FINA Committee Report

CHAPTER SEVEN — THE PRIORITY OF SUSTAINABLE COMMUNITIES

Communities large and small throughout Canada are reeling under severe social and economic pressures. The concentration of Canada’s population in a handful of large urban centres imposes financial pressure upon city governments forced to expand infrastructure and services while coping with reductions in federal and provincial allocations. The corollary of urbanization, of course, is the severe decline of rural communities now faced with a shrinking tax base and drain of skills and experience. (Canadian Museums Association, 16 September 2002)

Whether we live in urban or rural communities, Canadians have long valued sustainable communities. Until recently, this has been reflected in steps taken in most sizable Canadian cities to avoid the largely abandoned downtown cores found in many large U.S. cities in the post-war period. These steps have included ensuring efficient and effective public transportation, building parks and sidewalks, and supporting residential development in downtown cores.

In Canada’s rural and remote communities, the commitment to sustainability has been reflected in federal and provincial government efforts to support these areas economically and culturally, through assistance to local industries, regional economic development programs, infrastructure spending, and funding for travelling theatre productions and musical shows.

Faced with budget constraints during the 1990s, all levels of governments reduced expenditures in these areas. The effect of this move is now being felt in the form of crumbling roads, overburdened mass transit systems, increased out-migration from rural and remote areas, and decaying water and sewage-treatment facilities. At this time, the federal government’s long-standing commitment to sustainable communities in both urban and rural areas should be renewed and reaffirmed.

Support for Urban Areas

Competitive cities and healthy communities are vital to our individual well-being and to Canada’s ability to attract talent, innovation and investment. For this reason, they deserve appropriate federal investment, legislative and regulatory treatment to permit them to be sustainable. (Urban Development Institute, 5 November 2002)

A recurring theme presented by witnesses during the Committee’s pre-budget discussions and consultations was the increasingly urgent need to address the strains on cities and urban areas. This message was consistent with the September 2002 Speech from the Throne, which said that there was a need “for a new partnership, a new urban strategy, a new approach to healthy communities for the 21st century,”⁵⁸ and the April 2002 Interim Report of the Prime Minister’s Caucus Task Force on Urban Issues, which noted that “as the economic engines of the country, it is critical that our urban regions sustain their levels of growth and continue to contribute to Canada’s high quality of life.”⁵⁹

Most analysts agree that urban regions account for much of Canada’s economic and employment growth. In terms of economic output, Canada’s six largest cities — Toronto, Montreal, Vancouver, Calgary, Edmonton and Ottawa-Hull — accounted for 47.7% of economic activity in 2001, up from 46% in 1991.⁶⁰ As Figure 20 shows, employment growth in these cities has outpaced employment growth in the rest of the country since 1997.

Figure 20: National Employment Growth in Canada’s Major Cities, 1987-2001

There are a number of forces underlying the need for change. As previously noted, urban areas have seen their population increase dramatically since the 1996 Census. According to Statistics Canada, 7 of 27 metropolitan areas — defined as regions with 10,000 or more people — had a growth rate double the national average of 4%. This growth was driven in large measure by a rising immigrant population. Statistics Canada told the Committee that “virtually all of our immigrants come into two or perhaps three big cities: Montreal, Toronto, and Vancouver. … The areas attracting immigrants will clearly have higher growth rates, all other things being equal, when compared to areas that don’t attract immigrants.”

Generally speaking, rising populations put pressure on municipal services, such as public transportation, social services, water and sewage treatment, road maintenance, and even snow removal and parks. These quality of life elements of urban living are tied to the competitiveness of a community. As Dr. Enid Slack told the Committee:

[t]axes are important in attracting people, but the studies are beginning to show, more and more, that to be competitive, cities need to be nice places to live. The knowledge workers, the key to economic prosperity, are increasingly looking for a nice place to live, and that means good schools for their children. It means being able to jog in the park. It means feeling they’re safe. It means not seeing homeless people on the streets. These are all services that municipalities are responsible for, so to be competitive, they have to provide these services.

Another reason for action is that, at the same time that population increases were being experienced, combined federal and provincial transfers to municipal governments were falling, from 18.8% of total municipal funding in 1990 to 15.1% in 2000.⁶¹ Municipalities are less able financially to cope with the increasing demands being placed on them. Figure 21 shows how local government financing has evolved since 1990.

