FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, October 15, 2001

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[English]

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

As you know, the finance committee is, for the next couple of weeks, travelling across the country listening to Canadians as to what the priorities should be for the upcoming budget. As always, we seek public input because, as you've probably seen in the past, the input from Canadians has found its way into the actual budget document. The process speaks well for the type of democratic process we engage in. As on every other day, we of course welcome your input.

We have the following organizations represented in panel one of the afternoon session here in Toronto: Citizens for Public Justice; Canadian Pensioners Concerned Incorporated; Crop Life Canada; the Canadian Association for Community Living; and the Campaign Against Child Poverty.

Many of you have actually appeared in front of the committee before, and so you know that you have five to seven minutes to make your introductory remarks. Thereafter we'll engage in a question and answer session.

We will begin with the Citizens for Public Justice, Mr. Greg DeGroot-Maggetti.

Mr. Greg DeGroot-Maggetti (Coordinator, Socio-economic Concerns, Citizens for Public Justice): Thank you, Mr. Bevilacqua. It's good to be here again.

Citizens for Public Justice is glad to have this opportunity to meet with the finance committee. I wish there were more members here at the moment, but I hope they'll be coming in soon.

I am basically putting forward recommendations for achieving some of Canada's social and economic priorities.

Citizens for Public Justice is a national organization with more than 1,500 members across Canada. CPJ is an ecumenical Christian organization rooted in a faith that seeks justice and promotes peace.

Our work focuses on three policy areas: socio-economic concerns; aboriginal rights; and refugee policy.

We see these finance committee hearings as an important occasion for us to contribute to shaping policies that foster the common good.

Today I'll focus my remarks on policies directed at improving life chances for Canada's children. A main concern for Citizens for Public Justice has always been how Canada can ensure that the disadvantaged have a chance to enjoy their full social and economic rights and to participate in the life of their communities.

For the past decade we've joined with many, many Canadians in calling attention to the persistently high rates of poverty among Canadian children and their families.

Our concern is heightened not only by the hardship these children and their families experience in the present; we also know that economic hardship creates developmental deficits that deny children their chance to develop to the full. We see that child poverty often lies at the root of a lifetime of economic, social, and political exclusion.

This is why we have consistently recommended policies that will provide the best chances for all Canadian children. In this regard we're encouraged by the first steps this government has taken with the provinces and territories to improve child benefits and early childhood development services and maternity leave.

CPJ welcomed the government's recommitment to the national children's agenda in the Speech from the Throne and the Prime Minister's pledge to introduce multi-year investment plans for this and future budgets.

Given the tragic events of the past month, CPJ is also encouraged by the Prime Minister's determination to carry on with Canada's long-term agenda.

Our government

—he said last month—

will continue our longer term agenda to build a strong economy and society, [and] will continue encouraging excellence and ensuring all Canadian children a good start in life.

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CPJ's submission, which I hope you've had time to read, identified several key policy initiatives to both help the government meet its objective of providing all children the best start in life and to help Parliament—and the country, indeed—fulfill its pledge to eliminate child poverty in Canada.

These initiatives include further developing the Canada child tax benefit to a maximum of about $4,200 per child; laying out investment plans to fully fund a national system of early childhood development and care services; funding a national affordable housing strategy; investing in post-secondary education to freeze and reduce tuition so that young people do not enter their family forming years burdened by education debt; and creating a national commission to develop strategies that can improve the availability of good jobs with living wages.

The details for costs of these policy recommendations are included in the submission we made in August, and I would be glad to discuss them during the question period.

As the Canadian economy enters into recession, it becomes more apparent why we need strong national programs to ensure the economic well-being of Canadians: despite several recent years of strong economic and job growth, poverty figures have only moved down slightly, and the depth of poverty has not improved. So we see a continuing crisis in terms of the lack of affordable housing. We find many families still turning to food banks on a monthly basis. We find volunteers at food banks and emergency shelter programs asking how to create a better, more humane way to assure that everyone can meet basic needs for food and shelter.

As more people begin losing their jobs in this recession, we know that the number of families facing poverty, hunger, and homelessness will increase. Now more than ever we must build on the foundations put in place for a secure program of child benefits, for early childhood development services, housing, education, and the assurance that paid work will provide enough to keep people from having to turn to food banks and emergency shelters.

The other day I reread the document A National Children's Agenda: Developing a Shared Vision which Canada's social services ministers put out a few years ago. It's a good document and clearly shows that Canadian governments know what children need for healthy development.

Throughout the document there are quotations from children and parents. One quote in particular struck me. It's from a youth participant in Kids Talk and Videotape. Asked the question, “What do youths want from adults?”, this participant responded simply, “Keep your promises.”

More than a decade ago, Parliament made a promise to Canada's children, the promise to eliminate child poverty in Canada. So far we've not made good on that promise. We can talk about other pressing national issues, like eliminating inflation and then the deficit, or the tax-cut agenda and efforts to pay down the debt, but I'd say actions speak louder than words. The time is now, so let's fulfill our promise to our children.

Thank you.

The Chair: Thank you very much.

We will now hear from Canadian Pensioners Concerned Incorporated, Mae Harman and Gerda Kaegi.

Welcome.

Ms. Mae Harman (Past President, Ontario Division, Chair of Economic Concerns Committee, Canadian Pensioners Concerned Incorporated): Thank you.

Canadian Pensioners Concerned is pleased to once again have the opportunity of expressing our views on the budget at the hearings of the Commons Standing Committee on Finance.

I was pleased to read in Saturday's Toronto Star that Mr. Martin has said Ottawa has no intention of reducing new health and social transfers to the provinces or introducing a major tax-reduction scheme. I was concerned to see that adult education and training, environmental measures to protect water and air quality and combat global warming, and an affordable housing initiative may be threatened.

Our written brief of August 10 is a statement of the principles that we hold should determine the budget. We see budgets as the expression in monetary terms of the program planning and priorities for the year ahead, in the national sphere, and in the context of Canada as a nation and a member of the international community. Such financial planning needs to be made in consultation with the public, it needs to be thought through in terms of long-term consequences, it needs to provide for wise governance, it needs to be in conformity with the United Nations Declaration of Human Rights, and it needs to provide a good quality of life for everyone and the opportunity for each individual to reach his or her full potential. In all of this, government must be accountable to the people.

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Although the tragedy of September 11 may place further strains on government finances, we cannot afford to neglect the well-being of Canadians—our health care, education and training, social services, environment, etc. Nor can we shirk our responsibility for the peoples of other countries who live in such dire poverty and disease. Our foreign aid must be increased, and we must share our knowledge and technological skills in helping the people of other countries deal with solving their problems.

Part of the fallout from September 11 seems to be an increased recognition that we need governments. Hopefully with it will come some understanding that taxation is the fuel that drives the engine of government. Canadian Pensioners Concerned sees taxation as a necessity to provide a well-functioning civil society and a good quality of life. We support fair and progressive taxation with higher rates for higher levels of income. We feel it is illogical to cut taxation if program goals have not been met.

We are appalled by the ever-growing gap between the very rich and the very poor, and especially by the poverty rate for children. We recognize health as a fundamental right throughout life and the necessity of preserving public health through active measures of promotion, prevention, and protection—including such determinants as housing, income, education, employment, and environment.

The original vision of a truly comprehensive public health care system for Canadians with a continuum of services must be reaffirmed. The public system must be expanded to include a universal system of home care, long-term care services, and pharmacare. We oppose any commercialization and privatization of health. We support designated funding to the provinces to meet identified needs and a requirement that they be accountable.

We need a national housing strategy with a target of eliminating homelessness within every community in Canada. Everyone is entitled to a home to call his or her own: affordable, accessible, safe and clean, and with a significant degree of privacy. Re-education and re-training must be readily available as the world of work changes. More government support must be provided for post-secondary education so students are not saddled by years of debt or forced to drop out because they cannot pay their fees or living costs.

Our ecosystem is fundamental to human survival. Here we need to take appropriate measures to maintain and protect our precious supply of water, prevent contamination of the air we breathe, preserve our forests, wetlands, and parkland areas, and stand firm in our support of the Kyoto agreement.

Canadian Pensioners Concerned is committed to working toward a truly caring, compassionate, and effectively functioning civil society, where all Canadians have an equal opportunity to succeed and to share in responsibility for each other. We must not be diverted from these goals no matter what other demands are placed upon us. Thank you.

The Chair: Thank you very much. Any further comments?

We'll now hear from Crop Life Canada, Charles D. Milne, vice-president, government affairs. Welcome.

Mr. Charles D. Milne (Vice-President, Government Affairs, Crop Life Canada): Thank you very much. Crop Life Canada very much appreciates this opportunity to testify to the finance committee.

Crop Life Canada—many of you would formerly know us as the Crop Protection Institute—is a non-profit trade association representing the manufacturers, developers, and distributors of plant life science solutions for agriculture, forestry, and pest management in Canada. We were founded in 1952, and Crop Life Canada is the voice of our industry and a source of information on crop protection products.

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Given the recent global events and the reality of a less robust economy, Crop Life Canada encourages the committee that it is even more important now to direct its focus to the broader aspects of confirming Canada as a knowledge-based economy, affording Canadians the opportunity to be globally competitive, and maintaining the renowned Canadian quality of life.

Creating the globally competitive environment that fosters innovation and evolves new technologies is a cerebral exercise, not a financial obligation. If departments appreciated their respective interdependence and demanded more synchronization among each other, Canada could enjoy a regulatory environment with the following attractive characteristics: an efficient and predictable regulatory system; accountability to the public and to the industry it regulates; drawing upon Canada's competitive position in agriculture; a harmonized approach to regulation; a transparency to the public and the industry; encouragement of innovative development and continuous improvement; and avoiding the creation of trade barriers and supporting trade liberalization.

Crop Life Canada believes the aforementioned seven characteristics are imperative to achieving the Prime Minister's vision for innovation, as well as being totally aligned with the June 29 communiqué by federal-provincial ministers of agriculture, who reinforced the quest to establish the environment for innovation in all sectors of the economy, including agriculture.

As a starting point, Crop Life Canada has identified the following five situations as requiring immediate attention to reach the loftier goals for Canadian innovation and prosperity.

The first would be the illusive accountability within government for the performance and productivity of regulatory bodies—and I think that's an issue with which this committee is well familiar.

The second would be the technology gap created within Canadian agriculture resulting from uneven and incomplete regulatory harmonization under NAFTA. We've been talking the talk, but walking the walk seems to be elusive.

Third is negating the well-intended impact of Canadian research and development tax credits, which are viewed by those abroad as being among the most progressive, but because of complicated regulatory environments, Canada is kept from being the global discovery centre for agrifood that it has the potential to be.

The fourth item would be the incorporating of the so-called precautionary principle in legislation and regulatory functions. While there is uneven interpretation of both the definition and application of this principle, this lack of clarity serves as a disincentive to innovation, in some cases preventing the introduction of new and valuable products to the Canadian marketplace and to Canadians' well-being.

The final one is the need for government to take a more active and higher-profile role in assuring public confidence in Canada's regulatory systems and to scientific acumen of those charged with the responsibility to regulate. There are overarching implications of technology regulation upon trade, research and development, investment attraction, and environmental sustainability, as well as the competitiveness of Canadian agriculture.

Crop Life Canada believes a new overall government perspective is needed toward regulatory synchrony in order that the vision for Canada as a technology leader and global trader, as expressed in the throne speech, can reach its potential. Regulatory synchrony must prevail across all government departments to create the environment for such goals to have any chance of being achieved. Optimizing Canada's regulatory environment requires discipline, communication, and clear thinking, not money.

Thank you for your attention.

The Chair: Thank you very much, Mr. Milne.

We will now hear from the Canadian Association for Community Living, Dianne Richler and Connie Laurin-Bowie.

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Ms. Dianne Richler (Executive Vice-President, Canadian Association for Community Living): Thank you.

First of all, I'd like to express the regrets of our president, Cheryl Gulliver, for not being here today. She was fully intending to be here but unfortunately is living with one of the challenges that we're here to speak about today. Her daughter, who has a disability, required urgent medical attention, and so Cheryl is at the doctor's instead of here with you.

We thought long and hard about how to present our case to you today. We are one of the groups that has been presenting before this committee for a number of years, and we have been very pleased to see the response in the last several budgets supporting people who have a disability.

In the aftermath of September 11, and recognizing the priorities that the government is dealing with now, we thought long and hard about how to come in with some proposals that wouldn't sound self-serving or be inappropriate in the context of today's challenges. But fundamentally we believe Canada as a country is going to remain strong and go forward, and so we are coming with some significant proposals for you today, in the recognition that these are not things that can be addressed in one budget or in one moment in time, but we will present a framework that the government can build on over a number of years.

Ours is an association of families, families of children who have an intellectual disability. But I think as you travel across the country and have different groups appearing before you, the Council of Canadians with Disabilities and the Canadian Association of Independent Living centres in particular are going to be coming with their specific issues, as we are with ours today, but all of us have a common recommendation. All three of us, representing a very large segment of the community of people with a disability in their families, are supporting a common initiative for a proposal that we're calling “Striking a New Balance”. I'd like to go through some of the details of that with you today, to speak more specifically about why we think this meets the needs of families.

We have spent a lot of time over the last couple of years consulting with hundreds of families across the country to get a sense of what their issues are. One of the biggest issues they're facing is simply the lack of value of their sons and daughters in their communities, the feeling they have that their children are being rejected. They face that when they go to the neighbourhood school and when they go to the playground; they face that repeatedly.

So they're looking for their sons and daughters to be valued, and they're looking to receive the supports that are going to allow their sons and daughters to be ordinary members of the community. They don't want special programs for people with a disability; they want supports to deal with their disability that can enable them to participate as full citizens. We think the proposal that has been developed by the Roeher Institute deals with their concerns.

I'd like to call your attention to the second of our three documents, and specifically to page 5, which is a one-page summary of the proposal we're making, which is to shift the disproportionate balance that individuals who have a disability in their families are now investing in supporting themselves and their family members, to further engage the federal, provincial, and territorial governments in that effort.

We're calling for a federal-provincial-territorial funding initiative that would involve a federal transfer, both to individuals and families, through recognition of the individual costs of disability, primarily through refundability of tax credits, through support to families through caregiver support and compensation, and child poverty reduction strategies. We're calling for investment in communities, both in the development of organizational capacity and in a community transitions fund. We're also calling for a substantial transfer to provincial and territorial governments that would allow them to meet their responsibilities for supporting individuals.

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The framework is based on the early child development model but builds on it in order to deal with some of the lessons that have been learned of the weaknesses of that earlier agreement. But it would be further evidence of the fact that the social union framework agreement can work for all Canadians. Specifically, what we're looking for is that in the next budget speech the federal government commit to working with the provinces and territories towards a targeted date for an agreement that will support a national labour market strategy based on a system of disability-related supports.

That would meet the throne speech commitment. It would also satisfy our requests and the needs on the part of provinces and territories to fulfill their obligations. Most importantly, it would fulfill the strong message we're hearing from families that they don't want to see the federal government disappear from their lives.

In order to talk a little bit more about where we are situated internationally in terms of meeting some of those commitments, Connie Laurin-Bowie is going to give a brief summary.

Ms. Connie Laurin-Bowie (Director of Policy and Programs, Canadian Association for Community Living): Very briefly, I'll just refer to the fact that we've included as a third document, which we've left with you, an international policy scan. We commissioned this work in order to find out what other jurisdictions like Canada were doing in the area of supporting families.

There is a range of different policy mechanisms used in the countries we thought were comparable to Canada. They include tax provisions, direct transfers to families. They include the removal of some policy barriers, including EI leave for families who have a child with a disability and other policy types of mechanisms, and community supports and programming efforts that help communities to develop community supports and services.

So in terms of this framework, I think it's really critical to make two points from this scan.

One is that the framework actually identifies those key areas that other jurisdictions have invested in for families and provides a way for us to do the same.

The second finding in this survey is that Canada is significantly behind comparable countries in this area. In fact, in Canada the issue of supporting families who care for a person with a disability is largely hidden. Families tell us that the sense in their communities when they tell neighbours and friends about their struggles is that people assume our health care system addresses the needs of families who have a child with a disability. For the majority of families, that's not true. In fact, our research shows that 96% of families have significant costs related to caring for their child with a disability. Cost is one example of the pressure, and they bear that solely themselves.

Ms. Dianne Richler : We'll be open to questions. Thank you.

The Chair: We'll hear now from the Campaign Against Child Poverty, Gerald Vandezande, spokesperson, Carolyn DiGiovanni, and Jacqueline Maund.

Mr. Gerald Vandezande (Spokesperson, Campaign Against Child Poverty): Thank you, Mr. Chairman, for inviting us to appear before this committee and to participate in these pre-budget consultations. With me are Carolyn DiGiovanni, who is the director of public relations of the Catholic Children's Aid Society in Toronto, and Jacqueline Maund, who is the coordinator of the Campaign Against Child Poverty.

You've all been given a copy of the brief as well as the additions showing the full-page advertisements that the Campaign Against Child Poverty has been running in the Toronto newspapers, notably the Globe and Mail and the Toronto Star. We would like you to take careful note of them because the message we are conveying before you today is the message that we conveyed in those advertisements to the Prime Minister in particular, especially since he, on behalf of the government, made a very specific historic commitment to the elimination of child poverty in the Speech from the Throne on January 30.

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As you know, Mr. Chairman, members of the committee, in November 1989 Parliament made an historic decision unanimously that it would seek to achieve the goal of elimination of poverty among Canadian children by the year 2000. That year is behind us. The promise was there. The commitment was made, and we are pleased that the government in its January 30 throne speech repeated that commitment in no uncertain language and said that it would take definite initiatives to make sure this 1989 commitment would be translated into action.

We particularly are pleased that the Prime Minister, the day following the throne speech, in his reply to the throne speech, again made it very clear that the government was serious about this throne speech promise and its historic obligation as a Parliament to eliminate child and family poverty by the year 2000.

We are here today to call on you as a committee to recommend to the government, in the strongest possible terms, that it must indeed continue to move from promises to commitments and now to budget actions that go a major step forward in translating all that has been said on paper into a budget document that spells out the kinds of social policies that will lead to a social security for very vulnerable families and voiceless children, who are in a desperate situation. The winter is coming soon. There will again be thousands of homeless people. There are already 6,000 homeless children in shelters in this city.

So we make an appeal to you. For us, and for you no doubt, it's a matter of conscience, of national conscience. It's a question of fundamental values, core values, that we need to come to grips with. So the elimination of child and family poverty for us and for you, and for the nation, must be a national priority. It must be dealt with urgently. It's an unavoidable challenge we must deal with.

In your package you also have a copy of the cover story that appeared in Maclean's on September 17. I think that story speaks not only of the personal tragedy of child poverty, but also about the political shame of child poverty, and I would urge you and your colleagues to take careful note of it and to translate the challenges contained in it to recommendations to the Minister of Finance and to the House.

I also want to draw your attention to the ad in your package that appeared on May 24, “Without our help, she doesn't have a prayer”. It was a national paper that ran the ad. It is signed by about 300 faith leaders from across the country. It's the first time in the history of our country that faith leaders from across the spectrum signed this joint appeal to the Prime Minister, to the Parliament, to you as individual MPs, and to this committee that action must be taken.

Many people are supportive of what the Campaign Against Child Poverty is seeking to achieve. We've mainly done our work through the public advertisements in the national press. We have recently had a major national fast, part of which was that members of Parliament be contacted and do something in the upcoming budget debate about the urgent need to sharply improve the terrible poverty picture that you find described on page 3—I won't go into detail—in which you have the statistics that show that things have continued to worsen. The rate of child poverty has increased, the poverty gap has increased, and food bank use has increased.

So we hope that after the discussion today your recommendations through the House and through your respective parties will be as unanimous as the recommendation was in 1989, and that Parliament will once more act in the national interest and see it as a matter of national urgency.

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My colleague, Caroline DiGiovanni, will now address some of the benchmarks that we have developed and submitted also to the cabinet ministers with whom we have been meeting. We thought we should table them here so that we could have an exchange with you about their relevance to the budget-making. They appear on page 4.

Caroline.

Ms. Caroline DiGiovanni (Executive Director, Hope for Children Foundation, Catholic Children's Aid Society of Toronto; Campaign Against Child Poverty): Thank you, Gerald, and thank you to the committee members for accepting our brief today.

We've been at this for a while, and the urgency has not decreased. By presenting the benchmarks today we want to put them into the kind of format a finance committee can work with.

The very first one is a five-year social investment plan for Canada's children with clear national objectives and targets. That's the language of investment, but it certainly suits the picture we're trying to show you.

We won't have a civil society twenty years from now if we continue to have homeless families and children who move from place to place throughout their childhood and have no roots and no attachments, if we don't make that early investment. The early investment is very significant for all of us, not just for these children. So the language we're using in the benchmark we hope will suit your case when you present your budget considerations.

Benchmark number two, a federal government commitment to redirected LEAP, calls for 1.5% of projected GDP by 2005 for national investments in children and families to meet the core objectives. We estimate that may accumulate to close to $16.5 billion. It's an investment that again will pay off in years to come, and by looking at it now and considering it as you consider other plans, you will be moving forward.

Benchmark number three seeks a federal government commitment to improve child benefits for low-income families to achieve a 50% reduction in the depth and level of child poverty by the year 2005, and a commitment that the federal government will work with the provinces. They can only do it if they work together to eliminate the present exceptionally high poverty levels for children during their early years.

Depth of poverty translates into stories that I know about from working for a children's aid society. Catholic Children's Aid is called into action when a family cannot meet its own basic obligations for its own children.

It is the bottom line when you have to assist a family just to meet food and shelter and clothing. The number of such cases is increasing in every child welfare agency in Ontario. We're learning from the other provinces that it is also on the increase there. So the depth of poverty is something that must be taken into account.

Number four is that there be a federal government commitment to invest in a basic foundation of early childhood development services available to all families in every community across Canada. This is asking for leadership. This is asking you to say this is a value that you support.

There are many countries in the world where children's needs are a given and are taken first. If that focus is available in every community, families can plan raising their children: they have advice on parenting; they have a place to go for assistance when there's a special need; they have care for their children that's properly trained and well paid.

This is a given in some nations. It's a given next door in Quebec. I think what we really need to look at is the leadership required to put children's early years high on a national agenda, so that it's in every community, a part of the woodwork.

I'll try to move right along here, because we will be making reference to some of the other presentations you've already heard.

We're looking for more affordable housing. Families that can't have stable housing begin to disintegrate, and then you've lost the gains in children's early life.

We're looking for the federal government to substantially improve the base child tax benefit. There have been many improvements since the program was introduced. It is continuing to be significant for families of low and modest income and for middle-income families. We need to keep that as something we can carry on across the province. It is within your prerogative to identify that program yearly and see if you can possibly enrich it and improve it.

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The next two would involve a federal government commitment to national investments, in cooperation with the provinces, for programs to freeze and lower tuition fees for post-secondary studies across Canada. Only by education can people improve their lot and be prepared for the workforce. We need to have tuition that's available and affordable.

Finally we're asking that the federal government commit to establish, in cooperation with the provinces, a national commission to develop strategies that can improve the availability of good jobs and living wages for family providers and adults in poverty. You've heard that from other presenters today. I think we are consistently asking for changes so as to have a living wage that goes along with the cost of living and is available to workers who can then maintain themselves and close the gap between the rich and the poor.

Thank you.

The Chair: Thank you very much.

Now we'll proceed with the question and answer session. Five-minute rounds for the following four members: Kenney, Brison, Bennett, Murphy.

Mr. Jason Kenney (Calgary Southeast, Canadian Alliance): Thank you, Mr. Chairman.

I think on behalf of all members here I'd like to thank all the members of the panel and the organizations they represent for the time they put into preparing their presentations and coming before us today.

Of course it's always difficult with these panels. Many different issues are raised, but one theme I'd like to pick up on was raised by a couple of the organizations—CPJ, as well as the Campaign Against Child Poverty—and others might like to address it. We hear in these two submissions in particular the reiteration of the apparent statistic that one in four Canadian children live in poverty. I'm not aware of any statistical definition of poverty in Canada from which such a statement could be extrapolated. Perhaps I'm not familiar with the statistical framework you're operating from.

Either of these organizations, or anybody, could comment on this. Are you drawing this from the reference to the low-income cutoff by Statistics Canada? If so, don't you recognize that, as Stats Can says again and again, and year after year, this is not a definition of poverty; it is a relative definition of income. So my first question is, where do you draw this inference, and what relationship does it have to the relative definition offered by the LICO through Stats Can?

Mr. Greg DeGroot-Maggetti: If I could respond, traditionally the low-income cutoff line, which Statistics Canada characterizes as that level of income below which families or individuals are significantly worse off or in straitened circumstances, has been used as a benchmark for low income.

Now, there are a couple of things to say. There are many different measures that Statistics Canada and different levels of government have been working on to measure poverty, but whichever one you choose, the evidence over the past decade has been that they've all shown an increase in the number of people who have fallen below those measures. Statistics Canada has tried to sharpen up the measure by also measuring depth of poverty to get a measure of poverty intensity. They have found that throughout the 1990s the depth of poverty has either remained the same or grown worse.

There's some discussion as to what measure to use. I think there's some evidence that points to the usefulness of low-income cutoffs from a public policy point of view. If you take, for example, a definition of poverty that said “that point below which somebody's health is detrimentally affected”, we can find through longitudinal research into the effect of poverty on children's health and well-being that below roughly the low-income cutoff measure, there's a substantially increased risk of poor health and poor educational attainment.

So strictly from a public policy point of view, there's merit in continuing to use the low-income cutoff as the measure of how well we're doing in creating the best opportunities for our children.

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Mr. Gerald Vandezande: In support of the position taken by my colleague, let's assume, for the sake of this discussion and for the sake of the government having to make up its mind on what the priorities should be in the next budget, that only 6,000 children—and the facts show it in Toronto—live in absolute poverty and must be housed in shelters. Let's assume this is the only group of people we can find in the country who are poor.

It is our conviction, it is the conviction of these 400 faith leaders I cited in the public ad, it is the conviction of people across this country, that 6,000 people, children, voiceless folks, deserve every bit of help the government can give. Six thousand people are six thousand too many. One person is one person too many. Those are our children. That's the future generation. Those are the people who are pleading for help, for housing, for protection, for care.

I think the debate should no longer be about which poverty measure is the best, but what are the best measures that the government, together with the opposition parties, can take to once and for all implement the commitment they made in 1989 to eliminate child and family poverty. It's a moral issue. It's an ethical issue. I think together you can demonstrate, even at this time of national crisis, that you have the national political will to support this.

The Prime Minister said on January 31 in a reply to the Speech From the Throne, and in his recent speeches on his return from Washington, that the children's agenda must remain a priority and that we must act for the sake of future generations. I hope that you, your party, and the other opposition parties, will support the Prime Minister in that commitment.

Mr. Jason Kenney: I want to respond and ask a supplementary question, Mr. Chairman.

Mr. DeGroot-Maggetti said that the LICO's measure of those who are significantly worse off or are in straightened circumstances in fact isn't accurate, it's a measure of relative income inequality. I'm sure you would admit that if suppose Canadians' incomes were doubled on average across the income spectrum tomorrow, there would still be by this definition one in four Canadian children under the LICO, which is why I submit it is not a useful tool of measurement.

Mr. Vandezande can do what people in his position often do, which is to say when this concern is raised, let's set that aside and let's focus on the moral outrage over child poverty. And you will find no disagreement, I suspect, from a single person in Parliament or in Canada, on the moral imperative of reducing and hopefully eventually eliminating child poverty.

But I would submit, in the form of a question, would advocates of the reduction and elimination of child poverty not agree that their case would be greatly strengthened in terms of public pressure and hence political results were they to reference statistics that are believable in the framework of common sense? I don't think I have a constituent who truly believes that one in four of their neighbours or fellow citizens has children living in poverty. The very important message you have to deliver, I would submit, is undermined by the incredulity of this statistic that is so often cited.

