FINA Committee Meeting
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STANDING COMMITTEE ON FINANCE
COMITÉ PERMANENT DES FINANCES
[Recorded by Electronic Apparatus]
Monday, November 8, 1999
The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.): I'd like to call the meeting to order and welcome everyone here this afternoon.
We will hear from the Canadian Association for Community Living, the Alzheimer Society of Canada, the Ontario Coalition for Better Child Care Network, and Citizens for Public Justice. We have some individuals who will be appearing, as well as the Advisory Committee on Homeless and Socially Isolated Persons.
Many of you have already appeared in front of the finance committee, so you know how this works. You have approximately five minutes to make your presentation. Thereafter, we'll engage you in a question and answer session.
We'll begin with the Canadian Association for Community Living, Cheryl Gulliver, president, and Connie Laurin-Bowie, director of policy and programs. Welcome.
Ms. Cheryl Gulliver (President, Canadian Association for Community Living): Thank you very much, Mr. Chair. As you've said, I'm Cheryl Gulliver, and I hail from Mississauga. It's always a pleasure to have Paul Szabo, with his interest in families, and Albina, from Mississauga, on a committee.
Mr. Paul Szabo (Mississauga South, Lib.): You can have whatever you want.
Ms. Cheryl Gulliver: Thank you, Paul.
The Chair: Do you still want to make your presentation?
Ms. Cheryl Gulliver: Yes. I'll tell you exactly; I'll give you specifics.
Albina Guarnieri has also has been very supportive of us and knows our issues very well. It's really nice to be here—and Ms. Bennett isn't.
I want to talk to you a little bit about myself and my daughter, but mostly I want to talk about families who have children with disabilities and what we face. There are the additional costs and the stress, as a result of out-of-pocket expenses; the foregone income and the difficulty in finding good and appropriate child care.
I am fortunate that my daughter is 27 now, and we were there when the money was flowing as fast as it possibly could to make things better for us. But now we face a reality. Understanding that, Mr. Chair, you have to know that we chose as a family for me not to work outside the home because of the many operations and the things Margot needed support with. That's something that should be recognized by other parents.
One of the things we found is you extended the parental leave for a year after the birth, and we believe parents should have a maximum of four more weeks—or it should be flexible—around things that happen with their child that are totally disability related. There are the operations, the extra doctor's appointments, getting therapists, and doing all the advocacy and work we need, just to maintain our children and us, as a family.
I can't express enough how hard it is sometimes, when two parents are working and you have the constant strain of something sitting at the back of your head that you know could blow up. You know you will have to be somewhere, and you're doing the dance between your family member and your job. We mostly have skills that are very valuable to the workforce. We think it's something you should consider. Parents still want to have an identity of their own and contribute to the economy of Canada and to society.
We have three items we'd like to leave you with. First, the CACL recommends an enhancement of extended parental leave to include an additional four weeks a year for the first five years for families with children who have disabilities. That's basically when they're learning and developing, and a lot goes on in those first five years.
Second, as part of the long-term tax reform initiative, CACL recommends the enhancement of the child care deduction for families who have children with disabilities by increasing the deduction and extending the age limit to 18. As it is now, people can only claim a child until they're 12, but a lot of times children with disabilities and young adults need support until they're 18.
Third, we would like a review of trusts and savings plans for families who have children with disabilities, because we're very limited in how we can support and leave money to our children, which would hopefully one day either enhance or share the cost of their support when we're gone.
Thank you, Mr. Chair.
The Chair: Thank you very much.
We will now hear from the Alzheimer Society of Canada, Mr. Steve Rudin and Dale Goldhawk. Welcome.
Mr. Stephen E. Rudin (Executive Director, Alzheimer Society of Canada): Thank you very much, Mr. Chair.
Let me thank you for the opportunity to participate in this important process. I'm pleased to have Dale Goldhawk with me. Dale is a volunteer with the Alzheimer Society of Canada. He is the chair of our public policy committee and, more importantly, a former caregiver.
Today we speak on behalf of over 300,000 Canadians who suffer from Alzheimer's disease and related dementias. Based on that statistic alone, I'm speaking on behalf of perhaps 1,000 people who could be suffering from Alzheimer's disease in each of your ridings.
As grim as this may be, I speak on behalf of some of us in this room who will inevitably be affected by Alzheimer's disease, because if we do nothing, the 300,000 people will become 750,000 within 25 years. Canadians who struggle with Alzheimer's disease should be heard, and we support the committee's efforts to listen.
Alzheimer's disease in an important health concern. We believe the federal government has a number of opportunities to contribute positively to provide help and hope for those affected by Alzheimer's disease.
A cure for Alzheimer's disease is possible, but finding a cure at the expense of those who provide care is unfair. We must do both, and that's why my comments reflect the two goals of our organization.
What can the government's budget do for those affected by Alzheimer's disease? We suggest three things. First, it can enhance the caregiver tax credit it introduced two years ago. Second, it can follow up on the recommendations of the national health forum and take the necessary steps to ensure Canadians have a national home care program. Third, it can ensure that funding is dedicated to Alzheimer's research, to help those currently affected by Alzheimer's disease and bring hope to those who will be affected by the disease.
I believe these three initiatives are consistent with the framework set forth by the chair of the finance committee.
Dale will now give some more specifics on these three initiatives.
Mr. Dale Goldhawk (Board Member and Chair, Public Policy Committee, Alzheimer Society of Canada): Thank you, Stephen. Thank you, Mr. Chairman.
On the issue of tax relief, the first of those three points, we truly believe the government should target caregivers for tax relief. A disturbingly large number of people are forced to give up their incomes, their employment, and all of their savings to care for loved ones who are affected by Alzheimer's disease. This is something we see every day at the Alzheimer Society, and I see every day in the work I do. In fact, we have a case underway right now involving hundreds of thousands of dollars of a family's money that has been given to look after a person suffering for the past five years with Alzheimer's disease.
The government took the initiative, in response to Paul Szabo's private member's bill two years ago, when it implemented some limited tax relief to help caregivers. The initiative has been applauded as a good start, but we believe it is just that—a start. The government needs to do more. It needs to enhance the tax relief provided to caregivers, not simply for financial reasons, but also for psychological reasons.
Just last week, Statistics Canada released a study that looked at the impact of care on caregivers. About 2.1 million Canadians spend between three and five hours a week caring for someone in their home. That would be like adding somewhere between four and seven more work weeks to the average employee's job, each and every year. That kind of workload adds stress and impacts on things such as work and family life.
Stats Canada also pointed out that while their caregiving was obviously rewarding at one level, it did not come without costs. I quote from that report:
Those caregivers who spent the most time providing
care experienced the highest levels of psychological
and emotional burden and personal consequences, such as
extra expenses and postponed job opportunities.
Enhancing the caregiver tax credits is certainly a worthwhile investment.
On the second point, a national home care program, enhancing Canada's social infrastructure, Canada is a caring nation. We do not ignore our responsibilities and obligations. Caring for those affected by Alzheimer's disease should be a national responsibility that strengthens that social infrastructure.
The federal government has an important leadership opportunity in this regard. Through the budget, it can signal the importance and the priority it places on caring for those affected by Alzheimer's disease.
The throne speech reiterated the government's commitment to modernizing Canada's medicare system, with an investment of $11.5 billion. That modernization should include a national home care program.
A national home care program is the most important and effective means of improving the care provided to those suffering from Alzheimer's disease today. It's a tangible approach to enhancing Canada's social infrastructure. Today, half of those affected by Alzheimer's disease are in their homes. The current patchwork of home care programs will not withstand the increasing demands Alzheimer's disease will put on the system in the next few years.
The federal government should put a national home care program on the political agenda. The National Forum on Health recommended that the federal government take on a leadership role in the creation of a truly national home care program. We strongly support that recommendation because it will truly benefit those affected by Alzheimer's disease, but it will also enhance Canada. It will be one more example, we believe, of Canada caring.
We certainly understand that there are a number of constitutional and political considerations that must be weighed in the development of such a program. I understand that it is vital that there be a clear consensus among the levels of government about who does what. I think we also understand that the lives of those affected by Alzheimer's disease are going to be much better the day those considerations give way to a home care program that is truly national and truly effective in the delivery of care. When those considerations give way to a truly national home care program, our social infrastructure will be tremendously enhanced.
Productivity: Alzheimer's disease threatens the standard of living of not only those with Alzheimer's disease but inevitably those who care for those with the disease. A significant number of caregivers are family members. The process of caring absorbs time and energy—time and energy that in many cases would have been directed toward expanding the economy through employment. As I mentioned, according to Statistics Canada the typical caregiver takes four to seven weeks every year to dedicate to care. When you multiply that number by the number of caregivers that will be required to support not only those who suffer from Alzheimer's disease today but the explosive number that is expected as the baby boom ages, it becomes fairly easy to see the total impact on productivity.
In purely economic terms, finding the cure is only going to stem from basic research. Therefore, it makes sense from an economic perspective to invest in the cure for Alzheimer's disease. Make Alzheimer's research a higher priority. In this regard, biomedical and psychosocial research is critical. Biomedical research will ultimately uncover the cause and the cure of Alzheimer's disease. Psychosocial research improves methods for diagnosing, caregiving, and delivering service.
Each form of research needs more funding. More funding can come from the federal government putting more emphasis on Alzheimer's disease as a research priority. Finding causes for Alzheimer's disease is the first step to finding a cure. The Alzheimer Society of Canada has played a leading role in funding seminal research that has resulted in identifying a number of potential causes such as genetics and proteins. Our involvement has paid off. Canada is truly one of the world's leaders when it comes to Alzheimer's disease research. We need to do more to enhance our leadership role, however.
The Canadian Institutes for Health Research, whose enabling legislation was introduced last week by Health Minister Rock, is a very important step forward. The government should enhance its commitment to the institutes and in doing so ensure that Alzheimer's disease, its cure, and the process of caring for those with the disease are well researched by the most appropriate institute. The government already has demonstrated leadership by creating the Canadian Institutes of Health Research. This is a major step forward, but more needs to be done. Within the federally funded research institutes we need to ensure that Alzheimer's disease is—I am saying it again, I can't say it enough—a priority.
In conclusion, Canada is a caring nation. Canadians care deeply about their families, their friends, and their country. Travelling across the country, both Steve and I have seen disturbingly large numbers of Canadians gripped either directly or indirectly by a terrible disease known as Alzheimer's disease. I can tell you personally that Alzheimer's disease a number of years ago killed my father. The stress it put on my mother in caring for this man in his final years also killed her. I lost both my parents to this terrible disease.
As members of Parliament and members of the finance committee, I think you're privileged in a number of ways. You've been entrusted by Canadians to represent them in the development of the laws that help make this nation the best in the world, and in that context you are equally privileged to have the opportunity to make changes that will provide help and hope for those with Alzheimer's disease.
By enhancing the tax relief to caregivers, you can help relieve some of the significant financial and psychological stress associated with care. By supporting initiatives to develop a national home care program you can enhance the care available to Canadians affected by the disease.
Finally, by supporting efforts to increase the level of research into both caring for and curing those affected by Alzheimer's disease, you'll bring both health and hope to those affected by the disease today and all of those tomorrows that we will have to look forward to.
The Chair: Thank you, Mr. Goldhawk, Mr. Rudin.
Now we will hear from the Ontario Coalition for Better Child Care Network, Ms. Mary-Anne Bédard.
Ms. Mary-Anne Bédard (Executive Director, Ontario Coalition for Better Child Care Network): Thank you very much for the opportunity to speak to you this afternoon.
The Ontario Coalition for Better Child Care has been around since 1981. We include a large variety of people from all walks of life and institutions. We're also a public awareness organization that brings the benefits of early childhood education to the attention of the public and to policy-makers. After many years of advocating for children, we have come to appreciate that what families need to support them through the parenting cycle is a judicious mix of benefits and services—if you like, a holistic approach to providing support during the early years, because as we know, the child is within the family, who is within society.
Although parents may be able to access paid maternity leave during the valuable first months of life, they are often left scrambling, desperately trying to access limited scattered services that may or may not be available to them, regardless of whether they're returning to the workforce or not. As they face this dilemma, they are weighing the costs, assessing the available services, and the whole time worrying about the welfare of their child.
This untenable situation remains unchanged for five years until they eventually enter the school system. As we know today from the volumes of research available to us, the early years are too important to waste on this patchwork of disjointed services. I'm here today to specifically ask you to invest in and develop a comprehensive system of early childhood development services that includes child care for all Canadian children in the next budget.
Why do we need a system of early childhood development services? It supports healthy child development, and we recognize that regardless of the parents' employment status, early childhood development opportunities benefit all children and help them realize their full potential at every stage of life.
It fosters economic growth. Early childhood development services enable parents to work or enter training so they can access employment. Flexible, reliable, affordable services help parents to maintain that employment.
It reduces child poverty. Affordable early childhood development services allow parents to participate in the labour force and earn resources to support their own families. It invests in the future workforce, because high-quality, accessible early childhood services provide children with the best start in life so that they can become skilled, competent workers.
It is far more cost-effective for governments to invest in these high-quality services now than to pay for the results later on of not having these services available.
Currently the federal government has no plans for children zero to five. They have no policy directive and they have no money for services. They are, however, embarking on negotiation of a national children's agenda with the provinces, who do fund and have jurisdiction over these services. I would argue that in order for the federal government to play a role in these negotiations and to have input on a framework or the setting of national standards, you need to have financial leverage.
A recent University of Toronto study of the costs and benefits of good child care concluded that for every dollar you invest in early childhood education services, there's a two-dollar benefit to society through labour productivity and decreased social costs. The cost benefit was derived as one dollar for early childhood development to help children and one dollar for parental support.
This cost benefit only exists if you offer child care simultaneously with early childhood development programs. You cannot do one without the other, and I can't stress that enough.
So we believe a commitment to the following proposals in the next budget would signal progress toward a meaningful children's agenda—to create a national infrastucture fund for early childhood development services that include child care; to extend the system of paid maternity leave for a year; and to implement the third instalment of the national child tax benefit and extend those benefits to low, modest, and middle-income families, including those who rely on social assistance.
Our proposals fall within the guidelines laid out by the Prime Minister to allocate budget surplus equally to debt reduction, tax measures, and new program funding, because after years of neglect it's time for the families to claim their share.
I'd like to end on this thought: If you don't know where you're going, it doesn't matter what road you take. I would argue that we know where we're going and we know the road we need to take. And we need to go down that road together. Thank you.
The Chair: Thank you very much, Ms. Bédard.
We will now hear from the Citizens for Public Justice, Mr. Greg Maggetti-deGroot, socio-economic concerns coordinator; Gabrielle Mandell, national social action committee, and Wahida Valiante, vice-president, Canadian Islamic Congress. Welcome.
Mr. Greg Maggetti-deGroot (Socio-economic Concerns Coordinator, Citizens for Public Justice): Thank you, Mr. Chair. We're pleased to be here today. As a point of clarification, Gabrielle is the coordinator for the social action committee of the Canadian Council for Reform Judaism. Citizens for Public Justice is a national organization of members committed to promoting justice in Canadian public affairs, and predominately our membership is Christian and ecumenical.
The three groups represented here today worked together producing the multi-faith kits you've received today called “Keeping Our Promise to Children: Realizing the Promise of Each Child”.
When the finance minister made his presentation of the fiscal and economic update, he said the debate about how to use the surplus is an important debate and that it should go to the heart of our country's values. In our presentation we'll emphasize the values that underlie our recommendations. Just quickly, in the notes that you've received, the five core recommendations we have to make are benchmarks of commitment.
First is the commitment to reduce the rate and depth of child poverty by 50% over five years and phase in a national strategy for the full elimination of child poverty—basically to reconfirm the commitment that was made 10 years ago to try to eliminate child poverty in Canada.
Second is the commitment to focus the benefits of tax reforms on low-, modest-, and middle-income families with children, including those on social assistance.
Third is the commitment to develop a national fund for early childhood learning and development, and to invest in community programs that enhance the health and well-being of all children and their families.
Fourth is the commitment to invest in the construction of affordable housing units required to eliminate homelessness in Canada.
Fifth is the commitment to establish with the provinces and territories a national commission of inquiry on strategies to improve the availability of good jobs with living wages.
Now I'll ask Wahida to read some comments.
Ms. Wahida Valiante (Vice-President, Canadian Islamic Congress): Thank you. The distribution of wealth and income to the poor, orphans, and the needy on welfare who are denied goods including education, shelter, food, and medical care has been a central issue in the Koranic discourse on justice and equity.
According to the Koran, the socio-economic welfare of the individual in society depends upon the degree of justice and equity in the distribution pattern of income and wealth. Therefore, to realize its ultimate goal of creating a socially and economically just society, Islam ensures social justice by applying the principle of the equality of all individuals in the eyes of the law and by providing equal opportunity for all, without discrimination.
However, the Koran maintains that social justice alone is not sufficient. There must also be economic justice. Therefore, we believe that the poor have a right in the wealth of the nation and the community, that social justice is meaningless without economic justice and equity, and that eradication of extreme inequalities in personal income and wealth is necessary for achieving human development. Every dollar spent by the public on a child's education is a dollar spent toward the social and economic well-being of the society and the country.
The substantial retreat of governments from the field of child welfare will result in social and economic decay. Children need financial security to develop psychologically, emotionally, physically, and socially balanced personalities. Family as a social system plays a very important role in the life of a child. It must be allowed to flourish and be nourished economically, morally, and spiritually.
God is the real owner of wealth, and humanity has been entrusted with looking after it as a test. In Islam the poor and the needy have the right to share in the wealth of the nation and communities. Therefore Islam emphasizes that sharing wealth should be on the basis of love of God, and not as a favour to the poor. We feed you for Allah's pleasure only. We desire from you neither reward nor thanks.
Our public policies must be driven by pragmatism and by our core religious and social values. That in the past has served our families' children and our country well in times of hardship and in times of plenty.
As a family counsellor, I can attest to the fact that it is very difficult for parents to raise their children without proper financial resources. It takes healthy families and financial resources to educate and raise well-adjusted, morally and ethically balanced, productive, and responsible citizens for a civil society.
Therefore, we need a comprehensive policy that addresses the core issue of child poverty, which is multi-factorial. The short-term solutions of food banks, shelters, individual efforts of the faith communities, and individual charity on their own will not and have not produced the desired long-term solution.
Although the federal government has recently proposed some positive changes in the areas of day care, child taxation, and maternity leave, they don't offer any long-term solutions and in reality will benefit only some families. This will leave out those who are truly in need, including parents who may choose to stay home to raise their children, working-poor families, single-parent families, families with special-needs children, and the homeless, to name just a few.
According to Islamic world view, humanity is created of a single soul with the best of human qualities to be vicegerent of God, and is endowed with sufficient faculties and resources, within divinely ordained constraints. Therefore, the state, as a symbol of God's vicegerency and the people's representative, is given special rights and authority over the taxes and the surplus wealth of the nation to ensure that no one is denied their fair share in order to meet their genuine needs.
The Canadian Islamic Congress has also been involved in Let's Invest in Canada's Children.
Mr. Greg Maggetti-deGroot: This is Gabrielle Mandell.
Ms. Gabrielle Mandell (Spokesperson, National Social Action Committee, Citizens for Public Justice): Thank you for the opportunity to address this committee and to talk about some of the values that give us our perspective on social policy.
In Jewish tradition, the pursuit of social justice is the responsibility of every person and of the social institutions and government structures that we develop as part of living in a community. Helping those in need is not a matter of choice, but a matter of justice. To give voluntarily to funds for the poor and disadvantaged is a personal decision of charity, but Jewish tradition has framed such giving as part of a more compulsory and structured system of communal giving.
The public sector has a key role in promoting economic justice and must do justice by just means. We contend that the good of the community is the responsibility of all its members. The disadvantaged and vulnerable members of society must be protected and assisted. Every person must contribute to the welfare of the community according to his or her capacity and capabilities. Human dignity must be respected and must pervade all forms of communal service and actions. And individuals must be provided with the tools necessary for progress toward self-sufficiency.
These statements express some of our fundamental tenets. They are premised on the recognition that fiscal policy has a moral dimension. They also represent some basic criteria for how we can view social policy initiatives and how they seek to address the fulfilment of human needs.
We are here today because as a society we have failed to live up to our responsibilities and commitments to Canada's children and their families. We cannot stand by while one in five children in Canada lives in poverty, while their families go without the necessities of ensuring the healthy development of the next generation. We are bound to respond, but to respond in a way that is sensitive, respects human dignity, and helps to develop human potential.
Like other faith communities, the members of the reformed Jewish movement take part in many initiatives in the front line of the fight against hunger and homelessness—for example, food collections, affordable housing projects, shelters, and meals. But we know that providing for the future is not something that can be done through food banks and shelters, important as these efforts are in the short term. We join so many other faith communities and community groups in supporting the need for a national, coordinated governmental plan, or in Finance Minister Martin's words, a great national effort to alleviate child poverty and improve the life chances of Canadian children.
From a Jewish perspective, to invest in children is to make a statement about faith in the future, to say that positive change is possible and that we cannot give up on the future or give in to despair. Where children suffer, the whole of society is at risk. To ensure a healthy start for today's children is to invest not only in this generation, but to plan for the well-being of generations to come. But investing means more than merely meeting basic needs; it means creating the conditions and providing the resources to help families reach their potential.
Our Canadian social policies should reflect our shared values and vision of a just and caring society. As Canadians and as Jews, we believe that social well-being, and the services and programs that seek to ensure that well-being, is an essential part of a just society. The moral test of a social policy and the way a nation is judged is by how it treats its most vulnerable, those most in need. We hope you will provide leadership in articulating these values.
The Chair: Thank you very much. Now we'll hear from Alexandra Humphrey. Welcome.
Ms. Alexandra Humphrey (Individual Presentation): Hello. Honourable members and fellow presenters, I thank you for making my contribution today a possibility.
I would like to raise these issues that have an impact on families across Canada, as well as on my own personal life. I will give them to you in point form: affordable housing; universally accessible, quality, affordable child care; support services for youth at risk of dropping out of school; equitable access to post-secondary education; economic support; and adequate wage and job security.
Recent enthusiasm from the federal government in the area of early childhood is to be commended. It's one step in the right direction. However, today's families' ability to provide a positive and nurturing environment for their children of all ages has been severely impaired by financial cuts and restraints. It's time to reverse this cutting trend and to become active in promoting healthy family environments. People and families need support, not cuts that create barriers.
People need to have access to housing that does not require the majority of their monthly income. People need an accessible, regulated, quality, affordable child care system to facilitate positive early childhood experiences, as well as enabling them to attend training and job opportunities. People need supportive resources for their children of all ages, including services that encourage youth to stay in school to finish their education. People need to have the opportunity to access post-secondary education to upgrade their skills and to form their careers. Access should be made attainable and not be restricted only to those who can afford it. People need to be eligible for a greater portion of the social safety net programs, such as child care cuts, child tax credits, and child care subsidies, so that they do not get clawed back by every penny that is earned, nor by every qualifying program. And people on social programs should not be penalized by the programs of every level of government.
Finally, jobs should be made available in every sector—jobs that pay a decent wage, that have comprehensive benefits, that will not disappear, and that have future possibilities. Therefore, I'll share the recommendations I have for you today.
The federal government should financially support housing projects and actively develop and pursue an “affordable housing for everyone” agenda.
