FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, October 16, 1997

• 1612

[English]

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

Pursuant to Standing Order 83(1), the finance committee will continue its pre-budget consultations.

At this point I would like to ask if it is possible for His Worship Philip Owen to give us his remarks. Thereafter we will have a very brief Q and A. Then we will introduce the rest of the panel and go through our normal procedures.

I understand that the mayor needs to leave us quite soon, so we'll get to him right now.

Thank you and welcome.

Mr. Philip Owen (Mayor of Vancouver): Thank you very much. Good afternoon, Mr. Chair and members of the panel. It's a pleasure to be here.

I've been asked to be brief, so I will keep my remarks as brief as possible.

I was very interested in the Globe & Mail of Saturday, October 11, 1997. I read it in great detail. It's very interesting. It of course points out the three choices. I think that's what you're primarily interested in. As Minister Martin has said, now that we're getting into a balanced budget and a surplus situation, what should be done with it, how should we respond to the various options, whether to increase spending, pay down the debt or reduce taxes.

This has not been approved by city council. It's my views on it, representing the citizens of Vancouver and representing council as the mayor.

It's my view that the first thing to do would be to pay down the debt. I think that's foremost at this time. The second thing would be to increase spending, but modestly. Any tax reductions should come at a later date, either next year or the following year. The foremost thing is paying down the debt.

I'd like to take just a few moments and comment on increasing spending.

We at the municipal level have suffered a great deal in the last number of years. We've borne up under a lot of pressure. As you know, we have to have balanced budgets. From Victoria alone, their transfer payments to the city of Vancouver have been reduced from $60 million to $6 million in the last eight years—by $17.2 million this year to the city alone.

• 1615

We derive our revenue from two sources: from property taxes or from fees. We do not have access to the revenue streams that the provincial government and the federal government have, so we have very limited resources for raising the necessary revenue.

In Vancouver we've had a healthy economy. We've been able to maintain city services and absorb this, to keep our budget balanced and not cut social programs that we participate in, community centres and various other activities that we're involved in.

Of course, one of the biggest problems that cities across the country are facing, particularly Vancouver, is the whole issue of world trafficking in drugs. It's getting worse and worse, leading to prostitution, destroyed lives, all sorts of decay, and great pressures on the police and the people in the cities. I speak to my colleagues across the country in other municipal centres, saying the same thing. What do the citizens, the residents and the businesses, do? They go to city hall and they say, “You're the mayor, you're chair of the police board. What are the police doing and why don't you solve this problem?”

The fact is that most of the prostitution and drug rules and regulations fall under the jurisdiction of the federal government.

My view is that that's why we've got to slow the offloading. We've taken a big hit. We understand the provincial and federal governments' problems, and it's very good news to hear that the federal government is getting into a balanced situation, but I think you're interested in where we go from here.

We have an aging population. That's going to put tremendous pressure on social programs. As senior levels of government back out of all sorts of programs, it's making it very difficult for cities.

We have growing cities. In 1950 there were 31 cities that had a population of one million or more; in 1990 there were 150 such cities. In 2020, 23 years from now, there will be 500 cities in the world with over one million in population. Right now there are 20 cities that have a population of over ten million. Mexico City has almost two-thirds of the population of the whole country of Canada.

We're feeling those effects in Vancouver. People are pouring into our cities. There is increased drug trafficking, there is increased prostitution, there is an aging population, and social programs are being cut back. That is the difficulty we're faced with, and that's why I go back to my priorities.

First of all, the main thing is to pay down the debt. There's no doubt about it in my mind. Then have a modest increase in spending and get us back to a position where we don't have any more reduction in the social programs that are essential to the quality of life for our citizens and many who need help. The tax reduction should come at a later date.

One last thing. Please ease up, because I relate what's happening on our lot to what the banks did in 1981, 1982 and 1983. All of those of us in business know what it was like when interest rates climbed to 20% to 22%. There were massive bankruptcies.

John Cleghorn is the chair of the Royal Bank now. He was the head of the Royal Bank here in Vancouver and he was sent off to Toronto and told “Go to Europe”—this was in the mid-1980s—“and find that $3.5 billion worth of bad debt, because we're in trouble”. The five banks were in trouble in the early 1980s. They reorganized their operations, and now they've got an embarrassing surplus. They hacked, slashed and cut, and that's fine.

I just hope that we can maintain some programs bearing on the future a bit, because I think the same thing is going to happen to the federal government in five or ten years, that the surplus is going to be huge, and hopefully the debt can come down. Let's ease off on the social programs, because the cities are under increasing pressure with limited taxing authority and more responsibility. It's not fair and it's going to be really devastating for citizens of this country if the current trend continues. We've managed so far, but let's back off a little bit on that at this moment.

Thank you very much.

The Chairman: Thank you very much, Your Worship.

We'll move to a very quick round. Mr. Desrochers, followed by Mr. Riis, and then Mr. Valeri.

[Translation]

Mr. Odina Desrochers (Lotbinière, BQ): Mr. Mayor, we have a great deal of compassion for the problem you are experiencing here in Vancouver. In the region I come from, Quebec, we are dealing with nearly the same type of gang warfare situation, caused in part by drug trafficking.

• 1620

I concluded from your brief that you want to see the Criminal Code amended by tightening the provisions that will enable you to wage a better war against this scourge.

You talked about increasing expenditures. Would you like money to be allocated specifically to the fight against this scourge which is attacking our society, especially youth and the poor?

[English]

Mr. Philip Owen: Yes, special funds or start to work in partnerships on a more co-operative basis and work together.

I made some announcements this morning in a press release. We're looking to adjusting programs and new programs and looking to the provincial government, and hopefully the federal government, to be partners with us in this problem. The ongoing proliferation of drugs is a major problem.

Non-returnable warrants are a problem in the city of Vancouver. The fact is that it's been recommended to the provincial government that major drug traffickers and importers be given mandatory life sentences. The Attorney General of the province of British Columbia is keen on that, and I support that.

So I guess the answer is yes, but hopefully we can work on a co-operative basis. But if it's easier or better to fund programs, of course we'll be very appreciative and we'll accept that with very warm regards.

Mr. Nelson Riis (Kamloops, NDP): Your Worship, your opening comments were about the necessity of paying down the debt and the importance of this and the need for action on this. Yet, in your voice as a mayor, your comments on the crimes and the drugs, the aging population, urban growth, the challenges to providing social services, more responsibility is coming for you folks and yet in limited revenue sourcing.

To what extent is paying down the debt our priority in your judgment, compared to reinstating funding or perhaps even having some innovative funding to assist cities meet their crisis?

On the one hand you say that the debt is a major priority, yet in your voice you're describing something really serious here and it's going to require funding as well.

Mr. Philip Owen: Paying down the debt I did say, but I then said modest increases in spending. We think that there's an opportunity to form new partnerships and we have new initiatives in Vancouver in that regard in the private sector.

We announced this morning that the city of Vancouver had put $2 million towards a drug rehabilitation and detoxification centre. The provincial government closed the one in Vancouver two years ago. It's just been disastrous.

We're prepared to put funds forward for that, for the land. We think that there's private sector money to build the building. As far as operating funds are concerned, we think that the provincial government is responsible. Social services, health and education and welfare should come in and do the operational funding on that.

That's why I think we're more interested in a modest increase in spending. I don't think the government's in any position to do massive spending.

We have got along well with the offloading, the downloading and the cuts. We just hope that they have stopped so we can stabilize now and see some gradual improvement in essential programs. But drugs, quality of life, gangs and property crime are major problems, certainly in Vancouver, which is recognized to be one of the worst in the country—and it's all across the country. Those are the issues we need to address on a co-operative basis regarding increased spending.

Certainly, please, no more cuts and, please, try to help us build back these programs that are needed.

The Chairman: We'll move to the final question. Mr. Valeri.

Mr. Tony Valeri (Stoney Creek, Lib.): I was very pleased to hear some of the comments that you had made, Your Worship, with respect to the debt, because when I'm speaking to young people they look at the cost of the overconsumption over the last number of years and in fact the burden that they'll have to carry on in the future and they're very thankful that we can now start to focus on the debt as well as deal with some of the incremental increases in spending, as you've mentioned, and the need for strategic investments in that area.

Mr. Martin did mention yesterday in the update the need for renewed participation and partnership with other levels of government. In fact, he articulated the provincial governments, the private sector and local communities.

• 1625

I wonder if you could provide to the committee some examples of where the federal government might in fact provide some targeted assistance to communities like Vancouver, partnering directly with communities rather than other means of partnership.

Mr. Philip Owen: I mentioned the need for drug rehab and drug detox treatment centres in Vancouver. We now have a situation where we have police picking someone up in Vancouver with ten packs or less of drugs, and judiciaries saying it's a social problem, not a criminal problem. Well, where's the social program? Where is the drug rehab or treatment centre for that? There isn't one. There's the non-returnable warrant issue, those kinds of things.

We get into the need for these facilities, a partnering with us if the city can provide the land. I think we can get the private sector. Locally, for example, the Rotary Club has a lot of money, and is talking about building housing in downtown Vancouver. That could be done, but we need operating funds.

The cutback in the housing issue is when the federal government went completely out of housing. The Province of British Columbia has reduced the social housing allotment from the province from $950 last year to $600 this year. The City of Vancouver, in the 40 square miles of the city, is building 508 social housing units right now. We're staying very much in that area. We're left very much alone, and we can't keep that up.

There are those kinds of social initiatives that we think federal health and welfare and housing should be players in, and we hope there will be opportunities for them to come back in and participate with us along with the provincial government. Because collectively, I think, we can do great things. We're not looking for the federal government to solve all the problems and to do everything. We understand the reality of it. But we think there's a time now to participate in some of these decaying social situations, which are going to have tremendous.... It's ongoing that people are getting committed to drugs. The social costs ten years from now are going to be unbelievable. We have to get ready for this future disaster we're faced with, and we hope the federal government can participate with us.

Mr. Tony Valeri: There was also a mention by a number of economists—and you alluded to Mr. McCallum—about the size of the fiscal dividend. I think it's quite clear that in fact when a fiscal dividend appears it certainly won't appear in any large measure. It will be incremental amounts that will grow over time.

There is a lot of pressure from various groups to call for a broad-based tax cut. What I get from your comments this morning—and I hope you will provide me with a correction if I'm incorrect—is that you're looking for more targeted assistance for some of the social problems you're faced with in partnership with the federal government rather than focusing on a broad-based tax cut for the people of Vancouver.

Mr. Philip Owen: Correct—at this time, with tax cuts later. They hope that the offloading of responsibilities and the cutting back of programs will ease up, because for all the provinces, it's all the federal government: “They've cut $3 billion out of our budget, so we're going to hit you.” Everybody is blaming everybody. If that's eased off and there's no more offloading....

We're down from $50 million to $6 million from the province. We're assuming that they're probably going to yank the last $6 million away from us. We're saying “Please stop; ease up; take the benefit now.” Some of the surpluses are obviously going to come later, so we should go easy. Let's not go like the banks did in the eighties, when they were in real trouble, and now they have embarrassing riches. I think the government should move a little slower through that path of recovery.

Mr. Tony Valeri: So you're stating that the fiscal dividend, when it emerges, should be directed toward dealing with some of the cutbacks that in fact had to take place with respect to social programs, and subsequent to that, when the dividend increases, we should consider a broader-based tax cut at some point.

Mr. Philip Owen: At some later date. You're absolutely correct.

Mr. Tony Valeri: Thank you.

The Chairman: Thank you very much, Your Worship.

We'll now move to Anthony Toth with the B.C. Road Builders and Heavy Construction Association. You have approximately five minutes for your presentation. Go ahead.

Mr. Anthony Toth (President, B.C. Road Builders and Heavy Construction Association): Thank you. You must have seen my six-page brief. I have no intention of going through it, but you'll keep me on time, I'm sure.

• 1630

First of all, I'd like to say that finance minister Martin really needs to be commended from a fiscal control perspective. He's the first finance minister in a long time who has listened to wise budget-crafting advice. He has had conservative revenue projections. He has had conservative interest rate projections. He has always put in a good and conservative contingency fund in his budgets. It's a little funny to compliment a Liberal for being so effectively conservative.

At any rate, he has left us with a very happy problem, which is to talk about what priority uses we should put the fiscal dividend we can expect in the very near future. There are very many competing and worthwhile priorities. I'd like to speak to a very practical priority you should consider, and that the finance minister should consider in his next budget and subsequent budgets. My priority is where the rubber hits the road. In fact, it's the road itself. I want to tell you we desperately need to improve our national highway system.

Why? Well, the quickest way to wreck an economy is to wreck its transportation system. The quickest way to revive an economy is to improve its transportation system.

In our country our airports and our ports are in relatively good shape. Good policies are under way in making them functional parts of our transportation system. But our roads and our national highway system are in atrocious shape. Yet 70% of the goods in our country move over this system. So does tourism. I should tell you our ports and airports are all connected together by—what? Roads. So they are very important.

We join other national organizations, particularly the CCA, the Canadian Construction Association, in calling for the fact that the federal government should formally recognize Canada's national highway system through an act of Parliament, the way the Americans have. We think the federal government should recognize the need for a long-term, five-to-ten-year plan to modernize our national highway system through the development of a national highway plan, with appropriate investment commitments. Finally, we think the federal government should consider the creation of a national highway trust fund, which we recommend should be funded from an identified percentage of the federal gasoline taxes.

Canada is one of very few countries in the world to lack a proper national highways plan and policy. That is bad enough, but it's particularly bad since the Americans have such a wonderful plan and such a wonderful highway system—so much so that our Canadian truckers often dip down by 400 or 500 miles to use the American system rather than our own.

How bad is our highway system? I'd like to give you some examples particularly focusing on British Columbia. By the way, when I'm talking about a national highway system, I'm not talking about all roads, just those highways and arterials which are designated as part of the national highway system. Everything I say here relates to that.

First of all, at least in British Columbia, the national highway system in certain sectors is grossly congested. On Highway 1 in the lower mainland between here and Burnaby the average daily traffic is 169% of design capacity. That means during rush hour it's probably 300% to 350% of capacity. That congestion causes a number of things. It slows down goods and services as they move through the city. It increases costs. It makes our economy less competitive. It causes pollution. As cars sit around and idle they are not burning off all the stuff they should be burning off. It's a health factor for citizens.

The pavement ages on the national highway system are increasing. Those of you who can recall the Fram oil filter commercials...you pay us now, or if you don't you pay us double later. That's the way the highway system is. If you let it deteriorate beyond a certain period it costs double, triple, and quadruple to repair it.

In British Columbia 30% or 35% of the pavement on the national highway system is more than 15 years old. It's crumbling underneath us as we speak. Clearly, somewhere along the line the exponential costs will have to be expended to fix it.

• 1635

In the area of safety in Canada, there are 25,000 injuries per year resulting from poor highway conditions or poor highway design—and by “conditions”, I'm talking about state of disrepair—and there are 350 deaths. So safety is a big factor. And by the way, these are not just figures supported by road builders and construction associations. These are figures that the Canadian Automobile Association verifies, as does Transport Canada.

