FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, October 30, 1997

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[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I would like to call the meeting to order and welcome everyone.

Pursuant to Standing Order 83.1, the finance committee is holding pre-budget consultation hearings. We've been doing that across the country and now we're back in Ottawa to hear from many other groups and individuals.

As you know, we're entering a new era as far as the fiscal situation is concerned, one that is really full of challenges and choices, and some decisions will have to be made as to what the best measures for positive change in Canadians' lives will be, what measures should be taken in the next budget.

The witnesses have approximately five to ten minutes to give us an overview of the major points and then we will enter into a question and answer session.

We have the pleasure to have representatives from the Canadian Professional Sales Association, Mr. Terry Ruffell, president; and Jack Shand, president, Canadian Gift and Tableware Association. Also appearing as an individual is Mr. Dale Orr, an economist.

Welcome, gentlemen. We'll begin with the representatives from the Canadian Professional Sales Association, Mr. Ruffell and Mr. Shand.

Mr. Terry Ruffell (President, Canadian Professional Sales Association): Mr. Chairman, Jack and I are here representing our two associations. We've also been working with a number of other organizations, so we bring a collective view to the table. Included in that group are the Canadian Hardware and Housewares Manufacturers' Association, the Canadian Office Products Association, and the Canadian Retail Building Supply Council.

I would ask that, if possible, the record of this meeting indicate that Jack and I are speaking on behalf of five organizations. We were elected.

We recommend our entire pre-budget submission to you—and we brought and will table with you a rather comprehensive pre-budget submission—but we will limit our comments today to the questions we've been asked to address.

I have a few general points that are worth noting. Our coalition represents all facets of the Canadian economy, including manufacturers, wholesalers, retailers, as well as importers and exporters. Not only are these members located in constituencies of all of the members of the standing committee, they can be found in every federal riding in Canada.

Finally, while there are many large companies in our organizations, I think the bulk of them are small to medium-sized enterprises.

On behalf of our five sponsoring associations, as well as their thousands of members located across Canada, I want to thank you for the opportunity to appear today. I know you've had a very busy schedule.

It is our hope that Jack and I will some day accommodate the other three members of our coalition.

With all that said, Mr. Chairman, in the introduction, I'd like to ask Jack Shand to talk for a couple of minutes.

Mr. Jack Shand (President, Canadian Gift and Tableware Association): We're well aware that the standing committee wishes to focus its attention today on the three questions posed to you recently by the finance minister. Following your directions, we have prepared single-page summaries of our views on these issues in both English and French.

If you require additional information on any of our responses, the text beginning at page 26 of our pre-budget discussion discusses them in greater detail.

I do want to tell you that the points raised on the single page we have prepared for you reflect the contents of our pre-budget submission, and I would join with Terry in commending to your scrutiny the complete contents of that brief.

We recognize that some of the recommendations we have made may be regarded as somewhat radical. The fact remains, however, that our coalition believes the time is ripe for the standing committee to consider alternative approaches to economic stimulation. Since widespread tax relief does not appear to be in the cards for fiscal 1998-99, the need for other approaches to prolonging the present economic recovery should be evident.

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Similarly, traditional approaches to reducing unemployment do not appear to be bearing fruit, even though impressive new employment gains have been recorded this year. Notably, the rate of youth unemployment must be a source of concern to us all. That is why our coalition is aggressively backing the idea of a national mentorship program involving a true partnership between the private and public sectors.

Thank you for your attention. Terry and I look forward to participating in this afternoon's round table.

The Chairman: Does that complete your comments?

Mr. Jack Shand: Yes, sir.

The Chairman: Thanks.

Mr. Orr.

Mr. Dale Orr (Individual Presentation): Thank you. I'm Dale Orr, an economic consultant, and I'm pleased to be here to give you my views on the questions before the committee.

With respect to the first question, the one on economic assumptions, I think the minister and the Department of Finance are doing a very commendable job on their economic forecasts and the assumptions they're making. I just hope they can continue doing a good job.

The second question, the appropriate new strategic investments and so on, reads ...“that would allow the government to best achieve its priorities”. The third one asks what is the best way the government can help, how government can best support Canadians. Focusing the discussion of this committee on these questions, worded in this fashion, will inevitably result in a shopping list for bigger government from people who are not focusing on the costs of bigger government and will never really know who's paying the costs or how much we're paying for this shopping list.

Rather than simply collecting a shopping list for bigger government, this committee should ask Canadians what they would do if the government reduced the level of taxation. The government, as well as the public, could then put these two alternatives, bigger government versus more individual freedom to spend, beside each other. Then both Canadians and their governments could make more informed choices about the optimum size of government and the appropriate level of taxation.

In response to questions two and three, I recommend the government make a stronger commitment to debt reduction in the plans for allocating the fiscal dividend, and that the government reduce EI premiums sharply, which would increase employment and incomes, particularly to the lower-paid. Finally, the government should be much more careful and accurate in communicating the costs and benefits of government. For example, the definition of the fiscal dividend from the economic statement of October 15 reads:

The 50:50 allocation of the fiscal dividend, among expenditures to address economic and social needs and among tax cuts and debt reduction....

Increased government expenditures are defined as serving economic and social needs, whereas tax cuts and debt reduction are not. At this point in our economic and fiscal history, it's likely that both tax reductions and debt reduction will better serve our economic and social needs over the longer term than many of the things the government would choose to subsidize. Again the government is luring Canadians back into the days of big government and overspending.

I've tabled a paper called The Benefits and Costs of Government. A one-page summary of that is before you. If you'd like copies of the complete paper, it's available on the table. Thank you.

The Chairman: Thank you very much, Mr. Orr. I'd like to also thank Mr. Shand and Mr. Ruffell. Now we'll move to the question and answer session.

Mr. McNally.

Mr. Grant McNally (Dewdney—Alouette, Ref.): Thank you for your presentation. I would agree that what we're looking at are two philosophical differences as to how to take the money that is collected in taxes and then distribute that into programs. You made some very good points there.