Witnesses suggested a number of solutions to address the urban funding problem. Recommendations included direct federal transfers to municipalities or increased transfers to the provinces, which are constitutionally responsible for municipalities, and dedication of a portion of the 10 cents per litre federal excise tax on gasoline to municipalities.

Several witnesses endorsed the Interim Report of the Prime Minister’s Caucus Task Force on Urban Issues. One of the main proposals in that report was a recommendation that the federal government adopt an “urban lens” by which to analyse and develop policy. The Task Force also noted the positive effects of the Rural Secretariat and the Canadian Rural Partnership, two results of an extensive consultation process with rural Canadians in 1997 and 1998.

The Committee believes that addressing the issue of urban funding is complex, given jurisdictional and accountability concerns. Nevertheless, like the Canada West Foundation — which told us that the federal government should “see its role more in light of stimulating an urban dialogue in Canada, and in considering more fully the urban impacts of federal policies” — we feel that an urban lens is worthy of consideration. It is from this perspective that the Committee recommends that:

RECOMMENDATION 26

The federal government adopt the proposal made by the Prime Minister’s Caucus Task Force on Urban Issues for the creation of an “urban lens” that would require federal government departments to consider the implications of major government policies on urban communities. Moreover, the government should consider the creation of an urban counterpart to the Rural Secretariat and the Canadian Rural Partnership within Industry Canada.

Support for Rural and Remote Areas

The ability to maintain the community hall or rebuild municipal roads directly relates to the ability of a community to encourage economic development rather than face a future of economic decline and deterioration. (Association of Manitoba Municipalities, 30 August 2002)

Strong population growth in urban areas has been concurrent with population declines in Canada’s rural and remote areas, notably the more remote northern areas of the provinces. This, too, has important financial repercussions: a declining population generally leads to declining property values, which means a smaller tax base and lower tax revenue. As a result, municipalities can offer fewer services, further worsening the normal out-migration to larger centres.

A number of analysts have argued that the absence of strong economic growth is at the core of rural depopulation. The economic livelihood of many rural communities depends on commodity-based industries such as agriculture, mining and forestry products, all of which face intense international competition. The Alberta Association of Municipal Districts and Counties noted that “[r]ural municipalities are keenly aware of the need to sustain a viable, productive and competitive agricultural sector”. The Canadian Federation of Agriculture, the Canadian Dehydrators Association and the Canadian Hay Association all expressed concern about the challenges currently faced by the agriculture and agri-food industry.

As noted by the Prime Minister’s Caucus Task Force on Future Opportunities in Farming, “distance to markets is a major issue for producers in the Prairies, the North and some of the Atlantic provinces. Additional transportation costs can make the difference between profit and loss.”⁶² The problem is especially acute in Western Canada because the elimination of the Crow Rate (a subsidy for rail transportation of grain) has led to a significant increase in truck traffic, which has led to serious deterioration of the highway infrastructure. While telecommunications technology could help rural and remote communities diversify their economies towards Internet and other technology-based industries, access to high-speed Internet is still not a reality in many of these areas.

Several witnesses, including the Northwest Territories Association of Municipalities, the Nunavut Association of Municipalities, the Northern Development Board and the Northern Lights School Division, told the Committee about the unique challenges faced by rural and remote communities in terms of water and sewage infrastructure — as well as other infrastructure — in part because they lack the tax base to finance the large, up-front expenditures needed to ensure adequate water and sewage-treatment services and to meet other infrastructure needs. As the Prime Minister’s Caucus Task Force on Future Opportunities in Farming noted, “water and sewer capacity can limit economic development opportunities, including value-added agricultural opportunities.”⁶³

The Association of Yukon Communities told the Committee that its request for $160 million for infrastructure spending would not only “bring Yukon communities to a level that will help make them more competitive with their southern and northern neighbours,” it would also “replace much-needed infrastructure, such as roads, water, and sewer, and high-speed cable fibre, and build a much-needed bridge across the Yukon River in the Klondike.” The Women Warriors of Sahtu also stressed the importance of infrastructure in improving the quality of life in remote areas.

