FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, November 8, 1999

• 0904

[English]

The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call this meeting to order and welcome everyone here to the greater Toronto area and the wonderful city of Mississauga.

I know two members of Parliament, Mr. Szabo and Ms. Guarnieri, who share the city of Mississauga, are extremely happy to be here today.

• 0905

As you know, today the finance committee is meeting to hear pre-budget consultation witnesses.

We will begin with the Canadian Hardware and Housewares Manufacturers Association.

Vaughn Crofford, welcome.

Mr. Vaughn Crofford (President, Canadian Hardware and Housewares Manufacturers Association): Thank you, Mr. Chairman.

The Canadian Hardware and Housewares Manufacturers Association, or CHHMA, is a national trade organization comprised of 260 companies engaged in the manufacturing and distribution of hardware and housewares products. Our total industry sales for 1998 were estimated to have been in the range of $20 billion. The industry employs about 25,000 Canadians.

We appreciate the opportunity that has been provided us by the standing committee to discuss the pre-budget positions of our members. These views contained in our submission we have filed jointly with the Canadian Retail Building Supply Council, the Canadian Retail Hardware Association, and the Canadian Professional Sales Association.

CHHMA regards the high level of consumer confidence as being essential to a healthy economy. More than any other factor, we're convinced that the general reduction in the tax burden facing Canadians will promote that confidence. With the deficit finally eliminated, there are widely held expectations that tax reductions have been earned.

Canada's level of debt and the debt-to-GDP ratio remain, in the opinion of the CHHMA, dangerously high. As a result, the cost of servicing that debt continues to be a major reason for high taxes. CHHMA believes it would be particularly inappropriate for the standing committee to embrace widespread new spending initiatives that would place the national fiscal surplus in jeopardy, thus endangering moves to decrease the debt and the inevitable servicing costs.

Late October saw the Government of Canada agree to the pay equity positions of a large group of current and former employees. It has been widely speculated that the contingency reserve will be used to cover the cost of this decision. The government is to be congratulated for its foresight in establishing the contingency reserve. It must not be forgotten, however, that the reserve, when not otherwise required, is to be used for debt reduction.

The government has stated that it intends to use the surplus equally to fund program spending on the one hand and to reduce and attack the debt on the other. Given the possible impacts of the pay equity decision on debt reduction, the standing committee should be prepared to revisit this position.

CHHMA does not believe it is arguing in favour of tax relief from a narrow perspective. Rather, it wishes to bring to the attention of the standing committee three important points raised by Statistics Canada this year.

First, it has reported that personal income taxes continued to make up the largest share of household spending in 1997, the last year for which the figures are available.

Another report stated that personal incomes for Canadians advanced 3.8% in 1998. At the same time, a 5.8% increase in income taxes and other transfers to government outpaced these personal income gains, leading to a slower growth rate for disposable income.

Finally, in its most recent report on retail trade, Statistics Canada said the strength in retail sales since the fall of 1998 has been driven more by consumer credit than by higher personal income. From the third quarter of 1998 to the second quarter of 1999, consumer credit advanced by 5%, nearly twice the rate of personal income, which grew by 2.6%, while total employment rose by 2.1%.

As well, CHHMA is concerned that the economy may be approaching the peak of its current upturn. Rapidly increasing crude oil and gasoline prices are already having important effects on the consumer price index as well as on the cost of raw materials and industrial products.

If the inflation rate continues to build, the Bank of Canada may have no alternative but to increase interest rates. Given the high levels of consumer credit and the degree to which the residential building industry depends on low and stable mortgage interest rates, consumer confidence could easily be further shaken. The need to consider tax relief may be more of an imperative than it currently is viewed as being by the government.

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Again, thank you for the invitation to present our views this morning. I'm looking forward to discussing them in more detail as the meeting progresses.

The Chair: Thank you very much for your presentation.

We'll now hear from the Canadian Retail Hardware Association, Robert Elliott.

Welcome.

Mr. Robert Elliott (Executive Director, Canadian Retail Hardware Association): Thank you, Mr. Chairman, members of the committee.

On behalf of the membership of the Canadian Retail Hardware Association, I want to thank you for the invitation to meet with the standing committee today. This is our first appearance before your committee. I'm looking forward to the opportunity to share with you the pre-budget views of our members and our industry.

CRHA is a national trade association representing 1,800 hardware, home centre, and building supply retail stores across Canada. Total industry sales for these companies were in the range of $54 billion last year, and they provided employment for 45,000 Canadians.

While our members include the extremely large retail hardware chains doing business nationally, our membership is comprised overwhelmingly of smaller independent dealers serving the needs of their individual communities. Our submission, as a result, dwells heavily on small business issues.

The submission we are supporting this morning was filed jointly with us by the Canadian Hardware and Housewares Manufacturers Association, the Canadian Retail Building Supply Council, and the Canadian Professional Sales Association.

We are pleased to lend our voice to this submission because we know it well represents the views of our members. I am confident about making this assertion since our members were formally surveyed to ascertain their pre-budget opinions.

The standing committee should be concerned that only 4% of our responding members expect the economy to expand significantly in 2000. The remainder are forecasting little or only moderate growth next year. A further point of concern should be the fact that only 63% of respondents feel Canadian consumers have sufficient confidence to keep the economy healthy this year and next.

Fully 92% of our members stated that a reduction in the rate of personal income tax and/or the GST would have a positive effect on the national economy. Therefore, we commend the attention of the standing committee to the various proposals for tax relief, intended to promote economic buoyancy, as advanced in this submission.

Robust activity in the residential construction, repair, and renovation sectors are critical to the business success of the retail hardware industry. Specific recommendations to strengthen these sectors are included in the submission. By endorsing them, the standing committee will be taking important steps to support economic growth in all regions of Canada.

In particular, CRHA believes permitting use of RRSP savings in much the same way as it's currently employed under the first-time homeowners' plan would provide a major incentive to home repairs and renovations. It would also help alleviate the expensive retrofitting of current residences to accommodate the special needs of a steadily aging population.

The need for fiscal discipline in the forthcoming budget was clearly identified in our survey results. Only 4% of respondents believed the most important use to which the fiscal dividend could be put is to increase spending on national programs and services. The remainder supported both debt reduction and tax relief.

If additional spending is to be undertaken, 64% of our members feel it should be directed to a new infrastructure program targeted specifically to the improvement of the nation's roads and bridges. Such spending would be a worthwhile investment in the economy and would be particularly beneficial to regions of the country that could not otherwise afford the infrastructure required if they are to participate fully in economic development.

The throne speech suggested that the infrastructure program could also include a wider range of projects. In our opinion, such extensions are to be avoided. As long as economic disparity exists between the regions of Canada, addressing economic infrastructure issues should take priority.

I look forward to discussing these and any other issues with you in the round table portion of this meeting.

Thanks for the opportunity.

The Chair: Thank you very much, Mr. Elliott.

We will now hear from the Canadian Tooling and Machining Association: Mr. Del Bruce, past president, and president, Canadian Progressive Tool and Transfer Ltd.; and Mr. Russell H. Gorham, general manager.

Welcome.

Mr. Del Bruce (Past President, Canadian Tooling and Machining Association): May I begin, Mr. Chairman, by thanking you and the members of this committee for inviting us to address you today.

The Canadian Tooling and Machining Association, with a support group of closely related associations and businesses, welcomes the opportunity to share information with the committee and to give input with regard to the stimulation of trades training across Canada.

We're joined today by APMA, the automotive parts association; the Society of Plastics Institute; Magna International; Valiant Machine; and several of our member companies.

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The CTMA's proposal, entitled “Making a Case for Apprenticeship Training Tax Credits”, is national in scope and it envelops all apprenticeship training in Canada.

Specific to our industry, the skills shortage in the precision metal-cutting trades is systemic. As a key component of Canada's industrial base, the precision metal-cutting trades have primarily relied on the combination of the immigration of skilled workers and domestic apprenticeship training in order to sustain a consistent pattern of growth. Immigration of skilled tradespeople, while important, is in decline. Apprenticeship is now viewed as the third pillar of education, alongside our colleges and universities; however, a key difference to note is that apprentices are contributing to the system while their education takes place. Many of our member companies have been investing heavily in this form of education and training.

In spite of the need and importance of apprenticeship training, the skills shortages persist. The skills shortages of the precision metal-cutting trades are global in scope. Poaching of skilled people has developed, and the early signs of inflated wages and benefits are now developing. Poaching is serious, and as a result, some of our Windsor member companies are currently experiencing a loss of skilled people to the United States.

The CTMA proposes that to stimulate an increase in the apprenticeship training investment across this country for all industries, an incentive program, administered under the existing Income Tax Act, be established. This would create a stimulus at the corporate level and encourage firms to increase the number of apprentices in training. Firms currently not training apprentices would be encouraged to do so. Those currently training apprentices would be encouraged to continue their efforts in spite of the losses they sustain from poaching firms.

A recent survey of CTMA membership indicated that, with appropriate stimulus, 86% of respondents would hire more apprentices, increasing their training investment in skilled people. Poaching as a process goes on nationally and internationally, and the CTMA position is that the additional apprentice positions can and should be filled by Canadian youth. If these available positions are not filled by Canadian youth, then the investment, the contracts and the related employment will migrate to another part of the world. These jobs will be filled by somebody else's youth.

The mobility of this type of labour is an argument for governmental involvement in the apprenticeship training activities of our industry. The training required for jobs in the metal-cutting trade is highly specialized technical training, readily transferable and transportable to a number of related industries. Mould makers, tool and die makers, machinists, etc., are employed around the world in a number of industrial settings. Statistics Canada currently indicates that the Canadian unemployment rate for a tool and die journey person is less than 0.7%. An unemployed tool and die maker has to be one that is in transit from one job to another. This supports the empirical evidence of a shortage we have obtained from our membership survey.

You may ask, why tax credits for apprenticeship training as opposed to all training? The CTMA holds the view that the skills shortages also include a component that reflects the changing nature of our business. Rapid technological change is the order of the day. The demands made on individuals will continue to increase. CTMA members will require better educated and more highly trained individuals. The proven and most appropriate process for assuring high standards of technical trades training is through our provincially recognized apprenticeship programs. Increases in productivity for Canadian manufacturing, brought about by technological change, will require ready access to highly skilled people. In a recent survey of CTMA members, it was found that 92% of respondents believe their businesses are being constrained by the lack of skilled people. Skilled people attract work and investment.

To summarize, the CTMA tax credit proposal would apply where there's a systemic shortage, as defined by HRDC, in a trade where there's a registered provincial apprenticeship program and where a firm undertakes to train provincially registered apprentices. The proposed tax credit would be for 75% of the basic wage of the apprentice during each taxation year. Our proposal is similar to that of the credits that are permitted for research and development.

In closing, I would like to point out that the CTMA's proposed tax credit would be an investment in people. This would be an investment in the Canadian youth. It would continue to elevate the Canadian standard of living, help sustain Canada's economic growth, and enhance the quality of living for young Canadians. The tax revenues created from individuals employed as a result of this proposal would quickly return the initial investment to the government. Thank you very much for your attention.

The Chair: Thank you, Mr. Bruce.

We'll now hear from the Canadian Retail Building Supply Council, the president, Mr. Steven Johns. Welcome.

Mr. Steven Johns (President, Canadian Retail Building Supply Council): Thank you, Mr. Chairman and members of the committee. It is a pleasure to be able to represent the pre-budget views of the Canadian Retail Building Supply Council this morning.

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CRBSC is a national umbrella organization representing Canada's five regional and provincial building supply dealers' associations. For the record, they are the Atlantic Building Supply Dealers Association;

[Translation]

the Quebec Building Materials Dealers Association;

[English]

the Western Retail Lumber Association; the British Columbia Building Supply Dealers Association; and my own organization, the Lumber and Building Materials Association of Ontario. All of our constituent organizations were closely consulted on the development of the submission we are supporting today.

Our brief has been jointly filed with the Canadian Hardware and Housewares Manufacturers Association, the Canadian Retail Hardware Association and the Canadian Professional Sales Association. The impact of our four industries on the Canadian economy is significant, as our submission documents. Total retail sales for our industry were in the $10 billion range last year, while employment was provided to some 50,000 Canadians.

Our five constituent groups represent a combined total of 1,450 companies nationwide. A characteristic shared by the overwhelming majority of these firms is that they are smaller and medium-sized businesses. Our submission reflects this fact with a variety of recommendations, particularly germane to the small business sector.

In particular, we support the suggestion by the standing committee that the threshold of taxable income to qualify for the small business deduction should be re-examined. At the same time, we have urged a similar review of the lifetime capital gains exemption, which is so important to the long-term continuance of family-owned and closely held small businesses.

Our submission also describes the impact of the 50% deductibility for business meals as discriminatory against small businesses and in favour of larger companies. Consequently, we believe that the 80% deductibility for smaller businesses should be restored. Alternatively, the business meal expenses of smaller firms should be included in expenses to which the small business deduction applies.

On behalf of my colleagues in our pre-budget coalition, I would be remiss if I did not provide you with our updated views on a few issues.

Our submission makes reference to an audit conducted by the Auditor General last year with respect to Revenue Canada's underground economy initiative. That audit was critical of Revenue Canada, and estimated that some $7 billion in tax revenue had been forgone by the Government of Canada in 1997 because of the underground economy. We recommended the standing committee regard this issue seriously, and that is still our position. However, you might be interested to know I was recently visited by representatives of Revenue Canada promoting the underground economy initiative, particularly as it applies to installed sales programs and within the context of the contract payment reporting system, and hopefully this is a step in the right direction.

In our brief we also recommended that the standing committee urge the ministers of finance and human resources development to announce sizable rate reductions in EI premiums for the 2000 calendar year. We were pleased with the recent announcement that reductions will occur next year. Our pre-budget brief has also recommended a return to the practice of announcing EI rates for the following calendar year in the budget each February. Such a step would prove beneficial to businesses as they prepare their budgets every autumn.

Finally, I want to emphasize that 1999 has been a comparatively good year for the retail building supply sector. This message is obvious to our members. The fiscally prudent measures taken by the Government of Canada in recent years have been largely successful in restoring the economy to a relatively healthy state.

The members of CRBSC believe this economic renewal can best be sustained and expanded to all regions, not by major increases in program spending but through a combination of meaningful tax relief and economic stimulation measures.

Thank you for your attention to our submission and to these opening remarks. I look forward to answering any questions you may have when this session is opened up for general discussion.

The Chair: Thank you very much, Mr. Johns.

We'll now hear from the Employer Committee on Health Care - Ontario, from Laurie Lowe, director of research and product development, employee benefits, Clarica; and Ms. Susan Bowyer, consultant. Welcome.

Ms. Laurie Lowe (Director of Research and Product Development, Employee Benefits, Clarica; Employer Committee on Health Care - Ontario): Thank you. Mr. Chair and the members of the committee, good morning. We'd like to thank you for the opportunity to participate in these pre-budget consultations.

