FINA Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Thursday, October 31, 2002

¹

1535

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

Mr. Gilles Taillon (President, Conseil du patronat du Québec)

¹

1540

The Chair

Mr. Jayson Myers (Senior Vice-President and Chief Economist, Canadian Manufacturers and Exporters)

¹

1545

¹

1550

¹

1555

The Chair

Mr. Garth Whyte (Executive Vice-President, Canadian Federation of Independent Business)

º

1600

º

1605

The Chair

Mr. André Piché (Director, National Affairs, Canadian Federation of Independent Business)

º

1610

The Chair

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

º

1615

Mr. Garth Whyte

Mr. Rahim Jaffer

Mr. Jayson Myers

Mr. Garth Whyte

Mr. Rahim Jaffer

º

1620

Mr. Garth Whyte

The Chair

Mr. Scott Brison (Kings—Hants, PC)

º

1625

The Chair

Mr. Gilles Taillon

Mr. André Piché

The Chair

Mr. Jayson Myers

Mr. Scott Brison

Mr. Jayson Myers

The Chair

Mr. Bryon Wilfert (Oak Ridges, Lib.)

º

1630

The Chair

Mr. Bryon Wilfert

The Chair

Mr. Gilles Taillon

º

1635

Mr. Garth Whyte

Mr. Bryon Wilfert

The Chair

Mr. Jayson Myers

º

1640

The Chair

Mr. Roy Cullen (Etobicoke North, Lib.)

Mr. Gilles Taillon

Mr. Roy Cullen

Mr. Jayson Myers

Mr. Roy Cullen

Mr. Garth Whyte

Mr. Roy Cullen

Mr. Garth Whyte

Mr. Roy Cullen

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)

Mr. Roy Cullen

The Chair

Mr. Roy Cullen

º

1645

Mr. Garth Whyte

Mr. Roy Cullen

The Chair

Mr. Roy Cullen

Mr. Jayson Myers

The Chair

Ms. Maria Minna (Beaches—East York, Lib.)

º

1650

Mr. Garth Whyte

Ms. Maria Minna

Mr. Garth Whyte

The Chair

Mr. Jayson Myers

Mr. Gilles Taillon

º

1655

Ms. Maria Minna

Mr. Gilles Taillon

Ms. Maria Minna

The Chair

Mr. Tony Valeri (Stoney Creek, Lib.)

Mr. Jayson Myers

Mr. Tony Valeri

Mr. Jayson Myers

Mr. Garth Whyte

Mr. Tony Valeri

Mr. Garth Whyte

The Chair

Mr. Gilles Taillon

»

1700

Mr. Tony Valeri

The Chair

Mr. Gilles Taillon

The Chair

Mr. Jayson Myers

The Chair

Mr. André Piché

The Chair

Mr. Nick Discepola

»

1705

The Chair

Mr. C.A. Pielsticker (Chair, Retirement Income Coalition)

»

1710

»

1715

The Chair

Dr. Thomas Brzustowski (President, Natural Sciences and Engineering Research Council of Canada)

»

1720

»

1725

The Chair

Mr. Phil Upshall (President, Mood Disorders Society of Canada)

Dr. Rémi Quirion (Scientific Director, Mood Disorders Society of Canada)

»

1730

The Chair

Mr. Gordon Peeling (President and Chief Executive Officer, Mining Association of Canada)

»

1735

»

1740

The Chair

Mr. Dan Reist (Treasurer, Canadian Executive Council on Addictions)

»

1745

»

1750

The Chair

Dr. Tom Breneman (President, Canadian Dental Association)

»

1755

The Chair

Mr. Rahim Jaffer

Mr. Dan Paszkowski (Vice-President, Economic Affairs, Mining Association of Canada)

Mr. Rahim Jaffer

Mr. Dan Paszkowski

Mr. Rahim Jaffer

¼

1800

Mr. Malcolm Hamilton (Partner, Retirement Income Coalition)

Mr. Rahim Jaffer

Mr. Phil Upshall

Dr. Rémi Quirion

The Chair

¼

1805

Dr. Thomas Brzustowski

The Chair

Mr. Roy Cullen

Mr. Dan Reist

Mr. Roy Cullen

Mr. Gordon Peeling

Mr. Dan Paszkowski

¼

1810

Mr. Roy Cullen

Mr. Dan Paszkowski

Mr. Roy Cullen

Mr. Phil Upshall

Mr. Roy Cullen

Mr. Phil Upshall

Mr. Roy Cullen

Mr. Phil Upshall

Mr. Roy Cullen

Mr. Phil Upshall

Dr. Rémi Quirion

¼

1815

Mr. Roy Cullen

Mr. Phil Upshall

Mr. Roy Cullen

Dr. Tom Breneman

Mr. Roy Cullen

The Chair

Mr. Andrew Jones (Director, Corporate and Government Relations, Canadian Dental Association)

The Chair

Ms. Maria Minna

¼

1820

Mr. Malcolm Hamilton

Ms. Maria Minna

¼

1825

Mr. Malcolm Hamilton

Ms. Maria Minna

Mr. Malcolm Hamilton

Ms. Maria Minna

Mr. Malcolm Hamilton

Ms. Maria Minna

Mr. Malcolm Hamilton

Ms. Maria Minna

¼

1830

The Chair

Mr. Malcolm Hamilton

The Chair

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CANADA

Standing Committee on Finance

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NUMBER 012

l

2nd SESSION

l

37th PARLIAMENT

---

EVIDENCE

Thursday, October 31, 2002

[Recorded by Electronic Apparatus]

¹  (1535)  

[English]

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

    On our first panel of the afternoon, our witnesses are Garth Whyte, executive vice-president, and André Piché, director of national affairs, from the Canadian Federation of Independent Business; Jayson Myers, vice-president and chief economist with Canadian Manufacturers and Exporters; and

[Translation]

    Gilles Taillon, president of the Conseil du patronat du Québec.

    Mr. Taillon, you may begin.

    Mr. Gilles Taillon (President, Conseil du patronat du Québec): Thank you very much, Madam Chair.

    I believe you received our presentation. Since it is quite brief, a summary of our position, in fact, I will read it in its entirety. It sets out the main expectations of our council with regard to the preparation of February's budget.

    Firstly, concerning employment insurance contribution rates, we think it is necessary, in light of employment insurance fund surpluses noted year after year, that contribution rates be reduced. According to the CPQ, a rate of $1.70 would be sufficient, not only to cover the costs of the system, but also to progressively constitute a reserve fund for the purpose of avoiding any increase in contribution rates during economic downturns. Since the government has stated its intention of gradually reducing contribution rates until they reach the break-even point, as the Minister of Finance said, we recommend that this rate be reduced to $1.70 over a period of three years.

    Our second expectation concerns personal income taxes. In spite of a considerable decrease in personal income tax, which we acknowledge, it must be said that in 2004-2005, according to projections, personal income tax will still make up 7.4% of the GDP, whereas this figure was 7% in 1993-1994. In our opinion, this justifies implementing a policy of reducing personal income tax.

    Last spring I mentioned that we hoped that the decrease would benefit all taxpayers, but we must not forget those whose marginal tax rate is the highest, those who basically contribute through their savings to stimulating investment, something Canada greatly needs. Your government recognized this with its strategy on innovation and competitiveness.

    If we want to compete with other OECD countries, there is another reason to be cited in favour of reducing personal income tax: it is the whole matter of comparisons with OECD countries. We know that personal income tax represents 14.6% of GDP in Canada, as compared to 10% on the average for G-7 countries and 10.1% for OECD member countries. As a percentage of overall tax revenues, personal income tax was 38.1% in Canada as compared to an average of 27.9% for G-7 countries and 26.3% for all of the OECD countries.

    In short, whatever the means selected to attain this objective, personal income tax must be reduced. A desirable objective would be to reduce it, over the next few years, until it reaches the level of average personal income tax in G-7 countries

    Our third important expectation is the elimination of capital taxes.

    I would like to refer at this point to the Ernst & Young study published in its Tax Policy Bulletin of last spring, which showed the negative effects of capital taxes, in particular taxes on the capital of large corporations, imposed by the federal government for fiscal 1998, which was the last year available.

    These were the main findings of that study.

    Capital taxes strike businesses when they are weakened, when they declare losses, which was the case for some 55% of tax collected under the tax on large corporations, while the proportion of declared assets overall was only 40%. These businesses are generally new high technology businesses which have high research and development costs and are liable to experience marked cyclical variations in their profitability.

    The burden of taxes on capital is proportionately much heavier on high capitalization industries, thus discouraging investment in sectors such as manufacturing, resources and financial services. The higher the productivity of an industry as measured by production per worker, the heavier the corporate tax burden.

    Having recognized the perverse effects of capital taxes on the economy, the provinces have already taken certain steps. Alberta and British Columbia have eliminated them. Quebec and Ontario have announced gradual decreases of the rates of this tax in view of its progressive elimination.

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    In our representations to the Government of Quebec, we are going to recommend with regard to the spring budget that this tax be phased out by 2005, and we make the same recommendation to the federal government: we recommend that it eliminate taxes on capital over a period of three years.

    With regard to the federal debt, I will not repeat what I said last spring, but we believe it is important that we continue to pay down the debt. Our target is that thee net debt—to—GDP ratio be less than 40% by 2004-2005. Currently, we are very close to 50%. So, there is still work to be done to reduce the debt. We know that the American debt is approximately 30% of GDP.

    Here is our fifth expectation: we insist that the government continue its efforts to put federal public finances on a sound footing and to return to the practice of increasing public expenditures at a rate that does not exceed inflation. We know that there has been tremendous progress in this regard during the years which preceded the last two, but the federal government has begun to spend again, and this concerns us. If you want to be able to meet the first four expectations we put forward, it is important that you keep a tight rein on expenditures, that increases in expenditures be reasonable and not exceed the inflation rate, that you target the most productive expenditure sectors, i.e. health and infrastructure, and that you put in place measures to implement the Kyoto Protocol.

    Madam Chair, those are the recommendations of the Conseil du patronat to this pre-budget consultation hearing.

[English]

    The Chair: Thank you very much.

    I'll now go to Mr. Myers, from Canadian Manufacturers and Exporters.

    Mr. Jayson Myers (Senior Vice-President and Chief Economist, Canadian Manufacturers and Exporters): Thank you very much, Madam Chair.

    I'm very pleased to be back with this committee to present the views of Canadian Manufacturers and Exporters. Our pre-budget views are not all that different from what they were last April, when we were speaking about the priorities for budget planning at that time. I'm not going to read our whole submission--I'll leave that for the committee--but I do want to update you on the economic condition as far as manufacturers and exporters see it at the current time, perhaps provide some views, as a result of that, about the challenge companies are facing today in competitiveness and why innovation is so important, and then underline some of our consequent priorities for budgetary planning.

    The finance minister pointed out yesterday that the Canadian economy is doing much better than other G-7 economies, and I think his projection of about 3.5% growth is probably going to be pretty accurate this year, with growth not much more than that next year, but I think it's important to underline how fragile this economic recovery is. When I talk to our members and try to give them a context for what's going on, I always ask them to sit back, close their eyes, and think of Hudson Bay, because that's how I see this recession and recovery.

    We've gone through a very deep recession from October of 2000, which was the peak of the business cycle for Canadian industry. By September 2001 we had come down the west shore of Hudson Bay, and we went into the James Bay effect of September 11. Since January of this year we've seen some very strong recovery in manufacturing production and employment, in exports, and in profits in some key sectors, but this is just a snap back from the 6% to 8% production losses in the immediate aftermath of September 11. We saw 60,000 people lose their jobs in manufacturing in two months alone after September 11, and we've gained back a great deal of that employment, but this is the snap back to a condition that is probably back on track, going up the east coast of Hudson Bay now, for a very slow recovery, a fragile one, where we haven't seen a great deal of profit or earnings performance yet.

    That's important, because it's profit that drives capital investment. It's going to be earnings performance that determines whether companies are going to continue layoffs and restructuring and consolidation. Therefore, it's going to be very important to look at earnings and profit margins before we say we're really back on track with full economic recovery. We will have to see a recovery in profit margins.

    Right now profit margins across our sector of manufacturing and exporting sector are running at about 1.5% of sales. That translates into an eight-hour production shift for manufacturers. It translates into a six-and-a-half-minute time period for them to make money, and that's the money they need to make the investments in new technology and new product development, in restructuring, in management changes, in training that everybody knows they have to make in order not only to compete in the long term, but to survive at the present time. Six and a half minutes out of an eight-hour production shift isn't very long, and that's the average for a sector. After-tax profits are running at about 1.5% of sales.

    So it's in this context that we're looking now at a very slow recovery. I think, as I said, it's going to take a turnaround and a significant improvement in earnings before we can really say we're out of the recession. Of course, we're dealing with a lot more risk, political risk in the Middle East that may have an impact on energy prices, financial risks, the risk of a major correction in property markets in North America, the risk of financial fallout from what's going on in Japan and Argentina and Brazil. All of those are significant risks, and I think the downside risks are much more important right now than any upside risk.

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    We're in a situation where inflation is not the problem, but deflation. We're in a situation where prices are falling for manufacturers and exporters, where the cost of business is increasing. Under those conditions, when we talk about innovation, we're talking about something to generate money, but we're not just talking about innovation as something that's nice and we need to do in order to compete in the long term, we're talking about things companies have to do simply to survive in the short term, either by cutting costs or by investing in higher-value product and service. So innovation is crucial for the survival and the long-term competitiveness of Canadian industry.

    In that context, we make our budgetary recommendations, first for sound fiscal management. We're very glad to respond to the finance minister's commitment to keep the budget in balance and to reinstitute the contingency and the prudence reserves. I think these are extremely important to continue to pay down the debt. We'd like to see overall increases in real spending activity limited to about 2.5% per year. And we are very glad that the government is on track to achieve its tax reduction targets and to identify potential opportunities for reallocation of spending within departments. I think that's long overdue and is extremely important.

    As we flagged in April, security, border efficiency, and overseas development assistance are priorities for our members. Certainly, there is the need to protect not only our physical security, but our economic security, with border efficiency as a major way of doing that. We are delighted that the governments of the United States and Canada have adopted the 30-point border action plan. Now it's time to actually implement each of those 30 points, and that's going to take a lot of investment in new technology, a lot of investment in providing the resources, customs, immigration, security at the border, a lot of investment by companies in pre-clearance systems and new information technology to do that. It's extremely important that the government continue to support the commitments it's made to ensure that the border between Canada and our major trading partner, the United States, remains efficient. Keep in mind that over two-thirds of what is manufactured in this country is exported to the United States, and over 55% of all the goods purchased in this country come from the United States. Border security and efficiency are extremely important.

    The government has also made a commitment to increase Canada's budget for overseas development assistance, and we also see this commitment as an extremely important contribution to future economic and political stability in developing countries. We support the government's goal of increasing its budget for development assistance. We're working closely with CIDA and other agencies of government to make sure Canadian business is increasing its investments in developing countries as well.

