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37th PARLIAMENT, 2nd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Friday, November 8, 2002

0905

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

Mr. Pierre Brunet (Chair of the board, Canadian Institute of Chartered Accountants)

0910

0915

0920

0925

The Vice-Chair (Mr. Nick Discepola)

Mr. Pierre Brunet

The Vice-Chair (Mr. Nick Discepola)

Mr. Michael Giroux (Vice-President, Headquarters, Cement Association of Canada)

The Vice-Chair (Mr. Nick Discepola)

Mr. Michael Giroux

0930

The Vice-Chair (Mr. Nick Discepola)

Mr. Gilles Vaillancourt (Mayor of Laval; President of Coalition pour le renouvellement des infrastructures du Québec)

0935

0940

The Vice-Chair (Mr. Nick Discepola)

Ms. France St-Onge

0945

0950

The Vice-Chair (Mr. Nick Discepola)

Mr. Benoît Riopel (Vice-President, Fédération étudiante universitaire du Québec)

0955

The Vice-Chair (Mr. Nick Discepola)

Mr. Pierre Paquette (Joliette, BQ)

The Vice-Chair (Mr. Nick Discepola)

Mr. Pierre Brunet

Mr. Pierre Paquette

Mr. Pierre Brunet

Mr. Pierre Paquette

Mr. Pierre Brunet

1000

The Vice-Chair (Mr. Nick Discepola)

Mr. Gilles Vaillancourt

Mr. Pierre Paquette

Mr. Gilles Vaillancourt

The Vice-Chair (Mr. Nick Discepola)

Mr. Benoît Riopel

The Vice-Chair (Mr. Nick Discepola)

Mr. Pierre Paquette

The Vice-Chair (Mr. Nick Discepola)

Mr. Claude Pigeon (Vice-President, Quebec Region, Cement Association of Canada)

Mr. Pierre Paquette

Mr. Claude Pigeon

The Vice-Chair (Mr. Nick Discepola)

1005

Mr. Michael Giroux

The Vice-Chair (Mr. Nick Discepola)

Mr. Pierre Paquette

The Vice-Chair (Mr. Nick Discepola)

Mr. Tony Valeri (Stoney Creek, Lib.)

The Vice-Chair (Mr. Nick Discepola)

Mr. Tony Valeri

The Vice-Chair (Mr. Nick Discepola)

Mr. Pierre Brunet

Mr. Tony Valeri

Mr. Pierre Brunet

1010

Mr. Tony Valeri

Mr. Pierre Brunet

Mr. Tony Valeri

Mr. Pierre Brunet

Mr. Tony Valeri

Mr. Pierre Brunet

Mr. Tony Valeri

Mr. Pierre Brunet

The Vice-Chair (Mr. Nick Discepola)

Mr. Michael Giroux

The Vice-Chair (Mr. Nick Discepola)

Mr. Tony Valeri

Mr. Michael Giroux

The Vice-Chair (Mr. Nick Discepola)

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

1015

Mr. Gilles Vaillancourt

Ms. Maria Minna

Mr. Gilles Vaillancourt

Ms. Maria Minna

Ms. France St-Onge

Ms. Maria Minna

1020

Ms. France St-Onge

The Vice-Chair (Mr. Nick Discepola)

Mr. Gilles Vaillancourt

Ms. Maria Minna

Mr. Gilles Vaillancourt

Ms. Maria Minna

Mr. Gilles Vaillancourt

The Vice-Chair (Mr. Nick Discepola)

Mr. Scott Brison (Kings—Hants, PC)

The Vice-Chair (Mr. Nick Discepola)

Mr. Scott Brison

1025

The Vice-Chair (Mr. Nick Discepola)

Mr. Pierre Brunet

The Vice-Chair (Mr. Nick Discepola)

Mr. Benoît Riopel

1030

The Vice-Chair (Mr. Nick Discepola)

Mr. Gilles Vaillancourt

The Vice-Chair (Mr. Nick Discepola)

Ms. France St-Onge

The Vice-Chair (Mr. Nick Discepola)

Ms. Pauline Picard (Drummond, BQ)

1035

Mr. Gilles Vaillancourt

The Vice-Chair (Mr. Nick Discepola)

Mr. Marc Couture (Groupe-conseil BPR, Coalition pour le renouvellement des infrastructures du Québec)

The Vice-Chair (Mr. Nick Discepola)

Mr. Marc Couture

The Vice-Chair (Mr. Nick Discepola)

Ms. France St-Onge

The Vice-Chair (Mr. Nick Discepola)

Ms. France St-Onge

The Vice-Chair (Mr. Nick Discepola)

Mr. Gilles Vaillancourt

The Vice-Chair (Mr. Nick Discepola)

1040

Mr. Pierre Brunet

The Vice-Chair (Mr. Nick Discepola)

Mr. Michael Giroux

The Vice-Chair (Mr. Nick Discepola)

Mr. Pierre Paquin (General Manager, Canadian Council of Regional Breweries)

The Vice-Chair (Mr. Nick Discepola)

Mr. Pierre Paquin

1055

1100

The Vice-Chair (Mr. Nick Discepola)

Mr. Walter Robinson (Federal Director, Canadian Taxpayers' Federation)

1105

Mr. Scott Brison

Mr. Walter Robinson

1110

The Vice-Chair (Mr. Nick Discepola)

Mr. Paul Lansbergen (Director, Taxation and Business Issues, Forest Products Association of Canada)

Ms. Louise Desjardins (Director, Taxation, Forest Products Association of Canada)

1115

The Vice-Chair (Mr. Nick Discepola)

Ms. Amelia Shaw (Manager, Public Affairs, Canadian Urban Transit Association, National Task Force to Promote Employer-Provided Tax-Exempt Transit Benefits)

1120

1125

The Vice-Chair (Mr. Nick Discepola)

Ms. Donna-Lynn Ahee (Project Manager, National Task Force to Promote Employer-Provided Tax-Exempt Transit Benefits)

The Vice-Chair (Mr. Nick Discepola)

Mr. Jean-Michel Laurin (Volunteer, Results Canada)

1130

1135

The Vice-Chair (Mr. Nick Discepola)

Mr. Richard Côté (Regional Vice-President (Province of Quebec), Union of Canadian Transport Employees)

1140

The Vice-Chair (Mr. Nick Discepola)

1145

Mr. Pierre Paquette

The Vice-Chair (Mr. Nick Discepola)

Mr. Jean-Michel Laurin

The Vice-Chair (Mr. Nick Discepola)

Ms. Amelia Shaw

Ms. Donna-Lynn Ahee

1150

Mr. Pierre Paquin

Mr. Pierre Paquette

1155

Mr. Pierre Paquette

Mr. Pierre Emmanuel Paradis (Senior Economist, CFIB-Quebec)

The Vice-Chair (Mr. Nick Discepola)

Mr. Tony Valeri

Mr. Walter Robinson

1200

The Vice-Chair (Mr. Nick Discepola)

Mr. Tony Valeri

The Vice-Chair (Mr. Nick Discepola)

Mr. Paul Lansbergen

Mr. Tony Valeri

Mr. Paul Lansbergen

The Vice-Chair (Mr. Nick Discepola)

Mr. Walter Robinson

1205

The Vice-Chair (Mr. Nick Discepola)

Mr. Tony Valeri

Mr. Walter Robinson

Mr. Tony Valeri

The Vice-Chair (Mr. Nick Discepola)

Ms. Amelia Shaw

The Vice-Chair (Mr. Nick Discepola)

Ms. Donna-Lynn Ahee

The Vice-Chair (Mr. Nick Discepola)

Ms. Donna-Lynn Ahee

The Vice-Chair (Mr. Nick Discepola)

Ms. Maria Minna

The Vice-Chair (Mr. Nick Discepola)

Ms. Maria Minna

1210

The Vice-Chair (Mr. Nick Discepola)

Mr. Walter Robinson

Ms. Maria Minna

Mr. Walter Robinson

The Vice-Chair (Mr. Nick Discepola)

Ms. Maria Minna

Mr. Walter Robinson

1215

The Vice-Chair (Mr. Nick Discepola)

Ms. Maria Minna

The Vice-Chair (Mr. Nick Discepola)

Mr. Scott Brison

The Vice-Chair (Mr. Nick Discepola)

Mr. Scott Brison

The Vice-Chair (Mr. Nick Discepola)

Mr. Scott Brison

The Vice-Chair (Mr. Nick Discepola)

Mr. Scott Brison

The Vice-Chair (Mr. Nick Discepola)

Mr. Scott Brison

The Vice-Chair (Mr. Nick Discepola)

Mr. Paul Lansbergen

Mr. Scott Brison

Mr. Paul Lansbergen

The Vice-Chair (Mr. Nick Discepola)

Mr. Walter Robinson

The Vice-Chair (Mr. Nick Discepola)

Mr. Scott Brison

Mr. Jean-Michel Laurin

1220

1225

Mr. Scott Brison

Mr. Jean-Michel Laurin

The Vice-Chair (Mr. Nick Discepola)

Mr. Scott Brison

The Vice-Chair (Mr. Nick Discepola)

Mr. Scott Brison

The Vice-Chair (Mr. Nick Discepola)

CANADA

Standing Committee on Finance

NUMBER 025

2nd SESSION

37th PARLIAMENT

EVIDENCE

Friday, November 8, 2002

[Recorded by Electronic Apparatus]

¿ (0905)

[Translation]

The Vice-Chair (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)): Pursuant to Standing Order 83.1, we are continuing our pre-budget consultations with a view to preparing a report for the House of Commons and our Minister of Finance. I am pleased to be chairing this afternoon's meeting. I have just returned from the west, where we visited a number of large centres, including Vancouver, Calgary and Saskatoon, while the chair of the committee looked after the meetings in Eastern Canada. We had several meetings, and we received at least 200 briefs containing recommendations to the Minister of Finance for his budget which, I hope, will be brought down in February.

For this round table, each group will have seven or eight minutes to make its presentation, in order to leave ample time for members to ask questions. I am going to introduce the groups and ask them to present their briefs.

First of all, I would like to welcome the Canadian Institute of Chartered Accountants and ask Mr. Pierre Brunet, chairman and member of the board, to make his presentation. Welcome, Mr. Brunet.

Mr. Pierre Brunet (Chair of the board, Canadian Institute of Chartered Accountants): Mr. Chairman, committee members, thank your for the invitation to present comments, on behalf of the Canadian Institute of Chartered Accountants, as part of this year's pre-budget consultations. My name is Pierre Brunet, and I am the chairman of the board at the institute.

Last September, we submitted a brief outlining our position as chartered accountants on the next federal budget. Of course, our brief was prepared before the Minister of Finance presented his economic and financial update to your committee. Consequently, our presentation today will be based on some more recent information than what was contained in our brief.

First of all, allow me to comment on the very clear messages in the update from the Minister of Finance. We were very pleased to hear the minister confirm that the government will adopt a prudent approach to budget planning, that it will control expenditures and reduce the debt. It is indeed clear that the country's strong economic performance of late is the result of sound financial management. We are particularly happy that the government made a commitment to fully re-establish the contingency fund for this financial year and that it plans to allocate additional funds to this prudence factor starting next year. In doing so, the government went back on the decision announced in the last budget to devote a portion of these reserve funds to expenditures spread over three years, and we congratulate the government for that.

We are equally happy that the minister's statement contained up-to-date financial projections to the year 2007-08.

¿ (0910)

That will give Canadians a good idea of the financial leeway that will be created so that they can assess possible commitments in terms of new expenditures.

However, we also noted that the update contained a warning with respect to the future. Some major risks continue to impact our financial outlook, especially the uncertainty regarding economic recovery in the United States and the possibility of military intervention. The fact that estimated growth in GDP for 2003 is now lower than what it was 10 months ago is an aspect that invites caution.

With that context in mind, recent media coverage implies that a series of new initiatives are being considered in terms of expenditures, including several that would be quite broad-ranging. In preparing your committee's recommendations for the next budget, we urge you to bear in mind some fundamental issues. The government has made great progress in recent years in implementing a comprehensive agenda revolving around debt reduction, tax cuts and increased spending in the area of health care. This ambitious agenda cannot be set aside in looking at new measures to implement.

[English]

We congratulate the government on the substantial progress made so far on reducing the debt. With the recent announcement of an $8.9 billion surplus for the last fiscal year, the government has lowered the debt by $46.7 billion since 1996 and reduced the debt-to-GDP ratio to 49%. As the government notes, this is the first time since 1985 that this ratio has been below 50%. This is a significant achievement.

However, despite this progress on debt reduction, our debt-to-GDP ratio remains higher than that of the United States, our major trading partner. As well, interest payments on the debt take away nearly 22¢ on every revenue dollar taken in, the largest single expenditure in the budget. As the government notes, a lower debt burden means that a smaller portion of government revenue needs to be set aside for debt servicing. It also lessens exposure to economic shocks and reduces the amount that the younger generation will have to pay for debt not incurred by them.

A continued focus on debt reduction will provide the fiscal route needed to address the long-term needs of the country. In this regard, the government itself notes that continued debt reduction has resulted in a savings of $3 billion each year in interest payments, freeing up much-needed fiscal resources. Therefore, we believe the government must continue to work on lowering the debt-to-GDP ratio to 40%, a level somewhat closer to the historic G-7 average.

I would also like to say a few words about tax reduction. The government's five-year $100-billion tax cut plan will be fully phased in by 2004-05. Corporate income tax cuts are not yet fully delivered, and increases are coming to the Canada child tax benefit, to the basic personal exemption, and to the tax bracket threshold. The government notes that this tax cut plan will deliver $20 billion in tax relief to Canadians this year. Many observers note that the stimuli offered by this plan over the last few years could not have come at a better time. These are tax cuts that we have long supported, and we call on the government to stay the course on implementing this plan. Moreover, as we have already noted, a continued focus on debt reduction will free up money that could be used to deliver further tax cuts to Canadians.

We understand that the government will need to contemplate funding to deal with issues such as health and the Kyoto accord. However, we believe these issues must be addressed in a way that does not put important debt and tax cut initiatives at risk. We are therefore pleased that the finance minister has pledged to reallocate money to programs that meet the immediate needs of Canadians from those that have already served their purpose.

¿ (0915)

We have long believed that a long-term view of the government's finances is essential to making informed decisions about budgetary measures. As I have already said, we are pleased that the finance minister has provided Canadians with updated, medium-term spending and revenue projections. These projections indicate that there will be a planning surplus of $1 billion for the current fiscal year, after setting aside the $3 billion contingency reserve. The anticipated surplus for the next two years will be $3.1 billion and $3.5 billion respectively. It is only in 2005-06 and the following two years that more substantial surpluses will become available, ranging from $6.8 billion to $14.6 billion.

What these numbers tell us is that there is likely to be very little financial room to manoeuvre in the next few years. We should keep in mind how easily projected surpluses can evaporate. The government's own analysis shows that a 1% decrease in real GDP growth would result in an overall decrease in the surplus of $2.4 billion in the first year and $2.6 billion in the second year.

The numbers also tell us that going into the next budget, program spending is already projected to rise. Funding decisions have been made since last year's budget that amount to nearly $8 billion over six years. Overall, without any further announcements, program spending is expected to increase to $7.6 billion in the current fiscal year and at least $6 billion a year in the next five years.

Although the government has indicated that program spending last year was $3.9 billion lower than anticipated, unless these savings are incorporated permanently into the budget, it would appear that this would not result in additional spending room.

Given the continuing economic uncertainty, we believe it would be unwise to count on the projected surpluses being fully available, especially in the short term. This year's surplus especially is small. Decisions made now to proceed with costly new spending could come back to haunt us in future years if the economy does not perform as predicted. We believe that additional multi-year spending initiatives would seriously hamper the government's ability to deliver on its existing commitments.

This only serves to underscore our message that now is not the time to contemplate new multi-year spending. We believe that to do so would put the tax cuts, debt reduction, and existing spending commitments at risk. Rather, we call on the government to look to existing spending to determine what can best be reallocated in order to move forward with initiatives that are important to Canadians. As we have said frequently, a continued focus on debt reduction will free up additional funds that can be used to deliver further tax cuts or be directed to critical programs.

The government has done much to place the national finances on a solid footing. We caution against doing anything to disturb the fine balance that has been struck. The public in general and investors have reacted well to this sound fiscal management, which is particularly important in a year that has seen a lot of uncertainty because of recent corporate fears in the United States.

Mr. Chairman, Canada's chartered accountants take the erosion of investor confidence very seriously, just as we take our role in governance very seriously. We remain committed to protecting the public interests and maintaining the public trust. That's why we have taken steps to ensure that the standards and principles guiding our profession are second to none.

As far as quality control and collaboration with the Canadian Securities administrators and the Office of the Superintendent of Financial Institutions is concerned, we have announced a new system of independent oversight for auditors of public companies, the Canadian Public Accountability Board, which will be chaired by Gordon Thiessen, a former governor of the Bank of Canada.

