FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, December 1, 1999

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[English]

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

As everybody knows, the finance committee has been travelling across the country to seek input from Canadians on what the priorities for the 2000 budget should be, and the Minister of Finance has actually asked us to comment on a five-year plan.

This afternoon we have the pleasure to have with us witnesses representing the following groups: the Association of Canadian Airport Duty Free Operators; the Caledon Institute of Social Policy; the National Association of Friendship Centres; l'Association de la recherche industrielle du Québec; and the Regional Municipality of Ottawa—Carleton.

Many of you have appeared before the committee before, so you probably know how we operate. You get approximately five to seven minutes to make your introductory remarks, after which we'll engage in a question and answer session.

We will begin with the Association of Canadian Airport Duty Free Operators. Mr. Derrick Barnett is president, and he is also chief financial officer for Nuance Global Traders North America. Also here is Mr. Daniel Boller, South Air Relations, Zurich, Switzerland. Welcome.

Mr. Derrick Barnett (President, Association of Canadian Airport Duty Free Operators): Thank you, Mr. Chairman and members of the Standing Committee on Finance. My name is Derrick Barnett. I am president of the Association of the Canadian Airport Duty Free Operators, and the chief financial officer for Nuance Global Traders North America, the largest duty-free airport operator in Canada. The vice-president of our association, Mr. André Bergéron, who is vice-president for AerRianta International (North America) Inc., could unfortunately not be present today.

Between our companies, we represent 95% of the airport duty-free operations in Canada, with duty-free stores in the Vancouver, Calgary, Winnipeg, Edmonton, Toronto, Montreal, Ottawa, and Halifax airports. In terms of Revenue Canada memorandum D4-3-1 section 18, the duty-free regulations that are currently in place require that airport duty-free licensees should only sell goods for direct export and consumption outside of Canada.

The duty-free industry worldwide has undergone significant change in the last five years. With the deregulation of duties and taxes, as well as the abolishment of duty-free in the European Union, countries have steadily been changing the regulations applicable to duty-free, allowing for the sale of duty-free products in different channels in order to meet the new and changing competitive marketplace. This has meant that new retail channels for marketing duty-free products rather than the traditional export-only model have arisen. For example, duty-free is now a key part of airline revenue via onboard sales, and duty-free arrivals have been introduced in many countries.

Australia and New Zealand are the leading proponents of the arrivals duty-free concept. In Asia, China has just taken steps to allow for the introduction of arrivals duty-free at Hong Kong and Shanghai airports. And Singapore has also allowed arrivals duty-free. In the Middle East, Egypt and Israel have arrivals duty-free concepts. In Latin America, arrivals duty-free forms a significant part of the duty-free industry. These new retail channels for duty-free have meant that duty-free sales that under normal circumstances would be captured in Canada are now being captured offshore.

My association believes that in order to be competitive, Canada must allow for legislative change to introduce arrivals duty-free in our airports. One of the advantages would be repatriating offshore sales to Canada. This is estimated at $20 million in the first year, and $130 million over five years. This would create additional income tax flows to the government, create an additional estimated 83 new jobs at inception, and continued job growth as the market grows.

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It would result in higher rentals to airports, as the arrivals duty-free stores will be in addition to existing duty-free contracts and will have their own rate structure. This will mean there will be an increased flow-through of revenue to Transport Canada from contracts with the privatized airport authorities. It will also create an incremental economic activity for vendors supplying the duty-free market, resulting in increased taxes to Revenue Canada, as well as increased jobs.

We are not asking for any changes in the duty-free allowances—that is, the personal exemption allowances—for importing purchases into Canada, and therefore we will not be impacting on the fairness of the current system to all Canadian citizens. We are merely requesting that the duty-free channels be expanded, and, in doing so, that duty-free shopping be allowed for the convenience of returning Canadians and to promote duty-free sales to tourists entering Canada.

In surveys done in Vancouver and Toronto, the majority of passengers responded favourably to the introduction of the arrivals duty-free concept. We have canvassed the airlines, including Air Canada and Canadian, as well as some of the charter airlines, and the liquor control boards and the Retail Council of Canada, none of whom have objected to the introduction of the arrivals duty-free concept. The Canadian Airports Council, which represents the major privatized airports in Canada, has expressed its favour for the introduction of arrivals duty-free.

In Australia, since the inception of the duty-free concept at Sydney Airport in 1985, the sales generated by the arrivals duty-free have grown to represent 23% of the total duty-free sales at this airport. Jobs generated in Sydney have been in the order of 60, and 148 in all Australian airports.

At the request of the Ministry of Finance, the arrivals duty-free concept was excluded from the duty-free regulatory review currently being undertaken by the Department of Revenue's customs division. On behalf of the Association of Canadian Airport Duty Free Operators and the Canadian Airports Council, I would therefore like to table our May 1999 report to the Department of Finance requesting a change in legislation to allow for the introduction of arrivals duty-free in Canadian airports. I also table the Hansard notes from the debate that took place in the Australian Parliament in 1985, at the time when arrivals duty-free was being considered and subsequently favourably approved.

Thank you for the opportunity to appear before the Standing Committee on Finance today. I look forward to taking questions on this issue, and to your favourable response to our request in the 2000 or 2001 budget, to coincide with the legislative changes that will take place as a result of the duty-free regulatory review.

Thank you, Mr. Chairman.

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

We'll now hear from the Caledon Institute's president, Mr. Ken Battle. Welcome.

Mr. Ken Battle (President, Caledon Institute of Social Policy): Thank you for the opportunity to appear before the committee, Mr. Chair.

My apologies that my associate, Sherri Torjman, can't be with us today. We're doing something else with the Federation of Canadian Municipalities this afternoon. I mention her because she's been doing some work on tax assistance for persons with disabilities, which is an issue that has a kind of a complexity and life of its own. Hopefully at some future date perhaps we could bring our concerns on that issue to the committee.

This afternoon what I want to do is very quickly sketch out the package of proposals that Caledon has put forward, mainly in a report that we call—I'll give you the name, because it'll give you an idea of what we're about—How to do a Children's Budget and a Tax Cut Budget in 2000. We've put forward a comprehensive package of proposals that try to do both things at once. There are six proposals, and I just want to quickly talk a little bit about them as a package, in case I run out of time.

The package we put forward, which has six major elements, has three virtues as a package. First, it's balanced. It looks for spending increases and tax cuts. It focuses on families with kids, but it also delivers tax cuts to all taxpayers, including those without children and those at all income levels. It proposes a mix of income and services for families with kids, and it provides for several sources of income support for families with kids, such as child benefits, tax relief, and changes to EI parental benefits.

It's also a targeted package in a broad sense, in that although it benefits all taxpayers, with and without kids and throughout the income range, the bias is in favour of low-income and middle-income families with children. We think they have the greatest call right now on tax relief and improvements in their disposable income.

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Finally, it focuses on structural changes, not just incremental changes. The changes we're talking about are with regard to the national child benefit. Our proposal for a federal child development fund and our proposal to re-index the tax system and to begin restoring tax brackets are all structural changes that are aimed at lasting improvements.

There are six major elements. Let me very quickly go through them, and then I'd be happy to answer questions on the details. Two of them involve the Canada child tax benefit, which as you know is the federal government's part of the new national child benefit. The maximum amount under the Canada child tax benefit is slated to increase to $1,975 for the first child and $1,775 for subsequent kids, as of July 2000. That's the maximum benefit that goes to low-income families, and it's income-tested above that for modest-income and middle-income families.

What we're proposing is that Ottawa finish the job and get to the $2,500 maximum level, which is what is required to fully displace welfare benefits on behalf of kids and to complete the national child benefit reform that is under way. It's an important reform, not only for social policy, but because it's the first real success of the social union. In fact, it predated the social union, as you know.

The $2,500 level is a rough average of what would be required to fully replace social assistance for kids. There are some provinces that would do better or worse than that. Depending on where they sit, the provinces could fill in the gap. One of the advantages of that is that it pushes more money into the provinces for reinvestment into other income and social services for low-income families with kids. But that's just half of our proposal.

