Ritz: But he also made a recommendation in 1998 that it be hived off or taken out of general revenue.

The Vice-Chair (Mr. Nick Discepola): That's the debate right now.

Mr. Gerry Ritz: Thank you.

The Vice-Chair (Mr. Nick Discepola): Elsie, do you want to ask one final question?

Mrs. Elsie Wayne: We've covered it, but I do want to thank them.

I have to say that I have major concerns about the issues you brought to the table, Mr. Vokey, as well as concerns about how we address them. Knowing the people at the table, I'm sure they all have concerns too. I made notes on the fact that you were saying there has to be input nationally, and I'm very much interested in the idea of a national office of education.

As far as education goes, as well as literacy and all of these other issues, they've done an excellent job today. I thank them very much.

The Vice-Chair (Mr. Nick Discepola): Would any one of you want to conclude with a few remarks? I'll give you the opportunity, but I will also echo Elsie's comments.

Mr. Murphy.

Mr. Michael Murphy: I just wanted to mention on behalf of the committee, by way of summing up, that there may be an appropriate balance of debt and deficit control. Perhaps we're not sure what that should be, but whatever moneys there are that can be employed to assist Canadians, let's do it.

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I believe, at any level, if the spoils can be returned to the small businesses and individuals of Canada, they will do the right thing with it, and that should lead to more jobs, as Mr. Vokey has mentioned, for people with pride. I believe everyone would agree 100% with what was said. But to do nothing is a dangerous position, and we would prefer not to take that one.

The Vice-Chair (Mr. Nick Discepola): Thank you for your comments. I hear the comments, but I also believe our government had been given a clear mandate by Canadians as to how to approach the debt, and we were elected on that platform, which was to appropriate 50% of any surplus to debt and tax relief, and to reinvest the other 50% in social programs. That's the balance I want to adhere to as a Liberal member of Parliament. To hear the business community now harp and harp on debt, debt, debt, I have concerns about it. So I'm trying to also balance that.

Thank you very much for your input. It's valuable for us. As Bill said in his opening remarks, maybe we should hear and listen to Canadians across the regions more often. I'd love to do that. I do that in my own riding. But it costs an arm and a leg to have public hearings like this, so we limit it to once a year, at a very important time, which is budget preparation. I believe the report will reflect your wishes and your comments.

The ultimate decision is the government's, and the Minister of Finance's, in particular, but if his past record is any indication, usually about 60% of the recommendations this committee makes are adhered to sooner or later. So that's a pretty good batting average, no matter what.

Thank you very much on behalf of the committee members.

I'd like to now suspend this meeting for several minutes while we convert it to a meeting on the task force hearings for the financial institutions. Thank you very much.

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• 1542

The Vice-Chair (Mr. Nick Discepola): Good afternoon. In accordance with its mandate under Standing Order 108(2), the committee now resumes its study of the report of the task force on the future of the Canadian financial services sector, commonly known as the MacKay task force.

We have with us this afternoon, from the Insurance Brokers Association of New Brunswick, Paulette Holder, president;

[Translation]

René Bourque, president elect; and

[English]

Linda Dawe, executive director. As well, from the Maritime Association of Mutual Insurance Companies we have Ray White, director.

The format is similar to the consultations on pre-budget hearings: ten minutes or so to make your presentation, and then we'll open it up to questions from the members of Parliament. I will start with my alphabetic list again. Welcome to all.

Mr. White, please.

Mr. Ray W. White (Director, Maritime Association of Mutual Insurance Companies): Thank you, Mr. Chairman.

I appreciate having the opportunity to appear before the committee to discuss the report of the MacKay task force. I'd like to focus my remarks today on the recommendation put forward by the task force that banks should be able to sell insurance in their branches and use customer files to market insurance.

I know the report contains some 124 recommendations, many of which merit your consideration. However, its proposal to expand the insurance powers of banks would seriously harm the property and casualty insurance industry and the consumers it serves. This is what compels us to appear here today.

Let me tell you a few things, if I may, about the mutual insurance companies that I represent. The Maritime Association of Mutual Insurance Companies, or MAMIC, represents the nine provincial mutuals in the Maritimes. All these companies have operated for over 60 years, some upwards of 100 years. The mutual system in the Maritimes serves 45,000 or more policy holders. We are licensed to sell property and casualty insurance throughout the Maritimes, serving predominately the rural areas.

As you can see, I'm not here representing one of the five, and maybe soon to be three, major banks. I'm not here representing a huge financial institution with billions of dollars in assets. Rather, I'm here as a spokesperson for a group of community-based property and casualty insurance companies that basically represent the bedrock of the property and casualty industry in Canada, the grassroots of the delivery system.

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There are some large property and casualty insurers operating in Canada, but these in no way dominate the industry. Indeed, these 230 companies compete for about 1% of the premiums. Many of them are small companies like ourselves, which serve a very specific regional or niche market and succeed because they know their customers well.

Our industry takes some pride in serving our customers well. Survey after survey has shown that the property and casualty insurance industry is rated very highly by consumers in terms of service. To take just one example, the National Quality Institute asked people to rate the level of overall service they receive from 21 surveyed industries. Auto insurers were rated in the top third of all industries. You may or may not be surprised, Mr. Chairman, to know that the banks rated in the bottom third.

This, perhaps better than anything, illustrates why banks want to get into the P and C business. They don't want to get into our business in order to make money on insurance itself; what the banks really want is a closer, more captive relationship to their customers, at least those who are better off. They know that everyone needs auto insurance and that anyone with a mortgage needs home insurance. What better way to solidify the customer base than by selling auto and home insurance in their branches, and what better way to sell it than when a borrower is in a submissive state, just hoping that their loan will be approved.

That's why the banks have been fighting so hard to have their insurance powers expanded. I say expanded because many people tend to forget that the banks are already in the insurance business. They have been able to own their own insurance companies since 1992. Indeed, most of the major banks have established their own property and casualty insurance subsidiaries since that time. It seems to be a fact that the MacKay task force chose to ignore in its own analysis. I was rather astounded to find out that the poll the task force conducted on this question did not inform people that banks already sell insurance.

If you ask a person whether banks should be allowed to sell insurance and he says yes, does that means that banks should be able to retail insurance in their branches, or does it simply mean that banks should be able to sell insurance through their own companies, as they are already allowed to do? Whatever you do, the question was ambiguous. What is not ambiguous, however, is the poll recently conducted by a very prominent political pollster, Pollara, which shows that 75% of people are opposed to banks being able to sell insurance in their branches if it results in jobs being lost in the insurance industry. Here in Atlantic Canada, the level of opposition to that poll rose to 85%.

These results speak to a larger issue. The debate over banks selling insurance in their branches has been going on now for over a decade. During all this time, I have never heard a consumer group clamour for expanded bank powers in insurance. In fact, the consumer groups share our concern about what these changes will do to the common Canadian. I have never heard small towns and communities, many of whom have been hurt by bank branch closures, eyeing for banks to be able to sell insurance in their branches. I have heard only one powerful voice constantly trying to put this issue back on the agenda. I say constantly because this question has already been dealt with by Parliament in both 1992 and 1997. Each time, members of Parliament of all parties of the House of Commons voted to keep the current rules in place that say that banks in the insurance business have to compete on the same basis as all other insurers.

The reason banks have not been given power to sell insurance in their branches and mine their customer list is quite simple. The banks have never been able to build a convincing case on four key fronts: the threat of great bank dominance in the financial services sector, the incidence of tied selling, the abuse of personal information, and the loss of jobs.

Do we want the major banks to dominate the only part of the financial services sector that they do not already control? I shouldn't have to remind you that there's only one major independent trust company left in Canada and only one national investment dealer that is not bank-owned. We, these nine small companies, have competed with the 230 large companies successfully for the past 60 years, and the introduction of new insurance companies for more competition is not a concern, as long as they act in the same manner and fashion as other insurers, without the benefit of confidential data or the opportunity to coerce customers. Yet this is exactly what has happened every time banks have been given unrestricted access to other segments of the financial industry.

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Why give banks control of an industry like property and casualty insurance, which is highly competitive and is serving its consumers well? Give the banks what they want and they will not only come to control the industry, they'll control the customers. The banks have detailed customer files on virtually every adult Canadian. Allow them to sell everything under the sun in their branches and you multiply geometrically the opportunities for tied selling and the potential for abuse of personal information.

I know the task force wants to reassure us these major concerns can be dealt with by passing legislation. If only it were that easy. The task force's own poll shows that 16% of those surveyed thought they personally had experience of some form of coercive selling, yet not one of them ever complained to a government regulator.

The indication is that legislation will be and is being passed to protect the consumer from coercive selling. When you have legislation that requires the injured party to blow the whistle on someone as powerful as a lending institution, do you really think the customer is being protected? Such legislation is being created in a vacuum. Transgression is extremely unlikely to be reported, and certainly no more likely than it has been to date.

In dealing with the use of information, we also understand this is to be legislated against, but who's going to police this? Will it be the banks themselves? They have suggested their code of ethics precludes abuse. Logic would question this. Allowing this to be self-regulated is like putting the fox in charge of the hen house.