    For that reason, we very strongly support the creation of a publicly capitalized Canadian development finance institution. That institution would be able to provide financing that would allow Canadian companies to take an equity position in international development projects, where they could get positive, if not commercially competitive, rates of return. I think that's an extremely important mechanism for encouraging Canadian companies to participate in international development projects. We're the only country in the OECD that doesn't have this type of finance institution, and the lack of it is presenting severe impediments for companies that would otherwise be engaged in development projects.

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    I've referred before to the importance of investment for innovation, and regulatory reform is a very important part of encouraging a more conducive business climate for investment and innovation in this country. I mentioned how important this is simply for the survival and long-term competitiveness of Canadian industry. For most of the past ten years, in both Canada's primary sector and in our manufacturing sector, the rate of return on capital has been less than the cost of capital. That means companies are taking money out of cash, basically financing investment on the basis of depreciation. As result of that, the real value of the technology that's in place in Canada is dropping. That's why our productivity gap is growing, and I think we can take real steps to correct the situation by, for instance, eliminating the capital tax, reducing EI premiums, we hope at least to $2 in 2003, taking steps to make sure our R and D tax system works better than it does right now, and reducing corporate income tax rates even further than what is called for in the federal tax reform plan.

    There are steps the government can take as well in the field of regulatory reform, to reduce the compliance cost of regulation, to speed up regulatory processes, and to make regulation more effective. I make one last plea to the members of this committee to support Mr. Cullen's bill, if it becomes votable, on cost recovery. That bill reflects the recommendations of this committee. It's a very important bill. We see it as a very important part of improving regulatory systems.

    To conclude, with the budget priorities we set out here, our main objective is to make this country the very best place for companies to locate in, manufacture in, export from, invest in, employ in, and grow in. I think it's important that the tax priorities, the budgetary priorities, as we go forward set the standard that other countries will emulate, where we're not simply trying to scramble up to be as competitive as a number of our other major trading partners.

    Thank you.

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    The Chair: Thank you. It seems you got one of your wishes yesterday with the contingency reserve and the prudence going back in. I saw that in your brief.

    We'll move on to the next witness now, from the Canadian Federation of Independent Business, Mr. Whyte.

    Mr. Garth Whyte (Executive Vice-President, Canadian Federation of Independent Business): Madam Chair, on behalf of the Canadian Federation of Independent Business and the 103,000 independent business owners we represent, my colleague, André Piché, and I would like to thank you and the committee for again inviting us back to speak to you.

    We have a lot of information to give you today, and a lot of information can be found on our website, cfib.ca, but we've given you a package that we'll be referring to. The presentation is on the right-hand side of the package. It's a series of graphs, and at the back of the presentation is a French-English disc that has all of our graphs if you want to use them. We can break them out and give you other stuff, though. We also have reports supporting our power-point presentation. They are supplemental to what we, along with our colleagues here at the table, presented to you in April.

    Just to give you a theme of what we want to talk about in our presentation, first off, we want to emphasize once again the importance of small business to economic growth and job creation. Of all businesses, 95% have less than 50 employees. Small and medium-sized enterprises have 45% of the GDP. They're 60% of total employment. They're virtually all the net new jobs that were created over the past year.

    That leads to the second theme. The budget—and all government policy, for that matter—should acknowledge, support, and definitely not hinder small and medium-sized enterprise growth. It's important, and we'll be identifying what the small business sector has been identifying as its priorities.

    The third point is to emphasize the importance of stability and predictability in government policy. The worst enemy to entrepreneurship, business start-ups, and business expansion is economic uncertainty and government policy uncertainty. We'll be talking about that theme.

    I'm going to refer to the first report. It's now a quarterly indicator, called “Quarterly Business Barometer”, in which we survey our members. It's one thing to ask economists what they think about the economy, and I know this committee asked them in the spring. I know they also asked them a year ago when we were here before this committee. Everybody was saying the sky was falling, if you remember.

    If you look at page 3...and we've been doing this for 14 years. Following September 11, we surveyed our members on a weekly basis, and we were saying the non-stock-market economy is holding firm. If you look at graph 2, you can see in this report—and we found it amazing—that our members' and the CFIB index has actually mirrored GDP growth. It doesn't mean it predicts GDP. It means our members are a very good mirror of the GDP as it is today. Why is that? It's one thing to ask an entrepreneur what they think about the economy and what's going to happen. It's another thing to ask an entrepreneur about their business, their business expectations, and their hiring plans. They have been incredibly accurate, which leads me to the next graph.

    Here, we put our index—which mirrored economic growth—against the stock market index. We found that we have two economies. We have the stock-market economy and we have the non-stock-market economy. Again, September 11 was terrible and we saw the twin towers fall. But around those twin towers are other businesses that are still standing. When we saw Nortel fall, when we saw Enron fall, and when we saw the stock market fall, our economy still held firm. Why? Everybody was saying it was a surprise economic turnaround. People are saying there has been surprise job creation. Why?

    Bank Governor David Dodge, the finance minister, and the provinces have been quoting our stuff because the non-stock-market economy is half the economy. It's half of all jobs. So again, if I can, I would suggest that if there's one main theme in your report, the finance committee should acknowledge this fact and recommend policies that will build on this growth, not hinder this growth, because Canada has had a huge dividend over the past year because of the diversification of the small business sector. Yes, there are bumps up and down. Yes, there are bumps in the manufacturing sector. We have as many or more manufacturing members than the Canadian Manufacturers and Exporters, but they're small. If you look at our report, however, our members have been saying they're holding firm. Well, they're smaller, but it's just a diversification.

    We just have to keep going to the proof. People are saying now that, as a matter of fact, there will be 3.5% growth. When we had this discussion six months ago or a year ago, everybody was talking about recession. We weren't.

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    I strongly ask this committee to realize that, when you make your policies, you don't just focus on policies that are throwing things out there. Focus on why we've done so well in the last year and how we can build on that. Why have we done better than the United States? Why are we doing better than Japan, which is almost predominantly based on larger firms?

    We then asked our members about their current expectations for the coming year. We just did this in September, so it's fresh information for this committee. Again, as you can see, even though there are again bumps within sectors and within provinces, in aggregate,

firms exhibiting strength and optimism significantly outnumber those that show weakness. Compared to one year ago, 42% of business owners say their firms are performing stronger, while 26% say they are doing worse. In the next 3 months, 41% expect to be doing better, while only 14% foresee weaker performance. And, within the next 12 months, fully 51% of businesses expect to be performing much stronger or somewhat stronger, while only 12% expect to be worse off.

    If you take a look at the next graph, you can again see how this translates into their anticipated employment plans. If you remember, we said—and people looked at us—that there were about 250,000 to 300,000 jobs that weren't filled. We again asked our members, what are your expectations? As it says in this graph, 31% say they are going to have an increase in employment—these are owners who are employing people in their firms—while 62% say there will be no change. That's 93% saying they're going to hold onto or increase employment, while only 7% foresee a decrease. And that's full -time employment. As far as part-time employment is concerned, 78% say there will be no change, 16% say they will increase, and 6% say they will decrease.

    Small and medium-sized enterprises are the northern tiger. If you want to have a northern tiger, it's small and medium-sized enterprise, so let's build on it. They're creating the jobs. But as Jay pointed out, it's always a fragile situation that can change if the wrong messages are in the budget.

    The next point that I want to make is on barriers to growth. Again, I think this issue is important, and one that we're all working on with this committee. We gave a report entitled “Help Wanted”. We're adding to them, Madam Chair, rather than just talking about them.

    At that time, we surveyed our members. We asked them, and 11,000 responded. We said there were about 265,000 jobs currently vacant, but I guess we were somewhat wrong, because 427,000 new jobs were created. But one out of four of our respondents said they had a job that was currently vacant—and that was in March. One out of five said they had a position vacant over the last four months. The next graph shows that this is occurring in every province. Even in Newfoundland, where there's 16% or 17% unemployment, there were still jobs vacant there. So we have to work on this together to get to how to solve the problem.

    One of the things we'll be presenting—we don't have the information to give to you yet , but we'll be giving it to Minister Rock and to Minister Stewart at HRDC, and the industry committee's innovation committee—is our labour survey, which we vetted through HRDC and through every province, because this is an issue that concerns employment, education, training, adult learning, employment insurance, and immigration. We're asking about how we hire people and we're asking about solutions. We're trying to build on the survey that we did before on dealing with this issue, and that is increasing.

    The next thing that we've tabled for you—we didn't give you copies, but it was tabled with the clerk, with copies in French and English—is a report done by RBC Financial Group, Canadian Manufacturers and Exporters, and the Canadian Federation of Independent Business. It's called “The path to prosperity: Canada's small- and medium-sized enterprises”. An Ipsos-Reid report, it was a survey of small businesses in Canada and in the United States, so it's a comparison. This was a sample of 800 Canadian firms and 400 U.S. firms. The findings are quite interesting, because we're going to debunk some myths.

    They found that Canadian firms were just as entrepreneurial as U.S. firms. They found that the barriers were the same. But the final thing they found—and this is on graph 8—was that Canadian firms more often identified barriers to Canadian firms as reasons for not growing versus U.S. firms: 40% identified barriers in Canada, while 24% identified barriers in the United States. In Canada, 30% said they weren't interested in growing, while 40% in the United States said they weren't interested in growing. One out of four was risk-averse in Canada and one out of five was risk-averse in the United States.

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    The point is, they're very similar in entrepreneurial approach, so now it's up to us, when we look at our budget, to build on what we have benefited from over the last year and, I'll say, the last decade. I think that's the challenge for this committee. I don't know who else is going to be saying it, so we're saying it.

    As well, there are some great recommendations in the back. I encourage the committee to use them.

    Finally, from our graph 9, we found the same conclusion. André will be talking about tax burden, government regulation, and some of the things there. On government regulation and paperwork, though, I have to reiterate that you should keep pursuing, please, what you've been doing on cost-recovery. Keep pushing that regulatory reform that you've pushed in the past. I think it's important.

    I want to point out that , if you look at this, when we presented to you in the spring, 29% of our members identified the availability of financing as a problem. Today it's 39%, so it's a problem on the rise. On the issue of the shortage of labour, which I talked about, 42% said it was a problem when we presented in the spring. Today 51% are identifying it as a problem.

    This is my tenth year, I believe, presenting to the finance committee,and I'm going to keep the record going. I have to talk about employment insurance. What we have before us are individual faxes. The pile I have is only from the first three weeks, but I know each one of you is getting them. We're just asking our members to send them. We've been getting copies, too, but I think you're getting more than we're getting collectively from our members who are expressing concern about the employment insurance system. Here they are, and we can bring more next time. We'll bring the whole bunch, but I do think this is something this committee has to look at.

    André.

    The Chair: Quickly, because I'd like to get to questions.

[Translation]

    Mr. André Piché (Director, National Affairs, Canadian Federation of Independent Business): Thank you.

    The next chart, chart 10, is about SME federal tax priorities. The first priority is the reduction of personal income taxes. We are also concerned with employment insurance premiums and CPP and QPP premiums.

    Now, in the list of priorities, you can see that the reduction of federal income tax on capital is important, but it is the last priority for SMEs on that list.

    In chart No. 11, we indicate

[English]

how EI premiums are being spent in 2002. The graph explains very clearly that only 40% of the EI premium is used to pay regular EI benefits, and the rest is being diverted to other uses. This is something that's been recognized by many observers, including the Auditor General, as you know.

    In December 1999 your committee recommended that the rate-setting process and the common practices of EI be reviewed, and that the EI premiums should match the EI costs. At that time, the government accepted the recommendations but has been very slow in acting on those recommendations.

    The tax reduction plan that the government put forward included a 10¢ reduction for employees in 2002. However, due to September 11, we received only 5¢. In the meantime, CPP and QPP premiums went up by 40¢ in 2002, and another increase of 25¢ is set for 2003 . So we recommend that the EI premiums be reduced by at least 15¢ for employees next year, and the target that has been set in the five-year tax-reduction plan be followed.

    We have three measures we would like to recommend that would promote entrepreneurship and innovation. Of course, innovation goes hand in hand with entrepreneurship. The first two measures are ones that help small business owners plan for their own retirement, and we've had very strong votes from our members for them.

    The first measure is to raise the RRSP limit to $15,500 in 2003. We have 63% support for that measure, and we've had 15,000 responses. The limit was set in 1996 and has been frozen since then, and we believe it should be increased.

    The second measure has to do with the lifetime capital gains exemption. It's now set at $500,000. We have 78% support to raise it to $1 million. This measure was introduced in 1987.

    The last one has to do with the threshold for small business income. We believe this should be raised to $400,000 per year. Of the provinces, six have actually moved to raise this threshold at the provincial level. British Columbia, Saskatchewan, and New Brunswick have already raised it to $300,000. Alberta, Manitoba, and Ontario are going to raise it to $400,000.

    The next graph shows the fiscal priorities of our members. As you can see, they echo very well what we heard from Mr. Manley yesterday that debt reduction is a very important issue. Tax cuts are the second priority, and an increase in spending is third. In that area, reallocation of expenditures is what our members have in mind.

    The next graph is taken from a survey we did that involved roughly 15,000 responses. You have it in your folder. It's a study we did on the question of health care in Canada.

º  (1610)  

[Translation]

    The members of our federation told us how they feel governments should allocate their expenditures. As you can see, health care is our members' first priority, followed by education and income support for the elderly. You can see from the chart that there is good support for the environment and infrastructure. You can also see that business subsidies are close to the end of the list. If you are looking for a way to reallocate government spending, business grants and subsidies are one area where SMEs tell us that changes should be made.

    With regard to health care financing options, our members' first priority was the reallocation of existing government spending, while their least favourite option to pay for health care was higher income taxes.

    The other chart illustrates the position of SMEs as to the granting of additional taxing powers to municipalities.

[English]

    Our members are telling us they do not want the municipalities to have additional taxing powers. You have in your folder one form that's used in the state of New York. It has four pages and is filed quarterly by SMEs. This is because there are various tax levels in different regions of the state. Our members are adamant that they don't want municipalities to have a more complicated tax system imposed upon them.

    The Chair: I'm going to cut you off there, because the members have this material. You can finish off your presentation, if need be, with responses to the questions directed to you. I do have another panel coming in, and I think that's only fair to everyone.

    Mr. Jaffer, go ahead, with seven minutes for a start.

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

    I appreciate the presentations today, they're very pertinent. I always especially appreciate the information provided by the manufacturers and exporters and small business associations. Coming from a small business background, I find many of these things I can relate to.

    Looking quickly over the brief presented by the CFIB, I find you list a number of low-cost SME initiatives that we can consider, and I hope this committee will suggest many of them. But one of the things I failed to see in your presentation and I was hoping you could address is the challenge some of your members have with access to capital overall. What sort of challenges are they facing? You mentioned specifically the idea of the stock market, as we all know, having many challenges over the last year since September 11. This has posed some great challenges for small and medium businesses, if I'm not mistaken, in raising capital the traditional ways. Venture capital is still a big challenge in this country.

