[Recorded by Electronic Apparatus]
Wednesday, December 4, 1996
.1535 
[English]
The Vice-Chairman (Mr. Thalheimer): We'll continue the Standing Order 108(2) study on natural resources and rural development.
Today we're hearing from the Canadian Federation of Independent Business. I understand, Garth, that you're all from the Canadian Federation of Independent Business. You have the floor. Give us a brief summary of your submissions.
Mr. Garth Whyte (Vice-President, National Affairs and Research, Canadian Federation of Independent Business): Thank you very much, Mr. Chairman.
First, I apologize. There was a security lag happening and we got tied up for quite a while. Fortunately, we had some help from your committee. David helped us come up the stairs. We very much appreciate it.
Mr. Iftody (Provencher): I smuggled them in, but if they give us a hard time, Mr. Chairman, I'm disowning the rest of them. There were a whole number of people registering to go into different committee meetings, so I rescued them. If they misbehave you have my permission to send them back out.
Mr. Whyte: Our tardiness doesn't reflect the importance we gave and give to this committee. We've brought colleagues from across the country. It is unprecedented for our organization to do this type of thing before a committee and we chose your committee to do it.
I'd like to thank the committee for inviting us to attend. I'd also like to thank the clerk's office, in particular Roger Préfontaine, for the assistance they gave us. They've been very helpful.
I'll make some introductions. With me is Pierre Cléroux, our vice-president for Quebec. Also with me are Dan Kelly, our spokesperson and director for Saskatchewan and Manitoba, and Peter O'Brien, the executive director for Atlantic Canada.
You should have before you the presentation we've put together. It's our presentation on rural economic development.
I'd like to also introduce our organization for the record to let you know who we are. We're a national, non-partisan, non-profit organization that represents 87,000 small and medium-sized business owners from all sectors and regions of the country. We work on the principle of one member, one vote, and we're continuously serving our members. We've broken out a lot of our surveys we'll be presenting to you today along rural, small-town lines, so you'll have a direct correlation to what you're talking about.
Our highest penetration of the business community is outside major centres. One of our fastest-growing sectors is the agriculture sector. We represent the job creators. Last month we released a comprehensive report on job creation. You all got a copy, and I notice that Mr. Wood has a copy in his hand. It gave a message fron the job creators about job creation. We certainly have more copies if you need it. It's called ``On Hire Ground''. We really strongly recommend that the committee revisit the report, because I think it has a lot of additional information that may be useful to what you're dealing with.
We won't answer all the questions that were put before us but we will hit several issues we believe are important to this committee. We're approaching this issue from four different directions. I will provide a quick overview of the rural small business priorities and economic outlook for 1997. Dan will give you the priorities of our agriculture members from the prairies and across Canada, and their perspective. This will be followed by Pierre, who will focus on a specific issue, Bell Canada's proposal to raise business-line rates, which will, if accepted, seriously hurt rural businesses in Ontario and Quebec. Finally, we'll conclude with Peter O'Brien, who has been studying rural economic development for longer than he can remember. He will talk about rural economic development in Atlantic Canada.
All of these things are based on our membership's input, thousands of responses. If you turn to this report that should be before you, we'll be quickly walking through some of these graphs.
The Vice-Chairman (Mr. Thalheimer): I'll ask you to limit your remarks to about ten minutes each, if you could, because the members obviously want to ask you questions.
Mr. Whyte: Certainly. That's what we had planned to do. I should take another four minutes, I hope.
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First, listed here are rural small business priorities. This sample size, if you notice, is almost 8,000 businesses and it's from businesses across the country. These priorities do mirror the priorities of our entire membership. The top five issues are: total tax burden at 72%; deficit reduction at 71%; regulation of paper burden at 68%; a provincial issue, worker's compensation, at 50%; and employment insurance at 45%. But if you look at the issue that is ranked at the bottom, still one out of four of our members say that shortage of qualified labour is an issue. I know what you're looking at is skilled people and skilled employees, and that is an issue we'll talk about.
