EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, January 22, 1997

.0928

[English]

The Chairman: Can we come to order. I'm going to suggest that we start. We will try to accommodate any witnesses who arrive late. There'll be no problem with that.

We have with us as witnesses today: from the Canadian Magazine Publishers Association, Catherine Keachie and Paul Jones; from the Canadian Restaurant and Foodservices Association, Mike Ferrabee and Douglas Queen; from MEBCO, William Anderson and Darrell Brown; from the Office of the Leader of the Opposition in Nova Scotia, here to support our proposals, Mr. John Hamm, a colleague in politics; from the Nova Scotia Real Estate Association, Doug Dixon; and from the New Brunswick Real Estate Association, Claude Soucy. We also have an individual presentation from Allan Billard. From the MMG Management Group we have Mr. Langevin and Mr. Berish.

.0930

Mr. Millar, you are with...?

Mr. Jack Millar (Counsel, New Brunswick Real Estate Association): Mr. Chairman, I'm here in support of the Nova Scotia and New Brunswick real estate associations.

The Chairman: Fine.

We will have other witnesses arriving later, I hope.

Could I suggest that you try to limit opening comments to about three minutes. We'll then go to questions and answers.

Perhaps we could start with Ms Keachie.

Ms Catherine Keachie (President, Canadian Magazine Publishers Association):Mr. Chairman, Mr. Jones is carrying our presentation.

Mr. Paul Jones (Member, Political Affairs Committee, Canadian Magazine Publishers Association): Thank you, Mr. Chairman.

The zero-rating of reading materials is the stated policy position of our association, the Canadian Magazine Publishers Association, the Don't Tax Reading Coalition, the Periodical Marketers of Canada, the Magazine Publishers of America, the Liberal Party of Canada and, not to put too fine a point on it, more than half the members of this committee.

We're not talking about magazine advertising. We recognize that the application of the tax to magazine advertising should apply as it has with the GST, representing two-thirds of magazine revenues in this country.

The case for zero-rating has a number of arguments. First, notwithstanding the tireless efforts of officials to identify solutions, the imposition of the HST will create serious practical problems for the entire magazine retailing system: cumbersome signage to get around the problem of pre-pricing at point of origin; substantial programming costs for retail chains; the direct-mail nightmare of selling at different prices in different places; and a problem for many magazine advertisers in terms of pricing in advertising that has to reflect different prices in different places.

One other practical problem is that the harmonized sales tax will be no more successful than the GST in signing up the estimated 70% of U.S. titles that do not currently collect the GST on subscriptions they sell in Canada. So there are many practical problems.

Second, for our industry, the application of the provincial portion of this tax to subscriptions represents a clear tax increase, essentially a new tax. Magazines were previously exempt from provincial sales taxes or eligible to apply for exemption, and were not paying tax on most inputs. This leaves magazine publishers with the unsavoury choice of absorbing the increase themselves or attempting to pass it on to price-sensitive consumers. We know from all kinds of studies that in our industry, every dollar you increase your price is a dollar less that someone chooses to pay.

Finally, under the HST the Canadian tax rate on magazines will be more than twice that in any other G-7 country. If one was setting about to devise a tax system to encourage a knowledge-based information economy, I don't think you would go about taxing the media that promote and serve this goal twice that of any other G-7 country.

Our recommendation is that we promote a knowledge-based economy by zero-rating all reading material. At a minimum, the economic impact of the proposed tax on our industry could be addressed by the zero-rating of magazine subscriptions.

Thank you, Mr. Chairman.

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

From the Canadian Restaurant and Foodservices Association, Mr. Ferrabee and Mr. Queen.

Mr. Douglas Queen (Vice-Chairman, Canadian Restaurant and Foodservices Association): Thank you, Mr. Chairman.

A confused consumer, distorted marketplace, and potential for lost jobs: this will be the result of tax-included pricing. Tax-included pricing compromises the benefits of harmonization.

I'm chief financial officer for Smitty's Canada Ltd., located in Calgary, with 100 restaurants across the country. We have seven restaurants that operate in the Maritimes, all but one of which are independently owned and operated. I'm also chairman of the taxation advisory committee for the Canadian Restaurant and Foodservices Association. This association is representative of industry from single-unit operators to national chains.

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The Canadian Restaurant and Foodservices Association welcomes the opportunity to appear before the House of Commons Standing Committee on Finance with respect to Bill C-70.

Of principal concern to the industry is the issue of tax-included pricing. The CRFA maintains that this unprecedented attempt to regulate the price of our products will further exacerbate the inequities of the GST base. Overnight our prices will rise by 15% while our closest competitor, prepared foods sold in grocery stores, will remain the same.

Tax-included pricing will make many national advertising campaigns unworkable. As is quite obvious and as you all know, there are substantial problems with national advertising, specialty TV channels or national print media. Tax-included pricing will decrease the amount of advertising revenue spent in the region. This legislation will cause our industry to spend more on production and compliance and less on advertising. Tax-included pricing will also lead to unnecessary confusion in the local market. Our prices will increase. We also have concerns over compliance, and enforcement will be non-existent.

The CRFA would also like to bring to the attention of the committee concerns with respect to beverage alcohol pricing in the provinces of Newfoundland and Nova Scotia, where wholesale prices will actually increase to licensees as a result of harmonization.

We recommend to the committee that we abandon tax-included prices and permit our industry to benefit from harmonization.

We look forward to your questions. Thank you.

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

We welcome Mr. John Hamm.

Mr. John Hamm, MLA (Leader of the Opposition, Nova Scotia House of Assembly): Thank you, Mr. Chairman and committee members.

I want to start by saying that by refusing to hold public hearings in the three provinces where the new tax will be collected, you have for all intents and purposes undermined your own effectiveness. By your closing the door on many presenters, I believe that your report will be less than thorough and less than complete.

Despite the fact that I have only four minutes to make my opening statement on what amounts to the single biggest tax change in Nova Scotia's history -

The Chairman: Mr. Hamm, I'll give you as much time as you wish after that to make your points if you can't make them during that time.

Mr. Hamm: Thank you, Mr. Chair.

I have nevertheless made the trip to urge you to consider the legitimate, the very real concerns of literally thousands of Nova Scotians, both consumers and business men and women, who are convinced that this tax will cause them significant hardship and do serious damage to our economy. I urge you to seriously consider their concerns and not dismiss them out of hand as has the Government of Nova Scotia.

First, let me say that there is no disputing the fact that this new tax will cost consumers millions of dollars more. The Government of Nova Scotia maintains that it will cost consumers $84 million more. I believe it will be significantly higher. Calculations of average spending by Nova Scotians by income provide significantly higher figures than those provided by the document ``Nova Scotia Tax Reform - Economic and Fiscal Analysis''.

The Government of Nova Scotia also maintains that a 3% reduction in personal income tax, an $8 million direct assistance program for the poor, and average pass-throughs of 50% will more than offset the increase in consumer taxes and everyone will come out ahead. This is absolute nonsense. Estimates of pass-throughs by others are as low as 0% to 10%, and already our finance minister has backed away from estimates of a 50% tax pass-through.

Retailers have provided evidence that the decision to regionally impose tax-included pricing will mean increased, not decreased costs, and that while there may well be pass-throughs, they will be in the form of increased, not decreased costs and prices. They further indicate that jobs may well be lost, not created. The recent amendments to tax-included pricing have fallen far short of addressing their concerns and in fact appear to have made things more complicated for the consumer.

I know of no one, not a single organization nor a single economist, not a single accountant nor a single business person, who believes the government's unsupportable claims of a 50% pass-through. If you take the 50% pass-through out of the equation, everyone loses.

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So in effect what we have is untold millions more taken out of an already fragile economy. On one hand the government maintains this new tax will result in a 0.8% increase in GDP and will create 3,000 new jobs. On the other hand it admits that it's a risk, asking Nova Scotians to have faith.

There is no substantial evidence to support the 0.8% growth in the GDP or the 3,000 new jobs, but retailers and others have provided well-documented evidence to show how it will impact on their business. It is not a sure thing. It is a gamble, and it's a big gamble. No one knows for sure the outcome, but ladies and gentlemen, this is not a game of craps. We are talking about a decision that will more than double the tax on the basic necessities of life - home heating fuel, electricity, gasoline, clothing under $94. This will seriously erode the spending power of Nova Scotians, and when you erode the spending power of the consumer you hurt the economy.

Let me ask you this: does it make sense to take millions out of consumers' pockets in a province where consumer confidence lags well behind other provinces and where bankruptcies are going through the roof? The new tax will cause significant hardship to the thousands of Nova Scotians who are already struggling to make ends meet, particularly people with disabilities, seniors and others on fixed incomes, students, single mothers and the working poor. I will ask each of you if you believe it is reasonable to introduce a tax that makes it cheaper to buy a fur coat and more expensive to buy winter boots or a coat for your child, more expensive to pay for electricity and cheaper to buy a new car.

This tax will surely result in a growing underground economy, yet neither the federal nor provincial governments have examined the impact this would have on legitimate business interests or on government revenues. This is an inexcusable and startling oversight that leaves one with little choice but to question the validity of the projections and/or the conclusions that government has reached with respect to the impact of the harmonized tax on consumers and our economy.

The tax effectively surrenders Nova Scotia's traditional taxing powers to Ottawa. It begs serious questions about our ability to fund programs and services in the future. In four years' time it will allow for the possibility of taxation without representation. Despite the fact that Nova Scotia may well object to an increase in the provincial portion of the blended scheme, the governments of Newfoundland and New Brunswick will have the right under this arrangement to force us to do just that. I am at a loss as to why it takes only two provinces to increase the tax but the agreement of all three to lower it.

The tax will cost consumers more. It will cost property taxpayers more. It will cost more to buy a new home or rent an apartment. It will cost school boards more. It will cost more to run hospitals and universities. It will cost more for home-care service, more for recreation service. It will cost us lost doctors we can ill afford to lose.

I ask you if the unsubstantiated claim of an increase of less than 1% growth in our GDP is worth this pain and more. This is a shoe that doesn't fit, and it will hurt and squeak. The HST is a political solution, not an economic solution. We need reform, but not this deal. Allow the time and the input of Nova Scotians to do it right. I ask you to kill this bill. Thank you.

The Chairman: Ordinarily I would not intervene at this time, and I don't want to comment on the substance of your comments, Mr. Hamm, but you have thrown into question the legitimacy of our proceedings. You said we refused to hold hearings in the Maritimes. This committee was in the Maritimes in November. We did not turn away any witnesses who wanted to appear before us at that time. You also said we closed the door on many witnesses. Could you tell me which witnesses have been denied the right to come here?

Mr. Hamm: What I was referring to, Mr. Chair, is that by having the hearings here in Ottawa, the expense of appearing has prevented many presenters from coming.

The Chairman: Name one. We pick up those expenses, Mr. Hamm. We have acceded to requests from every single witness who asked to appear before us, and we pick up the expense for them to come to Ottawa and appear before us.

Mr. Hamm: I think my point is simply -

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The Chairman: I think we heard your point. I don't agree with it in terms of the legitimacy of our hearings. Although certainly you're entitled to say what you wish, I wanted to draw that to the attention of members and Canadians.

Mr. Hamm: I think my point was simply that in terms of a piece of legislation dealing with three provinces, it would seem appropriate that hearings would more naturally occur in that part of the country.

The Chairman: Mrs. Brushett.

Mrs. Brushett (Cumberland - Colchester): Thank you, Mr. Chairman.

As the only Atlantic member on the Standing Committee on Finance for the House of Commons, I personally advertised and invited Atlantic Canadians to come to Ottawa. I gave phone numbers, fax numbers for the clerk, for my offices in Truro and Amherst, and I let the public know openly and as visibly and widely as I could that we were accessible and that we invited the public here. They knew their expenses would be paid and that this committee was open and welcome to hear any and all people from the Atlantic region.

The Chairman: Mr. Solberg.

Mr. Solberg (Medicine Hat): Mr. Chairman, I want to say something here. I think the point is well taken. When we were in Atlantic Canada in November we weren't there to talk about the GST, we were there to talk about the budget.

Second, I think Mr. Hamm's point is that people may not want to devote an entire day to come here for ten or fifteen minutes. I think his point is correct that when you're talking about something that fundamentally affects three provinces, then courtesy dictates that the committee should make an effort to get out there and hear the people.

The Chairman: I would like to submit that it affects not only three provinces but all Canadians. We also did hear many submissions on the GST when we were in Atlantic Canada.

That part aside, could we turn now to our next witnesses. From the Nova Scotia Real Estate Association, Doug Dixon and Jack Millar.

Mr. Doug Dixon (Executive Officer, Nova Scotia Real Estate Association): Thank you,Mr. Chairman. I'd like to thank the committee for giving our association the opportunity to make input into this hearing today.

The HST will affect the real estate industry in many ways. It will be of some benefit to brokerages and independent contractors through input tax credits. Being able to show the tax separately, as agreed to in the technical paper, should relieve the pressure on realtors to absorb the tax. However, it will affect the cost of all real estate purchases and sales through increased taxes in many areas.

The cost of appraisals, home inspectors, commissions, surveys and legal fees will all be affected. The most significant increases will be felt in new construction unless the new housing rebate available under the GST is extended to cover the full 15% of the HST. Without the extended rebate, consumers of new housing could pay on average an additional $3,374 on new construction.

The Nova Scotia, New Brunswick, Newfoundland and Canadian real estate associations studied the effect of the HST on new construction and found, through using available statistics, that the HST, on average, after adjusting for input tax credits, would mean an increase in prices of 3.3%.

The Nova Scotia government has put forward a 1.5% rebate of provincial tax, but this will still mean a net increase of 1.8%. The Nova Scotia Home Builders' Association has studied several recent construction projects in detail and found that the net increase may be closer to 3%. They have shared this information with the provincial government. The fact that Nova Scotia, New Brunswick and Newfoundland have taken different approaches to new construction should be of serious concern to the federal government.