    Overall, what should the committee be focusing on in trying to make issues of access to capital easier, shortening that productivity gap you spoke about?

º  (1615)  

    Mr. Garth Whyte: Believe it or not, we did cut our presentation short, because we have a whole paper on that too and we didn't even include it. But I think what I'm going to say is profound--are you ready for this?

    I realize, over the years we've worked together with this committee, after which we get our budget announcements, that they're not delivered by the revenue agency. We were lobbying, for example, for allowing Canadians to use their RRSPs to invest in their neighbour's small business firm. Then we realized that we got this victory in 1986 and it's been sitting in the Tax Act all that time. On one side is how you can invest your RRSPs in Bre-X, in Enron, in Nortel, in JDS Uniphase, and it's in mutual funds and it's distilled. On the other side is a thick series of pages on how you can invest your RRSPs in a medium-sized firm. We've had some members try to do this. They've needed to have two lawyers, they've needed to have an accountant, and it varies from business to business to business. This is just one example.

    I'm sorry, I'm answering two questions here. That's your answer on one way to do it. Let's simplify that, get it out there, and let people know they can, instead of investing in Enron, invest in firms that are growing. That's one answer. And it's there in the Tax Act right now. We're kind of outraged and we keep asking for clarification.

    And to follow on that CCRA point--I'm going to bridge it, because I may not be asked this again--we were involved with allowing small firms.... If you remember, with September 11, we didn't know how bad it was going to be, so we said, let's defer capital taxes. And it was announced in the budget, again, through this committee. It was like the ice storm. During the ice storm we did a similar thing, allowing them to defer it. There was little take-up. Do you know why there was little take-up? One of the reasons was that if you went to CCRA's website on January 1, you couldn't find it. You had to go down four layers before you could find the initiative. We wrote the handout so people could know it.

    You push policies and you get them announced in the budget, but if people aren't aware of those policies, they don't get picked up. We have to follow through. I think there are about 15 or 20 different initiatives in there we've been pushing for that are in the act already, and all we have to do is let people know about them. I think that's a great recommendation for this committee to pursue.

    Mr. Rahim Jaffer: Do you have anything to add to that, Jayson?

    Mr. Jayson Myers: You have a majority of small companies looking to banks as their major financing vehicle as well. I think the expectation--and we outline it in the report we conducted jointly with the CFIB and the Royal Bank--is that the implementation of the Basel protocol on looking at requirements for financing and risk assessment is probably going to make it even more difficult for banks to provide the necessary capital for small business. It's a major challenge that we're going to be facing within the next three or four years. I totally agree with Garth that simplification of rules goes a long way towards better understanding of what companies can do and where the financing is available, but I think it's also important to start working with the banks right now to get a clear understanding of how that would be implemented within Canada. I think it is going to, if anything, set up even more hurdles for small business financing in the future.

    Mr. Garth Whyte: The crunch is coming. Our numbers are showing it. You asked about the equity side, and there's the debt side, which is a whole other issue.

    Mr. Rahim Jaffer: Right.

    To follow up on the simplification side of things, especially with the EI and CPP, and some of the suggestions many people have put forward, including your brief here, I remember running a small business, and one of the toughest things to deal with was payroll taxes at the end of the day. Every time they went up, you found it killed the opportunity to increase jobs right away. I would end up serving a lot more customers at my place when the payroll taxes were affecting my ability to hire another person.

    Specifically on the CPP, as we know, the government in the past has said that when they reduced the EI premiums, it was a victory for payroll taxes, but instead they raised the CPP premiums alongside the reductions in EI. What sort of confidence amongst your membership is there in the CPP system currently? What sort of feedback do you get? I still think this is a big issue this committee should be addressing as we head into the future, how we should be restructuring that system. The feeling I get, especially from a lot of business people, is that they're paying into a big black hole. I wonder if you can give me some feedback on that specifically.

º  (1620)  

    Mr. Garth Whyte: First, our members, as far as CPP goes, are the same as other Canadians. They know as much as other Canadians about CPP. We have surveyed them and asked, for your own retirement, what's important? One answer was, selling your own business, RRSPs, and CPP. So they are depending on CPP, but they don't know much about it. There's that side of it, retirement, and one part of it--and we have all tried to do this--is education.

    A really interesting thing--and I don't know if this committee wants to pick it up--from our point of view, is this whole issue of succession. The same problems we have with shortages of qualified people, demographics, we're going to have with succession. It's very difficult. The reason we're talking about $500,000 capital gains increases is enabling people to buy businesses. It's not to give somebody a freebie--here you go, retire--even though they deserve it, it's also because we need a transition. We have a lot of agricultural members, and they are not prepared. It's another thing that's going to hit us between the eyes, and we're going to be working on this. I think we need to look at this whole issue of succession. It's not just CPP, but who's taking over these businesses, and are they going to disappear? How do we pass them on to employees or to family members? That's another big issue I want to throw on the table.

    As to the other side of it on CPP, you couldn't be more correct on payroll taxes. They understood why CPP had to be increased, but they thought EI would offset those increases. To be fair, provinces are 50% responsible for CPP, so they thought workers' compensation and other things would come down, and they haven't, they've been going up. Governments like payroll taxes because when there's a recession, when there's a downturn, those taxes never go down, being linked to payroll.

    The Chair: Mr. Brison, followed by Mr. Wilfert, then Mr. Cullen.

    Mr. Scott Brison (Kings—Hants, PC): Thank you, Madam Chair, and thank you to our witnesses today. This is always a good panel and very helpful to us.

    My first question is on a policy I've been working and consulting broadly on, a new approach to regional economic development in Canada. My example has been focused on Atlantic Canada, but I'd be very open to looking at new approaches, whether in Quebec or northern Ontario or western Canada. We have regional economic development agencies with very similar mandates.

    In ACOA's case, to get more granular, its budget is around $447 million per year in Atlantic Canada. The federal corporate tax in Atlantic Canada is $380 million per year. So the idea would be that you could actually eliminate federal corporate taxes and still have $70 million left over for the Atlantic Innovation Fund, as an example, or for investment in innovation and technology, which would provide Atlantic Canada with provincial corporate tax rates in the 12% to 14% range, which is consistent with those of Ireland. It's at 12.5%, I think, in Ireland.

    I recognize that this would have a different impact on manufacturing interests than it might have, for instance, on small business. But whether you chose to use that $380 million or that $447 million to reduce corporate taxes or other taxes.... In a general sense, I'd appreciate your feedback on tax-driven approaches to regional economic development versus subsidy- or agency-driven models, well-intentioned models, but ones we've been trying for 40 years with fairly limited results.

    Second, there's some discussion of either an increase in income tax--they call them health care premiums, but they're based on income, so it sounds like an increase in income tax--or an increase in the GST to cover health care costs. I'd appreciate your feedback on which would have the least pernicious impact on the economy, recognizing that any tax increase is unnecessary, but supposing they were bound and determined to do it. Taking the politics out of it, I'd appreciate your view on which would have the least impact.

    And as one last point, Garth, quite specifically, would you be willing to survey your members on the regional development question? Because I'd appreciate that.

º  (1625)  

    The Chair: Mr. Taillon, and then Mr. Piché.

[Translation]

    Mr. Gilles Taillon: Thank you, Madam Chair.

    Mr. Brison, I think that our colleagues were saying earlier that business grants and subsidies represent the worst approach government can take to business. To answer your question directly, I would say that tax measures to encourage regional development are far superior to business subsidies. The members of our federation in Quebec think that there are already too many business subsidies. There are even more in Quebec than in the rest of Canada, but there are too many in both cases.

    As to health care financing, we liked Mr. Manley's approach very much; yesterday, he was saying that if there were to be additional expenditures in certain sectors, they should perhaps be funded by a reorganization of expenditures in other sectors. So, rather than going beyond a reasonable increase which corresponds to inflation, I think that you should consider budget reorganization rather than additional funding, whether we are talking about taxation or rate setting.

    Thank you very much.

[English]

    Mr. André Piché: I have to agree totally with my colleague, Mr. Taillon, that a tax-driven approach is much better than the grant approach, no doubt about it. This is what our members are telling us.

    With respect to the last point you made about an increase in the GST or dedicated income tax increase, if you look at figure 7 in our report, on page 17, it says clearly that we rate existing government spending as a top priority of our members, and the last one, at the very bottom, is higher income taxes; second from last is a health care payroll tax. So I think it answers your question quite clearly.

    The Chair: Thank you.

    Mr. Myers.

    Mr. Jayson Myers: The only thing I can add here, in agreement with the gentleman who spoke previously, is when you're looking at regional economic development, the same argument can be made if we're trying to make Canada a preferred location for investment by not only foreign companies, but Canadian companies as well.

    A tax-driven approach is much more preferable. It's easy to say that, but very difficult to move ahead and make those changes in the tax system that will actually have the biggest impact on trying to provide an incentive for investment and business development.

    In the report on small business, we've tried to suggest where some of those tax changes could be made, from the point of view of smaller companies. Accelerated corporate income tax reduction, or certainly the elimination of capital taxes, could provide tremendous incentives for industrial development. Newfoundland has already had some success in that particular field. I don't think it was the actions of ACOA that attracted a lot of new investment to Newfoundland very recently.

    Mr. Scott Brison: Unless ACOA was responsible for putting petroleum under the ocean, I would suggest you're probably right.

    Mr. Jayson Myers: Especially within the context of NAFTA, Canada is a small economy. Let's face it, we're a pretty marginal economy on the North American scale, let alone the world scale. In order to re-establish ourselves as a world-leading economy, we have to be the very best place for companies to put their money.

    We talk about the flight of decision-making power outside of Canada. The only way we can regain that is by making sure we're the preferred location for investment. That means tax changes that make us not just competitive with those of the U.S.--and I'd say we have a long way to go there--but that also make us the most competitive location at least in North America if not with other jurisdictions, such as Ireland.

    The Chair: Thank you.

    Mr. Wilfert, please.

    Mr. Bryon Wilfert (Oak Ridges, Lib.): Thank you, Madam Chairman.

    I thank the presenters. I'm pleased to hear your comments about the debt. I think the debt issue is extremely important, and it should be the most important issue for Canadians in bringing down the debt. Again, we will save $3 billion in interest this year and every year. We can use that for the very important social programs that define us and make us different from the United States.

    I also believe, in the area of taxes...and as you know, the previous Minister of Finance did deal with corporate tax issues in those last two budgets.

    I hear a lot about corporate tax issues versus personal income tax, and I'd just like to point something out to you. Corporate tax revenue, measured as a percentage of total federal government revenue, in the sixties was 19%; in the seventies it was 16%; in the eighties it was 12.4%; and in the nineties it was only 10.8%.

    Personal income tax as a percentage of federal income in the sixties was 32.2%; in the seventies it was 41.3%; in the eighties it was 43%; and in the nineties it was 46.9%.

    I would say, Madam Chairman, that the corporate tax share in the nineties was only 57% of what it was in the sixties, so I don't have a great deal of sympathy.... I do have sympathy for the average taxpayer when personal income taxes are 55% higher today than they were in the nineties. That is of major concern to me.

    I would also point out to you that businesses in Canada have consistently had a better return on their capital than those in the United States or any G-7 state. Despite what some may consider to be punitive tax measures, Canada has had a manufacturing trade surplus with the U.S. for the past 26 consecutive years. And when you compare that corporate income tax to GDP, in the sixties it was 3%; in the seventies it was 2.4%; in the eighties it was 2%; and today it's 1.8%.

    On the issue of personal income tax, I'd like to put more money in the pockets of Canadians, and obviously those of many of your members. I am concerned, however, that one of the things we don't talk enough about is what makes it an advantage to work in this country, and that is the nature of our social system, our health care system. As I said this morning, 44 million Americans don't have any form of health insurance. As well, 12 million poor American children have no insurance, and 50,000 people in 1999 in the U.S. lost their entire life savings because of medical bills. Those numbers are pretty staggering.

    In terms of the manufacturing sector, the comparative level of foreign control in Canada is a third larger than in Great Britain, it's twice as high as in France, five times the level in the U.S., and it's less than 1% in Japan. And none of you have talked about, although you may have alluded to, the issue that I think we need to start talking about as a government, certainly as a society, and that is the issue of harmonization, customs union, reviewing NAFTA, etc.

    I would quote--and then I'll ask for any comments--

º  (1630)  

    The Chair: There may not be much time left, Mr. Wilfert.

    Mr. Bryon Wilfert: There may not be, but at least I'll get it on the table, Madam Chairman.

    I thought this quote was rather interesting:

I know people will fall from their chairs to hear me say this, but maybe right now we need to return to the Foreign Investment Review Agency. We need to be more interventionist. The passive approach isn't working. If [the present trend] continues, we are going to look at our country in three years and say: What have we got left?

Who do you think said that? Peter Lougheed, in 1999.

    So one of the issues I'm concerned about is not foreign investment but foreign ownership--like your comments, particularly--as it impacts on R and D, etc.

    Through you, Madam Chair.

    The Chair: One minute each.

[Translation]

    Mr. Taillon.

    Mr. Gilles Taillon: Thank you, Madam Chair.

    I would like to point out to Mr. Wilfert that the first priorities identified by the members of our federation in response to our survey were a reduction in personal income tax, and debt reimbursement. Out of the 15 factors evaluated, a reduction in corporate income tax came tenth. So, that is not really a priority, with the exception of the capital tax, which has a negative effect on investment. Basically, we agree with your opinion that much more emphasis needs to be put on the debt, on personal income tax, but please note: there is a business tax that has an adverse effect on innovation and development, and that is the tax on capital.

º  (1635)  

[English]

    Mr. Garth Whyte: I'll go to graph 10 again, 7,000 responses. We asked our members what their tax priorities were. By far, personal income tax reduction is number one. EI premiums is number two, which goes to both employers and employees. Again, I don't hear people talking about that. If you care about the employee putting money back in their pocket, EI is the way to go. What people don't talk about, and I'd like this committee to identify, is that there are over-contributions to CPP and EI, over-contributions identified as $700 million or more. That is not fair. That's not going to CPP, not going to EI, but over-contributions.

    Then you can see down the list we brought up increasing the threshold; it may be revenue neutral, but it hasn't been increased since the early 1980s. On capital tax, there is some benefit to some of our members, but I'd hate to see the EI surplus go to reduce capital taxes.

    As far as benefit is concerned--I'm going to take 30 seconds more--for this report we did a four-page backgrounder, a four-page questionnaire. It went to Mr. Romanow. It went to the health ministers. They vetted it and said it was accurate. It went to the health minister. In two days we got 4,000 responses. We cut it off after six weeks, and got 15,000 responses. We're tabling it here in your committee. We really haven't released this publicly.

     We asked, at the request of Mr. Romanow--and I think this is kind of an important point--that, as you know, there's some competitive advantage, so we had better ask them. Now, this was a scary thing for us to ask, but we said, sure, let's ask them.

