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EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, October 23, 1996

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[English]

The Chairman: We will come to order. The finance committee of the House of Commons is delighted to have so many prominent and important groups from across Canada with us today to comment on the budget.

With us are: from the Canadian Chamber of Commerce, Mr. Dale Orr; from the Canadian Council on Social Development, David Ross; from the Life Underwriters Association of Canada, David Thibaudeau and Bill Strain; from the Insurance Bureau of Canada, George Anderson and Paul Kovacs; from the Business Council on National Issues, Thomas d'Aquino and Sam Boutziouvis; from the Canadian Council for International Co-operation, Betty Plewes; from the Canadian Home Builders' Association, Jerry Roehr and John Kenward; from the Canadian Federation of Independent Business, Garth Whyte; from the Canadian Dental Association, Barry Dolman; and from the Canadian Labour Congress, Andrew Jackson.

If there are any Canadians who are not represented at this table, I would be surprised. We're very pleased to have you with us. Thank you for being here.

We would like opening comments from each of you, three to four minutes apiece, before we turn to comments and questions from members.

Could I ask you to start, Mr. d'Aquino?

Mr. Thomas d'Aquino (President and Chief Executive, Business Council on National Issues): Thank you very much, Mr. Chairman. I'm delighted to once again appear before this august committee, at a critical time, as the government prepares for the next budget.

Given that we're limited to three to four minutes, let me simply encapsulate my remarks by saying that we've seen a tremendous amount of good news in Canada in the last two to three years. This is the culmination of a lot of restructuring. The Canadian private sector is continuing to see steady improvements in our competitiveness, aided and abetted by low inflation and, of course, the effects of dollar depreciation that began in the early 1990s.

Corporate balance sheets, I am pleased to tell you, are strengthening, although I am quick to say that profits are still not at their historic levels. With the merchandise trade surplus soaring ahead and so much of that strong surplus no doubt in part due to an excellent free trade agreement with the United States, I'm pleased to say that a majority of those exports are in the manufacturing sector.

In addition to that we have, of course, good news in terms of what governments have started to do. Deficits are being rolled back, and the federal government has been doing its role in that as well.

That having been said, there are some very deep reasons for concern. Despite the fact that the Canadian private sector has created almost 1 million new jobs since 1992, slightly more than 200,000 in the last 12 months alone, unemployment, as you know, remains high. Some regions of the country are not performing nearly as well as others. Consumers' real after-tax incomes in fact have been falling and are still below pre-recession levels, and the personal savings rate has plummeted. If on top of that you consider that Canada's public debt, as we sit here, is still rising rather than falling and that we still have a serious separatist threat in Quebec, if you put all of that together I think it gives us all a reality check in terms of both the good and the bad news.

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As to the priorities the Business Council sees as you advise the government in preparing for what no doubt will be the last budget prior to the next federal election, first of all we would say it's extremely important not only to balance the budget, not only to reach zero financial requirements, but to actually balance the budget and begin, prior to the year 2000, our first major down-payment on the national debt.

Here's where we diverge from the Minister of Finance. We've consistently said it's not that we are at odds directionally; it's just that we have consistently urged that we get to zero more quickly than he has. We're suggesting that it be done by 1998-99.

Second, debt is the problem, as Mr. Martin quite rightly pointed out before your committee on October 9. I think it's critical that we have a national debt reduction strategy in which the provinces and the Government of Canada participate, because debt is the problem. Again, I remind any of you here who are anxious to run off and spend a so-called dividend that there is no real dividend. The debt is rising rather than falling, and we are at a very advanced stage in the economic cycle.

Third, avoid major tax cuts now. I know there have been people, some of them in the business community, who have been calling for major tax cuts. No organization has argued longer and stronger for across-the-board tax cuts than we have, Mr. Chairman, but it would be a terrible mistake now to engage the country in major tax cuts when, again I repeat, there is no dividend. The fact of the matter is that people always ask, are you going against Mr. Harris? My reply is no, we're going for Mr. Klein. The whole idea is to start the down-payment on the debt and get that problem under control, because all that deficits and debt are is a form of deferred taxation.

We would strongly recommend as well that we manage the employment insurance surpluses responsibly. Here you may see some differences in views in the business community. Our own view is that the Minister of Finance should at the very least reduce premiums by 15¢. I know some people are suggesting much more than that. We are of the view that not only should he take it down 15¢ - and I know he may be reluctant to even go that far, Mr. Chairman - but at the same time as he takes it down 15¢ we would like to see in the next budget a strong commitment to continuing the reduction of unemployment insurance premiums.

We are realistic in accepting the fact that Mr. Martin never would have met his deficit targets without the surplus in this fictional account called employment insurance. If he is compelled to take the premiums down, which we'd all like to see, I have absolutely no illusions in my mind that he will introduce a replacement tax, because otherwise he will have to see the deficit rise or, alternatively, he'll have to find additional spending cuts. And you know we are strongly in favour of always finding additional spending cuts.

A stabilization target in the surplus of the employment insurance account, in our view, is about $5 billion to $7 billion. In the last recession the deficit at its worst was about $5.8 billion. There's absolutely no justification for a surplus of $10 billion, $12 billion, or $15 billion. That money should be given back to hard-working men and women in this country, and at the same time as the Minister of Finance does that, we will be able to create new jobs.

Penultimately, I would say it's very important to push ahead with reforms to the Canada Pension Plan. We are extremely disappointed - not through any lack of efforts on the part ofMr. Martin - at the bickering and the foot-dragging we have seen in intergovernmental meetings as far as pushing ahead with this vital reform to Canada's pension plan is concerned.

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Our view on this is very simple, and here we're suggesting the trade-off. I know some of the provinces are, quite rightly, angry that employment insurance premiums are too high. Our suggestion is the premiums be reduced by 15¢ and the treasurer of Ontario be coaxed into going along with reforms to the Canada Pension Plan. If British Columbia and Saskatchewan are not on board, we suggest the remainder of the provinces and the federal government get on with the job of pushing the reform anyway with or without those provinces' acceptance, because this policy is too important to leave behind.

The last point, Mr. Chairman, is on jobs. I know there has been a lot of loose talk about the so-called dividend. Again, there is no dividend. This country is indebted up to its ears. We have the worst external debt-to-GDP ratio of any of the G-7 countries. We're at a very advanced state in the economic cycle.

This idea of taxing more or spending more on infrastructure or on jobs is not the way to create jobs. In agreement with us are not only the vast majority of the orthodox economic community; the results of the G-7 job conferences both in Detroit and Lille confirm the best approach, and the OECD's approach, is that the best way to create jobs is to get interest rates down and create a climate conducive to business investing.

I will conclude with this, Mr. Chairman.

The Chairman: Thanks, Mr. d'Aquino. You've come in just under three minutes. I thank you very much.

Next we have Mr. David Ross from the Canadian Council on Social Development, please.

Mr. David P. Ross (Executive Director, Canadian Council on Social Development): Thank you very much, Mr. Chairman. I'll take the same three minutes as Mr. d'Aquino did since we're in an expansive mood here today.

I welcome this opportunity to speak on behalf of our 700 members across the country whose only commitment is to social progress and social development. For a long time the kinds of organizations and the people our council represents haven't been all that interested in the economy, because the economy has performed quite well in the post-war period. It has only been in recent years that the economy has been underperforming, and we have been thinking we might give the economists some help in sorting out the problems. More and more people in the social sector now - I'm an economist myself - look toward the economy and toward business. I want to challenge business today to help us achieve a higher level of social progress.

The budget is important because it really sets the tone for the whole country. It sets the tone of our economic framework from which economic and social progress is going to proceed. What we've had in the last few years, and it concerns most people in this sector, is a shift in the responsibility for family economic security. I would say this is the leading issue among our members and is in fact probably the issue of our times. This issue is the increased insecurity faced by a growing number of families.

There has been a deliberate shift in this country away from relying on government for ensuring economic security and more towards the marketplace. I don't want to argue about this. It's happening. Presumably Canadians have made this choice, and we're going down this road. What I'm worried about is what is at the end of this road and what we can do to try to divert us away from some of the failures.

This shift has been accomplished on the one hand by governments at all levels cutting programs and by tightening up on programs. I think the shift has also been accomplished by, as Mr. d'Aquino has mentioned, a more favourable business climate provided by federal and provincial governments. We have had the free trade agreements. There are fewer regulations, particularly in Ontario. There is low inflation. There are lower interest rates, and this means lower borrowing costs. All of this is expressed in a booming stock market, more IPOs and record profits, maybe not for all companies but for a number of companies.

Where will this shift lead us? This is the concern. Where does the shift, this increased reliance on the market, lead us? It leads us to income inequality. We are doing a lot of this work in a quantitative unit at the CCSD. I have a chart here today showing that among families there has been a shift. We've taken 1984 to 1994 because these are the same years in the cycle. There has been a shift of about $4 billion in relative terms from the bottom 60% of the population to the top 40% of the population, which is really the wrong way to be redistributing income or sharing more equality. This has just happened.

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This is among the market set. What we're trying to look at is what happens when you look just at market income or the income coming from the market, not what happens after government enters, because this is the way we are going.

So what, you might ask, about this growing income inequality? There are three things.

One, as you've probably read in the newspaper recently, there have been several reports highlighting what we've known for years, that there is a connection between income inequality and health. People with higher incomes have better health than people with lower incomes and so do their children.

Education, dropout rates and poor school performances are much higher for low-income families. Social exclusion, reduced cohesion and civility, delinquency and disorderly conduct are all related to deteriorating income and equality.

The World Economic Forum, which some of you probably attended, got it right. They mentioned last year that ``A competitive society is a society which has found a dynamic equilibrium between wealth creation on the one side and social cohesion on the other''. What I am suggesting today is social cohesion is being threatened by the reliance on the market and the withering and cutting back of the public sector.

What I'm not doing is criticizing this approach. Let's say this is a decision that has been made and people are happy with it. What I'm saying is the job can't be done by governments. They're reducing their role. The government can't be carried by the community sector alone. It is just too big a task, so business is going to have to pay more attention to social cohesion and to the question of income security for families.

