FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, October 30, 1997

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[English]

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

As you know, pursuant to Standing Order 83.1, the finance committee is holding pre-budget consultation hearings not only here in Ottawa, but we've criss-crossed the country to seek input from Canadians on the way we should be dealing with the upcoming budget.

This morning we have the pleasure to have with us representatives from the National Anti-Poverty Organization, the Canadian Council for International Cooperation, and the International Centre for Human Rights and Democratic Development.

As you know, witnesses, you have approximately five to ten minutes to make your presentation. Then we'll engage in a question-and-answer session.

To begin this morning's session I'd like to welcome Lynne Toupin, executive director of the National Anti-Poverty Organization, and Mr. Richard Shillington, research associate. Welcome.

[Translation]

Ms. Lynne Toupin (Executive Director, National Anti-Poverty Organization): Good morning, Mr. Chairman.

[English]

Just to be clear, how much time do we have to present?

The Chairman: You have approximately ten minutes to give us an overview, and then we get into the question-and-answer session.

Ms. Lynne Toupin: Right, thank you.

I would like to thank you for providing the National Anti-Poverty Organization with the opportunity to make a presentation before your committee once again.

For those members who are not familiar with us, we are a national non-profit, non-partisan organization that's been in existence for 26 years, and whose mission is to eradicate poverty in Canada. We are unique in that our 22 board members must currently be living below the poverty line, or must have lived in poverty at some point in their lives. They are the ones who guide the policies and direct the work of the organization.

Our four key functions are to advocate on issues of concern to low-income Canadians, raise awareness and educate Canadians about poverty issues, conduct research, and give support to local and provincial anti-poverty groups.

Our network consists of over 325 group members, as well as individual members. We have a short timeframe to make a presentation this morning, but we would like to raise three key points with you.

First, there is the need to reaffirm that the poor in Canada have been disproportionately hard hit by the impacts of the federal cuts to social programs in the quest to reduce the deficit.

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Second, we would like to make two recommendations on where the federal government should begin to strategically reinvest in social programs.

The third point is to call for selective tax cuts that will directly benefit low-income Canadians. To that end, Richard Shillington, an associate with the National Anti-Poverty Organization, will be making a short presentation on that particular point, with specific options you may wish to consider.

First, the poor have been hard hit disproportionately. The announcement and subsequent implementation of the CHST has created significant hardship for the poorest of the poor, persons on social assistance.

With the move to block transfer payments for health, post-secondary education and social assistance, and reductions in the dollar transfers going to the provinces, there were widespread concerns among anti-poverty activists that social assistance programs would be cut, as they consistently garner the least public support by the electorate.

Recent research conducted by NAPO on major changes in the welfare systems on a province-by-province basis has in fact confirmed this. During the past three years B.C., Alberta, Ontario, Quebec, Nova Scotia and P.E.I. implemented significant cuts in welfare rates. Welfare rates in Saskatchewan and Newfoundland remain unchanged, but their value in constant dollars has declined. Welfare rates in New Brunswick remain the lowest in Canada with single employables receiving $250 per month. Most provinces also reduced special in-kind benefits, and/or tightened eligibility conditions.

All these have occurred in the context of relatively high unemployment rates overall, with certain regions suffering from unemployment rates much higher than the national average.

Furthermore, provinces have reduced access to training for welfare recipients, or modified their training programs so they are now workfare programs. Where training opportunities are available, demand far exceeds supply.

With the combination of high unemployment, little or no access to training or education, reduced welfare rates, and tightened eligibility requirements, there are growing fears that we are in essence further marginalizing the poorest of the poor by reducing or eliminating opportunities to escape poverty.

With the end of CAP, the Canada Assistance Plan, it has become clear that the federal government has no intention of addressing the issue of social assistance rates and social service programs, as these are within the jurisdiction of the provinces.

Nevertheless, I think it is important for this committee to recognize that the living conditions of welfare recipients across Canada are deteriorating. They are now more frequently subject to personal abuse, because they are being blamed for their own poverty.

If we continue to routinely ignore the needs of the poorest of the poor in this country, we will be witness to the development of an intractable permanent underclass in Canada, similar in many ways to the permanent underclass that now exists in the United States.

We are also currently finalizing a report on provincial government expenditure cuts, and other changes to health care and post-secondary education, with an assessment of how these changes have particularly impacted on low-income Canadians.

In the area of post-secondary education our findings will come as no surprise. First, low-income students remain greatly under-represented, especially in universities.

Second, the rapid increase in tuition fees, combined with the disappearance of needs-based student grants in most provinces, has imposed a major financial burden on students from low-income families in the form of much higher debt loads.

Third, the rapidly increasing costs of financing post-secondary education will in all likelihood reduce even further the already low representation of students from low-income backgrounds.

Finally, the barriers to low-income single parents seeking to participate in post-secondary education have now increased due to changes in provincial welfare programs that make post-secondary students ineligible for welfare. They must now rely solely on student loan programs, which were never conceived to provide financial support for persons with dependents. Thus, poor single parents who wish to pursue post-secondary education are incurring excessively high debt loads. The only other option they have is to stay on welfare.

Given our findings, we are asking that the federal government move quickly to establish a national system of needs-based student grants so students from low- and modest-income families with the necessary academic prerequisites may be able to access post-secondary institutions.

We would also urge the federal government to take up the issue of access for single parents, and to push provincial governments to modify their regulations to allow for the provision of income assistance for dependants.

We also have concerns that the scholarship fund that is currently being promoted by the government will be beneficial to only a small and very select number of low-income, but very high achieving, students.

Furthermore, we feel the problem of access is reaching crisis proportions, and we cannot wait for the new millennium to begin to implement a grants programs of this nature.

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Ability to pay has proven to be a real barrier in post-secondary education. It is also becoming a critical issue for our constituency in health care. The introduction of co-payments and deductibles for pharmacare programs for welfare recipients, the delisting of certain drugs and services, the lack of pharmacare for the working poor, the introduction for a variety of fees for items ranging from neck braces to colostomy bags, and the cost of home care are all disproportionately affecting the poor more so than persons with average or above average incomes.

As a result, more and more poor Canadians are now faced with the spectre of either doing without appropriate health care, or depriving themselves of other basic necessities of life in order to pay for it.

While medicare continues to cover the costs of medically required doctor and hospital services, low-income Canadians are especially affected by growing inequities, and access to other fast-growing segments of health care, such as home care and prescription drugs.

We therefore urge the federal government to move much more quickly to implement a national pharmacare program, and to investigate the ways and means that home care can become a universally covered medical service.

Because low-income Canadians are proportionately much less healthy than high-income Canadians, failure to deal with these growing inequities will ultimately mean that more pressure will be brought to bear on the existing health care system.

We already know of poor parents in the low-wage labour market who routinely go without medication for themselves, because they choose to feed their children instead. Many of them invariably land up in the hospital, thereby costing the taxpayers much more in the end.

So there are two basic key recommendations, recognizing, again, that the biggest concern we have is the fact that we are further marginalizing and, quite frankly, ghettoizing welfare recipients in Canada. But we also recognize that the national government does not have any particular interest in dealing with this problem at this time, so we are making two recommendations.

One recommendation is in the area of health care: please move on the pharmacare program as soon as possible, because we are seeing the effects of not having a universal system. We are also seeing the effects of home care, and how it is in fact creating very severe hardships for low-income people.

The second area is a national needs-based system of grants for access to post-secondary education.

Mr. Shillington will now take up the final point of our presentation, regarding selective tax cuts for low-income Canadians.

Mr. Richard Shillington (Research Associate, National Anti-Poverty Organization): I'm just going to highlight a couple of points that I think should be discussed, and perhaps in a roundtable forum we can discuss them in more detail.

First, before we talk about tax cuts, we should recognize that taxes are still being increased on an annual basis. I'm sure that we in this room are all aware of the fact that the tax system is not indexed; the credits for children, the child tax benefit, is not fully indexed to inflation; the GST credit, which protects low-income families from the regressive GST tax, is not indexed to inflation; the disability credit is not indexed to inflation; and all the income tax brackets are not indexed to inflation.

Before we start talking about tax cuts, perhaps we should end the tax increases, tax increases that we all know are making the income tax system more regressive over time. These tax cuts hit low-income families and individuals harder than higher income individuals. So let's acknowledge that.

One of the unfortunate aspects of the way this is done with inflation is that there's no accounting for these tax increases. It's not passed by the House, and it's not in the accounts. There's no way of getting information about the additional revenue the government gets, and the distributional effects.

Moving on to talk about tax cuts, I just want to point out that we have choices about how we cut taxes. A lot of the public discussion in the media seems to automatically assume that a tax cut would be something like an across-the-board tax cut, a 30% or 10% tax cut.

Of course this is a tax cut that would do very little to assist the poor. It would do very little to assist those who don't pay income taxes. Because the tax system is nominally progressive—it makes an effort to be progressive—an across-the-board cut would do very little for the poorest of Canadians.

So an income tax cut would be the tax cut that would do least for the poorest of Canadians. A cut in the consumption tax, a cut in the GST—the GST is acknowledged to be a regressive tax—would do more for low-income Canadians. It would still give some benefit to higher-income Canadians, because higher-income Canadians still buy furniture, goods and cars, and things like that, but proportionate to income, it would do more for the poorest.

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If you wanted to do a tax cut that really helped the poorest the most, then you would go to one of the refundable tax credits. You would actually look at expanding the GST tax credit, or the child tax credit, or you would come up with another type of tax credit. But in terms of the mechanisms that are now in place, those are the only ways to do that.

I also want to talk a minute about RRSPs. In Mr. Martin's comments in Vancouver a couple of weeks ago, he said they would be increasing assistance for private pensions and for RRSPs as soon as circumstances permitted.

This discussion has been going on for some years now, and I'm still perplexed. I don't understand the eagerness of the finance department to increase tax assistance for people whose retirement incomes are $60,000.

We have a situation now where the seniors benefit will reduce public support for retired couples when their family income exceeds $50,000—and this is done in the name of fairness. At the same time, we're increasing RRSP limits, or we wish to. We certainly have increased them over the last seven or eight years, increasing them in ways that only assist those people with very high incomes. This is done to increase the assistance for people with retirement incomes of $60,000—on an individual basis, not a family basis. We are told this is also done in the name of fairness.

So I don't understand that. I don't understand the eagerness of the finance department in doing this. I would have thought that given the deficit and those issues, the finance department would have not been so eager to increase this tax expenditure, especially since in an era of targeting this money will go to those who are least in need.

Let me turn to one of the reasons for my concern about this. I'm sure you will have heard the argument that the reason we are moving over time towards a $15,500 limit for RRSPs is that this will provide equitable treatment of self-employed people vis-à-vis people with registered pensions.

You need a $15,000 RRSP limit to give you equitable treatment, compared to somebody with a registered pension of $60,000. This is $60,000 at retirement; this is not $60,000 pre-retirement. These people are in the upper end of seniors. These are not poor people.

What has not received much attention is the fact that in order to make that assessment—that a $15,000 limit is fair—the finance department has assumed that your RRSP would earn 3.5% a year. That is 3.5% a year after inflation. That's a real rate of return.

In 1990 a finance department official appearing before this committee said that when rates of return are higher than 3.5%, we've set the limit too high. Now, anybody with investment knows that even in a bond market you're earning more than 3.5%. There should be no rush to increase RRSP limits. In fact, the $13,500 we have now is more than adequate at current rates of return.

So I don't understand the economic argument for increasing RRSP limits, and I don't understand the tax arguments for doing it. I do understand the political arguments for doing it, because any move to decrease RRSP limits is going to be met with editorials about a tax grab.

That's the end of my comments.

The Chairman: Thank you, Mr. Toupin and Mr. Shillington.

We'll move to the next presentation, which will be made by the representative of the Canadian Council for International Cooperation, Ms. Betty Plewes. Welcome.

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

[Translation]

Thank you for inviting me to address the committee today. The choices you must recommend for Canada's next budget are difficult ones. There is a range of important issues to tackle from insuring continued attention to the debt and deficit to ensuring a society where Canadians are healthy, secure and well-equipped to tackle the challenges of our times.

The Canadian Council for International Development, the CCIC, is a coalition of Canadian non-profit organizations committed to promoting international development.

[English]

We have about 100 members, non-governmental organizations, and we are also a part of the Voluntary Sector Roundtable, which I think made a presentation to you on Monday. We support the recommendations they have made.

In addressing the questions this committee has laid out, I have three key messages I want to share with you today. The first is with respect to economic assumptions and prudence factors.

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I'd like to start from the shared vulnerability that Canada faces as part of the international system, and discuss the reasons overseas development assistance is a critical tool for Canada in managing the challenges of the global system.

Second, I want to make the case that issues of great priority to Canadians, like the environment, health care, and child poverty have global dimensions. They must be attacked globally as well as locally. Development assistance is a strategic investment in this regard, since in a knowledge-based economy it allows us to contribute to, and learn about, solutions to shared problems.

Finally, I want to suggest that at this critical juncture Canada has a singular challenge and obligation to provide leadership in international cooperation.

First, let's start with the big picture. Canada finds itself in an era of unprecedented global interdependence. If we look at the recent nosedive of Asian stock markets and currencies, this speaks volumes about the implications of interdependence.

Although stock markets have rebounded considerably in recent days, the TSE's recovery has been more modest. This is partly because the Canadian market is more tied to the natural resource sector, which will be quite affected by the Asian slump. But there's a human dimension to these crashes, as well. Last week Barron's estimated that the middle classes and the poor in Asia will suffer a 30% drop in income as a result of this crash in the stock market.

There are two undeniable features about the current international system. First, there is an alarming growth in poverty, and second, an alarming growth in inequity.

I'd like to underline the fact that the poor are not a global minority. In fact, an astounding 4.3 billion people in the world today live on less than $2 a day. Despite the rapid economic growth over the last 30 years, the gap between the richest 20% of the world's population and the poorest 20% continues to grow. In fact it is twice what it was 30 years ago. This is not a prescription for fatalism or for passivity. In fact it's a challenge to engage in these international issues.

When talking about aid, some people begin then quickly to move to say that trade and private investment are really the answer to the issues of international poverty. There is no doubt that private capital and trade play an exceedingly important role.

One of the problems, however, is that private investment is not directed towards the poorest countries. In fact last year 73% of foreign direct investment went only to twelve countries, and, of those, only two, India and China, were poor countries.

The second problem is that private investment is generally not invested in priority areas such as health and education. I'd like to underline the fact that well-targeted aid can and does work. Over the last 30 years we have seen a decline in child death rates, a decline in rates of malnutrition, and an increase in primary education enrolment.

Unfortunately, for the 1990s the social indicators for poor countries have either begun to decline or have stagnated. We are in danger of losing the gains we have made over the last 30 years.

This brings me to my second point, which is that we cannot adequately address issues of concern to Canadians, such as health, education, and environmental protection, without recognizing the global dimensions of these problems. The Canadian government's own policy statement recognizes that foreign policy is an extension of domestic policy, and I believe that is true.