What we see for the future of child benefits to create an effective family income security system is to broaden the Canada child tax benefit. It already serves eight in ten families with kids, but over the years benefits to non-poor families have been substantially reduced. We want to see some restoration and real increases in benefits for modest-income and middle-income families, so we have a proposal that would extend the $2,500 benefit further up the income range. In effect, it would reduce the high tax rate on benefits to low income and create a simpler system. In the process, it would deliver really what amounts to a de facto, very substantial income tax cut in the sense of increased taxable income, after-tax income to low-income and middle-income families with kids.

We have two proposals with regard to the income tax system generally. It doesn't matter whether you have kids or not. I think the most central one is re-indexation of the personal income tax system. That would include refundable and non-refundable tax credits, the refundable GST credit, and the Canada child tax benefit. Re-indexation is absolutely, fundamentally important. Without it, all the tax cuts that we got in the past and that we'll be getting in the future are built on a ground of sand and are illusory.

We also propose that the second and third tax brackets be substantially increased, although not all the way toward making up for inflation, because that would be very costly. It would just be a good start toward that. That would, of course, reverse some of the compression of the tax system down the income range, and would help middle-income and upward-income tax filers.

We have two final proposals. One is to establish a federally financed national child development fund to invest in provincial and community social infrastructure for parents and pre-school kids. This would be an early childhood education system. We're working on the details of this, and proposals for objectives of it. Although it can't be tied in the way that old cost-sharing was, it has to come with fairly strong strings attached to make sure the provinces invest in the kind of system that we think is worthy of the money.

Finally, we proposed—and the government has in fact already moved on this, but I'll mention it—an extension of parental leave provisions under employment insurance. We proposed that those be doubled from the current 26 weeks a year to a full year. Indeed, the federal government has acted on that recommendation, but it's really just the beginning. The replacement ratio, which is only 55%, is pretty low for parental benefits. The tightening of the qualifying rules for EI has made it harder for people, particularly part-timers, to qualify. And of course self-employed people are excluded from the EI system. They're a growing group of the labour market, and their needs with regard to parental leave have to be acknowledged as well.

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Mr. Chair, here's one thing we recommend you don't do but that you're getting advice to do. We think it's a bad idea. It is to reintroduce a tax credit for high-income families with kids. What we would recommend is that the current Canada child tax benefit be gradually improved over time. The emphasis has to be on improving benefits for low-income and middle-income families. As we develop the system and it matures, we can gradually extend that benefit higher up the income ladder to reach high-income families. But don't waste potentially hundreds of millions of dollars of taxpayers' money on restoring the non-refundable child tax credit right now. That would be a very poor use of taxpayers' money.

Thank you.

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

We'll now hear from the National Association of Friendship Centres, represented by Denis Francis, president, and Marc Maracle, executive director. Welcome.

Mr. Denis Francis (President, National Association of Friendship Centres): Mr. Chairman and members of the Standing Committee on Finance, I'd like to start off by saying...[Witness speaks in his native language]. In direct translation, we thank you for the opportunity to be able to present to you from the people of this land.

On behalf of the National Association of Friendship Centres and the urban aboriginal people we serve, we welcome this opportunity to bring to your attention our track record of over forty years of building capacity, community and economic development, as well as financial accountability, of which we in the Friendship Centre movement are justly proud.

In our written brief, which we have given to you and which you'll probably have translated, we have outlined in detail the role Friendship Centres play in our communities. In addition to the social context many have come to know and respect Friendship Centres for, we have examined the larger reality and integral role Friendship Centres play in community and economic development.

I want to thank this committee for advocating on our behalf two years ago to stop the cutting that was taking place. At that time a recommendation came forth to the government to restore some of the funding that was coming directly. So thank you very much for that.

Our development has been from a uniquely aboriginal perspective in response to the needs identified by the community. Our response has been delivered in a culturally appropriate manner and above all through a process that is accountable to our constituency.

Over the years, the NAFC has delivered many different presentations to various levels of the government, to this committee, as well as to the Senate. We continue our interest in maintaining and strengthening the partnership we have developed with government over the course of our existence.

We'd like to bring several very important facts to the attention of this committee, because we believe a crisis is emerging. About 65% to 70% of aboriginal people in Canada reside in urban centres. Of this population, almost 60% are under the age of 25 and 40% are under the age of 15.

For urban aboriginal people, poverty is becoming entrenched. Urban aboriginal people have become a jurisdictional ping-pong ball between the federal and provincial governments.

At their current level of financial support, many Friendship Centres are struggling to meet the increased demand for programs and services reflected in the demographics and as referenced on page 9 of our main brief. Friendship Centres play a critical role in the communities in which they are located, often being the only place where aboriginal people can access appropriate services. Over the history of the movement, Friendship Centres have demonstrated measurable results through programs and services delivered in an accountable and efficient manner.

In addition to the programming and service delivery role, Friendship Centres play a critical role in community and economic development. Centres provide employment and create spinoff services in their communities, and some develop and operate for-profit businesses. Centres also participate in the Canadian economy through an expanded asset base by borrowing money to undertake major capital initiatives, such as purchasing, renovating, or constructing facilities to house their operations, and through active participation in a wide range of community and economic development initiatives.

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In conclusion, I would like to summarize the direct and the more indirect impacts that Friendship Centres have on the economic development of the communities in which they are located.

We continue to find innovative ways to respond to the economic and community development needs in the urban environment. Friendship Centres, through the National Association of Friendship Centres, are interested in strengthening their relationship with the federal government. Throughout our history Friendship Centres have been in the business of developing our human resources. It is unfortunate that HRDC, Human Resources Development Canada, is pursuing a policy track that diminishes the key role Friendship Centres play in the 116 urban centres where we are located.

Friendship Centres provide hope, employment, and the opportunity for urban aboriginal people to contribute in a positive and meaningful way in our communities and within the wider Canadian society. Friendship Centres have provided programs and services in a very efficient and accountable manner—and I really want to emphasize that. We will go back to that. We're very accountable and we're efficient in what we do.

The reality for Friendship Centres is that for almost 50 years we have been at the forefront of urban aboriginal community development, dating back to the late 1950s and early 1960s. We have been tireless in our efforts to restore the dignity of our people in a culturally appropriate manner. Throughout those years we have established many meaningful partnerships, and we wish to continue the collective work of all those who have come before us to build and sustain a vibrant urban aboriginal community.

As the primary providers of programs and services to aboriginal people living in the urban environment, you can see that we are presented with huge challenges as governments and as organizations to more effectively deal with issues of poverty, housing, health, education, training and development. We believe the federal government must take a more pronounced leadership role in the voluntary sector and in the most vulnerable area of our society. The NAFC and our membership are prepared to work with all governments toward this end through the promotion of standards of performance, accountability, good government, and measurable results.

We believe the government's focus needs to be on children, youth, single mothers, and young families to combat poverty, to promote healing and wellness, to encourage academic achievement, to provide and facilitate appropriate training opportunities, and to build the critical linkages to meaningful employment.

We believe the federal government has an excellent opportunity to invest in the future and chart a new course with urban aboriginal people through the Friendship Centre movement. We believe the extensive infrastructure of the movement has been under-utilized by government despite our demonstrated excellence and our ability to serve as an investment vehicle. We are committed, therefore, to seeking the support of finance committee members regarding the following issues.

We seek to get a commitment in the next federal budget to fund all Friendship Centres under the Aboriginal Friendship Centre program. You will notice in the brief there are approximately 16 centres that have not been receiving core funding since 1987, when the program stopped funding new and developing centres.

We seek to increase the Aboriginal Friendship Centre core funding base, to restore the 30% funding cuts referenced in our briefing note and to meet current demands. Again, you can refer back to it. We have suffered those cuts. We can't recover from those cuts that took place in partnership to address the deficit the government had to deal with. We wish to restore our component funding out of the Aboriginal Friendship Centres for $2.5 million and restore the internal training budget of 3.5% of the core base.

Another important part you must look at is the renewal of the Aboriginal Friendship Centres program. It is coming up in the next fiscal year and ends in 2001. There is also a transfer agreement, one of the few government models the Department of Canadian Heritage has initiated. We're part of that group that is in fact participating with them.

Support our efforts on behalf of aboriginal youth and support our efforts regarding employment and training.