I don't want to go into all the details, but they can do this by making workplaces more family friendly and by making it easier for parents to juggle their work and family responsibilities. Obviously they can make it easier by producing more jobs. Especially for young people and young families, this is where the rate of poverty and the dispersion of income is most serious.

In closing, I would like to quote from Ted Newall who many of you know is the CEO of NOVA Corporation, past president of the BCNI and 1993 CEO of the year:

I want to conclude by saying I hope the government would, in its budget deliberations, look toward the role the business sector should be playing in trying to provide and increase the economic security of Canadian families.

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Ross. We look forward to hearing a response to that.

Our next witnesses, from the Insurance Bureau of Canada, are Mr. George Anderson and Paul Kovacs.

Mr. George Anderson (President, Insurance Bureau of Canada): Thank you,Mr. Chairman.

Mr. Kovacs is here with me as chief economist for our organization. Let me start by saying I think this is the fifth or sixth time I've come to present to the committee. Generally I've found our advice tends to be within the range of what everybody else's is, and I think we're going to find this is again true today.

We think we have to continue to get the deficit under control and get it down to zero as quickly as possible. One has to pay down debt and look to get a situation in the country in which people are more confident than they are today.

I think the consensus about the debt and deficit is strong now in Canada. This wasn't the case a few years ago. But I think it is going to be increasingly difficult to argue we're winning the victory of a better economy if we don't get more jobs in this economy. I think if jobs aren't being created at a pace that gets the overall unemployment rate down, as time goes by it is going to be harder and harder to convince Canadians there is some kind of win in all of this just because interest rates are low. Unlike many people who will come to you today, in our paper we do suggest a few targeted initiatives to accelerate employment growth.

It is important to maintain the infrastructure in this country so it can create jobs and keep us competitive. I think the notion that we can ignore infrastructure investments or that the public sector has no role there is not the right point of view.

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But as I just said, we're not going to give you any advice that's substantially different on the macro issues than you've received or will receive today from many, many people. So I'm going to do something I've assiduously avoided in the past, and that is to deal with one specific issue, the issue of the preparedness of this country and our economy for natural disasters. More to the point, our preparedness for a major earthquake in this country or, not to put too fine a point on it, our almost complete lack of preparedness for this event.

I've circulated to members of the committee some maps that profile the degree of natural disasters in Canada, their frequency of occurrence, and sometime when you've got more space to open them up you might want to have a look at them. They're very instructive in terms of what Canadians face by way of the climate and our geography.

Natural disasters are a fact of life in Canada and around the world and the evidence is very clear to everybody here that they're occurring with increasing frequency. We're in a period where these disasters are going to accelerate - hail storms, flooding, wind storms, tornadoes, hurricanes and earthquakes. Canadians seem to live with the notion that somehow earthquakes stop at the United States border. But in fact they do not.

Just to give you an idea, including the tragic losses in the Saguenay, insurers paid over$600 million in claims this summer alone for events of the kind I've described. Governments, in the case of the Saguenay, have paid out about $700 million, and I think the final bill will probably be higher than that. We don't know yet.

The point I want to make about that is that this is a high number. That's $1.3 billion and climbing. But those numbers are financially manageable for governments and for our industry. We can cope with that kind of level of claim on a periodic basis. The situation is quite different, however, if we get a major earthquake in an urban centre in the St. Lawrence Valley, and I'm thinking particularly of Montreal, or the lower mainland of British Columbia. We are going to get a major earthquake, particularly in the lower mainland of British Columbia. It's just a matter of time.

Our models show that in these circumstances the economic loss in Montreal or in Vancouver will amount to about $30 billion. None of this is factored into any plans when we talk about our budgets or our deficits or our debt.

It would seem, to me at least, to be obvious good public policy for governments and insurers and others to be prepared to deal with these losses. The simple fact is, though, we're not ready. We're not ready at all. Indeed, the current regime we operate under presents unbelievable barriers to us getting ready. So I want to plead for the removal of some of those obstacles.

The current tax and regulatory system in Canada is preventing us from getting ready to deal with an earthquake and it is preventing the private sector from taking a much more aggressive role in protecting the government from the contingent liability it runs every day we don't do something about this. For example, for each year that there is no earthquake, the earthquake revenues we collect have to be taken into income, they're taxed and paid out of dividends. We are not permitted to build reserves. Nothing is accumulating for this potential disaster.

The IBC is proposing that insurance premiums be set aside to deal with earthquakes, that the government allow us to build a reserve over time for this. We think if we did that we could do a lot to expand the coverage and protect Canadians in the event and when this occurs. We've worked closely with governments for the past two years. There's consensus that our numbers are right, consensus that the threat is real, and we believe now is the time to deal with this problem. Budgets deal with more than macro issues, and we're appealing for this to be dealt with in the course of this coming budget. Thanks very much.

The Chairman: Thank you very much, Mr. Anderson. I'm sure your suggestions will receive a great deal of interest from this committee.

Our next witness from the Canadian Federation of Independent Business, is Mr. Garth Whyte, the national director. Welcome.

Mr. Garth Whyte (National Director, Canadian Federation of Independent Business): Thank you, Mr. Chairman. I'd like to thank the committee for inviting the Canadian Federation of Independent Business to participate in the pre-budget hearings.

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As you are aware, the CFIB represents 87,000 small and medium-sized businesses from across the country and from all sectors, of which the fastest growing is agriculture. We're a non-partisan, non-profit organization that works on the principle of one member, one vote. We do 3,000 small business personal interviews a week across the country. We're continually surveying our members. Over the next days, weeks and months, we'll be releasing information that will be useful to the committee and to this pre-budget process.

Mr. Chairman, tomorrow at 10 a.m., in the Charles Lynch Press Conference Room in this building, CFIB will release the most extensive study on job creation ever undertaken in our organization's 25-year history. It will be based on 18,000 responses, and it is a message about job creation from the job creators.

Next week, Mr. Chairman, we'll be sending data from our survey on tax and compliance costs to Jack Mintz's committee, which is reviewing the corporation tax system. He'll be using that data for part of his study on compliance costs on business. He asked us to do it, and we've put together a survey from which he'll get a response from about 9,000 members.

In December we'll be releasing our small business barometer, which will show the businesses' expectations for both their businesses and the economy in 1997.

Today, as most know, the technical paper on the harmonized sales tax between Canada and New Brunswick, Nova Scotia and Newfoundland was released. I guess we missed it, but I'm sure many of you didn't. We have been waiting for that release because we want to see what the actual terms of reference are. We are currently developing a survey that will be sent to our members, and we'll have the results to you in December.

We also co-chaired, with the Chamber of Commerce, the small-business working committee that reported to Finance Minister Martin and Industry Minister John Manley. Almost a year ago the committed released to the ministers its report called Breaking Through Barriers: Forging Our Future. It was comprised of business people's recommendations for business and job creation. It provided over thirty recommendations, many of which have still not been adopted by the government. We therefore strongly urge this committee to revisit this report and use some of these recommendations.

We've done stuff on the Canada Pension Plan, as Tom d'Aquino was pointing out. We've given you our ten principles on that, based again on 10,000 responses on principles of what we thought should be done - and we do agree that something should be done with the Canada Pension Plan. We've been doing a lot of different reports that we've been sending not just to your government, but to all governments. We're trying to tell you about small business priorities and needs, and our aim is to not only influence the budget process, but to educate people about our sector and also about job creation.

The importance of this is very profound. It is important to this committee because small businesses are big players in the Canadian economy. Unlike ten years ago, small business growing more and more, with 99% of all Canada's businesses employing less than a hundred people. Over2 million Canadians are self-employed. The small business sector accounts for 40% of Canada's GDP, and small and medium-sized firms account for over half of all private sector employment. But the real issue is job creation, and everybody knows who has been creating most of the new jobs and the net new jobs over the last ten years.

Our message is also important because it directly impacts on this committee's agenda, which is not only to look at issues for the government's next budget but to recommend ways to promote economic growth and job creation. We will provide you with some detailed information on the latter subject tomorrow, but today I can tell you our top priorities as identified by our small-business members, based on tens of thousands of responses. They are as follows: first, total tax burden; second, debt and deficit reduction; third, regulation and paper burden; fourth, employment insurance; and fifth, availability of financing. Those are historically, and continue to be, the top five priorities.

We strongly concur with the government that there must be a balance between deficit reduction and job creation. The message from small business is clear:

- One, continue to eliminate the deficit and eventually reduce the federal debt.

- Two, reduce profit-insensitive payroll taxes that hurt job creation and consumer spending. At the federal level this means significantly reducing employment insurance premiums.

- Three, don't add to the tax burden. Stop the proliferation of fees, penalties and permits. Don't arbitrarily eliminate tax relief measures or, as the government calls them, tax expenditures.

- Four, don't increase the deficit to create short-term jobs through another infrastructure program or grants to business.

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On the debt and deficit issue, first we should compliment the finance minister, who has established an open and honest process. If you remember, five or six years ago we were debating over projections and over a lot of smoke and mirrors. We don't do that any more. We're not arguing over the numbers. We can focus on the policies, and that's an important step.

He has picked targets to reduce the deficit and has stuck to them, but more needs to be done. The deficit has decreased, but it's still a deficit. As Tom pointed out, the federal government's total debt continues to grow. Last spring it was a staggering $575 billion. That's almost $20,000 per Canadian. For my family of five, that's $100,000.

The tax burden has not decreased, it has actually increased in some cases. There has been an elimination of deferred business income, fees, permits and penalties. Meals and entertainment deductions have been reduced. RRSPs have been capped.

I will leave it to question period. I'll start wrapping up, but I do have a debate with employment insurance premiums. We feel you can have your cake and eat it too. We're on record talking about what can be done. A break-even rate is $2.20, compared to the $2.95 rate. The government has a windfall in getting four months' revenue over a three-month period. That's $1 billion, so there's 15¢. The government has another windfall because you're moving to an hours-based system. That's another 10¢ to 15¢, so there's 25¢ right there that is not going to touch the deficit. The minister also said in the 1995 budget that the surplus will be allowed to rise above $5 billion through the end of 1996. It is 1996, it's at $5 billion, and you still can raise the surplus with a modest decrease of 25¢ at least.

