[Recorded by Electronic Apparatus]

Wednesday, January 22, 1997

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[English]

The Chairman: We are resuming our hearings into Bill C-70. We are now a third of the way through today's work.

We have with us this afternoon, from Wal-Mart Canada, Brian Rudderham; from the Periodical Marketers of Canada, Paul Benjamin and Ray Argyle; from the Hudson's Bay Company, Stephen Bobkin; from Canadian Tire, Alan Goddard; from the Office of the New Democratic Party in Nova Scotia, Robert Chisholm, MLA; from Sears Canada, Jack Connell; from K Mart Canada, Peter Kenyon; from the Canadian Direct Marketing Association, John Gustavson and Lorraine McLachlan; and from the National Association of Tobacco and Confectionery Distributors, David Crouch and Glenn Hynes.

I would appreciate it very much if you could limit your remarks to three minutes. That way everybody will have ample opportunity. I think you will find that from the questions you will have more than enough time to present your full case to us.

Could we start with Mr. Brian Rudderham from Wal-Mart Canada, please?

Mr. Brian Rudderham (Comptroller, Wal-Mart Canada Inc.): Thank you. Good afternoon. I'm Brian Rudderham, the comptroller for Wal-Mart Canada Inc.

I'd like to begin by thanking you for the opportunity to appear before this committee. I'd also like to express our appreciation for the spirit behind the changes and the flexibility shown in the tax-inclusive pricing guidelines that were released last Friday.

While it is my intention to keep my remarks as brief as possible, it is imperative that you understand this issue still has a significant negative impact on our business in New Brunswick, Newfoundland, and Nova Scotia. We employ 2,300 people in these provinces in 18 store locations. There are four stores in New Brunswick, seven in Newfoundland, and seven in Nova Scotia.

As with other members of the retail industry, we are in general agreement with the goals of harmonization, with the exception of tax-included pricing at the retail level. Even with the enhanced flexibility announced on January 17, our savings related to harmonization are outweighed by additional ongoing costs by a factor of three to one. We do, however, recognize and appreciate that with the guidelines as announced, this is a reduction from a six-to-one cost ratio.

The remaining costs related to this measure result primarily from two areas: conversion-related activities and advertising in both print and electronic media. I will address each in turn.

Conversion-related activities are one-time costs, which include the computer and cash register system changes required to execute tax-included pricing. This includes the cost of reprogramming systems to comply with the item and shelf label guidelines. There will also be additional labour costs incurred to convert each store on the required implementation date.

While the conversion costs are one-time costs, the additional advertising expenses are ongoing. This will be a continuing burden, and these are the costs we refer to in our three-to-one expense-to-saving ratio.

Currently most of our advertising is done nationally. Both print and electronic media advertising is affected by the tax-included requirement. This measure will make it impractical to advertise any form of pricing on a national basis. If we are forced to advertise on a regional basis, our costs will rise significantly while adding no true value for our customers.

The need to re-price pre-marked goods has been largely but not completely eliminated by the January 17 guidelines. There is no question this will allow us to avoid some of the crushing costs related to re-ticketing this category of merchandise. We do need to recognize, however, that in eliminating this financial hardship, a new burden is being passed on to our customer.

Given the wide variety of merchandise in a Wal-Mart store, our customers will need to be familiar with a wide variety of pricing practices. Let me take you on a quick tour to illustrate what a customer will see.

Starting in our apparel section, almost all items are pre-marked, but some of these are sorted by price point, so the ticket will be tax-exclusive and the rack may be dual- or tax-included-priced. Other apparel categories are displayed by assortment. This means shelf or bin labelling will not apply. Thus we will see that these items are individually re-priced with both tax-in and tax-out pricing on an item-by-item basis.

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In our toy department, some items will have pre-marked tickets on a tax-excluded basis, but the shelf will show tax included. Others will only be shelf-marked.

In our consumable departments, the products will have no price identification but the shelves will be marked on a tax-in price, or maybe both tax-in and tax-out.

As we go into our card department, the first thing we see is a large chart with each and every available price point, along with the tax-included conversion.

As I go on and on, certainly from a customer's viewpoint this is all very confusing. Under the old regime at least I knew I had to calculate or estimate the tax portion of my bill. Under this regime I'll need an accountant and a computer.

It's not my intention to be facetious, but this will be a serious problem for our customers. It will be difficult to know what's the tax-in price and what's the tax-out price. Is it necessary to compare the ticket price with the shelf price? Is the difference between the two 15%? Is it necessary to refer to a conversion chart?

I submit that when this comes to pass, our customers, and your constituents, will be very upset. The only question is, whom will they hold accountable?

Once again, thank you for the opportunity to present our point of view to the committee.

The Chairman: Thank you for both your presentation and the precision of it.

Ray Argyle.

Mr. Ray Argyle (Executive Director, Periodical Marketers of Canada): Mr. Chairman, Periodical Marketers of Canada represents the companies engaged in the wholesaling of magazines and paperback books throughout Canada.

I'm executive director of the association. With me is Mr. Paul Benjamin, president of PMC, who will address the committee.

Mr. Paul Benjamin (President, Periodical Marketers of Canada): Thank you. I promise we will be under the three-minute limit.

The Chairman: Beautiful.

Mr. Benjamin: We thank Chairman Peterson and the members of the House finance committee for the opportunity to present our comments regarding Bill C-70.

Periodical Marketers of Canada is an association of magazine, book, and paperback wholesalers across Canada. Our association is some 52 years old. We represent all of these publications on behalf of Canadian, American, and international publishers, the marketing channel that provides reading material to some 35,000 news-stands across this country. The retail value of the product we distribute is approximately $600 million per year.

In New Brunswick, Newfoundland and Nova Scotia, the provinces affected by harmonization, our two members in these provinces - our company, Benjamin News, and the Marshall News Group - handle per year some 60 million units of periodicals and other publications.

The provision requiring tax-inclusive pricing of these products would have had devastating, irreparable consequences for our industry and would have resulted in considerable inconvenience and vast delays in putting time-sensitive product on sale so that consumers in the Atlantic provinces would not have had the same opportunity to read material at the same rate as other Canadians, and at the same time.

Because these publications are pre-priced for Canadian and North American markets, compliance with tax-inclusive pricing would have necessitated stickering every single copy, not only those that were sold but also those that were not sold. In our business, magazines are sold on a guaranteed sale or return basis. What is not sold by the retailer is returned.

So the stickering cost for those that are not sold would be borne by those products that are sold and would have, as I mentioned, resulted in considerable delays. The volume that would have required on-sale stickering every Monday morning in those three provinces could be equated to approximately fourteen 45-foot trailers.

We therefore appreciate the opportunity to appear today and we want to thank you so very much, indeed profoundly, on behalf of our members and consumers, that we will be able to have a ``look-up'' table that will enable us to avoid stickering all of these products. We want to thank all of the officials for their recommendations and their willingness to listen and understand our unique problem.

However, we are truly disappointed that books are not covered. Indeed, they are periodicals, and they are time sensitive. Just as much as greeting cards and seeds are pre-priced, I submit to you that they are time sensitive, probably more time sensitive than seed packets.

Books and paperbacks are in many cases displayed adjacent to magazines. They are periodicals. Why not treat them as such? In many respects certain categories of books are distributed in a fashion similar to magazines. For example, children's books, although they are treated as books and are coded as books, are distributed along with magazines. The same is true with series romance, such as Harlequin books, and other products, such as sticker books. I would submit to you that it would be a very simple application to give us the ability to treat magazines and books in a similar fashion.

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Meanwhile, we continue to advocate in the strongest possible terms that all reading material be zero-rated under the GST. It is our impression that this commitment was given in one form or another by both the Prime Minister and the Liberal Party on numerous occasions prior to the last election. We remain hopeful that this commitment will be fulfilled before the next election.

Thank you.

The Chairman: Thank you very much, Mr. Benjamin.

From the Hudson's Bay, Stephen Bobkin.

Mr. Stephen Bobkin (Assistant Manager, Taxation, Hudson's Bay Company): Thank you.

I think there were some comments made in the prior session. Hopefully we will have an opportunity to answer those, because obviously the Bay hasn't had a chance to comment on them.

My comments are listed out in what we've prepared and handed out. I will read them, and at different points I will try to add to that.

Thank you for allowing us to attend.

Hudson's Bay Company is Canada's oldest company. We operate the Bay traditional department stores and Zellers discount stores, over 400 right across all 10 provinces. We employ 60,000 employees.

I would like to state that the Hudson's Bay Company has in the past and continues to stand behind the government's intention to harmonize the current GST with the provincial sales tax systems, giving Canada and the provinces a national sales tax. We are the largest tax collectors on behalf of government, and therefore the complex rules that exist today put us at risk for large assessment because ultimately our sales associates in our stores collect the GST and PST through our cash registers.

Collecting these taxes is not a benefit for our business. We do it because it's mandated and because we are good corporate citizens. The old GST/PST ``double system'', as I call it, has been annoying and at times complex to our customers and our staff. We fully supported, and still do, a national sales tax system built on three principles: one rate, one base, one administrator.

Understanding the difficult political barriers that can arise between federal and provincial governments, we fully support the plan to proceed with harmonization one province at a time. We have said this before but never imagined that the concept of tax-in pricing would be included as part of a partial harmonized system.

When we were confronted with this possibility that the government would not change its plan to go tax-in, we convened a committee at Hudson's Bay Company of people from each of the affected areas. Each member was asked how to implement the tax. To our horror, the cost figures they have arrived at and that have been made available to the Retail Council were many times what we had guessed. These first estimates have since been refined and suggest to us that the Hudson's Bay Company would be unable to comply with a partial tax-in system without incurring significant costs. As you know, our own data was combined with data from several other companies by the Retail Council to arrive at a composite estimate of additional costs of about $100 million. That's net of the tax savings from the input tax credits within this new harmonized system.

There has been a suggestion that our customers would prefer tax-in prices. However, no one has asked what their trade-off would be between tax-in and higher prices. Our opinion as retailers is that consumers are more price conscious today than ever, and even a small increase in prices has to be justified.

If the costs associated with this plan were to be reimbursed to retailers, resulting in no increase in prices for the consumer, the finance committee might view this in a different light. The reimbursement would come out of government revenues and require a tax increase or less social programs to pay for it. If we put that proposal to taxpayers, what would their reaction be? But there is no arrangement. Instead, retailers are being told to incur the costs and then presumably raise prices to cover those costs. The result for the consumer is the same.

The biggest concern we have with the current proposals is that they damage the chances of moving harmonization into the other provinces. If it seems most likely we cannot agree on a uniform combined tax rate, then we cannot expect a tax-in system to work. The costs being added to retail prices will get larger as each additional province joins. Clearly, most provincial politicians will understand this and will refuse to join the HST regime. On the other hand, if the proposal to require tax-in is dropped, there is a much greater likelihood that other provinces will opt into the HST regime.

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One of the benefits of harmonization is to simplify two sets of tax rules into one, reducing both compliance and administration costs. On the basis that tax-in pricing in a partially harmonized environment is mandated, we expect more complexity in administering the tax. The four major areas of concern are systems, warehousing and distribution, store operations, and advertising.

For example, we fully expect that the proposed rules for advertising will in themselves increase costs. The draft proposals that have been discussed relative to advertising are complex and do not treat all retailers fairly.

The Chairman: Excuse me, Mr. Bobkin, I don't mean to cut you off and I certainly have no intention of doing it, but I was hoping that in the interest of fairness to every witness we could limit the opening remarks to three minutes.

Mr. Bobkin: I know. I'm almost finished, and I would have prefaced it by asking if I could have perhaps an extra 30 seconds.

The Chairman: Sure.

Mr. Bobkin: Thank you.

For example, regarding advertising, we think they're going to be complex and not treat all retailers fairly. The decision to advertise via catalogues versus flyers or TV ads should not put one retailer at a disadvantage compared to another.

Another area of confusion for our customers is that the proposals floated by Finance centre on our store operations, namely the pricing of merchandise. Tax-in proposals will mean that most retailers will present merchandise in the store with two prices, one out and one in. If they don't do this, it will be impossible to keep their merchandise and inventory systems integrated across the country as national retailers. Thus, we expect all of our customers to continue to see the ``real'' price and the ``HST-included'' price. In our advertising we will have to follow the same approach:$9.99 tax out, $11.49 tax in. The advertising must parallel that or our customers will be confused. When merchandise is put on sale, another two prices will have to be shown. Thus, advertising will become more complex to administer and difficult to present, and that's where we'll end up confusing our customers.

For the reasons mentioned above and others that I'll be happy to discuss with you afterwards, we request that you delay the tax-in proposals indefinitely and proceed with the balance of the HST proposals. The concept for tax-in can be reintroduced in the future when there is an agreement amongst the provinces that they all want it.

Thank you very much.

The Chairman: Thank you very much, Mr. Bobkin.

From Canadian Tire, Alan Goddard.

