FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, November 2, 1998

• 0910

[Translation]

The Vice-Chair (Mr. Nick Discepola (Vaudreuil—Soulanges, lib.)): Good morning. Pursuant to its mandate under Standing Orders 108(2) and 83.1, the Standing Committee on Finance is now resuming its pre-budget consultations.

I would like to start by welcoming you to our meeting. The representatives from the Coalition Solidarité-Santé have not yet arrived, but with colleagues' permission, we will nevertheless get underway. When the witnesses from the coalition arrive, they will be able to join in the discussion.

I would now like to introduce our guests: Mr. Manuel Dussault, the Director of Research and Analysis at the Alliance des manufacturiers et des exportateurs du Québec (alliance of manufacturers and exporters of Quebec); Ms. Lise Bergeron, President, Sainte-Foy regional Chamber of Commerce; Mr. François Boulay, from the Tourism and Convention Bureau of the Quebec City Urban Community; and, for the moment, there is no one from the Coalition Solidarité-Santé, but we are expecting them to arrive any minute.

We will also be hearing from Dr. Sid Ingerman, who will be making an individual presentation.

[English]

Welcome, Mr. Ingerman, instructor, Labour College of Canada, and retired professor of economics at McGill University.

[Translation]

Also with us is Dr. John A. Robson, from the Montreal Neurological Institute and Hospital.

[English]

Good morning, Dr. Robson.

And from McGill University we have Professor Barry Posner. Welcome.

Ladies and gentlemen, the format is essentially five- or ten-minute presentations from each of the organizations, and then we like to leave enough room.... We are here until 11 a.m.

I'll be chairing this session until our chairman arrives. He's en route from Ottawa; he phoned me at 7 a.m.

On behalf of committee members,

[Translation]

on behalf of my colleagues, I would like to welcome you to our meeting today.

I will now ask the representative of the Alliance des manufacturiers et des exportateurs to proceed with his presentation. You will have between five and ten minutes, and then we will move to questions from committee members. Welcome, Mr. Dussault.

Mr. Manuel Dussault (Director, Research and Analysis, Alliance des manufacturiers et des exportateurs du Québec: Thank you, Mr. Chairman. The Alliance is pleased to present its pre-budget recommendations for this year to the members of the Standing Committee on Finance.

The next federal budget will mark an important milestone in the history of public finance. This will be the first budget after we achieved a zero deficit. The AMEQ, which is the provincial branch of the Alliance of manufacturers and exporters of Canada, believes this next period must be used to lay down the groundwork of a sound, competitive tax system, and more efficient public spending. While the financial crisis that threatened Canada is now over, the crisis of efficiency still remains.

The competitiveness of the taxation system for manufacturers and exporters is an issue of particular concern to our members in Quebec. As you know, Quebec has the highest taxes in North America. Federal-provincial relations on budget matters are also important, since the efficiency of public spending and taxes depends on Canada-wide coordination.

Let us talk first about the use of budget surpluses and the efficiency crisis. The federal budget was balanced because money from the employment insurance fund surplus was used. The priority should rather be to return this money to taxpayers. By the end of the year, the fund's surplus is supposed to be about $19 billion. The alliance thinks the government's priority should be to give back the surplus from the EI fund to businesses and workers, because this fund was supposed to function as an insurance policy.

Although the public debt remains high, Canada is out of the vicious circle of ever-increasing debt. The ratio of the federal debt to the GDP must decrease in the years ahead. There is no economic figure that gives an exact answer as to the ideal level of debt or spending in an economy. However, in the Alliance's view, this is not the time to create new programs or initiate new spending.

The best way to assess this is probably to determine whether taxpayers are willing to pay more. We think there are a number of factors that should deter governments from spending and should encourage the public to support their efforts along these lines.

Those factors include first our high debt and taxes compared to our American neighbours. Taxes account for about 28% of the U.S. economy, and their debt is equivalent to ours, whereas Canada's debt equals 60.3% of the GDP, compared to 37.8% in the United States.

• 0915

The need for prudent management in an uncertain international context: the debt allows us to pass on the payment of our spending to future generations. Canada is not performing very well compared to the OECD average as regards all the following variables: public spending as a percentage of the GDP; the number of government jobs compared to the total number of jobs in the economy; the public debt divided by the GDP; and the share of total public spending by the central government.

Before creating new programs, we should also bear in mind that spending automatically increases from one year to the next. For a number of years now, there have been more measures to provide relief for taxpayers—both individuals and corporations. Consequently, the priority must be a targeted reduction in taxes, once we have dealt with the issue of the employment insurance surplus.

Thus, while the financial crisis is over, the efficiency crisis still exists. In Canada, unemployment and poverty are still too high, despite the fact that the government accounts for more than half of our economy. In Canada, the unemployment rate has been lower than it is today, even though public spending, as part of the total economy, was lower.

We recommend that the Canadian government do what the Quebec government did at its socio-economic summits—namely, to establish jointly with its partners a trend chart to track economic performance.

A sound, competitive tax environment for Quebec manufacturers: Quebec has the highest taxes in North America. Consequently, a priority for manufacturers and exporters is to have a competitive tax system.

In our view, the recommendations contained in the Report of the Technical Committee on Business Taxation, the Mintz report, would do very little to improve the competitiveness of Quebec companies as regards taxation. One of the significant shortcomings of the report is that it does not assess the impact of financial competitiveness on society and on government revenues.

It is worth mentioning that reduced payroll taxes for businesses in Ontario force the Quebec government to reconsider the unjustly high taxes paid by Quebec companies and their impact on jobs.

Generally speaking, exporters and manufacturers are the most mobile of companies, but also those that contribute the most to the economy. It is therefore justified to ensure that their taxes should be particularly competitive, better than the competition if possible.

In recommending a broader taxation base and greater equity among various industrial sectors, the Technical Committee should have assessed its proposals in light of the benefits of tax competition, the importance of the manufacturing sector and international economic realities.

Let me now say a few words about efficient budgetary federalism. The Report of the Technical Committee also deals with federal-provincial coordination. We can but support these recommendations, except as regards the deductibility of capital taxes. The Technical Committee recommends this deductibility be removed. That would have a particularly negative impact, especially since that one for the reasons of this high capital tax in Quebec is the arrangement that was worked out to take into account the GST and the QST.

As regards federal government spending in areas of provincial jurisdiction, the Alliance believes that consensus is important. We in fact appeared before your committee regarding the Millennium Scholarship Foundation. We think it is extremely important that the federal government and the provinces manage to work together for the benefit of taxpayers.

The AMEQ thinks Quebec's existing loans and bursaries program meets the needs of its member companies and we would have liked to see the additional funding go into this program.

It should be noted that in terms of public spending, Canada is slightly more centralized than the average for the OECD countries. It would therefore be most advisable for Canada to become more decentralized and try to achieve a better understanding among the provinces.

In conclusion, the AMEQ hopes that the next budget will be realistic and will focus on soundly managing public resources. Businesses need a healthy and competitive fiscal climate to improve their contribution to job creation and the generation of wealth.

The federal government should focus on reducing contributions to the employment insurance fund, soundly managing public expenditures, improving the corporate tax system, and federal-provincial co-operation. Thank you.

• 0920

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

I will now ask Ms. Bergeron to make her presentation. Welcome, Ms. Bergeron.

Ms. Lise Bergeron (President, Sainte-Foy Regional Chamber of Commerce): Good morning everyone. My name is Lise Bergeron. I am a lawyer from Quebec City, but I am here today in my capacity as president of the Sainte-Foy Regional Chamber of Commerce. I am accompanied by Mr. François Boulay, my colleague from the Quebec City Tourism and Convention Bureau, which represents 13 cities.

The Vice-Chair (Mr. Nick Discepola): Will you be making the presentation?

Ms. Lise Bergeron: We plan to share the time that has been allotted to us, if we may. In that regard, I wanted to suggest that I cover the Chamber of Commerce's national perspective and that Mr. Boulay present the regional perspective.

The Vice-Chair (Mr. Nick Discepola): We will listen to you with pleasure.

Ms. Lise Bergeron: The federal Minister of Finance, Mr. Paul Martin, will, in the coming months, bring down his budget. Fiscal year 1999-2000, like the fiscal year that is drawing to a close, should yield a considerable surplus. The federal government will now decide how to use this surplus.

Our brief, we hope, will help political decision-makers determine their course of action on the basis of choices that are the most likely to bolster the economy and thus generate wealth.

Allow me to tell you about our organization. The Sainte-Foy Regional Chamber of Commerce covers six municipalities and includes 1700 members, which makes it the fourth largest in Quebec. Our organization strives to develop the economic strength of the Quebec City region.

My presentation will cover three points, the first of which is the importance that must be attached to reducing the debt.

For the Sainte-Foy Regional Chamber of Commerce, achieving a balanced budget is a step and not an end in itself, the ultimate objective being to eliminate all debt. We cannot go on forever being satisfied with simply making interest payments without attempting to reduce the capital that was borrowed. In the same way that an individual uses a larger and larger part of his mortgage payments to reduce the principal, the federal government should continue to take steps to reduce the country's debt.

The long-term benefits are significant. I will focus mainly on two: recovering a lot more leeway and secondly, reducing our strong dependence on foreign markets. I think that we had a striking example over the past few months, when over the course of one day, the Bank of Canada had to raise interest rates by 1% to show up our dollar.

And in passing, I would point out that the Chamber of Commerce of Canada, during its most recent convention held last September...

The Vice-Chair (Mr. Nick Discepola): Ms. Bergeron, I apologize for interrupting you. Could you speak a little bit more slowly? The interpreters are having trouble keeping up with you.

Ms. Lise Bergeron: It is just that I have so much to say in such a short period of time.

The Vice-Chair (Mr. Nick Discepola): That's fine. We will give you time accordingly. Take your time.

Ms. Lise Bergeron: Thank you very much.

I would like to point out in passing that the Chamber of Commerce of Canada, during its most recent convention held last September, also agreed to make a debt reduction a priority. In our first point, we tell the federal government two things. First of all, it is important not only to achieve a balanced budget but also to reduce the debt for two reasons: to increase budgetary leeway and enable us to be less dependent on foreign markets. Secondly, tax cuts must be accompanied by the necessary tax system reforms.

Canada is currently the country with the highest tax rate. This huge burden considerably limits consumers' spending power, while encouraging tax evasion and undeclared work. We feel that the next federal budget should contain some concrete provisions to cut personal income tax, along the same lines as the initial measures set out in the previous budget.

A complete review of the corporate tax structure is also inevitable. Again echoing the position of the Canadian Chamber of Commerce, we would like to see a tax system that promotes corporate competitiveness.

The surplus in the employment insurance fund must be returned to contributors; that is our third point. Moreover, we expect the federal government to manage surpluses in the employment insurance fund transparently, by reducing contributions for both employees and employers, since they are the reason this surplus exists.

The surplus generated because of the gap between contributions and benefits must be paid back to contributors and must not be used to reduce the deficit and the debt, however laudable these objectives may be.

As the next point has a regional flavour, I will give the floor to my colleague from the tourism bureau, Mr. Boulay.

Mr. François Boulay (Quebec City Region Tourism and Convention Bureau): Good morning.

• 0925

Now let's talk about tourism. The Sainte-Foy regional Chamber of Commerce has, in the past, apprised the federal government of the importance of maximizing the use of funds already allocated to various programs. In that regard, the Chamber would like to remind the federal government of the need for investing in tourism.

The Canadian Tourism Commission compared tourism to 25 of the most significant areas of activity in Canada. The study revealed that tourism is much more important than anyone had ever realized.

The tourism industry is one of the largest employers in Canada. It placed fifth with respect to the person years it generates. Tourism ranked higher than housing construction, banks, non-housing construction, as well as the electronics, oil and forestry sectors. By the year 2005, it is expected that 130,000 new jobs will be created in tourism in Canada.

Among these 25 areas of activity, tourism is the fifth largest generator of revenues in Canada. Tourism revenues have exceeded gross revenues from sectors like the automotive industry, the primary metal industry, paper and chemical products, as well as all of the main branches of the resource sector.

From 1996 to 1997, domestic tourism revenues increased by 5.3%, reaching $31.3 billion, while money spent by foreign tourists in Canada increased by 5.2%, reaching $12.7 billion. That makes $44 billion in total that is spent here, one-quarter of which comes from abroad.

In terms of jobs, in 1997, tourism directly generated more than 500,000 person years, which is an increase of roughly 2.3% over the previous year, whereas overall employment in the business sector rose only 0.9%.

In the Quebec City region more specifically, as in other parts of Canada, tourism is a major industry. It represents more than 22,000 direct jobs, and each year, the Quebec City region attracts more than 11,000,000 tourists who spend roughly $800 million.

The last tourism season in our region was exceptional. The increasing number of foreign visitors to the Quebec City region clearly indicates Quebec's potential as a world-class destination, but the quality of infrastructures must meet the expectations of new tourists, who we know are educated, curious and in search of tourism products that are capable of competing with other international destinations.

Some of our facilities, such as the Quebec Aquarium and the Quebec zoological park, are out of date and it is high time that we turned them into world class facilities. The time has come to invest in the long-term development of our tourist infrastructures with high potential.

Given the new trends in tourism, namely, a preference for destinations that offer leading-edge educational and interactive activities, we strongly urge the federal government to allocate funding for the development of tourism. These funds could be allocated as bilateral commitments, as was done with the infrastructure program, where the provincial governments had to commit to matching the funding.

The government of Quebec has said that it is prepared to invest $16 million in the Quebec Aquarium and the Quebec zoological park. This formula would enable the political decision-makers to work together to determine the required investment and would give an opportunity to the project promoter, the Société des parcs et des sciences naturelles du Québec, to develop new tourist equipment for the Quebec City region.

The money invested in tourism must be viewed as high-calibre investments, which will create a great deal of employment. The various government levels will more than recover the amount of money invested as a result of the economic activity generated by tourist dollars.

In addition, a significant portion of these tourist dollars are spent by foreigners, which is a net gain for the Canadian economy. Thank you.

Ms. Lise Bergeron: I would like to conclude now, if there is a bit of time remaining.

As I said earlier, the Urban Community of Quebec City comprises 13 cities. The region has a population of 600,000 people and the tourism bureau, when preparing its marketing plan, gave top priority to the standardization and modernization of the Quebec Aquarium and the Quebec zoological park. The CRCDQ, the Conseil régional de concertation et de développement du Québec, will also make this one of its priorities.

I would simply like to draw your attention to the fact that the Société des parcs et des sciences naturelles du Québec is the result of a vast co-operative movement in the greater Quebec City region.

• 0930

To conclude, I would like to summarize with the following comments. Of course, we are all in favour of virtue and want the government to continue on the same path, namely, debt reduction.

As far as the employment insurance fund is concerned, we feel that the surplus from this fund should be given back to the contributors, namely the employees and the employers.

As for regional economic development, we would remind you that the federal government recognized tourism as being one of the most promising priority sectors in terms of economic development and job creation.

Accordingly, we would encourage you to go in this direction and to promote the development and modernization of facilities, such as the Quebec Aquarium and the Quebec zoological park.

Thank you for your attention.

The Chairman: Thank you very much, Ms. Bergeron and Mr. Boulay.

I will now ask Professor Sid Ingerman

[English]

to make his presentation. Welcome to the committee.

[Translation]

Mr. Sid Ingerman (individual presentation): Thank you, Mr. Chairman. I apologize for not having a French translation of my brief. Unfortunately, I finished it last evening and it wasn't possible to have it translated.

[English]

I'm going to present a memoir devoted to presenting the case for a stimulative federal budget. I'll read perhaps the first paragraph of my presentation, and then I'll summarize the rest for the committee. I begin with a discussion of the current economic situation.

The federal budget must take account of three interrelated global economic problems: reduced economic growth, the destruction of assets in chaotic financial markets, and volatile currency markets. There is little disagreement among economists that these events affect, and will continue to affect, Canadian employment and income. The budget should reduce the negative impact of these events and distribute the burden of the deteriorating economic situation in a way that is both economically and socially defensible.

That's the core of my argument. We're in deep trouble, the trouble is emerging, the evidence is powerful right now, and the budget has to have that as its background.

I begin then by looking at the integrated North American economy. Our main source of exports and our main place for importers is the United States. There's tremendous economic integration of the two economies, their economy is much larger than ours, and events there dominate much that happens in this country.

And so my memoir goes through what is happening in the United States at the moment. The vigorous expansion that began in 1991 faltered in the third quarter of this year. The U.S. Federal Reserve Board reports that industrial production has now fallen for three consecutive months, beginning in the last quarter.

The United States' deficit in trade is now very large. Exports have gone down to 19-month lows, and imports are now coming in at very low prices, causing severe problems in certain key United States industries. There is the prospect now that for the first time in quite a long time corporate profits, the profits of large corporations, are going to be down year over year in this coming year. Most of the experts pretty well agree on that. If this happens, it will be the first time that corporate profits have fallen year over year since 1991.

• 0935

Furthermore, there's a real trauma in the U.S. banking system. That trauma has provoked the tightening of credit conditions, a kind of liquidity crunch that's going on. The defaults on Russian obligations and the threat of defaults in Latin America certainly are behind this. All of this has been accentuated by speculative excesses in the financial markets.

In my memoir I discuss some of those events and how profound they are, how serious they are. The inevitable result of these events will be a decline in U.S. domestic business investment, which has been the vital engine of U.S. growth in the last decade, in the last period.

Furthermore, given these conditions that are developing, given lay-offs that have been announced in major industries, that have taken place in major industries and are now being announced for the future, we now find that the Conference Board, a respected research organization, reports that consumer sentiments, consumer attitudes, have been negative for the last four months. This is the report they made in October, and it's happened now for four consecutive months.

Consumer spending, of course, accounts for two-thirds of U.S. gross domestic product. Consumer spending will certainly be affected by these changing sentiments.

So we get an overall situation where there will be an inevitable slowing down in the U.S. economy, which will inevitably affect the Canadian economy.

Turning to the Canadian economy, we can say that we sort of stumbled out of the last recession in 1990-92. We had economic growth of around 2.5% in just two years, 1994 and 1997, and in other years we didn't even reach 2.5% growth. We had more than 2.5% in those two years.

In this year, 1998, which looked like it would be good, predictions now are for growth of about 2.5% to 3% in the real gross domestic product. However, during four of the last five months, economic growth in Canada has actually been negative. In four of the last five months that have been reported, we actually have negative economic growth, and it seems clear that economic growth in 1999 will be well below 2.5%.

Now, that 2.5% figure is kind of an important one. We have the labour force growing, we have productivity increasing, and even if we don't have a recession, we will still have a growing unemployment rate with growth rates below 2.5%.

That's the famous soft landing that people talk about. No recession, slow growth—that's a soft landing. But a soft landing means growing unemployment and all that goes with it. I go into some of the details of that. I obviously don't have time to discuss it.

Now, in this situation, as economic growth slows down—and employment and income will certainly be affected—the budget we're talking about here will influence the severity of the slowdown and its effects on Canadians. I think that's where we have to be focused. How can this budget limit the damage and do whatever is possible to support Canadians?

Now, what should the budget do? In his recent annual fall update the Minister of Finance responded to the current situation by emphasizing the need for what he called a balanced budget strategy that would not jeopardize basically our credit rating in international markets. If I may simplify a bit, he essentially said that we have to be very sensitive about the debt. He is obviously pushing for debt reduction, even in this dire situation where what is needed is stimulation, not debt reduction. As you know, to the degree you bring in a budget with significant debt reduction, you are going to have less aggregate demand, less spending, or less tax cuts, which are the possible ways the budget can stimulate the economy.

• 0940

The position the minister is taking is strange. It is strange because he and the other G-7 ministers have just finished counselling the Japanese economy, which is having recessionary problems, to run stimulative budgets. They've also told them to do something about the banking system, but the clear message from the G-7 ministers was to stimulate—that's what's necessary for your own good and for the good of the global economy.

Furthermore, in the current political situation in western Europe, we now have centre-left governments in almost all of the western European countries. There's been a big change there. And all of these centre-left governments are concerned with unemployment, bringing in or proposing policies to stimulate. That's quite to the contrary of what Mr. Martin seems to be saying, although he skates a lot, and it almost sounds to me as if he'd like to have a big fund to do with whatever he'd like, but the form it takes is that he argues for prudence and debt reduction.

I argue, then, that what is important in the budget is to not let downward momentum develop in the economy, because once the economy starts to move downward in a serious way, unemployment grows, profits fall, and so forth. It is very hard to stop that train. It's a train or a ship that's moving; you can't stop it. The time to stop it or reduce the momentum is now, in this budget. Don't wait until it's too late.

My memoir goes on to evaluate the arguments against a stimulative budget. Basically the finance minister is saying we have to be concerned with debt reduction, because if we don't we're going to be singled out by financial speculators, markets will treat us harshly, and we're going to pay the price in falling value of the Canadian dollar and higher interest rates.

But that's sort of missing what's changed in the world. Right now we're not going to be alone in doing this. As I've pointed out to you, other countries are doing it. If you've followed—in between the Clinton scandal items—what's going on in Congress, the United States has just approved another $20 billion expenditure, which eats into the debt reduction that they, the Democrats and Republicans, had agreed to.

So we're not going to be doing anything special if we have a stimulative budget that concentrates on keeping the Canadian economy healthy. That's not a problem for us any more.

The other argument you often hear is that we have to worry about accelerating inflation. My God, accelerating inflation is not an immediate problem. It's deflation—falling prices in product and labour markets. And that's the kind of situation you get in a depression-like situation. That's the danger. Accelerating inflation in this period is no longer a danger.

The final argument, and this is a complicated one, is that maybe we can hope that if the world's central bankers lower the short-term interest rates it will solve the problem, and we won't have to really do anything to stimulate our economy. I argue in detail that's mistaken. The liquidity crunch, what is happening in credit markets, is going to overwhelm that, and I don't think we can depend on the central bankers saving us or anybody else.

Having argued that way, one would ask what the content should be. What should a stimulative budget look like? Here we basically have two kinds of choices. One is between spending and taxes. But budgets have another role. Budgets affect income distribution. Certain groups are favoured, certain regions are favoured. This is an instrumentivity of economic policy, and I want to stress this point, as I do in the memoir. Deficits, surpluses and balanced budgets are instruments of policy. They depend on what our objectives are. They are not the object of policy. We have to say what we want to accomplish, what should government fiscal policy accomplish, and then ask how we can use these things as instruments.

• 0945

In my estimation, the highest priority of the budget in the spending area should be given to meeting the pressing needs in health care and education, and to reconstruct Canada's tattered social safety net. I think there are many obvious reasons, which you all hear as politicians, for doing this. This is also an excellent way to stimulate the economy, to provide jobs, as well as to provide essential public services in an area where it's badly needed. Remember, it was the 1995 budget that brought in the Canada health and social transfer, which cut back money allocations, transfer payments, to the provinces in a Draconian way. Perhaps it should be the 1998-99 budget that begins to correct the severe problem that's there.

I want to suggest in a positive vein right now, because I know I'm running out of time, that at present there are consultations going on around the new framework agreement for social union. This is an extremely positive development. The provinces are getting together, including Quebec in certain aspects of it, to see how we can have a better social union. Nothing would be better than for the federal government at this juncture to reinvest in health, in education, in fixing up the social safety net. Nothing would be better to use in those discussions to produce a positive outcome in reshaping the Canadian social union.

Others have talked about the employment insurance aspect. That's one aspect of the social safety net. Certainly if you lowered the payments by employers and employees, that would have some stimulative effect. It's not terrible. But I prefer to repair the program that was savaged, to bring benefits back to where they were and make eligibility more possible. There has been a large fall in the number of unemployed Canadians who receive unemployment insurance. If we're moving into hard times—and that's where we're moving, the question is how bad it will be—that program needs to be there both for the people and for the regions, and also to provide a sustenance, a support, for aggregate demand in that kind of situation.

On the tax questions, I think certain kinds of tax cuts are possible. My inclination is what I said to you earlier about these social programs, but certain kinds of tax cuts are possible. They are stimulative, a tax cut is stimulative, but I think tax cuts should be specific and should be limited to people who are most in need, because one of the things that has happened in this country—the studies now are as clear as daylight—is that there's been a tremendous polarization between the very rich and the very poor. And we should think about that.

I thank you for the opportunity to talk to you.

The Vice-Chair (Mr. Nick Discepola): Thank you, Dr. Ingerman. I would like to now turn to Dr. Robson, please, from the Montreal Neurological Institute and Hospital. Welcome, Dr. Robson.

Dr. John A. Robson (Associate Director for Scientific Affairs for Research, Montreal Neurological Institute and Hospital): Thank you. I too must apologize to the committee for not having a French translation of my brief, but I thank you for this opportunity.

I'm the associate director for scientific affairs for research at the Montreal Neurological Institute. I'm going to talk to you about government funding of biomedical research and graduate education, because these are the areas in which I'm most intimately involved.

• 0950

As a brief introduction, let me tell you something about the MNI. For those of you who don't know, the Montreal Neurological Institute is a research institute of McGill University. It's about sixty years old, and it's a world-renowned place that has about forty really world-class scientists in it. The problem we face is that our scientists and our institute struggle continually to stay competitive on the international scale. The problem our scientists have is that they spend too much of their time writing grants and not enough time doing research. The problem the institute has as a whole is one of retaining and attracting the high-quality personnel that we need as an organization to maintain our reputation internationally. The primary reason for this is that research support in Canada has not kept up with that of the rest of the developed world.

Between 1994 and 1997, government funding of research in Canada fell about 20%, whereas it was increasing in all of the rest of the G-7 countries. Perhaps most notable are the comparisons with the United States. In 1997, Canada spent about $8.50 per capita on biomedical research. In the United States, they spent a little over $66 per capita. This is the sort of problem our scientists face.

In the last year, there have been some signs of hope, there have been some changes. There was an increase in government funding of research in Canada and the MRC budget went up, returning to 1994 levels. The other major change has been the fact the Canada Foundation for Innovation has come on-line with $800 million that can be invested into university infrastructure on a matching-fund basis. That is, it can be used to repair our buildings and to buy equipment. Certainly these are important developments, but I hope you will see they're really not enough at this point. We really need to have more money invested in operating grants so that our scientists can run their labs, can train students, and can be competitive.

Projections right now are that the average size of a Canadian grant is about one-quarter the size of a research grant in the United States, so you can see the problems that our scientists have to face. In the current year and for the next few years, the projection from the MRC is that increases in the budget will be approximately equal to inflationary increases. In the United States this year alone, the budget at the NIH is projected to go up by 15%, and they're talking about trying to double the budget within the next five years. As you can see, the grass really is greener south of the border for many of our scientists, and we do have a problem maintaining our personnel.

What do we get for our research dollars? I think this is an important question. One of the things we get is health benefits, but this is a little bit hard for people outside of science to see. The reason is that in supporting basic research, the pay-offs are often very long-term. A perfect example of this is the discovery of the structure of DNA by Watson and Crick in the fifties. It stimulated an enormous amount of research and research investment, but the real pay-off didn't appear until the biotech industry started to appear in the 1980s. It was really a thirty-year process, and that can often be a difficult sell.

Certainly the government could decide that we can't afford to be in the process of competitive biomedical research. We can let the other countries do it and then reap the benefits. The downside of that is that our universities will suffer enormously. We'll lose all of our best personnel. They'll go where they can do the research because that's what they're trained to do.

The other downside to having the universities suffer is that we won't be able to meet the needs for job personnel, the other area in which biomedical research funds have a big impact. The biotechnology industry is one of the fastest-growing industries in Canada, and a government-commissioned report by BIOTECanada from 1996—it's called the Paget report—predicted that the core biotech industries are going to create 6,000 new jobs in Canada by the year 2000. If you were to broaden that to include the pharmaceutical industries, the number of new jobs could be enormous.

The report also concluded that Canada won't be able to produce the personnel that are needed, because the educational system is not working at a capacity to train these kinds of high-tech people. The conclusion of that report was to therefore change immigration laws and import well-trained scientists. We think that's the wrong approach. A more appropriate approach is to put the money into the university research labs in Canada in order to allow the Canadian scientists to train the people who are needed for the biotech industry.

• 0955

One of the proposals that have been put forth that I would support is the idea of linking the budget for biomedical research to health care costs. In Canada right now, we spend about $2,500 per person on health care. If the government were to put aside 1% of that budget for health-related research, that would be an enormous stimulus to biomedical research and to biotechnology industries in Canada. The real positive aspect of that is that it would upgrade our universities. We would keep our best faculty members, and Canada would retain its presence as an international power in biomedical research. We would also be able to train the kinds of high-quality personnel who are needed and will be needed in the future for the biotechnology industry.

I thank you for your time.

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

I'd like to now conclude with Dr. Posner, please.

Dr. Barry Posner (Professor of Medicine, Faculty of Medicine, McGill University): Thank you, Mr. Chairman, members of the committee.

Dr. Robson has already stated some of the things that I'm going to state, but they perhaps bear restatement. The purpose of this brief, presented on behalf of the faculty of medicine of McGill University, is to bring to your attention the need to provide much greater support for biomedical research than has hitherto been provided by the Government of Canada. The brief that I've written is available for distribution in both English and French.

[Translation]

Our country gives less support to this sector, compared to other industrialized countries in the world. This situation has resulted in a very serious problem, which is having an impact on the future of our faculty as well as other comparable medical faculties across this big country. We are faced with a significant drop in our most precious resource, high-calibre grey matter. The loss of such remarkable talent that has gone elsewhere in search of greener pastures, specifically the United States and Europe, is a source of great concern to those of us who have dedicated their lives to research and academic excellence in Canadian institutions.

[English]

The question we ask ourselves is how long it will be possible to maintain excellence in our faculties of medicine across this country. As you heard from Dr. Robson, health research is the foundation on which the practice of medicine rests. Research has laid the foundation for the development not only of new medications and drugs that have dramatic effects on the practice of medicine, but for the development of a variety of modern medical technologies ranging from sophisticated scanning technologies to surgical procedures such as a coronary artery bypass, which were at one time very difficult things to do but are now commonplace. In this field, Canadians have contributed in a very important manner.

Canada was the place where the seminal discovery of insulin was made in 1921. When one speaks of Canada in foreign countries, an educated person there recalls among his or her first associations the fact that insulin was discovered in Canada.

In the modern era, Canadian scientists have continued to make significant contributions to new knowledge and its application to medicine. Work done in the neurosciences, which Dr. Robson represents—hormonal processes, respiratory medicines, cancer, infectious disease, AIDS, aging, and fundamental cell biology—have earned McGill scientists international recognition and respect. That is to say, an important part of the heritage that we in Canada bequeath to all mankind is our contribution, through research, to the understanding and treatment of disease.

The health research of Canadian institutions has had commercial consequences of importance. An outstanding example was the founding of BioChem Pharma—probably the most important Canadian pharmaceutical company—here in Montreal. This success story was based in good part on the research of the late Dr. Bernard Belleau, a McGill scientist who discovered the compound 3TC, the first drug effective against AIDS.

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McGill scientists are continuing to participate ever more actively in developing commercial spinoffs of their research. New commercial ventures generated by McGill scientists went from none in 1996 to eight so far, with more pending in 1998. These all hold promise to strengthen our pharmaceutical industry and generate new companies that will be, as in the case of BioChem Pharma, contributors to the Canadian economy.

Finally, I'd like to emphasize—and I believe this is exceedingly important—we are living during one of the great revolutions of human history, the so-called genomics revolution. This revolution has made it possible to unravel the genetic code of man and to explore the genetic basis of both disease and behaviour. The application of this information is already under way, and it will change completely—and I emphasize change completely—our understanding of the causes of disease and how best we treat them. So far, Canadian involvement in this revolution has been relatively minor. Will we become participants or will we continue to be spectators as exciting discoveries are made elsewhere in the industrialized world?

The pursuit of fundamental research in Canada is critical for the following reasons, in summary:

One, through such research one develops innovative ways of diagnosing and treating disease, and hence reducing suffering, prolonging and improving the quality of life.

Two, the stature of our country has been enhanced and could continue to be enhanced by our participation in so vital an undertaking as the pursuit of new knowledge with the potential to benefit human life.

Three, the first-class minds involved in the pursuit of knowledge create the kind of climate necessary for the quality education of our students and are absolutely necessary for the intelligent application of the most recent advances in biomedicine for the benefit of Canadians in Canada.

Four, we are at the beginning of the genomics revolution. To participate in this process with all that this implies for benefiting mankind and positively influencing the stature and the economic condition of Canada, we require the resources that will permit us to be active in a credible way.

Finally, five, health research provides employment and has begun and can continue to generate commercial enterprises with positive economic consequences for Canada.

In a recent survey, Dr. Peter Macklem of McGill University found that Canadian scientists are among the most productive in the world, as judged by the number of publications per 100,000 population or for dollars spent on research and development. However, we have been living off the capital of the past and have not been preparing for the future. Most of our productive scientists are between 45 and 60 years of age. Where are the younger scientists who will continue the tradition of excellence for which many have struggled?

Our investment in biomedical research has been inadequate, and the consequences are becoming evident. The most serious consequence of this insufficient funding is that we can neither recruit talented people to Canada nor retain our most outstanding people in the country.

If Canadian nickel were mined at Canadian expense and exported to the U.S. for use there free of charge, we would regard this as sheer lunacy, but we are currently losing in this manner an arguably more precious resource. The best minds trained in this country are leaving or refusing to return to Canada. No enterprise can succeed when the best and the brightest lose interest in it. This is especially so for biomedical research in view of its complexity and the difficulty of its practice.

Let me illustrate for you how we at McGill are suffering in this respect. We have been unable to retain highly trained graduates whose post-graduate training we directed and supported. If you'll consult table 1 in the handout I gave you, that table summarizes the names of the most talented physician-scientists we lost recently to the U.S. The loss of these 12 physician-scientists represents an investment of resources on which we have failed to capitalize. Repeatedly these people told us that the infrastructure support, salaries and start-up funding for a new laboratory were far superior elsewhere to what we could provide. The losses depicted in table 1 are grievous to us since they represent our renewal, and hence, our future.

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Table 2 lists three outstanding scientists who were trained at and graduated from McGill but pursued their careers in what they considered to be more favourable environments outside Canada. Each person has attained major international distinction in his or her field. If we had been able to retain these stars, we would have benefited enormously from their talent and productivity in both academic and commercial domains. Other Canadian medical schools, as I'm sure you've heard and will hear, have had similar experiences to ours.

Just as serious as our declining capacity to recruit talent has been the depletion of our ranks by departures. In a recent survey of program directors at McGill, it was found that in the last three years we lost 19 senior clinical faculty to the United States. This is in table 3. In addition, we found it very difficult to recruit senior faculty.

The combination of the failure to recruit and the continuing loss of our best people is of grave concern to us. The danger is that in time, as the current generation of medical scientists leaves the scene, the human capital in Canada will reach so low a level that renewal will become next to impossible. It is, after all, the nurturing presence of excellent people who promise a suitable nurturing and stimulating environment for the young who attempt to establish their research careers and academic careers in this country.

[Translation]

In summary, we have a proud tradition of excellence in biomedicine at McGill. This tradition is being seriously compromised by the inadequate funding given to us as well as to others over the past few years. Unless there is spectacular and rapid change, we will lose our high rating as well as our reputation of being a high-calibre research university in the industrialized world, which would be a blow not only for us, but for all of Canada.

[English]

You have it in your power to change the situation by doing what's right and in the interests of this country. You must provide the funding needed to maintain the biomedical enterprise in Canada at a competitive level. Failure to do so will not be regarded well by those who come after us.

The Vice-Chair (Mr. Nick Discepola): Thank you very much, Dr. Posner. There's no doubt that the biomedical sector in Quebec has been vibrant, and we're certainly thankful for it.

[Translation]

I will now ask my colleagues from each political party to ask their questions and you will each be given 10 minutes. I would invite Mr. Epp from the Reform Party to begin.

[English]

Mr. Ken Epp (Elk Island, Ref.): Thank you, Mr. Chairman.

Thank you all for your excellent presentations.

I'd also like to add my thanks to the people in the booth back there, since they are my ears. I wish I had learned French when I was young. It's tough, I'll tell you. I grew up in the west, where there were very few French people. I just loved math and science, so I took all of those options instead.

So I would like to begin. Actually, I'll come back to you folks later, so don't give up on me. I want to talk a little bit about this research and the funding of the universities.

How do you think that's best done? One of you mentioned that the researchers who are here even now are spending an inordinate amount of time in writing their justifications instead of doing their research. Yet if we just give some carte blanche—hey, there's some French—which means giving the money without accountability, it soon becomes so undirected that it's just a waste of money and not really well spent.

How would you like to see that actually done in terms of support? In order to be more efficient with the money that we taxpayers across the country put into the pot that's used for research, how should we actually administer it so that the bulk goes to providing facilities and salaries to keep, as you say, our brightest and most brilliant minds so as to lead us into the future?

Dr. John Robson: I have my comments. I'll start off, and then Barry can follow me.

Dr. Barry Posner: Sure.

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Dr. John Robson: First of all, I think the core, an important key, to funding is the peer review system. I wouldn't suggest that we change that in any way.

Let me give you an example of the kinds of things that happen. Our scientists write for competitive grants to the MRC. Those may be funded for three to five years. They may get $70,000 to $75,000 to do that. That's not enough to run their labs. So then they have to go to other organizations and write for other grants.

Typically, three to four grants are needed in order to maintain a competitive research lab. If an MRC grant was $150,000 instead of $75,000, they would be able to spend more of their time working in the lab and less of their time writing for grants. They wouldn't need as much additional money. I think with additional government funding, that's what would happen.

Again, compare this with what happens in the United States. A U.S. grant might be three to four times the size of a typical Canadian grant, so you can run a lab on one or two grants effectively and competitively. You can't do that in Canada on one or two grants.

Dr. Barry Posner: I agree with what Dr. Robson is saying. I think that involves increasing the size and the number of grants. What the granting councils are observing is that there are many applications coming forward that are of extremely high quality that are not being funded because of the cutoff line through the review process.

The review process goes like this. You take a group of grants that come to your particular committee for review. The peer review committee reviews them ahead of time, comes to the gathering in Ottawa, and presents these proposals to one another. Then they vote on them, and the vote is scored. At the end of the session, each grant is given a score. You take it from the top score to the bottom score. Say they have thirty grants, but only enough money to go down to number ten. The score for number ten is now in the “excellent to outstanding ”category. If you're “very good”, you don't get funded. Now this is foolish. This is wasting talent.

One of the arguments, then, is to increase the pot so that we can at least fund those scored as very good. Second, one can increase the size of the grants.

I'll tell you a little story, if you'll bear with me for a moment. This is about the question you raised as to whether we're efficiently distributing the money and whether it's done with due diligence and so on.

A friend of mine was serving on a review panel at the National Institutes of Health. A number of us have served in the United States, which is a useful exercise. My friend was flying down and went from New York to Washington, where the review panel was meeting. He had all his grants in front of him and was reviewing them. There was this fine-looking gentleman sitting beside him. He was nicely dressed. The guy noticed what he was doing. He asked what my friend was doing. He thought he was obviously working on some kind of a panel. He said he was on the scientific review panel for the NIH. He asked how much money he was going to be disbursing in this review panel. He mentioned that they would be disbursing several million dollars. He asked what was involved. My friend described how all these people come down, spent three days sitting around, review this, and then score and rank everything. The man said that was funny, because he worked for the Pentagon and on his signature he could spend $40 million.

This is due diligence. We are the most rigorous group of people in evaluating the effectiveness with which our expenditures are made, I think, in the country.

Mr. Ken Epp: We often hear that people, these bright minds along with the rest of their bodies, travel to the United States for three reasons. First, they make more money over there. Second, the tax regime is more favourable. Third, there's better funding for their facilities and projects.

Which of those would be the most important, and approximately what would be the percentage of importance of each of those categories? Also, is there another one I haven't mentioned?

