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37th PARLIAMENT, 2nd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Tuesday, October 21, 2003

0940

The Chair (Mrs. Sue Barnes (London West, Lib.))

Ms. Catherine Swift (President and Chief Executive Officer, Canadian Federation of Independent Business)

0945

0950

The Chair

Ms. Jean Christie (Executive director, Voluntary Sector Forum)

0955

1000

The Chair

Ms. Jean Christie

The Chair

Mr. Garry Bolton (Chairman, Association of Consulting Engineers of Canada)

1005

Mr. Claude Paul Boivin (President, Association of Consulting Engineers of Canada)

The Chair

Mr. Bill Bergen (President and CEO, Information Technology Association of Canada)

1010

Mr. Adam Chowaniec (Chair, Board of Directors, Information Technology Association of Canada)

1015

The Chair

Mr. Tom Brown (Chairman of the Board, Canadian Construction Association)

Mr. Michael Atkinson (President, Canadian Construction Association)

1020

Mr. Tom Brown

The Chair

Mr. Tom Brown

The Chair

Mr. Rick Casson (Lethbridge, Canadian Alliance)

1025

The Chair

Mr. Rick Casson

Ms. Catherine Swift

Mr. Rick Casson

Ms. Catherine Swift

Mr. Rick Casson

Ms. Catherine Swift

1030

Mr. Garth Whyte (Executive Vice-President, National Affairs, Canadian Federation of Independent Business)

Mr. Rick Casson

The Chair

Mr. Rick Casson

Mr. Adam Chowaniec

La présidente

Ms. Pauline Picard (Drummond, BQ)

Mr. Michael Atkinson

1035

Ms. Pauline Picard

Mr. Michael Atkinson

Ms. Pauline Picard

The Chair

Mr. Bryon Wilfert (Oak Ridges, Lib.)

Ms. Catherine Swift

Mr. Bryon Wilfert

1040

The Chair

Mr. Garry Bolton

The Chair

Mr. Tom Brown

The Chair

Mr. Garth Whyte

1045

The Chair

Mr. Shawn Murphy (Hillsborough, Lib.)

Mr. Garry Bolton

The Chair

Mr. Tom Brown

Mr. Shawn Murphy

The Chair

Ms. Catherine Swift

1050

The Chair

Mr. Michael Atkinson

The Chair

Mr. Tony Valeri (Stoney Creek, Lib.)

Mr. Garth Whyte

1055

Mr. Tony Valeri

The Chair

Mr. Michael Atkinson

The Chair

Mr. Garth Whyte

The Chair

Mr. Garth Whyte

The Chair

1100

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)

The Chair

Mr. Nick Discepola

The Chair

Mr. Claude Paul Boivin

Mr. Nick Discepola

Mr. Claude Paul Boivin

Mr. Nick Discepola

Mr. Claude Paul Boivin

Mr. Nick Discepola

Mr. Michael Atkinson

Mr. Nick Discepola

Mr. Michael Atkinson

Mr. Nick Discepola

Mr. Michael Atkinson

Mr. Nick Discepola

The Chair

Mr. Garth Whyte

1105

Mr. Nick Discepola

Mr. Garth Whyte

The Chair

Mr. Dennis Deveau (Government Liaison, Legislative Department, United Steelworkers of America)

1115

1120

The Chair

Mr. David Stewart-Patterson (Senior Vice-President, Policy and Communications, Canadian Council of Chief Executives)

The Chair

Mr. David Stewart-Patterson

The Chair

Mr. David Stewart-Patterson

1125

The Chair

Mr. Everett Colby (Chair, Taxation Policy Committee, Certified General Accountants' Association of Canada)

1130

1135

The Chair

Mr. Harvey Weiner (Deputy Secretary General, Canadian Teachers' Federation)

1140

The Chair

Mr. John Staple (Director, Economic Services, Canadian Teachers' Federation)

1145

The Chair

Mr. Greg Traversy (Executive Vice-President and Chief Operating Officer, Canadian Life and Health Insurance Association Inc.)

1150

The Chair

Mr. Rick Casson

Mr. David Stewart-Patterson

1155

Mr. Rick Casson

Mr. David Stewart-Patterson

Mr. Rick Casson

The Chair

Mr. Harvey Weiner

The Chair

Mr. Rick Casson

Mr. Everett Colby

1200

Mr. Rick Casson

Mr. Everett Colby

The Chair

Ms. Pauline Picard

Mr. David Stewart-Patterson

Ms. Pauline Picard

Mr. David Stewart-Patterson

The Chair

Mr. Sam Boutziouvous (Vice-President, Policy and Senior Economic Advisor, Canadian Council of Chief Executives)

1205

Mr. David Stewart-Patterson

The Chair

Ms. Pauline Picard

The Chair

Ms. Pauline Picard

The Chair

Mr. Bryon Wilfert

Mr. John Staple

Mr. Bryon Wilfert

Mr. John Staple

Mr. Bryon Wilfert

Mr. Harvey Weiner

1210

Mr. Bryon Wilfert

Mr. Harvey Weiner

Mr. Bryon Wilfert

The Chair

Mr. Everett Colby

The Chair

Mr. Tony Valeri

1215

Mr. Harvey Weiner

Mr. Tony Valeri

Mr. Everett Colby

1220

Mr. Tony Valeri

Mr. Everett Colby

Mr. Tony Valeri

Mr. Everett Colby

The Vice-Chair (Mr. Nick Discepola)

Mr. Sam Boutziouvous

The Chair

Ms. Judy Wasylycia-Leis (Winnipeg North Centre, NDP)

The Chair

Ms. Judy Wasylycia-Leis

Mr. Dennis Deveau

1225

Ms. Judy Wasylycia-Leis

The Chair

Mr. Sam Boutziouvous

1230

Ms. Judy Wasylycia-Leis

The Chair

Mr. Dennis Deveau

Mr. Everett Colby

Ms. Judy Wasylycia-Leis

The Chair

Mr. Nick Discepola

Mr. Everett Colby

Mr. Nick Discepola

Mr. Everett Colby

1235

Mr. Nick Discepola

The Chair

Mr. David Stewart-Patterson

1240

The Chair

Mr. Everett Colby

The Chair

CANADA

Standing Committee on Finance

NUMBER 082

2nd SESSION

37th PARLIAMENT

EVIDENCE

Tuesday, October 21, 2003

[Recorded by Electronic Apparatus]

¿ (0940)

[Translation]

The Chair (Mrs. Sue Barnes (London West, Lib.)): Welcome everyone.

[English]

The order of the day, pursuant to Standing Order 83(1), is that pre-budget consultations shall continue. We have two panels this morning and we will go in the order of the agenda.

I first of all want to welcome, from the Canadian Federation of Independent Business, Catherine Swift, who is the president and chief executive officer, together with Garth Whyte, who is executive vice-president of national affairs. Welcome to both of you.

From the Voluntary Sector Forum, today we have with us Jean Christie, executive director, and Laurie Rektor, manager, national issues. Welcome also.

We have, from the Association of Consulting Engineers of Canada, Claude Paul Boivin, president, and Gary Bolton, who is the chairman of the board and joining us for the first time, I think, from Winnipeg. Correct? Welcome.

We also have, from the Information Technology Association of Canada, Bill Bergen, president and CEO, and Adam Chowaniec, who is the chair of the board of directors.

Finally, from the Canadian Construction Association, we have Tom Brown, chairman of the board, together with Michael Atkinson, who is the president.

So welcome to all of you, and I will commence with seven-minute rounds for putting what you want to tell us on the record. We'll start with the Canadian Federation of Independent Business.

[Translation]

Madam Swift, please begin.

[English]

Ms. Catherine Swift (President and Chief Executive Officer, Canadian Federation of Independent Business): Thank you very much, Madam Chair. As always, it's a pleasure to appear before you today. As you are probably well aware, we represent the small and medium-sized business sector across Canada. Our organization currently has approximately 105,000 members in every sector and nook and cranny of the country, and, as we always like to reiterate, the importance of the small and medium business sector to the Canadian economy has been increasing quite dramatically over the last 30 years or so. Back in the mid-seventies, the small business sector represented roughly a quarter of gross domestic product, and currently that number is roughly around half. Indeed, the quite good economic performance that Canada has shown over the last couple of years, particularly in outperforming its most important trading partner, the United States, has been largely due to the health of that sector, while the large corporate sector, notably driven by stock market volatility, has been really underperforming. So there's no question that Canada's large and strong small business sector is a major boon to our economy.

We conduct many surveys, some of which are contained in the package we distributed to you this morning. A recent one that we do regularly, called our “Quarterly Business Barometer”, showed that the level of confidence of small business owners is currently quite good. Despite all of the plagues and pestilences that were visited upon us around mid-year, everything from SARS to mad cow and the various weather problems and so on, our most recent survey results for the third quarter show--and they've been sent, by the way, to all MPs recently--that we actually have seen quite an increase in optimism over the second quarter of the year, with about half of the polled small businesses expecting a stronger performance over the next twelve months as compared to the previous twelve months. Job creation expectations are also very strong, and that's naturally very good news for everyone.

One of the concerns that is continuing to plague the small business community is that of rising input costs, and this includes a variety of things, one of which is insurance, which is currently the number one on the hit list of small businesses. There have been such dramatic increases over the last couple of years in particular that we have recommended in a number of fora that we really think a federal inquiry should look into it. We're well aware that this is a matter of provincial jurisdiction, but it's a problem right across the country. It's having a very severe impact.

I'd like to refer you to figure 6 on page 6 of the report, where we asked our members what the major problems concerning them were, and despite things like softwood lumber, SARS, etc., insurance costs came up far and away number one, as you can see in that chart.

Other input costs of concern naturally have been things like fuel costs, bank service charges, hydro costs in the last little while, and government fees. I'd like to take this opportunity to commend this committee for its recommendations, and indeed its promotion of Bill-212, currently in the Senate. We feel that's a very positive measure to deal with the government fee situation.

In terms of our budget priorities, regular surveys show that number one continues to be reducing the tax burden. Government regulation and paper burden continue to be the number two problem for small firms, and other concerns such as employment insurance and the overall government debt and deficit situation also remain very high priorities.

We view the government's five-year tax reduction plan and debt repayment plan as very positive, and it's certainly vitally important that the government stay the course in these areas and exercise fiscal prudence in the future.

We've seen quite rapidly increasing government spending over the past five years, and this is naturally very problematic and could lead to financial problems down the road.

I'd now refer you to page 13 of the brief, and it's figure 14 that I'd like to reference here. You can see that in terms of federal government spending from the 1998 to 2004 period, spending on personnel costs far and away exceeded anything else. So there's no question that at the federal level in particular we have seen federal spending increasing 22%, and the personal costs component of that is the largest increase overall, over 40%.

¿ (0945)

Now, we've seen debt servicing costs go down, due to such things as lower interest charges and a lower overall level of debt, but the savings have unfortunately been used to finance further spending, instead of more constructively.

In addition to presenting to you today, we're actually releasing a study entitled, “Wage Watch”, which is included in your package. This is a study we've done on a number of occasions, based on census of Canada data. In this particular report I'd refer you to figure 1 on the front page. What we're looking at there is total compensation, which is wages plus benefits, in the public sector versus the private sector. As you can see, this disparity is particularly stark in the federal sector. There are differences at all levels of government, but the findings, certainly at the federal level, are that wage premiums over private sector counterparts alone are 15%, and when non-wage benefits are included, these jump to 23.3%, a pretty huge differential.

I'd just like to note a few other recommendations on specifics that we believe would be a very positive means of fostering entrepreneurship in a budgetary context, things such as a tax deferral on capital gains from the transfer of a business to the owner's children. We are currently facing a situation over the next 10 to 15 years or so where there are an enormous number of businesses in Canada—the demographics of the business community are no different from those for the rest of us. We are looking at a major challenge as to how that succession planning can be fostered in terms of the tax environment, and other ways as well of course. Given the potential negative impact on the economy of all of these businesses changing hands, we feel this would be a positive measure.

Other items include increasing the business loss, carry-forward provision, extending that to 20 years, and expensing the first $75,000 in annual business capital costs. A similar measure has been undertaken in the U.S., and it's a very positive means of promoting capital spending, modernization, and productivity gains in business generally, notably in the small business sector.

The next point is increasing the lifetime capital gains exemption to $1 million. It has been at $500,000 for a very long time now, and inflation alone would certainly justify increasing that.

The final one is raising the small business tax rate threshold to $400,000. A number of provinces have gone that way. We were happy to see it increased in stages in the last federal budget to $300,000, but we believe that inflation alone would justify a further increase to $400,000.

I'll just close by saying that our annex to the report contains eight other fairly detailed or specific recommendations in a number of areas, most of which would hit particular industrial sectors of the small business community, and none of which are particularly costly from a fiscal perspective, but would certainly have a very significant positive impact on the small businesses in those particular sectors.

Thank you, and I look forward to your questions.

¿ (0950)

The Chair: Thank you very much for a comprehensive brief. It's very easy to understand.

I would now like to go to the Voluntary Sector Forum.

Ms. Christie, would you like to start?

[Translation]

Ms. Jean Christie (Executive director, Voluntary Sector Forum): Madam Chair, committee members, I do not know if there are any Francophones in the room, but I would like to begin by thanking you for having given us the opportunity to speak here this morning. This is for us a precious opportunity and we hope to be able to have a discussion with you a little bit later.

So as to not waste time, given that I am very aware of the seven minute round rule, and that this does not give us much time, I will move directly to our presentation. I gave the clerk documents which I hope he will distribute a little later on. I have before me the English version of our presentation and I will be reading it in English, but I will be able to answer questions in either official language.

[English]

Let me start with a few introductory words about the Voluntary Sector Forum. It's a leadership body in the voluntary sector and it has a three-part mandate.

The first part of its mandate is to support the sector during the final two years of the voluntary sector initiative. For those of you who may not remember, the voluntary sector initiative is a partnership between the Government of Canada and the voluntary sector that has a five-year life and is designed to strengthen the capacity of the voluntary sector. It has had a large infusion of public funding into it, $90 million, and our responsibility is to follow up the outstanding work of the voluntary sector initiative.

The second part of our mandate is to try to build the sector, and the third part is to try to address issues of national concern to the whole sector.

Today, I'm going to focus on three of the those national issues of concern, and I was particularly struck by the comments of the previous speaker. One of those concerns for us at the moment is in fact insurance and liability, so it's very interesting to hear that coming so clearly from the independent business sector.

The two other issues, both of which you've heard about before, are financing for the voluntary sector and advocacy.

Let me also say a couple of introductory words about the term “voluntary sector”, because I think there's a lot of confusion about what it means. For many, it conjures up images of volunteers—Meals on Wheels and hockey coaches. Of course, the voluntary sector does include 6.5 million volunteers in Canada who donate their time to causes that are dear to them, but it also employs 1.3 million Canadians. The sector includes 180,000 non-profit charitable, non-governmental organizations and thousands of unincorporated groups. This figure absolutely staggered me when I first heard it. It generates annual economic activity comparable to the province of British Columbia. Its organizations work in areas as broad-ranging as the arts, the environment, sports, recreation and health, and international cooperation. It provides services of all kinds to virtually every demographic group in the country that you can think of.

So it's a large sector that has not been thought of in the past as a sector. Part of our message today is, let us continue to try to develop the notion that the voluntary sector is in fact a sector.

