FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, April 22, 1998

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[English]

The Vice-Chair (Ms. Paddy Torsney (Burlington, Lib.)): I'll call this meeting to order.

We are here at the Standing Committee on Finance considering Bill C-36, an act to implement certain provisions of the budget tabled in Parliament on February 24. Today, we're considering parts 4, 7, and 11.

In a little bit of a switch, colleagues, the first person appearing is from the Kamloops Indian Band, Manny Jules.

Chief Jules, welcome. I understand you have to leave us at about 4.15 p.m., and you have to remember there are those stairs. You can use as much time as you like, but hopefully we'll get at least one round of questions. Thank you.

Chief Manny Jules (Kamloops Indian Band): First I'd like to thank you for this opportunity to make this brief presentation.

The history of our community is, we're situated in Mr. Riis' constituency of Kamloops—Shuswap. Of course, Kamloops was named after my people, the Kamloops of the Shuswap. We've been actively involved in the tax issue, going back to the 1960s. That ultimately led to an act of Parliament called Bill C-115, which was passed 10 years ago this June. It will be the tenth anniversary.

The tax issue has always been very critical for us, particularly as aboriginal people, first nations, begin to assume more and more self-government authority and jurisdiction and wish to move beyond what I would call the existing situation, which is one of dependence on government programs and program delivery. Our people want to move beyond that. We want to have self-government, but not with our hands out. We want to be able to create our own sources of revenue to cover our own services. Of course, ultimately this has to lead to a new fiscal relationship with Canada, involving all first nations.

The other aspect is, we've been involved in collecting real property tax since 1990. Around the same time, we were struggling to resolve an outstanding land question, which was resolved a couple of years ago after some 130 years of dealing with this issue.

By having an injunction on the development of the property, we had to find resources to cover the costs of that particular piece of litigation, as well as to do our own research, etc. We found the best way and the only way we could do that was by enacting our own tax by-law—not a real property tax but a tax on our own membership. This by-law was passed unanimously by our members on two separate occasions. The issue recently came up last year in June, and again the direction was given from my membership to continue with the tax, as well as to pursue specific legislation with the federal government to enact our particular taxation by-law for liquor sales on the reserve, tobacco products sales, and....

Mr. Nelson Riis (Kamloops, NDP): Fuel.

Chief Manny Jules: And fuel, including propane. Thanks, Nelson.

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I guess the reason I'm here is to just give you a little bit of insight into the work we've been able to accomplish in Kamloops, but also to address some of the concerns the committee members may have about the particular piece of legislation, and I'm here to answer any questions.

The Vice-Chair (Ms. Paddy Torsney): Perfect. Thank you, Chief Jules.

We'll now go to questions from members of Parliament.

Mr. Solberg.

Mr. Monte Solberg (Medicine Hat, Ref.): Thank you very much, Chief, for joining us today.

You stated at the outset that you want to pursue self-government, but not with your hands out. What does that mean, specifically? Are you suggesting that over a period of time, as your tax base grows, you would be willing to accept less in transfers from the government? Is that what you're suggesting?

Chief Manny Jules: No, I'm not suggesting that. I've been suggesting and advocating a new fiscal relationship between the first nations of Canada and the federal government, including the provinces.

I believe the provincial governments' transfers are some 17% and the municipalities' transfers are in the range of about 33%, whereas with first nation governments, about 97% of our revenue comes from federal transfers and other sources. To suggest at this early stage we would be willing to offset that because of this small amendment is a bit premature.

I would suggest an overhaul of the way the funds flow to first nations, so they could address a lot of the issues, like accountability and being able to borrow money—we're one of the few governments in the country that can't borrow money—to have long-term debt financing, etc.

Mr. Monte Solberg: You just touched on an issue I'm interested in too, and that's accountability. To grant the power to tax is to give quite an authority to the band, and we would want to know that there are some real accountability measures built in. What measures do you perceive that would ensure accountability?

Chief Manny Jules: In our particular community, we're covered by our own financial administration by-law, which makes all our records open to every band member who wishes to see those records. We have four annual general assemblies that are open to all members.

We have an election basically every three years that allows all members, despite where they may live, to vote. We are under our own custom election regulation. We will be working very closely with government and other first nations to ensure the issue is addressed.

You can appreciate any tax from any level of government is controversial, whether it's federal, municipal, provincial, or first nation. From our perspective, any time a first nation government contemplates taxing us it creates some controversy, and we have survived several elections on that basis.

Mr. Monte Solberg: Okay. On the final question I had, I guess you kind of touched on it. You said the tax by-law you proposed was passed unanimously by the membership. How many people are we talking about here?

Chief Manny Jules: The membership is 900 people.

Mr. Monte Solberg: How many people came out and voted?

Chief Manny Jules: In order to have our general assemblies, or general band meetings, we publicly notify each and every member who is of voting age, over the age of 18. Our own rules governing general band meetings require that a minimum of 50 members turn out to participate in a general band meeting. I don't recollect the numbers, but there were more than the 50 that were required.

Mr. Monte Solberg: Okay. Thank you.

The Vice-Chair (Ms. Paddy Torsney): Thank you, Mr. Solberg.

Monsieur Crête.

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[Translation]

Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ): Thank you very much for your presentation. I'd like it if you could explain to us in a bit more detail how much flexibility you would have if you collected the amounts paid for GST. What would you use these amounts for and what options would you then have? Could you also give us a more long-term view of the positive results you can anticipate if such were the case? Do you anticipate any other worthwhile things that might occur in the coming years and that might give you as much independence as possible, with regard to both revenue and expenditures?

[English]

Chief Manny Jules: The type of revenue we're going to be generating will be used primarily for economic development, education and research, and trying to promote a fair and just settlement in the land question, as well as a number of other areas in economic development. That's primarily what the dollars are being earmarked for and that was part of the discussion with our members during the debate about this particular piece of legislation.

In the long term, what I first see happening is very much different from the relationship in the United States. We have to pursue a fair means, a new fiscal relationship involving all of the provincial governments and the federal government, as I mentioned earlier. This would lead to greater tax jurisdiction and exclusive tax jurisdiction for first nations.

One of the problems I saw in the United States is that when first nations began to occupy various tax jurisdictions that didn't exclude the state governments from occupying the same areas, it created a lot of problems for the tribes in the United States. I believe the establishment of a national table to deal with this issue is the best and most economical way to approach it.

Right now, the federal and provincial governments collect in the range of $15 million to $17 million a year from my community, and we get back about $5 million in federal transfers. You can see by the economic ventures we've carried out in my community that we benefit the federal and provincial governments.

Ultimately I see us occupying those other areas of tax jurisdiction as well, but making sure it's done in such a way as to ensure the long-term viability of first nations, keeping in mind that in my particular community, despite the fact that we have our own sources of revenue, our unemployment rate is around 35%. We have an average income of about $12,000 a year, which is substantially below the poverty level here in Canada.

[Translation]

Mr. Paul Crête: Are you satisfied with the relationship that would remain with Revenue Canada and the provisions of the bill respecting the management you and the Government of Canada would exercise?

[English]

Chief Manny Jules: The way this particular bill is structured is that Revenue Canada is the bill collector for us and will be enforcing the taxation by-law for us. We're quite satisfied with that particular arrangement at this stage, given the fact that we don't—nor do a lot of other governments—have the administrative capability to be able to deal with this. And I foresee other types of arrangements developing in other first nation communities across the country as well.

[Translation]

The Vice-Chair (Ms. Paddy Torsney): Thank you very much, Mr. Crête.

Mr. Paul Crête: Thank you, Madam Chair.

[English]

The Vice-Chair (Ms. Paddy Torsney): Mr. Riis.

Mr. Nelson Riis: Thank you, Madam Chair.

Chief Jules, I know you've made an extraordinary effort to be here. As committee members we appreciate it, because for us as well this is moving into some new territory.