Mr. Greg DeGroot-Maggetti: Can I say a few words? I really hate to spend so much time arguing over the numbers. For example, LICO's a mix, really—

Mr. Jason Kenney: Then what is it?

Mr. Greg DeGroot-Maggetti: —technically speaking. I'll answer the question. Technically speaking it's a mix of a relative measure and a market basket measure. There's a straight relative measure called the low-income measure that's used for international comparisons. It measures the proportion of the population that has half of the median income of the whole population. That's a straight, relative measure.

By your reasoning, you'd say, you can never get it lower than one in four living in poverty, but when you look across countries, as indicated in this little chart here from the United Nations, by that measure, 15.5% of Canadian children were living in poverty throughout the 1990s. It's actually a more restrictive measure than the low-income cutoff, so it shows fewer living in poverty.

But then how do we explain that Sweden had only 2.6% of their children living below that more restrictive poverty measure than the one we've typically used in Canada?

• 1430

Even with relative measures, we can reduce poverty. We've done it for seniors. It's time to get on with the work of doing it with children and families. You have to go and talk to the volunteers in the homeless shelters and food banks and ask them if there's poverty. I'm getting fed up with hearing there's no poverty. It's down the street from where I live. It's people in my community.

Mr. Jason Kenney: Who said there's no poverty? I've never heard that in my life.

Mr. Greg DeGroot-Maggetti: I just say, let's get on with the work. Every year that a child is excluded from activities, or goes hungry any time during the month, or their parents are stressed out because they can't make ends meet, because they're working two or three jobs, that's a moral outrage in a country as wealthy as ours. We can do better than that. We can do better. Let's do it.

The Chair: Time's up. We'll go to Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC/DR): Thank you, Mr. Chairman. Thank you for all your interventions. My first question is to Ms. Harman. You stated during your presentation that your group would be opposed to the private sector delivery of any health care services. I wanted to ask you, for the sake of clarity, are you opposed to some level of private participation as long as it's publicly funded as opposed to privately funded? Even under a single tier health care system, would you be opposed to some participation in the delivery of health care services?

Ms. Mae Harman: We're opposed to all for-profit provision of services for health. We feel that health is a public good. It should be available to everybody. It should not be a competitive kind of thing whereby those who have money can get service and those who do not can't.

Mr. Scott Brison: But even if it remains a single-payer system, even if government is signing the cheque, you're still opposed to any level of private participation, even if it were demonstrable that there were cost benefits and a savings to the taxpayer and, ultimately, better health care and more health care available? Again, I'm not saying citizens buying privately delivered services, I'm talking about a single-payer system at the end of the day and just trying to achieve more economies internally by the use of private delivery. You're still opposed to that?

Ms. Mae Harman: Yes, we are, because in fact the economies aren't there. In the for-profit sector, more goes into administration than in the non-profit sector. We say that if there is money to spare, put it back into services for people, not into the profit of others making a profit on the illness of individuals. Public administration and public non-profit delivery is far more effective in getting the care to the people in need than any other system, and quite frankly, we feel very strongly about it. There was a recent article in the Journal of the American Medical Association pointing this out, how wasteful the for-profit systems and the HMOs in the United States are in terms of administrative cost. I found that reassuring.

Mr. Scott Brison: So to extend this, the logical corollary of what you're saying is that perhaps the market is not the most effective way to deliver any good or service—housing, food, or any other good or service. Health care certainly is a necessity, but so are food and shelter. Where do you see the difference?

Ms. Mae Harman: I don't think I was taking it to any other delivery system or any other service. What we were talking about, in response to the question you asked, was about health care. There, quite clearly in Canada, with our public, societal, inclusive approach to health care, the for-profit side is not the approach we believe is supportive or supportable. In fact, the increase in the incomes of doctors, after we went to a national health care system, was phenomenal, and they could appreciate the benefit. Instead of their collecting directly from a patient, many of whom couldn't pay, they were guaranteed an income.

• 1435

So from the medical side we have seen that the delivery was far better for them and far better for the patients. We know that, one province to another, people will avoid going to buy medicines that a doctor has prescribed because they have to pay for it. They'd rather eat than have to go and get the medicine. If you have to make the choice, your stomach is going to hurt faster than some other part of your body. You put the money into your food. We know that for a fact.

The Chair: I have a very brief question, Scott, on this particular issue.

How do you feel about private education?

Ms. Gerda Kaegi (Immediate Past President, Ontario Division, Vice-President, National Association, Canadian Pensioners Concerned Incorporated): We believe very strongly—and I went to a private school in Montreal—that in fact the public education system is the way to go. If individuals can buy private education, that's their choice, but don't give them a tax credit and don't give them a tax benefit.

If they choose to go to the Mayo Clinic down in the United States—just to get back to the health care system—let them choose to go down there.

Mr. Scott Brison: But that involves Canadian funds, Canadian money—

Ms. Gerda Kaegi: No, no, that's an individual making their individual choice. I'm saying the taxpayer doesn't pay for it.

Mr. Scott Brison: Yes, but the impact of it is that Canadian money ends up funding centres of excellence outside of Canada. Effectively, we end up seeing some of the greatest examples of biotechnology development or medical expertise developed with Canadian private money in other countries. Why is that to the benefit of Canadians in the long run?

Ms. Gerda Kaegi: I find it interesting that we are now getting into the right of an individual to make choices. I'm not talking about that. I'm talking about the basic delivery of services.

You asked about private education. My response is if an individual, totally out of their income, wants to pay for special or private education for their child—out of choice, not necessity—then let them make that choice, but no tax benefit, no tax credit, no public payments for that should go into this choice that the individual has made. The public sector, to my mind, is where we get the best bang for the buck, the best service to integrate our community, in the most holistic way you can find.

So it is just illogical to say a whole lot of private education is going to provide a broad Canadian understanding and integration of education—

The Chair: No, that's not what I'm saying. What I'm saying is that I sometimes fail to understand why the same importance isn't given to the choice between public and private education. Why wouldn't we care just about as much in reference to education as we do about health care when you think that education is the number one social equalizer in the country? I'm often struck by that.

You actually went to private school. And there's nothing wrong with that, but I'm just wondering why you would accept.... I think there's an inconsistency in that argument.

Ms. Gerda Kaegi: I beg to differ. Education is equally available to all Canadians through the public system. If somebody chooses to do something differently....

Where I lived in downtown Montreal, my parents sent me to a small school. It gave me an opportunity I wouldn't have had in Montreal High School, which had 2,000 students. They were rated from the very bright, in class A, to the ones who were being babysat, in class F. The opportunity they chose to give me was a choice they made at great sacrifice. But the public education system we now have, vastly improved from the 1930s and 1940s, providing good education for children across this country, gives them all an equal base.

I don't see the difference between giving all children an equal opportunity, especially the group that has been disadvantaged through disability, and everybody having equal access to health care. It's the same. The principle is the same. I don't see the difference.

Mr. Scott Brison: The difference is that in health care, if an individual Canadian wants to augment the health care available to himself or his family and has the means to do so, except in a couple of choices—i.e., the Shouldice clinic and a couple of cases that are grandfathered—he or she has to make that decision to go outside the border to have that private delivery.

I agree with the chairman that there does seem to be an inconsistency there, but from a Canadian perspective, the downside is that we all miss out in Canada if these medical discoveries and advancements ultimately take place in other countries.

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One thing that happens with medical technologies and applications is that even though they may be developed initially in private hands, ultimately they become commodified. The price comes down and they become more widely available. I just don't think we ought to prevent those types of developments and those types of exciting opportunities from occurring on Canadian soil as opposed to somewhere else.

Ms. Gerda Kaegi: Can I make one more response?

The Chair: By the way, we just like to debate issues.

Ms. Gerda Kaegi: So do I.

The Chair: I don't mind that you went to private school. It doesn't matter.

Ms. Gerda Kaegi: I don't mind either. It was a great advantage. My brother went to Montreal High School.

You say that when a new technology is developed, because it's produced in larger quantity by the private sector, we all benefit. Interesting; let me take it back to the health care system. The big pharmaceutical companies are the most profitable in the world, according to Fortune 500. They're either the top in every single category or second in one. They're the top in everything, really.

The costs of pharmaceuticals have not come down. Generics bring them down. I was part of a deputation to the Senate and to the House of Commons on the patent legislation. I know this area, and I'm sorry, I don't think your example is terribly good. Pharmaceutical companies are making profits on the illness of people. Revenue Canada has pointed out they are doing internal charges that aren't correct.

I'm trying to remember the Globe article about one of the cases that has gone to one of the courts in Canada, probably federal but maybe not. The cost of the actual product was $10.41, but through the interchange of charges from one branch of the company to the other, it became something like $600. In another example it was $1,600 for a product. When a company produces Losec, it will take the chemical ingredient from a branch and charge an exorbitant price to drive the price of the product higher.

Sorry, but this is documented. These are the court cases.

Mr. Scott Brison: But the generic companies and the pharmaceutical companies, the research-based pharmaceutical companies, are both private-based organizations. Neither of them are government organizations. So I guess I don't see....

On the one hand we're talking about private and public delivery of services, and you're talking about two entities—

Ms. Gerda Kaegi: What I'm trying to point out—

Mr. Scott Brison: —that are symbiotic within a market-based economy. You're right, they work well together.

Ms. Gerda Kaegi: Except we prohibit the generic from competing. We don't want competition in the marketplace. We restrict them for 20 years. We keep them out. Then we add patent after patent so they can't come on and have competition.

What I am saying is that if you argue between the right of somebody to go to the Mayo Clinic in the United States, yes, it's a Canadian purchasing the services from the Mayo Clinic, but they could probably—and I know of many cases here—go to Sunnybrook, Toronto Hospital, or other top hospitals in Canada and get the same service....

Well, I'm sorry, it's a fact. What they have to do is feel that the Mayo is better. We have in this country some of the top medical people, but many people feel if you go out of the country you're going to get a better service.

Mr. Scott Brison: Or they don't want to have to wait for a year or two years to get that.

I have one last quick question.

An hon. member: You've had way too much time.

Mr. Scott Brison: Oh, I'm sorry.

Thank you, Mr. Chairman.

The Chair: Mr. Brison, thank you very much for the questioning here.

Did you want to make a comment?

• 1445

Mr. Greg DeGroot-Maggetti: When we talked earlier about health care, because the costs are so high it needed to focus narrowly on how to save costs at the top end. But I think it's good to keep perspective that what we're really concerned about is the health and well-being of Canadians.

The first step is to try to create the conditions of good health, and part of that is the growing awareness among public health researchers that things like the social determinants of health play an important role in ensuring that people don't get sick in the first place. That's why things like decent housing for everybody and decent incomes are so important.

But I'll say a word in favour of maintaining the public institutions of health, because another thing that has turned up in international research is that it's well known that where there's inequality—and there's inequality everywhere—poor people suffer most. But interestingly, when you look at cross-national comparisons, you find that the ill effects of inequality in Canada have been reduced somewhat compared to, say, our American neighbours because of the fact that everybody has access to the health care system and to a good public education system. So you don't see quite the increase in premature death rates in Canadian communities that unfortunately our American neighbours experience.

So we can argue the relative merits of what mixture of private and public support for health and education there should be, but I'd like to keep us focused on the importance of a substantial, strong public role in ensuring that these community assets are in place for people's well-being. In the long run, it also saves us money in terms of health care costs.

The Chair: Thank you.

Ms. DiGiovanni.

Ms. Caroline DiGiovanni: To add to what was just said, we have to be proud of our standards in Canadian institutions, and we really have to understand how significant they are in creating a society, because if we feel that we must compare always with the U.S., I'm afraid we're comparing a small population with a much larger one. We're comparing a population that has a different focus in its public institutions than the American institutions.

So it all actually looks like a good health system that meets the needs of all citizens in a way that provides for wellness and is comparable with an education system that gets everyone started on the right steps. They can choose some other form, but if the basic education is good.... It's the same in the investment for early childhood. If children are cared for by people who are trained and well prepared, and identified as having a value in the society, their outcomes are much more advanced. That's the next phase that we have to get to.

We have a good education system. I think in some categories we're leaders. We have a good health system that we do not want to have eroded. That has been made very clear by the populace. Now we have to focus on the needs of young children, because we're no longer living with people in isolation on farms everywhere. It's quite different.

The civil society begins by people joining together and focusing on what they value and support, and early childhood is identified by world-renowned leaders we've developed—the late Paul Steinhauer, for one, the studies that have been done at the University of Toronto, at OISE, the Fraser Mustard and Margaret McCain report, and things go on and on. We have plenty of our own studies that show us investment in the early years in high quality to raise the standards is going to pay off, and we want it. The population wants it; a lot of people want it.

The Chair: Thank you.

We'll now proceed with Dr. Bennett and Mr. Murphy.

Ms. Carolyn Bennett (St. Paul's, Lib.): Just to follow up on that, Caroline, I think a lot of people want it; the trouble is that in both your brief and the brief from the Citizens for Public Justice, of all the recommendations you made, other than child benefits, everything else requires cooperation from the provinces, whether it's early childhood, housing, post-secondary education, or welfare rates. So we're in a little bit of a quandary here at the finance committee in that we recommend that the CHST go up, and the next thing you know some provinces have tax cuts. How are we going to make sure this money we transfer increases the disposable income?

• 1450

I believe disposable income is after you have paid your rent. So if you have more and more provinces where more and more families are paying more than 50% of their income on rent and you have less and less money for snowsuits or food and food banks, how do you...?

Of all your budget benchmarks, number 6 is the only one the feds can do on their own. For everything else, we need some cooperation from the provinces. Even in the children's agenda, there are some report cards that hopefully will be developed.

I have to tell you that when I looked at this ad, letting Mike Harris off the hook in the way you did is not amusing to some of us who have been working very hard on this, in terms of no provision for housing, no provision for all these things.

As you know from the Coalition for Better Child Care brief, we gave $114 million to Ontario, which they immediately put out in a press release as new initiatives from them, without saying it was federal money at all, including $15 million that had been pre-announced out of provincial money that was now going to be replaced by federal money. So in some ways, they spent less on kids than they were going to before our money came.

So you have to help me with this, because as we move to renewing SUFA, as we move to seeing what these report cards look like, where are you going to apply the pressure to make sure these report cards that come forward do include the percentage that people are spending on rent per family, do include readiness to learn, and those things? We need your help at the provincial level in a results-based, outcome-based thing, or else we're in big trouble in anything we try to do federally that's in cooperation with the provinces—which leads me, as CACL will know, to their brief.

I think their proposal was fantastic. It does everything we want in government, which is to come forward with a solution, not a problem. It comes forward with a coalition of people who are like-minded. It's always a bit safer for government to come forward on something if there's not a whole group of people who are going to say, why did you do that? why didn't you do ours?

I therefore want to know from CACL how they are going to build in the accountability report-carding structure so that we know the money goes where it's supposed to go and doesn't just get offset in provincial budgets to something else, or isn't replacing money that was already there for the families we care about.

Mr. Gerald Vandezande: With respect to your first two questions, the first ad we ran was specifically aimed at Premier Harris' government. We're getting a tax reduction; he's paying for it, and so are we, all kinds of people.

In addition to that, we, as Campaign Against Child Poverty, have been meeting with cabinet ministers of the Harris government. There has even been an interfaith meeting with Premier Harris himself, and more will be coming up if we have our way.

As well, you made reference to the money that was in the previous budget, the $114 million. I spent a half hour before the committee, before the provincial pre-budget consultation, and dealt with the fact that they were even refusing to release the $114 million that had been given to them by the feds. It took indeed enormous pressure.

I think we need to embarrass them—that is, show that they are not telling the whole truth to the Canadian people. The throne speech and the budget speech did not acknowledge the feds as having been generous enough to supply Ontario with $114 million. So you're talking to a non-partisan organization that goes out of its way, if necessary, to embarrass the top decision-makers directly.

Ms. Carolyn Bennett: If I can just say, I understand that on other files or certain files, certain provincial governments, particularly the one we're in, may have turned down hundreds of thousands of dollars of federal money because they don't want to meet the reporting criteria or the accountability transparency. What do we do about that, money that's on offer to provinces that they turned down?

• 1455

Mr. Gerald Vandezande: I've been a political activist since the age of 15. I think information needs to go into the hands of the people, accompanying the child benefits, saying to all those households, “We have made x dollars available for these different purposes, and we want you to know about that”.

My days go back to when Jake Epp was the Minister of Health. I had a pretty good relationship with him, and I asked him why they couldn't include in the mailing out of those cheques information as to what the feds were doing and what the provinces refused to do. I think the federal government should again seize the initiative, say what you're doing, and make that part of your public education campaign. That's why we have resorted to some of this stuff, and we are meeting with the cabinet ministers, appearing before provincial committees. But it's crucial that the people get the information in the mail next to the report cards the provincial government produces, and the Liberals should say “Look, this is what the facts are folks, and someone ain't telling the truth”.

We're now having full-page ads appearing in connection with the current crisis. If this provincial government were really concerned about crisis, it would help eliminate the crisis on the streets. This morning, in the Toronto Star, there is a major article dealing with the problem of homelessness, saying homelessness is going to disappear off the agenda. Well, if Mr. Harris appears to have his way, there will be more homeless people on the streets than ever before. That is part of the national crisis. That issue must be put before the people, and we need to deal with it as a matter of conscience and as a matter of national integrity.

I think in the context of national security we then must emphasize the social security that people are entitled to in these days of crisis, and the social policies and the social programs about which Mr. Chrétien has been speaking ought to get all the support they deserve and ought to be affirmed. If that means the feds taking direct issue with Ontario or with Mr. Campbell in British Columbia, so be it.

Ms. Dianne Richler: I wonder if I could provide a bit of explanation on how we got to where we are now, and a little bit more on where we are now.

Since the introduction of the CHST, the government has challenged us to come up with ways the federal government could act within its own area of jurisdiction to meet the needs of people with a disability in their families. That was why, before the last federal government, we put so much time into exploring the tax system. Some of you may remember we did some detailed research. Many of the recommendations were accepted and in fact implemented. We were very pleased with that.

But through the exercise we recognized there's a limitation to how far you can go if you try to address the jurisdictional issues separately. In fact, a number of years ago the first ministers had identified that there were two areas where they saw a need for federal-provincial collaboration. One was in the area of children and the other was in the area of disability.

I think that's very reinforcing of what people with a disability in their families have seen, which is that to meet the needs of people with a disability in their families, to enable them to participate as citizens, it's not possible to just operate in two silos, where you have the federal government looking at the tax side and the provincial government looking at supports and services. It just doesn't work. So there has been a federal-provincial-territorial working group for the last number of years trying to resolve this issue.

At the same time, we've looked at issues like the ECD agreement and seen that...and this has been a great fear of our provincial members. I should mention we have over 400 local associations across the country in every province and territory. Those associations are very concerned their provincial and territorial governments not be let off the hook by federal spending. We're not looking at having the federal government replace spending that otherwise the provinces and territories would be engaged in. That's why we aren't coming only here today. In fact, every single one of our provincial and territorial associations has engaged in discussions at either the deputy or ministerial level, looking to test some of these ideas. Up until this point, the response we've had is really positive, because the provinces know they can't resolve the needs of people with disabilities on their own.

• 1500

I think now they're so far against the wall they're willing to pay the price that maybe they weren't willing to pay on ECD, which is that they're willing to build into an agreement some kind of joint agreement on outcomes on the part of federal, provincial, and territorial governments, and make the process more transparent.

I think the fact that three of the major disability organizations are engaging in this initiative, talking at multiple levels of government, means there is already an openness. We've already brought things forward to federal-provincial tables where normally we have not been invited. I think it's been the power of the ideas that gained us access there. We're very optimistic.

We don't think the needs of people with disabilities can be resolved if the federal government simply tries to continue to build on the tax system. We also don't think looking at a labour market strategy without considering the disability supports people need in order to participate is going to work. So the federal government can't meet its throne speech commitment unless it takes a broader approach and is willing to work with the provinces. Otherwise, people are going to be left right where they are right now.

After the Scott task force report, there was an investment in the Opportunities Fund and investment in EAPD. The same number of people with disabilities are unemployed now as were unemployed then. There's money lapsing that the provinces and territories can't take advantage of because of the way the guidelines were established. There is a need for collaboration, but we think the stage has been set for that to happen. We don't want to simply replace provincial payer with federal payer. We want to increase the amount of money and oblige the provinces to reinvest their current spending.

The Chair: Thank you.

Mr. Murphy, one final question.

Mr. Shawn Murphy (Hillsborough, Lib.): Yes, Mr. Chairman, thank you very much.

Dr. Bennett covered a lot of the territory I wanted to cover, but I do have one comment or question to Mr. DeGroot-Maggetti. That comes back to this whole area of federal-provincial problems we've been talking about in the last 10 minutes, specifically with the child tax benefit.

You cost out some of your proposals, and the child benefit now.... In the province I come from, this was increased substantially by the federal government about four or five years ago, and it was increased again last year.

What has happened for the people on social assistance—and regardless of what definition you use, these are people living in poverty, there's no question about that—is that the province has just clawed it all back. It came as a considerable expense to the federal government. The people who needed it got absolutely nothing.

I guess you'd have to explain to me how we're going to overcome this federal-provincial proposal before I could ever support your proposal to spend $10 billion to increase it, because if we did that and followed the same procedure we did before, the people who need it most, the people you represent, wouldn't see any of it, and we would be $10 billion poorer as a federal government. Could you comment on that?

Mr. Greg DeGroot-Maggetti: I fully share your concern, and frankly, if I had been around the table when that national child benefit supplement had been created, I would have demanded something different. Unfortunately, I wasn't there. The federal government was there, so the federal government was a partner in that, and your government agreed to that set-up.

What I would say is the details of that agreement to allow the money to be clawed back from people on welfare.... If you talk to Ken Battle at the Caledon Institute, he can describe to you the details of how that program is supposed to replace means-tested benefits through welfare by income-tested benefits.

One positive from that agreement was that at least there was some commitment on behalf of provinces to take that money and reinvest it in services. That was something the federal government abandoned when it scrapped the Canada Assistance Plan. I'm not a great fan of the national child benefit and the way it's allowed to be clawed back, but that's the principle of how it was designed.

According to my understanding, and from testimony I've read that Mr. Battle presented to the human resources development committee, the level has been reached where income-tested benefits replace benefits to children through welfare. Any increase we're talking about here is to the actual base Canada child tax benefit, not to the national child benefit supplement. It's the national child benefit supplement that the provinces have clawed back. We're talking here about building the base child tax benefit.

• 1505

The other thing I'll just mention—and Mr. Vandezande has already raised this point—is that we're completely frustrated, particularly in Ontario, with this present government. We're doing all we can to push them on these matters.

One success I think we shouldn't lose sight of is that when this federal government increased maternity leave from six months to a year, the big challenge was to get each of the provinces to change their labour codes, to ensure that parents who took that could be protected and have their jobs back. Quite surprisingly, although through some back-door, somewhat unsavoury, other changes, the Government of Ontario did extend that. That's a success.

So all I can say is, let's work together. We say the same things when we go to the provincial meetings. Our partners in other provinces do likewise. Sometimes we get pretty frustrated. Hey, this is the country we have. There's a lot that's good about it, there's a lot we get frustrated about, but there's something to work with. We can really create a better country still.

The Chair: Thank you. I think that's a very positive note to ask my next question on.

We're always looking at ways to improve ourselves. In my years in opposition, I was critic for disabled persons and took an interest in the Americans with Disabilities Act. I was wondering whether there are things we can learn from that act that would improve the present status of disabled Canadians.

Ms. Dianne Richler: We've been watching with a lot of interest the impact of the Americans with Disabilities Act in the U.S. Certainly, the presence of people with a disability in communities in the U.S. has increased since the introduction of the act, largely because it was so good at improving access. There was an onus on both public and private places to become physically accessible. So now it's a lot easier for people who have physical disabilities to get around.

Where it's fallen down, I think, is that it hasn't been as good at making systemic changes. For example, if you look at schools, it's been possible to build ramps to schools, but not necessarily to modify curricula or to train teachers in order to include students with a disability.

If you look at employment and some of the challenges we're facing in Canada, the Americans with Disabilities Act would be good similarly at providing specialized equipment for someone to work. But if someone has extraordinary health needs and their entry-level position won't give them extended health coverage, they may not be able to afford to take a job, because they lose their additional health benefits. So the disability-related costs that we're proposing be addressed would not be included.

In our discussions, though, with provincial and territorial jurisdictions across the country about our proposal “Striking a New Balance”, there is one jurisdiction that is seriously looking at how that proposal might help them to implement a persons with disabilities act. Specifically, what was lacking in the U.S. act, I think, was an investment both in programs and in community development. We know of at least one jurisdiction that is saying that if this proposal were adopted by the federal government, or when it's adopted, it would give them the wherewithal to be able to move forward on their commitment on a provincial act.

The Chair: I want to thank you very much. It's been a very interesting panel. On behalf of the committee, I really appreciate the input you give, because this does help us in the formulation of recommendations to the Minister of Finance. So once again, thanks.

We're going to take a break to set up for the next panel.

• 1509

• 1516

The Chair: I call the meeting back to order.

I think more or less everybody here has appeared in front of our committee. You know you have five to seven minutes to make your introductory remarks. Then we'll engage in a question and answer session.

We have the following organizations represented: the Certified Management Accountants of Canada, the Canadian Bankers' Association, the Horse Racing Tax Alliance of Canada, and from BMO, Nesbitt Burns Inc., the vice-chairman, Donald Johnson.

We'll follow the order on the agenda. So we'll begin with the Certified Management Accountants of Canada, the president, Robert Dye, and Richard Monk. Welcome.

Mr. Robert Dye (President, Certified Management Accountants of Canada): Thank you, Mr. Chairman. We're here today to present our thoughts on what we perceive to be a management skills deficiency among Canada's small and medium business enterprises, and to ask the government to play a leadership role in addressing this deficiency.

SME management education does not appear at first glance to be an important topic in comparison with some of the other topics that are before the government and on the public agenda. But when you consider that Canada has the second highest rate, after the U.S., among the industrialized nations of new business creation, that the 2.6 million SMEs and self-employeds in Canada account for roughly 60% of all private sector employment and the creation of 80% of the new jobs, and that they do operate in every sector and every region of the country, we believe they need to have more attention. We see SMEs as an important source of innovation. They do dominate the Canadian information and communications technology sector, because virtually 100% of the establishments in this sector do have less than 100 employees.

We see small business also as an important factor from a social perspective. Many SMEs are launched by youth, who often have problems finding employment. Small business ownership can offer first nations positive independent means of economic development. And finally, it's come to our attention that SMEs can be the sole source of employment in rural and remote communities.

All these benefits of small business come with one major drawback, that only one in five SMEs is successful beyond 10 years. The number that went bankrupt in the first quarter of 2001 was almost 3,000, with liabilities of approximately $1.2 billion. So if you extrapolate that over a calendar year, you get upwards of 11,000 SME bankruptcies in a 12-month period. That translates into $4.5 billion in liabilities. While the total cost of SME failures is difficult to quantify, the cost of lost jobs, bankruptcy costs, the cost of lost GDP, and the loss of future potential growth can be in a range that we have fixed at not less than $100 billion, and it could be upwards of $300 billion over a five-year period.

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So it brings me to the question as to why SMEs fail, and if you ask an SME entrepreneur, he or she is likely going to point out that they fail because of the difficulty in obtaining financing. However, Statistics Canada disagrees with this, and according to their reports, half of the SMEs that do go bankrupt do so because of internal deficiencies, primarily a lack of essential management skills, those skills they need, first to survive and then to grow.

We see that the failure and the lack of management education in SMEs is causing Canada's economy to lose billions of dollars, because the SME entrepreneur is not an effective business manager. We're concerned about this issue, because developing good business managers is our business. The product we develop through our programs is an individual who has a unique combination of practical business acumen, accounting expertise, and professional management skills. We've seen ineffective SME management, and we know that better business management skills will translate into a stronger SME sector in Canada.