ECHCO is a group of 25 of Ontario's largest employers who are committed to influencing the effectiveness and continuing financial health of our health care system. Since our founding in 1994, we have made a number of representations to the Government of Ontario as well as other levels of government on the reform of health care delivery.

ECHCO members employ about 300,000 people in Ontario. Our combined payrolls are about $13 billion in Ontario and $22 billion across Canada. We believe that a healthy and productive workforce is important to an enterprise and to society as a whole. Our investment in health and dental benefits this year will top $600 million in Ontario and more than $1 billion Canada-wide. As a result of our programs for employees, retirees and many of their eligible dependents, we cover in total about 9% of the population of Ontario.

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We often review literature that refers to insurance companies providing coverage to employees, when in fact it is the employer who is providing the coverage and bearing the full cost. The cost of doing business, including the provision of health care to our employees, has a significant impact on our ability to create jobs for Ontarians. We are a significant stakeholder and we ask to be recognized as such.

The main message in our submission last year was that putting more money into the health care system is not the answer. International comparisons indicate that the total level of financial support to Canadian health care as a percentage of the gross national product is among the highest in the world.

We emphasize the need to start a focus on an integrated system of delivering health care rather than continuing to support the current system of inefficient, cost-ineffective suppliers and stakeholders. Our focus is for the best quality health care at the lowest cost, a goal we believe is shared by all levels of government.

With a better integration of services, we believe Ontario and the other provinces can deliver better care within their existing budgets. Future cost increases or cost shifting must be contained through better management of health care if standards of care are to be not only maintained but also improved.

We have read with great interest chapter 5 of the standing committee's December 1998 report. We share your concern that the public perception is one of fear and uncertainty about the future of health care in Canada. We agree it is important to address these concerns.

Many of the concerns of the public can be alleviated with a proper communications plan, one that assures Canadians that the Canada Health Act will remain intact and that the increased sharing of medical information will still respect their privacy. Canadians need information about the future vision of an improved health care system.

We agree with your recommendations for the development of guiding principles to ensure quality, along with a system to monitor and measure quality of care. And we understand your decision to err on the side of caution and inject additional funds into the health care system. It is our hope that your recommendation for investments into research are consistent with the need to develop guidelines for existing treatment alternatives, as opposed to simply funding utilization growth. An investment in an information-sharing infrastructure is essential for an integrated delivery system to be realized.

We refer you to the June 1999 report from the Ontario Health Services Restructuring Commission entitled Ontario Health Information Management Action Plan. HSRC has identified the development of an information infrastructure as the top priority for building a better health care system, and we agree. We recommend that any additional funding be directed to the development of such information infrastructure.

We reiterate that we as employers are not recommending that health care costs must necessarily be cut, nor are we necessarily looking to reduce our contribution to the system. We recognize that employers will be expected to continue to partially fund health care through payroll taxes or general taxes.

Our vision of an integrated delivery system provides or arranges for the full range of health care, including primary and acute care, plus health promotion, disease prevention, rehabilitation and palliative care.

The funding and the governance are consumer censored. They are directed to the health of a rostered community. Integrated delivery systems focus on the health care consumers, not on the providers. Care and prevention are provided in the most appropriate setting, which can be the community, hospitals, or other institutions, and by the appropriate provider. The patients are enrolled in a roster, and the funding of the idea is based on the number of people in the roster, weighted by overall influencing factors such as age, gender, and health statistics for the community.

The idea is that there is a single payer for all services, treatments and prescription drugs. Funding can come from a number of sources, but it follows the registered consumer. Leading-edge information technology and evidence-based decision-making are essential to track treatments and clinical outcomes and to develop prescribing guidelines. Integrated delivery systems are clinically and fiscally responsible for achieving the best balance between outcomes, timeliness and cost.

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In the interests of comprehensive and effective care, we do not recommend provider-centred and -managed health organizations or health services organizations proposed in some provinces that will deliver only those services in care currently insured by the provincial government. Nor do we advocate U.S.-style health management organizations. Our vision goes beyond cost reduction or containment to the delivery of better health care. The IDS will provide the context in which to undertake current health reform such as the restructuring of hospitals, and primary care and community care. In three years they will undertake a review of physicians' compensation.

As employers, we see major flaws in the current structure of the health care delivery industry. The customer typically does not pay the providers and the payers are not part of this system. The industry has been driven by the supply side and often by the suppliers. There is no focus on accountability for results, or cost.

In conclusion and in response to the questions your committee is asking in your consultation process regarding the new fiscal dividend, we again strongly urge the government not to spend more money on health care services, but rather to find ways to encourage and promote a move toward an integrated health care delivery system.

Thank you for listening.

The Chair: Thank you very much for that consultation. I'm sure that Dr. Bennett will have a question.

We're going to have time for 10- to 15-minute rounds. We'll begin with Mr. Epp.

Mr. Ken Epp (Elk Island, Ref.): Thank you, Mr. Chairman. Thank you all for coming out this morning. I want you to know that you arrived here at about 6.30 a.m. according to my watch, which is an Alberta clock.

I appreciate the depth of the reports you've given. I realize that you just skimmed them and they'll make interesting reading tonight for me when I go up to my room. I just want to commend you for that.

One of the themes that came from that side of the table was with respect to tax reduction. I think it was Mr. Crofford who said that we need to revisit the 50-50 plan on reducing taxes and debts with half of the money, and on increasing spending with the other half.

What really do you mean by that? Are you suggesting that we really put the breaks on additional spending? I'd like you to confirm this, if that's what you mean.

Mr. Vaughn Crofford: Yes, breaks are always good on spending. Primarily, if the surplus is used for the contingency for other programs such as the case that was heard, then that limits the amount of money available for tax reduction. You would have to balance between tax reduction and spending, yes.

Mr. Ken Epp: I don't know which one of you indicated there's a great tax burden in this country. I just wonder to what degree you would put the priority on debt reduction, thereby reducing our interest payments, or direct tax relief. You spoke specifically of personal income tax as being the highest priority. Perhaps one of you could respond to that.

Mr. Vaughn Crofford: It would be our belief that they are of equal importance, and that the government formula of 50-50 is appropriate.

Mr. Ken Epp: Okay, but the 50-50 says half for spending and the other half for tax and debt reduction. What I'm asking you now is, what proportion on debt and what proportion on tax relief?

Mr. Vaughn Crofford: Of the 50% that's left?

Mr. Ken Epp: Yes. Would that be 25-25?

Mr. Vaughn Crofford: Of the overall...yes.

Mr. Ken Epp: Mr. Elliot, what do you mean when you say that we should look at the first-time homeowners' plan? Should it be strengthened? Should it just be continued the way it is or would you like changes to it?

Mr. Robert Elliott: The first-time homeowners' plan is the example we're suggesting the government look at in terms of providing an incentive for home repairs, renovations and retrofit.

Mr. Ken Epp: In other words, you're saying the homeowners' plan in terms of purchase should be left alone.

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Mr. Robert Elliott: Yes. We're not making any suggestions on first-time homeowners. That example could be used in terms of some tax relief and being able to renovate.

Mr. Ken Epp: So you're suggesting that if someone were to renovate a home or add another room or whatever, then that would become a tax-deductible item?

Mr. Robert Elliott: Under that same example, there would be consideration given to that, as well as retrofitting from the standpoint of the aging population, where they need to make changes to their homes.

Mr. Ken Epp: The next topic is one of great interest to me since I worked in a technical institute for many years before I got into this job. I guess one of the big differences when I was teaching students was that they actually learned, and now I'm in a big classroom where teaching is very difficult—that's a little inside joke; forget about that.

I'm really interested in the training of skilled workers. As a member of Parliament, I get a lot of local business people, particularly in the manufacturing industry, saying they're very frustrated by the fact that they cannot hire Canadian skilled workers, and when they try to import them from Europe, where they are available, they run into big problems with Immigration Canada. Those are the issues we get back and forth over and over. I know you're suggesting that the apprentice program should be improved, but that is not the only way in which skilled workers are trained; it's one of the ways.

Do you have any further suggestions as to how our technical institutes and our industrial schools could be improved in order to give a supply of highly qualified skilled workers?

Mr. Del Bruce: To answer that question, if you go back to the mid-1970s era, in the education system in Ontario anyway, we had a very strong technical education stream within our school system.

Personally, I graduated from a course that was called five-year science, technology, and trades. When I graduated, I was fully capable of entering the workforce with enough basic skills as a tool and die or machinist person to help an employer and be productive right from day one.

Unfortunately, through the 1980s, the school systems abandoned technical training, and you will find that there are very few schools that now have the ability to teach technical trades. Again, I'm talking about the secondary school level, not college level.

Consequently, what you have is a generation of graduates who are coming out with no information or skills-teaching towards the trades at all. If we could restore that system of technical training within our secondary school system, it would go a long way to help the industry get the people it needs to bring into the industry.

Mr. Ken Epp: I'm sure, though, you would not be encouraging the federal government to get involved in the actual delivery of the educational systems. I'm sure you're saying leave that with the provinces, as it is now.

Mr. Del Bruce: Yes, I would consider that a provincial matter.

Mr. Ken Epp: In your view, has the apprentice program per se been weakened in the last ten or fifteen years?

Mr. Del Bruce: Yes, it has. What you have again is that with students not leaving the educational system prepared with the skills to enter the apprenticeship system, there is a barrier to bringing these individuals into your workforce. First of all, there are many issues of health and safety, workplace safety. You have individuals coming into an environment where they have no skills whatsoever, no awareness of what happens in a manufacturing environment, and it is a detriment to employers at that point to hire those people.

Typically now, employers are demanding that their apprentices come from a tool and die technician course, a machinist course, or some other additional college course, and not straight from the secondary school stream.

Mr. Ken Epp: I take it that in your view the shortage of skilled workers is quite widespread in Canada?

Mr. Del Bruce: It is quite widespread. The APMA, the Automotive Parts Manufacturers' Association, figures that they have a 5,000- to 7,000-person shortage over the next four to five years. In total in the skilled trades, their figures show a 50,000-person shortage over the next five years.

Mr. Ken Epp: Your proposal says there should be a 75% tax credit for salaries that are paid to individuals when they're in that apprentice program. Do you really think that's necessary? If we were able to reduce corporate taxes as a broad-blanket reduction in taxes for corporations, then there would be more money available, and hopefully then firms would happily participate in the apprentice program because that would be in their best interest.

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Mr. Del Bruce: Unfortunately, if you look at the figures, 90% of the apprenticeship training in Canada takes place in the small-job, shop-oriented environment. I'm talking about facilities that employ ten to fifty people. Our large corporations employ very few apprentices at this point in time. As a matter of fact, it is large corporations that are the most guilty of poaching apprentices who have been trained on the backs of the small shops.

The cost of training an apprentice runs in the neighbourhood of $120,000 to $130,000 over a four-year period. For a small shop to make that investment and then have that employee removed from his organization after three or four years by a larger corporation who has not made that investment to date is a detriment to that individual and a detriment to that employer to hire more apprentices. A small shop simply cannot afford to do that, and again, that is where 90% of our apprentices are trained.

Mr. Ken Epp: That gives a very good perspective, because what we're talking about is increasing the pool of skilled workers, but actually having people share the costs and benefits from it instead of laying it all on the little guys.

Mr. Del Bruce: Yes. Our proposal is to try to balance the playing field, for lack of a better word, so that the cost is shared amongst everybody.

Mr. Ken Epp: I have one last quick question. The way it is right now, do apprentices not have to sign a contract to remain with their employer for a given number of years when they enter into that program?

Mr. Del Bruce: No, they do not. There are no such contracts, and I don't believe those types of contracts would be allowed under the Charter of Rights.

There are situations where apprentices who are having their training paid for can be required to stay with an employer, providing they stay with the employer for x amount of time. If they leave prior to that, they would have to reimburse the employer. But that is not the norm.

Mr. Ken Epp: That's interesting. I have a close relative who is in an apprentice program outside of Canada, and he had to sign a contract that he would stay with the firm for a minimum of five years.

Mr. Del Bruce: I think you will find that in Europe and in many of the countries over there, this is and has been a standard practice. However, it has not been a standard practice in Canada.

Mr. Ken Epp: I need to shift over to the health care issue, because I think it is a very interesting one. I haven't had a chance to read your whole brief. I scanned it while I was listening on the other channel to your words.

I hope I have this straight: You're actually suggesting that we bring more free enterprise into health care. Would that be a fair characterization?

A witness: I think the suggestion is that there be more of a breakdown of the various silos that exist right now and more accountability brought into the system though investment into an information infrastructure that would allow sharing of information about patients and proven treatment guidelines. I'm not sure free enterprise was one of the messages in the brief.

Mr. Ken Epp: So I misread that. When you talked, though, of multiple suppliers but single payers, I sort of read that into it.

What kind of health care system do you envision, then, one that is totally run by the provincial governments? Do you still want some funding from the federal government but no further involvement? Do you want the accountability to come also partly from the federal government? What is your vision there?

A witness: Ideally, an efficient system would have one bucket of funds. As we said in our paper, we're not suggesting employers get out of it entirely in terms of the funding they bring to the table, but it would be nice if there were a roster of patients in an integrated delivery system who were looked after within that roster and the treatment they received was based on the most appropriate treatment and the best outcome, regardless of who the payer was. We feel the system is set up currently in such a way that this is not being achieved.

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Mr. Ken Epp: I don't think the present system is working. I had some first-hand experience with the health care system a couple of weeks ago, and frankly, while I was sitting there with my friends in the waiting room, I was saying to myself that if this were a free enterprise outfit, I would now go and look for another company to deliver this service. Sitting in a waiting room for eight hours waiting to be seen is unacceptable in an emergency situation.

A witness: Certainly with the IDS concept, there would be some choice built in so that the consumer could make some choices and move to an IDS that was more appropriate, that was better quality. If you have quality guidelines, if you have outcome measures, our feeling is that you would get a quality health care.

Mr. Ken Epp: What did you mean in your brief when you said “hospital restructuring”?

A witness: In our minds, hospital restructuring is what was taking place over the past years in terms of what treatment is being received within the hospitals. Certainly the hospital closures came into play in regard to what is being delivered in the community.

Mr. Ken Epp: Would your system address the problem of people moving? I don't know whether you're aware of the fact, but because of our low tax situation in Alberta, we're experiencing unprecedented growth. We have literally thousands of people moving into Alberta every month, and we get quite a few complaints about these people being in medical limbo for two months because their home province says you've left, so we're not covering you, and Alberta says you have to be a resident here for two months before we let you into our plan.

In one case I dealt with, the individual said they were so grateful they had additional private health care, which picked up the difference, and gladly, saying, okay, our insurance will cover you; whatever the public system doesn't pay, we'll pay; that's part of the agreement.

So here you are caught in this thing. Would your envisioning solve that problem, and how would it do it? Would it be within the context of the free enterprise insurance firm filling in the gaps, or would you have the government system fill in those gaps?