Mr. Alan Goddard (Vice-President, Corporate Affairs, Canadian Tire Corporation): Thank you very much, Mr. Chairman. I would be abusing the committee's good humour if I repeated everything that's been said here today, so I will really try to limit my remarks.

The Chairman: I have a few things you could say that would make us delighted, if you wanted to.

Mr. Goddard: I hope I will.

I really have one thing to say, to cut to the chase. Our primary recommendation is to defer the requirement for tax-included pricing as part of the implementation of the HST in Nova Scotia, Newfoundland and New Brunswick until the HST can properly be administered in all provinces as a truly national tax.

Our concern is that the issues are on the two c's, as I see it, in tax-included pricing: cost and confusion. On the cost side, our business is driven by systems. For the past three years we've invested some $100 million in improving our systems and related technologies so as to create an efficient pipeline to enable lowest-cost product flow from the manufacturer to the consumer.

By our count, the tax-inclusive regime will have a direct impact on 29 of our operational systems whereby software will have to be rewritten and substantial changes will be made. As pricing is software driven, our computerized systems for product pricing, advertising, freight, purchase orders, in-store computer terminals that display product prices, inventory, management, order processing, sales history, credit card statements, catalogues and flyers are all affected. Special systems will have to be tailored to accommodate the three maritime provinces, which in our particular case represent somewhere between 5% and 6% of our total business.

This would result in significant costs and divert a significant number of our information technology people from productive activities aimed at reducing costs and increasing efficiencies. This problem is further exacerbated by the acute shortage of people with these skills across Canada, particularly as we approach the next millennium and the costs and people involved in the 2000 conversion issue.

The government has noted that surveys indicate that our customers prefer tax-included pricing. Let me assure you that Canadian Tire is totally focused on giving our customers what they value most. Our concern is that the costs associated with tax-included pricing have absolutely no value, and they militate against our desire to remain competitive and to take on only those costs that would provide real value and benefit to our customers.

Government has also indicated that harmonization of sales tax will result in significant savings for business and for customers. Let me emphasize that for the retail industry any benefits derived from input tax credits are more than offset by the significant cost increases resulting from tax-included pricing. There are no savings. In fact, in our case the ratio is five to one. For every $1 of saving through input tax credits to the maritime provinces, we spend $5 with respect to these changes.

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The other issue is consumer confusion, and I think a great deal has been said on that today. I'll just pull one example in terms of our particular store.

A customer comes in and buys three items: a magazine, a battery, and fish-hook. The magazine is priced out with an overhead sign and conversion chart nearby, with several price points, so the consumer can try to calculate the tax-included price. The battery is dual-priced on the shelf, so when he picks up the battery he finds it doesn't have a price on it, but it's dual-priced on the shelf. The fish-hook, because its tag is too small, has a tax-included price on it. There is total confusion for the consumer because he will see some prices with tax included, some with tax excluded, and in some cases both prices. It will be extremely difficult for the consumer to sort all of these out and know what price will prevail at the register.

Under the current tax regime, a customer can compare the price for a product offered by Canadian Tire with other retailers because all prices are on a tax-out basis. With four options available, various retailers will use different combinations of options to price products, and customers will be totally confused. It will be difficult for them to do comparison shopping.

Mr. Chairman, I think the other points of confusion will include customers from harmonized provinces purchasing a familiar product in a non-harmonized province, and that's been mentioned. National television advertisements will continue to feature tax-excluded pricing, causing confusion for customers living in the harmonized provinces where taxes are included. Cross-border shopping and imported catalogues, all using tax-excluded pricing, will make retailers in harmonized provinces appear less competitive.

I will leave you, Mr. Chairman, with the suggestion that the successful implementation of the harmonized sales tax must be carefully designed to avoid confusion, not create it, in the eyes of all parties. In our respectful submission, the parties have not yet reached this stage and are unlikely to do so by April 7.

I would like to thank the chairman and members of the committee for this opportunity to present. Thank you.

The Chairman: Thank you very much, Mr. Goddard.

Next is a fellow member in public life, from the New Democratic Party, Robert Chisholm. Welcome, sir.

Mr. Robert Chisholm (Leader of the Nova Scotia New Democratic Party, Member of the House of Assembly of Nova Scotia): Thank you very much, Mr. Chairman.

The Chairman: Before you start, I'd better warn you not only about the time, because I know how politicians talk, but that two of your colleagues from the Conservative Party were here this morning and they support our proposals fully. I just wanted you to know that.

Mr. Chisholm: That's today.

Thank you, Mr. Chairman and members of the committee. As you know, as a politician in Nova Scotia, I have had some experience with this debate over what we've finally referred to as the BST in Nova Scotia. I am grateful for the opportunity to participate on behalf of the Nova Scotia NDP in this discussion on Bill C-70.

As we made clear in a recent letter to the committee, we would have been much happier to join other Nova Scotians in welcoming this committee to our province. That way, many more Nova Scotians could have told you face to face what they think of Bill C-70. But the committee has decided not to come to Nova Scotia and has chosen not to hear what the ordinary people of Nova Scotia have to say about this bill.

The Chairman: Go on.

Mr. Chisholm: Do you want to deal with this now?

The Chairman: No, no, just keep digging the hole.

Mr. Chisholm: I understand what you engaged in with Mr. Hamm this morning and I'm quite happy to deal with that at any time, now or later on, Mr. Chairman.

But the committee has decided not to come to Nova Scotia and has chosen not to hear what the ordinary people of Nova Scotia have to say about this bill. So I will try to do that on their behalf. I hope you will not think me too presumptuous when I say that I believe the views of the NDP caucus on Bill C-70 are similar to those of the vast majority of Nova Scotians.

Simply put, the NDP position is that this harmonization deal is a bad deal. At every opportunity the ordinary people of Nova Scotia have had to express themselves on this harmonization deal, they've also said that it's a bad deal. They've said it in a number of public opinion polls conducted by the media; they've said it in a provincial by-election, won handily by the NDP, I might say; they've said it before the Nova Scotia legislature's law amendments committee last month; and they've said it by the tens of thousands in petitions presented to the members of the Nova Scotia House of Assembly.

What low- and middle-income Nova Scotians are telling us is that this harmonization deal is going to hurt them. They'll have to pay higher taxes to clothe themselves and their children, to heat and light their homes, and to put gas into their cars. They say they can't afford to buy those big-ticket items that will have lower taxes under harmonization. They say that the small reductions in provincial income taxes won't compensate for the higher sales taxes on the necessities of life. They say the Liberal GST is just one more example of how they've been nickled and dimed to death by taxes.

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Mr. Chairman, ordinary Nova Scotians are also telling us this tax is unfair. They are saying it's wrong that the tax on yachts and fur coats goes down while the tax on heating oil and school supplies goes up. They're saying it's wrong that some corporations get a tax break worth more than $200 million in Nova Scotia alone while consumers pay $84 million more.

Many Nova Scotia businesses, especially small businesses, are also saying the tax is unfair. They're saying it will raise their costs and reduce their business.

Nova Scotians also tell us they are worried about the effect this harmonization deal will have on provincial finances. This may come as a surprise to those who like to talk about the $1 million of compensation that has been paid to get the three provinces to agree to this deal, but our provincial treasury will be worse off with harmonization. The $250 million one-time-only compensation that's come to Nova Scotia will not make up for the revenue lost in perpetuity because of the business tax breaks totalling over $200 million a year.

Nova Scotians are skeptical when their premier says these negative factors are worth it because of all the jobs that will be created as a result of these corporate tax breaks. It is no wonder they are skeptical about jobs. They've already heard about retailers closing their doors and laying off workers because of the tax. This week we heard the home builders association talking about 2,000 jobs in Nova Scotia being lost.

They've also heard supporters of the bill saying contradictory things about its job creation potential. The MP for Halifax echoes our premier when she says that the corporate tax advantage under the BST will turn Atlantic Canada into the most attractive business location in all of North America, but the sponsor of the bill has suggested that those tax advantages will be short-lived. He has described this bill as the beginning of a process that will eventually see the BST replace the GST all across the country. Goodbye Atlantic advantage.

The Chairman: I want to ask you how much longer you'll be reading the statement,Mr. Chisholm.

Mr. Chisholm: Probably about the same time as when we discussed the question of whether the committee was coming to Nova Scotia. I have two very short paragraphs.

The Chairman: That's 10 seconds. Okay.

Mr. Chisholm: Most Nova Scotians, Mr. Chairman, don't see themselves as being advantaged by this bill. Instead, they see themselves being treated as guinea pigs, an experiment leading to a national BST that shifts billions in sales taxes from corporations to consumers. They wonder why their politicians are experimenting with them. At a time of rising unemployment and cash-starved social programs, they wonder why the government is introducing a tax that will hurt consumer demand, cost jobs, and deplete tax revenues.

On behalf of those many thousands of Nova Scotians who have spoken out against the bill but can't come before this committee, I urge you, Mr. Chairman and members of the committee, to scrap Bill C-70. I encourage you to begin again the search for a fair and equitable replacement for the GST. This bill doesn't achieve that, and in fact, for Nova Scotians it is worse than the status quo.

Thank you.

The Chairman: Thank you, Mr. Chisholm.

From Sears Canada, Jack Connell.

Mr. Jack Connell (Commodity Tax Manager, Sears Canada Inc.): Thank you for the opportunity to address this committee.

Wal-Mart, the Bay and Canadian Tire have covered very well some of my issues. So I'm going to concentrate primarily on national catalogues.

The goal of the harmonized GST and PST is laudable, but without the agreement of all the other provinces at the same time, the result of tax-inclusive pricing is a network of multi-rate, partially harmonized systems. Throughout the chain, from the initial purchase of merchandise for resale to the final sale to the consumer, the production, distribution, advertising and sale of the merchandise become prohibitively more costly to the retailer and eventually this price is passed on to the consumer.

National catalogues distributed in participating provinces do not have to show tax-included pricing, but what is a national catalogue? The definition issued on Friday is very narrow. We plan to distribute 52 million catalogues this year in 10 provinces and 2 territories. However, with this definition, we may not be distributing a ``national catalogue''.

In 1997 Sears will produce two general catalogues totalling 2,000 pages, three seasonal catalogues totalling 1,500 pages, six sale catalogues totalling 1,300 pages, and two specialty sale catalogues of approximately 200 pages. This does not include numerous other pre-prints and circulars.

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The definition of ``catalogue'' discusses a 10% ratio. With the circulation of these catalogues, excluding pre-prints and circulars, being over 52 million, does Sears have to determine by specific catalogue whether 10% of the printing is sent into the harmonized provinces? The residents of these provinces may represent 8% of the population, but the residents of these provinces are predominantly rural and shop through catalogues because retail stores are not as readily accessible.

What are the options of Sears with a 10% ratio definition of ``national catalogue''? Do we produce specific catalogues in both languages for the harmonized provinces, with 8% of the population? Do we restrict the number of catalogues - i.e., no sale catalogues - sent to the harmonized provinces? Do we restrict the number of catalogues to only 10% of a run, demand being irrelevant, or do we withdraw from one of these provinces or several of these provinces in which the catalogue business operates?

Each of these alternatives represents a cost. One is the increased cost of producing harmonized catalogues for 8% of the population or a loss of revenue by restricting the number of catalogues issued to customers or loss of revenue from withdrawing from a province or provinces. But the biggest cost is to the consumer: loss of convenience, fewer or no catalogues, or higher costs. Residents of these provinces shop through catalogues because retail stores may not be readily available.

The Chairman: Can you explain to me why you have to have a special catalogue for the Atlantic provinces, the harmonized provinces?

Mr. Connell: My understanding was that we have to have tax-included pricing. The definition of ``national catalogue'' that came out on the 17th said a national catalogue is one that is distributed both inside and outside participating provinces with less than 10% of the total number of copies of the publication.

The Chairman: Maybe I'm wrong here, and officials will correct me, but I understood you could do tax-excluded pricing and a disclaimer.

Mr. Connell: Yes, we can, if we meet the definition.

The Chairman: Mr. Campbell.

Mr. Campbell (St. Paul's): Mr. Chairman, of course you can add the disclaimer as per the guidelines, which would seem to address your concern.

You could do that for the entire country, Mr. Connell.

Mr. Connell: We could have tax-inclusive pricing?

Mr. Campbell: No, a disclaimer.

The Chairman: You could have the same catalogues for the entire country -

Maybe our officials could come forward and clarify that for us. I was under the impression that -

Mr. Connell: I was too.

The Chairman: - we didn't want to mess up national catalogues.

Mr. Campbell: Mr. Chairman, I'm quoting from the guidelines as specified in the October 23 technical paper, which says that national catalogues distributed in participating provinces will not be required to display prices on a tax-included basis. They will, however, be required to use explicit disclaimers on the cover page and on every second page thereafter, clearly indicating that taxes are not included in prices advertised.

Mr. Connell: That is correct, and that is what we were planning to do until this Friday.

