FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, October 17, 2001

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[English]

The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call the meeting to order. I would like to welcome everyone here this afternoon. This is our first panel of this afternoon session.

As you know, pursuant to Standing Order 83.1, the finance committee is undertaking a pre-budget consultation. We've been travelling across the country and listening to individual Canadians and organizations on what the priorities for the upcoming budget should be.

We have the pleasure to have with us the following witnesses representing a number of organizations: from la Chambre du commerce du Québec, Michel Audet, the president; from the Canadian Institute of Chartered Accountants, Pierre Brunet, vice-chair, CICA board of directors; from the Canadian Taxpayers' Federation, Walter Robinson, federal director; from le Front d'action populaire en réaménagement urbain, Lucie Poirier and François Saillant; from the Shipping Federation of Canada, Gilles Bélanger, president and CEO, Anne Legars, director, policy and government affairs, and Ivan Lantz, director, marine operations. I also believe we have, from the City of Iqaluit, the mayor, His Worship John Matthews, and Rick Butler, chief administrative officer.

You probably know you have five to seven minutes to make your introductory remarks, then we proceed to a question and answer session.

We'll begin in the order in which I announced your organizations. Therefore, we'll begin with la Chambre de commerce du Québec, the president, Michel Audet. Welcome.

Mr. Michel Audet (President, Chambre de commerce du Québec): Thank you.

[Translation]

Good afternoon, Mr. Chairman.

We submitted a brief a few months ago. Since then, many things have changed. As a result, the brief is somewhat out of date. I will try to repeat its main points but bring them up to date in light of recent events and their impact on our economic situation.

One of our main recommendations was to ask the government to limit increases in expenditures in upcoming budgets to take into account an increase in the population and inflation. We are referring to general expenditure programs.

I think this principle remains unchanged. However, we realize that because of what happened in recent weeks, some expenditures are required for security and prevention activities and military expenditures, which are now higher than anticipated. Consequently, this will change the expenditure picture to some extent. However, we think there are reserves in Mr. Martin's budget at the moment to deal with this situation. Therefore, we believe that the government's overall approach not only should not be changed, but that initiatives to promote an economic recovery should rather become even more necessary. Here again, I think that if we want to do something to revitalize the economy...

These days, we hear increasingly disturbing news every day about layoffs by various companies. The problem extends far beyond our borders. I think we are often inclined to say that these companies may be overstating the problem. I think that their basic problem is one of cashflow, which amounts to an issue of survival in many cases. They therefore take these steps which are not only essential, but designed to protect the company for the future. That is quite reasonable. However, the Canadian government is going to have to indicate its intention, as the American government has done, to leave a little more money in the economy. In our view this should not be done through new expenditure programs, with the exception of the expenditures I mentioned earlier, but rather through income tax reductions, similar to those introduced by the Americans.

I for one think that taxpayers are in the best position to decide what to do with their income. So if we give them a little more income, we will be helping to revitalize the economy.

In our brief we mentioned that despite the income tax reductions provided in recent years in Canada, there is still a huge gap between our income taxes and those of the United States.

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Our colleagues will tell you that an individual who makes $50,000 is definitely not rich. A Canadian with an income of $50,000 pays approximately $6,000 more in income tax than an American citizen living in New York State. In the case of a 100,000-dollar income, the gap is $20,000. So it is significant. It is true that the services are not the same, but nevertheless there is a very significant difference in income tax, and there is room to improve our situation as regards individual and corporate income tax, despite the reductions already announced by Mr. Martin. The second point is that the government should send a signal to strengthen and stimulate the economy through income tax reductions.

The third point I would like to mention is of course the federal-provincial dimension of the problem. There is a major debate these days in Quebec and elsewhere in Canada on the tax imbalance issue. I think this matter could be settled in a few minutes. However, there is no doubt that Ottawa has some latitude, and we are not criticizing the government for having this latitude at the moment, because this is very useful to the government. Nevertheless, we think the Canadian government could take certain steps to improve the situation in the provinces. I will mention two of them.

The first is a review of the Canada Health Act. That would not be expensive. The Canada Health Act sets out five principles, but they are both objectives and means. There is a reference to accessible health care, but there is also a reference to the public management of the health care system. Management is a means. The important point, in our view, is that access be guaranteed at a competitive cost. However, as regards means, we must give the provinces more flexibility to manage the system, by allowing them to use the private sector more, for example.

I think the Romanow Commission is reviewing this, but I think the government should send a very clear signal that the provinces should have more latitude in the means available to them. They should not be penalized by reducing their transfer payments because they want to use more efficient means of providing health care services. It amounts to trying to square the circle, and it must be mentioned that this often suits our union organizations which are very pleased to tell the government that according to the Canada Health Act it has no choice but to comply with rigid collective agreements. In this respect, I would mention that if you have some objective allies in Quebec, they are not always necessarily the right ones.

The second point I want to make has to do with transfers to the provinces. There is a huge debate on this matter. I think that the tax point solution, which is being mentioned at the moment, and which will come up again during the next year, may be the wrong approach, if we are not careful. The imbalance between the provinces at the moment has to do with wealth. If you just transfer tax points—and here I am speaking from experience, because I have had to negotiate these matters of finance in the past—that is not enough, because tax points are worth almost twice as much in Ontario as they are in Quebec. That means that if there is just a tax point transfer, Ontario will be able to reduce its taxes even more and Quebec will have just enough to pay for its services. So we will be creating an even greater imbalance between the provinces.

So I think along with transfers, there must be a very effective equalization system to share the wealth among the provinces. I heard that our Minister of Finance, Mr. Martin, was even considering extending the equalization system to other countries, to underdeveloped countries. I think he would agree that we should improve the system in Canada before we export it.

Those are my preliminary remarks, Mr. Chairman.

[English]

The Chair: Thank you very much, Monsieur Audet.

We'll now hear from the Canadian Institute of Chartered Accountants, Pierre Brunet, vice-chair.

[Translation]

Mr. Pierre Brunet (Vice-Chair, Board of Directors of the Canadian Institute of Chartered Accountants): Thank you, Mr. Chairman, for giving the Canadian Institute of Chartered Accountants an opportunity to make a presentation. Since we were supposed to appear before you in Toronto and there was a last- minute change, we will let you give your ears a rest and make our presentation in English.

[English]

As you all will have already seen earlier this fall, we submitted a brief that outlines the view of the CA profession with respect to the next federal budget. Our submission was of course prepared before the events of September 11 that shook the world and sharpened the government focus on securing the country's economy and ensuring the security and well-being of its citizens.

We understand these recent events have impacted the immediate agenda of the federal government. We do not hold ourselves out as knowledgeable about how to best fight the war against terrorism. We leave that to the clear expertise that exists within the government and elsewhere.

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However, as you move forward to address these vital matters, we urge you to remain mindful of some fundamental issues. Considerable progress has been made by the government over the last few years in putting in place an ambitious overall agenda comprised of tax cuts, debt reduction, and increases in health care spending.

We note that more recently the government has indicated that, as resources permit, it will continue to provide tax relief, reduce the debt to a more manageable level, and make targeted reinvestments. We certainly understand that the government will need to contemplate some expenditures to deal with national security issues; however, we urge the government to address these issues in a way that does not put the important debt and tax cut initiative at risk.

In the fall of 2000, the government more than doubled its original plan for tax cuts by announcing a plan that amounts to $100 billion in cuts over the next five years. These tax reductions include several Canadian chartered accountant recommendations in a 1999 study of personal income tax cuts: a reduction in the middle and lower marginal tax rates, the elimination of bracket creep and the elimination of the 5% surtax. As our tax study noted, the economic impact of such tax cuts is wide ranging. Tax cuts increase GDP growth, consumer spending, and deficit investment, while boosting personal saving rates, reducing unemployment, and improving corporate pre-tax profits.

Since most of the tax cuts announced last year were only implemented on January 1 of this year, the cost of implementing them is only starting to appear. Given the slowing economy and the economic impact of September 11, we believe this stimulus package is very much needed right now. We support the five-year tax cut plan and encourage the government to do everything in its power to secure the necessary revenue to fully implement this plan.

As far as the debt reduction is concerned, we congratulate the government on the progress made to date on reducing the debt. With the announcement of a $17 billion surplus for the year 2000-01, the government has lowered the debt by $35.8 billion since 1996 and reduced the debt-to-GDP ratio to just below 52%. However, despite this progress on debt reduction, our debt-to-GDP ratio remains higher than that of our major trading partners. Debt-servicing charges still consume close to one-quarter of federal revenues.

We believe the government must continue to work towards lowering the debt-to-GDP ration to 40%, a level somewhat closer to the historic G-7 average. A continued focus on debt reduction will provide the fiscal room needed to address the longer term needs of the country. In this regard, the government itself notes that continued debt reduction has resulted in a saving of $2.5 billion each year in interest payments, freeing up much needed fiscal resources.

Taken together, the government's commitment to increase health care funding over the period of five years, as well as a tax cut and debt reduction...it's very clear to us that it consists of a very ambitious agenda. Although the finance minister provided some details about the budgetary surplus for the next two years, it did not contain much fiscal information beyond that period.

In order to assess the degree to which the government's longer term spending plans in revenue remain in line with the October 2000 mini-budget forecast, the CICA decided to carry out its own fiscal analysis. Using the growth forecast put forward by the finance minister in May 2001, our analysis shows that the current program of debt and tax reduction, coupled with increased spending in areas such as health care, is viable. However, it also shows that with very little left over in the way of surpluses over the next five years, additional multi-year spending initiatives would seriously hamper the government's ability to deliver on its existing commitments.

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Taking into account the May economic outlook and assuming no new revenue generation or program spending initiative, our analysis shows that, after factoring in economic prudence and the contingency reserves, surpluses would range from $800 million to $2.6 billion over the next four years.

To the degree that the economy has weakened since the spring, these surplus numbers could be even smaller. We must keep in mind how easily these surpluses can evaporate: the government's own sensibility analysis shows that a 1% decrease in real GDP growth will result in an overall decrease of $2.3 billion in the budgetary balance.

This only serves to underscore our message that now is not the time to contemplate new multi-year spending. We believe that to do so would put tax cuts and debt reduction at risk.