The federal government should make good on their promise to our children by actively engaging in formulating a national child care policy so that families all over Canada have access to regulated, quality, and affordable child care services.
The federal government should provide leadership in the area of preventative measures services so as to advocate for and support every youth in attaining his or her educational goals. The federal government should facilitate access to post-secondary education for all people by offering a grant system instead of simply loans and by creating an equitable loans and loans repayment system.
The federal government needs to establish an economic comfort zone and make sure that the levels of differing benefits aren't affected in such a way as to counteract one benefit by another.
And the federal government needs to be able to create jobs that pay adequately, that provide supportive benefits, and that have a future for the people and families of Canada.
The Chair: Thank you very much, Ms. Humphrey.
We'll now hear from Mr. Joseph Polito.
Mr. Joseph Polito (Individual Presentation): Thank you. First, Mr. Chairman, I would like to thank everyone associated with both your department and my own, Mr. Allan Rock's group, especially Tom Allison, for facilitating my presentation here.
Mr. Chairman, I'm here to propose two measures that I hope will help to meet these very worthy requests that have been made today. One is to replicate the Dutch miracle. The Dutch have a 3.2% unemployment rate and a 3% poverty rate, as compared to about 18% in the United States and Canada.
The other measure is a tax strategy that would make a far greater impact on the priorities of Canadians than a cut to personal income taxes—and many of those are priorities that were mentioned here. This cut would be a national millennium gift from our national government to all workers and employers. It would provide relief to cash-strapped hospitals, universities, school boards, and municipalities. This cut would be a fiscal paradigm shift adopted throughout the world, and we would be its leaders.
Measure one: remove the impediment to replicating the Dutch miracle. In his update to the committee, Paul Martin cautioned our expectations and said “nor can anyone predict precisely when an economic downturn will hit, how deep it will be or how long it will last”.
Mr. Martin described the devastating impact of the last two recessions. He reminded us that largely because of those two recessions we currently pay $42 billion per year in interest payments, which he said “cannot go to reducing taxes or investing in education, the environment, health care or child poverty”.
Another crushing depression, precipitated perhaps by Y2K, would eliminate the anticipated surpluses. Worse, the deficit would explode and annual interest payments would balloon to $52 billion annually. Such devastation can be radically diminished by adopting the Dutch strategy of redistributing work rather than income.
In economic downturns the Dutch preserve low unemployment while hundreds of thousands of Canadians lose their jobs. The Dutch avoid enormous budgetary burdens of unemployment, which experts estimate cost Canadian taxpayers between $30 billion and $90 billion per year. By radically reducing such costs, the Dutch are not forced to strangle health and education or increase taxes, as we have done. The Dutch have accomplished Mr. Martin's primary goal: “First, we must build a foundation for economic growth by providing sound financial management.”
Two federal reports made recommendations that would replicate the Dutch miracle in Canada, the Donner Report and the Collective Reflection on the Changing Workplace. Why are these remarkable reports still sitting on a shelf? The reports' authors tell us Canada's payroll tax structure is an impediment to the recommendations and to changing federal and provincial employment standards acts.
The key to removing the payroll tax impediment is expressed in the influential business publication Barron's. I like to think of myself as a social activist, an idealist, but this is coming from the business world as well:
Eliminate the payroll tax on
the first $10,000 of wages. Since this levy falls
especially hard on the working poor, it's the cruelest
of all, and cutting it...would put several hundred extra
dollars into paychecks that need it most.
This result matches Paul Martin's first criterion for tax relief: “First it must benefit those who need it most—middle- and low-income earners, especially families with children.”
The employers' share of the payroll exemption would create a financial incentive to pursue the strategies of the two shelved reports. Employers would reduce their payroll tax expenses by granting job sharing and leaves, a major factor in the Dutch success. Employers would reduce the costs more in downturns by retaining employees and reducing their hours rather than laying them off. We should all note that during the last two recessions, child poverty skyrocketed as young parents lost their jobs.
Measure two: a tax cut that meets Mr. Martin's second primary goal. We must promote economic growth and a better quality of life by reducing taxes. The famous MIT economist, Lester Thurow, in his newest book on economic growth, Building Wealth, advocates the elimination of payroll taxes. Those business groups appearing before this very committee should too. Instead they demand personal income tax cuts, which benefit the successful. Why?
The U.S. tax cuts in the early 1980s did not prevent deficits in the 1980s. Productivity in the 1980s did not improve. The cuts were partially reversed by Bush and Clinton to address the deficits from high unemployment recession. In fact, the recent seven-year U.S. boom began when Clinton raised taxes and Alan Greenspan lowered interest rates.
A large payroll tax exemption now would be the foundation of permanent future income tax cuts and faster economic growth, while meeting Mr. Martin's third priority, making our economy more competitive and innovative, and here's how.
The payroll tax exemption would reduce employment costs, which increase global competitiveness. It would reduce unemployment, which increases the reliance on productivity-improving capital investment. It would increase research and development, with federal budget savings associated with lower unemployment. And it would reduce interest rates, since the Bank of Canada would see lower prices from lower costs.
We should all note that the free trade negotiator, a tough negotiator, Mickey Kantor, credits the U.S. boom and rising productivity to very low real interest rates through 1992-1995 in the U.S., which increased capital investment and then led finally to increased productivity.
The payroll tax exemption would address other Canadian priorities. It would improve health, education, transportation, medical research, and housing with the savings of the employer's share of payroll taxes. It would protect the environment, increase capital investment, increase the use of fuel-efficient, environmentally friendly technology. It would reduce the brain drain. Appendix A shows that the real cause of the brain drain is unemployment, not high taxes.
It would unify the nation, reversing past errors with distinct communities. High unemployment exacerbates the plight of aboriginals and reduces the tolerance of French Canadians to the slow pace of meeting their distinct concerns.
It would reduce sales taxes. A payroll tax exemption would be the equivalent to a sales tax reduction. The employer's savings would be passed on at the retail level.
Finally, it would alleviate the skyrocketing tuition students face. With their education expenses, students have no taxable income and will not benefit from personal income tax reductions. They will benefit from a payroll exemption.
I have two recommendations. One is to restructure the payroll taxes to implement the Donner report and the other report. You can do that by raising the rate back to $3.07 and applying the approximately $6 billion in reduction to a payroll tax exemption and applying any future reductions to that same approach—an exemption, that is.
The second recommendation is to make the payroll tax exemption the primary focus of future tax cuts initially, and then you will be able to make permanent income tax cuts after that.
Thank you very much.
The Chair: Thank you very much, Mr. Polito.
Now we'll hear from the Advisory Committee on Homeless and Socially Isolated Persons, represented by Alison Kemper, co-chair, and Sharole Gabriel.
Ms. Alison Kemper (Co-Chair, Advisory Committee on Homeless and Socially Isolated Persons): Hi.
I'm not going to pretend I'm an expert and that none of you have any knowledge of homelessness. We all know homelessness exists across the country. I see we have folks from Alberta, folks from Nova Scotia, and lots of folks in between. We all know it exists in every single riding in this country.
In Toronto in 1995-96, the then Metro council put together an advisory committee, because we saw how much worse homelessness was suddenly getting in our city.
Our members—and Sharole Gabriel is one of members—include individuals who are currently homeless or have in the past experienced homelessness, city councillors, and front-line workers. We meet on a monthly basis to provide input into city policy-making from individuals who have some direct experience with homelessness.
In Toronto homelessness is growing at the rate of 11.6% a year right now and has been since 1996. Occupancy in our hostel system—and you probably know this, you Toronto folks—is 1,716 families with children, 408 youth, and 1,790 single adults. Families with children are the fastest-growing population within the shelter system.
So the kinds of things you're hearing from all of us along here are pretty constant. It's families with children who are becoming the most vulnerable people in Canada.
City emergency hostels are operating at over 100% capacity all the time now. The city is opening a new hostel on almost a monthly basis. Two people every week are probably the victims of the health-related problems of living on the street.
Why is homelessness growing? There are two issues: affordable housing—we don't have any; and poverty—we have too much.
I urge the opposition as well as the government members of this committee to recognize that the withdrawal of federal leadership and funding for assisted housing has contributed to the collapse of affordable housing development in Canada. In 1992, the last year of federal participation in the housing program, over 19,000 units were developed. In 1998 it was a tenth of that; it was 2,000 units.
You should all know that the cuts to income support programs—and this was on the front page of many of the Toronto papers recently—as well as eligibility and payment levels have impoverished tens of thousands of Torontonians. In Toronto alone, it's estimated that changes in employment insurance have resulted in over a $0.5 billion annual reduction in payments to unemployed workers within our city.
That's not just in Toronto. Unemployed workers in every single riding in this country will be losing income they were once eligible for under EI. They're not meeting their rents. They're becoming homeless in your riding and here in Toronto—well, they're in Toronto; we're in Mississauga.
What needs to be done to reverse this trend? We need to go back to 20,000 units a year, which was what we had in 1992. The Federation of Canadian Municipalities has lots of good information on that.
You'll know as well the number of people who call your offices panicking because they're about to lose their housing. They're living in small apartments, they're paying more than 50% of their income for rent, and they're all about to become homeless. We need federal programs that target those households so that they're not just one of your constituency problems, but we've addressed the issue before folks end up with a sheriff at their door, before they're calling you in a panic saying, “I have to be out of my house in 24 hours. Help!” We need the federal government to prevent this. Then you can get on with some other work, right?
Lots of people have done great homework on the federal role. The Advisory Committee has looked to two organizations for great reports; one is the Federation of Canadian Municipalities and the other is the Toronto Disaster Relief Committee. The TDRC has recommended 1% of Canada's budget be allocated to housing, and we urge you to adopt the 1% solution. I think they'll be here tomorrow doing the same.
We'd like the Government of Canada—and I would count on support from the opposition to move them this way—to assume leadership in establishing a new national housing program, working with the provinces and municipalities to achieve 20,000 new affordable units per year. We'd like you to get the folks in the various bureaucracies working hard to negotiate with the provinces to provide funding for a national shelter allowance program for those 833,000 families at risk of homelessness.
Finally, we'd like you to adjust the eligibility for EI sick leave benefits until the people who have become unemployed because of health reasons can be assessed for Canada pension. Right now there's a long period in between, and the federal government needs to protect that little bit of safety net—restore it.
The reason to do all this quite clearly is, as the folks from Citizens for Public Justice said, we are a country that believes in this kind of stuff. But also, if you don't believe in it, you're going to reduce all your other investments if you can just get people into housing. It costs a lot less to run Canada if you're not paying people like me to run programs for people who are already homeless.
It costs my agency $8 to feed somebody breakfast and lunch every Sunday. If people had houses with refrigerators, they'd spend a lot less public money feeding themselves and housing themselves. They'd spend a lot less public money trying to stay sane in the midst of a very tough world.
However you do it or why you do it, it needs to be done, and we at the Advisory Committee in Toronto urge you to do it in this budget.
The Chair: Thank you very much.
Now we'll proceed to the question and answer session, with five-minute rounds. We'll begin with Mr. Epp, followed by Mr. McKay, then we'll go to Mr. Brison, and then Mr. Cullen.
Mr. Ken Epp (Elk Island, Ref.): Thank you, Mr. Chairman.
Thank you all for your presentations. I like it when the chairman says we're going to have a question and answer session, because in the House of Commons we have a question period. I don't know if you noticed what's missing.
An hon. member: We have a statement period.
Mr. Ken Epp: I would like to ask several of you some questions.
How much time did you say I had?
The Chair: Five minutes, but usually we go over time, so maybe seven.
Mr. Ken Epp: Okay, I'll go a little over.
There are a lot of Canadians who have illnesses besides Alzheimer's disease. I have several friends who have premature Parkinson's disease. There are many of these. So I'm sure that what you're saying here for people whose family members or friends have Alzheimer's disease would be probably equally applicable to others as well. Would that be a fair statement?
Mr. Stephen Rudin: Yes, sir. I would assume, not speaking on behalf of the other organizations, that the situations are very similar and that people suffering from other diseases would be similarly impacted.
Mr. Ken Epp: I was intrigued with your statement that about half of the victims of Alzheimer's disease are still in their own homes, usually being cared for by spouses as long as that's possible. That would probably be the most common scenario.
You're suggesting, and others have said this too, that we should have a national home care system. Do you envision that being administered through the provincial government, the Department of Health and the different provincial health departments, or are you actually thinking there should be a federally initiated program that extends across the country and sort of bypasses the health system?
Mr. Stephen Rudin: We're suggesting that there be a nationally mandated program of home care, but like all the other programs, it would certainly be administered provincially.
There are a number of programs throughout the country that are unbalanced. There are some excellent examples of programs that currently exist, and there are also some deficits of programs in other jurisdictions. I think what we're really talking about is levelling the playing field.
In response to the first part of your question, the numbers we use are generated by the Canadian Study on Health and Aging, which indicated that 50% of the people who were suffering from Alzheimer's disease were in the community, so we believe it's particularly important to provide support for them in their homes in a universal and uniform way.
Mr. Ken Epp: Of course, you might as well know that I grew up in a family with a little sister who had cerebral palsy. She still does. She is 55 years old now; how time flies. She has never been able to speak or look after herself, so I and my family are very grateful that in Canada we have a support system. My sister has been in an institution for a number of years. We felt that was best for her.
I think obviously—and probably you'd agree with this, Ms. Gulliver—there should be a choice on the part of the families on how to look after their needy family members. Would that be true, that you'd be in favour of a choice as to home care or institutional care, whichever fits best?
Mr. Stephen Rudin: There's no question that with Alzheimer's disease, like many other conditions, there are very personal situations, and certainly we would support choice by the person with the disease as well as their caregiver. There are times when a solution of facility placement would be best, and there are other times when remaining in the home with the support and care of family would be best.
I think Dale probably has some perspective.
Mr. Dale Goldhawk: My perspective is that the unique situation with Alzheimer's disease is that it has various stages. Of course, as we know, those early stages where they can be cared for at home by a spouse or other family member are quite separate from the later stages where that person has to be in a special intensive care home or perhaps a hospital. It's an intensely personal thing for the families themselves to decide at what point a different kind of care would happen.
I alluded earlier to a case involving hundreds of thousands of dollars for the care of an Alzheimer patient. Part of the problem in this particular province is the fact that there is no home care help at all. There just isn't any, and this is how this particular family, while openly grieving the decline of their breadwinner, is also forced to deplete all of their limited family wealth to look after that person.
Mr. Ken Epp: Yes, it's a big problem.
I have a bit of a problem seeing how the federal government is going to be involved beyond funding. When I hear talk of a national home care system, somehow I see the federal government coming up with a whole bunch of rules and regulations, so you'll get the money if you do this, but not if you do that, and all that stuff. I really think that begs the question, because not only is this an individual problem with respect to families, but also with respect to individual governments. We handle things differently, and I would hope getting federal government involvement would not cause us a whole bunch of administrative problems.
Mr. Dale Goldhawk: I can only say from our point of view that we would be happy to have the federal government as involved as it wants to be as long as the system works and as long as there is equitable care across the country.
Mr. Ken Epp: Yes, right.
Next I want to talk to the Citizens for Public Justice. I really was intrigued with your presentations and your points of view—
The Chair: Excuse me. Do you want to interject for a minute?
Ms. Cheryl Gulliver: Yes. We would like to answer a little bit on what you were just talking about. I'll let Connie go first.
Ms. Connie Laurin-Bowie (Director, Policy and Programs, Canadian Association for Community Living): I'd like to make the distinction that I think the issues that were raised by the Alzheimer Society are critically important for our membership as well, as you've alluded to, and I think the solutions they're proposing make good sense for a number of communities.
However, I think the distinction that's critical is that there's a difference between disability and disease, and in Alzheimer's disease, the strategy that's being put forward by the association is to prevent the disease.
For people who have a disability, and particularly an intellectual disability, I think the solutions are much more community-based—well, not much more—and in addition there are community-based decisions.
On the issue of choice regarding institutions, I guess there are two issues. One is that there is a falsehood of choice for most of our members and their families. That you're choosing an institution is in fact not a choice for most families; it's the only option for many, and that's because of the poverty of community support in most communities across the country. There is no alternative for many families.
As a movement, we've tried very hard to build those alternatives, but we still see children going into institutions. That's mainly because families are under the kind of pressure that many people here have talked about, and they are not given any kinds of support in the community, which, by the way, are less expensive kinds of support.
Ms. Cheryl Gulliver: If I could add to that, one of the things that families usually want to do is share the responsibility and ask for help or support when they need it. They don't want it to be an either/or, and most of our work involves a family looking for what they need to keep them together as a family.
My mother also had—I don't like to use the word “enjoyed”—Alzheimer's disease, and we were in the very fortunate position where we could deal with it. The emotional cost was terrible, and yet we were able financially and so on to deal with that, with my sister and I not working outside of the home.
It's exactly the same thing for children with disabilities. Sometimes they need to answer what they want, particularly when they become adults, and we have to give them informed choices of what it's like to live in society. We need families to live with dignity and not feel guilty all the time because they can't be super people.
Mr. Ken Epp: Perhaps someone else wants to add something to this discussion too.
Mr. Stephen Rudin: What we're really talking about here is a continuum. Oftentimes a disease becomes a disability or a disability becomes a disease, and at that particular point the element of choice is withdrawn. The numbers we present are really numbers with some of the tears wiped away.
Oftentimes as we talk about people who are the caregivers, there is a problem where they don't have the benefit of being able to continue. So the choice is really a forced one if it's the caregiver's spouse who has a stroke or breaks a hip or some physical situation like that. Then the person they're caring for really has no choice except to be placed in a facility.
Ms. Cheryl Gulliver: To support that, my father had a stroke a number of years ago, and he's very vulnerable himself. We struggled. He used to say he was the voice and mother was his legs, so between the two of them they got pretty much what they needed, until she became super vulnerable.
Mr. Ken Epp: Those are issues that I think deserve the maximum amount of attention from Canadians. As you've all said, we live in a country where we do care for each other, and having been a recipient of that big time in our family, I support that very much.
I'd like to talk to the Citizens for Public Justice. Also, I'm very interested in this whole issue of child poverty. I have a couple of grandkids who live in a family whose income right now is about minus-$20,000 a year because our son is in school. He want back to school and they're living in a tough situation, and yet I don't view my grandchildren as living in poverty, because they have all of their basic needs met. They have adequate food and clothing and there will be enough heat in winter when it gets cold.
I would like to get from you some sense of how many children in Canada—the real number—are actually not getting enough food, who are really, literally, hungry. To put this into perspective, my same son, who I was just telling you about, spent about 10 years working in Christian relief organizations around the world. I remember when he communicated to us from southern Sudan on one occasion. He said they were having 150 children a day die of starvation, and they were very successful because they reduced it to 60. Then he put in brackets, of course, to Sherwood Park standards—that's a town near where we live—“We haven't yet reached the goal”. I cannot imagine 60 children dying of starvation every day. That is extreme poverty. Of course, we have poverty in this country as well, but I, frankly, have not yet heard of anyone literally starving to death in Canada, except by some other pile-up of circumstances.
Do you know of some? I don't want to only go that far. We're talking of hunger as opposed to starvation. I don't think it's right for children to be hungry. They should be nourished, they should be educated, and they should of course have these other rights. But how pervasive is that problem in reality?
Mr. Greg Maggetti-deGroot: Perhaps it's not very helpful for us to compare the situation in Canada to the third world. Maybe what you said about the situation in countries in Africa and Latin America should underline the point that Canada as a nation, through the many NGO organizations we have in Canada, needs to recommit to supporting the development efforts to relieve the destitution that exists abroad.
In Canada, we know we have a measure of low income. What that indicates is families and households that are experiencing economic stress and vulnerability. We know that of rental households across the country, 25% are paying 50% or more of their income for housing. So when we look at the picture, we have to consider the low income in conjunction with the lack of affordable housing. When you don't have a roof over your head in Canada, that's poverty, right?
One of the things we have not really discussed very much this afternoon—and we've heard a discussion about the problem of housing, the problem of homelessness, the problems of hunger—is that food bank use in Canada continues to rise. Our churches, our synagogues, and our mosques are providing breakfast programs for children because their families don't have enough food to feed them breakfast. The food bank use in Canada has doubled over the past 10 years. Food banks are having trouble, even in Waterloo region, where I live, a very prosperous region, keeping up with demand. And this is during a time of prosperity.
Remember, 20 years ago there were no food banks in Canada. We need to look beyond the numbers. When we say that 19.8% of children are living in families with low incomes, we need to look beyond this and see the trends that are happening. The family living in a motel is not in a safe, secure environment for a child to be growing up in, nor is moving around from one shelter to another, or having to rely on food banks or going to school hungry, or, as in many cases, mothers are going hungry so that the children have enough to eat.
We know, when we look at the national longitudinal survey of children and youth, that in a family of four, say, that has an income below the low-income cut-off, the children have a greater risk of experiencing physical illness, different kinds of illness, and we know it carries on throughout a lifetime if you suffer illness as a child. Can we paint the same kind of portrait that exists in Africa? No, of course not. But we also need to look at what we want for our country. What do we want? Do we want just the bare minimum of making sure each child is not starving, or do we want to create the conditions so that all of our children can thrive? That's another way to look at it. Maybe we need to set our sights for what we really want to achieve and not just to minimize the cost that children and families have to face.
Ms. Wahida Valiante: Could I add something?
The Chair: Yes.
Ms. Wahida Valiante: I can give you something from my own personal experience, since I work on the front line. We can look at poverty as a deficiency in any area of any individual child's development. I think one of the key things I found is that with the lack of affordable housing for parents, for young mothers and their children, there really is a major deficiency in terms of having peace of mind and security, a place where they can go, where it's their permanent house. Children need some permanency in their life. You can't have them go into one shelter for four months and then look for other housing. I find the hardest thing is to find suitable housing that is affordable so that the children can walk to school.
I think we can look at the issue of comprehensive policy around housing. Maybe we should look at that, at reducing the deficiency in the child's life in terms of developing a sense of security, in terms of performance, whatever you like, because then it permeates right through their entire functioning.
In terms of your point of looking at poverty internationally, I think it's something Greg has said, and I certainly agree. We cannot measure this in accordance with the society we have developed and in which we live. We need to look at what the end product or end result should be.
Mr. Greg Maggetti-deGroot: If I could make another comment, you talk about the situation of your son and his family. My own family—I have three young children—lives, strictly speaking, below the low-income cut-off. Are we poor? No. Are we going hungry? No.
There are two things we have to keep in mind. One is income, the flow of money that comes in on a regular basis. Yes, we're in a situation where if a paycheque didn't come, if we missed a couple of paycheques, we'd be in some trouble.
The other thing is assets. They come in a variety of forms. There are financial assets that can be built up. There are educational assets. My wife and I both have the privilege of having post-graduate degrees so that we have a very good chance of being able to find work if we need to find work. But there are other assets. We have assets of families of support, a community of support. I don't think we've bought, in any year, more than $100 worth of clothing for our children, because we have people give us the clothes that their kids have grown out of. We talked the other day, while we were doing dishes together, of what would it be like if we actually had to go out and buy new clothes for our kids. We have the asset of a community of support.