An even graver concern is the effect that the increased cost of new construction could have on the Canadian economy. I would like to read you a comment made in Maclean's magazine by a representative of Scotiabank on the part new construction plays in the overall economy:

Home building has been providing a significant lift to Canadian economic activity. Residential construction has fuelled nearly half the growth in real GDP since the beginning of the year, though it accounts for only about five per cent of economic output.

The federal government should make an effort to ensure that the HST is applied consistently and that price neutrality in new housing should be the goal. Our economy has just emerged from a persistent slow period. Increasing the cost of new construction jeopardizes the current optimism and a promising recovery.

In summary, Mr. Chairman, we recommend that a new housing rebate be provided in all harmonizing provinces to ensure that after April 1, 1997, the cost of new housing does not increase.

Thank you.

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

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From the New Brunswick Real Estate Association, Mr. Claude Soucy.

Mr. Claude Soucy (Director, New Brunswick Real Estate Association): Thank you,Mr. Chairman. Mr. Millar is here to assist me today.

[Translation]

As my colleague from Nova Scotia mentioned, my province, New Brunswick, found a different way to harmonize sales taxes on new housing.

The New Brunswick Association of Realtors, together with the Nova Scotia and Newfoundland associations of realtors, did an in-depth study on the impact of the harmonization of the sales tax accruing on the purchase of a new house.

[English]

Mr. Chairman, New Brunswick politicians have been quick to point out that under harmonization provincial sales tax embedded in the price of a new house will be removed. Builders will be eligible for input tax credits on the harmonized tax. They tell us that should solve the problem, but it doesn't.

Our study removed all of the embedded 11% provincial tax. It then factored in the harmonized 15% tax, not just on building materials, as before, but on the total house price, including services. The result was an increase of $2,600 on the cost of a typical new house costing $132,500 in New Brunswick.

I should mention that in a meeting with industry representatives last summer, provincial government officials acknowledged that our figures were similar to their own. Federal Department of Finance officials were also at that meeting.

The new housing market has been dismal for the last couple of years, with serious consequences throughout the provincial economy. Last fall it began to turn around. The last thing we need now is a price increase that would likely jeopardize the recovery.

Unlike in Nova Scotia, the New Brunswick government has not offered a rebate. Instead, the Minister of Finance promised in the budget of last month ``measures to assist the housing industry with the effect of harmonization''. The industry has heard nothing in the six weeks since the budget. Yet we understand harmonization is still planned to take effect on April 1. We are already entering a period of critical uncertainty for consumers of new housing and the building industry.

We are nervous about the nature of the proposed relief. The federal Department of Finance has always acknowledged the need for a new housing rebate on the GST.

[Translation]

The federal government, during the last election campaign, promised us that the GST would be replaced by a tax that would be fair for all consumers. For most consumers, housing is their biggest investment.

On the matter of housing, the federal government simply gave up its responsibility for making these taxes more fair.

[English]

How is it fair to have to pay more for a new home in my province because the New Brunswick government decides to opt out of the rebate? We believe, with our colleagues in the Canadian Real Estate Association, that sales taxation must not reduce the affordability of housing. It should not skew the markets from one province to the next. Regrettably, the legislation before you appears to lead away from the consistency and price neutrality my Nova Scotia colleague has just mentioned.

To conclude, we recommend that the way to avoid that is through a common rebate on the same basis as the federal rebate.

[Translation]

Thank you.

The Chairman: Thank you, Mr. Soucy.

[English]

Mr. Billard, please.

[Translation]

Mr. Allan Billard (Individual Presentation): Thank you, Mr. Chairman. I will give copies of my presentation to the clerk.

The Chairman: We already have them.

[English]

Mr. Billard: There's reality and there's perception of reality. On April 23 last year our Nova Scotia government told us in a document entitled ``One Tax - Many Advantages'' this would be the biggest tax break in provincial history. The reality came out a few months later, when their own finance department said the HST will cost Nova Scotians, on balance, $84 million.

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Back in 1993 the federal government told us they would scrap the GST. The reality is that the new HST will be placed on a much broader base of goods and services than the GST ever was, and it will cost me more every year. Here's how.

As a consumer, this new tax is to be collected on a broader range of goods and services on the up list, and that includes annual heating costs. In my house it's $1,500 a year. That's going to go up $120. My power bills of $600 are going to go up. They're not actually going to go up $48. That was a simple calculation of 8% extra. In fact, the Nova Scotia government already put 3.5% on my heating bill. Interestingly enough, they're not going to add another 8% on top of that, just another 4.5%. The gasoline I use, at $1,200 a year, is going to go up $96. That total comes to around $250.

Now, these will be moderated by several items on your down list. That's the list of items that are going to go from 18.8% to 15%. But to completely neutralize the increases, I would have to purchase over $7,000 worth of items from your down list.

The Nova Scotia Department of Finance has calculated that even with the ups and downs, Nova Scotians will pay $84 million more on a per capita basis. That's $100 more every year for every taxpayer.

I'm a car owner. One big-ticket item that was supposed to be on your down list was the family car. Well, the tax reduction on automobiles will be phased in over three years. It begins at 17% later this year, going down to 16% in 1998. Buying a car will attract the blended sales rate of 15% only in 1999. Our Minister of Finance stated that the tax on gasoline would be going up 8%, but he was sure that the reduction in the cost of new cars would more than offset the increase in the fuel expense. But if you can't afford a new car, how will you ever realize any potential compensation from the extra cost of driving your old one? If you do plan to buy a car, the compensation, if any, comes only in 1999. The increase in gasoline? That starts on April 1. It goes on a product that is largely provincially taxed to begin with. When one provincial tax is calculated upon another provincial tax, to me, that's compounding. The reality is that this is unacceptable when the HST is being sold as tax reform.

The Halifax Regional Municipality faces an increased cost of $5.9 million, even with a rebate deal. The Cape Breton municipality has calculated that they will have to raise an extra $1.3 million. Even the small town of Amherst has announced that an increase in the range of 6% will go on their residential tax bills just to cover their extra cost of your HST.

All municipalities and school boards in Nova Scotia will face increases in their costs even though there's an arrangement to rebate two-thirds of the taxes paid by schools and universities. The Halifax Regional School Board has determined that the new tax will cost a further $1 million. In the end, that can only be passed on to me, the ultimate taxpayer.

The effect on my son's tuition is still unclear, but universities can reclaim only 67% of their taxes. So it looks as though I'll be paying more to cover that new cost, too.

As a son myself, let me provide two further examples of how this tax can hardly be called an advantage. If my mother continues to knit her sweaters, the wool she buys will go up from 7% to 15% tax. If she chooses instead an expensive imported pullover, the tax will be decreased from 18.8% to 15%. If my dad continues to stay at home but needs home care, the cost of that will now be taxed to the max, 15%. That diminishes his ability to stay at home and be independent. That's a blow to health care reform.

By the way, when either mom or dad needs a doctor, if they happen to be living in a rural area of my province the chances of finding one will be even more unlikely. You see, the new HST will add almost $1,000 to the cost of a rural physician's office expenses. These are costs that cannot be passed through to the consumer as with other small businesses, yet they will become another negative factor in any new MD's decision to relocate to rural Nova Scotia. That's a further whack at health care reform.

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Here are some recommendations. Tell me the truth. Governments need money and taxpayers must pay, but if you would just come clean with us in the first place and tell us the taxes must go up and tell us why and trust us that we will better understand the cause and effect...

By the way, leave it visible. Suggesting that retailers must have tax-in sticker prices is a shoddy attempt at cover-up.

No compounding. Don't permit taxes on taxes, such as the HST being applied on top of the Nova Scotia fuel tax. Our premier is not going to do it on the power bills - he already admitted to that - but he's going to do it on the fuel tax. It doesn't make sense. It's compounding and it's inconsistent.

Finally, no downloading. Adjust your HST so it cannot be applied to the MUSH sector: municipalities, universities, schools, and hospitals. Why must my taxes and fees be raised to help pay their taxes?

Thank you for listening.

The Chairman: Thank you, Mr. Billard. I appreciate the fact that you came in at just under three minutes on that presentation.

Next, from the MMG Management Group, we have Mr. Langevin and Mr. Berish.

Mr. Daniel Langevin (Director, Advertising, MMG Management Group): Good morning, Mr. Chairman and members of the committee and witnesses. My name is Daniel Langevin and I'm director of communications and marketing for the MMG Management Group. With me today is Mr. John Berish, the director of merchandise information systems.

The MMG Management Group has extensive operations in Atlantic Canada, operating retail stores under the Met Mart, Metropolitan, Greenberg, and Red Apple banners. We have in total well over 170 stores nationally. At present we have 56 retail outlets in Atlantic Canada, employing 1,700 people, with an annual payroll of over $9 million. In New Brunswick we have 28 outlets, in Newfoundland 7, in Nova Scotia 19, and in Prince Edward Island 2, with a total annual payroll, as I mentioned, of $9 million.

We believe the proposed harmonization of the federal GST with the provincial PST could have a catastrophic effect on our company and our 1,700 Atlantic province employees. Those employees would like to thank you for giving us the opportunity to explain our concerns and to outline why we so vigorously oppose this proposal.

As a medium-sized player in the Canadian retail trade and a major employer in Atlantic Canada, MMG is of course keenly interested in tax changes, particularly when such changes negatively affect consumer buying power, especially in the middle to low portion of the market we serve. As we move on to discussions today, we will discuss one-time start-up costs for MMG of well over $2 million. We will discuss ongoing incremental costs of $1,058,000. We do not have the input tax savings coming through to our corporation that will offset these costs.

Sport Mart has announced it is leaving Canada and closing all its stores, and retailers are gravely affected. The Forzani group has announced it is closing fifteen stores and is greatly affected. We have announced that because of this rationalization and because of the HST we are immediately closing the Buctouche store in New Brunswick, the Dalhousie store in New Brunswick, the Moncton store in New Brunswick, the Sussex store in New Brunswick, the Saint John store in New Brunswick, and the Grand Falls store in New Brunswick, totalling well over 74 employees and an annual payroll of $500,000. We are now in the process of rationalizing those marginal stores becoming further marginal because of the HST in Nova Scotia and in Newfoundland.

Hon. members, as you know as well as I do, costs of the magnitude we will discuss and describe cannot be absorbed by retailers who are already reeling under the weight of these staggering losses. The costs will translate into price increases for the consumers, such as Mr. Billard; lost sales, because of an increased sales tax on essential clothing and services for the middle to low income; decreased manufacturing output; and ultimately, lost jobs. When you combine this with the negative impact, as I said, of the sticker shock of the price increase resulting from the 8% hike in the cost of essential clothing, it can only be described as a lose-lose situation for both the consumer and the retailer of Atlantic Canada.

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Is this what the good citizens of Atlantic Canada want? We know it is not. Nor is it what MMG Management Group would advocate.

HST is not a bad bill. Tax-in pricing is at issue, and the additional cost of tax-in pricing is at issue. If we can address the bill with the total and complete elimination of the clause for tax-in pricing, I am sure the consumers and the retail sector of Atlantic Canada will more than support you in your efforts.

We thank you for allowing us the time to present our point. Mr. Berish and I are at your disposal to answer any questions.

The Chairman: Thank you, Mr. Langevin.

Darrell Brown from MEBCO, please.

A voice: No, Mr. Chairman. I'm just sitting here.

The Chairman: Oh, excuse me. Is there a problem with the planes getting out of Toronto this morning?

Mr. Solberg, would you like to start the questions?

Mr. Solberg: Thank you, Mr. Chairman.

The Chairman: Are there any witnesses with whom you would like to take issue, Mr. Solberg?

Mr. Solberg: It's an embarrassment of riches, Mr. Chairman.

The Chairman: You deserve it. You've had a tough couple of days.

Mr. Solberg: Mr. Chairman, this morning we've heard, probably more so than at any other round we've had so far, how much opposition there is to various aspects of the harmonization deal. It's difficult to know where to begin, but why don't we begin where a lot of witnesses have taken us, which is tax-in pricing.

From the very first day of these hearings we have heard group after group come to the committee and say they support aspects of harmonization or they support all of harmonization except this particular measure, tax-in pricing.

Mr. Langevin just gave fairly compelling testimony about the detrimental effects this will have on his stores in Atlantic Canada. I think it's fairly obvious to anybody who has ever paid attention that of all the regions in the country, the one that can least afford to take a hit is Atlantic Canada.

Mr. Langevin, you're making the suggestion that start-up costs are going to cost your company $2 million, with $1 million a year ongoing, I think you said, and this is going to cause all kinds of people to be laid off. If I remember right, I also think a petition came forward from your stores. Is that correct?

Mr. Langevin: That's right.

Mr. Solberg: I think it stated that 16,000 people said they were in opposition to the tax. Is that right?

Mr. Langevin: To clarify, that's 16,000 of our shoppers, and we don't profess to have 100% penetration of the Atlantic Canada market share. We presented those petitions to the Hon. Edmond Blanchard, who is the Minister of Finance for New Brunswick; to the Minister of Finance in Nova Scotia; to the Minister of Finance in P.E.I. prior to their rejecting the proposal of HST; and as well to the Minister of Finance in Newfoundland.

Mr. Solberg: We're aware of your situation. I'm sure there are others out there who run into start-up costs and haven't had the chance to have their situation publicized. Rather obviously, if you're in a situation where you're making a small profit or running a loss, the effect of big start-up costs may play a major role in deciding to shut down your business. Is that accurate?

Mr. Langevin: I think you have to look at the rationalization. If we're going to take decisions on leased properties moving forward over five years, if we anticipate that the marginal stores have to incur these incremental costs over a period of time and it's an annual increase of well over $1 million that these stores must absorb, you have to rationalize whether or not you are going to continue with those leases.

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The market is not growing in size. The 8% additional tax put on clothing, which represents close to 75% of our business in Atlantic Canada... As you know, an 8% increase in costs will not generate additional sales in any organization; in fact, an 8% increase in costs will decrease sales. So you're looking at a decreased sales potential because of increased costs. You're looking at an increased incremental cost for implementation of tax-in pricing. You're looking at additional costs in advertising, re-ticketing, heating and other sectors.