As I indicated earlier, we understand that the government must consider specific expenditures that will address the safety of Canadians. However, we urge the government to reallocate existing funding to accomplish this. We also think it is important that the government draw a distinction between those initiatives that were contemplated prior to September 11 and those that are necessary to address concerns that have been evident since then.

In the end, it is clear that things have changed, whether in government or in business. Plans for an ambitious national innovation strategy or for increased spending on broadband access, for example, should be put on hold—as corporations are doing—and emphasis placed on retiring projects.

While we understand and support the government's focus on addressing the country's security needs, we also believe the government should focus on ensuring longer-term financial soundness, by continuing to deliver much-needed tax cuts and debt reduction to stabilize the faltering economy, holding a line on new spending, and avoiding a return to deficits.

Thank you very much.

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

We'll now hear from the Canadian Taxpayers' Federation, the federal director, Walter Robinson. Welcome.

Mr. Walter Robinson (Federal Director, Canadian Taxpayers' Federation): Thank you, Mr. Chairman.

I'm tempted to say ditto to the previous two speakers and pass the microphone, but since we made the train trip....

It's once again a pleasure to appear before you to forward the budget priorities of the 61,000-member Canadian Taxpayers' Federation.

[Translation]

As usual, I will make my presentation this afternoon in English only, however if you have any questions, I will try to answer them in the official language of your choice.

[English]

By way of background, the CTF was founded in 1990 and has grown in 11 short years to become Canada's most effective vocal and visible taxpayer advocacy organization. We are non partisan, not-for-profit, and do not receive political or funding contributions from any level of government. Furthermore, CTF board members, directors, and staff are forbidden from holding memberships in any political party.

Given the extraordinary circumstances in which we find ourselves post-September 11, our message today is very simple, straightforward, and resolute. Canada needs a budget, and it needs a budget to be tabled this fall and, ideally, towards the end of next month.

This budget will, no doubt, have a dominant national and public security focus. This is understandable and necessary and reflects an overwhelming public consensus. However, in the process of responding to the new realities of terrorism and ensure national security, the principles that protect fiscal security should not be discarded. These principles include ongoing tax relief, legislated debt reduction, and focused—and I stress focused—government expenditures.

While the CTF has differed with the government over the approach it took to achieve its balanced budget—an approach, I should add, that continues to overtax workers and employers through excessive EI premiums, and that slashed provincial transfer payments before slashing discretionary federal spending such as corporate welfare, non-priority HRDC programs and regional development schemes, and/or questionable Canadian Heritage expenditures—in fairness, we acknowledge the fiscal process made by the government since 1993. Indeed the national books have now been balanced for four consecutive years, and some $35.8 billion, as Mr. Brunet has mentioned, has been repaid on our public debt, including a record laudable and applaudable repayment of $17.1 billion this past September.

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As well, we commend the government for re-indexing the tax system to inflation, thereby ending bracket creep, in the February 2000 budget. In this regard, we were pleased to receive written thanks from Minister Martin in March 2000 acknowledging—and I quote from the minister—“the leading role that the federation played in educating Canadians about bracket creep and building support for re-indexation of the tax system.”

I see some smiles on the government side of this committee, but please don't mistake me for a speech writer from the Liberal caucus research bureau. While the CTF enjoys a constructive relationship with the finance minister, there is still plenty with which we disagree when it comes to this government and its approach to fiscal policy.

To start, it should be stated for the record that the tax measures announced in the October 18, 2000, mini-budget did not really amount to $100.5 billion. On paper they may have, but in terms of money left in the jeans of working Canadians, the amount, at most, is approximately half the $100 billion “sound bite” figure.

To start, $20.7 billion of forgone tax revenue—it's from finance department documents we've taken these numbers—is due to the elimination of bracket creep. It is not a tax cut or tax relief measure; it is merely revenue that Ottawa will no longer collect. As well, we must factor in the extra $28 billion Canadians will pay in CPP premiums from 2000 to 2004. Finally, we view the increases in the Canada child tax benefit as an expenditure, as opposed to a tax relief measure.

Nonetheless, $50 billion in personal, corporate, and EI tax relief over five years is indeed welcome. We just ask that the government stop misleading people with its “$100 billion” untruthful rhetoric.

So let's return to the issue at hand—the need for a fall budget. Even before September 11 we knew that, according to Statistics Canada, economic growth had slowed to its lowest level in six years and that unemployment had risen for the third month in a row to 7.2% in August, where it remains today.

South of the border, the federal open markets committee of the U.S. Federal Reserve Board had already dropped its target rate for federal funds, also known as the U.S. prime rate, on seven separate occasions since the beginning of 2001, for a total reduction of 300 basis points. Closer to home, the Bank of Canada had already lowered the bank rate on six separate occasions since the beginning of 2001, for a total reduction of 175 basis points.

The average total CPI inflation for the five-month period from April to August inclusive was 3.2% per month—outside the Bank of Canada band—while it was estimated that the federal government had authorized between $3 billion and $4 billion of new and unbudgeted expenditures for the current fiscal year.

In the aftermath of September 11, the FOMC dropped its target rate further, first on September 17 by 50 basis points, and then again on October 2 by a further 50 basis points. This makes a total reduction of 400 basis points over nine months—more than half of its starting value of 6.5% on January 3 of this year. When you factor in inflation, the cost of borrowing money today is zero. That points to big-time economic challenges.

Also on September 17, the Bank of Canada followed suit by dropping our bank rate by 50 basis points from 4.25% to 3.75%, bringing the total reduction to 225 basis points since January 1. Most analysts now predict a further 50-basis-point cut to be announced by Governor David Dodge next Tuesday.

Moreover, the bank has also pushed back its Canadian economy recovery projections to the final two quarters of next year. Last Thursday, the Conference Board also noted that we would record four successive quarters of zero growth through to the spring of 2002.

Real GDP growth for this year is forecast now at 1.5%, down from the stellar 4.7% in 2000, and down from Minister Martin's outlook just six months ago of 2.5%. The outlook for 2002 is equally dim, with growth forecast now at only 1.2%, almost one-third of the 3.4% prediction from finance minister Paul Martin just six months ago. Our economy, if not in recession—as two major Canadian banks have now stated—is clearly stalled.

Even with the $11.1 billion surplus for this year, the factors I've just enumerated will obviously decrease projected personal and corporate tax collections for the remainder of this year and substantively impact the 2002 framework and subsequent annual projections. In addition, increased expenditures and EI premiums due to the 100,000-plus layoffs that have been announced in the Canadian economy already this year will impact the national bottom line further.

Declarations from various cabinet ministers point to increased public security measures—the RCMP and CSIS, more vigorous border and customs efforts, a ramp-up of our defence capabilities, and probably further support to Canada's airlines above and beyond the $160 million already given. This list is by no means exhaustive.

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To be clear, we do not discount the necessity of the majority of these pressing needs, with the exception of more funding to the airline industry, and hopefully you can deal with that in questions. But we do question how one-time and base-budget increases will be funded. We believe low-priority areas, such as corporate welfare and discretionary government spending, should be tapped as a source for reallocation of moneys for expanded public security efforts. We know that federal departments are re-profiling expenditure envelopes as I speak, and that Minister Martin has just received, or is still receiving today, a briefing from the country's leading economist. The data is at hand to fashion a budget, and the nation cries out for fiscal leadership in these very anxious times.

A budget should be tabled each and every year. The last budget was delivered on February 28, 2000—some 598 days ago. Even if we accept the October 18, 2000, pre-election mini-budget as a full budget, as of tomorrow it will be one year since that budget document was tabled.

A budget document is a signal, as Mr. Audet has said, of a government's fiscal and political direction. It lays out priorities and objectives for action and delineates how and from whom taxes will be raised to meet these priorities and objectives. Canadians deserve to receive this signal. Canadians are demanding to receive this signal. Canadians need to know that national and fiscal security will be protected. Canadians deserve a budget this fall. We ask that you convey this message to Minister Martin.

During the forum of roundtable discussion, we can talk about specifics on tax and debt reduction and our health care report that was also released this past September.

[Translation]

Thank you for your attention. I'm eager to hear your questions and to have a discussion with you this afternoon.

[English]

The Chair: Thank you, Mr. Robinson.

We'll now hear from

[Translation]

the Front d'action populaire en réaménagement urbain, represented by Ms. Lucie Poirier and Mr. Francois Saillant.

[English]

Welcome.

[Translation]

Mr. Francois Saillant (Co-ordinator, Front d'action populaire en réaménagement urbain [Popular action front on urban redevelopment]): Good afternoon.

So far, there has been a lot of talk about money. I am sure that is the role of a finance committee, but I would like to introduce another dimension to the discussion—people.

If I may, I would first of all like to read a brief excerpt from a text. It is not very long:

Canada is presently confronted with a major housing crisis. The availability and cost of housing as well as the issue of homelessness is raising a great deal of concern across Canada. In our country, it is unacceptable for 1.3 million households to have to live in mediocre housing or be forced to spend an excessively high percentage of their income on housing. These are the official numbers: but the depths of despair resulting from the housing crisis in Canada affect many more families and individuals than are reflected in these numbers.

The person who spoke these words is Paul Martin. This excerpt was taken from a document entitled Finding Room, which was written in 1990, when Paul Martin was in the opposition.

The title of the document contained the words “Finding room”, and if this was a problem back then, as Mr. Martin affirmed in 1990, it is even truer now.

In Quebec, more than 600 families were unable to find housing last July 1, which is moving day in Quebec, and had to resort to government assistance to find housing. However, the shortage of rental housing which caused this situation will be even worse next year. And FRAPRU is not the one saying this, but rather the Canadian Mortgage and Housing Corporation, which is already predicting that the vacancy rates in large urban centres will be even lower next year.

The shortage of housing is just the tip of the iceberg. The housing crisis is much larger than just that. The Canadian Mortgage and Housing Corporation estimates that in Canada there are now 1,725 million Canadian households that are in dire need of housing. This represents an increase of 48% in the number of households that need housing in Canada in comparison to the time when Mr. Martin spoke about the housing crisis in 1990.