If we cannot invest in human security, then we will pay the price in emergency assistance, peacekeeping and certainly human lives and dignity. The more Canadians are engaged in solving global challenges, the better placed we will be to bring home applicable solutions from around the world.

My final point is about the special role Canadians see for Canada on the global stage. We have made magnificent efforts to boost Canadian gains from international trade over the past 10 years. Unfortunately, our efforts to increase the prospects of the world poor have plummeted.

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Next year, if the projected cuts to aid go ahead, we will reach a 30-year low in Canada's aid program. We have fallen from the fifth-largest OECD donor to the eleventh place. Since 1991-92, if we continue the projected cuts for next year, we will have seen a 40% cut to Canada's aid program. In my view this is a moral failure, it tarnishes our hard-earned internationalist reputation, and it leaves us poorly equipped to engage in global problem-solving.

Canadian citizens demonstrate their commitment to helping the world's poor through voluntary contributions. In 1995 these contributions were up from 1992, and in 1995 they totalled almost $400 million.

Our recommendation to this committee is to call for the cancellation of the projected 8% cut to foreign aid planned for next year and to recommend that the government establish a calendar to rebuild an effective Canadian aid program.

Thank you.

The Chairman: Thank you very much, Ms. Plewes, for putting this issue in its global context.

Now we will hear from the Honourable Warren Allmand from the International Centre for Human Rights and Democratic Development. Welcome back.

The Honourable Warren Allmand (President, International Centre for Human Rights and Democratic Development): Thank you, Mr. Chairman.

I appreciate the opportunity to appear here this morning and to see so many familiar faces. I was surprised that I was appearing with social organizations, but I noted in looking at your schedule that there was no other place for international organizations dealing with international stability and security. However, I'm pleased to be here.

I'll just say a word about the centre. The International Centre for Human Rights and Democratic Development is a Canadian institution with an international mandate. It is an independent organization that promotes and defends the democratic and human rights set out in the International Bill of Human Rights, and in cooperation with civil society and governments in Canada and abroad, initiates programs—principally in developing countries, but not always—to accomplish those goals; that is, to promote and defend democracy and human rights.

With respect to the three questions you had in your announcement of these meetings, first of all, the Minister of Finance has stated that in the next year he expects continued economic growth, more jobs, and the elimination of the annual budget deficit—all good things. There have also been rumours or statements to the effect that he expects there will be more revenue available for social programs.

I of course welcome any government commitment to allocate more funds to social development, health care, and post-secondary education and to establish long-terms goals in these areas, but such a commitment—as my colleague from the NGO community, Betty Plewes, has said—must be accompanied by an increased effort to maintain international peace and stability.

The cutbacks in recent years to international development, conflict resolution, peace-building, democratic development, and efforts to promote human rights have significantly jeopardized these areas and have threatened international peace and security and other measures directed to the prevention of conflict.

I would argue strongly that such cutbacks are short-sighted in that often they contribute to greater expenditures down the road, when we have civil wars or international conflicts that spread beyond borders. These conflicts cost Canada and other countries high amounts in emergency assistance, additional peacekeeping resources, and provision for a large number of refugees, often on our own shores.

International conflict also disrupts international trade and distorts priorities for domestic programs, especially for social programs.

So simply from an economic point of view, it would be more logical to assure essential international development programs that would help prevent such occurrences, which cost us more in the long run.

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If we look at the civil and regional wars in Rwanda, Somalia, Yugoslavia, Guatemala, and the Middle East, just as a few examples, these conflicts have originated in human rights abuses, the suppression of democracy, economic disparity and poverty, the emergence of economic and political elites, or the sale of arms and excessive militarism. Therefore, programs have to be addressed to those issues if we want to reduce instability internationally.

In addition to the economic reasons—and I put the economic reasons before this committee because you're the finance committee—there are also important moral and humanitarian considerations.

Would we Canadians want to live in a world where people would ignore us if we were subject to the same atrocities as in the Holocaust or the genocide of Rwanda or the ethnic violence in Bosnia?

As Betty Plewes pointed out, in the 1997 budget there was a provision for another 15% total cut for official development assistance. This year the percentage of official development assistance—and that includes such things as peace-building and so on—as a percentage of our GNP will be at the lowest level since the mid-1960s, at 0.27%.

The target, which was established in 1970, of 0.7% of GNP—and by the way, that target was developed with the assistance of Canada; Canada was one of the principal supporters of that target—has been slipping away from us continually since the mid-1980s. Only four countries have reached that target, and we should be among them, but we're not. The four countries that reached the 0.7% are Denmark, Norway, the Netherlands, and Sweden.

The really unfortunate thing—and this is where I concur with the recommendations of Betty Plewes—is there's been no plan so far to stabilize or increase development assistance beyond the 1998-99 figures, despite the fact that the federal deficit will be eliminated, even well ahead of the target originally set.

If you look at the policy document called Canada in the World of 1995, which was a document of the Liberal government of 1993, they said, and I quote:

Recognizing the importance of ODA, the Government remains committed to improving its effectiveness and to making progress towards the ODA target of 0.7% of GNP when Canada's fiscal situation allows it.

I submit to you that it will allow it in next year's budget, and therefore there should be measures to stabilize or once again increase ODA.

I want to make another few points. In our own small centre, the International Centre for Human Rights and Democratic Development, we were cut as part of the 15%. We were cut 8.3% this year, 1997-98, and we'll be cut another 8.1% next year, which amounts to about $800,000 out of a budget that used to be $5 million. So we go down quite considerably, and jobs will be eliminated and important programs in key countries will be eliminated.

For my final point, you asked about jobs. Well, the jobs for Canadians in international development are very good jobs and there are many jobs. As Betty Plewes pointed out, there are 100 NGOs in the coalition that makes up the CCIC—Peace and Development, OXFAM, CUSO, Child Care, and so on.

The jobs in international development are of all kinds and require people who are university-trained or technically trained: nurses, therapists, teachers. All sorts of people work in international development. There are very good jobs there.

My conclusion is this: spending on preventive measures to maintain international peace and stability not only serves humanitarian and social goals, but in the long run saves money that you'd have to spend on peacekeeping, emergency assistance, and refugee settlement.

I urge the committee to look at the moneys we spent on those things because we didn't do enough in a preventive way in the first place. The money saved could be used for the social programs that NAPO and others are suggesting.

Thank you very much.

The Chairman: Thank you very much.

Now we'll move to the question-and-answer session. Mr. McNally.

Mr. Grant McNally (Dewdney—Alouette, Ref.): Thank you.

I thank you for your presentations this morning and for making the effort to be here to express your views.

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I listened with great interest to the first presentations and what you had to say about poverty in our country, which is that it has a human face. Indeed, it certainly does. I meet people within my own riding who are struggling with making ends meet and are affected by cuts in health care and welfare payments.

I think just maybe to set in context all of your presentations this morning and why it is we're at this point, there's the fact that we have this large national debt and this large amount of money we're spending every year that's being collected from taxpayers to apply to servicing the interest on that debt to the tune of $45 billion a year, which indeed is a large amount of money that could be directed to the areas you're talking about.

I think it was Mr. Shillington who mentioned selective tax cuts and looking at them as a way to address the needs of people who are suffering in our country. I would agree with this. You mentioned that maybe we should stop increasing taxes, first of all, which we would agree with as well.

You also mentioned a cut in the GST. You said that this would be an idea for helping low-income Canadians, whereas a general cut in income tax might not address low-income Canadians to the same degree. I would agree that a cut in the GST would definitely help low-income Canadians.

You also mentioned the retirement income of retired individuals and addressing those concerns. I think we have a generation of Canadians who worked hard to build this country for 40 years or 50 years who have put their money aside for their retirement years. You mentioned the RRSP limits. I think perhaps the government is looking toward having people maybe taking a little more responsibility for their individual retirement future. We're looking at an ever-shrinking amount of money for all these areas.

I also listened to the second presentation carefully. It was interesting to see the balance between the two. We have concern for people in our own country, and then we're speaking of people who are in need across the world. We understand and see that over the years, there have been a large number of difficulties.

I have to ask myself what our priorities would be in terms of the international context versus the national context. There was the suggestion made by the first group of presenters that a focus on the people in our own country would come before looking at foreign aid, although both are very important.

I have a question for Mr. Shillington. You talked about selective tax cuts and how that might help low-income Canadians. I wonder whether you consulted with any groups or had a look at any specific implements that could be put in place for that to help low-income Canadians.

Mr. Richard Shillington: I haven't done any studies. Lynne knows that I've been interested in this question for some months. I would urge you to ask the Department of Finance to come forward and tell you about a range of possible tax cuts—I would be happy to give you a menu—and what the distributional effect of each of those various tax cuts would be. You could increase the GST credit or the child tax credit, or cut the GST rate.

For each of those tax cuts of say $1 billion, what proportion of that money would go to low-income families, when compared with how much low-income families get from a GST credit increase or a reduction in the GST rate? What about an across-the-board tax cut or an increase in the personal credit? How much would low-income families get from an increase in the RSP limit? You could ask them all of those questions. I think that's their role, not mine.

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Mr. Grant McNally: I would agree with you on that point. Thank you.

Take an overall look at where we are. There's the fact that we are $600 billion in debt. We're putting this large amount of money into servicing that debt and it has a direct effect on all these programs. We're looking at having to prioritize now. The government has addressed the deficit, although individuals in our party would say that this was through putting higher taxes on the backs of people who are suffering. But we applaud the government for addressing the deficit.

Ms. Lynne Toupin: Could I just respond in two ways? First of all, in relation to the debt-reduction issue, there's a continued assumption of economic growth. We know that if there is continued economic growth, then the debt will be reduced over time.

The second thing we have concerns about, as an organization representing low-income people, is that if the government is to put a lot of emphasis on debt reduction at the expense of addressing some of the problems we have identified this morning, then it's a bit like somebody paying off the mortgage but not feeding the kids. We really do have to bring some balance to this issue.

We're not thrilled with the way the government has come out with the 50-50 proposition, but certainly it's more equitable than what the BCNI is calling for, which is a total emphasis on debt reduction. It doesn't make sense in this particular context.

The second issue I want to raise also is about being careful. I think it's a good thing that my colleagues from international development organizations are here this morning with us, NAPO, because I think it's a dangerous thing to pit one priority against another.

We have for many years agreed that to work on issues of poverty alleviation, you have to look at it from a global perspective. In fact, what's happening to poor people here in Canada today, is very similar to what's happening in countries abroad. We really have some difficulty with this notion of looking at where we should prioritize. The needs are great in developing countries. Quite frankly, the similarities in terms of how poverty is being created in countries like Canada and in developing countries are unfortunately more or less similar.

Ms. Betty Plewes: There is no doubt that setting priorities in this context is difficult, but priorities have been set. The overall reduction in program spending for the government has been 23.5%. The reduction to the defence budget over the same period has been 28.7%. The reduction to the international development assistance budget has been 40%. So choices are being made.

We are saying that in making your choices, poverty eradication, both nationally and internationally, has to be a guiding principle. Then within that, you look at the most effective ways in which you can do that with the resources you have.

There is no doubt that it's a difficult proposition to set these priorities, but we are saying that there is increasing poverty and inequity within Canada and globally. We have to address this, because this threatens the long-term security of us as Canadians.

Mr. Warren Allmand: I simply want to address the question of whether we have to concentrate on domestic poverty or international poverty. It shouldn't be one or the other.

I tried to point out that if you ignore attacks on democracy or growing poverty in other countries, then sooner or later it's going to hit us hard here at home.

Just look at the examples in Somalia, the former Yugoslavia, and Rwanda. Canada and the world did not pay enough attention to these growing problems. Consider the moneys we ended up spending on emergency assistance, peacekeeping, and refugee resettlement, including accommodating a lot of Somali refugees and refugees from the former Yugoslavia here in this country. The costs were much more than what preventive measures would have cost. There's an old saying that a threat to the peace anywhere in the world is a threat to the peace everywhere. It affects all of us in a globalized world.

So it's not a choice; it's bringing about a balance between dealing with domestic issues and international ones. If we ignore one, it will cost us more later on. That's simply an economic approach, not a humanitarian or social one.

The Chairman: Any further comments? Ms. Toupin.

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Ms. Lynne Toupin: Mr. Allmand represents the International Centre for Human Rights and Democratic Development, and in fact there are two parts to the kinds of rights that are represented within the Human Rights Code: civil and political rights, but also economic and social rights. Again, I want to point out the similarities between the work that is being done in developing countries and work that is now being done in Canada.

There is something called the Convention on Economic, Social and Cultural Rights, which Canada signed on to in 1976 and which all the provinces signed on to in 1976. It speaks to the rights to basic things such as food, shelter, and not to be forced to work. Unfortunately, given the context that I expressed earlier this morning—with massive changes to welfare programs, with tightened eligibility requirements, with the fact that people are actually now being refused basic assistance—those rights are actually being infringed in Canada as well.

So again, I don't think we can say we should priorize. We have to look at this on a global scale.

The Chairman: Thank you, Ms. Toupin.

Mr. Loubier.

[Translation]

Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): Good morning, ladies and gentlemen.

I find this morning's topic extremely interesting. To add to what you just said, Mr. Allmand and Ms. Toupin, there is no point about talking about national poverty versus international poverty since these are becoming inextricably linked and the world is becoming one small village, as some have already said.

An increasing number of immigrants to Quebec and Canada are not investor immigrants and wealthy people, but people who cannot lead a decent life in their home country and who head for more developed countries that offer better opportunities.

Ms. Toupin, you will see that statistics on poverty show that the socio-economic and ethnocultural origins of poor people have changed over time. And that is something we will see more and more. As Mr. Allmand was saying, when democratic rights are flouted in other countries, we feel the effect at home.

I have two questions, one for Ms. Toupin or Mr. Shillington, and the other for Ms. Plewes or Mr. Allmand.

Ms. Toupin, you said earlier that poverty was becoming increasingly rampant, and I found your suggestions a little too meek. Statistics on poverty in Canada show that there has been a 14% increase over the past five years and an increase of 20% since 1989. In 1993, there were 5 million people living below the poverty line, 1.5 million poor children, and those figures have not changed.

So I found that as a group speaking on behalf of the poor, your approach was a little too timid. Don't you think you could be a little more aggressive in your approach?

Everyone knows that at the end of this fiscal year, ending March 31st, 1998,—in any case, Mr. Martin has always hidden the real numbers from us until they are put on the table and become public—, there will be a surplus of approximately $5 billion.

Given the urgency of the situation here in Canada, don't you think we should try to improve the quality of life of those you represent? Don't you think you should clamour a little more on their behalf?

Ms. Lynne Toupin: Mr. Loubier, I may seem timid because this is the fifth time I am appearing before this committee.

Mr. Yvan Loubier: I know, I was there all the other times.