I don't think suggesting alternate measures is too radical. It's a debate that needs to happen in our country, and it's one that I think a lot of Canadians are asking now and that the government needs to respond to. It is a philosophical question as to what we want to do as a country, and I think you've identified it bang on—Mr. Orr in particular. Do we want to have a bigger government, which leads to higher taxes and more government spending, or do we want to have a government that looks at a different way to stimulate the economy through lower taxes and through then creating a positive economic environment?

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I would ask Mr. Orr—and the other gentlemen as well—how you feel this would best be communicated or how this message might be able to be effected in the business community and in the dealings in your realm of influence. Are you hearing this message from your associates? How do we exert influence on the government to engage in this debate with Canadians?

Mr. Dale Orr: I will make a suggestion. I believe we do have a dilemma that has been with us perhaps forever, or at least for the last 25 years. When politicians sit around a table and decide there should be tax deductions or that individual parliamentarians should go back to their ridings to say they have today delivered a subsidy for a new plant or new building or whatever, tax reductions and savings on the taxpayer's behalf always lose out. That's why we have a debt of $600 billion.

It's not an easy problem, but I would make this suggestion. When a politician does go home to his riding and offers to spend money in the riding, he should clearly say that he could have otherwise reduced taxes and that his constituents should know that was an alternative. It's their money he's spending and if they think they would have rather had a tax reduction, they should please let him know.

Mr. Terry Ruffell: You asked a question about what we're hearing. We undertook a survey of our members last summer, so I'll give you a little bit of feedback on their reaction.

First off, I think there is general agreement that the split between reducing the deficit, of driving toward that and reducing the national debt, is probably a good, solid approach that shouldn't be lost sight of. I can tell you that in the survey we undertook, our members were in favour of not taking our eye off reducing the deficit and addressing, or at least partially addressing, the national debt. We gave them a choice—and this may be interesting—between tax reduction immediately or addressing those other two issues. I can tell you that the group majority came out in favour of keeping our eye, turning it around, and then addressing the dividend a little bit later. So certainly the feedback we're getting from our membership is that as you approach the date, they're in agreement with you.

Mr. Jack Shand: I would certainly echo those comments. I think the view of the business community is that the role of government is really to create the environment. The case of job creation is an example. It's the private sector that really is the job creator. Government's role is to create an environment and incentives to perpetuate that objective. To that end, certainly in our submission to you today, while we recognize the importance of addressing the issue of tax levels and would strongly caution that there be no consideration whatsoever to any form of tax increase, there are other measures that could occur that will not have a dramatic impact on the revenues of the country but will significantly stimulate the economy.

Mr. Terry Ruffell: Maybe there is another option, too, between either/or. It's certainly something addressed in our submission, and that is the word “partnership”. I don't know that it has to be either/or, but there are opportunities. We've seen them used very effectively in our organization, where government works in partnership with the business community, the provinces, and the education sector. There are tremendous opportunities to address partnership opportunities.

Mr. Grant McNally: I'd ask just one last question about the new CPP plan and the contributions that are going to be kicking in. Do you and people you are in contact with in fact see the extra deductions that are going to be coming off as a type of payroll tax?

Mr. Terry Ruffell: I know our brief hasn't addressed that directly, but Jack alluded to it. Certainly, we've pulled tremendous tax increases out of our economy over the last number of years.

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Maybe Mr. Orr can comment on the estimate we saw, which was something like a 25% increase in revenues over the last number of years. Toward that end, where the government continues to pull more out of the economy, whether it's through CPP or very high unemployment insurance premiums, in this case there is a choice. If the money is going to government, then certainly there is no choice toward further training and job creation.

In that regard, I guess we haven't addressed it directly, but Jack alluded to it. Any further increases in any sorts of taxes are going to hurt the economy and are obviously going to hurt growth.

The Chairman: Thank you, Mr. Ruffell, and thank you, Mr. McNally.

Mr. Orr would like to add something.

Mr. Dale Orr: I think people do see the CPP as a payroll tax, just as they do EI, but I think people are much less offended at an increase in CPP for two reasons. First, basically they expect to get the money back. Second, it doesn't have the perverse impacts the EI premiums do. In other words, the EI premiums are only collected on the first $39,000 of income and fall disproportionately heavily on low-income people.

In addition, when you're comparing the CPP to EI as a payroll tax, although a lot of people may not understand this, with the level of premiums on EI right now, the fact of the matter is that when you pay $1 in EI premiums, you're paying 75¢ to cover the costs of EI. You're paying 25¢ of that dollar as a surtax on EI, and it's a deficit reduction tax.

So each are payroll taxes, but I think they are regarded quite differently by people who dig in and try to understand the situation.

The Chairman: Thank you, Mr. Orr.

Mr. Riis.

Mr. Nelson Riis (Kamloops, NDP): Thank you, Mr. Chairman.

Dale, that's an interesting comment you just made on the difference between the EI and the CPP as perceived by people. It's the first we've heard in that kind of a definition, and I think it's a useful input.

In regard to your comment about how we as political people should respond to our constituents, I don't know how active you ever get in elections, but almost everybody always asks what we can get for them. It's tough as a New Democrat, because they know I'm not going to form the government. They therefore ask why they should vote for me, why shouldn't they vote Liberal now, or Tory in the old days, when they can get stuff. The idea is that you get things—you get plants, you get this, you get all kinds of stuff—and it's very selective.

A voice: Ontario voted for Bob Rae.

Mr. Nelson Riis: So it is a problem. There is still that mentality in terms of people expecting us to deliver stuff. I don't know how we ever get beyond that, quite frankly. Anyway, I don't promise anything. I can't, but I keep getting re-elected, so I guess there's some hope of honesty in that sense.

However, gentlemen, your presentations were excellent and it's difficult to offer any sort of real criticism of them. I do like the suggestion to permit deductibility of mortgage payments or merge interest. I don't know what that would cost, but it certainly would be a very attractive initiative. It would be helpful.