The federal government is largely responsible for this problem. Had the federal government not cut back the funding of new social housing from 1990 to 1993 and had it not completely withdrawn from the funding for new social housing since that time period, in Quebec alone, there would now be some 50,000 more units of social housing accessible to people with low or modest incomes. Across Canada, this would easily have translated into anywhere from 200,000 to 250,000 additional social housing units.

The federal government has not spent any money on social housing in eight years. This has gone on far too long and must stop now. The federal government must invest, as quickly as possible, the $680 million that it promised during the last election campaign in the Red Book containing Liberal Party commitments. Furthermore, this money must not be used to finance housing units that will be rented at a cost of 700 or $800 per month, as the government intended to do up until quite recently, but to truly provide housing that is affordable and financially accessible to people, including those who are in the most financial need.

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We think, since we are talking about a federal-provincial program where the provinces want such a program, that the best way to do this is to fund social housing. In the event where it is the provinces that are saying that they want to fund social housing, this should be allowed, and I would point out that this applies to Quebec, where the Quebec government has announced that it intended to use the federal money for social housing services.

But we are going to have to go much further than that. The federal government currently spends slightly under $2 billion on housing per year, which has already earned it some criticism from UNESCO, and which is used primarily to pay for social housing that was created in the past.

If we want new housing to be built—and I think the need for new housing is urgent—the same kind of investment, some $2 billion per year, must be added to pay for new social housing.

I would like to digress for a moment. The government often thinks of investing in housing as an expenditure. I think it's a mistake to consider this to be an expenditure; it's an investment. First of all, if we don't invest in housing, the expenditures that we won't make there will be made later on in other areas, and I'm speaking only of health and social services.

Many studies have shown the impact of poor housing conditions on health and social services. Not spending in this area has a cost. Furthermore, building housing creates jobs. Each time you build one unit, one job is created in the construction industry, in the manufacturing industry, and so on.

Furthermore, the money that low-income people don't spend on housing... When 60, 70, or even in some cases 80% of their income goes to housing, they do not spend the money elsewhere. But if these people had that money, they could spend it in other areas, particularly within the local economy, directly.

Given the current situation, given all the issues that everyone has raised, the federal government may perhaps be tempted to postpone investments in housing. In my opinion, that would be not only unacceptable, it would be shocking. Neither the war that we are involved in nor the economic slowdown justify Ottawa's continuing to turn a blind eye to the pressing, glaring problems of the homeless and those living in substandard housing.

Today is October 17, the International Day for the Eradication of Poverty. Perhaps today gives us a good opportunity to recall that the poor were the ones who paid the price of reducing the deficit and that they have hardly benefited at all from the spin-offs of the huge surpluses that the government has enjoyed until quite recently, as I was telling you earlier, surpluses that it still may enjoy to some extent. We must not ask them to now pay the price of the war and the economic decline, and eventually, another campaign to bring down the deficit. If we are to go to war, in our opinion, we must wage a war on poverty. It seems to me that this is a national emergency. Thank you.

[English]

The Chair: Thank you very much.

We'll now hear from the Shipping Federation of Canada. Mr. Bélanger.

Mr. Gilles J. Bélanger (President and Chief Executive Officer, Shipping Federation of Canada): Thank you, Mr. Chairman. Thank you for giving us the opportunity to appear before this committee this afternoon.

[Translation]

The Shipping Federation of Canada was incorporated by an act of Parliament in 1903, and represents more than 95% of ocean vessels trading to and from ports in Atlantic Canada, the St. Lawrence River and the Great Lakes. Its membership consists of Canadian companies which own, operate or act as agents for these vessels, which transport virtually all of the trade between overseas ports and eastern Canada.

Its members represent also virtually all the international cruise vessels calling at eastern Canada ports. The shipping industry receives no subsidies; quite on the contrary, it pays, in infrastructure costs such as ports and the seaway and in government mandated or supplied services, such as pilotage, customs, agriculture, transport, etc, annual amounts of about $360 million of which over $38 million is billed annually by the Coast Guard for the provision of dredging, icebreaking and aids to navigation services.

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This undue burden places the marine industry at a competitive disadvantage vis-à-vis other modes, as well as competing US marine routes that do not bear similar expenses, in particular those costs billed by the Coast Guard.

The Federation has opposed the Coast Guard's cost recovery policy since its introduction, and we have joined forces with other marine associations to request that this policy be revisited with a view to eliminating the Coast Guard's cost recovery fees altogether. We are building our case on this matter and are eager to present it.

However, we fully understand that the government has more urgent priorities to address in the wake of the attacks that began on September 11. Thus, due to the exceptional circumstances prevailing at the moment, we are delaying our action on this issue, and will defer our recommendations on the budgeting of Coast Guard costs to subsequent pre-budget consultations.

Nevertheless, we believe it is extremely important to use the occasion of today's discussions to stress the importance of including in the budgeting process, provisions for enhancing security measures in the marine industry. The industry has already made considerable investments in implementing advanced ship- tracking technologies such as AIS, which stands for Automatic Identification System. AIS is a powerful and sophisticated vessel tracking and onboard transponder system in which ships continually transmit their identity, location, speed and direction to other ships and shoreside authorities.

Given its potential value as a means of enhancing security, we submit that the government should build on the progress that has already been made, and invest in the construction of shoreside infrastructure that would enable all relevant authorities to access the vital information provided by AIS. Such investment would provide the authorities with continuous information about the real- time position of all ships in Canadian waters, thus making it possible to consistently survey ship movements.

I must point out that some aspects of this work are already being done in a number of Canadian locations. But given the current circumstances, I think it is important to step up the implementation of this program so that this surveillance can be done everywhere in Canada, or, at least in Canadian waters.

As already noted by our counterpart, the Canadian Shipowners Association, advanced technologies should be implemented not only by ships, ports and terminal operators, but also by those government departments and agencies that are involved with the marine industry.

Towards that end, government must ensure that the various monitoring, telecommunications and information systems it controls are as up to date and compatible with the new technology as possible.

The federation has joined the very large coalition of Canadian business organizations created under the leadership of Perrin Beatty to promote the Perimeter concept. We subscribe to the idea that security must be provided for Canadians and Americans alike, that security policies must be co-ordinated, and that transportation and trade bottlenecks must be avoided by facilitating low-risk trade, extending Canadian pre-clearance legislation, and moving more resources from low-risk trade to high- risk activities.

As far as maritime transportation is concerned, this could mean harmonization within the parameters of data collection and requirements from ship sources.

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We also believe that security should be improved by providing the necessary resources to strengthen the refugee determination process, which is a necessary step in enabling Canada to remain inside the North American Security Perimeter. This is very much a security issue for our members, since stowaways board on ships bound for Canada and ships' crew members desert in Canadian ports of call, all with a view to claiming refugee status upon landing and thus remaining in Canada for a lengthy period of time.

Such persons know that regardless how illfounded their claim may be, they will be able to remain in Canada legally for years until their case has been settled, with a strong possibility of remaining illegally thereafter, even if a removal order is issued. Some 27,000 people are currently in this situation in Canada, according to recent reports.

Since this state of affairs is probably incompatible with a North American Security Perimeter, the government needs to allocate resources for the shortening of the process, the detention of dubious claimants, and the effective removal of claimants who have been denied refugees status.

Finally, we concur with the comments of the Canadian Shipowners Association indicating that the marine industry will expect the federal government to extend its financial responsibility to the marine mode if and when it introduces specific federal security requirements for this mode (just as it has done with the air mode). Accordingly, the government's prebudget plans should include a contingency for special security measures pertaining to all modes.

We would like to again thank the Standing Committee on Finance for giving us this opportunity to express our views in these pre- budget consultations.

The Chair: Thank you, Mr. Bélanger.

[English]

We'll now hear from the mayor of the Municipality of Iqaluit.

Welcome, Your Worship John Matthews.

Mr. John Matthews (Mayor of Iqaluit): Thank you very much, Mr. Chair. We are very appreciative of this opportunity to speak to the committee.

Iqaluit, the newest and coolest capital in North America, finds itself in an infrastructure crisis, and that's why we have made the long and costly trip from Iqaluit to address the committee.

Mr. Chair, I would like to point out that this committee planned to visit Iqaluit last year around this time—I think November or December—but due to changed circumstances wasn't able to. I would very much appreciate it if you could at some point in the future make the trip to Iqaluit and experience first-hand some of the difficulties we're encountering.

Since April 1, 1998, the Government of Nunavut, with the support of the Government of Canada, had successfully worked on building a new government for a new territory. The impact of this new government on the city of Iqaluit has been extraordinary—significantly outstripping the city's ability to cope with the growth. Specific attention is now needed to implement a plan to build Canada's newest capital city, as we are facing a crisis in providing basic infrastructure to our citizens.

The city of Iqaluit is taking active steps to address this crisis. We are just completing a $7.6 million sewage treatment project. We have commissioned a long-term financial strategy, which will include a plan for increasing our revenues to offset approximately $7.3 million in capital costs and very significantly increased operating costs.

The Government of Nunavut has also committed $12.7 million over five years to address infrastructure requirements. However, there remains an approximately $27 million shortfall on our basic infrastructure needs that is required to meet the demands of growth and to foster economic growth in our new city. We are faced with a 40% growth in size, but are trying to manage with a 1950-style municipal infrastructure.

• 1415

In their May 2001 report examining Nunavut's economy, the Conference Board of Canada noted that one of the key determinants of economic growth is adequate physical infrastructure, including clean water, waste management, transportation links, and housing. The Conference Board noted that “Iqaluit in particular faces numerous problems, as municipal infrastructure must keep up with the growing population”. In fact, the city lacks much of the basic infrastructure other cities and especially capital cities take for granted.

The Canadian Arctic has come under increasing global scrutiny for its changing environmental conditions. Unfortunately, Canada's newest capital city is a showcase for outdated environmental practices in the Arctic, including the open burning of garbage at the city dump, which is located within the municipal boundaries. The city of Iqaluit wants to become Canada's newest green city and to become a model for Canada's commitment to environmental standards in the Canadian Arctic.