Ms. Lynne Toupin: We went through very difficult times when the budget cuts were being made. You are entirely correct. In my opinion, it is the poorest in society that pay the price for those cuts and who are still paying it.

That said, people are getting frustrated. We represent the poorest in society, low income earners who are either in the labour force or on social assistance. Welfare recipients are those that have been hit the hardest.

Unfortunately, when we go the federal government, they are not interested. Just look at the throne speeches or Mr. Martin's presentation; there's talk of education and health, but no mention of welfare recipients. I realize it is an area of provincial jurisdiction, but that aside, I am telling you, we are heading towards a crisis. I will be very frank with you: we just don't know what to do anymore. We have presented it in every way imaginable. But it would seem that not only are people disinterested in this potential crisis, what is even worse, is that the poor people we speak with every day tell us that they are being told it is all their fault. They are told to go find a job and get out of their misery.

• 0950

Well, I'm sorry, but that is rather difficult to do in places like the northern peninsula of New Brunswick. Last week, I met a woman who had done all the right things: she went back to university, she is taking courses and she is doing everything she can, but she cannot get off welfare. Therein lies the frustration.

We are starting a campaign called Zero poverty. The federal government managed to bring down the deficit to zero. If the same attention could be paid to solving the growing problem of poverty in Canada and if as much energy was put into it, some progress could be made. But I will tell you honestly, Mr. Loubier, the federal government has no political will to do so.

Mr. Yvon Loubier: However, the situation has changed since your last four appearances: there might be a surplus next year. Those who have paid the most, as you said, are those receiving social assistance. Though that may be of provincial jurisdiction, poverty is universal; it has no jurisdiction, especially since the federal government helps fund social assistance programs in the provinces. So perhaps we should turn up the heat.

As for what Mr. Shillington said about taxes, perhaps that is the key. Two years ago, we started a thorough review of Canada's tax system. I don't know whether you are familiar with the two analyses that were presented to find a new balance between taxes paid by individuals and corporate taxes. These include ideas to make our tax system a little fairer and a little more proactive on the social front.

Let me give you an example. There are tax exemptions for child care. After looking at who benefitted most from these exemptions, we thought it would be better to change the exemption into a refundable tax credit so that those who pay no income tax could get some tax benefit.

I will send you those two documents, which may a starting point to be considered as soon as this year.

Ms. Lynne Toupin: Absolutely.

Mr. Yvan Loubier: My second question, if I may, Mr. Chairman, is on international development. I am very aware of that issue because my background is in farm unions. I remember when we used to go on trips to promote exchanges with farm organizations throughout the world, the Union des producteurs agricoles du Québec made developing countries its priority.

I see that the situation in Brazil has changed very little since the 1980's. I remember that as far as democracy and production means were concerned, people used to say that there were 14 million landless farmers in Brazil. Nothing has changed; According to the last census, they are now 14.5 million. As for property owned by individuals, there was also supposed to be a huge land reform in the early 80's. But there are still mental aberrations like the Madeira family, in Brazil, that has approximately 6 million hectares of arable land. That is more than all the arable land in Quebec.

I have also noticed that industrialized countries, rich countries like Canada, for instance, are too soft in their international discourse on democracy and the democratization of production means.

Mr. Allmand or Ms. Plewes, don't you think the Canadian government should be asked to reinstate the better provisions that existed in the 60s, for instance, when Canada was a world leader under Mr. Pearson, a world leader in international democratic rights and improving the role of developing countries?

I have the feeling no one is talking about it anymore, that CIDA's budget just keeps getting cut and that more attention is being paid to solving our problems at home. But we have solved the problem of our national budget. There are now new opportunities and perhaps we should take on a more active and intelligent role. I would like to hear your comments on that, Mr. Allmand and Ms. Plewes.

Mr. Warren Allmand: Although I am no expert in agriculture, I would like to say that as far as international democracy and democracy in other countries is concerned, you are entirely correct. Canada, under Lester B. Pearson and those who succeeded him, was a world leader in terms of these initiatives.

• 0955

It was Canada, along with several other countries, that had set this objective of 0.7 per cent of GDP. The current situation reflects not only investment in agriculture, but also in democratic institutions in those countries and the strengthening of their institutions, such as unions, civilian associations, etc.

In its 1993 document, as I mentioned earlier, the government had promised that once the deficit was under control, we could maintain or even increase the funds. Ms. Plewes could perhaps say a few words on agriculture, which is not part of our mandate.

Mr. Yvan Loubier: Just a brief comment on that, Mr. Allmand. In several developing countries, like most Latin-American countries, the farming sector is the key to becoming democratic, as I said earlier.

Mr. Warren Allmand: Exactly.

Mr. Yvan Loubier: So, if 14 million Brazilians are qualified farmers but do not have access to land, democracy goes out the window because those people have no rights, despite the fact that during the 1984 Land Reform, the Brazilian government had promised them land if they ploughed it. They cleared the land and were then killed by the rancheros and pistoleros, which is the name given to gunmen hired by huge property owners. That is the key to democracy. It is the same situation in African countries. But there is also the problem of production means.

A little earlier, we were discussing the change in world trade and saying that that was the key to helping developing countries. But it really isn't. It is the key to keeping them in their mess and stopping them from earning an honest living, because international trade policies are such that there is a lot of dumping in Latin-American countries, even of Canadian wheat and American beef. And people wonder why there is no democracy and why there is dictatorship and civil wars. That is the starting point. If you can't eat, if you cannot survive, well, you are not going to be thinking about democracy.

[English]

Mr. Warren Allmand: In several countries in Africa and Latin America the governments will not even allow associations of farmers, of campesinos, of peasants. They are forbidden. This means that these farmers cannot even get together to organize and to put forward to their own governments what they need. We concentrate on working with associations of campesinos and poor farmers in other countries in helping them to get organized, at their request.

The technology of agronomy is something we don't work with, but the very thing that you pointed out, the permission for these groups...and what happens? If you don't permit them to organize and put forward their views, then you have bloody revolutions and bloody revolutions lead to millions of refugees leaving countries. It's all those things I mentioned before.

The Chairman: Ms. Plewes.

Ms. Betty Plewes: I think there are some current examples where Canada is taking a leadership role. We would like to underline these.

Canada took a leadership role on the treaty to ban anti-personnel mines. Both the prime minister and the foreign minister have played an extremely important role in leading that process internationally in conjunction with non-governmental organizations around the world. We would like to say that this is a very key activity and we support this.

The current foreign minister has also taken the lead on human rights in Burma and Nigeria. He has placed a lot of emphasis on the area of children's rights internationally.

These are some areas where Canada is showing leadership.

We also have to underline the fact that we don't think foreign aid is the answer to these international problems. What we need is a foreign policy which is coherent, where foreign aid, trade policy, environmental policy and agricultural policy are all working towards the eradication of poverty. There are also many examples of international inconsistencies as well as those in Canada.

For example, we just released The Reality of Aid last week, which is a review of aid in OECD countries. The book gives an example from Switzerland, where Swiss aircraft are bombing refugee camps in Burma that were partially supported in their development with Swiss aid money.

We see another example in Canada where the Canadian government has rescinded part of its environmental assessment process in order to allow the sale of CANDU reactors to China.

• 1000

We also see that the Export Development Corporation in Canada is making a multi-billion-dollar loan to the Three Gorges Dam in China, which has been rejected by the World Bank and CIDA on the basis that it will displace millions of people.

This is to say that in order to address these kinds of issues you are discussing, we need a foreign policy that is coherent and focuses on the promotion of sustainable human development. We've raised the issue of development assistance here because you are the finance committee. We talked about the larger issues with the foreign affairs committee earlier this week.

It's also true that many non-governmental organizations are working on these issues of food security and longer-term agricultural policies that will help, and there is some good collaboration with the Canadian government on these, but we need to put the priority of the eradication of poverty and the promotion of social justice and equity higher on the Canadian agenda.

We've seen so much attention attached to the trade side of foreign policy that we would like to see some more emphasis on the humanitarian side. Stabilizing the budget and not implementing the cut next year would send a very important signal domestically and internationally.

The Chairman: Thank you very much. Ms. Torsney.

Ms. Paddy Torsney (Burlington, Lib.): Thank you.

Obviously this budget will be about choices we make, and as you point out, Ms. Plewes, we've already made some choices. Yesterday we heard from the Canadian Defence Association, and they think a that good foreign policy has a good defence component, that we're not spending money there, and that they've been very badly hurt.

In some discussions afterwards I thought I heard an interesting comment that I've heard before around Canada: that there is no poverty in Canada, it's just about the lines, and if you draw the line high enough, enough people fall below. Yet Gzowski did a great thing one morning on poverty and living on food banks. They were described as hunters and gatherers, because that's the way they run their lives.

I wonder what you think about the 50%, 25%, 25% targets. Earlier this week we heard from groups that did not support tax cuts, but again, from discussions afterwards, a tax cut that would see fewer low-income people paying taxes would in fact be supported.

I'd like to hear your comments about how we deal with the issues of poverty in Canada and if there is poverty in Canada, how we address some of our obligations around the world, and what you think of those targets: 50%, 25%, 25%.

Ms. Lynne Toupin: If people don't believe there is poverty in Canada, I'd be happy to take any of those doubters on a tour sometime. Poverty is unfortunately alive and well in Canada.

Yes, you're quite right, though: an active debate is developing around poverty lines and how you measure poverty. That debate is not new. It took place in the late 1980s. Mr. Shillington is well versed on this, having worked at CCSD at the time. It was there during the era of the Conservatives, with Barbara Greene's report, and it's rearing its head again.

I don't have any particular problem with debating how we do it. It's true that the existing poverty lines are difficult for people to understand. There may be a better way to devise. But that being said, I'm worried we're going to spend a lot of time and energy figuring out what are the poverty lines while ignoring the larger problem of the people who are living below the poverty line, who are in fact poor.

If people do have some questions around it, there are some interesting developments among certain social planning councils across Canada, where they're actually looking at what it costs to live in a certain area. For example, Winnipeg just completed a study, along with the food bank, to look at what is the actual cost of living in Winnipeg. They broke it down item by item for any doubters and then looked at what a person on welfare gets. Clearly there is a shortfall, and quite frankly, that shortfall is very close to what it would be if you actually used the poverty line. Perhaps that is a better way to explain to Canadians just how bad things have gotten for people who are poor.

On the 50%, 25%, 25%, again, if I had my druthers, I would like to reinvest in social programs, much more so than the government has decided to do. The last four years have been exceedingly difficult for low-income people through the cuts to welfare rates, through the lack of training programs, and through access to different opportunities as well. I really am very concerned that we are in fact marginalizing the poorest of the poor.

• 1005

So I would like to see specifically investments in that area. That being said, I would not want to see much more allocation to debt reduction. I think if you have strong economic growth, your debt will in fact go down over time.

Again, it's very difficult for us to come here, because we're realizing the federal government is not willing to carve out a larger role for itself in poverty eradication. We made the kinds of recommendations we did this morning because we're trying to be more pragmatic, I guess.

We're focusing on the real needs of people in access to post-secondary education and recognizing also that the user fees now being implemented in health care regimes across Canada are in fact penalizing the poor. We have to recognize the limited budgets.

For example, in New Brunswick—and it astounds me that I've been saying this for five years—someone who is single and employable can live on $250 a month, clothe himself, feed himself, and find someplace to live. I don't know how these people do it. We are going to really have to deal with this issue.

Mr. Richard Shillington: Could I just add a short comment, please?

The Chairman: Sure, Mr. Shillington. Go ahead.

Mr. Richard Shillington: I've been involved in this definition of poverty for much longer than I'd like to remember.

Later in November, Campaign 2000, a coalition of anti-poverty groups, will be coming out with its annual report card. They'll report that poverty since 1989 has increased by about 50%, using Statistics Canada's low-income cut-off. There will be people who will say that's all hogwash, because they want the word “poverty” to be reserved for people who are on the edge of starvation.

One of the other things we've done as part of that report card is simply to look back at the number of children who live in families with incomes below $20,000; that number has gone up by about 50% after adjusting for inflation since 1989. So even if you take something that's as simple to understand as children living in families with incomes less than $20,000, that's gone up by 50% as well.

This will go on. I don't understand how people who are really quite affluent feel threatened by governments trying to help poor children, but they do. Unfortunately, this is turning into a debate about what we mean by poverty rather than whether or not we should address poverty.

The Chairman: Mr. Allmand.

Mr. Warren Allmand: Betty, you mentioned the hard choices you are going to have to make and the government is going to have to make in the budget. You referred to the submission you had yesterday, I believe, by the defence association. I think the question you have to ask is whether the threats to international security can be dealt with effectively by more military.

We look at the conflicts in the world today. They are either guerrilla-type conflicts or conflicts involving terrorism. The biggest military power in the world, the United States, was in Vietnam for eleven years and was defeated. It wasn't because they didn't have enough military equipment. It was because the causes hadn't been addressed by the colonial powers that were there before. They left Vietnam in a situation of poverty, division, and lack of democratic development. You therefore had the situation that arose.

I would argue strongly that if we're concerned about international security, the solution will not be more and more military. The solution is addressing the causes.

The Chairman: Thank you, Mr. Allmand.

Mr. Warren Allmand: Thank you.

The Chairman: Mr. Iftody.

Mr. David Iftody (Provencher, Lib.): Thank you. My question is for Ms. Plewes.

You mentioned your concern about the sale of the CANDU reactors to China. You are also probably aware that the Government of Canada has sold one reactor and is in the process of building a couple of others in Romania.

I had the opportunity about a year ago to travel to Romania and tour the rural areas. In fact, just yesterday I met with the minister of agriculture from Romania. In terms of a development process, my understanding from the Romanians is that in order to create wealth in the country for the peasants—the farmers, etc.—they need electricity and they need power. Without water and the movement of water in those countries, one of the few ways they can do that is through nuclear power and by building grids throughout the rural areas and providing electricity for manufacturing. In this way they can increase their technology and therefore their productivity for their people.

• 1010

That situation interestingly enough is very, very similar to that of our native people in the north. I had a meeting with Chief Billy Diamond from Quebec just the other day, and as a matter of fact they're trying to build small generating stations on one of the river models up in the northern communities to provide cheap electrical power to those aboriginal communities.

What I hear from them is they don't want any more welfare cheques from Ottawa. Talk to Chief Phil Fontaine and others. They say they need strong, economic development in order to create sustainability within our communities, to give our young people hope and to draw in investment. When I looked at the Romanian situation, Mr. Chairman, the situation in rural China, and that of the northern aboriginal people in Canada, they're much the same.

I'm not sure what the primary difficulty is with the Government of Canada's getting involved in these kinds of exercises, whether it's our own native people, who are the poorest of the poor I understand in Canada, or the Romanians, who are very, very poor, or the rural Chinese, who are very, very poor. I don't see the discontinuity in that policy in trying to make their lives more fruitful and better. Ultimately, isn't that what we ought to be trying to do?

