[Recorded by Electronic Apparatus]
Wednesday, December 4, 1996
.1535 
[English]
The Chairman: I'm going to start the meeting.
While we're waiting for the Minister of Finance there are a couple of matters of business. Once the Minister of Finance is finished with his testimony, the draft of the report will be delivered here. I'd like a few minutes in camera with the committee to talk about that, and then we will adjourn, potentially for the week.
Welcome, Mr. Minister, to the transport committee. We are, as you know, discussing the question of trade, transportation and tourism.
One topic that has been brought to us by many witnesses is the problems with our national highway system, the network of highways that carries trade between provinces and between Canada and the U.S. I think there is a consensus among the members of the committee that action has to be taken to accelerate the pace at which that network of roads is rebuilt. There's a concern that the provinces on their own aren't up to the task, or aren't able to proceed as quickly as the infrastructure will require.
One of the issues that has been raised is whether, if the federal government were to get involved, there are some methods in which we could participate that would not throw us off our current track towards getting our deficit under control.
I really appreciate, Mr. Finance Minister, your willingness to come and meet with the committee. I'll let you make some opening remarks, and I know members of the committee have a lot of questions for you.
Hon. Paul Martin (Minister of Finance): Thank you very much, Mr. Chairman. I apologize for being five minutes late. I might say to you, as the chair of the transport committee, that if the elevator transportation in this building were a little quicker, I might be here slightly earlier.
I'd like to deal with the specific issue you have raised. However, I'd like to begin by perhaps putting it in a somewhat broader context.
[Translation]
Mr. Chairman, when I was invited to appear before the Standing Committee on Transport, I was pleased to accept.
The theme you have chosen for your hearings, transportation and its relationship to trade and tourism, is a challenging one, and I look forward to hearing the results of your deliberations.
As I recently indicated to the Standing Committee of Finance, the fiscal and economic strategy of the government has pursued three tasks which we believe are key to the achievement of these goals: getting the fiscal and economic fundamentals right; ensuring that our basic social programs are sustainable over the long run; and providing Canadians with the support they require to take advantage of the modern economy.
I have also made clear that dealing with the deficit and debt situation is not an end in itself. It is a necessary means to a much greater end, a country whose economy is growing, a future where prospects for more jobs are much brighter, and a society of fairness and compassion.
.1540
[English]
Mr. Chairman, as the members of this committee are well aware, the transportation sector has played an important role in meeting the government's objectives. Specifically, transport is featured prominently in our government restructuring agenda, with the basic objective of transforming Transport Canada from owner and operator of transportation services to policy-maker, regulator and landlord.
We've withdrawn from areas in which the government no longer needs to be present, and we have developed new approaches, new and better ways of doing business. These include the privatization of the CNR; the commercialization of the ownership and operation of air navigation services; the devolution of responsibility to other levels of government, or in fact the devolution to the private sector for regional, local transportation and services such as airports and marine ports; and finally, the restructuring of the operations retained by the government itself to improve their efficiency and effectiveness.
For this reason, among others, we certainly believe that this committee is right to be taking a look at where the transportation sector is going from here and how it relates to other aspects of the economy.
I understand, as you have just said, Mr. Chairman, and perhaps picking up on that, that one of the major focuses of your work here has been the role of highways. In this context, I believe you have looked at the work that has been done by the federal, provincial and territorial transport ministers concerning the identification of the upgrading of the national highway system. We are also aware of the representations made by the Canadian Automobile Association and others that the federal government should play a substantially increased role in funding a national highway system through dedicated fuel excise taxes and/or substantial direct spending.
I guess, Mr. Chairman, I have to play the role of the Minister of Finance. As we look at these issues, we need to bear in mind that all governments in Canada - federal, provincial and municipal - face serious fiscal constraints. As far as the federal government is concerned, despite the progress we have been making on the deficit, the fact is that we are in a poorer financial situation than the provinces. For instance - and I simply give you these numbers for your consideration - the federal debt-to-GDP ratio is three times that of the provinces. Our debt-to-GDP ratio is about 75%; the provinces' is effectively, on average, below 30%. Our debt charges at the federal level represent 35¢ out of every revenue dollar. This is well above the 14¢ average at the provincial level.
