FINA Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Thursday, November 07, 2002

·

1330

Mrs. Sue Barnes (London West, Lib.)

·

1335

Mr. Thomas d'Aquino (President and Chief Executive Officer, Canadian Council of Chief Executives)

·

1340

·

1345

The Chair

Ms. Francine Brousseau (President, Canadian Museums Association)

·

1350

The Chair

Mr. John Schmal (President, Federation of Canadian Municipalities)

·

1355

¸

1400

The Chair

Dr. Denis A. St-Onge (Past Chair, Partnership Group in Science and Engineering)

¸

1405

¸

1410

The Chair

Mr. Randall Williams (President and CEO, Tourism Industry Association of Canada)

¸

1415

¸

1420

The Chair

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

Mr. Thomas d'Aquino

Mr. Rahim Jaffer

Mr. Randall Williams

The Chair

Mr. Pierre Paquette (Joliette, BQ)

¸

1425

¸

1430

Mr. David Stewart-Patterson (First Vice-President, Policy and Communications, Canadian Council of Chief Executives)

Mr. Pierre Paquette

Mr. David Stewart-Patterson

Mr. Pierre Paquette

Mr. David Stewart-Patterson

Mr. Pierre Paquette

The Chair

Mr. Sam Boutziouvis (Vice-President, Policy, and Senior Economic Advisor, Canadian Council of Chief Executives)

¸

1435

Mr. Pierre Paquette

The Chair

Mr. Bryon Wilfert (Oak Ridges, Lib.)

¸

1440

The Chair

Mr. Thomas d'Aquino

Mr. Bryon Wilfert

Mr. Thomas d'Aquino

The Chair

Mr. Randall Williams

The Chair

¸

1445

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

Mr. Thomas d'Aquino

Ms. Maria Minna

Mr. Thomas d'Aquino

Ms. Maria Minna

¸

1450

Mr. John Schmal

Ms. Maria Minna

Mr. John Schmal

The Chair

Mr. Scott Brison (Kings—Hants, PC)

¸

1455

Mr. Thomas d'Aquino

Mr. Scott Brison

¹

1500

Mr. David Stewart-Patterson

Mr. Scott Brison

The Chair

Ms. Pauline Picard (Drummond, BQ)

Mr. Randall Williams

¹

1505

The Chair

Mr. Thomas d'Aquino

The Chair

Mr. Tony Valeri (Stoney Creek, Lib.)

¹

1510

Mr. Thomas d'Aquino

¹

1515

The Chair

Dr. Denis St-Onge

Mr. John Schmal

The Chair

Mr. John McAvity (Executive Director, Canadian Museums Association)

¹

1520

The Chair

Mr. Sam Boutziouvis

The Chair

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CANADA

Standing Committee on Finance

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NUMÉRO 024

l

2e SESSION

l

37e LÉGISLATURE

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EVIDENCE

Thursday, Novembre 07, 2002

[Enregistrement électronique]

·  (1330)  

[English]

    Mrs. Sue Barnes (London West, Lib.) Good afternoon, everyone.

    Pursuant to Standing Order 83(1), we continue pre-budget discussions.

    On our panel for the afternoon until 3 o'clock we have as witnesses, from the Canadian Council of Chief Executives, Thomas d'Aquino, president and CEO, David Stewart-Patterson, vice-president, policy, and senior economic advisor, and Sam Boutziouvis, vice-president, policy, and senior economic advisor; from the Canadian Museums Association, Francine Brousseau, president, and John McAvity, executive director; from the Federation of Canadian Municipalities, John Schmal, president, and James Knight, chief executive officer, as well as a director, David Cohen, from the economic and social policy committee; from the Partnership Group in Science and Engineering, Dr. Denis St-Onge; and from the Tourism Industry Association of Canada, Randall Williams, president and CEO. Welcome, everyone.

    We're going to have eight-minute rounds. I'll raise my pencil or pen at seven minutes to give you a non-verbal prompt. If I wiggle it, you know it's time to close.

    We'll start in the order of the agenda. Go ahead, Mr. d'Aquino.

·  (1335)  

[Translation]

    Mr. Thomas d'Aquino (President and Chief Executive Officer, Canadian Council of Chief Executives): Thank you, Madam Chair.

    It gives me great pleasure to  appear once again before the members of this committee. I am particularly pleased to have the opportunity to do so here in Montreal, where several members of the Canadian Council of Chief Executives reside. Montreal is an international hub which bears witness to the cultural and economic vibrancy of our country.

[English]

    In the months since my colleagues and I last appeared before the committee the economic news for Canada has continued to be excellent. However, the outlook for the United States and much of the industrialized world, as you know, is much shakier. There is also a real risk of further terrorist attacks and of broader conflicts to come. Therefore, I want to commend the Minister of Finance for restoring the full $3 billion annual contingency fund and for factoring in a significant degree of prudence in fiscal planning. Maintaining significant contingency funds does more than reduce the risk of a deficit. When unused contingency funds pay down the debt, they also buy greater assurance that the government will be able to enhance the quality of life of Canadians in the years ahead. Money saved is money never wasted.

    The government's projections show relatively small surpluses in the near term. We therefore agree wholeheartedly with the Minister of Finance that the government must address urgent new priorities primarily through the reallocation of money from existing activities. The council has argued consistently for a return to rigorous program review as a regular and continuing feature of fiscal management, and we are pleased that the minister is moving in this direction. The fiscal update projects that total federal tax revenue will continue to rise by 5% a year and that by 2007-2008 revenue from the goods and services tax, personal income tax, and corporate income tax will have increased by 34%, 32%, and 25% respectively.

     Nonetheless, some of the areas that will require increased expenditure, we admit, are significant. One in particular that has received insufficient attention is military spending. The state of Canada's military affects the security of Canadians and the sovereignty of our territory, as well as our international stature as a peacekeeper, but in defending Canada, we also share a responsibility to defend North America, and our willingness to maintain a credible military capability will have a real impact on our relationship with the United States and our ability to ensure a continued free flow of goods and people across our common border.

    Health care costs also seem certain to keep rising in real terms, but as with defence spending, we see no valid reason for these cost pressures to lead to an increase in overall tax rates. Any move to introduce a new tax, even if supposedly dedicated to health care, in our view, would be a violation of this promise. Aside from the practical difficulties involved in administering dedicated taxes, raising tax rates is simply, in our view, the wrong way to ensure that Canada can sustain and enhance public health care. Fiscal discipline and tax cuts have played a vital role in making Canada the fastest growing economy in the G-7, and it is this growth that is projected to boost annual federal tax revenue by $43 billion within the next five years. Indeed, to reinforce Canada's economic growth and to drive tax revenue even higher over time, the government should consider further tax cuts and not tax increases.

    Our most urgent recommendation, Madam Chair, for the next budget would be a commitment to eliminating the federal capital tax over the next three years. This tax directly penalizes companies that invest in fixed assets and the very new plants, machinery, and equipment that are critical in boosting productivity and enabling Canadian workers to earn higher income. Eliminating it is both affordable and the single most powerful move this government could make to drive innovation, productivity, and economic growth.

    Our council also believes Canadian competitiveness would be enhanced by further cuts to corporate income tax rates. Aiming for an average corporate income tax rate of 10% below that of the United States would create, in our view, a real advantage in attracting investment at a relatively modest fiscal cost. Even if fiscal circumstances preclude a net cut in tax revenue, the committee might wish to consider offsetting the short-term revenue losses from further corporate income tax cuts through corresponding cuts in business subsidies, a subject we've addressed on many occasions in the past.

    The other way to stimulate innovation, productivity, and economic growth without affecting revenue or spending is through regulation. Here the most urgent priority is to reduce the cost, complexity, and unpredictability of the regulatory process. Just last week a complex process of negotiating and seeking approval for a merger between two major banks was summarily terminated, even before a formal application for review had been made. Such arbitrary actions send a very disturbing message to financial markets, that Canada's regulatory processes cannot be trusted.

    A similar message is being sent by the process of deciding whether to ratify the Kyoto protocol. The government is insisting that the protocol be ratified before the end of the year, without regard to the consequences for all Canadians, without clear rules, and without any willingness to consider the merits of alternative approaches that might do a better job in the end of reducing greenhouse gas emissions. The greatest damage being done by this process flows from the pervasive uncertainty that will envelop business investment in this country until the rules are clarified. To be blunt, if the protocol is ratified without a credible and detailed implementation plan, the projected fiscal surpluses presented by the Minister of Finance last week will certainly, in our view, be reduced.

    Let me conclude with a few comments about governance. Canada's chief executives recognize that to restore public confidence and trust in markets, we must do our part in driving major improvements in corporate governance. Trust in business cannot be legislated or regulated. Business leaders must earn the trust we need through our own actions. I would suggest that Canada's democratic institutions are also suffering from a trust deficit. As in the corporate sector, significant actions are being taken to restore public trust, and the creation of an independent ethics commissioner is an important step forward. In my view, however, institutional reform also is necessary, and each of you has an important role to play. Even in the absence of formal changes in rules and procedures, members of Parliament do have significant power when they choose to exercise it.

