FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, November 16, 1999

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[Translation]

The Vice-Chair (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)): In accordance with its mandate under Standing Order 83.1, the Committee resumes its pre-budget consultations.

This afternoon, we are privileged to have with us the representatives of the Canadian Federation of Business School Deans: Mr. Timothy-Daniel Daus, Director of Operations; Mr. Bernard Garnier, Dean of the Faculty of Administrative Studies at Laval University; and Mr. David Conrath, former Dean of the Michael G. de Groote School of Business at McMaster University.

Will there be one presentation or three?

Mr. Bernard Garnier (Dean, Faculty of Administrative Studies, Laval University, Canadian Federation of Business School Deans): One.

The Vice-Chair (Mr. Nick Discepola): In that case, you have between ten and fifteen minutes.

Mr. Bernard Garnier: I have prepared about a five-minute presentation.

The Vice-Chair (Mr. Nick Discepola): Perfect. We will give you between five and ten minutes for your presentation. We are very flexible.

Mr. Bernard Garnier: Great.

The Vice-Chair (Mr. Nick Discepola): Welcome, Mr. Garnier.

Mr. Bernard Garnier: Mr. Chairman, members of the Standing Committee on Finance, we first want to thank you for inviting us to present the position of the Canadian Federation of Business School Deans as part of the consultations you are holding in anticipation of the next federal budget. Allow me to quickly introduce everyone. My name is Bernard Garnier. I am a dean, a member of the Federation's Board of Directors and President for the Quebec Region. This is Mr. David Conrath who, until very recently, was Dean of the McMaster University School of Business, and who helped the Federation draft the brief we are presenting today. I'd also like to introduce Mr. Tim Daus, who is our Director of Operations.

Allow me to briefly say a few words about the Canadian Federation of Business School Deans. Our organization was established in 1976 and represents 50 or so schools of management with 120,000 students studying management, 2,800 professors, 35 M.B.A. and 16 Ph.D. programs. We also have seven industry partners who help us conduct our work.

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Our primary mission is obviously promoting management training and research in Canada.

Our presentation this afternoon will address three points. First of all, productivity. We are going to try to make some suggestions to the federal government with a view to increasing the productivity of the Canadian economy. We will then talk about the new economy. We would like to show you why it is important to support schools of management in Canada so that Canada has a better chance of fully participating in the new economy. Finally, there is the social infrastructure. We would like to make a few suggestions for improving Canada's social infrastructure.

Our main message today is this: it is very important to invest in university-level management training because we believe it is the key to economic growth and productivity. And we will try to demonstrate that for you.

Looking at documents from a variety of sources, particularly the Government of Canada, one can see that Canada is somewhat behind in terms of its productivity. According to these sources, we are in last place or second to last place among G-7 countries. We believe that Canada's lag in productivity is due to the fact that we do not train enough university graduates in the management field and particularly in leading-edge sectors of the economy. The ones we would like to talk about today are new technologies and innovation.

We have a small triangle-shaped model, the three points of which in our view explain the current state of Canada's productivity. The first point has to do with capital and investment; the second, with technological innovations; and the third point on the triangle relates to human capital development.

We believe that Canada is doing well in terms of the first two points. Indeed, investment incentives and taxation policy seem quite appropriate. As far as technological innovation is concerned, the various federal and provincial initiatives in this area seem adequate. What is missing, in our view, is the human capital development dimension, and particularly development of managerial personnel, something which we believe has been neglected.

Indeed, some of the literature in this area points to a strong correlation between the degree of management training management teams have received and the success of the business. In other words, the more sophisticated the management training members of the managerial team have received, the greater the success of their business.

Yet an inventory of management schools in Canada and in the Canadian economy reveals that we are lacking qualified managerial personnel, particularly in the innovation and high technology sectors.

Canadian universities are doing whatever they can to provide this kind of training, but their efforts are not enough to meet demand, and existing programs need to be updated.

In Canada, some sixty universities offer undergraduate degrees in management, and thirty-six offer graduate degrees in management at the Master's and Ph.D. levels.

That may well be the most crucial point of my presentation. If you compare Canada to the United States... As you know, the United States is very much a benchmark for us. We take inspiration from the American model, at least in economic terms. Figures from all sources clearly indicate that 20% of all the university graduates in the United States receive degrees in management. In Canada, it's about 12 per cent. So, there are approximately half as many management graduates in Canada than there are in the United States. At the graduate level, the figures are pretty well identical: we train half as many people in management at the Master's and Ph.D. levels.

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As far as we are concerned, this is an important factor, and we make a very clear connection between our competitiveness and management training available here in Canada. We also note the same lag in other areas, particularly distance management training, continuous training and managerial development. Canada is certainly lagging behind the United States in that regard.

In terms of the financial resources made available to both American and Canadian schools of management, we note that all currently available figures indicate that American management schools have double the financial resources of Canadian schools. The ramifications of this are many. Americans have far more modern, better-equipped schools of management, more staff and—and we'll come back to this in a moment—offer higher salaries—indeed, in some cases, much higher salaries, to their teaching staff.

So, an inventory of the current position of management schools here in Canada reveals that their financial resources have dropped dramatically over the last four or five years. I can provide a statistic with respect to my own faculty in Quebec, that does not however apply to the rest of Canada. In our school of management, we have lost almost 30% of the revenues previously provided by the Government of Quebec. The consequences of that are obviously very significant. On the one hand, university professors who retire are not replaced. In addition—and here is where I want to make the connection with productivity—an increasing number of university professors are turning to the private sector and particularly the high-tech industries or other highly attractive related fields, such as finance.

There is also the game of musical chairs that universities tend to play. Each one tries to steal the other's professors. In some ways, the Canadian system is almost a merry-go-round. Laval University professors end up in Montreal, because there are four universities in Montreal paying higher salaries; by the same token, associate professors go to McGill, McGill professors go to Ontario, Western or Queen's, and Western professors go to the United States. Basically, everyone is a loser.

We have trouble funding existing programs, yet we are making a special effort in the area of information technologies, production technologies and operations management. We know that we have to develop new programs, particularly in electronic commerce and technology and innovation management, but we are having trouble doing that because the money simply isn't there.

Of course, in the face of shrinking resources, certain universities find themselves forced to take some rather draconian steps. In the area of new technologies—the examples that come to mind are Queen's and Dalhousie—some universities have actually privatized their programs.

I am quite familiar with the situation at Queen's. Queen's University offers an M.B.A. program in science and technology for which it charges between $27,000 and $30,000. We can perhaps accept the idea of a university doing this once, but if everyone starts to do it... We just can't do that everywhere. I also think it tarnishes the reputation of public service that Canadians naturally associate with universities. The Government of Canada has a duty to support universities and not push them into making the kinds of cuts that prompt them to privatize all their programs.

The suggestion we would make with a view to resolving the problem is this: First of all, we are asking for support at two levels—first, additional funds to fund new technologies, primarily those related to information technologies, which includes software, computers, servers, laboratories and the staff to operate and maintain those technologies. Of course, I don't need to remind you of the speed with which these technologies become obsolescent. As a result, schools of management have no choice but to replace their equipment more frequently.

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The second form of support we are requesting is an increased operational budget for existing programs, which I referred to earlier, as well as for new programs, future programs—the programs the Canadian government is emphasizing, such as e-commerce and technology and innovation management.

In concrete terms, we very much hope that this will translate into increased federal transfers to the provinces for post-secondary education, with the assurance that the provinces will pass that money on to the universities, in the appropriate areas.

In general terms, I would conclude by saying that the federal government has a duty to show leadership in this area by increasing transfer payments for post-secondary education, and that provincial governments should be increasing universities's operating budgets, as they represent a crucial investment in the knowledge-based economy, as well as making targeted investments in management training.

That is the basic message I wished to convey to you today.

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

We will now give the floor to Mr. Paul Forseth, for ten minutes.

[English]

Mr. Paul Forseth (New Westminster—Coquitlam—Burnaby, Ref.): Thank you for making a presentation today.

I certainly agree with your call for investments in your sector, but beyond just reallocating the mix towards your preferences, as distinct from the mix in the last federal budget, how do we make available more resources for your sector? Do we just reallocate, or do we grow a bigger pie to reallocate?

What, in your view, are the policy changes needed to permit the fiscal room to support your sector, rather than just taking from someone else to bring to you? What changes from past behaviour, past budgets, will bring greater resources to you?

What do you want the finance minister to do, especially when you've raised the notion of productivity and you've talked about the threefold aspect of capital accumulation and investment, human capital development, and technological innovation? You've outlined those three, and you've wrapped them into general productivity, but certainly you must have a more sophisticated, you might say, request than just saying take from someone else to give to you and therefore we'll be overall better off in the economy.

What are your suggestions to really give the fiscal room to bring significant resources to your sector?

Mr. David Conrath (Canadian Federation of Business School Deans; Former Dean, Michael G. de Groote School of Business, McMaster University): I would say a twofold approach. Obviously if one is talking about a fixed pie, there is likely to be some certain degree of redistribution. A bit of what we're going to talk about is also hindsight—that is, kinds of activities.

Let me just give the example of the Canada Foundation for Innovation. That is looking strictly at infrastructure in terms of buildings and machinery for high technology. And by the way, several provinces have come through with similar kinds of funding. But technology by itself is not an answer. In other words, what happens to technology that is not well managed? One can actually be worse off than better off.

I'm going to use a horrible term, but in part we're looking for a systems approach, so that when things such as this are funded, those activities that are complementary activities—in this case management of innovation and management of technology, so that the investment in innovation and technology reaps its true benefits—ought to be funded in parallel.

I also would add that to the extent the economy benefits by this investment, the economy grows, the tax base grows, and obviously you have a return on investment. In part this is an upfront investment, but it is a return on investment, where presumably the standard of living and the economy in general will improve with better management of existing resources—particularly resources, I want to point out, of those that are in the future rather than the past.

We can talk about electronic commerce; we can talk about the management of innovation. Canada is not in the lead here. It's interesting, in electronic commerce in particular, that the technology in Canada has been as up to date as any, but its exploitation has come south of the border. That's a management issue. It is not a technological issue.

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Mr. Paul Forseth: Does anyone else at the table want to get at my question?

So obviously you are arguing, I think forcefully, that we need to invest in a balanced way in your sector, but I'm looking at the overall capacity of the economic pie. What about looking at overall tax structure, or a clear plan for debt reduction, which sends an international signal, or other things that would then grow a much larger pie so that it would be easier to bring towards your sector?

It's like the chicken and the egg question. I'm looking for your advice. Rather than just being another group that comes to finance committee and says “We need more for us”, give us general advice about being able to provide more for everyone.

[Translation]

Mr. Bernard Garnier: I just want to make a brief comment. I think that a nuanced, balanced approach between paying down the debt and investing in Canada's future is what is required. But I don't think it would be appropriate for us to give any specific figures in that regard. I can tell you, however, that you will not be making a mistake by investing in management training, since that is where Canada's future lies. In my view, it is an investment that will yield a substantial return.

[English]

Mr. David Conrath: Let me respond again as well.

Education is always an investment in the future, so it's difficult to talk about returns on education in an immediate sense. But with education of the type we're talking about, I don't see any of us assuming it should be strictly a government responsibility.

One of the good things about the recent efforts has been matching efforts. In other words, the immediate beneficiaries are the industries that hire the graduates and use the graduates. Those kinds of matching plans seem to have worked quite well, because they've mobilized not only government activity but the people who benefit directly in the economy. I would assume that would be part of the support.

Mr. Paul Forseth: I just have one supplementary to that then. Would you like to see some kind of shift in tax policy or incentives so that the private sector can take more responsibility in training and research, rather than always relying on public institutions?

Mr. David Conrath: I'll have to speak personally here. I don't want to speak for all deans. The answer is definitely yes, for training in particular. In fact we mentioned continuing education and things of that nature, which I think are going to be absolutely necessary in a knowledge economy.

I'll give a personal example. I used to be an expert in telecommunications until I became dean. I was asked to teach a course in telecommunications. I can spell the word, but I don't know what's going on out there. I just have not had the time to keep up. This is going to be true for an increasing number of domains.