¿ (0920)

As far as auditing standards are concerned, two weeks ago we announced the creation of the auditing and assurance standard oversight council, which will provide input, strategic direction, and the perspective of the user into the setting of these standards.

¿ (0925)

[Translation]

The Vice-Chair (Mr. Nick Discepola): May I ask you to wrap it up, please?

[English]

Mr. Pierre Brunet: In the interest of time I have limited my comments to these.

[Translation]

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

Now, from the Cement Association of Canada, I now have the pleasure of inviting Mr. Michael Giroux, Vice-President, or Mr. Claude Pigeon, Vice-President, Quebec region, to make a presentation.

Welcome to both of you.

Mr. Michael Giroux (Vice-President, Headquarters, Cement Association of Canada): Mr. Chairman, committee members,

[English]

I would like to thank the committee for the opportunity to make a presentation on behalf of the cement industry as part of this year's pre-budget consultations.

My name is Michael Giroux and I am vice-president, national office, based out of Ottawa for the Cement Association of Canada. With me is Claude Pigeon, vice-president responsable pour le Québec.

Claude and I, following this presentation, will attempt to answer any questions you may have, that is, if you have any questions.

To start, since you will all have received a copy of our brief, in the interest of time I will only touch on a few key points and our two principal recommendations rather than read our submission. Hopefully you will have a copy of our slide deck, just seven simple slides, at your tables.

Monsieur le président, would you like me to wait following--

[Translation]

The Vice-Chair (Mr. Nick Discepola): No, continue. Members of the committee have a copy.

[English]

Mr. Michael Giroux: I trust that you will find this approach quick and relatively painless. Just remember that in the end the message we are presenting is about concrete highways and also about partnership in training.

First, to introduce the Cement Association of Canada--and this is your second slide--the Cement Association of Canada is the voice of the Canadian cement industry, representing 100% of cement producers. We have offices across the country and work closely with our cement-producing partners and members, such as government, home builders, the CAA, etc.

We work closely with our members to expand the use of cement and concrete solutions in Canada, and we provide our members with a vehicle to participate in public affairs, hence the reason for appearing here today.

On this last point, at the national and provincial levels, our industry participates in the development of a wide range of public policies, including those associated with infrastructure, strategic transportation, environmental protection, and especially, as you can well realize these days, climate change and clean air initiatives.

The third slide shows you our CAC member companies, and you will see that many of these are well-known names and in some cases in your own ridings.

Speaking with respect to our economic contribution to the Canadian economy, the cement and concrete industries are key players in the construction sector. In fact concrete is everywhere, in our homes, our landmarks, our bridges, and increasingly on our highways.

So it should be no surprise for you to know that these industries are significant employers. In fact, we employ about 22,000 people across the country and thousands more indirectly. In one form or another there is a cement or a concrete business presence of some type in most of your ridings.

In addition, revenues from cement and concrete exceed $4 billion annually. In different terms this represents 13.2 million tonnes of cement produced in 2001, 40% of which is exported. In your document you will see that we wrote 30%; it's actually 40%. Yes, we are an exporting industry; therefore policies affecting trade affect our industry.

This presentation draws on several federal policies. In the September throne speech the government outlined an innovative economy, a healthier environment, and infrastructure renewal as key priorities. The CAC sees an intersection between these three priorities, and to help achieve these our industry offers sustainable and innovative solutions such as concrete highways, insulated concrete form, housing, and what we call IWMS, which is integrated waste management systems.

As mentioned previously today, our focus is on highways.

Getting directly to our policy recommendations, I think we can all agree that the smooth flow of goods within Canada and to and from the United States is vital for Canada's continued economic growth. Yet this very transportation of goods also poses a significant environmental and economic challenge.

On the issue of the environment, transportation is the single largest source of greenhouse gas emissions in Canada. Marketplace realities dictate that trucking will remain the primary mode of delivery of goods. Concrete highways represent a sustainable infrastructure solution to the transportation emissions policy because they reduce fuel consumption for heavy trucks and they are also cost effective.

The federal government recognizes the potential of concrete highways to reduce greenhouse gas emissions, but provinces unfortunately are reluctant to build concrete highways because of the slightly higher implementation cost, which is really somewhere between 5% and 15%.

Concrete highways offer better value, however, to taxpayers' dollars--something we call “return on investment”--and are good for the environment. Therefore we recommend that the federal government establish a funding mechanism to encourage the provinces to build them. Stated slightly differently, we would like the federal government to encourage the provinces to build concrete highways by offsetting their slightly higher upfront construction costs. This can be in the short term or in a long-term view.

In addition, research conducted by Concrete Canada in 1990, part of the then networks of centres of excellence program, produced high-performance concrete. This is the material used in the construction of the Confederation Bridge between P.E.I. and New Brunswick, a scientific and engineering success story for Canadians. Each PC technology is now exported internationally and has helped solidify Canada as a leader in cement and concrete industries.

There are numerous other examples of successful Canadian research in infrastructure. This needs to continue if we are to rebuild or renew our infrastructure successfully. That said, we would like to recommend the obvious, that the federal government continue to support university-industry partnership programs for innovation and construction. The reasons are simple: sustainable construction solutions result; we ensure that the best solutions are brought to market; and we ensure that a well-trained and highly skilled workforce exists.

Mr. Chairman, at this point, our presentation is complete. We trust that our simple message on highways and partnership is well received. If you have any questions, I don't know if you take those now or later, but thank you very much.

¿ (0930)

[Translation]

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

We will now hear from the President of the Coalition pour le renouvellement des infrastructures du Québec and Mayor of Laval, Mr. Gilles Vaillancourt, as well as Mr. Marc Couture, from BPR groupe-conseil. Welcome, gentlemen.

Mr. Gilles Vaillancourt (Mayor of Laval; President of Coalition pour le renouvellement des infrastructures du Québec): Thank you for allowing us to appear this morning and for this opportunity to talk to you about an issue that we are very concerned with: investment in municipal infrastructure and its impact on quality of life and the country's economic prosperity. I am accompanied by Mr. Marc Couture, who is an engineering and technical advisor to the coalition.

By way of information, the coalition was established in August 1999. It includes 21 organizations representing specialists in the field of municipal infrastructure, including builders, union and employer organizations, chambers of commerce, as well as elected officials and municipal administrators from 1,127 municipalities in Quebec. Our coalition is therefore the largest association that has ever been brought together in Quebec to highlight the importance of investment in the area of basic municipal infrastructure. By that I mean water and sewer systems, as well as urban and local roads.

In global terms, the repair and maintenance of municipal infrastructure is a formidable economic and technological challenge. At stake are not only the quality of life of citizens, but also our competitiveness. Although the state of the roads regularly makes the headlines, at least in Quebec, most municipal infrastructure is out of the public eye, and so water and sewer systems are too often ignored until major breaks make the front pages. That at least was the case last August, when a water main literally exploded in Montreal, gutting a major artery, flooding several homes and depriving thousands of people and several neighbouring institutions of drinking water for several days.

Just last Tuesday, four water main breaks caused extensive damage to the pavement on another main artery in Montreal, in addition to considerably slowing down traffic.

Although they attract all the attention, these major incidents should not lead us to ignore the thousands of other breaks that occur each year in Quebec. Annually, there are on average about 40 breaks per 100 kilometres of underground water mains in Quebec. In fact, the situation is now out of control, because the number of breaks is going up from year to year.

Moreover, it is not difficult to show the impact of that on the quality of peoples' lives: interruptions in drinking water supply, contamination, pavement and sidewalks that are caved in and that are dangerous, just to list those examples. Municipal roads are in a condition that is equally as lamentable, and as these problems are more visible, they appear to be more urgent in the eyes of the people. As a result, we tend to repair roads more quickly without, however, having comprehensive plans for upgrading. Given that situation, in 1999, the coalition called for the creation of a tripartite infrastructure program of roughly $1 billion per year, over 15 years. This program calls for $500 million per year for upgrading the water and sewer systems, $300 million for upgrading urban and local roads, $50 million for structural projects having an economic impact and $10 million for developing new building and diagnostic technology.

The amounts earmarked for upgrading the water and road infrastructure were very important to us, because they should help put an end to the accelerated deterioration of this infrastructure. Investing less money is equivalent to letting the situation get worse.

Three years later, our experts have found that despite infrastructure programs like Canada-Quebec, worth $1.686 billion over five years, and despite complementary programs such as Infrastructures-Québec, worth $320 million, and Québec-Municipalités, worth $609 million, there are major shortfalls in terms of money invested to upgrade infrastructure.

What explains this situation? First of all, the budgets allocated are still much too low, and secondly, portions of these budgets, which already come up 40% short, are used for purposes other than upgrading existing infrastructure networks. For example, the funds are committed to programs involving public transportation, intermodal transportation or for building new infrastructure to meet the Government of Quebec's new regulations on drinking water. Quebec wanted to guarantee quality water for all of its communities and establish new, stricter standards. The problem is that no specific budgets have been established for that and the funds are taken from programs that we would have preferred be reserved for upgrading existing infrastructure.

Underinvesting in this infrastructure means increased maintenance costs in the long term. It also deprives workers of work in the short term and creates labour shortages when the situation becomes critical and requires much larger investments.

As I mentioned, the programs implemented do not meet requirements. Infrastructure continues to deteriorate. The coalition estimates that the $1 billion per year deficit is now at $1.185 billion per year. So it is up 8%.

Investments required annually in water infrastructure are now at $750 million, whereas they were only at $600 million when we addressed the issue the first time.

We also estimate that investments required for municipal roads have also risen in a similar fashion, going from $300 million to $375 million per year. These amounts may seem high, but they are realistic. They must not be considered expenditures, but rather investments. Thanks to these amounts we can guarantee our fellow citizens' well-being and the smooth operation of our economy.

¿ (0935)

Matters such as roads, drinking water supply, and sanitary waste management constitute the very basis of society.

Various studies have shown that the net cost of the financial assistance provided by the governments of Canada and Quebec for municipal water and sewer infrastructures is very low, given the financial return from various sources generated by projects of this type. Figures from the Canada Infrastructure Works Program, which began in 1994, and analysis from the Federation of Canadian Municipalities and the Bureau de la statistique du Québec show that the financial return is 90% for the federal government and 70% for the provincial government.

As regards job creation, it has been shown that 1,200 jobs are created for every $100 million invested in projects of this type.

In light of these statistics on government investment in past projects, and in light of the new reality, our coalition is calling on the various levels of government to add $2.8 million by 2006 to the infrastructure programs currently in place in Quebec to offset their deficit. We are also asking that this amount be reserved exclusively for renovating municipal infrastructures, with $1.8 billion for water and sewers, $1 billion for local transportation infrastructures and $35 million for new technologies. These investments will protect the quality of life of all citizens and will strengthen our competitiveness.

Ladies and gentlemen, Mr. Chairman, that is the message I wanted to deliver to you this morning. I thank you for your attention. We are prepared to answer any questions you may have.

¿ (0940)

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

It is now my pleasure to invite Ms. France St-Onge, from the Conseil national des cycles supérieurs (National Council on Graduate Studies) to make her presentation. Welcome, Ms. St-Onge.

Ms. France St-Onge (President, Conseil national des cycles supérieurs): Good morning, Mr. Chairman and committee members. I am pleased to be here today to speak on behalf of the 30,000 masters and doctoral students who belong to our council.

I have bad news and good news for you. I am going to start by speaking about the less cheerful aspect of university research. No, let us start rather with the more cheerful aspect. I will give you a brief summary of the impact of university research on the economy and on Canada's social and cultural progress.

University research has the direct impact of producing approximately $5 billion, or roughly 1% of the GDP. This translate into 81,000 jobs, and, in the long-term, in terms of indirect impact and economic considerations, this amounts to $15.5 billion.

The research and development work done in universities accounts for 21% of all the research carried out. In addition, 31% of all R and D jobs are in universities. Thus, the contribution made by university research has been amply demonstrated. There have been a number of research projects on this.

I come now to the less cheerful aspect of university research. We have questions about the working conditions of researchers, the number of researchers involved in this knowledge-production activity, which forms the basis of innovation. The financial conditions of graduate students are such that one of every two doctoral students drops out before getting his or her degree. At the masters level, the figure is one student in three; in the case of masters degrees in research, one out of every two students drops out of the program.

The financial situation of 40% of graduate students places them below the Statistics Canada low income cutoff. This figure reaches 70% for students under 25: 27% of the people in this group live on less than $7,000 a year. Thus, the financial situation of graduate students is really quite precarious, and this leads to a drop-out rate of almost 50%.

At the masters level, the average length of time students spend in the program is 32 months, or close to 3 years. The average length of time doctoral students spend in the program is five years. The normal time required is two years for a masters degree and five years for a doctorate.

You may wonder why I am telling you this. The fact is that when students stay in university for a long time, the social cost to the country is quite significant; their contribution to society is delayed. And what explains the long period of time students spend in graduate school and the high drop-out rate? The problem is a lack of financial support for graduate students and researchers. However, on the other hand, it is said that university research has tremendous spinoffs. As I was saying earlier, it is important to ask questions about the way knowledge is being produced in our universities. We have to wonder who is contributing to this effort and under what conditions.

We have been invited to attend the National Innovation Summit in Toronto, which will be chaired by Jean Chrétien. We will be there. The Minister of Industry's Innovation Strategy specifically highlights the importance of universities, university research and training more masters and doctoral students. Unfortunately, however, the strategy neglects to look at what is going on and the conditions under which these individuals are contributing to the development of society.

Our demands are relatively simple.

First of all, we must increase the financial support for students. A very simple solution, which would not be extremely expensive for Canada, would be to make scholarships tax-free. This would include not only funding from the federal granting councils, but also all the fellowships that enable students to carry out their research activities. In the notice we tabled in the context of this round of consultations, we estimated that such a measure would cost the Government of Canada $30 million. I would remind you that the Quebec government has already made scholarships totally tax-free. This has already been done at the federal level, but only up to a maximum of $3,000. Between 1972 and 1999, the ceiling remained at $300. This is our first request in these consultations.

Next, of course, the government should not forgot to invest more in the federal research councils. We set out the amounts in our text. I might perhaps remind you of them quickly. We based our recommendations on those already made by other organizations when research was done for earlier pre-budget consultations.

We are asking that the budget of the Social Sciences and Humanities Research Council be increased to $263 million for 2004-2005. We are asking that the budget of the Canadian Institute of Health Research be increased to $1 billion by 2004-2005. And we are asking that NSERC's budget be increased to $1.054 billion by 2004-2005.

If we look at the way in which the research granting councils of Canada work, we see that a significant percentage of the funding goes to the major universities. The 10 largest universities in Canada get 65% of the funds provided by the granting councils. However, the small universities, which are often called regional universities, play a very important role in regional development, one that is necessary to maintain a social cohesion and regional economic development. Consequently, we are calling on the federal government to establish a special research funding program for small universities.

On the issue of research as a catalyst of economic development, we should also bear in mind that the indirect costs of research for universities are very high.

¿ (0945)

The federal government has already made some commitments in this regard, and yet, the funding that has been provided for indirect research costs was inadequate and did not seem to be permanent. Consequently, we are calling on the federal government to provide ongoing funding for the indirect costs of research paid by universities. When a university does not get funding to cover its indirect research costs, it takes the money from other budget items, often those for hiring professors and providing services to students. Often, the universities have no other choice, because research grants and research are what enables them to develop in the short and long term. In our view, these indirect research costs should not mean that there is a reduction in the quality of the education and the services provided in our universities.

We also have some concerns about the Canadian Foundation for Innovation. This issue disturbs us, because we already have federal research granting councils, and the Canadian Foundation for Innovation is not politically accountable for its decisions. We are concerned when we see that research infrastructures are being established that are not always coordinated with what is being done by the federal research councils. A tremendous amount of money has been invested in the Canadian Foundation for Innovation. We think the priority should be to bolster the budgets of the federal granting councils, because they already have selection committees for research projects and research development policies. That should remain the federal government's priority.

Thank you.

¿ (0950)

The Vice-Chair (Mr. Nick Discepola): Thank you very much. To complete this group of witnesses, I will ask the Vice-President of the Fédération étudiante universitaire du Québec (Quebec University Students' Federation), Mr. Benoît Riopel, to make his presentation. Welcome, sir.

Mr. Benoît Riopel (Vice-President, Fédération étudiante universitaire du Québec): Good morning, everyone.

When it took office in 1993, the government carried out a major reform to the program of transfers to the provinces. This change resulted in a significant drop in the federal contributions to the funding of social programs like those for education and health.

In light of the costs of the system, the accumulated shortfall to date, for all of the provinces, is over $45 billion. In terms of post-secondary education, the shortfall for all of the provinces stands at over $10 billion. As you can probably guess, such a drop has serious repercussions on university and college funding, and consequently on the quality of teaching and access to education. The quality of teaching has been dramatically affected, with a loss of some 4,000 full-time professors, among other things. Tuition fees have gone up by about 135%, while student debt has skyrocketed by 277%.