Mr. MacKay, in his opening remarks upon delivery of this report on September 15, stated: “If that sounds like common sense, it is. We think it is also good business sense.” Ladies and gentlemen, what makes common sense and good business sense is not to make changes now that will require further legislation and enforcement, but to take the step now to protect the consumer by not allowing the situation to exist where coercive methods and misuse of information may well be employed. Do not allow the banks to retail insurance from their branches. If they truly want to be in the insurance business, allow them to be in it on the same basis as the rest of the industry.

This leads me to the issue of jobs. There are 100,000 Canadians working in the property and casualty insurance industry across Canada, and approximately 6,500 here in the Atlantic provinces. More than half of the jobs in our industry are with insurance agents and brokers. They are to be found in virtually every community in Canada and are part of the fabric of small town Canada. Has the track record of the banks in any way given indication other than that those numbers will likely shrink, jobs will be lost? Will these institutions deliver the product with the same professionalism and concern as the current ones? Will the bank officer be willing or be given the resources to deal with the exceptions to the rule to underwrite insurance to specific needs? We think not.

Finally, the recommendations of the MacKay task force fail to shed any new light on the current status of a bank's ability to retail insurance. Banks have been permitted to sell insurance through a separate company since 1992. What they have not been given, for good reason, is the unfettered right to do so through their branches, or to access and segment bank customer lists. The whole issue was looked at in 1992, again in 1997, and the report offers nothing new to indicate why this should change at this point.

Mr. MacKay noted in his opening remarks that “Canadians will be best served by an open, competitive sector with a broader range of service providers”. He states: “Our recommendations will increase competition and choice for Canadians. They will also ensure that the marketplace works more fairly and responsibly.” As indicated, we welcome change and improvement and thrive on competition, but we respectfully submit that this must be achieved in an atmosphere that is in the best interests of the Canadian consumer and on an equal basis for all stakeholders.

Thank you, Mr. Chair.

The Vice-Chair (Mr. Nick Discepola): Thank you very much, Mr. White.

I would now like to turn to the Insurance Brokers Association of New Brunswick. Ms. Holder will be presenting. Welcome.

Ms. Paulette Holder (President, Insurance Brokers Association of New Brunswick): Thank you.

Mr. Chairman and members of the committee, we are pleased to have the opportunity to meet with you today to express our concerns regarding the report of the task force on the future of the Canadian financial services sector.

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The Insurance Brokers Association of New Brunswick represents the interest of approximately 130 independent insurance brokerages and approximately 1,000 New Brunswickers employed in this sector.

You have already heard from our national association, the Insurance Brokers Association of Canada, and a number of our sister associations across Canada. We endorse their views and share their concerns. We would, however, like to expand on some of the points raised by IBAC. We would also raise a number of issues that need to be addressed as they relate to the policy approach advocated by the MacKay task force.

It is helpful to recognize that Canadian consumers greatly benefit from having one of the world's most competitive property and casualty insurance sectors. The P and C sector is also the most competitive financial services industry in Canada, a fact that was noted recently by First Marathon Securities but for whatever reason was overlooked by the MacKay task force. In sharp contrast, and as the MacKay task force itself points out, Canada's banking sector is the least competitive.

The MacKay task force vision for the future of the Canadian financial services sector is one that is already well entrenched in the P and C sector. If you take a look at pages 68 and 69 of the MacKay report, you will note the characteristics valued by consumers and the structural features of a desirable financial services sector are highlighted. Not only does the P and C sector meet the six basic consumer characteristics, it also meets the desired competitiveness features. Our domestic P and C sector demonstrates how well healthy and fair competition, choice, innovation, and excellent service benefit consumers and the economy. Yet the report fails to recognize that the P and C sector works remarkably well.

What makes the Canadian P and C sector so competitive, and how do consumers in this province benefit? To start with, the Canadian P and C sector is safe, stable, and reliable. Furthermore, the very competitive nature of our business means that consumers benefit. Given that it's so highly consumer-oriented, Canadians have an abundance of product choice, rate, service levels and insurance providers. Consumers know this and they wield a tremendous amount of power in having our sector respond effectively to their needs. At the same time, we refuse to force change upon our customers. We will use technology, for example, only to the extent that our customers will allow us.

Consumers also benefit as a result of the comprehensive code of marketplace conduct that governs independent brokers across the country. For example, brokers are required to undergo a rigorous course of study in order to meet the licensing requirements of our provincial government. These rules do not always apply to other distribution channels, however. The competitive environment is also the most effective way to ensure efficiency and product innovation, especially regarding specialty areas that are unique to our economy, such as our province's fishing, forestry, and agricultural industries. These and many other important industry-related facts have been totally ignored by the MacKay task force. One has to ask why.

Why is the MacKay task force proposing to force-fit, as George Cook called it, an unproven and uneven foreign model for our domestic P and C sector? The task force proposes a policy framework that will reduce choice and competition. Once there are fewer choices and less competition it's inevitable that there will be higher prices. How will this benefit consumers? Why would we unfairly disrupt what is right about our financial services sector so banks can gain more control? Frankly, the MacKay proposal is a solution in search of a problem.

In trying to resolve the competitive problems of one sector of the financial services sector, the task force is willing to sacrifice Canada's most successful sector. Again it raises the question of why. Beware, we say. With consumers and small business in tow, we are about to step off a plane without a parachute.

If the MacKay bank insurance recommendations are accepted, it is the small-business sector that will bear the brunt of job dislocation and job losses. Jobs are already being threatened in this province by the proposed bank mergers. As you know, independent insurance brokers are an integral part of the socioeconomic well-being of our respective communities. By allowing the unfair competitive advantage, many of these small businesses will cease to exist. Jobs will be lost.

More importantly, consumers in this province will suffer. Other than increased bank profitability, we fail to see how putting small enterprises in this province out of business will contribute to improved bank rankings. We fail to understand how putting hundreds of New Brunswickers out of work will benefit anyone other than the banks. Don't let New Brunswickers pay the price for bigger, more powerful banks. Don't let small businesses in this province suffer because banks feel they have a need to take over the domestic P and C sector to improve their international competitiveness. Don't allow an unfair policy framework to emerge that will significantly reduce jobs and regional benefits. This point takes an added importance given the uncertainty of our country's economy.

• 1600

Consumers in New Brunswick are not seeking bigger, more powerful banks. Consumers in New Brunswick do not want less competition. Consumers in New Brunswick do not want to see jobs lost. Consumers in New Brunswick are well served presently and are not demanding that banks be given more special privileges.

On the one hand, the task force shows a profound lack of understanding of the P and C sector. On the other hand, the task force leans heavily in favour of the banking sector without providing adequate justification that in so doing consumers, the financial services sector as a whole, and the economy will benefit.

There's no lack of competition in the P and C sector. There is, however, a real lack of competition in the banking sector. We would like to see the competitive forces that characterize the P and C sector evolve in our banking sector. This is where federal policy efforts should be directed at this time. This is a real challenge.

We urge members of this committee and the federal government to pause, reflect, and consider this point before enacting the measures contained in the MacKay report. There is no rush. In fact, our biggest competitors on the world stage, the U.S. banks, toast Canada as being light-years ahead of everyone else. Let us not make any hasty decisions, because once they are made there is no turning back. That is the danger.

Furthermore, the report advocates drastic changes that will alter the fundamental role our banks have in Canadian society. We don't think Canadians are aware that this change is taking place. We wonder if Canadians are prepared to accept such dramatic changes without the benefit of broadly based discussions. Collectively, we need to go beyond the issue of mergers and bank powers. There is a more fundamental issue that needs to be addressed. We need to consider how the MacKay report will change Canadians and Canada. We need to do this now. It ought to be the first step of the reform process. We hope you agree.

Thank you.

The Vice-Chair (Mr. Nick Discepola): Thank you very much, Mrs. Holder.

Does anyone else what to add anything? You can do so also during the answers to questions we will ask Mrs. Wayne to pose, because she has to leave in 14 minutes.

Mrs. Elsie Wayne: Yes, I do.

What will be the impact on brokers if the banks are given what they want? Do you think banks will be able to create employment opportunities if they're given the right to sell insurance?

Mr. René Bourque (President Elect, Insurance Brokers Association of New Brunswick): I'll try to answer your question.

There's no doubt that the banks will likely employ some people, but if they don't offer the same services as brokers, it will be limited. A study done by the Insurance Brokers Association showed that we would lose about 25,000 jobs across Canada. One major concern about these jobs is that a lot of our brokers are in the smaller communities where you have two or three, where the branches won't participate. We figure the banks will probably be in larger centres and larger call centres.

Mrs. Elsie Wayne: Are you opposed to bank mergers, or are you just opposed to what the MacKay report states with regard to insurance and car leasing? What is wrong with banks selling insurance, if the proper consumer protection measures are in place?

Mr. René Bourque: We've looked basically at the insurance side of the study. We don't really have too many opinions about the bank mergers.

What was the second question?

Mrs. Elsie Wayne: What is wrong with banks selling insurance if the proper consumer protection measures are in place?

Mr. René Bourque: We'd like to remind you that the banks already sell insurance through call centres in Ontario, and they're very successful at it. What we want is a level playing field. They want to use the information they already have on our clients, meaning the policies, their premiums, and expiry dates. The banks have all this information because most people have liens or mortgages on their houses. They want to use that information. We find it's unfair competition and we wouldn't be playing on a level playing field.

Ms. Paulette Holder: Mrs. Wayne, I would like to add to that.