Ms. Betty Plewes: Well, I think it is true that if you ask people internationally whether they would rather have a thriving economy in which they are able to produce goods in order to meet the needs of their own country and to trade internationally or have aid, you're absolutely right, they would rather have the former.

The problem at the moment is that the international economy is increasing poverty and inequity, and we are seeing more people moving into poverty through the workings of the market. The market in and of itself does not distribute goods well. Foreign aid is one of the key tools we have in the interim for addressing issues of poverty.

The point I was trying to make about the CANDU reactors is that we need to look across Canada's international relationships with developing countries to see whether there are inconsistencies, to see whether we're trying to promote certain goals and objectives through the aid program that are being contradicted through our trade program.

One of the dilemmas here and one we are all addressing in the sector is the relationship between human rights and international trade. What responsibilities do countries and transnational corporations have in terms of their operations in third world countries, where there are human rights abuses, where there are labour abuses, where there are environmental disasters? This is why we have the international centre. This is not a set of easy questions and a prescription. What is key is that we have dialogue about these issues. What is it that we're trying to accomplish through our trade? What is it that we're trying to accomplish through development co-operation?

Another point I'd like to make is that we're putting too many responsibilities on our development co-operation program. Although it's been cut by 40%, we have added to the development assistance envelope $10 million for peacekeeping, $5 million for Radio Canada International, and $5 million for the RCMP to train the police in Haiti. A number of other expenses that used to be borne by Foreign Affairs or Agriculture Canada are now being offloaded to the aid program. These are all useful activities, but we can't continue the dramatic cuts, adding more and more responsibilities, and expect that we're going to have a well-targeted, effective aid program. It creates unrealistic expectations to think our aid program can handle all of these additional responsibilities.

The Chairman: Thank you, Ms. Plewes.

Ms. Toupin, please.

Ms. Lynne Toupin: Perhaps I can add a comment about the domestic situation. Mr. Iftody spoke to the fact that people on welfare don't want to have a welfare cheque. It's true, they would desperately like to get out of that situation.

Mr. David Iftody: Excuse me. I was speaking particularly about my discussions with some of the aboriginal leaders in Canada. I want to be very specific on that.

Ms. Lynne Toupin: Yes, and I would echo that sentiment for non-aboriginal people.

Mr. David Iftody: Okay. Thank you.

Ms. Lynne Toupin: That being said, though, I think the community development and community economic development issues are garnering a lot more interest among low-income communities who are looking to see what ways and means there might be to develop opportunities in their communities.

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In that respect, I would strongly ask the finance committee to recommend some ways and means by which we might look at some of the initiatives more carefully. For example,

[Translation]

there is Quebec's social economy, which does help create jobs in poorer communities. Perhaps that is a model that could be used outside Quebec.

[English]

There's a Kitchener—Waterloo experiment, in which there is a clear poverty alleviation project with $1.2 million in a partnership program. Some initiatives are being developed that will get people into working situations.

However, there are also impediments. For example, in Alberta micro-credit programs are available, but welfare recipients who access $500 or $1,000 worth of credit to start something are then thrown off welfare. These are some of the impediments, and we would hope that you would want to look at some positive opportunities. It's not the solution, but it may be the beginning of a solution for low-income people in some areas.

The Chairman: Mr. Allmand.

Mr. Warren Allmand: David Iftody, when we speak about aid, we're not basically speaking about handouts, although handouts are sometimes necessary. What we're talking about is development assistance, either economic development assistance or democratic development assistance.

For example, in our centre we try to build the capacity of local organizations so they can fight for their own rights. We're not going there to fight for them; we're helping them in co-operation so they can fight for their own rights. It's the same thing, whether it's farmers or...you know, to give them the capacity to do what they have to do for themselves. That's principally what we're talking about.

The emergency aid assistance, though, comes in when we've ignored doing that. All of sudden there's a terrible situation and you have to pour in handouts, because there's no other way to keep people alive.

The Chairman: Thank you.

Are there any further questions? Ms. Redman, followed by Mr. Szabo.

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

Ms. Toupin may have already touched on my question. We've heard many really compelling discussions about there having been a cost to wrestling down the deficit. I do compliment this government on wrestling it down. I think it's something that needed to happen.

One of the presentations we heard this week was around research and development. It was scientific and medical, as well as more of the softer social sciences. I guess I would be interested in hearing from all of you about the role you would see. They said it's a sector that's hemorrhaging, that it's reached the point where it's going to dry up and not exist in Canada. We're going to see more of the brain drain if it's not an area we're going to invest in.

I'd like to hear from you what benefit you can see for the sectors you're talking about in applying that kind of research. I believe it was Mr. Shillington, but I'm not sure.

I'd also be interested in the optimum mechanism you would see between the federal government and the provincial government in looking at how they fund things through the CHST. We heard some differing views as we went from province to province.

Ms. Lynne Toupin: On the issue of research, particularly for initiatives in social development, I'll come back to the notion of community economic development initiatives. Clearly at this time there are a lot of pieces out there that need to be pulled together in some comprehensive way to know what works, because there are initiatives that do work and do work very well. Unfortunately, there is no entity right now that is able to pull it together.

That being said, in our case I think we have to move from the research to the development of specific pilot projects, either focusing on adding to projects that were insufficiently funded and therefore were not sustainable but could have worked or initiating projects in other areas. There are some interesting initiatives, and they're coming from both the non-profit sector and government. The Saskatchewan government has an interesting initiative in which they're pooling significant resources in 11 low-income neighbourhoods and are going to measure the outcomes. But we need to have some repository for that.

With the end of the CAP program, in our two research projects we had to go on a province-by-province basis, digging through all the resources and individuals we could find to get information about changes to programs. It's exceedingly difficult with the end of CAP to find some way of identifying all these changes and the impacts of those changes. That's unfortunate, because I think if we're going to build better policy, we need that information and there is no repository at the federal level.

The Chairman: Mr. Allmand.

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Mr. Warren Allmand: I think research is absolutely necessary, but it comes back again to balance. If we look to the development field at what was done through research in agriculture by the development of new seed and fertilizers, the green revolution completely transformed Southeast Asia and parts of the world that were previously starving. But through research throughout the world—research into diet and new health methods to deal with children with certain diseases—these problems were solved. All sorts of research are absolutely necessary, both in the sciences and the social sciences, if we are going to solve these problems.

Again, it's a question of balance, of having enough research money, enough program money, enough security money, and not completely ignoring one. I think we have ignored some aspects in the last couple of years, which is against our tradition.

The Chairman: Ms. Plewes.

Ms. Betty Plewes: I think it's a key issue, and we have the International Development Research Centre and the International Institute for Sustainable Development, together with enormous knowledge in local people in local organizations.

I think it's also important to come back to the UNDP's Human Development Report of this year. The elimination of poverty is not a question of needing more technology, more knowledge, more capacity. We have much of what we need. The problem is political leadership and will.

The Chairman: Mr. Szabo.

Mr. Paul Szabo (Mississauga South, Lib.): I have about two or three quick questions for Ms. Toupin. Let's leave it at that for now.

I detected from your presentation two or three references to single parents in poverty. I know a little bit about the subject. Could you tell me exactly what percentage of people in poverty is unwed mothers and unwed fathers?

Ms. Lynne Toupin: About half of the population of single parents are poor. That being said, though, it's a very small proportion. Again, I don't want to be quoted. I can certainly find the statistic for you, Mr. Szabo, but the large majority of single parents are in fact people who were either in common law relationships or were married at one time. The proportion of single unwed mothers who are on welfare is relatively small.

Mr. Paul Szabo: They're divorced or separated, not single.

Ms. Lynne Toupin: They're divorced or separated. They are now single parents.

Mr. Paul Szabo: It's terminology. The point I'm making is it's easier to get public sympathy if you say single mom as opposed to divorced mother.

That leads me to the question of how much poverty is manufactured after the fact as a result of family breakdown. You have the national organization to do with poverty. If a family breaks down, instantaneously in most cases all those people are living in poverty, based on the low-incone cut-off.

How many people are really poor because they never had anything, versus those for whom everything was fine and then became poor because their family broke down? I think this is a vital statistic, because it's the difference between inherent poverty and manufactured poverty.

Ms. Lynne Toupin: Statistics Canada actually released a report that looked at the reasons for poverty, although it did not provide specific statistics. I'll find that study for you, if you wish. One proportion is due to marital breakdown, but the more significant proportion they indicated was job loss and lack of ability to find a job.

Mr. Paul Szabo: I'm going to give you a copy of this. I did a book on it. Actually Statistics Canada reported that lone parent families represent something like 12.3% of all families, but they account for 43% of all children living in poverty.

Ms. Lynne Toupin: Yes, that would be about right.

Mr. Paul Szabo: To me that is really vital.

To finish off, I want to skip over to your point about access to post-secondary education. I think your point is very important. I support it 100%. I hope that all members will support some initiative for access. Our value system should be that nobody, regardless of economic status, should be denied an opportunity to be a contributing member and to be as good as they can be.

• 1025

Can you tell me, since you raised the issue of excessively high debt loads of students, of the one-quarter of all students who have any debt—only 25% have debt—what percentage came from poor families?

A voice: I don't think that data—

Ms. Lynne Toupin: I don't know. We will be issuing a report probably in early December or early January that has a lot of data about low-income students. Unfortunately, as I said earlier, low-income students have chronically been under-represented in any post-secondary educational institution, particularly universities. We have not done a great job of improving access over time, and with current debt loads it would seem there is going to be a further decrease. It is very difficult, though, because we actually went to the Council of Ministers of Education Canada to try to find these data. It's very hard.

Mr. Paul Szabo: I've done a little looking, and I think you'll find there is a little manufactured poverty at that end as well, simply because it's something that can be done.

I just wanted to ask you about the—

Mr. Richard Shillington: I would like to add one comment while we're on education.

I have two points. One, the concentration in post-secondary education, I can understand that, but recognize that one of the consequences of poverty is that you're less likely to finish high school. It's not just poverty. If you look over the income range, as income goes down the chances of missing a grade go up. It's not just poor or non-poor. The modest-income families also are more likely.... So if you concentrate only on post-secondary education while allowing more and more extra-billing in what we call public education, you're missing the boat.

Mr. Paul Szabo: No, I didn't concentrate on post-secondary. That was the information Ms. Toupin gave about post-secondary graduate debt.

Fifty-two percent of all unemployed youth are high school drop-outs. They have a 23.8% unemployment rate, I know that. I didn't miss the boat.

With regard to CHST, personally I think it was a little unfair for you to say that this government doesn't care about getting involved and dealing with the problem of welfare and all this other stuff.

When the revenues of, for instance, the Province of Ontario declined by $6.1 billion, of that, $1.2 billion represented the reduction in the CHST transfer and the balance, over $4 billion, represented Mike Harris' tax cut. So the revenue went down mostly because the Province of Ontario decided that the people of Ontario needed a tax cut more than they needed social programs or additional spending on health care or education. That is reflective of the situation across most provinces, although there is a little difference in the maritimes because of other exacerbating factors.

Have you spoken to the provinces about why they decided that social programs shouldn't get the attention? We can't tell them where to spend the money. It's not colour-coded. They make the decisions. If you've been critical of the federal government, have you been four times more critical of the provincial government?

Ms. Lynne Toupin: As an organization, yes. Clearly we recognize that the provincial government has made that choice, but let's be clear here. When they had the envelope and it was to be spent on health care, post-secondary education, and social assistance, they knew which one to cut: the one that was politically most palatable. That is what has occurred.

All I am saying is that as you moved to a block transfer grant with no national standards for social assistance, that is what occurred. I would like to think the federal government at least is aware of it. We are working and we are striving to make provincial governments change it, but it is very difficult. There is a bit of a game of ping-pong going on as well; they say “go back to the federal government because they implemented the cut; we had to cut and we cut there.” So it does put people into a very difficult position.

The Chairman: Thank you, Mr. Szabo.

On behalf of the committee I would like to thank the panelists for what I think was a very interesting round table. It was not only interesting, but I think you also raised some very serious issues that we need to tackle as a committee.

Ms. Toupin and Mr. Shillington, the issue of poverty is something we need to deal with as a country. Ms. Plewes, Mr. Allmand, we really appreciate the fact that you gave an international context to the issue of our pre-budget consultation. There's no question about the fact that we face new challenges and choices as we deal with the new economic era. Nevertheless, we need to put all of this into its proper context, and hopefully we, like you, will contribute to improving the quality of life for Canadians, which I think is really the common ground.

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Thank you very much.

I'll suspend for five minutes.

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The Chairman: I'd like to call the meeting to order. This is round table number two for today.

As you know, pursuant to Standing Order 83.1, the finance committee is holding pre-budget consultations to hear from Canadians about what measures should be taken in the next budget as we deal with the new economic reality of Canada. For the first time in a long time we're looking at the opportunity of having a balanced budget, and later on perhaps a surplus.

We have representatives from the Automotive Industries Association of Canada, Dean Wilson, president; the Canadian Automobile Association, David Leonhardt, manager, public and government relations; the Canadian Federation of Independent Business, Catherine Swift, president and CEO, and Garth Whyte, vice-president, national affairs and research; the Tourism Industry Association of Canada, Debra Ward, president; the Mining Association of Canada, George Miller, president. Welcome.

As you know, you have approximately five minutes to make your opening remarks. Thereafter we will engage in a question and answer session.

To begin this session, we will ask Mr. Dean Wilson to make his opening remarks.

Mr. Dean Wilson (President, Automotive Industries Association of Canada): Good morning, Mr. Chairman and members of the committee.

I represent the Automotive Industries Association of Canada. We're a national trade association representing the automotive aftermarket. Our members are manufacturers, rebuilders, national distributors, manufacturers' agents, wholesalers, and major retailers of automotive aftermarket parts, accessories, tools and service centre repair equipment. We have 2,000 members across Canada. The volume of sales in our industry is roughly $14 billion.

Addressing the first question, what economic assumptions should be used for 1998 and 1999, I'm going to be basing my remarks on an outlook study we did for our industry, which I can leave with you.

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We predict that GDP will slow from about 3% this year to 2.4% and 2% in 1999. Interest rates, we predict, will be fairly stable, between 5.5% and 6.5% over the next couple of years. We think inflation might rise slightly from 1.9% this year to 2.1% in 1998 and 2.4% in 1999. We expect unemployment to decrease slightly, perhaps to 9% in 1998 and 8.4% in 1999. We point out that the key challenge here is getting youth unemployment down from 16%.

We feel that a balanced federal budget is achievable for 1997-98, especially given the Minister of Finance's announcement of an $8.9 billion deficit for 1996-97. We feel that a small surplus should be achievable for the 1998 budget, perhaps $5 billion.

We suggest that half of the surplus be targeted to debt reduction. We also feel that a plan should be established with specific targets set for each of the next three years. We also suggest that the government pay off any foreign debt before domestic debt.

