EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 7, 1996

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[English]

The Chairman: Welcome. Thank you very much for being with us this morning. The Standing Committee on Finance of the House of Commons is very pleased to be in Halifax.

We have with us this morning, from the Association of Professional Engineers of Nova Scotia, Mr. Bob Baird; from the Nova Scotia Council for the Family, Mary Catharine McDonnell; from Dalhousie University, Michael Bradfield; from the Halifax Regional Development Agency, Peter F. Wilde; from St. Mary's University, Ervin Doak; from the Forest Group Venture Association of Nova Scotia, John Roblee; and from the Terry Fox cancer research scientist of the National Cancer Institute of Canada.... Is that the organization?

Professor Gerald C. Johnston (Department of Microbiology and Immunology, Dalhousie University; Research Scientist, National Cancer Institute of Canada): Actually, I think I'm representing more the National Cancer Institute.

The Chairman: Okay. I understand that one. Thank you very much, Dr. Gerald Johnston.

Perhaps we could start off with a three-minute presentation by each of you as to your major concerns and what you would like to see in the budget. We'll have lots of time to flush these things out later. We look forward to your presentations.

Maybe you could start, Mr. Baird.

Mr. Bob Baird (Current President, Association of Professional Engineers of Nova Scotia): Thank you very much. First of all, I would like to say that I appreciate being invited. I just became president a few days ago, so this is one of my first official activities. I don't know if you have a copy of the one and a half pages I had prepared. In any event, I just have a short preamble. My three minutes will certainly do me.

I would like to say that APENS strongly endorses the government's initiatives to reduce and eliminate the deficit and encourages it to hold the course in that respect. Finance Minister Martin has spoken about the desirability of a simpler, fairer tax system. We think that's the way to go. Anything that simplifies the current morass of taxes that we seem to be burdened with would probably benefit both the government and corporate Canada.

It does seem to us that the government's initiatives are going to have to address the job creation activities as well as deficit reduction. That is the basis of our very brief introduction.

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I'll just throw the following points out for consideration and perhaps they'll come up for discussion.

Our first point is that we'd like you to consider technologically based tax credits that would be instituted to encourage businesses to expand their technological infrastructure and capability.

We'd like you to in fact review the rationale for the current corporate tax structure on technologically based business with a view to eliminating it. It really doesn't account for a lot of money in the coffers of the government, and recognizing that small and medium-sized businesses have assumed the dominant role in job creation, an initiative that will allow, or at least accommodate, a reinvestment of at least some portion of pre-tax income would be a positive stimulant to economic growth.

We'd like to say that grants should be eliminated and replaced by a forgivable loan structure where the forgiveness was tied to achievement and merit.

Finally, with the technologically based industry rapidly expanding its export component, consideration should be given to a reduced tax rate on sales in this sector to encourage aggressive corporate activity.

The Chairman: Thank you very much, Mr. Baird. That was very precise.

Mary Catharine McDonnell, please.

Ms Mary Catharine McDonnell (First Vice-President, Nova Scotia Council for the Family): I'm here today representing the Nova Scotia Council for the Family. The council is a coalition of service providers, government representatives, and community leaders who are interested in working together to develop and deliver quality services for children and families in Nova Scotia.

I'd like to remind the committee that the United Nations Convention on the Rights of the Child, signed by Canada, states:

In all actions concerning children, whether undertaken by public or private social welfare institutions, courts of law, administrative authorities or legislative bodies, the best interests of the child shall be a primary consideration.

This principle of first call for children in all economic, social and political decisions, policies and programs is supported by the council through our mission. We're concerned that the failure to support development in childhood has a massive impact on society's capacity to develop in the future. The lost potential starves the economy of the human capital needed to ensure future growth and equitable development.

The convention called for the right to survival, the right to development of children's personalities and talents, their full physical and mental potential, the right to protection from harmful influences and the right to have their views respected and to participate in family, cultural, and social life.

Our real concern is the eradication of child poverty. We believe there needs to be a national strategy to eliminate family poverty that takes into account nutrition, housing and child care choices; to maintain a strong federal role in income redistribution, which ensures a family income adequate to ensuring healthy childhood development; to fully index the child tax benefit for all poor children in a family; and to develop strategies for youth employment that take into account the realities of a jobless recovery and the uncertain future of work.

Finally, the failure to support development in childhood has a massive impact on society's capacity to develop in the future as the lost potential starves the economy of the human capital needed to ensure future growth and equitable development. We are concerned about the human deficit that would be provided if these things aren't looked at within the government's policy.

Thank you.

The Chairman: Thank you very much.

Next, from Dalhousie University, Michael Bradfield, please.

Professor Michael Bradfield (Department of Economics, Dalhousie University): I should point out that I don't represent Dalhousie University. I'm a member of the economics department, and I assume that's the context in which I was invited to attend.

The Chairman: Go ahead and speak for them anyway. They have no other representatives here. We'll give the students more than equal time, then.

Prof. Bradfield: It seems to me there are a number of fundamentals that have to be dealt with before one talks about specific policies.

First of all, the deficit is not the problem the hype has pretended it is. The real problem facing Canada is the massive level of unemployment. I would argue that even the Department of Finance, which has been responsible for much of the overblown rhetoric on the deficit, seems to not really believe its own rhetoric.

For instance, back in 1985 and 1991 they pushed Revenue Canada to give concession decisions that allowed $2 billion in trust funds to be transferred to the United States untaxed. In 1985 it's not clear what department pushed Revenue Canada to grant a $500 million tax relief for the purchase of Gulf Oil, even though Gulf Oil at the time was already Canadian.

I would argue that some of the policies of the government clearly have not suggested the deficit's the problem, since they've been willing to give away tax dollars so freely.

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Also, in the 1970s and the 1980s governments of both Liberal and Conservative stripes cut taxes to the corporation upper-income levels. This was responsible for roughly 50% of the growth of the debt in the 1980s. So if one wanted to deal with the deficit created in the 1980s, it would seem to me one would reverse the policies that created it. The other policies that created it, that created 44% of the deficit in the 1980s, were the high interest rate policies, which have only been partially corrected in the last few years.

If we had full employment in Canada, output would rise by something between $70 billion and $100 billion. At the average tax rate in Canada, that would raise revenues anywhere from $20 billion to $35 billion. Therefore, if we were to go for full employment with government expenditures to do that, we would almost pay for the government expenditures by the increase in tax revenues and by the decrease in social assistance, the decrease in unemployment insurance payments, and by the decreases in health costs, which rise when the economy is in depression.

Therefore, I would argue that the way to use a budget to help this economy is not to fight the deficit but to fight the unemployment. If the deficit problem has diminished enough that people can talk about tax cuts, then I would argue we shouldn't be talking about tax cuts, we should be talking about re-weaving some of the social problems that have been so badly shredded by the policies of cut and slash. Things like transfers from the federal government for health and education, and the Canada Assistance Plan, have to be restored. They can't be cut further as is presently intended.

The other piece of the puzzle is that about $50 billion of our current debt has been created by a Bank of Canada policy of reducing and then eliminating reserves on chartered banks. I would argue that what we have to do is restore those reserves on chartered banks and apply them to all financial intermediaries, because the rationale for getting rid of them was that only the chartered banks had to keep those reserves and therefore they had a competitive disadvantage with respect to other financial institutions.

So the way to make the playing field level is in fact to put reserves on all of the financial institutions. This would mean then that the Bank of Canada, in order to keep the money supply from collapsing, would have to buy up more of the debt. That debt is interest free, because the interest is returned to the federal government at the end of the year and we would save, depending on the interest level, anywhere from $5 billion to $12 billion per year by doing so.

I think there are some substantial things that could be done without cuts, things that would stimulate the economy and make this a much better country.

Thank you.

The Chairman: That's very interesting. Thank you very much.

Peter Wilde, please.

Mr. Peter F. Wilde (Halifax Regional Development Agency): I'm a chartered accountant in public practice servicing small family businesses. I'm a member of the Nova Scotia institute taxation committee and I'm here today really to speak on behalf of the Halifax Regional Development Agency.

The first thing I would like to say is that the volunteers included in working with the development agency are really appreciative of the contribution that all three levels of government are making to enable the agency to work with communities and people at the grassroots level to make things grow and happen. I think that's probably a very effective way to ensure economic success for Nova Scotians.

As far as taxation and budgets and deficits go, I think the message I need to deliver here today is that there's a great deal of common sense in the approach adopted by the Minister of Finance in his budgetary measures in that he doesn't say, knee-jerk, this is what we're going to do and we're going to do it now. He's tended to say this is what we're going to do and this is when we're going to implement it, which gives us time to adjust to the proposals before they actually get put into place.

Having said that, the federal government is ahead of its deficit projections. That's wonderful. Don't waste it. Let's use it to get the deficit and the debt reduced to the point where we can go forward.

I'm not a big advocate of running deficits. I remember in my youth reading David Copperfield, from which I'll paraphrase: Mr. Micawber, if you spend less than you earn, you're in good shape, and if you spend more than you earn, you're in trouble. Canada has spent far too many years spending more than it's earned. Therefore, there's trouble, and we all have to pay for it.

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I have to tell you, as a result of the policies that have been put in place I've seen more business failures come across my desk in the last two years than I've seen in the previous twenty. I also believe very strongly that everybody is less well off now than they were in 1992, but I believe most people accept that it's a worthwhile sacrifice to make to keep things going in the right direction and to build a good future for our children in Canada.

We at the RDA were very distressed to learn that last year in Nova Scotia, lotteries and gambling created more economic activity than the fishery. In other words, in Nova Scotia we now have more people spending money on gambling than we have earning money in the fishery, which previously was our biggest single economic activity.

We strongly endorse proposals that would create effective new employment. We can't go out and throw money at stuff. That's been happening ever since I was fortunate enough to come and live in Canada in 1974. It hasn't worked. If we're going to create jobs, they must be meaningful jobs, and they must generate wealth for Canada. It's no good putting a massive bureaucracy or subsidized payroll in place. We shouldn't be taking taxpayers' money to fund businesses to compete with those taxpayers.

If we want to create more economic activity and if we want to make it easier for small business to create jobs, a major factor that time and time again comes across my desk is that employment taxes, which Canada Pension and what is now called employment insurance.... I believe there's significant room in the premium structure, especially in employment insurance, for these to be very greatly reduced. It then would be a lot easier for any employer to hire new people and give them a chance.

The other thing that upsets me is the change in the legislation involving government guarantees for small business loans with the chartered banks. Traditionally, there's been a 2% premium paid up front by the borrower. Recent changes now mean that not only is there a 2% up-front cost but there's also a 1.5% annual cost. The government charges that to the banks to guarantee their loans, but you know where the banks are going to get their money from. It goes right through, and essentially it costs small business borrowers more to do it under the new regime than under the old one.