• 1605

If the banks are allowed to begin selling insurance out of their branches, we feel that proper consumer protection will be very hard to regulate and look after. It's going to be very difficult to prove at any one point that someone has been a victim of tied selling. The banks advocate that this would not happen if they were allowed to start selling insurance from their branches. However, how can you regulate a perception? If you have a client who comes into a bank, such as a young couple just married and looking for a mortgage, you have the person there getting information in order to give them their mortgage and at the same time suggesting—whether it's a blatant suggestion or not, however it happens to come across to them—that this is the couple's opportunity to purchase their house insurance as well. You are definitely taking that couple's choice away from them.

This is why we are so concerned that the level playing field be maintained. We want to make sure we have the same advantages the banks have. If that is set up, we don't feel it is going to be able to be regulated properly.

Mrs. Elsie Wayne: How will new powers reduce competition, increase costs and provide less choice for the consumer?

Mr. René Bourque: Well, on the first one about increased costs, we figure that with less market it's obviously going to have an impact on the entire insurance industry. We presently have 200-some-odd companies in Canada. If the banks take over 45% of the market, we obviously don't think there will be 230 companies left. In a way, that will affect the competition. If there are three banks in the insurance industry, they would have a chance to bring up the price.

Mrs. Elsie Wayne: Thank you very much, Mr. Chairman.

The Vice-Chair (Mr. Nick Discepola): Mr. White said that out of the 230 companies, you're only competing for less than 1% of the industry's total premiums.

Mr. Ray White: If I may, there's no one company that really controls the sector in the P and C industry. There are no very large players in the insurance business.

The Vice-Chair (Mr. Nick Discepola): Could you elaborate on some examples of sectors you are referring to?

Mr. Ray White: What I mean is that nobody controls one particular portion, unlike in a lot of industries. With the banks, you only have six players that each pretty well share the market. I think it's broken down in terms of the pieces they have.

Out of those 230 companies, there's probably not one company that would control more than 3% or 4% of the total premiums written. So it's a very well expanded marketplace.

The Vice-Chair (Mr. Nick Discepola): Could you indicate what percentage of the market share the 230 companies do have? Do you have any idea?

Mr. Ray White: In that 230, we would be referring to all companies that are currently in the P and C insurance business in the country. That represents the total representation in Canada.

The Vice-Chair (Mr. Nick Discepola): So the P and C business insurance brokers and companies themselves have about 80% of the market.

Mr. Ray White: The 230 companies represent the entire premiums written for Canada. That's what we're talking about. And they would include the companies owned by the banks and so on and so forth.

The Vice-Chair (Mr. Nick Discepola): If the banks were allowed to enter that sector, have you any idea what market share you could stand to lose?

Mr. Ray White: Basically, it would be difficult to predict how much they would actually take. I think the suggestion is that given the anticipated relatively unlevel playing field, as has been indicated already, the possibility of penetration that would concentrate that into possibly three large organizations would cause the demise of a fair number of the 230 companies that are giving choice to Canadian consumers in terms of where they can actually purchase their insurance. But I don't think there is any prediction at this point as to how deeply they may penetrate, sir.

The Vice-Chair (Mr. Nick Discepola): Have you also done any impact studies on job losses potentially, either in New Brunswick or Canada-wide?

Mr. Ray White: We haven't.

Ms. Linda Dawe (Executive Director, Insurance Brokers Association of New Brunswick): We have some history in Quebec in the past years. Desjardins has entered the insurance business, and our counterparts in Quebec have advised us that they've lost about 45% of the independent insurance brokers in that province. We feel that would probably translate pretty closely to our independent brokerage section right across Canada.

The Vice-Chair (Mr. Nick Discepola): Is there any evidence that the banks in that province have decided to go after a particular profitable sector, whether it's—

Mrs. Elsie Wayne: I have to go, Mr. Chair. I wish I could stay, but I'll see you later.

The Vice-Chair (Mr. Nick Discepola): Thank you, Elsie. Have a good trip back.

• 1610

I've forgotten my question, so I'll turn it over to Mr. Ritz and then come back.

Mr. Gerry Ritz: Thank you, Mr. Chairman.

Thank you so much for your presentations here today.

The first thing that pops into my head is that everybody carries a Sears card and different things like that. Sears sells insurance. You have companies like Loblaws that have an insurance company. We have huge retail establishments and grocery stores and so on selling insurances now, so why not banks? I mean, the banks are selling it, just not through their storefronts.

Mr. Ray White: I think the industry that operates now with, as you say, other retailers being involved in the business is not a concern. It's a level playing field because we're all playing a certain game.

As I mentioned in my presentation, it's a concern about the concentration of information, and it's a concern about the position the consumer may well be in when he's presented the possibility of buying insurance.

I don't know if any of you here have felt like I have when I've borrowed money. I've never felt particularly empowered when sitting there wanting to borrow money. I think consumers, as a matter of course, would do just about anything they could to ingratiate themselves to the person who holds the power. If the suggestion made is that the bank can look after their house insurance too, I'm sure I would be quick to say yes if I thought it might have a possibly positive impact on me receiving the loan I am looking for. So I think that's one of the major concerns that is there.

I'm not sure I can state that the other thing is an absolute fact, but there is an understanding that the banks have probably as much information on you and me, as adult Canadians who have borrowed money, as the federal government has. In terms of the use of this information, we use the term “to mine a list”. In other words, we know an exact profile of that individual. This, of course, gives the opportunity to select, if you will, the grander type of business in terms of actually choosing what customers they do want. Yes, we can say Sears has a profile on me because they know what my payment schedule is like. They may know from their records that I look like a good paying customer, but they really have no more information on me than that—or I hope they don't. In any event, they may be attracted to me because maybe I happen to pay my bills regularly and they figure they'll give me a try.

So we really are concerned about the wealth of information that's there within the hands of the banks, and we're afraid it may possibly be misused both for prospecting and for choosing who they want to deal with.

Ms. Paulette Holder: If I may, I'd like to add to that. The independent insurance brokers are not afraid of competition. In fact we relish it and we thrive on it. Our main concern is what Mr. White alluded to, and that's the fact that the information the banks have sets them at an unfair advantage.

One major piece of information the banks do have at their disposal is the fact that we, the insurance brokers, are obligated to send them a copy of the insured's actual policy if the bank is listed on it as the lien holder or mortgagee. They therefore have the information, the expiry date, the vehicle, the accident information. They have everything. They have a base there to build on, so it's definitely an unfair advantage as far as the insurance brokers are concerned, as well as the clients.

A bank may have a client they have this information on, someone an independent insurance broker has written with a particular company. They may choose not to insure him because perhaps he might be 75 years old and have two accidents on his record. They may forgo writing that person. That is not fair to the consumer, and we are afraid this is what's going to happen. It's one of our main concerns.

The Vice-Chair (Mr. Nick Discepola): And MacKay's recommendation on jail sentences or fines ranging up to $100,000 doesn't go the slightest way to appeasing you?

Ms. Paulette Holder: Exactly.

Mr. Ray White: As I mentioned in my comments, the task force did do a survey about the possibility of people ever having been coerced. Sixteen percent of the respondents said they felt—I think “felt” was the term that was used, since it is kind of a perceptive thing in terms of whether you had or hadn't been—they might have been in some way cross-sold or coerced in some way but never reported it.

What I would question is what change in legislation there could be that would give the consumer—who is the injured party—the incentive to in fact blow the whistle, to use my term, on this financial institution? By the way, it's the same institution that holds his mortgage and has the loan on his car. Is he likely to complain that he really felt they forced him into this? I'm not sure any legislation could properly be policed in that situation.

• 1615

The Vice-Chair (Mr. Nick Discepola): But if such legislation could be introduced to your industry's satisfaction, would that be sufficient to appease your concern? If so, what kinds of restrictions or criteria should we be looking at in legislation?

Mr. René Bourque: If I may, I think it's not the legislation that would be introduced, but how it is policed. It's almost impossible. What we're asking is how you would police such legislation when you just see a perception.

The banks are competing with us on a different basis presently, and we already have reports to our national association that some brokers have been refused a line of credit because the banks are saying “We're going to be competing against you, so why should we advance you money?” As small-businessmen, that's another concern we face in the future. How to police legislation like that is....

The Vice-Chair (Mr. Nick Discepola): Mr. Ritz.

Mr. Gerry Ritz: From my own personal viewpoint, the bottom line in most insurance is service. I go there because I know the people, because they have looked after me well in the past, and so on. Now, the bank may coerce you the first time with tied selling or whatever, but it's an annual renewal. Why would I go back if I haven't received the service I require? My mortgage is written now, and it's a five-year or ten-year mortgage or whatever. Why would I feel committed the second time around? There might be a glitch that says they got me the first time, but how are they going to get me the second time?

Ms. Paulette Holder: To a degree, yes, that could happen. However, it's very easy. A lot of people become complacent. We see that every day in our business. You have your shoppers who will shop their policy premium every year, but you also have those people who are set up and have their payments taken out of their bank account, which would be very easy for the bank to do at the time they are doing your mortgage, car loan, or whatever. It's automatically deducted from your account every month, and a lot of people just let that go on without paying any attention to it. As part of the service we offer as independent brokers, we make an effort to contact that person on an annual basis at the very least at their renewal time.