A witness: I'm not sure our ideas paper gets into that sort of detail. We would hope that people are continually covered under a publicly funded program without those sorts of things happening. Neither is the brief suggesting that employers don't want to contribute at all. But what is happening is employers are continually contributing more and more, and we're seeing some factors that are affecting that pretty severely. When we project to the future, we're looking at the continual emergence of drugs into the system. There's a move away from institutional care. When the institutional care is not there, more of it falls into the private pocket, more of a responsibility for disability and illness costs, and it just can't be sustained.

What you're often seeing now is a lot of employers looking at introducing more flexibility, spending accounts, and finding ways to put more of the responsibility with the consumer.

A lot of employers are being forced out of the retiree coverage game because it's far too expensive. So it's not a suggestion that employers don't somehow contribute, but it's sometimes getting out of hand.

Mr. Ken Epp: Thank you all for your participation with me.

The Chair: Thank you.

Ms. Guarnieri.

Ms. Albina Guarnieri (Mississauga East, Lib.): Thank you, Mr. Chair. I'm going to follow up on the line of questioning Mr. Epp pursued earlier.

• 0950

Mr. Bruce, perhaps you'd like to comment specifically on the brain drain as it affects your membership. Specifically, do you perceive a migration of talent to the United States? If so, do you perceive that Canada's tax rates are perhaps substantially to blame, or is it just a matter of excess demand? Would you like to shed some light on that problem for us?

Mr. Del Bruce: Currently I think the issue is the excess demand on the industry and the resulting drastic shortage of skilled workers. One of our member companies that is with us today, Valiant Machine, was expressing this morning just how much it is experiencing the brain drain down to the United States, to the extent where they've had to open up a facility in the United States to quell that brain drain. It's the sort of situation in which, if you're going to lose it, you'd better go after it and keep it. So certainly it is an issue.

It would be hard for me to say how much in the Windsor area is driven by taxation or how much is driven by just the pure shortage. Being mostly in the Toronto area myself, what I can tell you is that we do not experience a brain drain to south of the border, but we certainly do experience a brain drain from company to company. This is created because not all of our companies have a culture of doing the training that's necessary to support the industry.

So whether you say it's an international problem or a national problem, the brain drain exists from company to company because of the lack of people available for hire.

Ms. Albina Guarnieri: If I understand you correctly, you're not showing statistics that say there is a brain drain to south of the border.

Mr. Del Bruce: Our Windsor members would certainly have those statistics. I presently don't know what that number would be, but there is a brain drain in the Windsor area, yes.

Ms. Albina Guarnieri: Mr. Chair, if he would be good enough, perhaps he could forward any documentation to that effect to the committee. That would be very helpful.

Mr. Del Bruce: Certainly.

Ms. Albina Guarnieri: Mr. Crofford, as manufacturers of consumer goods, you would probably be very well positioned to reflect on the relative merits of tax cuts aimed at sales taxes versus payroll taxes or income taxes. You have the added consideration of dealing with consumer spending and its impact on your revenue. Would it be fair to suggest that any increase in consumer spending and calls for either a reduction in the middle-class tax rate or a reduction in sales taxes specifically would give rise to greater benefits than any adjustment in payroll taxes for your sector? Could you reflect on that for us?

Mr. Vaughn Crofford: We definitely are in an industry that has built a high degree of consumer confidence. As I said, we believe we are in a very fragile part of this recent upturn in the economy. From a consumer spending point of view, that would therefore have probably a more major effect on sales and thus production of goods. That would be correct.

Ms. Albina Guarnieri: One of the considerations in any tax cut would be the competitiveness of the tax relative to U.S. equivalents. When you compare your member companies to competitors in the United States, could you perhaps remind us which tax areas cause them to be at an advantage and which ones place them at a great disadvantage?

Mr. Vaughn Crofford: From a manufacturer's point of view, it would be the taxes on payroll. The cost of staffing and producing goods in Canada is higher than that in many parts of the U.S., so it's the tax that would be harmful to creating jobs in Canada or maintaining jobs in Canada.

Ms. Albina Guarnieri: Thank you, Mr. Crofford.

The Chair: Thank you, Ms Guarnieri.

Everybody wants to ask a question on this side, so keep that in mind as you ask your questions.

We'll begin by Mr. Gallaway, followed by Dr. Bennett, then Mr. Szabo, and Mr. Cullen.

Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Thank you, Mr. Chairman.

I wanted to address a couple of questions to the hardware group, the Canadian Retail Building Supply Council. You make a recommendation, number 10, with respect to any increases in the federal tax on gasoline. There's a great deal of talk in this country about the Kyoto commitments. I just wonder if you could give us a brief summary of what effect an increase in taxation on gasoline would have on your business or your industry.

• 0955

Mr. Stephen Johns: One of the things that we're experiencing in the retail building supply and hardware industry is that one of the major costs associated with running a retail business is in fact the maintenance of the vehicular fleet. One of the major activities that is part and parcel of building supply retailing is the actual delivery of the goods to the job site or to the do-it-yourselfer within the context of a renovation or repair project.

A lot of dealers are currently using the whole issue of delivery—and, more to the point, free delivery—as a kind of competitive tool, but that is certainly causing some stress on the bottom line, on margins. Again, that's because that aspect of the business is very costly, and those costs are obviously exacerbated by gasoline taxation. In our view, there's therefore a clear need to take a good hard look at that issue, especially on a regional basis. The problem becomes particularly acute in northern Ontario as opposed to southern Ontario, for example.

Mr. Roger Gallaway: Secondly, you make your recommendation 12 with respect to what I would call a national highway program. This is becoming a more acute problem particularly in Ontario, with the shift to north-south roads for imports and exports. There's a tendency in Ottawa to say it's not our problem, it's a provincial problem. I wonder if you'd care to comment on what effect the crumbling road system is having on your business. What are you seeing happening, and why would you make that kind of recommendation in number 12? I certainly agree with it, and I'm pleased to see it there. But I'm curious to know what impact the highway infrastructure has on your business or what you foresee it having on your business.

Mr. Robert Elliott: I made that comment in our submission from the Canadian Retail Hardware Association's standpoint.

First of all, the recommendation was to undertake it on a shared-cost basis with other levels of government, not strictly at the federal level. Secondly, and more to the point of your question, I think it's a question of accessibility. Particularly in some of the more remote areas, it's important to make sure that people have the ability to get to the business in order to make their purchases for their renovations, DIY work or whatever. If they can't get there through poor roads or poor bridges, or if they choose not to because of safety issues, then I think it certainly affects our membership and the business our members do.

Mr. Roger Gallaway: This is my final question, Mr. Chair.

From the same group, your first recommendation is about a more aggressive approach to reduction of the debt-to-GDP ratio. As you know, in the 1997 election, the Liberal Party made a commitment on surpluses, and that was to spend it on the basis of 50% going to social programs, 25% going to debt reduction, and 25% going to tax cuts, or some 50-50 division. That was 1997, but this is 1999. I therefore wonder if you'd like to comment on the 25% of surplus to debt reduction. Would you see it higher than that?

A witness: Ideally, I guess that would probably be one of the two major issues that our membership would view as important. If the issue was to be revisited, an increase in the allocation to debt reduction and lower taxes would be beneficial to what we view as being a fragile economy.

Mr. Roger Gallaway: So if I understand you correctly, then, what you're saying is that you would scrap the 50-50 approach and perhaps go with 70-30, 60-40, 75-25, or some other equation.

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A witness: I don't have a number in mind, but the debt would be a priority.

Mr. Roger Gallaway: Thank you.

The Chair: I'm going to just piggyback on that question, because I was going to ask a final question. Can I get a sense from the panel as to what your thoughts are on the 50-50 split? Do you want me to go from the left to the right, or the right to the left?

An hon. member: Mr. Chairman, perhaps you could tell them which 50-50 split it is you're talking about.

The Chair: The opposition has a different view of the 50-50 than the Liberals do. For us, 50-50—

An hon. member: Didn't you read the red book?

The Chair: It's tax and debt reduction on one side, right?

Mr. Ken Epp: And spending on the other.

The Chair: And strategic investments in the economic and social needs of Canadians on the other.

Do you have thoughts on that, Mr. Elliott?

A witness: It seems to me that those in our coalition would suggest to you that on the whole issue of our personal income tax structure and rate as a percentage of GDP, for example, and on the situation with respect to our debt and our debt-to-GDP ratio, we seem to have a problem relative to certainly G-7 countries in both instances.

We know how much is involved in servicing the debt. We know as well what kind of an impact a personal income tax burden has on consumer confidence, and obviously on disposable income. On that score, there's certainly a direct correlation with the well-being of the retail, hardware and building supply industry.

I believe these have to be priorities, and to that end maybe that does skew the 50-50 concept somewhat.

The Chair: Let me rephrase this question. You're in favour of increasing the tax cut and debt reduction side, right?

Mr. Robert Elliott: I would certainly agree with that last statement, particularly given the last survey we did with our members. In that survey, 92% felt that a reduction in the rate of personal income tax and/or GST would have a positive effect on the national economy. I think that indication right there, that high majority of people saying let's do these things.... My answer to that question would be a higher level of tax reduction and debt reduction to spending.

The Chair: Mr. Crofford.

Mr. Vaughn Crofford: As I stated earlier, we would favour it.

The Chair: Mr. Gorham.

Mr. Russell H. Gorham (General Manager, Canadian Tooling and Machining Association): CTMA would favour paying down debt, reducing taxes and deferring spending, except where it is strategically in the interests of the country.

The Chair: Mr. Vickers.

Mr. Bill Vickers (Director, Pension Administration and Variable Compensation, Sobeys Capital Inc.; Employer Committee on Health Care—Ontario): As an independent businessman, I feel that keeping a focus on paying down the debt should be the number one priority. I see that debt as a great burden maybe not so much on our generation but for our future generations to have to look after. I think it's our responsibility to take care of that debt now.

Ms. Susan Bowyer (Consultant, Employer Committee on Health Care—Ontario): This is my personal opinion; I'm not speaking for the Employer Committee on Health Care. I favour the tax reductions as a more positive step for our economy.

The Chair: Ms. Lowe, the same?

Ms. Laurie Lowe: Yes.

The Chair: Okay.

Ms. Bennett.

Ms. Carolyn Bennett (St. Paul's, Lib.): Thank you, Mr. Chairman.

My question is for the Employer Committee on Health Care. As the chairman predicted, I think your brief is terrific.

I guess I wonder what you think we, as the federal government, can actually do in our budget consultations. I think you know that the new Canadian Institutes for Health Research are going to have a fair impact on research on health care delivery systems, and we hope that will help. We have made an investment in health information technology, which I think is the front-end-loading opportunity to move to an integrated system and to build up the accountability piece.

I think you do know that everything you're saying is true. I don't know if you've seen it, but the University of Ottawa and Queen's have this amazing monograph called “Sustainability Health Care for Canada”, where if we moved to best practices, we would be saving $7 billion a year in this country in health care.

• 1005

In this complex federalism, can you tell me what you think the federal government could be doing more in order to try to do the things you're talking about in terms of an integrated system and accountability, and obviously home care, pharmacare, and all of the things that are part of an integrated system?

The second part of the question is this. Some people have a sort of allergic reaction when you talk about rostering, capitation, and those sorts of things. People think they'll have less choice and it will be good for everybody except patients, whereas you and I think it's extraordinarily good for patients. What are you as the employers doing to help your employees understand and lobby for an integrated health system?

A witness: In terms of the question of what we'd be expecting from you on a federal basis, in our paper we talked about the fact that there are silos and there are provincial agendas, and we understand that. We're looking for perhaps a vision from you of what the health care system should be looking like, and we're looking for you to be supportive of it.

In terms of financial investments, I'm not sure if you can direct how that money is being spent, but we would reiterate that rather than spending it on additional services, it should be spent on the information infrastructure.

As for what employers can do, we understand that one of the biggest concerns is fear, and our message is that the Canadian people need to understand that the Canada Health Act will stay intact, that this is not a move towards a U.S.-type health care system. Employers have a captive audience and a very large employer base and can help to send that message to their employer base and be involved in pilot studies of integrated delivery systems.

Did I answer your question?

Ms. Carolyn Bennett: Yes, but the health transition fund was set up for provinces to be able to apply to fund pilots, so would you want more money in that?

A witness: Into the information infrastructure and into the pilots, yes.

Ms. Carolyn Bennett: And into the transition fund?

A witness: Yes.

Ms. Carolyn Bennett: Okay, thank you.

A witness: We really believe you cannot have an integrated delivery system without a good information infrastructure to make it work.

Ms. Carolyn Bennett: Absolutely. Thanks.

The Chair: Thank you, Dr. Bennett.

Mr. Szabo.

Mr. Paul Szabo (Mississauga South, Lib.): Thank you, Mr. Chairman.

A major study was done by the government and released in 1996 by Statistics Canada, a longitudinal study on children and youth. The conclusion was that 25% of the children in Canada were entering adult life with some sort of significant behavioural, academic, social, or other problem that would be with them for the rest of their lives. It's a statistic that touches me a lot more than income taxes.

Since the throne speech was very explicit about its commitment to invest in children and our youth, I'm wondering, in the light of your presentations, to make sure your message gets through, whether you feel that priority area is appropriate and that there's a way to balance those with the other needs you see.

A witness: The comments I'm about to make are of a personal nature. I don't want to speak on behalf of the association right now, because we haven't asked that question. Personally, as a father of two teenagers who are currently in the educational system, I would forgo personal income tax reduction provided it could be used to make sure there is a future for the youth of Canada.

Mr. Paul Szabo: There are no other comments on that? Okay.

• 1010

Mr. Johns, you mentioned the underground economy. It's an issue not often talked about before the finance committee, but clearly it's an issue we have to address as a government on an ongoing basis. Do you have specific views on our approach towards the underground economy? Should the government be more aggressive in trying to address the root causes or to deal with some of the more significant areas of abuse?

Mr. Stephen Johns: The government already made the determination, going back to January of this year, that it would assume a more aggressive tack with respect to the issue. No longer are we talking about a voluntary compliance situation. I believe we're now talking about a mandatory contract payment reporting program.

Very clearly a lot of money is bypassing the government coffers. Obviously we're talking about that phenomenon being stemmed by the contractor and subcontractor community. One of the issues that should be raised in that context, though, is why are contractors and subcontractors operating in that manner? Is there something fundamentally inherent in the current tax system that's encouraging that kind of activity? I'm not sure I have the answer to that question, but that's probably something that should be considered.

The fact of the matter is a lot of money is being diverted from government coffers. If some of that revenue could be secured and directed into those coffers, there could be a corresponding positive effect from a taxation perspective. It's the old domino theory.

The Chair: Thank you, Mr. Szabo.

Mr. Cullen, final question.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman.

Thank you, panellists.