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Again, thank you for this opportunity. I know that several committee members have Friendship Centres in their ridings and they are therefore aware of the work done by Friendship Centres in their own local communities. However, I encourage each committee member to read our full brief. If you have any questions or comments, please feel free to contact myself or our national executive director for further information.

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

We will now hear from l'Association de la recherce industrielle du Québec. We have the president, Claude Demers, and the vice-president, Albert De Luca, with us here today.

Welcome.

[Translation]

Mr. Claude Demers (Chief Executive Officer, Association de la recherche industrielle du Québec): Thank you, Mr. Chairman. My name is Claude Demers. I want to thank all the members of the Finance Committee for your welcome.

We are very grateful to have this opportunity to meet with you to talk about some of the concerns of the innovative companies that we represent in Quebec. My colleagues are Mr. Albert De Luca, Associate at Samson Bélair Deloitte & Touche, and Mr. Perry Niro, Director of Public Affairs at ADRIQ.

ADRIQ, which we represent this afternoon, is an important association in Quebec. It represents some 600 innovating companies and some 1,800 decision-makers of those companies. Our association represents all types of industries, from life sciences to biotech, from health to agrifood and the environment, from infotech, mainly software, to telecommunications and electro-optics in Quebec, and finally, the whole gamut of other industrial technologies in more traditional manufacturing sectors linked to resources and processing, from aeronautics to transportation, energy, pulp and paper, forestry and textiles.

Our companies are very active in research and development and technological innovation. During the past ten years, they have generated 80 per cent of the new jobs in Quebec. I suppose the figures would be similar in the rest of Canada. Innovative companies are at the source of job creation and economic growth all over Canada, like in the US.

The companies we represent have different financial needs, which is why we are meeting with you today. Their primary needs in Research and Development are related to the R&D tax credits. Two years ago, we started representations to both levels of government, among others to the Departments of Finance, of Revenue and of Industry, here in Ottawa, to argue that tax credits are useful to corporations, and are even necessary, and that the program should be put back on the rails and be better administered in order to continue to be beneficial to our companies and to encourage them to carry out research and to invest in innovation in Canada and in Quebec.

Similarly, we want the taxation credits system to evolve according to the needs of the companies, in the present context of globalization and of the opening of markets, taking into account the increasing complexity of technologies and the advancement of knowledge and sciences.

Our second point relates to personal income taxation. In a knowledge-based economy, where companies get their competitive advantage from the knowledge of their staff, it is essential that they be able to hire, retain and motivate highly qualified people, because that is what allows them to win in their markets and in their field.

To retain and motivate such staff, innovating companies use various methods, one of which being stock options. We believe that the present system could be improved in order to allow the staff of companies, through the purchase of stock options, to support the capital of their companies. Stocks acquired in such a manner should be taxed before being resold several months or several years later. Similarly, those capital gains should only be taxed at the time of disposal of the shares and not when these are acquired, which is the case at the present time.

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Another thing would allow those people to be more interested in the success of their companies, to work to the best of their abilities, and to perform and to support the growth of their companies. That thing would be to exempt from taxation the capital gains of employees holding or purchasing shares in the company where they are working. In that way, those employees would also be shareholders and would become partners of their own companies. Their capital gains could be exempted from taxation to a ceiling of $500,000, for example, as long as the employee is still working in the same company.

Our third recommendation is to allow the amounts already put aside in RRSPs to be used to purchase shares of the companies where employees work and to allow that block of shares to be put into their RRSPs. This would support capital formation in those companies since the money put aside in RRSPs could be used to purchase shares of the companies.

Our final recommendation relates to those who will replace us, our young people. We are convinced that it is difficult to attract young people in the fields of science and technology. In order to encourage them to get into those fields, we have sent a proposal to the Government of Quebec and we would like to repeat it here, in Ottawa. Our recommendation would be to grant some taxation credit for the money borrowed by our young people who have graduated and found a job. This taxation credit would only be valid if their job was located where they borrowed their money, that is to say within Canada or within Quebec. The point would be to allow our young people to graduate from university and to put their knowledge at the disposal of local companies by working for them for a period of three to five years, which would entitle them to this taxation credit.

Those are our recommendations, Mr. Chairman. Their general objective would be to support our economic growth by putting more money into our economy at a time when the budget would allow the government to consider tax cuts. The point would be to grant tax cuts, perhaps a bit everywhere but mainly where they would provide the best leverage possible for our economy and for job creation, that is to say in knowledge-based companies, in innovation and in Research and Development.

Thank you, Mr. Chairman.

[English]

The Chairman: Thank you very much, Mr. Demers, Mr. De Luca, and Mr. Niro.

We'll now hear from the Regional Municipality of Ottawa—Carleton. We have with us Regional Councillor Clive Doucet; Regional Councillor Diane Holmes, who is also chair of the transportation committee; and also Helen Gault, director of planning and development, OC Transpo.

Welcome.

Mr. Clive Doucet (Regional Councillor, Regional Municipality of Ottawa-Carleton): Thank you, and good afternoon. Thank you for receiving us here.

On my left is Dr. Helen Gault, who is the director of planning and development at OC Transpo, and on my right is Regional Councillor Diane Holmes, who is chair of the transportation committee.

We're here to make one very simple point, and that is to advocate funding for urban transit. In Ottawa—Carleton our official plan has recently made public transit a priority, as it is less costly and more sustainable than road construction.

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Just to give you an idea of how much road construction costs, if you're going to and from the Ottawa International Airport, you'll cross something called the Dunbar Bridge. It was recently rebuilt, and it cost $34 million. There are 250 bridges in our region. The average cost to maintain—not to build—our regional roads is $8,000 per lane per kilometre.

Our planners have done the math, and the math is very clear: it costs more to move people in cars than on buses and urban trains. If we can just move up our local use from 15% to 20%, our road costs will plunge, per year, from $150 million to $30 million. The only way we can make this increase is if we invest in buses and light rail. People can't move on a bus or a rail line if it's not there.

Over the next 10 years OC Transpo will require 770 new buses, at a cost of $560 million in today's dollars. Increasing transit is a key to meeting our Kyoto commitments to slow climate change. If you look at the photographs included in our brief, you will see that it isn't hard to understand why it's cost-effective to move people on buses, and why it's environmentally friendly. One bus lane replaces three express lanes of cars.

While we support the quality-of-life infrastructure brief made by the Federation of Canadian Municipalities, we do have one very important difference of opinion with it. Transportation funding to the big city should not be open-ended. In other words, you should not simply let the big city councils decide what portion of the transportation funding will go to public transit. Transit versus roads not only involves enormous amounts of money, it is also the most divisive issue city councils face. That is why in the United States funding is not open-ended. President Clinton insisted that $40 billion be dedicated to public transit.

You should also insist that at least 60% of your transportation infrastructure funding goes to public transit. You are all politicians. So are we. I'm sure you understand that there's a difference between logic and politics. Sometimes the two connect, and sometimes they don't.

The provincial political reality in our province is that the Government of Ontario has never spent more on rural and small-town roads, ever. Their budget is bigger than ever. The political reality is that at the same time they have withdrawn from funding urban public transit—not a penny.

The local political reality is that road-building is deeply rooted in our culture, in our bureaucracies, and in our politicians. The reality right here in Ottawa is that we have spent the last 50 years favouring the automobile. The reality right outside this building is that we've ripped up 300 miles of urban street cars. We have built freeways and regional roads over old rail beds. Take a look at the Nicholas Street area: that's all old rail bed.

If you look at our centre town, which Diane Holmes and I represent, from Bronson Avenue right through to King Edward Avenue, we have basically widened every one of those roads, some of them porch to porch, and many of those communities have never recovered from those road widenings.

The reality is that the Canadian mayors and municipalities, who presented a very good brief to you, made an open-ended request for transportation funding for only one reason: they knew they couldn't get agreement from their members to dedicate some of that funding to public transit. That is the municipal political reality.

The reality here is that unless you dedicate infrastructure funding to transit, we won't get nearly as much as you think we're going to. Let me give you just one small example from my region to give substance to this very broad generalization.

In Ottawa—Carleton we have been struggling for many years to get a very small light rail pilot project going over an old, disused rail bed. It will be the cheapest urban light rail project in North America. Every corner has been cut to bring it in at $16 million. Finally, after many years of debate, public and private, we have agreed to go ahead with this project.

