FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, October 21, 1997

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[English]

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

As you know, pursuant to Standing Order 83.1, the committee will continue its pre-budget consultations here in Halifax today. We've been criss-crossing the country seeking input from Canadians from coast to coast.

Our ultimate goal as a committee is to make recommendations to the Minister of Finance that speak to improving the quality of life for Canadians. We have had very interesting days in Toronto and other cities throughout Canada, and we of course look forward to hearing from you, the interveners, here in Halifax. I'm sure you'll provide us with wisdom as we proceed on these hearings.

I would like to at this point explain to you basically the format. Each witness has approximately five minutes. I will give you a one-minute signal, and after everybody is finished, we will engage in a question and answer session with the members of the committee.

We will start with the representatives from the Nova Scotia Government Employees Union, Joan Jessome and Ian Johnson.

Welcome.

Ms Joan Jessome (First Vice-President, Nova Scotia Government Employees Union): Good morning. On behalf of the Nova Scotia Government Employees Union, I appreciate this opportunity for our union to address the Standing Committee on Finance as part of its pre-budget consultations. I look forward to making a few opening remarks followed by participation in the round-table discussion.

While it is gratifying to see the committee travel to this region regularly each fall, we were disappointed that your committee, under the current government, refused to hold hearings in this region last January, when the BST and the HST legislation, Bill C-70, was going through Parliament. As you know, that legislation had and still has particular impact on this region alone, and yet we could not make any representations in this region.

We hope this committee will now be more interested in hearing directly from Atlantic Canadians when there are major issues of concern to them. Surely one message from the June 2 federal election results is that we as Atlantic Canadians and as Nova Scotians expect our MPs and our federal government to at least be interested in hearing directly from us, even if we do not always agree on the underlying causes of problems and what should be done to resolve them.

Last week, in testifying before this committee in Vancouver, Mr. Martin released a much-anticipated economic and budgetary update and invited a national debate on the next steps or priorities in the government's economic and financial agenda.

In confirming our participation today, we were advised by the committee clerk that the key areas of particular interest to the committee were stated as: one, the process of deficit reduction; and two, priorities, especially in light of being able to achieve a so-called fiscal dividend by the next fiscal year, 1998-99.

We will attempt to provide some answers to these questions, but also we want to make it clear that these questions ignore fundamental issues for us. Was the government's deficit reduction strategy necessary in the first place? Are Canadians really better off than they were four years ago, when government first came to power? What is the fundamental purpose of federal economic and budgetary policy? Why is it not possible for human and social needs to be considered of equal importance to economic and financial concerns?

It is with these broad and more basic questions in mind that I now come back to the two questions of major interest to the committee.

Turning first to how we feel about the process of deficit reduction, the simple answer can be found again in the results of the June 2 election. There is no doubt in our minds that the process followed was not only too fast, at least for this region, but more important, totally inappropriate, unwarranted and counter-productive.

While the Liberal government might think the country has turned the corner, that a new beginning is under way and a new optimism is emerging, to paraphrase the minister last week, we ask the government to think again when it claims that dramatic declines in the federal deficit are being achieved without even assessing the serious damage being done to health care, education, income assistance, community supports and municipal services.

Probably the single most devastating example of these problems has been the Canada health and social transfer, better known as the CHST. Not only did the federal government unilaterally move to combine its share of funding for health, higher education and social assistance into this new block fund; it also made major changes in the amount of funding to be available and the conditions under which this funding would operate. Even with the minimum level, or floor, of $12.5 billion announced during the election and confirmed in Mr. Martin's statement last week, almost $7 billion has been cut out of these contributions since 1994, which is a loss of approximately 54% to date under this government. Nova Scotia's share of this cutback is estimated by our government to be almost $200 million in this year alone, and $328 million over three years.

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Equally important is the serious erosion in national standards with the end of the Canada Assistance Plan Act and the increasingly limited ability of the federal government to properly enforce the five basic principles of the Canada Health Act.

The effect of the CHST has been swift and widespread. Already we are seeing the following: hospital beds being closed; downsizing in emergency; food, laundry, and other so-called non-core services being privatized; hospitals sending patients home who are still in need of care that they often have to pay for out of their own pockets; long-established medical services being de-insured or scaled back; and co-payments and premiums being increased. There have been 24,000 jobs cut from hospitals between 1994-96.

A visible sign of public concern with these impacts is a billboard that was recently established in the north end of the city: “Government health care cuts could affect your loved ones sooner than later. Some cuts don't heal.” We urge you to take the time to read it.

The cuts to education have been equally severe, with newly amalgamated school boards not having sufficient funds to maintain existing programs, universities becoming unaffordable for all but the rich, and debt loads for many students of $20,000 to $25,000.

Social assistance benefit levels in this province are also being cut in the name of integration of provincial and municipal programs and so-called administrative disentanglement.

At the federal level, we are very concerned about the major cuts to in-house research capacity, whether those are in fisheries, geology, or food and drug safety. Despite Health Minister Rock's so-called moratorium on cuts to these health safety research labs, Health Canada scientists estimate that cuts to the food labs will mean that 10,000 to 300,000 Canadians will die prematurely and 1 million to 10 million people will unnecessarily acquire some disease that could have been prevented through food safety research.

All in all, we strongly discouraged the Prime Minister when he reportedly told Atlantic political and business leaders on October 10 that while he recognized that Atlantic Canada had been hardest hit by federal spending cuts, this was unavoidable in the next year to prepare the economy for this region and the rest of Canada for the 21st century.

We sincerely wonder how the mass disintegration of our social infrastructure and significant increase in the human and social deficit that has occurred over the last four years will help us to do this. The so-called virtuous circle referred to by Mr. Martin has been yet another vicious circle in the continuing structural underdevelopment of this region.

Were federal spending cuts really needed to help the government achieve its deficit reduction targets? The most recent financial news from the government suggests that program cuts of at least $3.2 billion this year could have been avoided and the government's deficit picture still would have been improved.

Turning to the second question, which is priorities, there is often no doubt in our minds that in view of the devastation created by the policies of your government, the most immediate and pressing priorities must be to rebuild our social programs and infrastructure. To do so, we believe that very clear and precise targets and strategies must be developed to reduce the high levels of poverty, unemployment, racism, sexism, and injustice, as it was and still is being done for the deficit and debt reduction.

If you think we are simply wishful thinkers, I suggest you carefully study the three alternative federal budgets and an increasing number of alternative provincial budgets. They very clearly show that it is possible to start with the same economic forecast as the federal government's and, at the same time, move to make substantial and planned progress toward job creation, full employment, the eradication of poverty, rebuilding social programs, and public services. There are taxation policies, economic and social equality between men and women, and even responsible targets for debt reduction.

We are strongly opposed to massive, across-the-board tax deductions. In the first place, they actually do little to provide any significant levels of additional disposable income for most Canadians. They also promise little as an economic stimulus in terms of creating more jobs or increasing economic growth. In our view, what is more insidious is their impossible use in justifying further reductions to program spending for the very people most in need of such spending.

I want to conclude by stating that this first budget of the second term of the Chrétien government provides a new opportunity for the government to make a break from the past and undo much of the damage it has created to date. It means finally recognizing that the federal government must play an active leadership role, not at the bidding of the big corporations and the bond rating agencies, but in response to and in counsel with the majority of Canadians in achieving an improved level of material and social well-being.

I welcome your questions and comments.

The Chairman: Thank you very much for your presentation.

We will now move to the next presentation. From the Atlantic Provinces Economic Council, we have Ms Elizabeth Beale. Welcome.

Ms Elizabeth Beale (President, Atlantic Provinces Economic Council): Thank you very much. It's a pleasure to be here on relatively short notice, since everybody is scrambling to bring something together for this around the region.

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I have just a few remarks I would like to make to the committee. What I really want to put the emphasis on is how fast the economy of Atlantic Canada is changing and going through a very significant adjustment process and what role policy must take in facilitating that adjustment process, because that is the direction both federal and provincial policies must move forward in in order to help the Atlantic provinces grow faster than they have been growing. Certainly we are at a period now, when you compare our performance with that of many other parts of Canada, where we do see a significant output gap, with lower growth rates in the region than in other parts, certainly central and western Canada. So the challenge is what we can do in this environment to change that picture and to push the economy here ahead at a faster pace.

Just as a way of explaining some of the changes that have taken place here, I first of all want to point to the enormous structural adjustment that has taken place in the region's economy, particularly in the region's resource industries, which for a long time were major contributors to output and employment here. They have retained their share of activity in the region well beyond what has happened in the rest of the Canadian economy. Some of that was policy supported. But what we have ended up with now, in the 1990s, is those major resource industries all moving very fast to shed themselves of their surplus labour. Of course that has created tremendous adjustment problems, primarily, but not exclusively, for rural parts of Atlantic Canada.

The other major change that has taken place is in the role of government. While government spending has been a much more important part of the economy of Atlantic Canada for a long time, starting in the late 1960s, over a number of years—not only in the past few years, although the pace of change has speeded up in recent years—government's share of activity has been declining very fast in Atlantic Canada. No other part of Canada has had to adjust so quickly to that changing reality as Atlantic Canada. It's quite interesting to see the change that is occurring here and the positive adjustment that is taking place in many parts of the region's economy as government's role changes, although it is quite obvious from the previous speaker's comments that is not always welcomed in all circles.

In particular, since our mandate is of course to look at all four provinces, I'll point to New Brunswick, where, for example, total expenditures by government as a share of GDP have dropped four percentage points between 1991 and 1995, to a level now not seen since the mid-1970s. This is in direct contrast to the rest of the country, where government's share of GDP has not changed over that period. That gives you a framework for understanding how rapid and fast the pace of change here has been.

It is impossible to ignore the fact that whether you agree or disagree with this pace of change, it has had a major impact in slowing the pace of economic activity in Atlantic Canada. You simply cannot take a certain section of the economy and withdraw the spending or investment in that area and not expect it to have a contributing effect on lower growth rates. Indeed it has, and we would expect that to continue, because of course we are now seeing government activities move on to the constraining of the personal transfer side. That has happened already with the changes to employment insurance and will speed up even further next year with the anticipated changes in the TAGS program.

That is the reality of life that Atlantic Canadians and the Atlantic economy have had to adjust to, but what it does show is that a positive adjustment is under way. The economy here has not fallen apart. There have been problems, there have been all sorts of controversy about how this has happened, but many parts of the region's economy are responding well to a changing environment.

In particular, I think we can look ahead with some optimism to the major projects and the big investment projects that are on the books, particularly, but not exclusively, in Nova Scotia and Newfoundland with energy and mineral projects. I think it's interesting to note that investment intentions are up in both those provinces at double the Canadian rate for this year, and the Canadian rate is already very strong. That just shows you the optimism that is occurring here.

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Also, you have to pay attention to what's happening in the new knowledge industries. But again, these are very much urban phenomena and are centring very much in the urban centres of the region, which leaves our large rural population still with a tremendous adjustment process to go through.

My recommendation to this committee—and it's very broad—is that the federal government needs to support this adjustment process for the region, not walk away from it at a critical time. I know it's not always the popular view at the moment with policy-makers who would like to argue that it's time to move activities for economic development down to the provinces and leave them to handle the pace and the decisions on what happens, but that is difficult for the provinces to do because of how constrained their own revenue base is in this region.

The risk here is that a withdrawal of support, whether it's in key areas such as infrastructure support for transportation or in areas where we move ahead in research and development, will compromise this region's ability to make this positive adjustment.

Thank you very much.

The Chairman: Thank you very much. That was a very thoughtful presentation, bringing to light the transformation that is indeed occurring in the Atlantic provinces.

The next speaker will be from the Halifax Regional Development Agency, Peter Wilde.

Welcome.

Mr. Peter Wilde (Chartered Accountant; Volunteer, Halifax County Regional Development Agency): Thank you, sir.

Thank you for the opportunity to be here and make a presentation.

I'm a chartered accountant in small business practice. I service family businesses in the Metropolitan Halifax-Dartmouth area. I deal with income and other taxation matters where the rubber meets the road.

I have volunteer involvement in community activities, particularly in the school system and the Halifax Regional Development Agency. This has brought me into contact with a wide range of opinion. Following is an attempt to express the opinions of the majority of the people with whom I regularly come into contact.

First is deficit reduction. We were pleased to learn of the progress made since 1993-94 on deficit reduction. We're impressed with the conservative nature of the assumptions used by the finance department in its estimates. The use of these assumptions means that differences between budgeted and actual numbers have always been positive.

There is no doubt that the expenditure cuts have hurt the Atlantic provinces, and we feel this is probably more so than any other part of Canada. But there's also a consensus of opinion that the short-term pain helps to lay the groundwork for long-term gain in the region.

A significant number of Nova Scotians have come to understand that they can't rely on government to support their lifestyle and they need to take more responsibility for their own well-being. There's a lot more work to be done to encourage self-sufficiency by individuals and businesses. We believe the Regional Development Agency has a key role, together with federal, provincial and municipal governments, to play in this regard.

Addressing budget priorities, next is deficit elimination. We believe the long-term well-being of Canadians demands that the process of the deficit elimination be carried through and that government debt be reduced to a level where interest charges eat up significantly less of total revenues than is currently the case. Annual interest charges of $40 billion represent 25% of federal expenditures. If we didn't have those interest costs, there would be one-third more available in revenues to improve the lot of all Canadians. We think that's very important. We cannot continue with deficits and debt; it has to be done away with.

Second is taxation. Tax levels must not increase. All Canadians are working harder for less and they're paying too much in taxes, but we believe most of us will tolerate the current tax levels as long as the deficit is eliminated, federal debt is reduced and there are no new extravagant expenditure programs. We believe very strongly that any increases in expenditures must be matched by a corresponding reduction in taxation.

We must give relief to low-income Canadians. Each year volunteers from the Nova Scotia Institute of Chartered Accountants put on clinics to prepare tax returns for seniors. It's heart-wrenching. It really is terrible to see how retired people with annual incomes of $8,000 to $12,000 a year have to pay income tax. That's a blot on Canadian society.

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Currently Statistics Canada's low-income cut-off for a single person here in Halifax-Dartmouth is about $17,000. We expect people who earn less than half of that in a year to pay tax. I think we should be really ashamed of ourselves as a country.

The imposition of the HST in Nova Scotia has seriously hurt those who can least afford it. It has resulted in an 8% tax increase in necessities such as clothing, home heat and automobile fuel, and there has been no reduction in the cost of goods that poor people can afford.

This is wrong. We shouldn't be basing our deficit financing or our tax system on the backs of poor people, those who can least afford it. There's a strong need for relief to be given for low-income Canadians on both the income tax and HST levels.

Sadly, we have to do more, too, for low-income working Canadians, particularly with a view to this proposed increase in Canada pension contributions. People are paying too much now. If you're going to add another 3%, or 4% to their cost of taxation, which is what CPP is, then heaven help us. You have to give us some kind of relief in the tax system so that you're not taking any more out of Canadians' pockets, particularly those people of lower incomes.

We believe expenditures must have measurable results. Government can't solve people's problems by throwing money at them. It's been the case ever since I've been lucky enough to live here in Canada, which is more than 20 years now.

A good example of this is the TAGS program. It really hasn't helped any fishermen because it hasn't created any replacement activity for the fishermen. All it has done is to create, on the part of the fisheries community, a dependency on federal handouts. As long as the money is there, what are they going to do?

So we really have to do something to replace the TAGS program, but we should ask for something in return from the people who get the money.