Something has to break. It is going to be a combination of those marginal stores' closures, the loss of employment, and consumers absorbing higher retail prices at the cash register.

Mr. Solberg: One of the frustrating things about these hearings is that I don't think we get a chance to hear, really, from some of the consumers involved. Let's face it, when things like the cost of home heating fuel goes up, when the tax on clothing goes up, and other utilities... Mr. Billard spoke of some of the effects it will have on consumers, as did Mr. Hamm. We don't get to hear from some of those people, which is why I think it would have been a good idea to have these hearings in a place where people who don't necessarily have a voice through a large company or have the voice of a politician would get a chance to make their point.

I do want to follow up on the $84 million this is going to cost the people of Nova Scotia. Perhaps Mr. Hamm or Mr. Billard, or I guess anyone, can address this. According to the Government of Nova Scotia, their own documents suggest that this is going to cost $84 million a year. Is that correct?

Mr. Hamm: That's right. In the legislature on the last day of the spring session this document came out. That was the first time we had a number put on the increase in consumer taxation.

There are tables in this document that show budgets examined at different income levels. Going through the mathematics, if the mathematics in the tables is correct, then the increase in the consumer tax load is $84 million. However, when you do comparative budgeting, we keep coming up at these income levels with an increase in the consumer tax load that is greater than that in the tables. It would extrapolate to greater than the $84 million cost to the consumer.

It's extremely troublesome. It perhaps hasn't had enough discussion at this level. The effect on the consumer climate in Nova Scotia will be significant come April 1.

Mr. Langevin had made reference, for example, to what will happen. APEC did a study showing that there will be $8-million worth less clothing purchased in Nova Scotia as a result of increased taxation on lower-priced clothing. So he is quite correct.

Studies are confirming what common sense would indicate. We will buy less fuel and energy. The APEC study confirms that. It's going to be more expensive. There will be less travel and less recreational services, because it will be more expensive.

The difficulty I have with all of this is that it's very complex. Our finance department really refers any questions about the technical aspects of the tax to the Ottawa 800 number. It is not well understood by either our Department of Finance or Nova Scotians in general. We need more time to look at something as major as this. We don't understand it fully. I don't think anyone does fully understand all the implications of this. We're simply asking for more time.

Mr. Solberg: One of the implications is that it's going to have a disproportionate effect on the poorest people in Nova Scotia. I think common sense dictates that. People who can least afford to pay for more expensive home heating fuel and clothing and that type of thing are going to be the people who are hit hardest by this. So that $84 million will be borne disproportionately by those people.

This is just unbelievable to me. I can't believe that somehow we're trying to sell this as some great benefit.

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I want to follow up a little on the cost of housing. To both Mr. Dixon and Mr. Soucy, what will be the effect on employment in your industry as a result of this when you have house prices going up by several thousand dollars?

Mr. Dixon: If we look at the broad picture, we as the Nova Scotia Real Estate Association are not here today to say don't tax our commissions, don't tax the services that are involved with the purchase or sale of a house. We're here to deal with new construction specifically. The impact of what can happen with the new construction is not so much in our industry as realtors as it is in the broad economy. The new construction industry plays a very important role in the overall economy, and if in fact it shows a slowdown, everything associated with that... So it will have an effect on all the associated services, whether they be lawyers, surveyors, appraisers, home inspectors, realtors. All will be affected, but also contractors, all the sub-trades, the furniture manufacturers, the wallpaper and paint providers... The list just goes on and on.

Housing costs are a very vital part of our economy. On the GST, when it was brought in five years ago, or whenever it was, they took a stand. The federal government said the GST should be price neutral in the housing market. Now, five or six years later, we have the HST, and that is not the case. The HST will be very seriously affecting what's happening in the housing market. It will be far from neutral. Even in Nova Scotia, where we have a 1.5% rebate involved, it's still going to be a very serious increase for us, not to mention what's happening in the other provinces - and Claude can speak to that.

It's not just what's happening in our industry or in just a few of the industries around us, it's the big picture. What does it do to the overall economy? It's serious.

Mr. Solberg: If I remember correctly, we had somebody from the home builders yesterday and they said in construction alone it was going to be something like 2,000 jobs potentially lost and300 housing starts lost. Mr. Soucy, what would be the effect in New Brunswick?

Mr. Soucy: As Mr. Dixon said, the effect would be the same. Our home builders have come up with a figure for lost jobs. I'm sorry I don't have that right to hand. If you say it's 300, I presume you are talking about throughout the Atlantic provinces.

Mr. Solberg: I wish I were. That was for Nova Scotia.

Mr. Soucy: In New Brunswick we talk about 250 to 300 new construction starts every year, so if we lose a substantial part of that because of the increase in costs and we lose some clients that no longer qualify for mortgages because of the costs of new homes, I would think we're close to the same percentage as in the province of Nova Scotia.

Mr. Solberg: Mr. Chairman, if I have enough time -

The Chairman: You should have as much time as you want.

Mr. Duhamel (St. Boniface): He doesn't have any more questions.

Mr. Solberg: I do, actually.

Mr. Duhamel: He has exhausted his knowledge.

Mr. Solberg: My knowledge is probably exhausted, but I'll call on the knowledge of the witnesses.

Mr. Chairman, I would be interested to hear a bit more about the effect of this from the people involved in the food industry. They mentioned that because of the effective doubling of the GST they'll be put in even stiffer competition with prepared foods. This has always been an issue, because in the minds of consumers there's very little difference, I suppose, between a pizza that's frozen, comes right out of the supermarket, and is popped in the microwave and one you buy from a fast-food restaurant.

Maybe just expand on that a bit and explain some of the effects you expect to see as a result of this.

Mr. Queen: Your observations are commendable. That effect is very accurate.

When the GST was implemented, it was implemented such that food sold in a restaurant was subject to GST, whereas prepared foods in grocery stores, such as pizzas, were not subject to GST. Obviously with the implementation of HST under the GST rules that discrepancy increases to 15%.

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What is also interesting is the decline in the restaurant industry's proportion of food sales. We have a chart here that we could show you of what happened in 1991 as a result of the implementation of GST and the proportion of food sales here in Canada. This chart is possibly difficult to see, but in comparison with the United States, Canadian food sales in restaurants declined substantially as a result of GST. U.S. sales actually increased.

I have an associate here from the Canadian Restaurant and Foodservices Association who has a brief. Did everyone get a copy of the brief?

Mr. Michael Ferrabee (Vice-President, Government Affairs, Canadian Restaurant and Foodservices Association): Yes, I circulated the brief.

Mr. Queen: There is some information on this in the brief. In fact, U.S. sales in restaurants went up over the last several years. You can see where the sales in Canadian restaurants have declined.

It's the opinion of many that restaurateurs are flamboyant and drive fast cars, but the fact is if you talk to any banker, one of the riskiest businesses to lend money to is the restaurant business. In fact, the restaurant industry is experiencing record high bankruptcies as we speak. The average margin in a restaurant is approximately 3.7% on the bottom line.

I just can't overemphasize that when you go into a grocery store and buy a tin of caviar for$150, there's no GST. But when a child orders a glass of milk, and it could be your granddaughter or your daughter or your son, it is subject to GST. On April 1 that goes to 15% in the Maritimes.

We suffered a substantial drop in sales, as this chart indicates, and we have concerns over employment. We had some comments over here about employment. We employ probably the greatest proportion of young people in the restaurant industry. Where is the greatest unemployment problem today? I fear that in the Maritimes there is going to be a substantial effect on that as well.

Mr. Solberg: There seems to be a common theme here. The theme seems to be that the people who can least afford it are going to get hit again. Also young people, who have an unemployment rate in Atlantic Canada, I would hazard a guess, approaching 20% or maybe more, are going to be the people victimized by this.

I want to move on. I have one more question, Mr. Chairman, for the people from the magazine industry. Unless I missed something, I believe the Prime Minister did write a letter to the Don't Tax Reading Coalition promising to repeal the GST on reading materials. I don't think that has happened yet.

I wonder if you could explain what the economic impact might be as far as you understand it. Maybe you've done a study. A lot of people have gone to KPMG and done studies. What is the impact not only of having the GST on reading materials, but the overall economic impact of having a 15% tax on reading materials?

Mr. Jones: When the GST was introduced, magazine profits in this country fell by 60% within the next 12 months. The reason is that the magazine subscription, which is the principal way in which Canadian magazines are distributed to readers, is very price-point sensitive. Because magazines had always been exempt from the manufacturers sales tax, it really was a new tax. Yes, we got the inputs, but since we'd never paid the tax in the first place it just put us back to where we were. That meant we either had to absorb that 7% ourselves or we had to ask the reader to pay 7% more on a very sensitive price point. For every 7¢ we collected, we lost 6¢ of people who chose not to bother to renew.

So we took a big hit on profitability, which we had predicted, because magazine subscription sales is virtually a science. We're predicting that exactly the same thing is going to happen when this moves from 7% to 15% for the reason that it's the same situation. We have been exempt from the provincial taxes on the payment of inputs.

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Mr. Solberg: I'd better leave it there, Mr. Chairman.

The Chairman: I thought you did pretty well, Mr. Solberg. Congratulations.

Mrs. Brushett.

Mrs. Brushett: Thank you, Mr. Chairman.

I welcome all members of the panel this morning. It is indeed good to have you here in Ottawa to have you express your views very openly and candidly. I'd like to address my first question toMr. Langevin.

You have indicated that retail clothing will be a problem in Atlantic Canada because of this tax. You've referred to the APEC study in which they've indicated that, again, there may be diminished sales in retail clothing. You've given us a list of stores that are closing because of the new tax. I would ask you, do you have stores closing in Ontario?

Mr. Langevin: Currently, none.

Mrs. Brushett: Have you closed several recently?

Mr. Langevin: No, we have not.

Mrs. Brushett: Information has been presented that the problems in your retail outlets are not due to the tax but due to overcrowding in the retail sector due to the Wal-Marts and all the other -

Mr. Langevin: I think what we have to understand is that the MMG group currently is a rural retailer. We are not in a majority of markets where you will see big-box organizations. We are considered to be one of the last retailers serving rural Canada. We have a marketing strategy to move into population and market areas of 15,000 to 20,000. We do not intend, and do not foresee doing so in the future, to come up against the big-box retailers.

Coming from an industry of big-box retailers, having been one of the co-founders of Price Club Canada in 1986, I understand what a big-box retailer can do, what the market share actually is. At MMG we don't profess to move into those markets.

Our statement today was very clear that our rationalization for the closure of the stores is looking at costs that will be incurred as we move forward because of leases that must be signed moving forward. We do not intend to tie ourselves down to a multi-year lease with the anticipation of increased incremental costs brought on by the HST, and incremental costs really not brought on by the HST but by the tax-in pricing policy of the HST.

Mrs. Brushett: So in fact you're in favour of the HST but not the tax-in pricing.

Mr. Langevin: We are very much in favour of saying go ahead with HST if you wish. The clause that clearly states that we must have tax-in pricing, and we must have tax-in pricing on the floor, on signage and in advertising, is one clause that can be removed. The HST is not necessarily at issue here. What is at issue is the possible loss of sales. That is something APEC has put forth. It's a possible loss of sales moving forward because of the increase in the tax on clothing and footwear under $100, which represents close to 85% of our business in Atlantic Canada.

Mrs. Brushett: But you must also remember that this tax comes down from 18.5% to now 15% in Nova Scotia, and likewise in other provinces. So there is a reduction.

Mr. Langevin: If one looks at the tax issue of soft goods and clothing as well as footwear in Nova Scotia, there currently is no provincial sales tax on clothing or footwear under $100 in Nova Scotia or New Brunswick. That issue is only addressed in Newfoundland, which represents a very small portion of our retail sales at the time.

Mrs. Brushett: I would submit to the committee that perhaps your consideration of some of these closures has been like that of other retailers throughout Canada - pressure from the sector itself more than the impact of a new tax. These closures may have been in consultation prior to this tax being on the table.

Mr. Langevin: I think the tax is accelerating the rationalization of closures. Without the tax, these marginal stores would not have to incur those incremental costs moving forward this year, next year and in the years to come.

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Mrs. Brushett: Since we have referred to APEC and their report here...we had Elizabeth Beale before this committee on Monday. It was her message on behalf of the Atlantic region that there were more merits to this harmonized tax than there were ever on the downside. The upside was far more positive, for a whole range of reasons: for the new economy, for the thrust of the Atlantic to become more self-sustaining, more self-sufficient. The benefits from the flow-through were much more positive to the consumer than they were detrimental, as has been hinted at here this morning. I would like to suggest you read the remarks from Elizabeth Beale and the APEC report, because they are very much in favour.

On that note, I would continue to say we had the Canadian Automobile Dealers Association with Steven O'Reagan from Halifax here, and they said go ahead, fast; implement the HST and the TIP, the tax-included pricing; that's what we want to see.

We also had the Canadian Alliance of Manufacturers and Exporters. This includes many small manufacturers from the Atlantic region, who employ large numbers of people. It was the same message: this is good news for Atlantic Canada.

Again, we had the Direct Sellers Association, and many other people from the region, who have said this is good news for Atlantic Canada.

So I would ask Mr. Billard my next question -

Mr. Dixon: May I address a comment made just now?

The Chairman: Sure.

Mr. Dixon: Our association, the Nova Scotia Real Estate Association - and I think I can speak for the Canadian Real Estate Association as well - has supported the concept of the HST, so we would fall in that list of people you are naming off. But we did it with the understanding that the philosophy of the GST and the stand of the federal government were that the HST would be price neutral to the housing industry. So all the affiliated industries that fall under the housing industry would fall into that same area: we understood it would be price neutral.

The fact that the provincial governments are being allowed to go in different directions in treating the rebates, the fact that there's not a consistent policy by the federal government in insisting that this has to be a national stand... If this tax were to go further... The whole idea of having an HST is that it is a standard tax policy that everybody understands wherever it's applied. Right away, here we are, not even out the gate, and we have three provinces with three different policies, and it's not even the policy that was the understood policy when it was started, which was price neutrality.