There are many other value-added services that the independent broker also supplies to the consumer and for the consumer. As an example, one of the main things we are concerned about is an insured having an accident on the weekend. Who are they to call? I know that I—along with every other insurance broker who has attended here this afternoon—have had those midnight calls from insureds in need of help. Where is that consumer going to be if they have their policy with a bank?

Mr. Gerry Ritz: There'll probably be a 1-800 number.

Ms. Paulette Holder: That's right, and who are you going to get on that 1-800 number? Please call so-and-so.

Mr. Gerry Ritz: You'll just get sleepy.

Ms. Paulette Holder: This is something we have to bear in mind. We have to keep coming back to the consumer. That is the importance of all this. We are there to help the consumer, to sell them the policy that fits them, not to sell them the only policy that we have available. We are brokers. We broker what they need for coverage.

Mr. Gerry Ritz: Just to be devil's advocate for a second, the insurance companies are not without blemish either. You guys are all networked together now. You know I had two claims last year, so I'm an undesirable and you don't want me. That can happen. You are saying the banks would do that, that they would cherry-pick the lists. Well, insurance companies can also do that. I know that if you have two natural disasters, there is only one company in Canada that will cover you without pushing your premium way up and your coverage way down, and that's Portage. At least I think that's the name of the company.

As legislators, how do we protect consumers from tied selling from insurance companies? You have my house, but you also want my cottage, my boat, and my car. It's good business for you to get it all. There's tied selling from the banks, and there is also tied selling from insurance companies. How do we protect the ultimate consumer?

Ms. Paulette Holder: To address your point, there is a computer system. When someone comes in, the insurance companies check when the application is sent in. We can see what you've had as a claim history, if you have forgotten a claim, so on and so forth. However, that is one of the advantages of the independent broker system. There are so many competitors out there that your independent insurance broker is going to be able to find someone who will take that policy. That's what we do. If we know you as a client and a customer in small-town New Brunswick, and if we know your background, we will go that extra mile for you. We won't just say carte blanche that you've had two claims so we don't want to bother with you. Each individual case has to be considered, and the independent insurance broker sits down, talks to you, gets the information, and considers that.

Mr. Gerry Ritz: So the banks cannot compete on that level.

• 1620

Ms. Paulette Holder: Well, the banks at this point in time will have one policy to sell you from one company. The independent insurance broker sells insurance for varied companies, and each company has different requirements and stipulations. We're there to find that niche to put you in when you need to be put in that niche.

Mr. Gerry Ritz: So as a consumer, why would I deal with the bank when I can go to you and have the option of ten different companies? Why would I go where I've only got...?

Ms. Paulette Holder: That's exactly what we're trying to tell people.

Mr. Gerry Ritz: I understand that. Thank you.

The Vice-Chair (Mr. Nick Discepola): The reason you would go to the bank is that they also are threatening to renew or not renew your mortgage that's coming up in six months.

I'm supposed to chair this meeting, but since our Liberal counterparts aren't here, I'm taking liberty. I want to play devil's advocate.

The banks claimed in Toronto last week—and you have sort of corroborated—that they're really going to go after a specified market. So the Bank of Nova Scotia or the Bank of Montreal is going to come out with nice glossy brochures on how you should buy their encompassing plan, and another competing bank is going to try to differentiate somehow why you should buy their coverage.

It seems to me then, as per their claims—and I think it was corroborated by your industry also—that they may be able to penetrate by lowballing the marketplace initially, anywhere around 20% to 25% of the market, which still leaves 75% of the market for people such as yourselves. If you are that much better in providing that personalized service....

I have nothing but praise for your industry. Being a member of Parliament from the forgotten triangle in Quebec, we got property and casualty.... The industry was incredible. I've never had a single complaint from any constituent of mine about being mistreated in their claims during the ice storm relief. You acted promptly: weekends, whatever it was, no questions asked. I wonder if my account manager would quickly come to my house and look at the losses or the damage I had. Anyway, I've got to bite my tongue here.

If you are that much better placed to respond to the personalized needs of your industry, if you have a better trained sales force, which you ultimately do, because your personnel are the key community people who live, breathe, and work in their communities.... They know their clientele the best. There's no bank, no matter how well the program is concocted in the upper echelons of the 29th floor of a tower in Toronto, that's going to be able to come up with some form of system or program that's going to address the personalized needs you can offer.

Other than the concern about coercive tied selling, do you think you can compete? What would your concerns be, and can they be addressed?

Ms. Paulette Holder: I don't think there's any question we could compete; we've been competing for years. I think one of the main concerns is that what may be left of the market out there for the independent broker is going to be the person who can't get their insurance policy from the bank because they're not part of that cherry-picked group.

They're going to be the insurers who have had impaired charges, have had problems, have had more than one claim, have a couple of underage drivers—things we all have our share of in the market. And ultimately those are the higher-risk, higher-premium people.

That's going to leave the banks with the best of the best and the independent insurance brokers with the percentage of the market that's definitely not the best of the best. Those are the people who result in having claims, accidents, and losses, and increased rates, higher premiums, and fewer markets. The market's just going to whittle itself away.

The Vice-Chair (Mr. Nick Discepola): So are you saying then that the banks, in introducing their product, will probably go after a segment they could maximize—

Ms. Paulette Holder: Without question.

The Vice-Chair (Mr. Nick Discepola): —with the most minimal amount of training or investment, because that's where they could maximize their potential? As a result, they could possibly lower the premiums in that category. However, since they siphon off, I guess, that portion of the market, your industry would be compelled to increase the premiums in the balance, because obviously you've got to sustain yourselves and be there also.

So what's the net benefit to consumers overall? Are we going to get more competition, are we going to get reduced premiums, are we going to get competitive pricing, or.... What's your projection?

• 1625

Mr. René Bourque: Well, we feel a competitive insurance industry has flourished within the last year. Our premiums in New Brunswick, for example, have gone down for auto insurance for the last five years. With the more than 100 companies that we deal with in New Brunswick, there's more than enough competition, so it looks after itself.

So if we're playing on a level playing field—we'll say it again—we can't see any advantage as far as what the consumer can get from the bank if they start to retail it.

Do you want me to continue?

Mr. Gerry Ritz: I can go, if you don't mind.

The Vice-Chair (Mr. Nick Discepola): Jump in any time you want. Go ahead.

Mr. Gerry Ritz: You insurance brokers must have made a presentation to MacKay.

Mr. René Bourque: We did.

Mr. Gerry Ritz: Okay. Were there issues that were not addressed that you thought should have been addressed and were just totally missed in the report?

Mr. Ray White: If I may, as far as the number of recommendations within MacKay, there are lots of them on which we certainly agree. We have no misgivings about them. We don't think the report has really missed a lot with regard to what it has done.

The only concern we're expressing is that there are a couple of recommendations in there that we think are totally detrimental to the P and C industry and the consumers it serves.

So no, as far as missing anything, I could say that we haven't found anything.

The Vice-Chair (Mr. Nick Discepola): This is in both of your presentations. Mr. White, you say that what makes good common sense and good business sense is not to make changes now that will require further legislation and enforcement, but that the necessary steps should be taken to protect the consumer. You go on to say that both you and Mrs. Holder state that there's no rush and that we should take our time.

One of the concerns I have, I guess, as a small-business person would be that surely you don't want to wait for each budget so that the Liberal caucus backbench will jump up and down as the finance minister states one more time each year that the banks will not be allowed to get into the insurance business. That's no way to allow you to plan for your future expansions, etc.

However, I'm wondering whether there's a feasible phase-in period when we could say that for x years we guarantee as the government that the banks will not be allowed to get into the sector, but after that it would be wide open. Can that be a certain compromise, or do you feel that at any point in time the banks are too big and large and that they will come in and lowball to try to get the market share? Can you enlighten me on any of those comments?

Mr. Ray White: Remember that the banks are in the P and C insurance business now. There are banks that own P and C companies. They're competing with us. As my colleagues say, we welcome it, because again, it's the same basis on which we're doing business.

I think this is our point. As it exists now, as it was agreed to—the changes were made in 1992—it has been workable. We welcome the competition of the Personal Insurance Company of Canada, the Canadian Imperial Bank of Commerce, and so on. What we're concerned about is that the report has come back on an issue that was dealt with in 1992 and again in 1997. It said no, you're not going to be able to retail. So we have concerns.

I believe Finance Minister Martin said that there are some concerns about whether or not in coercive selling the use of information can be protected against, so it was wiped out. What we're a little concerned about is that now, at this point, it has drifted back in again, and I think we have our feeling as to why.

The Vice-Chair (Mr. Nick Discepola): But for the average Canadian, how can he or she see the difference between being able to sell P and C insurance, for example, or other forms of insurance over the counter at the branch level versus establishing another entity totally? Look at the Quebec model, in which they're already allowed to sell a certain amount at a caisse populaire, for example. What's the difference?

Mr. Ray White: There's the atmosphere, the closeness of the situation. Again, this is tying it back to looking at whether I'm here to appease the bank or really free to choose to buy the product.

The Vice-Chair (Mr. Nick Discepola): So the two key issues are the potential misuse of private information and the coercive use of that to sell.

Mr. Ray White: And in the branch, we do have some feeling that there would be a feeling of that coerciveness such that because I am in that branch, I have an obligation to that institution.