Youth unemployment is a national disgrace, and it's due, in both my and our opinion, in large part to the failure of the education system to deliver students who are competent to obtain employment in today's workplace. Education begins in the home. Too many parents are abdicating this responsibility to the school system, which itself is failing students, because it requires no measurable standard of performance before passing students along to the next level. While we recognize that education is a provincial responsibility, a considerable portion of education funding comes from federal coffers. Maybe you guys can exercise some influence here.

We applaud and are very pleased to hear of the creation of a federal scholarship fund. We want you to make sure this fund is used to encourage and reward excellence on the part of students. We believe also that academic achievement should be a condition that's a precedent to any student loans being granted. Maybe high levels of excellence in the academic program could be rewarded by forgiveness of student loans.

In this area, co-op education programs with universities have been very successful in training students for the workplace. They have led to a greater understanding among universities and business. We think there is a possibility to do something there in encouraging this greater co-operation between business and students at the universities.

This keeps coming across my desk, all the time. People keep asking why the government is saying we have to do something about encouraging employment when every time a small business hires an employee, the government sticks them with a tax. It's called the employer's share of EI and CPP. With the proposed increases in Canada pension contributions, this employer tax is going to approximate 10% of payroll. If something can be done to alleviate this tax, it's going to create a situation where employers can hire more staff. I'd like to hire more staff right now, but I can't afford to do it.

Finally, Canadians need to believe in themselves. The activities of our Halifax Regional Development Agency over the last three years have shown what Nova Scotians can achieve for themselves if they're given the right guidance and the opportunity to develop their own businesses and community facilities. People have successfully started and expanded home-based businesses. A number of very successful community ventures have created employment in this municipality, not the least of which was the air show this year. That was a heck of an achievement by this community.

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More encouragement is needed at the grassroots level and that will involve ongoing co-operation among federal, provincial and municipal governments, along with the enthusiastic participation of the hundreds of volunteers who take pride in their involvement.

Thank you again for the opportunity to make a presentation.

The Chairman: Thank you very much, Mr. Wilde. I'm sure you'll get asked some questions.

The next presentation will be made by the president of Mount St. Vincent University, Miss Sheila Brown. Welcome.

Ms Sheila Brown (President, Mount St. Vincent University): Thank you very much, Mr. Chair. I appreciate the opportunity make a brief presentation this morning.

Perhaps I'll just situate my comments with a quick thumbnail sketch of the perspective I'm speaking from. Mount St. Vincent University is Canada's only university dedicated primarily to the education of women, but many of our students, about 60%, are what we would call non-traditional students. They are students who are returning to the educational system after some time off. Many of them have dependents. Many of them participate in co-op programs. We offer a lot of programs through distance education. We have a large number of students on financial aid.

To comment initially on the process of deficit reduction, and to echo what some of the previous speakers have said, I think what has happened is that while recognizing the need to reduce the deficit, we have got into somewhat of a vicious circle, whereby federal transfers to the provinces have been reduced and the provinces' allocations to the universities have been reduced. In this province in five years, there has been $33 million decrease on a base of $208 million.

So the universities have had to put up their tuition, and tuition in this province is the highest in the country. Students are now paying upwards of 40% of universities' operating costs in tuition.

Increasingly, price is a barrier to student participation. And since for many of those students, particularly non-traditional students, the opportunity to break out of the cycle of dependency depends on education, accessibility to that education is very important. As I say, I believe that tuition levels are becoming an insuperable barrier for many students, leading to, as we know, very severe problems with student debt load.

That brings us to the second point of the fiscal dividend. There are two key points that need to be made.

The first is this whole question of student financial aid. I certainly applaud any steps that have been taken to provide students with more opportunities for financial assistance, either directly or indirectly.

The announcement of the millennium scholarships in the Speech from the Throne was certainly welcome, although one is reminded that the Canada scholarship program was quite a successful program and it was eliminated only a relatively few years ago. It certainly had the effect of encouraging students to pursue science and technology programs, which we need to be competitive in this country in the global economy. It also had the fine characteristic of encouraging equity, because universities putting forward nominations had to nominate women for 50% of the scholarships.

I take some issue with Mr. Wilde's point about scholarships being awarded solely on the basis of merit. I think there is a need for merit-based scholarships, but I think we also need to be cognizant of the many students in this country who are academically eligible to pursue university education, but who, through social disadvantages of one kind or another, have not been able to reach their full potential. They cannot be competitive for those kinds of scholarships, but they desperately need some kind of financial aid by way of loan remission or bursary programs or grants. I hope that whatever transpires will be a combination of merit and needs-based aid.

I think student debt loads have become so great that we need an integrated package to deal with them, including a combination of Canada student loans, remittable loans or bursaries at the provincial level. So some federal transfers to the provinces that would allow more of that would be helpful, plus the work opportunities whether it is through co-op.... There used to be quite a bit of federal seed money for co-op programs, which seems to have diminished or disappeared. I think that is somewhat shortsighted.

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So whatever we do with student financial aid in Canada, I think it needs to be a combination, not just one theme.

My second point in terms of the fiscal dividend—and this is a point that has been made by the Association of Universities and Colleges of Canada in concert with a number of other groups, including the Canadian Association of University Teachers—is that we need to increase that with support to the federal granting councils. The Social Sciences and Humanities Research Council in particular has been very hard hit, as well as the Natural Sciences and Engineering Research Council, and the Medical Research Council. Over the next four to five years, significant increases in allocations to those granting councils would be very welcome.

Again, if we are to stay competitive in Canada, use the research and development arm to really stimulate the economy and keep us competitive, we need more money in those councils.

In Nova Scotia the biggest contribution to research and development, I believe, comes from the universities collectively, and yet our ability to do that research has been severely hampered by the fact that even for projects that are deemed to be academically very sound, technologically sound, and have great applicability, there just isn't enough funding to go around.

Again, Mr. Chairman, I appreciate the opportunity to comment and would reinforce my two key themes of student financial aid and support for the granting councils. Thank you very much.

The Chairman: Thank you very much, Ms Brown.

Now we will move to the Metropolitan Halifax Chamber of Commerce, Mr. Mike Schmid, chairman of the budget task force; and Mr. Peter Doig, chair of the government affairs committee. Welcome, gentlemen.

Mr. Peter Doig (Chairman, Government Affairs Committee, Metropolitan Halifax Chamber of Commerce): Thank you, Mr. Chairman. I am Peter Doig, the chair of the government affairs committee.

Mr. Chairman, I would like to take the opportunity first to thank you for coming to Halifax and inviting us to take part in the pre-budget consultations.

I would like to make a brief comment on timing. Ms Beale referred to it earlier. It is very short notice for us, particularly for those like the chamber, which is a volunteer-based organization, and to the extent in the future that additional time is allowed it would really assist us in putting together effective presentations.

My role here today is to provide just a very brief context to our comments.

The Metropolitan Halifax Chamber of Commerce is a business-based organization representing businesses and individuals in the Halifax area. We are volunteer based. We have over 1,300 corporate and 2,300 individual members, which makes us one of the largest volunteer-based policy lobby organizations in Atlantic Canada.

One of our primary activities is policy formulation. We regularly consult with our members and conduct surveys and research and consult with the government regulators and stakeholders. As such, we think our views reflect very well the concerns of business in the greater Halifax area.

Like Ms Beale, we note that the economy in Atlantic Canada has gone through tremendous change. Our members see tremendous opportunity in the years ahead as the fundamentals of our economy change. With that note of optimism, I am going to turn it over to Mr. Schmid, who chairs our federal finance subcommittee, to offer a few more substantive comments. Thank you.

Mr. Mike Schmid (Chairman, Budget Task Force, Metropolitan Halifax Chamber of Commerce): I would also like to thank the committee for giving us a chance to participate in this discussion and look forward to continuing involvement.

The concerns of the chamber members are similar to the concerns of many Canadians. I think the biggest concern of our members is the debt. We are heartened by the recent announcements by the Minister of Finance in Vancouver that we are seeing some real progress on deficit reduction and may actually be moving towards debt reduction. We believe there has to be continuing focus on the debt, not just the deficit.

We think people have to realize that although we are seeing some substantial progress against the deficit, a lot of that can be attributed to low interest rates. If we have an increase in interest rates, we will probably lose any progress that we have made. In fact, we may end up back in our cycle of increasing deficits and, of course, increasing debt. So we believe that now is the time to really concentrate. As somebody had mentioned earlier, the short-term pain may be worth the long-term gain while we have this window of opportunity.

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Our second biggest concern is taxation levels. I think everybody would agree, for various different reasons, that taxation levels are a problem. Low-income Canadians are obviously overtaxed, as are middle-income Canadians when the tax rate on every extra dollar you earn over $29,500 is 43%. We believe everybody realizes it's fairly straightforward that when people have more money to spend, whether it's for education or whether it's for just plain purchasing power, it creates jobs and stimulates economic activity.

Our third concern has already been addressed today, and that's the cost of employing people. We have EI premiums and we have a surplus in the fund, but we have no discussion on a reduction in EI premiums. We have increasing CPP costs. It's very expensive to employ people. Again, it has the same effect as increased taxation. The less money people have to spend, the less they can buy, or the less education they can purchase.

One other issue that goes hand in hand with this is the paperwork burden. Like Peter, I'm also a chartered accountant. When I'm doing older people's tax returns, the complexities of their tax returns are just crazy with the indexing. With business, it's the compliance that they have to do.

We appreciate the initiatives that were made in the 1996 federal budget in regard to the reduction in reporting on payroll taxes for those who had payroll taxes of less than $1,000 a month. We think those sorts of programs need to be increased and need to be expanded. Business needs to be able to get down to business, not only paperwork.

When you combine these with other issues that businesses are dealing with, such as the HST and its compliance costs, or workplace health and safety—which is very important but is also a significant compliance burden for business—it's important to reduce some of the paperwork as it relates to taxation.

I think those items would really cover our three main concerns: the level of the debt, and not losing sight of reducing it while we have the chance; taxation levels; and lower employment costs for business.

Thank you very much.

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

We now move to the representative from the Nova Scotia Road Builders Association, Steve Williams, managing director. Welcome.

Mr. Steve Williams (Managing Director, Nova Scotia Road Builders Association): Thank you, sir. The Nova Scotia Road Builders Association is pleased to appear before the Standing Committee on Finance to present our views through the presentation of this brief.

Our association is celebrating 50 years as an active association. It represents some 110 companies employing well in excess of 4,500 people. In the province of Nova Scotia, the Nova Scotia Road Builders Association has been active in lobbying for the establishment of a national highway program. Our brief is structured on the importance of highways in the province of Nova Scotia as the pivotal means of transport for both the commercial and the tourism industries.

Time, usage, and sometimes neglect all contribute to the deterioration of everything in our physical world. We counteract this deterioration in various ways. Personally, we may diet or exercise to delay, at least in our own minds, the aging process. We re-roof our homes at regular intervals. When it comes to the single biggest investment we as a society have made, however, our record is not as good. The logic we apply to ourselves and our personal property does not seem to extend to our collective responsibilities for our highways, roads, bridges and other infrastructure.

The Trans-Canada Highway, built as an instrument of national policy, is often thought of as a federal facility. Originally constructed primarily as a two-lane highway on a joint funding basis between the federal and provincial levels of government, however, this highway is a provincial facility. Each province has jurisdiction over and is responsible for the maintenance, operation, rehabilitation and expansion of the highway beyond that originally constructed. Nonetheless, this road has increased in significance as the single most important transportation facility that ties not only this province but this country together.

The province of Nova Scotia has some 26,000 kilometres of two-lane highway under provincial and municipal jurisdiction. Of this, some 10,500 kilometres are gravel, 13,500 kilometres are paved, and some 1,500 kilometres are considered freeway. With the removal of the entire railway system in the province of Newfoundland, and to a great extent within the province of Nova Scotia, truck traffic by necessity has substantially increased, particularly on the Trans-Canada Highway. The increased truck traffic to move goods both within and through the province has had a major detrimental impact on most of the provincial highways.

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The Canadian public in general is very much aware of the deterioration of our existing highways, mainly through various media and television reports. They are also aware of the pressing need for governments not only to invest in new road infrastructure but to reinvest in the existing road infrastructure.

In Nova Scotia our association spent considerable money a few years ago in obtaining public opinion for the adoption of a dedicated fuel tax to be spent on top of existing budgets to improve the provincial roads. Having obtained positive polling results, we promoted the idea through the media, radio talk shows, and speaking engagements in business and public forums. The former provincial government adopted the idea, imposed the tax, and began collecting $35 million per year dedicated to road improvements. However, the government soon decreased the original highway budget by roughly the same amount the dedicated fuel tax collected, and then eventually placed the funds in general revenues. We succeeded only in having an additional fuel tax imposed on the residents of Nova Scotia. Actions such as this should never have been allowed to happen.

About tourism, Nova Scotia is known as Canada's ocean playground. However, there is no question that in order to attract tourists one must be able to obtain adequate access to the many bays, inlets, and other facilities of this beautiful province not only by having a first-rate national highway system but also by having a secondary highway system of which we could be proud.

Over the last several years the Government of Nova Scotia has mainly concentrated its efforts on twinning the Trans-Canada Highway, together with the upgrading of the worst sections of the existing two-lane facility. By far the most dangerous section of highway, through the Wentworth Valley, is now being replaced through a public-private partnering arrangement.

It is the Nova Scotia Road Builders Association's position that the secondary road system within this province has been sadly neglected in recent years. It is a well-known fact that the federal government receives a staggering amount of money from road taxes, in excess of $5 billion per year, yet it returns less than 10% in expenditures to the highways under its control.

Sufficient statistics exist to show that the funding spent by all levels of government in financing our road and highway systems has been decreasing over the past two decades, while the intensity of the use of the highway system has significantly increased. Without adequate investment in our road infrastructure, trade, tourism, and the general economy fail to grow and become competitive. A national highway system funded by the federal government, primarily from existing resources, by its very nature will provide more provincial money to be spent on provincial highways and our rural road system, all of which can only have a positive impact on the commercial and tourism industries in this province. The Nova Scotia Road Builders Association believes the federal government must adopt a national highway program that will not only improve the economic well-being of our country but also greatly assist in promoting national unity throughout Canada.

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

We now move to the final intervention, by the Halifax International Airport Authority, Mr. Neil Raynor, executive director, and Bernie Miller, chairman.

Mr. Neil Raynor (Executive Director, Halifax International Airport Authority): Thank you for the opportunity. I'm supported by my chairman, Mr. Bernard Miller.

Thank you for giving the Halifax International Airport Authority the opportunity to address you today. The authority's mandate to negotiate the transfer of our airport and then operate it to the benefit of the community flows directly from the federal government's national airports policy.

In coming here today, we were asked to consider two questions. The first concerned the process of deficit reduction. My view is that the government had no alternative but to tackle the deficit vigorously. However, that has created problems in our airport infrastructure, our most important connection to the world. That approach has created a disadvantage to this community that we now have to address.

In answering the second question, how will the fiscal dividend be allocated, I hope to show in the next few minutes that an investment in Halifax International Airport is a strategic investment that will have a positive long-term effect on the economy and self-sufficiency of the region.

At the outset it's important for us all to realize that the name Halifax International Airport is somewhat misleading. In reality it's Atlantic Canada's airport. Each year approximately half the 2.7 million passengers and the thousands of tonnes of cargo passing through our airport start or end their journey in one of the other three Atlantic provinces.

