[Recorded by Electronic Apparatus]
Thursday, November 30, 1995
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[English]
The Acting Chair (Mr. Walker): I call the meeting to order.
As I announced a few minutes ago, my name is David Walker and I'm a member of the committee. I want to introduce Mr. Jim Peterson, who is right on time and who will now take over the chair.
The Chair: I want to apologize to you all. We were guests of the city council, and we were taken away on a bus and just got back this second. I apologize for our delay.
Welcome, and we appreciate your being with us.
We have with us this afternoon a very distinguished group of presenters: from the Alberta Council on Aging, Jean Miller and Jerry Pitts; from the Borrowers' Action Society, Tim Madden and Larry Whaley; from the Canada West Foundation, David Elton; from the Canadian Pensioners Concerned Inc., Bill Daly; from the Coal Association of Canada, Ernest Lalonde and Donald Downing; from the Foothills Hospital Foundation, Nancy Palmer; from the Pembina Institute, Stephanie Cairns; and as an individual presenter, Rebecca Aizenmann.
Have I missed anybody? I'm sure I've messed this up badly. I'm sorry.
Ms Pauline Kay (Representative, Self-Employment Development): I'm Pauline Kay from Calgary.
Mr. Tom Marr-Laing (Representative, Pembina Institute): I'm presenting for Stephanie Cairns because weather kept her up in northern Alberta. My name is Tom Marr-Laing. I'm representing the Pembina Institute.
The Chair: Thank you very much.
Mr. Whaley, I missed you.
Mr. Larry Whaley (President, Borrowers' Action Society): You got me.
The Chair: Okay.
Dr. Joel Weiner, I missed you.
Mr. David Laughton (Individual Presentation): I'm here as an individual.
The Chair: Thank you, David Laughton.
Ms Sumreen Ahmad (Vice-President, Finance, University of Alberta Students' Union): I'm Sumreen Ahmad for the University of Alberta Students' Union.
The Chair: Thank you very much.
I was going to suggest a maximum of three minutes to outline your concerns and where you think we should be heading in our next budget and future fiscal policy, after which we'll open it up to all sorts of discussion. If you have other things you want to put on the record, you'll have lots of time to do it. Then we will close with a very brief summary of thirty seconds by each one of you, outlining your major concerns to us. We have as much time as we need for all of you to put your thoughts on record.
Who would like to start? Mr. Pitts?
Mr. Jerry Pitts (Member, Board of Directors, Alberta Council on Aging): I'll start with a question. What is the purpose of today's discussion, and how will the input be used?
The Chair: The input is based on hearings we have right across this country. Last year we met with more than 600 witnesses and received 300 individual briefs. We made a report to the House of Commons, which was considered by the finance minister in his budget, and probably 90% of what we had in our report was in that budget last year. I don't know if we will have as good a batting record this year, but based on your input, we just might, Mr. Pitts.
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Mr. Pitts: Thank you.
I think overriding all three questions is the need to redefine the laws of Confederation and the Constitution. There are federal, intergovernmental, national, social, financial and political problems. The Confederation and constitutional issues likely don't fit the needs of a modern Canadian society and commerce, which we have today.
We should take the Constitution out of the hands of the premiers and deliver it to the people. I'm saying that this statement overrides all the questions to be answered today.
We only have three minutes. I have many items to talk about, so I'll just briefly go over them.
First, what should our deficit reduction targets be and how can they best be achieved? I think it's obvious that to eliminate the deficit in two years we can't continue to fund wastefulness and inefficiency. We must try to eliminate overgoverning, repair our productivity, and eliminate duplication in federal government and between federal and provincial governments.
We must reduce unemployment insurance benefits, because some of those benefits are now used to subsidize the income of seasonal workers. Unemployment insurance now costs about $20 billion per year, and that's a 36-fold increase in the last 20 years.
Let's not make arbitrary decisions. Let's revamp the Senate, reduce representation, and increase accountability.
Let's look at crown corporations. Canada Mortgage and Housing Corporation had a purpose, but the war has been over for a long time. Do we really need it? Air Canada is being sold, the CBC and the CNR. Let's look at the Canadian Wheat Board. Let's resolve the Quebec distinct society issue.
The Chair: That would be great.
Mr. Pitts: Employees should be encouraged to invest in RRSPs. Minimize interest payments on debt through new government debt mechanisms. Reduce unemployment - raising revenue and reducing expenditures.
Improve the efficiency of current service delivery. Curtail unnecessary public largesse. Keep public account expense to the appropriate levels necessary to achieve public objectives.
Reduce the interest rates. Reverse the damage done by programs initiated since 1965. Use the Manitoba formula, whereby 25% in the first year is deducted from the income of MLAs if they don't shape up, and 50% the next year.
Second, how may budget measures be used to create an environment for jobs and growth? Again, employment should be the highest priority, with training and protection of the workforce, specifically seniors still working - that's because I'm with the Alberta Council on Aging. Reduce hours of work. Preserve benefits. Improve productivity. Create an environment of employee dedication. Reduce income tax.
Recognize seniors' worth - 55% of volunteer work is performed by seniors. Recognize the worth of women at home. Government must develop a comprehensive approach to what is now a pressing national problem, and do so jointly with private sectors.
There is a need for intergovernmental cooperation in Canada, particularly the need to integrate welfare, unemployment insurance training and education in a redesigned social safety net.
Third, what areas of federal activities should be considered for further cuts, commercialization, privatization or devolution to other levels of government?
There should be Senate restructuring and a strong central government to perform duties for which it is structured. Defence, Canada Post, Foreign Affairs, MP representation restructuring, crown corporations, foreign financial assistance - I'm talking about foreign aid - any possible new or unforeseen areas, culture, multiculturalism, biculturalism - it's a lot of cost and what are they doing? - environmental policy, immigration, agriculture, law - there should be rule by law and not by lawyers, judges and the bureaucracy.
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Reduce the number of bureaucrats and their power. I think too often the bureaucrats are doing the work of the politicians.
The Constitution is outdated.
The Chair: Can we come back to you, Mr. Pitts?
Mr. Pitts: Okay, thank you.
The Chair: Thanks for the point form.
Pauline Kay has to leave at 3:30 p.m., so please make your presentation now.
Ms Kay: May I include my 30 seconds' worth now instead of later?
The Chair: Sure. We'll give you even more than that.
Ms Kay: I have a comment about the trickle-down theory. I have come here with handwritten notes because the information that you were coming to Calgary didn't trickle down soon enough to me.
I'm talking today about a program that would help the disadvantaged, marginalized people become self-sustaining. I'm a champion of the cause of people who have a product, service or skill but need training or ongoing mentoring and loans at the level and the time needed.
People are disappointed that some of the recommendations from the Small Business Working Committee have perhaps not been looked at closely enough by the finance committee. Some of the recommendations there certainly reflect what I have to say today.
In the rural areas, the Community Futures business development centres have been effective in getting people off UI and social assistance and into micro and small businesses at a cost of about $3,000 per job. They have created, out of that employment program, 2.6 and 3.4 jobs for the amount of effort that was put out. We would like to recommend that this effort be continued, expanded and perhaps made cost-effective. Perhaps the program doesn't need to be as expensive as it is right now.
I would like to table a report from Mr. Don Dalke of the Lethbridge and District Business Development Centre. He says that in the few years the centre has been working, it has put several hundred people into self-employment, and about $2 million per month circulates because of those efforts.
I would also like to table a report called First Stop, a suggestion about self-employment in urban areas. The program I'm suggesting is particularly for marginalized people. It would not duplicate efforts by other institutions or agencies, but would broker those services to people who needed them and could access them easily, instead of attending a nine-month course in business or a university course in business management.
We'd like to give our thanks to the literacy secretariat for funding a new program that will be starting in Calgary to put business materials into plain language, and for bringing a symposium to Calgary to find out what the best practices are in these programs.
The idea is to increase the number of people paying taxes and decrease the number of people who are a drain on our moneys. If we can do something through the UI program - and I think the voucher system may solve part of this problem - it will make the program less costly and available to more people.
Social assistance recipients do respond to this kind of one-to-one training. The Lethbridge records show that of the 30 people on social assistance, 26 of them continued with their small businesses, 4 went into some other like businesses, and only 1 returned to social assistance.
The marginalized people are listed in the material I'm giving you. I've brought the results from StatsCan with the number of people through the SEI program or the SEA program who are women - they are part of the marginalized group, you realize - aboriginals, persons with disabilities, visible minorities, social assistance recipients and older workers, and the number of people who have been successful in setting up small businesses out of that program.
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We also have reports from the B.C.-Yukon Community Futures business areas that show that whereas 80% of businesses fail, when they are given good training and mentoring and have loan funds, it makes a great deal of difference. The mentoring increases the number of successes to 80%. In some cases, the loan funds increase the success rate to 92%.
In summary, I'd like to suggest that it's the urban areas that have been neglected. There are 250 business development centres across Canada in the rural areas. We have had some programs for youth in pilot programs. We now have four programs for women in the west. But generally, Victoria, Vancouver and the other large cities across Canada have not had this kind of flexible program, flexible training with loans for equity.
Speaking of loans, some of the loan funds have not been renewed. With the success rate of Lethbridge, with $1.5 million that's now valued at $1.8 million - small loans for equity have paid off. People taking out small loans pay them back just as readily, or more readily perhaps, as people taking out large loans.
We have from Ottawa the suggestion that perhaps banks should be urged to reinvest in their communities. There is also the suggestion that loan funds, through the federal government, could provide the equity funding that would then make it possible for the banks to conform to the regulations they have to follow in giving loans. It's the equity funding that is not available, particularly for people who want less than $100,000.
Somewhere we hope there's a blending - that was the word from this morning - of the efforts from Human Resources Development, Finance and the Department of Industry, which have the loan funds.
Immigration doesn't handle training, yet we have another component over here called ethnic minorities. Seventeen of the OECD countries have instituted this kind of program recently.
In the United States, Kauffman's research, which was done in cities, was extended to all of the states when they discovered the successes that happen when you include training, mentoring and loan funds.
It has also been suggested that perhaps this loan fund should be available in communities along with a good community committee like the Community Futures program has. The people contributing to the loan funds could perhaps have some sort of tax break because they're making that contribution into their own communities.
The Chair: Thanks very much, Ms Kay. I appreciate that. Feel free to walk out when you have to. It was an excellent contribution.
Ms Kay: Thank you. I'm sorry to miss the discussion.
I have two other points, if I may, Mr. Chairman.
The Chair: I'm sorry, I didn't realize that.
Ms Kay: I would like to answer someone's suggestion this morning that $30,000 was enough to raise a family. I would like to make the point that sometimes that $30,000 is taxed as two individuals, as two single people, and sometimes it's taxed as one family. That makes quite a difference, $1,600 or so, for the same costs for raising the children and having the house and mortgage and so on. Perhaps there's some way that the tax formula could change for that.