Rural communities have witnessed some progress in recent years. The federal government’s 1998 consultations with Canadians led to the creation of a “rural lens” that requires policy-makers to consider the implications of federal government programs on rural communities as well as to the creation of the Rural Secretariat and the Canadian Rural Partnership. The Worker Co-operative Fund, a $1.5 million Human Resource Development Canada pilot project that invests in worker co-operatives to create and maintain jobs, appears to be making good use of the rural lens: 8 of its 12 projects are located in rural communities. The fund’s administrator, the Canadian Worker Co-operative Federation, is seeking an additional $15 million to make the pilot project sustainable on a long-term basis. It is not clear, however, that our northern communities have had the same progress, and more must be done to assist these communities in order that they, and their citizens, are fully active participants in the Canadian economy and in Canadian society.

The Committee believes that all communities in Canada — urban, rural and remote — have needs that must be met. We must ensure that attention is paid to the particular needs of all areas, and must be cognizant of the unique requirements of rural and remote areas. It must also be recognized that rural and remote communities vary greatly in the nature and stage of their economic development; policies and programs must be sensitive to this fact. From this perspective, the Committee recommends that:

RECOMMENDATION 27

The federal government ensure that adequate attention is paid to the needs of rural and remote communities. Moreover, the government should focus resources on working with remote communities in Northern Canada to advance their economic development efforts.

Support for Infrastructure

Canadians need clean water, safe disposal of wastes, reliable highways and a more efficient national rail system. Canada’s infrastructure deficit and cumulative infrastructure debt should be seen as equally crippling as the national fiscal debt and should be tackled with the same level of priority and urgency because they directly affect people’s lives. In fact, the infrastructure deficit potentially has a greater impact on the health, safety and well-being of Canadians. (Association of Consulting Engineers of Canada, 9 September 2002)

Canada’s economic history and prosperity have always been tied to its infrastructure of waterways, canals, ports, railways, bridges, border crossings, airports and roads. Witnesses told the Committee, however, that spending cutbacks at all levels of government in the 1990s have led to a serious “infrastructure deficit” that will only worsen, and become more costly, with time, unless it is addressed soon.

According to the Coalition to Renew Canada’s Infrastructure, “Canadians are wasting fuel, time and money, endangering their health, their environment and are in the process becoming less competitive in the new global economy. Infrastructure decay adds unnecessary costs to Canadian corporate operations and impacts negatively on our competitive capability, reducing demands for Canadian products.” La Coalition pour le renouvellement des infrastructure du Québec also told the Committee that deterioration of infrastructure continues and represents a growing threat to quality of life as well as to Quebec’s competitiveness.The Trans-Canada #1 West Association indicated that existing federal infrastructure programs — the Infrastructure Canada Program, a five-year, $2.05 billion program created in 2000, and the $2 billion Strategic Infrastructure Fund, which was established in the 2001 budget — are insufficient and their funds are being delivered too slowly.

Even if adequate funding were available, caution would still be needed in selecting which infrastructure needs should receive funding. Rural and remote communities, for example, primarily need highways, rail linkages and, in some cases, port and air facilities to help them overcome their distance from markets. While urban communities have similar needs, they also require an efficient and low-cost public transportation system to solve traffic congestion problems as people move between their homes and their workplaces.

The Greater Vancouver Gateway Council told the Committee that gridlock costs the Vancouver region between $700 million and $1.3 billion per year because it slows shipments of goods from and to Prairie farmers, the petrochemical industry, retail outlets and natural resource industries. The Council said that the problems “result from a lack of investment in infrastructure over many years.” The Greater Vancouver Transportation Authority told the Committee that addressing these problems is crucial for ensuring Canada’s continued access to markets in Asia and the Pacific Rim nations in particular. Go Transit, the agency that provides rail and bus transportation in the Greater Toronto and Hamilton area, told the Committee that without its services, Toronto would require “four additional Don Valley Parkways,” the major North-South highway artery into the city of Toronto. It asked the Committee to recommend that the federal government provide Go Transit with $34 million worth of funding per year.

The Committee notes that developing urban public transportation does not necessarily mean moving people between downtown and the suburbs. As Statistics Canada informed the Committee, “what we used to call suburbs or bedroom communities are clearly no longer bedroom communities, they’re magnets for employment. This has real implications for things like travel to work. Transportation patterns across a big region like this are no longer just from the suburbs to downtown; they are much more complicated.”