The Vice-Chair (Mr. Nick Discepola): You've obviously sat trembling on the other side of the bank manager.

Mr. Ray White: Too many times.

The Vice-Chair (Mr. Nick Discepola): Mr. Ritz.

Mr. Gerry Ritz: Just to follow up on that point, say it was a totally separate storefront from the bank. They're selling insurance now. They're already doing that, but it's kind of under the counter and you have to ask an employee, and so on. If it's a totally separate storefront down the block or whatever, is that acceptable?

• 1630

Mr. Ray White: Yes, it is.

Mr. René Bourque: Without using the information that they previously had—

Mr. Gerry Ritz: It's a separate storefront. That's what the legislation would protect. There would be no exchange of information, and so on.

Mr. Ray White: Exactly.

Mr. René Bourque: Maybe to follow up on your previous question, Mr. Ritz, of whether the task force had missed anything, as we said in our report, First Marathon Securities says that the P and C sector is the most competitive financial service industry in Canada. That was overlooked by the MacKay report. We're saying why fix something that isn't broken?

The Vice-Chair (Mr. Nick Discepola): Okay.

Mr. Gerry Ritz: Okay, thank you.

The Vice-Chair (Mr. Nick Discepola): Just for a point of clarification, Ms. Holder, on page 3 of your statement, you state that:

For example, brokers are required to undergo a rigorous course of study in order to meet licensing requirements of our provincial government. These rules don't always apply to other distribution channels, however.

I'm led to believe that in all provinces—I know my province of Quebec well—licensing requirements apply to everybody who wants to sell insurance. It might be different for New Brunswick, but I'm not sure.

Ms. Paulette Holder: I'll let our executive director reply to that.

Ms. Linda Dawe: Yes, I'm going to speak to that.

Independent brokers have a four-step licensing requirement in this province. Direct writers and call-centre people who are tied to one company have a one-step requirement. So we feel that independent brokers are better educated than other intermediaries.

The Vice-Chair (Mr. Nick Discepola): Again, that should give you a market advantage because you're better educated. I understand.

Ms. Paulette Holder: If you let the customers out of the bank, yes.

The Vice-Chair (Mr. Nick Discepola): There's one other area of concern that I have personally that you also outlined. Banks traditionally have picked and chosen the types of specialty areas they wanted to get into. Where there was small lending to the business sector, they chose to lend to the real estate industry. Then all of a sudden, when the market fell, they withdrew quickly. They've done that in various areas. I wonder whether a bank would continue lending to some areas if they didn't become profitable. I don't know how you would legislate that.

I want to conclude by turning to a comment that you made, Ms. Holder, in your concluding remarks. I believe again that we have probably focused on the narrow issue of bank mergers. The focus is all on that. From your industry's perspective, I understand why you're focusing on it, but as you say, our future as Canadians goes well beyond just simply the mergers of banks and their powers.

I'm wondering about two things. If we were to say that banks should not get into P and C or other insurance, and auto leasing, do you have any comments as to whether they should be allowed to merge or not?

The second question would be, as you say, what kinds of areas and key concerns should we have if we truly want the financial services sector to be a varied, world-class, highly competitive, efficient, and homegrown industry in the face of the global competition we're facing? Look in your crystal ball and think of 10 or 15 years down the road.

Ms. Paulette Holder: To answer the last part of your question—this is just my personal opinion—if it ain't broke, don't fix it. We feel very strongly that the service we offer now as an independent insurance broker distribution system is to the consumers' advantage. We would like to see it maintained as it is now.

As I've said before, we are not here to say that we don't want the banks selling insurance, as they are at this point in time, but we don't want them to be able to sell insurance out of their branches.

Looking down the road at the bank mergers, I don't think anybody has a crystal ball. You can read many different articles in any paper you pick up, and everybody has a different opinion. I certainly am not well versed in that area to say what might happen. The fewer banks there are, the more power those fewer banks have, and the less choice our consumers have.

The bottom line is the consumers. I do not see how it's going to be any advantage to them. That again is my opinion.

The Vice-Chair (Mr. Nick Discepola): Thank you.

Anyone else? Mr. White.

Mr. Ray White: If we do buy into the idea that the banks have to be merged in order to be more powerful to compete in the global market, given that this is correct, I guess at my level it's hard to judge whether that's—

The Vice-Chair (Mr. Nick Discepola): Those weren't the words I used; those are the words the industry's using.

• 1635

Mr. Ray White: Given that this may be the case, I guess the question I would have is where does allowing the banks to retail insurance out of their branches fit in to that need? Certainly, regarding the merger, we say yes, okay, things are going to change in the next ten years; we need a stronger base of bank systems. We say great. We have no misgivings about the task force report saying this is the way it should be accomplished. What we do say is where does this fit into that? What possible little bit of that thing—the banks retailing insurance.... Does it give them the need for that?

The Vice-Chair (Mr. Nick Discepola): Thank you very much for your presentation.

We want to assure you we will, as a government, commit to making sure we do what is right for Canadians in every respect.

It's a very difficult decision, as you know. We're focusing unfortunately on one area, which is the merger of the banks. And I think if you ask the banks themselves if Mackay made the right decision by saying the banks should be able to get into leasing and car insurance, they probably would have said “Damn it all, we wish he had left it out”, because I don't think that's what they want to focus on either. But it is a very important decision nonetheless for our government to make sure we do keep a world-class, very highly competitive edge over the next few years. I'm just wondering what the right decision is going to be.

If we all had a crystal ball, then we could probably look out and maybe make the better decisions today. I don't know what the solution is. I'd much rather see a very competitive merged bank and insurance company—at least I'll have six choices of either life insurance or property and casualty insurance—as opposed to seeing three banks merge into two maybe, and then two or three merged life insurance companies merge into two or three other companies.

So it's a very difficult decision we have to make, and I believe our decision is going to be rendered much easier because of presentations such as yours. We will try to make the best decision possible.

Thank you on behalf of the colleagues who could or couldn't be here.

I want to say for the record that we have a very important vote in Ottawa at 5.30 p.m. on this particular motion. That's why most members were called back for that vote today, and that's why Mrs. Wayne had to leave also. And having a slight majority of only nine people, we had to make sure the government doesn't topple. But your testimony will form part of the record and all members will receive a copy of it.

So thank you very much.

I would like now to call upon our next witnesses, Mr. Glen Calkins from McDonalds Restaurants of Saint John and Quispansis, and Ms. Twyla Jensen from Right Choice Computers Inc. Would you please come forward.

Make yourselves comfortable.

These are the last two witnesses, and then we fly to P.E.I. tonight.

Thank you both for appearing before the committee. As good protocol calls for, ladies first. No? All right, Mr. Calkins, you go first.

Mr. Glen Calkins (Owner\Operator, McDonald's Restaurants of Saint John and Quispansis): All right, I'll go first.

First I'd like to thank you for the opportunity to speak here today. It's regarding the future of banking in Canada.

Firstly, I don't profess to have any particular expertise in banking other than writing daily cheques, making deposits, and borrowing money, both as a businessman and as a consumer. I have no particular agenda or special interest. I see benefits and problems on both sides of the equation, as you said earlier.

Here in Saint John I am the owner-operator of seven McDonald's restaurants. I've been here approximately one year, having recently moved here from Alberta.

• 1640

As an owner-operator of McDonald's, I bank with the Royal Bank of Canada. I also bank with the TD Bank. I've enjoyed excellent associations with both banks for many years now. I feel the level of banking service that has been afforded to me over the last two to three years is vastly improved over what I experienced over the last five or ten years. I believe the banks are making a better effort every day to serve me as both a businessman and a personal customer on a better basis than they ever have before. I was used to going to banks that didn't have managers, and on and on it went. Now I feel the service has improved.

It would not be appropriate for me, however, to make a recommendation one way or the other as to the merits of bank mergers. This is up to you to determine—and more importantly, the market forces that exist in the worldwide banking industry today.

My observation of business in the 1990s is one of globalization. Very often I receive unsolicited offers from worldwide financial institutions offering a myriad of services related to my personal and business affairs. I used to deal with a Canadian investment company, but now they're a North American-based company. I receive offers of financing from companies like GE Capital. I receive pre-approved MasterCards for not only myself but my 10-year-old son. My Canadian insurance policies are now owned by international corporations.

The point I'm trying to make is that Canadian banks are players in a much bigger market than what used to exist in Canada. For years Canadian business was protected by government policies. I believe this protection has actually been detrimental to the success of these companies, and the only way for Canadian banks to survive is to become global players. To be global players, the mergers will give them the base and size to compete with other North American and worldwide players.

American and international financial institutions need no more than a telephone and a call centre to reach out to all corners of the world. I believe this puts our Canadian banks at a disadvantage. In listening to the previous presentation on insurance, I'm not sure if the threat is so much from Canadian banks as from international companies.

It is also clear to me that these companies that use telephones as their place of business pose the biggest threat to our banking industry. The banks offer branches in almost every town and city in Canada. They provide jobs, revenue, and an important tax base for federal, provincial, and local governments. Large international organizations barely even have offices in large Canadian centres, let alone the small towns and cities. Being left to compete with these huge international corporations will, in my mind, be the death of Canadian banks. Branches will not close because of mergers but rather because of a lack of business.