In order not to waste time, I want to go quickly to our recommendations. As I said, there are three of them. Let me precede them by saying simply that the voluntary sector initiative, which I mentioned earlier, produced one of its most significant achievements that we've been working to implement for the last year or so: an accord between the voluntary sector and the federal government. There are copies of it at the front table, and I hope these will be circulated. And it produced two codes of good practice, one on funding and one on policy dialogue. I'll come back to both of those.

For those of you who have our paper in front of you, I will jump to point 3.1, dealing with this issue of liability and risk management, which is a huge concern for the entire voluntary sector. Voluntary sector organizations are experiencing dramatic increases in insurance premiums. A growing number and range of organizations are being refused insurance coverage altogether. The rising costs and the reduced availability of insurance is leading to the cancellation of programs and services; it's leading to a shift in the types of services offered; and it's leading to a reduction in the levels of service delivery by voluntary sector organizations. It also means that scarce financial resources of organizations are being diverted from services and programs to try to cover insurance premiums.

In our brief, we've briefly outlined the three types of liability that have become a concern for organizations. They include the organizational liability related to working with vulnerable populations and populations at risk; directors and officers' liability; and liability insurance for staff and volunteers who are delivering programs and services.

The concern about organizational liability goes back to two 1999 Supreme Court rulings on vicarious liability with respect to charities.

¿ (0955)

I will just remind you that vicarious liability is when a person or an organization is held liable for the negligent actions of another, even though they're not directly responsible for the actions.

There are two cases that are referred to in our paper. These two cases set precedents that have had a chilling effect on the whole sector. They represent, for the first time, a situation where the courts have imposed vicarious liability on non-profit organizations for the actions of their employees. The result is that they've raised the bar and the fear level to an extreme height for sector organizations and their boards of directors.

I would just say that one of the problems that organizations are now facing increasingly is recruiting volunteer members of their boards of directors, for reasons of concern about liability. It has just become a chronic, endemic problem.

The changes in the insurance industry post-September 11 are exacerbating the situation. In fact, the voluntary sector's organizational liability has increased to the point where it's now higher than it is for most private sector organizations, and the financial costs are enormous--and I might add, with no evidence at all that insurance claims have increased.

If the current situation continues, it's going to dramatically alter and possibly eliminate the programs and services the sector provides to Canadians. It's likely going to lead to a cancellation of programs, and almost certainly the programs that deal with the most vulnerable and at-risk populations are most likely to be first hit.

There is a list of examples in our paper. I'm being told that my seven minutes is almost up.

The examples include a youth exchange, the Winnipeg Folk Festival, the United Church of Canada and their programs with camps, and a local crime prevention program in Newfoundland and Labrador, all of which are at risk because they can't pay their insurance premiums or they're having more and more difficulty.

À (1000)

The Chair: Thank you very much, Ms. Christie. Do you want to conclude in one sentence?

Ms. Jean Christie: I would say there are also recommendations--this is the new one--relating to financing the sector, and we would urge you to implement the recommendations of the voluntary sector initiative in relation to financing, and in advocacy, to implement the code of good practice.

Particularly, there are two recommendations. One is to change the Income Tax Act as it relates to charities and advocacy. The second is in relation to the definition of “charity”, and there are two clauses that we recommend require change.

The Chair: Thank you very much. Now we will move to the Association of Consulting Engineers of Canada.

Mr. Bolton, the floor is yours.

Mr. Garry Bolton (Chairman, Association of Consulting Engineers of Canada): Thank you, Madam Chair.

Good morning. First, I would like to explain that our association represents the private sector engineering companies in Canada, with over 600 member firms and 52,000 employees involved in virtually every infrastructure project in this country.

Last year, we appeared here in front of this very committee asking you to make recommendations to the government for a long-term funding for infrastructure. We were delighted to see that our views were included in your final report, and we were even more pleased to see that the government decided to allocate $3 billion over a 10-year period for infrastructure.

Our concern today is that $3 billion, although a good first step, is woefully inadequate. This country faces an out-of-control infrastructure debt that totals over $57 billion, and that is growing by $2 billion a year. This accumulated infrastructure deficit is really Canada's second national debt, one that has a direct impact on all Canadians, as it affects our health, safety, and well-being. Canadians want and need clean water, safe disposal of wastes, reliable highways, and, as we all know, stable electrical grids. We firmly believe the government should be paying down this infrastructure debt with the same level of priority and vigour with which it is successfully paying down the fiscal debt.

Let's talk about what infrastructure contributes to our society. Take urban transit, for example. A well-established transit system will do many things for us. First, it will alleviate air pollution. Second, it will help Canada meet its Kyoto commitments. Third, it reduces urban congestion and helps drive the economic activity of a city or town. And fourth, it provides affordable transportation to all sectors of the Canadian population. People need to have cost-effective ways to get to their jobs, and mass transit takes care of that need.

Our first recommendation proposes establishing a national round table for infrastructure that will bring together all the relevant stakeholders to help the government develop a multi-year national infrastructure plan. This recommendation is in line with the very first recommendation of an expert report on infrastructure released this summer by three respected Canadian engineering groups and done in collaboration with National Research Council Canada.

Our second recommendation asks that the government address the pressing need to revitalize Canada's deteriorating highway system. A 1997 report from the Council of Ministers Responsible for Transportation and Highway Safety estimated Canada's national highway system debt at over $17 billion, almost a third of the overall national infrastructure debt.

These roads have a direct effect and impact on our economy and negative effects on our competitive edge as a trading nation. Seventy percent of our domestic trade and 65% of our exports to the U.S. are via highways. From St. John's to Victoria, drivers encounter potholes, wheel ruts, and loose asphalt, making our highways less than safe in some areas. Over 20% of the 3,500 bridges in our country require major strengthening or rehabilitation. That's why highway investment is so necessary for maintaining our standard of living.

Now I will ask my colleague Mr. Boivin to speak to the third recommendation in our report. Thank you.

À (1005)

[Translation]

Mr. Claude Paul Boivin (President, Association of Consulting Engineers of Canada): Madam Chair, our third recommendation deals with CIDA, the Canadian International Development Agency. CIDA no doubt does excellent work, but today it is no longer funding what developing countries need most, that is their physical infrastructure. The backbone of any economy, be it in Canada or a developing country, is infrastructure. When we talk of infrastructure, we are talking about potable water, sewer systems, electricity, transport and communication systems. In Canada, we could not live without this infrastructure and we cannot expect poorer economies to thrive without these essential services.

Of course, we all recognize that the social, educational and community programs of CIDA are important, but as one African mother put it at a CIDA-sponsored meeting in Montreal on the needs of Africa—and her message was very moving—before sending one's child off to school in the morning, one must first and foremost give that child clean water to drink. The message is that we must not forget that the greatest gains made in public health are directly linked to potable water and sewage systems.

There was a time when CIDA had an enviable reputation for delivering infrastructure projects. A 2001 study on these infrastructure projects over the previous 30 years concluded that these projects had been efficient and sustainable and had contributed to poverty reduction and to the welfare of women. But this same report told us that Canada had dedicated only 11% of its aid budget to infrastructure. That is the lowest percentage amongst all OECD member countries. Japan, for example, devotes 52% of its aid budget to infrastructure projects.

[English]

To conclude our overall presentation, Madam Chairman, there are three messages we'd like to leave with you. The first is that Canada has an out-of-control infrastructure debt; the second is that that debt is growing by $2 billion a year; and the third message is that that infrastructure debt has a more direct effect on the lives of Canadians than does the fiscal debt and should be given the priority it deserves.

I close by quoting the president of the Conference Board of Canada talking about the requirements for health education and infrastructure in this country. She said:

...if we tell ourselves (as we have in the past) that these are problems for someone else to solve later, we won't be able to sustain our way of life. Other countries will move ahead of us.

Madam Chair, given the social, economic, and environmental significance of Canada's infrastructure debt, we urge your committee to recommend to the government that it develop a well-funded and long-term plan to pay down this infrastructure debt.

Thank you, Madam Chair.

The Chair: Thank you very much.

We will now move on to ITAC. Please, sir, go ahead.

Mr. Bill Bergen (President and CEO, Information Technology Association of Canada): Thank you, Madam Chair and the committee, for this opportunity.

The Information Technology Association of Canada represents the majority of information and communication technologies companies in Canada. For well over a decade, ITAC has been outspoken about the need to better equip Canada to meet the challenges of a global knowledge-based economy. Therefore, we were pleased last year to see a clear public policy initiative in this regard expressed in the government's innovation strategy. As an industry, we pledge our support to advance this strategy.

We believe that technology-based companies will continue to be a critical driver of Canada's capacity to innovate, and we believe that in spite of the severe downturn in the sector, ICT will continue to be a growth engine for Canada. Our pre-budget submission sets out measures that a nation truly committed to the expansion of its innovation-intensive commercial sector might introduce.

ITAC was heartened to see the federal government's commitment in the 2003 budget of $600 million as a separate line item for health, to accelerate the development of electronic health records, common national standards and telehealth applications. Recent papers by ITAC express our belief that Canada has significantly under-invested in health care ICT applications. ITAC maintains that ICT tools can contribute significantly to enhancing patient safety and security and improve efficiency and productivity in the health care sector, as well as becoming a source of export advantage for Canada.

We were also pleased to see the new $1.7 billion investment to implement Canada's climate change plan, the focus on energy efficiency, renewable energy, and sustainable transportation. ITAC has advocated for the widespread consideration and adoption of ICT as a tool to meet climate change goals. We believe that the adoption of new technologies across all sectors can enhance efficiency in our use of resources, to the benefit of the environment, productivity, and our capacity for innovation.

We have been outspoken about the need to take immediate action to increase Canada's pool of highly qualified people in advanced technology disciplines. Canada is simply not producing enough highly qualified engineers and scientists to meet the growth requirements of our industry. We need swift remedies to address this problem, or Canada will lose its advantage in the fields of microelectronics, photonics, and wireless, for example.

At present rates, Canadian universities will graduate less than one-third of the highly qualified people necessary for industry growth. The new Canada graduate scholarship program is clearly a step in the right direction, but we respectfully submit that this type of broad-based measure, with the majority of the funding going to the social sciences, will strand Canada far short of its innovation goal.

We noted the continued commitment to infrastructure with the additional $3 billion, as mentioned earlier. ITAC has been an advocate for universal connectivity and the inclusion of broadband in strategic infrastructure. Now we have a real live example of a funded broadband infrastructure project. On October 5, the government announced the launch of the national satellite initiative that will provide high-speed broadband Internet access services to the north. This investment will have a profound impact on everything from health care delivery to education and commerce. And $85 million for this funding comes from the Canada Strategic Infrastructure Fund. We believe that this bold investment in an electronic superhighway for northern Canadians reflects a national infrastructure policy that is truly strategic and appropriate for the 21st century. We congratulate the government on this important breakthrough initiative.

I'd now like to turn it over to our chair, Adam Chowaniec.

À (1010)

Mr. Adam Chowaniec (Chair, Board of Directors, Information Technology Association of Canada): Thank you. A competitive tax system is critical to innovation and the availability of capital. We recognize that the government has taken important steps to reduce the corporate tax burden and the gap between Canadian and U.S. rates, thereby enhancing the competitiveness of Canadian corporations and increasing investment and employment. However, Canadian tax rates for dividends and capital gains are still far out of step with U.S. rates. This disparity has a negative impact on the value of Canadian companies listed on Canadian stock exchanges and the attractiveness of Canada to investors. We encourage the government to introduce the changes necessary to close this gap.

We are also calling for an incentive that would partially recognize the value of angel investors to the innovation-intensive economy. Angels provide critical initial financing for start-ups. Understandably, their investments are characterized by high levels of risk and potentially large returns on investment. The angel investor investment credit would mitigate the risk they assume when they invest in early-stage companies.

We applaud the government for the responsibility it has shown to restore a stable fiscal framework. We are troubled, though, that recent fluctuations in the value of the Canadian dollar have cast a spotlight on an economic problem that is as persistent as it is persistently ignored.

Canadian productivity performance lags behind that of many of our competitors in the industrialized world. Most troubling of all is the productivity gap that exists between Canada and the U.S. The Centre for the Study of Living Standards estimated this gap to be in the 10% to 20% range of the total economy in 2002.

In November 2000, the Conference Board of Canada looked at the impact of IT investment on Canada's labour productivity. That study charted the growth of the share of information technology in total capital stock and noted a sharp increase in the period from 1996 to 1999. It also established a clear connection between that growth and both Canadian output growth and labour productivity, but the study also noted significant gaps in both the timing and the intensity of the investment compared with the U.S. and suggested that continued strength in IT investment in Canada may lead to an acceleration in the total factor productivity in line with that observed in the U.S.

ICT industry leadership in both capital intensity and productivity growth is not coincidental. ITAC maintains that investing in productivity-enhancing technology is a fundamental strategy for building a more competitive economy. We believe that policies to foster this investment are critical to the maintenance of Canada's prosperity and living standard; therefore, a number of the proposals in our submission focus on eliminating the disincentives to capital investment.

We congratulate the government on its decision in the last budget to eliminate the federal capital tax for medium-sized businesses and its plans to eliminate the large corporation tax. In the spirit of removing disincentives, we would have preferred to see the capital tax on large corporations eliminated more quickly than five years.

We also maintain that there is a need for legislative change to make the scientific research and experimental development program work more effectively to encourage R and D investment. The SR and ED program is integral to achieving Canada's innovation objective and to attracting foreign investment to Canada.

ITAC believes that eliminating the disincentives to capital investment is urgently required. Equally urgent is the need to address the gap between the Canadian deployment of technology and that of our global rivals. Beyond simply removing disincentives, Canadian public policy must begin to better understand the reasons for this gap and develop appropriate instruments to close it. ITAC commits to contributing to this enhanced understanding and response through continuing consultations by sharing with the government the findings of our ongoing research and policy work.

Prudent stewardship demands that we overcome our weaknesses as well as celebrate our strengths if we are to continue to enjoy an excellent standard of living, but we must tackle issues such as the productivity gap with the same force and determination that has produced six federal budget surpluses.

Thank you very much, Madam Chair.

À (1015)

The Chair: Thank you very much. Now we'll go to the Canadian Construction Association. Mr. Brown, go ahead.

Mr. Tom Brown (Chairman of the Board, Canadian Construction Association): Thank you, Madam Chair.

I'm this year's chairman of the Canadian Construction Association. With me is our president, Michael Atkinson. We are here as representatives of Canada's largest industry sector, which employs almost one million men and women engaged in building Canada's future. We'd like to comment today on three themes: first, debt reduction; second, tax reform; and lastly, the infrastructure deficit that has already been mentioned.

First, on the topic of debt reduction, we recognize that the government has made considerable strides in lowering Canada's debt burden. But of course debt reduction is only a means to an end, and that end is eliminating the enormous cost to Canadians of servicing that debt. It's really staggering to think that the federal government is currently paying almost $39 billion in interest payments every year. It's 22¢ of every tax dollar that goes to interest. If you think about what could be done with that $39 billion, especially in light of our concluding comments, it has to be made a priority.

Right now it appears to be a bit of an afterthought in that if there's money left over from the contingency fund or general revenues, it's applied against the debt. What this results in, of course, is that in times of economic downturn or unexpected demands on the treasury, debt reduction falls by the wayside. In order to avoid this situation, we recommend that the government establish firm debt reduction targets as part of its annual budget-setting process and commit to meeting these targets even if that involves spending cuts. Of course, obviously, any budgetary surpluses should continue to be used to further pay down the debt.

Michael.