    On page 9 of the report, figure 3, we asked, does a publicly funded health care system provide your business with a competitive advantage? Everybody talks about this. Of all respondents, 50% said no; 31% said they didn't know; and 20% said yes. Of those who sell to the U.S., 45% said no; 29% said they didn't know; and one out of four said yes. I think we have to look into it a little differently when we say, well, you're getting all these benefits, therefore you should be able to pay higher taxes.

    Jay, I'll let you talk about the Foreign Investment Review Agency.

    Mr. Bryon Wilfert: But will you do me one favour? When your members send those sheets, from my perspective I like to answer them all. I can't answer them if, first of all, they look like they're practising their penmanship. I need to know their name and I need to know their address. It doesn't have the address on that form. I need that.

    Thank you.

    The Chair: Mr. Myers, please.

    Mr. Jayson Myers: Here are just some very quick points. Personal income tax reduction is especially important, particularly if we're trying to provide funds from Canadians to support other businesses. So, yes, personal tax reduction is also important.

    You're referring to corporate income tax falling as a percentage of total government taxes. Well, corporate profits have also been falling as a percentage of total economic activity in Canada over the past 10 years. I would like to see the analysis that you have comparing manufacturing in Canada with the United States, because that's not the analysis I get when I look at that. So we can compare notes afterwards.

    I do want to get to two issues, though. One is, if we're not generating welfare, if we're not providing a business climate for companies to invest and grow in Canada, we don't get the wealth to redistribute or invest in social programs or education and health care. I think that's why you need some strategic investments here as well, and we should be doing what we can to generate that investment.

    On your point, of the high foreign ownership of Canadian industry, that is a structural characteristic. It means we're lucky enough to be able to import a lot of technology and a lot of research and development that is done other places, and produce here. We're also, of course, exporting a lot of skills, a lot of research, through that ownership structure.

    I certainly don't agree with Mr. Lougheed in terms of becoming more restrictive in foreign investment. I think companies are operating today on a global basis, and that includes Canadian companies as well, making investments around the world. I think the objective is to encourage that investment in Canada and to make sure we're giving as much support to Canadian companies that are likewise investing in other companies and operating globally.

º  (1640)  

    The Chair: Mr. Cullen, please.

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

[Translation]

    Mr. Taillon, I think all of us here agree with you as to the importance of eliminating the capital tax.

[English]

    In the last report we recommended the same, and I'd be surprised if we didn't again. It seems that the provinces have moved forward, especially the Province of Quebec.

    Could you describe what the Province of Quebec has announced with respect to the capital tax?

[Translation]

    Mr. Gilles Taillon: If you need support this year, we are here for you. We are aware of the fact that you recommended that.

    Quebec has announced that the tax on capital will be halved by 2007. That is far too long a period. Moreover, the capital tax in Quebec is twice what it is in Ontario. It will be halved by 2007, but this means that at that point it will simply be equivalent to the Ontario tax. Thus, we are going to demand, for the provincial budget, that this tax be decreased much more rapidly and that it be eliminated around 2005.

[English]

    Mr. Roy Cullen: Merci beaucoup.

    Mr. Myers, thank you for your support of my private member's bill, which I'm confident will be deemed votable, and we'll get on with that.

    On the SR and ED program--or the “SHRED” program, as someone affectionately referred to it the other day--you're talking about making it available to all companies operating in Canada, including foreign-owned subs. The high-tech sector and others have been promoting the idea of the refundability of the SR and ED tax credit, so it can be used when there are losses. Is this a big issue in your association and for your association members? Is it something you could support, as well?

    Mr. Jayson Myers: It is, and we've been working closely with both the Department of Finance and CCRA in trying to improve this system. This is a tax credit that is supposedly an incentive for companies to perform R and D in Canada. There are all sorts of other factors affecting that decision, but when you look at particularly multinational companies operating here, where the application of that credit is applied against a consolidated revenue base, the benefits of the credits in many cases cannot be realized.

    There are some ways of making sure the credit can be realized; for instance, making it creditable against other taxes payable, or some other form of change. But I guess it just comes down to the simple point that if this is a tax credit that is supposed to provide an incentive for companies to do R and D in Canada, let's make sure it's workable.

    Mr. Roy Cullen: Thank you.

    Mr. Whyte, you talked about the revenue agency not always implementing tax policies, which I'm sure is just a bad rumour. But in your brief you talked about the mechanics tools tax deduction. I remember very vividly that being in budget 2000, or the economic and fiscal update. In fact, I worked my buns off on that, if I can say so. Are you telling me it is not in place yet?

    Mr. Garth Whyte: It's just for apprentices.

    Mr. Roy Cullen: It's limited to apprentices, that's right.

    Mr. Garth Whyte: On the R and D tax credit, too, and why there has been no take-up by small business, they're being advised by accountants not to apply for R and D tax credits if they're under $10,000. So I think this committee should suggest an R and D light, because it costs more just to fill out the form, with up to $5,000 to $7,000 worth of advice.

    Mr. Roy Cullen: Okay, it's coming back now. Yes, we did limit it to apprentices, for some reasons that--

    Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): You didn't work that hard on it.

    Voices: Oh, oh!

    Mr. Roy Cullen: No, I guess I didn't.

    Do I have any more time, Madam Chair?

    The Chair: A few minutes, Mr. Cullen.

    Mr. Roy Cullen: Mr. Whyte, just continuing on the new hires program, you talked about that last year as well. The Canadian Restaurant and Foodservices Association, as you know, has been promoting the idea of the yearly basic exemption. I think I remember your position last year. Is it roughly the same? Perhaps you can reiterate it briefly.

º  (1645)  

    Mr. Garth Whyte: It is the same. What we're trying to do is work with the government to get out of this box. There is a bunch of things we could work on; we just didn't have time to talk about them. One thing is the yearly basic exemption, another is the new hires program, another is the student hiring program, and another is dealing with over-contributions.

    Finally--and sooner or later we're going to have to discuss this--if you're going to keep dipping into the EI fund, and more and more it's beyond insurance, shouldn't we go to a 50-50 split of premiums? That's only fair. If all the benefits are going to employees, then why don't we work to assist them where employees pay 50% and employers pay 50%?

    Mr. Roy Cullen: Do I have time for one more?

    The Chair: Yes.

    Mr. Roy Cullen: Coming back to Mr. Myers, we've had--and not surprisingly, in one sense--a lot of businesses talking about the need to reduce corporate taxes beyond what's already in the plan, which in fact would take us about five percentage points lower than most of the major states in the Unites States.

    Now, I know you're an economist; where would we get the biggest economic bang for the buck in terms of personal income taxes? We do know that our personal income taxes are out of line with the OECD and the G-7. We do know that our corporate taxes are coming into line...in fact, being quite aggressive. You don't see any need to hit up personal income taxes? I mean, a lot of your companies must find it challenging to attract and retain good people.

    Mr. Jayson Myers: Yes, it is a major issue as well. Going forward in a tax plan, I think you have to do both, and the issue is how to do it in a strategic way. Having the investment here in Canada allows you to take a lot more decisions and go a lot further in both personal income tax reduction and investments in other programs and other areas of spending than if that investment is not here. So strategically, and I think most of the economists if not most Canadians would say this, action on reducing corporate tax, or eliminating capital taxes, or reducing the corporate income tax to a level that's much more preferable than that in most U.S. states, would be the first priority. Building from there, further action could reduce personal income taxes and make other investments.

    The Chair: Thank you very much.

    Madam Minna, seven minutes, followed by Mr. Valeri.

    Ms. Maria Minna (Beaches—East York, Lib.): Thank you.

    I want to go back, Mr. Whyte, to your position with respect to the financing of cities. I understand your concerns with respect to the complexity and what have you. However, we still have a problem in that the municipalities do have an increased amount of responsibility when you look at some of the downloading that's been done. They have a tremendous amount of responsibility in social care, child care, and partly education, not to mention the infrastructure. I don't have to get into all of it. As well, it's getting much more complicated. Cities are big, and urban centres are where the bulk of our population lives nowadays. The situation is getting worse.

    So how do we finance and make sure that the infrastructure and all of the issues that face cities and our urban centres are addressed and have an accountability system at the same time? Some presenters have said they want to see revolving funds on infrastructure or what have you coming down from the federal government. Others have said they don't want transfers; they would rather have some sort of taxation or something else, because there needs to be accountability.

    I personally have some concerns that if we are going to increase the pot for municipalities, which I think we need to do at some point, however we choose to do it, then we need to look at the governance structure. I really don't think the governance structure for municipalities is accountable enough, given their size. When they used to be small, the ratepayers and the citizens had a lot more say. It's a lot different now.

    Given that you say no to this, what would be your suggestion on how to deal with that issue?

º  (1650)  

    Mr. Garth Whyte: I agree with you 100%. Again, this is another presentation, but our members support increased spending on infrastructure. They support hard infrastructure, roads, water quality, sewers, that type of thing. We've been working with the Federation of Canadian Municipalities on that. The problem is, the mayors haven't thought it through when they say, give us a piece of the GST. They didn't realize this is what's required, and also that there's no accountability.

    What we've tried to put forward--and we've been working with the government and other governments--is that, first, we need better accountability among municipalities, and second, we need an infrastructure plan. It seems to me the case is, give us the money, then we'll do the plan. How about having the plan first? Let's build an infrastructure plan.

    There have been some disasters lately with cost-sharing. For example, in Wakefield we had a member who was almost put out of business. She opened a florist shop. The bridge into Wakefield was shut down because they were building infrastructure when they were fixing the bridge. The official was asked why they did it then. They said, if they didn't do it in the spring, they wouldn't get it done, and they also wouldn't have got the federal and provincial matching dollars. They didn't think about the businesses they were putting out of business. We've got a whole bunch of stories there.

    There is a series of principles we think should be laid out. We strongly support them on an infrastructure spending plan increasing spending. We are prepared to work with people to develop that, but we want to see some accountability, as you've pointed out, we want to see the plan first, and we don't want to see another layer of taxes on the same taxpayer.

    Ms. Maria Minna: I guess what I'm asking also is whether there another model one can use. Infrastructure is fine, that's one, and that's choosing an area where we would...share a cost or what have you, but unless you establish an infrastructure type of funding for every element within a municipality.... The municipalities have a lot of things they need to address, not just infrastructure. They've got education, they've got social programs, they've got affordable housing, they've got seniors--well, affordable housing is part of that--and so on.

    The cities are saying they need to have a new way of financing cities, rather than the realty taxes. I agree with that. The model, though, I would prefer to see would be one that has some accountability in it, rather than a direct transfer of tax dollars without the municipal politicians being accountable to the taxpayers. I think that's the best way.

    So since you're saying, don't introduce a taxation system, is there any other model you would look at to assist the financial needs?

    Mr. Garth Whyte: There are some models we'd want to look at too, but we want to work with you folks and with the provinces and the municipalities to figure that out. There was a steamroller rolling along here saying, just give us the GST money or sales tax or an income tax system, and we said, wait a minute. I'm very much in support of what you're saying. We want to first see what the plan is for funding, the accountability, who does it. There are a bunch of other questions we want to put in place.

    The Chair: Mr. Myers and Mr. Taillon wanted to add short points too.

    Mr. Jayson Myers: I think governments and accountability are crucial, especially if you're looking at sharing taxes, transferring tax points, or anything else. The federal government would want to ensure that accountability was there.

    What we're seeing right now in many municipalities is an effective tax increase, because they're resorting to user fees, which are compounding other costs that are being raised. I think that's a particular problem we also have to address.

    Ms. Maria Minna: Yes, that's true.

[Translation]

    Mr. Gilles Taillon: I think that there are in the United States some good examples of federal funding for municipalities. We should have a look at that. What is important in Canada is to ensure that we pay attention to our respective fields of jurisdiction to avoid duplication of funding or the poor management of funding among the federal, provincial and municipal levels. I think that there are some interesting experiences on the American side which you would do well to examine, concerning funding for municipalities. In certain programs, there is no possibility of overlap.

º  (1655)  

    Ms. Maria Minna: Do you have a specific example of that?

    Mr. Gilles Taillon: I could send you examples of programs involving federal funding in the United States. I don't have that here, but I can send you some documentation.

    Ms. Maria Minna: Thank you.

[English]

    The Chair: If you send it to the clerk, we'll replicate it and distribute it to all the members. I think that's the most useful way.

    Thank you very much, Madam.

    Mr. Valeri.

    Mr. Tony Valeri (Stoney Creek, Lib.): Thank you, Madam Chair.

    I'm very happy that Mr. Wilfert is looking at things from a North American space perspective. I'm not sure we always end up at the same place, but I think it's a good thing that we talk about it. We've talked about it from the standpoint of taxes, we've talked about it from the standpoint of regulatory reform and all the rest of it. So I want to continue on that. Mr. Wilfert did talk about the idea of a customs union, an external tariff, harmonization, the impact. We are a smaller economy. I don't think it's enough to have a four point something per cent gap in taxes by 2006. I don't think that's the scenario that's going to make us the magnet for investment.

    So if we can continue to go down that road, can you respond about the one or two items on the tax file that are the absolute priority for yourselves? You have a listing here of a number of tax initiatives, but budgets are about trade-offs. People come to the committee and list initiatives and things they would like. Ultimately, I think the committee needs to deliberate and put forward a number of recommendations that really do occur after deliberation and after we've made some trade-offs. If the objectives are to increase investment, to increase productivity, quality of life, standard of living, if we want to make Canada the northern tiger, the magnet for investment, and we want to continue to prosper, what are the one or two initiatives on the tax file you think it is absolutely imperative we have in this next budget or embark upon, to plan and continue to include over the next planning time?

    Mr. Myers.

    Mr. Jayson Myers: The two items, apart from the EI issue, for stimulating investment and innovation that would be most important for our sector are the elimination of the capital tax and a reduction of general corporate income tax rates to at least 17%.

    Mr. Tony Valeri: That's 17% federal. Can you give me a sense of an average combined rate?

    Mr. Jayson Myers: We would like to see an average combined rate of about 27%.

    Mr. Garth Whyte: If you look at it as two economies, what happened last year? We outperformed the United States. What happened? It was because we have a strong SME economy. From their point of view, it's, aside from EI, let's do this. Well, let's start with EI, it is important. Let's see the plan. Let's quit siphoning off $5 billion year until we have a notional surplus of over $40 billion. That's number one.

    If you look at it two ways, one is, how do we bring in investment? The other is, how do we increase investment, how do we get more business start-ups? Something has happened over the last three or four years, the growth in self-employment, the growth in business, people wanting to work in a small or medium-sized business. Why? Because they hold on to their people, they stay there. So how do you encourage that? One of the areas they have been identifying is raising the corporate threshold, as other provinces have, to $400,000. It hasn't been done in 15 or 16 years. If business has grown, the tax system has grown in how much is taken.

    There are two strategies you are going to have to think about. How do we get foreign investment in, how are we going to get firms to grow? How are we going to build our own firms, the non-stock market economy that is thriving and moving along as well and has really given us a dividend the last year?

    Mr. Tony Valeri: And EI and increasing the threshold?

    Mr. Garth Whyte: Personal income tax they're telling us is a big deal, it's major.