Dr. Barry Posner: I think you're right. Those are the three most important reasons. I would suggest to you that for many of the very good scientists, there are real advantages to staying in Canada even though they may have to pay somewhat higher tax and even though they may not make as much of a salary. There are real advantages to being in this country.

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The most important thing is the proper environment to develop their careers. I think that's so for many. If that condition were in place, I think they'd be prepared to take a hit to some extent. I was prepared to do that, and so were a number of my colleagues.

I've been offered positions in the States, some of which were very good ones in which I could make a lot more money, but I wanted to stay in Canada because I have family here, I have a certain commitment here, I feel I'm a part of the country, and the environment for doing science for me at that time was good.

I think if that could be done, we could keep a lot of our very good people. Just holding on to the very good people who grow up in this country would be a major achievement.

Dr. John Robson: I would agree that research funding is the key issue.

Mr. Ken Epp: Okay. Well, I think we're hearing that message right across the country. I think with my prior bias that it's a critical one.

Here's one of the things I really want to know about the United States. Do they fund most of their research directly by the government? To what extent do they involve private enterprise? I understand they use particularly pharmaceutical firms. They contribute huge amounts to medical research there, but that's done less so here in Canada. Is that an avenue that should perhaps be pursued more vigorously by your industry?

I shouldn't use the word “industry”. You know what I mean. There must be a nicer word for it than “industry”.

Dr. John Robson: I would just say that this is certainly something we pursue all the time at the Montreal Neurological Institute. We're continually trying to create opportunities for joint ventures with industry. In fact, we just recently had a relationship starting with BioChem Pharma, as Dr. Posner mentioned. We're always looking for those opportunities, so it's certainly not from a lack of trying.

Dr. Barry Posner: Here's the way the U.S. does research. The pharmaceutical companies have first of all a very mature and highly developed industry. We don't have this. We have been a branch plant, with the exception of some companies. The best example of such an exception is BioChem Pharma, which is based on Canadian science. That's the way we're going to do it. We're not going to be more than a branch plant if we don't have our own science.

But the way the U.S. does it is that the pharmaceutical companies do applied research. They have a responsibility to their stockholders. They're interested in profit. They take basic science and apply it. The universities and academic institutes do fundamental research. If you talk to the people in the pharmaceutical industry, they say they view this as a synergistic relationship. They depend on us to generate the ideas and concepts, and then they'll apply them. In fact, we often do the applications together, but there is that rough division of labour.

Frequently, Canadian scientists who have interesting developments or ideas have to go to American companies to seek out applications because there aren't Canadian opportunities.

That may be changing now with the greater investment, as Dr. Robson pointed out. The greater investment is occurring in Canada in biotechnology, so that may be changing. If that does change, we'll see a real shift, and there will be the potential for us to exploit our discoveries here to a much greater extent.

Mr. Ken Epp: Thank you very much. I wish I had time to talk to the others, but I'm a person who disciplines myself and I've gone thirty seconds over, Mr. Chairman.

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

Dr. Posner, I would like to follow up on Mr. Epp's question. Statistics Canada constantly reports that the net brain drain is essentially even, so the influx of new students coming in versus those who are exiting the country is pretty well at the break-even point. I'm just wondering whether that's the case. Do you agree with that conclusion, or are there different sectors maybe that are—

Dr. Barry Posner: I think they may be averaging out things. I'd like to look at that data in detail, but I can tell you that from our experience we have a net loss.

The Vice-Chair (Mr. Nick Discepola): In what sector?

Dr. Barry Posner: This is in biomedicine, which is the thing I'm very familiar with. We're losing them and we can't recruit them.

The recruiting difficulties are complicated. They in part represent the fact that the opportunity here is not as good, but there are other barriers that exist. There are immigration barriers. In Quebec, there are language issues and so on. Those are things that I think we can partially finesse if we had the biomedical base as an attractive offer on the table.

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[Translation]

The Vice-Chair (Mr. Nick Discepola): You have 10 minutes. Would you like to share your time with your colleague?

Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): Yes, we will share our time.

I would like to welcome you to the Finance Committee. I would like to ask some questions that pertain to the brief presented by the Sainte-Foy regional Chamber of Commerce and perhaps throw out a few ideas for discussion as well.

First of all, I would like to congratulate you on points 2.2 and 2.3 of your brief, which echo our concerns with respect to lowering income taxes and reforming the tax system, although we are hoping that this will be a bit more targeted than what you are proposing, although I feel that you have raised a good point. As for the surplus in the employment insurance fund, I believe a consensus is starting to form with respect to this issue; everywhere we go, people are stating that the situation is scandalous, and rightly so. This surplus should not be used for any purpose other than to support those workers who have had the misfortune of losing their jobs or to help businesses going through an economic slowdown such as the one we have seen over the past four months.

Where I disagree with you—and this is a healthy thing, because this is how we progress in society—is the priority you give to debt reduction. When you put debt reduction at the top of the list, the government says that this has to be done at any cost, regardless of the other objectives. But there may be other dangers involved.

Over the past 15 months, Mr. Chrétien has travelled everywhere, using every forum to brag about the fact that the government has already spent $20 billion over the past 15 months to pay back the debt. He has drawn this money from contingency reserves that were not used last year, from non-budget operations, the first surpluses to surface. In a nutshell, he has managed to come up with $20 billion which he has used to pay back the debt.

Under normal circumstances, I would have been pleased by this. I would have been happy had he reimbursed part of the debt, but not all. However, we are experiencing a volatile situation; we saw how the value of Canadian gold dropped this summer. The Bank of Canada—I'm convinced that Mr. Ingerman will know how to console me about this—was compelled, for the month of August alone, to spend $5 billion to try to strengthen the value of the Canadian dollar. At the same time, Paul Martin was paying down part of the debt. These are two contradictory measures. This also contradicts your third paragraph, where you say that debt reduction could strengthen the Canadian dollar by reducing our dependency on foreigners. In fact, it is just the opposite that occurs. When we reimburse part of the debt, part of this debt, at least 30%, belongs to foreigners who hold Canadian debt securities. The first thing most of them do when we buy back their debt securities and reimburse them in Canadian dollars, is to take these Canadian dollars and exchange them for American currency. Americans account for more than half of this 30%. By doing this, they put downward pressure on the value of the Canadian dollar. The same thing occurs with respect to the insurance or pension funds that account for 21% of the Canadian debt security holders.

When we bought back their Canadian dollar securities this summer, what did these security holders do when faced with instability and volatility? They took the Canadian money and invested it in American securities or they simply purchased American dollars. However, we once again released Canadian dollars into the market. All this to say that we have to pay close attention to this analysis. But I don't hold this against you because Paul Martin says whatever he feels like on the matter. In a period of high volatility, we should not be aggressively trying to pay down the debt; we should perhaps forget about it for a certain period of time and focus of shoring up economic growth, as Mr. Ingerman pointed out. Over the past four months, we have experienced a slowdown and we don't have any money left right now to intervene in order to stimulate the economy or even abide by the main conclusion drawn by the G-7, which called upon us to strengthen economic growth.

Given that the government has already spent $20 billion over the past 15 months to pay down the debt, that it contributed itself to the fall of the Canadian dollar and that we are experiencing a period of volatility and economic slowdown, would it not be preferable to go full speed ahead with points two and three right now, because this is what will help us get through this period and avoid having a recession in 1999?

Ms. Lise Bergeron: Thank you for your question. No, I'm not the least bit offended. Perhaps we misrepresent the situation to some extent, but even after hearing what you had to say, I still think that we should keep on the same track, which is not so very different from yours. After all, I think that it is wise to strike a happy medium and we must continue pursuing long-term objectives. We cannot get our country out of debt in the short term; in the long term, maintaining the status quo would not be a wise choice. In the long term, we must implement mechanisms and set major national priorities. However, we also have to send out a signal to the international community that we have our finances under control. I think that we must continue pursuing this general objective of reducing the debt. I agree with you that—

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Mr. Yvan Loubier: Ms. Bergeron, I fully agree you with respect to the long term. But we are currently experiencing a slowdown, and there is a risk of international deflation or national deflation because the Governor of the Bank of Canada has managed monetary policy so poorly that we have wound up with an inflation rate that is so slight that we are even wondering whether or not we're in a situation of negative inflation, which is particularly serious for our businesses. In other words, shouldn't we be balancing our interventions and stop putting all our eggs in one basket, as the government is currently doing, based on the interpretation it has made of your priority number one? The government has told us that debt reduction is the top priority and they are putting everything towards the debt, forgetting about the rest.

Ms. Lise Bergeron: If I may, I would like to specify that we are not advocating debt reduction at any cost.

Mr. Yvan Loubier: Very well.

Ms. Lise Bergeron: We naturally prepared a summary very quickly and I'm talking fast, but I do hope that you'll have time to read our submission. If we were to say that the debt was to be reduced at any cost, we would be contradicting our third point, which urges you to invest in promising sectors. Rather, we are saying that our general objective must continue to be debt reduction, however, we must not jeopardize our economy by making it vulnerable to a recession, for instance.

We at the Chambre de commerce régionale de Sainte-Foy have already talked about using certain levers, including the surplus in the employment insurance fund, and tax cuts. We don't have to focus just on them. As we pointed out in our brief, by gradually paying down the debt, we will find ourselves with more room to manoeuvre. We have identified several points that don't come under just one category; we have talked about employment insurance and tax cuts. If you like, we could also talk about lowering the GST.

Mr. Yvan Loubier:

[Editor's Note: Inaudible]

Ms. Lise Bergeron: It's perhaps not the point of our proposal, but I've listed a few economic levers that could help us get the economy going again.

I would like to go on now to my third point. It's not really contradictory to focus on it. If we want to reach our goal, we must determine which sectors are promising and which investments are profitable. I realize that we are obliged to support some social programs and that a society must set itself certain priorities, but as far as the economy is concerned, we have to support the sectors that are profitable like the tourist industry. As we point out in our brief, research has shown that the federal government recovers 11 times the funds it invests. In the next millennium, tourism will be a leading sector and will be in the forefront in terms of job creation. Quebec is particularly hard hit by unemployment. It is important to support those sectors that will promote job creation and generate economic benefits. I'd like to remind you again that the Canadian Tourism Commission surveyed 25 of the largest sectors of activity in Canada and ranked tourism fifth in terms of economic benefits and job creation.

If we are to liquidate our debt, ensure a healthier economy and be in a position to invest in the social programs that we have adopted as priorities, we have to rely on sectors like this. In this sense, our views are not contradictory. We are not in favour of paying down the debt at any price, but we believe in choosing the right priorities and making investments that will pay off.

Mr. Yvan Loubier: I'm happy to hear you say that. Mr. Chairman, you should advise Mr. Martin not to stop at the titles of briefs, but to make sure he reads the briefs themselves in full, as well as the reports of the proceedings of our meetings, in which the witnesses explain their position more fully. This sheds a lot of light on the real priorities.

The Vice-Chair (Mr. Nick Discepola): Okay. Mr. Desrochers, you have 10 seconds.

Mr. Odina Desrochers (Lotbinière, BQ): Are you serious? I've worked in radio, Mr. Chairman, and I'll be fairly quick.

Ms. Bergeron, I am the Member for Lotbinière. I don't have to tell you that I'm very interested in the proposal you are submitting here, concerning the survival of the Aquarium du Québec and the Parc zoologique du Québec. You say in your brief that the Quebec government is prepared to invest $16 million. Have you done a cost study to find out how much the federal government should invest? What kind of infrastructure partnership program could be set up by Quebec and Ottawa to support your project?

Mr. Yvan Loubier: That's a good question!

Ms. Lise Bergeron: If you don't mind, I will give the floor to my colleague, François Boulay. We've already evaluated the amount that the federal government should invest and we've spoken to some people. I think it would be in the order of $14 million.

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Mr. François Boulay: The amount was similar to what the Quebec government was prepared to contribute, so we're talking about matching grants.

Mr. Odina Desrochers: How do you see this project being administered under a Quebec-Ottawa agreement?

Mr. François Boulay: Like the one that was set up in the past, we would see it as an infrastructure program, where every time the federal government contributed $1, the provincial government did too. However, this time, the roles would be reversed. We start with the provincial government and ask the federal government to contribute an equivalent amount. In the end, the result is the same. We would like to see a program put in place where the federal government would join with the provincial government and contribute as much as the latter.

Mr. Odina Desrochers: Are you saying that you would like there to be a Quebec-Ottawa agreement for tourism promotion?

Mr. François Boulay: At the present time, we want to spend money specifically on renewing two tourism facilities in the Quebec City metropolitan area.

Mr. Odina Desrochers: But are we talking about just Quebec or the country...

The Vice-Chair (Mr. Nick Discepola): Mr. Desrochers, I'm pleased to hear that you believe that regional development and tourism are not sole by a provincial responsibility and that the federal government is entitled to have its say in the matter. Thank you.

Mr. Yvan Loubier:

[Editor's Note: Inaudible]

[English]

Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Thank you, Mr. Chair. I have a few questions.

Professor Ingerman, you've argued for the need to increase spending in the social safety net, and you argue that the feds should reinvest in their redistribution role. As a result of that, I think you said you would urge that EI benefits increase as an example, as a redistribution role factor.

Sir, I want to ask you what would be more beneficial to our economy: increasing EI benefits and putting money into the economy through that route, or making an equal investment—assuming you have a choice—in biomedical research development?

Prof. Sid Ingerman: It's a difficult question. Both are necessary. Both are good things to do.

One has to do with the long term. Over the long term, failure to adequately invest in education and research is going to lower the country's productivity, and it's going to hurt our standard of living. In the very immediate future, however, if we enter into a serious recessionary situation, nothing will work. That is because in a recessionary situation government tax revenues go down, government welfare expenditures go up, the debt rises, and we're in deep trouble.

So to answer your question, I would say to the committee that we have to ask two questions: What do we need as an immediate response to clear and present danger, so as not to let the economy go to pot? And what do we need as a steady, long-term guarantee of government investment in research and education?

It's not a question of choosing between one or the other. It's an art here. You guys and women are involved in an art form here, how to help manage the economy. There's no simple, one answer to a question like that. Both are needed; the question is timing.

Mr. Roger Gallaway: Now, one of the other issues you raised is the whole point of increased spending versus tax cuts. As you know, in certain provinces in this country, tax cuts have been the thrust of certain provincial governments. But if we look at the bigger picture outside Canada, we see that those countries that have actively engaged in the program of tax cuts somehow have the largest budgetary surpluses. So if you look at Europe and countries such as Finland, the U.S., and the U.K....

So I want to know how you reconcile this idea that increased spending in the social safety net is somehow going to give you a bigger return than tax cuts. Empirically at least, from a very superficial perspective, these appear to have a greater effect.

Prof. Sid Ingerman: Well, I don't think there's any evidence that one will.... The framework for analysis is how we get demand, what we call aggregate demand, out into the economy. That's the framework. Either path will do that. Cutting taxes is going to help. There are problems. Mr. Loubier has outlined some of the problems with tax-cut policies. You may cut certain groups' taxes and they'll invest the money in markets. They'll save. They'll invest it in foreign countries. It depends on who you cut. If you cut the taxes of very poor people, needy people, most of that most likely will go to domestic consumption and it will be stimulative to the economy and it will be good for them.

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The reason I stress the health, education and the social safety net is because the public has told us that they are disturbed by the deterioration in those areas, and it's one of the things that make this country work. When you talk to anyone, they'll say the Americans have great rock groups and the Americans have this and that, but we have a good health system, we've had up until recently a first-class social network in this country. That's what keeps this country together, and we have to maintain it and strengthen it. And doing that is a way to create employment for those people who need work, whose incomes have been affected over the recent decade and have not risen.

I'm not against tax cuts, but it seems to me that as my immediate priority, my judgment in this would be to concentrate on health and education, the network, and have tax cuts where they make sense and can act quickly.

Mr. Roger Gallaway: There are these countries out there where tax cuts seem to have worked in a very profound way, and yet you're advocating more spending. My question is—and you've already answered it in a sense—where are you going to get the best return? Is it through tax cuts or is it through spending?

Prof. Sid Ingerman: I'm not saying more spending. I'm saying a mix of the two, more of both.

Mr. Roger Gallaway: Of both spending and—

Prof. Sid Ingerman: Both spending and tax cuts in a sensible way. I'm not saying go crazy, but do it in a sensible way. I don't expect Mr. Martin is going to do anything radical in this sense if he takes that path. But when you refer to other countries, you can't just look at how this country cut some taxes and they didn't do too badly. You have to look at their whole budgetary situation—what their spending is on other things. Finland and Norway, I guess, have magnificent social programs.

We now are beginning to be uncomfortable with our social programs and with our health programs. We want to do both, but the question is priorities and amounts.

The Vice-Chair (Mr. Nick Discepola): Aren't you afraid that you'll go back into a deficit position, though?

Prof. Sid Ingerman: I wanted to jump in when Mr. Loubier ran this thing, but in regard to debt, which is why we fight the deficit supposedly, except for wartime the main cause of debt increase is when a country has slow economic growth, recessions and depressions. That's what gives you the bulk of the increase in your debt. Why? Because in those situations, government takes in less tax, spends more, and the debt rises.

Cutting the debt in a situation where it's going to allow for a more recessionary situation to take place will not reduce the debt. It may increase it. There's a lot of mythology here. Take the last five to eight years. If you look at what reduced deficits and debt, not much of it came from cutbacks in government spending. A lot of it came from shifting transfer payments from the federal to the provincial governments. A lot of it came from better economic growth than we had had in previous periods. A small amount may be explained by cuts in government spending, but no study you can show me shows that cuts in government spending are the reason the deficit went down. It's not.

The Vice-Chair (Mr. Nick Discepola): But if you take a look at the economic forecast update that the Minister of Finance gave almost two or three weeks ago, if you take a look at the economic projections, even the most pessimistic economic projections will claim that we could probably get to a significant debt-to-GDP reduction ratio by economic growth alone.

• 1040

Prof. Sid Ingerman: Yes, absolutely, we agree. The point is, if we can keep the economy growing, that is not a problem.

The Vice-Chair (Mr. Nick Discepola): But it's simplistic to say that it's just economic activity that has added to our debt. It's definitely also overspending. That's what I was trying to drive at.

Prof. Sid Ingerman: All foolish overspending is to be condemned. All spending that doesn't improve the productivity of the country and aid the people is to be condemned.

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

I'll now ask Mrs. Redman to proceed, please.

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

I have two quick questions to pose and then I'll allow the presenters to answer.

Ms. Bergeron, one of the things you said in your presentation, or certainly what I took from it, was the fact that our end-goal should be to be debt free as a nation. I want to clarify, if I got it right, is that the local chamber of commerce's opinion or it is something that's held as a national goal?

Dr. Robson, you make a point in your presentation about investing into research 1% of what's put into health care, and that's the formula we've heard from other presenters. I look at that, and I look at the comparison and the fact that we talk about the brain drain and what's being invested in the United States, and the fact that—and you referenced it yourself—they have put in another 15%.

Is our end-goal to always sort of play catch-up with the United States, or do we have an optimal balance of what Canada needs to invest in research—medical research specifically, because that's what you're talking about—for the kinds of discoveries and support that we need to give our researchers?

[Translation]

Ms. Lise Bergeron: If I understand correctly, it's both. The opinions expressed in our brief cover the national level, for debt reduction, and the regional level as well. If I understand your question correctly, it's both—the national as much as the regional level. The issue of eliminating the debt and controlling the deficit affects the national level as much as the regional level. It applies to both, unless I have misunderstood your question.

[English]

Mrs. Karen Redman: To clarify, is our end-goal as a country to be debt free? That's what I heard you say in your presentation, that this is really our end-goal, to have no debt as a nation.

[Translation]

An hon. member: But not at any price.

Ms. Lise Bergeron: That's right. The main goal must really be to eliminate the debt completely, but we should not try to reach this primary goal at any price. To do so would contradict our third point, which is the need to invest in certain sectors like tourism. I don't think that we can pay down a debt that is as large as Canada's over a very short time period without creating pandemonium in our social and economic systems.

Yes, we should continue to focus on this for a number of years, until our debt is fully paid off, but we should at the same time give priority to leading sectors that offer a good return on investments, including tourism, which was ranked fifth in the group of best 25 sectors in terms of economic benefits and job creation. This sector generates new dollars, because there's a lot of money that comes from outside in this kind of industry, and provides 130,000 jobs. These figures are given in our brief.

I think that it will become easier and easier to pay down the debt we are facing. I hope that answers your question.

[English]

Mrs. Karen Redman: For further clarification, Professor Ingerman brought up some points, and one of the things Paul Martin has talked about is our debt-to-GDP ratio and that it needs to be brought down. But I'm hearing you say that's not even a yardstick you would support. You want to go down to no debt; that should be the end-goal, notwithstanding the fact we need to be measured in how we get there.

[Translation]

Ms. Lise Bergeron: That's right. I will say again that we should consider this to be a long-term objective. The better we are at focussing our economy and our investments on profitable sectors, the shorter this period will be.

The Vice-Chair (Mr. Nick Discepola): Yes, I agree, but there are those who call for total elimination of the debt. That's what Ms. Redman is trying to say. What level of debt should we be targeting? There is no country in the world that is not carrying any debt. There is no city in Quebec or Canada that does not carry some debt.

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Dr. Barry Posner: And no company.

Ms. Lise Bergeron: I understand very clearly, but we should still always keep this goal in mind. As far as the time period is concerned, we have to strike a balance. I said it in jest at the start of my presentation and when I was asked questions.

The Vice-Chair (Mr. Nick Discepola): I have a skill-testing question for you: how many generations would it take to eliminate a debt of some $583 billion?

Ms. Lise Bergeron: No, no, no.

Mr. Yvan Loubier: Ms. Bergeron, what should we be aiming at? What should our target be? If we don't have goals in life, it's not worth living. That's what she means to say.

Ms. Lise Bergeron: I think that the balance is somewhere in the middle. We must maintain our health system and our education system. I don't think that we can eliminate the debt tomorrow morning, but if we give priority to sectors like tourism, which yield huge benefits, we can take advantage of the healthy stage of our economy to focus on managing our debt effectively.

The Vice-Chair (Mr. Nick Discepola): This is what I think.

Ms. Lise Bergeron: Good.

The Vice-Chair (Mr. Nick Discepola): One last question, Ms. Redman.

[English]

Mrs. Karen Redman: Yes, I asked Dr. Robson a question.

The Vice-Chair (Mr. Nick Discepola): Yes, I'm sorry.

Dr. John Robson: Do we have to play catch-up with the United States? I would say yes and no to that.

As Dr. Posner said, there are lots of other factors that will keep Canadian scientists in Canada, in addition to research funding. Personal or family reasons are one.

Actually, I have worked in both the U.S. system and the Canadian system. I find the Canadian system to be far more cooperative on a collegial basis and more nurturing for scientists. On the other hand, there comes a point where you can't be competitive and you can't run your operation, and I think we've gotten to that point now, where we need to have an influx of funds for operating expenses into the labs just to keep people going.

If that is done, I think we'll see spinoffs. There has been a tremendous amount of interest and real investment in biotech firms. This has been a very strong force in Quebec, and we see companies springing up. If we can keep the labs going with an influx of money from the federal government, I think you'll see an ever-increasing influx of money from the private sector, and then you get a snowballing effect and the whole operation can get back on its feet. But I'm not proposing we go to the levels of the United States. I think that's unreasonable at this point.

[Translation]

The Vice-Chair (Mr. Nick Discepola): Thank you, Ms. Redman. I would now like to ask Mr. Godin of the New Democratic Party to ask his questions.

Mr. Yvon Godin (Acadie—Bathurst, NDP): In the first place, I would like to say that Mr. Ingerman thinks along the same lines as I do. I would therefore like to congratulate him. You said it all, and I would like to thank you.

Ms. Bergeron and Mr. Boulay, I would like to ask you a question. In your presentation, you talked about only one aspect of what interests me, namely employment insurance. I would like to have some details on this.

In 1986, the federal government took the money in the employment insurance account and put it into the general accounts. In 1991 or 1992, the federal government stopped contributing to the employment insurance fund, and that's when contributions started rising significantly.

In May 1998, the federal government announced in its budget that it would have a zero deficit and even a surplus of approximately $50 billion, but as it happened, there was at that time $15 million in the employment insurance fund and that money was put into the general accounts. And that's why we say that employees and employers have paid twice for some things, for example, health insurance. Workers who pay income tax will still have to pay health insurance through their contributions to employment insurance, which I find unfair. It should be more evenly shared.

If we use money from employment insurance to lower taxes, those people who don't pay employment insurance contributions will be getting the money of working men and women. This is also unfair.

You say that tourist activity is growing. Let me tell you that tourist activity has really picked up in New Brunswick, especially in the Acadian Peninsula. In the Bouctouche-Moncton area, we have seen a real increase because of Quebeckers who travel less to the United States and more to New Brunswick, given the weak Canadian dollar. However, this creates seasonal employment; the people working in the tourist industry are without jobs in the winter.

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In your presentation, you talked about contributions. In Paul Martin's last budget, contributions were eliminated for companies or employers hiring people aged 18 to 24 years. Could you tell me whether this actually created a lot of jobs? We know that, in 1997, only 42% of people who had paid into the plan qualified for EI benefits. The benefits were reduced. Many individuals no longer qualified. There are 12,000 women who no longer qualify for maternity benefits. Don't you think that this hurts the economy and small and medium-sized businesses? These people don't have money to spend. We also know that the number of food banks has increased considerably in the last few years.

Ms. Lise Bergeron: Your question is a long one. I'll try to get at what you'd like to know. Basically, you're asking me if we will not inevitably have to restructure the employment insurance fund to make it accessible to those individuals who currently are no longer eligible. Do I understand you correctly?

I think that there is a tried-and-true solution, this is what we've been trying to say since we've been here. I don't think that the solution lies in broadening the range of people who are eligible. I think that we have to get back to basics. What are the basics? A healthy economy that will generate employment.

The 130,000 jobs that are mentioned in the brief we submitted to you are not just seasonal jobs; they include many permanent jobs. As our economy becomes healthier, and as investments are better channelled into priority sectors, it will be easier for the people we're talking about—people who are no longer eligible—to find employment.

It is not just because of tourism that we have problems now, it's because of our whole economy. We are having trouble getting our second wind in order to create jobs. The key is job creation, not opening up the employment insurance fund.

Our mission, as a Chamber of Commerce, is to find ways of creating jobs and stimulating our economies so as to produce as many economic spin-offs as possible. I think that my solution addresses the problem you are raising.

Mr. François Boulay: I would like to address the issue of the seasonal nature of jobs in the tourism sector. It's an argument that we hear often. People who are not in the field often tend to think that these jobs are seasonal and not very stable.

I have here a report from the Canada Economic Development for Quebec Regions, which is a kind of Canadian tourist board. It says that growth in tourism promotes entry and promotion in the job market. There is one paragraph that states:

Similarly, and contrary to popular belief, seasonal lay-off rates are not higher in the tourist industry. A study carried out in 1994 showed that the seasonal nature of employment, a characteristic that we easily associate with jobs in tourism, was cited by only 13% of workers who had left a job in this sector, exactly the same percentage as among workers who had left a job in other sectors of activity.

Clearly, it is still popular belief that tourism is a seasonal activity, and there are some regions where there is more seasonal variation than others, but in light of the findings of this report, you can see that this is no longer the case.

Second, we are trying to invest in the tourist product so as to have a season that is spread out over 12 months, and is less subject to seasonal variation. We see how important it is to invest in this.

A few minutes ago, you drew attention to the impact of the exchange rate on the tourist season. This is why it is important to invest in the tourist product. The dollar is weak at present. The tourist season was a good one because of the weak dollar, but this is a factor that the tourism industry does not control. If the dollar rises next year, it is very likely that a large part of the clientele that travelled to your province, to New Brunswick... In the Quebec region, 60% of the tourist clientele are Quebeckers, people who come from Montreal.

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The more the industry depends on a nearby clientele, the weaker it is. In the first place, new currency is not flowing into the economy and, in the second place there are all kinds of factors that come into play, even the weather. The Montreal economy has an effect on the Quebec City tourist season. The tourist industry has nothing to say about the value of the dollar. These are parameters over which we have no control. We have a good season when the dollar is weak. These are things that can change completely, over- night. We must absolutely sell our tourist product to an international market. Thank you.

Mr. Yvon Godin: Perhaps I put a long question to you a while ago, but it was more like a preamble. I'll try to put it more clearly. First, between the Acadian Peninsula and the City of Quebec there is a great difference when it comes to tourism. When it closes down, it closes down for good. It is irreversible.

Workers pay this money to have insurance for the time they have no job. Do you think it is acceptable for children to go to school hungry? Do you think that this will hinder economic growth?

I don't think that a cut in premiums will create more employment. Do you totally disagree with the statement that receiving employment insurance keeps people from working? I don't know if I've put my question clearly.

Ms. Lise Bergeron: If you want to put it that way, I would be tempted to answer that this is an economic lever. Keeping astronomical surplus sums in the Employment Insurance Fund as is presently the case amounts to putting up an artificial umbrella.

Mr. Yvon Godin: I don't agree with that money being kept there.

Ms. Lise Bergeron: So we agree that the sums should be reimbursed. You're asking me who they should be reimbursed to.

Mr. Yvon Godin: Exactly.

Ms. Lise Bergeron: I always thought that this was a dedicated fund. If they want us to pay in the form of taxes then they should tell us that. If it is a dedicated fund, it should go back to employers and employees.

Mr. Yvon Godin: The money should also be used to pay benefits to people who have contributed.

Ms. Lise Bergeron: I will answer you in the same way I just did. I don't agree with you saying that if we give this back to SMEs, no jobs would be created. This is not true. I totally disagree with that. On the contrary, I think that a great source of economic power, especially in Quebec, and I presume that the same applies to the Maritimes, comes from small and medium-sized enterprises.

Mr. Yvon Godin: Banks expect a bit too much of them. It is too expensive. That's where the problem lies.

Ms. Lise Bergeron: I think that we should go for job creation.

The Vice-Chair (Mr. Nick Discepola): We have less than two minutes left. I will ask Ms. St-Jacques and Mr. Pillitteri to put the two final questions briefly. Ms. St-Jacques.

Ms. Diane St-Jacques (Shefford, PC): Please excuse me for being late. Unfortunately, I only learned late yesterday afternoon that I was supposed to sit here this morning. I am replacing Mr. Brison, the critic for financial matters. Before putting my question, I would like to make a brief comment.

The chairman said that there was no such thing as a municipality without debt. I would like to let him know that in my home town in Granby, next year, there will be no more debt. It will be totally eradicated. This town is held up as an example all over Quebec.

My question concerns the insurance premium rates. We state that cutting employment insurance premiums would create jobs, as you mentioned. I do not know whether either of you could answer my question. In my home riding of Shefford, there are many SMEs, and we believe that a cut in employment insurance would create jobs. How many jobs could this create in a company with about 60 employees? Do we have figures for this?

Mr. Manuel Dussault: A study was carried out on that. I do remember that the study showed that an increase in payroll taxes can kill jobs. We have a new paradigm. We are going to cut them. So, as few experiments have yet been done on that, if we follow the same reasoning, a tax cut on payroll taxes, including employment insurance, should create employment. But I do not remember what the proportion was.

Ms. Diane St-Jacques: But there are figures available.

Mr. Manuel Dussault: Yes, there are figures available. For instance, a study was published by the Bank of Canada two years ago. The same debate was held in Quebec regarding payroll taxes. If you wish, I will send the documents to the committee. An overview of the studies on the topic has been done.

The Vice-Chair (Mr. Nick Discepola): Do you consider employment insurance as a payroll tax or as insurance?

Mr. Manuel Dussault: Well, it's...

The Vice-Chair (Mr. Nick Discepola): A brief final question, Ms. St-Jacques?

Ms. Diane St-Jacques: No, that is all.

The Vice-Chair (Mr. Nick Discepola): Mr. Pillitteri, please.

[English]

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

Just for your information, I'll answer the question that you asked. It's a tax and nothing else. Once and for all, we should start calling it a tax. Be it a business tax, a corporate tax, income tax, the GST or EI premiums, all of them are taxes, with a redistribution of wealth back into all those parts.

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My question is going to Lise Bergeron. I was quite intrigued on the question of and presentation on tourism. I happen to represent Niagara Falls, an area that has about 20 million tourists a year. In your presentation, you say to spend more money on tourism. Let me go back and give you some figures here, and then we can see where this money should be spent.

As I recall, going back to 1993, we were down to about $5 million in spending on tourism by the federal government, but we were in a deficit position of about $9 billion in the tourist industry. By increasing the figure to $15 million, the tourist industry took off. Of course, we're now down to less than a $3-billion deficit. I want to ask if you believe the money should be spent here in Canada or abroad—and let me clarify the question.

Of the $50 million that the tourism commission now spends on tourism, most is spent abroad by the federal government in order to promote the tourism industry in Canada. Tourism is an export commodity. Do you believe this increase in spending should be used inside Canada or outside Canada? If you want some more spending, I think it should be done by the provincial governments in order to spend it within the province. I just want your opinion on that.

[Translation]

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Pillitteri. Mr. Boulay and Ms. Bergeron are consulting together before answering you, Mr. Pillitteri.

Ms. Lise Bergeron: I wanted to make sure I had understood the question. I think that the Canadian government should go on promoting our tourist industry outside of Canada. It represents us nationally. I think that the $50 million you mentioned are meant for publicity. In that sense, it is very important for the Government of Canada to continue putting an emphasis on that.

Mr. François Boulay: There are joint publicity programs. It is a program matching dollar for dollar. When a private company invests $1 for publicity in Canada, the Quebec government also offers $1. When you want to go abroad, for every $2 invested, the federal government gives $2 which amounts to $4 for each dollar invested.

This is a very large program, but it is not used enough in Quebec province. There are tourism boards working to put it to use and to make it a bit better known. This is a poorly used program, but this isn't where we're looking for funds. There are already tourist infrastructure and event programs specifically addressed to the international clientele.

The Quebec Aquarium and the Quebec zoological gardens are not directly aimed at the international market. They are an enhancement to a product that does have an international appeal.

Just now, you are saying, and it should be emphasized, that the more tourists come from abroad, the more new money comes in. This money is not taken from one field of activity to be put into another. This is really new money. It is a growing market.

Quebec lost many jobs because of government cuts, and retraining people is important. These people can go on to form the new guard in that field. It is important that we invest in this industry as it is growing and as it creates many jobs.

[English]

Mr. Gary Pillitteri: I do understand that the money is coming from the tourist industry, but you did not answer my question specifically. I know the federal government does spend outside Canada. I know about matching dollars and all of that. But I think what you're saying is that the federal government should increase that $50 million further. Or is it the provincial governments that should get more involved in order to match dollar for dollar?

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Mr. François Boulay: It's totally another program. We're not on that promotion. This is dollars for a different promotion. We're asking about another program that already exists in the federal government. We ask for a few words or a new way to write it so that we'll be able to get money from that program.

Mr. Gary Pillitteri: It's a new program, okay.

[Translation]

The Vice-Chair (Mr. Nick Discepola): A Canada-Québec program.

Mr. François Boulay: No, there is a program for infrastructures or events aimed at international markets. If the program could be modified in some way, the zoological gardens and the Quebec Aquarium could get funds from this program.

This program has to be aimed at international markets. The Quebec region product as a whole is aimed at international markets. The program is a related program and improves what we have to offer. It extends the offer to the territory of the Quebec urban community, but it does not meet the program requirements.

The Vice-Chair (Mr. Nick Discepola): You were not able to include it in the first part of the Canada-Québec program on infrastructures.

Mr. Odina Desrochers: It's not the same thing.

Ms. Lise Bergeron: That doesn't come under this program.

Mr. François Boulay: It's not the same thing. Second, we weren't there yet in our work. We've been protecting those places for eight years even though they were supposed to be closed down. We fixed them up a bit. We increased the customer base and decreased the deficit. It's about time we made major investments.

The Vice-Chair (Mr. Nick Discepola): Thank you very much. Ms. Bergeron, gentlemen, thank you for being here today. As you can see, it's not easy to find a good balance. Thanks to your participation our report will be a better reflection of our priorities and those of our government. Thank you.

Colleagues, we'll take two minutes to allow the next witnesses to come forward.

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[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call the meeting to order and welcome everyone here this morning for the 11 a.m. to 1 p.m. session.

We have the pleasure to have with us representatives from the following organizations: la Confédération des caisses populaires et d'économie Desjardins du Québec; la Confédération des syndicats nationaux; the Canadian Pulp and Paper Association; the Chambre de commerce du Québec; Consortium Promecan Inc.; and the Conseil du patronat du Québec.

We will begin with la Confédération des caisses populaires et d'économie Desjardins du Québec. Yves Morency, welcome.

[Translation]

Mr. Yves Morency (Secretary, Government Relations, Confédération des caisses populaires et d'économie Desjardins du Québec): Mr. Chairman, with me this morning is Mr. Gilles Soucy who is our senior economist.

The Mouvement des caisses Desjardins wants to emphasize its satisfaction with the tenacity shown by the Minister of Finance in his efforts to eliminate the federal deficit. Sustained economic growth and relatively low interest rates have even allowed him to attain his objectives earlier.

Our economic projections thus allow us to anticipate a budgetary surplus that will have to be put to judicious use taking into account the evolution of economic cycles, the importance of the national debt, the heavy tax burden on taxpayers as well as the financial situation and responsibilities of the provinces. Our comments are made in this context.

In the area of the government's financial situation, we believe it's important to maintain the good habits of tight management of public finances, because we should not forget that the $600 billion accumulated debt and the annual interest of some $40 billion on that greatly reduce the government's leeway. In this context, the government's priorities should be the following.

First, the government should give itself some financial leeway. In this respect, we suggest it use the non-budgetary operation surplus to decrease the debt and add unused contingency funds to that amount.

As we believe the federal government will be showing a major budget surplus next year again, we strongly suggest that it lighten the taxpayers' tax burden. In this respect, we suggest the indexation of personal exemptions and the income tax tables as well as eliminating all surtaxes added on over the years.

At the same time, we urge the federal government to fully maintain the characteristics of employment insurance, more particularly by redistributing the excess surplus, once contingency reserves have been taken care of, through a significant decrease in premiums and through more flexible access or higher benefits.

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Finally, we suggest an increase in transfers to provinces rather than getting involved in new program expenditures, especially in areas of provincial jurisdiction.

On the other hand, we also suggest a few tax measures, amongst others a transfer mechanism for tax losses to improve the efficacity and competitivity of the corporate tax regime.

We're available to answer your questions or make any other comments you may wish to hear. Thank you.

[English]

The Chairman: Thank you.

We will now hear from la Confédération des syndicats nationaux. Monsieur Gérald Larose, welcome.

[Translation]

Mr. Gérald Larose (President, Confédération des syndicats nationaux): Thank you, Mr. Chairman.

Last August, we sent a 17-page brief to your committee. Since then, the Minister of Finance did an update last October 14. Maybe we were inspired by this updating and we'd like to make a few comments today. On October 14, the Minister of Finance talked about transparency, turbulence and the directions he intended to take.

As far as transparency is concerned, he finally acknowledged that there was going to be a surplus, and not a deficit, and that this surplus had been accumulating for 19 months. I will remind you that, in 1997-98, he had forecast a deficit of $17 billion, but, in actual fact, he had produced a surplus of $6 billion and he hid $2.5 billion in the Millennium Scholarship Fund. So there's a discrepancy of $23 billion. I can tell you that if ever the CSN treasurer were to make a mistake of this magnitude, he would never be re-elected.

Indeed, the purpose of Mr. Martin's forecast was to keep people ignorant and far removed from a real debate on the use of surpluses. We are hoping that we are now going to be able to have this debate with you.

