FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, October 15, 2001

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[English]

The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call the meeting to order and welcome everyone here this morning in the city of Toronto, as the finance committee travels across the country seeking input from Canadians from coast to coast to coast. As you know, we do this annually before the budget is tabled. We produce a report, which is tabled in the House of Commons, that provides recommendations to the Minister of Finance as to what Canadians' priorities, needs, and aspirations are for that particular year. In last year's case we actually had a five-year plan.

I would like to welcome the following organizations: the Canadian Hardware and Housewares Manufacturers' Association, the Canadian Retail Building Supply Council, the Canadian Retail Hardware Association, the Cement Association of Canada, and the Canadian Tooling and Machining Association.

We will follow the order in which the organizations are listed on the agenda. As you know, you have five to seven minutes to make your introductory remarks. We do review the entire brief for input, so you're just going to provide us with the highlights. There'll be a question and answer session after all the witnesses have finished their presentations.

We'll begin with the Canadian Hardware and Housewares Manufacturers' Association, the president, Mr. Vaughn Crofford. Welcome.

Mr. Vaughn Crofford (President, Canadian Hardware and Housewares Manufacturers' Association): Thank you, Mr. Chairman.

My name is Vaughn Crofford. I am the president of the Canadian Hardware and Housewares Manufacturers' Association.

I'm here today with my colleagues from the Canadian Retail Building Supply Council and the Canadian Retail Hardware Association in support of our jointly prepared pre-budget submission. There's no special significance to the fact that I am making the opening remarks in advance of those of my colleagues.

Our coalition submission reflects two important facts: first, it is truly an important industry-wide presentation representing the views of manufacturers, distributors, wholesalers, and retailers of hardware and housewares products; building materials; and seasonal items, such as lawn and garden supplies. Second, all three associations will be telling you that our submission reflects the views of our members, which were obtained through a pre-budget survey of said members.

The economic impact of the membership of our three associations is substantial. Together they represent 3,810 companies, which employed some 120,000 Canadians last year. Our own association is comprised of 260 members engaged in the manufacturing and distribution of hardware and housewares products. We estimate industry sales for 2000 in the $25 billion range, and about 2,500 Canadians worked for these companies last year.

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For your reference this morning I want to remind you that our recommendations are summarized in the final two pages of the submission. In addition a four-page executive summary precedes the actual brief and reflects its contents.

Obviously, our submission was filed well in advance of the terrorist attacks in the United States and the subsequent decisions by the Government of Canada to provide tangible support to combat the threats posed by international terrorism. Part of the aftermath of September 11 has been the further undermining of an already weakening economy. It is not our intention to argue the pros and cons of strengthening our armed forces and intelligence-gathering agencies. However, we are concerned about the possibility of fiscal responses by the government that would force the nation's finances back into a deficit position and contribute to further deterioration of consumer confidence.

The pre-budget survey of members of our associations indicated unanimous agreement with the proposition that the government remain committed to balanced budgets and that the surplus not be used to increase spending on national programs and services. At the same time, 54% felt that the surplus should be applied to debt reduction, and 46% wanted to see the surplus used to reduce taxes. Our coalition realizes that new spending initiatives are inevitable in the wake of September 11, but we urge that they be matched with a strong commitment on the part of the government to control spending in other areas.

In December 1998 the standing committee, in its pre-budget report to the House, urged the adoption of a productivity covenant to ensure the effective allocation of resources and to establish spending accountability. The covenant remains worthy of the standing committee's active support. Canadians have come too far in the battle to improve the financial health of the nation to have it face further fiscal deficits.

Canadians remain heavily taxed. The latest Statistics Canada report on household spending indicates that 22% of the average household budget goes to pay for personal taxes. That does not include the cost of sales taxes. Stats Canada said that no item in the household budget of Canadians is more costly than their taxation burden. Our submission advocates that the present 26% personal income tax rate be applied to all taxable income of $61,000 and more and that planned corporate tax reductions be accelerated. Our associations believe that these steps are particularly important to combat the economic slowdown that is currently underway.

Mr. Chairman, these remarks have been intended to provide you and your colleagues with an overview of our submission. My colleagues will not be reiterating what I have just said. Rather, they will be concentrating on other important facets of our joint presentation.

Thank you very much.

The Chair: Thank you very much, Mr. Crofford.

Next is Mr. Stephen Johns from the Canadian Retail Building Supply Council.

Mr. Stephen Johns (Immediate Past President, Canadian Retail Building Supply Council): Thank you, Mr. Chairman.

My name is Stephen Johns, and I am with you today representing the Canadian Retail Building Supply Council, which, as you've already heard, is one of the three partners in this joint pre-budget submission.

The Canadian Retail Building Supply Council is a national umbrella organization comprised of Canada's five regional and provincial building supply dealers' associations. They include the Atlantic Building Supply Dealers Association, headquartered in Moncton, New Brunswick; the Quebec Building Materials Dealers Association, from just outside Montreal; the Western Retail Lumber Association, with its head office in Winnipeg; the Building Supply Dealers Association of British Columbia, located in Surrey, B.C.; and the organization of which I am president, that being the Lumber and Building Material Association of Ontario, with its head office in Mississauga.

These five constituent associations have a combined membership of 1,750 companies located nationwide. Statistics Canada reports that the total retail industry sales for the year 2000 are estimated to have been in the $28.5 billion range, and our industry employed in the order of 50,000 Canadians last year.

When Mr. Crofford spoke to you a few moments ago, he aptly described the degree to which our coalition represents all aspects of the industry. However, there is one additional and extremely important factor in describing the spectre of companies represented by our coalition that my colleagues asked me to specifically mention. That is the fact that companies in both the retail building supply industry and the retail hardware industry are overwhelmingly smaller businesses.

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In many respects, the views of the small business community and those of larger corporations are extremely similar. For example, 95% of respondents to our pre-budget survey urged that the Government of Canada remain committed to balanced budgets; 55% of our responses stated that any surplus should be applied to the national debt; and a further 35% recommended it be used to reduce taxation. Just 10% of the responses believed that any surplus should be transformed into increased spending on national programs and services.

One of the recommendations contained in our submission calls for acceleration in the schedule to reduce corporate tax rates, and we are pleased to know that the Liberal caucus economic development committee recently recommended that business taxes be slashed.

When we contacted our members in early July we asked for their projections concerning national economic growth in the year 2002. None of the respondents had high expectations for the economy next year: 73% of them projected moderate growth while 27% predicted low-level growth for the coming year.

Interestingly, our members were slightly more optimistic about their own business prospects for next year than they were about the economy as a whole. These results should be regarded with serious concern by the standing committee for two reasons. First, they are considerably less optimistic this year as compared with the year 2000 when the same questions were included in our pre-budget survey, and secondly, the results reflect neither the further dampening effect of last month's terrorist attacks nor the uncertainty resulting from the imposition of heavy duties following the expiration of the softwood lumber agreement.

While there are many similarities between the pre-budget concerns of smaller and larger companies, there are also issues identified in our submission that are of particular concern to the small business community. For example, our brief advocates that the lifetime capital gains exemption be increased to $1 million from the present $500,000 level. In addition, we have urged that the lower threshold level to which the small business deduction applies be increased from $200,000 to $300,000 in the next budget.

The impact of payroll taxes on smaller businesses is particularly severe. Therefore, we have argued in favour of a further reduction in employment insurance rates for the 2002 premium year. Changes to the lifetime capital gains exemption were advocated by 74% of respondents to our pre-budget survey, 68% of them urged changes to the small business deduction, and 71% indicated they wanted further reductions in employment insurance rates.

On behalf of my colleagues and all of the associations comprising the Canadian Retail Building Supply Council, thank you for your attention to our concerns.

The Chair: Thank you very much, Mr. Johns.

We will now hear from Mr. Robert Elliott, president of the Canadian Retail Hardware Association.

Mr. Robert Elliott (President, Canadian Retail Hardware Association): Thank you, Mr. Chairman.

My name is Bob Elliott. I am the president of the Canadian Retail Hardware Association, the third partner in this year's industry-wide pre-budget submission. Our association counts 1,800 hardware, home centre, and building supply retail stores across Canada as its members. We have estimated total 2000 sales for these companies to have been in the $14 billion range, and they have provided employment to 45,000 Canadians in communities of all sizes and in every part of the nation.

Most of our members are smaller firms, and I wish to reiterate our support for the small business recommendations contained in our brief and summarized for you a moment ago by Mr. Johns. The overall results of our pre-budget survey this year correspond closely to the data that has already been presented to you by my coalition partners.

Our members have stated clearly that they do not want to see the government surpluses result in spending on additional national programs and services. Rather, 68% of them felt that surpluses should be applied to the debt, while 27% would expect additional tax relief. Only 5% of them opted for additional spending measures. Fully 97% of members responding to our pre-budget survey underscored the need for balanced budgets on an annual basis.

Of major concern to our association is the low level of expectations our members have for economic performance in 2002. Our pre-budget survey was also undertaken far in advance of September 11, and it indicated that a mere 6% of respondents expected the economy to perform next year at a high level of growth. Fifty-nine percent felt the economy would grow moderately, while 35% predicted low levels of economic growth. Projections for the growth of our industry next year closely resemble those for the economy as a whole.

There can be no doubt that the economy has under-performed this year and that more of the same can be reasonably expected for 2002, particularly in the aftermath of September 11. It is important for the standing committee to note, however, that the negative factors in the economy, until very recently, this year have not been widespread.

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When the finance minister appeared before the standing committee in the spring, he quite correctly noted that the automotive and computer industries had contributed most to the downturn, although slowdowns in several other sectors, including the airline and hospitality industries, now appear likely.

In his spring appearance, the finance minister also correctly told you that one of the factors that had kept the slide from being worse was the continued strength of the construction industry. That observation was confirmed earlier this month when Statistics Canada reported the level of building permits issued between January and August this year was up 11.2% from the same period last year, and it was the highest cumulative level for any January to August period since 1989. Residential building permits for the period grew by 8% over last year.

While media reports last week made much of a reported downturn in housing starts in September compared with August, they neglected to note that starts for the January to September period this year were 7% higher than for the same period in 2000.

It is time for the standing committee to seriously consider recommendations our coalition has made in its pre-budget submissions for the past several years, which have been seemingly ignored. The economy is going to need bolstering next year and the government is going to be strapped for the funds required to supply the needed shot in the arm.

While the government may have limited extra funds for economic stimulation, many Canadians are well-positioned to pick up the slack with their RRSP savings. The first-time homebuyers program has already established a precedent for using RRSP savings—with strict repayment provisions—to help purchase a first home. Our coalition believes this concept is worthwhile and should be extended. Specifically, our submission recommends that the amount that can be withdrawn under the first-time homebuyers program should be increased to $25,000 and that the concept of the program should be expanded to help finance residential repairs and renovations, and also to help finance the residential retrofits required to meet the needs of an aging population.

On behalf of my coalition partners, I want to say we appreciate your attention to our three presentations and we look forward to discussing them with you in greater detail as the morning proceeds.

Thank you, Mr. Chairman.

The Chair: Thank you very much, Mr. Elliott.

We'll now proceed to hear from the Cement Association of Canada: Wayne Dawson, vice president, Ontario region, and Lynn Davidson, environmental manager. St. Mary's Cement, Bowmanville plant. Welcome.

Mr. Wayne Dawson (Vice-President, Ontario Region, Cement Association of Canada): Thank you very much for the opportunity to speak to you this morning.

First I'd like to tell you a bit about the association and the cement industry. The association is the voice of Canada's cement industry, and we have 100% representation of Canadian cement producers. We have offices in Ottawa, Montreal, Toronto, Halifax, Calgary, and Vancouver, so we cover the entire country. We provide our members with a vehicle to participate in public affairs.

The cement and concrete industry is about $4 billion a year. In addition, we have holdings in aggregates and in construction companies as well. The direct benefit is about 22,000 Canadian jobs from the cement and concrete operations. About 40% of that entire operation is Ontario, much of it in the GTA and southern Ontario areas.

We'd like to talk to you today about the infrastructure deficit. It's particularly near and dear to us in Ontario, primarily because of the chronic congestion and the line-ups at the border, as well as industry shutdowns. In addition to that—this is to the business and the economic issues—it is leading to increased emissions and reduced air quality.

The cement industry has plants throughout Ontario. We're major exporters to the U.S. We are facing increased competition. Recently Thailand became the major exporter of cement to the U.S. instead of Canada. We have about 3,000 or 4,000 trucks on the road on any given day in the summer time, in the construction season. We're also major customers of the Welland Canal.

The September 11 issue has obviously been brought forward, and the border issue problems have increased in scope. But they were there before.

The congestion in the GTA in particular is of issue. We note that the GTA also represents the largest source of federal revenues in this area. So it seems to us that the federal government has a lot at stake in keeping up the economic viability of this area. It generates a large part of their revenues. Within 20 years Toronto is projected to grow to the size of Montreal.

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We think all sorts of infrastructure and investments are going to be needed over this period. This investment needs to take into consideration emissions and the use of our product in a way that is positive. One of the examples is concrete highways, which last much longer, require less maintenance, and lead to less congestion and therefore fewer emissions. The specification manager of Detroit Diesel, the truck engine manufacturer, indicated that they expect concrete highways to give about 20% better fuel mileage for heavy trucks that travel on it versus asphalt. As well concrete is a product that gives most back to the economy because all the products used in that limestone are local, so you're not exporting dollars for the product. If you buy oil, you're exporting money out of the province. When you put your money into concrete, you create more jobs per dollar spent.

We feel that the GTA and Ontario have a significant congestion problem that needs to be solved, and the federal government needs to be there to help with that solution.

The cement industry is very willing to become involved in public-private partnerships, to design, build, and maintain, and to be helpful to the government in any way we can to ensure fixed costs and risk avoidance for long-term costs and maintenance. We're there to cooperate and be of assistance.

I'd like to read the last part. The Cement Association of Canada encourages the Government of Canada to invest in critical trade corridor infrastructure and to ensure these investments maximize long-term value, near-term economic activity, and economic benefits. The use of concrete highways is an example of meeting these goals.

Thank you.

The Chair: Thank you, Mr. Dawson.

We will now hear from the Canadian Tooling and Machining Association, James D. Bowman, Ed Glover, and Les Payne. Welcome.

Mr. James D. Bowman (Director and Chair, Apprenticeship Training Tax Credit (ATTC) Committee, Canadian Tooling and Machining Association; J.P. Bowman Ltd. (Tool and Die)): Good morning, Mr. Chairman. I would like to begin this morning by first of all thanking you and the committee for inviting us, the Canadian Tooling and Machining Association, to address you once again regarding the need for tax credits for apprenticeship training in Canada. We welcome this opportunity to share information with you and to offer our input with regard to how the federal government can help end this systemic shortage of skilled tradespeople in Canada.

Our proposal making a case for apprenticeship training tax credits is national in scope and envelops all accredited apprenticeship training across the country, not just those in the metal working trades. Since our last presentation to you, very little has been done to address the skill shortage in Canada. More time has been lost, and we as a country have not acted to any extent on a plan that would develop a sustainable pattern of growth in this critical ingredient to our economy.

As you know, we have historically relied on the immigration of skilled people to help supplement our need for skilled labour. However, as this is now a global problem, we can expect this practice to become increasingly less successful as all countries are looking to do the same.

Both the federal and provincial governments acknowledge the gravity of the situation, yet neither seems properly prepared to address it. Representatives of all levels of government have stated that they would like to increase the number of apprentices in the system, some say as much as double. May we ask the simple question: how?

On September 27, 2001, the Hon. Dianne Cunningham, Ontario Minister of Training, Colleges and Universities, speaking to the Toronto Board of Trade said:

The problem is that employers face a key barrier to realizing a fair return for their investment in training—namely, that employees can move to other firms after training. When a firm's human capital gets up and walks out the door, employers become reluctant to invest in training.

I suggest that the federal government should consider taking a look at a skills development tax credit to encourage employers to train.

This problem will not just go away on its own. If left unchecked, this problem will eventually affect all Canadians. It will result in higher prices for consumer goods and a decrease in the federal income tax coffers due to the loss of the above-average income that most skilled tradespeople earn. For example, let's say there are 100,000 apprentices in Canada, each earning an annual income of $26,000. That is a combined income of $2.6 billion. The federal government collects $577 million in annual income tax from this. This number is now decreasing.

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The problem is no longer due to a lack of awareness or social attitudes pertaining to the skilled trades, as it was in the past. As a matter of fact, we believe that the majority of Canadians are well aware of the fact that skilled trades offer an above-average income and job security.

Employers across the country are approached regularly by youth who are looking to start an apprenticeship. If private industry needs skilled tradespeople and if an ample number of Canadians are willing to enter these skilled trades, why is this not happening? It's quite simply because those companies that do train cannot afford to train any more than they currently do. The financial cost to train an apprentice is great. Adding to the problem is the fact that companies that do not train skilled tradespeople poach from those that do. This is a substantial loss to a company that trains the skilled individual. The company that poaches can afford to offer a higher wage due to the savings of not training.

Apprenticeship training is the third pillar of our educational system. In an apprenticeship the employer provides 80% of the training and the college system provides 20%. Currently, a company that trains skilled tradespeople does not have any vehicle for recovering any of the costs incurred by training, yet the federal government subsidizes the college segment of the apprenticeship process. If the government is willing to subsidize private colleges and universities, then why not private industry?

The apprenticeship system is the only educational system in Canada that has the student contributing to the federal tax coffers while receiving their education. When completed, the newly skilled tradesperson is guaranteed to be employed and have a higher standard of living. On the other hand, students following a more academic approach to learning employable skills do not have the same level of employment certainty upon their completion.

We believe that in order to stimulate an increase in apprenticeship training investment across the country for all industries an incentive program administered under the existing Income Tax Act should be established. This would create a stimulus at a corporate level and would encourage firms to increase the number of apprentices in training. Firms not currently training would now be encouraged to do so.

To summarize, the proposal put forth by the CTMA is that any company that trains as part of a provincially accredited apprenticeship program be entitled to a federal tax credit of up to 75% of the basic apprentice wage during each taxation year. This would provide an appropriate recovery of some of the costs incurred by training. It would help Canadian companies compete with companies operating in jurisdictions that provide training incentives. It would help Canada remain competitive in the global economy, because work goes to where the skilled people are. It would be an investment in the long-term goal of sustaining our skilled trades. It would be an investment in Canadians and our youth and would as well raise the Canadian standard of living. The tax revenue stream from individuals employed as a result of this proposal would quickly return the initial investment to the government and would provide a sound foundation for future tax income.

I would like to thank you, Mr. Chairman and the committee, for your time and attention this morning.

The Chair: Thank you very much, Mr. Bowman.

I'd like to congratulate the panellists for being on time. This is perfect. It's a good start to our Toronto hearings.

Mr. Solberg, you have seven minutes.

Mr. Monte Solberg (Medicine Hat, Canadian Alliance): I'm going to defer, Mr. Chairman. Because I wasn't as prompt as our panel, I'm not very prepared. I apologize for that, by the way.

The Chair: I wasn't going to bring that up, but thanks for bringing it up yourself.

Next is Mr. Brison on a five-minute round, followed by Mr. Nystrom.

Mr. Scott Brison (Kings—Hants, PC/DR): Firstly, I want to thank all the panellists for their interventions. They are very valuable to us in our deliberations.

My first question is to Mr. Crofford, and it relates to productivity and some of the issues inherent in that. There's a strong relationship between levels of investment and levels of productivity. Have you considered in your recommendations the notion of reducing capital taxes? It's a separate issue from corporate taxes. Our capital taxes do have a negative impact on levels of investment, and as such on productivity in a long-term perspective. This is an issue that is becoming more and more important. We're hearing more from panellists and also from economists about the importance of us having a competitive capital tax regime, so I'd appreciate your feedback on that.

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To Mr. Johns, on the increase in the capital gains exemption, if you look at the federal revenue derived from personal capital gains, somewhere in the vicinity of $4 billion per year, which isn't an immense amount of money compared with some of the other types of taxes that have a negative impact on the economy... I'd appreciate your feedback on the notion of in the long term actually phasing out personal capital gains tax completely and how your membership would look at that.

Another issue that you didn't mention on which I'd like to get some feedback from your membership would be RRSP limits. For many people in small business, the RRSPs represent one of the few vehicles for which to save for the future.

An additional concern that would be addressed by increasing RRSP limits is that we would defer significant tax revenues to a period of time when we really need them, in about twenty to thirty years, or when we have the demographic shift that is going to result in very few people working compared to the number of people drawing from the programs at the time. We would be planning ahead to that level of deferred taxation.

Those are some questions I'd appreciate feedback on.

Mr. Vaughn Crofford: I guess we really didn't address the issue in the brief specifically on capital tax, but the underlying feeling of our membership is that we as Canadian companies or producers have to be competitive on a worldwide basis and have a level playing field. Any tax reduction, whether it's capital investment or corporate tax, would be looked upon favourably by our membership as helping to be competitive. I'm assuming you're referring to investments in such things as equipment, buildings, and so on. Our membership would look favourably on anything that would make them more competitive or productive worldwide.

Mr. Stephen Johns: With respect to things like capital gains exemptions, increasing RRSP limits, things of this nature, on a matter of principle, Mr. Brison, our membership would advocate any policies that would serve as incentives to work, to earn, to spend, to succeed, because all of those things at the end of the day are going to directly and indirectly benefit all, including the federal government.