Somebody else mentioned money offshore. Our suggestion is that perhaps we should bring home some of that money from offshore or from Swiss bank accounts or wherever it is by allowing people to buy special bonds in Canada that would be at a fairly low interest rate but that would be tax-free. Perhaps people who have their investments overseas might bring their money back.
Thank you.
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The Chair: Thanks very much, Ms Kay.
Mr. Daly, could we turn to you now and could we get back to the three-minute solution, please.
Mr. Bill Daly (President, Alberta Division, Canadian Pensioners Concerned Inc.): It's pretty hard to compress things into three minutes.
The Chair: We'll give you lots of time afterwards. You can give us the main thrust of where you think we should be going.
Mr. Daly: I hate people rhyming numbers off that I can't see, so I asked to have a board.
I want to express my appreciation for being allowed to come here and also for the letter I received from you during the year.
One of the things I'm concerned about is tax breaks. I have a list of tax breaks produced and printed in Edmonton on Christmas Eve of 1992. I take a look at what the government has done since it came into office, and the only one that has been reduced is the capital gains exemption. So there's still lots of room to try to straighten out and make things more equitable.
When we look at the last statistics from Revenue Canada, they show that there were 12,140 people who earned over $50,000 a year and paid no income tax. When we hear of these disadvantaged people who are wanting just $30,000, there has to be something wrong with our tax system. I'd like to see that worked on a little harder than what we've done to date.
The other thing that bothers me enormously is what has happened with income testing. It seems as though every budget brings out a new system to test something. What I've done is compile a list, which you have in the notes I've given the committee. I thought I'd put them on here to show you some of the key discrepancies in here.
For GIS, people start losing money from federal programs for the first dollar they get from interest and the Canada pension plan. It's somewhat unfair when you see somebody whose test level is $1 from the Canada pension plan or interest - they lose 50¢, and then we can look at what happens on the GST where they only lose 5% of the money and it starts at $25,921.
Then you go and look at unemployment insurance, which was raised earlier today in terms of how much it is costing us. They have a test level that this year is in excess of $63,000. Why does this person lose money at zero and this one doesn't start losing it until he has made $63,000? The government really has to look at what's happening here. It's unfair when you talk to a person who is here and tell him that other people are being hit not at 50% but at 5%. It just doesn't make any sense.
In Alberta we have additional programs that follow up on the guaranteed income supplement, so if they're not eligible for this, they lose benefits from the province as well. When I talked about this in Calgary about a year ago, the deputy finance minister from B.C. stood up and said they lose health care benefits and they lose drug benefits if they're not eligible for GIS, so this figure goes up to 75%. I would really like the government to take a look at this and try to make it more equitable.
The government has a paper on aging coming out. It was promised in the budget, but we don't have it yet. It has been nine or ten months since the budget, and the rumour is that it is being held up for the referendum. We'd still like to see what the government is proposing for social programs. We know that they have been examining it and leaving it open for discussion. I'd like to see what's proposed so that we could have a chance to talk about it more.
The Chair: Thanks, Mr. Daly, for now. I appreciate your technical points very much.
Ms Rebecca Aizenmann (Individual Presentation): Mr. Chairman and members of the committee, welcome to Calgary from an individual appearing before your committee. Thank you for the opportunity to present a few ideas.
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In keeping with your third concern, on what areas of federal activities should be turned over to other levels of government, allow me to deal with an issue that concerns all Canadians - particularly Albertans and Calgarians, having witnessed a near hospital meltdown last week.
I wish to make a few comments on health care and the federal government's involvement in it. It is absolutely essential that the federal government be involved in health care and that it be maintained by whatever measures necessary. I will go so far as to suggest that federal involvement in health care, medicare, should be written into the Constitution.
I realize that the federal government funds health care, and the provinces administer the dollars that are transferred to the provinces. Earlier this morning someone - I believe it was you, Mr. Chairman - asked if we can trust the provinces. Having witnessed and experienced on a daily basis what's happening in my province, I cannot trust some aspects of provincial control. The same could probably be said in Ontario today, having seen the fallout from their mini-budget.
As you continue to hit your targets in deficit reduction, has anyone considered the overall effects of cuts on health care, on medicare? Has anyone considered the effect on the aging population, the disadvantaged, the disabled, single mothers or children?
I want to pick on some of the ideas that the HEAL commission presented to you last week. I was fortunate enough to view the presentations of this health coalition group on Sunday afternoon. They suggested that planning accompany decreases - which I believe are necessary - to health care. In Alberta, $600 million has been cut out of health care since the budget cutbacks started here. There has been intensive contracting out, which was the cause of the near meltdown last week. People earning $7.50 an hour were going to have their jobs contracted out. It was the tip of the iceberg that just about brought the show down. When you're talking about decreasing dollars to health care, consider the effect and do some planning.
Since you do hand out the federal dollars, you must maintain national standards. There was a great deal of discussion on that this morning. In the case of health care, it's absolutely essential that the five principles of the Canada Health Act be maintained, enforced, enforced and enforced. I believe many people in this country would agree with me.
Mr. Chairman, time allowing, I suggest that a committee be set up to work closely with the Prime Minister's forum on health care. I believe there will be some overlapping as they deal with where health care in our country can be refined and maintained, and quality be maintained. I believe medicare is our greatest institution.
Specifically, to save on health care costs I suggest that the government examine federal bills that have a direct effect on health care. Bill C-91, the Drug Patent Act, would be one example.
The Chair: Thanks, Ms Aizenmann.
Mr. Ernest Lalonde (Director, Corporate Development, Coal Association of Canada): My name is Ernie Lalonde and I'm here representing the Coal Association of Canada. My able colleague, Mr. Myers from Fording Coal, is here to support me, as is Ms Kohut, who is sitting in the audience rooting us on, we hope.
The coal industry of Canada brings you the lights here today. It's very important to the electric utility business and it supplies a large part of Canada's electricity. We're also a significant contributor to Canada's export earnings, as we ship coal around the world. Canadian coal is widely used throughout the Pacific Rim and Europe.
We appeared before this committee last year, submitting a lengthy brief. We have no intention of repeating what we said there, but we'll expand on some of the issues brought forward.
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The key issue for the Coal Association at this moment is the discussion that's taking place on resource allowance and resource taxation. We have been active participants in that discussion with the government. Our grave concern at this moment is that Revenue Canada and the government in general are moving toward a system that replicates the manufacturing and processing tax system. This will be very detrimental to the coal industry, substantially increasing our tax burden.
We continue to participate. We are eagerly awaiting the paper to the first ministers that's coming out in December to see which direction things are headed in, but we are very worried.
There are a number of other tax issues we have brought forth over the years and continue to be concerned about, particularly those associated with fixed tax burdens like large corporation taxes and fuel taxes. Another area of our concern is the high degree of regulation and regulatory overlap between the provinces and the federal government.
We strongly support government initiatives to reduce and eliminate the deficit and to pay down the debt. We believe that should be done by reducing costs, not by increasing taxes. In order to provide jobs and growth in the Canadian economy, we think taxation is not the way to go. That's an inhibiting feature. We think the economy needs to be stimulated. We think growth needs to occur, and that's the only way we'll be able to address our deficit problems effectively.
Some other issues of concern to us: we had some good news this morning when Minister McLellan talked about reducing regulation and bureaucratic activities in the mining industry. We strongly support those kinds of initiatives, and we think there's a lot of room to remove regulation that is not serving an effective purpose.
A fuller version and discussion of the things I've said has been tabled with your committee in the form of an outline. That's about all I want to say at this stage. Thank you.
The Chair: Thank you, Mr. Lalonde.
Mr. Laughton: I'd like to thank the committee for its invitation. I'm here as an individual. I live in Edmonton. I'm on my way to meet a client in New York and Boston next week, which is why I was able to make this side trip to the other city in Alberta.
The Chair: Is there another city in Alberta?
Some hon. members: Oh, oh!
Mr. Laughton: This one.
I want to make a couple of comments as an individual, not in any professional capacity. I happen to be a financial economist, but that's not relevant to what I'll be saying.
I'm not going to address the first question on the deficit reduction target, because I think you ought to have a debt-level target. I don't know enough about the situation to comment on what that debt-level target ought to be, but I agree with the people at The Globe and Mail who have been suggesting that this is where we ought to be moving the focus of that part of fiscal policy.
I want to reinforce what the other individual from Calgary had to say, which is that there is a role for the federal government in setting national standards in social programs. Much in the same way as provincial governments are handing off responsibilities for implementation of social programs - particularly health care - to regional authorities while maintaining control over consistency across the province, there is a role for the federal government in maintaining consistency across provinces.
There is also a role for the federal government in maintaining labour mobility. This is particularly important in the high end of the labour market, where having decreased labour mobility can inhibit the effective use of economic resources.
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I would strongly support the federal government's maintaining sufficient fiscal clout to give teeth to the Canada Health Act. I hope the national forum on health care will look at what different provinces and countries are doing, find out why Alberta is able to have health care with a much lower proportion of GDP than some of the other provinces, and see what savings might be had while maintaining a federal presence in guaranteeing national standards.
The second point I want to talk about is the Reform Party proposal for replacing the GST and the current income tax system with a flat tax. I don't know if this will be part of your discussions, but in a report a couple of years ago you considered replacing the GST by integrating it into the income tax system, and then dismissed it. I didn't see your reasons for dismissing it in that report. It's something that makes a lot of sense.
If you look at the tax reform proposals that came from the economics community before the GST was instituted, there were grave concerns about setting up parallel bureaucracies for a national sales tax, when we effectively have a consumption tax system now through the RRSP provisions in our income tax system. So I would encourage the committee to consider scrapping the GST as an inhibitor of economic growth because of its implementation cost and probable effect in increasing tax evasion, and replacing it with higher income tax rates, which effectively will accomplish the same thing for the bulk of Canadians who haven't maximized their RRSP contribution.
As well, if you want to harmonize with some of our trading partners, consideration ought to be given to an inheritance tax, which was dropped in this country some time ago.
Finally, the reason I'm going to Boston and New York rather than Toronto is that we have a decaying university system in this country. My colleague to my right will be talking about that. So I would support funding for the post-secondary education system in this country, which is essential for the development of growth and jobs.
The Chair: Thank you, Mr. Laughton.
Dr. Joel H. Weiner (Associate Dean (Research), Faculty of Medicine, University of Alberta): I appreciate this opportunity to speak today, but I have to apologize because I must leave early to catch a flight back to Edmonton at 4:15 p.m.
The Chair: There are a lot of people who plan to leave before I get a chance to say anything, particularly the ones who were here this morning and heard about it.
Dr. Weiner: I listened to the session this morning - I was here - and heard comments. What I'd really like to address is point number two, which is how budget measures can be used for jobs and growth.