Two weeks ago we released our members' expectations for the economy and for their own business. On the next graph - we broke it out and this is the first time we're presenting it, to your committee - we have the expectations of our rural members compared to our urban members for the economy in 1997. Our rural members, as you can see, are less optimistic than our urban members, but they're more optimistic, we believe, than they were last year. Forty percent feel that the economy will be stronger in 1997 than it is currently in 1996; 49% said it will be the same; about 12% said it would be weaker.
The next graph - and again we can talk about this in question period - talks about expectations for their own firm in 1997, and rural versus urban. You can see again that they're less optimistic then their urban counterparts. When we say rural, we mean small-town rural people in rural communities and also just in rural areas. Forty-four percent expect their firms to be stronger in 1997 than in 1996; 42% expect it will be the same; 14% expect it to be weaker.
Then we asked them what their employment plans were for 1997. The dark area is rural and the light is major city, urban. Staying at the same level, 68% said their employment levels will stay the same in 1997; about 16% said they would hire new employees; 9% said that they would reduce the number of employees; 7% said they would rehire laid-off employees; and as you can see, a minority said they would shift the part-time from full-time or shift from part-time to full-time.
The final graph I'll be speaking about are conditions necessary for hiring more employees in 1997. I have the urban numbers, but we just put in small-town rural areas. The number one response was increased customer demand at 74%. The number two response was 41% said lower payroll taxes. The third was 38% said reduction of other taxes. The fourth was reduction in firms' debt. But I think the one I would like to point out is only 11% said they would not hire under any circumstances.
This is why we see your committee as so important. Some of the strategies and some of the things you're looking at are ways to help rural economic development and help our community.
I think I'll pass it over now to Dan to talk about our agriculture members' responses. Dan.
Mr. Dan Kelly (Director, Provincial Affairs, Manitoba, Canadian Federation of Independent Business): Thank you very much for the opportunity to be here before you this afternoon.
As you know, the CFIB represents a broad cross-section of Canadian business sectors. However, one of the groups that have expanded, as Garth mentioned, most quickly within our membership is that of agribusiness, and it's certainly something we as an organization have spent a great deal more time in dealing with.
I think farmers are beginning to realize that their businesses are not unlike those of other business sectors. While there are a variety of issues and concerns that are specific to agriculture, there are many similar issues of concern between them and regular businesses. As the attached graphs show - and there's a section devoted in this document here to agriculture - some of the concerns that are expressed by our agricultural members are the very same as those expressed by our regular membership: debt and deficit reduction; the total tax burden facing Canadian businesses; red tape and paper burden. Those are consistently the issues of top concern for our general membership, and our agribusiness membership is no different at all.
However, our farm members also cite significant concern with environmental laws and regulations. Like many other Canadians, our farm members view the debt and deficit facing our nation as one of the most significant obstacles they experience in terms of job creation.
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The federal government's attention to this important matter has played a very large role in achieving the increased optimism we've noticed among our agricultural members. We're finally starting to see some light at the end of the tunnel. Far more than any other government program, or spending program or loan program, eliminating the debt and the deficit is vital in stabilizing the rural economy. Certainly the government has paid close attention to this very important issue.
However, this is only one piece of the puzzle. Our farm members also tell us that the tax burden facing both business and personal taxpayers is the only way to stimulate job creation and to get those long-term sustainable jobs. Each year prior to the budget our farm members get very nervous about the prospect of losing their capital gains exemption. As is noticed in one of the charts, the second chart that I have before you, the $500,000 capital gains exemption is the single most important tax initiative to agribusinesses. To many farmers the capital gain on their farm represents their main form of retirement income. With the challenges facing the CPP, this capital gains exemption becomes even more vital. Some of the other important tax initiatives we've noticed in our agricultural community are the income tax carry-forward, the lower small business corporate tax rate, the RRSP carry-forwards, and EI premium reductions, something that has been quite a topical issue and one our organization spent a great deal of time on.