So yes, we do need the kind of support that will encourage industry. They have a vested interest, but that doesn't mean they always recognize it.

Mr. Paul Forseth: Thank you.

[Translation]

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

Mr. Gallaway, please.

Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Thank you.

Mr. Garnier, it seems to me the Americans are always ahead of us. That is a fact of life. Based on the statistics you have provided, is it possible to conclude that the difference between the program levels—in other words, between the undergraduate and graduate levels—is a function of the cultural differences between our two countries, or does it have something to do with... [Editor's note: Inaudible]

Mr. Bernard Garnier: My personal view is that there is a cultural dimension. There is no doubt that business is valued far more in the United States than it is here in Canada. So that certainly has an impact on resource allocation and on the desire to pursue a career in management. Since we are talking about a country that is economically very successful, I think that should certainly give us pause.

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In our own particular environment—that is, as deans of schools of management—we all have cases of professors who have moved to the U.S. I have at least two: a young professor who went to Texas and doubled his salary, and another who moved to the Eastern United States to accept the position of dean of a business school at a salary at least twice or three times higher than what he was making here.

In that kind of environment, it is very difficult to compete. We're simply not up to scratch, and our Federation believes that this could have serious consequences for the Canadian economy. If we do not train more people in leading edge sectors of the economy, we are going to have problems.

When you compare the education and hospital sectors, you can see that as far as education is concerned, we are talking about a slow death—-a kind of gradual asphyxiation that we are not really conscious of. But the damage is coming. That is what is happening. I have provided you with some American statistics, and they really provide food for thought. I think they are key to our understanding. I'm not saying they are the only key, but they are certainly a very significant one.

[English]

Mr. Roger Gallaway: Mr. Conrath, this is perhaps more of a question on how the system works. I certainly don't disagree with you that more money has to go into transfers to universities. I say that as someone from Ontario whose two sons are in university. It's like taking a vow of poverty right now, having seen the cost of tuition double in the last six or seven years in that province.

In regard to your particular field of interest, how does the system work? Let's assume there's more money flowing to the provinces on transfers for university education and post-secondary. What kinds of guarantees do you then extract that it's not all going to go into engineering schools, or who knows what, but not into your domain of interest? What controls are there on that? Does it flow evenly throughout the system? Is it prorated throughout the system? Or can a particular province decide, for example, that it's all going to go to the engineering school at the University of Waterloo?

Mr. David Conrath: You have a very strong point. Let's be blunt. In my experience—and I've been in the university system in Canada now for over 30 years—funds that are completely untied at best are distributed evenly, and at worst are distributed away from those areas where they feel there is a natural benefit. That natural benefit typically accrues, number one, to business schools. They view that they're better off.

You have to admit that in an academic milieu, business is sort of dirty. It's not really academic, and a lot of the business schools were late additions to universities with a very great tradition. So internally—that is, in intra-university distribution—we rarely fare well. We do better raising outside funds and the like. But for me to say you should just hand it to the universities without any tags, I would be defeating my own purposes, because it has not worked.

I do think programs that have particularly looked at matching—in other words, some funds may not get matched and others might get matched—help direct the resources. Universities are responsive when they get two bucks for the price of one. They're more responsive than if they get just one for one. Again, the CFI and several of the provincial funding things for high technology have worked that way and have been quite successful, and there has not been a significant diversion of resources.

There has to be a little bit, by the way. I want to make one point clear. An engineering faculty or a business school without a faculty of humanities or a faculty of science is bereft of education. In other words, we're not saying we should get it all and those things should not be supported, because we're defeating ourselves. We need to have intellectuals in there as well as to grind it out. So it's not that we want to separate the two, but the kinds of redistributions generally work better if, at least in some areas, they are targeted, and with the appropriate reward mechanisms.

[Translation]

Mr. Roger Gallaway: One last question.

Mr. Garnier, I have in mind the example of the Ivey School of Business in London, where it is possible to take M.B.A. courses, provided you pay all the costs. If I'm not mistaken, they amount to about $25,000 a year. Do you think the day will come when that will apply to all Master's level courses?

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Mr. Bernard Garnier: Ontario universities that went that route did so in part out of despair, for lack of public funding. It is possible that universities in other provinces will do the same, because they have to survive. When you are dean of a school of management, you have a responsibility to your students, to your teaching faculty and to your staff. It's a matter of survival.

People become very inventive when their survival is at stake. As I see it, that then prompts Canadians and their representatives to ask themselves just what the role of a university is. Is a university a public service or is it not? It's about time we decided one way or the another. Some of the current approaches can be tolerated—such as the Ivey School of Business charging the full cost of the program, but if everyone starts doing that, where will it all end? Access to higher learning, particularly in the field of management, will be seriously restricted.

If that happens, we'll be facing even worse problems than we are now: fewer specialists in leading sectors of the economy. That is the real problem. It's important to decide which societal model we want to use. It may be dangerous to consider completely privatizing these programs everywhere, given that universities offer a variety of different programs, that the places they're located are very different, and that small or regional universities may not be able to afford—with the exception of institutions such as Acadia—to go that route.

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

Mr. Brison.

[English]

Mr. Scott Brison (Kings—Hants, PC): Thank you, Mr. Chairman.

I was glad to hear Acadia mentioned, because Acadia is in my riding, and particularly with the Acadia Advantage program, its business school has done quite nicely.

I have a couple of quick questions.

I'd appreciate your feedback on the proposal to eliminate capital gains taxation on the donation of publicly traded shares to charities. It was presented to us by one of the fundraisers for the University of Western Ontario, Don Johnson, and is one way we could level the playing field in terms of the tax policy relative to philanthropy.

In the U.S. one can contribute publicly traded shares without capital gains tax. In Canada it's been reduced by 50%, and it's had some significantly positive impacts, but there's a feeling that it could benefit to go all the way on that. So I'd appreciate your feedback on that.

Secondly, relative to Mr. Gallaway's question about the business schools and getting the proper share of the funding, it surprised me, because business schools are such a cash cow in some ways for the universities. I would have thought the administrations would be more amenable to investing in them from a cashflow perspective. That's just what I understand to be the case, and that's coming from an undergraduate degree in business from Dalhousie. That was always the case at Dalhousie.

I'd appreciate your feedback on those two.

Mr. David Conrath: I've been involved in fundraising for the last five years and am in the midst of a major capital campaign for McMaster, and I'll tell that zero capital gains tax or capital gains tax relief would be an incredible boon to our ability to get endowed funds. What the universities need over the long run, and one thing that will eventually relieve some of the pressure on the government for funding, are endowments or permanent funds.

We can talk about U.S. comparisons, because I taught in the States before I taught here, so I know both sides of the border. One of the things that surprised me is the extent to which universities here are bereft of endowment funds. The vast majority of their budget is money that comes in every single year. It is not a return on investment.

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This leads to the cash cow. Maybe I'm throwing darts, but I'll throw them anyway. We still don't have an understanding within most universities that you need to invest now for returns later. We're asking education.... One of the difficulties I have is we haven't gotten our own act together, in part because there's not an adequate understanding of that. When they see business schools, for example, reaping in funds, the immediate reaction is to take them all. There are a number of private programs—fortunately, we're not involved in that, and I won't mention the universities, but I know one in particular—where 100% of all the income of their external programs from the school of business is put into the central budget, and then they reallocate the amount, just to cover costs. That's zero motivation, which means that school has not expanded at all. We have internal education to do as well.

Mr. Scott Brison: Given that the programs in terms of the educational content would be expected to be fairly similar between the U.S. business schools and the Canadian business schools, what has been the success rate relative to getting, for instance, the U.S. investment banks actively participating in recruiting from Canadian campuses? For instance, at the analyst level in the undergrad programs—which is very important, because if somebody has an opportunity to get into those industries at the analyst level after an undergrad, that's really the time to get them—are you actively working with the investment banks on that?

Mr. David Conrath: There has been a very slow uptake there. The U.S. still looks by and large at Canada as sort of a rural province. Outside of Toronto, I don't think they fully understand all of the economic activity up here.

What will help and what is taking place right now—and HÉC has one, McMaster has a second, and my guess is within about three years we'll have a half a dozen.... I'll deal right now with investment analysts: active, live trading rooms on campus are going to educate students in the act of trading. Once we do that—and there's only a handful down in the States now—we'll get those recruiters.

So we are actively recruiting recruiters, but one of the things that's critical to recruit the recruiters is to be right on the forefront of education. Given the core funding, which has remained stable or has shrunk for almost all universities, universities have been very reluctant to invest in anything new. They have their traditional programs, and virtually all the funds have gone into traditional programs.

Back to sort of targeted funding, I think in part also if you wanted to go into new directions, as much as everybody likes the freedom to spend money as they wish, targeting is needed here as well. I'm thinking about e-commerce, trading, a number of those things where we know the economy is going to move in the future.

Mr. Scott Brison: You were saying, and this is something I became aware of a while ago, there's a growing gap between Canada and the U.S. in terms of exploitation of e-commerce. It wasn't that long ago that people would say there was about a year, and now we're hearing eighteen months to two years.

Were you saying that's a function of management? That would concern me if that were the case. I tend to think it may be a function of some of the structural impediments in the Canadian economy, whether they be regulatory issues or tax issues, that may be playing a role in it. I'm not certain. I'm just positing that as potentially the case.

Mr. David Conrath: If I had to put my finger on two aspects, there's a whole package that undoubtedly affects it. The tax may play some role, and so on, but if I had to put my finger on the two primary things, one would be what I call managerial. But I'm going to tie it to the second one as well, and that is a risk-taking propensity. The stuff we're talking about on the web right now is high risk, particularly because people just don't know how it's going to evolve. People can be billionaires today, paupers tomorrow, and a billionaire the week after.

Mr. Scott Brison: It's more like politics.

Mr. David Conrath: That's right.

Mr. Scott Brison: The sine curve is very cyclical.

Mr. David Conrath: It is very cyclical, and outside of politicians, most Canadians seem to be adverse to these kinds of cycles. So I think it's a combination of a risk-taking propensity and management.

The reason I mention the management aspect of it is if you take a look at the technology, a lot of the technology that is now being exploited in the States was developed here. You take a look at Silicon Valley and at the number of Canadians there who are still Canadians and carrying Canadian passports: it's a very impressive number.

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Mr. Scott Brison: This is common to business schools. One of the things we lack in Canada in terms of a culture of opportunity and entrepreneurialism is a sense of mentorship. A lot of times—and this is becoming increasingly the case—a lot of our best and brightest are choosing to play elsewhere. That's a real loss, a huge loss.

If there's some way we can engage the industry, the leaders who stay in Canada, to work with the universities and the business programs—or the general arts programs, because as well there's an increasing level of participation in business of people who are undergrads in arts—that would be terrific, because there is a mentorship issue that is a problem here.

Mr. David Conrath: I agree.

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

Mr. Cullen, please.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman.

[Translation]

Thank you very much for your presentation.

[English]

Excuse me, but I'll stick with English for the time being. I think it's really a tribute to you that you're raising the consciousness level on this particular issue, because I think, in concept, that we need better management training in Canada.

Going back a couple of years, I'm curious about what seemed to be a debate going on in the United States with the business schools there, with some business schools moving towards more of the soft skills like corporate ethics, cultural sensitivities, and social protocols. I read about that with some interest. Some of the traditional schools like Harvard, I gather, are staying away from it, but others are moving in that direction. It seemed to be quite a popular move.

Has that debate happened in Canada yet? If so, where's it going or where has it been?

[Translation]

Mr. Bernard Garnier: I think that what you're saying is absolutely correct. There is a whole debate going on about business ethics, and so forth. Business schools have also become very diversified: all kinds of subjects are taught there, including traditional accounting, business ethics, new technologies, management, innovation, etc. But when new technologies and innovation are targeted, we have a lot more trouble recruiting teaching staff because the pool of talent there is much smaller than on the more social side of business, such as O.B. or similar disciplines. It is a lot easier to hire professors in areas such as social psychology, sociology or a related discipline.

