FINA Committee Meeting
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STANDING COMMITTEE ON FINANCE
COMITÉ PERMANENT DES FINANCES
[Recorded by Electronic Apparatus]
Thursday, October 15, 1998
The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call the meeting to order and welcome everyone here this morning.
We have the pleasure of hearing from the Association of Canadian Pension Management, Citizens for Public Justice, the College of Dental Hygienists of Ontario, the Employer Committee on Health Care - Ontario, and the Ontario Public Health Association.
We will begin with the representatives from the Association of Canadian Pension Management, Ms. Wendy Gauthier and Ian Markham.
Mr. Ian Markham (Vice-Chair, Advocacy and Government Relations Committee, Association of Canadian Pension Management): Thank you for the opportunity of presenting in front of you.
The Association of Canadian Pension Management, ACPM, is the national voice for pension plan sponsors in Canada. There are almost 1,000 members of the ACPM. They have pension assets in excess of $226 billion. In addition, ACPM members include representatives of the major actuarial, investment management, accounting, and legal firms providing advisory services to pension plan sponsors, boards of trustees, and administrators. The ACPM is also a member of the Retirement Income Coalition, which will be appearing in front of this committee next month.
I am Ian Markham. I'm vice-chair of the ACPM's advocacy and government relations committee. I'm also an actuary with KPMG. With me is Wendy Gauthier, who's a member of the ACPM's retirement income task force and principal consultant, investment management, with PriceWaterhouseCoopers. I also note that the chair of the advocacy committee is Gretchen Van Riesen, who's with ECHCO officially today.
Let me just briefly outline the views of the association.
The government must not forget that the improved state of its finances reflects to a large extent the strength of the economy in recent years and the consequential growth in tax revenues, as well as low interest rates. The improved state of government finances also reflects the impact of bracket creep—in other words, the growth in government revenues that results from tax brackets not being adjusted to reflect the impact of inflation on individual incomes.
The government should give Canadians an honest accounting of the real fiscal dividend and of the many other factors that contribute to a budget surplus. Surplus that arises from tax increases should be returned to the taxpayers. Surplus arising from good fortune should be applied to the debt.
At the same time the government needs to continue to find and seek ways to enhance Canada's retirement income system so that all Canadians have a fair opportunity to save for retirement.
The ACPM has already delivered to the Government of Canada, in its retirement income paper, a road map as to how to address key retirement income system issues.
Our eight recommendations for this committee are as follows.
Firstly, the government should publish the aging paper that the Minister of Finance originally promised in the 1994 federal budget. An aging paper was needed then and it is needed even more now. Canadians need to see the government's vision of how all the pieces of the retirement income system fit together in the context of an aging population.
Two, stop the bracket creep. During the last 25 years, some groups in Canadian society have achieved inflation protection, while others have not. Recipients of OAS and GIS receive fully indexed benefits, part of which are tax-exempt. Workers and those who receive taxable government benefits pay an ever-increasing percentage of their income as tax. Tax brackets should be fully indexed, as they are in the U.S. and the U.K.
Three, the tax system disadvantages the working poor relative to retired seniors. Working people are asked to pay income tax when their employment income exceeds $7,000 for a single person and $12,000 to $13,000 per taxpaying couple. By comparison, a single senior is currently guaranteed $11,000 per year after tax. Income taxes must be reduced for lower-paid working Canadians in order to achieve equity.
Four, the Income Tax Act does not give all Canadians an equal opportunity to provide for a retirement income target that is related to their pre-retirement income; 70% is usually suggested as a target. Current retirement savings limits for RRSPs and employer pension plans are too low. They're also frozen. By comparison, limits in the U.S. and the U.K. are much higher—roughly double as a percentage of the average wage—and are indexed.
Five, there are no viable savings opportunities for those earning more than the earnings covered by the RRSP limit, which is $75,000 currently. These individuals are denied the opportunity to save an amount commensurate with their earnings. Relative to their counterparts in most other industrialized countries, they have limited ability to defer taxes, high marginal tax rates, and high taxes on capital gains.
Six, the 20% foreign property rule costs Canadians who are members of pension plans and who hold RRSPs more than $1 billion a year in pension wealth forgone. It is unacceptable for the Government of Canada to maintain this rule, given its enormous cost to Canadians and in light of widespread support for its elimination.
Seven, the government should endorse the implementation of uniform regulation of pension plans across all jurisdictions and provide leadership on this important initiative, which is intended to improve private pension coverage. Convening a meeting of ministers responsible for pensions could move this from a concept to a reality.
Eight, Canadians need to better understand the retirement system. Retirement savings principles are not addressed in the school system. The result is that Canadians enter the workforce ill-prepared to understand how the retirement income system works and how to best take advantage of the existing system.
These recommendations will help create greater wealth and greater opportunities for Canadians generally.
Mr. Chairman, this concludes our comments, and we look forward to this discussion.
The Chairman: Thank you very much, Mr. Markham.
We'll now move to the representatives from Citizens for Public Justice, Mr. Greg deGroot-Maggetti and Mr. Gerald Vandezande, national public affairs director.
Mr. Gerald Vandezande (National Public Affairs Director, Citizens for Public Justice): Thank you, Mr. Chairman.
Good morning, members of the committee.
With me is Greg deGroot-Maggetti and Harry Kits, the executive director.
I draw to your attention that CPJ filed its previous brief to the committee, and this brief builds on the submission we made in July. We'll read our introductory statement now.
Mr. Greg deGroot-Maggetti (Policy Researcher, Citizens for Public Justice): Thank you.
Throughout the summer, Finance Minister Paul Martin and Prime Minister Jean Chrétien took pains to point out that Canada's economic fundamentals are right. Just yesterday, Mr. Martin reiterated how strong Canada's fundamentals are. Well, in times of financial crisis, it's an occupational requirement for finance ministers and prime ministers to make such statements. But what of the claim that our fundamentals are so strong?
Mr. Martin has pointed proudly to the fact that the federal government and many provincial governments have eliminated the fiscal deficit, interest rates are lower, and inflation is low. And although the unemployment rate remains above 8%, he pointed to two years of strong employment growth.
Yet when we scratch below the surface, we find that things are not quite so rosy. You'd assume that after a year of robust economic growth, food bank use would be on the decline, but just the opposite is true. The Canadian Association of Food Banks reported in its 1998 HungerCount that food bank use rose by 5% between 1997 and 1998. And communities are facing severe shortages in affordable housing, even in prosperous regions. This is compounding the problem of hunger.
A closer look at how the federal government arrived at its much-vaunted budget surplus reveals some disquieting results. The government projects a 1998-99 surplus of between $5 billion and $10 billion. Yet if we subtracted the $7 billion surplus in the EI account and the $4 billion in extra revenue from the partially de-indexed income tax system, there would be no budget surplus.
The troubling growth in child poverty is one of the most serious aspects of Canada's deteriorating social and economic fundamentals. Growing up poor has ramifications for the health, education, and future employment prospects of children. The costs of sustaining such high levels of poverty are ultimately borne by society as a whole. On the other hand, money spent on expanding opportunities for all children is an investment with substantial social and economic dividends.
Therefore the government must establish a multi-year plan to reduce the rate and depth of poverty, particularly among children, and build long-term support for a fair chance in life for all children in Canada. This requires a great national effort, as Finance Minister Martin has said. That effort can't wait until the debt is reduced to a certain level. It has to happen now.
Minister Martin has proposed a goal for Canada into the 21st century. He's presented a vision of Canada as a nation where the gap between rich and poor is always narrowed and the mainstream is constantly widened. That is a vision CPJ shares. The question for the finance minister and for this committee is, what policies will lead to that goal?
Will using the EI surplus to pay down the federal debt narrow the gap between rich and poor? You cannot choose what to do with the EI surplus without considering the drastically reduced coverage the program now provides. Part of the growth in poverty over the past decade stems from the fact that more people are working in unstable employment. Yet the more stringent eligibility requirements introduced in the latest reform to EI have effectively excluded that portion of working Canadians from the benefits of a program for which they have paid.
Therefore we recommend that the EI fund be set at arm's length from the budget so that the workings of the fund become more transparent. We also recommend that the government establish an employment insurance and job creation task force to conduct a full, independent, and public review of the EI program. The review should examine the effects that the recent reforms have had on unemployed Canadians as well as their impact on provincial budgets and social assistance programs. The task force should include representatives from business, labour, and the social sector, and should be formed immediately and commissioned to report back by January. There should be a moratorium on changes to the EI program until the task force has reported and there has been public and parliamentary debate over its report.
Will tax cuts achieve the goal laid out by Finance Minister Martin? Here again we stress the need for the government to conduct a full public review, prior to the next budget, of the effect of various tax measures on income inequality and poverty in Canada.
Analysis done by Campaign 2000 of the impact of various tax measures on families with children found that reducing income taxes, payroll taxes, or the GST rate would all benefit middle- and high-income families more than low- and modest-income families. An increase in the GST tax credit or the child tax credit would distribute benefits more towards low- and modest-income families.
The review of taxes should include an analysis of the impact of the partial de-indexation of the income system on Canadians with different levels of income. It's becoming very well known that de-indexation has fallen disproportionately hard on low- and modest-income Canadians.
If there is a tax that cries out to be eliminated immediately, it's the $975 right-of-landing fee, or head tax, on refugees and immigrants. We call on the government to eliminate the head tax for refugees and family-class immigrants. We draw your attention to the March 9 brief to the Minister of Immigration by the Coalition Against the Head Tax, which describes the problems with this fee. We also draw your attention to CPJ's analysis of the feasibility of eliminating this tax.
In choosing which fiscal policies can stimulate employment and reduce inequality, we have to recognize the fact that indiscriminate growth has some major shortcomings. First, the effectiveness of economic growth and employment growth in reducing poverty and income inequality has weakened over the past two decades. Also, economic growth has historically entailed more intensive energy consumption and added stress to an already unsustainable environmental situation.
Therefore the fiscal policies chosen should be designed not to increase economic growth per se, but to both narrow the gap between rich and poor and contribute to achieving Canada's environmental policy commitments.
The next federal budget should address the causes of growing poverty in Canada. It should present an effective strategy to increase the number of good jobs. It should make a substantial investment in affordable and adequate housing. It should include the next steps in building a national child benefit program that provides greater assistance to all low-, modest-, and middle-income families with children, including those on social assistance.
In short, the next federal budget should demonstrate an integrated effort to narrow the gap between rich and poor.
Finance Minister Martin has presented a laudable goal for Canada as we move into the 21st century. The goal is attainable, and now is the time to make a decisive effort to reach for it.
The Chairman: Thank you very much.
Now we will hear from the College of Dental Hygienists of Ontario, with Evie Jesin, president, and Peter Landry, adviser.
Ms. Evie Jesin (President, College of Dental Hygienists of Ontario): Good morning. I'm Evie Jesin, president of the College of Dental Hygienists of Ontario. With me is Peter Landry of Public Perspectives Incorporated, consultant to the college. We are grateful to have this opportunity to make this presentation to the Standing Committee on Finance.
The College of Dental Hygienists of Ontario is the regulatory agency for more than 6,000 dental hygienists who practise the profession in Ontario. The mandate of CDHO is to regulate the dental hygiene profession in the public interest and to advocate that the public receive quality, affordable oral hygiene care.
Dental hygienists are highly trained and educated professionals who are often the first point of contact in the oral health system by providing preventive treatments in the school system, in collective living centres, in residential facilities, and in hospitals. Dental hygienists are similar to nurse practitioners in the medical model. Dental hygienists are able to provide the right level of care at the right place to many individuals.
While the college is aware that the administration of the health system falls under the mandate of each provincial government, the federal government has a strong role to play in the direction the provinces take when allocating resources. CDHO is mindful that health care is a high priority for all Canadians.
The reason for a regulatory college appearing before this committee is twofold. CDHO is concerned that public policy continues to treat the mouth and oral care as separate from the rest of the body and total health care, contrary to medical evidence. CDHO is concerned by the significant number of Canadians who are not receiving any oral health care. In a country as prosperous as ours, this is unacceptable.
Current scientific literature has linked the relationship of oral disease to the rest of the body. We know that periodontal disease, or disease of the supporting oral structures of the teeth, is the most prevalent human chronic disease, accounting for 95% of all chronic diseases in children, adolescents, and adults. If the mouth is unhealthy, the result is diseases in the oral cavity, which contribute to poor overall health.
As the Canadian population continues to age, more of these individuals will live longer and retain more of their own natural teeth. Access to oral health care services will increase in importance.
A 1997 Ontario Gallup poll sponsored by the College of Dental Hygienists of Ontario revealed that 25% of Ontarians did not receive any oral health care services within the preceding 12 months. High costs of dental care and lack of insurance were the reasons stated by the respondents in this survey.
Many of the individuals who need oral care the most are the elderly, street youth, children of poor and low-income families, and the disabled. These are the very people without the financial resources to access private services. They must rely heavily on the publicly funded health care system.
Slide 1 shows a street youth hospitalized because of severe gum infection. He
[Technical Difficulty—Editor] at the time of the condition. Slide 2 shows a 45-year-old man with severe gum disease who has lost his dental insurance plan. And the final slide, slide 3, shows a senior citizen who is bedridden and cannot pay for oral health services on his fixed income. These are a few examples of Canadians who need dental hygiene services.
Many Canadians are not physically or economically able to access traditional dental hygiene services. This remains a significant problem for the health care system, because as we know, prevention is always preferable to disease. For instance, recent studies have linked poor oral health to an increased risk of heart disease, the number one cause of death for Canadians.
CDHO recognizes that if the level of oral health care were increased for all Canadians, the cost savings and contribution to the quality of life would be substantial. Healthy individuals contribute to a more productive society. It is therefore in the public interest to broaden access to oral health services. Government must now come to terms with this understanding.
CDHO makes the following specific recommendations.
One, oral health care should be included in the health care funding system for all Canadians.
Two, the tax system should be modified to allow greater tax incentives for health care practitioners, such as dental hygienists, who are willing to work with under-serviced groups.
Three, tax credits should be modified for families that do not have dental insurance.
Four, the government should institute a wellness incentive for those individuals who have demonstrated a desire to achieve a healthy lifestyle by maintaining oral health.
Five, the goods and services tax should be eliminated for basic preventive health aids such as toothbrushes, dental floss, and therapeutic toothpaste.
Six, encourage prevention by instituting a substantial educational campaign to assist the shift from the medical treatment model to a wellness and prevention model.
Finally, number seven, instituting tax incentives and exemptions for wellness programs and basic preventive products would assist every Canadian.
In conclusion, CDHO trusts that the committee will consider increased access to the prevention of oral disease as a strategy worthy of consideration. There is no doubt that the health of one's mouth severely impacts on one's overall health. Oral health is a strong determinant of general health and must no longer be neglected. We must work together to reconnect the mouth to the rest of the body.
The Chairman: Thank you very much.
We'll now hear from the Employer Committee on Health Care - Ontario, represented by Ms. Gretchen Van Riesen, assistant general manager, human resources division, CIBC.
Ms. Gretchen Van Riesen (Director, Pensions and Benefits Policy, Canadian Imperial Bank of Commerce; Member, Employer Committee on Health Care - Ontario): Thank you, Mr. Chair and members of the committee.
My name is Gretchen Van Riesen, and I'm the director of pensions and benefits policy at CIBC and a member of the Employer Committee on Health Care - Ontario, or ECHCO. I'm here with Vic Clive, assistant vice-president of compensation and benefits at Canada Trust, who's also very active in ECHCO.
I'd like to thank the committee for inviting us to participate in these pre-budget consultations. We have participated in the past and have always appreciated the hearing we have received from the committee and the response to our concerns. We look forward to your questions on the work our committee has been doing in the area of health care.
ECHCO is a group of 30 of Ontario's largest employers. To save time for the rest of my remarks, I won't go into a lot more detail; you have it in my briefing material. I would just highlight the fact that our committee members combined spend more than $1 billion Canada-wide on our health care programs, which represents just under 30% of the total health care budget in the country.
Other employer committees like ours in Canada—in Alberta and in Quebec—are addressing similar issues. However, we do not propose to speak for them at this meeting. We trust you will be meeting them in your cross-country consultations.
In our presentation today, we would ask that the committee focus its attention on the paper we have prepared on the future of the health care system in Canada. Our paper, entitled “Towards Integrated Delivery Systems: An Employer View”, was forwarded to you with our submission in August and I believe is also available from the clerk today. It encourages governments at all levels to start to focus on an integrated system of delivering health care rather than continuing to support the current system of inefficient, cost-ineffective stovepipes.
It should not come as a surprise to you that you will not hear our message from many of the suppliers in the health care industry. The efficiencies that an integrated delivery system proposes could affect supply-side services being promoted by many stakeholder groups. Our interest is in the best-quality health care at the lowest cost, a goal that we believe should be and is closely aligned to the interests of all levels of government. This is not necessarily the goal of many of the stovepipes in the health care system, who are interested in protecting their domain.
There is general agreement that provincial governments must restructure the delivery of health care in the provinces in order to deliver quality care within a budget sustainable by taxpayers. There is widespread disagreement as to how.
Putting more money into the system, even if it were available, is not the answer. International comparisons indicate that the total level of financial support to Canadian health care as a percentage of gross national product is the among the most expensive in the world.
In Canada the private sector supports about 30% of all health care costs. We as employers are not recommending that health care costs must necessarily be cut, nor are we necessarily looking to reduce our contribution to the system. We recognize that employers will be expected to continue to partially fund health care through payroll taxes or general taxes.
With the better integration of services, Ontario and other provinces in which our members operate can deliver better care within the existing budget. Future cost increases or cost-shifting must be contained through better management of health care if standards of care are to be not only maintained but improved.
Several provincial ministers of health have identified the need for a vision for the health care system. The articulation and communication of a comprehensive vision is essential to bring the disparate interests together. The vision must be focused on the needs of the most important people in this system: the people of Canada. The Employer Committee on Health Care - Ontario strongly recommends that all governments start now on the road towards providing health care through integrated delivery systems.
IDSs provide or arrange for the full range of health care, including primary and acute care, plus health promotion, disease prevention, rehabilitation, and palliative care. The funding and the governance are consumer-centred; they are directed to the health of the community.
IDSs focus on the health care consumers, not the providers. Care and prevention are provided in the most appropriate setting—which can be the community, hospitals, or other institutions—and by the most appropriate provider. Patients are enrolled on a roster, and the funding of the IDS is based on the number of people on the roster, weighted by factors of overall influence such as age, gender, and health statistics for the community.
The IDS is a single payer for all services, treatments, and prescription drugs necessary. The funding can come from a number of sources, but it follows the registered consumer. Modern information technology and evidence-based decision-making are essential to track treatments and clinical outcomes and to develop prescribing guidelines. IDSs are clinically and fiscally responsible for achieving the best balance between outcomes, timeliness, and cost.
We believe this vision is achievable and in the best interests of the people of Canada. IDSs will provide better outcomes, better service to the public, and better cost control than alternatives.
In the interest of comprehensive and effective care, we do not recommend provider-centred managed health organizations or health service organizations proposed in some provinces, which only deliver the services and care currently insured by provincial governments. Nor do we advocate U.S.-style health management organizations. Our vision goes beyond cost reduction or cost containment to the delivery of better health care.
We are at a fork in the road with respect to health care. The government can start to develop a comprehensive vision of IDSs or continue to jockey towards a piecemeal restructuring of the delivery of health care, which is too often driven by political or power agendas.
Provincial Ministry of Health progress could be brought to a standstill by the large number of competing agendas. Government needs to take the lead with a larger vision. It may take five to ten years to establish the IDS framework, but to get where we need to go, the foundations need to be laid now.
IDS will provide a context in which to undertake the current health care reforms, such as the restructuring of hospitals, primary care, and community care, and in three years a review of physician compensation in Ontario.
IDS will also provide a much-needed framework for accountability. As employers, we see major flaws in the current structure of the health care delivery industry. The customer typically does not pay the providers, and the payers are not part of the system. The industry has been driven by the supply side and often by the suppliers. There is no focus on accountability for results or costs.
We recognize that the development of IDSs will present large political, administrative, and public education challenges. We offer our support. The members of ECHCO are not health care specialists, although we do call on excellent professional advisers. Some years ago, the Premier's Council of Ontario said the reform of the province's health care system would take productivity improvement, education, human resource management, and consultation. These are all areas in which we have expertise.
In conclusion, and in response to the questions your committee is asking in your consultation process regarding the new fiscal dividend, we strongly urge the government not to spend more money on health care services but rather to find ways to encourage and promote effective pilots and ultimately implementation of an integrated health care delivery system. It will be critical that governments at the provincial and federal level take a lead on this. We cannot afford to wait much longer, as the population ages and as health care pressures increase. The time to act is now.
The Chairman: Thank you very much, Ms. Van Riesen.
We now move to the Ontario Public Health Association, with Mr. Brian Hyndman.
Mr. Brian Hyndman (President, Ontario Public Health Association): Hi. I'm Brian Hyndman, president of the Ontario Public Health Association, and with me is Debbie Sheehan, who is co-chair of our work group on child health.
I'll say a little bit about who we are. The Ontario Public Health Association is a voluntary, charitable, non-profit group of individuals from various sectors and disciplines who are active in community and public health in Ontario. As an organization, we represent the interests of approximately 3,000 individuals in public and community health, including public health nurses, public health dentists, epidemiologists, health inspectors, and health promotion workers, among others. Our mission is to strengthen the impact of people who are active in public and community health programs through education, information-sharing, networking, and lobbying and advocacy activities.
We'd like to thank the committee for giving us the opportunity to take part in the pre-budget consultations this morning. Our presentation is going to focus on some key steps we feel the federal government can take and should be taking to support healthy growth and development among Canadian children.
We've identified child health as a key organizational priority, because we strongly feel that providing a healthy start in life and a supportive environment is crucial for sustaining the health of children as they develop and become adults. Over the long term, supporting healthy child growth and development will result in a healthier, more productive society and will also reduce health care costs and other social costs that are borne by governments down the road.
If you turn to page 7 of the brief we provided, we outline eight key recommendations for action that can be taken by the federal government to invest in healthy child growth and development. We acknowledge that the federal government has begun moving in some of these areas, such as community-based prenatal nutrition and healthy development programs, but some additional measures are needed to strengthen the impact of those existing efforts and to ensure a more supportive environment to foster healthy children in Canada.
Ms. Debbie Sheehan (Co-Chair, Child Health Work Group, Ontario Public Health Association): Good morning. We are here today to make eight recommendations for priority funding to support children and families in Canada. All our recommendations are based on strong research evidence. The background information and references for our recommendations are found in the brief we have prepared for you today.
The first recommendation is to invest in early intervention programs for children from birth to age six. This recommendation is based on the work done by Dr. Fraser Mustard, which identifies that infancy and early childhood experiences have profound and lifelong influences on the development and overall health and well-being of our children.
Secondly, there has been little improvement in the rate of low-birthweight babies in Canada over the last 20 years. We therefore recommend the continued funding of programs that promote improved prenatal nutrition and community mobilization in disadvantaged communities in our country. Specific examples of these initiatives include the Canada prenatal nutrition program and the community action program for children.
We also recommend that the government allocate funding for home visiting programs to support vulnerable families and young children. There is strong research evidence that home visiting by nurses to low-income women who are pregnant or have young children can reduce childhood injuries, child abuse and neglect, and the use of social assistance.
In addition, we are recommending allocating additional funding for research projects that will evaluate the effectiveness of population health and health promotion programs designed to improve child health outcomes.
Mr. Brian Hyndman: I want to speak briefly to the last four recommendations.
At a more macro policy level, it's important that governments make an investment in affordable, high-quality child care programs. At present about 32% of children under the age of 12 rely on some form of child care, and given the amount of time the children are spending in child care programs, it's important to ensure accessibility, affordability, and quality of service.
In particular it's important to support more options in child care to make it more responsive to the needs of individual families, such as parents who have to rely on shift work and weekend work. Episodic shifts make it more difficult to access quality child care programs.
Six, it's important also to promote community-wide health promotion and population health programs, such as pre-conceptual health campaigns addressing the health risks of pregnancy. We see that work as a good complement to existing federal investments in children's programs, such as CAPC and the CPNP.
Seven, recognize the importance of broader determinants of health in fostering healthy child development and adopt appropriate strategies. It's crucial that children have supportive environments to foster their healthy growth and development. That includes adequate and affordable housing, food security, healthy biophysical environments, and healthy school settings, among others.
To that end, it's crucial that the government adopt fiscal policies aimed at eliminating child poverty. Here in Ontario we've seen an 8% increase in the rate of child poverty over the last six years, and research consistently indicates that higher levels of child poverty are associated with poorer child health outcomes and higher incidences of preventable disease.
As an organization, we fully support the reforms suggested by Campaign 2000, such as fully indexing a child benefit to inflation and providing a national envelope to provinces for comprehensive early development programs and child care. We strongly encourage the federal government to act on those recommendations to eliminate child poverty and its attendant health and social consequences.
That sums up our recommendations. We'd like to thank you for giving us the opportunity to come here and share them with you.
The Chairman: Thank you very much. Now we'll move to the question-and-answer session. We'll begin with Mr. Riis.
Mr. Nelson Riis (Kamloops, NDP): Thank you very much, Mr. Chairman.
Is it my imagination or is it really cold in here? We have a health care theme running through. We're going to be needing it by the end of the day if this keeps up. Maybe somebody should look into it. We'll need sleeping bags pretty soon to get through the day.
I want to thank all of the presenters, on behalf of our committee, for very thoughtful presentations. I must say I found myself agreeing with almost everything everybody said, with a couple of exceptions.
Gretchen, can I ask you something? You make a point for an integrated system. Considering Mr. Martin's statement yesterday, wherein he suggested we ought not to spend any more money but change the system and make it more effective by this integrated approach...
In the presentation, you refer specifically on page 2 to provider-centred managed health organizations, health service organizations, and U.S. health management organizations. Can you succinctly explain how your integrated proposal would differ substantially from each of these?
Ms. Gretchen Van Riesen: The fundamental difference of an integrated system is the comprehensiveness of coverage. We would see it including drugs, for example, whereas the current health service does not go outside the boundaries of the current insured services. So one, it's more comprehensive.
Two, there are similarities with having technology-based systems that would allow different providers within the system to share information, and that's where some of the efficiencies come from. The IDS proposal we've set out probably goes further than what we've seen in current health service organization proposals.
I don't know how succinct I've been. I'd highlight the comprehensiveness as probably the most substantial difference.
Mr. Nelson Riis: Thank you. That's fine.
Ms. Jesin, I suspect that in your presentation, when you linked oral health and heart disease, you were talking essentially about wellness. If you have a well mouth, then probably other parts are well as well. Is that a fair assumption?
Ms. Evie Jesin: That is correct. We really think of the mouth as the gateway to the body. If the mouth is unhealthy, then the bacteria that are invading the mouth can also cause significant problems elsewhere in the body.
Mr. Nelson Riis: Thank you. That was an excellent presentation.
Ian, in your presentation, you say that if we eliminate under 25 and over 65, we find that 25% of Canadians participate in the tax shelter retirement system. Can you provide some other information in terms of what the size of that contribution is and how much people actually have in those plans, to give us an idea of just how well or how appropriately they're being used to provide for retirement purposes?
We often get a picture that they're in place, but if you look at those levels, it's not very encouraging in terms of people being able to set aside adequate amounts of money to actually protect themselves for retirement.
Mr. Ian Markham: It's a complicated system. The amount that people are contributing varies from 0 of course to the $13,500 limit. We're talking about the RRSP system here.
Mr. Nelson Riis: What percentage of tax filers would be using that upper limit?
Mr. Ian Markham: I would guess 5% of Canadians. If you look at Ontario, I recall that 15% of Ontario taxpayers earn more than twice the average wage, so I would imagine that of those 15%, perhaps a third to a half might be maximizing their RRSP limits. That's a guess.
Mr. Nelson Riis: You want to increase the foreign content of RRSPs. You're probably aware, I assume, that in jurisdictions that allow for that upper limit to be a lot higher, it seldom goes above 20%. When people have a chance to invest more than 20% on a balanced portfolio, seldom do they. So why should we increase ours, if nobody in fact ever uses that?
Mr. Ian Markham: There are a number of reasons. But if you're talking about RRSPs, you also have to bring in private pensions plans. The limit applies to both together.
Mr. Nelson Riis: I understand the argument, but as I said, in jurisdictions where you don't have those limits, seldom if ever do they go above 20%.
Mr. Ian Markham: No, that's not true. In the U.K. and the U.S., for example... Particularly I'll look at the U.K. The U.K. has no limit whatsoever, and it's settled at somewhere around 26% or 27%. I believe the Netherlands has no limits or a limit that can be disregarded, and I believe they've settled at around a similar level.
Mr. Nelson Riis: It might be useful for you to get some hard statistics on that, because—
Mr. Ian Markham: I actually have it here.
Mr. Nelson Riis: Okay. I'll have to look at that, because others have said actually quite the contrary. There might be one or two jurisdictions in fact, but again, we're pushing 26%. Is that really a big issue? Particularly when these are tax-protected plans in part, where people are getting a tax benefit in Canada to invest in and help overseas economies, we have to ask ourselves about the ethical issue here as well.
Mr. Ian Markham: Just to go back, the U.K. has 26% of pension assets invested outside the U.K., and the Netherlands has 27%.
Mr. Nelson Riis: Do you have any concern about the fact that, as I say, these are tax-protected plans in part and therefore Canadian society is not receiving the revenues they normally would? Do you not have any difficulty with people using their investments to assist economies elsewhere? Should there not be some limit at all, or would you be happy with just putting 100% of your tax-protected plans in overseas investments?
Ms. Wendy Gauthier (Member, Retirement Income Task Force, Association of Canadian Pension Management): The primary concern for a pension plan sponsor is, as Ian said, to maximize retirement savings for the beneficiaries of the pension trust. Good pension governance dictates that that should be the primary concern, as opposed to other issues such as social investment and other kinds of priorities.
Ms. Gretchen Van Riesen: Could I add something to that? Remember that if in fact investing outside Canada does enhance the overall return of the fund, that is returned. It comes back into the Canadian pension fund, which is then invested predominantly in Canadian assets. So remember, there is clearly an impact in Canada of enhancing returns.
Mr. Nelson Riis: Yes, indeed.
Greg, in your presentation, your fundamental concern is the widening gap between the haves and have-nots, which is increasing daily, I suspect, these days. You're looking for initiatives that would narrow this gap. My question to you is, do you see any steps that have been taken by either the federal or the provincial government here in Ontario that actually result in minimizing that gap? We can identify a whole number of initiatives that widen the gap, and you've identified some of them, but can you give an example of a program or an initiative that actually makes some significant effort to decrease that gap?
Mr. Greg deGroot-Maggetti: One could point to the national child benefit program as a first step that shows some promise in narrowing the gap and addressing the problem of child poverty, but as I pointed out in our presentation, we need to take an integrated look at all the different programs.
The changes to the employment insurance fund program were designed to move it from being a passive income support program to an active employment program. When a program no longer provides any benefits to two-thirds of the people who pay for it, then it becomes neither an active program nor a passive income support program. This is why we say we need to look at the changes that have been made and evaluate them to see if a program such as employment insurance can work to actually get people to work and facilitate people getting to work.
Are there many examples of programs that have taken place federally or provincially that narrow the gap? I can't name very many.
Mr. Gerald Vandezande: If I may add to that, it ties into a previous view expressed. Although integration in government policy-making was emphasized in the first red book, the lack of it is very obvious.
Even in yesterday's speech by Mr. Martin, you have a one-dimensional approach to budget-making. We do these things first, even though he—and I've talked to him privately about this—admits that in the process, by following the route of fiscal debt reduction, you create another debt that you must come to grips with. Then he has phenomenal rhetoric as to how we need to close the gap between the rich and the poor. In our view, integration of policy-making prevents both fiscal indebtedness and social and environmental indebtedness. But if you cause social indebtedness in order to rectify fiscal indebtedness, then you create more problems than you solve.
We hope the finance minister takes seriously his own recommendations to Parliament in the past; his own party's platform; his own speeches, notably the speech to the Couchiching Conference; and even his own rhetoric yesterday. You can't have the cake and eat it too. This government has to deliver on its own stated commitment to child poverty, for example.
Towards the end of his speech, Mr. Martin said, ask the people who advocate an increase in program spending how they're going to pay for it. My answer to that is, eliminate or reduce the cap on RRSPs, for example. I bring that up purposely in the presence of our friends here.
The RRSP tax structure is highly inequitable. If there were a tax credit—and I'm a cost accountant by background—that would be much better. But now a person with a low income contributing to an RRSP does not get the same tax credit as a person who has a high income.
Integrating the tax structure and ensuring that low-income people get as much entitlement to tax credits as high-income people, thus financing together the elimination of child poverty, as he has promised time and again, would be a way of integrating public policy. It would remove the cloud of suspicion that now hovers about the first ministers and the finance minister; it would clear the air.
Are we committed to eliminating the twin evils of fiscal indebtedness and social indebtedness? If we are, let's simultaneously reduce both debts. What we're now doing is increasing the social and environmental deficit, decreasing the fiscal debt, and causing more problems.
The Chairman: Thank you.
Mr. Markham, would you like to respond?
Mr. Ian Markham: You're suggesting that the problem of child poverty can be solved by lowering the RRSP limits?
Mr. Gerald Vandezande: That's one way of doing it. The figures show that average Canadians only contribute approximately $7,000 to their RRSPs. Why should high-income people be enabled to stash away more money, with the assistance of government—tax moneys that could be much more effectively used to narrow the gap between the rich and the poor and to create jobs?
On top of that, as Mr. Riis has pointed out, we allow more and more money to be invested abroad, which isn't guaranteed to come back in any way, shape, or form. This isn't yielding the kind of job creation this country needs and it isn't producing a narrowing of the gap. It only enhances the profitability of investment funds abroad at the expense of ordinary Canadians, who have to finance the tax refund that goes to high-income people who claim the maximum RRSP deduction.
Mr. Ian Markham: You ignore the fact that higher-income people—you call them high-income people—are paying far higher taxes than lower-income people.
Mr. Gerald Vandezande: Not proportionately, sir. There are all kinds of statistics showing that low-income and middle-income people proportionately pay far more than high-income people in taxes. That's why we recommend the establishment of a fair tax commission, so that prior to the next budget, we have a careful analysis, done on a comparative basis, that clearly shows who pays which taxes and who benefits.
Mr. Ian Markham: Do you want to take away the opportunity for people earning above, say, twice the average wage to save for their own retirement?
Mr. Gerald Vandezande: I want to make sure that everyone can equally participate in creating—
Mr. Ian Markham: You ignore the fact that in other countries—for example, the countries to which we have to be very careful not to lose our more senior people and from which we want to attract talent—their limits are twice our limits, or even more.
You ignore the fact that people with lower incomes already get significant assistance from the government when they get to their retirement and have better benefits than the higher-income earners will have access to. We already have clawbacks through old age security and so on.
Mr. Gerald Vandezande: I don't want to ignore any of those situations.
Mr. Ian Markham: We have to have equity in the tax system.
Mr. Gerald Vandezande: My concern is that people not live in poverty until they get old age security. That's my basic concern, and that's currently being facilitated through an unfair RRSP deductibility formula that doesn't do justice to low-income people.
Mr. Ian Markham: If you recall, one of our eight points was that seniors are now receiving $11,000 tax-free if they're single, while working Canadians receive only $7,000 if they're single. We agree that there is a disparity in the tax system.
Mr. Gerald Vandezande: I'm glad you admit it.
Mr. Ian Markham: But we do not want to see that being borne on the backs of people earning more than twice the average wage so that they can't have access to a reasonable retirement income.
Mr. Gerald Vandezande: I'm not suggesting that that entire burden be put on the backs of people who earn twice the income of others, but I'm referring to the very high-income people who are now unduly benefiting.
I agree with your recommendation that we should make sure that people who are not yet entitled to a pension aren't subjected unfairly to this tax treatment. That's precisely why I speak in support of that. Until and unless that happens, we continue to have these inequities, and these people cannot participate in the RRSP buying formula that you propose.
We need a fair tax commission to analyze, preferably before the next budget is tabled, which tax measures benefit whom and at whose expense, so that collectively we can put our shoulder under the burden of both the social deficit and the fiscal debt. But to suggest, as your group and others do, that more and more money be allowed to go abroad, thus depriving us of the investment needed to create jobs in Canada and thus forcing the Canadian government to borrow more from international lenders, which is causing precisely the kinds of attacks on the loonie that we now experience...
Mr. Ian Markham: Every study done by people in the investment field—
Mr. Gerald Vandezande: I'd like to have a study done by people who are not in the investment field.
Mr. Ian Markham: —and economists who understand it will cite that the 20% limit is costing Canada.
If I can take a minute, Keith Ambachtsheer is possibly one of the best-known individuals in Canada for expertise in this area. This paper that the ACPM produced on retirement income strategy, which the three of us here have all been involved with, cites some of the reasons the 20% limit must raise. If I could just go over one or two of those, it may help.
Mr. Gerald Vandezande: Sure, go ahead.
Mr. Ian Markham: Canada is now a major exporter as well as importer of financial capital. It now exports and imports roughly equal amounts. Thus capital flow imbalances no longer need to be offset by keeping domestic capital captive.
I'll just move to one that may be more relevant to what you're saying. This limit does not make more investment capital available in Canada. It merely displaces foreign capital, replacing it with domestic capital. When there is too much local and not enough foreign capital in Canada's financial markets, the Canadian cost of capital is higher than it needs to be, thus hurting Canadian issuers of stocks and bonds.
If you look at the impact on Canadians who have RRSPs and pension plans, the estimated future annual cost of this limit is about 0.2% of fund assets. If you work that out, it amounts to more than $1 billion per annum in forgone wealth. If you translate that to future pension loss, that's about a 3% or 4% decrease in future pensions for all of the people who are in pension plans and who have RRSPs.
It's completely inconsistent with the requirement of law that Canadian pension fund managers carry out their fiduciary responsibilities by maximizing the rate of return.
Mr. Gerald Vandezande: I would just add, Mr. Chairman, that perhaps even that law—that the managers must maximize return on investment without regard to Canadian public interest—is a key issue that needs to be addressed.
Let me just say something about the point you made that domestic capital becomes captive. We have seen in recent weeks that a provincial government suddenly had to adjust their budget estimates because the interest payments on foreign borrowing, which must be paid in U.S. dollars, caused, instead of a surplus in Nova Scotia, a deficit in Nova Scotia.
If our Canadian investors truly had at heart Canadian interests, Canadian well-being, and the Canadian economy, I am sure, having worked in the banking industry and in the investment industry, that Canadian investors wisely investing in Canadian projects could do as well in Canada as abroad.
If anything, your statements show the equivalent of what the international speculators do currently in the big markets: they move their money wherever they wish without regard to any borders, without regard to any national interest, and without regard to the human needs of the Canadian people. It's high time the Canadian investment industry, the Canadian banking industry, and the Canadian government say, “We are Canadians first, and we're going to make sure that there are not 1.5 million children living in poverty.”
I would love to see that addressed by Canadian investment dealers, and I would be glad to respond in detail to that study. What we're calling for is an independent study that takes seriously what you have tabled here, which we would like to have access to, and that we do a comparative analysis.
It's clear from Mr. Martin's speeches that the measures he has proposed to the World Bank and to the International Monetary Fund—and I've read them—that we must begin to regulate who invests where and at whose expense... We must begin to do that at home as well, lest we create, through those kinds of wrong investment policies, the same chaos that is now being created internationally.
I don't know how you contribute, by investing abroad, to Canadian stability and sustainability.
The Chairman: Thank you very much. The document you were referring to, Mr. Vandezande, is a public document.
Mr. Gerald Vandezande: Oh, I know.
The Chairman: So if you want to respond to it, we'd love to receive your response.
Mr. Gerald Vandezande: We will, yes. And maybe we can get some funding help from the money they've made abroad so that we can do an adequate study.
The Chairman: Maybe you can contact some investment dealers.
Voices: Oh, oh!
Mr. Gerald Vandezande: Yes.
The Chairman: One final comment, Mr. Markham.
Mr. Ian Markham: Think about the message that this limit presents to foreign investors. They have money and they want to invest in some countries around the world. Should they invest in Canada, a country that forces its citizens who belong to pension plans and RRSPs to keep most of their money in Canada? The thought of the foreign investor is, “My God, if they raise the limit, presumably all this money will flee abroad. These Canadians don't want to invest in their own country. Why should we?” Think about the message.
Mr. Gerald Vandezande: The message to Canada would be very clear—and this is increasingly happening, and we, through the various faith communities, are promoting it—that people only invest in those funds that stay in Canada and contribute to community well-being, job creation, etc., and that we increasingly get out of investment and get away from the banks, which don't have Canadian interests at heart.
If we in that way signal to the world that we favour a different kind of economy and a different kind of national well-being that transcends the maximization of profit, as you termed it, that's a good sign. I think Third World countries would welcome it, because now they're being clobbered, with the help of our banks and our investment companies, by international capital manipulators, so they now live in poverty.
What happened in Indonesia and other countries is in part due to what investors in Canada and the banks decided to do.
The Chairman: Thank you.
Mr. Scott Brison (Kings—Hants, PC): Thank you, Mr. Chairman.
I enjoyed that exchange. It heated up the room. It was a welcome change.
Mr. Vandezande, do you believe that if Canadians are forced to invest in Canada, ultimately their returns will be close to what they would be able to achieve by investing abroad, with freedom to invest abroad?