This is another reason why it's so important to invest in the early childhood education and development fund, because that also creates community assets that we can draw on. We've benefited from that in our community. I've seen my son's preschool—we have him in a co-op pre-school program. And this is not for low-income people, because we had to commit time and money to be able to be in this. But I can remember at the end of the year, some of the parents saying to the pre-school teacher—she's an excellent pre-school teacher—“Thank you, Sandy. I've learned so much about parenting just from watching you work.”
These kinds of community assets, this array of assets, makes us a very rich country, and it can really provide the best for our children. It's a worthwhile investment.
The Chair: Thank you, Mr. Epp.
Mr. Ken Epp: I would really love to have more time, but I concede.
Mr. Greg Maggetti-deGroot: We'd be happy to chat afterwards.
Mr. John McKay (Scarborough East, Lib.): Mr. Chairman, is this an opposition question or is this a government question?
The Chair: We'll have to hear the contents first. I haven't heard the question.
Mr. John McKay: Maybe I can double it up.
First of all, I have a question for Ms. Kemper concerning the homeless issue. As you know, my riding is Scarborough East, and of your 1,700 families with children, about half of them are in my riding on any given night. So I'm very cognizant of the problem. One of the things that drives me absolutely insane is that you ask for national leadership and yet it's perfectly obvious to me that the third leg of the table is never there at the table to deal with this national leadership. Clearly the municipality of Toronto is interested and fascinated by the issue. Clearly the national government is seized of the issue and has enormous caucus support. But the provincial government in this part of the world has absolutely no interest whatsoever.
We put $3.5 billion into health in the last CHST transfer and not one red cent has arrived on the homeless issue. Arguably, a lot of the folks who are in the homeless situation have difficulties. We gave them another billion dollars on the CHST last March and not one red cent has arrived in terms of solutions to the homeless issue.
So I'd be interested in your comments as to how to get the province to the table. Clearly you're asking for leadership. Clearly the federal government is willing to provide the leadership, and I'm anticipating good things in the next month or so from Minister Bradshaw. But how are we going to deal with that issue?
Ms. Alison Kemper: I am no expert in federal-provincial relations. I could be described as a federalist. I basically think it's a country; it has a lot of power. It needs to get with the program and figure out how to deal with a province that doesn't want to deal with the problem.
We went off to fight for Canada's dignity at the UN last fall, and people made deputations there showing what kinds of impact the Province of Ontario and the federal policies have had on poverty. The UN basically said, “We don't care who Mike Harris is—it doesn't matter to us. What you do to poor people in Canada is an international shame.”
I think federal-provincial relations are a big issue; they're a big problem. I don't have any solution to that. I am telling you that the poor people of Toronto cannot wait while those things get ironed out. They're dying on the streets. Children are living in your riding in motels—and you know the conditions there; they're not pretty.
I don't care what kind of legislative end run needs to happen, but folks need help and they need it now. I know in regard to the CHST that there were a whole lot of people who told you not to do it, that CAP works better, and you guys did it anyhow.
So I can't solve that one for you. I'd say go back to CAP. But I'm not real sophisticated; I just run a front-line agency. I tell you, just as you know, it isn't nice. You have a lot of real smart people in Ottawa, right?
An hon. member: Which side of the table do you want to be on here?
Ms. Alison Kemper: I don't care. The bureaucrats know federal-provincial stuff. When we've seen a federal-provincial conference on something for the last I don't know how many years, folks in the streets, folks who work in front-line agencies, cringed, because what it always means is one less kick at the can for the average Canadian who needs a program. Every time you guys go into negotiations we lose programs.
So I can't solve that for you. I'd go to the meeting with you and tell the provinces what I thought, but I don't think it will help a lot.
Mr. Joseph Polito: I would make the payroll tax exemption to the provincial governments conditional on certain expenditures. I'd make conditions that they would have to leave those hospitals with their funding, so that extra money they saved on the payroll tax exemption was spent by the hospitals and the school boards and the municipalities, and the provincial government itself would spend that money on housing. In other words, a payroll tax exemption for the provinces is tantamount to an increase in the federal transfers.
Mr. John McKay: Do you know offhand how much the provincial government pays in payroll taxes to the federal government? It's a substantial amount of money, I believe.
Mr. Joseph Polito: I believe the national amount is close to $40 billion. Divide that by a third and then divide that by... It's a couple of billion, I would assume.
Ms. Alison Kemper: I just want to say something less facetious.
Mr. John McKay: I wasn't facetious.
Ms. Alison Kemper: His wasn't, but mine was.
I've spoken to Anne Hertz, who's in charge of housing programs for the city of Toronto. She's been trying to get stuff negotiated with the feds. I know that in our neighbourhood both Caroline and Bill Graham have been working very hard on preserving co-op housing, which we nearly lost.
There are all kinds of ways that the federal government can put together capital investment things to get housing built. I'm not a bureaucrat. I don't know all this stuff. The FCM has lots of great ideas. Ask them.
Mr. John McKay: We have, actually.
Mr. Greg Maggetti-deGroot: Perhaps I could just draw your attention to the Canadian Housing & Renewal Association. They developed a proposal for creating a national housing foundation, and I think that could serve as a framework for the federal government to get involved again in construction of new affordable housing. Municipalities, we know, are on board.
I share your frustration. In the Kitchener-Waterloo area we've held town hall meetings where we've brought together people from all levels of government, and Karen Redman and Lynn Myers have both been very supportive and helpful around this. In the several that we've had it's been quite frustrating; we haven't had any of our MPPs there.
But perhaps something like this foundation could be a way for the federal government to get back, in a very constructive way, to supporting construction of affordable housing, because there are players who are ready to work inside the province.
Mr. John McKay: I'm interested in the unanimity of views—there's an interesting view over there—with respect to direct dealing and what it boils down to, either through an agency process or some other process, but certainly not through the CHST process.
The Chair: We'll give you the final comment and then we'll move to Mr. Brison.
Ms. Sharole Gabriel (Spokesperson, Advisory Committee on Homeless and Socially Isolated Persons): I just want to make a couple of comments regarding the housing situation. I'm a recovered alcoholic, drug addict, and prostitute, and if it weren't for the fact that there were social services available to provide me with a place to live, with food, and a little bit for clothes and enough to squeeze by with miscellaneous items, I would have died a long time ago. Without a home, there's no safety. You don't feel safe, no matter where you are, because you're constantly saying, oh my God... It's about survival and where am I going to get my next meal, etc. I just can't emphasize enough how important it is.
Canada signed the UN declaration of human rights. It's a basic human need, and we're breaking that.
I call on the integrity and the responsibility of the federal government to take charge, to take some leadership here. I don't understand about provincial-federal relationships. I don't know, and I really don't need to know. What I do know is that folks deserve basic rights; they deserve to have basic needs met. We have lots of money in this country. No one can tell me that we don't have money for housing—affordable housing—for folks. There's no need for all these welfare cuts to make things so much more difficult for folks. It's evil to increase the suffering of the poor, and that's what's happening.
This government is accountable, morally, ethically, and to God Almighty. Whether you believe in Him or not, honey, He's watching everything that's going on down here.
I call on our leaders to show some leadership. You could step out and be front runners worldwide in terms of caring for the poor. Let's see some action.
The Chair: Thank you.
Mr. Scott Brison (Kings—Hants, PC): Thank you very much.
You're a hard act to follow, Ms. Gabriel. Thank you for your impassioned plea.
I think all of you have made very important cases for public policy initiatives at the federal level. I think there is frustration relative to the degree to which there does not seem to be enough federal-provincial—in some cases it needs provincial leadership as well—political will to make a difference.
I have a quick question for Mr. Polito. I guess you could say we're going to go Dutch for a moment.
On the labour market issue, you're suggesting eliminating the EI premiums for those under $10,000 in income.
Mr. Joseph Polito: Yes. This would be a phased-in program. The gentleman from Barron's suggested $10,000, which by the way is $15,000 Canadian.
Mr. Scott Brison: The basic personal exemption in the U.S. is, I think, $11,000 Canadian, so that would make sense. So you're saying about $15,000 Canadian.
Mr. Joseph Polito: For the payroll tax exemption, yes. We pay $40 billion in payroll taxes in this country, and $15,000 would represent about $15 billion to $20 billion, so that's something that would have to be phased in. What I am suggesting is that a payroll tax exemption is the thing we should consider first, and future permanent income tax cuts would be made possible because we are smart about the system.
I remember in business school they gave us the example of two men laying bricks, and an expert watched them for several days. They both mixed their own cement, climbed the ladder, brought up their bricks, and laid the bricks. The expert found that simply by having one man mix the cement and carry things up and down the ladder alone and the other man exclusively laying bricks, they increased their productivity dramatically.
In other words, there are smart taxes. In this country we've already reduced EI premiums by $6 billion. If we did it in a different way, by contributing that to an exemption, it would make other things happen, such as making Arthur Donner and others possible, whereas if we leave things the way they are right now, it won't happen.
William Scarth, a professor from McMaster University, wrote a paper for the C. D. Howe Institute. The title is “A Job-Creation Strategy for Governments with No Money”. This was several years ago when the debt-deficit was still a problem. He simply wanted to restructure the payroll taxes first, and that's what my first recommendation was about. The second recommendation is to increase that exemption, which would be where further tax cuts would go.
Mr. Scott Brison: The progressivity issue is important because the EI premium side and our payroll tax in Canada are very regressive, because they top at $39,000. So somebody making $200,000 a year pays the exact same amount into employment insurance or payroll taxes as someone making $39,000 or less, which is wrong. I'm interested in discussing this further with you afterwards. I agree with you that with payroll taxes increasing the cost of the labour input, it can't be avoided that there would be a negative impact on employment. There's no way to get around that
Mr. Joseph Polito: And global competitiveness.
Mr. Scott Brison: Yes. Thank you very much, and thank you all for your presentations today.
The Chair: We'll next turn to Mr. Cullen, followed by Mr. Szabo.
Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman. Thank you, panellists.
I have a question with regard to affordable housing and the homeless and then one for Mr. Polito. I'll put them out there and, given the limited time, if there's not enough time to answer, maybe we could discuss it later, or you could provide something to the committee.
On the question of affordable housing and the homeless, I think there's agreement among many of the MPs from Ontario that affordable housing and homelessness are related but that affordable housing is not the whole problem.
Perhaps we could accept a certain number of premises, such as the federal government is getting out of the delivery of social housing and that some cities have an affordable housing problem and some don't. For example, Toronto clearly has an affordable housing problem, but I gather that Montreal doesn't. If you wanted to create some incentive through tax policy, how would you target the tax incentives in order to deal with affordable housing and also to deal with those cities that really need it?
Mr. Polito, thank you for your very thoughtful paper. As someone who lives close by, I will be reading it very carefully.
I have a question for you. I was very interested in the Dutch situation with their low unemployment. There was a large labour-management-government coalition that looked at job sharing and other incentives. If I look at the province of Ontario during its famous Ray days, it didn't seem to go down that well.
I don't have the numbers for Holland, but in relation to the G-7, Canada is the lowest in terms of payroll and social security taxes. That's lower than the U.K. the U.S., Japan, Italy, Germany, and France.
I don't know if the affordable housing people want to start. How much time do we have, Mr. Chairman?
The Chair: We'll keep going.
Mr. Roy Cullen: That's it for my questions. Do you want to start with the affordable housing?
Ms. Alison Kemper: I'll speak quickly. The first thing you need to know is there's no way most low-income families can ever afford market rents. So you can put in tax incentives—for instance, taking off the GST on building materials for low-income housing—but that won't supply enough affordable housing. You can't cut the amount it costs to build housing enough to make it affordable without having back in place the kind of capital stuff that the federal government used to put in.
I think there's a whole lot of folks in Canada who don't yet accept the axiom that you proposed first, which is that the feds are getting out of the social housing business. A whole lot of people say, no, you can't; we're going to have a whole lot of people on a whole lot of streets. We're seeing that already. The consequences are already obvious.
Mr. Roy Cullen: You talk about getting the capital cost down. There was an article in the Star a few weeks ago. It described this architect's design of a home that left out all the frills and really brought the cost down to within reach. If you looked at some tax incentives for developers, if you could package it up, would it get it within reach of affordable housing or not?
Ms. Alison Kemper: I think there is all kinds of lower-cost housing that is feasible to build, so there's a variety of incomes that can afford housing. However, there is a large proportion of the Canadian public that cannot afford the sort of stuff you're referring to that was in the Star. We need some interest and some commitment on the part of the government to restore the kinds of programs that made 20,000 units happen every year, because that's the number of people who are hitting our streets.
Mr. Roy Cullen: We know there has been some discussion about social infrastructure within the context of a new infrastructure program, but frankly, beyond that, I don't know. Our government's intention has been pretty clear, and we've been delivering on that.
In any case, why don't we go to Mr. Polito? Could you comment on my question?
Mr. Joseph Polito: Mr. Martin charged this committee with a priority. First, the tax relief must benefit those who need it most. That's a pretty tough one.
Let's assume, for example, that a round number of $5 billion were given in some kind of tax relief to Canadian workers. There are approximately 15 million workers, so that comes to about $300 per worker. That's not very much. It doesn't make a huge dent in their lives.
If we gave it through the U.S.-style approach or the Mike Harris-style approach, it might mean that a multi-millionaire would get millions back and the low-income worker would get virtually nothing. So what tax do we find to make an equal distribution, to share the dividend of all the pain over the last decade? The payroll tax exemption is the best way I have found, and I think in the Economist and Barron's, he did a lot of thinking about it, and so has Mr. Thurow.
But you make a very good point. That is, our payroll taxes in Canada are extremely low, so why target those? Again, it was the only tax I could find to move that way, and these experts have a lot more expertise than I have.
But more importantly, it had so many other repercussions. It helped to make the Donner report and the Changing Workplace report possible. It was a way of also helping the hospitals and municipalities and the school boards, all those employers who were paying payroll taxes. It would free up cash for those cash-strapped organizations. It would help lead to productivity. It would be a cut for business; it would be a corporate tax cut that we need. That's another thing Mr. Martin is looking at, some way of reducing corporate taxes. It would do that as well.
It had so many things going for it relative to all the other options. I agree that it's not perfect, and the point you make makes it less focused, but it's the best thing I can find.
Mr. Roy Cullen: Thank you.
The Chair: The final questioner is Mr. Szabo.
Mr. Paul Szabo: Thank you, Mr. Chairman.
I want to thank all the presenters. It certainly gives us a lot to think about. I can tell you that I'm particularly moved by the social conscience around the table.
When we studied productivity, we came down to the lowest common denominator. The whole purpose of the exercise was ultimately to improve the quality of life of Canadians. What the panellists at large have brought to us today is about improving the quality of life of Canadians who are dealing with a social impediment or a social poverty within our society.
I am a big fan of caregivers for families who have to take care of a family member, whether it be a child, a disabled person, an elderly person, or someone otherwise infirm. We brought in a caregiver benefit. It was $400, or a tax credit worth about $100 in your pocket. Quite frankly, Mr. Chairman, in my own view, it's a tremendous success and a tremendous step forward to get an issue on the dance floor. It's quite another thing to move it to a level where it's as meaningful as I think we want it to be. But in my own view, I think the $400 is grossly inadequate, and I would ask any of the panellists if they would like to share their views with regard to the caregiver benefit. What might we be able to do in terms of an equitable change that would be commensurate with all the other demands on the purses of the nation?
Ms. Connie Laurin-Bowie: We took pretty seriously the questions Minister Martin brought to the subcommittee on disability. The questions he raised for us were: What can we do in the tax system? What can we do that's solely federal? Beyond that, what can we do in cooperation with the provinces? We took those marching orders pretty seriously, and we went back to the table and began working on a package of tax reforms.
It seems to me that the federal government has a series of policy options available to it—one, of course, is tax—some of which we haven't addressed. I think the employer tax credit is a fascinating idea, but we also went back to the very specific provisions that are already in the tax system.
On the subject of the caregiver, it's actually a part of this package. It's still being developed, but in terms of where we're going with that, we thought you could actually take a couple of the dependent credits, bits and pieces, and put them together. We thought you could take the caregiver provisions and put them all together to create a dependent adult deduction.
I'm not a tax policy expert; however, we are working with tax policy experts, and what they're talking about are some options. You could repeal wholly the dependent person amount, the infirm dependant amount, and the caregiver amount, and replace them with a single deduction of $6,794—don't ask me how that number came up—to recognize the cost of supporting either an elderly dependant adult or a person with a disability. It would be available to individuals to support elderly or disabled adults regardless of their relationship with the supporting individual, because we know the relationships that people form are sometimes parental. Sometimes families are formed in all kinds of shapes and sizes, and we need to respect that.
So we think that might have a more direct impact. I know that's putting it on the table, and there are probably a few days' worth of slugging it out and figuring what the implications are, but it's one of the things we're working on as part of a larger tax reform proposal.
The Chair: Are there any other comments? Mr. Maggetti-deGroot.
Mr. Greg Maggetti-deGroot: Speaking specifically as a parent, and around the question of caregiving to children, I think the government's commitment to increase the child tax benefit could be a very helpful way, especially if it's substantially increased over a number of years. What's been put in so far over the past few years has been very narrowly targeted at low-income working households, which means that modest- and middle-income households like my own haven't really seen a benefit from that. If it were extended, it would give greater recognition to all parents, low-, modest- and middle-income, for the value of parenting care.
I also wanted to pick up on the comments you made about the question of values and speak on those issues. For the past 20 years or so, public policy-making in Canada, in the United States, and in many parts of the world has been driven by the rock-solid belief that if we do what it takes to create economic growth, we'll have the means to solve the old challenges, as Mr. Martin has said. It's helpful to remember that we've done that for the past 20 years. We've been told that governments need to be cut back, that their role in the economy needs to be scaled back, that they have to scale back support for people, that this will stimulate growth, and that we'll then be able to deal with these challenges. We've been told that taxes, particularly progressive taxes that require from the wealthy that they commit a greater amount to the common good, are an impediment to growth. So they have been cut back in Canada, as in other countries.
What have been the consequences? Since 1979, real GNP per capita in Canada has grown by 50%, but we know that we now have food banks that can't keep up with hunger. We know all these problems. We know that even though there is growth in employment—in Kitchener-Waterloo, our region, we have the lowest unemployment rate in the country—food bank use continues to grow. So there's another set of values here, and this is what we tried to speak about. If we look to the demands of social justice, to making sure the poor have what they need to exist in society, to making sure the vulnerable can fully participate, then we will experience prosperity and security. It's a different set of values.
I know that to say growth shouldn't be a priority is to invite ridicule in this country. But is it so ridiculous, given our past experiences? I think if we take up Mr. Martin's challenge to look at our core values, then perhaps he won't be ridiculed when he brings down a budget that makes a concerted effort to reduce the gap between the rich and the poor. If we recognize fully the value of the economy of care that we have in the country, one that puts some of our public resources into affordable housing and building community assets to benefit all families with children, then perhaps he won't be ridiculed and we can begin to rethink, in a radical way, how we finance this country and what we really want, the best that we want for our country.
The Chair: Thank you very much.
There are two further comments.
Ms. Wahida Valiante: Thank you.
If you look at the issue of growth, I'd like to say that even growth can be driven by policies that have values. Growth can be made when I go cheat someone in making more and more money, or I can make it through hard work, an honest day's work in terms of that. I think that even when we're looking at social policies, they must be driven by some values. Those values will then bring equity in terms of distribution of wealth. I like that you appreciate that, and I thank you.
The Chair: Mr. Rudin, a final comment.
Mr. Stephen Rudin: Just in support of your comment, it's certainly not to sound ungrateful, because we were very pleased to see the tax credit. As we had said in our presentation, we believe it's really very much a beginning. Not being an accountant, I can't put a specific number on what it should be, but we do know that it has to be meaningful to make it worthwhile in a financial sense, for people to do this at great risk of the psychological consequences, as Dale said. At this particular time, if there is an undertaking to look at it and allow further study to determine what the number or what the formula is, then we would consider that to be really quite good progress.
The Chair: Yes, Mr. Szabo.
Mr. Paul Szabo: I want to thank the panel for that. I think one of the things I would really like to put on the record is that we have to remember that Canadians don't all live in urban centres. Quality, affordable, and accessible care that we need for Canadians right across this country isn't necessarily available. Sometimes there is no choice. I think Canadians are, more and more, asking not for a handout but for an opportunity to provide for needs that benefit all Canadians.
The Chair: Well said.
Are there any further comments?
Ms. Cheryl Gulliver: Thank you, Mr. Szabo.
One of the things I would like to say is that I think it's really important that we take care of everybody. It's very important that what this panel has not done is compete. We have not competed. CACL doesn't want something at the cost of Alzheimer's or poverty and affordable housing. We believe all of us need to make our future better, and children are our future. I want them to be so darn healthy, because they have to take care of me when I get old, okay? I'm looking to you to do that, Mr. Chair.
The Chair: I think we can handle that.
On behalf of the committee, I want to thank you very much. It's been a very interesting day thus far here in Mississauga. What's been great is that all the voices have been heard. Different people are here representing different sectors. Nevertheless, the common thread, which I think is self-evident, is that we're all focused on improving the quality of life and the standard of living of Canadians. Some trade-offs will have to be made, of course. That's life. Decisions are tough, particularly when you have a surplus and unlimited individuals seeking part of that surplus, but I think with a common-sense approach—if I can use that just for one second; it's the only time you'll ever hear me say that, but I couldn't find another term, sorry—I think we can in fact come up with some recommendations that the minister will take seriously.
We're going to suspend for five minutes so that we can set up the next panel.
The Chair: I call the meeting back to order, and I welcome everyone here this afternoon for our second session.
We have the pleasure to have with us representatives from the Chamber of Commerce of Kitchener and Waterloo, the Direct Sellers Association, the Toronto Board of Trade, the Canadian Restaurant and Foodservices Association, the Construction Trades Council, and the Canadian Pensioners Concerned Inc.
Of course, many of your groups always attend the finance committee meetings, so you know how we operate. As you know, for this session you have five minutes to make your presentation. That will allow us more time for the question and answer session.
We will begin with the Chamber of Commerce of Kitchener and Waterloo.
Ms. Linda Korgemets.
Ms. Linda Korgemets (Chairperson, Taxation Subcommittee, Federal and Provincial Affairs Committee, Chamber of Commerce of Kitchener and Waterloo): Thank you, panel members, for being here today and giving us this opportunity as the Chamber of Commerce of Kitchener and Waterloo.
Just so you know, in that town down the road where I come from, we are the second largest chamber in Ontario, so we're fairly significant, with over 1,600 members.
Our submission this year is very similar to the submission I brought before you last year. About two times a year we survey our members. We send out a one-page fax and ask them certain questions about how they're feeling about things related to pre-budget matters. We did our most recent survey in August 1999. The items in our submission are items they have commented on, items that we want to put forward to you.
There are six things we talk about in our submission. One of those items I won't talk about here because it has already been publicized: employment insurance premiums will come down again this year. That was one of the things we were asking for, so we're pleased to see that. The other five items we want to talk about are debt reduction, personal tax cuts, government spending, health funding, and corporate tax cuts.
In regard to the debt, I made a point last year, and I continue to make it, based on demographics. As we create these surpluses, we're in a really good window of opportunity to take some of that surplus and put it against the debt.