The reduction in transfers for post-secondary education occurred at a time when the federal government was grappling with major budget deficits, which is obviously no longer the case today. The imbalance could be reduced with an increase in federal transfers to the provinces to fund health and education.

The FEUQ believes that the government should restore transfers for post-secondary education to their 1994 level within five years. Given the increased cost of the system, the federal government should reinvest over $16 billion in post-secondary education. Increased transfers for education could greatly help the provinces to take steps to improve accessibility, among other things, through lower tuition fees and improvements to the various financial assistance programs. As for the quality of teaching, this funding could allow for the recruitment of new full-time professors.

With respect to what I have submitted to you this morning, the FEUQ has been associated for some months now with a number of student movements in Canada. The concerns we have expressed this morning are shared by the entire Canadian student movement.

And that is really all there is to it.

¿ (0955)

The Vice-Chair (Mr. Nick Discepola): Thank you very much, Mr. Riopel. We heard somewhat similar representations out west.

Members, we have about 40 minutes. We are going to divide up the time among the three political parties, with 12 minutes each. You can divide up your time as you wish. We are going to begin with the Bloc Québécois.

Mr. Pierre Paquette (Joliette, BQ): Thank you, Mr. Chairman.

Thank you for your presentations. I have a general question for whomever would care to answer. Different people make somewhat different assessments of the federal government's economic or fiscal situation.

Mr. Brunet called for caution. I think everyone agrees that a return to deficits is to be avoided, but let's just say that his assessment of the government's fiscal position sounds a bit like what Mr. Manley has been telling us: there isn't much money and we're going to have to pinch our pennies.

The Fédération étudiante universitaire du Québec says the situation has changed and it is time to reinvest in health and education. When it comes to the Canada Infrastructure Program, too, the federal government's situation is extremely important because it is a major partner.

I would like to know what you think about what I am about to say. According to Mr. Manley, without the contingency reserve and the prudence reserve, which are part of the surplus but may be put aside in case there are dramatic changes in the economy... Mr. Manley estimates the surpluses for the next six years will be $71 billion. That is more than double the Conference Board's assessment. I think the federal government currently has some room to manoeuvre. The surplus must be used prudently so as to avoid a return to deficits, but there is room for reinvestment in health and education through the Canada Health and Social Transfer, and also for a major infrastructure program, especially since the provinces are not in the same position as the federal government.

In the federal government's update, it says there are four provinces in a deficit situation and the others have more or less balanced budgets, except for Alberta, which is in a very unique situation. I see no accounting, economic or other logic in having the provinces return to deficits and the federal government use its surpluses to pay down the debt, especially given that the drop in the debt-to-GDP ratio has more to do with economic growth than with debt repayment. We have only repaid 8% of the debt, and yet the debt-to-GDP ratio has gone down by 39.8%.

That is the way I see things, and I would like to hear your reaction to that. It seems to me that there is some logic in having the federal government transfer a certain amount of money to the provinces so they can avoid further deficits and shoulder their responsibilities in the areas of infrastructure, health and education.

The Vice-Chair (Mr. Nick Discepola): Mr. Brunet, please.

Mr. Pierre Brunet: Well, that is a kind of long question.

Mr. Pierre Paquette: I would like to know what you think.

Mr. Pierre Brunet: Perhaps it is a matter of principle.

Mr. Pierre Paquette: You know that accountants and economists never agree.

Mr. Pierre Brunet: No, but we might agree.

Mr. Pierre Paquette: That would be something new.

Mr. Pierre Brunet: As I've worked more often in economics than as an accountant, our minds will meet.

Let's say there is an accounting problem that I can't answer. We'll assume that the government's accounting is good. Let's say we end the year with a $1 billion surplus and we have a $3 billion reserve. The problem is the economy for the current year and the coming year. If we have a 1% decrease in the GDP, that's something like $2.4 billion to $3 billion. So the reserve will automatically be eliminated. As three of our five jobs depend on our exports to the U.S.A., if the American economy keeps showing some... [Editor's Note: Inaudible], this reserve might completely disappear. So I think we have to wait six months. I can't give you any clear answer. If the American economy picks up really quickly, then the leeway will also increase very quickly. Must we make a decision? That's the first thing.

The second problem is that we've shovelled our debts forward for upcoming generations to take care of. One quarter of our expenditures go to paying the interest on the debt and that has to be cleaned up as quickly as possible.

As the amount increases, maybe we could look at the priority represented by expenditures and the priority represented by debt. I think that in the short-term we have to work on the debt.

If I knew what was going to happen to the economy during the next two years, my answer would be a lot more specific. I'm very much afraid that the American economy is slowing down. Our $3 billion leeway won't be there if the economy stays on that track. The Canadian economy isn't showing those signs right now, but it always kicks in six months later. When our main customer, the U.S.A., doesn't react, we see our orders going down.

You can see that I'm not actually answering you. I'm telling you that there are many unknown factors and that prudence requires that we ask ourselves if we are going to enjoy any kind of leeway. I would tend to give you the answer that for the time being, we have to keep this leeway of ours and that that is more important than spending it.

À (1000)

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Brunet.

Mr. Vaillancourt.

Mr. Gilles Vaillancourt: Thank you, Mr. Chairman.

I would like to say, as a citizen, I do like the government bringing down the debt. As a mayor, I'd also like to be able to bring it down. If you look at the financial statements of the municipalities in Quebec, you'll see that the debt they have is close to 30% of their budget. So any time that, as mayor, I collect $100 in taxes, $30 of that goes to paying down the debt. And that does not include, neither for the Government of Canada, neither for the Government of Quebec, nor for the municipalities, the chronic deficit in the area of maintaining infrastructures.

Every time the government invests in infrastructure, that's like paying off part of a debt whose increase is exponential and far more costly than simply the interest we owe on our debts. So I would say that investing in our infrastructure is like paying back our debt. We're decreasing a deficit whose growth is exponential and thus far more rapid than the ordinary interest we owe on what has already been borrowed. We have to understand that this is an absolute priority.

Secondly, education and health are very important, but we shouldn't wind up in a situation where those going to our universities or in our hospitals don't even enjoy safe drinking water.

Mr. Pierre Paquette: They've got Pepsi at universities.

Mr. Gilles Vaillancourt: They're sponsored, but they risk losing their sponsorship if Pepsi is no longer able to procure safe drinking water for manufacturing their product.

For the country and for stakeholders on all levels, when we invest in infrastructure we are, in fact, reducing a debt which is growing far more rapidly than the cost related to servicing the debt.

The Vice-Chair (Mr. Nick Discepola): Mr. Riopel, please.

Mr. Benoît Riopel: For the FEUQ, it seems clear that if no concrete measures are taken, and I'm referring, in particular, to education since that's our field of expertise, in five years' time, the declining population combined with a growing need to train people... We believe that in five years' time, 60% to 70% of new jobs created are going to require post-secondary education. So, for us, there's a real priority, a sense of urgency. Although it's a good thing that the federal government keeps the fiscal house in order and manages to put some money aside—I'm no expert, but I'm sure that's a good idea—it doesn't change the fact that priorities have to be set. For us, as I said earlier, funding education is more than pressing. It's essential if we want to guarantee Canada's development.

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

Mr. Paquette, you've got three minutes left.

Mr. Pierre Paquette: I think that Mr. Pigeon or Mr. Giroux want to speak.

The Vice-Chair (Mr. Nick Discepola): You can't ask any more questions.

Mr. Claude Pigeon (Vice-President, Quebec Region, Cement Association of Canada): I'll be brief.

Mr. Pierre Paquette: If they give 30-second answers, there will be time left over for my colleague.

Mr. Claude Pigeon: I'll be very brief. The question for us is more whether we can afford not to invest at a time when we are having to face major issues such as the reduction of greenhouse gases. In terms of being competitive, we do not have, for example, an adequate highway system. I'm referring here both to maintenance and the completion of a highway system which, at the moment, is not up to scratch.

So, can we afford not to invest?

The Vice-Chair (Mr. Nick Discepola): Mr. Giroux.

À (1005)

Mr. Michael Giroux: I fully agree with Mr. Pigeon, obviously. We have to consider your question from a macroeconomic point of view, in terms of prudence and so on. In my opinion, when we speak of infrastructures, such as those mentioned by Mr. Vaillancourt, you sometimes have to consider the question in terms of life cycle costs and think about the long term. For example, it may turn out to be wiser to replace the windows in a house today rather than in five years' time. We should perhaps think about it in this way.

The Vice-Chair (Mr. Nick Discepola): Do you have another question?

Mr. Pierre Paquette: I simply wanted to point out to Mr. Brunet that there are five months of the fiscal year remaining. Given that there's no talk of an increase in resources, I would bet that the federal government is going to register a $10 billion surplus. Tobacco taxes have been increased, there is the new airport security tax, and the fact that interest rates dropped in the United States indicates that they won't increase here in Canada. I made a bet with Mr. Manley; unfortunately, I bet a bottle of Canadian wine, something I should never have done.

The Vice-Chair (Mr. Nick Discepola): Mr. Valeri, you have 12 minutes, with Ms. Minna.

[English]

Mr. Tony Valeri (Stoney Creek, Lib.): Actually, I'm only going to take six and pass it on to Maria.

The Vice-Chair (Mr. Nick Discepola): Do you want me to warn you when the six minutes are up?

Mr. Tony Valeri: Absolutely. I need warning.

I just want to pose a couple of questions to Mr. Brunet.

Essentially, if I understand the brief correctly, you're saying to hold spending at 2.8%; follow through on the $100 billion tax cut--you have no mention of any other tax cuts; pay down the debt; and balance the budget with no deficits. You've heard some of the pressures around the table. Roy Romanow sees $70 billion of surplus and feels that the health care system certainly can be addressed through the existing surpluses; we have defence spending and security pressures--for defence we're talking about $100 billion right now for emergency purposes, let alone the planning side of it, and on infrastructure we heard $1 billion a year for 15 years, as a minimum--we have pressure to eliminate the deficit, or work toward eliminating the deficit; we have demands for research moneys, and also for education funding.

We actually hit the debt-to-GDP ratio you describe in your brief in 2005-06 without doing anything. We get to 36.4% debt-to-GDP in 2007-08. I just want to be clear that while you're saying pay down debt, we actually hit your target without paying down any debt, just basing it on the growth forecast in the economy. This would leave $3 billion, essentially, which was a debt repayment figure, free to spend. I just want an understanding that I'm getting your brief correctly.

To the Cement Association--then I'll allow time for a response--you talked a lot about the importance of concrete and cement in dealing with greenhouse gas emissions, but I'm more interested in hearing from you the impact of Kyoto on your particular sector and your ability to produce. Could you suggest how your sector is prepared to reduce greenhouse gas emissions if there is no Kyoto? In other words, if it's not Kyoto, what is it we can do to achieve the objective of reducing greenhouse gas emissions?

I think everybody's there; everybody wants to reduce greenhouse emissions. But I certainly heard from many sectors that they would have difficulty with the cap-and-trade approach. If it's not that, what would it be?

The Vice-Chair (Mr. Nick Discepola): Thank you, Tony.

Monsieur Brunet, s'il vous plaît.

Mr. Pierre Brunet: Basically, what you're asking me is a management decision. If I'm sitting there and I'm the Minister of Finance, what do I do? What we're saying is there are objectives. The first part is the debt in relation to GDP. Does the economy bring us there automatically?

Mr. Tony Valeri: It does in 2005-06.

Mr. Pierre Brunet: We've been working on that for a long time, and you've been working there. The five-year projections are always to be amended three to four years later. The figures look good, but is it going to happen that way? The economy is the answer.

To date, most of those five- to six-year projections have not been met or arrived at under those circumstances.

À (1010)

Mr. Tony Valeri: They've been better.

Mr. Pierre Brunet: Well, they've been better—

Mr. Tony Valeri: For the last five years.

I guess my point is this: I'm surprised you're saying 40%.

Mr. Pierre Brunet: Rather than 30%?

Mr. Tony Valeri: I'm surprised you're just saying 40%. In fact we hit 40% without doing anything. I would rather see more debt repayment. I would go further. I guess I'm testing you on why you've got 40%.

Is the average of the G-7 enough for this country? Should we not be going further on our debt repayment?

Mr. Pierre Brunet: The 40% is just a ballpark figure that goes with the average of the last 25 years; there's no miracle in that amount. If a country is able to go below 40%, so much the better—because you're not shovelling forward, or you're shovelling forward less than you were. It becomes a management decision. The goal is 40%. It could be 35%. If the figures for 2007 are right, then there's room for everything.

As Monsieur Vaillancourt was saying, running a government is like running a municipality. The problem is very simple: you have more demand than revenues. Then you have to create priorities. We went so far in the last 20 years that we had to correct it a little bit. I say that debt reduction is important one way or the other. If we're able to pay it faster, then we free up the interest, because we're still paying a quarter there.

Mr. Tony Valeri: I understand that. Would you go further on the tax cut?

Mr. Pierre Brunet: I think the tax cut has been announced and is going forward. As long as it's in line, I think the government just has to follow the course. Now if by 2007 it goes up to $70 billion surplus, then somebody's surely going to come back on the tax cuts.

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

From the Cement group, Monsieur Giroux, voulez-vous répondre? Une minute.

Mr. Michael Giroux: It's a very interesting question for our sector. It's true that greenhouse gas emission is a very important issue for our businesses these days. As an association, our members at this time support a made-in-Canada solution, and we're working with Mr. Beatty's group in our advocacy efforts in that area.

Of course, the advocacy efforts are not being particularly successful at this time. There seems to be an intent that this will pass regardless of pressures that industry is posing.

I don't normally speak on this subject, but I can tell you that from an industry perspective we are looking at a number of areas that we can address this from. It's true that in almost everything we can do—in our manufacturing processes—we have done prior to 1990. Our emissions are what they are. We are still looking at a few other things that can be done: alternate fuels, and something called SCMs, which are supplementary cementing materials.

We're looking at concrete solutions, trying to push the view toward concrete, as opposed to the cement side of things. So cement is manufacturing, or 2% of the process. Or 2% of the entire concrete process generates almost all the greenhouse gas emissions. But if you look in terms of long-view concrete, at buildings and things, a lot of recovery is done over the long term. So it depends on how you look at the industry.

It's a complicated issue, for sure. I'm not sure I've answered the question.

The Vice-Chair (Mr. Nick Discepola): If you have any other ideas, you're welcome to submit them in writing to the clerk. Then we'll distribute them to every member. If you want to think about it....

Mr. Tony Valeri: I'd just be interested in your perspective on sectoral agreements—perhaps your association's perspective on the agreements in the U.K., where government has actually signed agreements with each sector in reaching this overall objective. Perhaps you could just supply this to the clerk.

Mr. Michael Giroux: The European Union smiths association in Brussels, CEMBUREAU, has succeeded in reaching European sectoral agreements. For instance, they have been able to get the process eliminated from the Kyoto accord portion, so that they're only looking at the process afterwards. So there's a lot of work that has been done in Europe as well.

We'd be more than pleased. I don't think I can do it myself, but I'll get a paper prepared on that.

[Translation]

The Vice-Chair (Mr. Nick Discepola): Ms. Minna, you have six minutes.

[English]

Ms. Maria Minna (Beaches—East York, Lib.) Oui, merci. I would like to go to the coalition for infrastructure of Quebec, if I could.

Firstly I want to say that while I understand that we need to cut debt--and I'm not one to say we don't need to do that--in my view, maintaining an absolutely up-to-date infrastructure and spending on infrastructure is cutting the debt in a sense. If you look at economies around the world, those that have the strongest and the best infrastructure also have stronger economies. I've looked at it for years, and you keep looking at things. As the infrastructure falls apart, I see the cost both to the economy and overall is enormous. For me that goes for education as well, because I think the two are very much linked.

As to your figures, you're looking at 15 years out--and I'm not in the slightest disagreeing with the need for long-term, sustainable funding for this type of spending for infrastructure.

First of all, I have two questions for you. The figures you're presenting are specifically for Quebec, if I'm not mistaken. They're not Canada-wide, are they?

À (1015)

Mr. Gilles Vaillancourt: They're for Quebec, and the figures we have included in our discussion this morning only include the next five years. You have to understand that if we look at the chronic deficit of infrastructure maintenance in Quebec--and our figures are for Quebec--what we would need is a cruising speed of $1.2 billion for 15 years, just for Quebec.

Ms. Maria Minna: Just for Quebec. I thought that was the case. I just want to be clear on that.

The other question I have for you with respect to this whole area is this. The municipalities in Canada, all across Canada, have the same problems with maintaining infrastructure. The responsibility at the end of the day comes down to them, and every province deals with it differently. Now in some provinces, certainly in Ontario, unfortunately.... Quebec's a little bit different, and sometimes I think I should move here for some issues, in terms of downloading of housing, child care, social programs--all of the costs that cities have to meet. Has your organization thought about the issue of financing for municipalities in the long term? This is infrastructure, and I appreciate that and I think there needs to be a commitment. But looking from the point of view of long-term, sustainable financing for municipalities, what might that look like in terms of allowing the municipalities the flexibility for the future?