• 0855

The airport's economic impact on the region is quite staggering. Directly and indirectly, the airport generates 9,500 jobs and over $1 billion of economic activity in the region.

Government derives a tax benefit of some $60 million in personal income tax and nearly $17 million in retail sales tax from airport-related activity in the community.

Then if we also consider the tax on the average one-way ticket price of $270 in Atlantic Canada and consider only the 15% harmonized sales tax, then with 1.35 million people starting their journeys within Atlantic Canada that means that the people passing through Halifax International equate to $55 million in consumption taxes on air travel from and through our airport each and every year. I would suggest that a $55 million-plus annual return is very reasonable to the government on the capital invested in the airport.

The economic impact is already significant. How can we increase that? Well, tourism and trade, as we heard, are vital to the future of the Atlantic provinces.

Tourism is the largest and fastest-growing industry in the world. It's a global industry with a high quality of service expectations. It's also a very competitive industry, with individuals, businesses and communities seeking to exploit their natural advantages.

We're told that tourists are looking for nature, they're looking to view different cultures and scenery, history and different ways of life, and we have those in abundance in Atlantic Canada. The trend is also towards shorter vacations, and that means air access for many of our visitors. But here we have a problem because of the current capacity limitations of our airport.

On the trade side, the Province of Nova Scotia and the greater Halifax partnership has set out the position that Nova Scotia and Halifax are smart places to do business, in an effort to boost trade and increase inward investment. Business executives are being encouraged to visit the province to see for themselves. They travel by air. Their first impression of Nova Scotia and Atlantic Canada is our airport, and it probably will be their last and perhaps their lasting memory.

We should ask ourselves, does the current facility support or detract from that image of a smart place to do business? Does the current facility provide a barrier-free access and offer a standard of service that international air travellers have come to expect? Does the current facility allow our tenants, especially the airlines, to operate efficiently? The answer to each of those questions, quite simply, is no.

In its national airports policy, the federal government recognized that some communities had been disadvantaged because their airports had not received essential upgrades. It recognized that Halifax International and the Halifax and Nova Scotia region had been disadvantaged, so we're not talking principles here. However, the federal government to date has still not fully recognized the size of the problem it has created.

With the deficit tiger, I believe, now wrestled to the ground, now is the time to atone for the competitive disadvantage created by the current capacity problems.

While Ottawa and Winnipeg, communities and airports that we compare ourselves with and that Transport Canada compares us with, have sufficient capacity for the foreseeable future—Winnipeg, for instance, has a capacity to handle 3.6 million passengers a year—the capacity at Halifax International is only 2 million. But each of those airports—Ottawa, Winnipeg and Halifax—all handle about the same number of passengers, and whereas the capacity in Halifax is rated at 2 million passengers, it's handling today, or handled last year, 2.7 million passengers. We have a real problem today.

If you look at those other communities, the air terminal buildings were built about the same time, in the early 1960s. Once upon a time they looked very similar. I would encourage you as you leave Halifax today to look around our airport and then, as you get off the aircraft, those of you going back to Ottawa can compare it with what you have in that community. Remember, we have the same throughput, the same traffic volumes, but we have very different facilities.

• 0900

Air traffic has increased dramatically over the past 15 years and nowhere more so than in Halifax. In fact, between 1983 and 1992 the traffic grew faster in Halifax than at any other airport across Canada. It grew faster than in Toronto, Vancouver and Ottawa. It was the fastest traffic growth. Unfortunately, the infrastructure has not kept pace.

The capacity problem became even more acute during that period. Halifax International became the hub for Atlantic Canada. Transport Canada's own staff recognized this problem in the early 1990s when working with the airlines and proposed a $160 million solution to the looming capacity problem. But the problem was never solved and the proposed solution was never implemented. This disadvantage created by the failure to address the problem means lost opportunities and lost jobs for Atlantic Canadians.

If I can pick up on something Elizabeth said, it compromises the region's ability to effect change and realize business opportunities and the jobs that go with them. There are lost opportunities because the airlines that would like to serve this market cannot provide a level of service acceptable to their customers. There are lost jobs throughout Atlantic Canada because those airlines and their customers and potential tourists go elsewhere.

So the short answer to the second question is that there are very few better long-term investments for the Government of Canada than a strategic investment in Atlantic Canada's hub, the Halifax International Airport. It would directly benefit all four Atlantic provinces and directly and positively impact the regional economies. Thank you.

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

We will begin the question and answer session with Mr. Harris.

Mr. Dick Harris (Prince George—Bulkley Valley, Ref.): Thank you, Mr. Chairman. I have two questions, one for Mr. Wilde and one for Mr. Raynor.

Mr. Wilde, I appreciated your comments, having been in small business for some 25 years myself, and I recognized a lot of the problems you talked about. I wonder if you might touch on three things you could do that would benefit small business in this country if you were the finance minister. As we all know, small business in this country plays a huge role in the economy and in job creation.

Mr. Peter Wilde: I already mentioned one, to decrease some of the taxes that are imposed on small business employers when they hire people. Make it easier for people. We don't want handouts, that's generally accepted. I'm a member of the Canadian Federation of Independent Business and it has probably made a far better presentation to this committee than I can in my isolation.

I represent about 200 small businesses and they are all mom and dad businesses. Nobody makes more than probably $1 million gross. They are all working hard. The tax burden has really been a problem in the last six years for all of us.

Those of us who are self-employed individuals and cannot be incorporated have had the most difficult adjustment to make. In the 1995 budget the deferred income was brought into tax over a period of 10 years. So for a period of 10 years I and a lot of other self-employed professionals, whether they were medical doctors, dentists or people for whom generally there's not a lot of sympathy in the community, were all paying tax on 10% more than our cash income. In my case that means my personal tax burden has increased from 37% to 45% of my total income. That's a big chunk to take out of somebody's income. I don't know if anything can be addressed to adjust that.

The most important thing for the future of this country is to deal with the education system effectively. People are our most important resource. We must be able to develop the talents of our young people to the optimum. Again, I don't consider myself competent to comment on how it's done, except that I have worked alongside planning teams at junior high and high school levels, and my perception is that the whole of our school system is geared towards generating a mediocracy. Talented people are not being challenged to the best of their abilities.

• 0905

Mr. Dick Harris: Mr. Raynor, I'm somewhat familiar with what you're going through in the transition from the government to the airport authority, because it's happening in my city in B.C. right now. One of the things I wanted to ask about, though, is this. During the talks leading to the transfer of the operation of the airport to the local authority, did the subject of airport improvements, of infrastructure requirements, not come up as part of your business plan? Were some long-range plans not set in place so you could achieve the goals you wanted to? As the government was backing out, was there not some sort of agreement that they would maintain a certain responsibility as you became more autonomous and independent in the operation?

Has someone let their side of the agreement down, or did you fail to plan? I guess that's the question.

Mr. Neil Raynor: Neither. Perhaps I should have prefaced this by saying we're not operating the airport yet. We're still in the process. We hope we're near the end of negotiating the transfer. It sounds as if we're in a position similar to that of your community.

The principal problem stopping this transfer is that we have an old infrastructure, particularly the air terminal building, which has to be addressed. What Transport Canada is asking us to do right now is to take on a money-losing operation—because it is—and turn it around. We believe we can do that, to the benefit of the community. They then want us to invest and bring the facility up to date and address those capacity problems which are in place today before we transfer. That's going to cost a lot of money, but we can do that too. The federal government also wants us to pay rent.

Our problem is we can't do all three. You can't take on a money-losing proposition, you can't invest and make right what the federal government has failed to do over the past 10 to 15 years, and pay rent, all at the same time.

What the federal government is proposing in terms is that we would spend half of what they have historically spent on the infrastructure. In that way the facility, they believe, would be viable. Unfortunately, as our bankers quite rightly are pointing out to us, they wouldn't accept that sort of projection in a business plan, because we have considerable history here, and although we can perhaps do it rather smarter, better, more efficiently, more cost-effectively, to decrease it by half while the infrastructure is aging is just not possible.

Mr. Dick Harris: Okay. Thank you. Then I imagine all these problems you addressed this morning in the time you had are forming a huge part of your negotiations, because you're certainly not going to sign anything that is going to put you in severe jeopardy.

Mr. Neil Raynor: Exactly. And right now we're at a competitive disadvantage with those other airports, those other communities, which have transferred. There is real competition out there from people who are after our business. We can't accommodate the traffic that wants to come here, and we have real problems in specific areas. If we can't accommodate that traffic, then it will go elsewhere and the whole of Atlantic Canada will lose the benefit.

It really is important... I don't want to get into—and I try not to with Transport Canada—an argument about dollars and cents, because we believe.... I mentioned $160 million is the tag Transport Canada had put on that upgrade. They recognized the need, they recognized there were real capacity problems, and that was their price to fix it. We think we can do it, we know we can do it, for considerably less than that. So I don't argue that on dollars and cents.

The point we made to them is this. Just look at the facilities. Go back today from Halifax, arrive in Ottawa, and say that in 1960 these were sister airports. These were exactly the same facility. The difference today is that Ottawa, Winnipeg, had those upgrades in the 1980s, and Halifax, when its turn came, became a victim of the fighting of the deficit.

• 0910

I think many of us realize that. Some of us around here, although not all of us, would agree that it was right to tackle that problem at the time it was tackled, but the effect here is that we didn't get those essential upgrades. Now it's time to put them in place.

The Chairman: Thank you, Mr. Raynor, and thank you, Mr. Harris.

Mr. Riis.

Mr. Nelson Riis (Kamloops, NDP): Thank you, Mr. Chairman, and good luck, Neil. In Kamloops, B.C., we've just gone through that process. We're bracing ourselves for user fees in order to develop.

Having just come from Vancouver recently, of course, where we all paid $10 to get on the plane.... Did someone say Edmonton? Toronto as well? It seems to be another surtax that will be coming our way. I think there's a trend developing here.

I will pose my first question to you. You and others mentioned concern about small and medium-sized businesses and disposable incomes, the fact that we've seen disposable incomes erode over the last little while. This is the first time the committee in this tour has come through Atlantic Canada. We'll be off to St. John's tomorrow. Could you comment, particularly for those of us who aren't used to this, on the HST and the impact that has had on business in this area?

Second, we're anticipating significantly changing in the next few months the Canada Pension Plan, which is going to cost employers and employees an additional few hundred dollars annually. Has your organization, and maybe Peter as well, had a chance to look at the impact of that on Atlantic Canada? Can you comment on those two issues, please?

Mr. Mike Schmid: I'll start with the HST. I think there are two issues, the financial issue and the compliance issue.

The compliance issue, as Peter probably will agree with me, has been horrendous. We started out when the GST was originally issued. Everybody went to a lot of expense and a lot of time to learn how to deal with the new tax. They basically had settled down to being able to use it.

Then we changed to the HST. It was implemented fairly quickly. There wasn't the planning and so on to go along with it. I've seen it myself. At the end of a person-year we could go through it and say, okay, take everything, multiply it by 7%, and see what you come up with.

You don't have that opportunity. I have customers calling me saying, “Some guys are billing me HST, some guys aren't, and some guys are supposed to”. That all sounds fine, except when the auditor comes in. If you were supposed to pay it, what's going to happen?

I spoke to the local people here. They said not to worry about it, they'd recognize if it was a wash. Well, my experience with the GST has been that's not how it works. It's, “We'll recognize if it's a wash, but you can pay us anyway”.

I haven't discussed this with my committee, but I have a concern in that where we're a heavy service economy, it's probably...if you were to take money out of, if not the Atlantic, then the Nova Scotia, economy. It's very easy to say, well, we're removing provincial sales tax and putting in HST, and it's going to balance, but I'm not sure that's happened. Some reports have said it hasn't; there has been more tax.

It's a simple thing if you look at it from a tourism point of view. If I have $1,070 to spend on my vacation and now it's going to cost me $1,150, I'm going to vacation for one less day. If I'm buying services, it's the same issue.

I know we have a committee on CPP. Are you familiar with...?

Mr. Peter Doig: Mr. Riis, your question is a good one. As you may know, the chamber has been a strong supporter of the HST. We worked very hard and effected some change to what we felt were some problems as it was originally proposed. We were successful in having all five of our principal issues addressed, both provincially and federally. They were reflected in the HST as it was finally implemented in April of this year.

As to the ultimate impact, we don't know the numbers yet.

Mr. Nelson Riis: You must have some feeling, at least. You must be hearing back from your members.

Mr. Peter Doig: I think I'll take a slightly different tack from that of my colleague Mr. Schmid. Overall, our members are probably ahead financially; we just don't have the numbers. But on a compliance basis, any paperwork is bad paperwork.

• 0915

Obviously we would like to have less tax, but for our members our feeling all along has been that the HST is a positive move because it simplifies the sales tax structure, it provides an increase in tax credits, and it provides a more coherent system of sales tax for us to operate.

With respect to CPP, we have not taken a look at the recent legislative changes, so I am loath to speak to you off the top of my head about it without any consultation with our members.

Mr. Mike Schmid: If I might, I'll just add one thing. Most of those compliance issues I am seeing are there because it's not universal. The compliance problems are dealing with non-HST problems. That's where I'm seeing the biggest problems. If it were universal across the country I think it would be far simpler.

Mr. Peter Wilde: As far as services go, a number of our clients—and we ourselves—provide professional services outside of the Atlantic region. And because we are based here, it means we are now less competitive with other businesses across Canada. We now have to collect 15% sales tax instead of 7%. That's adversely affecting certain service industries based here where the service is delivered in Nova Scotia.

From a business perspective, the HST is a really good idea. It's to businesses' advantage whilst it's also to the detriment of ordinary people. When it was brought in, the provincial government said it was okay because businesses were going to save money because they could flow through their inputs whereas previously they had to absorb the cost of the provincial sales tax. But most of the businesses I deal with are so tight on trying to survive in business that there is nothing there to pass on. They need the profit that they make from the HST—such as it is—to ensure and maintain their own survival. I don't think there has been any appreciable price benefit to consumers in the flow-through of the HST rather than having the PST as a tax to the businesses.

The Chairman: Thank you very much, Mr. Wilde. Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC): First of all, I want to thank each of you for your presentation this morning. They were very thoughtful presentations and are very helpful to us.

I'm an Atlantic Canadian. My riding is about an hour from here in the Annapolis Valley, in Kings County and Hants County. We face a real challenge in Atlantic Canada, and I think that over the past 30 years the federal government has failed to deal with this challenge of trying to protect people from the risks of the future.

To a considerable extent in Atlantic Canada we have prevented at least one generation from participating in the rewards and the opportunities of the future. That's particularly sad for young Atlantic Canadians who find themselves travelling, as I did. Prior to this job I was in business and in small business and I travelled for four or five years to New York, to the U.S., and to Toronto for two years to make a living. I recognize the challenges. A lot of my peers are still away and that is unfortunate.

In any case, Atlantic Canadians don't want dependency. Nobody wants to be dependent on other people or on other areas of the country. We don't want the stigmatization of dependency. What we do want is the opportunity to participate in economic growth that is being enjoyed by other regions of the country.

I believe we now have the groundwork in Atlantic Canada to actually see that potential. A recent KPMG study does recognize the competitiveness of some Atlantic Canadian centres and the cost-effectiveness of operating from these centres. With the emergence of knowledge-based industries and the demise of distance as a determinant in the cost of telecommunications, these areas are even more competitive as places for the location of one's business.