It has been suggested that a merger of banks will lead to a lack of competitive pressure. The proposed mergers would still leave plenty of competition from the newly merged companies themselves, smaller banking entities, and the international corporations I have been referring to. There are perhaps hundreds of banking options that are being offered and will still exist.

I feel the best protection for our Canadian banking system is to give them the size and economies of scale they need to compete. The competition is there. I don't believe this will create any kind of monopoly, as market forces will prevail. Market forces say to me that mergers would be good, giving us world-class financial institutions.

I would just speak to one other point. I made some notes while I was listening to the previous presentation. McDonald's is a huge global worldwide corporation. We benefit every day from the sheer size of the corporation and the ability to negotiate with suppliers and pass along those savings to our customers, which is what we do every day. We're driven to provide the best prices to our customers that we possibly can, and we're only able to do that through economies of scale. That's just an extra point I'd like to add.

Thank you very much. That's all I have to say.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Calkins.

Mrs. Jensen, please.

Ms. Twyla Jensen (President, Right Choice Computers Inc.): I'd like to thank you for giving me the opportunity of being here today. I'll keep this short and sweet.

Based on the MacKay task force report, which I have read, as a small-business owner I fully understand the concept of growth in competition and the importance of customer service. All businesses are born small. Through growth and customer service they are forced to expand in order to compete and meet the demands within the marketplace. Competition is already in place with the American financial institutions. Change we must. It is proven that one who stagnates withers away, while those who go forth and change become prosperous.

• 1645

We need to be a strong, united Canada and go forth into the new millennium. A strong and united Canada will create more jobs, jobs that will be lost if we can't compete.

Having said this, I do support the bank merger, and feel strongly that the strength of the superbank will allow competition and better the market share internationally. However, I do feel that loyal Canadian businesses need to have protection, perhaps by government regulation similar to that of the CRTC.

While not totally familiar with the inner workings within the banking industry, as a small-business owner, and based on the information I have reviewed to date, the emphasis seems to be on a defensive position guarding the reputation of the banking industry. This has overshadowed the needed relevant information on the merger, information that could better educate the consumer and portray the true outcome of the merger.

Thank you.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mrs. Jensen. I'd like now to turn to Mr. Ritz for opening questions.

Mr. Gerry Ritz: Thank you, Mr. Chairman.

I just had one thought when you were talking about the banks being stronger as they merged. Again, we have a Canadian bank merging with a Canadian bank. Would they not be stronger if a Canadian bank merged with a U.S. bank? Is there some thought there that maybe the Royal should be shopping in the United States for a partner? For the TD and CIBC merger, should they be shopping for partners somewhere else, as opposed to just strictly Canadian ones? Would that make them stronger as we go into this globalization and world markets?

Mr. Glen Calkins: I suppose that's a possibility. It is happening everywhere—Midland Walwyn and Merrill Lynch and that kind of thing. But I don't believe that's good for Canada. I believe we're being swallowed up by too many American companies as it is. We lose a lot more control that way. I'd sooner see a strong—cliché here—made-in-Canada solution that allows our banks to go forward and compete in the world rather than them being just eaten up. That's what would happen, in my belief anyway. The bigger entity would take over the small one; that would clearly happen. It could happen the other way. The Royal Bank could buy somebody else.

Mr. Gerry Ritz: I'm going on the premise of a meeting I had with Bob Kelly, the VP for the Toronto Dominion bank, in Toronto ten days ago. Their second step—the first is the merger with CIBC—is picking off an American bank that would be equal in value to about what the merger makes them in Canada. That's their long-term goal. Why would they need the first step? Why would they not go directly to the United States and merge up with someone their size now?

Ms. Twyla Jensen: As a Canadian citizen, I'm quite convinced that if we had the ability within Canada to make a strong Canadian bank then that should be done. If we go shopping to the United States we're giving more business to the United States that way, and they're going to take a piece of the pie and it's not going to stay within Canada.

Mr. Gerry Ritz: Is there enough big business in Canada to deal with big banks, or will they be looking offshore anyway?

Ms. Twyla Jensen: I think there is enough business in Canada, but I think they are going to look for the international markets, which again will bring revenues into Canada.

Mr. Gerry Ritz: Thank you.

The Vice-Chair (Mr. Nick Discepola): I'm going to ask a very delicate question. I don't want you to take it personally, but I have to ask it because I want it for the record. Do any of you have working lines of credit with any of the banks that have proposed merging?

Ms. Twyla Jensen: Yes.

The Vice-Chair (Mr. Nick Discepola): Mr. Calkins?

Mr. Glen Calkins: Personal or business working lines of credit?

The Vice-Chair (Mr. Nick Discepola): Either.

Mr. Glen Calkins: I have working business lines of credit.

The Vice-Chair (Mr. Nick Discepola): So you both have. My next question is again very delicate. Have you been approached by an employee of the bank to make this presentation, or are you doing this on your own behalf?

Mr. Glen Calkins: I'm doing this on my own.

Ms. Twyla Jensen: As a small-business owner, I'm here to voice my own opinion.

The Vice-Chair (Mr. Nick Discepola): Thank you very much.

Mr. Glen Calkins: I speak up on many issues. I have the town of Rothesay building a firehall in my backyard.

The Vice-Chair (Mr. Nick Discepola): We had a very disturbing incident in Toronto, so I just wanted to make sure.

I'd like to touch upon a few key areas. One of the concerns I have is that you both claim.... Let me start with the technology component. The banks believe that they have to be bigger to be able to compete globally. Mr. Calkins alluded to that fact, and he used your model also. But I believe that what drives mergers is essentially economies of scale. McDonald's certainly wouldn't have the buying power that it does if it were just the small franchise it was back in the 1950s. You've achieved economies of scale and therefore you benefit through those economies of scale with reduced costs. You have a different corporate model in turning back an awful lot of those profits to keeping costs down, and you've treated your employees very well.

• 1650

There has been no similar commitment from the banks. None of them has stepped forward and said we want to achieve economies of scale. They camouflage that with other things by saying we want to compete globally. What they're really after is merging operations so they can achieve economies of scale and as a result have a better profit picture. None of them has stepped forward and said we are going to reduce service charges, that we are going to undertake to lend more to small business. They haven't even done that well. We hear constantly....

For five years I've been in this business. I started my own computer company at the age of 26. I remember trembling asking for my first $47,000 loan after having been refused by another bank. They haven't done small-business lending very well. It took me ten years to convince my bank manager that what I had on a 1600 BPI tape drive was worth hundreds of thousands of dollars. Now, fifteen years later, they realize that because maybe they can't lend to traditional sectors, all of a sudden they're going to start lending to knowledge-based industries. Instead of a 1600 BPI tape it's a little CD-ROM maybe, which shows that things have changed.

There's no compelling evidence that they have to be big to compete on a world scale. There are two lines of thought here. Some of the bank managers, when asked outright if they could say for our committee what megadeals they have lost because they haven't been big, say none. They believe that within the next four or five years they will have to compete. However, when you look at the numbers, even after they merge—I don't want to get into the concentration of power here—they won't be in the top 20. So is the argument still valid that you must be big to compete globally? If so, how big?

If you study the U.S. phenomenon of 9,000 or 10,000 banks all merging, there is an underlying pinning of evidence that there is a certain level and certain size that's probably optimal to maximizing and benefiting from the economies of scale. In other words, bigger isn't the best. I think McDonald's understood that very well by their franchising concept. So do they have to merge to compete globally? If so, I'd like your comments on that.

And secondly, for Mrs. Jensen, since you are in the field, another argument they use is technology. They spend roughly $300,000, or between the two banks about $600,000, in R and D. It's a far cry from the billions of dollars the U.S. has spent, even though supposedly we have a far superior financial services system in Canada, bar none. You can clear a cheque from one coast to the other overnight, whereas it takes four or five days in the United States. What aspects of technology do they need to drive them to merging to be globally competitive?

If you've been in the field as long as I have, I remember in the 1970s or 1980s competing with my branch on the providing of payroll services. They have now gotten out of that field. Back in 1970 or 1980 it used to cost $1 million or $2 million to buy an IBM 370 or 360 to provide the volume. Now you can do it with a little IBM 486 or 586. As a result, maybe the banks haven't found it as advantageous and they've gotten out of it.

But the fact of the matter still remains that over the past they've shown through joint partnerships or through outsourcing, for example, that they may be able to achieve the economies of scale they want also. The bottom line is do they really have to merge to be able to be competitive, or are they using that as a smokescreen to say we want to achieve economies of scale? I would buy that argument readily: you want to merge because you want to save costs and you want to save costs so you can be more competitive and provide more competitive products, etc. But then don't say that you're doing it because you want to merge for competitive reasons, which I haven't seen them make the argument for.

• 1655

Mr. Glen Calkins: If I could make the argument for them, I guess I'd be lobbying and making a lot more money than I do. I'm not sure. I've always had aspirations of a career in Ottawa, but not today.

It's difficult to speak to all these issues. I don't have any relevant expertise in these areas to say whether a bank merger is good or bad or what the underlying motivation is. I believe there's been an evolution in the banking process. There's an evolution in the world going on right now. I see a possible threat to the current small size of the Canadian banks from these huge international corporations that really don't maintain offices in Canada.