Two years ago, at my second council meeting, council approved, without even blinking, the widening of two suburban roads—not new roads, just the widening—at the same price, $16 million. These four-lane roads are already built, already functioning, and there are already demands for their extensions. It will be another two years of hard work before we get just two trains on those old lines.

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Even Toronto, which is famous for its efficient and effective transit system, is necklaced by thousands of miles of roadways. So is Ottawa, only the scale is a little different. The reality is that getting local political will to invest the kind of money that public transit needs to make it competitive with the automobile has not been possible. Whatever you hear in this room about the Kyoto commitments and the environmental and cost advantages of transit, the reality is that asphalt comes first.

So please, please don't fund transportation infrastructure in an open-ended way; otherwise, I can guarantee you that public transit will remain only a paper priority. We won't see the tramways in the streets or the buses in the suburbs. We won't see a reduction in toxic emissions. We will see more roads.

I thank you very much. We would be pleased to take questions in French, English, and a little in Italian.

Ms. Diane Holmes (Regional Councillor, Regional Municipality of Ottawa—Carleton; Chair, Transportation Committee): Mr. Chair, could I make a few comments to add to Councillor Doucet's?

The Chairman: Only after answering the question in Italian. No, I'm just kidding.

Ms. Diane Holes: Thanks very much.

We are here indeed to emphasize that we strongly support the Canadian municipalities in their request for a quality-of-life infrastructure program. And we agree that infrastructure, whether solid waste, sewer, water, or transportation, is essential. But we are specifically here today to talk about the transportation infrastructure that we hope you will provide.

We have 78% of Canadians living in urban centres now, and the federal government must recognize the responsibility to provide a basic urban infrastructure requirement to meet the needs of the dense urban populations that we have.

One-quarter of all greenhouse gases are the result of transportation in this country, and half of that is from urban areas. At the region, we have a new official plan. We spent five years with our residents working on it, doing all kinds of background documentation. It is now in place, and its goal is to reduce car dependency, to curtail urban sprawl. The last infrastructure program this government provided allowed us to increase urban sprawl. There were no definitions on how we built that infrastructure, so we continued with our water, sewer, and transportation links to gobble up more farmland and sprawl even further.

We're asking you today to put a green component into this infrastructure program that we hope is coming forward. We are short on transportation funding in the region. At the time we did our official plan—that was about four years ago—we were more hopeful that we would have some more funding. We have lost provincial funding since then, and it has been many years since the federal government provided funding to municipalities for infrastructure.

So we are hopeful that we can move from our 15% commuter population going by bus—which is about the highest in Canada—to 20%, because that will save us an enormous amount of money. It is far more cost-effective to have people travelling by transit than by their private automobiles. To move one person from a private automobile to transit is a reduction of 75% of greenhouse gases—carbon dioxide emissions. So our ambition, along with our residents', is to cut our carbon dioxide emissions, to green our area, to gobble up less land, and to force ourselves into more efficient land use and a more efficient transportation system.

We are only three years into that 25-year plan, and already we have had to back up transportation projects and build them over much longer timeframes because we don't have the funding we need in order to move forward with this plan.

The federal government, as I'm sure you know, takes in $4 billion in fuel taxes nationally and spends 10% of that on transportation. None of that spending is in the field of transit, whereas every country in Europe and in the United States has significant programs of transit funding for their municipalities. We hope you will feel that you wish to join that group.

There's $100 million collected in Ottawa—Carleton from fuel taxes, and we are asking for part of that to be returned, as has happened with Alberta, B.C., and Quebec, for Calgary, Edmonton, Vancouver, and Montreal. Their provinces are returning some of that fuel tax to them. That is an enormous help for their transit systems.

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Mr. Chair, we are hoping this will be a user pay program; that there will be fuel tax return that the government will allow for municipalities; that it will be a stable funding base, a transparent funding base, a reliable funding base. Then we can plan over a long period of time and the residents of this country can understand and see visibly that it is user pay and it is fuel tax returned to the municipalities.

Thank you very much.

The Chairman: Thank you very much, Ms. Holmes.

We'll now proceed to the question and answer session. It will be a ten-minute round, starting with Mr. Forseth.

Mr. Paul Forseth (New Westminster—Coquitlam—Burnaby, Ref.): Thank you very much.

I have first a question for the duty-free arrivals people. I clearly understand the concept of your presentation; it's a rather simple one. I could ask this. If we do this arrival duty-free, will we be violating any international agreements or understandings? Obviously this concept must have been thought of when we began to get into the whole business of duty-free shops in the first place. There were reasons that the rules are the way they are now. So I'm wondering what has changed, what's the international context, because every time we do something in this area we leave ourselves open for some action or reaction somewhere else. Perhaps you can comment about that.

Then perhaps you might be able to comment also about the whole reason we have duty-free stores in the first place. That's almost like an admission of failure, that governments continue to do certain things in terms of trade barriers and duties and what not, which in the long run wind up hurting the country that does it. Then you get these types of activities to kind of circumvent the misbehaviour of the government. So you might want to comment on that.

In any event, let's look at the proposal direct on and look at the context, the international context, in which you're making your suggestion.

The Chairman: Mr. Barnett.

Mr. Derrick Barnett: Mr. Chairman, to take the first part of the question, the international context, I am not aware of any international agreements that would be violated. That does not mean to say there wouldn't be retaliatory actions by foreign governments where there are airlines or there are international trade routes, who in turn would implement arrivals duty-free in their jurisdictions. In effect, arrivals duty-free between Canada and the United States already exist via the land border duty-free stores. The stores on the American side and the stores on the Canadian side of that border effectively provide the arrivals duty-free, and airlines flying into Canada are in effect arrivals duty-free carriers, including our own national airlines.

I believe it is becoming a de facto part of the duty-free industry worldwide; it is just broadening the sales channel. If Canada does not respond, we will be leaving sales that we could have onshore in Canada, creating jobs and creating a tax revenue and a rental revenue to Transport Canada offshore.

To answer your second question, I'd like to answer it in two parts. Why does duty-free exist? I'd like to take the land border duty-free stores initially, although I'm not arguing their case here because they effectively already have arrivals duty-free. But the land border duty-free stores were established, I believe, many years ago as a way of promoting small industry. In the land border stores, licences were given to individuals, as opposed to airports, where they are given to corporations. At the airports we have to tender regularly on these contracts. At the land border duty-free stores, these are renegotiated with the holder of the licence during their lifetime. So that is one reason why duty-free was started.

In the airports I believe duty-free was started to promote exports from Canada as a convenience to foreign visitors who asked for return of the local taxes. It was also started, I believe, as, I wouldn't call it a perk, but a factor of modern day life for everyday Canadian use, that people exiting the country who took goods out of the country would not have to pay the taxes because the concept was the goods would be exported and consumed outside of the country.

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The reality is people can buy goods in a duty-free store, carry them abroad for ten days, and bring them back. If they do consume them outside of the country and they buy another bottle of their favourite alcohol in the airport of departure before returning to Canada, effectively, as long as they keep within the duty-free allowance provisions, they're not being penalized, nor is our industry. So all we're asking is to bring those sales back onshore. Let Canada capture them, as opposed to a foreign competitor.

Mr. Paul Forseth: Thank you.

I have a question for the Caledon Institute of Social Policy. I see in your paper here on page 17 it says:

The Speech from the Throne stated that Ottawa will engage with the provinces “to increase resources and further strengthen supports for early childhood development”....In Caledon's view, that promise requires the federal government to establish a national child development fund that will inject substantial resources into a wide range of supports and services for all families—including those with children who are disabled.

Perhaps you could just expand what you are really talking about here in this child development fund. Are you talking about a new bureaucracy, or are you talking about an expansion of existing national programs or tax credits? And perhaps, not only describing what it is, you can also talk about how you envision this to be delivered.

Mr. Ken Battle: Good question.

What we're doing right now is actually trying to flesh out the details of such a thing, to answer the kinds of questions you've posed, but our thinking so far is we're not talking about a new bureaucracy. We're basically talking about trying to create.... Let's put it this way. The problem is there are two lines of research that converge from two quite different points of view, which tell us we should be helping educate rather than simply care for very young children.

