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37th PARLIAMENT, 2nd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Tuesday, September 16, 2003

0935

The Chair (Mrs. Sue Barnes (London West, Lib.))

Mr. Pierre Paquette (Joliette, BQ)

The Chair

Mr. Pierre Paquette

The Chair

Mr. Alan Young (Vice-President, Computing Technology Industry Association of Canada)

0940

0945

The Chair

Mr. Michael Roschlau (President and Chief Executive Officer, Canadian Urban Transit Association)

Mr. Eric Gillespie (Chair, St. Catharines Transit Commission, Canadian Urban Transit Association)

0950

The Chair

Mr. Normand Lafrenière (President, Canadian Association of Mutual Insurance Companies)

0955

The Chair

Ms. Sharon Sholzberg-Gray (President and Chief Executive Officer, Canadian Healthcare Association)

1000

1005

1010

The Chair

Mr. Monte Solberg (Medicine Hat, Canadian Alliance)

Ms. Sharon Sholzberg-Gray

1015

Mr. Monte Solberg

Mr. Normand Lafrenière

Mr. John Harper (President, Farm Mutual Reinsurance Plan Inc.; Canadian Association of Mutual Insurance Companies)

Mr. Monte Solberg

The Chair

Mr. Michael Roschlau

The Chair

1020

Mr. Pierre Paquette

Mr. Normand Lafrenière

Mr. Pierre Paquette

Mr. Normand Lafrenière

Mr. Pierre Paquette

1025

Mr. Normand Lafrenière

Mr. Pierre Paquette

Ms. Sharon Sholzberg-Gray

Mr. Pierre Paquette

Mr. Michael Roschlau

1030

The Chair

Mr. Shawn Murphy (Hillsborough, Lib.)

Ms. Sharon Sholzberg-Gray

Mr. Shawn Murphy

1035

Mr. Michael Roschlau

The Vice-Chair (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.))

The Honourable Maria Minna (Beaches—East York, Lib.)

Mr. Michael Roschlau

1040

Hon. Maria Minna

Ms. Sharon Sholzberg-Gray

1045

The Chair

Ms. Judy Wasylycia-Leis (Winnipeg North Centre, NDP)

Mr. Michael Roschlau

1050

Ms. Judy Wasylycia-Leis

Ms. Sharon Sholzberg-Gray

The Chair

Mr. Bryon Wilfert (Oak Ridges, Lib.)

1055

Ms. Sharon Sholzberg-Gray

Mr. Bryon Wilfert

1100

Mr. Michael Roschlau

The Chair

1105

The Chair

Ms. Catharine Laidlaw-Sly (President, National Council of Women of Canada)

The Chair

Ms. Beverly Brooks (Vice-President, Public Affairs, Advocis)

1110

1115

The Chair

Mr. David Paterson (Executive Director, Canadian Advanced Technology Alliance)

1120

1125

The Chair

Ms. Catharine Laidlaw-Sly

1130

1135

The Chair

Mr. Rahim Jaffer (Edmonton—Strathcona, Canadian Alliance)

Mr. Terry Zive (Chairperson, Conference for Advanced Life Underwriting, Advocis)

Mr. Rahim Jaffer

Mr. Terry Zive

Mr. Rahim Jaffer

Mr. David Paterson

1140

Mr. Rahim Jaffer

Mr. David Paterson

La présidente

Ms. Pauline Picard (Drummond, BQ)

1145

Ms. Catharine Laidlaw-Sly

1150

The Vice-Chair (Mr. Nick Discepola)

Mr. Bryon Wilfert

Mr. David Paterson

Mr. Bryon Wilfert

1155

Ms. Catharine Laidlaw-Sly

Mr. Bryon Wilfert

Ms. Catharine Laidlaw-Sly

Mr. Bryon Wilfert

Ms. Catharine Laidlaw-Sly

The Chair

Mr. Nick Discepola

1200

Mr. David Paterson

Mr. Nick Discepola

Mr. David Paterson

Mr. Nick Discepola

Mr. David Paterson

Mr. Nick Discepola

1205

The Chair

Ms. Beverly Brooks

The Chair

Ms. Judy Wasylycia-Leis

Ms. Catharine Laidlaw-Sly

1210

Ms. Judy Wasylycia-Leis

Ms. Catharine Laidlaw-Sly

Ms. Judy Wasylycia-Leis

Mr. Terry Zive

Ms. Judy Wasylycia-Leis

1215

The Chair

Ms. Judy Wasylycia-Leis

Mr. Terry Zive

Ms. Judy Wasylycia-Leis

The Chair

Mr. Roy Cullen (Etobicoke North, Lib.)

Mr. David Paterson

1220

The Chair

Hon. Maria Minna

1225

Ms. Beverly Brooks

1230

Hon. Maria Minna

Ms. Beverly Brooks

Hon. Maria Minna

Ms. Beverly Brooks

Mr. Terry Zive

Hon. Maria Minna

The Chair

Mr. Shawn Murphy

Ms. Catharine Laidlaw-Sly

Mr. Shawn Murphy

Ms. Catharine Laidlaw-Sly

The Chair

Mr. Paul Forseth (New Westminster—Coquitlam—Burnaby, Canadian Alliance)

Ms. Catharine Laidlaw-Sly

1235

The Chair

CANADA

Standing Committee on Finance

NUMBER 065

2nd SESSION

37th PARLIAMENT

EVIDENCE

Tuesday, September 16, 2003

[Recorded by Electronic Apparatus]

¿ (0935)

[English]

The Chair (Mrs. Sue Barnes (London West, Lib.)): Order. Welcome, everyone. Pursuant to Standing Order 83(1), we will commence pre-budget discussions today.

Bienvenue à tous. I'm very happy to see returning members of the committee.

We have two panels of witnesses in this morning's meeting. We'll do an hour and a half of both. I've sent the notices out for the meetings. We will be hearing the witnesses in order of appearance on the agenda.

Monsieur Paquette.

[Translation]

Mr. Pierre Paquette (Joliette, BQ): I would like to raise a point of order. Since you took French classes, you should understand what I'm going to tell you. I would like to remind you, at the beginning of this meeting, that I sent you a motion in due form last Friday within the time set in our rules, namely 48 hours before the Committee meeting, requesting that the Committee invites Paul Martin, the future Prime Minister, to appear before us to give us some indications in the context of pre-budget consultations. I would like us to dispose of this motion as soon as we have a quorum or after the testimonies. Of course, I do not want to delay the testimonies of our witnesses, but I think we should dispose of this motion quickly and that it should not be a problem for the Committee. So, I would like to know your view on this and whether you are prepared to hear my notice of motion today.

[English]

The Chair: Thank you very much.

I received that notice in my office just recently. I'm not sure if all the members have had a chance to see it. Regardless, I believe it has been distributed to all members.

I've checked with my clerk, so we have a notice of motion that's valid. When we have a quorum of 10 people or at the first opportunity, we will get an opportunity.... We have only nine at this point in time, but because we have distributed notices to witnesses, we will deal with the witnesses. Hopefully, if we finish either on time today or later this afternoon, and if we have some people towards the end of today's meeting, I will try to deal with it at an appropriate time. But I'm not going to inconvenience our witnesses.

[Translation]

Mr. Pierre Paquette: As I said, Madam Chair, I do not want to disturb our work but I think we could dispose of it easily today.

[English]

The Chair: We'll deal with it as soon as possible, but it is a matter of future business, too. We usually have a future business meeting. I understand that there may be some other issues that are coming, so we'll just work with it, and I'll get to it as fast as we can.

Thank you very much.

With that, we would like to welcome from the Computing Technology Industry Association of Canada, Alan Young, who is the vice-president; from the Canadian Urban Transit Association, Michael Roschlau, president and chief executive officer, together with Eric Gillespie, who is the chair of the St. Catharines Transit Commission. From the Canadian Association of Mutual Insurance Companies, we have Normand Lafrenière, president, and John Harper, president of the Farm Mutual Reinsurance Plan Inc. From the Canadian Health Care Association, we again have Sharon Sholzberg-Gray, the president and chief executive officer. With her today is Kathie Paddock.

We have Brian on our list here, so we'll adjust that to correctly reflect your name. Our apologies for that difference.

I think we'll just go in order. We have an hour-and-a-half meeting, which includes our questioning, so perhaps you could keep your comments to even to eight minutes. I know all of you are skilled at doing this, so I won't have a very difficult job.

We'll start with Mr. Young, from the Computing Technology Industry Association of Canada.

Mr. Alan Young (Vice-President, Computing Technology Industry Association of Canada): Thank you very much, Madam Chair. With a last name of Young, I'm used to going last instead of first, so this is a real honour.

Madam Chair and honourable members of the committee, thank you for inviting CompTIA's Canadian Public Policy Committee to appear before you this morning. I trust that you've all received a copy of our written submission.

CompTIA is a global industry association representing Canadians in a global industry. We have over 500 Canadian members of our country's information and communications technology sector.

Our submission proposes several budgetary initiatives aimed primarily at improving Canada's productivity record. Productivity is directly related to the quality of life we enjoy as Canadians, translating into better wages and an increased standard of living. It is critical to generating the wealth needed to maintain and build upon the social systems that Canadians value the most, such as health care, as well as the infrastructure needed to improve competitiveness.

Industry Canada and Bank of Canada research shows that the three main drivers of productivity growth are human capital development, investment in machinery and equipment, and openness to trade and investment. Each of these is examined in our detailed submission, with specific budgetary proposals tied to each.

I will not go into details with respect to our specific proposals, given that you have already received our fuller submission. I will simply highlight a few main features.

It is imperative that strategic investments be made in people to ensure they possess the requisite skills and knowledge to meet the demands of Canada's knowledge-based economy. CompTIA suggests two initiatives aimed at meeting this need.

First, the evidence is clear that steps must be taken to ensure that Canadian companies have a sufficient number of skilled IT workers to meet market demands. Introducing a training tax credit to help meet this need deserves serious exploration. A training tax credit regime could be directed specifically at meeting IT training needs. There is a direct link between the use of information technology and improved productivity.

An investment in IT training could be structured as a tax credit delivered through the Income Tax Act. Alternatively, the costs of training could be offset against employment insurance premiums. As a first step, the government could establish pilot projects to determine the effectiveness of a training tax credit before expanding the regime across Canada.

Second, we believe that introducing a new type of apprenticeship program in Canada—an IT apprenticeship—could advance our country's ability to meet the ongoing needs of employers for highly skilled IT workers. It would also provide employment opportunities for new entrants to the workforce and for those needing to retool their skills to gain meaningful work.

CompTIA has received a series of significant grants from the U.S. Department of Labour to develop an IT apprenticeship program for the U.S. In Canada, CompTIA has begun discussions with the Software Human Resource Council aimed at partnering on an IT apprenticeship initiative. Moreover, CompTIA is currently working with the Province of Ontario on an IT apprenticeship pilot, and we would be pleased to work in partnership with the Government of Canada to expand work in this important area.

It is also important that Canadians have the equipment and machinery needed to be innovative and productive. Computers and manufacturing and processing equipment now have a capital cost allowance rate of 15% under the Income Tax Act in the year of purchase, with a 30% rate applying in subsequent years. We believe the rate at which CCA can be conducted on IT equipment should be accelerated to reflect more accurately the depreciation of the equipment while it is in productive use. Specifically, CompTIA proposes that information technology assets form part of a newly created class of assets with a 50% CCA rate.

Your committee has long championed a comprehensive review of the capital cost allowance system. We ask the committee to once again support accelerating the rate at which CCA can be deducted for investments in machinery and equipment, including information technology.

Canada has a long and envious history as a country open to trade and investment. We propose four initiatives that could make Canada an even more desirable place in which to invest and conduct business.

First, it is becoming increasingly popular for organizations to staff projects based on a global skill set, rather than looking only to the resources available in their home jurisdiction. The present 15% withholding requirements, as set out in regulation 105 under the Income Tax Act, are a deterrent to Canadian organizations competing effectively for global resources to be applied to projects undertaken in Canada. We propose that regulation 105 be repealed. Failing that, we suggest that a threshold of $1 million per contract be introduced, under which withholding would not be required.

¿ (0940)

Second, withholding tax on dividends and interest to non-residents, particularly relating to Canadian-U.S. cross-border investments, is worthy of serious examination. The C. D. Howe Institute analysis of this tax claims that eliminating withholding would increase capital investment in Canada by approximately $28 billion and increase annual income by over $7.5 billion per year. We would support the development of a long-term strategy to phase out withholding taxes on dividends and interest to non-residents through negotiations on the Canada-U.S. tax treaty.

Third, the Income Tax Act currently requires income to be included for payments received for services that will be rendered in a future period. For software and hardware maintenance agreements, in situations where payments are received for an entire year of services toward the end of the tax year, the vendor must include the entire amount in income, even though relatively few costs or expenses may have been incurred in respect of those contracts. Vendors of these essential services are penalized by income inclusion rules that do not reflect the work actually performed in any given tax year. Pro-rating these fees and including as income only the portion of the fees that pertain to the income tax year should resolve this issue.

Lastly, we were pleased with the budget announcement last February that the federal capital tax would be reduced in stages and eliminated over five years. Capital taxes continue to influence decisions on investing in Canada. We therefore ask this committee to recommend that the phased elimination of the federal capital tax be fully legislated in order to provide businesses and investors with the certainty needed to factor the tax reduction into their investment decisions. We also ask that the policy be accelerated so that the tax would be eliminated in a timelier manner, reversing the investment barrier that presently exists.

In conclusion, your committee is an extremely important voice in promoting sound public policies to improve the quality of life for Canadians. CompTIA looks forward to working with you and other policy-makers to help turn ideas into action. I would be pleased to respond to any questions you may have.

Thank you very much.

¿ (0945)

The Chair: Thank you very much. You're right on time, so congratulations, it's a good start.

We'll now go to the Canadian Urban Transit Association. Mr. Roschlau.

Mr. Michael Roschlau (President and Chief Executive Officer, Canadian Urban Transit Association): Thank you very much, Madam Chair.

Ladies and gentlemen, distinguished members, we're pleased to see that the finance committee's pre-budget theme for this year focuses on economic growth, job creation, caring for all members of Canadian society, and ensuring that our communities are desirable places in which to live and work. In our opinion, that includes issues around quality of life, urban mobility, and universal access to jobs, education, and health care.

Recognizing that over 80% of Canadians live in urban areas and that, if anything, travelling around our cities is getting worse, not better; that the quality of our air is getting worse, not better; and the cost of operating a car is going up, not down, Canadians need an affordable and reliable alternative. That, ladies and gentlemen, is public transit.

Public transit currently carries over one and a half billion passengers a year across Canada, a figure that has increased by 13% since 1996, even though capacity of the systems has remained fairly stable. Government investment, by contrast, has dropped markedly over the same period as the proportion of transit operating costs borne directly by the customer through fares has risen by about 15%.

In Canada's biggest cities, gridlock has become a way of life, even though it's costing us dearly. In Toronto alone, the board of trade estimates that $2 billion in productivity is lost every year due to traffic congestion. Smog days are commonplace and increasing every year, and in some parts of the country gasoline has topped $1 a litre and auto insurance rates are going out of sight.