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Just as a point of clarification for me, on the Kamloops Indian reserve, if a person comes in and purchases a tobacco product, he or she now will pay a tax to Revenue Canada, and whatever that tax is, the band will eventually have that provided to them for their own use—economic development, education, and other purposes. Does that occur whether that purchaser is aboriginal or non-aboriginal?

Chief Manny Jules: The situation that exists right now is that if an aboriginal person comes into the community and purchases tobacco and fuel products, they pay a 7% Kamloops Indian band sales tax to the Kamloops government.

With the passage of this particular piece of legislation, it would mean that anyone coming onto the reserve, aboriginal or non-aboriginal, would pay the 7% Kamloops Indian band sales tax. It would go to Revenue Canada and a cheque would be written to the Kamloops Indian band.

Mr. Nelson Riis: Okay.

Second question. The areas you mentioned and part of the legislation now include purchases of various liquor products, tobacco products, and different fuels, including propane, as you mentioned. This presumably is the beginning, as you say, of a much longer process. What could you foresee as the next, say, two or three example areas of future taxation that we will see accrue to the government of the band?

Chief Manny Jules: It depends. One of the objectives I have right now is establishing a national fiscal table to deal with a whole range of issues, but included in that particular process, I believe, there could be a number of steps taken.

A number of first nation communities that I'm aware of across the country are talking not only about the three areas contemplated in this particular piece of legislation but also income tax, which quickly comes to mind, right across the country. That's primarily the one that will move more than anything else. There's also the sale of any goods on reserve land, or the GST on any purchase of goods.

Mr. Nelson Riis: Good. Thank you.

Finally, Chief Jules, as you said, your band has been in the business of changing tax legislation since the sixties, when the process first began. I suspect that once this is approved—assuming this is approved—and it's functioning with the band for a number of months and so on, this will be used as an example that other bands presumably will follow in some form or another throughout the country.

Is that a fair assumption?

Chief Manny Jules: It's very fair. As an example, since the passage of Bill C-115, you were primarily dealing with a small number of communities in Alberta. I believe about seven communities in Alberta were involved in real property tax. There were about ten communities in British Columbia very interested in the real property tax issue. Right now some 64 first nation communities are involved in real property taxation, generating some $25 million in income that wasn't there before.

So when individual communities start to contemplate these particular areas of tax jurisdiction, obviously they're going to be looking at Kamloops, at Westbank, at Cowichan for their experience and hopefully will begin to occupy further areas of jurisdiction and push the envelope even further.

Mr. Nelson Riis: Thank you.

Thank you, Madam Chair.

The Vice-Chair (Ms. Paddy Torsney): Thank you very much, Mr. Riis.

Mr. Szabo, please.

Mr. Paul Szabo (Mississauga South, Lib.): Thank you.

Chief Jules, can you give us an idea of how many band members live off the reserve?

Chief Manny Jules: You're going to get different scenarios right across the country, but in my particular case of Kamloops, the majority of our members live on the reserve. That's because we're a fairly urban community, we've been able to take advantage of various housing programs, and we've been able to provide some employment to the members. We're looking at about 600 living on the reserve. So more than 50% of my members live on the reserve.

Mr. Paul Szabo: What about working off-reserve?

Chief Manny Jules: Because we're in an urban area, members have an ability to work both on- and off-reserve. The largest employer in my community is the band. We employ about 120 people.

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Mr. Paul Szabo: Okay. I raise them from the standpoint that this is my experience as well in discussing aboriginal issues across Canada.

In terms of your statement about ultimately moving towards a scenario where the aboriginal people will be fully responsible for taxation—and you can see that it would be a pretty complicated process where you have substantial off-reserve activity—I'm wondering whether or not there is a plan to somehow coordinate or deal with the off-reserve component in a way that everybody is going to be comfortable with?

Chief Manny Jules: I think those kinds of discussions are going to have to be dealt with during the development of a new fiscal relationship with Canada. Obviously, you're going to have to be dealing with a whole range of different types of jurisdictions. For example, child welfare. We have an agreement with British Columbia, and right now, at this stage, we're working on delegated authority in basically dealing with children from my community. If you're dealing with an apprehension that happened, say, down east in Halifax, we're going to have to enter into an agreement with the Government of Nova Scotia to address that issue.

I know a tremendous amount of work has to happen.

A lot of the issue also boils down to this whole notion of representation. Right now, I think there are about 200 communities involved in what I would term custom elections outside the Indian Act, outside section 74 of the Indian Act. A lot of communities, because of the Indian Act, only allow persons who ordinarily reside on reserve to participate in elections, which in my opinion is not the fault of the first nations so much as it's an inherent problem with the Indian Act.

There are a number of ways to approach that. One of the simplest solutions would be to amend section 74 of the Indian Act to allow anybody who is a member of a particular community to participate in the elections and therefore get around the representation issue. That could allow fruitful discussions with the federal and provincial governments on a new fiscal relationship.

Mr. Paul Szabo: Thank you.

The Vice-Chair (Ms. Paddy Torsney): Thank you very much, Mr. Szabo.

Mr. Solberg, I think you had one more question.

Mr. Monte Solberg: I didn't hear you say this—and maybe it's because you didn't say it—but have you any idea how much revenue this would raise?

Chief Manny Jules: It's going to raise about $750,000. About $400,000 will come from this particular bill.

Mr. Monte Solberg: I can appreciate why it would be a good thing to put a tax on tobacco and liquor, but what about fuel? That's an essential for a lot of people. Won't that hit them fairly hard?

Chief Manny Jules: The reason for that goes back to the original approach the band chose in 1990. When we chose to begin to occupy the field, the areas that were more easily approached than others were the sale of tobacco and fuel, because we had service stations and tobacco outlets on the reserve. People didn't have to pay about 14%, so there was an initial saving of 14%. What the members said was, “We want a portion of what you're saving to go to this kitty to offset our costs in these particular areas.”

Mr. Monte Solberg: Thank you.

The Vice-Chair (Ms. Paddy Torsney): Thank you.

Mr. Riis, you had one more quick question?

Mr. Nelson Riis: Just to pick up on the point Monte made, I suppose when you look at setting the tax level for cigarettes or fuel or alcohol products, it would have to be relative to the surrounding areas. Otherwise people would simply purchase their goods elsewhere, a few blocks away basically. So it would have to be relatively priced.

Chief Manny Jules: On the issue of tobacco, the 7% sales tax we will be initiating will make it a little more difficult to carry on their smoking habit—I'm a non-smoker, by the way.

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The Vice-Chair (Ms. Paddy Torsney): Me too, and of course the Cancer Society is up next, so they'll be very happy to hear that.

Chief Manny Jules: That's why I said it.

The Vice-Chair (Ms. Paddy Torsney): You're a good politician.

Colleagues, are there any more questions for Chief Jules?

Chief Jules, thank you very much for coming all the way from Kamloops and preparing this testimony for us today and answering our questions.

Colleagues, I suggest that while we bring in our new people, maybe we can have a quick suspension for two minutes. It might be a chance for everyone to meet the Forum for Young Canadians students in the audience.

We'll suspend for two minutes.

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The Vice-Chair (Ms. Paddy Torsney): Colleagues, I call this meeting back to order. We now have presentations from Rob Cunningham and Ken Kyle, from the Canadian Cancer Society.

[Translation]

The French translation is in the first stack of documents.

[English]

So, gentlemen with the goods, who is starting first? Mr. Kyle.

Mr. Ken Kyle (Director of Public Issues, Canadian Cancer Society): Thank you.

I'm Ken Kyle, director of public issues with the national office of the Canadian Cancer Society. With me is Rob Cunningham, who is a senior policy analyst.

As most of you know, we're a national, community-based organization. We have 350,000 volunteers from coast to coast to coast. Our mission is the eradication of cancer and the enhancement of the quality of life of people living with cancer. I'm pleased to say that we provide many health services to the community, all at no cost to government. Cancer Society programs, staff salaries, expenses, and so forth are paid for through our fundraising campaigns and so forth.