I mean, there's the line of research I'm sure you're familiar with, the Fraser Mustard sort of research, which shows that a lot of fundamental intellectual, social, physiological development occurs in children in the first couple of years. There's another line of research that I think is pertinent too, which is in a global economy we have to invest in human capital. That's not a new idea, but, like the brain drain, it's come around again as an important issue.

Both of those converge to say to us we have to regard early childhood care and education, in our view, as part of the education system. In other words, can you take the education system and move it further down in terms of age in a way that still recognizes the wide diversity of ways you can provide for children, and still allows for a lot of choice? We're not talking about every kid has to go into grade one and that's it. As you know, we have a wide variety of services for children—prenatal, health, social services, education—that are provided in different ways by different providers, both publicly and privately. The question is, can we kind of knit this together into what would be a more effective system?

The reason we focus here on the next budget is it does require the federal government to infuse money in there—in other words, to really get back into the job of funding services as it did when we built welfare and social services and post-secondary education in the 1960s and 1970s. Now, this is not going to happen without some federal money and some federal—I don't like the word “leadership”—some federal partnership with provinces and communities in doing this.

The trick, of course, is how do you do this when we have a social union that says the federal government can't really attach any very strong strings onto anything it does that goes into provincial jurisdiction? Not that we ever had strong strings in the old days, but there are even fewer now. To us I guess that's the trick—how do you design such a fund that it could be used to build the kind of system most experts and advocates have some agreement on?

So the question as to whether there should be matching provincial funding is something we're looking at in terms of delivery. Should there be conditions attached to that funding along the lines of the Canada Health Act, which has certainly not proved to be particularly successful these days? The trick is how to do it in such a way that the federal money does go into the kind of system we want, acknowledging that there's a lot of disagreement among families, and indeed from province to province, on what that system would be.

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If you want to know what kind of model we're looking at, it would be Quebec, which is the only part of Canada that has a civilized attitude toward those children and has tried to develop a kind of system that I think we'd want to build.

Mr. Paul Forseth: Okay.

I'd like to ask a question of the National Association of Friendship Centres. Perhaps you can describe quickly the variety of sources of funds you have. And what are you really recommending besides continuing to do more of the same? Are you simply asking for more money, or are you suggesting something else?

I would also like to know if you have any revenue-generating activities yourself through selling products, other means of generating your own funds, rather than just receiving operational grants from provincial governments and federal governments.

You've also said you'd like to be better utilized. What are you talking about there? Are you saying you'd like more people to use your centres, or are you saying you would like the federal government to use you as kind of a delivery agent for federal government programs on the street? What are you talking about when you say you'd like to be better utilized?

Mr. Denis Francis: I can start off with some of the questions, and I'm going to refer over to Marc Maracle, who is the administrator of the national association, to clarify.

When we're talking about the value in regard to Friendship Centres and the operational budgets and the contributions made from the federal government in regard to Friendship Centres in the 116 communities across this country, we receive approximately $13.1 million as core support to maintain an office, which is a manager, an accountant, and a secretary. Those are generally where the funding is directed.

Out of that contribution, we generate probably $220 million in agreements with other federal departments, like CMHC and Health Canada, delivering government-type initiatives that are generally needed, but the government is restricted in the delivery or having access to some of these communities.

In the dollar value, we are also making agreements with provincial governments that have to do with the Ministry of Children and Families in British Columbia, for instance. In that particular case, 40% of the children in care with the Ministry of Children and Families are aboriginal children. That system has not worked well for the population, so we're going into agreements to deliver. We deliver addiction services, which is another area.

It's not all well across the country. Returning from the Northwest Territories yesterday, I met with the commissioner and we talked about it. Really, the only dollars they're receiving are from federal initiatives that we've been able to lobby for and get, like the aboriginal strategic initiative, the urban multi-purpose aboriginal youth centre program, and any other aboriginal urban initiatives. That's where their main source of income has been coming from, because of the switch of establishing a new territorial government. They're in dire straits up there.

It was an eye opener being there, seeing the cost of living that we so take for granted down in this part of the country. You go up there, and you see. The transportation is limited by when the river freezes up or thaws out. Their price for a quart of milk, and I think you can relate to some of that, is $1.20 to $5, which is what the shelf price is right now.

But getting back to the other areas, federal commitment to the average Friendship Centre in all these programs is about 20%. As a percentage presented by the Aboriginal Friendship Centre, the administration budget is around 5%. These are just presented levels.

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I think some of the main history of the organization is those people who saw the need for the advocacy. It's not the dollar; it's the human resource investment and the volunteers, without whom we probably wouldn't be where we're at. If you started putting a dollar value to that also, there is a major contribution made by volunteers in this country. They meet continuously. Some of our programs have to be subsidized by the people in the community to make those happen, because we don't have the proper sources of funding. That's another point.

Mr. Paul Forseth: If I may interrupt for just a moment, I think you're doing a very good job in describing who you are and what you're doing, but because of time constraints, could you boil it down and say exactly what adjustments need to be done in the next budget?

Mr. Marc Maracle (Executive Director, National Association of Friendship Centres): Clearly, there needs to be a stronger investment through the infrastructure of Friendship Centres. When we say it's under-utilized, certainly there are a number of initiatives at the federal level where money could be allocated for a better return through that infrastructure. It exists, but it's not being utilized and promoted by all levels of government. As government has made adjustments in dealing with program review exercise at the federal level, all of that has trickled down to the community level. It's not just Friendship Centres; it's the voluntary sector in general.

We're saying there needs to be a balance, obviously, in what you have to do as a finance committee, but on the social side, you have an infrastructure that's there, doing good work, and it's measurable. Utilize it more.

Mr. Paul Forseth: Thank you.

The Chairman: Mr. Gallaway.

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

My question is for Mr. Barnett, from the duty-free group. You've been making comparisons to the airport duty-free versus the border crossing or the land crossing. Is it not true that, generally speaking, worldwide, airport duty-free stores are controlled by four international corporations?

Mr. Derrick Barnett: It is. In the last five years, the airport duty-free industry has undergone significant consolidation. Today there are probably three or four major international corporations who I would say control, in all probability, 60% of worldwide duty-free sales.

The reason for that is very simple. With the construction and advent of super-airports—I'm talking about airports with anywhere from 80 to 150 gates—the funding of those airports has in actual fact depended to a large extent on the revenue stream they get from duty-free and other travel retailers. So they can effectively take this money to their bank and raise bonds and security issues for the funding of the airports. This is tied in with the whole privatization of the airports, not dissimilar to Canada.

As a result, rents have tended to move from a percentage basis to a minimum annual guarantee basis. That in effect means it's really only very large corporations that can afford to take the high-risk, high-reward stance at the airports.

Mr. Roger Gallaway: But certainly in Canada has it not been the case that if you operate a duty-free store at an airport, you really have very little capital investment relative to a land crossing?

Mr. Derrick Barnett: No, that in fact is erroneous. There are two aspects to this. Most duty-free contracts at airports are awarded for a period of five years, with no guarantee that you be able to retain that contract after five years. There are clauses in the contract to allow for renegotiation, but in general, the airport authority retains the right to put that contract out for re-tender.

For instance, at Vancouver International Airport, where we were as a result of our successful tender in 1995 through to the end of 2001, we had to undertake to construct 30,000 square feet of retail space at the airport and 25,000 square feet of airport space in downtown Vancouver for an off-airport duty-free facility. The average cost of that construction was roughly $200 per foot. So we're talking about a capital investment of close to $10 million, which we have to write off over five years. It's a pretty significant investment.

• 1640

In addition to that, we have a minimum annual rental that we have to pay—no matter the economic conditions—to the Vancouver International Airport Authority.

The downturn in the Asian economy has hurt us significantly. We nonetheless have to honour our obligation. It's very highly capital intensive, and if it's not capital intensive, then the outflow from rent is a significant obligation.

Mr. Roger Gallaway: You've raised an example at the Vancouver airport, but I can think of an airport that I pass through twice a week here in town where it would be difficult to imagine that there is much of a capital investment in terms of duty-free. That's not a criticism. The fact of the matter is, there are three walls and a sliding glass wall across the front, so whatever's inside.... I mean, is Vancouver the exception?