[Translation]
That is why it is difficult to see how the federal government could embark on major spending in the transportation area, particularly highways.
While highways are primarily a provincial jurisdiction, federal spending in that area currently amounts to some $300 million annually, in addition to about $100 million a year on roads and bridges under federal jurisdiction.
[English]
Nor, with respect, are tax increases the answer. As a number of members of this committee have pointed out in other fora, there is clearly no appetite among Canadians at this point for tax increases of any kind. Furthermore, there would be a fundamental difficulty with earmarking taxes for specific purposes like highways, so-called dedicated taxes, because they limit our fiscal flexibility to redirect activities in light of changing priorities.
For these reasons, Chairman, I believe that the work this committee is doing is very, very important. What is clear is that the old ways of doing things no longer work. The old style of tax-and-spend solutions of the past no longer applies. The future lies in new, innovative approaches.
Considerable creativity has been applied since November of 1993 to ridding the transportation system of the legacy of the past, a legacy that stifled growth and competitiveness. We now need to apply the same kind of creativity to dealing with the challenges of the future. We have to rediscover the virtues of partnership and innovation in the transportation sector, just as we have to do in meeting the challenges our country faces in other areas, whether they be research and development, health care, addressing the needs of children, or expanding trade opportunities.
.1545
One of the most interesting ideas - and I know it is one that is of considerable concern to the members of this committee - involves the promotion of partnerships between the public and the private sectors, including the so-called BOOT concept: build, own, operate, and transfer. Private-public partnerships are increasingly being examined around the world. These arrangements offer considerable advantages in terms of more efficient and lower-cost delivery of infrastructure services.
Pricing to reflect costs helps to moderate demand and allows for more efficient allocation of resources. Public-private partnerships also offer potential benefits in terms of cost savings. In the United Kingdom, where such arrangements have been developed extensively across a wide range of infrastructure systems and services, savings of at least 15% to 20% have been reported in the last few years.
The federal government's experience in this respect, while limited, has been generally positive. The Confederation Bridge linking Prince Edward Island and New Brunswick, which will be opened in early summer of next year, has been designed and built and will be operated by the private sector in just such a BOOT arrangement. The new partnerships we've entered into with local airport authorities to operate and manage airports, including new capital expenditures and the full commercialization of NAVCAN, can also be considered examples of this approach.
There are interesting provincial examples with respect to highways. In Ontario, the design, construction, and operation of Highway 407 is one. In Nova Scotia, the extension of Highway 104 is another.
With this I will close, Mr. Chairman. The use of public-private partnerships is not a panacea. However, they will tend to work on a project-specific basis where the private sector sees a rate of return that makes it worthwhile to put up the financing. This means this approach involves challenges as well, such as the imposition, sometimes, of user charges, more specifically, tolls in the case of highways, or immediate participation through capital funding or revenue payments by the public sector.
These are the kinds of challenges we should not shy away from addressing. In short, given the transportation needs faced by cash-strapped governments and a tax-weary public, private types of arrangements warrant serious examination and encouragement.
And because you have taken this initiative, Mr. Chairman and all members of the committee, I really wanted to be here to congratulate you for doing so. Thank you.
The Chairman: Thank you, Mr. Finance Minister. You sounded almost like a friendly finance minister, despite the remark you made midway. We'll test that out now.
Monsieur Crête.
[Translation]
Mr. Crête (Kamouraska - Rivière-du-Loup): I agree with you, Mr. Minister, that our investigation helps us understand more clearly and more distinctly that strategic choices are being made in the transportation area that will have a considerable impact 10, 15, or 20 years from now, more particularly on the north-south and east- west trading, and also on the relationship between the road and rail networks.
We did not seem to have in the past an integrated transportation policy in Canada. I know our legislation makes that a bit difficult, but I would like to know whether you would be ready to make a serious study of the private and public options as far as financing goes.
We have had interesting presentations on this issue that helped us distinguish the financing options in the 1970s, when there was a massive investment of public funds, and the options we have today where the financing is shared between the public and private sectors. We have to make a clear distinction between the two. I would like to know whether it is possible to promote these concepts at the government level.