Consistently, the Committee heard that the country’s infrastructure needs can only be met through long-term stable infrastructure funding that would supplement or replace the existing Infrastructure Canada Program and the Strategic Infrastructure Fund. Groups making this recommendation included the City of Calgary, the Federation of Canadian Municipalities, the Association of Manitoba Municipalities, the Cement Association of Canada and La Coalition pour le renouvellement des infrastructure du Québec. The Prime Minister’s Caucus Task Force on Urban Issues’ Interim Report makes this recommendation as well.

The Committee also heard a number of other, less ambitious, proposals that would begin to address some of the country’s infrastructure needs. The Canadian Urban Transit Association (CUTA) and the National Task Force to Promote Employer-Provided Tax-Exempt Transit Passes, for example, proposed that we recommend the creation of an employer-provided tax-exempt transit benefit. The CUTA said that its proposal would redress an inequity in the present tax system whereby employer-provided parking, which encourages individuals to drive to work and therefore contributes to congestion problems, is de facto subsidized by the tax system because employees generally do not include these benefits in their income, although in theory they should.

In terms of rural and remote communities, the Committee heard a number of proposals for change, including recommendations to eliminate the 10 cents per litre excise tax on gasoline and the 4 cents per litre excise tax on diesel fuel for farmers, a plan to create a program that would help regions develop value-added industries, and a proposal for the creation of a national broadband initiative.

While the Committee believes that these recommendations have merit, we feel that the federal government’s current priority — given the current fiscal situation — must be long-term funding of the country’s infrastructure. While witnesses have presented a variety of figures that identify the amount of funding needed, we are hesitant to recommend a precise figure. Instead, the imperative is ensuring that the funding is adequate and stable in order to permit the long-term planning horizon often needed for infrastructure projects. For this reason, the Committee recommends that:

RECOMMENDATION 28

The federal government, along with other stakeholders, expeditiously develop and implement a long-term, adequately funded infrastructure plan, with an initial focus on transportation and water and sewage deficiencies.

Moreover, the Committee feels it is important that the funding allocation mechanism for any infrastructure program not be limited to population, since per capita funding is disadvantageous to some communities, including those in Northern Canada. Instead, the requirements of communities vary and that fact must be recognized. Therefore, the Committee recommends that:

RECOMMENDATION 29

The federal government ensure that the infrastructure plan developed in collaboration with stakeholders incorporate an allocation mechanism that is not limited to population but recognizes the unique strategic and development needs of communities. Moreover, economic development and need, rather than a strictly per capita funding formula, should determine the level of funding allocated to rural and Northern communities.

Issues Related to the Environment

The growing concern over the welfare of our urban centres underscores the need to address the problems of contaminated sites, in city centres in particular. Redevelopment of these sites, usually for commercial use, not only increases the tax base of the municipality but also contributes to urban densification and revitalization of the downtown core. (Alberta Real Estate Association, 6 November 2002)

The population trends witnessed in recent years have important implications for the environment. Typically, the environment is negatively affected when cities begin to expand into the countryside. Not only do increased traffic congestion and travel-to-work times have important repercussions on air quality and greenhouse gas emissions, the loss of green space around cities is also a cause for concern. As the Canadian Foundation for Climate and Atmospheric Sciences pointed out, “[h]uman activity has contributed to a striking increase in carbon dioxide and other greenhouse gases over the last century, and exacerbated global warming.” Parklands — an issue addressed by such groups as the Canadian Nature Federation, the Green Budget Coalition and the World Wildlife Fund — are also important. Groups expressed support for the September 2002 Speech from the Throne commitment regarding the creation of several new national parks, and requested that the federal government provide adequate resources to finance this commitment.

Conversely, in rural communities, depopulation results in a smaller tax base, which in turn means less money is available for services, including sewage treatment. Similarly, given their relative need for industry and sustainable populations, rural and remote communities may be more lax in their enforcement of environmental regulations and zoning laws.

Environmental concerns also exist with respect to Canada’s marine environment. As the Vancouver Aquarium Marine Science Centre told the Committee, “[w]e believe that both economic prosperity and quality of life can be enhanced by finding new ways of working together to use, and sustain, our amazing ocean and aquatic environments.”

The Committee heard a number of proposals that attempt to address environmental concerns. Nature Conservancy Canada, among other groups, proposed that the federal government use the tax system to “encourage Canadians to participate in conserving Canada’s natural heritage” by donating ecologically sensitive lands. Saskatchewan Agrivision Corporation recommended an ethanol strategy and action plan, which would also serve as a catalyst for rural development. The Cement Association of Canada proposed that the federal government encourage provinces to build their highways with concrete rather than pavement by offsetting the additional up-front construction costs associated with the use of concrete. It provided evidence that while initially more expensive, concrete has a longer life and lower maintenance cost than pavement, and can result in greater fuel efficiency.