Mr. Bill Bennett (Tax Policy Officer, Sales Tax Division, Tax Policy Branch, Department of Finance): What is your problem with the rules, Jack?

Mr. Connell: My problem is that under the national definition -

The Chairman: Before we get into this, let me make this commitment to you, and maybe you could meet while other people are talking. If we haven't solved your problem, we intend to. We'll do it before you walk out of here today.

Mr. Connell: That's great. Can you change the definition?

The Chairman: Whatever we have to do to do it. I thought we had dealt with that problem.

Otherwise you love the stuff, Jack?

Mr. Connell: Yes, everything else is fine.

The Chairman: Then we will go on to K Mart Canada, with Peter Kenyon.

Mr. Peter Kenyon (Vice-President, Operations, K Mart Canada): Thank you,Mr. Chairman, and thank you for the opportunity to present this to you and the members.

Although K Mart supports harmonized taxation and its associated lower costs, a piecemeal approach to tax-inclusive pricing will have significant impacts in the marketplace. The current economic reality is that profit margins have been eroded and the additional costs required to support tax-inclusive regions within a tax-exclusive country will have an impact on the following areas.

The first area is jobs. There will be an inevitable loss of jobs as marginally profitable locations become unprofitable because of increased costs. K Mart alone employs an average of 110 people in each of its stores, having 20 stores in these 3 provinces.

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The second is retailer choice. Some retailers will be forced out of business, since they cannot afford to comply with regional tax-inclusive pricing. This means the consumer will have less retail choice or will have to travel further to shop.

The third area is price confusion. The government's objective in introducing tax-in pricing was to ensure the consumer had a clear idea of the total cost of the goods before reaching the cash register. By enabling retailers to display tax-in prices using signage and shelf pricing while allowing items to remain individually priced with tax-out prices - the consumer will become frustrated and angry because they are unable to determine what the final price is. Whatever method of displaying prices is used, sticker shock will not have been eliminated, because the customer can clearly see both tax-in and tax-out prices. In addition, with inconsistent pricing methods between retailers, consumers will no longer be able to comparison shop. This will initiate reduced consumer spending and will have a negative impact on the economy in these provinces.

The fourth is increased prices. Despite the government's perception, it's proposed tax-inclusive pricing options will still cause retailers to incur significant increased costs for technical services, advertising, signage, and re-stickering, as well as the potential for lost sales because of customer aggravation. The cost of consumer goods will have to increase to cover at least part of the increased cost of doing business.

For instance, apparel is individually priced at the manufacturer before shipment to our stores - it's about 99% - and will have to be individually reticketed at store level. In 1996, each of our stores in the 3 provinces received an average of 375,000 items in apparel. This translates into7.5 million items for the 20 stores in these 3 participating provinces, which will increase, escalate, if other provinces elect to adopt the tax-in policy.

In addition, each store receives an average of 890,000 items of hard-line items, amounting to almost 18 million items for the affected stores. Although a high proportion of these items are shelf-edge priced, having to re-price even 25% of these items individually would amount to over 220,000 items per store and 4.5 million items over 20 stores. Additional costs will also be incurred to produce specialized price conversion signage for bins and items such as greeting cards and seeds that cannot be individually pre-priced.

Incremental costs and associated logistics problems to handle advertising cannot be quantified pending government legislation. Invariably, all associated costs will have to be passed on to the consumer.

In conclusion, K Mart has worked diligently over the past number of years to ensure our customers have the widest selection of merchandise at the lowest price. This policy will now be compromised in the regions where tax-in pricing is enforced, ultimately at the expense of our customers. K Mart can endorse tax-in pricing only on a true national level, with one rate, one tax base, and one administrator. Our recommendation is that tax-in pricing be put on hold until this can be achieved.

The Chairman: Thank you very much.

From the Direct Marketing Association, John Gastavson, please.

Mr. John Gustavson (President and Chief Executive Officer, Canadian Direct Marketing Association): Thank you, Mr. Chairman.

The Canadian Direct Marketing Association has some 650 corporate members and 850 regional members. They include Canada's major banks, insurance companies, publishers, cataloguers, fund-raisers, music, folk, and video clubs, and a large number of other corporations engaged in data-based direct marketing and consumer loyalty marketing. Offers are presented through a variety of media: television, newspapers, magazines, radio, direct mail, catalogues on the Internet, and of course everybody's favourite, the telephone.

Mr. Chairman, our marketing association very much supports the idea of a nationalized harmonized sales tax. I know you've heard that over and over again today and on previous days. It's an idea that simply makes overwhelming common sense.

The Chairman: We have even heard from Mr. Chisholm.

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Mr. Gustavson: However, implementing this on a regional basis with tax-in pricing simply becomes a disaster for us, for a number of reasons. For national advertisers, separate tax-in pricing for national offers appearing in Atlantic Canada, whatever the media used, is prohibitively expensive. In some cases it's simply impractical to do so.

I would ask you to put yourself in the shoes of a national marketer, who under this legislation will have to show one price for most of Canada and a price 15% higher for Atlantic Canada. Even with a notice about tax-included pricing, every study on the issue shows display of higher prices discourages sales.

Last year Canadians bought almost $11 billion in goods and services through direct-response marketing. Much of that was in areas of the country not well serviced by the retail industry. I can tell you that as a result of the increased cost of doing business in Atlantic Canada there is going to be a major withdrawal from the marketplace by those direct-response marketers. They really have no choice, because the economics of separate pricing, separate ads, and separate administration just don't make sense.

An exemption from tax-in pricing was granted for national catalogues. Unfortunately the rules issued by the finance department last Friday defining those catalogues make it practically impossible to qualify. When you have a catalogue with 52 million copies distributed in 10 provinces and2 territories, accounting for almost half the national catalogue sales in this country, and it doesn't qualify, then indeed there's something wrong.

But even if you could qualify and meet all seven different criteria that are established before you can qualify for the exception, the requirements afterwards make it economically unfeasible to comply. If you have a catalogue and you have to put 1/32nd on the front cover and every other page with a disclaimer just for what represents 1% of your marketplace if you're a North American cataloguer or 10% of your marketplace if you're a national marketer, it just isn't worth while. Then there is the fact that if you have things inside your catalogue they don't qualify for the exemption. So you're going to have one price for the item in your catalogue and right next to it a separate price in your flyer, or in some cases offers on envelopes.

Mr. Chairman, I'm not suggesting in any way that these problems can't be solved. I'm going to offer a couple of solutions to you in about a minute.

The Chairman: We are interested in solutions.

Mr. Gustavson: I think there is some evidence here when these sorts of mistakes can happen, Mr. Chairman, that this legislation is moving forward so quickly and so fast that the need for meaningful, thoughtful consultation has to be emphasized before some mistakes are made that inadvertently cause undue economic harm either in Atlantic Canada or nationally.

We would ask the government, of course, first to defer harmonized tax so it can be done nationally. If the government proceeds only in Atlantic Canada, however, we believe it's essential there be an exemption from showing tax-in pricing for any goods and services advertised or offered for sale on a national basis where the consumer can purchase those goods or services directly. We operate in a national marketplace, often increasingly in an international marketplace, and to create totally different pricing rules for one small market segment just doesn't make any sense.

The Chairman: As with Mr. Connell, I thought we had solved the problem of national catalogues.

Mr. Connell: No, you created a problem on Friday at 5 p.m. when you mailed this to me.

Mr. Gustavson: The problem, Mr. Chairman - and maybe we should make a more detailed submission to you and to the officials of the Department of Finance - is that the seven criteria established can be very difficult to meet.

The Chairman: Okay. It wasn't intended that way.

Mr. Gustavson: If you do meet them, the disclaimer requirements mean reprinting all the catalogues, and a lot of people just don't find that economically feasible. Most people would say when you go to the order form in a catalogue, when you fill in the order, you assume that's where you get your tax information. That's one clear solution that would be very helpful.

The other is an understanding that this is an integrated process that involves catalogues, things tucked into catalogues, a package insert. We may actually ask for a reversal of the policy on national flyers. If I understand the purpose of that correctly, it inadvertently did something it wasn't intended to do with the catalogue and direct-response industry.

Mr. Chairman, my only point is that we would ask for a meaningful exemption for offers offered on a national basis where the consumer can respond directly.

The Chairman: Thank you very much. I encourage ongoing discussions immediately, because -

Mr. Campbell: Mr. Chairman, I would like to intervene on behalf of the government at this point.

I'm concerned with your suggestion that the seven criteria are problematic. It wouldn't be the first time that inadvertently we ended up not having the outcome we expected and hoped for.

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Mr. Connell has twice said it was okay until he read it. Mr. Gustavson has alluded to problems. I wonder, Mr. Chairman, if you could ask them or I could ask them through you if they would tell us what the problems are with the criteria. I saw Mr. Goddard also saying he wouldn't meet the criteria.

I can assure you that the purpose of the guidelines generally, and specifically for catalogues, was not to put all you guys outside these guidelines but rather to facilitate international catalogues. So if there's a problem, let's hear what it is specifically.

Mr. Connell: One of them may be very simple. It's just a matter of definition. I didn't have a chance to phone the person in Finance I normally phone. One is that it has to be bound, printed sheets. Does that include staples?

Okay, thank you. That's no longer a problem.

Mr. Gustavson: On behalf of the catalogue industry, let me assert the national jurisdiction, if I may.

The definition of ``catalogue'' in the dictionary is that it is a list of items or goods with descriptive material. Within a dictionary definition there is no requirement for it to be bound. Just think back to things you've seen from various offers, things that are folded - maybe folded four times. I don't quite understand the purpose behind not allowing national flyers to be exempt, but often pages are slipped into catalogues. This criterion says it must be bound. Why? A catalogue is a descriptive list of goods or services.

Mr. Campbell: If I may interrupt, your problem is not with having to have a disclaimer; your problem is that a number of things would be outside -

Mr. Gustavson: No, sir. I consider that a subsequent issue, which I'll come to, but that remains an issue.

Bound, less than 10% being distributed in Atlantic Canada is a problem. Some catalogues find Atlantic Canada to be great, and they put in more than 10%. There is a specific problem.

Less than 50% of the items on sale: I don't know why that's in there, but quite frankly, for my colleague from Sears - that's a huge catalogue. They advertise things for sale over the year. Parts of the year they take everything that is for sale, put it together, do a very nice catalogue, and send it out. It's a sale catalogue. So -

Mr. Connell: It can't go to the Maritimes now.

Mr. Gustavson: Because of these criteria you could not do that in the Maritimes now.

So there's some detailed discussion about the criteria, but there are three very good examples.

The next problem is that even if you did qualify for the exemption, the disclaimer for what is a minor part of the marketplace - Rather than the disclaimer being on the order form, which is often redone, if the disclaimer were on the order form when people came to order, and in a meaningful way, that would answer that problem. But if you look at big national catalogues such as the Sears or A.E. McKenzie or Maritime Trading or Cow's, or the North American ones such asL.L. Bean, Spiegel, or Land's End, they're not going to put this disclaimer, 1/32 the size of the page, on every other page just to service 1% of their market.

So I'm not arguing about a disclaimer, but where it is and the size of it.

There's the problem, Mr. Chairman, of the catalogue industry. This doesn't work.

The Chairman: Mr. Connell, you're not as worried about the disclaimers as Mr. Gustavson is?

Mr. Connell: I'm not worried. I haven't addressed the disclaimer. After I read these seven comments the disclaimer was not an issue for me; these seven comments were.

The Chairman: It might be a problem for L.L. Bean but not for Sears in Canada. Okay.

Mr. Connell: I'm not sure about the size of it.

The Chairman: Anything else? I cut you off. Thank you very much. I appreciate your expressing your concerns. I think we have to deal with them.

The National Association of Tobacco and Confectionery Distributors, David Crouch.

Mr. David Crouch (President, National Association of Tobacco and Confectionery Distributors): Thank you for the opportunity to present our concerns to the Standing Committee on Finance today.

Established in 1955, the National Association of Tobacco and Confectionery Distributors represents over 140 wholesale distributors across the country. Last year our members' total sales volume exceeded $12 billion, and 4,000 jobs depended on their activities. Our members also service over 43,000 retail customers, many thousands of these in Atlantic Canada.

The tobacco contraband situation in Canada has received its share of media and political attention. Although it has been reduced significantly, the time it took for the authorities to address the issue allowed a parallel distribution channel to establish itself solidly. Tobacco smuggling, even though still active, is now less financially attractive, but another form of illegal activity is now used to evade taxes on tobacco. This obviously affects governments' revenues, tax-remitting businesses, and ultimately the taxpayers of Canada.

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Most provinces levy both GST and PST on the retail sales of tobacco - for example, 18.77% in New Brunswick, 19.84% in Newfoundland, or 15% in Ontario. When not remitted, these percentages represent a substantial profit margin.