So we are in support of the overall concept of HST, but with the understanding of going back to where it was stated to be at the beginning: price neutrality in the housing industry.

Mrs. Brushett: Thank you, Mr. Dixon, for those comments. We do understand...and we can all go back in history on the GST, and we won't make much progress here today by looking backward rather than forward.

In that context, we do have the rebate at the federal level for new housing construction, which is consistent across Canada. We know the provinces have a variance right now. Nova Scotia is one-half and New Brunswick is still at zero, as far as I am to understand. But it is our anticipation that through dialogue and communication... This process doesn't stop here. It will be ongoing and there will continue to be amendments and discussions that will bring forward solutions so we can expedite harmonization across this nation as quickly as possible. We're in your camp to look at ways to make it more positive in that regard.

I want to come back to Mr. Billard. He brings forth ``Tell me the truth'' and ``No compounding''. ``Isn't the HST a tax on tax?''

This is really way out of line, Mr. Billard. The HST is part of the ``no tax on tax''. It is a single tax and that is the purpose of it, the benefit. This is again back to the APEC report that this is good news for this nation, for the economies to move us ahead to a greater competitiveness, more self-sufficiency.

Again, you talk about the rural doctor; how no one will get a rural doctor. You're misleading the Canadian people here today. Nova Scotia put a program in place to give supplements and encouragement for physicians to locate in rural areas. That has nothing to do with the GST, the HST, or any other tax. It's simply a phenomenon of rural life in Canada today. We have put those programs in place.

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Mr. Billard: Mr. Chairman, Madam Brushett takes particular umbrage at a couple of comments I made and uses Steve O'Reagan as a counter-argument to my saying that the car industry and the tax on automobiles don't make sense to maritime consumers.

I should point out that Steve O'Reagan was one of those very few privileged individuals who had the honour of meeting with our Minister of Finance in Nova Scotia at the same time as the Minister of Finance was saying there was no deal. In fact, when the deal was initially released back on April 23 of last year, our Minister of Finance stated that he had already been speaking with the car dealers and that he had organized a special deal for the car dealers to ensure that the tax would not be harmonized on vehicles purchased by me or anybody else in Nova Scotia, New Brunswick, or Newfoundland. They would get the blended rate of 15% only in 1999.

Mr. Chairman, I'm here today on my own speaking to you to try to get a word in edgewise.

The Chairman: Please take as much time as you want, Mr. Billard.

Mr. Billard: I'm grateful for that, Mr. Chairman, and I am grateful for my opportunity to get a word in edgewise, because it seems as if Mr. O'Reagan got his words in privately, personally, and way ahead of the horses ever leaving the starting gate. I took particular umbrage at that,Mr. Chairman. The car dealers were the only ones who were given special and unique permission to see the deal before our Minister of Finance even admitted there was a deal.

Second, I talked about tax on tax. I specifically said, and I'm quoting from my presentation, that the HST is being applied on top of the Nova Scotia fuel tax. I wonder if the hon. member could actually refute the fact that the HST is to be an 8% tax on the fuel tax currently embedded in the price of the gasoline that you and I buy in the province of Nova Scotia.

Mrs. Brushett: I was thinking -

The Chairman: On that point, yes, there might be in many provincial cases some embedding or tax on tax. We've been trying to get rid of it as much as possible. Under the current system there is tax on tax across the board, so maybe it's not perfect. Obviously you're not satisfied with having any tax on tax, period, and I understand that.

Mrs. Brushett: But this goes to removing it. We're moving forward to get rid of that process.

The Chairman: Maybe there's tax on one remaining tax, but we've removed it across the board on the provincial sales tax applying on the GST.

Mr. Hamm: Mr. Chair, to follow up on that, in the bill to the Nova Scotia purchaser of gasoline, the 8% represents $54 million in additional cost to Nova Scotians at the pump. That's the cost that will be incurred by Nova Scotians.

The other thing when we're talking about tax on tax is that when you look at the PST being imposed on municipalities, which raise their incomes from property taxation, having the services they provide then taxed is another example and a very big example in our province of taxation on taxation. So there are quite a few examples and they are big numbers.

The Chairman: Since you oppose taxes on taxes, I'm sure you applaud the fact that the HST gets rid of a system where there is embedded tax on tax at every instance. I guess you'll give us credit for that, Mr. Hamm, because you're a fair-minded person.

Mr. Hamm: The other comment I wanted to make -

The Chairman: I'm sorry, you don't agree with that? If one of your major concerns is tax on tax, you don't agree that the HST gets rid of the provincial tax applying and cascading on top of the GST in every instance today? Would you be prepared to say that's probably good?

Mr. Hamm: Perhaps you'd give me an example.

The Chairman: In Newfoundland the federal GST is 7%, correct? Do you agree with that?

Mr. Hamm: Yes.

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The Chairman: Do you agree that in Newfoundland the provincial sales tax is 12%?

Mr. Hamm: Yes.

The Chairman: But what is the tax one pays in Newfoundland, since you're quite concerned about this?

Mr. Hamm: It's 19.8%.

The Chairman: It's 19.84%. So every item that is subject to GST and PST has cascading...or tax on tax. This is being eliminated.

Mr. Hamm: Yes.

The Chairman: There might be a few instances - and you're quite justified in pointing those out, and I'm very happy you did - but I'm sure you want to be fair and balanced on that.

Mr. Hamm: Yes. Looking at it from that perspective, that is a point. I was looking at it from the perspective, though, that we are still taxing tax revenues at various levels, and that's objectionable. We should be working against that.

The Chairman: Sure.

Mr. Hamm: The other issue, of course, is what's happening to physicians in Nova Scotia, and the failure to give physicians relief from GST. They don't have the opportunity within our medical care payment system to recapture that cost. The blended sales tax will be an increased disadvantage to Nova Scotian physicians and may well, for many, be the final straw, and could result in a further exodus of physicians from Nova Scotia.

I think the member would recognize that the program to retain physicians in rural Nova Scotia is needed but has yet to be fully successful. This will be contrary to, or negate, the government's efforts to retain physicians in rural Nova Scotia. It's a very serious problem in our province right now. I know the member understands that.

The Chairman: Mr. Langevin.

Mr. Langevin: I have a last remark regarding the hon. member's comments.

When you state that the Automobile Association and the Direct Sellers are in support of tax-in pricing, it is another instance where you have people who are least affected and least knowledgeable coming out in favour of tax-in pricing. I don't recall seeing cash registers at the front of automobile showrooms, with reprogramming costs for those cash registers because of tax-in pricing. I don't recall that in automobile showrooms they have to ticket 70,000 items on their floor and incur additional costs because of tax-in pricing. I don't recall having automobile dealerships coming out with 38 flyers a year, at approximately 8 pages per flyer, having to show tax-in pricing. I don't believe I've seen direct sellers come out with those items either.

These people are neither knowledgeable nor educated about the costs. I suspect that many people around the table who are least affected and not knowledgeable of the costs that have to be incurred because of tax-in pricing are the ones coming out in favour of tax-in pricing.

I hope today we can educate those people. Please understand the costs that have to be absorbed by both the consumer and the retailer, which actually gives no economic benefit to the consumer, to ourselves as retailers, or to the government regarding tax-in pricing. So if we can please keep this at a level of conversation where we have knowledgeable expertise within the area in favour of, it would be much appreciated.

Mrs. Brushett: Mr. Chairman, we have made ourselves available and certainly put in the hours to be as well informed as we could. I personally have solicited businesses in my communities and gone to them to review what it would take to re-label shelves or to re-price articles, whether it's cost and labour, a one-time cost, or whatever the issue is.

I would remind you as well that many businesses sell daily ``GST included''. That's part of their routine selling every day. There are variations across this nation today. Consumers have asked for tax-in pricing because they want the benefit passed on.

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As well, I would mention the grocery stores, which have probably as many non-food items as they do food items in the large supermarkets today. They're in favour of tax-in pricing, so they've come to us asking for it.

The Chairman: Yes, Mr. Ferrabee.

Mr. Ferrabee: I could just add to that something about an issue we raised. Overnight, through tax-in pricing, the price of restaurant meals is going to shoot up by 15%, and it will be visible to the consumer. The prepared meals that are sold in grocery stores tax-free will not rise at all. Frankly, I think if I represented that sector I would be in favour of tax-in pricing too, when your closest competitor's price visibly increases by 15%.

Mr. Millar: Mr. Chairman, I would be remiss if I did not clarify a comment that was passed here. The Direct Sellers Association, which was before you on Monday, raised some serious concerns about the tax-included pricing concept and the proposed implementation date. So perhaps there is a misunderstanding. While it is in favour of the tax, Mrs. Brushett, it has indicated serious concerns about the tax-included pricing proposals at this time.

Mrs. Brushett: Only issues that they asked us to deal with and that we said we would certainly take a look at to try to resolve them. That's what the dialogue is about.

Mr. Millar: That's correct: the concerns that were placed on the table and the undertaking by your chair and the committee that they would be looked at.

The Chairman: Currently we understand they are undertaking discussions with Finance to resolve those particular issues.

I didn't understand, Mr. Ferrabee, when you said it goes up 15%. Is it because there is no GST on meals today?

Mr. Ferrabee: No, the visible price the consumer sees because the government is insisting on tax-included pricing, the visible price... If I could, I would like to give you just one example. A$9.99 pizza -

The Chairman: No, I understand the visible side of it.

Mr. Ferrabee: The $9.99 pizza will now have to be advertised at $11.49. The take-away pizza available in the grocery store, fully prepared and ready to go, is not taxed. So the visible difference between those two is because the government is going to insist on tax-in pricing.

The Chairman: You feel it gives you a marketing advantage if the consumer does not know the meal will have 15% added on.

Mr. Ferrabee: That certainly isn't the manner in which I would approach it. That certainly isn't the manner in which it's seen by the industry.

The Chairman: Okay, but you say the tax-included pricing does cause you really serious problems vis-à-vis prepared foods in the supermarket -

Mr. Ferrabee: Absolutely. Forced tax-in pricing -

The Chairman: - because you have to advertise it at a price that's 15% higher because the price is 15% higher.

Mr. Ferrabee: Yes. But what you're intending to do by this legislation, Mr. Chairman, is to force people in the business community, including in our sector...no longer give them the option of how they advertise that. Be it at $9.99 plus tax or at $11.49, what you're saying is you have to advertise it at $11.49.

The Chairman: I understand that. So what you're saying is that there's a great advantage for you in marketing if you don't have to include the actual cost the person will have to pay.

Mr. Ferrabee: No, what I'm actually saying is why, why, why is government stepping in to regulate a sector in which consumers themselves have the opportunity to participate.

The Chairman: Because - and certainly Mr. Campbell can respond to this - we're not representing only producers here. We have to represent every consumer, and consumers have overwhelmingly asked us to -

Mr. Ferrabee: Mr. Chairman, our industry is the first line of consumer demand - the first line of consumer demand. We're in the service business; 30¢ of every $1 that's spent in a restaurant goes directly back into the pockets of employees. We're in the service business and if consumers want something, we'll respond to it, Mr. Chairman.

The Chairman: Ms Whelan.

Ms Whelan (Essex - Windsor): My first question is going to be to the Canadian Restaurant and Foodservices Association. In your brief you quote Michael Whittaker, the general manager of a sixty-unit Atlantic regional chain, as speaking to The Globe and Mail and commenting that a$9.99 pizza would now cost $11.49, and you say it would be ``a difficult price point for sure''.

I'm having difficulty with this, because in Newfoundland right now the actual cost for that $9.99 pizza with the present tax would be $11.98 and in Nova Scotia and New Brunswick the actual cost to consumers would be $11.87. Under the new proposal the actual cost will go down to $11.49. So the promotion that could go on by that regional Atlantic pizza chain is ``the cost to you has come down under the harmonized sales tax and we now have a benefit for you, the consumer''.

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A witness: No question.

Ms Whelan: You have a chart here in your brief about what happened to coffee and muffins from June 1996 to October 1996. Is there not another chart that goes with it to show the promotion that one of your major national chains had running during that same time period, which was what happened to coffee and bagel sales?

I can tell you that I myself haven't bought a coffee and muffin in a fast food chain in six or eight months, but I've bought many coffees and bagels, as have many other Canadians. At the same time your chart shows a downslide because of this cost, you should have a chart showing what has happened to the sale of coffee and bagels. There has been a major promotion going on by one of your major people and you should be aware of it. I know it's been very successful. If you're going to show one chart, you have to show the other chart to show what people buy in a similar price bracket.

Mr. Ferrabee: Are you suggesting that the information we've provided is distorted because of changes in tastes in that particular period?

Ms Whelan: No, I'm suggesting that to have an accurate portrayal of what people buy in that price range, you would have to show which other major promotions are going on at the same time within the price points.

Mr. Ferrabee: I take your point and I understand that. Perhaps we can get back to you specifically on that.

The purpose of the chart really was to drive home the point about price points, if you understand. This was done in a specific region of Canada, only in one part of Canada, not the Atlantic. The purpose of the chart was to demonstrate to the committee the importance of price points, how very important price points are in driving consumers both to your product but also through your door. Many large chains as well as many small operators have invested a huge amount of money in those price points, and when government steps in and only gives them one option for how they advertise, which is price included, those price points are going to change and be distorted. There's going to be a considerable shake-out in the marketplace.

The chart is a very good illustration of what happened when it went from 99¢ to $1.29 as a price point. Obviously it's a price point that didn't catch on with consumers. Consumers much prefer the 99¢ price point. That was the point the chart was trying to make.

Ms Whelan: But it shows a 30% change in price, which obviously can't be attributed to tax.

Mr. Ferrabee: We're not trying to attribute it to tax. The only purpose of the chart is to demonstrate what does happen when you alter price points up, which we're going to be forced to do when tax-included pricing is brought in under HST.