We recognize that the Government of Canada is faced with an unprecedented budget pressure as a result of the recent terrorist activities and the war effort. Within this context, we recognize that any commitments to addressing our issues must be multi-year in nature and likely to reflect the fluctuating capacity of all levels of government to address these concerns.

Our purpose today is to seek your support for this partnership between the City of Iqaluit, the Government of Canada, the Government of Nunavut, and industry, to bring Iqaluit up to capital city standards in Canada.

For several years the government has played a significant role in Canada's commitment to establishing the new Nunavut territory by overseeing the $150 million budget to build infrastructure to support the new government and to build capacity within Nunavut to operate a government. Infrastructure spending for the new government was focused on building a new legislature, a new government office, staff housing, and to a very limited extent, some municipal equipment.

The infrastructure program, while extremely successful in establishing the new government, could not have foreseen the extraordinary demand that the new government would place on the already substandard municipal infrastructure.

Demand on municipal infrastructure has originated from three growth areas. The first is population. Since 1996, the city's population has increased by 40%. This is double what the increase was in the period 1991 to 1996. The second area is building development. Since 1995, development values in Iqaluit have nearly quadrupled from $13.6 million in 1995 to a staggering $51 million in 1999. Thirdly, as to housing, the growth in federal government housing alone has put enormous stress on municipal services. In 1996 Public Works Canada had 60 housing units in Iqaluit and in 2001 they now have 230 units—a quadrupling of the demand on our water and sewer services.

The Government of Canada's existing federal-provincial-municipal infrastructure program recognizes the need for key investments in municipal infrastructure. But it also needs to recognize that there are extraordinary circumstances in Canada, such as establishing a new capital city, where added investments are needed to catch up with the rest of Canada.

For example, the federal government's proposed investment in the national infrastructure program for all of Nunavut amounts to approximately $2 million. Iqaluit's portion of this infrastructure funding will amount to approximately $200,000 over five years. Our needs total approximately $40 million.

The federal government must in its upcoming budget address the critical infrastructure problems that are posing significant health and public safety risks to the community. Proposed solutions include an infrastructure agreement between DIAND and the city to facilitate the development of Canada's newest capital; support for additional support through the existing federal-provincial infrastructure program; and advancing support for the targeted funding through a national capital's program.

Thank you very much, Mr. Chair.

The Chair: Thank you very much.

Now we'll proceed to the question and answer session. There will be a five-minute round for all members. We'll start with Mr. Jaffer, then we'll move to Mr. Loubier.

Mr. Rahim Jaffer (Edmonton—Strathcona, Canadian Alliance): Thank you, Mr. Chairman.

Thank you to all the witnesses who have appeared here today in front of our committee. Thank you for your presentations.

• 1420

I only have, because of limited time, a few questions for a few of the witnesses. I'd like to start with the shipping industry, and Mr. Bélanger.

We currently have a bill that's in front of the House, Bill S-23, that is dealing especially with the issues you raised. It deals with border traffic and with commerce flowing to the U.S. through border ports, obviously, Canada and the U.S., but specifically with our borders. I'm not sure if you've had the chance to look at it or if you have any concerns with how that bill could be perhaps amended to deal with some of the concerns you raised with the shipping side of things, obviously going through ports in Canada or to the U.S. If you have any suggestions there.... We're going to have to deal with that and also evaluate whether we need to allocate further resources in light of the security issues as well as the trade issues.

Mr. Gilles Bélanger: That particular bill we haven't studied yet. We have studied and made representation on the immigration bill, for example. And there are some issues in there that won't create the level of security that we feel is going to be needed here and that's going to be required by the U.S. to keep the border fairly accessible.

Our fear is that we're going to get to a point where it's going to be extremely complicated to cross over into the United States, and when that happens it creates enormous costs in our industry. If our ships are delayed going up the seaway, it's extremely expensive by the hour. So that's why we're so concerned.

The refugee program is part of that whole picture. From what I've seen in the new immigration bill, there are not enough measures. We have not speeded up the process. We have not made it less appealing for potential refugees to come to Canada. The problem is that it's an open invitation to refugees around the world to come to Canada, because they know they're going to be supported by our tax system here for years and years.

When you look at the 27,000 people here who have deportation orders against them and they are free to go as they want in Canada, that's part of the security problem that may create a problem with eventually crossing back and forth to the U.S.

We will look at the new bill. We haven't had a chance to do that yet.

Mr. Rahim Jaffer: The points you raised are obviously valid in evaluating currently our security requirements, especially when it comes to reallocating resources at the borders. Marine ports are just as important, especially if it pertains to your industry, and that needs to be considered in this particular bill that we're dealing with in the House.

I'll put my next question to Walter.

Walter, you talked a lot about the importance of the need for Canadians to see a budget and obviously of this government to report the fiscal situation of the country. It's been far too long, and I agree that we do in fact need a budget as soon as possible. However, in expressing some of the situations that you foresee might happen leading up to a hopeful budget this fall, there aren't as many prescriptive solutions as we normally see in your brief on where the government should be changing some of the priorities—spending and so on. Perhaps you could touch on that now. If we do see a budget, it would be useful to hear that.

Mr. Walter Robinson: Many members of the committee whom I have seen at several appearances—Mr. Loubier, Mr. Nystrom, and Mr. Discepola—will know we usually come with a 30-page pre-budget submission with a host of tax relief measures and budget targets. One reason is it's a function of time. We were scheduled to appear November 2, and somehow it seems the committee is on a bit of an aggressive schedule in wrapping up its hearings.

Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP): I wonder why.

Mr. Walter Robinson: And I agree, Mr. Chairman, that's a very good thing to be prudent. We usually like to come with the most recent economic data and we've always appeared after the finance minister has made his fall economic update. That is in some question.

• 1425

It is also important to note that we don't have the resources that Mr. Brunet has, although I'm going to look at his analysis. The economic statement in October gave an update on Budget 2000. Then we moved to the May 17 economic statement, and in this document here, in the 60 or so pages, there's not a single line that says, revenues in, expenditures out for the current fiscal year. The government was less than forthcoming in portraying the full economic picture.

Understandably, there is a great deal of uncertainty. We have always tried to use the government's numbers, and when they are not available we can't bring them forward. Our prescriptions are very clear. As a federation, parliamentarians and the government, specifically, have more pressing challenges to deal with than some of our fiscal concerns, so we're not advocating any new tax relief measures in this budget, just an adherence to the continuing five-year schedule of $100 billion or $50 billion. We can talk about the numbers on that.

We are still going back to our 1999, for 2000, pre-budget submission of a legislated schedule of debt reduction with a minimum of 7% of personal income tax revenues placed each year in a debt reduction account. That's more than the contingency reserve process now.

Finally, to implement some of the recommendations of the Mintz committee on business tax reform, and Minister Martin has hinted at some of that, to fast-track that schedule in terms of reductions in capital, taxes in banking, and some harmonization in making issues in the petroleum industry.... If you look back through our previous pre-budget submissions, a variety of things remain outstanding there, not to discount some of the work the government has done in responding to our suggestions.

Mr. Rahim Jaffer: I want to verify something that I saw in the brief. It was one of the recommendations of the Quebec Chamber of Commerce. If I'm not mistaken, one of your last recommendations in that brief was that government must allow partnerships between the private and public sectors in order to reduce national health care costs and make the system more efficient. I'm wondering if you could just give me a verification of that. Is that in fact now the type of thinking that is happening here in Quebec among many of your members? Is that the direction they feel public health care debate and investment should go? Because in my home province of Alberta this is something we were criticized for very heavily in the past. And we seem to be the only ones out there who seem to be talking about this. Now it seems that other people are seeing the light as well. I was wondering if you could perhaps expand on that.

[Translation]

Mr. Michel Audet: Unfortunately, this is something that is not yet very widespread in Quebec. The point being made is that we are using principles set out 40 years ago, that are contained in legislation whose full impact has not been measured, to out-and-out freeze ways of providing services to citizens. We are not questioning the principle of universality of health care, but when people say that services must be universally accessible but managed only by the public sector, I think that linkage is quite illogical.

What is important this that the services are provided at comparable costs, that they even be provided free of charge, if that is what people want. However, that brings us to the management aspect. We are saying that one of the problems with health care in Canada is that we are unable to offer certain services and technologies because we are locked into principles that have been taken to an extreme and that are being interpreted in a way that they were perhaps not intended to be when they were established.

I know that these principles have become almost sacred. Anyone who challenges them is almost considered unpatriotic. But I believe that we really need to take a hard look at the issue. Even Mr. Romanow, who comes from a province where these things used to be sacred, is raising questions. But I think that the federal government must send out a clear signal. It is at the federal level that this reflexion needs to take place.

Services can be provided more efficiently, at a lower cost, and therefore be more accessible to people, while remaining publicly funded, if we take advantage of private sector resources and creativity. That is what we are basically saying in our presentation.

The same position has now been taken by the Chamber of Commerce of Canada, where the issue was debated last year, and it is currently the position of business people, at least according to the Chamber of Commerce movement across Canada. This position was adopted last year, and we are the ones that proposed it.

Thank you.

• 1430

The Chair: Thank you, Mr. Loubier.

Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): Thank you, Mr. Chairman.

Mr. Saillant, you mentioned earlier that a meeting of ministers responsible for social housing was held recently in London. If I understood correctly, after that meeting a certain consensus was reached among the ministers representing Quebec, the Canadian provinces and the federal government, that funds would be made available quickly. But you seem to be telling us that, not only is the money not available, but that conditions have been imposed that are so unreasonable that there is no longer any flexibility in how the federal money can be used in Quebec or elsewhere in Canada to meet the needs of the public.

Have I correctly understood your presentation and your comments?

Mr. François Saillant: More or less. Just to clarify things, I would say that there was indeed a softening of the federal position in London. At the London meeting held on August 15 and 16, the federal government did admit for the first time that the program that it had put on the table had major problems, including a lack of affordability for low-income people. They admitted that was a problem. We now know that another meeting will be held on November 30 in Quebec City, another gathering of ministers responsible for housing.