The way our taxation system works, purchases of marked stock by a native retailer from a wholesaler are GST and PST exempt. The subsequent proliferation of this product, without audit trail, into the non-native retail community results in evasion and avoidance of GST, PST, plus federal and provincial income taxes. In other words, PST and GST are collected from the consumers, but the retailers are simply pocketing the money.

In 1995 the problem was considered serious enough for the Nova Scotia government to eliminate its PST on tobacco collected at retail and compensate for the shortfall by a proportionate increase in the tobacco tax collected at wholesale. In Ontario this illegal practice grew from 3,000 to 7,000 cases a week, for an average volume of over 18 million cartons.

The challenge presented by the GST harmonization in Nova Scotia is that the problem following the November 5, 1995, tax change will reappear. Furthermore, it is likely to grow even bigger. As for other provincial jurisdictions interested in the Nova Scotia model, they will be waiting for leadership from the federal government. As far as the situation in Ontario is concerned, it will grow even worse. It has now become the hub of interprovincial tobacco tax evasion.

An insidious effect of this practice is that it reduces tax-remitting retailers' margins, since they have to remain competitive with the competition supplied by the tax-exempt native stocks. This downward effect puts legitimate operators in jeopardy, since tobacco sales represent for most small retailers from 35% to 60% of their total business.

We recommend that the federal government zero-rate tobacco products for GST purposes and, as Nova Scotia did in 1995, generate the equivalent amount of forgone revenue by increasing the federal duties or federal excise tax or both by an appropriate amount. The advantages for the government and the marketplace are numerous. All tobacco taxes levied by the federal government would be collected. You would be dealing with a few manufacturers, not thousands of retailers. There would be no need for additional structures to accommodate the change. The tax change could be implemented at very little cost to the government compared with the extra revenue generated. The change would significantly reduce the incentive to buy marked stock from native reservations. It would re-establish a level playing field in the marketplace. It would reduce the underground economy plaguing our system. It would stabilize margins.

As has happened in the past, we believe the situation will deteriorate even more if the federal government does not take a leadership role on this issue. We trust the authorities will seriously consider this need for change, for the benefit of all.

Mr. Glenn Hynes, currently the vice-president of administration and control at Sobeys Inc., was the tax commissioner in Nova Scotia in 1995 when the PST on tobacco was eliminated and tobacco taxes increased by a similar amount. Glenn will be able to give you first-hand experience on how this move helped increase the province's total revenue from tobacco and will be very pleased to answer any and all questions you may have on this matter. We hope Glenn's experience in Nova Scotia can be used to benefit the taxpayers of all of Atlantic Canada, if not all of Canada.

The Chairman: Thank you very much, Mr. Crouch.

Mr. Solberg, please.

Mr. Solberg (Medicine Hat): Mr. Chairman, a little earlier this afternoon I think we had a couple of bombshells dropped on us. We heard from Woolworth that they were announcing that as a result of the tax-in pricing component of this bill they were going to close as many as 25% of their 125 stores in Atlantic Canada. We had Carlton Cards say they would be closing 19 stores. We had the booksellers, at least on behalf of the Chapters chain, saying SmithBooks and Coles would be closing marginal stores. That comes on top of some store closures that have already occurred.

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My first question, and I hope the answer is no, is that I wonder if any of the people who are representing businesses in Atlantic Canada here today will also be announcing soon that as a result of the start-up costs and the ongoing costs associated with tax-in pricing - as a result of that, will any of you be announcing soon that you'll be closing marginal operations in Atlantic Canada?

Mr. Connell: Sears is not planning to close any retail stores. Mr. Peterson has said he will correct our catalogue problem.

Mr. Solberg: That's decidedly good news, Mr. Chairman. It would be quite depressing to hear another round like the one we heard last time around.

One of the concerns I have is that we have all kinds of people coming before us and saying they have a lot of sympathy for harmonization - except for the tax-in pricing component. I'm wondering if anyone here can tell me this. If the tax-in pricing component were removed, would there be any damage to the other benefits the government is trumpeting as coming from harmonization? Can anyone give me any insight on what negative impact there would be just from removing tax-in pricing for now, until we have harmonization across the country, if that ever occurs?

Mr. Bobkin: We have all agreed harmonization is good. As I believe the MP from the Atlantic area had mentioned before, harmonization helps all businesses. There's a recovery of any of the tax that's paid on your inputs. The problem here is that the manufacturers, for example, are not dealing with this tax-in issue. It's the retailers who are being forced to do tax-in, which is 100% not what we are doing today. Today we collect the taxes at retail. It's not that we're merchandising the merchandise at retail with tax-in prices. That is where all the costs are and why retailers are at a net cost of doing business, because of the HST and the whole total package.

Mr. Rudderham: Without tax-in pricing we wouldn't be here today. We would have no trouble with the rest of the proposals.

From the last sessions, there is a point I would like to bring up where Steve has mentioned the input credits. There seemed to be some confusion about the distribution of the input credits. The committee seemed to be left with the impression that a local retailer would benefit more from the input credits than a national retailer would. We don't believe that's true. The input credits come primarily from capital expansion, which would typically be coming out of the national retailers, for the most part. The input credits come from your advertising. Under provincial law we are obligated to self-assess on the advertising we do in each province. I know most of our savings, our input tax credits, are going to come from there. The rest of it that's measurable typically comes from the local consumption of utilities and telecommunication costs. That's where the significant dollars are on this, and they apply equally to national retailers and regional retailers.

Mr. Bobkin: You would obviously end up getting some additional savings if you were repairing or fixing up a store with new furniture and fixtures, some new ongoing point-of-sale systems, but as a retailer within the environment - and you can look at any one, from a Canadian Tire to a Bay or Zellers or a Costco or Priceco, which is really just a warehouse. How much furniture and fixtures you put into a place depends on how much recovery there is.

As people have pointed out, the problem is that we have systems problems because you're asking us to do a whole set of extra price points and management of a system for a small segment of the economy. It's just a new system. That's where the costs are.

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We're more than willing to discuss it. We've tried to talk to officials, but sometimes we just seem to be getting that the costs are all exaggerated and they're not real. If there's one player in the marketplace that says they can do it for cheaper or it's not an issue, then we all get short shrift in the marketplace.

That's part of the frustration I have.

The Chairman: Don't worry. Alan will support you on this.

Mr. Goddard: Mr. Chairman, thank you. I agree with my colleagues' comments. I would just add one thing to what I think Mr. Bobkin was picking up on at the end.

Depending on the nature of the way we go to market, each of us will have a particular different problem with this. You can look at one particular thing - for instance, Canadian Tire prices to different markets across the country - so one could look simplistically at it and say, well, your prices are already different, depending on the competitive nature and different markets across the country; you should have no problems with this. That's right, we don't have as much of a problem with that aspect of it. We have big problems with being able to do this with other aspects, particularly in-store and through the 29 systems that I mentioned earlier have to be rewritten in our own business in order for this to flow, because everything is interrelated to the price. This is tax-included pricing I'm speaking of now.

Without that, we have no problems with harmonization. We support it 100%. We think it is a good and efficient and effective way for us to collect taxes as Canadians.

Mr. Chisholm: I want to pick up on that. I think people do have problems with the harmonization deal, irrespective of tax-in pricing. Let me say I've been extremely concerned, and many of the people represented here today have been represented in public hearings that the province held in Nova Scotia, or have communicated with us either by phone or by mail, to express the impact tax-in pricing is going to have on them and therefore on consumers, because it's going to drive prices up.

So it's the direct cost to consumers of the tax-in pricing and the threat to jobs and so on, but also it's the point that increasingly Nova Scotians are bringing to our attention. For people on fixed incomes and for middle- and low-income people, the cost of daily living, the costs of home heating fuel, gasoline to get to work, to go and find a job, the cost of school supplies and clothes for the children, and so on, are significant. You can't ignore that. That's the impact of harmonization other than tax-in pricing.

The other thing - and I hope this isn't missed - is the impact of harmonization, of this deal, on provincial revenues. Once the $250 million is gone in Nova Scotia, how in the name of God are we going to pay for health, education, social services, and other programs in Nova Scotia? How are we going to do that?

I asked the chief economist of the Atlantic Provinces Economic Council. When they made a presentation they compared the impacts of the GST with those of the HST or the BST to come up with who were the winners and losers. In the final analysis I asked him, once this $250 million is gone, how is the provincial government going to replace that revenue? He didn't have an answer for me. He didn't have an answer at all. In fact, what he said was, well, maybe they'll have to increase taxes. That's not good enough.

The Chairman: Could I just ask you if you've read the Atlantic Provinces Economic Council report on this?

Mr. Chisholm: The one that is supposed to be released this month or the one -

The Chairman: The one that has been released on the overall economic impact of the HST. Have you read that?

Mr. Chisholm: They released one before Christmas.

The Chairman: Have you read it?

Mr. Chisholm: I certainly have read it, and I attended the briefing on it and debated it for many hours.

The Chairman: Can you tell me what they said the overall benefits were to the harmonizing provinces on an annual basis?

Mr. Chisholm: They felt -

The Chairman: Could you just tell me the figure? Do you remember what it was?

Mr. Chisholm: No.

The Chairman: Oh.

Mr. Chisholm: What they said was that in balancing it out -

The Chairman: Oh, I know what they said.

Mr. Chisholm: Mr. Chairman, if I may -

The Chairman: They said on balance it was going to produce a $46 billion benefit on an annual basis.

Mr. Chisholm: Mr. Chairman, they made some assumptions there that I don't agree with and that a lot of other people didn't agree with.

The Chairman: That's fine.

Mr. Chisholm: That's the point. You can't -

The Chairman: I just asked you if you had read it.

Mr. Chisholm: You can't just go to the end point and say that's it.

The Chairman: Okay, they're wrong.

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Mr. Chisholm: I'm not saying they're wrong. I'm saying their assumptions are open to question.

The Chairman: Okay, that's fine.

Mr. Chisholm: Other economists have acknowledged that also.

The Chairman: That's fine.

If I interrupted I apologize, Mr. Solberg.

Mr. Solberg: It's okay. You've been very fair to me.

The Chairman: You've been so good all day. I apologize.

Mr. Solberg: Mr. Chairman, first I do want to say - I didn't get a chance to say this and I should - to Mr. Chisholm, I do very much regret the fact that the committee didn't go to Atlantic Canada. I do think that was the appropriate way to handle it. A lot of people, irrespective of whether or not the government would pay for their flight out here, don't want to devote a day of their time away from their families or whatever to come here. I think we didn't handle that right.

I just want to continue, though, in a more technical vein for a moment. A while ago we were talking about the Bay. We were talking about ``Bay Day''. I'm wondering if you happen to know, Mr. Bobkin, whether or not the new guidelines will permit you any flexibility, for instance, when you have Bay Day and you have to mark everything down in price, and then when Bay Day is over, again you have to go and mark everything back up in price, including with the tax-in price. In other words, you won't be able just to go and put up a sign saying ``Everything 30% off''. That's when you have a sale, I should say, because I don't know how they all work. When you have a sale, you won't be able just to go and put up a big sign saying ``30% off'', I gather. Is that right?

Mr. Bobkin: Bay Day was something separate. It's like ``Scratch and Save Day'' or when you get your Bay dollars or whatever. It has nothing to do with the marketing of the goods. That is something separate. When it's a percentage off, it's just a percentage off. It's a markdown, as someone previously had mentioned.

So we're talking about tax-in. We talking about just the total marketing of the goods, whether they have dual stickers or - The options that have been presented in the guidelines still don't help us in our marketing.

About 99% of the merchandise in a Bay store is pre-ticketed by a manufacturer, whether it's sourced domestically in Canada or foreign sourced from U.S. or Asian or European suppliers. The merchandise comes in as one price right across the country throughout all the stores.

If we have to re-price merchandise for the maritime provinces, in which we have three Bay stores and approximately 32 Zellers stores, it's a totally new operation, and that's where our costs are coming from, because we have no facilities. We don't do that.

We have repeatedly asked Finance officials to come down to see our warehouse, see our stores, see how we market goods. That is where we're coming from.

The Chairman: You sell at the same price right across Canada?

Mr. Bobkin: Yes, we do.

As a comment, I saw some officials looking at some advertising flyers before. My issue with advertising flyers is minimal. We know we would have to do a new flyer for the region, and obviously there are additional printing costs there, but they are small, only because most of the items in the flyer are national and only about 5% are regionally priced.

Mr. Solberg: I have a question, Mr. Chairman. I wonder if anyone has heard how Finance officials intend to handle things such as shopping on the Internet and the home shopping network. I'm sure there's a thick set of guidelines they will be using to -

The Chairman: We're going to use the V-chip for that.

Mr. Solberg: Yes, I thought so.

I guess the point I'm making, Mr. Chairman, is that what started out as something that would have been fairly simple if it had been applied across the country at one time has become, I would argue, a huge regulatory nightmare. If you have any intent at all of enforcing it, we may lose a lot of jobs through Woolworth, but we can hire them all back to work for the government, to run around and police every store -

The Chairman: Now you're being constructive, for the first time today.

