FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, June 9, 1998

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[English]

The Vice-Chair (Ms. Paddy Torsney (Burlington, Lib.)): I'll call this meeting back to order.

We have a number of presenters this morning, and they're going to be grouped in a slightly different order from what was anticipated. So let me introduce people in the order they will be speaking.

Representing the Assembly of First Nations, we have Chief Phil Fontaine, the national chief.

Welcome, Chief Fontaine.

Then we have Graham Chance, the chairperson of the Canadian Institute of Child Health, and then Robert Baldwin from the Canadian Labour Congress.

Mr. Baldwin, you will be speaking first, I gather, on behalf of this group.

Mr. Robert Baldwin (National Director, Social and Economic Policy Department, Canadian Labour Congress): That's right.

The Vice-Chair (Ms. Paddy Torsney): Okay.

Hugh MacKenzie is here from the United Steelworkers of America; Buzz Hargrove is president of the Canadian Auto Workers Union; and Bill Murnigham is the national representative for the Canadian Auto Workers Union.

Then we have Andrew Jackson from the Canadian Labour Congress; and from the Canadian Union of Public Employees, Richard Balnis, the director of research, and Stan Marshall, the senior research officer.

Gentlemen, welcome.

Chief Fontaine, could we start with you, please?

Chief Phil Fontaine (National Chief, Assembly of First Nations): First of all, thank you for giving the Assembly of First Nations an opportunity to appear before this committee.

Like all Canadians, first nations people are pleased to hear that the federal government has balanced the budget and is now operating in a surplus situation. Like other Canadians, we are eager to put forth our suggestions on how to spend the surplus.

As you are aware, the social and economic climate in first nations communities across Canada is well below the Canadian average. It has taken 130 years to develop a Canadian economy in which a 10% unemployment rate is considered a calamity capable of unseating governments, but there has been little outrage about the hard truths of aboriginal economic reality.

The average level of unemployment among first nations peoples is in the neighbourhood of 50%, and actually I'm understating this somewhat. Our average income hovers around the national poverty line, at about 60% of the non-aboriginal average. No Canadian community would tolerate the economic disparity that exists in many of our communities.

Then there are the social costs associated with exclusion from sharing the national wealth. Aboriginal people are five times more likely to be in federal or provincial jails, nearly three times more likely to commit suicide, and twice as likely to be high school dropouts as are other Canadians.

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I'm going to deviate from my text here, talking about suicides. In northern Ontario—and we're talking about around 50 communities—in the last five years, I believe there have been 164 suicides. In one community of 500 in Manitoba, there have been 17 suicides in the last 24 months. That's a national crisis. If you had a similar situation occurring in proportionate terms in Toronto, Winnipeg, or Vancouver, it would be considered a national tragedy. But this occurs in first nation communities. Out of sight, out of mind. So I'm compelled to speak about that issue.

In order to address these issues, we are working in partnership with the federal government. However, this is difficult when we are constantly advised that resources are limited and there is not enough to address all of the socio-economic challenges confronting first nation communities.

We are not suggesting that the entire surplus be given to us. We are recommending that funding be invested where the benefits will be the greatest to first nation communities. Really we are only asking Canada to honour its obligations, including treaty obligations.

In our preparation to appear before this committee, we sought the advice of many people. The following that I will identify are those that we believe require immediate attention.

The housing situation in many first nation communities is appalling. I would suggest if we're talking about child poverty and the education problems that exist in first nation communities, the best and most effective way of dealing with these issues at the front end is through decent, quality housing for first nation communities.

First nations people tend to live in houses more crowded than the Canadian average of 2.7 persons per home. First nations housing densities range from 3.7 to 6 persons per home, with the highest densities in Quebec, Manitoba, Saskatchewan, and Alberta. Of on-reserve housing, 65% is judged substandard by the Canada Mortgage and Housing Corporation. In Manitoba, 74% of housing on reserve is substandard. Of households on reserve, 25% lack operational bathrooms. In fact less than 50% of our homes have running water.

As for the housing conditions on reserve, based on Indian Affairs 1996-97 reports, of 80,443 units on reserve, 52% are adequate, or 41,885 units; 48% require minor or major renovations or replacement; and 20% are overcrowded, or 16,089 units.

We need to create an innovative mechanism that enables first nations access to other resources as an approach towards constructing larger projects. Innovative construction techniques exist that enable first nations to construct quality, self-sustained, healthy, environmentally friendly units at lower costs. Getting better housing for first nations communities is a priority. We must work together to ensure these are offered at the community level with sufficient resources to implement them.

As for health, polls indicate that Canadians strongly support spending the forthcoming fiscal dividend on health care and the medicare system. The health indicators of first nations peoples are the lowest in the country. In fact Manitoba and northern Ontario may be facing a potential crisis situation in their communities.

Diabetes is estimated to occur in 3.3% of the Canadian population, whereas it occurs in 9.9% of the aboriginal population—three times the level of the non-aboriginal population. In February 1997 the community of Sandy Lake, Ontario was identified as having the highest rate of diabetes type II in Canada and the third highest rate in the world by a Mount Sinai Hospital study.

TB has nearly disappeared among the mainstream population of Canada, but among immigrants and the aboriginal population, it has increased. In 1994 the incidence of TB among first nations people was 47 per 100,000, or seven times the Canadian rate of seven per 100,000. The spread of TB has been linked to poor social and environmental conditions, such as overcrowded housing and poor ventilation when people are in close contact with others.

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Diabetes deaths were 2.2 times higher among first nations men than among the general Canadian population and 4.1 times higher among first nations women than among the general population from 1982 to 1997.

Aboriginal people are considered to be at higher risk for HIV infection than other Canadians. Health Canada has identified the potential for an epidemic of HIV/AIDS in aboriginal communities.

How long do I have to speak, by the way?

The Vice-Chair (Ms. Paddy Torsney): Five to ten minutes. How are you doing?

Chief Phil Fontaine: I'll try to finish. Cut me off when I reach my limit.

The Vice-Chair (Ms. Paddy Torsney): Okay. Thank you.

Chief Phil Fontaine: The funding cap now being imposed on first nations federal health care resources contradicts the stated federal objectives to improve the health status of first nations peoples to a level comparable to that enjoyed by the average Canadian. The projected epidemic in HIV/AIDS, high smoking rates, provincial health care reform, and unresolved federal-provincial jurisdiction issues regarding first nations health have resulted in many of our citizens falling through the cracks. While there are successful health care models of service delivery, they are hard pressed to maintain the status quo, let alone improve the health of first nations citizens.

Economic development. The Assembly of First Nations must aggressively seek solutions to address the existing economic challenges that exist in our communities. Many first nations do not have access to capital to start up businesses and to support community economic development. A concerted effort will be needed to increase the level of equity capital available for first nations entrepreneurs and businesses. It is imperative to find ways to increase the amount of venture capital available for first nations businesses.

Canada is preparing itself for the next millennium by creating new initiatives like the Millennium Scholarship Fund. First nations must also prepare for the next millennium. The royal commission report predicts that in order to close the existing employment gap between aboriginal and non-aboriginal Canadians, 80,000 new jobs need to be created. In addition, we need to create another 220,000 jobs by the year 2016 just to cope with this influx. We will have to think creatively.

The first nations communities, because of their vast dispersal over this country, are involved in a myriad of different economic ventures and sectors. Most of the businesses are small in scale and have to be nurtured. A new climate and environment has to be created, and the Assembly of First Nations is committed to doing what it can to create that climate. There must be an energetic, aggressive approach taken by all of the partners to ensure that economic living conditions are dramatically improved. I'm assuming, of course, that there are our partners—from government, the business community, and other interests.

I think measures must be taken to ensure that one of the most prosperous countries in the world does not continue to have a third world within its borders. A strong economic base is vital for the future of first nations people. We must move away once and for all from dependency on social assistance towards effective economic development.

Education. Funding for post-secondary education for first nations learners needs to be increased. First nations community requests for additional funding for post-secondary funding are made on a regular basis to the Assembly of First Nations. Because many communities have waiting lists of post-secondary students, increased funding would be welcomed at the community level. According to the royal commission report, aboriginal enrolments in post-secondary education have been limited because there has not been financial support. The inadequacy of education funding was one of the most pressing concerns youth and many leaders brought before the commission.

Recommendation 3.5.21 of the royal commission report calls for the federal government to support the cost of post-secondary education for first nations post-secondary students and to make additional resources available; to mitigate the impact of increased costs as post-secondary institutions shift to a new policy environment in post-secondary education; and to meet the anticipated higher level of demand for post-secondary services.

One of the key deliverables highlighted by Indian Affairs in its 1998-99 estimates, part III, Report on Plans and Priorities, focused on the increased enrolment of first nations students in post-secondary education. The education of first nations people is of the highest priority, because the new era demands broad knowledge and high skill levels to gain employment, to lead a fulfilling life, and to contribute to the well-being of communities.

The federal government will create and provide a Millennium Scholarship Endowment Fund with an initial endowment of $ 2.5 billion that will be drawn over a ten-year period. Thus, $ 325 million will be provided annually for scholarships, and over 100,000 scholarships will be awarded each year to students in full-time and part-time studies.

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We're in the process of trying to develop a strategy to access support from the millennium fund. To do that we will need the support of government, because, as we understand it, the millennium fund will not identify sectors like the aboriginal community to have a percentage of the millennium fund allocated for it. So there have to be new ways of ensuring that we are able to access resources from this fund on an equitable basis.

In conclusion, economic times for Canada are improving. Interest rates are lower than when our parents purchased their first homes. Inflation barely registers and unemployment is dropping. However, vast inequities still exist for aboriginal people and the challenges appear formidable. To address this, we need to bridge the economic gap that exists between first nations peoples and other Canadians.

That's it.

The Vice-Chair (Ms. Paddy Torsney): Thank you very much, Chief Fontaine.

Mr. Chance.

Dr. Graham W. Chance (Chairperson, Canadian Institute of Child Health): Thank you, Madam Chair. First, let me thank you for inviting the Canadian Institute of Child Health to address this important committee.

I don't presume to address the finer points of the economy but rather to point out the future great economics and social benefits of supporting families with young children. Currently each child in care costs approximately $ 40,000 per year; each incarcerated youth about $ 110,000 per year. According to the data from Statistics Canada, and comparing them with other countries, Canada apparently has the highest proportion of incarcerated youth in the justice system in the industrialized world.