We raised this issue with the government last year, and we are pleased to see that its importance is beginning to be recognized. Industry Canada, for instance, has undertaken a research project on SME management skills needs, and the Canadian Council for Small Business and Entrepreneurship devoted its annual conference this year to the topic “Entrepreneurship—Education, Training and Development in Canada”.

The Government of Canada already devotes millions of dollars to helping small businesses grow. For example, we note that $80 million has been given to the Business Development Bank for SME financing, and another $54 million is being directed to the Community Futures Development Corporation. However, few dollars go to SME management education, and if we look at the government's guide to support for small business, there are 85 programs in that publication, and we can find only five that are in the category of management skills and management skills training. Therefore, we would suggest some rebalancing of priorities based on the emerging understanding of the importance of business management skills for the SME community.

If we were able to improve SME management skills to the point where two of five SMEs were surviving, it would mean billions of dollars into our economy. We would propose the creation of a national public-private sector partnership with governments, SMEs, educational and business organizations, the goal of which would be to ensure that SMEs at every stage of development have the skills they need to survive, grow, and compete globally.

Our vision does not duplicate any of the five federal programs that already exist. We are proposing to develop and deliver education programs for SMEs to give them the essential management skills that are the single main key to their survival. We'd envision providing business and financial management education courses via the Internet, face-to-face seminars, online seminars, and other delivery methods that would work for busy entrepreneurs. Other elements could include benchmarking and mentoring programs for SMEs.

We have already put forward some specific ideas and proposals to Industry Canada, which we're working on. We're ready to move ahead and devote more time and effort to this issue. At this point we're not wedded to any particular combination of elements. We plan to focus on meeting the most immediate needs, but we could not do this alone. We need help and we need leadership signals from the federal government. We think an initial federal investment of $3 million to $5 million would send a signal to the SMEs that the government considers this issue important. It would bring other organizations to the table and provide the basis for developing and delivering management education to entrepreneurs. The amount we're suggesting is considerably less than the $80 million that was provided this year for SME financing.

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We are convinced that the return to the Canadian economy on this small investment in management education for SMEs would be very high.

Thank you, Mr. Chairman.

The Chair: Thank you very much, Mr. Dye.

We will now proceed and hear from the Canadian Bankers Association, Kelly Shaughnessy, vice-president, banking operations, and Dan Marinangeli—did I pronounce that correctly?

Mr. Dan Marinangeli (Executive Vice-President and Chief Financial Officer, Financial Affairs Committee, Canadian Bankers Association): Pretty good.

The Chair: I thought I'd impress you with my last name.

Mr. Dan Marinangeli: I am impressed.

The Chair: You are executive vice-president and chief financial officer. Welcome. The rule applies to you, five to seven minutes.

Mr. Dan Marinangeli: Thank you, Mr. Chairman and members of the committee, for providing the Canadian Bankers Association with the opportunity to participate again in the pre-budget consultation process.

My name is Dan Marinangeli, executive vice-president and chief financial officer, TD Bank Financial Group, and chair of the CBA's Financial Affairs Committee.

I'm here with Kelly Shaughnessy, vice-president of banking operations for the CBA.

The CBA is pleased to offer our industry's views on the three objectives set out by the committee. I'd like to point out that our submission, which focuses on these objectives and on the need for business tax fairness, was prepared in August, prior to the September 11 terrorist attacks. Therefore, we'd like to take this opportunity today to acknowledge the impact of the tragic events of September 11 on the country's priorities, and by extension the impact on the CBA's original August budget recommendations.

Before I get into specific budgetary comments and recommendations, it would be useful to briefly outline for committee members what role the banking industry is playing to support the federal government in its war on terrorism. The banking industry has a long history of fully cooperating with governments and law enforcement on matters of security, criminal activity, and money laundering, and we continue to do so.

With respect to the war on terrorism, Canada's financial institutions have been fully cooperating with law enforcement and other agencies within the laws of Canada.

Our primary concerns are to be an important player in deterring criminal and terrorist activities while at the same time protecting the integrity of the banking system that Canadians have come to rely on.

Beyond the fight against money laundering and funding of terrorist activities, Canada's banks have also been active in supporting humanitarian efforts following the terrorist attacks. Bank branches across the country have been accepting donations from the public on behalf of the Canadian Red Cross U.S.A. appeal.

Further, Canada's banks have made individual donations to relief agencies.

Recent events have obviously had an impact on our society, on our national economy, and on the government's agenda and spending priorities. Canada's banks understand that the government is faced with new and unexpected challenges to combat the threat of terrorism.

We also understand that spending is necessary to ensure the security of Canadians and to ensure that Canada can provide a meaningful role in the international fight to eliminate terrorism.

We recognize that these are challenging times and that the government is trying to balance national security needs while at the same time not losing the gains we have made on debt and deficit reduction.

Now comes the pitch on tax. As the government focuses on important security issues in the near term, we and many others believe that we must not lose sight of a key long-term objective: to ensure that Canada remains a major and competitive player in the new economy. As one of the nation's major employers and suppliers of capital, our industry is well positioned to speak to issues affecting competitiveness.

Canada's banks take seriously our commitment to Canadians, to our local communities, and to our national economy. The banks employ over 235,000 Canadians, with an annual payroll of over $16 billion. We have over 8,300 branches with more than 17,000 ABMs in almost every community across this great country.

But our contribution to the national economy is much more than our physical presence. Canada's banks provide crucial financing and credit to Canadians and Canadian business. At the end of last year Canada's banks had over $268 billion in outstanding residential mortgages and more than $124 billion in personal loans.

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Canada's banks are also the leading source of all business credit provided to Canadian companies, totalling more than $600 billion last year. This type of financing not only supports our customers, but fuels growth and job creation in virtually every industry in every community across the country. This, in turn, ensures that Canadians prosper.

Finally, the six largest banks paid over $5.8 billion in taxes to all levels of government in Canada last year. This is significant when you consider that even though 46% of the largest bank's total earnings are generated from outside Canada, 78% of all taxes are paid in Canada, and 90% of the bank jobs are here in Canada. The ability of Canada's banks to remain an engine of growth in the new economy will hinge on the ability of the services sector to remain competitive, strong, and efficient.

We are pleased with recent initiatives by the federal government to reduce the corporate tax burden. We encourage continued improvement to the current tax regime to enhance the ability of Canadian industries to compete in a highly globalized marketplace in the long term. A more favourable tax regime will make Canada an attractive location, not only to pursue joint ventures and attract new investment, but to help to ensure the jobs in industries currently based in Canada stay here.

We also support lower taxes to benefit our customers, which will ultimately benefit their employees, customers, and communities. Many see the capital tax issue as only affecting financial institutions. In fact, as many have told you, capital tax is a drag on many Canadian companies, even more so during an economic downturn.

We are therefore recommending that once near-term priorities have been addressed, and for the long-term economic benefit of the country, the government, one, eliminate the remaining federal capital taxes; two, work with the provinces to reform their capital tax regimes; and three, accelerate the corporate income tax rate reductions.

If Canada were to have a more favourable tax regime, conditions would be improved for maintaining existing investments and encouraging new investments by all businesses, including banks in Canada. The end result will be an environment that will encourage growth in the economy, provide even more Canadians with the opportunities to succeed, ensure our collective standard of living, and even act as a stabilizer for dealing with the impacts of September 11.

In conclusion, the CBA would like to reiterate that we understand the challenges facing the government in the aftermath of September 11. We also know the government is concerned with ensuring the gains we have made on the debt and deficit are not lost. Both government and business, including Canada's banks, want to ensure that, in the longer term, Canada continues to remain a major player in the new economy and that Canadians continue to enjoy the best quality of life and standard of living. We believe continued progress on tax reform is necessary to ensure these goals.

Mr. Chair, committee members, thank you again for providing the CBA with the opportunity to meet with you today. We'd be pleased to answer any questions you may have.

The Chair: Thank you very much, Mr. Marinangeli.

We'll now hear from the Horse Racing Tax Alliance of Canada, Michael Van Every and Catherine Willson.

Mr. Michael Van Every (Chartered Accountant, PricewaterhouseCoopers; Chairman, Horse Racing Tax Alliance of Canada): Thank you, Mr. Chairman.

As a customer of three of the banks, I support everything Dan has said. When speaking with Dan before we started the meeting, he said he was highly supportive of our proposal, even though he hasn't heard it. Thank you very much for your support.

Mr. Dan Marinangeli: My pleasure.

Mr. Michael Van Every: We're hoping you'll become an investor in the horse racing industry.

What we want to talk to you about today is a proposal we actually submitted to the Minister of Finance in early 2000, which is a very long brief. This will be a very short, condensed version of the summary of that position.

We've had very useful meetings to date with the members of the Department of Finance. So far, we haven't seen any substantive changes. We want to bring it to your attention.

With me today is Catherine Willson, who is a lawyer practising mostly litigation involving many litigants, with some of those being people involved in the horse racing industry, debating with the Department of Finance and the Minister of Revenue on taxation rules. We've asked Catherine to come here today.

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David Willmott was supposed to be with me, but unfortunately one of the senior members of the racing industry, and the owner of Windsor Raceway, passed away at the end of last week. The funeral was today, so several of our supporters are not here.

However, I do want to point out that we do have some supporters in attendance to demonstrate the significance of this matter to the racing industry throughout Canada. We have senior representatives from the Jockey Club of Canada, the Canadian Thoroughbred Horse Society, and the Horsemen's Benevolent and Protective Association.

We represent 70 organizations across this country involved in some aspect of horse racing, whether it be thoroughbred or standardbred, whether it be breeders, owners, or racetracks.

With those brief introductions, I'd like to ask Catherine to speak with you briefly about the industry and the problem the industry is facing.

Ms. Catherine Willson (Willson Lewis, Barristors and Solicitors; Horse Racing Tax Alliance of Canada): The horse racing industry is before you today to request equality under the tax system. It wants to be treated like any other business in Canada.

This is the problem in a nutshell: people will not invest in a business from which the income is fully taxable if the business is profitable, but if it's unprofitable, the business losses are not deductible against other income.

Racehorse owners and breeders are defined as farmers under the Income Tax Act and are therefore subject to section 31, the restrictive farming loss. Simply put, if horse racing is not your main occupation but a sideline business, the act restricts the deduction of business losses from the horse racing business against other income to a maximum of $8,750.

Most Canadians take for granted the right to reduce the amount of their taxable income from their most profitable business or occupation by deducting any losses incurred in an unprofitable business. But among all other types of entrepreneurs, racehorse owners and breeders and farm operators have been singled out for the severely restrictive tax treatment of business losses created by section 31 of the act.

This resulted from an attempt by the legislature, in 1951, to actually assist the part-time farmer with a limited business-loss deduction, which at that time was not available to any other business in Canada. The amount, $5,000, was more than twice the average annual Canadian income. Fifty years later, the amount has increased by only $4,000, which does not keep up with inflation.

In addition, the legislation is confusing, which makes planning and compliance difficult. It is applied inconsistently by the CCRA, and it unfairly singles out the part-time farmer. Most commentators, including the Carter royal commission report of 1966, advocate the repeal of section 31.

What are the effects of section 31 restrictions on the horse racing industry? Number one is that it can't attract investment. If every other industry is allowed to fully deduct business losses, a person would be better off investing in a restaurant, a retail store, even a high-tech firm, than in the horse racing industry.

The horse racing industry is losing current investors at an alarming rate. With the corresponding loss in horses, employment, race fields, attendance, and revenues, it can't compete with other Canadian investments, or with the U.S. racing industry, which is not subject to section 31 restrictions.

We've also lost the ability to compete successfully in the North American market. Most of the major breeding operations are now in the U.S. Up to 50% of our race fields are U.S. horses.

Why should you care? The industry is one of the largest employers in Canada, far above the airlines, petroleum refineries, or investment houses. It employs over 100,000 Canadians in full-time and part-time positions. The industry employs many unskilled or marginalized workers and people in rural areas who might otherwise be unemployed, on welfare, or on other forms of social assistance. It also houses many of these people at racetracks and on farms.

The industry generates annual tax revenues of approximately $890 million. It contributes an estimated $1.9 billion to Ontario's GDP alone. The industry protects arable land and funds developments in veterinary sciences and animal husbandry. A study by a university professor at McMaster University, Dr. Kubursi, has documented that these benefits—which are listed in our material before you—will increase significantly when the problem is resolved.

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Mr. Michael Van Every: Thank you, Catherine.

What are we asking for? In a nutshell, we're asking for the removal of section 31 of the Income Tax Act. It's awkward for us to do that because, as you know, it applies to all farmers in Canada and we represent only a small part of that farming community. But as a minimum, we're asking that businesses involved in maintaining and racing horses be removed from section 31. Demonstrating “reasonable expectation of profit” is difficult enough, but if one is in a business, then that ought to be sufficient.

It's interesting that in the mid-1970s, a joint committee of the Canadian Institute of Chartered Accountants and the Canadian Bar Association—and I'm pleased to see that both those organizations are still represented today, by Catherine and me—recommended the removal of section 31 because it was convoluted, unfair, and not necessary. It was felt that if someone demonstrated reasonable expectation of profit, that ought to be enough. Catherine has already mentioned some of the benefits from the removal of that section.

In conclusion, ladies and gentlemen, the Canadian horse racing industry is hamstrung by the section 31 restriction. No other industry in Canada suffers from this restriction. Removing it will remove the unfairness and allow us to compete on a level playing field with other sports entertainment industries. And the jobs and other returns that result from the increased investment will benefit all Canada.

Thank you very much.

The Chair: Thank you very much. I think you made a very strong case.

Mr. Johnson, you're next.

Mr. Donald K. Johnson (Vice-Chairman, BMO, Nesbitt Burns Inc.): Thank you, Mr. Chairman.

Aside from my official role, I'm really here in my capacity as a board member on a number of not-for-profit organizations in health care, education, social services, and culture.

First of all, I'd like to congratulate the finance minister, Paul Martin, for his announcement on Friday about making permanent the 1997 budget measure cutting in half the capital gains tax on gifts of listed securities. That decision is applauded by all its beneficiaries, which include all the not-for-profit organizations across the country and the tens of thousands of volunteers who devote their time and resources to helping those organizations. They're all very grateful.

As a result of that decision, I am revising my submission to the House finance committee, downsizing it and focusing on only one issue.

The Chair: Actually, we knew you were coming here today. That's why we did it on Friday.

Mr. Donald Johnson: Thank you very much!

Not surprisingly, my one recommendation is to eliminate the remaining capital gains tax on gifts of listed securities, in the next budget. I have six reasons why the case for doing it is compelling.

Number one, reference has been made to the September 11 tragedy. What has that meant to not-for-profit organizations in terms of fundraising? The reality is that both individuals and corporations are concerned about the uncertainty of consumer confidence, consumer spending, corporate profits, the stock market, the economy, and their own capacity to give, looking forward. The natural tendency is to take a wait-and-see attitude and perhaps delay making any significant commitment decisions.

There have been a number of examples of corporations cancelling sponsorships of fundraising events or downsizing them. I'll give you one specific example that really registered with me. I spoke today with the United Way of Greater Toronto about the impact of September 11. In the month of September, donations to the United Way of Greater Toronto this year were down 60% compared to September 2000. In the first half of October so far, their donations are down 69% from last October. There's tangible evidence of the impact on the charitable sector.

So basically, the charities need government help to stimulate additional donations. The single most cost-effective way to do that is to eliminate the rest of the capital gains tax on gifts of listed securities.

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The second point: last year the U.K. Labour government introduced two changes to the income tax act. One was that for the first time, U.K. donors get a tax-deductible receipt, which they didn't before. Second, and equally important, the Chancellor of the Exchequer eliminated capital gains tax completely on gifts of listed securities. I know they studied the Canadian experience carefully, and they also looked at the U.S. experience. They had a choice of which way to go, and for obvious reasons, they went the U.S. way.

The upcoming budget is an ideal opportunity to level the playing field. Right now, in terms of fundraising, our not-for-profit sector is at a competitive disadvantage against both the U.S. and the U.K. Why should our public policy be only half as good as our two leading competitors?

Point number three, which ties in with that last: I sit on the boards of a major business school and a major hospital foundation. We're competing with the U.K. and other countries, particularly the U.S., for the best and brightest talent—professors, students, medical professionals, researchers, artists. So one of the key issues is providing competitive compensation, and also providing scholarships and bursaries to needy students. The U.S. has a big advantage there: 90% of donations to U.S. foundations come from gifts of appreciated capital property, primarily shares.

Our universities, our hospitals, and our arts organizations need to build up those endowment funds and help to provide competitive compensation and scholarships and bursaries for students and scientists. Implementing those recommendations will help us to compete.

Regarding that point, naturally an important issue for the government is what are the costs, and what are the benefits? Well, today the cost of eliminating the rest of the tax is really 40% less than it would have been five years ago. The reason is that the government, to its credit, has cut the capital gains tax inclusion rate from 75% to 50%. So that's already a one-third reduction in capital gains tax.

Second, marginal income taxes are down—in Ontario, from 53% to 47%. The combination of those tax cuts means that the cost to the government, in terms of lost tax revenues, is 40% less than it would have been five years ago. In other words, based on tax policy advice I got from experts five years ago, eliminating the rest of it would now cost $6 million to $21 million instead of $10 million to $35 million.

On the other hand, the benefits would be really much greater than that. If you read the article on the weekend about Paul Martin's decision, last year there were $200 million in gifts of securities to charities. That's tangible evidence. Eliminating the rest of the tax would enhance that even further.

A fifth point is that up until this year, I think the smaller charities were concerned that they wouldn't benefit from this capital gains exemption—that the major beneficiaries would be the big universities and the big hospitals. However, the actual experience has been that the smaller charities are benefiting: through the United Way, through community foundations, and through direct gifts.

I was delighted to see that the Canadian Centre for Philanthropy—which represents 1,200 charities across the country, most of them small ones—in fact supports this recommendation. In their submission, as you know, they said they'd recommend completely eliminating the tax on a five-year trial basis. I was delighted to see that. The entire charitable sector is now united.

The sixth and final point is that when the finance minister outlined the initiative in the 1997 budget, he outlined criteria that had to be met before he would extend it, or enhance it: does the initiative result in a significant increase in donations; and is the increase distributed across the entire charitable sector? Obviously, the experience to date has shown that the situation did meet those criteria, because he made the decision on Friday: it's permanent.

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The same criteria apply to enhancing. My definition of enhancing is elimination of the rest of the tax. So the criteria have already been met.

In summary, the upcoming budget is the ideal time for the government to implement this recommendation. It's particularly timely because of the September 11 tragedy. I would strongly recommend that the House finance committee include this recommendation in their report to the finance minister.

Thank you for your time and attention. I would be happy to answer any questions.

The Chair: Thank you very much, Mr. Johnson.

We'll now proceed to a question and answer session. We will begin with five-minute rounds. Mr. Kenney, Mr. Solberg, and then we'll go to Mr. Cullen, Mr. Murphy, Mr. Nystrom, Mr. Brison.

Mr. Jason Kenney: Thank you, Mr. Chairman.

I'd like to thank all of the panelists, who gave really excellent presentations to us. I support in principle all of the recommendations we've heard, unlike the last panel—

Some hon. members: Oh, oh.

Mr. Jason Kenney: —with the exception of Mr. Johnson. I only disagree with him, because I'd like to eliminate the capital gains tax altogether. I think he proposes a good intermediate step here. Really, I just want to say how much we appreciate the fact that business people who are philanthropists are also willing to come before us to spend time talking about policies that could help the charitable sector.

I want to direct my question toward the Horse Racing Tax Alliance. I know that you've been pressing the need for tax equity for your industry for some time now—at least a couple of years—with respect to this section of the Income Tax Act. I wonder if you could give us your understanding of why the finance department appears to be resisting incorporating this change. Do they have a good reason? What would your comment be on it?

The second question I have is that you indicate in your presentation today, under the benefits of elimination of section 31, that it would increase investment in your industry and increase, in fact, by $137 million the net taxes paid. What is your methodology? How did you come to this conclusion? Have you run some kind of a model on the impact of this presumed increase in investment?

Those are my two questions: Why is the finance department apparently resisting this apparently very sensible change? How do you calculate the type of growth impact of the elimination of this section?

Mr. Michael Van Every: Thank you, Mr. Kenney. Let me answer the last question first, on the economic advantage.

First of all, the work was done by a professor at McMaster University without any input on our part, and the model that he used.... He's also president of the economic or econometric, whatever it's called, and has done quite extensive work in economic impact of policy change. What his model was, I'm not sure.

The additional income tax arises from the additional employment that would arise and the additional payments to Canadian taxpayers, whether they be horseshoers, feed suppliers, etc., compared to the lost deductions that people would take, offset by the additional purse money that would arise at the racetracks.

It's been demonstrated several times, principally in the United States, that the better the race field and the more the entries, the higher the betting, the additional taxes to the governments and the additional purses to horse racing owners, plus additional income to the racetrack operators. So I think it's the net of all of those.

As to the discussions to date with the Department of Finance, we originally had some discussions with them in the late 1980s. We encountered some opposition from people in the bureaucracy who somehow believed that a racehorse owner is a very rich guy and that they ought to do nothing for them. Some of those people are still there today. In fact, the person we had the most difficulty with—and I won't give you his name—is now a very senior person in that department. He doesn't think any more of the horse racing industry today than he did 15 years ago.

They have two specific oppositions, really. One is that the cash basis of accounting, which is made available to farmers, and therefore to horse race operators, is an advantage that people would take advantage of and defer taxes under the Income Tax Act. Therefore, there ought to be some restrictions imposed on those deductions.

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What I think they fail to recognize is that in the late 1980s they changed the rules on cash basis accounting to deny the deduction of the purchase of horses, which is what generates large losses. If you incur a loss, whether you're a full-time farmer or a part-time farmer, those loss deductions are restricted now to a depreciation rate. Therefore, I fail to understand how cash basis accounting is a big advantage today. I've discussed this with them, and they're so far unprepared to listen.

It's what gave rise to a second response that we made to the Minister of Finance, namely, if cash basis accounting is perceived to be such a good deal, and the Income Tax Act allows for the election by a taxpayer of cash basis versus accrual accounting, why don't you allow those who elect accrual accounting not to be subject to section 31. He thought that was wonderful. But again the Department of Finance officials said they didn't think that was very good either. Their argument tends to fall apart.

The Minister of Finance also wrote to us to say that he was concerned about revenue loss, because those who cannot demonstrate reasonable expectation of profit may be getting a deduction. This would open the floodgates, as people would take advantage of the Income Tax Act.

Our argument is that if an individual does not meet reasonable expectation of profit, they ought not to be treated as horse racing operators but rather like somebody who owns a sailboat. If it's clearly a hobby, they should get no deduction. We're prepared to live by that.

Ms. Catherine Willson: Quite frankly, if any other industry had to risk 100 cents on the dollar in order to move forward, we wouldn't have any industry in this country. Yet that's what you're asking the horse racing industry to do. It just doesn't make sense, and for 50 years it hasn't made sense. All the reports basically say that.

The Chair: Thank you.

Mr. Solberg.

Mr. Monte Solberg (Medicine Hat, Canadian Alliance): First of all, Mr. Johnson, congratulations on your first appearance. It's obviously paid off, with Mr. Martin's decision on Friday to extend the capital gains treatment. Of course, I'm with you. I agree that we should be moving toward eliminating capital gains taxes on contributions of securities.

But I'm wondering whether you have any sense of what that would mean for a tax expenditure for the government—what it would roughly work out to if you modelled that out. Secondly, do you have any ideas based on what's already happened in terms of increases in donations? What might it mean for Canadian charities if it were in fact eliminated?

Mr. Donald K. Johnson: About five years ago, in the fall of 1996, we had some work done in that regard by a senior partner at one of the major accounting firms who had spent about 15 years with the Department of Finance. He had a pretty in-depth understanding of what the potential tax revenue cost would be. The issue is the forgone capital gains tax. But the key thing is that if the donor were taxed the regular capital gains tax rate on a gift of shares, then the donor's alternative is simply not to give. Under that scenario, the government doesn't receive the capital gains tax on those shares until the donor passes on. So it's the discounted present value of the ultimate forgone capital gains tax that is the real cost.

In that context at the time, he estimated that if Canada moved to the U.S. style of charitable giving as a result of a capital gains exemption, his estimate was a range of $20 million to $70 million a year in the initial years. That was his number. With the capital gains tax being cut in half or being completely eliminated, we used a simplistic assumption that it would be $10 million to $35 million a year.

Since then, as I mentioned, the capital gains tax has been reduced by a third and marginal income taxes have been cut down. So really the cost to the treasury is 40% less now than would have been the case five years ago.

Mr. Monte Solberg: I have one more question, if I could, to the CBA. I'm interested in your argument to reduce capital taxes. The government has talked a lot about improving productivity and encouraging investment in the country.

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As you point out, Canada is one of the last major industrial countries to have capital taxes. I'm just wondering how this impacts your ability. At a time when we've just had the terrorist attack in New York and when there are concerns about stability, it does seem rather odd that the government would impose a tax on banks keeping capital to ensure people's assets are protected in the banks. But that's what they in fact do, and it costs your industry a tremendous amount of money. I wonder if you'd just comment on that and expand on it a little.

Mr. Dan Marinangeli: Yes, it's really perverse. We have a tax on the capital in the financial institutions that effectively allows them to be more stable. The more capital you have, the less risky the institution is, the less likely it is that there will be losses incurred in the bank, and the less likely it is that you have a problem in solvency or the ongoing ability of the bank to meet its obligations.

The Office of the Superintendent of Financial Institutions has rules in place that require a minimum amount of capital. Over time, OSFI has actually been raising those requirements, so banks have been forced to raise capital to support their balance sheets. And the federal and most provincial governments then levy a tax on the amount of capital you have employed in Canada.

So it's perverse. It tends to encourage us to move capital offshore, and that's something OSFI doesn't like. I wish the left and the right hand would get together on this one.

Mr. Monte Solberg: Thank you.

Mr. Jason Kenney: I would suggest that you move your operations to Alberta, which is capital-tax-free.

Some hon. members: Oh, oh!

Mr. Dan Marinangeli: Absolutely, and believe me when I say we do.

The Chair: Mr. Cullen.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman, and thank you to all the presenters.

I really want to talk about horse breeding and horse racing. Before I do that, I don't think anyone really can support the capital tax. In policy terms, of course, it's a question of affordability. As you know, the government didn't renew the surcharge on financial institutions. I don't know if that's reflected in your figures, but one of the challenges is that the provinces raise about the same amount of, or more capital taxes than the Government of Canada. I hope you're having some success with the provinces as well, particularly Quebec. I'm not sure where Ontario is, but maybe we could come back to that.

Mr. Van Every and Ms. Willson, as you know, I'm a convert. It's not so much being a convert as it is that Woodbine Racetrack is in my riding of Etobicoke North, of course. I go there from time to time. I look at the horses running, at where they're from. Every month, it seems there are more horses coming from the United States, Ireland, or wherever, with fewer and fewer Canadian horses, because the purses now are better. But you're right, and I share the same frustration with the finance department.

There's a view that I think is a bit anachronistic or outdated, in that it says people in horse breeding and horse racing have lots of money and can lose money without any problem. I wondered if you could describe for the committee how horse racing has changed, how purses have gone up, how the economics have changed over the years, and how we perhaps should replace some of the conventional wisdom the government has had on this policy heretofore.

Mr. Michael Van Every: I'm sorry David Willmott isn't here to talk about it, because he is now chairman and president of Woodbine Entertainment, as you know.

In many of the provinces of this country, slots have been approved to be operated at racetracks. The operation of those has increased the income to the racetrack operators and to the horse owners rather significantly. Unfortunately, there are still some locations where purse money has not been affected, and one is hoping that it soon will be in those provinces. But here in Ontario, the purse structure at Woodbine and at Mohawk Raceway has gone up over 50% in the last two years, so the economics of the industry have improved rather dramatically.