Mr. Crofford alluded to competitiveness in a globalized market. As we assess where we are in Canada relative to some other countries, I think we have to be mindful of where we fit in a competitive context. Really, I think it's all about providing an atmosphere that lends itself to competing and succeeding, to making living and working in this country an attractive proposition.

Mr. Scott Brison: I have one question tied in with the dollar. Our dollar is directly related to levels of productivity, and the precipitous decline in the dollar in recent years is commensurate with the declining levels of productivity growth compared to our major trading partners. From you membership's perspective, what does the declining dollar mean to your respective members? We can open this up. I suppose in some cases, for some that are export-driven, it may have, at least in the short term, what seems like a positive result, although I'd argue that in the long term that's not the case. But in terms of the ability to invest in productivity enhancement, whether it's equipment or software or other initiatives, how would your membership see the impact of our limp loony and beyond? I'd appreciate feedback on that.

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The Chair: Mr. Crofford.

Mr. Vaughn Crofford: We have a mixed membership in our association. Much of it is almost a branch plant mentality. Many of our companies now don't produce much of anything in Canada; it's brought in from parent companies in the U.S. However, I will say that the Canadian manufacturers are actually enjoying a degree of success because of the lower dollar. And it certainly hasn't hurt our export trade in our industry to have the lower dollar. But on the other side of that, the ones who are the branch plants of U.S. parent companies are of course paying higher prices for the goods they're bringing in. So that's a negative to them. So it helps one and hurts the other, the way the dollar effect has been.

The Chair: Thank you.

Mr. Nystrom.

Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP): I want to welcome everybody here this morning and ask a couple of questions that pertain more to Toronto and the GTA.

You mentioned congestion and a huge increase in population coming down the chute. What are the specific infrastructure needs of the GTA in terms of what we should be aware of in terms of the federal Parliament of this country?

Also, there have been a lot of people talking about urban affairs and municipal government being more important than it has been in the past. Should there be more powers given to urban governments and to municipal governments?

Just last week, for example, I spoke in Peterborough and I spent four hours on the 101 from Pearson Airport to Peterborough, 150 kilometres. So what advice do you have in terms of infrastructure, rapid transit, issues of that sort? A very easy question.

Mr. Wayne Dawson: Thank you.

First I'll just give one example. We have one member who did some calculations. Without naming the member, they considered that they as a business are losing $4 million to $6 million a year in the GTA area due to congestion. That's just one member, on a basis of trucks sitting idle.

The way we look at it is that if you're looking at 100,000 people a year in this area, within 20 years you're looking at the equivalent of Montreal. So we think you need to coordinate all forms. To say that public transit is going to solve all their problems or highways are going solve all their problems is not realistic. You need a comprehensive fix.

Canada's city regions contribute mostly as the economic drivers of countries these days. I think the greater Toronto area represents about 50% of the federal revenues. So it's an important investment for the federal government to be making to ensure that its own economic health in the long term remains fair. It's an investment, not an expenditure of dollars.

However, it needs to be a coordinated approach. Whether that is through a more powerful city or whatever, it has to be a coordinated approach. At this point, there really isn't a coordinated approach.

I've participated in many of those downtown discussion groups you've talked about, and I think that's a common feeling.

Mr. Lorne Nystrom: Does anybody else want to add to that?

I'm from Regina, and when you go 20 minutes you're wasting a lot of time in Regina, a city of 200,000 people.

Are there any other suggestions about what the federal government should be doing? In the prairies we have our own transportation problems, in terms of rails that have been abandoned and heavy traffic on highways and so on. But what can the federal government do in terms of the GTA infrastructure?

Mr. Wayne Dawson: Just one other comment, if I could.

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With regard to other city regions of the world, the national government is involved in every one of them.

Mr. Lorne Nystrom: You're going to find many countries that have a national transportation policy and a national highways policy. We don't really have that in this country.

Mr. Wayne Dawson: We should.

Mr. Stephen Johns: Further to the previous comments, I'm from the GTA, so I obviously appreciate the congestion and traffic volume challenges we face.

I just got back last night from attending meetings over a few days in Calgary and vicinity. They're encountering a similar situation with their infrastructure. That's a city that's realizing some pretty tremendous growth, and the infrastructure isn't keeping pace. Certainly, in our submission we address the importance of a high-quality national highway system.

Our industry and our membership are constantly flagging the importance of delivery and the ability to deliver goods. From a service perspective, our retailers in these times of inventory turns and just-in-time delivery need access to product and need it quickly. A lot of the product we're talking about is being transported via trucks. Thus we feel it is very important that we address this issue and apply resources appropriately, from the federal gasoline tax coffers to infrastructure improvements.

Mr. Lorne Nystrom: I have one last question with regard to training. Somebody mentioned training and the tax credit. Is there anything else the federal government could do in terms of training? The jurisdiction has been shifted, of course, to the provinces in terms of the constitutional responsibility. Is there anything else besides the tax credit in terms of assistance for training?

Mr. James D. Bowman: We also need a cohesive national plan on what is a curriculum, if you will, for all the different training being done. From hairdressing to plumbing, electricians, and tool makers, there are a number of apprentices. We need a cohesive national policy on what should be taught and how it should be taught, and that doesn't exist. It's different from province to province. The federal government should be taking back some of the powers the provinces have in training, because, in my opinion, those dollars aren't properly allocated, and the nation is suffering from it.

Mr. Lorne Nystrom: Do you people share the same point of view in terms of the federal powers and provincial powers?

Mr. Robert Elliott: We don't have a policy as an association or an industry, nor have we discussed this issue. But I can say this from what I've noticed within our industry, the retail hardware industry: our members are constantly struggling with being able to get good people to work in their stores, people who haven't gotten there because it's the only thing they can do until they get a real job kind of thing. The retail area seems to have that approach. It's not a specific recommendation, but we would support anything that could be done to encourage training at any level. We find that our members are not buying into it well enough to be able to say they're doing it.

Mr. Les Payne (Vice-President, Canadian Tooling and Machining Association; President, Universal Pattern Co. Ltd.): Mr. Chair, may I comment on that?

The Chair: Sure.

Mr. Les Payne: We're part of the International Special Tooling and Machining Association. There are 24 major countries in our group. Every year we meet and survey our members so that we know what's going on worldwide. Canada has drastically fallen behind on their training efforts as a national program. Just to give you one small illustration, a skills competition was recently held in Korea. Korea is a country of 60 million people. They have 220 of what you could call colleges. Our colleges have gotten away from the actual training of skills trades. They have 60 million people, and they have 220 training centres to train their young people. In the 35 competitions that were held for all of the skills, Korea took 32 medals, either gold, silver, or bronze. China and Singapore are outperforming us in their training efforts. The centres in Singapore are incredible. And the list goes on and on. We're in trouble.

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The Chair: When you talk about this skills competition, what skills are you referring to?

Mr. Les Payne: The best Canada did was a silver medal in hairdressing. That just keeps us smart. It doesn't generate wealth for our country.

The Chair: The question was, what kinds of skills?

Mr. James D. Bowman: It included patternmaking, mould-making, machining, and millwrighting.

Mr. Les Payne: And also carpentry, hairdressing, plumbing, electrical, computer skills—all kinds of skills.

The Chair: What about computer-based skills?

Mr. James D. Bowman: There aren't any accredited apprenticeship programs for that.

The Chair: What does that say about the fact that our economy is shifting from a manufacturing-based economy to a knowledge-based economy?

Mr. Les Payne: You need the skills to do something with that knowledge. You still have to hammer nails, but instead of wood, you have to figure out how to nail up metal two-by-fours now. So it's what you do with that knowledge. We can't take computer graduates and get them to run the computers in our companies until they have the basic skills, and that's the apprenticeship system.

Mr. James D. Bowman: That's a key point. With regard to the programmers for CNC machining, those people still have to have the basic concepts of the theory with regard to steel cutting. Yes, that's something you can teach out of a textbook, but until you've done it by hand and you know what those loads and forces are going to do... As an employer, a person coming to me with strictly schooling and no kind of hands-on experience will be more expensive than somebody who has come from the floor and who through additional training has learned how to program CNC, because there'll be a learning curve there.

The Chair: I take it for granted, of course, that you need a guy who knows how to hammer. To me that is basic knowledge. Everybody knows that in order to put up a roof you need a person to put up the shingles and that you need a plumber to do plumbing. I understand that clearly.

Although our economy has not totally transformed itself to a knowledge-based economy, there's no question that there has been a shift away from manufacturing to knowledge-based. The reason I was asking whether it's a fair assessment of the present skill situation in Canada is because I was wondering whether or not you factored that in.

Mr. James D. Bowman: For a student who is trying to decide what they're going to do for a career it's a lot more attractive to go into any of the areas in the knowledge-based economy, be it programming, web design, or whatever. Those are really sexy ideas.

But we still need skilled labour to get the jobs done, and those areas are being neglected. Because of the baby-boom generation, by 2010, 40% of machine operators are going to be at retirement age. That's a federal government statistic, by the way. We're not producing enough apprentices at this time to fill that shortfall. This will result in higher consumer prices, and the federal government will be losing the revenue from the above-average income of tradespeople.

Mr. Ed Glover (President, Canadian Tooling and Machining Association; President, Harbour Advanced Machining Ltd.): You were talking about the shift away from manufacturing. I believe that's a false shift. It's easier to teach people how to manipulate the computer. The colleges can buy ten computers, as opposed to one milling machine, and they can teach ten seats—they're just buying seats—as opposed to one.

• 0920

In manufacturing, which is the whole basis of our society, we need skilled people. We're in a major crisis in Canada and North America. We need skilled people. The only way to get them is for people like us to train them. I used to train four people a year, every year; I'm down to one. If I don't get help, I'm going to have to stop training. It's too costly. The margins are not in it for who you can train. The colleges can't do it; we have to do it.

A pilot can be trained on a computer. Would you fly with him, or would you fly with the guy who has learned sitting in the seat? He has to have skills. Anybody can learn on computers. You have to have the years behind you. It takes ten years to train a tool maker, four as an apprentice and at least six on the job before he is really skilled. We don't have ten years. We have to do something now. We really have to do something now.

The Chair: I don't want to take away from the question time, but we should be looking at the dual apprenticeship system that, for example, Germany has had for a number of years. Apprenticeships here in Canada are very expensive because people start later in life, and of course financial commitments as you grow older are more and more... as you establish families and what have you.

Mr. Les Payne: Can I make a closing comment?

The Chair: You sure can.

Mr. Les Payne: The whole objective of our program... There is no lever to encourage employers to make that decision to hire more apprentices. There's nothing. There's no reason for them to do that. All we're looking for is a lever to double the apprenticeship system as stated. It would improve everybody's life in Canada. But we're mainly trying to obtain more opportunities for the young people to become trained.

The Chair: Thank you.

We'll go to Messrs. Murphy, Cullen, and Bennett, and then we'll finish up with Mr. Solberg.

Mr. Murphy.

Mr. Shawn Murphy (Hillsborough, Lib.): Thank you, Mr. Chairman. Like my colleagues, I want to thank all the people who made a presentation today. I appreciate the time and effort that went into this process.

My first question is for Mr. Johns, Mr. Crofford, or Mr. Elliott. I appreciate that your presentation was prepared before September 11, and a lot has happened since then, but your brief is, as you can appreciate, very extensive; the shopping list is quite broad. I believe there are 16 recommendations. I think if the government were to implement them all, it would be in the billions if not hundreds of billions of dollars.

With this many priorities, do you have any priorities? The question I put to you is, where would you see your real priorities? If there were one or two items of the 16 you have that you would like the government to seriously consider, what are they?

Mr. Vaughn Crofford: Our membership is unanimous in agreeing that they should reduce the debt, first and foremost, and reduce taxation to stimulate the economy to keep Canadian companies competitive in the world marketplace. From our association's standpoint, those are clearly the two priorities.

Mr. Shawn Murphy: My second question, and I don't know if it's addressed to Mr. Johns, Mr. Crofford, or Mr. Elliott, is with regard to recommendation 12. I find it very intriguing. This is the recommendation that allows seniors to retrofit or renovate their homes using RRSP proceeds. Has there been more work done on that, the whole logistics? I know on the other one the money is to be paid back. If you use it to purchase a home, you have to pay it back, I believe over a ten-year period. That would not be feasible in a senior situation. Has there been any more extensive work as to the cost and how the whole procedure would work? It seems like a very interesting proposal. I think it would be very valuable from many points of view.

Mr. Robert Elliott: No, we haven't done a whole lot of additional work or research on the idea, but maybe just to clarify, the idea is that it wouldn't be the seniors who are necessarily investing the money. It's those perhaps at our age who are retrofitting their homes for their senior relatives or friends or whoever out of their RRSP moneys. We would be repaying that back over a period of time, under some strict criteria again, as is already being done with the first-time homebuyers program.

• 0925

Mr. Shawn Murphy: I misunderstood. I see it's to meet the needs of senior citizens. I thought seniors could use it themselves and take it out tax-free.

Mr. Robert Elliott: No.

Mr. Shawn Murphy: My last question is to Mr. Glover or Mr. Bowman. It comes back to this whole concept of the crisis we're having in Canada with respect to skills training.

As I see what's going on in Canada, the community colleges seem to have a hodgepodge for dealing with 13 different jurisdictions, 13 different schemes, 13 different plans, with all the problems associated with that. Is your association advocating a total industry-managed and -operated training program to the exclusion of the community college, or do you see a combination?

Second, in the international models that work best, what is the role of the community colleges, if anything?

Mr. James D. Bowman: No. We're not suggesting that it become a federally operated system. We believe it behooves the nation to have a cohesive curriculum of what should be covered, what should be taught in each province and transferable between provinces. We believe it's still best taught through private industry by doing it hands on. Even in the system where there are different schools of training, these are good methods of preparing apprentices for actual on-the-job training. The only way to truly learn is by doing it in the real world, a real-time experience.

Mr. Ed Glover: To continue with what Jamie was saying, there is a need for the colleges. We have that in place right now, and it's pretty close to what we want. The problem is, industry does about 75% of the rest of the training, and there is a small group in industry actually able to do that. A lot of them do it through an ethnic awareness, saying “I want to contribute.” They are dwindling. The big business people look at the costs of training and say, “We are not going to do it.” General Motors does not train. It's the small to medium-sized businesses that train people, and we have to encourage more people to train. The only fair way of paying us back... if the colleges are paid to do their 20%, all we're asking is some help to get other people involved in training the rest of the time, the 80% that is required.

Colleges are required; we can't do everything. They are doing a very good job. We are working hard with the colleges. We're putting things in process to help the colleges, but they cannot do it all. It would be impossible to ask them to do it all. It would be like saying let's get an airline pilot straight out of college, sit him in his seat, and have him fly that plane. It's not going to happen. It can't happen. It takes ten years to train a skilled tradesperson in our business. It may not take that in others. It may take two, three, or four years for different trades, but in the metal-cutting trade it's approximately ten years.

The Chair: Thank you, Mr. Murphy.

Mr. Cullen, and then we'll go to Dr. Bennett.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman. Thank you to all the presenters. I apologize for not being here on time.

I have a couple of questions on apprenticeship training and then one or two on highways, if we have time.

The skill shortages we're experiencing, especially in construction and some of these sectors, I think is a problem. Apprenticeship is something that in Canada we should be supporting more and better.

I know a group of us got into this question some time ago and we immediately bumped into some jurisdictional issues with respect to training and the devolution to the provinces. I suppose, considering that the federal government has jurisdiction over the federal income tax, tax credits might well work. I know we did have the youth internship program. In fact, at Humber College, in my riding, there was a lot of work done with the tool and die industry with great success. Ninety-five percent of the people who did the program found jobs, and it was a very constructive program all around.

• 0930

That has certainly changed significantly. I'm not sure if the youth internship program is still a vehicle that works.

I have a couple of questions. One, do you think jurisdictionally the tax credit would work? Second, you talk about qualifying accredited provincial apprenticeship programs. Not all provinces have accredited apprenticeship programs. Is that correct? If we did go this route, that would presumably encourage provinces to get into apprenticeship training. Third, just to clarify, the tax credit would be a percentage of the salary, would it? It would be a subsidy of the salary while this person is training on the job and in school.

Could you elaborate on that for me, please?

Mr. James D. Bowman: There is a lot covered there.

Right at the beginning you were talking about the different programs in place right now. You said there are many different vehicles and systems and jurisdictions, and that can't be understated.

Glover here comes from the Windsor area. It has a number of programs that are quite successful. Across the province there's the OYAP program, which is the Ontario youth apprenticeship program. That seems to be successful as well. I know there are many different local and regional systems. All, by the way, have a very high rate of employment success. That's because the demand is there. You could have almost any educational system producing skilled trades and, yes, they'll find jobs too.

So it really isn't reflective on even the quality of the education being provided, even though that could be quite high. It's a result of the fact that the need is there. You could almost fall off a truck and end up with a job as a tool and die maker right now.

Mr. Les Payne: You asked if a tax credit would work. The answer is yes. It will bring in all the big guys who do not train apprentices today. That really is the thrust of our presentation, our recommendation. The GMs, the Fords, and the Chryslers do not train apprentices. They have bean counters—

Mr. Roy Cullen: You're speaking to the converted.

You're a constitutional lawyer, and I don't know if you've done any research as to whether constitutionally this would stick.

Mr. Les Payne: We can look into that.

Mr. Ed Glover: I believe it would work. The thing is, it's fair. You would only get paid if you trained. You would become a training agent, and if you don't train, you don't get paid. It's a win-win situation for everyone. Apprentices' wages are going up and the tax revenue is going up as they come in.

Mr. Les Payne: It only affects profitable companies.

Mr. Roy Cullen: On youth internship, that has been phased out. Has it re-invented itself some other way, or is it just a non-entity now?

Mr. Ed Glover: There are a lot of programs—OYAP program, the youth apprenticeship program. They're all very good. Windsor has a—

Mr. Roy Cullen: No, I mean supported by the federal government.

Mr. Ed Glover: No, there's nothing that we know of where you can get any support from the federal government.

Mr. James D. Bowman: It's been handed down to the province.

Mr. Roy Cullen: Okay. Do you know what the take-up on this would be if we went with a tax credit? I don't know if you've run any scenarios on what the tax expenditure would be to the federal government. Do you have any idea at all?

Mr. James D. Bowman: In our meetings with HRDC we haven't been able to find out any concrete numbers on the number of apprentices in the system right now, either nationally or regionally. So we wouldn't be able to put any concrete numbers to that. I know we've bounced numbers back and forth, but it would all depend on what we could come up with.

We'd be happy to work with you on that.

Mr. Roy Cullen: Have you had any discussions with the Department of Finance? Have they modelled any scenarios or numbers?

Mr. Les Payne: We would like to.

Mr. Roy Cullen: Maybe that's something we should do.

• 0935

Is my assertion true that different provinces have different approaches to apprenticeship? Is it true that some provinces don't have accredited apprenticeship programs, or is there some form of accredited apprenticeship program in all provinces?

Mr. Les Payne: There's an excellent group of directors of apprentices from all provinces who meet at least on an annual basis. We have the “red seal”, which is their main objective, but there are only a few trades that are classed as red seal. Tool and die makers are one of them. We were involved in that process.

We're also involved with the provincial advisory committee, and therefore we get the access into the directors of apprenticeship. We work with the directors of all the provinces, but not all of them have a red seal for all trades.

The Chair: Mr. Cullen, a short question.

Mr. Roy Cullen: I just have a quick question for Mr. Dawson on the highways.

The concept of design-build-maintain I think has a lot of positive features in the sense of reducing capital costs. Without getting into the debate of cement versus asphalt, and I'm sure you have some selling points there, the idea of toll roads in Canada always conjures up a lot of negative reaction. In Toronto the 407 is a perfect example. You have high-traffic density and you have options.

What about in the areas in Canada where we have low-traffic density? What kind of interest or appetite would there be for the private sector to get into toll roads? As you know, shadow tolls are just a way of amortizing the public costs. Any ideas on that?

Mr. Wayne Dawson: There are probably highways where there could be a combination, where tolls probably couldn't support 100% of the highway, but they could support a percentage. If you're looking at the lower-traffic roads and there are 100% tolls and there's no involvement, that's probably not realistic. It's not a line where it's economically just right for tolls and nothing... There could be some financing by the government and a portion of it by tolls, and the higher the traffic load, the higher the tolls can represent of that total cost.

Mr. Roy Cullen: So you'd always be faced, in some of these areas, with some public subsidy. What I've been talking about is a way of capturing as many private benefits as you can. In the U.K. they've done a lot of work in terms of concessions, real estate. So pushing the envelope on what is the interest in the private sector, in addition to tolls, and then once you've tested the market for that, you're left with what is probably a public good that has to be financed by a public—

Mr. Wayne Dawson: And at the end of the day the government knows exactly what dollars it's going to put into it, and then the risk is transferred to the private side. So it's not where you're putting money in and hoping that's what the costs are. You know what your costs are going to be, and then it's up to the private industry to take that risk, which they're used to doing.

Mr. Roy Cullen: Yes. Good.

The Chair: Thank you, Mr. Cullen.

Ms. Bennett.

Ms. Carolyn Bennett (St. Paul's, Lib.): I'm interested in the apprenticeship training tax credit. I'm interested in how you would actually implement this in an area where there is some curriculum standard. How would you as organizations make sure that these are accredited programs, and how do you make sure that the same employee isn't an apprentice for 20 years? How do you actually develop the accountability and the actual qualifying, the teachers, the qualifying companies—that red seal approach?