Moreover, one in four Canadian young teenagers, especially girls, have clinical mental health problems. Child sexual abuse is all too common and youth suicide, as we've just heard, is at an all-time high. Clearly, these data are of great concern and they must be reduced so that the lives of children and youth can be more satisfying to themselves and productive for the nation.

While currently affected children and youth certainly need our help and attention, the solution for the future lies in prevention. This can be achieved by improving the opportunities for infant and early child development, a win-win proposition, since the same measures would prepare children for their rapidly changing world and would develop their capacities for the trained workforce of the future, which Canada will need to prosper.

I want to address brain development with you. Recent understanding of early development points to the fact that both genes and the environment are important, the relevant importance of each being age-dependent. Development of the brain progresses more rapidly than development of any other organ in the child.

At birth the infant has about 100 billion neurons with relatively few connections. The process of creating these connections takes place at an enormous pace over the next three years so that by the age of three years there are 1,000 trillion connections. Each neuron can have up to 15,000 connections. Those are mind-boggling numbers, but they are important numbers to try to remember.

Pruning of unused connections also occurs during development, but especially during adolescence, so that we adults have fewer connections than our three-year-old children, roughly 500 trillion. All the evidence points to the fact that input from the environment via our five senses critically controls this amazing wiring process. Repeated stimulation enforces neuro pathways. Underuse will eventually cause them to disappear through pruning. It's a case of use it or lose it.

In some areas of the brain timing can be critical. The limbic area of the brain, the part where our abilities to form our basic relationships reside, creates most of its connections in the first two years. Positive developmental experiences for a young child will result in a typically emotionally secure infant, emotional security so necessary for the learning and later development of interrelationships.

Negative experiences, especially when repeated frequently, will also establish strong neuro pathways. In terms of the fight or flight response, which resides in this limbic system, with nurturing developmental care the child will control this instinctive response. Without this nurturing care, the response persists so that setbacks or perceived threats elicit fear or aggression. The more the response is stimulated and the longer it lasts, the more difficult it is to rehabilitate the child. There's hope, however, that with prolonged contact with a caring and supportive adult many children can be helped. Unfortunately, about 5% of children retain their antisocial personality once it's established.

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The brain, therefore, is not only our means of learning and relating to others, but also our source of good health.

Because the environments in which infants grow is so vital to their development, it's important for us all to acknowledge that no child has any choice in the matter. No infant has any choice in the matter of birth.

Which brings me to the challenges facing families with young children. Children need the capacities for socialization, understanding, and resilience for today's world and to benefit from its educational opportunities. These capacities clearly are best acquired from within the family, but today's families find it ever more difficult to find the necessary time.

Data from the Vanier Institute of the Family show that the great majority of today's families are dependent on two incomes to meet the monthly expenditures. Moreover, despite the fact that both parents work outside the home, many young Canadian families still earn insufficient income for their needs. Most one-earner, often single-parent families live below the poverty line. The Vanier Institute data show that despite their parent's work patterns, many children experience financial exclusion from educational and recreational opportunities.

While 21% of children currently live in poverty, without dual earners the figure would quickly double.

The incidence of most measures of physical and emotional ill-health are at least double for children who live below the poverty line. For virtually all measures there is a direct gradient of incidence to income. As Dr. Fraser Mustard points out, what matters is the slope of the gradient. The steeper the gradient, the greater the disparities of opportunity. The gradient tells us then that no child is invulnerable, but the lower their family income, the greater their problems are likely to be.

How then can we give children equity of opportunity to develop optimally under prevailing circumstances? As long as we are going to tolerate major differences in what children can be offered from the start, there is no possibility of equity. Equalizing opportunities for all children requires attitudinal changes at all levels of our society.

While the UN Convention on the Rights of the Child recognizes the primary responsibility with the parents, it also recognizes responsibilities with others, and especially governments. Clearly, this is vital today when most parents, as we've seen, simply do not have the time and resources to do it alone.

We applaud the intent of the child tax benefit, but we join other NGOs in guarded support. Only approximately one-third of families living in poverty will be affected and then minimally. The benefit must be indexed to ensure that it does not eventually disappear.

While the re-investment opportunities in the provinces should be encouraging, actions from some show that there is little accountability built into the process.

As for the national children's agenda, we feel somewhat in the dark, as there have been no non-governmental consultations or discussions since last winter. The children's agenda cannot await a resolution of social union discussions. There are already mechanisms within the federal-provincial delivery systems that are attempting to support families and that, if enhanced, would build capacity in a comprehensive and national way.

We urge you then to increase research and measure results; that is, to designate funds for a national research agenda for children in collaboration with the various involved sectors, to establish the proposed centres for excellence for children and youth in collaboration with those sectors, and to sustain a reporting system so that the effects of the changes that are taking place on the health of children can be monitored.

We also urge you to provide support for child development—as we have seen, early development is critically important for the child's future—and to expand the developmental component and opportunities for child care, particularly for young children.

Today's knowledge of brain development dictates that child care must be developmentally based and of high quality. Such care, as has been shown, is an effective substitute for good parents.

Recent data show that of all child care available for youngsters aged zero to 11, only 20% occurs in regulated circumstances.

From what we now know of brain development, young children living in homes where violence exists, who are fed on standard TV fare, can hardly avoid becoming aggressive and insensitive to violence. So it becomes very important for us to recognize the difficulties parents have in facing the choices they offer their children.

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We urge support for community development of participation by existing federal programs such as the Canada prenatal nutrition program, the community action program for children, and the head start programs. All have exciting and unique features.

Since all children must nowadays be seen at some level of risk for disordered emotional and mental development, the programs need to become more readily available. These many successful programs need to be offered more widely.

We also urge expanded community support for the 10% of older children who are at risk for poor developmental outcomes—children in care and children in the juvenile systems.

We also would urge that mechanisms be made to stimulate the community development, which is so essential to facilitate the above changes. Strong programs in communities are often isolated and uncoordinated, protecting their own turf and traditionally operating from top down. Community leaders need support and assistance to strengthen collaborations from the bottom up so that there is collaboration amongst these programs.

Finally, we would urge you to build collaboration between the governmental and voluntary sectors; that is, to introduce a voluntary services act and a national policy and funding framework to support it, and to create a “children's lens”, so that all government activities and programs are vetted for their impact on children and youth.

In conclusion, we submit that the rational measures we have proposed are not of high cost, would greatly influence how children develop, and quickly show cost savings and cost-effectiveness. They would prepare children for the next millennium and create a workforce with capacities for the information age. Moreover, they would help build Canadian society for the future.

We believe that adult Canada owes no less to its young. Most excitingly, we have the know-how. What children need is your support.

Thank you.

Mr. David Iftody (Provencher, Lib.): Madam Chair, a point of order, if I might, please.

The Vice-Chair (Ms. Paddy Torsney): Yes?

Mr. David Iftody: There are nine panellists here, and we are averaging so far about 10 minutes each. I know we're breaking apparently at 1 p.m., and I'm not sure that under the standard procedures for the committee we're going to have ample time for members to ask questions.

I'm just wondering if we might talk about it. I appreciate the quality of the presentations, but I just think we're going to run out of time, Madam Chair. You might want to address that.

The Vice-Chair (Ms. Paddy Torsney): Sure. It would be up to the panellists to decide whether they want to entertain questions, and if they choose to use all the time up in presentations, that will be their issue.

Yes?

Chief Phil Fontaine: Why did you invite all of us to appear at one time? Why didn't you give us enough time so that each of us, in our own interest areas, could address our issues? We need the time, and we have much to say, and we're not being given enough time to speak to all of the issues that are important to each of the organizations represented.

The Vice-Chair (Ms. Paddy Torsney): If I can just clarify, there are six groups. With a time limit of seven to ten minutes per group, that leaves one hour, in fact, for presentations, and one hour for questions. I will take your suggestions and give them to the chairman and to the clerk for future presentations.

Mr. Nelson Riis (Kamloops, NDP): A point of order.

The Vice-Chair (Ms. Paddy Torsney): Yes, Mr. Riis.

Mr. Nelson Riis: Thank you. As we heard from I think it was the CMA that made a presentation earlier, they were asked to comment on the brain drain today, and in their presentation they indicated they assumed they'd be back to discuss health care funding in another session. So I think it's important, perhaps in your capacity, Madam Chair, to indicate to the groups here that this is not the only opportunity they will have to make a presentation.

I think the point made by the chief is appropriate—that there's a whole session probably required at least on first nations support, funding, and development. This may be just one round, and they could come back for a more thorough discussion later.

Perhaps you could comment on that.

The Vice-Chair (Ms. Paddy Torsney): Yes, you're absolutely right, Mr. Riis. This panel has been organized around social issues, and if there is a desire in the fall session to have a more in-depth review of anything, that's up to the members to choose. Certainly we'd appreciate the comments from the panellists as to whether or not they would like to come back on a further round.

Yes, Mr. Iftody.

Mr. David Iftody: Thank you, Madam Chair.

I raised this issue because there was a request from the Grand Council of the Crees to be here today as well. A request came to my office. I was going to convey that to Chief Fontaine. In fact, in discussions with the clerk yesterday, I was assured, Chief Fontaine, that there would be a specific round table for aboriginal issues on the pre-budget consultations starting in September. So maybe that would be—

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Chief Phil Fontaine: If that's the case, then I'll be silent and wait until we appear before the committee.

The Vice-Chair (Ms. Paddy Torsney): As we continue to debate this point, of course, we're going to continue to use up time.

There was in fact a communication to the Cree that there would be an opportunity in September. Since we were trying to limit the groups to four or five presenters per session so that we would have lots of opportunity for questions and answers, we asked them to come in the fall.

Mr. Hargrove, you've had your hand up to try to say something. I'm not sure if you wanted to go ahead or whether you wanted Mr. Baldwin to continue.

Mr. Buzz Hargrove (National President, National Automobile, Aerospace, Transportation and General Workers Union of Canada (CAW-Canada)): I just wanted to clarify that there are only four presenters from the labour movement here.

The Vice-Chair (Ms. Paddy Torsney): Thank you, Mr. Hargrove.