I want to thank the committee for inviting us here. It's a particular pleasure to be here during cancer campaign month.

We're here today to discuss the changes in the tobacco taxation that are before you. We are very interested, as the use of tobacco industry products is the cause of 30% of all cancer deaths, deaths that are certainly preventable. There is a very real relationship between tobacco taxation levels and smoking rates. We therefore support the proposed changes in the bill before you and the related provisions. We urge the committee members to support them.

I also want to thank this committee for its December 1997 pre-budget report recommendation for increases in tobacco taxes.

I'll now turn the time over to Rob Cunningham, who has been associated with us for about ten years. Rob is a lawyer, and he received an MBA from the Ivey Business School at the University of Western Ontario. As many of you may know, he is the author of IDRC's best-selling book Smoke and Mirrors: The Canadian Tobacco War. I know many of you have probably seen that book, and there is a chapter on tobacco taxation in it.

Rob, I'll turn it over to you.

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Mr. Rob Cunningham (Senior Policy Analyst, Canadian Cancer Society): Thank you.

[Translation]

Our position is a bit unusual, since we support an increase in income tax. From the health point of view, needless to say, we support the tax increase on cigarettes.

[English]

However, I think the tobacco tax increase needs to be put in context.

This bill would increase the cigarette tax by 60¢ per carton in the provinces of Ontario and Quebec, combined with provincial increases in those provinces of 60¢, for a total increase of $1.20. The reduction in 1994 in Quebec was $21 and in Ontario it was $19.20. We've had a number of small increases in the 1994-1998 period, but cigarette taxes are still about $16 a carton lower in those two major provinces.

We are of the view that cigarette taxes could have increased more without the risk of significant contraband. That would have had benefits for both public health as a result of lower smoking and benefits with respect to increased public revenues for government. Those revenues could have been translated to options of lower debt, other government programs, or a reduction in income taxes or other taxation levels.

In the handout you have, the second page—the one after the key points in terms of a summary of our presentation—has a table reproduced from the Globe and Mail. This table shows the relatively small nature of the increase in cigarette taxes—which we certainly support—as compared to the prices before and as compared to the prices prior to the 1994 tax roll-back.

The next page has a tax map showing the relative retail prices of a carton of 200 cigarettes in various parts of Ontario province and neighbouring U.S. states. We have the situation as to the retail price in the states like Michigan and New York, border states where the price is even higher than in Ontario or Quebec, for example. This is one of the reasons why we argue that taxes could have been increased even further without the risk of contraband. For contraband to have the opportunity to thrive, there needs to be a price differential that is significantly higher in Canada so that smugglers can profit and so that consumers can have the motivation to pursue the lower-priced product.

It may be said that smugglers will take advantage of cigarettes for which no American tax has been paid. Well, under federal excise legislation, we have an export tax in place that would deal with that problem. On any cigarettes going to the United States for $8 a carton, there would be an export tax imposed before they would come back into Canada.

Manufacturers do have 3% of prior-year production to which the export tax does not apply, but if the exports were to get back up to their previous levels, such that they would be contributing to smuggling, then the export tax would kick in. So we believe the measures are in place for a much faster augmentation of cigarette taxes.

Since 1994 there have been no increases in federal tobacco taxes in the four western provinces, in the two territories, and in Newfoundland. It was a disappointment to us that we have not made any progress in terms of getting some increase in taxes in those provinces, although provincial tobacco taxes were not rolled back in those jurisdictions in 1994. They remain at significantly higher levels than in central Canada, and they demonstrate that it is possible to have much higher levels of tobacco taxes when compared to American jurisdictions without significant smuggling.

Parts of the bill deal with tobacco taxation on Indian reserves.

[Translation]

We support these measures for three reasons. These taxes are going to generate revenue for the reserve council, help reduce smoking among Amerindians—studies show that Amerindians smoke much more than the Canadian population in general—and in some way prevent the smuggling of tobacco products that are not subject to taxes. So, this will help the fight against smuggling.

[English]

One of the provisions in the bill is to increase the tobacco tax rate on tobacco sticks. This is an innovation that tobacco companies came up with a number of years ago to take advantage of a loophole in the law. Of course, they want to increase their sales. We don't want them to increase their sales.

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They sell a product that looks like this with a pre-rolled stick of tobacco. The cigarette tube has the filter attached. Then there's a little mechanism with which the consumer places the pre-formed tobacco into the tube.

The advantage is that it's significantly lower in price because of tax levels. We consider that a loophole.

The government has taken steps to diminish the price differential from the favourable tax treatment for this product. We applaud that. We applaud the indication of the revenue minister, Herb Dhaliwal, that they are looking and talking to provinces to get rid of the favourable tax treatment altogether.

One of the things that prompted our concern was a new product introduced approximately in December 1997 by Imperial Tobacco. They went a step further to exploit this loophole. This is the product they had. It looks very much like a cigarette. The tobacco is already in the tube. The filter is already attached. All the consumer has to do is stick a little piece of paper on the end and then it becomes a cigarette.

Now according to Revenue Canada's interpretation of the current tobacco laws—I disagree with them, but this is the tax rule interpretation they've given to the tobacco companies—this is taxed as a tobacco stick at a much lower rate. We don't like that because it's an opportunity for those consumers who smoke this product to continue to smoke more tobacco units per day. Or they may stay in the market instead of quitting altogether because this may keep them there.

This bill does not increase the taxes on fine-cut tobacco, roll-your-own tobacco, or leaf tobacco intended for retail consumption. That's a disappointment for us. It's hoped that this can be addressed in the future. The bill does not eliminate tobacco duty-free sales, which the European Union is implementing among its 15 nation countries in 1999.

In terms of contraband and anti-contraband measures, we are pleased with the announcement of the revenue minister, Herb Dhaliwal, that he's having discussions with provinces to have better tax-paid markings on individual packages. Right now, on a package of cigarettes, the most common tax-paid marking that we see is a cellophane tear strip. Some smugglers in British Columbia are just taking off the tear strip and then rewrapping the product with new cellophane with a fraudulent tear strip to make it appear that this tax has been paid.

Our recommendation is that in addition to a cellophane marking, there should be something like what is found on the packages handed out to you. Now this is a package that we, along with other health organizations, mocked up to demonstrate what a plain package might look like and what improved health warnings might look like, and give more information about toxic constituents. But also, on the front and side panels, there are provincial tax-paid marks printed right on the package, which would help on that particular aspect of anti-contraband measures.

Briefly, the tobacco industry was exposed in a January 20, 1998 broadcast of CBC television's the fifth estate in terms of their contribution to smuggling. There was very disturbing evidence about direct links between tobacco companies and their executives and smuggling. At the time, we called upon the RCMP to initiate a major criminal investigation and we asked for a royal commission to be launched.

The impact of the tobacco tax reduction and enlarged smuggling has been significant in terms of lost government revenue. It's in the billions of dollars. Federal-provincial government revenue was lost. And we've seen that the historic trend progress in reducing per capita consumption has been halted.

There are graphs in the handout that indicate the change in trends. One is from internal surveys of RJR-MacDonald, a tobacco company's internal surveys. It shows, according to their numbers, a declining prevalence. Then, after the tax is rolled back, there's an increasing prevalence, especially in the 19- to 24-year-old age group.

We'd be pleased to answer any questions you may have.

The Vice-Chair (Ms. Paddy Torsney): Thank you very much, Mr. Cunningham and Mr. Kyle.

We'll now go to questions. Mr. Solberg, you're first.

Mr. Monte Solberg: Thank you very much, Madam Chair.

I'm interested to know this. As the price goes up or as taxes go up, the incidence of smoking falls, if that's correct to say that. Have you ever been able to quantify what the impact would be on the health care system? For instance, for every percentage that the incidence of smoking falls, what might the impact be? Can you give us a guesstimate?