Our national highway system is getting such a horrible reputation now that it's actually being written up. An area outside of Mr. Riis' riding, the highway east of Golden, was written up in Reader's Digest. A whole bunch of other magazines have also written about how horrible that riding is. The mayors met in Sicamous more than a year ago in that area and declared or called that area of highway “Carnage Highway” or “Carnage Road”. There are people dying on these roads. They are under-designed, they're old, they're breaking down, and something has to be done about them.

I'm telling you about the British Columbia example because our needs are urgent, they're extraordinary. Even though highways aren't necessarily its jurisdiction, when and if the federal government gets involved in this area in a useful way—as Gordon Gibson said, the federal government should get involved in a major area of national values—it's important that an element of fairness enter into the situation in order to take care of British Columbia's extraordinary needs. We have had strategic drops of cash into Montreal for federal bridges. We have had strategic drops of cash into New Brunswick, Nova Scotia and Prince Edward Island. Into British Columbia, there has been very little. We pay $347 million in federal fuel taxes, and we got back about $6 million in the past year.

My time is up, but I think the national highway system needs your attention, and British Columbia needs extraordinary attention within that.

Thank you.

The Chairman: Thank you very much, Mr. Toth. Now we'll move to the representative from the Business Council of British Columbia, and Mr. Finlayson.

Mr. Jock A. Finlayson (Vice-President, Policy and Analysis, Business Council of British Columbia): Thank you, Mr. Chairman. I'm going to touch on three areas in my remarks, but I should mention that our association represents about 155 large and medium-sized enterprises that are active in business in B.C.

I am going to say something about the economic outlook, turn to the subject of fiscal policy in a post-deficit era, and then conclude with a couple of comments on taxation issues, if I might.

First, I have a couple of quick points on the economic outlook. It's clear that Canada's economic prospects over the near term are excellent. According to virtually all of the forecasts that have been published in the last several months, it looks like we're going to enjoy real economic growth of 3.5% to 4% this year, with likely a similar performance next year. It's very important to note that the sources of economic expansion are now widening in Canada. We're no longer depending solely on exports to generate economic growth. Consumer spending, which is 60% of all activity in the Canadian economy, is finally showing some strength after a number of years of weakness.

Secondly, although the unemployment rate remains too high, it's welcome news that the pace of job creation is now clearly accelerating. Again, most of the forecasts that we've looked at suggest that the level of employment in Canada will rise in net terms by about 300,000 this year and 300,000 next year. That's a very solid performance by historical standards.

Thirdly, I regret to have to report to committee members from outside of our province that conditions are not as favourable in British Columbia. The days when our province ranked first or second in Canada in economic growth and job creation are now very much in the past. We are badly lagging the rest of Canada in most major areas of economic performance today. Business confidence is lower in B.C. than elsewhere in Canada. Business investment has been falling since the beginning of 1995. Our number one industry, forestry, is mired in a severe structural cost-competitiveness crisis that has affected its outlook going forward.

• 1640

So conditions in B.C. are not as robust as they are elsewhere in Canada. To a certain extent we are not really even participating in the buoyant recovery that is evident in central Canada and the prairie provinces in particular.

Finally, we note that the U.S. is now in its seventh year of economic expansion, which marks the second-longest post-war economic expansion without a recession intervening in U.S. history since World War II. Although inflation remains fairly subdued south of the border, prudent planning indicates that an economic downturn in the U.S. needs to be considered by the federal government in putting its own budget together. Such a development will obviously dampen the Canadian economy, and in our view it underscores the need for the federal government to stay the course in efforts to restore Canada's public finances to a healthier state.

To turn to the subject of fiscal policy, like others, we are very impressed and pleased to see the dramatic improvement in the federal budgetary position since 1994. There are two main reason for this, in our view. One is the decline in program spending, unprecedented in Canadian history, from $120 billion in 1994 to $105 billion in the fiscal year that ended last March. But that is not the whole story. It's important, I think, to recognize that a large part of the deficit reduction that has occurred can be attributed to economic recovery, historically low interest rates, buoyant federal tax revenues, particularly in the last two years, and of course the cuts in cash transfers to the provinces. A number of factors have been at play there.

On the priorities for the federal government in a post-deficit era, we believe initially the top priority needs to be given to dealing with the accumulated debt problem, because the level of debt measured in relation to GDP is too high, at 72%. That ranks Canada as one of the worst performers in the OECD, and when you throw the provincial debts on top of that, we're still at roughly 100% of GDP.

It's worth noting that the European Community, in terms of the admission criteria that were developed for the Euro, the joint currency they are developing in Europe, specified an upper limit on government debt for all sectors of government, not just the national government, of 60% of GDP. Our federal government alone is still well above that. When you throw the provinces in, as I mentioned, we're still at 100%.

So as much as we would like to recommend dramatic immediate tax cuts or look favourably upon some proposals you would no doubt have heard on increased spending, I think the reality is that prudent fiscal planning requires that we get that ratio of debt to GDP on a downward trajectory quickly and rapidly on a sustained basis. That will happen even if the budget is balanced, because the economy will continue to grow, and as the Royal Bank and other forecasters have no doubt told you, the debt-to-GDP ratio is clearly going to be declining quite quickly in the next few years.

We, however, would recommend that the federal government aim to post at least two or three years of modest budget surpluses and use part of the surplus that will be generated to make what in some respects will be almost a symbolic paydown of a small portion of the nominal debt. Among other things, we think that will improve the likelihood of having Canada's AAA credit rating restored by the credit-rating agencies.

The reasons why a strong focus on the debt makes sense were well outlined by the minister in his presentation to the committee yesterday and in the economic and fiscal statement that was published, so I don't need to go through them.

Unfortunately, economic theory does not tell us much about what constitutes an optimal or appropriate level of government debt, measured against the size of the economy. That having been said, it's generally recognized that the current federal debt burden is well above any reasonable comfort zone. The Business Council of B.C. recommendation is that the federal government establish an interim debt target of 50% of gross domestic product, to be realized in the first half-decade of the 21st century. Even if this target is met, we would add a caution, that the total government-sector debt burden in Canada will still probably be in the range of 70% of GDP, because provincial debt, which is currently close to 30% of GDP, will probably be in the range of 20% up through the first half of the next century.

Many members of our organization of the business community in B.C. more generally have reservations about the federal government's statement that it plans to apportion any future fiscal dividend by allocating half to new spending and the rest to debt reduction and tax reduction. To our knowledge no real policy or intellectual rationale has been advanced to justify that particular division of the fiscal dividend. We are strongly opposed to the idea of large, across-the-board increases in program spending over the next several years.

• 1645

We do see a case for some carefully targeted spending increases in key areas like post-secondary education, improving the road system, and other capital projects that have a strong economic pay-off. However, we believe the government must keep a tight rein on overall program spending, for example, by ensuring that it increases by less than the combined total of population growth and inflation, on an annual basis.

Let me conclude with a couple of comments on tax policy. The minister said—we appear to have a virtual political consensus on this in Canada now, which is either good news or terrifying, depending on how we look at it, I suppose—that Canadians are clearly overtaxed. The aggregate tax burden in Canada has risen dramatically over the past 15 years, as measured on an annual basis by the OECD.

The federal government, for its part, has seen revenues jump $25 billion between 1993-94 and the fiscal year that ended last March. This marks a 22% increase in tax receipts. It's particularly striking when one considers that real household income and personal income has basically been stagnant in Canada over that period. Indeed, the higher tax burden federally and provincially is a significant reason why household and disposable incomes have been stagnant in the 1990s.

Having said that, our judgment is that massive tax cuts unaccompanied by offsetting spending reductions would be inadvisable in the 1998 budget. We say that partly because of the stage of the economic cycle we are currently in. We are very well advanced in the current economic cycle. The appropriate time for a major stimulus is earlier. It would have been maybe two or three years ago, rather than in 1998. We also say that because we feel, as I mentioned, that priority has to be given to the debt problem in the short term, rather than to tax cuts.

Having said that, we are convinced that the federal government should outline a commitment in next year's budget to a program of sizeable tax reductions that will be phased in gradually over the remainder of its mandate. The main focus of these tax cuts, in our opinion, should be on, number one, unemployment insurance premiums, and number two, personal income taxes.

It's our view in the business community in this province that the number one business tax problem facing our members is actually the rate of personal taxes in Canada, not the actual structure of business taxation itself. We would recommend a modest reduction in employment insurance premiums in 1998, followed by a concerted effort to reduce the personal tax burden in budgets that would follow in subsequent years.

We add that another feature of federal tax policy warrants attention: the problem of so-called “bracket creep”. Federal tax brackets and the figures that are used to calculate personal tax credits and exemptions have not been inflation-adjusted in Canada since 1992. This is because of a decision made initially made by the previous Conservative government and maintained by the Liberal administration to index brackets and credits only to the extent that inflation exceeds 3%.

Inflation in Canada has been below 3% since 1992. As a result, millions of Canadians have faced a hidden tax increase each year. It's estimated that every percentage point of non-indexation of the tax system translates into $350 million in higher tax revenues reaped annually by the federal and provincial governments.

For a person with a taxable income in the range of $36,000 to $59,000, this extra hidden tax amounts to $1,210, as of the current 1997 tax year. We urge the federal government to move toward the full indexation of the personal income tax system by the end of its current mandate.

Here's a final comment. We welcome the decision announced by Ministers Martin and Dhaliwal several weeks ago to delay the implementation of the foreign asset reporting rule until 1999. This has been a subject for considerable discussion and research here in British Columbia. You will hear more about it later.

In our view, delaying or postponing implementation should permit further study and, we hope, the modification of what we feel has been a poorly designed and ill-considered tax policy proposal.

That concludes my remarks.

The Chairman: Thank you very much.

For the follow-up, I will move right to those from the Canadian Businesses and Professions for Accountability Association, Mr. Patrick Wong and William Lim.

Mr. William Lim (Vice-President, Canadian Businesses and Professions for Accountability Association): Thank you, Mr. Chairman, for the opportunity to present our views on the foreign asset reporting legislation.

My name is William H. Lim. I'm a lawyer and a director of CBPAA, which is the Canadian Businesses and Professions for Accountability Association. Mr. Patrick Wong is a chartered accountant. He's also the president of the association.

I will go through a brief presentation. You may later address your questions to Mr. Wong.

The CBPAA is a registered, non-profit organization formed by a group of Vancouver professionals and business people who were concerned about the foreign asset reporting legislation.

• 1650

While we are keenly aware that this legislation was aimed primarily at catching Canadian taxpayers who evade taxes by hiding assets offshore in tax havens, we perceived very early on that there could be an adverse, devastating, and perhaps unintended economic effect upon our economy here in B.C. as new Canadians close down their businesses and leave Canada and as new immigrants are deterred from coming to Canada. We are keenly aware also that there is very little hard scientific or empirical evidence that can confirm our concerns here.

We also found in Ottawa, first, a low level of information and concern about this issue, and second, a corresponding view that there would be an insignificant effect upon the economy of British Columbia.

In order to transfer our perception into hard facts, our association commissioned the Laurier Institute, a think tank, to begin a process of predicting the economic effect of this piece of legislation. We also co-sponsored, together with the Vancouver Board of Trade, two days of hearings during which people with concerns on this issue were allowed to express their views and relate their experiences. The result of these activities can be found in a blue file, which you have. You will notice the inclusion of the reports from the board of trade and the Laurier Institute.

The association is of the opinion that tax rates in Canada are oppressively high. These high rates of taxation, combined with a perceived uncertainty of the future of social programs, are driving many Canadians underground and to seeking offshore tax havens.

In our opinion, the problem being addressed by the foreign asset reporting legislation has to do with the problem created by the high tax rates. These high tax rates do not appear to have slowed immigration in and of itself. However, the combination of high taxes with the offshore asset reporting is becoming a cause for concern for new potential immigrants.

If you were to combine the high marginal rate that we enjoy here in B.C., which is 54.2%—this is for $78,000 and up—together with the reporting requirement for offshore assets, Canada begins to look pretty unattractive to immigrants with money to invest.

If you have to question how important immigrant investors and entrepreneurs are to Canada, experts are quick to point out that they are critical to our economic growth. The entrepreneurial class of immigrants invested more than $435 million in businesses that employed more than 12,850 workers in 1995 alone.

This can be proven in the report that Dr. Edward Woo put in his paper “The New Entrepreneurs and Investors from Hong Kong to Canada: An Assessment of the Program”. He also states that business and investor immigrants invested more than $3.7 billion in Canada in the last decade and created more than 33,000 jobs.

Dr. Alan Simmons of York University also says that, among other things, immigration can increase market intelligence, economic responsiveness, and resilience, and act as an impetus to suburban growth. If you remove all these factors—the jobs, the effects, and the corresponding consumer activity—from our economy, it is not difficult to see that the loss of tax revenue would adversely affect our stated national goal of deficit reduction.

Included in your package—I mentioned the blue packet—you find two letters expressing concern. One is from our British Columbia Minister of Finance, Andrew Petter. The other one is from the Liberal opposition employment and investment critic, Colin Hansen. They will be self-explanatory to you.

Aside from the adverse economic effect, there also are a number of reasons for one to be concerned about this piece of legislation.

Number one, the reporting requirements in many cases are extremely complex and far-reaching, and the cost will be high. These are new and additional costs that we've burdened upon existing law-abiding taxpayers.

Number two, the collection, analysis, filing, and general administration of the data will also lead to added public costs and will increase size of the bureaucracy.

Number three, this legislation is also attracting a great deal of unnecessary attention to the potential businesses and entrepreneurial immigrants to Canada. The lack of clarity regarding the purpose of these requirements and the ultimate potential uses of the data have not contributed to a positive image of immigration to Canada.

• 1655

This legislation has also served to put a spotlight on Canada's high tax regime. They have contributed to a fear among potential immigrants for whom disclosure of assets will mean an exposure to and attracting of unwanted attention in their homeland. Unwanted risks will also include extortion, confiscation, and perhaps a breach of privacy.

Four, although taxation of capital assets is not currently the intent of this legislation, once a comprehensive database is in place there may come a time when, perhaps not in this government but in a future government, in a fiscal squeeze they will not resist applying a tax on capital assets outside Canada. Furthermore, should the database be made available to provincial governments, the risk of such a tax on capital assets outside of Canada will be even greater. In capital tax I would include estate and succession and gift taxes.

Five, there is no evidence to suggest that people and corporations who currently cheat on taxes by not reporting income are less likely to cheat on reporting assets.

We have also asked Dr. Maurice Levi, a Bank of Montreal Professor of Finance at the University of British Columbia, the author of the Laurier report, to predict the effect of this foreign assets legislation. You will find his report in the blue package.

He suggests that Canada's base of taxation will be greatly reduced, both directly and indirectly, by this legislation. He sees a reverse migration of wealthy Canadians who enjoy the best alternative opportunities of where to live and are generally considered to be particularly attractive immigrants.

He sees a corresponding reduction in the income of new Canadian immigrants. This effect is amplified year after year, because it lowers the average income of remaining Canadian immigrants. The lower average incomes will then translate into lower income and sales taxes collected.

The indirect effect that Dr. Levi predicts arises from reduced spending on housing and other big ticket items such as cars, furniture, appliances and other products. This means that future immigrants with lower incomes than those who have left the country will spend less on consumer goods and investments, thus adversely affecting economic growth.