That's all I want to say just now. Thank you.

The Chairman: Thanks very much, Mr. Wilde.

Mr. Doak, please.

Professor Ervin Doak (Department of Economics, St. Mary's University): Thank you,Mr. Chairman. I appreciate the invitation to come here this morning.

Someone asked me, when he heard I was coming here, why I would go, because it wouldn't make any difference. Those people do whatever they want anyway.

But I don't believe that. I appreciate you people coming here and giving us an opportunity to voice our feelings. I know you have your personal lives to handle, too, and you're making an effort to come down here.

The Chairman: I can assure you, this committee does whatever it wants anyway -

Some hon. members: Oh, oh!

The Chairman: - but we do it based on what we hear, too.

Prof. Doak: Sure. I believe that. I think we're all the same way. I very much appreciate your efforts.

I have made up a list of nine points. I'm sure most would agree with these. They're very general things.

On the concern over the deficit, I agree that it should be reduced. I don't know if it can be eliminated but certainly it can be constrained. I think it should remain our priority. We can keep it down by increasing taxes or reducing spending.

I guess I lean toward trying to keep expenses down. I don't think anyone in the country wants to see taxes continue to go up. Expenses have to be curbed. I think we have to find ways to keep our spending down.

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We've been fortunate for the last two years or so with the way interest rates have been moving. They are at historic lows. The rates we're seeing we haven't seen since the 1950s and 1960s. The government has benefited from this, but I'm afraid this may be short-lived. With the recent Canada savings bond issue they've come out with, they're predicting that interest rates are going to be going up in the future.

I think we have to be ever-vigilant on these debt charges. We have to find ways to keep bringing the deficit down other than relying on lower interest rates.

We have to establish priorities. When it comes to setting priorities, I think we have to give our concern to the sick and the poor and the aged. These are the people we have to be concerned about.

Let's not waste our money. Let's not gamble on risky business. In the last few weeks in Nova Scotia I've heard about a couple of businesses that have failed, where government had simply thrown millions of dollars at it. It's very sad to hear about these cases, especially when we have a lot of people out of work, having a hard time of it.

I was reading in The Globe and Mail yesterday about the fact that the Department of Finance is now trying to move more in the direction of internal financing of its debt. I think this is a great effort. It doesn't entirely meet what Mike Bradfield was talking about - and I agree with a lot of what Mike has to say about trying to rely more upon the Bank of Canada - but the more we can finance our debt internally, the greater it's going to be, because it's going to save a lot of money.

A final point that occurs to me is that if we're having a hard job financing health care in this country, and maybe education, perhaps we should look more at trying to relax any constraints we have on the generation of private health care or private university financing.

That's all I have to say for now, Mr. Chairman.

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

Mr. Roblee.

Mr. John W. Roblee (President, Forest Group Venture Association of Nova Scotia): I'm starting to feel like a rock in a diamond factory this morning.

Some hon. members: Oh, oh!

Mr. Roblee: I'm a small woodlot owner from Cumberland County. I'm representing here19 forest management companies.

I want to begin by thanking the finance committee for the opportunity to once again be here to discuss the upcoming federal budget of the Hon. Paul Martin. This is my third presentation to this committee. It's most interesting that my predictions made in 1994-95 have come to fruition.

We have to disagree with an article in The Chronicle-Herald of October 29, 1996, in which the Atlantic Institute for Market Studies, a business think-tank, stated that large increases in regional subsidies in Atlantic Canada have had an adverse effect. I'm speaking this morning on forestry, but I have other concerns in rural Nova Scotia in other natural resources sectors.

The withdrawal of federal funding in forestry has affected our provincial group venture association - and we're owned and directed by small woodlot owners - reducing members from19 to 12 companies and cooperatives. We lost over 200 full- and part-time jobs, highly-skilled persons, in rural Nova Scotia, with not so much as a whisper coming from the industry, governments or the media. In most cases, we as a sector can supply only short-term summer employment, whereas before, with some assistance with the federal government, we supplied year-round employment.

The Province of Nova Scotia has put what they feel they can into the private woodlots, but with so much demand and not enough dollars, the forests of Nova Scotia are very quickly going the way of the cod fishery. If we're not there, we're very close to it.

We as a sector received very little funding for silviculture programs, the most cost-effective and efficient method of maintaining the provincial allowable annual cut.

To encourage present and future industry to stay and grow within the province we must move the poor-quality fibre out of the way to encourage higher-quality, value-added fibre, as well as protect the wildlife, environment and water quality. Is the federal government satisfied with short-term gain - that is, in the deficit - for long-term pain in fisheries, forestry and unemployment? That's what we're facing here.

We as a sector were paying our way in personal taxes, commercial taxes, job creation, etc. Last year I mentioned to you that you would be killing a sector that was paying the tax revenues you, as a federal government, required to pay down the debt. Mr. Martin is well on the way toward accomplishing this task.

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What will industry be using for fibre in our province, in New Brunswick, and on Prince Edward Island ten years from now? Just as blood carries life to the body, wood fibre keeps life in the forest industry. What will tourism be like ten years from now? With large clear-cuts continuing, ecotourism will be greatly reduced. The federal government does not have the jurisdiction with regard to natural resources within our province, but that does not mean it cannot help.

Woodlot owners in our province and in the rest of Canada have been waiting for years for changes to personal taxes under the Income Tax Act to allow them to pay for improvements within their woodlots. I believe I've been asking that for the last three years, so where are those changes? Why is the federal human resources department not working with this province to create long-term, skilled-employment opportunities for rural Nova Scotia?

Until the Hon. Paul Martin and the federal finance department realize the value of the forests - the long-term employment, the tax revenues, the recreation, industry development and environmental concerns - this province and our nation is in trouble. When we met in Lunenburg two years ago, I asked that you give us the tools to solve our problems. I am still asking.

In closing, I would encourage Mr. Martin and his department to be creative when developing the new budget. Listen to what the people are telling you, and in so doing you will enable Canada to balance the budget and will ensure that Nova Scotia and the rest of Atlantic Canada has a healthy and productive forest for future generations.

Thank you.

The Chairman: Thank you very much.

Gerald Johnston, please.

Prof. Johnston: I also thank you for the opportunity to come to talk to you. I think I'm actually here to represent the National Cancer Institute, but first and foremost I'm a research scientist. What I'm going to say therefore probably sounds self-serving, and it probably is.

What I'm concerned about, and what I wanted to raise with this committee, was the issue of the state of funding for medical or biomedical research in this country. I'm kind of here to rail at you, and that's what I'm going to do.

The Chairman: Go ahead.

Prof. Johnston: I think you've already been bludgeoned about this once by the Council for Health Research in Canada. I'm sure they brought to your attention the fact that funding for biomedical research in Canada is rapidly making Canada into a developing country as opposed to a so-called developed country. I think you've all seen various kinds of graphs and trends - such as those that I have here - whereby funding for research, highlighted as ``Canada'', is actually going down.

I'm here to signal an alarm: Canada is rapidly losing, and maybe already has lost, the competitive edge for its knowledge-based, biotechnology-driven industries. These are the kinds of things that are going to take us into the next century. Perhaps more to the point, we cannot support a cutting-edge health delivery system without a viable and vibrant research community. This becomes particularly important in areas such as Nova Scotia or regions of the country where there are not the private funds and other sources of funding for research.

I'm also the head of a department in the medical school at Dalhousie University, so I see the devastating effects that underfunding and a lack of funding for research has on our younger scientists, on people starting to get their careers going. More to the point, I see what it does to people thinking about careers in science. Quite frankly, they're thinking about going somewhere else. They're going to other countries, and mainly because they recognize that there is no future here. So that's the tragedy that I'm alerting you to, and the thing that just makes me so livid is that these are lost opportunities.

You folks should appreciate that these kinds of high-skilled activities are a magnet for all kinds of pharmaceutical and biotech industries. We're talking about huge sums of money that dwarf what we're talking about here with a $50 billion.... That's peanuts for these huge pharmaceutical firms. They're going to places like Switzerland and places in the U.S., where there is a vibrant community of researchers who will support their activities. If we ignore this, we're missing the boat when it comes to job creation and adding economic value to the dollars that we spend.

Can I just give a quick anecdote? I was invited to give a talk to Glaxo Wellcome in London, England, a couple of months ago. They have located in Stevenage, just north of London. They spent $1.5 billion to put together a complex of research labs. This is a for-profit company. The only thing they have motivating them is making money, and they find it worth while to invest that kind of money in basic science.

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What's wrong with us? Do we not see something that they see and that everybody else sees? I'm here to alert you to the fact that we're going to miss the boat if we're not careful, because we're allowing our research community to slip below the level at which it can successfully compete worldwide. We're into a global economy, and there are few places in Canada that can still do it. Downtown Toronto can do it, and places in Vancouver.

But as a country I think we're missing a tremendous opportunity to see something really good happen and position ourselves for the knowledge-based and biotechnology industries of the future. I think it resonates in the number of things I've heard here about creating economic wealth as well.

Thank you very much.

The Chairman: Thank you.

Next we have Pauline Raven, Joanna Latulippe-Rochon and Joyce Beaudry.

Ms Pauline Raven (President, Nova Scotia Association of Family Resources Projects): We're here on behalf of an association of family resource projects in the province that are largely funded under the community action program for children. We're here because something that was planned for the 1997-98 fiscal budget - namely, $68.4 million to support Canada's poorest families - is slated for a 51.9% slash. If this is allowed to happen, only $33 million will remain.

We feel this 51.9% cut is heartless at a time when the child poverty rate is rising. The number of poor children in Canada has increased by 55% since 1988. This leaves us questioning whether a mathematical error was made. Perhaps the bottom line was to be multiplied by two, but instead someone divided.

While no logical explanations can be given to justify cuts to CAPC, there are many firm reasons for increasing the financial contribution to this program. As project sponsors, we have been given no details whatsoever regarding the reduction in support other than that this was a decision made in the first months of 1995. Our best guess is that when bottom lines were under review the CAPC envelope was targeted because it contained money that was uncommitted beyond the fiscal year of 1996-97.

I'll now turn it over to Joanna.

Ms Joanna Latulippe-Rochon (Secretary, Nova Scotia Association of Family Resource Projects): First what I want to say is that the community action program for children has had very favourable reviews from all kinds of experts. Their evidence is available through this Parliament's Standing Committee on Health investigating preventive strategies for children. This committee is hearing over and over again from presenters that CAPC is the way to go.

Second, the community action program for children is a value-added program, which means very cost-effective. In local communities across the country, 450 community-based groups are using CAPC dollars as a financial base, which rolls out farther and farther as income contributions, proceeds of fund-raising events, and volunteer services are added.