·  (1340)  

     The Standing Committee on Finance has always had an important impact in shaping fiscal strategy, and your influence is needed now more than ever. The recommendations you make for the next budget will be important in their own right, precisely because some of the choices to be made will be so difficult. How you make these and other choices in the months ahead may prove to be just as important to restoring public trust in our democratic institutions. The regulatory and tax environment has a huge impact on the competitiveness and growth of Canadian businesses, and thus on the prosperity of Canadians, but the state of the democratic environment also affects economic growth and prosperity.

[Translation]

    Let me conclude by thanking you, not only for taking our suggestions on fiscal matters into account, but also for your efforts to ensure that you make the right choices for Canadians.

    Thank you, Madam Chair. I am available to answer questions should the committee have any for me.

·  (1345)  

[English]

    The Chair: Merci.

    Now we have the Canadian Museums Association. Madame Brousseau.

[Translation]

    Ms. Francine Brousseau (President, Canadian Museums Association): Madam Chair, ladies and gentlemen, I thank you for this invitation to participate in these pre-budget consultations. In light of the large number of presentations, I will try to be brief.

    First, it is important to note that there are some 2,300 museums across Canada, which comprise a range of institutions from art museums to zoological gardens, and also include science centres and museums of natural history.

[English]

Canada's museums contribute substantially to the quality of life in our communities. They foster respect for the core values that define our character, they inspire, inform, and educate Canadians. Canadians everywhere hold them in great affection, nowhere more than in this city of Montreal.

    With few exceptions, our museums hover on the margins of survival. Even as Canadians voice growing concern about our children's lack of knowledge concerning their own heritage, that heritage is being put at great risk by our museums' declining capacity to properly care for fragile and irreplaceable collections.

[Translation]

    Museums are suffering from chaotic funding. Public funding of museums has been in a free fall since 1991-92 in spite of an increase in their operating costs of over 23%. The resulting fiscal squeeze has forced museums to focus strictly on staying afloat. While they focus on that concern, priceless collections are deteriorating and disappearing.

    In spite of the recent decision by Heritage Canada to commit matching funds to the area of arts and heritage, total government expenditures are in every regard much lower than they were a decade ago. Moreover, many museums eligible for these programs are quite simply incapable of putting together the necessary matching funds.

    Museums are struggling to compensate the decline in State funding and find other sources of revenue. They increase their earnings, solicit donations and call on the assistance of volunteers as much as they can. Their efforts sometimes meet with success. For example, fundraising for heritage institutions has increased by about 23 % since the beginning of the decade. These gains, however are barely keeping pace with the increase in operational costs.

    Added to the problem of reduced public funding is the rather fractured state of the present funding mechanism which includes a welter of federal, provincial and municipal programs, each operating according to its own objectives and priorities in response to widely varying social and economic circumstances, without even mentioning the issue of coordinating these programs, a coordination which is sometimes entirely lacking.

    Museum administrators, including hundreds of museums managed by volunteers, are confronted by a bewildering array of programs with onerous administrative requirements. Often, they are unaware of the outcome of funding applications until nine months later, well into their current fiscal year. The result for heritage institutions is a virtual quagmire of overlapping, deeply layered and competing objectives, priorities and support structures, which are detrimental to coherent planning. It dilutes the underlying sense of mission and undercuts efficiency and effectiveness, and especially, it encourages the silent, progressive deterioration of our precious collections.

     Another aspect to consider is the fact that municipalities are often in crisis situations. All of our municipalities, whatever their size, are reeling under severe economic pressures. The concentration of Canada's population in a handful of large urban centres imposes financial pressure upon city governments forced to expand infrastructure and services while coping with reductions in federal and provincial allocations. The corollary of urbanization, of course, is the severe decline of rural communities now faced with a shrinking tax base and a drain of skills and experience.

    One way or another, civic leaders face tough choices that will have an impact on heritage. Forced to make a choice between keeping open a hospital emergency room, rebuilding decayed water treatment facilities or saving a museum, the outcome is predictable for the museum.

    Museums are ill-placed to benefit in this setting. Their scope for generating revenue through commercial means is limited to admission fees, retail store operations and the like. Such gains may contribute to their survival, but these efforts do not solve the essential issue of the degradation of collections.

    If we are to talk seriously about building a sustainable cultural sector including museums, we must provide a more stable operating environment that facilitates sound planning and provides sufficient legroom for institutions to improve quality of life.

    In 2001, the Department of Canadian Heritage took steps in its large-scale cultural initiative to extend fund-matching opportunities to arts organizations seeking to establish endowments. Regrettably, museums were excluded from this undertaking. It is ironic that museums are forced to put in place sustainable funding, while the government is refusing them access to a program that could be an essential tool in their success.

    In light of all these factors, we urge the government to view the following measures favourably.

    Firstly, governments should adopt a heritage policy which respects the needs of museums to preserve collections which are important for the nation, and allow Canadians to better understand their heritage. Our collective heritage is not only in Ottawa. It is to be found throughout Canada. It must be revealed and shared with everyone in a stimulating and interesting way.

    Secondly, we urge the government to review the administration of grants and contributions, with a view to improving timelines and enabling multi-year funding while improving its timeliness and efficiency.

    Thirdly, we suggest that the government invest in building our museums' capacity to establish and develop long-term philanthropic opportunities such as endowments. This could be achieved in several ways, by matching donations as is currently being done for arts organizations, and by providing resources to enhance the museums' development capacity through training and expert advice.

    Finally, there must be better coordination among all levels of government and the essential role of municipal governments must be recognized and encouraged.

    The various measures proposed here would bolster our museums' ability to develop long-term stability and continue to improve the quality of life in our communities. However, they demand that the federal government play a leadership role in building a solid Canada with solid communities.

    I thank you for your attention. We are available to answer any questions you might have.

·  (1350)  

[English]

    The Chair: Thank you very much.

    Now we will move to the Federation of Canadian Municipalities. Mr. Schmal, go ahead.

    Mr. John Schmal (President, Federation of Canadian Municipalities): Good afternoon, Madam Chair and members of the committee.

    While always an important milestone, this year your committee's pre-budget consultations have taken on an added significance for the municipal sector. With last September's throne speech acknowledgment that the health of Canada's communities was of urgent national interest also came an implicit offer of an intergovernmental partnership to build stronger communities, an offer to work with municipal governments to move forward on a host of national priorities, infrastructure renewal, climate change, affordable housing, and community integration among them. The Speech from the Throne, and indeed, the Prime Minister's response the following day, echoed the growing Canadian consensus on the need for competitive cities and strong communities. The pressing nature of the issues faced by municipal governments requires that the Government of Canada now develop a detailed plan to turn those sentiments into action.

     Expectations are especially high with respect to the commitment to create an adequately financed long-term infrastructure program. The needs in our communities are real, they are pressing, and they are stark. The upcoming federal budget will provide the opportunity to meet those expectations. The message we hear from councils across this country is clear: our cities can no longer cope without long-term stable funding. They are indeed facing a crisis.

    It's not just FCM saying this. The chair of the TD bank, the Prime Minister's own caucus task force on urban issues, boards of trade and chambers of commerce across the country, Ann Golden, the CEO of the Conference Board of Canada, the Canada West Foundation, and even David Dodge, Governor of the Bank of Canada, are among those who have expressed the same concerns. The written submission before you details FCM's proposal and expectations and explores both immediate steps and longer-term avenues open to the Government of Canada.

    In prior presentations to this committee, as recently as last May, FCM recommended an appropriate federal contribution to meet a number of pressing needs, infrastructure, integrated multi-modal transportation, including public transit, and affordable housing. The Speech from the Throne acknowledged these as being been core national concerns and added a further challenge in climate change. Strategic targeted investments in the sustainability of Canada's communities are needed now to meet those challenges. Adequate funding for these priorities is part of the solution to the fiscal challenges faced by the municipal world. Such strategic investments would provide the bridge financing needed as a transition to a more sustainable model of fiscal federalism. These investments would help municipal governments to meet their immediate and growing responsibilities, while at the same time helping the Government of Canada meet its domestic and international obligations, including those under the Kyoto protocol.

    An example of a strategic investment that would provide positive spinoffs in a wide range of policy areas, including climate change, is integrated multi-modal transportation. Modern and efficient highways, local and regional roads, rail and urban transit systems are critical to Canada's competitiveness and provide the foundations upon which strong communities and a prosperous country can be built. Inadequate transportation systems, on the other hand, slow the movement of goods, increase greenhouse gas emissions, and create health and safety problems. The transportation sector contributes more than one-quarter of Canada's greenhouse gas emissions and a significant component of smog-causing pollutants.