In this country, obviously, sometimes we have more trouble federally-provincially than we do internationally. If I look at the ISO standards in manufacturing or in management, is there developing an equivalency internationally on training that we're actually totally missing the boat on? How could you help us make sure that if we do something like this, a tax credit, that it's not abused and that it actually is implementable in this country?

Mr. Les Payne: We've been invited by Jane Stewart to take a look at this issue. We met with her recently in her office.

Each province has an accredited and certifiable apprenticeship program. Part of our submission is that each apprentice would be registered with each province under this accredited apprenticeship system that's in place. I think it would take care of your major issue there.

• 0940

The other part of it is that it does only apply to profitable companies. In other words, if you're not profitable, you're not going to get your tax credit. So maybe there's not a full cost involved in this. That's where the economists can really help us. We're tool and die makers, mould makers, whatever, not economists, and we would love to work with the economists.

Ms. Carolyn Bennett: Are the directors in certain trades and skills who meet together developing curriculum standards?

Mr. Les Payne: Ontario probably has the finest standards. They're close to the best in the world, actually, in certain areas. We have received high regard for the standards we have helped to develop.

Ms. Carolyn Bennett: So you're saying that as long as it's a provincially regulated—

Mr. Les Payne: That's all we have to work with at the moment.

Ms. Carolyn Bennett: But I was hearing some interest in a set of national standards.

A witness: I think that's where we should be heading with this.

Mr. Les Payne: That's for the red sealed, but only a few trades are red sealed. I don't know if the construction industry is red sealed. The majority of our precision metal foremen are working toward that. I'll put it that way.

Mr. Ed Glover: We are working across Canada to address your concerns. In Ontario we have one of the best metal-cutting apprenticeship curricula. It's as good as the German one. The problem is that we don't have enough companies to train the apprentices, because it's costly to train. If we had the same subsidies the Germans have, where a company such as DaimlerChrysler would train 200 apprentices and get relief for that, we would be harvesting the apprentices that came out of DaimlerChrysler, and it would be fantastic. But the small number of people who are doing it is dwindling and dwindling, and we will have no training. We could triple apprenticeships if people would train them. There's no problem getting that system in place.

Mr. James D. Bowman: Right now we have a system where different jurisdictions are pointing a finger at each other, and nobody wants to take hold of it. It's a hot potato. What we need is some leadership from the federal government in grappling with the situation, in taking ownership of it, with the assistance of other organizations, including ourselves. It's going to affect Canada as a nation. It's not going to affect only the province of Ontario or the province of Quebec. It's going to affect the whole country. That's why we believe we need the federal government to take a leadership role on it.

Ms. Carolyn Bennett: With regard to the poaching problem, I think that's one that everybody is worried about in all kinds of areas, including poaching nurses or doctors. Obviously, you feel that the smaller companies are doing the burden of the training and the bigger companies then poach them. Is there poaching province to province as well? Are there some provinces that are training and others that aren't pulling their weight? We have that in medicine. B.C. has never trained as many physicians as they need because they've always thought people want to move there. We're trying to straighten that out.

Mr. James D. Bowman: We can only speak intelligently about our sector of apprenticeship training, which is metal cutting. I would say that interprovincially there is not much of that going on.

Mr. Les Payne: We sat down with the president of the National Special Tooling and Machining Association, who's in our group, and he stated categorically that the U.S.A. needs approximately 60,000 to 70,000 skilled tool and die makers. We asked, where do you plan on getting them? He said, from another country that speaks English the same as we do. And you don't need me to tell you where that is.

Ms. Carolyn Bennett: They're taking 50% of our family doctors, too.

Mr. Les Payne: What we need to do is keep it coming in one end. We can't really stop that loss.

The Chair: With the emergence of a North American economic community, we ought to be thinking about a North American perspective, rather than a national solution.

• 0945

Mr. Ed Glover: We have another problem in addition to the loss across the border. We also have an aging loss. It's not an economic downturn that's going to create a situation where there are no jobs. It's people retiring and having no one to fill those jobs. Plus we have the threat of people who could fill the jobs going south. It's a double-whammy, and we have to seek control right now.

The Chair: The demographic transition in the United States and Canada is very similar. When we're looking at North America, we ought to be looking at Mexico. They're the ones who are going to be training people in your business.

Mr. Ed Glover: I believe they're looking at the Korean formula right now. If you look at Korea, 30 years ago they were peasants. Now they're a major industrial nation. They're competing against us, and we can't compete with them.

The Chair: So you would agree that we need to start looking at a continental way. Is that what you're saying? Do you agree with that?

Mr. Ed Glover: Yes, I agree with that.

The Chair: You're on the record. Thank you.

Mr. Solberg.

Mr. Monte Solberg: Thank you very much, Mr. Chairman.

Just for the record, I also agree with the continental approach.

Along that same line of thinking, it seems to me that the trades are really split into two big groups. One would be the trades that are associated with heavy manufacturing. The drift is toward some of the more low-cost jurisdictions. In the case of those sorts of trades, this may be helpful in the short run, but the drift is still toward Mexico, for instance. I'd like you to comment on that.

We've had a relatively hot labour market in the last little while, and that has meant, I would think, that for every industry there's a huge competition to get workers. To what degree is that the cause of your problems? When the economy softens, do people tend to go back to the trades and be willing to work for maybe a little less money? This really boils down to costs for you.

You mentioned that Ontario does a good job on some training. Is there any one jurisdiction within Canada that really does this well in terms of the incentives they provide for training?

Mr. James D. Bowman: Regarding your focus on skilled trades going to Mexico, this is a relatively new phenomenon. It's a real problem. Two people who work at my company have been approached to go to Mexico for a handsome sum of money on a contract basis for four years. They've decided not to do that, only because they have families here. I'd be worried if the same thing happened to somebody who was single, but, typically, the ones who are single are younger and less experienced, so we have that in our favour. To address your question on how to prevent that, just provide an environment in Canada where they don't want to leave. Obviously, there's health care and other issues like that.

You made reference to people looking at getting into skilled trades for less money during times of a softening economy. Looking at the national household income, on average skilled trades provide an above-average income, so that isn't necessarily the case. If you're established in a skilled trade, you aren't going to be leaving it to follow something that could be more advantageous in a hot economy. So I don't see people coming and going depending on the economy.

• 0950

Mr. Les Payne: We don't have a shortage of people wanting to come into our trade. There have been tremendous dollars spent on upgrading the image of the trade. We get people who approach us who have university degrees, college degrees. I've even had people who are teachers asking how to become an apprentice tool and die maker. That is not our problem. Our problem is that we don't have enough companies. We represent employers, and I tell you, the employers are the bottleneck. Even though we represent them, they are the bottleneck. They will not open up more positions for young people to be trained because they can't afford to.

Mr. Monte Solberg: Let me just ask a question about that, then, because we just had a presentation a minute ago where we were talking about housing starts being up 8% last year. In a case like that, where there's a big demand for housing, and prices are obviously going up in a situation like that, why isn't there enough money coming back to be able to pay these people or to allow companies to be able to provide the training as opposed to any other industry?

Mr. Ed Glover: The problem is it's global. We're now competing with China, Korea, Singapore, India.

I used to train four apprentices every year, and I have a small shop. I don't have a big shop. And $120,000 an apprentice is a lot of investment. I used to be able to afford it. I'm now down to one apprentice.

I'll give an example of the possibilities of hiring apprentices. The Moulding Youth for Industry program in Windsor takes young people from the age of 18 to 30, I believe it is, out of the unemployment rolls. These people have to sign off unemployment. They're trained for 40 weeks and they go into industry. Out of 120 applicants—because we don't have the companies willing to train—23 go to the companies that are only willing to train. The other companies will wait until they're trained and then steal them. Wait until retirement hits in a couple of years. There'll be a drop in the bucket when all these apprentices go. We need to start encouraging companies to train.

We should be putting 123 people into businesses for the future of Canada—young people who will not be unemployed, and if they are unemployed there'll be an employable unemployed person who, the minute a skill comes up... It's very easy to poll the unemployment agencies. How many skilled people are lined up for a job? None. This is the fantastic thing about it. These people will not be unemployed.

Mr. Monte Solberg: My final question is, is there any one province that has any programs in place that could be models for how this should work?

Mr. Les Payne: I think there are two provinces doing a really good job. One is Quebec and one is Ontario. Recently, Quebec contributed 22 out of 30 competitors in the world skills competition. So I think Quebec is doing a good job. I'm not familiar with the federal support for the apprenticeship system. I do believe they start them a little earlier; therefore you get more bang for your dollar. Society gets more bang for its dollar.

The thing is, though, I find it strange that there's absolutely no support for the apprenticeship system in Canada—none. Jane Stewart said, well, we do support the apprenticeship system; we put $30 million into it. They took $600 million or more... Maybe we should be looking at this thing differently and create a degree course or something like that and stop paying these apprentices. Then we could get $600 million back. We don't have to give it to you.

The Chair: Thank you very much, Mr. Solberg.

On behalf of the committee, I want to thank you all very much. It was a very interesting panel discussion.

• 0955

I do take note of the fact that there's strong endorsement for a pro-growth strategy, from what I gathered from you. You mentioned the issue of productivity as related to a standard of living; developing a globally competitive tax regime; making some investment in infrastructure; and the development of human resources in the sense of partnership programs. Of course, you support the government in the use of any levers we have at our disposal to bring about that type of strategic growth.

I do also want to underline the important issue that you raised in reference to a continental perspective on problem-solving as it relates to our economy and some of the challenges we face, as well as, of course, the issue of the interprovincial trade barriers and other concerns.

I want to thank you very much. Once again you've provided the committee this year with valuable information.

I'm going to suspend this meeting for approximately two minutes. Please do not leave your seats.

• 0956

• 1002

The Chair: I call this meeting to order and welcome everyone here this morning for the second panel of the pre-budget consultation hearings here in Toronto.

We have a number of organizations represented in this panel, as well as individuals. We have Ms. Leslie Whicher, as an individual. From the Airline Pilots Association, we have Captain Brian Chury, pilot representative, and Captain Vincent Charron, as well as Captain Steve Linthwaite. From the Canadian Restaurant and Food Services Association, we have Ms. Joyce Reynolds, senior director, government affairs, and Becky McKinnon, the president of Timothy's World Coffee. I hope we're using their coffee this morning. From the Ontario Municipal Employees Retirement System, we have Dale E. Richmond, president and chief executive officer, and Walter Borthwick, OMERS board chair. From the Canadian Professional Sales Association, we have Terry Ruffel, president. From the Canadian Association of Fire Chiefs, we have Donald F. Warden, immediate past president.

Many of you are familiar names, so you probably know how the committee works. You have five to seven minutes to make your introductory remarks. Please stick to that timetable. As you see, there are many witnesses who would like to speak as well as members who would like to ask questions.

We'll begin with Ms. Whicher. Welcome.

Ms. Leslie L. Whicher (Individual Presentation): Thank you for the opportunity to provide input into your process, and particularly the goals of providing Canadians equal opportunity to succeed, quality of life, and standard of living.

My submission to this committee is similar to requests that have been made and ignored many times. However, I do not think there can be any matter more important to our society than the conditions in which we raise our children. It would seem cynical to conclude that a government that is known for talking about a children's agenda and helping so-called ordinary Canadians could continue to try to justify the present system in which the recognition of the value of parenting and children to society occurs primarily in terms of their parents' incomes. The higher the income under the present system, the greater the dollar value of the child care tax credit, and the benefit of income splitting goes to two-earner families, which statistically have significant higher family incomes.

• 1005

Maternity benefits are also contingent on earning income in the first place and increase with income level. The structure of benefits to increase with the recipient's income is contrary to any principle of fairness or progressive tax system that I have heard anyone, much less any Liberal, espouse.

I have requested in my written submission that this government put an end to discrimination in the tax system against families in which one parent earns all or most of the income while the other sacrifices economic advantage in favour of raising one's own children. Specifically, the tax system should be adjusted to allow parents to income split fully. This should include allowing both parents the RRSP deduction and to convert the child care tax deduction into a universal credit, unrelated to who gets the paycheque in the family or how much they earn.

As outlined in my written submission, none of the justifications advanced by proponents of the current system really bear up at all under any scrutiny. I will have to hope that you've read these reasons, as they are central to my submission but can't be covered due to the time limit of this oral submission.

I'd just like to note that as a deduction, the child care tax credit gives the greatest value to those families where the lowest earner earns over $114,000 after all other deductions. That's a minimum of $228,000 of family income.

In light of the fact that your government's own June 1999 report of the subcommittee on tax equity for Canadian families found that a major discrimination between single- and double-earner families exists despite the child tax benefit, and you chose not to act, I asked my MP, the honourable Mr. Bevilacqua, why such severe discrimination, with such obviously real adverse consequences to children, continues to be upheld by this government. Why such a resounding preference for getting both parents away from their children to work for a separate paycheque? I thought there must be a reason I had not heard of. Mr. Bevilacqua's answer was the only explanation I've heard that I can believe. He explained that the real reason is that the decision-makers in government believe that the more they can get both parents of a couple into the paid workforce, the more the country's economic productivity, i.e. GDP, is boosted. Particularly, he said, intelligent and well-educated parents are sought to be brought into the paid workforce because they have the most to offer.

In other words—not his words, but my words—the value of an individual as a parent, the dream of any parent who wishes to be there imparting her own values to her children instead of those of her paid caretaker and the daily needs of children to be with their own parents are deliberately subverted to short-term national economic goals by government. Why? Do higher GDP numbers increase chances of re-election? What about all the studies in the news all the time about the negative impacts of increased stress from combined family and work demands, which particularly affect women: the steadily increasing hours per week worked by Canadians, the increase in sick days taken by parents, and the toll of stress-related illness on productivity? What about the economic value of unstressed parents who have the time and energy to contribute their best to their children's development? In other words, does this theory of subverting children to the pursuit of higher GDP really bear out in reality once all factors have effect?

The U.S., which I understand does tax families as a unit instead of individually, or have some such system, has still a significantly higher rate of productivity per person than Canada. Also, if high-achieving, intelligent, educated parents are thought to have the most to contribute to the economy, don't they also have the most to offer their children? And I don't mean financially.

In creating thousands of dollars of incentives to choose paid employment, you're clearly telling us that caring for our children is not worth as much to your government as its financial goals. The present distribution of benefits treats children as an obstacle to financial gain and little more. Women who are homemakers feel justifiably devalued by these policies, but what about their children, who share the financial consequences of these policies? It's one thing to give up a salary because you think it's worth it for your child, but another to be insulted and have your family penalized for doing so.

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Many politicians love to say dual working parent families are the reality of today, and we have to recognize that, but government plays a large part in causing this reality. If after giving up one salary, you are penalized up to $7,000 in taxes for not using a nanny to earn income and several more thousand for not being able to get the paycheque to come in two different names, the reality may be that government has put the possibility of affording to care for your own children in a dual-income economy beyond reach. Present policies leave the choice of staying home to raise your children only to those with enough money that tax system discrimination doesn't cause them any real financial hardship. Are these the only people your government feels should have the right to choose to stay home with their children? The expenditures I have requested would extend the privilege of being able to care for one's own children to more Canadians, if they so chose.

Ultimately, present policies reflect a masculine definition of what is valuable to society, work that you get paid for. Equal opportunity for women to go into the workforce isn't the only thing that constitutes progress for women. It's time we as a society fully extended the theory of freedom to choose what is right, when 20 or 30 years of experience enlightens us about balancing family and work, instead of limiting the definition of equality to exclude traditional female roles. If we don't work for money, not only do we not get paid, which is fine, but we get punished by discriminatory tax treatment that annually costs our families more than most fines or penalties for breaking the law.

The tax system should be neutral on the important issue of choosing whether or not to stay home with your child. Many psychologists and neuroscientists believe that an uninterrupted bond with the fully attentive, consistently available, and unstressed parent is critical to a child's full intellectual and emotional development. Government policies should not impinge on parenting choice in this area. Funding the care of children should have no relationship to whether and how much the parents earn. Canadians are supposed to be able to choose any religion, marital status, or sexual orientation they like, and government tries to be financially neutral. Women are free to choose whether to have or terminate pregnancies, as they should be, yet the tax system is radically discriminatory, to the point of being penal when it comes to choice in raising children.

More funding for paid child care, more so-called programs for children, subsidized drop-in centres, and universal tax breaks are not what Canadian families and the economy need. We don't need more funding for the same children who get the major largesse already. A tax break that puts single-earner families on more equal financial footing with dual earners with the same gross income is one that must support the domestic economy and benefit children like no other, because it goes to people who need the money to spend. Families with children need more material goods, services, appliances, and paraphernalia than others, and single-earner families have long been handicapped in their spending and standard of living. It has been said many times that a tax cut to the wealthy will be saved and a tax cut to the poor will be spent in support of the economy, and the same logic applies here.

Finally, it's also been said too often that the present government is unchallenged and under no pressure to listen to the public. Stay-at-home parents are not a vocal or politically powerful group. It is government's duty to protect the rights of all, not just those who speak loudest. If children had a voice, would they ask for more child care funding or for funds to allow their parents to be with them more?

I would appeal to your government to use this opportunity to show leadership by doing the right thing, by correcting a long-standing inequity, as outlined in the June 19, 1999, report of the subcommittee for tax equity for Canadian families with dependent children, instead of choosing to placate every voter a little for the latest hot issue, leaving the same inequities in place to compound year after year.

Thank you.

The Chair: Thank you very much.

We now proceed with the Airline Pilots Association. Who's going to speak? Mr. Linthwaite.

Captain Steve Linthwaite (Airline Pilots Association): Mr. Chair, thank you. Ladies and gentlemen, thank you, mesdames et messieurs.

As your committee conducts its annual pre-budget consultations in anticipation of the next federal budget, we ask you to consider the following submission. Air Canada is seeking further financial assistance. In our view, without debating the specific issues of financial help, the following points should be seriously considered before any decision in this respect is made.

First, let me introduce Captain Vince Charron, who is the Air Canada Regional Pilots government affairs representative, and Captain Brian Chury, who is the Air Canada Regional Pilots negotiating committee chairman. And I'm the chair of the Air Canada Regional Pilots of the Airline Pilots Association.

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To give you a bit of background, because you have a number of submissions today, the Airline Pilots Association is the union that represents 66,000 pilots and 47 airlines in the United States and Canada. But we're here representing today the 1,500 pilots of Air Canada Regional Airlines. It's sometimes forgotten in the larger Air Canada, but we're the amalgamation of airlines you may be familiar with: Air B.C., Air Nova, Air Ontario, and Canadian Regional Airlines. Between us we have over 5,500 employees. We're a wholly owned subsidiary of Air Canada, and the roots of our company go back to 1934—so excuse the expression, but we're not a fly-by-night outfit by any means. For a financial perspective on how we fit into the Air Canada organization, using Air Canada's 2000 annual report, while we only represent 7% of the capacity at Air Canada, we're 14% of the revenues. You can see from that the financial impact and the efficiency of our operation.

More importantly, we provide service to over 70 communities across Canada, more than any other airline in Canada, and that doesn't include our service to the United States. We are the airline of the small and mid-sized community in Canada, and I think that's an important point. Our message here today is that we support the concept of the Government of Canada's providing additional financial assistance to the airline industry, and in particular Air Canada. However, there are problems we wish to highlight before you make those decisions.

Transportation has been an issue in Canada since Confederation, we all know that, because of our geography, our relatively small population over a large area. With the announcements of the last few weeks, we're looking at a very dramatic affect on the air service to small and mid-sized communities in Canada. The announcement of Air Canada Regional in its press release last week entailed a 24% reduction in capacity at Air Canada Regional Airlines. If you go back to when Air Canada became the dominant carrier, in January 2000, we've been reducing capacity, when you combine it with this announcement, over 40%. That directly relates to the service we can provide to the communities across Canada. An important point in the press release that I think is lost is that while Air Canada has numerous airplanes—I believe it's 28—on order as replacements for some of the airplanes they're parking, Air Canada Regional has none. So we have no replacements, and we are taking a 40% cut in a matter of a year and a half. That relates directly to the service we can provide to communities.

What we have here is a private company dictating de facto public policy on transportation, just because of the sheer size and dominance of the carrier. I predict that if this continues, we'll have something very similar to what's happened in the train industry, where you have the major cities well serviced, because they're profitable, but the smaller spurs to smaller communities are gradually being decreased. Sure, they'll have service, but it won't be a quality service, it'll be bare-bones service, and I don't think that's what anybody in this room wants.

Why is this happening? The fundamental problem is the structure at Air Canada. The structure within Air Canada, in its relationship with Air Canada Regional, causes the underutilization of the efficiencies of Air Canada Regional. Our briefing paper requires explanation as to the word “scope”. It's a term very particular to the aviation industry, and in layman's terms, it's a no-contracting-out clause, as to clauses that we as union members endorse. However, the problem of their use in the Air Canada family of companies is that we're a wholly owned subsidiary, so it's not a contracting-out issue, but more of a contracting-in issue. We have basic structural problems because of the restrictions that are upon us in the main airline that stop utilization of the regional airlines, and therefore affect the service to communities across Canada. These are restrictions in the number of airplanes we can fly, the size of airplanes we can fly, and the types of airplanes we can fly. We don't decide that; it's decided externally at Air Canada.

Also interesting right now is Air Canada's initiative to start a low-cost carrier. Our position is that they don't have to spend the money to do that—we are the low-cost structure. We're already existing inside Air Canada, and therefore we should be used to our full extent before that avenue is used.