Mr. Gerald Vandezande: If all the previous statements by all of our governments are anywhere near the truth—namely that they were forced to borrow abroad and provincial governments had to create special incentives in order to ensure that people would examine the possibility of investing in Canada...
If Canadians had a broader definition of the common good and the public interest, beyond the maximization of profit that would come to them, I think we would build a healthier sense of community, a stronger economy, and a stronger future together. And we would eliminate or reduce the problem we now encounter—and Mr. Martin made reference to it in his speech yesterday, and Mr. Manning has and everybody else has—that we are being subjected to the manipulation of the international money players.
Mr. Scott Brison: Mr. Vandezande, I asked a very specific question. Would there be a compromising of Canadian retirement savings?
Mr. Gerald Vandezande: No, there wouldn't be.
Mr. Scott Brison: You don't feel there would be?
Mr. Gerald Vandezande: No.
Mr. Scott Brison: So they could make the same return here that they could—
Mr. Gerald Vandezande: Well, but see—
Mr. Scott Brison: My question is—
Mr. Gerald Vandezande: Yes, and I'm answering it.
Mr. Scott Brison: —if they can achieve the same return for their investment, why would we worry about reducing or eliminating the barriers for them investing anywhere else? They won't invest anywhere else. Doesn't it take the onus off Canadian companies, Canadian funds, and Canadians equities markets for producing efficiencies and viable investments if we create a false barrier that keeps the money here?
Mr. Gerald Vandezande: This is not a false barrier. Other countries are doing it currently to avoid what is happening internationally.
Mr. Scott Brison: Well then—
Mr. Gerald Vandezande: May I just finish?
Mr. Scott Brison: Sure.
Mr. Gerald Vandezande: What I want to draw to your attention is that we should not have a one-dimensional view of return on investment. You can maximize your return on investment if you invest in prostitution and child labour and other such exploitations of women and children. You can have 100% return on investment. The question is, does that investment contribute to the common good?
My understanding of surveys of Canadians' core values is that they are interested in human well-being, as we talked about on both sides of the table, particularly the well-being of voiceless children and vulnerable families. So now we have to ask ourselves, does the investment policy promoted by the government, federally and provincially, and by our Canadian investors contribute to personal, communal, collective well-being so that we do not feed the ever-hungry investment dealers?
Mr. Scott Brison: Personally, I don't think comparing Canadians trying to maximize their retirement income to prostitution adds a lot of credence to the argument.
Mr. Gerald Vandezande: It's happening now, sir.
Mr. Scott Brison: I would argue—
Mr. Gerald Vandezande: When Canadian investors put their moneys in companies that force workers to labour under conditions that don't meet ILO standards of the United Nations and don't come anywhere near Canadian standards—and it has been proven in the last several months in Indonesia and other places—and when Canadians make that investment simply in order to maximize return on investment, that's not a good investment policy.
Mr. Scott Brison: Sure.
Mr. Gerald Vandezande: That is a negative investment policy that doesn't positively contribute to the common good.
Mr. Scott Brison: So you would suggest that it's better for the people in developing nations if we do not invest there.
Mr. Gerald Vandezande: No, we should invest in developing nations, as the churches do. But we do it at low interest rates, sometimes only 2%, in order to genuinely help these people, not to exploit them in order to maximize profit.
Mr. Scott Brison: Okay, but how much church investment, in an aggregate sense, would help? What types of numbers are we comparing here? Do they compare with the numbers that are invested by the private sector?
Mr. Gerald Vandezande: I can supply the committee with this. But it's increasingly being done, because Canadians are concerned that their brothers and sisters in the Third World are being exploited. They can be helped in non-profiteering ways, and a variety of development and relief committees across the spectrum of the faith communities are doing that through either interest-free loans or low-interest loans. Once these people get that kind of help, they can then make it on their own. The little guy is not being helped by mega-investment projects that go kaput because the manipulators decide to move their money elsewhere because of the markets.
Within the evangelical Christian community, the Roman Catholic community, the Anglican community, the United Church community, the Jewish community—all the communities—increasingly they say, “We cannot trust the ethical standards of Canadian investors, who manipulate the markets to maximize return on their investment. What we want is the security, when we go to sleep at night, that our money is doing some human good.” People are increasingly examining where their priorities should lie.
So our recommendation to this committee is to begin to reduce the amount of money that Canadians investors now invest abroad and to make sure, in good ways, that that money can be invested in Canada so that Canadian provinces don't have to borrow abroad, à la Nova Scotia, à la New Brunswick, à la Newfoundland.
Mr. Scott Brison: There are global investment funds that are ethical; they do invest globally but have ethical criteria.
Mr. Gerald Vandezande: Yes, and that would—
Mr. Scott Brison: So you're suggesting they should be exempt from—?
Mr. Gerald Vandezande: No. They might be exempt, but I'd say that needs to be studied.
Mr. Scott Brison: So this is not a question of ethics; it's a question of xenophobia?
Mr. Gerald Vandezande: No, sir, with all respect. Parliament deals with questions of ethics. We've seen that in the last few weeks. But it also must apply to the way we invest Canadian people's moneys and how they are treated by tax. That's an ethical decision.
Mr. Scott Brison: Okay.
Mr. Gerald Vandezande: And any party that suggests it isn't an ethical decision should re-examine its platform.
Mr. Scott Brison: I appreciate your input. It's added an interesting nuance to the debate.
The issue of the health system brought up by the Employer Committee on Health Care was very interesting in terms of the potential of
[Technical Difficulty—Editor] health care in providing a
[Technical Difficulty—Editor] of services, and creating a hybrid system that introduces some level of market forces and embraces technology.
One thing I didn't hear discussed or mentioned by any of the presenters was the idea of embracing the volunteer sector more or creating a system that integrates the volunteer sector a little more in the delivery of health care. I'd be interested in hearing any feedback on that. There are organizations—the VON, for instance—that are working towards home care services.
It strikes me that when we're looking at the two options, particularly if we're looking at things such as national head start programs, health care programs, or an increased level of dental coverage, and if we're dealing with existing funds, we need to take a hard look at both private sector instruments and a closer engagement with the volunteer sector. I'd be interested in feedback from any of you on that.
Ms. Gretchen Van Riesen: We did not contemplate that specifically in our paper; however, that model is not inconsistent with the whole integrated delivery system vision. If there were integrated service providers, they could indeed contract with, make arrangements with, or have networks with various volunteer associations, particularly in the area of palliative care, in which the volunteer community is extremely active and there's a great resource base.
So I don't see it as at all inconsistent, although we didn't actively highlight or contemplate that.
Mr. Scott Brison: Okay.
I have one last question. I enjoyed the intervention on the idea of a national head start program, and again, I'd be very interested in your feedback. Do you think there is potential for a more efficient delivery of that service with some private delivery mechanism or a system of private delivery mechanisms for a public service with public standards? Because if there is a criticism of our traditional service delivery vehicles or the public service delivery vehicles, it's that their efficiency in delivering those services does not really provide the type of return for taxpayers' investment that is necessary in this environment.
Mr. Brian Hyndman: The existing national early development programs we have in Canada, such as Brighter Futures, the Canada prenatal nutrition program, and a number of complementary provincial programs, are set up as community-based programs. As publicly supported programs, they are cost-effective. They rely very much on mobilizing communities and mobilizing existing community assets.
In some instances they've formed creative partnerships with local businesses. They've even gotten a little bit into supporting community economic development projects among parents—for example, enabling mothers to start arts and crafts collectives and in some cases split up the profits to help support their families.
I see them as very cost-effective projects. They're not the sorts of projects where you have rigid program delivery standards. Part of the idea behind those projects is to get communities to identify their own needs and problems and think about how they can best mobilize existing community assets, including business and the private sector, where it's deemed appropriate to address family support issues.
There's not a lot of work in Canada, as far as I know about, involving the private sector in service delivery. Again, these projects aren't tied to very specific program delivery criteria, other than broader objectives such as improving infant and child nutrition, and there are any number of ways you can go about doing that.
I do see the private sector contributing to project outcomes through donations and in-kind support. Businesses have made beneficial contributions to a number of school breakfast and lunch programs.
I don't know if there would be much private sector interest in that sort of community-based program delivery. Particularly in disadvantaged communities, where they may not have a lot of financial resources to draw on, you need strong public sector involvement.
[Technical Difficulty—Editor] funding to get something started.
The Chairman: Do you have something to add?
Ms. Evie Jesin: Yes.
To answer your question on cost-effectiveness with regard to private funding, dental hygiene services are very portable. We can go out into the community, versus the patient or client coming to us. If we get these children at a very early age and focus on prevention versus treatment...
When you look at health care now, a lot of the emphasis is on treatment once they already have disease. We all know that if we can get them before the disease, get them in these head start programs... Wouldn't it be wonderful if each Canadian child could have their own toothbrush? It's a very simple item. It's a simple necessity to decrease oral disease.
The Chairman: Thank you very much, Ms. Jesin.
I now will move to the Liberal side. Mr. Szabo, Ms. Redman, Ms. Bennett, Mr. Pillitteri, and Ms. Leung all want to ask questions, so be mindful of that as we pose our questions and of course as we state our answers.
Go ahead, Mr. Szabo.
Mr. Paul Szabo (Mississauga South, Lib.): How much time for each of us?
The Chairman: We have five people and approximately forty minutes.
Mr. Paul Szabo: Less than eight minutes, okay.
Mr. Markham, if I make $1 million a year, based on your statements, do you believe I should be able to put enough retirement income away so that I can have a retirement income of $700,000 a year?
Mr. Ian Markham: No, I don't think—
Mr. Paul Szabo: Okay, so there should be a ceiling probably.
Mr. Ian Markham: Yes.
Mr. Paul Szabo: What's the ceiling? How much? Where is it?
Mr. Ian Markham: It's very difficult to come up with some number that's absolutely logical, so one might come at it from two different viewpoints. One is, what have other countries done? As I mentioned in my presentation, as a percentage of the average wage, the U.S. and the U.K. limits are roughly double ours.
The other way is to look at it going back to 1976, which is when there was a—
Mr. Paul Szabo: Okay. We're getting into a speech. My time is limited here.
Mr. Ian Markham: All right. There's another way of coming up with a similar number.
Mr. Paul Szabo: You're an actuary.
Mr. Ian Markham: Yes, that's right.
Mr. Paul Szabo: If I wanted to have an income of $50,000 a year in retirement, what kind of capital would I need to purchase an annuity to do that?
Mr. Ian Markham: If you're at retirement age?
Mr. Paul Szabo: Yes.
Mr. Ian Markham: Let's say $500,000.
Mr. Paul Szabo: Yes, that's what I thought. So if you took the current limit of $13,500 over however many years, plus the accumulation or the compounding of income, even at $13,500, you could easily reach $500,000 by the time you reached retirement age, couldn't you?
Mr. Ian Markham: Try telling that to somebody who's just retiring now, just after the crunch.
Mr. Paul Szabo: At $13,500, somebody today... You're recommending we raise it from today's level. Let's say it stays at $13,500 and I invest my max. You're recommending for the high-income earners. If I invest the max and I get Canada savings bonds returns, won't I have $500,000 at retirement age, even if I only contribute for 25 years? I've figured it out, and you can.
Mr. Ian Markham: Okay, you've done the calculations.
Mr. Paul Szabo: Mr. Riis asked you about what percentage of Canadians contribute the max, and you didn't know exactly; you guessed 5%. Actually I've checked with our researchers here, and in fact just 3% of Canadians even make that much money. Of those, how many actually contribute the max to RRSPs? So in fact
You're here basically advocating, I would suspect, on behalf of 1% of all Canadians.
[Technical Difficulty—Editor] In terms of prioritization in today's economic climate and our fiscal situation, I have to say, I think you should be ashamed. I think you should be ashamed of coming here and saying this is what we should do. I'm sorry.
Mr. Vandezande was very correct when he said that high-income earners get a better break than low. We know that, as a deduction, $5,000 to a high-income earner
[Technical Difficulty—Editor] combined federal-provincial rates. But at the end of the day, you still have to pay at your retirement marginal income.
But one of the advantages high-income earners have is the opportunity to purchase spousal and to split. And in structuring your RRIF, you can stream it out at basically 5% and get a lower marginal rate out than you put it in at. That is not available to low-income earners.
High-income earners have been getting tremendous breaks out of RRSPs, and I'm sorry, but it really doesn't seem to be a priority. I just wanted you to know that you have to defend yourself on why you're arguing for higher limits when in fact most people aren't anywhere near having the opportunity to do that.
And in terms of the 18% of earned income, low-income earners, even if they had the cash, couldn't put it in, because the Income Tax Act doesn't allow them to. So there's—
The Chairman: Mr. Szabo, since we do have the right to defend ourselves, I'll go to Ms. Van Riesen and Mr. Markham.
Ms. Gretchen Van Riesen: It is very rhetorical to focus this on people making $1 million a year; we're not talking about that. Our proposals talk about middle-income folks who, in and of themselves, do not have a social safety net that they will be able to rely on, because they're making too much to fall into that category.
And by the way, the definition of high income is a very relative term. Let's figure out where your label is in that. If in fact we argue that high income is anybody making over $40,000 a year—which is often a point of some parties we've heard from on this subject—in fact many Canadians face the reality that when they reach retirement, they have not been able to provide for themselves, through the combination of government programs, occupational programs, and private savings, to save for retirement.
We have plenty of research to show you examples of that. We may not have it right now, but we'd be happy to give it to the committee. It's an important fact. We're not talking about the $1 million-a-year people. We're talking about people earning in the range of $50,000 to $100,000. This is middle income Canada that doesn't have a social safety net. The people below that level do not need to save for retirement, because the social safety net picks up all their needs. And if you look at replacement ratios, it satisfies a reasonable level of financial replacement of income.
Mr. Gerald Vandezande: How does that relate to health care?
Ms. Gretchen Van Riesen: I'm actually responding in my other role.
Mr. Paul Szabo: Let me introduce one more aspect of this. If there are two identical jobs, one with a salary plus a pension plan and the other with no pension plan, just a salary, which salary is going to be higher?
Let me answer the question. If you go after the same job in two companies, one that doesn't have a pension plan and one that does, the company that doesn't have a pension plan will have to pay a higher salary to attract the same person. In other words, the economic gain, even if you don't have a pension plan, is going to be much greater for those who don't have a pension plan. That means their accumulation of wealth is going to be larger over their working careers.
One of the things you've left out—and I think it's deficient in your presentation—is that retirement income is not solely by government pensions and by RRSPs; it is personal wealth accumulation. If you want to invest in foreign securities, etc., and go over the 20% limit, there is no restriction whatsoever on investing any dollars you want in foreign securities. There's no restriction. The RRSP only happens to be one element of the investment package.
This presentation, particularly this line about giving Canadians back their own money... The fact remains that every Canadian taxpayer subsidizes every tax break, and that means the high-income earners, who are getting most of the RRSP benefits today, are being subsidized by every taxpayer, including the poorest taxpayer. That's the issue.
The Chairman: Are there any comments?
Seeing no comments, I will move to the next questioner, who is Ms. Redman.
Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Mr. Chairman.
I would like to direct my question to Ms. Gauthier and Mr. Markham.
Minister Martin yesterday talked about continuing down a long road and having a long-term vision, not a short-term vision. Two things that have allowed Canadians and this government to bring a balanced budget are prudent assumptions and having two-year rolling budgets.
Minister Martin talked about bringing down the debt-to-GDP ratio as a yardstick against which we could then measure the health of our economy. Part of that is having growth on one side of the equation, which is the GDP, while judiciously and steadily bringing down the debt.
I subscribe to that. It's stood us in good stead. Others on this panel would say there has been a social cost, and I think you'd find very few people, certainly in the Liberal caucus, who would disagree with that. There have been costs, and we need to be attentive to that.
On page 2 of your submission, I'm having trouble working through the truth, or the suggestion. It sounds to me as if you want the accounting practices to be what you would consider more transparent. You say surpluses that arise from tax increases should be returned to taxpayers, and surplus arising from good fortune, such as uncharacteristically low interest rates or low unemployment rates, should be applied to debt.
I have to ask you how. It seems to me the gains we have made have been by making prudent assumptions and doing what's good in the long term. I can't see anything from that suggestion except an incredibly fluctuating economic basis. How do we offer program funding one year when the next year we may have to say there's no money for this?
One of the things we heard clearly when we went across Canada last year in the pre-budget hearings was, “Don't throw money at problems and don't give us quick fixes.” So in the light of hearing that from Canadians and having a formula that Minister Martin has put in place in this government that is working, I need to ask how that could possibly work.
Mr. Ian Markham: The point the ACPM is making is it's too easy to say that the surplus Mr. Martin talked about has come about because of superb management. It is a fact that some of that surplus has come from taxation over the years. The point we've been making is that, for example, bracket creep—the way in which people pay more and more taxes year by year, as inflation erodes their incomes—has created a significant amount of the current surplus.
We want Canadians to be told that honestly. The current financial situation is significantly because of the taxes that have been paid, and it's time to return them to Canadians. It's basically an honest accounting that we're looking for.
Mrs. Karen Redman: The question I would ask then is, are you saying that continuing to have balanced budgets and continuing to make prudent assumptions, when it's proved that that helps us weather economic hard times—the global economy is getting flogged to death, but obviously there are forces outside our national boundaries that we can merely react to—should be put in jeopardy if it just seems to be a better accounting practice?
Minister Martin talks about bracket creep. These things are certainly being discussed and do need to be addressed, but is your suggestion that we risk our balanced budget and risk going back into deficit in order to have this achieved?
Mr. Ian Markham: I'm not suggesting that all surpluses should be returned to taxpayers. The ACPM would definitely want to see the current debt level reduced. We would far rather see surpluses go towards the debt, with some modest tax reductions, than have huge spending increases. There has to be a balance between those two: debt reduction and tax reduction.
Mrs. Karen Redman: Do I have time for a little question?
The Chairman: You have lots of time for many questions.
Mrs. Karen Redman: Thank you, Mr. Chair. I'd like to ask Greg and Gerald something, if I could.
You really spotlight one of the things that certainly we've heard across Canada, which is that we need to be attentive to some of the social costs that getting our fiscal house in order has had. What is the one most significant thing we could do as a government to be attentive to this?
Mr. Greg deGroot-Maggetti: I'd like to start off by pointing out that when we look at the surplus and how it was arrived at, it wasn't just through increased taxes. There were very deep cuts to important social programs across the country.
We recommend that the federal government continue to move forward on its child poverty agenda. Steps still need to be taken there.
Look around at the growing homeless problem. We have to stop and look at the situation. We've just been through now two years of very robust economic growth, and in my town—and I read reports all over the place—there are more people without adequate housing and there are more people hungry. This is in the boom times.
The federal government has stepped out of funding for adequate and affordable housing, and some provincial governments have done the same. That's another necessary investment. We've forgone those kinds of social investments, and we see all the costs that are starting to accumulate. And the need just cannot be met by voluntary efforts and emergency shelters and stuff like that.
So the government also needs to invest in affordable housing. The federal government has to take some lead to show there's a commitment to ensuring that every Canadian has adequate housing, adequate shelter.
Those are just a couple of ideas.
Gerald, you may have some.
Mr. Gerald Vandezande: Mr. Chairman, in appendix A, attached to the submission we made today, we list a number of policy recommendations that we think would be appropriate first steps towards the elimination of poverty.
We are agreed that the elimination of as many taxes as possible for people who currently live below the Stats Can poverty line should be a priority. If people want to talk about tax cuts, you achieve two purposes with that: you achieve a reduction in the rate and depth of poverty and you enable people to enjoy self-esteem and begin to look for that. So that's an important step forward.
I happen to feel very comfortable with much of what Mr. Martin says, and I say that here not so easily. But you can't have year-by-year budgeting. You need a long-range value framework within which you make major decisions. The kind of framework Mr. Martin put forward to the International Monetary Fund and in his speech last night appeals to me, provided that it isn't simply rhetoric.
That's becoming a major concern among many people. On Tuesday, a huge coalition appeared at Queen's Park, and all the media turned out. What we are hearing from Mr. Martin sounds good and what we're hearing from Mr. Chrétien sounds good. Then we face a crisis, such as the attack on the loonie by a variety of people who are greedy, and suddenly that becomes the defence not to do anything with respect to social programs.
It's important that in integrated policy-making, one doesn't allow one sector of the population to suffer unduly because one is concerned about the national good. There is a way of integrating that.
For example, the next budget could postpone the elimination of the surcharge for higher-income people's taxes, and that money then could be used to help people below the poverty line. So you do something internally that brings in the same revenue but is spent more wisely.
It is important for the Liberal government's credibility, in an age when there is such growing skepticism, if not cynicism, with respect to government and politicians, that when commitments are made in the throne speech, in the Prime Minister's speech in Saint John, in the Couchiching speech, in yesterday's speech where Mr. Martin said child poverty is a high priority... Well, we say, respectfully, show us.
And don't buckle to those who want breaks for their own self-interest groups. We're arguing not on behalf of ourselves. I belong to the middle-income bracket; I gross $50,000. But I'm concerned about the woman in our church with three children, a lone parent who isn't making it, except for the help she gets from people within our faith community.
It would be great if that faith community continued to help, and one way that faith community can continue to help is by paying more tax.
The Chairman: Thank you. Mr. Vandezande, I also want to raise a point, to piggyback on Ms. Redman's question. You seem to be concerned a lot about low-income Canadians, and I think we all are. We generally care. We're a very compassionate country. But what about the middle class family who's been working hard and running very hard just to stand still, to stay in the same place for a number of years? We've seen incomes drop in this country and in the United States until recently. That's part of being a member of this society as well.
There's also a problem that as Canada's middle class shrinks, the people you're talking about are fewer and fewer people to look up to and to hope for.
I'll tell you why I belong to the party I belong to. It's because not only do I believe that those who need protection and care from us should be helped, but I also fundamentally believe that those individuals should be given a chance to move up the ladder. If more and more people are dropping into precisely the portion of the population you're talking about, then I have a problem with that. Something is not working.
Mr. Gerald Vandezande: I do too. So when I talk about lower-income people, I include people like my own daughter and son-in-law, a one-income family with three children. They have a terribly hard time making ends meet in the city of Toronto. It's those people who need help. We need a strong middle class—I don't like talking about classes—of families that can genuinely take care of their needs.
So if there are to be any tax cuts, first they should go to people below the poverty line, second to middle- and modest-income people, and then we who make plenty to live by can wait and should show a sense of community and solidarity by saying, “If my money is going to be spent to help these kinds of families, great.”
The Chairman: Yes, but let's not leave the impression that people who make $50,000 to $60,000 as a family in the city of Toronto are living the lifestyle of the rich and famous.
Mr. Gerald Vandezande: No, no.
The Chairman: That's not reality.
Mr. Gerald Vandezande: Correct. That's why I'm saying there is a difference between my wife and I, having no children at home, earning that and a five-person family living down the street earning that, because they have many more obligations.
The Chairman: Exactly.
Mr. Gerald Vandezande: So anything that can be done...
For example, my daughter and her husband take turns looking after the children at home, and they do not get any substantial child care credit, because they take care of the children themselves. Why is it that a family that tries to take care of its own children at home can't somehow get the benefit of the tax system in the same way as those who put their children in day care? That's an example.
The Chairman: I'm sorry, Mr. Vandezande; I have to get back to the speakers' list. But I do want to make very clear that Canada's middle class is to be very much part of this debate and can't be alienated.
Ms. Carolyn Bennett (St. Paul's, Lib.): Thank you, Mr. Chair.
As a big believer in integrated delivery systems, I was happy to see that you've presented these to the provincial government. I was also very happy to see that what a lot of us have been hoping for and what Canadians have been calling for is on page 15 of your brief on IDS. You call for national standards for outcomes and guidelines that make more sense than provincial ones, particularly given the Canada Health Act. You also call for information technology and health infostructure.
I want to know where you think the government should go next. The CMA has this access to quality care committee sitting there without any consumers, only doctors, sorting out the next chapter as they see it. There's lots of call for a health report card. Lisa Priest's book will be out shortly, and as you know, people have questioned the methodology. If you only have government data banks to look at and you don't actually talk... Numbers sometimes don't tell the truth, actually, when you look at health care.
The confidence Canadians have in their health care system I think is based on real measurements of quality. We have to begin to measure before we can sort out the disparity and before we can set national standards.
So I want to know what you think the federal government's role could or should be in facilitating this health infostructure. If the federal government could find some dollars to put towards health information technology to free up health care dollars from the provinces for patient care, is that an idea you would support?
Also, have you had a look at the health infostructure report that came out last weekend, out of the conference that was in Edmonton last year and the Noseworthy-Michael Decter committee that's been looking at this stuff from a federal perspective?
Mr. Vic Clive (Assistant Vice-President, Compensation and Benefits, Canada Trust; Member, Employer Committee on Health Care - Ontario): I'd like to provide a partial answer to that. I have seen the paper you're talking about that came out last week, and I've seen the home care paper and the pharmacare paper as well.
You speak about integrated delivery systems. I attended the pharmacare conference in Regina in January, and I guess I was naive, because I was awestruck that something like 200 constituencies were represented, and that is the health care system. So when we say stovepipes, we're talking about a lot of stovepipes.
The government has run conferences on those three issues, but what Gretchen alluded to is still lacking, and that is some kind of vision of where it should go. We haven't talked about it much today, but in some respects a national pharmacare scheme would be at odds with the kind of integrated delivery we imagine. So who is going to construct that vision of a more efficient health care system for Canadians?
There's more than enough money there to have an excellent system, and what has to happen is what has already happened in North American corporations: the delivery has to be, if you'll excuse the expression, re-engineered.
There seemed to be a lot of fishing at the pharmacare conference. Now that we have these three papers on infostructure, home care, and pharmacare, as well as the National Forum on Health's report, when is somebody going to construct a vision Canadians can relate to? That's the leadership that I see government having to offer.
Ms. Gretchen Van Riesen: Can I add something to that? As also suggested in our paper, if money is to be spent on something, it should be spent on testing some of these models out there. We've highlighted three that we know are already in place: the Ottawa-Carleton Health Services Board, Partners for Health, and...
Let's really talk about measurements. Let's go out and measure the effectiveness of the pilots. Let's create some pilots that actually test how these delivery systems can work so that we can move the model forward and point to it as something that works. That's where the investment should be, not in just adding services to the various stovepipes. That's really part of our message in our paper.
Ms. Carolyn Bennett: There's a point about models, but then there's a point about connectivity. We have to be able to put in place ways of measuring as we go, but unless people are connected...
Ms. Gretchen Van Riesen: Yes, absolutely.
Ms. Carolyn Bennett: Personally I was concerned that no GPs were on this infostructure committee. That's obviously the first place you would connect if you wanted hospitals and lab results...if you wanted people not to have the same test done four times because nobody can find the results.
I wanted to briefly ask a question of our friend from Citizens for Public Justice. Yesterday Janet Ecker said she wasn't going to build any more social housing, because experts are telling her it's not necessary. Which experts is she talking about?
Mr. Gerald Vandezande: Well, we've met with the minister on that, and she hasn't revealed the names. I don't think there are any. With all due respect to the minister, her ideology overrides or blinds her to social realities.
It's no secret. Anne Golden of the United Way and others have reported the depth of homelessness and the desperate situation that's out there. But for Janet Ecker and Premier Harris, the so-called fiscal bottom line is God. And if people need to be sacrificed through the health system, through education, or through social systems, that's just too bad, because the altar of the common sense revolution demands more and more sacrifice, and the sacrificial lambs are the poor and homeless people.
Janet Ecker ought to know better, but her ideology blinds her to the reality that people sleep outside Queen's Park in increasing numbers. All the agencies, including agencies supported by so-called right-wing groups—I don't think they're right-wing—report that they can't handle it. Already now—and it's still not cold—people are dying.
In terms of proposals, we need national standards with transfer payments so that the Ontario government and others cannot simply use the transfer payments as they see fit. The federal government must give the national leadership that is absolutely needed at this crucial time to make sure that money transferred to the provinces has legitimate strings and standards attached so that money given for social services, social assistance, and health care is indeed used in those envelopes.
Janet Ecker and the province as a whole should be made accountable for how they spend the money they get from the federal government. So there ought to be a reporting procedure. We hope the discussion around the proposed social union will last longer and that the federal government won't buckle to the provinces or to the opposition parties.
If we don't have national standards, we have two classes of citizenship. That is, what kind of entitlement you have depends on where you live and who happens to be your government. Canadian citizenship entitles you to equal justice and equal citizenship rights, and there should be no discrimination of any kind by any provincial government. And if that causes the provincial governments to sit up and yell, well, that's good for their lungs.
The Chairman: Thank you.
We have two more members who want to ask questions—Mr. Pillitteri and Ms. Leung—and we have eight minutes to do that.
Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you, Mr. Chairman.
Good morning. I've seen some of you quite often, many times making presentations before us.
Before I ask my question, something really bothers me about this 20% foreign content and wanting to increase it, and the fact that some countries have no controls whatsoever. Of course in your presentations you forgot to mention other countries that have controls.
I'm going to give you the numbers, and you can figure out which countries they are. The third-largest economy in the world has controls, the fourth-largest economy has some controls, and the fifth-largest economy has very strict controls. Yet here in Canada, we have a 20% foreign content, and you want that increased.
Well, really if you take a look at what is happening in today's economy here in Canada, the creation of wealth surely has not been by the money managers, the portfolio managers, or the financial advisers. If anything, where they invested, we can see the problems it's causing and the havoc it's wreaking on our Canadian dollar. Let me tell you what really creates wealth in a nation: agriculture and mining, not the export of our finances and our dollars out of the country.
We came here this morning to ask a question on the pre-budget consultations. Whatever the case might be—a $4 billion, $5 billion, or $3 billion surplus—which things should be addressed with that surplus?
I've heard about the EI fund, and of course this surplus would only come from the EI fund, which is a fund; it's only paper. The money does not exist. The money has been spent to balance the budget. It's been going to general revenues since 1986.
So the question I want to ask you is this. Do you want that $4 billion to $6 billion spent on health care, on enhancing some benefits that have been lacking in the last few years? Do you want it to increase the bracket of deductibility so that every Canadian gets a tax break? Or do you want to return it to the EI fund, which for every dollar of surplus would only mean 40¢ to every employee who has paid into it and 60¢ to every employer? Which way do you want that spent? Which way do you want that given back to the Canadian people? That's the question.
Mr. Greg deGroot-Maggetti: We've said there needs to be a review of the EI program and we've said there needs to be a review of tax measures. Right now, as you said, the EI fund is being used as general revenue.
Mr. Gary Pillitteri: Since 1986, sir.
Mr. Greg deGroot-Maggetti: Yes, right. So for two-thirds of the people who pay into it, it's just another tax. And let's recall that this tax is only on incomes up to $39,000. For anybody who makes income of more than that, the marginal tax rate goes to zero. So it's a very regressive tax. That's why we need to review the whole thing. We need to have an adequate level of employment insurance benefits that addresses the needs in the current economy.
As I pointed out, one of the growing problems in poverty in the economy—
Mr. Gary Pillitteri: Excuse me, sir. I don't want to question who pays into it. I did say that 60% of every dollar is paid in by the employer and 40% is paid in by the employee. Where do you want it to go back? I do understand the $39,000. I do understand all that. Where do you want to spend? We know there's inequity right there. Where do you want to spend, sir?
Mr. Gerald Vandezande: The minister doesn't have to decide his spending priorities until he does the February budget, and he made that clear. We say between now and February, there must be this in-depth comparative analysis. Otherwise the government will continue to be severely criticized for having a regressive tax measure that then pays for all kinds of things at the expense of relatively low-income people, because those who earn up to $39,000 and employers who are in that bracket pay for it.
So our suggestion is that we follow up on your good suggestion that this committee and/or the ministry, in cooperation with the business and union sector, have a task force that really looks at that and comes up with a report, as it did a few years ago on the distribution of hours and overtime, and have that report as part of the discussion prior to the next budget. Then we can all participate. Then we can make a collective decision that contributes to the common good.
Mr. Gary Pillitteri: Mr. Vandezande, this committee reports to the finance minister by December 3. There's no time for that.
Mr. Gerald Vandezande: Yes, there is. The last time the committee did this kind of thing, it also had simultaneously working with it a task force that included people across the spectrum, dealing with overtime and the distribution of hours. That can be done quickly.
The Chairman: Thank you, Mr. Vandezande.
We'll have a final question from Ms. Leung.
Mrs. Sophia Leung (Vancouver Kingsway, Lib.): Thank you, Mr. Chairman.
I want to thank all the witnesses for their presentations. I'm from B.C., so I've heard a lot of different comments, and I have a very simple question.
A lot of people ask for tax cuts. I'd like to ask all you witnesses what you think about tax cuts. There are a lot of requests; a lot of people say taxes are too high. I won't go into all that.
The Chairman: The question is in reference to tax cuts, what your thoughts are on it. We're going to go from Mr. Hyndman right through to Mr. Landry.
Where are your priorities?
Mr. Brian Hyndman: Like some of the other people around the table, I'd like to see that anything done in the way of tax cuts benefits those lower-income families who, as another gentleman indicated, pay proportionately more taxes than higher-income earners do.
But let's face it: tax cuts are a form of spending; it's revenue deferred. I don't want to see tax cuts at the expense of other pressing health and social needs, such as the need to address child poverty.
The Chairman: Ms. Gauthier, very quickly.
Ms. Wendy Gauthier: From the ACPM's perspective, one of the things we want to emphasize is that the government needs to take an even-handed approach to the issues of taxation and bracket creep. As we continue to age rapidly as a population, the government should look at the entire retirement income system as a whole, and not try to piecemeal any one aspect of it.
The Chairman: Thank you.
Mrs. Sophia Leung: Mr. Chairman, I just want to comment.
I want you to be aware that if we save $1 billion in tax cuts, the range each person saves is from $75 to $6. I'm not going to go into detail. I want you to be aware of that figure.
The Chairman: Who's going to comment next?
Mr. Greg deGroot-Maggetti: As we said, when we're looking at tax measures, we have to look at the effect they have on people at different income levels.
We have said that whatever tax measures are taken first have to decrease the burden on low- and modest-income families. We should recognize too that there's great economic benefit to Canada, in terms of employment creation and everything, from directing tax benefits to those most in need. Every dollar that somebody on a low income receives in tax relief gets spent, whereas if we offer tax relief for people with high incomes, a lot of that money is not going to get back into the economy; it's going to go into savings.
The kinds of tax cuts we've seen over the past decade, which have lowered tax brackets for people in the upper incomes, are one of the main ingredients of the financial securities bubble that's now bursting around us. If we direct the tax relief at the people who've borne the heaviest burden in the whole deficit reduction exercise we've been through, it will help to reduce the gap between rich and poor, to increase that middle class, to stimulate the economy, and to give us a more stable and secure economy.
The Chairman: Thank you very much.
Ms. Jesin, a final comment.
Ms. Evie Jesin: Our priority is to have tax cuts to ensure that Canadians receive oral health care and to enable a regulatory and a funding solution for those who cannot access care. Access, again, begins in oral health care, which will link it to the body. Healthy Canadians then can enjoy a healthy lifestyle and contribute to all the other activities we've heard about today.
The Chairman: Thank you very much.
As you've probably seen, the challenges and choices we face are numerous, but we will do our best to make the right ones—right for Canadians and right for the country.
On behalf of the committee, I'd like to thank you. This was a very lively panel, which is a good thing. On behalf of the committee once again, I would like to express to you our warmest and sincerest gratitude for an excellent panel.
We're going to take a five-minute break for a couple of reasons: we have some technical difficulties, and we also just want to get up and stretch. I also would like the members to know that we did schedule some time for lunch. It's from 1 p.m. to 1.30 p.m., a half-hour lunch. That is a luxury.
The meeting is suspended.
The Chairman: I'd like to welcome the Canadian Association for Community Living, the Canadian Auto Workers Union, the Childcare Resource and Research Unit, and Growing Up Healthy Downtown.
We will begin with Mr. Dick Calkins, the vice-president of the Canadian Association for Community Living.
Welcome. Sorry; we're competing with musical interludes in the background.
Mr. Dick Calkins (Vice-President, Canadian Association for Community Living): It sounds like aerobics.
Thank you, ladies and gentlemen of the committee. We represent the Canadian Association for Community Living. With me is Connie Laurin-Bowie.
Most people do not know who we represent. We represent, in membership across this country, roughly 40,000 people with intellectual disabilities and their family members. When we speak of somebody with an intellectual disability, it's different from somebody with a psychiatric or mental illness. These are people who used to be called mentally disabled, and way back when, in the more or less dark ages when we institutionalized people, they were labelled as retarded.
We would like committee members to realize that we're now feeling the impact of the CHST. In 1994 the budget eliminated the cap on the EPF and wrote it into what is now the CHST. The impact that people with disabilities and their families are now feeling is that the CHST has quite literally moved them into poverty. They were at the lowest end of the scale to begin with and are now finding that they're being further pushed down that economic road to poverty, to ruin.
Most people do not realize the extraordinary expenses that individuals with a disability or their families have to bear. They are extraordinary. If you've never been associated with one, you probably cannot envision that.
Our hope today is to be able to impress upon you that a large segment of our population—3%—have an intellectual disability, and they and their families deserve the right to become citizens of this country. That has been systematically removed from them. The systems that have been put in place now under the CHST are more of a policing action than what we were used to: a system that was genuinely concerned about people and helped people. We find that more and more there's almost a heartlessness within the various agencies, government and otherwise, that people with a disability have to deal with.
What we wish to present to you today are strategies that will include people with disabilities in society, and that in the long term will take the burden of the various costs off society so that people with disabilities can become contributing members to society, and in some cases even taxpayers to our system.
Ms. Connie Laurin-Bowie (Coordinator, Government Liaison, Canadian Association for Community Living): Good morning. I'm Connie Laurin-Bowie. I'm also with the Canadian Association for Community Living. I'm a staff person for the organization.
I want to outline a couple of initiatives we'd like to build on. The title of our submission is “Disability: A Social Deficit”.
I regret that the translation does not exactly reflect the English version. The principles are identical, but it is a little different in French. A French version that better reflects the English version will be sent to the members of the committee.
I'm not sure who that affects, but I thought I'd acknowledge that the translation is not the same as the English version, because we've made some simple changes to it.
We noted with interest and would like to commend the committee for its contribution to the last budget. We were very pleased, not so much in terms of any direct interventions that focused on people with intellectual disabilities or disabilities generally, but that the very nature of the budget acknowledged and provided a model for addressing issues of participation of groups in our society. There were significant models, if not huge amounts of money, related to children and to education. These were interesting, innovative approaches to using tax policy as well as program dollars in a more innovative way.
What we would like to do, and what we've done in our submission, is begin to build on those models. In some ways it seems to be a replacement of the model of CAP, what will be the order of affairs of the national government under the CHST. The budget actually outlines some pretty interesting ways of going about working in cooperation with the provinces on targeting groups in our society who have been excluded. We would like to see those initiatives built on, and we've begun to do some of the thinking that is required to apply them to people with a disability.
For example, one of our long-term proposals is that you have an enriched child tax benefit—although we really need to work on the details of this—that would address issues faced by families who have a member with a disability. Likewise, we like the education model that uses an RRSP investment tool and levers dollars from extended family. We know that many families who have a child with a disability are planning for their son's or daughter's future. They are forced increasingly, because of the waiting lists and the lineups and the lack of services in many of their communities, to think very long-term about the situation their children will face when they are gone. We have some specific proposals about how we could facilitate those contributions that families would like to make.
The main point is that we really appreciated the models contained in the last budget and some of the innovative approaches there. We understand that in the current climate there will be no major expenditures on major social programs in the next budget. It was very clear that the minister scooped us this morning. There isn't much we can say after his presentation yesterday, except that we need to start to work on the systems that we'll need to create when we come out at the end of this next cycle, yet again. And those systems should include people with disabilities. It is costing our society a significant amount of money to continue to keep those people on the sidelines. There are many who wish to work and participate and be a part of their communities, and all we need to do is restructure our systems in order to make that happen.
I don't know what the form of the committee's questioning will be today, but I would welcome an opportunity to have more discussion. We'll leave it at that.
The Chairman: We'll have a question-and-answer session after everybody has spoken.
We'll hear now from the Canadian Auto Workers Union, with the president, Basil “Buzz” Hargrove, and Mr. Jim Stanford, economist.
Mr. Basil Hargrove (President, Canadian Auto Workers Union): Thank you very much, Mr. Chairman and committee members, for inviting us and giving us an opportunity to comment on the economic outlook and the upcoming federal budget.
I feel as though we're a day late, after listening to the minister last night. I'm sure this morning he must feel like the Grinch who stole Christmas. I felt so bad, after him telling us how terrible things were, that I almost thought I should come in this morning and propose a tax increase to help with all the problems we have. He's a master of disguise, and seeing as it's October and we're heading towards Halloween, he should be at least complimented for his ability to disguise.
Like most Canadians, we are concerned about what's happening with the slowdown in the economy and the resulting instability in private financial markets. Our argument is that the federal government must do everything possible to preserve domestic growth and job creation. The government must talk about providing stimulus, as opposed to the statement we heard from Mr. Martin yesterday.
Monetary policy is constrained at present by the turbulence of the global finance problems, and the federal government will still run an operating surplus this fiscal year in excess of $50 billion. With the private economy slowing down, the government must loosen that fiscal noose.
We accept the logic that the government budget should be balanced on average over the course of the business cycle. Chronic deficits and the steady accumulation of public debt that those deficits entail are not sustainable. We're not arguing that they should be.