Mr. Solberg: Truly it is a rather absurd situation when you have everyone here saying they don't want tax-in pricing at this point - everything else is fine, but tax-in pricing is ridiculous - I'm putting words in their mouths -

The Chairman: You are.

Mr. Solberg: They would perhaps even embrace it if harmonization ever happened at once across the country, but right now it makes absolutely no sense.

Mr. Kenyon: Could I go back to marking? I don't know if the members really understand the impact. If you take a store and you look at a price ticket, the confusion on the part of our consumer is very great, and I don't know if that is really getting across.

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Where we would have 45% of our space in a K Mart laid out with racks of fashion goods with a pre-priced ticket, none of that pricing is done in any of those provinces. That's all bought and priced at one price right across Canada. If you go into a store, whether it be a Wal-Mart or a Zellers, Bay, or K Mart, you're going to take that item - Now, certainly you've given us the opportunity to do dual pricing, but try to imagine, first, if I go to price it now - and I gave some statistics there on millions of units we would have to go back to pricing -

All of us have worked very hard with technology to take the costs out in Canada. Certainly with American competitors coming over the border we've all had to work harder at taking costs out of the system. Just about every company here has invested a high degree of money to be able to do this with bar codes.

If I decide to put a ticket on that now, and now I have to put it in an ad, I'm going to get four tickets. Imagine what I'm going to do when I have to put on a clearance ticket and mark down at the end of the season. I'm going to have tickets all over.

If you put a ticket -

The Chairman: I guess you're asking the wrong guy, because I've never bought anything that doesn't have about four tickets on it. That's my breaking point as a consumer.

Anyway, I understand your problem.

Mr. Kenyon: As a customer, certainly if I go to the register and this whole thing - You're talking about what the customer wants. The customer goes to the register in this line-up and it's $10.93. That's what they're going to expect to pay. They're not going to remember that if we didn't put the sticker on and we have some signage - I hope some wizard can come up with signage to put this on all our racks, because we can't. If I go to the register as a consumer, I'm still going to expect to pay $10.93. I'm not going to remember that sign back there saying $11.99 or something. You're really confusing the customer.

It's not only the 45% that's fashion. Hard lines, seasonal merchandise - Not everything has an easy shelf-edge label. Canadian Tire has a lot of products that are very hard to display. You have situations where we've worked to get the price embedded into the packaging. What do you want me to do there?

If I take this to the register, $5.99, and when I'm standing there the gal rings up $6.50, I'm back where I started. If customers have a shopping cart with 21 items in their basket, they're not going to remember what that POP price was on the sign - never mind when you get into the Carlton Cards, music, CDs, tapes, fishing gear, and all of that, which is all pre-priced. In a variety store such as some of us have, it is just going to be a nightmare. It certainly is not customer friendly.

We're all trying to address, both government and retailers, what's right for the customer. I don't think our customers really understand what's going to hit them when you allow us -

Let's say K - Mart decides we can't afford a market, or my friend Wal-Mart decides he's not going to market and we do market. What's the price perception between the two?

I'm even concerned you're going to give leeway, which you probably should, to the catalogue. But now our K Mart flyer, if we assume I have to put the regular prices in the flyer - that hits the same morning as my friend Jack's catalogue hits. Where is the price comparison?

Mr. Connell: I can't put that in the harmonized one.

Mr. Kenyon: Not yet. He said he was going to do that for you.

If you allow the catalogue, that's fine, but now you're giving some of us a price disadvantage, as retailers, compared with the catalogue.

Mr. Bobkin: Jack's catalogue there may qualify as a national catalogue. Our Christmas flyer - what we consider flyers, and that's all we produce - is 98 pages long, with thousands and thousands of pieces of merchandise in it. So I would be asking why you are penalizing us for something that lasts two or three weeks, because they have come up with some arbitrary seven points in here, that it has to be bound and it has to be this and it has to be that. That doesn't seem to be fair. There's where you get the mishmash.

The Chairman: I think we agreed with you about the binding and the staples and all that.

Mr. Bobkin: I'm saying my flyer will look exactly like his catalogue, but because I call it a flyer it won't meet his definition of a catalogue.

The Chairman: It should, we agree.

I think that can be fixed, don't you?

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Mr. Rudderham: Interestingly enough, the package as a whole is very, very seriously flawed. From the point of view of what customers see, from the point of view of what you present, this is a seriously flawed package.

An illustration as to how seriously flawed this is is that Sears, the largest catalogue retailer in the country, can't meet their criteria, but interestingly enough, because we're an EDLP retailer - I felt the need to get the plug in, since he got his Bay Days in -

The Chairman: What is EDLP?

Mr. Rudderham: Everyday low price. Our prices are low and stay low.

The Chairman: Oh, I apologize. How stupid of me.

Mr. Rudderham: At any rate, our marketing people tell us that they can meet their criteria with our tabs, with our circulars. Our circulars, which everybody is saying are flyers to promote sales, can meet the requirement as tabs, but yet the largest retailer through a catalogue can't. I think that's a pretty serious indictment of the package as a whole.

Mr. Bobkin: I think what has happened is that obviously if the government intended for it to be tax-in - I think there was some opposition and I understand, especially in the Atlantic provinces, that you are trying to help small business by making it more flexible. What you've ultimately done by making it more flexible is cause all of the confusion in the marketplace.

The problem is this. Whether it's a dual system or not, the fact of the matter is that the small guys have cash registers or point-of-sale registers that cannot handle a tax-in computation. By allowing them to have tax-out, then you have tax-in and tax-out in the store and then at the register it's all tax-out. That's where the confusion is going to be; the customer won't know. So obviously the example for the greeting cards, not to re-price every one of the greeting cards, is going to be - You have a big sign up, and it'll say what the tax-in price is, but when you go to the register it's tax-out.

The Chairman: Thanks, Mr. Solberg, for opening up that important issue for us.

Yes, Mr. Kenyon.

Mr. Kenyon: I have one more comment on that. Maybe it's not quite parallel, but if you go back a number of years ago when the Woolco department stores - in 1991 when we implemented the GST - made the decision to go with a harmonized tax program of their own, they built the tax into the price. I'm not sure you're aware of that situation, but that probably was one of the things that put the Woolco company at a tremendous disadvantage. It actually cost them millions and millions of dollars to go around and offset that, because the customer - you have to believe me on this - does look at price comparison and doesn't compare what's in or what's not in.

The Chairman: If I were a retailer I'd be crazy to be the only tax-in advertiser. I agree with you.

Ms Whelan.

Ms Whelan (Essex - Windsor): Thank you, Mr. Peterson.

I have to tell you that in any other circumstance I think this would be like my dream, because I'm a shopper. I shop at every store. I shop regular price, sale price, flyer price, catalogues - I'm a shopper. I can tell you that up front. When it comes to shopping, I comparison shop. I know the end price, and I know what tax I'm going to pay. I'm a shopper.

I want to say something. There's been a lot of talk about how you have to have dual systems and dual things. I notice that Mr. Goddard specifically left out the line on page 4: ``All our flyers and advertising will require dual information for harmonized and non-harmonized regions''. Obviously, because I was flipping through the Canadian Tire flyers, I should point out that in Calgary and the Atlantic and in Quebec we have two different things about guns. One has a different disclaimer in French, in Calgary they have a disclaimer, and then when we get to Ottawa we don't even have a gun any more. There are different things taking place already -

The Chairman: Thank God, we're safe for one more day.

Ms Whelan: There are different prices as well in ``the lowest price is the law'' catalogue or flyer that I have here.

We recognize there are problems with the national catalogues. I recognize the things you've drawn to our attention. I've thought that some of the things were covered off. But when it comes to regional marketing and when it comes to regional flyers, you already do that now.

Mr. Bobkin: - [Inaudible - Editor] - irrelevant.

Ms Whelan: Just so you're aware. The presentation before us by the Retail Council of Canada said it was very difficult to do things regionally, that prices -

Mr. Goddard: Yes. The flyers are problems and catalogues can be problems for other retailers. In our particular case, you're absolutely right, it's not a problem.

Ms Whelan: Your brief does say it's a problem.

Mr. Goddard: No. The brief says - And I didn't leave that out, by the way. I was trying to summarize what I had as content; the rest was there for you to read.

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Ms Whelan: Okay. But what I'm trying to say is that you already do advertise regionally. You already do price regionally.

Mr. Goddard: Correct, and it's irrelevant to the costs I gave you. The costs I'm talking about aren't involved in what you're describing.

Ms Whelan: Okay. Let me finish my point.

Mr. Goddard: Right, fine.

Ms Whelan: Everyone sitting around the table at some point does something very similar, with maybe the exception of Wal-Mart and the Bay and Sears, but Canadian Tire has admitted they do it. I have the evidence that they do it. I'm sure there are others that do the same thing when it comes to moving price.

Mr. Goddard: It's not our problem.

Ms Whelan: The Bay has two systems now.

Mr. Bobkin: No, we have one system now.

Ms Whelan: Let me explain. In Ontario you pay PST on the original total. In the Atlantic you pay PST on the combined total with GST. You obviously have two computer systems or something different in your computer system working now or you're not following the law as it is written now. So -

Mr. Bobkin: - [Inaudible - Editor] - program at point of sale so that the tax is done. It is one price file for every price. In B.C. you go and buy, for example, let's call it - no, we don't have guns in our store, but let's say widgets for argument's sake. That widget will be a SKU number right across the country. In B.C. it will be charged the 7% GST and the social services tax also at 7%. On a $100 item, that's $114. The two taxes are separate and identified according to government law.

When you go to Nova Scotia, the $100 is still rung in. It's the same $100. There is $7 in GST. It's the 7% GST we have in our category point-of-sale hierarchy. The 7% gets added, and then it's subtotalled because the provincial sales tax is 11% on the subtotal amount.

So it's not two systems; it's one system. It's a point of sale on a calculation. That's why I'm not concerned about taking 10% off. When we have ``Scratch and Save'', it's 10% off the base amount. It's the same thing as a markdown. You'll go in and you'll buy -

Ms Whelan: So there will be no cost to change your system for this.

Mr. Bobkin: No, point-of-sale systems, not that. I'm talking about a markdown. Whether it's 10% or a ``we pay the GST'' or we give you an equivalent to the GST, because by law we cannot pay someone else's sales tax, that's the way it works and that's the way it's said.

That is not the issue. The issue is the pricing of the merchandise. From our order taking, which is when you decide as a buyer that you want to buy Donna Karan style 150 blouses or suits or whatever, when you go to whoever to get it, all the way throughout the system, right to the end when it's sold, and if you were the commission salesperson and you get a commission on the sale, that is all the one price. It's the retail price file on a tax-out basis. If you tell me to do it on a tax-in basis in those provinces, I have to build a new file and redo every system that has been built up over the 327 years that this company's been in existence.

Ms Whelan: Okay, but I just want to ask a question. With regard to certain items, for example - and I'll give you a specific example: Disney items that will be sold in your store. For example, we use children's pyjamas. It may be a bad example, but we use it anyway.

Mr. Bobkin: No, that's okay.

Ms Whelan: Or clothing that has a Disney logo on it. You get it with some type of SKU number that comes already pre-priced from some company.

Mr. Bobkin: Right.

Ms Whelan: I'm assuming that France gets it the same way, already pre-priced with their tax included.

Mr. Bobkin: No, they have a VAT system. They're all on the same price. I'm not arguing that if we had a national sales tax -

Ms Whelan: They would order it from the same supplier.

Mr. Bobkin: Wait. If we had a national sales tax -

Ms Whelan: They order it from the same supplier as you order it from.

Mr. Bobkin: But I dictate the price at which I'm going to sell it in my store, and they will do a separate run -

Ms Whelan: So can you not dictate what the price is going to be for your order for the Atlantic? I'm asking a question.

Mr. Bobkin: Yes. But I'm telling you that I then have to manage two sets of inventory. Right now everything comes - This suit here comes for $465 retail right across the country. We'll order, I don't know, 10,000 green suits for right across the country. We'll figure out where we think they're going to go based on what we project our sales to be, and they'll go right across the country, from B.C. all the way to New Brunswick.

Ms Whelan: Do they come to a central point where you distribute or are they distributed by the original person you bought from?

Mr. Bobkin: No. They will be pre-boxed depending on what quantities we think will go to the individual stores. They will come into the distribution centre, and from the distribution centre somebody's going to check and confirm that the price tag is right, the colour is right, the price we paid for it is right, and a bunch of other things. Then they get onto a conveyer belt system, move through the system with a bunch of bats that knock the boxes downline, and they go into the trucks and out to the stores. When they get to the stores, the people in those particular departments take the merchandise and put it on the racks.

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Ms Whelan: So it's boxed at the place where the price is put on?

Mr. Bobkin: That's correct, at the manufacturing place.