Business schools are currently experiencing a very serious problem in that university professors with expertise in such areas as finance, new technologies, engineering and production are leaving their posts. We are always faced with the same dilemma, and it really is paradoxical since in order to develop an e-commerce program, you need teachers and people who can be there to work on them. Yet these are precisely the fields where we are losing the greatest numbers of people. They are moving to industry or to other universities. My faculty, which is Information Technology, has only eight or nine people on staff: one of them has retired, another is on extended sabbatical leave in Hong Kong, another young professor has taken a leave without pay to make the jump to industry, and so it goes. It is in those fields where the demand is greatest that we have most trouble keeping people on staff. It is people in those areas of specialization that are leaving us. That is the dilemma.

[English]

Mr. Roy Cullen: Mr. Conrath, do you want to comment?

Mr. David Conrath: Yes, I have just a couple of comments.

Not only has the debate taken place here—and I'll back up on that as well—but I think we've listened to it. I can think of at least three or four schools, for example, that now have mandatory courses in ethics, mandatory courses in communications, mandatory courses in team-building and critical thinking and things of that nature. If you look at the curricula today vis-à-vis five years ago, you will see the changes. I want to add, however, that almost all these courses are now being taught by part-timers or outsiders. We're trying to find people who will handle it, but they are not permanent faculty. The expansions we've made have been made on a piecemeal basis.

Mr. Roy Cullen: We talked a bit earlier about the propensities for risk-taking and risk aversion. We just heard a story about a scientist who developed a certain understanding of certain gene pools and had to go to the United States to have it capitalized in terms of venture capital.

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I know that we bump into this all the time in Canada with our financing system. First of all, in contrast to the U.S., we don't have that richness of capital pools, and we don't seem to have the propensity to take risks. It's a problem in terms of fueling growth. Is this something that is a cultural thing or can it be taught in universities?

[Translation]

Mr. Bernard Garnier: No, I am speaking as a trainer and educator. I believe we can push back the frontiers of knowledge and change attitudes. A school of business administration does indeed try to teach such things as reasonable risk-taking, and so on, and hopefully is successful at it. Our institution is trying to foster changes in attitude, obviously in a given societal context.

[English]

Mr. David Conrath: I'll add something to that as well. While generally, I think, risk propensity is cultural, I do think that tools like trading rooms, etc., where people better understand what risk is, will increase the likelihood that they'll take risks—calculated risks. I don't think anybody is going to claim we want fools out there, because we could harm our economy horribly. What we need are people who understand the value of an educated risk and the potential returns on that educated risk. With the new tools that are coming on board, I think we can make changes. Now, how dramatic those will be, I don't know.

Mr. Roy Cullen: Anything you can do I would encourage.

If I have time, I'll add a couple of small questions. I took a master's degree in public administration out of the University of Victoria. Only a few years ago, they started a commerce faculty. In fact, the dean there has sent out a notice that he's trying to “re-vision” the school of commerce.

A thought occurred to me about the linkages between the public sector and the private sector. We train people to be business people and some of them come to Ottawa and can't understand it at all. I'm wondering if those skills.... Maybe it goes both ways. Maybe people in the public sector need to have a better understanding of, a better education on, how the private sector works. I'm wondering if the roads are meeting there at all or if we are still two solitudes, in a sense.

[Translation]

Mr. Bernard Garnier: Based on examples I am aware of, I would say there is an increasing level of cooperation between the various faculties and schools, particularly schools of public administration. There is one in Québec and we cooperate in a number of areas, including health. We carry out joint projects, are involved in joint research and joint teaching efforts and we both receive groups from the other institution. So, we are increasingly learning to work together.

[English]

Mr. Roy Cullen: Maybe I can have one final question, Mr. Chairman...?

We touched on this earlier. I may have missed part of the drift of the discussion. It was the notion of partnering with business. There are examples of it already, like chairs in business. Is that something that you can leverage more on in the sense of coming to governments and saying you have the Alliance of Manufacturers and Exporters willing to put up a third of the cost of a chair in management of soft management skills or of e-commerce or whatever? You could go to provincial governments, federal governments, and/or. Can you do more of that? Is that a successful avenue for you to pursue?

[Translation]

Mr. Bernard Garnier: We are already doing that. For example, we have created four new chairs at Laval University's Faculty of Administration over the past three or four years. Those chairs are funded through various sources. They receive money from the federal and provincial governments, unions and business. I see this as an avenue which is very much worth pursuing. However, although I recognize that these chairs are helpful, they should not come under the federal and provincial governments, who have an obligation to support their universities. It would really be too bad if our universities were allowed to decline, and particularly our schools of management. We are prepared to do our share. Although I think it's a good avenue to pursue, you must help us as well.

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That is the message we want to convey today.

Mr. Roy Cullen: Thank you.

The Vice-Chair (Mr. Nick Discepola): No other member has indicated that he would like to ask another question.

I want to thank you for your presentation this afternoon. I hope you return to your respective universities with the conviction that you have clearly delivered their message. We are aware of the major challenge facing us.

If you don't mind, I would like to ask one question. A number of people have asked that provincial transfers be returned to their previous levels—in other words, before budget cuts. Mr. Gallaway mentioned the fact that in such a scenario, there would be no guarantee that each faculty would receive its fair share. My question is broader than the one he put to you. If we return those monies to the provinces unconditionally, as some are recommending, can you assure us that they would indeed be used for education purposes?

Mr. Bernard Garnier: Thank you, Mr. Chairman. I wanted to make a comment on that very issue, but I had not yet had an opportunity to do so. Although I am especially familiar with the Government of Quebec, since I live in that province, I do believe that all the provinces are very interested in having successful universities. In Quebec, Minister François Legault has launched a competition with a view to funding programs in certain leading edge sectors, such as new technologies, information technologies and electronic commerce.

I believe that provincial governments are also quite smart and that it shouldn't be that difficult for the federal and provincial governments to pool their efforts and channel that money to those leading sectors we are all aware of. I certainly think we should be able to count on federal leadership, and on a provincial agreement aimed at making targeted investments in a number of areas, including universities, and their schools of management. I believe that is feasible and the current indicators are very positive.

The Vice-Chair (Mr. Nick Discepola): Thank you very much. I hope you have a good trip back.

We will resume our proceedings in 25 minutes, at 2:30 P.M.

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The Vice-Chair (Mr. Nick Discepola): In accordance with its mandate under Standing Order 83.1, the Committee resumes its pre-budget consultations.

We have the privilege this afternoon to be joined by the following witnesses: from the Conseil du patronat du Québec, the Director of Research and Economics, Mr. Jacques Garon; from the Union des producteurs agricoles du Québec, Mr. Gilbert Lavoie, economist; from the Confederation of National Trade Unions, the President, Mr. Marc Laviolette and the Assistant to the Executive Committee, Assistant, Mr. Peter Bakvis; from the Coalition pour le renouvellement des infrastructures du Québec, the President, Mr. Gilles Vaillancourt; and from the Canadian Centre on Substance Abuse, Mr. Luc Chabot, Professor of Toxicology at the University of Montreal. We are also expecting Mr. Pierre-Yves Serinet, Coordinator of Solidarité populaire Québec.

We would ask you to take no more than five to seven minutes for your opening statement, so that members have enough time to ask questions.

According to our agenda, Mr. Garon will be the first speaker.

Mr. Jacques Garon (Director, Research and Economics, Conseil du patronat du Québec): Mr. Taillon will be making the presentation on behalf of the Conseil du patronat du Québec.

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

Mr. Gilles Taillon (President, Conseil du patronat du Québec): Mr. Chairman, thank you. Don't worry, I have every intention of letting my colleague, Jacques, answer a few questions.

I want to thank the Standing Committee on Finance for giving us this opportunity to present the priorities of the Conseil du patronat in relation to the next federal budget. I will quickly explain our position.

First of all, I want to point out that we are very pleased to have Minister Martin's economic forecasts. I suppose we can always discuss the numbers, but the important thing is to have those budget forecasts and particularly a long term plan. We believe the Minister has demonstrated his commitment to transparency, and that he should be commended for that.

Our understanding is that Minister Martin is expecting significant budget surpluses this year and over the next five years, which he estimates will reach $95.5 billion, of which $28.5 billion would be set aside for contingencies, leaving some $67 billion for tax cuts and a variety of investments. That is how we interpret the Minister's forecasts.

I would now like to address the budget priorities that have been identified by the Conseil du patronat. First of all, we would point out that we are somewhat concerned by the rumours currently circulating to the effect that the government's priority would be to devote 50% of the surplus to program spending and 50% to tax cuts and debt reduction. The Conseil du patronat believes those should be completely reversed.

We would point out to Committee members—and we also intend to make this point to government officials—that in our view, 50% of the surplus should be used to lower personal and corporate income taxes, with particular emphasis on lower personal income taxes, that 25% should be used to pay down the debt, and that the last 25% should be channelled into productive investments.

The Vice-Chair (Mr. Nick Discepola): Gilles, I just want to mention that these are not rumours, but an actual commitment made during the 1997 election campaign that appears in our second Red Book. So, these are not just rumours circulating.

Mr. Gilles Taillon: Thank you for that clarification. Let's just say it was an election promise. However, we believe promises can evolve and we hope that is the case here. If you move closer to our position, you will be able to divide up the $9.5 billion surplus as follows: $4.7 billion for tax cuts, $2.375 billion for debt reduction and $2.375 billion for investments. Our priority, as I am sure you've understood, is lowering personal income tax. As early as the 2000-01 fiscal year, we would like to see the government eliminate the 5% surtax on salaries that exceed $63,000, reduce by 1% both the average and the highest marginal rates, index the tax tables and, of course, reduce employment insurance premiums. The measures we are suggesting reflect the forecasts provided as an appendix to the document tabled by Minister Martin, which total approximately $4.2 billion.

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If the government decides to support the priorities we are suggesting, it would be in a position to considerably ease the burden of Canadian taxpayers, who are among the citizens paying the highest taxes of any of the industrialized nations. These measures would give Canada a significant competitive advantage as well, stimulating consumption and providing an incentive for both savings and investment. Our position is quite clear as to the beneficial effect of such a strategy.

We also recommend a five-year plan favouring the split we have just presented. A 50% tax cut would very quickly allow us to almost reach tax parity with our American neighbours, something that would certainly give a major boost to economic growth in Canada.

It is important that a significant proportion of the contingency reserve be allocated to debt reduction. We certainly won't be able to claim that we are in an unprecedented financial position as long as we continue to carry a substantial debt that eats up 25% of federal government revenues in the form of debt servicing payments.

Our brief also includes suggestions with respect to investments. As I said earlier, we are in favour of a $2.3 billion investment in programs. It is our hope that these investments would be directed first and foremost towards those sectors that are the most productive in terms of economic growth. It is absolutely essential to invest in research and development, in areas that allow us to improve our productivity, and therefore in new technologies as well as infrastructure.

As you know, the Conseil du patronat is part of a coalition calling for investments from all three levels of government—federal, provincial and municipal—in Canada's infrastructure. We now have the ability to support such expenditures and generate activity in this area, thus creating a real engine for economic development that will at the same time provide substantial tax revenues for governments. Although we are talking about substantial investments, in the final analysis, the cost of such infrastructure improvements is quite reasonable.

Finally, once we have channelled investments into new technologies, productivity and infrastructure, we will be able to invest part of the 25% in certain social programs, particularly those linked to higher education and health. However, the Conseil du patronat feels it is important that federal-provincial areas of jurisdiction be respected in this regard. We would not like to see the federal government directly intervening in any of these areas; its intervention should be limited to transfer payments to the provinces.

Mr. Chairman, those are the main points of our presentation. We would now be pleased to answer your questions.

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

• 1440

I believe our next speakers will be Mr. Lavoie and M. D'Amours of the Union des producteurs agricoles.

Mr. Gratien D'Amours (Vice-President, Union des producteurs agricoles du Québec): Thank you, Mr. Chairman.

The Union des producteurs agricoles is very happy to have this opportunity to take part in the debate and present its views.

Allow me to introduce the person accompanying me today. His name is Mr. Gilbert Lavoie, and he is an economist with the Research and Agricultural Policy Branch of the UPA.

The Union des producteurs agricoles was founded 75 years ago; we are celebrating our 75th anniversary this year. The UPA represents people working in agriculture throughout the province, specifically almost 45,000 producers in some 35,000 farm businesses.