You mentioned that there are more American owners and horses. I took the opportunity of just looking at yesterday's race card at Woodbine. In 10 races, there were 86 horses entered, with 40 of those bred in the United States and 46 in Canada. If one looked at it a week ago, just as another test, over 50% of the horses racing were bred in the United States.

• 1605

It's unfortunate that this breeding industry doesn't take place in Canada, because the income being generated through the additional purses is going to benefit racehorse owners and breeders in the United States.

We know for a certainty that in the thoroughbred industry there is a major breeder in Florida who has indicated he is sending more and more of his stock to Canada to race and to take purse money back to Florida. He has a trainer here full-time, and in just looking at the race results, I can tell you he's winning more than his fair share. I could also tell you there is another foreign owner who has indicated to David Willmott that he intends to send his entire stock to Canada next year to race. He has sent up several horses this year, and it's becoming very difficult for us to compete against the Americans because they do get an opportunity to treat it as a normal business and get a normal tax deduction.

Mr. Roy Cullen: It seems to me that the restricted farm loss rule is, in a sense, what I'd call a lazy policy. It basically says there are probably some people in there who don't have a reasonable expectation of profit, and there may be some who do, but we're just going to cap it. With the dynamic of the industry changing, in how many other businesses could you start up, have losses maybe in the formative years, and not be able to apply those against other incomes? Now, some will say you should incorporate, but there may be a sizing issue. Why should anyone be forced to incorporate to take advantage of the rules that are available to any other business?

I think your case is well-founded, and you have indicated that if the racing industry went to general business rules, you would have to live by the rule of a reasonable expectation of profit. Maybe the criteria would have to be a little tighter—I don't know what they are—but if you were losing money after a few years, there would probably be a question to be asked about whether there is a reasonable expectation of profit. In the meantime, why shouldn't you have the rules that apply to any other business?

So I think the case is well made, but I don't know if you want to add anything further.

Mr. Michael Van Every: No, I'd just thank you very much for your understanding and your support.

The Chair: Do you want to expand on that?

Mr. Michael Van Every: As a matter of fact, Mr. Cullen has indicated he'd like to buy a racehorse so he can compete at the track in his riding.

Mr. Roy Cullen: Now that my blind trust is....

The Chair: Thank you, Mr. Cullen.

Mr. Murphy.

Mr. Shawn Murphy (Hillsborough, Lib.): I just want to ask a few questions of the horse racing folks.

I come to you as a horse owner. I've had horses for the last fifteen or twenty years, and I fully understand the industry and what's involved.

Has this proposal been costed out? I guess it relates to whether there has ever been any analysis done on how much income tax the government collects now on earnings from horse owners, from the horse aspect of it.

Ms. Catherine Willson: The report of Professor Kuburski—tab 14 of our larger materials—costs it out to some extent, and also extrapolates into the future if we are removed from section 31.

Mr. Shawn Murphy: I didn't read that particular section. Can you give me some aggregate as to what it would cost if this proposal were implemented by the federal government?

Ms. Catherine Willson: The idea is that it wouldn't be a cost as much as it would be a benefit over time. The federal government would actually make money on this through the tax regime. In addition, you would get the employment and the jobs, which would also generate more income and revenues.

Mr. Michael Van Every: It's very hard for us to estimate the revenue lost. Fortunately, the Department of Finance has all of the statistical data necessary to make their own estimates, but that has not been shared with us. What we do not know is what the losses are that have been reported by all racehorse owners in Canada, and those losses that are now restricted and are therefore carried forward, so I can't put a dollar value on it for you.

• 1610

In terms of the amount of taxes currently paid by the racing industry, there is an incentive provided by the government, on the cash basis accounting, to encourage taxpayers to grow their business by acquiring livestock. Livestock is considered inventory here, unlike in the United States, where it's considered a capital asset and there's a depreciation on it. I suspect the reason is that the government here wants to get ordinary tax on it when a horse is sold, rather than capital gains tax on it. But there's an encouragement to take any profits that are made in the current year and to eliminate those profits for tax purposes by acquiring another animal. Therefore, it's quite likely people are encouraged to increase their ownership of horses rather than paying 50% of the tax to the government. So I would have to conclude it's quite likely the industry doesn't pay very much tax at the moment at all.

Mr. Shawn Murphy: Yes, that would be my suspicion.

I just have one other question on this whole area. Again, I'm having a tough time analysing the whole thing. Specifically, you've indicated in your report that the industry's wages are approximately $1 billion, the taxes paid by the industry are $890 million, but the purses paid out are only $150 million. When you interpolate the income earned by the racetrack—and I know that for those wages and taxes, you're including the whole industry, which will include the tracks—they would get a take of the bets, they would get their slot revenues, and they would also get their concession revenues. I wouldn't think it would total to the figures of wages, taxes, and the other expenses that you've paid. I'm just having trouble analysing the whole thing.

Mr. Michael Van Every: Yes, and I must tell you that, on an economic study, it's very difficult to find out what the industry as a whole spends versus the income that's generated. In addition to purse money, of course, there's the value of horses.

We are successful in selling horses offshore because there's a better market for stallions, for instance, in the United States than there is here. If you create a nice racehorse—a nice stallion or a nice brood mare—then it's typically sold in the United States, so there's quite an export market for horses developed in Canada. It's very difficult to maintain them and keep them here. Northern Dancer was a classic example. When these restrictions were initially put in to minimize the loss deduction that Mr. Taylor was getting, he ended up selling Northern Dancer into the United States.

A stallion.... I guess what got me into the industry was Seattle Slew. The two owners who invested in Seattle Slew each put up $10,000. Seattle Slew was so successful—I don't know how many millions he won in racing—that he was syndicated for $60 million as a stud. With those upside potentials, there's a very good return that can be made with minimal downside, but that horse was at stud in the United States. If he had been a Canadian horse that was racing and had good success, there is no way that stallion would stay in Canada. He'd be sold to the Americans and would generate an enormous amount of export income.

So it's hard for us to put a total on it, because there are no records available to us.

Mr. Shawn Murphy: Mr. Chairman, the last question is to Mr. Johnson.

This is just for clarification. I believe you may have already answered the question, but I just want it clarified. I believe you costed out the proposal, and you indicated that it was between $7 million and $21 million. Is that what you said?

Mr. Donald Johnson: Yes, it was $7 million to $21 million. Five years ago, it would have been between $10 million and $35 million, but now it's 40% less than that because of the cuts in tax rates.

Mr. Shawn Murphy: So what you're saying is that if the government implemented this proposal to eliminate the entire capital gains taxes on these gifts, it would only cost somewhere between $7 million and $21 million?

Mr. Donald Johnson: Yes, that's correct. That's based on an analysis done by a senior partner of one of the major accounting firms in Toronto who spent fifteen years in the Department of Finance.

Mr. Shawn Murphy: Thank you very much.

Mr. Donald Johnson: That's taking into consideration the discounting of the present value of the tax. On the $200 million in gifts of shares last year that took place, the government would have given up—the regular capital gains tax would have been around 22% of the $44 million, and it would be half of that—$22 million. But if the policy had been to tax people with the full capital gains taxes on those gifts, those people would not have given $20 million worth of stock, they just wouldn't have given. The government therefore wouldn't have received that capital gains tax until many years from now in most cases. So you have to discount the present value of the foregone tax.

The Chair: Thank you, Mr. Murphy.

Ms. Guarnieri.

Ms. Albina Guarnieri (Mississauga East, Lib.): Thank you, Mr. Chair. I just have two very brief questions.

Mr. Dye, you've been sitting there very patiently, and I'd like to give you an opportunity to expand on your points of view.

• 1615

You make a very compelling case for why the government should invest. I believe you mentioned $3 million to $5 million to improve management skills in small businesses. Can you expand on the delivery method and how you see this unfolding if the government were to adopt your ideas?

In your brief you state that you've already put forward some specific ideas to Industry Canada. Perhaps you can give us an update on what reception you have had and where that matter stands presently.

Mr. Robert Dye: Dealing with your second question first, we presented a very extensive brief a year ago to Industry Canada. We followed up with some specific proposals and presently are working on developing a benchmarking process so that the managers and owners of SMEs can compare their management skills or lack thereof with those of others. Secondly, we are also working on a proposal whereby we can come up with a mentoring program, so that SMEs that need help can get guidance and advice from individuals who have been there and done that.

Ms. Albina Guarnieri: And what can you say respecting the delivery method?

Mr. Robert Dye: As we see it, there really are two issues. I call them two issues, but they're probably linked. SMEs look for learning or educational opportunities that have to be both accessible and affordable. Most SME owners do not have time to go to multi-day seminars or conferences that cost hundreds and likely thousands of dollars. Our approach would be to have learning opportunities that are readily accessible and affordable. That would mean having web-based programs that are available on the Internet, or programs that could be provided in print form or on disk or CD.

Ms. Albina Guarnieri: Mom-and-pop stores and operations sometimes don't even have access, I'm told, to the Internet. Are you envisioning perhaps also field trips to instruct them on location, or is that part of your method of operation?

Mr. Robert Dye: That's part of the mentoring process we're currently discussing with Industry Canada.

The Chair: Thank you, Mr. Dye.

We will now hear from Mr. Nystrom.

Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP): Yes, I have two questions maybe to Mr. Dye first, before going back to horse racing again.

The recommendation you make is very important in terms of the 80% of new jobs created in the country by small and medium business. I just wonder what response you've had from the Department of Finance for your idea. The other question would be whether you are also approaching the provinces in terms of the same idea, in terms of training people in management skills. A lot of training now, of course, is a provincial responsibility.

Mr. Robert Dye: We have not approached the finance department.

Mr. Lorne Nystrom: Okay.

Mr. Robert Dye: We've approached Industry Canada, which is where we have a good, positive signal, and that's where we're working.

In our presentation we talk very generally about how we may do this. We talk about partnerships. That really means that we see there has to be both provincial and federal involvement, along with the involvement of other associations, industry organizations—that type of arrangement.

Mr. Lorne Nystrom: Going back to the Horse Racing Tax Alliance of Canada, I have two questions for you as well.

Often, a tax change has some impact on other industries. Is there another industry in a situation analogous to yours, if we were to make that change for the horse racing industry? Is there another industry that's analogous, where they'd expect the same change? For example, a number of us have moved private members' bills over the years to lower the qualifying age for firefighters to get CPP benefits, because they work in a very hazardous industry. Well, so do policemen and so do some other people, and so on, so you need to have a level playing field between people in similar businesses. Is there anybody analogous to your industry?

• 1620

The last question I'd ask is who is your association and who do you represent? Do you represent, for example, Queensbury Downs in Regina? Do you represent all the racetracks in the country? You're farmers, I know, but how big are your farms, and whose are they?

Mr. Michael Van Every: Let me answer the last question first.

We represent...there's a list in our document, and I'm not sure whether it was sent to you. We have a condensed version, which was made available to all members of Parliament. It lists two pages of organizations. In a nutshell, those organizations are the standardbred and thoroughbred breeders, the standardbred and thoroughbred owners, and the racetrack operators.

There are various combinations. For instance, the Canadian Thoroughbred Horse Society Alberta represents all of the thoroughbred breeders in the province of Alberta.

Many own and operate farms and many do not. About half the members behind each of these organizations actually have a farm, and it could vary anywhere from a ten-acre to a several-hundred-acre farm. In the west, I think they call them ranches.

It could also be somebody who lives in downtown Toronto and keeps a horse at the racetrack, employing professional staff to administer it. That might be a trainer who would then employ the jockey, the hot walker, the groom, the veterinarian and the farrier to operate on the horse. It's not necessary that someone actually own and operate a farm—a piece of land—to carry on in the horse racing industry.

We're not sure why the horse racing industry was put into the farming section, save and except that it was the only section in the act that restricted the loss deduction, and so it was put in there rather than creating a new section.

Mr. Nystrom, you asked another question as to who else it would affect. To the best of our knowledge, the only people in the act that it would affect are other farmers not engaged in horse racing. I'd like to be able to speak on their behalf, but I can't. They would be the people who grow grain and those who have cattle and pigs and sheep and so on.

It's not certain, in my mind, what their reaction would be and whether they would want the same deduction. We understand, from a policy statement put out by the Department of Finance about 15 years ago, that this section may have been put in to protect the full-time farmer from a part-time farmer who would unfairly compete with the full-time farmer because he would be getting a tax deduction against his other income. He would therefore in a sense be getting a bit of a subsidy.

That does not apply to our industry. We have the total support of the full-time farmers in our industry. By and large, the part-time farmers—the people who buy horses—are the full-time farmer's customers. So the full-time farmers in our industry want the part-time people to be able to get full loss deduction if they in fact should suffer a loss. We don't see that anybody else would be coming to your door saying “We want equal treatment.”

Mr. Lorne Nystrom: I have just a comment. I certainly support what you're saying today, but in my riding, Regina—Qu'Appelle, I represent many of those other farmers you mentioned. It might be useful to touch base with the CFA or other farm organizations in terms of advancing your case and broadening the lobby.

Mr. Michael Van Every: Thank you.

The Chair: Thank you.

Mr. Brison.

Mr. Scott Brison: Thank you, Mr. Chairman.

Thank you to all of you for your interventions.

I'd like to start with Mr. Johnson. Again, congratulations on your progress to date with your initiative on contributions or gifts of publicly traded securities. It's wonderful.

I might suggest that an interim step to the complete elimination of capital gains tax on publicly traded securities might be that we consider test marketing this notion. Perhaps we can start with contributions of publicly traded securities to Canadian political parties. If that is successful, then we could expand it to a broader base. But that's just for consideration for the future—

Some hon. members: Oh, oh!

An hon. member: There's too much confusion there. It would just be a charity case, wouldn't it?

An hon. member: Are there any parties you had in mind?

Mr. Scott Brison: Well, they'd have to be one of Canada's founding parties, I would suggest.

• 1625

One issue I'd be interested in your views or insights on is how assets like land or art—not publicly traded assets or assets where the valuations are more difficult to securitize or to to identify exactly—are treated in the U.K. and Canada in terms of charitable contributions.

Mr. Donald Johnson: I believe in the U.K. they confine the capital gains exemption to publicly listed securities, as we do in Canada. In the United States they have a broader definition. It's basically a capital gains exemption for appreciated capital property.

When you broaden it beyond publicly traded securities, there's a natural concern for valuation abuse, and it becomes quite complicated. It's not insurmountable. In the U.S., to ensure that there is not valuation abuse, when real estate or shares in a private company or other assets are given, an independent valuation must be done on the asset that's donated. Three people sign the valuation: the evaluator himself or herself, the recipient charity, and the donor. If there's any material difference between what they actually realize when they sell that asset and what the appraised value was, there's a joint liability for all three—the charity, the donor, and the evaluator.

So it can be handled, but it's more complex. That's why it was a lot simpler in this case to restrict the exemption to publicly traded securities: the charity receives the shares and can sell them right away. There's no question about what the value is, because it can turn the asset into cash immediately and use the cash.

Mr. Scott Brison: Do the members you represent typically make...? I guess there has to be some evaluation of the quality of the security, because you might have a thinly traded or fairly liquid position or a security that might in fact be more valuable from the perspective of capital gains benefits. From a tax perspective, it might actually be advantageous for a contributor to give away a stock that's fairly liquid rather than try to sell it. Is there some board evaluation, in terms of the quality of securities at the time of contribution, amongst your membership?

Mr. Donald Johnson: I believe that the criterion is that the shares are publicly listed. I don't think there's any specific restriction with respect to the liquidity of the security.

Mr. Scott Brison: Okay.

I have a question for Mr. Dye. I listened with great interest to your description of your initiative, but when I look at the numbers and the failure rate of small businesses in Canada, it doesn't really look that bad. In a sense, one in five, for a success rate, is not that bad, given the nature of small businesses. It seems like such a typically Canadian thing that we look at failure in small business in such a negative way.

If you look in the U.S.—for instance if you compare the way venture capital firms in the U.S. look at entrepreneurs compared to how we do it in Canada—a VC actually wants an entrepreneur or an applicant to have failed at some point. It's considered a badge of honour or something important. It's typically Canadian that we're trying to reduce failure to such a point that we would almost create the false notion that entrepreneurialism can be taught. We have HRDC trying to teach people how to be entrepreneurs; we have the Canadian bankers doing courses on helping entrepreneurs become more successful.

I guess I'm skeptical about whether we can teach people how to succeed in small business, because it seems to me—and I started my first small business when I was 19 as a university student, and it was legal, by the way—

Voices: Oh, oh.

Mr. Scott Brison: —that most people in small businesses are not necessarily good managers, but they have that entrepreneurial spark, which is very much a cultural thing. It's often in families. It's not so much something that could be taught. So I guess I'm not sold necessarily that you can succeed in providing some sort of skill set to these individuals who, by their very nature, are going to be windmill tilters and successful sometimes, and fail sometimes. And I don't think we're going to reduce that failure rate significantly through some other methodology that you're promoting.

• 1630

The Chair: Mr. Dye.

Mr. Robert Dye: I wouldn't look just at the simple number one in five. I would be inclined to look at the total impact on the economy. And secondly, I would agree you could never make it five in five successful. In our presentation we made a suggestion that if we moved the number from one in five to two in five, there would be a significant impact. I think we may have misled a bit in our presentation, because we talk about the failure rate. What we didn't talk about is how much better we can make those who are successful.

Mr. Scott Brison: Comparatively, is Canada worse than the U.S.? Is our number significantly different from that of the U.S.?

Mr. Richard Monk (President, Certified Management Accountants of Canada—Ontario): It's always hard to get some of these figures. I'm not sure whether or not we're better off or worse off than the U.S. We just know for a fact that our SMEs are failing simply because there's a lack of essential business management skills, and that's our big concern. I think if we could move that bar, as Mr. Dye said, to two in five instead of one in five, we'd be doing quite well.

Some of these skills are very basic. They are financial planning skills, business planning skills. You mentioned your windmill entrepreneurs. We'd like to take those windmill entrepreneurs and put them on solid footing if we could.

Mr. Scott Brison: Wouldn't a more effective notion be a general tax reform aimed at reducing capital taxes, reducing capital gains taxes, reducing the taxes that pummel entrepreneurship and success in Canada and unburden those people who are naturally entrepreneurial from the yoke of excessive taxation they face now? As opposed to trying to take people who are not naturally entrepreneurial and making them entrepreneurs, shouldn't we just create a better environment for the entrepreneurs and see how we make out?

Mr. Robert Dye: You might end up with a few more who are successful. They may be successful for a longer period.

Mr. Scott Brison: They may stay in Canada.

Mr. Robert Dye: Yes, they may, but I don't think you would accomplish the development of the overall SME community in the longer term.

Mr. Scott Brison: So you don't see tax reform as an important and necessary step to create a better entrepreneurial environment in Canada?

Mr. Robert Dye: No, I see it as being an enabler. It would assist, but I don't believe it would be the answer in the longer term.

Mr. Scott Brison: Thank you.

The Chair: Thank you, Mr. Dye.

I have a question in reference to a subject that keeps coming up today. Whether we're talking about charitable donations, horse racing, or indeed concerns about capital taxes, the point of reference always seems to be the United States when you're making these comparisons. Have we come to the point in history as a country that we need to be more mindful of the fact that the North American economy is indeed integrated and that there needs to be greater harmonization of some of the policies, whether fiscal or otherwise, with the United States of America as we deal with some of the obvious challenges? The majority of the people who appear in front of the committee often make reference to the United States. Should we be, as a committee, focusing on those differentials, particularly when they negatively impact Canadians and their standard of living?

• 1635

Ms. Catherine Willson: I want to make one point. With respect to our submission today, we're not saying just the U.S.; we're saying make us equal with Canada. Our problem is that we're not able to compete fairly in Canada, let alone with the U.S. Admittedly, that is the theme today, but for our purposes we're talking about letting us compete fairly with the rest of Canada when it comes to investment money.

Mr. Michael Van Every: But to answer your specific question on the U.S., I think it is a North American market in everything we've heard about today.

Mr. Chairman, I know in the horse racing business and the breeding business it is a North American community and it is very difficult for us to compete against the Americans under a different tax regime. So I think it is time to look at the United States and to try to harmonize. We are, as you know, trying to create a North American border protection now, and we need to keep that border open because we have a lot of horses that are moving back and forth across the border for breeding and for racing purposes.

I want to say that I was delighted that Scott mentioned the question about the success and the badge of honour, in terms of going down. Our record for part-time farm operators is better than one in four. We don't lose four out of five people in this industry, and yet the people you've just been talking about get a full tax deduction for their losses and we don't. I'm sorry, Mr. Chairman, I couldn't help myself.

The Chair: Don't be sorry.

Mr. Dan Marinangeli: Mr. Chairman, I would like to make a comment on the North American aspect of magnitudes.

The Chair: Yes.

Mr. Dan Marinangeli: Certainly the capital the banks employ in Canada is very mobile. We move capital around, not just in North America but worldwide. And without a competitive tax regime in Canada, there are built-in incentives for us to move our capital to the U.S. and even farther away. So, absolutely, you're right.

The Chair: Does anybody else want to tell me I'm right?

Mr. Donald Johnson: I think that's very much an issue, certainly with universities on the advisory boards. We are competing primarily with the U.S. business schools for the best faculty. We're also competing with them for the best students. It's the same thing with hospitals here. The alternative that doctors and nurses have, really, is the United States versus Canada, and so on. So I think we have to be very conscious of who the competition is, and make sure that we position our organizations to give them the freedom and ability to compete on a level playing field.

The Chair: Thank you very much.

I'll end on this note. With approximately 86% of our exports going to the United States and 45% of our GDP really coming from activities with the United States, there's no question about the fact that we are at a crossroads in our country in the way we must think about our national solutions versus our continental solutions. And I must say—I can speak, perhaps, on behalf of the committee, and I hope you allow me to—that we will be viewing things more and more in a continental North American way.

Thank you very much. You have been very helpful.

We're going to have a 60-second break.

• 1639

• 1649

The Chair: I call the meeting to order and welcome everyone here this afternoon. This is our third panel of the second session in Toronto today.

We have the following witnesses from the Toronto Transit Commission: the commissioner of TTC and Toronto city councillor Mr. David Miller; and Vince Rodo, general manager.

We have also the following individuals representing the Canadian Vehicle Manufacturers Association: the president, Mark Natais; David Penney, general director, tax and customs, General Motors of Canada; Tayce Wakefield, vice-president, corporate and environmental affairs, General Motors of Canada; and Michael Sheridan, director of government relations, Ford Motor Company of Canada.

• 1650

From the Ontario Non-Profit Housing Association, we have Noreen Dumphy. From the Toronto Training Board, we have Peter Landry, business director; Mike McCue, labour co-chair; and Rebecca Sugarman, women's director. From the Greater Toronto Services Board, we have Dr. Gordon Chong, chairman.

I'd like to welcome you all. Many of you have appeared in front of the committee, so you know you have approximately five to seven minutes to make your introductory remarks. Thereafter, we'll engage in a question and answer session.

We'll begin with the Toronto Transit Commission. Mr. Miller, welcome.

Mr. David Miller (Commissioner, Toronto Transit Commission): Thank you very much, Mr. Chairman. We very much appreciate the opportunity to be here today.

As you noted in your introduction, I'm a commissioner of the Toronto Transit Commission. As a city councillor, I'm elected. Mr. Rodo is an administrator of the Toronto Transit Commission. Either one of us will be happy to answer questions at the appropriate time.

We did submit some brief remarks and a chart that should be available for the members of the committee. The remarks really talk about the Toronto Transit Commission's specific case.

In my verbal remarks I'd like to very briefly talk about why the federal government should invest in urban transit. There are really two very important reasons. The first is that Canada is increasingly an urban country. The economic health of our large cities, particularly Toronto, is directly dependent upon the successful ability of people to move around the city by transit. The second, of course, is the environment. I'll speak about the issues facing cities.

Canada is the only country in the G-8 that does not have a federal program to invest in transit. If Toronto were in the United States, and I'm certainly not advocating that we should be, this year alone, we would receive $290 million under the Transportation Equity Act for the 21st century. The investment would be extremely critical to the ability of a city like Toronto to invest in public transit, increase service, and both maintain the current system and, if possible, expand it.

One of the reasons the United States passed the T legislation was equity. It was specifically designed to accomplish social equity with programs like the ones that help people on welfare obtain employment. You can't work if you can't get to work. Many people of lower income can't afford to travel by automobile. Transit is an important way to provide social equity. I think it is a goal of this particular federal government.

In the 2000 budget, I would applaud you on your green municipal fund. It's a very good start. We need to go much further and specifically address the direct investment in transit, in partnership with provinces, territories, and municipalities.

The chart on the second page of our submission shows the source of capital and operating funds for various cities that Toronto is competing with economically. Toronto gets zero federal funds, zero provincial funds, and 100% of capital is from the city, although the province has made an announcement that it may be restoring some of the funds.

If you look at all of the other cities, including our competitors in Canada, although this focuses on the United States, the proportions are reversed. New York is a good example, where 27% comes from the federal government.

I'd also like to briefly address environmental issues. By investing in urban transit, the federal government can help achieve its goals under the Kyoto protocol. When I discuss this with members of Parliament, I'm often told there are constitutional issues.

On a constitutional issue about the fishery, when asked why the federal government should have a role in the fishery, Pierre Trudeau once said that fish swim. Well, air flows. We do not put up a wall and stop the air at the border of Toronto, Quebec, Alberta, or British Columbia. It flows. The federal government has an important role, if it wishes to meet its Kyoto targets, in finding ways to do so.

The Toronto Transit Commission estimates that if it replaces the fleet of vehicles due over the next ten years, which has to be done, it will save 160 million litres of fuel per year and 20,000 tonnes of pollution annually by keeping over 90,000 cars off the road.

• 1655

To give you some simple comparators, the TTC's Yonge subway has the capacity, in one day, to carry the same number of people as the 401, the 400, and the 403 highways combined. It's an incredibly powerful tool, but we can't succeed with that tool without adequate funding. The United States has shown us the lead, and we're here to urge you to follow their lead and find a way to help fund and invest in urban public transit.

Thank you for your patience in listening to my remarks.

The Chair: Thank you very much, Mr. Miller.

We'll now hear from the Canadian Vehicle Manufacturers Association. Mr. Nantais.

Mr. Mark Nantais (President, Canadian Vehicle Manufacturers Association): Thank you, Mr. Chairman, and thank you for the opportunity to appear before you today. Good afternoon, members of the committee.

The CVMA is the national industry association representing Canada's largest automakers. Our membership includes DaimlerChrysler Inc. of Canada, Ford Motor Company of Canada, General Motors of Canada, International Truck and Engine Corporation, and Volvo Cars of Canada.

As you are aware, the CVMA provided a detailed submission to your committee in August outlining some significant typical concerns. While we will highlight several of these issues in a moment, we thought it would be very beneficial to discuss the business climate of Canada's automotive industry, in the wake of the very sad events of September 11.

The productivity and performance of Canada's automotive industry is directly connected to the economy of the United States. The manufacturing processes of our member companies rely on just-in-time deliveries to bring parts to our manufacturing plants here in Ontario.

In the days following September 11, production at automotive plants was disrupted, as parts shipments were delayed at the Canada-U.S. border. This disruption was felt on both sides of the border. Parts manufactured in Canada were unable to reach the United States, and parts manufactured in the United States were unable to reach our plants here in Canada. This represents a significant impact on both Canadian exports and Canadian productivity.

As well, almost 90% of the vehicles produced at Canadian plants are exported to the United States, to be sold to consumers in that market. Shipments of finished product to dealer networks in the United States were also disrupted, in the days that followed September 11.

We believe it is in the national security interest for both Canada and the United States to maintain a strong economy, including facilitating this cross-border commerce.

Our industry has been rationalized across North America under the Auto Pact since 1965. Today it depends on a fully integrated trade system. While these things have largely stabilized at the border, the experiences immediately following the tragedies of September 11 have highlighted the need to have a coordinated strategic approach to border management.