We know that between now and then Minister Alfonso Gagliano is expected to submit a new proposal to Cabinet in preparation for that meeting. There is no doubt what the government has to do to translate into concrete terms the openness that it showed in London, and that is to free up the money. We know that the London meeting took place before September 11, and that there will be no problem making this funding available to give the provinces the flexibility that they need so that Quebec, for example, can carry out its intention of using this program for social housing to meet the most crying needs for housing.

Mr. Yvan Loubier: If the London agreement became a reality and the money was made available, what percentage of Quebec's needs would this federal money meet?

Mr. François Saillant: That clearly depends on the level of assistance that households would receive.

Mr. Yvan Loubier: What amounts were discussed in London?

Mr. François Saillant: In terms of dollars, the federal program would amount to about 680 million over four years.

The federal government is hoping that the provinces would invest a similar amount. In the case of Quebec, that would mean some 160 or 161 million dollars over four years. If the Quebec government allocated roughly the same amount, there would be 320 million dollars, which would go a long way to whole meeting needs effectively, although it would clearly not address all the needs.

Mr. Yvan Loubier: How much housing with...?

Mr. François Saillant: It all depends on the level of assistance that would be provided. I know that the Quebec government is considering a policy right now that would help between 3,000 and 4,000 low- or moderate-income households, which would not adequately respond to all the needs. There would still be a need for additional investment, but at least it would be a step in the right direction. Moreover, it would mean that the federal funding gate, which had been completely closed since 1994, would partly open.

Mr. Yvan Loubier: Thank you.

Mr. Audet, you mentioned a problem with liquidity in the private sector. When we raised this in the House of Commons, which we did a number of times, Mr. Martin told us that businesses seemed to be sailing through the recession, that some big companies might suffer and they would have to be judged on their merits. He refused to accept proposals that we made to him that would have stimulated small businesses in particular. Among other things, we suggested an EI premium holiday for a set period to increase the level of liquidity.

We had also proposed a six-month postponement in corporate quarterly tax payments. Mr. Martin rejected that idea outright, saying that even businesses were asking the government not to intervene. You brought this to mind earlier, when you said that the government could inject a bit more money into the economy. You seem to be open to the government taking some kind of action in these exceptional circumstances we are facing right now.

Mr. Michel Audet: Yes. Listen, I feel that by using the tax system, you are affecting the base; when the government collects approximately 45% of the gross domestic product, it's obvious that will affect the economy. Therefore, what we must ask ourselves and what has already been proposed in Quebec—I believe it will be discussed again this week—is whether we should grant extensions for people who have to pay taxes which are not based on liquidities or company profits.

• 1435

One of the problems with operating in Quebec, in particular, is the heavy tax load. There are payroll taxes, capital taxes, as well as federal taxes. These taxes must be paid even if you don't make any profits, except for the taxes on profits. You can even get a tax credit if you overpaid. There are some adjustments. If there are liquidities, there will be compensation. You don't pay that tax if you turn a profit. However, you still have to pay payroll and capital taxes even if you run a deficit and have a hard time making your bank payments.

Quebec has already granted an extension of several months to pay for certain liquidities. I don't think this is the case everywhere in Canada, but if governments intervened temporarily, it would certainly be the best way to do so, because it is fair for everyone. This does not represent a grant, despite the additional extensions, or even the suspension of payments for a certain period of time. I think it's a better and more equitable way to help companies, rather than giving them grants. Grants can create problems for many businesses. So I think it's the best approach. In my view, governments will have to intervene in several sectors.

Mr. Yvan Loubier: You are therefore in favour of government intervention. So Mr. Martin is not exactly right when he contends that businesses do not want help, because they can do the job themselves...

Mr. Michel Audet: Just ask Air Canada!

Mr. Yvan Loubier: I think he listens only to Mr. d'Aquino.

Mr. Michel Audet: Many SMEs—I'm sure banking representatives could confirm this—are having a hard time because the events of September have created a huge cash crunch.

The situation may be improving, but it is clear that that's the type of situation we were referring to. Let me repeat, there is an important player missing from this table and that's the government of Quebec, which has a unique way of collecting taxes.

These are mostly payroll and capital taxes, in other words, taxes which affect production inputs, irrespective of a company's cash flow. The point of collecting these taxes is to fill government coffers, but they do not reflect the state of the economy.

We therefore submit that, in these areas, we should give companies who are experiencing a cash crunch a little breathing room. Quebec has done so for a limited period of time and I feel the Finance Minister of Canada should do the same for certain sectors.

In my opinion, this type of measure is fair for everyone. When the government awards grants—I agree with Mr. Martin in this regard—to one sector rather than another, it creates a problem of unfairness and leads to a lack of transparency, which is a serious problem.

However, if everybody gets a few extra months to pay their taxes, it is fair across the board.

Mr. Yvan Loubier: [Editor's Note: Inaudible]... the next question to Mr. Martin.

Mr. Michel Audet: I accept the consequences.

Mr. Yvan Loubier: It's too late, it has been made public. Thank you.

The Chair: Mr. Discepola, you have the floor.

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): Thank you, Mr. Chairman. I'd like to make two comments, put a question to Mr. Audet, and put a general question.

First of all I'd like to thank you for your suggestion relating to the five pillars of the Canada Health Act. I think that a distinction has to be made between accessibility and public administration. I'm relieved that Mr. Romanow said that all of this was on the table because we have now reached the point where we have to have a real discussion about all the possibilities.

I am a Quebecker and I deplore the fact that our government refused to take part in this commission. They may change their mind. My question dealt mainly with your comment, that I may have misunderstood. This morning the CSN expressed a contrary point of view relating to the transfer of tax points.

• 1440

If I understood correctly, you are saying that is not the proper focus of the debate because economic conditions vary from one province to the other. Alberta, for example, could benefit more from economic transfers than Quebec because economic conditions there are better.

In such a situation, the transfer of tax points is to the benefit of provinces with the most revenue. You said that a transfer of tax points could be worth more in a province with a good economy. Do you prefer the status quo, letting the equalization payments make the situation more equitable, or are you recommending that we give consideration to the transfer of tax points?

Mr. Michel Audet: I don't think that one excludes the other. It is my contention that in the discussion about tax transfers, a fundamental point has been overlooked. In Canada we have the problem of fiscal imbalance. The fiscal capacity of Quebec is not the same as that of Ontario nor is it the same as that of the Maritime provinces. I am aware of that. That is why we have a general equalization payment system whose purpose is to adjust the revenue of the provinces to something close to the Canadian average, that allows them to provide comparable services. In order to comply with the five principles of the Canada Health Act, provincial revenue must be fairly similar, otherwise some provinces will have to tax personal income at 100% if they want to provide the same level of services as other provinces. That then is the purpose of the equalization system.

In my opinion, all fiscal transfers should be accompanied by an equalization system that is slightly different from the present one. We have warned the government about a potential problem. Care must be taken to avoid having these measures bring about a greater displacement of wealth from one province to another. If, in order to finance an expenditure of $100, Quebec requires one tax point and Ontario requires a half tax point, then Ontario will reduce its tax rate by one-half tax point at a time when there is already a very significant disparity between tax levels in Quebec and Ontario. That would create a problem.

It is our view that we should ensure a form of equity with respect to these transfers since we are talking about transfers. Transfers are made to correct a fiscal imbalance but the purpose is to correct an imbalance, not only at the level of a tax point but also at the level of wealth. The program to be adopted must correct this imbalance, otherwise we will be once again accentuating the disparity between the rich provinces and the poor provinces.

If Quebec were a rich province like Alberta, we would not even be raising the question but it must be recognized that even if we were to recover all our tax points, there would still not be enough money to fund our spending. We must make sure that if we do obtain the transfer of tax points, they are accompanied by an equalization system providing equitable treatment for the provinces because they face the same financial obligations.

Mr. Nick Discepola: The system exists, it's called equalization payments.

Mr. Michel Audet: Yes, it is in fact an equalization system. Such measures must be completed by an equalization system. It is fundamental for us because without it, there would be an even greater gap in the wealth of the provinces. It is already huge. Quebec is already having trouble keeping up with Ontario and Alberta, which have far less cumbersome tax structures. We must be careful not to provoke changes that will widen this gap in wealth.

Mr. Nick Discepola: I'd like to hear the comments of the representatives of the Canadian Institute of Chartered Accountants, the Canadian Tax payers Federation and perhaps also another group that claimed that as a result of the events of September 11, security measures should be the government's priority.

[English]

I believe the institute of accountants said we should be careful to make the distinction between those initiatives that were contemplated prior to September 11 and those that are necessary to address the concerns that have been evident since then, and I think the taxpayers' foundation alluded to that.

My question is, can we possibly as committee sit here today and say there are one-time needs when it comes to taking on the terrorists, or should we be recommending multi-year measures that are probably...? In my opinion, September 11 has probably changed the whole world in the way we approach things. If we're going to make a concerted effort right now, yes, it might require some additional funding. But I believe the effort has to be ongoing. It's much like a battle against the drug lords: when you replace the top person, others are going to fall in. So maybe we should be recommending ongoing sustainable measures, as opposed to just one-time funding.

• 1445

I'd like your comments.

Mr. Pierre Brunet: I think we appreciate the situation. Nobody knows exactly how far we have to go, what the total cost is going to be. What we're saying is that cost has to increase and there are things that have to be done right away, but they have to be done within the parameters we already have. If you look in the budget next year, or this year, there's a reserve for contingencies of $3 billion. That should be kept within the range of what is already there, and not attack the rest of the tax cuts or debt reduction.

The debt reduction is the most important thing, because each 25¢ out of the dollar that comes in goes for interest. Now, 1¢ less in interest—from 25¢ to 24¢—is $1.6 billion; 5¢ less would be $8 billion. And with $8 billion coming back every year, you could do a lot with security and health. So there's a pain factor; there's a big investment factor.

If you take decisions to spend huge amounts of money right away, it will bring the deficit up and bring the debt up. We'd be playing against our own interests. That's the point we're making. It's very important that we do security. There are one-shot deals to be paid. There's room in the budget to do it. But stay within the parameters.

Mr. Walter Robinson: Mr. Chairman, through you, I can respond to Mr. Discepola as well.

[Translation]

Let me add a point relating to the debate or the discussion with you, Mr. Audet. It is not clear that everything is on the table with respect to the mandate of Mr. Romanow's commission.