The rest of the surplus should be targeted for selected tax cuts in support of specific initiatives to reduce unemployment, increase economic growth, and for social assistance.

The second question is what are the appropriate new strategic investments and changes to the tax system.

First, we believe the federal government should reopen negotiations with the remaining provinces to merge their sales tax into a harmonized sales tax. We say sweeten the pot and provide an economic advantage so they can't refuse to harmonize a sales tax that is not efficient or effective for business or for the consumer.

Second, we think small business should be targeted for corporate tax relief. Increase the small business deduction threshold from $200,000 to $300,000. It needs to reflect the roughly 40% inflation since it was set in 1984.

I also point out that in our industry we have identified many illegitimate operations operating as repair and service outlets in the underground economy. We feel if the government can't police them, at least lower corporate taxation and lower sales tax would encourage many of them to become legitimate operations.

We also believe the federal government should give automotive technicians, both apprentices and journeymen, income tax relief for purchase of tools, which are their stock-in-trade. This could be in the form of a straight deduction for income tax or a percentage credit similar to that for charitable donations. This would assist youth employment, in addition to filling a severe technical need in the automotive industry.

The last point is what is the best way the government can help to ensure a wide range of job opportunities.

First, make it easier for youth to become automotive technicians by allowing the tools as an income tax deduction, which I just mentioned.

Second, revise the employment insurance legislation to allow part of the fund to be targeted to youth employment, to people who would not otherwise qualify. Creativity needs to be used to target training of that 16% of youth unemployment.

Third, implement more youth initiatives, such as the youth initiative program for the Canadian Automotive Repair and Service Sector Council, which is a shared program with government and industry. It works like an apprentice program. With the devolution of training responsibilities to the provinces, programs such as this become more difficult to implement. The issue for youth is that without experience, you can't get a job, and without a job, you can't get experience.

We also suggest a reduction in payroll taxes such as employment insurance to encourage greater employment by industry.

Mr. Chairman, that is my presentation. Thank you.

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

We now move to the Canadian Automobile Association: David Leonhardt, manager, public and government relations. Welcome.

Mr. David Leonhardt (Manager, Public and Government Relations, Canadian Automobile Association): Thank you, Mr. Chairman.

To those of you who may not be familiar with us—I think most of you are, but there may be some new MPs here—we have four million members. Every one of them is a motorist. None of them are in the automotive industry, making or fixing cars; please don't confuse us. We do have four million members, though. Those are the people in your constituencies who drive the vehicles.

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Those of you who are familiar with what we've been doing over the last few years certainly have heard a lot about the national highway system. I'm not going to spend too much time explaining what it is, because I have left with the clerk a very complete background paper. As a summary, it is roughly 3% of our roads—not all the roads, just the key ones that are relevant to interprovincial and international movement, such as trade and tourism.

On this issue of getting some joint federal-provincial funding in a long-term and stable fashion, we have the support of many business groups, including the tourism and trucking industries, the chambers of commerce across the country, other manufacturers who ship by road—3M, John Deere, and Ford come to mind—safety organizations, and the Federation of Canadian Municipalities.

We don't have much time here for opening remarks, so I'm going to pass over the economic assumptions and prudence factors. Quite frankly, I don't think I can say anything valuable in under ten minutes at least.

I do want to talk about strategic investments, because that's what we think the national highway system is for the federal government. Specifically, there are three types of strategies. One is the economy. Let's face it, whether it's the new economy or the old economy, one way or the other we move by road, whether it's tourists by car or shipments by truck. The roads we are talking about are the ones that our national economy is founded on—national and international movements for trade and tourism. It's very strategic.

From a health care perspective, I don't know whether everyone realizes 160 deaths every year and 2,300 injuries every year are the direct result of the national highway system being substandard. These can be fixed. In addition to the obvious security and safety of our citizens, there are medical costs and hospital costs involved here, strategically speaking.

Finally, the Trans-Canada Highway in particular and to a certain degree as well the rest of the national highway system are very much a part of what we consider to be our nationhood. It's how we interact with each other, whether it's for commerce or other reasons.

I'd like to draw the committee members' attention to what's happening now in Nova Scotia, specifically in 32 days, when the Trans-Canada Highway is going to have the very first toll ever. Shortly after, New Brunswick plans to put tolls on a new section of the Trans-Canada Highway it's going to be re-doing.

These aren't local. This is interprovincial and international trade we're talking about. No one will be able to move out of Newfoundland, Prince Edward Island, Nova Scotia, or half of New Brunswick without going through a toll.

To put this for you a little visually and graphically, picture a lobster trap set right on the Trans-Canada Highway. The trade and tourism that have to pass through are the lobsters being ready to be boiled.

The federal government is losing control of one of the strategic assets it has to manage the economy. It is a federal responsibility as well, because we're talking about interprovincial trade. We need the federal government to take back some of that control as a strategic investment.

You've also asked us to comment on job opportunities in the new economy. This is one of those items that always gets to me. What is the new economy?

I hear people talking about biotechnology. I hear people talking about information technology, entertainment and leisure, and new manufacturing processes, yet it's not all computers.

All the underpinnings—if you look in your home, what have you got? You've got food, you've got appliances. The food may be processed in high tech fashions, but you still have to ship it to the stores and people still have to go to the stores by car to pick it up. Stereo systems, power boats, computers—they all travel by road. Everything in your office and your home travels by road.

Roads themselves are part of that new high technology, and I'd like to very briefly highlight that we have in Canada something called the ISIS network. This is a network of high technology and research and development through at least a certain number of Canadian universities, which are developing ways to build roads better and less expensively and to make them longer lasting and less expensive to maintain.

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We have an opportunity to take some of that Canadian technology, put it onto the national highway system and have a showcase for the world, because this really is one of those up-and-coming sectors of the new economy. People around the world, especially in some of the developing countries, are looking to build first-class highway systems.

So in every sense possible, highways are part of the new economy. Not only are we talking here about job opportunities, but as I said earlier, it is a strategic investment if it's done right.

In summary, the CAA is here to say that this is a federal responsibility—those highways that form the national highway system, at least—jointly with the provinces, to provide the basic infrastructure on which interprovincial and international trade flow. Canada needs more than just a few regional projects here and there. Canada needs strategic highway investment.

Canada deserves better than occasional ad hoc deals with one province or another province for one little stretch of highway. Canada needs stable, long-term funding for the national highway system.

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Leonhardt.

We'll move now to the Canadian Federation of Independent Business—Catherine Swift and Garth Whyte. Welcome.

Ms. Catherine Swift (President, Canadian Federation of Independent Business): Thank you, Mr. Chairman. As always, it's a pleasure to appear before you to present the views of our 88,000 small and medium-sized business members across Canada.

I'm going to briefly address the questions that were laid out by the committee as well as mention a number of other issues of importance to the small-business community. I believe we have distributed a presentation. There are a number of charts appended to it that represent data from a number of surveys that we have done of our membership in the last couple of years or so.

In terms of the overall economic outlook, as an organization we don't engage in the kind of macro-economic forecasting that financial institutions and others may. Instead we do regular surveys of our membership to determine their level of confidence in the economy and their expectations of job creation and investment.

We currently have a level of confidence among the small and medium-sized business sector in Canada that is finally reaching its previous peak, which took place in 1989. We're currently updating these results and will make them public, probably in about a month's time.

We see at least two more years of solid economic growth in a 3% to 3.5% range in real terms, and hopefully beyond, notwithstanding what's been happening on financial markets over the past week or so.

When we're looking at the various options—there is no question that we're moving into a new fiscal era, and a very welcome one—small business believes priority should be placed on debt and tax reduction, not on incremental spending. We have surveyed our members on these issues many a time, and the vast majority favour the approach of continued spending restraint.

Small business believes that the current plan to allocate 50% of the so-called fiscal dividend to new spending and the other half to debt and tax reduction is the wrong mix and risks getting us into trouble in the future.

The approach we saw in the late 1980s where governments across this country increased spending at a time when it was argued we could afford it because the economy was growing rapidly—and one could argue that we could afford it at the time—ended up racking up enormous debts and causing us great problems and a deeper than necessary recession in the early 1990s. Hopefully those painful memories are still in people's minds, and we can resist taking that kind of strategy again. This is not the time to increase spending. The economy is growing well. What we really need to put a push on is job creation.

Getting to the finance minister's recent economic statement, there are a number of points that should be touched on. The main one of concern to small firms right now is that what we are referring to when we talk about this so-called fiscal dividend is really the surplus in the employment insurance account.

The surplus is currently moving up to about $12 billion. The money is being applied to purposes other than that for which it's being collected, at least in the minds of most contributors. Employers and employees believe these funds should be used for employment-related purposes, and they're not right now.

As well, we are anticipating an increase in Canada Pension Plan premiums—a dramatic one of 66¢ per $100 of contribution as of January 1—and a retroactive increase for part of 1997 that will hit people's personal income tax and employers' income tax next spring.

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Given this anticipated increase in the payroll tax environment, we feel there must be at least an offsetting reduction in employment insurance premiums to match this increase in CPP so that we do not have further disincentives to job creation and economic growth. Because the fund is in surplus and continues to rack up that surplus, this is certainly an achievable objective and a number one priority of small business currently.

Our members also favour the separation of the employment insurance account from the general revenues so that in future this moving of funds between different parts of finances cannot take place.

Another element of the employment insurance program that's important to small businesses is the new hires program that was instituted late last year for 1997. We have a chart in this document that refers to the take-up of this program. We found that a significant portion of our members, almost 40%, used the program and found it had a very positive impact. Unfortunately, there was also a large proportion of firms who simply weren't aware of the program. We find it usually takes at least a couple of years for knowledge of such a program to percolate into the small-business community.

As an organization we've been doing our best to inform people, but as a result of this we would like to see changes in the new hires program for 1998. The program is slated to dramatically reduce its offset of UI costs for new employees, from virtually 100% right now to 25%, so the incentive to use this program to encourage hiring will drop significantly in 1998.

We would recommend that the 100% level be maintained for 1998. We think we need to solidify job creation in this country, which has been happily picking up steam in recent months, and this is one means of doing it. We would also recommend that the government follow the same procedure used in 1993, when employers who were unaware of the program at that time were permitted a grace period to retroactively take it up in subsequent years.

Another important issue for small firms is the RRSP situation. The ceiling on that program was frozen by the current government at $13,500, and this is a vehicle that is especially important to small-business owners and their employees, as these individuals are not able to access the kinds of pension plans we see in the public sector and the large corporate sector. We therefore recommend that the RRSP ceiling should be increased to $14,500 in 1998, $15,500 in 1999, and beyond that the dollar limits should increase at the rate of growth in the yearly maximum pensionable earnings. Given the changes in the CPP regime planned for next year, we believe this is an especially urgent priority.

Another issue that's increased in importance over the last few years is the growth and proliferation of fees that are levied on businesses for public services that were previously deemed to be paid out of general tax revenues. Overall, small businesses support the concept of user pay—they think it's fair and equitable. But when these kinds of fees are levied on top of existing levels of taxation and there's no trade-off in terms of reductions in other costs, it simply serves as an additional tax.

In this area we believe that all taxpayers would be well served if the government published, on an annual basis with the budget, year-over-year revenues from fees, licences and other similar costs, and that the government give the necessary resources to Treasury Board to monitor and enforce fair guidelines pursuant to cost recovery, particularly the impact on small business.

There are a number of other important issues. In recent years the federal government has benefited from the so-called tax bracket creep, since tax brackets and the basic personal exemption have not been indexed to inflation over 3%. This has ended cumulatively in billions of dollars going into the treasury from people getting bumped into higher tax brackets. We believe these brackets should be fully indexed to inflation, as should the basic personal exemption in the 1998 budget.

Of the overall issues of importance to small firms, the total burden of taxation continues to be number one. In fact, recent surveys show that concern has actually increased over the last year or so. While a number of taxes have been going up for various reasons, there have not been any offsetting reductions.

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My colleague from the auto industry mentioned the notion of the small-business rate on the first $200,000 of corporate income having stayed the same since its inception in 1981. We believe that at a minimum, just accounting for inflation, that ceiling should be increased to $400,000.

There is a report the industry minister and the finance minister put out two years ago that had a staged recommendation that was intended to be much simpler to implement and create fewer problems with the so-called notch effect at the $200,000 or $300,000 to $400,000 level. We would urged this committee to reconsider the recommendation that was in this report, entitled Breaking Through Barriers: Forging our Future. We think it was a very workable way to achieve improved tax treatment of small firms.

Another existing tax measure that certainly should be retained is the $500,000 lifetime capital gains exemption for small business and farmers.

In other tax areas, the tax treatment of health and dental plans has been an issue of importance as well. In this area, the current tax exemption for employer-sponsored health and dental plans should be extended to include the unincorporated self-employed. Currently these people cannot deduct the costs of their health and dental plans. This is a clear inequity in the system. In fact the finance committee made this recommendation in their report last year. We're certainly very supportive of it being implemented as soon as possible.

The final question you posed concerned the best way for the government to ensure that a wide range of opportunities in the new economy exist for all Canadians and how government can best support Canadians' acquiring education and skills. Our economy is certainly increasingly based on a small and medium-sized business sector. All the data indicate that. So promoting growth in this sector certainly will help to achieve these broader objectives.

Certainly from an employer's standpoint, we continue to see good jobs going begging because the necessary skill sets are not present in sufficient amounts in the Canadian labour force, and we continue to see an unacceptably high level of unemployment.

Of the research the CFIB has done on these issues, we put out a study a year ago, “On Hire Ground”. We're currently doing one on youth unemployment and employment issues. What we've seen is that businesses are certainly very willing to train employees in the specific skill sets that are particular to that business, but they also believe that basic capabilities, things like literacy, numeracy, computer literacy and notably fundamental work ethic attributes, things such as reliability, discipline, ability to work with minimum supervision, adaptability, all of these at least partly can be instilled in the public education system.

Admittedly much of that is in the provincial domain, but we certainly believe that the federal government can be helpful in providing tax and regulatory measures that at a minimum don't provide disincentives to hiring. Many of the issues I mentioned earlier fall into that category. This could ultimately help to reduce these skills gaps that currently exist.

The area of paper burden and regulatory reduction is another important small-business issue. The Treasury Board minister has announced that the federal government's joint forum on paper burden reduction has completed phase one of its mandate. We believe this has been a very successful undertaking, and we certainly hope that there will be a phase two. We recommend that the government continue, and articulate a mandate for a phase two strategy, because this issue is still a problem for small firms.

To conclude, there obviously are a lot of priority areas that could and should be acted upon, but a fundamental principle from the small-firm standpoint is that tax increases of any kind must be avoided and selected tax reductions should be implemented. We believe that the coming years present a golden opportunity to establish a tax and spending mix that is equitable to all Canadians, sustainable both through periods of economic growth and retrenchment as well.