We support a coordinated perimeter approach to security issues. At the Canada-U.S. border, particularly for surface crossings, we need to take several important steps that will facilitate the flow of high-value low-risk goods, and allow resources to be focused on higher risk activities.

Specifically, we believe the following steps should be taken. Shortly after the September 11 tragedies, additional resources were allocated to the busiest surface crossings to ensure that existing customs infrastructure was maximized. We support the U.S. including additional resources in their appropriation process, to ensure that these border points continue to be appropriately resourced.

Congestion at the border has been a problem for a long time. We need to explore off-border inspections, for instance, so we may move the congestion back from the border choke points, to facilitate a smooth flow at the border. This is important to the smooth flow of legitimate commerce, and will also assist with border security.

The customs self-assessment process includes pre-registration of transport drivers, to facilitate their speedy clearance. This approach seems to make sense for both sides of the border. We should also explore how transponder technology can further facilitate the smooth flow of high-value-added low-risk commercial traffic.

Initiatives such as the customs self-assessment program, which is designed to facilitate the flow of goods for companies with significant cross-border traffic, are positive. The CSA provides the opportunity, under specific conditions, to obtain pre-arrival clearance privileges and self-assessed customs duties payable.

Unfortunately, the CSA has been delayed in its implementation. A number of alterations have been made that make it an unnecessarily complex and potentially costly process. This represents a departure from the original intent. We are continuing to work with the CCRA to address these deficiencies, to ensure the process works as effectively as it was intended.

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We appreciate the ongoing efforts of the federal government to assist with these border issues, in support of both our national economy and our security interests.

Now I'd like to turn to the fiscal recommendations we outlined in our submission.

First, we would like to take this opportunity to applaud the federal government for the proactive steps it has taken toward reducing taxes in Canada. These reductions in personal income taxes that were implemented in the past year were very helpful in stimulating consumer demand during an economic downturn. We encourage the federal government to continue this trend, as we move forward.

While we believe that our fiscal concerns were relevant before September 11, we believe that now, more than ever, these recommendations are necessary to stimulate Canadian industry, increase consumer affordability, and enhance the productivity of our Canadian plants.

Our first concern relates to the federal large corporations tax. By its very nature as a capital tax, the large corporations tax has a disproportionate impact on corporate taxpayers with businesses that are capital-intensive, such as manufacturers, or involve significant investment in capital stock, such as automobiles.

Since the large corporations tax applies without regard to a corporation's profitability, it serves as an annual financial cost to corporations that invest in Canada, and adds needlessly to the cost of vehicle leasing and financing to consumers. The large corporations tax represents a significant cost of doing business in Canada, and we recommend that it be eliminated.

Our second concern relates to corporate loss transfers. Many jurisdictions throughout the world allow corporate groups to transfer losses between wholly owned subsidiaries, thereby streamlining the tax planning process from the corporate point of view. Canada, however, does not allow the transfer of losses between wholly owned subsidiaries, resulting in higher administrative costs and an uncompetitive tax structure.

The CVMA recommends the federal government implement tax changes to provide a straightforward efficient system that would allow Canadian companies to transfer losses between subsidiaries for the corporate group and ensure Canada is well positioned to compete for international investments.

The next matter we'd like to bring to the committee's attention relates to the withholding taxes on interest payments. The current Canada-U.S. tax convention reduces the withholding tax on interest at source to a maximum of 10%, when the interest earned in one country is paid to a resident of the other country.

As the U.S. is Canada's major trading partner, this withholding tax stands in contrast to virtually all other U.S. tax conventions with developed countries, where such withholding tax has been eliminated. This is of particular concern to the automotive industry, given the fact that other countries are competing very seriously for automotive investment, potentially at Canada's expense.

Manufacturing is a key generator of jobs in the Canadian economy, capital is globally mobile, and competition for investment is fiercer than ever. Governments in the United States and around the world are continuing to lower corporate taxes to attract new investment. In this context, it is important for Canada to ensure it is an attractive jurisdiction for investment on an after-tax basis.

While we support the R and D tax credit as an investment in high-tech jobs and potential future opportunities, manufacturing investments create large numbers of jobs for average Canadians today. Particularly in this present era of uncertainty, we believe that the Government of Canada should consider establishing a special manufacturing investment tax credit, to encourage companies to locate their manufacturing jobs here. A 5% investment tax credit for new manufacturing machinery and equipment would help preserve and expand Canada's manufacturing infrastructure, the associated jobs, and the economic benefits.

In closing, Mr. Chairman, I'd like to reiterate what we have mentioned here today. We believe that now, more than ever, the federal government needs to facilitate an environment for economic growth. This requires a Canada-U.S. border policy that allows Canada to maintain its place in an integrated North American economy, and a fiscal framework that provides consumers and investors with the confidence to keep our industry moving. We like to say that what Canada drives drives Canada. We hope the Government of Canada shares our commitment to keeping the automotive industry strong and healthy.

Once again, we appreciate the opportunity to appear before this committee today. Both myself and the representatives here from our member companies will be pleased to answer any questions you may have.

The Chair: Thank you very much, Mr. Nantais.

We'll now hear from the Ontario Non-Profit Housing Association, Noreen Dumphy, manager, public affairs. Welcome.

Ms. Noreen Dumphy (Manager, Public Affairs, Ontario Non-Profit Housing Association): Thank you.

I bring the apologies of my colleague, Robin Campbell, who unfortunately, because of increased airport security, had to leave earlier than expected to go to Thunder Bay.

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Our organization is the provincial association that represents municipal and private non-profit housing associations in the province. We currently have over 700 housing providers as our members. Together they have over 97,000 housing units for people of low and moderate income.

I want to direct your attention to our full written presentation, which was submitted to the committee in the summer. Some events have overtaken us since then, so I will be speaking more from the speaking notes that were distributed today and then referring back to the recommendations in our original written submission.

There were two significant events, from our perspective. The first was the August meeting of the federal, provincial, and territorial housing ministers, at which point Minister Gagliano made a very significant shift in his proposals for how the capital grant program for affordable housing should be structured. At this there was much rejoicing by us and by my colleagues across the country. We did indeed congratulate him then, and through this committee want to congratulate the minister now, because the original intent had been more to create a pure rental stimulus or supply program. When it became evident that the housing would not be affordable to people of low and moderate income, the minister was gracious enough to change the focus for the program. While we recognized that this meant fewer units would get built—it would take more money to subsidize them—at least the housing that was going to get built would be housing appropriate for people of low and moderate incomes.

This was a very significant shift, for which we are very grateful. However, since that time the events of September 11 have intervened as well. As recently as this weekend there were disturbing reports in the paper speculating that the four-year, $680 million capital grant program for affordable housing would be one of the first victims to fall to possible changing of government spending priorities.

We trust this will not happen. We want to speak to why not, right to the point, and then indicate that we are going to revise one of our earlier recommendations in recognition of this.

The homelessness problem and the underlying affordable housing crisis need no further description from me. I suspect most members of the committee are aware of it. Ontario is not the only province that has suffered greatly under these growing problems.

The federal government terminated its program for funding new affordable housing in 1993. In our province, the provincial government terminated its funding for new housing in 1995. So we've had an interval of time where almost no rental housing was built in the private sector and no social housing was built at all. We're now in, I guess, our eighth year of this accumulating deficit, if you will, of affordable housing supply.

At last we've seen light on the horizon. We had the red book promise last year, following up on the federal government's earlier homelessness initiatives announcement in 1999, that indeed it was going to put funding directly into affordable housing. As far as I am aware, based on that, money was budgeted for this four-year program to the tune of $170 million annually, totalling $680 million.

Events being what they are, things have slowed down in the provincial negotiations. No money has actually been spent, and I suspect none will be spent, in the year 2001. So we were counting on something really getting going in 2002.

I guess our appeal to this committee, and through the committee to the government, is to recognize that by reallocating that money, if that is the intent, to help fund the government's critical response to the September 11 events, we are simply putting off that deficit, which will continue to accumulate each year. It doesn't go away, it just grows each year. The human misery that has been growing over those intervening eight years will have another year, or two or three, with no relief.

Our recommendation in our original report was that the $170 million budgeted annually be increased to the targeted amount the Federation of Canadian Municipalities has established, based on their very exhaustive studies of housing needs in Canada's major urban centres. They had suggested that, depending on provincial contributions, we needed something like $1 billion to $1.5 billion annually over ten years simply to meet half of the documented critical affordable housing shortage.

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When we compared the $1 billion to $1.5 billion with the $170 million, it was no contest for us. We were grateful for the money—it was to get started in 2001, or now 2002—but we felt then, and feel now, that the government must commit to ramping up that money so it starts to approach the targets the Federation of Canadian Municipalities has set.

There is no wishing away the housing needs. The government can decide whether to meet it, but new studies are not going to prove that the need isn't there and that this isn't the scale of the response required.

Our revised recommendation is that rather than asking that the $170 million ramp up sharply in 2002, we would accept that the $170 million would stay as is in the budget for 2002. We would ask that the ramping up begin in 2003. We note that $170 million has been saved in 2001 because of delays in getting the program going. Perhaps that can help meet some of the budget pressures with regard to September 11.

Just briefly on the provincial role, we believe the provinces, and in our case Ontario in particular, should be contributing to the program. We are skeptical as to whether they will. We urge the federal government to proceed without Ontario, if need be.

We would simply point out that you will find willing municipal partners and community partners. Their pockets are not as deep as those of the two senior levels of government, but they are already putting money and land on the table, and many other efforts. We're prepared to begin as soon as the federal government is prepared to begin to make the money available.

I won't review some of the housing needs in Ontario—see our attached “Where is Home” 2000 update—other than to simply note that the needs have been growing in Ontario. You might be surprised at the number and size of municipalities experiencing this housing crisis, exploding the stereotype that it's just the biggest cities.

I will just jump ahead to our conclusion. We believe the non-profit housing sector has a critical role to play, along with the private sector and all levels of government, in attempting to meet this affordable housing need. There are some longer-run changes, particularly in the tax system, with which we would be happy to collaborate in the investigations as long as we accept the fact that we have to get down to business immediately with this capital grant program.

Our five recommendations include the three in our original report. The first one, on the level of annual funding ramping up sharply, has the amendment that we would accept the $170 million in 2002 and hopefully see it pick up again in 2003.

We've asked that CMHC fix their mortgage insurance problem for rental housing. It basically doesn't work for anyone, private or non-profit, but the problems are ten times worse if you are a non-profit.

Third, if the Ontario government doesn't agree to fund, let's implement the program now. Let's not wait. Use your municipal and community partners.

Fourth, we suggest that the non-profit sector offers, dollar for dollar, better and longer-term value for that capital grant money spent. The proposals are such that, if an agreement is reached with the private sector proponent, there might be a 10- or 15-year period where they keep rents affordable for the same money a non-profit housing project keeps those rents affordable forever.

Finally, we would like to collaborate on any investigation of the long-term tax changes that could create a more sustainable approach to developing affordable housing.

Thank you.

The Chair: Thank you very much, Ms. Dumphy.

We will now hear from the Toronto Training Board. We have three individuals—Peter Landry, Mike McCue, and Rebecca Sugarman.

Who will speak first?

Mr. Peter Landry (Business Director, Toronto Training Board): I will. I'm Peter Landry, a business director with the Toronto Training Board.

I first would like to thank you for the opportunity to speak with you on behalf of the Toronto Training Board. As a non-profit, multi-stakeholder, volunteer-run association, the Toronto Training Board is, we think, uniquely positioned to give input into these budget consultations. The board is made up of representatives from business and labour, educators and trainers, persons with disabilities, women, visible and racial minorities, and francophones.

Bringing together these stakeholders, we work hard to develop a consensus-based approach to complex training and labour market issues. The unique composition of the Toronto Training Board allows us an overview of issues that transcends specific interests and instead speaks to broader concerns.

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The Toronto Training Board recently completed a consensus report on tax and other fiscal policies as they relate to training, entitled “Rebalancing the System: Seven Tactics to Reduce Tax Barriers and Enhance Training in Toronto”. Our report found, to be blunt, that the people most in need of training are the least likely to get it. We found that workers in small companies and in low-wage blue collar and clerical jobs, along with unemployed people, have the fewest training opportunities, but the greatest need to develop skills for getting and keeping jobs. We also found that tax and fiscal policies can worsen, rather than lessen, the skills gap in the labour market. Government policies either impose tax penalties on workers who are enhancing their skills to keep jobs or tighten eligibility for training programs. These policies severely limit the opportunities for unemployed and marginally employed people to develop skills that enhance their ability to get and keep jobs.

By releasing its report, the Toronto Training Board is urging all three levels of government to change tax and fiscal policies that act as barriers to training and jobs. We recognize, however, that the federal government has made a significant commitment to investing in the skills and talents of Canadians, as was evident in the January 30, 2001 throne speech, where it was noted:

To succeed in the knowledge economy, Canada will need people with advanced skills and entrepreneurial spirit. Canada must see at least one million more adults pursue learning opportunities in the next five years.

We are pleased that the federal government has identified skills and learning as one of its priorities, and we would like to support its efforts to increase training opportunities for those Canadians most in need of training.

We would like at this time to draw specific attention to four out of the seven recommendations in our report that are aimed specifically at the federal government and if implemented, we think would promote a stronger and healthier training environment in Canada, would help ensure that Canada remains a major player in the new economy, and would help raise the quality of life for Canadians.

The first recommendation is that the federal government should not tax EI skills development employment benefits tuition funds. Currently, these funds are taxed and increase the recipients' net incomes. This in turn decreases their child care benefits and GST rebates and exposes them to EI clawbacks. Yet employer-sponsored tuition for job-related training is not a taxable benefit for employees and does not affect their child benefits, for example. As well, employers can deduct tuition costs as current expenses.

The second recommendation is that the federal government should exempt registered retirement savings plans contributions made from severance or buyout funds from the lifelong learning plans 90-day rule. Currently, displaced workers who contribute severance money to their RRSPs are not allowed to use this money under the lifelong learning plans for 90 days. Yet this three-month period is when displaced workers would find skills training the most useful.

The third recommendation is that the federal government should not tax workers for employer-sponsored, non-recreational skills enhancement. Currently, employer-funded education and training that is not directly related to current jobs are taxed, but workers at all levels need ongoing skills enhancement to remain employable.

The fourth recommendation is that the federal government should give tax credits to small businesses for training costs. Currently, employees of small businesses receive employer-sponsored training much less frequently than workers in large organizations. Small businesses can deduct training as an expense, but this deduction is not enough of an incentive for them to provide training opportunities.

Those are the four recommendations. We'd like to thank the committee for the opportunity to present our report's findings, findings that represent a consensus among business, labour, and other training stakeholders in the Toronto Training Board, aimed at decreasing the skills gap and increasing the quality of life for Canadians. And I, Mike, or Rebecca would be pleased to answer questions.

The Chair: Thank you very much, Mr. Landry.

We'll now hear from Dr. Gordon Chong from the Greater Toronto Services Board. Welcome.

Dr. Gordon Chong (Chairman, Greater Toronto Services Board): Thank you very much, Mr. Chairman.

Notwithstanding the recent announcement from the provincial government about winding the Greater Toronto Services Board down, I feel the issues I'm going to raise today need to be addressed.

Mr. Chairman and members of committee, on behalf of the five million residents of the GTA, I appeal to you to make a direct investment in the transportation infrastructure of the GTA as the surest method of sustaining the quality of life of all the GTA residents and Ontarians.

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I urge you to recognize the significant benefits the federal government itself derives from a prosperous GTA. I call on you to invest in your own future well-being. I invite you to join us and the province in a partnership, with each level of government making an appropriate investment to ensure that this great city region continues to provide benefits for all Canadians.

The GTA economy generates about $188 billion annually, which is about 18% of the nation's gross domestic product and about 45% of Ontario's gross domestic product. But the economy's faltering, in no small part due to pervasive traffic congestion, and we're losing our competitive edge in the global economy. It's become clear that the 30 member municipalities in the GTA can't meet all the challenges that face us without additional financial participation by senior levels of government. Our only significant source of revenue is property tax, which offers limited scope and can't be increased without jeopardizing social stability and our overall competitiveness. As a result, we'll never have the fiscal capacity to solve the problems that are depressing our economy.

Specifically, the GTSB urge you to earmark 50% of the gas tax collected from GTA motorists exclusively for capital spending on transportation, particularly public transit in the GTA. I've made the same appeal to the provincial government. A rough calculation indicates that gasoline tax generated $1.7 billion in federal and provincial revenue last year. Reinvesting half of that money in the GTA for transportation purposes would provide a fund of about $863 million, almost perfectly matching the annual $800 million shortfall in capital spending. Such a system would solve the GTA's transportation funding problem by providing a long-term sustainable and predictable source of revenue, and would still leave senior governments with half the gasoline tax raised in the GTA for spending elsewhere or on other programs. It would see transportation taxes raised locally spent locally and spent for transportation purposes.

The TTC needs $3.8 billion over the next decade to replace and repair its aging trains and infrastructure, just to provide present levels of service. GO Transit reports that to maintain the system and meet anticipated growth in the next decade, it'll need to spend roughly $1.8 billion.

City regions, such as the GTA, are the new generators of wealth in the global economy, but the GTA is no longer dominant, even in the North American context, and is facing unprecedented competition from nearby American city regions that have been preparing for the future with significant financial investments from their federal government. If all Canadians are to enjoy a continued high quality of life and standard of living, and if our citizens and our business enterprises are to thrive and excel, it's vital that the federal government invest its attention and resources in ways that'll strengthen its city regions.

It appears that the U.S., our major trading partner and our major competitor, has recognized the importance of succeeding in the new economy by strengthening its city regions that create wealth. As you probably know, the United States federal government is this year investing roughly $6 billion to improve public transit and a further $1.7 billion next year in reducing congestion and improving air quality in its key urban areas.

A recent survey of 10 U.S. city regions we compete with found that in the past decade they spent on average five times as much on their downtowns and waterfronts as we did on ours. Recently, the panel reviewing the Canada Transportation Act concluded that the federal government has a valid interest in the economic health and functioning of Canada's urban engines of growth. At the moment Canada is the only G-7 country without a national urban transportation investment program.

One inescapable reality of the new global economy is that financial and human resources flow to places where they see advantage and avoid places where they see problems. City regions with efficient roads and public transit, cost-effective goods movements, and a healthy environment are bound to be more attractive to global businesses and their employees than city regions that are mired in gridlock. The Greater Toronto Services Board invites the federal government to show leadership and take the necessary steps to ensure that the Greater Toronto Area will once again be highly competitive and economically successful for the good of us all.

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In conclusion, every time we enter into a discussion with respect to the federal government's involvement in urban regions, the response is always that this is a provincial area of responsibility and the federal government can't get involved because of constitutional questions. Most taxpayers and most residents probably are a little tired of hearing that answer. It is incumbent upon both senior levels of government to find an institutional accommodation, so that the federal government can in fact get back into dealing with urban problems. The Constitution was originally formulated when the majority of residents of this country lived in rural areas. In 2001, 80% of the population now lives in urban areas. It is incumbent upon both the federal and provincial governments to recognize that fact and get back in the ball game.

Thank you for your attention.

The Chair: Thank you very much, Dr. Chong.

Now we'll go to the question and answer session. It's a five-minute round for every member. We'll begin with Mr. Kenney, followed by Mr. Nystrom, and then we'll go to Mr. Cullen and Ms. Bennett.

Mr. Jason Kenney: Thanks very much, Mr. Chairman.

Thanks to all the panellists for the time taken to come here and to prepare your submissions. We appreciate it.

My initial question is to the Canadian Vehicle Manufacturers Association. You began your remarks, Mr. Nantais, with an overview of the issues related to import and export across the American border post-September 11. Could you comment on proposals that have been floated concerning some sort of a customs union with the United States—a common North American perimeter that would, theoretically at least, diminish the need for border checks? For goods being exported and imported, do you think this is a viable or realistic idea? Should it be pursued? Is it a priority for your industry?

Mr. Mark Nantais: Before I turn it over to my colleagues here, I'll simply begin by saying that this is an absolute priority for us. Given our highly integrated automotive industry, the movement of commerce back and forth across the border is absolutely critical for us. We have to deal with the short-term issues before us right now, but there are some larger and longer-term issues that also have to be dealt with. Even before September 11, congestion at the border was becoming more of a problem. We are actually working on some very specific suggestions as to how we might address the problem, and we made some reference to those today. But let me be very clear that this is a major problem for us.

I'll turn it over to Tayce or Mike to comment.

Ms. Tayce Wakefield (Vice-President, Corporate and Environmental Affairs, General Motors of Canada; Canadian Vehicle Manufacturers Association): We're not experts in national security or immigration issues. We have expertise in surface crossing. That's why we think we need to focus on a risk-based approach. This focuses resources on those types of activities that are high risk and therefore warrant a lot of attention.

There is a lot of cross-border commerce between Canada and the U.S.—auto parts, but also foodstuffs and all kinds of other commodities. These are very high value-added, important to the economies of both countries, and very low risk. What we need to do is have strategies that facilitate expedited processing of those low-risk commodities in an appropriate way, but also allow the resources to be directed to the higher-risk activities. That's what our recommendations speak to.

Mr. Jason Kenney: What do you define as higher-risk activities?

While you're answering that, representatives of the Canadian Trucking Association, who obviously are the people who haul most of the parts back and forth for the auto manufacturing industry have told me that they're not at all pleased with the CSA regime. They don't think it's functioning. There are still enormous unnecessary delays at the border for import and export of the goods they truck. You seem to have a different take on the CSA and its effectiveness. Could you comment on that?

Ms. Tayce Wakefield: We would say that the CSA is the right idea. It is having growing pains. There are certainly issues that need to be resolved. We're working very closely with CCRA to try to have those addressed. It's not perfect, but it's the right idea. It doesn't need to be exactly the same process, but some kind of coordination for both sides of the border along with CSA's key principles seems to us to make sense.

Mr. Mark Nantais: I think we have to remember that the CSA programs I mentioned in my comments seem to have deviated slightly from their original intent. There's an added complexity that we didn't anticipate. This translates into added costs. We now have the opportunity to set a different course to try to correct all those things.

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Ms. Tayce Wakefield: Remember, CSA isn't fully in operation yet. It's still in development. So we're still working through many of those issues at this time.

Mr. Jason Kenney: Mr. Chairman, my last question is for anybody on the panel, but in particular with the exception.... The auto manufacturers asked for the elimination of the capital tax. I agree that this is an important measure for competitiveness, but everybody here has brought to the committee requests for additional fiscal action on the part of the government, whether it be expedited or enhanced spending on social housing, transit, road infrastructure, or heavy rail, etc.

Of course I'm sure you're aware that we are in a very tight fiscal situation post-September 11 and are facing a very great likelihood of a recession, downturn in revenues, increase in social expenditures, and a clear imperative to increase spending in the areas of national security, CSIS, defence, RCMP, etc. With scarce resources, to maintain all of those will place an enormous burden on the finance minister, obviously. To take into account the fiscal impact of the recession, deal with the new security spending, and keep the federal treasury in the black is going to require restraint in other non-security-related spending areas.

I'm wondering whether anybody is inclined to give us a general direction when we, as policy-makers, look at the many different demands that are out there. What should guide us in assessing the critical urgent priorities in time of recession and national security crisis?

Mr. David Miller: I'm happy to jump in. Fools rush in where angels fear to tread.

Obviously the federal government faces some fiscal challenges, but from the perspective of a municipal government official it is critically important to maintain our investment in our cities and in the country in general.

For example, if we look at the Toronto Transit Commission—other transit commissions across the country would be similar—we carry nearly 400 million rides a year. That is an enormous number of people. And yes, national security is very important, but the safety of those people every day matters. Today there was a fire in a hydro vault under the Royal York Hotel, for example. If you do not invest in these things and you don't maintain your infrastructure and buy new infrastructure—in our case the need is for buses and other vehicles—you have a direct impact on the safety of the people involved that is much more real and immediate than what is happening globally.

On top of that, it would be my view that in order to maintain the economy during a U.S. recession, we need to be investing and producing jobs. There are important jobs building buses and cars that are enhanced when you invest directly in the infrastructure. We think this should be the priority of the federal government as these decisions are made.

The Chair: Thank you.

Mr. Chong.

Dr. Gordon Chong: In many ways it's an unfair question, because we're not privy to all the information that you obviously have. But to pick up on David's response, I would suggest....

Sorry, Carolyn.

Ms. Carolyn Bennett (St. Paul's, Lib.): I think from reading the National Post it's his inside information.

Dr. Gordon Chong: I won't make that assumption. It's more likely you have better information or access to information.

Ms. Carolyn Bennett: I know that the chairman was shaking his head at the “R” word.

Dr. Gordon Chong: But as a generalization I would say that in terms of trying to determine priorities, probably the expenditures that would improve or maintain the quality of life for the urban residents.... Obviously you have to establish your priorities and allocate funding. But whether it's to infrastructure in the form of public transit or roads or housing, clearly there is a role. Without access to the specific information that you're going to have, all we can do is answer in a general way. We clearly understand that September 11 has had an impact on your resources. But we're here to ask for money. That's our job. To expect us to do anything but ask for money is also unrealistic.

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Some hon. members: Oh, oh.

Dr. Gordon Chong: We also recognize that there's a role for the private sector. But I have to hasten to emphasize that the only way we would want to involve the private sector would be as long as the public sector interest is protected, and where the public sector interest and the private sector interest intersect or converge, then there's a role for the private sector. I don't think any of us sitting around at municipal government advocate involving private sector investment if the public sector gets screwed in the process.

The Chair: Mr. Landry.

Mr. Peter Landry: In terms of human resources, it's like public infrastructure. I don't see how Canada, assuming we go into a recession—or whatever word you want to use for it—which hopefully we won't.... But the one thing we learned in the last recession was that people who were maintaining skills and so on were the most likely to maintain employment somehow. It's those people who get further and further away from having up-to-date skills who get really in trouble.

The other thing in terms of our recommendations is one of the things we're looking at is how you get medium and small businesses to invest in training themselves. So it's not only looking for government to give you a tax credit, but how we lever that into increased private sector training, about which we know certain areas are doing a lot less than others.

The Chair: Thank you, Mr. Landry.

Mr. Nystrom.

Mr. Lorne Nystrom: I'd like to welcome everybody here this afternoon and ask David Miller a couple of questions if I can.

Your brief really hits home to me, because two weeks ago, Mr. Miller, I was invited to speak in Peterborough, and I got to Pearson Airport and I had 150 kilometres to go and I thought it would take me an hour and a half. I got there four hours later because of the congestion on the 401. And watching all the pollution coming from the trucks and the cars and everything else, it makes me wonder why we don't invest more in public transit.

We've had a big demographic change in our country; we've had the urbanization in this country in the last 20 or 30 years. In terms of solving some of the transit problems you're talking about here today, what is the best way to go? Is it on an ad hoc basis, city by city? Is it a permanent transfer maybe of some tax points? Is it maybe the splitting of the gasoline tax? Is it a constitutional amendment—dare I mention that word—that would give the municipalities and the urban centres in particular more power in terms of administering to the needs of their people because your tax base is so narrow?

What is the vision that would be appropriate for this country in terms of recognizing the reality that the cities are getting larger and larger and people want to have more say over their local environment, economically in their neighbourhoods, and socially and the like?

Mr. David Miller: I think that's an excellent question, because really underlying the points we made about transit, and the points that were made about housing, and the points made by Dr. Chong, is the same thing, which is the relationship between the federal government and the municipalities and the vision that the federal government has of the country in relation to large urban centres.

In Toronto's case, and I'm sure it's similar elsewhere, 95% of the taxes that residents of Toronto pay go to the federal and provincial governments. Of course, some of that comes back in the form of programs we all benefit from, such as medicare, but only 5% goes directly to the municipality, which makes it extremely difficult for the municipality in our case—and it's true across the country—to make the necessary investments to support the quality of life that is needed both for a successful economy and for an equitable society.