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Mr. Rob Cunningham: There are different estimates of the health care costs. Sometimes the health care costs are in the future, so the impact is delayed, but if you would have a 1% reduction in tobacco consumption translated into a 1% reduction in health care costs, you could create a formula...but I don't have a number for you.

Mr. Monte Solberg: But suffice it to say it's very substantial, I would think, obviously.

Mr. Rob Cunningham: It's in the billions of dollars per year for the total health care costs attributable to tobacco.

Mr. Monte Solberg: So ultimately how much higher would you say we could push taxes up without causing the problem of contraband?

Mr. Rob Cunningham: There are two parts to my answer to that question, and it varies by province. I think that right away in Alberta you could have an increase of $5 per carton, so it's comparable to its neighbouring provinces, Saskatchewan and B.C. Ontario is slightly lower than Quebec. Our recommendation in our submission to finance minister Paul Martin was $5 per carton. We could do that once and then respond subsequently.

But we have a very interesting development in the United States, where the U.S. Congress is now considering a bill that would increase their tobacco taxes by $11 U.S. per carton. That's more than $15 Canadian per carton. It's gone through a Senate committee with a 19-to-1 vote.

Now, who knows all the inner workings of the American Congress? But it may be that the federal government and Parliament will have an opportunity in the coming months to respond to the historic low taxes in the U.S. and get an opportunity for Canada just to equalize with a $15 increase.

Mr. Monte Solberg: I'm kind of switching gears here. You mentioned that taxes have not gone up on, I guess, raw tobacco, leaf tobacco, roll-your-own tobacco. Can you give us the report on what the revenue minister is saying about this? What is the justification for not raising taxes on that type of tobacco?

Mr. Rob Cunningham: First of all, on leaf tobacco it's for some historic reason. This is stuff you can buy—it's just a leaf—and people put it in their blenders and make cigarettes like that. For some historic reason, it's been taxed separately, and perhaps with the federal government's Excise Act review, we might be able to address that problem. Or we can address it in the next budget as well. We don't have to wait for that Excise Act review.

In terms of the roll-your-own tobacco, again, we've had a historic situation whereby roll-your-own tobacco has been taxed at a lower rate. In its most recent budget, British Columbia equalized this, such that the tax rate for one cigarette is equal to one gram of roll-your-own tobacco. That was our recommendation to Paul Martin.

Mr. Monte Solberg: Do you foresee the department moving towards that? Have they given any indication or are they just saying, well.... To say that historically it's been low is really not much of an answer. It's not much of a justification for keeping it low; it's just saying that we've maybe neglected to do what we should have done in the past.

Mr. Rob Cunningham: In terms of tobacco sticks, the government has clearly said it is looking to equalize the rate.

Mr. Monte Solberg: Okay.

Mr. Rob Cunningham: In terms of roll-your-own tobacco, it has not said that. Because there is this federal-provincial agreement to go back up together, it's enough, I guess, to try to have an announcement at the same time, working with cigarettes and tobacco sticks. Having roll-your-own added there is another complication that slows things down.

But I think the rationale is there, especially now that we see manufacturers coming out with roll-your-own products that expand the tobacco. No longer do you need only one gram of tobacco to make a roll-your-own cigarette, you can have less than half a gram. So the effective tax rate on roll-your-own tobacco, because of this innovation in processing and manufacturing, is even lower, and that's a concern.

Mr. Monte Solberg: Thank you very much.

The Vice-Chair (Ms. Paddy Torsney): Mr. Kyle, do you want to add something? No?

[Translation]

Ms. Picard.

Ms. Pauline Picard (Drummond, BQ): I am not opposed to an increase in taxes, but I have some serious questions about smuggling. I don't agree with you when you say that an increase of $5, 7 or 8 a carton wouldn't have any effect on smuggling.

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I can tell you that, at present, in Quebec, it's already begun. The day after the increase, measures had already been taken to increase smuggling. Today, I learned that the RCMP were on the trail and that they were investigating people involved in smuggling since the tax increase. The neighbouring municipalities of certain reserves are sought out. They even talked about a convenience store owner who had hidden some $800,000 in taxes on the sale of cigarettes. I don't think we can say that a tax increase doesn't have any influence on smuggling. We went through this in 1993, and it was a disaster in Quebec.

Young people don't have the money to buy cigarettes when the price goes up. I've done studies in schools and I observed cigarettes being given to young people in the schoolyard or being sold for five cents apiece, and the young people were buying them. Young people who had never smoked before began to smoke.

A great deal of stress has to be placed on early childhood education and awareness among young people to discourage them from smoking. I agree that if a pack of cigarettes costs enough, a smoker may eventually say to himself that it costs too much and decide to stop smoking, but for some that doesn't have any effect; it's really a drug.

I'm in favour of increasing taxes, but there's something about the issue that I find hard to resolve. We'll probably have to take some very concrete, very strong measures to counteract the smuggling we have. We already have it.

Mr. Rob Cunningham: Thank you for your question and your comments. We certainly don't like smuggling. No one likes smuggling, except smugglers. I'm aware of the articles and reports that appeared in the media this week in Quebec concerning smuggling.

Yes, there are new retailers on three reserves in Quebec who openly smuggle. If we look at the overall population, a dozen or two dozen retailers on reserves doesn't amount to much. One of the problems is that the RCMP refuse to go onto the reserves to eliminate this retail trade. These retailers are openly involved in smuggling and display big ads, and the RCMP still refuse to act. This would be one way of intervening before the problem gets any worse.

Last Monday, we heard the testimony of an official from the Department of Finance, who was appearing before this committee and who was saying that the volume of smuggling from the U.S. towards Canada was very slight at present. I think he's right. I agree that there may be some smuggling, but I think it will be insignificant. I think we're still far from reaching the high level of smuggling documented in the reports that have just been published. In my opinion, the seriousness of the situation has been exaggerated.

[English]

The Vice-Chair (Ms. Paddy Torsney): Mr. Riis.

Mr. Nelson Riis: Thank you very much, Madam Chair.

Gentlemen, your presentation today has been extremely interesting.

You mentioned that this doesn't apply to leaf tobacco. Does that include pipe tobacco, chewing tobacco, and all kinds of other tobacco products? Are they also exempt from this legislation?

Mr. Rob Cunningham: There are taxes that are applied.

Mr. Nelson Riis: But in this legislation.

Mr Rob Cunningham: No, there are no tax increases.

Mr. Nelson Riis: Okay.

Did you mention something about a “kiddy pack”? I don't know the right term for it. Can you buy little packages of cigarettes that are designed for kids?

Mr. Rob Cunningham: Those are now illegal. Prior to Parliament addressing that situation, they were available.

Mr. Nelson Riis: Okay.

I think you've been helpful in terms of the suggestion of whether a $5 increase would be adequate without initiating this contraband business. The situation you describe on those Indian reserves is I think completely intolerable. It's unbelievable. We should be slapping these people, whoever they are and wherever they are, with incredibly big fines or jail sentences. Maybe we should ask Singapore to deal with them or something. It's unscrupulous.

• 1635

This next question may sound odd, but it's a serious one. Actually, I have another one before I get to my odd question.

In 1996 then Health Minister Dingwall set aside $50 million for a campaign. In the 1997 election campaign a $50-million increase went into that. So we have $100 million in this anti-smoking campaign. Do you know what percentage of that money has actually been used so far?

Mr. Rob Cunningham: That's $100 million over five years, at about $20 million per year, beginning the fiscal year April 1998?

Mr. Nelson Riis: Yes.

Mr. Rob Cunningham: For the 1998-99 fiscal year, then, probably very little. For the previous fiscal year, 1997-98, I don't know the exact number. It was only $10 million for that year.

Mr. Nelson Riis: Any idea, or any sense...?