Mr. Michael Atkinson (President, Canadian Construction Association): Madam Chair, there are a number of tax-related issues covered by our written submission. In the interest of time, I'll direct your attention to them.

First of all, the employment insurance program. Although we very much welcome the measures the government has introduced to reduce premiums gradually and we welcome the current consultations on the EI premium rate-setting process, we're concerned, however, that the pace and scope of these consultations and reforms will not be quick enough or extensive enough to ensure what is really needed to overhaul that particular program.

First of all, we wonder what the rationale continues to be for the employer multiple under that particular program. We have some concerns about that. The original rationale for that multiple was that it was the employer who triggered the use of the benefits of the program through layoffs, etc. However, with the expansion of that program into such areas as parental leave, training grants, developmental uses, compassionate leave, and so on, it's very often the employee who triggers the use and dependency on that program rather than the employer. That's certainly one area we would like this committee to look at.

Secondly, we compliment the committee for making the recommendation in its report last year to introduce a yearly basic exemption to this program. We found this very encouraging. We strongly support that matter.

The other issue under EI that we would like you to look at is the current treatment of employer over-contributions. Currently there is no refund mechanism for employers. There is for employees but not employers. Secondly, we would like you to look at the treatment of associated companies. Associated companies are treated as different employers and hence get into the circumstance of paying the maximum employer contribution doubly, or even triply in our industry sometimes where you have a rather mobile workforce working for different arms of the same company.

I think in the interest of time I will mention one other item, and that is to look at the current capital allowance rates allowed for building, in particular building renovation and repair. In 1987 those rates were reduced. We would recommend highly that in the interest of greening our buildings and meeting our Kyoto and other environmental objectives, this is one area that could be a tremendous incentive for building owners to make the necessary retrofits and renovations to their building stock.

At this moment I will now turn it back to our chairman, Tom Brown, to talk about our infrastructure deficit.

À (1020)

Mr. Tom Brown: Thanks, Michael.

Just to echo some of Gary's and Claude Paul's comments on the infrastructure deficit, the essential municipal and transportation core infrastructure is key for a number of reasons, including health costs; reducing insurance costs, which has been spoken about; improving the environment; improving the economic competitiveness of our cities and regions; the productivity of our nation as a whole, which Adam has alluded to; and perhaps most importantly, maintaining and strengthening the quality of life for all Canadians. The total infrastructure debt that currently exists is about $75 billion--$57 billion on the municipal side, $17 billion on our national highway system--and it needs to be addressed in the same vein as the actual fiscal deficit.

We are heartened to hear Paul Martin's recent comments about dedicating a portion of the federal fuel tax to address this deficit. We think that's an idea whose time has come, and it provides some long-term and predictable funding to those infrastructure deficits, as opposed to some of the present ad hoc programs. The House recently voted very strongly in favour of the federal government beginning discussions with the provincial and municipal governments on the notion of a dedicated fuel tax, and we applaud that initiative.

Of course, one of the problems is the details of such a program. Yesterday we hosted a symposium with a number of the stakeholders to discuss some of those issues. We came up with, I think, some very interesting conclusions, and there was a remarkable degree of consensus amongst the stakeholders. We will be passing the results of those deliberations along to you.

I have just a few general comments. First, a gas tax, of course, or some portion of it, affects all vehicle users, so we would like to see any revenue applied to both municipal infrastructure and to our national highway system.

Second, it's important to make sure any such funding be in addition to established programs and budgets at all three levels of government.

Third, the funding should meet the tests of sustainability, predictability, reliability, and transparency, and the participating levels of government should be held accountable for those funds.

Lastly, project selection should be based on objective criteria: cost-benefit analyses, population densities, economic and social interests, and economic concerns, etc.

We will pass along the results of our symposium to you.

That's the end of our remarks, Madam Chair.

We just remind you that debt reduction, some of the tax reforms that Michael chatted about, and probably most importantly addressing our massive infrastructure debt are our core messages.

We thank you again for the opportunity to appear.

The Chair: Thank you.

Mr. Brown, would you be able to have a synopsis of your symposium ready within three weeks?

Mr. Tom Brown: Yes, for sure. We should have that within the next week.

The Chair: Thank you. If you will send it to the clerk, we'll translate it and distribute it to all the members.

Thank you very much.

Mr. Casson, how about six minutes today?

Mr. Rick Casson (Lethbridge, Canadian Alliance): Okay.

À (1025)

The Chair: Thank you.

Mr. Rick Casson: Thank you, Madam Chair, and thank you all very much for your excellent presentations.

I have questions for you all. I don't know if I'll get to them all, but I want to start with the CFIB.

This report you put out today is quite alarming in that it shows the growth of government in Canada is back to pre-1995 levels--the salaries, the number of employees, everything has gone shooting back up. We have been told, the government continually tells us, that it needs to pay more to attract qualified people. It seems to me if the wages and benefits already far outstrip what's available anywhere else in the job force, this shouldn't be an issue. I'd like your comments on that.

I'd like you also to elaborate a bit on how much this growth is outpacing the economic growth in this country. It seems to me it's far outpacing what we're able to sustain in economic growth.

So, Madam Chair, I have those two questions first to the CFIB.

Ms. Catherine Swift: With respect to the first question, what you find is that at the very senior levels in the public sector it is true the private sector compensation tends to be more generous, but that is at the very senior level, which is, of course, a very small minority of the total employment base of the various governments in question. So for the vast majority of occupations--and this was, as I mentioned earlier, based on census data comparing exactly comparable occupations, comparing apples to apples--we find over a 23% differential in combined wages and benefits.

It's interesting, because a long time ago benefits were more generous in the public sector because they compensated for relatively lower wage levels, and there was usually security involved in government employment as well. It's interesting to see how the benefits are still much richer than in the private sector, but now wages are too. So the overall impact is quite significant.

On the other question you asked, growth in the federal government in particular over the last five years has been about 20%. Federal government employment is currently the most rapidly growing sector in the entire employment picture, in the entire labour force. That's pretty disturbing, because you have the private sector, the segment that is supporting the public sector, growing at a slower rate than the public sector. Obviously, that can't continue for a very long period without causing serious problems.

I might note that not only are these kinds of phenomena worrisome from a government finances standpoint, but very often small firms find themselves ineffectively competing for people who they are basically subsidizing to have higher wages and benefits in the public sector. So it's a kind of perverse impact from that standpoint as well.

Mr. Rick Casson: Another chart you had in your presentation or in one of your handouts showed the provincial and local levels of government reducing their employment in the 1991 to 1996 levels and staying there. The federal government was reducing, but now they're back to those levels.

So what you're saying here is that the other two levels of government have reduced their expenses and stayed there, but the federal government reduced and now they're going right back up to where they were?

Ms. Catherine Swift: Basically. The differences in the other levels of government have stayed more or less the same. That gap has not increased anywhere near as dramatically. There's still a significant differential at the provincial and municipal levels, but the real growth we've seen over the last five years has been definitely at the federal level.

Mr. Rick Casson: One other graph I'd like you to explain in this handout is the one about the impacts of major external shocks to business performance. Second on the list was the impact of the Iraq war on sales to the U.S.

Now, what are these businesses basing this on? Is there an actual loss of sales and potential? Is this just an idea they have or an outlook, or is this an actual dollar-and-cents figure here?

Ms. Catherine Swift: We released this survey in June, so it would have been conducted in the spring, and naturally the Iraq War was very much on everybody's mind at that point in time. Although we did not quantify it--we simply asked them to rank what the most serious issues were for them at the time--I know I heard from many of our members that they had definitely lost business with U.S. customers around that time. We did not try to put a dollar figure on it, but there's no question there were dollars lost. It wasn't just a perception or a feeling.

À (1030)

Mr. Garth Whyte (Executive Vice-President, National Affairs, Canadian Federation of Independent Business): If I may, Madam Chair, the other part of it is that the increased security at the border has caused an impact and slowdowns. As you know, the 24-hour waiting period in the ag sector is raising concerns. Those things were identified.

Mr. Rick Casson: Do I still have some time?

The Chair: This is the last question. Make it short.

Mr. Rick Casson: I'd like to go to ITAC now. One of the issues you raised was the need for more targeted support for people entering the high-tech field through the system we have at present.

What are you doing as an industry to attract people? Do you actively do that? Do you promote the value and the advantages of being involved in what you do, or do you depend pretty much entirely on others to do that?

Mr. Adam Chowaniec: We have pretty active programs trying to collaborate and cooperate with universities right across the country in order to try to focus on the kinds of skills we believe are important in the future.

The problem is, though, that although the government has increased university funding--scholarship funding and infrastructure--very significantly in the last few years, none of that funding is targeted. There are absolutely no guidelines. There's no direction as to how that money should be spent and what it should be spent on. As a result, if there is a strategic need for people, that strategic need is not being reflected in the way that money is currently being spent.

[Translation]

La présidente: Madam Picard, it is now your turn.

Ms. Pauline Picard (Drummond, BQ): Thank you, Madam Chair.

My question is for the Canadian Construction Association. You are asking that employment insurance premiums and the rate-setting process be more tightly linked to contributors. I imagine that you would agree that the employment insurance surplus should not be used for debt reduction but rather be distributed amongst contributors by way of a drop in rates and the implementation of the programs that they need. This money must wind up in their pockets because as you know the government has for a long time now not put one cent into the employment insurance coffers. I do not believe that you are in favour of this virtual accounting process through which surpluses are channelled to the debt.

There is another question that I find very interesting: you are asking that we increase the depreciation ceiling for small hand tools. You state that the ceiling does not reflect the purchase price of small tools and that it should be considerably increased. I would like to hear more about this recommendation, which I find very interesting. As you know, last year, at the request of the Bloc Québecois, a tax credit was granted for mechanics' tool boxes. I would like to hear your views on this recommendation.

[English]

Mr. Michael Atkinson: Essentially, it grows from the fact that again that's one of the capital cost allowance categories that hasn't been touched for many years, and inflation has rendered it absolutely useless. It says now if a hand tool costs you more than $200 to purchase, you can't write it all off in the year of acquisition. You have to depreciate it over a longer period of time. Also, there isn't a provision allowing small businesses to write off hand tools that are lost, destroyed, etc. It might sound like a little picky thing in the act, but it's an area we haven't looked at. We've been somewhat negligent in not increasing that threshold, to the point that now it's totally useless to small business in particular. It's not unlike what the CFIB has raised with regard to the small business deduction threshold. It's the same idea, that up until last year the threshold hadn't been looked at for a number of years, so it has lost its effectiveness and its intent. Certainly, it's an area that we think has been overlooked in that it hasn't been updated in some time.

À (1035)

[Translation]

Ms. Pauline Picard: And at what level would you set this ceiling?

[English]

Mr. Michael Atkinson: We'd be happy to see it grow as high as possible, obviously, but anywhere between $500 and $1,000 would be more realistic as to what hand tools cost in the marketplace today. We're talking about the kinds of tools that, given their use, the fact that they are held in your hand, can wear out pretty quickly. It's not unusual to see their useful life disappear a year from the time they were brand new. I think the intent of this particular category was to ensure that for those small hand tools, the employer could in fact write those tools off in the year of acquisition. The $200 level, at the time it was introduced, was appropriate for what most hand tools would cost; $200 won't get you much of anything for the kinds of hand tools that are used by skilled construction workers today.

[Translation]

Ms. Pauline Picard: Thank you very much.

The Chair: Thank you.

Mr. Wilfert, you have six minutes.

[English]

Mr. Bryon Wilfert (Oak Ridges, Lib.): Thank you, Madam Chairman.

I'd like to thank everyone for their briefs.

To the Canadian Federation of Independent Business, I couldn't agree with you more about staying the course in terms of fiscal prudence, which obviously means no deficit. I won't debate the issue of government spending, because the figures I have from Finance are not as alarming as yours. But clearly it is something we all have to be very careful with in terms of the amount we're spending and what we're spending it on. We have demands for everything from health care to education to infrastructure. We have to have a clear balance in terms of those things. But I would agree with you that the fiscal course must be maintained.

You provided us with five recommendations, and I've had a chance to look at them. I'd like to know what's the priority and what's the cost implication.

Ms. Catherine Swift: First of all, we do use Finance figures as well. These aren't our figures. They are based on government data. In fact, those kinds of numbers have been corroborated by a number of other agencies and entities as well.

With respect to the priorities that we would...it's a pretty tough call, but there's no question that the small business threshold increase that has been staged to date to the $300,000 level a few years out was hugely positively received. In terms of cost, I believe that is probably also one of the costliest proposals, as it turns out, which is probably why it's preferred, putting more money back in the hands of the job creators out there.

As I recall, in the most recent data we saw, that's a couple of billion dollars. It's already going to be at $300,000, and increasing it to $400,000 would probably be about $1.5 billion. As I recall, it was between $2.5 billion and $3 billion to go from the $200,000 to $400,000, which was our previous recommendation. Now, because it is going to $300,000, I would expect about $1.5 billion probably to go to the $400,000.

Mr. Bryon Wilfert: It's very important to really be able to nail some of these figures down, obviously, because I do not believe we're going to be awash in money for next year, although there are those dreamers out there who think we are. Obviously, if we're going to prioritize your main priority and what is the benefit to your members, and ultimately to society as a whole, we really have to have those figures.

I won't debate. As I say, maybe you have different figures from what I have, but the figures I have show us that we're probably still at the lowest point in government spending since the early 1990s. Nevertheless, the reality is that we hear a lot here about debt reduction. We're the only G-7 state paying off the national debt. We talk about the debt of infrastructure.

I would say to all of you on infrastructure that, although I agree wholeheartedly, I take great exception to this issue that maybe by implication or by design somehow the federal government is responsible for the infrastructure debt. There was no government prior to this one contributing to the debt on infrastructure. As a former president of the Federation of Canadian Municipalities, I can tell you that now we have a 10-year program we've never had before.

None of you gentlemen mentioned the word “leveraging”, which I would like to hear more often in your briefs. What about the provinces' contributions? What about municipal government contributions and the private sector's contributions? The fact is we have an initial downpayment, both in terms of the national infrastructure program and the strategic infrastructure program. There is no question we have to invest in that, but as some of you already pointed out, there are also shocks to the system.

The fact is, on the one hand, you're saying pay down the national debt that the government has, which we need to continue to do, and certainly the next Prime Minister has indicated he wants to continue to do that at a rapid pace, but on the other hand you want us to spend money. It's pretty difficult to spend and save at the same time. We're not able to do that at the moment. How do we do that while at the same time getting our partners on board? The gas tax is certainly no panacea, because unless the provinces are prepared to have the transparency and accountability we need through the municipal governments in this country--I highly doubt many of them are--we're not going to get the money to where it needs to go.

Talk about leveraging. Talk about what we've done. Talk about the fact that, yes, there's more to be done, but had we done this in 1983 when the FCM originally proposed it and we had a $17 billion infrastructure debt, we may not be in this situation. But the reality is that part of it is how these plans or these agreements are negotiated with the provinces. You have some, like Quebec, who don't allow us constitutionally to provide money directly to the municipal governments. You have to go through a whole lot of other programs.

So I put that out to you, gentlemen, and maybe you could respond, Mr. Bolton, because you particularly flagged it.

À (1040)

The Chair: Yes, Mr. Bolton. Then I'm going to take Mr. Brown and then Mr. Whyte. I'd ask for brief comments from all of you, please, so we don't go over.

Mr. Garry Bolton: Thank you, sir.