Our members also include 16 regional federations affiliated with the UPA Confederation, and 21 specialized unions and federations. We therefore represent all areas of agricultural production in Quebec.

I will now turn it over to Mr. Lavoie to present the UPA's position.

Mr. Gilbert Lavoie (Economist, Union des producteurs agricoles du Québec): Thank you.

What prompted the Union des producteurs agricoles to present a brief as part of these budget consultations was something that was discussed at great length at the 40th Annual Premiers' Conference in Quebec City last summer. There was much discussion of the theory that the best way of fostering economic growth and job creation would be to put budget surpluses back in the pockets of individual Canadians by cutting taxes.

In the agricultural industry, this theory is problematical. As I will be explaining in a few moments, our industry believes it is absolutely essential that the government inject part of its surplus into agricultural programs—programs that it severely cut back as part of its deficit-fighting initiative.

The UPA also wants to make it clear that it is not opposed to personal income tax cuts. However, I want to point out that pursuing that avenue alone will not make a significant enough difference and that we will definitely need some help from the government, given the current agricultural trade context and the kind of support other countries are providing to their agricultural producers.

Basically, as part of the consultations that are ongoing, the UPA wants to voice its concerns with respect to the current state of affaires, particularly as regards job creation and economic activity across Quebec.

In the brief we have prepared—and I would like to very quickly and succinctly go through a couple of the points it raises—we emphasized the importance of the agricultural and agri-food industry doe Quebec's economy.

It is important to remember that one job in nine in Quebec is associated with the agricultural and agri-food industry. It includes not only agriculture, but other industries such as processing, food distribution and retail trade. It is also a major employer in each of the regions of Quebec. It represents more than 10% of all jobs in twelve of Quebec's seventeen administrative regions.

Also, the agricultural and agri-food industry's contribution to GDP in Quebec is very significant: its share is close to 10 per cent.

I should also like to quickly remind members that the agricultural and agri-food industry accounts for almost $1 billion of investment in the Quebec economy year after year. Over 40% of that amount, or a little more than $500 million per year of capitalization, is invested in the agricultural industry per se—in other words, in the farms.

The governments of industrialized nations play an important role in agriculture and are mindful of the kind of competition they face in terms of trade. Simple market laws do not work where agriculture is concerned. Even the Americans, staunch defenders that they are of this approach, have had to accept this fact, despite the recent World Trade Organization agreement. Their recent actions in support of their agricultural producers are tangible proof of that reality.

The first point we want to make with respect to world trade in these products is that Canada's support for its agricultural producers is far less than what producers in other countries are receiving. To illustrate that point, we gathered some data published by the Organization for Economic Cooperation and Development, commonly known as the OECD. Every year, the OECD publishes data with respect to a support measure called the Producers Subsidy Equivalent or PSE. That indicator is recognized worldwide and has been used to compare the level of support provided by different countries to their agricultural sectors.

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This indicator shows in simple terms the different kinds of support various countries are providing to their agricultural sectors, either in the form of direct assistance through transfer payments to producers, or in the form of indirect assistance, through border protection measures or supply management systems that we are more familiar with in Canada.

To give you an order of magnitude as far as Canada's PSE is concerned, the tables show that in 1998, it was 16%, compared to 22% for the US and 45% for the European Union.

And what is even more worrisome is that over the last ten years, Canada has reduced its support for the Canadian agricultural industry by half, while assistance has remained relatively stable in other countries.

Another measure sometimes provides a better assessment of the situation than do percentages, which may remain the same. Again, this is a measure developed by the OECD that calculates the per capita figure for support provided to the agricultural sector. The OECD's assessment in 1998 was that Canada was providing support in the amount of US $140 per capita. That support is two and a half times lower than in the United States. Americans support their agricultural industry to the tune of US $363 per capita, while in Europe, it is US $381.

Over a ten-year period, the level of farm support per capita in Canada has plummeted by nearly 50%, while levels have remained relatively stable in the United States and Europe. What we can conclude from this is that unlike its trading partners, Canada has essentially withdrawn from this sector.

The 1998 figures give even more cause for concern, since they do not include the measures recently announced in the United States, which include farm support of almost $6 billion for 1999 and an additional $8.7 billion in the year 2000, which will have the effect of increasing support for their agricultural sector.

According to a study conducted by Sparks, an international agri-business firm, this latter amount of US farm support represents half of the US's projected budget surplus for the year 2000. It should be noted that the amounts I've just mentioned, which were awarded for 1999 and 2000, will result in higher PSEs for the US for those two years.

This increased support follows an admission that the policy of non-intervention in agriculture that the US intended to implement through its last bill, called the Freedom to Farm Act, has failed.

That was clear from the statement made by US Secretary of State Dan Glickman, who said, and I quote:

Our farmers are defenceless in the face of harsh climatic conditions, increased global production and a widespread economic recession that has caused demand to drop. Markets are notorious for doing unexpected about-faces. The future is very uncertain, particularly if we look beyond the next two or three years.

Another interesting fact is that the Government of Canada cut support payments to the agri-food sector by half over the same period. The Canadian government, which injected some $4.4 billion into the agricultural and agri-food industry over the last decade provided only $2.3 billion in support in 1998-99.

What we are trying to demonstrate is that over the period where the total federal budget declined by approximately 5%, support for the agricultural industry was cut in half. Now that we are facing budget surpluses, it is time for the pendulum to swing back. It is absolutely essential that federal spending in the area of agricultural support increase in the next federal budget, so as to rebalance the global trade environment in which our industry is evolving. Without this new support, our industry will find itself in a precarious position indeed and will not be able to compete for very much longer with other producing countries.

In conclusion, our message to you is that the level of government support provided to the Canadian agri-food industry is far lower than that provided by both the Americans and the Europeans. While support has remained relatively stable in those two regions over the past ten years, it has declined by 50% in Canada. As a result of this turn of events, Canadian producers cannot count on a level of support that is comparable to that offered by other countries to their producers to help them weather unfavourable market and climatic conditions, such as the industry is currently experiencing.

Therefore, it is imperative that the Government of Canada use a portion of its budget surplus to help producers be competitive and place them on a more equal footing with producers in other countries, particularly the United States. We mustn't lose sight of the fact that most of our trade is with the U.S.

In light of federal cuts to support payments to the agricultural and agri-food industries and the vastly superior level of support provided by other countries to their producers, we see this as a legitimate and critically important request.

That completes the presentation by the Union des producteurs agricoles.

The Vice-Chair (Mr. Nick Discepola): Mr. D'Amours, do you have anything to add?

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Mr. Gratien D'Amours: Yes. I just want to talk about the spirit in which the UPA has developed its position. It's important to emphasize the need to invest in this industry, which is extremely dynamic. We need to develop entrepreneurship through the kind of support that reflects a desire to develop the industry.

We referred to the impact of almost a 50% cut to farm support in the Martin budget—which makes that support practically non existent—when in fact job creation was very significant in the agricultural sector in 1992 and 1993, compared to all other industries. Jobs increased by 12% there, compared to only 6% for all other industries. We think it's important to remember that.

The other point is that farmers have been doubly penalized as a result of all these spending cuts. This effort to rationalize government spending focussed on a whole series of areas and thus affected society as a whole. As a result, agricultural producers felt the effects just like every other Canadian did. But when a decision is made to take the same approach in departments with an economic focus, such as agriculture, the same group is being penalized again, because the effect is immediately felt at the level of farm business income.

So, it seems to me we are doubly penalized, and that is why we think it is time to restore some balance inside the agricultural industry.

Another point I would add has to do with the cuts made to forestry. As you know, 35% of agricultural producers top up their income by selling product from their farm woodlots. Yet federal government support for the forestry industry, which previously amounted to almost $20 million a year, was practically totally eliminated in the Martin budget.

I'm sure you can understand that all these cuts have had a devastating effect on Quebec farm businesses.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. D'Amours.

Now, will Mr. Laviolette be making a presentation on behalf of the Confederation of National Trade Unions?

Welcome, Mr. Laviolette.

Mr. Marc Laviolette (President, Confederation of National Trade Unions): Thank you, Mr. Chairman.

First of all, I am pleased to have this opportunity to present the CNTU's position on budget surpluses to the Standing Committee of the House of Commons.

The CNTU currently has 235,000 members in Quebec across a variety of industries, in both the private and public sectors. Our members are split pretty well evenly between the two.

I would like to begin by reminding Committee members that a society is judged not only by its Gross Domestic Product or the wealth it produces, but also its ability to look after its citizens. In a sense, social programs are a determining factor when measuring that ability. We have a long-standing tradition in that area here in Canada. We have a social safety net that has been and continues to be the envy of many countries around the globe.

The problem we are facing is an interesting one. For once, we are talking about a surplus. So, we are not talking about managing decline. But it's important to state what the source of this surplus is. Of course, this surplus has been primarily generated through economic growth; unemployment has dropped and thus there are more people working and paying taxes. Those individuals are consuming and consumption taxes bring in higher revenues to the government.

However, this surplus has also been generated by significant cuts made to federal transfer payments to the provinces. Although the government recently increased them, they are still $4 billion lower than they were in 1994-95. Among the factors that have created this surplus, one of the most significant, in the view of the CNTU, is the money stolen from the Unemployment Insurance Fund. This year, a surplus of about $6.1 billion has been forecast for that fund. That surplus is being rolled into the government's general surpluses.

Also, the reason such a surplus has been able to accumulate in the Unemployment Insurance Fund is that draconian restrictions have been introduced to limit access to the Insurance Fund. Less than 40% of jobless now can access it. If a private insurance company provided insurance coverage to less than 40% of its claimants, I think it would soon go bankrupt. Consumers would obviously seek out other insurance companies. But that is not the case with the Unemployment Insurance Fund, which recorded a surplus of $6.1 billion this year.

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I think we have to be wary of the mantra we are hearing everywhere, which is that tax cuts will solve all our problems here in Canada. We've been hearing the same thing in Quebec. And the message throughout Ontario is the same. We have to be wary of that kind of line, because lowering taxes amounts to lowering the government's revenues. It means weakening the government's ability to maintain its social safety net, and that is something that concerns us.

This is how we believe the surpluses should be used. Of course, federal transfers to the provinces must be restored to 1994-95 levels. We think that access to unemployment insurance should be expanded, even though premiums have dropped, just as the CNTU had asked. When I talk about increasing accessibility, I mean making the program accessible to 70% of unemployed workers. Also, the amount of the weekly benefit should be increased to 66% of a worker's weekly wage.

We also think there is a problem as far as taxes are concerned. The tax measures we are suggesting are moderate. There are two: indexing tax tables and deduction tables, as well as increasing the basic personal deduction from $6,456 to $7,500. That is a universal measure which, along with indexed tax tables, will primarily help the middle class and less privileged members of society.

We hear all kinds of arguments. There is talk of tax parity with the United States, for example. But what people forget to mention is that in the United States, you have to pay to access health services. They may have more money in their pockets, but their pockets empty pretty quickly when they start paying for the services they need.

There is also a lot of talk about parity with Ontario. Let's not forget, though, that Ontario is funding its tax cuts by running up a deficit. That province is forecasting a deficit of $2 billion for this year and $1.4 billion for the next year. On November 6, the Globe and Mail reported that there were going to be further cuts of 5% made to ministerial budgets, except in the areas of health and education. So, these tax cuts are being funded through cuts to social programs.

As regards job creation, a very important aspect, certain firms, such as Informetrica, say that according to their calculations, the macroeconomic effect of a $1 billion tax cut would be to create 9,000 jobs. Yet increased spending in the education and health sectors would create 24,000 and 25,000 jobs respectively. That's perfectly normal, since it is people who provide the services in the health and education sectors. And the same would apply to infrastructure: a $1 billion increase in infrastructure spending would result in 15,000 jobs being created. So, there are more productive ways of creating employment in Canada, and tax cuts certainly are not one of them.

Indeed, Mr. Reagan himself, in the early 1980s, managed to actually triple his deficit through tax cuts. President Bush, who succeeded him, called that policy voodoo economics. Such policies have proven only one thing: they weaken the government's ability to redistribute wealth by providing support through the social safety net. The CNTU feels it is important to repair that safety net during periods of wealth generation, like the one we are currently in, and to take that opportunity to undo the damage done by cuts.