I think the first thing that needs to happen is this government needs to make an urban agenda. It needs to understand the importance of cities. Whether it's a ministry of urban affairs or how it will be done, I don't know, but I hope the Sgro task force reports quickly and that the federal Parliament takes the issue seriously and creates a permanent mechanism for a relationship between the federal government and the municipalities.

The second issue, and you highlighted this by mentioning constitutional change in your question, is that municipalities need to be treated seriously. We're really treated institutionally. And this is no disrespect to the people around the table, as you're all very helpful when we speak to you individually, but we're treated institutionally, like non-governmental organizations.

In Ontario's case there's a number of dysfunctional programs that the federal government has been trying to start that have been devolved to the province. There's been no discussion with the major cities, Ottawa, Toronto, and Hamilton, and they're not working at the moment. Housing is one; it's not working because we're not there at the table.

Immigration is another. Toronto is the biggest single receptor of immigrants in the country, but we can't be at the table when policy decisions are made. We should be. That is the second thing.

• 1740

The third thing is that there needs to be a permanent mechanism to fund transit. We always talk about the gas tax because it's one that makes sense. People can understand the link between automobiles and transit and it's an easy one. Both the federal and provincial governments are very resistant to dedicated taxes. I think it's time to revisit it. That is the mechanism we talk about the most. There may be others with dedicated tax points, but it's a simple one.

The public, when they know what their money's going to, often doesn't object to paying taxes. If they knew when they were paying 70¢ at Petro Canada at Bloor and Keele that 5¢ was going to the TTC and it was making the roads easier for them to drive on, they'd be much more accepting of that tax. If the government could move in that direction quickly, I think it would be an enormous assistance across the country.

Mr. Lorne Nystrom: I wonder, do we need a federal department of.... Go ahead.

Mr. Mark Nantais: I want to comment as well, Mr. Chairman.

In reference to public transit and the need for government to support it, I would suggest that at all levels, federally and provincially, it clearly has its place. We've always advocated that prudent use of automobiles is a good thing, but people should also pursue options such as public transit where it's affordable and convenient for them.

Often we hear in large urban centres like Toronto people speak of the environmental benefits of public transit, and indeed there are some. On the other side of the coin, however, there are clear environmental improvements that have been made to our vehicles. For instance, in today's vehicles that you can purchase right now we are able to reduce the emissions by 99% from the pre-control period. Unfortunately, you're buying the vehicle but not getting the full benefit, because we're not getting the appropriate fuels. So you and I are paying for these things but not getting the maximum environmental benefit or the health benefits.

Clearly there are other things you can do as well. If one talks about environmental health benefits, it invovles finding a way to get the appropriate fuels in the vehicles as we speak. One thing the committee might consider would be an excise tax differential that would favour a cleaner fuel. We did this in the early eighties with leaded gasoline, and there are several international examples that have produced very significant results.

I'll just give you a factoid, if I may. If every car in Canada had access to low-sulphur gasoline, for instance, it would be equivalent to removing two million vehicles from our roads in terms of smog-causing emissions. In Ontario alone, it would be equivalent to removing 860,000 vehicles.

Mr. Lorne Nystrom: I'm wondering, Mr. Miller, if there were any models around the world in terms of powers devolved to the cities—I think of Europe, or Australia, New Zealand—that might be interesting. You have some comments here and comparisons about funding for transit in the United States compared to Toronto. Do you have any other examples of funding for urban transit that might again be helpful to the committee? I realize of course we have to devise our own Canadian policy given our unique federation and large country and so on, but sometimes other experiences are helpful as well.

Mr. David Miller: I think there are models, and Europe certainly has significant direct investment from the federal governments into transit, because they have realized there's a national interest in the health and successful economy of their cities. There are even some models we can look at in Canada, perhaps on other issues.

In Winnipeg some years ago there was an excellent tripartite agreement with the city, the province, and the federal government. But the difference with that was the municipality was treated as a partner in that agreement, not as a creature of the province. They had a veto just as the federal government and the province did. I think that's the model the federal government should be working towards in Canada, because it can work, given the way our decentralized federation works. It's a model that was used with the Winnipeg centre plan. It's a model that could be used on other issues if there is a ministry that can drive a national agenda for cities.

The Chair: Do you have another question? You had a question about a department.

Mr. Lorne Nystrom: Yes, I think you were alluding to that. Do we need a federal ministry of urban affairs? I remember many years ago in Parliament the former mayor of Toronto, who was a Liberal member, Phil Givens, used to talk about this. I think he was the Minister of State of Urban Affairs at one time, if I recall. But do we need a full-blown ministry? Would that be helpful in terms of focusing things on urban centres?

Mr. David Miller: I can't comment between a ministry and a minister of state, or how federal Parliament works in that respect. But there needs to be somebody in the cabinet speaking on urban affairs issues. It's remarkable the number of issues that impact—I have a list here from a speech I'm giving elsewhere later in the week—on municipalities that people don't think about.

For example, what's happening in Afghanistan is impacting on Toronto's cost of policing and on our transit because of the demonstrations and so forth. When the provincial government restructures hospitals, our ability to deliver an effective ambulance service is dramatically changed. That is why a minister, somebody at the cabinet with the appropriate civil service, is essential, because these issues need a champion and there needs to be an understanding when other issues, like even health care, are debated of their impact on cities.

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The Chair: Mr. Cullen.

Mr. Roy Cullen: Thank you, Mr. Chair. Thank you to the presenters.

Mr. Miller, Dr. Chong, there seems to be a good consensus about the need for investments in public transit, and from the federal government's point of view, you cited, Mr. Miller, the improvement to greenhouse gases, cleaner air, etc. But surely we have a mechanism now with the Canada-Ontario infrastructure program. Mr. Miller, you talk about $230 million being needed in the next 12 months to purchase vehicles. Well, you split that three ways, and I think there are clearly sufficient funds in that arrangement. What's wrong with the Canada-Ontario infrastructure program?

Mr. David Miller: There are two things wrong with it as currently constituted. First, thank you for your question. The infrastructure program has been successful in Toronto in the past. The Sgro task force consulted in the National Trade Centre, which was a true partnership between the federal and the then provincial government, which was the predecessor to this one.

As for the two problems, from a public transit perspective, we need sustainable ongoing funding. The infrastructure program is project-based. So you might, for example, build a new streetcar line with it, but it doesn't work for ongoing needs like buying buses. It simply doesn't work, because we need to plan 10 years in advance what we're going to do, and who knows if the infrastructure program will be there?

Second, in the province of Ontario, unfortunately, the way the infrastructure program is being administered, Toronto can't apply. That's a problem imposed by the Province of Ontario, but unfortunately, in the agreement you've negotiated with them, the way it's being administered, we're not eligible for funds. We can't even get the application forms—we've asked, but been told we can't have them, which is absurd. I think in the next round of infrastructure programs you need to go back to the model that occurred when the Rae government was in Ontario, which allowed the municipalities to choose the projects and allocated the funding on a per capita basis.

Mr. Roy Cullen: Actually, I'm not sure that our Minister of Transport would share that constraint about the infrastructure program. But the City of Toronto can't apply? It doesn't make any sense.

Mr. David Miller: It doesn't make sense, but it's a fact. I'm sure that's not what your committee is here for, but it is a real problem—I see your colleague Carolyn Bennett nodding—that faces us today because of the agreement that was negotiated with the Province of Ontario, which allows them to fund all infrastructure projects through the superbill corporation, with the criteria they've established. We've applied to build a community centre, but that's all we're allowed to do.

Mr. Roy Cullen: I'm not going to belabour the point, but I know that when the Province of Ontario came out and said they were going to invest in public transit, Mr. Collenette and I had a long chat with them, basically making the point that this agreement was probably a good vehicle for doing it.

I'll move on to Ontario housing. Ms. Dumphy, in your brief you talk about the $170 million, and the idea of reducing the number of units to create the incentive is something a number of us thought was needed at the front end, but nonetheless, here we are. Has the Province of Ontario indicated that they will participate on that basis. Where is that at?

Ms. Noreen Dumphy: As we speak, federal and provincial officials are working to negotiate agreements in each of the provinces, and in theory, things are suppose to come to head at the next ministers' meeting, which may be the end of November or early December. So everything is behind closed doors. What we know, however, is that the Ontario government is reluctant to put up any significant funding at all, and is hoping to get federal officials to sign on to an agreement that would allow Ontario to get credit for other money it spent on other things, but not these new housing units we're trying to get produced. So we're a bit nervous about that. We actually think this provincial government will not put up real dollars to build affordable housing units, and we'd like the negotiations to fall apart, because we think they're going too quickly. We'd rather let the federal government work on partnerships with the municipalities that are putting land and money up.

Mr. Roy Cullen: Thank you.

The idea of this bias against rental housing through CMHC is something I've heard before, a bias towards condos rather than rental housing. Do you have another brief that would expand on that point? I think it is a problem.

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Ms. Noreen Dumphy: There's some information in our initial written submission, and you will probably be getting more from some of the national housing organizations that we're also part of. But to make a long story short, CMHC's program for multiple-unit rental mortgage insurance has a very high premium, and it has a way of assessing risk and value that means that the average developer, whether private or non-profit, has to come up with 40% or 50% equity. So in other words, if it costs you $10 million to build a significant housing project, you might get a mortgage for $5 million. If you get it—and many would be turned down—then you're going to pay 5.5% on that. With some of the models in the U.S. with HUD, they have qualifying multiple-unit rental projects through their various affordable-housing initiatives. I believe their premiums are something like 0.5%, not 5.5%.

To be fair to CMHC, they're currently operating under a mandate whereby they're supposed to be self-sufficient and maybe even to make a profit. Indeed, their mortgage insurance operations are making a profit in the other areas. But it's the rental housing market that hasn't performed in Canada for the last 15 years. The ownership market, whether private home ownership or condominiums, is performing, and they're making scads of money on that. So we think that if the federal government even gave CMHC the mandate to redirect some of the surplus they're making on the home ownership mortgage insurance to subsidize mortgage insurance for rental, we'd begin to get a boost, that frankly, we need.

Mr. Roy Cullen: To the motor vehicle association, Mr. Nantais, I would agree with you on a number of your points—large corporations, capital tax, and increasing the defined pension benefit limit. I think the time has come, whatever resources are available. I think as policy they do make sense.

When you talk, though, about corporate loss transfers, while it sounds good in theory and there's probably a certain rationale for it, I think it would be a huge cost in terms of tax expenditure—I don't have the numbers, but maybe you do. I wonder if you could be accused of cherry picking, because if you look at the corporate tax rates in Canada, especially combined with some provinces, like Ontario, Alberta, or maybe others, they are getting quite good in comparison with the U.S., particularly with some of the announcements in Ontario more recently, which put us five to nine points below some of the bordering states. Surely it's more fair to look at the total tax burden.

My second question, if I might just slip one in, concerns the mechanics' tools. If you had to make a choice, is it not more important to focus that on apprentices, where they're building their tool kit and their salaries are less?

What's your comment on those two items?

Mr. David Penney (General Director, Tax and Customs, General Motors of Canada, Canadian Vehicle Manufacturers Assocation): Maybe I'll comment first on the loss utilization rules. This is really a competitive disadvantage for Canadian companies in the United States. They have loss consolidation rules. Basically, when a number of corporations operate essentially in the same group of businesses, certain corporations can get trapped with losses, and there's no way in Canada of amalgamating the results. In the U.S. they would consolidate them. In the U.K. you would actually be able to make a subvention payment from one company to another. So unless all companies within the group are essentially burdened with the same tax, if you have certain companies in the group that have losses they can't utilize, it actually increases the effective tax rate of the group.

Mr. Roy Cullen: I'm aware how it works, that wasn't my question.

The Chair: Thank you, Mr. Cullen.

Dr. Bennett.

Ms. Carolyn Bennett: As you know, this whole training skills agenda is uppermost. It seems we will be getting some approach in the shape of a white paper or something.

• 1755

Today the Canadian Tooling and Machining Association came with a case for apprenticeship training tax credits. During their presentation, they said they were very worried the bigger companies weren't picking up their responsibility in terms of training. In terms of the Toronto Training Board, your feeling here, in your recommendation 7, was that small businesses should be given tax credits for training costs.

I think the presentation this morning said it is actually falling on the small and medium-sized businesses to do the training, and then they're being poached by bigger companies who aren't doing their fair share of training. My question is, does the Toronto Training Board think tax credits for training should be across the board?

And my question to the Canadian Vehicle Manufacturers Association is, if there were tax credits for training, would you do some?

Mr. Mike McCue (Labour Co-Chair, Toronto Training Board): I'm Mike McCue and I'm the labour co-chair on the Toronto Training Board. I'm also an employee of DaimlerChrysler.

I think it's safe to say the big three—GM, Ford, and Chrysler—do not do their fair share of training...for apprentices, at least, if that's what you're talking about. I think they have a tendency to poach them. I think, at this particular time, General Motors, as big as they are, don't have any apprentices in the system at all, because they rely on taking them from other sources, which I think is unfair to the smaller businesses. That's why we had asked they be given some tax credits to encourage them, because the reality is, when they train people, they do poach them, it seems, and bring them in.

Ms. Carolyn Bennett: In the brief today it says only the small businesses should be given tax credits for training costs. Shouldn't there be an incentive for the bigger companies to do training as well?

Mr. Peter Landry: Yes, that could be. We've focused on the small and medium-sized businesses because they're the ones who identified—I think similar problems were noted to you this morning—that there's a reluctance to train, because if they invest, someone will take that employee away from them. So as a small business, I need some kind of incentive to help me out.

The other thing in our report that we didn't talk about was that it's not only the size of business that matters in training, but who's getting trained. I think the large companies tend to train at the higher end of the employee scale. What we're trying to say is if you're going to be looking at a tax credit or incentive for large business, we would hope it would include those people who are somewhat lower on the hierarchy and a bit more at risk. That's one of the findings, that people tend to train the people who are already very well trained, with university degrees and certificates and so on. Our concern was how you could encourage training to the lower end of the scale. I guess we would agree with the tool manufacturers that there has to be a way of helping the little guy who's trying to train, and take the disincentives out of the system.

Ms. Carolyn Bennett: Would tax credits be an incentive for the bigger companies?

Mr. Michael Sheridan (Director of Government Relations, Ford Motor Company of Canada; Canadian Vehicle Manufacturers Association): I'll answer that question.

Clearly, any tax incentive would encourage more training, but the amount of training we do across the board is quite substantial. At every product launch—when we brought the Windstar to Oakville, or in our new truck-engine plant in Windsor—there was substantial training across the board. And this wasn't just at the plant manager level; it went all the way down to every employee in the plant. In terms of the amount of training we do, it is quite substantial. It is part and parcel of any investment we make in Canada. In fact, when we make a major investment, training is highlighted as a key part of that investment, because we do recognize that without a well-trained, state-of-the-art workforce, we're not going to be producing the best vehicles on the road today.

Ms. Carolyn Bennett: The other part was, there are ISO standards on manufacturing and on management. Should there be ISO standards on training as you go, or are there?

Ms. Tayce Wakefield: I would step back, then I'll get to your ISO question.

First of all, to the specific allegation here, the reason we're not presently in training is because we have a surplus of skilled trades, and it seems imprudent to be training people if we don't have jobs for them. Having said that, all of our production workers have, on average, 40 hours a year of training. The skilled trades have 60 hours a year. It peaks when you have a new product introduction, as Mike says. It's considerably more than that.

• 1800

We're the largest private broadcaster in Canada. We broadcast training live, 14 hours a day, on two channels in French and English, to 800 dealer campuses across the country. We are clearly investing in training today because we see it as a way to enhance the performance of our business in terms of our quality and productivity.

So while a training tax credit is always positive, some companies—maybe just large ones, but I think also many small companies—have embraced training as a way to be competitive already.

To the ISO thing, the trick with training.... The ISO is an appropriate measure of quality that can extend to training that you're offering the workforce. However, training has many dimensions, as I think most people are aware, and you need to be cautious about putting too many constraints and rigidities in place. There is training that is very specific to a particular job, task, or function, and there are broader-level skills. I think our educational system in Canada needs to have greater flexibility and fluidity between different types of training and education, but I'm not sure ISO is the methodology to do it.

Ms. Carolyn Bennett: I have one little question on housing. We're big on results and outcomes these days, and how you measure across...I mean, with the SUFA, in terms of programs of comparable quality and transparency, accountability, and all these things. Do you think there is a place in SUFA or in the children's agreement in terms of reporting, and are we doing any work in terms of the lobby for having comparability with regard to the percentage of families who are spending more than 50% of their income on rent, as part of a way we would compare provinces and programs and incent the provinces to do the right thing? Should it be part of a children's agenda?

Ms. Noreen Dumphy: Well, I think that's an interesting angle on the accountability. We always feel affordable housing is part of the children's agenda; there's no question about it. Housing programs that have a significant component for families help us to make sure we actually do that.

In terms of the accountability, the biggest single breakthrough was getting the federal minister to accept that this program should be housing geared to low and moderate incomes. Until that breakthrough in August, we were in a different universe.

Once you say that's what you're going to do, you then have to say, well, what are affordable rents, or to which low- and moderate-income people? There'd be no problem from my perspective if we were all rolling up our sleeves and getting down to figuring out how to make that work. I think you could identify some clear targets in the provinces based on the last census data we have of the percentage of families spending more than 50% of their income on rent. It may be different proportions across the country, but I think you could identify what it is in each province and build that into performance standards. And then make sure we aren't building housing only for singles because it's cheaper to build. Make sure it's spread fairly so we have seniors, singles, families, and so on. I think that would be very achievable.

The Chair: Thank you, Dr. Bennett.

I have a question. It's related to some of the comments you made about North American integrated economy in relationship to some of the challenges we face. You mentioned, I think, withholding taxes. That was one of the issues.

I want to raise the issue of Mexico. I think one of the great advantages Mexico will have in the future is that they have a very young population now. So with the demographic transition that's taking place not only here in Canada but in the United States, you'll find.... I can see foreign direct investment into Mexico probably growing. It is already.

As you probably know, investment is a key determinant in the issues of productivity and standard of living. What kinds of challenges do you think Mexico will face, and should we, as a committee, be viewing the economy in North American terms?

Mr. Michael Sheridan: When you mentioned we'd be looking at Mexico as a competitive challenge, clearly we should. If you look at our industry, we began the 1990s producing almost two million vehicles a year, and we ended the 1990s producing three million. We were very successful in the 1990s. We're going to be somewhat down this year. We'll be coming in around 2.5 million, and maybe somewhat lower next year as a result of the recent slowdown.

But the real winner over the last couple of years has been the growth in Mexico. Mexico clearly is establishing itself as an automotive hub in terms of vehicle production, attracting a great amount of investment related to not just the assembly of vehicles, but also the integrated parts industry. So clearly, that will be an ongoing challenge for Canada.

• 1805

We have done very well to date in terms of holding on to our share of North American production. But going forward, our greatest challenge will clearly be Mexico. The significant labour-cost advantage there, the growing productivity, the improving infrastructure—those are going to be challenges for us.

The Chair: How many vehicles does Mexico produce now?

Mr. Michael Sheridan: In the range of 1.9 million. They sell about 800,000 or 900,000, and they're forecasted to go to around 2.5 million.

Mr. Lorne Nystrom: What would they have been 10 years ago?

Mr. Michael Sheridan: Ten years ago, they would have been around 800,000 to 900,000. So that's a significant increase across the board from all manufacturers. In the next five years, toward the end of the decade, I've seen outside forecasts seeing them going as high as 2.5 million or 2.6 million, so approaching Canadian levels of vehicle production.

The Chair: And the quality of the product produced in Mexico?

Mr. Michael Sheridan: It's equal to that produced in the U.S. and Canada.

The Chair: That's a pretty big challenge ahead of us. That's why I think this committee will be looking at some of the challenges we face that we've traditionally viewed nationally, or perhaps continentally, to address some of the concerns from your presentation—and from the presentations of the other people who have appeared before this panel.

I want to thank you very much on behalf of the committee. As you know, we count on your wisdom to guide us the right way as we prepare the report for the Minister of Finance for the upcoming budget, whenever it may be.

We'll take a two-minute break.

• 1807

• 1813

The Chair: I would like to call the meeting to order and welcome all the panellists here this afternoon. This is our fourth panel of the afternoon session.

From the agenda, these are the individuals who will be participating in this panel: Margaret Dinsdale as an individual; Barry Grills, first vice-chair of the Writers' Union of Canada; for the Canadian Alliance for Children's Healthcare, Dr. Jean-Victor Wittenberg, Dr. Jennifer Espey, and Nora Spinks; from the University of Western Ontario, Professor David Laidler, Department of Economics; and from the University of Toronto, Professor Heather Munroe-Blum, vice-president.

Welcome. I'm sure many of you have probably appeared in front of the committee before. You have five to seven minutes to make your remarks. Thereafter, we'll engage in a question and answer session.

I don't see Ms. Dinsdale. I guess we'll begin with Barry Grills. Welcome.

Mr. Barry Grills (First Vice-Chair, Writers' Union of Canada): Thank you.

In the interests of brevity, we did present a brief to the committee. So if it suits you, Mr. Chairman, I'll just highlight a few sections of that brief—the wording's exactly the same.

The Writers' Union of Canada thanks the Standing Committee on Finance for this opportunity to take part once again in the eight annual pre-budget consultations for consideration in the 2002 federal budget. We are especially pleased to be participating in a consultative procedure, focusing on your expressed objectives. I won't repeat them.

As a registered national arts service organization under the Status of the Artist Act, representing more than 1,400 writers of books and all general trade genres, with a mandate to promote and defend the interests and freedoms of authors to write and publish, the Writers' Union of Canada has an important role to play in shaping the application of your objectives, as you have outlined them.

• 1815

Like most sectors of Canadian life, we are aware of the challenges and complexities of increasing globalization and their impact on finance and other policies. Unlike other sectors, though, we are particularly sensitive to the cultural impact of such trends and initiatives.

Here's a profile of the average Canadian writer, composer, or artist: a low-income creator who is self-employed and whose income fluctuates wildly at times. As we have already reported to this committee, the Writers' Union of Canada, in collaboration with Quill & Quire, the book industry's trade magazine, conducted an in-depth financial survey more than two years ago to determine the financial straits of creators. We did this with other writers' organizations as well.

Unfortunately, in 2000 and 2001, most writers' average net income will drop from the survey's reported $11,480 per annum—due to the damage the Chapters-Pegasus fiasco inflicted on the publishing industry and its authors last year.

Statistics do not of course provide a complete profile. We must add that the writers surveyed were not dilettantes or hobbyists. They were full-time professional writers who have been working at their occupation for at least 10 years. Most, like me, were over 50 years old—an age at which people in other vocations are earning at their peak. Most had at least an undergraduate degree, and nearly half had no other job but writing. Low income was their prime concern, but other concerns included fluctuating income and no spare time.

Writers work long hours to make their meagre incomes. Often they must take extra jobs to make ends meet. All of these problems are further compounded by the length of time it takes to write, publish, and then derive the benefit of a published book. This process is not measured in weeks or months, but in years. Even if the fruits at the end are bountiful, they follow a long period of creative output in which income is low or even non-existent.

Canada has long maintained that a social safety net should be in place to permit all Canadians the opportunity to thrive, even in the face of short-term setbacks. Because creators are so often self-employed, they fall through the cracks of the structures that government policy has put in place to ensure a quality lifestyle.

The Writers' Union is delighted with this committee's expressed intention to provide Canadians with equal opportunity to succeed. We also hope this reflects a commitment to having all Canadians pay an equitable share of their obligations. At the present time, self-employed writers carry an unfair burden of obligation—fully taxed in their good years, but receiving no benefits in their not infrequent bad years. Writers do not have an equal opportunity to save for their retirement, for example, and too often they fall through the social safety net designed to allow Canadians to have a decent standard of living and quality of life.

Without writers' commitment to their talent and their craft, our cultural industries and institutions would be dominated by foreign voices and perspectives. Many of the following proposals are not new, but we maintain that they can address the inequities faced by writers and other artists. We respectfully submit that these proposals can help this committee adhere to its stated objectives.

Our proposals are: to introduce a copyright income deduction for creators, modelled on that used in the province of Quebec; to introduce a limited back-averaging plan for creators whose professional incomes fluctuate; to exempt from taxation any subsistence grants for creators administered by the Canada Council for the Arts; to increase funding for the Canada Council to enable it to improve the level of its funding for the creation of new works; and finally, to extend employment insurance benefits to self-employed creators and to creators who work in paid employment, to supplement their self-employment income when paid employment is lost.

Thanks very much.

The Chair: Thank you very much.

We'll hear now from Margaret Dinsdale.

• 1820

Ms. Margaret Dinsdale (Individual Presentation): Mr. Chairman, I thank you once again for inviting me to speak to this committee.

I have always valued the democratic system we enjoy in Canada, however flawed. In the light of recent world events, the privilege of a private citizen such as myself being able to participate in these pre-budget consultations is dearer to me than ever.

I want to reiterate, as I have in the past, that I'm not here as a journalist, or a writer who has to take other jobs in order to subsist, or a member of any political party or special interest group. The views I express are my own.

These are challenging times for Canada. You're all members of Parliament, and you routinely face long hours of travel away from your homes and families—not to mention the stresses of constituency and committee work and the machinations of party politics. I can only imagine the challenges you all now face from a slowing economy and the war on terrorism.

I believe that when large events threaten to dominate our attention, it is important to remember that the tragedies that occurred in New York City, Washington, and Pennsylvania were tragic because each one of those casualties was a human being. And in a democracy, every human being is an equal member of society—one as valuable as the next.

In that context, I want to tell you about Mary, a young woman with whom I've had an occasional acquaintance for several years. Mary was born as a result of an affair between a single woman and a married man with children. She was shunted back and forth between these two homes. In one, she was subjected to verbal and physical abuse at the hands of a variety of her mother's boyfriends, and in the other, she was a reminder of the father's infidelity. She was fed and housed, but she was not loved.

Is it any wonder that she became an alcoholic and sexually promiscuous at the age of 13? Men knew that for the price of a few drinks she would do whatever they wanted. But for Mary, the pain of being unloved would only be numbed for a few hours by the drink—it never went away.

By the age of 20, she had had at least one abortion and was living on the street with a violent fellow alcoholic. She had a child by him, which was taken into care when it was born. Her boyfriend was the first person ever to tell her that he loved her. But after fleeing from him several times after particularly bad beatings, she left him for good after he hit her with a board with a rusty nail protruding from it and put a hole in the side of her head.

Then she met up with Jim, who was slightly older and had a place to stay. She became pregnant again, and this time she had someone who didn't beat her. Her second child was born into her care. However, after a while this man also began to verbally abuse her, constantly bringing up her past and chastising her for her shortcomings. She fled back to the street, leaving her child behind.

What can be done with someone whose life is as chaotic as Mary's? Should she be forcefully sterilized? Should she be taken into some sort of custody if she becomes pregnant again? I put it to you that Mary is not a bad person. She never received money for her sexual favours. She doesn't steal. She isn't violent. In fact, when she had some stability with the father of her second child, she volunteered with a street mission that had helped her when she was homeless.

What sort of person might Mary have become if she had received early intervention as a small child? What might she have accomplished, if as a homeless youth she had received supportive housing and treatment for her addiction? Who would she be now, if she had had support after the birth of her first child? Studies have shown that girls whose children are taken into care continue to have more children. They're much better helped if they're given access to education, job training, and affordable housing, while they continue to care for that first child.

There are no simple solutions for dealing with people like Mary. Like all of us, she is a complex person with strengths and weaknesses—and it's hard to say how any of us might be faring today if we had experienced the life she has.

So there are no easy answers to governing a country as large and diverse as ours. It's especially difficult these days, when global events can have a much more immediate effect than they have ever had before in human history.