I'm not going to ask this question of a specific intervener. You people can answer as you like. Do you feel that the government can play a more effective role in Atlantic Canada, not by what we do to Atlantic Canada but by what we stopped doing to Canada through excessive regulation on small business and excessive interprovincial trade barriers? There is a study done by the Canadian Federation of Independent Business, I think, which said that a 10% increase in interprovincial trade would increase jobs by about 200,000.

And tax reform...we've heard discussions on increasing the basic personal exemption in order to take some of the working poor off the tax rolls. I believe you're right, Mr. Wilde. It is offensive that a lot of the working poor are paying taxes when they're living below the poverty level.

• 0920

Job-killing payroll taxes, in particular EI premiums, those are a significant deterrent from job creation.

In any case, in regard to regulations, interprovincial trade barriers and tax reform, comments please.

The Chairman: Does anybody want to take on the challenge?

Mr Scott Brison: That's right. It is a challenge, but we're up for it, aren't we?

Mr. Neil Raynor: I would echo the sentiment that we want to be off welfare, and I obviously make a particular representation that to achieve this there are some structural things we have to put in place, there are some structures that we have to put in place literally and figuratively. Once we do that, once we make that investment, then in terms of the airport we can be self-sufficient, we can in fact be a net contributor rather than be in a deficit position where we are today.

The Chairman: Does anybody else want to jump in? Do you want to jump in, Mr. Johnston? He'll be followed by Mr. Wilde and Mr. Doig.

Mr. Ian Johnston (Policy Analyst, Nova Scotia Government Employees Union): Thank you, Mr. Chairman. I appreciate the question from Mr. Brison.

I think what we try to point out in our presentation is that we're starting from less than zero, in a sense, and we use very deliberately the term “structural underdevelopment” in the sense of the history of this region and what it's gone through. I think you're very right. We don't want to be a basket case, we don't want to be on welfare, but we certainly don't agree with the Fraser Institute and its presentation of this region.

I think what we talked about and tried to stress is the important role of a social and human infrastructure, the role of the public sector in terms of supporting economic development. There was some debate obviously in the past about what has worked or hasn't worked. But I guess our point of view is that it won't work if you take away....

Even Mr. Martin recognized last week in his presentation to you that you need basic services such as health care, education and community services to provide a basis for moving forward. He's now trying to portray himself as the minister of education, and yet it's his government that during that time has seen some of the most extensive cuts in terms of support of education, both indirectly to public education and directly in terms of post-secondary education.

So in our view, you have to address those concerns. We have some real concerns about the agreement on internal trade—not the idea of looking at where we can eliminate or remove duplication, but what it could mean for attacking or bringing into commercialization of public services. So I think you have to be very careful about sweeping statements about withdrawing government from its role. There is a role for government, we have to recognize that. There's certainly a role for the private sector at the same time.

Mr. Peter Wilde: I've been lucky enough to live here now for almost 23 years. And I really do consider myself lucky to live here.

On an ongoing basis, one of my biggest personal frustrations has been that I identify all kinds of opportunities here in Nova Scotia for people to do things for themselves to make a successful economic contribution to the province and to the country, but nobody else seems to be able to.... There isn't that...I don't know whether you'd call it entrepreneurial spirit for people to make things happen.

Again, at the regional development agency we've seen some amazing results just by asking people, what can you do? They say, I'd like to do this. All right, let's help you do it. And it's happening. People are starting to say, yes, I can. And so we need somehow or other to encourage people's self-confidence, because there are a billion opportunities here.

We're halfway between two of the biggest trading blocs in the world. We have the U.S. over here, North America, NAFTA, and over here we have Europe. We're right in the middle. Why we aren't saying, come here, lads, and put your offices in Nova Scotia and that sort of thing, I don't know. But we could. And to any extent that the federal government can encourage that kind of approach, there are all kinds of opportunities for us to create economic well-being here.

Mr. Peter Doig: Mr. Brison, you hit all 16 nails right on the head, but we have to set priorities. We can't do it all. We can try to do it all, but we have to hit some of the more important ones.

I believe it was last week, Mr. Chairman, before this committee that the finance minister announced we'd have our first budgetary surplus in almost 30 years. What that means is that for almost 30 years we've been accumulating debt. And in our members' views that is the single most important obstacle facing economic prosperity both for Atlantic Canada and for Canada as a whole in the future, and we have to keep our eye on reducing the debt, set realistic targets and aggressive targets. Only by reducing the debt can we give ourselves the necessary flexibility in the years ahead to allow the economy to prosper the way it should.

• 0925

The Chairman: Thank you very much.

Now we'll move to the final question. Mrs. Redman.

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Mr. Chairman.

I'd like to thank you all for coming. They have been very thoughtful presentations. If I could, I would like to ask a question of two of the speakers, Ms Beale and Ms Jessome.

One of the acknowledgements that this government is making, and that we've certainly heard in other provinces, is that there is a cost to wrestling down the deficit. We do recognize that, and we're very sincere in wanting to come to hear what you have to say.

My question is really one of partnership. People have mentioned the transfer payments. I can speak from my experience in Ontario, and I know that those transfer payments equal about $1.2 billion. Yet in the hands of the provincial government, it ended up equating to a $4.9 billion tax refund for Ontario. We've seen incredible cutbacks in education and health and welfare in a way that's exponential to the downgrading of the transfer payment.

Having said that, my question really is, what is the proper balance, in your opinions?

I heard Ms Beale talk about there being opportunity in this restructuring, and I've heard Ms Jessome talk about the fact that there have been real casualties in this process. I think of things like the infrastructure program and how that was a tripartite partnership between the lower tier, the provincial government, and the federal government. I'd be interested in hearing, from your perspective, whether there is an optimal or a proper, desirable kind of partnership between the federal government and the provincial government to get the biggest bang for the buck for the people of the Atlantic provinces.

Ms Elizabeth Beale: That's an interesting question, because you're thinking beyond the financial arrangement; you're really thinking about what they can do together.

What we have tended to see here in this region is that the removal of federal support has eliminated any flexibility the provinces have. This has not been true for the other provinces because the other provinces have output levels per capita that exceed anything we've ever seen in Atlantic Canada. They have a capacity to go back in and replace revenue losses with other sources of revenue—in other words, giving tax breaks or allocating spending into other areas.

We simply don't have that in the Atlantic provinces, and that's why the move to block funding through the CHST is an enormous issue for this region, because we have now a frozen capacity in terms of transfers and no capacity to move outside that block. The other provinces are not held to the same restrictions. That is a big issue for how we manage that.

The partnership concerns me. As you see the focus of economic development activity move more and more onto the provinces for things like labour market agreements, where you are devolving program responsibility down to the provinces, it is a big issue for the smaller provinces to handle, because, again, we simply don't have the resources. Even in terms of the management and the resources within the bureaucracy itself to manage more complicated policy and program structures, we simply don't have it.

The concern here is that you'll see a polarization of opportunity further into what may happen with the larger and wealthier provinces and the smaller provinces. I think that's the real risk in the current debate.

I would like to see more of a focus on what are national objectives, what are national strategies under this. Yes, it may be efficient to devolve program responsibility down to a unit closer to the people who benefit from the delivery of the service, but overriding that there have to be strong national policy areas with respect to education and training, with respect to labour market policies, with respect to social policy. You need that overall umbrella, and that seems to be what we're lacking at the current time.

Ms Joan Jessome: I agree with Elizabeth on needing national standards. The unfortunate thing about block funding when it comes down is that for the majority it affects women. I represent a union of 18,000 families, and about 65% of them are women. You're talking about education, health care and social services, and those jobs are primarily done by women. So when the funding is decreased from the federal government to the provincial governments, it decreases jobs and standards of living.

So having national standards in place with the Canada Health Act and all of those to be enforced...the block funding itself just throws a pocket of money and it keeps cutting back on the $328 million that's going to be going out of the Nova Scotia budget. We can't afford that. We can't afford the jobs. We can't afford the devastating effects it has on our people.

• 0930

The Chairman: A final comment from Mr. Johnson.

Mr. Ian Johnson: You asked a question about balance. If you really want to look at balance, an answer is very clearly set out in the alternative federal budget. Start with the same assumptions as the federal finance department does but move in very different directions in terms of designated funding for the areas we're talking about, supporting economic development and debt reduction. The point is there are other directions to pursue. I would certainly urge you to go and review those documents, not only at the federal level but at the provincial level.

The Chairman: Thank you very much, everyone. I would like to express to you our sincerest gratitude for your presentations. I'm sure you will see some of the points raised in today's presentation reflected in the recommendations we will make to the Minister of Finance.

We will take a 10-minute pause.

• 0931

• 0947

The Chairman: I'd like to call this meeting to order and welcome everyone.

As you know, this committee is travelling across the country to listen to Canadians. You've been given a couple of questions to answer vis-à-vis the fiscal dividend.

We've been travelling across the country. We really benefited a great deal from the various suggestions and ideas that Canadians presented to us. I'm sure that many of the concepts and directions you will outline today you will probably see reflected in our recommendations that we'll be making to the Minister of Finance.

Just to give you a quick explanation as to how we operate here, you'll each have five minutes to make your presentations, which will be followed by a question and answer session from members of the committee. If time permits, we will also give some time for some rebuttals.

So with no further ado, we'll start with the representatives from the Dalhousie Student Union. Mr. Chris Adams is the president. Welcome.

Mr. Christopher Adams (President, Dalhousie Student Union): Thank you very much. My name is Christopher Adams, and I'm the president of the Dalhousie Student Union. I thank you very much for allowing me to speak today.

First of all, what I'm going to discuss is post-secondary education and increased levels of funding toward these programs, specifically dealing with aspects of the quality of education at these institutions and the accessibility to this education.

I'll start off by going over some of the effects that the recent cuts have had to these institutions. I'll discuss the nature and impact of university education, predominantly post-secondary education, on the economy of Nova Scotia predominantly but of Canada as well. I'll finish off with some suggestions of where I think the money should be allocated if there is increased funding for these programs.

Over the past four years, the federal government has reduced funding to post-secondary education through transfers to the provinces by $2.2 billion. Tuition has risen an average 45%, which gets into the accessibility issue such that it is no longer affordable for all students.

As well, there have been significant cuts to many of the programs and services that Canadian universities offer. There's a wide array of examples of those areas as well. Universities have not been able to expand their services, which is another problem in terms of allowing them to keep competitive with other institutions internationally.

• 0950

Universities in Nova Scotia contribute about 5% of the gross domestic product of the province. Through spin-off effects, they produce 15,000 full-time jobs in this province alone. As well, they have immeasurable social and cultural impacts upon the lives of Nova Scotians and Canadians across the country.

It has been said widely that the future is uncertain, so that's why we need people in the workforce who are adaptable and flexible and who have innovative ideas to allow innovation and adaptability in the different circumstances that will arise.

There are a number of facts that say 40% of the jobs in the next ten years will be for people with some form of post-secondary education. These statistics may change quite quickly and frequently, but it is important that we realize we need an adaptable workforce with people who are able to change and have the education to allow for innovative ideas. This is important in order to maintain the level and standard of living that we have achieved in Canada, as well as our international level of competitiveness.

I also want to point out that a lot of people believe the universities are full of fat. The recent cuts have had significant effects upon the way universities are run. I believe they have really decreased and ironed out many of the problems and inefficiencies that existed in the system, but now it has come to the point where there is unnecessary strain upon the system, and no longer is it becoming more efficient because of this.

There are a number of indirect costs associated with decreased levels of funding. There's the sidelining of important maintenance projects on the university campuses that can lead to safety issues, as well as issues of just the general quality of education, such as being in a room that's not being properly ventilated, or that has a leaky roof, or whatever it might be.

There's the redirection of university energies toward issues such as scaling down programs or cutting out costs, instead of looking at how we can expand our programs to become more flexible and more adaptable to today's environment. There are various levels of tuition that directly affect accessibility. And increases in classroom sizes have direct effects on the quality of education.

The higher the quality of education we can provide, the better the nation will be in the long run. This is an investment in our future.

There are some areas I'd like to outline in post-secondary education that should get money, but I think it's important for the money to be allocated to the university's operating envelope so that universities can decide where they think the money would be best put. Every university will have different interests, and I think it's important for that to be decided by the university community as a whole.

Some examples are: the encouragement and support of professors who are motivated and of higher quality; technology-based learning instruments, such as computer labs and interactive technology within the classrooms; and libraries and academic journal materials, which are often the first to be cut when universities have scale-backs.

One big issue is changes to the student loan program. I think that's a necessary step for making accessible education for all in Canada.

I do think it's important that universities do look at themselves and ask where they should cut out some of the inefficiencies, but I think that should be done on a rational level and should not be forced upon them through budget cuts.

The Chairman: We'll now move to Dr. Howard Dickson of Dalhousie University.

Dr. Howard Dickson (Associate Dean, Research and Planning, Dalhousie University): Thanks very much for offering me an opportunity to meet with your committee and make a case for increasing the funding base for the Medical Research Council of Canada. I want to express that in terms of the impact it's having here in Nova Scotia as well as nationally.

I know that when I speak to this committee, to a certain extent, I'm speaking to the converted. I've spoken before, and I understand that you appreciate the issues, but I think that they clearly bear repetition, so I'm here again this year to re-emphasize the need.

I think one of the big issues we face is the lack of understanding of what it is exactly that Minister Martin is trying to achieve through his policy of debt reduction. I think many Canadians—in fact I would say most Canadians—have job creation as their major interest at this point in time.

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It's interesting to me that government is probably closer than they realize to achieving job creation through debt reduction. The OECD job survey of May 1996 pointed out that if governments want to create jobs, one of the best places to make investments is in basic medical research that is carried on in our teaching hospitals and our academic institutions. Of course, that's exactly the kind of research that the Medical Research Council of Canada funds, and it's the type of research that generates knowledge and ultimately is going to get translated into cures and into technologies that have markets and will impact on economic wealth and growth.

So I think the recipe is fairly simple. It's a matter of convincing government that it's a good place to make an investment. In fact, while most other G-7 countries in the world over the past five years have been increasing the amount of investment they've been making into health care and health research, Canada, on the other hand, has in the same timeframe been decreasing their funding. I'll show you this in graphical representation. Representatives of G-7 countries at the top...clearly the slope is in the positive inclination. Here's Canada at the bottom. We are decreasing funding in health research at a time when really we should be making investments.

As associate dean in Halifax, I think I can give you a personal sense of the impact that cutbacks to the Medical Research Council are having. It's leading to the truncation of careers of investigators who have a great deal yet to offer. It's having a devastating effect on the students we are trying to nurture and convince to get into science and to be the investigators in the next millennium.

In terms of direct cutbacks this year, we lost thirteen technical positions, two postdoctoral fellows and seven graduate student positions, simply through the cutbacks that MRC had imposed on it through the federal government. The director of the Dalhousie Neuroscience Institute and his spouse, who is also an outstanding scientist, both left this country and headed to New York this last year, a major loss to Dalhousie and indirectly a result of cutbacks at the Medical Research Council.

The government strategy for the 1990s has also been to shift the burden of supporting medical research onto the private sector and the public sector. I'd have to agree that it was a good strategy. It's gotten to the point where now the pharmaceutical industry in Canada, particularly the innovative pharmaceutical industry, is funding more medical research in this country than the Medical Research Council is.

But industry has a very different motive for supporting and funding research. Their motive is the bottom line, quite obviously. If it doesn't translate immediately into a marketable commodity, they're really not very interested in supporting it. The Medical Research Council and government have an obligation to support knowledge generation. Ultimately it's that knowledge that's going to feed the technological pipeline. The translation of knowledge into a marketable commodity is what we're really trying to do in this day and age. But government has the responsibility to feed the pipeline for innovation.