Environmentally sustainable energy technologies represent an important new field, from both an environmental and an economic perspective. The Committee heard from several Canadian companies and groups that are leaders in their field, including Fuel Cells Canada and Global Thermoelectric Inc., which represent pioneering firms working on alternatives to carbon-based energy sources, and ATS Automation Tooling Systems Inc., a manufacturing firm that develops solar energy devices. ATS told the Committee that solar energy could help the federal government achieve Canada’s Kyoto targets. It also urged the government to assist in the development of guidelines that could be used by provincial regulators to ensure that small commercial power systems can plug into energy grids. These groups argued for government support to help develop and promote these technologies, and suggested funding assistance and government adoption of their technologies.

In addition to the testimony regarding hydrogen and solar energy sources, the Committee also heard recommendations related to other alternative energy sources, including wind-power generation. The Clean Air Renewable Energy Coalition said that the federal government’s wind power production incentive (WPPI) should be increased to 2.7 cents per kilowatt hour from the 1.2 cent rate for 2002-03 in order “to ensure appropriate investment in wind energy and harmonization with the United States.” According to Natural Resources Canada, the government’s WPPI plan is designed to “help establish wind energy as a full-fledged competitor in the electricity marketplace by the Kyoto commitment period of 2008-2012.”⁶⁴ Moreover, the promotion of ethanol as a fuel source, as mentioned earlier, is another possible area for investigation.

Go for Green, a charitable organization whose goal is to encourage the pursuit of outdoor activities, recommended that the federal government devote 7% of its infrastructure budget to “active transportation infrastructure,” such as sidewalks, bike paths, bike lanes, paths, trails and mechanisms that would make it easier to connect from one type of transportation to another — for example, securing a bike onto a bus. Conservation Ontario, a group devoted to protecting Ontario’s watershed areas and especially the Great Lakes, asked the Committee to recommend a federal investment of $100 million over five years for a “healthy Great Lakes” program.

The Committee heard from a number of witnesses who recommended that the federal government develop incentives to assist communities and private businesses develop their “brownfield” sites — old industrial or commercial sites that have been abandoned or idled, or are underused because of environmental concerns. In many instances, these brownfield sites are in the downtown areas of major metropolitan cities. Their development would assist in alleviating the problem of urban sprawl and could reduce greenhouse gas emissions. They would also help urban communities by increasing the taxable base and revitalizing neighbourhoods.

The City of Hamilton indicated to the Committee its supports for a forthcoming recommendation from the National Roundtable on the Environment and the Economy that would ask the federal government to support brownfield redevelopment by:

The Committee also notes the conclusion of the Prime Minister’s Caucus Task Force on Future Opportunities in Farming,⁶⁵ that:

[t]here are significant prospects for reducing greenhouse gases through “best management” practices for farmland. Land set-asides and permanent cover programs boost our carbon sequestration potential and can help Canada meet our Kyoto commitments. The Prairie Farm Rehabilitation Administration (PFRA) administers the Community Pasture Program, the Rural Water Development Program and the Shelterbelt Program. Similar programs should be extended to the rest of Canada’s farming regions.

The Committee notes that several “green” federal initiatives already exist, including the Green Municipal Enabling Fund and the Green Municipal Investment Fund. These funds are designed to support energy- and water-efficiency projects. To date, these initiatives have stimulated community-based feasibility work and investments in more than 100 projects in such areas as energy and water savings, community energy systems, urban transit, waste diversion and renewable energy.

The Committee feels that many of the proposals made by witnesses are innovative, and should be investigated further by the federal government. Among the proposals noted above, at this time we have the most interest in brownfield redevelopment, the “healthy Great Lakes” program and the development of alternative sources of energy. For example, a focus on brownfield redevelopment would help to address some of the concerns about increased urbanization and the need for revitalization of urban cores; it would also help to minimize the “donut” effect on cities. For this reason, the Committee recommends that:

RECOMMENDATION 30

The federal government meet with stakeholders in order to develop a plan for brownfield redevelopment. Consideration should be given to tax incentives, loans, grants and mortgage guarantees, with such initiatives funded through a reallocation of existing government expenditures.