Canadians are demanding cities with a high quality of life, cities where people and goods move freely with affordable housing, clean water and air, and reliable community services such as public transit. In many cities transportation has become the number one public issue.

What is a solution? In a recent poll, 94% of Canadians agreed that public transit makes a community a better place in which to live, with 77% feeling that they saw a personal benefit from transit even though they might not use it themselves. Survey respondents favoured transit expansion over road expansion by a factor of two and a half to one. What is more, about 90% agreed that both senior levels of government should invest in public transit.

What, you will ask, is the cost involved in building competitive urban transit systems? Our estimate is in the order of $3 billion per year, with a federal share of $1 billion if it were to be shared equally among the three levels of government. That, ladies and gentlemen, is less than 10% of the amount the U.S. spends now on its urban transit infrastructure.

So what are we doing about it? Over to you, Eric.

Mr. Eric Gillespie (Chair, St. Catharines Transit Commission, Canadian Urban Transit Association): Thank you.

In the past few years there have been some transit-positive initiatives introduced at the federal level. The Infrastructure Canada program is a good start. It shows that cooperative tripartite funding of municipal infrastructure improvements can be a win-win-win scenario, achieved without constitutional difficulties. Unfortunately, it could not itself provide major benefits for transit in the face of competing municipal and provincial priorities. The strategic highway infrastructure program is another step in the right direction, but it is broad and provides no assurance that investments will go directly to urban transit.

What we need is a long-term dedicated urban transit investment program. An allocation of part of the federal fuel tax to a dedicated urban transit program is a solution: 3¢ per litre of gas sold in Canada would net approximately $1 billion per year to support transit in urban regions. That's less than the amount by which the price of gas can fluctuate on a daily basis.

The provinces have begun to recognize this approach, with Quebec, British Columbia, and Alberta all dedicating a portion of their provincial gas taxes to public transit in their largest cities, and two of the three main parties in Ontario have made similar commitments, if elected next month. In fact, the Federation of Canadian Municipalities has long recommended an allocation of part of the federal fuel tax to fund urban transit. As well, just a few months ago the National RoundTable on the Environment and the Economy released its report, Environmental Quality in Canadian Cities: The Federal Role. The report recommended that Ottawa allocate $1 billion a year for a decade to support transit in urban regions.

While investment addresses the supply side of public transit, it needs to be coupled with incentives to encourage demand and ridership. CUTA's recommendation to make employer-provided transit benefits tax-exempt is a real no-brainer. It has received wide support by all members of Parliament as having substantial positive economic net benefits.

Madam Chair, we are encouraged with the progress the government has made to date to support public transit, and with support from all parties. Public leaders have all recognized transit's importance to our cities. The government now has an opportunity to act. If we, as a nation, are to achieve a higher quality of life in our cities, promote economic growth and job creation, care for all members of society, and ensure that our communities are desirable places in which to live and work, then the federal government must take a leadership role.

The government now has an opportunity to address traffic congestion, air quality, social access, and mobility, as well as climate change, through the implementation of the following transit supportive actions: (1) develop a sustained program for direct investment in transit; (2) provide a tax exemption for employer-provided transit benefits; and (3) improve public awareness of transit and enhance research and development to improve transit effectiveness and efficiency across Canada.

Thank you.

¿ (0950)

The Chair: Thank you very much.

We'll now move to the Canadian Association of Mutual Insurance Companies. I believe the president is to start off.

Go ahead.

Mr. Normand Lafrenière (President, Canadian Association of Mutual Insurance Companies): Madam Chair, I'd like to thank you very much for giving us a chance to make our presentation. I would like to talk about the shortage of insurance and reinsurance in Canada and the cause of that shortage, and how that could be alleviated with some help from the federal government.

Insurance and reinsurance are affected by many factors that we do not control. They come internationally or they're controlled by the provinces; but some things are controlled by the federal government, and that is what I'd like to talk about this morning.

First of all, there is a shortage of reinsurance. Insurers re-insure; they buy themselves insurance. The reinsurance market is international, and it has changed significantly over the last few years. In fact, since September 11, 2001, the change has been significant. Because of that, there has been a reassessment of the maximum probable loss of any large given risk. For any large given risk, reinsurers were expecting a given loss. Now what they know is that the potential loss is much higher than they thought it would be. So for any given risk, they now charge many more dollars in order to insure that risk.

Also, there has been a change in the stock market and the investment market. Because of the downward changes in the stock market, the capital of those reinsurers has diminished significantly over the last few years. As well, their investments, which are mostly in bonds, do not generate as much interest as they used to. So all these factors have meant that the capital of the reinsurance market has been lowered by 25%. There's a supply and demand balance, and with much lower capital, the reinsurers ask more money for less, and so our own insurers in Canada face that dilemma. On one side, they need to buy reinsurance in order to offer insurance, and they're just not able to buy that reinsurance. So we find ourselves with some shortage of insurance in the domestic market.

On top of that, our own insurers have faced the same downward stock market and the same low interest rates as they get for their investments. So their own capital, the capital of our own insurers, has diminished; therefore, they have to diminish the insurance offered. But on top of that, they cannot buy the reinsurance that they used to and it is much more costly than it used to be. So we find ourselves with insurance that is much more costly than in the past.

For many years now we've been talking to this committee about the possibility of setting up a catastrophe reserve. Basically, the catastrophe reserve—and this is what is offered in many countries, European countries and Japan, among others—gives the reinsurance companies a chance to place money aside for those events that occur only every 25, 30, 50, or 100 years—the 100-year storms, let's say.

In our case, in Canada, we say to the insurance and reinsurance companies, if you make a profit at the end of the year, we will charge you income tax on that profit even though you need that money to pay for the 50-year storm or the 100-year storm. So by the time that storm comes in, we don't have the money in place to pay for it. We don't have as much money for it as do companies that are headquartered in the countries where they allow catastrophe reserves to be put in place. So what we'd like to ask this committee to consider is to allow Canadian insurance and reinsurance companies to set up catastrophe reserves in order to be better prepared to meet the catastrophes whenever they occur.

We have 22 reinsurance companies doing business in Canada. Of those 22 companies, 20 are foreign owned. Of the 240 insurance companies doing business in Canada, about half are foreign owned. So the insurance market, or the environment surrounding insurance in the world economy, has forced these reinsurers and insurers to reconsider the capacity they allocate to Canada. Unfortunately, because of the tax environment in Canada and because of the low return on their business in Canada, they have decided to withdraw capacity from this country and in fact place it in countries where the return is higher. So we really find ourselves with a shortage created by foreign companies doing business in Canada—and also by Canadian companies doing business in Canada, because our own capacity has been reduced.

So we'd like you to consider putting in place the catastrophe reserve that we've been proposing for a few years now. The companies benefit from that catastrophe reserve by buying reinsurance on the international market, and then all of that reinsurance is tax deductible, instead of buying reinsurance from a Canadian reinsurer where that Canadian reinsurer is paying income tax every year on the profits they generate.

¿ (0955)

The Canadian insurance companies have a deductible of $500 million in total when they buy reinsurance in Canada. What we'd like you to consider is to give us a chance to place the money, the $500 million, in a reserve on a tax-free basis in order to be better able to buy more reinsurance on the international market and to pay a better price for the reinsurance, so that we can turn around and have a greater capacity to supply the Canadian market.

Those are my comments.

The Chair: Thank you very much. Merci beaucoup.

From the Canadian Healthcare Association, we have Ms. Sholzberg-Gray.

Please, commence.

Ms. Sharon Sholzberg-Gray (President and Chief Executive Officer, Canadian Healthcare Association): On behalf of the Canadian Healthcare Association's board of directors and our provincial and territorial members from across the country, I'd like to thank you for the opportunity to appear before you to offer our recommendations for the 2004 federal budget.

I'd like to remind you that CHA is a federation of provincial and territorial hospital and health organizations across Canada. Our members cover the entire continuum of care. This includes hospitals, long-term care, home care, community health services, public health, and so on. Our board members, who are trustees and managers in the health system, bring to our board table the realities of the front lines.

I hope that all of you had an opportunity to read our brief. It provides a more comprehensive overview of our positions. I have to tell you that the seven minutes in which I have to make this presentation will only provide you with some highlights.

I'll try to speak as quickly as I can, Madam Chair.

CHA's recommendations are built on the premise that a sustainable, responsive, and publicly funded health system is in the best interests of Canadians, and not only for the health of Canadians but for the health of the Canadian economy. It's interesting to note, and I think I have to say this, because even though you often hear it on the news, we hear over and over again from pollsters that health care is the number one issue for Canadians.

I think no one would deny that, yet I was looking at some figures. They're in our brief. It shows that the tax cuts promised by the federal government in the year 2000, over five years and totalling some $100 billion, is three times as much as the increase in health care spending in the 2003 health accord over five years of some $34.8 billion. I think this juxtaposition of the two figures is very important.

That's not to say our association is against tax cuts, but I'm trying to say that if health care is the number one issue for Canadians and the interest in tax cuts is much lower, one has to ask why more money is invested on that side than on the health care side, especially since health care investments are a boost to the Canadian economy as well.

We know that a publicly funded health system supports economic growth and job creation. It also upholds the core Canadian value that access to health services should be based on health need rather than on the ability to pay.

We'd like to begin our examination of the future by looking at the present, and a little bit of the past, and turn to the 2003 health accord, which is, after all, the most recent federal, provincial, and territorial attempt at health system collaboration. I must say that the collaboration wasn't exactly there. Of course, we should look at the implementation of the accord, which is captured in the 2003 federal budget.

Our association has noted that both the 2003 health accord and the budget contain numerous positive measures. We'd like to specifically mention the health research and innovation agenda, a national health information system, patient safety initiatives, greater investment in medical and diagnostic equipment, and greater accountability for the performance of the health system. CHA strongly supported, and still supports very strongly, the health reform agenda contained in the accord. However, neither the accord nor the budget went far enough.

In our view, there is still no real comprehensive plan for the future, although there is a comprehensive wish list. There is still insufficient federal funding over the five years of the accord to stabilize and support the existing medicare system; that is, the hospital- and physician-based medicare system and the Canada Health Act services, on the one hand, and, on the other hand, to facilitate change and improve access to needed services across a broader continuum of care.

CHA fears that the funding insufficiency, in terms of core Canada Health Act services, will result in the cannibalization of the health reform fund. That is absolutely crucial for the implementation of the health accord reform initiatives such as primary health care reform, home care, and catastrophic drug coverage. After all, how are people going to make investments in these new and growing areas when the core services are insufficiently funded? I think that's a reality.

À (1000)

Is the $34.8 billion over five years, as promised in the accord, a lot of money? It sure sounds like a lot of money; however, the devil is in the details. The details show that the amount sounds a lot more impressive than it actually is—not that the amount wasn't welcome, because it certainly was. Note, of course, that $27 billion of that amount is for transfers to the provinces and territories, and the rest is for federal government direct expenditures in a number of crucial areas the federal government has to expend money in. It's not fair to say that $34.8 billion in extra money is being transferred to the health delivery system, but $7 billion of it, of course, is used to deliver very important services to aboriginal communities, to do some public health work, to do surveillance work, to do a number of things—but not enough in that area, as I'll mention later on.

Of course we have to note—and I know there was a lot of controversy about this, but I think I have to say it, because the first three years of the 2003 accord in relation to increments to the CHST were really a reannouncement of commitments made in the 2000 accord—it's not new money. It's money we knew existed; it's money the health system was planning on. In terms of the basic core Canada Health Act services, there is no increment in the 2003 accord beyond that which was promised in the 2000 accord and which everybody at the time said was insufficient.

The implication of this, given the planned introduction in the near future, in 2004, of a separate Canada health transfer, is alarming. If there's not enough money to stabilize the existing hospital- and physician-based system of medicare now, then there won't be enough money in the base for the future.

I'd like to recognize at this point the one-time $2.5 billion funding to shore the core—because I think it's important that this money was transferred—and of course the potential $2 billion in this fiscal year, depending on certain parameters being met. But I want to repeat, and I think it's important, that one-time funding isn't the solution to the ongoing needs of the health system. It does nothing to shore the base in a continuing way.

Furthermore, the accord makes provision for what can only be described as an insufficient and really an implicit annual escalator of approximately 3% per year, which actually gets reduced to about 2.8% in years four and five.

I have to tell you that an increase in the CHST of 2.8% or 3% a year doesn't begin to cover labour settlements. Remember, there's been pent-up demand. Everyone talks about the importance of paying health workers an appropriate amount. Everyone laments the sorry state of the insufficiency of nurses and physicians and other health providers in this country. Well, 2% and 3% per year is not going to cover labour settlements and provide fair income to these health workers. It's not going to reflect growth in the GDP. And it's not going to meet increased system demand. I won't talk about an older population; I'll just talk about a growing one: if our population grows at 1% per year and inflation is 2% or 3% per year, 3% a year really means “stand still” from the point of view of the health system.

We're concerned about social services other than health upon the establishment of the Canada health transfers. Post-secondary education and social services are key determinants of health, and provinces and territories must be adequately funded to provide these services, which means that, like the health system, the social services system needs funding. Will the new CST, if there's a CST, have an escalator?

There can be no realistic discussion of the future unless the federal government deals with the present by (1) increasing the CHST cash floor by $3 billion per year to stabilize and support the existing system and provide the base for the future—if we start with an insufficient base, we are never going to catch up—(2) establishing an appropriate escalator for the proposed Canada health transfer; and (3) establishing a corresponding Canada social transfer with an adequate base and sufficient escalator.

I referred before to the $2 billion one-time payment that is anticipated and hoped for in this year. We know the 2003 budget indicated that this money would come only if the surplus is above the $3 billion contingency fund. Apparently the contingency fund of $3 billion is to be used to pay down the debt, and there is a real possibility, according to the words of the finance minister, that there will be no surplus above this $3 billion. While our association acknowledges that debt reduction is important to Canada's economy, we contend there's a greater cost to the economy if one of its major sectors, health, is allowed to run at a deficit.

CHA would therefore recommend that the federal government start the year 2004 by directing $2 billion of the anticipated $3 billion contingency fund surplus to the provinces and territories for health. I think we've all made plans based on that $2 billion.We cannot emphasize enough that we must stabilize and support the existing medicare system at the same time as we proceed with the health reform agenda. It's not a question or either/or; we need to do both.

À (1005)

I would just like say one or two more things. First, the 2003 health accord does refer to home care, and we view this reference as a positive first step. But we'd like to add that it's important not only to view home care as acute care replacement, but to also look at the ongoing chronic and continuing care needs of Canadians in the future.

Our association has long advocated for a Canada home, community and long-term care act to address continuing care needs, both in facilities and in the community. We need a comprehensive plan in this area because there are population groups that have ongoing needs that aren't going to be met by the proposed new home care indicators. Remember, we only have indicators, we don't have a program; that's why we recommend an act.