Mr. Robert Baldwin: Thanks very much, Madam Chair and members of the committee. We're pleased that you've invited us to present our views on the budget for the fiscal year 1999-2000. I'm also pleased that you're holding hearings well enough in advance of that budget that hopefully your report can have an impact on its contents.

Yes, my role here is just to say a few words about the CLC submission that has been presented to you and to explain how the various labour presentations you're going to hear over the next half hour or so fit together.

The CLC submission provides an overview of labour's views on the federal budget for the fiscal year 1999-2000. Our submission deals with the fiscal room to manoeuvre in the upcoming budget, the need to stay focused on job creation, and some changes to the budget-making process that would make it more open and transparent. When I'm done, my colleague, Andrew Jackson will speak to those specific points.

The CLC brief advocates the increased spending on health as the most important application of the budgetary surplus. It also identifies unemployment insurance, training, and post-secondary education as additional priorities for new spending. It's our view that increased federal spending, as opposed to debt or tax reduction, will make the greatest contribution to job creation. Spending increases will also help repair the damage done by federal spending cuts in recent years.

After my colleague, Andrew, speaks, Hugh Mackenzie, from the United Steelworkers of America, will elaborate on our view of the fiscal room to manoeuvre in the next budget. Buzz Hargrove of the CAW will address the issues of job creation and preservation, as well as unemployment insurance in training. Richard Balnis and Stan Marshall of CUPE, will describe some of the damage done to both public programs and individuals by spending cuts in recent years and they'll address the need for increased health spending.

Collectively, our presentations reflect a high degree of consensus among labour organizations on priorities for the next budget. This is especially true with respect to basic points like public spending on health as the first priority for the application of the surplus and the need to stay focused on job creation.

We hope that the impact of all budget proposals, including those of the government, will be carefully scrutinized by this committee in terms of their impact on the incomes and employment prospects of working people. Particular attention needs to be paid to the impact on women, visible minorities, aboriginal people, and people with disabilities.

With that, I'll ask Andrew to pick up on some of the items in the CLC submission.

The Vice-Chair (Ms. Paddy Torsney): Mr. Jackson.

Mr. Andrew Jackson (Officer, Canadian Labour Congress): I'll just make two or three major points, Madam Chair.

In speaking to the central priority that we think should be placed on strong job creation, I think it's worth emphasizing that even though the last year has seen healthy rates of job creation, there is virtually no economic forecaster who expects the national unemployment rate to fall below 8% this year or next year. We have continuing very high rates of unemployment for young people, and in all provinces east of Ontario and in many regions. We're also coming off a decade where we've seen very high levels of underemployment and involuntary part-time jobs in forms of self-employment and contract jobs paying very low wages.

I think it's worth emphasizing that over the past year, real wage gains for workers have been precisely 0.1%. When you unpack those numbers and look at the increases that have gone to the top, the reality faced by most workers is flat or falling wages and a considerable increase in inequality that's generated by the growth of poor forms of work.

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So in terms of addressing job creation as a central priority, we'd flag the following points and repeat the many proposals put forward in the alternative federal budget.

First of all, we continue to insist on the need for the government to set formal job creation targets along the other targets of economic policy. We'd emphasize that the Bank of Canada has to be a central part of that process of setting targets and meeting them and should not increase interest rates as we fall back towards 8% unemployment, which they still see as a barrier.

The second main point to be flagged is if we make job creation a real priority, then we're drawn to allocating the budget surplus towards investment in programs as opposed to debt reduction or tax cuts. All the evidence—and we cite some of it even from the IMF—shows that if we're interested in long-term growth and job creation, well-targeted public investment is a much more powerful lever than either debt reduction or tax cuts.

On the subject of tax cuts, since it came up before, it's worth making this point. To some degree it's quite bizarre to look at the notion that we have to cut top tax rates in this country in order to stop workers from leaving the country, at the same time as we have extremely high levels of both unemployment and underemployment.

In that context, I'd draw the committee's attention to a recent job vacancy survey done by Statistics Canada, which in fact shows that if all job vacancies in Canada—vacancies that have existed for three months or longer—were filled, it would increase total employment by less than one-third of 1%. When you look at those job vacancies in detail, the largest concentration by far is in skilled trades and construction. The notion that we're suffering a brain drain from this country and that employers are finding problems recruiting to fill vacancies is quite frankly more based on anecdote than on any real evidence.

I have one final word on the option of tax cuts. The committee is aware of and has held some hearings on the Mintz committee reports. That report is useful in drawing attention to many unproductive corporate tax expenditures, but as you're also aware, the central recommendation is that any revenues gained from closing those corporate tax expenditures should be used to lower general corporate tax rates with no general increase in revenues.

We continue to really strongly insist on the central point of the alternative budget that we can lower taxes for low- and middle-income taxpayers and increase the child benefit by increasing fairness within the tax system, but we don't need to undermine the fiscal capacity of the federal government in order to promote tax fairness.

Thank you.

The Vice-Chair (Ms. Paddy Torsney): Thank you very much, Mr. Jackson.

Next we have Mr. MacKenzie.

Mr. Hugh MacKenzie (Director of Research, United Steelworkers of America): Thank you.

I want to take as my starting point this morning the numbers that lie behind the discussions you're going to be having, because of the importance the fiscal numbers have come to play over the last few years in defining the debate over options for Canada's future.

I want to note that a clear pattern has emerged since the 1995-96 budget of the government providing consistently understated estimates of revenue and overstated estimates of its debt-servicing costs—overstatements and understatements that present a profoundly misleading picture of the options available to Canadians. The government has in fact manipulated the fiscal numbers to obscure the speed with which the deficit was disappearing as a legitimate problem and to foreclose political debate about what the alternatives might be.

The pattern has not stopped with the changing fiscal environment. During the federal election, I'm sure you'll all remember, the estimates the government was working on projected a deficit of $ 10 billion to $ 12 billion for the fiscal year that ended at the end of March. Those numbers generated a fair amount of controversy from pretty much every part of the political spectrum. The most recent estimates, published just about three weeks ago, show that in 1997-98 there wasn't a $ 10 billion to $ 12 billion deficit; there was in fact a budget balance.

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The process continues. Last fall we witnessed the process of a mini-debate about what to do with a fiscal dividend that was calculated by the Minister of Finance to be in the range of $ 1.2 billion. The establishment of that as the target effectively constrained the debate over what Canada's fiscal options were, so we ended up with this furious debate over what to do with what at the end of the day turned out to be a relatively small amount of money compared with what the government revenue system was actually generating.

The budget itself purports to allocate a fiscal dividend of $ 3.5 billion roughly equally between program spending and targeted tax relief, with a “contingency” of $ 3 billion for debt repayment. Even if you assume that the forecasts in the budget are accurate, the picture presented by the Minister of Finance isn't exactly what he claimed it to be. Even after accounting for $ 2 billion in new initiatives, program spending will be $ 1.5 billion lower in 1998-99 than it was in 1997-98; $ 3 billion is earmarked for debt reduction; and $ 1.5 billion is going to tax relief.

The forecasts are no more honest in this budget, though, than they were in previous budgets. We did a re-estimate of the government's revenues and debt servicing costs. Using consensus private sector forecasts from KPMG, which is hardly a radical organization, we project that revenue will be $ 2.2 billion higher in 1998-99 than the government is projecting, and $ 5.2 billion higher for 1999-2000.

We also looked at the government's estimates of debt servicing costs, and we found a pretty blatant manipulation of the numbers that was designed to produce a fiscal situation that looks much worse than it actually is. The government is projecting that debt servicing costs, on average, will increase from 7.12% in 1997-98 to 7.46% in 1998-99, and 7.72% in 1999-2000.

Frankly, these numbers are unbelievable given the fact that there is debt being retired that was originally incurred at much higher interest rates and being replaced by debt at lower interest rates. There's no evidence at this point of any significant upper pressure on interest rates.

These numbers matter. Instead of contingencies of $ 3 billion earmarked for debt reduction in 1998-99 and 1999-2000, the more realistic estimates point to surpluses. Even after you take into account the tax and expenditure initiatives announced in the budget, these point to surpluses of over $ 8 billion this year and $ 13.5 billion next year—that is, 1999-2000, the period you're considering.

These numbers would support a much broader public debate over Canada's public policy future. They mean we easily have the fiscal resources to make a serious start on rebuilding the damage to health care, education, and other aspects of Canada's social services system, created by our fixation on the deficit, and to create an unemployment insurance system worthy of the name.

I have one final word about unemployment insurance. There's been a lot of talk about the notion that the fiscal dividend is in fact a creation of the unemployment insurance fund surplus. That's not exactly true. According to the 1999-2000 estimates, the EI surplus is projected to be $ 5.8 billion. The surplus we've re-projected is about $ 13.5 billion.

More to the point, the EI surplus, in our view, does not demonstrate that the UI premiums are too high but rather that the program itself is inadequate. If you need any evidence to support that, just look at the numbers that illustrate the proportion of unemployed Canadians who in fact qualify for unemployment insurance. It's a pathetic 35% to 40%.

Our advice to the committee? First of all, get some independent advice about what the real fiscal situation is so that we don't end up with an artificially constrained debate about what's possible. Secondly, sponsor a national debate about how we can rebuild public services, starting with the health care system. Thirdly, focus on the real issue in EI—the program, not the premium.

The Vice-Chair (Ms. Paddy Torsney): Thank you very much, Mr. Mackenzie.

Mr. Hargrove, I believe you're next.

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Mr. Buzz Hargrove: Thank you very much, Madam Chair and members of the committee for the opportunity to be here. I have just a short presentation, part of it in support of Chief Fontaine's submission here this morning. I think the native communities and all of the problems he outlined are worthy of government taking a really close look in the next budget.

On the presenter on behalf of children, having grandchildren in that age bracket I'm certainly sympathetic and supportive of their presentation. My colleagues in the labour movement and the work that has been done by the staff of the Canadian Labour Congress, the steelworkers, CUPE, and others can add a lot to the public debate as we go about redirecting the government and the country's commitment to its people.

On the question of the surplus, I believe the question of tax cuts should be directed to low- and middle-income people. If there's a desire for tax cuts at all, it's in this area.