I'd like to pick up on the recommendation for the apprenticeship training tax credits. I'm intrigued with it, and in concept I support it. We know there are some skill shortages. In fact our caucus task force last year, under the chair of Lynn Myers, one of our colleagues, looked at it.

One of the issues we kept bumping up against was this jurisdictional question with the provinces. If you're proposing a tax credit, that's a way of avoiding that issue in one sense. In another sense, our government has really set in motion the idea that we're backing out of direct delivery of training. In fact in June we're no longer buying seats for training.

I've been at a number of very successful events at Humber College with youth internship, where our government, through youth internship, has graduated a number of tool and dye apprentices. The success rate is huge; 95% of them find jobs in the same companies. I'm told by Humber College and others that as of June, it's going to be more difficult to get youth internship in place the way it has been delivered before.

So I have a few general questions.

One, if our government moved with apprenticeship training tax credits—and it's really a government-to-government issue, not your problem—I'm wondering how we'd deal with that in the context of the social union and in view of the fact that we're backing away from apprenticeship and training, or “devolving” is the term.

Secondly, do you see changes in youth internship as of June? Are we going to be able to still deliver youth internship in the way we have successfully, for example, in the tool and dye industry?

Thirdly, in Europe and Scandinavia apprenticeship is very much more prominent and very successfully implemented. Do they have tax incentives in Germany and Scandinavia to get the kind of apprenticeship level they have, or is it simply the culture that exists there?

A witness: I'll try to remember all those questions.

I'll start with the youth internship program. I was personally involved with the youth internship program, which ran out of Durham College, as the chair of the local apprenticeship committee. As you know, that was a federal initiative sponsored by HRDC to begin with, and it was a very, very successful program, with over 90% of our students being placed in industry and staying with the companies they did their internship with.

We are in a transition year now that the provinces had to take over that program, and yes, the program is being degraded. It is not going to be delivered at the same standard at which we have delivered it in the last three years, because of the funding issues. The provinces, now that it is an education matter, are having trouble dealing with the funding and the additional busing involved in bringing students together from different schools to one technical institute for their training.

• 1015

They are currently trying to convince us as industry people to cut this program from a two-year program down to a one-year program. We have told the educational system that at this point in time, that degradation in the system will cut back the number of opportunities for youth in the internship-apprenticeship program.

In terms of the question with regard to the taxation proposal and the fact that the federal government is out of the training business, as it has said, we do not see a tax credit proposal as directly relating to training. We see this tax proposal more as a method to create a training culture right across Canada. We do not have a strong training culture across Canada in terms of apprenticeship training. We never have had. As I said earlier, until the playing field is levelled amongst all of industry, you will always have a situation where other people are riding on the backs of other industries. So we see the tax credit proposal as a way of dealing with that.

With regard to your question on the tax situation for apprenticeship training in Europe, I know for one the German system was based on a training tax. Industries over there were taxed to do the training. If you participated in the training, you were able to get your tax rebate. If you didn't, of course you did not participate. That is one reason as well that there has been a much stronger training culture in the European countries than there is here. We never developed that system here.

The Chair: May I follow up on your questions?

Mr. Roy Cullen: Sure.

The Chair: Attitude, though, plays a part in this. Apprenticeship programs in Europe are not viewed as negatively as they are in Canada.

A witness: That's true.

The Chair: Secondly, when you look at the average age of an apprentice, in Europe it's 18; in Canada it's 26.

A witness: That's correct.

The Chair: The obvious question here is, how expensive is it to train an 18-year-old, whose demands on the employer are not going to be as high as those of a person who's 26 and may be married and have children while he's going through the apprenticeship program? It's very costly. It's almost three times the cost of the European apprenticeship program. So unless we really change the attitude amongst people about apprenticeship programs, it's going to be very difficult to sell it here.

A witness: In terms of the cost to industry and to the country to train an apprentice, age is really not a factor. It's the same to train a young apprentice as it is to train an old apprentice. However, it certainly is a different set of economics to a younger person going through an apprenticeship system.

I was fortunate that I took my apprenticeship up at the age of 18 and was finished my trade by the age of 21 or 22. That was prior to being married and having a home. The economic situation of apprenticeship did not bother me whatsoever. However, somebody who's in their mid-20s, who may already have a family and a home and a mortgage to pay, certainly cannot afford to go through the current apprenticeship system.

Again, I would come back to comments I made earlier. The reason we are in this situation is the drastic change that was made in our educational system back in the 1980s, when we dropped technical training from our high schools. We do not have students graduating who know what the trades are about. We don't have parents who are educated in what the trades are about. If they're not exposed to the trades during the educational process, how can we have a culture where they want to be part of that?

The Chair: What does the Canadian Tooling and Machining Association do to reach out to students in local high schools?

A voice: Currently the CTMA sponsors many different apprenticeship models. One is going on in the Windsor area right now, where as an organization, we as the sponsor put 40 apprentices through a one-year program that is tied to an internship-apprenticeship situation. As I mentioned, we sit on the YAP committee for these internship-apprenticeship programs. We have been very heavily involved in the Bill 55 debate in Ontario about the ACA Act, and we continue to be strongly involved all the way through.

The Chair: Thank you.

Mr. Cullen.

Mr. Roy Cullen: No, that's it. Thank you, Mr. Chairman.

• 1020

The Chair: On behalf of the committee, I'd like to thank everyone. It's been an interesting panel.

This committee will be reporting on a five-year plan, so it's very important to understand what the priorities of Canadians are. As you probably know, in every decision we make as a committee, there are usually tradeoffs, and that is exactly the challenge we face. Bringing your case forward of course makes it a lot easier for us, because we really count on expert advice from people like you. So thank you very much.

I'm going to suspend for approximately 10 to 15 minutes.

• 1021

• 1034

The Chair: I would like to call the meeting to order and welcome everyone here this morning for our second session.

I would like to introduce representatives from Campaign 2000, the Childcare Resource and Research Unit, and the Childcare Education Foundation. And we also have a couple of individuals who will be making presentations.

• 1035

We will begin with, from Campaign 2000, Laurel Rothman, national coordinator. Welcome.

Ms. Laurel Rothman (National Coordinator, Campaign 2000): Good morning. I should also say I bring remarks from a group we work with, known as the Campaign Against Child Poverty, which sounds very similar but it is a somewhat different group. They were not able to come today, but they basically support many of our positions.

I think probably many of you know we're a broad coalition of more than 70 national, provincial and community partners who are committed to promoting and securing the full implementation of the House of Commons resolution of 1989 to seek to end child poverty among Canadian children by the year 2000.

I'll just make a few comments. I think you may also well know that we are very far from that goal. In fact, we've gone from having one in seven children living in poverty to one in five. That one in five number is persistently high, which is of serious concern to all of us, although I should of course acknowledge that when our report card comes out on November 24—and some of you may have seen the statistics—it will indicate there's been a slight drop of about 1%, hovering from 21.1% to 19.8%. In the scheme of things, for families every day on the block worrying about food on the table and boots and appropriate winter clothing for the upcoming season, I think those numbers do not give much comfort, nor do they for many of us. And as you know, there is a growing proportion of children living in conditions of economic hardship.

One figure that I think is quite striking in importance is that the proportion of children living in families with incomes of less than $20,000 per year—and that's in what we'll call constant dollars—has virtually doubled since 1989.

So our reliance upon the labour market to help bring families out of poverty is not doing what one might have hoped it would do. That's why we think it's particularly important in the upcoming budget that we do see significant multi-year commitments for children and their families that will include both income security measures and measures to support a range of appropriate community services.

Indeed, we agree with many of our colleagues, including the Caledon Institute in broad terms, who have said they think you can do a children's budget and a tax budget at the same time. To that end, we're proposing a series of benchmarks, which you may have seen in the brief we submitted.

The overall, overarching first benchmark is we're looking for a five-year social investment plan. And I do want to underline the words “social investment”. We've certainly had an increase in research that has begun to show that investment in the early, middle and later years, with clear objectives and targets, does in fact have an impact on many aspects of our lives.

I know my time is short. I will also say that with regard to the services perspective, Campaign 2000 has always proposed that we need a multi-pronged approach, including high-quality early childhood education and child care services, affordable housing, and decent jobs, in addition to public policies and transfers regarding income security.

You have in front of you some indications that there is in fact going to be a public activity around this on November 24, the tenth anniversary of the all-party resolution. In at least 20 communities across the country there will be either silent vigils or wake-up calls, to really show the support that Canadians have for moving toward significant social investment for children and their families.

We're proposing that there be a commitment to grow federal investments in children and their families. In our brief we said at least $10 billion over the next five years. I think we'll need to revise that as we finalize our discussion paper. I think that in light of what we've learned from the recent economic statement, those are reasonable figures, especially if we look at what has been lost in transfers to the provinces over the years. There certainly has been some replacement of the transfers for health care, but no—that we're aware of—significant transfers for social welfare and post-secondary education.

Thank you.

• 1040

The Chair: Thank you very much.

Now we'll hear from the Childcare Resource and Research Unit, Martha Friendly, coordinator, and adjunct professor at the University of Toronto. Welcome.

Ms. Martha Friendly (Adjunct Professor, University of Toronto; Coordinator, Childcare Resource and Research Unit): Good morning. Did you get my brief? Was it distributed, a revised brief?

The Chair: Yes.

Ms. Martha Friendly: You have the brief, and I want to make a few remarks that will elaborate on some of the points in the brief. You'll see that the brief moves beyond arguing why we should invest more of the nation's resources in children to how public resources should be invested.

I began with the assumption that the next federal budget will commit to substantial investment in young children, that less than that would be a monumental letdown for many Canadians. Then I talked about how to move from talk to action, and I have a few recommendations I'll be making about that.

Since the throne speech, I'm going to focus my remarks a bit differently compared to the original brief. I won't even explain the brief, because it's pretty self-explanatory. I want to talk a little bit of what it looks like after the throne speech. I was actually pleased that some of the content in the throne speech was pertinent to my brief. Some of you may remember that I came last year and asked for expanded parental leave, and it looks like that's one of the things that will happen, so I'm very pleased to hear that.

There were a number of things that I felt were really positive about the throne speech and how it related to the potential children's budget. First of all, it's positive that the throne speech recognized all the areas that I actually talked about in my brief. It talked about improving the child benefit, improving parental leave, and about early childhood development. But I want to point out that in two of these areas it's relatively easy for the federal government to act. Parental benefits under EI are entirely within federal jurisdiction, and the national child benefit has already been negotiated between the two levels of government and is already in place.

It's the third area, the early childhood development services, which I believe are the glue of social policy for children, that really requires the federal government to exhibit vision and political will in order to become a reality. I'd like to spend a couple of minutes talking about what I think that vision is and then I'm going to talk about how I think it needs to be acted upon.

I want to talk about the concept of early childhood development services for all children and how I think it has to play out in the federal budget and in the national children's agenda.

I think it's very clear today that there's strong agreement that at the centre of any national strategy for children must be services that simultaneously provide early childhood development opportunities and ensure care while parents/mothers are in the workforce as well as support parenting. My brief makes the point that services encompassing these three pillars must become accessible to all children across Canada, that it must be through a national strategy and it must have appropriate roles for both the federal government and the provinces. I'm not going to talk about the social union, because one of my colleagues is going to, but that's absolutely integral to this conception.

I want to make the point that without the glue of early childhood development services that are sensitive to parents' labour force requirements, fragmented social programs to ensure school readiness, or to assist all mothers to leave welfare, or to alleviate poverty or to advance women's equality, or to promote good health are likely to be less than successful. That's what we have now. I think this is where the role of these services in a national children's agenda has been very articulately stated by your government's National Council of Welfare, which said that while many social programs benefit families, child care is the backbone of them all. I think this is the way it has to be pursued in a federal budget.

I want to move back to what I think the throne speech did and how the federal budget plays out from that. The second thing the throne speech did that I think is really important is that it sets out, for the first time, a timeframe for a national children's agenda. It issued an invitation to the provinces to negotiate a national children's agenda by December 2000. I'm not going to comment on whether this is longer than I would have liked, but it actually does set a timeframe.

Therefore, what I want to argue is that setting the timeframe now means that the inclusion of funds for the early childhood development component in the 2000 federal budget is absolutely essential. If you don't make this financial commitment in the 2000 budget, I think it will send a signal to the provinces that their senior partner, the federal government, isn't as serious as it might be.

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I really follow what's happening with the national children's agenda—it's ongoing, and there's a whole federal-provincial-territorial process—and it seems pretty evident to me that if there's a federal commitment to this in the budget, a number of the provinces will likely come to the table. If there is no commitment to it in the federal budget, I think it's unlikely that the provinces will come to the table. So it's as simple as that.

I was making the point about the early childhood development services and what they need to look like, because I think it would be very seductive for the federal government to go after little pieces of that. Some of the things it already has in place. I would really like to urge you not to take that route. Not only would it not be good public policy, I don't think the public—not only those of us who are the experts—would regard that move as positively as you might like.

I want to leave you with what I think are two budgetary options for how to signal both sensitivity to provincial jurisdiction and your serious intent to move forward for children, the way the Prime Minister described it in the throne speech.

The first option I'd like to propose—these are two options, but there may be others—is that you could model a budgetary commitment on the way the national child benefit was pursued.

While the federal-provincial discussions on the national child benefit were ongoing, the federal government made a commitment in the 1997 budget to fund the national child benefit that was contingent upon successful negotiations with the provinces. I think that would be a really interesting option to look at.

I'd like to propose a second option; this one is historical. You should take a serious look at the model that was actually proposed by the Task Force on Child Care that was appointed by the Trudeau government back in 1984. They were quite aware of the sensitivity of federal-provincial negotiations around programs like early childhood development services, which are in provincial jurisdiction. They made an interesting proposal to kick-start federal-provincial negotiations using something they called “good faith grants” to the provinces, with the explicit purpose of stabilizing existing services while the negotiations were ongoing. There was a formula, and I have left you with a reference. I think it is something you should seriously consider.

The last thing I want to say, without taking up too much time, is on the question of whether there will be a children's budget in 2000 at all. I'm pleased you have made the commitment to spend some of the surplus on children, and we know now from the finance minister's financial statement that the surplus is huge. But there were enough details in the throne speech and in subsequent statements to know that unless specific program spending in the 2000 budget is earmarked for the early childhood development services I've mentioned, the 2000 budget will include only very limited spending for children.

As far as I can see, it would only include one-quarter year of the improved parental benefits that have been identified, because the child benefit won't kick in until the following year. Most of the parental benefits won't kick in either. That will really leave you without much of a children's budget.

I just want to finish by leaving you with what I pointed out at the beginning of my written brief. The 2000 budget is an important policy tool for you. It's an activator of a successful social union framework agreement, and it will be a visible step in moving the national children's agenda from rhetoric to action.

We've been asked by the federal and provincial governments to have a vision on children in Canada, and most of us have a vision about the kind of Canada we want. Our vision includes this kind of program for children. I think people are quite aware that children can't wait any longer and are vulnerable to our ability to ensure that this is the year we move from talk to action. I'm really urging you to take a serious look at what you can actually do in this budget to make it a children's budget, and to do what we've just said.