Third, CAPC is a primary health care initiative. It provides a plenitude of programs that promote health and prevent harm. Most notably, we provide families with parenting, education and support, and we provide children with opportunities for early learning experiences that meet their physical, intellectual, social and emotional needs. By spending a relatively small amount of money now, we can avoid spending substantial dollars later to treat related problems that can surface if these needs go unmet.

We feel the time is past due for governments to recognize the absolute necessity of long-term planning. Canadians need leaders who will no longer sell us short by applying short-term solutions in place of sound strategies that will carry us toward a better future. We believe this is the kind of leadership that Canadians deserve.

Fourth, the child development initiative, of which CAPC is a part, was generated as Canada's response to the United Nations Convention on the Rights of the Child. In 1989 we made a commitment to ourselves and in fact to the world community when every parliamentarian voted unanimously to eliminate child poverty by the year 2000.

Now, in 1996, Canada has the second highest number of poor children among eighteen industrialized countries, and more than one in seven Canadian children live in poverty. Shockingly, our aboriginal children in Canada are living in Third World conditions. We know the international community is very aware of Canada's record, and as Canadians who truly care about our children, we are both disheartened and embarrassed by Canada's performance.

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Ms Joyce Beaudry (Director at Large, Nova Scotia Association of Family Resource Projects): Obviously programs such as CAPC, which can reverse current trends, should not be cut. We must find the financial resources to enhance efforts to eliminate poverty and its devastating effects on our economy, but where will the money come from?

We believe there are many sources of revenue that must be accessed without further delay. We need to enact the Auditor General's report of 1995. This report recommended the government step up efforts to close tax loopholes. The focus, the Auditor General said, must be on large corporations, particularly those with extensive domestic and foreign operations who have significant opportunities to enter into tax avoidance schemes.

The effects of these loopholes are astonishing to ordinary Canadians. In 1992 alone, the last year for which complete statistics are available, 66,000 corporations with combined profits of$14.7 billion paid not one red cent in income tax.

It is reprehensible that the Hudson's Bay Company in 1995, with a pre-tax profit of$269 million, paid no income tax. In the same year deductions for business meals and entertainment - lunches, dinners, SkyDome tickets, etc. - cost the federal treasury $300 million. Add to these losses deductions of lobbying expenses by corporations; for example, the tobacco industry cost the federal treasury an additional $50 million. As well, publicly chartered banks raked in $5 billion in profits in 1995.

It is estimated that if an excess profit tax were applied to only the profit above an acceptable rate of return, the federal treasury could have collected $300 million.

From just the examples cited here, the Treasury Board is missing considerable revenues totalling $919 million, and in light of this we feel there is no justification for a $35 million clawback of CAPC funds.

If the finance minister cannot find the means to collect owed dollars, perhaps reductions could be applied differently.

Estimated cost for one EH-101 helicopter is $82.8 million. Our government may purchase as many as fifty of the EH-101s, for a total cost of more than $4.14 billion. For a fraction of the cost of one helicopter, only $2.7 million, over 3,000 Nova Scotian families could continue to benefit from a highly successful community action program for children.

We leave the finance minister with the following directive from the Liberal Party plan for Canada:

We must give our children the best possible start in life, investing our resources to help the most vulnerable children overcome some of the difficulties that limit their life chances from the very beginning.

The Chairman: Thank you very much, Ms Beaudry.

Next is Brad MacKay, president, and Chris Lydon, vice-president, of the Dalhousie Student Union.

Welcome. You have an opportunity to get back at your professors here.

Mr. Brad MacKay (President, Dalhousie Student Union): Thank you very much,Mr. Chairman. On behalf of the Dalhousie Student Union and students at Dalhousie, I'd like to thank the finance committee for giving us an opportunity to make a few comments here.

I should preface what I'm about to say by saying that I'm a former student of Dr. Bradfield, so I can hardly disagree with what he had to say.

The Chairman: Did he give you a good mark?

Mr. MacKay: It wasn't bad, but I guess after this session you can tell me if I learned anything, Dr. Bradfield.

The concerns of students both at Dalhousie and Nova Scotia today are revolving around such issues as accessibility to education, expenditure on education, and an increasing indebtedness that students are taking on in order to receive an education, which eventually becomes a barrier to education.

I think in recent years education and such programs have come to be seen as more of an expense of society as opposed to an investment by society. Our argument is that the success of Canada and the competitiveness of Canada have been built around such programs and a first-class educational system.

We would argue that financing for education must be maintained, if not bolstered. With that being said, I think Chris has a more formal statement to make.

Mr. Chris Lydon (Vice-President, Dalhousie Student Union): I have the benefit of wearing two hats, one representing the Dalhousie Student Union and the second representing a member school, the Canadian Alliance of Student Associations, which across the country represents close to 200,000 students. With both of those hats on, I will read some of the formal statement regarding accessibility of post-secondary education, which directly relates to the committee in terms of its block funding grants to the provinces.

Any society must encourage and cultivate the knowledge and creativity of its citizens if it wishes to be successful. Post-secondary education provides knowledge and creativity as well as skills, which must be available equally to all citizens. Thus, as a nation we must strive to maintain a high level of accessibility within our post-secondary system.

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There is much discussion as to what is meant by accessibility. For our purposes we will define two forms of accessibility with which we must be concerned.

First, there is absolute accessibility, which ensures that there are adequate spaces available for all qualified students. We must also consider how equitably the student places available are distributed between individuals of differing social and economic groups - in this case, relative accessibility.

Absolute accessibility may be maintained if there continues to be a high level of government funding to ensure that an infrastructure is in place to serve a large number of qualified students. In order to maintain high relative accessibility, consideration must be given to students' abilities to meet the costs associated with education, including tuition, books, travel, supplies, and the cost of living.

Whereas a variety of costs affect a student's ability to receive post-secondary education, we cannot look at tuition as the only barrier to accessibility. Low tuition does not guarantee high relative accessibility. If the average yearly income of a student does not surpass tuition by an amount adequate for servicing the cost of living, low relative accessibility can be assured.

In order to assure high relative accessibility, education must be affordable. This demands a generous and equitable system of financial aid across the nation.

A successful financial aid program must also deal with the issue of student indebtedness. An increase in the average indebtedness of students will dissuade those who would not normally be able to incur a high level of debt from borrowing to finance their education. For those from an economically disadvantaged segment of the population, short-term affordability is a more significant factor than a theoretical calculation of increased lifetime earnings.

Thus, if the level of financial assistance available to all students is constant, the average end distribution of debt is a reasonable measure of the accessibility of education. If tuitions rise, yet the average end distribution of debt remains constant, accessibility may be maintained.

Therefore, student debt must be capped at a reasonable level. This may be achieved through a combination of grants and debt remission programs, which would forgive student loans beyond a certain level. This presupposes that the loan program has eligibility criteria broad and equitable enough to meet the needs of all students.

Now we must educate our citizens. All citizens must have equal access to education based on qualifications. Adequate funding and space need to be available to accommodate all qualified students, and to achieve this government funding must be maintained and a generous system of student aid, which caps debt at a manageable level, must be established.

The Chairman: Thanks very much, both of you.

Mr. Grubel, would you be good enough to start off the questions, please? You have only an hour and 15 minutes.

Mr. Grubel (Capilano - Howe Sound): I'm always surprised when I hear an economist say that there is something for free. One of the most fundamental propositions in economics is that there's no such thing as a free lunch, so when he promises Professor Bradfield that he will suggest we go to the Bank of Canada....

The Bank of Canada somehow ``costlessly'' raises how many billions, Professor Bradfield?

Prof. Bradfield: I'll go for $58.549 billion, using 1994 data.

Mr. Grubel: How many billions of dollars?

Prof. Bradfield: That's $58.549 billion.

Mr. Grubel: Since there is no such thing as a free lunch, where exactly does the extra $58 billion come from?

Prof. Bradfield: The Bank of Canada will buy the government bonds, which will expand the money supply. The other half of the policy is to return the reserve requirements, which would mean that the chartered banks and other financial institutions would again have to hold reserve requirements.

Effectively, what it does is this. The banks are currently operating with something like 1.5% reserves. If we return them to 6% reserves, it would mean that a part of their money - up from 1.5% to 6%, a 4.5% increase of their assets - would have to be held in reserve as opposed to be out lending money.

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You're right, there's no such thing as a free lunch, no more so than there is such a thing as a free market. What we really have going on, in my proposal, would be that the banks, with their record profits, would end up having less high profits and they would increase -

Mr. Grubel: [Inaudible - Editor]

Prof. Bradfield: [Inaudible - Editor] -financing the reserve requirement increase that I'm calling for.

Mr. Grubel: The banks, of course, have to get capital from international markets, and the people who lend money to them so they can operate will not give it to them unless they have a certain rate of return. How big were the bank profits last year - $5 billion altogether, $4 billion? How are they going to pay $58 billion?

Prof. Bradfield: The banks are not paying $58 billion. You taught economics long enough to know about the multiple deposit creator. If the Bank of Canada holds more money, then the bank generally holds more bonds. That puts more money into the chartered banks, and that's money that they can lend out. As Ervin pointed out earlier, we shouldn't be borrowing in international markets because that drives up our exchange rate, which then cuts our exports and increases our imports.

The banks would get more money because the Bank of Canada would be holding more bonds. So it's not that they're going to have to go out and find money. They're going to get the money from the expansion of the money supply initially from the sale of bonds, which is then controlled by the return of the reserve requirement. So the proposal would be to balance the increase in the Bank of Canada's holding of government bonds with a matching increase in the reserve requirement.

If you're worried about bank profits - personally, I am not - one would have to wonder.... If banking in Canada is such a tough thing and they're working at bare-bones levels of profits, why do the banks want legislation, and have legislation, to keep foreign competition out? If things were so tough in Canada, foreigners wouldn't be interested in coming in.

Mr. Grubel: The finance committee just issued a report in which the Reform Party wrote a minority submission supporting the opening up of the banking system to foreign competition, so that the profits would be normal. The thing is that when you take the return on equity of the banks, they are right down the middle of all the rates of return on equity of all the corporations in Canada.

I would urge people who fall for this mirage of something being free, it must be true by definition.... If one takes whatever number of billions of dollars - $58 billion is totally staggering - and give it to the government as a revenue, it has to come from somewhere, and it comes from taxes. Somebody has to pay it. If it is the banks, they are not going to roll over. They're going to pass it on to the consumer, and Canadians ultimately will have to pay this. There is no such thing as a free lunch.

Mr. Chairman, I'd like to ask a question of Ms Raven.

Where did you get your number of children living in poverty in Canada?

Ms Raven: From the UN report on the nation, from the Canadian Institute of Child Health, and from numerous other sources at both the international and national levels. Lots of people are concerned about children living in poverty, and they are trying to be very responsible in the figures they are using.