I believe this committee recommended last time - but you can recommend it again - a suspension of UI premiums for new hires based on expanded payroll. It was very popular in 1993. Based on a sample size of 18,000, 80% of our members said the initiative was positive for their business.

We have to talk about so-called tax expenditures. We have to take issue with this concept, which implies that the government has the right to take all income but benevolently permits Canadians to retain some of it in the form of tax expenditures. Secondly, a review of tax systems around the world reveals that tax expenditures are only a feature of systems whose overall tax rates are so high that these measures must be created to offset the distortions created by very high taxes.

If you want to get rid of tax expenditures, the way to do it is to lower the overall level of taxation and regulation so that the measures are no longer needed. Don't do it in a piecemeal fashion. I know this is important, but we have to talk about it. We do not want to see a further reduction of meals and entertainment. We do not want to see elimination of $500,000 capital gains. We are concerned with the taxing of health and dental benefits. And we actually think there should be a tax deduction for unincorporated business, which is something this committee could recommend. Finally, on RRSPs, in a time when we're telling people to look at pension reform, we don't want to be under threat year after year with the capping or reducing of RRSPs, and the minister has said that.

I'll end my comments there before I get the hook, Mr. Chairman. I do have a lot more to say, though.

The Chairman: You'll have lots of opportunity to come back, Mr. Whyte. I just want to give all members an equal opening opportunity to present their cases. I can assure you that you will all have full opportunity to make your full statements before us. Thank you very much.

Our next witness is Canadian Dental Association president Barry Dolman.

Mr. Barry Dolman (President, Canadian Dental Association): Mr. Chairman, In the interest of time, as you have pointed out, I'd merely like to take a few minutes to highlight the key points in the statement that I have already submitted to the committee.

I am president of the Canadian Dental Association and a full-time practising dentist caring for patients each year in my office in Montreal.

[Translation]

The Canadian Dental Association represents 16,000 dentists in Canada. It is on behalf of this membership an on behalf of Canadians that we are submitting this brief.

[English]

We believe any action to tax employer-sponsored health and dental premiums as income would be harmful to the oral health of Canadians. We are very pleased that no tax has been imposed to date, and we thank the committee and the minister for an opportunity again to present a case opposing such a tax. We are particularly grateful to this committee for recommending that the government extend the tax exemption to unincorporated, self-employed Canadians. These individuals and their families would have more equitable access to Canada's health care system if this extension could be accomplished.

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Our goal is to make a special effort to enable affordable access to quality oral health care for unincorporated, self-employed Canadians. Such an action would send a clear signal to Canadians that their national government has no plans to take a tax in health, either now or the foreseeable future. This would be a significant step forward to universal access to health care.

Tax incentives encourage Canadians to seek necessary treatment on a timely basis. Over25 million Canadians, through this benefit, have experienced dramatic improvements in oral health. We feel the unincorporated self-employed and their families should have an equal opportunity. As leaders in preventive care, CDA members believe we need long-term vision for our health system to ensure both dental and economic health based on preventive care. All of the partners have made individual contributions in this regard. Dentistry has made significant strides in controlling cost increases. Fee increases for the preventive oral health care check-up have been less than the annual increases in the benchmark consumer price index for over a decade.

As a dentist practising in Montreal, I face these problems on a real-life basis every day. It seems very appropriate for the minister and the government, with the support of the committee, to indeed extend tax exemption to the 1 million unincorporated self-employed. This would be a significant step forward for all Canadians and their families.

[Translation]

The Canadian Dental Association recommends the maintenance of the tax exemption on employer-sponsored health and dental plans and the extension of this provision to include plans for unincorporated, self-employed Canadians.

[English]

There is a lot more information in the brief that we have presented to you. In the interests of time, however, I think it would be best reserved to discuss it in the committee itself. Thank you very much.

The Chairman: Thank you, Dr. Dolman. I don't believe members of this committee wish to change their opinion from last year. Your presence here is timely.

Our next witness is Mr. Dale Orr, from the Canadian Chamber of Commerce.

Mr. Dale Orr (Chair, Economic Policy Committee, Canadian Chamber of Commerce): Thank you for the invitation to appear before your committee, Mr. Chairman.

At our recent annual meeting, the Canadian Chamber of Commerce passed a resolution giving members' views on fiscal policy. This resolution has been distributed to members of your committee to assist us in our discussion today. These recommendations on debt and deficit represent the views of a large and representative segment of the business community all across Canada. The thrust of our message this year is consistent with last year's position. I hope this drawback of not being newsworthy to this committee will nevertheless be of interest because we're going to address a couple of specific points in Mr. Martin's recent October 9 economic statement.

In these opening remarks, I will focus on two points. The first is our view of the state of our fiscal health, and it incorporates the information in Mr. Martin's recent statement. The second is our support for a reduction in payroll taxes.

First, on the state of our fiscal health, I congratulate your committee and Mr. Martin for moving strongly over the past year to recognize that the most important indicator of our fiscal health is the debt-to-GDP ratio. The crux of the fiscal problem as experienced by most Canadians is that the government does not have the flexibility to respond to Canadians who need increased program expenditures or reduced taxes. The reason the government cannot afford to respond to these needs is simply that too much of our income and too much of our tax revenue is eaten away by interest charges on the debt.

To quote Mr. Martin, ``The challenge now and for the future is to reduce significantly the debt-to-GDP ratio.'' Now that this committee and Mr. Martin clearly recognize the current fiscal problem, the challenge is twofold. The first part of that challenge stems from the fact that some people who will be influential in setting the 1997 budget may not yet be converts to this understanding of our fiscal health.

Yesterday, the Prime Minister said, ``In 1997, we will have the best fiscal health of any G-7 country.'' And he made spending commitments consistent with this illusion. Mr. Martin's economic statement clearly shows our debt-to-GDP ratio is significantly higher than that of all G-7 countries except Italy. No G-7 country, except Italy, would want our fiscal health. The 1997 budget may be a precursor to the next election. The state of our fiscal health, as best indicated by our debt-to-GDP ratio, bears repeating to many of Mr. Martin's cabinet colleagues.

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Extending the data of Mr. Martin's economic statement leads to the conclusion that we will not regain a reasonable level of fiscal flexibility until the first few years of the next century. Even ifMr. Martin beats his deficit targets, even if program spending is restrained below its current level for another five years, and even if interest rates are well behaved, it will be 2002 before the debt-to-GDP ratio falls into a range that provides the government any reasonable fiscal flexibility. Until the debt-to-GDP ratio falls below 60%, we must place a very high premium on policies that reduce the debt-to-GDP ratio.

I'll turn from that to a couple of comments on payroll taxes. Payroll taxes have been called, and for good reason, a silent killer of jobs. The UI premiums should be reduced. While debt reduction is critical, the Canadian Chamber of Commerce is not recommending that debt be reduced by any increases in taxes. In fact incentives, competitiveness and equity would be well served by tax reductions when we can afford such reductions.

Job creation and a sound and fair employment insurance policy leave the chamber to recommend a reduction in EI premiums for 1997. For Mr. Martin to allow the surplus in the employment insurance account to build up beyond a level necessary to withstand a reasonable downturn in the economy is equivalent to a tax increase from status quo economic policy. Therefore, after the EI account has reached the $5 billion level at the end of this year, payroll taxes should be reduced to keep this account balanced over the economic cycle.

I'll close with that and I welcome your questions, Mr. Chairman.

The Chairman: Thank you very much, Mr. Orr.

Our next witness is Betty Plewes from the Canadian Council for International Cooperation.

Ms Betty Plewes (President and Chief Executive Officer, Canadian Council for International Cooperation): Good afternoon.

As most of you know, the Canadian Council for International Cooperation represents more than 100 relief and development organizations, ranging from OXFAM-Québec to World Vision to the Mennonite Central Committee.

[Translation]

This is the third year that I have been invited to appear before this committee on behalf of the Council. Unfortunately, I have little to add to the last two presentations I gave. I say unfortunately because in the past two years, despite the cordial way that you treated me, I have had on budget day to report the same bad news, namely, that Canada had again reduced its foreign aid budget, that Canada simply could no longer spend the money on foreign aid that it had in the past.

[English]

It's possible that some of my fellow guests have the stereotype of our organization that leads you to expect me to make the usual - and, I'm sure you'll mutter to yourselves, the unrealistic - bleeding-heart appeals for more dollars for far-away, poor countries. Just so I don't disappoint you, let me indeed make the simple moral case for Canada to increase its ODA to poor countries.

Here are the facts. Over 100 countries in the world are worse off than they were 15 years ago. At the same time, the gap between rich countries and poor and between rich and poor in countries has increased dramatically.

It might be true that private investment is a much more potent source of foreign capital than aid is, but foreign investment is no answer.

Fully 80% of all direct foreign investment in the developing world goes to only a dozen countries, all of them, except China, middle-income. This may make good short-term business sense, but it's also why ODA continues to be so vital. Yet Canadian ODA has been cut substantially and disproportionately in recent years - more than 40% since 1991.

Furthermore, just 1% of foreign investment goes to the world's 48 least-developed countries, and this capital isn't used to fund schools or primary health clinics or democratically run farming co-ops. Only public agencies do that. We argue in the strongest possible terms that, whatever Canada's own increasing poverty at home, we have a moral obligation to share more of our relative wealth with those who have nothing.

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But foreign aid is also in our own best interests. This leads me to talk about globalization, the globalization of troubled times. There are consequences to every one of us of a world growing less equitable, with more poverty and joblessness, population pressures, reduced expenditures on health and education, and the erosion of environmental resources. The absolutely inevitable result is despair, frustration and spreading instability. We can already see the consequences of this: ethnic and religious tensions, environmental degradation, child labour, drugs, disease, and so on.

Since the end of the Cold War, it's been universally recognized that the greatest threat to Canadian and global security is unsustainable economic development, environment degradation, and the gap between rich and poor. These are the root causes of conflict and instability. Overseas development assistance can play a real role in reversing these destructive trends.

Let me conclude with the words of French President Jacques Chirac in a recent address to the U.S. Congress:

We hope that 1997 can be a fresh start on the way back to a more appropriate contribution from Canada to the world. Thank you very much.

The Chairman: Thank you, Ms Plewes.

The next witness is Andrew Jackson, from the Canadian Labour Congress. Welcome.