Mr. Gilles Vaillancourt: Ours is a very simple point of view. If you look at municipalities in Quebec, they're actually carrying a debt service of nearly 30% as an average across their budget. That makes it nearly impossible for them to borrow more money and take care of their daily commitments at the same time.

We have been asking for a national program because we figure it's a national problem. For as much as I like to see the federal government or the provincial government lowering the debt, lowering income tax, this actual chronic deficit is increasing at a rate that's a lot heavier than the cost of the money. By not addressing it on a permanent basis, we are simply avoiding this simple fact. It's not on the balance sheet, so you don't see it, but it's there. It's underground and it's going to cost you a lot more money than to do it now. So we have to do it now and it has to be financed.

Municipalities alone could never do it across the country. It's impossible. If the federal government and the provincial government don't come up with a very good proposition of financing, what will they do five or ten years down the road? The country might have a lower debt, might have a lower income tax rate, but we'll look like the third world.

Ms. Maria Minna: Thank you. I agree with your comment.

I would like to go to Madame St-Onge and Monsieur Riopel. With regard to the figures you gave to us earlier with respect to scholarships, I think you said $30 million for Quebec, to increase? Do the figures you gave out earlier have to do with Quebec specifically or are they national?

[Translation]

Ms. France St-Onge: Obviously, what we're asking of federal research councils will apply to everyone in Canada. We must bear in mind that research is partly under federal jurisdiction. Therefore, what we're asking for in terms of tax exemption and budget increases is going to affect all students carrying out research in Canada.

[English]

Ms. Maria Minna: If you were to make one recommendation that would help keep the students in school to finish their program--the doctorate or the master's degree--what would be that one thing that would actually make a big difference?

À (1020)

[Translation]

Ms. France St-Onge: Funding students. The data that I gave you earlier regarding the financial situation of students is extremely worrying. I would remind you that the drop-out rate is one in two.

Let me clarify something. I gave you some good news earlier. There's another piece of good news that I didn't have time to share with you, it's to do with the number of graduate students finding jobs. In 85% of cases, graduates from masters' programs find a job related to their field of studies; for students with doctorates, the figure is 93%. It's worth it. The process works. Students are finding jobs in their field and, afterwards, they're able to contribute to society.

So, when people talk about investing in infrastructures, in protocols, and in environmental measures, although I've got no problem with that, I think that we've got to take a look at what's working at the moment. We have to ask what's working in terms of investment for economic development. The answer is investing in masters and Ph.D. students and in education in general, because it's training highly skilled workers that will be at the heart of knowledge-based economic development over the coming years.

Furthermore, research is an important source of innovation. Developing new ways to do things, new processes, finding technological, social and economic solutions to current problems is a good investment. And the number of graduates finding jobs is very impressive.

On the other hand, what is worrying is the fact that up to one in two students drop out. We have to solve this problem. Canada Innovation Strategy's goal of increasing the number of students is important; increasing the number of graduates is even more important. Obviously, the two go hand in hand, and the solution is to be found in offering direct support to students. I would remind you that students constitute two-thirds of research staff in universities. That's a significant proportion.

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

Mr. Vaillancourt.

Mr. Gilles Vaillancourt: I wanted to say

[English]

to the honourable member, if we look at the dollars invested in any infrastructure program, the federal government gets back 90%, the provinces get back about 70% of their investment, and the municipalities only get about 5%. And that's simply related to the fact that real estate has a tendency, when the infrastructure is better, to have a better value. Since we're only taxing real estate, that's how it goes.

However, we also heard there might be a turndown in the U.S. economy. If there is a turndown, it affects the Canadian economy. That infrastructure program, being national, being well-founded, would also support the Canadian economy during that period. So investment in infrastructure is very important.

Ms. Maria Minna: I agree entirely, Monsieur Vaillancourt. My question, very quickly, goes exactly to the fact that you can only tax property, and to the cost in relation to infrastructure: cities have social costs, and so on. I guess my question to you is, would you see in the long term--I'm not talking about the next two or three or five years, but in the long term, and that would have to be worked out--a different type of taxation or financing powers for the cities? And what would that look like?

Mr. Gilles Vaillancourt: Definitely. I will send you the last comments I made on that. All the municipal governments in Canada--and most of all in Quebec, because in Quebec we are most related to only a real estate tax--need a new fiscal deal and a new form of revenue that's more related to economic growth. If we're going to be partners in economic growth, we need to share the action of the partnership.

Ms. Maria Minna: What would that look like? Could you send me some ideas? Merci.

Mr. Gilles Vaillancourt: Thank you.

[Translation]

The Vice-Chair (Mr. Nick Discepola): Thank you, Ms. Minna.

Mr. Scott Brison, please. Welcome to Quebec.

Mr. Scott Brison (Kings—Hants, PC): I'm delighted to be here with you. I'm not yet bilingual, but it's certainly a priority for me.

The Vice-Chair (Mr. Nick Discepola): Another once said that.

Mr. Scott Brison: Yes, the leader of the Progressive Conservative Party has to be able to speak with all Canadians.

[English]

So as not to exclude the anglophones on the committee, and in the interests of equality, I'll direct some of my questions in English.

The first question is on tax reform. While there's some discussion here and from the CICA of maintaining the course and perhaps some further reductions in the future, there's very little discussion of actual tax reform. We had fairly significant tax reform under the previous government in terms of the GST and a shift to a consumption tax base and away from the manufacturers' sales tax, but prior to that the last tax reform was the Carter commission on tax reform back in 1971 or 1972.

I think that probably more than any other public policy item for Canada right now there ought to be a greater priority on reforming our taxes. We have an antiquated tax system that is not fair to low-income Canadians, where we're starting to tax people at $7,400 per year. And it penalizes success to the extent that we hit our top marginal tax bracket at $100,000 Canadian. In the U.S., Americans don't hit the top marginal tax bracket until I think $350,000 Canadian, or something to that effect. Whether it's our capital gains tax system or our capital taxes particularly, I think we need a sweeping overhaul of our taxes both on the personal and business sides of it.

Further to that, there's one specific idea, and this is one the students may be interested in responding to as well as the accountants, and that is a proposal that was floated in Ontario during the Ontario Progressive Conservative Party leadership race. It was called JumpStart 250. The way this would work is that Canadians graduating from university or community college or entering the workforce would have the first $250,000 of their taxable earnings tax free. This would encourage young Canadians to stay in Canada, to establish themselves here in Canada, as opposed to the draw that exists currently for them to go to the U.S. and seek opportunities and build careers.

The trade-off was that after they had hit that threshold of $250,000, from then on they would effectively be taxed on all of their income. There would not be a basic personal exemption from then on. There is a trade-off.

If we consider the tax loss, the future revenue loss, based on the future productive capacity of a 30-year career, it strikes me as being meritorious for us to consider at least the notion of creating a tax advantage that would encourage young Canadians to stay here and establish their careers here, to pay off their university debts, to invest in themselves, and hopefully establish themselves for a lifetime of prosperity, success, and productive capacity here in Canada. So that's just one element.

I'd appreciate first your view in terms of the need for tax reform in Canada in a general sense and the specific perspective on that one idea.

Thank you.

À (1025)

The Vice-Chair (Mr. Nick Discepola): Monsieur Brunet, s'il vous plaît.

Mr. Pierre Brunet: First of all, if you want to talk about tax reform, remember that we were asked to be here to make comments on the current budget and what should be happening. It's more a presentation on a year, what are the courses that have been taken in the last couple of years and what should follow through.

So it's the same thing with the presentation of Monsieur Vaillancourt, that infrastructure is very important where there is a fit in the priorities. Tax reform is exactly the same way.

Should we sit down as Canadians and ask for tax reform? That's more of a long-term plan. If so, we would be happy to participate in that, but it's up to the management of the government and all of you to get together and get it going.

The Vice-Chair (Mr. Nick Discepola): Monsieur Riopel, s'il vous plaît.

[Translation]

Mr. Benoît Riopel: To give a more precise answer to the question regarding a tax reform which would encourage young graduates to stay in Canada on completion of their studies and pay back their debts, I would say that we, in the FEUQ, are very open to that sort of idea. We believe that offering incentived to people, after they complete their studies, is a way in which the government can show that they believe training in education to be important. In fact, offering interesting terms on completion of studies would not only encourage graduates to stay, but would also encourage people to undertake studies in the first place.

We would like to say that, on the one hand, we are very open to studying this sort of project; however, on the other hand, we would also like to share some of our concerns with you so that they be taken into consideration if such measures are introduced. We have noticed that elsewhere, in some countries where such measures have been tried out, they have quickly become a pretext for increasing tuition fees, sometimes significantly, on the grounds that people will benefit from many advantages after their studies.

We would also like to underscore a question that is even more important than measures to help people survive after their studies. Even if measures are introduced to help graduates, many young people would not be able to undertake studies in the first place if tuition fees were hiked on the pretext that the students will be helped later on. It is, therefore, important to bear that in mind. It's a good thing to encourage young graduates to stay, but even if the situation would be better on leaving university, we can't shoot ourselves in the foot by making it more difficult to start university.

À (1030)

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

Mr. Vaillancourt and Ms. St-Onge, please.

Mr. Gilles Vaillancourt: Mr. Chair, if we really want to encourage young people to stay here and to have a career in Canada, it is not just a question of lowering their taxes. Above all, we cannot leave them to deal with a huge debt in terms of infrastructure. The chronic infrastructure deficit is pernicious because it cannot be seen. It is hidden under the asphalt, we cannot see it, but it's there.

In the case of decisions related to infrastructure, we cannot do what is often done with other decisions, that is, sweep them under the carpet. The cost of doing nothing is much higher than being proactive.

The Vice-Chair (Mr. Nick Discepola): You are very convincing.

Ms. St.-Onge, please.

Ms. France St-Onge: Obviously, I'm in full agreement with my colleague Mr. Benoît. I would like to give the example of a tax strategy used by the Quebec government for post-doctoral students from abroad.

In the science and technology sector, we offer tax exemptions to foreign students at the post-doctoral level in order to encourage them to come here. Obviously, these people make an important contribution in terms of knowledge and innovation development which, in turn, contribute to economic development.

The idea is an interesting one, but we should bear in mind that there are also priorities regarding access to graduate studies and students' living conditions during their time in university. The rate of employment is very good, however, the drop-out rate is also very high.

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

Ms. Picard, your time is up, but I can allow you to ask a short question.

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

As I did not think that I would be given the floor, I had closed my books. I have a question for Mr. Vaillancourt. In your brief, you say that the programs are to be managed by an accountable, dedicated agency which would be mandated to act as an advisor to the municipalities.

I would like to hear your views on that. What do you think about the creation of such an agency and who would it report to?

À (1035)

Mr. Gilles Vaillancourt: Thank you very much for your question. Here's what is happening. We have an agreement on the general thrust. We would provide the federal government and the Quebec government with studies reflecting the true needs of the municipalities. There would be an agreement between the federal government and the provincial government on the general thrust and on the way and which the money would be spent. Then, we would study the mechanism for the allocation of this money. In the case of the last infrastructure program, the majority of the money was earmarked for the aqueduct, but this money was cut off due to a new drinking water regulation for which the Quebec government needed money. The money required for implementing this new regulation was taken from the aqueduct envelop.

Secondly, we had asked for barely 50 million dollars for new economic development projects: 400 million dollars were cut, not from the global budget, but from the part necessary to do other work. That is why towns of 50,000 inhabitants and more where deprived of paving credits. Finally, in terms of the daily application of the programs, what we asked for and what we got were two different things, because the governments ended up solving other problems using money that was to have been exclusively earmarked for renewing infrastructure.

Therefore, if an agency were created in which the municipalities were not only spectators but active participants, we could be far more accountable in terms of decisions that are made. There was a forecast budget of 50 million dollars and it was raised to 400 million dollars for new strategic development, projects although we had been told that this was to have been earmarked for the maintenance of existing infrastructures. If there were an agency with a precise mandate, such things could not happen. We want to avoid this sort of problem in the future.

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

Please be brief, the others have arrived.

Mr. Marc Couture (Groupe-conseil BPR, Coalition pour le renouvellement des infrastructures du Québec): I would like to give an example. That's already been done; it was called the Société québécoise d'assainissement des eaux and it covered all works pertaining to sanitization. So, it's nothing new.

The Vice-Chair (Mr. Nick Discepola): Control boards.

Mr. Marc Couture: It was not a control board; it was an agency like the one that has been asked for in point 4. A designated agency which reported to a department and which managed the whole program.

The Vice-Chair (Mr. Nick Discepola): Thank you very much. I would like to ask the students a small question.

You refered to the basic tax exemption for scholarships. This is $3,000 at the federal level. What is the average scholarship for a student and by how much should we increase the threshold? We can't accept all of the scholarships. We cannot exempt a scholarship of $30,000 or $40,000, but I would imagine that there is a base amount, an average.

Ms. France St-Onge: The granting councils provide $15,000 scholarships at the masters level and approximately $20,000 at the Ph.D. level. This may vary according to the program. Right now, in Quebec, these scholarships are not taxed. We would obviously like to have all scholarships exempt from tax. The scholarships that Quebec students receive from the federal government are not taxed at the provincial level. Very rarely do students receive a $34,000 scholarship, because people who receive scholarships from the granting councils are not entitled to other scholarships.

The Vice-Chair (Mr. Nick Discepola): If you had to make a suggestion, what would it be?

Ms. France St-Onge: That the scholarships awarded from the granting councils be totally tax-free. The other scholarships are rarely as high as the scholarships awarded by the granting councils, because other organizations can...

The Vice-Chair (Mr. Nick Discepola): That's great. I wanted to get a number, if that was possible.

Mr. Vaillancourt, I would like to go back to the question put by Ms. Minna. If you do have a brief, a brief that represents not only the views of your group but also of the mayors from the region or province, which contains ideas about a new tax arrangement, we would like to see it. I would invite you to submit it through the clerk so that we can distribute it to everybody. As a committee, this is an issue that concerns us a great deal.

Mr. Gilles Vaillancourt: Mr. Chairman, I would be pleased to provide you not only with my personal opinion, but I would also be happy to ensure that you receive the brief from the Montreal metropolitan community, which has a population of 3,471,000 citizens, and which must deal with these issues over the next few days. I will make sure that you get a copy.

The Vice-Chair (Mr. Nick Discepola): Thank you very much. As regards Mr. Valeri's question, I would like to clarify, for Mr. Brunet, that every year some groups ask for an increase in spending whereas others, such as yours, are looking for debt reduction. Has the time come to set debt reduction objectives, and regardless of the means used, to let it take care of itself? As Mr. Valeri said, it is only through economic growth... Three or four years ago, I asked the same question as Mr. Valeri did and at that time, you were looking for 50% or 55%, I believe. Today, this number has dropped down to 40%. It seems to me that we should be trying to attain an objective; perhaps we should start to make forecasts for debt reduction and set targets, as we did when we wanted to reduce the deficit. I would like you to provide me with your opinions in writing, since I do not have the time to give you an opportunity to answer a long question like that.

À (1040)

Mr. Pierre Brunet: Thank you. We will also conduct a small enquiry to establish a consensus with other organizations and we will provide you with an answer on the matter.

The Vice-Chair (Mr. Nick Discepola): Thank you so much. I find that your briefs and presentations were...

I will give you 30 seconds, sir.

Mr. Michael Giroux: My comment pertains to what Mr. Valeri was looking for earlier.

We were asked to explain, in clear terms, our position on the impact that the Kyoto Accord will have in our sector. Should we do this in writing?

The Vice-Chair (Mr. Nick Discepola): Yes, send it in writing to the committee clerk.

Mr. Michael Giroux: All right.

The Vice-Chair (Mr. Nick Discepola): I would like to thank you all. You make our job a little bit more difficult, but very worthwhile.

Thank you very much.

Colleagues, we will adjourn for five minutes.

À (1037)

À (1050)

The Vice-Chair (Mr. Nick Discepola): Pursuant to Standing Order 83.1 of the House of Commons, we will continue our pre-budget discussions. We will now be hearing from the last panel for today and also for the week.

First of all, I will explain the rules: you each have eight minutes. As you are quite a big group, this will give enough time for the MPs to ask their questions. I am really going to stick to the seven or eight minutes. This morning, I was a little bit more indulgent.

I would ask the Canadian Council of Regional Breweries to proceed with its presentation. I would like to welcome its General Manager, Mr. Pierre Paquin, and Mr. Bob King, who is the President of Big Rock Brewery. That sounds like a great name.

Mr. Pierre Paquin (General Manager, Canadian Council of Regional Breweries): Thank you, Mr. Chairman, and thank you to the members of the committee.

The Vice-Chair (Mr. Nick Discepola): Wait a moment. There is also Mr. Kevin Meens and Ms. Laura Urtnowski.

Mr. Pierre Paquin: I will be making the presentation, Mr. Chairman. Thank you for inviting us. I think that, in order to be appreciated this morning, we should try to be brief. We will try to do this.