Based on very conservative assumptions, Dr. Levi predicts that after one generation, federal and provincial governments will lose an estimated $20 billion per year in tax revenue. This is calculated in 1997 dollars.

As you can see, this is a very large, adverse and unintended effect of this piece of legislation upon the economy. I'd like to point out, however, that our association advocates that all Canadian residents should pay their fair share of taxes. The association also believes the penalty should be rigorously applied for evasion of taxes.

The first step to a more effective tax collection regime may be more targeted in enforcement so that Canadians are complying with existing laws. Second, we should also look to other countries as to how they handle taxation of foreign income. Minister Harb Dhaliwal has said he does not want to discourage immigrant investors. He says:

For attracting investment, it is very important that we have some sort of a level playing field with the G-7 and OECD countries and the United States.

Our association advocates the creation of a level playing field, especially among those countries that are primary alternative destinations for immigrants from the Pacific Rim. This is so far one of the most hopeful signals we have seen from the federal government in our search for tax fairness for all Canadians.

Thank you.

The Chairman: Thank you very much, Messrs Lim and Wong.

We're going to move to Tex Enemark, executive director of the Rental Housing Council of British Columbia.

Mr. Robert Orr (Chairman, Rental Housing Council of B.C.): As chairman of the Rental Housing Council of B.C., I'll be making the presentation. Mr. Enemark is beside me, so when I trip up he can answer any other difficult questions.

I couldn't agree more with the last three speakers. The Rental Housing Council is an association that represents approximately 100,000 rental units in the province, which is about 25% of the rental stock. Our four member organizations are the Greater Vancouver Apartment Owners Association, the Professional Association of Manager Agents, the Apartment Owners and Property Managers Association of Vancouver Island, and the Central B.C. Rental Association.

In essence, there is a clear bias in Canada's tax policy against the building of new rental accommodation. Tax reform in 1971 reversed the previously favourable tax climate for such investment. The details of the bias were laid out in two studies done by the province a decade ago. We have copies of those two studies and would be happy to send them to you.

• 1700

There is no question that federal tax policy not only actively discourages investment in new rental accommodation but also provides substantial incentives to demolish perfectly good rental housing. Because of the failure to allow roll-over of accrued capital gains and capital cost allowances when the building is sold, and another one of greater or equal value is acquired, new rental construction is hampered.

This means that should an owner want to sell a building and build or buy a larger one, he suffers a severe reduction in the capital he has available to deploy in doing so. The result is that investors just do not build new rental housing. Because investors or potential investors have alternate investment opportunities, it is tenants, many of them poor, who bear the burden of this misguided policy.

The federal finance department has not, for reasons difficult to understand, recognized or responded to the problems they created with the tax changes of 1971. Although there were some targeted rental housing stimuli programs during the 1970s and 1980s, they mostly served to dislocate the general rental housing market.

Rental housing is social capital provided by the private sector for people to rent their shelter primarily because they can not afford to buy. The adverse tax treatment of owners reflects itself in the rents that must be charged to tenants, who are generally less wealthy than homeowners who have substantial tax breaks, which we'll touch on later.

While roll-over, for instance, is allowed in the disposition or acquisition of a motel, a hotel or a family farm, it is denied the residential rental property owner. Surprisingly, an apartment business does not even qualify for the $500,000 lifetime capital gains exemption, unlike other small businesses. Given that these are long-term investments, partly because of the roll-over penalty, and that most of the so-called capital gain is really just inflation, why the discrimination? Why are capital gains not indexed to inflation?

To do otherwise is to tax away underlying value, as inflationary increases in nominal values masquerade as profits but are rather nothing of the sort. The policy objective of the federal government in such discrimination against the long-term investment that rental housing ownership represents mystifies us.

While the legitimate rental property owner pays full municipal taxes, pays taxes on income from rentals, meets fire, safety, health and other building code requirements and pays capital gains tax when he disposes of his rental property, there are those who buy much more house than they and their family need, and pay for it by renting out attics and the so-called mortgage helper, which also is contrary to many zoning bylaws, particularly in this province. They probably do not carry their fair share of municipal taxes, they probably do not declare the income from their illegal suites, and they have the benefit of no capital gains tax when they sell.

Is this fair to those legitimate rental businesses when the competition, which probably provides at least one third of the rental housing in B.C. today, can do it carrying a much lower tax burden? We submit “no”.

I suggest that it is very peculiar and counterproductive tax policy that achieves these results. It is not defensible. It is not good social policy, good tax policy, or good employment policy. This tax bias against rentals is slowly but inevitably driving investors out of this type of investment. Society, tenants and governments are not deriving the employment and tax revenue benefits that accrue from new construction.

At the same time, the squeeze on tenants seeking reasonably priced, healthy, purpose-built rental accommodation is becoming a major social problem in those areas of Canada that have to accommodate the nation's growth.

In Vancouver there is literally a shortage of thousands of housing units needed, particularly on the lower end of the income scale. If, as seems to be the case, governments are not going to meet that need, then society must create a climate where the private sector will do so. That climate has not existed since 1971. Today's problem is tomorrow's crisis, if indeed the crisis is not already upon us.

We are not asking that the very generous tax provisions of pre-1972 be reinstated—in other words, a return to the 10% capital cost allowance and the ability of a taxpayer to deduct rental property losses against other income—although these policies would be very helpful. We are only asking for tax treatment commensurate with that offered others; a recognition that the unindexed capital gains tax on real property held for a long time is really capital confiscation; and that the roll-over privileges accorded to motels, hotels, and family farms be extended to rental property owners. We believe if these were done, they alone would provide a sufficient stimulus to investment in the rental sector that any tax losses that might be borne by the federal government would be more than made up by the 7% GST and other taxes derived from new construction.

• 1705

We think it is very poor public policy when it has not been the merits of an investment that drive a investment decision but the tax consequences. Unfortunately, in this country, much to my chagrin, accountants and tax lawyers are a growth industry. I think that is not a very healthy thing to be happening.

Rental housing is in principle a long-term, usually safe investment, attractive to certain kinds of investors. However, federal tax policy makes new investment in rental housing so completely unattractive that our growing population just cannot be accommodated properly. It is those in the least advantageous circumstances who bear the burden of this policy discrimination.

We therefore respectfully request the committee to recommend the following changes in tax policy to the minister for the coming budget. First is that the roll-over, the reinvestment in another rental property within a year after a property is sold, currently provided for hotels, motels, and family farms, be extended to rental properties, with it being kept in mind that the homeowner is exempt from capital gains tax and therefore by implication has roll-over privileges in the case of illegal suites. Capital gains tax would be payable only on final disposition.

Second is that there be recognition of the fact that a short-term profit in, say, the sale of stocks is much different from the profit from the sale after a very long-term investment in real estate...and do something to lessen the resulting confiscation of capital to make rental investments more attractive. We suggest either the capital gains tax on long-term rental real estate investments be indexed to inflation...or reduce the portion of the gain that is taxed, from 75% currently to 50%, which it was originally, in 1972, and limit the top marginal rate to 50%.

Third is that the $500,000 capital gains exemption be available to all taxpayers.

In answer to your original questions, in order of priority, we feel deficit reductions are definitely the number one priority. We congratulate the Minister of Finance for bringing that along quickly, albeit it has been very difficult for many people in this country. We got so far offside that unfortunately we had to do that.

Our second priority, however, is cutting taxes. In particular, we feel the points we just brought up on rental properties.... It's not a tax revenue loss, we feel, but a tax revenue gain for the government, so we don't think that would be a hardship to implement. Of course expanding spending programs would be politically very popular, but perhaps fiscally irresponsible. For my children and our children and grandchildren, we have to be very careful about that. So that would be the third priority, and it should be done on a very selective basis.

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

We'll now move to the Vancouver Board of Trade, Mr. John Hansen.

Mr. John Hansen (Chief Economist and Assistant Managing Director, Vancouver Board of Trade): Thank you very, Mr. Chairman. I'm pleased to be here on behalf of our members. We represent 4,400 members around greater Vancouver, consisting of small and large companies as well as non-profit associations: technical schools, universities, hospitals, arts associations, and the like. We're very pleased to be here.

Mr. Martin has frequently made reference to the “debt clock” in his talks over the years. The debt clock was a piece of equipment the Board of Trade invented eight years ago; a big, cumbersome piece of equipment. It's about as big as the translation shed up here.

I was amused to see last night the CBC had a tongue-in-cheek report on the debt clock. The debt clock has been housed in different places: in the Hongkong Bank on Georgia Street, at the SeaBus place, and at various television stations. CBC was looking for the debt clock and couldn't find it. So they searched around in different places. Where is the debt clock? Finally they found it. It was lying in pieces in a shed. Therefore they concluded from this the debt clock was no longer needed.

However, there was a sequel to the story. They found a second debt clock. It was an electronic debt clock on the Internet, and it was in fact counting on.

• 1710

I raise this because at this time, now that the budget is likely to be balanced in the next year to year and a half, it's easy to think that the problem of the debt has disappeared. Our organization is one that thinks the problem has not disappeared. In fact, it's a huge problem. In our recommendations, we focus on the issues of the debt. The problems of the debt are ones the minister has frequently described. Others around the table today, including the mayor and Jock Finlayson, have talked about what the nature of the problem is, so I won't go into that at this time.

The priorities that our organization recommend in terms of the fiscal policies for the coming years, as we're looking towards a balanced budget or a surplus, are in this order: First of all, there is debt reduction. That should still be one of the highest priorities in the nation. When we look back to the 1950s, 1960s and 1970s, the debt-to-GDP ratio was generally in the range of 20% to 40%. We are now running over 70%, second highest among the G-7 countries. We think there is a lot of room for moving back to a debt-to-GDP ratio that is more consistent with our competing countries, and also more consistent with what we historically had, perhaps in the 40% to 50% range that others have described.

We would say the second priority is tax reduction. We recognize that it's not easy to implement large tax reductions at this point. However, we think the time is right to develop the plans to reduce taxes and to make it clear to Canadians, in very specific terms, that there are not just promises of tax reductions, but that there will be real tax reductions in the future as the fiscal situation stabilizes and improves.

The third comment is on expenditures. We believe the government should continue to maintain an aggressive approach to expenditure reduction where there are possibilities for improvement and efficiency, and where there are possibilities for devolution of certain kinds of operations that could be performed not by government, but outside of government. And we think the government should be continuing to question the delivery of services—the need for certain services that are provided and the way in which they're delivered.

Finally, there are and clearly will be areas where investment needs to be made—infrastructure and perhaps training, research and international marketing—where there's a direct pay-out for the economy and for the population. And there will also of course be other problems that arise. The mayor describes some of the crime problems. There is a federal role within federal jurisdiction to cover some of the solutions to the crime problems that may exist in Canadian cities.

In terms of our recommendations for the upcoming 1998-99 budget, recommendation one is to stay the course on expenditure controls. The second recommendation is to set out a specific plan for debt reduction and some specific plans or targets for tax reductions as well. The third is to continue to fine-tune tax measures and to especially continue to reduce the EI premiums. Others have mentioned the problem of bracket creep and so on. Those kinds of things should be addressed. Finally, we think a comprehensive review of tax policy should be initiated to make sure that we are in fact going to be consistent with competing jurisdictions.

Finally, Mr. Chairman, I should mention that it was just a year ago that our organization appeared before this committee, and for the first time we talked about the legislation on offshore or foreign assets reporting. At that point we made some recommendations that the proposed legislation should be submitted for comprehensive review in order to have a sober second look at whether in fact it would achieve the purposes and whether there were not other ways to achieve the purpose of finding the tax evaders.

• 1715

We were very pleased to see the recent announcement by the Minister of Finance and the Minister of National Revenue. We thank the members of this committee and others who have supported that view.

The Chairman: Thank you very much for your very interesting presentation.

The final witness is from the Greater Vancouver Gateway Council, Richard Pearce, CO of the Fraser River Commission. Welcome. You may begin.

Mr. Richard Pearce (Director and Treasurer, Greater Vancouver Gateway Council): Thank you very much, Mr. Chairman, ladies and gentlemen.

The Gateway Council represents the collective vision of the major transportation interests in the greater Vancouver region: seaports, airport, railways, airlines, trucking, marine terminals, management and labour. Our focus is on global competitiveness and the efficient movement of international cargo and passengers through this gateway.

Some 100 million tonnes of cargo, including 25% of Canada's marine exports, and 60 million tonnes of western Canadian bulk commodities, along with 15 million air passengers and nearly one million international cruise ship passengers, pass through the gateway each year. Collectively the gateway generates 28,000 direct high-wage jobs. This is more employment than fishing and mining in British Columbia combined.

You have asked that we comment on the process of deficit reduction and on the priorities the government should concentrate on. First, we salute and congratulate the government on exceeding its goals for deficit reduction. What you have been doing is working; and there is nothing wrong with a surplus, because that will allow the government to retire its debt, and we believe that should be your number one priority.

As for the other priorities, the gateway has undertaken several studies and produced a number of reports on the economy. Most recently, the gateway forum held in June of this year identified two major challenges to realizing the full economic growth and employment generation potential for the gateway. One is tax and cost competitiveness vis-à-vis competing U.S.-west coast gateways. The second is the increasing traffic congestion resulting from lack of efficient infrastructure.

As a principle, we suggest that when considering tax reductions or which investments should be made, you have to apply the following criteria. They must be targeted at jobs and growth. They must be specific to situations where the benefits and costs are measurable. They must be monitored to ensure that the benefit of job generation and the new taxes paid continually match or exceed tax revenue forgone. The initiatives we are advocating meet these criteria.

About tax and cost competitiveness, the greatest competition for our gateway comes from the United States: the Pacific Northwest. In the United States, for example, the Clinton administration has announced a program referred to as NEXTEA, which will provide up to $175 billion to be used in partnership with the private sector and state governments for infrastructure projects. In addition, funding is provided for harbour maintenance programs such as dredging and capital works. The U.S. government has also given reading to bills in the House of Representatives which will guarantee 87.5% of loans used in the acquisition of new technologies for the efficient movement of cargo.

In the state of Washington the ports of Seattle, Tacoma, and Bellingham tax the residents of their respective counties. For every dollar the Port of Vancouver pays in municipal taxes, the Port of Seattle collects $1.60 from the local port owners.

In addition, the U.S. government allows U.S. ports to issue tax-free bonds for the financing of capital projects. This alone provides a competitive advantage over gateway seaports of $1 per tonne for bulk commodity shipments and $1.30 per container for other cargo.

Without these funding advantages, each of the U.S. Pacific Northwest ports would operate at a deficit.

It is essential that the Government of Canada recognize this competitive disadvantage we find ourselves in on the Pacific coast and the negative impact this has on Canada's international trade competitiveness. We do not foresee the government granting us taxing authority, but we do see consideration when various departments of government implement charges to recover costs—costs that we must pass on to our customers—especially when those services are being provided for free in the states of Washington and Oregon. When looked at alone, each fee or tax implemented is not very significant. It is the cumulative impact that is so significant. In this very competitive industry, an increase in cost of $1 per unit or tonne can divert cargo to a U.S. port from a Canadian port.