Mr. Andrew Jackson (Chief Economist, Canadian Labour Congress): My apologies for not bringing a written brief. I didn't know I was coming here until Monday, but we will get a submission to you in due course. We're also participating in the development of the alternative budget through the CCPA, this year, and again we'll be getting that to you.

The Chairman: Thank you.

Mr. Jackson: I want to start off my remarks by putting them in the context of the economic and fiscal outlook that you were given by the Minister of Finance. As you know, the fiscal forecast is for the deficit at the end of the next fiscal year, for which you're framing the budget, to come in at$17 billion or 2% of GDP, or in other words, it will be on target.

I think, however, it's worth emphasizing that there is a contingency reserve of $3.5 billion built into that projection. It's also based on deliberately conservative revenue growth assumptions and conservative interest rate projections. I would also make the observation - and we could document this for you - that the cuts to the UI system are biting deeper than is contained in the fiscal projections. In other words, I think if you look at the numbers, there is something there in the room of $4 billion to $5 billion for adjustments to the fiscal plan overall.

I would also note, if you take a look at the economic outlook presented to you by the finance minister, we are looking at a pick-up in growth, but probably only to about 3% in 1997. The implication of that is continued quite slow growth in jobs, and it's very likely that the unemployment rate will remain above 9% through 1997. That makes the 1990s a decade of 9% unemployment.

I must say I would have to take exception to Mr. d'Aquino's observation that we're in an advanced stage of the business cycle, when in Canada really we're at the end of about six or seven years of incredibly low potential growth and continued very high levels of unemployment. We're not beginning to press against the capacity of this country to grow and to create jobs.

That brings me back to the government's basic agenda. I think, in effect, contrary to the jobs-and-growth agenda, what in effect we've been doing is balancing the books of the government on the back of a very slow-growth, high-unemployment economy. The price of that massive fiscal restraint clearly shows up in slower growth and job creation. In the coming year, 1997, I think most projections - and these are from Wood Gundy, for example - are that we're probably knocking one percentage point off growth because of fiscal restraint. We're sacrificing 140,000 jobs a year because of that.

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We're continuing to endure deep cuts to social programs. There is another $3 billion cut already built into the fiscal projections next year, most of which will fall on transfers to the provinces, and therefore on health care, social assistance, and education. I guess part of the fiscal plan is for major cuts to old age security.

In other words, we're continuing on a path of massive fiscal restraint, balancing the books while the economy is failing.

What are the alternatives? I think, first of all, I would say that from our point of view we have accepted and continue to accept the fiscal targets, the need to set and meet those fiscal targets. But we will also continue to insist on the need to set job targets and also to meet those targets. In other words, we need a genuinely balanced approach.

In terms of an alternative approach, I think part of the key is to continue to have lower interest rates. Clearly interest rates have come down. If you look at the interest rate projections in the fiscal outlook that the minister presented, there is in fact a forecast of an increase in rates. I think the key monetary policy issue is the extent to which we follow U.S. interest rates upwards. I know the committee reflected on this matter earlier and on the scope for easier monetary policy. What I strongly urge you to do is to look at the recent work of people like Paul Krugman and Pierre Fortin, who strongly argue that if we set an inflation target of less than 3%, we're effectively committing ourselves to rising unemployment.

I would suggest to you that the inflation targets that have been set at 1% to 3% effectively instruct the Bank of Canada to keep inflation below 2%, and we could in fact resist an increase in U.S. interest rates and maintain the low interest rates, the low dollar that we need desperately in this country.

The second key point I would make is for the need to increase, at least selectively, spending in key areas. As I've said, even within the framework that the minister presented to you, there is effectively $4 billion to $5 billion of room to move.

We would also again urge the need for some action on the tax side, which could free up additional resources for selective increases in spending. I particularly again urge on you the case for an inheritance tax on large inheritances of more that $1 million, which would raise at least $2 billion dollars in additional revenues.

So what would be the spending priorities we'd urge on you? First of all, don't implement the planned additional cut to the CHST next year of $2.5 billion, which will inevitably cascade in cuts to social programs delivered by the provincial governments.

Secondly, and contrary to colleagues around the table here, we would urge you to introduce a new infrastructure program, but with the proviso that the infrastructure program we would urge the government to consider this time would have a stronger environmental and social infrastructure focus to it. We particularly urge the case for a serious look at retrofitting housing and public buildings for energy efficiency and water efficiency, and the case for investment in public transit systems and environmental infrastructure.

We believe there are areas of neglected need there. They are job intensive. They are Canadian materials intensive. There is also scope for creative financing around some of these areas. For example, if you take the case of housing retrofits, there's potential there for levering private sector financing, and the same in the social investment area.

Third - and I'll begin to wrap up - we would press the case for selectively increasing federal government spending in some key areas that are needed to help build a more innovative and productive economy. I'm thinking of areas like the spending of the National Research Council, which has been deeply hit, research programs and environmental conservations programs delivered directly by the federal government that have been seriously cut and continue to be cut.

To conclude, the key point I want to make is that intelligent, focused increases in public investment can meet social needs in the area of the environment and can also create jobs and increase that potential. I think that's greatly superior to the alternative of broadly based tax cuts, which some are urging, or the dismal scenario of simply staying the course.

Thank you.

The Chairman: Thank you very much, Mr. Jackson.

Our next witnesses are from the Life Underwriters Association of Canada. David Thibaudeau is the president, and Bill Strain is a member of the board of directors of CALU. Welcome.

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Mr. David Thibaudeau (President, Life Underwriters Association of Canada): Thank you, Mr. Chairman. As you've just stated, we represent Life Underwriters Association of Canada, and Bill Strain is our director of taxation of the Conference for Advanced Life Underwriting, which is a conference of LUAC.

Our members all help Canadians to achieve financial security using different means for different needs. As market intermediaries, we acquire an intimate knowledge of the economic needs and circumstances of our clients in all social and income groups in Canada.

The bedrock for the financial security of families and individuals is the financial security of the nation. Until the national finances are secure, it is illusory to think that government can help Canadians secure their own financial future with social programs that are fair and equitable.Mr. Chairman, that is why we stated last year and continue to believe that eliminating the deficit and reducing the debt must be the top priority for governments at all levels.

Canadians have heard some good news recently. However, the debt crisis has not yet been averted. Canada is still obligated to spend approximately one-third of every dollar of federal tax revenue to service the federal debt. The objectives of deficit elimination and debt reduction must continue to have priority if Canada is to maintain economic self-reliance and its progressive social programs.

Our generation must take the responsibility for running up this huge debt load and we must do everything we can to reduce the burden that we will pass on to our children and grandchildren. Now is not the time to be looking at major tax cuts or increased program spending. Now is the time to continue an all-out effort to reduce the debt-to-GDP ratio to a manageable level for the long term.

Government programs must be assessed in the light of Canada's aging population and our ability to fund these programs responsibly, both now and in the future. A central pillar of our social programs is Canada's system for providing retirement income. This is a three-tiered system that includes public pension plans, employer-sponsored plans and private saving arrangements.Mr. Chairman, all Canadians must be encouraged to save for retirement through employer and privately funded plans and reduce their reliance on government plans. At the same time, the imperatives to reduce the debt and eliminate the deficit require a critical evaluation of the various forms of tax assistance for retirement savings.

Any reforms must respect the objective that Canadians receive equitable opportunities to save for retirement, taking into account differing sources of income and differing reliance on public employment and private plans.

Clearly, the retirement savings system should not be examined and revised in piecemeal fashion. LUAC and CALU had high expectations for the comprehensive review of the retirement system that was announced in the 1994 budget. We started our preparations to participate and are disappointed that the review appears to have fallen by the wayside. We urge the government to restore this essential project to the forefront of the national agenda.

A second pillar of Canada's national social programs is our national health care system. Again, this is a three-tiered system. Under principles established in federal legislation, the provinces and territories operate public plans that are supplemented by private health and dental plans. As governments consider the ways in which they may reduce health care expenditures in order to maintain essential programs, the role of the private sector will increase, particularly in employer-sponsored health insurance plans. It has been estimated that almost 90% of Canadians currently benefit from supplementary health and dental plans. We continue to urge the government to reject measures, such as the taxation of employer-paid premiums for health and dental plans, that would reduce the private sector funding of health care for Canadians.

I'd like to thank you and the members of your committee, Mr. Chairman, for this opportunity to present our views today. We will provide the committee with a written submission that elaborates on our views.

The Chairman: Thank you very much, Mr. Thibaudeau and Mr. Strain.

From the Canadian Home Builders' Association, Mr. Roehr and Mr. Kenward.

Mr. Jerry Roehr (President, Canadian Home Builders' Association): Thank you very much, Mr. Chairman.

Ladies and gentlemen, I'm a builder and, as just stated, president of the Canadian Home Builders' Association, which represents Canada's residential construction industry.

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Last year my predecessor, Bruce Clemmensen, told the Standing Committee on Finance that we are fed up. Well, I'm here to tell you today that we are still fed up.

In 1995 housing activity descended to its lowest level in 35 years, and on a per capita basis it was at the lowest level since the Second World War. Housing starts have improved somewhat this year, but only by comparison to last year's disastrous performance. They still remain well below Canada's potential housing demand. Our underperformance is confirmed by Canada Mortgage and Housing Corporation's recent analysis of household formation and is also confirmed by similar work carried out by the Bank of Montreal.

On the other hand, we are very pleased with certain developments over the last year. The federal government's commitment to retain its important role in housing and in our sector has been confirmed by the Hon. Minister Diane Marleau, and this is very much welcomed by our industry.

The new mandate for Canada Mortgage and Housing Corporation will emphasize such important elements as research, information dissemination, market analysis and housing exports, all to be carried out within the context of public-private sector partnership approaches. We place high value on the continuation of partnerships between the CHBA and such federal government departments and agencies as CMHC, the National Research Council, Natural Resources Canada and Human Resources Development Canada.

We are also pleased with the much more aggressive approach being pursued by the minister for Revenue Canada, the Hon. Jane Stewart, on the underground economy.

We support the Minister of Finance in his approach to deficit reduction. Indeed, we applaud the success he has achieved in restoring Canada's fiscal integrity.

And of course we are pleased with the Bank of Canada's substantial progress in lowering interest rates.