Farmers need some degree of assurance that these provisions are not constantly going to be targeted for elimination. It's important to remind policy-makers that these initiatives have a far greater impact on agribusinesses than any spending program the government can dream up.
Over half of our members have noticed they are faced with significant increases in fees, licences and permits. Over one third of our respondents told us the federal government is the worst offender in this regard. With cash-strapped governments, it's simply not productive to replace taxes with nickel-and-dime user fees. As many of these fees are not optional or required by the government, the temptation to use them must be resisted.
Another important initiative our members have noticed is the shortage of qualified labour. In many cases, especially given the seasonal factors affecting agriculture, finding qualified help is a major obstacle to our members. All year round our members have told us that they are having great difficulty finding and keeping good people. CFIB's recent job survey, ``On Hire Ground'', which Garth mentioned, points out that when hiring young people our members are looking for character qualities rather than specific skills. Qualities such as discipline, a good work ethic, willingness to stay at the job, and adaptability are cited far more often than any degree, diploma or technical skill. When looking for qualified help, our members tell us that they use informal contacts, such as neighbours or friends, rather than relying upon government agencies. I believe there is some information in the documents you have to that regard.
Nearly half of our respondents said they are concerned with agricultural transportation. Previous surveys have indicated that 90% of agribusinesses want agricultural transportation declared an essential service and exempt from strike action. We are very concerned that the proposed amendments to the Canada Labour Code may make a shutdown of the agricultural transportation sector an easier proposition. As agriculture accounts for such a large portion of Canada's vital export sector we must move extremely cautiously on these reforms.
Our research also indicates there is probably more diversification in effect in rural communities than we really recognize. In fact, one quarter of our farm members tell us that someone in their household runs another non-farm-related business. In addition, our farm members have told us that they have kept current with the changing technology. Almost 90% of our members use computers, over 70% have fax machines, nearly half of them have a modem, and over 20% are on the Internet. These are very encouraging results, and often exceeding the incidence of technology in the general business community.
I'm also going to distribute to you one of our newest publications, which is called the Agri-Business Bottom Line. I can distribute it, if you'd like, right now. This data is right now given just to our prairie members and provides us with another vehicle for collecting survey data from our agricultural members. The front cover of the issue provides some insight into another issue facing your committee, that of access to capital in rural communities.
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While generally more satisfied with the performance of Canada's financial institutions than is our general membership, agribusiness owners still cite significant challenges with interest rates, collateral requirements and service charges. However, the strength of the credit union movement on the prairies has meant that there is probably a greater degree of satisfaction with all of Canada's banks.
This suggests to me that increasing competition in the financial sector is a key way of improving access to capital on the prairies. Rather than the government stepping into the breach and filling it with its own programs, increasing the competition among our existing financial players is probably one way in which to do that.
The current issue of Agri-Business Bottom Line contains a survey with respect to the barley vote and the recommendations of the grain marketing panel. Rather than get into this in detail, I just want to let you know that our members having strongly supported the concept of dual marketing for grain, both domestically and internationally. We are concerned, however, that the question that's being asked of barley producers appears to limit their options. Following this important survey, we'll ensure that each of you is provided with a copy of our results. The survey is in the hands of our members at this moment.
In summary, there are rapidly changing times among our agribusiness members. Commodity prices, while better, still fluctuate. Farmers, like Canadian governments, face significant levels of debt that continue to prevent economic growth.
Rural communities have witnessed many of their young people leaving for larger centres. However, we still continue to see a high degree of optimism among our membership. Most governments seem to be finally getting their fiscal houses in order. That has renewed the possibility of some future tax relief.
Canadian farms are among the most productive in the world, and appear to be rapidly adopting new technologies and the principles of diversification. I believe your committee can help this process by resisting the temptation for high-involvement government programs, continuing instead to erase the legacy of debt and deficits and to lower the total tax burden facing all Canadians.