I'm accompanied by Mr. Bob King, who is President of the Big Rock Brewery company and also President of the Canadian Council of Regional Breweries. He has come directly from Calgary to have the privilege of being heard today. I am also accompanied by Mr. Kevin Meens, who is the Executive Vice-President of the Brick Brewery of Waterloo, in Ontario, and Ms. Laura Urtnowski, who is President of Les Brasseurs du Nord brewery. I am the chairman of the board and I am also with the Unibroue brewery.

By the way, I should mention that Mr. Dion wanted to be here, because he is the President of the Quebec Brewers Association, but since he is the guest speaker for the Quebec Chamber of Commerce today, he was unable to attend. He is sorry that he could not be here, but he is here in spirit, believe me.

I would simply like to mention, Mr. Chairman and members of the committee, that the most important thing that we have to say this morning

[English]

is the very last sentence we wrote to Mrs. Barnes in our letter dated November 1. I will repeat this last sentence; it's all important to us. It says, “Without the support of your Committee on this urgent matter, at this critical point in time, Canada's small breweries face a very uncertain future.” Indeed, it is very urgent; indeed, it is a question of survival; and indeed, your support is greatly needed.

Mr. Chairman and members of the committee, this morning I will be quite brief indeed, and I will limit my remarks to seven. These remarks are all included in either this letter to Mrs. Barnes dated November 1, which I've already quoted and of which you have a copy, or one to the Honourable Mr. Manley. The seven remarks will be sufficient because our case rests on these seven points, Mr. Chairman.

The first one is in the first paragraph of our letter to Mrs. Barnes: “The Canadian Council of Regional Brewers jointly with the Canadian Federation of Independent Businesses”-- which is, by the way, represented in this room today by Mrs. Vaillant. The Canadian Federation of Independent Business has been with us all along during the five years we've been requesting the finance committee to approve this proposal.

We have already made representations before your committee requesting a 60% reduction in excise tax on the first 75,000 hectolitres of production by breweries producing worldwide less than 300,000 hectolitres of beer annually. I said that this request was indeed very urgent, and that's point number one. This is our proposal to you. This is our request to you and has been our request in the course of the three presentations we've already made before your committee, sir.

The second remark has to do with regional breweries of Europe and the U.S.A., which have long enjoyed a tax privilege not allowed in Canada, one that renders them more competitive domestically and internationally. Conversely, this privilege is making it hardly possible for Canadian regional breweries to compete outside our country. More on this later. It's an all-important point because our case rests on that, sir.

Number three, the financial well-being and required growth of our young industry are seriously threatened, as evidenced by the very limited number of regional breweries still doing business in Canada. The attached comparative chart illustrates the tax disadvantage of a Canadian company when compared to the American scene.

Ladies and gentlemen of the committee, we have made an attachment. What this is all about, basically, it's Mr. Dion and his brewery saying “Here is what's happening to me in Canada in the year 2001, and here is what would be happening to me with the same figures, the same production, should my brewery be located in Boston, Massachusetts”. The result, as you will see, is that he pays $7,081,000 in Canada, as compared to $2,292,000 were he in Boston. This gives you a very eloquent illustration of the differences there are between the United States and Canada. This terminates my third point.

My fourth point is in the fourth paragraph of our letter to the Honourable Mr. Manley, dated August 1, 2002.

[Translation]

This whole issue is still vitally important because it indicates clearly what is happening. More than 38 out of the 86 Canadian regional breweries, namely 44%, have disappeared over the past five years whereas, in the United States, the number of regional breweries has gone from 408 to 464 during the same timeframe.

À (1055)

This spells the end for small breweries in Canada. That's exactly how it is: the end of small breweries in Canada. The situation is extremely urgent. For us, it is a question of survival and I should tell you, by the way, that Canada should be both proud and happy about the fact that the ladies and gentlemen who own the breweries in Canada have been the recipients of some of the best prizes and awards going. A number of these breweries make beers that are considered among the three or four best in the world. Today, our country is recognized as a manufacturer of great beers, great brands, and superb quality. But unfortunately, the tax situation in this country is absolutely dreadful.

My fifth point is this: small breweries' market share in Canada has been declining for two years, and is now back down to 4.1%, the 1995 level. However, imported beers—most of which are imported by large Canadian breweries—now hold 8.1% of the Canadian market share, in comparison with 3.3% in 1995. This is a 175% increase.

My sixth point: for over five years, small Canadian breweries have been demanding to be on an equal footing with U.S. breweries—they want the 28¢ per litre rate cut by 60% to 12¢ per litre, in comparison to 9¢CAN a litre in the U.S. This would apply to all Canadian breweries whose annual volume is below 300,000 hectolitres.

Ladies and gentlemen of the committee, in my view, the seventh point is extremely important.

[English]

is included in the memo that we produced before your committee in April of 2002. This memo, of course, still rests with the finance committee and I will read from it. On page 6, it says:

“In fact, the regional or craft brewing industry provides jobs directly to more than 2,200 people and indirectly in the form of sub-contracting and distribution to an additional 1,100 individuals, for a total of 3,300, which accounts for an annual wage mass of approximately $103 million, on which the personal tax amounts to approximately $30.9 million”, apart from what we are saying in terms of excise tax.

Needless to say, most of these breweries are located in small communities, in small villages or cities, and sometimes will be one of the main employers in these small communities.

[Translation]

Thank you, Mr. Chairman and members of the committee, for giving us this opportunity to speak to you on an issue that is vital for an industry that truly deserves assistance, that is not asking for charity but simply asking for the justice it has so long sought.

Thank you, Mr. Chairman.

Á (1100)

The Vice-Chair (Mr. Nick Discepola): Mr. Paquin, I am quite certain that your comments will raise some questions.

[English]

Mr. Robertson, please, from the Canadian Taxpayers' Federation. Welcome.

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

The Chair: This is your annual pilgrimage, I think, isn't it?

Mr. Walter Robinson: I enjoy coming to Montreal on Friday afternoons to shop.

Once again, it is a pleasure to appear before you to put forward the 2003 pre-budget priorities on behalf of the 61,000-member Canadian Taxpayers' Federation.

[Translation]

As usual, my presentation will be made only in English. However, please feel free to put your questions in French or English and I will attempt to answer in the language of your choice.

[English]

The CTF--la Fédération des contribuables canadiens--was founded in 1990, and has grown to become Canada's largest and most effective taxpayer advocacy organization. We are non-partisan, not-for-profit--although I like to say not for loss-- and do not receive any financial assistance from any level of government. During their employment with the CTF, all directors and staff, including myself, are forbidden to hold political memberships.

When I appeared before you last year in this very city, security concerns were foremost in all of our minds. While the threat of terrorism is still real and economic uncertainty persists, especially south of the border, the immediate physical threat to Canadians is now evident in our unprecedented political environment. The government, via the throne speech, has signalled its activist intentions to push forward with a minimum of sixteen major initiatives. Combine this zeal with the fact that the Prime Minister will never again have to face the electorate and the fact that cabinet ministers will be allowed to remain in their posts while pursuing the Liberal leadership, it becomes painfully clear that the potential for billions of public dollars--taxpayer dollars--to be abused is very real. Therefore, I urge the members of this committee, whose work is very much appreciated and influential, to remind the Minister of Finance that the government's fiscal strategy must be built on three pillars: legislated debt reduction; continuing tax relief buttressed by fair and competitive taxation principles, and controlling the growth of spending by constantly redefining the role of government to ensure that program initiatives are warranted and that they achieve positive public policy outcomes.

While the CTF commends the government for embarking on a five-year tax reduction program, we urge government members to avoid the rhetoric birthed by Paul Martin and now nurtured by Minister Manley with respect to the magnitude of the so-called $100 billion tax cut plan.

To start, $20.7 billion of forgone tax revenue due to the elimination of bracket creep is not a tax cut. Rather, it is revenue the federal government will simply not collect. As well, we must factor in the extra $28 billion Canadians will pay in CPP premiums through to 2004. Finally, increases in the Canada child tax benefit to the tune of $6 billion should properly be classified as an expenditure, as opposed to a tax relief measure. Therefore, the government's five-year personal, business, and EI tax reduction plan is closer to $47 billion. Is this welcome? Absolutely. Is this $100 billion? Absolutely not.

While the CTF differed with the government over the approach taken to achieve five surplus budgets--an approach, I should add, which continues to overtax workers and employers through excessive EI premiums to the tune of $42 billion and counting, and an approach which savaged transfers to all provinces--nonetheless in fairness we acknowledge the modest fiscal progress made over the past decade. However, much work remains to be done.

While the Canadian economy has fared better than most G-7 and OECD nations and Canada is poised to outpace other industrial economies this year and next, destructive taxes still retard our competitive prospects, none more so than the corporate capital tax, a complex, inefficient, and unfair measure that drains $1.4 billion annually from Canadian enterprises. This tax, a rarity in the industrialized world, punishes capital-intensive industries such as software development, the biotechnology sector, telecommunications firms, the health care sector, and financial services. These key sectors lie at the heart of our collective efforts to build a knowledge-based, innovative, 21st century economy, yet poor tax policy punishes them. To truly foster sustained innovation, the corporate capital tax should be eliminated.

As for individuals, according to OECD figures, Canadians still languish under the highest personal income tax burden in the OECD and the third highest total tax burden among our G-7 partners. Statistics Canada continues to report that our single largest household expenditure, 22¢ out of each dollar, goes to personal income taxes, which is more than we pay for shelter at 19¢, transportation at 14¢, or food at 11¢.

Re-indexing the tax system to inflation, which we applaud the government for doing, thereby eliminating bracket creep, represented the ideal marriage of fiscal and social policy. Raising the basic personal exemption to $10,000 in the next two years and to $15,000 within the next five years would replicate this successful union. It's tax relief that would benefit all Canadians.

Next, we reiterate our call for the government to end all of its corporate welfare and regional development schemes and instead focus on extending business tax reductions past 2004 and lowering the corporate tax rate of 21% by a further 3% through to 2007. Likewise, we call on the federal government to institute a legislated annual schedule of debt reduction equivalent to 5% of annual forecast total revenue collection. It would be a more effective and consistent way to retire the national debt, as opposed to the “Hey, look what we found in the piggy bank at the end of the year” approach that the government presently employs.

Other recommendations in this year's submission to you include: the elimination of EI and CPP employer overpayments, a $750 million annual rip-off of Canadian businesses; adoption of the Carter commission recommendations--and I will correct Mr. Brison on this--of 1966, the year I was born, to make the family the base unit of taxation--

Á (1105)

Mr. Scott Brison: I wasn't born then.

Mr. Walter Robinson: --and implementation of the CTF municipal roadway trust model to plow $2.2 billion annually back into road improvements for Canadian cities.

Of course, other dominant national issues such as health care reform and Kyoto are worthy of discussion, and I look forward to sharing our thoughts on these critical files during our roundtable discussion this morning.

Mr. Chair, a great man once said, “We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” That great man was Sir Winston Churchill, circa 1903. I hope these words of wisdom from a century ago will collectively guide us today as we discuss fiscal policy choices for ourselves and for our children in what are still the opening days of this very new century.

[Translation]

Thank you. When the others have completed their presentation, I will be pleased to answer your questions.

Á (1110)

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Robinson.

We will now be hearing from the Forest Products Association of Canada, represented by Mr. Paul Lansbergen, Director of Taxation and Business Issues, and Ms. Louise Desjardins, Director of Taxation. Welcome to the committee. We are eager to hear your comments.

[English]

Mr. Paul Lansbergen (Director, Taxation and Business Issues, Forest Products Association of Canada): Thank you, Mr. Chairman and honourable members. We are pleased to be here today. As Mr. Discepola mentioned, my name is Paul Lansbergen and I'm a staff member with the Forest Products Association of Canada. With me is Louise Desjardins, vice-chair of our taxation committee and a director of taxation with Abitibi Consolidated here in Montreal.

Before Louise discusses our tax policy recommendations, I would like to provide a little context. We will refer to handouts, which I believe you have in front of you, and these handouts highlight excerpts from our full written submission.

Looking at slide two, the forest products industry is a key contributor to Canadians' wealth and well-being. The industry has a vast community base and is a primary partner for rural development and technology transfer. The industry's strong productivity performance is above the manufacturing average and greater than our American competitors. We are a world leader in sustainability. In fact, Canada boasts the largest area of third-party certified forests in the world. We are also successful in the world marketplace. Canada exports some 250 products to over 175 countries. In the last decade alone we have essentially doubled our exports.

Moving to slide three, I would like to indicate some of the challenges the industry is facing. Although global demand is forecast to grow, it is becoming increasingly volatile. New technology and new capacity have turned former customers into competitors. This is particularly true in our primary market, the U.S. Where Brazil, Finland, and New Zealand are experiencing considerably more export growth than us, the softwood dispute is only adding fuel to the fire. The result of these challenges has been a low return on capital, in fact below the cost of capital for the industry. The impact is restricted capital expenditures to below depreciation rates and well below the expenditure rates of our competitors, resulting in aging capital stock and loss of competitiveness.

Moving to slide four, these industry facts create a context in which tax policy can play an important role in determining the business environment in which we operate. Changes to Canada's tax regime can make a significant improvement in our overall competitiveness and the vitality of literally hundreds of communities across Canada.

Although the overall theme of our recommendations is a competitive tax structure and level that facilitates innovation, the cyclical nature of our industry and the current harsh economic conditions for the sector demand priority attention to cashflow. The industry is a price-taker on the global market and is vulnerable to even marginal shifts in relative tax rates. It is important to measure these relative rates against rates facing both other sectors within Canada and our competitors abroad.

A good example is the inequity of capital taxes, which Mr. Robinson spoke quite a bit about. While we hope the federal government can act on our recommendations, we have attempted to acknowledge the fiscal pressures it is under. We urge the government to maintain its previous approach of balancing tax cuts and reform, debt reduction, and new program spending. In particular, we believe the government should direct priority spending to implementing its innovation strategy.

I will now turn it over to Louise to discuss our tax recommendations.

Ms. Louise Desjardins (Director, Taxation, Forest Products Association of Canada): Thank you, Paul.

Mr. Chairman and honourable members, as mentioned by Paul, FPAC is recommending three measures aimed at providing immediate cash benefits and improving the unlimited capacity for the forest product industry during the low end of the business cycle. This is very important, as FPAC member companies are under considerable pressure due to the current economic conditions.

The three proposed measures with the greatest impact are as follows: first, commit to eliminating the large corporations tax; second, make scientific research and experimental development investment tax credits creditable against the large corporations tax; third, allow the transfer of tax credits between related corporations.

We are a manufacturing industry. The elimination of the manufacturing and processing deduction makes us disadvantaged versus the service sector, as we pay a disproportionate share of capital taxes. For example, in 1998 the forest sector paid 7% of the total capital tax collected, more than double its gross domestic product.

Capital taxes add to the cost of capital projects. In fact, the industry pays roughly $160 million a year in federal and provincial capital taxes. The result is a disincentive to capital investment the and adoption of technology.

The reductions by Quebec and British Columbia are a welcome start. According to FPAC modelling, a typical newsprint plant in Quebec will save 4% in tax payable. For a British Columbia plant, the savings are 5%. Elimination of the federal large corporation tax would represent additional tax savings of 3% and 4% respectively for Quebec and British Columbia plants.

We ask that you renew your previous recommendation calling for the elimination of the large corporation tax, which was supposed to be temporary. In today's situation, a phased-in rate reduction to zero is acceptable.

The next measure relates to the scientific research and experimental development tax credit program. Canada has an excellent program, but it is not perfect. Investment tax credits go unused during unprofitable periods. During the phase-out period on the large corporation tax, scientific research and experimental development investment tax credits could be made creditable against the large corporation tax. This would smooth out the benefits of the program and help to sustain research and development when it's under economic pressure. Such a move targets action to where and when it is needed most.

The third measure we are proposing builds on the ability to transfer tax liabilities between related corporations. During unprofitable periods, tax credits are inaccessible. Creating a similar provision for transferring tax credits among related corporations would provide immediate access to tax credits. Examples include scientific research and experimental development investment tax credits, or the large corporation tax or tax credit. This would enable one subsidiary to transfer an inaccessible tax credit to another subsidiary with taxable income.

Moving to slide six, the second-last measure I want to discuss is the expansion of the capital cost allowance class 43.1 provision. Finance Canada is considering changes to this provision, which provides vast write-offs for energy projects. The provision currently applies to limited numbers of projects that generate energy from wood waste, such as bark and sawmill residue. There is significant potential to better utilize wood waste as renewable energy. In fact, the energy generation potential is more than 16,000 gigawatt hours per year. Broadening this provision to include more projects applicable to the industry would result in climate change benefits, with reduced greenhouse gas emissions through greater energy efficiency, and lower operating costs for the industry.