Mr. Rob Cunningham: Less than $10 million. I think there was a question put on the Order Paper, and there was a response, but I don't know the exact number. Maybe it was $7 million or $8 million.

I'm not sure if my memory serves me correctly.

Mr. Nelson Riis: My memory was $1.7 million, but maybe my memory is incorrect as well.

Setting that aside, in terms of the question with regard to youth particularly, and the price, when you look at the board of directors—and you mentioned that fifth estate program—I think we can say we acknowledge that senior executives, the board of directors of the major tobacco companies, are initiating programs or participating in behaviour that causes a lot of people, tens of thousands of people, to die prematurely. Why wouldn't we consider charging these people with murder?

Mr. Rob Cunningham: There is a legal opinion from David Doherty, then of McCarthy & McCarthy and now of the Ontario Court of Appeal, that said tobacco company executives could be found guilty of criminal negligence causing bodily harm or causing death. There is evidence, in my view and in my legal opinion, that warrants an investigation and charges to be laid. There is very disturbing evidence with respect to smuggling and conspiracy, counselling an offence and so on—different categories of things.

Mr. Nelson Riis: Thank you.

Thank you, Madam Chair.

The Vice-Chair (Ms. Paddy Torsney): Thank you, Mr. Riis.

Mr. Brison.

[Translation]

You wished to speak in French, I believe.

Mr. Scott Brison (Kings—Hants, PC): Next week, maybe.

The Vice-Chair (Ms. Paddy Torsney): Next week.

Mr. Scott Brison: Thank you, honey.

Some hon. members: Oh, oh!

[English]

The Vice-Chair (Ms. Paddy Torsney): It's good to learn something in French.

Mr. Scott Brison: Thank you for your presentation today. It has been very interesting.

I read earlier today in an article in the Vancouver Sun that Ottawa collects more than $2 billion per year in tobacco taxes and yet spends about $20 million a year in anti-smoking enforcement and education programs. You're familiar with Senator Kenny's legislation. I would be interested in your opinion of that legislation.

Secondly, in the U.S., with the tobacco settlements recently being negotiated, 41% of those settlements—and it's looking like a $65-billion settlement—is destined to be invested in medical research and 34% into states' anti-smoking programs and tobacco farmer compensation. That's not as much of an issue in Canada as it is in the U.S., but it is in terms of the states' anti-smoking programs.

How do you feel about that kind of targeted levy for revenues generated from the sale of tobacco?

Mr. Ken Kyle: Maybe I could answer the question in terms of Bill S-13, Rob, and you can deal with the U.S.

The Canadian Cancer Society completely supports the tobacco industry responsibility act, which Senator Kenny has put forward with Senator Nolin. It would put $120 million a year, perhaps in perpetuity, into programs to address teen smoking, children smoking. Money could be available to all kinds of groups through an organization that's at arm's length from government. Groups could come and apply for funding for various programs—for cessation programs, for education programs, for mass media programs, for tobacco research, for socio-behaviour research.

We think it's an absolutely terrific bill. I think virtually the whole health community is supporting this. I think there's a lot of support in the Senate for the bill. We hope it gets through the Senate, and when it comes to the House of Commons we hope there will be support by MPs. It's a private member's bill, and I guess there will be voting on that particular bill. So it's a terrific piece of legislation.

• 1640

Maybe Rob could address the issue of the U.S.

Mr. Rob Cunningham: We are of the view that the government's funding of its tobacco strategy is completely inadequate at the present time. In Massachusetts they spend about $8 per capita in Canadian dollars. In California about $4 per capita is spent. The federal government of Canada spends about 66¢ per capita for our leading preventable cause of disease, disability, and death.

Bill S-13 would help to address that. It would be a levy placed on tobacco companies and not the taxpayers.

The Vice-Chair (Ms. Paddy Torsney): Sorry, I don't mean to interrupt, but obviously it will recoup that money from the taxpayer.

Mr. Rob Cunningham: That's the government's choice, but the bill could be worded in such a way that it wouldn't be able to do that.

Mr. Scott Brison: Stop badgering the witnesses.

The Vice-Chair (Ms. Paddy Torsney): Listen, honey....

Mr. Rob Cunningham: Certainly at the present time, the way the bill's worded, it could be expected it would pass that on, in terms of prices, but it does not come out of government revenue.

In the United States, we see how the tobacco companies have voluntarily offered a settlement to pay billions of dollars per year, much of which would contribute to reducing smoking. That's an example I think we could do better to follow in Canada.

Mr. Scott Brison: That's interesting in an area of public policy. We pride ourselves sometimes as being a kinder, gentler, and more socially responsible nation. It's interesting to hear that comparatively we can be doing a lot better.

There have been some great articles in the Economist on the tobacco situation in the U.S. I'll just draw your attention to this one. I thought you'd be interested in the bumper sticker on the back of a truck in tobacco country. It says, “More Americans smoke than voted for Clinton”, so it's a highly charged political issue down there as well.

Thanks again for appearing before us.

Mr. Rob Cunningham: Thank you.

The Vice-Chair (Ms. Paddy Torsney): Thank you.

Madam Redman, please.

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Madam Chair. I apologize for being late. I had a conflict.

Behaviour is very difficult to change. I've read your brief and I see that obviously there's cause and effect, certainly in your view, in the price or the amount of tax on cigarettes. Have you or the Canadian Cancer Society looked at the possible impacts of the no-smoking policies a lot of municipalities are bringing in? What impact is that having, if any, on changing behaviour?

Mr. Rob Cunningham: It's having a very positive impact. There's a growing number of studies, several dozen now, that show if a workplace goes from being smoking permitted to totally smoke-free, there is a reduction among the employees, per capita consumption, of about 16% to 25%. Some cut down per day, some quit altogether. Removing the public example, the public advertisement of a role model kids can see, also has a contributory beneficial effect on reducing smoking.

Mrs. Karen Redman: Notwithstanding the fact this is the finance committee of the federal government, are there other issues besides purely taxing you've examined that may be a role for the federal government? I know legislation has been mentioned.

Mr. Rob Cunningham: Absolutely, yes.

Mr. Ken Kyle: Let me say that taxation is not the magic bullet. I think the research from around the world shows you need to do a variety of things, all at the same time. You start by making the product less affordable, particularly for kids, through higher taxes. You have very good public education programs. You ban tobacco advertising. You ban tobacco promotion. You do socio-behavioural research. You control point-of-sale advertising in stores and so forth. You enforce sales-to-minors legislation at the municipal level. You can have really good rotated health warning messages on tobacco packs and use some imagination there.

You can get rid of the deception of light and mild on cigarettes. A lot of people would have quit but thought they were getting a less harmful cigarette by smoking a lighter, mild cigarette. In reality, the level of tar and nicotine is measured by machines, and people aren't machines. It's virtually the same tobacco in both kinds of cigarettes. Smokers will sometimes put their fingers over the ventilation holes in cigarettes and draw more deeply. Smoking a light or a mild cigarette they'll get as much nicotine or tar, which are the cancer-causing chemicals, as a regular cigarette. So if you do a whole bunch of things all at the same time, it works.

• 1645

In Massachusetts and in California, where they've had mass media campaigns de-normalizing the product, the idea they've had is to take the normal, rebellious attitude of kids, teenagers, and instead of rebelling against school teachers and parents, they show how they're being ripped off by the tobacco industry and turn the attention to the tobacco industry. They say, “Hey!”, and they rebel against being ripped off. It's really working in those two states.

As Rob has mentioned, they've put a lot more money per capita into these programs. They're run by the state governments, and we could certainly do much better in Canada.

Mr. Rob Cunningham: Briefly, there are three things in the very short-term agenda that MPs are going to have to examine.

One would be Bill S-13, if it's adopted by the Senate and goes to the House of Commons for consideration and private members' vote.