Last year we presented a brief and arguments in support of maintaining the government's role in basic research through the three granting councils and the funding for university education, and we will just reiterate those points. The committee understood those arguments and in their report last year clearly indicated that the granting councils' budgets should not be cut. Unfortunately, that's in the 10% of your recommendations that were not followed by Minister Martin. So the first thing we would ask this year is that you yell even louder so that message gets through, because it's one of the best investments government can make. It's not an expenditure, but an investment.
Second, I'd like to point out some of the lessons we've learned in Alberta over the past year. Medical schools in Alberta have received a double whammy. We've had a substantial decrease in university funding which, depending on how you calculate it, comes out at about 30%. We also depended on funding from the health sector, and we've seen a very large decrease in health funding in this province. Yet we've survived.
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Why have we survived? We've survived because we're competitive. To give you an example, the research funding in the medical sector at the two universities is nearly $100 million a year, which comes in from sources outside this province. That generates nearly 4,000 direct jobs in research in the two universities, and that of course has tremendous spin-offs into the environment.
Why were we competitive? We were competitive because about fifteen years ago the Alberta government made an investment through the Alberta Heritage Foundation for Medical Research to build an environment in this province that would allow us to develop in the health and biomedical areas. It takes a long time for that investment to pay off, but it's paying off now. The foundation directly employs several hundred people, who give us the critical mass, but those people bring far more money into this province than they do costs.
There's a real lesson there for this country, because there are tremendous amounts of money internationally for research, and there's real opportunity for this country to attract more of that money.
The speaker down the aisle indicated a look at Bill C-91. Well, Bill C-91 has two sides to it, and the government really has to look at the costs versus the benefits. We constantly have this problem of one arm of government competing with the other. The bill can be designed such that the economic benefits far exceed the costs to the health care system.
I'd like to finally mention the Medical Research Council. Last year Minister Martin in his budget speech indicated some of the innovative measures the MRC has been involved in, such as the Canadian Medical Discoveries Fund, to use some of the innovation this country has developed and take it to the next step, that is from discovery to actual applied research and then into manufacturing.
Mr. Axworthy has developed the youth employment program with the Medical Research Council, which allows unemployed people who have experience in science to get more experience so that they're marketable. We've also developed, with the Pharmaceutical Manufacturers Association and the MRC, several programs to allow for improved funding of research.
The health care budget in this country can take some cuts. We believe there is some waste in that system. We believe that with the use of the good outcomes measurements, at least 1% of the GDP, or about 10% of the health care budget, could be saved. That would give tremendous flexibility to the provinces to spend money on education, which would have very good long-term benefits. Right now, of course, with so much money going to health care, there just aren't the dollars, and education is really suffering in this country.
Finally, the University of Alberta has been investing a lot this past year in industrial liaison. Even under these tremendous cuts, we've invested a lot of money in people. We've recruited Jim Murray to the university. Many of you may have read the article in The Globe and Mail that says Edmonton has become a centre for industry and science investment because of that, and that's resulted in a range of spin-off companies in the past year. We see that only growing. Small businesses are really the job engine for this country.
Sometimes you have to invest a little bit in order to get the pay-offs in the long run, even when money is very tight and times are very difficult. Thank you.
The Chair: Thank you, Dr. Weiner.
No stranger to our committee is David Elton, who's been a big help to us in the past.
Mr. David Elton (President, Canada West Foundation): Thank you, Mr. Chairman.
The comments I'm going to make are based on research we've been doing over a number of years, trying to track the trend towards affordable government that's been taking place in this province.
The national government has had numerous people blaze a trail before it. In Canada now, well over half the provinces have found themselves in circumstances that are equally difficult to the ones the country finds itself in, yet over the last several years they have found a way to balance their budget. That has been done differently in Saskatchewan from how it was done in Manitoba, New Brunswick, Alberta or Newfoundland. The point is these governments have established mechanisms and procedures, some of them quite different from others, to achieve this end, and they have accomplished it.
So in answer to your first question, the research we've done indicates that in all instances where governments have been successful in gaining control over expenditures, they have set a target, and that target has been a zero deficit. It's been done through deficit elimination acts, through commitments on the part of the government itself, etc. There are many different ways to arrive at that goal, but clearly the only way to arrive at that goal is to actually set it.
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Whether it's this year or next year, the Government of Canada must set for itself the goal of a zero deficit. It doesn't set that goal simply because it likes to see two columns on a sheet balance, revenues versus expenditures. It sets it for the reason given by the previous speaker: without gaining control over those expenditures, they will not have the ability in the future to fund the kinds of things you were talking about, to stimulate economic growth in this country or to create jobs. That's why people are concerned about deficits. If there is one job-killer in this country, it's government's inability to control its expenditures in an equitable manner.
I could go on and talk about two and three. We've left you some notes based on the research we've done.
Let me deal with question number three. What areas of federal activity should be considered for further cuts? It's always easy to talk about the need to cut, but it's another matter to identify those cuts, because no matter what cut is made, it will hurt someone. It will cause some group of people to fundamentally change the way they do business and/or the way they live. Let me suggest a couple of specific ones to you.
This government has yet to priorize its spending, and it needs to do that. We need to define much more clearly when and why we subsidize people's incomes. Let me mention a couple of items I'm sure people around this table will react to, both positively and negatively.
According to the work done by Dominion Bond Rating Service and a number of others, about $7 billion out of the $20 billion spent annually on old age security goes to individuals whose income exceeds $25,000. We're not talking about a family here; we're talking about an individual. Is that the right level? If we're talking about a couple, it's $50,000, isn't it? It seems to me we have this thing about subsidizing people's incomes all out of whack and we need to address it.
Let me address a comment that was made a little bit earlier, to which one of the people to my right said, ``I can't believe that''. The green paper on social security tells us 40% of the UI in this country is paid to families whose annual income in the year they received the UI was in excess of $50,000. Is that really the best way to spend this kind of money?
The government needs to determine at what level one actually subsidizes income. If we can do that appropriately across the multitude of expenditures the government makes, we could reduce substantially the money the government spends - not by the tens of millions or by the hundreds of millions, but by the billions of dollars. That would allow you to get to a zero budget and it would also allow you, in terms of future opportunities, to invest in the kind of research that my colleague was just talking about.
Unfortunately, Mr. Chairman, I have to catch a plane to go east, but one of the authors of the reports from which we drew these results is with me, and I'm going to ask him to take my place at the table. It's Mr. Casey Vander Ploeg. I know he will want to engage in a conversation with you following the presentation.
The Chair: Thanks, David, for being with us.
Ms Narman Hassam (Vice-President, Internal, University of Alberta Students' Union): Mr. Chairman, would it be a problem if Sumreen and I made our points right now, because I -
The Chair: Because you want to leave too.
Some hon. members: Oh, oh!
Ms Hassam: We don't want to leave. We just have a feeling that the points we want to make haven't yet been made today and probably will not be made, and I don't want everyone to leave before we make our points.
The Chair: Absolutely. Please feel free.
Ms Hassam: Thank you very much for the opportunity to jump in before everyone and for letting us speak here today.
The federal government has clearly identified important objectives to which it is working on debt reduction, wealth creation and job creation, among other things. In order to achieve these goals this country will require a highly skilled, productive and flexible workforce. Wealth creation can no longer depend upon natural resources or investment in traditional infrastructure. In the future we must rely on the skills and ingenuity of our workforce to add value to both traditional and new areas of economic activity.
.1700
A post-secondary education is an investment that is of fundamental importance to the long-term economic well-being of the country. It is not a financial burden. A well-educated population is a prerequisite for both economic growth and societal development.
Education gives Canadians the knowledge, skills, attitude and experiences that enable them to take responsibility for shaping their own future. It creates the independent and critical thinkers who are necessary to prescribe change for our society, and it creates the flexible, responsive workforce necessary to adapt to these changing requirements. Education results directly in research and technological change and enhances the ability of the population to capitalize on these changes. Education encourages democracy by creating a literate and knowledgeable population, lowers crime rates and decreases dependence on health and welfare programs.
Ms Ahmad: It is therefore our request and recommendation for the federal government to take several steps to meet this goal.
First of all, we recommend that the Canadian health and social transfer, which by name lacks any reference to the basic or post-secondary education that it contributes to, be eliminated and plans laid for a newly established financing program to guide the activities and expenditures of the provinces, thus promoting a nationwide need for an educated populace.
Secondly, we recommend that current levels of funding for post-secondary education be sustained for a period of four years to give institutions the opportunity to plan and prepare for changes in funding rather than having to continually act in a reactionary manner.
Thirdly, we recommend that the federal government actively participate in the Canadian Alliance of Student Associations' national conference this coming March. Its aim is to bring together all stakeholders in post-secondary education and ensure that education is placed back on the agenda.
Finally, we recommend that a national education act, much like the Canada Health Act, should be formed with consultation from all stakeholders to give the post-secondary education system the mission, vision and mandate that it needs.
Over the next two years $7 billion will be cut from federal contributions to health, welfare and education. Students across the country right now are waiting with bated breath, lobbying their provincial and administration representatives, hoping that next year the institution they are attending will exist, and praying that they will be able to afford to continue their schooling. This kind of uncertainty is, to be quite blunt, ridiculous. It is not just the responsibility of students or the university administration to ensure that the people of Canada know that there is a reliable and exceptional education system at their disposal.
Ms Hassam: The provincial and federal governments must set their vision, mission and mandate for post-secondary education in cooperation with students, administration and the workplace before launching another round of budget reductions. This is only sensible and fair.
The debt and deficit that are key to federal government policy right now will not disappear tomorrow, nor should they. The goal of eliminating both can be achieved in time and more effectively with fundamental principles driving budgetary decisions and not the other way around. It is possible that cost savings can be realized by the reduction of unnecessary duplication in administrative and academic services, but that can only be done properly by planning, not simply by reacting.
The Chair: Thank you very much.
Ms Palmer, you're another person I think our committee has met before on a couple of occasions. We're delighted to have you back again with us.
Ms Nancy Palmer (Manager, Planned Giving and Major Gifts, Foothills Hospital Foundation): Thank you so much for the opportunity to present to you yet again. I'm going to talk to you today about building a health care endowment.
I ask if you could pull out this document that we sent around. I'm going to refer to it in a moment. Do you have that, Jim?
The Chair: Yes.
Ms Palmer: As you know, I'm presenting on behalf of the Foothills Hospital Foundation today, and I'm going to talk about the purpose in building a health care endowment.
The purpose of an endowment is to provide a permanent fund or source of income for charitable purposes. We are currently beginning an endowment-building program for the Calgary health region. The reason is that we need the money. Building an endowment uses private money as the means of achieving our financial goals by using planned giving. Planned giving involves the use of tax planning, planning usually in an estate planning context with an individual's desire to make a contribution to, in our case, health care. Planned giving relies on provisions in the tax act that in many cases will enhance the gift to our cause and provide tax benefits to our donors.