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Thank you.

The Chair: Thank you very much, Ms. Friendly.

We will now hear from the Childcare Education Foundation, Kerry McCuaig, director; and Christa Freiler, director, Child Poverty Action Group. Welcome.

Ms. Kerry McCuaig (Director, Childcare Education Foundation): Thank you. Christa and I will be sharing our five minutes.

As my colleague pointed out, the forecast of the $95-billion budget surplus over the next five years offers Canadians and their governments unique opportunities. It affords us the ability to create a truly great country. To this effect, I would like to add my voice to that of the Prime Minister, who has publicly recognized that great countries are measured by their collective wealth and not by the wealth of a select group or individuals.

I'd also like to remind the committee that although the tax lobby may leave the impression that Canadians have abandoned their commitment to social responsibility, polls show that the overwhelming majority—many of whom will not make it to this table—support the government's goal for a balanced budget approach to the budget surplus.

In that context, I'd like to address the country's goal for a children's agenda. As we point out in our brief, the well-being of children and their families requires comprehensive action, including tax and income supports that recognize the cost of raising families, affordable housing, maternity leave, etc. I'd like to acknowledge the important steps that were taken in the throne speech in terms of actions in these areas and acknowledge the work of many members of caucus in all the parties who have worked to ensure that the next budget will be a children's budget.

In our written submission to you, we ask for a multi-year plan to improve prospects for Canadian children. In light of the forecast budget surplus, it would be real neglect on our part, as a country, if we failed to include a multi-year plan for the country's children. If we can make that commitment around taxes, we can certainly make that commitment to kids and, within that context, address the commitment made in the throne speech to federal-provincial action on child development and its implications for the February 2000 budget.

There is a majority consensus that a national program for child care and development is an essential program that's missing from Canada's social agenda. Since this area overlaps jurisdictions, I'd like to address the opportunities contained in both the national children's agreement and the social union framework on the mechanisms that are available to move forward, and their implications for the budget.

The social union framework has been in existence for a year, and there will be a review of it in another two years. It will be incumbent upon all members of government, at both the federal and provincial levels, to indicate to Canadians whether this effort was worth it.

The agreement makes a number of commitments to Canadians, specifically around equality, individual dignity and responsibility, mutual aid, our responsibilities for each other, promoting equality of opportunity for Canadians, providing assistance to those most in need, and promoting the participation of all Canadians in Canada's social and economic life. We would argue that includes our children and their parents.

Secondly, it ensures for all Canadians, wherever they move in Canada, access to essential social programs and services of comparable quality. This is a very strong principle that has implications for child care and development services. Only a fragile network exists outside of the province of Quebec, which has undertaken to make this service a reality for Quebeckers.

Rather than dismissing federal spending powers, the agreement provides the mechanism for the federal government to give financial support in areas of provincial jurisdiction. I would remind you that when SUFA was unveiled, a commitment was made that rather than being a race to the bottom, it would precipitate a race to the top in social and health programs in Canada. It's in this context that the offer in the throne speech to forge a children's agenda containing child development programs is important.

It should be noted that the federal government brings to these talks nothing on child care and development. All of the spending in this area, with the exception of what the federal government puts in through CAPC, comes from the provinces. For our national government to have any role in these talks there will have to be seen to be a commitment on its part to put its money where its mouth is. This is where the federal budget has to take action so that the federal government is seen to be making a real commitment to move the national children's agenda forward, and indeed, to meet its commitment to Canadians to have an agreement in place by December 2000.

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My colleague has outlined two of the ways you could proceed there, but there is a commitment to December 2000. If we're going to move forward, the provinces and Canadians in total are going to have to see that the federal government is indeed serious and that the budget will in fact be a benchmark and a test case.

The Chair: Thank you.

Ms. Freiler.

Ms. Christa Freiler (Director, Child Poverty Action Group, Childcare Education Foundation): Thank you very much.

I want to support what my colleagues have said. I won't repeat it, but I think it's important to stress the importance of investing in kids, specifically in a mix of service and income programs. I support the position, which has already been put forward, that child care is central to a system of support to families with kids.

I want, however, to stress the fact that even though much has already been done by way of investing in the national child benefit on the part of the federal government, it hasn't all been done, and there's a lot of room for improvement in a variety of ways. I want to really emphasize that the federal government and the provinces not think they have done it on the income side with the investments that have already been made.

First of all, as Laurel Rothman said, the labour market cannot be relied on to be an anti-poverty strategy. We were at a conference recently at which an international expert on child poverty said that it used to be unemployment that was the greatest cause of child poverty; it is now low wages. That's the case in Canada. That's the case in the United States, obviously even more so, and it's beginning to be the case in Europe. So low wages are the single most important reason for child and family poverty in the industrialized world.

What that means is that an anti-poverty strategy for children and families cannot rely on the low-wage labour markets to get kids and families out of poverty. One of the problems with the way the child benefit has been conceptualized and played out is that it's being used to meet welfare reform goals. It is being used to make it possible and to entice parents into the low-wage labour market. I guess what I'd like to put on the table is not necessarily to reconsider the strategy, but to expand that strategy beyond just the child benefit.

I support Campaign 2000's call for a national commission on employment. I think unless you also look at what's happening to families on the labour market side, we're not going to be addressing child poverty.

The other important part I would like to emphasize is that a number of organizations, including the Caledon Institute and Campaign 2000, are calling for an expansion of the child benefit up to $4,000, not to stop at the $2,500 that is required to buy out provincial social assistance. So we would expect some sort of commitment to grow the child benefit to a reasonable amount, similar to what modest-, middle-, and low-income families are getting in European countries.

As well, whether in or out of the labour market, I think it is reasonable that we should expect no family with young children to be raising those young children in poverty. What this suggests is that the current promotion of clawing back the benefit from lone mothers on social assistance probably needs to be reconsidered.

For women with young kids for whom there is no labour market expectation, it seems completely unfair and misguided for them not to be benefiting from the increased benefit. You've got 15% now of all lone mothers with kids who are seeing an increase. I would say that's a group that is very much underrepresented among the beneficiaries of the child benefit.

Also, when we're talking about expanding maternity and parental leave, which the throne speech did and which we were very heartened to see, I think we also need to look at expanding it to a group that is always forgotten, namely, women on social assistance. There is no reason you couldn't have a maternity system that also includes women who are currently on social assistance raising young children on subsistence-level benefits. There is no reason all new mothers couldn't be treated the same way, and if you had a special fund attached to employment insurance, you could expand the benefits not only to self-employed parents but also to those who are currently on social assistance.

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Finally, I would like to reinforce what some of my colleagues have said about the need to balance tax measures with social investments, more particularly, to point out—as you already know, but I want to reinforce this for the record—that not all tax measures are the same. There are good tax measures and bad tax measures. There are tax measures that promote social investment and social cohesion goals, which this government has repeatedly said are important goals for the country, and then there are tax measures that create divisiveness and benefit primarily the economic elite.

For those of you who aren't from Toronto and might not have seen the Toronto Star, there was a very interesting article, I think yesterday, showing that contrary to what we have been led to believe, Canadians are not overtaxed relative to Americans. This is research that came out of Statistics Canada; it didn't come out of a left-wing think-tank. I think that then reinforces the notion that if we're looking at tax measures, we need to be looking at tax measures that benefit the people who probably need the break more than those who are organized and calling for tax cuts.

Thanks.

The Chair: Thank you very much, Ms. Freiler.

Now we'll go to Dr. John Smithin from the Department of Economics at York University.

Dr. John Smithin (Individual Presentation): Thanks very much.

I should mention that I'm not appearing entirely in an individual capacity. Actually, I was asked to appear before you today by Mr. Nick Falvo, who is a community worker in the Regent Park area of Toronto working primarily with homeless people.

Now, from Mr. Falvo and his colleagues, you could hear first-hand about the difficulties experienced in contemporary Canada by people who, for whatever reason, are economically disadvantaged in some way. It's obvious in common sense that many of these difficulties could be resolved either by increased federal spending or by federal budget decisions that take the pressure off other levels of government—and you've heard some proposals in the child poverty field today.

Perhaps the committee will think it's easy for a professor like me to say this, but politicians are the ones who ultimately have to make tough decisions. The number of good causes is potentially limitless, and they must decide on the merits of every dollar of spending.

I do agree that all decisions be taken on their merits. However, the point that concerns me, which I urge your committee to consider, is that in recent years Canadian budgets seem to have been taken not on their merits primarily, but simply to achieve arbitrary financial goals.

At one point I seem to remember the deficit was not supposed to rise greater than a certain ratio to GDP. Now, a surplus is regarded as unambiguously a good thing and something we're all supposed to cheer about. The national debt must be paid down at all costs. I think this is nonsense from the point of view of any reasonable economic theory. Surpluses are not always good, and deficits are not always bad, and I'm afraid we may well have to relearn these lessons the hard way in the years ahead. It would be interesting to see how much is left of the Canadian economy if there really are surpluses for the next five years in a row.

From what I see of the budget process as very much an academic outsider, we're a long way from the original principles of functional finance, whereby policy decisions should be taken only with regard to their actual effect on the economy.

As a matter of pure logic, a sovereign government in control of its own currency need never be constrained by purely financial considerations. If they claim to be, the constraints must be self-imposed. I'm talking here about a national government in control of its own currency.

Obviously this is not the situation of provincial governments, which do face genuine budget constraints. It's not the situation of national governments in the new euro zone, which have voluntarily become provinces. However, it does remain the situation of the Government of Canada as long as they resist the calls from the political right to abandon the Canadian dollar.

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It's absurd for the Government of Canada to claim that any particular policy initiative cannot be afforded, that the money cannot be found. Money in this context is nothing but Canadian dollars, which the Bank of Canada could create at will.

What should be discussed is not affordability but the merits or otherwise of the project concerned, and also, unavoidably, the impact of any new money creation on the value of existing holdings of wealth. And of course this is the point. Any new money that is created does impact on existing holdings of wealth, and this is the real point of budgetary politics and impassioned editorials about debt, deficits and inflation. More money spent on social programs may well devalue existing money in the bank accounts of corporations and wealthy individuals.

I do not argue that every government project is desirable or that capitalism could survive as a social system if initiative is not rewarded. My own view, however, is that a more sensible monetary policy than we have seen from the Bank of Canada over the past 20 years in particular and, specifically, a commitment to achieve lower and more stable real rates of interest would go a long way towards achieving social peace and enabling the funding of some of these projects we have heard about today.

When it comes to budget decisions, it seems to me that the real economic issues should be debated, and never shibboleths regarding deficits and surpluses.

Thank you.

The Chair: Thank you.

We're going to hear now from representatives from Valiant Machine and Tool Inc. We have Mr. Dan E. Usynski and Mr. Michael G. Solcz, president.

Welcome.

Mr. Michael G. Solcz (President, Valiant Machine & Tool Inc.): Thank you very much, Mr. Chairman and ladies and gentlemen.

I'm here not on a prepared text by any means, but I just want to address a few issues that some of the members this morning asked questions on. We are located in Windsor, being in the vicinity of Detroit. One issue in particular was the area of people leaving.

First of all, I'd like to go back a moment in time, to when I was graduated. I graduated from the W.D. Lowe Secondary School in Windsor. I was born in Hunt, Ontario. I started a small tool shop, after training for four years as an apprentice. I went for engineering in Detroit, and in 1959 started this business by myself as a skilled journeyman toolmaker. Today we employ 1,200 people and we have $230 million in export sales. I started with a one-man operation and developed it to this.

On apprenticeship training and the need for it, in particular as presented by the CTMA group in the area of tax credits, we've never had that, and it's a costly journey. We have developed approximately eight to ten...who have gone on their own in the Windsor area, again in total probably employing 1,200 to 1,300. So the value of training has to be recognized as one of the ultimate ways of developing industrial technology in Canada.

I've also heard that the federal government naturally is trying to get away from this training and pass it on to the province, and rightly so. On the other hand, the tax credit situation rests with the federal government. I believe there's an opportunity here to review our requirements very carefully, to look at where the federal government can establish a tax credit that would be a first in setting an industrial strategy for years to come.

It's always been a problem. It exists in all countries. We have operations in Germany and in Belgium and in the U.K., and training is equally bad. I'm not sure how the system works for credits and so on, but the difficulty in attracting people is not like it used to be. You just can't pay the money and have them leave their countries, western Europe, and come here. They have everything they want, and the demands on them are great right there.

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The only answer to some of this new technology development is that industrial training, as we know it, should be done by industry. The colleges and universities do a good job of academic training. However, our college has great difficulties in keeping up. The limited hours that a student spends are not really that worth while to us when we get that type of apprentice.

As mentioned earlier, the high schools are not training any areas of apprenticeship in vocational skills. Therefore that adds another burden in attracting those young people. We do our job in trying to do it, as was mentioned, by having programs that would attract young apprentices, for instance, by testing their skills and so on, by encouraging them to climb the ladder and to go further on.

In total, what I'm saying is the apprentice training cannot stop. We're doing it. It's costing us a lot of money to do it, and we're asking for the consideration of tax credits.

On the other issue of our people leaving for Detroit, we're in Windsor, we're in a border town. It's simply a case of the monetary exchange that is there. I don't believe the federal government can do too much about it, but we do lose a lot of people because of that. We're unable to match the same money in U.S. funds. So we do lose skilled help.

In addition, when it comes to the process engineering level of the requirements that we need in our company...and incidentally we're robotics people. We do assemble the cars for General Motors and for Chrysler and for Ford. We have worldwide programs for Ford in other plants for the door equipment that we build. Again, to get people to support those is of great difficulty for us. There's just no way that we know of stopping people from leaving our employment and going to Detroit.

That's all I want to mention. If there are questions to clarify that further, we certainly can answer them.

The Chair: Thank you very much.

We'll proceed to the question and answer session. It will be a seven-minute round. Mr. Epp.

Mr. Ken Epp: That's really going to cramp my style, Mr. Chairman.

The Chair: That was the idea.

Mr. Ken Epp: I want to begin with Dr. Smithin, the economics professor.

I don't really know what you mean when you say that a sovereign government in control of its own currency never faces a financial restraint. What do you mean by that? That flies against all common sense that I understand. Perhaps you could enlighten me on something I've never heard of before.

Dr. John Smithin: The point is, what is money? Money is Canadian dollars. The Bank of Canada creates Canadian dollars. So if it was a question of financing the deficit, in the worst of all possible worlds the Bank of Canada could finance any spending we want, even without taxes. The question is, what would be wrong with that?

What would be wrong with this is that by creating more money you would cause inflation. And the reason that is not done is that it would cause inflation. The question is, is there a moderate position in between the two, whereby more money can be created and those who otherwise would suffer from inflation can be protected? There is, as a matter of fact. That is to keep real interest rates low, but still positive.

