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Chapter 4: Other measures


A. Small Business And Self Employment

As the Committee recognized in its report last year, 85 to 90 per cent of new jobs will come from businesses with fewer than 50 employees or revenues of less than $2 million. The Committee is concerned that small businesses and entrepreneurs have access to capital for start-ups, expansion, growth and job creation.

(a) The Role of Banks

The banks have agreed to help meet the government's objective of ensuring that small and medium-sized enterprises (SMEs) have access to the equity and operating capital needed to grow and create jobs.

The banking industry, in its testimony to the Committee, noted that over 95 per cent of the banks' business borrowers are small and medium sized businesses. Over $62 billion in credit is authorized to over 677,000 small and medium-sized businesses in Canada.

The Committee welcomes recent developments in the banking industry. Every bank now has an Ombudsman and there is an Ombudsman for the industry as a whole. The industry has put in place a code of conduct for relations between bank staff and small business clients. As well, the banks have put in place Alternative Dispute Resolution mechanisms to handle complaints. They are offering new products to assist small businesses in their planning. They are developing partnerships with local community organizations to increase access to financing and are mounting major efforts to train their managers and officers to better understand and meet the needs of small business. They have increased lending to SMEs over the past year and the Committee heard fewer criticisms this year than last of bank lending practices.

Our Committee recently tabled in the House of Commons recommendations for reforming the legislation governing federally regulated financial institutions. A number of these recommendations will lead, we believe, to greater competition in the field of SME lending by facilitating the entry of foreign lending institutions into Canada.

RECOMMENDATION

The Committee will continue to monitor the role of both foreign and domestic banks and recommends that they continue their efforts to increase lending to SMEs.

(b) Labour Sponsored Venture Capital Funds

By the end of February 1996, almost $3 billion had been invested by individuals in 17 labour-sponsored venture capital funds, more than one-third of that in 1995 alone. This represented about half the capital under management by all venture capital funds in Canada. These labour funds were the driving force behind growth in the venture capital industry in the 1990s.

"The field of venture capital was barren in Canada five to ten years ago. There is going to be ... a growth of these kinds of activities, and they have a virtuous cycle. As soon as these funds start making money, people will flock to where the funds are making money so they can make more money."

Mr. Henri Rothschild (Canadian Research Management Association)
The popularity of these funds is largely the result of the generous tax credits offered by the federal and provincial governments. Until March 6, 1996, the federal Government offered a 20 per cent tax credit, to a maximum of $1,000 which was matched by most provinces. The 1996 federal budget reduced the amount of credit and most provinces followed suit, but generous incentives to investors still remain in place.

The Committee wishes to ensure that labour fund assets are invested in small, emerging firms to create jobs and do not accumulate faster than they can be invested. Differing federal and provincial laws regarding investment requirements are an unnecessary complication.

Working Ventures Canadian Fund recommended that the federal Government change its investment thresholds to be more realistic with respect to the nature of venture investments and more consistent with provincial rules. Under federal rules, 60 per cent of a fund's shareholder equity must be invested within five years of starting to raise capital, regardless of when it was raised during that period. Because of heavy subscriptions to the fund in recent years, Working Ventures has not been able to meet this requirement. According to fund representatives, it takes between two and three years to prudently invest newly-raised funds in venture capital.

Working Ventures recommended that the existing rule be replaced with a "rolling clock" model whereby 60 per cent of all subscriptions received by March 1st of any year must be invested within 24 months.

"Workers, wherever they may live in this country, should be much more aware than they are now of problems in economic matters within their own undertakings or enterprises and in the economy as a whole. It is one of the reasons why these funds were created, why the Quebec fund was created, and why we get this 15% in crédits d'impôt now."

Mr. Fernand Daoust (President, Administrative Council of the Solidarity Fund of the Quebec Federation of Labour)
It also proposed that the federal threshold be changed to the Ontario model and that it apply to net subscriptions (the amount of new capital raised through tax credits) as opposed to shareholders' equity as is now the case. Under present rules, any capital gain realized on a venture investment must be re-invested quickly or distributed to shareholders.

It also made the following four additional recommendations with respect to the federal legislation:

The Canadian Medical Discoveries Fund pointed out a number of concerns with the federal regulations, including:

"... one of the things, in our view, that's made this program work so effectively is that each province has been able to make designs specifically for their province within the spirit of what federal legislation has set out.. It's critically important for the support of the provincial governments, which put up half the tax credit, that they get funds that are appropriate for their provinces."

Mr. David Levi (President and Chief Executive Officer, Working Opportunity Fund of British Columbia)
In addition, the Canadian Medical Discoveries Fund would like to be able to take a minority interest in corporations that act as "incubators" for other high-technology firms.

In a joint presentation, a group of five provincial funds stressed that labour funds should be controlled, and not just sponsored, by labour. Their primary goal should be to create jobs.

Last year the major concern of the Committee was that labour funds were not able to make venture capital investments quickly enough. This year, these difficulties appear to have been largely overcome.

With $3 billion in capital, labour funds have a large pool of capital to invest in Canada and to create jobs. They should prove to be an excellent source of funding for new ventures.

The major concerns of the labour funds this year were, as noted, mainly with respect to fine-tuning the rules and, in particular, to harmonizing the provincial and federal laws.

RECOMMENDATION

The Committee recommends that officials review the above concerns with a view to both introducing flexibility into the federal rules and to harmonization by incorporating into federal laws those provincial laws which have proven more effective than existing federal approaches.

(c) Business Development Bank

The flexibility of the Business Development Bank (formerly the Federal Business Development Bank) has been substantially increased through its new mandate and legislation. The Bank will be better able to finance SMEs that cannot get loans from conventional lending institutions. The Bank is also increasing its efforts to help businesses involved in growth sectors such as technology.