    Mr. Tony Valeri: Beyond the $100 billion that was announced?

    Mr. Garth Whyte: Yes.

    The Chair: Monsieur Taillon.

[Translation]

    Mr. Gilles Taillon: There are three main priorities. First, the cost of employment insurance has to be reined in so as to correspond to its real costs. Thus, we propose that over a period of two or three years contribution rates be brought down to $1.70. Secondly, concerning personal income tax, the highest marginal tax rate has to be reduced. You know that in the United States, the marginal tax rate applies to salaries of over $300,000. Here, the trigger level is $100,000. There is room for improvement here. Finally, where businesses are concerned, the capital tax should be eliminated.

»  (1700)  

[English]

    Mr. Tony Valeri: Okay.

    Could I just get some comment from the presenters on the impact of Kyoto on decision-making? I'm not looking for the black and white support/don't support. I think everybody wants to deal with greenhouse gas emissions, wants to deal with the impact on our environment. But can I get a reaction to where we are on Kyoto and some sense of where we should be going, from each of your perspectives?

    The Chair: Monsieur Taillon.

[Translation]

    Mr. Gilles Taillon: No. Thank you, Madam Chair.

[English]

    The Chair: You have to leave? Okay. Merci beaucoup pour votre témoignage.

    Mr. Myers.

    Mr. Jayson Myers: Having spent most of today talking about that very subject, maybe I could go first.

    It's very simple. Greenhouse gas emissions are tied to economic activity, and we've seen over a period of 20 years annual improvements in technological progress that reduce emissions off the rate of economic growth by about half a percent per year. So if we're looking at achieving real greenhouse gas emission reduction without significantly slowing down the economy and meeting the Kyoto target, we're going to have to accelerate the technological progress by factor of nine--in other words, increasing business-as-usual investment in new technologies and fuel switching and energy savings by a factor of 800% per year from now to 2010 in order to meet the Kyoto target.

    I'd much rather be sitting around this table talking about what we can do to generate real reductions in greenhouse gas emissions in a realistic way than speaking about how we're going to achieve an unrealistic target in an unrealistic time line. Frankly--and I think this is an extremely important issue for this committee--the domestic emissions trading program or the approach for large emitters that is part of the federal government plan is no more than passing the cost of buying international permits on to the industrial sector. It's in fact a form of tax through the purchase of emissions.

    You don't encourage investment in new technology and technological progress by increasing the cost of doing business in Canada, and you certainly don't keep up with our competitors and customers in the United States who are making investments in new technology, by doing that either. So I would much rather be talking about what we can do to actually get to real emissions reduction here in Canada than how we're going to finance buying hot air from Russia and reindustrializing Russia.

    The Chair: Mr. Piché, very briefly, and then Mr. Discepola very briefly.

    Mr. André Piché: No doubt about it, our members are very concerned about the environment. But Garth mentioned before that one of the greatest concerns they have is the lack of certainty on certain economic files, and this is one. This is one where we don't feel that we have a workable plan at the moment. This is one where we feel that the provinces are not on side, and industry has been consulted, but in a very marginal way still to this day. That is a big concern, especially to our members in western Canada.

    They're concerned about their jobs. They're concerned about their communities, where they have employees, and they would like to have a plan that is workable for Canadians. They don't feel that they have such a plan at the moment.

    The Chair: Mr. Discepola, please.

    Mr. Nick Discepola: Thank you, Madam Chair, for giving me 30 seconds, because I want to thank the CFIB for their tremendous presentation, and I want to make one suggestion.

    Regarding your figure 6, “How Governments Should Spend”, I would encourage you to either keep that or modify it, or add another one, because I think we can tap into a wealth of resources from your membership. That exercise would be to ask them, if they had a dollar to spend, how they would allocate that dollar. That would be very useful for us in terms of establishing priorities for our committee.

    Thank you.

»  (1705)  

    The Chair: Thank you very much, and thank you for your presentations. I'm glad you could make the time.

    We'll suspend for a few minutes to get our next panel at the table.

»  (1705)  

---

»  (1709)  

    The Chair: Welcome, everyone. We will resume with our second panel of the afternoon. There will be seven-minute rounds. We'll hear from all of you, and then we'll take presentations. Please just speak to your brief; do not read it. The committee has had the brief, and it has been translated. That way we can get some questions in at the end.

    The witnesses today are, from the Canadian Dental Association, Andrew Jones, director, corporate and government relations, and Dr. Tom Breneman, president; from the Canadian Executive Council on Addictions, Dan Reist, treasurer; from the Mining Association of Canada, Dan Paszkowski, vice-president, economic affairs, and Gordon Peeling, president and CEO; from the Mood Disorders Society of Canada, Phil Upshall, president, and Dr. Rémi Quirion, scientific director of the Institute of Neurosciences, Mental Health and Addictions; from NSERC, Natural Sciences and Engineering Research Council of Canada, Dr. Thomas Brzustowski, president; from the Retirement Income Coalition, Mr. Pielsticker, chair, and with him today as adviser is Malcolm Hamilton, partner, William Mercer Ltd.

    So thank you very much. We've had quite a series of witnesses. We're going to continue on, but it's important that we hear from all of you.

    I'm actually going to go in reverse order on this one. We'll start with the Retirement Income Coalition, followed by NSERC.

    Mr. C.A. Pielsticker (Chair, Retirement Income Coalition): Thank you very much, Madam Chair. It's great to be here with you.

    First of all, I believe that most, if not all, members of this committee know of the Retirement Income Coalition. We have appeared before you on two previous occasions to ask for your support in raising the contribution limits of registered retirement savings plans.

    We are a diverse coalition of 14 member organizations, including several national organizations. Members represent plan sponsors, professional associations, business groups, and seniors. They range from the Canadian Teachers' Federation to the Canadian Association of Family Enterprises. In addition, we have three new members this year: General Motors of Canada, the Ontario Teachers' Pension Plan, and OMERS, which represent a very broad cross-section of Canadians. Our members have a keen interest in the health and reform of the Canadian retirement income system.

    Right off the bat, Madam Chair, I'd like to acknowledge the support in the committee's report last year for a one-time increase in the contribution limit, followed by indexation of the ceiling to the rate of inflation. That was a helpful recommendation. Of course, much would depend on the size of the one-time increase. Unfortunately, the minister chose once again not to address the issue in the budget.

    Today we are here hopefully to persuade you to attach a number to the recommendation for a one-time increase. We suggest the number should be $19,000, and because the limits have been frozen for so long, we recommend moving fairly quickly from $19,000 to $27,000 a year. We're not hung up on whether it should be two or three years.

    Since your consultations last year, we've had the opportunity to meet with several of you for further discussion. We also have spoken with officials from the Department of Finance. One point that has emerged clearly from these discussions is that we have an anomaly between the top tax bracket and the top income permitted for retirement savings. I think there is broad agreement that at the very least that anomaly should be closed. The top tax bracket is of course $103,000 a year. The maximum limit for tax sheltering is $75,000. If this is done applying the current 18% contribution limit, the RRSP contribution limit would rise from the current $13,500, to $19,000.

»  (1710)  

     Madam Chair, we believe more must be done to help Canadians to increase their private retirement savings. A pension at 70% of earnings for a full career is a commonly accepted measure of pension adequacy. This is the amount a family needs to maintain its pre-retirement standard of living. The 70% target recognizes that expenses such as child care, mortgage payments, and contributions to Canada and Quebec pension plans, occupational pension plans, and/or RRSPs, do not continue after retirement. The pension plans covering employees of the federal government and provincial governments have long recognized this principle by delivering, in conjunction with the Canada or Quebec pension plans, pensions equal to or exceeding 70% of earnings to those retiring after 35 years of service.

    Many middle-income Canadians are now unable to reach the 70% target. The misconception still exists that it's only the rich who are affected by the current limit. Our research has produced a sample of professional and administrative positions that very clearly show that one does not have to be rich to be affected by the limit. Those titles would include people such as school superintendents, detectives, plumbers, and others in those middle-income categories. Low- and middle-income Canadians can hit the 70% target by saving relatively modest amounts to supplement the pensions they receive from government programs.

    At present, there are about 600,000 Canadians constrained by the $13,500 limit. When they retire they will receive little from public pensions, and they are prevented by the limit from contributing as much as they are able to their RRSPs. Through their taxes, they pay toward programs such as the guaranteed income supplement and old age security so that others can afford to retire in a manner that maintains their standard of living, yet they themselves are denied this opportunity.

    In 1976, defined benefit pension plans could provide a 70% pension on earnings up to $85,500, roughly equivalent to an RRSP contribution of $15,500. Since then, the accrual rate has remained virtually unchanged. The cost of living and the average wage have increased by more than 200%, as have the benefits under CPP and QPP, old age security, and the guaranteed income supplement. Retirement benefits are, in real terms, significantly less than they were in the 1970s. As a result, the defined pension limits today affect a wide range of middle-income Canadians. As an example, at General Motors Canada, pensions for long-service, middle managers or professional staff are impacted by the existing, low, defined benefit plan limits.

    There is also a serious international competitiveness issue. Employers face a constant challenge of retaining qualified staff. One way to address this is through increased compensation, including savings and retirement plans. In the United States, tax-qualified retirement savings plans cover earnings up to $262,000 Canadian, while in the U.K. they cover earnings up to $218,000 Canadian. Both limits are indexed. In the United States, employers can contribute up to $60,000 Canadian per annum to tax-sheltered retirement accounts for their employees. In the U.K., the corresponding limit is between $39,000 and $87,000, depending upon the employee's age. That equivalent is compared to $13,500 in Canada.

»  (1715)  

    This is one investment, as far as the government is concerned, that will be returned at a time later on, when they are going to be taxed at 40% in years to come. As many baby boomers are in their peak earning period, now is the time to encourage them to maximize their own retirement savings.

    So, Madam Chair, there's a compelling case for $19,000 in the next budget, and for moving up to $27,000 fairly rapidly.

    Thank you.

    The Chair: Thank you very much.

    We have your written brief, and it's very well done, I must say. We've read it. Thank you.

    We'll move on to our next witness, Dr. Thomas Brzustowski, from NSERC. Please go ahead, Doctor.

    Dr. Thomas Brzustowski (President, Natural Sciences and Engineering Research Council of Canada): Thank you, Madam Chair.

    I've prepared the presentation in both languages, but with your permission and to save time, if I may, I'll deliver it just in English.

    The last time I appeared before the committee, I presented my material in the form of slides, as you have them in front of you. My impression was that the committee found this useful, so I have done it again.

    The point I'd like to make is very simply this: that the innovation strategy, which has been the subject of broad consultations across the country, underlines two things. The first is that we are competing in this, that there's an international competition to succeed in the knowledge-based economy, on the basis of research and development. The second is that Canadian university research is relatively far more important in this activity than is university research in other countries. The reason is our economic history and our institutions.

    If you look at the bottom line of the second slide, Madam Chair, we've found that people ask why we would do this. They want to know what the connection is between the target of increasing R and D and anything the taxpayers or citizens might appreciate. It's a very good question. We wish it had been discussed more, but we find the answer is very compelling. It takes time to develop, and it's shown on the third slide. The goal is obviously a better life for people in Canada, in all the dimensions that we value.

    More R and D in Canada will allow more innovation in all sectors of our industry. It will allow more Canadian-made innovations—or what some people call “early-cycle products”—to be marketed successfully in world markets. This will lead to more value-added economic activity and more wealth creation in Canada. This will create more individual and collective wealth, which will give us the capacity to make more investments that reflect our values.

    Whenever we present this, whenever we listen to people, Madam Chair, this chain, this set of connections, is in fact, on reflection, what people think. It's not something that one gets in a 10-second sound bite on television, but it is the whole point behind this connection. So if we are competing, if there is this very valid connection between more R and D and a better life for people in Canada, and if university research is as important as was indicated in the innovation strategy documents, then one has to say we have to be serious about this and provide the resources necessary for it.

    Slides 4 and 5 indicate that we've identified, through pressures on us, five spending priorities that are very much in line with what is in the innovation strategy. You may treat these as an illustration, in the real, of what is in the abstract in the innovation strategy.

    The first number is incredibly good news for the country. We are seeing—and this connects with the last comments—waves of retiring professors. They're the cohorts appointed in the late 1960s and early 1970s, not all of whom were active in research recently, some of whom never were. They are all being replaced by new people who expect to be active in research from the moment they step into their office or into their laboratory. This means the government's policies promoting research in universities are working. The number as of this afternoon, Madam Chair, is 928 who have indicated their intention to apply to our programs for the first time. We expect something in the range of 300 people to retire from the system. We won't know until they fail to apply for renewal. That number of 928 new applicants compares with 791 last year and 640 the previous year. This is extraordinary. The total number of professors in Canadian universities has bottomed out, and most recent data suggest it's starting to grow to accommodate the very quickly growing numbers of students.

    So there is a need more grants for these people, the new applicants; more support for more students engaged in research; more students because there's a need for highly qualified people; and more support because post-graduate studies are becoming increasingly expensive through foregone earnings, the earnings that students don't make when they're in graduate studies.

»  (1720)  

    The second-to-last slide refers to providing adequate funds to operate the expensive new facilities that CFI and others are putting in. An example, Madam Chair, is the synchrotron in Saskatoon, involving an investment of over $100 million. There's enough money in its operating budget for a nine-to-five operation. They are looking for money for seven days a week, twenty-four hours a day, which is the only reasonable thing to do with that kind of facility.

    The next point is enhancing innovation in industry by establishing more university-industry research partnerships and funding more of the projects. Our success rates are too low. Too many promising projects are not being funded.

    The final item is the commercialization of university research results as appropriate so that more often we will have invented in Canada, leading to made in Canada, with all that implies for the economy.

    How much will this cost? The amazing thing is that in working out the details from the bottom up, we find that we can make a good start--not a generous start but a decent start--in meeting all these needs for exactly what is proposed by the federal government in the Innovation Strategy; that is, doubling the budget by 2010. Since we haven't had adequate funding for the growth in the last year--we're sort of hanging on by our fingernails--a $75 million increase in our budget in the next year and then a 10% annual compounded increase, which would take us to 2.01 times our current budget by the end of the decade, would be exactly right, and this is in line with what is promised.

    Madam Chair, on the ground the real pressure is to reflect the things identified in the strategy. For Canadian universities to play the role that's expected of them in research in science and engineering, the resources have to be there, and they happen to be in line with what the government has promised.

    I'll stop there. Thank you.

»  (1725)  

    The Chair: Thank you very much.

    Now we'll go to the Mood Disorders Society of Canada. Who will make the presentation?

    Mr. Phil Upshall (President, Mood Disorders Society of Canada): My name is Phil Upshall, Madam Chair. I have the privilege of being the president of the Mood Disorders Society of Canada and the chair of the Canadian Alliance on Mental Illness and Mental Health. I also have the good fortune to be a member of the Institute Advisory Board of the Institute of Neurosciences, Mental Health and Addiction, of which Dr. Quirion, who is beside me, is the scientific director.