In particular, a government that pledges to balance its budgets at all costs as the economy enters a recession will inevitably make that recession worse. If government responds to a slowdown in the private sector with its own fiscal restraint, it only exaggerates the problem.
Most economists would agree—and I think Mr. Martin confirmed this morning—that we're going to generate multibillion-dollar surpluses this year and next. This morning the papers reported that Mr. Martin said that in the first five months of this year, we had a $7.9 billion surplus.
Jim Stanford, an economist with our union, estimated in a study released this week by the Canadian Centre for Policy Alternatives that the federal government will accumulate over $12 billion in surpluses in 1998 and 1999, even if the slowdown is significantly worse than most forecasters currently expect.
During Mr. Martin's first five years as finance minister, the federal government overachieved its official budget targets by a cumulative total of some $50 billion. The minister's fiscal update yesterday continues this tradition of what we refer to as phoney, at best, over-performance. We say his projections are padded with contingency funds, conservative economic assumptions, and revenue and spending forecasts that are pessimistic, even in relation to the conservative economic assumptions that some are making.
The minister's claim that we still can't afford to ease the fiscal stance of the federal government is simply no longer credible.
Our preferred means of fiscal stimulus is for the federal government to reverse some of the deep cutbacks that have been imposed since 1995 in federal programs. We especially urge you to restore transfer payments to low-income Canadians and to unemployment insurance benefits. We have a million workers in Canada today who qualify for absolutely no benefits at all.
I attended a press conference a couple of days ago with a group of concerned citizens who are looking at the incredible increase in poverty, especially child poverty, and homelessness in the major cities across the country. It's not a wonder and shouldn't surprise people that with a million people with no income whatsoever, you're going to have a lot more hungry kids, a lot more families living in poverty, and a lot more homelessness.
In addition, we propose that the government should dedicate funds to important and badly needed public works, such as a high-speed rail link in the Windsor-Quebec corridor or a super-port in Halifax. These projects would put money into the pockets of people who need it the most and would provide the biggest boost to the domestic economy.
A general tax cut would be less effective as a means of fiscal stimulus. Income tax cuts in particular deliver a disproportionate share of their benefits to high-income earners, who have already profited from Canada's lopsided economy in the 1990s. If the federal government injected its latent surplus back into the economy, it would offset much of the coming slowdown in the private sector.
Like many other Canadians, we are outraged at the manner in which the government has misused the UI system to subsidize its other fiscal priorities. We estimate that changes in the UI balance, siphoned into general government revenues, have accounted for one-quarter of the total progress achieved by the government in reducing the deficit. By deeply slashing UI eligibility and benefit levels, the government has forced Canada's poorest of the poor to bear a disproportionate share of the total burden of deficit reduction. To make matters worse, the government now is signalling its intention to continue to take these funds to subsidize its other priorities.
UI premiums are collected in a highly regressive manner. The average worker pays UI premiums at a rate five times higher than the average stockbroker in downtown Toronto. The only possible justification for this type of tax system is if those funds are subsequently used to provide income security for the same low-income Canadians who pay the most into the system.
If UI revenues are channelled into other priorities, even laudable ones such as health care, then the federal government is truly a Robin Hood in reverse. It would tax low-income Canadians at a higher rate for projects that should be supported through progressive income taxes. Especially repulsive is the notion of using UI moneys to fund an income tax that would most benefit high-income earners.
We are living through a period, Mr. Chairman, in which I think, when the historians look at it, they will see that we were the custodians of the most massive transfer of income and wealth, from the lowest-paid Canadians to the highest-paid and most wealthy Canadians, in the history of the nation.
But it has never been so open as it is here, when we are asking the poor to give up their unemployment insurance benefits and go with no income whatsoever. We have the BCNI and the Canadian Federation of Independent Business and others talking about using that money to give tax cuts to the wealthy. I think that is unacceptable and should be condemned by government and all parties in the House. We have seen how vulnerable we are to the decisions and sentiments of private financial investors. Efforts by these investors to maximize their returns or to minimize their risk have created outright chaos in numerous economies around the world, and now even threaten the well-being of Canada and Canadians as well.
The federal government, Mr. Chairman, needs to act urgently on its own in conjunction with other governments to develop measures that would regulate and stabilize international financial flows. We have granted an elite group of private investors the right to move their money wherever they want, whenever they want, regardless of the harm they cause to the rest of us. This is no longer acceptable in the ordering of economic priorities.
In this regard, I would like to address the issue of limits on the foreign content of tax-subsidized pensions on RRSP money. The financial community wants the current 20% ceiling lifted. We are strongly opposed to this suggestion and in fact would like to see the ceiling lowered in phases down to zero. If investors choose to accept the generous tax subsidies they are offered by the government, then they should at least be obliged to keep their money in Canada.
This, together with other measures, would help to stabilize financial markets. We also object to the growing stock marketization of our social programs. Given their inherent instability and at times irrationality, we should be giving stock markets and other financial markets a smaller role to play in our economic and social lives.
But this government is going in the opposite direction: generous subsidies to private RRSPs instead of improving our public pension system, investing larger amounts of CPP moneys in the stock market, and even funding programs like university scholarships through investments in private financial assets.
In conclusion, Mr. Chairman, one area about which I am in disagreement with a lot of the labour movement is the labour-sponsored capital funds. I note with surprise the government's intention, announced recently, to reverse its 1996 decision to reduce the maximum subsidized investment in labour-sponsored venture capital funds. If the government wants to start reversing some of the painful cutbacks it imposed in its 1995-96 budget, I could list a hundred other priorities that should be addressed long before we sweeten this bizarre subsidy scheme for private investors.
The CAW opposes public subsidies to this type of investment vehicle. We support the principle of public support for job-creating investments in both the private and the non-profit sectors, but this support should be channelled through a publicly accountable investment bank, rather than our funding an inefficient and expensive infrastructure of private money managers.
I would like to thank the committee for allowing us to be here this morning. We would be happy to deal with any questions or comments.
The Chairman: Thank you very much, Mr. Hargrove and Mr. Stanford.
We will now hear from Growing Up Healthy Downtown, Ms. Karen Serwonka, project coordinator. Welcome.
Ms. Karen Serwonka (Project Coordinator, Growing Up Healthy Downtown): Good morning. Thank you very much. I appreciate the opportunity to participate in this round table this morning.
Our message to you today is that as you contemplate how to spend the anticipated federal budget surplus, remember the vital importance of investing in children. As a matter of introduction, Growing Up Healthy Downtown is one of over 600 projects funded through Health Canada's community action program for children and the prenatal nutrition program. We provide support to parents and caregivers of young children in the areas of parenting programs, healthy child development, parenting relief, food access, and a host of other health promotion initiatives.
Today I'd like to begin by making the important connection between economics and health. Economic security is recognized by the World Health Organization as a fundamental determinant of health. Simply put, poorer children have poorer health outcomes.
While some sources say that our economy is beginning to pick up, a significant proportion of parents struggling financially to raise their young children are not convinced that all is well with the economy.
Statistics Canada figures also tell us that the number of children living in poverty has increased from a decade ago. In our daily work at Growing Up Healthy Downtown, as we come face to face with hundreds of families with young children at our eight sites across downtown Toronto, we're reminded in a very concrete way of the importance of economic stability in raising healthy children.
For example, expectant mothers come to our prenatal and nutrition programs who can't afford to consistently buy nutritious food throughout their pregnancies. Parents and caregivers come to our family resource programs looking for support and education to enhance their parenting capacity, but when they're there, they also share with us the many challenges they face in attempting to address their family's basic economic needs.
Many are looking for training to re-enter the workforce and steady employment at a liveable wage. The majority of these parents also struggle in their search for affordable and quality child care.
Through funding Growing Up Healthy Downtown and the more than 600 other Canada prenatal and nutrition programs and CAPC programs across Canada, the federal government has made a vital contribution over the last five years to enhancing the healthy development of children up to age six.
While the existing federal commitment to the healthy development of young children through CAPC and CPNP projects has maintained some level of social and economic stability in these turbulent times in Ontario, it cannot be expected to offset the impact of the $2.4-billion cut in federal health transfer payments with the removal of the federal CAP legislation.
In Ontario, the communities we serve have been greatly impacted by the reduction in federal transfer payments combined with the actions of other levels of government, including service delivery restructuring, cutbacks, and downloading.
In this climate, in order to address these challenges and maintain and advance our health gains, Growing Up Healthy Downtown and the 600 other children's health projects could do with some assurances today from the federal government that our funding will be maintained and extended as we are on three-year funding cycles. Can our children's health projects be guaranteed to be stable, long-term health resources in the communities across Canada that we serve?
We recognize that our programs, no matter how vital to children's health, cannot be the only strategy to address health problems that arise from families not having access to having their basic needs met. To do this, we need broader healthy public policy and budgetary measures.
This is where our second recommendation comes in, which is how the federal government can utilize part of its budget surplus to enhance the health and well-being of young children and their families.
So now I'd like to turn your attention to our second recommendation for utilizing the federal budget surplus in addition to maintaining and expanding the CAPC and CPNP funding. In hopes of reducing child poverty and improving child health outcomes, I've come here today with a concrete suggestion as to how the federal government can make a noticeable difference. We're recommending an investment by the federal government that will directly reach the families of all children in their critical first year of life from coast to coast. Our suggestion is for the federal government to extend and enhance pregnancy and parental leave benefits through the employment insurance system.
As it stands now, many of the parents in our communities struggle with inaccessibility to EI funds during pregnancy and parental leave due to casual or self-employment, surviving on just over half of their former wages when their household costs to raise a new child have increased, feeling that they are having to return to work too soon when their children are still so young, and having difficulty in finding high-quality yet affordable child care. We urge the federal government to keep pace with other nations that have been able to find the money in their budgets to extend maternity benefits to self-employed, casual and contract workers—numbers of whom are increasing in the employment sectors—by lengthening the pay benefit period and increasing the amount of the benefit.
We can start off by extending and enhancing pregnancy and parental benefits through EI. If we were to dream bigger, we could aim for similarly increasing social assistance benefits to parents of newborn or newly adopted children in order to bring their family incomes above the poverty line. We could also provide a comprehensive, high-quality, affordable child care and early education program for young children across the country.
We urge the standing committee to invest the surplus EI and any other budget surplus in expanding on our existing system of pregnancy and parental benefits. Such a federal government initiative would put money where it can most directly benefit families: in their pockets. Twelve monthly cheques from the federal government directly to families with newborn and adopted children can benefit them immensely.
Inside each cheque to new parents, you could include information on how to access the over 600 CAPC and CPNP programs that the federal government also funds—so it's a way of supplementing our outreach to families who are very isolated. This targeted financial program could deliver results in reducing child poverty and improving child health outcomes that the federal government and all Canadians could be very proud of.
Expected benefits would include more resources for families to invest in raising healthy children, prolonged breast-feeding, better nutrition, and advanced infant stimulation and learning, making children better able to learn and preparing them to be healthier and more productive members of our society. We feel this is a concrete solution to support children in their most vulnerable years of life. It's a way of valuing children and of valuing parenting. It's an investment in improved child health and well-being. We only have one shot at giving our children the best start that we can.
As I conclude my submission today, I would just like to turn my thoughts to a person who has lobbied endlessly for ending child poverty in Canada, Rosemary Popham. Many of you will remember Rosemary from Campaign 2000, which participated in round tables here over the last few years. I would like to make a special request that we observe a moment of silence in memory of Rosemary, my colleague, who passed away the day before yesterday, to think about her hopes and her dreams to end child poverty in this country. Rosemary clearly recognized the role this committee has in fulfilling those dreams.
[Editor's Note: A moment of silence observed]
The Chairman: Thank you.
We'll now move to the question and answer session, beginning with Mr. Nystrom, followed by Mr. Brison.
Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP): Thank you, Mr. Chairman.
I want to thank all the witnesses for their information this morning. I'd like to say to Karen that I think one of the ways you measure a society is by the legacy we leave our children. I think we've had some pretty moving testimony this morning from all of the witnesses.
I wanted to direct my question at Mr. Hargrove or Dr. Stanford. Basically, it's on the general direction in which the government is going in terms of its macroeconomic policy.
I think there have been two fundamental errors made in the last decade or so by federal governments. One was made by John Crow in terms of his restrictive monetary policy back in the 1980s. At one time, our interest rates were 5% higher than those in the United States. That resulted in a terrific slowdown in the Canadian economy—more unemployment, higher interest rates, long-term debt—and added to the deficit/debt problem. Crow was much more restrictive than the Federal Reserve in the United States, and I think that was a fundamental mistake.
I think the second error occurred when people I call the bureaucrats at Finance convinced our Minister of Finance, Paul Martin, a couple years ago to abandon the old Paul Martin—I'm not talking about his father, but the previous Paul Martin, we saw when he was in opposition—who talked about growth and stimulus in the economy. He's become really a fiscal conservative, and perhaps the most conservative finance minister we've seen in the last four or five generations.
In February 1995, Mr. Martin responded in his budget with the most massive cutbacks in social programs that we've ever seen. The result now is that we have the smallest federal government since the Second World War—and in those days we didn't have a national health care program. If you take that into consideration as well, what we have now is a very small federal government sector. Yesterday, he was not talking at all about expanding that or reinvesting in the economy.
Buzz, I noticed that you were talking a lot about growth. I certainly agree with you that we should be trying to grow the economy, that we should spend the surplus by trying to top up some of the programs that were cut back back in February 1995, and particularly health care, I would think.
I want to ask either you or Dr. Stanford—and I'll even use Paul Martin's very conservative figure, that we have a $3.5 billion surplus—what the impact would be if all that money were to go back into government programs, particularly health care, through transfers to the provinces and so on. What impact would that have on the economy in terms of extra jobs, and how much of that will come back to the federal government in terms of taxes and lower payouts in terms of employment insurance? What kind of general projection would you give us?
On the flip side of the coin, in terms of what's happening around the world today, by how much will it worsen the Canadian economy if we use all of that money to pay down the debt instead of putting it into useful programs like children's benefits, health care or whatever?
Dr. Jim Stanford (Economist, Canadian Auto Workers): Perhaps I could respond to that one.
Mr. Nystrom, I think the direction of your comments is entirely correct. On the monetary side and the fiscal side, the legacy of the right-wing policies that were followed in the late 1980s and throughout the 1990s has been a recovery in Canada that has been profoundly weak and uncertain. We've lagged far behind the U.S. economy and the economies of the other leading industrialized countries in terms of our growth this decade. Ironically, the impacts of that slow growth and those high interest rates—especially those of earlier in the decade—on the government's deficit and debt situation were profoundly negative.
In terms of the specific impact of the government reinjecting its latent surplus back into the economy, it was indicated yesterday that last year's surplus was $3.5 billion. If that's spent on the provision of real services by government, particularly labour-intensive social services, or if it's directed into transfer payments towards low-income Canadians, those who save none of their income—the statistics suggest they spend it all, and they spend it largely on goods and services produced in their communities—you can expect an ultimate multiplied effect on Canadian output of between 1.5 and 2.
Even if we accept the 1.5 number, it means that for every dollar the government reinjects into those types of programs, it's getting $1.50 worth of final additional GDP. In turn, the federal government takes back close to 20¢ of each dollar of that additional GDP, so the impact on the government's coffers is limited, and the impact on the unemployment rate could be quite positive. If the $3.5 billion had been spent last year, that would have translated into over $5 billion in the final GDP total, and that's over half a point of GDP growth.
This year the impact of reinvesting the surplus would be much more significant by virtue of the fact the surplus is going to be larger. We estimate that even in the case of a slowdown, the government is going to take in a $5-billion surplus. If it reinvests that in labour-intensive services or low-income transfers, you're looking at something close to an extra point of GDP. That could be extremely valuable at a time when the private economy is going into a slowdown.
By reinvesting the surplus in those public programs instead of hoarding it for debt reduction, we think the government could prevent the increase in unemployment that we can expect over the next year or two. Instead of seeing unemployment rise back up to 10% or higher by fiscal 1999, the government could keep the unemployment rate at its current level of about 8.5% by reinvesting the surplus.
Mr. Lorne Nystrom: So the flip side of spending it all on bringing down the debt would be a worsening unemployment rate. It might also mean higher interest rates. And it may also mean a greater debt, because if the economy is going more slowly, interest rates may go up, fewer people will be working, and you may actually compound the problem rather than help the problem.
Dr. Jim Stanford: Certainly, and by trying to reduce the debt burden by actually repaying the debt, the federal government is ignoring important lessons from our own economic history. We came out of World War II, for example, with a federal debt in excess of 100% of our GDP. That fell rapidly over the ensuing three decades even though the government did not pay off a single dollar of the debt explicitly. How did we reduce that debt burden? We did it by rapidly growing and developing our economy, and that's what ultimately matters.
It's like a household mortgage. What you actually owe to the bank in abstract is not really relevant. The bank looks at what you owe in relation to what you make. That's why they ask you what your salary is every time you go in for a mortgage. It's exactly the same principle with our national debt.
Whether it's a big burden or not, it's not the actual dollars of the debt that look big for anyone, for any country. Rather, it's the size of that debt in relation to your GDP. The debt burden has fallen over the last two years, and it will again this year. That's not because we've paid off any surplus, but because our economy was growing. By threatening that growth with its fiscal conservatism, the federal government is actually impeding the real decline in our debt burden.
Mr. Lorne Nystrom: In terms of globalization, Dr. Stanford, do we have as much impact now as we did ten or fifteen years ago in terms of having domestic stimulants? Some argument is made by the other side that we are so interconnected in terms of other economies around the world that we can't really do that much anyway, and all we're going to do is dig ourselves into a deeper hole.
Back in the sixties, when we had less than a globalization in terms of economies, we had more impact in terms of the direct stimulants in this country. How strong is that argument in comparison to what kinds of stimulants we had in the sixties or seventies? That's one of the major arguments we get back in return—that actually it's just like throwing some sand in the wind, that we can't do much anyway and are impotent in terms of global forces.
Dr. Jim Stanford: Globalization has impacted us very fundamentally in some ways, and the financial market is where that impact has been felt the most negatively. In terms of increased trade penetration in Canada's economy, that is a factor that undermines certain types of government stimulants. Ironically, the globalization and the import penetration of our economy is actually an argument in favour of other types of government stimulants, particularly direct investment in the provision of public services, labour-intensive and community-based social services, health care, and education. Those are forms of the economic output that have very little import content. In that sense, you are actually ensuring that a larger share of the fiscal stimulus stays at home in Canada.
In contrast, much of the stimulus from a personal income tax cut is going to leak out of the country simply by virtue of the larger proportion of imports in the consumer bundle of the typical Canadian. So if anything, globalization has made the case stronger for enhancing the direct role of the public sector in providing community-based services to Canadians, in my view.
Mr. Lorne Nystrom: I want to ask you one more with regard to what's happening around the world in terms of the deflation that's happening, with two-thirds of the world in a recession.
There has been a little bit of chatter around the world about the Tobin tax on international financial transactions. I wonder if you can tell us what the position of the union is. I assume you support the idea of a Tobin tax, how it would work, and how it might help rectify some of the volatility on the capital markets, the currency markets.
Dr. Jim Stanford: We have supported the Tobin tax, but as one item in a broader package of efforts that are going to be required to re-regulate and stabilize financial flows. I think the Tobin tax would help in that, but, quite frankly, the Tobin tax would not have made much difference in the current financial meltdown. The sorts of gains and losses to which investors were reacting in response would swamp the stabilizing impact of the Tobin tax. We're actually looking at more direct and forceful measures to control capital markets, such as the restriction on foreign content of subsidized pension moneys.
We noted pleasantly that even the finance minister talked about the virtues of actual explicit controls and limits on financial flows internationally. That's a far more direct and powerful measure than the Tobin tax in terms of slowing things down. He was very cautions, though. He said this should only be invoked by some countries at times of extreme urgency. But we would go further than that. We would say the principle is a valid one that all countries should look at implementing.
The problem now, though, is that we've given this elite group of investors—that's who we're talking about; it's not the red-suspender speculators who are just paid traders, it's the individuals who actually own the financial wealth, which by and large is mostly owned by a small elite—the right to move their money around wherever they want, whenever they want, regardless of the harm it causes in its wake. That is a right that was not God-given, and we have to start questioning it. Very direct forms of government intervention to stabilize capital markets is the direction we're going in.
Mr. Lorne Nystrom: My understanding is that about $1.3 trillion a day flows around the world in terms of currency. What kinds of controls would you be advocating here? Of course, these would take an international agreement to make them effective, but what advice do you have for the finance committee in terms of what we should be advising Parliament and the Minister of Finance to do?
Dr. Jim Stanford: Clearly, part of the solution will come globally. We would want to see the finance minister working with other countries for the establishment of a true global central bank along the lines of what Keynes would have proposed immediately following the war. It would be one that could impose discipline on both debtor nations and surplus nations, and one that would act as a lender of last resort for banks and national economies. We would also still see an important role for enhanced powers for national governments to stabilize capital inflows and outflows. Part of that would be measures like restricting the foreign investment of pension moneys, and part of it would simply be allowing governments to prohibit certain types of portfolio investment.
If foreign investment is coming in to actually to create a factory, a mine, an office building, or something that's concrete and productive, that is something that adds to the local economy. It's also something that can't pack up and leave overnight like the trillions of dollars of financial capital can. That's the sort of foreign investment that we should be promoting.
We should actually work to restrict most types of portfolio investment. At a bare minimum, we have to hold portfolio investors accountable. One example of this is what the Chileans were trying to do by forcing portfolio investors to keep a share of their money on hold, on deposit, with the national central bank. That worked successfully for some years. Even it was not enough in the face of global chaos, though, so they've withdrawn that measure. But that's the sort of direct regulation that's required.
More fundamentally, what we also have to do is restrict the growth of the influence of private financial markets generally. This is where the choice between, say, a public pension plan and a privately funded RRSP-based system is very relevant to this. If you are going to go to the private RRSP route, what you're going to do is enhance in a dramatic way the size and influence of these private financial markets that have proven to be so unstable and potentially damaging. That's again why I think the global chaos over the last couple of years—and the last year in particular—is a strong argument in favour of resorting to the direct public provision of some of those important services.
Mr. Lorne Nystrom: It's too bad the Reform Party wasn't here this morning, because they want the total privatization of the Canadian Pension Plan, as you are aware. At this point, they don't have much support for the idea amongst the public in this country, thank goodness.
Dr. Jim Stanford: On the pension issue particularly, the Toronto Stock Exchange is down a third from its peak in April. That means that if you retired today, you'd be one-third poorer in a Reform-style pension system than if you had retired in April. Where is the efficiency or rationality of that? I don't know.
Mr. Lorne Nystrom: I wanted to ask you about the UI fund. Do you support the idea of the fund being a separate fund as opposed to it being part of the consolidated revenue fund, as it is today? If you do, should it be phased in over a two- or three-year period, or a five-year period? I agree that we should enhance the benefits, of course, as Buzz was saying. Is there anything else the fund should be used for in addition to enhanced benefits? What about training, job market things, and so on?
Mr. Buzz Hargrove: First, Mr. Chairman and committee members, we reject the premise that this money belongs to anyone except unemployed workers. The premiums are paid in by businesses and workers by virtue of legislation that says unemployed people, people who lose their jobs, have to have income as they go about trying to find other work in our economy. In any given year, there are hundreds of thousands of people who are between jobs or, at best, who have short-term unemployment. There are others who have long-term unemployment for a variety of reasons.
So we want to be absolutely clear: we reject any notion at all that this money should be divided by anyone. This is not an insurance fund for business. This is an insurance fund for unemployed people, one that pays them benefits.
It's interesting that they've changed the name to employment insurance. If you listen to the BCNI, the Canadian Federation of Independent Business, the Reform Party and others, they're saying we should be taking the money and giving tax breaks to those who are working, those who are reasonably well off compared to those who are unemployed, those with no income. Especially for the people who have a lot of money and wealth, we want to give them more money, subsidized by people who are unemployed and who get no income whatsoever.
I do not buy into the argument that somehow there should be some arm's-length governance controlled by business and labour. If it's at arm's length from government, its governance should be controlled by labour. It should be controlled by working people, because it's their money. Once it gets into the fund, it belongs to no one else. So I don't see that in the cards today, unfortunately.
This debate is an interesting debate in the nation today as business, including government, goes about tightening the grip on income for the workforce. In the federal sector, for example, we have people who have now gone six or seven years with no increases in wages, and their income has dropped radically because of inflation. We have people who have been denied pay equity in the public sector. We have private sector workers who have been forced to take wage cuts. The overall economy is in decline mostly because of the impact that this has had on both individual and family incomes.
What we need to do is put some money back into the pockets of people. I have absolutely no confidence in Tom d'Aquino of the BCNI, or in Catherine Swift of the Canadian Federation of Independent Business, having any say whatsoever on what happens to money that belongs to unemployed workers. I've been part of the Canadian Labour Force Development Board. We had this debate about premium rebates or benefits, and I know where business stands today. They want to take the money from the poorest of the poor and give it to the wealthiest of the wealthy.
As for what we'd like to see, we think it's a social benefit. Social benefits are supposed to be controlled and implemented by government. The tragedy today is that government is abusing its power in this area. In spite of the fact that we have all kinds of money to pay unemployed people benefits, we're taking the benefits away and are ignoring the downside of doing that. As the sister here talked about, that downside includes child poverty, poverty generally, homelessness, and just the overall standard of living and the feeling about our country that a lot of low-income Canadians have. Those are the issues that we should be getting back to.
We should also be getting back to where government stood up to business and became the counterbalance to this incredible power that Jim Stanford talks about, this power that we've handed over to private capital. We need somebody to stand up for working people, especially the underprivileged, the unemployed and children in poverty.
The Chairman: Thank you, Mr. Nystrom, Mr. Hargrove.
Mr. Scott Brison: Thank you, Mr. Chairman.
Thank you for your presentations. I have a question for the Canadian Association for Community Living. To what extent have you explored specific proposals in terms of early intervention and in terms of return for societal investment—for instance, in young people, in your members? Ultimately, have you explored models and had some successful projects in that light, similar to what the Mustard studies have demonstrated in terms of early intervention generally?
Ms. Connie Laurin-Bowie: The Mustard studies are focused more in terms of clinical developmental issues. Over the years, we have had social projects, involvement and experiences that have shown that whether they have an intellectual disability or not, children who go to school with their peers and who grow up in their communities end up continuing to live in their communities with fewer supports than they might need had they been excluded or separated. They also end up very often graduating from high school and going off to work.
The interesting thing we're now seeing is that this is the first generation of children who have been included in their school system, for example, and who are now going on to be contributing, working members of society. They are the first to be more proportionally employed in relation to their peers.
On the clinical side, we have done less intervention work on the sorts of determinants... I remember Dr. Mustard's presentation to the human resources development committee on early intervention. I think he said something to the effect that if you have a child who is in a home with lots of violence, the child is not going to learn. Well, we didn't need to do a study to figure that out.
Likewise, on the very issues related to children with intellectual disabilities, I think there are some basic social environment issues that we now understand better because a certain generation of kids is being included and supported in a different way. They're included and supported by families' being provided ways to act in their communities. It doesn't happen in the isolation of a family. I think that's one of the critical things that we've found.
Mr. Scott Brison: To what extent is information technology being utilized, or at least being developed, to help your members in rural communities, for instance? I represent a rural riding. With the death of distance as a determinant in the cost of telecommunications, it strikes me that one of the avenues that we have to explore is the use of technology to help in the delivery of services, especially information technology. Is that being explored?
Ms. Connie Laurin-Bowie: We have a series of projects across the country that are a follow-up to work that we've done on deinstitutionalization. Having achieved a certain amount of success on deinstitutionalization, we've moved to projects that look at community infrastructure and community development activities. I'm certainly not the person who knows the most about them, but I believe there are some very specific projects there that relate to the use of those technologies.
I can't tell you more than that in terms of the detail of how those things have been used, about whether they've been focused on employment or focused on children or learning, or in what capacity. But it certainly is a growing source of information for families, for example, and it's clearly a source of education systems and service provision in communities. All of those systems have really grabbed onto it, although there aren't a lot of resources to develop the use of it in those systems.
Mr. Scott Brison: Thank you.
Dr. Stanford, I appreciate your intervention. There's a Keynesian argument about spending the surplus. You're suggesting that we spend the surplus, but you're not suggesting that we spend into a deficit position at this juncture, are you?
Dr. Jim Stanford: On the condition that the economy does not go into an outright recession, then I would argue in favour of spending the surplus up to a balanced budget. You'll get a stronger economy and more government revenue as a result.
On the other hand, I don't ascribe religiously to the principle that the budget should be balanced regardless of the state of the economy. It's quite appropriate for a government to run a deficit when the economy is going into a recession. That deficit will emerge automatically because of decreased revenues and because of increased expenditures on social insurance programs. If the government tries to maintain a balanced budget while the economy goes into a recession, it's actually going to make the recession worse because it's going to be cutting back spending at the same time when the private sector is contracting.
Mr. Scott Brison: You're right in that if Keynesian policy is followed appropriately during a recession, there can be government investment beyond what can put an economy into a deficit. That's not necessarily inappropriate. The difficulty is that during times of economic growth, governments have not really demonstrated the capacity to pay down those deficits in the past. This has changed more recently, but there have been a lot of politicians who have read parts of Keynes but haven't necessarily subscribed to all of them.
Do you believe a tax cut would be too leaky in terms of its actual impact? There are some Keynesian arguments for tax reductions—for instance, that the EI rates should be reduced significantly as a tax and as a direct impediment to employment at a time when we have unnecessarily high unemployment. Would you not subscribe to that?
Dr. Jim Stanford: We recognize that tax cuts are a form of fiscal stimulus. In that sense, tax cuts now would be better than nothing. Clearly, tax cuts by the federal government would be better than having it continue to sock away billions of dollars for debt repayment, thus exacerbating the slowdown in the economy.
Some forms of tax cuts are more stimulative than others. Some of the targeted tax reductions that the finance minister himself introduced in the last budget are not bad at all in terms of delivering the share of benefits to the lower-income Canadians who are going to spend the most. On the other hand, a general cut in the income tax system is clearly not very stimulative. It delivers the bulk of the benefits to the higher-income earners who, first of all, save a large share of the incremental after-tax income that they get rather than spending it. There's no direct stimulus there. Second of all, they have a relatively high propensity to spend on imported consumer luxuries.
Without a doubt, a tax cut is stimulative, but we think injecting the money into direct public programs is more stimulative, and you'll get more bang for the buck economically by doing it that way.
Mr. Buzz Hargrove: If I could just add to that, on the premium reductions, most of that money goes to business. Business pays 7/12, as you're aware, and workers pay 5/12 into the fund, so if you give a reduction, which Martin has done... The only thing I agreed with him on last night was that they have now reduced UI premiums three or four times. We have the lowest payroll taxes of the OECD countries. Around the world we compare very favourably. So there's no argument today to give unemployed workers money—to take it out of their pockets, which we're doing, and give it back to business in the form of premium reductions.
There might be some validity to targeting premium reductions to just working people at a certain income level, but here we're talking again about transferring money from the poorest of the poor to the wealthiest in the country.
Mr. Scott Brison: Yesterday Minister Martin stated that any tax reduction would be focused on a progressive tax or less regressive tax measures than maybe exist currently, and he would try to benefit the lower- and middle-income Canadians. But is not maintaining artificially high EI premiums a maintenance of what is inherently a regressive tax, based on the $39,000?
Mr. Buzz Hargrove: Yes, but the answer to that, as we suggested to Mr. Martin at a meeting recently, is to change the way we apply UI premiums. There's a maximum of $39,000, which means a lot of high-income people—including members of my union—don't pay what they should, in exchange for an assurance they'll get a benefit.
So the real issue here is the surplus. As I view the surplus we have today, if we hadn't taken money away from unemployed people we wouldn't be talking about a surplus today. There are a lot of people suffering. I want to remind you that there are a million unemployed people with no income whatsoever who brought this surplus about. Surely the focus of everything has to be to get those benefits back into the pockets of people. I'm not talking about premium reductions, because the vast amount of that money will go to businesses that don't need it. If we want to restructure how we apply premiums, which I think makes a lot of sense, we need a progressive tax. Higher-income people should pay higher UI premiums. There shouldn't be a ceiling, as we have today. We suggested this to Mr. Martin.
The Chairman: Thank you, Mr. Brison.
We've just been joined by Ms. Friendly. I'm going to give you five to six minutes to make your presentation right now, and then we'll continue with the question and answer session. Welcome.
Ms. Martha Friendly (Coordinator and Adjunct Professor, Childcare Resource and Research Unit, Centre for Urban and Community Studies, University of Toronto): Thank you. I'm sorry I got my wires crossed about the time.
My name is Martha Friendly. I'm the coordinator of the Childcare Resource and Research Unit at the University of Toronto. I guess I've seen many of you here before; I've come every year. As I was driving here this morning and listening to the finance minister on the radio, I wondered why I was coming again.
I always come before you to talk about Canada's family policy situation, and that's what I'm going to do again, but I'm going to talk about one particular part of it in relation to the budget surplus. Just by way of preface, although most other nations in the world have been developing relatively coherent child and family policy over the last decade, Canada really remains ambivalent at best about families and children, and has never developed a coherent policy situation for them.
In fact, Mr. Szabo and I discussed this over the summer to a considerable extent, and I'm sort of directing some of my remarks to him. Over the last couple of years, even in spite of the introduction of the national child benefit, our public policy for children and families has become even more disjointed than it was before. We really need to have coherent and comprehensive child and family policy if we're going to meet the challenges of the 21st century. This applies from the perspectives of health, education, the economy and human rights.
Maternity and parental leave benefits are clearly within the federal government's jurisdiction. You may know that the responsibility for leave provisions falls under provincial law, but the responsibility for benefits falls under the employment insurance legislation. Our policy in this area has never been well developed. It lags considerably behind that of European nations in a number of ways.
On the amount of the benefit we pay Canadian families, even in 1990, out of the 18 nations that belong to the OECD Canada ranked lowest, and this was before UI premiums dropped as a percentage of wages. Canada ranked ahead of only Greece and the U.K. Every other country paid a better rate for maternity leave. The length of our benefit is very short, it's not flexible, and it's not accessible to many new parents.
This is the point I would really like to stress in relation to the UI and the budget surplus, and why I'm going to propose that you actually take some action in this area. The number and the percentage of new parents who are able to access maternity benefits has really dropped. Over the last year, the number of maternity claims dropped from 153,000 to 141,000. Maternity claims fell by 7.3% in 1997, whereas births dropped by only 2%.
In thinking about the budget surplus, particularly in light of the finance minister's statement yesterday, I'm proposing that if the budget surplus goes to pay down the debt, it will be done on the backs of new mothers and children.
I'm raising this question of maternity and parental leave partly in relation to some of the discussion Mr. Szabo and I had last summer about how parents who are not in the workforce are supported. One of the categories of parents who are not in the workforce are those who have recently had children.
I'd like to propose, as a first step in a comprehensive family policy, that your committee consider increasing the amount, length and the groups who may access maternity and parental leave. I think it's absolutely appropriate, given the discussion about the UI surplus, and it's very timely from the perspective of taking any steps to start to develop a family policy in Canada.
That's all I'd like to say, and I'd be happy to answer questions about that. Thank you for hearing me late.
The Chairman: Thank you very much, Ms. Friendly.
We are now going to go to Mr. Discepola for a question.
Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): This question is directed to Mr. Hargrove. I would like to thank him for his presentation. I expected him to come in here with guns ablazing, but I was reassured, especially by his opening remark that stated—and please correct me if I'm misquoting you—that the government must do everything possible to maintain economic and fiscal stability. I think that's the message Mr. Martin certainly tried to evoke last night.
However, some of your recommendations concern me from the point of view that notwithstanding the fact that Dr. Stanford never really gave any credit to any government policies on how we arrived at this surplus—if I'm quoting him correctly, it was done through either over-performance of the economy or the low interest rate, and I don't care about that—the fact of the matter is we have a surplus.
My concern, when I hear some of the recommendations, is that we will need to increase spending, but I'm always very leery of increasing spending because obviously the first fact that comes to mind is that if the economy doesn't perform the same way it has over the past little while, we obviously won't have the funds. If we take some of the recommendations of investing in some of the areas you've said, first of all they're recurring expenses, so if we take even a figure of $1 billion, that means next year and each subsequent year we'd better make sure we have the $1 billion in additional revenue to be able to provide and continue to provide those programs without incurring deficits again.
I'm wondering why Dr. Stanford is so averse to writing down the debt. In my own economics I feel that if we can write down the debt by $9 billion or $10 billion, or whatever the surplus figure is, we've benefited directly by lower debt payments. We have written down the debt by $9 billion and we now have, year after year, $800 million in additional funds—savings through debt payment—that we can invest in permanent programs, some of the programs you're recommending.
So shouldn't one of the priorities we should consider recommending to Mr. Martin be a concerted effort in writing down the debt, before introducing some new measures that might again put us in a deficit position?
Dr. Jim Stanford: In my view, the economic benefits for most Canadians of actually paying down the accumulated debt are negligible to perverse. I think it's especially ironic that the argument is being made to pay off the debt at the very moment that thousands of private financial investors are trying to buy government bonds as a safe haven against the instability of stock markets. In fact, there's a good economic argument to say it's a good thing that government has a sizeable debt as a share of GDP, precisely because it adds some stability to private financial markets in times when stock markets are chaotic.
Why do we want to close off this safe harbour that investors are seeking at the very moment when the storms in the financial seas are at their greatest? Investors want those bonds right now. Some of the investors are saying there's a shortage of government bonds.
Mr. Nick Discepola: Where do I fail in my logic? If I write down my mortgage, to use your analogy, by $10,000 I will save 8% or 10% on that $10,000 in my family household income, which I will have at my disposal. Are you saying you don't trust the governments to take the savings and invest them in some of the measures you've introduced, and therefore we shouldn't even attempt to write down the debt?
Dr. Jim Stanford: The only direct benefit of writing down the debt is the small amount of interest you save from the next year's—
Mr. Nick Discepola: It's not a small amount; it's $800 million if you write down the debt, as we have.
Dr. Jim Stanford: When you're dealing with a debt that starts at about $600 billion, paying off $3.5 billion of it will make virtually no measurable difference to the interest you're paying.
If you're truly interested in reducing the interest burden, it's far more effective to bring down real interest rates. We've had unprecedented high real interest rates throughout the 1990s, again in theory because they will provide some financial stability for us. That has been like the government shooting itself in the foot, and has contributed to the high debt servicing burden more than the growth of the debt itself.
The benefits of actually paying off the debt are negligible. The debt burden is going to fall rapidly with a balanced budget simply by virtue of the growth of the GDP denominator. In fact, by trying to horde this money and put money into debt repayment, the government is slowing down the growth of the GDP, which—
Mr. Nick Discepola: So you'd rely more on growth to write down the debt-to-GDP ratio.
Dr. Jim Stanford: For example, if you compare the change between 1945, when the federal debt burden was 110% of GDP, and 1975, when the federal debt burden was 15% of GDP, none of that came as a result of the payment of debt. In fact, the debt in dollars actually grew during that period. Arithmetically, the growth of GDP is a far more important determinant of the change in the debt burden, and that's what the government is undermining with this continued tight-fistedness.
Mr. Nick Discepola: Thank you.
Mr. Hargrove, I'd like to understand your position clearly on the EI surplus, because I'm getting mixed signals from the opposition members, some of whom are supposedly in the pro-labour movement. Is it your position that the funds generated by this supposed fund not be returned to the original contributors of that surplus?
Mr. Buzz Hargrove: No, the argument I've heard the Reform Party use—and if you're suggesting the same thing, you're using it too—is that once the Ford Motor Company pays us our wages, they have a right to take it back just because it belongs to them, if we have a little extra. The money in the fund is earned by the workers who work for the companies that pay the premiums by law. It's not insurance for business. It's not insurance for those who pay into it. It's insurance for those who lose their jobs and need income, and therefore it should only go to those people.
Mr. Nick Discepola: Not necessarily to the 60% that's contributed by employers. We shouldn't—
Mr. Buzz Hargrove: Not even a nickel should go to an employer. They're not entitled to it.
Mr. Nick Discepola: Okay, that's what I wanted to understand very clearly.
On some of the uses of the fund, I would like you to comment on whether those should be charged back to the fund before we return any excess in the fund. Right now, unfortunately or fortunately, whichever way you might look at it, the funds that are generated are used for various things. I'm wondering whether it's fair to say all that money should go back to workers when you consider that some of those funds are used for maternity benefits, job training programs, adoption benefits, regional development programs, and even sick benefits.
So before we say the $6 billion should all be turned back to employees, are you saying maybe we should keep some of that money and enhance benefits or coverage for those who aren't covered further, or increase job training programs for some others?
Mr. Buzz Hargrove: There's a number of pieces to the new EI Act. The title, Employment Insurance Act, always fascinates me. It doesn't insure you for anything, except that now if you lose your job you don't get benefits. I think that's what it means.
Part of that was for maternity benefits and part of that was money set aside for training. We have no objection to that. That's in the best interest of workers who pay into the fund. That's consistent with the political decision that was made to support working people. But that's not what's being talked about.
What's being talked about today is a reduction of premiums by the Canadian Federation of Independent Business, which gives money back to people who don't need it but, more importantly, takes money away from people who do need it. We have one million unemployed people who have no income whatsoever, and then we have the BCNI saying we should give everybody a tax cut. With the greatest of respect, if people making $51,000 a year need extra money, we should be talking to the employers about giving them an increase in wages, as opposed to taking money from unemployed people, who are getting nothing, and giving it to them.