.1705
As you heard from the CAGP, the Canadian Association of Gift Planners, in prior testimony in Ottawa, we believe the finance department and Revenue Canada need to understand that vehicles used for gift planning are not tax avoidance. Rather, they serve as a means for individuals to make community investment.
New gift vehicles need to be introduced to provide a wide array of choices for donors to make their gifts. For example, pooled income funds for smaller contributions that would not qualify as a charitable remainder trust can be managed under one fund.
In addition, tax enhancement could be increased. In particular, as I know you have heard many times before, a gift of appreciated property should be exempt from capital gains tax.
An example of positive legislation that was just recently introduced is the Health Foundations Act of Alberta, which creates crown foundations to benefit health care delivery in our communities. The volunteers in my health care endowment program will be setting an aggressive target in order to meet the medical and health needs of Calgary and southern Alberta.
To give you an idea of the rate of growth in the U.S. of health care and university endowments, I'd like you please to refer to the little sticky label on the page that says ``sign here''. It shows hospital endowment value changes in five years and gives the dollar value in 1985 and 1990 and the rate of growth. I think you'll see there's significant growth within five years.
On the next page I have highlighted three small universities in the United States that have seen significant growth in their endowment over 25 years. This is what we are talking about, our potential within health care endowment in this province.
In our case, Calgary has approximately $28 million in health endowment. However the majority, or $22 million, is dedicated to pediatrics at the Alberta Children's Hospital. Approximately $6 million is in an unrestricted fund at the Foothills. These two endowments have taken on new value in our community as a result of a current spending cut in health care. It is now our opportunity to build on these endowments for the future. To do this we need your help in encouraging large gifts of capital property to build these endowments.
Finally, I want to comment on the perception of health care fund-raising within our sector. Health care fund-raising will become much more prominent within our communities. Sometimes the success of health care fund-raising is seen as a negative by some in our sector. However, we believe health care fund-raising benefits the community as whole.
In addition, the ability to raise the quality of care for all members of our community is paramount. In fact, if you walk through our hospitals you will see that most of our patients are not the well-educated and the wealthy, but they benefit equally from the generosity of those who give.
To summarize, the Foothills Hospital Foundation proposes two recommendations to the committee: number one, please don't do anything to crown foundation status; number two, please exempt gifts of appreciated property from capital gains tax.
The Chair: Thank you, Ms Palmer. It's a very important area for us.
Next we have Tim Madden and Larry Whaley from the Borrowers' Action Society.
Mr. Whaley: It will be me the first time and then Tim will chip in during the discussions.
I want to thank you, Mr. Chairman and members of the committee, for coming to Alberta again to hear us. We made a presentation to you last year in Edmonton. At that time we said you were asking the wrong questions and as a result you were going to get the wrong answers. As it turns out, we were wrong. You did ask the wrong questions, but in spite of that you got the right answers from a very significant number of people.
Those answers resulted, I understand from your report of last year, in your holding a special meeting of people you called experts and whom I would call vested interests to review what amounts to three questions.
Let me remind you who those vested interests were. They were, first of all, private bankers; secondly, officials from the Bank of Canada; and thirdly, some academics, according to your report. We don't know which academics, or why or who or how they were selected.
.1710
The answers to the questions you asked were, in all cases, no. Those questions, I would remind you, were as follows: should the government have the Bank of Canada lower interest rates? Should the government have the Bank of Canada monetize the debt? Should the debt be repatriated?
I think those are the questions you should be putting to the people here today rather than the questions you are putting, which are again the wrong questions. You should be putting those three questions to the people here and you should broaden the number of people you involve in the discussion. You should put those questions to the population at large.
You should add two more questions to that list. The first would be this: should the GST be replaced with a financial transactions tax? By that we mean a tax on all financial transactions, or if you wish, some financial transactions, but certainly making sure you don't miss the currency traders and the people who like to bet against the country in currency and who like to trade on the stock market. So that would be the fourth question.
The fifth question should be whether the Bank of Canada should provide low- or near-zero-interest loans to provincial governments for the purpose of repaying debt for funding infrastructure projects, environmental projects and job creation.
Ask those five questions to the people of Canada rather than to the special interests you asked last year and I think you'll get quite a different answer than the answer you got from those particular interests. If you do that, if you create a debate in this country around the real issues, which I think are identified in those questions, you will soon find that the vast majority of Canadians can look beyond the rhetoric we get from the right-wing think-tanks and the bankers and can come up with real solutions that will solve Canada's real problems.
Suggesting we hack more social programs without thinking about whether or not those programs are providing valuable services, whether or not those programs are being changed simply for the sake of saving money or whether they're being changed to improve the program is of no use whatsoever. Those vested interests will scream bloody murder if you start that debate, but you'll solve Canada's problems.
The Chair: It's important for us to have you here to raise those issues before us.
Mr. Gallagher, please.
Mr. Frederick Gallagher (Representative, Pembina Institute): Thank you very much for making a little time to listen to what I have to say. I apologize for jumping in at the last minute. Due to the weather changes outside, I had to substitute for other people in our particular area.
I'd like to focus on the question of jobs and growth in terms of what budget measures should be looked at. I wanted to have you understand where we're coming from.
I'm representing the renewable energy sector. Locally here in Alberta I've been working with the Alberta electrical industry restructuring. I wanted to focus on the renewable energy sector and what jobs and growth may mean in that particular context.
We have a wind resource in Canada that's really second to none in the world. In Alberta, which I'm most familiar with, there is a wonderful wind resource which, if it were located anywhere else in the world, would have already been quite heavily utilized. The availability of this resource is significant across the country - Quebec, Ontario, the prairie provinces, and also British Columbia.
It's well tested throughout the world in a number of different areas. It creates jobs of significant proportion in a number of places. I'll just quote a couple of California figures so you know what a fully developed wind-electric industry means. This comes from a publication by a gentleman named Paul Gipe. Apparently 460 jobs per terawatt hour are created directly, and approximately 1,500 indirectly.
.1715
On the Alberta resources I'm most familiar with, an NRCan study done a year or two ago indicates there are somewhere between 700 and 1,500 megawatts of capacity in the province. I'll translate that for you into some two to four terawatt hours per year of electric energy. That translates into approximately 1,000 jobs directly here in Alberta and 3,000 jobs indirectly. I'm just talking about the southern Alberta resources at this time.
I wanted to talk to you specifically because there is a major impediment within the Income Tax Act with regard to investment in the renewable energy sector. I wanted to highlight that. It's in the CCA class 43.1. It's called the specified energy property rule. It's applicable only to the renewable energy industry and some of the energy efficiency areas. It essentially restricts the ability of the renewable energy industry to utilize the CCA class as it was originally designated in terms of scale of the write-off and the speed with which the write-off was originally intended.
Currently, the specified energy property rule forces renewable energy projects to write their expenses off against only the existing revenue within the project, or they're able to go to an energy business or a principal business corporation for financing where it can be flowed through. Unfortunately, the principal business corporation rule forces the renewable energy sector to rely on competitors in the fossil fuel industry to be their investors because they are not able to flow the tax benefits out to any other investors in Canada.
Consequently, while the fossil fuel industry is a good investor in energy resources throughout the country, it is essentially restricted somewhat in its investment here simply because they have much better flow-through options available within the existing traditional fossil fuel sectors.
I wanted to bring to your attention that we have a tremendous resource throughout Canada in the wind-electric and renewable energy sectors. It is not being utilized today largely because of a single rule.
The Chair: Why, Mr. Gallagher, would the traditional energy sources even want to facilitate the investment in renewable resources?
Mr. Gallagher: That's one major stumbling block. However, there are parties interested in investing in the renewable energy sector who are part of the traditional energy sector. But you're correct. It is a competitive situation and they have much better tax advantages within their own sector. So why would they invest?
The Chair: Have you given us details of this in a written submission?
Mr. Gallagher: No, I haven't because of the time, but I can create a synopsis for you.
Mr. Marr-Laing: I too would like to thank the committee for the opportunity to speak to you.
I believe you have our comments from the Pembina Institute, both the speaking notes and the detailed briefing behind it. The context of our comments is couched in pronouncements made initially by the Minister of Finance that the Department of Finance will continue to review the tax system to determine whether the current income tax treatment of energy efficiency, renewable energy and non-renewable energy investment is appropriate and if further improvements can be made. That's one.
Secondly, a recently signed document by the cabinet indicates that NRCan will reorient its energy policy from a traditional focus on supply to an increased emphasis on efficiency alternatives and renewable energy sources as well as environment and development.
Pembina Institute is an independent non-governmental organization that focuses on energy policy and research. We're a bit of a think-tank in northern Alberta. The person who's done a year's worth of research on this, Stephanie Cairns, whom some of you may know, unfortunately couldn't make it down due to weather considerations. I'm only the executive director there, so I'll do the best I can in the next few minutes to highlight the points we want to bring to you. I'll restrict my comments on the paper to just the two initial areas, not the three we have.
.1720
The research we have done has identified for us a number of barriers that currently exist towards energy efficiency and alternative renewable energy. We think there are some easy-to-do tax reforms that will help to eliminate these barriers. It's important to consider these reforms as a package in order to ensure revenue neutrality.
The first deals with energy efficiency retrofit. We think it's important to equalize tax treatment for investments in energy efficiency with those treatments for supply-side investments. Such retrofit investments do not receive favourable tax treatment at the same level that is provided to investments and tax supply. In fact, they're penalized by the tax system, and the details you have there will explain that. In effect, it means that investments in energy efficiency, which are being promoted at the policy level, are providing an interest-free loan to the government.
My colleague has addressed a number of points and there are a couple I wanted to add. One is the importance of relaxing the specified energy property rules for investors in CCA class 43.1.
The second is the importance of broadening qualifying expenditures under CCA class 43.1 to include other alternative forms of energy that are now omitted, or to create a new CCA class for such investments.
The third would be that it's important to equalize the availability of flow-through shares across the energy sector. The availability of flow-through shares solely to the hydrocarbon and uranium sectors puts other energy industries, such as the renewable energy industry, at a disadvantage in attracting capital investment. This barrier to accessing capital is exacerbated by the restriction on passive investors that is contained in class 43.1.
The combination of these two conditions means that renewable energy products cannot access the venture capital available from venture capital funds, pension funds, insurance firms, etc., in the same way as the petroleum sector. The flow-through shares could be extended to a broader base of energy industries without increasing government tax expenditures by applying more restrictive rates or criteria to the deduction.
The Chair: Good.
Mr. Marr-Laing: I'm not quite finished. I'll try to speed it up here.
With respect to the conventional energy sources, we think there are a number of opportunities around the treatment of CCA, CEE, and CDE. One is to move development costs and successful wells from the Canadian exploration expense into the more suitable Canadian development expense or CCA categories of deductions.