    I'm here today to try to respond to your question of how Canada can best assure greater levels of economic prosperity that are widely shared.

    I think it's no secret among most of us on Parliament Hill that one of our biggest concerns is mental illness in the workplace. Depression is going to be the largest single disabling cost factor to business by the year 2010. Generally, today we do not have any concerted approach. So in the brief I've filed with you today, recommendation one is a request for you to recommend to the Minister of Finance that the 2003 budget of the Government of Canada contain a $50 million allocation to permit the immediate initiation of a national action plan for mental illness and mental health.

    Now, that isn't just our recommendation. That recommendation has recently been endorsed by--and you'll be receiving endorsement letters from them--the Canadian Psychological Association, the Canadian Psychiatric Association, the Schizophrenia Society of Canada, and others. A new national coalition, which has just come together, includes the Canadian Medical Association, the Canadian Association of Social Workers, the Canadian Academy of Child Psychiatry, the Canadian Mental Health Association, and others, all of whom endorse that recommendation.

    One of the reasons we're suggesting that it is an absolute imperative, Madam Chair, is that the business cost to Canada is calculated to be anywhere between $14.5 billion, using the Stephens and Joubert formula, and $36 billion, using an internationally accepted standard prepared by the World Health Organization and researchers in the United States. That includes the cost of disability payments, the lost years of work, and other issues.

    One of the other aspects, however, is the cost of mental health to the health system. I realize this is the finance committee and that you're interested in productivity. In Ontario it accounts for the longest length of stay in hospital, 37% higher than the next diagnostic group. It's estimated that 25% of the 34 million hospital days used in Canada each year are used to treat people suffering from mental illnesses.

    We don't know much about mental illnesses. We need a major research strategy structured along the lines of the diabetes strategy, which has been in place for the last two years, and the new obesity strategy, which the Minister of Health announced just this week. I'd point out to you that the obesity strategy is a $15 million strategy, and the burden on the health care system is in the area of $2.4 billion. If you're looking at comparative issues, the overall cost of mental illnesses in the workplace in Canada is well beyond those numbers, and it deserves the attention of this government in a quick, meaningful way. I'd urge you to look at that.

    I'm going to stop there, if I may. I hope you noticed that I've included a comment of yours about our non-governmental organizations.

    Dr. Quirion has some words to say about the research side of things.

    Dr. Rémi Quirion (Scientific Director, Mood Disorders Society of Canada): Merci.

    Madame la présidente, membres du comité, I'd just like to take a couple of minutes to highlight some of the initiatives of the Institute of Neurosciences, Mental Health and Addictions of CIHR.

    The Chair: You can speak French if you wish.

    Dr. Rémi Quirion: No, it's all right. Sometimes it's easier for me to speak in English. I did all my training in neuroscience in English.

    One of the first things we did at CIHR and at our institute is the training of the next generation of scientists. So we started a national training grant program, a first in Canada. Fifty-one training grants were awarded last year on topics such as mental health care, tobacco use, addiction research, etc. We plan 24 others next year. This is a major project to train the next generation of Canadian scientists, and we will inject over $100 million in training these scientists over the next six years. This is all across Canada, and all universities and institutes benefit.

    The second point is the summit on health issues that are of great concern to Canadians. One of them that we organized last April was on tobacco and trying to have a national research agenda for Canada on tobacco abuse and nicotine addiction. We're working with partners now to develop the research agenda on that topic, and we'll have one with Health Canada in February on suicide, again to develop a research agenda on suicide.

    On elements raised in the Speech from the Throne, the Institute has funded a team of scientists at Queen's University on fetal alcohol syndrome. This is of great concern to many Canadians. We are now having discussions with the Canadian Centre on Substance Abuse to develop a national research agenda on illicit drug use and abuse in Canada to try to improve the health of Canadians suffering from addiction.

    On incidence of certain diseases, such as autism--you probably have seen the papers over the past couple of weeks on the increasing incidence of autism--we're developing a research agenda on that.

    Mental health in the workplace is key. All of us know people who are suffering from burnout, depression. We need to find better ways to make it very acceptable to talk about mental illnesses in the workplace. You may have seen some of the ads in the Globe and Mail and many other papers from the Canadian Psychiatric Research Foundation relating that we need this kind of approach to decrease the stigma related to mental health and mental illnesses in Canada.

    Looking ahead, what do we want to achieve? We have been in business at CIHR for two years. We want to pursue a goal. We want to develop innovation with partners from other affiliated organizations in Canada. The budget of CIHR is a bit above $550 million. We want to be able to fulfill our mission and mandate. We need about 1% of the health care budget, or about a billion dollars. With that, I think we could be truly competitive with our American and international colleagues.

    We want to remain competitive, lead the innovation rather than follow the pack, and we want to attract the very best minds in Canada.

    Thank you very much.

»  (1730)  

    The Chair: Merci.

    Now to the Mining Association of Canada. Please go ahead, sir.

    Mr. Gordon Peeling (President and Chief Executive Officer, Mining Association of Canada): Thank you, Madam Chair.

    Honourable ladies and gentlemen,

[Translation]

    Thank you for having invited us here today to present our views concerning the economy and competitiveness in the Canadian mining industry.

[English]

I'm joined by Dan Paszkowski, as you have already noted.

    Yesterday, Finance Minister Manley stated that a key element in raising productivity growth will be to make Canada a magnet for talent and investment—the critical part of how we position ourselves as a northern tiger. In light of that comment, we recommend that the federal government bring down the Canadian public debt faster; provide the mining and resource sector with the same corporate income tax reduction provided to the rest of the economy; eliminate capital taxes, which are a tax on jobs and innovation; reduce the employment insurance premium rate; limit total government expenditure growth; and respond to the challenges of climate change.

    The reduction of Canada's debt must remain a key priority for the federal government. The recent success in reducing Canada's debt-to-GDP ratio should not distract us from the need to reduce our sizable $536 billion debt, which is costing Canadians $37 billion in annual interest charges. That's money not going to health care, not going to education, and not going to other needed social policies. Today, Canadians are seeing 22¢ of every revenue dollar collected being used to pay interest on our debt.

    As Canadians call for improved health care, lower taxes, and a more globally competitive policy framework, it is unacceptable to think we continue to spend $3.1 billion each month to pay for interest charges on the debt.

    The debt-to-GDP ratio as a national benchmark fails to capture the real threat to Canada's economic foundation if interest rates were to rise. In reality, the debt-to-GDP ratio will decline with growth in the Canadian economy even if there were no reduction in our national debt.

    Given the importance of the federal debt to all issues, including tax competitiveness, a 15% target, or 15¢ for every dollar collected in terms of debt-servicing charges as a proportion of government revenues, is a more appropriate target, while maintaining a dedicated amount established for debt reduction in future budgets.

    On tax reduction in the corporate area, in June, Minister Manley stated before the finance committee that Canada needs to create tax advantages in areas in which Canada can take on the world and win. As a world leader in the production and export of minerals and metals, we wholeheartedly support Minister Manley's objective. But here is our concern. Effective January 1, 2003, the federal corporate income tax rate will drop to 23%, while we as a sector continue to face the higher rate of 28%, a full 5% difference.

    For almost three years, our industry has been fighting for the same tax reduction provided to all other sectors of the economy. This is a serious problem. Like all sectors, the future of mining is linked to our ability to attract investment. The key difference is that we must now do so in an increasingly global economy in which our international tax competitiveness is declining as proactive tax reform continues to progress in competing jurisdictions.

    We are not a low-tax industrial sector. PricewaterhouseCoopers has concluded that the average federal-provincial-territorial effective tax rate is roughly 7.5% higher than that of the manufacturing and processing sector. In fact, if the government extended the lower corporate rate announced in the 2000 budget to the mining sector, our average effective tax rate would still be 3% higher than that of the manufacturing sector. The time has come for the Government of Canada to take an aggressive position and grant to the mining industry the 7% rate reduction provided to other industrial sectors, beginning in the 2003 budget.

    In capital taxes, Canada is one of the few developed countries in the world that taxes capital. Mining is capital-intensive and represents 15% of the national capital investment across Canada, including oil sands. For example, INCO recently announced a $3-billion investment in Voisey's Bay, and Diavik will spend $1.3 billion to bring a diamond mine into production in the Northwest Territories. And we're also a sector that has a technological future that is reflected through our $370-million annual investment in research and development.

    On average, Finance Canada has estimated that capital taxes add the equivalent of 3.6 percentage points to the corporate rate—something not included in that information we have given you above. For our industry, PricewaterhouseCoopers estimates that the federal capital tax has the same economic impact as a 20-percentage-point increase in the corporate tax rate, from 28% to 48%, due to our sector's intensive capital expenditures and long payback periods. MAC therefore recommends the elimination of capital taxes, a reduction of cost recovery and user fees, and the accelerated reduction in employment insurance premiums to $2 in 2003 in order to keep EI premiums and the cost of benefits actuarially sound.

»  (1735)  

    Let me now turn to climate change.

    As an energy-intensive industry, the metal mining and non-ferrous metal smelting and refining sector has worked hard to reduce our greenhouse gas emissions. As a result, emissions per unit of output have declined by approximately 20% over the decade 1990 to 2000. We are committed to meeting the challenge of climate change, and we know we can do more to reduce emissions in the future.

    Our emissions collectively are quite significantly below the 1990 level on the mining side, as indicated. We're at 1% above on the smelting side, but that's a much smaller pool of operations that we have to deal with. Our record speaks for itself, but we are concerned with the potential ratification of the Kyoto protocol. We have not said no to Kyoto, but firmly believe that before any ratification decision is made, government must ensure it has undertaken the due diligence required, something supported by a solid plan and reliable analysis.

    As a price taker and an export-dependent industry, our competitive future is largely based upon our costs of production. We can't pass those costs on to the consumer. Those costs must be factored into any plan that aims at achieving the ambitious targets and time constraints imposed by Kyoto, recognizing that the majority of producing jurisdictions that we compete with will not bear the burden of adjustment costs associated with the ratification of Kyoto.

    A Canadian plan to reduce greenhouse gas emissions must encourage investment and innovation, recognize the past actions and investment already undertaken by the industry, and provide for a competitive tax regime. High-cost, short-term solutions are not the answer. A workable, national implementation plan to reduce emissions rests with improved energy efficiency, fuel switching, technology-based solutions, and R and D that will focus on the real issue of energy use.

    In conclusion, let me just say that debt reduction and a competitive tax system will help to drive productivity, innovation, and economic growth; increase the income of Canadian workers; boost government revenues; help to deliver a balanced approach toward greenhouse gas emissions; and create a socio-economic environment in which Canadians can enjoy the best quality of life and standard of living. We do believe this holistic approach must be taken.

    Thank you.

»  (1740)  

    The Chair: Thank you very much.

    We'll now move to Dan Reist, of the Canadian Executive Council on Addictions. Go ahead, sir.

    Mr. Dan Reist (Treasurer, Canadian Executive Council on Addictions): Madam Chair, on behalf of all of the members of the Canadian Executive Council on Addictions, I want to thank you for the opportunity to address this committee. We're a new organization. The Canadian Executive Council on Addictions—or CECA, as we call it—was just formed this year, but its history really goes back a couple of years, to a symposium that was held in December 2000 and was organized by the surviving provincial addiction agencies and the Canadian Centre on Substance Abuse.

    The membership of the council is made up of senior executives from addiction agencies operating at the federal and provincial level. The current membership includes the Canadian Centre on Substance Abuse—a national organization—and representatives from Ontario, Manitoba, Alberta, British Columbia, and the Yukon. Those are the provinces and territory that still have some kind of identified agency responsible for addictions.

    Like so many other health-related sectors, the addictions programs have experienced a great deal of change in the past few years. Many of the factors acting on the addiction field have been the same as those acting on other health and community service sectors: rapid social and economic change; restructuring within government; provincial health care reform; budget reductions; and rising expectations for accountability. All of these have had a significant impact on the delivery of services and on research within the field.

    The addictions field, like the mental health field, has suffered from stigma in the past, from a low profile in terms of priorities, and often from a lack of leadership at both the federal and provincial levels. If anything, these fields are more complex and emotionally and ideologically more charged than most of the other health fields. In the case of addictions, one of the reasons is that the field is complicated by the fact it is not only a health field, but that it embraces so many aspects of social services and enforcement.

    The competing interests of these various sectors in trying to address this complex problem often complicate response to it. You can add to that the fact that the harms we are trying to reduce in the addictions field are not only harms to the user—that is, the traditional patient in a health care structure—they are also harms to family and friends and harms to the society generally. Again, those competing interests of who bears the harm and which harms you are trying to reduce complicate the response system.

    We now recognize that the affliction of substance abuse is a biopsychosocial phenomenon requiring a comprehensive, balanced, and coordinated approach involving not only a specialized addiction services system, but also the broader health and social infrastructure, as well as the enforcement community. While we recognize that, we are not doing very well.

    Chapter 11 of the Auditor General's report—a chapter on Canada's national drug strategy—was a damning report that highlights the lack of balance in Canada's strategy, the complete inadequacy of current data to evaluate effectiveness or inform public policy, and the absence of federal leadership. Those findings have been echoed in many studies at both the national and provincial levels across the country, and most recently echoed in the report of the Senate Special Committee on Illegal Drugs.

    In December 2000, several of the current CECA members hosted a national symposium, as noted earlier. They brought together 44 representatives from a wide range of stakeholders across Canada. The summary report that came out of that symposium called for a new national drug strategy in order to assist the provinces and provincial governments in the development of their goals within constitutionally mandated responsibilities. We are therefore encouraged by the government's recent announcement, in the Speech from the Throne, of its intent to implement a national drug strategy to address addiction while promoting public safety. It's with that encouragement that we come before this committee today.

»  (1745)  

    I know this committee has been briefed before and is probably well aware of the impact of addictions in Canada, but let me quickly review.

    The use of alcohol, tobacco, and other drugs is associated with a wide variety of adverse health, social, and economic consequences. In repeated studies in western societies, the cost has been shown to be estimated at anywhere from 1% to 4% of gross domestic product. For Canada, I think that puts it at somewhere between $10 billion and $40 billion a year.

    With those kinds of figures, economists have started to become increasingly interested in looking at the economics of drug use. The goal of this exercise is ultimately to understand how policy and program interventions impact social costs over time, and to adopt interventions that will help to achieve success in tackling problem substance use.

    We have a comprehensive cost-of-illness study. It's out of date, but at least it's a benchmark to begin with. Based on 1992 data, it was estimated that substance abuse costs the Canadian economy $18.45 billion a year, most of that in lost productivity, but $4 billion of it in direct health care costs. Substance abuse also contributes to or is the cause of one in five deaths and hundreds of thousands of hospitalizations a year. The World Health Organization estimates that 25% of the burden of disease is attributable to problem substance use.