So why are we still fed up? We are fed up because the federal government has not worked with the residential construction industry to develop a strategic approach to the revitalization of the housing sector. In the absence of a national housing strategy, one of Canada's most important domestic industries continues to underperform. We are not contributing to the Canadian economy as we have done in the past and as we are capable of doing today. The human cost in lost employment opportunities is indeed still very great.

We understand that the federal government's approach to economic renewal contains two extremely important elements: deficit reduction and tax and regulatory reform to enable the private sector to produce jobs. The first of these elements has been pursued very successfully. The second has received virtually no attention as far as the housing industry is concerned.

Housing, one of Canada's most important domestic industries and one of the principal indicators of Canada's economic health, has received no systematic, strategic public policy attention. There's no question that lower interest rates are resulting in a modest improvement in Canada's housing activity at the moment. This improvement, however, is much slower and weaker than it ought to be.

We cannot agree with the Minister of Finance when he describes this year's improvement in the housing starts as substantial. However, we agree with him entirely when he says:

We agree with him when he says we have to develop new strategies of action that are not founded on the old ways of throwing money at problems, an approach we cannot afford and one we now know simply does not work. We agree when he says that in government spending our focus must be on reallocation, on concentrating the limited resources we have where their impact will be the greatest.

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The CHBA has been advocating these ideas for over a decade, well before they had any political support or public acceptability.

Our message to the federal government is very clear. New strategies of action for the residential construction industry are impossible to achieve in the current public policy environment. Lower interest rates alone will not produce a housing recovery. What is required now is tax and regulatory reform that will allow our industry to perform effectively in the marketplace and create jobs.

We are told Canada has the best housing system in the world. We built the best housing system. Our housing sector is a huge national asset and the industry is a major wealth producer.

Canada needs a housing strategy that will support a viable housing industry, benefit housing consumers and allow the -

The Chairman: Thank you very much, Mr. Roehr, for your plea. I'm sure we'll have questions on what you want in that strategy.

I now turn to members.

[Translation]

Mr. Bélisle, please.

Mr. Bélisle (La Prairie): I was very interested in what all of the witnesses had to say this afternoon. I was struck by certain ideas and observations made by Mr. d'Aquino, Roehr and Thibaudeau.

As far as deficit reduction and, eventually, debt reduction, are concerned, I think it is important that the Minister of Finance has told us that the deficit, at the end of the fiscal year ending March 31st, will be approximately $28 billion and that he is forecasting a deficit of $17 billion next year and$9 billion in two year's time.

However, if I may make a comparison, this makes me think about last summer's flood victims from Saguenay - Lac-Saint-Jean. It's as if we told them: ``Ladies and gentlemen, we have good news. The water is continuing to rise but it is not rising as quickly as it was.''

We are in just about the same situation with respect to Canada's deficit and debt. Obviously, the deficit is gradually coming down because of the pressure exerted by all of the partners, lobbies and intermediaries such as yours, but the debt situation is still very troubling, very worrisome. Despite everything, we see that the debt continues to grow year after year.

Several of you have mentioned this in your briefs and documents. I believe that it was the document submitted by Mr. Thibaudeau representing the Life Underwriters Association of Canada, who talked about the debt that is going to be transferred to the future generation, to our children and grandchildren.

In the light of what was said this afternoon, we have to put things into perspective a bit. We must not simply concern ourselves with the deficit, we must also take the total debt into account.

I think that we have now got to the point where we are planning how, over the next two or three years, we're going to deal with debt reduction in Canada and Quebec.

I would like to ask Mr. d'Aquino, Mr. Roehr, or any others who would like to intervene if they have any thoughts as to what parameters or principles we should be using in order to systematically reduce this debt, which exceeds 74% of the GDP. Some documents have stated that this amount should be brought down to 60% or even less. Have you any thoughts about the main principles or main parameters on which we should base ourselves in the medium term?

Mr. d'Aquino: Mr. Chairman, I can respond to this question.

[English]

This question of how we reduce the debt is a critical one, because there is an impression, I'm afraid, in government circles that business people can only think of attacking debt by simply cutting and using money to pay back debt.

I would like to say there's a comprehensive strategy for dealing with debt. It's really, in many respects, the same strategy for dealing with job creation and economic growth.

After I had spoken here, I jotted down a few questions, and I'll give them to you in two words or less, Mr. Chairman: How do we create jobs? How do we accelerate economic growth? How do we tackle the debt problem in Canada?

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We do this first by bringing value-added into the labour marketplace through much better education and training. As I'm sure my friend Andrew Jackson would be the first to say, well-educated workers are much more likely to be employed workers. Employed workers are people who will be paying taxes. The better the job, the higher the taxes. This will contribute.

Second, we will be able to tackle the debt, believe it or not, by having an effective set of social policies in this country. Again, that may come as a surprise to some people around this table, but we have always said that effective social programs and effective social policies are some of a country's most powerful competitive advantages. Canada has many of those competitive advantages, which unfortunately we are now seeing eroded because of financial profligacy over the past 20 years. So we need strong social programs.

Third, we need much more effective partnerships between the private and public sectors.

Fourth is the nurturing of a more entrepreneurial culture. We heard from our friends around the table here who represent small business how critical it is for the vast majority of people who are in small business to have a culture that will induce them to get into small business, stay there, and create jobs and investment.

Lower taxes: if you take the totality of taxes in this country, it's a crushing burden. I hear repeatedly that high taxes do more to kill incentive investment than almost anything else. When you don't have investment and you don't have jobs, you have higher and higher costs.

Low inflation: Mr. Jackson referred to Krugman and he referred to Fortin. He quickly ran out of names because the vast majority of the economic community worldwide will tell you, based on hard economic facts, that historically the countries that have had the lowest levels of inflation have had the lowest levels of unemployment.

Low interest rates are critical. A low cost of capital and effective government as well as open markets are also critical. But I would add one other thing for my friend from Quebec. There's one other absolutely essential component to getting at the debt and creating jobs, growth and investment, and that is to have political stability.

He will not be surprised when I say to him that the policies of his party and the policies of the current Government of Quebec are doing inestimable damage to the prospect of growth, jobs, and our ability as Quebeckers and as people across this country to tackle the country's most serious and enduring problem - the problem of debt.

[Translation]

The Chairman: Have you anything further to add? Thank you very much, Mr. Bélisle.

[English]

Mr. Grubel, please.

Mr. Grubel (Capilano - Howe Sound): Thank you, Mr. Chairman.

I'd like to raise an issue of fiscal strategy that has not been touched upon by this group. It concerns the general size of government.

The Minister of Finance and the Prime Minister have said that the spending cuts are over. What does that mean? We will grow out of our deficit - $14 billion next year, $7 billion per year - and optimistically, in two years it will be all through? But there's an alternative strategy, and that is to bring down the size of the leviathan a little more.

Why am I saying this? Recently I took the trouble to study what actually has been done by this government to eliminate the deficit. Here are some interesting statistics.

A very large proportion of the reduction in the program spending has been through reduced payments under the UI program, simply as a result of the luck of improved economic activity - about $4 or $5 billion. Ladies and gentlemen, $7 billion has been downloaded to the provinces.

There is the kind of program spending this government has control over that represents the oppressive bureaucracy so many Canadians are unhappy about that issues all the red tapeMr. d'Aquino could tell us about, and that small business is talking about.

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Money has been going to special interest groups and programs that even independent commissions are now saying have failed to convince Canadians - multiculturalism and those kinds of programs. Do you know by how much they have been cut in the life of this government? Do you know? They've been cut by less than $2 billion a year. Out of $100 billion, that is not an incisive cut in shrinking the size of government.

I'm very surprised that in Canada the debate has never moved to this level. Do we want the program spending we are now stuck with of $109 billion, according to the latest plans by the Liberals, or should it be lower?

I would like to hear your reaction to the idea that quite possibly it might be time for this country to consider whether or not we should reduce the oppressive burden of this monster called the federal government.

Mr. Jackson: May I reply to that?

The Chairman: Sure.

Mr. Jackson: I'm a little puzzled by your assertion. If you turn to the economic and fiscal update - not to defend it, but I'll take the figures there as given - on page 22 you'll find, looking at departmental spending by the federal government, that since 1994-95 it's been cut by $11 billion or 21.5%. If you look at spending in Human Resources Development, for example - that's mainly spending on training - it's been cut by 40%. Spending in the Department of Industry is down 30%. A lot of that involved cuts to the National Research Council technology programs and so on.

Much as I take exception to a lot of the cuts that have been made, I find it startling for anybody to say that the federal government has only been cutting by cutting transfers. You have a point, certainly, when it comes to a lot of the burden of the cuts falling on transfers and unemployment insurance, but a lot of direct federal programs have been very deeply cut indeed and will continue to be cut.

Mr. Grubel: While the deficit...has been reduced by $23 billion or $25 billion, revenue increase has been exactly equal to either $23 billion or $25 billion, depending on what happens next year. Program spending has gone down by $14 billion - if it goes to $106 billion - out of which$7 billion, by some estimates, are reductions in the transfers to the provinces. I asked the Minister of Finance about it. I received a letter from him. Program spending, other than on those things, has fallen by no more than $7 billion.

Mr. Jackson: I think if you were really looking at it, there have been some areas of increase. For example, spending on old age security has increased. So you have some pluses and some minuses, but overall departmental spending is down incredibly, substantially.

There are 50,000 direct employees of the federal government who have lost or are losing their jobs. You attack bureaucracy and red tape, but that is an incredible number of direct jobs that have been cut. This myth of leviathan, when you only have to look out the window to see what's going on in terms of the federal public sector, is rather strange.

Mr. Grubel: Some people are looking out the window and wondering whether or not, as in past episodes of overspending and fiscal crisis, the bureaucracy has not once more taken over the government and has, in its own self-interest, persuaded it that the cuts are to be done elsewhere than in its own backyard.

But I would love to know whether anybody in this august group shares the concern I've had, and whether you can give me any indication of what might be an optimum amount and size of government to have here in Ottawa.

The Chairman: Mr. Whyte.