The second is regulations under the tobacco act, which, unusually, will have to be considered by the Senate committee on health. All MPs will have an opportunity to influence the policies that are made: better warnings, dissemination of information, plain packaging, and controls on marketing.

The third is the proposal that is anticipated from the Minister of Health, Allan Rock, to weaken the sponsorship restrictions found in the tobacco act. I know the Reform Party and the New Democratic Party have already spoken in opposition to that. This is a measure that you would expect we would oppose, but it is a measure that is expected to be on the short-term agenda of Parliament.

The Vice-Chair (Ms. Paddy Torsney): Thank you.

Mr. Riis.

Mr. Nelson Riis: Thank you. I have a supplementary question to that point, if you don't mind. What increase would be required in a carton of cigarettes to equal the amount of money presently spent by the tobacco companies on cultural and sporting events?

Mr. Rob Cunningham: Per carton? We could get probably about 25¢ per carton.

Mr. Nelson Riis: So by increasing the tax 25¢ per carton we would equate all the money spent by tobacco companies on sporting and cultural events, which would then enable the federal government to sponsor those events and get credit for it as opposed to Rothman's or Player's.

Mr. Rob Cunningham: That's correct, or you could have a quick anti-smoking theme in terms of the messages that were disseminated.

Mr. Nelson Riis: I would think it's just good politics. If I was a Liberal, I would say this makes a lot of sense. Wouldn't it make sense for any government to take credit for supporting all of these cultural and athletic sporting events, front and centre, by simply imposing a 25¢ tax on a carton of cigarettes—not a package, a carton?

Mr. Rob Cunningham: That would certainly be a solution we would support.

Mr. Nelson Riis: Thank you.

The Vice-Chair (Ms. Paddy Torsney): We'll make sure that Senator Kenny gets a copy of the minutes this evening.

Mr. Pillitteri, you had a question.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you. Since it took me so long to get here, I figured I might as well come in for some reason, and that is to ask a question.

Thank you, gentlemen. I didn't hear your presentation, but I've heard your presentation before.

Somebody asked a question about those kiddy packages. I think it was our government that allowed those, for his information.

Mr. Scott Brison: I'm older than that, anyway.

Mr. Gary Pillitteri: It bothers me that in one answer you gave this committee relating to the Americans, the lawsuits, and what they cost the tobacco companies, you said we certainly could do better here in Canada. Do you have statistics of what is the percentage of youth smoking in the United States and the percentage of youth who smoke here in Canada?

Mr. Ken Kyle: In Massachusetts and California?

Mr. Gary Pillitteri: I meant the whole of the country, not specifically one state.

Mr. Rob Cunningham: I'm not able to give you, with certainty, numbers where the methodologies would be comparable. But the studies I've seen have had a lower rate of youth smoking in the United States. For teenagers in Canada, 15- to 19-year-olds, there is a survey showing 29%. In Quebec there is a survey that showed in 1991 it went from 19%; in 1996 to 38%.

• 1650

Mr. Gary Pillitteri: In other words, what you're saying and what I'm hearing is we're cherry-picking.

I like to use the word “cherry” because I'm promoting cherries.

From the last report I had, I thought the number of smokers in Canada was less than in the United States overall.

Mr. Rob Cunningham: Was that including adults?

Mr. Gary Pillitteri: Yes.

Mr. Rob Cunningham: Including adults, I think Canada's per capita consumption is somewhat lower than in the United States.

Mr. Gary Pillitteri: Also, if I understand it, in the specific years 1995 and 1996, our youth were even lower than that of the United States.

Mr. Rob Cunningham: I don't have information that confirms that.

Mr. Gary Pillitteri: Having seen part of the bills Senator Kenny wants to bring forward, I hope—today I don't have to be nice—there's also some funding there. It's always nice to spend somebody else's money, and that is exactly what Senator Kenny's bill is doing. I hope there will be some funding for your organization in there too.

Thank you, Mr. Chair.

The Vice-Chair (Ms. Paddy Torsney): Did you just call me Mr. Chair?

Mr. Gary Pillitteri: Ms. Chair. I won't call you honey.

The Vice-Chair (Ms. Paddy Torsney): Really. Thank you.

Mr. Solberg, did you have another question?

Mr. Monte Solberg: No, thank you.

The Vice-Chair (Ms. Paddy Torsney): Thank you very much, Mr. Kyle and Mr. Cunningham, for your presentation.

I wonder, colleagues, if we could have a motion to include this as exhibit A.

Mr. Nelson Riis: I so move.

The Vice-Chair (Ms. Paddy Torsney): The motion would read that:

The cigarette package sample tabled by the representatives of the Canadian Cancer Society be filed as exhibit A of the Standing Committee on Finance.

(Motion agreed to)

Mr. Nelson Riis: Will this be filed with our report?

The Clerk of the Committee: No, it will be with the clerk. It's an exhibit.

The Vice-Chair (Ms. Paddy Torsney): Exhibits sit with the clerk, I guess.

Mr. Nelson Riis: This may be silly, but if it isn't, why not accept the motion that when we report from our committee we include this exhibit? Is there any reason why we couldn't or shouldn't do that?

The Vice-Chair (Ms. Paddy Torsney): Why don't we ask the clerk?

The Clerk: The clerk would like to take that under advisement. I think it's very hard to put a cigarette package on the Internet, unlike most of the report.

Mr. Nelson Riis: You can't put this piece of paper on the Internet. Is that what you're saying?

The Clerk: We could try putting the picture on.

The Vice-Chair (Ms. Paddy Torsney): The main reference for this package is the duty paid logo. That's the main part that needs to get in. Why don't you get back to us on that?

The Clerk: Yes, I will.

The Vice-Chair (Ms. Paddy Torsney): Thank you, Mr. Riis.

We'll now suspend this meeting until 7 p.m. Thank you.

• 1653

• 1905

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

Tonight we have the pleasure to hear from the Canadian Labour Congress and the Canadian Federation of Independent Business. Representing the Canadian Labour Congress are Mr. Kevin Hayes and Mr. Dick Martin, secretary-treasurer; and from the Canadian Federation of Independent Business, Mr. Garth Whyte, vice-president, national affairs.

Each organization will have approximately 10 to 15 minutes to give sort of an overview of their statement, and then we'll proceed to a question and answer session.

We will begin with the organization listed first, the Canadian Labour Congress.

Mr. Dick Martin (Secretary-Treasurer, Canadian Labour Congress): Thank you, Mr. Chairman.

Kevin Hayes is our senior economist, who specializes in unemployment insurance, and I am secretary-treasurer, one of the four officers of the Canadian Labour Congress. We're pleased to present our views to this committee on unemployment insurance provisions in this bill.

We have grave concerns about the two-year UI premium holiday for business hiring workers under 25 years of age, which is part 2 of this bill. We fear this measure is a first step in a process to exclude young workers from UI entitlement. This measure fits with a pattern of UI changes that have been made since 1994 and that have had devastating consequences on workers in our communities.

The unemployment insurance program is vitally important to all working people. The purpose of unemployment insurance is to address the fundamental insecurity all workers face in a market economy.

The purpose of a UI system is to reduce the economic risk of unemployment. It is the single most important countercyclical program, as it stabilizes incomes of individuals and communities during recessions.

UI has been at the centre of this government's budget since 1994, when it introduced its first round of UI cuts. Together with more and deeper cuts under the EI Act, UI benefit coverage continues to drop each and every month. Today, only 40% of the unemployed receive UI—I underline 40%. As more and more unemployed are excluded from UI, total benefit payments have plunged from $18 billion five years ago to $10 billion in the current fiscal year. We realize that this is not what the government is forecasting, but we are certainly willing to review with you budget projections since 1994 with actual expenditures.

With premium revenues at $19 billion a year over the past five years, enough to finance a program that was extinguished with the EI Act in 1996, the annual surplus has mushroomed to $7 billion a year. The cumulative surplus will exceed $20 billion by year-end.