    Those are big, gee-whiz numbers, yet how much of that can we save? How much is avoidable? That's where many of the newer studies that look at avoidable-cost analysis begin to give us some encouragement. An Australian study that looked at this in some depth determined that 85% of the costs relative to alcohol, 45% of the costs relative to tobacco, and 30% of the costs relative to illicit drugs were in fact avoidable by using good public policy initiatives. If we apply that to Canada and the figures we have from the 1992 data, we would say $6.4 billion of alcohol-related costs are avoidable, as are $4.3 billion of tobacco related costs and $291 million in costs associated with illicit drugs. That's what could be saved each year through public policy initiatives that seek to maximize cost benefits.

    What sorts of policies would enable us to achieve these cost reductions? At CECA, we believe we first need to have a comprehensive drug strategy and clear national leadership. CECA believes the fundamental goal of this strategy should be the reduction of harm arising from problem substance use and addictive behaviours. That is, we should focus first and foremost on reducing harm, not simply on reducing use. We believe progress in doing this needs to be evaluated using empirical evaluation and evidence-based scientific methods, and that this requires an investment in capacity-building to be able to give that kind of data.

    As the federal government considers its options and priorities relative to health care, we would urge you to give serious consideration to the issues of problem substance use and addictive behaviours. Expenditures in this area should be considered investments, and there is evidence to show that they start paying off immediately.

    We would recommend three areas of investment. The first is the coordination of a comprehensive, national drug strategy—and by that we mean not just a federal one, but a truly national one. Clear national leadership is required. We recommend that there be a political champion to head this up. We believe the federal government should invest in the components for a national dialogue and enable stakeholder input from across the country. We believe the federal government should invest in allowing the Canadian Centre on Substance Abuse to adopt a wider mandate and fulfill a stronger role of leadership, as recommended by the Senate Special Committee on Illegal Drugs.

»  (1750)  

    The Chair: Thank you very much.

    We'll now be going to our final presenters, who are from the Canadian Dental Association.

    Dr. Tom Breneman (President, Canadian Dental Association): Thank you very much, Madam Chair, and thanks for inviting us here to speak to you today.

    In my role as president, it's my job to try to represent to you the thoughts and priorities of the 17,000-plus dentists CDA represents, as well as our patients and future dentists. You've already received a copy of CDA's brief, which covers in detail a number of important issues, and rather than reiterate the contents of that brief, I'd like to give you a bit of insight, from my perspective as a practising dentist, into what some of these recommendations look like.

    I know Andrew Jones has already presented to you as a representative of a group called the National Professional Association Coalition on Tuition, or NPACT, of which CDA is a member. I understand he covered a range of professions sharing common concerns about how rapid increases in tuition fees are affecting or will affect access to professional programs. I want to add, if I may, to Andrew's presentation by drawing on some of my own experiences.

    When I entered the dental program at the University of Manitoba in the mid-1960s, I was looking at tuition fees in the neighbourhood of $500 per year. My family wasn't particularly affluent, and neither were the families of my classmates at that point in time, in fact, a lot of them were from working class families, and $500 a year wasn't peanuts, but it was manageable, and with good summer jobs and a little tenacity, we could save that through the summer. For many of us, the total debt we were looking at come graduation would have been under $5,000. For myself, it was around $3,000. Times were good. When I set up practice, dentists in the city of Brandon had waiting lists of people they just couldn't accommodate. So I was able to very quickly establish my own practice with a solid patient base. I don't have my income tax returns from back then, but I think I could count on making in the region of $25,000 to $30,000 a year. So the point is, my total debt load on graduation was about 10% of what I could expect to earn in a single year of practice.

    Contrast that with the situation that would face a young person today considering dentistry. To begin with, tuition fees are much higher. You add to that the cost of tools and materials and the debt many students are already carrying from an undergraduate degree. On graduation, many students today are easily looking at $100,000 to $150,000 in debt. It's true, these students will be earning higher than average incomes, but setting up practice today is also a different story from what it was in the 1960s. Establishing an independent practice is a very costly endeavour. You're faced with a debt load that represents two or three times income, compared to my 10% of one year. It may be much more attractive to these new graduates to work as an associate in a large established practice, probably in an urban area. That's when access becomes a problem, because it's the smaller rural areas that are already experiencing shortages, and the expectation is that it will become worse.

    It might be argued that I had it too easy, but there's got to be some middle ground between the reality of 1969, when I graduated, and what we've got now. The pendulum, I think, has already gone too far and still seems to be swinging out. At some point we need to reach out, stop it, maybe move it back a bit.

    There are two other concerns related to this issue, one because it also deals with university funding, the other because it speaks to access to care.

    The financial constraints that caused universities to make such drastic hikes in tuition fees also affect their ability to attract and retain top-quality educators. Fewer dentists are choosing academic careers, and attrition is a real factor. So the tuition question almost becomes a moot point. For really, if there's nobody teaching, it really doesn't matter what the tuition fees are. The bottom line is that universities need more financial support. That may come through increased social transfer payments to the provinces or some other model yet to be developed. The education of our children and grandchildren is not something the federal government can afford to ignore.

»  (1755)  

    The second point about access to care is more complex than simply the availability of an appropriately trained person to deliver that care. There's also the question of how that care is paid for. For the most part, Canadians enjoy high levels of oral health, provided by committed and caring dentists, paid for through a team approach of employers, insurance companies, and government, but there are some who fall through the cracks. Although we lack detailed, statistical information in Canada, we do have a fairly good idea of where the problems are. There's really no system in place to meet the needs of working poor Canadians, and in addition, the underfunding of welfare programs means they're able to provide only the most rudimentary service. Significantly, it's members of the lower income groups who carry the greatest burden of oral disease. For example, studies have shown that children from the poorest 20% of families experience as much as 80% of the cavities.

    Health care reform is very much a topic of discussion these days in the context of both the Kirby and the Romanow reports. While dentistry is not a focus of either of these, there are some fundamental aspects of delivery of care that are common to dentistry and general health care. Dentists welcome the opportunity to work with government to address the needs of poorer Canadians by designing a system that respects the following key principles.

    Patients should be free to attend the dentist of their choice. Long-term relationships between dentists and patients should be encouraged and fostered. Dentists and patients should be able to make treatment decisions in joint consultation free from third-party interference based on coverage. We should recognize that dentists are the only oral health care providers trained and able to diagnose and make full oral health plans for patients.

    Our brief covers a number of other issues. I'm pleased to see at the table our friends from the Retirement Income Coalition. CDA's brief makes a number of recommendations calling for increases in RRSP contribution levels with which I'm sure they will concur. This is an area that has really been overlooked in the past few years, and while it's understandable, given the competing priorities, we certainly feel that this year is the time to make some positive changes.

    Other subjects covered in the brief include the need for more oral health research and prevention initiatives, concerns about the oral health of aboriginal Canadians, and recommendations on tobacco control and GST.

    Madam Chair, thank you again for giving me this opportunity to bring these important issues to your attention. I welcome your questions and discussions following, and I'm sure, seeing that today is Hallowe'en, some of you must have some questions to direct to a dentist.

    The Chair: Nobody's getting candy at my house, I guess.

    Thank you very much for your presentations.

    Mr. Jaffer, go ahead for a seven-minute round.

    Mr. Rahim Jaffer: Thanks, Madam Chair, and thanks to all the presenters for being here today. There's a wealth of information, and in the short time we have it's difficult to address many of the issues you've raised. However, I'll try to get in as many brief questions as I can to as many presenters as I can.

    I wanted to start with the mining association. In your brief you make many recommendations, but especially, I'm curious about the percentage you would want this committee to suggest be allocated to debt reduction. Do you have an actual percentage from the surplus? Have you given some thought to how you would suggest we allocate any sort of surplus, a percentage to debt reduction, tax relief, or program spending?

    Mr. Dan Paszkowski (Vice-President, Economic Affairs, Mining Association of Canada): No, we haven't. We haven't broken anything down in respect of how we would divide that one dollar, because we're not truly an economic think-tank.

    Mr. Rahim Jaffer: It was just a percentage, in case you'd thought about that, but if not, that's fine.

    Mr. Dan Paszkowski: No, we haven't given thought to how we would break it down. We just felt it would be better, rather than looking at only a debt-to-GDP ratio, to look at debt service charges as a percentage of revenues. We felt this would be a better measure to ensure that actual debt was going down and debt service charges were on their way down as well.

    Mr. Rahim Jaffer: That's fine, and I appreciate many of the suggestions you've made in your brief.

    My next question is to Mr. Pielsticker. It seems to me that there has been an increased pressure on Canadians and a concern to want to put more money aside for their retirement. There have been more and more recommendations to this committee to raise that minimum level of contribution. I'm curious as to what your thoughts are. It suggests that there isn't be much confidence in the current CPP plan, if there is more and more a direction for us to look at other ways for Canadians to save. What sorts of suggestions can you give this committee on the way we could restructure the CPP to make it work better for Canadians, or would you abolish it completely? Have you got any thoughts on that?

¼  (1800)  

    Mr. Malcolm Hamilton (Partner, Retirement Income Coalition): We don't have any proposal to change the way the CPP is working right now. The problem with inadequate retirement savings limits is largely with Canadians earning more than $75,000 a year. The CPP wasn't really designed to give them much of a benefit. The CPP only covers earnings up to $40,000 and will only produce $9,000 a year post-retirement income. So this is a group of Canadians who are really told that they shouldn't be relying on government programs, they should get about the job of saving for their own retirement. The only problem is, we have this $13,500 limit, which prevents them from doing a good job of saving for their own retirement. So they're betwixt and between. The government programs won't do the job, nor does the tax act give them the opportunity to do the job for themselves.

    We really aren't bringing any views about the CPP to this session.

    Mr. Rahim Jaffer: Okay, I just wanted to see if you had some thoughts on that, because it's always been a concern, as well, how we could give a better return to Canadians through that program.

    My last question might need a little bit of expansion. It's to NSERC, as well as the Mood Disorders Society of Canada. I'd just like some clarification and then your thoughts on how we compare with our largest competitor. In your briefs there isn't any indication how much the United States spends on medical research--for instance, in the area of NSERC--and how that R and D spending may put us at a competitive disadvantage.

    First of all, what is the gap, if there is one? What sort of disadvantage does that put us at in the level of competition, especially in retaining much of the talent we'd like to see remain here in Canada, and continuing to attract R and D investment in this country?

    Are we doing the right things under the SR and ED tax credit program? Maybe you have some suggestions that could enhance that, whether it's for increased tax reductions on other sides, or whatever it may be, to make that system work even better. So I'll just leave that open to the both of you and see what you can....

    Mr. Phil Upshall: I'd like to make a quick comment, and then I know Dr. Quirion will as well.

    From our perspective, from the NGOs' perspective, we're terribly hampered in a competitive way. The United States has in excess of $25 billion just for its National Institutes of Health, and we have $500 million.

    When we first set up CIHR--and I was really fortunate to be able to be involved in it--one of the issues was competitiveness. We looked at average grant sizes. I've forgotten what they were then, but I believe they were $400,000 in the United States; they're $100,000 in Canada.

    We have partnering here--and I'll let Dr. Quirion go into that--but from our perspective we want a partner in the research processes, because we need to help develop the answers to some of the problems. But we need to be on a level playing field, if you like, and it's almost impossible to do that when the Americans fund their research to such a tremendous level.

    But Dr. Quirion can add something.

    Dr. Rémi Quirion: I think most of the figures Phil mentioned are right, in relation to CIHR and the National Institutes of Health in the States.

    Overall, over the past couple of years, as Tom mentioned, with the Canada Foundation for Innovation, the Canada Research Chairs, and through structures like the Canadian Light Source Inc. in Saskatoon, we now have much better infrastructure. We need to ensure we use this infrastructure fully, and that the scientists we recruit from outside Canada have access to dollars to run their research projects that will train the next generation of scientists and create jobs for Canada in the future. Otherwise we'll lose them again.

    The Chair: Dr. Brzustowski.

¼  (1805)  

    Dr. Thomas Brzustowski: I think that's a very important point. We have the Canada Research Chairs that is putting new people in place. We have the CFI putting in facilities. What we need now is the money to actually have those people do the research.

    Our average grant at NSERC is about $32,000 a year, which compares rather poorly with CIHR; compares dreadfully with the NIH; and compares quite badly with the NSF, our counterpart in the States. The NSF just recently had approval to double their budget in five years, from levels that are already higher than our own.

    But the other thing to know is that in the United States, the NSF is not the only source--as NSERC is here--for people in science and engineering. There's the DOE and a number of other departments and agencies. There is a very large defence budget, out of which a lot of basic research is supported without defence implications.

    NSERC is our only source. That is why we feel these pressures very much, particularly in getting the new applicants a reasonable start, without at the same time prejudicing those who have already proven to be successful in the system, and on whom we're counting.

    The business of keeping students, though, is very serious, and there were references to tuition fees. For people contemplating graduate study in a field in which graduates at all degree levels are in high demand, the forgone earnings of two or three years to a master's degree, or as many as six or seven or more to a PhD from the bachelor's degree, present an insurmountable economic barrier.

    We must provide some means of having these students supported better. I'll give an example. The best of the NSERC scholarships for doctoral students are at $19,100 a year, for people who can be doing quite interesting jobs in industry for two and a half, three, or more times that, from the bachelor's degree. It's not what it used to be in the sixties. It's definitely not the proportion we used to have.

    Since we are competing, we have to get serious about this. The Canada Research Chairs helps, the CFI helps, but some gaps have opened up and we have to fill those gaps.

    The Chair: Thank you.

    Mr. Cullen, seven minutes.

    Mr. Roy Cullen: Thank you, Madam Chair, and thank you to all the presenters.

    First, to Mr. Reist, I've worked closely over the years with the Canadian Centre on Substance Abuse. You mentioned them in your brief. Could you tell me how your two organizations interact, or complement each other, or work together?

    Mr. Dan Reist: The Canadian Centre on Substance Abuse is a national organization, whereas CECA is a membership organization that includes the Canadian centre and counterparts in provinces. So it's an organization that tries to actually build the framework for a national strategy to be implemented through.

    Mr. Roy Cullen: You mentioned the desirability of a political champion. I should tell you, I'm trying to get my good friend, Bill Deeks, who was chairman of the Canadian Centre for Substance Abuse for many years, into the Senate. So if you want to send a little encouraging note to the Prime Minister, I know he'd be a real champion. He has a lot of energy, too.

    To move on to the mining industry, Mr. Peeling and Mr. Paszkowski, I know you've had a lot of discussion over the last while with the Department of Finance on trying to bring the rate down. It's fairly complicated, because you have the resource allowance, the accelerated CCA, and these exploration development expenses. But according to this chart here, if they repeal the resource allowance, even doing other things with respect to mining taxes, you end up with a higher rate than you currently are paying. Is that correct?

    Presumably, that's not a desirable outcome. Maybe you could expand on how these options interact and intersect and interrelate, and the outcomes you'd be looking for, based on these discussions.

    Mr. Gordon Peeling: I'll turn to Dan Paszkowski to go through that chart and bring us up to date on where we are with discussions. Obviously, we would like to see a solution in the 2003 budget. Over the past number of years we've been in constant discussion with finance officials, and we would like to bring it to a conclusion as soon as possible.