Moving to slide seven, improving the cashflow and profitability created by these measures would increase this industry's innovative capacity as firms focus on innovation, not the bottom line. In particular, eliminating the large corporation tax would lower the costs of capital and remove the financial disincentives for capital investment, facilitating capital stock renewal. Creditable investment tax credits would help sustain research and development at the bottom line of the business cycle. The overall benefit would be a more competitive forest products industry.

Thank you. We look forward to answering any questions you may have, in French or in English.

Á (1115)

[Translation]

The Vice-Chair (Mr. Nick Discepola): Thank you, Ms. Desjardins.

I would now like to welcome Ms. Amelia Shaw, Public Affairs Manager at the Canadian Urban Transit Association, accompanied by Ms. Donna-Lynn Ahee, Project Manager. Both are from

[English]

National Task Force to Promote Employer-Provided Tax-Exempt Transit Benefits.

Welcome.

Ms. Amelia Shaw (Manager, Public Affairs, Canadian Urban Transit Association, National Task Force to Promote Employer-Provided Tax-Exempt Transit Benefits): Good morning, everyone. Thank you very much for this opportunity.

My name is Amelia Shaw, and I am manager of public affairs for the Canadian Urban Transit Association. I'm also one of the project managers for the National Task Force to Promote Employer-Provided Tax-Exempt Transit Benefits.

By almost every measure, transportation in Canada is headed on an unsustainable path. This is the message from Natural Resources Canada, but what exactly does it mean? It means our air is getting dirtier and our kids are getting sicker. It means we spend more time each year battling traffic and less time productively, even if that time is only used for leisure. It means more land and money is devoted each year to single-occupancy vehicle use, despite our lack of resources to continue this trend. It means that opportunities are lost by our most vulnerable segments of society when their mobility needs are not met by current public transit services. It also means the costs of our transportation decisions are adversely impacting not only individual and family budgets, but also the competitiveness of Canadian businesses.

I'm here today to assure you that we can reverse these trends, to let you know that Canadian public transit systems can fulfil their mandate to significantly reduce congestion and improve quality of life in our urban communities. But to do so we need assistance from the federal government.

Public transit use in Canada has been experiencing steady growth since 1999. It desperately needs an infusion of investment to replace aging infrastructure and expand services, and to ensure that public transit services are well used and that ridership growth continues. We need a tax system that does not penalize individuals for choosing public transit.

This committee can take one small step towards encouraging Canadians to make the right choice when they plan their commute to work. You can recommend that the federal government amend the Income Tax Act to make employer-provided transit benefits an income tax-exempt benefit.

Many of you know we have appeared before this committee in the past, and we typically call it TEI: tax-exempt initiative. You will not be alone in your recommendations. TEI has the support of labour groups across this country, including CAW and all other unions represented by the Canadian Labour Congress. It has been recommended by environmental groups such as Pollution Probe, the Sierra Club of Canada, and Physicians for Global Survival.

It is recommended by social and health groups, including the Ontario Coalition of Senior Citizens' Organizations, the University of Saskatchewan Student Union, and the Canadian Lung Association. It has widespread business support, from that of the Toronto Board of Trade to the 76% of individual businesses responding to a 1999 survey in the greater Vancouver regional district. It also has tremendous individual support--from 73% of Canadians, as indicated by respondents to a national Environics poll.

This initiative has tremendous political support. Motion number 360, introduced by Nelson Riis and debated in the House of Commons, passed after MPs considered this tax exemption by a vote of 240 to 25. It has been a recommendation made by the House of Commons Standing Committee on Environment and Sustainable Development and by several government task forces and government departments. It has also been unanimously endorsed by the Federation of Canadian Municipalities.

The only opposition seems to be the response from the Department of Finance, so I'll expend the next few moments explaining why TEI is such an important transportation-demand management tool and addressing any outstanding concerns.

Employer-provided parking and employer-provided transit benefits are both considered taxable under the federal Income Tax Act. However, Revenue Canada's interpretation and the tax preferences included in the act allow many employees to receive their free parking income-tax-free. While Revenue Canada cannot identify the extent to which Canadians avoid paying tax, surveys show that free and subsidized parking is a common benefit provided to approximately 80% of all auto commuters. Employer-provided transit benefits are practically non-existent. Employers will, however, start providing this benefit to their employees if it is treated as a non-taxable benefit. There is plenty of evidence from the United States to show that this is true.

Since most commuters compare only the operational costs of using the vehicle, such as gas and parking, to the cost of using public transit, employer-provided parking is a significant financial incentive to drive. Transit benefits motivate many employees to choose public transit over driving alone. A transit benefit is also an equitable, comparable benefit for non-drivers, who cannot take advantage of employer-provided parking.

Some disbelief has been expressed by the Department of Finance that this would actually work. Yet experience in the United States proves that where employers are allowed to provide transit benefits to their employees income-tax-free, significant increases in public transit ridership will occur. Surveys completed when the allowable tax-free benefit was only $21 per month resulted in transit ridership increases of 23% in New York City and 25% among government employees.

In Philadelphia, transit ridership increased by 32% among current riders, and new riders increased by approximately 30%. Improvements to the United States' 1998 Transportation Equity Act for the 21st Century allow employers to provide up to $100 per month in non-taxable benefits and employees to purchase these benefits themselves with pre-tax income.

Á (1120)

A continual expansion in the number of employees and employers taking advantage of this tax break has helped the United States set post-war records for ridership growth, with total transit ridership increasing by more than 20% in the past five years. This tax exemption is being hailed as the single most important transportation demand management action to improve ridership.

Conversely, at the Johnson & Johnson factory in Yorkshire, Great Britain, a decision was made to begin taxing existing employer-provided transit benefits. This change in policy played a significant role in creating a negative transit use spiral that led to a massive collapse of bus use by staff.

Surely these results and experiences must be considered when determining the potential impact of this tax exemption in Canada. A report commissioned by the federal government as part of the national climate change estimates that public transit use increases of up to 58% among participating employees and a decrease in auto commuting of up to 7.5% would be achievable should TEI be available in Canada.

There remains an unresolved debate as to the fairness of this initiative, given that not every commuter will be able to take advantage of this benefit, nor will every employer. However, I would like to challenge everyone here today to examine who exactly would benefit if TEI were implemented.

We did hand this out with your new special edition tax exempt initiative. I don't know if you can see this, but this is two buses, and this is all of the number of cars of the people who would be in these two buses. So even if you're not using public transit, might we suggest that you'll also benefit from this kind of tax exemption.

TEI will financially benefit the employers and employees and their families who take advantage of it. Over the next 20 years, this could encompass almost 60% of employers and 10% of all commuters.

I think I'm actually going to turn to Donna-Lynn, since you're watching the time.

Á (1125)

The Vice-Chair (Mr. Nick Discepola): We have another two presenters.

Ms. Donna-Lynn Ahee (Project Manager, National Task Force to Promote Employer-Provided Tax-Exempt Transit Benefits): Hello. I'm Donna-Lynn Ahee, a bus operator with OC Transpo and another representative of the national task force to promote TEI.

I want to bring to your attention a chart that's in the handouts you received. It's really important, because when we discuss the cost of TEI, it's important to realize that the cost changes according to whatever type of legislation you might want to enact. There are several important factors that will influence the cost: the federal and provincial tax rate, the number of participating employers and employees, the number of new public transit riders that the benefit will attract, and the actual value of the benefit provided.

The tax rate of course is fairly straighforward. The number of employers and employees who will participate is influenced by the size of the tax exemption, by the ease of participating in the program, by any marketing the transit properties might take, and by the flexibility to pass some or all of the costs on to the employee. For example, in the U.S., when the maximum allowable benefit was less than $21 per month, the number of participating employees remained low, at between 1% and 5%. When it was expanded to $60 a month, they started to see sales increase by 27% annually.

To bring back your attention to this, we have cost estimates that range anywhere from $1 million in year one to $3 million in year 10, all the way up to $20 million in year one to $120 million in year 10, depending on what type of legislation you would like to enact. So if people are concerned about the actual cost of it and they don't want to go to the $120 million program, we suggest that you start off small. Try something. Try capping the benefits. But at least get something in place so that transit properties can begin marketing this program.

The Vice-Chair (Mr. Nick Discepola): Thank you. I'm sorry to end this, but that's my job, unfortunately.

I'd like to now welcome Monsieur Jean-Michel Laurin, bénévole--félicitations--de Résultats Canada.

[Translation]

Mr. Jean-Michel Laurin (Volunteer, Results Canada): Thank you, Vice-Chairman. I would like to thank committee members for coming to Montreal to hear us.

As the vice-chairman indicated, Results Canada is a group of volunteer Canadians from coast-to-coast, whose goal is to generate the political will to eliminate hunger and extreme poverty in the world.

They are driven primarily by the silent tragedy that I will be talking to you about. This tragedy can easily be avoided if we are given the means we need. You can see the figures in the brief handed out by the clerk. Of the 4.6 billion people living in developing countries, almost 800 million do not have enough food to lead a normal life. Over 850 million of them are illiterate, and over a billion of them do not have access to clean water. In addition, 2.4 billion have no access to the basic sanitation services we enjoy in Canada. Eleven million children die of avoidable causes each year. Thirty-six million people live with HIV/AIDS, while 25% of people in developing countries live on wages of less than $1 a day.

To tackle and solve the problem, the international community must work in concert towards common goals. As an active member of the international community, Canada made a commitment at the Millennium Summit that by 2015 there would be 50% fewer people living on less than $1 a day, that there would be 50% fewer people suffering from hunger, that all children would have access to basic education, that the mortality rate for children under five would be reduced by two-thirds, that there would be fewer new cases of AIDS, and that the incidences of malaria would be reduced.

These new commitments were made, but at the same time Canada's overseas aid budget has been drastically reduced over the past 10 years. As you will see, ODA as a percentage of GNP has declined steadily since 1992. Though it is true that Canada, like most donor countries, has been forced to put its public finances on a sounder footing over the past 10 years, we have still reduced our budget much more than other donor countries. Our ranking on the OECD donor list has dropped from seventh in 1992 to fifteenth in 2001.

It is quite true that the government recently announced measures to ensure that ODA would be increased in the next few years. In the Speech from the Throne, the government announced that ODA would be doubled by 2010, with 50% of the increase allocated to Africa under the New Partnership for Africa's Development. The government also announced that tariffs on most imports from the majority of least developed countries would be eliminated by January 1, 2003. At the recent G-8 Summit, the Prime Minister also made a commitment to increasing aid to Africa by 8% a year for five years.

Unfortunately, this additional spending will not be enough to bring us up to the point, where we contribute our fair share to the international effort against poverty and exclusion announced at the Millennium Summit. The increases announced will increase ODA to 0.35% of GNP, but this will not close the gap that has opened up in the past decade; in 1993, we were contributing 0.49% of GNP.

In order to achieve the goals of the Millennium Summit, the World Bank estimates that donor countries must increase overseas aid to 0.5% of GNP. At the Monterrey Conference on Development, developing countries reminded donor countries that donor countries had already promised to boost aid to 0.7% of GNP.

[English]

So one of the major obstacles to increasing the aid budget is the perception that aid is sometimes inefficient or wasted, and this is why it's important to spend a greater proportion of the aid budget on the most effective programs, meaning those that will help us meet our international objectives. These are, for example, basic education and health care, water and sanitation, and microcredits for the poorest.

An annual increase of 20% per year over five years would re-establish the aid budget to its previous high and make us pay our fair share in the international effort in fighting poverty.

CIDA's new policy, revealed last September, called Strengthening Aid Effectiveness, reaffirms our social development priorities. Here's an excellent indicator telling us that additional funds will be used effectively. We must keep insisting that funds go towards the most effective programs, meaning those that target meeting basic human needs.

[Translation]

One example I want to give you today of an effective program is the Canadian International Immunization Initiative. We know that, for approximately US$17, a child can be immunized against six fatal diseases. The amount of $17 includes refrigeration, transportation and training costs, as well as workers' pay.

According to UNICEF, the Canadian Initiative has made it possible to directly save 350,000 lives over the past few years, aside from the many disabilities that have likely been avoided. The Initiative has contributed to the virtual elimination of polio, thus saving Canadian taxpayers $10 million a year in additional health spending.

Á (1130)

UNICEF estimates that, for each child immunized in a developing country, there is a $30 saving in health care costs over the rest of that individual's life.

Immunization is generally considered the best health care investment there is, and Canada currently allocates $10 million to the Initiative. This is a low-cost measure that involves little risk and that generates time-tested results.

In conclusion, we should point out that, if we genuinely want to fulfill the commitments made at the Millennium Summit, we must increase our overseas aid budget by 20% a year over the next five years, allocate a higher percentage of the budget to initiatives that make it possible to meet basic human needs, such as the CIII, and lastly, to increase the impact of assistance, improve cooperation among Canadian agencies and donor countries, particularly in the health field.

Thank you very much.

Á (1135)

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Laurin.

I would now like to invite the last, though by no means least, of our witnesses, Mr. Richard Côté, Regional Vice-President of the Union of Canadian Transport Employees, to come forward and make his comments.

Welcome to the committee, Mr. Côté.

Mr. Richard Côté (Regional Vice-President (Province of Quebec), Union of Canadian Transport Employees): Thank you, Mr. Chairman.

I would like to advise the committee that, when I arrived, I submitted a number of documents to Ms. Auger. I will be quoting from those documents. You do not have them at present, but they will be submitted to you shortly.

Mr. Chairman, committee members, I would like to draw your attention to the critical financial situation of the Canadian Coast Guard.

After it was placed within the Department of Fisheries and Oceans in 1995, the Coast Guard saw hundreds of millions of dollars cut from its programs across Canada. There has been a 30% reduction in fiscal budgets and a 40% reduction in human resources. The department is also applying a risk management approach to search and rescue, marine area maintenance and pollution control. On that topic, please see the proceedings of the meeting held by the Standing Committee on Public Accounts on October 23, 2001.

Some vessels do not have sufficient search and rescue equipment, while others carry no specialized, trained search and rescue personnel. Moreover, vessels are often moored at the dock when they should be out at sea as part of search and rescue operations. Obligations contracted under the International Convention for the Safety of Life at Sea are not being met.

The Canadian Coast Guard needs over $350 million to renew its aging fleet and needs to spend $160 million solely on improving current program effectiveness from the operational standpoint. By 2020, the Coast Guard will have to inject $4 billion to renew the fleet.

As indicated in the reports we have submitted, the Coast Guard had difficulties in responding to the Swissair disaster, as well as to the sinking of the Flare and Gold Bond Conveyor. It is increasingly dependent on the U.S. Coast Guard to assist in situations it can no longer handle.

At present, the Coast Guard has no presence in coastal waters to prevent criminal activity or stop illegal immigrants from entering the country. The RCMP estimates that only 5% of drugs smuggled into Canada through the coast is being stopped. Coastal security has become an essential issue since September 11, 2001. Our members can play an important role in applying the legislation that protects Canada's territorial waters.

The Navigational Aid Program is in complete disarray. There is not enough ship time to manage it effectively, and there are always numerous breakdowns causing safety problems for ships. We are not meeting our international responsibilities in this area.

The search and rescue sector, environmental response sector and water safety sector are all seriously under-funded, and could not effectively respond should Canada experience a major event, such as the Exxon Valdez disaster.

The budget of the Coast Guard Auxiliary has also been cut significantly, affecting proactive services the auxiliary offered in the past, like training.

In the Quebec region, the Coast Guard is required to provide services over an area of 58,000 square nautical miles and 2,420 nautical miles of coastline.

This year, the search and rescue program budget is $2.4 million, while $1.7 million has been invested in applying the Marshall decision on compliance with fisheries' regulations. Moreover, $980,000 was allocated to security after September 11, 2001.

On April 1, 2003, we will have to start all over again. The region will have a shortfall of $24 million.

Each of our search and rescue units will be cut back by 60 service days. There will no longer be any coverage by hovercraft in the 140 zone, Lac Saint-Pierre. This service will be provided by the regular Coast Guard, and in the channel only. We will be adding two small 47-foot vessels to cover the estuary of the St. Lawrence River. This is totally inadequate for such a large operational sector. These small vessels have a maximum range of 200 sea miles and are inadequate to handle major situations. I would refer you to exhibits 2, 3 and 4 in my presentation. The vessel Tracy will no longer be in service as of 2003, because of budget cuts, caused by a zero-deficit requirement. If you consult exhibit 5 on the annual planning of vessels for 2002-2003, you will see that everything entitled “Integrated” has an operating budget shortfall.

So in the Quebec region, the entire network of fixed aids must be redone at a cost of $4 million, because nothing has been maintained since the beginning of the 1990s, following budget cuts. We have a $2.4 million shortfall for operating our basic fleet. Since 1995-96, the budget has been reduced by $24.6 million and another $11 million in the last three years. Our ice-breaking services are at a bare minimum. If there were any major incidents or maritime disasters, we would have a hard time dealing with them because our resources are stretched to the limit. I must confess that we are almost in violation of Chapter 31 of the Ocean Act, Part III, as is outlined in exhibit 6 of our brief.