In summation, if you can take three points away from this, we endorse further funding of the airline industry, and in particular Air Canada, but you should ensure before you do so that service to small and mid-sized communities does continue.

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In addition, I urge you to actually review the structure of Air Canada as to the mainline and regional carriers before financing is blindly given.

Thank you very much for your time.

The Chair: Thank you very much, Mr. Linthwaite.

We will now hear from the Canadian Restaurant and Food Services Association, Joyce Reynolds and Becky McKinnon. Welcome.

Ms. Becky McKinnon (President, Timothy's World Coffee; Canadian Restaurant and Food Services Association): Thank you, Mr. Chairman.

My name's Becky McKinnon, and I'm a director and a past chairman of the Canadian Restaurant and Food Services Association. The association is made up of 15,900 companies in the food service industry that control more than 47,500 restaurants. This is a $40 billion industry that employs close to a million Canadians. In my other life I'm the president of Timothy's World Coffee. We have 150 cafés in Canada, and between our franchisees and our corporate stores we employ about 1,000 people.

Mr. Chairman, you asked us to outline our priorities and other specific recommendations to meet stated committee goals. Our proposal for the adoption of a $3,000 yearly basic exemption, or YBE, in the EI program is clearly a priority of labour-intensive food service businesses desperate for payroll tax relief. But it also meets the committee's stated fiscal, economic, and socio-economic objectives by bringing more fairness to the tax system and the promise of more job opportunities for entry-level workers trying to get a foothold in the labour market. It can be implemented at a lower cost to government than any other form of tax reduction.

I know most of you are familiar with the yearly basic exemption proposal detailed in our submission. Since that brief was put to bed, there has been an immeasurable change in all our lives. The terrorist threat that looms over the world following September 11 has dealt a crippling blow to tourism and hospitality-related businesses like restaurants. Businesses and pleasure travellers alike have cancelled their travel plans. Consumers are tightening their discretionary spending. While all businesses must grapple with the fallout from the weakened economy, the challenges for labour-intensive hospitality businesses are particularly large. The need for targeted payroll tax relief has become much more acute.

Restaurants have seen their average before-tax profit margins drop from 9.6% in 1990 to just 6.6% in 2000. Over this period the average number of workers per restaurant dropped from 14 to 12. This adds up to 114,000 fewer jobs. This is in no small part due to the government's growing reliance on payroll tax revenue. According to a recent Conference Board of Canada study, payroll taxes represent 40% of the tax burden for the average restaurant operator, compared to 29% of the tax burden for the average Canadian corporation. The federal payroll tax burden for the average restaurant has jumped 50% since 1989. Because payroll taxes are profit-insensitive and they bear no relation to a firm's ability to pay, the pace at which they have increased has taken its toll on an industry known for its slim margins. Restaurants have reacted by reducing the labour component of their operations.

So far I've touched on two key reasons for CRFA's continued calls for payroll tax relief, the alarming rate at which payroll taxes have grown, and the link between rising payroll taxes and lost jobs. The third reason for our focus is the regressive nature of payroll taxes. They place a disproportionate tax burden on low-income earners. The YBE proposal, which has been endorsed by the human resources committee, would be particularly effective in addressing the concerns I've just outlined. This is because it is targeted at low-income Canadians as well as labour-intensive businesses, the groups most punished by this regressive form of taxation.

We know economic uncertainties and the tremendous external pressures government is currently confronted with limit your flexibility and options. Fiscal discipline remains extremely important. However, with CPP premiums increasing by another 40¢ per $100 of payroll in January, a pass on EI premium reductions cannot be an option for you, but the type of EI premium reduction now becomes more important. A YBE makes the most sense at this time of growing economic uncertainty.

Canada's economic recovery will depend on the consumer's willingness to spend. Tax reductions targeted to low-income earners are recognized as the best stimulus measures in a weak economy, because low-income earners have the highest propensity to spend. That is why there is a growing bipartisan interest in the U.S. for some type of payroll tax cut. In addition, as outlined in our brief, recent Conference Board of Canada research confirms that government can recover the revenue resulting from a payroll tax cut more quickly than with any other form of tax reduction.

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In summary, a YBE in the EI program will make the EI payroll tax more progressive, provide relief from escalating payroll taxes, and stimulate job creation, especially with entry-level jobs for young people. It is the measure with the smallest price tag delivering the biggest social and economic benefit to Canadians. It's a winning strategy for entry-level employees, labour-intensive businesses, and government.

Thank you very much.

The Chair: Thank you very much, Ms. McKinnon.

We'll now hear from the Ontario Municipal Employees Retirement System, Dale E. Richmond and Walter Borthwick.

Mr. Walter Borthwick (Board Chair, Ontario Municipal Employees Retirement System): Thank you very much, Mr. Chair and honourable members. On behalf of our board, I would like to express our sincere appreciation of the opportunity to present to you today. We will primarily focus our remarks and our thoughts on some relatively simple changes in government policy that we believe can have a very profound, very significant, and very positive impact on the retirement security of many thousands of Canadians. I'm going to ask our CEO and president Dale Richmond to make the formal presentation.

Mr. Dale E. Richmond (President and Chief Executive Officer, Ontario Municipal Employees Retirement System): Good morning, members. I understand everybody has the paper in front of them, so I'll speak briefly to the paper, if I can.

First, OMERS is one of the largest public sector pension plans in Canada. We've had about 40 years of experience in trying to plan for the future. We were set up as the pension plan for local government employees in Ontario and all their agency boards and commissions and the non-teaching staff of school boards. We have about 300,000 members in the plan. Our jointly governed board manages now in excess of $30 billion worth of assets.

We want to talk about two recommendations we've submitted this morning for changing government policy. The first deals with the surplus limit for pension plans, the second with the benefit limits and the contribution limits for registered pension plans.

Let me deal with the surplus limits for pension plans first. The issue is that the current 10% limit on the amount of surplus you can hold in a registered pension plan is really detrimental to the prudent financial management of these large public sector plans over time. Prudent management of our pension plans requires that the decisions we make be made in the context of the very long term. In contrast, the Income Tax Act 10% surplus limit is externally determined and short term, causing an abrupt total cessation of the contributions coming into the plan. By the time the contributions are turned back on, the financial consequences of having those zero contributions will force the plan into an unfunded position, both as a going concern and in respect of solvency. This produces the ironic result that when the contribution rates have to start again, when they're resumed, they have to increase even beyond what they were when we turned them off. This, of course, causes hardship for employers, employees, and, in the case of all the public sector plans, taxpayers in the country.

The purpose of the 10% rule in the first instance was to prevent employers from tax-sheltering excessive amounts of money under pension plans. But there's been an awful lot of change in the regulatory environment for pension plans since this particular rule was brought in. There have been changes to the accounting standards, which now limit what you can claim as expense. All pension plans have to be actuarially certified. Legal decisions on surplus management and provincial legislation on pension plans have changed quite dramatically. There has been increased volatility in the stock markets. And the plans themselves have grown in size, of course.

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It's pretty hard to turn these big ships on a dime or have short-term starts and stops in the contributions. We submit the current income tax rules are really too restrictive and potentially unnecessary when you have to manage for the long term—and we have to manage for a period of twenty to forty years. People are now retired often longer than they worked in some instances. Recognizing that, we try to make sure that when we set the contribution rates for the plan, we understand there are going to be periods of positive experience and of course periods of negative experience.

Requiring the full contribution to holiday in response to a short-term market condition creates an imbalance in the overall long-term funding of the plan, because it uses up the short-term surplus that is intended or needed to offset future adverse experiences—and we are walking into that as we speak, of course. That causes significant contribution volatility in these plans, to everybody's detriment.

Along with other large plans—the teachers' plan, the hospitals' plan—we have had discussions at the ministry level in Ottawa about making some changes in this particular feature. Those have been pretty positive discussions, but we need some political force behind the suggested changes. We're therefore urging the government to act on the 10% surplus rule by either raising the surplus limit to 20% or by permitting a longer-term surplus management plan as a way of more gradually reducing surpluses in pension plans. That's our first set of policies.

Our second recommendation concerns the benefit limits and the contribution limits on registered plans. The current contribution limits for RRSPs and for the registered pension plans really discriminate against tens of thousands of Canadians by preventing them from putting aside enough money or contributing enough to pension plans to protect their standard of living in retirement. Through their taxes, though, many of these individuals pay towards programs like the guaranteed income supplement and old age security, so that others can be assured they will not suffer unreasonable drops in their incomes after retirement. Many of these same taxpayers, however, are denied this opportunity themselves. The maximum pension payable from a registered pension plan has been frozen for 23 years—that's quite a surprising feature—and the RRSP deduction limit has not reached the $15,500 the government had intended and announced some extensive period ago.

We believe the government should commit to at least doubling the RRSP contribution limit to $27,000 from the $13,500 that currently exists. We would also like to see the policy change so that the defined benefit pension plan limit is increased from the $1,722 per year that is permitted, up to $3,000 a year. We think both of those policy changes will help Canadians to better plan for their own security when they retire, and to be less reliant on government programs.

The Chair: Thank you very much.

Are there any further comments on this point? No? Okay.

We'll now hear from Canadian Professional Sales Association president Terry Ruffel.

Mr. Terry Ruffel (President, Canadian Professional Sales Association): Thank you, Mr. Chairman.

My name is Terry Ruffel, and I'm president of the Canadian Professional Sales Association. Our association is comprised of 30,000 members representing all aspects of sales and marketing across Canada. They range from small, independent entrepreneurs to sales and marketing professionals with major corporations. The association's members are located in all provinces and territories, and they make important contributions to the economic vitality of all Canadian communities of any size. At the same time, they're individuals who sell Canadian products and services around the world.

I'm able to state with confidence that our pre-budget submission reflects the views of our members. A wide cross-section of them were surveyed for their pre-budget opinions this summer.

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When the standing committee invited the CPSA to participate in the pre-budget consultations again this year, we were asked to express our opinions on how the annual fiscal surplus should be allocated. Our members were polled, and they indicated clearly that they regarded tax relief and the reduction in the national debt as far more important uses to which the fiscal surplus should be put than any increased spending on any national programs and services.

The personal tax reductions implemented January 1 have played an important role in keeping the Canadian economy from slipping into recession so far this year by improving consumer confidence and creating higher levels of disposable income. Given the degree to which the Canadian economy has been stagnating lately, particularly since September 11, it is not surprising that further tax reductions were viewed by 45% of our members as the most important use to which the surplus should be put.

Our submission documents that our members have little confidence in the economy's ability to grow to any considerable degree next year. Just 5% of them expect growth greater than 3%, while almost 48% of them believe the economy will grow by 1% or less. Only 35% of them feel there is sufficient consumer confidence to keep the economy buoyant next year. This is from a Canadian sales force that's known for its optimism.

Accordingly, the CPSA is urging the standing committee to recommend further substantial reductions in the personal income tax rates burdening Canadians, and a reduction of the upper tax bracket to 27%. We have also recommended that the standing committee support an accelerated schedule for corporate tax reductions.

Secondly, in regard to tax relief, just over 41% of our members felt debt reduction was the most important use to which the fiscal surplus could be put. To take some $42 billion in taxes out of the pockets of Canadians to service the national debt is a severe drain on the disposable income for both consumers and businesses.

Finally, just 13% of our members felt the surplus should be used for increased spending on national programs and services. The standing committee suggested several options to which the spending could be directed. As our submission reports, health care and education were the prime areas to which our members suggest that spending be taken.

The CPSA's members spoke out against increased spending prior to the terrorist attacks last month, but it's obvious to the association that increased spending on defence and intelligence gathering are inevitable in the wake of these attacks. It's equally obvious to us that, to some degree, new spending is required for security purposes. That means restraint will have to be observed in other areas. It is for this reason that we urge the standing committee to continue to strive for the adoption of the productivity covenant as a means of controlling wasteful and non-essential spending by government.

Our submission contains a number of recommendations reflecting the fact that a large number of our members are from the small business community. They can be found in a list of recommendations that comprise the last two pages of our presentation. Therefore, on behalf of the members of the Canadian Professional Sales Association, thank you for inviting us here today.

Thank you, Mr. Chairman.

The Chair: Thank you very much, Mr. Ruffel.

We'll now hear from the Canadian Association of Fire Chiefs, and Donald F. Warden, who is the immediate past president. Welcome.

Chief Donald F. Warden (Immediate Past President, Canadian Association of Fire Chiefs): Thank you, Mr. Chairman.

My name is Donald Warden, and I am the fire chief of Wasaga Beach, Ontario. However, I am appearing before you today as the immediate past president of the Canadian Association of Fire Chiefs, which is comprised of 1,100 chief fire officers located in all provinces and territories.

Page 1 of our submission will provide you with details on the composition of Canadian fire services, while page 2 describes the mandate of the fire services. Also on page 2, you will find a description of the process followed at our annual meeting to democratically approve all resolutions that form the basis of this brief. Since time is at a premium this morning, I will not even attempt to summarize most of this material.

You should expect to hear many statements during these pre-budget consultations about how the events of September 11 have changed our lives forever. That is obviously and profoundly true for the fire services across Canada. Firefighters around the world are bound together in a family. When one of our brethren fall, regardless of where, we all grieve.

While many will speak about September 11 after the fact, our submission, which was filed on August 8, recommended that the forthcoming budget contain funding and support for Canadian fire services to enable appropriate preparation for a response to acts of terrorism. We have described how the fire services and other local emergency first responders will largely be on their own for many hours prior to meaningful federal assistance being provided.

On page 4 of our submission, you will see listed examples of the intellectual property of our association, beginning with the Partnership Toward Safer Communities Initiative. This intellectual property was previously owned by the Major Industrial Accidents Council of Canada, an organization that derived its financial support from the Government of Canada, as well as from the private sector. When the council wound up in 1999, this financial support disappeared as well.

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Our association is fighting hard to perpetuate these emergency preparedness programs, but we need your help. That is why we have recommended that the next budget contain measures to provide financial support for organizations that have prevention and response activities with respect to natural and human disasters as part of their mandate.

The final two pages of our submission summarize all eight of our recommendations. You will note that the first five of them deal with disaster planning and prevention, as well as the need for effective planning against terrorist attacks.

The focus of the fire service is not on counter-terrorism activities, but, as I've already indicated, it is our job to protect lives and property in the event of such attacks. September 11 demonstrated the importance of preparing for that job. While not part of the submission that we developed in July of this year, New York City and Washington have shown that the upcoming federal budget must include financial measures that were not envisaged this summer. These funds are required to ensure that fire departments across Canada are provided with the equipment and training required to address the dangers of biological and chemical incidents, including terrorism, and that they are also provided with the appropriate urban rescue resources.

Our final three recommendations deal with other issues that are important within the fire service. Recommendation 6 deals with a problem that has frustrated fire officers for the past several years. In fact, it is sufficiently serious that a new resolution on the issue was passed at our conference last month. We feel obligated to bring it to the attention of the standing committee, because our approaches to the Department of Finance and the Canada Customs and Revenue Agency appear to have fallen on deaf ears.

Many fire officers are furnished with emergency response vehicles by their municipalities. When they are not on call, such officers have no choice but to take their vehicles home after normal working hours. These vehicles are typically equipped with flashing lights, a siren, a two-way radio, and the chief's personal firefighting gear. In addition, they usually display the fire department's name.

Until 1999, no problem existed. However, that was the year Revenue Canada decided that having an emergency response vehicle supplied was a personal, and therefore taxable, benefit. By addressing this issue in its pre-budget report to the House, the standing committee can send a positive message to Canadian fire services. The committee would be stating that emergency response vehicles supplied by a municipality to fire officers for the express purpose of responding to serious threats to life and property are not the same as company-owned cars being used for non-business purposes.

Thank you for your attention. I look forward to discussing these issues with you this morning.

The Chair: Thank you very much, Mr. Warden.

I will now proceed to the question and answer session, and we will begin with Mr. Solberg for a five-minute round.

Mr. Monte Solberg: Thank you very much, Mr. Chairman.

Thank you to all the witnesses. I appreciate the presentations.

I hope witnesses also appreciate the difficult position the finance committee has. Last year, program spending went up 9% in Canada. Of course, we've seen a softening of the economy since that time. Revenues are heading down. Of course, September 11 compounded all of that, and there's tremendous uncertainty. We have a new list of spending priorities, I suspect, since the 11th.

While I'm sympathetic to many of the suggestions here, Mr. Chairman, I do think we should almost make it a rule that when people come forward with ideas on how the government can lower taxes—which I strongly favour—or increase spending in other areas, they should also have some ideas on how we can reduce spending, because I think there's a lot of waste in government and things that need to be eliminated. Those are my remarks.

First of all, I just want to say to you, Ms. Whicher, that I agree completely with your thoughts. I think you're absolutely bang on. I want to suggest to you that Mr. Bevilacqua is a pretty good guy, though, even though he is a Liberal.

The Chair: Order, order.

Mr. Monte Solberg: He's probably secretly supportive. I want you to know there are those of us in the opposition who will continue to push your message. I agree with it completely. But I won't ask you a question on that. You can comment on it later.

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I do want to ask a question of the airline pilots.

As your starting point you have said that while the government is considering this package for Air Canada we should take into account the cost structure in the regional airlines and that type of thing. That's fair, but I do want to challenge that premise. I'm wondering why you think the government should be helping out Air Canada at this point given the fact that a huge majority of Air Canada's problems occurred much before September 11.

Capt Steve Lintwaite: Thank you, Mr. Solberg.

I guess this gets back to one of my points—that is, the importance of transportation to Canada. If we talk about the restructuring industry of a year and a half ago, I don't think anybody will deny that Air Canada, along with its subsidiary, Air Canada Regional, has become a dominant presence, and no more dominant than in the communities we serve.

We have almost no competition on the majority of our routes. Air Canada has competition, yes, but that's mainly between the Calgarys, the Torontos, the Vancouvers, and the Halifaxes. Those are well served by competition. But the Timmins, the Ganders, the Terraces—all those sorts of places don't have the competition.

What you're seeing right now is that because of the financial difficulties... and I admit, most of those were already there. We agree on that, actually. But this has accelerated it. That's why our point is that before we blindly give money, we should look at the structure, because the structure is affecting service to small and medium-sized communities.

I agree with you that it should be reviewed. That's actually what we asked for. They shouldn't be given money blindly. But I don't think anybody should lose focus on the important service we provide to these communities at the regional end. We are the air transportation. There's nothing else. After us, it's a bus or a train.

So that's what we're trying to highlight here today. It's getting lost in the message right now. Obviously there's not a lot of sympathy for Air Canada right now, and for Mr. Milton in particular. I acknowledge that. But don't let that change your decisions and affect transportation to these small communities across Canada.

Mr. Monte Solberg: Okay. We don't have much time, so I'm just going to cut over to the CRFA for a minute.

Now, $2.3 billion is a lot of money, and I'm wondering just what your program would cost when it's fully implemented. Do you have any thoughts on where government should cut spending in order to be able to afford a program such as the one you're advocating?

Ms. Becky McKinnon: If you look at page 15 of the brief, it mentions that the Conference Board has projected how that comes back.

I guess there are a couple of things. From our point of view, the increase in the payroll tax burden on restaurants has cost us dearly in jobs. If you look at the unemployment rate among the under-25s versus the over-25s, you see double the rate among the younger group, with 12.5% unemployment. I guess we can all assume that's now going to get worse, because our industry really has been very badly hit in terms of where we were heading. We've revised our projections downwards.

But you do see some recovery over time as the increase in employment and the increase in spending... I mean, this is money that cycles back through the system very quickly. When you balance that against the fact that we're going to be paying more in payroll taxes because of the CPP increase, I think you have a circumstance that, from the standpoint of both employment and health of our industry, is really very dicey.

Mr. Monte Solberg: Money comes from HRDC to fund businesses every year. Would it make sense to stop that kind of funding in order to allow...

Ms. Becky McKinnon: Are you talking about the New Hires program?

Mr. Monte Solberg: No, I'm not. I'm talking about just the grants and subsidies that come out of HRDC for industry and regional development and whatever.

Ms. Becky McKinnon: I think we'd be in favour of that. We feel this is much more equitable and much more broad-based. There's obviously equal access for everybody, and it's going to be relatively easy to administer.

Joyce is the senior vice-president of government affairs for CRFA. She has more detailed stats on these things than I do.

Ms. Joyce Reynolds (Senior Director, Government Affairs, Canadian Restaurant and Food Services Association): I was just going to say that one of our concerns about programs that provide dollars to businesses is that they're often very market-distorting. So we are concerned about spending in those areas.

The other thing you have to look at in terms of our proposal is that we're talking about an employment insurance program where $7 billion of the funds were diverted to consolidated revenue last year. Over the last few years it has been as high as $40 billion.

• 1050

In some ways I don't believe we're asking for tax relief. I think we're asking for dollars back that employers and employees have paid into a system.

Mr. Monte Solberg: That's a fair comment.

The Chair: Thank you, Ms. Reynolds.

Mr. Brison.

Mr. Scott Brison: Actually, we might start with—

The Chair: With Mr. Nystrom?

Mr. Scott Brison: Or with Mr. Loubier. I'll defer to—

Mr. Lorne Nystrom: What is the general order of things?

Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): Why do you change your method in Toronto?

The Chair: In Toronto it's a different world.

Some hon. members: Oh, oh!

Mr. Scott Brison: I'll go first in Halifax.

Mr. Lorne Nystrom: I'll go first throughout the west.

The Chair: Yes. Well, we'll go back to Mr. Loubier then.

[Translation]

Mr. Yvan Loubier: Thank you, Mr. Chairman.