The Committee is supportive of the government initiative announced in the last budget to inject $50 million in equity into the Business Development Bank through a purchase of dividend-paying preferred shares. It is estimated that this new equity capital will enable the Bank to lend an additional $350 million to knowledge-based exporting and growth businesses.

(d) Micro Business

In its report last year, the Committee highlighted the efforts of Calmeadow under the leadership of Martin Connell, which has pioneered techniques for lending money to individuals who need small amounts to create their own employment. The Committee recognized that "Calmeadow's approach to financing micro-enterprises has immense potential for helping thousands of Canadians move from dependency to self-employment".

Calmeadow Nova Scotia has already launched the Partnership for Rural Development, a joint initiative sponsored equally by business and the Royal Bank of Canada.

Over the past year, Calmeadow has had discussions to bring other banks into partnerships for micro-lending and expects positive responses shortly. Its operations in British Columbia will soon be taken over by the Vancouver City Credit Union, representing a successful transition to a self-sustaining micro-lending operation.

RECOMMENDATION

The Committee commends the efforts of Calmeadow and Mr. Connell and recommends that financial institutions support the Calmeadow approach.

The Committee will continue to maintain its interest in and to monitor the roles played by domestic and foreign banks, labour funds, the BDB and other lending institutions in providing capital to Canadian small businesses and entrepreneurs to help them get started, expand and create jobs.

B. Exports

Since the end of 1993, Canada's real balance of trade has increased by some $19 billion.

This success is due in part to low inflation, low interest rates, a competitive dollar and falling international trade barriers. As well, rising productivity has been a large factor. Since 1991, Canada's manufacturing costs have fallen by 20 per cent when measured in U.S. dollars. Those in the United States have remained flat and costs in the rest of the G-7 countries have increased roughly 25 per cent.

To augment these advantages, more export financing has been provided through the Export Development Corporation which has committed an additional $1.5 billion to support exports of goods and services to 50 higher-risk countries. International Business Opportunities Centres have helped almost 6,000 companies since last fall. A market research centre has been established to provide exporters with information on foreign market opportunities. The Team Canada missions to Asia and Latin America have resulted in some $20 billion in business deals for Canadian firms and created or sustained thousands of jobs, including the sale of two Candu reactors to China for which contracts were signed by the Prime Minister in China in November.

Further trade agreements with Israel and Chile will add to the possibilities for growth in trade.

These measures have been and will continue to be particularly vital in terms of generating new jobs. Since 1993, export industries have increased their employment three times as fast as industries that are not oriented to export markets. Overall, the improvement in Canada's trade balance has generated some 275,000 jobs for Canadians in the last 2 ½ years.

RECOMMENDATION

The Committee recommends that the Government continue with the fiscal and monetary policies that are improving Canadian competitiveness.

RECOMMENDATION

The Committee further recommends that the Government continue to use a variety of measures to improve Canada's trade position, including:

C. Foreign Direct Investment

(a) Background

More than one job in 10 (1.3 million jobs), more than 50 per cent of total exports and 75 per cent of manufacturing exports are due directly to Foreign Direct Investment (FDI). It is estimated that twice as many jobs are indirectly tied to FDI through backward and forward linkages (i.e. relationships with suppliers, distributors, etc.). With FDI comes the transfer of technology, training, increased productivity, international management expertise and access to new markets.

Canada has always been dependent on international capital to finance that portion of job creation and economic development that could not be financed from the domestic savings of its relatively small population. Almost 11 per cent of jobs in Canada are tied directly to FDI as compared to 4.1 per cent in the U.S., 4.9 per cent in Germany, 4.75 per cent in Sweden and 3.0 per cent in Japan. Between 1985 and 1995, FDI in Canada increased by 86 per cent, reaching $165 billion. Despite this growth in FDI, the share of foreign controlled corporate assets has remained stable at less than 21 per cent since 1988.

(b) The Committee's Last Report

In its report last year, the Committee stated as follows:

"The federal government has in place a number of programs to facilitate foreign sales of Canadian goods and services, but makes few efforts to bring foreign direct investment to Canada."

"The Committee recommends that Canada make a concerted effort to attract foreign direct investment to Canada that will generate new economic activity and employment."

"This has become urgent as freer North American trade has encouraged U.S. states to offer incentives to Canadian companies to relocate. Canada can no longer afford to ignore this competition or leave foreign direct investment to chance. Aside from the U.S., too many other countries are competing for investment to allow Canada the luxury of opting out."

"The Committee does not believe that foreign direct investment can be a substitute for the start-up and expansion of Canadian businesses capable of competing in the global economy. Nevertheless, foreign direct investment can generate new, high skill jobs, give rise to new Canadian businesses, and provide important links to global markets and new technologies."

Following these recommendations, the Government has undertaken a number of measures to increase FDI in Canada.

(c) Measures Taken

The federal Government has launched the Jobs and Growth Investment Strategy - a highly focused approach to leverage scarce resources, build on Canada's inherent advantages, and attract investors. The new strategy combines more aggressive international marketing with a clear, results-oriented focus on Canada's key market strengths, sectoral priorities and opportunities.

The strategy consists of five elements:

To date, the following steps have been taken:

- The selection of priority countries and sectors:

Steps to be taken in the near future include:

(d) Canada's Investment Climate

A recent study of 23 Canadian and American cities by KPMG, the accounting firm, showed that business operating costs, particularly total labour costs, are significantly lower right across Canada than in the United States.