My question to you fellows generally is the following. As we listen to interveners—and we have been doing this now for many weeks—we've been overwhelmed by the number of people who have come to us with a completely different message, such as those who represent the homeless people in Toronto, those who describe motels and hotels filled with people who have been evicted and have no place to live. There are thousands of families in this country—not individual homeless people wondering around, but families. We hear the advocates or spokespersons for the poverty and poor groups, and there are literally hundreds and thousands of people living in total poverty, with no hope for jobs. We have 70% youth unemployment in some parts of the country, with again almost a catastrophe. It goes on and on, with all kinds of social problems.

Not to negate what you folks say, because I think you believe what you say and that what you say economically stands up, but you say the role of government is to create an environment for business basically to do its work. That's one definition of the role of the government. I think our chairman has often said the role of government is to ensure quality of life for as many people in the country as possible.

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If you were us, what would you say to people who haven't had a job, are living in poverty, and don't have homes? More deductibility wouldn't be helpful to them because they have no money. A cut in taxes wouldn't be a help; they don't pay taxes anyway. Most of these people earn so very little. If you were us, how would you respond to those people? Would you really say that we shouldn't invest in these programs, but should consider tax cuts, pay down the debt, and just ignore millions of people?

Mr. Jack Shand: I would hope that all Canadians would recognize that a balance has to be struck. I think that was evident in the suggestion—

Mr. Nelson Riis: I don't want to debate that issue, because that's not the point. Say you're a single parent with three or four kids. You haven't worked in six years and you're a grade 10 dropout. You don't think about a balanced approach; you're just trying to stay alive. You probably have little hope that your kids are going to be successful, because you can't provide for them.

Canadians don't always believe a balance is appropriate, yet we represent those people as well.

Mr. Jack Shand: Yes, I respect that. But, Mr. Riis, when I suggest that Canadians believe in a balanced approach, this means there is a need to address the immediate needs of Canadians. Those people who are on the street or looking for work have an immediacy that has to be addressed. Clearly, it's a role for government. I think where it can find partners in the private sector to assist, then that should be increasingly encouraged.

The other aspect of that balance is to look at some of the systemic issues. We can apply some immediate solutions, but what are we going to do, for example, for the young people today who potentially could find themselves in that position in another decade? They'll have difficulty because of the skills they're bringing to the workforce such that they may have difficulty finding work.

This is why we recommended a couple of things in our brief. In fact, we only have really two or three key recommendations for you.

One of them pertains to a mentorship program. This is not education so much as an employment initiative. There would be incentives for the business community to literally bring young people into the workforce beyond the skills and information they have gained through the education system. This would give them some practical experience and guidance on what it takes to succeed in the job market. That's certainly in part perhaps over the medium term, but it addresses one aspect of the question.

As well, consider this suggestion. I'll be the first to admit that benefits are obviously going to occur for middle- and above-income Canadians. Consider the ability to use RRSP savings—this was done with the initiative for first-time home buyers—for borrowing, if you will, for education purposes.

The beneficiaries throughout the system are numerous. Certainly for a family they could be used to assist a young member of that family who wants to pursue an education. For individuals who have found themselves in mid-career to be not as competitive as they were when they entered the workforce, it would be an opportunity for them to refresh and upgrade their skills so they aren't faced with the unfortunate prospect in five or ten years' time of no longer being competitive.

The information I gather—this is based on media reports—is that, unfortunately, far too many of the people who are now on the streets, the homeless, are in many cases those who had jobs and a fairly average lifestyle. Yet through a number of very unfortunate circumstances—it could have been health or employment-related—they suddenly found themselves on the street.

I think some of these initiatives could address those points; they're not going to address them all. That's why, as I said, there needs to be a balance and some immediacy to the government's programs in offering that kind of assistance.

Mr. Dale Orr: We often hear people say, how can the government possibly reduce program expenditures, because there are so many needy people out there? No doubt that's so. Surveys of Canadians, I think, are very clear: they want their health and education protected. But that doesn't mean that government program expenditures can't be significantly reduced. The fact that there are needy people out there shouldn't be used as an excuse.

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I give you three examples. The government is still paying hundreds of million of dollars a year to subsidize the CBC. The defence department, as we learned from the Auditor General, is wasting money in a way that would make taxpayers cry. We have business subsidies, and they still are not as low as what the business community recommended. The politicians are still insisting on subsidizing different forms of agriculture and other types of business, for example, beyond what the business community itself recommended.

Mr. Terry Ruffell: When you get into the choices.... I remember sitting at the table a year ago with a literacy group on one side and a children's group on the other side, hearing the same demands and the same concerns, and I share with you those tough decisions. But I really think we're within just an ace of getting that budget under control, getting the deficit under control, and addressing the national debt—our mortgage. Think of the wonderful opportunities to take what we're now paying in interest payments—billions of dollars. If we could just get that under control, then if we have the poverty group and the literacy group.... We will have the opportunities to do so much more once we get our financial house in order.

So I agree with you about the balanced approach, where 50% goes one way and 50% addresses some of our social needs. The opportunities beyond that, when we get our house in order, I think are tremendous.

I guess we have a little bit more pain ahead of us, and I know it's difficult, but I think we're very close to doing something rather significant.

The Chairman: Thank you, Mr. Ruffell, Mr. Orr, and Mr. Shand.

Mr. Jones.

Mr. Jim Jones (Markham, PC): Thank you, Mr. Chairman.

Dale, I have a question for you. We're part of this very competitive global economy. Our neighbour to the south has unemployment rates hovering around the 5% rate. Ours has been at 9%, and it's difficult to move down from that. Without increasingly large government infusions of cash, what do we have to do to create more jobs in this country? Is it even realistic to think we can get the unemployment rate to match that of the U.S.? It did, maybe 15 or 20 years ago. Why can't we expect that again?