Before asking the airline people my question, I think it might be meaningful to go back to what Mr. Solberg was saying earlier, that we must be careful with regard to the obsession with the softening of the economy. We must not attribute too much to the events of September 11th, including a softening of the economy that could have an effect on the federal surplus.

Moreover, we would have liked the Minister of Finance to give us a progress report, because he is supposed to be the only one who knows what the government's financial situation is. This would have added some relevancy to what we are doing here today, and what we will continue to do across the country.

Up until now—and we have not been out by 150% like the Minister of Finance has been for the last five years—even taking into account the zero growth rate for the months of July and August and the negative growth of 2% of GDP for the last six months of this year, we end up with a surplus of over $13 billion.

There is still a lot of money in federal coffers, and the surplus will be bigger than ever this year. Until now, for the first four months of this year, Mr. Martin has accumulated an $11 billion surplus. So we have to stop exaggerating and saying we have to cut expenses again. I think the necessary cutbacks have been made over the last few years. There is money. As you said, Ms. Reynolds, regarding employment insurance, there is still $7 billion in the employment insurance fund from the last fiscal year.

Therefore, if there are measures to be recommended in order to give small- and medium-sized businesses such as yours some breathing room or to help families, for example, we have considerable leeway. We must stop imagining that there will be no surplus this year. The Minister of Finance has got us used to these cock and bull stories that he tells us every year just before his budget in order to scare us, somewhat like putting a scarecrow in a cornfield. Mr. Cullen finds my scarecrow allusion funny.

I would like to ask the airline pilots a question. As members of Parliament, we are experiencing a rather dramatic situation in the regions, and it is probably the same thing in... I have the opportunity of seeing this almost weekly because I travel around the Quebec regions, including the most far-flung ones. It is probably the same thing in Ontario as well. I remember a time when there were far more frequent flights than we have today to go to North Bay, for example, or to Sudbury, or elsewhere.

But I will talk about what I am more familiar with. In the regions of Quebec, it has become dramatic, to the point that when we meet with business people from these so-called remote regions, such as Abitibi or the upper North Shore, they tell us that the economic development and the economic future of these communities depend on the frequency of air services. And the frequency has been cut incredibly, particularly since the merger between Canadian and Air Canada.

I have the feeling these regions are being held hostage. You seem to be saying that it is not a matter of funds, that it is not a matter of Air Canada not having the means, that it doesn't have anything to do with restructuring costs, but that it is because the most efficient services are being cut, areas of Air Canada's business that could in fact be the most profitable.

• 1055

Could you explain to me how a company the size of Air Canada could deliberately sacrifice good value-for-money services, as you mentioned, services that are effective, and that could be profitable such as, for example, Air Canada Regional Airlines? I cannot understand this. How can a business shoot itself in the foot like this?

Captain Vincent Charron (Airline Pilots Association): That's interesting. Thank you for your question, Mr. Loubier.

Indeed, that is why, in view of Air Canada's request for a huge financial bailout, we ask you to simply take a look at Air Canada's business practices, to see if it is using existing resources, including regional subsidiaries, and to ask the airline whether it is doing so effectively and whether it might be possible to achieve economies of scale at that level.

In any case, we represent service to the regions and to smaller communities. Regional subsidiaries can provide service to those areas. We have people on the ground, employees from one end of the country to the other. We have the right kind of aircraft. We need other types of aircraft which would be better suited to the task, but that's another issue. It's because of restrictions, imposed by Air Canada, which prevent us from gaining access to the necessary tools to provide an adequate level of service to the regions.

As employees and pilots, we have witnessed a decrease in service. Unfortunately, this is because of decisions taken by the parent company, Air Canada. In a way, we are victims to the same degree as passengers, business people who work in smaller communities and who would like to have adequate airline service. All I can do is analyze an extremely deplorable situation.

Mr. Yvan Loubier: What would the solution be? Should Air Canada make Air Canada Regional Airlines a truly independent unit? Should some services be shared without restrictions? What would the solution be?

Capt Vincent Charron: There are probably several potential solutions, but I believe we should basically allow each regional subsidiary to present its own business plan. But Air Canada Regional Airlines senior management, which, for all intents and purposes, is appointed by Air Canada, says that this would take too much time or that it would be too hard to develop a business plan.

There's talk of a new business plan. For several years now, there has been talk of acquiring new aircraft. But we've seen just the opposite happen, which is that they can't come up with a business plan, which, according to our managers, would in fact pave the way for improved service. As long as we are prevented from developing a regional business plan, we will not be able to provide Canada's communities with the level of service they deserve.

Indeed, several suggestions had been made. One was simply to eliminate the artificial barriers between Air Canada and its subsidiary in order to make way for a large corporation which would be flexible enough to provide the flight frequency and the type of aircraft needed in any given situation.

Mr. Yvan Loubier: Can you give us the assurance, especially for so-called isolated or remote regions throughout the country, that your representations and suggestions will result in enough flights and quality services for people living in outlying areas, who are full-fledged citizens, just like anyone else? Are you sure that we can increase the level of service without causing Air Canada's deficit to grow, as happened to Canadian, for instance?

Capt Vincent Charron: It goes without saying that the importance of the issue was raised by the regions. We even called upon a polling firm several years ago to find out what was most important for passengers travelling from a smaller community. It goes without saying that the number of flights was high on their list of priorities.

As I said a little earlier, we have tools at our disposal. Unfortunately, our hands are tied. We are having a hard time implementing a business plan which would increase the number of flights in isolated areas... If you take a look at our network map, you will see that we service almost every isolated community which has a decent airport.

• 1100

However, if our local managers do not have the means they need available to them, we will be swallowed up with these cuts, which are always the result of unilateral decisions coming from head office.

Mr. Yvan Loubier: Thank you.

[English]

The Chair: Thank you very much, Mr. Loubier.

We'll proceed now to Mr. Cullen, followed by Ms. Guarnieri.

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

I have a quick question for Mr. Warden. In your brief, I didn't see any mention of the issue of pension accrual rate. A number of us have been dealing with the international firefighters. It's not a budgetary issue per se, but are you aware of that issue, and do you support the international firefighters to get some changes to the pension accrual rate?

Chief Donald Warden: Yes. We're definitely aware of it, and I believe we filed a letter to the commission indicating that we support it 100%.

Mr. Roy Cullen: Thank you.

In regard to the airline pilots, in any type of restructuring of Air Canada, it seems to me that everybody is going to have to—if I could use the expression—put a little water in their wine. There have been many precedents for employees in the airlines to own shares in their companies—for example, US Air, Delta, and Canadian Airlines, although I suppose one could argue that didn't help much; I think they had some more fundamental problems.

I'll be quite honest: I think I and a lot of Canadians see Air Canada as not particularly customer-focused. I know we can all have good days and bad days, but if you have the employees owning shares in the company, surely that would provide an incentive to provide good service, performance, etc. Do you think it would be a good idea to use that as part of any kind of restructuring of Air Canada—employees owning more shares in their company?

Capt Steve Lintwaite: That's an interesting notion. We actually have an employee share-ownership program started. It was offered only to the Air Canada main-line employees up until just a few months ago, when it was offered to the regional employees, I believe, in June. So it's something new that's just started to happen at our level.

I think you're talking about a greater percentage in ownership, are you not?

Mr. Roy Cullen: Well, yes. Delta and US Air are both 19% to 20%. And it's not so much an optional thing, like a share purchase plan; it's that you'll have 20% of the shares and you'll have a seat or two on the board. Now, that comes at... you know, it's not all free.

Capt Steve Lintwaite: Yes. It's an interesting question. I'll admit, we're not economists here; we're pilots, by trade. We're willing to look at all options that we feel are in the best interest of the corporation as well as the employees. So that may be an option that comes forward, but we haven't investigated a large purchase like that, to be quite candid.

Mr. Roy Cullen: Okay. If you have any thoughts later, if you want to send them to the committee chair or the clerk, I'd certainly be interested in seeing them.

Ms. McKinnon, Ms. Reynolds, in regard to the yearly basic exemption, do you think there's any possibility that if the government went this way, employers might be encouraged to keep employees at a level just below the $3,000, and keep rolling people to avoid paying the payroll tax? Do you think that's an issue at all?

Ms. Becky McKinnon: Well, let me speak to the employer side of that, and then I'll let Joyce give you the actual statistical workout of it.

As an employer, that's something we just would not begin to look at. It's a service-driven business. I depend on my employees to provide a service in order to keep my customers. These kinds of things just don't factor in. We try to hire good people, and we try to keep good people when we get them. We don't just look at where they are in terms of when they're hitting premium levels.

I think Joyce actually has some numbers on it.

Ms. Joyce Reynolds: Actually, the way the YBE would work is it would be spread out over the course of a year. It would apply equally if you earned $3,000, $3,005, $4,000, $11,000, or $39,000. You would still be eligible for the YBE. There would be absolutely no incentive whatsoever for an employer to terminate an employee once they earned $3,000. I'm glad you asked that question, because it's not the first $3,000 the exemption is on, it's $3,000 of earnings over the course of a year.

Mr. Roy Cullen: Thank you.

Your cost puts it at $2.3 billion. The government has brought payroll—EI—premiums down consistently since we came in in 1993, to a point where it's saving, I think, over $6 billion annually. So if we went with the yearly basic exemption, I don't know how the government could possibly also keep reducing the general premiums at the same pace it's been doing, which could cause some reaction in the business community.

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I guess my point is, do you think there's support within the business community to move on the yearly basic exemption at the price of reductions in the general rate?

Ms. Becky McKinnon: Do you want me to take that?

Ms. Joyce Reynolds: Sure, go ahead.

Ms Becky McKinnon: All right, I'll give one, and if I don't get it all, Joyce can.

We do have the support of the Retail Council of Canada, the tourism industry, all supporting this. There are associations representing 26% of the Canadian labour force that are behind this approach. I think we feel it is more equitable. It does target whatever reduction there is in the system toward the most labour-intensive businesses and to the employees who most need the reduction.

The Chair: Ms. Reynolds.

Ms. Joyce Reynolds: Yes, just to add to Becky's comment, in addition to employers' associations and labour-intensive businesses, the National Anti-Poverty Organization supports this proposal. The hotel employees' and restaurant employees' union supports this proposal. In fact, if you look at today's edition of The Hill Times, you'll see an advertisement with all of those organizations' logos—Retail Council of Canada; TIAC; Hotel Association of Canada; CRFA—included.

Mr. Roy Cullen: Thank you.

Just to clarify one point, the $3,000 exemption would apply to employers and employees. For employees, the first $2,000 is already refundable, so we'll take the employees' portion and move it from $2,000 to $3,000, and the employers' up to $3,000. Is that correct?

Ms. Joyce Reynolds: That's correct. But not all those employees who are eligible for it actually get it. Also, currently, if you earn $2,001 dollars, you don't get the rebate. If you earn $3,000, you don't get any rebate. This way, those lower-income employees, the ones who earn $3,000, $4,000, or $10,000, will all benefit from the yearly basic exemption.

Mr. Roy Cullen: I have just a small comment, Mr. Chairman, in regard to Mr. Loubier's comments earlier about all these big surpluses.

It's because our Minister of Finance has been prudent that we've had some contingency funding to be able to accommodate these types of events—September 11 and post-September 11. In fact, even the Quebec government got all their numbers wrong, because no one in the world could have predicted where the economies were going. So I think you should revisit your theories, Mr. Loubier, about what the Minister of Finance does—

Mr. Yvan Loubier: Three hundred persons per year. It's a pretence. Are you kidding?

Mr. Roy Cullen: Yes, well check with the Province of Quebec what happened when they tried to predict their revenues.

The Chair: Order.

Mr. Yvan Loubier: Hey.

The Chair: They're missing Ottawa, the Parliament Buildings. They're missing the debate milieu.

Ms. Guarnieri.

Ms. Albina Guarnieri (Mississauga East, Lib.): We're all suffering from question period withdrawal here.

Mr. Warden, in light of the events of September 11, as you've mentioned, there's certainly a heightened awareness as to the risks taken by firefighters and the importance of their training, protective equipment, as well as pension and survival benefits.

We've certainly heard some concern over the years about the timing of survivor benefits, but not their scale. Can you give us an idea as to the benefits that are typically awarded, let's say to the families of firefighters who are lost in action? Do you have those figures at your fingertips?

Chief Donald Warden: I can speak basically only about the province of Ontario, because that's where I'm from in that regard. In Ontario it's geared to your pension. If I get hurt on the job, then my wife, I believe, gets two-thirds, with the new changes to our pension plan. Her benefits go on until she's 65, I believe. My children would be looked after as long as they're going to school.

I firmly believe we should be looking at a pension at a 100% level for widows of firefighters and all emergency responders, until they decease.

Ms. Albina Guarnieri: Well, naturally one would expect that every effort would be made to ensure survivor benefits not become necessary.

However, in the routine life of a firefighter, they come in contact, as you highlighted for us, with toxic substances that may not cause them immediate harm, but may appear in later life. It's something I think firefighters have highlighted for us over the years, even prior to September 11.

• 1110

In your opinion, is there a sufficient and coordinated effort at the national level to assess the risk firefighters are exposed to? Is there any kind of national monitoring of long-term health risks to firefighters? Do you see the need for a greater national effort to maintain and communicate risk and treatment information, for instance, on the innumerable chemical hazards that your members are exposed to?

Chief Donald Warden: Yes, I think it's imperative that a national data bank be established to verify that. There isn't one right now; that's correct. Ontario has moved along with great strides in that respect with WSIB, a new program they've just put into place here. All fire departments will now keep running records of everything their firefighters are exposed to, and the firefighters will also keep copies of those.

I think this is necessary. It's been proven in Ontario and in other parts of Canada that firefighters are susceptible to chemicals that cause cancer much sooner than in any other profession. I definitely support that, and I know our association supports establishing that criteria, so it will be on hand.

Ms. Albina Guarnieri: Thank you. Certainly it would seem to be something long overdue.

I have a couple of quick questions for the Airline Pilots Association. If I understand your brief correctly, you're implying that at the regional level the cost structure is much lower than at the main one. How much lower would that be?

The second question I have for you is that Mr. Collenette recently announced an aid package of $160 million. How much of that went to the ACR, for instance?

Captain Brian Chury (Airline Pilots Association): Thanks, Mr. Chair.

As far as the cost structure goes, the numbers routinely bandied about are different for each employee group at Air Canada Regional, but the average number is 30%. That's obviously just looking at the labour cost.

If you were to take a micro-example, comparing the main line and the regional, one of the best examples would be the use of the Canadair regional jet in the Air Canada main-line system, as opposed to its use in our system. The cost saving using that airplane in the regional system is well in excess of 30%. This is illustrated by the use of the airplane all over the world. Air Canada is the only airline on the planet that operates that aircraft in its main-line system.

The airplane is called a regional airplane because that's where it's used. That's what we do—regional work—and that's what we excel at. We have created and built up a sustainable regional system in this country. Right now, all of our regional jets are being retired at Air Canada Regional. We started this merger with 39 regional jets; we're going to have zero by some point next year.

It's important to note that these jets represent a considerable percentage of our total capacity. As I think a lot of the members know, capacity is measured in terms of ASMs—available seat miles—which is a measurement of the number of seats and speed of the airplane.

We started with a fleet of about 128. We have 39 jets now, and they are being retired. But the most onerous part of this—and this is what we want all members to understand—is that we're being removed from the system. As Steve indicated earlier, there are no replacement aircraft on order. Who will be coming in to replace that flying? The Air Canada main-line system will come in to replace that flying. Of course, it has a much higher cost structure.

We want to make it clear this isn't some sort of race to the bottom for us, to see who will do the work at the cheapest price. It's just that's our work; that's what we do. And we're very good at it.

On the second part of your question, could you repeat that?

Ms. Albina Guarnieri: Mr. Collenette announced $160 million. How much of that went to Canadian Regional?

Capt Brian Chury: That's still a work in progress. At the current time, we've been told by our Air Canada Regional management that they are making a request through the Minister of Transport for funds based on the size of the airline. They had no idea how much money would be allocated to Air Canada Regional.

• 1115

To be quite honest, I believe $100 million has been allocated to Air Canada, out of the $160 million. But we don't know if we're included in that $100 million or not. Sometimes we're included in consolidated numbers; sometimes we're not. In this particular case, it appears that Air Canada Regional is proceeding as if we're not. We assume at this point that we'll get a certain portion of that $160 million, based on our capacity in the marketplace.

Ms. Albina Guarnieri: Perhaps, Mr. Chair, we can seek clarification of whether they're included or not.

The Chair: Sure.

Ms. Albina Guarnieri: Thank you.

The Chair: Mr. Murphy.

Mr. Shawn Murphy: Thank you, Mr. Chairman.

I want to go back to Becky McKinnon and Joyce Reynolds on an area Mr. Cullen covered. I want to make it very clear because I think it's very important.

The situation is that Minister Martin has been reducing the EI premiums for the last six or seven years—I believe it's been 20¢ or 30¢ a year—and it's unrealistic to expect that we would get that plus the YBE.

I take it that your organization, and also the retail council and the hotel organization, would much prefer to have the YBE instead of the 20¢ reduction that has been going on.

Ms. Becky McKinnon: Yes, that's exactly the case. We would like both, but realistically, if we had to choose we would choose the YBE, hands down.

Mr. Shawn Murphy: That's the point. It's not going to be a situation that if somehow the YBE came about, you would be complaining that you didn't get the...

Ms. Joyce Reynolds: No. Absolutely not.

Mr. Shawn Murphy: I guess the second question should be directed to you, Joyce Reynolds. I agree with this proposal, by the way. Do you see any problems in logistics in administering this YBE? The examples I have are of students who maybe have two or three jobs simultaneously that wouldn't total $3,000, and people who change jobs two or three times a year. Do you see any logistical problems in administering this program?

Ms. Joyce Reynolds: No, because the precedent is already there. It exists in the Canada Pension Plan. There's a $3,500 YBE and it's extremely simple to administer.

Whatever pay period the employer used would be divided into $3,000. The premium payments the employer would make on the employee's behalf every month would be deducted from the earnings of that employee for that month, if it's a monthly pay period, multiplied by the premium rate.

So it would be very simple. If there were an overpayment, it would be refunded back through the income tax system the following year. That's how it works with CPP. It's very simple.

Mr. Shawn Murphy: Thank you.

My next question is to Captain Linthwaite. In some of the discussions surrounding the proposed reorganization or restructuring of Air Canada and our whole Canadian airline transportation system, some people have recommended the concept that to really be successful in the long run—because don't forget, we went through this about twenty months ago, and we don't want to go through it again in twenty months—Air Canada should be ordered to divest itself of all these regional airline carriers, to develop competition within the main routes you're talking about and have these serviced by independent companies that have their own boards of directors, their own shareholders, and their own communities to serve—their stakeholders, not some other stakeholders.

Do you agree with that concept, or do you have a position on that concept?

Capt Steve Lintwaite: We have no problem with that concept. It's actually one of the things that should be considered; however, you have to be careful what you ask for. So of course we would want something viable. I've been at Air Canada Regional for sixteen years, and I plan on retiring from Air Canada Regional, hopefully, even though it's a very tumultuous industry. So that's one of the things that should be considered, with a sound business plan.

One of the important aspects of that—and one of the intricacies of transportation that I won't bore the finance committee with—is the importance of code share. To just sell off an airline and say “Okay, you're independent, now go make money”, the airline business is very international now, and the airline code is ultimately important. So in anything like that you have to maintain the code relationship, in order to be successful in the airline business in Canada.

• 1120

Mr. Shawn Murphy: That leads to another question. It has been argued that the government should legislate code sharing to ensure competition within the regions. If you have a regional airline, the main line, be it WestJet or be it Air Canada, should be obligated to code-share with any regional. Do you have any thoughts on that?

Capt Steve Lintwaite: That's sort of a double-edged sword, to be quite honest. If we're divested of it, I think there should be an obligation for them to provide the code to whatever regional airline is supplying that service.

However, our reason to be, our raison d'être, is Air Canada codes to the communities that we serve. If those were to be given to some independent operator as well, all we'd be doing is diluting that market. Quite honestly, we'd be shooting ourselves in the foot as a regional carrier.

This is a very complex issue, which is why I don't want to get into the structural problems. But I do think it is something that has to be reviewed. The sale is an option that I think should be reviewed by people much smarter in the economic and business field than I am. It is something that I think could be successful.

The restructuring of Air Canada as it is... as I pointed out, it's just a very dysfunctional system right now. That is something for which you have another option that could be reviewed and that may be successful.

I'm with you a hundred percent on wanting a long-term solution, especially with transportation being such an important thing in Canada, and especially air transportation because of our size. We have to make this a long-term solution.

Mr. Shawn Murphy: Thank you.

The Chair: On one of the issues you talked about, that being the sole issue of looking down the road, one thing we see when we look down the road is a greater integration of the North American economy. Do you feel transportation should be part of that strategy? In other words, how do you feel about more than 25% of Air Canada, for example, being purchased by a foreign carrier? If we in fact have an integrated North American economic unit—it's more integrated than most people think, by the way—should we engage the air transportation industry into that type of dialogue?

Capt Steve Lintwaite: There are almost two parts to that question. One is foreign ownership, and the other is the integrated international system. We already have an international system of air travel. For our family, it's called the Star Alliance. There's also Oneworld and all those types of things. Those are basically merged airlines that are getting around all the labour and commercial laws around the world. That's what those are.