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That is basically the CNTU's position on how to use the surplus: restore the social security net through federal transfers to the provinces and restore the Unemployment Insurance Fund. What would be disgraceful, if much of the surplus were to be used to lower taxes, is that the jobless would be contributing towards lower taxes for the richest members of society, since tax cuts always benefit those with the greatest wealth.

The other problem is that almost half of all Canadian taxpayers have an annual income of $20,000 or less. It is true that the middle class is carrying a tax burden that they are not. But it is through job creation and improving their working conditions and wages that they will be able to carry their share of the tax burden. That is where the solution lies, not in the newly invented doctrine called tax cuts, which we don't feel will provide any real benefit to Canadians. It's not that we're against tax cuts, but at this time, we believe the most important task is to restore the social safety net.

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

Mr. Chabot, please.

Mr. Luc Chabot (Professor of Toxicology, University of Montreal, Canadian Centre on Substance Abuse): Mr. Chairman, ladies and gentlemen, it is a pleasure to be here this afternoon representing the Canadian Centre on Substance Abuse to present the views of all those involved in alcohol and drug addiction prevention in Canada and Quebec. They may well be in keeping with the intentions expressed in the description of the Department of Finance's new budget, a budget that is apparently intended to represent a significant milestone in the long-term process of building a strong economy and a safe society here in Canada.

It also stated that the government would be taking action with respect to both the economy and its social priorities. It is this latter point which I would like to address this afternoon. I would like to try to demonstrate that addiction, or what one could call dependency behaviours, have become considerably more prevalent in all segments of our society. Nowadays, we're talking not only about the substances themselves but the whole pathology associated with them. It is essential that all sectors dealing with substance abuse be supported by the federal government and that they be included in its plans for the next budget.

To begin with, I would like to try and provide a brief overview of the current situation, without overwhelming you with figures. A lot of effort has been made in Canada to try and gain an understanding of a couple of different things. The latest facts are alarming. The most recent data shows that despite all the effort that has been made in relation to alcohol consumption, we have been unable to reduce consumption among adults, and among young people, we are seeing that 11% of high school students still have dangerous levels of alcohol consumption. Those figures are from the Ontario Drug Addiction and Mental Health Centres.

Epidemiological studies that both Health Canada and Health Quebec have followed up on reveal that rather than declining among young people, drinking is actually on the rise. Harmful consumption is also on the rise. Among young people, 6.5% say they can't stop taking drugs. So, it is clear that the phenomenon of substance abuse is still very much a factor in our society and in the future society we are trying to build.

Other facts may well give almost as much cause for concern. Looking at the years from 1997 to 1999, one notes an increase in marijuana use from 24.9% to 29.2 per cent. Among young people who have used it, 21% used it more than 40 times in the course of the last year. As a society, we are trying to play down the importance of this problem, and yet we are seeing increased use of marijuana among young people, something that must certainly be of concern given the kind of problems that can result.

I am going to touch on that to some extent in addressing the issue of the related social costs. Among young people who use marijuana, 57% showed signs of addiction at the time of the assessment. We are all familiar with the chain reaction that occurs when people become dependent on cannabis and how they can move on to use other types of drugs.

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Of course, we also have to take a close look at tobacco use, if we're talking about psychoactive substances. The Government of Canada has made a considerable effort in that area, but this is no time to give up. We must continue to invest in anti-tobacco programs, as the data clearly demonstrate. This is a fundamental choice that our society will have to make if it wants to guarantee our future. In 1991, we found that 21.7% of the Canadian population smoked, and that figure remained stable until about 1997. However, the latest data indicate that the percentage has risen to 28.3 per cent. The smoking rate among the general population is very variable. We unfortunately see a significant proportion of smokers among young people: up to 41.7% of Grade 11 students smoke. Our young people are using excessive amounts of tobacco, even though we are aware of all the related problems and future social costs of their actions.

It is important to emphasize that prevention campaigns are effective. The number of smokers wanting to quit smoking has risen from 55 to 66 per cent. We have to put structures in place to encourage people to stop using tobacco, including methods of intervention that help smokers to break their tobacco dependency.

We also note that psychoactive substances are evermore readily available these days. Polls conducted in high schools in Canada show that 23% of students believe that drugs are a significant problem in their school. These are data that should cause concern among Canadians.

I could give you many other examples. I will only mention the increases noted between the 1993 figures and our most recent data as regards the eight categories of drugs most often used in Canada: alcohol among young people—the society of tomorrow—from 56% to 65.7%; episodes of excessive alcohol use, from 17.7% to 28.2%; cigarettes, from 23.8% to 28.3%; cannabis, from 12.7% to 29.2%; PCP, from 0.4% to 4.8%; cocaine, from 1.5% to 4.1 per cent. As you can see, the figures are rising across the board.

We can also look at the problems underlying the dependency issues. Socio-economic evaluations conclude that the social and other costs related to use of both alcohol and drugs in Canada amount to approximately $18.4 billion. Trade in illegal drugs amounts to approximately $560 billion annually, which is more than the combined value of trade in both petroleum and gas products, which is $360 billion. We are part of an economy where the problems are both glaringly obvious and serious. We have to continue to take steps to counter the current situation, which is growing steadily worse.

The increasingly prevalent problem of heroin addiction should also give rise to concern among members of our society. The most recent investigation carried out in the three major Canadian cities—Vancouver, Toronto and Montreal, showed that some 12,000 heroin addicts are shooting up in each of those three urban centers. And that figure does not include people using heroin other than by injection. In Vancouver, there are as many as 14,000 heroin addicts, resulting in social and medical problems that are extremely difficult to cope with. One obvious example would be the transmission of diseases such as Hepatitis B and HIV. Methadone treatments can cost between $2,000 and $4,000 per year for a heroin user. If that person comes into the judicial system, it costs $50,000. If that individual becomes infected with AIDS, the cost of care is $150,000—and we're talking about a contamination multiplier. We have already done a lot in the public health field, but it's important to continue to be vigilant and invest in that area.

We could spend the whole afternoon looking up and analyzing these statistics. The goal of the Canadian Centre on Substance Abuse is to demonstrate that the federal government must maintain, indeed expand its leadership role with respect to addiction prevention. We need to invest in the creation of a Canadian Addiction Research Centre, which is in fact one of the recommendations that emerged from previous health forums.

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Here in Canada, we invest 25¢ per capita in research, and yet last weekend, while attending the convention of the American Society of Psychoactive Substances in Orlando, I learned that the U.S. invests US $2.25 per capita. A fair assessment of the situation here in Canada would already be an important first step.

An adequate budget is needed to foster Canadian leadership on the world stage. I believe all the major societies are grappling with the serious problem of drug addition. It has become a major issue for society as a whole.

I recently went to Geneva, Barcelona and France on a mission with the Minister responsible for Health and Social Services in Quebec. We noted that our societies were concerned by the same issues. They are issues that will have consequences for our future and that we believe the Standing Committee on Finance must be alive to. We must continue to actively fight substance abuse and maintain, or even increase current budgets for such programs.

Thank you.

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

Mr. Vaillancourt, please.

Mr. Gilles Vaillancourt (President, Coalition to Renew Quebec's Infrastructure): Thank you, Mr. Chairman. Members of the Committee, ladies and gentlemen, I am accompanied today by Mr. Martin Lapointe, an engineer, who will be able to answer any technical questions you may have.

I would first like to thank you for your invitation and thus for this opportunity to demonstrate the connection between a country's productivity, on the one hand, and the state of its infrastructure, on the other.

My colleagues in the Coalition represent the municipalities, experts, builders, suppliers, employers and unions. All of these major players in the political and economic life of Quebec are extremely concerned about the deterioration of our infrastructure, whether we're talking about sewer and water systems, bridges or roads.

We recently conducted a survey of the population. People were almost unanimous in sharing our conviction that the country's infrastructure absolutely must be rehabilitated. If citizens agree with us, it is for two reasons. First of all, they see the current state of our roads and they regularly hear disturbing media reports about water losses from sewer and water systems. Also, the average citizen knows full well that if he doesn't maintain his assets, it will cost him more to make repairs subsequently than if he had looked after them properly. It's just common sense.

I also want to point out that 95% of citizens are demanding that governments and municipalities invest in infrastructure, even though in recent months, these same citizens have refused to devote substantial sums of money to sport clubs or businesses, for example.

From a purely political point of view, this consensus sends a very important signal. People want to invest in their collective heritage and be sure that they will be able to hold on to it.

However, the political aspect of rehabilitating our infrastructure should not be allowed to eclipse the objective economic data that also clearly support a vigourous long-term investment program in this area.

The infrastructure of Canadian municipalities as a whole represents a significant part of our heritage—a collective wealth, the construction of which was estimated to have cost $200 million, although the cost of replacing it now would be far greater. So, this is an essential asset that society has a duty to protect.

A variety of economic studies clearly point to the fact that investments in public infrastructure foster economic growth and stimulate private sector productivity. Indeed, it is quite obvious that slower transportation as a result of bad roads and highways is harmful to economic growth, not to mention the increased cost of maintaining and repairing vehicles.

Also, the collective wealth that our national, regional and local roads constitute must be protected by the various levels of government responsible for them.

The poor state of our water and sewer systems is resulting in a lower quality of water, a need to produce increased amounts of feedwater, increased pumping, filtration and chlorination costs, a higher risk of back-up and flooding, more capacity for treatment plants and increased energy use for pumping. All these consequences lead to significantly lower quality of life and constitute an important restriction on the development of our local communities.

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As early as 1984, the Federation of Canadian Municipalities concluded that municipal infrastructure all across the country was rapidly deteriorating and that rehabilitating that infrastructure would require a substantial injection of capital. At the time, the figure mentioned was $12 billion. More recently, a study conducted by McGill University in 1996 set the infrastructure deficit at almost $44 billion in Canada, including approximately $11 billion in Quebec, using a very cautious distribution formula based solely on the province's demographic load.

The results of two recent studies carried in 1997 by the National Institute of Scientific Research for the Quebec Ministry of Municipal Affairs confirmed those findings.

However, given that this assessment was based on a comprehensive replacement scenario and that restoration will be possible in certain cases, an 85% capital injection, representing a budget of approximately $9 million a year over 15 years, is far more realistic.

I do not intend to try to give you an idea of the exact amount of infrastructure investments that would be required, preferring instead to give you an idea of the scale of these investments. For example, if we are considering replacing 1.25% of the total length of water supply lines in Quebec, it will take us more than 80 years to replace the entire system, which is already between 35 and 65 years old. That rate of rehabilitation would already be four to five times higher than currently, since only 0,25% of the total length of our water lines is being replaced. The current rate amounts to replacing the water system only once every four centuries.

In Canada, a conservative assessment puts the amount of investments made thus far in water and sewer systems at $9 billion. If we add the road network, we should expect to have to spend some $15 billion over a 15 year period, because the current state of the road system is just as alarming.

In Quebec, requirements for that system are estimated at more than $600 million per year in the Quebec Ministry of Transport's 1995-2000 road management plan. And yet, that assessment does not reflect work aimed at adapting the system to demand. Excluding those requirements associated with adapting the system to current demand, this same budget analysis shows that only 64% of requirements were met in 1995-96 and that rehabilitation efforts declined even more in 1996-97, falling to barely 58 per cent.

Looking now at the local and urban system for which the municipalities are responsible, if we take the example of the Census Metropolitan Area (CMA) of Montreal, which includes 111 cities, total investments needed for reconstruction purposes have been set by the Centre d'expertise et de recherche en infrastructures urbaines (CERIU) at $132 million a year over a five-year period.

Up until now, no study has defined the level of investment required to stabilize current deterioration and upgrade local and urban roads in some 1,400 towns and municipalities across Quebec. However, based on the results of the CERIU study using the Montreal CMA sample, some $360 million annually would be needed over the next 15 years to upgrade the 78,167-kilometer local and urban system. Based on this budget, only about 25% of the system could be restored or rebuilt.