Mr. Nick Discepola: But what would you do with the $6 billion? Isn't a decrease in taxes tantamount to a wage increase?
Mr. Buzz Hargrove: There are a million people out there. I spent time a couple of weeks ago touring some of the hostels in downtown Toronto where people are living. Women with children are living in the worst conditions you could imagine. We could start by putting a little money in their pockets. We could start by spending some money to ensure that kids aren't going to school in the morning hungry or going to bed at night hungry. We could put some clothes on the backs of young children in some of the areas in downtown Toronto, starting right now, who will go to school all winter wearing running shoes with holes in them and spring and fall jackets instead of winter coats. We could do some of those things.
Mr. Nick Discepola: So you're saying we should keep all surpluses, no matter how they're generated, and redirect them to the priority areas you've stated.
Mr. Buzz Hargrove: The government should get back to its responsibility of taking the money that was designed to help people who lose their jobs—who are mostly low-income people who are being shuffled from job to job—and get back to supporting them with income. There are seasonal workers across this country who have no income whatsoever today because of the rules your government made.
Mr. Nick Discepola: But we don't have that latitude, sir. If you're saying we—
Mr. Buzz Hargrove: You do.
Mr. Nick Discepola: —have to take the $6 billion and give it back to workers and then invest in some of the priority areas you have, first of all we'll have a shortfall of $6 billion.
Mr. Buzz Hargrove: There's an accumulated surplus of some $20 billion.
Mr. Nick Discepola: That's already been spent.
Mr. Buzz Hargrove: You don't have the right to spend it. You owe it to the unemployed people in this nation. Don't tell me it's already been spent.
Mr. Nick Discepola: There's a myth that we have $20 billion sitting in a bank account that we can now tap into and do all kinds of things.
Mr. Buzz Hargrove: No, no. You borrowed it.
Mr. Nick Discepola: In 1986, sir—
Mr. Buzz Hargrove: Your government borrowed it from unemployed people. If I borrow money from someone, I have to pay it back. You damn well should pay it back to those it belongs to and who need it, and that's unemployed workers.
Mr. Nick Discepola: Thank you.
The Chairman: Mr. Hargrove, you don't have a problem with the government financing it when it's in a deficit position?
Mr. Buzz Hargrove: I didn't hear the question.
The Chairman: Right now there is a surplus and it's kind of a unique situation. When there have been recessions in the past and the government has had to finance it, was that okay?
Mr. Buzz Hargrove: To have government finance the deficit...?
The Chairman: Yes, the deficit of the UI account.
Mr. Buzz Hargrove: Yes, that's the obligation of government. This is a social program. It was put together and designed to be paid for in a particular way by saying to employers, “You have an obligation. You're the one who's putting people out of work. You have an obligation to pay so much.” And workers said they'll contribute as well. We need income if we lose our jobs. But we've always recognized in this country, until a few short years ago, that it might not meet the requirements of unemployed people if you have a massive recession. So government topped off that money, and I believe that's still a legitimate part and role of government.
The Chairman: Let me ask you something. This is a unique situation to have $20 billion in so-called UI funds. Now, if we were to follow the advice of some people who advocate returning the money to either employers or employees...I mean, there are people with different schools of thought who are basically saying it should all be returned. If in fact this creates a situation where we're returning to a deficit position, I think we all understand the impact that would have on interest rates, for example. Interest rates would probably climb. We all, I think, around this table understand the relationship between interest rates rising and unemployment rates. As the interest rates get higher, you have economic slowdown. So obviously you have to have—it's a question of trade-off.
Are you in a position today to say it doesn't really matter whether or not we would return to a deficit position, we just want the money back?
Mr. Buzz Hargrove: No, we're not saying take $20 billion today and go out and spread it amongst people who are unemployed, although there's a legitimate and legal argument for that. It belongs to those people. It doesn't belong to employers. I want to stress as much as I can that there's nothing in the act that says this money belongs to employers. It's put there for people who lose their jobs. And once it goes in there, that's who it belongs to.
But what we are saying is that it's a damn disgrace in a country like ours, where 64% of people who lose their jobs—over 70% of those who lose their jobs in Ontario—will qualify for absolutely no income whatsoever. And the impact on them and their families is devastating. We have a pool of people out there who today are in desperate need of help. We can take a few billion dollars and start addressing the needs of those people and, over the next few years, make sure we get back to where 75% or 80% of people who lose their jobs get what they are entitled to and what they pay into in insurance to get a benefit if they lose their jobs.
We're not saying to the government today to go out and create a deficit by putting all this money out immediately. But, boy, $20 billion spent today would sure create a lot of economic activity in the country and it would be very beneficial overall to every one of those people, if it were properly allocated.
The Chairman: So you're saying that they're saying to increase also the benefit. Now, let me ask you a question. What do you think the ratio should be between the average industrial wage and the maximum insurable earnings? What kind of relationship? Mr. Stanford, Mr. Hargrove—
Mr. Buzz Hargrove: I think 60% is what we have argued. There should be around a 60% average. I think we're now below 50%.
The Chairman: Yes. There are those individuals who would argue that at a point in time where employment insurance, known formerly as the unemployment insurance system, is competing with employers for employees, that would create a distortion of the economic system. What are your thoughts on that?
Mr. Buzz Hargrove: I think it's an absolutely nonsensical argument, and all you have to do is look at a lot of countries around the world that pay no benefits at all. Indonesia, for example, is a good model. Everyone was using it a few months ago as the model for all of us. We sent Team Canada to Indonesia. They had a surplus. They had a surplus in government revenues. They had a surplus in trade. They had no social benefits whatsoever—no health care, no unemployment insurance, no housing, no child care. And still their economy went to hell in a handbasket for a whole host of reasons. And there are a lot of unemployed people there today. They're not finding jobs just because they have no social benefits.
So the argument that somehow social benefits will interfere with people going to work is nonsense. Every time McDonald's opens up a new store and advertises they're going to hire, there are literally 1,000 or 2,000 people lined up. In any community across the country where that happens... People aren't out there looking for social benefits, they're out there looking for work.
The Chairman: What about those individuals who say...? We often held the Scandinavian countries as the model for fairness, social equity, a progressive nature, building a society that's fair and compassionate. We see a kind of a different trend evolving there. We see, in fact, that social expenditures are beginning to decline and the systems aren't as generous as they used to be. What do you think has driven that agenda?
Mr. Buzz Hargrove: There's the right wing, and the power of capital has increased. Globalization has been about increasing the power of capital and its ability to blackmail everyone. There's blackmail in many, many forms.
There's the blackmail of government in terms of taxation. You don't see Tom d'Aquino and the BCNI talking about the poverty in the country and how you deal with that. You see them talking about tax cuts for those who already have too much. I thought the Toronto Star laid it out very, very well in terms of what their proposal would mean.
Well, we're experiencing this same kind of power in Canada and it's influencing everything. Our environmental laws are being undermined and dismantled. We just had an incident within the last year of a community close to the Toronto area here in which a company said they would come in and invest, but first they wanted to eliminate all the red tape, including environmental hearings and all of that. The council voted overwhelmingly and quickly to grab the investment. So to hell with the environmental laws.
All of this blackmail by the ability of capital to move without any restrictions whatsoever is putting pressure on every nation in the world, those with the best social benefits and those with the worst social benefits. I travel around the world. It's interesting that, wherever I go, there are the same forces. If people are working for $5 a day, they're still being told they have to reduce that to be competitive in the new global economy. That's the kind of pressure we're up against.
The Chairman: What's happening with union membership in Canada?
Mr. Buzz Hargrove: It's fairly stable if you're talking about numbers. But in terms of income, it's the same as others in that family incomes have stagnated over the last decade. It's interesting that the debate in the country isn't about how we get back to sharing the wealth. We're producing more wealth today than at any other time in the history of our nation. The employers and the shareholders, however, are grabbing it. Shareholder dividends are way up and executive salaries are skyrocketing, but we're saying to workers, no, we can't afford any wage increases.
I do a lot of bargaining. I've been at it for too many years now, some would say. I still wait for the day I go to the bargaining table. Chrysler just announced yesterday a $680-million profit for the third quarter. Ford just announced yesterday a $1-billion profit. I'm going to meet them in a few months. I'd like them to say that they're doing well and that they would like to share it with the workers. They won't do this. They'll say they're in a new global economy, the competition is severe, and they have to cut the wages and benefits and eliminate job security.
That's the reality for working people, and government is leading it. That government is leading it frustrates me so much. Many public sector workers in the federal jurisdiction are in their sixth and seventh year without a pay increase. That's an absolute disgrace in an economy like this one.
The Chairman: Are you telling me that unions are losing power in this country and throughout the world?
Mr. Buzz Hargrove: No, I said employers are increasing their power. Capital is increasing in power. That's different from a union losing its power. But if you looked at the straight line between collective bargaining and how unions are able to improve the lot of their membership, you'd have to assume that, yes, unions are losing their power.
Look at our inability to get the attention of the government on the social wage. The social wages are being undermined across the country, which undermines the power of organized workers to make progress. If you looked at those yardsticks and the ability of businesses to move their money, threaten us continually, and intimidate us to go to Mexico, the southern United States, or Indonesia, then yes, you'd have to say there's a big gap.
The real problem is that the balance of power used to belong to government. Now government has clearly moved itself to the side of capital and business, and it doesn't see itself in its traditional role of trying to balance what historically has been recognized as the incredible power of capital in dealing with unionized or non-unionized workers.
The Chairman: Thank you.
Mr. John McKay (Scarborough East, Lib.): Thank you, Mr. Chairman. Thank you, presenters, for all of your presentations.
I wanted to talk to Mr. Hargrove about what I hear as an inherent contradiction in your position. On one level, you say that the money that is in the “surplus”—we all know this is really a virtual surplus—is the workers' money and should be returned to the workers. You say the employers certainly should keep their grubby little fingers off it. We shouldn't reduce premiums as such, because 60% would go back to an employer in any event. On the other hand, when the fund is in deficit, which it has been over a number of years in the past, somehow or another, that's the responsibility of the taxpayer, and the taxpayer needs to top up the deficit.
What I don't understand is this. If in fact the government is paying out on the benefits, as it's responsible to do, regardless of whether there's a surplus or a deficit, why do you have any position at all with respect to the EI funds?
Mr. Buzz Hargrove: Mr. McKay, I'm pleased to hear you're listening. I didn't think you were, as I watched you smiling and laughing throughout all of our presentations.
If you were to say to me that government's going to take over the total role and use progressive taxation to provide an unemployment insurance benefit for people who lose their jobs that's consistent with the principles the Liberal Party put in place in the 1960s and 1970s, then you would have my blessing to do exactly that. I think it should be the responsibility of government. If you had a surplus, you could use it for whatever you wanted, as long as when we ran into a downturn you put the money out to support workers who needed it.
Mr. John McKay: So we should spend the money regardless, even if that means going into a deficit position for the government?
Mr. Buzz Hargrove: That's not the question. You now raise a different question. Your question was whether government has the responsibility on the downside if it doesn't have the bonus on the upside.
Mr. John McKay: But it clearly does. What's changed?
Mr. Buzz Hargrove: It clearly does what?
Mr. John McKay: It clearly does have the responsibility on the downside.
Mr. Buzz Hargrove: It doesn't. The fund is totally supported by employers and employees. There's no obligation on government to fund it if it goes under.
Mr. John McKay: but there has always been, in the past, a backfilling by government.
Mr. Buzz Hargrove: Until the law was changed. The law has changed, so there's no backfill any more. We'll never get to test what happens because there will be an outcry in the nation if that should ever happen, but based on the tightening up of the regulations by your government to ensure people can't qualify, you'll never, ever get to where we run a deficit again in UI. That's because nobody qualifies: 36% percent of unemployed people are all unqualified.
Dr. Jim Stanford: Can I just add something on the issue of the fund being in a deficit situation in particular years and in a surplus situation in others?
We're certainly not arguing that the UI fund has to be balanced every single year. That would be an economically perverse way to organize it. What would happen then is that in a downturn, when unemployment rose and the number of people needing benefits rose but the number of people paying into the system declined, you would have to jack up your premiums to keep the system in balance. That would exacerbate the downturn in employment.
We recognize there's going to be a normal counter-cyclical ebb and flow in the UI fund, which should run a surplus when unemployment is relatively low and a deficit when unemployment is relatively high. All of those deficits have been more than paid off now by the fund.
Our problem is that the scale and permanence of the surplus indicates that we've gone beyond the counter-cyclical evening out of the UI fund. We're generating surpluses. Even the Auditor General, or the actuary, agrees that we're generating surpluses far in excess of what is required to shield the UI fund from a downturn, which is our concern.
We're not calling for a balancing of the fund in every single year. We recognize that in some years the fund will be in a deficit that will be covered from government's general revenues. What we are saying is that the system as a whole should be self-financing and that, on an average basis, the revenues of the funds should be used for unemployment benefits.
Mr. John McKay: That's a fair comment. I appreciate that, because it's a clarification. What I was hearing, Mr. Hargrove, was a flat-out contradiction, frankly.
I want to go to another point that you made with respect to GDP and debt such that, somehow or other, you wish that the growth in the economy would take care of the ratio and that we should deal with it in that way. Our GDP-to-debt has gone from about 73 down to 68. If the finance minister has his way, then it will be somewhere around the low sixties or high fifties.
Our nearest competition, which means the U.S. economy, has a GDP-to-debt of something in the order of the low fifties or high forties. For better or for worse, we do 80% of our trade with the U.S. We have to have a ratio that's somewhat similar, and we have to have a tax structure that's somewhat similar. Our tax structure is relatively similar except in the area of personal income tax.
Looking at those two areas, I don't understand, then, the argument for just basically ignoring the debt and letting the economy outgrow the debt. I don't understand the resistance to pass on a tax cut not only across the board but also to those in the upper group of income taxpayers. For better or worse, 10% of them pay 50% of the taxes in this country. I don't understand the resistance to passing on tax cuts at this point in time.
Dr. Jim Stanford: I don't see any reason why countries that are engaged in trade with each other have to have the same ratio of debt to GDP. I don't understand the connection.
If you look at the European Common Market, where you've had a deeper level of integration for longer than in North America, you have countries with virtually no net debt in Scandinavia and you have countries with twice as much debt as we have in Italy and Belgium, all competing within the same common market. So I don't see any argument that we have to harmonize our debt level.
I also don't see any economic benefit from reducing our debt. The chairman raised the issue of the link between deficits and debt on the one hand and interest rates on the other, and this was held out for years as the justification for why we had to get the deficit under control and that we would be rewarded with lower interest rates once we did. How then do we explain the Canadian interest rate having shot up by three points since spring of last year, at the very moment when the federal balance was shifting into a significant surplus and the debt-to-GDP ratio was falling rapidly?
Clearly, the link between public finances and interest rates has been vastly overstated, if it exists at all, so I'm very skeptical that we'll get any macroeconomic benefits from paying off debt and see macroeconomic harm in hoarding billions of dollars in a federal surplus, especially as our economy is getting shaky.
Mr. John McKay: So do you actually believe that the Canadian dollar or the Canadian interest rates and the Canadian economy generally would have done just as well in the past three months if we were in the position of, say, five years ago when this government came into place—that is, $42-billion deficit—that our dollar would have been in the same position, our interest rates would have been in the same position?
Dr. Jim Stanford: There are countries in the world that are vastly more indebted than Canada, such as Belgium and Italy, that have fared far better than we have in the current financial crisis, and there are countries much less indebted than Canada, even right-wing role models like New Zealand, which have fared worse than Canada in the current crisis.
So when the global financial system goes into conniptions, it really doesn't matter what the state of your economic fundamentals are. If you're a small currency like Canada—and that's the crucial problem here—you're going to get caught in the cross-fire regardless of what your public finances are.
I had an article published in Canadian Business Economics last year that looked at the historical evidence on the link between interest rates and government debt and government deficit and found absolutely no link whatsoever.
Mr. John McKay: But that is counterintuitive to pretty well the way every one of us would run our own financial households.
I appreciate that there's not a perfect link between your own personal situation and the way a government should run a financial situation, but when economic storms are brewing, which they appear to be and clearly are, then why in heaven's name would you go further into debt and engage in large infrastructure programs?
Dr. Jim Stanford: It's precisely what the role of government is. In fact, in terms of the reaction by an individual consumer, when they see those storms on the horizon, to batten down the hatches and put all their money away for a rainy day, you know well that action in and of itself can bring the rainy day. It can be a self-fulfilling prophecy. When you see consumer sentiment go into the tank and consumers stop spending, that action in and of itself creates the recession that the consumers were worried about, and that's a problem with an economy that's dependent on the individual decisions of private agents.
The whole role of government in this system is that it acts as a counter-cyclical stabilizer to it. And if government does the same thing, if government sees the rainy day coming and battens its hatches and stores billions away, it's only going to accelerate and deepen the same recession.
The whole purpose of government as a stabilizer in the economy is to even out the ebbs and flows of the private economy. It we start mimicking the behaviour, that sort of simple-minded “a penny saved is a penny earned” behaviour of individual households, then we'll actually make things worse.
The Chairman: Thank you, Mr. McKay.
Mr. Gary Pillitteri: Thank you very much, Mr. Chairman. Good day, everyone, and thank you for your presentation.
Mr. Hargrove, I listened to your presentation. And of course, I listened to some of the answers. But in fact I'm fascinated with one answer that you just gave. I think you should sometimes remember what you say, sir.
Mr. Buzz Hargrove: My memory's not bad.
Mr. Gary Pillitteri: Remember that you just said, sir, that you would like to go to the negotiating table and ask some of those companies to share some profits. I just heard that from you, right?
If my memory serves me right, your predecessor, Mr. White, split the UAW from the United States. When in the United States they were offered profit-sharing and then Canada did not want profit-sharing, you went on strike and split from the United States. You were part of that membership.
You see, sir, I used to work also for General Motors, and I do remember going on strike too because you did not want profit-sharing. You just wanted a 2% or 3% increase. Am I correct in saying that?
Mr. Buzz Hargrove: No, you just confirmed that you also weren't listening, because I didn't say that I'd go and ask them to share some profits. I said that at some point in my career, before I retire, I'd like to once go to the bargaining table and have a company say, “We're making all kinds of profits, we'd like to share it with the workers.”
We share in the profits because we force the employer to put some money into the paycheque, where it belongs. We don't believe, and never believed—and this is what led to the General Motors strike this year that cost them a lot more, if you were following that, than anything they've saved by gimmicks such as profit-sharing over the years—that the workers' income should be dependent in any given year on what the company's profits are, because their bills, their mortgages, which we're talking about here, their light bills, their telephone bills, their car payments aren't conditional on the company making profits. They have to pay them all.
Mr. Gary Pillitteri: I do understand all that. I just made a remark about profit-sharing, sir.
But let me say one thing. I forgot to say that I'm a farmer. For some 18 years I worked at General Motors and I also had a farm, and I could not qualify for that employment insurance, which I was paying both ways. I was paying once as an employer employing some people, and once as an employee. I never qualified either way. As a matter of fact, I think if I were to leave this job, I don't even qualify for this one either.
Mr. Buzz Hargrove: It doesn't sound like you need it.
Mr. Gary Pillitteri: But let me also ask you a question, and I haven't got an economist beside me. I'm just, as I said, a farmer. You don't have to use numbers like 7/12 paid by the employer and 5/12 paid by the employee. Why don't you just say that 60¢ of every dollar is paid by the employer, 40¢ is paid by the employee? It's just as simple.
Mr. Buzz Hargrove: It's the way the government explains it, Gary.
Mr. Gary Pillitteri: Just let me ask you my question. I'm coming to my question.
We cherry-pick, and I'm pretty good at that too because I used to be in the business—that is, cherry-picking the real trees, not facts and figures.
Would you agree with me that all taxes have a redistribution of wealth component, whether business tax, corporate tax, income tax, GST, or EI? As an employer, I call it a tax because I pay it and I don't receive it; I don't receive anything back from it. It is a form of tax. If EI stood on its own, it would be EI funded, it would be an insurance; but for me, because I am an employer at times, I pay the tax and I never qualify and don't get anything back.
If all of these components have a redistribution of wealth in them, why are you calling this now a surplus? As I recall, sir, four opposition parties in the House of Commons went together and they made a statement that this money should be returned to the people who paid it, and that is to reduce the premiums. That would mean that the ones who are employees will only receive 40%, while the employers will receive 60% back. Sir, all four parties agreed to that, and I sit on this side and I take a look at it and say, why is it not better used?
Mr. Hargrove, I do understand that you want to pick which way the money should be spent, but why shouldn't it go back to help individuals, to help in medicare, to help low-income Canadians, to help senior citizens who have a low income? Why shouldn't it go back to all of those people? If it was a lift by raising the deduction, by raising the amount where one could claim, most Canadians who would benefit would be in the lower end, as I've mentioned. Low-income Canadians, senior citizens with fixed incomes, those who are on social assistance, all of those people would welcome that.
Are you speaking for a specific group, then? You cannot be bunching everybody together, sir, because there are some who would benefit more from having a tax cut and some who would benefit more from getting money back.
The Chairman: Thank you, Mr. Pillitteri.
Any comments, Mr. Hargrove?
Mr. Buzz Hargrove: First, my understanding of the four parties was that the only thing they had an agreement on was that Mr. Martin shouldn't use the money for his purposes. I don't think there was any consensus on UI premium reductions. That certainly wasn't what I read. If they are, I disagree with all of them that this should be the focus.
I can't believe I hear a member of Parliament, who worked at General Motors and as a farmer and who made a lot of money, saying that he doesn't benefit from the tax system, paying taxes. We live in a civil society. I've been down around that area—
Mr. Gary Pillitteri: Wait a minute. I said I did not qualify, sir.
Mr. Buzz Hargrove: No, you said you didn't benefit.
Anyway, there are a lot of benefits to all of us, and all taxes are not a distribution of wealth in our society at all. A lot of people making a lot of wealth are paying very little tax in our society.
What we're proposing today, taking money out of the pockets of unemployed people and putting it in the pockets of wealthy people, is distribution, I suppose, but the wrong form. It's the poorest of poor subsidizing those who already have too much power and wealth.
So on your comments, I just can't subscribe to any of them. I don't think any of them meet the realities that we face today.
I'm here today representing what I think is a vision of Canada that is different from what's out there today, one that has values, that respects seniors—who don't get anything out of a UI premium reduction—and starts to put some money in their pockets. It's one that respects unemployed people—who get nothing out of a UI premium reduction because their benefits have been eliminated—and that respects children living in poverty—who get nothing because their parents don't have jobs or income.
They get something out of our proposal by taking the money that I paid—the same as you, as a Chrysler worker—and as a member of our union, now as the president, put in, and gladly put in. I would put in more, by the way, if I thought it would help those who are so incredibly in need today and who are completely ignored by Mr. Martin's statement yesterday...and the cutbacks we've experienced since the Liberals were elected in 1993.
The Chairman: Mr. Pillitteri, final question.
Mr. Gary Pillitteri: I'd like to respond to one thing.
Sir, you made a remark that a farmer made a lot of money. My neighbour—we used to go to work together—did not care to be a farmer. He just had a home. But every time we were laid off, he qualified, sir. I did not qualify, because they said I had extra income. So I depended on myself. I did not depend on the employment insurance scheme. I did not depend on the government to do things for me. As a Canadian, sir, I also depended on myself to provide for myself.
It's not that, while the next-door neighbour went to sit down and enjoy the sun, I went out on the tractor and worked, sir...it's not because my next-door neighbour... And I had respect for him. But that does not mean, as you're saying, I made money. Sir, as a matter of fact, I was maybe providing for the next generation, not for my own generation, not for myself, but maybe for my grandchildren.
So all of us have a different idea, and some of us think that government should not provide for everyone and for everything. I just wanted to make that clear to you.
Mr. Buzz Hargrove: Some people think government shouldn't provide anything for anyone, regardless of need.
The Chairman: Thank you, Mr. Hargrove. I'm very interested in the transformation of the Canadian economy. Quite frankly, yesterday Minister Martin stated that the markets do not have an appreciation of the sophistication of the Canadian economy, that it's in fact on solid financial footing. He went on to describe this new Canada that, I submit to you, very few people understand. It's not only the markets but also Canadians who indeed don't understand the transformation that has taken place.
I was interested to hear from you that this so-called right-wing ideology has overtaken our society. Now, why is that? I've often viewed unions as organizations in our economic system that have access to a lot of people, and yet, by your own statement, essentially, unions have been defeated by another ideology.
Mr. Buzz Hargrove: Personally, I never said “defeated”. That's your word, not mine. I said that the effectiveness of unions today certainly is very, very limited given the power of capital.
On the question of our message getting out, the best example is Dr. Stanford, a fellow at the Canadian Centre for Policy Alternatives, a group of very bright top economists and writers from around the country who do a lot of work on economics and look at it a perspective that's different from, say, the Fraser Institute. For every article they would get in a major newspaper in the country, the Fraser Institute might get 15 or 20 articles.
The Chairman: What's the Fraser Institute's membership? How many people do they represent?
Mr. Buzz Hargrove: They represent big business.
The Chairman: I know, but how many people are signed up as Fraser Institute members?
Mr. Buzz Hargrove: Big business. They represent big business. It's the money. It's not people, it's the money they have. You know, this idea that somehow the more people makes a difference... It's money.
Conrad Black has more influence than any and all Canadians put together. His point of view is expressed in almost every newspaper in the country. Ken Thomson's point of view is out there. We would be naive to think that somehow the newspapers of the day are going to put our side of the story out.
I recall speaking in Toronto at a conference of newspaper editors from across Canada two or three years ago. I was on a panel with Diane Francis. I raised this very question, of lack of balance in reporting. I gave some examples—the Financial Post and Maclean's magazine, who have Diane Francis and David Frum and Barbara Amiel, just a host of right-wing writers, but no left perspective at all, no different perspective at all—and the chairperson said “Viva le media!”, to a standing ovation of newspaper editors.
So I don't kid myself. It's not our message that people won't listen to but the limit on our ability to get our message out. We don't have the money of a Mike Harris to put out a 10-minute television ad to try to denigrate teachers to convince the province of Ontario that they're all useless. We don't have those kinds of bucks.
The Chairman: But let me ask you a question, in fairness, because you introduced the left-wing ideology into the debate—although it's debatable whether that's part and parcel of the new world order.
Mr. Buzz Hargrove: Oh, it really is. It really is. Believe me, we're in more of a class society today than ever in my lifetime.
The Chairman: Mr. Riis is here. He represents the New Democratic Party of Canada. Recently, they've also shifted, according to your spectrum, a little bit more to the right than you were in the past.
Well, you talk about now the deficit, and a balanced budget is very much a part...
You may answer, Mr. Riis, because you're here. There has been a shift. At least that's what's been reported in the media. I'd be interested in reading some of the speeches that came out of that, as well.
Mr. Nelson Riis: May I answer on a point of order?
The Chairman: Sure.
Mr. Nelson Riis: In the presentation from the auto workers, it says, “We accept the principle that government budgets should be balanced, on average, over the course of a business cycle”.
The Chairman: That's what you agree with.
Mr. Nelson Riis: That's what we were saying. Now, whether you put that into a right wing or left wing, I don't think that makes any sense. I think everybody agrees that we should try to get a balance over a business cycle. I think to categorize this is...
Well, I'm not sure what you're trying to do.
The Chairman: I was just responding to what he stated about right wing-left wing.
Mr. Buzz Hargrove: It wasn't that part of the comments of Mr. Riis and others that I was responding to. We've been consistent on that, in spite of a lot of people who say that we are just spend, spend, spend. That never has been our position as a union.
We recognize, as our paper says, that over a period of time, over a cycle, there should be a balance, which can be managed without dismantling the social programs the Liberal government has dismantled since 1993.
The Chairman: Mr. Brison, final question.
Mr. Scott Brison: I have one question. It's a follow-up to the chair's question, I guess.
Social democrat parties have achieved significant electoral successes, whether it's the Democrats in the U.S. or the Labour Party in the U.K. Now they're implementing policies that are arguably more conservative than, or as conservative as, their predecessor governments.
Some would say it's not really an ideological debate as much as a pragmatic, economic one—recognition of what their economies will favour, and their constituents or their citizens, at this point, as we enter the 21st century.
Why are these social democrat parties implementing policies that are inarguably fiscally right of centre?
Mr. Buzz Hargrove: It's a good question, and the one thing you're missing is the growth of left-wing parties in those same countries that aren't buying into this logic. Quite frankly, there's just too much around the world of the social democratic left buying into the logic of business.
A lot of it, though, is because of the blackmail that I talked about earlier. When business says to the Government of England, well, if you don't loosen up the labour laws, and if you increase social spending, we'll simply move our investment into some other country, then you'll find that governments are very afraid of taking on business.
I don't think in today's environment that individual governments can take business on. They are so powerful today. As we say in our presentation here, there has to be some global action.
I was pleased a few months ago to read that Mr. Martin put on the agenda the idea of the OECD countries coming together and introducing a form of control over capital movements amongst those countries. He later clarified it to say “short term”. We think he's on the right track, but it should be long term.
But we're not here today saying that democratic socialist governments around the world are doing everything right. There are a lot of problems today.
The Chairman: Thank you, Mr. Hargrove.
We have two final questioners, Mr. Valeri and Mr. Discepola.
Mr. Tony Valeri (Stoney Creek, Lib.): Thank you, Mr. Chairman.
I just want to touch on a couple of the points made in the presentation and then ask for some clarification in the comment.
Mr. Stanford, you talk about a $12 billion surplus in 1998-99. We know there are a number of estimates out there. I think I would suffice it to say that although one could argue against your numbers—it isn't an exact science—the number that seems to be out there is $10 billion; it's dropped to $5 billion; and the $5 billion includes the $3 billion contingency fund.
Does your $12 billion include a contingency fund? What's the basis of $12 billion versus what the other numbers are out there in the private sector?
Dr. Jim Stanford: The $12 billion is the cumulative fiscal surplus over the two fiscal years, over the 1998-99 fiscal year and 1999-2000. It's not a prediction of what the surplus will be. I'm saying the surplus would be $12 billion even with a slowdown that's considerably worse than the slowdown most forecasters are expecting.
In my scenario, I assumed real GDP growth in the current fiscal year of 1.7%, and in the next fiscal year of 0.9%. Those numbers are considerably more pessimistic than even the numbers Paul Martin was using last night.
I'm saying that even despite a slowdown that severe, the federal government would still generate $12 billion in surplus over the two years.
Mr. Tony Valeri: Okay, but essentially what you're saying is that as we move forward—because essentially the pre-budget consultation is for the 1999-2000 budget—should I be taking $6 billion out of this figure? Because the 1998 number has already been accounted for, so we're moving forward. Are you saying that essentially $6 billion is what you're estimating for the 1999-2000 year?
Dr. Jim Stanford: Again, I stress that this is not an estimate or a prediction on my part. This is a simulation of “what if”. Even if we had a slowdown that severe, there would be 0.9% growth.
Mr. Tony Valeri: Fine. Those are the kinds of estimates I like—even if we have a slowdown.
Dr. Jim Stanford: Exactly.
Then in fiscal 1999, I would guess a surplus of $6.5 billion for the one year.
Mr. Tony Valeri: Now, does that $6.5 billion include a contingency reserve or is that $6.5 billion?
Dr. Jim Stanford: No, the contingency fund is within the $6.4 billion.
Mr. Tony Valeri: So we're talking about a $3.4 billion actual surplus, putting aside the contingency reserve.
Okay. I just wanted to be clear one more time about the numbers.
Secondly, you say in your proposal that we are actually running a $50 billion operational surplus, correct? Well, when most people read that, they would essentially make the assumption that we have $50 billion to deal with in terms of reallocating money in various priorities. Do you not in fact have to include in that $50 billion your interest payments, interest on your debt? Am I correct in interpreting it that way?
Dr. Jim Stanford: For the bottom-line fiscal situation in the government, then, yes, of course you calculate in debt payments. I'm measuring the net impact of the government's fiscal stance on the macro economy.
The problem with interest payments, the $40-some billion in interest payments, is that they go into the pockets of financial investors who generally don't spend that. So if you want to measure the day-to-day impact of federal fiscal decisions, the federal government is taking out of the real economy $50 billion more in taxes than it's putting back into the real economy in terms of real goods and services delivered.
Mr. Tony Valeri: While I appreciate your comments, you do of course endorse the fact that the government does have to pay interest on its debt, and the purpose of this committee is to speak to Canadians and talk about what in fact should be included in a budget.
So if I include that interest payment, that $50 billion operational surplus is not really the figure we have to deal with.
Dr. Jim Stanford: Nowhere in the report does it say we should spend $50 billion and still come to a balanced budget.
Mr. Tony Valeri: No, I'm not actually saying that you're indicating that we should spend it.
Dr. Jim Stanford: Right.
Mr. Tony Valeri: What I'm saying is that when someone reads the brief and they say there's a $50 billion operational surplus, if one doesn't then calculate the interest costs associated with the government debt, one would assume there's $50 billion to put back into the economy.
I merely wanted to clarify that for the purposes of the record, that's all.
The other point I wanted to make with respect to the dollar is that you indicated that there was really no connection between the actual debt-to-GDP ratio and the dollar. I think that may be partly correct. The debt-to-GDP ratio I think forms part of one of the factors in terms of the evaluation of the dollar. But isn't it also true—and I think you as an economist have the opportunity to agree or disagree, based on your background—that our dollar normally mirrors commodity prices, that essentially in a global market we're perceived to be a commodity-based economy, and that essentially has changed? In our minds, it's changed—and certainly in the mind of Mr. Hargrove, I think, it's changed—but the perception globally is that we're still heavily dominated with commodity, and if commodity prices start to drop, or if there's pressure on commodity prices, our dollar suffers. But the other factor involved in the dollar is the debt-to-GDP ratio. I'm not saying it's the only one, but it does form part of the overall pressures we may feel on our currency.
Would you agree with that?
Dr. Jim Stanford: The link between commodity prices and the value of the dollar seems very strong empirically. I agree with you; I think that's a bit of a misperception in financial markets. We export far more finished goods than we export raw commodities. But that does seem to be very strong, and that's why I and many other economists argued that the Bank of Canada should have just let the dollar reflect that instead of coming in with higher interest rates.
Mr. Tony Valeri: The governor did increase interest rates by 1% and brought it back by 0.25%, I think, recently. Hopefully we'll go back the other way. I mean, I'm all in agreement with that.
Dr. Jim Stanford: We're all hoping on that.
In terms of the debt, I mean, look at the last time the Canadian dollar ran up during the Mulroney government years, when we had huge deficits. We had deficits of $40 billion a year. The economy was going into the tank, thanks to high interest rates and free trade, and yet the dollar suddenly rose from 70¢ to 90¢.
So if financial investors are really so rational in calculating and determining which countries look good and which don't, how do we explain that?
Mr. Tony Valeri: Actually, I'd take a crack at explaining that. I think it was driven by the high interest rates. Effectively, it was a country that people wanted to put money in because they were getting a better rate of return. The interest rates were artificially inflating the value of the dollar. But we could argue that among economists.
I have one last point.
Mr. Hargrove, this is a point of clarification. In terms of the EI question, your remarks earlier were that it is the responsibility of the government, and you would expect government to top up a program like EI if in fact it ran into deficit, and it should be the responsibility of government to do that. I just want to understand, in my mind, the point made that we now do not have that responsibility; in essence, that if the program went back into deficit, the government would not have to prop up that program.
In essence, are you saying that if we go through this business cycle, and now the premiums that are being collected are not enough to cover program benefits, the government would not have to stand behind the program? I just want to understand that.
Mr. Buzz Hargrove: Well, it was a legislative change. You should be more familiar with it than I am. I forget which year it was, but it really took away government's responsibility to fund us and put it in the hands of employers and employees. It really said this is no longer a social benefit but an insurance scheme.
What I'm arguing is that it should be an insurance scheme, back where it was when the payments... I'm not even arguing about what we're paying as workers. I'm arguing that the limit at $39,000 should actually be lifted. There should be more premiums on overtime hours to discourage overtime as opposed to hiring people.
I'm also being generous, more than generous, to say to government that if you do run a surplus and you're paying decent benefits, if you want to use that for other government programs, including paying down the debt...which I don't think is the major priority. I think growth, as it's shown in the United States, will take care of the debt problem, not necessarily the way we're going.
The problem we have today is that the government has it all ways. It doesn't have the responsibility to top it up, yet it has the right—and as it says, it can't take the money—to borrow the money as opposed to taking it. At one time, it could take the money. Under the new laws, they have to borrow the money, which essentially means you should pay it back, but Mr. Martin's indicating he doesn't have an obligation. Mr. Chrétien says it's all one big pot.
Well, that's not the way the law reads. It was changed to ensure that it wasn't one big pot.
Mr. Tony Valeri: I'm not going to respond directly to that, because I want to, again, check my facts and make sure I'm correct, but to my mind, the logic seems somewhat faulty. If the Auditor General required the fund to be collapsed into consolidated revenues because back in 1986 there was in fact a deficit in the account, and the government had to include that deficit because it stood behind the program, now you're saying that, in effect, if it goes back into deficit, we would not have to top it up.
I'm trying to understand why the Auditor General would still require us to include it in consolidated revenues. If there was no requirement of the federal government to top up the program, then why would we have to include it in consolidated revenues?
Mr. Buzz Hargrove: There's no legal requirement, but I suppose—and I'm not an economist either, as Gary pointed out—if there was a deficit that took place at some future date, and the government felt it had to loan money to the fund, then the Auditor General would ask them to put that down as part of government debt.
So I don't know how the Auditor General administers these things, but one thing I do know is that the law was changed to take this away, and I think wrongly changed.
The Chairman: Thank you.
Mr. Discepola, one final question.
Mr. Nick Discepola: Thank you, Chair, and I thank you for the opportunity to ask a question.
I'd like to address my question to Mrs. Serwonka.
There's no doubt about it that probably one of my greatest disappointments, not only as a politician but also as a Canadian, has been to see the high level of child poverty in our country. Notwithstanding all the efforts that I try to concoct in my mind on what we should be doing or what we could do as Canadians, I always wonder whether it's the right approach. Is it just a question of funding? It goes way beyond that, I think, fundamentally.
I would be curious to know from you, if you were Prime Minister for five years, ten years, or whatever you felt you needed to take the time to eliminate child poverty, what you would undertake as the first three steps to achieve that goal.
Ms. Karen Serwonka: Certainly any efforts to reverse poverty are going to be long-term initiatives, simply because it's such a deep-seated issue within our society right now. I guess the lure of only having a financial response to it kind of simplifies it, that it's only a financial issue when in fact it's a very broad health issue.
Perhaps I can refer to my experience working with families in downtown Toronto. I think what we've witnessed is that there are many other social circumstances that combine with poverty to sometimes make the effects even worse for children—families living in isolation, whether it's because they don't have family in the city or they've moved from other parts of the country or other countries of the world, or women who are living in situations of domestic violence. All of those kinds of situations are worsened by poverty.
If we use our financial investments in a way that also addresses these other social issues—for example, by having a comprehensive childcare and education system in place, which has workers that outreach to communities that are more isolated, that outreach to women who are living in situations of domestic violence, and that bring them into these centres where they can address these other issues of isolation and poverty and violence—then we're getting at issues that are interconnected here.
For me, then, I see one of the first steps in eliminating child poverty as being a comprehensive system of family benefits, both financial—for people who are struggling to pay the rent and to put food on the table—and support for communities, building communities' capacities to support each other, such as family resource programs and an enhanced daycare system.
Mr. Nick Discepola: Okay. Thank you.
I'll turn over the balance of my time to Ms. Bennett.
The Chairman: Final question, Ms. Bennett.
Ms. Carolyn Bennett: Thank you.
I have a question for Martha Friendly.
We don't like in Canada to be the last at anything, I think, and if we were going to do something to maternity benefits... I mean, I don't think 15 weeks is enough, and certainly in my practice I've felt that people perhaps wanted the opportunity, if they were breast-feeding, to go back perhaps part-time, those kinds of things.
What would you actually suggest that we shoot for? I think it's going to be hard for me to fight for a year. Where would you put it?
As you know, governments like to win on two fronts if they're going to do something. Do you have any evidence that shows that if you went to a year, you would create more jobs, that firms are more likely to hire somebody while they're protecting the job than struggling to just do without that person for the measly little 15 weeks?
Ms. Martha Friendly: No, I have no evidence, in answer to your second question.
In answer to the first question, about what I would do, there are four areas that are areas of problem. You could look at different combinations.
First, the amount of money is low, and two, the time is short. I would propose a year. Some other countries actually start with a high level of benefits and then reduce it. Most of the European countries have some combination of high benefits at the beginning and then reduced benefits. I'd look at a year, at least.
The third thing is that there are lots of people currently excluded as it's structured. Even before, more people were excluded under the new EI rules. We've always had a minority of women having babies who could collect, even those who were employed in one way or another. We have self-employed people who can't collect, and students have no kind of situation.
I guess the other thing is women who were not previously in the workforce who we may want to help into the workforce. So I would look at that.
Finally, I think it's very rigid. I would actually like to look at making the arrangements much more flexible so that people could go back to work part time—women and men. I guess we're talking about parental leave also, some combination.
Out of those four categories, there are a number of things that could be done much better than we're doing now. I've made my remarks very brief, but it is true that part of the EI surplus is coming from the money paid into it by pregnant women, who can't get benefits. I don't think it's adequate as a solution, but it's a big part of the solution, if that answers your question.