Mr. Dale Orr: This is an issue on which there has been a lot of study. Canadians desire to reduce the level of unemployment—as you say, we look with envy to the U.S., where it's 5%. One of the main reasons, of course, that we are at around 9% and they are at about 5% is that we have not been able to stimulate our economy up to its full capacity. That would relate, for example, to monetary policy. It's a difficult job, but there is no doubt much more excess capacity in the Canadian economy than there is in the American economy.

Another reason is that even though we have tightened very much on unemployment insurance, unemployment insurance is a subsidy to unemployment, and if you subsidize something you're going to get more of it. We subsidize unemployment more than the Americans do, so we're going to get more of it. Roughly speaking, our unemployment insurance benefits now are about on par with the U.S. states that are the most generous. Theirs is a state-by-state policy.

This is a tough, difficult choice for Canadians to make. Maybe Canadians want to subsidize unemployment more than the Americans do, but if they do, they have to understand they'll have to settle for a higher rate of unemployment than what the Americans have.

We had a little discussion about EI premiums. The EI premiums are about 25% higher than they need to be to cover current unemployment payments. We should reduce EI premiums. That would stimulate some job creation. It would move us in the right direction.

We are certainly capable of narrowing the gap between the Canada-U.S. unemployment rate, which is now at about 4%. Over time and with the right policies I think we're perfectly capable of bringing it within 1.5 points or maybe 2 points of the Americans. To get it down equal to the Americans would require significant cuts, for example, in some of our social programs, such as unemployment insurance. It would certainly require Canadians who are living in areas of high unemployment to be much more willing to move to where the jobs are.

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You could just simply do the arithmetic to see, at our 9% level of unemployment, how much the unemployment rate would have to fall in certain areas of the maritimes, for example, for the Canadian average to be at 5%. Unless it fell tremendously, all the rest of Canada would have to be at 3% or 4%. So people would have to move to where the jobs are before we could come more closely to the situation in the U.S. and try to get really close to its rate.

Mr. Jim Jones: We're looking at increasing the CPP premiums right now and not offsetting the EI premiums with the same increase. What will that do to the economy and to jobs in this country? We definitely won't see more jobs created, but will we see a lot of jobs lost because of this?

Mr. Dale Orr: I have not done a detailed study on the CPP side, but I certainly have on the unemployment insurance side. If we were to reduce our unemployment insurance premiums from the $290 level down to the $220 level, which would be the cyclically balanced level, between 100,000 and 200,000 jobs would be created over the medium term. That's the order of magnitude of job creation we're talking about on the EI side.

The Chairman: Thank you, Mr. Jones.

Mr. Assad.

Mr. Mark Assad (Gatineau, Lib.): Mr. Riis was outlining that people expect us to deliver something and it is quite difficult. Nevertheless, if my elected representative came to me and said “I'm proposing that the government spend money to upgrade the roads in this area and also help the municipalities through the province to upgrade the infrastructure in the municipality”, I would consider that very logical and acceptable, because we have to maintain the infrastructure that keeps our economy on its wheels and all the rest of it.

I agree that maybe in the past the word “deficit” was not uttered because we didn't have any problems with money. There were many programs and there was probably excess in the past, but now that has changed. We can't lose sight of the fact that there's a minimum of expenses we have and we have to maintain such things as our highways, as we heard a group here explain. I don't think we have to elaborate on the importance of improving our highways.

Mr. Ruffell, I was glad to hear you talk about a kind of partnership. You're suggesting a mentorship program. I'm going to read your brief. It sounds interesting. I'm convinced if anything will knock down unemployment it's massive programs of this nature, where there will be recycling and education. It's obviously the key.

Mr. Shand, you're concerned about the fact that you don't see any tax relief on the horizon, but I think there will be some. I'm convinced, though, that tax cuts will come when there's a reform of the tax system. I think we're overdue. I'm sure Mr. Orr and you gentlemen are aware it's been quite a long time since the Royal Commission on Taxation. It was a remarkable document, which we have ignored, unfortunately, all these years.

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Finally, if I may, I'll just get to what I'd like to put to you gentlemen. You were talking about alternative methods. Could you outline one or two of what you would consider alternative methods to improve the short-term problems we have now?

Mr. Terry Ruffell: I'll just kick it off, and I know Jack will want to comment.

We certainly think there is an alternative to working with partnerships. You alluded to the opportunity to address immediately youth initiatives and mentorship programs. We have a 30,000-member organization. I know that, one, we're willing to help as a partner, and two, there's a tremendous amount of goodwill out there. I think there's an opportunity now, and I think most Canadians and most business people have recognized that youth unemployment is a problem. The time is right to take the initiative that was suggested in the Speech from the Throne and to develop a partnership.

Things can be done immediately to start mentoring Canadian youth with successful business people. There's an opportunity in internship programs that could be sponsored, either directly or through the provinces—and again, we're talking about a partnership. I would think that's a wonderful alternative to government going it alone and doing it alone. Capitalizing and moving rather quickly on this initiative that's been suggested would move it forward as a priority, and I think you can make an impact fairly shortly.

I just urge you that there is goodwill out there to do something. Don't miss the opportunity.

Mr. Jack Shand: One of the additional comments I might add to this is that in one way we're very fortunate in Canada as a democratic society. We have a large number of voluntary organizations, trade associations, professional interests, charitable groups, etc., that all come together in common purpose to either better the economy or better society in some way. Of course, the contribution of these organizations has been recognized by government because they're exempt from income tax.

Perhaps one of the incentives to the business community, in the spirit of partnership, is for the government to encourage these associations to take the leadership role in some respect. With due respect to elected officials, associations have a somewhat similar role. They're there to represent a constituency, and they have a leadership responsibility. As Terry Ruffell has pointed out, I think there is goodwill; there is an acknowledgement on the part of the business community that young people today need that assistance. What skills they're learning in school are a major contribution to their competitiveness in the workforce, but it doesn't provide the full answer.

So I would encourage you to have the association sector as well, on behalf of all of these different interests in our society, partner with government in moving forward programs such as the mentorship initiative we've recommended.