Among the key findings were the following:

- For every industry examined, overall costs are lower in Canada than in the U.S.;
In addition, in recent years, Canada has done much to strengthen its business and investment climate by improving its fiscal and macroeconomic environment, by negotiating improved market access through the North American Free Trade Alliance and the World Trade Organisation and by facilitating business travel through the Open Skies Agreement.

The results of these measures have provided Canada with a solid investment environment including low interest rates and the lowest inflation rate of the industrial world. As well, for two consecutive years, the United Nations has ranked Canada as the best country in the world in which to live.

"... because our economic house is getting much more in order, we're going to weather those storms much better and we're going to attract funds more easily."

Ms Maureen Farrow (Executive Vice-President and Director of Economics and Equity Strategy; Loewen, Ondaatje, McCutcheon Limited)
In summary, Canada has incredible advantages to offer foreign investors and can compete with all other countries in the world.

The Committee believes that foreign direct investment has enormous potential for creating jobs in Canada, but does not believe that, in spite of steps taken, sufficient efforts are being made to sell Canada to foreign investors.

RECOMMENDATION

The Committee recommends that substantial further resources be allocated to promoting Canada as a home for foreign direct investment and that the Team Canada approach for export promotion include FDI.

D. Cost Recovery

In last year's pre-budget report the Committee supported additional cost-recovery initiatives, but recommended that the Government work closely with the private sector to ensure that such programs are not for the purpose of profit.

The Committee is still supportive of efficient user-pay systems which ensure that those who benefit pay their fair share.

"We strongly suggest a moratorium on any new cost recovery fees and a process to re-examine those that have been imposed to ensure they are not placing Canadian industries at a competitive disadvantage vis-à-vis their U.S. counterparts."

Mr. Martin Rice (Executive Secretary, Canadian Pork Council)
The Committee heard concerns about the three following cost-recovery initiatives:

(a) Pest Management Regulatory Agency (PMRA)

In October 1994, the Government published The Government Proposal for the Pest Management Regulatory System, which outlined the approach that the Government would take regarding the registration of pesticides in Canada. The proposal was based on recommendations made by the 1990 Pesticide Registration Review (PRR), which included representatives of manufacturers, farmers, foresters and public interest groups.

Established on April 1, 1995, the PMRA consolidated the pest management responsibilities of Agriculture and Agri-Food Canada, Environment Canada, Natural Resources Canada and Health Canada under the Minister of Health. The PMRA established a cost recovery initiative which is the object of complaint. Concerns are that the fees will be too high and that there is no data showing the actual cost of providing the Agency services. Stakeholders also want the Agency to differentiate between activities that benefit the forestry and agricultural industries, and therefore should be the object of user fees, and those that benefit society at large.

It is proposed that about half or $16 million of the PMRA's operating budget be recovered through user fees. This was said to be greater than the share recovered in other sectors such as in the registration of pharmaceuticals. Some witnesses also contend that the operating costs are out of line compared to pesticide registration costs in the United States. The U.S. agency registers four times as many products as the PMRA would for only three times the cost and the U.S. system has about 750 employees, while the Agency is expected to employ 400.

RECOMMENDATION

The Committee recommends that the PMRA review its cost recovery fees and staffing requirements.

RECOMMENDATION

The Committee was told that the registration of many products is based on existing U.S. studies. Canada should consider increased co-registration agreements with the U.S.

(b) Marine Services Fee

"Every time a 747 lands at Vancouver airport it creates one person-year of work. Every time a container ship arrives in Vancouver harbour it creates four person-years of work. Every time a container train goes from Tacoma to Toronto versus Vancouver to Toronto, it costs the Canadian economy $400,000. The United States ports have ... a 23% advantage in taxation alone, given that it costs about $200 to move a container through the port of Vancouver."

Captain Norm Stark (Chair, Greater Vancouver Gateway Council)
Since June 1996, the Canadian Coast Guard service has imposed the Marine Service Fee on commercial shipping to offset the cost of navigational aids. The Coast Guard plans to recover $20 million this year, but that will double in 1997 and increase to $60 million in 1998. These fees will increase costs by $5 million to $8 million on grain shipments through Thunder Bay and $2 million to $5 million on shipments through west coast ports. The increases will be even greater if the Coast Guard proceeds with its plan to recover other costs such as for icebreaking and dredging.

The Agri-Food industry claims that the Marine Service Fee affects the St. Lawrence Seaway, which could lose its narrow competitive advantage over alternative grain routes such as the Mississippi River or rail north of the Great Lakes.

RECOMMENDATION

The Committee recommends that the Government take into consideration international competitive factors in relation to the Marine Service Fee.

(c) Canadian Food Inspection Agency (CFIA)

In line with its 1995 budget commitment, the Government has established the Canadian Food Inspection Agency.

Food inspection and quarantine activities currently cost over $400 million and involve 5,000 employees. The consolidation of food inspection is expected to produce annual savings of $44 million starting in 1998-99, $33 million of this from Agriculture and Agri-Food Canada. There are no plans to introduce any new user fees before the year 2000.

RECOMMENDATION

The Committee supports the consolidation of existing food inspection and quarantine activities into a single food inspection agency. It recommends that the long term business plan for the agency clarify the issues of ministerial responsibility and future cost recovery.

(d) In General

Overall concerns of the Committee in regard to cost recovery programs relate to accountability and competitiveness.

RECOMMENDATION

The Committee recommends that, in consultations with stakeholders, the Government establish guidelines for determining which activities are for the benefit of stakeholders and which benefit society at large.

RECOMMENDATION

The Committee further recommends that when setting user fees, that the cumulative effects of fees be examined to determine the overall impact on an industry's international competitiveness.

E. Interprovincial Trade Barriers

As the Committee noted last year, Canada's economic performance continues to suffer by about $6 billion per year because of interprovincial barriers.