Why should we be paying down our debt? Why don't we just let the economy take care of itself and grow us out of our debt level so the GDP-to-debt level gets lower because of growth? I feel we should be dealing with the debt level because of the horrendous interest cost every year, which is anywhere up to $45 billion a year, forecast. We feel that if we could get this interest expense reduced there would be so much more money to spend on other worthwhile programs, the programs you've just been hearing about from the people before me. We'd love to see the interest cost to this government go down—and go down quickly. I can't stress demographics enough. We don't hear a lot about demographics any more—I don't—but I think we should keep that in mind.
In regard to personal tax cuts, many of you will be familiar with the Canadian Chamber of Commerce and what they are proposing. This past July they did presentations to the media and to politicians as to what they would like to see. Our chamber basically is in support of the Canadian chamber's position. Dealing with the issue of bracket creep is what the Canadian Chamber is trying to do. It's what we endorse.
Basically we're going to suggest an increase in the level of income at which the graduated tax rate hits, while the marginal tax rate itself decreases. That's going to cost about $3 billion in year one and $4 billion in year two. In light of the surpluses that are forecast, we think we can still deal with debt repayment and initiate these personal tax cuts.
Why personal tax cuts? We think it's important that families in Canada be given back more of their money so they can choose how they want to spend their after-tax income. We're looking at the issue, as I know you as a committee have, of family tax fairness.
I read that report over the summer. I was absolutely stunned. There was one thing in that report that really troubled me greatly. Of course, you know what it is: increasing the EI benefits up to 12 months. When that actually saw the light of day and got out and about—and this is not the Canadian chamber or the Kitchener chamber—I thought, oh, of all the things to come out, that thing has lived. I was really disappointed.
We were in a town hall meeting in Kitchener-Waterloo. Karen Redman is very good at getting us together to talk about what's going on. Another member, from labour, said they just wished the government would leave EI alone.
I just want to put it before you today not to tinker with EI. Give families enough money so that they can live their lives in dignity and make choices about parental care or day care or whatever, but don't tweak little sidebars to get more money into the hands of parents on this family tax fairness issue. Do a global type of approach through personal tax cuts.
In regard to government spending, this chamber has been on record as being against the 50-50 formula the government has implemented. I'm getting a little concerned because I never know how the formula is applied. We have asked Karen to take this quite seriously. We had a meeting with Karen, Janko Peric, and Andrew Telegdi. We asked them to please tell us how the formula is applied, because it's a moving target and we can't get the 50-50 formula to work on the numbers we see.
But I'm beginning to understand a little more about that, because now I think the formula tends to be a cumulative formula over the mandate of the government. I think I'm beginning to learn how the formula is to be applied. But it's a bit dangerous, because we could go into an economic slump and then we wouldn't be able to apply the formula correctly. Not that we're in favour of the formula, but we're even less in favour of the formula as a cumulative five-year formula.
We do believe that spending should be increased based on inflation and population growth. We feel that if we want to implement new programs, we really should be putting old programs under the microscope, seeing if they're effective, and taking funding out of non-effective programs to put it into effective programs. I know that's much easier to say than to actually do, and I don't know how you would do it, but that's something we would like to see done.
For health funding, again, what can I say? I just want to reiterate what our chamber is doing in our area. We are underserviced for general practitioners. We're trying to raise funds in our own community, not to give the doctors a bonus but to promote our community in front of the medical community and the medical schools in order to attract doctors or aspiring doctors to our community.
Next, this is something we don't hear a lot about, but the Kitchener-Waterloo chamber wants to be on record as saying that in the medium term we have to look at corporate tax cuts. The submission I've circulated has a very lengthy appendix, which gives you a look at the current tax rates of major OECD and European countries. Canada's tax rate effectively is 44%; the average tax rate in the OECD is 35%. Over the last three years, Canada's rate hasn't budged, but those of a lot of countries have come down.
It's such a globally competitive market that I'm afraid for Canada if we don't get the right number mix. We're going to look uncompetitive. I'm a corporate tax consultant, and in the day-to-day work I do for a living, as disloyal as this may seem, we advise major corporations as to where the tax rates are more conducive to carrying on business. We actually suggest to companies that they set up in countries like Ireland and Britain because of their tax structures.
That's happening more and more often. With the advance of e-business, it's going to happen more. Because of electronic business through computers, companies will be able to set up wherever they want to. I feel that Canada has to send a message to corporations and say that it's looking at the corporate tax rate structure in the medium term.
The Chair: Thank you very much.
We'll now hear from the Direct Sellers Association, with Monsieur Paul Thériault.
Mr. Paul Thériault (President, Direct Sellers Association): Thank you, Mr. Chair.
I'm the president of the Direct Sellers Association, l'Association de ventes directes du Canada. Before proceeding, I would like to introduce the other DSA representatives present today: Mr. Murray Smith, chair of the DSA; and Jack Millar, tax consultant to the DSA.
Mr. Chair, I am pleased to note that this is the sixth appearance by the DSA before the finance committee. DSA endorses the pre-budget consultation process and appreciates the opportunity presented for Canadians to make their views known on tax policy.
Mr. Chairman, the Direct Sellers Association of Canada, also known as the DSA, was founded in 1954. It is the national association of Canadian direct selling companies and their independent sales contractors (ISCs). The mission of the DSA is to further enhance thrust, confidence and growth in the Canadian direct selling industry through self-regulation and ethical conduct.
The DSA and its 50 member companies are committed to high industry standards through its Code of Ethics and Business Practices.
The direct selling companies and their ISCs market and distribute a wide variety of products and services directly to the consumer, usually but not exclusively in the consumer's home, rather than in a retail establishment. It should be noted that 75% of the ISCs are women and approximately 50% work part-time or have no other occupation.
The products and services sold by these individuals are as diverse as the individuals themselves—cosmetics and personal care items, home appliances, houseware specialties, household cleaning products, candles, natural health food products, toys, educational products and telecommunication services, to mention just a few. Generally, these products and services are sold in the context of group presentations or on a personal consultation basis.
The strength of direct selling lies in its tradition of independence, its simplicity, and its commitment to a free market system, providing accessible business and career opportunities to people whose entry is not restricted to gender, age, education or previous experience. This opportunity in small business is accessible to women and men everywhere in Canada, whether they live in urban or rural communities. It is a significant fact that direct selling is a manageable economic opportunity, which can further family income with minimal disruption and minimal investment.
The DSA has shared its expertise with all levels of government. For example, it has forged ties with consumer protection agencies across the country, particularly in promoting the harmonization of provincial direct selling legislation, and in promoting the principles set out in the Competition Act by interfacing with the Competition Bureau.
Internationally, the DSA has asked the Canadian representative at the APEC Ministerial Forum for Small and Medium Enterprises to support the Consumer Education and Protection Initiative aimed at enhancing consumer protection across APEC economies. This initiative was endorsed by APEC this year.
Mr. Chair, the DSA has three specific recommendations. These are summarized on pages 2 and 3 of our written submission.
First is job creation and transitioning to independence. Our first submission is that greater transitional relief should be granted to individual Canadians who wish to move from dependent unemployment insurance and social assistance to independence in their own small businesses.
The direct selling industry is a vital part of the small business sector in Canada. We have a tremendous capacity to generate self-employment and provide accessible earning opportunities to a broad spectrum of Canadian men and women. However, the current employment insurance and welfare rules create a barrier to entry into the direct selling industry and into small businesses generally. We have detailed this problem on pages 5 and 6 of our written submission.
Essentially, our recommendation is that additional pro rata relief be provided beyond the current allowance maximum of 25%. Specifically, we recommend that once an individual's earnings from their small business surpass the 25% level, pro rata relief be provided by only deducting 50% of additional earnings from EI eligibility. The DSA believes this approach will encourage, not discourage, Canadians to transition from dependency on social programs into their own independent small businesses.
Mr. Chair, the DSA has worked with Human Resources Development Canada in the past and we will be pleased to again work with HRDC in fine-tuning this important recommendation.
Recommendation 2 is on retirement savings and inflationary taxation. As indicated previously, over 1.5 million Canadians have their own direct selling businesses. These individuals are self-employed and many do not have corporate or government pension plans to rely on for their own retirement income. Accordingly, the DSA has two submissions to help restore this confidence: first, that the RRSP contribution limits be increased from the current maximum of $13,500 to, as we recommend initially, $15,500; second, that the income tax bracket be fully indexed to inflation.
The third recommendation is on the GST and the direct sellers mechanism and commissioned agents. Our third recommendation is industry specific. The direct sellers mechanism, or DSM, under the GST is a classic example of government and business working together to develop rules that have benefited both the government and the direct selling companies and their ISCs. Not only has the DSM removed the GST compliance burden from a large number of ISC small businesses, but there has also resulted a significant cashflow advantage to the government as the GST is collected on the retail price at the same time as the sale to the ISCs.
The problem, however, is that the DSM, as it's currently structured, only applies to situations where ISCs buy and resell goods. It does not apply to the 20% to 25% of the direct selling industry that operates through commissioned agents. These companies and their sales agents have indicated that they feel discriminated against because the advantages of the DSM have not been made available to them.
Extending the benefits of the DSM to the 20% to 25% of the direct selling industry would allow the same GST rules to apply throughout the industry; it would have virtually no impact on government revenues; it would remove GST paperwork from commissioned agents' small businesses; and it would further reduce Revenue Canada's administrative costs because the sales agents would no longer be required to be GST registered.
Accordingly, the DSA recommends that the GST legislation be amended to extend to direct sellers mechanisms to accommodate the sales agents' direct selling structure. As was done for the DSM in the early 1990s, the DSA would be happy to assist the Department of Finance in drafting these amendments.
In conclusion, Mr. Chair and members of the committee, the DSA wishes to thank you all for this opportunity to present our recommendations. We look forward to participating in the round table discussion. Thank you once again.
The Chair: Thank you very much, Mr. Thériault.
We will now hear from the Toronto Board of Trade, the president and chief executive officer, Ms. Elyse Allan. Welcome.
Ms. Elyse Allan (President and CEO, Toronto Board of Trade): Thank you very much. It's a pleasure to be here again.
I want to introduce Terri Lohnes, who is our chief economist and staff person in charge of our federal and provincial economic portfolios.
The Toronto Board of Trade is Toronto's local chamber of commerce. We are the largest local chamber of commerce in Canada. A lot of people think because we're in downtown Toronto we tend to have large corporate members, but about 60% of our members are small and mid-size businesses and about 40% are what I would call our larger head office corporations. So we have quite a cross-section in terms of size of membership, as well as the segmentation of the membership—the manufacturing as well as financial services.
We certainly appreciate the opportunity to present our priorities for the 2000 federal budget.
By now I hope you've all had a chance to review our prebudget submission, which outlines in detail our recommendations. I won't go through the specifics of our positions, although we certainly look forward to elaborating on them during the discussions later. But I want to give you the reasons why we think they should be adopted.
Simply put, our exceptional and internationally recognized quality of life in Canada is at risk. Our government must make wise decisions on how to prioritize these many demands for money. We recognize the very unique position our government is now in. The federal finance minister unveiled to Canadians last week a much heralded forecast of large and growing budget surpluses. We are indeed entering a long-awaited era of fiscal stability.
Many would characterize this era as unprecedented in terms of the spending opportunities now available for this government. But nothing could be further from the truth. While this government has announced that deficits are a thing of the past, we must also remember that budget surpluses were also a thing of the past, but through exorbitant government spending, challenging economic times, and, to some extent, investment in programs and projects where there was minimal or negative economic impact, our government wiped out surpluses and built up a formidable debt. This debt is the legacy of past fiscal irresponsibility and must serve as a strong caution to government and Canadians that we must prioritize for the next century. We cannot allow ourselves to go down this road yet again.
We are putting before you a challenge to be economic leaders and set out a framework for the next budget and beyond that can strengthen not only our economy but also our quality of life.
The first and most important step is to recognize that our surplus is not a true surplus. We still hold an enormous amount of public debt in comparison to our main competitors. All of us in this room still pay 27¢ out of every dollar collected by the government toward interest payments. Our debt-to-GDP ratio continues to exceed the minimum ratio for entrance into the EU, the grouping of some of our major economic competitors.
Last week, the minister indicated that the contingency fund set aside in each budget will continue to be applied against the debt, but only if the moneys are not used for any unforeseen expenditure.
While we strongly support using the fund to reduce the debt, it does not represent an aggressive debt reduction plan. It does not signal strong leadership. We cannot rely solely on leftover emergency moneys that we hope will not be needed elsewhere. We must commit a set amount that will be applied to debt reduction each year.
Only when we make this commitment will we reduce our debt obligations and send a strong signal globally that we are and we want to be competitive. Once we do this, we can begin to invest dollars that will benefit all Canadians. That will be leadership.
We saw strong leadership signals from the government last week on taxes. It was encouraging to see Minister Martin speak so strongly on the need for tax relief.
As you are well aware, the board, along with numerous other groups across the country, has advocated hard for significant tax reduction. We deeply believe that putting money back into the pockets of Canadians is one of the best uses of the surplus. Canadian taxpayers earned the government that surplus, and they deserve to spend it.
We have seen incredible erosion in the savings rate in this country. We have seen personal debt levels continue to rise. We have seen many Canadians leave this country for higher-paying jobs and lower taxes elsewhere. Taxes simply consume an unacceptably high proportion of people's incomes. Our tax rates restrict the ability of people to fully participate in the economy, and in some circumstances it's driving them completely out of our economy.
By reducing that financial restriction, Canadians will be able to consume and invest more, and we hope they will stay in Canada. That benefits everyone.
We saw a signal of leadership last week on tax reform. We cannot emphasize how important it will be to make tax relief a reality in February and bring down an aggressive tax reform package, along the lines advocated in our submission.
It's not just that the business community now expects it; individuals and families across Canada deserve it.
I want to close by addressing the pressures you face to increase government spending. The board acknowledges that eliminating the deficit has not been an easy task. Reigning in program spending was not a popular choice with some Canadians, and we certainly applaud the work that has been done to create this surplus situation. But to abandon that policy now and revert to the spending fiasco of the past is premature and will erode all the hard work done by all Canadians.
We cannot state strongly enough the need to hold the line on program spending. While the minister did not announce any major spending initiatives last week, the language certainly spoke of a desire to spend. Now is not the time for new spending. The surplus must be put back into the hands of Canadians through tax relief.
Having sat and listened to the conversation of the previous group, I also feel it would be remiss if I didn't comment on another area where we ask for leadership in our budget submission: infrastructure. In our budget submission, we defined infrastructure in two ways. One was physical infrastructure, but the other was asking for leadership from the government in the area of a national housing strategy. Given the comments of the last group, I felt it was important to note that while we may be working for and representing different groups of people, we are very much connected in one particular area.
Our priorities are clear in terms of debt reduction and tax reform, and we hope they will be your priorities.
The Toronto Board of Trade is excited about the opportunities available in this next budget. How those opportunities are realized, however, will require this government to make decisions based on a commitment to economic leadership.
We have told you about the decisions that we believe represent such leadership, and we hope you will act accordingly.
Thank you for the time today.
The Chair: Thank you very much, Ms. Allan.
We will now hear from the Canadian Restaurant and Foodservices Association, Mr. Michael Ferrabee.
Mr. Michael Ferrabee (Vice-President, Government Affairs, Canadian Restaurant and Foodservices Association): Thank you, Mr. Chairman.
My name is Michael Ferrabee. I'm vice-president of the Canadian Restaurant and Foodservices Association. With me is Joyce Reynolds, CRFSA's senior director of government affairs and our payroll tax expert.
Our submission details concerns we have with the tax system and suggests a comprehensive review of the tax system as it affects individuals and businesses. It also suggests that specific targets be set and tax relief be taken as seriously as the crusade in the past to eliminate the deficit.
Joyce will spend much of our brief time talking about payroll taxes, but I'd like to initially highlight the important role personal disposable income plays in the Canadian economy and in our industry sales.
Since 1989 we've seen a real decline of 5% in disposable income in Canada. Over the 10-year period, Canadians have become poorer, in large measure due to the increasing tax grab by governments through the 1990s.
In contrast, during this same period, our neighbours to the south have seen their per capita disposable income increase by 9%. This contrast is most evident in our industry through the decline in the share of the food dollar that has accompanied this decline in personal disposable income.
In 1989 our industry captured 42¢ of every dollar—the same as the Americans. Consider that 10 years later this figure in Canada is 39%, while it is 45% in the U.S. Discriminatory tax policies like the GST can account for some of this decline, but the biggest culprit is clearly the fact that Canadians have fewer dollars in their pockets today to spend on discretionary items like food service than they did 10 years ago.
There is one other item I want to raise, and that is the credit card charges that are applied to the GST and other sales taxes in this country. You may not be aware, but our industry is charged a commission by credit card companies each time someone uses a credit card. The rate varies between 1% and 4% of the charge, depending on the card. This commission is charged not just on the meal, but also on the tax we are forced to collect.
This is a huge windfall for the credit card companies and an issue we'd like your committee to consider. Our industry alone last year paid more than $10.5 million to credit card companies for the privilege of collecting GST and an estimated $8 million in commissions on provincial sales taxes. That is a total of more than $18 million that credit card companies take in commissions because governments force restaurants to collect sales taxes.
On payroll taxes, I'll turn it over briefly to Joyce.
Ms. Joyce Reynolds (Senior Director, Government Affairs, Canadian Restaurant and Foodservices Association): Thanks.
We focus so much on payroll taxes because our 14,600 members representing 45,000 restaurants have indicated, through member surveys, that this is a key issue they would like to see government address. There are a couple of reasons why they care so deeply about payroll taxes.
First is their very slim profit margins. Second is the fact that 30¢ of every dollar they take in goes directly to labour. Our research indicates that only 6% of the revenue operators take in is profit before taxes. That might seem like an adequate return, but if you look at the average restaurant, their net is $386,000, and this means a return of less than $25,000 before taxes. Passing costs on to consumers is not an option. As Michael already mentioned, we've lost market share to the food-at-home market.
Since 1989 the payroll tax burden for the average restaurant has increased by more than 50%. The small incremental reductions we've seen in EI premiums since 1994 have been overtaken by sharp increases to CPP premiums and legislated changes to the basic exemption in both the EI program in 1996 and in the CPP program in 1997. This year we will again face an increase in payroll taxes. The 15¢ reduction that was announced last week will result in employers paying another 21¢ per $100 of payroll, because of course CPP premiums will be going up by 40¢ in January.
I won't go on today about the benefits of reducing payroll taxes, as I have every time I've spoken to this committee in the past, because we all know they're job killers. We all know that they're regressive and affect low-income earners and those lacking skills and education the most.
I have to comment on the government's use of the EI program for general tax revenue. The EI legislation says that the EI program must be managed so there's enough premium revenue to meet the needs of the program and ensure stable premium rates over an economic cycle. However, it has actually been converted to a general tax collection program—one that low-wage earners and labour-intensive industries and businesses pay into disproportionately.
To understand why this is so frustratingly unfair for our industry, we have to look at who doesn't pay EI premiums. Most people are surprised to find out who is in that select group of society that doesn't pay premiums. This group includes the Prime Minister, members of Parliament, and self-employed individuals like doctors, lawyers, accountants, and architects. They make up 18% of the population.
Mr. Paul Szabo: ...self-employed.
Ms. Joyce Reynolds: It includes retirees, who are a segment of the society that includes some of the richest Canadians. That's why we object to the fact that $500 million a month more than what is needed for the program is being taken in and going to general revenue. We know that $25 billion accumulated surplus doesn't really exist. That money has gone into general accounts and been spent.
Our concern is that when we are faced with a real economic recession, government is going to be forced to raise premiums or borrow money, and this is going to happen at the worst possible time. The EI chief actuary and the Auditor General have been ringing alarm bells, but this issue continues.
We have some ideas on what should be done that would benefit not only our industry but young Canadians needing entry-level job experience.
First, we would strongly encourage you to get a further increase to the EI premium rate. We'd like to see it doubled to offset the negative economic ramifications of the CPP increase.
Second, we would encourage you to support restoring inflation protection to the CPP—
Mr. Paul Szabo: Excuse me, did you say double the rate or reduce the rate?
Ms. Joyce Reynolds: Instead of 15¢, make it at least 30¢, which would mean 42¢ from employers—
Mr. Paul Szabo: That's not what you said.
Mr. Ken Epp: That's what I heard her say, and I'm listening to it.
Ms. Joyce Reynolds: Okay. Sorry.
Third, reintroduce inflation protection to the year's basic exemption within the Canada Pension Plan. It's very important to our sector because of the number of part-time employees we have. The 1997 CPP accord between the federal government and the provinces froze it at $3,500. We have another statutory review underway, and further cuts to the YBE have been brought forward as an agenda item for the ministers of finance to consider.
This year, the Canadian Restaurant and Foodservices Association commissioned a comprehensive research report that clearly demonstrates how the food service industry, but youth in general, are disadvantaged by the freeze in the YBE. This report recommends staged increases to the YBE, and it provides a funding mechanism that doesn't impact on benefits or premiums. That is to amend the Income Tax Act to lift the 20% foreign property limit that applies to pension funds, because this would actually increase the rate of return of the CPP investment fund to the extent that upward adjustments could be made to the YBE.
I'm going to table a copy of this report, as well as the submission we provided to you earlier.
I have to also say that we were flabbergasted when it was recently announced that parental benefits would be extended from 25 weeks to 52 weeks, at a cost of $1.25 billion. While it's been difficult to get more than niggly reductions in EI premiums, it came as a shock that dollars of this magnitude could be committed from the EI account without consultation with business or even the EI Commission. It's clear that impacts on businesses like ours haven't been taken into consideration.
For a large private sector employer or a government bureaucracy, the disruption of not having an employee for a year may be severe, but for a small restaurant it could be absolutely devastating. If you have a restaurant with only 10 employees and you lose your chef for a year, that could be enough to put a restaurant operator under.
There are many costs and employment ramifications that have to be considered, and again I have to say how dismayed we are at how skewed the employment insurance system has become, compared to the commendable objective when it was created, which was income support for those involuntarily and temporarily out of work. We have a system that has become disjointed.
For example, while the system is purely for the benefit of employees, employers pay 60% of premiums. Of the $18.5 billion of premiums collected this year, only $13 billion has been paid out in actual benefits, and of the $13 billion, only $8 billion is for true unemployment benefits, under the original objectives of the program.
We have a program that is extracting $18.5 billion from the pockets of Canadian workers and employers, while only 43% is going for unemployment benefits. As one of Canada's largest employers, we think there are better alternatives.
First, since the program is for the benefit of Canadian workers, we believe they should pay 50% of the cost, and government should look to moving to employer contributions in line with employee contributions. The timing seems right, as parental benefits are being expanded. We think, however, that expansion of parental benefits is a matter of social policy, similar to the public funding of day care and school lunches, and that programs like these should be funded from consolidated revenue, not a payroll tax.
To conclude, payroll taxes are regressive, they're job killers, and they're probably the worst kind of tax you can impose on businesses if you're genuinely interested in employment.
The Chair: Thank you very much, Ms. Reynolds and Mr. Ferrabee.
We'll now hear from the Construction Trades Council, Mr. John Cartwright, business manager. Welcome.
Mr. John Cartwright (Business Manager, Construction Trades Council): Thank you. This is the first time our council has been in front of this committee, so I'll just give you a bit of background. We represent 42,000 construction workers, men and women who build our cities, towns, industries, and resource facilities in the greater Toronto area. We're very concerned that the dialogue is around money in this country right now, because as we all know, money means politics.