In the report on the vessel Lake Carling, in exhibit 1, there is a list of the major incidents that have happened in the Gulf of St. Lawrence. It would have been impossible for us to handle these incidents with a little 47-foot vessel.

The culture of the Department of Fisheries and Oceans is completely different to that of the Coast Guard. Since the Coast Guard was merged with this department, millions of dollars have been taken away from the Canadian Coast Guard's budget and given to programs of the Department of Fisheries and Oceans. The Coast Guard must become a separate entity or else merge with a similar department, one where priority is given to safety and compliance with the legislation and regulations, such as Transport Canada. We, the members of the Union of Canadian Transport Employees, are asking for your support in three areas: an independent audit or review of the financial management of the Coast Guard; an investigation into the current and planned mandate of the Coast Guard to ensure that it is meeting its requirements as set out in the legislation and regulations; and a study on the possibility of separating the Coast Guard from the Department of Fisheries and Oceans.

We will now present a list of the significant problems that still exist. All our programs are underfunded and are subject to continual freezes on occupational and safety expenditures. There is a serious shortage of rescue specialists onboard our ships. The incidents involving the Flare, the Gold Bond Conveyor and Swissair show that there is a shortage of resources to deal with significant incidents. You may also consult the report on the Lake Carling incident in exhibit 1.

The merger with the Department of Fisheries and Oceans sincerely compromised the Coast Guard's reputation. The Coast Guard should be separated from the department and given definite mandates regarding marine safety, environmental coastal protection and guarantees of Canadian sovereignty in Arctic waters.

The Coast Guard is experiencing a serious morale problem, and has a high rate of stress-related sick leave. The Department of Fisheries and Oceans has been promising studies on workload since the end of program review. So far, it has failed to keep this promise, with the result that many employees have been overworked.

Repeated changes in the administrative structure have led to a lack of continuity in decision-making and program delivery. There are serious management problems regarding the current financial situation (lapsing funds and returning funds).

Since we are doing almost no coastal patrols, there has been an increase in drug trafficking. The RCMP estimates that the rate of interception is down by 5%. The Aids to Navigation Program is suffering from a shortage of ship time, and the inadequate training programs mean that our staff is not achieving its full potential.

In closing, I would include a report prepared for the Coast Guard on risk management criteria—that is exhibit 8—and some photographs of the primary rescue, environmental action and ice-breaking unit. At the moment, the Department of Fisheries and Oceans has a $31 million deficit, and we are expecting further cuts.

In closing, I would like to thank the members of the committee for agreeing to hear my presentation. I would like to remind them that the Minister of Transport, Mr. David Collenette, said at the National Marine Conference in Toronto on May 26 and 27, 2002: “The biggest mistake we made was to let the Coast Guard go”.

Those are our respectful submissions.

Á (1140)

The Vice-Chair (Mr. Nick Discepola): Thank you for your understanding, Mr. Côté.

My colleague spoke about a group. I must tell him that this group has already made a presentation in Ottawa. I offered these people two minutes; they could have taken part in the question period, but they did not want to do so.

I know that my colleagues have to catch a bus at 12:30 p.m. I will therefore allocate 35 minutes for the question and answer period, and extend the meeting by 15 or 20 minutes. I will divide the time as follows: 10 minutes for the Bloc Québécois, 10 minutes for the Conservatives and 15 minutes for our side. You may share your time.

Mr. Pierre Paquette: You do need more time than we do to present your ideas.

The Vice-Chair (Mr. Nick Discepola): Please proceed, Mr. Paquette.

Á (1145)

Mr. Pierre Paquette: I would like to thank all of our witnesses for their presentations.

I would like to start with the people from Results Canada and those who favour an income tax credit for public transportation. First of all, I would like to say that as far as increasing our aid to 0.7% of the GDP, it goes without saying that the Bloc Québécois is in full agreement with you. In fact, during one of our opposition days, we tabled a motion in the House which was passed by the majority from all parties, except the Alliance. Consequently, there is no doubt that parliamentarians agree with the objectives.

Nevertheless, there is a great deal of resistance from the Finance Department. We have noticed that things are not moving forward very quickly. In this respect, I would like you to explain for me, Mr. Laurin, why the government is being so reluctant to implement a measure on which everyone agrees, including the majority of members of Parliament in the House of Commons.

I would like to ask the same type of question to the representatives from the organization that recommended the tax credit. One of my women colleagues in the Bloc Québécois, who is from Jonquière, suggested a tax credit of this type, and the idea was turned down by this committee. The officials opposed it and told us that the idea did not hold water. Since a tax credit of this type is already being used by many American states, what accounts for the high level of resistance to this idea in Canada?

I would like to start by discussing this issue of resistance, and I will come back later if I have time.

The Vice-Chair (Mr. Nick Discepola): All right.

Mr. Laurin, please.

Mr. Jean-Michel Laurin: You are wondering why the Department of Finance is resisting the idea of increasing this assistance, even though members of Parliament want it to happen. My feeling is that the department is sensitive to the views of the Canadian public; you work in the government, you are parliamentarians and so you have to be in touch with the views of the populace. As I said earlier, there is a general feeling that assistance is often ineffective or wasted and that much of the funding ends up getting lost because it is not used for anything. That is why the decision is often made to increase the proportion of the budget earmarked for effective programs such as the one I mentioned to you. That program works directly to save human lives; it works directly to give concrete results.

In our opinion, if CIDA really placed more emphasis on basic human needs and was determined to deliver specific, concrete results, it would easily win over Canadians. If people were told that $10 million had been spent on a certain program that had managed to save 350,000 lives in three years, I think that it would not be a tough sell. Canadian taxpayers could easily buy that.

There is no doubt that one way of reducing the resistance of the finance people is to show that there are effective programs and that giving more resources to those who programs will achieve better results and will have Canadians on side.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Laurin.

I would now ask Ms. Shaw to answer the second question.

[English]

Ms. Amelia Shaw: Thank you very much.

I had the opportunity to speak to Bill C-209 when it was brought forward to this particular committee. It is slightly different from the employer-provided tax-exempt transit benefit, insofar as Bill C-209 was very general and was going to be provided to everyone, and I believe that they came back with a cost at that point in time that Finance Canada did not feel they should be supporting; they felt instead that it needed to go to infrastructure.

We still support the intent of Bill C-209, but we've proposed a slightly smaller, more manageable tax exemption. I'm going to let Donna-Lynn speak specifically for the federal government concern.

Ms. Donna-Lynn Ahee: I think part of the problem too is that there's always been a little bit of a discrepancy about what the actual tax exemption will cost. There have been some estimates made where they will take take the high end of the benefits, say they're going to do a cap at $60 per month, but with that they'll attach a very low end of ridership increases. So they look at the total and say it's too expensive on a cost-per-rider basis.

I was speaking with someone the other day, a researcher, who said that when he was asked for costing, the way he costed it was to say, well, if you had a basic personal tax exemption of the same amount, how much would it cost? Well, that doesn't reflect all the different ins and outs of legislation and how they would impact on the cost. There are ways to start smaller if you want to start smaller. We of course would prefer that it follow the United States model. Instead of reinventing the wheel, we should look at how well they've done and should continue on that way.

Part of the other problem too is that the finance department looks at it only as a cost, and they don't necessarily see where the savings come in. It's one of the reasons we brought the picture here today, to say TEI does have a cost, but if you just imagine the cost of this congestion as compared to TEI, there are a lot of savings that are involved.

One of the government reports that was commissioned for the national climate change process, the IBI report, suggested that there would be a cost savings of approximately three dollars for every dollar that's invested in the TEI initiative. But again, those are costs; the savings might be coming in at different levels. They might be coming in as savings to the municipal government or the provincial government, not necessarily the federal government.

Á (1150)

[Translation]

Mr. Pierre Paquin: Mr. Paquin, attached to your document is a letter that you sent to Mr. Manley. Perhaps you mentioned this in your presentation, but I unfortunately had to be out of the room. You give the impression that the bureaucrats have seen the light and have dropped some of their objections. You wrote that at the end of your meeting, these people agreed unanimously that revising the act would have to become a political decision, and that they would not raise any objections.

I would like to hear a bit about the types of arguments you used to persuade them to change their minds. Have you had an answer to your letter to Mr. Manley?

Mr. Pierre Paquin: Thank you for your question, Mr. Paquette. At the meeting that we had with then finance minister Paul Martin, he told us that, as a businessman, of course, he had no problems with what we were proposing. He understood the unfairness that small breweries had to deal with and he was on our side. However, his major problem was that the senior officials in his department had taken a position against what we were calling for for many years. So we decided to meet with the senior officials at the Finance Department. We had two meetings with them; I took part in both of them.

Your question is a critical one. The fact is that we did not really understand each other. I think that we did not share the same information and the same facts. So we explained to them clearly that tax cuts in Europe, where the top beers come from, in particular Belgium and France, meant that people could produce beer and bring it into the Canadian market at a price lower than what Canadian brewers could offer. That is exactly what they were doing. The major Canadian breweries went abroad and imported beer into Canada that had been produced in this reduced-tax environment. That created a real hardship for us and explains what you see on the shelf in beer stores throughout Canada.

Moreover, small producers and micro-breweries in Canada who had to sell their products on the international market where having incredible difficulties because they were competing with beer that already had an advantage from an excise tax standpoint. When the officials understood that, and how patently unfair the situation was that small producers had had to face for years, they told us that, as administrators of the act, they would no longer oppose our request and that it was now a political issue, meaning that there would have to be the political will to put Canadian brewers on the same footing as other brewers around the world.

Mr. Pierre Paquette: Have you had an answer from Mr. Manley?

Á (1155)

Have you had an answer?

Mr. Pierre Paquin: The answer is no.

Mr. Pierre Paquette: I would like to ask Mr. Paradis a question that I would have liked to ask Mr. Robinson and Ms. Desjardins. It deals with the use of employment insurance premiums for other purposes. Would it not be better to set up a separate fund to be managed by employers and workers in order to prevent the misappropriation of funds that is happening right now?

Mr. Pierre Emmanuel Paradis (Senior Economist, CFIB-Quebec): I must tell you that I was not involved in drafting the CFIB's position. As a result, I am not really up to speed on what has been submitted. However, I can bring your question back to some of my colleagues and get back to you with an informed answer, if you like.

The Vice-Chair (Mr. Nick Discepola): We would like to ask you to send your answer to the clerk so that the other members of the committee could also receive a copy.

Mr. Pierre Emmanuel Paradis: Fine.

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

Mr. Valeri, please.

[English]

Mr. Tony Valeri: Thank you, Mr. Chairman.

On the point made by Monsieur Paquin, from my perspective I'm certainly sympathetic and supportive of your position. I think it's an issue of fairness, an issue of competitiveness and something we should be including in our report and ensure is addressed by the department. I just wanted to put that on the record.

With respect to the Canadian Tax Federation, I'm wondering whether you've given any thought to moving from a tax-on-income to a consumption-type tax with some necessary progressivity built into it.

Secondly, I'd like a straight response to whether in this budget we should be investing in the military and having new money going into health care and whether you've given any thought to how much money.

On the increase in the basic exemption, I'm interested in knowing why $15,000. Was it an affordability issue, or was there a benchmarking that you went through when you completed your study and came up with the recommendation?

Then I have some other questions.

Mr. Walter Robinson: Mr. Valeri, with respect to a consumption tax, it's an interesting academic discussion, and we draw some interest or lessons from the Australian election, where they imposed a GST with an actual consequent reduction in the personal income tax burden on Australians.

I think long-range we'll probably move there anyway, as income becomes a question of interpretation and people can move income and move those moneys around, whereas from a government efficiency point of view it makes a lot of sense to tax income at the consumption point, because you off-load the cost to basically the cash register.

The issue there is a challenge in terms of discipline for governments, because with economic cycles, consumption varies widely, and you can actually model income much better in terms of a steady flow of income from the population, whether that be business or personal or corporate income tax.

I think Canadians would not be ready for that at this point in time, given the experience and the fact that public opinion still shows that the GST is very much hated among Canadians. Then you have due questions of regressivity or application and you broaden the base to books and food and shelter and those sorts of things. There are many people who have very fundamental concerns with that, and we would share some of those.

With respect to your $15,000 question on the basic personal exemption, we'd really like to see it changed to a basic standard of living credit, because that's what it really is. The $15,000 is basically a minimum wage job in this country. Being part of the working poor and trying to get ahead is tough enough. Why tax it, is the very simple response to that.

This government collects some $12 billion from Canadians making $30,000 or less in terms of personal income taxes. We recycle half of that money back to them in the form of various credit schemes, most notably the GST quarterly tax benefit. Why not leave that money in Canadians' pockets on a daily and weekly basis, as opposed to going through the administrative complexity of giving half back to them?

That answers the question. We think it's an issue of progressivity and fairness.

With respect to health care, we didn't include it. We submitted a 140-page brief to Mr. Romanow and testified before him on his first day of national public consultations in Regina and we appeared before the Kirby committee twice. We are not hopeful with respect to the Romanow suggestions or some of the Kirby suggestions. I think we are going to be back at this five years from now with another royal commission or consultation process.

We still haven't addressed the generational pre-funding issue, and we will look at some changes to the Canada Health Act, such as quality, sustainability, choice, those sorts of issues, in health care. That's your job. I don't envy you in terms of funding these various needs.

With respect to military expenditures, for example, the priority has to be the various capital acquisition projects that have been identified by the House of Commons Standing Committee on National Defence and Veterans Affairs, even supported by the Bloc for the most part, except for two small issues with respect to the reserves.

With respect to health care, we're not supportive of a new premium or new tax to fund health care. We think there are efficiencies to be made within the system, and if we moved to a generational funding issue there would be more pre-funding from the employer, from government, for infrastructure and from Canadians in their own pockets through medical savings accounts and through savings allowances with appropriate cut-offs.

Â (1200)

[Translation]

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Robinson.

Anyone else?

Mr. Valeri, please.

[English]

Mr. Tony Valeri: I have a question for everyone on the panel. It's more of a general question, but I just want to test a theory. I'm referring to the national task force to promote employer-provided, tax-exempt transit passes. We all know people who use transit, or I think we all know the benefits of transit, and I'd like people to respond from their perspective so that the committee gets a sense of the support for this.

Let me just go to the benefits. You've outlined the benefits: improved air quality; reduction of greenhouse gases; reduction of health care costs; reduction in the costs of transportation and infrastructure; dealing with the mobility needs of all segments of society; and reducing the costs of congestion. I think they're all goals we should strive to achieve. Yet the Canadian Taxpayers Federation, in its principles of taxation, makes the argument that these types of social policy issues are best addressed through government programs and services rather than through the tax system, through a tax expenditure.

I guess what I'd like to hear from the panel is a reaction to the proposal for tax-exempt transit passes. Even though you didn't come here to talk about it, you're all people who have taken transit at one point or another or know people who do. Is that something we should be pursuing because it's the right thing to do?

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Valeri.

I'll give you the last word. I think Mr. Valeri is asking for any opinions you'd care to state.

[Translation]

Are there any other comments?

[English]

Mr. Lansbergen.

Mr. Paul Lansbergen: Perhaps I'll go first. On a personal note, I recently started taking the bus, a few months ago, a change from driving. Perhaps I should be talking to the government about recognition for early action or something like that.

It's interesting that we are talking about urban transit, because, as already been mentioned, there's a lot of congestion. If you ask any bus rider, they will likely have some complaint about urban transit. I mean, it's not perfect. There are problems about the ridership, perhaps the price, and the service. It's quite complicated. Looking at the graphs that were shown in terms of how a couple of buses means so many cars, it's true. If urban transit is the way to improve the congestion on the roads, then....

Mr. Tony Valeri: Do we need the tax exemption to provide the incentive? Obviously you don't, but do you think that generally Canadians require the tax incentive, with the employer being given that incentive to provide tax-free transit?

Mr. Paul Lansbergen: I think it would help some. I'm not in a position to say whether it would work universally, but I think it would be valuable in some cases.

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

Mr. Robinson, please.

Mr. Walter Robinson: Through you, to Mr. Valeri again, Mr. Chair, I will point to page 14 of our submission, where we advocate our municipal roadway trust, which is actually modelled on the U.S. Transportation Equity Act. That was started with their interstate system 50 years ago. Before leaving office, Mr. Clinton guaranteed the funding, which Mr. Bush is carrying through.

Our proposal in terms of redistributing 50% of gas taxes back to the cities for roadway improvements, and roadway improvements only, would help them meet their public infrastructure and public works needs--for example the City of Toronto and Mel Lastman endorsed our proposal during a news conference there this past May--then devote the money they're now spending on their roadway and works projects to things such as the TTC, Shepherd Avenue, among a variety of other things. We think that would be a more direct way.

The history of public transit has been building the infrastructure first with proper planning around community growth, and then the ridership comes. We think that's the more sustained strategy than a tax benefit that doesn't really address for the most part their key funding and infrastructure needs to build new capacity.

Â (1205)

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

Before giving the last word to Ms. Shaw, in your response to Mr. Valeri....