I would also like to have your comments on the CAA campaign requesting that a certain percentage of taxes on gas be dedicated to road maintenance.
Mr. Martin: Concerning your first question, Mr. Crête, the answer is clearly quite positive. That is why we are looking forward to your report. I can assure you that the transport department will examine your report as soon as it comes out. You can also be sure the finance department will also examine your report, and we are ready to come back to your committee, when the Minister of Transport gives his opinion, to help accelerate your work.
.1550
My answer to your second question is not so positive, unfortunately. Like all other governments, the federal government is in a bind, and this kind of tax would limit our flexibility. We are certainly ready to listen to whoever promotes the idea of a dedicated tax for road maintenance and rebuilding, but I have to tell you we are not really in favour of that.
Mr. Crête: I have one more short question.
A very interesting demonstration has been made to us as to the financing options of this kind of highway, more particularly in outlying areas. This could happen in sparsely populated areas because road transportation would create enough traffic. Are you open to this kind of suggestion? It is important to realize that the problem with transportation is not simply to allow people to move around in densely populated areas. We also need to revitalize regions that are far away from big cities.
Mr. Martin: Once again, Mr. Crête, my answer is certainly positive for the same reasons you have. We need to revitalize areas that are far from metropolitan areas. That raises some questions too. I must tell you I am not here just to give answers, but also to ask questions, because you have experts sitting at this table.
The only thing I am worried about is problems like the one they are having with the toll highway near the Dulles airport in Washington, D.C. It is not working out very well at all because there is a competing highway in the same area. We would like to avoid this kind of problem.
Mr. Crête: I can tell you we had an excellent presentation on the conditions required to succeed with such an operation. We need first a commitment from users and the province to use this highway, more particularly trucking companies. That is the first condition required to get an agreement.
Mr. Martin: I am quite open to that concept, then. But Mr. Crête should realize it is not always easy to force a carrier to make a certain choice and to act in a area under provincial jurisdiction.
Mr. Crête: I certainly understand all these changes must take place in the spirit of the agreement on the infrastructure program. Here is my last question.
Do you think all these decisions can be made without encroaching on provincial and federal jurisdictions in this area? What are our best options to do all of this in a spirit of cohesiveness and good will?
Mr. Martin: You have just given the answer yourself. To begin with, both levels of government will have to discuss this and agree on the way we should go about this. I think we have enough successful federal-provincial agreements to be confident this can be done.
Mr. Crête: This is a nice area for partnership, whatever the status of Quebec is.
[English]
The Chairman: Okay, Mr. Gouk.
Mr. Gouk (Kootenay West - Revelstoke): Thank you, Mr. Chairman.
And thank you, Minister, for appearing. It's the first opportunity I've had to talk to you in a somewhat non-partisan way.
Just to get it out of the way, I'd like to say that I do support the concept of public-private partnerships in certain situations. I think they can be very beneficial to all of us.
However, my favourite area is the dedicated fuel tax. We touched on it a little bit today with aviation fuel. But I'm going to leave aviation out of the equation at the moment. We're going to talk about that one way or another in the future.
With regard to highways, one concern I always have at any committee is that if you hold hearings and almost everybody says the same thing, then, at least as a committee, we have an obligation to report that and to focus some of our recommendations based on that. The dedication of fuel tax is just one of those things.
You yourself said today that the federal government spends about $300 million a year on highway infrastructure, but from my province of British Columbia alone you take almost three times that in federal fuel taxes. The provincial governments have a role to play in that, but the role we have to look at is ours.
.1555
Now, I believe what you have said is correct. We can't just suddenly say sorry, we're going to dump that, about $5 billion altogether, into a dedicated fund. But we have to start. I think it is the right way to go. If the economy were better, then I would say yes, we have to transition fast. You're correct, the economy is very fragile, so we have to transition slow, but I still think it's the right way to go and we should try to start something along that line.
Would you agree we should at least examine the possibilities of starting something on that concept, even if out of the 10¢ it's 1¢ or 2¢?
Mr. Martin: I must say I have probably a lot more difficulty with the concept of dedicated taxes having been the Minister of Finance for three years than I did when I was in opposition, because there is no doubt a certain warping of the mind occurs when you get this job.