Ms. Carolyn Bennett: Yes, thank you.
To the Association for Community Living, you didn't mention the caregiver tax credit. It's $120 million. Is that a good thing or a bad thing or...?
Ms. Connie Laurin-Bowie: There were in fact a series of initiatives in the last budget, which I think were actually very useful. As Martha indicated, we tried to keep our comments short, but since you've asked me a question I'm going to use it as an opportunity to comment on the discussion that's happened.
It's very interesting to listen to a debate that seems quite ideological about where we're going as a country. The debate doesn't seem to me at this table to be about what our objectives are but about how we get there, and I'm fundamentally disturbed by the fact that this discussion really indicated a difference in where we're going.
It seems to me that the discussion was so focused on a macroeconomic model that the real essence of what we're talking about—children, childcare, families, health, people with disabilities—who are in fact a potential solution to the economic issues at hand, were disregarded out of hand, in combat with Mr. Hargrove, who in fact is representing many of those people, and not just a union, as many of you seem to have indicated.
Coming back to your question, Mrs. Bennett, I think there were some very interesting pieces in the last budget, but as Martha indicated, there isn't a coordinated strategy that brings to bear... I mean, the real debate in this country shouldn't be about whether we are going to take care of people. The real debate should be about how we can redesign our systems in this country so that people can participate, and not be taken care of.
Ms. Carolyn Bennett: But isn't the bigger debate about whether the GDP actually measures all of the value in this country? When we start to look at the value of women's unpaid work in this country, and the fact that it's not measured, I guess I feel that the caregiver tax credit was at least a beginning, starting to put some value on that.
Ms. Connie Laurin-Bowie: It was, as were some initiatives that allowed for families to do some financial planning for a family member who had a disability. Many older women are in primary health care, and have been for the entire life of their family member. Many men are also, who are striving to provide income that they can contribute to the future of their family member's life.
So there was the childcare piece, there was some attending care services, and there was also a recognition of families' efforts to contribute to the future of their own children.
Ms. Carolyn Bennett: Thank you.
The Chairman: Thank you. Mr. Szabo.
Mr. Paul Szabo: For the information of the witnesses, on the question about whether there is any evidence of the value of that first year, in fact the Canadian Paediatric Society came out in February of this year strongly supporting the World Health Organization guidelines on breast-feeding at one year. They said they felt so strongly about it that they wouldn't be involved with any organization that did not support that guideline.
As well—and I think Martha will remember this; I raised this last summer when we had our little television call-in—at the University of North Carolina, Dr. Christopher Ruhm came out with a study of 25 years of population data from seven European countries and found a 29% lower infant mortality rate where one year of paid parental leave was available in those countries. Those are just a couple of examples.
Martha will also recall that in June of this year, before the human resources development committee, Dr. Fraser Mustard appeared, and of all the things that were said there, the one important point was, “Year number one is dynamite”.
I think that investment-in-children angle, which I think Ms. Laurin-Bowie has raised, is so important, and I'm very pleased you were here to make sure that it again is on the record, meeting after meeting after meeting. Investing in children is so important. Strong families do make a strong country—fiscally, socially, and from a health perspective as well.
The Chairman: Thank you, Mr. Szabo.
I think Ms. Friendly would like to make a comment.
Ms. Martha Friendly: I think Dr. Bennett asked me whether there was evidence that it created jobs, and I said I didn't know—but I would like to think so.
Actually, I think we do agree. Whether or not there's empirical evidence that it's harmful for children not to be with their biological parents for the first year, people do want this, and there is some value in family life and giving people some options to remain with their young children.
I wouldn't depend heavily on that study, because I think it was featured in Junk Science, actually, as an example of a really funny study. Nevertheless, I think we do agree that it would be important for parents to be able to spend up to a year with their young children. I think everybody would agree.
The Chairman: I'm going to allow just a very brief comment by Mr. Szabo.
Mr. Paul Szabo: I'm sorry about that last comment about junk science, because the principal point of the study was looking at the impact of breast-feeding, and I don't think providing the opportunity for mothers to provide breast-feeding is junk.
I also want to advise Ms. Laurin-Bowie that three weeks ago, I submitted a bill to the House of Commons to extend EI parental leave benefits, paid benefits, up to one year. I'm going to table that bill in the House of Commons before Christmas.
The Chairman: Thank you, Mr. Szabo.
On behalf of the committee, I would like to thank everybody. It was an excellent panel. You certainly presented us with many perspectives that we're going to reflect upon as we get ready to make recommendations on behalf of the people of Canada to the Minister of Finance. Once again, thank you.
We're going to take a break, and we'll be right back.
The Chairman: I'd like to call the meeting to order and to welcome everyone this afternoon.
It's our pleasure to have with us, from the Business Council on National Issues, Mr. Thomas d'Aquino. We also have representatives from the Canadian Bankers Association, including Mr. Ron Friesen, chair, taxation committee.
We'll begin with you, Mr. d'Aquino. Welcome.
Mr. Thomas d'Aquino (President and Chief Executive Officer, Business Council on National Issues): Mr. Chairman, it's always a pleasure to be in the great city of Toronto, sitting with this very important committee.
Let me introduce the colleagues I have with me: David Stewart-Patterson, who is vice-president of policy and communication; and Sam Boutziouvis, who is vice-president of economics and global competitiveness.
Mr. Chairman, with your permission, I'll begin with a very brief statement prepared in response basically to the Minister of Finance's statement yesterday.
When I last spoke to this committee, in June, I was able to say that most economic indicators were positive. I also warned, if you will remember, that the business cycle definitely was not dead and that fiscal policy must not assume that good news would last forever. Global events since then I think have made this abundantly clear.
I also told you that the business council was in the process of developing its fiscal priorities for what we called the post-deficit era.
Our recommendations for a framework of continuing tax reductions were sent to the Minister of Finance and to each member of this committee earlier this month. Our paper, entitled Creating Opportunity, Building Prosperity: A Tax Reduction Strategy for Canadians, has been distributed to all of you. I've had an opportunity to actually talk with some of you about it.
We've also distributed copies of the memorandum we sent to the Prime Minister in September that outlined our views on broader fiscal choices and strategies in these times of growing uncertainty in the global economy.
I'm not going to attempt to review either of these two documents in detail in my comments this afternoon, Mr. Chairman, but I will touch on their major themes in light of the Minister of Finance's fiscal update yesterday.
In our September memorandum to the Primer Minister, we emphasized the need for accelerated debt reduction to minimize risk to Canadians. We certainly were pleased to have our expectation of a significant surplus confirmed for the 1997-98 fiscal year, and to hear that all of this surplus was used to pay down the public debt.
Now, paying down debt for the first time in 28 years was an exceptionally good start, but I ask the members of the committee, where do we go from here? We were greatly encouraged by the Prime Minister's speech to the Canadian Chamber of Commerce in mid-September, in which he pledged to increase the pace of debt reduction. We also appreciated his commitment not to introduce any more last-minute spending programs and to use this year's surplus to repay the debt.
What we've not heard from the government is any commitment to firm targets for debt reduction, in terms of neither an ultimate goal nor interim progress. The Minister of Finance said yesterday that the ratio of debt to gross domestic product could fall to 55% in five years, but he made no promise even to try to reach that figure. He said that the ratio would continue to be reduced, even if the 55% figure was reached, but set no goal.
The minister achieved budget balance, as you know, in a remarkably short time by being single-minded about his priorities and by setting targets that would be achieved, to use his words, come hell or high water. Reducing the immense risk to the well-being of Canadians posed by the huge debt that remains is just as important, but the degree of dedication and enthusiasm that Mr. Martin brought to bear on the deficit seems to fade when the subject turns to debt reduction, and this is worrying to us.
Clearly, the minister is determined to be prudent in fiscal management, and we support his every effort in this regard. Mr. Martin is dead right to be cautious; we cannot play it fast and loose with the country's finances. The dedication to prudency professed yesterday would have been more convincing, in our view, however, if he had done a better job of telling Canadians where he stands on the options before us.
At a time when Canadians and international investors are looking for unambiguous signals, Mr. Martin, in our view, rambled through a long wish list.
He said—and I'm quoting here—that:
We wish we could reduce EI premiums significantly.
We wish we could bring personal income taxes down dramatically.
We wish we
could devote large-scale new resources to health.
We wish we could invest
significantly more in the environment, in job creation, in research and
development, and in addressing child poverty.
We wish we could do all of that—and more.
That's what he said. His intended point was that Canada cannot afford to do all of that, or even most of it, but he failed to tell Canadians exactly where he stood.
In our view, this, more than ever, is the time for courageous choices and not for wishful thinking. Making choices does not mean simply doing less of everything than planned. Making choices means standing up for what really matters, and making choices means concentrating the government's efforts on those measures that will be most effective in helping our economy grow and that will put the most money back into the pockets of hard-working Canadians.
Mr. Chairman, let no one be in any doubt as to where the business council stands on issues. We believe Mr. Martin when he says there is not much money in the federal pot. Within the limited resources that will be available, we believe, as he does, that debt reduction must come first and that broadly based personal income tax cuts must follow. This means taking a gradual approach to the reduction of employment insurance premiums, and it leaves no room, in our view, for discretionary spending at this time.
When I spoke to you in June, it looked as if there would be a large enough surplus to contemplate some incremental spending in areas of urgent concern, such as education and health care. In my view, this is no longer the case.
The business council made it clear to the Prime Minister in September that this would not prevent the government from addressing urgent concerns and emerging priorities, but any additional resources committed to such areas, in our view, must be drawn from other programs that the government deems to be of a lesser priority. Such reallocations would involve difficult choices, too, because they involve choices of relative need, but families make such choices every day, and the government, in our view, should do no less.
This leads me to the BCNI's emphasis on personal income tax cuts. The fact is, the battle to balance the budget has been won largely on the backs of taxpayers. Real income tax bills have risen for all taxpayers, and dramatically so for the middle- and upper-income earners. Those rising tax bills have left all but the lowest-income Canadians worse off after tax than in the 1980s. Canada now takes a greater slice of its economic pie in income taxes than does any other leading industrialized nation.
High personal income taxes are sapping incentives to work and to invest, and they are damaging our competitiveness and our economic growth. Significant, broadly based reductions, in our view, can wait no longer.
In establishing our priorities for tax reduction, we engaged in extensive discussions and consultations with our member chief executives. We asked them to rank the relative urgency of various sources of taxation, and personal income tax was the overwhelming priority. Reductions in EI premiums came a distant second, followed closely by corporate tax cuts and reduction in provincial tax rates.
Within the personal income system, the top three priorities were eliminating the federal surtaxes, bringing in broadly based cuts in tax rates, and redressing the worst effects of partial deindexation, the so-called bracket creep.
These sentiments, Mr. Chairman, are reflected in our tax reduction proposal. It sets out a plan for $18 billion in annual tax cuts over the next seven years. Of the cuts, 80% are allocated to reduction of personal income tax rates. This $14.5 billion in income tax cuts is the equivalent to about 20% of the government's personal income tax revenue this year.
We set three objectives. The first is to reduce the overall burden of personal income tax from its current record level of more than 20% of average family income—that is, one dollar in five—to its 1985 level of less than one in six.
The second is to reverse the worst effects of partial deindexation, in part by eliminating all federal tax for at least one million more Canadians with very low incomes. Contrary to what the press and a number of people have suggested about the BCNI proposals, we would argue that they are enormously progressive, because as I said, and repeat, our proposals would remove over one million low-income Canadians from the tax rolls.
The third is to improve Canada's competitiveness by cutting the marginal tax rate by five percentage points for those earning between one and five times the average industrial wage.
The first objective, Mr. Chairman, is reflected in the overall amount set aside for personal income tax cuts.
The second would be achieved primarily through substantial increases in the basic and spousal amounts, a total of $1,500 each over seven years. This should completely reverse the effects of bracket creep for the lowest-income Canadians. It also is more effective than an equivalent cut in the 17% tax rate because it tilts assistance more heavily towards families.
The most effective way to give relief to middle- and upper-income earners is through reduction of the marginal rates they face, letting them keep more of each extra dollar they earn. You will note that the full five-percentage-point reduction would not apply on income above $150,000.
The reason for this ceiling is quite simple. One of our major competitiveness concerns has to do with the Canada-United States tax gap. American rates are significantly lower than Canadian rates, even at the very highest incomes, but the gap is the largest at relatively modest levels. At the income at which a Canadian is considered rich enough to pay the top tax rate here, an American is still paying 12 percentage points, or 30%, less than the top rate in the United States.
The American top bracket only begins at an income of $271,000 U.S., and that is after deductions for such items as mortgage interest. The wide tax gap begins at middle incomes and extends well into six figures, yet the range from about $70,000 to $150,000 covers most of the highly skilled professionals and managers that Canadian companies are now losing to American competitors.
I know there is some scepticism on the question of the so-called brain drain, but I do know that chief executives in every sector and in every region of the country have a serious problem on their hands. The numbers are not large in all cases, but Canadian companies are experiencing real and growing difficulty in attracting and retaining the people they need most to stay competitive in the knowledge economy. That may be anecdotal, but it comes straight from the front line.
Our tax system is not the only reason that Canadians choose to leave but it clearly makes a difference. We need a tax system that not only looks after those least well off but also provides incentives to work and to save. We need a tax system that leaves lower-income families with a decent after-tax standard of living and also lets hard-working Canadians keep more of what they earn. We need a tax system that encourages not only low-wage job creation but also high-wage job creation. We do not have such a system now, and we have to move in that direction, in our view, without delay.
Let me wrap up with just a few words about EI. This is the primary reason that the BCNI has swum against the tide on the relative merits of reductions in personal income taxes and EI premiums. We feel very lonely out there, because seemingly only the government and the BCNI are recommending this.
Let me explain our rationale. Canadians need as much individual tax relief as the government can afford. They have sacrificed mightily to get the nation's finances in order. They deserve a break. You and I know that. Cuts in personal income taxes will get more money to more people than any of the alternatives.
The main reason for that is simple. The majority of the EI premium bill is paid by employers. The majority of any reduction in premiums would therefore flow to companies and other employers as well.
A single element in the BCNI's proposal for 1999 tax cuts, the $500 increase in the basic and spousal amounts, would cost about $1.4 billion, yet this would deliver more tax relief to most lower-income Canadians than a 40% per 100 cut in EI premiums, costing $2.8 billion. The money that would otherwise go to employers would otherwise be available for further broadly based personal tax relief.
Mr. Chairman, that is what we at the BCNI mean by taking tough choices. As the head of companies that employ one out of every ten working Canadians, our member chief executives would be delighted to see their labour costs reduced through cuts in EI premiums, but in our judgment—and this is important—in our judgment, broadly based personal income tax would be far more effective in addressing the country's needs and improving Canada's competitiveness base.
In one way or another, all forms of taxation take money that belongs to individual Canadians. Employment insurance premiums are no more stolen from workers than are the personal income taxes withheld from the same paycheque. What matters most is whether the burden of taxation is allocated fairly and whether Canadians are receiving good value for the money that is taken from them.
Accelerated debt reduction; a solid start to broadly based personal income taxes; no new spending—all that may not be popular, but that is what we believe is best for the country, and that, Mr. Chairman, is where we stand.
Thank you very much.
The Chairman: Thank you very much, Mr. d'Aquino.
We'll now hear from the Canadian Bankers Association, Mr. Ron Friesen and Mr. Mark Weseluck. Welcome.
Mr. Mark Weseluck (Vice-President, Banking Operations, Canadian Bankers Association): Thank you, Mr. Chairman and committee members, for inviting us to appear before you today as part of your pre-budget consultations.
With me today is Ron Friesen, vice-president of taxation at the Bank of Montreal and chair of our CBA taxation committee.
When we last met with you, on June 11, 1998, we expressed our support for the findings of the Mintz committee report on business taxation, and urged the government to proceed with reform to make our tax structure more competitive with those of other major countries, particularly the United States and the United Kingdom.
In moving forward with reform, the constraint of revenue neutrality, which was applied to the Mintz committee, need not apply. Instead, reform should be targeted at bringing the higher-taxed industries more in line with taxes levied on other industries within Canada and abroad.
However, we recognize that the federal government faces fiscal constraints in order to maintain its prudent fiscal policy and faces myriad requests from various interest groups. Thus, in our submission to you of September 8, 1998, we projected that the surplus for the next fiscal year would be $3 billion to $6 billion and recommended that a large proportion should be used to pay down the national debt, which would have the benefit of reducing the interest costs that must be covered in each budget. Much of the remainder of the surplus should be used to cut personal income tax.
Given these priorities, we accept that the government will not be able to proceed with substantial business tax reform in the next budget. Nevertheless, we believe it would be constructive for the government to signal that business tax reform is on its agenda for future years, for without a competitive private sector—in particular, the services sector, which has been generating the most growth and the better-paying jobs, yet bears the highest taxes—investment in job creation is impeded, to the detriment of the Canadian standard of living.
High taxes that are discriminatingly targeted at specific industries result in a misallocation of resources and adverse consequences for customers and other stakeholders.
The recent MacKay task force report, and the research report it and the Minsk committee commissioned from Kevin Dancey, add to the overwhelming evidence that banks and other financial institutions are the most heavily taxed sector in Canada and that this directly harms customers, other stakeholders, and the economy in general.
We are leaving with you today our views on those two reports' findings and recommendations regarding taxation. In the interests of time, I'd like to highlight just a few of their findings with which we agree.
The MacKay report found that high taxation adversely affects the competitiveness of financial institutions and the level of competition to the detriment of choice and cost to customers.
More directly, the Dancey report estimated that capital taxes on financial institutions raised the cost of loans by an average of 12 to 13 basis points. On a $100,000 mortgage with a 5-year mortgage rate of 7%, this represents an additional $100 annual cost to the homeowner.
Similarly, this added cost would translate to about an additional $1,700 in higher interest payments over the life of a 5-year, $250,000 loan for a small business at current borrowing costs.
Moreover, capital taxes undermine regulatory efforts to have financial institutions increase their capital base for safety and soundness reasons. High taxes also deter foreign competitors from entering the market with large investments and jobs. Instead, they are able to use technology to minimize investment while selling their services to Canadians.
Not only does excessively high taxation deter investment from abroad but it also encourages the shift of investment from Canada to lower-tax regimes. The declining importance of borders as a result of advances in technology to enable financial services to be produced in one jurisdiction and sold in another increasingly allows financial institutions to seek the most cost-effective jurisdictions to support production.
We commissioned a study from the Ivey consulting group, affiliated with the Ivey School of Business, on the impact of taxation levels on location of investment decisions for financial services. We are pleased to provide you with a copy of this study, which found that differential tax rates were a factor in the shift of investment and financial services from New York state to Delaware and New Jersey, from various European countries to Ireland, and from Germany, which until recently had a capital tax, to Luxembourg and Switzerland.
While other cost factors were involved in some of these situations, it is the tax rate that is clearly in the control of government. Clearly, if Canada wants to avoid losing investment in jobs and financial services to other countries with more favourable tax regimes, it must act to bring taxes on financial institutions more into line with those of other jurisdictions.
The key differential that should be given priority is capital tax. Canada is one of the few countries with a capital tax, a tax which, as Harold MacKay described it, is particularly perverse when applied to banks and other financial institutions, as they are required by their regulators to maintain ever-higher levels of capital. Moreover, this problem is compounded by the even greater reliance of provinces on capital taxes for revenue.
While we strongly support the MacKay task force's recommendation that capital taxes be eliminated, we recognize that this cannot be done in the next budget. However, it is clearly possible for the government to eliminate the temporary capital tax surcharge in the next budget. It was introduced to eliminate a deficit, and this objective has been accomplished.
There is significant evidence to support the conclusion
that the current level of taxation on the financial
services sector in Canada is excessive relative to both
the non-financial sector in Canada and the foreign
competitors with which Canadian financial service
providers increasingly compete.
Capital taxes levied on financial institutions make the institutions less competitive and create risks to their safety and soundness.
The message is clear. Banks pay too much in taxes, and alleviation of this burden should begin immediately.
Thank you very much.
The Chairman: Thank you.
Mr. Brison, we'll begin our questioning of this section.
Mr. Scott Brison: Mr. Chair, it's nice to start first for a change.
A voice: The last shall be first.
Mr. Scott Brison: Thank you for your presentations today.
Mr. d'Aquino, I had a couple of questions on the EI surplus issue, which has divided people who traditionally agree and in fact has caused agreement among groups that typically don't agree.
Given that the EI premium, as a payroll tax, directly increases the cost of labour, and accepting that we have an unemployment rate in Canada that is unacceptably high and remains fairly stubbornly high, if we're serious about reducing unemployment, should it not be a real priority to reduce EI premiums and reduce the cost of labour, thus increasing demand for labour and putting more Canadians back to work?
Mr. Thomas d'Aquino: Mr. Chairman, Mr. Brison's question is an excellent one and is one that I think has to be addressed and debated in a very serious way.
First of all, lest there be any misunderstanding among members of the committee, the business council has been on record since time immemorial—certainly since the issue of a potential surplus ever came up—as recommending first that premiums should be reduced. Secondly, we've expressed our frustration and dissatisfaction with the manner in which the EI system works.
We were on record during the great debate on the reform of unemployment insurance saying it should be a purely insurance-based system. But I don't have to remind Mr. Brison of how long, how many years, it took to debate the reform of UI to get to where we've got today. And I certainly agree with something I think I heard said in the previous session by one of the members of the committee, that the old system was in fact a very powerful disincentive to work. We know that. Even the architects of that legislation admit today it was a powerful disincentive.
It is true payroll taxes are a strong disincentive to the creation of employment. However, what we were faced with here...
Oh, incidentally, just to finish up on EI, in our submissions to this committee and to the Minister of Finance, while we have taken the position we have on personal income taxes, we reiterated our concerns and our frustrations about the EI and we also indicated that premiums must come down.
So, Mr. Brison, we were forced, as I suggest you are compelled to do, to make a choice. And the choice was a very simple one. With the kind of arithmetic that Mr. Martin gave us yesterday—and let us work on an assumption that there is a surplus of somewhere between $5 billion to $7 billion... First of all, debt reduction was the top priority, as it must be. And we're delighted the Prime Minister and the Minister of Finance have confirmed that.
The second thing we said was that the reduction of personal income taxes was the second priority. The third priority was the reduction of premiums. Why did we make that decision? It was because if $3 billion or $3 billion and a bit were to go to debt reduction, and we assume you'd only have about $3 billion left, you could not possibly even begin to touch personal income tax reduction, or for that matter even do anything about debt reduction, if you gave it all back in the form of premiums.
The trade-off we made, Mr. Brison, was the following. We said personal income taxes in Canada are the highest among the G-7 countries and among a large number of the countries in the OECD. We also acknowledged payroll taxes are among the lowest. So what does a person do when you're compelled to work with a limited amount of surplus? You ask yourself where the greatest benefit is going to go. Therefore, very conscious of the fact we were breaching principle—and I want you to know we did not arrive easily at our conclusions—we said the reform of EI may take three, four, or five years. What is the greatest possible benefit to the greatest number of Canadians today? We concluded that was through a broadly based personal income tax that would reach out to a great number of Canadians.
The final point I would make is addressed to those, such as my good friend, Buzz Hargrove, who perpetuate the monstrous fabrication that what we're suggesting here is taking money away from the poor and giving it to the rich. What is the reality? The reality is if we were acting purely out of self-interest, we would say to you we want the EI premiums and we want them now. The reason for that is the majority of that money would go into the pockets of our companies. That may be the self-interest argument, and it may be the most obvious thing to do. But we said no, let's put that money back into the pockets of Canadians and let it reach the greatest number of Canadians, because that is where the principal benefit will be.
In conclusion, I want to say to you and your colleagues in the Conservative Party, and all others who, like us, have argued strongly about the principle and about our commitment to reform, we are not divided on that issue. Where we are divided is on our conviction that a personal income tax cut for now and for the immediate future will bring the greatest number of benefits to the greatest number of Canadians.
Mr. Scott Brison: In terms of further EI reform, there was a report on one British study in The Economist a few months ago. I have a copy of the study, but I haven't read it yet. It's about individual EI accounts. The last changes to EI were effectively punitive in nature. They provided a bit of a stick for people who draw frequently from EI, but they didn't really provide any carrot for those who don't. What effectively would happen is through these individual EI accounts, Canadians would be given an opportunity to effectively accrue over a period of time some level of capital in their individual EI accounts. It wouldn't be a great investment, but at least it would provide something if they were not to draw from it. Is that the type of system you would like to see evolve?
Mr. Thomas d'Aquino: Going back 10 to 12 years, we had extensive debate with Mr. Hargrove's predecessor, Shirley Carr, and with Bob White and others, on the issue of segregation of that money. Even some members of the business community were of the view that money belongs to us and to people who are working people, therefore it should not be under the administration of any government. I became quite alarmed about that proposition.
Again, you may ask, why wouldn't you want to administer your own money if it belongs to you? I became somewhat alarmed, and I strongly opposed the idea of segregation as it was being talked about for the following reasons. It's because organized labour, and in particular the leaders of the CLC, were very hungry to get their hands on that money to not necessarily put it all back into the pockets of the workers but to use it to promote their agenda, and that agenda was the one you heard from Buzz Hargrove. I won't mention him by name, but one very prominent leader of the labour movement said, “Tom, why wouldn't you be in favour of segregating an account? Then you could spend half of it the way business wants and we can spend half of it the way organized labour wants.” That is what turned me off the idea.
But I'll say this, Mr. Brison. An independent account that is managed by an independent board of directors that is accountable to the constituents and accountable in accounting terms to the people of Canada is more or less what we have in mind. The idea of individual accounts becomes extremely complicated. As a member of a party that is a strong believer in free choice, would you really want to say to Canadians that they're compelled to put their money into an individual EI account as opposed perhaps to investing it where they think they can get a much better return? The idea of a separate account that's independent and accountable, one that has some degree of being objectively managed rather than run by constituents who may have in mind policy objectives that have very little to do with pure insurance principles, is what I would tend to favour.
The Chairman: Thank you, Mr. Brison.
I'm going to try something to see how it works. I have a lot of members on this side who want to ask questions. I'll get them to just place their questions, and maybe the members of the panel can take notes. We'll then address them and try to get them all answered.
Mr. Szabo, followed by Ms. Leung, Mrs. Redman, Mr. Pillitteri, Mr. Discepola, and Mr. McKay. You can ask one quick question each.
Mr. Paul Szabo: The finance minister again repeats his theme about the linkages between social and fiscal policy. Given that there are not as many dollars to do everything you want to do, and given that maybe even across-the-board tax cuts may be unaffordable, do you feel it would be useful to pursue income tax reform before we tinker too much with the fragile tax system?
The Chairman: Ms. Leung.
Ms. Sophia Leung: I'm from B.C. The majority of constituents who are friends or businessmen would all tell me to recommend tax cuts to Mr. Martin. According to Minister Martin, if each individual received a $600 tax cut, it would cost us $9 billion. My question is, what can we afford? We obviously cannot afford $9 billion. What is your answer? What kind of tax cut should there be?
The Chairman: Mrs. Redman.
Mrs. Karen Redman: Thank you, Mr. Chairman.
My question is for the Canadian Bankers Association. On page 4, you make reference to virtual banks like ING and Wells Fargo. It seems to me there's a linear logic that I'm not following in this paragraph. It says that payroll taxes and our taxation are allowing virtual banks to come in and not put down the bricks and mortar, that they would want to come in and build banks if we had lower taxes. I guess I would just like you to flesh out that logic, because I'm having a hard time following you.
The Chairman: Mr. Pillitteri.
Mr. Gary Pillitteri: Mr. Chairman, all the questions I was going to ask have been answered already.
The Chairman: Mr. Discepola.
Mr. Nick Discepola: I can't get over the discipline so far, Mr. Chair. I'll try to be disciplined, too.
Mr. d'Aquino, you might want to take into consideration another hesitation for why you shouldn't acquiesce to an outside fund managed by the provinces. Coming from the province of Quebec, I could just see what a Parizeau could do with $12 billion in additional misappropriated funds in his case, as we saw in the last referendum. But that's not my question.
I firmly agree with your position that the first priority should be in looking at ways to give the maximum tax relief possible. Where I do disagree with you is that it should be broadly based. In being consistent with some of your presentations, you sort of said we should help those Canadians most in need. Therefore, why shouldn't we make it a targeted tax relief as opposed to a broadly based one?
The Chairman: Mr. McKay, you have the final question.
Mr. John McKay: The final three questions, actually.
First of all, on your issue of GDP-to-debt ratio, specifically what would be gained by Minister Martin setting a hard-edged target?
Secondly, with respect to tax cuts versus health care, one of the things we are continuously told across the country is that there is a deficit in health care. Would you prefer a tax cut over a re-funding of the health care issue?
The final thing is with respect to Mr. Hargrove's position that we should be counter-cyclical, that the government should actually get back into the business of making investments as we approach the tumultuous economic times.
Those are my questions.
The Chairman: Mr. d'Aquino, would you like to start?
Mr. Thomas d'Aquino: Mr. Chairman, I'll try to exercise the same discipline in my responses as the members of the committee have in asking the questions.
Very quickly, Mr. Szabo, on the first question of social and fiscal policy linkages, I know that perhaps some members of this committee—and certainly some members of your caucus—have been of the belief that in the long and historic demands of the BCNI for the last 15 years for fiscal integrity, somehow that was divorced from a commitment to social policy. I've said this before this committee, but I want to repeat it again. I believe very strongly that the positions we have taken historically have been by far the most socially responsible, because were our recommendations taken 15 years ago, today we would not be paying $40 billion a year in interest on debt and therefore putting this great noose around our collective necks, which says, do we really have a few dollars to spend on health? That is why the mistakes of the last 15 years must not be repeated over the next 10 years. The linkage between social and fiscal policy is seamless. I argued it then, I would argue it now, and I think history has vindicated our position.
I have a second point very quickly on income tax reform, on whether it should be a priority and related to other issues such as health. I'll just combine that question with the other one of tax cuts versus health care. We acknowledged in our submission before this committee and to the Minister of Finance that health care is the number one priority in the country. We believe that, because just like you we hear this. Many of the chief executives in the BCNI sit on hospital boards. They are on the front lines of fighting the battle of whether we shut down our hospitals, whether we squeeze, and how do we deal with longer line-ups. We're acutely aware of that. We did say that the first call on any spending on the part of the Government of Canada should be in the area of health care. Indeed, we even went further and said that it should not be through federally administered or initiated programs such as home care or pharmacare; it should be in the form of giving money back to the provinces through the CHST.
We disagree with the premiers who have asked for $6.2 billion. It just simply isn't there. What we do agree with is any position the Government of Canada or the Ministers of Health and Finance take to give some money back to the provinces for health care. We ask that this be deferred for one year because we are in extremely turbulent times. We said should you decide in the next budget to give money to health care, as we have outlined it should be done, we have suggested that you should find that money somewhere else, not that it should take the form of new spending.
Finally, is there a linkage between health care and fiscal probity? Of course there is. I'm totally with Mr. Martin and with Mr. Rock and others who have said that a healthy country is a competitive country. A healthy country is a happier country. A healthy country is a more productive country.
On the third issue of debt-to-GDP targets, my answer to you very quickly would be this. What is the greatest single success of the Liberal government? Why are you all enjoying the degree of public support that you are today? You're enjoying it because you have brought a nightmare of fiscal mismanagement back into some semblance of order. The people of Canada are rewarding you for that. They're voting their confidence in you for that. How did you do that? You did it by having a Minister of Finance seized with a $42 billion deficit who said, “I am going to set targets and I'm going to reach them come hell or high water.” He set two-year rolling targets. The target became the thing. It became a driving factor in the country, in the media, in your caucuses, and that goal became something you could fight for, something the people could believe in.
We're suggesting you do exactly the same thing with debt. Why would you apply it to the deficit so successfully and not apply it to the debt? That is why you should be doing it.
There's another reason why you should be doing it. When you set the targets for deficit reduction, which I would argue was your greatest single victory in public policy terms, international markets said these guys are serious: they've set two-year rolling targets and they've met them, and they set another two-year rolling target and they met it. The signal to markets was a positive one. It enabled us to have lower interest rates, something that was inconceivable in Canada—lower interest rates than the Americans. Why? Because people believed that our fiscal program was real. It was credible. That is what you have to do with the debt with the same degree of zeal and you'll get marks for it. Trust me, you'll get marks for it.
The problem with yesterday's statement was that it left a number of people out there saying, yes, they did a good thing this year, but they talked about this long wish list. Where does the wish list really fit in with all the other priorities? That's why I think you have to set the target. It's good politically; it's good economically.
The last point is the counter-cyclical argument. If any government in this country over the last 20 years had followed every counter-cyclical recommendation of Buzz Hargrove and Bob White, the leaders of the labour unions in this country, today we would be totally bankrupt. Our dollar would be perhaps at 40¢. We would be the laughingstock of the world. The fact of the matter is that all during those 15 years when we were asking for greater fiscal probity, these same people were saying no; they were saying deficits don't matter. Remember? Deficits are part of the great corporate agenda. Deficits are a way of taking money away from workers. What we must do is spend, not cut.
If we had listened to these people, Canada would be a financial wreck. The record proves that very clearly, so please don't even begin to think that the counter-cyclical argument works, because it doesn't.
On the final point Mr. Brison made, Tony Blair, today, is the great hero of one of the most progressive and most successful economies in the world, the United Kingdom. Tony Blair is a labourite. Tony Blair comes from a tradition of social democracy in the United Kingdom that had almost driven that country into bankruptcy. Today the speeches and the policies of the Blair government would make the Conservatives, and maybe even the Reform, look red-faced from time to time. If social democracy works and delivers in the United Kingdom, then why shouldn't it work here? The last labour movement in the industrialized world to catch on to the real world is the labour movement you heard today. Please don't pay any attention to them.
Mr. Nick Discepola: On a point of order, Mr. Chair, Mr. d'Aquino was so disciplined, he forgot to answer my question.
Mr. Thomas d'Aquino: I'm sorry.
Mr. Nick Discepola: It's on general, across-the-board tax cuts versus targeted cuts.
Mr. Thomas d'Aquino: I'll be happy to answer this. David Stewart-Patterson or Sam Boutziouvis might quickly want to add to it.
We chose the broadly based option because, first of all, we knew that if we had taken the selective targeting we would have been blown out of the water on the argument about personal income taxes versus EI reduction. Indeed, the very argument that I made to you today as to why EI reductions are not as good as broader-based personal income tax reductions is precisely because broader-based personal income tax reductions are going to give more to a greater number of people. The EI premium reduction is, in effect, a more selective tax cut, more selective because more than half of it is going to go to businesses.
In our paper we're recommending relief...we're taking a million low-income Canadians off the tax rolls and we're also providing significant relief to lower, lower middle, and middle-income Canadians. In that sense it's not as broadly based as it might be. Otherwise I would have argued that those of us in the highest income bracket should be getting a lot of relief as well.
The other thing we did not say, as you probably noticed, is that there should be corporate tax relief, which again would be beneficial to the corporate sector—broadly based tax relief in significant chunks of money, which incidentally are affordable, even with what Mr. Martin said yesterday.
If you take a $5 billion to $7 billion surplus, $3 billion of it will go to debt reduction and $3 billion of it will go to tax cuts. You can afford it. It can be done. It certainly can be done in the next budget. As far as the years after that are concerned, we were prudent in our assumptions,, and we have said if the world economy really goes into the tank for three to five years, then obviously what we have said in the outlying years is going to have to be revisited.
David, do you have anything you want to add to that?
Mr. David Stewart-Patterson (Vice President, Policy and Communications, Business Council on National Issues): If I may, I would just like to repeat a couple of points that we made in our tax paper.
One of the problems we face today is that we have targeted too well. We have targeted so many measures, so much of our tax system, towards those most in need that we have ended up trapping people at relatively low incomes. We know about the welfare wall, where people can lose almost all, or all, of what they earn when they try to move into the workforce. There is another wall that affects low-income and modest-income families with family incomes in the low twenties. The fact that we have targeted our child tax benefit supplement so tightly means that those families can lose 60% or 70%, and in some provinces more than 70%, of every extra dollar they earn. That makes it very difficult for them to improve their after-tax circumstances. There is another wall that people hit as soon as they move into the second tax bracket. Again, if you look at the numbers, you see tax rates, marginal tax rates, that are over 60%.
Finally, as we move up we hit the problem of Canada-U.S. tax competitiveness. That's where Canadian companies are losing people, and that's why we're saying look, there is a tax problem facing Canadians at every income level; therefore we have to take action to try to bring down that relative barrier to being able to improve one's circumstances at any level.
Mr. Nick Discepola: If you take a look at the taxation levels, though, it's those who are in the $25,000 to $35,000 or $40,000 group who have a disproportionate increase in taxation. That's why I'm saying if we give an across-the-board tax cut, we're not benefiting the middle-income people, or those who have contributed the most so far.
But I understand...you're not saying an across-the-board, general... You're saying... Yes, maybe we could do it by increasing personal exemptions, for example, which you had suggested also.
Mr. Sam Boutziouvis (Vice-President, Business Council on National Issues): In fact—
The Chairman: Please be brief because we have to get Mr. Weseluck in.
Mr. Sam Boutziouvis: —our tax plan is part of a seven-year strategy that takes into account obviously broadly based tax cuts, but in the first year we do call for an increase in the $500 spousal amount, which would hit all taxpayers. And then we also call for elimination of the surtax.
A voice: And build on that in subsequent years.
Mr. Sam Boutziouvis: That's right.
The Chairman: Thank you very much.
Mr. Weseluck or Mr. Friesen.
Mr. Ron Friesen (Chair, Taxation Committee, Canadian Bankers Association): Mr. Chairman, I think the question was why Wells Fargo would decide to come to Canada if the tax rates were more competitive or on equal footing with the American tax rate.
I think the point we were trying to make is that with e-commerce, foreign banks are not required to have an establishment or a presence in Canada, so they can compete in our own markets, but under their cost base. If we try to compete in their markets, we have to deal with the Canadian tax system and we have to provide capital for that business, and because of our capital taxes and the fact that they don't have capital taxes, it puts us on an unequal footing, the point generally being that our cost base is higher than their cost base, and they're able to compete in our market while we have to compete in their market with a higher cost base.
Mr. Mark Weseluck: I just want to add that this technology is such an enabler. We're seeing that already in terms of how they're able to set up very sparse operations, yet sell products in competition with the existing financial institutions.
I also have a quote on page 9, because I understand that officials from Wells Fargo, ING Direct, and Capital One appeared before your committee on September 29, and I think they said themselves that capital tax represents a significant hurdle to the expansion of their businesses in Canada.
So it's just that the cost factors are too high. They're able to sell while having a very stripped-down operation. So you lose capital tax and employment that they might otherwise invest here, and hence you lose the payroll taxes.
The Chairman: Thank you. On behalf of the committee, I'd like to thank you very much. Today has been so far a very interesting day. We still see competing ideologies and visions for the future of the country, but you all bring to us very interesting perspectives, particularly as they relate to the priorities we should be setting for the upcoming budget.
We as a committee look forward to making recommendations to the Minister of Finance, as we did last year, that speak to the realization that we do in fact live in a very modern, globally oriented country, one that has to consider not only the national interests but also the international interests as an important part of our debate.
So once again, on behalf of the committee, thank you very much.
We're going to suspend the hearings for approximately five to seven minutes and we'll be back.
The Chairman: I'd like to call the meeting to order.
I'd like to take this opportunity to welcome representatives from the Board of Trade of Metropolitan Toronto, Dundee Bancorp Inc., Hockley Valley Resort, the Ontario Hospital Association, and the University of Toronto. As you know, you have approximately five to seven minutes to make your presentation, and thereafter we will engage in a question and answer session.
We will begin with the representative from the Board of Trade of Metropolitan Toronto, Ms. Elyse Allan. Welcome.
Ms. Elyse Allan (President and CEO, Board of Trade of Metropolitan Toronto): Good afternoon. As mentioned, my name is Elyse Allan. I'm president and CEO of the Toronto Board of Trade. With me today are two volunteer members of the board involved with our policy committee: Maralynne Monteith, chair of our taxation policy committee; and Michael Beswick, vice-chair of our pensions and employee benefits committee. Also with us is Louise Verity, who's director of policy at the board.
It's through the work of such volunteer members that the board is able to bring forward policy positions on occasions such as this. With over 10,000 members representing all sizes and types of business, the Toronto Board of Trade is the largest local board of trade or chamber of commerce in Canada.
The Toronto Board of Trade is pleased to have this opportunity to address the members of the Standing Committee on Finance. We have previously submitted a brief to this committee as part of the 1999 pre-budget consultation. We will update that submission to reflect the recent changes in our global environment.
Today I'll touch very briefly on some of the key elements of that document, elements the Toronto business community views as important to the continued success of our economy. Specifically, I will address debt reduction, tax reduction, employment insurance, and the Canada Pension Plan.
The next federal budget must continue with a strong commitment to debt reduction. Canada still carries one of the highest debt-to-GDP ratios of the OECD countries. The Board of Trade believes priority must be given to using any surpluses to maintain the downward track of the debt-to-GDP ratio. This reduces not only the risk premium on Canada's debt, but also the country's vulnerability to future economic shocks. Given the current chaos in financial markets and economies around the globe, reducing this exposed position becomes even more critical to Canada.