We have a presentation that we've passed around to the committee. I'm hoping people will take the chance to look at that later. We want to talk to you about getting the fundamentals right, but I think with different definitions from what you've talked about previously. For us, getting the fundamentals right means four points: good jobs, a healthy environment, decent housing for all, and the development of a truly sustainable economy.
It's a pleasure to hear the Toronto Board of Trade talking about at least two things that we can agree on. One is that the federal government has to get back into the business of new, affordable rental housing. The other one is that debt reduction is an issue that has to be addressed. We would say that before any general tax cuts are introduced, the existing debt that's sitting there has to be dealt with, because it's that debt that was used as the excuse to slash and burn social programs across this country.
The main thrust of our presentation is going to be on using the fiscal and regulatory leverage of this government to do some good stuff. And we're happy to say that a lot of the good stuff has already been developed by the Federation of Canadian Municipalities in their quality-of-life infrastructure program. They talk about the government investing in three things: environmental infrastructure, transportation infrastructure, and social infrastructure.
Our experience in the construction industry in greater Toronto over the last number of years has been that environmental processes and environmental technologies are in fact a tremendous catalyst for the creation of new jobs and business opportunities in every sector of the economy. In the early 1990s we went through the worst recession we've ever seen. We had unemployment levels of 35% to 50% for skilled trades people for up to six years. During that time nobody was building high-rise buildings, and this was happening everywhere east of the Rockies—it wasn't an Ontario or Toronto phenomenon.
We started linking up with some issues around how to take the skills our members have and apply them in a meaningful way. That means people have jobs and there's still some economic activity. We discovered a partnership with the environmental community and environmental engineers that we think is something that could be looked at and replicated all across this country. It resulted in something in Toronto called the Better Buildings Partnership. This is the document that's put out by the city of Toronto on that partnership.
That came from an argument we made to the feds and the city that part of the last federal-provincial-municipal infrastructure program, which was introduced in 1993 by the new Liberal government, should go to something around environmental infrastructure and energy retrofitted buildings, to take $12 million of that fund and...not spend it, but use it as a securitization for loans to involve both the private and public sectors in doing energy retrofits in their buildings. The results are amazing.
Since the Better Buildings Partnership started in 1996, there's been a reduction of 72,000 tonnes per year in CO2 emissions; building costs have been reduced by $6 million each year; 3,000 person-years of employment were created, which is of course where we come in at the self-interested point of view; and 155 buildings have been upgraded, in both the public and private sectors.
It shows the potential in starting to think about doing things right and getting the fundamentals right. We have seen since that initiative has taken place other sectors picking up the ball and running with it.
Recently CUPE, the Canadian Union of Public Employees, has taken this document, a proposal for waste management reduction, to the City of Toronto. It would divert 72% of the waste trade, create 900 new jobs, and save the taxpayers, over the next two decades, $600 million by putting on a green cap and bringing a different point of view to how we do business and how we carry out functions, both in the public and private sectors.
With all due respect to my business colleagues here, what we're going to say to you is, differentiate between smart and stupid business, and don't reward stupid business with tax cuts and tax credits. Look at activity, both private and public, that will involve leveraging the tremendous opportunities that are involved in environmental processes and reward them through tax shifting, through grants, through particular investments that you make as a government, and through regulations that you're involved with.
In our brief we talked about a number of those kinds of things. As I said, the Federation of Canadian Municipalities has been able to put together an extremely good program of a quality-of-life infrastructure that talks about how you deal with solid waste management, water and waste water, energy, building retrofits, cleanup of contaminated sites, and protection of ecologically sensitive lands and heritage.
It also talks about transportation and the need for the development of commuter rail and public transit. That's seen as a responsibility not just of municipalities, where it's now being dropped thanks to the downloading in this province, but of the federal government, which has to take some responsibility. Right now 30% of all CO2 emissions come from vehicles, and 16,000 Canadians are dying prematurely every year because of pollution and problems in the air.
So we are one of the only countries in the world that doesn't have a federal role in the provision of public transit.
In Toronto recently, the City of Toronto, or the TTC, had to question whether or not it could afford to save millions of dollars by putting in an order for new buses, and there's going to be a debate on that because there's no funding any more, since the province has opted out.
The premier and the prime minister were in town last week for a wonderful announcement about the mayor's vision for the waterfront in greater Toronto, which included rapid transit to the airport. Well, it takes money to buy drinks, so if the feds are going to be there saying that these things are good, you've got to be there providing the money for those kinds of direct investments.
In regard to housing, we're the only country in the G-7 nations that doesn't have a serious federal role in the provision of affordable rental housing, and we are urging that this government get back into the business—which it was in for 30 or 40 years—because no matter how many carrots you throw out in front of it, the private sector cannot provide affordable rental housing for the poorest segment of our population. While our people are skilled trades people making a decent wage right now, a lot of them were looking at welfare five and six years ago.
We don't want to take the position of saying we're only looking after ourselves. We have a tremendous contribution we can make to that issue, because of the skills represented, and we want to make it. It means the federal government has to be in place, and the Province of Ontario has to be beaten about the head and ears with a large stick to get it back into the issue as well.
There are two other basics I want to touch on. Employment insurance is a joke. Only a third of Canadians who are unemployed right now can get benefits from that system, yet it's still called a universal social program, which it's clearly not.
Instead of taking the surplus and bringing about tax cuts that will drain it away, what's required is to rebuild that program in its entirety, so that benefit levels and qualification levels are applicable as they were pre-1990, when first the Conservative government and then the Liberal government basically slashed this program so that it doesn't exist as a universal social program.
The Canadian Labour Congress has called on a minimum of 70% of unemployed to be covered by it as a standard. We're saying that every unemployed Canadian should have access to that program.
The other issue is around looking at developing a reserve capital fund so that government can play a role in offsetting the cyclical nature of the construction industry. We don't want to see federal or provincial or municipal projects being bid at top dollar during the height of a building boom and then drying up the next time there's a recession because there's no money around. We want you to put some money in reserve and use that to balance off the cycle.
This would keep people working, instead of losing thousands of apprentices, as we lost the last time with the recession. Young people were walking away from the industry because there was no future.
Keep them in the industry so they can develop the skills in a workforce that's supposed to be there. As well, you'll get a better bang for the taxpayer's dollar if you put out those tenders when there is a lot of interest and very competitive bidding.
We have a summary that lists, then, seven points: direct investment in fiscal tools to carry out the FCM's quality of life infrastructure program; new, affordable housing and rental housing, with which the feds have to get involved; support for public transit, including vehicle purchase and tax-free, employer-supplied transit passes—an issue passed in principle by the House about four months ago and one on which our friends in the transit union have been working very hard—along with a rapid transit connection to Pearson airport; shift taxes to encourage environmentally friendly economic activity; create a national atmospheric fund, modelled on the highly successful Toronto Atmospheric Fund, which can be applied to both private and public sector; restore the EI program to full pre-1990 levels of qualification and benefits; and create a capital reserve fund to use during the slow periods of the construction industry cycle.
That's a thumbnail sketch of what we'd like you to do.
The Chair: Thank you very much, Mr. Cartwright.
We'll now hear from Canadian Pensioners Concerned, Mae Harman, past president, Ontario division, and Ray McLeod, chair, pension committee.
Ms. Mae Harman (Past President, Canadian Pensioners Concerned Inc.): Thank you, Mr. Chairman. I hope our presentation will underline some of the issues so eloquently expressed by the previous panel.
Canadian Pensioners Concerned has long been concerned about the lack of funding and other resources for health, social, and educational programs, and how efforts to pay off the national debt have downsized the importance of these human services. With this in mind, and conscious of the strident messages on the part of some groups that the most important issue for the next national budget is cuts in taxes, we sent a letter to the Hon. Paul Martin, Minister of Finance, on October 4, expressing our views.
Our presentation, which is made on behalf of our national organization as well as our Ontario division, reiterates the points made at that time.
Canadian Pensioners Concerned, founded in 1969, is a membership-based, non-partisan advocacy organization of mature Canadians committed to preserving and enhancing a human-centred vision of life for all citizens of all ages.
CPC has particular concern for the quality of life of people in our society who, by virtue of age, illness, physical or psychological impairment, and/or economic needs are especially vulnerable in a society driven by the marketplace and economically determined values, often to the exclusion of other societal values that sustain and enhance a fair, just, and inclusive social order. Hence, we feel strongly that budget surpluses must be put to resolving the drastic social and health problems being experienced by so many Canadians before consideration is given to income tax cuts.
We agree that it is important to pay down the debt, but this should wait until the situation outlined has been resolved.
Cutbacks in federal funding and in transfer payments to the provinces over many years have resulted in serious damage to our public health care system, reaching near-crisis conditions in some areas. Erosion of the public system has enabled pressures to become more overt and strident from those wanting a privatized, two-tiered system.
Despite all this, the vast majority of Canadians hold their health care system dear, and insist that the federal government live up to its responsibilities and take a major position in defending and enhancing it.
Recent increases in federal funding, while welcome, amount only to partial restoration and are nowhere near the cuts by the Mulroney government and the even more massive cuts in funding by the Liberals.
As our Minister of Health, the Hon. Allan Rock, has recently emphasized, for many years it has been well established and accepted that the determinants of health include health care itself but also many other social and economic factors, including adequate housing, income security, education, and a sense of control over our lives. Most sadly, under the mantra of “the deficit”, needed social programs in all these areas have been eroded or entirely dismantled. Restoration is now an urgent need and has to be a major priority.
In 1990 there was a recognition of the necessity of federal support for housing when these statements were made in the report of the task force chaired by Mr. Martin and Mr. Fontana:
Housing is a fundamental human right. All Canadians
have the right to decent housing, in decent
surroundings, at affordable prices. Shelter is a
necessity of life and adequate shelter must be viewed
as both an individual and collective right for all
Canadians. Homelessness is only the most visible
manifestation of Canada's housing crisis. It is a
reality which is symptomatic of a broader crisis in the
supply of affordable housing.
The crisis in homelessness has increased considerably since the Liberal Party task force report in 1990. A further 1% of the total national budget should be spent on housing. This is one of the recommendations of the Toronto Disaster Relief Committee, and it has had wide support across Canada.
The Mustard-McCain study highlights the importance of early education in the development of children, who are society's greatest asset and hope. Previous cuts in federal transfers to the provinces for education have, in this province of Ontario, been passed down to the community as cuts in programs and services and a demand for teachers to do more with less. Children with special needs—for instance, learning, behaviour, disability, or English-language—have been especially neglected. An atmosphere has been created that negates creative teaching and stimulative learning. Many experienced teachers have opted for early retirement. Others have been declared redundant.
In general, tuition fees for post-secondary education are saddling young people with huge debt and turning our colleges and universities into elitist institutions that only the well-to-do can afford to attend.
Overall, there is a great need for training and retraining of skills for jobs that are meaningful and rewarding. The high rate of youth unemployment and the large turnover of employees of all age groups whose plants close or jobs become redundant speak loudly for creative approaches at all levels to help all job seekers both find fulfilment in their work and contribute to the economy and the nation.
There are clear indications that the majority of Canadians favour increased spending on resolving the kinds of health and social problems referred to in preference to the cutting of income taxes, which will result in little benefit to any but those enjoying high incomes. The disparity of incomes between the rich and the poor is steadily growing.
Our organization favours a more progressive taxation system with a greater number of levels of taxation, with higher rates for higher levels of income. The tax rate of 17% for the lowest tax bracket is excessive and should be reduced to 7%. It should be noted that lowering the tax rate to 7% for the lowest taxable earners will have a modest lowering impact on all higher incomes as well.
Corporations must be required to pay their full share of taxation, and current loopholes should be withdrawn. Back taxes should be recovered. It is reported that some corporations pay no income tax whatever, even when they're experiencing huge profits.
When the time comes that we can reduce taxes, we might well begin with the GST, which is highly unpopular with both the payers and those who must collect it. It impacts on all Canadians, but it's probably harder on those with low incomes.
The clawback of Old Age Security is an unjust special tax on seniors, who pay the same regular taxes as other Canadians. A special contribution from seniors is inappropriate and unacceptable. It should be withdrawn completely. An interim measure could be to partly withdraw it by significantly raising the income level at which it comes into effect.
Much has been made of income tax cuts as a means of reducing the brain drain to the United States and as a stimulus to the economy.
As Saturday's Toronto Star asserts, the U.S. grass is not greener. Canada's tax rate, taking all taxes together, compares well with other countries. In addition, Americans pay all or part of their medical insurance or costs, while we have universal coverage. Our so-called brain drain is in large part because our graduates are attracted to the U.S.A. by higher pay, greater career opportunities, and better research support. In addition, we have an unfortunate history of selling off our Canadian companies to foreign owners, who often then move headquarters and managerial and technical staff to their own territory.
We welcome your questions.
The Chair: Thank you very much, Ms. Harman.
We'll now move to questions. This is going to be a five-minute round.
Mr. Ken Epp: Thank you, Mr. Chairman.
I thank you all for your presentations.
Since the chairman is cutting me back fantastically here, I'm going to cut right to the chase. I want you to talk to me a little bit about UIC.
One of you—and I don't remember exactly which one—said you were very pleased that the government is rolling it back. Then we had another presentation that said the reduction should be at least twice what it is.
The chief actuary of the plan says it could be down as low as $2.05 and be sustainable.
I had my assistant the other day add up all of the money they've taken in since 1992, I think it was, and how much they've paid out in benefits. The difference now in those two numbers is $50 billion. That's what has been taken out altogether.
To me, at least, this is an issue where legislatively the requirement is that this be an EI fund and not general revenue. Some of you have alluded to this. I would like to know how great the consensus is that EI premiums need to be cut, and need to be cut drastically.
As well, I'd like to know whether the rest of you, besides the one who suggested it, the restaurant and food association, concur that the employer and employee contributions should be equal.
Ms. Linda Korgemets: I'll happily start, Mr. Chairman.
The Kitchener-Waterloo chamber said they were pleased with the current reduction announced last week. In past years we've been more strident, and we have been asking that quicker reductions be made. This year, as we look to how important we feel personal tax cuts are, we didn't feel we could sustain asking for cuts in both places. We wanted to see a continued cut in payroll taxes.
We do agree with all the studies that we're familiar with, and that other people around the table are familiar with, that payroll taxes kill jobs. We're obviously campaigning every year for reductions in EI, until it gets down to what the plan actuary says is acceptable.
We're not in favour of having general revenue funded by the EI fund to the extent it has, but we feel that over time, with these significant reductions we're getting every year, we will get to where the fund will be balanced and it will no longer be a contributor to general revenue.
Ms. Terri Lohnes: I'd also like to iterate that we would support that position. As you noticed in our submission, we balanced off personal income tax cuts with payroll tax cuts, and we also called for corporate tax cuts. We recognize that there's a prioritization, so we did indeed call for a 15¢ reduction, which we did applaud as well when the minister announced it last week. We would have asked for more, but we also didn't want to jeopardize the potential to make greater personal income tax cuts this time around. We would hope the trend in reductions in EI premiums will be a year over year trend and that they will continue to go down to a level that is recognized by the chief actuary.
On your comment on employer-employee equalization on payments, we haven't made a specific recommendation on that in our project presentation.
The Chair: Anyone else?
Mr. John Cartwright: Yes, I'm going to add something.
A recent study in Toronto found that almost 50% of the homeless in Toronto are currently people who, if the rules hadn't been changed to cut the benefits and the eligibility for benefits, would be receiving unemployment insurance or social insurance right now. They would have a roof over their heads instead of being homeless. The people who are chomping at the bit to reduce the programs so that even fewer and fewer unemployed Canadians access the system are barking up the wrong tree.
Certainly we have no problem with saying that the premiums should be reduced, because that's part of the whole idea of shifting taxes away from things that you want, like labour, and lots of things you don't want, like polluting industries and the carbon economy. But to keep driving this concept that you're going to cut the system and not look at who's paying for it... You talk about the surplus and where it has come from. It has come from unemployed workers who have been denied benefits over the last eight or nine years.
Mr. Michael Ferrabee: Can I maybe just add something on top of that?
I think Mr. Epp asked an interesting question. In terms of responses from business groups anyway, I think what you'll find is that it depends to a large extent on the degree to which the industry itself is labour intensive. In an industry like ours, in which 30¢ of every dollar you spend in a restaurant goes back to paying your staff, we obviously have a much greater concern about unemployment insurance rates, because they represent a much bigger chunk of our costs and a much bigger chunk of our employee costs.
A sector like ours is a place in which the jobs start. It is able to employ many of the people Mr. Cartwright is speaking about, as a sort of first place of entry into the system. So from the perspective of the most people you can employ, we think a cut in the EI rate is something that's enormously important.
Mr. Ken Epp: My time is up, and my closing statement is going to be one for which I hope we don't get a chance for reply.
I'd like to give a message to the restaurant people, and that is that they should add 15% to the cost of their meals and include that in the salaries of their employees, so that it would be included in their computations for benefits later on, like CPP and all of those.
Ms. Joyce Reynolds: The customers are too price resistant to be able to do that. They have other options.
Mr. Ken Epp: Just put up a sign that it's illegal to tip in this café. Bingo.
An hon. member: Ken doesn't tip anyway.
Mr. Ken Epp: I sure do. You just watch that, buddy. I don't want to get these guys mad at me. They feed me and make me what I am.
An hon. member: They are mad at you.
Mr. Paul Szabo: There's quite a bit of discussion about parental leave, so I'd like to have the reaction of the boards of trade again, in light of the fact that there is irrefutable evidence now that the first year of infant development, and particularly neural development, is very significant in that first year, and in light of the fact that abstract reasoning, general logic, and problem solving are all established by age one, and in light of the fact that the quality of care provided during those formative periods is the single most important determinant of lifelong health of a child. Given that 25% of our children are entering adult life with some sort of significant physical, mental, behavioural or academic problem, and the research is showing that an investment of $1 will generate a return in lower health care, social programs, criminal justice, and education costs—the return would be minimally $2 for every $1 invested and up to as high as $7 in all of those programs.
I understand that, for instance, the restaurant association would be concerned that the chef might be off for a year, but the current program allows for that chef to be off for six months. So if that is in fact a legitimate concern, it is already there. The fact is that this is a very serious situation that is proposed to be addressed in part by allowing parents who need to care for their children the opportunity to do it.
A voice: Share it between the two of them.
Mr. Paul Szabo: I'd ask for your comments again about the propriety of providing parents with the option to provide direct parental care to their children who need it.
The Chair: Who would you like to comment on that?
Ms. Linda Korgemets: I'm happy to comment. I guess we can do it in the order in which we spoke.
We feel the source of funding to allow a parent to choose to stay home should not be out of the EI fund. I cannot disagree with the importance of having a parent at home with a small child. I know the studies say it's up to the age of three, that those first three years are so critical to their development. Our position is that there has to be a way to provide parents with additional take-home pay or something like that, through tax cuts—payroll tax cuts and income tax cuts—so that they can make choices as to whether or not they can afford to have a parent stay at home.
We're a one-income family, but I'm obviously very well paid because of my profession. Our daughter is now eight years old, but when we made the choice for a parent to stay home, we were both in the volunteer sector. It was under extreme financial hardship that we made that choice. And it was a personal choice. I think we have to recognize that families have to have a way to make their choices. They do need more money in their hands, because we are significantly taxed. But I think taking that money for maternity/paternity leave out of the EI fund is seriously flawed.
Ms. Carolyn Bennett (St. Paul's, Lib.): Maybe I'll just ask a question, then. I just want to go back to the maternity/paternity family issue. In refining it, one of the questions will be how flexible it can be. If you look at the European models, all of the countries that we have looked at thus far that have good maternity/parental leave have set it at a year. But how flexible are they within that year, in terms of one parent taking six months and then the other parent taking six months, or having one parent take six months and then just spinning out the next six months at an hour a day till the kid's in school—just getting the kids to and from care and all of that? You can design a flexible system that is worked out with the employer in order to try to figure out how you do this.
Maybe we can hear from the chambers and from the restaurant association, because they do make that choice within families. If you're the renowned chef at a restaurant, it might be that the partner takes the time off because within the family they may say it would be better for the partner to do so. We want to leave the choice to the family, but I think we heard pretty compelling arguments on the children and youth at risk subcommittee of HRD last year, international examples of why we actually do need to do this in terms of that year. That was my question to the people who had already commented on parental leave.
The other question was to the direct sellers, that sector being an excellent transition job from social assistance. Other than EI, do you see any flexibility required from CPP disability? Again, those of us on the disability committee felt a trial or a partial disability put them at the same risk if they were going to try to do something in your sector. Is there something we could be doing on the CPP side that is similar to what you said about the EI side?
Ms. Terri Lohnes: We're waiting for it to happen.
Ms. Elyse Allan: I'd just make one comment. First of all, in terms of your comments about research, I'm going to talk a little about it from two perspectives.
The first comment is that the board of trade is not only an organization with membership, it is also a small business. We're a $16-million business with 350 employees. We operate three restaurants and have lots of part-timers. We haven't gotten into direct sellers yet, but we have telemarketing.
I think there are two perspectives. First, officially from the board of trade, we have not looked into where the payments should be coming from. We have not gotten into that, but I'll let Terri comment on that if I'm missing something or misrepresenting something.
I think we have talked about it within the context of the need for flexibility, as opposed to where the payment comes from. It's not to refute the research in terms of what we're seeing and in terms of the desire among employees, quite honestly, to want to be home during this time period. From a small business standpoint and from that of our members that are small businesses, I think the issue is how to give businesses the flexibility to deal with this situation when an assistant, when a key person, wants to leave, has to leave, desires to leave to take care of a young family, a newborn or an adopted child.
How do you then deal with that space as an organization? It's a job that's not being done when you are a ten-person organization, a five-person organization, or a three-person department. I think any one of us working in that situation recognizes how difficult it is to even run your own offices when a key person leaves for a year at a time when you don't have flexibility in terms of how you deal with that and how they handle it.
I appreciate your key word around flexibility. We've not come out with any formal position that helps to answer you at this point, but it is something that several of our committees—taxation, the labour law committee, as well as the quality of life committee—have all been touching on and addressing.
Ms. Carolyn Bennett: Is not the workforce a little bit more flexible than it used to be? In terms of the ability to get somebody to come in to do a contract job for a year, I would believe it's much easier than it used to be.
Ms. Elyse Allan: That's right. In some places, I think that's the case. As you're saying, there is more flexibility. It's a different market than it was two decades ago, certainly, but I think that would almost depend quite a bit on skills, experience, and who has access.
The Chair: Mr. Ferrabee, would you like to join in?
Mr. Michael Ferrabee: If I could just add something on top of that, I'd really caution you when you're going through it, when you look at it. Perhaps it will involve getting some people who run their own business or some smaller businesses involved in it.
Ms. Carolyn Bennett: We generally only have five staff in our office. As a doctor, I sometimes only had the patient, but we'd go with it.
Mr. Michael Ferrabee: I think there are an awful lot of professions out there, and there may be an awful lot in our industry. I have a staff of five. I had somebody off on maternity leave for four months. It was manageable. “Manageable” meant that I did the work, but it was manageable as a manager.
Ms. Carolyn Bennett: I'd think you might have hired somebody.