Mr. Gouk: I always wondered what happened.
Mr. Martin: Yes; but it's conceivable, Mr. Gouk, you'll never have to go through it.
Mr. Gouk: You're right. I don't intend to be the finance minister.
Mr. Martin: Nonetheless, I think your question is a very valid one, and the way you put it is very good. The fact is it is really not something we could contemplate doing now, simply because I think the most important thing, and I know you agree, is to solve our fundamental financial problem and we really should not limit our flexibility at this time.
Now, you're suggesting that what we might do, given that problem, is to start very small and build on it, if I understand what you have just said.
Mr. Gouk: That's right.
Mr. Martin: I guess my answer to you, Mr. Gouk, would be that you put the question well. There will come a time when we will have more flexibility and your suggestion is one we could perhaps consider. But I must say we would have to be generating, from my point of view, reasonably substantial surpluses before I would want to entertain the concept. Let me be very clear to you, because I think you've put the question in the proper tone, and that's the way in which I would want to respond.
Mr. Gouk: One of the things we've looked at, and it's been brought up by witnesses and we've examined it ourselves, is cause and effect. If you spend the dollar now, even though it's pretty hard to find that dollar out of all the commitments we have for our money, we might save an amount that is in excess of that dollar plus interest, as it impacts on our overall financial picture, by doing a relatively minor repair to something that will require major replacement. This is a very clear message we have got from a lot of people.
If we transfer that to another mode of transport, rail, we have a lot of cases where things are ending up on the highways that many people feel might more properly be on rail. But rail, of course, has the same problem. They have overhead costs. In their case the fuel taxes aren't being asked for to be dedicated to a rail infrastructure because they look after their own. Their point is, given we look after our own, what exactly are we paying these fuel taxes for?
I know you need every dollar you can get. I understand that. But by the same token, if $1 collected causes $3 worth of trouble, maybe we should be re-examining those things in all of these contexts, the dedicated funding for highways and a possible reduction to fuel taxes for the rail system.
Mr. Martin: The reason my original answer to your question was that we might be in a position - we're not in a position to examine it now, but we might be in a position - to examine it at a time when we're generating substantial surpluses is simply that you're not wrong when you say, look, if you spend a dollar now you might well save yourself $5 down the road. It's not that you're wrong in that at all. It's just that this applies not only to highways; it applies to a vast range of projects governments should really be involved in.
.1600
I would say to you that if you're going to adopt that concept, we're going to get into a long line of priorities, and we do not have the money at the present time to go that way.
What I would really say to you, however - and I think this is going to be very important - is that there is going to be a second stage of the financial debate in this country when we go beyond the deficit to start talking about the debt-to-GDP ratio, the debt as a percentage of our gross domestic product. At that point the argument you're bringing forth is going to become very important. At that point it's going to be, what is the best use of this money? Is the best use of this money to reduce taxes? Is the best use of this money to pay down debt? Or is it to do exactly what you've just said: is the best use of this money to fix up an important part of infrastructure because that will improve the debt-to-GDP ratio much more?
I'm sorry to take so long, Chairman, but I think Mr. Gouk's questions are very good. I guess it's a function of timing.
Mr. Gouk: I agree. With regards to a function of timing, if I wait until there are surpluses, I'll have somebody easier to deal with.
The Chairman: Thank you very much, Mr. Gouk. Tempted as I am to respond to that, for the information of everyone around the table, there is a bell right now. We're tracking it, and we'll get you all out of here in time to vote on the amendment to term 17.
Mr. Jordan.
Mr. Jordan (Leeds - Grenville): I thought you were going to say you'd be dead by then.
Mr. Minister, I really appreciate the positive things you've said about this committee because I feel very strongly about the transportation committee in a country such as ours. As vast as we are as an exporting country, we have to get our products and people moving safely.
From transportation, tourism and trade, we've heard just about everything that could fit under one of those three. Indeed, I think we heard from most of them. Invariably it would get to where there would be a common thought about the terrible, deteriorating condition of our highways in this country. I sense that you're aware of this and that something will likely have to be done pretty soon.