United Airlines carries Air Canada codes. Lufthansa airlines and the regionals carry Air Canada codes. We carry Lufthansa codes, United codes, all these types of codes, so we already see that. That's one end of it, and it has been a real asset for the airline industry in terms of seamless travel from some place in Asia to some place in more remote Canada.

The Chair: I'm talking about North America now.

Capt Steve Lintwaite: In North America, we have free trade, the—

The Chair: Open skies.

Capt Steve Lintwaite: Yes, open skies. Thank you. We have open skies already.

The Chair: But American Airlines can't pick up in Ottawa and deliver in Toronto.

Capt Steve Lintwaite: No, that's cabotage, and I'll tell you the Americans would never allow that inside their own country. They're quite protectionist about that, and that's the thing I would warn you about. Do not allow that to happen in Canada unless it happens in the other country as well, because it would decimate the airlines industry up here.

The Chair: Reciprocity is a given. You're not going to get into that type of deal unless it's a fair deal for everybody.

Capt Steve Lintwaite: That would be my only worry that way.

The Chair: I guess the fundamental question I have is how long Canadians can afford the types of ticket prices that Air Canada charges. How long can we, as Canadians, have such a large amount of our revenue being directed toward air transportation? The issues of competition and of being creative on the side of all sorts of related issues become extremely important, because you can't sustain those prices, quite frankly.

Capt Steve Lintwaite: It's not a simple solution. In a microcosm, when they went into deregulation in the States, it was supposed to reduce prices. In the end, it raised prices in a lot of places, because what happens after you open something up like that is that it rationalizes. Businesses always do that. They rationalize. They cut down on the amount of competition naturally to increase their profits. So it's a very difficult situation. As I say, though, I'm not an economics expert in any way whatsoever on that end. But I know the pricing is a sensitive issue for all Canadians.

The Chair: It is extremely sensitive. Thank you.

Mr. Nystrom.

• 1125

Mr. Lorne Nystrom: Thank you. I want to welcome people to the committee here this morning, maybe ask my first question of the restaurant association, and declare my own conflict before I ask it.

What would be the net cost of the proposal you're making today when you look at the factor that would stimulate the restaurant industry and encourage restaurateurs to hire more people? What's your projection as to that net cost? And I'm talking about net cost to the federal government. Obviously, it's a net plus to the restaurant industry.

Ms. Joyce Reynolds: We've had to revise our forecast. In fact, a release will come out this afternoon. We had projected growth of 3.8%, but we have had to scale that back to growth of 0.3%. We are anticipating the worst results since 1991, when the GST was introduced and we had another recession. We're very concerned about what will happen next year.

If the YBE is introduced, I don't have the exact number of jobs that would be saved, but there would be jobs saved as a result, there's no question about it.

The Chair: Ms. McKinnon.

Ms. Becky McKinnon: I think the closest we can come... We did get the Conference Board of Canada to try to play out some of these scenarios. On page 15 of the submission, it shows that the initial impact, just in premium, is $2.3 billion, but you see that amount... actually, this one was done with a $2,000 YBE, was it not?

Ms. Joyce Reynolds: No, that was a—

Ms. Becky McKinnon: Oh, sorry. That's a 10% drop. But you see the way it floats back in again over time with the anticipated recovery in employment. Don't forget, though, that if people become unemployed, that's obviously a drain on the EI system. If we can keep them employed, there's a double-barrelled effect in that.

Mr. Lorne Nystrom: My next question is for the Airline Pilots Association.

I'm from Regina. Air Canada had been the carrier there for many years, but now it's a regional after the amalgamation. There was a news item on the CBC that made the Saskatchewan people very furious. Regina has 200,000 people, south Saskatchewan has about 500,000, and Saskatoon is roughly the same. CBC had a woman... I'll just read the news article:

A spokesperson for Air Canada, Nicole Couture-Simard, says there is not enough demand for the service... in Saskatchewan. She goes on to say if people here are not satisfied with the situation, they should look to other airlines.

“Well, what about WestJet? Why don't they fly into Saskatchewan?” Couture-Simard asks, apparently unaware that the Calgary-based airline regularly flies in and out of Saskatchewan, and competes head-to-head with Air Canada...

They've been there for a long time, and so has Canada 3000.

“Why doesn't somebody else start an airline in Saskatchewan?” she continues. “If the market is there and there are passenger volumes there to justify service, the service will be provided.”

Couture-Simard says if a Saskatchewan person wanted to get a cheap Tango flight, they could travel to a nearby city that does have the discount service.

According to published fares, however, there wouldd be no savings. A flight from Regina to Toronto costs the same as a flight from Regina to Winnipeg, and then connecting to Toronto...

It's this kind of stuff that makes people very furious about Air Canada in terms of sympathy and public relations, Robert Milton.

I just wondered whether or not you have any response to that. And I know you're not Robert Milton.

Capt Steve Lintwaite: I share the public's frustration, I guess. That's the best way to describe it.

Mr. Lorne Nystrom: The person who gave this to me, by the way, was one of the union members from the CAW, one of the ticket agents in Regina. He was absolutely furious, and he whipped out a copy of Robert Milton's address here in Montreal. There are a lot of people who are very furious about that insensitivity.

Air Canada flights are axed from Regina. I've flown the route about forty or fifty times a week for about thirty years. It just shows the ignorance of some about the company's own business.

Capt Steve Lintwaite: That really gets down to why we're here trying to make our pitch. Our services and the services we provide to the smaller cities of Canada and to the smaller towns are forgotten in the shuffle. People are just forgetting that.

Her comment is a very insensitive comment, I acknowledge. She doesn't make mention of the fact that Air Canada Regional services that area quite frequently. I know Canadian Regional Airlines has a base in Saskatoon, and has run airplanes out of there for quite some time. So it is a very insensitive comment.

Mr. Lorne Nystrom: It's just so insignificant that we have three flights a day direct from Regina to Toronto, and they're almost always packed. That's not exactly a very small market.

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Capt Steve Lintwaite: If I can build on that, there's been a lot of, if I can say it, fearmongering. These are knee-jerk cutbacks, in my opinion, going on right now. We're trying to get this across, we're in negotiations right now, so it's somewhat self-serving, but our indications are that the loads have come back, and this 20% cut across the board is actually blind. That's exactly our point, that services to the Saskatoons, the Reginas, all those sorts of places, are being cut blindly, when really the demand is there. This is just knee-jerk financial reaction.

The Chair: Thank you very much. Thank you very much, Mr. Nystrom.

I do want to clarify, for the record, that Mr. Nystrom, I believe, didn't want to say 40 to 50 times a week, but 40 to 50 times a year that he flies—right?

Mr. Lorne Nystrom: Yes, obviously. Did I say a week?

The Chair: Yes.

Mr. Lorne Nystrom: It does seem like it nowadays.

The Chair: Because I was just about to tell you that your next flight is about to leave.

Mr. Brison.

Mr. Scott Brison: Thank you, Mr. Chairman, and thank you to all of you for your interventions.

The first question is to the Air Canada Pilots Association, or the Air Canada Regional Pilots Association. Two sets of figures are being used in respect of funding—some use the word “bailout”. One is directly attributable to September 11 and the aftermath of that, its impact on the industry, and I don't think anyone has difficulty with the airline industry in general receiving some recognition of that impact. But the other figure would apply more broadly to Air Canada and to shortfalls prior to September 11, and that's an area I think a lot of people do have difficulty with. If you look at the way Air Canada has competed in the past... You may differ with me on this, but with, for instance, CanJet going into Halifax, I'm still surprised that the Competition Bureau was not more vigilant in its investigation, because I thought at the time it was grossly unfair and predatory, the degree to which CanJet was competed against.

I've got a greater concern now with this discount airline, the strategy of Air Canada, and I'm sure you share some of the concerns. First, there are very few examples of successes for full service airlines setting up discount branches. The road is littered with the remains of attempts in this regard. Second, with Canada 3000 and with WestJet, I'm concerned about the use of taxpayers' money to actually allow Air Canada to compete in a predatory sense with those airlines that are providing services. Third, I'll be honest, I can't imagine how your services can have fewer frills than they do right now, because there has been a marked change in the level of services offered. If you fly, as I did last week, Canada 3000, you have a meal. On the same route last night I flew Air Canada, and not only did I not have a meal, but they didn't even have cashews or almonds. So if I'm grumpy today, it's because I'm very hungry. I have concerns about using taxpayers' money to allow Air Canada to compete with these other independent airlines that I think are doing a reasonably good job at this juncture.

The Chair: I think it would be very wise if we finished and went to lunch.

Capt Steve Lintwaite: Or ate some cashews.

I don't want you to get the wrong impression. We're not here advocating to get the maximum amount of money for Air Canada Corporation, and thus us. What we're saying is, the idea is based on some sound principles. The amount will be decided by the people here, I assume, or other people in government. What we're saying actually goes along with what you're saying: if you give out money, please don't do it blindly. There are some structural problems, as we pointed out. There are some service-to-community problems, and I think you've highlighted another area, competition problems. I think all those should be looked at in unison before a decision is made in that respect, because you bring up a good point, you don't want to subsidize the demise of another up and coming airline. I agree with that.

Mr. Scott Brison: Okay. Thank you.

First, more of a comment for the restaurant association. I think your proposal is very sound and one we could view the impact of. I think we would see a significant benefit, and it makes even more sense in a post-September 11 context.

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You could also work with other organizations and groups that may not necessarily be as supportive of reductions in payroll taxes, but would share the notion of reducing profit-insensitive taxes, because that would include also capital taxes. I would urge you to try to broaden that base too. There was one mention of the fact that this is a profit-insensitive tax. I would emphasize that more than perhaps you're emphasizing it right now, because I think that's a very important point in linking it with not just payroll taxes, but also capital taxes.

For the OMERS people, Mr. Richmond, I have a quick question. Do you face the same foreign content limits individual Canadians do in investments?

Mr. Dale E. Richmond: Yes, we do.

Mr. Scott Brison: I'd appreciate your views on that. Relative to increasing RRSP limits, you made a good point, but I think another strengthening argument would be the 20-year or so demographic time bomb we have with regard to that shift. Increasing RRSP limits does not reduce tax revenues, it simply defers the money to a time when we're really going to need it in the future. I agree with you about the limit on your surplus, but more on foreign content would be helpful.

Mr. Dale E. Richmond: We were last before this committee in 1999, and the foreign property rule was one of the items we spoke to. It changed from 20% to 30%, and we've taken full advantage of it to diversify the holdings of the fund. It has paid back from that perspective. We still claim, though, that there is little justification for any limit whatsoever and that investors should find a natural amount of diversification for their funds, for their members, for their pension plans.

The Chair: Thank you, Mr. Brison, and Mr. Richmond.

On behalf of the committee, I want to express our sincerest gratitude for your input. As is pretty evident to you, we have trade-offs to be made, but always keeping in mind what is best for the people of Canada. As we begin to reflect upon the many recommendations you make, you can rest assured that we will analyse and look at the proposals you have made in a very serious way, as I said earlier, keeping in mind, at the end of the day, what is in the best interests of Canadians.

Thank you very much.

We're going to suspend this meeting for approximately five to seven minutes so that we can set up the last panel for this morning.

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The Chair: I call the meeting to order and welcome everyone here for panel three of the Toronto session.

We have the following witnesses: from the Ontario Coalition for Better Child Care Network, Mary-Anne Bedard and Susan Sperling; from the Canadian Centre for Philanthropy, Patrick Johnson, president and CEO; from Nature Conservancy Canada, John Lounds, the president, and Thea Silver, director of government relations; from the Association for Healthcare Philanthropy, Michael Farrell and Diane Lester; from the Multi-Employer Benefit Plan Council of Canada, Bill Anderson, president, and Thomas Levy.

We won't follow the order of the agenda as it is right now. We'll start with the Multi-Employer Benefit Plan Council of Canada, Mr. Bill Anderson.

You probably know how this operates. You have five to seven minutes to make your introductory remarks. Then we'll engage in a question and answer session.

Mr. Anderson, welcome.

Mr. William Anderson (President, Multi-Employer Benefit Plan Council of Canada): Thank you, Mr. Bevilacqua. Thank you, committee members.

I don't like reading from a prepared statement, but because of a lack of time, I am going to, in part at least.

The Multi-Employer Benefit Plan Council of Canada represents the interests of Canadian multi-employer pension and benefit plans and is representative of all persons and disciplines involved in MEPBPs, including union and employer trustees, professional third party administrators, and non-profit in-house plan administrators. Among MEBPCO's many constituents are multi-employer pension plans that provide pensions to their members. There are approximately 360 of these multi-employer pension plans in Canada, which have membership of almost 700,000 Canadians. In 1994 the employer contributions to MEPBPs exceeded $1.1 billion. I would estimate those today at probably $1.8 billion. The majority of Canadians who participate in MEPPs earn middle to low incomes.

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In addition, MEBCO represents the interests of multi-employer benefit plans.

It's important that you understand what a multi-employer benefit or pension plan is compared with a single-employer pension plan. Multi-employer pension plans exist in construction, transportation, the garment industry, graphic arts, the security industry, and in the food industry, where the workers are very mobile but stay within the industry. A multi-employer plan allows for these individuals to continue their benefits and pensions to look after themselves and their families.

We feel the plans in Canada are a unique labour and management response for meeting the needs of workers and their dependants. This role should not only be recognized by government but also preserved and indeed encouraged with the continuation of tax incentives to both provide necessary health and dental care benefits not otherwise available under Canada's public health care system and promote retirement benefits.

The assumption that the treatment of contributions to health care plans and pensions is inequitable or constitutes a tax loophole is erroneous. The tax system has a multitude of incentives for a multitude of purposes. The social objectives—preserving the well-being of Canadians and financial independence for seniors—have led to the placement of certain incentives in the tax system. Those who have chosen to avail themselves of these incentives should not now be penalized for doing so.

The purpose of our submission, then, is to assist the government in meetings its fiscal and monetary objectives and to represent the interests of our members with respect to retirement and taxation issues. I would like to just highlight some of our recommendations.

Under health care, we applaud the federal government for establishing the commission on the future of health care in Canada, under the stewardship of the Honourable Roy Romanow. The commission represents a recognition of MEBCO's previous recommendations to the government for the establishment of a third-party entity to assess and monitor the needs of health care in Canada. We look forward to working with the commission in this regard.

The federal government must play a role in medicare. However, the political gamesmanship between the two levels of government must end. Canada needs a health care system that meets the needs of a modern society and that can adapt to newer and more effective technologies. The pressures on our health care system must be addressed in this context and not solely in terms of dollars and cents.

Further, the increasing costs associated with the pharmaceuticals cannot be sustained. These rising costs are a burden to all Canadians, to governments, and to our members and their benefit plans.

MEBCO applauds the government's decision in the 1998 budget to permit a deduction for self-employed individuals' supplementary health and dental expenses, thereby promoting equity between employees and the self-employed. MEBCO continues to oppose taxation of group benefit plans, which would in fact discourage participation in these types of programs, thereby placing an addition burden on the public health care system. Therefore, MEBCO supports maintaining the status quo by continuing to exempt supplementary health and dental benefits from taxation.

Regarding the harmonization of the GST and retail sales tax, in the event the Ontario retail sales tax is harmonized with the GST, contributions received in premiums payable by these programs should be exempt from this harmonized tax. Otherwise, the plans will experience an immediate increase in costs, to 7%, which would result in consequent reductions in the benefits made available in the plans' members. This again passes these extra costs along to the government.

We would ask that a rebate be provided to multi-employer benefit programs in respect of the GST paid on administration services. This has already been done on multi-employer pension plans, thanks to the help of this committee and the Liberal government, and we are asking for the same type of benefit rebate under the benefit programs.

As an alternative to the mandatory savings proposal, or deductibility, regarding contributions to pensions, a retirement tax credit could be introduced that would provide that for every additional dollar contributed to a registered pension plan, individuals up to a specified income level would be entitled to receive a tax credit, lowering their tax payable for that year.

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Since data suggest that lower and middle income Canadians are least likely to consistently save for retirement, the credit could be used as an added inducement to save for this targeted group. With what's happening in terms of the demographics in this country, it's a requirement. These tax credits could be refunded in cash.

I have two further comments, if I may, please.

First, the income tax rules regarding early retirement pensions should be modified to recognize the reality of frequent job or career changes by increasingly mobile workers to permit unreduced early retirement on the basis of total career-wide pensionable service and age, regardless of with which employer such service accrued. This is going to become more important in the future, of course, with an even more mobile workforce. In other words, the current requirement that pensionable service must be accumulated under one pension plan should be changed to recognize service under any and all pension plans.

Finally, perhaps I can talk about what we call the “EET” approach. MEBCO opposes any taxation of investment earnings or contributions to registered pension plans and RRSPs. Canada's approach should remain EET—exempt, exempt, tax—meaning no tax on contributions, no tax on investment earnings, and tax on receipt of the benefit or lump sum payout at the end.

By the way, I like what was said earlier; let's treat that as a deferral rather than as an expense.

In conclusion, I would like to thank the committee for once again providing us with the opportunity to provide our advice and recommendations.

Thank you.

The Chair: Thank you very much, Mr. Anderson.

We'll now hear from the Ontario Coalition for Better Child Care. Mary-Anne Bedard and Susan Sperling, welcome.

Ms. Mary-Anne Bedard (Executive Director, Ontario Coalition for Better Child Care): Good morning.

Thank you, Mr. Chairman and committee members, for allowing us the opportunity to speak with you this morning and to provide some input on the forming of the next federal budget.

As you said, I'm the executive director of the coalition. With me this morning is Susan Sperling, our public education coordinator. We'll be presenting together.

Founded in 1981, the Coalition for Better Child Care is a public awareness organization bringing the benefits of early childhood education and care to the attention of both policy-makers and the public.

I'd like to start this presentation this morning by situating the problems confronting child care in a federal context. Quite simply, there has been no direct funding for child care from this government in over five years.

Ms. Susan Sperling (Public Education Coordinator, Ontario Coalition for Better Child Care): In 1999 the unveiling of the national children's agenda was a ray of hope to millions of Canadian parents raising their children without the necessary supports. Although it was widely anticipated that the children's budget of 2000 would unveil an action plan for children and provide substantial commitments for early childhood education and care, which I'll call “ECEC” from now on, both the plan and the money failed to materialize.

What we got instead, months later, was an agreement between the provinces and territories and the federal government that provided federal funding of $2.2 billion over five years, with no guiding principles or time lines for creating a national ECEC strategy. The provinces are not mandated to spend any of these dollars on child care, which is the cornerstone of a comprehensive, inclusive system.

Ms. Mary-Anne Bedard: While some might say this was a first step, it was not nearly enough money and was by no means a comprehensive solution, since $2.2 billion over five years falls well short of what is required to ensure that all children have access to an inclusive program of early childhood education and care services that help them get the best start in life. In fact, it provides little more than $100 per child annually, and that certainly is not enough.

Ms. Susan Sperling: I'm going to speak as someone who's raising a toddler in the city of Toronto. I can tell you what $100 will buy my child: two days of quality child care, or a snowsuit and boots, or a car seat, or less than 10% of our monthly rent.

Ms. Mary-Anne Bedard: In 1995, when the Canada Assistance Plan was replaced by the CHST, the federal government was funding child care to the tune of $320 million. This year, under the ECDI agreement, you allocate less than $300 million for all four of those areas.

Ms. Susan Sperling: To put the current levels of funding into perspective, the Caledon Institute, a public policy think-tank, stated that an investment of at least $7.5 billion over five years was needed to start a meaningful, comprehensive program. As well, the European Union recommended that 1% of GDP be spent specifically on child care.

The University of Toronto's Childcare Resource and Research Unit estimated that it would cost $10 billion annually, or 1% of Canada's GDP, to fully fund all four areas of the early childhood development initiatives, not just child care.

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Ms. Mary-Anne Bedard: Further, unlike the Canada Assistance Plan, there is no requirement for provinces to match or supplement the federal ECDI funding, nor is there any stipulation on how provinces are to use this money. This means it has been left to each individual province and territory to decide how much, if any, of the federal funding to invest in any of the services like child care.

Public reporting is the only form of accountability in this agreement. It is virtually toothless. There is no mechanism to ensure provinces invest in those areas that communities need most. This will have a disastrous effect for Canadian families who need access to affordable, quality, regulated child care. At a time when record numbers of mothers with young children, 70% in Canada, are participating in the paid labour force, ignoring child care is both irresponsible and neglectful.

Ms. Susan Sperling: Provincial governments need to be held accountable not only for the amount of money they're directing to particular programs and services, but also for ensuring the funds are allocated according to principles of transparency, participation, and respect.

Look at Ontario. Mike Harris' Conservative government chose to exclude child care completely from its ECD investment strategy. Weeks after receiving the first instalment of $114 million, it unveiled its plan. Child care was conspicuously absent. Not one cent of this federal money is being spent on a service that is both beneficial for children's development and facilitates workforce participation for parents.

We're also aware of at least one incident of federal money being used to replace existing provincial funding commitments to the tune of $15 million.

Ms. Mary-Anne Bedard: This is particularly unacceptable when regulated, licensed child care is available for less than 10% of children who need it. Canada must now move beyond the early childhood development initiative and develop a full national children's agenda.

The Ontario Coalition for Better Child Care recently completed a provincial tour and the second phase of our status of child care in Ontario study. We found both anecdotal and statistical information that there is indeed a crisis in Ontario and further investment is absolutely necessary.

We know and understand that security is the new imperative in the post-September 11 world. We are aware of your government's current priorities, but now more than ever, the early years are absolutely critical to the development of a healthy, secure, and productive society, and for Canadian citizens. There is a multitude of research to support that position.