• 1720

With respect to infrastructure projects, road congestion is having an increasingly negative impact on freight transportation and the efficiency of connections for international passengers between airport and cruise terminals, and between airport and local destinations. For example, as was mentioned earlier, the Trans-Canada Highway is now busy 24 hours a day and is operating at 169% of capacity.

Also, expanded rail infrastructure is essential in order to meet a growing requirement for passenger traffic on the existing rail infrastructure and to obviate the potential for cargo train delays. Of particular concern is the capacity of the New Westminster rail bridge, which is a key strategic link in the movement of Canada's international trade. Some 25 million tonnes of Canada's export cargo transits the bridge each year.

We recommend that the Government of Canada introduce a tax-exempt bond financing scheme for port and airport developments and related infrastructure. We recommend that there be a reduction of the federal excise tax on railway locomotive fuel. Further, we recommend the removal of the requirement to pay GST on transborder air fares. Fourth, we highly recommend the reintroduction of the federal government's infrastructure investment program.

In 1993 the government announced its infrastructure investment program, which was to put Canada back to work and provide new or renewed infrastructure for our communities. This in part was a huge success. However, we believe there was too much focus on non-revenue-producing infrastructure, rather than on something that could produce income for Canadians and taxes for the government. We believe your government should reintroduce this project, but with a focus on providing infrastructure that will move people and goods, and thus improve the quality of life.

The Gateway Council study indicates that these four measures alone would assist in the generation of 4,900 new jobs in this gateway.

It is essential that Canada's economy remain strong and that it be provided with the opportunity to grow. One of the biggest contributors to our economic success is international trade. We have a golden opportunity to make prudent investments that will improve our international competitiveness and provide good-quality Canadian jobs that are long-lasting and contribute to the economic success of our country. Spend wisely now and it will repay us many times over.

Thank you.

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

We will move to Mr. Tennessy. Just be mindful of the five-minute limit.

Mr. Tony Tennessy (British Columbia and Yukon Territory Building and Construction Trades Council): Thank you very much. I'll try to be mindful of that.

Thank you, Mr. Chairman and members of the committee. I'm kind of a pinch-hitter today for the executive director of the B.C. and Yukon Building and Construction Trades Council, Tom Sigurdson, who couldn't be in attendance. He called me late yesterday and asked if I would come to make a presentation to the committee today, so I busily made some notes this morning on what I and my organization felt was important with respect to the questions that are being asked by the committee. I prepared my notes and then received from the building trades office the script for the presentation today. However, I'm going to apologize to the individual I gave a copy of the script to, because I think I'm going to depart from it and try to keep to my comments. I'll get rid of a little bit of the rhetoric that would be in those comments and stay a little more to the point.

I'll tell you a bit about the B.C. and Yukon Building Trades Council. It's a council that's composed of the sixteen building trade unions in the province of British Columbia and the Yukon Territory. They are affiliated to the council—in effect, they are the council—and represent over 40,000 construction workers in both the province and the Yukon Territory.

• 1725

The organization I represent is the International Union of Operating Engineers Local 115, which is an affiliated member of the council. As an affiliate, our organization has approximately 10,000 members. A majority of those members are employed in the construction industry.

I can wholeheartedly agree with certain comments previous speakers have made. Certainly the comment by Mr. Toth, from the road builders, is one we support. The national highway system in this country is really a disgrace, something we should all be quite embarrassed about.

For that reason we think we need the capital spending, infrastructure type of program the previous government or the previous sitting of the government had put in place, where there was a joint infrastructure program with the provinces on a cost-sharing basis. Certainly if you spend any time in the lower mainland of Vancouver you'll find that our roads and transportation systems are congested. The mention that the current main freeway out of the city is being utilized at 160% of capacity would indicate that most times of the day we suffer gridlock in this part of British Columbia.

Certainly we have had high population growth, which has been both a blessing and a curse. You can go to any of our major schools in the lower mainland or some of the higher-growth areas of the province and find yards full of portable classrooms being used by students. As I say, the population growth is both a blessing and a curse. We think the infrastructure program provides for a viable type of infrastructure that is needed in order that our economy continue to prosper in this province.

The other issue of major concern to us is the health care system in Canada. We're concerned that with what is happening with our health care system, with the implementation of the NAFTA agreement, we're working towards a U.S.-based type of health care system. Certainly that concerns all workers, but it particularly concerns those of us in the building trades.

I think the health care system in Canada is one of the unique things separating us from the U.S. Certainly you don't have to preach to the major manufacturers of motor vehicles. They tend to have larger production facilities in Canada than they do in the U.S., and one of the primary reasons is our health care costs in this country. Those employers provide health care costs on both sides of the border. The Canadian advantage we have in the health care system here is dramatic, and therefore they tend to favour production costs in this country. I think it's a Canadian advantage and it's one we have to protect.

I know in the case of my organization, the operating engineers, we have a health care package for our members that is medical, dental, life insurance, wage indemnity, extended health care. It's a full, comprehensive package which has a premium cost attached to it of approximately $1,800 per year. The operating engineers in southern California, one of our brother locals, has a very similar package, and that package costs $12,000 per year. It's easy to say the marginal tax rates in the U.S. are much lower than they are in Canada, but if you really add the difference between $1,800 a year and $12,000 a year, that's really a tax they are paying. So our tax is really cheaper in this country. We all want to pay less tax, but we certainly want to have some of the social safety nets we all cherish.

The additional matter that is of major concern to those of us in the building trades is apprenticeship and training. Society needs a well-trained workforce in the construction industry, particularly in the province of British Columbia, where we see that our growth is going to continue for many years to come. The population will increase and trades persons will be required. Apprenticeship training provides individuals the opportunity to learn a skill, and a portable skill.

• 1730

Look at the drop-out rates that we're faced with, particularly those in high schools. Not everybody is made to go on to a technical school or a university. There are certain people who would rather seek an occupation in which they can work with their hands. They certainly shouldn't receive any less funding than those who will go on to technical or university.

We see that there is a need to provide funding for apprenticeship training. We know it's a provincial responsibility, but we also know there are transfers that are available from the federal government. Those transfers should stay in place, and we seek support of continuing funding for apprenticeship training.

Unemployment insurance—I guess it's called employment insurance now—reminds me of my father. He was always one who had a great dislike for insurance companies. I think it was because of his age, and it went back to a period of time when insurance companies were great at taking in premiums but very reluctant to pay claims. I now look at the current employment insurance system that we have in this country, and at the huge surpluses that it's running even with declining contribution rates. Of course, the reason that's happening is that it's an insurance company that doesn't pay any claims. That obviously is an area that is of major concern. For construction workers, work is seasonal and cyclical by and large, and they need those benefits. It may be time there's a review of how EI benefits are provided to workers in the construction industry.

If we don't make the industry an attractive place to come to, one in which you can learn a trade and in which you can receive some assistance when you're unemployed because of the seasonal nature of the work, then we're not going to attract those young people to this type of employment. So we would once again urge some special consideration for those in the construction industry.

To summarize and respond to some of the questions asked by the committee, we talked about the question on the process used to reduce the deficit and whether that process has been too slow or too fast. Who knows? At this point, we're there. Obviously we know the provinces are complaining that the federal government has downloaded onto them. We heard the mayor of Vancouver complaining because the provincial government has downloaded onto the city. There's enough blame to go around for everyone, and I'm not sure it's productive to get into that debate.

On the spending priorities once we've reached a balanced budget, we would certainly support debt reduction to the extent of 25% of that dividend. On spending increases, we would support those types of spending increases that are targeted to an infrastructure program that has biases towards transportation and toward protecting our health care system. We obviously feel it's important that post-secondary education and apprenticeship and trades training programs be protected. We think we should provided an employment insurance system that pays claims, with some special considerations that are unique to those of us who work in the construction industry.

On tax relief, we're not convinced that tax relief is going to be an appropriate remedy at this time, given the problems we're facing with regard to the debt and the need to maintain programs. We think the paying off of the debt will obviously be the big dividend that will be paid with respect to tax reductions.

Mr. Chairman, I thank you and your committee. That concludes my presentation.

The Chairman: Thank you very much. We'll move now to the question and answer session.

Mr. Solberg.

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

I'd like to thank the presenters for making their cases today. I think they were excellent presentations. I have heard from a number of people today that there's a great concern about the debt. I can guarantee you that members in the Reform Party feel the same way. I do want to say to Mr. Toth, Mr. Pearce and Mr. Tennessy, who all spoke about infrastructure, that we share that concern. We've spoken in the past about the need to improve federal infrastructure. We disagree with the government on the approach, perhaps, but we share that concern.

I do want to talk a little bit about—or I guess ask a question with respect to—some of the comments that were made about tax levels. Mr. Lim and I guess Mr. Wong, also Mr. Finlayson and Mr. Hansen, talked a little about taxes. Mr. Pearce, or whoever wants to jump in here, I'd be interested in hearing comments.

• 1735

I'd like to know, given B.C.'s unique position vis-à-vis the Pacific rim and trade in the Pacific rim, what would be the single most important thing the government could do now to help the competitiveness of British Columbia with trading in the Pacific rim. I'll open that up to whomever wishes to answer.

Mr. Patrick Wong (President, Canadian Business and Professions for Accountability Association): Other than the high tax rate, there are three major problems in the province of B.C. The first is the foreign asset reporting requirement. Second is the B.C. corporation tax. Third is the union problem.

On the first, foreign asset reporting, in order to maintain the international competitive position.... Yesterday we spent a lot of time talking about how we should be acquiring knowledge and skills to be competitive globally. As a matter of fact, I have had the opportunity of going to London, Hong Kong, Taiwan. I met a shipowner association president, and he said if we want to be competitive we have to change the tax system. If a shipping company is going to send people to B.C. next Saturday, they have to pay them at least double the salary. Why? First of all, the tax rate is too high. Secondly, the housing is a bit expensive. But most important is the foreign asset reporting requirement. If they come here they have to report all the assets they own overseas. Nobody wants to come here to do that. This is a hindrance for the province becoming competitive globally.

It's the same thing for the high-tech field. If you want to maintain people in that field, you have to give them high salaries. And where are the sources? In the high-tech field, not just software.... I had a meeting with a friend of mine. He makes a lot of hardware in Singapore, China, Hong Kong, Korea, and he makes all this hardware, hard disks, for American companies. There are no hard disk companies in Canada at all. He's an immigrant here. He says there's no way he can stay here, because all his assets are connected with overseas because of this legislation, and you are telling him to report all the assets. The assets were earned before he came here, but now he has to disclose them. It's a lot of pressure on him, because he has to travel all the time.

If you want to compare it with U.S. problems, the U.S. has a similar rule, but the spirit of the legislation is different. The spirit is to go after people owning assets over $10,000 in cash. They are not required to report anything in property investment. Also, the report goes to the finance department, not to the IRS. Here the spirit is completely different. We want them to report everything, as long as it earns income.

Also, the U.S. tax rate is 38% maximum. We cannot compete with them. In the U.S. there's a lot of capital investment. They don't need any capital investment. Canada is a different country and we need foreign capital.

The other area is this. Yesterday morning we spent a lot of time on the Canada Pension Plan. I'm really glad that this morning our minister, Paul Martin, went out to sell Canada savings bonds, but our present plan neglects one group of people, homemakers and housewives. They have contributed a lot to the country, but they are not eligible for CPP, period. These are typical people, with a house, with assets of maybe $100,000, which may fall into the foreign asset reporting requirement. They put the money into a bank and it earns 3% interest. How can they make a living after tax?

The typical group of people are usually stuck with risky investments, tax shelters, offshore investments. These are the people who in fact suffer. They are the victims of this tax system, the high tax regime.

• 1740

In fact, the country is not taking care of them. With the foreign asset reporting requirement, these people will have to disclose their assets, of course, but how should we, as a group, a country, a government, help them?

I would like to address this issue. People with a certain low level of income should be exempted from investment income. They cannot make ends meet, period.

In B.C. the standard of living is very high, but then we have to look after this group of people. These people, in order to avoid the tax-filing cost, have to get people who may not be qualified. They may get fly-by-night tax filers. They may be sucked into thinking that they get a tax refund. They think they don't even have to pay professional fees.

These fly-by-night people, in fact, are a detriment to the whole tax system. We should register them. This is what the U.S. is doing. The IRS requires all tax filers to register. These are the people who are filing taxes. They are responsible for it. For offshore companies, offshore assets, we should register those people in a way similar to that for tax havens. Most importantly, we should educate people on our tax system as a whole.

Thank you.

[Translation]

Mr. Odina Desrochers: I have a question for Mr. Hansen. I must say to him that I share his point of view with respect to the priority he has set for himself, namely, reducing the deficit. However, it is the means used to reach this objective that bother me.

Yesterday, Mr. Martin announced that the deficit would be lower than initially forecast. He managed to do this by reducing the transfers to the provinces; however, he neglected to meet one of the commitments he made when he first came into power, namely, to reduce departmental expenditures by 19 per cent over three years. In reality, these reductions barely hit the 9 per cent mark.

Mr. Hansen, do you feel that the Department of Finance should be concentrating on budget cutbacks within the federal government to help reduce its deficit rather than maintain reductions in transfers to the provinces, which are having a very negative impact on important sectors of our society, namely health, education and social programs?

[English]

Mr. John Hansen: I think there are always possibilities for reducing expenditures within the operation of certain services, including government departments. I'm sure there has been quite a bit of action on that.

We note in the recent Auditor General's report, however, that there may be some additional scope for reduction in certain areas for efficiency. We believe that ought to take place.

Mr. Nelson Riis: I will be brief. I listened to everyone making their excellent presentations, and I'm trying to identify some common ground here in terms of taking directions for our committee. I have two questions to ask.

It seems to me that there is a general commitment that debt reduction ought to remain a major priority. When I hear about any expenditures, it's in a very selected or targeted way. Is there anybody around this table, appearing now as a witness, who would say that we should give an immediate tax break, and/or is there anyone around the table who would oppose a new initiative along the federal-provincial infrastructure program line? Would anybody say we should have a tax break now, and would anybody oppose moving ahead with an infrastructure program?

I'm talking only to the witnesses. I think this is what the debate is all about. We have experts here. I would really be interested in who would like to see an immediate tax break in terms of our surplus.

Mr. Robert Orr: If I could speak to that just briefly, one area that touches every segment of the employment market is housing. In our particular case, rental housing, because of the trickle-down effect in all of the products used in building a house or an apartment unit, does attract a great amount of secondary taxation.

• 1745

So that's why we made that comment. We feel that if there is an encouragement to do that, there will not be any tax reduction, as far as the federal government goes, in revenues; we actually think there would be a tax increase.

To take that further, my personal opinion is that I would like to see a flat tax rate.

A voice: Immediately?

Mr. Robert Orr: As soon as possible. Let me and everybody else in this room take that dividend. We won't put it in our pocket or squirrel it away under our pillow, we'll go out and spend it. We'll also save it. Our savings accounts are dwindling. We should put that back to give us an opportunity to save.