Mr. Derrick Barnett: No. I think you have to make a distinction between that and major airports like Vancouver and Pearson airport in Toronto. In Vancouver you have upwards of 2,500,000 passengers a year flowing through the airport. In Toronto it's nearly 7,000,000. Those airports require stores in different terminals. When we're talking about stores in the Vancouver airport, we're talking about anywhere from six to seven stores. In Toronto there may be ten to twelve stores. Each of these stores has to serve a different facility, like a transporter facility, an international facility. Because they're so large, you need to have stores at different parts of the airport.

The land border situation really requires construction of one store at one particular site. Very often, that construction, that building, is owned by the government and is rented out. Now, as those businesses have grown down at the Peace Bridge at Niagara Falls, the duty-free operators there have had to build more sophisticated stores. So the capital requirement comes into being.

The major difference between the airports and the land borders is that the airports are tendered businesses and the land border stores are businesses given out on licence. There is also a significant difference in licensing fees, in that land border stores pay a licence fee based on their percentage of sales on a sliding scale of sales, whereas airports pay a fixed annual licence fee. The really significant difference, though, is that airports pay anywhere from 30% to 40% rental, whereas the land border stores have a much lower licence and rental component—in general, under 15%. That really is the significant difference between the two.

What we're asking for here is really, I think, good news. We're really not asking for any money at all. All we're asking for is a legislative change that will allow us to repatriate sales, to create jobs, and to increase revenue stream by a payment of taxes on our profits and on the profits of the consumer products from the vendors who will supply us with the additional products we need.

Mr. Roger Gallaway: Well, I'm sure you're aware that there is in fact a review going on at the new Canada Customs and Revenue Agency and that the Department of Finance has little or no involvement in that. I welcome your presence here, but I'm surprised to see you here.

Just a final question to our—

Mr. Derrick Barnett: If I may offer an answer—

Mr. Roger Gallaway: Yes.

Mr. Derrick Barnett: —the reason I'm here is that this arrivals duty-free was specifically excluded from the regulatory review that is currently being undertaken. Therefore, our association felt that if there are going to be legislative changes arising from that regulatory review, we should in fact table this so that you can look at this at the same time as the legislative change.

Mr. Roger Gallaway: Okay.

I have a final question for our municipal colleagues who are here today. I certainly don't disagree with anything you say, but I'm wondering, with respect to transit policy—and I'm from Ontario—has the province shifted? And it's no criticism of any particular brand of political parties, but, for example, in terms of public transit, at one time the Province of Ontario had very stringent requirements on the type of bus you could buy. That policy was frozen in about 1972; you had to buy a bus that had a projected life of 25 years on the road and that sort of thing. Has there been a shift in that in the province or are we still frozen in time?

Ms. Diane Holmes: We now no longer have to buy a specific company's bus, so we have more flexibility, but we still cannot afford to buy sufficient buses. We have the oldest fleet in Canada, which means we have the most expensive fleet to maintain. Buses still do not come to the stop at 3 p.m. like they're supposed to. The bus may not come because the bus is in the garage. We have improved, because we have bought new ones, but we still have a long way to go. We need capital money for more buses.

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Mr. Roger Gallaway: Okay.

Ms. Diane Holmes: Thanks.

The Chairman: Mr. Discepola.

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): Thank you, Chair.

My question is also to the same representatives. If the provincial governments—and Ontario is not the only one—have withdrawn from transit funding, I'm wondering why you're making an appeal to the federal government, with our different priorities, I think, to help fund public transportation. If the provinces have relegated that responsibility, how can we possibly fund it if they're not on board?

Ms. Diane Holmes: Thanks for the question.

I think it's an anomaly that Canada is the only country that does not have a funding program for public transit. I think that if the federal government will come on board, most provinces will join with the federal government. It would be unusual for a province to withhold if the federal government is offering a partnership. There's already a trend. Three provinces have decided to do that, to provide some fuel tax accessibility to the major municipalities. I would think we will see the provinces agree to partner with the federal government.

Mr. Nick Discepola: But the leadership should come from the provincial level, not from the federal level, I would think.

Ms. Diane Holmes: I would disagree with you, because in most other countries—all European countries and the United States as well—the leadership is coming from the federal government.

Helen.

Ms. Helen Gault (Director of Planning and Development, OC Transpo; Regional Municipality of Ottawa—Carleton): I just wanted to add something on the environmental front here.

We certainly do have a pressing need for additional buses for our fleets, which we will have a great deal of difficulty funding at a municipal level. As far as the federal responsibility goes, though, for environmental issues and the Kyoto protocol, one of the major sources of greenhouse gases is indeed transportation, producing more than 25% of those gases. As my colleague mentioned in her presentation, if we can persuade a commuter to commute by transit instead of by single occupancy vehicle, it's a reduction of 75% in the greenhouse gases, so there's a very real tool in the kit to reduce greenhouse gases.

Mr. Nick Discepola: Isn't part of your challenge also to educate Canadians? We have a different mindset in North America. I don't think it's fair to compare North America to Europe, where you have the high density, where you have these medieval roads that are barely wide enough to get a car through. This problem, this challenge we face in North American society, is that we are too comfortable getting into our car at the time we want and getting to our destination when we want. I'm not sure how you're going to condition commuters to taking public transportation.

Ms. Diane Holmes: I think that's a wonderful comment. In regard to the comment Councillor Doucet made about the destruction in Canadian cities in the fifties and sixties when we took out the trams, took out the rail lines, and the car was king, we're only now realizing that there are downsides to car ownership, that we need to get back to public transit, that we have to move into the next millennium with a different mindset. We have to educate our public, as you say.

We, the region, have been responsible for building subdivisions that are car dependent, with no sidewalks, no corner stores, just like every other city in this country. We realize we have to change. We have to design communities differently. We have to get transit to those communities.

We are asking the federal government to join us in that new partnership, because we all must educate our residents. We certainly take that very seriously. We have just designed a new brochure on transit priorities, on why transit must be the priority and how we intend to do that. That's going out to everybody. We'll continue to do that, but we need your assistance as well.

Mr. Nick Discepola: Thank you.

Mr. Clive Doucet: Just to respond briefly to that too, it's capacity. You must have capacity in the public sector. What I said in my brief presentation is that we have spent 35 or 40 years destroying public transit capacity.

• 1650

This is a little personal vignette. When I was a kid, I could get out to Britannia quicker on a tramway than you can get out there today in a car. The reason why you can't get out there as fast is we destroyed that single lane out there. Now the only way to get there quickly is by car.

We saw that repeated across the country in every major city: Winnipeg, Edmonton, Vancouver. So now all our cities are basically saying people will come back to transit, but it has to be there for them. For it to be there for them, you have to invest in it. We can't generate the tax dollars to generate the services to move them from their cars. So it's not just attitude, it's also actual physical capacity.

Mr. Nick Discepola: I have a few final questions for the Caledon Institute.

There is a fallacy or misconception out there that we have tons of money that we can start spending all of a sudden, and $95.5 billion is the figure that's being bandied about. However, when you analyse that projected surplus, you see very clearly that our manoeuvring room is very limited over the next year or two.

I'm not criticizing your shopping list, because I think the priorities are in the right place. But when I take indexation, for example, and when I take your recommendations to change the tax brackets, we're talking about much more money that's available to us over the next year, which is projected to be $5.5 billion, and the year after at $8.5 billion. Plus you have to subtract from subsequent years what you do the next year. So if you had to prioritize what we should do for the coming budget only, what would your priorities be? Do you think the government is on the wrong track with its 50-50 mix in establishing those priorities?

Mr. Ken Battle: First, on the costing, we were actually fairly careful, depending on the particular variant of our child benefit proposal. Our package came to between $6 billion and $9 billion. That included development over several years. We just costed it at one year. So we're actually very careful, compared to some proposals.

I take your point. We're not talking about creating the child benefit system that we want in one year. We're talking about three or four years at least. Our proposals were to be phased in.

I know money is tight. In terms of priorities, the $2,500 Canada child tax benefit is absolutely, fundamentally important in terms of social policy. The federal government is committed to this as part of the national child benefit. The national child benefit has been very successful on the political and bureaucratic level. It's important that this part of the package gets completed.