Moreover, the Committee also believes that our water resources must be protected for future generations. Consequently, the Committee recommends that:

RECOMMENDATION 31

The federal government take immediate action to ensure the sustainability of our Great Lakes.

Finally, the Committee also feels that, for a variety of reasons, programs and incentives must exist that support the development, marketing and use of alternative sources of energy. From this perspective, the Committee recommends that:

RECOMMENDATION 32

The federal government examine the policies and measures needed to promote the development and use of alternative sources of energy.

While the Committee believes that renewable and alternative energies are important, they are unlikely to help Canada meet its Kyoto targets in the short- to medium-term. Similarly, improved infrastructure and public transportation are only part of the overall solution. To achieve its Kyoto targets, we believe that the federal government must negotiate realistic sectoral agreements with key industries and respect its promise to spread the adjustment costs evenly. As a result, the Committee recommends that:

RECOMMENDATION 33

The federal government meet with stakeholders expeditiously, with a view to reaching sectoral agreements for the implementation of greenhouse gas emission reduction targets.  In implementing the measures that will be adopted to reduce greenhouse gas emissions, the government must take all necessary steps to protect and enhance investment levels, economic activity and employment in Canada.

Charitable Giving and Volunteers

What … can the government do to assist our universities, hospitals, arts organizations, social service agencies and research centres to access greater funding from the private sector? And how can it do so with minimum cost to its tax revenues? The answer is simple: eliminate the remaining capital tax on gifts of listed securities. (Donald Johnson, 6 November 2002)

The voluntary sector plays an increasingly critical role in the quality of life of Canadians. The Association of Fundraising Professionals told the Committee that “Canada’s charitable sector exists to help seek the highest quality of life for all Canadians. … But to provide these services, Canada’s charitable sector needs funding. … Government funding has decreased over the past several years.”

The federal government has attempted to lessen the financial burden of reduced direct funding to charities, beginning with a 1997 measure that set the capital gains inclusion rate on donations of publicly traded securities to charities at one-half the amount included for other gains. A similar measure was introduced for donations of ecologically sensitive lands in the 2000 budget. In 2001 and beyond, this means that 25% of the capital gains resulting from the donation of publicly traded securities or ecologically sensitive lands to a charity must be included in the donor’s income, rather than the 50% rate that would have applied had the measures not been implemented.

The change in the capital gains inclusion rate appears to have had some success. A Deloitte & Touche survey of 471 charities found that the average gift of publicly traded securities in 1999 was $251,626, almost 20 times the average donation of $13,022 in 1996, the year before the lower inclusion rate was introduced.⁶⁶ Earlier this year, the Department of Finance noted that the growth in gifts of publicly traded securities to registered charities was much faster than the growth in total donations between 1997 and 2000.⁶⁷ The Hospital for Sick Children Foundation told the Committee about an experience that was common among charitable groups:

When the initial capital gains exemption was announced in 1997, [we] were in the midst of a public fundraising campaign to increase the hospital’s endowment. … In the year prior to the exemption [1996], the campaign received three gifts of stocks, totalling $1,266,810. The next year, the number of gifts tripled to 12 and total funds skyrocketed to $8,445,895.

The success of the tax incentive prompted the federal government to make the measure permanent. It was originally set to expire on 31 December 2001.

Despite these gains, charitable groups told the Committee that more can — and should — be done, beginning with the elimination of the remaining tax on donations of securities. As pointed out by the Canadian Arts Summit, such a change would create consistency between Canada and both the United States and the United Kingdom. Department of Finance figures suggest that completely eliminating the inclusion rate would entail a tax expenditure of between $15 million and $73 million, depending on the extent to which the measure encourages additional giving.⁶⁸

Such witnesses as the Asper Foundation, the CanWest Global Foundation and the Council for Business and the Arts in Canada argued that private foundations, which were not part of the federal government’s 1997 change, should also benefit from any further reduction in the inclusion rate. Philanthropic Foundations Canada (PFC) told the Committee that about 84% of the 1,684 grant-making foundations in 2000 were family foundations. The PFC also informed us that private foundations must meet many of the same reporting requirements as public foundations, and are “subject to various restrictions in the Income Tax Act to prevent abuses of the foundations by their donors for their own benefit … .”