Mr. Chairman, we're convinced, and I'm sure you are, that government is going to have to make some very tough decisions as it wrestles with the issue of continuing to steer the course to debt reduction. I guess my plea to you and your committee today is, in making those decisions and coming to the conclusions that you will ultimately have to, I would offer you some advice that my financial adviser gives me. Diversify. Don't put all of your eggs in the debt reduction basket.

I think another way of ensuring job growth and creation and economic wealth for this country is investing in basic research in our academic institutions, and that really means investing in the Medical Research Council of Canada. What we're talking about in reality is a doubling of the base budget of the MRC. An additional $240 million annually is what it is going to take to turn around this disastrous situation and get that curve at the bottom heading in the upward direction, at least in parallel with our other G-7 competitors, not going in the opposite direction.

Mr. Chairman, thank you very much for your time, and good luck.

The Chairman: Thank you, Mr. Dickson.

We will now move to Jessica Squires, from the Canadian Federation of Students of Nova Scotia.

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Ms Jessica Squires (National Executive Representative for Nova Scotia, Canadian Federation of Students): I am Jessica Squires and I am here to speak for the Canadian Federation of Students members in Nova Scotia. Thank you for the opportunity to present on the questions posed by the committee. Because they are linked, I will make one statement to answer both of them.

The impact of deficit reduction measures on students by now is clear. Tuition fees have increased by 45% during the Liberal mandate as a direct result of cuts to transfer payments to the provinces from the federal government. Debt loads are expected to average $25,000 this year, and students cannot bear any more of the burden. Many who are qualified to attend post-secondary institutions are not able to do so due to financial constraints.

There is and has been for about a decade a prevailing public policy in Canada that leads to the prioritization of profit. This prioritization has partially resulted in the Canada health, education and social transfer. Now that Canada is working on its debt instead of deficit reduction, it is time to rethink our values as a country. We need to fundamentally change our priorities, and we need especially to do so in a global climate that increasingly encourages further erosion of the social programs of nations.

To paraphrase the words of one well-known executive officer recently, the question is not how to make more and more money for ourselves and our businesses, it is how to provide a society and a community we want our children to grow up in.

The acknowledgement of these values—community protection, freedom, rights and responsibilities—should lead us inevitably to the conclusion that Canada provides a positive environment for economic development but does not do so at the expense of human rights and social services. It does not threaten the delivery of those programs by progressive reduction of infrastructure funding and personnel to deliver them. It does not abandon its disadvantaged by targeting only those in greatest need, and it does not falsely assume that targeted assistance will help everyone who needs it.

The millennium scholarship endowment is an idea that is timely, but it contains several flaws if the purpose of it is to ensure accessibility.

The first flaw is that it perpetuates the current trend towards targeted assistance. Upon reflection, it is plain why this solution is inadequate. Targeting scholarships according to both need and merit means that average or slightly above-average students with need will not be eligible for the fund. Based on estimates of 20,000 awardees, the fund will only benefit slightly over 5% of student loan recipients.

The second flaw related to the first is that debt loads at current estimates will continue to rise unless governments commit to reducing them. The estimated 365,000 students on loans who would not receive the scholarships from the fund will average $25,000 of debt this year if they are graduating, and $28,000 next year.

In addition, the scholarships available will be unlikely to offset enough of the individual debt loads to make a difference. This all adds up to one thing: Today's graduates are headed to a future where an increasing number of them will barely be able to afford to support themselves, let alone support a family or contribute to the economy of the country. This is why the Canadian Federation of Students insists and will continue to insist that the only student assistance that can come close to guaranteeing financial access to colleges and universities is a national system of grants awarded based on need.

The alternative federal budget recommended a gradual introduction of grants allocating $2.5 million in the first year and $4 million in the second year to a grant program for students with high need. A national grant program combined with deferred grants in the form of loan remission implemented in full by the year 2000 would indeed be a millennium to look forward to.

Ladies and gentlemen of the committee, you have the opportunity to recommend something far-reaching and effective with the funds allocated to the millennium scholarships, which will keep Canada competitive and will help all individual Canadians and their children now and in the future. I urge you to recommend to Mr. Martin the gradual establishment of a national system of grants based on need and not merit.

Thank you again for the opportunity to speak.

The Chairman: Thank you very much, Ms Squires.

We will now go to the representative from the Acadia Students' Union, Paul Black.

Mr. Paul Black (President, Acadia Students' Union): Thank you.

My understanding of this process is that I am to suggest to the Commons committee ways to spend any fiscal dividends. This being the case, there are several things that must be implicit in this presentation for it to bear significance to you the committee members.

Any suggestions made must be realistic, sustainable and part of a holistic view of the Canadian economy and society. As I am a proponent of the post-secondary educational system, I would of course be pleased to see all of these funds put back to this badly bruised and wounded sector. However, to do so would be to have a very narrow focus. It would also be shortsighted as four affordable years at an institution of higher education is not the only element to a post-secondary education.

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Of course, the main focus should be on recruitment and retention of students to these institutions of higher education, but this should also encompass the right of the student to not be unduly indebted while studying. Encouragement and implementation of innovative programs that supplement a student's education and lend both valuable life and work experiences are also vital aspects of post-secondary education. Providing programs that help lead one into, and ease one out of, a post-secondary education must be objectives that the government strives to achieve.

As we move full-on into the knowledge-based economy, we will need a skilled and adaptable workforce to compete and survive. Only through creating and maintaining a superior system of post-secondary education will this be made possible. I believe we have the framework to create a superior system, but we do not have a superior system at this point in time. As the Prime Minister himself has acknowledged, we must do all we can to supplement and recognize the right of all Canadians to receive a post-secondary education.

On funding for post-secondary education, we must restore funding to the institutions that have been financially disadvantaged through cuts to the CHST and social transfer payments. Nova Scotia's institutions have suffered cuts of 17% since 1994, and receive the lowest per capita student support in the country. Tuition has increased by an average of 120% in the last nine years. The average student debt upon graduation has tripled in the last four. Programs have been downsized, restructured and gutted, but not for the better. Class sizes have more than doubled in most of our universities, and faculty complements have decreased.

The quality of education is on the downturn, and we must stop this before it slips too far. These are all symptoms of a system in trouble, one in need of an infusion of life breath, which in this case is money. It is therefore my suggestion that 30% of the dividend earmarked for post-secondary education should be funnelled back to the provinces for distribution to the individual institutions. Further, I recommend that the distribution of these funds be based on current practices, and not a newly developed formula.

In terms of accessibility and affordability, a post-secondary education should not be seen as a detrimental necessity. By this, I mean that students should not have to be apprehensive about pursuing a post-secondary education because of the frightening amount of debt they will accrue in the process. Students who are already disadvantaged by having to secure an educational loan should not be further disadvantaged by a system that fails to recognize financial need and/or reward excellence.

It could be argued that the willingness to participate in PSE alone should indicate meritorious effort and be duly rewarded. However, to remain realistic, it is imperative that we realize there is an onus on the student to shoulder a reasonable portion of the educational burden. I therefore suggest that the maximum amount of loans available through the CSLP be increased to reflect current costs and be re-evaluated every two years thereafter; that the needs assessment process be re-evaluated to be more inclusive and reflect societal changes; that special opportunity grants for students whose combined parental income is below the national average be created and awarded in $2,000 instalments for first-year study; and that mandatory seminars be held for recipients of CSLP funding to explain the implications of student loans and debt management.

In terms of internships, employment and work experience, you need experience to get a job and you need a job to get experience. This vicious circle is becoming a major problem, both socially and economically. Youth unemployment hit 20% in the maritimes in July. Upon graduation, it takes an average of three years for students to find work in their field of study. The focus of PSE has shifted from the traditional pursuit of enlightenment to preparation for the workplace. Although this is not entirely palatable, it is a reality and therefore must be dealt with.

Students are looking for work experience for a variety of reasons: to fund their education, to gain the necessary practical experience enabling them to be gainfully employed upon graduation, and to gain valuable life skills. All of these reasons should be recognized and encouraged. I suggest the following as ways of achieving these objectives: sustain the Nova Scotia links program and initiate this program in all regions of the country; combine all internship programs under one federal ministry for better coordination, and then funnel those savings back into more internship placements; at every institution, create an academy for the instruction and pursuit of entrepreneurship—and it should be implicit in the guidelines for these academies that they endeavour to integrate all disciplines.

I thank you very much for the opportunity to express my views on the spending of the federal dividend. I hope my suggestions have perked your interest, and would be more than willing to further discuss these issues with you at your convenience.

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

We will now move to representatives of the Atlantic Popular Education Network, Jim Sharpe and Margaret Tusz.

Mr. Jim Sharpe (Co-ordinator, Atlantic Popular Education Network): Thanks so much.

My name is Jim Sharpe. As well as being with the Atlantic Popular Education Network, I am director of continuing education at Saint Mary's University, and president of the Canadian Association of University Continuing Education. I'll therefore try to provide a balanced presentation.

Margaret is working with the United Church of Canada, with the social ministries, and also has extensive experience in work with the food bank.

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The federal budget has been balanced—and I think everyone agrees it's going to be balanced this year—but it's been balanced on the backs of those least able to afford to pay: students, seniors and the unemployed.

Although the federal deficit may disappear this year and the federal debt-to-GNP ratio is declining and is now down to 70%, total consumer debt is still rising. The last I saw from the Conference Board of Canada, it's up to 96% of disposable income. So what's happened here is not increase of debt, as this committee says, but a shifting of the debt from public to private.

Students, workers, seniors and the unemployed have too much debt to allow for a sustained economic recovery. It's critical that the federal government address the issues of unemployment, student debt, successful higher and continuing education and repairing the social safety net, ripped apart by the cuts to the Canada Health and Social Transfer. Let me address some of these issues.

It is crucial to make investments in the people of the country. As a society, we must support parents and families to raise their children, who are the critical investment for the future. A national child care and support to families initiative is required. This has been talked out for at least two decades and nothing has happened.

As well, there's a need for a national effort to rebuild and support community infrastructure: our libraries, community centres, schools, family support agencies and social services that will help enable every child and every family to excel.

Research has shown that the first years of a child's life are critical for future learning and development. We need a national initiative to ensure that every community has the resources to support children and their families in the first few years.

In terms of education, it's necessary to build a network of educational organizations that enable us to make an investment in the skills and knowledge essential for future growth and sustainable development. Although we have great traditions of education in this country, including innovative use of electronic technologies such as radio, TV, computers and the Internet for learning, we need a much greater investment at the community level to make these institutions accessible to all.

The latest adult education and training survey shows that those with the most education and income are the ones who take advantage of the new technology and the learning opportunities. We need a national effort to make our institutions more accessible to all who wish to learn.

The next point is the question of youth unemployment. There's this naive feeling that somehow the youth are unemployed because the educational system has failed this country. Well, I'd like to turn it back. That's blaming the victim. The problem with youth unemployment is not enough jobs.

Although the Conference Board and a lot of the national business bodies say there's increased need for science education, science graduates and engineering graduates, if you look at the unemployment statistics of the Maritime Provinces Higher Education Commission, you'll see that of graduates who are one year out of university, the science graduates have the highest unemployment. So we have to refocus youth unemployment on the creation of jobs rather than kicking the educational system.

Far too many of our youth—17%—do not have a productive role to play, even if they complete secondary and post-secondary education. We need to expand on the limited youth programs we have. We have some very innovative programs in this country, such as Canada World Youth internships and apprenticeships, but we need to create a national program that is accessible to every unemployed youth in this country.

One of the models we need to look at—and we've had some experience with it—is the Scandinavian folk school model, where youth take one or two years to learn about their own traditions and make a contribution to their community. Such folk schools can be sponsored by existing community organizations rather than some federal government department, and they could make a very significant, positive contribution to alleviating both youth unemployment and the social and environmental problems in the country.

With that, I'd like to give it over to Margaret.

Ms Margaret Tusz (Atlantic Popular Education Network): I'd like to speak to some of the experiences I have seen here locally.

I don't pretend to speak on behalf of the poor people, but I have worked with them. The statistics are that up to 30% of all Canadians are either unemployed or underemployed. That means they're having difficulty just meeting the basic necessities of life.

Around that, first of all, we had a fellow from the HRDA here earlier, and I was interested to hear his comments. From my experience with the programs offered locally around community economic development, they're really going to middle-class people. The people we really need to get skills and money to are not even getting close to those funds. There is a real gap in the educational needs of those people in order to get to a point where they might even think about using that kind of funding.

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So when we're looking at funding those kinds of initiatives, we have to look at how they are brought to the people. I'm not sure I know exactly how to do that, but there has to be something different, because they are not getting to the community we're concerned about that is really struggling.

I would like to say that in my experience we're relying an awful lot on charities and volunteers for essential services. I'm talking about the services in our hospitals, schools, and communities that are supporting people.

This must be addressed. It is unsustainable, and people are getting burnt out in those areas. I work at the front lines in food banks, and it's just desperate. At the food banks, 5% of the people who come have university degrees. That is something people may not know. We are educating people, but not giving them jobs. As Jim said, we have to look at providing employment opportunities as well.

Another thing is that 25% of the families around here are getting up in the morning and sending their children out for breakfast. What is that doing to foster links in the family and the empowerment of parents and all of that? What are these children learning about their own and their parents' ability to provide for themselves? How are they going to grow up? How are they going to look at society? The disparity between the rich and poor is getting greater, and the programs we're implementing are paternalistic and not going to really meet true human needs.

Thank you.

The Chairman: Thank you very much. We'll now move to the representative from the Queen Elizabeth II Foundation. Cheryl Hodder is the director of gift planning.

Ms Cheryl Hodder (Director of Gift Planning, Queen Elizabeth II Health Sciences Centre Foundation): Thank you, Mr. Chairman. I am here today as a representative of the Canadian Association of Gift Planners, the CAGP, which is a national body, as well as the QEII Health Sciences Centre Foundation, which is a charitable foundation that supports patient care, education, and research at six of the major hospitals and treatment centres in Halifax. However, because many of our services are not available in other parts of the province or in other Atlantic provinces, our constituency reaches much further.

Today, I am specifically going to address what the charitable community thinks is the negative impact of budget resolution 21. In our view, this will prevent millions of potential dollars from privately held companies from flowing into the hands of charities.

It is our position that this particular resolution creates two classes of donors: the donor who is able to donate shares from a publicly held company and reap the tax benefits thereof, and then the person who would like to make a charitable gift of shares of a private company but who would then invoke a 50% tax problem, if you will.

In our view, there is a great amount of charitable money that could potentially come to charities from these private companies if only they were able to receive tax incentives for doing so. It is our view that they ought to be encouraged to do so in order to help sustain the future viability of our charities, which are drastically trying to increase their endowments to enable their programs to continue into the future.

We also recognize that there must be adequate safeguards in place to ensure that the company's securities from the private sector are donated to charity in a responsible way. We would like to see a mechanism put in place to provide those safeguards. Certainly all of the individual charities across the country are interested in having further conversations with the department to see if we can put these safeguards in place. We are certainly open to further consultations on that issue.

The charities continue to fundamentally disagree with what we consider to be the tax policy thrust of this particular resolution. We would respectfully request that the resolution be withdrawn.

Thank you.

The Chairman: Thank you very much, Ms Hodder. We now move to the Dalhousie School of Economics. Mike Bradfield, professor of economics, welcome.