When we looked at our figures, we looked at the most conservative figures we could find. We could have found more outrageous figures than the ones we tabled here today.

Mr. Grubel: Could you enlighten me with the definition of poverty?

Ms Raven: It differs depending on whether it's in an urban setting or a rural setting. For example, the poverty line for a family of three in an urban setting is set at about $1,800 per month. The families we work with are largely living on $1,000 to $1,500 a month, and that would be for a family of three or four. So these are subsistence amounts, and these families rely a lot on their neighbours and on food banks. The use of food banks has doubled in the last five years in Canada.

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People are not trying to exaggerate the desperate plight of Canadian families. I think it's incredibly heartless to think that non-profit organizations are doing that. We're working on a day-to-day basis with these families, and we see their desperation as well as their courage, because they are managing their dollars far more responsibly than the banks are, than the Hudson's Bay Company is, than the Irvings of the world are. These people, for the most part, are good, honest people who do not have the advantages that you and I may have of a decent education. For whatever reasons, they've been shut off from that.

All we are at the table to say is, let's do the right thing, not something that some fancy economic formula requires. Let's look within our hearts and do the right thing. We can do it. These are not huge dollars to raise to do the right thing by Canada's children. If we truly want to eliminate child poverty by the year 2000, it would be a relatively simple thing to do, especially with the brains we have around this table alone. I'm sure we could figure it out.

Mr. Grubel: Ms Raven, I am extremely sympathetic. Every child living in poverty is a blemish on our society. We should do something about it. I most strongly welcome what you're doing and the sentiment of what you're expressing.

The only concern I have is whether or not you're serving our cause by saying that one in seven children is living in poverty. Some people have studied how the numbers were derived. They come from Statistics Canada. I have here in front of me the tables. It says, low-income cut-off for family unit. These are not in poverty. These are the bottom 20% of the income distribution. One can see here that in big cities, for a family of four, anybody who is making less than $31,000 lives in poverty.

The average income of a worker in Canada in manufacturing, working full-time, is$30,000. That is the reality. We all wish income was higher. If as an individual you make more -

Ms Raven: Excuse me. Most families in Canada are double-income families. Families need to have double incomes, not one worker but two workers, in order to maintain this lifestyle that they want for their families. We cannot use this figure to say that average Canadians are poor, generally speaking, so we shouldn't be concerned about one child in seven that's living in poverty.

As I said, the families we're working with are not earning $31,000 for family income. They're often earning $12,000 for family income or even less. The working poor in Nova Scotia sometimes are living on $8,000 a year.

Mr. Grubel: Madam, I agree with you. This is terrible. But don't destroy the case for the need of helping those by saying they're as numerous as they are, because the numbers on which this one in seven is based come from Statistics Canada and simply say that 20% of all Canadians are relatively poor.

The trouble with these statistics you're reciting is that to say it's one out of seven is an exaggeration. If tomorrow the income in Canada were to double, and everybody has twice the amount of income they have now, we would have exactly the same number of poor people and the generation would say one in seven is living in poverty even though income has doubled.

Ms Raven: I would differ entirely, and I think Statistics Canada is seen as a world-class organization in terms of the figures they put forward. That figure is arrived at from a point of view that when you look at the cost for that family they have very little margin for emergencies or for anything that would improve their quality of life. So actually it is quite a quotable figure in terms of the standard of life for Canadians.

If we define poverty as only being able to eat, that's a very narrow definition of what poverty entails. Poverty entails a very poor quality of life.

Mr. Grubel: Thank you very much. I appreciate it. I would certainly vote in favour of restoring this kind of money. I'm sorry you don't appreciate what I'm trying to say. You're running away with rhetoric that will harm your own cause. But you do whatever you please. Thank you very much.

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Ms Raven: Everybody has their own point of view and their own bias. You obviously have yours. I claim my bias; I'm part of it.

Mr. Grubel: We are having a discussion, an exchange of information. All I am saying is that if you live in downtown Toronto you're considered to be poor with a family of four if you make more than the average Canadian worker does in Canada. There is something wrong with that number.

There are poor people, there are really true poor children, and we should go after them. This country has not failed. It is not good for the morale of this country or for getting support for your very worthy cause to so severely exaggerate the problem.

Thank you.

The Chairman: Do we have figures to break it down by income? If one in seven includes people in Toronto who have a family income of over $30,000, what percentage of Canadian children would be living with families of income of under, say, $15,000 and under $10,000? Do we have figures on those? I am sure we could get them.

Prof. Bradfield: There are data that are cross-classified by a number of different categories, so you can get them. Dr. Grubel's interpretation of low-income cut-off is totally inconsistent with how they are derived.

As was pointed out to him, the low-income cut-off is based on what the average Canadian family has as discretionary income. It goes back to a report, I think in 1965. The data that were cited for a 50% growth in child poverty are totally consistent with the data developed by Statistics Canada and by the Canadian Council on Social Development. There is no rhetoric in the presentation we received today.

Child poverty has increased in Canada since the mid-1980s and there's no way of getting around it. To claim that the low-income cut-off is based on a 20% figure is just blatantly wrong.

The Chairman: All I heard - and I'm an agnostic on this issue, we all want to look after children - is Mr. Grubel saying that this would include a family of four in Toronto with a family income of $31,000, which is about the average industrial wage for one individual. Am I missing the boat on this?

Ms Raven: It's not a comparative figure.

Prof. Johnston: I'm sorry, I'm somewhat apolitical. What's the issue here? This is good debating, but surely we're here to do more than that, aren't we?

Mr. Grubel: I appreciate that.

Prof. Johnston: I think this is uncalled for, and I really object to this kind of interchange. I object to it on your part, and I recognize what's going on here. If you want to be a debater, then I suspect this might not be the right forum. I'm a little put out.

The Chairman: It's my fault, Dr. Johnston. I asked if there were figures that would show the breakdown because -

Prof. Johnston: It's not your fault.

The Chairman: there's a very strong -

Prof. Johnston: There are serious issues here. Let's stick with those.

Mr. Grubel: The position we're coming from is that we hear witnesses like this gentleman from Dalhousie, and they have these wonderful solutions for these huge problems. We're trying to understand, having studied these problems, what it is exactly they're driving at. Maybe they have information we don't have, so we need some sort of interchange.

That is my objective in it. Sorry.

The Chairman: Thank you.

Yes, Professor Bradfield.

Prof. Bradfield: I should point out that I gave staff copies of two papers I have produced in the last couple of years, which have some of the statistics and background information for the comments I've made today. There are multiple copies that I gave the staff. They can be available immediately if Dr. Grubel would like to see them right now.

The Chairman: Thank you very much.

Yes, Mr. Wilde.

Mr. Wilde: I have a couple of questions that don't necessarily have to do with child poverty. I'd like to respond to some of the points that have been made by other witnesses. Is that allowed at this time?

The Chairman: Sure.

Mr. Wilde: I would address this comment to the students. At my firm, we offer work terms for co-op university students for three and four months at a time. We advertised one such job last year at Dalhousie University. For one job, we had I think 35 applicants.

The first thing we looked at were the marks that the students reported to us on their courses. It's my understanding that the maximum grade point average they could get is four. There were only five of those applicants whose grade point average was better than three. There were probably 30% of them whose grade point average was less than two. I have a problem with paying taxes to fund university education for people who are apparently not trying to make the best of their opportunity.

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I would address another comment to the group dealing with child poverty. I think you've damaged your argument by referring to EH-101 helicopters, because I believe that this was one of the first things the Liberal government scrapped when they came to power in 1993, and so it's not relevant.

The other thing is that I work with the tax system, and it's a very fair system in that if a company makes a loss, it is allowed to carry that loss over for a number of years, up to seven, and deduct that loss against income it may make in future years. Looking at one year in isolation for any company is unreasonable, I think, unless you want to take the position that when they make a profit they should pay tax, and that when they make a loss they should receive a tax refund or a rebate. So there are a lot of things that factor into whether a company pays tax just on one year's individual profit.

Another thing I would like to bring to the attention of the committee is that at our Nova Scotia CA Institute we provide tax clinics for retired people, and every year I get involved in preparing tax returns for pensioners whose incomes are in every case less than $12,000 a year, in some cases as low as $8,000 a year. I think it's a terrible thing in Canada that persons earning $8,000 a year have to pay income tax. I think it's one of the most wicked things that our government does to retired people who deserve better.

Thank you.

The Chairman: How much is the old age security for a retired person in Canada today? What would the total on that be?

Mr. Wilde: It's less than $5,000 a year. I'm talking of one particular situation where an individual retired, because he couldn't work any more, at age 62. He got some Canada Pension and he cashed in some RRSPs. His total income was $8,000, and he was required to pay income tax. I think that's appalling.

The Chairman: Thank you very much.

Before we go to Mrs. Brushett, are there any other comments? Mrs. Brushett, please.

Mrs. Brushett (Cumberland - Colchester): Thank you, Mr. Chair.

It's a pleasure to be here in my home province and to hear views of constituents from Nova Scotia this morning. I think each of you must appreciate that when we come and look for ideas on budgeting, we like to look at specifics or precise models as to what you think might be an appropriate formula to a specific problem, and then we like to analyse it or put a cost figure with it if it takes money from the treasury to run the program or whatever way it works. But we do like to put in perspective how we can continue on a strategy of deficit reduction but deal with job creation and poverty amongst children and the issues that really are confronting Canadians today.

I want to ask a few specific questions, because I tend to be very specific in analysing how these proposals might work. So I come back to Bob Baird from APENS.

You talk about a technologically based tax credit, and we know that technology is critical for advancing our science and research base. How would you propose this be done? What specific formula would you use?

Mr. Baird: I don't actually have a specific formula. I think we're all sympathetic to the social hot buttons that are being pushed here this morning, and the way to solve those problems, at least in our opinion, is to get the economy going and through job creation.

Listening to the students was interesting. I've been a teacher for quite a while. One of the sad things is to see a young person go through six or seven years of university and not have a decent job opportunity. The vast majority of our young engineers graduating this year are going elsewhere. And as Gerald was saying over there, this is a serious drain on where this country's going to be in the next few years. It's a tragedy, and I don't see how we can address any of the social problems if we don't address our job creation situation. In our area, the technology area Gerald is interested in, this has the greatest potential for growth. Without having a specific policy or proposal to put forward, we think the government should develop those policies.

.0905

Mrs. Brushett: Well, I'm sure we all agree that we should develop them, but I don't think the government history of job creation traditionally has been a great success. Our whole thrust is to develop an economic climate where business can thrive and generate -

Mr. Baird: We understand the government does not do a good job at job creation. What we want them to do is create policies and initiatives that will allow the private sector to do that.

Mrs. Brushett: What are those policy initiatives?