What you're asking me to do, if I have to go to a tax-in system, is to get either that guy somewhere maybe in Taiwan or Seoul, Korea, to redo double orders. So my computer system now doesn't have a skew for a green suit, it has to have two skews. I'm doubling up on all my orders for all my products, because now I have to have a green suit for the Atlantic and a green suit for the rest of the country. Or instead of trying to get my suppliers to do the dual tagging or double pricing, I can turn around and do it in my place. Well, we don't have that space any more. We've changed ours around.

If you come into my -

Ms Whelan: I'm just asking, though, whether you have inquired about the costs that would be incurred.

Mr. Bobkin: We know exactly, to the penny, what it costs to re-ticket an item -

Ms Whelan: Not for you to re-ticket; for them to re-ticket when you order it.

Mr. Bobkin: We are going to them now and asking about that. All I'm going to say is it took a long time, years and years, to get them to do the ticketing in their place, because we assumed it would be more efficient. That is an ongoing discussion.

Whether we do it or they do it, there's going to be a cost. For the smallest items - We can't get film pre-priced. Why? Because it sits in a freezer for a while until it gets to our store. For items like that, or other items, the tickets are seeded. We will send the little tickets to T-Fal, which is -

Ms Whelan: So you're still in the process of negotiating with these places.

Mr. Bobkin: But it's going to cost. There's a cost involved, because either they do it or we do it.

Ms Whelan: But there's a total saving.

Mr. Bobkin: No. Where's the saving?

Ms Whelan: For businesses in the Atlantic, with the business tax credit, the total saving is$700 million.

Mr. Bobkin: I've given the Retail Council - The three major areas of savings on input tax credits are capital expenditures: furniture fixtures, computers, telephone equipment in the particular province. We have three Bay stores in Nova Scotia, Mr. Hynes's province. One of those three Bay stores underwent a $4 million renovation two or three years ago. It's done. There are no ongoing savings, with the exception of some new hooks - maybe a point of sale will update our registers, etc., and there could be some savings there - because we are currently self-assessing the tax.

Mr. Goddard: To put it into numbers from Canadian Tire's point of view, in the 49 Canadian Tire stores in the maritime provinces we estimate total annual savings from input tax credits of $200,000.

Ms Whelan: For you?

Mr. Goddard: The total savings are $200,000 from 49 stores. Those are the total savings we would enjoy from input tax credits - $200,000 on $400 million worth of sales.

Mr. Rudderham: I would like to suggest - and I've sat through the other sessions - this is the second time this issue has come up today, and it's the second time it has been trotted out that there is $700 million in savings to business in the Atlantic region. I don't think anybody is questioning that, but what we're questioning and what I ask you is why do you ask the retail trade to bear the cost when you're giving somebody else the savings? That $700 million isn't coming back to us. That$700 million is going somewhere else. Our $100 million is what's on the table.

Mr. Bobkin: That is where the issue lies. That is why retailers are here, telling you and asking you, literally begging you, to come to see our operations. If you really want to see it, come and see it. We're the ones with the net cost of being the losers in this scenario, not the manufacturers here, not someone who is importing and just quickly reselling or something. The retailers -

Ms Whelan: I understand what you're saying. I understand you are in the process of talking to places that -

Mr. Bobkin: But it's going to cost, because either they do it or we do it, and we know what the cost is.

Ms Whelan: I do realize there are input tax savings, though, the $700 million that should be passed on somehow to consumers in the Atlantic provinces. I also realize that tax-in pricing is what people want to see, in my opinion, and people want to know the price they have to pay.

Mr. Bobkin: I have a real-life example. I got a letter from a gentleman here in Ottawa who went into a Zellers store and bought cookies. The Zellers system point of sale works slightly differently, but he went in and bought some cookies and he was charged provincial retail sales tax. He went back several weeks later and he still got charged the retail sales tax.

When it came to my attention I had to go into our computer system. It was a glitch in that one particular store. Therefore it has been corrected and I haven't had any problems with it.

The point of the matter is that people have complained when you don't have the goods, when you have rain checks, when the merchandise in the stores look like catastrophes. There are a lot of other reasons, but we are not inundated with queries by customers because the tax isn't buried. They'll complain about it, but they're not saying it should be buried. They're your taxpayers and your constituents. They're also our customers, and without them we die. We think we know - or hopefully they're telling us what they want.

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Ms Whelan: I'm not disputing that you know your customers. I'm saying that as a consumer I know what I want, and I want tax-included pricing across the board. I can tell you which stores in my riding -

Mr. Bobkin: Do you want to pay higher prices?

Ms Whelan: Let me finish, please. I can tell you which stores in my riding already have tax-included pricing, and I shop there. I know which stores do it and they're not dying; they haven't closed. They are surviving and thriving. So there are stores doing it right now for the benefit of their consumers - their choice. You have your choice right now in Ontario. There are surveys that have been done that have shown this is what consumers want.

I realize you're facing some difficulties, and I realize there are some things that have to be worked out, but I think that overall the end person you're trying to satisfy is the consumer. The whole reason you're in business is for the consumer. You want to satisfy them so you can make money.

If you look at the surveys that have been done that show consistently that 74% to 82% in the Atlantic provinces want tax-included pricing - if you're going to make money you're going to want to satisfy these people and cater to them, across the country I'm assuming eventually. Those are the numbers before us and those are the facts before us.

I'm not saying it's a perfect science. I'm not saying that everything before us is perfect. I think Mr. Campbell has mentioned time and time again things that still need to be worked on and negotiated.

I think Mr. Connell raised it very well. There are some difficulties with the guidelines with catalogues, because we all want to see those in front of us. In the end we're talking about the benefits to the consumer, we're talking about who we're trying to satisfy, and we're talking about who you're trying to serve - who we're all trying to serve.

Mr. Bobkin: I'd just like to make one comment. The Retail Council has estimated that the net cost is $85 million, $90 million - somewhere in that vicinity - for the retailers in the Atlantic provinces to implement tax-included pricing. But there are obviously all these other benefits. All I'm saying is that the retailers - and you've had many of them here, such as Carlton Cards, MMG, some others - are telling you that they have marginal operations and they're prepared to close them. So ultimately you may have more manufacturers manufacturing more product. That may cause more jobs - I can't argue with that - but you're also going to have lots of retailers pulling out of the marketplace, giving less selection to customers because they're the losers in this scenario.

If it was strictly a 15% HST, not this tax in, then we wouldn't be at this table discussing any of these issues with you. There is no question that if you want to open up shop in Nova Scotia, you'd be better off than opening up in Ontario. There's no question about that. But if you're asking us to do tax in, in those three particular provinces, retailers are the ones who are hurting and paying for that decision.

The Chairman: Mr. Hynes, you've been so patient.

I'll try to get back to everybody else, and I know we have other members who want to ask questions, too.

Mr. Glenn Hynes (Member, National Association of Tobacco and Confectionery Distributors): I'd like to switch gears a little bit. The issue we're here to talk about today could generate three-quarters of a billion dollars for the Government of Canada and hundreds of millions of dollars for provincial governments in this country, and I think that's a relevant issue.

I would like to make one quick comment about the discussion on national catalogues. I think it's almost irrelevant to be having the discussion today, because the parameters for national catalogues were defined at a time when advertising materials were assumed, i.e. flyers, to be on a tax-in basis, and this exception was being looked at for national catalogues. There has been no release yet on advertising materials, as of the Friday release of last week, so I think there may be a better discussion on another day. I think the problems about tax-inclusive pricing, though, have been well aired.

I want to spend a couple of minutes talking about the issue of retail tobacco taxation. I want to quickly tell you about the Nova Scotia experience and why we think there are upwards of three-quarters of a billion dollars of revenue to be made very simply by the Government of Canada.

As was mentioned in our brief by David Crouch, there is both PST and GST applied today to the retail sale of tobacco products in most provinces in Canada. That means when the retailer sells the product to the end consumer he's collecting in Atlantic Canada 18.77% to 19.84% tax, which he is then entrusted to send off to the provincial and federal governments. There have been some various illegal schemes in place wherein that tax is going into the pockets of retailers and not going to the Government of Canada and provincial governments.

On November 5, 1995, the NATCD and ourselves, the Province of Nova Scotia - I've since changed hats and gone to the private sector - decided to try to mitigate this issue. What we did was we eliminated the PST. So in Nova Scotia today there is only a 7% tax at retail on tobacco products. But to be revenue neutral, and price neutral to the government, we took that amount of tax and we have our wholesalers collect it, because in Nova Scotia, for example, there are 30 wholesalers and there are 2,600 tobacco retailers. So we have legitimized and improved the compliance and we've done a lot of positive things. The problem for Nova Scotia is on April 1 there will be a 15% tax on tobacco products in Nova Scotia. So the problem we've solved is back.

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To put it in perspective, you'll recall all the challenges of the other type of illegal activity in tobacco, which is illegal smuggling. It started to dry up when this government and the provinces took leadership to reduce the taxes, because then smuggling became less attractive. This activity is quite a lot less risky, because the product being sold is the provincially marked product you see in the stores. It's a legal product, not an illegal product.

Our suggestion to the Government of Canada is to zero-rate tobacco products for purposes of GST and the harmonized sales tax. What that means is there would be no 7% tax at retail. You would collect your revenue by increasing your federal excise taxes, which means the three principal manufacturers in this country would be sending you your tax, not hundreds of thousands of retailers, where there is less compliance.

Retailers love it in Nova Scotia. I got hugged in a convenience store. Usually tax commissioners don't get hugged. It was quite a positive experience. This was even though there were a couple of visible negatives to retailers. The cost of the product at the wholesaler actually went up, because the wholesaler was collecting more tax, but the retailer was quite happy not to have to deal with the administration of that tax.

Based on the $32 billion, in Nova Scotia alone, with one year of history behind us, our provincial sales tax revenues have increased 1.4% because of this initiative alone. I have the numbers to prove it. Add that to the $32 billion of GST revenue and it's about $500 million of additional GST revenue. The other leakage you have is if the people are putting the tax in their pocket they're likely not reporting it on their tax returns to the federal and provincial governments.

We're here today to say to the federal government this is an ideal time to consider the zero-rating of tobacco products. The harmonized provinces, Nova Scotia, New Brunswick, and Newfoundland, support this, because if it happens for the GST it has to happen for both, because we're on a common base. For non-harmonizing provinces it's very simple as well, because all you have to do if you're a non-harmonizing province today is just what Nova Scotia did in 1995, take the PST amount and put it back at the wholesale level.

We think it makes sense. It's been a great positive issue for Nova Scotia. David talked about the cost in Ontario, and it was huge.

The last point I'll make is this. Part of the problem was that when the cheating occurred, this 19% or 20% profit margin that was there for these illegitimate retailers, they were dropping their prices 5% or 10% to drive up their volume. That meant legitimate retailers had to match on price. It really caused the instability in the marketplace that David referred to. Probably the reason why I got hugged was that legitimate retailers could increase their prices and improve their profit margins and that was positive.

Also, with all the legislation in place today about mitigating the sale of tobacco products to minors, I'll be far more confident having legitimate retailers enforcing those rules than some of these fly-by-night operations that are breaking the rules.

I appeal to the federal government to look at this issue seriously.

The Chairman: I have consulted with Finance officials since I've heard your proposal, and to me this merits a lot of further study, but it looks as if it has tremendous potential. Although it would not be part of this package going out of here tonight, this is one where I hope we can keep in touch with you, because it looks as if it's very promising.

Mr. Crouch: There's just one point we might add to that, Mr. Chairman, if we could. Tax avoidance is going on particularly in Ontario right now, but there's smuggling of our product to high-tax-base provinces such as Newfoundland and British Columbia, so the provincial revenues are not being treated fairly. I'm not a tax expert, but I believe the federal government is also losing revenues here because of a differential from province to province in the excise taxes charged at the federal level.

So it's a complicated problem. I think the point Glenn is trying to make, though, is on April 1 it's do or die in Nova Scotia and what they did back in 1995 is all going to fall down. The thing is going to disappear unless something is done now. We've made some progress, stopped some illegal activity, and produced more revenues really for both the federal and the provincial governments, although the federal government wasn't party to the Nova Scotia deal, but there was additional GST collected as well. I think the committee has to look at it very seriously as far as the Atlantic provinces are concerned.

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Mr. Hynes: Mr. Chairman, the day after Nova Scotia announced this on December 5, 1995, the Province of Ontario called, quite inquisitive about what we had done, interested in it. Obviously, they haven't had a chance to do it yet. There is interest in this.

There are some numbers. In Nova Scotia, prior to this change, we collected about $60 million in wholesale taxes. Overnight that went to $90 million because we increased the wholesale rates in order to eliminate the PST. So we gained $30 million at the wholesale level. Theoretically, if the system was legitimate and honest, you would expect to lose $30 million on the PST side. We lost only about $17 million. So we gained $13 million on a fairly small item. But if you add the GST and the PST together, it results in a revenue increase for the province of about 1.4%.