The Chairman: Thank you.

Mr. Pillitteri.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you, Mr. Chairman.

Gentlemen, we pick and choose a lot of times what is good for Canada. We look south of the border, at certain programs they have and don't have, to see how beneficial ours are. Even last night I had my own town hall meeting, and one person mentioned how heavily taxed we are in Canada as taxpayers. I say the only fortunate thing is that we live very close to the United States, and we always compare to the United States. I just wonder sometimes if we ever take an account of the social programs we have, the safety net we have in Canada, how beneficial they are to all Canadians. But we pick and choose. I think either we accept the whole package or we don't. We're all taxpayers and we all think we pay too much.

One remark I heard is that individual homeowners should be able to write off their mortgages. Regardless of whether one is a homeowner or is renting...why should he have a special privilege? You've made that comment. Does anyone realize how much it would cost to write off a mortgage just because we think there is a future bonus coming and we want to spend it? Did you relate what that would cost?

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Mr. Jack Shand: What we're speaking of is writing off mortgage interest, not the entire mortgage. However, I would point out that, I believe in the late 1970s or about 1980, the Department of Finance looked at this very issue. If memory serves well, it was in fact part of a proposal of the government of the day and was obviously was based upon the advice of officials in the Department of Finance. It was seen to be feasible.

Mr. Gary Pillitteri:

[Editor's Note—Inaudible]...when we start spending money, but go ahead.

Mr. Jack Shand: Fair enough, but I suspect the situation back then was more difficult.

Let's look at the plus side, at the advantages as we see them. The affordability issue is certainly something that could be posed to officials in the Department of Finance.

First, we have to acknowledge that consumer debt, household debt, is extremely high in this country right now. It's something in the neighbourhood of 96% of after-tax income—and that's a conference board statistic. A lot of young people have moved into the housing market in the last few years, with a combination of factors: very low interest rates, the opportunity to draw from RRSPs, and/or the opportunity to have just a 5% down payment. We could well face a challenge when rates go up or other occurrences in the economy have some impact and people are looking at rising mortgage rates.

For the Canadian who is a homeowner, I think the savings that could occur through this kind of initiative could be directed in a number of ways. They could be directed towards continuing education, as an example. In terms of a broad economic benefit, it could be directed towards purchasing goods and services. Through the savings, it could be directed towards even greater contributions to their RRSPs so that there's a longer-term investment in their future security.

I think there are many benefits that could occur, and I would encourage you to have finance officials look at the cost. I believe there is a precedent.

The Chairman: Thank you.

Mr. Riis.

Mr. Nelson Riis: Thank you, Mr. Chairman.

I'll go back to the comments you made, but before I do that, Jack, Norway has a system whereby they have mortgage interest deductibility on their homes, on their cottages, and on their pleasure boats. They have been doing that for decades, as far as I know, and it's a very wealthy country these days.

However, going back to EI reductions and the impact they would have on jobs, can you respond to my following comments? When you look at the banks, they're making good money, yet they're laying off employees left and right. I suspect they will continue to do so as they bring in more technology. Making more money doesn't necessarily mean you're going to hire more people—and I'll just use that as one sector.

We recognize that most of the new jobs being created in Canada these days are being created by self-employed people—very small businesses, home-based businesses, those sorts of things. Almost all the new jobs are in those sectors, where I don't think an EI cut would make any difference. So when you say that, how valid is this notion that a reduction in EI premiums would result in a significant job creation factor in the country? I'm not questioning your comments, but in light of these realities I'd like to hear your response.

Mr. Dale Orr: Sure. Yes, the comment I made was that if the EI premium was cut from the $2.90 level to the $2.20 or $2.30 level, about 100,000 to 200,000 jobs would be created in the medium term. As you very correctly pointed out, this is a very difficult number to try to estimate. That's why I've said between 100,000 and 200,000. Depending on the different assumptions you make and what economist you talk to, for some it's going to be around 100,000 and for others it's going to be twice as big.

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That is quite a range, and there's a reasonable amount of debate as to what would happen in the longer term.

Mr. Nelson Riis: I don't know whether you would acknowledge this, but from information we collect, the largest number of new jobs being created are jobs for self-employed people—

Mr. Dale Orr: Yes.

Mr. Nelson Riis: —which an EI cut wouldn't make any difference to at all.

Mr. Dale Orr: Yes.

Mr. Nelson Riis: The others are in the small business sector. Again, if you have 10 employees and reduce your EI premiums as you suggest, it's not going to create that much bigger a pool.

In light of these new and recent trends in terms of where the jobs are actually being created, I really wonder whether these assumptions on EI premium reductions have the same validity today as they might have had 10 years ago when some of these economists went to school.

Mr. Dale Orr: These estimates are done now; they're not from 10 years ago. It could well be that 10 years ago the cut would have created more jobs. That's probably the case. You are certainly correct when you point out the changes in the structure of the labour force. It could well be the case that 10 years ago I might have said 200,000 to 300,000. I don't know because we didn't ask ourselves the question.

This one does take account of the structure of the economy among part-time, full-time, self-employed, and others. It does take account of the latest data we have on the economy.

Mr. Nelson Riis: If I may, Mr. Chairman, going back to the point Jack makes on using RRSPs in perhaps a variety of areas, I listened with interest a couple of weeks ago to the retiring president of Noranda. He indicated that 52% of working Canadians today make less than $20,000 a year. In other words, the majority of Canadians make less than $20,000 a year. I suspect none of those people have any RRSPs, or if they do, it's such a low number...maybe they have $3,000 in RRSPs. That's part of the problem, I think, in using that point about RRSPs.

Jack, you mentioned that in your presentation; we're talking, then, about assistance to the middle- and upper-income people of the country, where the problem really doesn't exist so much.

As political representatives I think we have to be more concerned in the short term about the 52% making less than $20,000—and these are the working people who are making less than $20,000.