    In keeping with the direction given in the Speech from the Throne, it stands to reason, therefore, that this is one area where strategic, targeted program spending should be focused and amplified. The new 10-year infrastructure program can be the vehicle for delivering this financial support, but it is imperative that the program be adequately funded to be credible and lever strong and innovative community initiatives. A firm commitment to funding, beginning at $500 million annually, in support of integrated multi-modal transportation systems would be a powerful driver for progress.

·  (1355)  

     Another area where synergies can be found in the confluence of interests of municipal governments and the Government of Canada is the promotion of sustainable communities. Not only will bolstering existing partnerships for sustainable communities improve the quality of life in those centres, it will also significantly contribute to meeting Canada's Kyoto targets, an objective supported by FCM. In this sense, we are encouraged by the Government of Canada climate change draft plan and its acknowledgment of the role municipal governments can and must play. But the plan also represents a challenge for the municipal sector, a challenge we are prepared to meet in partnership with the Government of Canada. In fact, municipal governments are already aggressively pursuing greenhouse gas reductions through FCM' s partners for climate protection initiatives and the green municipal funds.

    Our current strategies have so far identified about 10 million tonnes of potential reduction from investments in landfill gas capture, community energy systems, wind power, and municipal operations. The Government of Canada's plan, however, identifies an additional 10 million tonnes of greenhouse gas reduction potential from actions to be taken by municipal governments. We are confident that the potential to achieve this and more exists, but additional investments and innovative strategies will be required. Given the outstanding success of the green municipal funds in mobilizing communities, we have recommended a doubling of the current federal investments. It is also critical that the architecture of the new infrastructure program be flexible enough to provide for investments in greenhouse gas reduction opportunities, such as landfill gas capture, community energy systems, solid waste management, and renewable energy.

    I've focused my remarks on two areas where investments in support of sustainable and strong communities also support some clearly defined and fairly immediate national goals, in this case combating climate change.

    We are at a crossroads of sorts today. Rarely in the history of our country has there been the kind of consensus that exists today on the pressing need to recognize that Canada's communities do matter. Madam Chair and members of the committee, I am convinced that this opportunity will be put to good use, and I thank you for this opportunity.

¸  (1400)  

    The Chair: Thank you very much, sir.

    Now we'll move to the Partnership Group in Science and Engineering. Dr. St-Onge, go ahead.

[Translation]

    Dr. Denis A. St-Onge (Past Chair, Partnership Group in Science and Engineering): Good day, Madam Chair. Thank you very much for giving us this new opportunity to speak to you about research in science and engineering in Canada, and to emphasize the importance of investing in this area. I'm happy to be here again. I must however apologize on behalf of our chair, who is currently in France. She is very fortunate!

    I would at the outset like to congratulate the government for the excellent investments it has made during the past few years. Namely, I am referring to the Canada Foundation for Innovation, the Canada Research Chairs Program, Genome Canada, as well as to its contribution to offsetting the indirect costs of research, in universities particularly.

    As member of the committee which dealt with research chairs over the course of the past two years, I can assure you, Madam Chair, that this program has had an enormous impact on the retention of young researchers, and in several cases contributed to their return from American and European universities to come back to Canada and work here. There is no doubt whatsoever that this program has had an enormous impact in ensuring the presence of the next generation of workers and retaining experienced workers in our institutions.

     In this area, in order to be able to retain high quality personnel,

[English]

PAGSE would like to recommend changes to the student loan system, which has been an anchor around the ankle of researchers in this country for many years, because they have such enormous debts eventually that they have difficulty keeping their noses above the water, as it were. We would recommend that 50% to 70% of student loans be eliminated, specifically in the case of students who remain in Canada as researchers or come back to Canada as researchers. If they are going to invest their career in Canada, we feel very strongly that this burden should be eliminated to a very large extent.

    We also agree with the recommendation of NSERC in particular to raise the number of graduate students by 5% a year between now and 2010. This should be encouraged and supported by all granting possible, but we also recommend that the stocktaking occur in 2005,

[Translation]

    in order to ensure that the Canadian university system can absorb such an increase and that Canadian researchers will be available to supervise these people.

    Compared to other countries, in particular the United Kingdom, Canada grants graduate and post-doctoral scholarships the value of which is half that of scholarships that are awarded elsewhere. Thus, it is high time that we provided abundant, generous, and adequate support to graduate students at the pre and post-doctoral levels. This is important, as we are talking about the next generation.

[English]

    Research in industry has always been a bit of a problem in Canada, as everybody knows. Any statistics you look at will show you that relative to other countries, we are not leading-edge researchers in industry in this country. There are several suggestions we have made in the past. We would like to see a new reward system for innovators in this country that would encourage them to invest more in research, prizes that would complement the Manning Innovation Award established by the private sector and named after former Premier of Alberta, as everybody knows.

    Also I have given you a document, “Celebrating Excellence”. An initiative was started a couple of years ago to create a Canada prize for earth and environmental sciences, which would be a Nobel Prize-level prize at the international level. A rich and generous Canadian committed $15 million towards this prize. We have raised $3 million since. We need $20 million to $25 million altogether. If it's going to be a prize of which Canada will be proud, in order to raise funds from the private sector, we need a commitment from the federal government to the tune of $5 million. If we don't have this, to put it very bluntly, if delicately, the principal donor will withdraw his commitment in a few months and transfer it to a university, which would be, in our minds at least, a tragedy, because we would miss the opportunity to have a Nobel Prize at the international level. I won't say any more. You have the document I've passed out.

    On university-based issues, there is a quote I give on page 6, which is worth reading:

Basic research funded by National Science Foundation grants provides the base for our economic expansion for the future, and we must increase our efforts so the results of this research will provide great benefits to our children and grandchildren.

This is from Vernon Ehlers of the Congressional Science Subcommittee for Environment, Technology and Standards in the U.S. This is absolutely true.

¸  (1405)  

     We not only recommend that the granting councils, NSERC,SSHRC, and CIHR, be given adequate funds, but that this funding be done on a three-year basis, so that they can plan major initiatives without having to wait each year for the budget to be given. If they had some indications over a three-year period, they could plan a lot better. We interviewed the presidents of each of these, and they all had the same reaction, this is their top priority.

    The Canada Foundation for Innovation, as I said before, was a major success in renovating the infrastructure in Canadian universities. I was involved in that program as well.

[Translation]

    In the province of Quebec in particular, this has been an undeniable success. We thus recommend that the amount allocated to the Canada Foundation for Innovation be $350 million for the period from 2003 to 2005.

    Finally, we had made a recommendation concerning indirect costs a few years ago. We are very happy to see that the government implemented that recommendation. We had recommended that this contribution start off at approximately 20% and be increased to 35% over the next few years. Currently it is approximately 22%. We recommend that this percentage be increased to 30% in 2003 and 35% in 2004, and that it be stabilized at that level, which is the standard level.

    As for the rest, you have it here, but I would like to make one last remark concerning a Canadian academy. We need a Canadian academy similar to those that exist in most other countries and not only royal societies, which are much more limited in their scope. A Canadian academy would allow Canada to join the big leagues which most countries belong to, such as France, most European countries and the United States, of course. Thank you.

¸  (1410)  

[English]

    The Chair: Thank you very much.

    Now we'll go to our final presenter, Mr. Randall Williams from the Tourism Industry Association of Canada.

    Mr. Randall Williams (President and CEO, Tourism Industry Association of Canada): Thank you, Madam Chair, for the opportunity to give Canadian tourism a voice in the federal government's pre-budget consultation process.

    Tourism is a major economic sector in Canada, with tourism spending amounting to over $54 billion last year alone. Almost one-third of that total, $16.8 billion, was spent here by foreign travellers, making tourism Canada's fourth largest export industry. The Canadian tourism industry employs more than 540,000 people directly. Those jobs provide vital incomes for individuals and families. From a regional development perspective, they are the economic lifeblood of entire communities in Canada. The tourism industry also generates significant tax revenues that support a range of economic development and social programs. Those revenues are estimated at $16.9 billion, of which $9.3 billion goes directly to the federal government.

    Thus, tourism makes a significant contribution to our standard of living as a nation and to the quality of life for all Canadians. At the same time, no industry has been harder hit by the ongoing economic effects of 9/11. Consequently, its need for a positive public policy environment is greater than ever before. Tourism, like other sectors of the economy, will certainly benefit from measures aimed at encouraging economic growth, but targeted actions are also needed. We therefore urge the federal government in its upcoming budget to make tourism a priority for focused and productive investment.

    The committee has already received TIAC's written submission, in which we made a number of important recommendations based on a detailed pre-budget survey and discussions we conducted with our membership. Briefly, those recommendations are increased funding for the Canadian Tourism Commission; federal funding for regional tourism marketing; continued investment in infrastructure; elimination of the air travellers security charge; continued support for sector councils, including the Canadian Tourism Human Resource Council; employment insurance reform; and the repair of existing infrastructure within Canada's national parks and historic sites. Given the time constraints the committee faces, I'll limit my remarks to several of these key areas, funding of the Canadian Tourism Commission, regional tourism marketing infrastructure, the air travellers security charge, and other surcharges in air travel.