Mr. Baird: Simplifying the tax structure will help, to a certain extent, as well as national harmonization of the tax regimes across the country. People spend a lot of time and money trying to figure out where is the best place to do business in this country, and if we're going to do business outside this country, whereabouts in Canada we should be. We shouldn't be dealing with those types of problems. Those things have to be taken away somehow.

But I don't pretend to have the solution.

Mrs. Brushett: Coming back to a fundamental question, are the R and D tax credits sufficient at the present time?

Mr. Baird: I guess I'd have to say I don't really know.

Mrs. Brushett: The Prime Minister has a task force on commercialization of government-backed research. I just hosted in Truro the four Atlantic universities, where they gave their input as to how we get that research from basic science or from our universities, from our government-funded labs, to commercial application and hopefully in that process create jobs. All fall we thrashed out how to develop that.

Perhaps I'll go back to Dr. Johnston, or to anybody who has ideas here. We're looking for basic input. Give us some specific recommendations as to what we might do.

Prof. Johnston: You're not going to like this.

Mrs. Brushett: That's okay.

The Chairman: Look, we're not here for popularity -

Prof. Johnston: No, no. It's not a quick fix: that's what I'm leading to. We're all putting the cart before the horse.

If I hear the word ``partnership'' one more time, I am going to hit the wall. First of all, you can't have partnership without losing mandate and vision of what you're all about. We cannot rely on the private sector in this country to come in and do what presumably should be government infrastructure in the way of science and technology. We cannot expect it, because it's not going to happen. We're always so thin on the ground that no company in their right mind is going to come here. They're going to go to Switzerland. They're going to go to the Pacific Rim.

Incredible amounts of government money are being poured into research institutes and universities within the Pacific Rim, in Thailand and places like that. They're putting us to shame. In fact, one of my faculty members is actually collaborating with someone in Thailand so that he can get some of the research dollars. He can't get it here.

Until we see that there has to be a building of that kind of intellectual ferment in research, and supporting it - and it's going to take a few years; it's not like a light switch that suddenly appears because you have bricks and mortar in place - then I think we're going to see ourselves slowly slip into an underdeveloped country.

I'm not overstating it.

Mrs. Brushett: I recognize that -

Prof. Johnston: I don't know where the dollars are going to come from. It comes down to choices. For instance, in this province we have a health care budget that's about $700 million or$800 million a year. If they spent 1% of their health care budget on research, they would see an incredible bolstering of the capacity to do good health care here. It would probably cut things down.

When you look around at where good health care centres are, and where they're efficient and effective, and where you have a much healthier population, a high-quality biomedical research community draws a mix of good people, good clinicians and those who have that type of perspective. You can't do that on a shoestring, unfortunately.

So it's not a question that we don't have the money; it's a question of where you want to put the money.

Mrs. Brushett: I think that's a big part of so many of the programs, their accountability. Are those dollars we spend reaching, again, children?

Prof. Johnston: That's another issue, and I don't want to confuse the two. We're not speaking at odds here. These are not mutually exclusive things.

Mrs. Brushett: Exactly.

Ms Raven: It's very interesting to note that Switzerland is somewhere where huge amounts of private dollars are going to the research sector, and it's also a country that does not have a problem with child poverty. Are these things interrelated? I think they are. Switzerland has less child poverty and perhaps an educational system that is bringing forward this vigour that is so necessary to attract private dollars.

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The Chairman: With all due respect, Switzerland has almost no federal taxes. It has very low state taxes. It developed as a tax haven where corporations go. So it's not state-assisted.

Prof. Johnston: All right. Belgium. There are all kinds of places in Europe.

For instance, you don't find a huge amount of wealth in Idaho, but you find it in San Francisco, in that area, because there is that concentration of activity. It's a magnet.

The Chairman: Absolutely.

Mr. Grubel: But if Switzerland defined its poverty the way we do, they would suddenly have a lot of poverty, and if Switzerland, for many years after the war, had zero unemployment and introduced an unemployment insurance program...and now they have 4.5% unemployment.

Prof. Johnston: What's your point?

Mr. Grubel: That the available information for your recommendations to us is inappropriate. It's simply not correct.

Prof. Johnston: So there is no child poverty?

Mr. Grubel: You're a scientist; you can follow this argument. Using the Statistics Canada definition of poverty in Switzerland would show they also have one out of seven living in poverty.

Prof. Johnston: I don't know. Do you have those data? I don't.

Mr. Grubel: It's a logical necessity.

Mr. Baird: I don't think the definition of poverty has much to do with what we're talking about.

The Chairman: No, I don't think so either. I think the people who are trying to design a system for us should have a say.

Brad.

Mr. MacKay: I want to go back to a point that was formerly made about whether or not research dollars are beginning to reach the community at large.

No one would deny that the face of Canadian society and all societies are changing, and different institutions are trying to determine their role in their communities. There's not a lot of literature at the moment on this particular topic, but right now, I and other economists at Dalhousie, including Dr. McAllister, are working on that very issue. I know there's been work done at University College Cape Breton simply on how you can get an inflow of information from communities into the universities so that research being used there becomes an outflow to the communities, a direct connection, a catalyst for either development or economic growth within their communities.

So that is definitely an emerging trend. I'm doing my thesis on that very subject, actually.

The Chairman: I'm not sure that is exactly the point Dr. Johnston was making.

I think your plea is more for basic research that may or may not have a commercial application. Am I wrong?

Prof. Johnston: No, you're right. I think there's a spectrum. Research is not a single entity. Indeed, we need the full spectrum. We're seeing parts of that supported, but certainly not the entire spectrum, and eventually it's going to fall down like a two-legged table.

Mrs. Brushett: I want to ask Mr. Roblee what would be his recommendation to Revenue Canada's taxation area on how to give the private woodlot owner, a large majority being here in Nova Scotia, a tax advantage, if you will, to do sustainable silviculture and create the flow of fibre that needs to be managed.

I'm told just recently from some of the woodlot owners that on the vote on Tuesday in Maine, they had a question on their ballot regarding clear-cutting. Based on the assumption that they would have had no more clear-cutting approved, the mill owners were already in the Atlantic provinces looking for a new supply of fibre. They would then put that much more pressure on woodlots here in Nova Scotia, because our sawmills then wouldn't have the raw material, and we'd be cutting that much faster.

What can we do as a government in terms of a tax credit or input in there somewhere to encourage sustainable silviculture?

Mr. Roblee: To answer the first question, the U.S. is already here in Nova Scotia. It's not whether or not they were here three months ago looking for wood. There are no rules stopping the flow of wood going to the U.S. They come and pay the dollars, and it's gone. From the private sector to the mills within the province we have no access to the fibre we want to move out of the way. We have no access to take that poor-quality wood and get it out of the way to make something that's sustainable for the community, pulp wood. So they're wide open to go to the U.S. with this product.

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I mean, if they showed up at the western end of the province of Nova Scotia today - and they're already there - they could just load their barges. Gone.

The problem is, it takes up to 100 years to grow trees of any value. It takes 40 to 50 years for pulpwood. We don't work for Kodak, folks. I mean, these trees take time to grow. We have to have some system in place to make sure they are sustained. Okay?

As far as tax credits go, right now I have 800 acres of land under a woodlot. I have there nothing whatsoever that I can write off. If I put a road in on my property to do some silviculture or to do some harvesting, I should be able to take that out of the profits from the product. But the profits aren't there, folks. They're just not there for a private woodlot owner.

If I put a culvert in, it comes out of my pocket. There's no exemption for me to write that off. As to road construction, there's nothing there for me to do anything. As to silviculture -

The Chairman: Excuse me, but I don't understand something. Is this because the tax system says these are capital expenditures, and therefore you can take only capital cost allowance on them? I don't understand.

Mr. Wilde: Mr. Chairman, putting a road in is considered to be land improvement. Unless you actually pave the road there's nothing there to claim capital cost allowance. It's just considered by the department to be a capital expenditure, as is putting in a culvert.

The Chairman: Which doesn't even allow a capital cost allowance.

Mr. Wilde: That's correct, sir.

The Chairman: That's nuts.

Mr. Wilde: I agree wholeheartedly with you. There are a lot of things that are nuts in the tax system.

The Chairman: That's why we're delighted to be here.

Mr. Roblee: This is why we've been hammering the point for the last three years that we need the tools to do the job that has to be done. It won't be for John Roblee, woodlot owner, but for John Roblee's grandchildren. That's who we're working for here. We have to look at the timeframe. How are we going to have programs for children and programs for universities if we don't have a resource there to pay for it?

Take a look at the cod fishery. In my presentation, I'm talking about softwood. The federal government could very easily come in and create new industries in this province and in all of Atlantic Canada, if not nationwide, in hardwood development. There are all kinds of opportunities here. But as Mr. Johnston brought out, we have no research people to go out and actively pursue this. We don't have the dollars to do it.

You were talking about roads, but roads are only one aspect of forestry and silviculture programs. I mean, I can pay to have someone come in to improve my woodlot to grow the trees faster, but I can't write that off.

The Chairman: If you bought fertilizer for your woodlot...?

Mr. Roblee: Nothing.

The Chairman: You can't deduct that as either a capital expense or as an operating expense.

Mr. Roblee: No. As a private woodlot owner, there's absolutely nothing, sir.

The Chairman: What write-offs do you get?

Mr. Roblee: None.

Well, you have the fibre when you harvest the woodlot. You have some liabilities in there that you have to consider, though. You could be wiped out by disease or you could be wiped out by fire -

The Chairman: Just a second. You sell a thousand bucks worth of wood. Can you write anything off that against that? Can you write your chainsaw off?

Mr. Roblee: No.

Mr. St. Denis: What about fuel?

Mr. Roblee: No.

The Chairman: There's nothing you can write off.

Mr. Roblee: As a private woodlot owner, there is nothing.

Mr. Wilde: One of the major problems we're facing in the Income Tax Act is that the private woodlot is treated as farming, and there are restrictions on what losses can be claimed in farming against income from other sources. So it's entirely possible -

The Chairman: Oh, this is a hobby farm provision.

Mr. Wilde: That's what they call it. I mean, it's far too wide-ranging in that it sort of throws the baby out with the bathwater.

The Chairman: Now I'm starting to understand this a little better. Keep going.

Mr. Wilde: There are expenses that can be deducted, but.... You can buy CC...you get depreciation on your chainsaws and logging machines and all of the other actual mobile equipment you buy back and forth. But there are significant restrictions on what you can claim.

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The Chairman: Against other income.

Mr. Wilde: Not only that, but as Mr. Roblee says, there is still this problem: if you put a road in to go harvest your trees, the cost of the road isn't deductible against the proceeds from the trees.

Mr. Roblee: And you can plant trees, and there's no -

Mr. Wilde: Again, there's no deduction for the cost of going in and planting the trees.