On the EI premium rebates that we see so much written about, there is much debate amongst the business people who have so much to gain and are at record levels of production. If you read the Ottawa Citizen this morning, it shows overall capacity usage throughout industry is at its highest level in manufacturing in over 20 years. Profits, executive salaries, and bonuses are higher than they've ever been. We still hear people talking about an incentive for these people to stay in the country. Boy, I have a hell of a time buying that.

At the same time, we're saying there has to be a disincentive for people at the lower end by cutting their unemployment insurance premiums. Three out of five people who lose their jobs today get absolutely nothing in support of themselves and their families, and those who get something get a smaller benefit for a shorter period of time. I think we should be looking at putting money back into the pockets of unemployed Canadians who are in desperate need at the lower end. Canada has one of the lowest payroll taxes in the industrialized world. There's no argument for more relief for businesses.

There's a lot of debate about the old age security program and clawbacks based on family income, and I would submit this is wrong. It's unfair for people who spend their entire lives working and saving a few extra bucks, and then find themselves, after having paid into this premium with their taxes for many years, with a clawback. I hear more of this issue across the country than any other individual issue. There are no working people out there demanding EI premium cutbacks and there are very few working people looking at tax cuts.

They're calling on the government to increase public spending in the areas that are important to people and their families, such as health care, education, and social services. Every recent survey showed that a national child care support program has 85% of public support.

On pharmacare, we have to get rid of the co-payments for the elderly as they go about moving into those years when they have the need for drugs. Whether they want to use them or not, they have to. We have several provinces now that are adding co-payments. So these are some of the areas.

Direct spending on public services is one of the best job creation measures you can have in a nation. We are in desperate need of public services, but also the spin-off effect is we will put a lot of people to work. I think that should be the theme of where we're heading.

I just want to mention in passing the public sector workers, including members of Parliament, although they're not quite as disadvantaged as other public servants. There's no country in the world that would treat its public sector workforce the way Canada has, where people have worked for five, six or seven years without a pay increase. We talk about a brain drain. Boy, there are a lot of people working for very little, providing a lot of good services, and they're worthy of support as we move into the surplus area.

I have a couple of points of a crisis nature. The main reason I'm here today is I want to appeal to the committee, as we go about advising the finance minister, to not wait until the budget to deal with what is an incredible people crisis in Newfoundland, Labrador and, to a lesser degree but increasingly a crisis, in the west coast fishery.

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We called on the government to extend the TAGS program and to expand its purpose to try to bring about some just treatment of the people of Newfoundland and Labrador and the west coast of Canada, who rely on the fishery and through no fault of their own find out the fishery is destroyed.

We've put together a comprehensive proposal. It talks about a buyout. It talks about severance. It talks about early retirement. It talks about an income support program for people on both coasts in both the fishery and the fish plants. These people are in desperate need of support.

I would urge the committee to ask the finance minister to deal with this immediately and not wait for any budget. We have an incredible surplus in our unemployment insurance, or EI, whatever you want to call it. Surely it can help these people who are in so desperate a need. Then we need a long-term industrial strategy in those provinces in support of the coastal communities of Newfoundland and Labrador and British Columbia.

Finally, a crisis has occurred in the last couple of weeks in the announcement by Boeing in Malton that they're going to close the facility and throw 2,000 of our union workers out of work. The response by John Manley should be completely unacceptable to any thoughtful person. As well, the Premier of Ontario, Mr. Harris, dismissed these 2,000 jobs and dismissed the concerns of these people and their families and their communities around there. He dismissed the fact that if Canada is ever going to build a knowledge-based, high-value-added, high-tech economy, we can't start by letting go the high-value-added, high-tech jobs without trying to find a solution to that.

I say to the committee, with all the sincerity I can muster, that a bad news story here can be a good news story. If people, instead of the insensitivity of dismissing this as one of the fatalities of globalization, would sit down with the people who know the industry, including the members of our union who work in this plant, they'd recognize that in this Malton facility we have one of the most high-skilled, high-quality, low-cost producers of aerospace parts in the world.

There are great opportunities with the Boeing corporation that are unrelated to the discontinuance of the MD-11, the MD-80, and the MD-90, but it takes government support. This industry is supported by government in every country in the world that has an aerospace industry, because they recognize not just the high-value-added, high-tech jobs but also that industry has incredible spin-off support for the rest of the economy like that of no other industry in the world.

There are subsidies, Madam Chair, members of the committee. Every state of the United States and every country in Europe have subsidies and government procurement plans that include making sure we build on the strengths of this industry rather than dismissing it the way Mr. Manley and Mr. Harris of Ontario did publicly.

I would end by asking the committee to take a look at what's happening in this facility. We can save this facility, like we did de Havilland. When the Tory government dismissed it, the NDP government of Bob Rae put $ 200 million in there. They've now paid back that $ 200 million. A plant that had 1,300 people in it, going down, now has over 5,000 people working in it, going up.

Thank you very much, Madam Chair.

The Vice-Chair (Ms. Paddy Torsney): Thank you very much, Mr. Hargrove.

Richard Balnis is speaking for CUPE.

Mr. Richard Balnis (Acting Director of Research, Canadian Union of Public Employees): Thank you. With me today is Stan Marshall, our senior research officer responsible for health care.

We've tabled two submissions. One is the text of our remarks, in English only, which I'll quickly summarize, given the time. The second is a document I'll be referring to, a report by the Canadian Council on Social Development entitled Public Sector Downsizing: The Impact on Job Quality in Canada.

CUPE represents more than 460,000 Canadian workers from coast to coast. Our members work in all provincial jurisdictions as well as in the federal jurisdiction. They are employed by municipalities, school boards, hospitals and nursing homes, libraries, universities, social service agencies, public utilities, airlines, and many other institutions delivering important services to Canadians.

CUPE endorses the written presentation from the Canadian Labour Congress and would just like to bring four additional concerns to your attention.

The first is the fiscal context. The questions posed by the committee ask us to look to a new era and a new economy brought to us by the current Liberal government and its balanced budget. The urge to look forward should not let us forget the past track record of this federal government and that of the Mulroney Tories, which preceded it, on the matter of social services and public sector jobs. We cannot forget throughout these deliberations the terrible damage that has been inflicted on public sector workers, their jobs, their livelihoods, and the services they provide as a result of this new liberal economy.

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On pages 2, 3, and 4 of our written submission to you we give first the record of the Mulroney Tories at the bottom of page 2: cuts that amounted to a loss of $ 13.3 billion to medicare and post-secondary education to the end of 1994-95. The Chrétien government is no different. As you can see at the top of page 3, there were cuts as soon as the first budget in 1994 was passed, and then the new Canada health and social transfer took effect in 1996 and cash transfers to the provinces were cut by over 30% in two years, or $ 7.5 billion. Let's understand the magnitude of those cuts. During the Chrétien government's first year in office 179 hospitals were closed. That's one in every seven hospitals across Canada. Nearly 16,000 hospital beds were lost. Sixty-two thousand health care jobs were chopped from 1993 to 1996. The workers who remain are asked to perform more work without adequate training or pay. Meanwhile, private companies are raking in profits on contracted-out labs, food, laundry, and maintenance services as well as de-insured medical services.

There was a reference to the transfers by the previous speakers, but the most recent federal budget represents no new money and does not increase transfers as the federal government claims. It merely raises the floor for the cash transfers. The cuts to health care continue. In 1998-99 the CHST transfers will still be $ 6.7 billion less than they were in 1995-96. For CUPE if we are to set basic priorities, we must set as our first priority the need to repair the punishing damage wrought by successive federal governments since 1986.

I'd like to turn to Stan Marshall to present a section on health care, please.

Mr. Stan Marshall (Senior Research Officer, Canadian Union of Public Employees): This government must restore the public confidence in health care. I think it's been eroded, and poll after poll seems to show that Canadians are very concerned about their public health care system. So this government needs to make a recommitment to a publicly financed, publicly administered, and publicly delivered health care system.

I have four specific recommendations to make with respect to that. The first is that this government must establish a separate health care fund. The current method of allocating transfers to the provinces does not allow the federal government to ensure that the transfer dollars are indeed allocated to health care in the provinces. The current cash floor is not an adequate incentive for the provinces to continue respecting the principles of the Canada Health Act. The provinces have the ability to evade their own financial responsibilities for health care because the cuts to federal transfers have made the federal government an easy target on to which the provinces can shift the blame for their cutbacks. It's time to stop making health care a political football and to establish a separate dedicated health care fund.

It's also time to reinvest in health services by restoring transfer payments for health care. In addition to the federal dollars already allocated to health care under the CHST, the new health fund should have new moneys allocated within it, and we are recommending that an additional $ 3 billion in federal cash transfers would be sufficient to begin to restore that public confidence.

Our third recommendation is that this government needs to establish a national home care program. The National Forum on Health was very clear in its recommendations that a publicly financed national home care program should be established.

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This government, through the ministry of health, Health Canada, hosted a national conference on home care in Halifax in March 1988. The message from that conference was clear: A national home care program has to be established. In fact, all the participants at that conference were virtually unanimous in their support of that, and it seems that the federal government is the last player to want to get on board.

We're encouraged by some actions by the government recently to continue looking at home care. We encourage the government to take steps necessary to provide a home care act that would be analogous to the Canada Health Act, through which home care services would have proper principles and guidelines for those services to be delivered without user fees or means tests through a system of public community health centres. In order to begin that process of establishing a national home care program, we're recommending $ 2 billion of federal money be invested initially.

Our last recommendation is for a national pharmacare program. It doesn't make a lot of sense to have a national home care program without at least embarking on the initial beginnings of a national pharmacare program in conjunction with the home care program. People who are released from hospitals “quicker and sicker”, as they say, will have to pay for their drugs when they didn't have to had they remained in an acute care facility.

It's very clear that pharmaceuticals are medically necessary, and public financing is the only reasonable way to promote universal access and to control costs—and that last sentence is a quote from the report on the National Forum on Health. So, as our final recommendation, we are recommending $ 1 billion of federal money be set aside initially to begin the process of establishing a national pharmacare program.

I'd like to turn to Richard to complete the presentation.

Mr. Richard Balnis: We have tabled with the committee, in both official languages, copies of the CCSD report on the impact of public sector downsizing. That study, which was commissioned by CUPE, found that between 1992 and 1996, 121,000 public sector jobs across Canada were lost. Since the beginning of 1997, a further 70,000 direct public sector jobs have been lost, to the end of April 1998.