Mr. Whyte: A couple of years ago we stuck to Paul Martin's target of $9.1 billion and asked our members where it should cut and what the priorities should be - grants to business, megaprojects, government operations, unemployment insurance or defence. We feel the cut on unemployment pushed the envelope.... There's more that could be done, but that happened...and also on defence.

Reading the same report that I believe Mr. Jackson was reading, if you look under expenditures, Industry Canada and regional agencies have actually increased. Likewise, Human Resources Development and Indian Affairs and Northern Development have increased, even though government spending has decreased. We're concerned that in the area of grants and subsidies to business, there's another area where significant cuts could be done. That's number one.

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Number two, on government salaries and the matching of pensions, no one has looked at the pension issue. This can be matched up to 10%, which is just outrageous in today's economy. That also could be looked at.

We're trying to find ways that don't directly hit programming. We're saying to start with us first.

We're concerned. We see other $100 million of grants and subsidies going to business. We're worried that it's opening the tap again. We have to agree that there has to be more vigilance in government spending.

It's not over. It can be done carefully and targeted, but at the same time, more could be done.

Mr. Grubel: Typical development agencies have almost $1 billion. There's another$87 million for Bombardier, which is surely going to be shut down under the free trade agreement.

I don't understand that there is no concern among the people here about the size of government. Even before the deficit has been eliminated, we start spending again. There's $1 million for film production. Can we afford it at this time? Is this what the people of Canada want?

We need a fundamental discussion of this. I'm very disappointed that none of you have brought this up.

Mr. d'Aquino: Mr. Chairman, Mr. Grubel says that none of us have brought it up. We were given three minutes. I thought it was implicit in many of the things people said on this side that people were deeply concerned. Mr. Grubel and I have known each other for a long time, and he knows that our organization has fought for a long time for cuts to government spending.

I don't want to monopolize the session, but let me quickly throw a set of statistics that will tell you at least where my colleagues are on this. It will shed some light on where Canada stands. Again, it's not the world seen by my friend Mr. Jackson.

In the totality of government spending among the G-7 countries, as a percentage of GDP, Canada was slightly in excess of 51% about four years ago. We have now dropped down to about 45% or 46%. That still puts us near the top of the percentage of GDP that is related to the public sector.

Our goal has always been to be below the average, or slightly below the average, of the G-7, which would mean, Mr. Chairman, that this would take us down to somewhere closer to 35%. To get from 45% to 35%, Mr. Grubel, I think, will tell you that less government is necessary.

Mr. Grubel: But you're focusing on total spending; I'm talking about program spending that the government has under its control. We have calculated that if the government reduced its program spending to $94 billion as a percentage of GDP, it would be about where it was before the Trudeau explosion in government activities. There was all the pulling of private sector activity that for ideological and historic reasons was not done by the private sector or the provinces because we had some anointed Liberals here in Ottawa who knew what was best for the people.

The Chairman: Thank you for giving us such exalted status, Mr. Grubel.

Mr. Grubel: That's right, Mr. Chairman.

The Chairman: You're probably the only one in the world who feels that about me, but I appreciate it very much.

Mr. Grubel: But you weren't in government at the time.

I just wanted to throw this out for discussion. I hope that if you have any comments on this for me to perhaps help me a little bit to defuse what Mr. Jackson is saying and strengthen my own argument on this, I would love to hear from you in writing so that I can discuss that with my own party.

Thank you very much for your indulgence.

The Chairman: Any further comments on this issue? I know we have a consensus between Andrew Jackson and Herb Grubel, but maybe not among too many other people at the table.

Mr. Anderson: I just wanted to say now that for a long time we have said the size of government relates to the function that government does, as you know. In our view, the lack of regulatory harmonization, and duplication and overlap, are sources of unnecessary size and growth in bureaucracy. We'd all be better off without this.

So rather than approaching this as cutting program spending to a particular level, our approach is to say: what are the functions we could do without that could be better and more efficiently done in the private sector? Where are we having regulatory overkill?

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Mr. Grubel: Oh, absolutely.

Mr. Anderson: We think that's an area in which you could save a great deal of money and where the political will is absolutely lacking to do anything. If we attack that and make yards there, I think we can all win, but it's very slow.

Mr. Ross: I'll take your bait. I think it's intriguing to suggest or propose that you can just cut government and this has no impact on society. The assumption you seem to be making is that, of the $106 billion the government spends on programs, it's all wasted. It's that basically you can cut the $106 billion and have very little impact on society.

I wonder if you could prove that to me. I'll put a challenge out to you and your party, and that is, if you can show me the kind of cuts you want to make and if you can give me or the people I represent some assurance that it's not going to have detrimental health, social and educational repercussions, then I might be more inclined to take your challenge seriously.

Mr. Grubel: Take the CBC, multicultural programs, regional development programs, and overly generous unemployment insurance benefits.

Mr. Ross: Those are suggestions.

Mr. Grubel: You already have several billion dollars.

Mr. Ross: What we don't have in this country, and what we desperately need, is some measure of the long-run sustainability and viability of the country.

Mr. Grubel: Precisely.

Mr. Ross: We rely too much, as business does generally, on short-term economic indicators. We don't have some longer-run indicators. The World Economic Forum is suggesting that you have to know in advance what impact the kinds of things you're doing today are going to have down the road.

My concern is that you set up a deficit and debt target [Inaudible - Editor] and you can move toward it, but what are the implications for the longer-run sustainability of society? You're just going to shift a lot of those costs to the more disadvantaged and to other groups in society. You can end up with no economy. If you don't have a strong social platform, you're not going to have a social economy. It's not right to think that economic development funds social programs. Social development also provides the basis for economic development. They go hand in hand.

So I don't mind if you can find ways to cut government without affecting some of these longer-run indicators. I would be more than happy to listen.

Mr. Grubel: It is clear, Mr. Ross, that it's not a matter of it not taking place; it's a question of who among Canadian will do it. Will it be the provincial governments? Will it be individuals? Will it be charities? Rather than having it all coming from Ottawa, where it's first taken away, a lot of it gets stuck here in the bureaucracy.

Take the Department of Indian Affairs and Northern Development. More than $10,000 per native is being spent every year. For a family of four, it costs us $40,000.

The average full-time worker in manufacturing is making $30,000 a year in Canada. If you make $50,000 a year, you make more than 90% of all Canadians. We are spending $40,000 per family on four natives. Why are they so poor? Because it's all spent on lawyers and all kinds of bureaucratic, wasteful spending.

The question we have to look at is: how much of that kind of spending are we going to have in Canada in the future? I wonder whether you would have a chance to write me on what you think about that subject. What would be an optimal amount of the kind of government we have? Thank you.

The Chairman: Mr. Grubel, could we give Mr. Jackson the last word on this issue?

Mr. Jackson: Very quickly, just on this myth of big government in Canada, again if you refer to the economic and fiscal update there's a useful chart, actually on the very last page, which is easy to refer to. It looks at program spending as a level of the economy in G-7 countries.

If you look there, what you see is that Canada is really only marginally ahead of even the United States. If you look at program spending, we're about 34% or 35% compared to 30%. I'd suggest to you that most of that gap, in fact all of it, would be explained by the fact that we deliver health care through the public sector rather than privately.

So what you call ``leviathan'' in terms of the size of government in Canada is not appreciably larger than that of the U.S. at the end of the Reagan-Bush-Clinton era when you simply take that fact into account. We have a smaller government than the U.K. after years of Conservative Thatcher rule. This notion that somehow we have an outsized public sector in Canada is just ideological nonsense.

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The Chairman: Herb, would you mind if I gave Dale Orr a chance to say something, and then you can have the last word? Would you mind?

Mr. Grubel: Just a quick response. I am very surprised that Mr. Jackson uses the United States for any comparison. I mean, ideologically this is just not right.

Mr. Jackson: I just thought you might -

Mr. Grubel: Secondly, the reason why program spending in European countries is higher is because they're a much older society and they spend so much more on both pensions and medicare.

The Chairman: Mr. Orr, please.

Mr. Orr: Thanks, Mr. Chairman.

Mr. Grubel, I don't think it's possible to identify any optimum level of program spending. I think every program has to be taken on its own merits. But the point I want to make is from the point of view of what we hear from the business community. When you do that, even when program spending is reduced as low as $106 billion, down from $120 billion five years previously, it would still be our view that it would be in our best interests to make some reductions from that level. So it's very important to note that we would not support anybody who would say that at $106 billion we're right down to the bone, that there's no room for any more cuts.

Let me make a couple of specific suggestions. Even at that level, business subsidies themselves would still not be cut down as much the Chamber of Commerce has recommended. Regional development would still exist, which probably sets the economy backwards rather than forwards. There would still be agriculture subsidies, which likewise probably sets the economy backwards rather than forwards. There would still be a reasonable amount of money in cultural subsidies, which is also quite questionable.

On that specifically, the chamber made a recommendation that we get out of the publicly funded television network business. With technology of the 1990s, we can achieve whatever cultural objectives we profess we want without a publicly funded television network.

Thanks.

The Chairman: Thank you, Mr. Grubel.

Mr. Grubel: Thank you for your indulgence, Mr. Chairman.

The Chairman: It's always interesting to work with you, Mr. Grubel.

Ms Brushett.

Mrs. Brushett (Cumberland - Colchester): Thank you, Mr. Chair. Yes, indeed, it was interesting.

I have two points on which I would like to have some specific recommendations. One was made by George Anderson regarding the lack of political will to streamline the regulatory process. I'm wondering whether specifically it's been that he feels there's been lack of political will to look at it.

The second one is for Jerry under the Canadian Home Builders' Association. You've asked for strategic policy on the residential construction sector. As a government, it's been our policy to generate the economic climate and let the private sector take charge of the growth and development. What would you have us do otherwise?

Mr. Anderson: We are currently engaging the governments of Atlantic Canada in an effort to look at the regulatory processes around insurance regulation. In a population less than that of Metropolitan Toronto, there are four separate regulators - five if you count the federal regulator - attempting to regulate what are essentially the same processes in all of those jurisdictions.

We have agreement at the broad political level that this is something that should be done. It can save consumers in Atlantic Canada a lot of money. It can save a lot of time and compliance costs to our industry. Yet, when you look at it, when it gets right down to actually putting together the mechanisms to make it happen, it doesn't happen. It's not happening in Atlantic Canada.