I appreciate, Madam Chair, the comments and the question. We have a new accounting principle within our organization: money in, good; money out, bad. So we certainly understand your situation. There are hits to the system everyday: SARS, Iraq, or whatever.

One of our major concerns is that a lot of our infrastructure debt is silent; it's quiet. It's unseen and unknown. We have over 29% of our infrastructure that's over 80 or 90 years old. So in terms of the idea of a multi-year cooperative funding program, you're quite right in terms of leveraging that all levels of government and private-public partnerships--like for the 407, like for the Confederation Bridge--have to be at the table. There's no question about that. And we think that recent discussions of a foundation type of process where the money can be earmarked and dedicated and put into a fund that will be there in the long term--we certainly promote that.

The Chair: Mr. Brown.

Mr. Tom Brown: Thank you.

Certainly our symposium yesterday did address leveraging both with private-public partnerships and other levels of government. I suppose we see infrastructure spending not necessarily as totally an expense but as an investment. Obviously, with better roads and highways you have reduced insurance, reduced insurance cost, cheaper moving of goods and products, which addresses our productivity issues.

We do applaud some of the programs you refer to, Mr. Wilfert, but we think the key to this is long term and predictable. We still see that as lacking, and we still see that as a very positive aspect of some dedication of the federal fuel tax.

The Chair: Mr. Whyte.

Mr. Garth Whyte: We've discussed a lot of these things on leveraging in our brief. We had seven minutes. Please read it through. You'll see some of the things you're talking about.

But our key message, if this committee gets nothing else, is that we're not just talking about dividing up the economic pie; we're talking about making the economic pie bigger. That's how you get your money.

When we were here two years ago, following September 11, we were the only group that came to this committee and said we think there are 250,000 to 300,000 jobs that couldn't be filled. We were wrong. It was 540,000 jobs and it came from our sector. It was much more than $1 billion or $2 billion. The dividends that this government got, that all governments got, from our members and from the small business and independent business sector were amazing.

So when we put out a report called “Wage Watch” and we find out the exact same positions in Winnipeg, the federal government versus the private sector, and they're getting a 30% dividend in Winnipeg, those are choices that are being made that you may not know about. I think this committee should look at it.

When we compare hundreds of thousands of positions, 4.2 million positions in the private sector and almost 200,000 in the federal public sector, and you find you're leading the pack, I would look at that. People think you're increasing health care spending for beds; they don't know if you're increasing salaries. They think you're increasing spending on education for more infrastructure, or schools, or teachers; they don't know if you're increasing pensions. They think you're doing things on programs; they're not sure you're spending all your money on increasing salaries, way ahead of the pack and much higher than similar salaries in the private sector.

À (1045)

The Chair: Thank you, Mr. Whyte.

Now we'll go to Mr. Murphy for six minutes.

Mr. Shawn Murphy (Hillsborough, Lib.): Thank you very much, Madam Chair.

I want to follow up on an issue Mr. Bolton has raised, and perhaps I'll ask for a comment from Mr. Bolton and Mr. Brown. That is dealing with this infrastructure deficit. It's very real. It's something that's complicated with the different levels of jurisdiction: municipal, provincial, federal.

But there's one process or one initiative, and you raised it, that seemed to have a lot of legs about 10 or 15 years ago, and that's the public-private partnerships. It seemed to be people were pushing it or advocating it.

There's been a lot done, and you raised some examples, but there have been a lot of problems too over the years. I'm from the eastern part of Canada. You mentioned the Confederation Bridge, which I consider to be a successful project, but there have been schools, and prisons, and there have been IT initiatives that really ended up to be more or less political shemozzles.

There's a lot of air out of the balloon in this whole initiative. I don't know what went wrong over the years. It doesn't seem to be as high a priority with the public sector or the private sector. Maybe the public sector was never fully committed. The private sector, it seems to me, always wanted to disengage the risk element from the profit element. They weren't as enthusiastic about taking on the risk in these projects, and that's part of the problem.

Do either of your associations have any comments or any advice to the government on this initiative?

Mr. Garry Bolton: Yes, sir. Thank you for that question.

It is certainly an initiative that has worked well in the past, and in some cases has not worked well or is not working well as we speak today.

In our business we're always looking at new approaches, new ways of skinning the cat, as they say. Certainly PPP is being looked at in western Canada, in Alberta, I know, and in B.C. in some health care projects. We look forward to a major PPP forum that I believe is to be held in Toronto in November.

Part of the problem is lack of understanding amongst a lot of our member firms as to what PPP is all about. We have an education process. It's like design-build or anything like that. Part of it is raising the awareness and as a group figuring out how we can make it work well together. I think in the past some of them have not been put together very well.

The Chair: Mr. Brown.

Mr. Tom Brown: Certainly, triple-Ps work very effectively in certain situations, but they're not a panacea. They do encourage innovation and cost- and time-effectiveness in the appropriate application, but nonetheless, it's still the taxpayer who's stuck with the cost of a triple-P initiative unless there are some user fees attached to it. That may be something that goes hand in hand with dedication of the fuel taxes as far as helping to address that core infrastructure debt is concerned.

Mr. Shawn Murphy: My second question is addressed back to you, Mr. Brown, and Ms. Swift may want to comment. It's not in your briefs, but I'd like to get your thoughts and opinions on the whole issue of the underground economy. Our tax system has to be fair, it has to be equitable, and, depending on what you read, you may be aware there is a substantial underground economy out there. A lot of people don't pay GST. There's income tax being avoided. The industry that is the biggest offender, I believe, is of course the construction industry.

Do either of your two organizations have any opinion or advice for the government on this issue, how we can better capture a lot of that tax revenue that's not being captured at present?

The Chair: We'll start with Ms. Swift and then go to Mr. Atkinson.

Ms. Catherine Swift: There's been a lot of research done around the world on the issue of the underground economy in many different cultures and environments. There's always going to be some underground activity, but the best way to minimize it has always been proven to be a fair tax system, one where people truly feel their tax dollars are being wisely used. The spending scandals we've seen at the various levels of government lately are not helpful, because people feel they are giving up their hard-earned money to be wasted. Excessively high tax levels are also an issue, and with the audit approach, adding a few thousand auditors to the revenue agency or something, you usually end up spending a dollar to collect a dollar in the final analysis.

Around the world the proven methods are a reasonable level of taxes coupled with the promotion of the notion that moneys are being well spent by government. Then people are willing to pay taxes, and frankly, Canadian taxpayers are some of the most compliant in the world.

That's not to say there isn't an underground economy issue out there; there always will be to some extent. It peaked post-introduction of the GST. That was also combined with, as you may recall, the 89¢ dollar we had at that point in time, and we had a serious recession. So we had a triple whammy in our economy back in the early 1990s.

We get complaints about the underground economy from our membership because they're being unfairly competed against, naturally, while they're paying their share, and that's a concern. But frankly, complaints about the underground economy have tapered off as the economy has improved over the last number of years.

À (1050)

The Chair: Mr. Atkinson, I'll let you have the final word on that point.

Mr. Michael Atkinson: First of all, I agree with what Catherine Swift has said. There is no question that this is the same impression we get. I should qualify my answer before I give it, in that our association represents the non-residential construction industry, so my members deal with other businesses, with governments, etc. Where there has been a problem, I find in talking with my colleagues from the residential sector, the main problem has been driven by the fact that the consumer, the homeowner, has become a willing participant in the underground economy, and the introduction of the GST was part of the reason for that. If there is one way to try to address that issue, it is to get that consumer involved in the policing of the underground economy, which is something I know my colleagues in the residential construction industry have been asking for, for some time.

We have been working on a cooperative basis with CCRA in trying to ensure that our members better understand compliance without going through some regulatory burden that would maybe drive more of them into the underground economy. This is just to say that I think there are some measures that can be taken. Our industry is very much interested in working with government to ensure better compliance.

The Chair: Thank you.

We'll have Mr. Valeri for six minutes, and then I'll allow Mr. Discepola to have a final question or so.

Mr. Tony Valeri (Stoney Creek, Lib.): Thank you, Madam Chair.

I just have a couple of questions, the first for CFIB. With respect to training, I just want to focus on a couple of specific areas. When you talk about significant investment in training and some incentives that would motivate SMEs to participate in the actual training of employees, you talk about lower payroll or other taxes as being the number one incentive you've identified. Given the size of most of your membership--and I'm not exactly sure what the size would be, but if we take a snapshot and say for firms the size of 10 to 50 employees--EI reduction would not provide as much of an incentive for them as perhaps for a firm with 100 to 500 employees.

I wondered whether you've tested at all the option of directly participating in the cost of the hourly wage of the person who's being trained. The system we had earlier was that over a three-year period HRDC would participate with a 75% wage subsidy in the first year, 50% in the second year, and 25% in the third year. Have you done any of that testing?

Mr. Garth Whyte: Yes, we have, and as you know, we have a couple of reports on training and on shortage of labour we can send to you.

One of our members' fastest growing--again, we're dealing with so many issues here--and biggest issues is the shortage of qualified labour. One of our messages to government is, let's not exacerbate the problem. Again, the wage watch issue causes some of that problem, and our report identifies that. The other is, we find informal training is as important as formal training. It's how you measure it. A lot of employees in our sector are informally trained, so that's where the payroll taxes come in. It really helps them to leverage more money to do that.

We have had some programs with this government, and we recommended in the back of this report.... We had the new hires program, if you remember, where if you hired new people, the government could lower the EI premiums to offset some of the training costs, for example. Once this government introduced extended parental leave, which costs a lot of money, our members could lose a key employee for a year, have to replace that employee, and still have to train the new person. We thought there should be something to offset that as well.

We find those are better approaches than a kind of training supplement, because you have the funny scenario observed where firms that are downsizing are still getting training dollars. You could have Air Canada getting a training rebate while they are in bankruptcy protection and are shrinking, while some of our members with smaller airlines are increasing and are training their people, but they don't get a training credit for whatever the circumstances are. That's where we've found a problem, because again, you are picking winners and losers, and we don't think that is the way to go.

À (1055)

Mr. Tony Valeri: This is a question to the construction association with respect to the EI fund. There's a recommendation in your brief that suggests the EI fund be segregated and held as a separate fund. Some of the history behind the consolidation of that into general revenues is that the Auditor General found that if you're running a deficit and the government is going to stand behind that deficit, it essentially becomes a deficit of the government and needs to be included in consolidated revenue. I'm sure you're aware of that. My question to you and perhaps to others who might want to respond to this is, are you now suggesting the EI fund not be government-backed and be solely funded by employers and employees? If I can, I'd like to get some reaction from others as well.

The Chair: I'm sure you'll get a reaction.

Mr. Atkinson, start.

Mr. Michael Atkinson: In essence, currently it's funded solely by employers and employees, and it has been for some time. The government no longer contributes unless it does go into a deficit situation.

The principle we want enshrined, whether it requires some kind of even nominal accounting treatment, is to ensure that EI contributions are used for the purposes of the fund, and if government runs into fiscal problems in other areas of its program, that it not use the EI program to manage a deficit or debt situation.

The EI program has been set up by contributors who are employers and employees in this country. If you want to introduce something that's going to be some kind of tax to address deficit or debt problems, then tell people what you're doing. Don't allow a program to run into a surplus situation under the belief that it is required for an EI program when in essence it is not.

Our message there is primarily to treat the EI program as a stand-alone program from the point of view of determining what appropriate costs are, and not to treat it as just another source of revenue dollars that's no different from any other.

The Chair: Mr. Whyte, a brief comment.

Mr. Garth Whyte: It's hard for me to be brief when we talk about EI.

The Chair: I know. We could all go on for hours.

Mr. Garth Whyte: This is a ticking time bomb. I remember we made presentations saying the GST would be a ticking time bomb, before it was introduced. I'm saying this is your ticking time bomb. You know it and we know it, but everybody has been pushing it aside.

Last year, we delivered to Minister of Finance John Manley 25,000 faxes on EI, dealing with the surplus, which is $45 billion and which is not going to disappear. Sooner or later you're going to be sued in court, and you're going to be in trouble.

We've put a series of recommendations and principles in here. We know that eventually the government is going to have to look at this surplus and they're going to have to change the system.

One of our first principles is that small business owners and their employees should be clearly better off, not worse, as a result of this new approach.

What has happened is that the rate-setting process is no longer done by employers and employees; it's done by the government. The surplus is being used for other things. Programs are being announced at EI, such as parental leave and compassionate leave, and it's seen as a slush fund. Now that slush fund is going to come around and really hit the government, because you have a $45-billion surplus.

The Chair: Thank you. I think you'll recall that quite a few pages of our report last year were devoted to it, specifically with charts.

Now we'll go to Mr. Discepola.

Á (1100)

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): Thank you. Do I have one minute?

The Chair: You're in overtime, put it that way, Mr. Discepola. But if we started on time, it would make life easier.

Mr. Nick Discepola: I'll refrain from commenting on Mr. Whyte's comment that there's a $45-billion surplus sitting in some slush account somewhere, because that's not true. He knows it, and we've said it so often. So I won't touch that, because I want to get a precise answer to a question.

I think all the presenters presented a case for increased infrastructure funding. I'd like to know the answer to two questions. First, what should that amount be, so that we can make a concrete recommendation to the Minister of Finance?

If somebody can throw out the figure, I'll ask my second question.

The Chair: Who would like to reply?

Mr. Boivin.

Mr. Claude Paul Boivin: Ideally, what would be required in a fund is $2.5 billion to $3.5 billion a year.

Mr. Nick Discepola: Is that the federal level only or combined?

Mr. Claude Paul Boivin: That's federally.

Mr. Nick Discepola: So we're talking about $10 billion a year, roughly.

Mr. Claude Paul Boivin: Yes, if it's tripartite.

Mr. Nick Discepola: That makes sense to me, because if you say their shortage is going to increase to about $110 billion within 25 years, we're going to have to invest a lot more than the $4 billion to $6 billion we require.

That leads me to the next problem, which is that the CFI stated categorically that we should continue in the right direction, and I concur. I think spending has gotten way out of hand. We made tremendous sacrifices in 1995, and that has just crept up. I flagged that to the minister last year in Halifax. But if we continue on our road to debt reduction and tax reduction and hold our spending, then we still have to invest in things like health care, the $2 billion they're asking for.

In one of your recommendations you wanted $1 billion or $1.5 billion to increase the threshold to $400 million. If we're going to have to invest roughly $2 billion to $3 billion in the infrastructure program, I don't know where we're going to get the money.

Everybody has alluded to the excise tax and the fuel tax. Would you be prepared to take a portion out of that if we can, let's say $1 billion or something? But in order to top up our true needs, would you be prepared to comment on the scenario where we increase the fuel tax by, let's say, 2¢ or 3¢, with the proviso that the full increase be dedicated to the infrastructure needs?

Mr. Michael Atkinson: I think it's important, however, to point out first that the last increase to the federal portion of the excise tax, the 1.5¢, was to fight the deficit, but that 1.5¢ is still there and we don't have a deficit--at least a fiscal deficit. So the starting point shouldn't necessarily be that we automatically have to increase the fuel taxes.

We have, in essence, 1.5¢ that was introduced the last time to fight the deficit. The deficit is no longer with us, yet the 1.5¢ is still being charged.

So in answer to your question, first, we believe it could be funded under the existing fuel tax system. I think the federal government's share is currently 10¢, not counting the GST.

I think the number that has been bandied about, and certainly it was talked about at our symposium yesterday, as far as the federal contribution is concerned, is 5¢ towards infrastructure.