Did you want another question?

Mr. Tony Valeri: No. I just want to be clear that what you're suggesting then is that we do not require to put in place an incentive to take transit, but we need to do something to allow municipalities to invest in capacity for urban transit.

Mr. Walter Robinson: Yes, sir.

Mr. Tony Valeri: I'd be interested in the response to that.

The Vice-Chair (Mr. Nick Discepola): Okay, Ms. Shaw, you can respond to that and to my question. In your comparison you often compare large U.S. cities. Is that a viable comparison with Canadian cities?

Ms. Amelia Shaw: I'll let Donna-Lynn answer the second one. I'll answer the first one.

The Canadian Urban Transit Association has already appeared before this committee, and there is no doubt that we have a huge need for infrastructure, which has been identified. I certainly support that. We absolutely have to have the buses in place. We need the subways. We need the dedicated lanes. We need all of those kinds of things.

Once you have them in place, which we sincerely hope we will have within the next five years, you really do need to encourage people to use them, both new riders and existing riders. It has been proven in the United States that it works. We believe that an incentive needs to be in place in Canada in order for people to use public transit and to continue to use public transit.

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

Ms. Donna-Lynn Ahee: We were wondering in what way you want a comparison with American cities.

The Vice-Chair (Mr. Nick Discepola): An awful lot of your comparisons are with American cities. I'm wondering if those demographics apply to Canada.

Ms. Donna-Lynn Ahee: Some of the demographics do apply to Canada. Obviously some of the larger American cities are much larger than some of our Canadian cities. Actually the interesting thing is many of our Canadian transit systems are used more than the American transit systems. We do a better job of promoting public transit. We have more people who use our systems.

I think it is a fair comparison, however, because the real thing that you're comparing is not the transit between an American city and a Canadian city, but the actual tax treatment. In Canada, parking spots--employer-provided parking--is supposed to be taxable, but in reality it doesn't necessarily happen.

What happens is that Canadian businesses have that tax incentive there to provide free parking or subsidized parking as a benefit to employees. When you're actually making the comparison, if I get free parking at work, but I have to pay $2.50 for the bus, it's cheaper for me to pay $1 in gas, go to work, and park for free than it is to take the bus.

That's what people start comparing--

The Vice-Chair (Mr. Nick Discepola): Maybe we should take a look at that and eliminate it, I don't know.

Madam Minna, five minutes please.

Ms. Maria Minna: All right. I'll be very quick.

Results Canada, I think it goes without saying that I support everything you've said with respect to the international development needs. It goes to international poverty, but it goes to our security and everything else.

I won't get into that too much, because I want to use my minutes with the Taxpayers' Federation instead, only because I quite frankly don't accept most of your premise. I'll put that upfront.

Let's start with debt reduction. Would you legislate the elimination of poverty as well?

I'm not finished with my questions. You can answer them all at the end.

The Vice-Chair (Mr. Nick Discepola): Hey, I'm chairing the meeting.

Ms. Maria Minna: By the way, the tax system you recommend does not end poverty. Therefore I would like to know if you would legislate the end of poverty. Would you legislate the wholeness of infrastructure, which we've referred to here for some time now? The Chamber of Commerce has had that as one of their priorities.

You did not answer the question on health care very directly. Does the sustainability of health care mean for you private care, private clinics? If it does, obviously I don't agree, but I'd like to know whether that's your position. You've talked about sustainability but you haven't really mentioned it.

On the basic personal exemption, I'm not suggesting you should never increase the basic personal exemption. However, that does not address the issue of poverty, because what it does is it gives the benefit right across the board to those who are also at the high income level. It does not address the problem that there are 6.1 million Canadian tax filers who make $20,000 or less. That doesn't really address that situation.

The only way to address that is through income support, additions such as the child benefit. Would you legislate early learning and child care in this country, since it has been proven that children do not have a proper start?

Also, your suggestion that the personal income tax discriminates is not true. We've done enough modelling to show that in fact there is no discrepancy, and most families cannot afford not to have both members working.

I could go on. It's too complicated an area to get into, but quite frankly, most of your recommendations don't go to the heart of the issue. You have already spent all the surpluses and more, probably. We don't know because I don't know whether your figures are accurate or not. I don't think some of your other statements were.

On restructuring the tax system, in my view it doesn't address any of the things I've just mentioned, and there are many others I would like to put on the table. So why don't you give me some answers on some of those?

Â (1210)

The Vice-Chair (Mr. Nick Discepola): Mr. Robinson.

Mr. Walter Robinson: It would be my pleasure. I see Ms. Minna has taken Mr. Szabo's place at the committee. We remember her from spirited discussions many years ago, and I appreciate those questions.

I've noted six major questions. No, we would not legislate an end to poverty. Governments should work towards.... That would be like legislating an end to meanness. I don't think it's going to happen. It hasn't happened for 5,000 years. We've noticed, when the House of Commons has passed resolutions with respect to eliminating child poverty, they have proved meaningless, so we would not do that.

I'm trying to seek clarification, Mr. Chair, through you to Ms. Minna, with respect to the wholeness of infrastructure. I'm trying to understand your point there.

Ms. Maria Minna: Well, would you legislate an infrastructure program? We've heard this morning that without a proper national program on infrastructure we're going to end up as a third world country because fresh water, roads...our systems are falling apart, including housing and public transit. Would we legislate what kind of spending to have to make sure that we bring all the infrastructure levels across this country to the state--

Mr. Walter Robinson: I understand. Thank you for the clarification.

Through our municipal roadway trucks programs, we think we have a way of devoting gas tax revenues back to roadway construction and road improvement in Canadian cities and, as I've pointed out, allowing them in their unique circumstances.... Toronto would have a greater issue with respect to low-income housing than Regina would, for example, but Regina would be allowed to use that money with respect to some of its ring road issues and urban reserve issues.

I'm not sure if I'm answering the question.

The Vice-Chair (Mr. Nick Discepola): Maybe you should ask the real question: why legislate it?

Ms. Maria Minna: Why legislate it? There's not enough income, with respect, from what you just said, from the savings you're talking about, to do all the things in infrastructure. There isn't.

Mr. Walter Robinson: Legislation achieves two purposes. First, it's an expression of a government's priorities and, arguably so, in a parliamentary system a manifestation of public priorities. Second, it's a benchmark by which voters and taxpayers can hold the government to account as to whether they've achieved those public policy objectives or not. Also, legislation usually works in the short term of four-year electoral cycles to gauge a government. The fight against poverty is an ongoing, eternal issue, for example.

With respect to health care, I would point out that for us the issue is not public providers, not-for-profit providers, or private providers. Every industrialized country on the face of the planet employs a mix of public, private, and not-for-profit. There are arguments, and we have spoken to those, with respect to universality and single-payer frameworks in our health care paper. Should you so desire, I can forward the entire 140 pages to you, a paper that was praised as a constructive piece of input into the debate by one premier, a provincial health minister, the CEO of the Ottawa Regional Cancer Centre, and the past president of the Ontario Medical Association.

With respect to the basic personal exemption, I agree with you--and you've looked at the same tax file stats I have--that we have 6.1 million Canadians living below $20,000. We think doubling over five years the amount of income they can earn tax-free would go a long way towards helping poor parents, who, in response, have poor children.

Second, with respect to the family tax issue--and I will deposit these documents with the clerk when I return to the office on Monday morning--the government's own budget documents from the 2000 budget point out the discrepancy between single-income-earner families and dual-income-earner families, where there was a 61% advantage for dual-income-earner families pre-1998.

After the 2000 February budget and economic statement the government's own budget documents, own explanatory tables in the annexes of the 2000 budget and the October budget before the election, show that discrepancy to have widened by 5% to 66%. So with respect to that question, through you, Mr. Chair, to Ms. Minna, I take your assertion of opinion as such, but the statement of fact and the records that I will deposit before this committee through the clerk point out that we are correct in interpreting those facts.

Â (1215)

The Vice-Chair (Mr. Nick Discepola): The fact of the matter remains that if you increase the exemption, it doesn't help anybody who's not working and doesn't pay taxes.

Ms. Minna, last question please.

Ms. Maria Minna: There's a heck of a lot there to chew, but nonetheless in terms of the personal exemption, yes, as you've said, there are really poor families, but the fact of the matter is that's a big chunk of money right off the go and that's money lost to the system that could be used. Your personal exemption does not address the poverty issue. All it does is allow people to keep, which they do anyway under all kinds of other schemes, some extra money. I'm not suggesting no, but it does not address the issue of poverty in our country. It does not take families out of poverty, it does not address the issue of early learning, it does not address the issue that really affects families. It does not take them out of poverty.

In regard to your other comment earlier with respect to GST being a direction to go, people, yes, get rebates, but they have to pay it up front and it hurts the people at the bottom the most. What I'm trying to say to you is that across-the-board schemes help always the people at the top, not the ones at the bottom.

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

Mr. Robinson, I'm sure that you'll be able to answer her question, her final question, but in response to Mr. Brison, we are getting on, and I have to give him ten minutes also.

Mr. Scott Brison: Thank you, Mr. Chair.

I felt for a moment like I ought to contribute my time to Ms. Minna--

The Vice-Chair (Mr. Nick Discepola): You can. Accepted.

Mr. Scott Brison: --and Mr. Robinson. This was like Crossfire.

I don't agree with everything that Ms. Minna said--this will surprise some on the committee--in terms of this notion that only government can create wealth. And if we are successful in implementing Ms. Minna's plan to ensure that no one, no middle-income or higher-income Canadian, benefits from tax reform, we will be successful in eliminating higher-income and middle-income Canadians, because capital and people are more mobile today than they've ever been and we're seeing that happen.

Mr. Robinson, it was an interesting discussion in terms of legislation on debt reduction. I would assert that legislation on debt reduction is a direct public policy action that governments can affect.

The legislation on eliminating child poverty is more difficult, because it's an outcome, a result of public policy action. So it's very difficult to legislate the outcome. It's like the question of equality of opportunity versus equality of outcome.

On the question of productivity and its linkage to the Canadian dollar, we've heard representations on the elimination of capital tax among other tax reform measures. I would appreciate the views of those who have asserted that we ought to eliminate capital tax in terms of investment, the linkage between investment and productivity, and the direct linkage between productivity and the value of the Canadian dollar. The Canadian dollar has lost 20% of its value compared to the U.S. dollar since 1993. This is a pay cut for every Canadian and an erosion in our standard of living as a trading nation.

So I would appreciate your views specifically on the capital tax as it relates to productivity but in a more thorough way on tax reform in general as a vehicle through which to achieve greater productivity, and ultimately a stronger Canadian dollar, and a strengthened and sustainable standard of living.

The Vice-Chair (Mr. Nick Discepola): Thank you. Before I go on to the question, I don't want to bias any response or the question, but the committee has already made recommendations on the elimination of the capital tax. We're going to do it again. You're preaching to the converted. It's your ten minutes. You can use the way you wish, but--

Mr. Scott Brison: Yes, but with respect, Mr. Chair, I was a member of the committee who had to fight for it last time, and I would just want to make sure that the--

The Vice-Chair (Mr. Nick Discepola): It's been out west, it's been out east.

Mr. Scott Brison: I know. I just want to ensure that. Remember that Progressive Conservatives are more consistent on tax policy; we were supportive of the GST from the beginning. So I just want to make sure that all members of the committee maintain their principles.

The Vice-Chair (Mr. Nick Discepola): I think we all support the GST.

Mr. Scott Brison: Thank you. You do now.

The Vice-Chair (Mr. Nick Discepola): Mr. Lansbergen.

Mr. Paul Lansbergen: Perhaps I'll give this a shot, to give you a perspective on the forest products sector.

Both the dollar and the cost of capital are very important to the industry's productivity. The low dollar does give us an advantage in exports. But we import most—if not practically all—of our capital, our machinery and equipment. So when the dollar goes down, we pay more for our technology and machinery. The capital investment is the primary way that we increase our productivity. We've done a great job over the years, but we're starting to lose pace. So the capital tax is another burden on that capital investment.

Mr. Scott Brison: So the low dollar actually makes it easier from an export perspective in the short term. So in the short term it reduces your need to invest, and it also increases the cost of your investment in types of productivity enhancement. So from both perspectives it would have an adverse impact on productivity enhancement in your industry.

Mr. Paul Lansbergen: Particularly because we're cyclical. At the bottom of the cycle, where the companies will pay more attention to the bottom line—because they're in a price crunch—that's where the capital investment will be squeezed the most by a low dollar or by a capital tax.

The Vice-Chair (Mr. Nick Discepola): Mr. Robinson.

Mr. Walter Robinson: I'm encouraged that the committee will again make that recommendation with respect to the capital tax. It's very positive.

The issue of the low dollar has three aspects. As our friends from the Forest Products Association have pointed out, in the short term it's fine for exports, but in the long term, in terms of acquiring capital from other jurisdictions and investing in plant and equipment, it penalizes workers.

Before Ms. Minna leaves, I'd like to also point out that the issue of a low dollar....

An hon. member: [Inaudible—Editor]

Mr. Walter Robinson: Through the chair, I'm just making an observation on the record, Mr. Chair. The issue of a low dollar also hurts us in the context of attracting the best and brightest workers in fields that Ms. Minna would care about—health care, research, social policy development, and with respect to finding the best and brightest in our high-tech sector.

That competition, or capital, is not only mobile across provincial borders in this country, but it's also mobile worldwide. I hold the right of abode to work in the U.K. in anything, and across the European Union in certain sectors. That's what people do. So that low dollar hurts all companies as well, and that saps productivity in the long run.

The Vice-Chair (Mr. Nick Discepola): For the record, Ms. Minna has to leave, because you all have a bus to catch to the airport in ten minutes.

You still have a couple of minutes, Mr. Brison.

Mr. Scott Brison: A question for Mr. Laurin.... I didn't hear you discuss some of the trade policy levers. Maybe I missed some of that. But it's my understanding that we are underutilizing trade levers as vehicles with which to help developing countries improve their lot. In fact some studies have indicated that direct foreign aid, if clumsily applied or not directed properly, can actually hurt developing countries. For instance, an inflow of capital without a resultant outflow of product can increase the country's currency disproportionately, and, as such, make their exports less competitive.

I'd appreciate your views on this, and on what types of trade measures we ought to be considering to help improve and more fully engage the economies of developing countries.

Mr. Jean-Michel Laurin: I said in my presentation that the government has already announced that it would eliminate most tariffs on the least developed countries as of January 1, 2003. We believe this is an encouraging measure; it's a first step.

You're right to say that trade can replace aid as a measure to help developing countries. I've seen the research that you're citing that says that if rich countries would drop all their tariffs, it would be a larger increase of money to developing countries than foreign aid.

Â (1220)

I don't think Canada is necessarily ready. We need to take a step-by-step--

Â (1225)

Mr. Scott Brison: I'm not suggesting that we reduce foreign aid. I'm not suggesting that at all. I just--

Mr. Jean-Michel Laurin: I think there's another action that has been started and is very encouraging. The issue of agriculture is one that's very damaging to developing countries. Rich countries like the United States and the European Union are heavily subsidizing their agricultural sector, and I think Canada, with our partners, should be active in encouraging the international community to lower tariffs in these sectors.

I think we've done so, have started doing so in the Doha Round of the WTO, and I think we should do more and should encourage our partners to be really active and make sure that they lower their tariffs, because that's the greatest way that developing countries can benefit from trade. In fact, it's one of the only ways. If we're liberalizing our trade in agriculture and textiles, that's a massive flow of money going to them, because they can export their goods to countries like Canada.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Laurin.

A last question, if you wish, or a comment....

Mr. Scott Brison: No, just a point on the small breweries...an excellent argument in terms of the jobs and the entrepreneurial growth in this sector. I think it's very positive, but you forgot to mention one public good that will be affected by this tax reform.

Typically, small breweries produce better-tasting beer, and a better-tasting beer is a public policy good that--

The Vice-Chair (Mr. Nick Discepola): That should be legislated.

Mr. Scott Brison: Ought to be, not the outcome, but at least we should put in place tax measures that ensure Canadians have, for the foreseeable future, the opportunity to partake in better-tasting beer.

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

I would like to echo Mr. Brison's comment. I think it is a small-business issue. You have a very sympathetic ear on the part of the committee, and we'll try to make recommendations to that end.

[Translation]

Mr. Côté, if there have not been any comments directed to you, it is because this is the fourth such presentation that the committee has received. There was one out west, one in eastern Canada and one in Halifax. So it is not that we forgot you, but rather that we are already quite familiar with this issue and have a good understanding of it. Thank you very much for being here anyway.

[English]

Thank you to each and every one of you. This concludes our hearings. We now embark on preparing our report to the Minister of Finance. Hopefully he will listen, and if the past is a good judgment, we're not batting .300 like you do in the leagues; we're probably batting about .600, which is great.

So thank you very much. Have a safe stay here in Montreal, and more importantly, a safe return back home. Merci beaucoup.

And thank you to the staff.

We are adjourned.