Ms Whelan: I'm just not sure that this is an accurate portrayal of what happens in any industry. Most places don't raise their costs 30% overnight.

Mr. Queen: May I say something on that? I take it you're trying to convey that price points are not real or there's no effect on price points. Yet there's a change in consumer demand on a product such as coffee and muffins possibly because of more desire for a bagel instead of a muffin over a period of time.

We understand that this was a regional test where they increased the price, and where they maintained the price, the sales were maintained at the same level. There are many industries out there that have specials such as 99¢ burgers. I can vouch for the fact that I took my daughter about a month ago to a special and we had to line up in excessive line-ups when they had a 99¢ burger special.

Price points are real. They do increase sales. Our industry relies on price points substantially to increase sales in the poor months, in January and February for example. At any time of year we put food at a special price to bring up the volume.

Ms Whelan: Mr. Queen, I'm not denying that. I know why people have promotions. I understand how you try to attract people into your stores. I recognize that it's all part of advertising. I'm asking, though, if you recognize that when you portray a chart or a graph... I am just very aware of what has been going on nationally with a major chain using a time period for a national promotion on coffee and bagels. I'm just saying that you have to have a few other lines in here for me to believe this chart on its own.

I want to ask you another question. You're going to get a 15% input tax credit on HST. You're also going to get your credits back that people pay on HST. You don't get that benefit right now from provincial sales tax. Are you going to be passing that benefit on to your consumers in your prices? The $9.99 pizza that was portrayed was going to cost $11.49, which is actually going to come down from $11.98 and $11.87. It could actually be less when you pass on the added benefit you're going to get as a food operator.

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Mr. Queen: If I could answer that particular point, first of all, we think harmonization is a good thing in general. But the restaurant industry is not going to benefit to any great degree from harmonization as far as the input tax credit is concerned. As my associate indicated, 30% of our costs are labour. There is no provincial tax on labour. Another 30% is on food, when we go and buy bulk food. Of course there is no PST on that, as well. So then we look at the remaining 40%, and again, we get into things like rent. There is no provincial sales tax on rent.

The effect I personally have estimated is approximately 1% to 1.5%. So it's of marginal benefit to our industry. I'm sure there are other industries out there that are probably going to benefit more than we will.

Ms Whelan: So that will be passed on to the consumer.

Mr. Queen: Absolutely.

Ms Whelan: That's good.

Mr. Ferrabee: In an industry like ours, my numbers show a 3.7% margin, before tax, in Atlantic Canada in the average restaurant. So it gives you some idea of how competitive the marketplace is out there, how enormously competitive it is. I think you can rest assured that certainly any savings will be passed on.

Our concern is that if you visibly force people, through tax-included pricing - and we don't argue with the fact that this may not be the case in the end run - and give them no other choice but to up their prices by 15% overnight, then it's going to cause chaos in the marketplace and may seriously affect how we end up.

Ms Whelan: I don't know how many people sitting around the table haven't seen the proposed guidelines for advertising and for price points. You still can advertise your pizza ``$9.99 plus tax''. You still can advertise the price points, the very point you're making. You just have to say it doesn't include taxes.

Mr. Ferrabee: Then maybe you can clarify this for me. We can do what we're doing now -

Ms Whelan: There are no advertising guidelines right now, but the guidelines that came out last week -

Mr. Ferrabee: I'm familiar with those.

Ms Whelan: - talked about how you're going to show prices in the store. You still can show that price in the store, as you're proposing, without the tax and with the tax. You still can show that price point. That came out on Friday. You're still at the table with regard to the advertising itself. There are not yet guidelines on formal advertising.

Mr. Ferrabee: There aren't specific guidelines on the national stuff. I understand and appreciate the fact that the government's continuing to work on that front.

My understanding, and if possible I'd like some clarification from both you and Mr. Campbell, is that in terms of where we are on advertising the $9.99 pizza special...and I think we're all familiar with that. You put it in the window with a little asterisk at the bottom that says ``plus tax''. It drives people to the store, it drives people through the store, and they buy up. It's an important price point, obviously, in a way that I think intuitively we all know $11.49 isn't, right?

Mr. Campbell (St. Paul's): Even though that's the real price, Mr. Ferrabee.

Mr. Ferrabee: No question. Absolutely. But we're talking about price points. We're talking about something our industry had to learn after losing 40,000 jobs in one year - the importance of price, and exactly how consumers do respond to these things.

So my understanding is that what we're talking about is that a pizza chain can no longer advertise ``$9.99 plus tax''. The best they can do is advertise both.

Ms Whelan: They could dual advertise, show the $9.99 price and the tax-included price next to it. I mean, I have to believe that consumers in the Atlantic are going to see the advantages from a harmonized sales tax in the lower tax they're going to pay on the final price on food in a restaurant.

Mr. Ferrabee: I admire your optimism in terms of consumer behaviour. I think we have a whole raft of evidence that suggests... Let me give you one tangible example that this decision's already been made.

Ms Whelan: Let me finish before you answer. I think it would be helpful if operators in the Atlantic would be specific when they're speaking to the media instead of misleading the public, which is what Mr. Whittaker has done. He made a comment in The Globe and Mail that a $9.99 pizza would now cost $11.49. That's not true. A $9.99 pizza costs $11.98 right now in Newfoundland, $11.87 in New Brunswick and Nova Scotia, and will cost lower, $11.49, with the harmonized sales tax.

I think it's important that everyone do their bit to show the people of Newfoundland, New Brunswick and Nova Scotia the advantages, especially in restaurants, they will receive from the harmonized sales tax.

That's the statement. It's your brief. You go on to say it's a difficult price point, for sure, but that's not what his comment was. His comment was the cost, and his comment is incorrect.

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Mr. Ferrabee: First of all, it's a brief, and you'll notice there are no direct quotes about it. My apologies; it was a poor choice of words. If you actually go back and reference The Globe and Mail article, I think you'll find it's quite clear he's talking about price points, he's not talking about the end cost.

So my apologies if you took exception to the word that was chosen to go in there. That was certainly not the intention of the sentence, and it certainly wasn't intended to mislead this committee. I appreciate your pointing that out to me. Again, my apologies.

I think what I can do is give you a tangible example of one case I do know of. I think it very clearly highlights the importance of price points.

A number of national chains have sat down...I'm familiar with at least one that has already made the decision that if they are forced to change their price points through this intrusive government legislation on tax-in pricing, if they are forced to change their price points in Atlantic Canada, they will not jeopardize the price they have established and the money they have invested in that price point in the rest of the country by running national advertising, for instance, on specialty channels. They will not jeopardize that. They have decided they will do regional cuts, and that creates some of the problems we're talking about in national advertising.

That's how important it is, and that's the point I'm trying to make. That's how important it is to somebody who has invested so heavily in price points in very tough times. On a 99¢ special, for instance, they are not prepared to confuse the consumer in Ontario and Alberta with a price that's $1.14 when they've already established in that consumer's mind the notion of 99¢.

Ms Whelan: One final question. What I'm having difficulty with is that the whole idea, especially for restaurants and especially for retail outlets, is to satisfy the consumer.

Mr. Ferrabee: You got it.

Ms Whelan: That's the goal.

Mr. Ferrabee: Absolutely.

Ms Whelan: That's how you make money.

Mr. Ferrabee: And we're the first line of consumer demand.

Ms Whelan: Survey after survey has found that Canadians support tax-inclusive pricing. So in your business in the restaurants, in the business for retailers, you should want to satisfy the consumer.

Mr. Ferrabee: Absolutely, and we do.

Ms Whelan: I know for myself, that's what I would like: tax-inclusive pricing. I would like it to be exactly the same way as when I buy gasoline at present.

I made this point on Monday, and I'll make this point again. In my three years and three months as an MP I've not received one letter complaining about the way gasoline is sold, the fact that when you buy gasoline you see the GST on your receipt and only on your receipt. You know exactly how much GST you pay and you know it's there. To me, that is what Canadians want. They want to know how much tax they're paying and they want to know the final price they're going to have to pay when they order the product.

They know the tax is there. I believe Canadians are intelligent.

Mr. Ferrabee: I do too.

Ms Whelan: I believe Canadians can tell. In a $1 item, they know there's tax, and when they get their receipt they're going to know exactly how much tax they paid. The majority of Canadians will know before they get their receipt how much tax is in that item.

Survey after survey...and Mr. Campbell brought this out in his presentation yesterday. It reaches 74% of respondents in Nova Scotia and New Brunswick and as high as 82% of the respondents in Newfoundland. Over and over again...

Your goal is to satisfy consumers.

Mr. Ferrabee: Absolutely.

Ms Whelan: They want tax-inclusive pricing. I don't understand.

Mr. Ferrabee: May I ask you a question in return? If this is such a strong wish of consumers, why, why, why is the government moving in to regulate it? Why don't you, as you have suggested, let the consumers decide? Do you really think the government -

Ms Whelan: The consumers have decided.

Mr. Ferrabee: I see. So you're going to use a public opinion poll as the basis for the federal government to move in and regulate an entirely new section of price points, as critical as it is to our industry, because you've decided based on some consumer polls.

I'll tell you something. I had a restaurateur say this to me. I'm not trying to argue with you. The restaurateur said to me, look, if the first three people who walk through the door into my restaurant tomorrow said, gee, I want tax-included pricing on your menus, I'd move to tax-included pricing.

I supply consumer demand. That's what consumer demand's about. That's what I'll do. If my consumers want that, I'll do it. So why is government moving in with the heavy hand of legislation and regulation on something that just doesn't matter?

Ms Whelan: With all due respect, the consumers have said in survey after survey for the past year and even before, through the GST hearings that were held by this committee in 1994 - and I sat through those hearings as an associate member of this committee. Witness after witness came around this table and said they wanted tax-inclusive pricing. This isn't something that has fallen from the sky. This is not some pie-in-the-sky idea we made up. This is what consumers have asked for time after time after time.

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You are in the business of satisfying consumers. You have a great advantage right now in the restaurant association in the Atlantic to promote the savings to consumers from the HST. You have a choice: you can work with it and you can have the advantages of it, or you can make it negative. It's your decision.

Mr. Queen: May I respond to the accuracy of surveys? We do many surveys in our industry. When we do a survey on what people want to eat, they tell us they want to eat salads, lean meat and fruit juices. The top three selling products in our restaurant industry today are burgers, fries and coffee.

The Chairman: I'm your biggest customer.

Mr. Queen: I can tell you that if, as my associate has indicated, consumers wanted tax-in pricing, our restaurant chain would be the first out there with tax-in pricing.

Ms Whelan: Mr. Chairman, I must point out that we also had a presentation by the Canadian Federation of Independent Business on January 20. Of their members in the Atlantic region from the food and beverage sector, 48% said they support tax-included pricing.

Mr. Solberg: Excuse me, Mr. Chairman, I don't think they said they support it. They said it's one of the benefits. But what are the negatives -

Ms Whelan: Tax-in pricing by sector support, Monte. I'm reading from their survey. They presented it to the committee and that's exactly what it says -

Mr. Solberg: Why don't you tell them what the CFIB said about the negative aspects of tax-in pricing?

Mr. Ferrabee: It is an important point. First, on the issue of HST we've made it clear that our operators welcome the drop in the combined tax rate, but have said that they think this positive mood has been compromised by the heavy-handed move toward tax-included pricing.

On tax-included pricing we've spoken with many of our operators who are genuinely concerned about it. The CFIB has highlighted exactly the same concerns, and I quote:

...eliminating the requirement for tax-in pricing would be the most effective way to remove many business concerns...

This is a news release from January 20, the cover to the chart you're quoting from.

We've said all the way along that our concerns about tax-in pricing are that it will further exacerbate the inequalities in the GST base, it will make national advertising campaigns unworkable, it's going to decrease the amount of money spent on advertising in Atlantic Canada, and it's going to set up pandemonium and confusion in the marketplace in the intervening time.

Ms Whelan: With all due respect, they did present the survey and their survey says that 48% of their own members in the food and beverage sector in the Atlantic region support tax-included pricing. Only 28% oppose it.

Mr. Ferrabee: The Canadian Restaurant and Foodservices Association would never pretend to speak for all of small business, and I know the Canadian Federation of Independent Business would never pretend to speak exclusively for the food and beverage sector. We represent the industry and the association down there with a full-time office in Halifax as well as nationally.

Ms Whelan: You have to be careful in your research that shows price points. Maybe you want to show only the price points, but I think you also need to do research on what the consumer wants -

Mr. Ferrabee: We do. That's our business.

Ms Whelan: - and the benefits to the consumer. In your research you could ask the question ``What would you prefer - a pizza advertised at $9.99 that cost you $11.98 or a pizza advertised at $11.49 that cost you $11.49?'' or maybe even less when you add on the benefit of the 1.5% or 2%, whatever it is.

The Chairman: Could I follow up on that? First of all, you've admitted that all of your association welcomes the lower taxes, the lower ultimate price that will be paid. Even though you don't like any taxes, you welcome that move to harmonization.

Mr. Ferrabee: Many of our operators do, absolutely. We've made that clear from the beginning.

The Chairman: Okay, fine. Your association, which speaks for them, welcomes that, right?

Mr. Ferrabee: Our operators in Atlantic Canada welcome it.

The Chairman: And you feel you'd have the best of all possible worlds if you could advertise at $9.99 rather than $11.49 or whatever it is, if you had the option of advertising?

Mr. Ferrabee: What we have trouble with is the notion that government is going to step in and regulate with a heavy legislative hand exactly how we can price our products. I'm not asking the committee to allow us to do it; I'm asking to keep the status quo, that's all.

The Chairman: Okay, just a second. Do your members want the option of being able to advertise at either $9.99 or the tax-included price?

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Mr. Ferrabee: I think our members would very much like government not to regulate how it -

The Chairman: We're going to regulate you if you say it's $3 and charge them $9.99, and you will feel the heavy hand of regulation.

Mr. Ferrabee: Yes.

The Chairman: Now is it that you don't want the option or you do want the option of being able to advertise tax-included pricing or not?