The Chairman: No deduction for the cost of the seedlings if you buy them?

Mr. Wilde: Right.

Mr. Roblee: Absolutely nothing.

The Chairman: Or for the cost of having them planted?

Mr. Wilde: Right.

The Chairman: We have some work to do. This is egregious.

Mr. Roblee: Then we see Forestry Canada completely destroyed, in our opinion. They have a research centre in Fredericton and they are trying to do what they can, but that whole sector is gone now. They still keep draining from the forest, and that's what I'm trying to get across. We keep draining. It's just like the fisheries - we drained it until there was nothing left. You're going to do the same thing in forestry, and we're well on our way. You're not putting any tools in place so that people can solve their problems.

Going to Mr. Grumble...I mean Grubel, is it?

Some hon. members: Oh, oh!

Mr. Roblee: If you would like to spend a week with me in Nova Scotia, I can take you around, sir. We're not in downtown Toronto. It's bad. When you see 30,000 woodlot owners across the province - we're not all doctors, lawyers or dentists, we're just little people trying to protect what we have and derive a living from it, and it's a real thing.

Dianne knows from her riding what's going on in the real world, and it's sad. We have to do something to bring down the deficit and keep this country healthy, and as woodlot owners we want to do our part, but we need the tools. We can't wait three more years, because we don't have the time. It's not going to be there, and then you're going to have serious problems.

Mr. Grubel: I'm very sympathetic to anybody who has been mistreated by the government, I assure you.

Mr. Roblee: This isn't being mistreated, this is being neglected.

Mrs. Brushett: I think the comments are so valid, because it's all about sustainability. In Nova Scotia we have a much larger population of private woodlot owners than any other small province, so it's all so relative to the needs of sustainability in that great forest sector.

Thank you, Mr. Chair. I'll pass now to Mr. St. Denis.

The Chairman: Mr. St. Denis.

Mr. St. Denis (Algoma): Thank you, Mr. Chairman.

Thank you to all of our participants today. As usual, it was an educational and stimulating discussion. I have a couple of questions.

The first one is for Mr. Wilde, but anyone else please feel free to jump in. One issue that has come up a number of times is the availability of small quantities of capital, which is generally unavailable from banks. Banks tend to find that loans under - I'll pick an arbitrary figure - $100,000, in proportion to the return, cost too much to administer. Often a small business person needs $5,000, $10,000, $15,000 or $20,000 to get started, and that might be the beginning of something that can generate many jobs in the years to come.

In your capacity as a member of the board of the regional development agency, could you and anybody else talk to us about what's happening or not happening in this region relative to the availability of micro-loans, small loans to the single entrepreneur who wants to take an idea and go somewhere with it?

Mr. Wilde: Some encouraging initiatives have been put in place for community loan organizations, business development corporation - the first one down the eastern shore, actually. It has a pretty good track record over the last number of years, but it's the only one in the entire municipality of Halifax. There are always about 50 times as many people who would like to borrow money to get their businesses going as there is money available to do it.

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There is I think a very strong role for ACOA, for instance. It has been very useful and very helpful, and the way their mandate has been changed recently is, we think, very encouraging, because they're not just throwing money at stuff now. They're looking at things a little more sensibly. They're saying, if you believe in this, we'll lend you the money, but you have to pay us back.

As far as chartered banks go, I just want to make the comment that they'll only lend you the money if you can show them you don't need it. The analogy is, they'll lend you an umbrella when the sun's shining, but look out if it starts to rain.

Mr. St. Denis: Even the Bank of Nova Scotia?

Mr. Wilde: Oh yes, sir. Even though it started here, it's still a Toronto operation.

One quick point I would make is that the federal government, through the tax legislation, has put in place the ability for labour-sponsored venture capital funds, and we are very enthusiastic supporters of that idea. We're also very, very concerned to know that there is a labour capital, venture capital fund in existence right now that can't find enough businesses to invest in. Seventy-five percent of its funds are sitting there in cash, and very soon they're going to fall off the table because they won't meet the criteria of the legislation.

Mr. Grubel: Why is that? Why can't they find it?

Mr. Wilde: The people who are administering the funds don't seem to be able to get linked up with what they consider to be viable business opportunities for people to create.

Mr. St. Denis: I wonder if this is really the point that is critical - that is, connecting the idea creators with the people who control the purse strings, and again in small quantities. This may be the point that Mr. MacKay was making, maybe in a different context, but a similar notion that we're not connecting the grassroots with the supply of capital. I know groups like yours are trying to address that, but at best it can be described across the country as very haphazard and catch-as-catch-can.

Mr. Wilde: We've come a long way in two years, but we still have a long way to go. The more that goes along, the more encouraged we are by continued support from all three levels of government. We have been a bit upset by the new regional municipality, though, which doesn't quite understand what we do. I think the municipal politicians are more excited about trying to spend millions of dollars trying to buy business from away instead of spending hundreds of thousands of dollars growing their own talent here. It's a real pain in the patoozey. Every time you drive over the MacKay Bridge you see a blooming great pile of gypsum, mined here in Nova Scotia, being put on ships and sent somewhere else for the jobs. It blows me away that we're allowing that to happen in our province. And it's not just gypsum.

Prof. Bradfield: At 22¢ per tonne royalty.

Mr. Wilde: Yes. You know, it just blows me away. And yet when somebody came along and said we're going to put up a wallboard plant under the bridge, it was ``Whoa, no, you can't do that.'' All the environmentalists and academics got up in arms and the....

[Technical Difficulty - Editor]

Mr. Wilde: I didn't say politicians.

The Chairman: Oh, you should have.

Some hon. members: Oh, oh!

Mr. Wilde: The RDA movement - there are now active 12 RDAs in Nova Scotia. They're all going their own way. They're not yet getting together, but they're starting to learn from each other's experience. Once the word is out, there's a great deal of opportunity there for ordinary people, who maybe lost their jobs. It's going to happen, but to come up with ideas that really have a lot of sense.... Oaks grow from acorns, and I've seen a number of acorns in the last couple of years that really have me enthusiastic to continue working with the RDA.

Mr. St. Denis: Thank you for that.

May I just continue for another question, Mr. Chairman?

The Chairman: Oh, sure.

Mr. St. Denis: The idea of small businesses being seeds was raised by a witness in St. John's, Newfoundland, yesterday, and I think it's very appropriate. The federal government can provide the kind of climate for the seeds to grow, but there still has to be the soil, which is local, and to provide the correct local soil -

Mr. Wilde: Nutrients.

Mr. St. Denis: - the nutrients, there has to be maybe the peer counselling to help with business plans, etc. You can't spend $10,000 on a business plan for a $10,000 business.

Mr. Wilde: No.

Mr. St. Denis: The lender is expecting the same quality of business plan from a small borrower as they do from a larger borrower, but the ability is not there. I think that's where your agencies and others can work - to create the ability to come up with a business plan.

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Mr. Wilde: That's exactly what we're trying to do, sir.

Mr. St. Denis: Dr. Johnston, you mentioned the Glaxo Wellcome investment near London. To what would you attribute their choice of investing there? Could it include that Britain is a member of the EU and they are presuming they will have ready access to a huge European market? Or is it the U.K. tax regime, or the availability of a science R and D community in the area? Or is it a combination of those or other things that would have led Glaxo Wellcome to go there and, say, not to nearby Halifax?

Prof. Johnston: I can't tell you what was in Glaxo Wellcome's mind, but one of the things they're doing very actively, and in fact they're doing it in part by people who were recruited away from my laboratory, is this. Within the London area there is a huge network of research scientists they are now tapping into. They're building these kinds of bridges. I suspect, at least from talking to people, that this is one of the major draws of why they did what they did where they did it. They can then tap into this huge scientific community that's there and will support their activities.

Nobody's smart enough to know research breakthroughs are going to take place. Breakthroughs are a matter of retrospection, and if anybody tells you they know where they should put their money to solve this or that problem, they're blowing hot air. Over and over again, we are fooled as to where breakthroughs come. So I think one of the things we have to have in place is the base of the pyramid. We have to have that strong, broadly based research community.

What Glaxo Wellcome has done, as a philosophy, has been to establish their own in-house research activity, but positioned it where they're in close contact with a large number of institutes like the Imperial Cancer Research Fund, Mill Hill, and places like that around London, which are themselves huge research groupings. They've entered into various kinds of collaborations with these people.

I think that's a major draw as to why they built there. Presumably they could have got better tax breaks if they were just concerned about that, but they've built in a fairly high-priced area, if you will.

We're seeing the same thing here. We're talking about seed money and being able to get things to grow here. I see some of my colleagues who have actually hit on things that have commercial application. That's not why we're doing science, but that's the spin-off of science. They're having a devil of a time getting the resources to actually get it to the point where it is developed. The reason is they just don't have the sources lying around. This wouldn't happen if they were in places that had a larger research community with more resources.

I am passionate about research because I think it's such a wonderful tool. I despair of the fact that it's being really neglected, and I think we're doing it at our peril. I think we're going to pay for this big time.

Mr. Wilde: I would suggest that another factor in the decision is the fact that you have to look at the after-tax income for your high-priced scientists. We were recently visited by friends from England, and I'm appalled at the amount of tax I pay on my income compared with what they pay on theirs. It's almost twice as much.

The Chairman: We've heard that before. It's a big impediment to the high-paying jobs in these areas.

Can I ask you, Dr. Johnston, what type of research you're involved in specifically?

Prof. Johnston: I'm a molecular geneticist. I deal with gene expression and the basic mechanisms that drive how cells are functioning. My particular interest is -

The Chairman: Does that mean gene mapping, too?

Prof. Johnston: Yes.

The Chairman: Is that some of the work that Lou Siminovitch was doing in Toronto?

Prof. Johnston: Yes, Lou has this research he put together.... That's interesting, isn't it? There's the Mount Sinai Hospital, arguably the best tertiary care centre in Canada. It has a huge basic science complex, and do you know what they do there? They study things such as what is called signal transduction, that is, how a cell responds to hormones.

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There's a colleague of mine there from many years ago - he was a graduate student when I was a post-doc - who's studying worms called Caenorhabditis elegans. They're a model system, because they allow us to figure out how development takes place, because a single cell gives rise to a lot of different cells. So they've recognized that this is what they have to do, and those findings are having shock waves through our understanding of how we work.

So I think there's some insight here to be gained. These are smart people who've done this, and I think we should start to learn those lessons.

The Chairman: Before we close off, would anybody like to add anything to what has been put forward?

Mr. Grubel: Dr. Johnston, you indicated that the synergy of agglomeration is very important for the development of science. That is why many of the science establishments of the world are centred around Zurich, around Berlin, around London and so on. How is it possible in a country like Canada, with its huge distances, to have the same kind of research community and all the -

Prof. Johnston: It's difficult, isn't it?