I'd just like to mention the public health structure of this country. I think it's crucial—and everyone agrees—that we're going to need massive investments in the public health infrastructure in terms of the federal government's capacity in the area of disease surveillance, in terms of provincial capacities in these areas, and in terms of surge capacity in our health system. I don't need to repeat what happened in Toronto and in Ontario. I think everyone agrees we're going to learn some lessons from what has occurred, and we're going to make, in the coming year, dramatic investments in the public health infrastructure in this country. We recommend that this will cost something over a billion dollars over five years, and that's just a start.

There's a list of all kinds of issues that I haven't been able to address: health human resources, health infrastructure, and electronic patient health record—and I think the industry of my colleague next to me will develop an awful lot of income helping us in this area. There are all kinds of things that have to be in our health agenda, and I think we have to remember, when we're trying to achieve this health agenda, that our publicly funded health system provides us with a competitive advantage and is an engine of growth. We have to look at our health system as an investment rather than a drain on the economic health of the nation. Of course it's a valued social service.

Thank you for hearing me. I'll be happy to answer any questions.

À (1010)

The Chair: Thank you.

Thanks to all of you for bringing in your briefs early so we could get them translated and distributed to the committee. We recognize the time limitations on your presentations, but be assured that your full briefs will be circulated so they can be read and retained.

I will commence questioning. I've got six people on my list right now.

We'll commence with Monte Solberg. I welcome you back to this committee as the new finance critic. We're glad you're here. We are going to start you off with seven minutes. In order to get through the six people, that's all I'm going to be able to give you.

Go ahead.

Mr. Monte Solberg (Medicine Hat, Canadian Alliance): Thank you very much, Madam Chair. It's a pleasure to be back, and it's a pleasure to see some familiar faces.

I'm not sure where to start, but maybe I'll start with Ms. Sholzberg-Gray. Thank you for your vigorous presentation.

I'm going to have to start by coming to the defence of the government, which I don't typically like to do. I just want to comment first on your remarks respecting increases in funding for health care versus cutting taxes. I want to simply point out at the outset that Canada already spends, as a percentage of GDP, quite a bit of money on health care. We're probably in the top five in the world—somewhere around there—but we're certainly a long way back when it comes to tax competitiveness, especially versus our American friends. We have to keep pace if we want to broaden our tax base, so we can ultimately afford to pay for things like health care. I simply wanted to make that statement. You're welcome to respond to that if you wish.

If I can just ask a question, it seems to me that the challenge we face with respect to health care is twofold. One is to keep pace with legitimate demand for health care. There're no doubt about that. The demand grows, and there's an infinite appetite for health care, it seems to me, because people are willing to spend any amount of money, obviously, when their health is on the line. On the other hand, we do not have unlimited resources.

So how do we incent people to not spend money in a frivolous way? I'm not suggesting that everyone spends money in a frivolous way at all times, but I am suggesting that probably everybody at some time does use the system in a way that's inappropriate, whether they're doctors, nurses, administrators, patients, or whoever. How do we ensure that we don't spend money in a frivolous way when we have so few dollars to spend on this, and resources are precious?

Ms. Sharon Sholzberg-Gray: I would like to respond. I'd like to comment on the tax cuts versus health care expenditures. We're not against tax cuts on principle. We understand that there have to be tax cuts. We're merely making the point that tax cuts are not as high on Canadians' wish list as appropriate health care. We have to balance tax cuts against the fact that if we don't have appropriate health care, Canadians will have to buy their own home care and their pharmaceuticals, and that costs money as well. In addition, it is private sector companies that will have to buy those services for Canadians, and they're concerned about their payroll taxes and their payroll obligations in terms of health insurance.

The other thing is we're not one of the biggest spenders in the world. We're not anywhere near. We're one of the bigger spenders when you look at public and private spending together, but when you only look at public spending, at 6% of GDP we're down to about 21st in the world. So I think you have to look at what the government spends rather than what the private sector spends in addition. Remember, we're one of the big private spenders in the world at 30%. In fact, as a percentage of their GDP, the Americans spend more on their publicly funded health system than we do, but we get a very good bang for our buck in comparison. I just want to make that point. We're not necessarily against tax cuts. We just want to put this on for balance.

But in terms of how we keep pace with the legitimate and never-ending demand for health services, first of all, we think we have to meet needs, not demands. Secondly, I referred to the information agenda—knowing what we're spending money on and how much we're spending on it and the outcomes we get for it. I think everyone knows that we have to invest money in greater information technology in the health system, so that we can report accurately on where the money is going and how it is being spent and whether it's being spent efficiently. And here I'm not talking about administrative inefficiencies, because I think all the studies show that we're pretty efficient in the way we run our health system. But we have to allocate our resources where they do the best job. That will show, I guess, whether people are using health services appropriately or inappropriately. Secondly, if we had appropriate access to primary health care, for instance, we wouldn't have inappropriate use of emergency rooms and so on.

What I'm trying to say is there's not one magic bullet or magic solution, but there are a lot of things we can do to make better use of the scarce resources we have. We don't want health care to be a black box or a black hole; we want to be accountable. Our members want to be accountable. I hope all governments in this country want to be accountable at all levels. I think that really is the solution—accountability and reporting in a public way.

À (1015)

Mr. Monte Solberg: Okay, thank you.

Mr. Lafrenière, my question has to do with premiums. Of course we know that premiums have gone through the roof in the last year for P and C. I'm wondering if there is a forecast that these premiums will start to drop back down with the recovery of equity markets and if we are able to put in place the type of reserve fund that you're talking about. Are you forecasting that we would start to see premiums drop back down again? I think the public would very much like to hear that.

Mr. Normand Lafrenière: Would you like to comment, John?

Mr. John Harper (President, Farm Mutual Reinsurance Plan Inc.; Canadian Association of Mutual Insurance Companies): Yes, I'd like to comment on that.

Certainly it will happen. It will be a trending factor and it will take time. It won't be a case of legislation being passed today and then tomorrow the rates drop. It's a trending factor.

There are a couple of things that happened with the investment side of it that will make it a longer-term effect. Right now we're at a very low point in interest rates. As the interest rates start to climb, which will increase the return, the capital itself decreases in value. Now, as interests rates go up, that $100 million worth of bonds is now $90 million or whatever. So it's going to take a longer time for the recovery and investments to really bring full effect onto the market.

But the problem is clearly shortage of capital. The event of September 11 alone reduced the capital available in the reinsurance market worldwide by about 40%. New capital has come forth, so that the shortage reduction now is about 25%. There's no question that, given adequate capital, with 240 companies competing in Canada to give the consumer the lowest and best possible coverage at the lowest price, this will contribute towards a softening of the insurance market and increased availability and better pricing.

Mr. Monte Solberg: I have a quick question for our people with urban transit.

Mr. Roschlau, you're asking for more money from the federal government for urban transit. But I'm curious to know this. With the increase in fuel prices, is transit now running at anywhere near capacity; and if not, why not? If you're in a situation where fuel prices have jumped so dramatically and we're not running at capacity—I'm making an assumption there—then on what grounds are we asking for more money to be put into urban transit?

The Chair: I'm afraid that's going to have to be a very short answer, because you're out of time.

Mr. Michael Roschlau: That's an excellent question, and there is a short answer to it.

In fact, certainly in the bigger cities during the peak hours, transit is at capacity. If you look at the subway in Montreal...and in Toronto the GO Train parking lots are full at 7 a.m. There are people there wanting to ride but we don't have room for them.

The Chair: Thank you very much.

Now we will go to Mr. Paquette.

Before your time starts, Mr. Paquette, I want to say that I've checked the availability of the room at 5 o'clock today. I've just put out the notice for future business from 5 p.m. to 5:20 p.m. so we can deal with Mr. Paquette's motion, and Ms. Wasylycia-Leis has sent me a letter, which we are trying to get circulated and translated so we can deal with that at the same time. So we will try. I need 10 people there.

Thank you.

À (1020)

[Translation]

Mr. Pierre Paquette: Thank you, Madam Chair.

I would also like to thank you for your presentations. Unfortunately, as we do not have much time, we cannot ask all the questions we would like to ask.

Mr. Lafrenière, we received a short summary of your presentation. As I understand, to enable reinsurance, you would like to be able to have a reserve which, I imagine, would be deductible from the profits made by the companies.

Mr. Normand Lafrenière: Exactly.

Mr. Pierre Paquette: There was a mention of a schedule to establish this reserve. In your view, how much time and money do you need globally, as an industry, to be able to…

Mr. Normand Lafrenière: In fact, we would like that the deductible of companies, when they buy catastrophe reinsurance, be tax deductible. In the area of insurance, the customer has a deductible when he has an accident or makes a claim. Insurers also have a deductible when they buy reinsurance, when they make a claim in reinsurance.

The deductible of Canadian insurers is of $500 million in total. On the $500 million, probably the equivalent of $100 million will never make it to a taxable position because Canadian insurers have some difficulty to make profits. They have had some difficulty for 25 years, all the more so because the stock market and the investment market are now flat.

If you help us build reserves which will enable us to increase our deductible and to pay much less for the reinsurance we buy, this will be reflected in premiums on the Canadian market.

In fact, the price of the reinsurance we have bought for the last three years increased by 50 per cent. The price of reinsurance increased by 50 per cent. So, what we pay to provide insurance increased much more than our customers' premiums. Of course, it is normal because we, between the two, were able to amortize a little this cost, but it is absolutely necessary to do something as far as reinsurance is concerned.

In the area of reinsurance, a lot of our insurers buy it themselves and put in place reinsurance companies in the countries which have a tax exemption, for example in Barbados or in the Channel Islands, between France and England. Then, they are able to save money on tax, what they are not able to do on the Canadian market.

All the foreign reinsurers like Swiss Re and others have the permission of their government to put money aside tax-free to face events which occur once every 25, 50 or 100 years. We do not have this on the Canadian market and we harm ourselves: we make sure that reinsurers are on the foreign market. Only two of the 22 reinsurers doing business in Canada are Canadian reinsurers and the 20 others are relatively much bigger than those two.

Mr. Pierre Paquette: So, the deductible amount for catastrophe would be about half a billion dollars.

À (1025)

Mr. Normand Lafrenière: Exactly. In fact, about $400 million would be tax-exempt. Tax on this amount is about $175 million. You would recover this on a twelve year period because we would pay tax on the accrued interests on this money. This would also create jobs in Canada. The claims would be entirely made by Canadians rather than by foreign reinsurers, where claims are dealt with outside Canada.

Mr. Pierre Paquette: Thank you very much. This enlightens me enormously.

Mrs. Sharon Sholzberg-Gray, as far as every financial aspect is concerned, I entirely agree with you that it is totally unacceptable that the government announces us in advance that the minister of Finance is going to take $3 billion to refund the debt, whereas there are needs in the area of health care.

I would first of all like to know whether you agree on the objective of the Romanow Commission, which wants the federal government to assume, through transfers, at least 25 per cent of health care costs.

There is one recommendation I read both in English and in French, but I do not have the French version in your presentation; we are going to get it a little later. You are asking for the federal government to introduce an act precisely to accommodate public health programs and services. I do not understand really what that means and I would like you to explain it to me. In Quebec, we find that there is already enough legislation around health. The Canada Health Act is often more of a source of problems for us than anything else, because the federal government does not assume its responsibilities in terms of transfers and finances, and it is a problem as far as accountability is concerned. Provincial governments should be accountable to their citizens. Now, we are creating a dynamic whereby they have first to be accountable to the federal government, which does not seem to us beneficial on the democratic level.

So I would like you to clarify this recommendation and to know what you think of the recommendation concerning a 25 per cent financing, in the Romanow report.

[English]

Ms. Sharon Sholzberg-Gray: First of all, I think most people working in the health field understand that the federal government isn't contributing its fair share to a program that, after all, it introduced on a pan-Canadian basis. As to whether or not it should be 25%, we're trying to deal with actual amounts of money rather than percentages, how many billions it would take. That's why we recommend increasing the floor of the transfer to cover the basic medicare services.

So I think it's fair to say that we think there is a Romanow deficit, so to speak, in terms of what the federal government is proposing. In fact, there's a Kirby deficit as well, because Senator Kirby recommended a much greater contribution to health services.

But as to your question about new federal legislation and that kind of thing, you will probably assume that the Canada Health Act is enough. That imposes enough on the provinces, thank you very much, and therefore you don't need anything else. Note, of course, that the Canada Health Act only covers physician and hospital services, and there are principles that apply to that. It's not really an imposition, because most provinces really do adhere to those principles. They all say they support them very strongly in accord after accord after accord, and they all have their own legislation that supports those principles. But when we're looking at new federal money for home care and catastrophic pharmacare—and in a lot of provinces there's a lot of development in those areas in any event—there is nothing that commits the federal government to continue to contribute money for home care, pharmacare, or any of those things in the new accord. After the years of the accord are finished, they could stop contributing to those things.

So what we're really saying is that there should be an act with some general principles that would say there's a program, that the federal government is going to contribute money to those broader areas of the health system not covered in the Canada Health Act.

Now, we're not seeing this as a unilateral imposition; we're seeing this as a collaborative thing. What we really care about in our association—and it might very well be that a lot of provinces don't care—is that Canadians, wherever they live in this country, have access to comparable services, not identical but comparable. It seems to me it's inconceivable that in one province you pay $4,000 a month for long-term care and in another province you pay $800. We're not saying there should be severe imposition but that there should be some principles. It's inconsistent in the sense that in some provinces you get very comprehensive home care and in others you don't get any.

We would really like the federal government to contribute, to raise the bar, so to speak. I don't know how you have a permanent contribution if it's really based on a five-year accord, and after five years, when all the indicator reports come in, maybe the federal government will stop contributing to those things. That would create a bigger catastrophe. So we're trying to find, I think, a framework in which these contributions would continue in perpetuity.

[Translation]

Mr. Pierre Paquette: Thank you, Madam Chair.

If I have a little time left, I would like to turn very briefly to the public transit people. You made a proposal which would allow for an income tax exemption for employer benefits. Of course, it is something interesting for salaried employees but would it not be more interesting to have a general measure which would ensure that transit costs are made deductible, as proposed by the Quebec government, in the Marois budget? I refer namely to a deduction of the cost of monthly passes which encourages people who are unemployed, students, retired persons and even the population as a whole to use public transit. I agree with you that we need to level the playing field between those who use their cars and those who use public transit, which enables to alleviate road traffic. Would a more general measure than the one you are proposing be preferable?

Mr. Michael Roschlau: This is an excellent question. We have examined the different measures that the government could put in place, their probable effect and their cost, and we measured the return on the investment. We noticed that the most effective element to encourage demand is to tie this directly to the employer and to benefits offered to employees, especially comparatively to what is already often in place in the U.S. Of course, it would be preferable to have a universal deduction but we have to balance this against the cost of the needed infrastructure to offer the service. We would have to make huge investments in infrastructure to have the capacity to offer the service and then stimulate demand and ridership. This is a target measure.

À (1030)

[English]

The Chair: I'm afraid I'm going to have to interrupt. Thank you very much.