     TIAC members identify tourism marketing as the most important issue in federal government budget planning. The ability to market Canada's tourism products is crucial for the continued growth and prosperity of the travel and tourism industry. The Canadian Tourism Commission is the primary vehicle for federal funding of Canadian tourism marketing. Its current appropriation is $83 million a year. Because partnership with industry is the guiding principle of the CTC activities, that amount is fully matched by partners' contributions, in fact, it's overmatched, more than one to one. However, Canada's tourism potential is being challenged by the larger marketing investments of a growing number of international competitors. Although there isn't a national equivalent in the United States, some individual states and cities have higher tourism budgets than the CTC. For example, the State of Illinois alone has a $91 million Canadian budget, and the City of Las Vegas has a $195 million marketing budget for tourism.

    TIAC is therefore seeking additional funds of $25 million a year for the Canadian Tourism Commission. That investment would leverage another $25 million from industry, doubling its impact in the marketplace, and the federal government would see a financial return through increased tax revenues.

    The effectiveness of national tourism marketing activities is supported and enhanced by tourism marketing also at the regional level. In fact, both the federal government and the tourism industry have acknowledged that regional marketing efforts are one of the reasons for Canada's success as a tourism destination. Unfortunately, tourism businesses in many regions are at a competitive disadvantage because of the lack of federal support for regional marketing initiatives. For example, no program exists for northern Canada or southern Ontario, and as of April 1 this year, federal support for tourism marketing partnerships has been withdrawn in western Canada by Western Economic Diversification.

    We therefore call on the federal government to provide funding to the regions for tourism marketing. Such funding will enable all tourism communities to implement effective partnerships and seize new opportunities.

    Adequate infrastructure is essential to maintaining and improving Canada's attractiveness as a tourism destination. TIAC is encouraged by the recent federal actions in this area. We are especially pleased that tourism has been recognized as one of the five categories of infrastructure that are vital to advancing Canada's social and economic objectives. Canadian tourism will also benefit directly from two of the other strategic infrastructure fund categories, local transportation infrastructure and highway and railway infrastructure. Infrastructure investment in Canada's highway system, long overdue, ranks second as a priority concern among TIAC members. The estimated cost of correcting current deficiencies in our highway system is $17.4 billion. While this figure may appear large, it should be set against the $4.5 billion Ottawa collects every year in fuel excise taxes. The money available for highway infrastructure is welcome, but not sufficient.

    Therefore, TIAC urges the federal-provincial-territorial governments to agree on a long-term funding solution for Canada's national highway system.

    The state of Canada's air travel industry is of grave concern to the whole tourism sector. In April of this year TIAC held an air travel issues forum, where participants from all over the country from all sectors identified key issues affecting air travel and tourism. These included the challenges posed by the air travellers security charge and other surcharges. The air travellers security charge impedes the mobility of travellers, and thus hurts many businesses that depend on people's readiness to travel. In a recent survey of TIAC's industry members 84% of respondents said it was a deterrent to travel and tourism in Canada. The tourism industry recognizes the need for enhanced security at airports and other key access points, but all Canadians gain from enhanced security, and to tax one group, such as air travellers, is simply not fair.

¸  (1415)  

     Security and policing costs that benefit everyone must be paid out of base taxes and not through a user fee system targeted only at travellers. The air travellers security charge puts the Canadian travel and tourism industry at a competitive disadvantage with other countries as well. It's also a competitive disadvantage for the short-haul or economy airline industry, and we're looking for more competition in Canada and growth in those markets. We want the air travellers security charge to be eliminated. We also call for the evaluation of ways to improve operating costs in the air system, because we believe the federal government is extracting too much money out of fuel taxes, airport charges, and so on and impeding the growth of the air travel industry.

    Thank you very much for your attention.

¸  (1420)  

    The Chair: Thank you very much.

    We'll go to questions now. Each of the four members on the opposition side will have seven minutes, the two members on the government side ten minutes each.

    Mr. Jaffer.

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

    I'd like to thank everyone for their presentation. It's often difficult for us to address all of the concerns being brought in limited time, but hopefully, we can follow up even after today's meeting on some of the issues.

    I would begin my questions with the Council of Chief Executives. I can relate to many of your suggestions when you say we need to look at tax policy in this country, ways to reduce the overall burden of taxes, and try to create a more productive environment, especially in light of competition with our biggest trading partner to the south.

    One of the suggestions I noticed on page 5 of your brief that I think is timely is the third one, where it says the government should review all business subsidies, maintaining only those that have a transparent and demonstrable impact in encouraging innovative behaviour and increasing productivity. I think that's long overdue and needs to be addressed by the government. However, there has been much criticism in the past of subsidies. I'm wondering if you could address that. Overall, if we do get to a point where we can do a review, is there still justification in your opinion for business subsidies? Should the government be in the business of doing that?

    Mr. Thomas d'Aquino: Our organization's been on record now for almost 15 years, perhaps a bit longer, as opposing the idea of business subsidies as a principle. The only exceptions we have made are the ones we outlined in the brief, where there's a transparent and demonstrable need. One of the areas of subsidy that has been attacked by some is subsidies to particular industries in this country that are heavily engaged in international competition. We have added a caveat to our general opposition to subsidy by saying, where Canada is engaged in international competition and where the competition is in fact demonstrably and transparently, and in some cases, not so transparently, subsidized, the Canadian taxpayer should be prepared to support those industries, or we may lose them. So there is that caveat.

    Is there room for further reduction of subsidies? Yes, there is. The truth of the matter is that in our experience, the idea that an investment will be made only if there's a subsidy just doesn't hold. In many instances the investment will be made if it makes good business sense to do so. Often the subsidy is just a matter of, if you are going to give it to us, we'll take it. We've been criticized in the past for saying, you object to subsidies, yet some of your chief executives take them. A former Prime Minister attacked me personally for doing that, and my response to him was, Prime Minister, if you offer a firm a subsidy, it's very tough. You'll find that the unions want it, the mayor of the municipality the factory is in wants it, The board of directors may say, well, I guess you'd better take it. So the responsibility is primarily on government to say, we're not going to give you subsidies, because if you're in the business of offering them, you will always find some people to take them.

    But that's our general approach on subsidies.

    Mr. Rahim Jaffer: I appreciate that.

    I'll pose a question that was primarily going to be to the municipalities, but I think the tourism industry may want to respond to it as well. It touches on the issue of transparency and accountability of government when it comes to collecting taxes and where they spend it on, and it addresses how this committee can help to focus the attention of governments on earmarking funds or starting to be more transparent with certain things. With the infrastructure challenges our cities face and our country faces, we need to look at ways to use revenues more effectively to meet those challenges and to evaluate whether certain things government is doing are effective or not.

    When we look at the fuel tax, as was mentioned, I believe, we collect about $4.5 billion or more, yet I think we spend only $190 million on infrastructure, and that was primarily a tax collected to spend on infrastructure, highways and what not. This new security tax--and you may want to comment on this as well, Randy--was put in place so we would be able to increase security at our airports, but there hasn't been any real noticeable difference. Is the government just taking that and putting it in general revenue or spending it on security measures at the airport?

    We're trying to create a more competitive, more productive environment in Canada, especially given our biggest competitor. I was shocked just recently when the Board of Trade of Toronto make a presentation in front of us: 25% of their members feel that Canada is as productive and competitive as the U.S., or more so. That's only a quarter of their members. The majority of their members actually feel we're not creating a competitive and productive environment here in Canada.

    There are a few issues there. If we want to really use those funds, if we want to make government more accountable, if we want to help a lot of these areas, how do we, as a committee, focus in on preparing a report for the finance minister addressing some of these issues, so we can have more transparency and link that to creating a better competitive and productive environment?

    Mr. Randall Williams: There's a loaded question there, dedicated tax and user fees. I know there's not a lot of appetite for dedicated taxes, even though we've been introducing them, it seems, at the federal level and provincial and municipal levels for a while now. I just think it's a dangerous precedent for the government. There's a responsibility the government has to serve the public good from the base taxes, and they seem to have an appetite now, instead of increasing the tax base, for introducing these specific or dedicated taxes or user fees without then reducing the base to compensate for the increased revenue. It seems it's a new mode of taxation that's dragging people down. As one expert person in our industry put it, it seems the air travel industry is now another sin tax. We're in there with smoking and drinking. Now air travel is another area you can tax as you do those other products.

    EI is another example. We have employment insurance with a $42 billion surplus sitting there, and we need to employ Canadians. Human resources are critical to tourism, it's very people-oriented, and yet there's no significant effort to reduce the EI premiums. You're on the right track in your statement, but it's such a broad issue.