When there is a flood, earthquake, or other calamity, Canadians are among the first to offer support: food, medical supplies, housing, and assistance for displaced people. We help to keep the peace in places such as the Balkans, and we were instrumental in implementing the global ban on land mines treaty. We are determined that whatever regime replaces the Taliban in Afghanistan, it should be more receptive to our version of human rights, especially for women.

But I put this to you: we have displaced and suffering people here in Canada too—displaced by the well-documented and growing gap between the very wealthy and the very poor. Those who fall through the cracks of society rarely seem able to change their lives. Why do people live on the street, or in tent cities, when there are shelters to go to?

• 1825

According to John, a man I spoke with, who lives in a tent city in Toronto, “Why would I want to go to one? You get head lice or disease, your stuff gets stolen, and there's one place I will not ever go to, because I don't want to get shot or stabbed.”

So what are the answers to all this? I might be right or wrong, but these are my recommendations for budget 2002.

My first recommendation is regarding social housing. During the last two years, this government has announced and re-announced over $700 million for helping the homeless. Putting money into the homeless shelter system will not help the problem, in my opinion, since the affordable housing situation is in a crisis situation, and homelessness will only grow.

In Toronto, people looking to rent a home are subjected to unbelievable pressures. Landlords routinely hold bidding wars for apartments, often doubling the asking price, or more.

Anna, who fled the Pinochet regime in Chile 20 years ago and has lived in market-rent cooperative housing since then, reports people have been asked to provide $5,000 in finder's fees just to apply for an apartment, whereas immigrants have to pay a year's rent in advance. The disgraceful and immoral conditions many aboriginal people across the country live in is unconscionable.

I will not accept any argument that says this is a purely provincial matter. People from modest to middle incomes across Canada are hanging on by their fingertips in this climate of decreasing rental units and wildly increasing rents.

A committed permanent social housing program is what is needed, according to many groups and individuals, some of whom you've heard here today. Many have recommended a 1% solution—that 1% of the federal budget be permanently committed to social housing. I'm not an economist, so I can't tell you if that figure makes any sense, but 1% seems a reasonable proposition to build, not high-rise towers to warehouse the poor and disabled, but innovative rental housing for mixed-income families that create neighbourhoods, not ghettos.

My second recommendation is regarding employment insurance. I'm still shocked that employment insurance paid into by workers and employers is out of reach for many people who find themselves without work. It's my opinion that this fund should be taken out of general revenues and administered separately.

With the economy and the nature of jobs in continual flux, with the moving of industrial jobs offshore, for example, and the fact that many jobs are short-term, contract, or part-time, there should be allowance for these realities. Why can't part-time work be pro-rated and benefits paid accordingly?

My third recommendation is on health care. There are dangerous precedents being set in Alberta and Ontario, with for-profit companies being allowed to supply health services. It is time for this government to decide if universal health care is worth fighting for, and if it is, then to do whatever it takes to strengthen the system.

My fourth recommendation is on the GST. There is still no movement from this government on this regressive tax system. Why is it still being charged on reading materials, feminine sanitary products, and common household supplies? Why is there no relief by dropping the rate 1% or 2%?

My fifth recommendation is on income tax. I would like to congratulate the committee for the reintroduction of the indexation of taxation. I applaud this move toward fairness in income tax, but I'm still bewildered by the number of very wealthy people who pay no income tax whatsoever.

My sixth recommendation is to put Canadians first. By this I do not mean that Canadians are our only concern. We need to continue to lead the world with our stance on humanitarian priorities. However, in some ways Canada seems to be the shoemaker whose children are barefoot. We need to apply the high standards of human rights we demand of others to ourselves.

In a wealthy and prosperous country such as Canada, which pledged to end child poverty by 2000, why are there increasing numbers of children waking up with their families in dreary motel rooms every morning, going to breakfast programs in yet another school?

Why do we concern ourselves with the plight of Afghani women and yet are content to let the majority of Canadian families headed by single females struggle with life lived below the poverty line?

Why is the use of food banks, once thought to be a temporary measure, growing, and the largest number of beneficiaries children?

Why have we let for-profit health care into our country, perhaps the first step toward quality health care for those who can afford it, and catch-as-catch-can for those with modest incomes?

Why do we make farmers, the backbone of our country, those who feed us, beg for relief?

• 1830

Why did aboriginal children in Labrador see no future and feel so unvalued that they attempted to destroy any future they might have had in a bag of gasoline fumes?

The war on terrorism should not and cannot distract us from the struggle for justice for those within our own country.

Thank you, Mr. Chair.

The Chair: Thank you very much, Ms. Dinsdale.

We'll now proceed and hear from the Canadian Alliance for Children's Healthcare, Mr. Wittenberg.

Dr. Jean-Victor Wittenberg (Chair, Task Force on Working Parents with Sick or Disabled Children; Canadian Alliance for Children's Healthcare): Thank you.

On behalf of the Canadian Alliance for Children's Healthcare and the CACH task force for families with extraordinary care needs, we'd like to thank the committee for providing us with this opportunity to share our thoughts and ideas. We're here to offer you thoughtful, economically viable strategies and solutions that, when integrated into the next federal budget, will have a positive impact on Canadian families.

First we will explain the situation, define our terminology, and put our ideas into context. Then we'll spell out our strategies, and finally explain the social, economic, political, and health implications of implementing these solutions.

We recognize that recent world events have made all of us realign our priorities and reaffirm our commitments. We recognize the enormous challenges faced by the Canadian government, as it works diligently to fulfill its commitments and multiple responsibilities across the country and around the world. We also recognize the vital importance of protecting and preserving our shared values and pursuing our collective goal of a just and civic society.

Our resolve, convictions, and principles must be strengthened in these turbulent times. We must not abandon our values nor neglect our commitments, under the UN Convention on the Rights of the Child, to protect Canada's children and support and strengthen Canadian families. CACH is committed to ensuring the highest quality of health care for Canada's children.

The CACH task force for families with extraordinary care needs is dedicated to helping families that are experiencing work-life stress as a result of raising children with serious illnesses or disabilities. We describe these families as having extraordinary care needs.

Families with extraordinary care needs are attempting to cope with vastly increased stress related to providing care and accessing services for these children, meeting the needs of other family members, managing households, and coping with financial pressures exasperated by their extraordinary circumstances.

The CACH task force believes it is a social and economic imperative that we eliminate the barriers that impede families from caring for their loved ones, without concerns about losing their jobs. We also believe we must implement supportive measures that enhance individual and family strength and resiliency. Specifically, we want to eliminate the undue stress experienced by parents in the paid labour force while they attempt to fulfill their multiple responsibilities at home, at work, and in the community.

In the national children's agenda, Canada made a commitment to support families. The reality of parenting children with serious illnesses or disabilities, however, is beyond what most of us have ever known. Extraordinary care needs include the need to manage and assist in the delivery of complex health care and home support services; facilitate access to education, social services, and recreational opportunities; and coordinate community services and service providers needed to deliver the specialized care required.

Advances in health sciences and health care policies and practices have saved the lives of many children who may not have survived and/or may not have experienced any quality of life in the past. As we shift away from institutional care toward community-based health care solutions, we place an increasing burden on individual families who must locate, negotiate, coordinate, and in many cases pay for services they need.

Families with extraordinary care needs are bearing this heavy burden, often alone. They're experiencing unbearable stresses that are affecting all family members, including all the children, parents, and extended family members. They're often forced to leave the paid labour force, experience high levels of family breakdown, and suffer ill health. Yet we know that when a child is sick or in crisis, parental care and attention is especially important for physical, psychological, and economic reasons. In fact, effective parenting during these stressful times is the most important factor in a child's development. Parental involvement results in significantly shorter hospital stays, which are desirable for a variety of social and economic reasons. But ironically, as this places greater demands on parents during and after their child's hospitalization, it inadvertently contributes to poor parental health, economic hardship, and often the destruction of family units.

• 1835

While we firmly believe parental involvement is best for the children, without proper support for the family it can lead to negative social and economic consequences. Research clearly demonstrates that while many Canadian families report high levels of work-family conflict, that stress is dramatically increased when the family has extraordinary care needs. Parents who experience work-family conflict have increased rates of depression, physical illness, and heavier use of alcohol.

Not surprisingly, children in these situations suffer as a result of family stresses. In fact, we found that, first, children with disabilities and chronic illness are more than twice as likely as children without a disability or chronic condition to report a history of abuse; secondly, children with a disability or chronic health condition are significantly more likely to be placed in foster care; and thirdly, children with a chronic illness or disability are substantially more likely to have low self-esteem, to be in emotional distress, and to attempt suicide.

All Canadian children have the right to a family. Never do they need it more than when they're sick or disabled. Paradoxically, children who are sick or disabled are most at risk of not getting the family they need.

Parenting is the most important work we do. There is solid evidence that participation in the workforce can be beneficial to parental mental health and self-esteem. Participating in the labour market is the best protection against poverty, and that alone contributes to family stability and overall health for all members of the family. Yet without support families run the risk of losing their attachment to the labour force permanently.

As for solutions and strategies, we've been working with Human Resources Development Canada to begin the process of determining needs, identifying priorities, and designing programs. We have requested that the government create a research and policy category of children with extraordinary care needs, defined as the extreme physical, emotional, social, and financial needs of children who require specialized care, whether these needs are intense for a short term, such as cancer treatment, hospitalization, recovery from surgery or serious illness; episodic chronic illness, for example, asthma or epilepsy; or long-term, such as a disability or mental illness.

Recognizing extraordinary care as a category will allow us: to collect data that help us understand their specific needs; to develop interventions and evaluate their outcomes; to engage the variety of communities from whom families will need support, including employers, unions and professional associations, co-workers, health professionals, governments, parents and families, communities, and school boards; and to recognize exemplary communities, service providers, and employers for their innovation and efforts to support families, by issuing awards or certificates, and so on.

We have identified that families with extraordinary care needs need three primary supports: one, income security; two, job security, workplace flexibility, and flexible benefits; and three, access to community services.

The CACH task force was delighted to have the Government of Canada recognize families with extraordinary care needs in the 2001 Speech from the Throne, which stated that no family would have to choose between keeping their job and providing palliative care to a child. Parents will be able to provide care to a gravely ill child without fear of sudden income or job loss.

• 1840

First, on income security, we ask that you realign existing policies, programs, and priorities that assist families in times of crisis with income replacement and income supplements, to offset extraordinary non-discretionary costs. Realignment can be done at little cost and could significantly fill in gaps for families that find themselves ineligible for programs as they are defined now.

Specifically, reposition the sickness benefit under the EI program in the same positive framework as we did a few years ago when unemployment became employment-focused. Under EI, transform the sickness benefit into a wellness benefit, extend eligibility for the benefit to include employees who must take leave from work or significantly reduce their work hours because of extraordinary care responsibilities, and extend the benefits period to cover the time required to dedicate to serious illness or disability.

Currently, the sickness benefit is only available once the parent becomes ill himself or herself. They must seek certificates of disability from their doctors in order to access these benefits. Being certified as disabled due to stress is demeaning and can have significant adverse consequences for parents in the future. The current sickness benefit is also only available for up to 15 weeks. This is insufficient for most families with extraordinary care needs.

For those families not eligible for EI benefits, create an extraordinary care income supplement. In the event that a family is not eligible for employment insurance, the extraordinary care income supplement, ECIS, should be available. Eligibility for ECIS must be based on evidence of need and evaluation of effectiveness.

Next, on job security, workplace flexibility, and flexible benefits, the 1999 Speech from the Throne makes a commitment to creating workplaces that are sensitive to family and care obligations. It makes good business sense. It contributes to a more productive labour force.

Parents of children with a short-term critical illness need to be able to resume their labour force participation once the crisis ends, and parents of children with a long-term disability need the support to enable them to participate in the labour market but with the flexibility to be able to respond to episodic crises. Therefore, the government should create incentives to engage employers and labour organizations in developing workplace initiatives and eliminate disincentives that prevent employers from offering workplace or employer-supported initiatives.

Specifically, we recommend the following four strategies.

Encourage the implementation of flexible work arrangements—for example, permanent part-time, job sharing, or telework.

Offer benefits to all employees, including those who work part-time.

Make the first $5,000 of an employer subsidy for family care expenses a non-taxable benefit. Family care expenses could include purchased services such as child care, respite care, specialized equipment, even elder care expenses.

Facilitate employer engagement in supporting families with extraordinary care needs by actively recognizing the contributions made by leading employers. To do that, funds are required to develop a compendium of workplace strategies that are currently in existence in Canadian workplaces.

Last but not least, we want to focus on community services. There is a shortage of community resources for families with extraordinary care needs. The greater need for parental involvement is compounded by the difficulty of finding adequate and affordable care for children with extraordinary needs and flexible child care for their siblings. In fact, one of the principal barriers to employment for parents with children with extraordinary care needs is the inability to access non-parental care for the child: 71% of families said it was difficult to find appropriate care for their child with special needs, and 64% of families with a child with extraordinary care needs said one parent had lost or involuntarily given up a job because of the inability to find adequate child care. As a consequence, families with a child with extraordinary care needs are significantly less likely than other Canadian families to have employment as the main source of family income.

• 1845

Families with children with extraordinary care needs require specialized respite and developmental child care services. The unavailability of specialized care to provide families a respite from their 24-hour caring functions is the most commonly cited reason for giving a child up to the state. The lack of specialized child care and developmental services is the principal barrier to labour force participation.

The government should facilitate community capacity-building and support the development of specialized child care services that can meet the medical and developmental needs of children with extraordinary care needs. Specifically, the government should fund provincial and territorial initiatives that increase the availability and accessibility of high-quality, affordable services to support families with extraordinary needs, including, but not limited to, training and development of staff, adaptation of facilities, and the increase of home-based child care services.

In closing, we would like to encourage the government to continue to support families and children. Support for families with extraordinary care needs is an ethical and moral value that we as Canadians have long espoused. It increases the health and well-being of our children, strengthens our families, increases community resiliency, and maximizes our economic stability. We can make a big difference for families with extraordinary care needs.

Thank you for your attention. We look forward to working with you further to implement these recommendations, and would be happy to answer any questions you may have.

The Chair: Thank you.

We now move to the University of Western Ontario's David Laidler, from the Department of Economics.

Professor, welcome.

Professor David Laidler (Department of Economics, University of Western Ontario): Thank you, Mr. Chairman.

I am here as an academic economist, speaking for myself. I thank you for the invitation. I rather missed last year. There was something missing from my autumn, and I'm glad to be back.

The Chair: We're happy you're back.

Prof. David Laidler: Thank you, sir.

I prepared a brief at the very beginning of August, and I mailed it in. To some extent, that has been overtaken by events, so I brought some new supplementary notes. I think it will be most useful if I use my five minutes just to talk through a brief, combined version of the two documents. If I read them, it would take rather too long, I think.

What I set out to do was discuss three aspects of macroeconomic policy that ought to go into any kind of budget deliberation. First, there is the traditional issue of monetary and fiscal policy. The second is one aspect of international macroeconomic policy. Finally, there is an aspect of what we might call the new issue—productivity growth and the new economy.

On the macroeconomic policy issue, my initial thought in August was that, at the end of the day, what with tax cuts at the beginning of the year and the renewal of inflation targets, even though the economic outlook didn't look very bright, probably enough had been done already and no change in the stance of policy was the right answer.

September 11 has shaken up the environment considerably. It has had three effects as far as the macroeconomy is concerned. There has been a large negative demand shock that is coming through the confidence effects. There has been a big structural change in this structure of demand. The most obvious thing here is the fall-off in the demand facing the airlines, but there are other industries in trouble as well. And finally, there is a very large supply-side productivity shock that's coming from security issues, particularly along the border.

On the first of these, I would argue that the right way to deal with the confidence shock is through monetary policy. The Bank of Canada, along with other central banks around the world, has already pumped in liquidity, cut interest rates, and seems to be standing ready to do what's necessary should anything else be needed. I don't think a fiscal response to that kind of shock is called for.

In terms of the structure of aggregate demand, though there may be a case for some short-term financing while particular industries just find out what really has hit them and for how long it is going to hit them, to the extent that there are permanent declines in the demand facing some industries, the last thing you want to do is prop them up. You want to get the resources out of there and into other more productive uses. So, again, I don't see any call for a long-term change in the stance of fiscal policy.

• 1850

On the productivity shock, I would like to come back to that under the international heading.

So I would say to stand pat on fiscal policy and to let the Bank of Canada deal with the short-run confidence issues.

On the international issue, the one I picked was the issue of the common currency, which, as you know, has been under debate now for a number of years. My comments on this were rather skeptical.

Since I wrote my comments, two things have happened. First, the debate about economic integration in North America has been broadened. Ambassador Cellucci's Canada Day interview with the National Post kicked that off, and the debate has been going on ever since. The issue now is North American economic integration, with the common currency not necessarily being the highest priority on that list.

The second issue is September 11 and border security, so let me just say something quickly about the border security issue. I think it's wrong to think of this as being a short-run problem involving trucks being held up at the border, and that this is going to go away. Once an investor has seen that kind of shock, that investor is going to think many times about building a plant in Canada if access to the United States' market is in doubt in the future.

Secondly, if I may step well beyond the bounds of my expertise as an economist, I don't think this thing is going to go away. The first formal event I attended when I was first appointed as a professor of economics in Britain was a reception at Stormont in 1970, where the talk was about how many months the Troubles would last. The Troubles are still with us, and I think we're going to have to live with a low level of civil disruption for a long time in North America now that this particular cat is out of the bag here. What this means is that the border security issue is absolutely critical to the level of productivity in Canada and the rate of productivity growth. It has to be dealt with as a security issue by experts, and I don't know anything about that.

However, I am concerned the security issue is now being run together with the broader case for a common perimeter for trade in goods and services and for immigration. Those issues seem to me to be altogether broader than security, although obviously they overlap. They also seem to me to involve laying the groundwork for replacing a free trade area with a common market in goods and services, perhaps also a common labour market, and perhaps also a common currency. These are broad, profound issues. They're very interesting. We have hardly begun to discuss them, and the economists of this country need to get going on them.

Having said that, one thing about the current debate is really disturbing me, and that is that the issue of national sovereignty is being treated, as Mr. Tellier said the other day, as a red herring. I would insist it is not a red herring. I think it's a very serious issue, and I believe the way in which a North American common market is being promoted as “just like something they already have in Europe” is profoundly misleading—and let me try to explain why.

It is true that national governments in Europe have surrendered a great deal of their sovereignty, but they have surrendered that sovereignty to European-wide institutions, which, in principle at least, are accountable to the electorates that those national governments serve. The Europeans argue a lot about the democratic deficit at the European-wide level, and I think they're right to do so. There are lots of problems about holding the European institutions politically accountable to the voters, but the institutions exist.

What is being proposed in North America is North American economic integration without any institutional framework at all, and with the United States of America, whose history tells us their electorate is not really very interested in having anyone other than their elected representatives making decisions on their behalf. That seems to me to be a perfectly reasonable stance for the American electorate to take, but it does mean that if Canada were to get into a common perimeter with the United States, the Government of Canada would surrender its sovereignty, not to a North American institutional structure, but to the elected government of another country that would remain accountable solely to its own electorate.

• 1855

It is a very different kind of political arrangement from anything you see in Europe. It is the relationship between a protectorate and the mother country, such as ruled in Canada before the First World War and into the 1920s. It is not the relationship between a national government that is a member of an emerging federation.

Again, I am not a specialist on these matters. I believe these issues must be debated. They're serious. There is a trade-off not between national sovereignty and economic gain, but between the democratic accountability of the people who are making the economic decisions and the economic gain. We need to face up to that one and argue about it. I've already added my thoughts on that vis-à-vis the monetary union. It's a much more important issue for North American economic integration altogether.

The final part of my submission in August dealt with the new economy. Let me take 30 seconds to summarize the message.

There seems to me to be confusion in debates between the new economy as a high-tech economy, in which productivity, growth, and prosperity are to be found in encouraging science, encouraging engineering, and encouraging cooperation between universities, firms, and industries with the provincial and federal government, on the one hand, and the new economy as a knowledge economy, in which there is a growing demand for a highly educated labour force that is being produced by our universities all the way across the board, not just in science, but in social sciences and humanities as well.

You'll forgive me, sir. I don't usually do this, but I'm issuing a special plea. I am a social scientist. I work on the humane studies end of my discipline in economics. We are in terrible trouble in this country because of underfunding from research grants and provincial governments.

Let me just reiterate the final comment from my written submission in August. The laws of physics and engineering do not change at national boundaries. Canada could, if it wished, have a free ride on American scientific research.

History, social, and political institutions do change at national boundaries. If they are not being studied within the nation, if we take a free ride on other people's research on these matters, we will cease to be a nation. I believe we are in grave danger in this country of strangling our social sciences and humanities for want of, really, very little support. We're not asking for a lot.

Thank you. I will stop there.

The Chair: Thank you very much, Professor. It's a very interesting conversation. We'll get back to the North American integration issue, I'm sure.

Professor Heather Munroe-Blum, welcome.

Professor Heather Munroe-Blum (Vice-President, Research and International Relations, University of Toronto): Chairman Bevilacqua, and members of the committee, it's always a great pleasure to be able to come and make a presentation. We also missed you last year and are glad you are back this year.

My message is twofold. First of all, thank you for everything you've done in recent years to invest in the cause of knowledge, talent, and innovation. Stay the course, please, on moving forward.

First of all, on the thank you note, we have appeared before. I had the pleasure of serving as vice-president for research and international relations at the University of Toronto. Then, of course, I'm here this evening representing that great Canadian institution. I also had the pleasure of serving in an advisory capacity to the Government of Canada and the Government of Ontario on science policy matters. In the last two years, I have served as an adviser on science policy matters to the governments of the United States, Germany, and Switzerland.

I think all this experience would say the investments of the Government of Canada over the recent years in the Canadian Institutes of Health Research, the remarkable Canada research chairs program, Genome Canada, the Canada Foundation for Innovation, and the networks of centres of excellence program have all been extraordinarily important investments. We are already beginning to see a turn in the tide in our capacity to both retain and attract great minds to Canada.

• 1900

I cite just one example in Bob Birgenau, president of the University of Toronto, who five years ago would not have come back to Canada, and a great physicist by world standards. The Canada research chairs program made a real difference to him when leaving the Massachusetts Institute of Technology to come back to Canada. He is the recipient of a Canada Foundation for Innovation award and an NSERC grant. He is one of many examples we're beginning to see of great minds viewing Canada as the place to vest their futures.

It's important in this context to mention great scholars, researchers, and scientists, like Professor Laidler, with whom I did not collaborate in advance of coming here. I want to stress how important it is that we recognize the important contributions talented people make across the research disciplines, social sciences, and humanities, as well as physical sciences, life sciences, and engineering. In this capacity, we're seeing a real benefit beginning from the investments you've made.

I want to very much encourage you to stay the course, and to speak, in particular, to three areas we believe are required to create an effective and internationally competitive research and science policy framework for Canada.

First, let me speak to the indirect costs of research. I know you've heard from the Association of Universities and Colleges of Canada on this matter. You have made these investments in research infrastructure through the Canada research chairs program.

We believe it is critically important that you make Canada competitive with the United States, the United Kingdom, and many western European countries in providing more of the full research costs that universities bear as they carry out the research funded by the federal research granting councils.

It has been well demonstrated that, however you cut it, the full research costs borne with every award that comes from the federal research granting councils imposes another 40¢-to-the-dollar cost on universities in providing the range of infrastructure required to support this research, ranging from ethical review, facilities and services supporting research, research administration, care of laboratories, libraries, and the like.

Currently, Canada's universities don't receive any of these costs through federal granting council awards. This means there is a perverse punishment for success. For every award a university receives, they need to draw from the operating grant provided at the provincial level for student support to support the full cost of research.

We believe research should in fact be there to benefit the quality of preparation for the next generation of Canadians, not to undermine it in any way, as happens without full research cost recovery. We urge you to seriously consider as a first priority the provision of 40%, or 40¢ on the dollar, for federal research granting council awards. We believe this would be a major advance in the Government of Canada's important goal of moving from fifteenth to fifth in R and D investment.

Secondly, consistent with the provision of indirect cost recovery to the federal granting councils, we urge sustained growth in the budgets of the federal granting councils. We do not believe Canadian researchers and scholars require dollar-for-dollar parity with American researchers and scholars. In fact, we've shown we're incredibly efficient in conducting high-quality research.

We do believe, however, we need a meaningful level of support. We urge this to the three federal granting councils, the Social Sciences and Humanities Research Council, the Canadian Institutes of Health Research, and the Natural Sciences and Engineering Research Council of Canada.

Finally, with respect to investing in the next generation, we urge you to seriously consider, as part of growing federal stature in the research realm, enhanced support for graduate students.

• 1905

Again, for example, great American universities like MIT have realized the quality of higher education in Canada and have targeted systematically attracting Canadian students to their graduate programs because it's of the incredible return they see as they provide a full support for graduate students.

It is very clear that the federal government has a strong and dominant role on the research front in terms of its support for graduate students, both in terms of its support for the research enterprise and a very significant investment in highly qualified personnel for Canada.

Let me close again by saying thank you for what you've done to this point and urging you to stay the course investing in the innovation agenda. There is strong evidence from this country and from other jurisdictions that there is no better investment than that in talent and knowledge if you want to secure the social and economic well-being of the country going forward.

We know that September 11 has created new economic uncertainty. I know, as I hear my fellow citizens present on their various causes, that there is a great concern in Canada for fairness and for social justice, and for the investment in the people of Canada and growing capacity, but I would like to say you can do no better in addressing these responses than to make sure your universities and their capacity to do research and train the next generation are fully supported.

I want to close by saying that Canada's universities are doing their share and are deeply committed to paying back to Canada and to the communities they serve by fulfilling our full potential, and indeed contributing our knowledge and our talent back to our communities.

Thank you very much for this opportunity.

The Chair: Thank you.

We'll move into questioning and we'll begin with a five-minute round for everybody.

Mr. Solberg.

Mr. Monte Solberg: Thank you very much, Mr. Chairman, and thank you to all the presenters. It's quite a wide variety of presentations today.

I'm intrigued with some of the things Professor Laidler had to say, and I really want to start there.

First of all, I want to hear again from you, Professor, just to make the point to some of my colleagues on the committee. According to what I understood you to say, you don't believe it's appropriate really for the government to jump in and try to prime the pump right now with fiscal policy in any way because of the downturn in the economy. Is that correct?

Prof. David Laidler: That is correct, because, one, the downturn was in motion before September 11. We already had a large tax cut introduced at the beginning of the year. Monetary policy was already lowering interest rates.

I think the other thing that is in my brief of August is a concern about the size of the federal debt and the size of the interest bill on the federal debt every year. The unit of account I chose was a year's revenue from the goods and services tax, and I'm delighted that interest on the federal debt is now a little less than two years' revenues from the goods and services tax. That's a sobering thought.

September 11 makes a difference, but I think it makes a difference on the monetary front. We've had a response to that already and we may get more.

The problems of firms like Air Canada and industries in general, such as the travel and entertainment industries, are problems in the structure of aggregate demand. Either it's going to right itself or it isn't. If it isn't, you don't want to go pouring resources into an industry the demand for whose product has fallen off permanently. What you want to do is get those resources out and into the areas where demand has increased.

So, again, across the board fiscal policy doesn't seem to me to be called for, and of course the worst thing you could do with a productivity shock is try to fight it with demand.

Mr. Monte Solberg: Right. The reason I raise this is, if I'm not mistaken, Mr. Chairman, I'm certain I heard in the House not long ago the finance minister talk about an infrastructure program as a way to prime the pump. A $6 billion infrastructure program would seem like a pretty tiny way to prime a $1 trillion economy.

At any rate, I do want to move on. I'm very interested in what you had to say about integration with the U.S. You made the very good point that we don't have the institutions in place between Canada and the U.S., but why couldn't you enter into a series of treaties like we've done in NAFTA in order to regulate harmonization of immigration laws and some of these other things that are handled by a legislature, in a way, in Europe? Why couldn't you do it that way?