We have the half hour left. I will go to Mr. Murphy, followed by Ms. Minna, followed by Ms. Wasylycia-Leis, and then it will be wrapped up by Bryon. So you will get seven minutes each and we'll just make it to 11 o'clock.

Mr. Murphy.

Mr. Shawn Murphy (Hillsborough, Lib.): Thank you very much, Madam Chair. Thank you to the presenters.

My first question is to the Canadian Healthcare Association, Madam Sholzberg-Gray. I'm going to talk a little about the whole issue of accountability.

We had the accord some eight or nine months ago and it did infuse more money into the system. Now, I know your position, that it's not enough, and that's the position of the provinces, but since then I've been a little concerned about the progress that's been made and that we're still getting into these jurisdictional arguments.

The prime example is the national health council, which should be a no-brainer. It certainly was a strong recommendation of Commissioner Romanow.

We're still not there yet. A lot of the provinces are saying they don't want any sort of a national health care council. They don't want to be accountable to the federal government; all they want is the money. I see the health care system and I see that there should be a lot more efficiency drilled into the system. If you want to borrow words from Commissioner Romanow, this money has to be used to buy change; if it's not, it's going to be wasted.

I read your brief, and your brief has 14 recommendations. Basically every recommendation asks for more money, and there's no talk about this whole issue of accountability or the lack of accountability, as I see it, and about where we're going to go in the future from a pan-Canadian point of view. I would have thought that the National Healthcare Association--and perhaps you're right, and I haven't been picking it up--would have been screaming from the trees about this national health care council, that it should be implemented by now, which it isn't. I think it's a no-brainer. Your provincial organization should have been screaming to the people, because when I talk to the people they certainly agree with it.

Perhaps I can get your organization's position on that issue.

Ms. Sharon Sholzberg-Gray: First of all, our brief does mention our concern about the lack of progress on the health council. We certainly were talking about accountability and writing papers on accountability and making proposals for accountability before the various levels of government, frankly, got into it. It's not only governments that are accountable; you have to understand that it's our members who are accountable. After all, they're the managers and trustees in the health system and they want to be accountable, and frankly, they want to be accountable within the ambit of their role and responsibility. I think what they don't want is to be given enough money for 10 hip replacements and to be told they have to do 20 with it. It's that kind of thing, and we need to shed light on these things.

We think there was progress, by the way, made in the aftermath of the 2000 accord. It wasn't perfection, but remember, there was going to be some reporting, and there were reports deposited last year on the basis of that and more will be deposited. There has been work done on indicators. So even in the absence of the council, there will be reports. We have always been on record as recommending comparable reports in terms of the performance of the health system in terms of the health status of Canadians, and that continues to be our position.

We are concerned, of course, about the political football that this council has become. I think the important thing is to say that we don't see it as a way for the provinces to be accountable to the federal government at all. We see this as all levels of government being accountable to the Canadian public, and that's where we stand on it. I think that if we characterized it not as a federal watchdog over the provinces but as a way for all of us to be accountable to getting it to the Canadian public, perhaps that would help resolve the issue.

What I'm trying to say is that we've been on record so long that I guess we didn't put it front and centre. We think it's crucial to have an accountability mechanism, and the council would be a good one. But that's not to say there isn't a commitment and hopefully work done on reporting on indicators. In fact, I know there is, because we're being asked to consult over and over again and to have input into the development of those indicators so that we can have these comparable reports.

So that's where we are. We do think accountability is front and centre.

Mr. Shawn Murphy: Thank you very much, Madam Chair. My next question is to Mr. Roschlau of the Canadian Urban Transit Association.

You talked about money for increased capacity. There has been some over the last several years through the municipal infrastructure program and the strategic infrastructure program, but you also talked about the recommendation that there be exempt expenses.

But to prioritize it, it seems to me that—and maybe I'm wrong, and you can elaborate a little—the issue is one of capacity. You identified, I believe, $13 billion that's needed not only to expand the system but to replace existing fleet. That is needed, and it's certainly desirable considering all the issues we're facing as a society, but the tax exempt proposal you're making would cost the government money.

We have to prioritize here, and then the question is, what incremental ridership would we get by doing that? You're going to give a tax break to the people who are on the buses right now. Have there been any studies done on the incremental increase in the ridership, and if there is an incremental increase, do you have the capacity to accommodate this incremental increase?

So my question to you is would it not be better to prioritize our spending in the area of capacity building rather than providing tax exempt status, or whatever the proposal is, to the existing riders of the system and perhaps some small incremental increase?

À (1035)

Mr. Michael Roschlau: That's a very good point, and ultimately I think it's a question of balance. It's a question of working with both the supply and the demand.

But you're quite right that we have catch-up to do. Our equipment in many cases is getting old. The average age of the bus fleet in this country, I think, is about 11 or 12 years compared to the U.S., where it's about 7 or 8 years.

As was noted earlier, our subways and our commuter trains in the bigger cities are now at capacity or over capacity during the peak hours. So there is an issue around the extent to which the systems can accommodate significant growth in demand. If it comes down to an absolute question of the chicken or the egg, what comes first is building the capacity; there's no question about that. Ultimately, I think these kinds of things need to be phased in, so as you build the capacity you put incentives in place to make the transit service more attractive, both from a quality point of view and from a financial point of view.

The issue that's really the problem with the benefits is that right now free parking isn't being taxed most of the time, and what that does is create a huge incentive for people to view their driving habits to and from work as basically having no cost, whereas in reality there is a cost associated with that but it's not perceived. So it's a question there of levelling the playing field as well and making those transit benefits tax deductible or having an exemption in place.

There are some examples in Toronto right now where the transit authority is offering discounted bulk purchase agreements to employers, which are starting to take off in a small way, even without the tax exemption. I think what that shows us is the potential, that if the tax exemption were in place there could be significant increases in take-up and ridership, provided that capacity is there.

The Vice-Chair (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)): Thank you very much, Mr. Murphy.

Members have a tendency to forget that in the seven minutes you have to allow time for the answers too.

Ms. Minna, please, seven minutes.

The Honourable Maria Minna (Beaches—East York, Lib.): Thank you, Mr. Chair.

I want to start with Mr. Roschlau as well. I want to discuss the issue of taxes on gasoline.

I think in your presentation, if I'm not mistaken, you were talking about dedicating the tax to urban transit. Now, there's also a great deal of discussion on the part of the municipalities, and others elsewhere, of transfer of the gas taxes directly to the municipalities to provide some sustainable funding to municipalities, which then presumably would use that money in areas that they consider to be high priority. Then of course there are the Canadian highways, and another group is talking about using some of that tax anyway for improving Canadian highways.

My question to you is, would you have us allocate that tax, have it dedicated, or would you have it transferred, as has been suggested elsewhere, to the cities, to municipal governments?

Mr. Michael Roschlau: That's a very important distinction. I appreciate the question.

Our recommendation and our proposal is very specific on this, that it should be dedicated to the public transit infrastructure investment. I know there will be discussion around this, but if the federal government is prepared to make an investment of this nature, then it's important for the federal government to have some assurance that the money is in fact invested in the area for which it is intended. This would be similar, for example, to the program in place in the United States, where within the Transportation Equity Act there is a portion that is specifically reserved and dedicated for public transit so that the guarantee is there and that whatever happens after the fact in discussions or negotiations with other levels of government doesn't get in the way of the money going where it's intended to go.

À (1040)

Hon. Maria Minna: Thank you.

I want to go to Ms. Sholzberg-Gray now with respect to health care.

First, I want to say that I agree with you on all you've said, especially with respect to post-secondary education and the social as being part and parcel of that. That is part of the indicators of health as well, and you can't really separate the two quite as easily as everybody likes to talk about, like the environment when it comes to transportation.

Having said that, I don't have any specific disagreements with your brief, but I wanted to highlight a couple of things. One is that I'd ask you to expand a bit on how you see the Canada home, community and long-term care act working. Having had experience in the last couple of years with both my mother and mother-in-law needing home care, I'm interested in that area.

I'd like to pose the next question before the chair cuts me off, and then you can answer both.

This one has to do with the difficulty in having a vision in health care and having it happen. I know we have the health council, and in my mind it is to be accountable to the public, not the government. I agree with you, but we're not there yet and it's not happening. At the same time, in the system with SARS we had a major problem in Ontario but not in B.C. Now, I know that Ontario disbanded the Ontario emergency council for disease control. They had a province-wide institution, which was disbanded some time ago. B.C. didn't disband theirs and they were able to address things probably in a much more immediate way. I know there was at least $1.2 billion drawn down from the Province of Ontario, because it's part of the cashflow. Meanwhile, there are hospitals with credit lines that banks are calling in, and somehow that money isn't flowing.

My hospital is a regional hospital and it still doesn't have an MRI—or it does, but it doesn't have people to run it—and so a constituent comes to me and says that they've been asked to pay over $700 to go and get an MRI across the border. Meanwhile, there are MRIs going to the private sector. How do we change this, by changing the Canada Health Act? I'm so frustrated I don't know where to turn myself. I think, okay, we've done it, we're transferring $1 billion for diagnostics and that should make a difference, but somehow it doesn't.

Maybe you could help us out.

Ms. Sharon Sholzberg-Gray: First of all, in terms of a new home, community and long-term care act, it wouldn't be at the detail level but at the principle level.

It would basically have rules about portability. We have a country in which parents often don't live in the same city as their children, and if they wanted to move to the same city and go into long-term care, they have to look at the residence requirements, which would make that impossible. It seems to me that if we're one country we ought to have those kinds of things in there.

We also have to have in that act some kind of minimum principle that for, let's say, facility-based long-term care people would pay a reasonable room and board, having regard to the jurisdiction in which they live and the costs in that jurisdiction, and they oughtn't to be paying for their health care costs. It's quite clear that in the Atlantic provinces, for instance, at the very least people are paying everything—they're paying their health care, their room and board, and everything—unlike other provinces in the west and Ontario, where they might be paying too much, but at least they're not paying a huge portion of their health care costs.

In terms of home care, I would like to see the act have a broad vision of home care. Acute-care-replacement home care is crucial with short hospital stays, without question, but the new federal proposals don't bring into that picture the ongoing needs of elderly populations, or people with disabilities and what not, for ongoing care—and so on and so on.

So it would be at the high principle level, but it would be a commitment on the part of the federal government to support those programs Canadians need. In fact, some of our worst access problems involve those areas; it's not just the high tech and the surgery. That, coupled with a primary health care system that works, will go a long way to keeping people out of hospitals who don't have to be in hospitals. Of course, they have to be properly funded as well, but I think funding in the right place will actually create savings down the road.

In terms of how to bring a vision to fruition, how to accomplish what you want with the money, and those kinds of things, our association has undertaken and will undertake through our members, who are provincial hospitals and health associations, to monitor within their own provinces the draw-down of the federal money in their particular provincial governments—in other words, whether the increases in health care spending in each province are the same as the federal increase, less than the federal increase, or more than the federal increase. We would like to see it more. Having that accurate information, which is something our members are doing and monitoring right now in their own provinces, hopefully will go a long way, because I think everybody's feet have to be held to the fire.

In terms of more money for medical equipment and diagnostics, if there is more money there will be more accomplished. We're already on record as saying we think hospitals should have priority in terms of where the MRIs should be, and our member in Ontario—the Ontario Hospital Association—is on record as well.

It seems to me we have to have transparency, and as I pointed out, our own members will watch to see what is happening in their own provinces. Believe me, when they see new federal money, even though it's insufficient, they want to make sure it's going into front-line delivery—and frankly, into information systems and all of the accountability systems and everything that we need.

À (1045)

The Chair: Thank you both.

We'll go to Judy Wasylycia-Leis. Go ahead; you have seven minutes.

Ms. Judy Wasylycia-Leis (Winnipeg North Centre, NDP): Thank you, Madam Chairperson.

I want to thank all the presenters this morning. It's been very interesting.

I want to also focus my questions on the issues of urban transit and health care. My apologies to the other presenters, but these are two areas that are of fundamental importance, I think, to many people we hear from.

I want to start by addressing the questions of urban transit. This is a pre-budget consultation. We don't know what the lay of the land will bring; we don't know when the next budget will be; but we do know there were major disappointments in the last budget. I'm not sure how the Urban Transit Association feels exactly about the last budget, but it seems to me there wasn't really any specific allocation in the last budget for urban transit. We expected that. I don't know if you expected it.

We want to find a way to correct that in this coming budget. I want to get very specific with Michael or Eric about how much exactly we should look for in the next budget. We've thought probably a direct investment of about $1 billion a year, as part of a long-term urban transit plan, would be a bare minimum. I'd like to hear a response on that.

We also expect to finally see some movement on a refundable tax credit for public transit passes provided by employers. What's your estimate of the cost of that? Is it anywhere close to the $700 million Canadians paid for in the last budget to abolish the capital tax? How do you justify that in the context of urban transit needs?

Finally, with respect to Maria Minna's issue, the transfer of the federal gas tax, it seems to me what we should be looking at—and you've recommended this—is a transfer of 5¢ of the 10¢ a litre collected into a dedicated sustainable transportation fund. Is that consistent with your vision?

Let me stop there, hoping you'll only use half of my time so I can still go to health care.

Mr. Michael Roschlau: Your numbers are bang-on. Our current estimate for the overall infrastructure needs of public transit across this country is roughly $13 billion over five years. That's the total. We're updating that number with a survey currently underway. So later this fall we should have a new number for the next five years. I can't predict at this point how it's going to compare with the current estimate, but I think the $1 billion for the federal government on an annual basis is a pretty good ballpark estimate, given that the $13 billion to $15 billion translates into roughly $3 billion per year, divided equally between the three levels of government.

So absolutely, our recommendation is for 3¢ a litre of the federal fuel tax to go directly for transit. That's not to say there couldn't be a broader transportation allocation, part of which would go to roads and part of it to transit. That could maybe be 5¢ or 6¢ of the 10¢.

The important thing to keep in mind here—which is the honourable member Maria Minna's point—is that the transit element needs to be dedicated separately from the roads element. We have seen in many instances in the past where there's a general fund set in place, there's no guarantee that a balance is going to be maintained between transit and roads. It's very easy later on in the game for roads to get the bulk of it and for transit to be left with very little, or for the federal contribution to somehow displace a provincial or municipal contribution—which doesn't grow the pie in that sense.

À (1050)

Ms. Judy Wasylycia-Leis: Great. Thank you.

To Sharon Sholzberg-Gray, who has done incredible work on keeping the health care issue in the forefront at Parliament and who presents us with a challenge this morning.... Although there was progress in the last budget, there was also some disappointment in terms of the amount in it for stabilizing the system or for the core services of health care, as I think you've identified, Sharon. I think you and others have said that federal cash should end up meeting about 25% of the health care system for now. I think Romanow made the same recommendation. We seem to be drastically short, or quite short, of that obligation.

You're recommending $3 billion a year over the three years—which you can clarify. But what I'm trying to get at is if that is in fact the right number to look for in the next budget. With an escalator clause, will it in fact get us to at least that 25% share of federal support?