Professor Mike Bradfield (Professor of Economics, Dalhousie School of Economics): Thank you. I appreciate being asked back this year, because after last year I thought maybe I wouldn't.

In fact, some of the background information for the comments I'm making this year is documented in materials I gave to the committee last year. I don't know if the committee has a copy of the brief. I have some tables at the back of it that might be useful for discussion.

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In talking about what the 1998 budget should do, I think we have to recognize that the single most important goal for the Canadian economy is full employment. There are massive efficiency and equity costs to the continuing levels of unemployment that we're suffering. Somewhere in the area of $70 billion to $100 billion a year in output is lost because of the levels of unemployment that we have.

If you look at the tax rates that apply, this means the taxes that we're missing out on in that output are somewhere in the magnitude of $23 billion to $40 billion a year. So there are economic, human and financial costs to the unemployment that we have. It's totally unnecessary, and we ought to take it as our primary target.

The U.S. has managed to reduce its unemployment rate to below 5%. On the other hand, the Canadian government has refused to even state an unemployment target, let alone stimulate the economy. Instead, it has adopted punitive cuts to unemployment insurance in a misguided effort to force the vulnerable in our society to seek jobs that do not exist. We have reduced the support provided by UI or EI, and have made it available to fewer and fewer people.

The percentage of unemployed receiving UI or EI in Canada in July 1997 was below that of Alabama. We had 34% eligible, they had 38%. In comparison, Massachusetts had 95%. This is despite the fact that the unemployment rate in Canada was 50% higher than that of Alabama, and more than double that of Massachusetts. It was 9.1% in Canada, 6.1% in Alabama, and 4.3% in Massachusetts. So we're apparently going to outdo Alabama in terms of how punitive we get.

As other speakers have commented, another major goal will have to be the restoration of Canada's social fabric. We have pushed the burden from the federal government down to the provincial and municipal governments, and we have pushed the burden from government onto individuals—the most vulnerable individuals, as someone has already mentioned. That has to stop.

If we're interested in deficit reduction, we have to remember how we got into the massive deficits in the first place. It was through tax cuts and high interest rate policies. If you want to turn things around, you turn around those policies that caused it.

Another way of getting the deficit down would be to have the Bank of Canada return to holding about 20% to 25% of the federal budget. This would require the reintroduction of reserve requirements in all financial institutions in Canada. As Herb Grubel noted last year, I'm afraid that would mean bank profits would decline by somewhere less than 10%, but it's the function of the Bank of Canada to manage the debt and to stimulate the economy, not to guarantee profits to the banks.

Neither monetary nor fiscal policies should continue to be restrictive in order to let the steam out of the economy and to achieve very low inflation rates. There's neither theoretical nor empirical support for the myth that low—as compared to moderate—inflation generates real benefits for the economy.

It is very clear, however, that restrictive monetary and fiscal policy causes recessions. Raising the interest rate at this time is not warranted in terms of inflation or in terms of protecting the exchange rate. The use of interest rates to artificially support the Canadian dollar only depresses the economy and causes even longer-term downward pressure on the dollar, as shown by the exchange market reactions to recent interest rates.

Federal finances are in fact in good shape. Taxing federally prevents tax bidding wars between provinces. The federal tax system is less regressive than those of the lower levels. Increased federal support for health and other social programs promotes national standards. A more active federal government will also de-Meech some of the effects of recent budgets, which have attempted to pass off programs that are properly a federal responsibility, such as job training.

The approach is obvious. Instead of reducing taxes, and certainly not reducing income taxes, we should have an increase in spending to rebuild—to rebuild the physical infrastructure, such as the railroads; to rebuild the soft infrastructure, such as education, health and social programs; and to rebuild institutions such as the CBC, the Canada Council and research agencies. We also need to restore the mandate and capacity of government departments in many areas, but particularly in those of environment and competition policy.

Some of the above approaches involve federal spending. Others increase cash transfers to other levels of government. The transfer of tax points to the provinces works against the poorer provinces because they have a diminished tax base.

Thank you.

The Chairman: Thank you very much, Professor Bradfield.

We'll now move to the representative from the National Cancer Institute, Gerry Johnston, the head of Terry Fox Cancer Research.

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Dr. Gerry Johnston (Professor and Head, Department of Microbiology and Immunology, Dalhousie University; Terry Fox Cancer Research Scientist, National Cancer Institute of Canada): Thank you.

I had the opportunity to address this committee last year, so much of what I'm going to say will revisit some of those issues. Also, much of what I'm going to say is going to resonate fairly effectively with the comments made by Dr. Dickson and by a number of the students representing universities.

The major concern I wanted to address on behalf of the National Cancer Institute is really one of a general problem within Canada, and that's general underfunding to the biomedical research community, particularly the university-based research activities within the country.

I also want to emphasize that the National Cancer Institute is one of these volunteer health funding agencies, and it actually accounts for the bulk of the cancer research that goes on in this country. That is, cancer research in this country is funded primarily by private sources, not government sources.

That is, I should hope, a rather shameful statement. We're quite unlike most other countries in that sense. If we compare ourselves with the U.S., we're at about one-eighth of the per capita funding for that particular area of research, and most of it comes from private donations as opposed to government. I don't have the figures at hand, but I suspect the same is probably true of many kinds of research activities.

I serve on one of the national bodies of the National Cancer Institute looking at research nationally, so I have that perspective, and it's quite alarming that we see within the country a diminished capacity to fund basic biomedical research, so much so that I'd say—and this is whether I'm talking about the Medical Research Council, which Dr. Dickson addressed, or the National Cancer Institute—we're probably seeing much less than half of the truly excellent research that's out there being supported. That in lost opportunities alone is a tragedy.

I also am the head of a department in the medical school, and this is where this funding problem really impacts. I see the devastating toll that this underfunding has on the capacity of our young researchers to establish research programs and to continue in their careers.

More to the point—and this resonates with some of the comments we heard previously—I'm seeing more and more students who might otherwise wish to pursue a career in research go elsewhere. Either they adopt a different career strategy or, more to the point, they tend to leave the country, because they see there is no real commitment in this country to that kind of activity. So we're seeing lost opportunities here that we really have to be concerned about.

The erosion of the biomedical research capacity in this country has two fairly major effects.

First, as a country, we're going to rapidly lose the capacity to compete for knowledge-based industries and biotechnology industries, and that's really going to be where growth is. If you look at countries such as Thailand and places like that, they're pouring money into those activities, because they recognize that's where the future is.

Secondly, without a really vibrant and well-supported research community, we're not going to have cutting-edge medical care, health care delivery and things of that nature. It's going to have impacts that are more far-reaching than simply the activities of research.

As I say, my major concern is that we're really losing opportunities to be able to provide support, training and education for students and young scientists. We have at the moment a fairly high-quality research community. If we don't continue to support that, we're going to lose a lot of edge internationally in our ability to compete for all kinds of other opportunities, such as biotechnology, pharmaceutical industry money, and things of that nature—job creation.

The biomedical research industry is a huge economic engine if we choose to harness it, and the underfunding that's gone on in the last few years to the Medical Research Council, which is the one major government body for funding research, is a tragedy. You're really losing opportunities. To not restore that is really shameful.

Having said this, I do recognize that the current government has attempted to address the issue of underfunding to research. One of the programs that's been recently announced is the Canada Foundation for Innovation program. I'll speak now from a regional viewpoint: it's one of these ill-conceived programs of partnership where we expect that there's money we can leverage from some secret source in some of the smaller provinces. It's just not going to happen, or it's not going to happen easily. It's a federal program to reinvigorate the infrastructures of universities and so forth, and that's good, but I characterize it as providing one leg for a chair: it's not going to stand up.

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The real need for any research activity is operating costs. Operating costs buy the supplies, and more to the point, provide the support for training students and postdoctoral fellows and provide them with the money to actually be able to learn to do science and then to embark on their own careers.

We really need to reinvigorate our operating base. One of the ways to do that, of course, is through the Medical Research Council.

Increasingly, as it has been said a number of times, we're relying as a society on private donations and on volunteer agencies, but we can't do that any more. We need to have the infusion of funds at this level to really prime the pump and keep this activity, which is essential to our society, going into the next century.

I really hope we take a cue from some of our underdeveloped neighbours and actually begin to support these kinds of activities. It provides not only a huge economic engine but also a huge resource for the capacity to function both economically and in health care. It has implications for a number of different sectors, as well as education.

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

Now we will move to Mr. Robert Chisholm, MLA, leader of the Nova Scotia New Democratic Party. Welcome.

Mr. Robert Chisholm (Individual Presentation): Thank you very much, Mr. Chairman, and members of the finance committee. I am grateful for this opportunity to participate in the committee's pre-budget consultations. I am pleased to be part of a panel of Nova Scotians who contribute so much every day to the fight for fairness and justice in this province.

The letter that went out from the committee clerk concerning these consultations seeks views on the process of deficit reduction. It asks for advice on how the government should set its priorities with respect to debt reduction, spending increases or tax relief. Those are weighty questions, but I think the debate should be broader.

The first thing the committee must do is recommend measures to fight unemployment. Many of the narrow issues of debt and deficit will be solved, I believe, if the Department of Finance and the government begin to set realistic targets for job creation and the reduction of unemployment. Unemployment is the main reason we're in the debt and deficit situation of the past decade.

The committee must also address the question of repairing the damage that has occurred as a result of the process of deficit reduction that the Minister of Finance was so happy to talk about last week. There was an editorial cartoon on the weekend that will help me make my point. The MacKinnon cartoon showed Mr. Martin throwing out the social programs baby with the deficit reduction bathwater.

I think that describes quite well what has happened over the last four years. The social programs baby has been thrown out. The leisurely debate about what to do with the surplus, whenever it comes, overlooks the damage that has already been inflicted on Nova Scotians and Canadians through the process of deficit reduction.

Deficit reduction has widened the gap between rich and poor. Cuts to UI and social assistance, and layoffs, wage freezes, and contracting out in the public service have combined to drive down the incomes of ordinary Canadians. The stock market boom has reportedly created long line-ups of brokers waiting for new, $62,000 Porsches. Deficit reduction, on the other hand, has created longer line-ups at food banks.

Deficit reduction has added to the crisis in our health care system. You cannot cut billions through the CHST and not add seriously to the pressures that are already leaving many Canadians without adequate medical, hospital, or home care.

Deficit reduction has added to the crisis in education. Reduced federal funding for post-secondary education has increased the cost of going to university or community college and led to greater student debt. As the member for Kamloops said, the finance minister may be cutting his credit card, but students are reaching the spending limit on theirs.

Deficit reduction has also damaged primary and secondary education as the federal government has downloaded onto the provinces and provincial governments have downloaded onto school boards. In our province, school boards are now getting 10% less money to educate virtually the same number of students as that of four years ago.

The finance minister talks about reducing the debt so that baby boomers won't be a huge financial burden on their children and grandchildren thirty years from now. That may be a worthwhile goal, but only if we also ensure that the children and grandchildren of baby boomers are getting the kind of education and job opportunities they need to make a contribution as adults. Otherwise, we'll simply be robbing our young people to pay Paul.

Deficit reduction has had a direct impact on Canadians in all parts of the country. It has been especially hard on Nova Scotia. Bear with me while I tell you about the impact of spending cuts on Nova Scotia.

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The first number to keep in mind is this one. Nova Scotia has 3% of the population in this country, but 18% of federal spending cuts occurred in Nova Scotia. Between 1991 and 1995, 10,841 public sector jobs were lost in this province. That amounts to a cut of more than 10%. Nationally the reduction in public service jobs is a little over 4%. So between 1991 and 1995 the public sector in Nova Scotia declined at a rate some two and a half times greater than the national average.

The health sector in Nova Scotia has been hardest hit: 2,313 public hospital jobs were lost in this province between 1991 and 1995. That exceeded the number lost in the provinces of Saskatchewan, Manitoba, New Brunswick, P.E.I., and Newfoundland combined. That was before the CHST, I remind you. Is it any wonder our health care system is in crisis, our surviving health care workers stressed out?

The Prime Minister says it was all necessary; good for us. He's not about to apologize. He told us that when he was up in Moncton a few days ago for the Atlantic Vision Conference. His vision for this region includes further cuts, continued downward pressure on wages, and the entrenchment of regional disparity. The vision our Prime Minister holds is one where there are two classes of citizens in this country: the lucky and the unlucky. The lucky will have good jobs. The unlucky will have a low-wage, part-time job or no job at all. The lucky will live in some place such as Ontario or Alberta. The unlucky will live in Atlantic Canada or one of the other have-not provinces.

Don't get me wrong. I'm not asking the federal government to start showering us with gifts; or to use Frank McKenna's parting metaphor, I'm not looking for another fix from the pusher down in Ottawa. New Democrats reject the notion of dependency for Nova Scotia and Atlantic Canada. On the other hand, we demand our fair share. We want our fair share of economic opportunities and we want the same level of public services and social programs as other Canadians have.

Nova Scotians are proud Canadians and want to stand on their own. They can't do that if their health care and education and other social infrastructure are at a lower standard than that of the rest of Canada. We cannot build a strong economy while neglecting our health care and our education system.

We can't build a strong economy in Nova Scotia without a transportation infrastructure. Deficit reduction has had a serious impact on transportation in this province. Ferry service has been reduced, rail subsidies are disappearing, and we will soon have a toll road as an obstacle to the movement of goods into and out of this province. The federal government's commitment to maintaining our harbours and airports is also waning.

Deficit reduction has not left Nova Scotia lean and mean and ready to move forward. Too many Nova Scotians and too much of our social and physical infrastructure have been left in a weakened state. The damage done by deficit cutting must be addressed. The baby that was thrown out with the bathwater must be rescued. I would urge this committee to report that reality back to the Minister of Finance.

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

We now move to the representatives from the Maritime School of Social Work, Maureen MacDonald. Welcome.

Professor Maureen MacDonald (Representative, Maritime School of Social Work): Thank you very much.

I would like to start by pointing out that in each recession that has occurred since the 1970s here in Nova Scotia the welfare rates have swelled. Then following a recession, when there has been a bit of a recovery, the welfare rates have not been reduced in this province whatsoever. They have been increasing steadily. This would suggest that recoveries, such as they are, do not reach a particular group of people in our province. There are reasons for this. Weaknesses in social policy and federal public policy are responsible for the situation, and it has to be addressed.

As your committee goes around in the province you will hear from organized groups: organized labour, organized students, organized academics and researchers. I don't for a moment pretend to speak for people on social welfare, but they are disorganized and they will not be here to speak about their situation.

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So I think it's really important to talk a bit about who these people are and what the situation is, and why, following recessions, with people falling onto the welfare rolls, they can't move off.

First of all, the people on social welfare in Nova Scotia are overwhelmingly children and persons with disabilities. They are also quite often women who are responsible for the care of young children, and women who have endured quite often many years of violence in their relationships. Additionally, they are persons who have mental illnesses. There is a growing number of persons who are homeless, particularly single, unemployed men and women.

Many of the social programs that have been looking to target measures to deal with growth in poverty are targeted in a way that attempts to move people from unemployment insurance back into the labour force, but they do not attempt to move people who are on welfare into the labour force. What would be required would be programs that will respond to the pressing needs of persons with disabilities in terms of transportation, technical supports and aids.

Child care is a major issue for many people in these situations, as are training and education programs that do not require that you be on UI or have been in receipt of UI in the last, say, three or four months, since many of these people may have been out of work and on welfare for a considerable period of time and they just fall through those requirements. It's absolutely impossible to get back into the labour force without those supports.