The expansion of the Canada child tax benefit to improve benefits both to welfare families and also to modest-income and middle-income families would have to be done over a number of years. So we're not calling for that to be done all at once in next year's budget. In fact, last year's budget made a very small improvement in the Canada child tax benefit for non-poor families.

I would prioritize re-indexation over the increase in tax brackets or reductions in tax rates, which we acknowledge is another one. It's not that I expect the finance minister to accept that advice. It's just so easy for governments to get away with partial indexation, because very few people really understand it, although it has started to percolate a bit through the financial media and into the public. What's important in terms of really making the kinds of structural changes that are important for taxation.... The reduction of tax rates or restoration of tax brackets, if we maintain partial indexation, is just smoke and mirrors. Therefore, we're bringing in tax cuts that are temporary and that immediately start to be undone the next year by inflation. I think indexation is so crucial to solidify the gains we made in the tax system.

On the national child development fund, we were very conservative. We suggested $1 billion. My colleagues in the social policy community were angry with me over that, because they think there should be at least $2 billion, federal. I think less important than the actual amount of money is just to get the federal government back into the business of helping to build social infrastructure in the country. So I'd be less worried about the actual amount of money there than about simply getting that fund started.

The Chairman: Mr. Forseth.

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Mr. Paul Forseth: I'd like to ask the Industrial Research Association of Quebec some questions.

You outlined a number of provisions to respond to the brain drain. Perhaps you can expand on one particular provision in your recommendations where you talked about a tax credit for student loans, or whatever, while working. Can you explain what it is and how that would show up on the income tax return? I just didn't quite get what you were talking about there.

Mr. Albert De Luca (Vice-President, Association de la recherche industrielle du Québec): Generally speaking, the objective here is to retain those students who have benefited from the Canadian schooling system and therefore our collective taxes and to make sure the instruction they've received and the knowledge they've acquired benefits our knowledge industry in particular, and other industries as well.

In order to give an incentive for that sort of retention there are different forms of mechanisms. We can imagine one where the students, over a period of a certain number of years, say five years of employment in Canada, and in a given province, to the extent that the provinces follow, would be given a tax credit that could also be limited to take into consideration the minimum tax system. In other words, if he earns a certain level of income, he should be paying a certain level of taxes. To that extent, I believe the incentive can be limited.

The sure message that comes from this is that we would like you to invest your energies in order to carry out or bring out your knowledge into Canadian enterprises and therefore make Canada benefit from your knowledge.

In terms of the mechanism, there are various forms, obviously, but I would say that would be part of the regular tax return and subject to minimum taxes.

Mr. Paul Forseth: If someone graduates with a PhD in chemical engineering or some new technology, that sometimes represents a public investment of several hundred thousand dollars. Often the student also has a student loan of say $40,000 or $50,000. You're saying that the government should just somehow give them a credit if they go to work for a Canadian corporation in Canada, just for the fact of working in Canada.

Mr. Albert De Luca: No. We're saying that there has to be a strong message to the graduating student, and that message can be in the form of that sort of incentive, albeit limited, if necessary. I understand that some sums invested in such a way could be too substantial to be logical on a national perspective, but certainly an average amount could be calculated and that would be the number that would be given this sort of incentive.

The Chairman: Mr. Szabo.

Mr. Paul Szabo (Mississauga South, Lib.): I wanted to ask Mr. Battle whether he had a chance to look at the subcommittee report of the Standing Committee on Finance on taxation of families with children.

Mr. Ken Battle: Yes.

Mr. Paul Szabo: At least you have the parental leave provision, which was one of our recommendations.

Certainly the issue of children has been talked about. Mr. Francis also raised this issue about getting down to helping kids get that healthy start. That's what's really important.

For the life of me, it seems to me that broad-based or across-the-board anything is so expensive that the amount of individual benefit becomes very small. It really doesn't change the opportunities for families who want to do certain things as far as putting their interest ahead of other possibilities is concerned.

• 1700

I'm more with some of the other members on if you had to choose something. Healthy outcomes of children is an important issue from the standpoint that even the longitudinal study on children and youth came out and made a statement that was probably the driving force behind a lot of the things I've been thinking about.

Approximately 25% of our children enter adult life with a significant emotional, behavioural, or social problem. It really is an indictment that there is something terribly wrong here. And I'm not so sure it has as much to do with money as it has to do with dealing with the social poverty we have. There are some family breakdown issues.

Within our education system, do you realize that 25% of our students drop out of high school? Something is happening. The value system is struggling, whether it be social, moral, or family. How do we as a country say here's some money, take care of yourself? Also, what kind of message are we supposed to be giving? How do we give that message to Canadians that we all have a role to play in raising our children? I'm not so sure that just a tax break really sends the right message. I'm curious for your response.

Mr. Ken Battle: You've been very eloquent. I agree with everything you've said. One thing you've said is how incredibly complicated this is. I don't think anybody is pretending there is a single problem here—so here's the solution, this, this and that does it—any more than there's a single solution to poverty, which is a complicated issue as well.

In terms of whether we target our scarce resources—and I take your point, they are scarce—or we have broad-based approaches, in the way we have been thinking about that issue in terms of the tools at our disposal and in terms of income security and income support for families with kids, there's just no question that we need to improve the income security we have for low-income and modest-income families. Clearly, they are the most vulnerable.

The income distribution data that we get every year from StatsCan is a very important source of information for me. It has showed that even with the widening gap in inequality and market incomes, Canada has still been remarkably successful in reducing that gap through taxes and transfers. It's difficult to say that when you see so many homeless people and high rates of low income and all of that.

The fact is that the tax transfer system has actually managed to completely offset widening market inequalities. We take from this that we know that the income security system is probably what we're best at, so far. It's certainly what the federal government is best at. And I think that the changes that have been going on go back, by the way, to way before the national child benefit.

The first time I appeared before this committee Don Blenkarn was the chair—I'll never forget that experience—and we were talking about a child benefit. It's taken a long time to get here.

So on the income support, I think it's easier to see our way there, even though it's complicated too, but we do want to bolster income support for families with kids, especially based on need.

On the services side, though, this is where we get somewhat a broader base. The research shows that although there's a clear income relationship—as I'm sure you know—between problems and risk of problems, they're not confined to low-income families.

The majority of low-income families with kids don't have any problems. Even though more of them have serious behavioural problems and emotional problems and so on and they have more of a risk compared to non-low-income families, the fact of the matter is it's still a minority of low-income families that are facing those problems.

So we know it's not a death sentence of poverty that your kids are going to be screwed up or drop out of school. We also know that if you're middle or high income, that doesn't mean you're not going to have problems either.

So that's what leads us to the fact that we do need broader-based social and education services for families with kids that aren't so targeted by income level. I think there are other important reasons for that. One is that we want kids of different income levels to be growing and learning together. I think there are advantages to that too.

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As to the cost, although I've been talking about how we need to extend the school system down, which is I think the best image for me of what we want to do, that does not mean we're talking about a system that doesn't have user fees. I don't see how we could possibly afford a better system of early childhood education and child care support for parents if parent fees don't fund a substantial amount of the cost. It wouldn't just be through general revenues. That's happening already in a very ad hoc way. I think a geared-to-income parental fee system—I'm talking about pre-school kids, pre-kindergarten—would be an essential feature of the kind of system we're talking about.

One final point is that we talk a lot about problems, but when we're talking about education we are talking about potential here. The research does show that there are positive gains to be made if kids are given a head start in learning. I don't think—

Mr. Paul Szabo: Those head starts are amplified substantially if the first three years are healthy years as well. Mustard says here one is dynamite, and 80% of the lifetime development of the human brain occurs by age three.

Mr. Ken Battle: When I say early childhood, I'm talking really early on. One of the phrases that's been used by the federal government that I find nonsensical—we're always looking for hooks to try to explain social policy—is we want kids to come to school ready to learn. That's way too late. As any parent knows, they're learning from day one, and it's not just by the time we get to the school system. I find it very peculiar that we talk about education as starting at four, five, or six and before that is care, when that's when learning in such a deep sense is happening.

I don't think the kind of system we're envisaging, by the way, could be created in this budget. It's going to take a long time. I think we have to be serious about it. I've been in the business my whole career, but the one part of social policy that Canada does the worst in is early childhood when you compare it to any other kind. It really is embarrassing.