As far as balancing investment is concerned, the need to reinvest in our infrastructure, on one hand, and the need to pay down our debt, yes, that is a bit of a juggling act, but frankly, that's what we elect our officials to do, to make that balance.

Mr. Nick Discepola: You didn't answer the question. Are you in favour of an increase?

Mr. Michael Atkinson: An increase in the tax?

Mr. Nick Discepola: We'd have to increase the excise tax in order to implement this program. The alternative is not to implement because you don't have the funds.

Mr. Michael Atkinson: Our association would favour that to the extent that it is truly dedicated to infrastructure.

Mr. Nick Discepola: That's what I wanted to know.

The Chair: I'm going to allow Mr. Whyte a quick response.

Mr. Garth Whyte: We support allocating some of the gas tax to infrastructure spending. We do not support increasing the fuel tax.

As a matter of fact, next to insurance costs, the fuel tax popped up just recently as our members' second biggest concern on input costs--we just got that, and we'll present it to the committee.

That was a surprise to us. They're really feeling it. There are a lot of different input costs, ahead of electricity, ahead of other inputs. So that was a major issue.

The other issue is that we've been supportive of this government. First off, it's always “Give us more money and then we'll spend it.” I think the first point is, let's hear the infrastructure plan. In some communities, I know the tree planting plan, but I don't know the infrastructure plan.

And it has to be real infrastructure. Our members don't see it being for curling rinks or things that compete directly with our members on other things. When government gets in, they call it infrastructure--and we have lots of examples. It has to be real infrastructure.

Third, it's all three levels of government. So again, going back to the border, we need infrastructure there, but sometimes the provincial government or municipalities do not work with the federal government to do that infrastructure spending.

But it's all about--and I have to repeat this--how do we make the economic pie bigger, not just divide up the economic pie?

We're having this discussion today. If you remember, following September 11, everybody said the world was going to fall, in terms of our economy. It didn't. One reason it didn't is because our economy still grew, and you have to encourage that economy.

So you have two things. One is dividing up the pie and the other is making the pie bigger.

Á (1105)

Mr. Nick Discepola: Presuming we can make the pie bigger, how should we do it?

Mr. Garth Whyte: We've given some examples of how you can make the pie bigger.

The Chair: Ladies and gentlemen, we're cutting into the next panel's time, so I'm going to have to wrap this up at this point.

First of all, I want to say to the Voluntary Sector Forum and to ITAC, I think our recommendations last year touched on a couple of the areas that are contained in your presentations to us today. You might want to look at those and give some feedback, if you wish.

But I want to thank you on behalf of all the members of our committee. We have a lot of people to hear from, but we appreciate each and every one of your presentations and the effort and the timeliness of them. So thank you very much.

I'm going to suspend for several minutes while this panel leaves the room and the next panel takes their place.

Á (1106)

Á (1113)

The Chair: Welcome, everyone.

For the second panel of our pre-budget consultations, I'd like to welcome the United Steelworkers of America, Dennis Deveau, government liaison, legislative department.

Then, from the Canadian Council of Chief Executives, we have Sam Boutziouvous, the vice-president, policy, and senior economic adviser, together with the senior vice-president, policy and communications, David Stewart-Patterson. Welcome to you both.

From the Certified General Accountants' Association of Canada, we have Everett Colby, the chair of the taxation policy committee; and Carole Presseault, director, government relations. Welcome.

From the Canadian Teachers' Federation, we have Harvey Weiner, deputy secretary general; and John Staple, the director of economic services. You have both been here before, so welcome back.

And from the Canadian Life and Health Insurance Association Inc., we have the president, Greg Traversy, together with James Witol, the vice-president, taxation and research. Welcome to both of you also.

[Translation]

Welcome to all.

[English]

We'll start with the United Steelworkers of America. You have seven minutes for your presentation. Please begin.

Mr. Dennis Deveau (Government Liaison, Legislative Department, United Steelworkers of America): I'll try to stay within that.

First of all, I'd like to thank the committee for the opportunity to participate in these particular hearings.

As was stated, my name is Dennis Deveau. I'm legislative director for the United Steelworkers here in Canada. Our union represents 180,000 in basically all sectors of the economy in Canada. Our roots come from the mining and steel sector, but we've ventured into many other sectors in the economy.

Our national director, Lawrence McBrearty, wanted to be here today to make this presentation, but unfortunately he's off dealing with some very serious issues in the steel industry. He's having to deal with a couple of companies that have recently gone into bankruptcy. Many jobs are at stake both within the industry and outside the industry.

One of the reasons I mention that is when you take a look at our situation now and at what the Canadian government has to deal with, be it directly within their budget or otherwise, you see that there are some factors that are causing those concerns. Today we want to look at two of the things that have caused the crisis in the steel industry. One of them is the Canadian dollar. Interestingly enough, a 15¢ rise in the value of the Canadian dollar over the last months has affected all the Canadian industries that sell into the U.S. market. It has had a particularly profound effect on those working in markets that are based in U.S. dollars. For those products, including all primary metal and spot steel sales within North America, the impact has not been limited to export sales. It has had a tremendous effect on the sales within Canada.

Between January and September of this year, 77,000 manufacturing jobs were lost in Canada. The Canadian government has recently talked about the increase in the number of jobs in Canada. But in reality we've had a decrease in the number of jobs in the manufacturing industry. The manufacturing industry, be it the auto sector, the pulp and paper sector, or the steel sector, is really the base of our economy. Those particular things are causing profound losses in those particular areas. One of them is the rise in the value of the Canadian dollar. There are predictions that the Canadian dollar will go up to 83¢ or 85¢. Between 1989 and 1993, when the dollar went up in value, 350,000 manufacturing jobs were lost.

The policy of our government--and that's the second area I want to deal with, the policies of the government, and again I'll relate it back to the steel industry--is that we want to be a trading nation, and we believe in the whole aspect of free trade. But in reality, when our biggest trading partner is the United States, the increase in the value of the Canadian dollar is detrimental to our trade, and the losses in the economy are becoming more and more. So we want the government to really look at what's happening with the Canadian dollar and to deal with that situation.

The second area is policy. We are quite disappointed that the government did not take a position on the issue of the importation of offshore steel into Canada. Again, that has undermined the Canadian steel industry, and we're now in a crisis.

Á (1115)

The question of policy is that if we in fact want to have this government say yes, we need a particular grasp of how the basic economy is going to operate, then that's something that has to be determined. Unfortunately, to date the government hasn't done that. The reason we bring this whole question of the steel industry up over and over again is that we're very concerned that in the near future we're going to lose the steel industry in Canada.

I guess I could just leave it at that particular point right now and maybe discuss it more later.

Á (1120)

The Chair: Okay, thank you very much.

We will now go to the Canadian Council of Chief Executives.

Mr. Stewart-Patterson, go ahead sir.

Mr. David Stewart-Patterson (Senior Vice-President, Policy and Communications, Canadian Council of Chief Executives): Thank you, Madam Chair.

[Translation]

The council this year has prepared a substantial written submission. Many of its 15 specific recommendations reflect comments we have made in the past, especially with respect to the importance of prudent fiscal management and the use of tax policy to create real competitive advantages for Canada.

However, the council's central concern today is the explosive growth of federal spending. I therefore would like to focus my remarks this morning on a proposal for a new, rigorous and practical process for spending review and reallocation.

[English]

The recent pace of spending growth simply cannot be sustained. The 11.5% increase in total program spending in 2002-2003 flowed in part from higher health transfers to the provinces. But over the past four years as a whole, direct spending by federal departments has actually been rising even faster than transfers to the provinces. From fiscal year 1999-2000 to the current year, direct program spending is projected to rise by 34%. That's an increase of more than a third in just four years. And even though the unemployment rate is low, spending through the employment insurance system is rising faster still. It went up 39% in four years.

It is clearly nonsense to suggest that tax cuts have stripped the federal treasury bare and bled essential programs. Federal spending is at a record level, and despite the cuts in personal and corporate tax rates, so is tax revenue. Revenue has been growing even where tax rates have been cut. Both personal and corporate income tax revenues this year are forecast to be 10% higher than they were four years ago. And revenue from the GST, where the rate wasn't cut, will jump by 30%.

Spending, in the meantime, has been growing more than twice as fast as this tax revenue. If the government wants to keep meeting new or growing needs in areas such as health care or defence and do it without undermining the economic growth that's kept the money rolling in over the last five years, it has to get serious about spending review.

[Translation]

Both the current and previous Finance ministers have recognized the need for an ongoing review process, but progress to date is not encouraging.

[English]

The Chair: I'm going to have to slow you down so our translators can keep up.

[Translation]

Mr. David Stewart-Patterson: I am sorry, Madam Chair, but I know we only have seven minutes.

[English]

The Chair: Faster doesn't make it easier, though.

[Translation]

Mr. David Stewart-Patterson: The budget of February 2003 launched a token exercise to identify one billion dollars in reallocations by May, and even this took twice as long as planned. What will it take to make a serious review process work?

In the council's view, four elements are essential: an overall cap on spending growth; a multi-level process of review; creation of an annual reallocation fund equal to 5% of direct program spending; and greater transparency and accountability in the spending review process.

[English]

So let me recap, if I may, each of the four elements.

First is an overall spending cap. Like every Canadian family, governments have to make choices. My daughter needs braces; I may have to keep that nine-year-old Nissan running one more winter. Governments can't tell taxpayers to give them a raise just because they feel like spending more money.

The first requirement for effective spending review is therefore some upper limit on overall spending growth. One option, a cap of inflation plus population growth, would essentially freeze real per capita spending. The council would be prepared to support such a cap, but we recognize it might prove overly restrictive in practice. The council is therefore recommending a more flexible formula: nominal growth in gross domestic product minus 1%, GDP minus 1%. Governments should never grow faster than the economy that supports them, but GDP minus 1% recognizes that as their real incomes rise, Canadians may want to enjoy some of the benefits of growth in the form of public goods rather than private consumption.

The second element is multi-level spending review. To do a thorough job of constantly improving the value the country receives for the dollars that are spent, government has to review spending on three levels: the program level, the policy level, and the function level.

At the program level, managers simply need to ask themselves, every day as well as every year, is this program doing what it's supposed to do? Is there any way it could be made to run better? But the broader policies that drive programs need to be reviewed as well, and we're suggesting every five years. Have needs changed? Are there any new ideas or new tools out there that might enable governments to meet those needs more effectively? And I think at least once every 10 years government needs to review its cross-cutting functions, things like how it attracts and develops its employees or how it buys goods and services.

Á (1125)

[Translation]

Three priorities for review at the policy level are employment insurance, defence and aboriginal affairs, if only because they involve the largest amount of spending and some of the most disappointing results. At the functional level, the most immediate priority would appear to be government procurement, where helicopters and advertising contracts come to mind.

[English]

The third element is what we're calling the 5% solution: what gets measured, gets done. This is why the council is calling for the creation of an annual reallocation pool equal to 5% of direct program spending. Now, even though this would exclude transfers to the provinces, employment insurance benefits, and old age pensions, a 5% pool would still generate potential reallocations of more than $3 billion a year.

Each senior executive of the public service would be required to identify the least effective 5% of the spending within his or her area of responsibility. The deputy and the minister would then consider their advice in determining which 5% of the department's budget should be put on the table for discussion at the cabinet level. Some of the resulting contributions to the reallocation pool might, in the final analysis, be left untouched. The rest would either be reshuffled within departments or distributed between departments.

The fourth element is improving transparency and accountability. The 5% solution is about making public servants and ministers more accountable. This goes beyond pouring over their expense accounts, because it pushes them to create value, not simply to eliminate waste. Executives who can't tell ministers where to find better value don't deserve their bonuses, and ministers who aren't willing to pull the plug on programs that aren't working should not expect taxpayers to give them any more money for their new projects.

Two other changes in spending management practices would make these reviews more effective. First, the government should make the process more transparent by engaging outside experts from the private, non-profit, and academic sectors to work with public servants in identifying options for reallocation.

Second, the government needs an effective internal champion, a body that can provide analytical support for the departmental policy and functional reviews and challenge the cost-effectiveness of existing programs and new proposals. The Treasury Board once had such a role, and reviving and reinforcing that role could make it the driving force for what we would see as a new culture of constant review within the federal public service.

[Translation]

The goal of all this is not to slash spending. Overall, spending will continue to rise. But programs and policies that are not working well or no longer meet the real needs of Canadians should be the first place the government turns to find the money to pay for new initiatives.

[English]

If ministers and their deputies are unable to tell taxpayers what's producing good value and what is not, why should they be trusted to spend even more?

Madam Chair, with that I'll close.

[Translation]

The Chair: Thank you very much. We will now hear from

[English]

the Certified General Accountants' Association of Canada.

Mr. Colby, go ahead.

Mr. Everett Colby (Chair, Taxation Policy Committee, Certified General Accountants' Association of Canada): Madam Chair, committee members, the Certified General Accountants' Association of Canada is pleased to take part once again in the finance committee's consultations on the next federal budget. With me today is Carole Presseault, director of government relations for CGA Canada.

We would like to focus on four issues that have a direct and major impact on the Canadian economy and public finances. The first is tax reform, the second is debt reduction, the third is expenditure management, and, finally, employment insurance. We believe these four issues address the themes of this committee's 2003 pre-budget consultations.

CGA Canada recognizes that this government has taken many positive steps to improve the tax system since 2000. However, we believe now is the time to advance these reforms and take them further. The question that we believe should be pursued by this committee is how the federal tax system can be made fairer, simpler, and more responsive, both for individuals and businesses.

To help set up a framework to try to answer that question, we'd like to propose the following three objectives: effective tax rates for businesses that are more competitive with the U.S. and other G-7 countries; a more balanced structure of taxation in regard to consumption versus income taxes; and finally, lower personal income tax rates.

In considering the effective tax rate for businesses, it is clear that more than the federal statutory rate must be taken into consideration. For both large public corporations and small entrepreneurial businesses, a host of other tax provisions, such as the following, must be factored in: tax requirement relating to dividends, capital gains, and interest income; capital cost allowance deductions; inventory cost deductions and sales taxes on capital inputs.

We have also found that the government has tried to put in place incentives to promote certain types of business activity, such as research and development. However, the administration of programs, such as the scientific R and D program, in general are too onerous and too time consuming for many small businesses to actually take advantage of the programs. We'd therefore like to see some reform that would make that fairer and simpler for more businesses to take advantage of.

Another example of a tax provision that has a negative impact on individuals is the exclusion from the education tax credit of certain individuals who wish to upgrade their knowledge and skills. Currently, employees are not eligible for the education tax credit if their course of studies actually relates to their employment. A CGA Canada-led coalition of organizations would like to see the government broaden the qualifying criteria to encourage lifelong learning that you've stated is an objective. You've received a separate submission from us on this topic.

A second reason for review of the tax system is the heavy reliance on personal income taxes as a source of government revenues. In 1961, personal income taxes represented only 22.7% of government revenues. By 2002, that rate had risen to 48.3%. In comparison, the GST accounted for nearly 14% of government revenues in 2002.

CGA Canada would like to see the Canadian taxpayers left with more freedom to decide what to do with their income. The freedom to save, the freedom to invest, or to spend and consume, should be left to the taxpayer for as long as possible.

Our third objective with regard to tax reform is that Canada should strive to gradually reduce its personal income tax rates, at least to the G-7 average. Canada's personal income tax burden, i.e. the ratio of personal income tax to GDP, was the highest among G-7 countries in 2002 at 14.6%. In comparison, the U.S. burden was only 11.8%.