Thank you very much. I'll pass you now to my colleague from Quebec, Pierre Cléroux.
Mr. Pierre Cléroux (Vice-President (Quebec), Canadian Federation of Independent Business): Thank you.
I'm going to make my remarks in French but I would be very happy to answer your questions in both languages.
[Translation]
I am going to talk to you about something very specific and down to earth.
When people talk about regional development, they also talk about issues that directly affect business owners.
I am going to talk to you about the local Bell Canada rate that you can find in your document, in the section on Quebec-Ontario. Bell Canada had asked the CRTC to increase and restructure its rates, and that restructuring will have a major impact on small businesses in Quebec and Ontario.
You may already know that Bell Canada has three rates: the rate for individual lines that you have at home, the rate for business lines - as soon as you have a business, either at home or elsewhere, you must have a business line - , and also what are known as multiple circuit lines, a high capacity circuit for big businesses to have several lines coming in at the same time.
What Bell Canada is proposing and what it asked of the CRTC, is to reduce the price of multiple circuit lines in two big cities, namely Toronto and Montreal, and at the same time, significantly increase the rate for business lines in every region of Quebec and Ontario that it serves.
Why does Bell Canada want to do that? Bell Canada wants to prepare itself for the upcoming competition in major centres such as Montreal and Toronto. Apparently, Bell Canada expects that there will be new competition for business lines and it wants to reduce its costs to be able to compete.
We do not completely disagree with that. If Bell Canada wants to reduce the costs of multiple circuit lines, that's fine, but it must not be done at the expense of small businesses.
The increases are quite significant. Let me give you a few examples of what is written here. In Sherbrooke and Trois-Rivières, the cost for a business line will increase to $56 from $35 per month. That means a 60 per cent increase per business line.
.1555
For someone with an average small business with five business lines, that would mean an increase of $1,200 to $1,400 per year. Bear in mind that that increase will not translate into additional service. People will have to pay the 60 per cent increase to get exactly the same service as they get now.
You can find similar examples for Ontario. In Sudbury, for instance, the rate will increase to $56 from $35. In the Ottawa region, the increase will be to $54 from $38, which is also a significant increase.
People can choose to pay $56 or $41 plus user fees. In other words, Bell plans to offer people the option of paying $56 or paying $41 plus 1 to 5 cents per minute for local calls. These are not long distance calls, they are local calls.
We calculate that if you call for 30 minutes a day, it would be better to take the set rate. Since most people who have a business line use it regularly, most small businesses will opt for the fixed rate and will therefore see their telephone costs increase significantly.
We are therefore vehemently opposed to Bell Canada's request for three reasons. First, we object to it because it is an unjustified request. In fact, when a business pays $35 per month, the cost to Bell for that particular business line is just $28. In every region of Quebec and Ontario, businesses pay more for their business lines than they cost to Bell, and that is because individual lines are being subsidized.
We therefore think it is totally unjustified for Bell Canada to further increase the cost of business lines. It is not true that business lines in regional areas are subsidized by other groups of consumers. We already pay more than our fair share. So we feel that Bell's request is totally unjustified.
Secondly, we think the increase is far too great. I am sure you do not know of any business in your region that could increase its prices by 60% and still stay in business. Bell can do so because Bell has a monopoly, but obviously, a 60% increase is totally unacceptable.
Thirdly, Dan said earlier that over 20% of our members use the Internet. To use the Internet and a telecopier, you need an additional business line. If you increase the cost of business lines in the regions by 60 to 80%, obviously that will slow down the use of technology by our small businesses, and we think that will have a major negative impact on the small businesses that have those technologies.
We have therefore started an unprecedented campaign to oppose Bell's request. We submitted a report to the CRTC, we're involved in public hearings and met the federal liberal caucus and the Bloc Québécois. We feel it is extremely important that the CRTC and the government realize this is an unacceptable proposal that will cause a major setback to regional small businesses. But the most important thing here is that it is an unfair proposal.