I know the experience will be the same. As the federal government, you are now losing probably the comparable amount in our province; you are probably losing hundreds of millions of dollars currently. We think with this change we can stabilize the environment as well as take on the underground economy, because this is underground economy activity.

The Chairman: Thank you very much.

Ms Whelan.

Ms Whelan: I'll keep it very brief. My question is basically to the retailers, to Mr. Rudderham, Mr. Bobkin, Mr. Goddard, Mr. Connell and Mr. Kenyon.

With regard to a $100 item, in your store right now in Newfoundland it costs $119.84; inNew Brunswick and Nova Scotia it is $118.77. It will cost $115 once the harmonized sales tax comes in.

Mr. Rudderham: Not if it's apparel. If it's apparel it's already tax exempt and they're only paying -

Ms Whelan: I'm talking about a general item that costs $100 and is subject to both taxes right now.

Mr. Rudderham: Okay.

Ms Whelan: We're talking about those items where those costs are coming down. That has to mean that there are some benefits to retailers, that costs are coming down on large-ticket items. On any item over $100 the costs are coming down. Taxes are coming down. The savings are there: $4.84 or $3.77 on every $100. There have to be some savings that will increase sales for retailers.

Mr. Kenyon: I didn't really want to mention it in my presentation because we don't feel that at K Mart we have the right to set what is taxable and non-taxable.

As a consumer, if you went into a K Mart store and picked up various items, whether a smoke detector, diapers, a girl's fleece outfit - I can give you a copy of this. We did a shopping basket comparison, and with all the additional classifications that would be added on the tax, a customer buying this particular shopping basket in this example, on a number of everyday items, went from paying a tax of $29 to a tax of $62.

When you add children's, men's, ladies' - and you make it all taxable when it wasn't before, it goes up pretty significantly, pretty fast.

Our concern, from a retail point of view, is that once you do that, at the same time they're going to be thinking that's our price, that we marked all of that up. They're going to be thinking, gee, I could buy this before - All of a sudden I can buy this at $9.99. It wasn't taxable before. It's $9.99 now. But I come in and K Mart has it at $11.50. Boy, they took advantage of it.

Ms Whelan: You raise a very interesting point. When the GST was introduced this was raised by a local retailer in my riding. He told me his sales were going to be affected because of the additional 7%. In fact, he has to look me in the eye and admit that his sales have not been affected by the additional 7% on clothing and that his sales have increased year after year.

I understand what you're saying here -

Mr. Kenyon: You're talking about one example of a -

Ms Whelan: No. I'm just saying that I hear your concerns.

Mr. Kenyon: You asked a question from a consumer, from a customer -

Ms Whelan: My question was very specific. It was about a $100 item that was subject to both taxes before. That item is coming down in price. My question didn't deal with clothes that were not taxable. Those were provincial exemptions.

Mr. Kenyon: Let me just give an example. A child's car safety seat: $119. I want to use your $119. The GST is $8.40; the PST is zero. The total tax paid is $8.40. The price, including tax of $1.28 HST, is now $137.99. Now the tax paid is $18 compared to $8.40. So the day we mark -

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Ms Whelan: That's not my example, Mr. Kenyon. My example was very specific: a $100 item subject to both taxes before -

Mr. Kenyon: I just live in the real world, at the counter with the customer. The day we implement this, that child's car safety seat, which the consumer can buy right now for $119, plus another $8 when they get to the register - They come in today, they're looking at it, and they say ``I might buy that''. That's one day before April 1. ``If I buy that today, it's $119 plus 7% for GST.'' We do our price changes on April 1. She goes to the register and pays $137.99. Boy, did K Mart fix her.

I'm just looking at it from the customer's point of view. She's now paying $18, but she's not going to be worried about you; she's going to be worried about us. You're talking about a child's safety seat.

The Chairman: Nothing you sell goes down?

Mr. Bobkin: You have to look at it from the perspective of -

The Chairman: Just a second. He's looking at it from the perspective of clothes and a child's safety seat. There are some items -

Mr. Bobkin: That will go down -

The Chairman: I'll bet you a hammer goes down at Sears.

Mr. Rudderham: I think it's a little bit invalid to look at it item by item. When you look at it overall -

The Chairman: Some people are doing taxes, some people are doing items.

Mr. Rudderham: But if the tax as a whole is supposed to be revenue neutral, what they're saving on one item they're paying on another. They're going to pay out on another item. You can't look at it item by item.

I would suggest that if we were to be completely up front and honest about it, if there's any net saving to the people of Nova Scotia it's because of the billion-dollar subsidy the federal government is giving. That billion dollars isn't being collected in Nova Scotia as taxes; that's being collected in the rest of the country. The rest of the country is not aware they they're paying a billion-dollar subsidy to the taxes in Nova Scotia.

Mr. Chisholm: The Government of Nova Scotia's own figures have said $84 million extra is going to be paid by consumers.

The Chairman: Could I move on.

Mrs. Brushett.

Mrs. Brushett (Cumberland - Colchester): Mr. Chairman, I'll be very brief, since most of them sat through the previous session.

I welcome them and their comments. The advantages according to APEC and the manufacturers in Nova Scotia - and the exports we do should generate those jobs. That's the great hope.

My recommendation to retailers around this table this afternoon is to set up a distribution point in Nova Scotia. We have lots of space in my riding. We welcome you. You can have your products shipped in and priced for Atlantic distribution. We're the hub of the Atlantic region. This is the welcome point. Then you would take advantage of the input tax credit and you could pass that saving on to consumers. Anytime you're interested, we welcome you. That's the message we've heard from across the country, that it will be a very attractive place to relocate to.

Thank you, Mr. Chairman.

The Chairman: Thanks, Mrs. Brushett.

Mr. Kenyon: We would certainly like to do that, Mr. Chairman, but we're under the obligation to give the customers the lowest price. By doing that it would certainly increase our costs and we wouldn't be able to satisfy the customers we're trying to satisfy. Thank you very much for the offer.

The Chairman: Mr. Fewchuk.

Mr. Fewchuk (Selkirk - Red River): First, which one of your companies has met with all provincial ministers and complained about the tax? Did you have a problem collecting it? When did you last do that? Was it in the last two weeks or in the last month? How long ago?

I know where you are coming from with the customer. I see your concern. I used to be one of those who said, that damn government; I have to take the flak because my price looks higher. I hear exactly that from all of you.

There's no difference in the sales tax, just the ticket. It feels as though it's going to be an increase to your company. It actually isn't. It's the same sales tax, the same everything. It's just that the tag is going to be different.

There's no use trying to use one against the other, the government against your stores. That is exactly what's happening here. There's no big cost to your cash register. The last time we got money from the government, which we shouldn't have because we're in retail - We got money for the cash register, which we didn't need. Now you're back crying about the cash register again. It has nothing to do with the cash register. It's so simple. Technology has come a long way since the GST came in. So let's own up to something here today. It's very simple. We're blaming one another for nothing.

Thank you.

The Chairman: Would anybody like to respond to that? Mr. Kenyon.

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Mr. Kenyon: As retailers, we all agree on tax harmonization, and I want you to get that clear. We're not trying to fight the government. Our frustration, in honesty, is that we don't have - at least we don't, and and it sounds as if a lot of other retailers - As a group we haven't been able to figure out how to do this without taking a lot of cost out. If you can tell me how we can get the pricing on this correctly, fine. But you haven't offered that in a satisfactory way. We're going to have a lot of additional costs. Tax harmonization -

Mr. Fewchuk: The manufacturer bills you the 7%, or whatever it is in the province, wherever it's going to be, and you turn around when it comes and you get the credit on the end-of-the-year statement - the goods you purchased plus the products you sold. They collected the money from the customer as against the purchase from your manufacturer. So don't come crying here.

Mr. Kenyon: We're not arguing against tax harmonization.

Mr. Fewchuk: It's just the way you guys are going about it. It's so simple. Nothing has changed. You go to the manufacturer, you buy your goods and you pay the tax on the invoice. You turn around when you sell it and you get the credit. So when your sales are higher than your purchases - You end up filling out the statement for the government. You turn around and use the money you had for 15 days.

The Chairman: Thank you, Mr. Fewchuk.

Mr. Pillitteri.

Mr. Pillitteri (Niagara Falls): I'm sorry I have not been here in the past few days. It's really wonderful to be back here in this committee. It seems to me that I didn't leave too long ago and I'm coming back to the same thing.

Ladies and gentlemen, it's so refreshing to think that you are in a marketplace in Canada where you have no competition. It's your own country; it's your own marketplace.

I'm a producer and this is my country. I'm in a marketplace where I have competition from overseas and from all parts of the world. Yet I'm able to survive in Canada, in the province of Ontario, and I'm competing against all of the subsidies, all of the export enhancement programs.

By the way, I produce wines.

We're talking about harmonization here, where there are two taxes. I have to deal with seven taxes in my business. We start with the federal government, with the excise tax and the GST. There is the provincial sales tax, which is not the same as the tobacco industry. It's much more than 7%; we're at 12%. Then we have environmental levies and mark-ups and so on. There are so many things and yet we're able to survive.

I represent not even one-tenth of 1% of the industry in Ontario, but I have a specific market in Alberta, one price; I have a specific market in British Columbia, another price; I have a specific market in Taiwan, another price. There are stickers and bars for every individual province.

You're telling me that you're not doing anything.

I heard Mr. Bobkin say you have so many boxes from Taiwan, and God help us if you ever get the thing you order. It's not as simple as you put it. I have not received anything that I've ordered that came in those boxes in a specific colour with specific prices.

You make it so complicated. If you were in my business, I wonder if you could survive. You have only two simple taxes with harmonization. Mine is so complicated, with the excise tax, that if I pour a taste for a customer, it is part of a promotion. But if I take a bottle home, I have to pay excise tax. I'll tell you which way I cheat. Anything I take home I show as a tasting.

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The real issue here is not how complicated the tax is. The real issue you are bringing forward is the consumer, and you're trying to blame it on the taxes because the consumer is going to be taken. Regardless of which part of the country you live in, the consumer understands that he is paying the taxes.

Now, if a tax is included in one province and is not included in another province, that's purely political from that province's point of view. It's not the federal government that is bringing on that tax, just because it's province to province. Just because you said car seats could be taxed in the province of Ontario under GST, or whatever province, that doesn't mean they wouldn't be taxed in the province of Saskatchewan, because Saskatchewan might not want to tax that product.

Gentlemen, this is political here. You have to talk about what is the cost factor on the harmonization. What we do with the tax is one thing if the consumer tomorrow is paying less or paying more. What you should be talking about is the harmonization and what is the cost to you. And I don't see really that much of a cost to you.

Do you know what the real problem is, though, with the cost? It is that when we total up at the end, if that's at 15%, it leaves us very little room as a business sometimes to manoeuvre. That's the real problem. This is why: you're trying to cover the whole point of view. But the real issue is you're trying to have more leeway in that tax system in how you best could benefit.

Mr. Chairman, I don't think you really take the point of the consumer. If we really work together I think the consumer will benefit immensely. I know that I will benefit with a harmonized tax just by the two, because on some products I will be reimbursed and possibly pass on the lower cost to the consumer.

As it stands today, as a businessman I pass all the taxes on to the consumer. It's the cost of doing business. But what you're looking for here, it seems to me, is more of a flexible comprehension and flexibility in how you would benefit from the tax system.

As far as taxing, the consumer knows he's the ultimate who pays all taxes. And remember we used to say at one time when we only had a provincial sales tax that it was Bill Davis's tax. You're going to pass it on. You're going to say it's not our tax, it's the government's; it's not the costs that went up, it's the government tax. That's what I'll do.

So unless you have any problem with the harmonization - When you made presentations to the government you should have said yes, we want the harmonization, but we don't want price-inclusive.

Mr. Rudderham: That's exactly what we're here saying, sir.

Mr. Pillitteri: This was not the case. This was not the case when we were doing GST, going back to 1995, 1994. This was not the case. The case was ``we want the harmonization''.

Mr. Rudderham: If you bring this in across the country with one single tax base and one single rate, we will be more than happy to accept it and work with you. Absolutely. We've said that right from the word go.

Mr. Pillitteri: It was never, from day one, when we had each province with a different PST. Everybody started in the harmonization. And to think that we were going to tell the federal government or the Province of New Brunswick or the Province of Newfoundland to lower their taxes - we haven't got the authority for that. Harmonization meant that two of them could be combined. We didn't have the authority to say to those provinces that we would lower the taxes in one equal tax.

That's all I have to say. Anybody who wants to respond to it may. Thank you.

The Chairman: Thanks very much, Mr. Pillitteri.

I have comments from Ms Brushett and then Mr. Campbell.

Mrs. Brushett: Thank you, Mr. Chairman. I'll be very brief.

Over Christmas I spent some time with my children in Oregon and in Washington State. I'm wondering how you deal with the American situation. In Oregon, if the price said $1.99, that's what you paid, $1.99, with nothing added on, whereas in the state of Washington there was tax added on at the end of the purchase. So when you buy from Wal-Mart, the large chains, how do you deal with it in the United States from state to state as it varies?