Mr. Michael Ferrabee: Doing what we do, no, probably not. It would have just meant that I had to do it for a year. If I had two or three people off in an office of five or six, I'm not sure what we'd do. Those are real challenges—and that's speaking personally from what I do on the public policy side.
In a small operation or business, with Joyce's reference to having the chef you've trained up and opened an operation with, if you're all set to go and all of a sudden you discover that chef is gone for a year, you have to keep in mind that the person is not just gone for a year, but that you have to hold that job for them too, right? You're trying to fill a job for somebody who may have a special knowledge or ability—
Ms. Carolyn Bennett: Like ethnic cuisine.
Mr. Michael Ferrabee: Like Asian cuisine. Maybe your chef is doing sushi or something like that. You have to try to find somebody who can do that—and there is a shortage there. You have to bring that person in and say you have a job for him or her, but that it runs out in twelve months.
Ms. Joyce Reynolds: Or three months or six months or seven and a half months. We don't quite know how long that job's going to last. That's the other thing. It's the not knowing whether you're hiring somebody on contract for three, six, or nine months, or now for a year.
Mr. Michael Ferrabee: Right, and from an employee's standpoint, that flexibility fits into the big picture stuff. The social engineering fits when you're talking about hundreds and hundreds of employees with somewhat interchangeable jobs. But when you get down to the level of many small businesses in which there's one person in charge and that person has built up a knowledge over a bunch of years, having to contract that out may not be feasible.
Ms. Carolyn Bennett: If you don't give adequate parental leave, the person just quits for good and you've lost all the training you've given to that person. There's something about the European model that allows more and more people to be trained for these jobs so that when the next person comes on maternity leave, there is somebody who is able to fill in. I think that's what the research that came to our committee showed.
The Chair: Thank you, Dr. Bennett.
Mr. Jack Millar: Thank you, Mr. Chair.
On the question about EI and CPP, the thrust of the submission from the Direct Sellers Association is that the people who work in this industry are self-employed. A lot of people who have been displaced from employment are looking for alternatives in order to make a living. This industry has historically been there for them. Its paradigm is women; the majority of direct sellers are women, and a lot of them are looking for some kind of flexible situation whereby they can earn income. They cannot be locked into a 9 to 5 employment situation.
The information that has come to us is that the delivery of the EI program discriminates against Canadians who are trying to start small businesses, in terms of decisions made on an ad hoc basis across the country as to continued entitlement. What happens to people who are attempting to earn a living, who get blocked off at a certain level, and who effectively become disinterested in having to make such a significant leap forward to completely get off EI or welfare rolls?
It's the same thing in terms of CPP. The information we have, although it's much narrower, is that the program there is so focused on the employment side, on trying to re-enter the employment market, that it does not look at Canadians who are attempting to become self-employed and to earn an income in that fashion.
The Chair: We have a final questioner.
Mr. Scott Brison: Thank you, Mr. Chair.
Mr. Ferrabee, a sushi chef doesn't take a lot of time to cook sushi, so it's not—
Mr. Michael Ferrabee: If you're interested, there's an enormous demand for it and it's almost impossible to fill. They fly people over from Asia on a regular basis. There are hotels and restaurants in this country that just can't open their concept—
Mr. Scott Brison: If you knew sushi like I know sushi...
Voices: Oh, oh!
Mr. Scott Brison: Thank you.
I have a question on the changes in EI. I was in Saskatoon on Saturday and met with some people who are involved in the chamber of commerce there. It was brought to my attention that it could impact the decisions of small business people in terms of hiring. In fact, there may be a law of unintended consequences in that it may kick in and actually effect a form of discrimination—potentially—against women in some roles. That was raised as a potential issue by small business people who are concerned that it may in fact create a disincentive to hire women. I'd appreciate your opinion on that.
Secondly, could having the benefits extended for a year potentially create an increased level of subordination of the lower-wage earner, in a couple, for instance? Obviously a couple would have to make a decision in that case. In fact, while two people may be equally committed to careers, not to say that they're less committed to child-rearing, there may be a decision made based on income. In fact, one could expect that to be the case. That decision may in fact subordinate one person, perhaps unfairly. That also may have a deleterious effect on women during a transitional period.
Ms. Joyce Reynolds: Clearly we don't have the answers to those questions. We don't know what the impacts are going to be. Our concern is that the department doesn't know either. These things have to be taken into consideration.
Maybe there should be a very long phase-in so that you can try it at different leave levels. Maybe there need to be other considerations, such as having to tell the employer exactly when you're coming back if you're going to extend it for a whole year. That's something employers are concerned about: for how long are they replacing the person? They have no idea at this point, because some people are not going to be able to afford it, or they're not going to want to, or they've invested so much in their career that they can't afford to take a full year off.
A lot of these issues haven't really been considered. Again, I want to emphasize that our concern is that it's being funded from a regressive, job-killing tax. That is our primary concern.
Ms. Linda Korgemets: I have a comment for the group as well, Scott. This isn't my chamber's position, but at our town-hall meeting 10 days ago, there was a fellow who attended with me, a very successful small businessman in our area who does financial planning, insurance brokerage, and that type of thing. He said it would definitely impact how he hires and how he runs his business.
First of all, he's not subject to federal law, so he does not have to keep a job open for a year, if that's what EI gives the person. He would say, well, God bless you, you're making the right decision, because your child is more important than whatever you would do for me, but I have to run my business, so your job isn't being held open and I'll hire another person down the road. That was his bottom line. I know that's how he would run his business.
We have not surveyed our members on this point, but I would be very happy to. I work for a very large company, but I think we all recognize that small business truly is the backbone of the country. I would be very interested in knowing how smaller offices would run with people going out for a year. Again, I have to reiterate that we don't like it coming out of the EI fund either; we think that's not good policy.
Mr. Scott Brison: Thank you.
Mrs. Harmon, you commented on the tax issue and the corporate taxes. I just wanted to let you know that the corporate tax rates in Canada are the second highest rates of the OECD countries, of 31 countries.
You mentioned that some corporations aren't paying taxes. They're allowed to carry a loss forward sometimes, but by and large, they're paying quite a bit on the tax fund, just so you know.
But on the general tax side, in the 1990s we've seen personal disposable income, take-home pay after taxes, decrease by 8%. During the same time, Americans have enjoyed a 10% increase after taxes. That has led, in part, to the highest rate of personal debt in the history of the country. We have the fastest-growing personal debt rate of all of the G-7 countries.
So while the country's in the black at an unprecedented level, Canadians are now in the red. I would argue that the one thing tax relief could provide Canadians with is an opportunity to get their own personal financial houses in order, because that's becoming a real worry, particularly with the negative savings rate.
Mr. Ray McLeod (Chair, Canadian Pensioners Concerned Inc.): May I respond to that?
Mr. Scott Brison: Certainly.
Mr. Ray McLeod: One of the previous speakers also referred to our debt situation as being the product of past government financial irresponsibility.
I'm surprised that all you people are so young. The reason for the big part of our debt is John Crow's decision in 1988 that we had too high an inflation rate. Our inflation rate was 3.8%, whereas the worldwide average in industrial countries was about 4%. We were not out of line. He decided he would kill inflation by raising the bank interest rates. It had a devastating effect. Canada was in a recession by 1989-90. Whereas the rest of the world had a recession just beginning, we were already in a deep depression and went further into the depth of the depression.
That is written up in a book called Shooting the Hippo, which is by Linda McQuaig. The subtitle of that book is, Death by Deficit and other Canadian Myths.
As an illustration of the impact that had—these figures are in her book and an economist has also has come out with them—in 1992, it was estimated that $20 billion of the $49 billion deficit, of all levels of government, was due to lower tax revenue resulting from the high unemployment of Crow's recession. That's $20 billion because of lost revenue: lost income tax that wasn't paid. Another $10 billion was caused by higher social assistance costs. This wasn't government irresponsibility; this was payment for people who were unemployed because we were in a miserable recession and it was survival pay. There was nothing of financial irresponsibility there. That accounts for $20 billion plus another $10 billion.
Close to two-thirds of the entire deficit was actually caused by the recession. Much of the remaining one-third was due to the excessively high interest payments, also generated by the Bank of Canada. It wasn't a case of the government being irresponsible.
I think we're still paying that off. When you talk about the fact that we are in a deficit position compared to the rest of the world, this is what we're paying off. We're now seeing the light of day.
I would strongly recommend that you read Shooting the Hippo by, as I said, Linda McQuaig. If you don't want to read the whole book by Linda, here's something: a 1995 review of her book by a fellow you all may recognize, John Ralston Saul. Some of those figures I have here he has also quoted. To get a better idea of the concept of our debt and deficit, I think it's well worth spending the time on that amount of reading.
Mr. Scott Brison: But the question is not about how we got here; the question is, how do we address the current situation in terms of level of debt? My suggestion is that in Canada we are also suffering from very high personal debt levels, partially due to increasing taxes and to decreased spending in recent years to fight the deficit. In some ways, the issue of how we got here is perhaps less paramount than how we're going to address this situation now.
Mr. Ray McLeod: I think I agree with you. The question is, where do we go from here? But I think you have to recognize where we're at. If you take a look at the number of fine automobiles on the road when you're driving to the Sheraton Four Points... I'm not complaining; I have a 1994 Taurus and I'm very comfortable, but I'm surrounded by pretty fine automobiles. I live in Thornhill and have for 40-odd years. The houses going up around me are about five times the size of mine, which I thought was a big house when I built it. So when we talk about people suffering from debt, if they're in debt it's because they've tried to build too bloody much house.
The Chair: Thank you very much, Mr. McLeod.
Thank you very much for your question, Mr. Brison.
On behalf of the committee, I'd like to thank everyone on this panel for presenting to us your perspective on the priorities that you feel should be reflected in Budget 2000.
We're going to suspend for five minutes. We will be back with the Association of Canadian Pension Management; the National Round Table on the Environment and the Economy; the Canadian Bankers Association; the Multi-Employer Benefit Plan Council of Canada; the Investment Funds Institute of Canada; and the Canadian Ecumenical Jubilee Initiative.
The Chair: I'd like to call the meeting to order and welcome everyone here this afternoon.
This is our last session of the afternoon. As I stated earlier, we will be hearing from the Association of Canadian Pension Management; the National Round Table on the Environment and the Economy; the Canadian Bankers Association; the Multi-Employer Benefit Plan Council of Canada; the Investment Funds Institute of Canada; and the Canadian Ecumenical Jubilee Initiative.
We will begin with the Association of Canadian Pension Management, the chair, advocacy and government relations committee, and the director of pension and benefits policy, CIBC, Ms. Gretchen Van Riesen; and Mr. Malcolm Hamilton, board of directors, Association of Canadian Pension Management; and principal, William M. Mercer Ltd.
Ms. Gretchen Van Riesen (Chair, Advocacy and Government Relations Committee, Association of Canadian Pension Management): Thank you.
Mr. Chair, members of the committee, thank you for the opportunity to appear before you today. We have been here several times before and we always appreciate the opportunity to have your ear.
I am a past chair of the association and the current chair of our advocacy and government relations committee. I will tell you a little bit about ACPM before I turn things over to Malcolm. We are the national voice for pension plan sponsors in Canada with over 1,000 members. We have pension assets in excess of $266 billion. The members of ACPM represent pension plans with assets ranging from $2 billion to $53 billion. In addition, ACPM members include representatives of the major actuarial investment management, accounting, and legal firms providing advisory services to plan sponsors, boards of trustees, and administrators.
With that introduction, I'll turn things over to Malcolm.
Mr. Malcolm Hamilton (Spokesperson, Board of Directors, Association of Canadian Pension Management): Before this meeting, we circulated our agenda. I'm not going to read it because it's virtually the same as what we have submitted in past years. I don't know whether other groups have the experience of being able to go with the same set of recommendations year after year because none of them are ever implemented, but that's certainly our experience.
Rather than waste your time in light of the late hour, I'm going to go very quickly through the seven or eight recommendations. The first is to publish the aging paper. In 1994 Minister Martin told us that the Liberal government was going to come forward with an aging paper. It was important. The Canadian population was aging. People were concerned about that. People wanted to know how the government was going to deal with it and what Canadians were expected to do for themselves. That paper was delayed and ultimately never produced. It's our view that the paper is badly needed. We don't see that any of the problems the minister referred to 1994 have gone away. If anything, they're just getting worse and it needs attention.
The second recommendation is on bracket creep. Every year taxes are raised for Canadians. Every time we leave those brackets exactly where they are and let inflation carry everybody's wages higher, we're increasing taxes. We then come along and misrepresent the extra taxes produced by bracket creep as some sort of a fiscal dividend. It isn't a fiscal dividend; it's a tax increase. It's over-taxation and it should be described as such, and there shouldn't be a debate about whether a tax increase at a time when the government has a surplus gets used to reduce taxes or increase spending.
If this money is coming out of tax increases and the tax increases aren't needed, it should go back to the taxpayer.
The third point is fair treatment for the working poor. There's an odd thing in Canada's system of social benefits and taxation. A retired couple in Canada with no income at all, not doing any work, is promised by the federal and provincial governments $18,000 a year, and presumably they're given $18,000 a year because someone says that's what they need to live a decent life.
A working couple who go out and work all year to earn $18,000 isn't allowed to keep it. They're expected to pay a couple of thousand in taxes, where the seniors given the money don't pay any taxes at all.
I think there's something out of whack in a society where some people are given $18,000 for nothing and other people who earn $18,000 aren't allowed to keep it. So we think we need to strive for some consistency there, and the obvious way to do it is to take down the tax burden on low- and middle-income Canadians. This is an area where some progress was made in the last budget. We're heartened by that and we hope to see the progress continue.
The next issue is raising retirement savings limits. If the members of Parliament look at me, I'm not a young man any more. I've been working for the best part of 25 to 26 years, and virtually the whole time the limit on what a registered pension plan can pay to a Canadian employee has not been changed. It was fixed in 1976 and it's still there today. I think we've tripled or quadrupled old age security, tripled or quadrupled the Canada Pension Plan benefit, and yet we leave the pension limit the same as it was. It's now, by our reckoning, a third of what the corresponding limit is in the United States or in the U.K., and it's long past the time when that limit should be changed.
Next is our 20% foreign property rule. We mention this every year. I don't know why that limit is still there. It doesn't seem to produce anything for anybody. I can't find a well-informed constituency that has much good to say about it. I don't think it costs the government much, or anybody much, to change it, and I think it's one of the things you can do that would help Canadians who are trying to support themselves put themselves in a better position for their retirement years.
Next is harmonization of regulations. If you run a pension plan in Canada you have to live with a very complicated, not at all uniform, set of rules that vary from province to province. It's very frustrating to run a national pension plan in Canada. You burn up a lot of needless time and energy in trying to comply with rules that are similar, but not exactly the same.
In our view, it's a significant impediment to increasing pension plan coverage, and we would like the federal government to take some initiative there. We know it's not something the federal government can do of and by itself, but it could take some initiative to try to get the provinces coordinated and try to get a more efficient regulatory regime for Canadian pensions.
Lastly is preparing Canadians for retirement. I do a lot of public speaking on the retirement system in this country. I can tell you from first-hand experience that there's hardly anybody in the whole country who understands that system, including seniors who are drawing benefits from it.
Typically a senior citizen is going to get three or four government cheques. They'll get pension cheques, they'll get RRSPs, and investment income. All of these plans are complicated and constantly changing. People can't plan for retirement if they don't understand what the state is doing for them and what they're expected to do for themselves. In our opinion, Canadians just don't understand that, and the federal government could take the initiative and try to do something to promote a better understanding of those programs by Canadians.
Thank you very much.
The Chair: Thank you very much, Mr. Hamilton and Ms. Van Riesen.
We'll now hear from the National Round Table on the Environment and the Economy, the executive director and chief executive officer, David McGuinty, and the chair, Dr. Stuart Smith.
Mr. David McGuinty (Executive Director and Chief Executive Officer, National Round Table on the Environment and the Economy): Thank you very much, Mr. Chairman.
I'd like to make a few opening remarks and then turn it over to the chair, Dr. Stuart Smith, who will walk the members of the committee through, with a bit more detail, some of the specific recommendations being made again this year.
Members of the committee will recall that six years ago the Minister of Finance, Paul Martin, and then Minister of the Environment, Sheila Copps, struck a committee, a national task force on barriers and disincentives to sound environmental practices. After that committee concluded its work, the national round table began making annual prebudget submissions. This year is not different for us.
There are a couple of things I wanted to table with you from the outset. The first thing to keep in mind about these recommendations is that they don't accrue and they don't come from any one single constituency in the country. We conduct a one-year national consultative process to arrive at these recommendations. Over 50 trade associations, government departments, environmental groups, labour groups, academic institutions, and many others participate fully in the deliberations.
So what you have here is a document that we believe carries a certain weight of authority, because it's backed by so many, and so many different groups have been consulted in terms of arriving at the final recommendations.
We believe that the 2000 budget should begin to build what we're calling an integrated legacy of economic, community, and ecological well-being. What you'll find here is a mixture of market-based incentives and appropriate regulations that we think are most effective in order to achieve that balance.
I'd like to quote only one passage from the throne speech, which we believe indicates the government's intention to try to now operationalize sustainable development and not simply talk about it. And there were a number of specific references, not the least of which is the need, according to the throne speech, to develop and adopt innovative practices and green technologies, push the frontiers of environmental technology and eco-efficient practices, and create opportunities to access foreign markets.
That being said, I'd like Dr. Smith to speak in more detail.
Dr. Stuart Smith (Chair, National Round Table on the Environment and the Economy): Mr. Chairman, members of the committee, in regard to the recommendations that came out of this consultative process that David McGuinty has just outlined for you, you can be assured that by adopting these you're not going to get bitten by anybody who objects, because while not every word and every recommendation has necessarily been approved by every single person consulted, we do know that all of these recommendations have the general support of all of the people who were part of the process. So they won't come back and bite you later.
In the first place, we understand that there might be an infrastructure program. If there is, we want to say that it ought to emphasize environmental issues. Even if one is doing something like building a road, it can be done in an environmentally sensitive manner. We think it's very important, therefore, that if there is to be an infrastructure program, the environment should be given due consideration.
The six measures we're putting before you are as follows. The first is federal government green energy procurement. This basically says that the federal government should undertake to procure 20% of its total electricity from green sources. It also says that by 2005, 50% of federally controlled floor space should be heated and cooled with energy efficient equipment. I don't have to explain to you why energy procurement sets a good example for society and the economy.
The second recommendation is an accelerated capital cost allowance for investments in highly eco-efficient technologies. To put it in a nutshell, what we're saying is if people can develop technologies that are 30% or better improved over the standard, then they should qualify for an accelerated capital cost allowance. This doesn't cost the government anything, but of course it does defer taxation to some extent on those particular pieces of equipment. This is nonetheless a tremendous incentive for developers of that kind of equipment, because it will help them find a market, and this does make a difference when people make purchases.
The third point is to create a Canadian program for applied sustainable economics. This has been a subject of very considerable consultation. We have been asked at the national round table to act as a home for such a Canadian program for applied sustainable economics. It doesn't mean we would become an institution to do this. It will be rather a virtual institution, a bit like the networks of centres of excellence, so that the work would be carried on by experts around the country.
The work we're talking about is essentially what I might call the new economics. We know that ecological fiscal reform is going to be coming. We know there's a movement towards taxing bads instead of goods, but we don't understand the ins and outs of doing that; we don't understand all the consequences of doing that, how best to do it.
We also have a lot of thought at our various universities and throughout the world on the philosophy of the environment, the notion of how do you protect the commons when the commons has no value in the GNP. The valuable things in life we seem to regard as being free. But they are indeed not free; they're merely free from the point of view of the way we keep our accounts. And the new ways to do accounting, the new economics, that treat the environment as though it has a value greater than zero, is easy to say but difficult to do. Some of the best minds in the country are attending to this, and we believe that a certain amount of support for those people so that work can be organized and carried forward is a good thing.
Our fourth recommendation is what's called a sustainable solutions network.
There is an error in the text you have. I'm not sure if you have exactly the text I was given; you may or may not... The text is correct, but if you have a table, it's wrong. However, I suspect the table was left out, so probably I'm wasting your time with this one.
The sustainable solutions network basically is to devote $5 million a year for five years to creating centres for both industry and municipalities so that the best practices that are now going on in industry and municipalities can be taken note of—in the case of industry it would be at the NRC; in the case of municipalities it would be the Federation of Canadian Municipalities—amassed, and made available and promoted so that the best practices that people are already doing will be spread throughout the economy more rapidly.
The fifth recommendation is to reduce capital gains taxation on ecological land gifts. You already did this with respect to people who donate securities. As you know, if you donate securities there's a deemed capital gain, but it's taxed only half the normal capital gain rate.
In the case of cultural properties, the capital gain is eliminated altogether. But the government is taking a beating on that one because people can get a cultural property assessed as being worth perhaps more than another assessor might say. The net result is that the government has had a difficult time with that.
What we're proposing is that in the case of the gift of ecologically sensitive land, the person giving the land should be no worse off than if he or she had sold the land and then donated the net proceeds. If you sell the land and donate the net after-tax proceeds, you're in a certain financial position, and if you cut the capital gains in half, then you'll be in that identical position. In other words, there will be no advantage to selling the land and donating the proceeds. You're just as well off, and you're not punished for donating the land.
So what we're saying is let's eliminate what is now a barrier to the donation of ecologically sensitive land and allow people who donate such land, so that watersheds can be better managed and so on and so forth, to at least do as well, or no worse, than they would have done if they had sold the land. I assure you that if you do the calculations, which I'll be happy to take you through later, if you like, you'll see that what I'm telling you is 100% accurate. You end up in exactly the same place if you halve the the deemed capital gain. We really think that's terribly important.
There's the Nature Conservancy and all the wonderful work it's doing for this country. As you know, with the help of government they recently bought back the island in Lake Erie. They want to do lots of good work. They have people ready to donate land, but these people are being punished for so donating.
The final recommendation is a stewardship fund for habitat conservation. This is the only big-ticket item. We're recommending that $100 million be put in as an endowment, and then the stewardship fund would live on the interest, plus whatever money can be leveraged from private sources. Industry is very much behind this. They would very much like to see an endowment and then only the interest utilized, and then money raised from industry and private citizens in order to take care of habitat issues and to deal with endangered species. It's a very detailed recommendation as to how this would be done. This kind of fund would enjoy wide support. It would be a one-time expense, and it would, as I say, sit as an endowment. You know how books are kept in government better than I, but it would not be a great hardship for the government in that sense because the money would essentially be on the books but in effect wouldn't have to enter into the net cash requirement, shall we say, of the government.
So these are the recommendations. As I say, this is not coming just from the environmental community; this is coming from all sides of the community, including the industrialists, the municipalities, the labour movement, first nations, and so on.
Thank you very much for your kind attention.
The Chair: Thank you, Dr. Smith and Mr. McGuinty.
We will now hear from the Canadian Bankers Association: Robert Wells, chair, financial affairs committee; and Mr. Mark Weseluck. Welcome.
Mr. Robert Wells (Chair, Financial Affairs Committee, Canadian Bankers Association): Thank you, Mr. Chairman, and thank you, committee members, for having us here today.
We have three sets of materials: one is the pre-budget submission dated September 10, which has a fairly detailed review of our views. We also have a slide presentation of about 10 pages, which is a summary, and we also have a one-page summary, which I tend to favour. You have a multi-page slide presentation and a one-page version available to you.