Canada's current income tax structure and payroll tax system are not competitive with other jurisdictions, such as the U.S. One of the many impacts this has is our inability to recruit and to retain top employees. The Toronto Board of Trade is concerned about this loss of highly skilled individuals to other jurisdictions. We're losing a valued resource we have paid for, a resource that is increasingly vital to our future prosperity and competitiveness in the knowledge-based economy. The federal government must act now to stem the loss of this resource.
There are many contributing factors to the drain. By addressing some of the key ones, this government can assist in developing and maintaining a strong base of human capital. This is a key platform from which to secure Canada's prosperity.
Top U.S. marginal income tax rates are reached at income levels well in excess of $200,000 U.S. In contrast, top marginal income tax rates in Ontario, for example, currently commence at under $65,000. Today incomes in this range are becoming typical of entry-level positions for highly mobile graduates, where the lure of greater earnings and career advancement potential in the U.S. is already significant. Reducing marginal tax rates would deter the loss of our own graduates.
The most straightforward approach to reducing marginal tax rates would be to eliminate both the general surtax of 3% and the additional surtax of 5%. This could be achieved at an estimated cost of only $1.3 billion, taking into account surtax changes in last year's budget, or less than 1% of federal revenue. This would result in a welcomed improvement in the competitiveness of personal income tax rates against those in the U.S., dropping the top marginal tax rate in Ontario to 47.3% from the current 49.6%.
There has been much discussion lately about the employment insurance program. The Toronto Board of Trade has been supportive of the reforms to this program to try to make it function more as an insurance program as opposed to a social policy program. However, there are still areas requiring adjustment. EI premiums represent another tax that falls heavily on employers and employees through the payroll system. High premiums stifle private sector job creation and reduce personal disposable income. Today, EI premiums have resulted in an unnecessarily high contribution to federal revenues in excess of the amount needed to fund the program.
This is unacceptable. The EI program is meant as an insurance fund against which working Canadians draw support in periods of job loss. It is not meant as a fund for the federal government to use to support budget initiatives.
The federal government must ensure that surpluses achieved through the EI program never exceed the amount stated by the chief actuary to be necessary to ride out a severe recession. We are presently in a situation where the contribution rates will result in a possible $20-billion surplus that will then flow into general revenues of the government. This is not the purpose of the program.
It is clear, then, that contribution rates are too high, and employers and employees are paying too much. The Toronto Board of Trade urges the government to gradually reduce premiums for employers and employees and move toward an equalized contribution rate so that the break-even premium rate is reached within a reasonable time.
It's our belief that these changes will be an effective measure to stimulate job creation and offset the lure of working outside Canada. We should also state that the Canadian Chamber of Commerce approved such a recommendation at its annual meeting just this September.
A final area we would like to address is the Canada Pension Plan, which is a program that has received as much discussion as employment insurance.
I should also state that the board is a founding member of the Retirement Income Coalition, which is to make a presentation before the committee on November 10.
Some have called for the privatization of CPP through the installation of mandatory individualized plans. The board does not support this, believing that the program should remain a universal public program. The Toronto Board of Trade applauded the government's decision not to proceed with the seniors' benefit. This decision, however, coupled with the continued need for the reform of CPP, highlights the need for an all-encompassing “aging paper”. This government must provide a clear sense of direction with respect to the future of the Canadian retirement income security system.
The Toronto Board of Trade believes that if the government implements the recommendations noted today, Canada will make a significant move forward in reinvigorating the economy. The government will also reassure Canadians that the country is on track to remain competitive in the global economy, that our personal income security and economic security is important, and that we believe and value the contributions individuals make to the growth of the nation.
Thank you. My colleagues and I would be pleased to address your questions.
The Chairman: Thank you very much, Ms. Allan.
We will now move to representatives from Dundee Bancorp Inc. Mr. Donald K. Charter and Mr. Garth MacRae, welcome.
Mr. Garth MacRae (Vice-Chairman, Dundee Bancorp Inc.): Thank you very much. Ladies and gentlemen, we are pleased to be here today to participate in this pre-budget consultation.
My name is Garth MacRae. I'm vice-chairman of Dundee Bancorp. With me is Don Charter, president and chief executive officer of Dundee Securities Corporation, which, I would note, is a newly formed independent investment dealer in Canada. He is also CEO of Dundee Capital Markets, which embraces our merchant banking activities. We are a public asset management company with a book value in excess of $500 million, and we're firmly established in the financial services industry.
You asked us to address some specific questions and give you our perspectives on priorities. Notwithstanding Mr. Martin's recent comments, which indicate perhaps that we have lower surpluses than we were led to believe initially, we applaud the government for being able to achieve a balanced budget and hope that its resolve to continue on this path will not be compromised. If in fact there are significant surpluses generated, these should be used to reduce the government debt and to allow taxpayers to realize more net income by reducing personal income taxes.
Canadians are taxed at high rates, and the levels at which the high rates are applied are reached on relatively low levels of income. We are hearing more and more that we lose some of our highly skilled people as a result of not being competitive in the taxation of personal income. The government should examine the personal tax brackets and rates and ensure that we are competitive on a global basis.
There should be no temporary surtaxes. The tax rate should be the tax rate, period. If in fact the surtax is temporary, it should be the first priority of any so-called fiscal dividend.
For corporations, all taxes should be related to income, and capital taxes, if necessary, should be kept to an absolute minimum.
To encourage investments in new businesses, a capital gains tax system, similar to that in the U.S., should be considered. This system, which was recently implemented, encourages longer-term investments and makes the determination of capital gains totally objective. Investments held for less than a year would be taxed as income, those held for between one year and 18 months would be taxed at a rate of 28%—these are the U.S. rates—and those held for more than 18 months would be taxed at 10% if you were in the low tax bracket and 20% for all others. Such a system would encourage start-ups and entrepreneurial activities, which I believe are the major sources of new jobs. This is probably not expensive since all short-term gains would be taxed at a higher rate than they are presently.
I'd like to remind the government that value-added taxes, when properly introduced, should have resulted in a reduction in personal taxes, which is the U.K. model. There have been significant gains in government revenues from the GST, which is swallowed up in general revenues and has become part of the program spending. When this tax was introduced, it replaced the hidden manufacturer's sales tax and resulted in slightly lower costs for big-ticket items like cars and appliances. At the same time, we all saw increases in our daily living costs for services, clothing, entertainment, etc. If you add up your personal GST bill and multiply it by the workforce, the numbers are large. I believe any windfalls from the GST were originally targeted for debt reduction, which did not happen. The application of GST revenues should be reviewed.
Our merchant banking endeavours have always been close to the resource industry. We hear today that because we are a resource-based economy and commodity prices are under pressure, our dollar is weaker. Most resource ventures are high risk, and in the past our government has recognized this by providing incentives to this area. Over the recent past, the government has been intent on treating these high-risk ventures as any other industry, namely because they are not labour intensive and do not employ the large numbers of people that manufacturing does in large urban centres.
We urge the government to revisit incentives for resource companies. Tax holidays and significant depletion allowances give consideration to the higher risk and the wasting nature of assets. These incentives should be re-examined. I understand there's a Mintz commission report that says these should be treated exactly the same as ordinary industries when they're not the same.
Our company has appeared before this committee relative to the MacKay task force study, and we made some suggestions for budget-related incentives to ensure that healthy new banks might be formed and have a chance to compete against the established banks. We had two suggestions. The first was that second-tier banks require greater tax advantages in excess of the capital tax suggested. The second-tier banks should be allowed to have unlimited tax loss carry forward of operating in capital losses, and there should be no streaming of these losses in the event of a change of control of the bank. In addition, these losses should be permitted to be moved up to parent companies or to the public through the use of flow-through share mechanisms, which allow other Canadian taxpayers to write off these losses in a manner that allows second-tier banks to raise capital efficiently.
We had another suggestion that was relative to technology. To start up a new bank there's a large investment in technology required. We suggest that there be a super write-off for technology expenses incurred by the second-tier banks. Again, these expenses should be allowed to move up to the parent company or out to the public through the use of a flow-through share mechanism. This would allow second-tier banks to effectively raise capital and to build the infrastructure necessary to compete on a level playing field.
We also wish to point out that this would provide an enormous incentive to the knowledge-based industry in Canada. The expenses can clearly be tied to the provider of the knowledge-based technology being Canadian.
We know that steps have been taken to help small businesses with the year 2000 problem. Accelerated capital cost allowances that have been introduced, however, do not deal with the problem we see for a significant entry into the banking sector. What is required is the mechanism for raising the capital to be able to obtain the technology that will allow you to compete.
Thank you for inviting us to appear today.
The Chairman: Thank you very much, Mr. MacRae.
We'll now hear from the Ontario Hospital Association, Mr. David MacKinnon. Welcome.
Mr. David MacKinnon (President, Ontario Hospital Association): Thank you very much for the opportunity to appear here today.
Health care issues are very much on the minds of most people in Canada. What I thought I would do is give a presentation of really two parts. One is a very quick overall summary of the financial condition of the Ontario hospital industry. Second, I thought I'd go into some analysis of why, across the country from coast to coast, we are experiencing some of the difficulties that are becoming so apparent.
First of all, with respect to the Ontario hospital system, which, by the way, is a system of about 200 hospitals that are organized into an association that has been around for 75 years, this is the recent trend with respect to hospital deficits in Ontario. I should say that, as you'll see in a moment, the scale of these deficits was not known until very recently, because until very recently the overall operating plans of hospitals had never been added up as part of the process of analysing their circumstances in ordinary budget planning.
If you were to extend this particular chart back, it's likely that these deficits started in the very early 1990s, and it's likely that the next year's deficit would range somewhere in the order of $250 million. If we've learned anything in this country over the last 30 years, it's that these kinds of growth rates don't work in the long haul.
In terms of the financial condition of individual types of hospitals, here's an analysis of where we now stand. With a current ratio of one to one, this level means your current assets and your current liabilities match. With respect to the major hospitals in Ontario, the overall current ratio is about .8. So their current liabilities greatly exceed their current assets.
You can see that the major academic health science centres in Toronto, London, Ottawa, and Kingston are the areas where the problems are the most severe. However, the community hospitals, particularly in the 905 area code region surrounding Metropolitan Toronto, are also experiencing great financial stress. The chronic and rehab hospitals and the small hospitals, while certainly not well placed, are in quite a different position and their situations are relatively stable. However, the community hospitals and the major academic health science centres constitute about 80% of the industry in terms of the numbers of people served.
So really, the unfortunate part of this is the overall financial position of our member hospitals is poor and deteriorating. But what's even worse is the scale of the problem has only recently been ascertained. I should say it's been ascertained through a very innovative partnership between the OHA and the Canadian Imperial Bank of Commerce, by which the bank has devoted a major effort to improving the financial data we have on the industry.
I guess in general the association supports the Canadian Healthcare Association's request for an immediate cash infusion. We do believe the reductions to the hospital system have been too rapid. To explain why that is so, I thought I would just describe what it is like in real-life circumstances with just a couple of examples.
Not long ago I had an opportunity to talk to an intensive care nurse who had recently moved from her job and was working in a new physical location. She advised that it would take between at least three to six months before that nurse would feel comfortable, because she not only has to know what she knows, she has to know what everyone else in the room knows, and she has to know exactly where everything else is. So if you take money out of the system, the short-term flexibility is greatly limited by that kind of problem.
Also, not long ago I attended a committee meeting of the Ontario legislature with two hospital presidents. We didn't have the exact number at the time, but somewhere between one-half to two-thirds of the people working in those two hospitals had changed jobs in the previous two years.
If you juxtapose those two cases, you can see there are major risks in moving too quickly in budget reductions in this area. The principal risk is to the kind of team work on which everyday front-line service in a hospital depends. It's a very delicate and complex mechanism. Peter Drucker describes it as the most complex mechanism in industrial society. To quickly put money in or quickly take money out requires very complicated adjustments that are very difficult.
But the real heart of my presentation, where I thought I could be most helpful, is to talk a little bit about why in every part of Canada we are having significant trouble. Some of you may have seen not long ago the comment by the president of the Hamilton Health Sciences Corporation, where he raised the question of whether or not, given the kinds of problems we're experiencing across the country, there is something systemically wrong with the way we are approaching hospital change. Personally, I thought that was exactly the right question, because in my two years of health care—limited experience, I admit—I've been asking the same one.
I'd like to put forward a provocative and difficult thesis, which most of my members agree with but not all would support. It is that the real problem is that health care restructuring in Canada has been by and large uninformed. If you were restructuring anything, you would appraise its basic financial condition. As I mentioned, in our case and in the case of most provinces, no overall compilation of hospital results has ever been made.
You can go through almost everything connected with health care restructuring in Ontario in the last 10 years and you will see no assessment, as I mentioned, of the base financial condition of the hospital system, the clinical role, leadership in making change happen, what the consumer wants to see, or what the impact on front-line staff might be.
We have embarked—certainly in Ontario, but from what I can see also in other provinces—on a major hospital and health care system restructuring without a serious information base of the kind you would need if you were restructuring any business or anything else in society. I think the argument I'd make is that that is at the heart of our problem. It's a very serious problem as we play out the restructuring project in Ontario and in all the communities in which our members are located.
You will see there are many who feel very strongly that this crisis is rooted, in fact, in demographic trends, and demographic trends are important, and that it is rooted in financial problems, and as I've mentioned, the financial problems have certainly been a major contributor to the difficulty. I think really what we have here is the failure of managerial imagination, an unwillingness or an inability to look at the basic ways in which everyone else in society has restructured. That is why we have such an epidemic of problems across the country. The good news, of course, is that's a lot easier to fix than problems of another kind.
If I could leave with two thoughts, the first thought would be that if we are to restore the process of health care change to something that is more orderly and more sustainable, we're going to have to pay attention to what consumers want and do all the other things that would be necessary if we were restructuring a business of any kind.
The second thought is unrelated to the comments I've made so far, but it is that in Ontario hospitals are major research institutions. There are eight or ten hospitals that perform a very large part of Canada's research in the life sciences and related areas. We believe that, if possible, in the next century research in life sciences or life sciences generally may be to economic development then what information technology has been to this century. From that point of view, there is a very natural role for the federal government to certainly nurture what goes on in the research aspects of hospitals, to assist in funding it properly, and to arrest the dramatically serious erosion that has taken place over the last ten years in terms of the funding going to the research facilities attached to hospitals in this province and elsewhere.
Those are really my two messages. We need to learn from everywhere else in terms of restructuring, and there is a very appropriate and natural role that the federal government could play to greatly assist in developing the kinds of research facilities and skills that we're almost certainly going to need in a dramatically increased scale over the next ten, fifteen, twenty years.
The Chairman: Thank you very much.
We'll now hear from representatives from the University of Toronto, the president, Professor J. Robert S. Prichard, and president of the Students' Administrative Council, Mr. Chris Ramsaroop. Welcome.
Professor J. Robert S. Prichard (President, University of Toronto): Mr. Chairman, thank you very much.
My name is Robert Prichard. I have the privilege of serving as the president of the University of Toronto, and I appear today with my colleague, Chris Ramsaroop, who is the president of the Students' Administrative Council at the University of Toronto. As president of the Students' Administrative Council, Mr. Ramsaroop leads 33,000 full-time undergraduate students at the University of Toronto. He is a fourth-year student in political science, and I thought today's hearing would be a good real-life example of political science at work. I'm delighted Chris came to appear with me today.
In appearing together, as the presidents respectively of the university and the Students' Administrative Council, I hope we will give you a powerful sense that the messages we bring together represent a united front from the University of Toronto, from its faculty, its staff, its students, and its graduates. In the issues we speak about, I believe we speak in a common cause with students, faculty, staff, and graduates across Canada.
The University of Toronto is Canada's largest university. We have 55,000 full- and part-time students. We have about 12,000 faculty and staff. We are the third largest research organization in Canada, and we rank, I believe, with the finest public research universities of the world.
In presenting our views this afternoon—and we're very grateful for the opportunity—I want to say that the University of Toronto associates itself fully with the brief presented to this committee by the Association of Universities and Colleges of Canada in Ottawa, and we support that brief without qualification.
In simplest terms, our position to you, Mr. Chairman, is that we urge this committee, in its advice to Mr. Martin and to the government, to reaffirm the federal role and federal responsibility in support of public higher education in Canada. We believe the Government of Canada, the national government, has played a historic role central to nation building in building the post-secondary system in Canada, and we believe it is essential that the Government of Canada reaffirm that role and build on the foundations of the past in strengthening that national role in support of public higher education.
It is my view that the building of the post-secondary education system of Canada since the Second World War ranks with the greatest public achievement in our nation's history. We believe that however important this achievement has been over the past 50 years it will be even more important over the next 50 years to build on what we've achieved to date and to make it even stronger, even better, even more accessible for young Canadians.
So our advice to you, Chairman, is that the highest priority that should be assigned by the Government of Canada in its next budget should be to invest in the future of young Canadians, to invest in people, to invest in ideas, and to invest in innovation. We believe this should be assigned the highest priority because of the contribution investing in young people makes to our economic future, to the future of individuals, to social justice, to opportunity, to equality.
We believe all these fundamental goals are advanced through investment in young people. It will also help equip Canada as a nation for the global economy and it will substantially contribute to arresting the brain drain, which is becoming a matter of such concern to so many from so many different perspectives.
In urging, Chairman, that you reaffirm the federal role in post-secondary education, I do want to record the gratitude of the University of Toronto for the initiatives taken over the last two years in support of public higher education. We believe the Canada Foundation for Innovation and the Millennium Scholarship Endowment Fund are major positive initiatives that have greatly benefited the development of higher education in Canada, and we urge you to take those first two steps as a guide to future steps of significant new federal investment in public higher education.
While we're grateful for what's been accomplished, if anyone believed that has solved the problem, that belief would be very misplaced. These are very useful, very important first steps in what needs to be a multi-year process of rebuilding the necessary support and foundations for public higher education.
To be precise, Chairman, in completing my remarks, I want to indicate the three principal areas of public expenditure that should, in our view, attract the highest priority in the area of higher education. Then my colleague, Mr. Ramsaroop, will speak to the issue of student financial aid, because it is our brief together that what we need is stronger public investment in university funding, funding for research, and funding for student aid. I'll address the first two points and Mr. Ramsaroop the third.
With respect to new public investment, we believe the government should make significant new commitments in support of the three national granting councils, the Social Sciences and Humanities Research Council, the Natural Sciences and Engineering Research Council, and the Medical Research Council. In particular, we believe the budget of the Social Sciences and Humanities Research Council should be doubled over the next five years. We believe that the Natural Sciences Engineering Research Council's budget should be increased by 50% over the next five years. With respect to the Medical Research Council, we want to give our unequivocal support to the proposed Canadian Institute for Health Research, a national network of virtual institutes, a network that would significantly increase the information base about health and medicine in Canada and provide us with the capacity to be internationally competitive in health and medical research.
We believe this is a unique federal opportunity in the context of the health care budget to provide the necessary infrastructure that every province requires in strengthening the performance of the individual provincial health care systems. We believe research and information are a unique federal responsibility of which we should be seized as part of the February budget.
Finally, third among expenditures we believe that the Government of Canada is to begin again increasing transfers under the CHST if there is to be an increase in transfers at this time. We believe it would be a serious mistake to only increase transfers for purposes of health, and there should be corresponding increases in transfers for post-secondary education.
Finally, third among expenditures, if the Government of Canada were to increase transfers under the CHST, we believe it would be a serious mistake to increase transfers only for health. There should be corresponding increases in transfers for post-secondary education. The case for core funding of universities and colleges in Canada is, I believe, at least as powerful as the case for our hospitals and health care system. Therefore, we strongly support increases in the CHST as long as they include specific provision to ensure those funds are spent on public universities and colleges in Canada.
Mr. Chairman, those are my remarks. Mr. Ramsaroop will complete our presentation with his comments on student aid.
The Chairman: Thank you, Professor Prichard.
Mr. Chris Ramsaroop (President, Students' Administrative Council, University of Toronto): We at the Students' Administrative Council believe our society right now is in crisis. With increasing poverty and homelessness and a lack of affordable housing, we believe many portions of society cannot fully participate. We believe many of these have been attributed to the $3 billion cut in social transfer payments. With the current surplus, we think it is necessary to reinvest in the most important aspect in our society—the people.
In our sector, the post-secondary system here in Ontario, these cuts coupled with the provincial cuts have created an education system that is inaccessible. Increased tuition, deregulation, and student debts have created a two-tiered system. As an advocate for post-secondary education, I must convince this committee it is crucial to reinvest in the post-secondary sector through increased funding. To compete globally we must have a strong publicly funded—not assisted—education system.
The federal government must establish a national grant system based on financial need, not on academic merit. We must address the financial barriers that hinder many Canadians from participating in the post-secondary system. Various groups are still marginalized, and due to systemic barriers, i.e. financial situation, they cannot empower themselves through education. Increased participation rates in education benefit our entire society.
An example where the lack of a grant system has caused problems is in the United States. Between 1975 and 1985 the grant system shrank from 80.3% to 47.8% of total federal student aid expenditures. What we also saw was the lack of participation of marginalized groups. The African American population decreased by almost 11%, and the aboriginal community decreased by 7%.
To try to basically address what has been going on, it is important that these groups in our society have some type of program, i.e. a national grant system, to make sure they can participate fully in our society.
The last thing I would like to address is the new Bankruptcy Act and the changes that have been made with regard to student debt and student bankruptcy. As has become common knowledge, student debt has been increased to $25,000, with the law being amended to make sure it's now 10 years a student can declare bankruptcy. I believe for a lot of students this is quite unjust, and it discriminates against us as a group. If you look at the statistics, 88% of students pay back their loans within the time given. With, for instance, one fault, that increases to 94%. If you look at corporations, the pay-back rate is 12%. Therefore, it seems what we are doing here is basically penalizing a group in our society that has been contributing its fair share.
My two comments basically are that we must have a national grant system, and we must address the bankruptcy law. We must also make sure students are treated like every other group in our society.
I'll end there. Thank you.
The Chairman: Thank you very much for your comments.
We'll now enter into a seven-minute round for questions and answers beginning with Mr. Harris.
Mr. Dick Harris (Prince George—Bulkley Valley, Ref.): Thank you, Mr. Chairman, and thank you, presenters, for your excellent presentations.
I have a few questions. My first one is to Ms. Allan from the Board of Trade of Metropolitan Toronto. In your brief and in your comments you mentioned the EI program and the premiums. You mentioned you supported the Mintz report, which recommended a program of experience-based EI premiums be implemented that would give employers with the best record the better premiums.
Ms. Maralynne Monteith (Chair, Taxation Policy Committee, Board of Trade of Metropolitan Toronto): Elyse differs from me on that question.
It's our position that it would apply to both employers and employees. The intention is to let the surplus dribble down through all of the premiums, but to benefit more those stable industries that do not rely on the system as much. That's where the experience rating comes in. We're not looking to increase anyone from bad experience, just decrease to less.
Mr. Dick Harris: Speaking about the surplus over and above the rainy day fund, as laid out by the chief actuary, there's approximately $7 billion. You say in your presentation that the government should gradually reduce premiums for employees and employers and move to an equalized contribution rate so that the break-even premium rate is reached within a reasonable time.
Is that apart from the new structure of the EI premium system you're proposing, or the Mintz report system? As for the $7 billion, are you suggesting that this be returned in its entirety to the overall workforce in the business community? Do you want to get that back into their hands and then start the new experience-rated program? Is that what you're suggesting?
Ms. Maralynne Monteith: I guess in an ideal world you would do them both at the same time, but given the fact that everyone who has put the money in is across the entire system, it seems to be more equitable for you to return it to the entire system and then go to experience rating and have your actuary get the surplus where it's supposed to be with the new rating system.
Mr. Dick Harris: Right. Thank you.
You say we should gradually reduce premiums. What kind of a timeframe did you have in mind?
Ms. Maralynne Monteith: That's where you have to be an actuary. It's unfortunate that this information is not available for people to analyse, but that would be where you would go back to the actuary to make that determination. Then you would look at your overall population and ask how to lead this back for the benefit of that population. You don't want to say twenty years, so maybe it would be five years, or whatever makes sense.
Mr. Dick Harris: Thank you very much.
Ms. Maralynne Monteith: Thank you.
Mr. Dick Harris: To Mr. MacRae and Mr. Charter, from Dundee Bancorp Inc., on page 1, we're talking about the anticipated surpluses in this year's budget.
I just wanted to make a couple of comments and then get your opinion on those comments. I'll try to get a question in there somewhere.
Any anticipated surplus in this year's budget includes the entire EI surplus, which is some $20 billion by the end of this fiscal year, I guess. That's both the rainy day portion, the $15 billion, which is set aside to sustain the fund in case of a recession, etc., plus the $7 billion expected as a surplus over and above that.
Do you think the government is being honest with Canadians when it says it has achieved a balanced budget simply because it borrowed within the family rather than from the banker or the market? In fact, if that $22 billion EI fund was not around and if they hadn't borrowed from the public service pension fund, we in fact wouldn't be looking at a perceived balanced budget. Do you think the government is really being honest with Canadians when it says it has achieved a balanced budget while not really telling them that it borrowed within the family to do it?
Mr. Garth MacRae: I guess my answer to that would be from my training as an accountant, which is my background. Is this consistent with the budget presentations we've had over the last 15 years? If they are the same principles that have been included in the preparation and presentation of the budget, then I would say if you are consistent, you are looking at the same figures. If we had a $40 billion deficit on this basis, and we now have a $5 million surplus, then we're not being fooled. If in fact it isn't that, then we are being fooled.
Mr. Dick Harris: If your company, Dundee Bancorp, borrowed $10 million from Dundee Securities to balance your budget, would you show that $10 million as a debt, as a liability, in your year-end statement, or—
Mr. Garth MacRae: Of course.
Mr. Dick Harris: You would.
Mr. Garth MacRae: And we wouldn't show it as revenue coming in.
Mr. Dick Harris: What's your opinion...? I'm trying to get a wide range of opinions on the EI surplus, the $7 billion in particular. The chief actuary has said it's excess money that could be returned to the employers and the workforce in the form of premium reductions. There appears to be a split opinion on that: the government has one idea; the opposition has another. And there are varying opinions among the business sector. Would you care to present yours?
Mr. Garth MacRae: I believe if you are running an insurance fund for the purpose of providing for unemployment payments, and it is capable of being actuarially calculated, then you would do as any other business would do. You would reduce the premiums in order not to generate big surpluses, because the surpluses belong to only the people who contributed them.
Mr. Dick Harris: So in your opinion, the 33% or so extra that is being paid now could more appropriately be considered simply another payroll tax?
Mr. Garth MacRae: Pardon me? It would be more appropriately considered another payroll tax?
Mr. Dick Harris: I mean a payroll tax, or a tax in excess of a payroll tax—
Mr. Garth MacRae: Do you mean in excess of what is required?
Mr. Dick Harris: Yes.
Mr. Garth MacRae: I would concur with that.
Mr. Dick Harris: Thank you, Mr. Chairman.
The Chairman: Thank you, Mr. Harris.
Mr. Odina Desrochers (Lotbinière, BQ): I will allow everyone to connect. It is the beauty of Québec to have another language. But let us not start a linguistic debate today.
My question is addressed to the Toronto Board of Trade representatives and is about employment insurance. You make suggestions as to what should be done with the surplus in the future. Given the surplus, and given that we have enormous difficulties in the administration, what would you think of the idea of an independent committee administering the employment insurance in the future, as suggested by the four opposition parties?
Ms. Maralynne Monteith: As to whether a committee needs to be independent or not, I guess it needs to be perceived to be accurate in its actuarial calculations henceforward, so that we do not have an ongoing surplus to the degree it is today, and so that it's accurate and is perceived to be returning the benefit of that surplus to the appropriate people. I can't speak to whether it needs to be independent or whether it can be done within the government with the oversight of an independent actuarial group. That would be equally acceptable. I think it's just a question of the public feeling confident that the calculations are being done accurately and that the appropriate people are being benefited by the existing surplus reduction.
Mr. Odina Desrochers: Let us say we keep the current system, with the available surplus. Would you be in favour of a significant reduction in rates for both employees and employers?
Ms. Maralynne Monteith: Yes. We're basically taking the view that this is not and was never intended to be anything other than an insurance system. It ought not to be a taxation system that is raising general revenue. So it needs to be returned to something not unakin to the exercise an insurer would do in experience-rating their client and charging premiums appropriately.
Mr. Odina Desrochers: Thank you. My question is now addressed to Mr. MacKinnon. It is about hospital care in Ontario.
Yesterday, in his economic statement, minister Martin announced that he had no intention of increasing the amounts of money for health care services. He clearly stated that the priority would be given to paying the debt. I know that, here in Ontario, you had very significant cuts. If the federal government increased the transfer payments, what amount would you need to restabilize the situation in Ontario?
Mr. David MacKinnon: We have concurred with the Canadian Healthcare Association recommendation across the country for an infusion of $2.5 billion to the CHST. The Ontario share of that, if you work with the numbers, would be probably in the vicinity of 40% in terms of the population, size of the system, and so on.
That's a number about which we would want to be sure that the detailed work required was done to assess the individual parts of the health care system, who'd perform which service best at what best combination of price and quality, and build a detailed number on that basis. But generally speaking, I think the 40% of the $2.5 billion is probably roughly where we would come down.
Mr. Odina Desrochers: Yesterday, the minister delivered an economic statement. An economic statement may mean an official trend, or it can be used as a public opinion poll.
If you had to determine priorities for the federal government, would this amount be required as soon as possible to stabilize the situation in Ontario?
Mr. David MacKinnon: Yes. We do need short-term stability for the reasons I mentioned in my presentation. We believe that the reductions in the last three years have been much too dramatic and much too quick and therefore any solution to them needs to be done quickly.
Mr. Odina Desrochers: Thank you, Mr. Chairman.
The Chairman: Thank you, Mr. Desrochers.
Mr. Nelson Riis: Thank you, Mr. Chairman. Both Ms. Allan's presentation and Mr. MacRae's presentation referred to the tax system and what we could generally call the brain drain, and the concern about the linkage of those two. I know we've heard a lot of anecdotal examples of this issue and this problem. Do you have any empirical evidence? Do you have any hard data that could be provided to the committee to give some support to this problem as you see it?
Mr. Garth MacRae: I don't have any hard data. I guess it's what you hear, what you know about the people making the moves, etc. As far as statistics are concerned, I have no statistics.
Ms. Elyse Allan: Certainly many of the data have been from specific evidence from our volunteers and from corporations we've been talking to, and they have referred that to us anecdotally.
One of my staff believes there was a report issued by the C.D. Howe Institute that also referred to this.
The Chairman: Thank you.
Mr. Nelson Riis: Professor Prichard, did you have something on this?
Prof. Robert Prichard: Mr. Riis, there are two studies. One is the C.D. Howe study issued yesterday. I think it is the most comprehensive yet in trying to quantify across fields the deterioration of the situation.
Second, there was a study done between Statistics Canada and the Association of Universities and Colleges of Canada last year that looked across a series of fields within higher education—so not across the whole economy—and that study could readily be made available to you.
They both come to the same conclusion: that this is a serious and growing problem. It's not that Canada doesn't bring in a great deal of talent—Canada has been built in substantial part on importing great talent from around the world—but we are suffering a very significant outflow of talent, particularly to the United States at present across many fields. Higher education is probably the most hard hit at present in terms of faculty requirement and retention.
Mr. Nelson Riis: Thank you very much for that. I think the Fraser Institute is issuing a report probably later this week or early next week on the same issue.
I asked this question in light of the fact that I think it was a year ago Statistics Canada came out with a report that indicated as a matter of fact that there was a reverse brain drain in many respects in terms of Canada attracting professionals and others while there was obviously an exit primarily to the United States. Whether they were going to the United States because of the tax system or because they were getting three or four times the salary levels is another issue we need to look at, quite frankly, but I appreciate your comments.
Ms. Allan, your experience rating, the point you raised today that your board of trade supports, is that supported by the Canadian Chamber of Commerce, and is it supported by the chambers of commerce in Atlantic Canada? We're going to Atlantic Canada and it would be useful to know.
Ms. Elyse Allan: Offhand, I don't know what the Canadian Chamber of Commerce position was on that. I'll ask Louise if she recalls its position on that.
Ms. Louise Verity (Director of Policy, Board of Trade of Metropolitan Toronto): I believe the Canadian chamber is supportive, although we'd have to confirm that. I believe they will be making a presentation before you shortly, within the next few days. Actually they just had their annual meeting and will be submitting all the resolutions agreed to at the recent convention in St. John's.
Mr. Nelson Riis: Okay, thank you.
Dr. Prichard, in terms of the University of Toronto, we're hearing that of course one of the ways universities and other institutions of higher learning have had to deal with some of the cuts is to increase tuition fees. Could you comment on where your university is going and what you've planned under this current fiscal situation for at least the next few years in terms of tuition setting for your institution.
Prof. Robert Prichard: Thank you, Mr. Riis.
The University of Toronto, along with the other Ontario publicly funded universities, has experienced very significant withdrawals of public funding. At the University of Toronto we took a $56 million reduction in our funding two years ago. Over the years for which I have been president, our public funding has been reduced by $100 million over this decade.
We have compensated for that with very substantial tuition fee increases and joined them to a commitment from the university that we will guarantee to every student that he or she will have access to the resources he or she needs to attend the university on reasonable terms. So we have put in place an individual financial guarantee to every single student. Unfortunately, we're the only Ontario university that's been able to do that so far. I think others will. As a result, students across Ontario have experienced very significant increases in tuition.
I believe increases in tuition should not be continued. They cannot have that continued escalation, but that pressure for escalation will be there until we have adequate public investment. In terms of federal responsibility, it is only through an increase in the CHST, with part of it tied to post-secondary education, that we will get that relief. In the absence of that investment, our students are going to continue to pay a larger and larger percentage of the cost of their education, and I don't personally believe it's fair.
Mr. Nelson Riis: Can you give an example to the committee of say two or three of your higher-range tuition fees?
Prof. Robert Prichard: Tuition in the faculty of medicine for next September will be $11,000 a year. Tuition in the faculty of dentistry will be $12,000. Tuition in the faculty of law will be $8,000 a year.
Mr. Nelson Riis: Thank you.
I presume foreign students pay much higher tuition fees. To what extent does a university like yours look to foreign students as a way to deal—I don't know if you'll admit this—with this financial squeeze you have to confront?
Prof. Robert Prichard: We recruit and enroll foreign students not because of their financial contribution to the university but because we believe it makes for a better education for our students. It is an appropriate contribution Canada can make to the rest of the world.
In terms of numbers, about 3% of our student body are international students. In terms of financial contribution, if you net it out—undergraduates, graduates, financial aid—my guess is it's about a wash. It's certainly not a net positive contribution to the finances of the university. It is a very significant net contribution to the quality of education and the nature of the university. We have ambitions to increase that foreign student participation in the university, again because we believe it makes for a better university and a better learning environment, not because we believe the net financial contribution is in any significant way positive.
Mr. Nelson Riis: Thank you very much. I apologize for attributing that motive to U of T, but what we haven't told you is there are many other institutes of higher learning that use that as one way of raising cash for education.
Prof. Robert Prichard: Toronto is in the position that we are overwhelmed with applications. The University of Toronto has had an increase in applications of over 25% in the last three years from domestic students. We have a capacity issue of serving, so we have not embarked on a major increase in international students to try to provide a cross-subsidy. We've tried to structure domestic and international enrolment to create the best possible learning environment for our students, and do so on reasonable terms.
We in fact reduced international student tuition fees for graduate students by 50% two years ago because we were so concerned about the drop in numbers of international graduate students in the university, which was undermining the quality of learning experience. That's why it's not principally a financial issue. Financial issues are secondary. The issue is quality of learning experience in the way the University of Toronto can serve the world.
Mr. Nelson Riis: Excellent.
My last question is in terms of student debt load. Would the debt load of graduates from the U of T be the same as the Canadian average or would it be higher or lower?
Secondly, in terms of the point being made about the bankruptcy legislation, why do students believe they were singled out, given the comments you have already made in terms of debt payments and so on?
Mr. Chris Ramsaroop: With deregulation and the increases in tuition, right now we are seeing students with just undergraduate degrees $25,000 in debt. I can basically guarantee that students who want to go into a medicine degree afterwards or another professional faculty of grad school will have debts of $50,000 to $75,000, if not more. At one point this was unrealistic, and many people here probably disagree with me, but we are on that threshold because of higher tuition, deregulation, and the lack of public funding.
With the Bankruptcy Act, the reason we say we have been singled out is because there's no other group in our society that has a ten-year wait to pay. Students feel that people are saying this is some sort of excuse, it's something we want to do and is an option, but this is not something we want to run to. Taking this option away from us is discrimination.
Mr. Nelson Riis: Using your term, “discrimination”, why have students been discriminated against in this fashion as opposed to any other group, in your judgment? Why have students been picked on?
Mr. Chris Ramsaroop: I think it's in correlation with all the other attacks—the increase in tuition and the lack of public funding. It seems that people still look at universities as elite groups of people. Universities, however, are not. There are a lot of people who are struggling with two or three jobs. There are a lot of single-parent students. There are a lot of students who basically are sacrificing. I know the sacrifices my mom and I had to make. I think people still have this perception that it's only the well-to-do who can come, and this may be why they keep singling us out.
Mr. Nelson Riis: Thank you.
The Chairman: Thank you, Mr. Riis.
We have four questioners, so be mindful of that, and we have to do it in 18 minutes. Mr. Szabo, followed by Mr. Valeri, Mr. McKay, and Ms. Bennett.
Mr. Paul Szabo: Mr. MacKinnon, hospitals have future development funds. Do you have any idea what the total amount of future development funds is?
Mr. David MacKinnon: The best range for the amount that would be in hospital foundations, which is from where most of the developmental funds come in Ontario, would probably be in the vicinity of $1.5 billion. The annual flow to hospitals from those foundations to equip the hospitals would be just under $100 million. Those figures are approximate only, but the $100 million figure is a pretty good one and reasonably close to the mark.
Mr. Paul Szabo: I raise that in the context that a lot of the people have questioned whether or not you could trust the provinces to reinvest in health care with additional CHST there. How do you get those strings there?
I was on on the board of the Mississauga Hospital for about nine years, and one year the province actually paid us 13 months worth of transfers simply because the hospitals can't spend those transfers from the future development fund without authorization from the province. If you make that 13th month transfer at the end of the fiscal year, the hospital doesn't have a chance to spend it, so they're parking the money.
I've seen some games being played with it in the past. I don't think anybody would argue about the importance of investing in the Canadian health care system, but the issue is how do we get it to where it will make sure the kinds of situations with emergency room shortages, for instance, in Toronto that we've just seen don't occur and basic fundamental health care for Canadians is not only a right but available?
Mr. David MacKinnon: Very many people have tried to come up with a whole inventory of answers for that one. One theme I would put forward as being absolutely fundamental is the restoration of a consumer voice for health care. Some parts of it are quite muted just because of the payment mechanisms and so forth. People often have difficulty making the personal choices they face every day.
The process of educating people in the hospital emergency room or in a physicians office is very expensive. We are undertaking a couple of things now to try to really help the consumer make the choices that in turn, reflecting the whole population, will give consumers the ability to shape the system to a greater degree than is now the case.
We are, for example, about to produce the first major report card within the next couple of weeks on the hospital system in Ontario, and I believe it's quite unique to the country. We are hoping it will really help people make informed, more economical choices over time as we develop that mechanism.
We are also implementing a new hospital at home on the Internet service, with the same goal of equipping consumers with better information to help them make a range of choices that overall will be more comfortable for them and more economical for society.
Mr. Paul Szabo: In the last fiscal year, the effective reduction to Ontario of the CHST was about $1.2 billion, yet the annual value of the tax cuts the Harris government delivered was something like $4.3 billion. The provincial government made choices. Tax cuts were more important, it appears, than continuing the funding levels of the health care system, so do we have a priority problem?
Mr. David MacKinnon: We have a real problem in health care, as I mentioned, with getting the numbers right. We are in a shockingly deficient position—I don't think there's any other way I can put it—in terms of understanding the financial, economic, and industrial issues attached to hospitals and health care generally.
If you put it on the other side of the fence, I think Mr. Harris feels the government was advised that some of these kinds of cuts were possible, and there were individuals within the health care system who provided such advice. But the quantitative base to assess, year by year, what these system decisions would actually cause in terms of impact was never there. With the absence of that kind of information, it is difficult to see how elected officials of any particular persuasion could make informed and appropriate decisions.
On the second point you made, referring back to the Mississauga Hospital and the 13-month issue, there have been so many minor fixes and band-aids applied to this problem over the last 10 years that its complexity defies all comprehension. We really have to get a much better and more comprehensive system of understanding health care financing.
In the last year we've taken a huge step forward by publishing, I think for the first time in Canada, a consolidated balance sheet and income statement for a hospital system. But one has to have a lot of sympathy for legislators asked to make appropriate financial decisions without that kind of base to start from.
The Chairman: Thank you, Mr. Szabo.
Mr. Tony Valeri: Thank you, Mr. Chairman.
I have just a couple of questions—one for Mr. MacRae and Mr. Charter. In your proposal you talk about the need to eliminate the surtax, the need to do something with capital gains similar to the U.S. system, the need to do something with GST, and the need to revisit some incentives to resource companies. I just wonder whether, in your capacity as an accountant, you've done any costing for this proposal.
Mr. Garth MacRae: I don't think the types of things we're proposing can be separated from job creation, particularly capital gains tax and reduced income taxes. Presumably those all lead to job creation, and if you have job creation you'll have higher revenues in all those areas. Therefore, I'm not sure there would be net costs.