RECOMMENDATION

The Committee again recommends that the Government continue to push for further action by the provinces to reduce interprovincial barriers to the flow of goods and services.

F. A Major Earthquake

Summer flooding in the Saguenay is evidence of a disturbing international trend. Catastrophic loses around the world are becoming more frequent and more severe. The governments of Canada and Quebec will pay more than $700 million in losses as a result of the Saguenay flooding. Private insurers paid more than $600 million in claims resulting from a dozen major summer storms this year. These costs are significant. Nevertheless, they are well within the capacity of both governments and insurers.

Canada is not prepared, however, for a major earthquake. Studies suggest that a large earthquake will eventually strike a major urban centre in British Columbia or Quebec. The Insurance Bureau of Canada estimates that losses could exceed $30 billion in each case. The Government has not budgeted for these potential disasters, and current taxation and accounting practices do not facilitate the creation of earthquake reserves.

RECOMMENDATION

The Committee recommends that the Government work in partnership with the insurance industry to ensure that Canadians are protected financially against a major earthquake. In particular, consideration should be given to allowing premiums to be set aside in untaxed funds and to build to a point where they can cover eventual losses.

G. Learning Partnership

Impressed by the fact that 84 per cent of senior American executives are involved in educational reform at the primary and secondary levels, Charles Pielsticker of Toronto formed the Learning Partnership for the Greater Toronto Area. It brought together directors of education and business leaders with the goal of making our educational system the best in North America.

The Learning Partnership has focused on issues of science and technology (especially for young women), literacy, retention, readiness and more recently, arts and music. Their programs include the following:

The current funding partners include all 16 Boards of Education in the Greater Toronto Area, universities and community colleges, more than 100 corporations and a number of community groups and foundations. The Partnership is now run by a full-time staff of five, plus many volunteers.

RECOMMENDATION

The Committee commends Mr. Pielsticker for his far-sighted leadership. The Committee recommends that the work of the Learning Partnership be extended throughout Canada and encourages more Canadians to become involved in its worthwhile activities by contacting the Learning Partnership in Toronto, Ontario.

H. Friendship Centres

Approximately 70 per cent of Canada's 1.5 million aboriginal people do not live on reserves. To meet the need of those who have moved to cities, a network of 114 friendship centres now provides a broad range of support programs and services, including food, lodging, education, training, employment, justice and health.

Responsibility for the Aboriginal Friendship Centre Program (AFCP) was transferred in 1996 from Heritage Canada to the National Association of Friendship Centres to place more control in the hands of Aboriginal people.

The AFCP budget has been cut each year since 1993, including a $1,512,312 or 9.5 per cent cut in 1996-97. A further 6.5 per cent cut is slated for 1997-98.

RECOMMENDATION

The Committee recommends that no further cuts be made to the Aboriginal Friendship Centre Program and recommends that future budgets make allowance for the increasing number of aboriginal people moving to cities who require the services of the friendship centres.

I. Community Action Program for Children

The Community Action Program for Children (CAPC) is a Health Canada program that is managed jointly with the provinces and territories through the establishment of protocols between the two levels of government. These protocols establish priorities, target areas and evaluation procedures. CAPC takes the approach that children's health is fostered by building healthy families and communities. It provides funds to non-governmental organizations that deliver direct services to families in high-risk communities. Some of the services provided include parental support, infant/toddler interventions and early intervention pre-school projects. Currently about 450 groups use CAPC funding across the country.

This program received $200 million in initial funding to be spent over a five-year period, ending in 1996-97. After that, it was to receive an additional $77 million in on-going funding, according to a November 1995 presentation by Health Canada to the Standing Committee on Health.

This program is popular among groups working with poor families. It works well within the established federal-provincial framework and the consensus among health promotion experts is that it is efficient in delivering services to poor children. Yet its funding is in doubt. Liz Rykert of Growing Up Healthy Downtown, in her testimony to the Committee in Toronto, reflected a widespread belief that funding is to be cut by 50 per cent after April 1, 1997. The Committee heard a similar report in Halifax from the Nova Scotia Association of Family Resources Projects.

RECOMMENDATION

The Committee recommends that government funding intentions be made clear and that support for CAPC continue.

J. Transition From Dependence to Independence

The loss of income stability and in-kind benefits coupled with taxes and other employment expenses often make it more advantageous to be on social assistance or employment insurance than to find a job or start a business.

In Chapter 3, our report described the "welfare wall" which often makes it financially advantageous to stay on benefits than to take a low-paying job. Enhanced support as recommended for the working poor and those with disabilities will help break down some of this wall. So will the recommendations we make for charities and for community development.

The Direct Sellers Association of Canada raised a related problem. The industry provides an ideal opportunity for some of those on social assistance or employment insurance to develop marketing skills, start their own businesses and enjoy flexible work schedules that overcome some of the child care problems that parents face.

Entry into direct selling is relatively easy. It does not require a great deal of capital or extensive training. Instead, motivation is the key. But, like all businesses, there are start-up costs, and it takes time before a customer base can be established.

Unfortunately, independent sales contractors lose social assistance benefits dollar-for-dollar on their revenues even though their revenues do not reflect their incomes. While this route to independence might be advantageous in the long run, it can be disadvantageous in the short run and the taxback rules in social assistance programs or the loss of employment insurance become a major barrier to economic independence.

RECOMMENDATION

As it did last year, the Committee recommends that income support programs base benefit reductions on the net income of independent sales contractors, not their gross income and that the start up costs be taken into account when determining the level of benefits.