I also want you to put into context here the uncertainty we have around the next federal budget. Paul Martin, who's probably going to be the next Prime Minister, has not said a thing about health care. In fact, at the Caledon Institute, he said his priorities were aboriginal issues, disability issues, and community economic development. Isn't there something wrong if we're not hearing about health care from the next Prime Minister of the country?

Ms. Sharon Sholzberg-Gray: With respect to your question about the $3 billion per year, remember, we want to increase the base by $3 billion and then start applying the escalator right away the year after. We were thinking that if you start with that base, we'll have a firm base upon which to build a medicare system for the future.

We got that figure from our members' needs; in other words, from knowing what they need in order not to have deficits and those kinds of things, and knowing the settlements and needs they have in front of them, and what not. We're not saying there's a magic number; I don't even think 25% is magic. What we're saying is that the federal government should at the very least be paying more in absolute terms than it is to bring funding up to a level close to what it was some 10 years ago.

If you look in our brief, you will see some figures cited by Mr. Little of the Globe and Mail showing that the federal government is not yet where it was many years ago when the cuts started to its contribution to health care. So we're just trying to bring the contribution up to that level; we're trying to meet needs, and we're not worrying about whether it's 25% or not. We're just saying it isn't where it should be.

The Chair: Thank you very much. That's all your time.

We'll now go to Mr. Wilfert, please.

Mr. Bryon Wilfert (Oak Ridges, Lib.): Thank you, Madam Chairman, and I thank all the presenters.

If this was first past the post, you'd all go home happy today. Unfortunately, the last time, we had over 400 presenters. So you can imagine the magnitude of dealing with over 400 presenters, who all have, I'm sure, very worthwhile ideas and projects, and yet we don't want to go into a deficit.

At the same time, continuing to hear, for example, in health care.... I don't know, maybe everyone suffers from collective amnesia, but we had a first ministers meeting in February. The premiers in particular decided what they needed, supposedly, and now, in my view, they are walking away from many of the things they said they would do, including the national health council.

We have a government in Ontario that suddenly, at least in my own riding, two hours after the election was called, came up with $62 million for York Central Hospital that they have been after for three years. There's a shell game that seems to go on when, in some provinces, they use federal money and claim they're using it for health care, but the fact is that it's not provincial dollars out of their coffers, it's federal ones. In Ontario, I think two years ago, $1.1 billion of the $1.2 billion was in fact federal transfers.

Quite frankly, I think people are getting tired of the fact that the federal government sits down in good faith with the provinces, who administer the system, and we try to make sure of the accountability—and I agree with you that it's to Canadians, it's not to the federal government—to make sure we have a long-term funding framework in place, and I think everybody agrees. But the fact is that there seems to be a failure. You're coming in today saying, well, it's not enough. It's never enough. Quite frankly, I don't know what is enough. But it's extremely frustrating for me personally and certainly for my constituents to hear that suddenly moneys appear at certain times, when we've been after them for three years to deliver.

Could you respond to that frustration? And then I'm going to talk about transit.

À (1055)

Ms. Sharon Sholzberg-Gray: I've discussed before the committee the problems in previous years of some provinces perhaps not being as transparent as they might be in how they're using the federal money, and I've undertaken for our members to be monitoring the flow-through of federal money. But just to put it on the record, the cash transfer to Ontario under the Canada health and social transfer this year is $8 billion, and Ontario is spending $28 billion on health care. Let's add the tax points in as well, another $7 billion, but remember, that covers the three things under the CHST, including post-secondary education and social services.

What we're trying to say is that the federal government is not paying its fair share according to its historical levels of contribution, and we think it ought to. Why? Because Canadians want pan-Canadian objectives in our health system, and only the federal government can ensure that they're achieved. That's the only way we can get comparable services. So the federal government has come a long way, but we're not there yet.

In terms of the way the province uses the money, the way it characterizes it, the politics some provinces play or that some don't, I think that is an issue. But the other issue, of course, is that there hasn't yet been a true collaboration; we've not yet had a federal health accord that is the once-and-for-all federal-provincial health accord, the one that sets the framework for the future so that we don't keep coming back and saying we need more money.

Frankly, to some extent, it's my members who are telling their provincial governments they don't have enough to meet the payroll. Just two days ago there was an article in the Toronto Starsaying that Princess Margaret Hospital is going to have to reduce cancer treatment because it doesn't have enough money. I think these are issues that have to be resolved with provincial governments, not only the federal government. But it seems to me that if we had the appropriate framework in place--and we keep saying this over and over again--the base we're recommending, the escalator we're recommending, all those kinds of things, then maybe we wouldn't have to keep having new accords.

Our position is, let's have the accord to end all accords--maybe that's wishful thinking--and we'll try to play a role in terms of our members and their collaborative efforts with their provincial governments to ensure that once that framework is in place, we manage the system well, with the information, of course, and the information agenda, and the accountability agenda that's so crucial.

Mr. Bryon Wilfert: I thought we did have the accord of all accords. Apparently we don't. As well, I'm not sure what the historic level is. There seems to be a debate on what that was.

In terms of this issue of the tax points, I'd advocate that we eliminate them, because the provinces do not recognize them. They only recognize them when they want them, but when they get them, they never recognize them. I would give you the example that they claim they got 11¢, an absolute lie. Now they claim it's 14¢, another lie. The reality is that you add the tax points in and you're working between 35% and 38%. But the reality is that the provinces are very selective, in my view. So I would point that out to you.

Ms. Wasylycia-Leis, I didn't interrupt you, so please don't interrupt me.

As far as urban transit is concerned, you've given three recommendations, Mr. Roschlau, which I've seen before. Which one is the most critical? In terms of your particular agenda—and I certainly have supported these items in the past, and so has this committee—the difficulty is that, again, any government would like some other government to pay for their operations. I'd love somebody to pay for our operations, but unfortunately it doesn't work that way. Municipalities, through the strategic infrastructure fund, have the opportunity to use that money for transit. Some of them have, some of them haven't.

As you know, the Prime Minister's task force on urban affairs recommended a national urban strategy. What I haven't been able to understand, and still do not understand from your report—and I've been dealing with this file from my days with FCM—is this: what is the sure mechanism to make sure the accountability and the execution will be there, particularly when many municipalities in this country, and the GTA is a good example, continue to promote urban sprawl?

Á (1100)

Mr. Michael Roschlau: I detected two questions there. One had to do with priorities and the other had to do with the mechanism.

With regard to the first, as I think we discussed earlier, clearly the single most pressing priority is the capacity and the backlog on the quality of our infrastructure out there today.

With regard to the mechanism, I think it does make sense to have some strings attached to funding to encourage and provide an incentive to municipalities to indeed build and develop their residential, commercial, and institutional infrastructure in a way that's mixed and that builds along corridors and around nodes where transit can effectively be served.

Some of the plans I've seen in the York Region are along those lines. I think, however, there's an opportunity here, with a national program, a transit-dedicated program, for the federal government to work with the provinces and the municipalities to put some incentives in place that tie eligibility for funding to actual development and transportation plans on the ground that both municipal and regional governments may have.

The Chair: Thank you very much.

On behalf of all the members of the committee, we appreciate your getting your briefs in early, we appreciate your testimony, and we appreciate your answering our questions today. We'll take it under consideration. And we thank you for being our first panel of this year.

I will suspend for a moment while we set up for our second panel.

Á (1101)

Á (1104)

Á (1105)

The Chair: Thank you. We will start with our second panel.

We would like to welcome, from Advocis, Beverly Brooks, vice-president of public affairs, and Terry Zive; from CATA Alliance, David Paterson, executive director; and from the National Council of Women of Canada, Catharine Laidlaw-Sly, president.

Ms. Catharine Laidlaw-Sly (President, National Council of Women of Canada): Madam Chair, the vice-president, Shirley Browne, is with me.

The Chair: Ms. Browne, welcome.

Following the order in which you are listed on the agenda, we will commence with you, Ms. Brooks, for seven minutes between the two of you.

Go ahead, please.

Ms. Beverly Brooks (Vice-President, Public Affairs, Advocis): Good morning, everyone. Thank you very much for this opportunity to appear before you today.

My name is Beverly Brooks, and I'm the vice-president of public affairs at Advocis.

Advocis is the new name of the largest national association in Canada representing professional insurance and financial advisers. Advocis was created when the Canadian Association of Insurance and Financial Advisors, known as CAIFA, and the Canadian Association of Financial Planners voted in September of last year to merge the two organizations as of January 1, 2003. The Conference for Advanced Life Underwriting, CALU, is a conference of Advocis, and with me today is Mr. Terry Zive, who is the head of Zive Financial and chair of CALU. He is here today as a volunteer representative of the members of CALU and Advocis.

Advocis is a voluntary, self-governing association. It represents 16,000 professional advisers licensed to sell life and health insurance, mutual funds, and other securities to 12 million clients from coast to coast. Our core activities are education, market conduct, and public affairs. We uphold standards of proficiency through educational programs and professional designations, such as the chartered life underwriter and the certified financial planner. We maintain our conduct through the enforcement of a code of professional conduct and the development of practice standards. We also participate in the development of policies and regulations affecting financial advisers and their clients.

Our common objective is to assist individuals and families in achieving financial security through the optimal application of individual and group financial products. This objective has helped to shape our recommendations to you today.

Our submission offers specific recommendations relating to the first and second themes in the finance committee's report, namely, what taxation, spending, and other measures should be taken to ensure economic growth and job creation, balanced federal budgets, and any needed changes in addressing the net debt-to-GDP ratio, and what taxation, spending, and other measures should be taken to ensure progress in investing in and caring for all members of Canadian society. In order to be brief, I'd like to just draw the committee's attention to our major recommendation.

First, I'd like to address the issue of those taxation and spending measures that should be taken to ensure economic growth and job creation. Advocis and CALU recommend that the federal government commit itself to a strategy to reduce the actual amount of debt over the next decade with any unused portion of the contingency reserve and any interest savings resulting from the reduction of the fixed rate portion of the federal debt allocated to debt reduction. For any given year Advocis and CALU recommend that no less than 25%, and preferably 50%, of the surplus be allocated to debt reduction.

Advocis and CALU commend the Minister of Finance for announcing in his last budget that the $3 billion contingency reserve has been restored in the fiscal projections, as well as committing any of the unused contingency reserve to pay down the debt. However, we believe even greater emphasis on debt reduction is required. A commitment to a long-term debt reduction plan would curb the temptation to squander surpluses on one-off spending initiatives that in the longer term may affect the government's ability to reallocate spending to other areas, such as health care and old age security. With an aging population, it is necessary for the government to remain committed to debt reduction in order to ensure that funds that would otherwise be used to pay interest on the debt may be available to meet the growing health care needs of Canadians.

We commend the government for retiring more than $46.7 billion in debt since 1996-97 and recording five consecutive annual surpluses through 2001-02. This amounts to a saving of almost $3 billion a year in interest payments. The amount saved in interest payments is an annual saving. This amount can be reallocated to other priorities.

Second, with respect to taxation, spending, and other measures to ensure progress in investing in and caring for all Canadians, we would remind the committee that privately purchased health and life insurance products are a fundamental component of Canada's social infrastructure. Almost 75% of Canadians have some sort of protection through life and health insurance. Advocis and CALU recommend that the taxation regime governing life and health insurance continue to encourage Canadians to be self-reliant and to protect themselves from financial risks associated with death, disability, illness, and retirement.

Á (1110)

Perhaps the greatest threat to the quality of life and standard of living for all Canadians is the impending impact of Canada's rapidly aging population. Longer life expectancy will mean that Canadians will face the prospect of outliving their savings and needing health care that may not be fully funded by the public system. We believe privately purchased life and health insurance is a fundamental component of Canada's social infrastructure. We urge the government to continue to maintain a tax environment that encourages Canadians to be self-reliant and to protect themselves from the financial risks associated with death, disability, illness, and retirement. New products such as critical illness and long-term care insurance have been introduced to help protect Canadians against the financial risks associated with the higher incidence of illness as the population ages. New regulations on the taxation of these life and health insurance products should enable them to continue to meet the needs of Canadians.

I'd now like to move to retirement savings. The 2003 budget increased the registered retirement savings plan annual contribution to $18,000 by 2006. While we welcome the government's move to increase the retirement savings plan contribution limits, we don't believe the increases go far enough or are occurring quickly enough to ensure adequate retirement savings plans. We have consistently advocated the increase of retirement savings limits to enable Canadians to save sufficient funds to ensure a financially secure retirement. Canada still lags behind the maximum amount that may be saved in retirement savings plans in the U.K. and in the U.S. Last year the C.D. Howe Institute issued a commentary entitled Saving the Future: Restoring Fairness to the Taxation of Savings. The study states that Canada's current retirement system is outdated and uncompetitive in comparison to its U.S. counterparts and needlessly restrictive. In fact, the study concludes that inflation has eroded the real value of the limits on retirement savings to the point where they are lower than they were in the mid-1970s.

We recommend that over time, the annual RRSP contribution limit be increased to $27,000 and that the registered pension plan defined benefit be increased to $3,000 per year of service. We also recommend that the age at which the RRSP must be annuitized or converted to registered retirement income funds should be raised to 71 from 69 and that consideration be given to raising this age to 73. Allowing an additional two to four years to accumulate capital may make the difference between enjoying a financially secure retirement and the need to rely on government programs for some lower-income seniors.

Advocis and CALU recommend that individuals under the age of 65 who are in receipt of periodic income from locked-in RRSPs be able to claim the pension tax credit. The 2003 budget noted that the government is going to explore the use of tax-prepaid savings plans. The proponents of these plans maintain that savings vehicles like RRSPs increase after tax returns compared to unregistered plans, but unlike with RRSPs, no deduction is allowed for the contribution. Investment income earned through the plan and withdrawals are not subject to income tax. Advocis and CALU recommend that the government undertake a complete consultation process on the subject of tax-prepaid savings plans.

I want to thank you for being able to participate in this process. I look forward to any questions you may have.

Á (1115)

The Chair: Thank you very much.

Now we will go to Mr. Paterson from CATA Alliance.

Mr. David Paterson (Executive Director, Canadian Advanced Technology Alliance): Good morning, Madam Chair, ladies and gentlemen. Thank you for the opportunity to present our members' views to the committee.

As I believe you know, the Canadian Advanced Technology Alliance is the trade association that represents the Canadian high-tech industry. We have over 500 members, and another 1,500 companies are members of regional and provincial associations from Newfoundland to Vancouver Island associated with CATA in various ways. Our members have three significant characteristics: almost all of them are small or medium-sized businesses, all of them do research and development, and almost all of them export.

We have tried to address the committee's three themes of taxation and spending measures that affect economic growth, investing in and caring for all Canadians, and investing in communities.

On the subject of economic growth and job creation, the most significant thing, in the view of our members, is the fact that tax cuts seem to have disappeared from the government's agenda. This is a serious problem, which will slow both economic growth and job creation. There was excellent progress in the October 2000 tax reductions, which made Canadian personal rates competitive with those of our neighbour, but we are now in a situation where we are once again lagging behind as a result of recent changes in the U.S. tax rates. We feel that further progress needs to be made, particularly with respect to tax rates on higher-income individuals.