Mr. Grubel: Yes. So what is your vision? How can we ever compete here in Halifax, given the absence of those? I'm not questioning your competence or anything, but because you are saying those interactions with other scientists are so important, how is possible to do it out of a small centre like Halifax?

Prof. Johnston: It's very difficult. You could argue that maybe we should put all our money in one place, but the trouble with this is that I think what we have to do as groups is to recognize we can't do everything, so that we can do some things very well and we can be well regarded for that, and this in itself will be an attraction.

You're quite right, the downside of it is that we are a small country, given the population base for the geographic size, and so it's difficult to have a downtown Toronto milieu, if you will, everywhere. But we can create that in small part, certainly. The downside of it is that if we don't do this we're not going to be able to support the things we take as something we really want to see, such as quality of health care and quality of life.

But we don't need to do this by covering the waterfront. I'm using downtown Toronto perhaps inappropriately, but there you see a whole spectrum of research activities. We probably can't recreate that everywhere, but we can certainly do some things very well here. In fact, we do some things very well here, but we're doing it against all odds. And so I think we can see that grow and be much more attractive for -

Mr. Grubel: But you would say that within reasonable expenditures by government, it would not be possible to create in Halifax an atmosphere that would make Glaxo Wellcome come here.

Prof. Johnston: Probably not. But I'm not trying to be provincial about this. I was going to say I'd be happy if there was just one real powerhouse of research that was well supported anywhere in the country, and in fact I think I would be. It would be better if we could spread the wealth a little bit. But these kinds of research dollars are not like manure; they don't go better if you spread them thinly. But we're not even spreading them at all in this country, and that's the real concern.

Mr. Grubel: I saw a study recently of the University of Alberta graduates. One year's graduating class was followed up, and after one year 5% of them had not found jobs. After three years only 1% were unemployed. Is this something characteristic of Alberta? Have you ever done a study like this in New Brunswick or Nova Scotia, around here?

Mr. MacKay: No, we haven't, actually. We haven't done any cross-referencing of those sorts of statistics.

Mr. Grubel: I think it would be an interesting project for your student association to try to do that. I think you should supplement it with questions about whether the students were satisfied with the positions they received relative to where they intended to be - how many of them wanted to be poets and ended up accountants and that kind of thing. It would be fascinating information.

Mr. MacKay: I was actually going to touch on that very point, just the fact that studies like this.... As I said, I'm not familiar with that particular study, but I'd also be interested in seeing whether or not students who have graduated were actually working in the respective fields they had been studying for, whether or not they were taking more service-oriented jobs or exactly how that worked out. But you're right, that would be a very interesting study.

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Mr. Grubel: There ought to be a base on whether in fact things have gotten is better or worse, because I remember that most people didn't really ever get the job they were trained for. I think if we took a survey around here how many people have a graduate degree...a graduate degree, maybe, but even undergraduate degrees often were not a preparation for what they're doing.

I hear so much negative testimony at these meetings, and yet I feel that we live in a great country where there are really wonderful opportunities ahead. There are all kinds of bad trends and all kinds of things we should watch out for, but it helps to remind ourselves occasionally that university graduation assures that you have one-tenth the chance of being unemployed than if you do not go to university.

Looking at the expenses you had in getting there, the benefits are really huge relative to the expenses. You may think it's now a lot of money, but in retrospect, with the increased earnings you have, it is really a worthwhile investment.

Mr. MacKay: I think for the most part, too, I would hate for the negative to undermine the positive, because there are a lot of positive things happening. I know with the student organizations across the country - and the University of Alberta student organization is actually a good example - they are moving away from the negative protesting, and so on, to taking initiatives themselves and doing these sorts of studies and building ties with the community.

Actually, I take offence to your comment as well. I thought it was inappropriate, because the quality of students is very good. Unfortunately, if that's the quality you're receiving, perhaps that's your perception, but I have three room-mates and not one of us has a GP under 3.5. So I think there are some very, very good students studying, and there are very positive things happening in the educational field as well.

The Chairman: Chris, did you want to say something, and then Joyce?

Mr. Lydon: I have a statistical comment, perhaps to add colour to the conversation. I totally agree with the Alberta initiative. It's something that is really positive. Again, the whole employment situation is quite valid. It's valid at Dalhousie as well, and encouraging.

However, my one slightly negative commentary towards that would simply be the respective earning levels, in that a StatsCan study of 1994 showed that there is an identical earning level of actual dollars - not per capita dollars but actual dated dollars - being exactly the same earning dollars, average on income, for a male university graduate, as was an income in 1974 for a high-school graduate in the exact day-to-day dollars.

So on the dollars in 1974 with respect to the dollars in 1994, in a twenty-year period actually the per capita income levels have decreased, based on education. So although perhaps employment may have gone up, income levels have not gone up in the same ratio.

Mr. Grubel: But studies of the rate of return to education remain very high.

Mr. Lydon: Correct.

Mr. Grubel: That is very encouraging.

Mr. Lydon: Yes, exactly. It is very encouraging.

The Chairman: Joyce.

Ms Beaudry: I want to say that there was no intent to be negative. We were trying to bring in realistic facts. We heard around the table, pay now or pay later. I don't think anything applies more to that philosophy than when we look at our children.

We had statistics on incarceration and what it costs to put people in our penal system as opposed to putting money into preventive programs in the early years that mean so much. Certainly, the principle of investing now versus paying later is monumental. It wasn't intended to be negative. We felt that it was quite realistic.

Mr. Grubel: I didn't -

Ms Latulippe-Rochon: I'd like to add to that for a moment, and to what Dr. Johnston said, in terms of speaking passionately about our kids.

Here is some comparable data, fully sourced - and I want to take a moment to make this perfectly clear. When the same measuring stick was applied to eighteen industrialized countries, Canada had the second highest number of poor children. That's the United Nations report on the state of nations 1996 figure.

Again, we're not here to speak negatively, nor are we hear to speak positively. We're here to speak to reality.

The Chairman: Bob Baird.

Mr. Baird: I mentioned before that one of the problems facing us is having our young people graduate and then leave looking for opportunities. The unique situation in the job market for young engineers now is now they have to graduate and compete with people who have ten or fifteen years of experience and who have been laid off through cutbacks and slowdowns. These people who are out there with ten or fifteen years of experience are themselves up against the financial crush, with a mortgage and one thing or another, and they're prepared to take a job at a starting engineer's wages with ten or fifteen years of experience. This is a very difficult market for the young engineer to go into. He's not going to try to buck it. He'll head to the States, where the opportunities are.

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That's a very real problem. It's a unique problem, one we've never dealt with before.

The Chairman: You're right.

Mary Catharine McDonnell.

Ms McDonnell: Regardless of our background here today, Canada's children are our future. No matter what we've talked about, I think we all believe they are Canada's future citizens, yet they have no electoral power. We have to work collectively in a positive fashion to ensure they are the investment, so jobs will be created in a society we all want to live in.

The Chairman: Professor Bradfield.

Prof. Bradfield: I would like to pick up on some of the comments that have been made in the last ten minutes: Dr. Grubel's comments about education leading to a job, Gerry's comments, and the last comment.

Basic research is a form of investment. Education expenditures are a form of investment, as are health expenditures. If one were to take the value of the education expenditures, the health expenditures, and the social service expenditures in Canada, divide them in half and say half of those are really investments - they're not a current operating expense, they're an investment - and apply them against the deficit, we would be running a surplus in Canada for all levels of government, not a deficit. One of the problems with the concern about getting the deficit down is we're looking at the wrong numbers. We're looking at numbers that include investments.

When Peter made his opening comment, he made a statement about how you can't spend more money than you have coming in. The point is you have to watch your operating budget and you have to watch your capital budget and you have to recognize they are two different things. We have to look at what the actual operating budget is, and in fact it's in surplus, not in deficit.

Therefore I would argue the money is there for the investment in things such as education, whether it's at the university level or it's getting proper social support for poor families so they can get proper nutrition for their kids, proper housing conditions for the kids. If you're going to be passionate, the Montreal Infirmary studies, which are now over thirty years old, showed that the expenditure of a couple of hundred dollars on nutrition for pregnant women would save tens of thousands of dollars for the children in terms of their physical and mental capacity once they were born. We have the evidence there. As I think Gerry said, the problem is having the political will to say these are important expenditures.

The other point I would like to make is that it was raised that the government has a poor track record in creating jobs. If you're talking about the government giving handouts to the multinationals, I agree 100%. We have literally billions of dollars worth of examples in this province alone of things such as heavy water where the government poured money into corporations that were hit-and-run operations. That doesn't work.

However, to go back to the investment side, when you think about the government as building a capital infrastructure and a human infrastructure in education, health, and even our physical infrastructure, the period of the 1960s, when we were doing that, was also a period with very low unemployment rates relative to the unemployment rates we have now, because of government expenditures. The government can create jobs.

One last point about investing in basic research and investing in education is that it's an implicit subsidy to any economic activity in Canada, because the businesses need those highly trained students, they need healthy workers, etc. But it's not a subsidy we can get nailed for under NAFTA. If we hand out subsidies to businesses directly it is. So it seems to me there are strategic political reasons for wanting to restore government's involvement in basic research, education, health, etc. and not to be handing out the money as subsidies.

The final point I would make goes back to the statement Erv made in his opening comments when he said he doesn't think anybody in Canada wants higher taxes. Well, for a variety of reasons I have followed the polls on that for a long time. If you poll somebody as the pollsters sometimes do in Canada and ask, are your taxes too high, people say yes. They don't realize that in fact Canada's tax burden is at about the middle for industrialized countries. Secondly, when the pollsters ask, would you pay higher taxes to protect your health system, would you pay higher taxes to protect your education system, people say yes.

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So I don't agree with Erv that Canadians aren't prepared to pay taxes. They're prepared to pay taxes if they can see a return on those taxes. What they've seen in the last ten or fifteen years is that one-third of their taxes have gone to pay the interest payments that are there because of a stupid monetary policy.

The Chairman: Thanks very much.

Ervin Doak, you've been very patient.

Prof. Doak: It's okay. I enjoy listening to everybody talk. It's great.

I have three or four points, Mr. Chairman. In anticipation of coming here, I did ask my students if they would give me some feedback about their debt problems, because we had a demonstration here a couple of weeks ago and they were holding placards ripping the government and so forth. I haven't studied all of the results yet, but my impression is that probably 40% of my students at Saint Mary's - and I teach about 200 students - might have debt problems, which range from maybe $7,000 to $40,000 in some cases. They're very concerned and very worried about this, and they don't know what they're going to do. A lot of them, fortunately - maybe over half of them - have no debt problems, so I thought that was very encouraging.