If those job losses had happened in any other sector of the economy, it would have been called a recession, even a depression, but most—but not all—politicians today are proud of the number of public sector jobs they have killed.

On page 12 of our written submission, you can get a sense of the profound effects when public sector jobs are lost. Services are lost, a source of good jobs disappears, and there are negative economic consequences for the economy as a whole.

Moving public sector jobs to the private sector creates losers, particularly women. As well, employment opportunities for disadvantaged groups disappear.

CUPE therefore calls for the end of the destruction of good quality, productive public sector jobs and calls for action to offset the cuts that were imposed in recent federal budgets directly or indirectly through transfer payment cuts to other jurisdictions.

Finally, on page 14, and in particular on page 15, we indicate the dimension of the growing poverty and inequality in our society fostered by continuing government spending cuts.

In the spring of 1997, the National Council of Welfare remained optimistic that winning the war on poverty is not an unrealistic goal. In our view, an end to continued government cuts is the first small step in beginning to win this war, and I thank you for the opportunity to appear before you today.

The Vice-Chair (Ms. Paddy Torsney): Thank you.

As you can tell, there are bells ringing somewhere in the House, even though the lights aren't flashing in this room. We're trying to seek clarification on the bells. We think it's a 30-minute bell, but there has been a request that we move right away.

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While we get that clarified, perhaps we'll turn to Mr. Ritz for the first question. If we can encourage the questioners, on our side as well, to be as quick as possible and the responses to be as quick as possible, we might actually get through some of them.

Mr. Gerry Ritz (Battlefords—Lloydminster, Ref.): Thank you, Madam Chair. These are very weighty issues. It's hard to be quick.

Thank you, gentlemen, for your presentations here this morning. I actually have a question more specific to Chief Fontaine.

One of the bands in my riding, the Thunderchild Band in central Saskatchewan—maybe you're familiar with them—have come to me with a problem they've encountered in working with their TLE funds. They've been buying up the acreages they've been directed to buy, and now they're finding themselves in a situation where the province and the federal government are jockeying back and forth and arguing over reservation status to those lands.

In the meantime the band is holding the land, and they are not allowed reservation status because of the royalty payments that need to be made between the feds and the provinces on the oil, gas, and timber rights and so on. So in the meantime the band is held in limbo. They're in a “hurry up and wait” mode. They're striving for sustainability; they've put together a prospectus that will move them into that within a generation, which is fantastic. How do we get through the bureaucratic red tape between the provinces and the feds in order to let them get on with what they're wanting to do?

In your presentation you talked about reallocation of funds. Are there different things we can do with present-day funding? Is there a self-government model that could be applied to make these types of things happen?

The Vice-Chair (Ms. Paddy Torsney): Chief Fontaine.

Chief Phil Fontaine: That's not a problem unique to the Thunderchild First Nation. The situation exists as well in Manitoba—indeed wherever there's a claim settlement.

In my view the easiest, most effective, and most practical way of addressing that issue, if we're talking about conveying reserve status on Indian land, would be through first nations legislation. The best example of that possibility rests in Manitoba, where we signed an agreement with the federal government in 1994 that would result in the restoration of all jurisdictions to first nations. It would ensure that there is capacity and capability within the community to designate their own lands as lands holding reserve status.

In the absence of that, the only option we have is to work out a process with both levels of government, and that's, as you pointed out, a very slow process.

Other than that, it requires a commitment at the political level. There has to be goodwill on both levels of government.

Mr. Gerry Ritz: I understand that, but I'm wondering how we speed up the process. This particular band that made the presentation, as you said, it's not unique to them. They're in a situation where they're using further TLE funding to pay the municipal taxes on this land, because it is not designated reservation. The longer the process takes, the less their sustainability looks to be effective, because they're using up dollars and not really buying anything with those dollars.

So, as you say, it takes a political commitment, yes.

One quick little—

The Vice-Chair (Ms. Paddy Torsney): Two seconds.

Mr. Gerry Ritz: All right.

If we had billions of dollars in surplus this next year, what percentages would you see going to debt-servicing, tax reductions, and re-implementation of social programs?

Mr. Buzz Hargrove: Job creation would solve the problem of debt. If we could get people to work, paying taxes would take care of the debt. And social services are in desperate need of funding. Those should be the two focuses of the government, and tax cuts at the lower level. You don't need a big chunk of the surplus to go if you designate it to the lower- and middle-income people.

The Vice-Chair (Ms. Paddy Torsney): Thank you.

Mr. Fontaine, did you wish to answer, or Mr. Chance?

Dr. Graham Chance: Yes, and the need to support early child development. It's absolutely critical that this country face that particular object.

The Vice-Chair (Ms. Paddy Torsney): Seeing no other people who want to respond, colleagues and witnesses, we need to suspend for a vote that's in about nine minutes. We can leave our belongings here and things will be watched.

Witnesses, I hope you'll be able to stay with us and we will carry forward the time past when we get back from the vote, which hopefully will be just past 1 o'clock.

If there's a problem, please speak to Carol in our absence and we'll figure out how to deal with that. But if you could stay, we will be coming back.

Thank you. We'll suspend.

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The Vice-Chair (Ms. Paddy Torsney): Colleagues, we'll resume this meeting with questions from Mr. Riis.

Mr. Nelson Riis: Thank you very much, Madam Chair.

I should preface my remarks by saying that we appreciate now being aware of the fact that our surplus in this budget year is likely to be in the $ 8 billion range, which ought to change the dynamics of our discussion somewhat.

In acknowledging an $ 8 billion surplus, my first question is to Mr. Chance. You point out the particular importance of early brain development. I think the Canadian Union of Public Employees points out that we now have almost 1.5 million children living in poverty. A number of years after we took the pledge to eliminate poverty by the year 2000, the situation actually continues, apparently, to get worse.

I was going to originally ask the question to the chief because he described such an appalling situation for first nations people, a situation that is an embarrassment for any developed country.

But what we've been hearing so far is that our priorities should certainly be debt reduction, corporate tax reductions, across-the-board personal tax reductions, and serious assistance for the aerospace industry, etc. What would your priority be for an $ 8 billion surplus, if that's the case for this year?

Dr. Graham Chance: Clearly, all the proposals we put forward would be our priority. Essentially, I think, from the point of view of children and their future and present health, the focus should be on early development of the child, and that will then focus on families and children.

The recommendations that we put forward, particularly the need for expanded and developmentally based child care, which is quality care.... As I said, only 27% receive regulated care. That's not to say that all unregulated care is not adequate, but most of it is not what we would wish.

The reason that one focuses especially on the need for child care and early development is that, as I said, so many families are pressured in regard to time. The central pressure that dual-member families and single-parent families have is time. Generating an income to support the family is what most of those people are doing. The great majority of two-parent families have to be dual earners. It's not that they all necessarily want to be; it's that they have to be. Data from the Vanier Institute support the fact that most would want to be, as well as are....

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Recognizing, then, that early child development is so critical for children to be able to evolve healthily, both mentally and physically, and to set them on the right path, that particular area becomes critically important.

Mr. Nelson Riis: Over the years, Mr. Chance, subsequent federal governments have promised a national child care system as a priority. The final comment, or the second final comment, was that once the funds are available then we can move on this. It would appear, with an $ 8 billion surplus this year, that the time has come. I notice that the last statement in your presentation, in both your oral and now your written presentation, was about whether we have the will to do so. So this will be the litmus test, I suppose, to ask, what is our priority? I can't imagine anybody saying that providing for our children's development ought not to be a priority, so I appreciate your comments.

Dr. Graham Chance: There is just one more point I would make: we have to measure what we're doing. We really must evaluate what we do. That's the research aspect.

Mr. Nelson Riis: I appreciate the fact that your comments in your presentation are anecdotal, but from the measurements that are there, we're certainly falling far short at the moment.

I think we again have to thank the Canadian Union of Public Employees for describing an earlier round table discussion about the crisis in our health care system. If there's any question about why that has occurred, on page 3 of your presentation you describe 179 hospitals closing, 15,600 hospital beds gone, and 62,000 health care workers' jobs eliminated. No wonder we're in a health care crisis in our country. You place that right at the door of the federal government's transfer cuts, and I think, again, that's appropriate for us to consider. Again, the challenge will be there now to deal with this in terms of recognizing a surplus.

My question, however—and I'm not sure who I'm directing this to—is in regard to the EI fund. We've already had countless interveners suggesting that because of the huge surplus in that fund, the obvious alternative to consider now is a premium reduction.

I don't think anyone has yet said anything other than that, except now today, when Mr. Hargrove, I think, pointed out the abysmal number of people who, while paying into the plan, simply are unable to benefit from that.

Could you detail some specific changes that have occurred in the EI system that have resulted in Canada today being at, I think, the same level as the state of Alabama when it comes to people qualifying for employment insurance? I think we'd acknowledge that the state of Alabama in the United States is probably one of the worst examples of a state caring for people who have lost their jobs. We're now virtually on a par with that state.

What does it mean? How is it that nearly 60% of people who ought to receive EI benefits no longer receive them?

Mr. Robert Baldwin: Right. As he pointed out, the percentage of the unemployed that receive unemployment insurance benefits has declined from about 87% at the beginning of the 1990s to less than 50% today. A small part of that is attributable to some changes in the nature of unemployment itself, but the primary reason for the change is the lengthening of entrance requirements, that is, one has to have a longer attachment to the labour force in order to qualify. Also, there has been some shortening of the period of time that one can stay on unemployment insurance. It's basically been the changes in the entrance requirements and the duration of benefits that have produced this change in the percentage of the unemployed on EI.

I think it's important to recognize, too, that the changes introduced with the legislation a couple of years ago are still working their way through the system, as it were. There were a number of changes made to unemployment insurance that will reduce benefit entitlements, and the reductions will become progressive with the passage of time. Whereas we used to have a fairly straightforward benefit of 60% of pre-unemployment earnings, we will end up in a situation where the benefits as a percentage of pre-unemployment earnings will vary downward quite substantially, from a maximum of 55% to, we estimate, about 25% in a number of cases. So not only are we reducing the percentage of the unemployed on employment insurance, we are reducing the benefit amounts as well.