We think it's also important to eliminate the ability to reclassify the up to $2 million of Canadian CDE and CEE as flow-through shares.
The last one here would be the importance of reducing the rate of deduction on CCA class 41a, new mines and major expansions, to a rate closer to that provided to other energy assets, or to a rate that more closely reflects the production life of these assets.
There is one last point I want to bring to you. I didn't have the opportunity to be here this morning when I understand Eric Newell, the president of the National Oil Sands Task Force, was speaking with you. The work we've done on the same issue and the proposals we're making try to raise the point that it's important for the government not to make new mistakes with respect to megaprojects. It's important that any new tax measures under consideration be evaluated to assess whether or not they are creating barriers to a transition towards a more sustainable mix of energy sources. We think the most important issue with respect to that - the litmus test for whether or not you're doing that effectively - is how you treat the request by the National Oil Sands Task Force.
Providing further subsidies in the form of tax expenditures to artificially direct more private sector capital to the oil-sands industry directly contradicts federal commitments to stabilize greenhouse gases and to end subsidies for megaprojects. Specifically, the oil-sands expansions are by any definition a megaproject. If the expansions that are being proposed are developed, production will increase by as much as three times, and the investment plans we're talking about are $21 billion to $25 billion. By any definition, that is a megaproject.
The tax changes that are being proposed and are being sought from you folks are clearly subsidies. The proposed changes to the tax treatment have been estimated by Informetrica to constitute a $702 million federal tax expenditure over the next eight years. An equivalent one from the Alberta government for $2.14 billion is also being requested. The oil-sands are already receiving extraordinary tax treatment. This should be reduced, not improved, if the federal government is truly committed to a level playing field.
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A recent study by NRCan shows that the federal tax uplift as a percentage of capital costs is 6% to 14% higher for oil-sands than for renewables, 13 or 14 points higher than for natural gas or conventional oil development, and 30 points higher than for an energy-efficient retrofit.
Lastly, the oils-sands represent a wrong energy vision for Canada. The upstream greenhouse gas emissions from oil-sands crude oil are four times higher than for conventional crude oil, and two times higher than that for natural gas per unit of energy. Sulphur dioxide emissions from oil-sands crude are twelve times higher than for conventional oil, and four times higher than for natural gas per unit of energy. Nitrogen oxide is three times higher from oil-sands crude oil than from conventional oil. The preliminary life cycle of greenhouse gas emissions for gasoline from oil-sands is 16% higher than for gasoline from conventional crude.
Thank you.
The Chair: Thank you.
I'll leave it up to you. Do people want to take a break before we go questions, or do you want to go right through?
[Translation]
We will now go to the question period.
Mr. Brien (Témiscamingue): Mr. Pitts, you suggested various measures to reduce the deficit and you talked briefly about integrating the social safety net, that is integrating welfare, unemployment insurance and education.
Do you think it is possible to do this when two levels of government have jurisdiction in these areas, each with their own political agenda and goals, or do you mean there should be only one player with global responsibility for welfare, unemployment insurance and education?
[English]
Mr. Pitts: I think it should be one player.
[Translation]
Mr. Brien: Which one?
[English]
Mr. Pitts: The federal government.
[Translation]
Mr. Brien: We agree on this point. You also talked about eliminating the deficit within two years. Do you believe, realistically, that Canadians are ready to accept a series of measures - because it would take some very radical measures to bring the deficit down to zero in two years that would reduce the deficit or eliminate it totally over such a short period?
[English]
Mr. Pitts: Frankly, my answer is no.
[Translation]
Mr. Brien: I had a question for Mrs. Aizenmann, but she left.
The Chairman: Maybe Mrs. Aizenmann is afraid of you.
Mr. Brien: When she comes back -
The Chairman: You will be able to ask her a question. Meanwhile, do you have a question for somebody else? Yes, Mr. Crête.
Mr. Crête (Kamouraska - Rivière-du-Loup): I have a question on the wind industry. I found what we heard very interesting and I think it is important for members of this committee to be made aware of its potential.
.1730
Very often, even people who are not very old - I'm in my forties - view alternative energy as something a bit far-fetched, pie-in-the-sky. Myself, I took part in a symposium on wind energy and developing a windmill park in my area, the Gaspé.
Could you tell us a bit more about what would be required to allow this industry, which provides clean energy, to take off and to maximize its potential in terms of market share. What market share can you expect on a time horizon of 5, 10 or 15 years and what would be required in order to make it happen?
[English]
Mr. Gallagher: To address your first question on how we can make the industry take off, one of the key things we have identified is the serious impediment in the tax system in terms of the initial investment in the wind industry.
The wind industry has been operating on a large scale for the last 10 to 15 years, and during that time many technological improvements have been made that have made it very cost-competitive. However, it's a long-term industry with respect to return. We're talking about an infinite resource that can be captured and renewed over our lifetimes and those of our children. Consequently, the return is not high per year, but over an extended period of time it's a tremendous return.
As I was trying to say, the current tax regime for CCA does allow for an accelerated write-off period. If we could actually use that, I think renewable energy projects would be economic and could start to become significant in this country. Currently we are not able to utilize the CCA accelerated write-off that is contemplated within the Income Tax Act, largely due to the specified energy property rule and the principal business corporation.
So I think the number one thing would be to remove those restrictions from class 43.1. The second key thing would be to flow the CCA through to private and individual investors. Much as the oil and gas industry is able to take risks in their industry and pass them through to investors, those tax incentives should be passed through.
Over the next 10 to 15 years we could look forward to seeing somewhere in the order of 500 megawatts to 1,500 megawatts of capacity. That may not agree with what is in the CanWEA submission that you have, but I could get you further information on that. It largely depends on how quickly we'd like to see the industry develop in the country in removing those impediments. That 500 megawatts to 1,500 megawatts is approximately 20% of capacity of the province of Alberta, if you are looking for a comparison.
[Translation]
The Chairman: Mrs. Aizenmann just came back.
Mr. Brien: Mrs. Aizenmann, you talked in your presentation about national standards and suggested the federal government should play a larger role in this area.
There appears to be a wide gap between your suggestion and the present direction taken by your provincial government. Is it not somewhat indecent for the federal government to tell provinces that it is going to impose standards on them while at the same time giving them less and less money to implement these standards?
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This means, in concrete terms, that federal MPs would go around telling people: "We demand a universal, free and high quality health care system". At the same time, MLAs would have to live with the implications of all this and with reduced funding.
Is it not somewhat indecent for the federal government to require adherence to very high standards, to reap the political benefits of this stand while passing on the political cost to another level of government by withholding the funding required to achieve these objectives?
[English]
Ms Aizenmann: I understand your question and I know it's seen much discussion in the last year, especially since CHST payments have been decreased. But at the same time there has to be a minimum basic standard, but with quality standards.
I realize that you can't exactly tell the provinces what to do, but as a Canadian with the federal government, if I am going from province to province, If I have freedom of mobility, especially when it is needed in the job market, I would like to have the same standard in this area from one province to another.
I respect your question. I know there is some difficulty there, but I think that if the provincial and federal representatives sat down and used a collaborative approach, we could reach an agreement that would not affect quality in this particular area. I think it can be done with decreased dollars - I realize this is necessary - but there has to be a collaboration. If that can be achieved, it would be a credit to both the provincial government and the federal government.
[Translation]
Mr. Brien: If I understood you correctly, you say that the provinces should have a role in defining the standards.
[English]
Ms Aizenmann: There has been some discussion in my province as to what basic care is. I was present at a discussion when Dr. Hedy Fry was in the city. She spent considerable time explaining the terms to us. The province wants the federal government to define what is basic under the Canada Health Act. If I am correct, the federal government came back and did not assume a position. There has to be a compromise without confrontation.
[Translation]
Mr. Brien: Thank you.
[English]
Ms Ahmad: I would like to emphasize that from a post-secondary education perspective as well, because national standards are something we've been pushing for.
It's our hope that if the federal government is indeed in favour of small government and effective resource allocation, it will take steps toward guiding post-secondary education in Canada from a federal perspective. We currently have eleven ministers dealing with post-secondary education, and eleven departments setting policy and direction for education in the provinces. We may as well have ten provinces setting the agenda for post-secondary education.
If we can explore the cost-saving initiatives that are out there for post-secondary education, it will reduce duplication of academic services and effective resource allocation can be accomplished.
Mr. Walker (Winnipeg North Centre): I'd like to address my questions to Nancy Palmer on the issue of gift gifting. There are two or three areas I'd like to pursue.
First, as I understand the representations from various groups, including at the round table last week in Ottawa, your greatest preoccupation is on the capital gift side, not on the annual gift giving. I just want to clarify your priorities.
Ms Palmer: That would be accurate.
Mr. Walker: If you were, for example, Colorado College instead of Foothills - or maybe if you were Foothills, and the chairman of the board said he noticed that Colorado College went from $11 million to $113 million in - how many years -
Ms Palmer: In 25 years.
Mr. Walker: - in 25 years, and he wanted you to do the same thing, what would it take for you to be able to do that? What steps would we have to take to make it possible for you to build up an endowment at a hospital?
.1740
Ms Palmer: With respect to the first question you asked, allowing an exemption from capital gains tax for appreciated property would be a significant help for us to be able to access that kind of capital. Crown foundation status would hopefully have a significant impact as well, but that's somewhat untested at this point.
As for other types of vehicles that are available in the U.S., there's a plethora of them. Something we would like to see is the ability to work on bringing some of those other concepts up here so we can offer a variety of different types of vehicles.
We realize that the most important thing that could happen, which would have the most significant impact for us right now, would be the gift of appreciated property without capital gains.
Mr. Walker: I was struck many years ago at how the University of Winnipeg - the story happened close to 20 years ago - on a very small budget, ran a million-dollar surplus. The provincial government came in and said that it was not going to give them any money until they blew off that million dollars. If we make these tax changes, should we be concerned about changes in provincial regulations and strategies if you're able to use a capital endowment program to improve your fiscal health?
Ms Palmer: One of the restrictions we're placing on all the gifts that go into this endowment is that they're for advancement, which means advancement in research, patient care, education, and community care. This goes back to that other question about what's basic. We expect that government, in our plan, would be there with the basics, which are continually being defined differently as medical advances take place.
We're saying that this particular pot of money is to be used to enhance the quality of care within a community. There's a restriction on those funds, and those restrictions must be adhered to with respect to the trust relationship between the donors.
Mr. Walker: The two major institutions that I think can take advantage of changes in federal regulations in the Income Tax Act are in fact provincial institutions - hospitals and universities. Are there equivalent measures that the provinces can be taking, or is this something that's totally in our domain although these are provincial institutions?
Ms Palmer: With respect to other entities that would benefit from this specifically, community foundations are another potential entity that would benefit very well from that same sort of change in the tax act, as well as any other charitable organization. But certainly a community foundation's role is to consolidate those private moneys into a community so that they can be used for a variety of types of charitable work.