Higher spending will also always be more appealing from a political standpoint in the short term, but we would hope the painful lessons of the past are still fresh enough in the minds of decision-makers to permit them to make the right decisions for all Canadians at present and in future.

Thank you.

The Chairman: Thank you very much, Ms. Swift.

We'll now move to the representative from the Tourism Industry Association of Canada, Miss Debra Ward. Welcome.

Ms. Debra Ward (President, Tourism Industry Association of Canada): Thank you very much.

The Tourism Industry Association of Canada is the national advocacy body representing the concerns of the Canadian tourism business community. As such, many of the issues very well articulated by previous witnesses captured some the macro-issues that our industry is facing in terms of small business, in terms of infrastructure, since 85% of tourism is small business. Because it was stated so well, I won't repeat what was already said.

I would like to focus on the specific benefits that tourism offers the country as a whole and offers the Government of Canada in meeting its own objectives and its own policy requirements, and I would like to suggest some ways we can work together to achieve our goals.

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Tourism is a key economic sector in Canada. In 1996 the sector grew by 4.7% to reach $41.8 billion in spending in Canada. Of that, $12.1 billion was spent by foreign travellers. This makes tourism, depending on how you cut your figures, the third or fourth largest export industry this country has.

By contrast, our economy overall did not do as well. Our GDP rose 2.8%, compared to tourism's 4.7%. As well, our labour force was flat, showing a marginal decline of 0.1%. By contrast the tourism labour force grew by 2.2%, and employed a total of 491,900 people.

While contributing to the economic health of Canada, tourism is a significant contributor to governments, as well. According to the Buchanan report on tourism, which was presented to the Prime Minister, it is estimated that each $1 billion of tourism revenue generates $230 million for the federal government alone, $160 million for provincial governments, and an additional $60 million for municipal governments.

What you are looking at in effect with tourism is that for every $1 raised, something in the neighbourhood of 46¢ goes to governments, which again provides support for the social programs and overall needs of Canadians everywhere.

We are not the only country that is benefiting by tourism. It's a highly competitive market. According to the World Travel and Tourism Council, tourism's global flow-through effect—all the good stuff it does for the economies around the world—is expected to stimulate $892 billion in gross output, 9.7% of the world's GDP, and $136 billion in taxes. These are astonishing numbers, even for me, and I work with these numbers every day.

As a result, and it's no surprise, worldwide public policy focus is shifting to tourism, as governments become aware that tourism is not only an economic powerhouse, but is also a paradigm of the post-industrial economic sector.

There a number of reasons for this, and I think some of the very serious issues you were trying to deal with today are answered in part through the kind of industry that tourism actually is.

From a supply perspective, tourism provides a profusion of opportunities for both individuals and businesses. Because of its robust and diverse character, tourism not only welcomes but requires a broad range of personal skills, business types, business sizes, investment levels, urban strategies and rural strategies. It is renewable. It is sustainable. It is decentralized. It can be custom-built to respond to regional, cultural and economic needs in every part of Canada.

Some reference was made, I think, when we were looking earlier with the anti-poverty groups, to the micro-economies and the potential you have in using micro-loans to build very localized economies and spread wealth from the bottom up, rather than from the top down. Tourism is quintessentially the industry that does that the best, in our opinion.

On the demand side, tourism offers unique opportunities to learn, to explore, to share. In a time that we characterize, going into the millennium, as “experience-hungry”, tourism offers a virtually unlimited palette to enjoy personal growth, renewal, and an affirmation of values. This is demonstrated very clearly in the increased demand for ecotourism, cultural, aboriginal, and other forms of experiential tourism worldwide and in Canada.

Finally, tourism is a rooted industry. It can't go offshore. You can't close up and take the tourism business somewhere else. It's an integral part of the region and community that supports it. In fact, in a very, very real sense, the region and community are the tourism product. Moreover, the vast majority of tourism operators and owners, for the most part of small- and medium-sized businesses, are local residents. They have a large stake in the ongoing health and vibrancy of the community in which they live.

Tourism and the economy and our social fabric are like this. We believe we can make a good case that in your support of tourism and its strategic place within our economy, you are also helping Canadians right around the country.

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The downside—unfortunately there is a downside—is that tourism is very sensitive to external factors. It's discretionary dollars. It's one of the industries that is first in and last out of a recession, and there are no deep pockets. The equity in tourism is rarely the equity you see in traditional businesses.

Operationally, if you lose a week or two or a month, you're starting from scratch all over again. A slight shift in travel patterns will suddenly start a ripple effect through the tourism community and you start to see businesses closing down, great losses of employment opportunities and in some cases losses of personal wealth, houses and that kind of thing. This is of course made worse by the competitive nature of tourism, and unfortunately by the elephant-sized economy that lurks below the 49th parallel.

Travel decisions, whether made by one person or by an organization representing tens of thousands of people, can literally turn on a dime. It just takes a situation where one thing costs $100 and another costs $105, and they go with the $100 one because they want to travel and that's the better value.

This is a very serious issue, whether we are trying to attract non-residents to Canada or keep Canadians travelling at home. We believe there are things we can do—working with the federal government—to find ways to continue to grow tourism and all of us reap the economic and social rewards that I outlined earlier in these remarks.

For that I would like to focus on one specific program. There are many others, but I think with this one we can do a small thing beautifully and work together and help it. This concerns changes to the visitors rebate program. Some of you have heard me speak on this subject before. This is a very generous government program that allows non-resident travellers rebates on certain items purchased in Canada that they use either while in Canada or for goods exported. This includes short-term accommodations, some tour packages and a lot of international convention services.

This is what you could call our margin for international business. In a very competitive environment, the ability to give back 7% to our international tourists—or 15% in the harmonized provinces—can make the difference and has made the difference of them coming here or not coming here. When you look at a $12 billion export industry, this is an industry you want to protect.

There are a number of parts to this program. I won't get into the details. I have a submission to the finance department on program improvements. The clerk has it if you want a copy. I will quickly focus on the areas of improvement we would strongly recommend you consider.

We would like to get the GST rebate extended on international conventions to include food and beverage services. International conventions are huge money-makers. If you bring in tens of thousands of people and they have a great time, chances are excellent that they will bring their families back. It is a kind of investment as well.

We currently have a very generous package that the government put together for international conventions, because they recognized the very competitive nature of getting international convention business. Most convention services are zero-rated, with the exceptions of food and beverage and entertainment. We are asking that you take that extra step and give them food and beverage. It will make a difference in how people look at proposals from Canadian cities and consider the bids. It's not a huge investment.

To give you some idea of the size of the market I'm talking about in North America, it's estimated by Market Probe International that there were 797,000 corporate meetings, 175,000 association conferences, and 11,000 big conventions in 1995 alone, with an estimated value of $37.6 billion. We're talking really big potential here for a very small fix in current government legislation.

The same principle applies to tour packages such as bus tours. Right now a traveller coming into Canada on a prepaid tour gets 50% of the GST on their tour package. We are asking that you consider giving them 100% of the GST. If the numbers become a little too large we would entertain a compromise and work with you and perhaps include the food and beverage portions. This is based on the idea that if you're going to see the fall colours and it's $110 to go to Quebec and $99 to go to Vermont, they will go to Vermont and we will never see any of the economic benefit.

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A third one would be a fix, we believe, and that's an instant rebate on accommodations and on retail. What we are primarily asking for there is a simple way to give the GST back so that their opportunity to spend that rebate while they're still in Canada is made easy, a no-brainer. It's much harder for them to spend Canadian money once they've left the country than it is for them to get Canadian money here and spend it here. We recommend in our detailed brief a number of ways this can be achieved.

Finally, when you're looking at the macro-issues and overall government tax strategies, I think Ms. Swift said it very well: tax policy and jobs go hand in hand. Our surplus in EI is huge. Tourism is labour-intensive. You hire or don't hire based on your total employment cost. I think it is clear to the minister what has to be done and we hope he takes appropriate action very quickly to allow us to hire the people we need to hire by reducing payroll taxes.

The other thing I want to comment on is that this government has been very supportive of the idea of tourism training. We have a sector council called the Canadian Tourism Human Resource Council that has the important task of raising the awareness of the career possibilities, accreditation programs and training programs available in the tourism industry. This is a good program and we support it. But if the tax burden to employers and employees is not somehow reduced, whether that sector council is there will be academic.

One of the things government has to do is look at the impact of its policy on all different areas. Tourism needs people. We cannot go to robots. We cannot go offshore for cheap labour. We have to hire Canadians. We have to pay them the minimum wage—at a minimum of course—and this is where we conduct our business. For the businesses that cannot leave, we ask that you consider that.

Finally, in terms of tourism and fiscal policy, the value of our dollar and our low interest rates have been very helpful in growing our tourism industry from the recessionary level. We hope interest rates will be maintained at their low rate as we go forward for the next couple of years.

Again, we have to look at a new way of looking at what wealth is in Canada. With all respect to my colleague from the mining industry, the wealth of our natural resources is no longer only in the value of the lumber or the hydro power; it is also in the experiential value of people coming up to see these things. There is an intrinsic value to that. We have to learn to evaluate that value as well when we're crunching numbers, and put it into the mix and use it when you're creating new economic policy.

Those are my comments. Thank you very much.

The Chairman: Thank you, Ms. Ward.

We'll now move to the representatives from the Mining Association of Canada—Mr. Miller and Mr. Paszkowski. Welcome.

Mr. C. George Miller (President, Mining Association of Canada): Thank you, Mr. Chairman and members.

As you know, the Mining Association of Canada is the national association of the Canadian mining industry. It comprises companies engaged in mineral exploration, mining, smelting and refining. Mining companies employ about 120,000 Canadians, using advantaged technology to produce the metals and major industrial materials that make Canada the greatest exporter of these materials. The member companies of the Mining Association of Canada account for the majority of that output.

We very much appreciate this opportunity to participate in the committee's round table hearings and present our industry's point of view on national priorities and building a strong economy and strong society. We would like to congratulate the government on being very close to turning the corner on balancing the federal government's books. But as we do that we're also facing the challenges nationally and internationally of rapid technological change, globalization of capital markets and the liberalization of investment regimes around the world. In this global reality the nation cannot risk returning to a state of financial disarray. We must address those challenges and turn them into opportunities.

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The Mining Association of Canada calls itself MAC, so if I drop into that acronym I hope you'll bear with me.

We believe the government should maintain its prudent or conservative economic assumptions—as it has for the past several years—maintain the two-year fiscal plans and maintain a contingency reserve for unforeseen circumstances.

The current economic fundamentals—low inflation, low interest rates and a competitive exchange rate—are definitely helping Canadian business to create jobs and sustain economic growth. They're also the fundamentals required to allow the Canadian economy to profit from today's global realities. There is a direct relationship between a strong economy, global competitiveness and the contribution of a social policy system to improving our international performance. This relationship is complex but is also directly linked to our national debt of nearly $600 billion.

Canada's number one priority must be to reduce the debt-to-GDP ratio, and we believe to reduce the debt in absolute terms as well. With $45 billion in annual interest charges paid on the debt, our sustained long-term prosperity and real dividends are clearly linked to attacking the debt. With high debt comes high interest payments, high taxes, lower services and weaker social programs. Today's high economic growth rate, low inflation environment, low interest rates and high consumer confidence provide a unique opportunity to focus on reducing the debt. This is not to suggest that we ignore targeted tax measures and core social spending, it simply means that the federal government must be prudent and strategic given the inevitable temptation to resume spending.

The government's proposal to allocate 50% of the fiscal dividend to new spending should be set aside, with debt reduction given more priority. The faster we reduce the debt, the faster the savings and interest charges can be directed to strategic investments in education, productivity growth, the development and adoption of new technology and the attraction of foreign investment. Canada must set the foundation to compete in the 21st century.

Our current high level of taxation is based on our inability to balance the books in the past. Nevertheless, we are not advocating that elimination of the deficit should immediately result in a broad-based tax cut. The government should focus on maintaining Canadian competitiveness while the tax system and strategic social investments are used sparingly to ensure that our children and our country are prepared to meet the challenges and opportunities of the global economy.

While the government has been successful in improving the fundamentals of the economy, we are still facing a number of related issues that could impact our industry's ability to compete. The first is in part associated with the attack on the deficit. We've experienced rapidly rising levels of non-profit-related taxes, charges, fees, levies and other costs imposed by governments. The second challenge our industry faces is dealing with the recommendations of the government-appointed Mintz committee, which is examining Canada's business tax system. We're not sure what the committee is going to say in it's report, but we will be looking carefully at the report.

The third challenge that's specific to heavy industry is the potential economic impact of an international climate change protocol on the Canadian economy. We regard the upcoming meeting in Kyoto as being about the economy. It's about the environment but it's also about the economy, and Canada is in a very vulnerable position, bearing in mind its geographic and economic make-up.

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These policy initiatives have wide-ranging cost implications that could put our international competitiveness and regional economies in jeopardy. It is vital that the conditions that have fostered Canada's economic growth are carefully evaluated, to ensure the conditions are present for sustainable growth and development.

In summary, Mr. Chairman, MAC believes that priorizing the reduction of the debt-to-GDP ratio is the best means of delivering a sustained fiscal dividend. Prudence and vision will ensure that the deficit does not resurface, that the debt is reduced, and that Canada's prosperity is enhanced from a social, economic and environmental protection perspective as we approach the new millennium.

Thank you, Mr. Chairman.

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

We will now proceed to the question and answer session. We will start with Mr. Gerry Ritz.

Mr. Gerry Ritz (Battlefords—Lloydminster, Ref.): Thank you, Mr. Chairman.

I'd like to welcome everyone here this morning as well—very thoughtful presentations. I certainly can't find fault with most of your ideologies.

The one constant theme I have heard here is that all of your groups are very employee-friendly. I think we all agree that jobs are created or lost based on the tax loads to employers.

We saw a little adjustment in the stock market this week—a hiccup type of thing. How do we set up a buffer system for Canada that will safeguard us against further stock market adjustments that tend to create or download through to employers and so on? Pension packages and so on take a hit.

You've all given some direction as to the debt-to-GDP ratio. Some of you see a little brighter future for that than others. Mr. Wilson talks about it dropping from 3% to 2%. The CFIB, Ms. Swift, talks about it climbing a little to 3.5%. How do we work all of that into the mix so that we're not overtaxed, so that we can create these jobs we're going to need into the next century, address youth unemployment and all those major issues that we're facing? I'll just toss that out there for your comments.

The Chairman: Who wants to start? Mr. Wilson.

Mr. Dean Wilson: First of all, I believe the key to financial stability, including the stock market, is to get the debt down in this country. We have far too much debt—$600 billion—and the federal government needs to develop a plan to do that.

We think that next year you will have the budget balanced and hopefully have a surplus in the next fiscal year. So that needs to be targeted—to get the debt down. Also, reduce any foreign debt. Pay off the foreign debt first so that you're not at mercy of investors outside the country. I really think that deficit and debt is key to the financial stability of this country.

The Chairman: Anybody else? Mr. Miller.