There are social costs associated with a high personal income tax burden. It induces aggressive tax avoidance schemes, non-disclosure of income, inflation of expenses, an underground economy, and the flight of capital.

Turning now for a moment to expenditure management, we note that program spending has increased by 11.5% in 2002-2003 and is projected to grow by another 4% this year and by 4.5% next year. In the 2003 budget, the government committed to an ongoing program review process. CGA Canada urges the government to carry on with this exercise of examining existing spending.

Á (1130)

We would like to see all program managers challenged on an ongoing basis and made to justify their spending of tax dollars in changing government priorities. The President of the Treasury Board could easily facilitate this by establishing a cycle and clear criteria for the evaluation of departmental and agency programs.

On debt reduction, we believe the government should set, as a medium-term target, a debt-to-GDP ratio of 30% by 2010. The next few years will provide an opportunity, before the retirement of the baby boom generation, to reduce the nearly $40 billion that is spent every year in public debt charges.

My final point is on employment insurance. CGA Canada applauds the government for consulting on a new permanent regime for setting EI rates, to be in place for 2005. We acknowledge the gradual decline in EI premiums that the government has brought about over the last decade. However, there are still some issues with EI that need to be addressed. For example, the employer currently pays 1.4 times the employee rate into EI. We believe there should be parity in the premiums paid by both the employers and employees. This would encourage employers to hire more staff, not fewer, and thus expand their businesses.

Other refinements to the EI system, touched on in CGA Canada's submission to the Prime Minister's task force on woman entrepreneurs, pertain to smaller enterprises that legitimately employ family members. EI provisions treat these employees unfairly because of their relationship to the owner. In that same submission we pointed out that, for example, self-employed women are ineligible for the maternity leave provisions of EI.

In conclusion, we would like to recommend that the committee undertake a review of Canada's tax regime with the following three objectives in mind: make effective tax rates for businesses more competitive with those of the United States and other G-7 countries; have a more balanced taxation structure with regard to consumption versus income taxes; and lower personal income tax rates even further.

Second, we recommend that the government amend the Income Tax Act to broaden the qualifying criteria of the education tax credit.

Third, the government should establish a medium-term debt reduction target of a debt-to-GDP ratio of 30% by 2010.

Fourth, the government should put in place a permanent system to review department and agency spending in light of changing government priorities.

Fifth, the principle of employer-employee parity should be added to the list of stated principles that should govern the new regime for employment insurance rates.

Sixth, the government should review other provisions of the employment insurance system, particularly with regard to their fairness to entrepreneurs.

Thank you for your attention. We look forward to answering any questions you may have.

Á (1135)

The Chair: Thank you.

Next is the Canadian Teachers' Federation. Go ahead, Mr. Weiner.

[Translation]

Mr. Harvey Weiner (Deputy Secretary General, Canadian Teachers' Federation): Thank you very much, Madam Chair.

We are grateful for this opportunity to contribute to the preparation of the federal budget.

Our federation coordinates and facilitates the sharing of ideas, knowledge and skills among its 14 provincial and territorial member organizations, which collectively represent over 240 000 teachers in primary and secondary schools across Canada.

Many areas of federal jurisdiction are of interest to the federation.

[English]

I would like to refer you to a number of issues on which we would invite questions so we can elaborate a little more fully.

We are principally concerned about issues that affect the health and well-being of children and youth in this country. We teach those children and youth, and the federal government, in terms of its various responsibilities, has jurisdiction--or sometimes shared jurisdiction--with the provinces and plays a key role in that particular area.

We are a founding member and supporter of the National Children's Alliance and are supportive of the various recommendations they have put forward to this committee previously.

One of our concerns is that the national children's' initiatives that the government has undertaken over the past two years continue. They are beginning to produce significant results. They must be sustained and investment must increase in those particular areas. To talk about 5% solutions and reductions in government expenditure in this area would be shortsighted.

One of the issues that is of grave concern, when we talk about taxes, is almost equated to an evil. I remind members of this committee that taxes pay for services and that taxes, in many cases, are in fact an investment in our future. There is no better investment we can make than in the children and youth of this nation.

There is a considerable body of research referred to in our report that indicates that over a period of time, children and youth who benefit from services at an early age, and who have those services sustained throughout their lives, are more productive citizens who do contribute more to the economy of our nation.

I think we have to look at these things in both the medium and long term and ensure that governments continue to make appropriate investments in those areas.

A specific concern we address on page 7 of the English version of our report is the issue of immigrant and refugee children. The federal government does share jurisdiction with the provinces, but does control immigration and refugee reception. Currently, policies do not address the needs at all of children and youth; they simply deal with employment prospects for adults. This is something that is increasingly an important issue in schools. We often get youngsters who speak neither English nor French, and the responsibility, even though the immigration flow is not determined by school boards, is landed on their doorstep with inadequate resources to provide for those children and youth.

We are very pleased with the pending Canadian Learning Institute initiative. It is about time the federal government took a national role and looked at coordinating various aspects of education across the country with full respect for provincial and territorial jurisdiction. We need data. We need statistics. We need access to that. We need analysis of that information. Much of this information is currently housed within Statistics Canada, and we're having extreme difficulty, both in terms of access and cost, in obtaining that kind of information that is absolutely critical in the research and analysis necessary to help our children progress. The national longitudinal study on children and youth is another such initiative.

We also raise the issue in our brief of the need for interdepartmental policy coherence. We are currently looking at potential copyright legislation that will make it difficult, if not impossible, for teachers and students to have access to copyright materials. In fact, the federal government has spent hundreds of millions of dollars in the past in wiring our schools for the digital age. These issues have to be brought together.

The federal government has also recently initiated a healthy living strategy. It is focused on physical education, a growing problem with obesity, and poor diets of children. These are important aspects, and there is a dimension of that that affects the school, but these are not the only aspects. If we're talking about a healthy living strategy, we have to look at the whole child and the whole youth. This involves mental health and the resources that are available to families.

Á (1140)

Finally, before I turn the microphone over to John Staple, who will talk a bit about certain tax-related issues, I want to express the increasing concern of our teachers about how public education in Canada is funded. You have a paper on that topic that was circulated in addition to this report.

We are finding that more and more the responsibility is being shifted to students and to the parents of those students, and the more society absolves itself from the collective responsibility of ensuring that our youngsters, our children, grow up--and they are our children, even though we may not be the birth parents--to become fully contributing members of society, the more difficult it will become for schools to provide a quality education to all children.

We are seeing signs now of growing inequities, where fundraising activities in wealthier communities are in fact providing huge additional revenues to schools and school boards in those districts, and those who are not fortunate enough to live in those socio-economic circumstances are obviously suffering in consequence.

Thank you for your attention.

I will ask Mr. Staple to deal with a number of tax-related issues that are of particular interest to the teaching profession.

John.

The Chair: Very briefly, because you're out of your seven minutes.

Mr. John Staple (Director, Economic Services, Canadian Teachers' Federation): Thank you, Chair. Thank you, Harvey. And thanks to the committee for this opportunity. I will be very brief.

There are two tax-related issues in our written submission, and for those of you who have been following our presentations for the past several years, these will look very familiar.

The first deals with the contribution limits to RRSPs and the limits for defined benefit pension plans. We were very pleased to see the recommendations to the finance committee last year, subsequently acted upon in the 2003 budget, which took a very good step toward addressing the concerns we have in these two areas. What we are stressing, along with, I think, many others who have come to this table this year, is that this was a very good step, but a small one.

The recommendation we are making is very similar to that of other groups, particularly the Retirement Income Coalition, of which we are a member. It is quite simply to move the RRSP contribution or pension contribution limits in real terms to $19,000, rising to $27,000 in the following two years. We make a subsequent and corresponding recommendation with respect to increases in defined benefit pension limits. These recommendations, we feel, will put back into the process of saving for retirement income the fairness and equity that's necessary and the international competitiveness that's required.

The final one, very quickly, Madam Chair, is on the tax treatment of employment expenses. Our teachers across the country every year, through the AGMs of our member organizations, indicate that this is a continuing and serious problem for them, and we continue to raise it with the hope that this committee will make the appropriate recommendation to government for some action.

In the United States, teachers contribute approximately $1 billion, about $520 apiece, to education, for which the U.S. government has provided recognition. In Canada, the individual contribution by teachers to expenditures for schools is approximately $600 a year, slightly higher than in the States, for a total contribution to education of about $170 million a year.

What we are proposing in these recommendations are changes to the criteria under which the deductions can occur. There are some very positive things happening at the local and provincial levels with respect to attempts to address, in a positive fashion as much as possible, the concerns teachers have under the existing criteria. What these two recommendations do is ask for an expansion of the criteria at the federal level and ask for cooperation of the federal government for local and provincial attempts to provide the kind of tax assistance teachers require.

Á (1145)

The Chair: Thank you very much.

We'll go to the Canadian Life and Health Insurance Association.

Go ahead.

[Translation]

Mr. Greg Traversy (Executive Vice-President and Chief Operating Officer, Canadian Life and Health Insurance Association Inc.): Thank you, Madam Chair.

I have with me our vice-president of taxation and research, James Witol.

We are very grateful for this opportunity to contribute to the proceedings of this committee.

[English]

The CLHIA is a voluntary association representing companies that together provide protection for about 23 million Canadians and account for over 98% of the life and health insurance business in Canada. I hope you have all received our written submission in both official languages. I'm going to keep my remarks very short this morning.

This committee's pre-budget consultations and subsequent reports to the ministers of finance have clearly become an integral and very influential part of the budget-making process. Over the next few minutes, based on our submission, I'll describe three possible initiatives in line with the objectives this committee has identified for this round of consultations.

The first initiative I'll mention would contribute to the committee's goal of ensuring economic growth and job creation. Madam Chair, as I noted just a moment ago, this committee has become a very influential part of the budget-making process, and I think no better example of that can be found than in the area of capital taxation.

Last year the committee recommended the elimination of all capital taxes, and as a result, the 2003 budget included an announcement that the large corporations tax would be eliminated over the next five years. That was very good news, and I welcome this opportunity to reiterate the industry's thanks to this committee for its leadership role in this terribly important area.

Unfortunately, however, the government did not follow suit and similarly phase out the part VI capital tax on financial institutions. As this committee has previously pointed out, and I quote: “Capital taxes...increase the cost of capital, hence the cost of doing business. Our financial services sector is less competitive as a result.”

Our first recommendation is that the committee urge the government in the next budget to eliminate the special part VI capital tax on financial institutions, or, if that is not feasible in the short run, the rate should at least be reduced.

The next two initiatives I'll mention would both contribute to the committee's objective of investing in and caring for all members of Canadian society. The first relates to registered education savings plans.

In response to previous recommendations of this committee, in past budgets the federal government has taken a number of important steps relating to education financing, including creating the Canada education savings grant. An initiative that would further improve access to post-secondary education financing would be to broaden the range of financial institutions permitted to offer RESPs directly.

The current legislation is, in our view, at least, outdated in that the Income Tax Act requires that RESPs be legally structured as trusts. This requirement does not allow life insurers and other types of financial institutions--except trust companies--to offer RESPs directly; rather, they must create a trust structure to offer an RESP, which simply adds cost and complexity.

The trust structures are really not required for today's RESPs, because unlike RESPs of some years ago, today's do not pool investments beyond the family unit. Indeed, for very similar reasons, trust structures are no longer required for registered retirement savings plans or for registered retirement income funds. Eliminating this anachronistic requirement for RESPs would lower costs and create more choices. The industry, therefore, would recommend the committee urge that the legislation relating to RESPs be amended to permit non-trusteed contracts.

Madam Chair, the final initiative I will mention in terms of investing in the fabric of Canadian society relates to the attendant care expenses that regrettably are incurred by many elderly and disabled Canadians. At present, attendant care costs do qualify for the medical expenses tax credit, but only up to $10,000 a year, except in the year of the taxpayer's death, when it is raised to $20,000.

This limit has not been adjusted for quite a number of years now and is unrealistically low. In fact, attendant care costs can easily reach more than $50,000 a year. Indeed, I am familiar with a situation in which nearly $300,000 was incurred in a single year by an unfortunate individual.

Á (1150)

As a result, with that $10,000 limit some elderly and disabled Canadians are getting the medical expense tax credit for only a very small portion of their ongoing attendant care expenses. We would recommend that the committee urge a substantial increase in that limit or, preferably, getting rid of it entirely.

[Translation]

Madam Chair, thank you very much again for inviting us to contribute to the consultations of this committee.

[English]

The Chair: Thank you very much, everyone. Thank you for putting together such comprehensive briefs, which have been distributed to everyone.

We'll now commence six-minute rounds of questioning, starting with Mr. Casson.

Mr. Rick Casson: Thank you, Madam Chair, and thank you all very much for your presentations.

I want to address my questions to the Council of Chief Executives and then the CGA association as well. You've both come up with suggestions on program review and priority spending. Both point out the fact that spending by this government is completely out of control and is not sustainable in the short or long term at the present rates of growth.

Now, Mr. Stewart-Patterson, you suggest a 5% strategy here whereby if a minister or chief people in his department cannot identify 5% of spending as low priority, they certainly aren't doing their job--something I might totally agree with. But are you suggesting the 5% is enough? You also say it's for reallocation to other programs. Would it not be better if it was not only reallocation but an actual reduction in the amount of tax needed?

Mr. David Stewart-Patterson: I certainly wouldn't rule out the notion that we should still be looking for tax cuts. If you look at the recommendations in the broader submission we made to the committee, you'll see we've maintained a number of recommendations on tax policy that coincide with those of some of the other witnesses who appeared this morning and previously.

We certainly have concerns on the tax front, namely the competitiveness of corporate income tax rates and key issues in personal tax, from the need to get more low-income Canadians off the tax rolls altogether, to the extreme marginal tax rates facing families who are receiving the national child benefit supplement. There are a whole series of tax issues that remain to be addressed. I focused my initial remarks, though, on the spending review.

One of the important things when people bring ideas to the table, whether they're ideas for cutting taxes or ideas for new spending, is to be able to say, well, what's this more important than? The intent of the 5% solution is not, as the Teachers' Federation might fear here, an attempt to cut 5% across the board from every department every year; the idea is to force people to look at the relative value of what they're doing.

I think it's important in the minds of any manager and I think it's important at the ministerial level that people who have responsibility for spending taxpayers' money consider, well, what is it I'm doing well? Of my responsibilities, what's really going well? What's delivering what it's supposed to? Where are there problems that need to be fixed?

Some of those problems may well be fixed internally within a department, but I think there's certainly room to change the mindset of the discussion so we're not simply looking at how we add spending or add tax measures to what is already being done; rather, we're looking at what we're doing every year on a continuing basis and saying, how do we do it better? That means, what goes in--that 5%--is simply a requirement that every manager put forward their judgment on what's working the least well.

Now, once that gets up to budget considerations at the cabinet level, it may well be that, based on the advice about what seems to be working well and what's not, the cabinet will decide, all right, this chunk over here should go altogether; we won't just slice 5% off that. For other things that have been put forward they might say, sorry, in the grander scheme of things we think that's important. It's a look at relative value that's really the key to what we're putting forward here.

Á (1155)

Mr. Rick Casson: Another figure you put out is the 39% increase in EI payments, but indeed the employment rate has improved somewhat. What are your thoughts on where that money is going?