In the knowledge economy the only raw material is people, and we are faced with intense competition from the United States for our best qualified people in all professions. The government is undertaking a serious commitment to funding post-secondary education, but the universities acknowledge that they have a severe shortage of professors and the competition from the United States is intense. Changes in the tax laws and rates can assist them in improving the supply of professors at Canadian universities.

On the corporate tax front, the government initiated a program to eliminate corporate capital tax rates in last year's budget, but the Department of Finance itself has warned the government that capital taxes discourage the behaviour the government is trying to encourage to stimulate innovation and prosperity. A five-year time schedule is simply not going to be effective if the government really wants to attract investment and encourage R and D and innovation. Corporate capital taxes should be eliminated in the next budget.

The other matter of serious concern is that while taxes need to be cut, there are serious needs to increase financing for health care, security, and education. This cannot be managed if program expenditures continue to rise at 11% a year, as they did last year. The government must seize control of its spending. The program announced last year to reallocate $1 billion of expenditures from unnecessary activities to those deemed to be more important is certainly a step in the right direction, but our members believe more effort needs to be given to that exercise, extending it as far as consideration of eliminating entire programs whose usefulness has been brought into question. Spending must be held at levels that match population growth and inflation. Unless the economic environment is stimulative, the government's innovation strategy will achieve nothing.

Á (1120)

On the subject of support for research and development, the government's SR&ED program is definitely one of the great attractions for Canadian business. CATA has worked closely with CCRA to improve the administration of that program and to make it more effective and attractive to small business. We believe it can be further improved by measures such as permitting publicly traded companies that are losing money to nonetheless have access to their tax credits, as is the case with private companies at this time. We will continue to urge that the Department of Finance make the necessary changes to allow that.

On the subject of investing in Canadians, our members believe that the single most important investment the government can make is in education. We are strong supporters of that initiative, and we congratulate the government on the contributions it has made to post-secondary education in recent years. The Canada Foundation for Innovation, the millennium scholarships, the research chairs, and the graduate fellowships are all making important contributions to the growth and quality of education in Canadian universities.

The other area we feel deserves more attention from the government is lifelong learning. This is essential to the knowledge economy and to Canadians who want to improve their education and their economic opportunities. HRDC has some programs in this area, but we believe that they must seek more attractive and efficient ways to deliver training and education to all Canadians.

On the subject of communities, it is our members' view--not unnaturally, since we are the high-tech association--that to be desirable places in which to live and work, all communities need access to the global Internet. It is a leading facilitator of lifelong learning. It provides access to markets and opportunities for all residents of communities to communicate with the wider world. Industry Canada has done an excellent job with some of its programs, in particular Community Access and Computers for Schools. But we believe that what is needed now is better broadband access. The government needs to improve the broadband access program, to make more money available to it, and to make the administration simpler.

In conclusion, CATA believes that the economy has come through a difficult period, but the outlook for the next couple of years is more optimistic. There is an opportunity for the government to reduce the tax burden, support vital R and D, and expand essential programs for Canadians. But at the same time it must control spending by eliminating non-essential programs. Canada's economic performance has outpaced the rest of the G-8 for several years. It will continue to do so if the government maintains a competitive tax structure, controls spending, and supports R and D, education, and enhanced access to the Internet.

Thank you.

Á (1125)

The Chair: Thank you.

Now we'll hear from the National Council of Women of Canada. Please go ahead.

Ms. Catharine Laidlaw-Sly: Thank you very much, Madam Chairman.

I must say I want to congratulate you on the imaginative juxtaposition of presenters. I think you'll understand why when you hear what we're looking at.

The recommendations of the National Council of Women of Canada are not substantially very different from last year. As you know, we're a broad-based, broad-focused group. We represent grassroots concerns. You might be interested to know that I think we're right on the money, because recent polling reported in the Montreal Gazette this morning showed that with regard to the recent election promises of the newly elected government in Quebec, the number one issue, the number one promise, for our taxpayers in Quebec was improving health care. Number two was education and number three was tax cuts. This is in a province not noted for low personal income tax rates. I think it's rather interesting that this is what the public was saying.

That said, our membership is in exactly the same position, Madam Chair. We are looking at the whole issue of the importance of the social infrastructure and in particular we wish to commend the government for the work they have done to maintain and refinance the Canada health care system. We wish to urge them to continue this effort and we hope they will do it with an analysis of where the money is actually needed so that they do not make across-the-board percentage global increases but really place and target the money very carefully. Unfortunately, the national council lacks the resources to do those sorts of studies.

That brings me to our second issue and the one on which I particularly wish to spend some time. In our recommendations we address the issue of unpaid work. Whether it's part-time or full-time, unpaid work needs to be recognized in the tax system in some way. We would like to remind the Government of Canada that in 1995 there was a firm commitment taken at Beijing at the Fourth World Conference on Women to publish auxiliary accounts that gave both a time value and also a financial value to the unpaid, uncounted work being done. If you look at the statistics from our own statistics departments run by the government, this work is still largely done by Canada's women. You have the figures. We're doing the work, but we're not getting any recommendations made in the tax system that recognize the difficulty of doing all of this uncounted work.

There was one small allowance last year. We noted that there was a six-week dropout provision for caregiving. But we wish to state right away that there are two serious weaknesses in the proposition. It applies only to those in full-time work who would be best able to hire people to do the unpaid, uncounted caregiving that was being done by volunteers. And an arbitrary six weeks' allowance does not really take into account the very nature and the extent and the difficulty of some of the caregiving, which can go on for years and years.

It is a serious oversight to have it apply only to people who are in full-time employment, because they are the people, as I said, who can best afford to hire help. The women who are taking part-time work so that they can look after needy relatives and can assume extra caregiving duties when the health care system says it's time for home care are the people who don't get any allowance for their work. Yet when we made cuts to health care allowances years ago as part of the process to reduce the deficit, these are the people on whose shoulders the deficit was partially overcome.

When we take a look at our accounting, we can say now, oh, yes, we're balancing the books. Well, I would submit—and this is the national council's position—that you are not balancing the books if you are neglecting the work being done by the unpaid, unhired caregiver. This work should be acknowledged in the national record of productivity—in other words, in the GDP. If it's in auxiliary accounts, we'll be very proud and happy to see it so acknowledged.

Á (1130)

I would draw attention to the fact that on page 9, and again on page 11, we're talking about the measure of productivity. We suggest that there's need for a formulation that would lead to an improved measure of productivity. We do not think that the present criteria are either accurate or fair. Inasmuch as most of the unpaid work is done by women, probably over 80% by last reckoning, then you're not being fair and you're not giving an equal consideration to the productivity of women. You have simply no idea of what they're really doing and what they're really giving to the Canadian infrastructure.

We also wish to draw attention to the fact that we acknowledged that last year there was some money put into the need to do work on the environment. We noted the funding in the last budget, but it seemed to be spread across the map. We wanted to note with regret that it was not a clearly articulated overall program.

We wish to see this because we have made numerous recommendations to the government from time to time on the issue of climate warming and on the issue of overcoming an environmental degradation that is responsible for increases in asthma, childhood asthma and also adult asthma, among other things. We feel that this should be a concerted and organized program, not a piecemeal of a bit here and a bit there, and hope that somehow something will come out of it.

We also would like to see a system of encouraging the ordinary consumer, through tax relief of some sort, tax allowances, or benefits that they can claim, to make concrete steps toward reducing the heavy output of greenhouse gases. National council members are well aware that Canada per capita has the largest output of greenhouse gases of any nation on earth--not the largest gross, but the largest per capita. We believe that our government should be showing a lead and should be using taxation measures, if possible, to encourage ordinary consumers to take concrete measures.

We ask you to look at our recommendations on page 11. That's the summation. I'm sorry, my mistake; it was on page 7. This is the summation.

Income taxes should not be reduced at the present time. The income tax brackets, though, should be indexed to inflation. We ask that the present child care tax deduction for working parents be changed to a refundable income tax credit and made available to parents who care full-time for their own children at home and, we stress again, to the unpaid full-time caregivers of adult family members.

We ask that the present system of basing taxation on individual income be continued and payroll taxes not be reduced. All government benefits should be indexed to inflation and national accounting statistics. Again we ask, and I wish to really stress this, that they recognize the value of unpaid work to the economy as a whole.

We also ask that a system of tax rebates for utilizing alternate energy sources be established. We ask that a balanced budget be maintained. We are quite in favour of continuing to pay down the deficit in an orderly fashion. We do support having a balanced budget. We have to keep it in our own homes, so why not in our large home?

I'm going to leave it at that, Madam Chair. I'm running out of voice. I just came back from Australia, and, I'm sorry, I still have a sore throat.

Thank you.

Á (1135)

The Chair: Thank you very much.

Thank you, all of you, for your presentations.

Now we'll go to Mr. Jaffer for seven minutes, and then to Madame Picard for seven minutes.

Mr. Rahim Jaffer (Edmonton—Strathcona, Canadian Alliance): Thanks, Madam Chair.

Thank you to all the presenters for being here today. I found your information very useful and I look forward to continuing to go through your briefs.

I have one question, if I'll be able to fit it in, for everybody, if I could.

The first question I had is to Beverly, I believe, who began on the issue of the RRSP increase levels. Obviously, the committee supported an increase the last time around. It went up quite significantly, but I think the feeling was how far it should go up. I see that the suggestion you're making is to push the limit up to $27,000.

I'm curious how we in Canada compare with other countries when it comes to this particular credit, in the sense that in the U.K. and the United States we're all facing similar situations where the older population is getting much larger in society. How can we deal with making sure that we can take of them? They can take care of themselves, in many cases, by putting aside further savings. How does our current credit relate or compare to some of those other countries? Are we in line? Are we behind? Should we really be reviewing to push that up higher? Maybe you can bring some light to it.

Mr. Terry Zive (Chairperson, Conference for Advanced Life Underwriting, Advocis): In terms of the U.S. numbers, you can contribute approximately $56,000 to retirement savings plans in the U.S. In the U.K. the range is from $37,000 to $85,000 in round figures. The issue as we see it is really one of being able to attract and retain the competitive talent in this country when clearly there are opportunities elsewhere where they are given the chance to save substantially greater amounts of money. It's on that basis we feel a real look should continue.

Mr. Rahim Jaffer: Do you have any figures on how much it may cost the government to increase it to that level? I think there are obviously huge benefits, but I would imagine the finance department would be interested to know how much it's going to cost them.

Mr. Terry Zive: I unfortunately do not. It's much easier to make recommendations than to calculate the numbers. I recognize that we are deficient in that respect.

Mr. Rahim Jaffer: That's fair enough.

If I may, I'll move to CATA. I know that one of the things the government has said in the past, David, is that they'd have a really aggressive R and D tax credit system to try to attract high-tech development to this country. In fact it's been very successful, although I continually hear that there are obviously failures to some extent with that system because it clearly still does not allow us to be competitive, especially with countries like the U.S. We have larger productivity gaps developing, and clearly we're not able to take advantage of that tax credit the way the government tends to promote it.

Maybe you can address that particular issue, because our party strongly agrees with what you're talking about, reducing corporate and capital tax and maybe even eliminating them. Why is there still that discrepancy, where those aggressive tax credits are being awarded in the system but we're still not able to catch up?

Mr. David Paterson: I think there are a couple of aspects to this. Broadly speaking, it's a question of management. In the industry we represent, as I said, I don't think we have any members that don't do R and D. It's just a universal practice. You cannot succeed in this business without it.

In the broader context of the Canadian economy, however, there are other areas of the economy, other industries, where people don't seem to recognize the importance of R and D to the same extent. As a result, they have no commitment to it. The tax benefits of the SR&ED program are available to them all, but if they don't see the value of R and D, they won't take advantage of the tax credits. It's an issue that is very difficult to deal with because what you're attempting to do is change the attitudes of the owners and managers of these businesses.

In a past part of my career I spent a great deal of time dealing with the Atlantic fishery. It was quite apparent that there were a large number of businesses in the industry that were only interested in catching the fish and in getting them off the boat, across the wharf, and onto a truck to go someplace; that was their only interest. There were other people, however, who had a very creative approach to the market and were always seeking ways in which to improve their product so it would either attract a better price or so new markets would open up to them. It wasn't rocket science by any stretch of the imagination, but it created new markets for the companies, higher revenues, better profits, more employment, and all the spinoff benefits those bring.

It's a question of attitude. It's persuading the entrepreneur that R and D will improve his business, ensure his success, and ensure that his business continues to thrive.

Á (1140)

Mr. Rahim Jaffer: Also, a tax credit is one thing. Clearly it's an important thing, but there has to be the full package. You addressed the issue of corporate and capital tax, and if those sorts of things aren't being addressed aggressively, then the tax credits will fall flat on their face.

Mr. David Paterson: This has been CATA's view for a long time. Members of this committee may think they're listening to a recording here because I have appeared before. It is our view that the only road to success is to create a stimulative economic environment that is open to all the players and creates the greatest opportunity for everyone to succeed, that focus programs don't work very well, and that what you need is a stimulative total economic environment.

[Translation]

La présidente: Mrs. Picard, please.

Ms. Pauline Picard (Drummond, BQ): Thank you, Madam Chair.

My questions are for the National Council of Women of Canada. I have three questions. I'll keep them short because I would like to have the answers.

The first one relates to what you say about the payroll taxes reduction. I do not understand when you say: “NCWC believes that EI contributions should not be reduced…”

I would remind you that contributions to EI funds come from employers and employees, and that the government already diverted about $45 billion from the funds by virtue of an accountancy process. Since you believe that EI contributions should not be reduced, I would like you to clarify your thoughts on this.

My second question relates to the financial assistance for older workers who lose their jobs. The Bloc has been asking for the reestablishment of POWA for years. The federal government, through minister Pettigrew, at the time he was the minister of Human Resources Development, promised us a revised and improved assistance program for older workers. Do you know the program and do you agree with the reestablishment of such a program?

As far as social housing is concerned, I find you very lenient towards the federal government, ladies. You are saying that the federal government should continue to “strive for adequate and appropriate housing for all Canadians.” I would remind you that federal resources allocated to housing have remained under their normal level since the 1990s and that, according to the Centre for Social Justice, the number of social housing units built every year decreased by 95 per cent, from a peak of 24,000, in 1980, to some 940 only in 2000. Several groups urged the federal government to invest $2 billion a year, which represents 1 per cent of the federal budget. You are saying that the government should continue to strive. You represent 52 per cent of the population. Personally, I find that the word “continue to strive” is not that strong.

Á (1145)

[English]

Ms. Catharine Laidlaw-Sly: Thank you. May l take your questions in reverse order, please?

On homelessness, it is a major concern. As a matter of fact, the national council is looking at, and will be using as its common program this year, the issue of homelessness in all of the communities where it is working across the land within its branches. We hope to be able to have a comprehensive report from the grassroots level on what should be done.

We have made repeated requests that the federal government maintain the housing programs. In letters to the government, we have urged that they look at the programs that were in place in the past, the very aggressive ones under the Canada Mortgage and Housing Corporation, and so on. We simply hope that this will happen.