Because we are smart and careful people and because we have children, we will do the right thing. Unfortunately, in the past, I do believe politicians have historically not been very mindful of the fact that the voting public is a hell of a lot smarter than they are and will do the right thing, and will come up with some very innovative solutions.

So I would like to see a tax break in various time situations.

Mr. Jock Finlayson: Why don't I just follow up with a slightly different suggestion? I think we have to bear in mind where we're at in the economic cycle. There is a danger of undoing some of the progress that has been made on the fiscal side through massive, across-the-board tax cuts or spending increases. It wouldn't matter, as it would have the same effect arithmetically.

I think the minister is right. I think the minister and other ministers have actually built up false expectations, frankly, over the past number of weeks about the size of the fiscal dividend and the ability of the federal government to start doing things with it.

Having said that, if there was one area in which a modest tax cut might be considered for next year, it would perhaps be the employment insurance premiums, which are still very high in Canada. We do have a big problem of unemployment. Most of the job creation in Canada is by small business. They tend to be quite sensitive to the payroll tax burden in terms of the rate at which they'll create jobs.

Moving beyond the very small cut in the employment insurance premium announced in the 1997 budget, I think that accelerating or deepening that cut for 1998 would be a responsible course.

Beyond that, if the fiscal situation continues to improve, if the economy doesn't go in the tank, by which we would be faced with higher interest rates, then looking at the personal income tax structure would be—

Mr. Nelson Riis: Not immediately, Mr. Finlayson.

Mr. Jock Finlayson: Well, not immediately in a massive way, anyway.

Mr. Nelson Riis: Are you suggesting in some way? I'm having difficulty with your report. I have to find where you stand on tax reduction.

Mr. Jock Finlayson: We're very much in favour of it, but we recognize, in our view, that getting this ratio of debt to GDP down is the top priority.

Mr. Nelson Riis: So you're not in favour of it now—

Mr. Jock Finlayson: Our specific recommendation for the 1998 budget is a cut in employment insurance premiums and the announcement of a plan along the lines of what Mr. Hansen actually said so as to start phasing in some personal income tax cuts in subsequent years.

Mr. Nelson Riis: Yes.

The Chairman: Thank you very much. Mr. Jones.

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

I have a quick comment on your roads. Has B.C. thought about having toll roads, like the recently opened 407 in Ontario, to make the user pay for it? I know that the day they opened it up and started charging, it went down to a usage of 5%, but that will go back up. So there's one way.

Also, debt reduction is probably one of the most important things. We have to get the debt down. As the debt comes down, we can free up money to maybe go for additional programs, but not to start more programs. I also believe that we need tax relief.

Here's one of the questions I have. We're just ready, on the Canada Pension Plan, to impose a $10-billion or $11-billion tax increase over the next six years. Really, the Canada Pension Plan should be renamed as the Canada social pension plan, because it's definitely not a pension plan. Look at the type of money you have to put in for 40 years and what you're going to get back: $8,800. If you put it into a normal RRSP plan, you'd get about $90,000 back. That is not a plan.

I agree with this gentleman over here that we should be reducing EI. I think we should be encouraging the government to take this surplus of EI and offset it with the premium increases that we're going to give to the Canada Pension Plan. The government's not going to do that. I'm saying it's an $11-billion tax increase. Is that going to cost us jobs for the board of trade guy in the long term?

• 1750

Mr. John Hansen: I don't know the answer to that. We certainly recognize that the CPP has run into some huge problems and that they have to be solved. But I don't know whether or not the solution that has been announced is the optimum one.

Mr. Patrick Wong: That's a matter that ties into your debt reduction position. We should make use of the immigrant investor funds. If each fund family put in half a million or $400 million towards the national debt for reduction purposes, that would benefit the whole country. I think that's one of the things we never thought of and tried to make use of. In fact, this system is being badly advertised and badly monitored by private enterprises.

The Chairman: A final question, Mr. Szabo.

Mr. Paul Szabo (Mississauga South, Lib.): Thank you, I appreciate the input. I wanted to ask the board of trade about EI, because it sounds as though there's some consensus about—and maybe some realism about—the size of the fiscal dividend and what can be done.

In 1993 EI rates were at $3.30. They're now at $2.90 and are scheduled to go down to $2.80. You are probably also aware that for every 5¢, it costs federal revenues or reduces them by about $350 million. To get an idea, a 10¢ decrease in going from $2.90 to $2.80 is going to cost $700 million. That would mean a surplus of $2.8 billion would be needed to be able to have that kind of tax break under the current understanding of the kind of split there might be of some fiscal dividend. Even that item alone is a very small one when you consider everything else.

In your presentation, in your notes, you wanted to keep a tight fist on the expenditure side, and said that for any new spending, you're really talking about a return on investment. You want something back for everything that's put in. Can you put it in the context of whether we talk about an EI decrease or something else? Has the EI reduction down to the $2.90 translated into real job growth or a meaningful change in the disposable income or spending habits of Canadians so far?

Mr. John Hansen: I think that's an excellent question, but I don't think there's one answer to it. I don't think it's possible to model that kind of one-to-one relationship of taking one component of the cost of hiring an employee and translating it into what it means in terms of the numbers of employees that will be hired. We think the EI premiums that companies and employees pay are part of a much bigger equation. They're one component of a number of different factors that have to do with the reasons why companies expand and grow, and with how they can hire employees. It's one factor among many others.

Mr. Paul Szabo: I just want to ask one last question. The other word you put in your report here was “devolution”, which is the hot button for a lot of people. As you know, the production in CHST transfers represented about 1% of provincial revenues on average. In some provinces, such as Ontario, the tax reductions or tax breaks that were passed on cost some $4 billion. The CHST reduction was about $1.2 billion. I'm not sure what it's like in B.C., but first of all, has that reduction in the CHST been a major component of the B.C. situation in terms of its change or its share of the deficit battle?

• 1755

Mr. John Hansen: It's certainly a component. I don't know the exact number offhand, what it means year to year, but it is a component that the B.C. finance minister will talk about frequently.

In terms of the recommendation for devolution, we were referring more to operations that are now conducted by the Government of Canada or under direct operational management of the government. For example, national ports—we're strongly of the view that Bill C-44 would go a long way toward taking the port operations out of the direct hands of the Minister of Transport and into a more regional authority kind of arrangement. It was that kind of devolution we were talking about.

Mr. Paul Szabo: Thank you for clarifying that, because I think it's important for people to understand that we're not talking about downloading as between provinces and municipalities.

The Chairman: Thank you, Mr. Szabo.

Do you have a final point, Mr. Tennessy?

Mr. Tony Tennessy: Just one quick comment to Mr. Jones. He didn't get a response to his question about tolerance.

I just wanted to let the committee know that I chair a public-private partnership advisory committee for the province of British Columbia, and both Mr. Toth and Mr. Hansen are members of that committee. Certainly it's one of the areas that we're exploring to try to meet this huge amount of infrastructure that's required in this province. We were assigned three projects originally as pilot projects: the Vancouver Convention Centre, the Lions Gate bridge, and a school in northeast Burnaby. These are the kinds of pilot projects we're doing to try to implement the public-private partnership process. Those who are from this area will know that none are going exceptionally well at this point. People are very reluctant to start paying tolls on bridges and highways, but I think that's the one area we have to explore.

Somebody made the comment that in the U.S. there is a government trust fund being set up to encourage these public-private partnerships. That may be a blueprint you may want to consider.

The Chairman: Is this something you want to consider, Mr. Jones?

Thank you very much. This was a very interesting round table. You've given us a lot to think about.

Of course, I've duly noted the observations made by Mr. Riis on the tax issue. Thanks very much.

I'll suspend now for five minutes.

• 1758

• 1806

The Chairman: Order, please.

This is our second round table of the afternoon, our fourth of the day. Basically, I'm going to go over some guidelines as to how we're going to proceed.

Every group will have five minutes. Look for a one-minute signal from me when you're getting close and wrap it up. Otherwise we won't have time to ask questions and get the answers we need. Then we'll go to a question and answer session. If time permits, we'll get into some rebuttals if there are divergent views on the panel.

We will start with Community Based Full Employment, with Mr. Peter Robinson. He is not here.

We'll then go with the National Cancer Institute of Canada, Dr. Connie Eaves, president. Welcome.

Dr. Connie Eaves (President, National Cancer Institute of Canada): Thank you.

Good afternoon. My name is Connie Eaves. I am a cancer researcher at the British Columbia Cancer Agency and professor at the University of British Columbia here in B.C. I'm also the current president of the National Cancer Institute of Canada, the national organization that allocates research dollars raised annually across Canada by over 300,000 volunteers of the Canadian Cancer Society and the Terry Fox Foundation. I therefore speak with the voice of millions of Canadians who demonstrate annually their belief that research and personnel development are crucial to the future of health care in Canada.

I would like to start my remarks by saying how encouraged we are, not only by the actions taken over the last few months by the federal government but also, again, by the philosophy and plans outlined yesterday by the Hon. Paul Martin. These clearly identify health care innovation in technology development and students as federal priorities.

The creation of the Canadian Foundation for Innovation is an important positive first step. Indeed, the NCIC is very excited about the opportunities this has introduced for joint ventures to provide badly needed equipment and infrastructure support to allow new research initiatives relative to the cancer problem to go forward. The creation of the millennium scholarship endowment fund for student support is also timely and welcomed.

However, I'm not here just to congratulate the government. I also want to use this important opportunity to provide meaningful input into specific budgetary actions that will be taken by the government over the next two to three years.

As I pointed out last year when I previously addressed this group, science in Canada is at its lowest ebb in history. The cuts that have occurred over the last four years have effectively resulted in a 25% decrease in Canadian expenditure on medical research. Moreover, this has occurred at a time when the costs of making, exploiting, and implementing discoveries have all escalated.

• 1810

By contrast, in the same period the U.S., Australia, the U.K, and Germany have all substantially increased their support for medical research.

The short-term result has been a destabilization of health research activity in Canada, an increase in the brain drain of Canadian graduates to the United States, a growing disinterest of Canadian students in health care research as a career option, and the decreased ability of Canada to build its own biotech industries. The long-term consequences of this trend, if major action is not taken immediately, will be to lower the standard of health care in Canada and to compromise Canadian medical science for decades to come.

New advances in treatment and prevention are introduced first and most effectively in academic centres where research is active. If the treatments work, they are then rapidly disseminated to the community. In the absence of a vibrant academic research community, a crucial link in the communication pathway is missing and the transmission of new information to medical practitioners can be delayed by years.

The solution we propose is simply an extension of the philosophy already espoused by the federal government, one that recognizes a need for federal leadership in designating and preserving a small but real and fixed portion of our health care dollars for research and development. The figure we would propose would be 1.5% to 2%.

Yesterday the Hon. Paul Martin was criticized for not providing enough in the way of specific objectives. We believe it is essential that the government make a specific commitment to increase its base funding of all granting councils over the next four years so that the support available to scientists would be doubled by the year 2002. Scientists are the ultimate entrepreneurs; they can do wonders with a small amount of money. But if they are forced into bankruptcy it may never be possible to recover their potential.

Second, we ask the government for specific help in facing the biggest challenges in cancer today, breast and prostate cancer, which we cannot prevent, and the need to eliminate other cancers caused by the biggest known cause, tobacco. We therefore also urge the government to partner financially and politically with the National Cancer Institute of Canada and the Canadian Cancer Society to support our specific initiatives in each of these three arenas: breast cancer, prostate cancer, and tobacco reduction. These cannot be adequately mounted by dollars emanating from the volunteer sector. Joint action is essential.

We urge you to take this message back to the government. The scientific community will not survive if we do not take action now, and the rewards in terms of improved health care, job creation, and revitalization of the embryonic Canadian biotech industry will be rapidly felt.

Thank you.

The Chairman: Thank you very much, Dr. Eaves.

We will now move to the Social Planning and Research Council of British Columbia, Barbara Grantham, Eva Robinson, and Michael Goldberg.

Ms. Eva Robinson (Executive Director, Social Planning and Research Council of British Columbia): Mr. Chairman, our organization is a provincial organization that represents over 6,000 members. Many of these members are also organizational members. So it is not merely 6,000 individuals but 6,000 individuals plus individuals who are connected to these organizations around the province. We very often work in coalitions with other agencies. If we look at the number of agencies we work in coalition with, it would multiply three or four times.

SPRC's major mission in the 31 years that we have been around is to promote citizen participation in the economic, social, and environmental well-being of our communities.

We believe in the principles of social justice, equality, and the dignity of our people in a multicultural society. Given our mission, we assess economic, social, and fiscal policies through a lens that asks if the policy contributes to greater equality in our society.

• 1815

In addressing fiscal policy, we examine each policy on both the revenue and spending side to see how they contribute to greater equality. On the revenue side, we ask if the particular mechanism is based on the principle of ability to pay and consistent with the principle of fairness; for example, the recently proposed changes to the Canada Pension Plan, an example of a mechanism that creates greater inequality rather than greater equality. It would have been fairer for the government to increase the maximum pensionable earnings for CPP premiums than a straight premium increase without changing the maximum ceiling.

The invitation to participate in this consultation identified two questions you want us to address. The first concerns the process of deficit reduction and the second addresses priorities for the anticipated fiscal dividend. We will try to address each of these questions.

On the process of deficit reduction, while we do not have any criticism with the timeframe per se in which deficit reduction has occurred, we still have some major concerns with the methods chosen. We are particularly concerned that such a significant portion of the reduction occurs through a reduction in transfer payments to the provinces and territories. These reduced payments create difficulties for the provinces in maintaining adequate levels of service for health, post-secondary education, and social services. The reductions also reduce the capacity of the federal government to maintain national standards for services in these three areas. Furthermore, the formula for the new transfers under the CHST continues the unfairness brought about in 1989 with the capping of the Canada assistance plan. The capping of CAP particularly hurt Ontario and B.C., less so Alberta. The current formula for the CHST reinforces that unfairness. This unfairness needs to be addressed immediately.

We believe that the federal government continues to have a role in the financial provision for health care, post-secondary education, and social services in order to maintain and enforce national standards. While health care continues to have enforceable standards under the Canada Health Act, the capacity to enforce those standards has been diminished. This also applies to social services in terms of national standards, as well as the provision of grants to post-secondary education. I think one of the issues is around differential fees for students from outside provinces. I won't go into detail on that.

I'm going to move to the second question, the priorities for the fiscal dividend. We have been somewhat amazed by the debate concerning tax reductions. Any meaningful tax reduction would also require further reductions in social spending. Yet all across the country we hear that there are longer waiting lists for medical surgery, that patients in hospitals are being released earlier into the care of their families, that there have been increased tuition fees, and that the poorest of the poor are even further behind than they were in 1982. Someone is bearing the cost of these reductions.

If services are further reduced, then the fact of the matter is that some will pay more in fees for that service while others do without. The ability to purchase health services in the United States, the ability to pay increased tuition fees, the ability to pay increased school fees are of course open only to those who can afford such fees. Thus people will pay either through the market or they will pay for the service through taxation, but one way or the other they will pay for quality services.

The advantage for a public position is twofold: first, we pay for public services over the full course of the life cycle rather than in large lump sums when used; second, all residents of Canada are assured of access to a common set of services if and when they need them.