Mr. Ferrabee: We would like to be able to respond to the marketplace, which is what we've been doing on price and price point.

The Chairman: You're very reluctant to answer my question. You don't want the option of advertising tax-included pricing or not?

Mr. Ferrabee: Sure, we would love the option to be able to do both.

The Chairman: Fine. That was my question. So you want the option?

Mr. Ferrabee: Yes.

The Chairman: If you advertise tax-excluded pricing, $9.99 for your pizza, do you have any problem with saying ``plus applicable taxes'' on that, or is that going too far?

Mr. Ferrabee: No, no. Probably the easiest solution would be to stick with the status quo, which in some circumstances... You go by the same pizza places I go by. They say $9.99 and they have an asterisk and it says ``plus applicable taxes'' in some circumstances.

The Chairman: I asked you a very simple question. If you are going with tax-excluded advertising, you don't have any problem with putting a disclaimer, ``plus applicable taxes'', on it, or do you want the option of not saying that?

Mr. Ferrabee: No, no, wait a minute. I'll tell you what I would like, because I'm sure many of these committee members are not, as I certainly am not, an advertising executive. I don't sit down and mock up the boards. Clearly, what our members have said to us in an extensive series of consultations is what they would like is the status quo. If the status quo says you now have to put in a little asterisk that says ``plus tax'' -

The Chairman: Does it?

Mr. Ferrabee: I'm not sure. Does it?

Mr. Campbell: I think that's an important point.

The Chairman: In other words, you don't want any change?

Mr. Ferrabee: We would like to maintain the status quo.

The Chairman: Could anybody help me right now on whether -

Ms Whelan: It already says ``plus tax''.

Mr. Millar: Mr. Chairman, I have the legislation here -

The Chairman: You won't charge me for this advice, will you, Mr. Millar?

Mr. Millar: The legislation for the GST currently requires on the invoice that you either include the amount of the GST in the price or you indicate -

The Chairman: Advertising.

Mr. Millar: There's nothing in the statute that deals with advertising of price.

The Chairman: Okay. You prefer that there be a total option either to say ``plus applicable taxes'' or not to put that on.

Mr. Ferrabee: What we would prefer is the status quo.

The Chairman: According to Mr. Millar, and I accept his advice because he's an expert, you don't have to say ``plus taxes''.

Mr. Ferrabee: I think in many instances we do. My understanding is that -

The Chairman: But it would be anathema to you...your presentation to us today is that you don't want to have to say ``plus applicable taxes''.

Mr. Ferrabee: No, that was not my presentation. I don't think you'll find that anywhere in my brief.

The Chairman: You said keep the status quo.

Mr. Ferrabee: Whatever the status quo happens to be. My understanding is that if the government were considering moving towards the notion of tax-excluded pricing for advertising purposes, if they wanted to move to requiring an asterisk and saying ``plus tax'' in letters underneath, that would be fine.

The Chairman: Good. That's all I wanted.

Mr. Langevin: Mr. Chairman, I have been in advertising for 25 years. It is not law that we state that the price stated does have to include applicable taxes. What that does, though, is having to put that on every subsequent page, as you have for national catalogues - or should it move to the effect that you would have to do that in circulars - would add an additional cost because of the short run that would have to be done with national fliers versus regional fliers. There would have to be black plate changes, taking away from creativity per se. So you would incur additional costs.

The Chairman: Because you wouldn't want to have to say in Atlantic Canada ``plus taxes'' if you didn't have to say that elsewhere. You wouldn't put on ``plus taxes'' unless it were legislated that you had to.

Mr. Langevin: Again, I've been in the industry over 27 years. Our company is of the great belief that the consumer is never wrong. Our consumer also is a very intelligent consumer. The intelligent consumer understands in Quebec, for example, there is 7% GST and there is a provincial sales tax. The one retailer who tried to go with tax-in pricing no longer exists today. They tried tax-in pricing in Quebec when the GST -

The Chairman: Which is totally understandable if you do it as the only institution.

I understand Mr. Ferrabee's position. He has no objection to saying ``plus taxes'', putting a disclaimer on it. You were saying you would, and I understand that.

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[Translation]

Mr. Bélisle.

Mr. Bélisle (La Prairie): I have a question and a comment.

My question is for the representatives from the Canadian Restaurant and Food Services Association. I would like to know what you know about the impact of harmonization in Quebec. It already exists in Quebec for restaurant meals. Do you have any statistics on this? As there been a decrease or an increase in the number of meals eaten in restaurants since the federal and provincial taxes were harmonized?

[English]

Mr. Ferrabee: I can answer that in part. Correct me if I'm wrong, but my understanding of the circumstances in the province of Quebec is that there is no forced tax-included pricing. That is the principal reason for our presentation today and our principal concern about this legislation.

In terms of the net effect of both taxes, we did a considerable amount of research on the implementation of the GST for our industry overall. I have the provincial numbers, but unfortunately I didn't bring them with me. If you like, I'd be happy to send them to you. My understanding is that we did do provincial breaks on them.

Nationally in Canada we experienced a 10.6% drop in sales. We experienced a dramatic decline in market share that we have not seen yet. We experienced a loss of 46,000 jobs in one year, and many were young Canadians who lost their jobs in 1991. An Ernst & Young study concluded that fully 70% of that was directly as a result of the GST, which translates into 32,000 jobs lost as a direct result of the implementation of the GST.

I hope that goes some way toward answering your question. I'm sorry I don't have the provincial numbers with me, but I'd be happy to send them to you.

[Translation]

Mr. Bélisle: Thank you. It's very interesting.

My comment has to do with the statement made by Mr. John Hamm, leader of the Nova Scotia Conservative Party. Mr. Hamm made very relevant comments. On the third page of his document, he says that untold millions more will be taken out of an already fragile economy and that Nova Scotians are being asked to have faith. It says there is no substantial evidence to support an 8% growth in GDP and the creation of 3,000 new jobs.

In fact, Mr. Hamm is telling us that $84 million are going to be taken out of Nova Scotia's economy which is already fragile and that in the long term, Nova Scotians will benefit from the harmonization of the tax.

There's also the matter of loss of autonomy for the provinces. It's not necessary to have the agreement of the three provinces to decrease the tax; the agreement of only two provinces will be needed to increase it.

I'm in total agreement with Mr. Hamm's comments. What he has to say is very interesting. I figure that the federal government intends to commit $961 million, almost a $1 billion, to the harmonization of provincial sales taxes with the federal tax for the three Atlantic provinces in question. I have a very down to earth question.

Why is the federal government putting $1 billion on the table if the long-term advantages for the Atlantic provinces are as clear as they say and will they do the same thing when they want to proceed with the harmonization of the provincial taxes of the other provinces who have not done so yet.

In passing, that was not the case for Quebec.

Let's not forget one thing. This $1 billion amount, as we commonly say, is a one-shot deal. It's not an amount that will be recurring regularly to help the provinces in question.

[English]

Mr. Hamm: I think we'll all agree that those sectors of the business economy that are represented here today are being well represented by those sitting around the table.

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There is a massive impact for Nova Scotia consumers. They will be losing some $84 million of spending power. That will be significant. It will have an effect on every business that sits around this table, although they are addressing it perhaps in a more point-specific form as to how their business operates. You can't take $84 million in spending power out of our economy in Nova Scotia and not feel it.

I haven't seen the list of presenters to other meetings. Mr. Billard is here today on behalf of the Nova Scotia consumer, as am I, but in reality, in relative terms the Nova Scotia consumer has not been represented around the table with the same degree of effectiveness as various business interests are.

Mention was made earlier that Nova Scotians, Newfoundlanders, and New Brunswickers could come here and have their expenses paid. That is a well-kept secret. I don't think 99% of Nova Scotians are aware of that. Many of them, even if they were aware of it, would not be able to make the trek to Ottawa.

But the consumer has a real interest in what's going on, because when you analyse the effect of the taxation, it affects low- and middle-income Nova Scotians more than it does those with higher incomes. A package will be brought forward by our government of $8 million directed at low-income Nova Scotians, but middle-income Nova Scotians will also be seriously affected and they won't be participants in that adjustment payment that will be given to low-income Nova Scotians, the details of which have not yet been worked out; certainly I'm not aware of them.

There are so many implications for the consumer in Nova Scotia. I was very pleased the building association has really presented what it's going to cost to build a new home, but it also has relevance in terms of what it's going to cost to renovate, because the same increase in cost will go on with renovations.

Little has been said - it may have been said at other meetings of the committee - about all of those in Nova Scotia who rent their premises, their shelter, and how they too will be faced with increased costs. As you know, the input tax credits won't be effective for a landlord, because residential properties don't attract the tax, so there will be no opportunity to bury your input tax credit. I didn't bring the figures with me, but we have worked out the increased cost of renting properties in Nova Scotia as a result of the blended tax.

So all sorts of hidden costs go on the backs of the consumers, and they go beyond the tables that have been provided by government. I think it's unfortunate that a group as large as the consumer group has as little opportunity to present in a very meaningful way what this taxation change means for them.

The point has also been made by the hon. member about the peculiar arrangements between the provinces for increasing and decreasing the tax. We have a very serious concern about losing autonomy over our provincial taxation system. It's all in the agreement, and I have a copy there, but the member is obviously familiar with it. For example if, during the course of the agreement, the Province of Newfoundland and the Province of New Brunswick wish to increase the level of taxation above 15%, they can do that, because the agreement provides that only two of the three provinces must agree to an increase in the tax. That to my mind, for our province, is not acceptable.

There are any number of problems this particular arrangement will provide for us.

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The hon. member brought out as well what happens at the end of the agreement if in fact$960 million was required to get the agreement in place and to make it attractive to the provinces? What happens at the end of four years? We'll be in chaos again.

The payment to Nova Scotia to participate in this agreement was $249 million. If this was a stand-alone agreement that made sense, there would not have to be a payment by the federal government for us to participate. If it stood by itself, we would welcome it with open arms. We do need tax reform, but I question the validity of a tax reform that has to be paid for by the federal government. In other words, why do they feel obliged to provide us with the money if it's such a great stand-alone deal? It simply isn't a stand-alone deal.

[Translation]

Mr. Langevin: Could I make a little comment on Mr. Bélisle's questions?

The Chairman: Very briefly, if you please.

Mr. Langevin: Mr. Bélisle says that there's been tax harmonization in Quebec since 1991. The posted prices don't include the tax in Quebec either. I shall not be the first one and I shall never be the one to say that the Quebec consumer is more intelligent than the New Brunswick, the Newfoundland or the Nova Scotia consumer.

If the taxes are not included in the sales price in those provinces, I'm sure the consumer will understand that the posted price will include the tax. Everything is fine in the province of Quebec with a harmonized tax and the posted price does not include the sales tax.

I don't understand why the Atlantic provinces couldn't have the same deal. Over two weeks, we got the signatures of 16,000 consumers saying they don't want it. We took the time to educate them. We asked them if they were ready to pay for additional costs. Taking into account the opinion of our consumers, we will have to relabel our stock and reprogram our cash registers.

I have heard Mr. Bélisle's comment to the effect that their taxes have been harmonized for quite a while. We do have a HST in Quebec, but the prices posted don't include the tax. We'd like to have the same thing in the three Atlantic provinces.

The Chairman: Mr. Solberg.

[English]

Mr. Solberg: Just a couple of minor points. First of all, with respect to compounding, if you have goods that originate outside of Atlantic Canada and they end up in Atlantic Canada there will be compounding anyway, of course, under the new agreement. The great majority of goods probably originate outside Atlantic Canada. So Ontario sales tax, for instance, will be embedded in the price of a piece of furniture, and that would be compounded.

I wanted to make that point.

The Chairman: That would be cascaded until we have total harmonization, which you will be supporting?

Mr. Solberg: You know what, Mr. Chairman? Come up with many more billions of dollars and I'm sure all the provinces will jump on board. They will be just thrilled to come on board.

The Chairman: At least you're on the constructive side of it right now.

Mr. Solberg: I want to follow up on something Mr. Ferrabee said. I think it's a really important point.

In a day and age when businesses are asking for less and less regulation, what we're proposing here is a brand-new regulatory regime where we have bureaucrats sitting with rulers, measuring the size of print in catalogues, 1/32 of a page, or whatever it ultimately is going to be. Is it advertised in-store? What do we do about the parking lot at McDonald's, where they have the price, 99¢ for a hamburger, up on the sign in the parking lot, but the price of $1.14 in the store? Is the price policeman going to come and say ``No, it has to say $1.14 on the sign outside too''? This, to me, is so absurd.

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I come from the broadcast industry. It's like establishing a new CRTC - God forbid - to go and regulate prices just because of the government's obstinacy on this idea of tax-in pricing. It's absolutely absurd.

As many people have said, they support harmonization in Atlantic Canada save for tax-in pricing. To say that we have a survey that says people prefer it, not that they want it desperately, but they prefer it... I'd prefer to have someone give me $1 million, but I know that's not going to happen.

Mr. Campbell: Will you go away?

Mr. Solberg: Well, for $1 billion I might go away, just like Atlantic Canada.

Some hon. members: Oh, oh.

Mr. Solberg: At any rate, Mr. Chairman, I've had my say. I don't know if people want to respond. I just felt I had to say that.

Mr. Hamm: Mr. Chairman, on a point of clarification -

The Chairman: Mr. Billard, please.

Mr. Billard: Mr. Chairman, I wonder if I could ask you a question. Would it be possible for the committee to consider holding off on the tax-in pricing regulation until all of Canada has agreed to come on board with your harmonization? Atlantic Canada, and the three provinces here included, represent such a minor fraction, I think 3%, of the North American retail economy. Would it not be possible for us to ask you to go ahead with many parts of the HST but to hold onto tax-in pricing until it is the same all across Canada?

The Chairman: I take it, Mr. Billard, your only objection to the -

Mr. Billard: No, you can't take that, Mr. Chairman.

The Chairman: But you would support the HST if it did not have tax-included pricing. Is that what you mean?