Now let's talk about productivity. A study commissioned in 1985 by the Quebec Union of Municipalities on the macro-economic effect of accelerated spending on municipal infrastructure concluded that if the federal government took part in a tripartite program, it would recover most, if not all, of its investment, through increased tax revenues in the form of personal income tax and GST, as well as reduced welfare payments and employment insurance benefits.

Indeed, as well as helping to improve our infrastructure and quality of life, boosting economic growth and stimulating private sector productivity, the contribution of both the federal and provincial governments, each of which would contribute a third, would be offset by approximately equivalent tax revenues—that is, about 30¢ on every 33¢ invested; this would mean that 90% of the federal government's investment would be recovered, and that 24¢ out of every 33¢ invested—in other words, 70%—would be recovered by the provincial government. The net cost for governments would therefore be practically nil, given the spinoffs of such a program.

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In addition, these investments, which would cost governments practically nothing, would boost our industry's performance level. With the limited time I have today, I am not in a position to provide details regarding the many benefits of such a scheme for our businesses.

I would simply like to use the example of the trucking industry, which is the backbone of most industrial activity. The transportation demand has been rising steadily since the 1980s, while road system investments have been in sharp decline, according to a number of indicators. Our highway stock declined from 12% to 7%, in relation to the size of our economy, between 1961 and 1993, and the rate of highway investment relative to gross domestic product has dropped by 2.5% since 1961.

Last June, President Clinton signed the Transportation Equity Act, under which $217 billion will be invested over the next six years to rehabilitate the transportation infrastructure. The Coalition is of the view that as a trading nation, Canada must support these marketing efforts and open up to global markets, just as its main trading partner and competitor, the United States, is doing. If we do not want to lose our valuable assets, it is essential that our governments work together to ensure the preservation of our infrastructure and that they invest the required funds to that end.

In addition to fostering in a tangible way the development of interprovincial and continental trade, these investments would result in lower car and truck fleet maintenance costs, fuel costs and product and commodity costs, less pollution and fewer accidents. They would also increase tourism, trade, economic growth, foreign investments on Canadian soil, international competition through greater efficiency, employment and technological development.

We believe that as provided for under the American model, it would be appropriate for the Canadian government to establish a road infrastructure development and maintenance program in cooperation with provincial governments. This would allow the federal government to attain a number of its objectives, including supporting for economic growth, trade and tourism via an infrastructure adapted to our modern needs, strengthening our determination to increase productivity, and improving our quality of life, all at minimal cost for governments.

It would also mean that there would no longer be this negative differentiation between Canada and other countries. Indeed, Canada is currently the only G-7 country not to have a long-term infrastructure investment strategy. The OECD recommends that countries invest 2% of their GNP in their infrastructure. Canada barely invests .6 per cent. These figures clearly demonstrate the additional effort that is required if we want to remain competitive.

Ladies and gentlemen, that is a brief summary of the views of the Coalition to Renew Quebec's Infrastructure in relation to productivity.

Thank you for your kind attention. We are now available to answer your questions.

The Vice-Chair (Mr. Nick Discepola): Thank you very much. Colleagues, you will each have seven minutes of speaking time.

Mr. Forseth.

[English]

Mr. Paul Forseth: Thank you very much.

First, to the representative of the Quebec Employers Council, Mr. Taillon, your emphasis on tax relief is pleasant music to my ears. It is certainly what we in the Reform Party, as official opposition, advocate, and what we want the finance minister to prefer. We wanted these changes from past budgets. It sounds as though you advocate a similar view. You may know that we in the Reform Party are advocating a 25% reduction in personal income tax.

In view of what you've said, maybe you can specify clearly what is your number one priority and then perhaps characterize philosophically how, in basic priorities, the next budget should be different from the last one. You did mention a mix of changes, but what change is your number one change, and why?

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[Translation]

Mr. Gilles Taillon: You're right, Mr. Forseth: basically, our position is quite close to that of the Reform Party. Our number one priority is cuts to personal income tax, and we would like to see 50% of the budget surplus, estimated by the Minister of Finance to be $9.5 billion, to be devoted to that. Lower personal income tax is the number one priority of business people in Quebec. The last three polls we conducted of our members clearly indicate that for reasons of both economic growth and business development, they view cuts to personal income tax as a top priority.

Our ability to retain a top quality labour force depends on it. So does our ability to prevent the brain drain. This is absolutely essential to ensure that both Quebec and Canada enjoy acceptable economic growth.

[English]

Mr. Paul Forseth: Thank you very much.

The Vice-Chair (Mr. Nick Discepola): He didn't say he was voting Reform.

Mr. Paul Forseth: Well, I expect they'll be campaigning for us in the next election.

I'd like to direct a question to the representative from the Canadian Centre on Substance Abuse.

In looking at the social costs of the tragedy of substance abuse, what budget changes could the finance minister make in the next budget to encourage lifestyles that do not need your type of resources? Certainly we recognize the need for education prevention and also after-care treatment programs, but what can a federal budget do to discourage individuals from ever getting involved in substance abuse in the first place?

[Translation]

Mr. Luc Chabot: Mr. Forseth, this is something people all across Canada are reflecting on; our aim is to lower those first dangerous uses of an illegal or legal substance among Canadians. The best strategy as far as that goes would be one of prevention. With the resources currently available to us, we are trying to carry out a kind of across-the-board prevention.

The latest studies showed us that prevention among adolescents was somewhat ineffectual. We have to work on prevention much earlier in the life of an individual—in other words, when he is still in primary school. The latest longitudinal studies show that risk predictors are now identifiable at a very young age. If prevention is begun at a very young age, there is a greater chance that individuals will not start using these substances to begin with.

All these things are very closely related: prevention, treatment, screening and research. We are not dealing with a static situation. Psychotropic substance use in Canada is very dynamic. New substances are increasingly available. We're operating in an evolving context, an evolving society, and young people are not the same as they were five or ten years ago.

Unfortunately, we are currently in a reactive phase. I think we must continue to devote energy and resources to this area, indeed even increase funding. At the present time, it is receiving only minimal financial resources.

[English]

Mr. Paul Forseth: I have one more question.

To the representative on behalf of the infrastructures, Mr. Vaillancourt, do you have recommendations on mandating that a specific, large share of automobile gasoline tax at the retail pump be designated to highway construction?

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You've no doubt heard of those kinds of proposals in the past. If you advocate that type of policy, how should it be done? What is your advice on a gas tax for roads rather than it going to just general revenue?

[Translation]

Mr. Gilles Vaillancourt: We have not given any thought to mechanisms the provincial and federal governments could potentially use to fund their portion. Other provinces have already taken initiatives—in particular, British Columbia, which has already decided to fund both maintenance of regional highway systems and mass transit by means of dedicated gasoline taxes. Although the legislation is relatively recent, it seems to be working very well in British Columbia and has led to a certain amount of jealousy in the rest of the other Canadian provinces where the two levels of government have not decided to take similar steps. In fact, in British Columbia, it is mainly the provincial government that has gone ahead in this area.

We would have no objection—indeed, quite the opposite—to the idea of setting aside funds for the maintenance and rehabilitation of highway infrastructure. Of course, it's possible water and sewer systems would not be funded in exactly the same way, but it is worth looking at this model more closely before we rule it out.

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

Mr. Loubier.

Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): Mr. Chairman, in order to make the most of my speaking time, I intend to ask a series of questions of our witnesses and then give them time to respond. That way you won't cut me off in mid stream, as you did this afternoon.

I would first like to ask Mr. Taillon or Mr. Garon to tell me where they got their ideal debt-to-GDP ratio, which appears to be 25 per cent. That seems rather low to me. Based on the rate at which we are currently repaying our debt, we will reach our target in about fifteen years.

Mr. Jacques Garon: We are not talking about any specific target. We are simply saying that as long as we have a debt of almost $600 billion—or $580 billion, to be precise—even if we're spending $40 billion just to service the debt, it's going to take a very long time to lower that ratio.

Three or four years ago, Mr. Martin suggested that a very mid-term target would be 40 per cent. Our data come quite close to that; after five years, we're not at 40%, but rather at 46 per cent. The problem is that with a debt-to-GDP ratio of 46%, we are still devoting almost $40 billion to debt servicing.

That's why we believe that in order to ensure the long-term viability of the social services we want to provide now, we may have to agree to a ratio much lower than 40 per cent. What is important is not only the ratio, but the need to spend fewer billion dollars servicing the debt.

Mr. Yvan Loubier: Thank you.

Mr. Laviolette, I was particularly interested in your table on page 11 showing the multiplier effects of various tax measures.

I would like you to explain how you arrived at those figures. Do you have any technical references? I find this quite interesting.

Mr. Marc Laviolette: The multiplier effects were calculated by the firm Informetrica; their table has been reproduced here.

Mr. Yvan Loubier: Did they prepare that this year?

Mr. Marc Laviolette: Yes.

Mr. Peter Bakvis (Assistant to the Executive Committee, Confederation of National Trade Unions): This is a table found in a document the Member may already have seen called “The Alternative Federal Budget”. The CNTU is part of a group which puts together this document under the guidance of the Canadian Centre for Policy Alternatives. We used Informetrica's projections or calculations. At our request, they updated this table for the purposes of our brief. So, it is very recent.

Mr. Yvan Loubier: My next question is addressed to the UPA. Your Table 3 presents ESP calculations. Does this ESP calculation include the dairy sector ESP, or did you eliminate it?

Mr. Gilbert Lavoie: It includes not only direct supports, such as transfer payments, but direct and indirect supply management program supports.

Mr. Yvan Loubier: I see. Has the federal government indicated its intention, based on the result you show here with respect to income support payments, to report at the opening session of the WTO negotiations in Seattle on the measures taken by various countries to abide by the 1994 Uruguay Round agreements? Will the federal government's first move be to report on the actions taken by various countries and then point to the fact that Canada has fulfilled its obligations, while the majority of the other countries have not?

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Mr. Gratien D'Amours: It's difficult to answer that question. As far as I know, there has been no announcement to that effect. We tried to ensure that all Canadian agricultural organizations would adopt a common position. These data are the basis of our argument. There is a need to assess the commitments made during the last round of negotiations. We are well aware of the fact that Canada made commitments that it has honoured, and that its trading partners, particularly the United States, have not honoured their commitments.

That would certainly be a worthwhile initiative, because the only way of knowing whether the commitments have been honoured is to actually proceed with this kind of assessment.

Mr. Yvan Loubier: Thank you.

Mr. Chabot, I would like you to send us the statistics you referred to on the evolving situation as regards substance abuse and addition. I would also like to get an idea of the magnitude of the financial resources governments are currently devoting to control of substance abuse.

Mr. Luc Chabot: From memory, I can tell you that Quebec has a budget of $60 million for the entire substance abuse/addiction portfolio.

Mr. Yvan Loubier: And does that include measures to control traffickers?

Mr. Luc Chabot: The law enforcement component is normally a responsibility of the Justice and Public Security Ministry and its budget is not included in that. The $60 million is under the budget of the Health and Social Services Ministry.

As for the costs across Canada, I'm sure I could send you some statistics on that.

Mr. Yvan Loubier: I'd appreciate that. Thank you.

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

[English]

Mr. Pillitteri, please.

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

To the agricultural producers, I find it maybe a little bit odd in your presentation that with the support given to agriculture by the European Common Market and the U.S. and the lack of support here in Canada, a tax cut would make a difference.

Your position is a little different from that of other parts of Canada, specifically Ontario, where there's a lot less supply management. Here in Quebec you have almost half of the supply management in Canada in the dairy products. I do know that within the milk production, milk producers.... There's also supply management in feathers. They've all been making money in the last decade, because it is a market that is shielded from competition from the outside. Actually, only about 7% of the total market is open to tariffs from outside.

In light of that, I find that making that tax cut is not an issue with them. This would be the number one issue, that they would want more tax cuts, because you're making money.

On the other hand, I could see the western side, because they're dealing with commodity prices. We know what has happened in the world, and it has really been quite devastating in the last few years. This is where heavy subsidies are occurring more and more between the Europeans and Americans. It does not have much of an effect on supply management.

If we do not call for a tax cut, do you honestly believe there could be enough money going into it—actually, there has only been a couple of billion dollars to spare—that really would make up the difference in supporting agriculture, that putting that back in agriculture would make that much difference?