International upheaval was the second thing he talked about. He called this the other side of globalization. What's so surprising is the fact that, in identifying a real threat to our economy, he maintained his very rigid policy in this new context. We are surprised that the Minister is continuing to pursue the policies that had been designed for another economic scenario at a time when he is identifying a completely different economic situation.

We would like to comment on the path he is taking. We know that the existence of a surplus and the threat of recession could have called for another approach, another policy and that by pursuing the same policy, we run the risk of making the coming economic slowdown worse.

We know that Canada's fiscal house has been put in order primarily on the backs of the provinces and the unemployed. The unemployed and the provinces have taken the hit for 75% of all spending cutbacks.

But what is so unbelievable is the fact that even though benefits have been radically reduced and people are continuing to pay into the fund, there have been no announcements of any changes to the employment insurance plan that are of interest to the unemployed. I would remind you that at the beginning of the decade, nearly 90% of the people who paid into the fund were able to receive benefits when they were unemployed. Today, only 36% of the people can do this and, in addition, the benefits have been cut back by 60 to 50%. We feel that the employment insurance system needs to be changed in the contributors' favour. We would agree to a small reduction in contributions, but what we really need is a better system.

We are therefore proposing that transfers to the provinces be restored to their 1994-95 level to enable the provinces to shoulder their responsibilities in the sectors of education, health and social assistance.

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We now have the means to remedy the social deficit. We also have the means to ensure that our society, when its members work together, can be part of the tool kit required to build a modern and productive economy, a growing economy where jobs are created, as described by the Minister of Finance himself.

I know that we have partners in the labour market who are going to suggest that we cut income taxes because of the surplus. We are also suggesting a reduction in income tax, providing, however, that our partners in the labour market fund it. This can easily be done by significantly reducing certain tax shelters, so that we can lighten the tax burden that the Canadian state places on the poor and the middle class.

We had five minutes to set the stage. It's been done. Let's debate the matter now.

The Chairman: Thank you, Mr. Larose.

[English]

Now we hear from the Canadian Pulp and Paper Association, Lise Lachapelle, president and CEO. Welcome.

[Translation]

Ms. Lise Lachapelle (President and CEO, Canadian Pulp and Paper Association): Thank you for giving us the opportunity to present our recommendations and comments.

I would first of all like to take a minute to talk to you about our industry and what role it plays in the Canadian economy. This is an industry with sales of approximately $55 billion. We are, by far, the biggest contributor to Canada's balance of payments, with an export surplus of $32 billion last year. We are, directly and indirectly, responsible for a million jobs in Canada.

What I have to say is important for the debate that will follow. In a nutshell, we are not simply telling you that we're big. We want you to know that we are important when it comes to the financial decisions that will be made in Canada. Among other things, we are responsible for one third of all capital expenditures in Canada, year in, year out. We are also an industrial sector, and it is important to bear this in mind.

We are also a big consumer of high technology. We are often viewed as a dinosaur sector. Other equally flattering words are also used to describe us. The fact remains, however, that high technology has to be bought by someone, and this someone, at the end of the day, is often us. It's all well and good for people to develop all these products, but they still need somewhere to sell them.

Our industry is also extremely important in what I would call regional development, particularly in its new form. We are present, and often the only employer, in more than 350 towns and communities throughout Canada. You can therefore see that it is often through us that these communities acquire the technical skills that they will need later on to make their mark in this era of globalization.

We are therefore an integral part of the new Canadian economy, and as such we make the following recommendations to you.

First and foremost, we feel that it is important to pay back the debt. Namely, we should use the surplus directly to pay down the debt so that we can, at the end of the day, foresee sustainable income tax reduction in the medium and long term.

Indeed, the result of debt reduction, and you could say this is intrinsic, is that the government will have more flexibility to deal with potential recessions or, at any rate, more turbulent situations in the global economy.

As for the tax burden, which many people have talked about, we wanted to make a clean breast of it. We have looked at data from both sides.

[English]

In summary, what I'd like to say is that the tax burden for our industry is simply too high. And this is not simply us saying it's too high, and it's terrible, and we're too taxed. Our friends, the American Forest and Paper Association, came to ask us to actually pay for a study with them, and we declined to do that. But lo and behold, they were trying to prove that their industry, the pulp industry, was the most taxed in the world. I have it here for you; I can show it to you. It turns out that they're not. We won. So this is pretty bad.

We have an overall tax burden of 73% in this country. We're talking here about corporate taxes, and oftentimes people say corporate tax is not that high, but the amount of municipal taxes we pay, provincial taxes, UI taxes, all the taxes, you name them.... If there's a tax on fuel, we're the largest user of transportation in Canada and we pay that. Every time you look at an industry, look at one that employs a million people and just try to imagine the multiplying effect it has on our costs.

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In a way, we're glad that we didn't pay for this one, because it's enough to have the bad news without having to pay for it in addition to that. But it is an outside study, and I guess it helps us make the point we're trying to make.

I would also like to make four specific recommendations, and they're very short, Mr. Chairman. First of all, we would recommend that all of what we call the non-income-sensitive taxes simply be abolished. We're talking here about the large corporation taxes and the payroll taxes; all of those in one way or another undermine the ability of our industry to sustain investment. Capital taxes in particular are a problem for us. We are a capital-intensive industry; there is no way we can change that, and it raises the cost of capital to us and it discourages investment.

The second point is the importance of good capital cost allowance rates. The Mintz report—and I'm sure the people on this committee are very familiar with this—would want to diminish the CCA rate from 30% to 25%. Again, it's a way to undermine a capital investment-intensive industry such as ours.

Third is cogeneration facilities. This is one that is very dear to our hearts. Right now the current rules for CCA require that an investment in a cogeneration facility be depreciated as a class one—that is over 25 years—if it's structured as an independent entity, rather than at the better rate if it was declared a pulp and paper entity, and we don't quite understand that. Those are very expensive outfits to capitalize, $100 million apiece, and yet you're taking some of the advantages that would make these projects interesting for investors. And we would submit that if this treatment was made of CCA in that particular instance, not only would it encourage investment in those facilities, it would also diversify the industry's access to alternative low-cost sources of energy, and it would also reduce the risk of shortfalls of energy.

I want to mention that even during the ice storm here last year in Quebec, a number of pulp and paper companies, because they produce electricity, were able to actually give it to the grid to help out on the problem.

We would also mention that in these years, where we're trying to reduce CO₂ and what have you, that is one good way to go at it, because it's an investment-intensive way to also help us to keep our commitment.

The last general point I'm going to make is that traditional industries such as ours are often looked at in a negative light, and we'd like to make the point here that we are also a high-tech industry. If I took you through a mill now as opposed to many years ago, you would see the difference.

You would also see that we are the most intensively unionized industry in Canada. Our average benefits and salaries for employees are the highest of all the industries in Canada. This being said, we don't mind that at all; the point is that we think our employees are benefiting from this. We also think our stockholders are benefiting from it. But overall, if there were some very good, to-the-point tax reductions, we think that all the people could also benefit from it in the end.

So, Mr. Chairman, that's what I had to recommend.

The Chairman: Thanks very much, Madame Lachapelle.

We'll now hear from the Chamber of Commerce of Quebec,

[Translation]

Mr. Michel Audet.

Mr. Michel Audet (Quebec City Chamber of Commerce): Thank you, Mr. Chairman. We submitted a brief last July with respect to the pre-budget consultations in particular. Despite the update given by the Minister of Finance, I think that our perception of things has not changed substantially. We will, however, make a few comments on the matter later on.

Despite all the criticism that we could levy, I would like to tell you that we are, nevertheless, generally satisfied with the way the Minister of Finance has been managing our finances, federal finances, over the past few years. We must remember that we started out with an extremely high deficit and that now we are discussing how we should share the so-called dividends. We must, therefore, acknowledge that progress has been made. I think that this must be noted, despite all the disagreement that people may have with respect to the employment insurance fund and the Millennium Scholarship Fund. We must not forget this important aspect.

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What struck us was the fact that, judging by the committee members' questions, there seems to be an assumption that we agreed that spending should be increased. Since we are in total disagreement with this premise, we decided not to answer the first two questions.

The first question concerned the message we hope to send to the government as to the priorities to be considered in deciding how to use the budget dividend. The term "dividend", is, in our opinion, inappropriate. We should call things by their name; if we have a surplus, let's call it a surplus. When we have a debt, such as the one that we have accumulated, we shouldn't be talking about a dividend.

Our presentation was, therefore, very clear. We gave a three-part answer to explain what we wanted to see. First of all, the government must resist any proposal to create new spending programs. If there is pressure being exerted in certain fields—we understand that this is so in health—we already have mechanisms for transferring money to the provinces to help them find these programs. So we must resist this idea of starting up new spending programs. I believe that the update provided by the Minister of Finance, who is in fact concerned about the possible financial consequences of international turbulence, merely confirms our opinion.

Secondly, the government has to reduce taxes. This is the main answer that we make to the second question put by the committee. We were asked what changes and what new strategic investments were required for the tax system to help the government carry out its priorities. Ms. Lachapelle has just pointed out the gap between the American and the Canadian tax systems, which is considerable. We believe that it's time for the government to take action on this issue.

There are three tax proposals, three important aspects, which we feel merit consideration. First of all, there is, of course, the surtax which was introduced—we forget to say this—to get rid of the federal deficit, to attack the deficit. This is what it was called, moreover. The moment we're told that there is no longer a deficit, this surtax cannot be justified. You started to reduce the surtax last year for some taxpayers. I think it has to be abolished for everyone. If not, we should change it and incorporate it into the rates. Then we'll come to the realization that the gap between the American and the Canadian tax systems, for those earning high incomes, is much greater than people say. We are going to accelerate the brain drain, the mobility of the most active members of the labour force because, right now, high income earners are taxed much more heavily here than in United States.

The second point raised earlier by the representatives from the caisse pertained, I believe, to indexation. The current method of indexing taxes, above 3%, was, I believe, introduced at the time when we were experiencing very high inflation rates. We might as well say, that right now, there's no longer an indexation system in Canada. It is therefore not surprising to know that, over the past three years, from 1996 to 1999, the tax revenues from income tax increased or are increasing by more than $10 billion, whereas the disposable income of the taxpayers is shrinking. Indeed, personal income has increased by scarcely 2% to 3% per year, and there is no longer any indexation. It is obvious, therefore, that we have to review the method of indexation.

The third aspect pertains to the surplus in the employment insurance fund. As for the benefits, I partially agree with the opinion given by my colleague, Gérald Larose. We obviously need to reassess the way that we finance this fund. I do not, however, agree with him that we have to increase benefits. This matter was debated extensively. We have to take a look at the contributions and adjust them, now that we know that we have acquired a year's surplus. We have to look at the contribution level to ensure that the surplus stops growing.

We know that a fund really does not exist, and that it is an accounting operation, but we must not allow a surplus, which I feel is quite unhealthy, to continue accumulating. Indeed, this surplus creates pressure to once again provide much more generous programs, which will lead to new deficits.

In conclusion, in his budget speech, the Minister of Finance again confirmed that the government should never fall back into the trap of trying to be everything to everyone, without any respect for priorities whatsoever. We took his words literally. We are saying that the government's only priority is employment. And we will create employment by adjusting our tax system to make it more competitive and by managing our public finances very closely.

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Thank you, Mr. Chairman.

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

[English]

We'll now hear from Consortium Promecan, Jean-Claude Croft. Welcome.

[Translation]

Mr. Jean-Claude Croft (Director, Consortium Promecan Inc.): Good morning, gentlemen. Even if I had come up with a scenario myself for appearing here today, I couldn't have done a better job. In all honesty, being accompanied by these two individuals is the best I could have hoped for.

In the world of business, the globalization of the market has put more pressure on productivity and performance, leading to competition and stress resulting in burn-out.

We have flattened the pyramid and we are working in a linear fashion. We tried to make the employer aware of the fact that he should trade in his ideas about seniority and performance for a feeling of belonging. Today, seniority is no longer what is important, only performance. Part of the stress that everyone had, that the employer had, was transferred to the employee. We must not go as far as Japan did and have our suicide rate climb by 15% while our birth rate drops to 1.3%.

If we take a look at the real problems we're facing today, we can see that we have an aging population and a decreased birthrate, and that both parents work, which leads to daycare problems. There is more stress, leading to greater medical expenses; our teenagers take drugs because their parents no longer have as much time as they once did for leisure activities. We don't even make recreational equipment available to them, when we know that idle hands are the devil's workshop.

Finally, I would like to talk about new jobs. There is always a solution to this problem. I would spend 10% of the surplus on comfortable retirement homes, with all of the conveniences, and on home health care. In order to deal with the undeclared work problem, we should organize the daycare centres and train qualified personnel. I would earmark another 10% of the surplus to this issue.

Seventy percent of all stress is caused by a lack of training and difficulty in adapting to change. We have heard that here in Canada, many jobs are not filled because people do not appear to have accepted the rapid technological change we are experiencing. Help our workers by allocating 10% of this surplus to training.

Do you really believe that you are going be able to get rid of the mafia and the lucrative drug market? When things are legalized, they are monitored and known, and we can steer the market in the direction we want it to go. The mafia will remain active only if there is money to make.

Our young people need activities that allow them to express themselves, to excel, to improve their self-esteem. We would spend 10% on this activity. Let's keep 10% for contingencies, 20% to reduce the debt and 5% to compensate for the shortfall and poverty. There's still 25%.

That 25% should be allocated to job creation. We also have to think about achieving a monetary balance. I'm not advocating that we replace the banks, but we should be allocating this 25% of the surplus as interest-free loans to small- and medium-size businesses. However, we have to set up some barriers at the start, because right now it's too easy to get into business. Who foots the bill? Everybody does. Two or three years down the road, the business declares bankruptcy. Taxes aren't paid, the union isn't paid, etc. Who pays? Everybody does. Why? It's simple. It's because no one cares. Give me $100,000 and I could easily start up half a dozen companies tomorrow morning. It's as simple as that.

I have already submitted a brief for your attention and I also submitted two other briefs through Mr. Guy St-Julien, our member in the House.

There's one final issue that I would like to talk about: flow- through shares. Right now it's a real fiasco. People are trying to kill off the Abitibi-Témiscamingue region using unorthodox methods.

We know that a lot of businesses committed fraud. That's true. But who committed fraud? Not the shareholders. It's the managers.

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As legislation is enforced as a whole, maybe we should be sending a little message to the Department of Revenue and tell them: Listen, that's not how it works; look at all the legislation as a whole and if you want to get money, go get it out of the pockets of the ones who committed the fraud and not from the ordinary little shareholder, the fellow who worked all year to put a bit of money aside so he could take off on holidays. What does he do with that money? He buys a few flow-through shares to save a bit on taxes and help out with exploration. But what are we doing? We're coming down on this poor fellow. That's not very good.

Thank you.

[English]

The Chairman: Thank you very much.

We'll now hear from

[Translation]

The Conseil du patronat, represented by Gilles Taillon.

Mr. Gilles Taillon (President, Conseil du patronat du Québec): Thank you, Mr. Chairman. With me is Mr. Jacques Garon, our research director and economist.

The Conseil du patronat du Québec thanks the House of Commons Standing Committee on Finance for having us here and giving us the opportunity to present our comments on the 1999-2000 budget priorities in a surplus context. We were more cautious in July; at that time it was in the context of a balanced budget or maybe one with a surplus. In today's perspective, we can talk about a surplus.

We wish to present briefly our priorities for using this budget surplus. The first is of capital importance to us. It is to decrease the national debt. So the surplus should go first and foremost to paying down the debt.

We see two fundamental obligations in this matter of debt reduction. First, we have to see to it that we don't burden future generations with too big a bill. Then, reducing our national debt will decrease the impact of debt servicing. If the ratio we're suggesting in our July report is attained, and that is a debt-GDP ratio of 50%, we'd certainly create breathing room in program expenditures, to the tune of $10 billion.

Decreasing the debt thus has two results: we're not having future generations, the youth of this land, paying today's bills and we're giving our program expenditure some breathing room.

Here's our second priority in the matter of this surplus. Recent events have lead us to reversing the order of priority: the third becomes second. We would strongly urge a decrease in employment insurance premiums, both for employers as well as employees. We would like to see a significant decrease of some 45 cents with regard to the present $2.70. This money would go back into the pockets of employers and employees. It is important that this be done. We want to help employment along, but this payroll tax is a real penalty. By putting money back into the pockets of the workers, we would encourage the demand, especially coming from the middle class. I've told you that events had lead us to ranking this as our second priority. Of course, for us it is a tax decrease, but that really has to be our second priority.

If any surplus remains, there will have to be a decrease in the taxpayers' tax burden, especially in the area of surtaxes. It's important to bring the tax burden down to a level that would allow us to keep our best brains here, in Canada.

Of course, you will have come to the conclusion, in reading our report, that we're quite opposed to any increase in program expenditures. Even though the financial situation was not as good as the one that's now being announced, the last time program expenditures were increased, and we mean the Millennium' Scholarship Fund, we, at the CPQ, were left with a bitter taste indeed. We're asking you not to re-offend.

Thank you very much.

[English]

The Chairman: Thank you.

That concludes the panel presentations. Now we'll go to the question and answer session. It's going to be a 10-minute round.

Mr. Epp.

Mr. Ken Epp: Thank you, Mr. Chairman.

I would like to thank all of you for your presentations here this afternoon.

There are a number of issues that come to my mind when you're talking about how to handle the budget the next time around. I hear all of you talking about the EI. Some say we should improve the benefits, and some say we should drop the premiums, the argument being that dropping the premiums would give more money in the hands of the employees, who would then spend it and that would be a boost to the economy, and reducing the contributions by the employers would give them a little more money to invest in their businesses and to hire more people. That's the argument on that side.

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Then on the other side, we get the argument that there are a lot of people who have paid for many years into the EI fund and who now are facing unemployment and are not eligible for benefits because the benefits have been cut back. So one of the decisions the finance minister has to make is exactly where you balance that off.

There are those of you who have said redistribute the surpluses. I know Mr. Morency said he would drop the premiums somewhat. But then there are some of you here who brazenly said just give the money back to the businesses and the employees, and you didn't even mention increasing the benefits.

How do you justify that? Doesn't it seem a little coldhearted to just say, well, they're unemployed; let them be? I don't know who wants to answer that.

[Translation]

The Chairman: Mr. Larose.

Mr. Gérald Larose: We want a balanced approach. First, we can't find words to qualify Mr. Martin's policy for the weakest people on the labour market, our unemployed. When, over seven years, you go from an 87% coverage rate to a 36% rate, there are unemployed people being robbed, who are still, today, contributing to the fund and who will never have received a single penny because the conditions for access to benefits they paid for were changed. As all this has generated a surplus of Himalayan proportions, we suggest that this surplus be used to do something useful for society.

First, we have to increase benefits to cover at least 67% of the people. Second, benefits have to be increased to cover 60% of the salary. Third, pregnant women must be covered as they were heavily penalized. Fourth, the premium rate must be decreased by 20 cents; we must go from $2.70 to $2.50, which will allow us to maintain a reserve for the hard years and provide an anti-cyclical policy. When the crisis comes on, you'd at least have the money needed to maintain the economy. It's very efficient, having purchasing power for consumers.

Contrary to employers, who confer magical virtues on a tax decrease, we're deeply convinced that employers and those earning very high salaries whose contribution would decrease in a substantial way would not use that money to consume goods and services. That money wouldn't go into the economy, it would simply go to tax heaven. It would go into the virtual investment economy, a parasite economy. So we have a balanced approach which both maintains the Canadian social program and is useful for the development of the economy.

The Chairman: Mr. Taillon.

Mr. Gilles Taillon: Of course, we don't share Mr. Larose's vision of an idyllic paradise. To answer your question, our thesis is that we should especially not go back to the days we had major deficits in the employment insurance fund. So we have to watch out.

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As for the surplus coming out of all this, we think that by decreasing payroll taxes and putting the money back into the pockets of the employees, the workers, we will be creating jobs. We won't have to pay out unemployment insurance anymore, and that's a passive measure, because people will be working and won't need employment insurance anymore. That's what we're betting on.

The Chairman: Mr. Croft.

Mr. Jean-Claude Croft: I have a brief question. How do you go about creating jobs? I don't agree with some of the things that have been said. I, for one, would change nothing in the present formula. I would not decrease premiums from $2.70 to $2.50 as suggested by Mr. Larose. No, that money has to be used to create jobs. You create jobs by lending money without interest to business, but not just to big business. We're not dealing only with Bombardiers in this world. If we help SMEs, yes, I did say SMEs, improve their working capital... Canada is the best country in the world. Our population is competitive. Our human resources are as good as any others you can find on the face of this earth. I don't agree we should help only strangers and allow foreign business interests into our country. We have to help our SMEs by granting them interest-free loans, guaranteed by the owners.

The Chairman: Mr. Michel Audet.

Mr. Michel Audet: I'd like to answer this gentleman, and at the same time, say that I share the point of view expressed by my colleague from the Conseil du patronat and perhaps emphasize further that the government should clarify the fund's situation. It's clear that there is no fund, as such; it's a plan for which there is accounting, but that has been set aside. There's an amount, but there's no cash box, so to speak; it's not capitalized. We think that the amount equivalent to one year's worth of pay- outs, about $15 billion, should be enough. When that amount is reached, premiums should go down. The government would then have a lot of leeway and, if need be, it could find resources elsewhere if there's a deficit. So there has to be a decrease in premiums.

We think that an external group could set the contribution amounts every year. Some of the proposals that have been discussed recently have referred to this. We don't want a system managed by parity groups and we don't want to go through the debates we had in Quebec about this type of organization. We want to have an external group set an adequate contribution rate, every year, to cover expenditures; this group will recommend to the government what rate to set. In this manner, we would take the politics out of the debate. Adjustments can be made every year without having the people feel that the government is using money from the employment insurance fund for other purposes.

The Chairman: Thank you, Mr. Audet.

Mr. Epp.

[English]

Mr. Ken Epp: Thank you. I would like to follow up on that.

How do you then answer the critics who say that if it weren't for the fact that these benefits had been so sharply reduced there in fact would be no EI surplus? These are the people who are saying that the EI surplus, and in fact our whole budgetary surplus, which is less than the amount that's being collected from the EI fund by a fair amount, everything, is on the backs of those who are in fact now unemployed, since the money was originally collected to pay them benefits when they're unemployed and more than half of them now receive no benefits. Are you content with that?

[Translation]

Mr. Michel Audet: We had this debate when we changed the employment insurance system. Moreover, adjustments were made afterward to cover seasonal workers. Discussions about particular cases could certainly take place. As soon as you change the nature of the system, as our colleague from the CSN pointed out, you alter the program. For example, it is suggested that benefits be given to pregnant women under the system, but that's not the purpose of an employment insurance program. Employment insurance is to be used by people who are temporarily unemployed. If there is a problem, the nature of the unemployment is changed. We have to revisit the issue, and we cannot do this simply by increasing benefits. We have to really think about how to get these people back into the labour market.

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The Quebec training and manpower program endeavours to do this by providing people with training in a new discipline. In my opinion, we should be investing more money into such programs, rather than passively handing out benefits. We must increasingly turn to active measures to ensure that our manpower is adapted to the needs of the marketplace.

The Chairman: Thank you. Mr. Loubier.

Mr. Yvan Loubier: Mr. Audet, since you got off to such a good start, I will ask you a question and then I'll ask Mr. Larose to give his answer. How can you agree to live with a system that originally was supposed to cover workers hit by the scourge of unemployment and which today covers less than half of the people in this situation? How can you continue to breathe without wanting to suggest a change to this system which, for approximately the past two years, has resulted in terrible exclusions and deprived people of benefits to which they were legitimately entitled? How can you limit yourself to suggesting a drop in contribution rates, when you know very well that right now a large category of workers, particularly young people, pay employment insurance premiums even though, in all likelihood, they will never be able to derive any benefits?

By acting in this manner, I feel that you are endorsing a situation which is quite unfair and contrary to social justice that, at least in Quebec, we are in the habit of defending. I would like you to begin with this question initially because you have suggested a reduction in contribution rates. We support this reduction, however; your suggestion does not appear to include a way to ensure that a balance is attained between this reduction for employers and employees and broadening benefit eligibility under this system.

Mr. Michel Audet: I would like my colleagues to also be given an opportunity to give their opinion on this serious issue. Essentially, you are asking us whether or not we should be rethinking the employment insurance system, which, a few years ago, was widely debated when Mr. Young proposed the reforms.

Like you, we have noticed that the nature of unemployment has changed. We have noted, in particular, the phenomenon of self- employed workers. Perhaps we should once again ask ourselves some questions, although we do not necessarily have to limit ourselves to a discussion of the employment insurance system in its current form. We have to think about making some adjustments based on the evolving labour market. Employment is increasingly being created by self-employed workers, who are not eligible for unemployment insurance benefits. Could we come up with some other way to support them? If they were asked to contribute to an unemployment insurance fund, they would have to be covered in another way. We could not, without making any changes, give them benefits, since this was not the initial objective sought by unemployment insurance benefits. This is what we would have to reassess.

Mr. Yvan Loubier: Mr. Audet, I don't think that the debate really took place two years ago, when Doug Young introduced his policy. Currently not even half of the unemployed are covered. He did not get to the bottom of the issue; if he had, we would have a much better system right now.

Mr. Gérald Larose: What is so extraordinary about this is that when we debated the reforms, every time we said, "Listen, you're limiting access to the system", they would reply, "No, no, no, we are adapting to the new realities of the labour market." As Mr. Audet just said, we are sick and tired of hearing about the issue of self-employed workers and all the changes to the labour market. What was the net result? Yes, there are more self-employed workers in society, but much fewer of them have access to the unemployment insurance fund. Consequently, we did not adapt the policy to meet the new realities of the job market and, in fact, we got further away from these new realities.

Secondly, there are some people who contribute to the fund and who have access to it on a regular basis. I refer here to workers in certain industrial sectors, including restaurant waiters and waitresses, fish plant workers, forestry workers and those working in tourism. Canada is a cold country and we cannot work 12 months per year in every sector. This is an objective reality. I know that some people around the table can perhaps travel to Florida more often than others, but most of the ordinary joes remain in Canada and work part time.

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In 1940, the system was set up specifically to account for the Canadian reality of the labour market. Today, we have got Canada's fiscal house back in order on the backs of these people. And that is what is so scandalous. When I hear employers state that they are reluctant to improve the system when there is a surplus of $20 billion sitting in the fund, I find their behaviour reprehensible. This $20 billion does not belong to me, as I am working continuously, but it belongs to those people who have been deprived of their pay cheques and who cannot buy soup and bread for their children. That's how it really is. We're going to have to take a long hard look at the situation and divide this collective wealth. The federal government has not put 1% into this. The money, which has been accumulating since 1991, belongs to specific individuals and employers, and it was intended for people, not pension funds.

Mr. Yvan Loubier: Thank you, Mr. Larose. You can't be any clearer than that. Mr. Morency, you made a suggestion earlier.

First of all, what do you think the budget surplus will be for 1998-99? It would be interesting to hear your most recent forecast. That's my first question.

Mr. Gilles Soucy (senior economist, Confédération des caisses populaires et d'économie Desjardins du Québec: An analysis of the current situation, over a period of five months, reveals that there is a surplus of some $8 billion, a portion of which has accumulated in the contingency reserve. We could therefore say that the surplus is sitting at approximately $9.5 billion. It would therefore be very difficult to state that the surplus will be less than $10 billion. We are estimating that the surplus will reach approximately $15 billion. In his presentation, Mr. Martin talked about an economic slowdown, and we noted this. It is clear that our nominal GDP growth will be somewhere around 3%. In our opinion, the Minister's assessment is fairly accurate, although this amount is much higher than what was forecast at the start of the year.

On the other hand, there has been a drop in interest rates, particularly bond rates, of 1 to 1.5%. When we do projections for the months ahead, we take into account the drop in interest rates in the United States that benefit us here. When we take into consideration the slower growth and lower interest rates, as well as calculations based on budget documents from last year, we come to the conclusion that the various factors cancel one another out. We have no hesitation in forecasting a surplus of $15 billion.

Mr. Yvan Loubier: The same goes for us, since this is about the same forecast as we made.

Mr. Martin still claims that the surplus will be about 2 or $3 billion maximum, given the economic slowdown, etc. How is it that Mr. Martin and Mr. d'Aquino—I think they are the only two people in Canada to think this way—are saying, despite the obvious signs, that the surplus will be around 2 or $3 billion this year, when, as you mentioned, there is already $8 billion that has accumulated over the past five months? What is your perception of that? Is he being prudent? At some point, you have to stop being too prudent.

Mr. Gilles Soucy: First of all, Mr. Martin should be congratulated for being prudent. We agree, however, that he is certainly exaggerating. Everyone knows it and you don't have to be a specialist to analyze the data; the situation is clear. As Mr. Larose said earlier, he proved last year that he tends to underestimate surpluses and overestimate deficits. I have the impression that he is keeping some latitude for the future.

Mr. Yvan Loubier: As you see, Mr. Chairman, I am not the only one who says that Mr. Martin has been fudging the books and saying ridiculous things for the past two years about the deficit and the surplus. There is a virtual consensus in Quebec. Record what is being said and tell Mr. Martin so that he understands, since he doesn't seem to understand the situation at all. Since the beginning of the year, around 25 people have told us that his forecasts are wrong and they make no sense. He is misleading the public and playing deaf.

I have a third question, if I may, Mr. Speaker. You said that it would be possible to use the surpluses from non-budgetary operations to reimburse part of the debt. I would like you to explain what you mean by non-budgetary operation surpluses.

I would also like to ask another question and direct it to all the witnesses.

• 1210

For you, is the top priority debt reduction, regardless of economic and social objectives? Would there not be some way to try to arrive at some kind of balance by working toward several objectives in the areas of the economy, employment and sound financial management?

Mr. Gilles Soucy: No, debt reduction is not our absolute priority. As we said, however, once bitten, twice shy. Over the past 25 years, deficits have greatly impoverished us. At present, 27 to 28% of federal government revenues go to service the interest on the debt, although this percentage was as high as 36% at one point. Without a doubt, paying off the debt is important.

Our starting position is that the budget must continue to be balanced. Then, when the nominal GDP rate rises, the debt-GDP ratio will drop automatically as long as the budget continues to be balanced. We agree that the debt must be reimbursed, that there must be some room to manoeuvre and that a contingency reserve is needed. Over the past few years, non-budgetary surpluses were around $10 billion. That money could be earmarked for debt repayment. This would improve the situation on both counts, without going so far as to say that we will begin to generate large surpluses and continue to apply a restrictive fiscal policy at a time when it looks like it may be somewhat more difficult to repay the debt. I do not know if I have answered your question.

The Chairman: Mr. Audet.

Mr. Michel Audet: Thank you, Mr. Chairman. I'd like to say something. As usual, Gérald Larose is going overboard. He's painting employers or their representatives as being people without souls. I can't let that go by because the present debate has to do with the federal government's management of money.

It is true there's a surplus in the employment insurance fund and that we will eventually have to debate eligibility to the plan. But, to my knowledge, that's not what we're here for today. I wouldn't go so far as to say that the question is out of order, but it's clear that if we want to review eligibility rules for different job categories, this matter deserves to be examined more specifically and comprehensively by another committee. Here, we're looking at the matter strictly from a budget point of view. That's why we're saying we can't go back down a path leading to a new deficit in the employment insurance fund in the short term.

It's clear that some adjustments should be made and, in my opinion, there should be another debate to discuss all kinds of collateral questions, like self-employed workers, and evaluate the results two or three years later. It's normal for people to have questions and wonder if objectives have been attained.

It's not useful to group all the questions concerning employment insurance at a time when we're holding a debate like today's. That could lead us to taking a wrong road which might perhaps lead us to more deficits without necessarily helping us settle the basic problems we want to correct.

The Chairman: Mr. Larose.

Mr. Gérald Larose: I don't want to reply, but as the main tool used to improve public finances was the employment insurance fund, I'd be surprised that we shouldn't be able to speak of this before this kind of committee. It should be noted that as of the moment you don't have a deficit, the debt sort of pays itself off on its own. So, objectively, we're on the right slope of the mountain.

We think that the first responsibility of a finance minister, the person in Canada who has his eye closest to the economic situation, is to take steps to soften as much as possible the potential effects of a recession or of an economic slowdown. We think the way to do this is, yes, to add a bit on the expenditure side, especially on the side where we've been really hurting over the last few years. We think it wouldn't be a bad thing to reinvest in health, education, transfers and, indeed, the unemployed. These are proactive steps to help economic development; that's the first responsibility.

The Minister himself has set aside a contingency fund of some $3 billion. We quite agree that if those contingencies don't arise, it should be used to pay down the debt. In short, accelerated pay down of the debt would, in our opinion, be counter-productive; you'd run the risk of slowing down the economy even further. Once again, a moderate approach would be in order, especially since we have a $3 billion reserve that could actually be used for that.

• 1215

[English]

The Chairman: Mr. Garon, followed by Madame Lachapelle, and then we'll have to go to—

[Translation]

Mr. Jacques Garon (Research Director, Conseil du patronat du Québec): The answer to your first question, Mr. Loubier, is that there's a provision in the Employment Insurance Act to the effect that, in five years, there will be an in-depth review of the conditions that led to this reform. So all the elements we've addressed here will be reviewed in approximately two years. That's provided for in the Act.

So when we talk about fundamentally changing the structures of the plan, and wonder why coverage couldn't be increased and extended to all salaried employees, I quite agree insofar as we come back to a real employment insurance plan, which means severing from this plan anything and everything that has nothing to do with employment insurance, and by that I mean those social measures it contains.

If you do that, we'll be getting into exactly the same debate that lasted for two or three years and that led to the present reform. I think all those points will be looked at again and reviewed in a very broad context.

Second, as to the priority of priorities, I quite disagree with the idea that it shouldn't be put into paying off the debt when it is known that $45 billion are used to service it. It's out of all proportion. How many social programs could be improved if we had greater leeway if we were only paying half that amount? This is going to happen a very long period of time.

If we're counting on economic growth alone to decrease the debt to GDP ratio, we'll have to wait 50 years before the load is sufficiently lightened for us to be able to get that oxygen we were talking about before.

So the priority should be to put a hefty chunk of any potential surplus into decreasing debt. After that, if there's any left, why not improve or decrease the tax load on individuals?

Mr. Yvan Loubier: I put the question to Mr. Martin when he made his economic statement. I asked him if the fact that they'd put $20 billion, over the last 15 months, into reimbursing or buying back the Canadian debt security—and he was quite proud of that—hadn't contributed to a faster decline with the value of the Canadian dollar. He answered yes, but that they didn't have any choice.

But, of course, he did have a choice. He said that the debt security was maturing. He could have renegotiated it and asked the Bank of Canada to issue more to replace the maturing debt. But, when he made his economic statement, he recognized that he himself had contributed to the fall of the Canadian dollar even though at the same time he was asking the Bank of Canada to prop it up.

Maybe, in the present context, at least, we could be careful with the choice we make between the different possibilities and undertake a more balanced offensive so that through social programs and premium decreases, we could breathe new life into an economy that's already been hurt by four months of economic slowdown. We'll have to stop complaining that our poor dollar is looking weaker while our Finance Minister himself is contributing to weakening it. It seems to me something could be done on that side.

Mr. Jacques Garon: I understand that the crisis the dollar went through two or three months ago...

Mr. Yvan Loubier: It's still there.

Mr. Jacques Garon: ...is mainly due to the fact...

Mr. Yvan Loubier: It still exists.

Mr. Jacques Garon: Yes, a 65¢ dollar isn't anything to write home about. That's due to the fact that we owe a lot of an almost 600 billion-dollar debt to foreign interests. We're totally dependent on their economic forecasts for Canada. You then get into a speculative phenomenon that we absolutely can't control here.

Mr. Yvan Loubier: I have another little comment, Mr. Garon, one last one. You said that in two years...

The Chairman: Mr. Loubier, Mr. Loubier, excuse me.

Mr. Yvan Loubier: ... there would be a reevaluation. That's a long time for people paying premiums or those who aren't getting benefits.

[English]

The Chairman: We have to keep going. Madame Lachapelle, you had a comment, and then we'll go to Mr. Godin.

[Translation]

Ms. Lise Lachapelle: My comment has to do with Mr. Loubier's question, in our case, it's clear that decreasing the debt comes first and foremost for reasons that have a lot to do with common sense. For example, personally speaking, you wouldn't do anything differently. You wouldn't think of buying this or that car if it meant you couldn't meet your mortgage obligations.

Mr. Yvan Loubier: That is different.

Ms. Lise Lachapelle: I would say that it is more or less the same thing for business. If we recommend reducing the debt to create some leeway, it is because we can give you several examples. I have witnesses some among our members, who are not the worst off. They learned the hard way that people who don't look after their debts never succeed. In the end they are forced to make huge payments, as Mr. Garon was saying, and that never works. When people forget about their debts, they end up going under.

That is why with respect to the debt, we say that it is better to give ourselves some leeway in Canada, as we normally do in our private lives and in business.

• 1220

Going back to Mr. Epp's question earlier, you noted that we did not make specific recommendations with respect to the employment insurance fund. That is because we do not feel it is our area of expertise. However, in our opinion, it adds more weight to the tax burden we are carrying around. We do need some relief if industries like ours, which generate millions of jobs in Canada, are to remain competitive internationally.

That is why we feel that the solution does not stop there, but it starts there.

The Chairman: Mr. Godin.

Mr. Yvan Godin: I think that perhaps we are missing something, and that is the reason why we have this economic problem regarding jobs. Do you not feel, on the management side, that you have a responsibility there, because of the technological changes that have occurred in recent years, thanks to money provided by government? The government has poured money into industries to promote technological change, and today there are large numbers of people as a result who are unemployed, who lost their jobs.

I will quickly give you a little example. The Brunswick Mine, in New Brunswick, had 1,400 employees. Since the advent of technological change, it now has 800. Inco Limited, in Sudbury, used to employ 14,000 people; it employs roughly 6,000 people today.

All of these people have ended up out of work, in addition to the people who cannot obtain... In forestry, the same thing is happening. Do you as a business not feel responsible since these technological changes, which have undoubtedly help the company, have not but which in my opinion created jobs? The employer will say that it has guaranteed employment. But it has not created jobs.

Do you not think that we need to help people? In reality, in Canada, industry has laid people off, namely industry in the natural resources sector: mines, forestry and even fisheries. There are hardly any fish left in the sea, and moreover, there are all these technological change that have occurred.

Now that this has hit them like a ton of bricks, we are telling workers that we are no longer prepared to support them, even though an unemployment insurance fund exists, and we should help people who have lost their jobs while we try to kick start the economy and provide real jobs. The children of these people who are no longer employed or who have lost their jobs are going to school on an empty stomach, and that is very unfortunate.

I only have two questions. Since we are the third group to intervene, many of the questions I would have liked to ask have already been asked. My other question concerns changes made to employment insurance. Currently in Canada, almost 80% of businesses are SMEs, small- and medium-sized businesses. With the changes made to employment insurance, a problem has surfaced. Normally, a person who starts a business starts by hiring members of his own family. But because of the provision regarding dependents, these people do not qualify for employment insurance.

For example, if I am the owner of a small or medium-sized business, I can hire my neighbour who is not a member of my family, and if my business is a seasonal one, my neighbour will be eligible for employment insurance. The same is not true for my son, if I hire him. But your are saying that we should wait another two and a half years to amend the Employment Insurance Act and correct this unfairness that is affecting Canadian society.

I don't suppose...

The Chairman: Mr. Audet.

Mr. Michel Audet: If I may, what you have in fact raised are problems facing government. What is the nature of job creation? There is no conspiracy on the part of business to lay people off. Several industries that have been unable to cope with competition are forced to re-organize or invest in new technology to face competition.

Individuals have perhaps been affected, but all-in-all, there have been many more jobs created in Canada than have been lost. The net outcome is what is important. So it has had a positive impact on economic growth and employment.