Mr. Billard: No, Mr. Chairman, you can't make me say something that is fundamentally against my will.

The Chairman: Oh, no, that's fine.

Mr. Billard: But I asked you a question.

The Chairman: I just want to know where you're coming from.

Mr. Billard: I asked first.

Some hon. members: Oh, oh.

Mr. Billard: Am I to take it, sir, you are not in favour of harmonizing it across the country?

The Chairman: We are here to listen. We are here to learn. You are 3% of the input we're having on that issue from the North American market. We are anxious to hear both sides on this issue. If it's your recommendation to us, we will consider it.

But I'm asking you a question now. I've answered yours. Would you be prepared to support the HST if there was no tax-included pricing, as many of our witnesses have said they would?

Mr. Billard: That's not my only objection to the HST.

The Chairman: So your answer is no.

Mr. Billard: That's not my answer, Mr. Chairman.

The Chairman: Well, is it your answer that you would not support it?

Mr. Billard: I'm still not sure whether you answered my question. I don't want to spar with you, sir, but I'm also not going to have words put in my mouth.

The Chairman: I, as chairman of this committee, am not going to prejudge the result before I've heard the witnesses - in spite of the fact that you maybe want me to do it.

Mr. Billard: Mr. Chairman, perhaps I could answer your question by asking you to just tell me the truth. Just tell me what are the taxes you need to run my country, tell me I'm going to have to pay them, and I'll pay my share. If part of my share includes the HST, and you've told me the truth, I'll be pleased to pay you my taxes, sir.

The Chairman: It's not me who's doing the taxes. It's the federal government.

Do I take it you've gone back to your text, which you're repeating to us, that if we did not have tax-included pricing you would be supporting this bill?

Mr. Billard: I have made several comments that I find -

The Chairman: You would not support it? If we removed tax-included pricing, would you vote for this bill or not?

Mr. Billard: I'm not allowed to vote, sir. I'm not a member of Parliament.

The Chairman: If you were a member of Parliament?

Mr. Billard: I hope I'm never a member of Parliament.

Some hon. members: Oh, oh.

The Chairman: Well, obviously we're not getting... The witness is not going to answer that. That's fine.

Mr. Campbell, please.

Mr. Campbell: I wasn't going to start here, but I will, since we've been talking to Mr. Billard at the end of the session here.

Mr. Billard, you've come here and made a compelling presentation in your written remarks. Notwithstanding your reluctance to answer the chairman's question about where exactly you stand, you did lead at least this member to think that you were supportive if we removed tax-inclusive pricing, based on what you last said. But you've clarified; you don't appear to know where you stand on this. That's fine.

You've said you're here representing Nova Scotia consumers. You gave some evidence about the impact on you as a consumer. Indeed, Mr. Hamm referred to you as representing the Nova Scotia consumer.

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Have you had any experience with sales taxes in business or considered the impact on business of a harmonized sales tax? I don't know what business you're in, but you've made some comments here about complex -

Mr. Billard: Thank you for the opportunity to correct one thing Mr. Hamm said. He did say I was representing Nova Scotia consumers. In fact, I'm Allan Billard. I'm a consumer. I'm here today at the invitation of Mrs. Brushett, who said I could come.

Furthermore, to directly answer your question, I am a private consultant. You may hire me if you wish. One of the areas I specialize in is fisheries and ecotourism consulting. I bid on contracts all across this country.

When, for instance, I open up the list of contracts available through the open bidding service, which you people know about, I'm very concerned that I'll be bidding against competitive consulting firms from provinces that don't have an agreement with the federal government. If I have to charge HST, then my prices may be 15% higher to the purchaser.

Now, I appreciate the input and flow-through tax credit and so on. I appreciate that I may or may not be subjected to greater costs. However, my client is going to be, and may very well choose a competitive consultant from Prince Edward Island.

Mr. Campbell: Thank you. We in this committee first of all like to get the facts out. Reasonable people can disagree sometimes about the facts, one of the great surprises you find in politics.

When you said you didn't want to be a member of Parliament, do you have any interest in being a member of a provincial legislature?

Mr. Billard: Yes, I do. In fact, I'm standing for election whenever an election is called in Nova Scotia.

Mr. Campbell: So you are the same Allan Billard who was officially nominated as a Progressive Conservative candidate in Dartmouth South?

Mr. Billard: That's exactly correct, sir.

Mr. Campbell: I wanted to clarify that. We like to know where witnesses are coming from. Thank you.

Mr. Chairman, I want to move back to the points I wanted to make.

By the way, Mr. Billard, by that I don't want to suggest that there's anything wrong with any politician coming to appear before us, or I'd have to leave the room. But I do want to suggest that in the interests of clarity and shedding light, being forthcoming with this committee about one's motivations - and you can be a consumer and a politician, as we are, around this table - is helpful if the goal of this committee is to understand the real problems people have with initiatives we are considering.

Mr. Hamm spoke earlier about the pass-through. I don't have a copy of his text, but he said on several points - I've noted it here - ``I believe'' with respect to the pass-through.

With all due respect, Mr. Hamm, you can believe what you will, but the facts don't support you. In the European Community there is evidence that the pass-through is passed through to consumers on input credits. With respect to the GST, there is ample evidence of pass-throughs to consumers. So when we say we believe that will happen, we base that on some empirical support.

You quoted a number, a cost to consumers of $84 million. I think others have referred to that number. I understand that number does not factor in any business pass-through at all, and that even on the basis of only 50% pass-through it's more than offset. In addition, you didn't say that Nova Scotia has provided a reduction through this of the Nova Scotia sales tax of two percentage points, which results in savings of approximately $32 million. They've enhanced the low-income tax reduction program and provided a specific amount of money, $8 million, I understand, of targeted relief to Nova Scotia taxpayers.

I'd like you to confirm if that $84 million number you quoted includes any of that, or is the net number after taking that into consideration?

Mr. Hamm: In terms of the $84 million you've asked a number of questions, actually.

Mr. Campbell: I asked if it's a net number. Really, it's a simple question. Is it a net number?

Mr. Hamm: The $84 million is the average consumer tax increase, and it's a figure provided by our provincial government.

Mr. Campbell: So it does not include any pass-through effect, take into account offsetting reductions, a low-income tax reduction program or targeted relief. Thank you.

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The restaurant association people have been intrepid witnesses before this committee. We're becoming very familiar with each other. They're always here, always with interesting things to say, always concerned and doing an effective job of representing their business sector.

One of the things I want to say in response not to what you were talking to Ms Whelan about but in terms of advertising, to clarify for the benefit of members, on behalf of the government, is that the governments involved in harmonization continue to work toward advertising guidelines. I think you acknowledge as much, Mr. Ferrabee.

We look forward to those guidelines, which would clarify many of the outstanding questions. Just as the guidelines on tax-inclusive pricing have gone and resolved some issues and gone a long way toward addressing others, we all look forward to those guidelines and your continued help.

With respect to the publishers who are here, the magazine industry, you've said that the conversion charts...

By the way, Mr. Chairman, I'm saying a whole bunch of things. I'm sure many witnesses, or some, will want to reply. I look forward to that.

In terms of magazines, you've characterized the conversion charts as cumbersome. I know you don't prefer re-stickering every magazine. So if a solution has to be found in the context of tax-inclusive pricing, would you agree - and you can come back to this when I finish this list, which will shortly be done - that conversion charts - for that matter, perhaps you're familiar with the suggestions on shelf pricing and bin pricing - is a better way to go than individually re-ticketing every magazine, given the time-sensitive nature? I understand from the Periodical Marketers of Canada that they're quite happy with this as a solution rather than re-ticketing. I wonder if you'd comment.

On housing - I'm almost through my list, Mr. Chairman - I think we'd all prefer consistency among the provinces with respect to the rebates. However, it is up to individual provinces, given their own fiscal positions, to decide what to do.

I believe those are my points. I look forward to responses or comments from anyone on any and all of these above.

I'm sorry, there was one more, Mr. Chairman. I beg your indulgence. I don't want to leave my other friend here out of my response.

You've suggested that you're closing a number of stores. Since you've raised it - and I hope I'm not going to ask you to reveal any commercially sensitive information - when you make a statement about closing stores and that it's because of this harmonization or the prospect of it or this is the last straw, I think it would be relevant to know just how long those stores have been marginal or not profitable. What is the history with respect to those stores?

Even in Ontario, where I'm from, we've seen some store closures. Consumers Distributing comes to mind. Ontario is not harmonizing. So there are other factors in the marketplace. I know you will readily acknowledge this. I'd like to give you a chance to talk about those stores. Fair comment if you think harmonization is the last straw, but I don't think you should leave us with the implication that it is the only reason.

You made a reference to Sport Mart. It's very interesting. Are you from New Brunswick?

Mr. Langevin: No.

Mr. Campbell: Sport Mart has not indicated, as a reason for closing its stores, the GST. Most of its stores are in provinces... In fact, I'm not even aware that there is a Sport Mart store in the Maritimes. I hope somebody can tell me. There are none in New Brunswick. The bulk of them - I think there are five or six of them - are in Ontario, which is not harmonizing. So I don't think that's an example. I don't think you want to leave us with the impression that Sport Mart is closing because of the GST/PST harmonization.

That was very long-winded, Mr. Chairman. I'm sorry. I would like to give people a chance to respond.

The Chairman: Mr. Langevin.

Mr. Langevin: Perhaps I'll respond to the last question first. With regard to the statement about Sport Mart, with regard to the statement about Forzani's, with regard to the statement about Sears laying off 1,900 employees, with regard to any statement that Wal-Mart International is showing a loss of $17 million, of which 80% is their Canadian operation, it's showing that the retail industry in this country is having a difficult time already. The retail industry does not necessarily need at this moment in time additional costs moving forward. Tax-in pricing will cause additional costs, making a difficult situation that much more difficult. Therefore, the reference for all of those... We can go on and on with the state of retail in Canada.

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I hope that answers your question.

Mr. Campbell: So you're saying it may be a contributing factor into the future.

Mr. Langevin: Oh, it will be a contributing factor into the future.

Mr. Campbell: But you would acknowledge that there are lots of reasons why retail may be in trouble in one region or another, or in one city or another. This is an ongoing saga that concerns all of us.

Mr. Langevin: I think it's a saga that will always be ongoing. One has to look at what is wrong with one's business -

Mr. Campbell: So there's not one factor.

Mr. Langevin: No. But one has to look at why we would wish to incur additional costs in an already difficult situation.

Mr. Campbell: Fair enough.

Mr. Langevin: In response to store closures throughout the Atlantic provinces and possible store closures in the rest of Canada, a retailer - having been in the industry over 25 years - on an annual basis, on a semi-annual basis, on a three- or five-year business plan, will always look at reasons, options and rationalizations of why we should or should not keep a particular retail entity operating.

If costs, because of certain recommendations brought forth by this government, are going to put those marginal stores over the edge, why would we wish to incur additional losses moving forward? That rationalization will always continue. We will look constantly at the cost of doing business. If costs increase because of tax-in pricing, then we have to make the decision ongoing that for the good of, one, ourselves, and two, the consumer, those stores would have to close. Therefore, the HST is a contributing factor in the closure of those stores.

The Chairman: Mr. Dixon, please.

Mr. Dixon: I'd like to speak to the hon. member's comment with regard to the housing industry and the fact that any adjustments that should be made with regard to rebates really are a provincial concern.

I'm disappointed, I guess, that this comment was made. I took from earlier comments made by the members on the committee that in fact you thought there was work that had to be done in that area. We came here today to impress upon you that we feel there has to be leadership shown by the federal government in this area.

I come to you today with no degrees. I'm not a lawyer or a tax specialist. I'm a middle manager. I'm just an ordinary Joe out there. Somebody might want to explain to me that harmonized sales tax, if we just look at the name of it, tells us what it's all about. It's harmonized. But on this huge issue you're telling us to go back to our provincial governments and talk to them about it, because it's their issue. This is not what this tax is all about. It's a harmonized sales tax. If everything was working out the way I'm sure some people would like it to, it would be a national sales tax, with not just the three Atlantic provinces concerned.

So please don't tell me to go back to our provincial government. We have met numerous times with the provincial government. We have corresponded. Our association, the national association, and the home builders have all given large amounts of data to prove that this is not going to be price-neutral for new construction.

The federal government has to go back to the provinces and give some leadership in this area and say, we can't have you going in three different directions on this. We have everything else going together, so why should we allow a difference in this one particular area? I don't know if there's another area in this whole discussion on harmonized sales tax where that same comment would be made. Are you going to tell the restaurateurs that in Nova Scotia they can do one thing but in Newfoundland they can do another? This is a major point.

Mr. Campbell: I want to thank Mr. Dixon for that. I don't want to leave the impression that the door is closed, that the books are closed on this. In fact, I know the president of the Canadian Home Builders' Association has lined up meetings as part of an ongoing dialogue with Revenue Canada and with the Department of Finance to look at systemic problems in the industry. We have heard from not just you today but also from others yesterday that there are ongoing concerns.

We have not said that this is it, or that's it. I said to you in my comments that we would prefer to have seen a consistency with respect to rebates. There are other problems that go beyond the GST and beyond harmonization. The dialogue continues. This is not the end of the piece. The testimony that comes from your industry is compelling and provocative. I know we're continuing to work with the industry, so I take your latter comments very seriously.

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The Chairman: Mr. Ferrabee.

Mr. Ferrabee: This is just a clarification on an issue that's very similar, and that is beverage alcohol pricing in Atlantic Canada. If you're creating a list of possible issues perhaps you could add to that list beverage alcohol pricing in Nova Scotia and Newfoundland.

You're probably aware that the Province of New Brunswick has announced that it will pass on the savings from the HST to consumers and wholesalers like us. In fact, in the other two provinces wholesale prices are going up as a result of the HST. We've been working very closely with those governments to try to have them toe the same line as New Brunswick, but perhaps if you're creating a list of those kinds of issues you could add that to it.

The Chairman: Mr. Hamm.