Ms. Susan Sperling: The Organisation for Economic Co-operation and Development, in their June 2001 report, Starting Strong: Early Childhood Education and Care, calls for a universal approach to access:

It is important to ensure equitable access, such that all children have equal opportunities to attend quality ECEC, regardless of family income, parental employment status, special education needs, or ethnic language backgrounds.

Ms. Mary-Anne Bedard: UNICEF's State of the World's Children 2001 report clearly pointed to the need for individuals, governments, international agencies, and donors to fully fund early childhood education and care. It is a human rights issue. It is grounded in sound science and practical experience. It is a solid investment.

Ms. Susan Sperling: The first recommendation of the Ontario government's education improvement commission's final report urged that the government strengthen its commitment to Ontario's children by ensuring their access to affordable, high-quality child care programs, and excellent standards of nutrition, health care, and safety.

Ms. Mary-Anne Bedard: To complement the studies, I can assure you that public opinion also favours investing in child care. According to some recent polls, 90% of Canadians believe high-quality child care is important to ensure Canada's social and economic well-being. Eighty-one percent of those polled think government should develop a plan to improve child care. Another poll found 76% of Canadians believe child care should be available to all families, with the costs shared by government and families. Sixty-five percent of those people were willing to pay more taxes in order to ensure children have access to the program.

Ms. Susan Sperling: Another reason for investing in child care is the promotion of life-long learning for all Canadians, which is essential for ensuring the success of Canada as a nation. This too is supported by research.

Dr. Fraser Mustard's landmark 1999 early years study cited early childhood development, including quality child care, as an important step to developing the literate population necessary to compete globally.

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Ms. Mary-Anne Bedard: I'm sure you're also aware of a further study in 1998 by two leading economists who concluded that if we offered child care to all Canadian children between the ages of two and five years, the immediate benefit to our economy would be a greater employability for parents, higher income taxes paid by parents, and a savings to the social welfare system. Down the road there would be similar benefits projected for the children, because positive, nurturing environments in the first three years of life are linked to academic and career success.

In the long run, a comprehensive child care system would offer a two-dollar return to children, parents, and society for every dollar that was invested. The OECD report that we referenced earlier has policy-makers from around the world recognizing that equitable access to quality early childhood education and care can strengthen the foundations of lifelong learning for all children and supports the broad educational and social needs of families. In order to do so, that organization established eight key elements for successful ECEC policy: a systemic and integrated approach to policy development and implementation; a strong and equal partnership with the education system; a universal approach to access, with particular attention to children in need of special support; substantial public investment in services in the infrastructure; a participatory approach to quality improvement and assurance; appropriate training and working conditions for staff in all forms of provision; systematic attention to monitoring and data collection; and finally, a stable framework for a long-term agenda of research and evaluation.

A comprehensive system in Canada must incorporate currently separate programs of early childhood education and child care. These programs must be linked to and coordinated with a range of other programs, including prenatal and postnatal care and support for parents, and it must be designed to meet the needs of all families, regardless of their economic or employment status.

Services must be inclusive to provide holistic environments for young children and families. They must combine existing programs and services across education, social service, and health, and combine programs and resources from federal, provincial, and local governments. All children must have access to early childhood education and care services, regardless of location, language, ability, or income level. Services must be culturally and linguistically appropriate. Costs must not be a barrier to the level of participation parents choose for their children.

We are aware that such a system needs substantial investment of time, money, and cooperation, so I'll get right to the point and move to our recommendations.

The Ontario Coalition for Better Child Care calls on the federal government to take the following steps in the next budget:

(1) Increase funding for early childhood education and care services to $2 billion a year in each of the next four years so that ECEC services can truly begin to meet the needs of all Canada's children.

(2) Extend the funding service beyond the five-year period currently outlined in the ECDI agreement. The federal government must make an ongoing commitment to provide designated funding for at least a cumulative level of funding at the end of the current agreement.

(3) Increase provincial and territorial responsibility. Make future funds available to provinces and territories in designated envelopes—that is, a substantial portion of federal funding must be used for the development of provincial and territorial child care systems within a mutually negotiated child care strategy for all of the children of Canada.

Finally, you must include those who deliver the services in the decision-making process. Planning and decision-making under the current ECDI and any future agreements must include participation from community groups and those who deliver the service. This process must be open and inclusive, build on the strengths of current agreements, and be cooperative and respectful of family and community diversity.

Thank you for your time.

The Chair: Thank you very much, Ms. Bedard and Ms. Sperling.

Now we'll hear from Patrick Johnson, from the Canadian Centre for Philanthropy. Welcome.

Mr. Patrick Johnson (President and Chief Executive Officer, Canadian Centre for Philanthropy): Thank you, Mr. Chair, for the invitation to be with you today.

As I think you know, Mr. Chair and members of the committee, the Canadian Centre for Philanthropy is a national network of charities and non-profit organizations working in communities across the country. Our members work and deliver programs in all ten provinces and three territories from coast to coast.

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You will have received a copy of our written formal submission, which of course was prepared and submitted well in advance of the happy announcement coming out of the Department of Finance on Friday. It was also obviously prepared well in advance of the events of September 11. So what I'd like to do in the short time I have this morning is build on rather than repeat the specific proposals in our submission.

As has already been mentioned by one of the witnesses, I think most people here and other Canadians are aware that security now is the primary issue of concern, as it should be, to the federal government. We would simply urge committee members and the government to adopt as wide and broad an understanding and definition of security as possible. Obviously, we need to be looking at intelligence-gathering, military systems, processes for refugees—all those kinds of things that people traditionally think of as part of the security of the country. But I think we really need to think about a much broader, more comprehensive definition of what we mean by security and what gives Canadians a sense of security.

As you may recall, within hours of the horrific events of September 11, it was groups like the Red Cross, the United Way of New York, and the Community Trust of New York who were on the ground immediately, working side by side with agencies of the various levels of government trying to address the needs of the survivors and the families of the victims of that horrific set of events.

I think the concerns of Canadians are now looking overseas, and particularly looking at the implications for the innocent Afghani citizens who have been used as pawns by the terrorists. I think many Canadians fully understand that our sense of security is very directly linked to the plight of the innocent Afghani citizens. Our sense of security will be enhanced to the extent that we have an understanding that humanitarian organizations—whether it's Save the Children, Oxfam, or Médecins Sans Frontières—have the capacity to address the needs of the refugees in Afghanistan to the same extent that the Red Cross and the United Way of New York had the capacity to address the needs of the citizens of New York.

So part of the sense of security is ensuring for Canadians that charitable and non-profit organizations that operate both here domestically and internationally have the capacity to respond as effectively as did our American counterparts.

Obviously one of the key levers available to the federal government to support and enhance the work the charities do is those provisions in the income tax system that relate to charitable donations. Our submission, as you may recall, did recommend the federal government make permanent the 1997 budget measure with respect to donations to securities. We were therefore very pleased and happy to see the announcement coming out of the finance department on Friday afternoon that the government has now decided to make that measure permanent. We extend our sincere appreciation to the federal government for making sure that measure carries on, because it really has had, as our submission documented, a very positive impact in leveraging new resources into Canadian charities, which otherwise would not have been the case.

We were also pleased to see the acknowledgement that the Department of Finance is willing and interested in continuing to look at ways to expand that particular measure so we can ensure the maximum benefit for Canadian charities. In our submission we've identified a couple of ways we thought that measure in fact could be enhanced, including its extension to private foundations and looking at other forms of securities. Real estate is perhaps an example that also might be included in that measure.

I certainly would encourage members of the committee to contribute to that discussion as well about ways in which that measure can be enhanced, and hope we would also look at other measures that would enhance the incentive for Canadians to support charities and voluntary organizations.

In closing, I just want to remind members of the committee that there are clear concerns as a result of what happened a month ago in terms of the impact on the economy, and it clearly is going to have potential negative impacts on private companies. It will equally have a potential negative impact on Canadian charities and non-profit organizations, because charities are as affected by the economic cycle as are private companies.

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I would simply encourage and urge committee members, as you are looking at the kinds of provisions that need to be in the next federal budget, to take into consideration the extent to which measures to support the work of charities and non-profits can in fact contribute to a heightened sense of security that Canadians have.

Thank you very much.

The Chair: Thank you very much, Mr. Johnson.

I'd like to also reciprocate our gratitude to individuals like yourself who, through their interventions, have actually made the government move on a number of issues. I think this speaks to the whole issue of the pre-budget consultation and how the Canadian government does take these hearings as fundamental to their budget-making process. So once again, thank you.

We'll now hear from Nature Conservancy Canada, Mr. Lounds.

Mr. John Lounds (President, Nature Conservancy Canada): Thank you, Mr. Chairman.

I will also be highlighting remarks in your package. I believe there's a copy of our submission, Achieving Conservation Success: Measures to Engage the Voluntary Sector—and all Canadians—in Conserving Canada's Natural Heritage. I'd simply like to echo the comments of Mr. Johnson in regard to the role the voluntary sector plays, and to thank the government for extending the provisions on donation of securities, as it's important to all charities and their work.

Among the government's many stated priorities for the long term, ensuring ecological integrity of national parks and provision of a natural heritage for all Canadians are important for what this country will be, now and in the future. There are a couple of messages we'd like to leave with the committee today.

Now and over the long term we would encourage the government to work more actively with the voluntary sector. This has happened in many instances, but could happen even further within the conservation sector.

Second, we'd like to ensure that all Canadians can participate in the programs that have been set up to allow for the donation of ecological gifts of land to organizations like the Nature Conservancy of Canada. While the government has made positive changes that have resulted in a much improved ecological gifts program, there are still some barriers to the participation of all Canadians and all Canadian corporations in this program. I'll just briefly highlight those.

First, I'd like to talk about what the voluntary sector can bring to the table in regard to conservation priorities. Non-government organizations can help the Government of Canada achieve these conservation commitments by raising matching funds from the private sector and other levels of government. While there's obviously conservation programming that requires direct government involvement, with respect to ecological land conservation, sites essential to maintaining the ecological integrity of Canada's landscapes can be conserved probably at as much as half the cost of direct government purchase of these particular properties. As one potential partner, the Nature Conservancy of Canada has been prepared to commit up to $20 million per year for at least five years to invest in land conservation across the country. We know that other groups involved in conservation areas, like Ducks Unlimited Canada, are also prepared to be involved at a similar kind of level.

This kind of program has been very successful in individual projects across the country. Middle Island here in Ontario is one example, wherein 50% government money and 50% private money allowed us to bring that island into the hands of the national parks system in Canada. Over on the table there's a supplement that was done for the Globe and Mail last spring, which can provide you with more background about the Conservancy and its work, also in conjunction with the government.

In the United States, the federal government has a program called the North American Wetlands Conservation Act. The funds are made available through that program on a one-to-one matching basis against U.S. non-federal funds. Some of this money actually gets invested in Canada, with a proviso that there's a match on those funds. A limiting factor in increasing this investment has been securing Canadian government funding for this particular program. As well, over the past two years U.S. voters have approved through state ballots a total public expenditure of more than $17.6 billion on open-space conservation. Canada must similarly use some of these measures to achieve its goals.

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Second, I'd like to talk briefly about continuing to encourage donations of ecologically significant land in this country. I want to thank members of this committee—we've appeared before to speak to this—for their help in some of the changes that have come about, particularly putting on the same par as donations of securities the donations of ecologically significant land.

A couple of things still exist that provide a problem for the participation of all Canadians, and I'd just like to speak briefly about that. Someone who cannot afford to donate their entire property but still wishes to make an ecological gift can't actually participate in the program, and this is because of the way in which we describe gifts under the Income Tax Act. If you own a property worth $100,000 and you're conservation-minded, but you need some money from the property, and you'd like to sell it to the Nature Conservancy, for instance, for $50,000, you can't actually get a donation receipt for the other $50,000 of appraised value, even though we have a process now in place to determine that those appraisals are being done well under the ecological gift program. We believe this could be an important tool in encouraging more Canadians to donate property, if they were allowed what's called this discount sale or part sale of property to charities or to government.

Second, the ecological gift program only applies to capital assets, so it works for corporations that treat land as capital assets. Some corporations don't do this, mainly in the development industry, they treat land as inventory. Inventory is not covered under the ecological gifts program, and so in places such as the Oak Ridges moraine, where development companies are active, the ecological gift provisions cannot be applied. It's because the gain on inventory is treated as profit, and so it's not considered to be part of the ecological gift program, and you don't get the same tax benefits associated with that.

To conclude, we are asking the committee to support the continuation and growth of the work with the voluntary sector to stretch government dollars spent on government priorities. We'd also ask that there be amendments to the Income Tax Act to include part donations and lands held as inventory in the ecological gift program, which would allow a broader range of Canadians and all Canadian corporations to participate in conserving Canada's natural heritage.

Thank you.

The Chair: Thank you very much, Mr. Lounds.

We'll now hear from the Association for Healthcare Philanthropy, Mr. Michael Farrell, chair, and Diane Lester. Welcome.

Mr. Michael Farrell (Chair, Association for Healthcare Philanthropy): Thank you, Mr. Chairman, and thank you, members. We will be giving you highlights of a brief that was mailed here on August 10 for your consideration.

The Association for Healthcare Philanthropy Canada has over 400 members in the people who staff the foundation and development offices in hospitals all across the country and in health care organizations. They, together with an army of thousands of volunteers, make up the community partnership that has built the infrastructure of the health care system in Canada, and we are proud to continue that.

I must add immediately, your announcement of the continuation of the special federal assistance for charitable donations of publicly traded securities on Friday has taken a minute or two from my presentation, and we're just thrilled to say thank you and to acknowledge the importance of that decision to the philanthropic centre. I think one of the things that's very important before we go off that is that philanthropy is the business we're in, and it's not just what it has done in leveraging gifts, it is bringing people to the table who may not have been philanthropists, and these are folks who are making their first gift. It's our experience that when people become philanthropists, it doesn't go away, they will continue. I must applaud you for your work. Thank you.

The Chair: You take an extra minute to thank the government.

Voices: Oh, oh!

Mr. Michael Farrell: To continue now with the issues at hand that we'd like to bring to your attention today, health research, much of it based in our hospitals, has become an integral part of the work we do.

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With regard to the role of our organizations in raising money, the demand has spiked somewhat as restructuring has come right across the country. With restructuring has come the demand for community involvement with each of those projects. So the fundraising component has been spiked, if you like. An example from the Toronto round table identified that they will have $2.5 billion in fundraising goals over the next three to five years. These are all in partnership with the rest of the development of the health care system. I think that sets the stage for our special concerns around the area of research.

I'll introduce Diane Lester from the Hospital for Sick Children Foundation, who has taken a lead in this. She will bring you up to speed on that portion of our presentation.

Ms. Diane Lester (Chief Executive Officer, Hospital for Sick Children Foundation): Thank you very much for inviting us to present this morning.

I do have to say thank you right off the bat. Another hat I wear, aside from being the CEO of the Hospital for Sick Children Foundation, is that I'm the chair of the Canadian Council for the Association of Fundraising Professionals. We were invited to appear before your committee on September 27. Our representatives were Nicholas Offord and Jim Pitblado. Jim Pitblado called me on my home voice mail at seven on Friday night, and he was ecstatic over the announcement that had come out. We really must say that this is probably the most fundamental short-term decision that could be made to increase capacity in the voluntary sector. You all need to take credit for your thoughtfulness in considering that and the briefs of the other professionals who have appeared before you.

On the specific issue we're discussing today, I'd like to set it in context. Over the last four years the federal government has made substantial contributions to Canadian research through programs such as the Canada Foundation for Innovation, the Canada research chairs program, and the creation of the Canadian Institutes of Health Research. In Ontario this has been matched by the creation of the Ontario Research and Development Challenge Fund and other agencies that were specifically set up to match federal funding for R and D and health science research.

But unlike the granting agencies in the United States, in particular the National Institutes of Health, the individual granting agencies do not cover the infrastructure costs for project grants. So if you have a researcher or a scientist who's putting together an application for say $200,000 and they have a team of individual principal investigators and fellows who are working on a particular program, the host institution pays their salary, supports their infrastructure, buys their equipment, pays for their animal labs, and washes their beakers. The cost for that new team of researchers is borne by the host organization and not through the granting agencies.

All of the academic health science centres, which are the teaching hospitals affiliated with universities across the country, have an affiliated foundation. In the case of Sick Kids, the hospital will turn to our foundation and say, please provide the indirect costs of research so that the full costs are covered. Sometimes it's actually matching a portion of the funding. The issue I'm trying to address is that the indirect costs of research are being borne by philanthropy.

Again, the philanthropic community is extremely pleased with the announcement of the finance minister on October 12. The timing of the measure, as Patrick Johnson pointed out, is very critical, because we do not know what the aftermath of the events on September 11 will be, not only for the economy but also for the general realignment of the public in the philanthropic decisions they make. Everything is under the microscope right now. I was on CBC this morning talking about this. It's something that everyone is concerned about. There has been a huge outpouring of philanthropic support, but, coupled with the weakening economy, we don't know what the short term or even the medium term is going to be.

Notwithstanding the importance of the tax incentive—and I think history will show how critical the timing of that announcement was—that incentive in and of itself will not allow the Canadian hospital foundations to fund the gap. There will be the unusual and anomalous situation where, because of this funding gap, government may find itself in the unwelcomed and unusual position to allocate funding and research that the host organization cannot afford to win. So you may have excellent science that has to be rejected because the infrastructure costs aren't there, and sometimes it's in the millions of dollars.

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Based on 1999 data—and a lot of these statistics are in the original brief that we filed, so I'm only highlighting a couple of points for you—Canadians gave approximately $1.25 billion to health charities. Now, health charities include all good health care organizations across the country, so just a slice of that is going to support R and D in affiliated foundations, to hospitals. So $1.25 billion is the envelope of total dollars Canadians gave—that's both corporate and individuals—to health care in 1999.

The reason the gap results is that with the new infusion of funding that the federal government has given to health care research, the capacity of individual organizations to fill that gap isn't there. It isn't there with Sick Kids, it isn't there with the Hamilton Health Sciences Centres that Mike represents, and it isn't there with the B.C. Children's Hospital.

For example, as of July 2001, CFI had awarded $920.9 million worth of projects since inception in 1997. The price tag, once you look at the leveraging at the provincial level that it was expected the private sector would fill, is $460.5 million.

So what this means in hospitals is that the foundations are either trying to take their current unrestricted endowments and using that to plug against the match, or they're taking their unrestricted annual gifts, which could have been used for building and infrastructure and other direct costs of hospitals—technology, MRIs—and putting it toward the matching program, or they're scrambling to find new donors.

CIHR has granted $345 million, and using a formula the HayGroup has come up with, which is in the brief, essentially 60% of that is covered by government, which leaves a gap of 40%, which requires that some other partner come to the table. In that case, it would leave $230 million to be funded by host organizations, hospitals turning to their foundations for support.

There isn't a science to this, because the data is not collected aggregately, but our best interpretation is that just looking at CIHR and CFI budgets alone, each year there is a $500 million gap. So if you think that the $1.25 billion was what was given in 1999 to all health care charities, you could see that the slice that's going to R and D is a huge piece of that.

The only responsible way for foundations to fund R and D research over the long haul is to grow your endowments. You cannot raise... Science takes years. I know Carolyn Bennett will understand that. Science will take years, and translating the findings in science into something that's going to improve health care outcomes could take decades. So you can't sustain research funding on the number of T-shirts you sell and the golf tournaments you run. You have to have a sustainable platform to fund your science, and that's through endowments. But the capacity to grow endowments only rests with certain wealthy communities, with certain wealthy individuals, who will take advantage of the tax incentive that was made permanent on Friday and who have a brand.

There is a chart in my brief that shows you the top teaching hospitals in the GTA area. None of them, including Sick Kids, has the endowment to support the income required in order to match the funding.

Some of the indirect costs of research that I think are important to articulate include not only the facilities where the research takes place. If you recruit the very best and brightest to carry on important R and D research at one of the health science centres across Canada, they're going to come with requirements. They're going to want lab space. They're going to want fellows. They're going to want research assistants to work with them. They're going to look for technical support, statistician support, computational support. In other words, recruiting or funding one project creates a multiple effect.

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To retain the people who want to do that research, we're competing internationally. We're competing with Stanford, Harvard, Johns Hopkins, and the Children's Hospital of Philadelphia, where those kinds of supports are there. So the infrastructure is as critical. That's the water within which the fish you are funding swim. So we have to fund the whole thing.

Our specific request is that we recommend that new funding be set aside. It's very important. And I know that if Alan Bernstein were sitting at this table he would not want to take the pie of CIHR and just slice out a hunk and say the pie is not going to grow, and this has to be directed to the indirect cost of research. We're suggesting that you look at the whole funding formula, and support the increase to the infrastructure, because without that platform you will not keep the scientists.

We're suggesting that over time this will require up to 40% of the project funds. That is a well-known international standard, that an allocation of about 40% is required for the totality of the infrastructure costs.

Thank you so much for your time this morning. We would be pleased to entertain any questions.

The Chair: Thank you very much, Ms. Lester, Mr. Farrell.

A five-minute round for the following individuals, in this order: Mr. Solberg, followed by Mr. Loubier, Mr. Brison, Mr. Cullen, Dr. Bennett.

Mr. Solberg.

Mr. Monte Solberg: Thank you very much, Mr. Chairman.