Going back to many of the comments you folks make—and I know you make them in good faith—there's that other reality out there. I wonder how they would respond to your comments in terms of what our priority should be as a country.

Mr. Terry Ruffell: If you look at the suggestions that Jack has made and that the brief makes, I'm not too sure you would describe it as a break for the middle class or the upper middle class.

Mr. Nelson Riis: That's what he said. Those were his words.

Mr. Terry Ruffell: But I think what we are doing, Mr. Riis, is turning those dollars loose in order to use them for home renovations and major repairs. I don't know if you're going to benefit middle-class Canadians, but you are turning significant dollars loose in our economy, which is hopefully going to have a spillover to the $20,000-level people.

In our report, one of the things that I think is consistent with what you're thinking is selective tax cuts—because we don't see broad-based tax cuts happening right away—that offer economic stimulation. Hopefully it's not a benefit to the middle class. We're not here to discuss that; we're talking about stimulating our economy in selective ways.

Mr. Nelson Riis: I appreciate your point.

If I could make just one last brief comment, Mr. Chairman....

The Chairman: Go ahead. This is your final question, Mr. Riis, and then we'll hear from Mr. Jones and Mr. Pillitteri.

Mr. Nelson Riis: A lot of people have been asking for a variety of stimulative tax breaks for business and saying that job opportunities, economic opportunities, and so on will flow from that.

Again, the ex-president of Noranda, when he was speaking about this crisis that he described in our own country—let alone the global reality—said that business itself has to take some responsibility because if we have so many people with such low incomes and so little disposable income, somewhere along the line there's going to be no purchasing power left in the economy. It is business' obligation to partnership, if you like, as well, and not always be waiting for a tax incentive to do something.

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I'm paraphrasing the words he was using, but really, business has to take on a slightly different view as well and assume some responsibility for assisting to get us out of this economic mire, at least for such a large percentage of our population.

Mr. Jack Shand: I think the business community clearly has. If we look at the job creation that's occurred over the last several years, it's certainly not coming from the public sector. You're downsizing. So I think the business community has shown that commitment to create jobs.

With regard to Terry's point on the activities and these incentives that will create stimuli in the economy, if the figure provided by the ex-president of Noranda is in fact accurate, many of those people are likely working in service industries, and they may well be self-employed small business people where the nature of their business is their writing off this, that, or the other thing. Their actual net income is much lower.

All the people in those different industries are going to benefit from this kind of stimulus.

Mr. Terry Ruffell: We just touched on it briefly in our report and suggested tax cuts for probably in the future. I think Canadian companies deserve a dividend in the future. We're willing to hold off to get our house in order. I think we talked about that a little bit. We're not asking for tax cuts immediately; we just think there's a wonderful opportunity. We are so close to getting our economic house in order.

So our recommendations are not immediate broad-based tax cuts. Jack has alluded to a couple of selective things.

If they do come, our suggestions of in the future what should be studied would be more along the lines of personal income tax and the GST. I think Canadians are looking for reward in the future. If we reach our economic goals and our deficit goals and start to address the national debt, there's a wonderful opportunity for all Canadians—not the business community in particular, but all Canadians—to share in that dividend.

I guess that debate is yet to come, but certainly for our initial approach it would be to individual Canadians.

The Chairman: Thank you.

Mr. Jones.

Mr. Jim Jones: Thank you, Mr. Chair.

I have a question, but before I ask it I have a comment in terms of deduction for interest payments on your mortgage. I think it's a novel idea, but I do have a concern. My concern is more related to my riding and probably Maurizio's riding.

I'm not sure that it wouldn't drive up the price of the houses. I think the development industry would take advantage of it. Housing prices could probably even double. If somehow that mechanism could be resolved to make sure it didn't drive it up, I think this would be a tremendous stimulus for the first-time home buyer who wants to acquire a home and needs that option. This would probably not be for people like me, in a home two or three times, but I think it's for the first-time buyer. We should definitely look at that.

This would also help create a lot of jobs. It would stimulate the economy. Then it could evolve such that as soon as you come out of school, you could do that. My concern is more how you get around the other side of the industry taking advantage of it.

But my question is on brain drain. It's been discussed quite a bit across the country. I think we probably have to be tax competitive for these young people coming out of school. There's a lot of pressure, or a lot of opportunities being offered, from the U.S.

Microsoft comes up to the University of Waterloo and takes 50% of the top computer science grads every year. Instead of locating here in this country in a research facility, they're taking them to Redmond, Washington. Young doctors and other professionals are being lured to the U.S.

First of all, I guess, we have to create some jobs, but what do we have to do to make sure we can keep probably some of our brightest future stars in this country?

Mr. Dale Orr: Could I first respond to a point Mr. Riis made? Because I think it's very important. He pointed out how important it is to increase the purchasing power of Canadians to create jobs to get the economy going. Maybe lying behind that is this figure that the average family in Canada today has a lower level of disposable income than it did in 1989, and that was a long time ago. So we've been moving backwards over the last eight years and it's a serious problem.

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The main reason purchasing power has been eroded is increased taxes. To go from bad to worse, what's the government doing with the increased revenues? Well, because of the increase in the debt, 30¢ of every dollar it collects in revenues goes right off the top to finance interest charges. It leaves only 70¢ to do whatever we would like to do, whether it's for more health, education, job creation, or whatever. You're working with 70¢ dollars. There's only one way out of that problem and that is to reduce the level of debt, because the debt charges are $43 billion a year. It would be disappointing to a lot of Canadians to understand that more of the income they earn ultimately ends financing debt charges than a lot of other things they would like to spend their money on.

I think you've made a very important point, and just to complete that chain from disposable income to taxes to revenue to the 70¢ dollar really highlights how important it is that we reduce the level of the debt. It can only happen slowly, so 10 years from now the government has about 85¢ of every dollar to do whatever you would like it to do. But if you're working with 70¢ dollars, no matter what your sense of values might be, you really are handicapped.