Mr. Hamm: Mr. Chairman, in response to Mr. Campbell's comments, there's been considerable discussion about what happens if the increased cost of retailing in Atlantic Canada results in store closures. I am sure that at some point in these hearings you had the presentation by seven major retailers who are active in Atlantic Canada. They indicated a start-up cost in Nova Scotia, for example, of $12 million and annual costs of $12 million for those seven companies to retail in our province.

They further indicated that they would not absorb those costs; they would be passed along. That will be made particularly easy if things have to be re-ticketed. We benefit in Atlantic Canada from country-wide pricing. In other words, if in a healthier retail market an item is ticketed at $9.95 and it's sold at $9.95 in our area, we benefit from that cross-Canada pricing. Requiring re-ticketing, which then allows the retailer to add their additional costs, will mean increased cost of those goods in Atlantic Canada.

Reference has been made to a study done about the preference of consumers for tax-included pricing. About 70% did reply in the affirmative. However, when that 70% were asked if the tax-included pricing was accompanied by an increase in the tax-out cost of the good, then the support for tax-included pricing was below 50%. I wanted to make that point.

Mr. Campbell was talking about the pass-through. The document that I'm sure Mr. Campbell is familiar with is the average price decline in Nova Scotia of goods if in fact a 50% pass-through occurs.

In the course of getting my head straight on this issue, I interviewed a number of independent economists, none of whom would confirm a 50% pass-through, all of whom predicted a considerably lower pass-through. In addition -

The Chairman: Maybe you'd be good enough to have those economists contact us.

Mr. Hamm: The second point -

The Chairman: Would you be good enough to have those economists contact us?

Mr. Hamm: Okay. They were on the basis -

The Chairman: Maybe we could phone them.

Mr. Hamm: They were -

The Chairman: Do you have the names?

Mr. Hamm: These were consultations I had to try to get confirmation -

The Chairman: I understand that. Maybe we could benefit from talking to the same economists.

Mr. Hamm: If they're prepared to make their names public, I would have no problem with that.

The Chairman: I'm sure they would be.

Mr. Hamm: My second point, Mr. Chair, is that law amendments... In Nova Scotia we had almost 90 presenters on this issue. For those of you who are unfamiliar, our process is not unlike what we're going through here today. Either an interested party representing themselves or a group can come and pass judgment on a bill.

I had the opportunity to sit on that committee, and we took that opportunity to ask those who were in favour of the blended sales tax changes if their company would pass along 50% of the input tax credits. None of them confirmed that level. As a matter of fact, they gave much lower estimates, that the pass-along simply wouldn't be 50%.

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The Chairman: Maybe you could give us some names and we could contact these people, because I must confess we are hoping there will be pass-through. Would you be good enough to give us their names?

Mr. Hamm: I can provide you with the entire documentation of our law amendments committee, which addresses all of these problems.

The Chairman: But could you give us the name of the economist? I assume it's an economist at one of the universities who has indicated that it would be 50% pass-through?

Mr. Hamm: Yes.

The Chairman: Would you be good enough to give that to us afterwards?

Mr. Hamm: Yes, with his approbation.

Now, if I could complete my statement, when this document came out in the spring, it was all based on a 50% pass-through. Our minister has backed away from that. He no longer says there will be a 50% pass-through. So he himself has backed away from that. Publicly he is saying he's not sure what the pass-through would be, but he no longer hangs on to 50%. So he himself now questions the validity of the figures that came forward in the spring.

The Chairman: Thank you.

Mr. Jones.

Mr. Jones: Thank you, Mr. Chairman.

The hon. member, Mr. Campbell, raised a point about our reference to cumbersome signage in retail outlets with regard to the sale of magazines. Our brief made it clear that we applaud the work of officials to come up with a solution that is much better than the time-consuming stickering of product. The periodical marketers, who I believe will be presenting, have endorsed that, while at the same time deferring to the more general points we're making in our presentation today.

The cumbersome signage we referred to is, to be frank, almost the least of the points we are making. It's an irritant. We are much more concerned with implications of tax-inclusive pricing in subscription marketing, which gets back to many of the price-point arguments we heard earlier today. It also deals with many of the issues of national marketers dealing in a variety of areas.

More importantly, the issue we are here to talk about this morning, as we sit in this beautiful room, dedicated to the spirit of the printed word -

The Chairman: And the printed word, not just the spirit.

Mr. Jones: Yes, and the printed word itself, which clearly those who made this wonderful building saw as the foundation of our democracy.

We are here to discuss the implementation of a tax on the printed word that is more than double that in any other G-7 country. It impairs the ability of an already fragile industry to survive. That is the point we are here to make this morning.

Thank you.

The Chairman: Thank you very much.

Mr. Queen.

Mr. Queen: Thank you, Mr. Chairman.

I would like to make some observations in response to the most recent comments. It appears there are many problems with tax-included pricing and there are some solutions. I understand there's a conversion chart of some sort; it sounds like a complex solution. There's some refinement to advertising rules. We would recommend that tax-included pricing be dropped or at least deferred, as another suggestion.

Secondly, we would like the GST to be fixed. We are competing in an inequitable marketplace, and before HST is implemented, where the priced good would come even higher in comparison to prepared food sold in a grocery store, we would like to make the recommendation that the GST be fixed.

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Queen.

Mr. Campbell.

Mr. Campbell: I just want you to clarify something. You've given us this great Canadian subscription catalogue. Do I read this right? You're advertising GST included in here?

Ms Keachie: May I see a copy of yours?

Mr. Campbell: Could you explain how it works? It seems I've seen three different prices in here.

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Ms Keachie: All of our members have individual ways of expressing themselves in their various subscription campaigns.

Mr. Campbell: So some are tax in, some tax out?

Ms Keachie: Right. It was terrifically confusing, so in the end we simply chose one approach for our little catalogue. You'll see that the price includes GST.

Mr. Campbell: It says on page 2 in big red print - I don't know if it's 1/32 or whatever - ``Please note, GST is included in all prices except where noted as not applicable (or n/a)''.

Ms Keachie: Here, under price, yes - four issues, GST, plus $1.40 postage. We give an example.

Mr. Campbell: So in a lot of places you're already advertising a lot of your magazines as tax-inclusive.

Ms Keachie: Yes.

Mr. Jones: This would be an extremely aberrant situation. In fact, the only -

Mr. Campbell: What would be?

Mr. Jones: This catalogue.

Mr. Campbell: But you spoke about subscriptions. This is a major subscription catalogue.

Ms Keachie: No, no, it's actually one of the smallest tools in the country.

Mr. Jones: I would think that one-tenth of one percent of the subscriptions to the magazine I publish come from this catalogue. The other 99.9% would come from our own efforts.

Mr. Campbell: Well, you presented this. That's all I have in front of me.

Ms Keachie: We presented this to indicate to you how many magazines we're talking about, to let you know -

Mr. Campbell: Unfortunately, as I look at it, it has some other information quite pertinent to this discussion we're having. The pricing is not clear.

Ms Keachie: Yes, we're here on several issues, price-inclusive.

A voice: What is your point exactly?

Mr. Langevin: The point being made is that GST is a national tax. HST is not a national tax. It is regional, in Atlantic Canada. The balance of the country does not have HST. Therefore, asMr. Billard said, can we defer tax-in pricing until it is a national campaign and not a regional campaign? I think it would be preferable on all sides if we had a national -

Mr. Campbell: The only point I am referring to is the statement that I believe I heard - that you didn't want tax-inclusive pricing; it would make subscriptions more complicated. I heard others say that consumers didn't want it. Obviously you're responding to something here when you're including it, or when some of your members are including it.

Ms Keachie: In our case it's simply to make it simpler to produce this expensive catalogue on behalf of our hundreds of members. Most of our members liked the choice. In fact, there was concern about it -

Mr. Campbell: Then I go back to the chairman's suggestion that you'd be happy with a requirement that it be dual-priced or a disclaimer.

It's been a long morning, Mr. Chairman.

The Chairman: I think we have a couple of points. Mr. Langevin has suggested that there would be no unfairness if you had to include the GST nationally and say ``plus provincial taxes if applicable''. That would get the idea across and there probably wouldn't be any added costs.

Mr. Langevin: I'd have to look at that, but it's possible.

The Chairman: Then it would be the same advertising for anybody selling anywhere in Canada.

Mr. Langevin: As long as the ticket price on the floor also does not have to be changed. You have to have ease of selection. If you're advertising $9.99 plus applicable taxes, the consumer must be able to walk in on the floor, see a sign that says $9.99 and see a price ticket that also indicates$9.99 allowing for ease of selection in buying this item.

The Chairman: It would be okay to have $9.99 plus applicable taxes in the store?

Mr. Langevin: That would be fine.

The Chairman: And if it were a bin you could put that it equals $11.54 for the $9.99 item.

Mr. Langevin: At that point it's verbiage and you're depending on the intelligence of the consumer to make the decision.

Mr. Jones: Mr. Chairman, I have some clarification on this. All members of our association have a GST-inclusive price that is their price plus GST. Some of our members, particularly our smaller members, only have a GST-inclusive price because they can't be bothered dealing with the accounting. So for the purposes of a document like this, which has to deal with 300 different ones, we went with the one price that everyone happened to have. And 90% of them are not going to be marketing themselves individually to the consumer with a GST-inclusive price.

Mr. Campbell: You are advertising tax-inclusive pricing in your industry.

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Mr. Jones: There are some people who do.

Mr. Campbell: There are a lot, if you flip through the catalogue.

Mr. Jones: The point we're making is that everyone in our industry has a price, a price plus GST. For purposes of a document like this where there has to be consistency, that consistent point is adopted. It represents 0.1% of subscriptions sold on a major magazine.

The Chairman: Any other comments? Would any of our witnesses like to add anything to what we've said before we close off?

I think we've had a very telling session today. We have had before us witnesses who are probably suffering because of the HST. The tax burden or the cost burden they will bear has gone up. We have the magazines, which are now taxed with GST, and they are going to have the PST added to it. I think we have to recognize it is an added burden. It is going to cause their prices to go up, which may cost certain sales.

We have the restaurant industry, which we know has suffered discrimination at the hands of prepared foods sold in supermarkets: milk, for example, in a McDonald's versus the supermarket next door or the convenience store next door. I've never yet bought pizza in the supermarket just because it's cheaper there. Oh, I did once, and I will never do that again.

We've had the housing industry, where it's fair to say under this proposed issue the tax burden is going up.

We have had a business person with extensive retailing operations who has brought to us some of the added costs of converting cash registers. If there were a full-blown regime for tax-included pricing, as perhaps in the worst scenario, it might cost them a million bucks a year, he's pointing out.

We didn't get to the question with you, Mr. Langevin. Have you read the guidelines? Do they take away some of the costs you would otherwise be associated with? We've also found out today perhaps on the tax-included pricing issue maybe we can get the advantage for some of the businesses in the Atlantic provinces of the actual lowering of the retail sales tax, without all the feared or potential added costs that might have come through a full-blown regime of tax-included pricing on the basis that might have been perceived. I'm going to ask you, Mr. Langevin, if you would be good enough to meet with our officials afterwards to go through some of the specific costs you as a regional retailer having to buy merchandise and being 75% in the clothing and apparel business, where you're buying ticketed items and things like this...if there are ways we can accommodate some of your concerns.

We are not doing this as an exercise in ideology. I'm going to ask each of the others of you to continue to do that, to work with us in a way to reduce the costs and the burdens.

I'm frightfully afraid for the magazine industry. I have to be fair. You're an important industry to us and the fact is your costs have gone up 15% since we introduced the GST, and they are now going up...and with the PST involved. There may not be anything we can do about this, short of alleviating the tax burden for you. If we do it for you, I know the funeral industry will come at us and ask us to remove it from that, and there are a lot of others, but we know there's a lot of merit in your industry. You've been very forceful in putting before us the importance of the written word as opposed to so many of the other things that are subject to tax.

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This is one of the very difficult things we have to make as politicians. We know we don't please people. I guess the easiest thing to do would be to tax everything and create no exemptions, but for certain reasons we have. Mr. Ferrabee would welcome it if we taxed all basic food and wheelchairs and crutches on the same basis as we taxed the restaurant industry. I understand this.

A voice: Hang on a minute.

The Chairman: One thing we heard from all our witnesses today, except for two people, was that you do favour a harmonized approach. You have concerns about it, but you do favour a harmonized approach, not having ten individual sales taxes right across the country.

I don't know whether Mr. Hamm and Mr. Billard are totally in agreement.

Are your views on this issue the same? Are you speaking here as a Conservative candidate under the leadership of Mr. Hamm or are you here as an individual?

Mr. Billard: I'm here to take an opportunity, Mr. Chairman, to speak as I see it.

The Chairman: That's fine.

Mr. Billard: I'm not here with Mr. Hamm.

The Chairman: Okay. Maybe I could ask you a question. I won't ask your leader to answer for you. Have you read the Atlantic Provinces Economic Council's study on the HST?

Mr. Billard: Yes, and I have some considerable concerns on that.

The Chairman: Do you recall what they said would be, per year, the net benefit in costs, in 1996 dollars, on an ongoing basis?

Mr. Billard: Perhaps you could refresh my memory.

The Chairman: It's $41 million. That's no consolation. I'm not worried about the politicians. Politicians can find lots of platforms to make themselves heard. I guess I'm more concerned about the people who feel that even though the economy might benefit by that, we're not benefiting. We are going to be losers under that scenario. Even though the winners might outnumber it, we have people here before us who are losing.

It's because of this that we will undertake to work with you on a continuing basis to see if there are things we can do to alleviate some or all of those difficulties. I make no promises except that we are open and we want your input.

On behalf of all members, may I thank you all for being with us today.

Mr. Solberg: Mr. Chairman, I wonder if I could have a copy of the survey Mr. Campbell has been quoting from today.

Mr. Campbell: All three surveys were available in the room yesterday. I think I probably have copies you can have.

Mr. Solberg: Thank you.

The Chairman: The meeting is adjourned.

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