I'll just start by saying that I agree that it was a good idea for the finance minister make permanent the generous tax treatment for securities. I will also point out that it was one of our members who pushed that a long time ago, Dr. Grubel. Anyway, we're happy that is going forward. I think it's important.

Since September 11, of course, everything changes—it's a cliché, but it's true. And the philanthropic organizations who are here today of course could make a very powerful case for what they're doing right now.

Mr. Johnson, I think you have made a good point about how important it is for Canada to do what it can to help out Afghani refugees, for instance. I think that is a very important point from a foreign policy point of view, because Canadians want to help. Obviously, at the same time we're always pinched for health care, and that is always an issue.

I'm just wondering, not to look a gift horse in the mouth here, if there has been any further study done on what further enhancement of the tax treatment might do to increase giving even more, especially considering not knowing where things are going with the downturn in the economy. Are there studies that tell us what would happen if we eliminated the capital gains tax completely on these gifts, and what the tax expenditure would be for something like that?

Mr. Patrick Johnson: Why don't I take a crack at it initially and then perhaps Diane or Mike might want to add to that as well.

It's my understanding that in the past there has been some work done, in particular within the Department of Finance, trying to assess, if we eliminated the inclusion rate totally, what would the impact and effect of that be. I think it's fair to say that there is probably no agreement in terms of people in finance and people outside in terms of exactly what the effect would be. If I'm not mistaken, however, I believe that in the U.S.—and Diane, you may know better than I—they have pretty much eliminated the rate totally, and it doesn't appear to have had a negative impact in terms of the American treasury, but it certainly has leveraged a substantially greater amount. If I'm not mistaken, I think something like 25% of the total contributions by individual philanthropists in the States is represented by gifts of securities. And it goes much broader: it encompasses real estate as well.

Certainly my sense of the evidence, if we look at the U.S., is that the overall impact of expanding the measure would be quite positive.

Ms. Diane Lester: I understand that Don Johnson is appearing before the committee tomorrow. As you know, Don is from Nesbitt Burns and has been doing most of the financial analyses. We do know that based on his proposal, which is the same as AFP's—complete elimination of the capital gains—he was able to convince the U.K. government to go all the way and eliminate capital gains. So we do have other national models.

I don't have the statistics on the lost revenue comparison.

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What we can see—and you've seen this from the Deloitte Touche report that backed up the AFP presentation and the centre's presentation—is that we have identified new donors that but for the tax incentive wouldn't be there. So we're growing the philanthropic marketplace, not just allowing one set of philanthropists to take a bigger hunk of it. I think that's really critical.

The other incentive that I know that both the Canadian Association of Gift Planners and the Centre for Philanthropy have done is to extend it to private foundations. A lot of wealth is managed through private foundations, and we know this will have an impact.

Mr. Monte Solberg: I have a question for the Nature Conservancy.

The Chair: Mr. Farrell was going to add something.

Mr. Monte Solberg: Sorry.

Mr. Michael Farrell: Just very briefly, while a lot of the information is anecdotal, we're often compared to the United States, and you quite often see a study that suggests that individuals in the United States are more generous. I would suggest that this single issue is going to make one of those differences where people have the opportunity to do that.

Mr. Monte Solberg: My question, Mr. Lounds, for the Conservancy... First of all, I think you do great work. I think you know that.

I'm interested in a couple of your recommendations. On the discount sale proposal, do you have any idea what the revenue cost would be to the government? Have you done any studies on that or on the other proposal on the developed land, the land held by developers?

Mr. John Lounds: The calculations that we made in our previous submission I think still apply. In that submission we had actually asked for capital gains to be eliminated on the donation of ecologically significant land. I can't remember the numbers offhand, but I would echo the comments of my colleagues that I think there's disagreement between the numbers that we've obviously tried to pull together and those within the treasury about what exactly the total impact might be.

We again refer to the U.S., where donations of all forms of real estate are free of capital gains. Again, I don't think that was affecting their economy. I think other ways to look at philanthropy in Canada... A study was done by the U.S. Nature Conservancy, and if you add up all the assets of foundations in Canada, they're equal to the Ford Foundation in the United States. That's why you get so much more philanthropic work going on in the U.S. than here.

Mr. Monte Solberg: Mr. Chairman, I think there's unanimity then that we should eliminate the capital gains tax on—

[Editor's Note: Inaudible]

The Chair: —

Mr. Monte Solberg: That's what I mean—and here too.

The Chair: Don't go home thinking that's a recommendation.

Mr. Brison.

Mr. Scott Brison: Thanks to all of you for your interventions.

We're very supportive of the decision of the finance minister on Friday, but we'll go on to say that it goes further to actually ensure that Canadian charities are not at a disadvantage compared to those in other countries. As we compete in any range of areas, this is just another area where we have to be competitive.

I'm curious as to whether this would be possible and whether this has in fact occurred. If you had a thinly traded stock, for instance, one where the liquidity did not exist to actually sell the stock at a value—say it was a $5 stock—it strikes me that one exit strategy would be to donate that to a charity at that value, utilize the capital gain, and actually have that benefit when in fact you couldn't actually sell the stock at that price because of lack of liquidity.

Have you investigated whether that sort of manipulation of this provision actually has occurred or would occur? It represents what I would expect would be more of an esoteric issue than it might have been a couple of years ago, because there are a lot of companies that find themselves in those positions and there are a lot of people with margined positions that would find that as an interesting exit strategy, to effectively get rid of the stock in a way they would not have been able to just simply through selling it in the market, if there is no market for a particular stock at a particular value.

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Has there been any examination of whether or not that has occurred?

Mr. Michael Farrell: I believe the definition of the publicly traded security does in fact make that situation impossible. The security has to be traded on the public marketplace, and the receipt is for the day of closing. In fact, one of the details that we have to deal with is what the actual cost is, what the actual value is, on the day it changes hands.

Mr. Scott Brison: Sure, but there are small-cap stocks on the TSE that are thinly traded, for which there's no liquidity. Maybe a couple of thousand shares trade in a day, for which there would be no... We won't waste a lot of time on this, but I'm very curious about this, because these are currently publicly traded companies. They're not just on the CDNX, but on the TSE, and they are in, say, the very ugly world of small-cap stocks at this particular point. Technically, there's no reason why they could not be donated as publicly traded securities.

Ms. Diane Lester: That specific question was not asked when we did the survey of 800 or 900 associations across Canada. We did this last June for the Deloitte Touche report. Anecdotally, and certainly from the Sick Kids' experience, the kind of stock we're getting is bank stock.

Individual charities will have a gift acceptance policy. The investment committees responsible for accepting that stock, getting the value, and issuing the tax receipt, take that accountability very seriously.

Mr. Scott Brison: Okay, that's important. There is a check and balance. If that is in fact there, that's very positive.

Given the importance and increased role of the volunteer sector in Canada, have you considered recommendations for a more holistic approach to the provision of services? It strikes me that the volunteer sector is better able to identify needs and to cost-effectively address them than are government agencies in many cases.

I'm reticent to point out the U.S. example, President Bush's example, of the initiative relative to church-based charities. I think we should at least look at the notion, but, in my view, it ought not to be religious-based organizations exclusively. We should be looking at a more broadly based volunteer sector approach. Has anyone actually looked at the U.S. proposal? Also, again extricating it from the notion of it being exclusively religious-based organizations and just considering it as a volunteer sector initiative, has anybody looked at that? How could some of that be applied within Canadian context in that regard?

Mr. Patrick Johnson: Why don't I take a crack at this?

I don't think there has been much interest or appetite on the part of Canadian charities to import that specific provision or measure that was introduced by the Bush administration, and for a whole variety of reasons. Having said that, I do think what is taking place right now is a recognition that the charitable, non-profit sector has historically made a tremendous contribution to the lives of communities right across the country, and that what we have seen, perhaps in the last thirty or forty years, is an increase in the role that governments play. To some extent, governments have taken over some of the responsibility for services that had been previously delivered by charities or non-profits.

I believe what we're looking at now is an attempt to figure out not whether one or another is a better way of doing it, because clearly—and I think Canadians would say this—there are important roles and functions that should be provided and performed by governments, full stop. By the same token, there are very important services and programs that can and should be provided by the charitable sector and the private sector. The issue is the balance.

There is a major initiative taking place right now that the federal government has embarked on—called the voluntary sector initiative—with voluntary organizations across the country. It is really trying to get at that very issue of what is the best and most appropriate role for the private sector, the public sector, and the charitable, non-profit sector. That changes with time, as we've understood.

The Chair: Thank you, Mr. Brison.

Mr. Cullen, and then Dr. Bennett.

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

I had a couple of detail questions for the Nature Conservancy of Canada, but before I get to those, Ms. Lester, you talked about the need for a partner for the indirect costs of research. If you look at the facts, the federal government has put up research chairs across Canada, we have put up the Canada Foundation for Innovation, at $3.4 billion or thereabouts, and we have increased the funding for the granting councils. I'm asking this question especially as an Ontario MP: Why wouldn't the Ontario government perhaps decide to reorient its priorities and support the indirect costs of research in this province?

Ms. Diane Lester: I think there are two issues. One is that the provincial government does have matching programs set up, so there are a few, but they don't cover the full amount. What often happens is that you'll get 40% from the federal government and 40% from the provincial government, and then there's a gap of 20%. If you're talking about a $10-million project, that's a significant amount for a related hospital foundation to try to pick up. That's one issue.

I think the other issue is that, certainly for health R and D based at hospitals, you have a bifurcated governance. The hospital gets its global budget from the province, but its research is often at the federal or national level. No one person owns this. Therefore, at the end, when you look for the private sector to come forward to fill the gap, the hospital is still relying upon the individual foundations. It's a lot of money.

Mr. Roy Cullen: I can understand the dilemma you're facing, but I still have a problem with whether it's at the educational institutional level or in the health care system. The province kind of washes its hands of any indirect costs of research, whereas the federal government is coming up with some fairly major initiatives, I think.

Nonetheless, I had a question for the Ontario child care coalition. You seemed to indicate that $2.2 billion was a pittance, a drop in the bucket. Perhaps you can elaborate on that. I'm sure it's a drop in the bucket in relation to total need, but $2.2 billion over five years is quite significant to me. My real question, though, is this: As part of this program that we've offered to the provinces, if they see child care, for example, as a priority, they can present it that way and the federal government will support it. I guess the problem you have is that the Ontario government doesn't see child care as a priority, because if it came forward and said it was a priority in terms of the children's agenda package, I'm sure the federal government, as I understand it, would support that.

Ms. Mary-Anne Bedard: We wouldn't say it's a pittance, but it's not nearly enough. As we stated, the levels at which you funded child care previous to the ending of CAP were higher than the level at which you're now funding all four areas under the ECDI agreement.

What we're saying is that you were in the business of supporting child care until 1996, to the tune of $320 million. You have now just re-entered that field again, and you're funding four areas of development with less money than you were providing for just child care before. So we are seeing the federal government becoming involved again, and that is a very good thing, but we're not seeing as much involvement as we would like.

Under the ECDI agreement, a lot of our problems absolutely are with the Province of Ontario and how much it will invest in child care. Whether or not they invest in child care is a political decision at the provincial level. I think the federal government has a role to play by saying...

I think if we look at SUFA, the early childhood development agreement was supposed to be the first test of the social union framework agreement. It was supposed to ensure that no matter where you live in Canada, you have access to equitable services. By not providing those guidelines and benchmarks in the ECD agreement, it means children in Ontario have very different access to services from what children in other provinces have. I think the federal government absolutely has a role to play in saying what the vision is. How each province actually implements that is absolutely up to them, but they should have to do this in this area, that in that area, and so on.

The Chair: Thank you, Mr. Cullen.

I'd like to move to Dr. Bennett.

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Ms. Carolyn Bennett: Mr. Cullen, do you want to do the Nature Conservancy details?

Mr. Roy Cullen: Maybe we can do it privately, if there's not enough time.

Ms. Carolyn Bennett: I have a couple of questions. One, obviously, is on the indirect cost of research. This isn't the first presentation this committee has heard about the indirect costs. It's sort of new language, and I think I first heard at the meeting of the CEOs of the Toronto hospitals in June that this is a big problem. Compared to our colleagues from Fredericton and Winnipeg, they wish they were getting some CFI money.

On a national scale, it is a little hard for us, as a national caucus, to take forward what might be perceived as why there isn't more money for indirect costs, when some people would love to have the money. This is indeed new money, right? Is it the rules around the money that are the problem—that you would like to be able to fund the indirect costs with the money that is there—or as it says in your brief, would you like a new fund by CIHR for the 40% going to indirect costs?

As somebody who's been on the record as wanting that CIHR money to go to $1 billion as soon as possible for research, I guess I still think that has to be the priority. I am worried, as my colleague has said, that the provinces and the people funding the teaching hospitals have bailed out on the indirect costs, in a certain way, especially since in the last budget we fought hard to get the capital cost stuff—the MRI machines and all the things there used to be fundraising for—and we actually gave some money for that.

I guess I'm still troubled that if you're going to ask for 40% new money for indirect costs, will that take away from the $1 billion you want for research, in terms of CIHR and some of these others? That's my research question. There's not going to be a lot of money, so do you now want new money for indirect costs, or do you want new money for research?

Ms. Diane Lester: I have to wear the hat that Michael and I are here for, which is the Association for Healthcare Philanthropy. I'm not representing Alan Bernstein and I'm not representing the hospitals, per se; I'm representing the philanthropy side of trying to fund this.

I think the whole funding formula needs to be re-examined, because you will very quickly be in a situation where excellent research, peer-reviewed, across the country—this is not an Ontario issue—will not be able to be accepted.

I was at a meeting in Ottawa on Friday with the children's hospital foundations from across the country. If you award money to Janeway, the Janeway hospital foundation will not be able to raise the matching dollars. They only do third-party events; they have no endowment.

This is a fundamental question. Is it good public policy to have philanthropy be the last dollar in, to make all of this work, to such a large degree?

Ms. Carolyn Bennett: Okay.

On child care, do you think it's possible to have a skills and innovation agenda without child care?

Ms. Mary-Anne Bedard: No.

Ms. Carolyn Bennett: On my second question, we've spent a lot of time here in Ontario, since 1995, trying to find interesting and innovative ways of getting around the ideology of this province. Quite often we've put dollars on the table that communities can directly apply for that don't require going through their province. So whether that's CAP, which was before, but dollars for homelessness, crime prevention, housing...

We have also had the experience in the CHST in health care that if we wanted money for primary care reform, information technology, or things that we thought were good, we had to actually put them into separate pockets. The sort of Chinese food menu approach didn't work in the ECDI, saying you can take from each of these groups or whatever you want.

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Do you think we need a separate child care fund that communities can apply to directly, as part of the ECDI, or as the next step of ECDI?

Secondly, in the previous panel we heard about apprenticeship training tax credits. Should we be rewarding businesses and corporations that provide child care, in a tax-credit kind of way?

Ms. Mary-Anne Bedard: I think we both have something to say, so we'll make it quick.

For many years there have been incentives to have workplace child care. It hasn't taken off as much as some people would have liked it to. Many European countries are moving to make it a public service, because by making it a public service you recognize that it is something every child should have access to, not just children whose parents are in the workforce. So if you're looking at a systematic change in Canada, let's look at it as a public service.

Given all the arguments and jurisdictional problems we run into under the ECDI, I think setting up designated funds that allow people to directly apply is an excellent idea. In Ontario, municipalities are responsible for delivering the service of child care, and they are the ones with no say in what happens to the ECDI money. There was absolutely no consultation with the provincial government on that.

I know that many of them are very anxious to explore new opportunities, and would be more than happy to enter into discussions with the federal government on accessing some designated funds.

Ms. Susan Sperling: Ontario's first-year share was $114 million, and municipalities would be really happy to be able to use some of that to alleviate the waiting lists and the pressure of not being able to provide a fundamentally urgent public service, rather than seeing the set-up of early years centres around the province—which are basically information kiosks—or seeing $15 million of the funding that was supposed to provide this replacing provincial investment in a previously announced initiative.

I definitely think you're going to see a movement toward that, in terms of municipalities trying to go directly to the federal government.

Ms. Carolyn Bennett: We certainly heard that last week at the urban task force we had here.

Ms. Susan Sperling: Yes, I'm sure you did.

The Chair: Thank you.

Ms. Guarnieri, final questioner.

Ms. Albina Guarnieri: Thank you.

To Ms. Bedard or Ms. Sperling, last year Canadian families began taking advantage of extended EI maternity leave. My understanding is that the program had a very high take rate, with families opting to utilize the full year of benefits.

Have you any data or impression on whether this program has taken any measurable load off child care resources in Ontario?

Ms. Mary-Anne Bedard: I think the data is still being collected. I do know that we've heard from a number of people that EI remains inaccessible to a majority of women. So even though it's now a year long, they still can't access it. Given the level of funding, at 55% of their income, many women can't afford to take a full year off work.

So if you have the luxury of being able to take advantage of it, people are very excited about it. But I still think there are some difficulties with the program that make it impossible for many people to take advantage of it. I don't think it has alleviated, in any way, the need for child care.

Ms. Albina Guarnieri: But you don't have the data collected to make a comprehensive determination on that.

Ms. Mary-Anne Bedard: I don't have the statistics. It would just be anecdotal at this point.

We do know that the most urgent crisis is in infant care.

Ms. Albina Guarnieri: Yes, understandably.

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I think you recognize that the EI program and the child tax benefit are forms of direct support for families favoured by the government. I suspect you would argue that these programs don't replace the need for specific funding for child care. In your opinion, how would Canadian families benefit more from a government investment of $1 billion in a national child care program, relative to the same $1 billion being spent directly on families with young children? How would you rate the different approaches?

Ms. Mary-Anne Bedard: I think a lot of it lies in accountability. When money goes out to families, it may help them and it may not. We have no way to quantify the assistance.

When you put money into a public system of support that recognizes the early years and doesn't distinguish between what children's parents are doing, a child is a child. It doesn't matter if the mother is in the workforce or not in the workforce, or does or does not make a good wage, all children can benefit from early childhood education.

All the policy research has been directing us toward and telling us we need to move toward a universal system. The early years are such a short period of time. We can gain a good benefit from society as a whole.

In Quebec, where they have $5-a-day child care, the most demanding population for access is stay-at-home parents, who want their children to have the opportunity to interact and socialize with other children.

In Europe, in places where the workforce participation of women is in fact quite low, when they have access to early childhood education everyone puts their child in it.

In Ontario, in junior kindergarten, there is a 99% rate of people who send their children. If it's there, people use it. They see the value.

Nobody asks you how much you make when you put your child in junior kindergarten. People ask you how much you make and why you're putting your children into child care. There's a judgmental factor there.

I think we need to move toward a system that values early childhood education and values every child's right to use that system.

Ms. Albina Guarnieri: When you say you can't differentiate between what the parents are doing, surely they would be the ones to understand the needs of the child.

I was somewhat surprised by the analogies you cited in your brief about the quality of a snowsuit, boots, or a car seat. To me, if you don't have the money to buy those things, they seem to be pretty essential examples. I was somewhat dismayed to see the examples.

Ms. Susan Sperling: I am not suggesting they aren't essential. I wasn't talking about the child tax benefit. I was talking specifically about the ECDI agreement, and how much money that is per child.

To go back to your earlier question about child tax benefits versus funding for child care, studies show that the majority of parents who were given the full range of options choose regulated, quality child care. The billion dollars is really helpful, and does help people buy snowsuits, car seats, etc.

It doesn't create child care spaces. There is no infrastructure. There's no expansion happening. As we went around the province, in cases where parents can actually afford to pay the full fee, there isn't enough child care available. It simply doesn't exist. I'm paying $775 a month for my two-and-a-half-year-old to attend quality child care.

When we say there is licensed child care for 10% of the children who need it, we're not talking about subsidized child care. We're talking about regulated child care spaces.

There are 165,000 regulated child care spaces in Ontario, whereas there are 1.6 million children under the age of 12, with parents in the workforce, who require some form of non-parental care. The money needs to be invested in quality care so the parents who do choose to access it can be assured the space is available.

Ms. Albina Guarnieri: Thank you.

The Chair: Thank you very much, Ms. Guarnieri.

Before you leave, there was some mention of the American system of taxation as it relates to charitable donations. Is there a sense here that you favoured it? Is that what you were saying?

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Mr. Patrick Johnson: I think, Mr. Chairman, what was being said is it's our sense that there are provisions that exist within the U.S. tax system that are very advantageous, and we do not have these in Canada. So to the extent that it has had a positive impact in the U.S. in terms of far more philanthropic dollars, why not take a look at that? Because, clearly, even the measure in terms of the donation of gifts of securities, which we introduced in 1997 in Canada, had been then done years and years before in the United States. So I think there's still some evidence we can look at in the U.S. that we may be able to learn from.

The Chair: In some areas. You don't mind a North American response to policy convergence as it relates to charitable donations. That's what you're saying, right? You want to take the best of that system and add it in with ours.

Mr. Patrick Johnson: Mr. Chairman, I think that's been the Canadian way, always, to look at the best.

The Chair: But it's important that you're on the record.

Thank you very much. As I said in my earlier comments, I think this has been an excellent panel. If we get input from Canadians, you eventually see it in public policy direction the government undertakes. That's very valuable, because what you're witnessing is really democracy in action. We're going to continue this for many years, and as we've been measuring our success, it's been quite noticeable.

I want to thank you on behalf of the committee. We will have those long lunches members of Parliament have: it will be 15 minutes. We'll be back at 1:30.

The meeting is adjourned.