We are therefore asking your committee to support us in our efforts to stop the CRTC from granting Bell its request. You are very concerned about regional development. This is a very mundane example, I admit, of a negative impact on regional businesses.
Thank you.
[English]
The Vice-Chairman (Mr. Thalheimer): I've just been advised that we have a half-hour bell. We'll have to adjourn at 4:20 p.m. I don't think we'll be coming back. I'm told there are a number of votes.
Mr. Bélair (Cochrane - Superior): Mr. Chairman, 4:20 is a bit close. Make it 4:15.
The Vice-Chairman (Mr. Thalheimer): All right.
I want to assure you people - I know you've put a lot of work into this - that all your comments and so on are on record. They will be considered in total when we prepare the report. It's unfortunate that this is happening, but it is. That's the nature of the business around here.
I'll let you carry on, then. I'd ask that the questions be very brief.
Mr. Iftody: I have a point of order, Mr. Chairman.
I would reiterate to the presenters that in order for us to get some questions in, it probably would be better to keep your comments as brief as possible so that we can get an exchange under way here. We now have 15 minutes left, and that's going to expire really quickly.
.1600
Mr. Peter O'Brien (Executive Director, Atlantic Canada, Canadian Federation of Independent Business): Mr. Chairman, I'll go very quickly. In the tradition of most Newfoundlanders, I speak very quickly and say little. That's not fair to some members of this House, and I realize that.
I want to talk very quickly about the demographic changes that are taking place in this country. Nationally, 23% of the population is now rural. In Atlantic Canada that's approaching 50% - it's now past 50% in two of the four provinces and we're seeing that continue. I want to talk on the basis of that very quickly.
The cod fishery is a symbol of the kind of thing where governments have worked in the past to try to maintain the rural economy in the region. The governments at all levels have worked hard to create employment and maintain the rural communities. They initiated a dramatic expansion of the cod fishery through the expansion and opening of plants and the growth of the whole fish processing industry through the late 1960s and into the 1970s. That in turn brought too much pressure on stocks and the result is the current fisheries moratorium off the east coast.
Interestingly enough, the dramatic expansion of plants and the product had minimal impact on the value of the catch, because in spite of the moratorium, the world price of cod has not changed. One wonders if we had emphasized quality rather than quantity in the past if we would be in much better shape in our fisheries in this day and age in Atlantic Canada, and perhaps on the west coast as well.
There are a number of graphs I want to bring to your attention very quickly. The first one shows that in 1911, 54% of employment in Atlantic Canada was in the primary sector. By 1951 that had reduced to 29% and in 1995 that was down to 7%. The growth has been in the service sector, where it has gone from 23% to 43% and is now 70%.
Rather than get into a lot of detail, I want to refer you to the graphs further on and suggest very quickly that there are some things I think government can do. One of them is a program the Department of Industry is currently involved in, and that's the community access program. As you are well aware, it's a way to provide access to rural Canadians to all the benefits of the Internet.
On November 22 I had the opportunity to address more than 300 people involved in community access programs at a conference in Sydney, Nova Scotia. My message to that conference was to become self-reliant in the maintenance and growth of the community access centres as quickly as possible, and not depend on government for continued support and direction. I believe that message was important for two reasons. First, total community commitment will only come through self-reliance. Second, continued government involvement may lead to intervention that could limit the potential provided by the program.
During the conference I asked many of the delegates what they wanted to see in their community access, and every one of them had a different thought or idea. I came away from the conference excited as a result of that. It left me with the view that's the approach government should take, but don't limit the people.
The need in rural Atlantic Canada and indeed in all of rural Canada is access to the tools and information that allow businesses to grow and prosper. That program is one way of doing that. They also need education, training, understanding, access to capital - as has been already mentioned - and information, but most of all they need self-reliance and independence. I'm saying that from a region of the country that has not always felt that in recent years.