What I'm saying is that the evidence indicates that we are creating a permanent underclass in Canadian society. In this province that's certainly the case, and it's borne out by the statistics in terms of the social welfare rolls. This is something I think we need to be very concerned about. There are specific measures we've talked about for many years that can deal with some of these problems, a national child care program, support for family resource centres, training and education, and so on.

The other thing I would say to the committee is that we've heard a fair amount about research and development around the high-tech types of industries. I fully agree with the concerns that have been expressed here by Dr. Dickson and others. I think it's important to point out that the research fund for the National Welfare Grants program, a program that supported research in the social work field in terms of applied social science and the training of graduate students at a doctoral level, for example, whose work would both contribute to our understanding of poverty and its causes and feature some programs that would eliminate poverty, has also disappeared. It was one of the first casualties of Mr. Martin's approach to deficit reduction.

So I think we need to revisit the cuts that have occurred. I support many of the speakers here today who have talked about the absolute need to reduce unemployment, to target unemployment as a serious problem. But I would like to argue strenuously for a full frontal attack on poverty as well and to suggest that poverty and unemployment, although connected, are not always the same thing. If all of our social policy is defined and driven from a value base and an assumption that we're talking about employment, then there will always be people in this country who will be impoverished and live in poverty, because not every person has the capacity to participate in the market economy.

• 1045

People with mental illnesses, for example, will require different kinds of social support to live with dignity in the community and to participate at some level. For persons in those circumstances, a full employment policy won't necessarily affect their circumstances in the way we would want.

I would say in closing that the final thing I'm really concerned about that we haven't really talked about a lot is that not only have the cuts that have occurred hurt in Atlantic Canada, but we haven't seen the end of them or any process of these cuts. In fact, we're at the beginning stages of these cuts. That's a real concern, especially when I think about the increasing number of people living in poverty, who they are, what the measures are in terms of trying to improve people's potential to participate in the market, and what the implications are for a certain number of people who are on the social welfare rolls in this province and in other provinces as well.

Thank you.

The Chairman: Thank you very much, Ms MacDonald.

Now we'll move to Mr. Paul MacLellan, president of the Association of Professional Engineers of Nova Scotia. Welcome.

Mr. Paul MacLellan (President, Association of Professional Engineers of Nova Scotia): Thank you, Mr. Chairman. I do apologize for not being able to make round table 1. I was unavoidably delayed.

The Association of Professional Engineers, APENS, is the self-governing body for some 4,300 professional engineers in the province. As president of APENS I am pleased to have been asked for general comments and a broad view of the issues regarding the federal budget and the federal fiscal policy.

It is our view that the federal government is on the right track with its federal restraint policy. The fact that the government may well be ahead of its projected timeframe shows exemplary fiscal control, though others may disagree with that. It should never again budget for a deficit.

Having said that, it is highly recommended that the government consider a significant tax reduction in the next budget for both income taxes and the goods and services tax—the HST in Nova Scotia.

While the national debt is very high in relation to the GDP, it is felt that paying it off over the medium to long term is the preferred option. This cautious approach, along with promoting growth in the economy, will see the debt become a more manageable proportion of the GDP.

Low interest rates have given the economy an enormous surge. However, the resultant high level of unemployment at 9% to 10%—the true rate is much higher than that, I'm sure—is unacceptable and must be corrected. This should be the highest priority for the government in the upcoming budget process. Addressing this problem will go a long way toward alleviating many of the social problems we now face.

It is felt that the government should provide the foundation for investment and reduce direct subsidies. Such a foundation, achieved through education initiatives, research and development and better strategic planning, will result in greater confidence among business, and hence increased investment.

Programs that recognize science and technology, such as the NCE program, should be enhanced by providing more funding and a wider scope. Additional similar programs should be constituted to support Canadian technology companies and allow a climate whereby unsolicited proposals in research and development can be accommodated.

Canada has many assets that enable it to achieve one of the highest standards of living in the world. In this knowledge-based economy, Canada is fortunate to have a very skilled technical community that can do much to improve the employment situation and promote economic growth without dramatic additional funding requirements.

We would ask that the government continue to support programs aimed at training, especially in technology. This can be achieved by funding research, not only in the traditional institutions but also in the private sector.

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The government must encourage not only the development of new materials and systems but also the rapid integration of these new developments into the Canadian infrastructure. This will provide for more cost-effective designs and will allow Canadians to continue to be on the leading edge in exporting engineering expertise.

Canada is well suited for the exporting of technology, particularly engineering services. From arctic to prairie to coast, and more recently, offshore, Canadian engineers are highly skilled and capable of making a significant export contribution to the Canadian economy. Indeed, Canadians are the fourth-largest exporter of engineering services in the world and now carry out 6% to 10% of all worldwide engineering services.

The current policy of downsizing the federal bureaucracy is supported. It is felt that many of the services Canadians need can be provided by the private sector at a higher level of quality and more economically due to competition, if for no other reason. However, it is imperative that the government continue to review and monitor its procurement policies so that barriers are removed and to ensure that a quality product or service is specified and received.

We wish to support the current initiative of the federal government in providing funding for infrastructure projects. However, there is not enough funding being put into replacing or upgrading our infrastructure. Further, the government needs to establish a central planning authority to examine the infrastructure requirements of the future and establish appropriate strategies, particularly in communications.

The government has made great strides in protecting the environment. It is encouraged to focus on environmental matters, in particular the requirement for comprehensive environmental research and environmental assessments by qualified individuals. While the cost of such assessments may appear high, it pales in comparison with the legacy costs of remediation and the unknown health effects. Indeed, such studies are an investment, not a cost.

Engineers at the provincial and national levels have the expertise and commitment to participate in the dialogue necessary to promote economic growth and innovation in Canada. We welcome the opportunity to sit at the decision table in the future.

As a final comment, Mr. Chairman, the government would do well to simplify the income tax system so that businesses and individuals could spend less resources on tax planning strategies and more on productive strategies.

Thank you for the opportunity to speak to you today.

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

We'll now move to questions and answers, first with Mr. Harris.

Mr. Dick Harris: Thank you, Mr. Chairman.

I don't really have any questions. I want to thank you all for coming today. Your presentations were very well given and very understandable. You're coming at things from different points of view.

Apart from thanking you, I want to make a comment here that in a perfect world, no one would be here with their concerns. Unfortunately, we don't have a perfect world. Our perfect world has been spoiled by over two decades of financial mismanagement in this country, which has resulted in a $600 billion debt, plus about $40 billion in service charges on that debt every year.

That's the real enemy. I strongly encourage you to help us fight that enemy so that we can conquer it and get back to some form of good financial management, while still recognizing all the concerns we have—the educational concerns, the research concerns, the social concerns.

So the tiger is not dead yet, the tiger being the deficit and the financial problems. It may be severely wounded, but it's not dead yet. Until we kill it, we can't start going to the party and celebrating our victory.

Thanks for your concerns. They were well presented.

The Chairman: Thank you very much.

[Translation]

Mr. Desrochers, please.

Mr. Odina Desrochers (Lotbinière, BQ): Thank you, Mr. Chairman. I would first like to thank each of the participants for their presentation. They show clearly what we have been hearing since the beginning of our travels, namely that the cuts in transfer payments to the provinces had some very serious consequences for major sectors of society, such as education.

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My question is to the representatives of the student associations who are here this morning, Ms Jessica Squires, Mr. Chris Adams and Mr. Paul Black.

As you know, we are now called upon to perform increasingly in a global economy, and the young people of today will be the leaders of tomorrow. Given this, how can we explain the behaviour of the Liberal government, which, for four years, has been taking away the funds and the tools you need to prepare for these challenges? Second, do you think education should remain under exclusive provincial jurisdiction, or do you agree that the federal government should once again go over the heads of the provinces to try to correct the mistakes it made in the past?

[English]

Ms Jessica Squires: May I respond? I'd like to address the whole question at once by talking briefly about the Canadian Federation of Students' earlier recommendation last year, and this year as well in earlier presentations, for the establishment of a higher education agreement, or post-secondary education agreement, that would be worked out by the council of administrative education of Canada and overseen by the federal government.

It seems fairly clear at this point that what is needed is for the federal government to step in and perform a mediating function at all levels of education, as well as in the other social programs. I believe you will hear that from more than just the Canadian Federation of Students in your travels.

The aspects of a higher education or post-secondary education agreement from the federation's perspective should include standards of accessibility—physical, financial and psychological—and portability of credits between provinces. Most important, it should be funded publicly and publicly administered. It also should be universally available to all Canadians no matter what their geographic region.

There has been a lot of development of policy on how such an agreement could be enforced by the Nova Scotia component, essentially leaving a facilitating role to the federal government and increasing the funding to the provinces to allow for those standards to be met and then encouraging provincial governments to legislate those standards at the provincial level.

The Chairman: Thank you, Ms Squires. Mr. Riis, or anybody else.

[Translation]

Mr. Odina Desrochers: I asked to hear from Messrs. Adams and Black.

[English]

The Chairman: Mr. Adams.

Mr. Odina Desrochers: Did you hear my question?

Mr. Chris Adams: I got the second part there for sure. In the first part you're asking about the effects of the cuts across the nation.

In terms of the role of federal government, I think the government should be looking into some sort of national standards board that would be able to look directly at the effects of accessibility to all Canadian students. It is imperative that students from any province would be allowed to attend any other province and that credits, as Jessica touched on, would be transferable from institution to institution.

It is incredibly important that we do have a strong national education base not necessarily run through the provinces. There is definitely room for the federal government, through directing funds to universities through the provincial governments, to play a large role.

The Chairman: Thank you, Mr. Adams. Mr. Black.

Mr. Paul Black: I'm not going to try to be redundant. I feel that Jessica and Chris have addressed the issue of a national education act. The creation of a national education act is what's needed at this point in time to ensure that everyone in this country has equal access and affordable education.

However, I do believe we part company from Ms Squires on the issue of total funding of your education. I think students should be expected to shoulder a portion. How much that portion is, I'm not going to be prepared to say, because I wouldn't want to implicate myself. But students should shoulder a reasonable portion. At this time I believe that portion is unreasonable.

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The Chairman: Mr. Desrochers.

[Translation]

Mr. Odina Desrochers: So you have no problem with the federal government getting involved in education, which comes under provincial jurisdiction? You agree to the federal government getting involved in education? Did I understand you correctly?

[English]

Mr. Paul Black: Yes.

Mr. Odina Desrochers: Thank you.

The Chairman: I'm sure you're in agreement with that.

Mr. Riis.

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

I have a rhetorical question for Paul. Assuming that students should assume part of their education costs, do you hold the same view with regard to grades 10 or 12? Why would we differentiate between grades 12 and 14? But that's a rhetorical question. I'm not asking, really.

Mike, when you go to conferences of economists, I'd be curious to see how you're treated. Your views seem to be so diverse compared with those of most economists I've heard. You're a refreshing breath of economic air, I must say. Again, that's a rhetorical question.

Some hon. members: Oh, oh.

Mr. Nelson Riis: I do have a serious question. After listening to those around the table and listening to the fact that 5% of the food bank users in Nova Scotia here are university graduates, after listening to the dilemma Robert told us about—people trying to access Jaguars and BMWs and finding they're all sold out, which is a problem for some people—and after listening to people tell us about the problem of accumulating student debt loads, the crisis in the granting agencies in terms of funding for research and development and other forms of research to keep us on the competitive cutting edge....

My question is for Paul. After what you've heard around this table, are you serious when you say that a priority should be income tax cuts now?

Mr. Paul MacLellan: We're not economists, of course, but having considered it, in terms of what to do with the dividend from the reduced or the zero deficit, we feel that income tax cuts are one way to help to keep the economy going.

Moreover, we felt that was one way to help decrease the unemployment rate, because we feel that unemployment is by far.... I think a lot of the problems talked about around this table stem from our high unemployment rate. I didn't specify what percentage of the dividend should perhaps be given back to all individuals in terms of not only income tax cuts but also HST cuts or federal sales tax cuts.

In order to get a broad perspective country-wide, that's one way of doing it.

Mr. Nelson Riis: I have a supplementary question, Paul. You're one of the very few people we've heard from who is advocating income tax cuts as a priority. Do you have any empirical evidence or any example you could show us where this income tax cut actually results in any jobs being created?

Mr. Paul MacLellan: As I said, we're not income tax economists, but this is the general view of the engineering community.

Mr. Nelson Riis: Thank you.

Prof. Mike Bradfield: Can I answer that as well? There was a study done for the World Bank by an economist who looked at the effect of the tax cuts in the 1980s when the OECD countries cut the average upper tax rate from 61% to 43%. The rationale for those tax cuts was twofold: first, to increase compliance with the tax laws on the assumption that if you were taxed less you'd be less likely to hire expensive lawyers; and second, the theory was that if you cut the taxes people will save more and invest more, and if they invest more you'll have jobs. The World Bank, which is not a radical organization, concluded that it did neither. People took the money and ran.

I can give you a reference to the specific study if you want it.

The Chairman: Is there any further comment?

Mr. Nelson Riis: If I may have one more question—

The Chairman: No. If it's another rhetorical question, you're not getting one.

Mr. Nelson Riis: It's a real question, and a very short one, for Jim.

The Chairman: Okay.

Mr. Nelson Riis: You mentioned as one of the suggestions in terms of youth unemployment, particularly disadvantaged youth, I suspect, as well, Scandinavian folk schools. Can you elaborate on that? This is the first time I've heard of it.

Mr. Jim Sharpe: They've been around for almost 100 years. They started in Denmark and have been functioning very well.

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There are remnants of that in this country. The Antigonish movement was based on a folk school concept. If you scratch the surface in this country, you will find all sorts of voluntary organizations doing these types of internships and placements, teaching real skills. We have had this experience in this country with these government grants, such as Opportunities for Youth, which has had very negative publicity. They were kind of opening the floodgates of all this money in the sixties. The Company of Canadians was another one with somewhat the same concept.

What I maintain is that rather than having a top-down program, a national program where the feds want to take all the credit for all these jobs or whatever, you empower the local communities, provide models of what can be done. There is a lot in the environment, obviously, and a lot in education and literacy. There is all this talk about literacy, and we have all these highly skilled unemployed people. Let's put them to work. Let's get the work done.

Ms Margaret Tusz: If I may I speak to that as well, I think the folk schools were started in Denmark at the time the Industrial Revolution started, so they were trying to deal with a lot of social and economic upheaval as well. It got the young people to become grounded in their own communities, and they didn't lose them to the other countries that had better jobs.

So there is a whole encompassing employment issue around that, as well as the nationalism. We don't talk about that as Canadians, about why we want people to stay in Canada and why it's great to be here. It grounds people in their communities. It fights against the globalization that is funnelling a lot of our resources elsewhere.

The Chairman: Are there any further comments?

Mr. Brison.

Mr. Scott Brison: First of all, I want to thank all of you for your interventions this morning. I have a unique perspective here. I studied under Mike Bradfield at Dalhousie—I graduated from Dalhousie in 1989—and Paul Black is president of Acadia University's student council, which is in my riding.