The Vice-Chair (Mr. Nick Discepola): Can you give me examples? You said yourself you've been approached by different organizations.

Mr. Glen Calkins: Midland Walwyn has been taken over by Merrill Lynch, and on it goes. Citibank and MBNA MasterCard, I get those—

The Vice-Chair (Mr. Nick Discepola): Maybe these companies are addressing a market need that the banks so far have refused to address. I'll give you one example.

The business community has been crying for years for an option to be able to get financing, to the point where they're willing to pay a premium. The problem is that with our traditional lending practices, once the risk becomes so high that it justifies higher than a 3% premium above prime, the banks won't do it. Now we have a phenomenon where Wells Fargo is walking in with the mindset that's prevalent in the United States. They say “Fine, we don't have to put up bricks and mortar, as you've claimed. We'll provide small-business financing, but we'll charge 6% or 8%.” The business community I know of is thankful to have that money, because at least they can continue. In the past they didn't have a choice.

I can give many examples like that where the banks haven't lent in traditional sectors, and as a result they've left the market open for these types of people. With the credit card business, for example, when you are forced to pay anywhere up to $100 per credit card just to become a member and then you're forced to pay 15% to 19% premiums, it's no wonder. I've received four of them, like you. There's a little catch. The first year it's 9% and after 12 months it goes up to 15%. Still, maybe if the banks had been more responsive to hearing the cries from various sectors they wouldn't have allowed these institutions to come in and get a foothold.

Mr. Glen Calkins: I think part of our problem is the Canadian way. We have long protected institutions in Canada and we might be paying a little bit of that price now.

If I were arguing before you today over whether Burger King and McDonald's should merge, it probably wouldn't be a big topic of conversation. I don't know if it would have to necessarily go through all these hearings and everything else. But because it's banking and there's so much government involvement in so much of our lives in Canada, this is why we're going through this whole process.

I think banks should be allowed to go ahead and do the things they feel they have to do to survive to get the economies of scale. I don't argue with you there. The banks will achieve economies of scale; there's absolutely no doubt about it. But it may be better in my neighbourhood to have one bank than no bank if the threat from American competition and worldwide competition continues to dwindle the Canadian banking system.

The Vice-Chair (Mr. Nick Discepola): Ms. Jensen.

Ms. Twyla Jensen: I have to agree with what he's saying.

When it comes back to the merger and you ask why they need to merge and whether it's the technology involved, I think the cost involved in upgrading to the year 2000 probably does play a part with the merger. A lot of businesses are feeling the ill effects of the year 2000 fast approaching and of having to spend thousands and millions of dollars to get their systems updated to that.

I think there are a lot of duplicate tasks, and by having two banks merge you can reduce a lot of the costs by reducing those tasks. Again, that's money that can be better used in different areas and bring new marketing strategies on board. This is money freed up that could be dumped back into the small businesses.

• 1700

If indeed what the banks say they're doing, or going to do, is to invest this money back to help reduce the fees for small businesses—

The Vice-Chair (Mr. Nick Discepola): I haven't heard this commitment. Have you?

Ms. Twyla Jensen: I have heard that.

The Vice-Chair (Mr. Nick Discepola): From which bank?

Ms. Twyla Jensen: I have heard this from the Royal Bank, and actually the TD Bank had said so too.

The Vice-Chair (Mr. Nick Discepola): They said they would reduce fees?

Ms. Twyla Jensen: They said they were looking at reducing small-business fees, not taking them away. They said through the merger they should be able to free up enough money to again make it better for the small-business loans.

The Vice-Chair (Mr. Nick Discepola): As a small business, how much do you pay in monthly fees?

Ms. Twyla Jensen: I pay probably about $120 a month. And I'd love to see those fees reduced.

But again, that's not so much the issue. I think you're always going to have banking fees and they're always going to be out there. I deal with a lot of government agencies using credit cards. They're not using credit cards from Canadian banks. They're using credit cards from American banks, credit cards that they have bid on or whatever the case may be and that they are getting better pricing on.

The Vice-Chair (Mr. Nick Discepola): But how will merging allow them to compete in that area? More than anything else, isn't it price sensitive?

Ms. Twyla Jensen: I think through being free of the redundant tasks, the duplication of tasks, there will be more money to put back into the economy.

The Vice-Chair (Mr. Nick Discepola): Isn't that a code word for job losses, though? How many jobs stand to be lost if the banks merge?

Ms. Twyla Jensen: I know that speaking to some TD Bank employees—again, this is just my personal conversations with them—many of them are fearing their jobs, because there's been an announcement there will be many jobs lost through the merger between the TD and the CIBC.

The Royal Bank and the Bank of Montreal are claiming there won't be any job loss, that they're going to keep these branches open and that they're going to make full use of it.

The Vice-Chair (Mr. Nick Discepola): How important a factor, if you were sitting in my seat, should this be? How much weight should this be given in making our decision?

Ms. Twyla Jensen: I think it's a very important factor. But times have changed, and change we must. Canada must move forward into the new millennium, and moving forward involves change. If we stagnate, and if we don't do something to help boost our economy, there are going to be jobs lost one way or another.

The Vice-Chair (Mr. Nick Discepola): Okay.

I could continue. Do you want to take over?

Mr. Gerry Ritz: I'm just wondering how merging the banks jump-starts our economy.

Ms. Twyla Jensen: I think through merging the banks you're going to increase revenues down the road. Again, I think you've got two banks that are spending some $1 million a year doing the same tasks. If they can merge together and loop this into one pot, then they've got money freed up to let's say do investments and again get a better return off them, and to bring on American companies to deal with other more international markets.

The Vice-Chair (Mr. Nick Discepola): Are there any conditions you'd like to see imposed on the possible merger vis-à-vis lending to small businesses, for example? Are there any concerns that you both might have?

Ms. Twyla Jensen: I would love to see them be much more flexible and take a bit more of a risk with small businesses. I do a lot of mentoring and work with many entrepreneur groups. One of their big complaints is it is hard to get a bank to support them in their start-up process.

If the merger goes through, perhaps we could get some sort of government regulation for the Canadian businesses, the Canadian people and the Canadian side, similar to what the CRTC does to protect the Canadian consumer.

The Vice-Chair (Mr. Nick Discepola): Banks will claim they have such a system in place; it's called an ombudsman. Have you ever used one for your business?

Mr. Glen Calkins: I'm speaking to you here just as me, a citizen of Canada. On your point, I believe that if there is a decision to move ahead, it would be prudent to put controls in place during the transition. I get a little worried, though. Sometimes with this banking merger, the government is posturing. For Mr. Martin and everyone else, it seems to be quite political. And I think—

The Vice-Chair (Mr. Nick Discepola): Mr. MacKay claimed that himself. “At the end of the day, the orange light is up, but it's a political decision.” I think I'm quoting him correctly.

Mr. Glen Culkins: There are political considerations. You talk about job loss. Well, it doesn't look good if there are job losses. I don't think there should be a fear of people losing jobs, because in most situations people have replaced those jobs often with better jobs in Canada.

• 1705

Canada is made stronger by competition. Canada is made weaker, I believe, by government regulation and control. I think we're seeing it in the Maritimes. I think we're seeing it in the province of New Brunswick. The province of New Brunswick is better off today than it has been for a long time, because there's less government money coming here and there's more responsibility on individuals to get up and do something in order to find other markets and other opportunities for the products they sell.

The Vice-Chair (Mr. Nick Discepola): How will it benefit Canadians?

Mr. Glen Calkins: How will the bank merger benefit Canadians?

The Vice-Chair (Mr. Nick Discepola): Yes.

Mr. Glen Calkins: You're not going to run out tomorrow and find everything to be rosy because the banks merged. As I said at the beginning, I'm not really advocating that. I'm taking the approach that the banks have to evolve as any other businesses would, and if they really feel this is in their best interest, this should be allowed to happen, unless the government can create a very compelling reason—and it has to be very compelling—they shouldn't go ahead and can show it will harm the country, and I haven't seen that from the other side. You may be saying you haven't seen a convincing enough argument from the banks to really say this is what I'm going to do. I haven't seen anything really from the government saying this is going to ruin Canada.

The Vice-Chair (Mr. Nick Discepola): Go ahead, Gerry.

Mr. Gerry Ritz: I'd just like to make one point. You talk about ruining Canada. The Competition Bureau is saying that according to their present regulations—unless they are changed for these mergers—between 1,000 and 1,100 bank branches would have to close due to the market share and so on. So that's a tremendous downturn. It definitely would affect people.

The Vice-Chair (Mr. Nick Discepola): You will have branch closures.

Mr. Glen Calkins: There's no doubt about that.

The Vice-Chair (Mr. Nick Discepola): You will have job losses. That's inevitable. You will have a concentration of power. Just the two banks involved in the proposed merger would have around 60% of the marketplace. Take away the franchising model, but if you saw all the petroleum companies merging into one, would that concern you?

Mr. Glen Calkins: No, because it wouldn't make a difference in the price. We don't have any competition now. It's nothing to say to me it would be any different if we had one company. I think that was the Liberal government's platform or policy several years ago in creating Petro-Canada.

The Vice-Chair (Mr. Nick Discepola): If MacKay had said the banks should be allowed to get into the software business, the hardware business, the Internet networking business, or into the franchising business, where would we stop? You know what will happen: the banks would get into the funeral business.