Mr. C. George Miller: Mr. Chairman, I think the question is a very good one. I'd like to comment on one aspect of it, and that's the proposal that we somehow insulate Canada from global markets, specifically financial markets. But global financial markets are tied with global markets for goods and services. Canada has moved rapidly to increase its ability to participate in those markets, with great advantage to Canada and to the other people in the world.

I feel it would be a mistaken policy to try to somehow protect Canada. We can protect ourselves best by being competitive in providing the goods and services that Canadians produce. Fluctuations will take place in financial markets.

The Chairman: Anybody else? Ms. Swift.

Ms. Catherine Swift: I agree with what's been said already, but I'd just like to add that our tax environment in so many aspects has increased dramatically in this country over the past really 15 years or so.

We see another hit coming in the new year with the CPP increase—again a payroll tax, profit-insensitive, a tax on jobs. The tax portion of this equation is essential. We have to get at reducing the total burden of taxation.

We focus on payroll taxes because we believe job creation is a major objective, but on the income tax side as well, there is certainly scope for some tax reduction. That would be another factor, in addition to what the other gentleman said, that would ensure our stability. We'll never insulate ourselves from international markets, nor would we want to, but it'll ensure that we can come out of these periods of volatility with some stability, or perhaps even better off.

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The Chairman: Thank you, Ms. Swift. Would any other panelists like to comment on that?

We will move to the next questioner, Mr. Loubier.

[Translation]

Mr. Yvan Loubier: My question is for the President of the Canadian Federation of Independent Business.

You said earlier that unemployment insurance premiums must be reduced. Everyone knows that at the end of this fiscal year, the surplus that has accumulated over the past two years in the employment insurance fund will be approximately $13 billion. How much should the premiums be cut, overall and per hundred dollars of insurable earnings, just to compare with what has already been done.

[English]

Ms. Catherine Swift: We believe that at a minimum, again given the changes we're expecting in the Canada Pension Plan, the reduction in EI premiums for 1998 should at least equal—that should be the minimum, ideally more.... With reasonable economic assumptions about the growth of the economy and the level of unemployment, we think that surplus will continue to grow. It could be $15 billion or $20 billion by the end of next year. That's clearly an amount that is way in excess of what could ever be required.

We think a surplus is a good idea, because for the next economic slowdown we will want some money sitting there and not have to increase premiums. But the notion of having the surplus growing as rapidly as it is—and again, it isn't being used for its intended purpose but is being put into the deficit reduction effort—that has to stop.

The magnitude of the premium reduction.... Right now the break-even point—we have a premium of $2.90—is $1.85. We have premiums that are in excess of a dollar more than they need to be to just maintain the current surplus. It wouldn't bring it down, it would just maintain it. We're not even saying it should be brought down by that much, because we can continue to accumulate a surplus at a slower rate, but the current levels are unacceptable. We must at least offset CPP increases and preferably go beyond that if we really want to make a dent in our high unemployment rate.

[Translation]

Mr. Yvan Loubier: Ms. Swift, you mean a 40 ¢ reduction would be reasonable and could have a considerable effect on employment. That would mean a reduction of about $4 or $5 billion of surplus per year.

[English]

Ms. Catherine Swift: Again, the CPP increase slated for next year is 66¢, and we would view that as a reasonable benchmark to use in terms of the quantity. So we would go even further, Mr. Loubier.

The Chairman: Mr. Whyte.

Mr. Garth Whyte (Vice-President, National Affairs and Research, Canadian Federation of Independent Business): We suggest that the committee talk to the actuary responsible for the EI fund and ask him for the numbers. We believe you could drop the rate to $2.20, and at the current unemployment rates, which are expected to go down, but if they stayed the same, the surplus would still build up to $15 billion. So you could reduce the rate by 60¢ and at the same time still build the surplus up to $15 billion.

We are concerned that even if it drops to $2.80, the surplus will build up to $20 billion. What size of surplus do we want? Do we want a $15 billion, $20 billion or $25 billion surplus? When do we cut it off? We're pulling $5 billion to $6 billion out of employees' and employers' pockets every year to fund a surplus that is already adequate.

Ms. Catherine Swift: It might be worth noting that in the last recession the EI account only went into deficit to the tune of about $6 billion, and the program is actually less rich now than it used to be, because of reforms the previous government undertook over the last few years. So even if we use that $6 billion to $7 billion as a rough approximation, we're already way over that in terms of the EI surplus.

[Translation]

Mr. Yvan Loubier: Would you be willing to have employer's contribution rate reduced proportionately to the number of jobs he creates?

[English]

Ms. Catherine Swift: I think it's a good principle, but the problem with those kinds of programs is that they can be subject to abuse. Short-term jobs can be created and they could displace current employees, so your net benefit would be nil. When we've seen measures like that in the past—the principle is a good one, but they prove to be very difficult to administer in practice.

Right now the new hires program is actually targeted at—it doesn't even say new employee, it's an increase in the dollar value of the payroll. We feel it's a simple principle to understand, so it doesn't require a lot more bureaucracy to administer. Those kinds of programs have been proven. They encourage incremental employment or incremental funds going to employees, which we believe stimulates the economy and is positive for job creation. We feel those kinds of programs are double winners, because they're easy to administer, they're not complicated and they promote job creation.

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The Chairman: Thank you, Ms. Swift.

[Translation]

Mr. Yvan Loubier: Just a brief comment, Mr. Chairman. My last comment is for Mr. Miller and is on the Kyoto conference.

I think we've reached a point where it is the opposite of what you have just said: it is businesses who will have to adapt to the new international environment and concerns about the greenhouse effect. It has been a number of years since the Rio conference and Canada has not kept the tenth of its promises. Fifteen thousand tons of greenhouse gases are emitted per capita. In the next few years, we can expect temperature changes of between two and six degrees. With an increase in temperature of just 3 degrees, there will no longer be any wheat grown in western Canada. At some point, we will have to make a choice: either we starve, or we continue producing, but in a more environment friendly manner. Perhaps it is the mining industry that should adapt to the new changes and concerns.

[English]

The Chairman: Mr. Miller.

Mr. C. George Miller: Thank you for the question. The mining industry in Canada has set many examples for the world in improving its environmental performance. We take that obligation very seriously.

We feel that in the case of the climate change convention, Canada needs to make a commitment, but we need to make a commitment that is consistent with our ability to deliver on commitments and our ability to absorb changes in our economy. There are special reasons why Germany, France, Sweden and other countries that have entirely different energy supply systems and industrial economies have shown absolute reductions in greenhouse gas contributions, whereas Canada has shown substantial reductions in the production of greenhouse gasses per unit of output, but we have not been able to show an absolute reduction.

We would favour a more cautious approach to binding measures regarding greenhouse gases. We'd like to see a timeframe that would allow capital stocks to turn over, because new technology does bring great environmental advantages. We would like to see some time allowed to make the scientific evidence a little more secure. There are many weaknesses at present. There are many areas of controversy in the estimates of the impacts of climate change in terms of temperature increase. We believe more time needs to be spent to reduce those uncertainties before we commit to policies that could be very damaging.

The Chairman: Mr. Jones.

Mr. Jim Jones (Markham, PC): Thank you, Mr. Chairman.

I found all of the presentations very interesting and I agree with everything the people have been saying.

In the last three years in Ontario we have experienced tax cuts by the Ontario government. For your industries that are located in Ontario, has their ability to increase jobs...? Did it have a negative impact on the economy? The tax decreases that we talk about—Mr. Szabo has it up to 6.1, and I heard it was 4.9, but I know that the loss in revenues from those tax decreases has been more than offset by the increase in jobs and because fewer people are on unemployment and all the other social programs you have to pay for. Has this tax decrease affected your jobs for the good?

The Chairman: Ms. Ward.

Ms. Debra Ward: [Inaudible—Editor]...managed to have our preliminary for tourism, but we have seen an increase in domestic travel—travel by Canadians—and a lot of it is by car. So what you have is an increase in discretionary income. You would also reap the benefit of this if you followed CFIB's model of reducing premiums for EI.

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The short answer is yes. People have a few more bucks in their pockets, and they're spending it. And from our point of view, we have some good indications that they are spending it on travel, with all the benefits of that as it reaches business.

The Chairman: Ms. Swift, would you like to comment?

Ms. Catherine Swift: I could do so just briefly.

We don't think it's a coincidence that the two hottest economies in the country right now are Alberta and Ontario. These are areas where taxes have either been reduced or, in Alberta's case, they have been relatively low for quite a long time. Other costs as well at the provincial level—things like workers' compensation costs—also figure into the cost mix.

So we find our small and medium-size members have been very positive about the income tax cut in Ontario, as well as some other reductions they made, including that payroll tax cut on the employers' health tax, which was a huge boon. So there is no doubt that's translated into jobs.

But I think another important point to mention is that time is everything—just like everywhere else in life, I guess—with tax cuts. Obviously in a period of tough economic times one can't do it, or it's an awful lot more difficult to do it.

I think to seize the opportunity now, when we do have a growing economy, to cut taxes, get the maximum bang in terms of jobs and growth out of those tax reductions, we are much better situated for the next time the economy does slow down.

The Chairman: Mr. Wilson.

Mr. Dean Wilson: We support the tax reductions, just as the other speakers have said. But I would add that I don't think the Ontario government has got their deficit down quick enough. They're committed to finishing that round of tax reductions, I believe, on January 1. I think after that they need to balance their budget, and then start reducing the debt, because they're still up too high on their deficit.

The Chairman: Anyone else? Mr. Jones.

Mr. Jim Jones: Yes, I have a question for Debra Ward. It seems that the tourism industry is a very fragile industry, that they realize a profit on the margins. What impact will the CPP hike have on your industry, especially if there are no offsetting reductions in EI?

Ms. Debra Ward: It can be very devastating. You know, we pick these things apart. We look at EI here and CPP there. They're bottom line for our guys: it's just money they have to pay that they don't have.

Jobs will be lost; jobs will not be created. Some businesses will close. You will have situations where you have an operator who goes for six or eight weeks, maybe reducing the number of weeks he's able to run his business. A lot of tourism is seasonal. He will reduce from twelve weeks to ten weeks.

And, you know, they don't care if it comes out of.... The provincial government is asking for it, or the municipal or federal.... It's all money they just don't know where they're going to get.

So to answer your very good question is I think it's going to be devastating.

Mr. Jim Jones: I have one last question for the automobile associations. I understand and realize why there was a toll road for the 407. I know there was traffic congestion, but that wasn't the primary reason they went with a toll road to get the funding for the 407. It was because of economics, the just-in-time manufacturing. Trucks were clogged on the 401, and it was costing the greater Toronto area tons of jobs as plants were relocating in the U.S.A. They just couldn't get the proper expectation of delivery.

I just wondered about the impact of having toll roads in places like Nova Scotia and other places in this country where they probably don't have the same business justification. What impact will it have on tourism, and what impact will it have on jobs in those areas?

Mr. David Leonhardt: Well, I understand there was a lot of concern in, of all places, Newfoundland, where it's starting. There's a sense of isolation there certainly.

The maritime economy is obviously not always the strongest in this country. I'm not the expert to comment on macro-economic questions, but everything that comes out of there.... It seems there just aren't any rail lines left at this point. It's coming by truck. Like everywhere else in the country, more and more trucks are on the road.

One of the reasons the new section of 104 was being built was that in fact the old section was quite dangerous, particularly with the load of truck traffic. We're getting the same thing with that portion of the Trans-Canada Highway they're planning to rebuild in New Brunswick. Now, one of the big concerns here is that this is essentially the only route there is in and out of the province. And, yes, if you're a motorist, you still can travel on the old road. Trucks cannot do so.

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However, it's not a real alternative. They're lowering the speed limit to a point where they're far below what anyone's willing to travel. The highway itself is known locally as “death valley”. It's not something anyone wants to travel on, and we're awfully concerned about that.

It's a dangerous precedent, and I think people in the west, Ontario, and Quebec should be equally concerned about what happens when provincial governments are strapped for funds. Because a lot of the gas taxes are coming into the federal government. They don't have control over them. What happens when those funds aren't being put back into the roads, be they national or otherwise, for that matter? They have to put all their resources into certain stretches of road, and others get left by the wayside. But here we're talking about something of national importance.

The Chairman: Thank you, Mr. Leonhardt. Mr. Wilson.

Mr. Dean Wilson: I believe that globally user-pay projects have been quite popular, so I would perhaps urge the Canadian government to do an analysis of that. In our view, you need the extra road.

A little earlier we were talking with one of the other people here about environmental issues. The fact is that at times the 401 is a parking lot. So you have a whole bunch of vehicles on the road idling and giving out emissions.

Now, the automotive industry in North America has put a lot of effort into reducing the emissions that are coming out of automobiles. The automobile is really being cleaned up a lot, but the fact is, if you have vehicles idling or going too long on highways—longer than need be—you're creating more emissions than you need to. So one of the ways of reducing emissions is to have a more efficient highway system.

The Chairman: Ms. Ward.

Ms. Debra Ward: Just to comment on that as well, I don't want to lose sight of the priorities with respect to the issues related to tolling. First, let's get the good roads. Now, if we're going to get them by tolling, through the private or public sector, or whatever, the mechanism is, let's get those roads in place so people can use them, so trucks and people can move. And then let's work out the payment schedules. Let's not fight about who pays what, and not put the roads in place. I think some of that is happening right now.

The Chairman: Thank you, Ms. Ward.

We will now proceed to Ms. Torsney, followed by Mr. Pillitteri.

Ms. Paddy Torsney: Thank you.

I have a couple of questions. I'm glad we just had this discussion. I'm one of those people who sits on the highway and idles through to Toronto. We haven't even talked about the health implications of all that stress, but it does frustrate me.

Mr. Leonhardt, I wonder how you reconcile with your members the desire to see more money spent on roads, particularly in the Toronto area, where they're subsidizing truck transportation, when according to the numbers I have, rail is paying its fair share, and trucks are not. If you've been on the QEW between Burlington and Toronto, two out of the three lanes are solid with trucks at various points in the day. It's not very safe—not that truckers aren't good drivers, but sometimes those people drive around them, and try to get through them.

It seems to me you should be advocating in favour of getting either better costing or fairer costing vis-à-vis the two systems, and encouraging more containers to be on the rail systems. It is a real concern for safety and for the costing. It's a bottomless pit to repair those highways over and over again.

Through the chair, I'll ask that you comment on that, and let me just get out the other questions.

Ms. Swift, the EI new hires program has been terrific for alleviating unemployment, particularly among young people. Your numbers suggest that a lot of your members don't know much about it. You do a lot of surveys. Have you included a message in every mailing that people can take advantage of this? And what else can we do to get out the message?

Ms. Ward, in P.E.I. it was remarked—and it came right out of left field—that tourism causes dramatic increases in poverty in intensive tourism sites around the world. They did not want an economy that was more focused on tourism. I thought it was something your industry might want to address.