On another subject, Ms Beaudry brought up the point about trying to tax the corporations more. I'm very sympathetic to that, but I think the problem your committee might meet is that there seems to be a built-in trend in this country, and not only here but maybe in the world or in North America, for corporate income taxes to be eliminated or reduced. The burden on corporations has been in a downward trend for many years now. I don't know what is causing that, but I suspect it will continue.

I think another constraint the committee operates under - and maybe our government in Canada does too - is that we are part of a much bigger international community, and no matter what we might think in Canada, we're constrained by ideas that are bigger than we are. I think this is a problem with our tax system and it also might be the problem with our money system, too, and with our banking.

I have one final point that is maybe my biggest point. Professor Grubel brought up the point about there being no free lunch.

Mr. Chairman, you've had a chance to listen to economists debate back and forth here today, so you've had a little bit of this. I'm sympathetic to your position. You say, what do these people really believe? Since they don't agree on anything, we really can't listen to their comments.

The Chairman: You're just like politicians -

Prof. Doak: That's right.

The Chairman: - so don't worry.

Prof. Doak: Anyway, I'll make this point, for what it's worth.

We oftentimes say that there's no such thing as a free lunch, but by the same token, economists all over the world are saying in their principles texts that the banks can create money. They're able to make something out of nothing. I've learned that creation took place twice: God created man and banks created money. And I say, boy, that's something!

Mr. Chairman, if that is not a free lunch, what is?

The Chairman: Thank you very much, Professor Doak.

Mr. Roblee.

Mr. Roblee: I'd just like you to pass this on to Mr. Martin when you get back to Ottawa. We in the private woodlot sector here are so concerned about what's happening that if he would be interested in investing in a woodlot in Nova Scotia and living with the reality that we are facing.... If he could balance his own personal budget on that woodlot, I think he would then start solving the problems in this country.

The Chairman: I am sure he wouldn't do it.

Mr. Roblee: I'm absolutely positive that he wouldn't. Yet we have people in this province who are continuing to subsidize their woodlots to keep jobs in the community. We have a lot of people working in the sector, but we need all of the players to be part of this thing. It can't be just the woodlot owners who carry the problem.

The Chairman: I'm going to look into this further. I didn't realize the tax situation was so egregious.

Do you want to say anything else, Dr. Johnston?

Prof. Johnston: No. I just thank you for your time. I guess this is a kind of time-limited offer that I'm putting to you. We have a very vibrant, small side of the community, and if you use it properly....

The Chairman: There is tremendous potential.

Prof. Johnston: Yes.

The Chairman: Pauline, Joyce, or Joanna, do you want to say anything? Do you have any last words?

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Ms Raven: I just encourage the committee to take a good look at available data and figures and make the right decision. I think you can do that. I'm very confident that when you take a look at those things you can make a good moral choice on this issue.

The Chairman: Dianne.

Mrs. Brushett: Thank you, Mr. Chair.

Before we leave that, Pauline, I did ask our researcher to call Health Canada to see if in fact we had actually cut by 50% on the CAPC program. The numbers are that in 1993-94 we budgeted$16.3 million, and we actually spent $14.6 million. In 1994-95, we budgeted $37.8 million, and we actually spent $35.3 million. In 1995-96 we budgeted $43.7 million, and we spent $43.8 million. We spent more than we budgeted that year. In the current year we're still spending, but we have not cut by 50%.

Ms Raven: The cut is slated to be enacted at April 1, 1997. You plan to go from $68.4 million, spread across 450 projects in Canada, to $33 million. So it's a $35 million cut, which translates to about 52%, but actually we will feel the effects on April 1.

It's kind of what you were saying, Peter, that there is this thing of letting people know ahead of time so that they can plan ahead.

So on the cut, you're absolutely right. We have a signed contribution agreement, a legal agreement with Health Canada, and that wasn't touched. But when we sign our next contribution agreement, we'll be signing a contribution agreement that's 52% less than we need to do the work.

Ms Latulippe-Rochon: The most depressing thing is we don't even really know why it has happened.

The Chairman: Peter.

Mr. Wilde: I have three points. Nobody here has raised the spectre of the new harmonized sales tax, which is going to come into effect and do us down next April. There are a number of features there that we're going to address at the provincial level, but we're very concerned about the enormous impact it's going to have on the cost of basic living in the province of Nova Scotia. The cost of clothing is going to go up 8%, the cost of home heating is going to go up 8%, the cost of electricity is going to go up 5%, and the cost of gas for the car is going to go up 8%. It's going to have a very serious, detrimental impact on families living here in Nova Scotia.

Second, and perhaps more important, is that it has always been a real puzzle to me that with the enormous talent, resources and wealth we have available to us in Canada.... I don't know how we got in this mess, because we shouldn't have, and we have to fix it.

One last comment is that here in Nova Scotia there is an enormous amount of knowledge in the fishery. I think we're foolish to wait for the cod to come back. We should be developing fish farms. I think we have the knowledge and the expertise, and all we need is the will.

The Chairman: Last, can I go to the students? I'm sorry, you wanted one last word. We're going to have to sum up pretty quickly because we have other people coming.

Ms Latulippe-Rochon: I have a last comment.

I'm quite impressed, Mrs. Brushett, that you did have those figures looked up. I'm encouraged. With the information now that the cuts are effective April 1, 1997 and that they are the figures we are going to be dealing with, I'm quite hopeful that you'll continue to -

Mrs. Brushett: Let me assure you that we certainly care about child poverty. Every member does.

The Chairman: Last, those who I think all of us consider to be the two most important people in this room today, Chris and Brad, do you have parting words for all of us?

Mr. Lydon: I must say again that I really thank the committee, because I'm really encouraged by this consultation. It wasn't a consultation on PSE, and I want again to thank the committee because I think it was fair. On all the subjects that were dealt with here, especially the subject toward the end about forestry taxation, it really impressed me that the committee was so receptive.

When I had a similar consultation at this same meeting, this same committee, two years ago at the maritime museum in Lunenburg, I remember at the very end of the consultation the chairman - perhaps it was you, Mr. Peterson; I don't recall - said: Mr. Martin, thank you for your time, but we'll be going ahead with the cuts come hell or high water. So it is good to hear, though, that such proactive work is going to get done today, and I really do thank everybody here for that.

Perhaps I could also raise on a point of personal privilege for Mr. Grubel. Despite the fact that he may have been referred to as Mr. Grumble today, I do recall, again at that same consultation two years past, that there was a woman representing an elderly society who referred to him as Dr. Goebbels, so I think we're making progress.

Mr. Grubel: I'm not running again for office, so you won't have me to kick around any more.

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The Chairman: Brad, did you have a last word for us?

Mr. MacKay: Yes, I'd just like to thank the committee. I think these are positive steps we're taking. From a student's perspective - and I sort of touched on this before - we're interested in working with government and different agencies to take proactive measures to make sure these social programs remain for the future, and that students receive an education. I think it's positive hearing a lot of the different comments around this table. I think there's a lot of consensus and a lot of agreement. It has certainly broadened my horizons a little bit. Again, I would like to thank you for this opportunity.

The Chairman: Thank you.

Mr. Laurin, s'il vous plaît.

[Translation]

Mr. Laurin (Joliette): I have a question with respect to Mr. Wilde's comments.

So far, no one has talked about government student employment programs, employer partnership initiatives or summer career programs. Do these programs have a significant impact on the employment status of young people or regional development? Do you think they should be maintained? No one has made any reference either to programs intended to help women re-enter the labour market, programs that have been cut. I would like to know what you think of them.

[English]

The Chairman: Briefly, did you want to talk about...?

Mr. Lydon: Yes, I would only address the student issue. I can't address the women in the labour force issue. I wouldn't be the expert on it.

Again, there have been many positive inroads in terms of co-ops, as in students getting jobs within the corporate field. I'm sure Mr. Wilde can attest to that. I'm sure that is greatly appreciated within the student body and that it has had a proactive effect. Perhaps a greater focus in federal government funding or assisting corporations in being able to offer job incentives to students and/or to bring students into the workforce could be a priority, and that is something that could be addressed.

The Chairman: One person to respond to this issue of integration of women in the workforce.

Ms McDonnell: I think it's very important, if we're going to consider integrating women into the workforce, that we consider child care. The government cannot continue to cut its promises for child health care. We will not have women integrated into the workforce. They will not be able to afford to work.

The Chairman: On behalf of all members, I want to say it's been one of the most stimulating panels we have encountered in our entire round of consultations.

People are arguing for increased expenditures on technical-based businesses, on biotechnology, basic research, medical research and biomedical research, children and the need to support education. All of these have to be priorities for us. As for the forest industry, I've learned that there are some very unfair tax rules in effect, and I will look into those.

A lot of you have made the point that these are not expenditures, they are investments, and if we neglect them now we will pay greatly in the future. I certainly agree with that. But we are also in such a mess, as somebody said, that we are spending one-third of every dollar of tax revenue just to pay the darned interest. If we had been prudent we could be spending that some $50 billion a year on the programs you want, or on tax decreases. It has been so irresponsible of us over the years to have put ourselves in this position that we now come to you asking you to help get us out of that hole.

In terms of child poverty, I really disagree with Dr. Johnston that we shouldn't be talking about who among those children in poverty deserves the most help. I think the group we have had with us today represents those people in spades. It's the ones at the bottom who deserve more help than the ones at the top, and I think we have to concentrate some programs on those.

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In terms of R and D and our science and technology, government has cut back and this committee has objected to those cuts, particularly the cuts to our granting councils in the past. We see them as probably one of the best ways in which the federal government can direct funds, not through provincial governments and into roads but into post-secondary education and research. It's a way for us to fund directly very important R and D initiatives.

Unfortunately there have been cuts, but those cuts have been less probably because we as a committee have universally come out on an all-party basis in support of that.

The one bright light is that these labour-sponsored venture capital funds are now combing our institutions, looking for ways to invest these funds. Lou Siminovitch has been hired by Cal Stiller's fund, which is now up to over $125 million, to go to the universities to try to find projects that have either short- or long-term commercial applications. Maybe they will fill a little bit of that vacuum. In the meantime, we have to get the levels up. I couldn't agree more in terms of the return on investment that we could get.

I will ask Professor Bradfield not to respond now, because we have no time, but I'm wondering if he has any research on whether there are any other countries that require their banks to hold reserves today, and if so, which countries do this. Maybe he can send me information on those requirements.

Prof. Bradfield: I can tell you right now.

The Chairman: No, I don't want that, please. I'll talk to you later, and we can get into a discussion.

In terms of other things that were talked about, the levels of taxes and the fact that we are losing the students, the fact that there are engineering students who can't find jobs here and are going abroad - these are very serious concerns. We're going to have to work with you, and we're going to have to find ways to turn this thing around so that we can have a dynamic future.

I want to thank all of you very much for excellent presentations.

This meeting is adjourned.

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