    Dan, why don't you go through that.

    Mr. Dan Paszkowski: Sure.

    In the graph we've tried to make it clear that there are provisions in the tax system, both federally and provincially, that assist the mining industry. Because of our unique characteristics in comparison with other sectors, we felt that we were discriminated against by not being provided a 7% rate reduction. The key reason for that was the resource allowance. In accordance with the Department of Finance, the resource allowance was put in place in 1976 to make room for the provinces to tax the resource, because under the Constitution, the province is the owner of the resource.

    The point we are trying to make is that if we have to lose the resource allowance as an entry fee to get a 7% rate reduction, we would be made worse off, in actuality. Right now the average effective tax rate of a mine, over the life of the mine, is higher than the effective tax rate of the manufacturing and processing sector, or other sectors of the Canadian economy. So at the end of the day we'd like to be made better off--and more competitive, because we are operating today in a global economy--and not worse off.

    The loss of the resource allowance to the mining sector would be equivalent to a roughly 20% reduction in the federal corporate rate to maintain the same level of internal rate of return on a Canadian mining project. That would be the equivalent amount, and that's the point in this chart, that we would be made significantly worse off than we are today if we got a 7% rate reduction along with loss of the resource allowance.

¼  (1810)  

    Mr. Roy Cullen: I know that the Department of Finance would love to get rid of the resource allowance, and I think they're sympathetic to moving the rate down. Why would you waste a year and a half just to come out even? You'd like to come out a little bit better, but at least even. They're going to have to throw something else into the pot, are they not? And what might that be?

    Mr. Dan Paszkowski: Over the past three years we've run a lot of analyses. As well, the finance department hired third-party, independent tax experts to look at this on behalf of the mining industry as well as the oil and gas industry, and one of the options that did come out of discussions with these tax experts was a slightly lower resource allowance, with allowance for full deductability of mining taxes and royalties. With that combination, we found that we would end up somewhere in between the second and the third bar graphs, so somewhere between the 40% and 35% range.

    Again, we're looking to become more globally competitive and not worse off than we are today. That was one of the options that was put on the table but has not yet been accepted by the department.

    Mr. Roy Cullen: Thank you.

    Mr. Upshall and Dr. Quirion, the proposal you're making here, would it come under the umbrella of the CIHR? Would this be a separate and discrete initiative?

    Mr. Phil Upshall: It would be a Treasury Board initiative. The research component would be funnelled primarily through the Institute of Neurosciences, Mental Health and Addictions.

    Mr. Roy Cullen: So it would be separate from the CIHR?

    Mr. Phil Upshall: Yes.

    Mr. Roy Cullen: Okay, thank you.

    Mr. Phil Upshall: There would be an advisory board. I don't know if you're familiar with the diabetes strategy, but it's based primarily on what the minister did. I think it was about three years ago; I'm trying to remember when it was set up.

    Mr. Roy Cullen: Was that before the CIHR? My understanding is that we were trying to bring things under one--

    Mr. Phil Upshall: One of the problems--and I say this without Dr. Quirion hearing it--is that the Institute of Neurosciences, Mental Health and Addictions, in my humble estimation, does not get the funding it requires to conduct the research that's necessary in the areas of mental health and addictions, because there are 12 other institutes competing for money. Our area has always been the most stigmatized, the least recognized as a problem area. With a separate fund, with $25 million for research into neurosciences, mental health, and addictions, which would be funnelled through there, there would be no argument as to where the moneys would go.

    Clearly, if you know the CIHR set-up, which I know you do, an awful lot of the research will have impact on other institutes, but we really need to focus on mental illnesses in the workplace, causes and treatments for depression, which affect one in five. We need to do that more in our area than in any other area, because we don't have the Heart and Stroke Foundation, we don't have the Canadian Cancer Society with large numbers. The chair spoke to this last year in her pre-budget speech, when she talked about the development of the NGO community. The basic issue is that we need it separate and discrete.

    Dr. Rémi Quirion: Maybe I could add to that. A model, although I don't know the details, could be like the obesity research agenda that was just announced earlier this week. According to what I know, there is $50 million that will be dedicated to that envelope. It would be under the CIHR umbrella, but would be focused on obesity.

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    Mr. Roy Cullen: I saw Rex Murphy's little piece on the obesity strategy last night. I must say, I hope your research is targeted at areas that seem.... Maybe obesity is a very complicated thing, but....

    Mr. Phil Upshall: The other $25 million does not even touch any of the CIHR's issues. We need the surveillance program the Auditor General spoke of and whacked Health Canada about. Health Canada, CIHI, and Statistics Canada have to work together on the surveillance. We need awareness programs, we need national and mental health promotion to keep people healthy, not just to heal people. All those other aspects are in the other $25 million basket.

    Mr. Roy Cullen: Mr. Breneman and Mr. Jones, on tuition, it's a generational question, in that it's maybe tougher today for students coming out of dental school in respect of student debt, but the cost benefit is probably still there because of the income generating capacity. Mr. Jones was going to dig around and turn to some cost-benefit data. Would that be a fair comment, that it still pays to be a dentist, because you earn a lot of money?

    Dr. Tom Breneman: What we're really identifying is the issue of access to care, the concern that as new practitioners graduate, with the debt load they'll have today, rather than go to a rural base, they will tend to stay in larger centres and associate in larger practices, which will give them, in a way, more instant busyness with fewer ongoing costs. Our concern is that this will further impede the number of young practitioners who are going to go to the rural and northern areas of our country.

    Mr. Roy Cullen: Thank you.

    The Chair: Mr. Jones, quickly.

    Mr. Andrew Jones (Director, Corporate and Government Relations, Canadian Dental Association): Thank you.

    If I might, too, I think the second issue here is the choices that young people are making, going into professions, as high school students or as undergrads. We heard about some choices from the colleagues around the table, and we're finding that perhaps we're going to have a different sort of base going into professions, coming out now, from what there was 30 or 40 years ago. That's certainly a concern for us with respect to the Canadian fabric.

    With respect to what I was speaking to last week, we are working with the coalition to run some figures, not only in dentistry, but of course, in law and in medicine, and in all the partners that are in the coalition. So we will be forwarding that information to you.

    The Chair: Thank you.

    Madam Minna.

    Ms. Maria Minna: Thank you, Madam Chair.

    If I could start off with the whole issue of pensions, Mr. Pielsticker and Mr. Hamilton--you're both together on that one--first of all I want to say that I believe we need to do some reform on all pensions in Canada. There are some serious problems in a number of them. CPP has been revamped, and that's fine, but regarding old age security, people who are on fixed income in our country are having some real difficulties right now.

    For unattached seniors, for instance, poverty has gone up instead of down, and 48.7% of those seniors are living below the poverty line. Most of them are women, unattached women. I am in fact working on that issue with the subcommittee of the women's caucus, so I want us to address pensions.

    My concern, though, is that I don't want to address pensions by addressing the RRSPs and maybe the old age security alone, by itself, because all these pieces actually come together. I know they affect different income people differently, but we need to see both in terms of how they work together and also what the cost to the treasury and to the government is, ultimately, when you pull them together.

    Having said that, my understanding is that the average contribution to RRSPs currently is about $5,000--at least that's what the data indicated that I received from the financial people. Also, less than 50% of Canadians have a company pension plan, and those who do not fall into different income brackets. Some of them are self-employed, and some of them are in small business. Some of them are working in companies and are not making very much, below the $6.75. Some are between $50,000 and $60,000 a year, but don't have anywhere to go, because my understanding is that if your contribution is anywhere under $100,000 a year, you might as well not bother putting any away in an RRSP, because it really doesn't help you that much, although we encourage Canadians to do that, and that happens. So it's an issue that I think we have to address, to look at what kind of system we would provide for people who actually don't have the higher income.

    So those are issues that we have to address overall, but given the fact that the average contribution is only $5,000, presumably the contribution should be much higher than that, given that one can in fact contribute $13,500 if your income is much higher. Well, how do you account for that low contribution, to start with? And then I have a couple of other questions with respect to this.

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    Mr. Malcolm Hamilton: The system is hard for most people to understand, because it's really several different systems for several different kinds of people.

    If you're a low-income working Canadian, you are going to get most of what you need to maintain your standard of living when you retire from government programs. You're given the ability to put 18% of your income in an RRSP, but you don't really need to, because the CPP and old age security and GIS will do a reasonably good job. In fact, ironically, if you do put a lot of money in an RRSP, you find that you get a relatively small tax break, because you're taxed under that 22% rate, and then when the money comes out of your RRSP, you're taxed at the same 22% rate, but you can lose 50¢ on the dollar on GIS benefits and all sorts of income-tested government benefits.

     If you look at the lowest third of working Canadians, there's basically a group there that doesn't need RRSPs and shouldn't use them.

    When you get up to middle-income Canadians, yes, they need RRSPs, but they don't need their full 18%. With the average Canadian family, which would be a two-income family earning $70,000 a year, if each spouse put 18% in an RRSP their whole life, they would have a far better standard of living in retirement than they ever had when they were working and raising children. Again, there's no harm in giving them the 18%, but you shouldn't really expect them to use it all, and they don't use it all.

    With young Canadians who are carrying mortgages, again, if you do the arithmetic, most of them are better off paying off their mortgage at this stage in their life than they are putting money in an RRSP. So, again, there's no harm in giving them the 18%, but nobody should be alarmed that they're not using it.

    The only group that really needs the full 18% is the higher-income people, and they need it because the government benefits replace a far lower percentage of their income when they retire than would be the case for middle- and lower-income Canadians. When you look at how people use RRSPs, it's true that the average is $5,000, but it's probably equally true that the average should be around $5,000. If you ask which group, relative to the need for retirement savings, is way below target, it's high-income Canadians.

    Ms. Maria Minna: That's what I thought.

    I want to go back to your chart on page 3 for a few minutes. I'm not sure what it's comparing. The MP pension, I presume, is what one receives at time of retirement or when one is no longer an MP. You have $98,000, and I think a backbencher after 10 years of service is somewhere between $35,000 and $38,000. Then you're comparing GIS-OAS for a single person at $11,500, which is the maximum they can receive from the government, but then you have the RRSP limit at $13,500, which is not actually a pension, but what one can contribute on a yearly basis.

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    Mr. Malcolm Hamilton: Yes.

    Ms. Maria Minna: So I'm not sure what you're comparing on this chart. On one hand is retirement pension, on the other retirement contribution. It's not quite the same thing.

    Mr. Malcolm Hamilton: It's not quite the same thing, but if you double what people can put into RRSPs, you double what they get out.

    Ms. Maria Minna: But if I do 10 times $13,500.... Say you're able to contribute the maximum, because you're at the high income level, 10 years gives you $135,000, and 20 years $270,000--I'm not even putting in compounded interest, I just did this on my own--and 30 years $405,000.

    I'm not sure I'm personally ready to look at increasing the upper limit until we look at the cost to the treasury of dealing with the other issues we also have to address. There is poverty among seniors today, whether we like it or not, that needs to be addressed. Do we have to increase GIS? Maybe we should, but we should look at your issue as well. What would be the maximum RRSP to give enough return to the pensioner that then we would stop? In other words, should the government continue to subsidize as far as a person can contribute, or should there be a limit of something that gives you a return of, maybe, $60,000 a year? Beyond that, if you have lots more money to invest, go out and invest it, but you can't get it through a tax deduction, if you know what I mean.

    We need to have some discussion here about how we invest the dollars, especially given all the tax cuts we're going to have, because there are a lot of other expenditures.

    Mr. Malcolm Hamilton: This system has been studied many times. When the CPP was done, people looked at the system; when the RRSP system was revamped in 1990, people looked at the system. Most of those reviews, going right back into the 1970s and 1980s, said the RRSP limits needed to be higher. Marc Lalonde had them at $14,000 in 1987. It's $13,500 in 2002. If you look at what's changed, I think we've done a reasonably good job of pushing up OAS and GIS. It may look like a small benefit, but the incidence of low income among elderly Canadians is lower even than in Sweden. Relative to almost anywhere else in the world, low-income elderly Canadians live quite well, much better than in the United States, much better than in many places in Europe. Where we haven't been following what the studies said to do and where we haven't been keeping up with competitive practice is in creating opportunities for Canadians with better incomes to save their own money and have a decent pension as a consequence.

    Ms. Maria Minna: Just to finish, I want to differ with you on old age security doing well for seniors. It's true that for couples, poverty levels are dropping and they're better off, but for unattached seniors, poverty levels are going up. People are living under the poverty line. For women it's even worse than that. Try to think of living on $11,500 a year in Toronto. You'd spend 60% of that on rent, let alone drugs or anything else.

    What I'm saying to you is, we're not doing as well as it looks. For couples, they're doing somewhat better; for unattached seniors, the situation is quite sad.

    Mr. Malcolm Hamilton: If you look at those same rates, they'll tell you that the poverty rate for unattached seniors is substantially lower than the poverty rate for unattached working people. So if you're trying to identify where the problem is--

    Ms. Maria Minna: Fair enough, but all that does is tell me that I need to be careful and also look at the working poor in our society, which we need to address. I don't think one can say we have to choose one or the other. I don't want to choose either. I want to make sure that both are...because that goes to health, to mental health, to dental, to our health care system, and to all of those things.

    A senior who doesn't take their drugs, or chooses one, or takes it intermittently, ends up in hospital, and that costs us a ton of money. As well, a poor family that has to go to the food bank at the end of the month, even though they're working, because a lot of their money is going to housing and can't afford to pay rent and can't afford to feed their children at the end of the month, uses services.

    What I'm saying is that although I understand what you're saying about the poverty levels, and how perhaps one group is worse off than the other, both groups are in pretty bad shape right now. That's all I'm saying. It includes unattached seniors and in many cases the working poor and people on welfare.

¼  (1830)  

    The Chair: If I may, I would like to ask just one question before we retire for the evening.

    You have the number of Canadians affected at 600,000. I think most of us think of a self-employed person, whether they're a real estate agent or a plumber or whatever, as being part of that category. Do you have stats on how many people are employees but who work for people who do not have a pension plan available to them?

    Mr. Malcolm Hamilton: No. In fact, the 600,000 figure was not an easy one to arrive at. It includes everybody who uses all of the RRSP room available to them and who are limited by the dollar limit. Some of them would be self-employed, some of them would be employed outside pension plans, and some of them would be employed and have pension plans.

    The Chair: But I take your basic point about the inequity. For most people who hope to reach their non-retirement income, the 70%, we're just not making this available, and yet those are the same people who are subsidizing some of the other systems that make it available to other groups of people. So I do have some sympathy, in fact a fair bit of sympathy, for middle-income Canadians. But this discussion will be ongoing.

    We appreciate your presentations, all of you. It's interesting to find out that some people actually listen to what we say in the House. I appreciate the time you've spent here. If we had more time, I myself would have had many questions, but as chair I try to limit them and let the other members ask theirs first.

    Again, thank you very much for your contributions tonight.

    We are adjourned, colleagues, until we go on the road next week.