Mr. Walker: We had a special request from a Manitoba-based group, the Thomas Sill Foundation, that dealt with changes in the Income Tax Act. Is that a widespread problem, or is it something peculiar to the way Manitoba institutions have developed?
Ms Palmer: I couldn't comment on whether it's widespread or not, but I think it gives an indication of the ability to have fluidity in these types of funds and being able to provide seed money in that particular instance. That's the sort of barrier currently within the system that prevents the easy flow of investment moneys into other communities, which is not traditional in the way we've done things before.
Mr. Walker: I have three more questions. You responded to me in private with this answer, and I'd like you to say it for the record. On the question of moving from zero to a fully funded operation in which you're out getting capital gifts and so forth, how long would it take you? Is this something the federal treasury would be hit with next year, or do you see yourself needing five years to get started?
Ms Palmer: I think it's going to come over time. It's certainly not something I would even expect to see as a blip on the screen with respect to making a change. This means, for example, the capital gains change or even the crown foundation activity. That's partly because it's my job to go out there and actually get the gifts. It takes time, cultivation, and education among our community members to make these gifts. Plus, it takes time for the donors to actually make up their minds. These are substantial amounts of money we're talking about.
As it's going to happen over time, we have to create the seeds of thought about that type of planning right now. It would take time for it to actually show up, probably.
Mr. Walker: If the Income Tax Act became effective January 1, 1997, you wouldn't see a fiscal impact for, say, two more years after that, which is by the time it got rolling.
.1745
Ms Palmer: That would be my guess, just because of the level of activity of people like me in the field. There aren't that many people like me out there yet doing it.
Mr. Walker: Is it a very common strategy to have somebody pay the insurance premiums for an insurance policy to be left then with a charitable organization.
Ms Palmer: I don't know if it's common among all the other types of gifts. It's one of the types of gifting vehicles. I just did a recent one where we now own the policy, but it's within the mix of everything else. There are a few of those; there are a few other things coming in.
Mr. Walker: Why is there such a controversy around crown foundations? You've defended in your opening remarks and in answer to one of my questions. We have found other people suggesting that they have a special tax status. What is the difference? What makes a crown foundation distinct and how should we be responding to this?
Ms Palmer: It really only applies to a very small number of donors, and I think there's a misperception about the number of people who are clamouring to get a gift to the crown. You must be making a gift of over 20% of your net income to even qualify, and that would exclude 99.9% of donors out there. There's a bit of a reaction to that notion because it clearly is a significant benefit to a donor; however, you don't have that many people who are in a position to make that type of contribution.
We would like to have the opportunity to see if we are getting more gifts through the crown foundations, if donors are changing their minds on who they give to as a result of the crown status, and whether people are increasing their gifts as a result of the crown status. At this point in time we just don't have enough data and they haven't been in play long enough to get a sense of the impact.
The Chair: Would you like to ask your questions of any other witnesses, Mr. Walker?
Mr. Walker: I have one final question on this point, thank you. Sorry to grill you this way. Are you a member of the Canadian Association of Gift Planners?
Ms Palmer: That's correct.
Mr. Walker: A presentation was made to us in Saskatoon that contained six points. We would very much like to see some of those points expanded upon. We didn't have a chance with that witness. Could you take a look at that and either get back to the researcher or in writing with us?
Ms Palmer: In fact we did have the working document that we left at the Ottawa meeting. We can provide another copy to you.
Mr. Walker: We just want to make sure we understand each of those points.
The Chair: Mr. Grubel.
Mr. Grubel (Capilano - Howe Sound): I would like to ask a question about the people who want national standards.
As a general observation, I think that universities in the British Isles have done extremely well not having national standards and being privately financed. The best universities widely recognized in the United States don't have any national standards.
I have a sneaking suspicion that the idea of national standards has been rejected in the past because people were really skeptical of central power that can be used as well as abused, which can lead to increases but also decreases in standards. That's why every jurisdiction in Canada, in the United States and in England has always jealously guarded its rights to look after these kinds of services - go to the people who pay for them, that it never be usurped by anybody far away.
We heard this morning that many people want national standards now because they don't trust provincial governments anymore. Let me just suggest to you that the provincial governments you don't trust anymore, which have cut back on education and on hospital care, were elected by a majority of people in those provinces.
You may not like this, but I just want to warn you about the following possibility: there might be politicians someday who go nationally and say, we need to cut back expenditures and one of the ways in which we're going to do it is just like those provincial governments - we'll have to cut back everything, including universities and hospitals. What you might get as a result of this, of having now given the authority to Ottawa to set both standards and expenditures, is a national government that cuts you even further than your provincial government has cut you.
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Aren't you afraid of that? What is the great merit? Why do you not trust your provincial government? You could get it fairly easily relative to the national government, but you now suddenly think you would like to trust and entrust business to the national government. I would like to try to understand this, please, with your help.
Ms Aizenmann: I look at the establishment of a line of national standards as a guarantee of equality of life in this country. I realize there are costing factors, but I think that line can be achieved. If you do not have that line from which to work, you can end up, Mr. Grubel, with a quality of life that is very similar to what happens in some of the lowest-income southern American states, if I may use that example.
We want to attract people to our provinces. We want to keep our provinces buoyant. When people look at coming out to Alberta - because this is the province I am most familiar with - they consider such factors.
Once upon a time, you had to meet certain criteria before a great university would admit you. Yes, universities maintain their own entrance fees, as I call them. I have to leave the university area to the vice-chairpeople from the University of Alberta, but there have to be some parameters in which you operate.
I still have some faith in the democratic system, and I do believe people will choose that which eventually gives them a quality of life, be it standard or principled, that defines Canada.
Mr. Grubel: I beg your pardon. I share your faith, all right?
Ms Aizenmann: I'm glad you agree.
Mr. Grubel: But you must understand that the line you want the federal government to draw will always be subject to redrawing at the will of the people. What makes you so sure that the will of the people who get elected in the next federal election will draw that line any higher than it is now being drawn by the provincial government? I can envision our being so bankrupt in this country that the people will turn to a party that will have to cut even more than in the past. Why should I trust your recommendation, both for universities and for hospitals, that Ottawa can be relied on to do that better than the provincial government? You haven't explained that to me other than giving me your faith that somehow Ottawa would be better than the provinces.
Ms Aizenmann: I will defer to the vice-president of the university students' union.
Mr. Ken Myers (Treasurer and Comptroller, Coal Association of Canada): Sorry, could I just expand on the analogy? We're having discussions on welfare and education, but if we expand it into standards for manufacturing cars, electrical components, or medical supplies, are we going to let those standards be dictated by each little hamlet and village in Canada?
Mr. Grubel: With all due respect, if you're trying to sell an automobile and you don't adhere to work standards, which are being set outside this country in Detroit - horror of horrors - if you don't want to do it, you don't have to be in this market. But we're talking about the freedom of individuals at the local level to set their standards because they want their children to have whatever they want to. Why should Ottawa do it?
Ms Hassam: I firmly believe that governments, whether they be federal, provincial or municipal, have a responsibility to listen to constituents. As a representative of the University of Alberta Students' Union and a member of the Canadian Alliance of Student Associations, I sit here representing over twelve major universities. We firmly believe that the federal government has a responsibility to coordinate social programs, including education and health.
By not setting national standards, the government has bigger fears to face. Those include reductions in quality of education. The long-term well-being of the country is at stake. Lacking a flexible and responsible workforce, governmental goals such as job creation and economic growth cannot be achieved.
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There needs to be a dialogue between the stakeholders - and that includes the federal government - to establish and maintain a high-quality and accessible system of post-secondary education. These national standards need to be set so that government at the federal level can reaffirm its commitment to post-secondary education. Also, by the federal government becoming involved with post-secondary education, our nation can remain competitive in the global knowledge-based economy.
The post-secondary education system should be as protected as the health care system is currently protected by the Canada Health Act. These are areas of our country that are vital to ensure that we do remain a country at the forefront of the world.
Mr. Grubel: I think you are wonderfully articulate, and I share all the judgments you make, but you have not told me why you should not fear the possibility that the next federal government will draw those standards lower than they are now.
Ms Hassam: The federal government cannot draw those standards any lower than they currently are.
Mr. Peterson (Willowdale): It's because Reform won't be the next government.
Some hon. members: Oh, oh!
Ms Hassam: Could I just answer that question, Mr. Chair?
The Acting Chair (Mr. St. Denis): Yes, Ms Hassam, finish your point.
Ms Hassam: I don't believe the federal government could redraw those lines without listening to constituents.
Mr. Grubel: But they are. That's why they are elected. They ran on the platform that they would draw them lower and they got elected. What are you going to do if there is a party that says it has to cut them and put them at a lower level and they get elected?
Ms Aizenmann: In that case, you will have to -
Mr. Laughton: In Alberta the provincial government explicitly said it was going to maintain health care standards. It was going to do it at lower costs. That it was foolish for people to believe that is another story. You're incorrect in what you're saying about what the provincial government in this province - the party that formed the government - ran on.
But there's another issue. People may not be concerned about whether the federal government raises or lowers the standards for medicare, but that it be uniform across the country so there is flexibility in the labour force and where it locates, and people aren't making their locational decisions based on the quality of critical social services available to them.
When I talked about national standards, I didn't talk about any levels. I happen to be concerned that there be a high level of health care services in this country. I think health care for everyone is more important than Hawaii vacations for the rich. That's my political point of view, but I'm concerned that it be standardized.
I understand you're an economist, Mr. Grubel, and I think you understand something about the free-rider problem that would result if there were mobility of people around the country and if critical aspects of their lives like health care were being set at a provincial level. I'm quite happy now that we have a regional health authority. If only they were elected in this province instead of being sycophants appointed by the provincial government, we would have much more access to the administration of health care. But I think it's desirable to have a federal government that is also elected democratically ensuring there are minimal levels available to Canadians through the use of fiscal power.
Mr. Grubel: I know you are also an economist and you have heard about Mr. Thibault's famous paper. I just want people who are so convinced that it is the truth and the best world possible to have national standards to realize that there are some very thoughtful people who have also developed the following model. It addresses the questions of efficiency and allocation of resources. It goes as follows: in a dynamic world where people can move, you get within regions some areas where people have high taxes and high municipal services. People who like collectively provided municipal services in large quantities move there and have themselves taxed. Others who prefer to be on their own and look after themselves more than having society look after them go into another region of the city and settle there, and taxes are low.
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There is a very respectable literature in economics that says a world in which people retain their freedom to choose how they spend their money is better than one in which there is one authority that says, no, you can't have high consumption levels; you have to have the ones we think are right. What is your answer to that?
Mr. Laughton: If you could solve the income distribution problem, Mr. Grubel, I would quite agree with you. It is a critical issue to try to see how we can bring in the effectiveness of the price system for allocation purposes.