With respect to the brain drain question, I certainly hear this from the high-tech sector, and it relates very much to people in the computer science area, although it's not restricted to them. We hear about the hundreds and hundreds of job openings we have for computer scientists that can't be filled and how many computer scientists are leaving. Virtually all of them are going to the U.S, largely because they sit down and see how much money they will have left to take home after tax. So tax is a big part of the problem.

We shouldn't be too naive. Many of these people are moving into situations where they will actually have better health care down there. If you're an employee of Microsoft and you live in Seattle, you have first class health care. You don't have the queues you might have in a lot of Canadian cities.

Taxes are what we hear as one of the main reasons why they're leaving, and obviously this gets back to the need for tax cuts. But to reduce the level of income tax on people because there are several thousand computer scientists leaving to go to the U.S. would be like a sledgehammer over a nail type of thing. Even though income taxes are one of the main reasons why they're going, to lower the level of income tax in Canada to solve that problem would be helpful, but it would be a very expensive way of keeping a few thousand computer scientists in Canada. There's probably that and other policies we should adopt to try to do that.

Mr. Jack Shand: While it's beyond the purview of this committee, immigration policy is a very key issue related to this as well.

I chaired a committee at McMaster University in Hamilton, and I can tell you, if you were one of the brightest young students in the United States—an American citizen—who was attracted to come to Canada to earn a medical degree, for example, you would probably not get into the country, even as a student, because there's essentially a quota system in our schools that will favour Canadians first. I'm not suggesting that's a negative, but let's not lose sight of the fact there are some very bright, talented people around the world who recognize that Canada is a country they would very much like to live in. I think the government should be encouraged to look at its immigration policies.

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The Chairman: A final question, Mr. Pillitteri.

Mr. Gary Pillitteri: Thank you, Mr. Chairman.

I heard some comments and I think I have a duty to respond to them. Last night in my own riding I had a town hall meeting. I represent the riding of Niagara Falls, on the border with the United States. As soon as free trade came in, a lot of these small-company manufacturers rushed to head to the United States, and of course the U.S. was waiting with open arms. Since then, I've had many companies that moved to the United States wishing they could come back to Canada. If we were to give even half of the incentives that these companies are given in the States, they would gladly move back into Canada for our medicare system.

We're really talking about the cost of what you just said, Mr. Orr, about the benefits they would have in the United States. I find it's the reverse with the benefits they would get from locating in Canada rather than the United States, because we provide that medicare system. Of course, that employer would not have to pay the $6 to $7 an hour, because that's where our medicare cost would be a benefit to the employers.

Having said that, I just want to clarify this, because they have the opportunity but won't come back here to Canada. Moving over again would be too costly for some of those specifically within my area.

I sometimes don't understand how you come to figures of how many jobs would be created by a reduction of 10¢ or 20¢ in EI premiums. Help me if I'm wrong, but is it a fact that 10¢ relates to $700 million a year, and that to drop to between $2.20 and $2.30, with a reduction of 60¢ in the EI premiums, would come to about anywhere between $4.2 billion to $4.9 billion? Using the figures that say $1 billion creates 45,000 jobs, you come up with the figures that say we would be hiring anywhere between 180,000 to 225,000. I have a little problem with that.

I'm an employer. I have a business and I employ between 10 and 20 people. Eighty-five percent of business people in Canada are in that category. If you were to give me a 10¢ reduction in the EI premium—I've stated this earlier—I could not create one job.

I just wonder how you come up with these figures. Is it that you're going on the math side to determine how many jobs will be created by the amounts we would be saving? Realistically, as an employer, can I create a job with a reduction of 10¢ or 20¢ in EI? I cannot. I know I can't, unless I am able to create possibly one-quarter of a job, one-fifth of a job. How do you split that? Or is this more a way of saying cut taxes for the sake of cutting taxes?

Mr. Dale Orr: There are two points. The first is that paying the EI premium as an employer is part of the price of labour. I don't think you would be surprised that if an employer can hire people at a lower price of labour, he's going to hire more people than otherwise. If you don't believe in that, turn it around to say that if wage rates are higher than otherwise, are you still going to hire as many people as you have today? It's very clear that the EI premium is a price of hiring labour, and it affects the decision as to how many you're going to hire.

It's one thing to say you're a small businessman who only hires six people and that if the EI is lowered by 10¢, you're not going to hire any more people. That may be true, but when you take thousands and thousands of small employers who hire six people, some of those thousands out there are going to hire a few more people if the price of labour is lower than otherwise.

The Chairman: Mr. Orr, I think the point Mr. Pillitteri makes is one that requires some examination, because you're looking at the aggregate numbers. The reality that Mr. Pillitteri was talking about is that if someone has an operation with two or three people—and by the way, small business is the one that really creates all the jobs, or most of the jobs, at 85%. I think Mr. Pillitteri's point should be looked at quite seriously.

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My family runs a small business, and I can honestly say that a reduction in EI.... If I owned a large corporation, I could see a net benefit that would kind of skew me towards reducing my labour force. But when you're talking about businesses that have anywhere between one to five or one to seven, do you really think that's going to be a deterrent in real terms?

Mr. Dale Orr: Yes, I do. The point is that lots of those employers that hire six or ten people will not. But if you ask thousands of employers, each of whom have ten employees, some of them will.

As a matter of fact, I was sitting with a group of people from the Chamber of Commerce just this morning. We went around the table and asked if they would hire any more if we did lower the EI premium by 60¢. Most of them said they wouldn't, but a couple of them said that, as a matter of fact, their businesses are expanding and they are going to hire more people over the next year or so. A couple of them said that if they could hire people at less than otherwise, they might expand a little bit sooner.

This is the point. If you ask enough of them, some of them are on the margin of expanding, and if the price of labour is lower than otherwise, some of them are going to hire more than other ones.

Mr. Gary Pillitteri: Those are the proper words, Mr. Orr: business is expanding. If I'm increasing business and I have more sales, that is the job creation. If I have a 10% increase in my business, yes, I will create two jobs, but not with a 10¢ lowering of the EI premium

The Chairman: Let's ask the question the other way. If you're a small business person and your business is growing, would you not hire people because of the EI premiums?