As a theoretical economist, what worries me frankly about all these discussions about budgets is this. We seem to think the money we have to spend is like a pile of gold in the middle of the floor. If we take some to give to you and take some to give to you, that's it. The money supply hasn't been like that for 200 or 300 years. Gold doesn't figure into the money supply at all. Money is created by a process, a large process involving the Bank of Canada, the commercial banks, and so on. It's endogenous.

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So the key point in monetary policy is to create sufficient money to provide the stimulus for the economy to keep going but at the same time not to create enough to cause inflation.

Mr. Ken Epp: Are you suggesting that Canada right now is experiencing a shortage in money supply?

Dr. John Smithin: I think real interest rates are too high in Canada, yes. Contrary to what is said in the newspapers, I think budget surplus is not a good thing. The budget surplus is taking, however big the budget surplus is, that amount of money out of the economy. Indeed, you implicitly think about that, because you say, well, what can we do with the budget surplus? We either cut taxes or we spend it somewhere else.

Mr. Ken Epp: Pay off the debt.

Dr. John Smithin: So why did you bother to work up the surplus in the first place?

Mr. Ken Epp: Do you support keeping the current debt at $580 billion?

Dr. John Smithin: I think the current debt is largely an irrelevant issue. The national debt of Britain after the Napoleonic Wars was about four times in relation to GDP as the Canadian national debt. It was four times greater than the GDP, the debt itself.

What was the denouement of that? The Industrial Revolution. That's when Great Britain moved to its most prosperous era ever.

The point is, in order to generate profits in a capitalist economy, someone somewhere has to go into debt. Historically, in order to generate the profits needed, someone has to be willing to borrow. There are three possibilities.

The first possibility is that other entrepreneurs borrow. If I set up my widget factory, I borrowed my wage bill, and I wanted to sell my widgets, I'd require someone else, someone in the super-widget factory, to borrow twice as much so that his workers and my workers would have the wherewithal, the funds, to buy my widgets.

A second possibility is that the consumers can go into debt. That's what is now happening in the United States. The United States also has budget surpluses. They've been bailed out by the fact that consumers have been willing to go into debt and that the savings rate is negative.

Historically, what's happened under capitalism is that it's governments who have been the spenders and who have been willing to go into debt. They have been willing therefore to preserve profits, but if you—

Mr. Ken Epp: I'm going to interrupt you, because we're going to run out of time.

Dr. John Smithin: It's a complex issue.

Mr. Ken Epp: I need to get this straight. We've had here a number of witnesses today, and I think they are coming forward with a very legitimate request of the finance minister that says, you know, we have here a problem, and we want it solved.

Now, they have a particular way of solving it. They think there should be money taken from Canadian wage earners in the form of taxation.

I'm really curious, and I'm going to ask them—you can be thinking about this, you other people, because I am going to ask you—when the government takes $6 billion a year in taxes from people whose family income is less than $20,000 a year, is that not a factor?

I'll just stay with you for a second. Right now, of government expenditures, about 30¢ on the dollar is used to pay interest. For all intents and purposes, that is a transfer of wealth from the poor to the rich. The poor need to borrow it because they don't have enough, and the rich have in excess, hence their ability to lend. The 30¢ on the dollar is transferring money to these wealthy people.

Would it not be better to have no debt so that we didn't have to transfer that money to them?

Dr. John Smithin: No. The amount of interest you pay on the debt is dictated entirely by the Bank of Canada, which sets interest rates in this country. One of the reasons the debt shot up in the first place was precisely that the Bank of Canada put this country through two serious recessions in the early 1980s and 1990s with high interest rates.

So it seems to me it's rather shooting yourself in the foot if you say, oh, we don't want to pay interest on the debt and then at the same time applaud the Bank of Canada's Mr. Thiessen whenever he puts interest rates up.

Mr. Ken Epp: How can you borrow money without paying interest? Who will lend it to you?

Dr. John Smithin: The Bank of Canada is the source of Canadian dollars.

Mr. Ken Epp: So you would say that what we should do now is have the Bank of Canada produce enough new currency to pay off the $580 billion of debt—

Dr. John Smithin: No, I don't see any reason why the debt should be paid off, in particular.

Mr. Ken Epp: But you keep on paying money to people who have more than they need.

Dr. John Smithin: Well, you can certainly reduce the interest payments on the debt by reducing interest rates. There have been calls from a number of areas for lower interest rates, and quite recently.

You see, the point is, this budget process is an endogenous process. The reason we had the deficits and the high debt in the first place in the early 1990s was because of the Bank of Canada's monetary policy with high interest rates, and also because, as a result of that, the economy was declining. The reason we have budget surpluses now is because interest rates are somewhat lower and because the economy has improved somewhat. The reason the economy has improved somewhat is the lower Canadian dollar. So it all fits together.

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But in your deliberations, those issues shouldn't be raised. The deliberations that should be raised are, is this spending desirable, will it do good for the economy, will it not do good for the economy, and not worry at all about these arbitrary—literally arbitrary—financial shibboleths.

There's certainly a political question. If I have a million dollars in the bank and I create new money to shelter the homeless—create another million dollars, shall we say—obviously, by definition, my new existing million dollars is worth half the amount. That's what we're talking about. So that's the reason for the worry and concern about deficits.

The Chair: Go ahead. Take some more time.

Mr. Ken Epp: Thank you.

I'm not done with you by any means, but I can't go on because of Father Time here.

I want to talk to you other people. I'm a grandfather of four children. My wife and I have three of our own and certainly the overriding consideration of parents for children and grandparents, now that we're in that role, is that they should have their needs looked after. I have my list of what I think are absolutely essential needs for these children. What is your list?

Ms. Kerry McCuaig: We've called for a package that includes income support and tax measures that recognize the cost of raising children. We've called for affordable—

Mr. Ken Epp: I need to interrupt because you've missed the question. You're talking about the solutions; I'm talking about the definition of what the needs of children are.

My children and my grandchildren do not need income support. Little Noah is three years old; he doesn't need money.

Ms. Kerry McCuaig: They need food, warmth, housing, and education.

Mr. Ken Epp: Through their parents, right?

Ms. Kerry McCuaig: No, education comes in forms that include their parents and public systems of education. We stopped educating our children in the family over 100 years ago.

Children need safe neighbourhoods—

Mr. Ken Epp: Okay.

Ms. Kerry McCuaig: —and they need time with their parents. So that includes things like maternity and family leave and workplace policies that recognize that workers are also parents.

Mr. Ken Epp: You didn't mention food. I'm a great proponent of food.

Ms. Kerry McCuaig: I did. The very first thing I said was food, warmth and housing.

Mr. Ken Epp: So that's food, warmth and housing, a safe environment, education, health care when needed—

Ms. Kerry McCuaig: And giving parents the opportunity to balance their time between the workforce and being with their kids.

Mr. Ken Epp: Okay. Do any of you have anything to add to that? Is that an all-inclusive list?

Ms. Laurel Rothman: It depends on how far you want to describe children's needs. Children's needs are highly dependent on their parents' needs. In fact, in order to meet some of those needs over the long term, parents also need decent jobs. When I say “decent” jobs, that's wages that will allow them to sustain themselves.

Mr. Ken Epp: Right. Would you also agree that with decent jobs should come low levels of taxation, especially for people who are living in families whose income is less than $20,000 or $25,000 or $30,000 a year?

Ms. Christa Freiler: Sorry, this is the question we were expecting to answer. We didn't realize that the lead-in was to this question.

There are two points. One is that one of the purposes of a tax system is to redistribute incomes, and so that's why we have a progressive tax system. We already have a progressive tax system, so it requires that all people pay their fair share; and because it's progressive, it does mean there's already some redistribution going on, so that people at $20,000 are paying less than people at $100,000. Everybody would agree that this is how it should be.

The second reason for having taxation is that it provides revenues to allow the government to use it for socially agreed-upon purposes, in other words, to invest. We're suggesting that the investment in the next five years or so should be in children and families. So you need an adequate tax base so that you can make those investments.

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The other point is that if in fact it turns out that families with $20,000 incomes are paying too much, then there have been a number of proposals for a national child tax benefit, which would be a very useful way of redistributing money to those at lower incomes.

Mr. Ken Epp: So you think it's useful for the government to take money away from people who are earning $15,000 or $16,000 a year and then, through a government program, with all its administrative costs and everything, give some of it back?

Ms. Kerry McCuaig: We're not talking about charity.

Ms. Christa Freiler: I'm not taking it away. The price of a civilized and inclusive society is taxation. There's nowhere in the world that doesn't tax. Are you suggesting that we have no more taxation?

Mr. Ken Epp: No, very simply, because I think you're misunderstanding me, what I'm suggesting is that the basic threshold at which Canadians should be taxed at all should be increased dramatically so that those who, by definition, are living in poverty are off the tax rolls, whereas under our present system there are thousands of them. I hear from them. They come to me and they say “You know, I made $800 in the last two weeks and they're taking $200 away from me; I need that money.”

Ms. Christa Freiler: I actually think everybody should be paying taxes.

Mr. Ken Epp: Really.

Ms. Christa Freiler: Everybody contributes; everybody benefits.

Mr. Ken Epp: So then you'd put the basic exemption at zero?

Ms. Christa Freiler: No, I would leave it where it is. You're talking technical now. You're mixing technical and principled arguments. Do you want a technical answer? In that case, you should ask a technical question.

Mr. Ken Epp: No.

With the basic exemption, you can earn roughly $7,000 before you pay taxes. I'm saying that's much too low, that Canadians who are earning that little are just barely scraping by and we should not be taxing them at all.

The Chair: That's a fair question.

Mr. Ken Epp: Anyway, I think my time is probably up. I think I know where you're coming from, and hopefully the other questioners will enlarge on that.

The Chair: What level of income should be tax free in Canada? That's the question.

Ms. Laurel Rothman: Actually, I'd be so clear as to say I don't think our group considers ourselves tax experts. What we do support is the principle that, within reason, people should pay, but they also should not be left in such a situation that they would be vulnerable. So if you pay on the one hand and get a credit on the other hand, that's one way of fine-tuning a system. I'm not going to say it's perfect, by any means.

I also think there are lots of types of taxation. The impact of reduced income taxes upon low-income people is much less than, for example, an increased GST credit, which has the greatest impact on low-income families.

So it's a complicated issue, and it's not my area of greatest strength.

The Chair: I think the challenge here is that may be the case, but what you're advocating does have tax implications and that is the reason we have to work it out.

Ms. Martha Friendly: Can I ask Mr. Epp a question? Are you proposing that it's better to leave lower-income families with more money so that they can then purchase things themselves? Is that kind of the way you were going?

Mr. Ken Epp: Really, that's it. When a person is making $800 in two weeks, I don't think the government should be taking $200 of that money.

Ms. Martha Friendly: I want to respond to a sub-part of that. I could see that was where you were going.

I am of the view that in some areas, the area in which I work, early childhood services, that isn't really related to that. I think there are some things that can better be provided collectively for parents to be able to access if they'd like to. If that's where you were going, I want to provide that answer.

Mr. Ken Epp: There's no doubt at all, and basically I'm not in any way opposed to doing what we can through our tax base in order to make for a very good, healthy society. To me, that includes everyone, and we need to do everything we can in order to eliminate poverty.

However, I have this crazy idea that the best way to eliminate poverty is to get a person trained with education and get them a job. That's my idea of eliminating poverty. I'd like to get this young guy who's in poverty into an apprentice program and then get him trained so that he can go and make a living and contribute to society. That's my view.

Anyway, my time is up, Mr. Chairman. Thank you.

The Chair: Yes, thank you, Mr. Epp.

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Ms. Kerry McCuaig: I'd like to emphasize that it hasn't been supported... [Technical Difficulty—Editor] ...when we're dealing with income support. When we look at the number of families with jobs who are still living below the poverty line because of the number of low-wage jobs that there are—and this is particularly true for mother-led families—there has to be a combination of good jobs and income supports for families, because with raising children, we do have a different burden from someone who doesn't.

Mr. Ken Epp: And lower taxes for those same people.

The Chair: Basically what you're saying is that you favour an increase in the basic personal amount, but you do not favour a reduction in services.

Ms. Kerry McCuaig: We don't favour across-the-board tax cuts. We're not supporting raising the tax brackets. When you raise the tax brackets, the further up the line you go the more you benefit from that. We don't favour a flat tax. We do favour tax measures, and the Canada child tax benefit is an example of a tax measure. It's a tax measure that directly benefits low- and modest-income families. That is a way of addressing the particular needs of those with children who are struggling to raise their families.

The Chair: If I can, I'll just ask one final question, and then I'll move right along.

What's the failure of the concept of giving tax cuts to those people who pay taxes?

Ms. Kerry McCuaig: Could you repeat that?

The Chair: Do you have a problem with the person who makes $65,000 getting a tax cut?

Ms. Laurel Rothman: Yes.

Ms. Martha Friendly: Yes.

Ms. Christa Freiler: It's a huge area. A tax measure is not a tax cut. What are you calling a tax cut?

The Chair: If you raise the basic personal amount to whatever level, or if you reduce or eliminate the surtax, for example—we eliminated the 3% surtax—that benefits certain people. I'm just asking, what's wrong with giving tax cuts to those people who pay taxes? That's my basic question.

Ms. Martha Friendly: It's because it reduces the amount of money.... One of the problems is that children are getting a very disproportionate amount of the resources in Canada in relation to older people or in relation to people of our age who basically have good jobs. It depends on what you do with the surplus. The surplus is now very large. We've been told for years that the reason we can't have the kinds of children's services or child care services that they have in other countries is that there's no money. Well, now there is money. I guess the thing is that if there was a level playing field, it might be different.

I think we are arguing against across-the-board tax cuts or tax cuts for upper-income or relatively affluent people because we're concerned that we will not get the kinds of programs for children that we really believe we need. It's a balancing act. If it had to come to a choice between having some things that we aren't providing collectively—which is one of the things we do with taxes—and handing money back to people across the board, I would certainly opt for the former, and I think a lot of other Canadians would as well.

The Chair: Okay.

Mr. Szabo.

Mr. Paul Szabo: Thank you, Mr. Chairman.

Just to help things along here, in the latest report from Revenue Canada on taxpayers, the 1997 one, they report that 19.1% of Canadian taxpayers make over $50,000 a year. Those taxpayers pay 59.3% of all taxes and donate 52.5% of all charitable donations. It tends to put it in some context that Canadians don't make a lot of money. But to say that people who make over $50,000 shouldn't get a tax cut.... They do have options, and if they are paying more taxes than they would like to pay, one of their options is to reduce their charitable giving, which affects all of us. So there are all kinds of neat ways to deal with this.

I don't think we should talk about the mechanics of how the taxes should be done, because we have a whole finance department to figure out the fairest and most equitable way to deal with targeted cuts. I did, however, want to ask a question of the panellist who came here to talk on behalf of children—and thank you very much, you did a very good job.