Government programs must provide the tools, but they must not interfere with their use, because if they do they will not be readily received and appreciated in rural communities. I believe, however, that if you develop self-reliance in those communities your approach will be much more successful.
Thank you. I went through that very quickly.
The Vice-Chairman (Mr. Thalheimer): Mr. Deshaies first.
[Translation]
Mr. Deshaies (Abitibi): My first question will be for Mr. White.
You say the highest number of jobs created last year were in the agricultural sector. Is that because other industries were stable, or is it really because agriculture itself created the most jobs?
[English]
Mr. Whyte: I'd say agriculture is the fastest-growing sector in our membership, but not in job creation. I would add that our job survey shows that small businesses are the ones creating most of the net new jobs, not the large structural industries like the primary industries. We see in our membership, especially in the service sector in Atlantic Canada, as Peter pointed out, there's a movement toward smaller firms. They're the ones that are picking up the jobs across the country. We're finding that in Quebec, in the prairie region and in Ontario.
.1605
I guess that's one of the reasons we brought up the Bell Canada rate. We have members who are concerned with the small payroll tax. This is a fixed tax increase of $30 per line, per month, in many rural communities. So all of this great work we collectively are going to do in Ontario and Quebec could be for naught, because their costs could increase significantly. That would really hurt.
So we're trying to give you those specific examples. I went beyond the question, but....
Mr. Kelly: One quick point to add with respect to agriculture is that we also have noted through some of our research that job creation is coming in all sectors of the economy. Certainly there needs to be a focus on the part of government to consider the fact that there are new industries being developed very rapidly, new technology and things like that. But we shouldn't forget about our traditional industries, because they still are a significant source of job creation.
Governments have a very difficult time picking winners and losers, be they sectors or be they regions. That's another clear message that I think our research has shown. We shouldn't forget about some of the traditional industries that have created, and will continue to create, a great deal of jobs into the coming centuries.
The Vice-Chairman (Mr. Thalheimer): Mr. Chatters, you've indicated that you'll pass.
Mr. Wood.
Mr. Wood (Nipissing): In this particular book, On Hire Ground, it says ``Small firms appear to create jobs not because they're small, but because they tend to be young''. By ``young'' I suspect they generally mean companies run by young entrepreneurs.
As you know, this committee has heard witnesses speak of rural brain drain, whereby the best young people tend to move to the cities. I just wonder if you can suggest anything from a business standpoint that would maybe slow down or prevent the brightest and best young people from leaving the rural areas.
Mr. Whyte: What we meant in the report was that a lot of them are young not only as young entrepreneurs but also as new businesses. Over a five-year period 50% of new jobs come from firms that aren't even in existence today. So five years from now, 50% of the net new jobs will come from firms that aren't in existence.
We agree with you. You have to look at young people as well to grow those new businesses.
Mr. O'Brien: As we move from primary resources and from manufacturing - and I think our economy is slowly shifting into service and into a whole information technology era - I would suggest to you that some of the best places to do that are in rural communities. I'm aware of a gentleman who left the Silicon Valley in California and moved to rural New Brunswick because he can think better there. He's a world leader in some aspects of some of this new technology.
We're seeing that happen. I think the community access program, for example, at Industry Canada, is one of the things that creates some equality in the access to knowledge that was always too lacking in rural communities. I come from a very small community, and I've felt that.
The Vice-Chairman (Mr. Thalheimer): The vote is in six minutes, I'm told. I'm sorry, gentlemen. Thank you ever so much for coming. I assure you, all of your comments are on record.
Mr. Whyte: One thing more. You're welcome to have all of our research. If you need more information, it's available.
The Vice-Chairman (Mr. Thalheimer): We have to run, but perhaps you can stay and give it to our researchers. You understand the nature of our business.
Thank you very much.
The meeting is adjourned to the call of the chair.