The question that arises, and you hit the nail on the head, I think, involves having a good understanding of the impact it has had on people who have fallen through the cracks, who worked in industries that were perhaps not as lucky in terms of technological developments or natural resources, and which for one reason or another, were less in demand. That provides us with some food for thought.

• 1225

It was mentioned earlier that the Act was to be reviewed after five years. In my opinion, nothing prevents its assessment from starting prior to the implementation of the new changes, and not just after five years. I think that it will take some time to examine and understand the impact of what has happened.

Not all of the changes made to employment insurance have been bad. As you know, there are now people who can qualify and who could not in the past. This is the case in the service sector, where many people did not use to be eligible. For example, with the hourly calculation, there are people who have benefited from it. It would be...

Mr. Yvon Godin: Thirty-eight percent are eligible.

Mr. Michel Audet: In total, yes.

Mr. Yvon Godin: Those are the numbers we need to look at.

Mr. Michel Audet: What happened is that deadlines were introduced, specifically, and you are right about that. I think that we need to look...

Mr. Yvon Godin: We cannot forget the figures.

Mr. Michel Audet: The situation as a whole should be considered. You are only looking at one aspect. The entire system needs to be considered and reassessed.

As I was saying, I am not against it being reassessed, on the contrary, but that must be done as part of the debate using sound analysis with accurate data in order to determine what has really happened over the past three years, who has fallen through the cracks and how that could be remedied.

As I was saying earlier, it is not by using employment insurance to increase or finance additional benefits that we will solve the problem. We need to study the unemployment problem, examine it, and determine how these eligibility rules need to be reviewed.

I think that management associations would be prepared to reexamine the problem from this perspective, but not on a whim. We cannot say that because we have a surplus of so many billion dollars that benefits have to be increased only to realize a year later that nothing has changed. That is our concern, Mr. Godin.

The Chairman: Mr. Taillon.

Mr. Gilles Taillon: Mr. Godin, I would like to clarify that in the end, employers are prepared to work on labour market retraining. We are advocating active retraining measures, which are contained in the programs currently transferred to the provinces, as part of the labour market agreement. So we feel that it would be better to count on that as opposed to passive measures.

Mr. Yvon Godin: But in the meantime, we have to think about feeding the children.

Mr. Gilles Taillon: Let's implement the retraining measures as quickly as possible. They could enable some people to receive compensation. Such programs exist.

We believe that it is better to focus on that. The money is there. Why put money from the surplus on employment insurance, instead of using it to retrain the labour force? The money is there. That is the second aspect of employment insurance, which is now transferred to Quebec and which, I believe, is in the process of being transferred to the other provinces.

Mr. Yvon Godin: Reducing contributions would not make a big difference, nevertheless. Technological progress, in my opinion, has not created jobs. As for the money, the shareholder has put it in the bank.

Mr. Gilles Taillon: We have to be careful. I think that the job situation is better today than it was two years ago. I think that our unemployment rate is lower.

Mr. Yvon Godin: You do not come from the same place I do.

The Chairman: Mr. Jean-Claude Croft.

Mr. Jean-Claude Croft: A large part of the problem is due to the fact that these changes are not well managed. Technology, according to what Mr. Godin has said about it, reduces employment. That is not true. It is totally false. Technology creates jobs. In my small accounting firm I have 325 employees, but I have more employees since the advent of computers. I also have more in administrative positions. What is happening is that employees no longer need the same training as in the past. They cannot be afraid of the machine in front of them.

Technology brings about new jobs, but the training is not available. That is the major problem: these changes are being poorly managed. We promote technological change in our industry, we bring in a lot of machines, but we have no one to operate them. Our machines end up being outdated.

One gentleman talked about employment programs. There are no true employment programs. He should say instead that there is a huge amount of paperwork to fill out to try and get training. Yes, there is a lot of money to get people working at a desk, but at the end of the day, is there really something that will enable a worker to obtain good training? No, there is not. Paperwork, yes, there is a lot of that, though.

The Chairman: Ms. Lachapelle.

Ms. Lise Lachapelle: I would however like to reestablish some of the facts about technology. I will refer to our business since you did so earlier. Our figures show that, for the past six or seven years—I can leave these figures with you—the number of jobs went up almost 60,000. Earlier on, I mentioned roughly one million jobs in our business.

However, I must point out that technology has made a contribution. I am sure that you have seen layoffs, but on the other hand you have not seen how many people have been hired to set up this new equipment, and these people earn salaries that are a lot higher.

• 1230

In our industry alone, if we compare the average salary to what it was 10 or 20 years ago... Presently, an average salary in our business is $56,000. I am talking about the average salary Canada-wide for direct jobs. So at that level, I think that it is a bit demagogic... No, we are not taking food out of people's mouths. We consider that we have created interesting jobs, thanks to the contribution of interesting technology.

Thanks to this technology, we can also be proud of the products that are coming out of Quebec and Canada. Why? Because there is market demand for these products. Because of the market demand, our sales will continue to rise and we will be in a position to continue offering jobs.

The figures are there and they do not lie. Jobs in this sector have been created at a pace of about 10,000 per year, over the past five or six years.

The Chairman: Thank you, Ms. Lachapelle.

Ms. St-Jacques.

Ms. Diane St-Jacques: Poverty is my main concern. I'm not telling you anything new by saying there are 1.5 million poor children in Canada. If these children are poor, it is because there parents are poor.

I see in Mr. Morency's brief that he's advocating the indexation of personal exemptions and tax brackets, which is something that we fully agree with. But we're also in favour of bringing the basic exemptions up to $10,000. I would like to hear your opinion on that.

I would also like to mention that last March, I received the support of the House on a motion that was introduced to index the child tax benefit, which is another way of helping poor families.

Furthermore, we know that the benefit is not indexed unless the inflation rate is more than 3%. That for several years now, the inflation rate has been below 3%. So these families don't have more money, and they are not receiving that.

Do you think that these measures can have an impact on family poverty?

Mr. Yves Morency: We are clearly concerned about indexing exemptions as one aspect of tax cuts. But bear in mind the choice must be made and that the surplus, even if we are told that it would be quite high, cannot be entirely and solely applied to this area, although it is important. That is why the first tax cuts we suggested deal with exemptions.

Exempting the first $10,000 in income is a step that could help alleviate family poverty to some extent, il would however be necessary to determine what measure would have the greatest impact. Our main objective, however, is to focus on low income earners, so that they can keep as much as possible of their income for their families and their children.

The Chairman: Mr. Audet.

Mr. Michel Audet: Ms. St-Jacques, you raised a point that I mentioned this morning in my presentation. The problem is that when the method for indexation were revised, a decision was made not to index anything when the inflation rate is below 3%. It is clear that by doing so pressure at the bottom was increased, since incomes only go up by 2 or 3% on average. So incomes are being eaten away because the exemptions do not change. That is our concern.

Regarding employment insurance, someone asked very legitimate questions earlier on. I thought that someone would ask a question about indexation. It was implemented at a time when inflation was very high, at 7 or 8%. The threshold was set at 3%, to prevent all tax revenues from being erode, but that now seems a bit ridiculous since the inflation rate is now at about 1.8 or 2%.

So that needs some consideration as well, and you would have a partial answer to your question if indexation had been adjusted, over the past few years, to a maximum of 3%, instead of being over 3%.

Ms. Diane St-Jacques: The seniors' benefit was indexed, but not the child tax benefit. We wonder if it is because seniors vote and that children do not vote but they we're not entitled to...

Mr. Michel Audet: Oh, oh!

Ms. Diane St-Jacques: No reply?

Mr. Peter Bakvis (Assistant to the Executive Committee, Confederation of National Trade Unions): Very quickly, I would say that the member is right to point out that children are poor because their parents are poor.

• 1235

In our brief we supported the idea of re-indexing deductions and tax brackets, which I don't think have been changed since 1991. I don't want to repeat a debate that has already taken up a great deal of time. However, there is no doubt that if parents are poor, one of the reasons is that the income support programs no longer exist.

That is true of employment insurance, and I think that was amply demonstrated earlier. The fact is that women are often the people who suffer. They are often the ones who do not qualify for the program. All of the provinces, perhaps Quebec less than the others, have taken various steps to cut back on access to social assistance because, once again, of the cuts in the transfers to the provinces. Quebec and the other provinces have seen increasing numbers of people in this category, because they no longer have access to employment insurance.

I would like to emphasize one final point. Here in Quebec, the government has introduced a very modestly priced daycare program—$5 a day. We supported this program because it seems good in our opinion. However, there is a problem at the present time, because people who are using the program are no longer entitled to tax deductions. We therefore think that the rules regarding these tax deductions should be changed. Once again, this is a program that helps one-parent families, most of which are headed by women.

The Chairman: Yes, Mr. Garon.

Mr. Jacques Garon: I would like to ask a question. We know that in Canada the 20% of the population with the lowest income, when we place them in a quintile, as they're called, contribute less than 1% of all income tax collected. Do you think that all the measures you are advocating could in any way reduce poverty in Canada? Do we really need a tax measure, or do we need something completely different that would have a much deeper impact on society?

Ms. Diane St-Jacques: There may be some measures with deeper impact that could be introduced, but I do think that this is one of the things we can do. It is not a miracle solution,...

Mr. Jacques Garon: But would this not simply perpetuate the status quo, rather than getting people out of poverty?

Ms. Diane St-Jacques: This would be one way for them to get out of their situation. If people with a family income of $15,000—and we know there are lots of such families—have their basic exemption increase to $10,000, they will see their taxes reduced immediately as a result. I'm not claiming that this is the whole solution, but if we manage to reduce their taxes and put some money back into their pockets, maybe they will at least be able to put food on the table.

Mr. Jacques Garon: But the impact would be very minimal on the Quebec tax system. A couple earning $26,000 does not pay any income tax in Quebec. I imagine that with the progressive tax system we have in Canada at the moment, the fundamental problem lies elsewhere. I don't think any tax measure will get these 1.5 billion Canadians out of poverty. That is the real underlying problem, and that requires something more than just a tax measure.

Ms. Diane St-Jacques: I think there are a number of solutions that will get them out of their situation. No single approach will do. But I was wondering whether this measure might help these people out.

Mr. Jacques Garon: If they contribute less than 1% of all income taxes, I don't think this is going to go very far towards solving the problem.

Ms. Diane St-Jacques: But how would we solve the problem then, in your view?

Mr. Jacques Garon: The solution is to give as many jobs as possible to people who are unable to work at the moment. What is the situation of most of these people? They are either on welfare or they are unemployed.

Ms. Diane St-Jacques: Yes.

Mr. Jacques Garon: So I think that in the end, jobs are the best solution. They may not be the only solution, but they are—

Ms. Diane St-Jacques: Well-paid jobs as well, because there are jobs around, but often—

Mr. Jacques Garon: Look, we have to be careful when we talk about well-paid jobs. Seventy-five percent of people who are on welfare don't have the basic skills to do the jobs that are available on the market at the moment, or even other jobs. In other words, the basic knowledge required for most jobs now, and even more in the future, will call for a much higher level of general education than people have at the moment. This was apparent when Quebec reformed its welfare program: 75% of the people who depended on welfare do not have the basic skills to learn any trade. So we have a long way to go.

• 1240

Ms. Diane St-Jacques: That is another problem.

Mr. Jacques Garon: Yes, but it is a crucial one.

Ms. Diane St-Jacques: Yes.

The Chairman: Mr. Nick Discepola.

Mr. Nick Discepola: I have a number of questions and not much time. So I will ask my questions quickly and I hope to get short answers as well.

I would like to start by making a comment before asking my questions. Your party, Ms. St-Jacques, and all the opposition parties, have called for a payback of the employment insurance surplus. If my figures are right, the amount is around $4 or $5 billion. I did a quick calculation, and your suggestion to increase the basic tax deduction to $10,000, would cost $8.75 billion. These two demands alone would result in a shortfall of $13 billion. So we should be realistic before we start putting figures forward.

Unfortunately, Mr. Larose has left. It is rare that I agree with him, but I would like to clarify one thing. He said first that restoring some order in the finances of Canada had been done at the expense of the unemployed. One of the tools used was the unemployment insurance fund, but the two main factors in my view were economic growth and low interest rates, which enabled us to get out of the $42 billion deficit hole.

My first question will focus on what has become almost an obsession for the business community—namely reducing the debt immediately. We've just spent five years eliminating the deficit. Someone from the Sainte-Foy Chamber of Commerce earlier was actually calling for the debt not just to be reduced but eliminated.

You might want to comment on that, Mr. Soucy. We heard from a round table made up of four economists in Ottawa. They were Mr. Robson, Ms. Farrow, Mr. Rosenberg and Mr. Egelton, I believe. All four said unanimously... Excuse me, Mr. Godin, but it is my turn now and I have barely 10 minutes. The four of them told us that even with the $3 billion reserve, the surplus should be approximately $8 to $10 billion. I would like you to tell me how you come up with a figure between $12 and $15 billion.

On the subject of the debt, I would like to turn to the business representatives again. I said earlier that we were able to reduce this debt simply because of our economic growth. With a nominal growth rate of some 3.5%, the debt-to-GDP ratio could be reduced from its current level of 67% or 68% to 57% in five years. And if we also use the $3 billion reserve, we could reduce it to 55.5% in five years.

Mr. Garon, you said earlier that it would take 50 years to get it down to an acceptable rate. I'm wondering why we cannot simply leave it up to economic growth to reduce the debt to a level acceptable to everyone, and focus our efforts on the social debt in this country in the area of health care, and so on.

Mr. Jacques Garon: There is nothing that allows us to think that in the next five years we will be in a period of economic growth. We could be in a recession next year. It may not be certain. It is not very likely, but it could happen.

In five years? I agree with you completely, if we had continued economic growth. But there again, we are talking about crystal balls. We have no idea what is going to happen. It is extremely difficult to be certain about anything.

That is exactly why we should be encouraging the rigorous approach adopted by Mr. Martin, because so far it has worked for him. We have achieved more than he anticipated. But there are no guarantees about what we will have next year or the year after. We could find ourselves in difficult economic times. What would happen then?

If I was speaking about a 50-year period, I should point out that Mr. Martin himself said in the House that we should be aiming for a ratio of 40%, not 50%. That is why I say that 40% over a very long period is fine—why not? But it's going to take a very long time.

That is why our main priority is to use at least 50% of the budget surplus to pay down the debt.

• 1245

As far as we are concerned, it is not so much the ratio or the debt that is important; it is the fact that we have to pay $45 billion in debt servicing. There is nothing to be done about that. That is why this must be reduced every year.

Mr. Nick Discepola: But what makes these numbers—40%, 50% or 55%—so magical?

Mr. Michel Audet: If I could—

The Chairman: Yes.

Mr. Gilles Taillon: The figure in the United States is 40%. Our position is that 50% would be a reasonable effort.

A witness: And we say 55%.

Mr. Nick Discepola: Exactly.

Mr. Michel Audet: I think you are quite right: there is no hard and fast rule. We are influenced by the figures for other countries. I think that at the moment Canada has the highest debt- to-GDP ratio of any country, except Italy.

So we must start to move to reduce the ratio. I don't think anyone has a clearcut rule on this, but there must be a trend to reduce the percentage.

In addition, we should remember that not just the federal government, but also the provincial governments and Crown corporations, particularly those in the provinces, are running a debt. When we add all these debts, those of the public organizations and the various governments in Canada, we come up with a figure equal to the Canadian gross domestic product.

I think that once again we have to look at the situation as a whole. I think that at the moment everyone is headed in the right direction, and we must encourage them to continue on this course.

I would not claim that there is any hard and fast rule to provide an answer to your question. Clearly, this must be the priority. We started worrying when we heard the federal government announce that there was a fiscal dividend and that it was wondering what this money could be used for. We say that paying for the basic operations of government is substantial in itself. That should be enough. We should avoid getting into new program spending. That is the essence of our message to you.

The Chairman: Mr. Morency.

Mr. Yves Morency: I wouldn't want to get back into a debate about figures, but I would just like to say that Mr. Martin and his economists are expecting that we will have a 4 to $5 billion surplus. The economists you mentioned expect the surplus will be between 8 and $11 billion. Our figure is $15 billion. However, what is much more important is that the minister understands that he must be cautious. The Asian crisis is continuing, and it definitely is having a negative impact on the growth of our GDP.

We should also point out the impact that it's having on the money market. The money market is doing better than it was and better than it was in the budget.

Another important factor is jobs. The unemployment rate has not dropped. It has remained more or less stable, despite a growth in employment, so that there are positive and negative factors that cancel each other out.

This is what we are doing using our sensitivity analyses—the impact on the decrease or increase of employment, on the decrease or increase in interest rates. We take the analyses you prepare and we apply the same rates.

I would say that last year the effect of net budget surplus was not $3.5 billion, but rather $9 billion. If we look at the non-budgeted spending—the Minister of Finance took part of the 5.5 billion-dollar fiscal dividend and made it into a non-budgeted expenditure—and we add these amounts on to the budgeted surplus, we come up with a figure of $9 billion. Consequently, I don't think the figure of $15 billion for this year is all that unrealistic.

Mr. Nick Discepola: Yes, but in the non-budgeted items you have to include expenditures such as those related to the ice storm, which was extremely expensive.

Mr. Yves Morency: You put $2.5 billion into the Millennium Scholarship Fund, and there are other similar expenditures.

Mr. Peter Bakvis: To respond to our friends on the management side, like the honourable member, I fail to understand their obsession with paying down the debt. In his statement of October 14, Mr. Martin said that last year the debt-to-GDP ratio—and I think everyone agrees that this is an important yardstick—dropped from 71% to 67.8%. This is a reduction of more than 3% in one year, even though we did not even have a policy that called for generating a budget surplus.

In fact, a fairly modest surplus of $3.5 billion for last year was announced—and we agreed with the estimates. We managed to get the deficit down.

I had to laugh earlier when Mr. Garon said that it would take 50 years. Look, at this rate, we will have an accumulated surplus of 87% of the GDP in 50 years. What policy should the federal government adopt then? I agree with those who say that we are going through a period of uncertainty. We must absolutely avoid doing anything that might increase the likelihood of a recession.

Canada is the only G-7 country with such a restrictive policy. Just take a look at other countries, including our neighbours to the South. Consequently, it is quite prudent and appropriate for a responsible government to take that money now and use it to stimulate economic activity.

• 1250

The Chairman: Mr. Taillon.

Mr. Gilles Taillon: We are not obsessed about the debt, Mr. Discepola, but we do say that we should not forget to work on it. We should not count on economic growth alone. We have a balanced approach: reducing the debt, yes, reducing employment insurance premiums and reducing income taxes. Our obsession is that there should not be any new spending.

Mr. Nick Discepola: That is different, Mr. Taillon, because across Canada that's all that business people are saying. The priority is debt reduction and not reinvesting in social services, health, etc. But I can see that there is close to unanimity around the table: we have to be careful. Since we cannot see into the future, we have to be cautious.

My first question may be a trap question, I will admit, but who among you would be willing to cut his income in order to solve his personal or business problems? No one. Therefore, why are you asking us today to cut our income by dipping into the supposed surplus in the employment insurance fund, whereas all the... Did I interrupt you, gentlemen? No. So be equally polite.

All the current studies tell us that in the advent of another recession, perhaps in a year or two—let's hope that won't happen—we have to be careful. All the current studies indicate that we need approximately $15 billion of the supposed $19 billion surplus to create a cushion in view of a future recession. So, we are really talking about $4 or $5 billion. Some people are telling us that we should unconditionally remit the eventual surplus to people by immediately reducing the premiums. All the opposition parties unanimously called for this. They gathered together in one room and held a fine press conference to announce their unanimity. Today I am hearing that perhaps we shouldn't simply give all this money back to people, but rather consider increasing coverage, reducing premiums and increasing investment.

I wonder which has priority. I think that the Conseil du patronat said that there should be a 45¢ decrease. That represents $3.3 billion. The opposition parties have asked us to give 60% back to businesses and 40% back to the employees who have paid.

Should we rather consider this as a source of additional income and determine our priorities? Is it appropriate to invest in health, to broaden the coverage, etc.? This is the real dilemma, in my opinion, and the decision is not easy.

The Chairman: Mr. Croft.

Mr. Jean-Claude Croft: For the first time in I don't know how many years, we have an active rather than a reactive Minister of Finance. We have stopped putting out fires and started to manage properly. What is sound management? The Minister knows. Why does he know? Because he comes from the business world. The guy is a businessman. Do you want a boat? Perhaps you can't afford one. Just watch him. He knows how to manage. Manage like him, and you may be able to afford one someday.

You have to take the initiative. It's not enough to put out fires, as we did in the past. I would suggest that we always reserve a minimum of 20% for debt repayment. I think that is fair and logical.

Obviously, he did not use 50% of this for debt reduction, that would be too much; but a constant minimum of 20% must be applied to the debt. As for the rest, as I said in my brief, we have to balance the budget.

The Chairman: Mr. Audet.

Mr. Michel Audet: I don't think anyone has suggested that we should return the $20 or $18 billion accumulated to the people, at least no one on the management side. We have had the opportunity to discuss this with Mr. Martin, and we are aware that there has to be a basic reserve, as Mr. Larose mentioned a while ago, as a contingency fund in case of a recession.

However, when we have a surplus equivalent to one year of pay- out, for example, the $15 billion deemed to be in the fund—the fund exists in the books, but not as a capital account—the government is approaching a credibility threshold, and we have to ask ourselves questions. Will we continue to allow the surplus to grow or will we do something else? I do not think that it would be advisable at the present time to let it continue growing.

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We think that we have here the opportunity to adjust the rates so that an amount equivalent to one year would remain in the fund, about $15 billion. Should there be a surplus of $3, $4 or $5 billion a year, we could decide on a premium reduction of about 15 or 20% or approximately 50 cents.

I rather mention percentage points because it is $1.40 for $1.00. Mention was made earlier of 20% of the premium paid by the employers and the employees for the next year although we might have to reassess eligibility. Since under the system people are excluded, it should be reviewed but it is not done. A rate is set. No change should be made like that, straight out, bases on a budget. This is the answer that I wanted to give you to correct the perception that we wanted to return... This is not the perception that the management side wanted to give.

The Chairman: Thank you, Mr. Audet. Mr. Morency.

Mr. Yves Morency: I would like to go back a little to what Mr. Audet was saying. It has to be pointed out that the government created an unemployment insurance program. So please, let's focus on a single objective, that is supporting workers in difficulty through this instrument. Let's not consider the instrument has having two or three objectives.

Mr. Nick Discepola: That is the case, Mr. Morency.

Mr. Yves Morency: But we are just telling you—

Mr. Nick Discepola: The current program provides for illness, maternity, adoption, shared work and income support. It is not a simple insurance plan.

Mr. Yves Morency: What we are saying is that the surpluses that may occur, except for a contingency reserve in case of major problems, which might amount to $10 or $15 billion, should be redistributed to people.

It is a group insurance plan that has been developed by Canadians and Quebeckers, both workers and employers. Since it is a group insurance plan, let's give the surplus to those who have contributed, not all Canadians. There are other programs for that. Employment insurance must serve only those ends. The surplus should be distributed to the subscribers as a premium reduction or in the form of improved conditions.

Mr. Nick Discepola: If next year's surplus were $5 billion, you would demand that $3.3 billion be returned to the employees and employers.

Mr. Yves Morency: That is correct.

Mr. Nick Discepola: That's clear and simple.

Mr. Yves Morency: Yes.

Mr. Nick Discepola: That is why I have been asking myself that question since the beginning. I have heard many people say here this morning that we should not do this, but rather invest the money in research, health and education.

Mr. Yves Morency: Why?

Mr. Nick Discepola: We can't do everything. We have to set priorities.

Mr. Yves Morency: I agree with you, but why use the EI kitty for other ends? Use other programs for that.

Mr. Nick Discepola: I gave you examples. It's already used for other purposes. Perhaps we should carry out a study, as Mr. Audet suggested, to see how we want to use this insurance.

Mr. Yves Morency: But, Mr. Discepola, EI reforms have been carried out. This is for a specific purpose. There are other federal programs for that.

The Chairman: Thank you, Mr. Discepola.

Mr. Taillon.

Mr. Gilles Taillon: I would like to make a comment. If the EI fund did not exist, there might not be a budget surplus.

An hon. member: We agree with that.

Mr. Yvan Loubier: He gave $8 billion, Mr.—

[English]

The Chairman: Mr. Szabo.

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

I was a little disappointed that we spent so much time on EI today. When you deal with this issue of the 43% of jobless Canadians who qualify and the 57% of the jobless who don't, that 50% of the jobless includes those who are unemployed for more than a year, which the plan was never intended to cover; those who had not applied, and the plan can't do much about that; those who had quit for no reason, and that's a personal choice; and those who didn't ever work basic qualification weeks as well as those who are reduced from eligibility simply because of product use, i.e., they use it as an income supplement as opposed to insurance. So it does lead to a lot of interesting rhetoric.

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Someone suggested that the surplus was raised on the backs of the jobless, and I wonder about all the Canadians, the vast majority of Canadians, who paid all their lives and never claimed a penny. You wonder about whether or not they're entitled to some benefit from having contributed as well, as opposed to just those who are unemployment insurance users.

If you ask the jobless whether they wanted increased benefits or a job, I guarantee the answer would be a job. And I ask a rhetorical question about what the unemployment rate would have been had the EI surplus been simply returned along the way. What exactly would have happened? We probably would have had more jobless.

For those reasons, Mr. Chairman, I am disappointed we spent so much time on the EI when you consider—and I thank Ms. St-Jacques for raising it at the table—the issue of poverty.

We have a serious problem in Canada, a large number of families living in poverty. And if you were going to deal with it you'd have to deal with certain problems, such as family breakdown, high school drop-out rates, general health problems, and the fact that 25% of the children in Canada enter adult lives with significant emotional, behavioural and other social problems. These mean higher social program costs, health costs, criminal justice costs and education costs. They mean that Canadians can never achieve real tax relief or major repayment of debt or major improvement in social security in Canada until we deal with this problem of poverty, particularly as it affects children.

We've spent all the time on EI, and I want to give you one more chance. If you were going to suggest to the government what it might do with the limited resources that might be available, would you give a portion of it to deal with the issue of poverty in Canada?

The Chairman: Who would like to comment or answer? Please, not so many hands all at once.

[Translation]

Mr. Peter Bakvis: To start, I will tell you I think this is absolutely great. You are saying we shouldn't be talking about the EI plan, which reduced coverage of unemployed Canadians from 90 to 43% last year and 36% this year. You are saying this has nothing to do with poverty. You should be talking about poverty instead. I find this absolutely fantastic. We have proposals to improve the EI plan. As Ms. St-Jacques has pointed out, children are poor because their parents are poor, unless you are proposing that children start to work at 12 or 8 years old. Therefore, children are poor because their parents are poor.

We have reduced EI benefits and have also reduced the amount of money transferred to the provinces for health and education. Everybody knows that these programs are important in a modern economy, that they can help create jobs; but it was decided to cut financial assistance to the provinces to...

[Editor's Note: Inaudible] Finally, the funding for social assistance was reduced. Once again, this affects the poorest people in society, who are not eligible for EI. It was decided to cut the transfers to provinces for that program.

We are being asked to propose solutions to deal with poverty, but please, don't mention all the programs that could have an impact on poverty. You are rather limiting us in the solutions that we can propose.

The Chairman: Mr. Croft.

Mr. Jean-Claude Croft: One of the solutions for poverty is job creation. As I said a while ago, instead of giving the EI fund surplus directly back to people, we should use it to help small businesses. At the present time, small businesses have a great deal of difficulty obtaining upgrading funds because the banks want to make money, like any other business, and they are making a lot of money.

If we allocated a certain amount of this money to interest-free loans to businesses, this would create jobs. Creating jobs would reduce poverty. Thank you.

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[English]

The Chairman: Is there any further comment? Mr. Szabo.

Mr. Paul Szabo: I just wanted to emphasize again the reason for the 43% and the fact that you're blaming everybody.... It raises the question, do you want EI to pay benefits to people who are unemployed more than a year? That's a change of policy. Do you want to go and hunt down people who never applied? Do you want to pay people EI benefits who quit for no reason? They just quit on their own volition. Do you want to pay people benefits who only worked a few weeks and then went somewhere else and didn't qualify? And do you want to continue to pay people who are chronic users and pay them at the same high rate the occasional user would get? Those are real questions that beg the question about what EI is. Is it really insurance or is it income replacement or a supplement?

This debate shouldn't happen here, but it has to happen eventually because these things are not going to go away unless we understand what the real purpose of EI is.

[Translation]

The Chairman: Mr. Bakvis.

Mr. Peter Bakvis: The plan has never paid benefits to people who were unemployed for more than a year. It was decided in 1998 that the changes were quite valid...

[English]

Mr. Paul Szabo: The 57% of the jobless who don't get EI benefits include those who are unemployed.

Mr. Peter Bakvis: Yes, and the 10% who didn't get benefits in 1990 didn't get them either.

Mr. Paul Szabo: It's intellectually dishonest to use that figure.

Mr. Peter Bakvis: You're the one using it.

Mr. Paul Szabo: No, it's in your brief.

[Translation]

Mr. Peter Bakvis: What I want to say is that those people were not eligible for EI benefits at the beginning of the decade, when the rate of coverage was 87%. We were given a number of categories. Labour market changes have resulted in a greater number of self-employed workers. Nothing has been done to improve their access to the plan and, furthermore, a series of limits were created which mean that other people who previously had EI coverage and were unemployed, no longer have it, including seasonal workers. These were not unemployed people who worked every two or three years.

If I have fully understood it, intention is to totally exclude from the plan people who, for all sorts of reasons, cannot work 12 months per year. Changes are being proposed that go much further than the very serious restrictions that have already been established.

[English]

The Chairman: Are there any further comments?

I want to follow up on the issue of employment insurance. Ten years or so prior to the reform, what studies indicated was the fact that the cost of the unemployment insurance program itself went from $8 billion to $20 billion, and I'm wondering if you believe this type of system was in fact sustainable.

Mr. Bakvis.

[Translation]

Mr. Peter Bakvis: We can send the committee very specific proposals that go even further. We describe our proposals to reform the plan in a few paragraphs. We are not proposing a return to the rate of coverage that was close to 90%, less than 10 years ago. We are proposing a gradual restoration of benefits to achieve a coverage rate of 67%. If the committee is interested, we can send you specific proposals. Moreover, they have been set out in a brief prepared by the three Quebec labour federations, not ours alone. We are aware that the plan has to be reviewed, and that it must take into account the fact that labour market changes have resulted in an increasing number of self-employed workers. The plan should also address these people.

We don't have the time to discuss all of the details we are proposing, but to answer your question very directly, we are not proposing to go back to the plan as it existed in 1990. We are ready to examine changes to update the plan, but so that it returns to its function of providing income support to people who lose their jobs, and not only to a third of those people.

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[English]

The Chairman: I'd also like to know what your view is on the issue of the relationship between the EI benefits and the average industrial wage. What type of relationship do you think it should have?

[Translation]

Mr. Michel Audet: This is among the questions that should be asked by a possible parliamentary committee on the subject. It is obvious that the plan should encourage people to go back to work. At the present time, there are good questions to be asked. Adjustments have been made. In some cases, they seem to be satisfactory and in others they have produced successes. I completely agree that a budget speech is not the time to completely change such a complex program that involves many stakeholders in society. There are major changes. And your committee could recommend that we do specific work and that we are provided with the real data. A while ago, a point was made concerning contradictory data in the information presented by the CNTU. I would like us to receive correct documents with accurate figures. What has happened in the past three years? What were the results? Then we will be able to make recommendations. Is the current level satisfactory or not? I do not presently have answers to give you in this regard. I think we have to be very careful not to make sudden changes on the grounds that we have to correct the situation or because we think this is the way to deal with the issue on poverty or employment. We will not create jobs by changing benefits; jobs will be created by the conditions that promote employment. When payroll taxes are increased, unemployment is created, not jobs. It is very important to keep this in mind.

The Chairman: Mr. Bakvis.

Mr. Peter Bakvis: I would like to point out that the situation is urgent. Last year the coverage was 43% and this year we're talking about 36%. What will it be next year, if the plan is not changed? The situation is urgent. We are all concerned about poverty. In fact, no one has said the contrary. A program that previously was an important pillar of the Canadian social safety net against poverty, is disappearing before our eyes.

Yes, I agree that the situation must be reviewed, but quickly. A lot of studies have been carried out and many figures are available. I do not see why such improvements to the plan could not be implemented in the very next budget, for 1999-2000.

[English]

The Chairman: Mr. Audet, the reason we ask these questions is that we invite experts to these panels and benefit a great deal from the wisdom you have acquired over the years. The questions are therefore sometimes more specific than the actual issue that we're dealing with.

We were dealing with cyclical unemployment on an ongoing basis. One of the challenges we have faced as a result of the various free trade deals, globalization and what have you, has been the structural nature of unemployment. Because you do deal with people in the labour market, I'd like to get a sense from you as to whether you see a levelling off of that type of unemployment, or whether you see it as an ongoing issue.

[Translation]

Mr. Jacques Garon: I will give you one aspect of the answer. I think that this problem will continue for at least the next 20 years. This is a period of transition from a traditional economy to an economy of knowledge. All of the technological changes that are taking place increasingly rapidly are gradually, slowly but surely, changing the way we work. In this context, I do not see how we could do anything but continually adjust to labour-market changes.

The Chairman: Mr. Audet.

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Mr. Michel Audet: One phenomenon is quite clear at the present time, at least in Quebec: the new jobs are all highly concentrated in what is called the new economy. Workers are often hired on contract and there are also a lot of part-time workers. A major shift is taking place in the labour market, and we have to recognize it. There are the traditional economic problems that were raised a while ago by the member from New Brunswick, but the real problems at the present time are with these new trends in the economy that will accelerate. In my opinion, there is no doubt that this movement will accelerate.

So, as we reflect on this we should ask whether there's a way to have a system for protecting those people without discouraging them from working. By definition they are entrepreneurs, so they should be encouraged to find work. That's what is meant by an independent worker.

It is not an easy situation. This debate is also being carried out in the United States and elsewhere in the world. It would be useful to broaden our reflection on this subject.

The Chairman: Mr. Bakvis, followed by Mr. Croft.

Mr. Peter Bakvis: Like Mr. Audet and Mr. Garon, I believe that structural unemployment will continue. Besides, Mr. Martin himself in his speech on October 14 greatly insisted on the importance of the impact of globalization, but what is disappointing is that there are no answers.

How to answer that question? We simply have to look at what other industrialized countries have done. When NAFTA was negotiated and implemented in the United States, a program was set up to compensate the workers losing their jobs because of the implementation of the treaty with Mexico and Canada. Everyone agrees that free trade had far more impact in Canada. In Europe, with the European Union, there is a series of measures and funds to reinvest in regional economies suffering from job loss and factory shutdowns. There are programs to compensate older workers who have difficulty in finding a job. Most unfortunately, Canada, which has a much more open economy than the United States, did the contrary. The only revenue support program for most workers was unemployment insurance, which became employment insurance. Even programs like the assistance fund for elderly workers was cut, a program that compensated workers who were working for companies that had to shut down because of structural change.

We don't have to examine this for very long before seeing that very convincing and interesting experiments are being carried out by other industrialized countries to face the impact of globalization.

The Chairman: Mr. Croft.

Mr. Jean-Claude Croft: One of the ways that Canada had found to stimulate job creation was flow-through shares. With flow- through shares, Canada had a major asset in hand to bring in big industry and find raw materials, base metals. Regarding products, I'm speaking for instance of calcium carbonate and other things like that. Base metals include copper, and precious metals include gold. The government currently has an attitude toward flow-through shares... I won't tell you what I think of it. In any case, flow- through shares are highly penalized. If we promote flow-through shares again and allow the industry and specifically the mining industry to do research and development, we'll be creating jobs again and we will become the number one competitor in the world. Currently, base products are being produced and raw products are being sold. Let's try to go further and make finished products rather than selling iron at 1¢ per ton as some prime ministers have done in the past.

[English]

The Chairman: I'll just follow up on something you said, Mr. Croft. When Mr. Martin appeared in front of our committee, one of the issues he raised was the fact that countries abroad view the Canada of yesteryear. In other words, they have a perception of Canada that is probably twenty or thirty years old. Judging from your comment, you basically are depicting a Canada of yesterday. I'm just wondering whether or not more work needs to be done to present a modern view of Canada not only to people abroad but to Canadians. I think this can in fact help us to better understand where we need to move.

• 1320

[Translation]

Mr. Jean-Claude Croft: What do you mean by the old vision of Canada?

[English]

The Chairman: Basically, the Canada you have described is very much the Canada that is a commodity-based, resource-based nation, whereas in his speech about the economic and fiscal update, Minister Martin spoke about a Canada whose productivity rate is going up. He spoke about a Canada in which machinery, equipment and automotive products have accounted for a larger share of our exports than have commodities ever since 1992.

I'm just wondering whether there is a lag in Canadians' understanding of their own economy and whether that should come first before we try to convince other people abroad that it is a new Canada, that it's an avant-garde Canada, that it's a Canada that is very much in a different world from the one of twenty or thirty years ago.

[Translation]

Mr. Jean-Claude Croft: Do you know the percentage of copper processed in Canada? Copper leaves Canada as a raw material, is processed in foreign countries and comes back to us as a finished product. I think that here in Canada, people have the needed skills to do this processing. The only bit of help we need would be interest-free loans. I didn't mention subsidies, but interest-free government loans to replace what we have to pay to the bank.

I have to pay at least $25,000 a month just for banking fees to run my business. If we had interest-free loans, we could restart the economy much more quickly because we could make finished products, all the more so since our dollar is presently weak, which helps exports.

[English]

The Chairman: Okay, thank you.

Mr. Stinson.

Mr. Steven Stinson (Director, Finance and Business Issues, Canadian Pulp and Paper Association): I would like to respond to this characterization of the Canadian economy.

It's very important we recognize that the so-called traditional industries still are very much with us. If you were to go into some of the remote regions of the country that depend on the forest industry, mining, or oil and gas, the problems that some of these industries are facing are very real. They don't see that much salvation in the kinds of things that are often talked about by cabinet ministers in regard to moving into the information age and such. That's not to suggest that even these traditional industries are not moving forward and applying the technologies that have come from other industries, but we have to recognize that they still are a very important part of our economy.

I must admit I was a little bit troubled by Finance Minister Martin's comments about how well we've done in terms of moving from resource-based products to non-resource-based products—presumably high technology and the like—as some sort of policy success. If you take a look at the forest industry as an example, global demand for forest products and pulp and paper has been growing, but what has happened is that we've fallen behind. We're still the largest exporter of pulp and paper products in the world, but there has been much more investment going on in other countries. We've lagged behind the Nordic countries, western Europe, Japan and the United States.

There's almost a stigma attached to the fact that we are resource-based, and we want to put that behind us. We should be careful that we're not so fascinated with this new economy stuff that we don't pay attention to the bread and butter issues of the old economy.

How can we apply technologies in these industries so that we can leverage off our advantages? One interesting comparison comes from looking at countries like Norway and Finland, countries that do have a fairly large resource component. Their standards of living are higher than that of Canada. What they've done, in Finland in particular, is look at their forest products cluster as a source of competitive advantage. They're among the premier suppliers to the industry around the world in terms of pulp and paper production technologies.

• 1325

Just as an anecdote, Nokia, which is one of the biggest suppliers of cellular and digital telecommunications technology, got its start supplying the forest industry. We have to look at these industries and the roles that our suppliers play in our industry, and at how they can leverage off that and into markets supplying the forest products industry throughout the world while also leveraging those technologies that they developed into other products and other markets.

The Chairman: I'm going to give Mr. Taillon the last comment.