Mr. David Stewart-Patterson: There's no mystery on that one. The fact is, the government has instituted additional spending programs, such as maternity leave benefits and so on, that are going through the EI system. Now, I think there's a policy issue there as to whether the EI system is the appropriate vehicle for paying for such programs or for distributing such benefits. My point in mentioning that number was simply to say, look, the reason federal spending has been rising so fast is not just because of the big increases in transfers to the provinces for health care; it's happening across the board within federal departments and within federal programs.

We're certainly strongly in favour of a federal review of the EI system to see how it's structured, how to set up a separate account, and what should be funded through it and what should not, but there are legitimate policy reasons why that spending has happened.

Mr. Rick Casson: Okay, I'd like to go to Mr. Colby now--and maybe somebody else will want to comment as well.

Mr. Colby, you talk about personal income tax rates--

The Chair: Excuse me, Mr. Casson, I am just going to allow Mr. Weiner to add a point to that.

Mr. Harvey Weiner: If I understand the proposal correctly, it would require each federal department to do this exercise, with 5% being the objective. It seems to me it starts from the premise that departments are currently adequately funded. I think you even mentioned Health and Defence, so they would look for 5% to cut. It seems to me the flaw is trying to look at a simple formula to apply across the board.

Certainly the federation has nothing against accountability. We're a strong believer in accountability and in program review. But starting from the premise that each department automatically has to find 5% to cut--even ones we might agree, or have some debate about, that are not being adequately funded--is a major flaw in this proposal.

The Chair: A very quick question.

Mr. Rick Casson: Mr. Colby, on personal income tax rates, when do you think tax should kick in? What income level should not be taxed?

Mr. Everett Colby: That's a good question. If I had my choice, I would suggest that there be no personal income taxes.

Â (1200)

Mr. Rick Casson: But being realistic....

Mr. Everett Colby: Being realistic, it's a fine line. People always ask me whether it should be the low-income earners, the middle-income earners, or the high-income earners who get the cuts. If you're going to cut rates, it's going to affect all three because we have a marginal system. If you target the low- and middle-income earners, unless it's a system like the GST rebate or sales tax credit that maybe isn't clawed back as much, the bottom line is that you'll put more money in their hands.

Right now, low- and middle-income earners, as a percentage of their income, spend more on consumption than high-income earners. As a result, they are left with far less as a percentage of their income to actually save for their retirement, pay down their mortgages, or things of that nature. So the more we can put in their pockets, the better. You're going to have to balance that with the expenditures you're looking to provide through your fiscal policies. Any reduction is going to be better than no reduction.

[Translation]

The Chair: Thank you very much.

Ms. Picard, please.

Ms. Pauline Picard: Thank you, Madam Chair.

My question is for the Canadian Council of Chief Executives.

You have submitted a substantive brief. It is very interesting but it takes time to go through it all. It is a rather voluminous document.

What would be your main message to us? What is your priority? Which of your recommendations should the committee include in its report?

Mr. David Stewart-Patterson: The most important one is what I talked about at the beginning of my presentation. Obviously, fiscal prudence remains important. We also made several recommendations on tax policy but these are more for the medium term because the government does not have much room to spend in the short run.

Therefore, the key recommendation we bring this morning is that we absolutely need to bring the increase in spending under control. The reallocation of federal spending is one of the means to achieve this. We know that economic growth will cause an increase in federal tax revenues every year, but we also know that we will want to do many new things in the future, in areas such as national defence or education. The more programs we can identify today that do not perform as well as expected, the more we will be able to do in the future, whether in the area of tax reduction or that of spending to meet new or increased needs.

Ms. Pauline Picard: What answer can you give Mr. Colby who said that the 5% solution is not feasible?

Mr. David Stewart-Patterson: We chose 5% in order to capture significant spending. We cannot meet the conditions by just tinkering with small amounts here or there. Five percent is a large enough amount to compel a review of whole programs. Let me repeat that this 5% review is not an exercise that must inevitably lead to cuts. It is a process to identify programs that do not perform as well as they could, to make better spending decisions, to identify aspects which are more important than others and to establish the real priorities of government from year to year. It could well be that in any one year in any one department no money will need to be reallocated but I believe it would be difficult to state that in no government department are there underperforming programs.

[English]

There has to be something when you're spending billions of dollars and they're not being spent as well as others. That's what this is aimed at finding.

The Chair: Mr. Boutziouvous wishes to add something.

Mr. Sam Boutziouvous (Vice-President, Policy and Senior Economic Advisor, Canadian Council of Chief Executives): Ms. Picard, if I may add, any large organization should be able to generate a steady 2% to 3% improvement in productivity and efficiency, whether in the private sector or the public sector. And that's essentially at the base of our recommendation. However, that is just a short-term recommendation based on a yearly review of the reallocation of spending within the particular department. I reiterate something that David has said a couple of times now. It's not necessarily spending reductions. It is in essence a reallocation from lower priorities to higher priorities either within the department or within other departments of the federal public service. In addition, our submission calls for a constant policy review over the medium term as well as a long-term, ongoing process of spending reviews on a multi-level and crosscutting functional basis over 10 years, and then, finally, an overall spending cap for the federal public service for direct public spending, which would be essentially at the nominal rate of GDP growth minus 1%. So as you can see, it is a comprehensive program of spending control moving forward, which we believe is essentially a top priority that the federal government really needs to address very soon--immediately in fact.

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Mr. David Stewart-Patterson: If I may, Madam Chair, just to summarize, it is not about spending less necessarily; it's about spending better.

[Translation]

The Chair: That is all.

Ms. Pauline Picard: Oh? How time flies.

The Chair: Yes indeed.

[English]

You actually have 20 seconds left.

[Translation]

Ms. Pauline Picard: Thank you.

[English]

The Chair: I'm sorry.

Now we'll go to Mr. Wilfert for six minutes.

Mr. Bryon Wilfert: Thank you, Madam Chair.

To the Canadian Teachers' Federation, as a former teacher for 20 years, I can sympathize with a number of the things you've said.

With regard to your second recommendation about registration fees, etc., have you done an analysis as to what this is going to cost the national treasury? You talk about registration fees and membership fees. Obviously, these things cost money. How much are they going to cost us?

Mr. John Staple: The last national survey we did of teachers' expenditures in the areas covered by the criteria here puts the cost at approximately $600 per teacher. The survey included those issues. If we multiply that by the number of teachers in the country, we're looking at approximately $170 million to $180 million. Then whatever tax deductions are placed on that would be the cost to government.

Mr. Bryon Wilfert: In your first recommendation about equipment, books, etc., you mention material purchased by teachers. Are you suggesting that teachers are currently purchasing those things? I know that many of them are. It's the responsibility of the provincial governments in terms of the funding of education from kindergarten to grade 12. To me this would be a major issue. You should not ask for this, but you should be going after the provinces in terms of the issue of proper funding for schools in this country.

Mr. John Staple: It's an interesting comment. I'll speak first, and Harvey might want to say something else about it.

Yes, we understand that perfectly. It's our concern nationally, and as a national organization our provincial and territorial members have major concerns about the level of funding for education. However, on this issue, in the examination we've done, we don't think it has anything to do with funding levels of education but more to do with the nature of the teaching profession.

In other words, what I'm saying is that if the funding levels for education were increased in the provinces and the territories, I don't think you would see a great deal of reduction, according to the information we have from teachers, in the amount they spend in their professional lives to provide for their students what they think is appropriate for them. It's a never-ending till, if you like. But I agree, I think the--

Mr. Bryon Wilfert: Maybe it's a philosophical issue, but I don't think the teachers should be spending a nickel. Personally, I find it very offensive to ask teachers to pay out of their own pocket when we do not have adequate readers for all students in a classroom and when we are jamming 35 and 40 students in a classroom and not providing the tools that are needed. I find this absolutely reprehensible.

Mr. Harvey Weiner: I appreciate your comments, and I fully agree with your comments. This is a very difficult issue for us to deal with, and I think the points you've made are certainly well taken.

So while agreeing that, yes, because of the nature of the teaching profession, teachers would always be looking to supplement and to provide additional materials, you do put your finger on something that is very important, which I do address in that privatization paper. We are finding more and more that what should be provided as part of basic public education is now being resourced not only through teacher out-of-pocket expenses, but parents are paying user fees, and there are fundraisers. Kids are going out soliciting chocolate bar sales. We are recruiting students in the elementary secondary schools on a for-profit basis. This is not student exchange, but where you have school boards actively going out on the Team Canada missions and recruiting foreign students on a for-profit basis. And these kids are coming in and they're paying two, three, and four times in some cases the per capita amount that is being allocated by the province.

It seems to us that the federal government does have a role. Yes, there is provincial responsibility for funding, but surely as a Canadian government we have to really be looking at the implications of this, because we are in fact increasing inequities between students and between schools in various districts, and there are socio-economic issues, etc. And some of those issues are in fact within the realm of federal jurisdiction, i.e. dealing with specific needs of children and youth so that they are in fact prepared and ready to learn and have their problems addressed.

I think immigrant and refugee children are another example. The federal government brings the immigrants and the refugees in but seemingly considers that it's only adults who are coming in, with no provision at all, no responsibility at all, for the impact on those kids and what schools and teachers are faced with in the classroom when these kids come in without one or the other language.

Â (1210)

Mr. Bryon Wilfert: There's the same fiscal capacity as the federal government, if not more so, in terms of raising revenue.

Mr. Harvey Weiner: But it would seem to me that with the Canadian Learning Institute, which the federal government has been talking about--and I don't know where that is--there is some coordination that can be done there. There is some addressing of these issues on a pan-Canadian level.

Mr. Bryon Wilfert: I don't want to lose the fact that that is a disturbing trend and an issue that I want to raise.

On the issue of the Canadian Council of Chief Executives, as you know, the minister announced this year a $1 billion reallocation, and I personally think that should be done every year. I think it's a very important issue. The only impact, of course, is that when we do get hits to the system, like SARS, mad cow, and everything else, when you start putting in specific targets, you have a problem; if you have no ability to manoeuvre, you have a problem. But I think in principle I absolutely agree. We need to do that. We need to get....

To the certified accountants, you talked about fairer, simpler, and more responsive. I absolutely agree. It's a laudable objective. The question is how we get there. We talk about putting more money back into people's pockets, but at the same time we want to invest in education, we want to invest in health care. We have to do it smarter. And we clearly have to make sure that we put the feet to the fire of those managers who are in fact responsible, because the waste or perceived waste that goes on....

We have a federal government that has 400,000 employees and a $180 billion budget, and naturally excesses do happen. But the reality is we have to make sure.... When we went through that process this year on the $1 billion, I'll tell you it was painful for some ministers because they didn't necessarily take it as seriously as they should have, until the internal tax approach was applied.

The Chair: Mr. Colby, a brief comment.

Mr. Everett Colby: The way you would do that is by actually mandating that a subgroup, a task force, be struck to actually look at how to make it fair and simpler. We've talked about it for years. I've recently been appointed to a CCRA task force that's going to look at how we could deliver services better. Maybe they'd be better off having a committee that actually sits down and takes a hard look at this, but without some impetus, perhaps from this committee, to force them to do that, we just don't ever seem to get to that point. So we're proposing, suggest it but do it. Get the committee started and get the ball rolling.

The Chair: Thank you very much.

Mr. Valeri, please.

Mr. Tony Valeri: Thank you, Madam Chair. I want to reflect on what Mr. Deveau mentioned earlier about the steel sector, the challenges the steel sector is facing, and essentially the circumstance we find ourselves in as a country. We're really talking about manufacturing jobs; we're talking about steel, but we're talking about manufacturing jobs. I'm surprised we don't hear more about this around this table, that in fact there are corporations in this country that are extremely concerned about what the manufacturing sector will look like going forward and that understand the kinds of productivity gains we need to make as a country if we're going to stay competitive.

With respect to steel, it was very instructive for me, and I was quite disappointed that we found ourselves in a circumstance where we have a sector that is fully integrated with the United States. We have a Canadian who is president of the steelworkers' union of North America. We have joint ownership on both sides. We have a balance in trade with respect to steel itself. But we were unable to coordinate our efforts with respect to trade remedy when we were trying to deal with offshore, and as a result of the United States acting and Mexico acting, Canada did not act. It's a situation that I hope we never find ourselves in again, because we are a very open market. We have lots of imports coming into this country. I don't think anyone is afraid to compete in this country, but when we're dealing with unfairly priced imports, then we have a problem, and I think we have a responsibility to act on that. I want to make the comment that we don't ever want to see Canada standing alone in that type of circumstance. If we could move as a North American group with respect to offshore steel, we would be better off for it.

With respect to the comments made by you, Mr. Weiner, on the national role for the federal government with respect to education, you mentioned the Learning Institute. It's something I'm very interested in; it's something I've been pushing for, for a number of years. I want to get your reaction to what you see as the role of this Learning Institute.

I see it as an opportunity to collect best practices, to provide a national perspective and a way ahead for provinces with respect to skills training, lifelong learning, a conduit for all aspects of education to flow. It's not that we would be holding the lever for financing education--that's a provincial responsibility--but there is a role for the national government to play. Could you comment succinctly on what you think that role might be?

I have a couple of other comments I'd like to make.

Â (1215)

Mr. Harvey Weiner: I appreciate your comments, Mr. Valeri. We're precisely on the same wavelength. What we would include as well is the research aspect, the fact that we are getting less and less access to important data that is available within government departments. It's an access issue, and sometimes it's a cost issue. It would seem to me that this institute could provide a house or a haven for that type of information so that analysis can be done, research on best practices, pulling information together and demonstrating that there is a national perspective on education.

We're the only western industrialized country that doesn't have a national office of education. So we're fully in tune with this. We've been very supportive of the institute. We have been involved in the consultations, and we're waiting with bated breath to see the end result.

Mr. Tony Valeri: I have a question for Mr. Colby from the CGA.

You talked about the R and D program, and the CFIB was in earlier advocating for an R and D lite.

Do you have specific recommendations with respect to the research and development program? What is it that needs to actually happen to make it more accessible and user friendly for small and medium-sized companies?

Mr. Everett Colby: It's accessible already. The problem is the paperwork and the background information that has to be submitted and the timing of the R and D tax departments within CCRA to administer the claims.

I have as a client a small business that does research into software--three guys whose annual revenues were less than $500,000. It would take them in excess of eight months to complete all the paperwork on the depth of exactly what their research is doing and all that kind of background information before the claim would even get processed. Once we had done it this year, we'd have to do the same thing next year.

One would think, especially for smaller firms where their research tends to be consistent from year to year, there might be a fast-tracking process--like fast-tracking people through the border--where in subsequent years, once they have gone through the cost of establishing the justifiable research they are doing that qualifies them for the credit, it might be a little easier to get one's hands on that, because the timing is also a problem to them.

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Mr. Tony Valeri: I understand that, but the principles of research and development would be the same whether you were a small firm or a large firm.

Mr. Everett Colby: Right.

Mr. Tony Valeri: Is the department asking for information that's not relevant? What is it?

We're often talking about research and development as the underpinning of our innovative economy. The larger companies talk about how generous this is and the smaller companies say they just can't get it together. They don't have a research and development department to deal with this, and that's what seems to be needed. Are we asking for things that we shouldn't be asking for?

You said “fast-tracking”. There have to be certain principles met to ensure that the work being done would qualify as real research. Is that bar too high? What is not making this work for small businesses--outside of paperwork? Everybody understands paperwork. We have too much of it. But are there things that we can pull out of this program?