I want to add two other things. One is that the program, sadly but truly, has become almost totally incomprehensible to anyone, which means that as a source of security and protection for unemployed workers, it's problematic, not only because you can't qualify and you don't get much when you do, but you can't understand what you're entitled to in the first place.

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If the truth be told, the government is in fact having a very difficult time administering the new program, because even its own staff are having difficulty coping with the complexity that has been put into the program.

The last thing I want to say is that the rationale that was put forward to defend the latest round of cuts in terms of removing disincentives was completely bogus, and I'd be happy to engage with you at greater length on that. In fact, when you link it to what the federal finance department and the Bank of Canada were saying about the NAIRU and how we couldn't bring the unemployment rate down below 8% without causing accelerating inflation, the subtext to the whole story is that the purpose of the program was really to put downward pressure on wages—and that's what the program does.

Mr. Nelson Riis: I have a related question. Mr. Jackson referred to the Mintz report. One of the suggestions in that report is that we should have variable rates in terms of reflecting, presumably, the seasonality of certain jobs; that is, if a particular set of workers is obviously going to be using the system more than others, their premiums should be higher as a reflection of that increased use of the insurance policy. What views do you have on that proposal?

Mr. Andrew Jackson: Colleagues might want to jump in here. There are a couple of points that are worth making.

When we went through the most recent rounds of changes to UI, there were in fact some background studies done, one in particular by Gordon Betcherman from Ekos Research Associates on looking at the impacts of experience rating employer premiums with reference to the U.S. One thing I find very strange in the discussion of the Mintz report is that they don't seem to make any reference to research that has been done. Evidence out of the U.S. seemed to show that significant, positive impacts were quite limited. The Mintz report throws out this figure of a 1% gain in GDP from this change, which seems greatly exaggerated.

I notice, though, that some people have pointed out one implication of the system in the U.S., which is that if you change the system that way it will to some degree encourage employers to hire people on contract, in temporary positions, from temporary help agencies, as opposed to taking on employees permanently and running the risk of laying them off. It might be one factor behind what is still in the U.S. a much stronger growth of employment through temporary help agencies.

Beyond that, I think, there's this whole question: on what basis are you going to experience rates? You could make some kind of a case, I think, for experience rating one pulp and paper company in B.C. relative to another, if one is much more likely to lay off than the other. But the reason for bench-marking EI premiums for a tourism operator in Prince Edward Island to the national average rather escapes me. I think the inevitable consequence of that is that you are going to get a significant increase in relative premiums for seasonal industries, for construction, with some threat to jobs.

My colleagues might have points to make.

Mr. Hugh Mackenzie: I would like to make one observation about experience rating. We already have a particularly brutal form of experience rating on the benefits side, because people who have insecure employment and find themselves having to rely on the system more often than others pay a significant penalty in reduced benefits and reduced entitlement. As I said, it's an incredibly brutal form of experience rating.

I haven't noticed that it has produced a dramatic reduction in the number of people running around laying themselves off. I say that facetiously because it's odd: it's a particularly brutal form of experience rating directed at people who cannot control their experience.

The Vice-Chair (Ms. Paddy Torsney): Thank you, Mr. Mackenzie. Thank you, Mr. Riis.

I have four people on the questioners' list and I want to clarify something before Mr. Mackenzie leaves.

Do any of you—Mr. Desrochers, Mr. Brison, Ms. Redman, Mr. Szabo—have a question for Mr. Mackenzie?

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You do, Mr. Szabo? Then we'll go to you so that Mr. Mackenzie can answer. Then we'll go back to the regular order.

Mr. Paul Szabo (Mississauga South, Lib.): Okay. I have a question for Dr. Chance, but I'll save that for later.

Mr. Mackenzie, during your commentary you talked about the “honesty” of the budget—that was the word you were using—and about how the forecasted surpluses were much higher than the finance minister presented in the budget, etc.

Labour came before the finance committee in the last round before that budget, and the question addressed was this: Do you support the prudency assumptions that the growth rates to be used would be lower than the private sector forecast; that the interest rate assumptions, both short and long term, would be lower than the private sector forecast; that if we did achieve the higher rates, so be it; and that if you were going to do a budget, you should use those prudency factors? Labour supported that, and today you're saying that the budget was dishonest because we actually achieved higher than the budget showed.

Now, the current budget also has prudency factors in it—a 0.5% lower growth rate, similar reductions in the private sector forecast for interest rates, and the expected or projected rolling targets. Assume those. Is it not honest to present the numbers based on the assumptions written in the budget, or do you think we should go and use the most optimistic forecast and present programs that will utilize the surplus generated by those with no certitude of ever achieving those performance results?

Mr. Hugh Mackenzie: First of all, the “prudence” of the assumptions this time has gone way off the scale. The implicit interest rate on government debt that's reflected in the government projections of its borrowing costs is three-tenths of a point higher this year than it was last year, and next year the implicit borrowing cost is up to the highest point we've experienced in the last six or seven years. I think that's going way over the top in terms of “prudence”.

The other point I would make is that we are ladling prudence on top of prudence on top of prudence, to use your term, because Mr. Martin has also built into it a $ 3 billion contingency. If it were simply a matter of us suddenly waking up and discovering that we had more money, and having a reasonable debate about how to allocate it, that would be one thing, but the data are presented in such a way as to try to narrow the scope of the debate about what options are available to Canadians.

If you look at the table in the budget that contains the fiscal projections, it shows quite neatly that the budget will balance over the next three years if a $ 3 billion contingency is used. If that contingency is not used, then there'll be a $ 3 billion surplus.

When we did our re-estimate, I didn't take the high point of the private sector forecast at all. It was right in the middle. When you have that kind of discrepancy between a forecast for next year of a $ 3 billion deficit and $ 13 billion, I just think there's a dramatic distortion of the public debate taking place when you present those kinds of numbers.

Bob was actually here when the labour movement committed itself to prudence, so maybe he'd like to comment on it as well.

Mr. Robert Baldwin: I was not here, actually, but I'm sorry if this just becomes a debate about honesty or dishonesty.

I did want to add a couple of points. One is that there is a price to pay for excessive prudence, too. The price you pay is in actions you don't undertake because you've almost scared yourself out of undertaking action because you're worried about your cushions.

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I also want to go back to a point Hugh made in his opening remarks that a lot of these issues, especially the issue on the magnitude of the surplus, are very technical and not easy for you or us to come to grips with it. I really want to underline his suggestion that the committee, in some of these areas, really has to equip itself with some sort of expert advice to deal with these things that's not from its normal witnesses or the government itself.

The Vice-Chair (Ms. Paddy Torsney): Thank you.

Mr. MacKenzie, you have to leave. Thank you for being with us today.

Mr. Jackson, you wanted to comment.

Mr. Andrew Jackson: Just in the interest of clarification, I'm 99% certain that when we appeared last year around the issue, what was said was it was reasonable to maintain some contingency reserve but not to add a contingency reserve to deliberately conservative interest rate and growth assumptions. Everybody should be aware that the other big fudge factor in recent budgets has been that the balance in the UI account has been systematically under-estimated, so they were off by more than $ 1 billion in each of the last two fiscal years. There are really several different sources of prudence in the assumptions. The position has only ever been to have some contingency as appropriate, but not this sort of layering of them.

The Vice-Chair (Ms. Paddy Torsney): Thank you, Mr. Jackson.

[Translation]

Mr. Desrochers.

Mr. Odina Desrochers (Lotbinière, BQ): Thank you to all members who were kind enough to return after the vote.

In the past three years, it has been hard to follow the logic of Finance Minister Martin. We know that, for the third time in two years, he has been reminded by the Auditor General of his non- compliance with accounting standards. We always have trouble figuring out the real amounts of budget forecasts are, the surplus and the contents of the employment insurance fund. In short, it is hard to see where the minister is headed. One thing is clear, however: he is maintaining his cuts to the transfer payments to the provinces, and continues to dip into the employment insurance fund.

Our party has been engaged in a battle over unemployment insurance for some time now. How about a rate reduction? It was dropped 10 cents recently, but how much further would it have to be dropped for businesses to remain competitive?

My next question is for the union representatives, who are calling for commitments and making much reference to national standards. You know health is a provincial jurisdiction, and yet you want a fund for a pharmacare program. How are you going to reconcile these national standards with provincial jurisdictions and what is already in place in Quebec?

[English]

The Vice-Chair (Ms. Paddy Torsney): Who would like to speak, Mr. Baldwin, Mr. Balnis or Mr. Jackson?

Mr. Robert Baldwin: I'll pick up the question about unemployment insurance premiums. I will make a comment about health care, but also invite my colleagues from CUPE to elaborate on it.

With regard to the unemployment insurance premiums, as we indicated in our prepared remarks, we think the near-term priority is actually in building up the unemployment insurance benefits as opposed to reducing premiums. Although this is not a matter of official policy of the Canadian Labour Congress, I don't believe reducing unemployment insurance premiums will have much impact at all on total labour costs or competitiveness. We can engage about why that is so.

The other thing we've said is that we support, in principle, the government's espoused desire to stabilize unemployment insurance premiums through business cycles, but for five years now we've been waiting for the government to tell us exactly how it wants to go about stabilizing rates through a five-year period. We agree with them in principle that should be done. If our perspective were adopted, the UI surplus would disappear, mainly because of improved benefits. Our sense is that at the end of the day there would still be some room left for premium reductions.

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On the funding of health care, we've always been first cautious to note that financial arrangements with the province of Quebec in a number of areas might have to be different from financial arrangements with other provinces.

Secondly, I think it's fair to observe factually that we never would have gotten close to national programs for hospital and physician insurance were it not for the willingness of the federal government to play a leadership role. I say that notwithstanding the initiative that was taken in the province of Saskatchewan many years prior to the federal initiatives, but it's interesting to note that those initiatives never moved one iota beyond Saskatchewan until the federal government was willing to take up the financial cause.

The Vice-Chair (Ms. Paddy Torsney): Thank you.

Mr. Marshall.

Mr. Stan Marshall: In addition to what Bob has just said, with respect to any new standards and guidelines that would be established in the areas of home care and pharmacare, I think they can operate very similar to the way the Canada Health Act in place now works. A home care act, for example, would establish those kinds of principles and guidelines. Cost-sharing and certain financial incentives would certainly be in place to ensure that those principles and guidelines were adhered to.