Mr. Paul Szabo: I agree.

Thank you, Mr. Chair.

The Chairman: Thank you.

Is there anybody else with a question? Does anybody want to ask a question? Last call, does anybody want to ask a question?

Yes. Mr. Pillitteri and Ms. Redman.

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

This is a question to the Association of Canadian Airport Duty Free Operators. Sorry, I was not here for the presentation, but since I do have some land where there's a duty-free shop in my riding—I represent Niagara Falls, and you did mention Peace Bridge, which is in Fort Erie—let me ask you a question. When you say repatriate some of the duty-free sales, what do you mean by repatriating? Do you mean repatriating some Canadian products that are sold abroad actually and bringing them back here to sell to Canadians? What do you have in duty-free shops that needs to be repatriated?

When I go inside a duty-free shop I can't tell what is Canadian and what is French. Is repatriating Dom Perignon and selling it in Canada doing anything for the Canadian taxpayer? We have consumption tax within Canada, and if you take that away from a consumption tax I think you're giving a privilege to someone who is coming into Canada. Or Chanel No. 5, is that a Canadian product? I wonder how many Canadian products we have in those duty-free shops in the airports, which you're telling us to repatriate, which will actually be excluding them from our domestic tax system of value-added tax, being GST and PST and all of that.

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Mr. Derrick Barnett: In the concept we are driving at here, we are not looking specifically at the country of origin of the product. What we are looking at is the fact that if a traveller travels here from Heathrow International Airport in London knowing that they can buy duty-free products prior to entering Canada and have to declare those within the personal exemption allowances, we believe that instead of buying the product in Heathrow International Airport, or any other airport, they would prefer to buy that product when they arrive, prior to clearing customs in Canada. So although we may not be promoting the sale specifically of Canadian products, because arrivals duty-free stores would have to be small, they would consist mainly of allowance product, mainly liquor, tobacco, fragrance, cosmetics—not too much cosmetics, because it's a difficult product to sell in a short period of time, but fragrance—and some souvenir product, effectively what we are really aiming at doing is capturing sales the Canadian market otherwise loses to foreign airports.

As to your question of would these people buy products, bring them into Canada, and therefore deny the domestic retailers the opportunity to sell the products to them, and thereby deny the government of its share of taxes, I don't believe that would be the case, because we are not advocating any increase in the personal exemption allowances. It's no different from what it is today. We are really advocating an expansion, should I say, of the duty-free sales channel and to bring offshore sales back to Canada, and, through that generate additional rental, additional jobs, and additional taxes.

Mr. Gary Pillitteri: Sir, I am a Canadian foremost, and whenever anyone is exempt in using the portion of duty-free exemption coming into Canada, I figure that's a benefit to someone who is travelling rather than someone who is not travelling in Canada. Therefore if it were in any way a promotion of Canadian products, I could see it. But the only way I could see this is, yes, you're creating a convenience to the traveller and some way of getting away from a consumption tax by using that portion of one leaving and entering a country. I want to make that clear. It is a convenience, but no benefit to any Canadian manufacturer.

Thanks.

Mr. Derrick Barnett: I see it as a good-news story. We're creating jobs, we're creating revenue, we're creating taxes. And, better still, for this committee, we're not asking for any money.

The Acting Chairman (Mr. Paul Szabo): Super.

Mrs. Redman.

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

I had another committee meeting, which obligated me not to be here to hear Mr. Francis' and Mr. Maracle's presentation.

I have a Friendship Centre in my riding of Kitchener Centre, and I didn't see it listed in here. I know that one of their ongoing issues is the core funding, to the point where there's been some additional HRDC funding flowing to the urban aboriginal housing project and they're actually funnelling it toward the friendship group because they're so worried about them meeting the needs in Kitchener and the surrounding area. From your presentation, you named some of the ones that don't have core funding and some that do. I'm wondering, nationally is that an ongoing issue for urban aboriginal centres?

Mr. Denis Francis: Maybe I can answer part of that.

The new and developing centres stopped back in about 1987. At that time, there were probably 15 or 16 centres that were being considered through the Department of the Secretary of State. That's changed to the Department of Canadian Heritage. What's happened is that those groups have struggled over the years to try to keep their doors open. Some have closed them, some run on a part-time basis, but they still do continue to work with initiatives.

And I'd like to recognize what Paul was saying about the head start programs. We've been able to direct some of those types of initiatives to help them keep their office open.

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When we talk about early childhood development, I want to say that it was recognized through reports that a lot of aboriginal children were really not getting a proper start in school. It came about through different departments doing their assessments and what not. Our children were not graduating past grade 12 or junior high. Some of those figures are really startling within this Canadian society. One of them was that back in 1978, 0.07% of the aboriginal population were graduating past grade 12. That was for a number of reasons, including poverty.

We've always said that we're the poorest of the poor. I'm not making light of the air pollution problem, but most of our people don't have enough money to buy a car, and that's the reality. A lot of our people don't have the finances to buy their transportation. So we make a contribution in those communities.

With regard to some of the HRDC funding, which is really employment and training related, we used to be a major partner in that particular initiative, which was based on a lack of employment opportunities for aboriginal people across this country. I'd like to relate that specifically to the community I'm from. Our unemployment rate, which we have numbers for, is 60%. It's a very small community in British Columbia. We constitute a third of that community, and the average unemployment rate is 13%, which is the number they have through UI and what not.

We've been able to lobby and get some recognition at the community level in the larger centres. But with the most recent accord that came out, they've limited the ability of those aboriginal groups in urban centres to access those dollars. They said it was a transparent process, and it should be a transparent process, but the reality is that it's not happening.

I think in isolated communities such as Kitchener they've probably had to team up with another group to lobby the signatory of the RBA, which is the regional bilateral agreement, with this particular fund. They've probably had to form a partnership and say you have to address the employment needs of our constituents and our community.

I can't say that it's happening across the country. We're still struggling, even within our own communities, and saying you have to recognize these people who are living in urban centres. They're there because they want to improve their quality of life.

I'll pass it off to Marc. I think that's the general thing that's happening.

When I say our own communities, I mean the aboriginal community in this country. When we talk about national programs, it's to ensure access and a good decision-making process so that those people are better served, regardless of residency. I think there's some realization coming with the recognition of the existing government, which some of the groups have been dealing with, where they've kind of missed our sort of broad approach to the community we are operating out of.

I want to add that in a lot of our centres across this country we not only serve aboriginal people but we also open the doors to non-aboriginal people who are experiencing those social and poverty issues, which nobody in the community has the infrastructure to actually deliver on. I can relate that directly to the community I'm from, which is Merritt, British Columbia. I've kept some profiles and demographics, and I see that I serve approximately 27% non-aboriginal people from different ethnic groups, people who need that support in that particular community.

Mrs. Karen Redman: It's the same in my community.

Mr. Denis Francis: Yes.

Marc, do you want to add something?

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Mr. Marc Maracle: I'd like to underline that the situation in Kitchener is the same as in 17 other communities that have a Friendship Centre that operates without any federal support under the main program a majority of Friendship Centres operate under. We're asking whether there is some way the federal government can provide core support to these centres, because there is a significant return in having some stable funding.

We don't have an ability to deal with measured growth. We know that the situation is still migration into urban areas from reserve communities, northern settlements, Métis settlements, etc. That's the reality. That underlines it. Certainly we would want to see the federal government provide support so that we can recognize the work that's happening at the community level, just as in Kitchener.

The Chairman: Thank you, Ms. Redman.

On behalf of the committee, I'd like to thank you very much. As you can probably tell, we went overtime on this particular session, which I think clearly illustrates the interest the members had in your presentation.

We're of course always challenged as a committee. Many of the people who appear in front of us make a very strong case on the point of view they're representing, which makes our job a lot more difficult as we have to make the decisions and trade-offs.

So that you can appreciate the process, we're essentially driven by the ultimate goal of improving the standard of living for Canadians, and everything goes through that prism and that filter. The recommendations we will be making to the Minister of Finance, given all the trade-offs we have to make, I'm sure will result in a better standard of living.

On behalf of the committee members, I want to tell you that you've added value to the debate and to thank you.

The meeting is adjourned.