    The ATSC we're totally opposed to. We feel this is a public good issue that's been transferred to just air travellers. That's an example of a slippery slope that we're totally opposed to.

    The Chair: Thank you very much.

[Translation]

    Mr. Paquette, you may begin, if you please.

    Mr. Pierre Paquette (Joliette, BQ): Thank you very much, Madam Chair.

    Firstly, I would like to thank all of you; these presentations contained a great deal of food for thought. It is frustrating that we do not have more time to probe a certain number of questions more deeply, but I will at least try to ask a few.

    Mr. d'Aquino, in your brief, you suggest—and this has been done on several occasions—that the capital tax be abolished. I'm surprised, not by this request, but by the fact that you do not refer anywhere in your brief to the issue raised by the Tourism Industry Association of Canada spokesperson, that is to say the diversion of employment insurance contributions toward other purposes than that of ensuring income security. In that context, we know that there are, generally speaking, three types of business taxation: either we tax capital, profits, or payrolls.

¸  (1425)  

     Unfortunately, I think we have unbalanced things by resorting to payroll taxes, which in my opinion put labour-intensive businesses at a disadvantage. So I was wondering about the fact that you did not raise this concern which must, I expect, affect the members of your council as well. When employees are paying 45¢ too much, as compared to the costs of the system, this affects the productivity, capacity and profitability of small and medium enterprises.

    I have another question for you. You spoke of the $3 billion reserve for contingencies which was re-established in the budget statement, but you know that Mr. Manley has invented a new category— which he was unable to justify—that of fiscal prudence.

    Basically, would it not have been a better idea to increase the contingency reserve rather than creating this new prudence category? As I was saying, a prudence reserve was created for contingencies and we have a contingency reserve because we are prudent. This seems to me like a new trick to hide surpluses. I certainly agree that we should not fall back into deficits, but in the interest of transparency, would it not have been wiser to increase the reserve to perhaps 4 or $5 billion dollars rather than creating a new category which will make interpreting budgets even more difficult?

    If I have any time left after Mr. d'Aquino's reply, I would like to go back to the museum representatives. But I will give him a chance to reply.

¸  (1430)  

    Mr. David Stewart-Patterson (First Vice-President, Policy and Communications, Canadian Council of Chief Executives): Insofar as the employment insurance program is concerned, I must say that the key issues are linked not only to the contribution rate but also to all aspects of the program. Of course, the contribution rate is too high given the current cost of the program, that much is obvious. But at the fiscal policy level, it must be said that our priorities are of course to reduce income taxes. Our priorities are elsewhere. As you said, we would prefer that the capital tax be eliminated or that there be decreases in corporate income taxes.

    The question we raise in this respect is the following: which of these taxes or reductions would be most effective and lead to an increase in the economic growth rate? In this respect, economic evidence is very clear: if we want a higher economic growth rate, we absolutely must do so by reducing corporate income taxes and investment taxes, either corporate tax or even personal tax, because the purpose here is to increase the overall revenue of the government, in due course. To achieve that... We saw this in Mr. Manley's update last week; federal revenue is expected to increase quite sharply, and this increase would be due to economic growth. So if we want increased revenues, we have to see growth. That is why we feel reducing capital taxes and corporate income taxes is a priority.

    As to your other question on contingency reserves...

    Mr. Pierre Paquette: On the contingency reserve and the prudence reserve.

    Mr. David Stewart-Patterson: In this regard, I think we would not be in agreement. We feel that we are faced with a world situation that is fraught with uncertainty. So we feel that it is a good thing to be prudent.

    Mr. Pierre Paquette: Yes, it is good to be prudent, but why invent prudence categories? Do you really see a difference between contingencies and prudence?

    Mr. David Stewart-Patterson: I don't really see the importance of categories. I feel that what is important is that we be sufficiently prudent in the context of the overall exercise.

    Mr. Pierre Paquette: So we are talking about a reserve for prudence into which we would place agreed upon amounts, rather than inventing new categories.

    Do I still have some time left, Madam Chair?

[English]

    The Chair: I believe Mr. Boutziouvis wanted to say something.

    Mr. Sam Boutziouvis (Vice-President, Policy, and Senior Economic Advisor, Canadian Council of Chief Executives): Thank you, Madam Chairman.

    Mr. Paquette, with respect to what my colleague David has said on capital taxes, Canada remains an anomaly in the world. We're one of the few countries left in the OECD that actually taxes capital. Second, the tax on capital is a tax on productivity, and productivity improvement is what we're all after with respect to increasing the standard of living of Canadians. Third, there are anomalies with respect to the application of capital taxes in our country. They are not just applied at the time of purchase, they're applied throughout the life of the investment. That, to me, means the actual tax on the capital investment increases over time, accumulating to what is essentially a sales tax on investment of between 2% and 5%. That directly and negatively affects, we believe, the standard of living of Canadians. It's one of the easiest things that can be done in order to improve our standard of living.

    Finally, who pays business taxes? It's an question going back to the sixties. It has been addressed by various researchers, the business community, and governments. Ultimately, business taxes are either paid by the people who earn wages or by the people who pay for the products that essentially--

¸  (1435)  

[Translation]

    Mr. Pierre Paquette: It depends on the elasticity of demand; that is what matters.

[English]

    The Chair: Thank you very much.

    Mr. Wilfert.

    Mr. Bryon Wilfert (Oak Ridges, Lib.): Thank you, Madam Chairman, and I thank everyone for coming.

    Mr. d'Aquino, I appreciated your comments in the main. I certainly want to point out that we are not going to go back into a deficit situation. There's no such thing as a short-term deficit--the last one was 24 years. Therefore, we have to maintain that fiscal prudency and must be strategic in our investments. We must look at changes in tax policy that are going to benefit both industry and Canadians in general and continue, in my view, to pay down the national debt.

    That said, we have issues looming. On health care, I personally believe we should unbundle the CHST and have direct dollar-for-dollar and accountability and transparency, because we're not getting that.

    With the military, we've been adding a billion a year. We're up to $12.5 billion with the white paper. We really need to look at what kind of military we want to have in Canada and the kind of role it should play.

    As far as elimination of the capital tax is concerned, I certainly would support looking at that. I think it is regressive in many ways.

    On the issue of corporate taxes, though, as someone said the other day, it's a mug's game. We're going to be five points lower than the United States by 2006, but I don't think we can continue to do that. I don't think we can compete. I would like to see the decrease more in personal income taxes. I think we're paying 57% more in corporate taxes than in the 1960s, with about a 55% increase in personal taxes over the same period. That's where I would put my emphasis, personally.

    As to a national regulator or some kind of uniform regulator, it's an obscenity what we have at the present time. It makes no sense to anybody on the outside, I agree.

    I don't agree with you on Kyoto.

    Something you didn't raise--and I don't want to talk about it now, but it's my major complaint--is the obscene level of foreign ownership in Canada, not foreign investment, ownership. We're losing our birthright in this country. That is a concern to me.

    As far as the FCM is concerned, there are14 recommendations--it's getting longer than in my day. I have to tell you all 14 of them are not going to happen. I'd like to be able to prioritize what it is you would like, but as you know, we are committed on the 10-year infrastructure program.

    The doubling of the green enabling fund has worked extremely well, as you know. I would certainly support that. I mentioned to Mr. Knight that I also would like to be able to look at a brownfield proposal, a similar idea. It's very important to cities. I think that should be there.

    One thing you didn't say is this, and I give it to you, for what it's worth. I think we should establish a process of consultation with municipal governments on any federal legislation that affects negatively the bottom line of cities. You don't have that, but I would add it.

    On museums, I think it's important that whatever we do for heritage we continue to do. I support your calls in that regard. Particularly, I like your national partnership involving all governments and the heritage community.

     As far as the air travellers tax is concerned--I know you've heard it from me, and as the PS to the finance minister, I'm going to say it again--the minister has committed himself to a review this fall. I agree with you, the impact is still questionable. We've been looking at the figures that have been coming in and the amount. The United States took a billion dollars from their airlines for the cost of security, we did not. Whether that's the right thing to do or not is open for debate. There will be a review this fall. I can assure you, Mr. Williams, that our aim is to lower it. That is what the minister would like to see.

    I agree with pretty well everything you asked for. Again, we will have to prioritize the cost of all these things. You can't do all the things Mr. d'Aquino would like and all the things Mr. Schmall would like and you would like and others and at the same time have any money without going into deficit.

    Are there any quick comments?

¸  (1440)  

    The Chair: We'll start with Mr. d'Aquino.

    I have to tell you, you're not all going to be able to participate, because I'm still going to cut it off at seven minutes.

    Mr. Thomas d'Aquino: I am very pleased that Mr. Wilfert has agreed with most of what we had to say. With the three issues that he's raised, let me just give 30 seconds to each.