[Translation]

Mr. Gilles Taillon: I'd like to correct something Mr. Bakvis said. He forgot to mention that there is a Canada-Quebec agreement for $500 million a year for the three coming years for manpower adjustment. So we shouldn't say that there is nothing.

Mr. Peter Bakvis: I don't know what Mr. Taillon is referring to. I didn't mention this agreement, but if he wants to discuss it, I would be pleased to do so.

Mr. Gilles Taillon: I thought I understood—perhaps I misunderstood—that there was no manpower adjustment program in Canada.

Mr. Jean-Claude Croft: I mentioned something about that. I said that there was a lot of red tape but very little action.

Mr. Gilles Taillon: I agree with you on that point. I did not say that the $500 million were well used, but they are there nonetheless.

Mr. Jean-Claude Croft: There is money there, but...

[English]

The Chairman: This conversation could be a great lunch one. Perhaps you can have lunch together.

On behalf of the committee, I'd like to thank you very much.

The meeting is suspended until 2.20 p.m.

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• 1428

[Translation]

The Vice-Chair (Mr. Nick Discepola): Good afternoon. Pursuant to its mandate under paragraph 108(2) and clause 83.1 of Standing Order 83.1, the Finance Committee now resumes its pre- budget consultations.

This afternoon, the following witnesses will participate in our committee deliberations: from the college students' federation of Quebec, Mr. Mathieu Painchaud; from the university students' federation of Quebec, Mr. Pascal Bérubé, Vice-President; and Alexis Boyer-Lafontaine, coordinator for socio-political research; from Alliance Quebec, Mr. Harold Chorney,

[English]

chairman; from Development and Peace—Canadian Catholic Organization for Development and Peace,

[Translation]

Mr. Jean-Claude LeVasseur, President of the National Council, and Mr. Jacques Bertrand, research assistant for the Genesis Project,

[English]

Gary Saxe, community organizer, and Alice Herscovitch, executive director; also, Mr. Hugh Rowe, a financial adviser from DPM Securities Inc., is here as an individual.

• 1430

[Translation]

Usually we invite each witness representing an organization to make a five- to ten-minute presentation, and then we go on to the members' question period. I will probably follow the same order as before and will give the floor to the representatives of the Quebec college students' federation, whom I welcome here.

Mr. Pascal Bérubé (Vice-President, Fédération étudiante universitaire du Québec): Thank you very much, Mr. Chairman. First, please let me introduce the organization I represent.

The Fédération étudiante universitaire du Québec represents 15 university students' associations in every region of Quebec and at every level of study, including bachelors, masters and doctorate degrees. Our federation is engaged in defending the academic interests as well as the social and economic conditions of Quebec university students.

Mr. Mathieu Painchaud (Research Coordinator, Fédération étudiante collégiale du Québec): I represent the Quebec college students' federation; our affiliates include about 20 student associations from the Quebec college environment and 90,000 students. We want to promote their interests, both academic and socio-political.

Mr. Pascal Bérubé: Our federations have come together to file this brief before you today. We want to thank you for allowing us to submit this brief with our positions regarding the use of budget surpluses. Our federations have been interested in budget matters for a long time, both in Quebec City and Ottawa, and especially in situations where we are asked for suggestions regarding their use.

Our recommendations are directly aligned with the requests we made over the past few years in previous briefs. Thus, in this brief you will find our positions regarding the Canada social transfer as well as other matters.

Budget decisions made in the past years, let us remember, have had an impact on the financial situation of the Quebec government, and that is the point we will be emphasizing today.

Mr. Mathieu Painchaud: Indeed, as my colleague emphasized, the recommendations we are making today are directly aligned with those we already made during previous consultations, including the ones regarding the CHST, when we asked for reinvestments to rejuvenate the social programs in all Canadian provinces. We will also deal with the employment insurance issue and recommend that its surplus be used to improve living conditions of workers who lose their jobs.

In our brief, we also deal with research and funding councils. Research in Canada is a very important issue for both federations and we wanted to raise this question. We also touched briefly on taxation, recommending more progressive taxation for Canadians as a whole. These are the major issues that we have dealt with in our brief.

Mr. Pascal Bérubé: Let us go back, if you will, to 1995, when the federal government undertook a vast, comprehensive reform of transfers to the provinces. The transfers were then in the form of a lump sum contribution for health, social assistance and post- secondary education. The new formula, called the Canada Health and Social Transfer, is special in that it does not tie the provinces' hands with respect to distribution of the money. The provinces can now use the funds as they like.

These reforms were accompanied by major cuts in the transfer amounts. Across Canada, funding through the CHST has been reduced substantially since it was created. Transfers to the provinces decreased from $27.1 billion in 1994 to $20.3 billion in 1998.

The cuts in transfers are creating tremendous pressure on provincial finances, and we are familiar with the implications for education. Obviously, reducing the federal deficit has been done by off-loading onto the provinces, through cutbacks.

Besides slowing the process of cleaning up public finances by the government of Quebec, cuts to the CHST have had a direct impact on post-secondary education. The concrete result has been net budget cuts for both colleges and universities of over $280 million since 1997-98.

There is a consensus in Quebec on the need to protect social programs while tackling the deficit, as is being done now. In the education sector, for example, the impact of the cuts is in direct contradiction to the government's major themes in its latest budget, that is the importance of the knowledge-based economy and access to post-secondary education.

The present CHST cap of $12.5 billion also points to another problem. Is this level adequate to ensure stable funding for social programs in Canada? This is a very relevant question.

• 1435

For those of us in colleges and universities and involved in the Quebec student movement, it is clear that funding for post- secondary education is a priority in Quebec and cutbacks in this area jeopardize the quality of training and accessibility. Should we perhaps recall the government's promises in the 1997 election campaign to put 50% of the budget surplus toward funding social programs?

We would ask the government to return the Canada Health and Social Transfer to 1994 levels.

Mr. Mathieu Painchaud: Our position on employment insurance is the same, as I already mentioned, as it has been for a long time. The Chrétien government stated numerous times that it wants to improve the social safety net to guarantee what the government likes to call equality of opportunity for Canadians. We feel that in order to really guarantee equality of opportunity, the government must focus on protecting workers when they lose their jobs.

Before the employment insurance reforms, when the program was called unemployment insurance, 70% of unemployed Canadians were eligible and received unemployment insurance benefits. After the reforms, the proportion dropped to 40%. In our view, that is unacceptable and the benefit rate should increase significantly in the upcoming years.

We need to look after young people, who are very often the ones with insecure jobs, who need benefits and who do not have them at present, given the current employment situation. Many of these young people do contract work and are self-employed. As a result, they tend to be in difficult economic circumstances.

In our opinion, the government should reinvest the surpluses from the employment insurance fund in improving protection for Canadian workers. This should not be an employment tax, but rather protection for workers.

It is also important to keep in mind that, in Canada, there has been negative growth in jobs for young people; there was a loss of 500,000 jobs between 1988 and 1997. I believe that that should send a clear message to the government, to the effect that it needs to reinvest in protecting workers.

We recommend that surpluses from the employment insurance fund not be used by the government for purposes other than protecting unemployed workers and that coverage be extended to a larger number of workers, in particular by lowering the number of hours needed to be eligible under the plan.

Mr. Pascal Bérubé: The debate that came out of the ministers' meeting in Saskatoon and the discussions held there on the Canadian social union have led us to some considerations that are directly related to the debate on how to use the surpluses.

The crux of this debate is the federal government's spending power; a number of analysts fear the worst, since there will be very strong pressure on the government to create new programs.

The government has a duty to respect the exclusive jurisdiction of the provinces in certain areas. It must above all resist the temptation to look for visibility at any cost, to the detriment of Canadians. A very clear example is that of the Millennium Scholarship Foundation, which we have opposed since the beginning and which shows clearly the federal government's intention of interfering in a provincial jurisdiction in order to raise its visibility.

We should also keep in mind the consensus reached by the provinces at the Saskatoon meeting. First of all, the government must not create or change national social programs without the consent of the provinces. Second, it has a duty to fully compensate the provinces if they decide to opt out. National standards must be set in co-operation with the provinces. Finally, there needs to be a resolution mechanism to ensure that national standards are met by the provinces.

In short, after all the cutbacks over the past few years and the fiscal exercise carried out by the federal government since it came into office, it seems clear to us that the sacrifices that have been made on the backs of the very poor, including students and the unemployed, must lead the government to reposition its interventions, particularly where social programs are concerned. A very clear promise in the Liberal Party's Red Book states that 50% of the surplus would be reinvested in the Canada Health and Social Transfer, in health services, education and social programs. We want the government to keep its promise.

We would also ask the federal government to avoid intervening in provincial jurisdictions, as was done in the case of the Millennium Scholarship Foundation, and that it not be tempted to create new programs to increase its visibility. There is a consensus at the provincial level, and we fully support that consensus.

• 1440

We will summarize our major recommendations one by one: the government should use budget surpluses to increase the Canada Health and Social Transfer to 1994 levels by returning to the provinces the funding that was improperly cut from the CHST envelope; the government should fulfil its commitment to increase the budgets of granting councils by $400 million over the upcoming years; the government should reaffirm its resolve to invest in the knowledge-based economy and research and development by publicly announcing an action plan for the next few years that includes both funding and strategic directions; the employment insurance fund surpluses should not be used by the government—this must be clear; coverage should be extended to more workers, in particular by lowering the number of hours needed to be eligible for benefits; the government should restore progressive taxation; it should fully index tax brackets; it should eliminate many tax shelters; and finally, it should shift a greater part of the tax burden to businesses.

That ends the presentation by the Quebec student federations.

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

Mr. Chorney, I will invite you now to make your presentation.

Mr. Harold Chorney (Chairman of the Board, Alliance Québec): I will start by giving you a brief summary in French, and I will go on in English after that.

I would like to talk about the issue of transfer payments and how they are inadequate to guarantee our community access to services in our languages, particularly in the social and health care sectors. I will also point out that, compared to language minority communities outside Quebec, we do not have a fair and equitable share of the funding. I will deal with the problem of the economic slowdown and excessively high real interest rates, as well as the need to stimulate the economy in order to avoid another recession. I will speak on the role of fiscal policy and monetary policy in the present circumstances, of changes with respect to these issues, and especially of a return to an approach that emphasizes demand rather than supply, the reemergence of the ideas of John Maynard Keynes and perhaps, I hope, the eclipsing of the influence of Milton Friedman.

[English]

As you know, Alliance Quebec is the largest community-based organization working on behalf of Quebec's English community. We said this last year, and we say it again, that we feel our funding is not adequate in comparison to that of the linguistic minority outside of Quebec.

In particular, we're very concerned about access to health and social services. In this area over the past five years, there have been continual budgetary compressions or cutbacks in the transfers from the federal government and in the funding from Quebec. Those reductions have made it more and more difficult for our community to be guaranteed this access. We would therefore like to ask you to consider this question carefully, examine the agreements that have governed this relationship in the past, and restore funding to its previous levels. We'd like a new five-year agreement in order to ensure that the vital access and vital services that were provided by these transfers of funds be widely available, and that these funds be restored.

We're requesting, of course, that Quebec contribute its fair share as well. The secure future of the English-speaking minority in Quebec demands nothing less than this. After all, we're talking about our elderly, we're talking about our sick people. People need this sense of security when they're sick. They need to have access to services in their own language—and that applies to other social services, too, when families are in crisis and so on. This access is an absolutely essential thing, and we're not talking about a lot of money either. We're talking about a small amount of money in comparison to the enormous commitments of the federal government.

There are also positive employment spinoffs associated with providing these services, and the government, frankly, is in a much better position to provide these funds than it has been in the past. So we would, with the greatest respect, ask you to reconsider the cuts that have occurred in this area and negotiate a new agreement with Quebec and with the English-speaking community.

• 1445

We originally submitted a brief in July in which we, and I in particular, put a lot of attention on the problem of interest rates and the economy. We argued in that first version of our brief that it was an error for the Bank of Canada to raise interest rates; it was not likely to do the job in terms of the exchange rate on the dollar, but it certainly might have adverse effects on the rate of economic recovery, the reduction in the rate of unemployment, and the general expectations about the future of the economy.

Since we wrote that brief, of course, events have moved rather swiftly, and as in most spheres, time plays a role in the nature of economic analysis and policy advice one may offer. Since the preparation of our brief, clearly the bank has intervened and rates have gone up, but the case for lower rates and the injection of some kind of economic stimulus is now even greater.

The movement by the Bank of Canada to raise rates to counter speculation against the Canadian dollar has largely played itself out. We are now able to see that while it was temporarily helpful to raise the rates and firm up the value of the currency, it no longer has as much impact in this respect, though I note the dollar was rising earlier this morning. But there are other factors that have to do with that.

The decision by the United States Federal Reserve to lower rates to head off a major slowdown in the economy, a collapse in stock values, and financial panic in the United States and elsewhere are the key influences to which Canada must now adjust. In addition, political changes in Germany now seem likely to increase pressure for interest rate cuts in Europe and a renewed attack on the problem of unemployment, which will emphasize the demand side as opposed as a strictly supply side approach.

An article from the Financial Times—which really has the status of the Wall Street Journal in Europe—on October 26, 1998, page 14, is entitled “Return to Keynes”. It's about the re-emergence, because of the appointment of Mr. Oskar Lafontaine as the finance minister of a Keynesian orientation in the German government. It discusses the likelihood of an alliance between France and Germany and perhaps other European countries to push this at the G-7 level.

I take this to be a very important change in the world economic climate in policy terms, which I would urge our government to pay some attention to. It will have an opportunity now to make alliances that were not previously available to it.

Central bankers the world over have been very slow to recognize the shift in market psychology that has occurred from the previous inflationary era. In many ways they're fighting old wars that no longer exist. The lag in reaction time by our central bankers to these changing expectations is in fact a serious barrier to reducing unemployment and sustaining recovery.

Interest rates are far too high in Canada to sustain our recovery and move the unemployment rates sharply down. Here I was glad to see that our finance minister has long resisted the notion that there's some sort of natural rate of unemployment at about 8%. In fact, Mr. Martin has been correct all along to be skeptical about that, and I've always thought that was a good thing. It's clear to me and other economists that we could easily push unemployment rates in Canada down to the 5% or 6% level with not that much sustained effort, but it would require a very sharp change in the policies of the Bank of Canada.

The real rate of interest today, using the rate of return on long-term bonds as our base, is virtually 5%. Calculated on the basis of the prime lending rate it's of course higher, at closer to 6.5%. Since I would argue that inflationary expectations are now zero and may even be negative—people don't expect inflation now in our economy, other than a few people in financial markets who are obsessed with it and people at the central banks—there's no sense of inflation being our problem at the moment. Our problem is the danger of financial crisis, steep recession and falling prices—deflation rather than inflation.

Given that we have rates as high as they are and that over the last 70 years real interest rates have averaged about 2%, so they're 4% to 5% higher than they used to be, I would argue and most of the alliance would agree with me—there's some dissension clearly—that rates must be lowered as swiftly as possible.

• 1450

Whatever exchange rate risk there is should be tolerated for a short period of time or, I would argue, would be relatively tolerable. There are other factors that govern the exchange rate and there's no particular degree of rationality about how financial markets behave. I think we see this now; the evidence is very clear.

Our own financial institutions, of course, which are speculators against our currency from time to time, should be reminded of the destabilizing impact on the economy of excessive bearishness against our currency. This is particularly true in the case of some of our financial institutions' plans for mergers and acquisitions for which they would like government's approval.

In conclusion, let me stress again that Alliance Quebec has long felt that the English-speaking community has been, in a way, short-changed in terms of funding for programs. We feel it's of critical importance that money be put back into the area of ensuring access to health care and social services. As a member of Parliament and, I believe, one of the co-chairs of the Standing Joint Committee on Official Languages herself pointed out last May in a joint committee hearing—and I'm referring to Mrs. Finestone—the minority language group in Quebec receives nowhere near its equivalent share. If you would like to have a look, I think copies of this document were distributed to some of you. The figures are quite disproportionate, and we would urge people to recognize this and try to make some amends.

In conclusion, we would like a more stimulative orientation to the economy. We would like lower interest rates and a fairer treatment of the linguistic minority in Quebec.

Merci bien.

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

I'd like to now turn to

[Translation]

Mr. LeVasseur and Mr. Bertrand, from Development and Peace, the Canadian Catholic Organization for Development and Peace. Welcome, gentlemen.

Mr. Jean-Claude LeVasseur (President, National Council, Development and Peace): Good afternoon, Mr. Chairman and members of the Finance Committee. I apologize for not distributing an English version of our document. We were not able to do so, but the English text will be provided to you by the end of the week.

We thank you for your invitation to take part in this consultation on the upcoming federal budget. The Canadian government's budget choices are important because they affect, for better or for worse, the lives of millions of people, not only in Canada but also in a number of third world countries.

Development and Peace is one of the largest international solidarity organizations in Canada. For over thirty years, we have provided over 310 million dollars to support 12,000 programs run by poor and marginalised people, with the purpose of improving the economy, agriculture, health care, education and literacy skills at the local level. Development and Peace also provides assistance to human rights groups and has provided emergency help in more than 60 countries around the world. This is how the Catholic church in Canada expresses its concern for the poorest people of the third world.

Our organization depends on the work of our thousands of members in all regions of the country to raise awareness and mobilize the public. Their solidarity work also leads these people to become interested in the problems that exist in Canada.

With respect to fiscal priorities for the next budget, it seems obvious to us that the government needs to take more urgent action than ever to alleviate poverty. The third world does not exist just in the South. It is also here in Canada in a number of native communities, in certain areas of our large cities and many rural areas.

This increasing poverty is not the product of chance or destiny. It is largely attributable to economic and political choices. We may have balanced the budget, but this so-called achievement was made possible primarily through the sacrifices of the unemployed. Reforms to employment insurance played a big role in that.

The enormous surpluses generated by the employment insurance fund have helped the government clean up its finances, but they are also playing a clear role in increasing poverty. This trend must be reversed.

• 1455

We now have 5.2 million Canadians living below the poverty line, that is 500,000 more than five years ago. Among children, the poverty level is at its highest point since the early 1980s. The House of Commons, however, promised in 1989 to eliminate child poverty by the year 2000. It must be acknowledged that, from an outsider's point of view, child poverty seems to be becoming a characteristic of this country.

Poverty has increased despite economic growth over the past few years. What has happened to the benefits of that growth? The answer is becoming obvious, in the light of other statistics that indicate that poor people are getting poorer and the rich richer.

The government, however, has a role in insuring fair distribution of wealth in this country. We believe that the government must give priority once again to social programs within its own jurisdiction and in co-operation with the provinces.

On another point, the Canadian tax system continues, in our opinion, to be as unfair as always. What ethical justification is there for large Canadian companies to be paying tax at a rate that is much lower than that of Canadian taxpayers and for many of these large companies to avoid paying any tax? The Canadian government should take steps to alleviate the tax burden on low and middle-income households. To offset these concessions, the government should increase its revenue from those people and companies that benefit the most from economic growth.

In a broader context, the Canadian government should also act at the international level by proposing some instrument like the tax recommended by James Tobin, Nobel prize winner for economics. All that is needed for make this a reality is political will. This would be an opportunity for Canada to demonstrate vision and leadership.

Our government claims that Canada needs to open up to other countries economically. But the world is more than just "business opportunity".

Poverty around the world remains a very serious problem; 4.3 billion people, that is 80% of humanity, has to survive on less than $2 a day, and 800 million people do not have enough food to eat. The solution is far from excessively costly.

Faced with this challenge, developed countries have never given so little. Canada's official development assistance fell to 02.7% of the GNP in 1998-99; its lowest level since 1968-69. Canada has failed to meet the commitment that it made along with other countries to earmark 0.7% of its GNP for international aid.

Canada's official development assistance has been cut by over 40% since 1991-92, much more than general expenditures, which were reduced by 24%, or the defence budget, which decreased by 29%. Because of these cuts in recent years, Canada has unfortunately lost the good reputation that it had earned on the international scene.

Not only has the assistance decreased substantially for people living in the south, but it is now used in large part to benefit Canadian commercial interests. Seventy percent of every Canadian dollar earmarked for development assistance goes to pay for Canadian goods and services, while barely 0.2% of official development assistance is used for primary health care.

In order to really address poverty, the government must reaffirm its commitment to put 0.7% of the GDP toward official development assistance.

• 1500

Like other non-governmental organizations, we recommend that the government increase its assistance by 6%, that is 120 million dollars, in the 1999-2000 federal budget, by establishing a time table to boost official development assistance levels in setting 0,35% of GNP as an initial objective to be reached by the year 2005-06.

Moreover, at least 60% of assistance should be earmarked for programs that directly improve living conditions and protect the rights of people living in poverty. We do much more to help people in the Third World when we directly support organizations in the civil society of those countries rather than Canadian companies.

Another way for Canada to attack poverty would be to write off the bilateral debt of the poorest countries, especially debt owing to the Export Development Corporation and the Canadian Wheat Board. Many international organization are in favour of this measure, which would be accompanied by a commitment on the part of the Third World countries to invest the resulting savings in basic services such as health and education. This contribution would be in addition to the increases in official development assistance.

In closing, Mr. Chairman, with a surplus budget, we believe that it is time for the government to clearly show that it intends to help the less fortunate here in Canada and abroad. The poverty challenge may seem insurmountable, but it can in fact be met. We have the necessary wealth and resources on both the national and international levels. It is a question of political will. That is our response to your invitation to appear before you today.

I thank you on behalf of all the members of our movement. Thank you, Mr. Chairman.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. LeVasseur. I will now ask Ms. Herscovitch to give us her presentation.

[English]

Ms. Alice Herscovitch (Executive Director, Project Genesis): I'd like to start our presentation with a small quote from Paul Martin's economic and fiscal update that was published on October 14, 1998. In it he says:

I am pleased to announce that, for the first time in more than a generation, the Government of Canada recorded a surplus - $3.5 billion.

That money has been applied directly to the debt.

Although we appreciate the opportunity to state our viewpoint and we are willing to do so in many areas of social policy, we no longer have any illusion about what the word “consultation” means. I think that statement clarifies what has been decided by the Government of Canada, or at least by the finance minister.

[Translation]

Who are we? We are a community organization working in the Côte-des-Neiges area of Montreal, an area that is home to many immigrants and refugee claimants, and where poverty is always on the increase and where over 50% of individuals and over 44% of families live below the poverty line.

We work with the disadvantaged. For us, this includes low-income people, the elderly, immigrants and people with little formal education. We feel that government action, not only the federal government but all levels of government over the past few years, is making these people poorer.

We are a community organization. Despite the fact that the Government of Canada has off-loaded its responsibilities on to the provinces, that the provinces have done the same to the municipalities and, finally, the municipalities have off-loaded to the community level, we receive a yearly grant of about $4,000 under a summer program to hire summer students. This is the kind of support we are given for the work we do and to compensate for the cuts at all levels.

Our organization helps people. Last year, we responded to over 30,000 appeals made in person or by phone for help dealing with housing, social assistance, immigration, employment insurance, that is all social services and programs offered by the public and private sectors.

• 1505

We do community action and organization work on the broad issues I just mentioned, but we also work to improve the living conditions of the people living in the area, for example by setting up a women's centre, where we work with residents to offer recreational services and community-owned equipment.

[English]

Our brief speaks to the issue of the fiscal dividends, which is one of the first questions asked by the Government of Canada. While congratulations would ordinarily be in order to a government that achieves such a goal as a balanced budget, the method chosen by this government and the speed at which the goal was attained have caused immeasurable hardship to a large segment of our society. We are concerned about the human cost, the human deficit that has been created by the fiscal dividend we are benefiting from.

In addition, many institutions that have come to define Canada as a modern and democratic society have been sacrificed at the altar of deficit reduction. From the virtual abolition of unemployment insurance to the increased impoverishment of welfare recipients; from the reduction of health care services, the closing of hospitals and the privatization of health care, to the cutbacks in social services, thanks to the elimination of the CAP, the transfer program to the provinces; from the slashing of social housing budgets to higher tuition fees and increasingly inaccessible university, through the treatment of immigrants and refugee claimants, which in fact decreases significantly their quality of life, Canada is no longer what it was.

We also see program shifts where programs continue to exist—and there are a few—that focus on the working poor versus the poor globally. So we see the increasing impoverishment across Canada of people who depend on welfare to survive. We could share with you many stories, figures and criticisms of the different programs. Unfortunately those kinds of testimonials would take hours.

I would just like to add, before Gary continues our presentation, that in the budget fact sheet in 1998, the finance department pointed out with pride that program spending will decline to 11.5% of gross domestic product by 1999-2000 from 16.6% in 1993-94, which is its lowest level in about 50 years.

We do not expect that the goal of government should be the reduction of program spending in this radical way. Why would a government promote the return to levels of program spending and the kinds of social programs that existed after the Second World War? This massive reduction in social spending during a time of high rates of poverty should inspire shame and not pride. We find it altogether alarming that the government is proud of these facts. Since 1994, $11.3 billion has been cut in program spending.

Mr. Gary Saxe (Community Organizer, Project Genesis): We often hear Jean Chrétien or Paul Martin talking about several options for spending the fiscal dividend they quote so often—the surplus that's finally been achieved. We hear three main options talked about and sometimes promised: 50% will be reinvested in programs, some other percentage will be for tax cuts, and another percentage will be for debt reduction. Sometimes it's one-third, one-third and one-third. There are all sorts of different combinations. Of course, as Alice pointed out, 100% of the surplus this year has been put into debt—I see someone nodding his head, but it comes right from Paul Martin's fiscal update. There's $3.5 billion that will be—

Mr. Paul Szabo: You can't spend retroactively, though. That was for the year that ended March 31, 1998. That's when the audited statements came out and said “Here's the number”. But the financial statements are closed. You can't charge programs, so it automatically has to go to—

Mr. Gary Saxe: There's one question about reinvestment of the fund—

The Vice-Chair (Mr. Nick Discepola): Order, please. Just continue with your presentation. Mr. Szabo will have ample time to ask you questions, and you can debate afterwards, please.

Mr. Gary Saxe: I believe there were previous promises—not to continue debate on this—for example the red book, which happened before the last budget.

• 1510

Anyway, it seems obvious to us that there's only one appropriate priority in spending this fiscal dividend, and that's to repair the damage done over the last several years. It was not started by the Jean Chrétien government, it was started under Mulroney, but it certainly continued and accelerated with billions of dollars of cutbacks, in terms of transfer payments to the provinces, to the health care, post-secondary education, welfare, and employment insurance.

We believe that the first priority for any spending should be to repair that type of damage, which many of the other speakers have already mentioned. The people who need these programs, whether it's health care, welfare, or education, are the ones who have suffered to pay for the fiscal dividend. It's obvious now that we have the means and it's our obligation to reverse the damage done.

I want to spend a few minutes talking about the other two options, whether it's tax reduction or debt repayment. There seems to be a myth that everyone is equally overtaxed. I believe we hear many of the political parties at all levels of government saying we must reduce taxes, we must reduce taxes.

[Translation]

I am not sure that that is entirely correct. I will just give you a few small examples. Bell Canada alone owes over $2 billion in deferred taxes. That same company has laid off 25% of its staff, 13,000 people who are now without work. The Royal Bank—I am thinking here about other questions and requests put to the committee—in 1997, had record profits of $2.8 billion. If it had paid regular taxes calculated at the federal-provincial combined rate, that is 42.9%, it would have paid 1.2 to $1 billion in taxes.

[English]

I'll continue to explain that again in English. Just to respond, again to Mr. Szabo, I'm sorry, I just can't let a comment like that go by.

The Vice-Chair (Mr. Nick Discepola): You'll have plenty of time.

Mr. Gary Saxe: We could play around with technical definitions—

Mr. Paul Szabo: You won't find the current—

The Vice-Chair (Mr. Nick Discepola): Mr. Szabo, please. Let's not engage in debate at this time.

Mr. Paul Szabo: Okay.

The Vice-Chair (Mr. Nick Discepola): Mr. Saxe, please continue with your presentation. We'll be able to engage in debate after everyone has ample time to make their presentations. Please try to sum up in about a minute.

Mr. Gary Saxe: The examples I was giving just give some idea of some of the tax shelters that are available to large corporations to allow them to avoid paying part of their fair share of the tax burden. So I don't believe the second priority, tax reduction, should be on the table at this moment.

In terms of debt repayment—which seems to be the overwhelming objective of Paul Martin, although some may disagree—according to the federal finance department, the government repaid $12.9 billion in market debt between April and December 1997. Look at the period when debt was at its highest as a proportion of GDP. We're talking about the postwar years, when debt reached 110% of GDP. By 1957, the debt burden fell to 32% of GDP, while the government repaid only $2 billion of its accumulated debt. Economic growth took care of the rest.

I want to use a few figures as well. Let's take the $3-billion contingency fund. Say it's applied directly to debt reduction, and let's assume the debt is about $500 billion. We're talking about it paying 0.6% of the reduction of the debt. If we use the same $3 billion and compare it to other program cuts, that's equivalent to 26.5% of the $11.3 billion that was cut from program spending since 1994. So, you see, that $3 billion could go very far in countering poverty, fixing up the damage done to our health care system, and increasing accessibility to education. Again, we believe that any type of surplus should be going directly to restoring that damage in program spending.

• 1515

In terms of fiscal policy—

The Vice-Chair (Mr. Nick Discepola): Could I ask you to conclude, please? You'll have plenty of time. Also, both of you are in one organization, and I did say five to ten minutes per organization. We've got another group coming in at 4 p.m. There's still one more presenter. Then I'd like to at least engage in some form of dialogue. Could you just conclude with your recommendations? Then you could enhance this further.

Mr. Gary Saxe: Okay, I'll quickly go through this. We believe that not only is there this $3-billion surplus and the $3-billion contingency reserve, there are lots of other ways of finding money if the government is serious about attacking poverty. While there might be some disagreement on the other side of the table, there are ways of achieving more justice within the fiscal system.

Some examples that have been talked about in the past are

[Translation]

the minimum taxation for accounting firms. There a few aspects like that in the tax system, but there would be ways to improve it. We could also talk about RRSPs. There are all sorts of ways of finding more money to fund these programs.

[English]

The third question that was asked in the consultation was around what the government can do to help prepare for the new economic era. I'll just quickly say that this government has done a lot to usher in the new globalized economy, whether it's NAFTA, free trade, or Team Canada visits. We believe also that Canada should play a role as it's well positioned to take leadership, as colleagues at the table have said, in establishing international norms on such things as working conditions and wages, social benefits, and environmental standards. Again, I'll agree with the other person at the table who talked about the Tobin tax.

The Vice-Chair (Mr. Nick Discepola): This is your last point. You have twenty seconds.

Mr. Gary Saxe: Job creation was the last consultation question. We believe the government should put much more emphasis not only on infrastructure programs but on looking at ways to create real jobs, not just little work programs. There could be ways of encouraging early retirement by increasing pension benefits, for example. There could be limits on overtime, a reduction of the work week, or the encouragement of policies of job sharing. There are lots of different ways that the government could look at stimulating job creation.

That's it.

The Vice-Chair: Thank you, Mr. Saxe. Thank you for cooperating.

Mr. Rowe, please.

Mr. Hugh Rowe (Individual Presentation): I guess I'm speaking here today for the largest number of people, the taxpayers of Canada. This includes everybody in this room, I would imagine. Although some of them might not appreciate my representations as far as my stand on excess surpluses is concerned, I say give it back whence it came.

The finance minister, Paul Martin, recently announced the first budget surplus in 28 years, but the real burden has been borne by taxpayers and the provinces, not by federal departments. Tax revenue increases since the Liberals came to power are by far the main reason the government posted a $3.5-billion surplus. Tax revenues have climbed inexorably. The 1997-98 federal personal tax collection totalled $71 billion, up 38% from 1993-94. Corporate income tax revenues were $23 billion, up 140%. GST revenues were $20 billion, up 24%. These increases totalled $37 billion, yet our surplus is only $3.5 billion. Furthermore, if employment insurance plan revenues and payments were reversed, the government would have run a $3.5-billion deficit.

Paul Martin says there's no room for further major spending cuts, and he's thinking of increased spending on health care. At the same time, because of global conditions, he argues against substantial tax reductions. Recently, the Liberals legislated the biggest tax grab in history with a tripling of forced pension contributions. So far this fiscal year, tax revenues are up 5.3%, personal income taxes are up 8%, corporate income taxes are up 9%, and the GST is up 6%. These are big increases. Clearly, the budget is being balanced on the backs of already heavily burdened taxpayers.

One-quarter of the increase in personal income tax revenues since the Liberals were elected in 1993 came from bracket creep. This is a hidden and unfair tax hike on all Canadians. Taxpayers are being punished for illusory income gains that have resulted solely from inflation. This must be rectified as soon as possible as 1998 will be the sixth year in a row that taxpayers will be shoved into higher tax brackets without indexing.

• 1520

High taxes feed the brain drain. A crushing tax burden has helped to prevent the average take-home pay in Canada from showing any meaningful improvement in this decade. Canadian managers, scientists, and professionals get educated in our lavishly subsidized schools and universities and then head straight for the United States. This is at a tremendous cost to us not only in terms of funding Canadian education, but in the unrecorded cost of losing our brightest people.

David Paterson, executive director of the Canadian Advanced Technology Association, said that he thought the federal government should give high priority to closing the gap in income taxes between Canada and the United States. The private sector simply cannot support a public sector of the size we have in Canada. Government participation in the economy still exceeds 50% of GDP, and the demands placed on the private sector for tax revenues to support this huge government simply cannot be sustained.

Anyone could balance a budget by increasing taxes in the short term, which is exactly what Paul Martin has done, but the fundamental issue still has not been dealt with. The hope that eventually the economy would generate revenues and grow us out of our troubles won't work without substantial tax reductions and encouragement to the private sector. Canada must become a more attractive place in which to invest and do business. The total debt is now larger than it has ever been. We require substantial policy changes to bring down the government's share of GDP.

The biggest danger we now face is the elimination of the middle class through confiscatory taxation. If our middle class no longer has sufficient disposable income to drive a consumer economy, our standard of living will collapse. Private spending and investment are the fuel that drives the economy from which all other revenues are derived. We need immediate spending cuts at the federal level and immediate cuts in income taxes. We should abolish capital gains taxation. We must raise contribution levels for private retirement plans. We should immediately eliminate all government grants, loans, and subsidies.

It's a myth that lower taxes increase the deficit. Significant tax cuts not only boost consumer spending, but increase investment and result in more jobs and greater tax revenues. We must work to eliminate poverty in Canada, and this is the best way to do it.

The current employment insurance debate is only the latest episode in the federal government's repeated efforts to siphon off EI revenue to serve short-term practical objectives. All Canadians have a stake in whether the government will return part of the surplus to those who have paid for it. Taking money paid by working Canadians and their employers and then diverting it to other uses is a breach of trust that undermines public faith in the tax system and the people who manage it.

I have been employed for 42 years now, and taxes have only gone up and up. Basically, we all pay the same for a bag of potatoes, a loaf of bread, a litre of milk, or a newspaper. Even an expensive suit or an automobile is priced the same for everybody.

This is true for everything we buy except for government services. The successful earner is charged more for his equal share of government services. Consider the person who refuses to drop out, is dedicated to self-improvement, works 60 hours a week, and dedicates himself to hard work and financial security. Shouldn't he be expected to earn and accumulate more wealth than his average neighbour? Isn't he entitled to a natural right of ownership to the fruits of his labours?

It's my overriding sentiment that trying to convince free-spending politicians to part with tax dollars once plucked from taxpayers' pockets is a virtually useless and frustrating exercise. Once politicians get their sticky fingers on our hard-earned tax dollars, it takes heaven and earth to pry those fingers loose. Expecting the federal government in this country to use surpluses to cut taxes is like putting two days' worth of slop in the trough and expecting the pig to save some for the next day.

We put our faith in politicians to do what is in the long-term best interests of this country for more than 30 years—I guess it has been since the last balanced budget—but we've been denied that reasonable request in virtually every area of fiscal policy. I have much more faith in the average Canadian, certainly in myself, for making better spending choices than the government. At least give us the chance to prove it. Significant tax cuts not only boost consumer spending but they attract investment and result in more jobs and greater tax revenues, not less.

• 1525

Paul Martin's rationalizations for the most punitive taxation system in the hemisphere continue to be driven by what is needed to feed the bloated government bureaucracy. The Liberal government's love affair with taxing every penny possible has given Canadians high unemployment, a sinking dollar, low productivity, an underground economy, a brain drain, and a declining standard of living. Every taxpayer should feel outraged.

Thank you.

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

I'd like to now turn to members' questions. We'll start with the Reform Party. Mr. Epp, please.

Mr. Ken Epp: Thank you, Mr. Chairman. Thank you all for coming here today to share your perspective on budgetary matters with us.

First of all, I'd like to address a short question to the students. You didn't mention anything about GST on books. You didn't mention anything about student loans. You didn't say anything about bankruptcies for students being ten years instead of three, as for everyone else. Is this because they're not important, or are you just not aware of those things? I'd like your response on that.

[Translation]

Mr. Pascal Bérubé: We had to set priorities. What affects us more are the cuts to post-secondary education; that is our priority. Reducing student debt levels in Quebec is a priority for the student movement. The GST, taxes and so on are really secondary.

We talked about the Millennium Scholarship Foundation. The main consideration is our status as students. Before being taxpayers or consumers, students must have solid training and an opportunity to get a good start in life. That comes much before considerations like tax cuts. It is simply a question of priorities. Perhaps one of my colleagues would like to add something on that.

Mr. Alexis Boyer-Lafontaine (Sociopolitical Research Coordinator, Fédération étudiante universitaire du Québec): You asked about bankruptcies. We know that in the last federal budget, the government amended the Bankruptcy Act, and students can no longer be released from their student debts during the first ten years after they finish their education. We fought that legislative measure from the beginning and we are still waiting for an answer from the Finance Department and from Paul Martin on the reasons for such a decision. We are also asking them to explain how this amendment helps students and supports the knowledge-based economy. That is another issue. Obviously, we did not bring this up today but we could have.

Mr. Pascal Bérubé: On the question of bankruptcies, in particular, we came before this same committee last April when it was considering Bill C-36. We spoke then not only of the Millennium Scholarship Foundation, but also about the Bankruptcy Act. We even went to the Senate to discuss that issue and we have expressed our opposition a number of times.

We are here today before this same committee to talk about another problem affecting Quebec students that comes not from the provincial but from the federal level. In principle, it seems to have little to do with education, at least where we are concerned. It is another problem that affects us directly and that comes from the federal government. It really is a shame.

[English]

Mr. Ken Epp: Thank you very much.

I have a question of perception, and this requires a very straightforward answer. Is it your perception that students will be better off if Quebeckers no longer pay federal income taxes or receive federal transfers? Is that your perception?

[Translation]

Mr. Pascal Bérubé: If the federal government decided to no longer be involved in education, as is set out in the Canadian Constitution, students would be better off.

[English]

Mr. Ken Epp: That's your perception. We need to debate that. Unfortunately there isn't time now, but I think you're probably wrong there.

I'd like to address the Alliance Quebec people. You talked a little bit about restoring transfers, and you didn't talk really at all about reducing the debt. Actually, this applies to everyone across this table, especially the young people, the students. When they graduate they will have not only their student debts to pay off, but they'll also have their share of the federal debt, as well as their share of the provincial debt. Very frankly, sometimes when I speak particularly to college-aged students and high school students, I apologize that my generation in the last 30 years has allowed this debt to grow to the place where 30¢ on every dollar goes just to pay interest. That is money that could provide a free education for every post-secondary student in the country, and a whole bunch more.

• 1530

But you didn't talk about reducing the debt at all. Are you really quite happy that we have all this debt, which really is a transfer of wealth from many average and below-average Canadians into the hands of the rich, namely, those who have the extra money to buy bonds and government T-bills?