[English]

If you look at the Inquiries Act, and you look at the enabling order in council appointment under that act appointing Mr. Romanow, it stays within the five principles of the Canada Health Act. So technically, Mr. Romanow can't advocate new principles—

Mr. Nick Discepola: For him, everything is on the table.

Mr. Walter Robinson: Then he's running against his own mandate, his enabling mandate. If it is, that's very good.

Mr. Nick Discepola: He's an experienced politician.

Mr. Walter Robinson: Yes. He's from your province.

Mr. Nick Discepola: It took a Liberal to recognize—

Mr. Walter Robinson: The other thing to point out is that this is a discussion perhaps for the health committee, the debate about the efficacy of Mr. Romanow's committee versus the work the Kirby Senate committee is doing, which I think is more constructive and more valuable to taxpayers at this point in time. He has put everything on the table and put it in writing. We'll wait and see. The jury is still out on Mr. Romanow. I just wanted to put that on the record.

To get back to your question of one-time versus ongoing, it's both, as we pointed out in our submission. For example, capital acquisition—security machines for airports or other things that Canada Customs and Revenue or Immigration Canada are going to do—are one-time expenditures on the capital side, the new computer systems, new processing, the cards that Minister Caplan held up. But the ongoing, multi-year, year-over-year costs are preventive maintenance for those sorts of things and program administration.

So it is both, to answer your question. We very clearly alluded to that. That's why we were less than prescriptive in some of the other measures, because we realize the country has more important priorities.

The point we've raised is that if you go back to the fundamental definition of a “nation-state”, it's a defined territory with a currency, a set of laws, and a sovereign government to protect the citizens of that nation. If we can't protect the citizens of our nation, then all our demands for tax relief and debt reduction are really kind of secondary, which is why we've taken a step back and allowed you as parliamentarians to address the more important causes that have to be dealt with.

The Chair: Thank you.

I have a question before I go to the next speaker. Traditionally, at least with this government, our budgets have come down in February. Would the panellists welcome a budget that came down before February?

Mr. Pierre Brunet: Are you asking me a question?

The Chair: Yes.

Mr. Pierre Brunet: I think probably the one who made the best answer on that is Walter. It is time to have a budget, and we're already late in having one, so I think to delay it to February wouldn't be the best solution. But it's up to the government to decide.

What we're saying is that we need accountancy. I think we're going to be going through a tough period where we will have to weather uncertain times, as we say. I think the books should be on the table before we start, to make sure we know we can make recommendations and allow resources.

• 1450

Since September 11, all corporations have rethought their planning completely. The next week, the strategy had to be different, whether you were in the States or here, and you have to do similarly as a government. The rules are changing very fast, therefore you have to make sure you get the nation online with things to be done. You won't see any concern about spending on security, but the planning on taxation and debt is important.

The Chair: Mr. Robinson.

Mr. Walter Robinson: To pick up on my colleague's point, revised guidance is what corporations and their members have done. The government needs to do the same thing, and we believe if you look at the timeframe and all the fiscal indicators....

Mr. Martin has this meeting with the economists to get the latest guidance and projections. We have StatsCan members coming on unemployment; we have production inventories; we have a variety of things. Chairman Greenspan is making a statement today to Congress in the United States. We'll have a very good sense of where the economy is going, and the government needs to reflect the new realities.

We've said to circle November 20 or 27 on your calendars. We think the minister is going to bring a budget, and we're appreciative of that. I'm willing to bet my house on it, not my life but my house—then again, that's not a legally enforceable contract either, so we're safe there.

[Translation]

The Chair: Ms. Poirier.

Ms. Lucie Poirier (Organizer, Front d'action populaire en réaménagement urbain): Thank you.

Of course, an economic update is necessary. For example, we heard Mr. Robinson talk about a 7- to 11-billion-dollar surplus for this year. The economists of the Toronto-Dominion Bank talk about 6 billion dollars. We see there are very significant differences. In this respect, I think we need to know about the state of government expenditures and revenues. Then we'll be able to determine what adjustments will be required in the future.

One thing is clear, namely that we will have to face up to the present economic situation. We will also have to do some additional spending and ensure that people who didn't get anything in the budgets of the last several years are finally given something to put in their pocket.

For several years, as part of the deficit-reduction strategy, cutbacks were made in transfers to the provinces and employment insurance. There were cutbacks to provincial transfers, among others, and this explains why the federal funding of social assistance went down from 7.9 billion dollars in 1993 to 5.3 billion dollars; that is a reduction of 34%.

We had large surpluses. The people suffering the most from this situation at the present time are people with low incomes who have seen their incomes and services drop. They have not obtained any money in the last budgets, in the last economic updates. Instead we had a tax cut of $100 billion which provided nothing to 33% of the population.

So it is clear that we will have to face up to the present situation. We must also make sure that something is done about housing, where the crisis is getting worse. We don't just need a budget or economic update, we need concrete measures to deal with this crisis. It is having a very real impact on people's lives.

The Chair: Mr. Audet.

Mr. Michel Audet: When I listen to what the lady has to say, I can understand that Mr. Martin is not in a hurry to bring down a budget because there could be very strong pressure to start new program spending.

I think that it is necessary to put matters in focus fairly quickly, either through an update or a budget, I don't know what it should be called, as Mr. Brunet said, to find out what direction we are heading in and what the plan is for the coming months or year. As far as the fiscal situation is concerned, I think it is important for the government to indicate that it will maintain its course and maybe even allow businesses to have more liquidity to restore their confidence. It would be a signal.

I am sorry, but I do not want to see a surge of spending in every direction. I believe that people are not expecting that and this is perhaps not the time. I think that they need to see signs that public spending is still under control.

The government does have a plan that it put in place and that is working, to deal with the situation and give us a current assessment of the situation and forecasts. There are all sorts of numbers being bandied about. I certainly agree that some of the numbers are completely at odds with each other. I think that we need an update very soon.

• 1455

[English]

The Chair: All right. November, you said? I didn't tell you that you could pick a date.

Ms. Bennett, you have one question, and then we'll to to Mr. Murphy and Ms. Guarnieri.

Ms. Carolyn Bennett (St. Paul's, Lib.): I want to ask Mayor Matthews to be more specific about why per capita funding in terms of infrastructure programs doesn't work where he comes from.

We have an informal Arctic caucus that tries to come north every summer, so I think it has been very clear to those of us who have been north that some of the programs we have in all little pockets all over the place may not be quite as effective, and also for some of the things that have to do with crime prevention, CAPC for kids, homelessness, a lot of the things that may work this way in the south. Would you also suggest that we have some sort of portal by which communities could access all of the money so you could organize in a more integrated fashion, rather than dealing with the Department of Justice, Health Canada, DIAND, and all those things, for your other programs?

Mr. John Matthews: You touched on a few issues that I think are very important to northern communities.

The infrastructure program, which I think is very good for the country, doesn't really help us in the north, because we have such a small population. It's a huge geographical area, but the population is very small. When any type of funding program is tied to the population of an area, those areas that have large populations tend to benefit, and those that have small populations suffer. Indeed, in our case with the funding, with the infrastructure program in place, we have $200,000 for five years, which doesn't meet our needs at all. We need something else.

We don't have an economic development agreement with Canada. We're one of the few areas that doesn't. We need that very desperately. We need some type of program like the ACOA program, which can address many of the needs of the north and help the north develop.

So I think the suggestion of one-stop shopping would be very good, very helpful, so that we can address one window, and through that window, address and try to satisfy all our needs.

Ms. Carolyn Bennett: If there was going to be a word in our report on security, is there some northern twist to that, that you would like?

I was in Cambridge Bay this summer, where there were boats coming through—the Land's End yacht, an Irish sailboat. Are you feeling a little vulnerable there in the north when you have communities that don't even have RCMP outlets?

Mr. John Matthews: Yes, that's a very important point, and as we're looking more to this North American perimeter, we have a big area in the north that needs to be recognized.

In Iqaluit, we do have a forward-operating location site where it's not unusual for F-18s to come and practise.

We are vulnerable. We can be cut off very quickly. So I think those needs should be recognized as well.

Ms. Carolyn Bennett: So in what we say about security, we should add particularly the north in this sentence in the report. You'd like that? Okay.

The Chair: Well, it will be added in. Particularly during this era where people are talking about a North American perimeter.... That's what you said, right?

Mr. John Matthews: Yes, that's correct.

The Chair: Now we have the full sentence.

Mr. Murphy.

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

I have an issue I want to throw on the table and get some comments from you, Mr. Robinson—and I invite other panellists also, specifically Mr. Audet and Mr. Brunet—and that's our employment insurance system. As I believe everyone around this table is aware, the whole EI system has large surpluses. It has had large surpluses for the last four, five, or six years. And there are a lot of people—politicians, organizations—who think there's a separate fund out there and Mr. Martin can just go and get the money and distribute it and the sun will shine again.

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The total surplus is becoming very large, and Mr. Martin has been able to placate people by I think a 20¢ reduction every year, and I believe the cost is $1.6 million to $1.8 million, but still there have been surpluses. A lot of economists and other people would argue that it's really a payroll tax in disguise. I believe this is an issue Mr. Martin is going to have to deal with. I think he's going to have to lower the premiums and raise taxes in other areas, which I don't advocate. He can leave the status quo and be criticized—he's now being criticized by the Auditor General—or he can implement a payroll tax, call it what it is and reduce the premiums.

Do you have any thoughts? I don't think it's an issue that's right on the table now, but in the next 36 months I believe the Government of Canada will have to address this.

The Chair: Thank you, Mr. Murphy.

Mr. Audet and Mr. Robinson.

Mr. Walter Robinson: I think there are a couple of things we need to put on the table. It is a payroll tax. Paul Martin himself called it that in the 1990 Liberal leadership campaign, if I can follow on my colleague here in bringing back the finance minister's words for the public record eleven years later.

In terms of the surpluses, you said there's a fiction out there that Minister Martin can just go and take that money and distribute it. That's exactly what he's done. He went and took this money that employees and employers have paid and used it as a hedge against the deficit. I think we need to point that out.