Mr. Dale Orr: Let me turn it around to say that if you're a small businessman—

The Chairman: No, you've turned that around already. I'm turning it around to you.

Mr. Dale Orr: Okay. If you're a small businessman, is the amount of employees that you have completely independent of how much you have to pay them to work for you? If you say it is, most other small businessmen would say no.

The Chairman: Nobody is going to answer that question in the positive. It's a rhetorical question.

Mr. Dale Orr: Right. So if the amount of labour you hire does depend a little bit on how much you have to pay those employers, then over large groups of many small employers it follows that if the price of labour is a little bit lower, some small business people somewhere out there are going to hire more people than they otherwise would. That's pretty clear, and it's very clear that the EI premium is a part of the amount the employer has to look at when he decides how much he's paying employees, just like the wage rate is.

The Chairman: I heard the Canadian Chamber of Commerce argument, and I heard the Canadian Federation of Independent Business this morning. From an economic point of view, if you look at data and that, you can support your argument. But I'm also aware of the point that Mr. Pillitteri brought up. I've asked local business people in my riding if they would hire more people if we reduced the EI premium by 10¢ to 20¢. First of all, some needed an explanation. Secondly, they said that if their businesses were growing, they were going to hire people regardless.

I understand that you're looking at the cumulative effect, and it's a very valid economic argument. But I think the issue here is that we're looking at a case in which a proper economic analysis sometimes does not really translate into the reality of the lives of some people who are running operations of two or three or four people. That's all we're saying.

Anecdotally, I can tell you that we can take a walk down any industrial park in my riding and you will get that answer, although the CFIB said today that that's not the issue.

Mr. Jones.

Mr. Jim Jones: Mr. Chairman, I think you have to look at it a different way. The company that I worked for downsized by 2,000 in one year and by another 1,000 a couple of years later. We also got out of one of the two buildings we had in Markham. That one building was costing us $6.5 million in real estate, so we cut our space in half just to save that money in order to keep jobs.

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I'm saying that the large corporations will do anything to save money to keep themselves competitive. If they can start creating the jobs, you're going to get the spin-off effect. Other people are going to start creating jobs. All of a sudden the services and the products that the small companies are providing for the large corporations are going to get busier and busier. So it's a vicious cycle.

But if you start to say, okay, let's keep loading them up with taxes, hey, there are other alternatives. Small business companies maybe don't have the portability the larger corporations have, but some of the larger corporations, especially the high-tech companies.... I haven't seen many facilities move here in the last several years.

We have to be very cognizant that we're in a very competitive world and cost is an important factor, especially taxes. So you can't keep on thinking that it's a never-ending cycle and you can keep putting taxes up.

Mr. Terry Ruffell: Mr. Jones, it's difficult to look at it in isolation. I think Mr. Orr touched on this, on whether you isolate the EI as one single issue. When you look at the entire gamut of payroll taxes and maybe when the increased CPP kicks in.... We're a small business too, and the year that impact happens and we look at our budget toward this time of the year and say, maybe there is a body in there...that we could have hired another employee.

So I'm not sure I agree with you, from a small business, that I could identify whether a slightly lower EI...but certainly it's the package of taxes that we as business people put up with. I think we remain competitive.

It's a big world out there. We have to keep our costs under control. It's absolutely essential.

The Chairman: I don't want you to leave with the wrong impression. I think you have to build a competitive framework within Canada's industries. Having said that, I think we need to challenge some of these views that are just offered as “the truth” but that we don't really find in real terms when we meet with constituents who run small businesses. That's not necessarily what they're telling us.

Lower taxes, a more competitive economic system: no question about it, nobody on the committee, on either side, would disagree with you. Absolutely not.

Mr. McNally.

Mr. Grant McNally: I would just echo those comments in terms of the combination factor. I walked about during the campaign and talked to these people you're talking about, small businesses of six or ten people, in the five major communities in my riding. I spent a lot of time talking with individual people. They talked about that cumulative effect—EI premiums, GST, CPP contributions, and then the increase that's going to be coming. They talked about how they're working harder and harder to make ends meet, and they can't afford to hire another person, because when they hire another person they're going to be paying those taxes off the top as well for every new employee they hire.

What in effect is happening is that they're working harder and harder, and while their business could be growing, those factors you're mentioning actually inhibit them from growing. So I don't know if just the EI in isolation is going to make a huge impact.

The Chairman: I think the cumulative impact is a strong argument.

Mr. Terry Ruffell:

[Editor's Note: Inaudible]...see government's role, and it never did, really, for years and years, as a true employment insurance scheme. So if it's piling up a $5 billion deficit, or whatever the numbers projected, I think most of us in the business community, and Canadians, would say, let's develop a scheme that's put in place for its purpose, that serves Canadians well when they're unemployed. If you truly run it as an insurance scheme, what its purpose is, rather than piling up reserves, then I think most of us would welcome it.

I also think, Mr. Orr, we'd get a few more jobs, too.

The Chairman: In such a system would you favour experience rating?

Mr. Terry Ruffell: Well, if you remember the old days of the unemployment insurance plan, it was essentially, as Mr. Orr alluded, a welfare scheme. We were paying out billions of dollars more than we were taking in, presumably by pulling money out of general revenues to pick up the deficit.

If we ran EI as a true insurance scheme where it matched its costs and claims versus the money coming in, I think that would be sound business practice. Yes, every insurance scheme needs some reserves. I presume you're running into a surplus now. I think running it as a true insurance scheme would be a healthy way to approach it.

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The Chairman: Well, that about wraps up this round table. It was a very interesting and indeed lively one. It's always great to see that there are opposing views on issues. It's this type of debate that really helps us shape our report to the minister, and the recommendations therein. I'm sure some of your thoughts will be reflected within that report.

Thank you very much.

The meeting is adjourned.