Mr. Harold Chorney: First of all, let me suggest to you that debt is of course a liability to some and an asset to others. If you're talking about intergenerational transfers, the people who inherit the bonds, T-bills, etc., from one generation to the next inherit the assets. The people who come along and inherit the debts have the debts. But the reality is that it's kind of a wash as long as most of your debt is financed inside the country. That's one little technical thing.

Clearly, reducing interest rates would solve the problem that you quite rightly point out, the problem of intra income group transfers. What you want to do is keep the interest rates as low as possible, first of all, to stimulate economic growth and lower the unemployment rate, but in addition, to ensure that you don't transfer too much wealth from middle- and low-income people to rich people, because that would not be a sensible thing to do. If you keep the real interest rates low, that doesn't happen. If, on the other hand, you starve investments and education and health care, you're really creating liabilities for the future, very big liabilities, as I think you'd probably agree—

Mr. Ken Epp: Yes, I agree with that.

Mr. Harold Chorney: Clearly, I don't like the debt problem. I'd like us to have much lower unemployment. I'd like many more people back at work contributing to the wealth of our country, and I would like to keep the interest rates as low as possible to facilitate that. Then the debt problem would begin to take care of itself, as we would grow at a faster rate with a lower unemployment rate, with less burden on our social welfare system, and we'd be much better off. I think people in the Reform Party would probably be quite happy with that result.

Mr. Ken Epp: Undoubtedly.

The Vice-Chair (Mr. Nick Discepola): Last question, Mr. Epp.

Mr. Ken Epp: I thought I had 10 minutes.

The Vice-Chair (Mr. Nick Discepola): No. We only have about 35 minutes, so I'm trying to limit it to about seven or eight minutes.

Mr. Ken Epp: In that case, I think I'll move right over here. I want to talk to Mr. Rowe.

It was a very fascinating and insightful presentation. It's one that I hear a lot, and I suppose because of the statements we have made publicly on where we stand with respect to debt and taxes and all these things, we tend to attract people who support those kinds of ideas. But I'm curious. Why did you come today? It says you're here as an individual. Are you representing a group? Were a bunch of you standing around talking and did they say “You go down to that finance committee and tell them this”? I have a suspicion that what you're saying as an individual is repeated millions of times across this country. We hear it a lot. Just why did you come here?

Mr. Hugh Rowe: I guess you've put your finger on it; that's exactly why I'm here. I'm here as a taxpayer. I grew up poor. My father came from a little fishing village in Newfoundland and my mother came from a little fishing village in Nova Scotia. I grew up in a tenement district in the east end of Montreal. I've worked very hard to get where I am, and I just see my hard work being taxed away. It's absolutely incredible, the waste that I see going on in the last 30 years in this country.

The Liberal government of Mr. Trudeau ran up the debt to astronomical levels, and then we had the PCs in there and they didn't have the guts to do anything about it when they were there. I just don't see any end to it. We really have to get government downsized and have huge tax reductions. We should all be more charitable; we should all be more generous. It's becoming exceedingly difficult to be that way when governments are siphoning off half of your disposable income. It's just absolutely incredible in this country, and that's why we have people fleeing. People are voting with their feet and leaving the country.

Mr. Ken Epp: I appreciate your point of view, and with that, I shall quit, I guess.

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

[Translation]

Mr. Desrochers.

• 1535

Mr. Odina Desrochers: Thank you to everyone who has come today to express their opinion about how the federal government's budget surplus should be used.

I have a few questions to ask the representative from Alliance Québec, Mr. Chorney. To begin with, I would like you to tell me how your organization is funded.

Mr. Harold Chorney: Eighty per cent of the funding comes from the federal government. There are also individual private donations, for a total of about 200,000$. It varies from year to year.

Mr. Odina Desrochers: Does it seem normal to you that funding from the federal government should be used by your president, Mr. Johnson, to try to demolish Bill 101, which was passed by the National Assembly, and to hire a lawyer identified as being part of the partition movement, that is Mr. Brent Tyler?

Mr. Harold Chorney: The law of the land says clearly that minority language communities in every area of the country are to receive federal government funding. That is the law.

Mr. Odina Desrochers: I am objecting to the way in which you use that funding.

Mr. Harold Chorney: Yes, I understand your question, but every year or once every three or four years, there is a new president, like in any organization across Canada. The presidents change and there are changes in policy. That is also the case in the parliamentary system, which you know very well. The board of directors cannot impose its will on the president. There is a debate in our organization, as is the case in all other organizations.

I think that most people in our community want their language to be respected, as is the language of the majority community here in Quebec. We respect the French language and I would also like the English language to be respected. It is normal to expect that court proceedings would be launched to improve the situation of anglophones here. It may be a bit controversial, but there is nothing unusual in it.

Mr. Odina Desrochers: And so you support Mr. Johnson?

Mr. Harold Chorney: Pardon me?

Mr. Odina Desrochers: Do you support Mr. Johnson in the approach he is taking?

Mr. Harold Chorney: It is not a question of supporting or opposing Mr. Johnson. It is simply a question of solidarity. Mr. Johnson is currently the president. He has a policy. Frankly, I do not fully share his vision, but I accept the will of our community, who have chosen Mr. Johnson as president. He has decided to launch this...

[Editor's Note: Inaudible] There is a major debate in our organization to try to find a balance between the various demands of the community.

Mr. Odina Desrochers: I would like to talk to you about the way in which the francophone minority is treated outside Quebec. We travel a bit from time to time. I went to Vancouver. When I asked the francophone representative what support his community received from British Columbia, he told me none. In Manitoba, at a meeting on world development in francophone areas, we are told that anglophones are the ones making the decisions. And what do you think about what is happening to the Montfort Hospital?

Mr. Harold Chorney: For my part, I totally support...

The Vice-Chair (Mr. Nick Discepola): Mr. Chorney, excuse me, please. It is your time and you can use it the way you want, but we are doing a pre-budget consultation, which does not deal with language policy, etc.

Mr. Yvan Loubier: You have said that we can use our time the way we want.

The Vice-Chair (Mr. Nick Discepola): Up to a point. I will allow that question, but I will ask you to subsequently stick to the subject at hand, that is the budget consultations.

Mr. Yvan Loubier: I am sorry, but the Montfort Hospital, the cuts that you have imposed and the closing...

The Vice-Chair (Mr. Nick Discepola): It is not the federal government that cut the...

Mr. Yvan Loubier: You do not like to hear those things. That is your problem. It is much more fundamental than you claim.

[English]

The Vice-Chair (Mr. Nick Discepola): Mr. Chorney, perhaps you would like to respond, please.

[Translation]

Mr. Harold Chorney: Personally, I support the francophone community outside Quebec, particularly with respect to social and medical services, etc.

The Harris government has imposed budget cuts in Ontario. I regret the fact that the victims are members of the francophone community outside Quebec, but I also regret the fact that here in Quebec provincial government cuts have taken place as well. That is not a good thing for us.

Mr. Odina Desrochers: It is difficult to hear that because, as you saw this morning, 75% of the health care cuts are attributable to the federal government actions. If we had all our money in Quebec, we would perhaps have been able to give you the services you want. At some point, we have to say it like it is.

Thank you very much, Mr. Chairman.

• 1540

Mr. Yvan Loubier: Mr. Chorney, I would like to come back to the first question asked by my colleague, that is about federal funding for your organization. Is that a budget question, Mr. Chairman?

I will ask the question in another way. Do you find it acceptable that your president, Mr. Johnson, says that his next step will be to demolish Bill 101 in the area of language and education, so that immigrants from anglophone countries will be able to have access to English schools? Do you find it proper for federal funding to be used to demolish legislation that has been duly passed by the National Assembly? I quite agree with you about freedom for organizations. Across the country, there are francophone organizations. However, the biggest fight by minority francophone groups outside Quebec involves the application of section 23 of the Canadian Constitution on the administration of francophone school boards, whereas you are using federal funding to fight a law that was duly passed by the National Assembly. In particular, as my colleague mentioned, do you find it acceptable to hire a lawyer named Brent Tyler who has not let a week go by without harshly criticizing Quebec and promoting the partition of Quebec? We are not very comfortable with that.

Mr. Harold Chorney: It is normal for a minority community, be it here in Quebec or outside the province, to occasionally put forward initiatives that the majority community has a hard time with. It's a normal thing, even in Manitoba, a province that I have been very familiar with since I was born. One must respect the choices that a minority community makes, to advance its cause as it sees it and to protect its rights, even if these choices are not always correct.

As for Bill 101, I think that improvements are possible. Even the Chambers committee recommended improvements in the enforcement of the bill in the case of immigrants from England or other English-speaking countries. It's just a matter of making adjustments so that our community can blossom; otherwise, it's very difficult. Our community is growing older, and people are very nervous about our country's future, and our people need to develop and prosper. I'm sure you understand that concept for your own community. It's exactly the same thing.

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

Mr. Yvan Loubier: We will never agree on the means.

The Vice-Chair (Mr. Nick Discepola): I will now call upon Ms. Redman to ask her questions.

[English]

Mrs. Karen Redman: Thank you, Mr. Chairman.

Mr. Rowe, I'd like to address my first question to you if I could, because I think you reflect some of the sentiments I've heard in my constituency. I would also like to point out that of the $45.5-billion improvement in the budget—this is actually on page 51 of this publication—$31.2 billion is actually accounted for by economic growth. In your submission, you make the statement that it's done on the backs of taxpayers, and that $16.8 billion is actually from a reduction in spending. You talk about the bloated government, but I would tell you that I think this government has substantially tried to address that.

I found your statement interesting because when we were in Prince Edward Island last week, we heard representations from people who were suggesting that we actually could look at enhancing the number of government employees as job creation, and could bring back some of the social safety nets that other presenters tell us they have paid a price for in order for us to balance the budget. I'm just wondering if that has come into your equation of thinking at all.

Mr. Hugh Rowe: It has to a certain extent.

Let's perhaps tackle the last question first, that of job creation. I'm not so sure creating jobs within government is actually real job creation in the sense of any productivity increases. It's important to have workers in government to do some of the things that are essential, but to pursue this to what may be a ridiculous degree, I suppose the government could just hire everybody and put them on the payroll. You could then say you've created an incredible array of jobs. I just don't see where government spending actually creates any net jobs. I don't think governments can create jobs. I think it's up to private industry to do that.

• 1545

As far as the first two points you brought up are concerned, I'm not sure what you meant by growth when you talked about growth. You said a lot of the government revenue was coming from growth.

The Vice-Chair (Mr. Nick Discepola): Economic growth.

Mrs. Karen Redman: Economic growth. Government enjoyed higher revenues because of economic growth.

Mr. Hugh Rowe: Yes. Higher taxes.

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

Mrs. Karen Redman: No.

The Vice-Chair (Mr. Nick Discepola): Economic growth. Because of a higher economy, we have more tax revenues and more taxpayers.

Mr. Paul Szabo: More taxpayers.

The Vice-Chair (Mr. Nick Discepola): Fewer people collect unemployment insurance, and therefore there is less collected in social benefits.

Mr. Hugh Rowe: Yes, okay, government revenues went up as a result of—

Mr. Paul Szabo: Economic growth.

Mrs. Karen Redman: When there are more people working, paying into the tax—

Mr. Hugh Rowe: This just proves my point; if you want even more government revenue, you need to get more economic growth. And one way to do that is to reduce taxes, because your total tax revenue will go up.

Have you ever heard of the Laffer curve? There's a certain point at which you can optimize tax revenues by actually reducing taxes. Total revenues will actually increase; if people's tax rates become a little lower, they become more productive. People will come from out of the woodwork, as far as the underground economy is concerned, and they'll be more productive. I could work a lot harder than I'm working now, I just don't have the incentive to work when I have to pay 52.9% of my income in taxes. Why should I do that?

Mrs. Karen Redman: You also make a point about addressing the EI fund, and the statement you make is that all Canadians have a stake in whether the government will return part of the surplus to those who have paid for it.

The EI fund has been part of consolidated revenues on the advice of the Auditor General since 1986. It's a notional account and there isn't $20 billion sitting there out somewhere, but it's actually part of consolidated revenue. That may be something you're aware of, but I think sometimes these hearings can be used as platforms to bring education to people as well. It isn't just straight insurance for people who are unemployed. There are also the maternity benefits, and there are several ways whereby those benefits accrue to people who have paid into it.

So you're suggesting that this notional account be returned to...60% would go to the employers and 40% to the employees. And that's what you're telling us in your brief you'd like to see happen with this.

Mr. Hugh Rowe: What I'm suggesting here is that if you reduce the payments into the EI fund, people, not only employers but employees, would have more money to spend on other things, and create jobs with that money. And that could lead to possibly even further cuts in the EI fund, which would create even more jobs.

Mrs. Karen Redman: Your suggestion is that we return to the people who paid into it?

Mr. Hugh Rowe: No. I'm suggesting to reduce the amount that people are forced to put into the EI fund.

Mrs. Karen Redman: And you're aware that this government, since it's been in power, has reduced EI payments three times?

Mr. Hugh Rowe: Are you suggesting you've reduced the amount that they pay out to people?

Mrs. Karen Redman: No, they've reduced contributions.

Mr. Hugh Rowe: To the EI fund?

The Vice-Chair (Mr. Nick Discepola): No, progressively over the past several years the EI rates have been reduced from the $3.30 that was projected and they're down to $2.70.

Mr. Hugh Rowe: What's stopping them from reducing them further, then?

The Vice-Chair (Mr. Nick Discepola): That's what Mrs. Redman is asking. What are you suggesting we should reduce them down to?

Mr. Hugh Rowe: You should reduce them down to the level where they're basically self-funded.

Mrs. Karen Redman: One of the reasons the Auditor General suggested it become part of consolidated revenue is that when there's a downturn in the economy more people are availing themselves of the benefits, that it actually can run a deficit. So it is a benefit that is funded by all Canadians, because when it ran a deficit it was consolidated revenue and the rest of the taxpayers of Canada that made sure the people who needed those benefits had the money there for them.

Mr. Hugh Rowe: I think one way...not necessarily to ensure it, but to help ensure that the economy won't go into a downturn is to reduce the payments into the fund so that more jobs will be created and there will less demand on the fund in the future.

Mrs. Karen Redman: Thank you.

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

Mr. Valeri, please, and Mr. Pillitteri, you have about three or four minutes.

Mr. Tony Valeri (Stoney Creek, Lib.): I want to hit on two points and get a bit of a reaction. Initially, concerning the $3.5-billion payments on the actual debt, the comment was made that it was a year-end action from the standpoint that the books of that year had been closed, and the Auditor General really wouldn't require any sort of policy.

We might agree or disagree, but I would suggest that this action really needs to be looked at in the context of the other actions that are taking place, the tax reduction, the reinvestment in the transfers, along with reinvestment in taking some Canadians off the tax rolls and doing some of the tax issues that some people have mentioned, along with the Millennium Scholarship Endowment Fund and a number of other things. It wasn't an isolated action. It ends up being part of a bigger picture.

• 1550

I have heard a lot about the emphasis on the debt, and certainly the positions are varied from group to group, but I do take what you're saying quite seriously.

I want to follow up on a point that Mr. Epp was making. He asked the student representatives whether there was a perception or a belief that if in fact all tax revenues from Quebec were kept in Quebec, rather than going to the federal government and then transferred back, you would feel you would be better off. I just wonder if you realize that in Canada there are only really three provinces that contribute more to the federal government than they get back, and Quebec is not one of them. So when you talk about being better off, you're talking about being better off with less money than you have now in the economy of Quebec.

I don't say that to offend anyone. I just want to say that to ensure you understand the fact that if you do not receive any transfers from the federal government and you keep all of the revenues in Quebec, you will in fact be receiving less money in the province of Quebec than you actually do now. I just wonder how you square that: less money and yet you'd be better off in terms of your educational system.

The Vice-Chair (Mr. Nick Discepola): Mr. Saxe, just briefly, please.

Mr. Gary Saxe: On the point of the $3.5 billion at the end of the tax year, I think the only point we're making, if you take it altogether, is that for years we've been hearing about the necessity of tightening our belts. There's a particular segment of society that has paid a disproportionate amount because of those cutbacks, and I could name all the different programs that have been cut back. All we're saying is that we haven't seen anything coming out to compensate those people now that there's a surplus coming up. Whether it was a correction of last year's budget, which I realize it is, I would like to see very clear statements from our government about how they're going to help poor people who have contributed enormously to the reduction of the deficit.

The Vice-Chair (Mr. Nick Discepola): Mr. Valeri was saying there were some measures. The $500 increase in the personal exemption helped low-income families right then and there. That was $500 back in their pockets. That's what he's trying to say.

Mr. Tony Valeri: Actually, in that particular respect, 400,000 low-income Canadians would no longer be paying tax. That's just one example.

Mr. Gary Saxe: There are certain measures. I guess if I say there is absolutely nothing that's unfair.... There are a few measures that have come up, but they are peanuts compared to what has been cut. I've seen how the health care system—and it's not just the federal cutbacks, it's also the provincial cutbacks—has deteriorated over the last few years. We've seen how much more difficult it is for welfare recipients to survive on lower and lower incomes. In Project Genesis, thousands come through our doors every year, and what's been given back to them is very little. We have to be conscious of that and we have to target that in the coming years.

Mr. Tony Valeri: Thank you.

[Translation]

The Vice-Chair (Mr. Nick Discepola): The students, please.

Mr. Pascal Bérubé: Since 1993, the Liberal Party has cut $2.7 billion from post-secondary education. The Millennium Scholarship Foundation is neither a whim nor a gift.

We are not opposed to this funding, but we want it to be put to the best possible use. In our view, the province of Quebec is in the best position to handle education. Students aren't the only ones saying so; there is a broad consensus within Quebec on this point. More than 50 organisations support the approach we have taken to the Millennium Scholarship Foundation. If you are asking us whether Quebeckers' tax dollars should remain here, you already have your solution. If you don't have it, just ask the Member for Saint-Hyacinthe—Bagot or the Member for Lotbinière. I believe they have the answer for you.

The Vice-Chair (Mr. Nick Discepola): Mr. Bérubé, what is that figure of $2.7 billion?

Mr. Pascal Bérubé: The cuts to post-secondary education.

The Vice-Chair (Mr. Nick Discepola): Over how many years?

Mr. Pascal Bérubé: Since 1993.

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

Mr. Pascal Bérubé: Until now.

The Vice-Chair (Mr. Nick Discepola): So, that's $2.7 million over five or six years.

Mr. Pascal Bérubé: That's right.

[English]

The Vice-Chair (Mr. Nick Discepola): A very brief question, Mr. Pillitteri, and then I'd like to go to Monsieur Godin.

Mr. Pillitteri.

• 1555

Mr. Gary Pillitteri: Thank you, Mr. Chairman.

Good day. There were a lot of good presentations. One complained about where the government has gone wrong from last year to 10 years ago, from putting hands in their pockets, from being better off in education, everybody's being ripped off.

But I just want to ask a simple question. We're talking about a $3.5-billion to $4-billion surplus for this year. How best could it be spent? If it's not spent, it's going to be used to reduce the debt. If it's not projected towards the spot where it's supposed to go, it'll be used directly to reduce the debt, because you cannot make a law retroactive when it comes to spending it. After the fiscal year it goes towards reducing the debt.

So I just wanted to know, going back to it, should we be addressing something in medicare? Should we be addressing an increase in the transfer payments? You could say all of the above, but remember, there's only $3.5 billion to $4 billion. That's all that will be there, provided the economic conditions remain the same as they are. You've heard a lot of inflated numbers, but realistically, with this growth that we have and the economic downturn in the last few months in the Asia-Pacific region, it could only boil down to that.

So would you have any specific recommendations, or possibly even to say increase the threshold about another $500 so that it would be specifically going to those in most need in Canada?

Ms. Alice Herscovitch: Perhaps I could respond to that. There are two things. One is the issue of the EI surplus, which I think is separate from the other surplus, and the EI surplus is—

Mr. Gary Pillitteri: No, it's all together.

Ms. Alice Herscovitch: They shouldn't be all together, in the sense that the EI surplus has been generated because only 33% to 40%—depending on which economist you listen to—of unemployed people are eligible for employment insurance now. So I think there's a real concern that we are generating funds that were in fact generated for a specific purpose and that are now being used for all sorts of purposes. So I think that has to be reinvested where it came from, and not in terms of lowering premiums but in terms of—

Mr. Gary Pillitteri: Would you be specific on that reinvestment? Do you mean in terms of lowering the payments and returning it back to the people who paid it?

Ms. Alice Herscovitch: No. What I'm saying is we would suggest that the EI program does not pay benefits to most Canadians. Therefore, in terms of eligibility requirements, we have restricted them to the point where very few people are eligible. In terms of actual payments, in terms of how many weeks people are eligible for and the amounts they are eligible for, aside from low-income families, we have decreased those enormously, and we believe there should be a reinvestment.

Mr. Gary Pillitteri: There again we're arguing about statistics.

Ms. Alice Herscovitch: No.

Mr. Gary Pillitteri: We're arguing about statistics—

Ms. Alice Herscovitch: I can tell you people's names.

Mr. Gary Pillitteri: Let me put my point across. We're arguing about statistics and saying fewer people are eligible for EI. I'm sorry, but that's not the truth. The truth is that everyone can make his own statistics. The truth is that 77% of the ones who are eligible are collecting employment insurance.

Ms. Alice Herscovitch: I'm sorry, but in 1971 when there was a major reform of the unemployment insurance system, 95% of working Canadians were covered by the plan, and we are far from that number now. We could argue about the numbers. I'm just—

Mr. Gary Pillitteri: Thank you, Mr. Chairman. They don't want to answer the question.

[Translation]

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Pillitteri. I'm sure that Mr. Godin will continue with that same topic.

Mr. Godin, please go ahead. Our other guests haven't arrived yet. So take five or six minutes, and Ms. St-Jacques will also take five or six minutes.

Mr. Yvon Godin: The surplus is over $15 billion; it is around $19 billion. It's not $3.4 billion. Secondly, 38% of the people who pay premiums for employment insurance are no longer able to collect benefits. The 78% that Pierre Pettigrew talks about are paying premiums because of the changes that were made to the EI system, but 100,000 people can no longer collect EI when they leave their jobs. The statistics can...

I would like to say that I sympathize with you, Mr. Chorney. As an Acadian from New Brunswick, I understand how you feel deep in your heart. We Acadians have felt the same way for a long time.

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Because of the cuts to federal transfers to the provinces, they transferred the lab in the French hospital in Moncton to the English hospital. That's been a blow.

The SAANB, the Société des Acadiens et Acadiennes du Nouveau- Brunswick, doesn't even have enough money to hire an executive director. I understand how you feel. I won't go any farther than that.

I would like to ask the students a question. I would like to hear your comments on this point. You made some comments about the surplus in the employment insurance fund, and you said that young Canadians were no longer eligible for employment insurance. It used to be that you needed about 300 hours to be eligible for EI. Now you have to have 910.

The Minister of Human Resources Development says that 910 hours are now necessary because he doesn't want young people to be dependent on EI.

As young university students, what do you think? You have spent $40,000 to go to university, using scholarships or loans. Do you think that the students you talk to are trying to get money out of the EI system instead of finding a job in the field that they studied in so that they could pay off their loans?

Let's take the example of a young person with $40,000 in student loans, no job, who is discriminated against because he is young, and who is told, "You're young, so you're not entitled to employment insurance." Don't you think that in some cases this could lead young people to suicide? I wouldn't want you to do it, but I would like you to answer these questions.

Mr. Mathieu Painchaud: You have to look at a whole group of factors. First of all, student debt loads are rising in Canada. Student debts are much higher in the other Canadian provinces. In Quebec, the average level is under $40,000, but even so, students are having to go into debt.

Furthermore, it's completely true that young people are not going on EI to try to... Indeed, as my colleague just pointed out to me, at first you have to work to be able to collect employment insurance. With this debt load, it is impossible for young people to rely on EI. In any event, the benefits have been cut way back. In addition, with Bill C-36, young people can no longer free themselves of their student debts. It's not true that young people are going on EI as a way out.

Furthermore, if the young people on the job market who can only get part-time or temporary work find themselves unable to collect employment insurance, they end up on welfare. We know about poverty and the vicious circle of welfare. So it's very discouraging for young people to leave university and find themselves facing welfare.

In our view, changes must be made to the employment insurance system. The government has to reinvest in that area.

Mr. Pascal Bérubé: The problem with employment insurance is that it's not really a form of insurance. Young people pay their premiums, but they can never collect benefits. Why call that insurance? That's one of the problems.

Furthermore, you have to have work before you can collect EI. Graduates have a problem getting work even before they turn to EI. Not only do they have less and less access to employment insurance, thanks to Bill C-36, they also have to wait 10 years now before they can declare bankruptcy. That's another form of discrimination.

Mr. Yvon Godin: Frankly, what Pettigrew says worries me. According to him, young people have to be independent, and that's why they require 910 hours. The reality is that young people cannot collect benefits.

I was talking about discrimination. You young students are paying a lot of money to go to university. Plus car insurance. I think car insurance here in Quebec is just like in New Brunswick: it's a lot more expensive for a young person. In the future, if you lose your job, you won't be entitled to employment insurance. I was just thinking aloud, but do you think that a young person who has gone to university would willingly leave his job just to collect employment insurance, after he has gone to university for four years or seven years?

Mr. Pascal Bérubé: I would hope that someone who has invested several years of his life and gone into debt has done so so that he can work in his field. I believe that's self-evident. We know of very few cases like that. If there are any, those people certainly keep it to themselves.

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

Ms. St-Jacques, please.

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Ms. Diane St-Jacques: As I was telling the other group earlier, poverty is of great concern to me. So I'm going to go back to that particular topic.

We know that there are many solutions to this problem. In his brief, Mr. LeVasseur mentioned tax relief. Ensuring the right conditions for the creation of well-paid jobs is also a solution. And then there's the indexation of the child tax benefit, which has not been increased for several years. This means the benefit has been eroded for a long time.

I think that the government should consider investing in prevention and support. I don't think that money is the only solution to the problem of poverty. Yes, money is important, but if we don't help the people who have been ignored for many years get out of poverty, we won't solve anything. What kind of program is necessary? Would it be important to look at all that? Many problems would be solved if we just considered preventing the problems that are going to crop up later, at many levels.

Mr. Jean-Claude LeVasseur: We at Development and Peace are working very hard on prevention by providing development assistance. We provide this financial assistance so that people can get organized, on the basis of programs that they themselves have initiated.

We do not set any conditions or restrictions. We ask people to suggest programs to us, and we fund these programs. That's why we think it is very important to help women organize. In some countries, we provide them with grants. I'll give you an example that I'm more familiar with, our work in Haiti. We provide grants to community radio stations in Haiti so that they can offer education and so they can reach illiterate people. Thanks to these stations, these people can gain access to information about health, politics and the basic organization of civil society.

As long as the grassroots do not have a decent income, it is very difficult for these people to take part in normal life and the emergence of a civil society, because they are just trying to survive. That's fundamental.

It's the same thing here. If you're just managing to keep your head above water, if you have to take several jobs just to make ends meet, if you have to cut back on healthful food, you find yourself excluded and on the margins of society. Men and women have to have a decent income, whether they live in a country of the North or of the South, so that they can be involved, otherwise they are constantly on a treadmill just trying to feed themselves. That is where we come in. We provide the means so that these people can empower themselves and get out of poverty.

You really have to realize that the problem is that our governments must put pressure on the governments in these countries to respect fundamental rights. This year, we will be celebrating the 50th anniversary of the Universal Declaration of Human Rights. I think that Canada has an important role to play and must convince countries that do not respect such fundamental rights to do so. We can play an important role in this area, particularly during economic missions.

We could have a very broad discussion on this point, but I think that Canada should have a firm policy and should show leadership in this area.

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

Ms. Diane St-Jacques: No, that's fine.

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

[English]

Mr. Saxe, for five years now I've heard similar arguments. Do you think it's normal for corporations to make profits? Is it healthy that they should make profits? I'd like just a simple yes or no so I can continue.

Mr. Gary Saxe: Yes, it's healthy. Yes, it's laudable.

The Vice-Chair (Mr. Nick Discepola): You talked in your opening remarks

[Translation]

about a minimum tax on profitable companies.

[English]

That means you'd like a minimum tax on profitable corporations. What should that minimum tax be?

Mr. Gary Saxe: I'm not even going to give you an amount. I think—

The Vice-Chair (Mr. Nick Discepola): Are you aware there is one?

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Mr. Gary Saxe: I'm aware there's a small amount. I'm also—

The Vice-Chair (Mr. Nick Discepola): No. On small corporations the minimum tax rate is 27% and on large corporations the minimum tax rate is 50% on profits earned. I defy any member here to—

Mr. Gary Saxe: Could I just respond in general?

I was interrupted several times during my presentation and I'd like to clarify something, please. I think it's only fair. Mr. Szabo wrote me a note to explain why I was wrong.

The Vice-Chair (Mr. Nick Discepola): I don't have 10 minutes.

Mr. Gary Saxe: I'll be really brief. It seems from Mr. Szabo's comments here, and his interruption of me, he misunderstood what my point was. My point was not that corporations are evading their taxes. I understand they pay 100% of the taxes they are legally supposed to pay. My point was that there are too many loopholes in the laws, such as the way companies can depreciate machines over a shorter period, allowing them to get tax advantages. There are all sorts of different ways. I'm not an accountant, so I'm not going to list all these things. I'm just saying there are ways, if the government and the people around the table choose, that they could find a little more money to counter poverty, and I think that should be—

The Vice-Chair (Mr. Nick Discepola): If you agree with the philosophy that corporations want to make profits and it's healthy for them to make profits so we can have higher job creation, etc., are you not concerned at all that if you put an undue burden on them either they'll move—and we have beautiful cases of people doing research and development in Oregon where they have ten-year tax holidays—or ultimately it will result in their costs being transferred to either the employees in the form of reduced wages, the consumers in the form of higher prices, or ultimately the shareholders in the form of lower dividends?

So with all these options, I don't see how you can just say “Let's put a minimum tax on corporations” and then expect that the world will unfold as it should, and we'll all be happier for it.

Mr. Gary Saxe: I think it's maybe a misunderstanding. I just had a few seconds to explain before. Of course corporations should be profitable, or else we're in trouble. I believe, though, there is a

[Translation]

manoeuvring room.

[English]

Ms. Alice Herscovitch: Room to manoeuvre.

Mr. Gary Saxe: There's an ability to tax a little more the very largest corporations and the very richest people. I believe we should not be taxing people at 100%. I also believe the government should be playing a role in leadership in the world community to make sure tax havens, such as a corporation's ability to transfer their money overseas, are closed in some way.

I would like to see our Prime Minister take an economic mission around, to try to close up.... I realize it's not something just one government can do. It's tricky, it's hard. I believe we should be taking a leadership role in making sure some of these ways that capital escapes are closed up. That would help our government here, as well as governments around the world, counter problems of poverty.

The Vice-Chair (Mr. Nick Discepola): Thank you very much. On that note, I'll leave you the last word.

[Translation]

I would like to thank our guests for taking part in the discussion. There are no easy solutions, and the decisions to be made are difficult, but your testimony will make things easier for us. I hope that when the Minister of Finance studies our report, he will include at least 60% of our recommendations in his upcoming budget, as he usually does.

Once again, thank you so much. We are going to adjourn for two minutes so that our next witnesses can take their places.

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The Vice-Chair (Mr. Nick Discepola): We shall now resume our pre-budget consultations. As we end this afternoon's sitting, we will be hearing from Mr. Paulin Dumas, the executive vice-president of the Conférence des Régies régionales de la santé et des services sociaux du Québec, and from Ms. Guylaine Chabot, who is that organization's director of communications. Welcome.

We will also be hearing from Mr. Bernard Côté, from the Groupe Action populaire, who hasn't arrived yet; from the Canadian Federation of Students, with Holly Baines representing the national component, and Mr. Benoît Renaud and Ms. Deborah Murray representing the Quebec component. Dr. Rafick-Pierre Sékaly and Ms. Vaillancourt from the Clinical Research Institute of Montreal are also among our witnesses. Welcome everyone.

We also have Mr. François Legault appearing. He is the president of the Quebec Federation of Senior Citizens, and with him is Ms. Nicole Moir, the executive director. I'd like to welcome you as well. Have I forgotten anyone? No, I think that's every one.

As usual, you have no more than five or ten minutes to present your organization's point of view. Then the members will have some time to ask questions.

We'll begin with the Conférence des Régies régionales de la santé et des services sociaux du Québec. Mr. Dumas, you have the floor.

Mr. Paulin Dumas (Executive Vice-President, Conférence des Régies régionales de la santé et des services sociaux du Québec): Thank you, Mr. Chairman, for inviting us to this session.

I represent the 18 regional health and social services boards in Quebec. The Government of Quebec has given these boards a mandate to ensure the accessibility and continuity of care throughout the regions of Quebec. The provincial government has asked us to organize and coordinate services, to fund a number of high-priority programs that affect the people as well as material and financial resources. Our boards also have a mandate to bring together various strengths and resources within their respective areas.

Mr. Chairman, I would like to make the following statement: the federal government absolutely must restore the level of transfers to the provinces. Over the past three years, the Quebec system has made a tremendous effort to reduce expenditures by $1.3 billion. Of this amount, $600 million was reallocated, in accordance with the priorities affecting the people in each region and territory of the province.

This reform, these changes, are not over yet. Even more needs to be done. The measures taken in 1994 and 1995 were not as vigorous as was planned, because the room to manoeuvre that had been allocated was mostly used to reduce the deficit, put the government's fiscal house in order, a goal that we certainly understand, and also because the federal government was reducing its transfers to the provinces at the same time.

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The system had to find cuts equal to $1.3 billion over three years, which was roughly the same amount as the federal government's cut to transfers to the province of Quebec.

It is important to restore the transfers because this would allow Quebec to reach the goals that the Minister set on September 23 for the next three years.

The departmental objectives unveiled on September 23, 1998 were the result of a broad evaluation conducted last fall by a vast number of people involved in delivering health care and social services to the general public. Each region conducted its own evaluation, identified what had been achieved to date and what had taken the most time.

Increasing transfers to Quebec would make it possible to consolidate and achieve a common objective, based on the needs of the people in each region and each territory, and by that, I mean access to an integrated service network at the local and regional level, and at the national level, to a network of highly specialized services. We must guarantee the quality of these basic services and consolidate them, increase the accessibility of services, and consolidate the university-hospital network, which includes indicators of the results to achieve.

For Quebec, these objectives are very clear. The preferred option, for increasing federal transfers, is that they be in the form of an envelope for Quebec, earmarked for health and social services, but not targeted measures.

I emphasize the fact that the measures must not be targeted. Why? Because in the regions priorities have been established for three years; funding has been allocated to those priorities that best coincided with the knowledge we had of problems in this specific region. The problems are not the same throughout Quebec; they are specific to each territory and to each region.

These choices must therefore be guided by the seriousness of the problems to be resolved. For example, one region decided to cover all rehabilitation services, another, to enhance those measures designed to help keep patients in their homes. So at present, a region may have reached a very high level of home care services, whereas the other may plan to achieve that over the course of the next three years.

Targeting this action, at a Canada-wide or even a Quebec-wide level, would be a mistake that we must not make. Acting in such a structured way could lead to investing money in areas where needs have been met, or where the optimal level has been reached. That might also create inequities by attempting to achieve the opposite and create a parallel service network.

That concludes my opening remarks, Mr. Chairman.

The Chairman: Mr. Côté has just arrived and I am not sure if he is ready. We can continue and move to Mr. Renaud or Ms. Murray.

Mr. Benoît Renaud (Coordinator, Canadian Federation of Students—Quebec Component): Ms. Murray will start and I will then complete our presentation.

[English]

Ms. Deborah Murray (Quebec Representative to the Executive, Canadian Federation of Students—Quebec Component): For Quebec we're going to do a joint presentation. I will be covering a few points, beginning with the Bankruptcy and Insolvency Act.

One of the concerns of students in Quebec who are participating in the Canada student loans program is the introduction of a period in which students cannot claim bankruptcy. First it was up to two years, and now it's been changed to ten years after graduation. There's a concern that this is unfair and discriminatory to students who may find themselves in precarious financial situations and may actually need to consider this as an option. It's a concern that this has been taken away from students in financial need.

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One concern that seems to be raised in the regard to bankruptcy is that students default on loans and therefore we need to impose a measure that will stave off defaults on loans. But in reality, a lot of research has now shown—and we've provided that throughout other previous presentations and federally—that in fact the majority of students attempt to repay their loans quite painstakingly at many points in their lives after graduating because of the situation of high unemployment or low-paying jobs. The concern right now, and the recommendation, is that the 10-year imposition of not being able to file bankruptcy be removed.

The second point on student loans is the credit check that has been decided on for implementation next year. This is another unfair and discriminatory practice. The initial notion is that student loans—and we still use the terms today—are for student assistance and financial aid. They are intended to provide access to students in need who might otherwise not have access to post-secondary education. A lot of students' struggles in the past have actually allowed this as an option to consider for students who come from lower-income and working-class families—and women and other minority groups—to have and maintain access to university they might not have otherwise had. This is a concern as well.

The whole aspect of student loans, whether we look at it from the question of the bankruptcy issue or the credit check, is effectively that it is taking the overseeing of the student loans program from the hands of the government and placing it into the hands of the banks. The decisions of banks and of standard loans are now being applied to student loans, and this is a problem. With the incredible struggle students meet right now, we've learned that as student loans have increased, work opportunities have decreased.

As a correlation on some levels as to why students are remaining in school or going to school to try to better their opportunities, unfortunately the job market is not fulfilling some ideals of students who are coming out at the other end. This is actually, from the beginning to the end, imposing an avenue as to why students undertake student loans to go through school. They don't have the jobs upfront that actually help them to save for this kind of education. But at the same time, coming out at the other end, we need to allow right now for a job market that doesn't allow the majority of students to earn the kind of income...or obtain jobs at all.

It's having a devastating impact on the lives of students right now, as 80% of the student population across Canada are living below the poverty line, and there's been an increase over the years of student food banks, in particular. The signs of poverty are around us. It also means we're moving completely away from the notion of publicly funded and accessible education.

Two other points I'd briefly like to address are the spending for granting councils and the Millennium Scholarship Endowment Fund. Graduate students, in particular, were really pleased to see there was an increase in the last budget; however, it still really doesn't address the issue of funding overall that is needed out there to fund student work—graduate work we're expected to undertake to fulfil our degrees. At the same time, the millennium scholarships do not address graduate student funding whatsoever or make it accessible to graduate students.

One recommendation is to eliminate the 10-year prohibition for discharge of student loans. We want that decision to be reversed, as well as the decision on credit checks for student loans. In regard to granting councils, we want to federal government to increase funding to the granting councils to at least their 1993 levels. Finally, we would like the Millennium Scholarship Endowment Fund to be administered by Human Resources Development Canada, but we would also like to include graduate students in that.

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Benoît will address some of the other aspects.

Thank you.

The Vice-Chair (Mr. Nick Discepola): Thank very very much, Ms. Murray.

[Translation]

Mr. Renaud.

Mr. Benoît Renaud: I am going to quickly wrap up by focussing on two central issues, the Millennium Scholarship Foundation and transfer payments to the provinces, which are both linked.

First of all, the Canadian Federation of Students is opposed to the Millennium Scholarship Foundation as it is currently set up, primarily because it is a private organization that is very indirectly accountable for its action to the people, and that can consequently establish questionable criteria with respect to the allocation of funds.

What we would like first and foremost is for the budget of the Millennium Scholarship Foundation to be used as part of existing financial aid programs. In the case of Quebec, the money should be handed over to the Quebec government so that it can be injected into the existing financial assistance regime, which already includes a substantial amount for grants.