Mr. Grubel: Is income distribution now being brought in to respond to the questions I raised about the merit -
Mr. Laughton: No, what you just raised about people making their own decisions with their own income. We've made a decision collectively as Canadians. I'm glad we have and I hope we maintain that decision. That's part of the reason I came back to this country and that's part of the reason why my wife, who is not educated at the expense of the Canadian taxpayer, is providing her services to this country. It is because of the quality of the medical system we have, in contrary distinction to the one south of the border. A critical part of that is the uniformity of minimum standards, which is set by the power of the federal spending power.
Mr. Grubel: I do not wish to discuss the American system. We are asking a question, I think a legitimate question, of whether Canadians will be better off having Ottawa set standards. I just want all of you who think you are necessarily going to get more money for your good causes - and they are very good causes, higher education and medicare - in a democratic society to realize that you face the risk, as a result of election, of finding people setting lower national standards. You'd better take this into your bag when you are urging, as well organized as you are, for national standards all the time. I warn you.
Mr. Laughton: You don't need to warn me. I'm quite aware of that danger and I work very hard to see that it doesn't come to fruition. But the issue, at least in my mind, was that it's consistency and not so much the level.
Ms Hassam: Hon. members, while I intend no disrespect at all, we're here today to determine what the financial priorities for the country are and to provide guidance to our elected representatives. Speaking on behalf of more than twelve universities within Canada, I'm here to let the government know we think higher education should be a priority, funding should be maintained, and national standards should be allocated.
In a few years from now, if a new government is elected, it will be our responsibility once again to reaffirm our commitment and the government's commitment to those things. But right now the government in power is here to listen to what we tell them. We as their constituents must be heard.
You must maintain the current funding given to post-secondary education. National standards must be set in consultation with all stakeholders with regard to post-secondary education. A conference is being planned in March to discuss these very things. We certainly hope the government will be represented there.
The Chair: Thank you, Ms Hassam.
Do you wish to respond to that Mr. Grubel?
Mr. Grubel: I find it very interesting that I have heard the words ``must'', ``we insist'', ``you have to'' from the two people who want national standards at least fifteen times this afternoon. I wonder where you have the moral authority to tell people in elected provincial and national governments what they have to do.
I register the view that there are different ways of spending money and there are different priorities. But I can tell you I listened last year to 600 people giving testimony here. There are many other good causes and there are only limited resources.
Mr. Laughton: I am wondering whether Mr. Grubel was referring to me. I don't think I ever used the words ``you must''.
Mr. Grubel: No, not to you, to medicare and higher education.
The Chair: Did you want to sum up, Ms Aizenmann?
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Ms Aizenmann: Yes. Through the chair, I happen to believe in a federal system of government. I believe in a system where the federal government has certain responsibilities that affect individuals. Call it quality of life, call it national standards, there is a responsibility there.
As I said earlier, a compromise can be worked out where that goal is met. In terms of cooperative federalism or evolutionary federalism, call it what you wish, yes, in a day and age when we are short of dollars, the question that has not yet been addressed from a different point of view is that you can sit down and arrive at a consensus, at an agreement. I have to believe that.
I would prefer, Mr. Chairman, if some concern was expressed about the disparity between where different sources of revenue come from, given the way in which sources of revenue are leaving this country. So far nothing is being done.
I'd like to go back to your comment on a transfer action whereby fleeing capital is ``attacked''. I find it incomprehensible as an ordinary person where $500,000 is as much as you need to establish an offshore capital trust fund and the federal government can't get its hands on it. I know I'm going away from the issue, but I would suggest that Revenue Canada be involved in some creative problem solving so this money does not leave the country and we have some funds to do some of the things we as Canadians consider essential.
[Translation]
The Chairman: Could we go back to Mr. Crête for a minute?
Mr. Crête: The discussion you had over the last few minutes really goes to the heart of the issue. Indeed, for the system to be efficient, it needs to be transparent. But, you're urging the federal government to establish national standards while the government which is responsible for these areas does not have sufficient taxation powers. If they ask their voters to pay more, they will automatically lose the next election.
Wouldn't the solution rather be to clarify the areas of jurisdiction so that the provinces that are responsible, for example, for education or health care also have the responsibility to raise taxes? We would then be able to assess their overall efficiency. In other words, they would control both the revenue that comes in and the spending that goes out. In this way, voters would be able to see if they really do a good job or not.
In a system where we elect a federal government on its ability to raise taxes and to spend money everywhere, we're unable to assess if it spends our money efficiently because the spending is being done by another level of government. Is this not the source of all our present fiscal problems or of a large part of Canada's fiscal problems? There is no one in charge of the spending taps.
[English]
Mr. Laughton: I was trying to respond, without success. I don't know whether this question was addressed to me or not.
The Chair: Sorry. I couldn't hear you, Mr. Laughton.
Mr. Laughton: I've been trying without success to make this thing work. Is it relevant?
The Chair: I think we had better get you another one. I'm sorry. We will do that.
Ms Aizenmann: I will attempt to respond to your question. You have now raised the question of devolution, if that is the correct term, of additional taxing powers to the province. Once you continue to give whatever to the provinces, you have to ask the question: what is the purpose of the federal government?
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On a positive note - and I wish to move in a different direction because it's easier and much more concrete to deal with - I have absolutely no difficulty with certain areas of economic activity being given to the provinces. I wish them well. Let there be competition in those areas. The best example I can think of is in tourism. In some of the resource industries, environmental standards prevail. I think there should be some discussion as to what areas can be given to the provinces without some of the difficulties we are experiencing in the human resource and human development areas.
[Translation]
Mr. Crête: Tourism is a good example. There are areas where governments could decide to pool their resources but it would be totally useless to have national standards with regard to attracting tourists when each region has its own features, a different capacity to draw tourists and different ways of doing things.
In a federal perspective, could we not clearly define the role of the federal government, giving it a mandate, for example, to deal with international relations and other such things? This could be the result of a national consensus. At least, it would be clear that the areas for which the different levels of government have jurisdiction are the only ones where they have taxation power.
When you have the taxation power and you can spend wherever you want, it is obvious that this leads to a waste of money.
[English]
The Chair: Do you want to respond to that, Mr. Myers or Ms Aizenmann?
Mr. Myers: No.
Ms Aizenmann: I think this is the great challenge, besides deficit reduction, that faces the present government and possibly the government that will succeed the present government. This is one of the great challenges, one of the great issues. We have to sit down and deal with it.
Mr. Tim Madden (Director, Borrowers' Action Society): I'd like to respond to the issue of efficiency, taxation and waste, that type of thing.
The Chair: I'll tell you what. I don't think that was the issue.
Mr. Madden: Oh, yes.
[Translation]
The Chairman: Answering Mr. Crête.
[English]
Mr. Madden: Is everyone familiar with what is called a merchant discount on a Visa or Mastercard transaction? I'll explain what it is. If you go to a store and charge $100 to your Visa card, the merchant will take the signed credit slip to the bank but doesn't receive $100. The bank takes an approximate 3% handling charge off the money, advances only $97 to the account of the merchant and then bills the cardholder for the full $100 at the end of what is called a grace period. That 3% handling charge is also applied to the 7% GST and whatever provincial sales taxes are charged through the credit card mechanism.
In this country the chartered banks are collecting some $200 million a year that they're skimming right off the top of the GST revenue being run through these cards. These charges are expressly exempt from the tax under the GST act, yet they are being collected anyway.
We have talked with Revenue Canada, which doesn't seem to care. In Ontario today they're talking about drastic changes to the welfare system in order to save $50 million a year. At the same time, through these hidden transaction charges you're losing some $200 million a year that's slipping through their fingers because they simply won't deal with the real issue.
Since we first pointed this out in 1992 to the committee in Ottawa investigating credit card interest rates, the chartered banks have skimmed $1 billion in provincial and federal sales tax revenue through this mechanism. It is wholly illegal.
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They won't deal with it because the 3% charge on a $97 advance for 21 days represents interest collected at 68% per annum. American Express charges up to 5%; 5% for a $95 advance in exchange for a 21-day grace period is interest at an annual rate of 144%. Fully one-quarter of their gross revenue, $500 million a year being one-quarter of $2 billion, is collected in violation of section 347 of the Criminal Code, the loan-sharking provision.
Now, the Senate banking committee in 1981 expressly recognized that commercial practices would routinely violate this law, and they specified that criminal prosecutions would be subject to the discretion of a provincial attorney general. Therefore this whole system that has been -
By the way, it is illegal in Great Britain, and has been since 1990 when the rate in Britain was found to be extracted through the operation of a complex monopoly and was ``grossly excessive'', to use the British monopoly commission's words. Their average rate was 1.8%. The average in Canada is 3.1% and ranges up to 6% for American Express.
A good, healthy national economy grows at an annual rate of about 3%, yet you have these private corporations skimming 3% off every single transaction and you wonder why the tax system is inefficient.
The Chair: Will you do me a favour? Give me that in detail and I'll look into it.
Mr. Madden: I will certainly do that.
The Chair: Mr. Fewchuk, please.
Mr. Fewchuk (Selkirk - Red River): Somebody mentioned there was a showdown here in Calgary. I guess we kind of carried over for awhile, but thankfully it has cooled down.
To that question, do you feel the health minister played a role by putting the squeeze on Alberta in not going to transfer moneys from Ottawa? Did that help by changing the minds of the government here on the health issue?
The Chair: I believe Ms Aizenmann had mentioned that.
Ms Aizenmann: Would you repeat the question? I just can't hear it.
Mr. Fewchuk: It was in regard to our Minister of Health. Did she play a role by putting the stop of the payment to Alberta? Would that help your situation by forcing the other day's decision to stop on health? Did she play a role by forcing Alberta?
Ms Aizenmann: The hon. minister had made her position very clear a good year ago. That is the position she has taken, I believe, and it is an expression of the basic principles of the Canada Health Act. She is doing what the Canada Health Act requires her to do as the Minister of Health.
Mr. Fewchuk: Thank you. I was just curious.
The Chair: Mr. Laughton.
Mr. Laughton: When you're dealing with a government that refuses to admit that kindergarten is a valuable part of education, you can't understand what their motivations are for doing anything. I don't know whether Ms McClellan's change was due specifically to the pressure coming from Albertans from other sources, or whether Ms Marleau contributed to a general environment where the Klein government was under attack.
The Chair: Mr. St. Denis.
Mr. St. Denis (Algoma): I have a question for Mr. Whaley, with whom I have been acquainted for ten years now, I think - Kelowna, B.C. Although we don't share -
The Chair: He seems slightly reluctant to admit to this relationship, Mr. St. Denis.
Mr. Whaley: It's been rather sporadic. If I bumped into Mr. St. Denis on the street, I am not sure I'd recognize him, but nevertheless we have met in the past and I'm sure he's familiar with the positions -
Mr. St. Denis: I'm very familiar with that. The borrower's advocate goes back to the days of the fight over variable bank interest rates and so on.