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Under the Canada child tax benefit system, the national child benefit is the element that is subject to the clawback that you were concerned about. We had a lot of discussions about this in the last round. I want to ask you whether or not you had considered the fact that people who leave welfare to go into the labour force and get minimum-wage jobs, or jobs in that range, are actually worse off economically while they're working than they are by being on welfare. The intent and the purpose of the national child benefit was to help Canadians transition from social assistance to the paid labour force, because they were worse off and you needed that smoothing.

It's the provinces that decide whether or not they are going to give the moneys to those on social assistance. It was well pointed out that if there is no expectation of a job, a province like Newfoundland could say the expectation of any job out there is so low that its best choice is to leave the money in the hands of welfare and social assistance recipients, whereas in other marketplaces where real jobs will in fact exist, that transitioning is an important element in bringing people who are on social assistance, who are in transition, into the workforce without taking an economic hit. They don't have the dental coverage and medical coverage that they have on welfare. All of a sudden they have nothing. So there is this real drop in economic means.

I want to ask you to consider the rationale of the clawback of the national child benefit and advise us on whether you think there should be some sort of a mechanism to help Canadians transition from social assistance to the paid labour force.

Ms. Christa Freiler: There are many organizations that support the goal of helping parents make the transition. I think it makes a lot of sense to do that, but I think we need to put this in perspective. Canada is the only country in the world that ties the promotion of labour force participation to a child benefit. Historically, in every other country, a child benefit is to support children. It has nothing to do, and should have nothing to do, with the behaviour of the parents.

There are lots of ways to entice or support parents in the labour market. There are low-wage top-ups, there are income supplements—there have been all sorts of other programs. Canada is the only country in the world that ties this to a child benefit. By doing that, I think it really raises questions about what the purpose of a child benefit is. It should not be used in the way it is being used here. Even in 1993, when they introduced the work income supplement, a lot of organizations were very critical for exactly that reason, and now it's gone much further. I guess that is point number one.

Point number two—and this also addresses Mr. Epp's point—is that I don't think anybody would disagree that the most important way for parents to raise incomes to support themselves and their kids is through the labour market. That's understood. But the labour market isn't what it used to be. It doesn't provide enough of an income for parents to be able to do that. So you need to take that into consideration. Particularly for lone mothers, who have a poverty rate of something like 60%, it is probably completely unrealistic, unfair, and even cruel to expect them to be in the labour market full-time while looking after kids in the absence of decent child care. There are a number of different points here.

There are a lot of countries in the world that have a labour market expectation of lone parents, but they don't expect them to be doing it full-time. If you're the only parent, you can't be a full-time earner and a full-time nurturer. Something has to give. So I think there needs to be some consideration given to the real-life situations of people on social assistance and whether it is even possible to do what is being expected of them.

I'm not saying it's good for mothers to be on social assistance until their kids are 18. I don't think anyone is promoting that. But there's need for some recognition that there may be different requirements. Maybe it should be that they should only work half-time, that there should be an income top-up even when they are in the labour market, and definitely that they should have decent child care so that they don't have to worry about their kids while they're flipping hamburgers at McDonald's.

Ms. Martha Friendly: I'll just add something to that.

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The social policy people who specialize in children have spent a lot of time in the last couple of years trying to figure out what social policy for children and families might look like. It was always the idea that it was only for women in the paid workforce. That is not true. We've really tried to take a much broader and coherent and holistic policy approach to these issues. I think you'd find for all of us—I don't know who else has come before you—that we've urged that you're not going to solve the issues of child poverty, or work and family issues, or family income, or any of those things with one policy.

One of the problems with the child benefit—there are a number of problems with the child benefit—is that it's trying to be everything. In fact, if it's an incentive to parents to join the workforce and that portion is being clawed back from parents not in the workforce, it's not merely an anti-poverty measure. We have argued, all of us, for decent child care, which, as Christa said, is essential to let people leave welfare.

In Metropolitan Toronto, where there is no work requirement for parents of very young children, as there is in Alberta, for example, they're allowed to take advantage of the Ontario Works child care subsidies. Half of the people using the Ontario Works child care subsidies in Toronto are parents who are not compelled to be in the workforce. So there's a sizeable proportion of those parents who would like to be in the workforce for whom there are a variety of barriers. One of them is obviously child care, and there are others.

This is the first time I have felt a real resonance from this committee on the idea of having intelligent public policy for children and families that supports them in a much more coherent way. I think this illustration of looking only at the tax system, or only at the child benefit, really shows what's wrong with it. We have to look at employment, at labour markets, and at housing. You need to look at a variety of things if you're going to have intelligent social policy; otherwise, it's not going to work.

The Chair: On that note, I'd like to make it very clear that there's only one thing that drives this committee, and it's how do we improve the quality of life for all Canadians. We also feel, quite frankly, that an agenda that speaks to the generation of wealth, tax cuts, and productivity gains is not mutually exclusive to a children's agenda at all. As a matter of fact, I think they go hand in hand.

Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC): Thank you, Mr. Chair, and thank you all for your interventions this morning.

The first question is for Dr. Smithin. We've seen since 1993 about a 10¢ loss in the Canadian dollar. With the floating exchange rate, that has a fairly direct and detrimental impact on Canadians given that we purchase 40% of our goods and services from outside of the country. Do you believe there's no loss with...?

Dr. John Smithin: How much do you sell? You sell more than that. Obviously there's a benefit to be gained from exports increasing, and they have done that. The main thing about a floating currency is that it does give you the independence in order to be able to pursue social programs and so on.

I take very seriously this idea that if you have a sovereign currency you have much more room to manoeuvre on these budget issues. It's not just a question, as seems to be discussed all around the table, of having a given pile of money stuck in the middle of the room and if you get some I don't get the other. That's not the nature of money at all. Money is created every time the banks make a loan and it's destroyed every time you pay back money to the bank. It's very simple.

When you talk about this big debt, the debt is denominated in Canadian dollars, however many trillions it is. Who can provide Canadian dollars? The answer is the Bank of Canada or the Government of Canada. If that debt was denominated in U.S. dollars, then, yes, you'd have a problem because you'd have to find the U.S. dollars in order to pay it off. If Canada was in a similar situation as Mexico, where it could only borrow in terms of U.S. dollars, then obviously its freedom of action would be curtailed.

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I think it's very important to realize the difference. You are federal politicians, right? In principle the federal budget is a very different budget from the provincial budget. The Government of Ontario does have a real budget constraint because it always deals in Canadian dollars, as it were—foreign dollars. The currencies in the Euro zone have taken a really big step. They've moved away from national sovereignty—the governments of France, Germany, and so forth. They've put themselves actually in the position that this committee seems to think the Government of Canada is in. The point I'm making is that the Government of Canada, as long as it retains an independent currency, is not in that position. It has much more flexibility.

Mr. Scott Brison: An independent currency is certainly a sovereign currency, but its value depends significantly on external factors and on currency flows. Some of those are a function, for instance, of taxation, which has an impact. During the last two decades we've had a relatively positive yield in Canada, and interest rates were higher than those of the U.S. In Canada, during the same period, we've had a relatively good economy and a relatively strong dollar. We've lost 10¢ in the past six years, and part of that may be that taxes are consuming 38% of our GDP, which is a significant increase, and in the U.S. they're consuming 28%, and that is having a deleterious impact on our economy.

Dr. John Smithin: It's certainly true that if your economy is to differ from another economy in a number of respects, i.e., to have a different level of taxes, a different level of social programs, to make policy choices, it must have a different dollar. It may well be the case that a different choice in terms of the social programs leads to a lower dollar at this point in time. Suppose Canada were to adopt the U.S. dollar. It would be very simple. Whatever social programs, whatever taxes, whatever budget considerations would simply be dictated by—

Mr. Scott Brison: And the operative mechanism might be unemployment, so when there was a hit to commodities we'd feel that in unemployment. I agree with you. I would not advocate a common currency.

Dr. John Smithin: In terms of this lower dollar, you could certainly have had the Canadian dollar much higher over the last two or three years. The way to have done it would be for the Bank of Canada to raise interest rates. I suspect that under the previous regime of the Bank of Canada, under Governor Crow, they would have raised interest rates through the roof. You would have had a strong dollar, and we did have a strong dollar at that stage, and of course, as you say, you'd have an unemployment rate that goes with it.

Mr. Scott Brison: And we'd probably see a 25 or 50 basis point increase in rates in Canada.

Dr. John Smithin: Yes, which is worse than your problem with the interest rate on the debt.

Mr. Scott Brison: I've heard the argument before, and perhaps at another occasion we can expand on this, but the logical corollary of your argument, sir, is that if we were to reduce our dollar to virtually zero, we could succeed by being the greatest export nation in the world, because our goods and services would effectively be—

Dr. John Smithin: No.

Mr. Scott Brison: I don't believe honestly that we can devalue our way to prosperity.

Dr. John Smithin: No, you're painting it in terms that are too stark. The point is there's room to manoeuvre.

Mr. Scott Brison: You're saying that the debt is not relevant at all. Those are stark terms as well.

Dr. John Smithin: In terms of affordability, no. Of course you could afford everything you want to. There's no question about that. Why people object to that is because it could cause inflation. So the question is not can you afford the child poverty action, can you afford to house the homeless. Of course you could afford to do that. The political debate is about what that does to other people's money. That's the point.

Mr. Scott Brison: Other people who are mobile.

Dr. John Smithin: Other people who are mobile, other people who are richer, and so forth. Is there a way around it? Yes, there is. It is, as I said before, that real interest rates should be kept low but positive.

Mr. Scott Brison: Whether it's politics or economics or social issues, in fact I don't think you can demarcate or separate economic and social issues. This is one of the most exciting parts of this type of discussion, because when we're talking about a children's agenda or investment in children, clearly that is both an economic and social issue.

Ms. Friendly, you were talking about how it would hurt banks, but the fact is that 7.5 million Canadians own bank shares, directly or indirectly, and a lot of Canadians work for banks. Banks and people who work for them, or people who work, for instance, in that above-$60,000 range in Canada...a lot of these people are mobile. When they leave—and there's been an increase in the number leaving—they are taking with them their future earnings and the future tax revenues that come from those future earnings. I do not believe we can make public policy that is going to be sustainable if we ignore their interests, if we ignore the interests of any one group. I think it has to be very balanced.

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Dr. John Smithin: If I may say so, the point you're neglecting is that if correct economic policies were pursued, that is to say, lower interest rates, more government spending...you have to understand that the economy of Canada would improve also.

That's the opposite. I understand the conventional wisdom around this table. One of the reasons people would stay in Canada would be if their real incomes were improving in Canada. These measures, I suggest, which are a more sensible attitude to the budget policy, wouldn't militate against the economy at all. On the contrary.

The Chair: Ms. Rothman.

Ms. Laurel Rothman: I just want to make a comment on the issue that you're leading to around brain drain. I'm not an expert, but all the statistics I have seen say that taxation is not the main reason people are leaving. There are a lot of other reasons, which have to do with research opportunities and professional opportunities—-

Mr. Scott Brison: Rate of pay in jobs.

Ms. Laurel Rothman: Perhaps it's the rate of pay.

The other reality is that we have to stop comparing ourselves to the United States. It was actually Madelaine Drohan, I think, at the Globe and Mail, who said to be realistic and look at medium-sized successful countries, not at the largest economy in the world—that doesn't make sense—even though we have tremendous challenges such as being a major trading partner.

Mr. Scott Brison: I agree that we need to compare ourselves to countries other than the U.S. In fact, we are a kinder and gentler nation, not to use a “Peggy Noonanism”, but, if you will, we are a bit of a distinct society. The fact is, though, that if we compare ourselves to those other countries, we have the highest personal income taxes in the G-7 and the second-highest corporate taxes in the OECD. Last year we were third, but Germany has reduced their corporate taxes. We're now second. Debt-to-GDP ratios were very high.

With a floating currency, I do believe we live within the realm and the parameters—or constraints, perhaps—of...if we're going to be successful in a global environment, we need to create, structurally, economies that are at least in the same ballpark. I don't believe we can ignore those issues. Even outside of comparing ourselves with the U.S., we are still not doing so well in some of these critical areas.

Dr. John Smithin: May I...? It seems to me that once again—

The Chair: Excuse me. Can we let somebody else reply?

Ms. McCuaig.

Ms. Kerry McCuaig: There are other OECD studies that say that in Canada, when it comes to personal income tax in the mid-range, when you look at our payroll taxes, our payroll taxes are in fact lower than those in the United States. In corporate taxes, we're about a third of the way down. We're not an overly taxed country.

We also get a great deal for the taxes we pay. I can give you just one example. I advise the auto unions and companies when they reach their family policy settlements. Each worker pays 6¢ an hour into the child care fund. They pay another 3¢ an hour into the university tuition fund. So if you want to think about this in terms of foregone wages, they could have been getting that 9¢ an hour in their wages. Or do they put it into funds? You can make the analogy with taxes, I guess, right?

But all those 60,000 workers pay that amount of money per hour into the fund, whether they have young kids or not, whether they have a kid going to university or not. What they've recognized is that in fact it's better for them to have access to a program when they need it rather than having that 9¢ an hour. All of those workers also pay into pension plans for all of those workers when they retire. So what you have there is an example of intergenerational solidarity. It makes good....

The other thing is that both the company and the workers feel good. I talked to the head of Ford about this. That company feels good to be seen as doing nice things for the families of its workers. The workers of that company also feel good. At the ratification meeting, that's what they went on about. Whether they had a kid who needed child care or not, they felt good about themselves. They felt good that as a collective they saw the need to meet the needs of their colleagues' kids. I think that's something we could learn at a national level.

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Mr. Scott Brison: But we don't pay higher taxes in Canada because we spend more on social spending than, for instance, the U.S., or more on health care, for instance. The fact is, the government in the U.S. spends more money on health care on a per capita basis than—

Ms. Kerry McCuaig: The government.

Mr. Scott Brison: The government...actually, the government specifically does as well. There is an inherent inefficiency in the HMO system and we do not want that in Canada, but the fact is, there is government investment that, on a per capita basis, exceeds that of Canada. We don't pay more taxes because we have more government investment, but we do not have as high an investment in defence, for instance, as the U.S. either, and there's a reason for that from a historical perspective.

But we do tax more because we have a significantly higher debt on a per capita basis. Dr. Smithin doesn't feel it's important to reduce that, but one element of a children's agenda could be to reduce the debt that these young people will carry with them as young, productive members of society in the future. Perhaps we should be studying, in their interests, the issue of reducing debt significantly or perhaps reducing the tax burden of their parents, who have seen an 8% drop in their personal disposable income in the 1990s due to increases in taxation during a period of time when Americans have enjoyed a 10% increase.

Ms. Kerry McCuaig: All throughout the eighties—

Mr. Scott Brison: This was all through the eighties.