Therefore, we suggest the following priorities for the federal fiscal dividend: do not reduce taxes, but rather create greater tax fairness; use the tax system to redistribute incomes with annual targets for the reduction and eventual elimination of poverty—even by the most rigid definition of absolute poverty there are over 1.5 million people in Canada with incomes so low that they are in imminent danger to their physical health—maintain low interest rates as this is the best long-term mechanism for ensured continued economic growth, resulting in lower levels of unemployment; restore federal transfer payments to the provinces and territories within a set of national standards, by extending Canada Health Act standards to the areas of social services and post-secondary education; and finally, acknowledge that debt is an essential form of investment and that public debt provides a safe haven for low-risk private investment. Use any debt retirement to re-Canadianize the debt as much as possible.

• 1820

In conclusion, I would like to say that Canada is a nation that is greater than the sum of its provinces and territories. Federal fiscal policies of the past decade have tended to divide us, with different rules for different parts of the country. Canadians, we believe, want to see all Canadians do well, no matter in which province or territory they live at any given moment in time. We all know that economic hardship can strike any area of the country, whether it be the fishers on the Atlantic coast or in B.C., or whether it is an economic slump in Ontario or a downturn in Quebec.

As a nation, we believe Canadians want to be a generous and sharing people. Our federal fiscal economic social policies should contribute to that sense of nationhood.

The Chairman: Thank you, Ms. Robinson.

Now we'll move to the Vancouver Foundation, with Chris Richardson and Richard Mulcaster.

Mr. Christopher Richardson (Director, Gift Planning, Vancouver Foundation): Mr. Chairman, I have a brief here and I will just summarize a few of the points, beginning with the executive summary.

I would like to thank this committee for the extensive recommendations that were included in your report last December. I believe these recommendations contributed to the success in the last budget.

The Vancouver Foundation is very pleased that the most recent budget did level the playing field and got us away from “better charities than others”. My comment there is with the exception to resolution 21 and son of resolution 21, which I would like to speak on.

Certainly, two of the proposals that you had in the last budget, the partial capital gains exemption and the increased annual limitations, have in fact done what they were intended to do to cause behaviour to change to encourage donors to make gifts to charity.

I note in the most recent edition of Maclean's magazine where Peter C. Newman referred to the current rush to donate and comments that one of the stimuli for that was the incentives brought in in the previous budget.

I would next like to turn to a measure that was brought forward to prevent abuse, although with very little mention certainly in the budget speech and in some of the background papers. I think this sector will not argue with the need to prevent abuse and to ensure that it does not occur. What has happened in fact has been contrary to what we believe was Paul Martin's direction, which was to further encourage charitable giving.

The provision as it is now—the provision is resolution 21, and then a major shift of focus to the son of resolution 21, which came out in the July release. Unfortunately, it deserves a second look. It is in fact paralysing donors and overshadowing the positive things that did occur.

We would hope that tax legislation—I know it has been talked about as long as I have been a tax practitioner—should be simple and straightforward; you can't misunderstand it even if you try. Maybe that is wishful thinking, but certainly in the area of charitable giving, donors are looking for closure. Donors, especially elderly donors, are looking for closure in terms of their estate matters in many cases. Therefore, they are uneasy with some of the uncertainties that have been brought forward.

The other thing is that we now have good gifts and bad gifts. If your wealth is in listed shares, you're in fact going to get an enhanced incentive, but if you have retained that wealth in private corporations, somehow you're bad. In fact, without going into it—I leave it for your review later—we are actually saying that a gift never occurred unless it was paid out in five years, and on and on, but you will be taxed on the capital gains that would have resulted otherwise, even if you don't buy them back. It is very confusing, and people are asking, as a donor, why am I being treated like this?

• 1825

I would suggest that there is a need for further consultation with the sector—in fact, a consultation process that the report last year spoke to as a model in terms of that process.

I'd like to jump forward. I did include the annual report of the Vancouver Foundation—I'm moving to page 12 of the presentation—and in that it highlights what a community foundation here in British Columbia can do to make a real difference in the community.

Before I defer to my president and CEO, in conclusion, this is an immediate need. I believe the legislation that's been proposed will be coming forward in the next several weeks, and the idea we hear is that it may be passed in the next several weeks. It is the wrong message. It is not encouraging gifting as the other proposal, so it's counter to that, and as a sector we have proposed alternatives to improve it, but also an alternative, a value-based approach that would ensure that abuses don't occur. We would ask that the committee set that as a high priority to ensure that this issue be re-examined.

In the last few seconds I'd like to turn it over to Richard Mulcaster.

Mr. Richard Mulcaster (President, Vancouver Foundation): We will squeeze ours into our five-minute presentation.

As the president of the Vancouver Foundation, but also a past chair of the Community Foundations of Canada, which represents about 79 community foundations across Canada, I really want to underline one point that Christopher has made and that relates specifically to levelling the playing field around the crown foundation issue. I think that was a real mess we got ourselves into in Canada, and I know that Community Foundations spent a lot of time worrying about that. We would urge this committee to hold their grip and not let that happen again. When any sector becomes destabilized that way, given the important job that community foundations and non-profit organizations across the country have to do, this instability is very negative.

In looking at the question of what to do in terms of the priorities and should we be looking at a tax relief or tax cutbacks or paying down the deficit, I think the government obviously has to receive some credit for bringing the deficit down, or at least the operating costs. In terms of figuring out who we could give a little bit of a break to, I would suggest that the committee consider giving a higher tax incentive to those Canadians who would give to the non-profit sector. In other words, they would invest in the quality of life in the community across Canada and increase the incentives across the board for people who will do that kind of giving. I think it goes right to the need. It's efficient, it's effective, and it benefits most Canadians. It's not a giveaway at all.

I would leave you with that. Thank you for the opportunity to say a few words.

The Chairman: Thank you, Mr. Richardson and Mr. Mulcaster.

We will now move to a presenter from the Western Canadian Wilderness Committee, Mr. Paul George, funding director.

Mr. Paul George (Funding Director, Canadian Wilderness Committee): Thank you very much, Mr. Chairman and committee, for giving us this opportunity to come before you to express some of our concerns about the real deficit we're creating, which our children will have to pay for, for years and years to come.

In the scramble to get a balanced budget and pay down the debt—and I believe this is really important—I don't think you can continue to run a government more and more in debt, because that financial debt goes onto our children. At the same time, you can't sacrifice your environment. Underpinning everything is the natural, biological world, and I think you have to keep that in perspective.

In the last few years I've seen that our commitments to preserving biodiversity in British Columbia and Canada in general have been scrapped. We've scrapped our commitment to complete the national parks system by cutting the budget there.

Right now there's a beautiful place up in Churn Creek. It's a place of Canadian national significance, an area of grasslands and drylands, forests. It's being logged. For a few million dollars the federal government could have gone in there and secured that key piece for our protected area system, our national parks system. But we're not doing that. That option is going to be gone forever.

• 1830

These are the kinds of things—I'm not saying the government should go whole hog and spend a lot of money or reverse the trend of paying down the deficit and eventually get a balanced budget and pay back billions of dollars. I am suggesting that some of these environmental things are going to overwhelm us where we are today. In other words, if we don't spend money to reduce fossil fuel consumption, if we don't get on board with all the other countries of the world—we are one of the worst contributors to fossil fuel consumption—and if we don't set an example.... Global warming is happening, more storms, more catastrophic events, which cost way more money than what would be spent now to really start conservation programs, encourage solar energy use, encourage the development of public transportation systems rather than relying on cars. I really believe you have to put priorities on that.

We have a foreign aid program through CIDA. I read today in the Vancouver papers that now Canada is dropping way down. We've cut and cut and now the percentage of the amount of money—and this is one of the richest countries in the world—we give to developing countries or put into programs for developing countries has been cut to the bone and beyond. This is another very short-sighted situation, where you don't end up being up to par with the rest of the developed countries in terms of helping out.

There is a program that we participated in with CIDA. We get $75,000 a year. We have $75,000 to work with protecting tigers with Tiger Trust India. It's a partnership thing. It's a small amount of money, but these kinds of programs are exceedingly important.

Just to put things in perspective, there are only 4,500 tigers left on earth, in the wilds. At the rate they're being poached and lost—about two a day—in less than seven years there won't be any wild tigers on earth.

We are in a deep crisis on earth as far as biodiversity and protecting the basic fabric of living systems and our forests are concerned. I think you have to get that into your heads when you are sitting down with your pencils and your piles of money, and start thinking about what kind of a future we are going to give to our kids.

You can walk into these Chinese pharmacies and purchase tiger bone medicine. That's an endangered species. We have had a law on the books for 14 months and yet there is no crackdown. There are quite high penalties for selling these endangered species parts. There should be enough money for enforcement so that we don't contribute to that.

I have one more point. Do I have another minute?

The Chairman: You're doing well.

Mr. Paul George: I am racing through this, but for each one of these you can go into great depth.

Every time I come to these things it ends up in Hansard somewhere—Lord knows where, but it never really seems to get into the actual system.

We are falling behind on our environmental protection in Canada. Here is a perfect example. Chrétien said last time we are going to help protect Clayoquot Sound. Now everything is in place, or much of it is in place. All the stakeholders are working together to try to come up with a biosphere reserve proposal. Will the federal government come forward with $50 million to $70 million to help the alternative economy develop, ecotourism, etc.? I don't know. I would like to see that actually budgeted, because that could be a showpiece for the world.

A few years ago, before Paul Martin became finance minister, he met with Adriane Carr. She is one of the directors of the wilderness committee. At that time we were saying it cost about $70 million to buy out the tree farm licence-holders rights. He said, that's peanuts; we can do that. I guess it isn't peanuts.

At the present time one of the stakeholders who owns the tree farm licences, MacMillan Bloedel, is willing to give away their cutting rights.

We are just asking that existing programs in job creation and developing ecotourism be applied to find a solution for Clayoquot Sound, which we can see around the world as a wonderful example of Canadians working together.

Thank you very much for giving me this opportunity to speak.

The Chairman: Thank you. It was a very thoughtful presentation. It certainly offers a different perspective from most of the other presentations we have heard today.

Mr. Paul George: It is a little bit different from the board of trade, that is for sure.

The Chairman: Yes. I will talk to Mr. Martin about what he said about $70 million being peanuts.

Mr. Paul George: Okay.

• 1835

The Chairman: The next presentation will be from La Fédération des francophones de la Colombie-Britannique, Diane Côté and, Yseult Friolet.

[Translation]

Ms. Diane Côté (President, Fédération des francophones de la Colombie-Britannique): Thank you, Mr. Chairman. Ladies and gentlemen of the committee, my name is Diane Côté and I am President of the Fédération des francophones de la Colombie-Britannique. I am accompanied today by the Director General, Yseult Friolet.

The Fédération des francophones de la Colombie-Britannique is the organization representing some 60 000 francophones in our province. The federation is an umbrella group for 36 associations working in fields such as community development, artists and cultural support, economic development and education.

I would like to thank you for giving me an opportunity to make a few comments on the country's financial situation and on the direction that the federal government should take in view of the budget surplus.

A few years ago, the government of Canada undertook some fiscal housekeeping in order to leave future generations with a healthy fiscal inheritance and to ensure that Canada has an enviable position in the global marketplace. Like many Canadians we accepted—and this was often in spite of ourselves—that the time had come for the government to grapple with the fiscal situation and government spending.

I say "in spite of ourselves" because it is with respect to the choices the government made in the past that we have spoken out to remind you about the impact of these budget cutbacks, particularly those made over the past few years. These choices have had a profound effect on our community and on the organizations that work zealously to ensure that the unique character of Canada as a country with two official languages is not simply a myth, but a reality that is very clearly demonstrated by the vigour of the francophone community in British Colombia.

As a result of these choices, the groups that are striving to develop and foster our official language community have seen their operating budgets slashed by 30 per cent since the fiscal year 1992-93.

Today, the government of Canada is happy that it can view the country's economic future with optimism, and it is to be congratulated for doing this. However, it was a mistake to introduce these budget cutbacks so quickly and to apply them in such a uniform fashion. In its eagerness to improve the fiscal situation, the government did not take into account the special circumstances of certain activity sectors.

However, we believe that we must learn from past action and this is why we are happy to be with you today to speak specifically about the priorities that the government of Canada and its Department of Finance should be setting at a time when they plan to reinvest in Canadian society.

This brings me to the choices that the government should be making, in our opinion, in order to rectify somewhat the budget cutbacks made in the past. It must be understood that we are not inviting the government to go back to the days of uncontrolled spending. On the contrary, if we want to avoid a situation whereby the next generation will have to make the same difficult choices, we must reinvest in our society according to priorities.

Without a doubt, we believe that one of these priorities should be to assist initiatives that enable us to shape Canada to reflect its reality, which is the pride of all Canadians internationally. This reality includes maintaining vital francophone and anglophone communities from coast to coast. The government of Canada's commitment to bilingualism must be strong and unequivocal. The government of Canada must clearly show leadership in this field.

Consequently, we are recommending that the reductions planned for 1998-99 and 1999-2000 to programs and initiatives in support of official language communities be cancelled and that additional money be allocated to the Minister of Heritage Canada so that she can carry out her responsibilities to promote bilingualism in an adequate fashion.

As far as this is concerned, it should be noted that the budget of this department for community support initiatives will represent, in 1998-99, two one hundredths of one per cent of all federal government program expenditures. Such an amount cannot be viewed as being excessive.

• 1840

We are recommending that the government of Canada approve the requests for funding that the Minister of Heritage Canada will be presenting to the federal Cabinet in order to finance programs enabling the government of Canada to support the initiatives undertaken by official language communities.

In addition, we are recommending that the government cancel the planned reductions to the Court Challenges Program. This program enables official language communities, including ours, to turn to the courts to ensure that their constitutionally guaranteed rights are respected.

In British Columbia, we have had to, for nearly 15 years, turn to the courts to ensure that our rights pertaining to school management, as stipulated in article 23 in the Charter of Rights and Freedoms are respected. And this battle is not yet won since the provincial government does not always comply with the decisions made on this issue. We are, just as you are, no doubt, dumfounded that we have to resort the courts in order to ensure that the Constitution of our country is respected, but that is the reality here in British Columbia.

Another aspect which distinguishes Canada internationally is without doubt the presence of a high calibre public broadcaster, namely the Société Radio-Canada, the CBC. On many occasions we have expressed to the Minister of Finance our concerns about the massive cutbacks inflicted upon the CBC.

Although these cutbacks have not had the impact that was initially foreseen in British Columbia, the fact remains that this corporation needs to obtain the funding allowing it to fulfill its role which is to reflect our reality from coast to coast. We are therefore recommending that the next round of cutbacks slated for April 1988 be cancelled and that the government provide the Société Radio-Canada with adequate funding so that it can fulfill its mandate.

Finally, we are recommending that the government of Canada, as it transfers responsibilities to the provinces, identify funding reserved specifically for official language community initiatives. We do not want the government of Canada to transfer responsibilities for the sole purpose of saving money. All transfers of money accompanying the devolution of responsibilities must be done in a manner that complies with section 41 of the Official Languages Act and should identify allocations for official language community initiatives.