I just wanted to focus, Mr. Whaley. I think there is a difference in philosophy that was debated last year in the pre-budget consultations, that has been debated again this year and that no doubt will continue. It is to what extent the federal government and/or the Bank of Canada should be involved in determining interest rates.
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We'll probably not settle it here, but one of the problems I have difficulty understanding - if I understand your submission, and it might be helpful for others to hear your argument on it - is how the Bank of Canada, in lending money to the provinces at low interest rates, could really in the long run benefit the provinces, which might not feel the pressure to borrow less money if they're getting such concessional rates on the one side. And what does that do to those who have money? Money doesn't have boundaries; it moves in and out of the country. Isn't there a deleterious effect on those who have control of large sums of money when an action like that might be taken by the Bank of Canada to predetermine rates like that?
Mr. Whaley: Are you asking me if the people who have money would be upset by that idea?
Mr. St. Denis: You answer it the way you want.
Mr. Whaley: If that's the question, the answer is obviously yes, they would. They would not benefit from that program, but the country as a whole would benefit.
Quite frankly, the people who would lose out by not receiving interest that is currently paid to private people, and that would be paid instead at a much lower rate to the Bank of Canada - That money would benefit everyone through job creation and all the other kinds of programs that would be involved. The effect, of course, would be that the people who have investments would be unhappy. But if the provincial debt is in the hundreds of billions of dollars in total, presumably the Bank of Canada would have to borrow some money at higher rates to lend it at lower rates.
Mr. Whaley: No, not at all. I think I'll ask Mr. Madden to respond.
Mr. Madden: Let me explain the process to you. When a chartered bank creates a loan - say, for example, you want to buy a $100,000 house and you need a mortgage. You go into a chartered bank. A chartered bank has a legal right under the Bank Act to create a loan account in that amount based on the security put up by the borrower. It functions in the same manner of that of a pawn shop, except that a chartered bank and only a federally chartered bank has a legal right to create the money loans against the asset. From 1934 until about 1970 the Bank of Canada created essentially a peak to 28%, I believe, of our money supply in 1970; I could be mistaken on that.
The problem with a chartered banking system as the sole source of new money into the economy is that it only ever creates money as debt, as principal, and never creates the interest needed to pay the thing. If you have $100 billion created as debt money, a year later if the interest rate is 10%, you owe a total of $110 billion, yet only $100 billion was ever created. The total debt must as a physical law get larger over time.
If, say, the Province of Alberta wanted to borrow to retire all of its outstanding debt, the Bank of Canada could just as easily take the general assets of the Province of Alberta, create $50 billion to pay off all our debts -
Mr. St. Denis: Print money -
Mr. Madden: No, it's not printing money. It would be assuming the liability or monetizing the asset. The money would be used to retire all of the interest-bearing debt and the province would use the money to monetize schools, roads, hospitals, public infrastructure debts.
The reason we have such a horrendous debt problem today is that the Bank of Canada is choosing, as a matter of policy, to create only the 2% of our total money supply that is in the form of paper currency created by the Bank of Canada. The other 98% is created in interest by these privately owned institutions on Bay Street. The Government of Canada could just as easily choose -
When the Government of Canada goes to borrow $1 billion on the market, the banks create that money out of thin air on the strength of the general security of the nation of Canada. As long as you are rolling over the interest into new interest-bearing bonds every year, the money is being created anyway.
If you had a $200,000 house for sale and someone came and offered you $200,000 worth of Canada savings bonds, would you take it? I mean, it's money. The only difference between currency and a bond guaranteed by the Government of Canada through the Bank of Canada is that the bond pays interest and the currency doesn't. So as long as you're creating new bonds every year - Last year the Government of Canada printed a net $1 billion in currency, but it also created $40 billion worth of new money in the form of bonds guaranteed by the bank, just by rolling over the interest. As I say -
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Mr. St. Denis: It's an interesting theory. I'll undertake to study it -
Mr. Madden: No, no, no. The Bank Act was amended to allow that to happen. It's not just a theory.
Mr. Whaley: For a clearer explanation of that, read the last page of our brief, which is called ``fun with numbers''.
The Chair: We'll be pleased to. Did you get your five points from Jack Biddell, or did Jack Biddell get them from you?
Mr. Whaley: I'm not sure we share the same five points. Do we?
The Chair: Yes.
Mr. Whaley: Oh, good. I certainly have a good deal of respect for Mr. Biddell.
The Chair: And he for you.
Mr. Whaley: Well, good. I wasn't aware that he had the same five points, but we have talked to each other on rare occasions - less often than I've spoken to your colleague.
The Chair: I think we've come to the moment where I ask each of you to take thirty seconds to summarize your points.
Ms Hassam: Can we ask two brief questions?
The Chair: It has to be really quick.
Ms Hassam: The first one will probably offend the members of the committee.
The Chair: Just do it.
Ms Hassam: If this is the Standing Committee on Finance, something that's very important to the federal government, why have there been no more than five MPs here?
Second, to the Liberal members, what is your opinion on the government's involvement in things like post-secondary education and health care? Where do you see that fitting into the federal agenda? Do you think you should be involved or not?
The Chair: We're here to find out. We know that to a certain extent we're involved right now through our funding, and that funding is diminishing. We've listened to you.
In terms of the number of members who are here, we have six members of Parliament here right now. Our full committee is fifteen, but we split in two and we're travelling across the country. So you have more than a quorum; you have a very strong representation. All of these things are summarized and recorded and everything else, so I don't think you have to worry that -
Ms Hassam: Thank you for meeting my concerns on that.
The Chair: Let's have a fast summary. If anybody takes more than thirty seconds, they get charged 25¢ for every second they're over.
Ms Ahmad: Our four points are as follows: that you reevaluate the Canadian health and social transfer and establish new established programs financing that will reprioritize the need for an educated populace. Current funding for post-secondary education should be sustained for four years. We hope the federal government will be involved in the conference that's coming up at the end of March. We hope that a national education act will be formed.
Mr. Marr-Laing: A question was asked about the renewable energy industry, and I want to say that in addition to the potential for that, the potential for energy efficiency industry in this country is huge as well.
In our brief we tried to identify some tangible things on how you can fine-tune the tax system. Without getting into a big philosophical debate about that, I would encourage you to look through them. As well, look carefully through what we perceive as the smoke and mirrors being presented by the National Oil Sands Task Force.
Mr. Whaley: Before he left, Mr. Elton reminded you that various provincial governments have taken different approaches to the problem of deficit and debt. I would point out that they do not have the fiscal tools that the federal government does. I would urge you to look at the five points Jack Biddell presented to you and create a national debate on that, because the way you're going is not going to do it.
The Chair: Mr. Madden, did you want to add anything to that?
Mr. Madden: No, that's okay.
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Mr. Casey Vander Ploeg (Representative, Canada West Foundation): In summation for Dr. David Elton, I would let his comments stand as he made them at the beginning of the session.
Mr. Laughton: Maintain enough federal spending so that there are national standards in social programs. By the way, they don't include education, in my mind.
Mr. Myers: We spend $49 billion a year on interest. We have to get our debt under control so that we can have all the social and education programs that we need in the future. But we need to set our priorities immediately to get our debt under control.
Ms Aizenmann: As transfer payments decrease because the deficit targets have to be met, there still has to be a role for the federal government, in health care especially. Government sources of revenue can be found by judicious use of taxpayers' dollars. I believe you should be looking at government's waste of money, an issue I did not address due to lack of time.
Mr. Daly: As I mentioned earlier, I'm quite concerned about the volume of tax breaks and the fact that very little has been done to straighten them out. I'm also concerned that there are a lot of inequities in our social programs.
I was strongly tempted to say something about health care. The whole question of national standards has arisen in this province because of statements from our premier, who wants the government to set national standards for specific items in health care. We're concerned. I brought copies of this along that each of you can take with you.
Mr. Pitts: On behalf of seniors, there are likely going to be cuts in pensions. Those cuts should not be too deep or too severe, because seniors spend their pensions. They've paid for their houses. They've paid for their cars. Cuts have to be fair, and as I said earlier, 55% of the volunteer work done in this country is done by seniors.
The Chair: Thanks, Mr. Pitts. Did you lie about your age?
Let me summarize very quickly. Dr. Weiner, granting councils, a strong plea - I agree with them. Ms Kay, equity financing for new small businesses - excellent point. Bill Daly - a very interesting comparison in differentials that occur in various of our programs.
Mr. Daly: We have copies of our submission.
The Chair: We have those, thanks.
Ms Aizenmann - a very strong plea for the Canada Health Act and standards, and many other people around this table joined with you in that plea. The Coal Association - among all the points you made, I think we could really save some money and a lot of time with regulatory reform, working at all three levels of government to clean up the regulatory nightmare.
Mr. Laughton - a very strong plea for replacing the GST by the income tax. The committee rejected that last year on the basis that income taxes are already at unacceptable levels and Canadians would not accept a further increase, although there is merit in what you say. The inheritance tax is still on the table, and we have to look at it.
I think David Elton made a really gutsy proposal. Everybody around this table knows that we have to deal with the deficit. Canada West Foundation looked at our two biggest expenditures apart from interest - $20 billion apiece on seniors' pensions and UI. He said we should evaluate them and ask whether they are really going to people who need them. He said $7 billion of that $20 billion for pensions goes to individuals with income over $25,000, and 40% of UI goes to people who are members of families with incomes over $50,000. I think this type of question should form part of the debate as to our future spending priorities.
Members from the Borrowers' Action Society want lower interest rates, don't want the debt monetized, agree that we should be working to repatriate the debt, and we are.
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As to the Bank of Canada lending to the provinces at low interest rates, we've broached that point. I want them to lend to me at low interest rates too. We've seen other countries in the world that have done that, such as the Weimar Republic and Brazil. We've seen countries simply print the money in order to pay off their debts. If it's that simple, I'm going to keep looking under my pillow for the tooth fairy. I hope I find it, because then none of us will have to suffer and everybody's wishes will all come true, because Ottawa can fund anything.
We've had very interesting propositions made to us on alternative energy and retrofits. I didn't think I'd come to Alberta and hear people attack the tar sands. It's good for us who don't live in Alberta to find these things out as well. I think that is true right across this country. There aren't too many things we're unanimous on.
Students, you made an extremely strong plea for federal involvement in post-secondary education. You were part of this debate about increased federal presence in areas that have traditionally, or constitutionally, been under provincial jurisdiction. There was a very vigorous debate today, sparked largely by Mr. Grubel on one hand and Mr. Crête on the other, and we've heard your response. You have talked about the necessity to do it. The big issue is whether we as a federal government are going to have the ongoing means to use cash to make these things happen.
It's been a fascinating afternoon. On behalf of all members, may I thank each one of you very much.
We're adjourned.