Thank you for asking the question. We will be reporting back to the government at the end of this year and next year on what comes up in our in-depth study on homelessness as seen from the grassroots level.

On financial assistance to seniors on losing their jobs, we've had two approaches. Some years ago, we asked the federal government to look at the gap between age 60 and age 65, particularly for senior women, which was an age group that we felt was left out of the CPP. They couldn't claim the CPP. They couldn't get the OAS. We were looking for bridging allowances for these women, some of whom were alone and certainly were reduced to living on welfare for at least five years or the better part of five years.

The federal government did respond. There are programs in place that help this. We understand your concern in asking about the ongoing problem for seniors who lose their jobs to be replaced by part-time workers. It is a concern that we have had.

Particularly for women, the move to establishing a new pink-collared ghetto, namely that of the contract employment offer, is very attractive to a woman trying to combine family cares with full-time or part-time work for pay, not the unpaid work but the work-for-pay part, that will keep bread on the table.

We're also concerned with the fact that senior people, both men and women, are being let go by companies as they try to balance their books. We hope that financial assistance is maintained for those people who are out of jobs and can't get them.

Again, we don't want to see any change in the EI except that it should be maintained and should be made more available to people who really have contributed and need to get income maintenance of whatever kind. We are concerned with security of income.

I have to leave it at that, because we are involved in the second stage of a program called “Securing our Future”, where we will look at the different means by which the income security of the older citizen, particularly the older woman, can be maintained and can be made sure.

In that connection, I'd like to refer to Mr. Jaffer's question about RRSPs. Again, if you are doing part-time work or contract work, your ability to contribute to these programs is severely curtailed because you're not sure what your earnings are going to be. There is a gap in the ability to plan for future security, in other words.

The other big concern we have, and we do mention it on the last page of our brief, is the crisis in the U.S.A. in particular, but in Canada also, on the recent corporate meltdown. We're not only talking about the collapse of the high-tech sector, but the fact that there are fraudulent business practices being carried on by companies that are in the financial management sector. There are certainly investigations going on. We are concerned about the great risk, particularly to people who cannot protect themselves. We would like to see the government address this need in future.

Á (1150)

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

Mr. Wilfert, please. You have seven minutes.

Mr. Bryon Wilfert: Thank you, Mr. Chairman.

I thank the presenters for their presentations. I think they illustrate the difficulty this committee has with the broad spectrum of opinion, although I was pleased to hear that all of you agree on a balanced budget. I think we can assure you we are not interested in going back into a deficit. We are interested in continuing, on the one hand, to be fiscally responsible and at the same time invest in Canadians.

Looking at the CATA Alliance presentation, I'd make just one correction: personal tax cuts are continuing. Let's not forget October 2000, when the $100 billion was announced. We have to reaffirm every year $20 billion, so that in fact was part of this budget. You can make a statement as a government that you're going to do X, and then, as you know, we have been buffeted by a number of unfortunate situations this year. Fortunately we are in a position to have that kind of contingency in order to address some of those issues.

But I certainly agree with you on your presentation dealing with education, and particularly in areas of foundation of innovation, etc. “For every dollar that's put in, we get three dollars back” is very important. I think it's well demonstrated that the government is going in the right direction, particularly in the R and D sector in having Canada, through the innovation strategy of the industry department, be in the top five by the end of this decade. I think that's very important.

I'd also concur with you on the issue of tax burden. Yes, I think we've done a better job probably in one area than the other. It may be, as some would argue, that corporate taxes have actually done better and personal income taxes haven't done as well. But it's a question of trying to do the investment on one side and getting the tax rates down to a reasonable level, keeping in mind that our corporate taxes will be five percent less than those in the United States if all continues well. We see some of the situations they have.

I would like to ask CATA one question on the issue of the GST or EI premiums. The advantage would be restored, you say, if the rules were changed to allow SR&ED credits to offset other Canadian taxes. Could you just expand on that briefly?

Mr. David Paterson: This is one of those technical niceties of the tax laws that you only appreciate properly if you are a tax lawyer or an accountant. The way the tax system works is that for foreign-owned companies doing business in Canada, their taxes in Canada and their home country are governed by tax treaties. The outcome with respect to most foreign-owned companies is that as the tax experts work their way through the payments in Canada and in their home country, the advantage that would be offered by the SR&ED tax credits to a Canadian company disappear. In other words, they're offset against other taxes. So the tax credits are not a benefit to foreign-owned companies.

It would be possible to restore this advantage if they were allowed to apply the tax credits not to their income tax but to other federal taxes they pay, such as, for example, the GST or the EI premiums. This would restore the advantage the tax credits offer to Canadian companies and allow foreign-owned companies to use them. It would increase the attractiveness to high-tech industries of investing in Canada quite substantially, because the credits would then be available to them.

Mr. Bryon Wilfert: Thank you for that clarification.

On your presentation, Miss Brooks, I heartily agree with your recommendations. As the only G-7 state paying off the national debt and doing it at a significant rate—below 40% and moving continually down—I think it is extremely important that we have, whether or not it's spelled out, as in some people's views, in black and white, a strategy; there is that contingency fund. We're very conscious of the fact that, as I think it was you who mentioned, we're saving $3 billion a year in interest alone. That can be used for other social programs and other investments in people, and I think that's extremely important. Sometimes we lose sight of that interest saving.

As for the presentation of the Council of Women, can you tell me about something you mentioned on page 4 that I'm not quite clear on? You said the “NCWC recommends that the present child care tax deduction be changed to a refundable tax credit, and that this refundable tax credit be made available also to parents who care for children at home.” It has been, I think, fairly universally accepted that the national child benefit was probably one of the most important, revolutionary introductions in the last 25 years, and we've already allocated another $965 million annually for additional benefits to low-income families by 2007. This has generally been well received.

Can you explain how this differs from what you are targeting here, and how much are you suggesting it will cost?

Á (1155)

Ms. Catharine Laidlaw-Sly: Again, my apologies.

We should probably make sure that it's understood that we are looking at the whole issue of child care done at the home level as part of the unpaid, uncounted work. If everything being done in this new globalized world has a monetary value, this comes back to the whole issue of the fact that it is taken for granted that this work will be done, and that it has absolutely no value to the community unless it is delinquent in some way—in which case it has a negative value, because you have charges there.

We feel that it should be available to parents who are doing work for their children full-time for whatever reason. This includes the care of children who are handicapped.

Perhaps we did not express ourselves clearly enough. I'm sorry that we don't have our child care taxation person with us.

Mr. Bryon Wilfert: If you could provide this committee with any additional information in that regard, it would be helpful.

Ms. Catharine Laidlaw-Sly: All right, I will.

Mr. Bryon Wilfert: I would also point out to you that there is a credit available to those who are at home, up to the age of seven, I think. I know there's the continuing issue about the expansion, which of course is a cost issue.

But again, I thank you for that, and anything further would be helpful.

Ms. Catharine Laidlaw-Sly: Fine, thank you.

The Chair: You should send the rest of the material to the clerk, who will make sure it's translated and distributed to all the members.

Thank you very much.

We'll go to Mr. Discepola, our vice-chair.

Mr. Nick Discepola: Thank you, Chair.

I'd like to begin by thanking the National Council of Women of Canada for its excellent presentation. It was not something that I expected from your group, but you touched on a gamut of areas and responsibilities. I congratulate you on that, because I think you've taken the responsibility very seriously.

Maybe I've been on this committee too long, but I often prejudge presentations because I feel that an awful lot of people come here to preach for their own little pet project, which is why I wanted to take the time to congratulate you.

I have a very quick question for CATA, and then I'd like to leave ample time to discuss the larger issue of debt reduction, because I'd like to elaborate more on some of the things proposed here.

As for CATA, I couldn't agree with you more when you said that we must “seize control” of spending. I was very concerned when the Minister of Finance, John Manley, presented his economic update in Halifax last year. I brought it to his attention that I thought program spending had accelerated over the last few years. So I'd like to know if you have any guidelines that we should recommend to the minister. Should it be an x % increase, plus or minus, given inflation and population growth? Do you have a position on this?

The other question I'd like to ask is on the capital tax, which was brought up by a previous presenter. Like yourself, the previous presenter said that five years was too long. But I thought we had settled the problem last year, because every year our committee has recommended the abolition of it. Maybe we didn't get it abolished all in one fell swoop, but five years seemed to be palatable. Now that you're saying it isn't, what is palatable?

The third question I have for you is that more and more I hear different presentations on the classes of accelerated depreciation. I'd like you to elaborate more on the suggestion made by the previous presenter on possibly reviewing the classes. I think some of these classes were probably established before computers were even invented. If we look now at the printing industry and at small controls in all kinds of equipment, and whether it's telephones etc., they all contain high tech. I'm wondering if it's time to start classifying some of these assets differently. The proposal was that for IT assets, we should have accelerated capital costs at 50%. I'm wondering if that's sufficient, or is that 50% straight line or decreasing balance? So what's the appropriate timeframe for that?

Â (1200)

Mr. David Paterson: I'll try to address your questions in order.

On the first question, regarding program spending, we take the view that overall spending should increase at a rate representing a combination of population growth and inflation. We do not recommend that every program automatically benefit from whatever that combination may be, whether it's zero percent or three percent or five percent. There are programs out there of dubious merit. There are naturally people who benefit from them who will claim the programs are all wonderful. But in a broader context, perhaps the money would be better allocated to tax reductions, or payments on the debt, or to some other program. So our view is that there should be restrictions on overall program spending, but the actual distribution of the spending among the individual programs should be subject to very intensive review.

Mr. Nick Discepola: We did that in 1995. It was called program review, though.

Mr. David Paterson: And it worked very well, didn't it?

Mr. Nick Discepola: Right, but notwithstanding the drastic measures and the drastic cuts at the time, spending has crept up.

Mr. David Paterson: Yes, and it is our view that greater attention needs to be focused on this issue.

On the second question, regarding the corporate capital taxes, the analogy we have used in the past in respect to a variety of government programs is that the high-tech industry still works in web-years, which are three to four months long, so five calendar years is perhaps 20 years. As anyone knows who's ever tried to project either corporate sales or government expenditures, projections of programs that long are pretty much irrelevant. The ultimate result will bear no resemblance to the forecast. Action needs to be taken now. Certainly, investment will be needed five years from now, but in the highly competitive environment for global foreign investment that prevails at the moment, certain steps need to be taken immediately to improve our competitive position.

Regarding the last question, I'll have to repeat what I said before about some of the niceties of the taxation system requiring the attention and knowledge of an experienced tax lawyer. The issue you raise has come up from time to time from a small number of our members, but it is not of concern to a sufficient number of them to have elevated it into one of our primary interests. Certainly, anything that increases demand for both hardware and software across the spectrum will benefit our industry, but the real explanation, I think, for the lack of interest among CATA members is, as I said, that they're all exporters. It's not unusual for them to derive in excess of 90% of their revenues from clients outside Canada, so it is less of a consideration for CATA members than it may be for companies that are greater suppliers to the domestic industry.

Mr. Nick Discepola: Thank you.

I'd like to touch on the most important issue for me, which is to what level this government should be concerned about debt reduction. I'm one who fought for tax reduction and debt reduction since the beginning, because I realized that for every $10 billion we reduced the debt we gained in perpetuity a billion dollars in return so that we could have much greater flexibility. I preach this to my kids also. I say, get rid of your debt, because you will then have x thousands of dollars or x hundreds of dollars a month that you can put to things for your lives and your kids' lives. So I have no qualms with debt reduction, but I do have qualms at this stage now when I look at your presentation, Ms. Brooks, where you seem to indicate a strategy to reduce actual amount of debt over the next decade, allocate any portion that could easily be redistributed to debt reduction. If you save x thousands of dollars, as I tell my kids, you can then take vacations, you can do whatever you want with the savings, while you're saying take 50% of that also and further reduce debt. So at what point are we comfortable with what level of debt? We started in our red book by saying that even though it was 75% of GDP, we thought it was a balanced approach to our ability to pay and our ability depending on economic growth.

So I open up the question. Should we be recommending to the Minister of Finance targeted debt reduction levels? If so, what should they be? I haven't done the recent numbers, but last year, when I did the numbers, through economic growth--and I realize that factors have changed this year--we could have achieved certain acceptable levels, to me, by economic growth alone, because there are other priorities. We've had presentations here today that tax cuts are still a priority. We have to do more in health care, defence spending, Kyoto implementation. All these things require additional funds, and if you just become fixated on debt reduction, I don't think we're going to have the latitude. So what should be the optimal target?

Â (1205)

The Chair: Ms. Brooks, a very short answer.

Ms. Beverly Brooks: We don't have any specific targets. We do commend the government for moving in the right direction, but we think more should be done. We think that would give the government more flexibility through saving more money and having more funding available for other expenditures.

The Chair: Thank you, Mr. Discepola.

Ms. Wasylycia-Leis.

Ms. Judy Wasylycia-Leis: Thanks, Madam Chair.

I would also like to thank all the presenters this morning for giving us, I think, a microcosm of some of the issues we're dealing with globally as we pursue the pre-budget deliberations.

I want to start with the National Council of Women and say to Madam Laidlaw-Sly that she's quite right in saying it was rather fortuitous that the National Council of Women be chosen to appear with CATA and Advocis, because your views are very different. I think the real challenge for all of us is to figure out where in the scheme of things the Liberal government is sitting these days, not being sure what Paul Martin is standing for and how much the Liberals across the way are prepared to live up to a previous campaign commitment, which was a 50-50 split of any surplus dollars, so 50% would go to program spending and 50% to tax cuts and debt reduction.

I'd like to start with that proposition. I may not agree with it, I may think it's not adequate for the needs on the social and health side. However, if the Liberal government had stuck with the 50-50 proposition, we might not be in the kind of dilemma we're in today that's been so clearly articulated by the National Council of Women. Further to Bryon Wilfert's comment to you Madam Laidlaw-Sly that he was glad to see you're in favour of a balanced budget, I want to start with the question about the 50-50 promise and whether you think that's appropriate. And I want to ask you if you would be prepared to still support the balanced budget notion if it meant that in order to achieve that, we would have to see significant program cuts to pay for the kinds of tax cut propositions that are being presented today by the two organizations that are at the table with you.

Ms. Catharine Laidlaw-Sly: We're not in the government, so we're spared the difficult problem of actually sitting down and looking at that whole problem and answering it. In principle, we agree with the idea of paying down the deficit. Paying it down in a neat, orderly fashion is very attractive. However, from year to year, just as in family budget planning, the exigencies change, the crisis areas change, and there is always that unforeseen factor. So we are quite realistic. I think our membership would find it very hard to say it isn't a matter of using some judgment from year to year and having to cut your garment to suit the cloth you've got.