K. The Canada Health and Social Transfer and Social Programs

The 1995 budget announced a major overhaul of the system of federal-provincial transfers for social programs. The transfers with respect to health, post-secondary education and social assistance were combined into one and the remaining vestiges of cost sharing were removed. This new block grant is known as the Canada Health and Social Transfer (CHST).

The 1995 budget also reduced the total entitlements of the provinces. From a combined cash and tax entitlement of $29.7 billion in 1995-96 for the Canada Assistance Plan and Established Programs Financing for health and post-secondary education, the total entitlement under the CHST drops to $25.1 billion in 1997-98.

A variety of groups expressed their concern to the Committee that the new CHST would accelerate the speed with which cash transfers to the provinces disappear. About one-half of the CHST entitlement is delivered in cash, the rest being comprised of tax points, the value of which increases with growth in the economy. The value of tax points also increases at a different rate in each province, growing fastest in the wealthiest provinces. It is the prospect of withheld cash transfers that ensures provinces comply with the Canada Health Act and refrain from imposing residency requirements for social assistance. As the Committee heard many times, "no cash, no clout".

For this reason our Committee called for a cash guarantee as a floor to the CHST transfer and the Government responded in last year's budget with the promise of an $11.1 billion cash floor. As of the year 2000-01, total entitlements are to grow at an increasing pace for three years, causing cash entitlements to grow somewhat.

The Committee heard testimony from several witnesses calling for major increases in the level of transfers to the provinces and a reversal of the CHST reforms. Others have downplayed the deficit reduction achievements of the federal Government, arguing that it has merely shifted the "dirty work" to the provinces.

Although all governments need to get their fiscal affairs in order, the federal Government faces the more difficult task. Its net debt at the end of this year is expected to be about 2.4 times as high as that of the provinces combined. The proportion of revenues that the federal Government devotes to servicing the debt will be about 2.5 times as high as that of the provinces combined. On a combined basis, the provinces will receive slightly more revenues this year than the federal Government, $142 billion versus $132 billion. Clearly, the provinces have more fiscal room to manoeuvre than the federal Government.

Moreover, the CHST transfers are with respect to programs that are clearly in areas of provincial responsibility. The federal Government had decided previously to use its spending powers to assist in the financing of these programs. But circumstances have changed and the ability to continue high levels of federal financial support are a thing of the past.

The CHST offers the provinces greater flexibility to innovate and address their particular needs. Any increased transfers from the federal government cannot, as a result, guarantee increased spending on any, or all, of health, post-secondary education or social assistance.

When Judith Maxwell participated in a Committee roundtable, she spoke of the need for social cohesion as the major issue of the 1990s, reflecting the fact that all Canadians need to feel part of society, sharing its values and goals. Insecurity puts this cohesion at risk and can lead to animosity.

One way of addressing this issue is to provide a new type of leadership that would provide an anchor for our shared values and sense of community. Such an anchor will not come from standards imposed unilaterally by the federal Government. Rather, national standards must flow from a dialogue with the provinces. Dr. Maxwell referred to this process as the "management of interdependence". It will come from joint projects such as investing in children.

What Dr. Maxwell suggested is precisely what the federal Government is now seeking to accomplish through discussions with the provinces involving the Social Union. Talks involve children in poverty, Canadians with disabilities and the values and principles that should underpin CHST transfers. The Minister of Human Resources Development, Pierre Pettigrew, met with his provincial counterparts on November 27 and gained their approval to establish child poverty as a national priority.

The Committee agrees with Dr. Maxwell. National standards cannot be imposed by the federal Government but must be arrived at through discussions and joint actions undertaken with the provinces.

L. Reducing the Paper Burden on Small Business

In the February 1994 budget, the Government invited representatives from the small business community to form a committee and identify issues confronting the sector.

In December 1994, the Small Business Working Committee published an 80-page report entitled Breaking through Barriers: Forging our Future. The report identified the paper burden as a significant cost to small businesses.

In response, the Government of Canada made a commitment to reduce the paper burden on small businesses. It recognized that this commitment would require a change in culture as well as procedure throughout the federal Public Service.

To address these challenges, a Joint Forum on Paper Burden Reduction and an Interdepartmental Working Group were formed in December 1994.

Since then, the Joint Forum, which includes representatives from small business and the federal Government, has examined all irritants small business identified through the Breaking through Barriers: Forging Our Future report and a Canadian Federation of Independent Business survey. About half of the irritants have been addressed and the most burdensome problems have been dealt with. As a result, federal departments have made concrete changes to their information gathering operations. The changes include:

The Joint Forum is now examining a range of issues including the frequency of payroll reporting, streamlining customs paperwork for small business owners and developments in harmonizing taxes.

The Committee recommends that the Joint Forum process continue to address long standing irritants and that the Government put in place permanent mechanisms to keep the information burden in check.

RECOMMENDATION

RECOMMENDATION

In pursuing its objective of reducing the paper burden on small businesses, the public benefit of any requirement for information must be weighed against the cost to small businesses of providing it. The Committee recommends that the Government proclaim that its objective is to minimize the paper burden on small businesses and require that the public benefits of any requirement for information exceed the direct and indirect cost that small businesses must bear to provide it.

M. Consumer Debt

Judith Maxwell, former Chair of the Economic Council of Canada, expressed to the Committee her concern about the low level of savings in Canada. Not only are savings low on average, but many families have high debt loads and virtually no savings. As families take on more of the costs of health care, post-secondary education and their own retirement, the need for savings grows.

The savings rate in 1996, at 5.4 per cent of income, was the lowest it had been in over 20 years, and well below the double-digit savings rates witnessed in most of the 1970s and 1980s. The 1995 figure also does not appear to be an anomaly but rather a continuation of a declining trend in this decade.