    It is true that the percentage of corporate taxes in relation to personal income taxes has declined. But even though--and I commend the government for having done this--it puts us in a situation where, if the Americans do nothing, we will be ahead of them within five years, we have to keep our eye, Mr. Wilfert, on where the Americans are going to be five years from now, and not only them, but our most important trading partners.

    The corporate tax is really a tax on innovation, a a tax on productivity, a tax on investment. Ultimately, who really does pay for corporate taxes? That's what we have to be sensible about. In my view, if we really want to get ahead of the Americans--and this brings me to my second point--what we have to do is be much more competitive than they are. Much more competitive means being more competitive in a tax sense than they are. That's the way we'll attract investment and keep head offices.

    I know you said you didn't want to talk about it now, but just let me say very quickly, we are concerned about foreign ownership too. Mr. Stewart-Patterson and I co-authored a book, Northern Edge: How Canadians Can Triumph in the Global Economy. It was sent to every single member of Parliament. One of our fundamental theses is that unless we become much more competitive than the Americans, we will lose brains and we will lose head offices. We have a joint commitment to doing that. We should be less concerned about the ideology of foreign ownership. I tend to associate that with Mel Hurtig, who has written yet another book.

    Mr. Bryon Wilfert: I recommend that book to you, by the way.

    Mr. Thomas d'Aquino: He has attacked me on at least 42 pages. My answer to Mel Hurtig is, how many members of Parliament today would really be elected on the full program of Mel Hurtig. I know of very few.

    The third point is on Kyoto. I really am sorry that we disagree on that. We made an appearance before all parliamentarians who agreed to come, at the invitation of John Godfrey. Please, please read our testimony. We are not against action, we are for action. In fact, the program we've put forward, I would argue, is vastly more ambitious and much more sensible than is Kyoto. As I said this before the parliamentarians the other night, I know of no issue in 25 years of dealing with public policy that has been so badly handled and with so low a knowledge of the issue. The appeal that I would make to you is, don't buy this “either you're for it or against it”. Make a decision based on the best interests of Canadians. At the very least, look at the alternatives. The Americans are not there, the Australians are not there. Do you know what? The Americans are doing much more than we are today, but they have chosen not to ratify Kyoto. What is the message here? We don't have to ratify Kyoto in order to be responsible international environmental citizens. Please look at the alternatives.

    The Chair: Thank you.

    Mr. Williams.

    Mr. Randall Williams: It was promised in March or April by the federal government that there would be a review of the ATSC in September. We are now beyond September. The fall is less than a month away. In the meantime the moneys that are being earned are damaging an air industry already crippled, and the government is not spending the money they're getting up front. The authority is not even up and running. The investment in security hasn't been made.

    The Chair Thank you very much.

    Ms. Minna, seven minutes.

¸  (1445)  

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

    There's not enough time to talk to all of you, but I'll start with Mr. d'Aquino.

    We've just said the Americans will do better than us in 2006, and then we'll drop it again, and they'll do better than us--they can always best us. I think that's what my colleague meant by a mug's game. Are we going to try to see who can get to the bottom faster, or is it more a matter of having some sort of reasonable approach? The reason I say that is that in your presentation you make a number of recommendations with respect to where to spend. The one example in your verbal presentation was the military. I'm not suggesting we don't need to spend some money on the military, but I'd like to know why that was your choice. What would you do with these other recommendations we've had from, for instance, the Canadian Chamber of Commerce, whose priorities for spending are health, education, infrastructure, research, and in education they would include all forms of education, training, upgrading skills, early learning? Of course, training and skills flexibility go towards productivity in our country. So those two things are very much linked, as well as housing to address the issue of poverty.

    I've got a question, if I have time, for the federation of municipalities, but I'd like to see where you would put the priorities. What do we choose? Do we choose the military only and drop all the others? You're basically saying, cut taxes, but when you cut taxes, you lose your flexibility.

    Mr. Thomas d'Aquino: We suggested something very concrete that one could, on the face of things, say is very much against our interests. We have argued today, as we've done many, many times before this committee, that you should be cutting business subsidies, saying, you've accepted some of our recommendations, you haven't accepted others. We are the direct beneficiaries of that, and repeatedly for 15 years we've said, cut virtually all of it out or most of it out. So we've just repeated that today.

    Second, we're not against expenditures on health and education, but let me remind you that the expenditures on health and education in this country as a percentage of GDP have risen enormously in the last 15 to 20 years.

    Ms. Maria Minna: They're still no higher than in other countries.

    Mr. Thomas d'Aquino: Well, no. Our health expenditures per capita, in fact, are higher than in most countries, and when it comes to education, we're certainly in the top 10 in the world. So on health and education we've been doing very well. Can we find areas where we can spend more smartly? Of course we can. There may even be a few areas where we should be spending more and subtracting that from areas where we should be spending less.

    But in one area, the military, we are deeply concerned. Why do I say that? Every member around this table, I know, is preoccupied with Canadian sovereignty. Here we are in a post-September 11 world. Our military has been degraded to a shameful degree, and that's one of the reasons I'm pleased that a debate is now beginning to generate itself in earnest. The fact of the matter is that we cannot look after our own interests, we cannot protect our own boundaries, we cannot protect our essential strategic infrastructure. We have to rely on who to do that? The Americans. Do we like that? No. I don't like it. Do we like the thought that we're going to have to look to a strong Republican-driven Bush administration that says, whether you protect yourselves or not, we'll do it for you if we have to? That is not the Canadian way. That's why we should be looking at military spending as a way of ensuring that we look after the Canadian interest. This idea of being a free rider forever, in my view, is shameful. An increasing number of Canadians are beginning to realize that, and that's one of the reasons I think this committee should look very much to how we can be more effective in defending our sovereignty and in the protection of our coastlines and our air, as well as the credibility of Canada in the world. That's why we support the idea of additional spending.

    Ms. Maria Minna: Thank you. I think, Mr. d'Aquino, we could have a fairly long discussion on some of these topics, especially the expenditures on health care, on which I disagree with you, and also some of the priorities, but we can go at it afterwards.

    Moving to the Federation of Municipalities, I agree with you with respect to long-term sustainable funding for municipalities. I think that's a given with many of us. One question concerns the type of funding, the system we would have. Would it be transfer, or is it increased taxation powers to the municipalities? I have some concerns with transferring funds without accountability to the taxpayer. Any governance has to be more accountable, much more careful with how people spend when they know there is direct accountability. So I'd like to hear your input on that.

    The other thing is with respect to Kyoto and climate change. I agree with the comments you've made on what municipalities can do. Can you tell me if there is any discussion in your federation with respect to the problem of urban sprawl, which actually accentuates the problem of climate change, because there is no proper infrastructure of roads built? I'm looking at the Greater Toronto Area, and quite frankly, it's a mess in respect of real planning that goes into that stuff.

¸  (1450)  

    Mr. John Schmal: As I have travelled across the country, there is absolutely no doubt what I have heard from big city mayors, villages, towns. They want a permanent, long-term infrastructure program. We just cannot cope with the pressures we are seeing on municipal governments that deliver the services that are asked from us based on revenues that come from property taxes and the little bit that's created from user fees. We are beyond that. That's why our mayors, our big city mayors in particular, are saying we are in a crisis. We are not able to respond to the growth that's taking place in many of our cities and deal with issues such as transit, roads, water, sewers, all the basic needs people require from day to day and expect us to deliver. It is those things that come to mind.

    Priority number one is definitely the permanent long-term infrastructure funding that would allow us to plan our cities, towns, and villages, rather than relying on a program and then pulling back. Then you have to start all over again. So that's crucial.

    Urban sprawl is being addressed in the various cities. For instance, in my city, Calgary, despite the fact that we do have an urban sprawl, we are trying to get more population in the downtown core. We have increased the densities that existed from 4 to 6 people. It's as high as 8 units per acre now, so that's increased. So we are addressing it. However, it's not that easy. When young people move away from home and want to create and purchase their own home, the only thing they can do is take out a mortgage on a new home, which is usually in a newer area of the community.

    Ms. Maria Minna: Then we have to build in services, transit systems, and so on. That's what I'm talking about, the planning.

    Mr. John Schmal: Yes.

    The Chair: Thank you very much.

    I will go to Mr. Brison for seven minutes.

    Mr. Scott Brison (Kings—Hants, PC): Thank you, Madam Chair, and thank you to each of our witnesses today.

    My first question relates to Mr. Wilfert's emphatic point that there is a threat to Canada's economic sovereignty currently in what he describes as the foreign takeover of Canadian corporate assets. Would you agree, Mr. d'Aquino, that the low Canadian dollar is a very dangerous factor in this whole thing, that the Canadian dollar losing about 20% of its value since 1993 represents a threat to Canadian economic sovereignty, and that perhaps the best way to address Mr. Wilfert's concerns would be to improve productivity in Canada, which would in time result in a stronger Canadian dollar?