We recognize the importance of education not in terms of a spending initiative but education as an investment in the future. In fact, it plays a role from an infrastructure perspective. This morning we spoke about the infrastructure of the Halifax airport and the importance of investing in that. We speak of the infrastructure of roads and bridges in terms of somehow providing an opportunity for people to participate in economic growth. With the emergence of a knowledge-based economy and with 40% of our GDP being in trade now—and that figure is growing—we have an unprecedented opportunity in Canada. Certainly in Atlantic Canada we are well positioned with our post-secondary education infrastructure to do this, to actually invest in a comparative advantage, to actually invest in young people who will play a role in attracting the types—this has a preamble, by the way—who actually attract the types of knowledge-based companies and industries we need in Atlantic Canada. So I think the important thing is to create a linkage between those people and the job market.

You speak of income tax cuts. There is an area of tax reduction that has been hearkened back to quite a bit by people presenting to this panel—that is, payroll taxes. Payroll taxes have been proven to, or have demonstrated an ability to, hinder job growth. I think it is an area we have to address.

Linkage—that was my preamble. My specific question is actually relative to the presentations on biotech medical research. Our health care system has been under significant pressure across Canada, and particularly in Nova Scotia. We have precedents where, for instance, AIDS research and high-tech treatment and research into AIDS drugs has provided the potential to save the Canadian taxpayer a lot of money through using those drugs as opposed to the traditional health care system. With the pressure the health care system is under, do you see that this investment in high-tech biotech research can potentially justify itself in terms of what it will save the Canadian taxpayer?

Dr. Howard Dickson: I don't think there is any question about that. There are innumerable examples of where the implementation of a new technology in the medical area has saved, in the long run, millions of dollars. You simply have to look at the one that everybody at this table knows about, the polio vaccine. Think about what polio would have cost the Canadian economy, not only in hospital care but in lost productivity. That's the part of the equation that we do not often think about. It's a “no brainer”, as they say.

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I think that one of the difficulties as well that we face is with the potential loss not only of potential therapies but of the individuals, the people who have the knowledge to do the research. They are also the people who are working at the bedside to provide exemplary patient care.

In clinical and basic-science medicine we talk of the bench to bedside and back to the bench phenomenon, where the investigator will find a clinical problem, will be able to go to his laboratory, solve that, and then re-apply that knowledge at the bedside for better patient care.

In Halifax our hospitals, both the children's hospital and the Queen Elizabeth II health science centre, are the tertiary care referral centres for the whole of maritime Canada, and in some cases for Newfoundland as well. We cannot afford to have the individuals who operate in these hospital facilities leave and go to Ontario, to Alberta, or, even worse, south of the border. We have to provide here incentives to keep these individuals around, to keep them productive.

When they see their potential and the future disappear before their eyes, they're going to leave—and they are leaving.

Dr. Gerry Johnston: Let me just follow up on that. High-quality clinicians and physicians and clinical scientists leave because they're attracted by the cutting-edge technologies and the cutting-edge kind of thinking, the ability to exploit new information as it comes to the international stage. That's why you need this kind of research community as part and parcel of the whole health care delivery system.

If you have to think about the best health care delivery anywhere in Canada, where are you going to think about? What's the first place that pops into your mind?

Mr. Scott Brison: The best health care—

Dr. Gerry Johnston: Yes. If you had to get top-quality health care in Canada, where would it be?

Mr. Scott Brison: I would say at this point probably central Canada.

Dr. Gerry Johnston: Whereabouts?

Mr. Scott Brison: Toronto, perhaps.

Dr. Gerry Johnston: Why is that? It's because they can recruit and attract and retain high-quality physicians because of the milieu in which they find themselves. High-quality clinicians don't go to downtown Toronto because there's a good population base for care; they go because of the environment.

Mr. Scott Brison: My answer would have been very different from that five years ago. I probably wouldn't have seen the disparity between Nova Scotia and central Canada in terms of the provision of health care.

Dr. Gerry Johnston: This is a warning bell, though. You can dismantle this kind of intellectual infrastructure very rapidly. You cannot build it rapidly. It's not like a light switch. You don't turn it off and turn it back on.

Dr. Howard Dickson: That's the point. I think it really bears re-emphasizing. It is not a tap that you can turn off and then open again and it immediately starts to flow.

I think all of us at the table will agree that reducing the debt is important, but I don't think you'll get agreement that this should be the exclusive approach. It has to be a balanced approach. Some things in society need to be sustained. You cannot turn them off and expect that in five years, now that we've solved the debt problem, we can flip the switch, as Dr. Johnston says, and everything will be fine. It won't be fine.

The Chairman: Thank you very much.

Mr. Pillitteri.

Mr. Gary Pillitteri (Niagara Falls, Lib.): I think I have to be a little bit personal this morning, Mr. Chairman.

I'd like to thank everybody here for coming over to hear the presentation this morning. It feels good to come back here. It is home for me. I lived in Halifax from 1960 to 1963. I think my last home was on Edward Street, which is a parking lot at Dalhousie University now. I was in business here. As a matter of fact, somewhere under this building I had a business—room and food. That was from 1960 to 1963. It's gone by now.

Let me give some information here. I think I heard some misconception around this table this morning.

By the way, two of my children, my two daughters, were born here in Halifax. When I took them to the hospital, I never had to pay a cent, because at that time in Nova Scotia from the sales tax you supported the hospital. As a matter of fact, every citizen here in Nova Scotia was supported through the sales tax.

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I should of stayed here, I think, but all of us are parochial, and I moved back to Ontario after three years. Eight months later my son was born. I know I had to pay a bill to the hospital in which my son was born because I had no hospitalization in Ontario in 1964. It started in 1961 or earlier; I don't remember.

Besides that, I heard the word “inferior”. That's sort of bothersome, because what I should have done was stayed in Nova Scotia. When my kids required braces and dental care, they then would have had it, because you have it here in Nova Scotia. Your dental care and medicare system is here for anyone using their feet to go to the hospital.

Prof. Mike Bradfield: It's gone.

Mr. Gary Pillitteri: Is it gone now?

Ms Jessica Squires: Yes, it's gone.

Mr. Gary Pillitteri: Well, it used to be here—

The Chairman: That's not the only thing that left.

Mr. Gary Pillitteri:—until a few years ago.

If you take a look at medicare, you have possibly ten different packages in Canada, not one. You're not inferior to anyone. It's what the province is willing to give you.

I'd like to ask my questions now. You said something about universities losing out on funding. Of course, prior to this social transfer of payments, they were earmarked for post-secondary education, CAP—the Canada assistance plan—and medicare. Even though it was earmarked, a lot of it was never spent in those places. Instead of putting it into post-secondary education, British Columbia chose to build highways. So did Nova Scotia. It was not enforceable, and it was not working. As a matter of fact, the only province that was more into the tune of education was Quebec. It spent on education rather than building highways.

So the federal government's Canada assistance plan was not working. None of them were working. By combining the three, though, the province had the same choice it had before. Now, if you're not getting the cuts.... What we're hearing in Ontario is that, yes, we had a $1.2 billion cut in transfer of payments to the province of Ontario, but the province of Ontario chose to give a $4.9 billion tax cut.

So what I want to hear from you is whether you want to restore the transfer of payments to where they were, then allowing for the province to do as it wants, or whether you want more earmarking for this money. That is the question I would like to ask of the students because, in Ontario, they're saying not to give it to the province, but to try to give it to them directly.

Jim, another part of the question deals with science and the idea that there are no jobs. In the last Parliament, the high-tech industry in the Ottawa area came before the immigration committee and asked for more open immigrants to come in for the high-tech industry. Are you aware of that? They could not fill jobs. In the Ottawa area alone, there's a shortage in over 10,000 jobs in the high-tech industry. I'm not talking about how many shortages there are in Calgary or in the other parts of Canada. Maybe they should be coming here to Nova Scotia to find those people they need.

I have another question. The last part is for Mr. Bradfield. You've done such a study on Alabama, Massachusetts, and how hard it is to get unemployment insurance, and how hard it is to qualify for employment insurance in Canada now. Did you also do a study on how much people receive in Alabama or Massachusetts when they are unemployed, versus how much they receive here in Canada? You also talked about repatriation of the debt by the Bank of Canada in order to at least relieve 25% of the debt. Why not 50%, or why not 100%? How much money does it have to print?

The Chairman: Are those all the questions?

Mr. Gary Pillitteri: Those are all of my questions for now, but I'll be more than happy to ask others during the second round.

The Chairman: Go ahead.

Mr. Jim Sharpe: Just to start on that science question, I think it's a fascinating question. I also look at those statistics about this shortage in high tech, and at the statements from the Canadian Federation of Independent Business on how hard it is to get people. I think there is a real problem here between the expectations of the employers and what's available.

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Now, maybe work needs to be done on that transition and a lot of groups are being set up to look at that transition from education to work. Co-op programs obviously help move that expectation. But I would maintain that an awful lot of those jobs that are going begging are for people who don't exist, because industry has not trained enough people. They just do not train people. They want them coming fully formed, maybe for a six-month contract, maybe for a one-year contract. They want disposable workers.

That's particularly endemic in the software industry. In 2000 they want someone to come in who has so many years of COBOL programming, to have them fix a problem, and the problem is going to be gone. There's going to be nothing there in the future. There really is no long-term thinking on how we're going to develop people.

There are a number of private schools. We have one here called the Information Technology Institute. They have jumped into the gap and they are doing some things. I know a number of public institutions are doing a number of things on that. But it's just a fundamental rethinking we have to do of what our human resource needs are and what the role of both the employer and the educational institution is in solving those needs.

Mr. Paul Black: I think there should be earmarking. As I've presented in my brief, it should be earmarked directly to PSE so there's no dissension from the provinces.

Ms Jessica Squires: It's the federation's position that the problem with the CHST was twofold. First, it was a block fund transfer, which made the possibility of the provinces not targeting the funding to where it is most needed even more than it had been in the first place. If the federal government wanted to ensure that the provinces were funding education adequately, they should have put more money into the pot, not created the CHST, and certainly not cut the funding.

So the problem is twofold. There's not enough money and it's a block transfer. We need to reverse both of those things. Further, I would like to remind you that the cuts began five years before the CHST was implemented.

Mr. Chris Adams: I would like to reiterate what Paul said. If earmarking is necessary and if that's an agreement the federal and provincial governments can get together and work on, then that's the way it should go, an agreement between those two parties. We would probably be better off to have quality standards in all social programs across Canada if the federal government did earmark, did stipulate where the money was supposed to go. But that's not a monetary issue. I think that's a provincial rights issue.

Prof. Mike Bradfield: The reason for showing you how we compare with Alabama is to show you how mean-spirited we have become in accessibility to unemployment insurance. The level is a second matter, and I don't have data on that.

On your question about the Bank of Canada, if we're going to move back into the situation of the 1960s, where the bank held 20% to 25% of the federal debt, that would take roughly $60 billion additional holding by the Bank of Canada. At current interest rates you can figure out how much that would save the government, because that's essentially a zero interest rate proposition.

If you're raising the issue of how much money is necessary in the context that printing money is inflationary, that is why I propose that in addition to the Bank of Canada holding more of the federal debt we return to the 1960s with the reserve requirement on chartered banks and all financial institutions, which forces them to hold a certain amount of money from the Bank of Canada and therefore isolates the effect of expanding the money supply.

However, if you will refer to the Governor of the Bank of Canada's statement to the finance committee of the House of Commons about three years ago, he claims there's no longer a connection between the money supply printed by the Bank of Canada and the total money supply. If he's correct on that—and I think he's wrong—then we don't have to worry about how much money we pump out. But the real answer is reintroduce the reserve requirements and you avoid any inflationary effects of having the bank hold more of the federal debt.

Mr. Gary Pillitteri: The last amount in reserve was only 5%. It kept going down. There were about six declines, right to 5%. So there was no need. Most of the countries in the world do not have deposits by the banks.

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Prof. Mike Bradfield: Only three countries don't have reserve requirements—Switzerland, the U.K. and Canada. All other countries in the world require reserve deposits. We have gone from 20% down to 5% by the Bank of Canada. At the same time, the mirror image of that, foreign holdings of our debt, have gone up from 3% to about 22%. So the bank has turned over the money supply and the financing of the debt to the private banks in Canada and foreign investors, which is just plain dumb.

The Chairman: Mrs. Redman.

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you.

Ms MacDonald mentioned dealing with poverty in a holistic way. There were several themes in Minister Martin's financial address and one of them was looking at partnerships and dealing with things in context. It's something that from my experience I can really support.

You have to know that a lot of the things you're saying here are concerns we've heard in both Edmonton and in Vancouver, and are certainly reflected in our own ridings. I happen to be from Ontario. One of the things that was pointed out to us in Edmonton was that we have not defined poverty.

I would be interested in a reflection from you on that, Ms Tusz, and on if that's achievable.

Another issue that was brought up in Edmonton was a lack of mobility going after jobs and the fact that they felt there were some impediments. I know you were talking about the one example of schooling and helping to create a community that would keep people there. I was just wondering how you would reflect on the mobility within Canada as well, in looking for jobs.

Ms Maureen MacDonald: Your question around defining poverty is an ongoing debate in the social welfare field. Historically, we've used poverty lines, which are just income amounts. They've been shown to be absolutely inadequate in terms of a real measurement of whether or not people are able to actively participate in their communities and thrive—make a contribution and live personally satisfying lives. So we've reduced a very complex phenomenon to numerical measurements.

Increasingly there is debate now about social inclusion and social exclusion and developing measurements that move beyond numerical kinds of features. When you look at people in poverty in Nova Scotia on social assistance, for example, clearly and historically the National Council on Welfare has indicated in its report since the very beginning that Nova Scotians receiving social assistance have fallen far below the acceptable poverty lines.

Beyond that, we now need to look at the discourse being generated around training and education and participation in society, which is very market driven. We need to understand that there is a permanent underclass being created. It's not just a question of people living on inadequate amounts of money; it also isolates them from all aspects of community life.

We need to be able to redefine poverty. We need to be able to assess our social programs, not just in terms of whether or not they're allowing people to be consumers and pay adequate rents and live in adequate housing. Those things are very important, but our quality of life depends on much more than just our ability to consume. That's one of the things people in the social welfare field have started to argue for and look at in terms of how to evaluate the social programs we have. I think we've really reverted to a form of social welfare provision that is tied entirely to the market, and that's highly problematic for a lot of people—for children, for example.

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Ms Margaret Tusz: Can I get clarification on your question? Is the mobility of people to seek work what you're thinking of?

Mrs. Karen Redman: Yes.

Ms Margaret Tusz: Traditionally...for instance, when Jim was talking about the Antigonish movement. That was started at the time, in the 1920s and 1930s, because the best and the brightest were leaving the rural areas and going into the city, going into other provinces. The rural communities became bereft of natural leaders who might otherwise have stayed in another era.

So this kind of schooling and this kind of leadership development is something that helps people be grounded in the community so that they will stay. As well, it attracts industry to that community.

Of course, with our borders going down, people are going not only to the city but also to other countries, other parts of the world. I think someone alluded earlier to the fact that we're losing a lot of our resources, all of our people, in the rural areas. It's a real rural-urban, first world-third world, issue. All of those kinds of things are happening.

I see the mobility issue as getting some of the industries into communities, the cottage industries. With the knowledge-based industries, that's really something that's reasonable for us to expect in, for instance, the Atlantic provinces.

The Chairman: Thank you very much.

On behalf of the committee, I'd like to thank everyone. This was a great round table. The points of view varied, and the perspectives were quite different. This is the type of exchange we'd like to hear. It does provide us with a total picture of the challenges and the choices we face as we deal with this new economic era—and it has to be referred to as that.

Once again, on behalf of the committee, thank you so much.

We will adjourn until 1.30 p.m.