The key issue that needs to be addressed is not premium holidays or even the premium rate for next year or future years; the real issue is the disgracefully low level of insurance protection for the unemployed and the use of UI money to finance the government deficit and debt.

Youth have been hit hard by those cuts. The first call on the surplus should be an improvement in benefits and a restoration of unemployment insurance. UI premiums should be used to pay for UI benefits. Premium payers must have a guarantee that their premiums are used only for UI benefits. UI must be treated as a trust that is secure. We want a separate UI fund that cannot be used for financing the federal deficit.

The program, as it now exists, bears no resemblance to the purpose of an unemployment insurance system: protection of the unemployed. Nor does it bear any resemblance to a fair and balanced approach to the financing of a UI system, including stable premiums.

The loss of insurance for 60% of the unemployed has been rapid, dropping almost a full percentage point each and every month since 1991.

• 1910

In 1990, before the major cuts in the benefits to the unemployed started, 87% of the unemployed received UI. By 1994, when this government launched a third round of cuts in its first budget, Bill C-17, 62% of the unemployed were covered. By July 1996, when the Employment Insurance Act became law, only half of the unemployed were receiving insurance benefits.

A table on the last page of this statement on page 9 shows a loss for each fiscal year since 1989-90. The decline in several provinces is even more rapid than the national average. In the five provinces, the percent receiving UI is already well below and they are so named.

By the end of the current fiscal year, we predict two-thirds of the unemployed will be without UI. The unemployed who do qualify will face penalties and clawbacks.

According to the government's recent monitoring assessment report of EI's first year, it is puzzled about the continuing drop in the portion of unemployed receiving benefits. It is very strange indeed that they're even wondering about it. There is no mystery to this at all. The program was designed to make it very difficult for part-time and seasonal workers to qualify and there are no features in the new EI program to cover new and growing forms of employment. In raising the minimum hours a week from 15 to 35 hours, some 500,000 part-time workers who qualified under the old UI system will fail to qualify. Even for those with less than 35 hours who do qualify, the length of the claim is shorter because of the higher entrance requirement.

Over the past ten years an increasing portion of jobs have become non-standard. For example, part-time jobs as a proportion of the total employment, mainly young people and women, increased from 16.6% in 1989 to 19.4% in 1997. Women working part-time have increased from 23.3% in 1989 to 25.5% in 1997.

Self-employment accounted for 87% of the 931,000 new jobs created between 1989 and 1997. The self-employed are not protected by UI. That was a startling statistic, Mr. Chairman, we came by.

Moreover, cuts to UI and other social programs have effectively delinked the federal government from future fiscal obligations. When Canada next enters a major recession, a smaller share of the unemployed will qualify for UI benefits and there will be no increase in federal transfers to the provinces for social assistance.

The changes to UI since 1994 have transferred the burden and costs of unemployment onto individuals and their families. Like many of the other government abuses of UI since 1994, employer premium holidays are a grotesque distortion of unemployment insurance.

This is the third premium holiday for business since 1993. The former Conservative government set aside $500 million for 900,000 small businesses to create 320,000 jobs. We don't know how much of the money was spent, but we do know that only 58,000 new jobs were added to the payroll of small business in 1993. To our knowledge, there never was an evaluation of this program.

The second premium holiday, the New Hires program announced in 1996, has been in place for a year. Again, there is no evaluation of this program, not even in the government's recent monitoring and assessment report of EI's first year.

The New Hires program, designed for businesses paying less than $60,000 in employer premiums and costing $465 million over two years, exempts all premiums for newly hired workers in 1997 and part of the premiums for 1998. For firms that pay rock-bottom wages, that is, minimum wage, the government bragged that a company with 100 full-time employees could be eligible for up to $10,000 in the premium holiday.

We are more than skeptical that the UI premium holidays had anything to do with 1993 job creation numbers or last year's job numbers, but the most recent holiday for employers to hire workers under 25 years of age can have displacement effect on older employed workers.

Employers were given sweeping powers over their workers with the changes to the UI rules around voluntary quits and firing in the EI act. The onus of proof of just or unjust cause is on the claimant, not the employer or the commission—a heavy price, indeed, in terms of social cost, and it is still being paid for by the cuts.

• 1915

Ironically, young people have been obliged to bear a large share of the burden of public debt reduction in the form of increased student debt and very high rates of unemployment, even among the highly educated. The impact of UI cuts on young workers is probably even greater than it is for others. Only women, as a group, may be hurt more. With the increased qualifying hours for new entrants, from 300 hours to 910 hours, the dollar loss to young workers is in the hundreds of millions of dollars.

In 1992, 450,000 young people from 15 to 24 years old received UI. That's 16.6% of all UI recipients. They received $2.5 billion in UI benefits, and 20% of these claimants had dependants. These cuts have often been justified in terms of reducing the debt burden passed on to future generations, yet it is these future generations who will bear the burden of forgone investments that would have expanded our future capacity to generate income and wealth.

Reduced investment in training and education at all levels will result in slower growth in the future, and some of the biggest cuts have been in training. In just three years, the combined cuts in federal training dollars from both UI and the consolidated revenue fund exceeded $1 billion a year. That's gone from $2 billion a year in 1993-94 to $1.1 billion a year in 1996-97.

If expenditures are held at this level, the cumulative training cuts between 1993 and 2000 will be over $4 billion. This is over and above the $2.3 billion cut from federal support for post-secondary education. The cut in UI training dollars has come entirely from the income support portion paid to UI claimants for training. In 1995, nearly $1 billion was paid in UI income support for training; last year, only $365 million of income support was paid to the unemployed for training.

With regard to better insurance protection, several basic benefit improvements are vital. First, increase benefit coverage from the current 30% of the unemployed to at least 70%. UI benefits should be equivalent to 60% of the claimant's weekly earnings. There should be an immediate repeal of the divisor formula and intensity rule.

With a surplus that amounts to nearly two years of regular benefit payments, there's lots of room for making these improvements and maintaining a stable premium rate for the next six years. Put more specifically, the annual surplus of $6 billion to $7 billion through the fiscal year of 2000-01 means that the annual payments to the UI surplus are equal to the yearly payout of regular benefits.

The surplus that has been built over the past four years by deep and permanent cuts to benefits bears no resemblance to the purpose of the unemployment insurance system, which is the protection of the unemployed. Nor does it bear any resemblance to a fair and balanced approach to the financing of the UI system, including stable premiums.

The distortion and weakness of insurance coverage is underscored by HRDC's own forecast of expected surpluses at various premium rates and unemployment levels. Even at very high levels of unemployment, the surplus keeps growing.

For example, at an unemployment rate of 7% to 8%, well below anything we have seen in the 1990s, and with a very low premium rate, the surplus would still grow to $29 billion by 2003. At unemployment levels of 10% or 11%, and at still very low premium rates, the expected $20 billion surplus would hardly be touched over the next six years under current program rules.

Even when the UI fund should have been running a deficit throughout the 1990s and when unemployment was running at the unacceptably high rates of 9% and 10%, the cuts were so deep that the current surplus kept piling up.

The CLC did support and continues to support a strategy to keep premium rates relatively stable over the business cycle, but protecting unemployed workers must be the number one priority of the fund. Both of these objectives, we believe, are achievable.

Young people have borne the major brunt of recession and cuts in the form of lost job opportunities, and a premium holiday to employers is not the way to redress the jobs crisis. Increased federal investment in post-secondary education, training, and retraining should be a priority.

In our pre-budget submission last fall, the CLC outlined its approach to job creation. Playing around with UI premium giveaways was certainly not among any of our recommendations.

• 1920

Youth unemployment is still above 16%, well above the 11.2% in 1989. General unemployment in 1997 averaged 9%. It is still well above the previous cyclical low rate of 7.5% in 1989.