The other thing is that they've changed the commission and its work has been suspended for two years. We don't really have a big issue with that because the commission basically came up with the recommendation that the minister wanted. The actuaries in the commission pointed out that three years ago the employment insurance rate should have been $1.81, not $2.55 or whatever it was at the time, because you have to run that balance over section 66 of the Employment Insurance Act, which said you had to run a balanced fund through the business cycle, the highs and the lows.

You didn't give the one option, though. You said he could institute a payroll tax and call it what it is. I think there were three options, and another one I think you pointed out is he could call it the status quo, which is unacceptable because it is a profit-insensitive tax. That gets back to my recommendation about what Mr. Mintz said, which is that 7% of the tax burden that businesses pay in this country to all levels of government is profit-insensitive.

You said that he could lower premiums and take the hit on revenue. If he lowered premiums, as the Canadian Chamber of Commerce pointed out, you could have job creation in the neighbourhood of 100,000 to 200,000 jobs. You could liberate that capital for the businesses to work with, because if you lower premiums, a business owner—small, medium, or large—doesn't hoard it, put it in their pocket, and go on a vacation. They provide training and incentive opportunities for their employees. They can provide wage growth—because our wage growth has been stunted vis-à-vis many of our G-7 partners. Or they could take that money and reinvest it back into their business in terms of plants and equipment for new technologies, to be more competitive.

So the option on the table is very clear: it's to lower the premiums to liberate the money to make it work for the economy. It won't disappear. That's the option you didn't mention in the question.

Mr. Shawn Murphy: I disagree with you, because right now I don't think he has the manoeuvrability to do that. He cannot lower and lose the $3 billion to $4 billion in revenue. He simply can't do that. Everyone around this table knows this. So I don't think that's an option at the present time. It might be in three or four years time.

Mr. Walter Robinson: I'll let somebody else answer it. I don't want to monopolize the table.

[Translation]

Mr. Michel Audet: We have already had an opportunity to discuss this issue a number of times with Mr. Martin. Of course, he always responds by asking us where we think he should get the money from. Do we think that it should be in this form, because that would finance the deficit, or another tax, a payroll tax, or an increase in income tax?

In fact, I think we need to recognize that even though we have criticized the choice that was made and continue to hold that position, when we look at the United States, we see that the gap is greater with respect to individuals, income tax levels than payroll taxes.

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I believe that that may be what led Mr. Martin to keep premiums higher than necessary because it is essentially the system. Maybe the problem will be behind us in a few months, there may be no more surplus and the employment insurance fund may even be running a deficit.

On the other hand, we hope that there will not be any immediate increase in premiums, because the danger, given that there is no separate fund... That is where the paradox lies. Everyone thinks that there is a surplus, but there isn't one. The money has been used. There is no more surplus. There is no surplus. So since no surplus has actually been accumulated and the money has in fact been considered as current revenues, the danger is that as soon as forecasts are put out, that is, that there is an economic downturn, expenditures will outstrip revenues. Then there will be a strong temptation to increase taxes. That is the part that worries me the most over the next few months and the next few years. That worries me more than the surpluses. I believe that the situation will be reversed, and then we will see this paradox. The worst thing would be to have a situation where premiums have to be increased because the fund had not been used properly, that is, as a fund. In fact, there is no fund. The money goes into the government's consolidated revenue fund and is used for ongoing spending. I think that there are few people who are aware of that. We always talk about a surplus in the fund. There is no surplus.

[English]

The Chair: Thank you.

Please respond very briefly.

[Translation]

Mr. François Saillant: I would like to add that there is another option that has not been put on the table, which is to provide a decent level of benefits and increase eligibility to employment insurance. That is another option that should be on the table and that should have been on the table earlier. If we take out insurance, since employment insurance is a type of insurance, we might complain about the premium that we have to pay, but we do expect that we will be paid out of that insurance when we need it. But that is not the case with employment insurance right now. When unemployed people need the money, many of them are left out in the cold or, if that is not the case, they receive inadequate benefits.

[English]

The Chair: Are there any further comments?

Ms. Guarnieri, please go ahead.

Ms. Albina Guarnieri (Mississauga East, Lib.): I have a question for Mr. Brunet.

I have never been one to be shy about talking about returning budget surpluses to taxpayers, whether through tax cuts or an increase in benefit packages, but the debate since September 11 has changed, as everybody will admit around this table. In the United States currently there is a debate about the size of the stimulus package, and Greenspan has argued that it should be 1% of the GDP. With tax cuts, coupled with lower interest rates, do you feel there is enough of a cushion built in there? Feel free to answer; my question is for anyone who wishes to answer.

Mr. Pierre Brunet: It's always complicated when we try to compare one country with another, because you have to put things in perspective. We have to remember that the United States, in the year that just ended, had a surplus of $240 billion. That's not $11 billion like ours, it is $240 billion. What came out of September 11, if you total it up, is exactly $240 billion. They just took that surplus and said, bang, bang, here it is for security and so on, because they had the money in the bank and they can do that without changing the taxing structure. So that is quite different.

The second point is that we have been bringing down the rate of interest, in the United States and in Canada, on a regular basis, prior to September 11, and for the first time in the last two years it has shown that it is not working. The economy is on the brink. The concern in the United States—I forgot one thing there, which is that what Greenspan will say today will be very important to monitor—was that putting the $240 billion back in the economy that fast would create inflation, it would create another reaction that is different. If you create inflation at the same time that you have an economic slowdown, it's not the best situation to manage. Probably when we go out we will know a bit more, depending on what Greenspan says.

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In Canada we don't have the flexibility. We all agree that our tax system is at the maximum, and each time you take a decision, we all agree at the same time we don't want to see any more deficits. Taking a decision to go one way or the other, or having to save on other things to be able to do it within is an exercise that is going to be much more complicated than the one in the States.

Mind you, if the States had the same social net we have they would probably be discussing it the same way. We also have to realize that with the surplus in the States, they don't have the same social security we have here in Canada, or the health system and so on, and that makes a big difference. That's why we have to be careful when we compare.

The Chair: Are there any further comments?

Thank you, Ms. Guarnieri.

Mr. Nystrom.

[Translation]

Mr. Lorne Nystrom: I would like to ask three questions,

[English]

two quick ones, Mr. Robinson, and then one more.

Walter and I share a passion for electoral reform, particularly proportional representation. I want to ask him a question about parliamentary reform.

Some people have suggested that every February or whatever, by statute, there be a fixed budget date, so provinces can plan, the business community can plan, farmers can plan, and so on. Do you think our committee should recommend a fixed budget date by statute?

Mr. Walter Robinson: We think it's something that should be looked at. Indeed, British Columbia has moved in that direction.

If we're going to have a fixed budget date, we'd like to see it not in February but earlier, in January or December. For many years in this country, when the finance minister brought down his budget in mid to late February, provinces like British Columbia, Ontario, and even sometimes the Atlantic provinces would run on special warrants for four to six weeks and deliver budgets in the middle of May.

The Conservative government in Ontario—we supported many of their policies—were the worst for this. They were running for five and six weeks on special warrants. They really had no legitimacy to spend any money. Special warrants were designed for times of real war or massive economic, environmental or geographic catastrophes, not for political expediency.

So we're all in favour of anything that accelerates the fiscal planning schedule from which all the provinces and the partners in Confederation take their cue. We would be open to it.

Mr. Lorne Nystrom: When you mentioned corporate welfare, what kind of corporate welfare should we be scrapping now in the next budget? Give us a few examples if you can.

Mr. Walter Robinson: I guess you're not flying to Halifax this evening then. We're thinking there's about $1.989 billion as a separate line item in the public accounts called “transfers to industry, Technology Partnerships Canada”.

I've had this discussion with Minister Martin, where our government is funding development activities, not research activities—the Canadian Foundation for Innovation and some of those other things that do peer-reviewed medical research, for example. That's a fundamental and critical role of government.

But we're funding the third and fourth generations of an aircraft manufacturer's airframe, or the third and fourth generations of an engine makers new turboprop or new turbine fan engine—I'm not going to name the companies because they have a fiduciary responsibility to their shareholders to seek all sources of financing. That's why we put the blame back on government to get out of this nineteenth century industrial policy and, in terms of the innovation agenda, invest in people, not companies, if that's what the government is going to do.

The skill-set companies come and go—we're seeing that now. The skill sets we all equip ourselves with through education, health care, and a variety of those programs are our job security, our national economic competitiveness. So with Technology Partnerships Canada, I would delay the broad-band strategy that Minister Tobin is very anxious to remember.

Just remember, these companies are looking for a pipe or highway to channel their products down. They are going to make money on the products—video on demand, super banking services over the Internet, and a variety of things. Let them fund more of that infrastructure, especially in metropolitan centres where there is the demand. Perhaps for communities like Iqaluit, and other places, we can have a bit more of a regional segmentation strategy. They need access to those services to compete and be part of twenty-first century Canada, but may not have the population or business base to fund them.

On broad-band strategy, Technology Partnerships Canada, and a variety of the regional development agencies, we produce reports on our website of taxpayer funding for golf courses and the like. I like playing golf, but that's not a public good. That's not what we pay our tax dollars for; that's not infrastructure, health care, or education.

Mr. Lorne Nystrom: On my last question, a more general one, in Toronto the day before yesterday we heard people talking about municipalities needing more power and cities needing more power.

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[Translation]

Do we need a change at the national level? Do we need a constitutional amendment, more money or tax points for the large cities? Montreal, Toronto, Vancouver and other big cities are dealing with problems that did not exist until fairly recently. Does the third level of government need more powers?

Right now, most of the tax revenue goes to the federal government and the provincial governments, but there must be 5 or 6% of overall taxes that is collected by the municipal governments. Do you need radical changes in the division of powers among the three levels of government?

Mr. Michel Audet: Are you suggesting that the federal government should also be involved in municipal amalgamations?