In the rest of Canada, we recommend that the monies earmarked for the millennium scholarships be used to set up a system based on need, or on the same criteria as the current loan system, so that it serves as a complement to the loan program. A measure such as this would generally reduce debt levels. It should perhaps be based on the Quebec example, where financial assistance is provided partially in the form of a loan and partially in the form of a grant, with a view to reducing, at the very least, the student debt crisis that currently exists, particularly outside Quebec.

Secondly, I would like to address transfer payments to the provinces which have suffered major cuts. At the outset, we question the legitimacy of this step taken to reduce the federal government's debt. However, in hindsight, even if we can challenge the methods used, the debt has been wiped out and we are now moving towards a surplus. Given the success of the efforts we have had to make without anyone having assessed our opinion, we would consider it completely unacceptable for these efforts not to be followed by a marked increase in transfer payments to the provinces, for post- secondary education primarily and also for all social programs.

We are therefore opposed to the logic behind encouraging the government to cut taxes, which could end up in a sort of vicious circle by recreating a deficit. The government could end up in a credit crunch where, in the end, it would deprive itself of revenues, create a new debt and decide once again to slash social programs. At the end of the day, a massive transfer of public funds to the private sector would result from that situation.

We are asking for the trend to be turned around, for transfer payments to the provinces and funding for social programs to be increased significantly or at least brought up to 1993-94 levels, which were in place when the Liberal Party was elected.

In conclusion, we are also opposed to the argument that emphasis must be placed on tax cuts and on eliminating accumulated debt so that Canada can become more competitive and so on.

First of all, I might point out that there is more than economic competition to life; there are other priorities, namely the rights of individuals. We consider these rights extremely important. However, tuition fees for post-secondary education are so prohibitive and debt level is so high that citizens are being deprived of their right to an education.

We would also like to point out that the federal government is to a large extent responsible for creating this excessively competitive environment that is pushing it to make never-ending cuts.

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For the same reason, we are also opposed to treaties like the multilateral agreement on investment, which fortunately, is experiencing some difficulties. But we need to continue challenging the somewhat disorganized globalization and give government back its role in society, to preserve and guarantee the citizens' rights first and foremost.

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

[English]

Ms. Baines, would you like to begin.

[Translation]

Ms. Holly Baines (Vice-President, Canadian Federation of Students, Quebec Component): I would like to start by apologizing for not having a French version of my presentation. I did not have access to the Federation of Students translation service when I prepared my presentation. But I will try to answer the questions I am asked later in French.

[English]

I want to begin by saying you have just heard things similar to what I am about to say to you, and you will hear them again and again because they continue to be of grave importance to students and indeed to all Canadians.

I want to share with you, first of all, a quote from the Speech from the Throne of the 36th Parliament of Canada on September 23, 1997:

An important role for government is to ensure the widest possible access to post-secondary education. Canadians are concerned about the increasing cost of higher education, and the resulting debt burden on students.

The Canadian Federation of Students continues to be Canada's largest student organization. We are comprised of over 400,000 students at nearly 60 colleges, universities and institutes from St. John's, Newfoundland, to Victoria, British Columbia, and none of us were persuaded the 1998 so-called education budget has solved the funding crisis in Canada's post-secondary education system.

The federation's biannual national general meetings have seen members develop an ongoing analysis of what our post-secondary education system needs from the 1999 federal budget and future budgets. Our overall recommendation reminds the committee members that long-term improvements to the accessibility and quality of public education in Canada demands reinvestment of core funding into the system.

We urge the members of this committee to include these recommendations in their final report to the Minister of Finance.

Recommendation one: dedicate and increase cash transfers to the provinces to at least 1993 levels.

Recommendation two: improve student financial assistance. The risk-sharing agreements with financial institutions should not be renewed. A more adequate debt reduction program to be available from year one of repayment should be created. Canada Millennium Scholarship Endowment Fund awards should be made based solely on the criterion of financial need. The fund itself should be transformed into millennium access grants for students and administered by HRDC.

Recommendation three: eliminate the ten-year prohibition of bankruptcy protection for student loan debt holders.

Recommendation four: address unemployment and underemployment. Funding to the provinces and territories for training should be restored. Canada's apprenticeship programs must be improved and expanded. As part of a strategy for full employment in Canada, the federal government must lead the way with job programs that provide meaningful, fair-wage work for students and recent graduates. Unemployment insurance regulations should be amended to allow more students and recent graduates to qualify when they are in need.

Recommendation five: further increase funding for the research councils, especially for SSHRC as SSHRC gets about a third of the funds of MRC and NSERC.

Recommendation six: improve tax measures for students. The tax-free portion of academic scholarships and bursaries should be increased from $500 to double the basic personal income tax deductible, with the remainder being considered as earned income so that graduate students especially can save money for their futures. Make tax credits for tuition fees and other education expenses refundable to ensure that students with the greatest need will receive assistance.

Finally, recommendation seven: increase tax fairness.

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We make these recommendations in an era that will have seen $7 billion cut in federal transfer payments to the provinces for post-secondary education and training. As a result, provincial governments have looked to other sources for funding the post-secondary education system, namely through increased user fees charged to students.

Poorly conceived and underfunded student financial assistance programs based almost entirely on loans have not been able to meet the financial needs of many students. Since 1993, the only area in which students of post-secondary education have seen dramatic and consistent increases in access is in their debt loads.

Despite Premier Mike Harris' remarks that the only thing student debts will do is put off the purchase of a BMW for a year, student debt load continues to be the overwhelming concern of students, particularly graduate students. A small snapshot of one graduate student government, the Graduate Students' Union of the University of Toronto, shows that all of the departmental organizations list debt load and high tuition as the issues they want to see addressed in the coming year.

This concern, which in some cases is outright fear, is not misplaced. I personally know students at the undergraduate level who will face $30,000 of debt as they also face the decision as to whether or not to further their studies at the graduate level or look at which job to take—if they are lucky enough to face that choice. I also know a graduate student who is just completing the final draft for her doctoral thesis and who is over $95,000 in debt.

The so-called “education budget” of 1998 severely betrayed these students and others. The changes in the Bankruptcy and Insolvency Act have been criticized by trustees in bankruptcy across the country and simply cannot be accepted as a good thing for students. It's a further insult to Canadian students to be told by members of the government that these changes were developed to further protect us.

How can it be seen as protection to be forced to face the question of declaring bankruptcy twice, separated by a 10-year period? Such a decision is not lightly taken, and our protection from creditors should be no different from that of other citizens of Canada even if the creditor in this case is the federal or any provincial government. The changes in the Bankruptcy and Insolvency Act must be repealed.

The insult to Canadian people that's derived from calling the 1998 federal budget the education budget is that by ignoring the desperate need for increased core funding of the post-secondary education system in Canada, what was once a publicly funded system is quickly becoming a publicly subsidized system.

Even university, college, and institute administrators understand that they cannot make up their loss of revenues only through increasing user fees. Hence, they have turned to private-public partnerships. Not only has this allowed for an unprecedented level of private control over curriculum and program in some parts of the system, but it has betrayed the public investment in education that has been a hallmark of Canada for decades.

Private interests are now able, under the guise of providing more funding for cash-strapped colleges and universities, to have access to labs, libraries, and expertise that were paid for by the public purse. This is pure and simple public underwriting of the private pursuit of profit. I think Matthew Barrett—I'm paraphrasing—said of his involvement in Ontario universities that they don't do this for nothing.

The overall context of these financial dealings is that education is increasingly the primary requirement in the pursuit of employment, but because unemployment and underemployment in Canada is so high, even graduates of the post-secondary education system face a future without a job. A full 27% of Canadians living in poverty have post-secondary education. This is shameful. These are the people who believed the story that education was their ticket to the future.

It is in this context that the Canadian Federation of Students continues to advocate for a real solution to achieve the widest possible access to post-secondary education. This means targeting the system, not individuals. Core funding through targeted federal transfer grants must be restored to 1993 levels. Band-aid solutions, like tax cuts or credits, targeted-assistance programs, public-private scholarships, or even student grants focus only on the individual. These alone cannot achieve wide access. Only a publicly funded fully functioning post-secondary education system can do that.

Thank you.

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

[Translation]

I would now like to ask Mr. Bernard Côté to make his presentation.

• 1650

Mr. Bernard Côté (Groupe Action populaire): I represent the Groupe Action populaire or, if you prefer, the Organisation d'aide aux personnes sans emploi.

One might expect us to ask the government to put in place minimum standards to help unemployed people, since provincial programs are often below acceptable standards. Over the past few years, we have been hit with major cuts and I think that most people know the story.

Attempts could be made to ensure that there are employability programs that do not simply lead to very short-term jobs, thus forcing people to return to income-support programs or to other provincial programs for unemployed people. We could also strive to eliminate all workfare programs that are being developed and that result in workers who are underpaid and who receive less than the minimum wage. In my opinion, these would be legitimate demands.

While these claims on the part of unemployed people are legitimate, we must be aware that Canada's debt is nearly $600 billion. There are many unemployed young people and their comments are legitimate. It is also legitimate for students to call for improvements, whether we invest in research and employment, reduce taxes for businesses and some taxpayers, invest in health care and education or assist the most underprivileged, it is all legitimate.

But we must go beyond individual rights. In an archaic society, the individual is king; in a society like ours, individuals derive their identity or their wealth solely from collective wealth, which exists in theory. A $600 billion debt is huge and is almost twice Canada's gross domestic product; that is a well-known fact.

I would recommend first of all that a significant percentage of the budget's surplus, perhaps almost 75%, be set aside and used to pay back the debt. The day that debt disappears, the situation for unemployed people will improve significantly. Areas such as research, health, education and employment will no longer be cut.

All of the budget cuts were made because year after year, we faced a deficit and everyone spent more than they received each year. Even if we are no longer in a deficit and we have learned to manage our finances, the debt remains. The day the debt has been wiped out, there will not be a government anywhere that will dare tell its citizens that it plans to cut assistance to unemployed people.

All of our social programs were set up during the good times, when both the Canadian and Quebec debt were virtually non-existent. At that time, it was legitimate to invest in health care services and education. There was full employment, and social assistance existed.

Our priority should be to eliminate this debt as soon as possible, as it represents a huge burden for future generations. What I wish for the most is for the people present here today to meet before appearing here in order to reach a common proposal. If all of the diverging interests succeeded in formulating a common proposal, the government would face a little bit more pressure with respect to our claims on how to use future surpluses. These diverging interests could arrive at a common proposal and submit it to government. The government may not accept it right from the outset, but by joining forces, we could invoke democracy as a form of government. It would represent a true empowerment of all of the people present here, the students—I was one not so long ago—the underprivileged and the researchers.

Using 75% of the surplus in the way I suggested still leaves 25%. If, as Mr. Martin has predicted, we end up with a $20 billion surplus in the near future, there will still be $5 billion that we can reinvest in society and distribute among the various groups. We could assist certain groups. But I feel that once we have put out the fire, we have already taken a first step. We simply need to stop spending more than we have. Before squandering our money or redistributing it, perhaps we should start by rebuilding the house; we all need a collective roof. We all need to agree, collectively. The rights of individuals in a country like Canada must be defended, but these rights can only be defended adequately in a context where our debt is reduced to an acceptable level, below our gross domestic product. In that kind of context, we could consider going even further.

• 1655

What we need to determine here collectively is how we will distribute the rest on a priority basis. Do we grant ourselves tax cuts or invest more in health and education? Obviously, I do not think that we can neglect health services nor the underprivileged. There are urgent situations. If someone asked me, as they did last year, if we have money to give to the underprivileged, I would say yes. However, I recommend that we make it a priority to use most of the surplus to reduce the debt. I am aware that by doing so it will be very difficult for the underprivileged in the short term, but in the medium term, we will all be better off. Thank you.

The Vice-Chair (Mr. Nick Discepola): Thank you very much, Mr. Côté. Dr Sékaly, you now have the floor.

Dr. Rafick-Pierre Sékaly (Director, Centre for Research in Immunology, Clinical Research Institute of Montreal): Good afternoon. I would like to start by thanking you for giving me an opportunity to present the necessary arguments on the crying needs for research budgets in general, and biomedical research in particular.

I would also like to congratulate the members of this committee for the work they have accomplished since last year, which has enabled us to overcome our budget deficit and, moreover, obtain an increase in research budgets for the three research granting councils, as we recommended last year. The government's contribution to funding research has also been strengthened through investments made as part of the Canada Foundation for Innovation. However, my presence here with Ms. Vaillancourt, as a representative of the Canadian Council for Research in Health as well as the Clinical Research Institute of Montreal, is due to the fact that despite the efforts made, additional, more substantial investments are required to ensure the development of Canadian talent, to reinforce existing infrastructure and above all to ensure a better quality of life and a better health care system for all Canadians. The investments that we are recommending here should once and for all remedy the chronically difficult situation that forces us year after year to appear before this committee to defend research budgets. They should also provide an integrated framework that would allow for economic growth, better use of talent and resources and better health care systems.

What is the problem? Despite the efforts made, Canada still lags far behind the other G-7 countries in terms of money invested by government in research. The gap will continue to grow, particularly with respect to our neighbours to the south, since the American government plans to double investments in research by the year 2001, and this despite the fact that their investments are already ten times higher than investments in Canada. The most recent American budget announced a 20% increase in the budget for the National Institute of Health. They received a $2 billion investment to promote and advocate health research.

This under-investment in research quickly weakened infrastructure in which the government had invested considerable amounts of money in the past, namely with respect to training. This under-investment has also led to a lower quality health care system since Canada, and Canadians, constantly depend on new drugs or new health care procedures that are developed by researchers outside Canada, in countries that do not necessarily have the same problems, the same infrastructure or the same health care system as we do.

This under-investment has also led to a brain drain. In fact, Time Magazine recently devoted its cover page and its entire editorial to this problem. More recently, two articles published in La Presse in Montreal have estimated the cost of this brain drain at more than $1 billion.

What are the consequences of this problem? First of all, when we have a less effective health care system, because we have not identified or characterized new treatments, we have higher costs for Canadians because we have not looked into new, less invasive health care methods, and we have the prospect of diminished intellectual ownership by Canadian institutions. In the context of market globalization, this would be disastrous. We have no biotechnology, one of the most popular industries and one of the most effective generators of employment. In fact our researchers emigrate southward increasingly, and the Canadian companies are having difficulty recruiting sufficient researchers to work in their laboratories, because we are not training enough of them here. Investments are slipping out of Canada. In spite of their ability to generate financial resources in Canada, risk capital investors are investing increasingly in other countries, because the research infrastructures are getting weaker. Finally, the universities are having difficulty recruiting researchers, with the result that the research community is experiencing less and less renewal.

• 1700

More than eight of my doctoral students who received all of their training in Canada are now scattered throughout the world. We do not have the resources needed to keep the best ones. A number of those sitting on a Canadian researchers' committee referred to this state of affairs.

What do we suggest as a solution? We would like to see a new trans-Canada organization grouping together all of Canada's research elements in order to control biomedical research. In a way, it would mean creating Canadian institutes for health research. It would require an investment of about $500 million, part of which would be made up from private charitable organisations and the pharmaceutical companies, in order to avoid duplication. This would lead to the creation of a Canadian network of institutes and laboratories consolidating the existing infrastructures and opening the way to increased Canadian biomedical research, by providing better use of the available resources. It would allow Canadian talent to develop. It would avoid the waste of investment currently occurring at the hands of the Canadian government. This initiative is supported by the vast majority of Canadians. A recent survey showed that over 70% favour an increase in the Canadian government research budget.

This initiative represents a new global vision of the research effort, an integrated vision that will offset a number of problems, without necessarily increasing or affecting the efforts being put into the problems related to Canada's debt.

Thank you for your attention. I would be pleased to answer any questions. Ms. Vaillancourt, you have the floor.

Ms. Louise Vaillancourt (Vice-President, Clinical Research Institute of Montreal: I do not whether you are all aware that the Canada Health Research Council consists of volunteer organisations in the health care sector and of research institutions. Its objectives are to promote a sustained, high-quality effort in the health field, and to encourage the funding of health research in Canada.

[English]

We would like Canada to buy a vision of a vast research program, a health research enterprise that is responsive to the health needs of Canadians, that is recognized internationally to be at the forefront of health research, and that assures Canada's competitiveness in the health segment of the knowledge-based economy.

This group, which has the support and the encouragement of the Minister of Health and of many of your colleagues, represents the CRM, or MRC, depending on the language in which you say it, 16 health and charitable organizations, and many of the biomedical research organizations and industries.

I think it's important to note that when we ask for a new way of distributing research moneys in Canada, that money should not go into the pockets of the researcher who asks for it but towards jobs to hire graduate students, jobs to make sure that the research program can work on a fast track, which could then go to development of products and different ways of dispensing health. So it's jobs, and that's a very important part.

• 1705

[Translation]

As you all know, it takes at least 15 years to educate a researcher. If we miss the boat today, our children and grand- children will be paying the price in 15 years.

[English]

I could go on longer,

[Translation]

but I think that Dr. Sékaly said what needed to be said. I hope that you will read the documentation prepared so carefully by us for you, and will recommend it to the Minister.

The Vice-Chair (Mr. Nick Discepola): Thank you, Ms. Vaillancourt. I will now ask Mr. François Legault of the Fédération de l'âge d'or du Québec to take the floor.

Mr. François Legault (President, Fédération de l'âge d'or du Québec): Thank you. The Fédération de l'âge d'or du Québec thanks you for allowing us to appear at these hearings.

As you may know, our Federation has over 260,000 people aged 50 and over in Quebec. We have 16 regional groups and about 1,000 clubs, aiming to maintain and improve the quality of life of seniors, in both the social and recreational areas.

In recent years we have followed with interest the government's efforts to streamline public finances and do away with the deficit. We felt that these efforts, which we've encouraged in previous budget consultations, were necessary to give Canadians, including seniors, a better social and economic future.

Although this year we seem to have a little more room to manoeuvre financially, we must remember that Canada's debt is still very much a reality and a burden that each of us must bear.

As we said last year, in the coming years the government must not lose sight of the need to reduce the debt, while adopting measures that will improve the financial and social situation of all Canadians.

We will not dwell on areas that other groups have doubtless covered in a very capable manner. However, we would like to join with all those who are encouraging the government to adopt a progressive tax reduction plan, which must inevitably improve both the lot of Canadians and the overall economic climate.

One of our concerns is the lack of financial flexibility currently available to Canadians wishing to plan their retirement income. Although the government has decided not to adopt an old-age benefit, we realize that with the increase in the number of retired people and the prospects of a reduced labour force, the question will inevitably arise again. The revision of the Canada and Quebec pension plans will give those presently working a measure of financial security in the future, even though their contributions are increasing.

However, we do not feel that this, combined with the old-age security program, will guarantee them minimal financial security when they retire.

In addition, despite the tax advantages being provided by the government, registered retirement savings plans are still not being used by most people; among those who are using them, very few are investing the maximum allowable.

It should be borne in mind that early retirement, the social upheavals generated by massive job losses, the return home of children who cannot find employment, and the need to take care of elderly parents often mean that adults between 50 and 60 must begin to use the funds invested in their own plans.

Finally, the majority of workers still do not have access to private pension plans; unfortunately, this is especially true among low-income earners.

The FADOQ is asking the government to confirm that the question of the elderly will remain a priority, to adopt additional measures to help Canadians build a retirement income, and to encourage the creation of jobs to make present retirement income plans viable.

In 1994, over 200,000 people aged 65 and over had an income below $10,000 in Quebec. Grouping together the three income plans, namely the old age security, the guaranteed income supplement and the Quebec Pension Plan, 62% of seniors had an income below $15,000. Finally, only 5% of seniors had incomes exceeding $40,000.

• 1710

The cost of living is the same, whether one is retired or working. However, seniors have very few ways of increasing their incomes. Thus it is very important to improve support programs to enable them to live with an adequate income.

Allow me to relate the experience of a 73-year old woman living alone. It illustrates the situation of many low-income seniors. She has been a widow for about 20 years; her husband died at 54. In 1997, her annual taxable income was $10,571.16. She said that no matter how she pinched pennies, it became almost impossible to make ends meet. She could afford only the essentials: rent, food, clothing, medicine not covered by insurance, the dentist, life insurance, tv and cable, which is her only form of recreation. She can no longer even treat herself to the occasional visit to the hairdresser. She is not bitter, but does feel rather desperate. She has trouble understanding how politicians can believe that under her circumstances, she would have been able to save money to enjoy a better retirement.

This situation is not uncommon; it affects a large number of women aged over 70. The FADOQ is asking the government to gradually increase the basic annual income in the old age security programs and the guaranteed income supplement, to at least bring it up to Statistics Canada's low-income threshold.

The increase could be brought about the following way: in the first year, an increase of $120 in the annual pension for retired persons on the old age security program and the guaranteed income supplement; in the second and following years, an increase in the annual pension level in proportion to the consumer price index plus 1% until the pension income reaches the low-income threshold.

The Fédération de l'âge d'or du Québec now wishes to look at the middle-class seniors category. In most cases, they are people who were fortunate enough to live during a time when it was far easier to get a job. Because of this, a number of them have lived under better conditions. They can enjoy a treat now and then. They were able to put a little money aside. Life may seem to be somewhat easier for them, but it is generally agreed that they had to make considerable efforts to get where they are, a fact which is increasingly less recognized. These seniors resent, and rightly so, the tendency of governments to increase the tax burden on them.

Our federation deplores this state of affairs, and in particular the general perception that this group of seniors is privileged and has never contributed to the effort to improve public finances. However, those who have enough income to pay taxes, although far from being wealthy, have been hard hit by various fiscal and legislative measures. They have lost considerable purchasing power in recent years, a fact which has weakened their portfolio considerably. The seniors who are at this middle-class level are wondering whether all their efforts were in vain.

The Fédération de l'âge d'or du Québec is asking the federal government to reduce the rate of old age security pension recovery, since those who have accumulated some savings are paying too much; their retirement income should be taxed on an individual basis using the regular income tax rate, not using a recovery mechanism.

In closing, in 1996, Finance Minister Mr. Paul Martin explained the changes in the Canadian retirement program invoking the rapid aging of the population, the government's deficit financial situation and the viability of the regime for future generations.

Aging is an inevitable fact. As for public finances, the situation is improving. As for the viability of the regime for the future, there have been some improvements.

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We urge the government to keep progressing on the right track, and to continue its efforts to improve the situation of the retired poor, to give some breathing room to those who were able to prepare more adequately for retirement, and to give future retirees conditions whereby they might do the same. Thank you.

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

We now have with us Mr. François Roberge, Director of Public Affairs and Communications, Metropolitan Montreal Chamber of Commerce, and Mr. Pierre Laflamme, Chairman of the Public Finances Committee.

Gentlemen, welcome. Please excuse the mixup. I invite you to make your presentation. We will then go to the question period.

Mr. François Roberge (Director, Public Affairs and Communications, Metropolitan Montreal Chamber of Commerce): Thank you, Mr. Chairman. We were asked in writing to come here at 5:30 p.m.. It did not seem to be a conference with a number of participants around a table, as in previous years. We came on the basis of the letter of invitation. I'm sorry that we are late. We will be quite brief.

The Metropolitan Montreal Chamber of Commerce has 7,000 members. It is the largest business organization in Montreal, in the country's second largest economic region after Toronto. Its 7,000 members employ 500,000 people in the metropolitan area. Thus, we are speaking to you of behalf of this economic force.

Without further delay I will ask my colleague Pierre Laflamme to give the part of our presentation that concerns not macro- economics, but the fiscal, budgetary and revenue aspects. I would then like to talk about what we wish to see the Canadian government do to redistribute its budget surpluses in an useful and even essential way for the metropolitan region's economy, without needing to get into new programs.

Mr. Laflamme, you have the floor.

Mr. Pierre Laflamme (Chairman, Public Finances Committee, Metropolitan Montreal Chamber of Commerce): Thank you. Hello, Mr. Chairman, ladies and gentlemen.

To begin with, let me simply say that the Metropolitan Montreal Chamber of Commerce has on a number of occasions spoken out strongly in favour of a zero deficit and even budget surpluses. This did just happen, and we are pleased with the results.

On the other hand, when you look more closely at what happened, it is clear that a large part of these surpluses have arisen from increased economic growth, which generated more revenue for the federal government. There has also been a decline in transfers to the provinces, and of course, in employment insurance. In view of the current strength of the economy, the employment insurance fund has some significant surpluses in it. This is how the Chamber sees the picture.

In the metropolitan Montreal region, the Chamber sees the following factors at play: the presence of a dynamic, multi- dimensional leading-edge educational sector; an increase in the number of graduates in technology and science; a close link between institutional research and the economic sector, which has enhanced research; the presence of hospital and leading-edge health research centres with sufficient budgets; infrastructures essential to the vitality of a large city, in particular a world-class convention centre; well-known, solid, cultural institutions; major-league sports teams integrated with the North American network; and finally, a competitive tax structure.

Getting back to some of the things I just mentioned, Montreal has suffered considerably from reduced transfer payments to the provinces and in turn to the municipalities.

• 1720

Thus here is the Chamber's position on current and planned budget surpluses. Our position is based on the fact that deficits and debt are highly detrimental to the financial health of Canadians, and the debt must be brought under the level of 50% of the GDP, and even down to 45 percent.

Canadian taxes are so high that they are costing us many of our best people and industries. We must bring taxes down if we are to become fiscally competitive.

Budget cuts have considerably reduced services to Canadians and have jeopardized our quality of life. We must reinvest considerably in the existing programs.

In Montreal, the domino effect of the cuts has placed the city on the brink of bankruptcy, preventing it from investing in its future.

Transfers to the provinces must be restored, and Ottawa must stop spending in areas of provincial jurisdiction, as it is doing with the Millennium Scholarships. The Canadian government must not invest in new programs. Investment in basic research and research and development is a priority, and may be considered to be the best way of promoting the growth of the knowledge-based economy.

As far as the distribution of surpluses is concerned, we will have more specific recommendations, but we can say from the outset that there is no magic figure. The three-thirds or two-halves figures have often been suggested. At present we are seeing that a zero deficit, as we had last year, nonetheless creates surpluses in liquid assets, because some of these liquid asset expenditures do not need to be made. The surpluses were $12 billion last June. Thus with a zero deficit a considerable repayment of the debt occurs. The Chamber's position is that one-third of the budget surplus should be allocated to debt reduction; one-third should be re- injected into existing programs that have suffered from the recent cuts; and one-third should be used to reduce employment insurance contributions and personal income taxes.

Mr. Roberge.

Mr. François Roberge: I would like to talk a little more directly about the economy of the Montreal region, which is our area of concern. The Chamber covers the whole Montreal census region, which extends from the Mille-Îles river to the Richelieu. It is certainly one of Canada's most dynamic regions in-so-far as the sectors of the new economy are concerned. For example, Montreal has 58% of the country's aerospace industry; 42% of the rapidly growing pharmaceutical industry; 38% of the information technology sector; and 40% of the telecommunications sector. Thus it is important to note that the region's economy is modern, forward-looking and growing fast.

Montreal has also been a leader in health care during the 20th century. For example, 28 of the 35 major medicines discovered in Canada in the past century were discovered here. These medicines were often accompanied by technological breakthroughs and are still being used worldwide.

Montreal is a city of famous universities. Thus research and health is a very important part of the Montreal region.

If the Canadian government has surpluses, some of them should be invested in programs, especially in current or existing ones which lack funds, which have suffered cuts or which are growing too slowly, for example, the Canadian Technology Partnership.

• 1725

Montreal has industries like Pratt & Whitney and Canadair with tremendous developments to finance. We are talking about $2 billion for a new series of engines and a new aircraft. Do date, these industries have been using the Canadian Technology Partnership, but there has been no money in that program for some time, it seems. It's not a question of subsidies, but of investing jointly with the industry and recovering the sums later, when the aircrafts and engines are sold.

If no investment is made jointly with the company, we believe that the next Pratt & Whitney engine will be developed in the U.S.A. or Poland, and the 7,000, 8,000 or 9,000 jobs in Canada, including 7,000 in Longueuil, will gradually be transferred to one of those countries, because they are prepared to put out the $500 or $600 million.

Canadair may manufacture its next aircraft in Malaysia, Singapore or Northern Ireland because those governments have been quietly allocating considerable amounts to the project.

Thus we feel that a partnership is very important, and we recommend that the government reinvest in these areas, in research, because it will create long-term employment, vitality and new economic strength.

The same holds true in health. Currently 0.3% of the total health budget is spent on research. We fully agree that this percentage should be increased to one, because it will give us a more effective health sector, will create an industry and will keep our best people here.

Thus we urge the government not to create new programs, but to add money to existing ones, to those that are productive, and redistribute money to the provinces in the form of equalization payments. That's our message, because not all the provinces have the same wealth. Most are trying to get rid of their deficit. Some have succeeded, but they all need the contribution levels of the past in order to get more breathing room in the health sector. This is the case with Quebec.

We also feel that presently the Canadian government no longer has the money to contribute as it did in the past to more or less institutional programs, such as the infrastructures program, and to projects that are exclusively local, such as expansion of the Montreal convention centre. The same holds true for road infrastructures.

In sum, our recommendations for developing the Montreal economy and keeping our brains and our industries here are to make investments in the existing programs and put money back into the hands of the provinces.

My colleague also said that we would like to see tax reductions and employment insurance contributions. On this point, we have nothing more specific to say. I know that you have received representations from various sectors of the public. We are saying that we are not competitive, and regardless of the segment of the public to which one belongs, we are generally overtaxed in Canada.

That's all I have to say.

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

Now for the questions. You have interpreters at your disposal if you need them.

I will invite Mr. Epp of the Reform Party to ask the first questions.

[English]

Mr. Ken Epp: Thank you all for coming and giving us your collective wisdom here.

• 1730

The chairman always introduces me as a Reform member. The regular chairman doesn't do that. So I realize I have some additional pressure here to live up to some image, whatever that is.

I find these presentations very interesting, not only because of the diversity of priorities among people, but also how they justify things and also what their perceptions are. For example, the last group seems to imply that government is paying between $10 billion and $20 billion a year on the debt. I don't know whether that's happening or not. I'd like to know exactly where those numbers are coming from. So we may talk about that if we have time.

I want to talk first of all to these students. I taught mathematics and computing for 31 years before I got into this business here, where I'm trying to teach my finance colleagues how to add numbers just to balance the books. It's been a bit of a shift. I'm curious about your long-term view of Canada. I know that a bunch of your colleagues are being trained and they're leaving the country. Yet Canada really is a wonderful country. It is the best country in the world.

Mr. Yvon Godin: Was.

Mr. Ken Epp: Well, it still is. It's mismanaged a bit right now.

There's been quite a shift in the way students go through school. When I was young—I almost hesitate to tell you this, because your jealousy may not be containable—we came out of school without any debt at all. We paid our way as we went. In summer, jobs were waiting for us; we could pick our jobs in summer. I made quite consistently about 50% more money every summer than I needed for my whole year of education. And I was not untypical; that was true for most of my friends who were in math and engineering and that type of thing. In the intervening years things have changed. I've often asked myself why they have changed.

It seems to me that one of the biggest changes since I was a graduate—it's over 35 years ago that I graduated from university—is that at that time we had a very, very small debt, nationally as well as provincially. And now, when we tax our business people and our individuals, we tax them to death, and then we take one-third of the money that we take from them just to pay interest to cover the interest on the debt that was accumulated in the past 30 years.

I wonder whether you, as young people, have the vision of a country where we are not slaves to the creditor, we're not slaves to the people who have lent us money. If we had that $41 billion a year of interest, we could provide a totally free education for every one of the young people in this country who want to go to college or university, probably a whole bunch of money for health, and more besides, because $41 billion is an awful lot of money.

You talked about personal debt, and you talked about declaring bankruptcy. But do you have a vision for where this country is going in the future and what might be better and different for people in the next generation?

Mr. Benoît Renaud: I'll answer the question in English, just because when the question is asked in English, the answer comes up in English easier. I'm used to working with these English people, and have been for quite a while now.

Just to answer that question, what's been very different is I think that 30 years ago the state, the government, was assuming a larger responsibility for the overall situation. When things were going wrong, we could blame the government. But now the government is saying not to blame them, it's because of what's going on elsewhere in the world.

• 1735

That's why the Quebec component of the Canadian Federation of Students has been concerned a lot with what's going on worldwide and how this global context is affecting our situation here and also how the Canadian government itself is an active part in creating that global context. So I think that if we want to solve this problem we'll have to make a shift on the part of the government from blaming everybody else for the problems, and eventually making everybody else pay for these problems, starting with those who have the least power to actually respond to that, and actually have the government take responsibility.

Also, we think we have to focus on the rights of people and fairness. We can be in a difficult situation, and maybe we can't actually change all aspects of that difficult situation, but we can make sure that the burden of the situation is not resting on a specific targeted portion of the population—that there's some fairness into, for example, access to higher education, access to jobs.

So you can see that the centre of our recommendation is that the government take more responsibility and that the rights of individuals be respected. If that is done, the situation can probably improve.

Mr. Ken Epp: Would you like to see this country have less debt or no debt?

Mr. Benoît Renaud: We need to take a look at where the debt comes from. It's lowering taxes in the name of global competition that's been the main cause of the existing debt. So we need to work at the global level to make sure that we don't see situations like the one that happened in Halifax lately, with the Volvo plant closing to open in Mexico. That's the kind of stuff we need to work on, because if these high-paying jobs disappear to go to other countries where people don't have the same rights to form unions and to defend the rights of workers and have much lower wages, there's no way out of that except what young people do right now, which is to take small jobs harassing people to sell them stuff they don't need and things like that.

The Vice-Chair (Mr. Nick Discepola): They're called salespeople.

Mr. Ken Epp: I really wish we had more time, because I would love to have a long debate with you on this. There are a whole bunch of factors for companies like Volvo leaving and going to Mexico, and I'm not sure that it's all tied up in workers.

Actually, I think the people in Mexico are just delighted, because they have jobs that are bigger and better than any they've ever had before. That's a reality. I'm not defending it; I'm thinking that that's a reality.

I'd like to just follow up a little bit on your use of the word “right”. I have a suspicion that you would say that education is a right.

Mr. Benoît Renaud: We do.

Mr. Ken Epp: I think you're wrong.

Ms. Holly Baines: I want to comment on that, if I could.

The comment I'd like to make about education as a right is try to remember that education is a social good as well as a private good, and to post it only as a privilege completely erases the idea of it being a social good.

In other presentations today we heard folks speak of the importance of well-educated people and the kinds of research that can be done and the kind of work they can do for this country. If we post it only as a privilege, we are ignoring that very important social good.

Mr. Ken Epp: Well, it's much more than a privilege. It's also the wisest thing we can do as a country.

Ms. Holly Baines: Then make it affordable.

Mr. Ken Epp: I agree with that. Yes.

It's the wisest thing; it's a good investment. As a matter of fact, if we did in fact provide you people with free tuition—which I personally favour, by the way, as a very good way of helping students at all levels, right up to post-secondary and graduate school—if we did that, in terms of the earnings that you would give us back if we could then also persuade you to stay in the country, the additional earnings that you would make with your education we would get back many times in additional taxes that you pay at all levels. So to me it's a very wise investment.

• 1740

When I think of rights, I sometimes think that if you use the word “right” for education, you minimize the real important rights. There are people in the world who are imprisoned because of their political beliefs. There are people around the world who are starving to death. To me, those are the fundamental rights: the rights to life and liberty and freedom of thought. Those are rights. Education and driving a car and all of these other things I think we should keep as a privilege. But let's value them highly, and let's also look at them as an investment on the part of government.

Mr. Benoît Renaud: May I add a little something on that?

Mr. Ken Epp: Sure.

Mr. Benoît Renaud: When we say education is a right, what we mean in fact is that fairness in access to education is a right. When we say that our rights are not respected, it is the fact that some people don't have access to education in the same way as others do. When you have very heavy debt loads and high tuition, not everybody can have access to education. And then you don't respect the rights of those who don't have the income and the social background to actually have access to that kind of education.

A hundred years ago, when post-secondary education was probably useful in about 5% of jobs, maybe it was something a bit different. But in our society, if you don't have a post-secondary education you have access to working in bars or restaurants or things like that. The majority of meaningful, stable jobs at this point need a post-secondary education. So everybody should have an opportunity to have access to higher education, which actually is not the case.

Thank you.

Mr. Ken Epp: Okay. We're going to have to drop that.

I want to make just one closing statement. My son worked in Africa, where 150 children were dying every day until they came in there to alleviate it. If you told one of those families whose kids are dying that you equate your right to an education with their right to have food for their children, I think you would be in trouble. Just think about that.

Mr. Benoît Renaud: We never said that.

Mr. Ken Epp: But you're using the word “right”.

Mr. Benoît Renaud: The right to live is not the same as the other rights.

Mr. Ken Epp: I think it's a wise investment, and for you guys it's a privilege. I always thought of my education as a great privilege.

With that, I'm finished, Mr. Chairman, and will come back next round if we have time.

The Vice-Chair (Mr. Nick Discepola): Thank you. And I'd suggest maybe you continue the discussion with members of your own caucus.

Mr. Ken Epp: I will—and you with yours.

[Translation]

The Vice-Chair (Mr. Nick Discepola): Mr. Loubier, from the Bloc Québécois.

Mr. Yvan Loubier: I'm going to try to make my questions clear and technical.

I will start with you, Mr. Dumas. Earlier, you talked about the importance of restoring transfer payments to the provinces, particularly for health. I find it very important that you talked about going back to the dedicated, non-targeted envelope system that existed before 1994. I would like you to clarify what you mean by that and explain how such a system would be compatible or incompatible with a persistent rumour that in the next budget, the federal government could introduce a new health care program on home care. For the benefit of our Liberal colleagues in particular, I would like you to explain what Quebec is really demanding and how you were prevented from proceeding with the reform that Mr. Rochon had gotten off to such a good start in 1994.

Mr. Paulin Dumas: As you probably understood from my comments, when I talk about dedicated envelopes, I mean some assurance that at least part of the increased transfers will be used to support directions in health care and social services that are undergoing major transformations. As I was saying earlier, the work is not over.

Such a huge undertaking, with a budget of $1.3 billion, has two fundamental objectives. The first, of course, is to help restore some order to Quebec's financial situation.

• 1745

The second, which is the most important of the two, is to reorganize the health care system on the basis of the new knowledge we have about people's needs and new professional practices. And that is off to a good start. We looked at what had been done in other provinces and countries in introducing what is known as "benchmarking" and in trying to see how we could improve the situation.

I admit that the financial crisis contributed to mobilize people and rethink a number of things. Such a vast undertaking needed somewhat more financial support in the first three years. Given what we all know, the zero-deficit objective on the one hand, and a significant reduction of federal transfer payments on the other, were part of this transformation process, which is still underway, because it has been delayed somewhat as a result of these financial problems.

I spoke about non-targeted envelopes, because we don't think it makes any sense for a government to target all its funding very specifically, and earmark it for home care or some other program. It has been proven for several years that if we want to determine people's needs and meet them, we have to be very close to them. Even though they are all human beings, their environment, the history of the region, the history of their family and their own personal history mean that people living in the Gaspé region, on the north shore all have certain unique features.

I've been working in this network for 20 years, and I have found that this is very true. The proof is that last June, for reasons that are somewhat difficult to explain, the Quebec government decided to target a $110 million capital injection. It had never done that before; it had always given regional boards an annual regional envelope. In this case, it decided to target the funding, thinking that one of the problems that needed to be corrected was that of a waiting list. I think there was an agreement to see how long the waiting lists were in some areas, because the problem varies from region to region.

When the Quebec government decided to earmark part of the $110 million for home care, it was immediately acknowledged at the time of the announcement that some regions of Quebec had received an optimal amount of funding, whereas others had not. Thus, in some regions, the money that was supposed to be invested in home care was not. That is true of the region I know, the Gaspé, where people have been working on this for three years and decided to opt for community-based care.

It's no crime for a region after analyzing its problems, to chose to invest in home care, while another might try to improve its physical rehabilitation services. The people on regional boards, in partnership with the institutions, carry out studies and then decide on certain priorities.