Household debt since 1984 has grown fastest in the form of mortgage debt compared to consumer debt, a 145 per cent increase versus a 98 per cent increase and the preference for debt backed by assets rather than for consumption is a positive factor. But the value of residential structures also grew at a slower pace than mortgage debt. In 1984, mortgage debt accounted for 45 per cent of the value of residences. By 1993, that proportion had risen to 55 per cent.

Low savings coupled with high debts help to foster a feeling of economic insecurity. It is possible that this situation helps to explain the fact that consumer confidence in the 1990s has not shown a marked improvement. However, with interest rates having fallen five percentage points since March 1995, the Committee is confident that the burden of consumer debt is becoming less onerous and that, over time, savings will increase.

N. Partnerships

The Canadian Council for Public-Private Partnerships is a non-profit organization established to foster co-operation between the public and private sector in the delivery of public services and the provision of infrastructure. This group seeks to facilitate private delivery of traditional public services so as to enjoy the efficiencies and lower costs of the private sector without giving up the public services that Canadians need.

RECOMMENDATION

The Council believes that Canadians support such initiatives and recommends that potential candidates for such treatment be identified so that proposals can be sought for private sector participation and financing. The Government should give greater recognition to the alternative of public-private partnerships for the delivery of public services.

O. Business Taxation

The House of Commons Standing Committee on Finance has been following with interest the work of the Technical Committee on Business Taxation, established by the Minister of Finance at the time of the 1996 budget. The Chair of the Technical Committee, Professor Jack Mintz, appeared before the House Finance Committee on May 16 to discuss the issues which the Technical Committee had identified as important and to outline the intended approach of the Technical Committee.

The House Finance Committee held preliminary hearings July 29 and 30 on the economic and compliance costs associated with Canadian taxation of business and investment income. They were held as a means of providing additional public input to the Technical Committee as it carried out its work.

The Minister of Finance recently announced an extension in the time available to the Technical Committee to complete its report in order that it could deal in adequate depth with a number of important issues within its mandate. It is now to report before the end of 1997. Our Committee expects Professor Mintz will shortly appear before it again in order to discuss the work that will be pursued in the further time now available.

The broad area of business taxation is obviously of crucial importance to employment prospects and to growth in real incomes in the Canadian economy. As well, and as required in its terms of reference, the review of business taxation must pay close attention to the issue of ensuring that all businesses bear their fair share of the cost of government services and to the issue of facilitating compliance by taxpayers and administration by Revenue Canada.

Our Committee looks forward to receiving the report of the Technical Committee on Business Taxation and to using its as a major input in conducting a broad public review of business taxation in 1997 and 1998.

Meanwhile, the Committee believes, based on its hearings of July 29 and 30, that certain measures bear consideration prior to the Technical Committee reporting.

(a) Tax Harmonization

Differences in provincial and federal laws on income, capital, sales, excise and payroll taxation add significantly to the cost of compliance and administration and deter foreign investment. One witness pointed out that a corporation with four affiliates had to file 1,100 pages of tax returns. A country of only 30 million people can not afford the luxury of this duplication and overlap. Canadians expect more of their politicians than petty jurisdictional turf wars.

RECOMMENDATION

The Committee recommends harmonization of tax laws as an urgent priority.

(b) Harmonized Tax Administration

There is no justification for having both provincial and federal tax administrators dealing with the same taxpayers on the same or similar tax issues, thereby adding needlessly to the cost of compliance and administration.

RECOMMENDATION

The Committee recommends that efforts with the provinces to create a Canada Revenue Commission be increased and that, as a minimum, administrative duplication be eliminated.

(c) Revenue Canada Resources

The complexity of our tax laws leads to compliance difficulties and the need for more communication by tax professionals with officials. Concern was expressed that cut-backs and inadequate salary levels make it difficult for Revenue Canada to respond to enquiries in a timely fashion.

RECOMMENDATION

Experts suggested, and the Committee recommends, that Revenue Canada should not hesitate to engage additional qualified staff for its advance ruling division and that the increased cost should be borne by those seeking rulings.

(d) Other Issues

Other concerns expressed by some individual participants in the July 29-30 hearings related to:

All witnesses favoured reducing the compliance and administration costs associated with business taxation. Most favoured lower business tax levels, but some indicated that measures such as accelerated depreciation, the low rate of small business and other tax expenditures were too generous. Some concern was raised about international tax avoidance possibilities and one witness wanted higher capital taxes and the replacement of the GST by a financial transaction tax.

A number of these above measures such as the GST will soon be brought before Parliament for consideration. Some such as payroll taxes and cost recovery measures are the subject of this report. The others will be under active consideration by the Government and by the Technical Committee headed by Professor. Mintz. The Committee thanks those who participated in its hearings in July and urges that the issues raised be addressed.

P. International Development Assistance (ODA)

In 1994-95, Canada's ODA was $2.9 billion, or 0.38 per cent of GDP, about equal to the G-7 average of .37 per cent of GNP. Program spending cuts in place, however, will reduce ODA to $1.9 billion or 0.22 per cent of GDP by 1998-99. This is a 34 per cent cut, far more than envisaged by other G-7 nations.

RECOMMENDATION

The Committee recommends that Canada's ODA should not fall below the average level for the G-7 nations and should increase above that level as budgetary conditions permit.

Q. Multiple-Employer Pension Plans (MEPPs)

Single-employer pension plans can recover GST paid in relation to administration expenses; MEPPs cannot, thereby increasing their administrative costs.

RECOMMENDATION

The Committee recommends that the inequity between single-employer and multiple-employer pension plans be rectified.