A number of people would be ready and willing to hand you the problem. I believe that it would not be a good idea to change the Constitution in this regard. I think that the Constitution is clear. That was borne out in court. We wonder whether the provinces have acted wisely in transferring certain responsibilities. It is important that when off-loading of taxation responsibilities by both levels of government is looked at, municipal needs are carefully integrated into provincial responsibilities. I quite agree with you on this point. All aspects of urban development have become very important and essential to address, and we are dealing with much more than needs in the areas of health and education. Those areas are funded largely through property taxes. Basically, the provincial governments, whether we are talking about Ontario or Quebec, are trying to use amalgamation to broaden the tax base and force wealthier municipalities to pay a little more for the others. I have not had the impression that the analysis has gone much beyond that. This is basically a taxation issue. I certainly agree with you on that. We need to look at how responsibilities are shared between the two levels of government, because the Constitution, as has been said, sets out two levels of government, federal and provincial.

One of the areas under provincial jurisdiction is municipalities. I believe that they have been given short shrift when needs in the population are analyzed—and when the associated costs are examined. In our opinion, that is where the federal government has a role to play, by transferring enough money so that the provinces can help the municipalities, not just by amalgamating them but by providing them with the help they need from a financial or taxation standpoint.

Mr. Lorne Nystrom: Do you agree with him?

Mr. Walter Robinson: I agree with Mr. Audet, but in the United States, for example, the government has reimbursed nearly 84% of gasoline taxes to municipalities to help them improve infrastructure, public transit and housing.

[English]

It's in the law that the federal government of the United States must return about 84% of what it collects in gas taxes back to their interest rate system, public transit and housing. In Canada, the federal government returns about 5% of what it collects on fuel and excise taxes back to municipalities directly for transportation investment. If you add in infrastructure programs, you get to the world of about 12%, in terms of that. So that's the issue there.

I wouldn't go down the constitutional road, but cities generate the majority of our tax revenue in this country. They keep about 10% of it. It's very clear that given infrastructure needs, the property tax base is insufficient to fund what we need to do because we've allowed ourselves, through a variety of competing priorities, to neglect our cities, whether it's the GTA or Montreal.

A report has pointed out that in Montreal almost 35% of the fresh water that's pumped into underground Montreal through the sewers leaks at some points. That was pointed out by the Canadian Council for Public-Private Partnerships. That's a loss of money. That's our tax dollars literally being flushed down the drain.

Those are areas where the federal government can go into the fiscal arrangements that our cities and urban areas need to address the imbalance. City states are where it's at in the 21st century for economic growth and social cohesion, and the majority of our problems are there.

Mr. Lorne Nystrom: Yes, go ahead.

[Translation]

Mr. François Saillant: I think that the problem of municipal taxation can be attributed in part to disengagement by the central government in certain areas, what is often called off-loading of responsibilities. The federal government is off-loading its responsibilities onto the provinces, which are doing the same thing to the municipalities, which therefore have a problem with respect to taxation.

I think that housing is a case in point. The federal government stopped funding social housing and transferred responsibility for that to the provinces, which have largely passed it on to the municipalities.

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There is no doubt that this creates a taxation problem for the municipalities. If responsibilities are off-loaded, then at the very least, the money that goes with them must be passed on as well. That said, I think that the redistribution of wealth is mainly a responsibility of the senior governments.

[English]

The Chair: Thank you.

Mr. Matthews, go ahead.

Mr. John Matthews: I think that's an excellent question. City governments are certainly hurting because of the off-loading of services from the more senior governments. In Iqaluit, we're having talks now with the territorial government to try to have some revenue from the sale of gasoline—one cent or two cents from every litre would go to the municipality. The territorial government can do that for us. We're also looking at some type of revenue from a hotel tax. Again, this is a revision that could be passed by the territorial government.

I haven't really given this matter a great deal of thought. Changing the Constitution to provide more power to the municipalities, at first blush, I think would be a good idea. Whenever you get near the Constitution, you're really dealing with issues. So I don't know how to handle this. I don't know whether that would be a good idea. But I think it's a very good idea to try to channel some more funding to the municipalities.

The Chair: Thank you, Mr. Nystrom.

Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC/DR): I have a comment to follow on Mr. Nystrom's discussion about the role of city-states and the lack of fiscal leeway they have to actually raise money. Perhaps some consideration could be given to tax-advantaged—if not tax-free—municipal bonds. This might be one way to see some increase in the ability of municipalities to raise money and to recognize their increased responsibility in the last several years as a result of federal and provincial cutbacks. That wasn't my question, though.

We have been hearing more and more discussion about profit-insensitive taxes, which is heartening. The focus seems to be more on payroll as opposed to capital taxes. I would argue for several reasons that reducing capital taxes in Canada should be more of a focus, in terms of the impact on productivity and the reduction in levels of investment as a result of capital taxes. They only raise $1.3 billion federally, so they are manageable taxes to actually eliminate. By international comparisons, we are in the minority among industrialized nations with capital taxes. They reduce mobility of capital. And probably most importantly, if you analyse the economic cost, capital taxes are about the most expensive of revenue raised through taxation, as they cost the economy $1.50 for every dollar raised by the government.

So this is my question. Why is there not a more concerted focus by your organizations on eliminating capital taxes as a priority, even before further reductions in payroll taxes?

[Translation]

Mr. Michel Audet: That's an excellent question you ask. I will send you our briefs. You will see that we frequently bring up this subject. In Quebec, the capital taxis double what it is in Ontario. It's therefore very high. Quebec has a very, very high capital tax. The net effect, as I mentioned earlier, is that the capital tax constitutes an additional interest rate on your investment.

[English]

It's a kind of rate of interest.

[Translation]

For example, in Quebec, when you have to pay almost 1% more in interest than what you would pay if you were doing business in Alberta, where the tax is about equal to zero, or in New Brunswick where it's about equal to zero, your investment is penalized.

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There's something even more serious, and I'm adding this to what you've already said. A lot of companies borrow to invest, but they are taxed even if they borrow to invest because this is considered part of their capital.

So there's this additional capital tax, even if you invest. Let me give you a public example. Alcan invested $2 billion in Alma and borrowed a billion and a half dollars. The company must pay 1% or three quarters of 1% in taxes on the capital it borrowed to invest. Is that any way to promote investment? Certainly not. I think that among the proposals on our list, this is one of the first that should be adopted.

Something must be done about payroll taxes. There's an additional reason for that, as I mentioned earlier. You have to pay this tax because you've made profits or losses. Right now, many companies are losing money and have to pay this tax anyway.

They end up borrowing from the bank to pay the Department of Revenue. The Department of Revenue therefore forces these companies to close their doors. I don't think that is their main mission.

[English]

The Chair: Mr. Robinson, final comment?

Mr. Walter Robinson: I'll comment very briefly, Mr. Chairman, in response to Mr. Brison's question.

We're focusing on it because payroll taxes are higher on the political radar screen right now. This is because there's more of a longstanding grievance vis-à-vis capital taxes. One out of five employees in this economy is self-employed. They pay the employee and the employer component. It has a more pronounced effect in terms of smaller office, home-based businesses, for example.

The increasing mobility of the labour force means members of chambers of commerce and other organizations are paying perhaps two and three times as employees move. You and I, as MPs, don't pay EI premiums because we don't collect, obviously, but Canadian employees, once they have paid their maximum, get it reimbursed if they move to new job. Employers don't; they pay again. That's half a billion dollars each year in overpaid payroll tax premiums.

And we focus on it because is regressive. Whether you make $39,000 a year or $100,000, you pay the same payroll taxes on CPP and EI. This disadvantages working-class and lower-income Canadians. That's why this tax has more of a political appeal to it, as opposed to a tax on computers, plants, equipment, and machinery. Those things don't vote; people do. That's why the focus is there.

Mr. Scott Brison: But people need paid jobs to work, and from a productivity perspective there's no more pernicious tax than our capital tax. I'll just leave you with that.

Mayor Matthews, you feel your region could benefit from an ACOA-like organization. As an Atlantic Canadian MP, I would urge you to reconsider this assertion. I'm not saying everything that ACOA does is bad necessarily, but one could make a lot of money walking around behind ACOA and investing in opportunities ACOA chooses not to invest in.

The federal budget for ACOA is now $380 million per year. The federal corporate taxes paid in Atlantic Canada amount to $360 million a year. Given the opportunity—and I expect Shawn and I are going to have this discussion at some point and he'll probably agree with me—you could drive a stake through the heart of ACOA and eliminate federal corporate taxes in that region.

Look at the Irish example, for instance—a 92% growth in GDP per capita in a ten-year period with aggressive corporate tax strategies. You should perhaps consider, as you look at models elsewhere, some sort of tax-driven strategy focused on corporate taxes—and we mentioned capital taxes. This might be one way.

I wouldn't want you to leave here with the uncorrected notion that ACOA has been more successful than perhaps it has been in generating jobs, growth, and opportunity in Atlantic Canada.

Thank you.

The Chair: Any feedback from the panel? Mr. Butler.

Mr. Rick Butler (Chief Administrative Officer, Municipality of Iqaluit): Thank you, Mr. Chair.

We were really trying to capture a window where we could actually get some money that other provinces and municipalities get. We would much prefer it if you would just give us the money, thank you very much, and we could forget the economic development agreement. But it goes back to.... And I'll correct Walter's earlier point: he was saying 10¢ out of each tax dollar goes to the municipality; now it's actually 5¢.

And that's the problem. With the federal downloading and the provincial downloading to the municipalities, Iqaluit...and I won't just focus on it—all municipalities share in this issue. The problem with Iqaluit is that we were below zero to start with. Our crisis now is that much greater than other cities.

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Some kind of agreement where we could get some of those dollars as investment, not for bad economic development projects, but for good, hard infrastructure for municipalities so we can have an economy....

An hon. member: Five cents?

Mr. Rick Butler: Four and a half cents, actually.

The Chair: You don't care too much about the form.

Mr. Rick Butler: Correct.

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

There are no further comments.

On behalf of the committee, I want to thank you very much for your input.

I will take one message back. There seems to be an agreement that we look seriously at having an early rather than late budget. You've raised a very important point.

This is actually our last panel here in Montreal. I thank the people of Montreal for hosting the finance committee. It's always fascinating for us. On every panel we're learning new things from the witnesses, which makes our recommendations perhaps better informed, and for that we're very grateful to you. Thank you.

The meeting is adjourned.