Witnesses also suggested to the Committee that the federal government should extend the provisions for publicly traded securities to all kinds of real estate, rather than just ecologically sensitive lands. The Canadian Association of Gift Planners told us that “[r]eal estate is the most widely held asset in Canada, and yet it is rarely donated to charity. It represents an enormous and important future source of donations to the sector for the benefit of Canadians.”

Similarly, the Committee heard that the federal government should fully exempt donations of ecologically sensitive lands from capital gains taxation, which implies an inclusion rate of zero, and extend the provision to urban lands that are socially and historically important but perhaps not crucial from an environmental perspective.

Evergreen Common Grounds, a charitable organization seeking to expand the amount of green space in cities, told the Committee that this latter change would be “a very cost-effective tool for the acquisition of land in the public interest. … [T]he cost of acquisition measured in forgone tax revenue will be 25 per cent or less of the fair market of the land.” This proposal was echoed by Escarpment Biosphere Conservancy, a group representing 82 land trusts across Canada. It told us that since the lower inclusion rate on donations of ecologically sensitive lands was introduced, “our land trust has grown substantially. By Christmas, we should have created about 20 nature reserves with over 1,400 acres. This would not have been possible without the reductions to capital gains tax.”

A number of witnesses, including the Voluntary Sector Steering Group and Community Foundations of Canada, also urged the Committee to recommend changes that would allow charities to engage more actively in the policy process without losing their charitable status. The Canadian Centre for Philanthropy told the Committee that “policy advocacy is often one of the most efficient and effective ways for a charity to fulfill its mission, as has been well demonstrated by charities such as Amnesty International, Mothers Against Drunk Driving and the Canadian Cancer Society, among others.”

As noted earlier in the report, the Committee believes that the voluntary sector is an important element in ensuring a high quality of life for Canadians, and feels that federal support for public — and private — foundations would further contribute to our quality of life. For this reason, the Committee recommends that:

RECOMMENDATION 34

The federal government amend the Income Tax Act to eliminate the capital gains inclusion rate applied to donations of publicly traded securities to charitable organizations, including private foundations.

The Committee also believes that the proposals of some witnesses regarding the extension of these provisions to real estate and land has merit. Such a change would likely result in greater levels of donations by Canadians. Consequently, the Committee recommends that:

RECOMMENDATION 35

The federal government study the feasibility of extending the provisions regarding the capital gains inclusion rate applied to donations of publicly traded securities to donations of real estate and of land. This study should be undertaken with a view to phasing in the application of the change when feasible.

Finally, the Committee feels that the members of the voluntary sector should be viewed as stakeholders in the development of policy in this country. Their participation would recognize the valuable role that they play. From this perspective, the Committee recommends that:

RECOMMENDATION 36

The federal government encourage active dialogue between relevant departments and the voluntary sector regarding how the sector might best participate in the policy-making process without risking their charitable status.

Culture and Tourism

There is nothing more basic, more intrinsic to human life, than the culture of a people. Art has been used as a primary means of communication since the time people first walked the earth and, consequently, is the primary legacy we bestow on future generations. (Canadian Conference of the Arts, 9 September 2002)

Culture is a significant contributor to the quality of life of Canadians. Whether through books, theatre, television, radio, art, museums or other media, we express ourselves through culture. Part of this expression is through Canada’s multicultural policy, as noted by the Canadian Ethnocultural Council. The Council told the Committee that “[t]he reality is that today multiculturalism, [like] our linguistic duality, plays a significant part in the development of our national identity — it is a statement of who we are as a people and it forms an important part of our national psyche.”

The nurturing of Canada’s cultural industries, for economic and social reasons, has been a long-standing goal of the federal government. Statistics Canada has reported that, in 1996-97 (the latest year for which data are available), cultural industries represented 3.1% (or $22.5 billion) of Canada’s GDP. They also accounted for almost 641,000 employees, or 4.8%, of total employment. Federal spending on culture was $2.7 billion in 1997-98, almost 8% lower than in 1990-91.⁶⁹ Figure 22 shows the contribution of each segment of the cultural sector to total cultural sector output.

According to KPMG, the Canadian Television Fund’s $200 million contribution to the broadcasting and production industry results in more than $600 million in production activity and 16,000 direct and indirect jobs. Moreover, it supports over 40% of English and more than 50% of French priority programming. In its appearance before the Committee, the Canadian Film and Television Production Association told us that its members are experiencing delays in the certification of projects and the receipt of tax credit refunds, which is creating a financial burden, and that progress in the addressing these issues has been slow.