R. Scientific Literacy

The Committee described earlier its concerns about the important role of scientific research in promoting economic development and health care in Canada. To enhance our research and development, we obviously need university science graduates. But to get those graduates, we need primary and secondary school students with an interest in science and teachers who can tap that interest.

Canada has not developed a science culture, as witnessed by our level of scientific illiteracy. Let's Talk Science is an organization dedicated to changing that. It is directed by Dr. Bonnie Schmidt who told the Committee of its innovative programs, offered by volunteers, designed to improve the level of science education in Canada. Scientists, technologists and engineers from universities and the private sector engage in activities that train teachers in science education, engage youth in science, encourage girls to get interested in science and promote informal science learning.

The Committee is impressed with the activities and goals of Let's Talk Science. We recognize that it is important to send a message that science is important and valued by our society, and that a science culture should be fostered.

RECOMMENDATION

The Committee recommends that inexpensive but highly symbolic initiatives such as the Prime Minister's Awards for Excellence in Teaching of Mathematics, Science and Technology should be continued and not ended as is now planned for 1997.

S. The Health Care System

Canadians are proud of their health care. Although a provincial responsibility, it is the Canada Health Act that defines the general principles of our health care system. There are five criteria in that Act that have to be met in order to receive full funding under the CHST. They are public administration, comprehensiveness, universality, portability and accessibility. Canadians want this health care system to be maintained.

"The members of HEAL are not against health reform, but what we are seeing is not health reform, it's budget-driven cuts, with no large plan or strategy to reform the system to a broader primary health system that Canada believes is needed. The cuts have gone too far in health, and we want the cuts to stop now."

Ms Mary Ellen Jeans (Executive Director, Canadian Nurses Association)
During its consultations, the Committee learned that health care is about more than just doctors and hospitals. It is also about community services and support. The Canadian Medical Association recommended support for a community-based homecare infrastructure.

As well, health care is not just about the efficient use of existing treatments. It is also about the development of new and better treatments. Basic and clinical research are vital in this regard and spending on health research should be considered as part of the health budget. The Coalition for Biomedical and Health Research urged that research spending was not only an industrial tool but also a way of preserving our health care system.

Several witnesses such as Connie Eaves of the National Cancer Institute of Canada recommended that 1 per cent of all health dollars should be set aside for basic research and evaluation. A coalition of three groups (the Association of Universities and Colleges of Canada, the Canadian Association of University Teachers and the National Consortium of Scientific and Educational Societies) recommended an infrastructure program for R&D.

More importantly, health care is not just about helping those with illnesses get better. It is also about keeping Canadians healthy and preventing illness. The CMA noted that the health care system does not pay for prevention, even though it is recognized that prevention is the most cost-effective way to enhance health and wellness. With AIDS costing society about $600,000 per case, community-based strategies for prevention are a good investment. If $1,000 prevents only one case, that spending would be well worth it.

Most of the prevention initiatives today come from the voluntary and charitable sectors. The Heart and Stroke Foundation of Canada receives no government funding. The Canadian Cancer Society and other volunteer organizations support over 60 per cent of cancer research in Canada, compared to the United States where 90 per cent of research funding comes from government agencies.

"We have been suffering in this province from a radical mastectomy approach to social services. It is very, very disproportionate and painful for a number of Albertans."

Ms Heather Smith (President, United Nurses of Alberta)
RECOMMENDATION

The Committee recognizes that good health is also good economics and welcomes the recommendations made to it. As well, it believes that other recommendations made in this report, such as for R & D and enhanced tax incentives for charitable giving, will help bring new resources to our health care system.

T. Canada's Cultural Industries

(a) In General

According to the Canadian Conference of the Arts, almost one million Canadians from every part of our country earn their livelihood from the cultural sector, contributing $30 billion per year to our GDP. Our cultural labour force is highly educated, versatile and mobile, and a majority are self-employed. New jobs, however, are not expensive to create, only $20,000.

"On a global scale, the recording industry is immense. Last year, its volume of retail business was worth in the neighbourhood of $45 billion.

It is a sector that receives minuscule financial support from government.... out of $6.6 billion for culture and communications, only $9 million went to help record production, or 0.1 per cent of the total."

Mr. Robert Pilon (Vice-President, Public Affairs, Association of Independent Record Producers of Quebec)
Our artists, writers, publishers, film makers, actors, performers and museum workers give daily expression to Canada's identity through every artistic medium and discipline, enriching all our lives and asserting our cultural distinctiveness to the world. They draw thousands of foreigners to Canada and, in 1995, exported cultural goods in 1995 were valued at $12.4 billion.

Past budgetary measures have hurt our cultural sector. For example, cuts to the Canada Council have resulted in the end of operating support for arts service organizations and training institutions. Suspension of Art Bank purchases has deprived many artists of both income and a showcase.

Many of those who appeared before our Committee talked about the need for stable, multi-year funding of programs in the cultural sector. Planning for performances, for example, often must cover a two- or three-year horizon. Organizations which are often run largely by volunteers and funded by private donations also need long lead times to present programs.

RECOMMENDATION

The Committee recommends that the principle of stable, multi-year funding be followed by the Government in its support of our cultural industries and that a high priority be given to increasing overall funding to this sector.

(b) Publishing

The Publishing Industry Development Program has been cut from $45.2 million in 1994-1995 to $17.6 million for 1996-1997.

RECOMMENDATION

The Committee is pleased, however, that funding of $5 million was recently restored and recommends funding be further increased to this important cultural industry.

"We still have had a 50% cut in funding to the publishing industry in the last two years. Ontario has cut significantly. They've cut just about everything, and they're about to put six publishers out of business for a total debt of $1.2 million dollars from the loan guarantee program."