In the interests of time, as others have said, I'm not going to read from any of them, but I will attempt to summarize what we're saying here.
Essentially, we have two main messages here. One has to do with the overall fiscal thrust of the budget program you are reviewing, and the second has to do with applying the ideas at hand to banks. So I'll cover each of those two things.
First, we were asked in the letter that was sent to us to comment on the five themes you have. Having reviewed what Minister Martin has said and the very elaborate paper, the economic and fiscal update, dated November 2, we see really four concepts, all of which we applaud, support, and encourage. Those four are: first, tax reduction for Canadians; second, sound financial management; third, a focus on productivity; and fourth, but not last, an internationally competitive tax system. Our recommendation in this regard is to carry on with those thrusts. We think they are good and appropriate and what should happen.
Moving now to the specific application of those to banks, I'd really like to pick up on the theme of an internationally competitive tax system, the fourth theme of the general overview, and drop that down to banks specifically. The tax issue Canadian banks have is that they pay roughly a quarter more taxes than other banks in other like countries, such as the U.S. and the U.K. Similarly, we pay about a quarter more taxes on average than other industries in Canada. So we feel that we are taxed at a high level. So what we recommend is that we lower the tax rates for Canadian banks so that we have an internationally competitive tax situation.
The rationale for doing that is that we believe—and I think others do, from the various reports that have been issued over the last few years—taxes affect the competitiveness of banks, as they do any industry. Specifically, when it comes to banking financial intermediation, lower taxes for foreign banks or, conversely, higher taxes for Canadian banks increase the cost to Canadian consumers relative to those costs in other countries. They reduce investment opportunity and ultimately jobs in Canada, again relative to the same organizations in other countries. So our recommendation is to work toward an internationally competitive tax regime for Canadian banks.
There are three specific things we would recommend in this regard. The first is to remove the temporary capital tax surcharge that was introduced in 1995. It was introduced at that time “to help fight the deficit”, and we feel it has served its purpose and can be removed.
The second is to integrate capital taxes in general into income taxes. We are now virtually the only country that has a capital tax. Other countries have eliminated this. It's an extra retrogressive tax, and we think it should be integrated into income taxes.
The third is to reduce income tax levels to those that are applicable to international banks, such as those in the U.S. and the U.K. This would also be congruent with reducing income taxes for Canadian banks to the levels of other industries in Canada.
Those are the three specific recommendations we have with regard to applying the concepts you have in mind specifically to Canadian banks. Thank you very much.
The Chair: Thank you very much, Mr. Wells.
We'll now hear from the Multi-Employer Benefit Plan Council of Canada, Mel Norton, vice-president; and Joan Tanaka, vice-president. Welcome.
Mr. Mel Norton (Vice-President, Multi-Employer Benefit Plan Council of Canada): Thank you very much. In addition to being a vice-president and director of MEBCO, Joan Tanaka is also the president and chief executive officer of a national third-party administration firm that serves the multi-employer industry. I'm a senior vice-president with an international human resource actuarial and employee benefit consulting firm. We're very pleased to be here today.
The general approach MEBCO would like to present has been provided in an extensive paper. You'll be very pleased to know that I'm not going to review it word for word or even paragraph for paragraph. In essence, the approach MEBCO would like to support involves reducing debt, lowering taxes, and focusing on the key benefit programs.
MEBCO itself delivers employee benefits and pensions to over 700,000 individuals, and if you leverage in retirees, spouses, and dependent children, approximately three million people benefit from the programs under which multi-employer benefit and pension plans operate.
We find this kind of consultation process to be very valuable, and we have participated in it for a number of years. In essence, the approach we would like is to focus on the areas of our expertise, which are health care, aging, and retirement. We believe very much what you have is the three-legged stool, where you have benefits provided by government through employment and by individuals, which include retirement benefits, survivorship benefits, disability benefits, and health care benefits.
We're going to focus only on health care and the issues of aging. There is some considerable concern with respect to health care that the private health service plans periodically are in jeopardy of having their current favoured tax status changed. We'd like to speak out against that possibility. I know it's probably not on the table at this time, but periodically it comes up. We believe the private health services plans, which provide semi-private hospitalization, drug benefits, chiropractic, dental, and related care to Canadians, are the key to making certain that Canadians have proper health care in conjunction with the government programs.
We are particularly concerned that, in our minds, the federal government is reducing the amount of dollars that are being put towards health care or, probably more correctly from a mathematical sense, is not increasing the amounts of dollars towards health care in a fashion that's appropriate for the aging population.
Our concern comes from the fact that if the federal money doesn't keep pace with the needs, the provincial moneys also don't keep pace with needs, and the province, who actually delivers it, outsources back to the private sector more and more of these costs, whether it's through eye care, dental, drug, and so on. So we're finding that gradually, but consistently, benefits that have been provided through government-sponsored plans now need to be provided through private health services plans such as the ones our membership has to provide to our members.
With respect to aging, there's no question that we understand the demographics of Canada and the fact that the country is aging. We also understand that Canadians do not seem to be saving sufficient moneys to maintain the standard of living that they would expect during retirement. We'd like to add, in particular, to the point Malcolm made, that the paper on aging, a joint federal-provincial paper, which was shelved, should be brought back, basically to find out these problems. We'd like to support what the ACPM said with respect to registered pension plans in particular. These are incredibly complicated, and it is necessary to have someone show leadership in order to be able to harmonize the plans across the country and to simplify them.
We find that the registered pension plan process is the best process by which retirement savings can be delivered in an effective fashion to Canadians, principally because the costs that are associated with registered pension plans are so much materially lower than that which an individual is able to do on their own, and we find that these things need to be supported and they need to be grown. They will not grow with the complex legislation we have; they will shrink.
We are particularly concerned that there is a number of issues arising through the Office of the Superintendent of Financial Institutions and some provincial regulators with respect to multi-employer pension plans where they want these plans to be overfunded. They want the plans to have sufficient moneys on hand in order to be able to deliver the benefit promises, under the assumption that they wind up and all maximum benefits are delivered, rather than expected benefits.
Our concern is that if you require a multi-employer pension plan in particular, or, more generally, any registered pension plan, to hold back more money than is needed to meet the expected benefit promises, the generation that made contributions to the pension plans will not receive the benefits from them.
We have a number of other issues. I have promised faithfully to keep to my five minutes, so I will take some questions. But I would like to focus very quickly on a couple of issues that are spelled out more in our paper.
The group that sponsors multi-employer pension and benefits plans is very concerned with the degree to which the underground economy has expanded and the fact that you have a significant portion of the population that is not paying its fair share of taxes. We'd like to continue to encourage job creation, and naturally, being the group we are, we are concerned with the employment insurance issues, the fact that the surplus in the EI account is overwhelming. Essentially, this tax is not going down at a sufficiently rapid rate or the benefits are not being clawed back appropriately into the economy.
With that, thank you very much.
The Chair: Thank you very much, Mr. Norton.
We'll now hear from the Investment Funds Institute of Canada, Mr. Peter Bowen and Mr. J. Thomblison. Welcome.
Mr. Peter Bowen (Chair, Taxation Steering Committee, Vice-President and Fund Treasurer, Fidelity Investments; 1998-1999 Chair, Investment Funds Institute of Canada): Thank you.
Ladies and gentlemen, every Canadian deserves a chance to save enough to retire with a decent standard of living. Today we have three suggestions that we think will help Canadians in this regard.
I'd like to thank you for the opportunity to present a summary of the Investment Funds Institute of Canada's submission to your committee. IFIC's membership currently includes mutual fund companies that manage over $350 billion in assets. Those assets represent the savings of millions of Canadians.
How can the government provide Canadians with a fair opportunity to increase the value of their savings? First, and most importantly, it can eliminate or at least relax the foreign property rule, it can increase RRSP contribution limits, and it can reduce the capital gains inclusion rate.
As members of this committee are no doubt aware, IFIC has been concerned about the foreign property rule for a number of years now. The current 20% limit on foreign holdings in tax sheltered plans does not serve any useful purpose and in fact is harmful to the average Canadian. Your committee recommended relaxing this rule last year, and I would direct you to last year's report for an excellent summary of the issue.
The limit has constrained Canadians from properly diversifying their retirement accounts both geographically and by industry sector. This constraint has cost Canadians billions of dollars over the years.
It has been possible for a number of years now to circumvent the foreign property rule through the use of innovative derivative products. This trend has recently accelerated. There are many new mutual funds in the marketplace that have attracted substantial amounts of RRSP dollars. These types of funds use derivatives to track an underlying fund but still qualify as Canadian content. Therefore investors can expand the foreign content of their portfolios beyond the 20% limit.
While that effectively permits diversification abroad in foreign markets beyond the 20% limit, there is an increased cost to the investor. The increased cost in these RRSP funds is estimated to be between 0.4% and 0.8% a year above the cost in the underlying funds. This costs Canadians millions of dollars each year and results in a sizeable decrease of Canadians' RRSPs by the time they retire—in fact, thousands of dollars based on a $10,000 investment over 20 years. This shouldn't happen.
In addition, those derivative-based products are not easy for investors to understand. Wouldn't it be better if Canadians could buy products they understand? Don't Canadians deserve this?
We believe the relaxation, or better yet the repeal, of this rule will not be harmful to Canada in any way. A Conference Board of Canada study reported that the relaxation of the rule from 10% to 20% did not harm Canadian markets.
The House of Commons Standing Committee on Finance supported this recommendation last year, and we are hopeful that you will once again support this important initiative. Canadians clearly desire an opportunity for greater diversification of their portfolios, and it's time to stop harming Canadians with this restrictive rule.
The second matter we'd like to discuss is the RRSP contribution limit. Currently, Canadians who save for retirement by defined benefit plans effectively get more savings room than those who save via RRSPs. The initial proposal to raise RRSP contribution limits to $15,500 was designed to place all Canadians on an equal basis. Increasing the RRSP contribution limits is only fair.
Finally, the 75% capital gains inclusion rate is too high. In order to encourage investments and an efficient allocation of capital, we recommend that the inclusion rate be reduced to 50%. This will allow a more efficient allocation of capital and will lead to a more productive economy, which will benefit all of us.
In closing, the government has an opportunity to help Canadians save more for their retirements, and to that end we ask that the committee endorse these recommendations. Thank you.
The Chair: Thank you very much.
We'll now hear from the Canadian Ecumenical Jubilee Initiative, Reverend David Pfrimmer.
The Reverend David Pfrimmer (Chairperson, Commission on Justice and Peace, Canadian Council of Churches, Canadian Ecumenical Jubilee Initiative): Thank you very much. It's very nice to be here. I know you're all very patient sitting here for such a long day, but we very much appreciate the chance to be here and to share some of our views on where we think the budget should be going.
My name is David Pfrimmer. I represent the Canadian Council of Churches Commission on Justice and Peace. With me is Dennis Howlett, who's with the Canadian Ecumenical Jubilee Initiative. Our communications director, Sara Stratton, is also sitting with us today.
First of all, I'll say a brief word about what the Canadian Ecumenical Jubilee Initiative is. It's part of a worldwide movement, and some 30 churches, religious orders, agencies, and coalitions within Canada have been supporting this effort. It's based on the Jewish and Christian notion of a jubilee, which we find in Leviticus and elsewhere throughout the Hebrew Scriptures, that every 50 years there should be an opportunity to restore the relationships within society.
We find a number of prescriptions in Scripture for what needs to be done. A release from bondage, a redistribution of wealth, and the renewal of the earth are the three themes we find in Leviticus. The churches today find this is a very appropriate metaphor and view for looking at the world in which we live, where we see growing insecurity in our society, growing alienation, frustration, and polarization.
I might point out that one example of this initiative was the debt cancellation campaign, a call for the cancellation of the debt of the 50 poorest countries. Some 635,000 Canadians signed that petition. It has to be one of the largest petitions that has ever taken place in Canada.
We're here today to talk about budgets. For us, budgets are profoundly moral documents. They're a moral statement about what we value and what we believe to be important. As the dawn of the next millennium is at our door, this is an opportunity to set some new priorities and new directions to ensure a new beginning by developing what we would describe as a jubilee budget. It's time to restore some of the relationships that have gone awry.
I'll ask Dennis to say a bit about the first set of our recommendations.
Mr. Dennis Howlett (Member, Steering Committee, Canadian Ecumenical Jubilee Initiative): There's a huge and growing disparity between the rich and the poor and its deplorable characteristics, not only of Canada and our society here, but of the global community. This maldistribution of wealth threatens our ability to create interdependent and caring communities.
At the core of the jubilee message is that when some members of society suffer from poverty and debt and oppression while others have much more wealth than they need, it is time for an intentional redistribution of wealth. Now is the time to address decisively the unconscionable chasm between those who live with plenty and those whose daily existence is a struggle for survival. It's for this reason that we're calling for the federal budget of 2000 to be a jubilee budget.
We not only have a problem of unacceptable poverty, but we also have a problem of obscene and unjustifiable wealth on the other hand that threatens democracy and ecological sustainability because of over-consumption. In this context, to talk about tax cuts to the rich so that they can buy luxury cars or expensive foreign vacations while children both in Canada and around the world go hungry is simply unconscionable. We have to ask ourselves, what choices are we called to make?
Because of cuts in foreign aid—in Canada our foreign aid budget has now gone down to 0.27% of our GDP, which is the lowest level since 1965—and because of rising debt payments of the third world, we're in a situation now globally, even though we like to think of ourselves as generous, where in fact the poor south is paying $8 in debt payment for every $1 they receive in aid. And that's a low figure. The World Bank also had a study that said it was 13:1.
For example, nearly one in five adult Zambians are infected with HIV, and by 2010, two million will have died. Yet Zambia spends four times as much on debt payments as it does on health care. Zambia is waiting for Canada to cancel its debt so that it can direct resources to the needs of its people.
We need to ensure a new beginning for one billion people by cancelling the debt of the poorest countries and by increasing the quality and the quantity of our aid.
We have a written submission that details some of the amounts we are calling for. We feel they are well within what we can afford as an affluent country that also now has a budget surplus at its disposal.
Rev. David Pfrimmer: I also wanted to speak about what we believe is necessary in Canada in terms of the budget priorities.
It's our view that the needs of the many in Canada who've been forgotten must take priority over the wants of those who have already much more than they can ever use or spend. That is a fundamental principle that needs to inform how we set our budgets at all levels of government in this country.
We are deeply, deeply concerned about the rising level of child poverty. This is not just early child development. It's children who are going to bed hungry. It's children who, with their parents, are being forced to live in shelters at an alarming rate. It's children whose parents can't get jobs at a wage where they can afford to support themselves. These are morally outrageous.
Child poverty for us is a symptom of three things. First of all, it's a symptom of the growing inequality in this country and the loss of a sense of community. Secondly, it's a symptom of the growing social exclusion, about which we all should be concerned, because our security is caught up very much in the security of others. It's also a symptom of the growing level of suffering that many people are living every day, not very far from this very place.
I know you don't have time to hear lots of stories, but I happened to bring along a book, which we'd be happy to give to you. We listened to the stories of over 400 people who are living in poverty and documented some of those. If any of you would like a copy, I'd be happy to give it you. It's their stories that we need to be mindful of.
I also want to say a little bit about tax cuts, again, as Dennis mentioned. Poverty is a crisis of the spirit. We're all poor when we have higher levels of poverty in our country. Simply stated, I would like to put it this way: I cannot be who I am in this country, as a citizen, as a Canadian, unless others are able to be the people they need to be. This fundamentally goes to the very heart of what it means to have a national community we can call Canada.
In terms of tax cuts then, we need to ask who pays and who benefits. This needs to be a fundamental criterion in looking at who gets what when we talk about dividing the national wealth.
In closing, I would call your attention to the six recommendations we've made. I love a quote by Lester Thurow, which puts government in its proper perspective. Thurow is an MIT economist—we're not unmindful of economics—and he said “The role of government is to represent the interests of the future in the present.”
The children of this country and those who live under the debt burden they face are in fact the future whose interests need to be represented in this moment.
Thanks very much.
The Chair: Thank you very much, Reverend Pfrimmer and Mr. Howlett.
We'll now proceed to the question and answer session. It will be a 10-minute round. We'll begin with Mr. Epp.
Mr. Ken Epp: Thank you very much to the chairman, and also to all of you for your presentations.
I find this process intriguing, because of the huge number of divergent views we have. I don't think anybody would argue that we want to meet the needs of the poor, but there's a huge discrepancy in how we actually do that. Perhaps we ought to continue this dialogue over a period of time.
I have a question, which I'll address to the last group, with respect to the debt cancellation of third world countries.
I certainly become very sympathetic when I hear you say—and I've already read this—these people are spending money that really they should be spending on their own health care needs and education needs. They're sending it to these rich countries that lent it to them at interest, and now they're having trouble even making the interest payments. Some of them are falling farther behind every year, which is a deplorable situation.
Yet I am concerned about the lack of accountability exercised in some of those countries, where the money sent there—and I guess it's like some of the money the government has spent in this country—just doesn't hit the target group. It gets lost in the bureaucratic jungle, and the people who need it don't get it.
Our own natives are an example of that. We spend around $20,000 per year per native, which would mean at least $40,000 to $60,000 for the average family—and most likely it would be $80,000 or $100,000, with mom and dad and two or three kids—and yet they're living in abject poverty. They can't replace a broken window. They have sewer systems that don't work. Anybody else in the country who made $100,000 would be able to arrange that.
Clearly, the money isn't getting to them. That's totally obvious. It's being eaten somewhere by somebody else.
This has to be true in many of the foreign countries. In fact, we have received information that basically says as much.
When you are talking, then, about forgiving the debt of these foreign countries—and in principle, I agree with the concept—are you also then contemplating putting in some measures of accountability so that it actually goes for what it's intended?
Mr. Dennis Howlett: On the tax cuts question, I should make it clear that we are not opposed to tax cuts at all, but what we would say is that any tax cuts should be focused to benefit low- and modest-income families—in other words, go towards helping to redistribute wealth and deal with the problem of poverty.
With regard to third world debt and how to ensure that the resources freed up go to meeting the needs of the poorest people, this is a difficult question. One of the contradictions is that until now, in order for countries to qualify for debt relief, they've had to implement up to six years of structural adjustment programs. These are conditions laid on by the IMF and the World Bank in order for countries to get debt relief.
The problem is, structural adjustment programs often have required countries to cut their spending on health and education. So in order to get the debt relief, they've had to cut the spending on the very areas they need to spend on. These are the kinds of conditions we've had from the IMF and the World Bank.
What we're calling for instead is that not just the creditor countries and not only governments of the south and of the north but also citizens' movements come together to develop a way to effectively hold governments accountable. I think there are some specific suggestions of how that could be done, and there are some UN mechanisms and so on that hold countries accountable, just as Canada was held accountable for its implementation of its international covenants. A similar process could be used to hold countries accountable for ensuring the money freed for debt relief goes to people who need it.
It's not something we can solve by simply having the creditor countries dictate the terms on their own. That in the past has not worked. It hasn't ensured money goes for health and education.
Mr. Ken Epp: I don't want to belabour the point unnecessarily, but is it unreasonable to say that our forgiving of the debt is conditional upon, say, a small team of auditors coming in to check out how that particular government is spending their money, as our Auditor General checks our accounts?
Mr. Dennis Howlett: Well, this is something we're working on as part of an international jubilee movement. Jubilee initiatives in the south have actually come up with some innovative ways of trying to do that.
For example, in Zambia, which I referred to earlier, the jubilee movement there has taken the initiative to bring together government, labour, church, women's organizations, and other citizens' groups in working out a proposal for how the resources freed from debt cancellation would be used in that country. Similar initiatives are under way in Mozambique, Uganda, and other countries.
That's the model we would encourage rather than just letting the IMF and the World Bank set the conditions.
Canada has played a leading role in trying to address this issue. We hope the group of 20 that has now been set up as a result of the September meeting of the IMF and World Bank, with Paul Martin as the chairperson, can address some of these questions and come up with some creative ways to do that, ensuring that both the south and citizens' groups have a say in that determination.
Mr. Ken Epp: Okay, but from my point of view, I'm quite suspicious that a lot of the money we lent to a lot of these countries went simply to buying arms for the individual government, or whoever it was who needed arms at that time. It wasn't used for the right purposes at that time. I think we should at least make sure it doesn't happen again.
That's where I'm coming from on that.
Mr. Dennis Howlett: That is a problem for other countries. In Canada's case, most of it went to buying wheat and Export Development Corporation financing. That's where the debt is held. I don't think much of that would have gotten to arms, in Canada's case. But globally, that has been a problem in terms of misspending the original loan.
Mr. Ken Epp: Well, I have a son who worked on the ground in some of these countries. Actually, wheat is converted into guns quite regularly—
Mr. Dennis Howlett: Okay.
Mr. Ken Epp: —if you check into it. That's the point I'm trying to make.
I want to talk now to these financial managers. Over and over I hear that we should increase the 20% rule, that it's unfair to Canadians, that they don't get a proper return on their money. I have a question: If you say, well, you can invest anywhere in the world, with higher limits or with no limits at all, how do you keep investment in Canada?
I know it's a pretty broad question.
Mr. Peter Bowen: We've had some studies done that will indicate that the capital will rebalance itself if stock prices come down in Canada because money does leave the country. Now, we don't believe that will in fact happen, but foreigners will invest in Canada. Billions of dollars are invested by foreigners into Canadian stocks each year. That will maintain the markets and result in an efficient capital allocation.
Mr. Ken Epp: Okay.
Does anybody else want to respond to that?
Mr. Mel Norton: I'll respond in part, if I may.
One of the things you have to remember, particularly when you're talking about pension plans, is that the liability of Canadian pension plans is Canadian dollars. I don't think you'll find that any prudent pension plan is going to take all their money and invest it out of the country, but they certainly need to be able to diversify beyond the level of Canada. They need to in order to be able to make returns for the members of the programs.
So I don't think anybody is suggesting to you that it should be a 100% foreign limit for registered pension plans, but I do think people are saying quite clearly that the current 20% limit is inadequate, and it needs to be expanded.
But remember, every trustee of every pension plan understands that his or her promise to pay is to pay in Canadian dollars, and they will need Canadian dollars. You do not need to fear that the money is all going to go out of the country. You do need to make it easier for Canadians to be able to save in a more effective fashion.
You also have a lot more money coming into these markets. The Canada Pension Plan fund is going there and you have a lot of public sector pension plans that are going to invest in the markets. At this time, particularly, you have incredible room and incredible opportunity to increase your foreign content limit, but I don't think you need to remove some caps.
Mr. Ken Epp: Thank you.
Is that it, or can I ask one more?
The Chair: That's it.
Mr. Ken Epp: Just one quick one?
The Chair: Okay.
Mr. Ken Epp: He just mentioned the Canada Pension Plan. I wanted to ask the bankers and the other investment people whether they fear the imbalance, the concentration of a lot of investment dollars from CPP. That is going to be one huge fund that will make every other fund look like a midget, basically.
Mr. Malcolm Hamilton: Maybe I could take that.
It's not as big as you think. It will be a huge fund if they're targeting $100 billion five to eight years out, but the Ontario Teachers' Pension Fund right today is $65 billion. The federal government plans for their employees, which are now going to be pushed into the market, albeit slowly, are over $100 billion.