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There's one more thing, and correct me if I'm wrong. You said that 40% of agricultural income comes from woodlots. I don't even consider that to be part of agriculture, and other parts do not include woodlots. That's one part of the question.

While I'm at it, I might as well follow up on the other part of the question. This is to Mr. Taillon. You said you had some agreement with Mr. Forseth from the Reform Party about having 25% of the surplus go toward the debt, 25% in expenditures, and 50% in tax cuts. Isn't that a short route? Wouldn't that contradict what Mr. Garon said, that the short route gain is by having the 50% tax cut rather than having more of what you would call debt reduction, because in the long term it would benefit more? How do you account for the two statements? One contradicts the other, really, because servicing a debt is long term, whereas a tax cut is more short term.

Thank you.

[Translation]

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

Mr. Gilbert Lavoie: To answer the first part of the question with respect to supply management in Quebec, there is no doubt that supply management is important in Quebec, but you have to remember one thing. The example I have in mind is the pork industry. It's important to remember that Quebec is responsible for more than a third of Canadian pork production, and that this product is traded on a free market. So, there is no barrier there in terms of trade with the Americans.

You also talked about the European Union. We referred to the European Union only to provide some sort of perspective in relation to the other examples, but our main focus was the United States, which has always claimed to be a free trader and was a vigourous advocate of free trade during the last round of what at the time was called the GATT, but is now known as the WTO. They were talking about deregulating the agricultural industry and abolishing all subsidies, trade barriers or protectionist measures, be they internal support measures or export subsidies. But after preaching that philosophy, they turn around and do exactly the opposite. That is creating problems for us because it has a direct impact on our domestic prices here in Canada. That is the real point we were trying to make.

As regards supply management, I just want to remind you that there pork products as well as other commodities that are traded freely with the Americans.

The UPA works closely with the Canadian Federation of Agriculture and is very much aware of the problems facing producers in Western Canada. To that end, we sit on the National Income Security Advisory Committee—the committee that has been mandated to advise Minister Vanclief on future policy directions. I can assure you that this whole debate with respect to support levels here as compared to the U.S. has already taken place and that recommendations have been made in that regard.

At the last meeting, which took place last Friday, the Advisory Committee made recommendations in response to increased American support for its agricultural sector, which will result in lower commodity prices and increased government assistance under support and income security programs, particularly a program called NISA.

Those are essentially the comments we wanted to make today.

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

Mr. Taillon, please.

Mr. Gilles Taillon: I don't believe there is any contradiction between what I said and Mr. Garon's comments. In the short term, if we want to stimulate both the economy and consumption and reduce household debt, a 50% cut in personal income tax is needed. After five years, we will almost be on an equal footing with our neighbours, our main trading partners.

It is also important to tackle the debt problem now, because by paying it down we will be spending less to service the debt. Over the next five years, we should be aiming to achieve a debt-to-GDP ratio that is as close as possible to 40%, and in the long term—in other words, in 10, 12 or 15 years from now—achieve a ratio closer to 25 per cent.

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So, in the short term, we are recommending lower taxes to give an immediate boost to the economy. We also think the government should immediately begin implementing a debt pay down plan by setting a ratio target of 40% in the mid-term, and 25%, in the long term.

The Vice-Chair (Mr. Nick Discepola): I would like to get a clarification, just to be sure that I understood you correctly. You are not suggesting that taxes be cut by 50%, but rather that we use any surplus.

Mr. Gilles Taillon: Yes, of course.

The Vice-Chair (Mr. Nick Discepola): I just needed that minor clarification.

Mr. Gilles Taillon: Maybe you have some figures we are not aware of.

The Vice-Chair (Mr. Nick Discepola): You already gave us some.

Mr. D'Amours.

Mr. Gratien D'Amours: I would like to respond to the second part of Mr. Pillitteri's question with respect to agricultural producers involved in forestry. Thirty-five per cent of agricultural producers have woodlots that they operate. During my presentation, I referred to the significant support for forestry the federal government used to provide but has since abandoned. Forestry management programs resulted in investments that did a lot to develop the rural areas. It's important to remember that agriculture is the economic engine of the rural areas. By investing in forestry, the government was investing in the rural areas, in order to allow people to continue to live there. There is a serious depopulation problem in rural areas and that is why it's extremely important to support all the resources there, including agriculture and forestry.

If you don't mind, I would just like to make a few comments with respect to supply management, which has already been referred to here and was the subject of in-depth discussions at the last round of WTO negotiations. It's important to be aware of its value; this is a system that allows producers to receive a certain market price for their products, which eases the burden on the public Treasury. It is an excellent regional development tool, because it allows a whole group of regions to receive the same price for their products.

Strictly speaking, even though people say there is no supply management in the U.S., a form of supply management exists there through the large conglomerates. Big companies operating in several different production areas tend to control overall production and manage it based on need, demand or consumption. Officially, there is no apparent management system. But that is what happens in practice.

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

[English]

Mr. Gary Pillitteri: Thank you, Mr. Chairman. I just have to follow this up.

I support supply management. I am a farmer. I am not part of supply management, but I do understand their plight. Specifically, do they want a tax cut, yes or no?

That's all. Thank you.

[Translation]

The Vice-Chair (Mr. Nick Discepola): Thank you, could you give a yes or no answer?

Mr. Gilbert Lavoie: We're not opposed to it.

Mr. Gratien D'Amours: No, we're not opposed to it, although our top priority is still investment.

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

Mr. Nystrom.

The Hon. Lorne Nystrom (Regina—Qu'Appelle, NDP): I would like to put some questions to Mr. Laviolette and Mr. Taillon, whose organizations seem to have rather different positions. Obviously, I support the position of the New Democratic Party, Mr. Chairman.

Mr. Taillon, you almost forgot to deal with social programs, including transfer payments to the provinces for health care. As you know, three or four year ago, Mr. Martin made major cuts to transfer payments. You have recommended stimulating the economy by using 75% of the surplus to pay down the debt and lower taxes. How many jobs would be created if we decided to take that approach? I would like Mr. Laviolette to answer the following question after that.

A majority of polls show that most Canadians are in favour of a balanced approach in terms of tax cuts, debt repayment, increased investments in the areas of health and education, programs for the homeless and other social programs. You seem to have forgotten to address that important issue.

Mr. Gilles Taillon: We didn't entirely forget to deal with social programs. Our brief talks about health and education, but we addressed it in relation to the budget issue—to make the Chairman happy—and there we recommended that 25% of the surplus be used to fund programs or investment.

We believe tax cuts are the best way of creating jobs, as has been demonstrated by those countries and governments that have acted along those lines. The unemployment rate in Ontario is now declining significantly. In the United States, it is very clear that tax cuts have stimulated consumption and created a climate favourable to employment.

• 1550

We are a lot more wary of programs that result in increased public spending to the point where governments get too big. When that happens, unemployment rates rise to high levels and the employment situation can be problematic.

If we want to create jobs, it is important to move ahead with tax cuts. If we favour equity between the generations, we have to concern ourselves with the debt. We also think certain investments are needed, particularly in social programs, but any such action must respect federal and provincial areas of jurisdiction here in Canada. Some powers rest with the provinces, including health and education. We think the solution here is to transfer money to the provinces for programs such as these.

Mr. Lorne Nystrom: Transfers for education and health care are a federal responsibility.

Your recommendation to the Committee was that 50%of the budget surplus be used for tax cuts, 25% for debt repayment and 25% for productive investments, a very small portion of which would be directed towards social programs. That's not a lot of money.

Mr. Gilles Taillon: You're right; it's not much.

Mr. Lorne Nystrom: In terms of job creation, would it not be more effective to increase spending on health care, as Mr. Laviolette was suggesting?

Mr. Gilles Taillon: We prefer to base our opinion on past experience, rather than on studies. It's a well-known fact that one of the last governments to undertake a major public spending initiative and make substantial investments in order to support programs found itself facing a serious deficit in terms of employment. I'm referring to the period when Mr. Rae was the Premier of Ontario.

Countries that make excessive investments in social programs and the public sector—I don't mean the ones that don't invest anything, but rather those that invest too much—end up completely draining the Treasury. This is something that concerns us, which is why we have suggested 25 per cent.

Mr. Lorne Nystrom: Mr. Laviolette, do you support that trend towards reform? And here I don't mean reform with a capital “R”.

Mr. Marc Laviolette: Absolutely not. Indeed, you'll find information in our brief with respect to job creation: tax cuts of $1 billion would result in 9,000 jobs being created, whereas if we spent the same amount on health care or education, we would create 24,000 jobs. When Mr. Rae increased his government's spending, he did it right in the middle of a full economic recession brought on by high interest rates.

However, take the example of a country like Sweden: it has one of the highest tax rates in the world, and yet it is one of the most productive countries in the world. So, that example clearly demolishes the theory people are pushing with respect to tax cuts.

Why is there less unemployment in Ontario than in Québec? Well, it's because of the strength of the American economy and the investments being made in the automobile industry, particularly as a result of the low Canadian dollar and the comparative advantage we have here in Canada with our health care system. In the U.S., it cost GM $1,200 in group insurance in 1995 for every automobile it manufactured. I have a hard time understanding the arguments being advanced by the Conseil du patronat, because by investing less in areas such as health care, we increase production costs, since companies have to compensate through group insurance plans. We conducted a study at the Bridgestone-Firestone plant in Joliette and estimated that group insurance was costing the employer $110 per worker per month, whereas in the U.S., this insurance costs $800. That kind of gap sharply increases production costs.

Also, I'm always a little wary when I hear employers defending the idea of tax cuts for ordinary taxpayers. I find that rather odd, because we all know that when taxes are cut, the people that benefit most are those with high salaries, not ordinary workers.

Here in Quebec, between 52% and 54% of taxpayers have yearly incomes of $20,000 or less. So, it's pretty clear that the middle class is carrying a substantial portion of the tax burden. The problem lies not with that group, but with those making $20,000 a year. What can we do to help those people increase their income?

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If we make substantial tax cuts, what kind of future will we be reserving for today's youth? The fact is young people are fewer in number in terms of demographics. What will that mean for them in the future? Taking on the social security costs we are currently paying; that means either more taxes or fewer social programs. That is the future today's young people will have to look forward to.

In terms of the debt-to-GDP ratio, I can only quote the Minister of Finance himself, a Liberal, who said:

...pursuing a strategy of growth is also the best way to ease the debt burden.

The debt is no longer growing. In Canada, we are even bringing it down and there is economic growth. It's purely mathematical: the ratio is dropping. In fact, the debt-to-GDP ratio fell from 71.2% in 1995 to 64.4 per cent. It happens automatically.

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

Mr. Taillon.

Mr. Gilles Taillon: I would like to respond, if it's all right with Mr. Nystrom and the Chairman.

First of all, I wanted to say to Mr. Laviolette that we are not recommending less investment in health care, but rather a slight increase. We would not like to see more of an increase than what we are suggesting, for the reasons I've already explained. We know that it's not just a matter of investments in health and education. The way the systems are managed is also an important consideration.

The Quebec Minister of Finance injected $1.4 billion into the health care system in his last budget. That is not going to result in much of an improvement. Things are not really much better now than they were before. This was done partly to eliminate deficits, but there are still deficits and they are growing faster than we think. So, we have to be careful.

My second point would be that while we agree the debt is important and that economic growth will mean a higher denominator, we also have to work on the numerator—in other words, the repayment side. We want to one day eliminate the debt, but it simply isn't true that economic growth alone—the denominator, in other words—will magically make it disappear. We don't believe that.

The Vice-Chair (Mr. Nick Discepola): Thank you very much, Mr. Taillon. I have four other colleagues who want to ask some questions.

Mr. Brison.

[English]

Mr. Scott Brison: Thank you, Mr. Chairman, and I thank all the presenters today for their interventions.

My first question is for Monsieur Laviolette. Do you feel that we are not affected by global factors, the fiscal situations or tax strategies of other countries? Do you feel that those are not relevant in terms of our choices here?