In the case of home care, in Quebec home care is currently primarily delivered through a system of publicly funded community health centres or CLSCs. That would serve as a model for the rest of the country.

With respect to pharmacare, we would have certain guidelines that would be consistent, in the first instance, with what would be necessary under home care.

The Vice-Chair (Ms. Paddy Torsney): Thank you, Mr. Marshall.

Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC): Thank you for your presentations today.

I have one question for Dr. Chance. I really enjoyed your presentation on head start programs and early intervention programs. I think it's an issue that can frankly dissolve a lot of party lines and ideological barriers. It's not left wing, right wing or centrist; it's just good government policy.

Would $ 2.5 billion as seed money for something like a head start program help provide a significant step toward achieving a national head start program?

Dr. Graham Chance: We calculate that $ 2.5 billion would fulfil all the proposals I put forward.

Mr. Scott Brison: The previous budget allocated $ 2.5 billion for a millennium scholarship plan, which will be implemented in the year 2000 and will benefit 6% of students seeking higher education.

Do you feel an investment in early intervention would provide significantly more return to society than this money being spent at the post-secondary level?

Dr. Graham Chance: I don't want to set one group against the other. Students certainly have the need for loans, but if one looks at the cost benefit, the economic analysis, of that, there's no question that investment in early intervention exceeds anything we can do.

On the economic analysis of the Perry Preschool Project, which took severely disadvantaged children and enhanced their early development through their families and their education, the returns over 28 years exceeded the Standard and Poor's 500. Nothing else we discussed can do that.

The long-term returns are quite astounding from the point of view of individual children in reducing their contacts with the law, their tendency toward aggression, their tendency to violence, and, from the point of view of families, in improving the family health.

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I was interested in the previous discussion. An enormous amount of time is lost from work as a consequence of concerns of family members about their children's health. Roughly $ 12 billion a year was the calculation by the Conference Board of Canada. That's a lot of money.

Mr. Scott Brison: Given that early intervention programs would target high-risk situations, it would go a significant way to addressing the needs, for instance, of aboriginal communities.

Dr. Graham Chance: Yes.

Mr. Scott Brison: Chief Fontaine was here earlier.

Actually, in answering the question, you were saying that you were concerned about pitting one interest group against another. There was an advocate for increased investment in post-secondary education here from the University of Toronto. I forget his name. He's a real expert at the university on post-secondary education. His name escapes me, but he was here a few weeks ago and I asked him the same question. He said unequivocally that the best place to invest money is in early intervention and head start programs.

Dr. Graham Chance: Agreed.

Mr. Scott Brison: So you should feel comfortable in that position.

My question to the panel is relative to job creation. There is a debate about how best we can create jobs and whether or not a government can do the best job of that through direct spending or through tax reduction or some balance thereof by targeting social or strategic investments with things like a head start program, for instance, with tax reductions designed to provide an economic stimulus to create jobs. Now I recognize the argument that tax cuts do not create jobs is based on the idea that people save the money and that it doesn't really create growth. But given that people invest that money—typically, they buy mutual funds or other investment vehicles that will invest in businesses, small businesses, and areas of growth—isn't it a rather specious argument that the money saved by Canadians will not be directly invested in job creation perhaps at a higher ratio and with greater effectiveness than through government spending?

Mr. Andrew Jackson: Not to be misunderstood, I think a tax cut can potentially produce jobs. There's no doubt about it. So the argument is: if you're concerned about job creation and long-term economic growth, which is the more efficient way of going about it?

I guess there are a number of levels of arguments. Just in a sort of Keynesian sense, you run these things through a normal economic model, such as that which the Department of Finance maintains or anybody else. To the extent that dollars are saved rather than spent, there's inevitably going to be some lag in terms of the impact.

But more than that, it's really problematic in terms of the extent to which any increase in savings results in an increase in real investment, and thus jobs, down the road. In a certain sense, just with the mobility of capital between countries, there's no reason to think that the national level of savings is equal to the national level of investment in any case. Without going into a kind of theoretical argument, the notion that savings equals investment is extremely contested terrain.

Here's the third point I would make. Members of the committee might want to follow up the study that's referenced in the table that was done by the International Monetary Fund. I think it's a “review of the literature” sort of article from a source that one would sort of take as reasonably neutral in its approach.

Well, I'm not sure I would say that, but the members might.

The central argument is that if you're concerned with long-term economic growth, then well-targeted public investments—it's fair to say that some stress is put on “well-targeted”—are going to have more powerful effects on the long-term productive capacity of the economy.

I guess investments in early childhood education and post-secondary education are examples of that. These do have significant impacts on long-term growth. The question of whether your long-term growth rate is driven by your tax rate is much more dubious.

Just look at countries around the world. There's no simple equation that can be drawn between low levels of taxation and long-term growth rates. For example, throughout most of post-war history we have in fact grown as fast or stronger than the United States, even though through a good chunk of that period tax rates were somewhat higher.

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The Vice-Chair (Ms. Paddy Torsney): Mr. Chance.

Dr. Graham Chance: An aspect of tax obviously is if it's an across-the-board tax cut, then those who really need help will get least benefit from it; that is, those at the lower end of the wage scale will get the least benefit from any tax cuts. From the point of view of investment in children rather than a tax cut, the returns will be so much greater than the jobs that might be created, I suspect.

Mr. Scott Brison: I have one more question.

The Vice-Chair (Ms. Paddy Torsney): If it doesn't take too long.

Mr. Scott Brison: On the question of employment insurance programs, there was a study—I don't know if you're familiar with it—done in the U.K. that was reported on in one of the economics focus sections of The Economist magazine about five months ago. Basically the idea of this study was that they came up with various alternatives for EI-type programs. Ultimately, it recommended a program whereby individuals would invest in an individual account, an employment insurance account, that would belong to them at the time of retirement, depending on how much they had drawn out of it. There would be some support from a safety net or from the government, which would be designed to provide for those who draw excessively from it, but ultimately they would provide some level of incentive for those people who perhaps pay into EI their entire lives and never collect anything from it.

It was an interesting study. Ultimately, at retirement they would have a little pot of money there. It wouldn't have been a great investment, but at least they would have something. And society and individuals would have some form of incentive to pay into it as opposed to draw from it, particularly in seasonal industries like the fisheries. Arguably, EI helped increase the number of people in Atlantic Canada who will participate in the fisheries, for instance. Perhaps this type of program could address that. I don't know whether you're familiar with the study or not, but I'd appreciate your feedback on the concept. I'd be surprised if you weren't a little bit familiar with it.

Mr. Robert Baldwin: I'm not familiar with the specific proposal, but I think the protection both of the provision of income support for unemployed workers during their working lives and retirement pensions require the pooling of risk among workers. It seems to me that the scheme is really built around the notion that somehow or other individuals have to take responsibility for their own unemployment during their working life and their own retirement thereafter. I don't think schemes like that work very effectively for most people.

I find it interesting in light of the earlier question that Mr. Riis asked about experience rating, where essentially what's going on is people are proposing that rather than pool the cost of the unemployment risk among all employers, what we're going to do is start finding ways of carving up the employer community and imposing differential rates on different employers. I find that interesting. I think, by the way, that the more straightforward way to do that is through labour standards. If you really want to make employers bear the cost individually of unemployment, change your rules with regard to notice of lay-off, mandatory separation payments, rather than put yourself through the agony of developing the administrative apparatus for experience rating. But I think at the end of the day what you want in both the retirement income system and the unemployment insurance system is a high degree of risk pooling among both employers and workers, and that's basically what we do now.

The Vice-Chair (Ms. Paddy Torsney): Thank you. I just want to clarify something before I go to the other side.

Mr. Chance, on the question of the $ 2.5 billion, of course the millennium scholarship is going to be spent over 10 years, and there's an upfront injection of $ 2.5 billion by the government. Were you asking for $ 2.5 billion once or were you asking for $ 2.5 billion every year?

Dr. Graham Chance: Continuing. The total cost of all the proposals I put forward is $ 1.695 billion, but that would be annually. It couldn't stop once we've started helping children to develop properly. It would be inappropriate.

The Vice-Chair (Ms. Paddy Torsney): Thank you very much for that clarification.

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Next we have Mr. Szabo, Mr. Pillitteri, and Mrs. Redman.

Mr. Paul Szabo: Thank you. I wanted to give my other question to Dr. Chance about early childhood development. I did familiarize myself with your program, “The First Years Last Forever”, and I think it's a good corroboration of the Carnegie work that started a number of years ago. We have seen that wonderful things happen in terms of neural development in the first year of an infant's life.

It does, however, raise a serious question, and I'm not sure whether or not your organization has dealt with it. I think I know how I would go on it. It has to do with whether or not you can buy quality care from a third party, given that even in licensed day care the ratio of children to caregivers is 3:1, minimum. When the experts are saying that if you had to describe it as secure, consistent attachment with an engaged, committed adult, not necessarily the parent...what you don't get when you buy it is the love element. There is no love in that relationship.

Since in the last budget the single largest tax break given was the $ 2,000 increase in the child care expense deduction, which means now Canadians can get a $ 7,000-a-year deduction to subsidize their cost of having someone else give care to their kids, whereas parents who choose to provide direct parental care in the home get zero, on top of the fact that they have given up the opportunity to have economic gain by being in the employed labour force.... We're talking about unpaid work.

My question to you is whether you feel it is most important that we provide the most flexible options and choices for parents to determine the best quality of care available for their children, and if you believe that, one of the discriminations we have to deal with is the lack of support for those who choose to provide care in the home to their own children, and in fact give quality care directly by a parent.

Dr. Graham Chance: I think there's no question the data would show that the best care that can possibly be given is by loving parents. Many parents would wish to be able to do that. Unfortunately, the economy is such that relatively few can.

If indeed parents have the resources and wish to choose to look after their own children's development, then they should be encouraged fully; I agree entirely with that. That is not to say that it should be suggested that a certain gender should return to the kitchen sink, as has been said around this table once.

If we insisted on that sort of approach, then women who want to stay with their children should be supported fully, and women who want to do other than that should also be supported fully, and so should fathers.