We've been at this now for 18 months or 2 years. There've been all kinds of pronouncements that this is the right thing to do. No action.

Mrs. Brushett: But what can we do as the federal government?

Mr. Anderson: We're about to make a series of recommendations on streamlining the regulatory process in financial services. For example, our industry pays something like 22% of the regulatory costs, and the assets of our industry compared with other financial institutions are less than 3%. So we're going to be working with the federal regulator to try to streamline the compliance processes in the insurance industry, just as we have with the regulators in Atlantic Canada.

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I'm pessimistic, based on experience, that we're going to get very far. Despite all the talk on this issue, by all levels of government over many years, we have not seen much substantial progress. In Atlantic Canada the only function that's harmonized is the harness racing commission.

Mrs. Brushett: I have that in my riding, so I can appreciate that.

The Chairman: Mr. Roehr.

Mr. Roehr: Let me start off by saying that we were told over the last eighteen months that interest rates would come down and the housing industry would improve. I can speak only of the housing industry; that's where our expertise lies. We have to look at what we call ``impediments'', impediments that prevent our industry from performing properly and contributing to the Canadian economy.

Let me give you four points. It's necessary to reform taxes, which will bring a stop to the cumulative effects of taxes, fees, and charges within our industry and for consumers. At the same time, the same effect has an added effect on the permit side, where we're going to continue to add fees, charges, and tax on top of that. The next point would be to look at the definition of ``substantial renovation'' so it can be properly captured under the current GST legislation. Then there's the problem of our tax system as a whole as it addresses the current scheme of harmonization in Atlantic Canada.

Those are four things in particular.

We feel the housing industry can contribute substantially to the job creation program on a long-term basis. It is, however, necessary to look at the policy and the regulatory policies of our government to make that happen.

We are not looking for any short-term solutions. We have continuously advocated that we do not want another stimulus program. But we need to look at the domestic tax structure, which makes real impediments for our industry, and we need to reform that so Canadians have a hope of having further employment and feel more secure and find that a home is indeed a very valuable asset in our social fabric.

The Chairman: Mr. St. Denis.

Mr. St. Denis (Algoma): Thank you all for being here. This is a very helpful process.

I wonder if it's not making the problem and the solution too simple to say it's really the government's fault that the housing sector is not bouncing back. As we've heard the Prime Minister mention on every occasion he has had a chance to, the drop in interest rates, depending on the size of the mortgage, can save thousands of dollars for a family. Unless we're talking about permit fees and taxes that are well in excess of thousands, I'm wondering - and I wonder if your organization has done any research - whether there are any structural reasons why housing is not bouncing back; for example, demographic change, different ideas on the part of consumers about the type of housing they want. Is it just government policy or are some structural demographic changes taking place that maybe we don't fully understand?

Mr. Roehr: The demographics certainly indicate the housing starts in our country should be between 140,000 and 170,000 units. We have to ask ourselves what the impediments are such that we do not achieve these numbers. As we have all heard before, it's the consumer confidence problem. People are simply scared about getting a job or of losing it if if they have one.

So we have to look to see what can be done within our current system to reallocate some of the funding to make sure the job strategy does include housing. If we can achieve that, our industry will be able to create jobs in every part of our country, which in turn will help consumer confidence, which in turn will provide us with the necessary revenue to continue to attack the deficit and debt reduction.

We cannot, in our opinion, rely on exports alone. The latest figures will show that our surplus in exports is a reduction in our imports.

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Mr. St. Denis: If I may interrupt you, it sounds to me as though what you're saying is it really isn't entirely government's fault, but it's an issue of consumer confidence. Whether it's a car they want to buy or a house or a coffee grinder, it's an issue of consumer confidence, which hits your industry as it would many others.

The issue of consumer confidence is a very complex one, and hopefully time will heal that as the fundamentals work their benefits. Again, is it really just a tax break that the industry needs? Is that really all it amounts to, in your view, or is there something much more to it?

Mr. Roehr: Let me ask John Kenward to specifically speak to those recommendations we made previously that address the whole problem of consumer confidence.

Mr. John Kenward (Chief Operating Officer, Canadian Home Builders' Association): Mr. Chairman, I'm going to speak very briefly.

I don't think it's a question of laying fault anywhere. The issue today, as Mr. Roehr has pointed out, is that the one thing we have not done is sat down with this government and had a serious discussion about this housing industry and how we may develop a strategic approach to identify the tax and regulatory impediments that are there and work them out together.

We have made numerous recommendations. In fact we've made them to Mr. Peterson several times before. It's time to sit down and start working these things through. It's not a question of laying fault and it's not a question of coming in with some kind of artificial stimulus dodge through the tax system.

We're talking about a very important domestic industry, one I think we all want to see grow and sustain over time. It has a heck of a good future. There are no structural, demographic impediments here. New housing activity can be much higher than it is today. The renovations market is enormous, the rental market is great and we do have tremendous opportunity in the export area.

Indeed the housing industry in and of itself can become a more powerful force in this economy in the future than it has been in the past, but in order to achieve that, government has to sit down with the private sector and the industry to work out strategically how we're going to do it. That we have not done and that is a central message today. It's time to do it.

Mr. Roehr: As was done with Revenue Canada's initiative of attacking the underground economy as a first step by introducing the volunteer reporting system. It is not one single issue; it is a number of issues. We would certainly appreciate the opportunity to look at is as a whole rather than a quick fix.

Mr. St. Denis: Thanks.

The Chairman: Thanks, Mr. St. Denis.

Mr. Solberg, please.

Mr. Solberg (Medicine Hat): Thank you very much, Mr. Chairman.

First of all, let me apologize for missing so much of the presentation this afternoon.

I want to follow up on what Mr. Roehr and Mr. Kenward were saying. Perhaps this has already been said today, but because I missed it, I don't know, so I'll say it again anyway. Isn't the real issue here, with respect to just about every facet of business in the country, that taxes are extremely high? In the last three years we've seen the average family lose $3,000 in purchasing power. Isn't that the overwhelming, big issue?

We could talk about some of the different loopholes, some of the different impediments, some of the problems with compliance and those kinds of things, but aren't the big problems that are slowing the economy down to do with the high level of taxes we have in this country and the fact that we haven't balanced our budget yet?

The Chairman: I see Garth Whyte would like to start on that.

Mr. Whyte: I've found an opening and I'm going to use it, Mr. Chairperson.

Yes, the tax burden is hurting a lot of things and it's slowing down consumer spending. The challenge is how you meet your deficit reduction goal and at the same time not take away revenue from that goal. We think we've found the solution, and it deals with employment insurance premiums.

I have to reiterate what I said earlier. The premium at the employee level is $2.95. The actuary for the program will tell you a break-even rate is $2.20. We realize the government is using the employment insurance for cashflow reasons, but there's a lot of room there to bring the rate down, and we're trying to find ways to bring it down.

That hits consumer spending. That hits money back into employees' pockets and back into employers' pockets. Year after year our members have said if you want more jobs, you have to reduce payroll taxes. There's a strategy there that can be done, and right now all that's in the books is a 5¢ reduction. That's unconscionable.

If that's the case - and we've said this in a letter to Finance Minister Martin and we've distributed it to your party - let's come clean and call it a deficit reduction tax and not an employment insurance premium, because if we keep it too high, that's what it is, and that's a high tax increase. So with this alone, we think you can have your cake and eat it too. You can reduce some of the tax burden without hitting the deficit target and the revenues.

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The Chairman: We will have one more on this issue.

Bill Strain.

Mr. Bill Strain (Director of Taxation, Conference for Advanced Life Underwriting, Life Underwriters Association of Canada): Mr. Chairman, Mr. Solberg indicated high taxes were perhaps the biggest single problem facing the country. I certainly share the view that taxes are too high, but I also come back to Garth's point that taxes need to be high. We are not in favour of tax cuts, we're not in favour of new spending, until the debt level gets down.

I think the biggest issue we're looking at here is restoring consumer and investor confidence in the economy, and this doesn't come quickly. It is a long process, and I think we're seeing the effects of this. We're all wondering why the economy hasn't bounced back. Well, it doesn't happen instantly. It takes a long period of time. It takes a track. It takes a commitment to the longer term, and I think we're starting to see some of the benefits. We're seeing interest rates come down. We're seeing spreads between the risk premium attributable to Canada come down in relation to the U.S.

It's starting, but it's only just starting and I think we need a long-term commitment to a slow and measured approach, not a slash and burn approach that is going to destroy social programs across the country and destroy the confidence of Canadians. We need a continued approach over a very long term and in a directed way in order to accomplish this objective.

The Chairman: David Ross.

Mr. Ross: I just want to weigh in on this one because I don't think you have to be a rocket scientist or have a big data bank to figure out why people aren't responding to low interest rates. People will be sitting around here when the interest rate goes to zero still wondering why people aren't buying. I think all you have to do is talk to younger people and younger families. They're the ones you're going to be relying on to buy your houses, to buy your automobiles, to buy your air conditioners and everything else. Taxes may be part of it, and there may be a lag, but the reason they're not buying is they don't feel secure in their incomes.

When I bought my first house 30 years ago, interest rates were much higher than they are now, but I knew I was going to have a job next year and the year after that. I talk to my five kids now; they are all educated, but they don't know if they're going to be employed next year, so why are they going to take on even a 5% mortgage%?

This is, I think, the real problem. I said in my earlier remarks we must address the question of economic insecurity. This really is the central issue of our time. Drive those interest rates down to zero if you want to, but you're not going to get a terrific kick out of it unless you solve this economic insecurity dilemma.

Thank you.

The Chairman: Thank you.

We are at the time now where if any of our panel members haven't had a chance to adequately explain what they'd like us to understand, I'd welcome this. Then I would suggest we go to very brief wrap-ups by each one of you before we conclude. I was going to suggest maybe a 30-second wrap-up by each of you. Is there anybody who wanted to get a word in before we go to this concluding part?

Tom d'Aquino.