     If we take a look at some of the tax and regulatory levers that can be exercised to improve productivity, the number one tax reform measure would be to address capital taxes and corporate taxes, which, in respect of impact on productivity in other countries, have made a significant difference. Mr. Manley describes Canada as a northern tiger. I believe that until we take an aggressive and innovative tax reform and regulatory reform approach in Canada, we will only be a northern kitten in our economic competitiveness globally.

    I'd appreciate your views on the Canadian dollar as a factor in regard to our economic sovereignty and some of the tax and regulatory measures we have to take if we're serious about strengthening it.

¸  (1455)  

    Mr. Thomas d'Aquino: You, I think, put your finger right on one of the critical concerns we should all have. When we're talking about sovereignty, when we're talking about our ability to be a global leader, a weak currency is definitely a disadvantage. It hasn't simply been a decline since the early 1990s, our currency has been in relative decline for 24 years now.

    It is true that Canada's position today is much stronger than it was, say, 10 years ago. Deficits have been turned into surpluses, free trade has given us almost a $90 billion surplus in our trade-in-goods account with the United States, a $100 billion tax package is being phased in. All of that is very good. The problem, though, with the weak currency, to come back to Mr. Wilfert's concerns, is that it makes our companies very cheap to buy, and that's one of the reasons we have seen purchases of Canadian assets. If you're dealing in U.S. dollars, you're looking at these wonderful Canadian companies, many of which are jewels, and you can buy them at a cut rate, why not do so?

    So any idea that we can be successful in the long term, as Mr. Brison has quite rightly pointed out, with a weak currency, simply because some people argue it's good for exports, is wrong. The ideal is to have low unemployment, low inflation, and a strong currency. That's what we should all be aiming for. How do we get there? By doing the sorts of things that have already been done, which puts Canada in a much stronger position now, but we have to finish the job. Finishing the job means dealing with the productivity and innovation gap, it means getting our taxes down.

    In response to Ms. Minna, it's not a mug's game. We're only going to win and beat the Americans if we're better than they are. People say to me, how can you do that? You suggested they'll always be able to beat us. Look at the world-beaters who are much smaller, the ones I always like to talk about, Finland, Ireland, Hong Kong, Singapore, Austria, Switzerland. These are all very small economies that have been enormously successful. They haven't said, oh my God, the Germans are bigger than we are, the French are bigger than we are. They say to themselves, if you're smaller, you have to work harder. If we're prepared to do that, we can become a true northern tiger. That means getting our currency stronger, but the currency will only reflect the kind of strength we have when, I would argue, we finish the job. That means being ahead of the Americans and everybody else.

    Mr. Scott Brison: You mentioned Ireland, and some people compare what we could be doing in Canada to what has been done in Ireland. Ireland had a 92% growth in GDP per capita, and during the same period we had a 5% growth. I would argue that an even better comparison would be Atlantic Canada with Ireland. We all know Ireland used transfers from other parts of the EU to help facilitate a more innovative and aggressive tax strategy. In Atlantic Canada I think we have the same opportunity, if you compare Atlantic Canada to the rest of Canada and consider it in the context of Ireland's relationship with the rest of the EU. I'll give you a very granular example of how we might achieve that.

    The Atlantic Canada Opportunities Agency budget is $447 million per year. The total federal corporate taxes paid in Atlantic Canada are $380 million per year. ACOA now has 500 employees driving around in government cars telling Atlantic Canadians how to run businesses, as if before ACOA, before the 40 years of government subsidy- and agency-driven economic development models we didn't have any businesses--I don't think we had a bureaucrat telling Frank Sobey or R.A. Joudrey how to start their businesses. The possibility could be to return $70 million to the federal treasury, to the rest of the country, and eliminate federal corporate taxes in Atlantic Canada and eliminating ACOA.

    I would appreciate your feedback as to whether you think that might be a better approach to turning Atlantic Canada around. Maybe we can have an Atlantic Canadian tiger, if not a Canadian one, in the short term.

¹  (1500)  

    Mr. David Stewart-Patterson: I think the general point you're raising is that tax policy is generally a more effective way to stimulate investment, job creation, and so on than an equivalent amount of money going through a government program and being dished out in the form of subsidies. You may be able to argue particulars in particular cases, but as a general statement, tax policy works better, and cutting corporate tax rates, even if that means using an offset in reducing business subsidies accordingly we think is probably a healthy trade-off. It would probably be a healthy trade-off to the country as a whole, not just for Atlantic Canada. As a general statement, I think that might be an experiment well worth trying. The caveat is that if it is good for federal taxes and federal programs, should it not also be happening at the provincial level?

    Mr. Scott Brison: Thank you very much.

    The Chair: Thank you very much.

    Madame Picard, s'il vous plaît.

[Translation]

    Ms. Pauline Picard (Drummond, BQ): Mr. d'Aquino, I just wanted to make a comment. We are favourable to an increase in military expenditure, but the question is figuring out where. Up till now, we have not seen any plans, nor any studies. The government has not made any proposals to indicate where these military expenditures would be allocated. So you will understand that I am not agreeing with your proposal, as long as we don't know where the money would be invested. We can't just sign a blank cheque.

    Now I would like to put questions to Mr. Williams in particular on the famous $24 tax. You know that we all denounced it when it was brought in and on several occasions we have asked questions about it. The minister told us that he was going to try it out and see if it was pertinent, after a period of about six months.

    Have you had any news about that? I would like to know. Have you heard any comments concerning the possible withdrawal of this tax? To your knowledge, are there any studies indicating how much this tax has generated in revenue? We still don't know six months after it was imposed what services it was meant to finance. So there are surely surpluses in the reserve. You say in your brief that: "The surcharge presents a competitive barrier to short-haul, regional and economy carriers." You also provided a concrete example concerning the cost of a ticket since this new tax was imposed:

For example, a $99 flight between Calgary and Edmonton will cost a traveller $181.36 after paying the Airport Improvement NavCanada fee, the insurance surcharge, the GST and the Air Travellers' Security Charge [...] This is an 82 % increase [...] and there is no PST in Alberta.

    So, I would like to know whether you have any concrete examples of the nefarious effects of this surcharge. Among others, are there any small regional airports that have had to close because of this increase?

    I was also wondering whether you are tired of seeing Air Canada not meet its obligations when it feels it is not in its interest to do so, and do an about-face when it sees that it has competition.

[English]

    Mr. Randall Williams: Thank you very much for your question. There are a lot of questions there actually.

    There is evidence that the ATSC has been hurting short-haul and economy carriers in Canada. In fact, WestJet's president has admitted it is pulling out of short-haul markets and considering pulling out of other markets because of the ATSC. There have been airport withdrawals, certainly by Air Canada, in short-haul markets, and there will be more of them. The Air Transport Association of Canada has come out and said it's opposed to the ATSC, every constituency and stakeholder in the tourism or travel industry has said the ATSC hurts the airline industry, hurts the travel industry, and hurts the tourism industry. Your numbers are correct there.

    There's also another study given to us by WestJet that says in February 29, 1996, their fare from Edmonton to Calgary was $100, in July 2002 their fare from Edmonton to Calgary was $100. So that airline in six years has maintained the same rate, even though we know what's happened with inflationary costs and so on. In the same time the consumer payment has gone from $120 in 1996 to $191, and all that comes from fuel surcharges, ATSC, taxes, Nav Can fees, airport improvement fees, all those fees. So the consumer has had, over six years, a 58% increase, with nothing else going to the company to pay for labour and so on. Then we wonder why we have an air crisis in Canada, why we have competitive issues, and why we don't have investment in an airline industry that's crippled right now.

¹  (1505)  

[Translation]

    The Chair: You have two minutes. Is that all?

    Mr. Thomas d'Aquino: May I reply to Ms. Picard's question concerning military expenditures?

[English]

     We spend 1.1% of GDP, the United States is spending 3.5% of GDP. If we compare where Canada stands in relation to most of the members of NATO, you'll see that we're well below the median. As to where we might make those expenditures, a review has started now, but so much is so obvious. Let me just give you an idea of where we should be looking to strengthen our armed forces.

    We are now down to a pitifully low strength. We should be aiming for at least 75,000, and ultimately perhaps for 85,000 to 90,000 in our armed forces. It's going to be expensive to get up to that number from 55,000 or 56,000, where we are right now.

    Second, there should be greater specialization. We cannot do everything, so we have to be much more focused. For example, building a capability in special forces in an age of terror becomes very important for not only being able to protect our own interests, but being able to work with our allies in various parts of the world.

    Third, we have armed forces, but we can't move them anywhere. So the ability to have airlift capability is strategic and important.

    Finally, we need a heavier degree of emphasis on technology. The United States now has the most advanced technology in its armed forces and the greatest degree of effectiveness. The development of the U.S. armed forces has been in their ability to adapt and use technology, which means you don't have to go for standing armies of a million or two million, because you can achieve much more with a smaller number.