Mr. Tony Valeri: With respect, we have essentially a private sector forecast of anywhere between $5 billion and $7 billion of supposed surplus, including a $3 billion contingency fund, so we're working within this box. The purpose of my question was essentially to see whether the costing would in any way help us in our deliberations.
The challenge often faced by governments in the past was that they always made this sort of investment in the hope that there would be a revenue stream and in the hope that the greater revenue stream would allow them to pay down deficits and debt. We're trying to take a different approach. I just wondered whether there was any costing to that, but I take your answer.
With respect to the board of trade, you mentioned in your brief that the board of trade urges the government to gradually reduce premiums for employers and employees and move toward an equalized contribution rate so that a break-even premium is reached within a reasonable period of time. I think you would agree that to move to the rate the actuary is calling for today right away would put us essentially back in deficit. In your position that you would support a graduated approach to the reduction in contributions, are you talking about 5%, 10%—a $350 million to $700 million reduction per year to eventually get to this point? Is that what you're saying in your brief?
Ms. Maralynne Monteith: I don't think we've actually put our minds to the timeframe in particular. We appreciate that there will be experts who can say better than we can that this is more properly done over five years or seven years. We're just saying don't wait 30 years, be rational about it, and take the scientific approach. The actuaries are out there, the expertise is there, and there should be independent oversight availability.
Mr. Tony Valeri: So the board of trade is not calling for a $7 billion reduction in the EI premiums in the next budget.
Ms. Maralynne Monteith: No.
Mr. Tony Valeri: Okay.
You also go on to mention—and I'm wondering if you can just comment on this—that the Canadian Chamber of Commerce approved such a recommendation at its annual meeting, with the emphasis on EI. Recently Sharon Glover stated in The Globe that chamber members hadn't forgotten about EI and it was still important, but they're telling us more and more that personal income taxes are more important to them. Have you heard any of that from your membership?
Ms. Louise Verity: I think the question of whether we prefer one over the other is probably the toughest nut to crack, and in terms of this committee providing advice, no doubt it will be just that.
From our perspective, one of the recommendations that we're looking at is reducing the marginal income tax rate through the surtax. We provide one particular example, which I won't repeat, which would cost in the neighbourhood of about $1.3 billion.
We haven't provided a precise time with respect to employment insurance, but we think action is warranted on both fronts, and we would support responsible qualified action, recognizing that you're not going to get everything in one year.
Mr. Tony Valeri: Thank you.
The Chairman: Thank you very much, Mr. Valeri. Mr. McKay.
Mr. John McKay: I have a question for Mr. MacKinnon. In your closing remarks you say you support a CHA request for immediate cash infusion, and then further on you say the crisis is rooted in faulty planning more than demographics, finance, or technology. I see that as a bit of a contradiction. On the one hand you're supporting a request for Ontario's share, shall we say, of the $2.4 billion re-infusion in the CHST, yet simultaneously you say it has nothing to do with money and everything to do with lousy planning.
Canadians spend something in the order of about 9% of their GDP on health care services, about $74 billion a year. What seems to be emerging is that we really don't have a handle on where all this money goes, how it's spent, and whether we're in effect getting good bang for the buck. We can compare ourselves with other countries, but obviously those comparisons represent somewhat different values.
I'd like to have you explore that contradiction, because I don't know how we can sit here and continue to listen to the requests for money and simultaneously be fearful that the money will just be trashed.
Mr. David MacKinnon: In terms of what is needed, really it's two things. It is much greater managerial coherence in the fiscal decisions we're making based upon the kinds of data that most others in society would array to make those sorts of decisions. Without doing a much better job of that, there is a risk of cost-effectiveness that is much below what we would want to see with these funds. So I think it should be a very important national priority that the existing centres of excellence for health information be built upon, be developed, and let's get this thing in much better shape.
There are some places where there's some wonderful work being done, such as the Canadian Institute for Health Information and the Saskatchewan health utilization commission.
What I really wanted to say, though, is that money alone is no guarantee at all that the problem will be resolved, especially given decisions you've taken over the last ten years. But there's no doubt, based on what we know, certainly from what's going on in the Ontario hospital system today, that money is a very big issue. In terms of the overall cost-effectiveness of our national expenditures, we have a great deal of work to do to satisfy ordinary standards of due diligence.
The Chairman: Ms. Bennett.
Ms. Carolyn Bennett: Just to continue on that, I understand from the hospital point of view that you would like the CHST raised. I understand this idea that we don't really know what we're doing in managing health care, that that is the big problem.
Mr. David MacKinnon: In managing health care restructuring and health care change—that's very different.
Ms. Carolyn Bennett: Yes, but we also don't have some of the information we need in order to manage it properly. Is there something more the federal government should be doing on the management side to build some consensus as to how we measure what we measure? I guess my piece has always been, shouldn't we be asking the consumer what they want measured, how they want it measured, and how they want help interpreting it so that at the same time we are actually building confidence in the system?
Mr. David MacKinnon: I think Mr. Rock's emphasis on report cards and so on is exactly right, for that reason. One of the things the federal government could continue to do is build upon some of those initiatives to enhance consumer accountability and reporting. That way we could get some market signals that are more precise than the ones that are now transmitted throughout the system.
Ms. Carolyn Bennett: Even last week in the Toronto Star the ombudsman had to admit that by developing report cards just based on government computer bank information instead of actually speaking to the people on the front line, which you described to us...we make huge mistakes if we let the accountants manage the system.
Mr. David MacKinnon: We do. After a year's work on a report card—much of it, by the way, performed at the University of Toronto and much of it pioneering in nature. This is a hugely complicated and expensive job. It's ten times as complex as it looks on the surface, and that only emphasizes both its importance and the essential nature of federal support that builds on Mr. Rock's policy view.
Ms. Carolyn Bennett: Will your organization, together with the CHA, be able to...? Do you feel, with the CIHI and the health administration people, that there is now a body that can direct that? Can we then, in the CHST, eventually put some accountability in the dollars the feds give, that the things Canadians want are measured properly and the systems managed properly so that there's actually some accountability coming back and forth?
Mr. David MacKinnon: The expenditures required to dramatically improve the understanding of where the health dollar is going and what we're getting for it are very small in relation to dollars being spent on the service itself. That's the first part of the answer to that set of questions.
The second part is that we do have, as I mentioned, a few places where some exceptional work has been done, and we need to build on it and reinforce those people. If we do both of those things, we will make a contribution and we will be able to respond much more effectively to the consumer's wishes and deliver a better service.
Ms. Carolyn Bennett: The $2.2 billion we gave the four western provinces to just look at cardiac waiting lists... That's seems like a lot of money. That's all we'll end up having.
Mr. David MacKinnon: I'm looking at the bills that the University of Toronto is sending to me and having the same kind of thought. It's very expensive. It's challenging.
Prof. Robert Prichard: But it's even more expensive not to do the work. That's the key.
Mr. David MacKinnon: Absolutely.
Prof. Robert Prichard: The key is that the highest rate of return expenditure the federal government can make is to invest in information, research on that information and understanding of that information, because from that can come so many improvements in the performance of the health care system from coast to coast.
The Chairman: Final question, Ms Bennett.
Ms. Carolyn Bennett: Mr. Prichard, therefore, in obviously wanting some accountability in each of the parcels in terms of the CHST, maybe separately, maybe together, what kinds of measurements would you want the government...or what could the government do to make sure those dollars come to post-secondary education? In return, should the government have a say in how high tuition could go?
Prof. Robert Prichard: My personal view on the latter question is that the federal government should not try to embark on tuition fee policy. I think demonstrably it would be an error. I think Mr. Axworthy would share that view, based on the last time I appeared in front of the current chairman when we discussed those issues.
I simply don't think the federal government has that capacity. It doesn't have the constitutional role. It doesn't seem to me to be the right form of accountability. I think it is a critical question, particularly in the province of Ontario, to make sure there is an accountability for the expenditure of funds, because there's been a history, under all three political parties that have governed Ontario in the past 15 years, of being insistent that the federal transfer could not in any way dictate the level of provincial expenditure.
So we would need, just as the government has needed to work out with the provinces, a new accountability for the new health care dollars, if any are forthcoming. We need an exactly corresponding understanding at the federal-provincial level to ensure those dollars represent a net increase in core operating support for colleges and universities in Canada. Otherwise I think transferring the funds is to transfer them into a murky, dark hole in which it is not possible to get adequate accountability.
Ms. Carolyn Bennett: I would submit that in health care we have the Canada Health Act insisting on accessibility. Should we have the same in post-secondary education?
Prof. Robert Prichard: I think the federal government should be deeply committed to accessibility and should be the lead partner in ensuring that every qualified student who wishes to go to college or university in Canada has access to the resources she needs on reasonable terms in order to be able to enroll and stay in the program as a full-time student if she wishes.
Student financial aid at the federal level is, I believe, the federal government's greatest contribution to accessibility and mobility.
The Chairman: Thank you very much, Ms. Bennett.
On behalf of the committee, I would like to thank you. We've touched on a number of very important issues—health care, education. The wide range of issues that we have actually looked at and examined in this panel clearly illustrates to everyone here that we do have many challenges and many choices that we have to make. All of these challenges and choices have trade-offs. This is really the challenge that we face as a committee as we try to make recommendations on the upcoming budget.
Having said that, I want to tell you that we're driven by a desire really to improve the quality of life for the people of Canada, to create an efficient, productive, and competitive economy. This speaks to world-class values.
So on behalf of the committee, once again, thank you.
We're going to take a two- to three-minute break and we'll be right back.
The Chairman: I'd like to call the meeting to order.
I'd like to welcome representatives from the Canadian Tax Foundation; the Chamber of Commerce of Kitchener-Waterloo; Georgian Bancorp Inc.; Micross Fur Canada Inc.; Walker Chocolate Company Ltd.; and as an individual, Ms. Deborah Kusturin.
We will begin with the Canadian Tax Foundation, Mr. Robin MacKnight. Welcome.
Mr. Robin MacKnight (Director, Canadian Tax Foundation): Thank you, Mr. Chairman.
Unlike many of the other presenters you've heard, I'm not here to advocate any particular changes or to present particular proposals, but rather to offer some assistance and to explain how the Tax Foundation might be able to aid you.
Let me start by explaining who we are. The Canadian Tax Foundation is an independent tax research organization whose purpose is to provide both the taxpaying public and the Government of Canada with the benefit of expert, impartial research into current problems of taxation and government finance. Our activities are funded entirely by our members, who are generally the tax practitioners and professionals in the system, lawyers, accountants, economists, and academics. Our goal is to promote debate leading to the establishment of the best possible tax system for Canada, one that is as equitable as possible and that fosters the growth and productivity of the country.
Most importantly for you, we don't take sides. Instead, once a policy has been announced, we review that policy and comment on how it complies with the goals of tax policy, such as efficiency, ease of administration, taxpayer compliance, and revenue generation.
We do have two publications, which have come out very recently, that might be of importance or interest to this committee. One concerns general payroll taxes. It was published earlier this year, and it was the recipient of the Douglas Purvis prize in economics, which is awarded to the best economics paper published in the year. Given the debate that's going on now about employment insurance, I recommend this to your committee. If you would like copies, please have one of the committee's staffers let me know, and I'll arrange for those to be provided to you.
The other is in our Canadian Tax Journal. In Journal 2, which came out about six weeks ago, there is an article by Mr. Ruggiero, an economist, on the fiscal dividend and the federal debt. It includes some comments on how you might deal with the fiscal dividend, and it includes a number of alternatives. They're his particular views, but they do offer some interesting insight you may not have heard. Again, if the committee is interested, we can provide you with copies.
One thing I have circulated to the committee is an excerpt also from Journal 2 called Fiscal Figures, which is a summary of the federal marginal income tax rates. I'll refer to this later this afternoon. It does show some rather alarming statistics on the current Canadian tax system and the results and consequences of some of the proposals that came out of the February 1998 budget.
First of all, we agree that the conservative approach to financial prognostication is preferable to an optimistic one. It's much better to exceed low expectations than miss inflated ones. We also agree that prudence in financial forecasting is necessary in light of the current economic uncertainty. We recognize that the government faces political pressure to provide more than just token relief to overburdened taxpayers. After all, the February budget promised tax reductions of only $2 per week to lower-income Canadians, which only translates into two more Happy Meals per month for the children or one more Starbucks coffee per week for the working parents. It's not exactly a generous distribution.
Unfortunately, we are very concerned about the complexity introduced into the tax system in order to provide such little relief. We're especially concerned about the effect of disproportionately high marginal rates on low-income Canadians who can least afford the burden of the tax or the cost of hiring tax return preparers to assist them in determining how much they owe.
I'll just turn to this handout entitled “Fiscal Figures”. Let me give you an example of what I would mean by disproportionately high taxes. Go to page 480. There's a table that shows federal marginal tax rates in 1998 for a single individual. If you go down the right-hand column, you'll see the marginal tax rate. I have to emphasize that these are federal only. So add on at least 50% if you're in Ontario.
The staggering number is for a single individual earning $28,590. The marginal federal tax rate is 35.9%. Why is that? That is directly a result of all the clawbacks that start to kick in at about $21,000. When you start to consider the clawbacks for child benefits, GST benefits, and low-income relief, all those start to kick in. You find that the people who are least able to afford those repayments are saddled with a huge federal and provincial tax bill.
The Chairman: Mr. Szabo.
Mr. Paul Szabo: I just have a point of clarification so that everybody will understand. The lowest tax bracket is at $29,560. What you're saying is that once they get $1 over that, their federal rate goes to 26% from 17%. So we're not talking about the entire $29,000 being taxed at 35%.
Mr. Robin MacKnight: We're talking about marginal tax rates, that's right.
Mr. Paul Szabo: Yes, but the marginal rate is just on every additional dollar over and above the first bracket. So it's really one dollar. The difference between marginal—
Mr. Robin MacKnight: That's right.
Mr. Paul Szabo: The effective rate on that same amount would be about 26%.
Mr. Robin MacKnight: On that same amount, yes, that's correct.
Mr. Paul Szabo: Okay, thank you.
Mr. Robin MacKnight: If you turn to the next page, which is page 481, there's a graph that shows both the average rate and the marginal tax rate. It does show the point that Mr. Szabo makes.
The recent attempts to simplify the tax system have not been terribly successful. In efforts to broaden the base and reduce rates, successive governments—it's not just the current one, but certainly their predecessors as well—have introduced more and more complexity to the system.
It's now impossible for average Canadians or even sophisticated Canadians to understand or comprehend our tax laws. We've lost the focus. What was originally a patchwork quilt of social policy options and revenue generation and income redistribution devices has been reduced to a tattered remnant covered in band-aids and applied to solve a myriad of conflicting problems and without any apparent overall design.
We have to make the tax system understandable. Canada has an enviable reputation for voluntary tax compliance. According to government statistics—and there's no reason to doubt these—more than 95% of Canadian taxpayers comply with our laws voluntarily. However, there is increasing risk and increasing evidence of non-compliance, partly because taxpayers don't understand their obligations and partly because taxpayers feel the government is not responsibly applying tax revenues.
We have to restore confidence in the system. You have to bear in mind that there are two critical components of the tax system: the tax collector and the taxpayer. If either one of those loses faith, the system will not endure.
Before the government tinkers with the existing tax regime any further, we urge it to develop a coordinated approach to tax reform. Tax reduction is not enough. That's necessary, but it should be undertaken in a broader framework of system redesign. The recent report of the Mintz committee provided an example of how business tax could be reformed to make Canadian businesses more competitive both domestically and internationally without reducing corporate tax revenues. We'll leave to others whether that constraint on the report was necessary.
We need to undertake a similar review of the personal income tax system. It is now filled with special rules to provide incentives or relief to specific classes of taxpayers such as those of low income, the handicapped, children, single parents, and many others, and special rules to claw back those same benefits when income thresholds are exceeded. Our personal tax system must be reviewed in light of international norms. I refer you to the comments I just heard from the board of trade about entry level jobs of $60,000 for computer programmers.
Our personal tax system presents serious competitive disadvantages for Canadian business in attracting and retaining talented employees. Payroll taxes, including EI, present an additional drag on job creation.
When you look at personal income taxation, don't feel restricted to this little book, the Income Tax Act of Canada. Look at other things. Look at provincial taxes, employee health taxes, EI premiums, and CPP and QPP premiums. Look at all the other premiums and taxes that individual Canadians pay that actually fall under the category of government revenues.
Personal tax reform must include discussions with the provinces. I notice there are many references in other material you've heard earlier this afternoon about ensuring the provinces don't reoccupy any tax room the federal government gives up. Certainly, the changes in the February budget were directly geared to ensure that provincial tax revenues were not reduced.
We don't underestimate either the time or the political capital that such discussions will require. However, the current tax system is based on a model from 1867. That model hasn't applied for decades. We've had federal-provincial tax sharing arrangements and tax collection agreements for 40 years. Those agreements are currently under review and debate. There has been an offloading of services between levels of government.
Now is the time to revisit all these arrangements and design an integrated and coordinated federal-provincial revenue-sharing regime that recognizes one fundamental fact: there is only one taxpayer.
The Canadian Tax Foundation would be happy to assist in any way we can in reviewing any proposals on an impartial and confidential basis, if you require it. We wish you luck in your deliberations.
The Chairman: Thanks very much, Mr. MacKnight.
We'll now hear from the Chamber of Commerce of Kitchener-Waterloo. Linda Korgemets, welcome.
Ms. Linda Korgemets (Chairperson, Taxation Subcommittee of the Federal and Provincial Affairs Committee, Chamber of Commerce of Kitchener-Waterloo): Thank you very much. On behalf of the Chamber of Commerce of Kitchener-Waterloo, I do want to thank you for giving us this opportunity today.
I understand that your deliberations are long. I was actually going to try to do a limerick for you just to entertain you, but I wasn't creative enough in the car coming down the 401.
I'm the chair of the taxation subcommittee of a larger committee, which is the federal and provincial affairs committee. The chamber has 1,450 members in our area and those members employ more than 43,000 people. We're the second-largest chamber in Ontario.
I'm a chartered accountant, I practice tax consulting, and I'm a member of Mr. MacKnight's organization. So well done, Mr. MacKnight.
Just to summarize, so you know where we're going, in our executive summary—we have said this for a long time in many letters to Mr. Martin—we say we believe that debt reduction, including a published strategy, should be the prime budgetary objective. Personal tax cuts, while necessary at some point in time, should not be done at the expense of reducing the debt in a prudent, structured manner, nor should personal tax cuts be financed with any surpluses accruing in the employment insurance plan.
The EI plan should be used for what it was intended to cover, which is payments to unemployed individuals. The current surplus should be used to reduce future premiums. As well, an independent body should be established to manage the fund and to ensure that it's run as an insurance vehicle.
When we look at the debt repayment plan—and I was very happy to hear that the 1998 surplus did go against debt, the $3.5 billion that was announced yesterday. I think I should tell you that when we surveyed our members in early February 1998 before the last budget was announced, the overwhelming response from our members favoured debt reduction over increased spending or tax cuts. Of the people we surveyed, 19% wanted 100% of any surplus allocated against debt. More than 83% of the people we surveyed wanted more than 50% of any surplus so allocated. The call to debt reduction was communicated loud and clear by our constituents.
Our submission goes on to talk about the fiscal dividend and how you said you'll spend it, and the 50-50 formula. But we say that the fact that the current year and the next two years' budgets—or I guess now it's the next year's, one year's budget—are going to be balanced, there's no deficit and there's no surplus, means you don't really have to invoke the formula. The public sees this as a numbers game that they can't win. It doesn't foster a sense of true accountability to the public when you come down to a zero budget, a truly balanced budget. That's better than a deficit, but it's still a bit unnerving when we have nothing to talk about when it comes down to zero.
We've read the department's debt management strategy that was published in April 1998. It talks about the contingency fund or the reserve fund of $3 billion being used to pay down the debt to the extent that it's not needed for contingencies. I presume that is what actually did happen in the 1998 financial statement with the $3.5 billion being put against debt.
We still feel this is a paltry sum compared to the overall debt level of $583 billion. Because it is contingent on various items outside of the government's control, such as the current international financial crisis we're experiencing, we could easily see the $3 billion evaporating in any given year. We don't feel that the $3 billion contingency fund is a concrete debt management plan or a published plan. The government must set a forecast of future surpluses and amounts to be applied to the debt, thereby bringing the debt to a reasonable level of GDP within a defined number of years. That's the type of thing we're looking at in a published debt strategy.
In addition to the reserve fund, we're in favour of something we're noting, and it is that you're trying to change the composition of our debt by having two-thirds of the market debt in fixed rate form, making us less susceptible to interest rate changes in the future. We agree with that certainly and like the management in respect of the total debt burden in that way. The real issue is and remains the overall accumulated debt burden, which is over 70% of GDP.
Yesterday in the announcements, I realize—this was written before those announcements in Paul Martin's speech came out—we were down to 67%. It's a lot of money for each man, woman, and child in Canada. The interest costs in the budgeted numbers are scheduled to increase from $41.5 billion to $45 billion in the year 2000. We just feel this isn't the direction we should be going.
I've read that this federal interest bill is enough to run each and every hospital in Canada for two years, or it could put 4,000,000 students through university for four years. It could run the entire governments of Newfoundland, P.E.I., Nova Scotia, New Brunswick, Manitoba, Saskatchewan, and Alberta, with enough left over to pay the public debts of Newfoundland and P.E.I. How's that for a transfer payment? We're not suggesting that at all, but $45 billion in interest is a big number.
I was reading something that Paul Martin said last week when he was speaking at the Halifax Initiative Forum, Creating Common Wealth. It talked about the unsustainable debt burdens facing many of the poorest countries and the urgent need to act to prevent future financial crises. Paul Martin said:
Excessive debt and debt service is one of the
most critical obstacles to economic growth and
sustainable development. Excessive debt service
payments quite simply displace crucial spending on
health, education and other vital human needs.
Obviously Canada is not a third world country, but his comments are very applicable to the situation we find ourselves in here. Once the debt burden is under control, much-needed tax cuts can be introduced as well as increased government spending in strategic areas. The reduction in interest charges occurring on a reduced debt load could be used to fund such items.
We understand that the debt-to-GDP ratio will come down as a function of growth in the economy. However, current projections for growth are not as optimistic as they were six months ago. We continue to recommend—and our survey results of our members support our view—that a substantial percentage of any future surplus, as well as the $3 billion contingency fund mentioned in government publications, should be used to pay down debt. This has the added advantage of getting our house in order in the event of a future economic downturn.
We also believe that the next 15 years are crucial demographically to Canada and to our finances. We feel that if we don't succeed in slaying the Goliath debt when the majority of our citizens are in their income-generating years, we will not be able to do it afterwards as this working group retires. There will be fewer working people supporting the ranks of the retired after the year 2015, and this demographic challenge on its own should be addressed as soon as possible, particularly given the government's retreat on the proposed seniors' benefit program, which generally we're in favour of but we know that area still has to be dealt with. In the summer, when Paul Martin retreated on the seniors' benefit programs, said our finances are in very good shape at the moment. We can afford to be generous. What he said in August probably isn't what he said yesterday, on October 14.
So we view this as our window of opportunity to reduce accumulated debt and reduce future interest charges, which constrain our ability to fund tax cuts.
Just on personal tax cuts, obviously we're in favour of them. We think the time is not now because of the international fiscal crisis that's occurring and the fact that we do have to be prudent. So we obviously support the prudent assumptions in the budget. We just feel we don't have sufficient budgetary surplus right now to introduce broad-based personal income tax cuts in the 1999 budget. They're just too expensive and we need to be prudent in these uncertain times. We want personal tax cuts to remain on the fiscal agenda but only be introduced when their scope within the budget is surplus to afford such relief after published debt repayments have been made.
Now we get on to one of perhaps the more contentious items, the EI surplus. We've written Paul Martin a letter on this just yesterday to put our view forth, but I must admit it's hard to make an informed decision or submission on this, because it's not clear to myself or to anyone I work with in the chamber as to what the legal issue is surrounding this surplus. I feel I don't have all the facts to make the correct call on whether this money should be in general revenues or not in general revenues, and as a working individual I don't actually have time to go into the Employment Insurance Act, or wherever it sits, to find out how this money gets put into the government's financial statements.
I feel that when you treat it as a source of general tax revenue you're really treating it as a tax and not as a separate insurance premium, which is what it technically should be. I know that the basis of accounting for the employment insurance fund changed in the 1980s when it was running into a deficit. Paul Martin made that very clear yesterday. He said we funded it through the deficit period of the eighties and we get the surplus. I don't think it's that simple, and anyone who's looked at pension funds lately and who gets the surplus of a pension fund knows there are numerous legal issues that have to be thought through on that. I feel the government is being very headstrong in this area and that we as citizens don't have all the facts. I feel that the actions in this regard, because they are being so—again, I use the word “headstrong” or unilateral. I feel there isn't a real discussion on this and a fair discussion where all the facts are being disclosed.
We agree at the chamber that payroll taxes kill jobs, and we surveyed our members in June of this year with respect to that. Eighty percent of the respondents viewed that EI premiums are an employment tax on businesses and their workers rather than a true insurance program. As well, 26% of the respondents said they would hire additional staff if the government did reduce EI premiums. Many respondents, while indicating that the EI premium cuts would not result in direct hiring within their firms, felt that the premium cuts would help economy-wide job creation.
Certainly in light of the increased Canada Pension Plan premiums that we're all going to have to pay, starting last year and going forward to the year 2003, and the fact that there's a surplus in the EI fund, this is a very good time to consider reducing the premiums we pay for EI.
As well, the chamber would like to see the plan run by an independent body and run as an insurance vehicle. We say that because we just don't feel comfortable with where it's sitting now and how it's being treated. If anyone here has information on that for me, I'd love to hear it.
If the government does not follow this recommendation and wants to take the surplus moneys, and changes the law to use that surplus, we don't want the surplus going towards tax cuts or health care. If we're taking that money out, we want it to go against debt.
If the reason it's in surplus is because there were deficits in past years that were funded by the government, those deficits are sitting in our debt load, and any surplus—if it's not going to be returned to workers and businesses through reduced premiums—we want to see paid down against the debt.
On health care I'll only say that we certainly need a lot of help in our region. We're under-serviced. We do other submissions on that in other forums. If you're interested, our area has gotten local businesses to donate to a fund of $600,000, where we're going to try to recruit the appropriate medical help into our jurisdiction. We don't necessarily see that as something the government should be doing for us; we are taking matters into our own hands.
The last item I want to address—and I'm very brave and bold. I said to my secretary, I'll be on the news tonight and they'll put me in jail, but I want to get this message across about the integrity of the Department of Finance. Various situations have arisen that cast doubt on the accountability of the Department of Finance to the Canadian people.
The Department of Finance, apparently, has not been following generally accepted Canadian accounting principles when preparing its financial statements, so the Auditor General ends up qualifying those financial statements. We view this to be a serious breach of Canadian standards. If other companies breach them, there's a lot of hue and cry that goes up over this breaching of accounting standards. But it seems like the Department of Finance is able to do that. I don't know if this current year financial statement has been similarly qualified by the Auditor General.
There is concern that the numbers are being massaged to arrive at a zero deficit surplus so that the tough question as to how to spend any surplus does not have to be answered. It appears to us that the government is effectively spending the surplus before it has to invoke the 50-50 formula for fiscal dividends.
Similar concerns are surfacing with respect to the Canadian Pension Plan and the allegations of the recently fired chief actuary of that fund. In addition, the actions of the minister with respect to the EI surplus do not put him in a good light. The trust that has been placed in the Minister of Finance is eroding. Hopefully this forum can be used as the way to communicate this message to him.
I'm done. We appreciate the opportunity to make this submission to the standing committee, and we look forward to a continuing open dialogue on the above matters and others that may involve the business community.
The Chairman: Thank you very much.
We'll go to Ms. Deborah Kusturin, then the Georgian Bancorp Inc., and then Walker Chocolate Company Ltd., because I believe the last two are speaking about the bank issue. Is that correct? Today is for pre-budget consultation, but we will accept your report and we'll incorporate it in our MacKay task force review.
Yes, Mr. Stevens?
Mr. Sinclair Stevens (Chairman, Georgian Bancorp Inc.): Mr. Chairman, in our case, it is true we'll be speaking with respect to the bank mergers, but we put it very much in the context of the pre-budget considerations. With the banks having $800 billion in assets, it is very difficult to consider budgetary measures without taking into account what, in fact, the banking system is doing or proposing to do.
The Chairman: We're very fortunate this year; we're doing both at the same time.
Ms. Deborah Kusturin (Individual Presentation): Thank you for letting me speak in front of the committee.
I appear today before this committee to address the issue of the unfair taxation of single-income families with a parent caring for children at home. As a parent, I am concerned that our government does not value the importance of my presence in my children's lives. I feel that it is my duty and obligation to be a positive and primary influence in the upbringing of my children.
It has been very frustrating over the years to know that our tax dollars may be used for someone else to care for my children. If I take on the task, then our family must pay more taxes, not less; yet we do not require, nor do we benefit from, the services we are paying for with our taxes.
When my first child was one year old, I had to return to work and it was quite a struggle. I was very young and I did not realize just how much this would affect our relationship in the years to come. Ten years later I had my second child. I was determined that I would be home with her. At that time my husband was on salary, so he had no way of supplementing his income. Even if he did, it would have just been eaten up by taxes.
The loss of my income made it very difficult to maintain our household, but somehow we managed for a time. I took care of other children for the region of Peel, which brought in a little more income, but it wasn't enough to sustain us for very long. When she was 18 months old, I returned to work full time. This was not for very long, though. It was only to help us prepare for our third child. You see, we had learned to be very frugal, and so the income was to buffer us for the next child. I have been home with my children for the past three and a half years.
I am still angry that our government does not recognize the importance of the work I do with my children. They are getting the best quality care no money can buy. The family across the street can go to work, have a house and two cars, and deduct their children's day care costs from their income. My son attends a pre-school program twice a week for two hours because I know he needs the kind of stimulation it provides for a child of three and a half years of age. We don't get any deduction from our income for this, and as well we must pay taxes at a higher bracket. We are penalized because we have different values.
Parents play a vital role in the well-being of their children. A June 1996 report by the National Crime Prevention Council states that accessible and nurturing parents help infants to form secure and healthy attachments and that these secure attachments bring a host of positive factors for children, such as basic trust, empathy, self-esteem, ability to soothe oneself, and positive identification with parents.
We must help ensure children experience secure attachments, caring families, and effective parenting. These protective factors promote well-being, social responsibility, and competence in children. During the first few years of a child's life, the influence and commitment of a parent are critical to healthy growth and development.
Through its child care expense deduction, the taxation system currently promotes the child-rearing philosophy of non-parental care. Taxation policies encourage people to make certain choices. Removing from a parent the responsibility of forming a secure and healthy attachment to their children by only promoting alternatives to full-time parenting is detrimental to their children's well-being. Giving credit to parents for raising their own children will benefit all Canadian children.
The child care expense deduction also has an inverse relationship to needs, and it unfairly benefits the wealthy. Families who make financial sacrifices to provide the best care possible for their children are penalized by the tax system with disproportionately higher taxes.
The Standing Committee on Health published a report in April 1997 entitled Towards Well-Being: Strategies for Healthy Children. In this report recommendations were made to re-examine tax laws and policies to ensure they treat all families and children in a fair and equitable way. It also recommended that the Minister of Health, together with the Minister of Finance, examine ways of providing equivalent tax benefits to families who choose at-home parental care and to those with caregivers for their children.
To date none of this has been done. Single-income families are not given any credit for supporting and caring for their children when one parent remains at home to care for them. The deduction for a spouse is less than the basic personal exemption, and there are no deductions allowed for dependent children who are cared for by a parent in the home.
A working paper prepared by the finance department for a meeting with the provinces on taxation in September 1996 reported that in some cases a one-earner family can pay up to 85% more in taxes than a two-earner family at the same income level. The breakdown of the family and the abandonment by supporting parents are the biggest contributors towards child poverty. Providing a tax credit that acknowledges the obligation to the family would seem to be a reasonable initiative towards reducing child poverty. Allowing a spouse to transfer a portion of their income to another spouse who is caring for their children at home would acknowledge the importance and value of the job the other spouse is performing at home. It would also reduce the tax burden on families caring for pre-school children.
I sincerely hope you will give your full attention to this matter and that you will examine how fairness can be achieved for all Canadian families who make the choice to have a parent remain at home to provide child care during the children's early years.
One comment made by the previous speaker was that the demographics show we have a lot fewer children to be the support of our growing number of seniors. If people weren't prevented by our policies from having children, we might not be looking at that type of problem either.
Thank you for letting me speak.
The Chairman: Thank you for your comments.
We will now hear from the chairman of Georgian Bancorp Inc., Mr. Sinclair Stevens.
Mr. Sinclair Stevens: Thank you, Mr. Chairman.
I too would like to thank the committee and the members of the committee for giving us an opportunity to share some thoughts with you. As most of you may know, some time ago I sent a letter to all MPs in which I outlined some concerns that we had concerning the proposed bank mergers. In that letter, I also included an article written by myself that had appeared in The Toronto Star.
The reason I mention that, Mr. Chairman, is that we got dozens of replies from MPs stating what their positions were on the question of the bank merger. Many of them, I noticed, referred to the MacKay report. The MacKay report still hadn't been tabled at that point, and the clear tone was, “We're waiting to see the MacKay report and perhaps we'll be able to make up our minds in a more educated way.”
Most of you, I take it, have had an opportunity to read the MacKay report—I see one head shaking in the negative—but I think for those who haven't read the MacKay report, it would be fair to summarize it this way: it is much more interesting for what it doesn't say about the banking industry than what it does say.
The reason I'm giving you that little background, Mr. Chairman, is that when you're considering the coming budget, as I indicated earlier, I think you will have to take two very important things into consideration. Our banks—mainly five in number, five main banks—have, as I've mentioned, $800 billion in total assets. That's approximately the same size as our total gross national product. Now, for a budget to be framed without taking into account the consequence of that banking industry—what, in fact, it can do to impact the Canadian economy, either positively or negatively—is, I would say, very reckless.
Secondly, Janet already referred to this question of the aggregate debt, $583 billion. I think you have to look at that parameter as well. On the one hand, you have a debt of $580 billion—and let's not call it anything else, it's a debt pit we have fallen into—and on the other hand, we have a banking industry that is, of the G-7 countries, the most highly concentrated in the world and which is proposing to become even more concentrated so that it can share in these world markets, having assets, as I say, of $800 billion.
If I may, Mr. Chairman, I would like to hit three main themes. First of all, I'd like to explore with you what exactly banking is, because I'm always taken aback by people who do not realize the distinction between a bank and, say, a credit union or some other financial institution. Here's an example of where the MacKay report, reflecting the Canadian Bankers Association very faithfully, fudges the issue. It puts them all together as if they're one and the same.
The second thing I'd like to touch on is this: in any event, how well is Canadian banking serving Canadians, both individual Canadians and businesses?
Finally, I'd like to touch on this question of our aggregate debt.
But first, if we may, Mr. Chairman, we have a few overheads that may help me on some of these points.
I'd like to show you a quotation out of a textbook, just a standard textbook—and I emphasize this. Anybody in the economics field realizes that banks are privileged by having the right to create money. And as the authors of this textbook point out:
The public's use of bank deposits as money would be
reason enough to look carefully at the operation of
banks. But banks require attention for an additional
reason—and one of great importance. In the normal
course of their operations, they create money.
We, as a government, through the Bank of Canada, have given our chartered banks the privilege of creating money. When I say their assets are approximately $800 billion, at some point in history—other than about $30 billion, which is currency—that $800 billion has been created by banks.
This is why I think we must be very careful when the banker tries to show that he is not as big a force in our economy as he is, which is what they like to show. We must keep in mind that they are the inner circle, the manufacturers of the money. A credit union, for example, has to win the money from you or from me after it's been created. And the reason that is significant, I think, is that the banks can contract or expand the money system much more readily than anybody else.
But let me go to my next point, which deals with this question: given this privilege of having the right to create money—unique among financial institutions—how well are they serving Canadians? And I think the answer is that they're serving some Canadians extremely well and other Canadians very poorly.
And here is something that, incidentally, is taken from the Canadian Bankers Association, reflected in the Bank of Canada Review of winter 1997-98. These are not my figures. But as you can see, it is startling to find that of bank loan authorizations of a total $368 billion, making up 75% of the total credit extended to banks in Canada... In other words, 75% of the total authorizations in Canada go to 9,630 customers or 1.27% of the total.
This is dramatically different from what you find in the United States. One of the reasons for this is that when our banks become so concentrated, they find they can make money much more readily, for example, by loaning this type of credit to these people. These, incidentally, are people who have lines of credit of $5 million or more. They certainly make more money out of doing that than by lending to 1,000 small businessmen.
In the United States, instead of our 11 banks, there are 9,000 banks, and whether a bank in the United States likes it or not, it has to serve small business, because that's their geographic reality, that's the area they're in.
Our banks in Canada, as you know, are national, and they have used this privilege of creating money to award 75% of the total credit, as I say, to less than 10,000 people.
Look at the other extreme. Consider that 54.9% of bank customers—I'm emphasizing those in the business field—get 1.3% of the total in authorizations; they get $6.2 billion.
Mr. Chairman, the reason I hope this committee will grasp the significance of this is that the more the banks restrain credit to small business, the more they're impacting our economy, lessening job opportunities and lessening technology growth in the country. And that is a contributing factor to the exodus—and there are figures out just today on this—of businessmen and technology to the United States.
Small business in this country is starved for meaningful bank assistance. And to have the five main chartered banks in this position where, if you'd like to summarize what I have said, the top 9,630 customers of the banks have, on average, $38 million of authorized credit while the other small fry that I've referred to, 415,000 in total, have, on average, $15,000... Surely those figures are significant.
And I'm saying it in the context that to the degree those small businessmen are not getting their fair share of what has been created in the country, it's impacting our economy, both in a revenue sense and a job creation sense.
Having said that, I would like to go to this question: if there appears to be a component of business that is very well served by banks—this 9,600 people—what actually happens at the director's level of banks?
Here, I think, you will find it fascinating to see how bank directors interlock. They are a bankers' club. As a rule, they work in concert with large corporate entities and, in fact, what we're going to demonstrate here is that it's not just a question of George Weston, let's say, having a director on the board of a bank; in some instances, the bank president will be sitting on George Weston's board. How comfortable!
Let me show you what I'm referring to. In regard to the Royal Bank, for example, Mr. Cleghorn is in the news today stating that he needs more room to expand into foreign countries. It may impact Toronto, he says, if he doesn't get this merger with the Bank of Montreal.
Well, I find it very interesting, and I hope the committee finds it interesting, to note that not only are the various corporations the banks are dealing with sitting generally on the boards they're dealing with, but sometimes the bank presidents are sitting the other way, on the client's board.
One example is McDonald's. Mr. Cleghorn sits on that board. Mr. Cohon, the chief executive officer of McDonald's, is on the Royal Bank board. Allan Taylor of the Royal Bank is a director of Canadian Pacific, and the chief executive officer of Canadian Pacific, Mr. O'Brian, is on his board.
If you look at the CIBC, you will find a similar interlocking. Mr. Fullerton is on three different boards: George Weston, Westcoast Energy and Argus Corporation. In turn, Galen Weston, of George Weston, is on the Bank of Commerce board and Mr. Phelps of Westcoast is on the CIBC board, as is Conrad Black.
I'm suggesting, Mr. Chairman, that this type of thing is what is leading to a terrible distortion of credit in the country.
I could show you the Bank of Montreal. I think Mr. Barrett was before your committee.
The Chairman: Yes.
Mr. Sinclair Stevens: I'm not sure whether he went out of his way to mention to you that he's a director of The Molson Companies, and in turn, Eric Molson, the chairman of Molson's, is on his board. Granted, he must have mentioned many other things to you, but I doubt if he made that a point.
At the Toronto-Dominion, we have the same scenario. Richard Thomson, chairman of the TD, is on the board of Inco and, very conveniently, Mr. Sopko, CEO of Inco, is on Mr. Thomson's board. Mr. Brock from the Toronto-Dominion is on the board of the Jim Pattison Group—out in B.C.—and Jim Pattison is on the board of the TD.
Mr. Chairman, I could put it this way: if this committee were in fact a senior Canadian bank board, you would be earning multimillions of dollars as the chairman.
And if each of these committee members were directors, they would, on average, either directly in their own name or in companies which they are affiliated with, have the pleasure of enjoying at least $150 million of authorized credit.
The Chairman: Sinclair, I need them around here, so please don't start inspiring them to leave.
Some hon. members: Oh, oh.
Mr. Sinclair Stevens: Mr. Chairman, I was simply hoping they might rush out and form new banks.
Some hon. members: Oh, oh.
Mr. Sinclair Stevens: Give us some competition here.
Anyway, let me show you, though, another way of looking at how comfortable the banks are, especially with themselves.
This illustration of ours shows related party transactions. For those of you who perhaps can't read the small print, it's taken from the annual reports of three of the banks, where they actually point out how much they've lent to directors, officers and employees of their bank. For the other two banks, which make a reference to their related party loans but don't show the numbers, we've estimated them at $1.1 billion each.
In short, the related party transactions of our banks add up, as you can see, to $5.7 billion. In sharp contrast, if you take a look at those who, in a banking term, have been borrowing $50,000 or less—415,000 Canadians—the total credit given to them is $4.3 billion. So those who are in the elite of the elite, the related parties in connection with our banks, are getting $5.7 billion. The 415,000 Canadians who are borrowing at the other end of the scale are getting $4.3 billion.