So this isn't going to be the fund of all funds, towering over the Canadian environment. It will be one of a number of large funds. I think everybody is a little concerned that people in government won't keep their hands off it, but I think it's off to a good start. If there is meddling, I think it will be very evident to Canadians, and the people who meddle will pay the price for meddling.
That would be my view.
Ms. Gretchen Van Riesen: I would add that I think there is a fear, however, that if the foreign property rule isn't lifted, even for the Canada Pension Plan, there is a real risk that there could be some overvaluing, if you will, of Canadian stocks, too much assets going into the Canadian environment. So I think the foreign property rule applies equally to the CPP.
The Chair: If I can piggyback on your question, Canada represents on the global market, what, 2.4% or 2.5%?
Mr. Peter Bowen: Yes.
The Chair: It's not very wise to have 80% of your—
Mr. Peter Bowen: And it doesn't represent many industry sectors. We're very resource-based. If you want technology stocks, you're very constrained right now by the foreign property rule.
The Chair: Thank you, Mr. Epp.
Mr. Roy Cullen: Thank you, Mr. Chairman.
Thank you, panellists, for your presentations. I have three questions, mostly just to clarify.
Mr. Smith and Mr. McGuinty, in your brief you mentioned the need for accelerated capital cost allowance for investments in highly eco-efficient technologies.
We met the other day with the Canadian Chemical Producers' Association, and generally some industrial interests have been conveying that in the context—I guess particularly of Kyoto—that big incentives or economic instruments are not what they're looking for, that in a lot of these investments that have been made and will be made the business case will stand on itself. They're really looking more for general tax relief, and that will help them further make the business case.
You talk about exportable expertise in technologies, and maybe that's the distinction, or maybe I'm just getting mixed up.
Dr. Stuart Smith: We're certainly not opposed to tax relief of a general kind, because one of the things we're going to have to do in this country is a great deal of reinvestment in order to not only meet the Kyoto standards but improve our productivity and also protect the environment at the same time. So, please, Mr. Cullen, don't get the idea that we're somehow standing opposed to that. We understand the need for that.
What we're saying is that there are an awful lot of technologies out there seeking a home right now that could improve the productivity of business, that could save on energy. The difficulty has been that fuel prices have not been very high, so if you introduce a piece of equipment that saves you money on energy, your payback period tends to be a little longer than what companies normally want to do with their scarce capital.
If you could provide an accelerated depreciation or capital cost allowance for equipment that is demonstrably better than the standard, that is a good 30% better, that is novel equipment, the company that takes a bit of a risk by being out there early on a novel piece of equipment that isn't broadly accepted in their industry—they're taking a chance on it because of the energy saving—at least is rewarded by a faster payback period. For government, it merely means deferring the tax for a certain period of time.
If it's either/or, either general tax relief or help for innovative new technologies that improve productivity and improve the environment at the same time, I think we'd go for general tax relief too.
We're not sitting here in argument against the Canadian Chemical Producers' Association. In fact, its former chair, its former president, Jean Bélanger, is here with us as a member of the round table; he's the chair of our committee that came up with these findings. So we're certainly not standing opposed, but there is a lot of novel technology, which, if demonstrably better, would be good for the economy and good for the environment, but needs a shorter payback period, especially when fuel prices are not all that high.
Mr. Roy Cullen: Would the accelerated capital cost allowances approximate at all the useful life, or would they simply be an accelerated capital cost to bring the business case into more realistic terms?
I'll put the question on the table, because there is an argument that says that as a government we should be moving to equating CCA, capital cost allowances, more with economically useful lives. We have a hodgepodge of CCA rates that were put in for different reasons, and we have computer people with computer technology saying it's not fast enough and the railways saying it doesn't really reflect the true economic life.
Dr. Stuart Smith: They would not reflect useful life. Useful life would be much longer. We're saying continue the same game we've been playing for a long time, which is to fix certain things that are desirable and make their payback period artificially shorter so that we get both an economic and an environmental gain at the same time. If one is philosophically opposed to that, then you won't like this idea, because you'll say no matter how good your cause, we don't want to do anything other than useful life.
I understand that philosophical position, but what the group we brought together said was that it would be good for Canada to get this new ultra-efficient technology. As a kind of market failure, namely that people tend to rely on well-proven equipment that has been around for a while, if you want to get something new in that's demonstrably more efficient, there's a reluctance to do so. If you can make it a shorter payback period, then you tilt the scales to some extent toward the new innovative equipment.
Mr. Roy Cullen: Okay, thank you. I'm not here to advocate one or the other; I'm here to listen.
But if I could go to Ms. Van Riesen and Mr. Hamilton, in your fifth point you talk about no viable opportunities for those earnings covered by the RRSP limit of $75,000 currently. There has been some representation by some larger corporations in terms of the registered pension plan limits, and you don't mention that, along the notion that the amount a corporation can deduct for tax is limited by the Income Tax Act. I don't have that number in front of me; maybe you can clarify that.
What are the limits now and what should they be, and do you as an association support any increase in those registered pension plan deduction limits?
Mr. Malcolm Hamilton: While it's imperfect, the Canadian Income Tax Act attempts to put RRSPs and pension plans on the same footing. They have to do it in different ways, so we have an RRSP limit that's $13,500, which you hit when your income is $75,000 a year. There was an argument here that it should be $15,500. The corresponding pension limit is basically the idea that you should be able to get a $60,000-a-year pension if you spend a full career somewhere and work 35 years. So the equivalent in the Income Tax Act is that a $60,000-a-year pension is like saving $13,500 or $15,500 a year in an RRSP over your life. What these vehicles provide is an excellent way for Canadians who earn $75,000 or less to provide for themselves, or for their employers to provide for them, a good pension.
When you get above those limits, if you have someone who earns $100,000 or $125,000 or $150,000, there is no tax-sheltered way to save for retirement. So if you work through all the arithmetic, what you find is to deliver a dollar of pension on earnings over $75,000 basically costs twice as much as delivering a dollar of pension on earnings up to $75,000.
Mr. Roy Cullen: If I could interject, does that mean, then, that you support increasing the limits on the registered pension plan contributions as well?
Mr. Malcolm Hamilton: Yes.
Mr. Roy Cullen: To what level?
Mr. Malcolm Hamilton: We probably support doubling them, doubling the registered pension plan limit and doubling the RRSP defined contribution limit.
Mr. Roy Cullen: Okay.
Mr. Bowen, on the 20% foreign content limit and the recommendation to move to 30%, again I'll be the devil's advocate, but there has been some discussion that it could impact the Canada-U.S. dollar, that it may have impacted the Canada-U.S. dollar rate as it is. In other words, if you move it to 30%, there would be more funds moving outside of Canada and that could cause a further decline in the Canadian dollar vis-à-vis the U.S. dollar. Could you comment on that? Is there any validity to that argument?
Mr. Peter Bowen: I would argue that there is not any validity to that. I refer back to the Conference Board of Canada study that looked at when the percentage is increased from 10% to 20%, and it concluded that there was no harm to the Canadian market. In addition, this will partly result in a rebalancing. Canadians have indicated a desire to move some of their retirement assets outside of Canada for diversification purposes. This is done through mutual funds that use derivative products. It's done by going to banks and buying GICs that are tied to foreign stock indices. In fact, one of the significant players in this market is the federal government itself. The Export Development Corporation issues notes each year that are tied to a basket of foreign stocks, but they count as Canadian content.
All of those things have resulted in movement outside of Canada. So people have moved money outside. The issue is we're forcing them to pay additional costs; it isn't whether additional moneys will move outside. People are paying very substantial costs in order to effect these results. They are continuing to do so, and it's impacting their retirement savings. It's being done in a complicated fashion that they don't understand.
Mr. Roy Cullen: Have you done any sort of modelling—I guess that would be the government's job—on what effect, if any, these foreign property rules have had on the Canada-U.S. dollar?
Mr. Peter Bowen: Again, there was no impact on the markets in the previous change. If you look at the amount of dollars we're talking about, it is relatively small compared to the monthly trade flows between Canada and the U.S.—the monthly investment by foreigners into Canadian stocks. Billions of dollars are moving in and out each month. The total amount in RRSPs, I believe, is around $350 billion to $400 billion. A 2% increase is about $7 billion to $8 billion. We certainly won't see anywhere near that much move out of it. Not everyone will take advantage of the increases. There are investors who are closer to retirement who have all their money in GICs, and that's perfectly appropriate. So the dollar values involved are relatively small.
The Chair: Ms. Van Riesen.
Ms. Gretchen Van Riesen: There are reports other than the Conference Board report on the 20% foreign property rule. In fact, last year when we were here I believe we referred to a report done by Keith Ambachtsheer on behalf the Pension Investment Association of Canada. There are a number of modelling exercises in there. I don't recall specifically if it addressed the impact on the dollar, but it certainly demonstrated and defended the position you've heard here that by not removing the foreign property rule, we're actually providing a disincentive. What kind of message are we sending to other countries around the world about investing in Canada and the quality of Canada as a place to invest when we have to force our own residents to be restricted to a rule?
Mr. Mel Norton: I think it's also important to remember that our proposal—everybody has a proposal—is not looking for you to take the limits off immediately and start it that way. Just about all the proposals I've seen are looking for a gradual type of increase, much like what happened from 10% to 20%. Our proposal, for example, is the same as a lot of others. You should get from 20% to 30%. Once you get to 30%, maybe you'll look and keep going, but that will be five or more years from now. I think that will mitigate a lot of the concerns about sudden changes.
The Chair: Some people are getting around the rule anyway, right? The point is, why do you allow people who may have the means to get around the rules to get around them and deny people who want a fair shot at a good investment—
Mr. Mel Norton: It isn't a level playing field. The biggest funds are already doing it and have been doing it for a considerable period of time. They have rulings on it to prove it's valid. The classic example, of course, is the Ontario teachers, who have about 70% of their money outside of Canada anyway—equivalently.
The Chair: Ms. Guarnieri.
Ms. Albina Guarnieri (Mississauga East, Lib.): You've sort of answered the latter part of my question. Is there a general consensus around the table that it would be prudent that any discussion on increasing the allowable rate be a step-by-step, gradual implementation to maximize for Canadian funds? Do you share this viewpoint? I see hesitation.
Mr. Peter Bowen: Our thinking on this has evolved as these derivative products have come out on the marketplace. Our recommendation is to increase it to 30% by 2% a year, but we would be equally supportive of eliminating it. Right now, people who want to invest outside of Canada are investing outside of Canada, and they're paying a significant price for it. So why are you forcing people to pay that price? We've come around to thinking that getting rid of that limit would be entirely appropriate.
Ms. Albina Guarnieri: I know time is very short—
Ms. Gretchen Van Riesen: Can I just add to that question?
Ms. Albina Guarnieri: Sure.
Ms. Gretchen Van Riesen: ACPM has been looking at this issue for many years. We are totally satisfied that removing it today will only benefit Canadians, and we don't need to use the step approach. We understand the political issues. If that's the only way to move it forward, fair enough. In fact, people today are being punished by this rule—by the inability. So every day, every year we avoid removing it, the more it takes away from Canadians' ultimate retirement incomes.
The Chair: Ms. Guarnieri.
Ms. Albina Guarnieri: I want to give the remaining time to Dr. Smith to flesh out his proposal, which he said he wanted to address, on reducing capital gains taxation on ecological land gifts. We're always looking for efficiency.
Dr. Stuart Smith: Thank you very much, Ms. Guarnieri. The main thing here is that we should encourage people to give ecologically sensitive land to the Nature Conservancy of Canada; to the crown. At the moment, these gifts are to some extent impeded by the fact that capital gains tax is levied upon them, if the land happens to have an adjusted cost base lower than its current market value.
We're just asking for the government to do exactly what it did with gifts of securities. If you give securities now to a registered charity, for example, the deemed capital gain is taxed at only half the normal capital gains rate. As a consequence, there's no advantage to you in selling the securities first and then donating the net proceeds.
I am just looking for ecologically sensitive lands to be treated the same way. This is not a departure. We're not asking that capital gains tax be eliminated completely, the way it is in the United States, by the way. If you give land in the United States that's ecologically sensitive, no capital gains tax is levied. We're not asking for that.
The evaluation of land is not as cut and dried as it is for securities. It's a whole lot easier to evaluate land than to evaluate paintings, for example. When paintings are donated free of capital gains, as I said earlier, there's some reason to believe the government hasn't always received its fair share. But in the case of land, it's reasonably possible to evaluate it. The amount that might be lost to the government by over-evaluation, when you will get only half the capital gains tax anyway, is fairly trivial.
It would bring forth a lot more donations of land. I don't want to use the committee's time to go through the calculations and give you an example, but I can assure you the algebra has been done. This just makes it equivalent to selling the land first, paying your taxes, donating the remainder, and getting your tax receipt on the remainder. This comes out exactly equal to that. That's what we're recommending.
The Chair: Explain this to me. If that piece of land is in the greenbelt and you can't build anything on it, the value of it will be far less than if you could build a subdivision on it.
Dr. Stuart Smith: Sure.
The Chair: It's kind of interesting. If it's ecologically sensitive, obviously they shouldn't be building on it anyway. So the value would be diminished quite a bit.
Dr. Stuart Smith: Of course. Whatever the value is, that's the value. We're not suggesting it be altered at all. If you have a piece of wetland or an island in Lake Erie that you own and would like to donate to the Nature Conservancy or the crown, it has a value. If the value has been affected by zoning, so be it.
We're not suggesting you change the value. We're saying that if you paid $40,000 for the land and a reasonable evaluation would say that given its restrictions, zoning and everything else, it's worth $100,000, you would be taxed on $60,000. If you were in a 50% tax bracket and 75% was capital gains, you would be taxed on $45,000. That's $22,500 that you're essentially losing, but you're getting a $50,000 credit for donating the land. So you make $27,500.
All I'm saying is if you were to sell the land for $100,000, pay your taxes on the $60,000 gain, then donate the remainder and get a tax receipt, it comes to exactly the same number. If you have paid only half the capital gains, that accounts to the same number. If you pay today's capital gains taxes, you actually do better by selling it. So the land is sold to somebody who will use it for commercial purposes, or sit on it or do whatever, but at some point is hoping to develop it, and it's lost to the crown or to the Nature Conservancy.
The Chair: It's if it's ecologically sensitive, they shouldn't be developing it.
Dr. Stuart Smith: If it's zoned properly, you're absolutely right, Mr. Chairman. If it's zoned to prevent development, then there's no need to donate it because nobody can do anything with it, so who cares. But most ecologically sensitive land, I'm sorry to tell you, is not zoned in such a manner as to prevent development. There are plenty of people wanting to develop the Oak Ridges moraine, not far from you.
All I'm saying is that zoning doesn't always save you. There's plenty of ecologically sensitive land, and the government itself cooperated with the Nature Conservancy to buy the island in Lake Erie. So there's credit for so doing, in my view.
All I'm saying is that this way you level the playing field so that the person is encouraged to donate the land. Just as we have it for securities, it would be exactly the same. We're asking half the capital gain.
The Chair: Okay.
Mr. Roy Cullen: Thanks, Mr. Chairman. I wanted to follow up on that point, Mr. Smith. Our government will be introducing the endangered species legislation, in all probability. I think it's a certainty.
By the way, I've looked at the map and I think the map works. One of the aspects I was exploring with them is... Minister Anderson has been talking about his preference to use carrots rather than sticks, in terms of habitat. Do you think your proposal with respect to ecologically sensitive land might fit into that package as a carrot, so someone who suddenly realizes they're sitting on land that is a habitat for endangered species might...?
One of the other things is they've been talking about compensation. So I don't know whether the incentives would be jigged exactly right. Would you think it could be worked into some package to provide an incentive for people to turn it over to a nature reserve and not expose themselves to the capital gain?
Dr. Stuart Smith: Yes. Let me start answering that, and then I want Mr. McGuinty to add something with regard to our stewardship fund.
There are all kinds of habitats that have not been zoned as such, to follow up with your and the chair's question. And certainly, this provides... Put it this way: it takes away a disincentive. It provides an incentive because if a person has a generous spirit and wishes to donate the land to protect the habitat, at least it doesn't treat him or her as a fool for so doing, because he or she would have been better off to sell the land and then donate some money to the Nature Conservancy. At least it evens it that way.
We're suggesting, however, to work with Minister Anderson's idea to rescue habitat, in particular endangered species, and this is where the stewardship fund comes in. Maybe Mr. McGuinty would want to say a word about that.
Mr. David McGuinty: Just to pick up on a point, one of the interesting results of the millennium bureau's polling in the last two years has been that environment is polling in the top three consistently. Add to that David Foot's and others' analyses that indicate that this is going to be the largest transfer of wealth in the history of the country in the next 15 to 20 years and you have a number of people who are sitting on a lot of assets. One of the problems we're facing on the ecological side, the species-at-risk legislation, is that we're not valuing the economic benefits of healthfully functioning ecological systems. What is it worth for the natural ecology to cycle nutrients? What is it worth to control flooding and keep climate controlled? What is it worth to have soil productivity, forest health, genetic vigour, pollination, and natural pest control, for example?
The answer is that we know they have a hefty economic value, but we don't know what they're really worth, although one stab at quantifying wild unprocessed biodiversity in Canada has set a value at somewhere between $70 billion and $80 billion.
The call for a market mechanism in terms of this fund for habitat conservation is really in response to the demand that is coming from every quarter. Every group we've worked with has been saying, if only there were a public-private mechanism through which we could partner and begin addressing this biodiversity issue.
We're talking about a $100 million seed grant here to launch this endowment fund, but other terms and conditions can be attached to it. It's certainly been our experience that in the last five years, I don't think we've seen such a high degree of receptivity, from the private sector in particular, to beginning to address these issues.
One of the reasons for this, of course, is that it's one voluntary measure that industry can take in order to address it.
The Chair: Thank you, Mr. Cullen.
Mr. Scott Brison: Thank you, Mr. Chair, and thank you all for your interventions.
On the 20-80 rule, again, with the 20% foreign content rule, are we creating a boon for financial advisers and for the people involved in the analysis of how to get around it? I mean, it's effectively being circumvented using derivatives. Isn't it simply creating an opportunity for the mutual funds and those people involved in financial advisement? If it's not working in any other way, is it not creating an opportunity for you people at least?
Mr. Peter Bowen: You're absolutely correct that it is creating a boon for a number of parties.
As a mutual fund company, we would clearly prefer to sell the direct investment, that people understand, that's lower cost to the investors, to Canadians.
The cost associated with these relates to two aspects. One is that there is a tremendous amount of effort—hours by lawyers, investment bankers, bankers, mutual fund company staff—related to these. It has been a very large investment for all these different parties and there are tremendous costs. So if you want a productive economy, this is not how to do it.
Mr. Scott Brison: Arguably, on the dollar question relative to—Mr. Cullen was asking the question—whether or not removing it would have a negative impact, we have it, and relative to the U.S. dollar, we've lost about 10¢ on the dollar since 1993. So it isn't providing a lot of benefit in that regard at this point.
But I would argue that wealth is a relative thing, and in the long run, having it there, if it reduces the pension benefits and wealth of Canadians, which clearly it's doing, then in the long term I would argue that its being there would have a negative impact on the dollar.
Mr. Peter Bowen: I would agree. You do have to look at the costs related to these, and any other costs.
Mr. Paul Szabo: It's the availability of capital.
Mr. Scott Brison: Yes, but it's an anachronistic mechanism. It shouldn't be there. It's like FIRA. We got away from that kind of stuff.
The Chair: Is there anything else you would like to add, Mr. Brison?
Mr. Scott Brison: Anyway, on to the issue relative to the accelerated CCA for environmentally sensitive investment.
Wouldn't it be a better way, and it would be more transparent in terms of the tax system, to have a separate tax vehicle—an environmental tax credit or something to that effect—such that the CCA arguably should remain just that? It should be calculated based on depreciation as opposed to the other factor. Wouldn't it be more transparent to have a separate tax?
We may even find that a tax credit may in fact be more marketable politically, because one of the things you're suggesting, and I think it's quite right, is that environmental issues are clearly on the radar screen. I would appreciate your feedback on that.
Dr. Stuart Smith: You're absolutely right. An investment tax credit could accomplish the same thing and probably not offend those who feel that the capital cost allowance has already been stretched and pummelled and utilized for a good many other purposes than the raising of taxes. I believe those who would like to see accounts done in a way that's a little closer to reality would agree with you. And I don't disagree with you.
What I'm saying is shorten the payback period by one means or another so that we can help the economy and the environment at the same time.
Mr. Scott Brison: I think it's very important that you're appearing before the finance committee, because for a long time I think what got us into a lot of trouble environmentally was that we separated economic and environmental issues. The fact is that any economic argument that ignores environmental issues is in itself falsely based if you don't internalize the externalities, if you don't deal with the true environmental costs. That's very important.
There's one area that I'm not sure you're aware of. Another area where the capital gains tax issue has had a significant negative impact environmentally is in Atlantic Canada. For instance, I represent a Nova Scotia riding. I suspect this exists in rural Canada outside of Atlantic Canada, but it's a major issue in terms of forestry practices. The clear-cutting issue is becoming increasingly important both politically and environmentally in Nova Scotia and New Brunswick. Part of what is happening is that people are finding that if they have a fifty-acre woodlot or even a hundred-acre woodlot, for a lot of families in rural Canada that represents one of their biggest assets. Due to the capital gains tax, however, they can't afford to leave that woodlot to an heir. They paid virtually nothing for it, but it's worth something now, and neither they nor their heirs can afford to pay the capital gains.
One of the policies we've been pushing for a couple of years now is the notion of having the same capital gains tax exemption available to the small farm owners made available to the woodlot owners. I'd appreciate your feedback on that.
Dr. Stuart Smith: Absolutely. The intergenerational transfer of privately operated and privately owned woodlots most certainly should be free of capital gains, so that people can be encouraged to utilize these woodlots properly, to maintain them properly, and to keep them environmentally sustainable.
The National Round Table on the Environment and the Economy actually took the lead on that very subject. We issued a report a few years ago on the private woodlot situation, and we drew attention to the fact that these woodlots were being mismanaged. The gist of our report was that if you can demonstrate that you have an environmental plan that has been attested to by an accredited person, an expert, then your woodlot should be treated differently from the point of view of Revenue Canada, including intergenerational transfer. Not only that, but it should also be treated differently from the point of view of allowing your expenses in the maintenance of the woodlot—those made to preserve it in proper form and to manage it properly—to be deductible against other income. Most of these woodlot owners don't make a living just on that little woodlot; they have other income. You must allow them to deduct those expenses against that other income so that they'll be encouraged to maintain those lots.
Mr. Scott Brison: Part of that is also based on the length of time it takes to get a return financially. It takes a long time to get a return from a woodlot.
Dr. Stuart Smith: You've got it. Absolutely.
Mr. Scott Brison: Thank you.
The Chair: Thank you, Mr. Brison.
On behalf of the committee, I certainly want to express to you our sincerest gratitude for your input. We look to experts such as yourselves to give us a sense of what the priorities for the next budget should be.
Budget 2000 is going to be an interesting budget. We go into this with one thing in mind. Whatever we recommend, the ultimate goal is to improve the standard of living and quality of life of Canadians, and that's what we're driven by. So thank you for your efforts.
We are going to suspend, and we'll be back at 7 p.m.