If a government were to decide to target its action throughout Quebec or Canada, we would be afraid that decisions might be made that have nothing to do with people's needs. In addition, there would be a danger of creating parallel networks. If a region has reached its optimal level of resources based on its needs, and if the government were to decide to give it some extra funding for home care, which could be used for that and nothing else, you can see what kind of a situation we would get ourselves into.

We must remember that the structure of Quebec's programs is based on decentralization, and that results are the most important thing. As a result, we the government give boards regional envelopes. The boards report to the Minister and to the local population on their choice priorities in light of the government's policy to action.

• 1750

The report last Fall allowed for accountability. At that time, we realized that progress had been made in some areas, while others were underfunded or were having difficulty otherwise.

Does that answer your question, Mr. Loubier?

Mr. Yvan Loubier: Yes that answers my question very well. I hope the people on the other side understood, because it is a very important point.

Mr. Laflamme, you were speaking earlier about a debt-to-GDP ratio of 45% as a target. On what are you basing this? As far as I know, there is no set figure; this is your own opinion.

Mr. Pierre Laflamme: No, it is true that there is no magic number. We were simply comparing Canada with the other G-7 countries. Because of the improving economic trend, we are setting increasingly ambitious objectives in order to give ourselves more latitude should things become somewhat more difficult.

Mr. Yvan Loubier: At the moment, the debt-to-GDP ratio is around 63 percent. You talk about reducing it to 45 percent. How long do you think this would take?

Mr. Pierre Laflamme: We've not done any...

Mr. Yvan Loubier: This is a one-third reduction in percentage terms.

Mr. Pierre Laflamme: Yes, but it is a ratio of the GDP. We're to think two things: a growth in GDP and a reduction of the debt. So we're working positively on both sides of the equation. We have not set a specific time period. We are simply commenting on a trend.

Mr. Yvan Loubier: I did a little calculation by hand that is in no way scientific. I plan to do it again using better equipment.

Even with a 3% GDP growth rate over the next five or six years, it would take $150 billion to $175 billion to get the percentage down from 63% to 45 percent. That's a lot of money.

Mr. Pierre Laflamme: Last year, the debt was reduced by $12 billion. This year, there are grounds for thinking that it could be reduced by close to $20 billion.

Mr. Yvan Loubier: However, this runs counter to your other objectives. You're putting your finger on something important.

Mr. Pierre Laflamme: Last year, Mr. Loubier, we reached a zero deficit, and it was nevertheless a $12 billion reduction of the debt. This year we think that it could be close to $20 billion.

Mr. Yvan Loubier: We don't have a zero deficit.

Mr. Pierre Laflamme: Last year, we did. If you look at the figures...

Mr. Yvan Loubier: Are you speaking about the 1997-98 fiscal year?

Mr. Pierre Laflamme: Yes.

Mr. Yvan Loubier: No, there was a $3.5 billion surplus, in addition to the $2.5 billion set aside for the Millennium Scholarship Fund. That makes $6 billion.

Mr. Pierre Laflamme: We are limited to...

Mr. Yvan Loubier: Mr. Laflamme, don't go by those figures. Paul Martin's figures are crazy. No one believes them anymore, and they've been revised since that time.

I will give you the latest revised version prepared since Paul Martin's economic statement three weeks ago. He said that the debt was not paid down by $8 billion last year, as you said. In the last 15 months, the debt has been reduced by $20 billion. This includes the Contingency Funds, the surplus from non-budget operations and budget surpluses available at the end of the 1997-98 fiscal year.

Mr. Pierre Laflamme: So the figure of $175 billion is not out of line.

Mr. Yvan Loubier: I'm reading that in light of your objective, which is to use one-third of the budget surplus to pay down the debt, one-third to reinvest in existing programs, and one-third for employment insurance.

Mr. Pierre Laflamme: The one-third would begin after we use the non-budget surplus. That is the $12 billion or even $20 billion, depending what the real figures are. This is cash that does not arise out of a budget surplus, but rather a cash surplus created by the operation itself.

Mr. Yvan Loubier: So, in addition to the surpluses from the non-budget operations, you would add one-third of the surpluses from operations...

Mr. Pierre Laflamme: From the budget surplus.

Mr. Yvan Loubier: ...from the budget surplus to your debt reduction objective.

Mr. Pierre Laflamme: That is exactly what we said in our brief.

Mr. François Roberge: I would like to add something, if I may, Mr. Loubier. The debt-to-GDP ratio has dropped by about 8 percent. It may have dropped more than that by now, over a two-year period. Let us assume that might happen over ten years. We do not set a short-time period, but we did say that the objective should be that our figures would be below those of the European Economic Community. That would be healthy for Canada. Moreover, that would mean that we had many fewer things to pay for annually, and it would mean much more interest on the debt. That would put us in a strong position in case we ran into difficulties, as Mr. Martin said. We did not say that this objective would be met in three years, but we're proceeding quite quickly at the current rate.

• 1755

Mr. Yvan Loubier: Don't you think that health care is the priority at the moment? We also need to look at what Mr. Martin has done in the last 15 months. He has taken every possible surplus, whatever its origin, and used it to pay down the debt. Would it not have been a little wiser to use perhaps part of it for the debt and keep part of it for health care as well, given the urgent needs in this sector?

The Vice-Chair (Mr. Nick Discepola): You forgot the $1.5 billion in 1996, if I remember correctly.

Mr. Yvan Loubier: Pardon me?

The Vice-Chair (Mr. Nick Discepola): You are forgetting the $1.5 billion that was put into health care.

Mr. Yvan Loubier: Which is that?

The Vice-Chair (Mr. Nick Discepola): I think we put $1.5 billion into health care.

Mr. Yvan Loubier: Look, if you want to talk crazy, we'll talk crazy. Let me state the facts. In the 1995 budget, Mr. Martin said that there would be automatic cuts year after year in the Canada Health and Social Transfer until 2003, and that was to include the health care sector. In addition, last year you announced during the election campaign, because you were in a jam, that rather than imposing $48 billion in cuts until the year 2003, you would reduce that to $42 billion. Are we supposed to cheer about that? Come on, that's hardly new money!

Moreover, all the provincial premiers in Saskatoon did not ask you to increase transfers to the provinces by $6 billion, but rather to cancel a cut of $6 billion which is scheduled for this fiscal year. Come on, wake up!

My final question is this. You spoke about a competitive tax structure. What do you mean when you talk about changes to the tax system? Is the Mintz report a partial answer to the tax changes you are seeking?

Mr. Pierre Laflamme: The Mintz report suggests various approaches, but there is no consensus regarding the solutions it suggests. When we speak about competitive taxation—to repeat what François was saying a little earlier—we mean that people's overall taxes are too high, they are not competitive. We did not target any particular group—that is people earning over $50,000 or less than $30,000, for example—whose taxes are really too high. Our point is that taxes generally are higher than in the United States. Our only comment is that some effort must be made to reduce employment insurance premiums. So we did mention this point specifically.

We did not comment on other individual taxes, and I think it is quite difficult to do that.

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

Mr. Roberge.

Mr. François Roberge: We're saying the same thing to the Quebec government. We know we are in a straight jacket, but we are saying that if there is a surplus, taxes must be reduced in Quebec. The same is for Canada, but the situation is even worse in Quebec, where we are losing people to the United States, where taxes are very low. It is important that we keep these people here, for us.

The Vice-Chair (Mr. Nick Discepola): Given that Mr. Godin must leave to cath a plane, I will give him his ten minutes now.

Mr. Yvon Godin: Thank you. I would like to ask the students a question. You say that access to university should be a right, not a privilege. Is that correct?

Mr. Benoît Renaud: There should be equitable access.

Mr. Yvon Godin: Equitable access. Today, there is a gap growing between the rich and the poor. Given how much it costs to go to university these days, aren't you starting to say that only the rich will be able to afford to send their children to university, and that the poor will not be able to do so? Some people won't have an opportunity to go to university.

Mr. Benoît Renaud: It is true that that is the direction in which we are heading at the moment. With the deregulation of tuition fees in Ontario, it is clear that if it costs $14,000 a year to study law at the University of Toronto, not many people will be able to do so.

Mr. Yvon Godin: Do you think that what is happening in the university is deliberate on the part of the rich? The fees are very high. There is no need for that. I hear that it costs $40,000 for four year's university.

Mr. Benoît Renaud: I would not go so far as to say that it's a conspiracy. However, it is the indirect result of a policy which generally favours people who are better off. In other words, the competition ethics is becoming increasingly important. We were told that in order to get into medicine at Western University, or any other prestigious program, people have to have the money. The principles are elimination and competition. The system is based on the principle of competition, rather than equity. That runs counter to the concept of democratization of higher education, which has been a policy of Quebec since the 1960s. This new trend is causing it to be called into question more and more.

• 1800

Mr. Yvon Godin: I have another question for Mr. Roberge or Mr. Laflamme, which is based on your brief and your presentation. You mention a breakdown of 33%, 33% and 33 percent. Further on, you say that in 1998, your position is 50%, 25% and 25 percent. In the 1998 budget, Paul Martin announced a zero deficit. He had balanced the budget and there was talk about $15 billion. That happened at about the time when the employment insurance fund had a $15 billion surplus. This went into the government's general account. Don't you agree that we need to change the accessibility conditions for employment insurance? At the moment, young people need 910 hours of work in order to qualify for employment insurance benefits. In 1997, only 42% of the unemployed who had paid premiums were entitled to employment insurance. At the moment, the figure is about 36% or 38 percent. We can talk around figures as much as we like, but that's about what it comes down to. I don't see what you are advocating at all. Employment insurance should be more accessible. That would help the owners of small businesses, among others, who are losing their customers at the moment.

Mr. François Roberge: I'm going to give you a more personal answer, as a...

Mr. Yvon Godin: If you give me a personal answer, that means you agree with me.

Mr. François Roberge: ...representative of an organization, because we did not really discuss this issue. It is true that we are not necessarily suggesting a significant reduction in premiums. Perhaps that should be included in our recommendations. On the one hand, we need to improve existing programs in which there have been some cutbacks, and on the other hand, perhaps some aspects of employment insurance should be reviewed, to make it more accessible. People without work definitely face greater problems, and there is also an additional burden for the other governments, which have to pay welfare in some of these cases. Some changes are definitely required to improve the situation or whether to put money back into the programs.

The Vice-Chair (Mr. Nick Discepola): Thank you very much, Mr. Godin. I will now give the floor to Mr. Szabo.

[English]

Mr. Paul Szabo: Thank you.

I wanted just to bring attention to the submission by the Quebec Federation of Senior Citizens. It bears repeating, because I know all members of Parliament have come across the issue of mature workers 50 years of age and over being squeezed out of the workforce, and it's very difficult to get back into the labour force by doing any meaningful work. We know there's McDonald's work around. I think it's a very important point that should be noted, because very often when downsizing occurs, the payout is not enough to retire on. It is very devastating from a human or social value standpoint.

So I thank you for raising it. You may want to elaborate a little bit on that.

To the students, I probably could ask some questions to get it out, but let me tell you my understanding of the student bankruptcy situation. We've been through this a few times. Subject to being checked, my recollection is that only 25% of all students in Canada have loans, and of those 25%, 93% pay off their loans, which means that only 7% of those students with loans actually default or go bankrupt. That means we're talking about less than 2% of all students.

• 1805

I have to ask you if you're aware of anybody who actually went bankrupt and what it really meant to their lives. Because these new rules just came into effect, these bankruptcies occurred two years after graduation. It would appear to me that those students probably had no opportunity to amass any wealth, assets, or anything, and in fact to them bankruptcy probably only meant they were discharged and had no debt, that they were totally released and started with a clean slate. So I'm curious as to why there is this enthusiasm when you know we're talking about a very small number of people and the consequence in probably the majority of cases, unless they've not been dealing in good faith, is really a clean slate and no financial burden whatsoever.

[Translation]

The Vice-Chair (Mr. Nick Discepola): Would you like to answer Mr. Szabo's first question, Mr. Legault?

Mr. François Legault: I would just like to say, and Ms. Moir may wish to add something, that we did notice something about individuals who took early retirement, at age 50 or 55. We found these people were poorly prepared for retirement and also that they lack information. First of all, many of the early retirements were voluntary. These individuals were unable to properly determine how much it would cost them to live once they retired at age 50 or 55. Naturally, they were not entitled to a pension under the Quebec Pension Plan, which does not begin until age 60, or to the Federal Government Pension Plan, which does not begin until age 65. That is a big problem. These individuals, who thought they could find a temporary job to get the money they needed, were unable to do so. In fact, at one point, there was a provincial law that prohibited them from going back to work in a sector in which they had worked previously. This made things very difficult for these people.

I don't know whether that answers your question. I would like Ms. Moir to add to what I have said.

Ms. Nicole T. Moir (General Director, Quebec Federation of Senior Citizens): At the Economy and Jobs Summit, we talked about seniors who lose their jobs. Today, I will be saying more about them. People say that losing your job when you're 50 or over is catastrophic, but very often, it is just as catastrophic when you're 45 or older.

Middle-class people have often managed to buy an RISP, or set aside some money for retirement, but before they can receive benefits from the Quebec Pension Plan or Canada Pension Plan, they have to use up their savings, and sometimes they even need a private pension plan.

Finding another job is not always easy. The gentleman was talking about jobs at McDonald's. Wal-Mart also has employment plans for seniors, I suppose, but those are unstable and poorly paid jobs. So what you find is middle-class people losing their jobs, and becoming impoverished retirees in our society, with not a great deal to look forward to.

We want the government to be concerned about disadvantaged and middle-class people. And let's not forget that when employees age 45 or 50 leave a company, that company loses its culture. It loses the people who can train the younger ones coming in. We are told that we have to make room for young people, but if we get rid of all the older workers... Look what happened in Quebec when health care personnel aged 50 and over were retired. The nurses had to be called back into emergency rooms because there was no one left to train the younger ones.

• 1810

[English]

The Vice-Chair (Mr. Nick Discepola): Ms. Murray, would you like to respond to Mr. Szabo?

Ms. Deborah Murray: Yes. First I'd like to say the figures you cite represent the student loans program from its inception to now. I think we have to be extremely worried about the levels of debt students are currently carrying when they come out of university. The average is stated as being $25,000. If you look at students around us here in Quebec, for example, some have loan debts of $80,000, $78,000, $40,000, $30,000, etc.

Students are being forced to go back for other degrees they might not have considered getting if there had been good paying jobs at the end of their undergraduate years. Considering that you might better your chances when you go back to university to get a second degree, you come out again at the end of that and face mass unemployment for the student population.

There are students who are doing their Ph.D.s right out who are $80,000 in debt and over. We have to consider that students do not treat the question of bankruptcy as a frivolous matter, which I think the question implies students do. They do not think “Phew, clean slate, on to the next and maybe go bankrupt again, get ourselves cleared,” etc. I'm sorry, we don't function like corporations that can as easily file for bankruptcy and have no restrictions in the time period for which they can actually claim bankruptcy.

When other individuals who have debts face incredible hardship, they have the option. I guess our question is why are students being treated so differently from every other aspect of society here? The question of students who might go through bankruptcy and not suffer anxieties.... By the time they've actually reached the point of considering bankruptcy, some people are in very desperate psychological states. The increase of student suicide right now is phenomenal, and it's directly related to the level of debt loads students are carrying.

There are students right now who are preventing themselves from going to university and bettering themselves because of the cost of education and the potential debt they might have to carry. The question of debt is very serious and at crisis proportions right now. Students are crying out at this moment for you take this question seriously and not respond to them by saying “You're better off if you claim bankruptcy and it should be easy access for you.” I think it trivializes the predicament students are finding themselves in right now.

I have one other point. I think the figure on the number of students who are resorting to student loans has substantially increased. Right now it's closer to 50%, and it's more at some universities, if you look at the individual university figures for the numbers relying on student loans because they have no other sources of income to help them through.

Mr. Paul Szabo: Our numbers actually came from the hearings on the Millennium Scholarship Endowment Fund, which took place just before the summer. They were confirmed by university administrators from right across the country. As a matter, Quebec's average debt was lower because the tuition rates are substantially lower than the rest of Canada.

Ms. Deborah Murray: I have a point on that. The director of financial aid at Concordia University told me two years ago that at Concordia University alone it was over 30%, and those figures were two years out of date. He knew they had increased but didn't have the current statistics on hand. It was in 1995 that I spoke to him about that.

Mr. Paul Szabo: I just want to finish this off. I don't mean to trivialize this, but to give you an idea, when I finished university in the early 1970s my father was a butcher and I had a student debt. My debt was $3,500; it was a big deal. But do you know what? It was the cost of a brand new car back then, and the average student debt of $25,000 today is in fact the cost of a brand new car. On a relative basis, it's not totally bizarre. In fact, a new car at $25,000 lasts you five or six years; $25,000 for an education lasts you for the rest of your life.

• 1815

I would point that your comment about massive unemployment is not correct. In fact the unemployment rate for university graduates 25 and under is 6.5%. The unemployment rate for all university graduates in Canada is 4.5%, compared to the current rate of 8.3% for all Canadians. So the unemployment situation is not as represented, and in fact the bankruptcies are relatively few.

So maybe I'd ask you—

Mr. Benoît Renaud:

[Editor's Note: Inaudible]...the question.

Mr. Paul Szabo: I understand that, I just ask you, if you had to pick an issue relative to all things that are on the table in which the Government of Canada, in administering the taxpayers' money, can best invest money in students and keep it reasonable relative to all other demands on the public purse, where would it be?

Ms. Deborah Murray: You're going to have to clarify what you mean by that, because I think your question is a bit too vague.

Mr. Paul Szabo: You have a laundry list here; pick one. How can we best help...? For instance, if I were a student today, I would be here asking for assistance for those students who cannot afford even to attend post-secondary. I would say make sure that the entire amount of the Millennium Scholarship Endowment Fund goes to those students who do not have access to post-secondary.

Mr. Benoît Renaud: As someone else said, I'll be answering that in a personal manner, because I don't have the mandate to pick a priority among these demands. We came here to present all these demands, but what I would say personally is give the money to the provinces and we'll deal with the provincial government.

The Vice-Chair (Mr. Nick Discepola): Madame Redman, s'il vous plaît.

Mrs. Karen Redman: Thank you, Mr. Chairman.

I heard a sentiment—and I'll have to apologize, Ms. Murray, because I thought it was from you, but it may have been the person beside you who has left—that we heard when we were out east, and I have to tell you I found it a little bit troubling, and that was about the participation. Research and development and the need for funding really strike a cord in me, and I am very personally supportive. I have two universities in my community, although not in my riding, and one of them is the University of Waterloo, which has a wonderful co-op program and a great track record of having students in all faculties, not just math or engineering but humanities as well, coming out with the skills they need and the job experience. There's a fantastic cooperative effort done by the corporate sector.

I heard a sentiment here today, and I heard it when we were out east as well, and it's a suspicion that the corporate agenda is trying to take over post-secondary education, the universities. I find that very troubling because I do think it's an area where the corporate sector has an ability to be altruistic and not self-serving. I certainly agree with the sentiment that we're not just trying to educate people in post-secondary education to come out with a job, but we are shaping the future, and the people who will look after us in our old age.

So I apologize if that sentiment didn't come from you, but I heard that today, and I find it really troubling.

Ms. Deborah Murray: The sentiment didn't come from me, but I share it. And that's because we've actually received and heard, and had quoted to us at numerous points, references to funding being allocated to, for example, different departments in universities—at the University of Toronto, at Queen's University, etc.—where corporations are actually very pleased to take credit for the funding they do contribute to university programs, and are encouraging others from their milieu to do likewise on the basis that they can influence curriculum and direction within the programs.

This is a definite concern, because it means that what's happening is that other visions and other aspects of university life are not being considered as relevant, or maybe as something we need to move in here and push out. I know that's happening in my own program, in fact. In other areas, for example, those who work in communities and in education, they are not getting opportunities in terms of internships and scholarships, and the types of scholarships that come through are focusing mostly on industry. I think we are arguing for a much broader global and social vision within the programs. We're seeing an increasing trend, and we're concerned about it.

• 1820

Mrs. Karen Redman: Shouldn't corporate participation free up the already short funding and the core funding for other programs that perhaps aren't receiving corporate donations?

Ms. Deborah Murray: Again, I think one of things we argue is that we do not agree with the tax cut proposals that are coming forward. We think university education and other forms of education should be considered as publicly funded and that we contribute to our visions of education through our taxation system.

Mr. Benoît Renaud: If corporations want to be generous and altruistic, they should just pay their deferred taxes and things like that and let the universities manage their own things as economic organizations. What's going on right now is that universities are no longer universities but are becoming training centres. We have a vision of what a university is supposed to be, which is an autonomous institution with its own logic and purpose and not a service provider for people who can't pay for these services.

Mrs. Karen Redman: So the bottom line for you is there is no role for the corporate sector in post-secondary education.

Mr. Benoît Renaud: There can be a role, but we are very worried that universities are becoming dependent on corporations. We agree that there should be some kind of relationship or partnership between universities and the job market and the private sector, but there should not be a financial dependency on corporations.

Mrs. Karen Redman: Do I have any time left, Mr. Chairman?

The Vice-Chair (Mr. Nick Discepola): Yes, certainly.

Mrs. Karen Redman: If I could, I would like to ask a question of Mr. Roberge and Mr. LaFlamme. You made the illustration about the debt-to-GDP ratio, and you talked about our position in the G-7. I just want to go back to your a third, a third, a third policy about how to spend surpluses. Given that when we look at how we stack up in the G-7 group our payroll taxes really are comparatively low and our personal income tax is comparatively high, we're not doing badly. The Mintz report told us that we're not faring too badly in the corporate sector. Given that information, would it not make more sense to look at lowering and reforming the personal income tax as opposed to giving reductions in the EI premiums as you suggest?

Mr. Pierre LaFlamme: What we've been mentioning is that we don't have a recipe, and I don't think there is any recipe. So our main goal is just to attack this overburden and to try to reduce it. When we read about surpluses of $18 billion for UI, you change the name of that particular tax or you reduce it. That is the way we see it.

Mrs. Karen Redman: So it's not a compelling argument if you're going to look at how we stack up in the G-7 scheme of things. You don't find it compelling that our payroll tax by that yardstick is comparatively good whereas our personal income tax is relatively high. You would still say that you would like to address the EI and not take those funds saying, that there is a choice that has to be made.

Mr. Pierre LaFlamme: Again, there is no particular recipe. What we're aiming for is a reduction of the total tax burden, which is comparatively high in Canada versus the U.S. Of course, your comparison, in particular with Europe, would make sense, but our direct competition in the marketplace is with the U.S., and we want to aim to reduce the overall tax burden for the individual. That's our main goal or suggestion. Then when we deal with the UI, it's a direct cost to employment in the short term. Particularly in the lower end of the job market, we feel it's something that could be reduced and could be viewed as an investment by the government.

• 1825

As for stating that it is a separate fund that you're getting $18 billion out of as surplus while you keeping pumping that surplus out of it, I personally am a bit reluctant about maintaining the current status or suggesting that it be maintained.

Mr. François Roberge: That contribution to employment insurance is also shared by company owners.

Mrs. Karen Redman: Sixty percent.

Mr. François Roberge: When all the people who are currently in business go to the United States, we hear, “Oh, you live up north there, with all those taxes.” We really see that they are paying much less in taxes, and that translates into competition. We have an edge because our dollar is low, but we should find something in between. We don't say Canada should go completely right or completely left, but we have to deal with these neighbours, the United States in particular.

Mrs. Karen Redman: Thank you, Mr. Chairman.

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

I'd like to now conclude questioning from the members by going to Mr. Pillitteri, please.

Mr. Gary Pillitteri: Thank you very much, Mr. Chairman.

We heard some very nice presentations here today. Seeing how this is the last, maybe I'm going to be a little bit more inquisitive, Mr. Chairman.

I heard quite a few remarks here this afternoon. One was from Ms. Murray, who asked why we should have a limit on students since corporations have the possibility of going bankrupt any time they want.

Ms. Murray, I want you to look at a corporation that has a human being behind it—me. This corporation here didn't have any debt load when he left university because he didn't go to university. If I decide to go bankrupt, that means 45 years' worth of my work go down the drain. That means all of my life. In your case, if you decide to go bankrupt, it happens to be just your education. You end up with an education that didn't cost you anything.

But I want to ask a question that is more direct, that is more fundamental than the things you are saying, that being that the private sector should not have anything to do with education.

I've been in an industry that was cooperating with a university by sponsoring post-graduate work in order to fulfil the need of my industry. Do you mean to say that I, as a corporation, should just give the money to the university if I want to be a good man, that I should tell them to decide what they're going to do with the money? Is that what you're telling me? Is that what I'm hearing?

Mr. Benoît Renaud: What we're saying is that the larger part of the funding of universities should come from public funding, from the tax system, so that universities are not dependent on private contributions. We do not say there should not be private contributions.

Mr. Gary Pillitteri: By the same token, this university is not providing the private sector with the graduates it needs in order to survive in today's economy. Therefore, you're trying to say the private sector should not have any say in universities, in the kinds of graduates—

Mr. Benoît Renaud: No power.

Mr. Gary Pillitteri: No power? Then I think you really have a real problem. If industry and the private sector cannot cooperate in meeting the needs of the country today, the needs of the nation, then you have some problem in understanding what education is all about.

Mr. Benoît Renaud: I don't think the country will have a problem because of that.

Mr. Gary Pillitteri: You also stated something when we were talking about the brain drain. When you have an education, you say this education is yours and you can take it anywhere you want to. But that corporation stays in the same place. It does not move. If you're not supplying the educated people in order for that corporation to survive, then you have not done anything of goodwill in education for yourself or for creating jobs in this country.

• 1830

Ms. Deborah Murray: If I could respond to that, that's the situation we have right now. There is no goodwill out there. We may have that education, but we have to take it to McDonald's. We have to take it to jobs in which people do telemarketing. Look at where graduates are sitting right now: telemarketing corporations—

Mr. Gary Pillitteri: That's exactly what I'm saying. When the private sector says it doesn't need your education for McDonald's but it needs your education for this type of work, that's where the guy in the private sector comes in. He tells you where he wants that education. It's not for you to have that education and take it to McDonald's, because then you've wasted time and taxpayers' money. The corporate sector has to say what it needs. There's nothing wrong with asking this type of question.

Ms. Deborah Murray: At the same time, measures that are being employed right now are heading further and further into that. I'm sorry, but I don't think you have anything to worry about if the tide doesn't stop, because that's where things are right now in universities.

Mr. Gary Pillitteri: Well, I get worried when I cannot find workers who can do the work I need them to do.

Ms. Deborah Murray: To be honest with you, the reality right now is that the promises are not being met on the other end, even with that trend happening. As well, we need to have input from the community in terms of the boards of governors of universities, in terms of how universities are run. These people are actually being excluded, however; they are not invited and are non-participating in the university structures as they stand right now.

Mr. Gary Pillitteri: It is the universities that come forward saying they need the help. They come to the private sector and the private sector is helping a lot. It is helping by giving us the graduates we need in order to fulfil the needs of this new era.

Mr. Benoît Renaud: Universities are not supposed to prepare people for one specific job, they're supposed to prepare people for a profession. What we're saying is that people should be prepared for the world after university. They should be prepared for the whole thing, not just to work for that one corporation that had the opportunity to save the university from its own bankruptcy because the government is not providing the funds.

The way things are supposed to work, students should be able to decide for themselves what's good for them. Students are not stupid. If they have power in establishing the goals of their programs, they will make sure these programs prepare them well for the job market as workers, but not with university as a substitute for an appropriate training program within the corporation itself.

Mr. Gary Pillitteri: In other words, you're suggesting that I should be paying for post-graduate work and everything, and that my industry should be searching in Europe, the United States and elsewhere in the world if it needs people, because you want your freedom, and that interference from corporations and individuals should not occur because you know the role. Is that what you're saying to me?

Mr. Benoît Renaud: You're implying that students are stupid—

Mr. Gary Pillitteri: I didn't say that.

Mr. Benoît Renaud: —and are not going to ask for an education that prepares them for jobs. That's not true. Students want to be prepared for jobs.

Mr. Gary Pillitteri: Just a minute ago, you said we should not prepare—

Mr. Benoît Renaud: We don't need to underfund universities and push them into a dependency on corporations to achieve that. Students already want to have that. We don't need to be forced into it to know what the job market is and how to be prepared for it.

Ms. Deborah Murray: If I can make one final comment, what's clear is that in terms of a conflict over this, what we're up against here is the conflict of what social visions we have. I think those visions are different.

[Translation]

The Vice-Chair (Mr. Nick Discepola): Thank you very much. I will ask two questions that are somewhat related. One message we are clearly hearing across Canada is that, if the government wants to invest, it should give priority to education and health care.

I want to make sure that I have clearly understood the statements made here tonight. Please correct me if I'm wrong. During his presentation, Mr. Dumas said that the government should invest in the health care system, yet not impose any conditions on the provinces. He recommends that provinces be given the funding and allowed to invest it as they will, with no conditions attached. The Chamber of Commerce applauded your view, Mr. Dumas. Is unconditional funding really what you want? Do you really want us to entrust the provinces with all taxpayers' money?

You also said that you wanted to see a fair, accessible post- secondary educational system. Were you saying that it should be fair for all Quebeckers, or for all Canadians?

• 1835

Now, since we are talking about transfer payments, I'd like to remind you of what happened in Ontario. When a provincial premier and his government decide to set priorities and objectives for their province, the federal government is told to stand aside and not interfere.

I would like to share some statistics that worry me a great deal. For some four or five years now, we have been getting the message that we should be reinvesting in education and health care. But for goodness sake, when a royal commission told us that we should reinvest some $10.5 billion in our health care system, our government's first priority—when it had some margin for manoeuvre—was to raise that threshold to $12.5 billion. Yet, we were told that was still not enough.

I thought I should compare figures for the two largest provinces. Quebec's population is 64% of Ontario's. However, if we compare the number of beds available per one hundred residents, we see that Quebec has 40% more beds available than Ontario, even though its population is significantly less. Then, Quebec spends 50% more than Ontario on education. Yet here again, it has only 64% of Ontario's student population. So, is it really just a question of money? Should we just give provinces the money, and let them decide whether they want to invest in education? For example, should we accept the Quebec government's decision—made recently—to spend $160 million to open a metro station in Laval? For its part, the Ontario government may decide to lower personal income tax. And the Alberta government recently decided to post a surplus of $1 billion, even though its action in closing some hospitals might have been hasty.

When you say the federal government should not interfere, and should simply give you the money, I wonder whether you are genuinely convinced that it is the provinces who can best administer our health care and education systems.

Mr. François Roberge: We are not judging the quality of administration. Though Quebec is perhaps somewhat more sensitive than other provinces about the issue, as you well know, our Constitution does stipulate that education and health care are both under provincial jurisdiction. We are not asking you to establish new health care and educational programs, unless some provinces get together and ask the federal government to create specific programs for them. We would have no problem with that. However, we know that some provinces, including Quebec, are asking you not to create new programs, but to let them have the money if you want measures taken in either of those two areas.

Obviously, the Quebec government—just like governments in Ontario and the Maritimes, among other provinces—is under enough pressure to reinvest in health care and education. Those are priorities here as well. So if there is a surplus from the tax dollars we are paying, please don't try to create national programs. That is not what we want. Give the money to the provinces, and let them take action in those areas of responsibility under their jurisdiction.

The Vice-Chair (Mr. Nick Discepola): I didn't say anything about creating new programs either. But if we were to put the question to the 101 members from the province of Ontario, they would be the first to say that they do not trust Mr. Harris to invest in the areas we have targeted.

During the last agreement on the socio-economic union, even Mr. Bouchard agreed that, if the federal government were to invest in education or health care, the provinces would be obliged to reinvest the money. That is what I'm asking.

Mr. Benoît Renaud: According to the Canadian Federation of Students, a clear distinction must be made between Quebec and the other provinces, because—for obvious political and historical reasons—the Quebec government already has more responsibility than other provinces in some areas, including post-secondary education. For students, this is clearly illustrated by the student aid plan. Quebec residents do not have access to federal assistance, because in the 1960s, the Quebec government opted out of the federal plan and received compensation.

• 1840

Our most urgent recommendations include the establishment of a Canada-wide national scholarship program, to replace the current loan program administered by the federal government. We would like to see a national scholarship program created, and we would like to see the Canadian government negotiate with the provinces to impose a general freeze on tuition fees across Canada. However, we would ask that Quebec retain the right to opt out of the Canadian Student Assistance Program, with full compensation.

The Vice-Chair (Mr. Nick Discepola): I did not talk about the student aid program. You said that your greatest priority was fair access. I cannot agree that a student from my province is being treated less fairly, and getting less access, than a student in another province. Do you think it would be fair if Canadians did not all enjoy the same access in this country? I think that is deplorable.

Mr. Benoît Renaud: Our federation wants to see Canada-wide standards on access to post-secondary education. This does not touch on budget issues. Moreover, Quebec should have the right to administer its post-secondary education budget on the basis of its own criteria. The Canada-wide standards should be negotiated, not imposed unilaterally.

The Vice-Chair (Mr. Nick Discepola): I agree with you on that. Mr. Dumas, please.

Mr. Paulin Dumas: Mr. Chairman, I would love to see the statistics indicating that Quebec has 40% more beds, when it has 64% of Ontario's population. First of all, I would like to know what kinds of beds you are talking about. Are those short-term care beds, or long-term care beds?

The Vice-Chair (Mr. Nick Discepola): According to the most recent statistics I was able to obtain from Statistics Canada, which date back to 1994-95, Quebec spends $8,011 on post-secondary education, while Ontario spends $5,365. In the field of health, Quebec spends $1,432 per capita, while Ontario spends $1,588. As for the number of beds, Quebec has 46,541 while Ontario has 49,000. This means that Quebec has 6.39 beds per 1,000 people, while Ontario has only 4.5. Quebec has 40% more beds, even though its population is only 64% of Ontario's.

Mr. Paulin Dumas: You are using 1994-95 as a reference.

The Vice-Chair (Mr. Nick Discepola): Yes, that's right.

Mr. Paulin Dumas: But that's dreadful, Mr. Chairman.

The Vice-Chair (Mr. Nick Discepola): Why is that dreadful?

Mr. Paulin Dumas: Because there have been three full years of total upheaval since 1994-95.

The Vice-Chair (Mr. Nick Discepola): I can compare those two provinces, because they have been subjected to the same impacts.

Mr. Paulin Dumas: Still, we would have to see what the figures are for 1998.

The Vice-Chair (Mr. Nick Discepola): I was unable to obtain more recent statistics, and that is why I'm asking you the question.

Mr. Paulin Dumas: Initially, we thought we might decrease citizens' access to services if we fought the decreasing beds per capita ratio. So that is an approach we have moved away from. Today, our approach is completely different. There has been a drastic reduction in the number of beds available in Quebec. I don't have the figures before me, but I can tell you this: nowadays, figures tend to be based on hospitalization days and accessible services, regardless of the number of beds per capita, rather than on health care and beds available for the elderly. The figures are no longer based on the number of beds available.

In answer to your second question, as I was already saying, we would rather wish no government targeted this. You mentioned the agreement the provinces arrived at in Saskatoon. If I understand correctly, our prime minister supports federal-provincial agreements that will take into account the priorities of each province. He is ready to consider that there are a number of criteria on which all parties have to agree. This will make comparisons easier; we will be able to compare access to services in different provinces.

• 1845

So, as far as I understand, there is a chance that the two levels of government will reach some agreement. There will be no requirement that equal amounts of funding be invested in the same areas.

The Vice-Chair (Mr. Nick Discepola): No, I never said that.

Mr. Paulin Dumas: But that is what I was talking about. I was not talking about possible agreements between the two levels of government. My reasoning applies to existing equalization and transfer payments. We would like to see them go up, but not just anyhow. This is what I have been trying to explain.

The Vice-Chair (Mr. Nick Discepola): Thank you. Mr. Côté, do you have anything to add? I believe you were trying to attract my attention.

Mr. Bernard Côté: I just wanted to say a few words about the relevance of the issues raised. We were invited to take a look at the budget surplus, yet now we are discussing the distribution of powers among the provinces and the federal government. That is a very interesting and highly political question. However, I don't think this is the right place to be discussing it.

The Vice-Chair (Mr. Nick Discepola): That is right.

Mr. Bernard Côté: Some preliminary responses have been prepared. They could be developed further. For example, when we compare the number of beds available in different provinces... Two weeks ago, I saw a figure indicating there were 0.32 beds for every 100 people in Quebec, while there were 0.27 beds in Ontario. These are recent statistics. But are they really useful? What is their significance? That is very difficult to say.

However, I could talk about social assistance. Take someone in Quebec who lives alone and receives $490 in social assistance. Is it fair to give him the same amount if he lives in Montreal, where apartment rentals are higher than they would be in the country? Is it fair to give people the same amount of social assistance, regardless of whether they live in Toronto, in Alberta, in Vancouver, or in Quebec?

Think about the problems experienced recently in Canada, when British Columbia is refusing to let in welfare recipients from Quebec, or granting them welfare only after they had been in the province for three months. The problem was solved after the two premiers discussed the issue.

Do we really need to introduce national standards to solve this kind of issue? Couldn't the provinces settle them amongst themselves? There are differences among provinces, and between Quebec and the other provinces—that is what makes Canada such a rich and varied place. There are even differences within provinces.

The Vice-Chair (Mr. Nick Discepola): I was not saying how the provinces should spend funding within their own areas of jurisdiction. Health care and education are both areas of provincial jurisdiction. I fully agree with that. The figures I put forward were to highlight where the provinces were spending more or less in each of those two areas.

But to go from there to saying that the federal government should simply provide the money without ever attaching any conditions to it... That's what I was talking about. I believe Mr. Renaud said it might be a good thing to establish national standards in education, as we have done for health.

I would never say that the federal government should administer...

[Editor's Note: Inaudible]... instead of the provinces. No, I never said that.

Mr. Côté, the primary objective of this committee is to make recommendations based on the priorities of Canadians, to our government and to our Minister of Finance. To my mind, health and education are priorities.

Mr. Bernard Côté: Yes, health, education and social services.

Just to complete my train of thought, I would like to add one more thing. Asking whether we should give the provinces their funding yet attach no conditions to how it used is fallacious in itself. It assumes that we provide funding without having any idea of where it goes. The question itself is prejudiced, and leads to certain conclusions. I don't think this is how we should be looking at the issue.

And here is the fatal answer to the fallacious question: We need national standards to ensure that Canadian taxpayers' money is well spent, not forgetting that these taxpayers pay taxes both to a province and to the federal government. Why are these standards absolutely necessary? Do we want them because we have no confidence in provincial governments? Do we believe that money invested in certain areas, or reinvested—in the case of a surplus—would not be going where we want it to?

When we consider decentralization, we want to ensure that institutions closest to the community use the funding provided, and use it well. Otherwise, we find ourselves in the very situation Mr. Dumas just described: by attempting to target a given sector too precisely, we end up with other problems.

The Vice-Chair (Mr. Nick Discepola): Mr. Dumas, you will have the last word.

Mr. Paulin Dumas: Thank you, Mr. Chairman. I just want to say that your question touches on the issue of fiscal responsibility. Should transfer payments be increased, I believe that the provincial and federal governments could come to some agreement on accountability.

• 1850

The Vice-Chair (Mr. Nick Discepola): Thank you for coming before us today. We have just scratched the surface of a debate that is very extensive. However, your comments today will help us formulate recommendations that will better reflect your priorities for the next budget, along with, I hope, those of all Canadians. Thank you very much for your contribution, and I hope you will have a pleasant evening.

Colleagues, we will be back here tomorrow morning at 9 a.m., to consider the bank mergers. Thank you, and have a pleasant evening.

The meeting is adjourned.