Mr. Chairman, I hope the committee, in its deliberations, will recommend to Mr. Martin—incidentally, I was pleased that he used that $3.5 billion to pull down the debt, but bear in mind that even at that rate it will take 100 years to get the debt to 50% of its present level—that he give a very firm answer—and soon—to the banks: no.
I would say that if you as a committee recommend to him that he give that no answer, in an odd way you'll be saving the banks from themselves. Because as they say, they would love to get into this world market which is truly competitive—not concentrate on the Canadian market. One of the bank presidents told me frankly, “Canada's mature. We're getting everything we can out of it. We have to go into foreign fields and get a piece of that.”
It will be a very dangerous thing if they're allowed to do it. They're asking to get into the riskiest banking field in the world. The suggestion that they should be one of the ten biggest banks in the world overlooks the fact that the top ten doesn't include even one American bank. It includes mainly Japanese banks, which are in great trouble, and there's a French bank in great trouble. That's where trouble is.
Mr. Chairman, I come to my last point, this cumulative interest we have inherited in this country, which has given us this huge debt, the $580 billion that was referred to. I hope we will never forget that the debt tip is actually cumulative interest on a total government expenditure, at some time, of only $40 billion. This is the Dominion bond rating statistic. The quote we show here is lifted directly from a March 1996 study.
The reason I refer, as I did at the beginning, not only to the bank situation but to the debt situation, is that we in Canada are on a very narrow ledge.
If we make mistakes, if something should trigger a higher rate structure in this country and this is the cumulative debt that we're living with... The more we can pay it down will certainly be helpful, but we must bear in mind that we should not accept any unnecessary new risks.
And when the Canadian chartered banks say, “please let four become two”, what they're really asking the Canadian government to do is to guarantee their entry into the international scene. Because let's face it, we are all guarantors of Canadian banks. When they're big, we can't let one of them go under.
Thank you, Mr. Chairman.
The Chairman: Thank you very much, Mr. Stevens.
We'll now hear from the representative from the Walker Chocolate Company Ltd., Harry Walker, the president.
Mr. Harry Walker (President, Walker Chocolate Company Ltd.): Thank you. I know I'm here a day early, but I was slotted in today. I hope the chocolates will grease my way a little—
Some hon. members: Oh, oh.
The Chairman: I just want you to know that you shouldn't read anything into the fact that you're last because I didn't get a box.
Mr. Harry Walker: You didn't get a box? Well then, I think your clerk might have two.
Some hon. members: Oh, oh.
Mr. Harry Walker: Mr. Chairman, ladies and gentlemen, I am appearing as much as a concerned individual as I am as a president and main banking person of a small business. I believe there are no circumstances under which the proposed bank mergers should be allowed. In fact, I would say the country needs at least a couple of other national banks to increase competition and better serve Canadians across and throughout all regions of the country.
I'm concerned that there is already a lack of responsiveness to customers' needs among Canadian banks. I am based in and live in Burlington, Ontario, and would like to give you some of my recent experiences with the banks in our area. Personally, we have dealt with the Toronto-Dominion Bank for 20 years and, as a business, with them and others for over 15 years. Most of the time we've been happy and have found that they have good customer service. About a year ago, things changed dramatically. In February 1998, I wrote to the TD Bank—a copy is attached to this submission—and in the letter I complained about the lack of teller service.
There are many things you can do at automated banking machines, but you cannot, at TD, do business banking. You cannot make deposits to or withdrawals from current accounts. You cannot obtain coin for a business. You cannot deposit credit card vouchers to a merchant account, nor can you obtain foreign currency, travellers' cheques or drafts, or certify a cheque. These are all functions for which you need a teller.
The bank's response was a phone call from a vice-president who tried to put a good face on decreased teller service, but who said things weren't about to change back to smaller in-branch lineups. It is very frustrating to wait 15 or 20 minutes every time you need to conduct banking with a teller. However, the situation is about to get even worse at the Toronto-Dominion Bank. As of November 16, at the seven branches of the bank in Burlington, a city of approximately 130,000, there will be only one branch in the whole city that will have tellers at any time. The other six branches will not have any teller service at all.
If TD customers across the city need teller service, this forces them to go to the one branch, which may be six or seven miles away from them. It's incredible, and it shows a total lack of regard for customers' needs. It could only happen in a company that believes it has no very effective competition or that believes the proposed mergers are a fait accompli.
If this works out for the bank—which I doubt it will because common sense from their customers will prevail—it would allow TD to cut employees, increase earnings and ignore their customers.
If the banks were allowed to merge it would not serve the country well. There would be massive branch closures, huge job losses, lack of access to banks, especially in rural areas, and an increased disregard for bank customers.
To have two banks account for about 70% of Canadian banking is outrageous. No other developed country has such a degree of concentration. The big Swiss and Dutch banks are big because most of their revenue comes from overseas ventures.
Canadian banks can be and are competitive overseas, lending in syndicates with other banks. But as Mr. Stevens said, they may get what they wish for and end up as they have in Mexico, with debts that can't be repaid. But that's their affair.
There is no need to stifle competition at home to be competitive overseas. There's also no evidence that big banks are more efficient than smaller banks, as both the TD Bank and the Bank of Nova Scotia are more efficient than the Royal, the CIBC and the Bank of Montreal. This has been documented over the last five years and is surprising but true.
As a former employee of the largest Canadian bank and a current shareholder at one of the banks, I believe it is short-sighted to look solely at bank profits for taxation. These largest and most profitable companies in Canada have a duty to provide growing numbers of jobs to Canadians. The long-term employment of many Canadians at moderate salaries will generate more taxes than taxes on large executive bonuses made bigger by slashing payrolls at the bank.
I believe the proposed mergers go against an accessible and competitive banking system and reduce the prospect of employment in Canadian banking now and in the future.
The Chairman: Thank you very much, Mr. Walker.
We'll now proceed to the question-and-answer session, starting with Monsieur Desrochers.
Mr. Odina Desrochers: I would like to address two issues, the first being the pre-budget tour. We will be discussing the whole issue of financial services in Canada. I am addressing the person who today represents the Kitchener—Waterloo Board of Trade.
With respect to employment insurance, you seem to support what was said two weeks ago, that is the employment insurance funds should be administered from now on by a separate committee; it would no longer be a government activity. Is this closer to what the four opposition parties have proposed? How would the situation be improved by changing the way the employment insurance fund is administered?
Ms. Linda Korgemets: I do believe it is what was published a couple of weeks ago in the financial press that the opposition parties came up with. It was their recommendation that the funds be put into a separate body to be administered. And while perhaps that does seem like yet another additional layer of bureaucracy, I think the reason the Chamber of Commerce of Kitchener-Waterloo is supporting it is that we feel that to safeguard the moneys in that fund we would like to see them in a separate fund outside of general revenues.
For a number of years we've recognized that funds have been in surplus. We have written to Paul Martin in the last two years, I believe, concerning that very issue—again, how those numbers flow into general revenue. And I think it's just too tempting to have it in the current financial statement showing up as a revenue source. That's why the chamber of commerce is supporting perhaps what the opposition parties are suggesting: putting it in a separate place to ensure that the moneys are safeguarded for the intended purpose they've been raised for.
Mr. Odina Desrochers: You also talk about the current integrity of the Department of Finance. Our party has often said that the amounts of money are calculated now, while expenses are only made later, and the Auditor General expressed similar concerns. What more can be done to force Mr. Martin to adhere to accounting standards? What he is doing completely distorts the budget surplus numbers. Is there anything else that could be done to force him to say exactly what goes on in a financial year instead of recording this year amounts that will only be spent in two years?
Ms. Linda Korgemets: I am a chartered accountant and have had training in generally accepted accounting principles. I'm a little far away from them because I practise tax consulting, but my recommendation would be that Paul Martin listen to the Auditor General. That gentleman is applying generally accepted accounting principles to the financial statements of the Government of Canada, and those rules, as far as I'm concerned, are meant to be followed. They're a standard for all businesses to adhere to.
So other than a big stick... I don't know how things happen in politics between the Auditor General and Paul Martin, but it just seems that it's a stalemate and a cold war, maybe, between the two of them. How do I get those two talking again to get generally accepted accounting principles adhered to in financial statements of the Canadian government? I don't know.
Perhaps my own society, the Canadian Institute of Chartered Accountants, should be making its own representations to Paul Martin. Perhaps it has and I'm not aware of it.
Mr. Odina Desrochers: I will ask a few questions to Mr. Stevens about his opposition to bank mergers. In the small document you gave us, you say that in Australia, there was a similar move toward bank mergers, but that this move ended because the public opposed it. According to the information you have, in Australia, was this done in the same context as the one we currently have in Canada? Did a commission similar to that which produced the MacKay report look into the issue?
Mr. Sinclair Stevens: Yes, and I think that's a rather interesting parallel. You've put your finger on it. There was a version of the MacKay report that didn't exactly recommend the mergers, but the clear implication was that there was no real reason to resist it, with a bit the tone of MacKay—“we're not saying it should go ahead”—but there's the old idea that big means you shouldn't do it, and according to MacKay they don't feel that's acceptable.
There's the same tone in the report in Australia. When the government received it, it indicated it was going to go ahead and okay the mergers. There was such a public clamour at the grassroots that the government backed off. Politics won. And in that way, I think, Australia was saved from something that hopefully we're going to be saved from.
Mr. Odina Desrochers: You also say that, on the boards of directors of the various banks, there are a lot of leaking vessels, as it were, that they all include almost the same people. Some 15 to 20 people decide the future of the country. Do you have a suggestion to offer about this? For these people to be more objective, would you recommend that the boards of directors of the banks not be linked with other financial organizations, such as large corporations?
Mr. Sinclair Stevens: Well, I guess the recommendation I can give you is that you simply ask the bankers to accept the same rules that you live by. I'm referring to the general conflict-of-interest rules that most politicians abide by. They're codified.
And what the directors will tell you is that they go through a little charade, in that if this were the board and your loan was coming up, the chairman would ask you to vacate for a few minutes. When you come back in—sometimes they even give you a round of applause—they would tell you that your loan has been approved. And then Mr. Pillitteri's turn would come and if he had a loan from the bank they would tell him to retire for a little while, he'd go out, the same thing would happen, and lo and behold, his loan would be approved. Whether they would give it a round of applause or not, I don't know.
And, Mr. Chairman, if the members here want any confirmation of what I'm saying, ask the Prime Minister. He used to be on a board. He witnessed this. Ask him to tell you first-hand how humorous it is to see the way these loans are processed.
Compare that to what the small borrower has to go through. If he can even get a banker to talk about his deal, it gets very regimented. As a rule, the bank branches are mainly deposit-taking branches, not lending branches. Eventually the decision is made by somebody you never meet; somehow or another he adds up the pluses and minuses and says to make the loan or not make the loan. It is a totally different standard for the small borrower compared to the big fella.
Mr. Odina Desrochers: I will end with Mr. Walker. I have tasted your chocolate, and it is excellent. However, this is not what increased my interest in your document, which by the way is well done.
You are in a rural community, and you fear that bank mergers will limit access to credit. In light of the experience you lived and of the expected decision—merger or no merger—, what recommendations would you make to protect rural communities in the present context?
Mr. Harry Walker: We're not exactly in a rural region. We're in the GTA area of Toronto, I guess.
But I would say that the banks have enjoyed protection under the Bank Act in the years past. I think they've prospered. I think they owe this country deposit vehicles in rural communities.
I don't know exactly how it could be worked out, but if there were more banks rather than less banks there would be some competition for more areas. If you were in a rural area you might pick up an account that also had a branch in a major area... We've seen closures in rural areas, and to concentrate the banks even more is going to be worse. There will be less need to compete and less need to service customers. I think more banks rather than less would be necessary, throughout all areas of Canada.
Mr. Odina Desrochers: Forgive the slip. I was not talking about Burlington. I knew that Burlington is not a rural community but an urban community. I am sorry, and I now give the floor to the Chairman, whom I thank.
The Chairman: Are you finished?
Mr. Odina Desrochers: Yes.
The Chairman: Wonderful.
Thank you, Mr. Walker.
Mr. Scott Brison: Monsieur Desrochers, if you want to see a rural region you should see the one I represent. I don't know if that will satisfy your request.
First of all, I want to thank each of you for your presentations.
And I want to thank you for being here, Mr. Stevens. It's great to have you back in the public policy forum again. You've made a very thoughtful presentation.
Some hon. members: Oh, oh.
Mr. Scott Brison: My questions are related to some of the recommendations of the MacKay task force and the whole potential for new banks. One of the fundamental differences between the Canadian banking system and the U.S. banking system is the number of participants. Mr. Stevens was saying there are 9,000 banks in the U.S., while we have a very concentrated Canadian banking system. Access to capital is essential, particularly for small business growth and development.
When I was 19 years old, I sat across a desk from a banker for the first time to get a loan to start up a small business. It was a fairly intimidating position to be in. I've been in that position a number of times when I was working in small businesses prior to getting into politics.
One of the suggestions the MacKay task force has made is that these small banks could start with a minimum capital requirement of $10 million. They would have a 10-year holiday from capital tax. They would have full access to the payment system. Some recommendations we have heard say that the new banks could, for instance, have access to auto leasing whereas the other banks, the big banks, would not have access. They could also have access to insurance brokerage business, while the other ones could not. They could have $120,000 in deposit insurance as opposed to $60,000. Those are just some of the things we could recommend that would make it advantageous for these new banks.
My question for you is, do you believe we could create a regulatory climate where these new banks would begin and would prosper? If so, what recommendations would you make to facilitate that or to enable these new banks to grow and develop? I think we can agree that it would be in everyone's best interests to see a lot of these new banks start up.
The Chairman: Who would like to start?
Mr. Sinclair Stevens: Thank you, Mr. Chairman.
It's an interesting reflection. I can speak with some first-hand knowledge. We were, I suppose, the first group in about 60 years to form a bank, the Bank of Western Canada. We raised not $10 million in capital but $13 million, in the 1960s, so that's probably comparable to about $50 million right now.
They way the financial community—and I mean the banks—responded to that was very interesting. They were absolutely upset. The Bank of Nova Scotia—with which we had various other companies—said to me one day that I had gone from an a credit rating to a z credit rating. I asked what we had done wrong and they said, “You're forming a bank.” They said that Eaton's didn't lend to Simpsons and that as far as they were concerned, we were on our own.
McKinnon, the head of CIBC at that time, was absolutely preoccupied. His public relations officer met me six months ago and said, “I'm no longer with them now, but let me tell you, the number one thing that McKinnon had on his mind while your bank thing was front and centre was how to stop it.” I said, “Well, Frank, I can't believe that. Here's a small bank. Why would somebody at the CIBC have the slightest worry?” And the answer was, “It's a chink in armour. And if it ever gets going, we've lost our privileged position.”
This, in reality, is what I think your committee has to accept. These banks realize they have an extremely privileged position. They have been able, in one way or another, to talk their way into an ever-better position.
I could cite examples coming out of the depression years, when the Parliament of the day felt it wise to stop banks going from into real estate. There used to be a prohibition that banks couldn't own real estate. The bankers went to high-priced lawyers, who asked them what was really meant by that and told them they needed branches, so why didn't they build big buildings and say it was for future operations? That's how these skyscrapers got built in the names of the banks. Technically, they couldn't own it simply as real estate; they have to own it as part of their future business.
They've gone into the brokerage field. They've gone into the insurance field. They generally have been able to take their privileged position and even extend it.
In answer to you, I think there are only two things you could recommend. One thing would be rather than even countenancing the banks merging, you could come up with a program of how they could do the reverse. Break them up. Our banks have become a load on Canada as far as the economy is concerned, which is contributing, as I say, to the high level of unemployment. Our unemployment, as you know, is twice that of the United States. That is partly due to the concentration of our banks and their denial of credit to small businesses.
I sat through some of the Porter commission hearings. MacKay refers to them in his study. The banks were there and said, “Please relieve the 6% ceiling we have to live with.” The banks, up until then, could never charge more than 6%. Their argument was that they wanted to go out and help those small businesses, and how could they be lending to small business at 6% when they were already lending to big businesses at 6%? They said they needed something better than 6% if they were going to take that added risk. The Porter commission recommended it. Mitchell Sharp, Minister of Finance at that time, put it into the Bank Act. A formula was put in place whereby now they have no ceiling at all.
So what I'm saying is that if they were de-consolidated I think it would be very refreshing for the country. The Bank of British Columbia, for example, should never have been allowed to go into the Hongkong Bank. It wasn't needed.
The second thing you could recommend is that we open the country up to sincere foreign competition. The MacKay report says:
Foreign banks should be able to carry on any banking
business in Canada, other than the taking of retail
deposits (i.e., deposits below $150,000) through
branches of the foreign banks as well as through
subsidiary corporations, as is now the case.
Why $150,000? In effect, they're saying to an American bank, for example, “Come on in, open a branch and get into all the costs of that branch, but of course don't take any deposits below $150,000 from anybody.” That reflects the bankers' attitude. That's their lifeblood. They need branches, of which they have thousands, to basically channel the money into their head offices to be directed out to these big corporations I've indicated.
They don't want true competition from a foreign bank so somehow they've talked MacKay into agreeing to put a minimum on it: “they can have anything they want above $150,000, but we'll take the small stuff”.
So break 'em up or bring in the foreigners.
The Chairman: If I may, Mr. Brison, could I ask Mr. Stevens a question?
Mr. Scott Brison: This time.
The Chairman: I'll recognize you after I've finished.
Let me ask you something. If banks are as bad as you say they are—and I've heard this from many people—and they're going to have as much of a negative impact on the economy as you say, is their ultimate goal to destroy the economy so they'll be better off? They depend very much on a healthy economy, so it would be counterproductive for them to assault the economy in the manner in which you're saying, unless I'm missing the link here. Maybe I didn't understand what you were saying.
Mr. Sinclair Stevens: I think that's an interesting observation and an interesting question.
I'm a capitalist, but I think we have to accept that capitalism is only effective if it's truly competitive. And oddly enough, an inherent thing in capitalism is businessmen saying they want competition but very actively trying to constrain it, because that is the way they can make a wider profit margin. And if somebody in a public authority doesn't resist this, you get the situation we have with our banks.
The reason, Mr. Chairman, that the present situation has grown in Canada, is that banks, instead of becoming institutions dedicated to the service of Canada, to ensuring that we have the economic capability to have good commerce and that type of thing, have become, more and more, engines to create profits for their shareholders.
The Chairman: And who are these shareholders?
Mr. Sinclair Stevens: The shareholders are a very narrow group. They're mainly mutual funds. I know the banks love to say that there are hundreds of thousands of shareholders. Well, what they are really doing is going through the mutual funds, which in turn, is correct. But I'm saying there has to be a proper governmental role in ensuring that what they do... Sure, everybody wants them to make a profit, but at the same time, they should not be making that profit at the expense of serving one of the most vital parts of our country—the small business area. That's where over 70% of the jobs are created. I think part of their mandate should be: make your profit, but don't do it at the cost of not serving smaller businesses, and become responsive to the needs of all of Canada.
Let there be no doubt. If you and I were in the banking business and we could make a $100 million loan to somebody, we could take a very small margin on that and make a lot of money, compared to dealing with a thousand small businesses. That's the problem.
And if government doesn't say to banks that they can't weight the system so heavily with the big loans, whereby, granted, you can make a lot of money... You must have a better internal ratio to ensure that the small business community in particular—
The Chairman: And this, I think, is where we have the big issue, but I'm not going into it at length here. The fact is, if you don't finance small business start-ups, the economy shrinks. If the economy shrinks, it doesn't matter if you are on the top or on the bottom, you're not making as much money. It's very simple economics: when you shrink the pie, your slice gets smaller as well.
I'm as concerned about corporate concentration as you are. Let's not kid ourselves. It's a real big issue. But I sense in your statement that banks sit there really kind of scheming how to hurt people, and I submit to you that I have a problem with that. I think we need to recognize the fact that our banking system has many people complaining about it, but when you compare it with every other system worldwide, it's one of the better ones. We need to improve it, and we'll make recommendations towards that end, but this sort of theory that this is all they're into, that they're just into destroying the economy, this is wrong, it's just a non-starter.
Mr. Harry Walker: I don't know anybody who would say they are there to destroy the economy, but they are there to serve their own interests, and yes, mutual funds own a lot of the banks and individuals own mutual funds, but as individual shareholders they're really pretty powerless versus the recommendation of the chairman and vice-chairman on what's going to go on.
Profit is pretty important to these guys. If they can make an extra million dollars in bonus, they'll do it, and I think the country has to watch how they are doing it and at whose expense they're doing it. If they're lining their own pockets at the expense of small business, the rest of the country, accessibility and employees, that is wrong, and I think this committee has—
The Chairman: That's where corporate concentration comes in. You don't want to give power to a single unit to—
Mr. Harry Walker: But that's what's happening in the case of the banks.
The Chairman: No question about that.
Mr. Sinclair Stevens: Mr. Chairman, in answer to your second question, I'm not in any way suggesting that these are bad men, that they're evil or that they're trying to hurt Canada.
What I'm saying is, they're putting shareholder value first. And if they put shareholder value first, they're not necessarily serving the true role that bankers should be serving in making sure that we have a very vibrant business, especially at the small business level. That's the main thrust of what we're saying. I think what Mr. Walker said confirms that.
I know many of these fellows. They're great guys. All it is, is that if you leave them completely unshackled, they'll race into this great glorious international world. They already got into big trouble; there's going to be a huge announcement about a write-off in Asia that one of them has to take.
And the ultimate guarantor is us, the people of Canada.
The Chairman: Yes. I don't know them as well as you do, Mr. Stevens, nor am I a shareholder of a bank.
Go ahead, Mr. Brison.
Mr. Scott Brison: Thank you. I guess what you're saying, Mr. Stevens and Mr. Walker, is that Marx may have been wrong about communism, but without some form of regulation he may prove to be right about capitalism—or at least unfettered capitalism—when it comes to banking.
I would argue—and I'd love to speak with you afterwards about this—that we can put in place some real advantages through the regulatory body which would provide new banks with a leg up. Particularly in the “anti-big-bank” climate, there could be a real marketing advantage. People would be drawn to them. That's something we should discuss later.
Ms. Korgemets, I appreciate your intervention. If questioning the integrity of the accounting of the federal government landed one in jail, there would be a large cellblock for all the opposition MPs. Like the millennium scholarship fund, I mean, at a time when we had a vague whiff of surplus, before we even had a surplus, where there was a $2.5 billion commitment to new spending that violated the accounting principles of the country and offended the Auditor General. In fact, he mentioned it in the report yesterday.
You speak about the integrity of the EI surplus. At a time when Canadians are seeking more transparency and openness for all their institutions, their governments and even their political parties, it is really offensive that this type of thing is going on.
You're saying that it should be set up in a separate body. What other reforms do you suggest for EI? Are there any others? We've heard about the idea of individual accounts, greater accountability for individuals in EI and a more focused insurance plan as opposed to a general income support vehicle. Are there any other suggestions you would make relative to EI?
Ms. Linda Korgemets: I'll answer your exact question in a minute, but I just want to go back to a comment you made about transparency. That's probably the word that I would have loved to have used in my submission. It's transparency we as the public want to see coming out of the finance department, along with an overall accountability.
The numbers all look great, but I still feel that on the tough issues or the issues that the department doesn't want to have to deal with, they just hold firm, ignore them and come out with the party line—“we are going to do this”. I don't get this warm feeling that they're being accountable to me for how they're proceeding. I'm all for transparency.
As far as other reforms to the EI plan are concerned, when you talk about individual accounts that sounds like it's going along the lines of the Canadian Pension Plan, where I know I can send in a little form and they send me back my account balance and tell me what I'll be getting in the year 2013 or whenever I retire. I don't think it has to be that specifically targeted to an individual at all. I see it as a general insurance program. I'm happy to contribute to it for the people who need to get money from it.
The way things have gone of late, there are a lot less people qualifying for the plan and that's part of the reason there's a surplus. There are some inefficiencies built into the plan. I have a personal view, for example, about paying women to have children and that type of thing. I've never participated in that. My children were born in another country. I think that's a bit rich to have in an employment insurance plan. And yet, there are probably people who need it, so that's the hard thing.
In regard to the universality issue, all of my friends, who are paid very well, certainly don't need money from the EI plan when they go off to have their babies; it all ends up in Graco play equipment and all that sort of nonsense. I see that as a drain on the fund.
The reason for putting it in a separate pot, so to speak? It's an accountability issue. When it's in with general revenue it's perceived as a tax, as another way to tax people. The employment insurance premium that I pay should not be a tax. It's a premium I'm paying for insurance for if I become unemployed in the future. I want to see those moneys used for that particular item and I would love to be paying less.
I'm going forward because of my increased CPP premiums...and, in particular, probably everyone around the table recognizes this, those premiums flatten out after $39,000 of income. It's the people in that middle band of income, up to $39,000, that get hammered for over $1,000 a year in EI premiums. Someone who makes $80,000 pays the same amount of EI premiums as someone who makes $40,000. It makes a big difference to someone making $40,000 to have $1,000 taken off their paycheque over a year. Compare that to the person making $80,000 or $100,000 or more. It's been called a very regressive tax.
Mr. Scott Brison: Yes.
Ms. Linda Korgemets: I don't like that either—although I don't want to pay any more either!
Mr. Scott Brison: There's a—
The Chairman: Excuse me, Mr. Brison. I'm moving on to Mr. Pillitteri and then to Mr. Valeri.
Mr. Gary Pillitteri: Thank you, Mr. Chairman.
Well, for one thing, I want to set the record straight. I liked your presentation, Mr. Stevens, specifically when you said we should be sitting on a board of directors earning $150 million.
But let me tell you, I don't sit on a board of directors. I have never sat on a board of directors and I don't intend to. I don't have friends that far up the ladder, nor will I have. Mind you, in my type of business, the wine business, I could maybe entice someone—
Some hon. members: Oh, oh.
Mr. Gary Pillitteri: —but I doubt very much if I will reach that—
The Chairman: With a few cases.
Mr. Gary Pillitteri: But let me say to you that I had to go to three lending institutions before I finished my business, which is a very small one. I think you're familiar with it. I think I've seen you in my establishment.
So I will reassure you. That's not the side I'm coming from. But I want to ask you one question about something you failed to mention. There are a lot of things I agree with as far as your presentation on the banks is concerned, but there is one thing. At times, we all become accountable, every government. And if I recall, you didn't mention one government that was giving some leeway to the banks, going back into the early 1980s, but also in 1992. There was bank revision from the government of the day. And the previous government gave a lot of leeway to the banks too. I want to put that on the record also, but you do not really need a presentation about it.
The Chairman: We have only ten minutes left for all the questions.
Mr. Gary Pillitteri: Okay. I read the MacKay report, and yes, they have a concentrated charter. I call the charter under which they operate a franchise; the Government of Canada gave them six franchises and they operate in a distinct kind of way. Nobody in Canada is in that type of business, with that kind of protection,
I didn't find anything really new in the MacKay report, but a minute ago you alluded to some of those banks that went under. As a Canadian, I don't want to see that openness again, with hundreds of banks opening—as they have in the United States—and going under as quickly. Ultimately, as Canadians, we would be paying for it by default if they went under. I think we would be creating more of an instability of “buyer beware” rather than having more competition. What's your view on that? Are we going to go the route of the Americans where you can have thousands of banks and then amalgamate them to five or six, which is where we are today?
The Chairman: Thank you.
Let's shorten the preambles and get the question out so that we can get more answers in.
Mr. Sinclair Stevens: Mr. Chairman, in answer to Mr. Pillitteri, I would certainly agree with him. We certainly wouldn't want to go to the other extreme of having banks just for the sake of having banks and have some of them possibly going under and that type of thing.
Bear in mind that the old anxiety about bank failures was deposit insurance. It is not as big a problem today as it use to be. And certainly, the larger banks love to trump this card. They love to say, “Let's be careful. We don't want any problem with a bank going under.” All I'm saying is, let's get a reasonable balance.
And if I could put it this way, the banks have been so successful that of the six most profitable corporations in Canada today, five are banks, the top five banks. If you look at the United States, you will find that the most profitable bank in the United States is twelfth among all corporations, and if you go down five, you're down to the forty-fourth most profitable corporation in the United States.
I'm simply suggesting that our Canadian banks have been allowed to get into a very rich and very profitable position at the expense of smaller businesses.
The Chairman: Mr. Pillitteri.
Mr. Gary Pillitteri: Thank you again, Mr. Chairman. I'd like to follow this up.
In the presentation from the Chamber of Commerce, Ms. Korgemets, you stated you would want to manage it outside of the government, but in the remarks I just heard from you, are you speaking on behalf of the chamber or on behalf of yourself? I thought those remarks were really outside the mandate of the chamber. I don't know whose interest you were representing; it surely was not the interest of the Chamber of Commerce. Being a member, sometimes I just wonder who speaks for me and under what auspices.
Ms. Linda Korgemets: Certainly. That particular recommendation that the money be set aside in a separate fund has actually come from the executive board of the Chamber of Commerce. It's not my personal view. I hold that view. I agree with them. But in fact, in putting my submission together, I'll be quite honest—and it's been vetted by the board— and say that I wasn't going along that line at all and they requested that it be put in.
I don't disagree with having the money held separately if that's what's going to give us an accountability for those funds. I'm not crazy about bureaucracy. I don't like to spend money on structures or things we don't need, but I can tell you that it certainly isn't my personal view; it is written in the chamber's submission and it is the chamber's position.
But I know what you're saying too. As a chamber, we have to be accountable to our members. We do survey our members, but we haven't had a chance to survey our members on that particular issue as to whether they want it in a separate fund. We did our survey in June 1998. We did not ask them that question. Perhaps the EI surplus issue was not in focus as much as it has been over the late summer and early fall.
The Chairman: Thank you.
Mr. Gary Pillitteri: I'll pass it over to Mr. Valeri.
The Chairman: Thank you. You're very generous.
Mr. Tony Valeri: Thank you, Mr. Chairman.
Just to follow up on Mr. Pillitteri's last comment, Ms. Glover did say as recently as October 6 that she didn't believe the segregated account was a good idea because, in fact, the fund could not always be counted on to run a surplus. That may play into your future discussions at the chamber.
I just wanted to walk us through your proposal. You initially talk about the debt itself and the fact that the debt management strategy is essentially not good enough in your mind. You say, “The government must set a forecast of future surpluses and amounts to be applied to the debt...” According to the chamber, what's reasonable?
Ms. Linda Korgemets: The budgetary process seems to go out just two years, so you're not getting a long-term view—longer than two years—as to how the debt is going to come down. We would also note that the Department of Finance doesn't seem to have a goal in mind for an acceptable debt-to-GDP ratio, or at least not a published program of—
Mr. Tony Valeri: Help me. In your mind, what is an acceptable debt-to-GDP ratio?
Ms. Linda Korgemets: I'd rather be closer to our other G-7 partners rather than where we are; we're closer to Italy in our percentage. What isn't acceptable—
Mr. Tony Valeri: So somewhere around the G-7 average?
Ms. Linda Korgemets: That would be appropriate.
Mr. Tony Valeri: Okay.
Ms. Linda Korgemets: And do I know what that average is? Offhand, I don't.
Mr. Tony Valeri: Fair enough. Yesterday, the minister did say that going out five years you'd probably see about a 55% debt-to-GDP ratio. Nonetheless, the two-year rolling targets are, in your mind, not good enough because the government is not taking a longer term view on the debt.
I would suggest to you that those two-year rolling targets have actually allowed us, as Canadians, to achieve the success we have, because we have continued to set short-term goals and have met them rather than do what other past governments have done, which was, in essence, to set longer term goals, rosy projections and never hit them. It's kind of a double-edged sword. If I had to choose between the two, I'd probably stick with my two-year rolling targets, continue to overshoot my targets and continue to improve the economic situation.
You also make reference to the fact that interest costs are scheduled to increase with respect to our debt. I also just want to point out for you that the reason those numbers are in place and show an increase is that when the actual budgetary projections are done we're building in very prudent interest assumptions as well. So although it looks like they're increasing, we are in fact protecting ourselves and ensuring that we're budgeting for any possible spikes down the road, to ensure that we do hit our targets.
Ms. Linda Korgemets: I am aware of that.
Mr. Tony Valeri: You do mention here that it's not the direction we should be going in. I guess you're making reference to the fact that we're paying more in interest on our debt. What I'm saying to you is although we're paying down our debt and the debt-to-GDP ratio is going down, you do see an increase because of the interest assumption being used in the budgetary documents.
Ms. Linda Korgemets: Of a higher rate on a lower principal amount.
Mr. Tony Valeri: Exactly.
Ms. Linda Korgemets: I am aware of the prudence factor in the budget. I know the government has taken flak on that, certainly in the last year, but believe me, the Chamber of Commerce is all for prudent assumptions, and for just not disguising the overall surplus either. We're all for sending a clearer message to the people.
Mr. Tony Valeri: The intent is to send a clearer message. When you talk about agreement with prudent assumptions and then you follow up by saying that we're actually hiding a surplus, I have difficulty accepting that.
In essence, we're trying to meet the targets because governments have been unable to meet targets in the past. I'm sure your membership would be really quite supportive of a program that continues to try to maintain an environment of low inflation and low interest rates that companies can do business in. When we move on prudent assumptions it's not on the basis of trying to hide surplus, but on a basis of trying to ensure that we hit our targets.
Further on, you say that employment insurance is in fact a regressive tax because of the $39,000 limit, and certainly you're not in favour of that, but at the same time you don't want to pay more, because the only answer to that is to kind of move up the income scale and go above $39,000. Unfortunately, that's sort of what we're faced with as a committee. We don't have the option of saying, “I don't like the regressivity of the tax, but at the same time I don't want to do anything about it and I don't want to go up the income scale.” We have to make some choices and some trade-offs.
You go on to say that the government is treating EI premiums “as a source of general tax revenue” and then say you understand the reason for it: that back in the 1980s we were required to collapse that into the general revenues when it was running a deficit. But you don't believe that the federal government is entitled to retain the existing surplus.
I have some difficulty in following that thought process, because at the end of your presentation you talk about following the advice of the Auditor General through general accounting practices and this is the advice of the Auditor General with respect to the EI fund. I just saw some conflict there.
Ms. Linda Korgemets: I did preface my remarks by saying that I'm still in a quandary as to the factual and legal nature of how this item does get administered and who has the right to any moneys in it. So I agree: if it's sitting in the financial statements, as it is now, and I know the Auditor General has not had anything to say about that, then it must be in accordance with accounting principles.
I'm trying to understand the legal facts of who the surplus belongs to. If, legally, it belongs to the Government of Canada as a source of general revenue, that's the way it was set up and so be it.
But what I understand—I can only understand what I read, unfortunately or fortunately, in the papers—is that I should have a reduced premium because the rate gets set based on the actuarial assumptions in the plan. So that would make me think a surplus is supposed to be returned to the people who are contributing to it—returned through reduced premiums. I don't understand the legal ramifications of this issue and I need to understand it in order to make a more intelligent comment.
Mr. Tony Valeri: That's fair enough—
The Chairman: Excuse me. Mr. MacKnight would like to say a few words on this.
Mr. Robin MacKnight: Thank you, Mr. Chairman.
I would just like to make a point about what was originally unemployment insurance and is now EI. This goes back to what EI premiums are. I know we all talk about them as taxes because we account for them on our tax returns and recover any overpayment on our tax returns. I'd like to take you back 22 years to the Unemployment Insurance Commission as it then was. In its report on a comprehensive review of the UI program in Canada in 1977, it says this is the goal of UI:
To provide temporary and sufficient income
replacement for insured unemployed workers.
To assist the return of the unemployed into more stable and rewarding employment.
As a social security program, then, UI protects the incomes of workers from unemployment-induced loss. It has never been intended as a tax. It has always been designed—since 1940, when they created it—as a social assistance program. As for where the money goes, the money that goes to the government has only one source: it belongs to the government and it goes into the consolidated revenue fund.
Although we theoretically have dedicated taxes in this country, there is no authority for such separate dedicated taxes. If the government chooses to take them out of one pot and put them into another, it can—and it does.
A classic example is road taxes, which we all pay when we put gas in our cars. The big chunk of the provincial tax is a road tax. I don't think many of us driving along the Gardiner Expressway these days would believe that much of that money actually finds its way back into road construction.
So it happens all the time, but the key point is that the EI premiums are not a tax. They are a social insurance program contribution, just like CPP. You have to remember that when you think of how we will deal with these transfers of payments.
You have two political issues to deal with in regard to EI funding. First, if there is a move to move the EI surplus into the general revenue—and I'm not going to comment on whether it's a good idea or bad idea—bear in mind that the people who contribute are employed persons up to a maximum, up to the $39,000 threshold. Bear in mind that it was reduced a few years ago; it used to be higher, at $48,000 or $45,000, somewhere in that range. It was reduced, as a benefit for middle-income Canadians.
But what happens? Where has that money come from? It has come from people who are employed. And if that money is transferred from the benefit of those who are employed into the general revenue, what is effectively happening is that we are transferring the benefit of that money from the people who paid it to people who did not.
The other thing to bear in mind, the other political issue, is that the EI system operates as a transfer between provinces and between regions of Canada as well. For instance, it acts as a disguised redistribution of income from the have provinces to the have-not provinces, between regions. If you are going to take this surplus and put it into general revenue, then you are blowing that income redistribution process. Again, whether it's for better or for worse, I can't comment, but just remember that's happening as well, so you're going to have regions arguing and fighting over whether that's—
Mr. Tony Valeri: The converse is also true when the account is running a deficit; you have individuals like retired people or self-employed people who do not collect employment insurance contributing through tax dollars to the propping up of those programs.
Mr. Robin MacKnight: Absolutely.
Mr. Tony Valeri: It has happened in the past and will continue to happen as long as the government stands behind the program. And that's my basic point: as long as the government is standing behind the employment insurance benefits, then it's not an issue of whether employers or employees are paying a premium for these benefits and others are not. As Mr. MacKnight has mentioned, you have transfers of taxes to all parts of various programs within the government to service all kinds of Canadians, who may not directly pay earmarked taxes for a specific thing.
So the idea that we would now go to a separate, individual fund outside of government speaks to the transparency, which I know you're fond of and I'm fond of as well, but it also carries with it some risk. Government would no longer stand behind the program, because the Auditor General would not allow government to stand behind the program and not include it in consolidated revenues. If it stands outside of government and is completely funded with earmarked taxes from employers and employees and government plays no role in setting the benefits and no role in setting the premiums, you can then take it out of consolidated revenues and get your transparency. But you also run some risk there.
The Chairman: Ms. Korgemets,
Ms. Linda Korgemets: My response to that is that as independent as this body may be, we are drawing a parallel to the CPP fund. And I know the CPP fund was perceived to be running out of money and heading into a deficit position. The government took on the rebirth of CPP and an increase in the premiums. And I presume that this EI fund, if it were separate, would have to be covered in the same way. I see the government holding the hand of the CPP fund as well—and I might be quite naive in that thought.
Mr. Tony Valeri: The CPP fund is actually a separate fund outside of consolidated revenues.
Ms. Linda Korgemets: Yes.
Mr. Tony Valeri: Both the provinces and the government are joint stewards of the plan. So you have it as completely separate—and perhaps, Mr. MacKnight, you can comment on this, because I'm sure you're much more literate than I am in this particular area—outside of government revenues, and it plays no role in the operation of any government program.
Ms. Linda Korgemets: And yet—
Mr. Tony Valeri: That's vastly different. You're making the assumption that the same thing would occur. We are following the advice of the Auditor General by having to collapse this into general revenues. It wasn't an idea that a government came up with. The Tories were forced to do this because they were actually underestimating their deficit by $6 billion.
Thank you, Mr. Chairman.
The Chairman: Thank you, Mr. Valeri.
And thank you, panellists. It was excellent.
Mr. Paul Szabo: Mr. Chairman, if I may just put this on the record, a couple of people didn't get a chance to ask questions, but I wanted Mrs. Kusturin to know that she has a lot of people who support her who have been before this committee.
And if I were to give your presentation on your behalf, I wouldn't change a word. You were bang on, and I just thank you for being here.
Mr. Odina Desrochers: Agreed.
Ms. Deborah Kusturin: Thank you.
The Chairman: Thank you.
On behalf of the committee, I'd like to thank everyone who participated on the panel. Over the past few days we've dealt with all sorts of issues. A lot of demands are placed on this committee. People want to reduce the national debt, reduce EI premiums, have money for health care and education and increased transfers to the provinces, and increase money to research and development. The list is a pretty lengthy one, which means that we have challenges, choices and trade-offs to make.
We are, of course, guided by one main principle, and that is, whatever we do at the end of the day has to improve the quality of life for the people of Canada. That's what drives the agenda of this committee.
On the issue of banks, it's interesting to note that we are dealing with the future of the financial services sector. I want the people here to know that we are not dealing with the two proposed mergers. We are dealing with mergers as they relate to a business strategy that some firms have used.
However, having said that, some of the comments that we will make to the Minister of Finance will clearly outline to him where we stand on certain issues that may be related to the two proposed mergers. I want to be clear about that.
Another thing on that particular issue is that as you leave here tonight, we want you to know that in a competitive financial services sector, consumer protection and consumer choice are extremely important to this committee. I'll leave you with that to think about.
Thank you very much for your input.
The meeting's adjourned.