Mr. Jack Stoddart (President, Association of Canadian Publishers)
RECOMMENDATION

The Committee further recommends that a national loan-guarantee program be established to help publishers access private capital.

The Committee is pleased that the Government has removed the GST on books purchased by libraries, schools, colleges, universities and non-profit organizations involved in promoting literacy.

(c) Film Industry

Last June, the Government enacted a refundable tax credit regime to support independent film production in Canada. In September, it announced the creation of the $200 million Canada Television and Cable Production Fund to stimulate production of Canadian programs. Both initiatives are welcomed by the industry and our Committee.

The industry has worked with Human Resources Development Canada to develop a mentorship and on-the-job training program and has covered more than half the cost. Every graduate has secured employment.

RECOMMENDATION

The Committee congratulates the film and television industry for this successful partnership and recommends continuing support by the Government.

(d) CBC

The Committee heard from many Canadians about the CBC's important role in uniting Canadians from coast to coast through its programs.

In 1993-94, federal Government support for CBC was $1.09 billion. For 1996-97, it will be $963, a 12 per cent cut.

As a result of the 1995 and 1996 budgets, annual funding for the CBC was cut by $209 million. The full effects will be felt in 1998-99.

RECOMMENDATION

The Committee recognizes the valuable contribution of the CBC to the lives of millions of Canadians and urges that its capacity to play its national broadcasting role not be diminished.

(e) Conclusion

The Committee recognizes that government cutbacks have caused anxiety and hardship throughout Canada's cultural community and have required that many changes be made.

"The cultural workforce is preparing itself to grow and change. As you will note in the brief put forward to you by the CCA, more than 700,000 Canadians are employed or self-employed in the cultural sector. Its growth over the past 10 years was double that of the total labour force during the same period.

... we are not talking about an insignificant sector but a growing sector for the wealth of Canada."

Mr. Jean-Philippe Tabet (Director of Training, Cultural Human Resources Council)
The Committee recognizes the vital role played by our cultural industries in the lives of Canadians. It is hoped that our recommendation in this report for income averaging will help artists and writers and that the recommendations for enhanced tax incentives for donations will enable our cultural community to do all or much of what was previously done by governments.

U. Premium Bonds

Mr. Tony Parker of Toronto informed the Committee of an innovative way in which the British government finances its debt. The government sells premium bonds which pay no interest but which enable the bondholder to take part in monthly draws for prizes as high as £1 million. The cost of the prizes is less than current market interest rates. There are more than 23 million bondholders.

RECOMMENDATION

The Committee recommends that the Government be open to innovative possibilities for reducing the cost of debt financing.

V. National Securities Commission

Our Committee has stressed elsewhere the need to harmonize taxes and eliminate duplication in their collection and assessment in order to promote efficiency, and to reduce administration and compliance costs. These virtues are not limited to the tax system.

RECOMMENDATION

In our report on the "1997 Review of Financial Sector Legislation: Proposals for Changes", we recommended that the Government continue its efforts to negotiate with interested provinces to establish a Canadian Securities Commission. We repeat that recommendation here. Canadians cannot afford to have 13 different jurisdictions regulating securities.

W. Pensions

"Last year's changes to the withdrawal age for registered retirement funds, which went from 71 to 69, was a source of particular anger, because the budget said there would be no tax increases in that budget."

Mr. Robert Armstrong (Member of the Issues Committee, One Voice - The Seniors' Network)
Canada's pension system must evolve to take into account changing circumstances, both fiscal and demographic. The Government recognizes that changes must take place. It has announced reforms to the publicly funded part of the pension system through the creation of the Seniors Benefit and it is actively negotiating with the provinces to reform the Canada Pension Plan. This latter action is particularly vital and challenging. Without changes, future workers would have to pay three times more than current workers for similar benefits.

Worse still, there is a widespread concern amongst younger Canadians that the CPP will not be there for them when they retire. In addition to ensuring that current retirees and near-retirees will receive the benefits they have counted on, the current federal-provincial negotiations are important because they must break the scepticism that many younger Canadians have about the long-term future of the CPP.

"Let's have some stability with RRSPs. Let's not always have an axe hanging over that thing. Can we not announce something that's safe for quite a long time? It's very destabling, especially in a time of pension reform."

Mr. Garth Whyte (National Director, Canadian Federation of Independent Business)
While it is important to ensure that the publicly-funded and publicly-managed pension plans are economically sound, it is equally important to realize that Canadians will increasingly have to rely on their own savings for retirement. Generous tax assistance for RRSPs is important in allowing Canadians to plan for their own future and current provisions should not be reduced. At the same time, however, the Committee recognizes that fiscal circumstances do not permit their increase.

RECOMMENDATION

In consequence, the Committee recommends that the annual contribution limits not be lowered, or that the date for indexation of the limits not be delayed. In recognition of our difficult fiscal circumstances, however, the Committee recommends that for the time being the limits not be increased beyond their existing levels.

X. Canada Scholarships Program

The Canada Scholarships Program (CSP) recognizes outstanding students and encourages them to pursue undergraduate studies in the natural sciences, engineering and related disciplines. Scholarships worth $2,000 each per year are awarded to top Canadian students. These scholarships are renewable for up to three additional years. Half of the scholarships are awarded to women. This program is administered by the Association of Universities and Colleges on behalf of Industry Canada.

In 1995-96, the scholarships program cost the federal Government $13 million. Over the last few budgets, the Government announced major reductions to the granting program. In 1996-97, compared to 1994-95, the federal Government will have reduced program spending by $14 million (down from $21.4 million to $7.44 million -- a reduction of 65 per cent over two years).

RECOMMENDATION

The Committee recommends that funding to the Canada Scholarships Program should be reconsidered in the next budget.

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