    Those are just some of the areas where I think we have to focus some of our priorities.

    The Chair: Thanks very much.

    Mr. Valeri.

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

    I have a comment for the Federation of Canadian Municipalities. The City of Hamilton presented to the committee in Toronto specifically on brownfields. I want to echo Mr. Wilfert's comments about a brownfield fund, perhaps managed by the FCM like the other funds. I think it would be a welcome addition. We have seen the benefit of developing brownfield sites, rather than greenfield sites. We heard some statistics the other day that for every one acre of brownfield site developed, we would actually save 4.5 acres of greenfield development. Given the pressure municipalities certainly feel and the concern for the environment, it would make sense for this committee to push very aggressively to ensure that this is in the upcoming budget. I just wanted to make that comment.

     I'd like to turn to Mr. d'Aquino and others with respect to Kyoto. We're probably not too far apart in our positions on Kyoto. But I would ask, if it's not Kyoto, what would you like to see as a first step in this budget to deal with some of the environmental concerns, specifically reduction of CO₂ emissions?

    Mr. Brison has left, but I certainly have no interest in pursuing any sort of policy that would position Canada as a northern kitten. I think we need to get our head around the northern tiger concept, and I want to bounce a couple of things off you and get a reaction to them.

    There have been a number of groups talking about positioning Canada with a competitive differential from the United States with respect to corporate taxes, perhaps 10%. The number that comes to mind is a 25% combined corporate tax rate, with the elimination of capital tax built into that reduction, along with a 2% withholding tax, which would give corporations the incentive to actually pay tax in Canada and not repatriate, which would then create the kinds of large capital pools in the country that would lead to further investment and further growth in the economy. I'd like to hear your reaction to that.

    Second, given that there have been a number of groups coming before the committee over the past number of weeks talking about various initiatives, I'd be interested in getting the panel to be a bit more specific on where we can reallocate some dollars within the bureaucracy. What is not working within the bureaucracy, from a program standpoint, and how best can we reallocate those funds?

    Finally, I'm wondering if you can get a bit more specific as to a dollar amount when you talk about the military and the kind of accomplishments the military should achieve. Is there a range, if not a specific figure? Can you provide the committee with a range of dollar investment we should be considering in the upcoming budget to sustain ourselves in the military, the defence file, safety and security?

¹  (1510)  

    Mr. Thomas d'Aquino: I'll just try to respond to one very specific question of Mr. Valeri's, with regard to Kyoto.

    I'm very encouraged to hear that there is not a great distance between our various positions. And I would maintain that is so with most members of Parliament, Mr. Valeri. We're all committed to doing something about global emissions, and this is where the debate, if I may say so, has gone off the rails--you're either for Kyoto or you're not. The supposition, as Mr. Caccia suggested before the committee the other day, is that it means you want to do nothing. Nothing could be farther from the truth. We were at Rio, we were at Kyoto, we are totally committed to this. So in answer to your question, this is what we would do now, and if you parliamentarians were to adopt this, I promise you we would have a breakthrough on the global climate emissions issue that would be instant.

    First, let's accept that there is no single target for all Canadians. It's a myth to say there's a single target. For example, roughly 50% of the problem, if you want to call it that, comes from consumers. What is the target for consumers? At this moment, and certainly between now and the next budget, we're not going to come up with universal targets, so let's put that aside.

    What we should do--and we would commit ourselves in business to start this tonight at 7 o'clock--is commit ourselves to sectoral negotiations on specific targets pertaining to specific industries. We would sit down with you now to do that. So petrochemicals, steel, oil and gas, automotive would be ready to sit down and say, okay, what is it we should target for ourselves? And this is not on a voluntary basis alone. We would be prepared to accept compliance requirements and accountability to make sure those targets were met. If we did that and we started at 7 o'clock tonight, I can promise you that within six months, rather than this paralytic, destructive debate we're in right now, you would begin to see real results emerging on the issue of emissions.

     The third thing you should do is target on the tax front what we could do together in the promotion of renewable energies and alternative energy sources, which we all know we will have to go to, whether it's wind power, other forms of renewals, additional investments in fuel technology, whatever the case may be. Again, we would sit down with you at 7 o'clock tonight and start working on what those should be. If we did that, you could avoid a highly destructive, very divisive debate on Kyoto. Even if it is rammed through Parliament before Christmas, as the Prime Minister would like it to be, I can promise you that before you get the degree of will and readiness on the part of Canadian industry to sit down and work with governments to do this, you will lose another year, and God knows what we will be talking about then. It'll probably be some form of son of Kyoto, where we perhaps could have got to if we had avoided this, it's our way or the highway.

¹  (1515)  

    The Chair: I will go to Dr. St-Onge, followed by Mr. Schmal and, if he wishes, Mr. McAvity.

    Dr. Denis St-Onge: Mr. Valeri, you asked a question about the reallocation of programs. One of the problems we have in this country is that you have the university sectors doing a lot of research, and then you have these numerous, very expensive government institutions, which traditionally, since the last world war, have done a lot of research separately from universities. Increasingly, this is changing, but it should change a lot more rapidly, because there's a lot of useless duplication there. There should be far more integration between research done in universities and what is being done by government. One of the problems with government research institutions, incidentally, is that they are run by various departments, with no integration even within the government itself, let alone with universities and industry. If that were looked at, you would save a lot of money and you'd have a lot more money available to give to productive research, if I may say that.

    Mr. John Schmal: It was Mr. Wilfert who mentioned the 14 recommendations.We probably have six recommendations we definitely want the committee to consider. There are other recommendations here that, in our minds, are opportunities we wish to share with you, and perhaps they're, for the most part, departmental budgets. In any event, we're working with the government in the drug strategy, for instance, and on innovation with Minister Rock--he's approached us on that.

    As we talk about the growth of cities and municipalities, obviously, we'd have to start talking about Kyoto and the affordable housing issues. Municipalities in this country are committed to Kyoto. I say that because we have for some time worked to make sure we address the issue. We have worked very closely through our FCM staff, Mr. Knight and his staff, with various departments, to address the issue and to make it successful, and I think we're going to do that. We are committed to doing that as municipalities in this country.

    Affordable housing is something we can't just push away. We can't just say, well, it doesn't exist. It's a very complicated issue. Not all municipalities have the problem, but certainly in the growing ones, the larger centres, where people come, leaving smaller municipalities, all of a sudden they become a statistic in our shelters.

    The Chair: Mr. McAvity, I'll give you the last word.

    Mr. John McAvity (Executive Director, Canadian Museums Association): I think it's quite appropriate that the museums have the last word, because you're all going to end up there.

    I would like to pick up on a word Mr. Wilfert used earlier. He talked about birthright. When you talk about birthright, rights we have as Canadians, I can think of nothing more than our heritage. Yet today we've had a fascinating debate. We, as museums, are not very large economic players, and we recognize that, but when we hear the millions of dollars being discussed, the amount of money that goes into saving our heritage in this country is peanuts. We have called for, and we are working with the Department of Canadian Heritage on, a national strategy. I know this morning you heard about built heritage, historic houses. You're hearing the same message right now from the museums, which are really there to contribute to the quality of life in our communities.

    We look at the European model. Europeans invest heavily in their culture. Quebec invests heavily in its culture, but regrettably, Canada as a whole and many of the other provinces do not. So the last word is my request to you to consider a national heritage strategy. It is not a lot of money, and it will have benefits that are not just economic, but more importantly, contribute to the fabric of this country.

¹  (1520)  

    The Chair: Since I am a generous chair today, I will actually give another last word.

    Mr. Sam Boutziouvis: Thank you very much, Ms. Barnes.

    I have just two points on Mr. Valeri's question about corporate income taxes versus the capital tax. First, the capital tax, as a point of clarification, is a profit-insensitive tax, in distinction from corporate income taxes, which are based on profits. But corporate capital taxes are so egregious and multiply over the term of the investment and have so many problems with them that they would be the top priority for the organization right now.

    With respect to corporate income taxes, our position is clear. Let me just point out what the rate would be in 2006. In 2006 the average OECD corporate tax rate will be about 32%, which is what ours is going to be. So we have just come down to the average level of the OECD. We need to come below that by five points, to about 25% to 27%, which is consistent with what the other business groups have been saying.

    The Chair: I realize we won't have the outcome of the Kyoto debate or the Romanow commission when we are busy writing our report. I'm not sure if that's good news or bad news, but maybe it makes it a little easier for this committee. Over the last couple of days many times we've heard the word crisis. What we will have to do in this time period is very difficult , but what's helping us is the presentations, the fact that you've taken your time to write your presentations and get them in early, so we can translate and distribute them not only to the members you see here today, but also to the members who are working in other cities and will also thank you for taking the time to come, make your verbal presentations, and take our questions.

    With that, we are adjourned until tomorrow here. Colleagues, I'm going to chair Winnipeg tomorrow, so Mr. Discepola will be with you in Montreal.