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Mr. Rudderham: It's actually a very simple process. To go back to Steve's point, it's a point-of-sale system that's built into the cash register system. Each item that's on your file carries flags, depending on which province you're operating in. There's a table sitting off to the side with a different rate for each province, and as it goes through the register the tax is calculated and put on.

That's fundamentally different from what you ticket your goods at. We seem to have focused in on imports for some reason, but we buy a major portion of our goods in Montreal. A major portion of the Canadian fashion industry is in Montreal. We buy our goods as much as nine months in advance. We actually take delivery of it before we decide where it's going to be distributed. That's a little different from charging a variable percentage at a cash register.

Mrs. Brushett: Thank you.

The Chairman: Thank you, Mrs. Brushett. Lastly, Mr. Campbell.

Mr. Campbell: Thank you. I have a couple of quick questions and then some response on behalf of the government.

Just to pick up on Mrs. Brushett's point on national ticketing, your equivalent in the States would have the manufacturer do one ticket for the entire United States and there would not be any regional ticketing.

Mr. Rudderham: I believe that's true.

Mr. Campbell: Is it true?

Mr. Rudderham: Yes.

Mr. Campbell: Do others have experience? We have Sears here, and others who do national ticketing.

Mr. Connell: I'm not sure what Sears Roebuck does. In Canada we stress national ticketing.

Mr. Campbell: I know you do that in Canada, but I'm interested in the example.

Mr. Rudderham: Anything that's pre-marked has a national ticket.

Mr. Campbell: The United States has many different taxes, depending on what state you're in.

Mr. Rudderham: But they're charged at the retail level. They're charged at the cash register. It doesn't -

Mr. Campbell: And that makes perfect sense.

Mr. Rudderham: And none of them are tax-included, by the way.

Mr. Campbell: I understand all that. It would be interesting to know - The point here is on the cost and the hassle of going to a different sort of ticketing system because of the way you ticket garments. I'm just curious. It's just a question.

Mr. Rudderham: There's no hassle if we do it nationally, if we do it across the country at a single rate. We've said it over and over again. We spent the whole day here explaining what the hassles are.

Mr. Campbell: No, I've spent the whole day here. You've spent the afternoon here. I'll spend the night here too.

What I'm getting at, Mr. Bobkin, is you have said that the big problem you have - and others have said that we don't understand here, and that may be the case - is with how you market your goods, the relationship you have with your manufacturers, how ticketing is done. You gave us the example. You showed us the ticket. You said that manufacturers are getting them now. It took you years to get them to do the ticketing, and now you're going to have to talk to them. You are talking to them about ticketing for the region with a tax-inclusive price.

Mr. Bobkin: We are.

Mr. Campbell: And you haven't got the outcome of those discussions yet, what the costs would be, whether there would be a cost, whether it's practical, achievable, doable. You're talking to them. I just want to know what the experience was.

Mr. Kenyon: Mr. Campbell, may I just add one other thing?

Mr. Campbell: Oregon has tax inclusive, by the way.

Mr. Kenyon: If we purchase a quantity, say 30,000 of this item, and the packaging is done based on day-to-day conditions at a store, all of us have replenishment systems that work based on what's sold. If you asked me how many of these we are going to sell in our Dartmouth store, I couldn't tell you that. Based on competition, the system will keep generating merchandise based on sales.

Mr. Campbell: I don't want you to think for a moment - I am not one to minimize what you've raised here today, and any of you who have been before this committee in the three years I have served on it will know that I don't take what you say lightly. I'm concerned.

Indeed, the process works. This process, imperfect as it may be, serves as a bit of a check on the exuberance of our own officials sometimes, who in all good faith try to get their job done too. As you will know from the work of this committee, we often have a better product at the end of the day from the efforts you make to come and the long days we put in here listening and reacting.

I'm glad you showed that product. I wanted to ask, with Canadian Tire here, and I'll ask you the same question, why the bin and shelf pricing wouldn't work or doesn't work or doesn't satisfy you. Or does it satisfy you?

I'm a big Canadian Tire supporter. What little free time I have is often spent buying the light bulbs my wife asks me to replace whenever I get home. In my own experience, I don't look at a product. Indeed, it's hard to find a price on your individual products. Much of it is bar-coded. Some things aren't labelled at all. It is bin and shelf pricing to a great extent in your stores. Is that not a pretty good fix for you?

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Mr. Goddard: You mean dual pricing on the shelf. There's no question that from our point of view that is helpful. That's the part of the iceberg that's above the water. It's the other systems, 29 of them altogether, that have to be rewritten in order to have the product flow. In other words, our price drives all the systems throughout the company. In addition to that, there are the in-store costs that Steve Bobkin spoke to a few minutes ago with respect to some of our merchandise that is pre-ticketed, although most of it we ticket ourselves in the store. Our costs are in those areas.

Mr. Campbell: I appreciate it with the apparel business, given the nature of what you're selling. Do you have any idea of what percentage of your sales would be bin and shelf price?

Mr. Goddard: No, I don't.

Mr. Campbell: I don't mean the whole figure, but just as a proportion of what you move in the store.

Mr. Goddard: No, I wouldn't be able to give that to you.

Mr. Campbell: Would it be 10%, 15% - any idea?

Mr. Goddard: Orders of magnitude, no - 30%, I would say. I'll give you one.

Mr. Campbell: I just want to make two other points to all of the retailers here.

First of all, with respect to input tax credits, we had a very heated discussion here earlier about input tax credits, and the suggestion was made that nobody has argued with the $700 million figure for Atlantic Canada - not one person on our panel. But somebody said quite poignantly here - I think Mr. Rudderham - that this may be true, but we're not getting any of it; somebody else is, and you're saddling us with the costs was the earlier testimony.

Our data from the department shows that of the ITCs nationwide, 17.6% of those input tax credits go to retail. In fact, in the maritime provinces it's even a little higher.

Of the $700 million, my information is that about 20% of that goes to retail in the Atlantic provinces. So it is something south of $700 million and something north of zero. We can disagree where it is, but it is something.

I didn't want to leave anybody with the impression that retailers didn't receive significant ITCs in Atlantic Canada. That's simply not true.

Mr. Rudderham: You're absolutely right, but you have to look at where those input tax credits are generated. Primarily, the input tax credits to a retailer are generated from its buying and merchandising activities, of which -

Mr. Campbell: For building a new store or expanding a store or remodelling a store or changing fixtures.

Mr. Rudderham: Yes, absolutely. But if you eliminate the merchandise portion of those input tax credits, you'll find it is substantially less than the figures you're quoting.

You take an average retailer who's going to turn their inventory three or four times a year, somebody like Canadian Tire, for example, who I believe does about $5 billion in sales, who turn their inventory four times a year - they buy that. They buy that $5 billion. That's where those input tax credits are coming from.

The saving to our business will come from the portions of the goods and services we buy that we are currently not buying on a tax-exempt basis. It's going to come from our advertising, our capital assets, and primarily our utility and telecommunication cost usage. We've already recognized that.

I know for my business those input tax credits are outweighed by my costs by a weight of three to one.

Mr. Campbell: All I was trying to do - And I'm sorry the press have left, because they got the message from you and others that the input tax credits, $700 million - nobody debated, but everybody says ``Not me, it's going to somebody else''. It's going to the extent of 20% to the retail sector in Atlantic Canada. That's the only point I wanted to make.

In the interest of time - it's been a long afternoon for everybody, and well overtime - I just want to make two other comments on behalf of the government.

We continue to work with your sector and with the other governments to develop guidelines on advertising, which I know are of concern. We'd like to think that we've made some steps forward in the guideline on tax-inclusive pricing. We've heard today some favourable reaction to that.

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With respect to one aspect of that, which is catalogues, I'd like to say I think the government would understand if the committee were to urge that we take another look at the definition of ``catalogue'', for instance, and some of the other issues that have been raised here today, to ensure we have not inadvertently devised a system that doesn't achieve the outcome it was supposed to achieve.

Thank you for bringing those matters to our attention. You have my commitment on behalf of the government that we will be looking further at that. I know Mr. Connell already spoke to somebody from the department this afternoon. We want to understand this in greater detail and make sure it is workable and that at the same time - and I'll close on this note - we are not working in unfairness to the retail sector in Atlantic Canada.

Mr. Connell: I appreciate your comments. Right now we do have a catalogue coming out in mid-April, which would not qualify under the definitions.

The Chairman: Go ahead and do it.

Mr. Connell: Mr. Bennett has already seen a proof of part of it.

Mr. Campbell: Thank you, Mr. Chairman.

The Chairman: Having spent considerable time in rural parts of Canada and having spent some of my years in another time, I have a particularly personal affinity for the catalogues provided by many of your suppliers. I wish to thank you.

I want to thank you on behalf of all of us. It's quite clear you are unanimous - and I accept you on this - that the $700 million in annual benefits ain't going to the big retailers, and you're bummed off. And rightfully so. I understand that. This is why you should be here before us.

You all support harmonization. I'm not sure what efforts you've made in the past little while to support our efforts to have other provinces come onside. I have not seen a free-for-all of this public nature.

You're more opposed to tax-included pricing than you're in favour of harmonization right across the country, although I think some of you have admitted that harmonization right across the country is what you seek. From what you've said today, I'm not sure you want tax-included pricing at all ever in Canada.

For example, you've just said, Mr. Rudderham, that you would not support tax-included pricing unless we had the same base administration and rate in every province. It's inconceivable to me that Alberta is going to impose a tax as long as it has the huge royalties it's getting from its primary sector. This means if we could get the other provinces to come in at 15%, you would be totally opposed to tax-included pricing anywhere in Canada. I can maybe understand, because it does give you an added cost, but I'm not sure we can hold up the benefits of tax-included pricing to consumers that we heard about today from so many other witnesses, in fairness to them, on that basis.

Maybe you could make a good case for that because we have only three provinces in, but you're saying not even nine would be good enough. We are concerned not only about your interests - and you are important to us - but also about consumers. We have a point we have to make.

I'm also very pleased that we heard from the National Association of Tobacco and Confectionery Distributors, who've given us a novel approach - I certainly had not heard of it before - under which we may be able to end some of the abuses in the marketing of objects and goods subject to contraband. This is why we have already urged our officials to meet with you further to find out more about this and to bring us up to speed on it, because it looks like a very promising idea that you've brought to us.

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Mr. Hynes.

Mr. Hynes: Mr. Chairman, if you don't mind, I have just two quick comments.

I want to make one about the tobacco. The problem in Nova Scotia, we've determined, is that of the 2,600 tobacco retailers, 800 of them are participating in illegal activity in some fashion. That's the first point.

Maybe a sober thought - I'm not quite involved in tax-in pricing, but I would ask the government to think about this. A year ago most people in this room would not have accepted the fact that there would be tax-included pricing in Canada. Everyone in this room today accepts the fact that they're probably going to see it.

I would turn it around a little bit and ask the Government of Canada, what do you want tax-included pricing to look like? You have seven other provinces and two territories to sell on this, and I submit that what I saw last Friday was a bit of a dilution of the soup, if you will, in terms of getting to a fully fledged tax-included pricing model. As we leave today and go forward, the Government of Canada has to look at all these exceptions and all these options. As someone well said today, you have to look at what you want.

I'll tell you, the Province of Nova Scotia started off with a very rigid definition of tax-included pricing, and I don't expect they're very happy with where it's gone in the last weeks. That's a point that the Government of Canada, not just the retailers, has to think about. What does the government want? You may not want in the long run the road that is being headed down right now.

The Chairman: What you're saying is we shouldn't back off one inch from what we've proposed on tax-included pricing. I take it that's your message.

Mr. Hynes: My suggestion is that in the long run a rigid approach is better, but we have to be realistic about what we can do with three provinces with 8% of the market. The good news is if you did agree to table it until another day, you would have the commitment and support of the retailers that they would do it then. A year ago you didn't even have that.

The reality of life is that rigid is better than flexible, because there's going to be all kinds of mayhem in the marketplace. Is it realistic to push forth at this point? That's the issue before us.

The Chairman: Our witnesses before us have said they will not support tax-included pricing today or down the road unless we have all 10 provinces at a uniform rate. So I suspect that your happy accession to tax-included pricing is never going to come about, if we are to have tax-included pricing. I'm sorry about that.

I had worked under the assumption that maybe this could be a step towards it and be a success that we would enjoy, and that tax-included pricing on behalf of consumers in Atlantic Canada would be a springboard. The fact that there would be so many savings on input tax credits would be an incentive to attract business. A province such as mine, Ontario, would be at a competitive disadvantage in attracting the new businesses. They're going to create high-paying jobs, jobs of the future.

We've heard you and you've had an impact on us. We're going to work with you on an ongoing basis to try to take some of the rough edges off this. We look on this not as the final word but as a work in progress.

I want to thank you all very much for your very valuable contribution to us.

We adjourn until 6 o'clock.

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