Ms. Kerry McCuaig: —we didn't want to saddle our kids with the deficit, so Canadian families took cut after cut and watched social program after social program disappear. They paid to get rid of that deficit and they paid for a surplus, and all the time that was going on, child poverty rates grew.

Canadian families have already taken their hit. Now we have a surplus and Canadian families are being given the message that now they shouldn't saddle their kids with this big debt, right? There has been a proposal put forward for balance. We support that balance. Action should be taken on reducing the debt and on tax measures, and there should be a percentage—half the budget surplus—put aside to address the needs of Canadians. Central to those needs, we would argue, should be children and their families.

The Chair: Comments?

Ms. Martha Friendly: I just want to say one thing about why people move and what that means. I moved from the United States to Canada. There were a lot of us who did. One of the attractions was not anything to do with taxes; it was because it was a kinder, gentler society, and that was almost 30 years ago.

I still have very close connections with the United States because I have family there, and I'm really struck by this extraordinary complacency in Canada about how it's a kinder, gentler society. When you look at the social deficit we've been accumulating while families and children have been taking this hit, while the surplus has grown, and while the wealth gap has grown, I would really argue that we are falling behind.

When you say that the social and the economic are related, I really agree with you, but unfortunately, you're looking at the structure. You said that we have to be looking at the structural, Mr. Brison. You're talking about the structural kinds of things that we need to be looking at, and I'm talking about another kind of structure. I'm talking about the social structure.

So we're talking about kids and about how maybe we should write off some of the debt. I could see where you were going with that. Our university tuition hit in Ontario has gone up about 35% in the last four years, so you have kids of that age carrying a personal debt. You have the whole social deficit from children whose mothers are mostly in the paid workforce. Most mothers of young children are in the paid workforce, for all the reasons we've been talking about, and we are one of the few countries, along with the less kind and gentle United States, that does nothing about it, that leaves everybody—parents and mothers—hung out to dry and on their own.

I would really argue, yes, the economic and the social are related. People move for a variety of reasons. Some of them are social.

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I think we had better really look at where we're going socially if we want to be able to compete with mid-level countries at all, because what I see is a growing social deficit that we're going to pay for and our kids are going to pay for.

The Chair: This panel has created a lot of excitement, as you can tell by the number of questioners who are still here at 12 noon, but we're going to have to do it this way. We're going to let Mr. Brison make his final comment—very brief, of course—and then we'll go to Mr. Galloway, Ms. Guarnieri, then Mr. MacKay. You'll all ask your questions and then the panellists will answer.

Mr. Brison.

Mr. Scott Brison: Thank you very much, and I do value all your interventions.

I have one final comment. I understand recently the ILO, the International Labour Organization, did a report on child poverty, and studied child poverty globally, and Canada came second lowest, I believe next to Japan, in terms of child poverty, based on whatever criteria the ILO used in this study. I'd like your comments on that report.

Ms. Laurel Rothman: I'm only briefly familiar with it, but my understanding is they did not use the traditional measures we have traditionally used, which are the low-income cut-offs. Although Statistics Canada describes that as not a poverty measure, it is the measure used by all the major research groups and academics in this country, and in fact I would say that ILO report is unique in its statement about Canada. There are OECD reports, or the report my colleague referred to by expert Tim Smeeding, from the Luxembourg low-income study, which is a comparative study of at least 40 countries around the world, not just the western world.

So I would only comment that my brief understanding is that the ILO took a very different measurement and that its findings are not common to other research findings.

The Chair: Thank you.

Mr. Galloway.

Mr. Roger Galloway: Thank you. I have two questions.

Ms. Friendly, you mentioned early childhood development services. What does that mean? Could you give me a very brief description of what it is?

Ms. Martha Friendly: In my brief, which I would be happy to.... I think early childhood development services have to have three components, three pillars, do three things.

One is they have to provide early childhood education or development—nursery school, the kinds of things people send their kids to nursery school or good quality child care or kindergarten for—peer relations, and things like that.

The second thing they have to do is if the parent is in the workforce, or training, or studying, they have to provide care in the absence of the parent.

The third thing they have to do is support parents in their parenting role with parent education, both overt and more subtle—be supportive to parents.

I would define early childhood development services as encompassing all those three things at one and the same time. If you do that, that's where you're going to get your economic and social benefits from those programs.

Mr. Roger Galloway: Okay. My final question is this. Ms. McCuaig, you talked about collective wealth, and some of you have talked about good and bad tax measures. You've talked about groups who are organized and want tax cuts. But I have to say to you, you appear before us, you're very organized and you have a different agenda, and I don't regard you any differently from other groups who appeared and have a different agenda from yours.

Having said all of that, it's very apparent that there are polls being done in this country, some of which are being done by the finance department, and what is emerging out of this, and I'm not saying.... It's confirmed to me in my riding, because I have to feel that my opinion is not formed exclusively by being a member of this committee, but by being an elected official who talks to people in his riding. What I'm hearing from people is, I think, being reflected in the polls, that in fact people are interested in tax cuts, people are interested in debt reduction, people are interested in health care, people are interested in post-secondary education and doing something about that, but this idea of a children's agenda...I can't find many people buying into it.

You're coming here this morning talking about billions of dollars, about social programs. But tell me what we say to those individuals, not organized groups but individuals, a broad cross-section of people who are perhaps the majority of Canadians, who say “It's my money that I'm paying to the federal government. You have an excess now. I want it back, and I'm not too interested in financing a $10-billion or $14-billion program that has something to do with children.”

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Ms. Martha Friendly: First of all, you know that with public opinion polls, of course it depends on to whom you ask the questions. We have a number of public opinion polls too. The things we're interested in have been included in, for example, Ekos research and public opinion polls. I don't really want to debate public opinion polls with you, because I'm sure you know that one gets whatever one wants out of public opinion polls. In fact there was quite a good piece on the CBC on this last night.

In answer to your question about billions of dollars, the first thing I would say is, to build the kind of program I'm talking about, we need to better spend the public money that's already being spent. What we have is very bad public spending. This would really be a good start.

What I'm trying to convey by talking about these bits and pieces of how we could make a better program, province by province, is this. Collectively the provinces are spending over $1 billion a year on regulated child care. They're spending an unknown amount of money on public kindergarten, because nobody really knows how much is being spent. There's no data on that. There's other spending through the federal government. And parents are paying a lot of money themselves, as we know, for these kinds of programs. For starters, let's get some kind of public policy that shapes this much better.

In answer to your question about what your constituents want, I could find you a million people in my riding and in other ridings all around the country who would say this is really important to them. So it depends on how you ask the questions. I would be quite happy to introduce people to you who would say this is an important priority for them.

The Chair: Thank you, Mr. Gallaway.

Ms. Guarnieri.

Ms. Albina Guarnieri: Thank you, Mr. Chair.

You can see that your presentation has certainly provoked a lot of questions, and I have a few.

Ms. Friendly, you just concluded your comments by saying money that's being spent should be spent better. Do I gather from that then you think we should re-prioritize existing government spending to spend money better, rather than drawing on surplus funds?

Ms. Martha Friendly: I'm not sure we're exactly understanding each other.

What I'm saying is, in the area of early childhood development services, which I defined for Mr. Gallaway and in my brief, if you look around Canada, provincial and federal and private spending is actually quite diffuse. A lot of parents and taxpayers are paying for lots of bits and pieces of programs and private arrangements, and yet very few of them really are getting what they need.

I'm not saying it wouldn't take more money to make a program for everybody, but I would say as a start we need to have a public policy process through the social union that would actually start to create some kind of coherence to these kinds of services so that parents could actually make choices, which they're certainly not doing now.

Yes, we would need more spending.

Ms. Albina Guarnieri: If I could just get my questions in, I have a feeling the chairman is going to allow you more latitude than he is me.

The Chair: Oh, no! That's it. We're skipping lunch. We're going to listen to Albina. I'm not hungry.

Voices: Oh, oh!

Ms. Albina Guarnieri: I know this chair.

I'd like to respond to the earlier exchange round. It seems to me that if the rate of child poverty in Toronto and elsewhere is as high as recent statistics demonstrate, many of these poor children are living in families that are working, but at modest incomes relative to the cost of raising children, if I understood your implications correctly. What research do you have on the tax burden of families with poor children that would be helpful to us in our deliberations? Specifically, do you have a sense of whether there are significant numbers of children living in poverty while parents are paying too much income tax?

Ms. Kerry McCuaig: There's no research that indicates that parents in low-income families are paying too much tax. There is plenty of research that says these parents would be better off if there were affordable housing, if there were affordable child care, and if they received income support to top up low-wage jobs.

This is why we've come with the public policy positions we have. It's not an ideological position to be opposed to tax cuts. We're just saying that if you want to better the lives of children and families, a better and more effective way of doing it is by providing them with programs and services. That is why I used the CAW settlement as an illustration. Those families will be better off by having a program they can access rather than 9¢ an hour on their paycheque.

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Ms. Albina Guarnieri: I just want to be very clear on what their presentation is to this committee, and forgive me for highlighting. In the Wall Street Journal today there's a report that says:

Canada's Jobless Rate Falls to 7.2%.

Canada's unemployment rate dropped sharply in October for a second straight month, falling to 7.2% as the strong economy continued to produce jobs at a rapid pace. The jobless rate, the lowest in nine years, followed an identical 0.3 percentage point drop to 7.5% in September. Statistics Canada said new jobs created this year total 308,000, a 2.6% increase, with most of the growth in full-time employment and among women.

The reason I cite this and the point I'd like to make is that if 30% or more of the children in Toronto are living in poverty and the unemployment rate is around 7%, there must be a lot of children in households that are paying taxes they simply can't afford while trying to meet the needs of their children. Perhaps a case could be made that these families might be helped by direct taxation relief. But I think it would be fair to say—and I'd like to see if you would agree with me—that most poverty measures are really based on basic costs as a percentage of gross income, so no income tax change could ever affect the rate of child poverty as currently indicted. Do you think that would be a fair comment?

Ms. Christa Freiler: Could I attempt to answer that?

The Chair: Yes.

Ms. Christa Freiler: That was a pretty packed question.

Ms. Albina Guarnieri: I'm just trying to build a case here.

Ms. Christa Freiler: I don't know if you remember that a few years ago there was a Fair Tax Commission in Ontario, which had a low-income tax group. So there's actually a fair amount of research that probably has been updated, but if nothing else, that could be made available to you. It showed that over the last few years the biggest hit tax-wise has been taken by low- and modest-income families. There's no question about that. Those are the families that the Fair Tax Commission found suffered, if you want to look at it like that.

I think that's one of the reasons a number of organizations, including Campaign 2000, us, and Caledon, have been saying that there is an argument to be made for tax measures directed at low- and modest-income families. We're calling for a greater investment in the child tax benefit to be that, for all sorts of reasons I won't get into. It's not that there's not an issue, but I think the child tax benefit is probably the way to go if you want targeted tax measures directed at families with modest and low incomes.

I think the statistics you're quoting about the increase in jobs and poverty reinforce the point made by the Luxembourg income study that it is low wages. Simply giving a tax benefit or a tax reduction isn't going to address the low-wage issue.

Ms. Albina Guarnieri: But would you also agree that the cost of raising a child may be high? Do you concede—

Ms. Christa Freiler: Do you mean in Toronto? It is higher—

Ms. Albina Guarnieri: Anywhere.

Ms. Christa Freiler: It's higher in Toronto. The cost of raising a child from zero to 18 is $160,000. That is very high. So even a $4,000 child benefit is only a part of that. A $4,000 child benefit, which is what a lot of people are arguing for, doesn't cover the whole cost because obviously parents have a responsibility to cover part of the cost. It's society's part that the child benefit represents. It's not the whole thing.

Ms. Albina Guarnieri: Ms. Rothman, I see you—

Ms. Laurel Rothman: I want to add something to those job numbers, because it's quite important, and we won't know the outcome of what that means for low and modest earners for a while. In fact, I've taken a look at it, and it's hard to know. Just remember this, though. In May 1998—and these are data from one of the new StatsCan studies looking at labour income—38% of lone mothers in this country earn less than $10 an hour, and most of them don't have access to quality child care or affordable housing.

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So it's fallacious to think that taxes are the major issue. The limitations of the labour market certainly are a major issue.

Ms. Albina Guarnieri: Thank you.

Mr. Chair, do I have time for one last quick question to Mr. Solcz?

The Chair: Absolutely.

Ms. Albina Guarnieri: He has been sitting there very patiently. We appreciate your taking time to come before us today.

The U.S. Congress put out a study stating that they're going to have to retrain 90 million people in their workforce within the next five to seven years. We all certainly recognize that too large a percentage of workers will face a personal crisis of obsolete skills and long-term unemployment or underemployment, as the case may be. I wonder if you would agree that the best way to sustain or protect incomes is by having programs that encourage and fund workers' initiatives to retrain or upgrade skills while they still have jobs and incomes. Would that be a road for the government to follow? Should we be thinking along those lines?

Mr. Michael Solcz: That's a very good question. I know that is current in our city, with Chrysler and General Motors being near and so on. As we see it today, the retraining programs are required, and they are carried out by the community colleges. This retraining is really directed toward the operators of equipment that we as suppliers manufacture, and when we send them in, our job is to offer a certain degree of training to a select few. Ongoing production requires ongoing teaching and retraining. That's where the colleges come in. They can send in people to assist them in that.

But they are a far cry from what we are talking about in the skilled trades, which is the total training of toolmakers, die-makers, mould-makers, and so on. We build equipment by the use of toolmakers and engineers, and now someone has to operate it and maintain it. The first thing you do is run ads. Guess who loses the skilled help? It's the industry that built the equipment. So far we've lost at least a dozen people in the local area to the big users, and yet we're still confronted with building this equipment. We're continually getting orders, and some we're turning down. They're setting programs back because they can't accommodate them. So it's not the normal workforce that's going to do it. It requires the skills I'm talking about here.

We need to develop and institute a strategy in Canada that would enhance that. It prevails throughout the United States and the rest of the world. Why don't we become the leaders in it by creating some form of strategic approach to it in order to finally develop apprenticeship training in the way it should be and enhance the growth?

As was mentioned earlier, the majority of the taxes collected by the government are from 19% or so of the people who earn over $50,000. Let me tell you that in the tool and die industry, their wages are probably a minimum of $50,000, and they go as high as $90,000 and $100,000 a year.

Ms. Albina Guarnieri: Thank you very much.

The Chair: Thank you, Madam Guarnieri.

Mr. McKay, you'll get a chance to ask a question this afternoon. We're running a little behind schedule.

On behalf of the committee, I want to express to you our sincerest gratitude for your presentations. As you can tell, there's obviously a lot of interest in them.

But if I can leave you with a message, which is quite a simple message, it's that we're going to do our very best to make sure that the real priorities of Canadians are addressed in this report. I must say that all of you have really added value to the debate we're going to be pursuing for the next few months, and I'm sure your opinions will be expressed in the report as well. Thank you very much.

I'm going to suspend the meeting. We'll be back at 1.20 p.m.