Mr. Everett Colby: Perhaps things such as paperwork and the scientific justification every year.

If you take a company like Corel, a large corporation, it will have a large department that will do nothing but administer the paperwork necessary to document the expenditures and the controls and the things that are in place that have to be reported.

A vast majority of the improvements in this research and development area are actually being undertaken by small business. It's not just large corporations. Because of the fact that they're putting all their intellectual and financial capital into developing a new product, small businesses can't afford to hire a department to track all that stuff. Their time is better spent doing R and D rather than worrying about doing the paperwork.

So when I talk about fast-tracking, it's on the administrative side. They're resubmitting, year after year after year, much of the same documentation, but it all has to be redone, according to the department.

CCRA has become a world leader in the delivery of services, especially on the technology side. It has done nothing on the R and D side in that respect. Let's get it to bring up the bar there, not that companies don't have to justify it, but just make it easier for people to get access to the money.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Colby.

Mr. Boutziouvous, you want to add a few comments.

Mr. Sam Boutziouvous: Thank you, Mr. Valeri and Mr. Deveau, for your comments on steel.

I'll just point out that two weeks ago our NAFTA ministers for international trade agreed to establish a North American commission on steel, and Canadians will be represented on that. Mr. Barry Lacombe of the CanadianSteel Producers Association will be on that particular committee specifically to look at increasing integration within the steel sector, but perhaps with a view towards coming to a customs review in it at some point. We'll have to see.

Secondly, the minister has agreed to study the issue of reducing tariffs to an MFN basis and look at rules of origin. Again, this should help.

Lastly, our organization, the Canadian Council of Chief Executives, released some time ago--earlier this year--a North American security and prosperity initiative, which actually has recommendations regarding trade remedies, and we can certainly send you a copy. On our website at www.ceocouncil.ca, we have a set of recommendations on trade remedies that we are very concerned with as well.

Thanks.

The Chair: Thank you.

Ms. Judy Wasylycia-Leis.

Ms. Judy Wasylycia-Leis (Winnipeg North Centre, NDP): Thank you. Can I add a couple of minutes on, past 12:30, so that I get my proper time?

The Chair: Well, so that we can ask the questions, we shouldn't waste time talking.

Ms. Judy Wasylycia-Leis: All right.

I want to begin by saying that I agree with Tony Valeri when he says it was very important to have Dennis Deveau from the steelworkers bring forward the issue of the high dollar and the impact on the manufacturing sector and the steel industry. We should talk about that for a few minutes. We haven't really delved into it. It's particularly important because tomorrow afternoon we have David Dodge coming before the committee.

Dennis, we know there have been 77,000 manufacturing jobs lost because of the high dollar in Canada. What has been the impact in terms of steel? What do you recommend in terms of the interest rate policy? Especially if the Bank of Canada says inflation is not a problem, why aren't we dropping our interest rates by 2%? If you had a chance to ask David Dodge a question tomorrow, what would it be?

Mr. Dennis Deveau: Wow.

With regard to the steel industry, as Mr. Valeri has pointed out, the whole issue of cheap imports hasn't been dealt with.

Aside from that is the issue of the dollar. We'll use one of the companies we're dealing with right now, which is in bankruptcy protection, as an example. That's Ivaco. Ivaco is not that far from here. It's in Hawkesbury, and it also has an operation in Quebec. About two months ago the CEO of Ivaco came to the union and said, “We have to sit down and have a long discussion with you, because for every 1¢ change in the Canadian dollar, there is an impact of $10 million on our industry”. Most of the product of Ivaco is exported. It had a devastating effect on them. Stelco is in the same situation. I'm talking about the steel industry in particular, but as the chief executives and others have said, it is also having a dramatic effect on their industries.

I would ask David Dodge why he and the Bank of Canada are not dealing with the issue of the rise in the value of the Canadian dollar. If in fact the government is taking the position that we want to have as much open trade as possible, and particularly, as I mentioned before, when we deal with the issue of our trade with the United States, because that's our primary trading partner, why would we want the Canadian dollar to be going up? The higher it goes, the more problems we have internally. That's what I would talk to David Dodge about. Why has the Bank of Canada or the government not taken a definite position on the direction in which they want the economy to go? The dollar has a dramatic effect on that.

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Ms. Judy Wasylycia-Leis: A complementary question is, why has the federal finance minister been so silent on an issue that has such a major impact on our economy? That's a rhetorical question. I don't expect you to answer it.

Let me ask you the question--

The Chair: Excuse me, Mr. Boutziouvous wants to add something. Then I'll give you the floor again.

Mr. Sam Boutziouvous: The first comment is that no country in history has devalued its way to prosperity. The dollar is rising. In fact, in the early to late 1990s the U.S. economy experienced perhaps one of the fastest rates of economic growth in its history, along with productivity gains, but also with an incredibly rising currency. That's my first point.

The second point, Ms. Wasylycia-Leis, is that the manufacturing sector, for all intents and purposes, is in a double dip. They are in another recession. They've lost a tremendous amount of jobs. But it is not necessarily just because of the dollar that these jobs have been lost. Soft U.S. economic growth and soft global growth in the wake of the obvious disaster and terrible terrorist attacks of 9/11 plus the body blows the Canadian economy has taken this year have all contributed to what we have seen in the manufacturing sector in particular. What happens in the interim with regard to a rising dollar grosso modo, as they say in Italian, is that profits and earnings get eroded.

What is of greater concern, I think, to the Canadian private sector is the volatility of the currency appreciation and depreciation we have experienced over the past 12 months. The 20% appreciation in the currency is of concern because of the speed of the rise. There's no question about it. But we're not going to increase the prosperity of the Canadian economy and of Canadians by trying to cap wherever the currency is going to be. I think in the future we're going to have to live with a currency that is in and around this particular range. There are other problems globally, in particular the twin U.S. deficits, that have contributed incredibly to the appreciation in the currency.

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Ms. Judy Wasylycia-Leis: I appreciate that.

There's no disagreement that we're talking about a multifaceted problem. No one's trying to diminish it to simple terms. However, we do have a serious problem in terms of our economy. If we had a strong economy, a strong dollar, that would be great. But we don't. We have an increase in unemployment from 6% to 8%. We have poverty rising. We have huge amounts of insecurity everywhere we go. So to do nothing in the face of that is absolutely irresponsible.

I want to ask Dennis Deveau, is he not worried, given Paul Martin's statements over the last couple of days about 100 days of cuts when he becomes Prime Minister, and doing what Mr. Colby is recommending—which I think is irresponsible--i.e. suggesting that even though we're the best of the G-7 in terms of debt-to-GDP ratio, we should go even further? Aren't you worried? Wouldn't you agree that money for more tax cuts--as is being recommended here and which will benefit the wealthy--more money to pay off the debt at a faster rate, has to come from somewhere? Will it not come from kids who are going hungry to school? Will it not come from more people lining up at food banks? Will it not create more unemployed workers?

What would be your response to that kind of policy statement that Paul Martin seems so intent upon and Mr. Colby seems to want to reinforce?

The Chair: We'll go to Mr. Deveau, and the last comment will be for Mr. Colby.

Mr. Dennis Deveau: We do have some concerns. When you deal with an emphasis on reductions, it is usually in education and health care. I guess the situation in Ontario, the Ontario election and the whole debate that went on with those particular issues there, kind of reflects what is transpiring. It becomes a question of, okay, if you're going to have all kinds of cuts, they have to come from somewhere. You're absolutely right. Is it going to be education? Is it going to be health care? Is it going to be all of the social fabric that everyone in Canada enjoys? We have a lot of concern on that, and yes, we'll have to see in the near future exactly what happens.

Mr. Everett Colby: To keep the comments brief, Ms. Barnes, with all due respect, I believe Mr. Discepola asked a similar question earlier to the previous witness on where the money would come from. If we reduced the debt, and instead of spending $40 billion on debt service spent maybe only $35 billion, there would be an extra $5 billion that could be spent on these other programs and services.

Ms. Judy Wasylycia-Leis: That begs the follow-up question. Over the last decade we have seen that agenda of first deficit reduction, then tax cuts, and now the focus on the debt. And what has happened in Canada? We have gone from number one in terms of the human resource development index to number eight. Are you telling me you have a plan to get us back to number one? Come off it. You're talking about money that is in the hands of a small number of people, and it isn't going into social programs and technologies.

The Chair: Thank you very much.

We will go over to the final questioner of the morning. Mr. Discepola, s'il vous plaît.

Mr. Nick Discepola: Thank you, Chair.

I have one brief comment for Ms. Wasylycia-Leis. The Minister of Finance can never comment on the state of the dollar; otherwise he'd be the ex-Minister of Finance.

I want to touch on two questions. One is the CGA recommendations, since Ms. Wasylycia-Leis introduced the subject on the debt-to-GDP target. We're at 40% roughly right now. You're recommending we go to 30% within seven years. I'm saying we can get that by doing nothing. Should we be doing more and getting lower, or do we just let the economic recovery take care of itself?

Mr. Everett Colby: In its simpler form, we're accountants, we're business people. The more I can reduce my debt and spend on debt servicing, the more money I will have for other things.

Mr. Nick Discepola: This doesn't reduce the debt at all; it reduces the debt to GDP. The debt level will stay the same.

Mr. Everett Colby: Yes, as long as GDP goes up. But we're not expecting as strong an economic growth. With things like what happened this year, we can expect there will be things that will occur every year.

What we're asking for is a medium-term target to set as a percentage of GDP, which may go down or up. But by reducing the percentage this debt service takes out of our gross domestic product, it will have an impact on how much of the revenue the government collects has to be spent on debt service. I'd like to see the whole debt disappear, but I don't think that's realistic in the short term.

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Mr. Nick Discepola: I'm just trying to get an assessment of where we should finally draw the line. We started with 75% back in 1994-95, and we're now down to 40%. I think 30% or 25% is probably acceptable. We shouldn't become infatuated with it and be preoccupied by it. That's all I'm trying to assess. I think there's a certain level we can comfortably live with, as opposed to having to eliminate the debt altogether.

To the Canadian Council of Chief Executives, I have no problem with your recommendations 2 and 4 on spending review and accountability. I think they're excellent recommendations. I do have concerns about spending, because I've been preoccupied with it for several years now. You're the first person to introduce the new concept of GDP minus 1%. In introducing that concept, you're sort of saying you want to spend smarter--I think those were your exact words.

I'm concerned that where you say to increase overall spending by the GDP, it's like telling your spouse or your family that the more you make the more you can spend, as long as you keep it at 1% less than what you're making. That to me goes counter-grain to your ongoing spending review.

My second question is on your third recommendation to allow 5% for reallocation. Knowing how public servants work--and having experience as a mayor--if they know that 5% of their budget is going to be extracted from them, they're going to budget for that 5%. So how do you rationalize the need to account for every cent? It's not just an overall blanket discussion saying, “Okay, we're going to allow for population or GDP growth, or any formula”. It has to be justifiable. I don't have any citizens in my riding clamouring for new programs. They're saying to target spending measures, in education, for example, but no new program spending.

I have another question, and it's for Mr. Colby. You are saying we should have a more balanced approach between personal tax relief and consumption tax. There was a comment earlier that a fairer tax system would go a long way toward solving the underground economy. Then the underground economy was attributed in large part to the 15.5% GST-PST combined rates in this country. Are you not worried that if you put more emphasis on a consumption tax you'll exacerbate the underground economy? My philosophy is to just give it to the people directly by reducing their personal taxes. A dollar in their pocket is better decided upon.

I got all my questions in, but--

The Chair: We'll go overtime to allow for answers. We'll start with the Council of Chief Executives and then accommodate the rest of the people who want to contribute.

Go ahead.

Mr. David Stewart-Patterson: First I'll speak on the debt repayment question. We've also suggested a target of 25% of GDP, but without setting a fixed date, because most of that decline in the relative size of the debt will depend on how fast the economy grows. We think fiscal prudence is important, because when we don't run into big problems it produces consistent modest surpluses that pay down the debt. The fact is that the repayments that have been made over the last years have freed up an additional $5.5 billion every year for reinvestment in other important priorities, which I'm sure Canadians consider more important than paying interest on debt.

On the spending cap, I know that other groups, including the Chamber of Commerce, for instance, have put forward a tighter cap. They've simply said we should freeze real per capita spending, and governments should never be allowed to become more significant in the lives of Canadians than they are today. That's certainly an effective cap on spending, but I'm not sure it's politically realistic.

I think it is a fair assumption to say that as the economy prospers and Canadians have more money in their pockets, there are some things they may want to choose to buy through the public sector, rather than just through the private sector. Maybe they'll want to spend more of their money on health care, better education, and so on. If you're going to legislate a cap on overall growth and spending, you have to be realistic about what's feasible.

We make it clear that putting a cap on isn't a licence to spend. Any proposal for new spending has to be justified on its own merits, and all existing spending should continually be justified on its own merits.

I think an earlier comment from Mr. Wilfert was that an internal tax was required to focus the mind. That's really what we're trying to get at here. It's the idea that everybody who works for taxpayers through the public sector should be focused on how to deliver the best possible value for the money they're taking out of taxpayers' pockets.

On the cap we're talking about and past spending increases, the first four of the last six years would have fallen within that cap, plus or minus point two percentage points. It's only in the last two years that spending increases have blown through that roof. That's really why we're trying to focus attention on the need to get a handle on how we're spending, so we can afford the new things that are going to come along that Canadians consider important and deal with the ones that aren't--

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The Chair: Mr. Colby, did you wish to comment? Go ahead.

Mr. Everett Colby: Thank you, Madam Chair.

We submitted in our proposal two years ago, sitting before this committee...and I think you were here. There have been studies done--the most recent, I believe, was by the UN--that there is an actual economic cost to every type of tax. That comes in part from the ability of the person who has paid that dollar in tax; it's a foregone ability to reinvest or save or whatever.

Obviously, the highest economic cost relates to consumption tax. For every dollar of personal income tax, the economic cost is approximately 56¢, but for a consumption tax, it's approximately 17¢. So when this was mentioned, Mr. Bevilacqua, who was the previous chair...the thought was.... And I gave him warning then: don't do what the Tories did and just jack up the GST rate. If you're going to do something with consumption taxes, you literally have to get rid of personal income taxes.

Not to ask you a question, but I'll put it to you: would you rather pay 23% sales tax at the register on everything you consumed, but pay no other personal income taxes? Just think about it. That would be the result of going toward a more consumption-based environment.

As a final point, sir, and to the rest of the committee, everything in our proposal...we represent the interests of society. We do have one element that is actually of personal interest to our members, and it has never received much attention at the committee level because it has always been a small part. But I'd like to take this opportunity, with all due respect, to push this education tax credit issue. That directly affects our members.

We were asked, and we anticipated--like the other gentleman asked--what the economic cost would be. We've roughly calculated approximately $1.8 million to be the cost to the federal government's treasury by expanding that and allowing our members to claim the education tax credit. Had Mr. Radwanski not travelled and ate like he did for three years, our costs would be paid for. It's a small price to pay. If we could do that, we've been told it would have to come through Finance.

So if you could, please, give the impetus to them, and then we'll deal with them directly on it. But it has to come from you to get them to take action on it.

Thank you, Madam Chair.

The Chair: Thank you very much.

I think you really did have the last word today. Thank you for your excellent briefs and for your participation.

Colleagues, at 3:30 this afternoon we start two panels. We also have votes, so I want to start strictly at 3:30.

Thank you. We are adjourned.