A province that commits itself to delivering services previously provided by the federal government should be subject to the requirements of the Official Languages Act. We believe that our requests will enable us to establish a true partnership between our community and the federal government, this partnership being of particular importance since it will, we hope, enable us to show in concrete terms that Canada, led by its government, strongly believes in the principles of linguistic duality and in equal opportunities for Canadians, regardless of whether they are francophone or anglophone, whether they live in Montreal or in Vancouver.

By investing adequately in our community's initiatives, the government of Canada will be conveying a crystal clear message: Canada is worth being maintained.

The Chairman: Thank you, Ms. Côté.

[English]

We will now move to the Political Response Group, Lane Walker.

Mr. Lane Walker (Co-Director, Political Response Group): Thank you for the opportunity to speak.

Our Political Response Group is a non-funded, non-moneyed, very poor group that works in the downtown east side. In responding to the federal finance committee report on the economic and fiscal update, I would rename it “Securing a Strong Economy or a Strong Society?” and ask the question: What is the primary goal of government? It is the common good.

Let us never come to believe that there is such a thing as a tolerable level of child poverty or that a growing gap between the rich and the poor is ever acceptable.

The Hon. Paul Martin.

The Catholic Health Association of Canada has defined the common good as the following:

The basic ethical principles involved in building a healthy economy in society are respect for the value and dignity of the human person, (this) lies at the centre of a healthy economy and society. Since all persons are made in the image of God, they have an inalienable right to the basic needs of life, namely, the right to adequate food, clothing, shelter, employment, education, health care, a clean environment and the right to participate in these rights. This is what is known as the principle of the common good. In effect, all persons in a given society should have as a fundamental human right, common access to, and use of, those resources, goods and services that make for a more fully human life. All other rights whatsoever, including those of property and free commerce, are to be subordinated to this principle.

• 1845

Within the focus of the economic and fiscal update report there is a clear agenda that leans towards the profit and accommodation of business and corporate interests, all the while putting the deficit and debt burden in front of the common good and at the expense of middle- and low-income sectors of society, who do not want higher property taxes, which are municipal, or higher income tax, which is provincial. They in turn favour the cutbacks of social programs to the poorest and weakest members of our society.

This federal initiative has direct consequences for the smaller provincial and municipal levels of government. The effect then has not at all been social security but rather a regressive trickle-down impact of abandonment, starting from the larger governing to smaller governing bodies, with the cumulative effect impacting the very people that you all know and believe should be the determining factors of what is the bottom line for government funding and concerns, and it is the poor.

There has been a drastic reduction of funds and services in my neighbourhood of the Vancouver downtown, the east side. It is the poorest postal code per capita in all of Canada.

This abandonment is seen in the steady withdrawal and closure of much needed and lifesaving services, such as detox centres, which stem off mental breakdown and suicide. Also, in the categories of service and fund loss there is the loss and closure of temporary shelters and long-term adequate housing at subsidized and affordable income rates. In the last four years there has been a loss of 6,000 to 8,000 low-income housing units for the 16,000 residents, of which 75% are low income living in SROs, very small rooms, often in deplorable, inhuman conditions.

There is also a deterioration of the remaining 6,000 SROs, along with steady interest and incentives for real estate investment, which initially look similar to your ideas of strengthening the economy in our neighbourhood but will only further the homelessness and the instability of the struggling poor through gentrification and displacement; these people who are constantly depicted as the problems of the neighbourhood, who are in the way of development, who should be removed in cattle cars somewhere else, as suggested by a local news radio talk show host.

If the people of our neighbourhood are remembered at all, it is more often as some kind of statistic for a budget report like this one or as an inconvenient loss of profit margins through land value depreciation and rising crime rates.

Since the Hon. Paul Martin has been in office, the province of British Columbia has had a steady decline in the building of social housing at the rate of 1,900 homes a year, with the total sum of 7,600 fewer homes. This has contributed to the current 27,000 homeless in our city of Vancouver. That is the official statistic the Salvation Army uses.

Although the Vancouver Health Board has declared the health risks and the disease rate in the downtown east side to be epidemic and has declared this to be a state of emergency, there has been little more than suggestions and study to this day, even though it is well recognized and documented that stable housing is a broad determinant of the health and welfare of a person. This kind of delay in response, although common, is costing the lives of hundreds and soon thousands of Canadians, the most vulnerable and weak, who often do not even know that their lives are in danger and that this is a completely avoidable event.

The government on every level continues to pass the buck, which is resulting in the rising and epidemic rates of suicide, alcoholism, HIV and AIDS, family breakdown, and domestic abuse. This indicates not a co-operation and harmony between the needs of a strong society, the human needs of people and a strong economy, the corporate interests of profit and sustained growth, but it is clearly a competition between the rights of people versus profit incentives for corporations, which fight for shrinking government funds and government favour.

I would like to remind this committee that the market does not care for those left behind, as the Hon. Paul Martin stated yesterday in his fiscal speech. The number one spending priority for Canadians is health care, as your Liberal poll has stated all the while, yet there is an increase in child poverty rates.

• 1830

Although the Hon. Paul Martin says he has broken the vicious cycle of unemployment in his attempts to restore health to Canada's finances, it is the health of Canada's social structure that has been clearly abandoned, along with the basic purpose of government, which is to care for its citizens.

Health care was the area most devastating and had the most impact on the poor. Your plan for financial health is asking not for fiscal sacrifices as much as human sacrifices, which are always easily found among the most weak and voiceless. This was also felt in the areas of child poverty, which your government was claiming to reduce and eliminate. The Hon. Paul Martin said that child poverty being eliminated was attainable if the government put the full weight of government behind it. Yet Ottawa and the provinces have increased the number of poor children by 50% since 1989 by taking unemployment insurance away from their parents, by cutting welfare payments, by gutting children's services, and by killing decent-paying public sector jobs.

When it comes to tax cuts and/or tax increases directed at the middle class and low-income earners, the approach taken should not be one of how much will Mr. and Mrs. Jones swallow in terms of deficit and debt reduction but how much do Mr. and Mrs. Jones need to eat. It should not be a minimalist approach in the social sector, all the while preparing to give larger and more liberal access to privilege to the corporate agendas set out in NAFTA, FTA, now APEC, and the soon-to-be MAI.

These agreements effectively allow corporations to shop and sometimes dictate in different countries for the incentives and advantages—you have heard some of them here today—they see as most profitable, while denying any social responsibility for the common good, threatening to relocate their services to more profitable, friendly sectors and countries with fewer government restrictions. Similar to the shift from a natural resource-based economy to manufacturing and services, there are other indicators that people are being shifted into an increasing labour pool where corporations will be free to decrease expenditures by free trade liberalization of wage standards, workfare programs, and deregulating environmental concerns. This is thought to be implemented by an increasing series of related measures such as privatization, which you have been encouraged to do today, and deregulation, which you have also heard today.

The balance of power between the public and private sectors has been drastically altered, with the corporations increasingly gaining the upper hand over governments. This does not mean that national governments are to be rendered powerless, but rather that in the new global economy their power is to be used mainly to provide a favourable climate for profitable investment and competition. Political power is to be harnessed to serve the rights of investors, not the rights of citizens. This is outlined in the initial draft of the MAI.

How can the social sector of Canada rely on the government to ensure its commitment to basic human standards of living while it increasingly denies the relevancy of human rights of other workers in foreign countries with which we are increasing our trade incentives through deregulation and lowering our labour and environmental standards? This is done to stay ahead of the very competitive market, which you have heard a lot about today, and its need for profit and growth. It is also because our human rights standards do not suit the profit motives of other foreign investors. This has become an incentive for multinationals to find ways to park their profits in the U.S. or elsewhere and their debts in Canada, as stated in The Globe and Mail.

Yet in the fiscal speech, Paul Martin has said we must preserve and improve the valued programs on which all Canadians depend, such as our health care, education and pension systems. This is the question: Will we as Canadians continue to allow the erosion of our social structures, such as health care and employment, all at the expense of the poor, the children, the people I know and live with, the homeless, the voiceless, the old, those who are too crazy, too sick, and too addicted, and last but not least, the least of these? These are my brothers and my sisters, my fathers and my mothers.

• 1855

All of this is to say that the fiscal dividend of $3 billion should be used to replace and secure the health and confidence of the public in the commitment to protect the most vulnerable in Canada. Starting in my neighbourhood, this begins by replacing the lost housing and improving the present housing, plus improving and increasing available social services such as detox and welfare rates. These would be the beginning of the great country you speak of and seek in your fiscal report of 1997 and 1998.

Thank you.

The Chairman: Thank you very much, Mr. Walker. It was a very thoughtful presentation.

We are going to move to the B.C. Cancer Foundation, Janice Loomer Margolis.

Ms. Janice Loomer Margolis (Director, Gift Planning, British Columbia Cancer Foundation): Thank you, Mr. Chairman, members of the committee, for providing the B.C. Cancer Foundation with the opportunity to make these proposals to you today.

I have provided an overview of our proposals and I will now highlight them.

I am the director of gift planning of the British Columbia Cancer Foundation, which is a charitable organization incorporated in British Columbia and dedicated to supporting crucial advances in cancer research and patient treatment and care.

The foundation recently embarked upon a fund-raising campaign to raise $100 million for cancer research and care. To reach our goal, we will require major gifts from individuals. Gifts from individuals of wealth are the major source of funds for large and small fund-raising initiatives, which are supporting the health, education, cultural and social activities in communities across Canada. As you know, Canadians rely on philanthropic dollars to provide programs and services, which are a fundamental part of our communities. The tax credits provided for charitable gifts are one way government contributes to community programs and services.

Over the past few years, charities have requested increases to tax incentives for charitable giving. The government has listened to charities and included some encouraging measures in the budget proposals in 1996 and 1997. However, the 1997 budget proposal included a penalty provision, resolution 21, which was later changed to a delayed receipt for gifts of non-qualifying securities, which are basically private company debt or shares. Resolution 21 has made huge steps backwards in terms of significant philanthropy in Canada, for many major gifts have involved the use of what are now considered non-qualifying securities.

We urge you, the Standing Committee on Finance, to recommend a reconsideration of resolution 21 and the setting up of a process to better understand and create an equitable and efficient system to stimulate philanthropy in Canada.

The foundation makes two proposals. The first is to remove or amend resolution 21, which deals with the gifting of non-qualifying securities. The second is to establish a committee made up of representatives from the private sector, government, charities and Revenue Canada to review the charitable sector and to make recommendations for amendments to legislation and practices. I will discuss the resolution 21 proposal first.

Resolution 21 of the federal government's 1997 budget and the related draft legislation in July deal with the gifting of non-qualifying securities. This provision is an albatross. The proposal was likely intended to deal with evaluation abuses for shares in privately held companies.

The proposal as it now stands involves a very convoluted process for dealing with gifts of shares or debt of a private company, whereby the donor isn't able to use the tax receipt until the charity disposes of the security, if that disposition occurs within 60 months of the making of the actual gift. The receipt process is very complicated, to say the least, as you can see, and it's fraught with problems, including issues around the realization of capital gains. There are issues regarding the timing of the gains and the use of the receipts, especially when the donor dies in the interim period.

The foundation, like many other charities that accept gifts in kind, receives many inquiries from potential donors wishing to make gifts of shares that are other than publicly listed securities. We have found that in almost every case we have had to acquire legal advice regarding whether the potential donor's particular situation is caught by resolution 21, and the donor has also been counselled to obtain legal advice. This is costly and inefficient. In many cases the costs and uncertainty are deterrents to the making of the proposed gift. Where there is uncertainty, individuals are unlikely to make a gift.

• 1900

Provisions that were brought in by the government to encourage philanthropy have had just the opposite effect.

We understand that the government was concerned with evaluation abuses, but instead of dealing with such abuses resolution 21 has created a system that is reducing the possibility of philanthropy. As an alternative, the government, in conjunction with Revenue Canada, could develop detailed regulations for the evaluation of gifts in kind, in particular shares and debt.

We strongly urge you to recommend removing or amending resolution 21 of the February 1997 budget proposals.

Our second proposal is for the establishment of a multi-party charities committee. In order to develop legislation and a viable system to support philanthropy in Canada, it is important for all the parties involved with philanthropy to work together. These parties include the private sector, individuals and corporations, government, charities, and Revenue Canada.

This committee would review the charitable sector current legislation, policies and Revenue Canada practices, and would make recommendations for amendments. In this way, situations like resolution 21 would not occur because all the parties working together would have been able to identify the unintended inconsistencies and problems. The parties could address their concerns and then could make fully considered recommendations, cognizant of all the implications.

We propose that a multi-party charities committee be established to review the charitable sector and to make recommendations for amendments to legislation and practices.

In summary, I urge you to convey to the government the importance of removing or amending resolution 21 and establishing a multi-party charities committee. We believe that there is an understanding of the role of government in the partnership to encourage philanthropy, and by addressing these issues all Canadians will benefit.

Thank you.

The Chairman: Thank you very much.

Now we'll move to the question and answer session. We'll begin with Mr. Harris.

Mr. Dick Harris (Prince George—Bulkley Valley, Ref.): Thank you, Mr. Chairman.

I'd like to thank all of you for coming today. We've been seeing witnesses since 9 a.m. The presentations overall have been very good and have been delivered with a great deal of commitment to the individual causes.

I can't ask questions of all of you so I've picked one. It's in regard to Mrs. Margolis, and Mr. Mulcaster and Mr. Richardson from the Vancouver Foundation.

In regard to the committee you're proposing be set up, do you see this committee in any way playing a role in determining the worthiness of groups that apply for charitable status? That's the first question.

Second, I am a big fan of charity organizations. I think they play a huge role and they can play an incredibly greater role in our society, filling in the areas where government simply cannot put the money. So I am certainly supportive of getting the government out of the way of people who want to contribute to charities and deserve to have tax breaks for doing it.

I am concerned, however, about some of the more socially conservative organizations that have recently been decertified because somebody decided they were maybe a little too conservative or a little too political, regardless of the good work they were doing. Also there seems to be a program to single out certain socially conservative organizations for federal audits, which is placing an extreme burden on these organizations.

• 1905

First, could either one of you respond to the first question, and then maybe you can give me your opinion on my second comment.

Ms. Janice Loomer Margolis: I don't believe it would be the role of this group to determine which organizations applying for charitable status are worthy of that status. And that ties in very closely with your second question, which is really the issue of which groups receive charitable status, which are deregistered and which are being audited and are receiving some kind of special treatment.

It deals with the whole issue of what is charitable and what is a charity. It gets into the whole law of charities, which is a very old law. I think Revenue Canada is trying to regulate a very old law, which initially was concerned with religious and educational charities that were helping the poor and the sick.

That has evolved to include things that are not charitable in law—things like sport. They've been included under the terms of the act in order to get a similar kind of treatment.

Really, I see this group as a body that could address all these kinds of things and could make recommendations. It could really bring a sense to this of what the community thinks about these kinds of things. It could be invaluable in all sorts of ways and it could bring insight to perhaps broadening the scope of what is charitable. Some of the things that we on the street think of as charitable might not be considered so in certain regulations. I think they might be able to increase that scope.