That said, we're still not pleased with the fact that we don't have a good idea of what is really being done in Canada, the real value of the work. One of the issues I did not get a chance and didn't want to take the time on, though it's a corollary to the points we were making, is that in budget planning and in financial programs we believe the government should be making full use of the services already in place to do gender-based analysis. There's the question again on the child tax credit. I haven't got the material in front of me, but it has a great deal to do with the fact that the analysis of the programs designed to help parents, sometimes full-time parenting being done by a single parent at home without any outside support, living on welfare or living on a very low income, is not done with a gender lens to it. In other words, the one size is presumed to fit, and fix, all, but that's not necessarily the case. I would submit to those who think this is going to severely unbalance things that if you do look at things using gender-based analysis, you may find that the government has actually been wasting some money on programs helping people who don't need help and not helping those who do. And in some cases they may find that it's a male that's getting the short end of the stick. We don't know, we don't have the ability to do that.

It seems to me that when you're looking at all these programs, if they're going to be seriously targeting and trying to really use the money the best possible way, they have to take that extra step and do the gender-based analysis before they start.

Â (1210)

Ms. Judy Wasylycia-Leis: That's much appreciated. In fact, I think there have been a number of pieces of legislation before us recently where in fact gender analysis was not done, despite promises. I think we need to listen carefully to your words today.

Would you say that an agenda that focuses primarily on tax cuts and debt reduction would have a disproportionate impact on women?

Ms. Catharine Laidlaw-Sly: Well, once again, if the analysis is not done, then that possibility is quite likely.

One has only to look at the way the reduction of the deficit was attacked. It was an across-the-board, percentage-wise slashing. It was what we call “down and dirty”, and it was not selective. There wasn't the detailed analysis done to determine who would be hurt the most with that process. Of course, in the cascade of downloading of the cuts that took place throughout the whole social infrastructure side of our economy, then, yes, we found out that it was for parents, very often disproportionately women. It was these people who had the fewest reserves, financial and otherwise, who had the fewest means of protesting, who were hurt the worst in that situation.

So we come back to the need to do an analysis before you make these cuts.

Ms. Judy Wasylycia-Leis: I have a question for Madam Brooks.

Could you give us a dollar figure attached to your recommendation on page 10 to increase the RRSP contribution limit to $27,000 with full indexation thereafter?

Mr. Terry Zive: No, I cannot. That was the same question that Mr. Jaffer asked, and at this point we do not have the exact numbers. We could, however, certainly endeavour to obtain that number.

Ms. Judy Wasylycia-Leis: Fair enough. You probably know from the analysis of the last budget, whereby the RRSP limit was increased from $13,000 to $18,000, that this would cost us about $295 million. You might also know from most of the analysis that in fact this change in the RRSP limit would really help people earning more than $75,000 per year, so about 5% of Canadians. So my question to you is this. Given the fact that what you're proposing has a fairly major price tag, and you're talking about balanced budgets and responsible government and so on, how do you justify that kind of a recommendation that targets such a small number of people, given the kinds of concerns you've just heard from the National Council of Women, from ordinary women desperate to make ends meet for their families, who are low paid or not paid at all, who are simply looking for some benefit around pension tax splitting, some basic tax credits—

Â (1215)

The Chair: You'll have to allow enough time for a very short answer.

Ms. Judy Wasylycia-Leis: Anyway, that's my question and I hope you can answer it.

Mr. Terry Zive: As I have responded previously, I think it comes down to a question of being able to attract and retain individuals in this country who would be very involved in the economic growth of the country.

Ms. Judy Wasylycia-Leis: You're focusing on that.

Sorry, I apologize.

The Chair: We'll now go to Roy.

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

Thank you to the presenters for their good presentations.

I would like to go to the Canadian Advanced Technology Alliance first. I believe that productivity is a huge issue facing our country, particularly when we look at our major trading partner and the exchange rate changes that are going on. As a proud Canadian, I like to see the Canadian dollar doing better against the U.S. dollar. But it does raise some productivity issues, and it seems to me that technology has a major role to play.

I have a couple of questions. This may be more of an economic question. You sometimes read that the United States is achieving huge productivity gains, but it is doing that at the expense of jobs. If you compare our productivity gains to those of the United States, we're lagging behind, but our job performance has been much better. In terms of Canada increasing its rate of productivity vis-à-vis the U.S., is that going to be at the expense of jobs? That's my first question.

Secondly, in the last report of this committee we did make a recommendation with regard to the scientific research and experimental development investment tax credit. I guess the minister has decided not to act on that recommendation. I'm wondering if you're having further discussions with the tax department. In our recommendation we talked more about the flexibility of the tax credit itself, whether it should be refundable or non-refundable, and we didn't get so much into this issue of the foreign-owned companies.

Sorry to throw so much at you.

We have programs in Ottawa that the federal government runs, such as Technology Partnerships Canada and IRAP, the industrial research assistance program. What is the role of the federal government in terms of increasing productivity, and what is the role of the private sector? We often hear about the need for more government support. We have one of the most progressive R and D regimes in the world and yet R and D investment still lags behind. Is it a matter of fixing the flexibility within the tax credit system or are the problems more fundamental than that? Do we have a problem with the formation of risk capital?

There are some big items in there, but if you could take a stab at them, I sure would appreciate it.

Mr. David Paterson: I'll start with the productivity question and the whole issue of whether productivity costs jobs. This is a long-standing issue, and I'm not sure it's an economic issue so much as a social issue dating back to the days of the Luddites, even.

Productivity costs jobs if the business is not expanding. If you bring in new efficiencies, it allows you to lay off a few people if your sales remain level. But if your productivity improvements are allowing you to expand your sales by finding new markets and enlarging the ones in which you already are active, your business is going to expand and employment will expand with it.

What has happened in the United States in the past couple of years is that economic growth--well, they did have a little dip, and an actual recession--has been stagnant. Revenues have not been rising. Production has not been rising. Therefore, the impact of productivity improvement has been to decrease employment.

The difference in Canada, of course, is that throughout this period our economic performance was a little better. We didn't quite stumble into a recession. Revenues continued to grow, businesses continued to expand, and therefore there was no impact on employment as productivity improved in Canada. It has not improved as rapidly in Canada as it has in the United States, and that remains a problem that we all need to address.

On the subject of the SR and ED tax credits, regarding refundability, which we were very pleased to see the committee address last year, yes, we have continued to pursue the finance department. We repeated that recommendation in our presentation today. We will continue to do that because we think that is an issue that needs to be fixed.

Some people perceive this as a Nortel thing, that they're losing lots of money so they can't get their tax credits. In fact, it applies to literally dozens of small companies that have gone public over the past three to four years during the high-tech boom and that now find themselves, when they need support for their R and D programs the most, unable to get their hands on the credits. It's much more important to the small companies than it is to Nortel, and we will therefore continue to pursue it. It's important to our members.

Regarding the importance of government programs to R and D performance, they are important. You need to have an environment created where, if a company decides it needs to pursue an R and D program to be innovative and to create new products or make new progress, there is support there from the tax system, or government grants in some cases, that will allow them to carry out their R and D program.

The discrepancy in the relative performance of Canadian businesses in the R and D field I think relates in many respects to the structure of Canadian industry. Certainly among our membership in the high-tech industry we are outstanding R and D performers. Everybody does it. The same applies to pharmaceuticals, aerospace, and a number of other industries. However, Canada still has a very large proportion of its economic activity generated by resource industries, where R and D is less of an issue. It's hard to imagine doing R and D on the best way to cut down a tree. Substantial gains have come from R and D in the information technology industry, which has improved the efficiency of cutting up that tree, slicing it into lumber once you've actually cut it down.

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So there is demand for R and D throughout, but the structure of the Canadian economy is such that I think it would be a very long time indeed before our R and D performance, as measured by conventional statistics, matches that of the United States or the major European countries or Japan, for example.

The Chair: Thank you very much. We're out of time.

Ms. Minna, you can have a couple of short questions, and then I have Mr. Murphy. And Mr. Forseth has also asked to do a question. We'll get through those and then we'll be perhaps one or two minutes past our deadline.

Thank you.

Hon. Maria Minna: Thank you.

First, Ms. Brooks, I would like to go back to your debt reduction scenario. I must admit I find it difficult to accept and deal with, especially given the fact that... And perhaps you could tell me what level of GDP percentage is then acceptable of the debt reduction, because we heard the last time we had hearings, and even now this morning, about infrastructure deficit. Cities in this country have huge demands on infrastructure. Our highways and roads in this country... There is a huge demand, a problem. In other words, we're looking at infrastructure deficit and debt. And a bad infrastructure also creates a bad economy and creates a different kind of debt, which then to try to catch up would cost a tremendous amount more.

So at some point, somewhere, one needs to start investing. Governments are always being asked to invest, and if we put out most of the money into debt reduction and tax cuts, it doesn't necessarily benefit Canadians or create jobs, or address the other debt and deficit issues, which would, in my mind, continue to erode. And I haven't even mentioned the social infrastructure, with which I agree, which includes health care.

So I would like to know this from you. At what level do you feel that a percentage of the debt reduction can be slowed? And are these other issues not just as important?

And my last question to you has to do with the RSP. To be honest with you, the last time we went around this one I was opposing the increase in the last budget, so I say that so you know where I'm coming from. Even with the last levels, before the increase of the last budget, only 10% of all of the RSP room was being used up. Only 10% of the population was taking advantage of it. The rest of Canadians were not using up the full space, because they weren't earning enough to use up the whole space.

So here again you want to increase it another $27,000, which is obviously going to cost some billions of dollars. It's not going to be any more used than the old level by more than 10% of Canadians, so it's going to benefit a very small number of Canadians at the expense of the average Canadian who cannot take advantage of it and for whom we ought to be doing, I think, an overall review of pensions, because the last time I looked, 630,000 single Canadians, mostly women, were living under the poverty line.

We haven't reviewed our full pension system properly in a long time, but we keep getting the same request from certain groups. And your answer to my colleague earlier with respect to it needing to maintain and attract the right people, I don't buy that, because, first, I don't think we're losing as many people, because most people are coming back as a result of our investment in research. And the other is that we have tons of immigrants who are....Some 1,500 doctors in Ontario alone are not practising their profession because associations are using protectionist tactics to keep them out of certain jobs.

I sound a little aggressive on that, but I know the issues there, so I really would like you to convince me how that's going to make a difference in our society.

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Ms. Beverly Brooks: First, to deal with the issue of deficit reduction, I understand the fact that you do face pressures on certain expenditures. There are certain legitimate, I suppose you would say, pressures for spending, but I'd like to refer to two comments that have been made in the last hour and a half, and one was that spending levels are creeping up. We saw that in the last budget, and there was another comment made about the dubious merit of some programs. I think we do need to be fiscally responsible. We represent members who advise their clients on how to budget and to be fiscally responsible, and we're asking the federal government to do so in this case.

On the issue of RRSPs—and I'll let Mr. Zive comment on this too—it's one of the few tax deductions Canadians have.

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Hon. Maria Minna: With respect, I might point out that very few Canadians can take advantage of it.

Ms. Beverly Brooks: Well, it is, again, one of the few they still have, and as was mentioned earlier, one of the concerns in this country is high tax rates. The National Council of Women referred to a poll in Quebec where the three major concerns were health care, education, and tax cuts.

Just from my personal experience, when I talk to my friends, their children are all heading south of the border. That's where they're finding the best jobs. So I think we do have to be concerned about losing highly skilled and highly trained Canadians to the U.S. There is competition—

Hon. Maria Minna: You just said “the best jobs”. Is the issue one of tax deductions or benefits or is the issue the types of exciting jobs they can get, which is quite a different issue from the tax situation?

Ms. Beverly Brooks: I think it's one consideration.

Would you like to comment on that as well?

Mr. Terry Zive: I would just like to make one other comment, and that is, while I think it's difficult to look at the statistics and determine what level of jobs we're losing, my belief is that we are losing people and that our ability to attract key people here is impaired.

Having said that, I would welcome a complete review of the overall pension system. I think your comment is quite appropriate. That review is long overdue, but I would do that--

Hon. Maria Minna: Then we couldn't spend 50% on debt; we'd have to spend it on pensions--some of it, anyway.

The Chair: Thank you.

Mr. Murphy, one question.

Mr. Shawn Murphy: Madam Chair, I just have one brief question for Madam Laidlaw-Sly.

First of all, I want to thank you for your brief. There's just one issue I want to have clarified, and you may feel more comfortable responding by letter. Mr. Wilfert touched on it briefly, and it's the recommendation for a child care tax deduction.

The way I read your recommendation, you're recommending that it be changed to a refundable tax credit and that it be made available to families that use child care and also families that care for the children at home. In other words, everyone would get this refundable tax credit, which is basically very similar to the existing national child tax benefit, which of course is income-based, and your recommendation is for something that is not income-based. You can see the confusion I'm having, and I would question why we would do it.

My real question is--of course, that would do away with the child care tax deduction--from a public policy point of view, are there not any public policy benefits to allowing some benefit or some incentive to these families where both parents want to work, especially lower-income families?

I'll use the example of a woman who goes to work and makes $25,000 a year. That woman has expenses, she pays taxes, the family has child care expenses, and there are transportation expenses. If we did away with the child care tax deduction as per your recommendation and went to a universal refundable tax credit, you'd take away a lot of the incentive for that person to work. Is there no public policy incentive we should be looking at to keep that person working? Again, you may want to respond by letter.

Ms. Catharine Laidlaw-Sly: I'd be happy to respond in detail to part of it by letter, but I'd like to make the observation right now that when you say the incentive to work, please be specific and be careful, because this is about paid work. These people who are doing child care or whatever other kind of unpaid work are working, but they're not being paid, and it's part of that whole grey area of an immense amount of productivity that is not counted in our GDP.

Mr. Shawn Murphy: That's right, but again, if you do away with the... as a prerequisite—

Ms. Catharine Laidlaw-Sly: We will respond to you by letter.

The Chair: Mr. Forseth, you have the final question.

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

I'd like to direct the question to the National Council of Women. In your presentation you did raise the issue of unpaid work. In our party, the Canadian Alliance, of course that issue has been longstanding. I would like you to expand a little bit about how we get there. We often accept the concept that with child rearing, for example, if you purchase it somewhere else, it gets recognized; if you do it yourself, it isn't. To look after an elderly parent or a patient or whoever, if you purchase it, it gets recognized; if you do it at home, it's not.

Sweden addressed this thirty or forty years ago, and other countries have tried. Perhaps you can just expand on the solutions. You've raised the problem and we recognize it, but the tough knot is how we get there. What are some of the ideas on how we could actually implement that?

Ms. Catharine Laidlaw-Sly: Thank you for the question.

I believe we're all familiar with the United Nations system of accounts. The fact is that the tables of equivalencies for giving good productivity answers on the value of the productivity of the uncounted, unpaid work were worked out some thirty or forty years ago. I understand that they were worked out by, among other people, the United States federal treasury department, but there has been no political will to use these equivalency tables, to examine them and see if they really do answer the question, if they do give you a reliable statistic.

I think it comes down to this: is there any political will to recognize this contribution, are you going to put a dollars and cents point on everything, or is it going to be continued to be taken for granted and used in times of deficit reduction?

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The Chair: On behalf of our members, I thank you for staying those extra couple of minutes to accommodate our extra questioning, and thank you for your presentations. We look forward to taking them under advisement. Thank you.

We are adjourned till this afternoon.