[Translation]

Mr. Peter Bakvis: No, we don't believe that at all. We hear a lot of arguments based on comparisons between Canada and the U.S. But if we're going to make comparisons, then let's compare apples with apples. Comparing the benefits provided by the Canadian government to those provided by the U.S. government is like comparing a Lada and a Cadillac. They're two completely different cars and there is no comparison between what you have to pay for them. Here we fund health care and a substantial proportion of educational costs. Universities in Quebec have much lower tuition than anywhere in the United States. All of these things are funded through taxes. So, it's important to look at what you're getting in return.

We recently presented a long brief to the provincial government. People claim that Quebeckers are taxed a lot more than people living in other provinces, but when you compare Quebec to other OECD countries, you see that we're actually somewhere in the middle. And Canada as a whole is below average.

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So, we are certainly not saying that we should ignore what is being done elsewhere.

[English]

Mr. Scott Brison: So you would agree that it's important to compare with other countries, for instance, within the OECD.

I think it's important for you to recognize that we have, for instance, the second-highest corporate taxes of the OECD countries. Last year we were the third highest, but Germany, a social democratic country, has chosen to reduce corporate taxes.

I think it's important for us to look at other social democratic governments, including Labour in Britain, which again is holding the line on government spending and is, at least ostensibly, committed to prudent debt management and tax reduction.

You believe a public sector economy or the public sector is a much better vehicle for economic growth than the private sector. Wouldn't the logical corollary of your argument or the extension of that argument be that we'd be much better served if we were not to have a private sector, if we had a completely public sector economy without those horrible profit-seeking enterprises out there?

[Translation]

Mr. Peter Bakvis: No, you are assigning motives here. Where in our brief do we say that the private sector should be replaced by the public sector? I'm sorry, but it's a little difficult to respond to statements like that which can't be taken seriously.

With respect to the corporate tax burden...

[English]

Mr. Scott Brison: I was quite serious.

[Translation]

Mr. Peter Bakvis: Really? But where in our brief does it say we want the public sector to replace the entire private sector? Could you show me where it says that?

[English]

Mr. Scott Brison: No, but the fact is, in a global situation, in a globally competitive environment, the focus on effectively maintaining a higher tax burden in Canada than exists in other countries will ultimately lead to that conclusion. Capital and people are very mobile today, and governments operate within the parameters and constraints that are globally recognized. I would suggest that it's certainly a bit of a Luddite perspective to not recognize the market discipline if we in fact accept that we do exist and stand to prosper in a market economy.

[Translation]

Mr. Peter Bakvis: No, but I can give you a partial answer. As I said earlier, yes, we do need to compare ourselves to the rest of the OECD.

The Member's logic would suggest that here in Canada, we should consider doubling our payroll/social security taxes because they are lower here than in other OECD countries. A certain amount of rigour is required when comparing the tax burdens in various countries. Let's look at everything—not just corporate taxes, but also the kind of services I just talked about, and other things as well. Consumption taxes are also lower in Canada than in most OECD countries.

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

[English]

Mr. Scott Brison: Are you aware that U.S. governments spend a greater amount of money on a per capita basis on health care than Canadian governments do?

[Translation]

Mr. Peter Bakvis: Yes, but that's because it all goes through the private sector.

[English]

Mr. Scott Brison: No. I don't believe anybody around this table would advocate the U.S. health care system—I know I wouldn't. And I recognize that the public sector has a role to play in that area, but it's not really a fair argument to compare the health care system we have in Canada to that of the U.S. when we're trying to find arguments for why we shouldn't reduce taxes. The fact is, the U.S. health care system is inefficient, and they are paying a 15% premium because of a problem with their system. So it's not really a fair argument to use when denouncing tax reduction.

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[Translation]

The Vice-Chair (Mr. Nick Discepola): Please be brief.

Mr. Marc Laviolette: I don't know whether the Members read the newspapers from time to time, but the problem with our health care system is that we stopped investing in it. As a result, we're now in a position where we have to ask ourselves whether we should be giving pacemakers, for example, to older people. What happens is that healthy people end up deciding whether or not it's worth it to provide care to people who aren't in good health. I don't think that's the kind of societal choice we've made here in Canada.

To reach a zero deficit, we made cuts to our social safety net and now our first and foremost priority has to be to restore it. Secondly, we have to lower taxes. When the social safety net has been restored and we have taken steps to ensure its long-term viability, then we can continue to lower taxes. But when almost half of Canadian taxpayers are making $20,000 or less, we obviously have problems—not the least of which is to figure out what we're going to do with these people. They have to work; they have to have access to good jobs, and so on.

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

Mr. Gallaway, please.

Mr. Roger Gallaway: I have a question for Mr. Vaillancourt.

[Editor's note: Inaudible]... Bill 221 in the United States, because Mr. Clinton, I believe, was in favour of free trade between the U.S., Canada and Mexico. As you said, he will be spending more than $200 billion over the next ten years on the road infrastructure. In Canada, our response has been to do nothing.

When you look at the figures on free trade, it's clear that most of our country's exports—I believe almost 80% of our exports go to the U.S.—cross into the United States at three points on the Ontario border, which is quite interesting. But 35% of Quebec's exports are shipped via Ontario to the United States.

My question is quite simple. Could your association support a road infrastructure program, knowing that most of the money will be spent on highways in Ontario, even though the issue has less to do with highways than it does with trade between our two countries, and knowing that most of the funds will be spent in two provinces, Ontario and Quebec?

Mr. Gilles Vaillancourt: Our Coalition is asking that a national infrastructure program be put in place. So, we are in favour of a plan that would allow each of the provinces, from the Atlantic to the Pacific, to have their individual needs met.

Recently, directors of the Federation of Canadian Municipalities met in Prince Edward Island, whose road system is in terrible shape. In their case, the road system still constitutes their basic infrastructure.

So, wherever you are in Canada, the requirements are quite substantial in terms of infrastructure renewal.

Considering Canada's position in terms of quality of life—and the municipalities are very much at the heart of the essential values we associate with quality of life—we could attract researchers interested in improving the performance of our hospitals, universities and research centers through a variety of programs. But if the water coming through our pipes is not fit to drink, if we don't treat our waste water, if we don't look after our environment, if our roads are inefficient, and if our streets are not safe and well lit, none of what we have tried to achieve will actually materialize because we won't even be able to get someone who is sick to the local health center. In that sense, from a tax standpoint, we lag behind the Americans in terms of our competitiveness.

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I heard a number of people say that we have to invest in our young people. In my own family, some of our young people have chosen to be highly mobile and go and earn a living in other provinces or even in the United States, because there were better opportunities there. So, Canada is facing very stiff competition.

The American government and governments in other countries were not investing in the urban infrastructure, which was rapidly deteriorating. But for the past five years, the federal government and the American states have been investing enormous amounts of money in it.

Let's take one example: Boston. In Boston, the federal government and the State of Massachusetts have invested US $10.5 billion—and we're talking about real dollars—to restore Boston infrastructures to an exceptional level of quality and in so doing, create an exceptional quality of life there.

If, here in Canada, we continue to neglect our infrastructure, we will be real losers from a competitive standpoint, and I don't know what will happen then. We will basically lose our population base, because people will think that our strategy is to shut down Canadian business, while elsewhere, governments have moved ahead with a business development and maintenance strategy.

Mr. Roger Gallaway: Thank you.

The Vice-Chair (Mr. Nick Discepola): Mr. Gallaway, do you have any other questions?

Mr. Roger Gallaway: No.

The Vice-Chair (Mr. Nick Discepola): I'll have to yield the Chair to someone else, since I have a plane to catch at 4:45 P.M. I would ask Mr. Szabo to put his questions now, and Mr. Cullen to maintain some order, please.

[English]

Mr. Paul Szabo (Mississauga South, Lib.): Have a safe flight. Thank you, Mr. Chairman.

Mr. Chabot, I was very interested in your presentation. Having been on the health committee in the last Parliament and in the current Parliament, I've heard much of the information.

The Canadian Centre on Substance Abuse, however, is substantially funded by federal dollars. I don't want to put you on the spot, but do you think it is somewhat awkward for the Canadian Centre on Substance Abuse to be able to deal with the sensitive issues of alcohol and substance abuse generally when a government has policies that may not be consistent with the thinking of the people who work for you?

[Translation]

Mr. Luc Chabot: Of course, these are questions that can be very broadly interpreted. Our society is reacting to addiction problems as best it can, with whatever money is available.

In terms of the current situation, what experts are somewhat alarmed about is that we seem to be slowly giving up. We see all the effort being made, but at the same time people are singing the praises of a plan to legalize marijuana, among other things. I won't say the Canadian Centre has no position on drug policies, but many people are saying that the harm reduction policy in the U.S. has been a failure. So, people are reacting.

Unfortunately, the experts I represent have more of a tendency to believe that we should be reinvesting in this area to find different solutions for different issues and not believe that the substance abuse problem is one of no consequence. It is a significant problem.

[English]

Mr. Paul Szabo: I understand, and the concept of harm reduction is something I wrestle with a lot, because it really is saying we can't doing anything, so let's try to mitigate the downside.

Mr. Luc Chabot: Yes.

Mr. Paul Szabo: My final question has to do with whether or not the Canadian Centre on Substance Abuse has an opinion as to the efficacy or the propriety of the federal government spending dollars in conjunction, for instance, with the alcohol industry to promote responsible use.

[Translation]

Mr. Luc Chabot: Obviously, the Canadian Centre is in favour of any strategy that would result in a better society. So, if the Canadian government decides to provide money to liquor boards for prevention messages, that would in no way be contrary to the current position of the Centre's group of experts.

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It's also important to remember that the role of the Centre is not necessarily to take a position on such issues, but rather to try and fund better projects in Canada to deal with existing problems.

Of course, the situation is evolving. The issues change over time. I don't believe the Canadian Centre, which I'm representing today, would be opposed to a Canadian strategy along those lines.

[English]

Mr. Paul Szabo: Your response is quite diplomatic, and you are not in a position to say much differently. Unfortunately, my position would be that you don't put the fox in the chicken house. The objective of the alcoholic beverage industry is to make money for its shareholders. The objective of Health Canada is quite different. To try to somehow rationalize their ability to work together for a common purpose is ludicrous, in my view.

Quite frankly, it's about time we stopped linking our programs somehow to business and industry and had a strategy to address this and made an effort to address this, without falling into the harm reduction fallback. We need a strategy that would be supported by experts, such as your organization, about how we get to these kids.

Quite frankly, I don't see that having a Blue Jays or an Expos baseball player holding a Labatt's or a Molson's and leaning on a nice shiny sports car saying “Don't drink and drive” is really sending the right message. The kids didn't hear the “Don't drink and drive.” They're saying “Holy smokes! Look at that baseball player drinking Blue or Molson Ex!” There are different messages, and yet we actually put money into it.

I raise this because I think you're in an awkward situation, almost a conflict of principles—not a conflict of interest, but maybe a conflict of principles—because the funding agency happens to be the federal government, which has a different view that may not be totally compatible with the expertise you've developed over all the years.

I think it would be a really good idea if you would speak to the health minister about finding out how we can get away from the need to have their dollars to fund these programs, because a program for even half the cost might be twice as effective anyway.

Thank you for your intervention.

[Translation]

Mr. Luc Chabot: I'll quickly conclude by saying that I am alive to the issues you have raised. Before I took up my current duties as Director of the Addiction Study Program at the University of Montreal, I was in charge of treatment centres for teenagers. I saw for myself what young people are going through and the dual, often very contradictory, messages they're getting from society.

I think it's also important to realize that as far as liquor boards and tobacco companies are concerned, we shouldn't be taking the same position in these two areas. There are a lot more people who drink but don't have a drinking problem than people who do. On the other hand, it's important to strike the right balance when you're talking about a preventive message. I'm glad to hear you express those concerns. All I can say is that I share them at a level other than the one I'm representing today.

The Acting Chairman (Mr. Roy Cullen): Thank you very much. I have a brief question for Mr. Vaillancourt, but given the time, I will talk to him after the meeting.

I would like to thank all our witnesses for being with us today, and for their excellent presentations and suggestions. I can assure you we will take all of your ideas and proposals into consideration when drafting our report. Thank you very much for coming today.

The meeting is adjourned.