Mr. Miller, there weren't too many specifics in your presentation about what changes you would like. Are you relying on the Mintz commission to make those for you? I know my experience going down Creighton Mine. I learned a lot about capital cost write-offs and everything else, and that you wanted a lot of changes as an industry in that area. I wondered if you did have some specifics for this committee about what changes would help.

I'm hoping you'll make some comments about Newfoundland, how they are a huge exporter of minerals in this country, and that their economy is not a drain on all of us.

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Mr. Wilson, just to you, I have heard a lot from apprentices and from young workers about that issue and have written to the minister on it. So we'll keep working on that one.

The Chairman: Are you going to start?

Mr. David Leonhardt: The question, first of all, I believe, was: As part of our highway rehabilitation program, should we not be encouraging more freight to move by rail as opposed to by truck, in essence? Obviously, from a motoring perspective, our surveys show that about half of our members are actually quite concerned about sharing the road with trucks. They're concerned about the size, the speed, the splash and spray in rainy weather. I've seen the kind of truck traffic. It happens right here in Ottawa. It happens in Montreal and it happens virtually everywhere you have a strong economy these days.

I think that's crux of it. We're finding more and more trade is moving by truck. What can you do about it? In many parts of the country now you've got rail line abandonment so there isn't that other option. They've got to move by truck.

You've alluded to tax levels. Certainly we've seen study after study that show the railways actually pay more taxes because motorists subsidize the roads for the trucks whereas the railways have to pay property taxes on their rails that the trucks don't have to pay. So in a sense you're definitely right on that. That's a whole separate issue, almost, that this committee might want to look at. That's not just federal; it's all three levels of government.

Simply put, there is increased trade overall. It really has been booming in terms of the amount of trade. If you look at the statistics of the goods being moved in this new economy, it's still hard goods and they're travelling by road in part because of, as someone mentioned, just-in-time manufacturing. What that means is the roads are no longer just a conduit between two points; they are the warehouses and the goods are essentially being stored there now.

I agree very strongly with the whole concept of let's just get those roads and let's stop quibbling over who is paying, because the simple fact is when we talk about user pay, the users now, from the motorists' perspective, are paying $5 billion, and we don't even need all of that to fix this national highway system. We only need roughly 20% or 30% of that to really get a first class national highway system. So the users are paying, but that's not the problem. The problem now is how do we get the government to invest in our highway deficit.

The Chairman: Who is going to go next? Mr. Wilson.

Mr. Dean Wilson: In terms of the new road in Toronto, maybe they should be forcing the trucks to use that, because I understand there are still a lot of trucks using the 401. So maybe there should be a move there to do that.

I really think there hasn't been enough discussion here about getting the youth to work, because the youth unemployment in this country is 16%. There needs to be a large focus on that. The future of our country is young people. We have to get more of those folks back to work.

I've suggested a couple of very specific initiatives that could be used to get more young people back to work. One is where I said if you don't have a job, you don't get experience, and if you don't have experience, you don't get a job. We have this youth internship program for automotive technicians in Canada, using CARS, Canadian Automotive Repair and Service Council. It's a joint funding by industry and the federal government. This is the sort of program that has been very successful about getting new entrants into employment a job. There needs to be more and more focus on that.

Part of the problem here is that you've transferred responsibility to provinces, so trying to access some of your funding is more difficult now. But I don't see why you couldn't take EI funds or a certain portion of EI funds to try to assist getting some of these young people back to work.

The other one that I suggested specifically was to give the automotive technicians a break on the huge investment they make in tools. Just as an apprentice, it's $5,000; for a journeyman, it's up around $15,000. Give them break, like they do on charitable deductions or whatever. You've got to find practical ways to get the youth into the workforce.

The Chairman: Thank you, Mr. Wilson.

Ms. Catherine Swift: Just in passing, I should note that we very much support the tax credit for tools concept. It is really an inequity existing in the system right now, and it should be remedied. It's existed for a long, long time. We have a lot of trucking companies in our membership, so I can't resist a brief comment.

Our industry is a highly competitive sector, as we know, and I think the notion of increasing costs yet further when we have huge fuel taxes, huge levels of taxation in a number of areas on that industry, really isn't a solution. Obviously, our highway system needs a lot of work, but the notion of imposing higher costs on that industry probably will have much more of a downside than an upside.

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The actual question that was addressed to me concerns the new hires program. It's very interesting. We find generally that no matter how great one's efforts are.... We do 3,000 small businesses a week. In every one of those visits, we ensure that this program is mentioned. Nevertheless, it takes awhile for any program to percolate through a system. With a tax change, something businesses should know about very quickly, we find it usually takes a period of two years. And I might add that part of the reason is that when it means foregone money for a particular department, be it HRD or Finance, these things are not proactively promoted by the departments themselves. I know it's hard to believe, but that's the case. There is an element of that, as well.

But, yes, as an organization we certainly do. We have a website on which we have this kind of information on a regular basis. We promote it in our printed material, in our personal visits to members, and so on. But again, our formal submission recommends being able to permit firms to take advantage for a certain grace period if they can prove that they did fulfil the requirement, didn't know about the program's existence, found out about it a year later, but, whoops, the deadline was gone. We find it's a fair means of saying that if they did indeed hire in this case, then they should be able to retroactively claim it. It's worked well in the past. Seemingly it worked well for government, and we think it worked well for the economy overall.

The Chairman: Ms. Ward.

Ms. Debra Ward: I'd like to answer your question now. I think I know where it's coming from, but when this issue was raised with you in terms of increasing poverty, they were using older resort destinations perhaps as a model.

Tourism in the 1990s is not the tourism of the 1950s. I think what you saw in certain cases is what you would call exploitive by today's standards, in the sense that a resort developer would come in, find sand, find a palm, find a beach, decide to build, get the rent, get the room, hire cheap local labour, put in management from head office or wherever to run it, and suck out all the profits. That was a problem. But that kind of development is disappearing faster than is imaginable, quick frankly, to the point that I don't think exists in any large sense worldwide any more. What you have now are community-based partnerships—strategic alliances in Cuba, for example—in which you have a lot of Canadian hoteliers and tourism experts coming in, and where you have true joint ventures from which everybody reaps the benefits.

There's an understanding that a beach is a beach is a beach. If you want somebody to come to your beach, you have to offer more. You have to offer something that is cultural, that is experiential, that is unique to your area, so you start bringing in a community-based tourism plan. Unfortunately, a good part of my job is talking to people who raise the concern that was raised with you, and telling them yes, they should have asked that question in 1957, that it would have had some benefit then.

The Chairman: Thank you, Ms. Ward.

Mr. Miller.

Mr. C. George Miller: Thank you, Mr. Chairman. I also had a couple of questions addressed to me, and I'll try to be quick.

What do we want from the Mintz committee? Perhaps I'll take just a few moments to sketch the history.

Traditionally, the resource industries have benefited from a number of particular tax measures, most of which have now disappeared. The super-depletion that allowed flow-through shares to work has disappeared. Some of the high capital depreciation rates for tax purposes have disappeared.

By and large, we feel the major features of the current system work reasonably well. We accept that some of these other incentives have gone, but we believe we are able to work under the current arrangement. There clearly are complexities in the corporate tax system, but we do not believe that trying to tax all industries in exactly the same way is necessarily the best way to get rid of the complexities. An example is the fact that manufacturing has a special arrangement not available to producers of services.

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If Canada were a closed economy you might be able to argue that our overall wealth could be increased by eliminating those differences. But since our country is open to trade and some sectors are very well established, the natural resource industries being among them, to say that a level playing field is our major objective domestically would be very short-sighted. It would put one industry against another—there would be winners and losers. We don't think that's the appropriate way to go at this time.

So what we are looking for from Mintz is a little sensitivity to the fact that while the current system is complex and it can be simplified, the overall effects are not bad. What we are worried about is taxation that is not related to profits. I'm speaking of many things that have appeared in recent years, such as user fees where they were not used before. Excise taxes on fuel go straight to the bottom line. They hurt our competitiveness every year, whether we make a profit or not. At least in the income tax system you have to make a profit in order to be taxed, but these other systems are totally unresponsive to the level of profit, and those are the ones that worry us a lot more.

Let me say a couple of words about Newfoundland as an exporter of minerals. It may surprise people to know that for many years since the 1950s Newfoundland has had the highest proportion of GDP devoted to minerals of any province in Canada. First it was the iron ore industry that created that situation. That industry is still going strong and has greatly improved its productivity and cost base. There have been tremendous reductions in the cost of production.

Everyone is excited about the possibility of a massive production of nickel in Newfoundland and a refinery on the island of Newfoundland. We're just hoping that some of the present delays can be resolved and that development can take place even faster.

The Chairman: Final question for Mr. Pillitteri.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you, Mr. Chairman.

I welcome your presentations this morning.

Ms. Ward, you stated that you made those presentations here before and that some members were here. I don't know if that's good or bad, because I've been here all along. If we made the right choices, maybe we've heard that; but on the other hand if we have not made the choices to your liking, maybe I would be wasting my time on here.

I'd like to make a couple of comments and ask one small question. The comment is about reduction in EI and how much would create jobs and so on. We all know that over 85% of jobs are created by small-business people. I think I would fall in that category. I've been asked whether a 10¢ reduction in my payroll would allow me to create a job, and my answer is a flat no. What would create a job is economic growth in my company. That would create the job, not the 10¢ reduction.

I've informed my own family to put in for that 10¢ just in case they hire someone.

Another question raised was whether they have done any studies and how much they would save. I understand that 10¢ would be somewhere in the neighbourhood of $700 million a year, and you could figure it out from that.

My small question would be to Ms. Ward. A few years ago we knew that we in the tourist industry were in deficit to the tune of $9 billion to $10 billion. I know that it has increased. It has decreased to their benefit. You did not put figures to that amount. Are we in a plus or minus situation?

You also commented on how devastating the contribution to the CPP would be. I look at that not only as part of an employer but as part of someone who is to deliver it within the social safety net. I look at it more in terms of how many people would be disadvantaged if this program was not in place. On the other hand, by having this program in the CPP, the safety net, how many more people will be able to qualify, specifically in the tourist-related areas, who would not have qualified, even though they would only be seasonal? And I know, because I make my living through tourism.

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Before you answer that question, I have one more point about the isolation of the stock market. If as Canadians we would have taken more action in investing in Canada and North America, maybe we would not have had this drop in the stock market, because it really happened because of the 20% we allowed to go outside the country through RRSPs. Maybe you should be looking at tightening up on what goes outside the country in investment, because those investments that we took the hit on were investments outside of Canada and the United States. It was not related to inside markets.

Ms. Debra Ward: First of all, the good news—and thank you for recognizing my various appearances—is that our deficit is now running somewhere in the neighbourhood of $3 billion or $4 billion. The largest portion of that is with the States, and that simply means there are Canadians spending outside Canada. It's greater than foreign spending in Canada for tourism.

One of our great challenges is to get a surplus out of that. But you know what? Canadians just love to travel, and they love to travel in the winter, when it's not so nice here. But we are making progress there.

With respect to your second point, I think it's a very important one about CPP and the social importance of the CPP. That's why I try to couch my remarks very much not in terms of what that money is going towards but what the impact is today on your bottom line. Miss Swift's earlier point about using the premium reduction to at least offset that helps. My mother's on CPP and OAS. She doesn't have RRSPs and investments. She's relying on the goodwill of Canadians and on our social safety net to help her, and it has, and I would not speak out for anything that reduces it.

On the other hand, you can only go to the same well so often. The point has been made that there are user fees on top of taxes, on top of regulatory costs, and sooner or later, to mix my metaphors, you're going to break the camel's back. And I think that from some of the comments we're hearing, the beast is shaky on his knees right now, Mr. Pilliterri, and we have to be reasonable.

The Chairman: Thank you, Ms. Ward.

Mr. Whyte, Miss Swift.

Mr. Garth Whyte: We talked quickly about RRSPs, and I believe we'll be coming back before the committee on November 17 to talk about Bill C-2 and the stuff we've done on CPP. I won't belabour it, but there is a graph in here on the importance of RRSPs that I just want to bring to the committee's attention. It's very fresh information. It's a response from about 10,000 business owners like yourself. They've identified RRSPs as very important in their retirement plans. Only 6% said it's not important. They're a very important vehicle, and we'll talk about that in our next presentation.

You're right when you say 10¢ is not enough. And that's all that's being offered. I think we did a study of a 25-employee firm in Ontario between 1989 and 1994. Over that period, payroll taxes increased for that firm by $60,000. That is worth two jobs, and that was with one firm.

The other part of the debate is that right now the surplus is at $12 billion. And by the end of next year, if the rate stays at $2.80, which is what's being offered, the surplus will be $20 billion. That's $20 billion out of the economy. To argue that $20 billion out of the economy doesn't hurt job creation isn't appropriate.

We're meeting with the finance minister tonight, and we certainly will be debating with him on some of these things. But the debate of reducing EI premiums—

Mr. Gary Pillitteri: The $20 billion is on hold.

Mr. Garth Whyte: Pardon? No. The $12 billion is on hold, and we're asking if it should be $20 billion.

Ms. Catherine Swift: It's a tax on jobs right now. That's what we're talking about: you're taxing jobs. We believe we could get that unemployment rate down a lot lower if we reduce taxes on jobs, and EI is a big one.

Mr. Garth Whyte: There's another important point, though. People can debate whether or not reducing EI will create jobs, but no one is debating the fact that increasing payroll taxes does kill jobs. Everybody agrees to that. Your government agrees to it. The studies have been done. They agree to it.

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CPP will be increasing by 66¢ next year, starting on January 1. We have an opportunity to offset that with the EI premiums. Allow the surplus to continue to grow. You could still reduce it by 60¢ and not hurt the surplus, the benefits, the unemployed, the employees and the employers. You'd actually help them. What's the problem with doing that? I don't get it.

The Chairman: Mr. Wilson.

Mr. Dean Wilson: With respect to your comment about the stability in the stock market, the key here in this country is that we have to make Canada a good place to invest in, a good place to do business in, and we congratulate the Canadian government on the deficit reduction they've achieved. This is tremendous news that we've had about deficit reduction.

But you have to stay the course. I think that's the message coming through from everybody here. Keep reducing the deficit, address the debt and don't go back on a spending program. You have to try to get more people back to work and have fewer people on social programs. That's really the key to competitiveness of this country.

The Chairman: Thank you very much.

First of all, I'd like to thank the committee members for their insightful questions and of course the panelists for the very insightful answers that we received.

This has been a very interesting round table. One thing it did prove is the fact that the challenges and choices we face are indeed difficult ones. We have to deal with the debt, we have to get—according to the CFIB—the EI premiums down and we have to kind of offset the CPP increase. We have many things to deal with. So you understand, of course, the challenge we face as a committee. But one thing is for sure: we're going to do our very best to try to bring about positive change to the lives of Canadians.

The meeting is adjourned.