Mr. Glen Calkins: I think we can play a lot of “what if” for a long time. I'm enjoying this conversation very much. I'm enjoying the opportunity to speak with you.

I don't think people should be afraid. That is one of the things I pride myself on. I had one restaurant in Alberta. I picked up my family and moved to Saint John, where I bought seven restaurants that need a lot of work. We're losing money on them, but I'm determined to turn them around. That's the spirit people in Canada need. We need to be stronger. We need to be more confident about our abilities.

The Vice-Chair (Mr. Nick Discepola): But we can't always compare to other sectors, and you've done some of the comparison. I'm wondering if it's justifiable to compare. I'll elaborate.

First of all, the banks have a very privileged status. They are the only ones allowed to take Canadians' money at a provincial rate, usually 3%, and to lend it out at double that rate. Now they have an excessive amount of money they're trying to place somewhere else. So I have several concerns as a Canadian, notwithstanding the competition or the lack of competition. After I was turned down by the Royal Bank, I was able to go to the CIBC and get my loan. If the two of them merge, I wonder if that possibility will exist.

These are the types of concerns I have. The banks have a very privileged franchise in Canada that's given to them by the government, indirectly by Canadians. They then have not only a social responsibility but also a fiduciary responsibility.

You and I both know there's a concept of too big to fail: knowing that somehow the system, whether it's the international system or Canadians, will come to their rescue, the banks will take a little bit more risk on lending that money, knowing they won't be allowed to fail. And worse, if they are allowed to fail, as a legislator I would much rather see six players and one of them fail, God forbid, as opposed to seeing two or three in mega-failure. Then who bails them out ultimately? Canadian taxpayers. Because we would ultimately, as we did with one of the banks in Alberta at one point, have to bail them out.

• 1710

So should we change the rules if they're going to merge? Should we look at the 10%? Should we look at deposit insurance, for example? Should we look at increasing the reserves over 10 or 20 years so that if the banks are going to have this privileged status they assume more of the responsibility and Canadians are not left to hold the bag should there be a failure, God forbid?

Mr. Glen Calkins: You're in a difficult situation. I wouldn't want to make the decision that ultimately you people have to make. Government, though, created this, and that is probably our problem. And that's where the politics of it become, as you've just illustrated, a very important part of it—the protection of the Canadian public. We have a system right now that is created by government, is regulated by government. I think we're having some growing-up problems. We're trying to wean ourselves off a lot of government in our lives, but it is difficult, and I understand that. I do believe there should be some protection in place for consumers, for business people like myself.

The Vice-Chair (Mr. Nick Discepola): Even though we're having growing-up problems, it's one of the most respected systems in the world. Even the Americans claim that we're light-years ahead of them.

Mr. Glen Calkins: Oh no, I wouldn't give up Canada for anything, no doubt about that. But I think things have to be allowed to evolve. If these very grown-up institutions wish to do this, then I think their wish should be respected. I think the job of the government is to make sure the Canadian public is protected at the same time through the process.

The Vice-Chair (Mr. Nick Discepola): Mrs. Jensen.

Ms. Twyla Jensen: I guess the question I would like to ask is what will happen if the merger doesn't take place? Where is that going to leave Canadian banks?

The Vice-Chair (Mr. Nick Discepola): Short term, I don't think anywhere, although there'd be some changes—

Ms. Twyla Jensen: Long term. Short term is here today.

The Vice-Chair (Mr. Nick Discepola): Long term is what we're trying to address. Unfortunately, we're focused too much and almost singularly on that one aspect, which is mergers, as opposed to looking and saying how should we have a very competitive financial services sector that's as competitive as it is now, as dynamic as it is now, that's as world class as it is now, and homegrown—keeping it here in Canada.

Ms. Twyla Jensen: Yes. I don't know about you, but I'd like to put my money in a bank that I know is making profit and is still going to be around.

Mr. Glen Calkins: A Canadian one, too.

Ms. Twyla Jensen: A Canadian one at that.

The Vice-Chair (Mr. Nick Discepola): Well, I used to think the same way when I saw IBM shares at $370: I wish I could buy them. But as you can see, you're never too big to fail.

Ms. Twyla Jensen: But again, IBM stagnated for a long time. They had their product out and stayed proprietary. Change we must. They tried to swallow up their market share, and because they held out too long they lost.

The Vice-Chair (Mr. Nick Discepola): Mr. Ritz.

Mr. Gerry Ritz: You talked at one point, Ms. Jensen, about a CRTC type of system to look after the banks. We do have structures in this country that are kind of unique to Canada. We have the Office of the Superintendent of Financial Institutions, which is kind of stand-alone. We also have the Canadian banking ombudsman, as well as an ombudsman for each of the banks. So there are some vestiges of what you're talking about already in place.

Ms. Twyla Jensen: And when were those designed?

Mr. Gerry Ritz: When?

Ms. Twyla Jensen: How old are they?

Mr. Gerry Ritz: Not that old.

Ms. Twyla Jensen: Okay. Not that old is...?

Mr. Gerry Ritz: I don't know.

Ms. Twyla Jensen: Five years old, ten years old, twenty years old? In the 1970s?

The Vice-Chair (Mr. Nick Discepola): The CRTC has been around for quite a while. I don't think you want to.... It's not a very valid comparison, I believe, when you compare to the CRTC. They're more licensing—

Mr. Gerry Ritz: You're talking about community involvement by the banks and forced buying.

Ms. Twyla Jensen: Well, what I'm looking at is we're going into a new millennium. There are a lot of old policies that have been in place for many years that were designed a long time ago. We've changed a lot. Our economy's changed. Our people have changed. Our needs, our demands have changed. And I think in some ways a lot of those policies need to change too, and regulations need to change.

The Vice-Chair (Mr. Nick Discepola): I'd like to ask you one final question, since you're knowledgeable in the industry and you brought it up, and you're one of the few witnesses who have brought it up. Would you approve of the merger of two different computer systems with two different corporations prior to the year 2000 with no implementation plan, or would you wait and say implement your Y2K conversion first and then come see us with a merger proposition?

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Ms. Twyla Jensen: If there were another company—let's say I was a big company and I was short a few million dollars maybe of being ready for the year 2000 but they had it—

The Vice-Chair (Mr. Nick Discepola): This isn't the case.

Ms. Twyla Jensen: Okay, but if we merged together to have a stronger system and be ready to go into the year 2000 together, I think I'd much sooner have the merger done before the year 2000 than wait until after and try to get the bugs out after the fact and spend more money getting two systems—

The Vice-Chair (Mr. Nick Discepola): That's where you and I disagree. I'm not going to take an airplane, I'm not going to move from my house, and I'm now going to make sure I have my bank account printed just before midnight 1999.

Mr. Glen Calkins: I'm taking all my money out of the bank.

Mr. Gerry Ritz: I think the banks themselves are saying they can't do it before the year 2000 anyway.

The Vice-Chair (Mr. Nick Discepola): I want to thank you both for your discussion and your suggestions. As you see, the decision is unfortunately too focused on just the merger issue; it's much more encompassing.

Ms. Twyla Jensen: I think more information is definitely needed.

The Vice-Chair (Mr. Nick Discepola): Yes, and we are going to take our time. The committee will be continuing its hearings. I believe now we're not going to report in December. We will report in December on the pre-budget consultations we had earlier in the day, but on the MacKay report recommendations itself we are going to take our time, until March. I believe this is what the committee has decided. So we still have ample time to make our recommendations to the Canadian government.

If you have anything else you would like to add, you are welcome to always forward it to the clerk of the House of the Commons standing committee and we will make sure....

Yes, Mr. Calkins.

Mr. Glen Calkins: I'd just like to ask, what exactly is your mandate?

The Vice-Chair (Mr. Nick Discepola): It is really large. Unfortunately, when we go from city to city to city, and it's not unlike this out west, there are two areas. First of all, people defend their turf, which is normal. I was facetious before, but if MacKay had said we want the banks to get into payroll services, into accounting, receivable services, etc., and you were in one of those industries, you certainly wouldn't be speaking with the same conviction you are now.

It's normal for people to defend their turf, as we've seen. Unfortunately, it's focused the attention away from where we should be. We should be more far-sighted in our approach and see where we want to be, as I said before, to maintain a world-class financial services sector that's miles and light-years ahead of others. Then we'll be able to keep some of the more professional people who are leaving for other parts, the brain drain, the computer specialists, the scientists, the professionals who are moving out. Unfortunately, we're focusing too narrowly on some issues. We shouldn't be, but that's the nature of the beast.

I believe right now our mandate is very large. It's all-encompassing; we've really got no limitations at all. Obviously we've got to give the Minister of Finance our recommendations to the 124 recommendations that MacKay put forth, which is a great place to start. Unfortunately—and this is my own personal opinion, not even my own government's opinion—I think Mr. MacKay went too short. He spent 18 months and had more resources than our committee will ever have. He should have come up with more clear-cut recommendations. He chose to leave it to the politicians in the end. Maybe that's where it belongs, because ultimately it is Canadians who will decide. But it is very encompassing; it's not limited in any way.

Mr. Glen Calkins: Thank you.

The Vice-Chair (Mr. Nick Discepola): Thank you again.

I'd like to now adjourn until tomorrow, when we meet in P.E.I.