I think we make a mistake, though, when we talk about this private-public partnership. Not every highway would have to be financed that way. We could finance most of our highways as they are currently financed. I am thinking more of a national highway, a transnational highway or something like that, which would have all kinds of positive effects in relation to nation-building, for example. It's there that everybody says, yes, we must do it, but inevitably we get around to the fact that nobody has any money to do it. You're saying that.
For that reason, if the need is there and if it's as important as we say it is to do something, we are then obligated to start looking for other ways of financing these projects. I think that's what we're pursuing here. This committee is pursuing the idea that maybe we had better get away from going to the federal and provincial governments and saying, you give us a load of money, and then the municipalities can throw in a little bit. I don't think we'll ever get it moving if we wait for that to happen. We have to look at another way of looking at the construction entirely. I don't think it 's inconceivable that this committee would be prepared to move on with that.
I don't think it's good enough just to be aware of the problem. It's time we started to do something about it, something fairly concrete. You wouldn't have to do it all in a day. You could do it over a period of time if you had a long-range plan of financing the construction of the highways.
We've touched upon the fuel tax, and you've outlawed that. That's probably not on. Spending some of the money you already collect is a favourite. You're collecting billions now from the usage of these highways, so why don't you turn some of that money back in? I think I'm hearing you say that we have so many places for that money that the likelihood of its being turned to highways is very slight.
I think we could come back to user pay. I'm not so sure that I can't disagree with Mr. Gouk on this. I see the people who represent the railroads over there smiling.
.1605
I personally feel that the roads weren't constructed to carry the loads we're putting on them. I don't know what we can do about that, because they're all in the same business of moving goods and they say ``But we're competing''. But who's paying for it? I don't know, but I think the railroad people will be glad to see the idea that.... The rail lines are sitting idle most of the time. The highways that run parallel to them are so darn busy you can hardly crawl down them. It seems to me something went off the rails there on that one.
So I'm glad to hear you think this committee is as important - I think it's just as important as the finance committee and probably more so.
The Chairman: I don't know if you want to respond to that, Mr. Minister. We're pressed for time.
Mr. Martin: I'll just say I'm not going to respond about the finance committee - I'll get in trouble with it. But let me just tell you that when I hear Mr. Crête, Mr. Gouk and Mr. Jordan, I realize there's a fair unanimity of opinion. I think this is a very bad place for the Minister of Finance.
The Chairman: I'm certainly not going to argue with that.
Mr. Cullen.
Mr. Cullen (Etobicoke North): Thank you, Mr. Chairman.
Thank you, Minister, for being here. I really appreciate it personally. I think it's going to give us confidence to deal with these difficult and complex questions over the next few months.
I have a number of questions, but I'll start with two. Some would say that in terms of the cost of capital there's no cheaper way to finance it than through the federal government debt or whatever. Others in the private-public partnerships discussions we've been having point out a number of operational benefits in terms of the time value of money and bringing it back. In fact, if you're looking at private-public partnerships, the real cost of capital could be lower in many cases. I wonder if you can comment on that.
Mr. Martin: Yes, I think it is. There are two things. First, it can be depending on your discount rate. It depends on what kinds of revenue guarantees you might have from the public sector. Also, of course, projects have been done out there where the private sector did the design and the building, but the ultimate guarantee was the public sector's. So I think you can finance that problem. On the other hand, there may well be such advantages that they offset an increased cost of capital. I think that's one that can be handled, Mr. Cullen.
Mr. Cullen: Thank you. Having had a little bit of experience with public finance, I can understand your reluctance to having a dedicated tax. I personally don't see it as a panacea. That's why we're looking at public-private partnerships. But I'm glad to hear you say there may be room at some point for something in conjunction with public and private partnerships.
You made the point, Minister, that public-private partnerships are not the panacea in all cases. It really deals with and touches on this question of high-traffic areas, low-traffic areas, private good and public good. I wonder if you see any possibility of actually looking at it on a more regional basis. In other words, see if the private sector could step up and finance what is seen as the private good. The high-traffic areas may need to subsidize some of the low-traffic areas.