• 1910

Prof. David Laidler: My belief, sir, and I'm not an expert on this, is that if the U.S. Congress could pass Helms-Burton, the U.S. Congress would not be willing to concede much to Canada in the way of foreign policy. Of course, trade and immigration policy are foreign policy. They're not just economic affairs.

If I may offer another illustration, when we were negotiating the NAFTA, it was taken for granted by people like myself that a definition of a subsidy would be part of the agreement. But it never was. We weren't able to negotiate that. What we have are ad hoc panels that enforce Canadian or U.S. trade law. The U.S. Congress wasn't even willing to concede some kind of exemption from U.S. trade law to Canada.

The U.S. has a long history of respecting its own Congress and not much else. This is not something that's happened in the last five years. I think the process of building up North American institutions is going to be long and hard. I think we have to be very careful not to concede accountability to the Canadian electorate over issues that the Canadian electorate ought to be able to hold policy-makers accountable for, like foreign policy, refugee policy, immigration policy, and monetary policy. It's a terribly difficult problem because the economics have a lot to say for North American integration.

The Chair: Professor, if we were to go to an election campaign in two or three years and this issue of say continental energy policy, water, came up—all these issues—and the Canadian people voted for the party that advocated those issues, would that satisfy your democratic “responsibility”?

Prof. David Laidler: I would have to live with that, sir, I think. But this would be a matter that so deeply affected the body politic in Canada that I think I would be out stomping for a referendum on the issue. I don't think I would want to leave it just to an election, where there are often many issues that lead to a particular outcome. I think I would want to have a referendum, saying it with a clear question and a clear majority, if I were going to concede substantial power over Canadian foreign policy to the U.S. Congress.

The Chair: It's not clear to us yet that the North American economy is in fact integrated already?

Prof. David Laidler: The North American economy is heavily integrated, but the North American economy, for example, is not a common market. You still need certificates of origin for goods to cross the border, and that is a big nuisance, as I understand, to Canadian exporters. It's an inhibition to investment in Canada rather than in the United States.

If you went to a common market, you could get rid of certificates of origin. That would be a big gain, but you'd also get rid of importing Cuban cigars. I don't smoke cigars, but some people think it's important that the Canadian electorate can choose with whom they trade. That's the kind of issue I think is at stake here.

The Chair: I'm sure you're using that as an example. I'm sure we're not going to get into a deal that may speak to improving the standard of living because of Cuban cigars.

I think the point you're making, which I think is the point those who are advocating greater discussion on this issue are making, is that in fact there are issues we have to debate and they should be on the table.

Prof. David Laidler: I certainly agree with that, sir. What I am reacting to, because I read it as I was drafting my supplementary memo, were headlines that say things like sovereignty is a red herring. I don't believe it is. I believe it's a very serious political issue and that it needs to be debated just as thoroughly as the economics.

The Chair: That's right. With that I agree.

Sorry, Mr. Solberg, I took one minute away from you. Go ahead.

Mr. Monte Solberg: Professor Laidler, I think you've really raised a lot of good points.

I do want to take on one issue you raised, though, which was the issue of the currency. I always felt that the most likely way we would end up with an integrated currency would probably be, frankly, dollarization in Canada. What's your response to that? It seems to me that when you have professional sports teams paying players in American dollars and increasingly executives being paid in American dollars, and more U.S. dollar accounts than we've ever had before—of course, I believe that's so—wouldn't that be the most likely way you would end up with some kind of common currency between Canada and the United States? Nothing official—I don't think people are ready for that.

• 1915

Prof. David Laidler: It could be. I wouldn't have any objections to that. I'm a great believer in consumer sovereignty, but I don't think it's very likely to happen under a flexible exchange rate. You're much more likely to get voluntary dollarization if you try to peg the exchange rate, and then the public begin to lose confidence in the soundness of the peg. You've seen that happening in Argentina.

If I could just come back to the data on the size of U.S. dollar accounts, the last time I looked at that was about 18 months ago, and somewhere around about 10% of bank accounts booked in Canada were booked in U.S. dollars. That's less than it was in the 1970s, I believe.

This may have changed over the last 18 months. An absurd figure was quoted in some newspaper a few months ago—about 60%. That was simply an American economist who'd looked at the wrong tables in the Bank of Canada Review.

Mr. Monte Solberg: I have just one final point. Would September 11 have any effect on that? I'm not certain how to read it. When you have uncertainty in the world, there is typically a flight to safety, gold and American dollars. But because the events are affecting the U.S., maybe that would be less so.

Do you have any sense that we're going to see some kind of capital flight, as a result of this, into the U.S., or because the events are mostly happening on U.S. soil and involving the U.S., will it not likely occur that way?

Prof. David Laidler: The only incipient capital flight I noticed was a temporary one to the Swiss franc, on the day. The Canadian dollar has remained pretty much where you would expect it to be, on the basis of fundamentals that are largely driven by commodity prices.

Mr. Monte Solberg: Yes. Thanks.

The Chair: Thank you.

Mr. Nystrom.

Mr. Lorne Nystrom: Professor Laidler, I share your point of view that sovereignty is not a red herring, and it's not just the Cuban cigars Dr. Bennett couldn't smoke or the trips to Cuba. It's the American marijuana laws, the American gun laws, and all kinds of other American laws. It's like the mouse sleeping with the elephant. You know who would dominate in terms of making the decisions.

The other thing, in terms of having this decided in a national election campaign, is that most of our majority governments historically are fake majorities. They're elected by a minority of the people. A good example is Brian Mulroney. He got 40% to 41% of the vote on the crucial free trade deal with the United States, when clearly the majority of the people in the polls said they didn't want that particular deal. Two parties campaigning against the deal got 60% of the votes.

So you have that problem, in terms of a majority government implementing a law, and it's just a fact of life. Since the 1920s, I think only three majority governments have been elected by a majority of the people. What is the solution there? It's either a national referendum or a system of proportional representation, where every vote is treated equally across the country, like most countries in the world have.

Those are some of the problems the chairman invited when he talked hypothetically about this becoming a campaign issue, with a majority government elected on that platform. It could be against the wishes of 60% of the Canadian people. So that's a very serious issue.

I go back to your institutions again. You're right, the big difference is that the Europeans have institutions that are politically accountable. There's the parliament in Brussels, which is a very important institution, in terms of accountability to the electorate. There's also the European Central Bank, in terms of the euro.

A number of countries in Europe are of roughly equal size, in terms of Germany, France, Britain, Italy, and so on. So you have this balance between major powers, which you don't have here between us and the United States of America. There's a different culture altogether.

I wonder if you can tell the committee what other institutions the Europeans have that we wouldn't have, in terms of your vision as to what would likely happen if Mr. Bevilacqua took over from Mr. Chrétien, led the national Liberal Party to a victory with 37% of the vote, and implemented integration with the United States with one perimeter and one currency.

He's cunning. I know Paul Martin is shaking in his boots that Maurizio—

Prof. David Laidler: For a start, there is the European Council, which is essentially a gathering of the heads of the national governments. It is supposed to be the most important body. Accountability runs that way. There is an elected European parliament, which not enough people vote for. It has limited powers, but nevertheless the governor of the European Central Bank reports to it quite regularly.

• 1920

There is the European Commission, which is not the most accountable of bodies, and a lot of Europeans are deeply worried about that. There is a European court. There is a variety of agreements that some countries are party to and other countries aren't. The Schengen Agreement on immigration is one of those. The British are not party to that. These institutions have been building since the 1950s.

Mr. Lorne Nystrom: Agricultural policy.

Prof. David Laidler: There is indeed the common agricultural policy, which was one of the political tradeoffs that led to the foundation of the original common market. We just don't have those things, and I don't see any prospect of getting them.

I am concerned about what kind of accountability mechanisms would be in place. Who would I write to about foreign policy? I wouldn't have a congressman.

Mr. Lorne Nystrom: If we go down this route, I certainly agree with your outline to the committee. What about decisions on the export of bulk water to the United States? What about the future of our health care system under the NAFTA agreement, in terms of a public system that most Americans find unacceptable?

The Canadian Wheat Board is so important to the people in my part of the world. It is seen as a very unfair organization by most Americans. Marketing boards and all kinds of different things are uniquely Canadian, in terms of the North American context. But they're not exactly so unique in terms of the world and what's happening in Europe and elsewhere.

Again I would suggest that those would all be in grave danger, if you wanted to integrate the two economies in the two countries.

Prof. David Laidler: They would indeed. Some of those institutions I like, some I don't like, but more than anything else I like the ability to vote on them myself.

Mr. Lorne Nystrom: Yes. The main thing you're saying is whether we like them or not—like the free trade agreement—at least we as Canadians should have the right to make that decision.

The Chair: The major point the professor is making is that debate should be had. For example, we talk about water. I want to ask people on the panel what would happen one day if the United States of America, for whatever reason, entered a water crisis and came to Canada saying, “We are dry, we are thirsty, will you turn on the tap?”

In public policy we always have to set up various scenarios or possibilities. We need to not just arrive at that point and then think about it, but think about the various scenarios, so if that scenario ever evolves we will have a response to it.

Prof. David Laidler: If the United States does run dry, one of the reasons for that would be a long history of really bad economic policy toward water.

The second point I would make is that as an economist, I'm bound to say water is becoming a scarce resource. We need to think about how to allocate it. That means we need to put a system of property rights in place, and we need to think about government regulation. We need to think about the extent to which market mechanisms could work. Particularly with water, we need to do some research to find out just how large the environmental effects of taking water out of rivers that flow into the Arctic, for example, would be, because we don't know.

The Chair: That's my point exactly. You've raised five or six issues that I think as a nation we need to debate, research, and develop a public policy response on. That's the point I make on this issue, and by the way, many other issues.

Dr. Bennett, what's your prescription?

Ms. Carolyn Bennett: Start with the research. You can't have a debate without the facts.

First I want to thank Margaret Dinsdale for her story. I think stories help shape public opinion, and thereby move public policy. I tried to do that with a similar story to the Minister of Community and Social Services here in Ontario. I hope you will also take your brief to the provincial government. I do commend you that all of your recommendations were properly federal. That is rare at this committee, so thank you.

• 1925

I wanted to also thank Dr. Wittenberg and Dr. Espey. I think from what was a problem a year or so ago, or even in the summer, you have come with some very specific solutions, and again, that's a thing this committee is grateful for. Coming with problems sometimes isn't as effective as coming with real solutions. I just had a couple of little questions.

With the wellness benefit, would that be at the recommendation of the child's doctor, so that you wouldn't have to...? How would you do that? I don't have to go and speak of my anxiety and depression to my doctor. The child's doctor should be able to say that this is something they're recommending for the parent.

Dr. Jean-Victor Wittenberg: Yes, I think that makes a lot of sense. It would be the child's doctor or the family doctor who had a sense of what was going on within that family and the kinds of demands, the kinds of stresses, that were arising as a result of the illnesses, the challenge that the child presented.

Ms. Carolyn Bennett: I just would hope that even if there's not money in this budget to do this piece immediately, you will ask the federal government, as some of us in women's caucus have been doing, to begin as a family friendly workplace. We, I think, as the biggest employer in Canada, should start with ourselves, and I hope you will take this to Madame Robillard and see what we can do.

On your community services one, I was wondering if you'd had any talks with the CACL, who presented earlier this morning, about their supports and services brief into the overarching disability fed package, because I think there's a lot in common. I handed them your brief this morning, and they thought it was pretty good.

Dr. Jean-Victor Wittenberg: We have started talking together.

Ms. Carolyn Bennett: Great.

I don't think there's been a panel that hasn't talked about indirect costs of research since we've been here. We thank you for your thank you note, but in a province that is paying less per university than, I think, any other province, I guess I'm having a little bit of trouble sorting out.... After the money that came forward for CIHR, CFI, all of these things, now you want 40¢ on the dollar for what I thought was in the CHST, and a choice then in respect of doing the infrastructure and the.... It's like now coming back and saying, thank you for the party, but you didn't pay for the cleaning lady. I'm having trouble, because a lot of us have been fighting for the extra dollars for CIHR; we want that to be a billion as soon as possible. Are you saying you'd rather do this than get the CHR money, if there's only a certain amount of money?

Prof. Heather Munroe-Blum: What I would say is that we need an effective research and science policy environment, and that means, first of all, providing the full direct costs of the research that's conducted, and the federal granting council, for example, cannot currently do that.

Ms. Carolyn Bennett: Is that a rule thing, that they're not allowed to pick for indirect cost?

Prof. Heather Munroe-Blum: Yes, right now they're not positioned to, but if you took it out of their current operating grant, you would be really hurting the research and scholarly enterprise broadly.

On the question of the party, but not the cleaning lady, I can only go back to say we're trying to operate in a system of international competitiveness in our talent and our capacity to generate knowledge and, frankly, to apply that knowledge. We make representation to the provincial government about the level of the operating grant—I thought I wouldn't take your time to deal with that, but you can imagine that we are working very hard on that front. That being said, the provincial governments, Ontario's government, Quebec's government, Alberta's government, at a minimum, do provide full research cost recovery on the research awards they give to universities. The Government of Canada is the only federal government amongst most well-developed nations that does not provide any through its granting councils. So when you take something as important to the Canadian public as the capacity of universities to commercialize the product of research to the benefit of Canadians, we have no support to do that.

• 1930

If you look at the costs for research administration, for ethical review of research, for the libraries, and so forth, that support our research enterprises, those costs are currently being borne by the provincial operating grant. Do we think the provincial operating grant has room to grow? Absolutely. There's no question about that. But to put further strain on it to support federally sponsored research at a level that even approaches competitiveness with the U.S., the U.K., and other nations requires us to go further.

If you give us growth in the budgets of the granting councils without a capacity to take indirect costs back, you will be hurting the university system further. Does that mean you shouldn't grow the granting councils? No. Does that mean you shouldn't grow the Social Sciences and Humanities Research Council? No. But you must allow universities to support that enterprise effectively and not punish students in the course.

Ms. Carolyn Bennett: Maybe Professor Laidler wants to add something. If this committee can only find so much money, you would slow the ramp-up of the granting councils in order to get your indirect costs?

Prof. Heather Munroe-Blum: Absolutely. We cannot afford more research money absent indirect cost recovery, and there is a systematic punishment for success, as I said, in growing the supports, on the one hand, without giving us indirect costs as well.

I would say the ideal situation would be to do a multi-year ramp-up on both. Let us know we're operating in a predictable environment that allows us to use our talents effectively and that says by four years down the road we're going to get to this position both on the budgets to the granting councils and on indirect cost recovery. So you could ramp into the 40% and into the growth in the granting councils on a multi-year basis.

Prof. David Laidler: If I could add one small thing to this, the knock-on effects from the lack of overhead, for want of a better word, are really serious.

In my brief of August 1, I mentioned that if you take tuition revenue plus basic income unit revenue per student to the faculty in which I teach, and then you look at the operating grant given to our faculty by the university, $12 million is missing. That is $2,000 per student that is taken out of the Faculty of Social Science at the University of Western Ontario to finance other operations in the university. Quite a lot of that, I am told by the university administration, is finding the overhead so that they can accept research grants in science and engineering.

If my department has another year like last year, in which we had five resignations of tenure or tenure-track people and have been allowed to replace them with one person, we will be dysfunctional. We are that close to collapsing, and this is one of the things that is causing it.

Ms. Carolyn Bennett: But do you want the rules changed to the granting councils? At some point we heard that you want a separate fund to fund indirect costs? How do we actually go forward? How did our research councils end up so out of step with all the research granting, and what is the actual long-term solution for this, different rules for the granting councils?

Prof. Heather Munroe-Blum: Well, different rules.... If you do it on the budget they currently have, you'll be kneecapping the investment that has been made in recent years. The mechanism that's being proposed is to hold constant the budgets of the councils, grow them over a five-year basis, but in line with that growth, add in a stream that could be administered by the federal granting councils but not off their current budgets. It could be administered as NIH does, administer indirect costs and have that then go as an add-on to the awards to the universities.

• 1935

The Chair: Thank you very much, Dr. Bennett.

Mr. Murphy, followed by Mr. Brison.

Mr. Shawn Murphy: Thank you very much, Mr. Chairman.

My first question is to Mr. Grills of the Writers' Union. I'm perplexed at the submission recommending that your subsistence grants be deemed tax exempt. In my way of thinking, that would be contrary to tax policy in Canada as we know it. You're saying it's for subsistence, but there is a basic minimum level of income that you don't pay taxes on. If this policy were offered to writers, I think it would have to be offered to everyone—the seasonal workers, everyone in the lower spectrum of wage earners right across Canada.

I don't know how it would ever be enforced, adopted, or implemented within our tax regime. Perhaps you can elaborate briefly.

Mr. Barry Grills: By way of background, at one point the type A Canada Council grant was $32,000; now the largest Canada Council grant is $20,000. I put that there for reference. It has gone down over the last ten years or so.

The difficulty is in the name “subsistence grant”. It's often the entire income of a writer in that given year.

I can use a personal example. It's not a Canada Council grant; it was actually an Ontario Arts Council grant, a works-in-progress grant that I received. This was a subsistence grant, but because a royalty cheque came in at about $6,000, which was my other bit of income, and then the $12,000 grant came in, it ended up that by the end of the year I had made $18,000. So I paid back in taxes $5,000 of the subsistence grant the following year, when I needed it to pay the rent and heat.

There is that difficulty, and this is why we address the fluctuating income. It takes a couple of years to write a book. It takes another year for the publisher to put it through the production circumstance.

I have a book coming out next fall. There will be a small advance royalty this year, and there was a small advance royalty last year. It took me two years to write that book, during which there was, at times, absolutely no income. I sold my record collection and books. This is the harsh reality for writers.

I gave you a number, some $11,400 per year. I want to stress that you have to factor in the Margaret Atwoods who also took that survey. So when you look at the real number averaged out, I'm afraid it's slightly ahead of dog groomers.

Mr. Shawn Murphy: Thank you.

My next question is to you, Professor Laidler.

The Chair: Ms. Dinsdale wants to add something.

Ms. Margaret Dinsdale: I'm not sure of the entire facts—I may be wrong on this—but Ireland apparently doesn't require taxation for anyone who gets their income through artistic endeavours, whether it's writing music or whatever.

I think it's part of this general undervaluing that we've seen of artistic endeavours. We see more emphasis in schools put on what's going to get you a job. Music programs and art programs are being cut, and that sort of thing, when actually what defines us as a people is partly our artistic endeavours. When you hear Natalie MacMaster play her fiddle, it's terrific. When you see a Group of Seven painting, it's wonderful.

Mr. Shawn Murphy: Michael Jackson would be interested in that concept. He could develop that a bit.

Ms. Margaret Dinsdale: I'm sure a lot of Americans love Michael Jackson.

Mr. Shawn Murphy: My next question is to you, Professor Laidler.

It's my understanding from the media reports that President Bush has embarked upon fairly aggressively not only revamping New York City but stimulating the economy, which I think is around $110 billion or $115 billion. It appears to me to be fiscal policy.

Do I take it from your comments that you would not agree with that initiative?

Prof. David Laidler: I would not, from what I know.

• 1940

Mr. Shawn Murphy: But you will agree that because he's doing that and because, as we've heard today, we are to a certain extent reliant upon the American economy, we're going to benefit from that policy—or we should.

Prof. David Laidler: If you think the fiscal stimulus will really turn GDP around in the United States in a serious way, and if you think that will turn into a demand for Canadian exports, yes. But the nature of the dislocation in the United States is very like the dislocation here. It's a confidence matter, it's a structural matter, and it's a supply-side matter. And you don't turn those things around with broad fiscal stimuli.

Now the U.S. looked as if it was going into a rather deeper hole than the Canadian economy before September 11. There might have been some room for extra fiscal stimulus on that basis in the U.S.—not here, because we had those big tax cuts at the beginning of the year. But I really don't want to comment on that because I'm not sufficiently on top of the data.

Mr. Shawn Murphy: To follow up on the discussion we're having here this afternoon on this whole economic integration between Canada and the United States, I agree with your comments. I agree that if we cede a lot of customs and immigration and laws, we are basically ceding our sovereignty. That's where we're going. But if we are going to have this debate that everyone is advocating, would you not also put political union on the table? Then we'd be accountable to our electors.

Prof. David Laidler: Indeed, at the end of the day, the difference between a nationalist and a liberal might be whether you want to go the whole way, wanting to enter the United States as four or five states. I don't see that happening.

Mr. Shawn Murphy: No, I don't either.

Prof. David Laidler: Could you imagine the Republican Party wanting the Canadian electorate? Again, sir, I don't see that happening.

Mr. Shawn Murphy: No. I'm not advocating that; I'm just saying that if people are going to advocate all this economic...that is the end of the slide, so to speak.

Let me finally ask you, sir, if there is one thing you'd like to see in this budget—if and when it does come—what would it be? I'll put you on the spot.

Prof. David Laidler: I suppose I would go back to my pleading special interests. I would like to see an increase in research council budgets. I would like to see something done about the overhead, because these things are doing very bad things to us.

Mr. Shawn Murphy: Thank you very much.

Prof. David Laidler: But that's a special plea.

The Chair: Thank you very much, Mr. Murphy.

Mr. Brison.

Mr. Scott Brison: I have a couple of quick questions. I apologize to our presenters that I was late in arriving.

Dr. Laidler, in your updated presentation post-September 11, you noted that Mexico's standing, relative to the potential of a customs union or this perimeter issue, changed as a result of September 11 and that Mexico would be more likely to be outside of that now than prior to that time.

It's interesting because in August President Bush made a statement. At one point he said that the United States has no better friend than Mexico. In mid-September, after September 11, he made the statement that the United States has no better friend than Great Britain. Based on the former Governor of Texas and current President of the U.S.'s affinity for Mexico, do you really believe the post-September 11 environment is that different, particularly with Mr. Ashcroft, the Attorney General, making statements about the porosity of the Canadian borders and concerns about the integrity of our borders?

Prof. David Laidler: Let me say that I know very little about what has happened in Mexico. All I know is what I read in The Economist. It is my understanding that it took the Mexican government two weeks to get its act together on the issue of supporting the U.S. government after September 11. That's what The Economist tells me.

The other thing I'm bound to recall is that there is still a small indigenous movement in Chiapas that engages in terrorism or freedom fighting or what have you, depending on how you want to use the vocabulary. I don't quite know how that Mexican problem would fit into an integrated North American continent. That's not to sneer at Mexico. It's a serious problem and they have to deal with it. But I don't see how you could put a perimeter around the south of Chiapas.

• 1945

Mr. Scott Brison: We have the Cape Breton Liberation Army that is periodically on the march, but other than that, it would—

Prof. David Laidler: If I may just say something on the business of whether the border is porous or not, I have actually been very disturbed about some of the things I've seen on CNN about Canada and the Canadian border.

Mr. Scott Brison: What about The West Wing?

Prof. David Laidler: It's my understanding that we should also be worried about who is coming north.

Mr. Scott Brison: Yes.

Margaret.

Ms. Margaret Dinsdale: I find the idea about the porosity of the Canadian border kind of interesting, when the porosity of the Mexican border with the United States has been well documented for years. How many illegal immigrants from Mexico do they figure are currently residing in the United States? We may see an uprising by a Mexican liberation front in the United States.

I think it's rather unfair. I forget who it was, but I'm sure the point has been made time and again about who let the people into the United States at the Canadian border. It wasn't the Canadians.

Mr. Scott Brison: I just have a quick question or point for Mr. Grills, and that is on the issue of income averaging. Artists and writers have very sporadic bursts of income and then go for long droughts with very low income. Income averaging would give them a little more flexibility in that regard, but it wouldn't just help people in the artistic community—and I'll give you an example of someone in my riding who came to me about a year ago.

This individual was a labourer who had an injury. Due to this back injury, he was unable to work. He fought the Workers' Compensation Board, the provincial board, for about eight years. He eventually received a cheque or payment for about $110,000, after having fought to be compensated over that period of time. He paid taxes in that year at the top marginal tax rate, as would a high-income earner, and that is just grossly unfair.

So it doesn't just apply to artists and writers, but I appreciate your feedback on the general principle of income averaging.

Mr. Barry Grills: This is based on the fact that we had income averaging at one point—correct me if I'm wrong—but then it was removed. It was taken out again because it was difficult to manage. The Writers' Union of Canada and some of our colleagues in other organizations—the Canadian Conference of the Arts, for example—have moved income averaging to second place, because it is a little more difficult and it does seem to be behind the copyright income deduction, which is easier for the government to control. Basically, you're talking about royalties, and those separate professional writers from potential dilettantes—and I personally hate to use that term, but I'm trying to explain it as we see it.

It does make all the difference because of the profile and length of time it not only takes to write a book.... I can write a book faster than it can go through the process of getting published. To use an example, for my book next fall, I will have an advance royalty that is relatively quite small—and I hope my publisher is not listening—but then it's a whole year before I see the next royalty cheque, which will itself depend on sales. If the book is a phenomenal success, if the same thing happens, I'm looking at a three-figure income, whereas it might have been a one-figure income prior to that. So what happens in those two years, or three or four years, is that you have made $25,000 per year in four years, but you're taxed on $100,000 in the fourth year, if that explains it.

The Chair: Mr. Laidler.

Prof. David Laidler: If nobody else is going to make the point, a flat tax with a very low threshold takes care of a lot of these problems. I'm not recommending it, but it is one of the advantages of a flat tax.

The Chair: You don't want us to debate very much, just a flat tax and North American integration.

Voices: Oh, oh!

The Chair: Sorry, go ahead.

Mr. Barry Grills: May I comment a little bit on North American integration, in view of the fact that he has brought in flat tax based on what I was saying, just for some kind of balance here?

• 1950

I'm not only first vice-chair of the Writers' Union of Canada, but I chair the cultural agenda lobby committee, so I get involved. I'm a vice-president of the Coalition for Cultural Diversity, out of Montreal. I'm their rep in the International Network for Cultural Diversity, and the Canadian Conference of the Arts. Consequently, I have a great deal to do with things like NAFTA, TRIPS, the free trade area of the Americas, and so on, and I have to say, from a Writers' Union point of view, North American integration is very disturbing.

I was interested in your example of water, where a Canadian company from Alberta is suing the U.S. government for just under $1 billion for banning the additive it manufactures because it was poisoning California drinking water. That's under the dispute-settlement mechanism, or the infamous chapter 11 in NAFTA, which a lot of these trade agreements now have—I'm sorry, investor-state mechanisms—that permit transnational corporations to sue sovereign governments, and I think government sovereignty.

What I presented tonight to this particular committee is not in isolation from all the issues of globalization and loss of cultural sovereignty, and I did want to raise the point that what we present is presented in the context of cultural sovereignty. So it's ironic that has also come up tonight.

Thanks.

The Chair: Yes. But you also believe we should build up scenarios and try to get ready for some things to happen. If they don't happen, that's fine. If they do happen, you want to have the research and the policy position, right? You don't want to end up with a Canada, 10 or 15 years down the road, that you have absolutely no control over. In other words, you should be proactive in determining the future of a nation, not be reactive to circumstances.

Mr. Barry Grills: Yes, I do totally agree with that. I would like to see the definition of “culture” broadened to include the soil of creativity. All of us sitting around this table are defined by Canadian culture. I think what happens in all of this is when we're looking at issues of economics and trade, we have a tendency to define culture by trade, when in reality, trade is part of culture. And part of that looking ahead proactively is to rethink how we become part of the world community, yet maintain who we are creatively and in other ways. The only way to do that is proactively.

I felt for years—and this is a personal opinion—that some of our economic decisions based on trade agreements have been reactive rather than proactive. We could have led the charge a great deal more than just signing agreements that ultimately weren't very good to us.

The Chair: Okay.

On that note, I'm going to, on behalf of the committee, thank you very much. This is always a very interesting panel. I want to thank you for the insight you give us. We always use the knowledge as we get ready to make recommendations to the Minister of Finance on a budget that may occur this year, next year, who knows.

The meeting is adjourned until, I think, tomorrow morning at 8:30 a.m., the same place.