Mr. d'Aquino: Mr. Chairman - only because I know how punctilious you and your colleagues are about having the straight facts in front of you - Mr. Jackson was referring to the relative levels of government involvement in the economy and he quickly waved this document. Those of us at this end of the table thought he was reading a very different document. It is quite clear he was, because if we look at the same document, it refers to Canada. This is G-7 total outlays. This is from Mr. Martin. The total G-7 outlays for Canada in 1995 are 46.2%. The United States is 33.3%. So we are hardly just a shade above the Americans. Japan is at 35%; the United Kingdom is at 43%.

I only repeat this to you on this issue of where, Mr. Grubel, we stand in relation to total government outlays as a percentage of GDP as per what your own Minister of Finance has told us very recently. That's just to clarify.

The Chairman: We refer to this document as the gospel according to St. Paul, but we realize theologians may differ.

Some hon. members: Oh, oh!

The Chairman: Mr. Jackson.

Mr. Jackson: I'm sure Mr. d'Aquino and I could agree on the numbers and then debate the significant, but I was referring to page 80 of the economic and fiscal updates on a national accounts basis.

These aren't manufactured numbers. These are Mr. Martin's numbers. If you refer to it you will see program spending in G-7 countries on a national accounts basis. The U.S. is there at 30%, and the projection for 1997 is for us to be at about 34% or 35%.

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Mr. d'Aquino: Mr. Chairman, we were not talking about just program spending. We're talking about the total percentage of government spending in the economy. The reason you have to include debt servicing, Mr. Jackson, is this is something we owe to ourselves and to creditors. I was told not to say this, but you can't, as your great leader said, simply write it off and say it doesn't matter. It is there.

The Chairman: Thank you.

Perhaps we could start the wrap-up summaries very briefly with you, Mr. Roehr.

Mr. Roehr: It is our firm belief that the housing industry is not in decline and I think it has tremendous potential. We just want the opportunity to be part of the solution. Therefore we need to look at some of the impediments preventing the housing industry from performing up to the standards it can perform. These include taxation and regulatory reform, including the GST harmonization.

The Chairman: Thank you, Mr. Roehr.

Mr. Thibaudeau.

Mr. Thibaudeau: I would recommend we stay the course on the deficit debt reduction, urge the government to do a comprehensive review of the retirement system, and reject taxing premiums for health and dental insurance.

The Chairman: Thank you very much, Mr. Thibaudeau.

Mr. Jackson.

Mr. Jackson: I guess if I were to leave one point with you it would be this. The government has set deficit reduction targets. It has set inflation targets. A government truly concerned about jobs would also set targets for job creation. Were you to do this, you would be driven to consider the recommendations we put forward.

The Chairman: Thank you very much, Mr. Jackson.

Ms Plewes.

Ms Plewes: I would just like to underline the fact that since 1991-92 program expenditures have declined by 15%, defence spending by 28%, and development assistance by 42%. There has been a disproportionate cut to overseas development assistance. We would like to see some interim targets re-established to see this continue to grow.

Secondly, we've talked a good deal about the growth of the public sector and the private sector. We would also like to see some encouragement to the third sector, the voluntary sector. In this light we will be making some recommendations through the voluntary sector round table in a couple of weeks. Thank you.

The Chairman: Thanks, Ms Plewes.

Dale Orr.

Mr. Orr: I have just three points, Mr. Chairman. The first is again to congratulate your committee and Mr. Martin on moving to recognition that the state of our fiscal health is best indicated by the debt-to-GDP ratio. I would also like to say that under reasonable, if not optimistic, economic assumptions we're not going to be in a position of having any meaningful flexibility with fiscal policy until this ratio gets below 60%. This will be in about the year 2002.

The challenge in front of you, I think, is to spread this message beyond Mr. Martin to the Prime Minister and to his colleagues. I give you my best wishes on this.

The Chairman: Thank you, Mr. Orr.

Dr. Dolman.

Mr. Dolman: I'd just like to conclude with the following remarks. In Canada the quest for health has historically been a partnership among government, the private sector and the profession. One million unincorporated, self-employed individuals and their dependants - the fastest-growing sector of the economy, as it was pointed out earlier - cannot deduct their dental or health premiums. Every day in my practice I see the effect of this exclusion in human terms. I hope you, as a committee, recognize this fact and take some positive action this year to try to exempt these individuals.

The Chairman: Thank you, Dr. Dolman.

Mr. d'Aquino.

Mr. d'Aquino: Mr. Chairman, I have three quick messages.

First of all, Mr. Ross and Ms Plewes, I want you to know this. In my speeches over the last year and in our discussions with the BCNI, we have made it clear we believe the central issue of our times - it'll be the central issue that takes us into the 21st century - is how we can ensure the benefits of this great new economic revolution are more equitably distributed. Unless we are able to solve this problem, we will see a counter-revolution and we will lose it all.

The second message, Mr. Chairman, is that at a time when all governments are cutting back, corporate responsibility and contributions by corporations, leaders, the private sector and the voluntary sector are more important than ever.

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The third thing, Mr. Chairman, and I think I say this to you every year, is please don't declare victory yet. Don't give up. I remind you of one thing - and I've been around for a little while.Mr. MacEachen, Mr. Lalonde, Mr. Wilson, Mr. Mazankowski, and now Mr. Martin, all promised me and probably everyone around the table that the debt-to-GDP ratio was going to be turned around and we were on our way to economic and fiscal health. Today, $600 billion later, over 35% of every dollar is going to pay interest on the debt. That debt is still rising.

Don't declare victory. Please keep up the good work.

The Chairman: Thank you, Mr. d'Aquino.

Mr. Whyte.

Mr. Whyte: I guess our message is don't lose sight of the goal of having a balanced budget and deficit goal but also of job creation and entrepreneurship, on the other side...and somehow, how you increase confidence among entrepreneurs; not grant-entrepreneurs or people who know how to get money from government but those people who are creating jobs. We will give you some of that message again tomorrow.

There are a couple of things you can recommend. First, in unemployment insurance we're looking for a premium reduction, but also this committee could announce, or at least push in the budget to have, a suspension of UI premiums for new hires. Again, we're trying to find things that do not hurt the fiscal situation but could stimulate economic growth and job creation.

Again, we're working right now with the Canadian Life and Health Insurance Association on finding ways to enhance coverage for our members. We are responding to the social challenge. Our members do. They work in every community. They care about employment. We are trying to find ways. So we do strongly support a tax exemption for unincorporated self-employed people for health benefits. You can use that one.

Thirdly, let's have some stability with RRSPs. Let's not always have an axe hanging over that thing. Can we not announce something that's safe for quite a long time? It's very destabling, especially in a time of pension reform.

The Chairman: Thank you, Garth Whyte.

George Anderson.

Mr. Anderson: Thank you, Mr. Chairperson.

As I said, Mr. Chairman, I think over the years we've managed to make a number of recommendations to this committee about the broad framework. Our advice is not substantially different from the mainstream of what you're hearing here today. Where we've tried to add value is to alert you to the crisis of an earthquake in the lower mainland of British Columbia, which is consistently being ignored as a prospect and which will happen some day. I think it's time we got serious about being prepared for it, because all governments are carrying a $30 billion contingent liability here and continuing to pretend this is never going to happen.

The Chairman: Thanks, George Anderson.

Last, David Ross.

Mr. Ross: Thank you.

I would like the committee, if it can, to convey to the Minister of Finance, and particularly to the Department of Finance, one wish from my organization. It's that the economic policy-makers consider a broader range of indicators when they're trying to judge the efficacy and the desirability of change.

I admit the GDP, the CPI, interest rates, the TSE 300, the exchange rate, are all important. But if we don't legitimize and standardize some measures of child and adult health, of income distribution, of civic vitality, and of educational achievement, if we don't hold those right up there with these other indicators, then we won't have any long-run prosperity. It's simple as that.

The Chairman: Thank you, David Ross.

We have heard today from some of the most important groups in our country and their leaders. I think we've been very privileged, and it's a most important group that has been put together by our staff. We've heard from big business, small business, medium-sized businesses. We've heard from the advocates for those who are the poorest among us, those who are the poorest in other lands; we've heard from advocates representing organized labour. We've heard from the insurance industry, both general and life and health. We've heard from an important industry, the home builders, and from the dentists, also speaking, I am sure, on behalf of the medical profession in general in terms of the issues raised. It's difficult and dangerous for a chairperson to try to summarize, but let me tell you what I think I've taken from this, and what we've learned.

There is general agreement the monetary policy of getting interest rates down has been important. Everybody wants us to continue to fight the deficit, some people a little more quickly than others. There has been no indication that we should back off what we're doing at present in fighting the deficit.

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The question is what comes next, either when we hit zero financial requirements, when we balance the budget, or perhaps before that. One suggestion was that we should use that money to pay down the debt. Another was that we could reduce taxes. Nobody is suggesting across-the-board cuts, but selective cuts have been suggested by a number of people, particularly with respect to employment insurance.

People are worried about the well-being of Canadians, about jobs and the uncertainty. We have heard suggestions that we move to new expenditure programs; that we increase expenditures for overseas development assistance, which has been cut dramatically; that we need to invest in research and development, science and technology; that we need to recognize that we have a new dynamic, that we have a lot of new people living below the poverty line, with the biggest group now being Canada's children; that we have a need to examine comprehensively what the retirement needs of Canadians are going to be for decades to come and must deal with it; and that we have to take action on CPP, even if all of the provinces don't necessarily agree.

There is a telling plea for a disaster fund for something that could come with an earthquake, for example, and which could throw all of us off budget in terms of our attempts to deal with the deficit. There is a strong plea by a very important industry, the home builders, who say we have to work more closely with them in terms of some of their concerns about how we might have a better strategy for getting more houses built. We need health and dental plans for the self-employed. This committee has supported them in the past, and I believe we will continue to do so in the future. We hope deductions will come for those who don't have them, because we feel that is where the equity will lie. And again, the voluntary sector is a very important one to us.

From a number of you, we've heard pleas to end overlap and duplication. You've said to us that we're politicians, that we can sit down with our provincial counterparts and end the absurdity in Canada of having up to thirteen different jurisdictions sticking their fingers into the same regulatory pie. It just costs Canadians through increased taxes and through increased bother and labour in getting through that morass. That is the job that we as politicians must be held responsible for.

As I said, I'm delighted with not only the agreements we have heard, but the diversity of opinion. On behalf of all members, I thank you sincerely.

This meeting is adjourned.

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