Canada’s heritage buildings are another important element of Canada’s cultural life. The Committee was told, however, that heritage buildings are disappearing quickly and incentives are needed to stop this trend. According to the Heritage Canada Foundation’s presentation, between 1970 and 2000 Canada lost 21-23% of its historic building stock. Recently, the federal government has taken action. In June 2002, Minister of Canadian Heritage Sheila Copps outlined the first phase of the federal government’s $24-million Historic Places Initiative, which is based on a national register of heritage buildings, national conservation standards and guidelines, and a certifying function.

Museums are another important aspect of the country’s heritage. Not only do museums offer an important historical and cultural perspective for Canadians, many of the buildings in which museums are housed are themselves historically and architecturally important. About 2,300 museums across Canada contribute daily to the country’s quality of life. The Canadian Museums Association (CMA) told the Committee, however, that museums have tended to be relatively low-priority items when compared to health care, infrastructure and taxes; consequently, funding has fallen by about 15% since 1991-92, while operating costs have risen 20%. In an effort to address this issue, in 2001 the Department of Canadian Heritage announced a $300 million, three-year program to support the cultural sector. The CMA said that while it appreciated the renewed funding, it felt stymied by ever-shifting government priorities and the large number of overlapping, deeply layered and competing objectives, priorities and support structures in the Department’s cultural program. It asked us to recommend that the government set up a more coherent framework for heritage planning to ensure an effective distribution of funds to the institutions that need them.

Writers are also part of Canada’s cultural milieu. As The Writers’ Union of Canada noted in its presentation to the Committee, “we report, record, amuse and relate out of the creative soil of this country so that, in the end, it becomes a far better country in which to work and live.” Some writers earn very low pay. The Writers’ Union provided us with an estimate of $11,480 as the average net income of writers in 1998. If these incomes were earned in a manner like a normal salary, writers would pay very little tax. The reality, however, is that writers’ incomes tend to be more sporadic, depending on book advances and royalty cheques that often bear little relationship to the time taken to write a book, play, article or poem. The Writer’s Union, therefore, asked the Committee to recommend amendments to the Income Tax Act to enable “income backward averaging for creators,” a measure that would allow writers to apply their earnings from book advances and royalties over a period of years rather than a single year, thereby reducing the cost of the tax to the writer. They also asked that the government create a copyright income deduction for authors that would allow them to deduct their “creative” income, up to a certain limit, from total income.

The Committee is sympathetic to arguments that Canada’s cultural sector may suffer as a result of such other priorities as health care, taxes and infrastructure. We must not lose sight of the contribution made by the cultural sector to our quality of life. That being said, we must choose judiciously among the recommendations, supporting those that deliver the most benefit for the least cost and with minimal distortion to the Income Tax Act. 

The Committee feels that the recommendations put forward by the Canadian Museums Association satisfy these criteria. Museums play a valuable role in enhancing the quality of life of Canadians, and also contribute to our tourism industry. In order for our museums to maximize their contribution to both quality of life and economic prosperity, however, they must be adequately funded, and funded through a process that ensures that funds are distributed to institutions that are in the greatest need. As well, we believe it is important that we act today in order to preserve our heritage buildings for the generations of tomorrow. From this perspective, the Committee recommends that:

RECOMMENDATION 37

The federal government allocate appropriate resources to maintain Canada’s stock of historical buildings and to fund Canadian museums.

Tourism is an important sector in the Canadian economy, and was severely affected by the 11 September 2001 terrorist attacks in the United States. The Committee heard that the industry continues to recover from the downturn. As the Hotel Association of Canada told us, “[w]e’re seeing some good results out there, and a lot of this is as a result of that one-time $20 million contribution that the federal government made to marketing efforts through the Canadian Tourism Commission [announced prior to the 2001 Budget].”

The Committee believes that tourism contributes to both our economic prosperity and quality of life. As well, we are of the opinion that the $20 million federal investment in the Canadian Tourism Commission provided much-needed support and yielded benefits exceeding the value of the investment. As a result, the Committee recommends that:

RECOMMENDATION 38

The federal government continue to support the Canadian Tourism Commission.