I don't think there's any question on the data. The research data show that good quality child care can almost equate to good quality parenting. I would also question whether those involved intensively and vocationally devoted to child care for the whole of their lives...many of them love the children they care for, there's no question about that. They can't love as a parent, but they love the work they do and they love the children they look after.

The Vice-Chair (Ms. Paddy Torsney): Mr. Pillitteri.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you, Madam Chair.

Thank you, gentlemen, for coming this morning. I think some of you should have been here earlier to listen to the group before you ask for tax cuts across the board, not for any specific group.

Maybe, Madam Chair, we should have some of the groups mixed so that one side could hear the other side at the same time, rather than having them not hear each other.

Of course, I recall Mr. Buzz Hargrove making the remarks that there should be targeted tax cuts. I also recall Mr. Hargrove, I think it was here last year—he comes here every year—making comments that we didn't pay enough taxes. I just wonder if he could make comments now about tax cuts and what would benefit, other than what would benefit just one political party; not that we would not be having tax cuts if the moneys were available.

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Sometimes we talk about unemployment and what we should do to create more jobs here in Canada. There's always a reference to the United States and how low the rate of unemployment is there, 4.5% versus 8.4% here in Canada.

I'm going all over the place here, but I recall a labour bill we just passed that of course would never have passed in the United States. You have much more freedom in labour laws here in Canada to protect unions and to protect organized labour. On the other hand, would you sacrifice the protection you have here in Canada with labour laws to try to come into tune and to bring in some legislation equal to that in the United States so we could have more employment? Of course, it's not protecting the trade unions as much as over here.

Perhaps you could make some comments on that, Mr. Jackson. If you want more job creation, I wonder if we should have labour laws more like those in the United States.

Mr. Andrew Jackson: I have a couple of comments, and I'm sure my colleagues will want to jump in.

I guess the argument is often put forward in Globe and Mail editorials and the like that if one wants U.S. levels of unemployment, then we have to have a labour market that operates like that in the U.S., where there are low rates of unionization, a relatively low level of employment standards, and so on and so forth. I guess it was also the central argument of the OECD job study. It's an argument that's extremely influential, but I think there are several things wrong with the argument.

If one looks at the recent U.S. experience, why has the U.S. done so apparently well in terms of bringing down unemployment? I think a major part of the piece that's often missed in the analysis is that the U.S. did one thing very well that we haven't done. Through the eighties and into the nineties, when right-wing economists were saying that you were going to run into serious inflation problems if unemployment fell below a certain level, then in practice monetary policy in the U.S. was much more prepared to test those supposed limits. So unemployment has fallen well below the levels that people used to think in the U.S. would be inflationary, and pushing against those limits was a really important way in which to bring down unemployment.

I think the whole macroeconomic policy side of the story is really important in terms of comparing the United States and Europe, given the whole European monetary union and so on.

Second of all, if you're just comparing Canada with the U.S., the argument doesn't even really hang together in the sense that it was really only after Crow and the tightening of monetary policy in Canada in the late eighties that we began to significantly diverge from the United States.

In fact, over the 1980s and in the 1970s we generally had much stronger rates of job creation than did the United States, so the gap in the unemployment rate between the two countries is a comparatively recent thing as a major artifact.

I guess the third point I would make is that in fact one can find examples of countries that have high rates of unionization, high levels of labour standards, and have been able to combine that with low levels of unemployment. It might not be the easiest thing to do in the world, but certainly it is possible to achieve that combination. The Netherlands, Austria, Norway, Denmark, and a number of smaller European countries have very low unemployment rates and haven't gone the labour market deregulation route to get there.

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Our basic argument is if we want not just more jobs but more and better jobs, which at the end of the day is presumably what we all should want, then we need labour market regulation, we need expansionary macroeconomic policy, and we probably need a high level of social cooperation to make jobs the real priority in our society as well.

The Vice-Chair (Ms. Paddy Torsney): Thank you.

Dr. Chance.

Dr. Graham Chance: Employment needs to produce a wage that is sufficient to support a family. The child poverty rate in the U.S. is now 30% as opposed to our 21%. Whilst they have a lower unemployment rate, clearly the employment earnings are not sufficient to support more families even than Canadian employment.

The Vice-Chair (Ms. Paddy Torsney): Thank you, Dr. Chance.

Ms. Redman.

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Madam Chairman. I'm going to ask three questions really quickly, and hopefully no one will notice it's actually three.

Dr. Chance, in your presentation, one of the things I find really compelling and necessary as part of government is having benchmark and measurement. My question for you is who is the most appropriate body to do that? Do you see a vehicle that can be done by?

Dr. Graham Chance: Yes, we can do it by collecting data from a variety of sources—provincial sources, Stats Canada—but it really needs a specially directed fund so there is indeed a constant, ongoing, monitoring evaluation of what's happening with children.

The Canadian Institute of Child Health is entering the third child health profile. The second child health profile every MP received, I know. Essentially that is only really a beginning. What we need is much better.

The national longitudinal study is a good study. It will tell us a lot about a segment—supposedly a representative segment—of the population. But if you look at the numbers, it really will give us relatively limited information on specific groups when you get down to the small numbers.

So it needs a national body collecting the data and evaluating them all the time. Such a body doesn't currently exist.

Mrs. Karen Redman: Is it appropriate that the federal government then look to funding whoever that body is?

Dr. Graham Chance: To provide the funding, yes, but not to do the work.

Mrs. Karen Redman: Okay.

EI has gotten a lot of attention in this hearing as well as others. We have to acknowledge that it's a notional account, it's part of consolidated revenue, and I think everybody would agree we need a contingency in there for downturns in the economy. I just wondered if any of the labour or union representatives wanted to comment on the benefits, if they see any, of separating that out into a separate account. What kind of prudence factor or contingency would you want to see?

I'll quickly ask my third question. A few weeks ago Jack Mintz published a report on lowering corporate income tax rates by applying them to a larger base. I was wondering if any of you would want to comment on whether this proposal, in your view, would create new jobs and opportunities for Canadians.

Mr. Andrew Jackson: I'll take the Mintz question. Actually, if you're interested, I did have the opportunity to present some comments on it to a Canadian Tax Foundation conference. They were very preliminary thoughts.

There's a lot of interesting analysis and information in the Mintz report that really does deserve to be grappled with, so I don't want to dismiss it, but there is a really central contradiction at the heart of that report. On the one hand it argues that in the new globalized environment, we really need to get business tax rates down in order to create jobs. But then secondly, when it comes to the specific proposals it makes for closing tax loopholes in order to increase rates, the sectors that would experience the highest tax increases are the manufacturing and resource sectors, which are precisely the sectors that are most exposed to international competition. So somehow the two central propositions in the report don't really stand together very well.

In response to that, first of all, there's a real problem in the corporate tax system when you have corporations operating in more than one jurisdiction. There's no doubt they will attempt to declare income where tax rates are lowest. So you do have a major auditing and tax compliance problem to the extent that our tax rates get significantly out of line with the U.S.'s, but it is that kind of problem.

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The evidence that the real rate of investment, and thereby job creation, is determined by the level of tax rates is very problematic, and that argument in the report isn't well founded. For example, a number of studies have been done in the U.S. on the effects of different tax rates by states. It's very difficult to tell much of a story. You get much variation in investment levels between U.S. states, depending on the tax rates. So the room to move, in terms of setting our corporate taxes in order to raise revenues, is much greater than is suggested by the Mintz report. There is the compliance problem we have to come to grips with.

The Vice-Chair (Ms. Paddy Torsney): Mr. Baldwin.

Mr. Robert Baldwin: On the question about unemployment insurance, if I got the question right, the question was whether there should be a prudence factor built into the setting of the UI premium rate.

Mrs. Karen Redman: That was part of it, but it's mostly the fact that it's part of consolidated revenues, and the position has been put forward that it should be separate. I'm just wondering, from your point of view, if that would be a good thing or desirable.

Mr. Robert Baldwin: On the prudence question, the short answer is there should be some prudence factor built in. As I mentioned before, as early as the fall of 1994 we said “We agree with the government in principle. We want UI premiums managed so they're stable through a business cycle. Show us how you plan to do this.” We're still awaiting a response to our request.

I want to add one other point, though, that the unemployment rate for much of the last several years has actually been above the Bank of Canada's and the finance department's estimates of the NAIRU, or non-accelerating inflation rate of unemployment. One might have thought this would have been a period of time when the program would be running a deficit rather than a surplus. I'll just leave that thought with you.

The incorporation of all UI premiums, revenues, and expenditures within consolidated revenue accounts, which only happened as recently as 1986, has certainly changed the politics of the unemployment insurance program in a way that I don't think has been very helpful. The operation of the unemployment insurance program over the whole period since 1986 has been intimately wrapped up in the politics of the deficit, and if for no other reason I'd be happy to see some formal separation in the accounts. That's also linked to a view of mine that the whole program probably ought to be administered more at arm's length from the Government of Canada.

The Vice-Chair (Ms. Paddy Torsney): Thank you.

Mr. Szabo, you wanted to ask one quick question.

Mr. Paul Szabo: On having a separate EI account, I can understand how, if a surplus were built up, it would allow for that flexibility. What happens when a deficit occurs and how exactly do you deal with it? It would really put the government in a situation where it can't win but it can lose.

Mr. Robert Baldwin: In practice, since 1986, when the UI account generated a deficit and there was strong political pressure to reduce the size of the deficit, it accentuated the pressure to cut back on the benefits.

Mr. Paul Szabo: I'll quote you next year.

The Vice-Chair (Ms. Paddy Torsney): Thank you.

To the witnesses, Mr. Marshall, Mr. Balnis, Mr. Jackson, Mr. Baldwin, and Dr. Chance, thank you very much for taking extra time with us today and accommodating our voting schedule.

To my colleagues, Mr. Ritz, Mr. Desrochers, Mr. Riis, Mr. Brison, and on our side, Mr. Pillitteri, Mr. Szabo, and Ms. Redman, thank you very much for your patience and staying through to the bitter end.

Obviously, these hearings will continue this week and across the country in the fall. We encourage you, if you have additional information, to submit it to us. To anybody who's at home watching, they can also submit information to this committee if they would like to.

Thank you very much. The committee is adjourned until tomorrow at 9 a.m.