Mr. Chris Richardson: Very briefly, Mr. Harris, I don't think this committee should look specifically at worthiness. There are other avenues for that. There are a lot of other things the committee could do. The opening up and expanding of disclosure requirements in the last budget and the accessibility of that information to the donor public will certainly help.

I will make reference to a press release from the voluntary sector round table. I was part of their tax incentives group that took Paul Martin's challenge to further discuss this. Here is the title of a press release we received at noon: “Ed Broadbent to chair panel on accountability in governance in the voluntary sector”. This is a new initiative that was announced today in Winnipeg. As part of their mandate, a number of Canadians will review the current accountability practices within the sector, will develop proposed guidelines and will lead the consultation within the sector with the principal stakeholders.

In the package that I distributed, there is a list of the groups represented in the voluntary sector round table. We broadened it on some issues like the technical issues and brought in universities, colleges, hospitals and others. The voluntary sector round table does have a number of initiatives and this is the second one.

The reason the tax stuff came first was that Paul Martin asked for the opportunity for discussion, but we're looking at accountability. And Revenue Canada certainly has some views on that. I hope Carl Juneau and his staff will bring forward those things. Right now they have to approve whatever charities come forward and ask for status, whether or not there is duplication elsewhere. It is a process of secrecy until such time as you get your registration.

I see—and I am sure that Janice does—that donors are looking for efficiency and effectiveness. The market is indicating who is getting the dollars with the increased information that's out there.

The Chair: Thank you. Mr. Desrochers.

[Translation]

Mr. Odina Desrochers: Mr. Chairman, if I may, I would like to make a brief comment and ask a question.

First of all, I would like to tell my friend Lane Walker that I share in the despair which he described to us. I was deeply moved by his presentation and I fully support his requests.

I would also like to congratulate him on the courage he demonstrated by telling us about the misery he experiences every day. This proves to us, once again, that the policies put forward by the current government create the situations denounced by Lane and his group of poor people. I hope that his message will be heard by the current leaders, who unfortunately tend to promote the existence of two distinct groups in our society, namely, the rich and the poor. Lane, don't give up. Keep fighting, we are with you.

• 1910

My question is for the Fédération des francophones de la Colombie-Britannique. It is extremely simple. If ever the current government were to disregard your six recommendations, what would be the consequences?

Ms. Diane Côté: The francophone community of British Columbia has been in existence for more than 200 years and the federation was established more than 50 years ago. We continued to scrape by, but a considerable amount of our funding must come from government assistance, which is used for the education of our children, training and associated services.

Currently, in British Columbia, we know that the province does absolutely nothing or very little to recognize francophones, its official language minority. We therefore need the federal government to help us, first of all by helping our francophone organizations serve our population and, secondly, by putting pressure on the provincial government to encourage it to recognize its minority official language population.

Mr. Odina Desrochers: Thank you.

[English]

The Chairman: Mr. Riis.

Mr. Nelson Riis: Thank you, Mr. Chairman. I don't have a question. I have an observation.

I appreciate the recommendations and the requests people have made. I think they're good ones that we can now follow.

But what has occurred to me in listening to many of the presentations today is that you're asking the question: what is the purpose of government? You're asking why we do all this, why we collect taxes and so on. Earlier today we heard that by and large it is so that we can remain competitive, that this is what Canada is all about. We do these things so we can remain competitive in the global market. That is the view of some people, and they want all sorts of changes so that we can remain competitive, which Mr. Walker has reminded us probably means watering down everything to make us competitive with the lowest common denominator out there in the competitive world.

Then along comes somebody who says equality is what it is all about and who says that's how you measure our success, by whether equality between peoples exists. And let me remind us of the environment, that without the environment all of this is totally irrelevant, I suppose.

Then along comes Lane, who talks about the principle of the common good.

I think this has been very helpful. It will give us a balance in terms of our report. And we'll have to remember that we're not here to represent any one special group. We're not here to represent a special interest. We're here to represent—I suspect that when it comes down to it, it is probably the point Lane makes—the common good of Canadians. And certainly beneath that would be the environment of Canada and the world.

That's just my observation. I thank all of you for helping us come to this perhaps more balanced view of what our role is and what our recommendations ought to reflect.

The Chairman: Thank you, Mr. Riis. Mr. Jones.

Mr. Jim Jones: First, I found all the presentations very thought-provoking and interesting.

Two years ago I had cancer. Two days ago I was in the hospital to just make sure I didn't have it again, so I appreciate all the good work that the cancer association does.

Mr. George, I also appreciate your presentation on the wilderness and I'm going to take a keener interest in that.

But we also have another big cancer in this country. The cancer we have in this country is the debt. We're spending $48 billion or $46 billion to service the debt, and it has been built up by several governments, by my government and by the Liberals over the last 27 years. We have to do whatever we can to get rid of the debt so that we can free up some of those dollars to put towards worthwhile projects. We must do that.

The other thing we have to remember is that Canada is no longer an island. Canada—whether or not we like the word “competition”—has to compete in this global economy unless we can rewrite the economic order, and if we're not cost-competitive, etc., we're going to lose jobs. We're losing tons of jobs to the Far East and to Mexico. In fact, the company that I worked with closed down a lab in Palo Alto, California, because they saved $80 million U.S. by relocating it and using new people from Singapore. That's the type of competition we're seeing.

• 1915

Also, somebody said we shouldn't have tax relief. We do need tax relief, and a good example that proves tax relief does work is Ontario. Although I know some of my liberal colleagues from Ontario don't agree with what Mike Harris has done, 160,000 of the 269,000 jobs that Mr. Martin said were created in Canada this year, or 54.9%, have been created in Ontario. That's because its economy is vibrant and is going to get even better.

I believe my NDP friend made a motion in the House of Commons a couple of weeks ago. I was moved very much by your presentation, Lane. I thought it was excellent, well articulated. Yes, I think we should strive for depth, we should strive for lower taxes, we should strive for some new programs. But I think the most important cause we should strive for during this term of government is trying to get unemployment down to 5%. That's not necessarily through spending; I don't think we have to spend. We, as the 301 members of Parliament, should be putting our heads together, getting together with members of the business community and other communities in order to figure out what we have to do to re-engineer this country and get the people back to work again.

From everybody I've talked to in my travellings around the country and in my other job, I get the idea that the vast majority of Canadians want to work. It is our job in government to create an environment and atmosphere so that they can work, and to give them growth, hope and opportunity.

So I think the presentations today, especially Lane's, have been very moving. Thank you.

The Chairman: Thank you, Mr. Jones.

We'll wrap up with Mrs. Redman.

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

I'd like to ask the same question of two of the presenters, Dr. Eaves and Ms. Robinson.

Dr. Eaves, you said that from your point of view, it is essential that the government increase its commitment. Have you given any thought to either strategic, specific tax incentives or programs that we could do, other than just generally restoring the funding to all branching capitals, as you said in your comments?

Dr. Connie Eaves: We would certainly like to see that as the highest priority, but it's clear that the embryonic biotech industry is like all small businesses. It's subject to the same problems that the tax situation here gives to other areas of the small business community. Any economic incentives that are directed at that component of the economic sector will therefore obviously benefit the biotech industry, which facilitates health care research, although not directly, as it tends to feed off health care research.

I don't know if that answers your question in the way in which you directed it, but I think it's the best answer I can give you.

Mrs. Karen Redman: That's fair.

If I could, Ms. Robinson, you mentioned extending the standards that exist under the Canada Health Act, looking at it in broader welfare and social terms. I'm sure you're aware that our government has committed to retaining the $6.5 billion cash floor transfer to the provinces. So I guess my question to you would be, do you have any more specifics on that?

Ms. Eva Robinson: I'm going to ask my colleague Michael Goldberg to respond to that.

Mr. Michael Goldberg (Research Director, Social Planning and Research Council of British Columbia): As you know, while that floor is being maintained, it was massively eroded. As we note in our brief, that erosion began with the capping of CAP by Bill C-69, which was brought in by the Conservative government and penalized Ontario, B.C. and Alberta, although in Alberta it had very little impact. So there has been a significant erosion in that base, enabling the federal government to present the standards on which it will give this money. But if you reduce the size of the money, the ability to enforce those standards is diminished.

The CHST eliminated the Canada assistance plan and, with it, four of the principles that were important under the Canada assistance plan. What we argue in our brief is that we don't see a need for tax reduction. The economy is quite stimulated. If we do see inflation, we may in fact want to look at some tax increases. I know that's heresy in most places, but in fact most taxes come back to us in the form of services that we pay for in the common good. That's what taxes are all about. There's nothing inherently evil about them.

• 1920

It's similar with the comments Mr. Jones raised about debt. If we eliminated literally all the debt in Canada, where would we have the safe places to park our money? Where would the Canada savings bonds go, etc.?

I own a home. As a person, I'm in greater debt than the Government of Canada. I'm sure almost everyone in this room is. Just because I'm in debt in order to have a home, I don't feel any more vulnerable than we should feel because we're in debt in order to ensure that we have hospitals and schools, roads and public transportation, ships and ports, research and you name it.

In terms of the provinces, they've been really hammered. B.C. and Ontario have been the two provinces that have been hammered the most. We need to restore the payments that existed prior to the CHST if we're going to maintain both the level of services and the fiscal health of the provinces.

Mrs. Karen Redman: If I could comment, you're basically saying that he or she who pays has the say. It gets back to some of the concerns Mr. Walker also expressed, and the fact that we look at devolution, we look at downloading, or we look at partnerships. I truly do believe in partnerships, but sometimes they create cracks. If nobody's responsible or everybody's responsible, things don't get done. You're suggestion, then, is to deal with the provinces in a different way.

Mr. Michael Goldberg: I would argue that one needs to separate out the issue of financial provision and delivery and the conditions under which that delivery occurs. If I loan you some money or give you some money, I have an expectation that you'll use it in a particular way. I think that's a legitimate expectation.

The federal government has the capacity—as it did under the Canada Health Act when Ontario thought about bringing in user fees—to say that a province can bring in user fees, that it has the absolute right and authority to do that as a province, but that it will cost that province in terms of the money it is given. These are the rules under which we give the money. That can occur in many sectors. The actual delivery of the service could happen at the provincial level or it could happen at the municipal. It could happen at many levels.

Most of your money, when you think about it.... When you think about health care, at one time it was funded 50-50 by the federal government. It was provided by the provinces, which purchased the services or provided money to health boards, or which purchased services through other non-profit organizations or health providers or, in many cases, doctors who ended up billing the provincial government for the money that the federal government partly sent.

So provision occurs in many ways. The key is to be able to say what are the limits that apply to all Canadians, all people who live here in this country. That's why we argue that it's important that there is a strong federal role in the issue of income security and in the issue of post-secondary education.

Ms. Eva Robinson: I just want to respond briefly. I don't think we're saying that those who can pay should pay, because that already happens in the market. I think it's really critical that as taxpayers we remember the common good. To use an analogy, we're not like Cinderella's stepsisters, who tried to cut off their toes in order to fit into the glass slipper. In the budget choices we make, I think we sometimes do that. We cut off those without a voice at the table. Look around. Nobody at this table is living in poverty. Nobody like that is here telling you what kind of circumstances they live in. As taxpayers, it's our responsibility to remember those people.

Mrs. Karen Redman: The context in which I was saying he who pays has the say is between levels of government, specifically.

Ms. Eva Robinson: I just didn't want a misunderstanding on that one.

Mrs. Karen Redman: I understand.

The Chairman: Mr. Riis or Mr. Harris.

Mr. Nelson Riis: Just for the record, in light of an earlier comment made by Mr. Harris in terms of charities and some of the audits that are under way, and of the announcement today that Ed Broadbent is heading up this new initiative with others in terms of probably a whole new movement in the volunteer charity area, we should say that part of the operation of the Fraser Institute is a charity. Their educational outreach is considered a charity. That just complements the point you made, Janice, so I'll leave it at that.

The Chairman: Does anybody have any comments—Mr. Harris or Mr. Solberg?

Mr. Monte Solberg: Thank you very much, Mr. Chairman.

I appreciate the intervention of my friend from the NDP about the Fraser Institute, but I would point out that I think a lot of these groups do inform the public debate. The idea is to educate. Not to get too far down that road—I know that's not why you people came here—but I think anything that can be done to expand the debate on these issues, not just to allow the little elected elite to direct these things, is positive.

• 1925

I do have one comment or question with respect to the resolution 21 that was raised. I'm curious to know what the Americans do in this situation. How do they treat donations of private shares, and how do they value those private shares? How do they deal with this so that they don't run into these same types of problems?

Mr. Chris Richardson: I'm not an expert in that field, but I am aware. In the public press we have a lot of people come to us to talk about things, and you realize that they were reading some magazine that just happened to cross the border.

Certainly there are some controls. All we're really asking, as in the American solution, is that because of the potential of abuse you have to increase the controls or the evaluation required. Some of this is the concern that you would give an asset a qualified security and somehow find out later that the true value was somewhat less than what it was. Right now the finance department is basically saying because they're uncertain, they'll just say it didn't happen.

Although we tax lots of transfers of minority interest of shares, in the United States there are some rules that apply equally to artwork and other things. If you subsequently dispose of an asset—and there's a floor, I think, of 70% or 75%—and if there's been a diminishment in the value, you have to report that to the government.

As well, on the way in, the evaluation has to be signed by the charity, by the donor and by the valuator, and you have to file that form. So you're able to start to get a database of where the abuses appear to be happening. Then you can target your audit capacity to those things.

The other thing is that where abuses have occurred in the United States, it was the industry. I was a founding director, and Janice is now the vice-chair, of the Canadian Association of Gift Planners. It was the American counterpart who stepped in when some very abusive things were happening in the States. They were the ones who went to the IRS and said, look, you'd better look into this.

It is that co-operative partnership we're simply asking for, that we extend the consultation that has occurred in the past. We're the first ones to say that if there are abuses, we're known by the company we keep. If we have a diminishment of the credibility of the sector, it's going to affect us all.

So in answer to that, we can look at the United States. Certainly we have the rules right now to police a gift. We can step in if the gift isn't there. We don't need something that just says “Don't do it”, but we do need some help, as we did with some ecologically sensitive land legislation several years ago, where someone said evaluation was very difficult in that area. It's very pointed, but we need some help.

Rather than saying “We don't understand it, stop it”, it took them 18 months, and the federal government came out with very extensive regulations and guidelines to ensure that the abuses didn't happen.

That's all we're asking for. Let us facilitate it, don't just cut it off.

Thank you.

The Chairman: Thank you very much, Mr. Richardson, and thank you, Mr. Solberg.

This concludes this round table in Vancouver. We spent two great days of the minister's economic and fiscal update here, taken outside of Ottawa for the first time in the history of pre-budget consultation. I think it speaks volumes to the fact that this committee wants to reach out to as many Canadians as possible.

I want the interveners to note clearly from us that there is one major goal in this exercise, that whatever we recommend to the minister, and indeed to the House of Commons, has one final objective—namely, we want to improve the quality of life for Canadians. That is the ultimate goal. I think in many ways the round tables we heard today have really helped us by providing us with different perspectives on a number of issues that I'm sure will help us achieve that ultimate goal. So on behalf of the committee members, thank you very much.

The meeting is adjourned.