You could look at it in a more global way - try to look at, as Jim pointed out, the sort of national highway system. I wonder if there's any potential for looking at that sort of approach. At the end of the day there might still be a need for provincial and federal governments to step in and help finance the part that can't be financed by the private sector. Do you think that has any potential?
Mr. Martin: Yes, I do. Let me be very blunt. I think the only thing that limits us in this is our imagination. As far as this particular minister is concerned, we're really wide open, which is why I'm so excited by it. I think this committee may well be in the process of breaking substantial new ground, which is why I was really happy to respond to the invitation.
The Chairman: Mr. Fontana.
Mr. Fontana (London East): Thank you, Mr. Chairman, and thank you for being here, Mr. Minister.
Let me just pick up on the theme. I agree with what you just said - what limits us is perhaps our imagination. Maybe we're underestimating the public. I say that because I think the public can distinguish between a tax, a user fee and a public investment. I think we just do a disservice when....
As you know, Minister, this is a big country and we depend heavily on trade. One of the things we've been trying to do over the past two and a half years, as a transportation committee, is look at how we can become more competitive by getting our transportation costs in line. Hence, we've tried to get those costs down for rail, marine and air so we're competitive in selling our goods.
It seems to me we ought to look at transportation as a means to our competitiveness. If that means the public sector, namely governments, in partnerships or not, has to look at ways of improving that competitiveness, then I think it's incumbent upon us to look at ways of being able to put money into those things.
.1610
Perhaps we've used the word ``tax'' with a very negative connotation. I'd like to think that investment in infrastructure, namely transportation infrastructure, is an investment, because at a point in time you will have to pay for it in one way, shape or form. As an investment, there's a connotation of a payback. Whenever we've undertaken infrastructure in this country's history, we've received a lot more in tax revenues by virtue of spending the dollar. You can call it a tax, but I call it an investment by way of people working and by way of increased growth and activity in our economy and our businesses.
So as Jim, Jim and Roy have all said, if you take a dollar and put it where in fact you are going to have growth and positive spin-offs, then it really isn't a dollar of expenditure, it's a dollar of leveraging to get you a dollar or two dollars or three dollars or five dollars in the growth of additional tax revenues.
And I think the Canadian public is prepared to do it. Because you tell me what the difference is between the user fee to a private corporation to run on that road or a dedicated tax of 1¢ a litre or 1.5¢ a litre in partnership with a province to build a road that's going to be beneficial to that same entrepreneur, that same traveller, that same tourist. It's incredible.
I'm not sure that the citizen can distinguish between a user fee and a tax. Perhaps we ought to use a different word, and government ought to use the word ``investment'' instead of the words `` tax expenditure''. I think the public will buy into something if they can see value for that investment, especially as it relates to transportation infrastructure.
Mr. Martin: I don't disagree. We can take your exact analogy, Joe, the one that was actually raised by Mr. Gouk as well, of this investment that's going to pay off. One could make the same point about Fraser Mustard's work on poor children. The fact is that a dollar spent in helping poor kids today will bring you a great deal of money and a more healthy population twenty years from now. You have a whole series of opportunities like that.
The great advantage, and what I think you're all discussing here, is that in fact you can basically separate yourselves from the pack and say that the same applies, but here's how we can finance it, which is a very imaginative thing. And I think you're doing it.
The Chairman: Thank you.
Gentlemen, we should adjourn shortly to head across to the House for the vote.
Mr. Minister, I think you've managed to cover the major areas this committee is seized with. I appreciate the fact that you took the time to come here today. I appreciate your comments. We certainly are struggling with this area of public-private partnerships. We're going to bring some people together in January to work through it in some detail. I hope we'll get back to you prior to the next budget with some recommendations.
Mr. Martin: I look forward to that.
Again, I'd like to congratulate the committee. I think you're really breaking new ground. Thank you.
The Chairman: Thank you.
Members, if I may, we'll circulate a copy of the discussion paper to you. We will meet on Monday at 3:30 p.m. on Bill C-58. At that point, we'll finish the work on the discussion paper. As soon as we have it, it will be couriered to your office.
A voice: Do we have anything tomorrow?
The Chairman: It's a carefree tomorrow. I'll see you all at 3:30 p.m. on Monday.
We're adjourned.