We did say in that brief that if Canada is to have a better job creation record, then we must maintain a combination of relatively fast growth and low interest rates. This means rejecting the destructive theory that high unemployment must be deliberately maintained to secure low inflation. It means moving from cuts to major new investments in our social and economic well-being.

If the economy continues to expand and create jobs, and interest rates remain low, then we will reap a significant fiscal dividend. The debt will erode rapidly as a share of the economy, and new resources will be made available for spending on programs.

Victory over the debt and deficit have been proclaimed by the Minister of Finance, and we have indeed moved into a post-deficit era in which new choices will have to be considered and made. It must, however, be emphasized that the books have been balanced at a huge economic and social cost. The burden of the cuts has fallen on many victims, but a disproportionate share has been borne by the poor and the unemployed in the form of directly reduced incomes from unemployment insurance at a time when jobs were simply unavailable for most of those who wanted to work.

The rise in child poverty, which has rightly evoked growing government concern, is directly linked to the massive program cuts and to their economic consequences. We need only look at the importance of the UI benefits to youth in 1992 to understand what these cuts mean in terms of child poverty. Let us not forget that youth includes young mothers and fathers.

For example, because of increasing qualifying hours from 300 to 700 hours, women working part-time are failing to qualify for UI maternity benefits. In 1997 there were 12,000 fewer UI maternity claims than in 1996. The government can boast that the UI fund saved $53 million in maternity and parental benefits in 1997. The premium holiday will not help these young families.

We believe deficit and debt reduction could have been achieved at much lower social and economic cost through more reliance on growth and low interest rates and through selective expansion of public spending—financed in part through higher taxes on corporations and high income groups—in place of cuts.

The deficit could have been eliminated but at a much lower level of unemployment and at a much lower social and economic cost.

Thank you.

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

We'll now proceed to Mr. Whyte, and also, of course, Mr. Hayes.

Mr. Garth Whyte (Vice-President, National Affairs, Canadian Federation of Independent Business): Thank you, Mr. Chairman.

I'd like to thank the committee for inviting the Canadian Federation of Independent Business to present to you this beautiful sunny evening, when we're inside.

The Chairman: We can take it outside, if you like.

Mr. Garth Whyte: Let's do it around picnic tables.

Before you is a copy of some of our research. You should have it. That's what I'll be referring to. I'm going to spend about 10 minutes on that, and then we can discuss some of these points.

I'd like to talk about small and medium-sized enterprises, because we are the experts on small and medium-sized enterprises. Other people pretend to be, but we live and breathe small and medium-sized enterprises.

We've done a lot of research. I'd like to share that with you along with our concerns about the EI system, upon which we made recommendations before the budget. I'd like to then list four issues concerning this EI premium reduction for youth hires, which we think the committee should consider. Perhaps we can discuss this during the ensuing discussion. I think the committee can make a difference on this.

We're a non-profit, non-partisan organization. We have members from all sectors and all regions. We have 17,000 members in Quebec, for example. We have members in every sector. We work on the principle of one member, one vote. We have 89,000 members across Canada and we do 3,000 small business visits a week.

We are continually surveying our members on issues like this, on the New Hires program. So we do have some input on the effects of the New Hires program, which we were involved in designing.

• 1925

Again, I guess we'd have to refute some of the testimony beforehand about job creation. We have done a study on job creation among our members—about their job intentions—using Stats Canada information and our own members' information. I think every MP received a copy. And yes, self-employment is growing, but so is the small business sector. This is Stats Canada information.

The first draft report talks about 78% of all members having less than 5 employees, but page 3 talks about the increasing share...most people criticize and say, “What about total jobs?” If you look at this Stats Canada information, total jobs have been moving to the small and medium-sized enterprises.

On page 4 our research shows that the very young firms and very small firms hire youth at a much higher rate than larger firms. Youth employment is a major priority for us. We've done a survey which—we'll share a little bit of the information—we've sent out to 90,000 business owners on their intentions to hire youth. And we're doing opinion surveys of youth, their relationship with small business and what they're looking for. And instead of being critical, what we're going to be doing is matching youth's expectations with what our members are saying in order to find out some positive examples of how we can improve employment.

I will go to page 5, which I will refer back to when we talk about conclusions. This was just done in October 1997, based on over 10,000 responses, and we got a pretty good statistical picture of which sectors hire people under the age of 24. And when we talk about that, we're also talking about 16- and 17-year-olds. It's important to understand the differences in youth employment by sector when considering this EI premium reduction for youth employment.

The next graph, on page 6, is about the same survey. We asked about our members' expectations. This is the most optimistic they have been in the last decade. This was done before the postal strike and before the ice storm, but our 3,000 visits a week in our ongoing, rolling surveying show that they're still very optimistic. It's a good picture.

And we were not surprised when we saw the significant increase in the employment numbers in December. This survey foreshadowed that.

To page 7 now, we asked this question over and over again. This was not done just by us. We've seen studies by the OECD, by this government and by the provincial governments. On page 7 are the results of us asking our members what factors would encourage them to create more jobs.

The darkest line is the growing firms, the middle shaded line is stable firms, and the white box represents shrinking firms. In every case, the number one and number two criteria for increasing more jobs are greater customer demand and lower payroll taxes, which leads us to employment insurance. That is why we have been focusing on EI premiums. We wanted EI premiums to at least be stable and decreasing to offset the Canada Pension Plan premiums that are going up significantly. That is why we have been focusing on EI premiums year after year.

Again, there are some similarities between our presentation and the Canadian Labour Congress presentation. There is a major gap between what premiums are and what they should be. And on page 8, when we talk about the rate of employment insurance premiums, we show it currently at $2.70, but the break-even rate is between $1.80 and $1.85.

If you look at 1984 to 1990 and forget about the benefit side and just look at the premiums, they were stable, and that's when government was paying a proportion of the premiums. When government pulled out its share, it dropped, and since then it went up significantly and really hasn't come back down to those levels. If it comes back down to those levels, it would put, as Dick Martin pointed out, up to $6 billion a year back into employers' and employees' pockets.

This break-even gap is even higher for employers. If you look at the employer rate on page 9, you see that the current rate is $3.78. The break-even rate is $2.56.

• 1930

That, then, leads us to the point that the Canadian Labour Congress made and we are making. On page 10—and this is information from the Canadian Tax Foundation and also the EI chief actuary—on where our EI premiums go...when I say our premiums, I'm talking about employee and employer premiums. You can see it goes to benefits; it goes to other areas, and we're not questioning those other areas. We've never gone after maternity benefits or the developmental uses side of things.

What we're concerned about is the between $6 billion and $7 billion that seems to be outflowing into other areas. Our numbers are the same. It's going to be about a $19 billion to $20 billion surplus at the end of this year. When is enough surplus enough? Or is this being siphoned off as another type of tax, which hurts job creation?

We asked our members, should it be a separate fund? Again, there are some similarities—and I don't want you to fall off your chairs.

The Chairman: Something's wrong here.

Mr. Garth Whyte: We think the EI fund should be a separate fund. We think it is an insurance fund for benefits, and we think the premiums should be in line with that.

We asked our members—this is probably a response of between 15,000 and 20,000 business owners across Canada—and the majority, as you can see, 74%, said yes, it should be a separate fund; 14% said no; and 11% were undecided. Less than 1% were not interested in the issue. We can break this out for people, if they want it, by their province or even their constituency. We don't have it here, but we could do so later.

As to the impact of the New Hires program, because of the changes to the EI program, which were going to first-dollar coverage—before, if people had to work more than 15 hours, it went down to the first-day coverage—we were concerned that there would be a huge impact on job creation.

We did recommend the New Hires program—and I have copies that we distribute to every business owner on every visit, again 3,000 visits per week, to let them know about the New Hires program—and we asked them about it: 41% said it has a positive impact, 25% said it would have no impact, and 33% were unaware of the program. Of those we made aware, a majority of them are using the program.

We did help design the program to say it should be expanded payroll, because we were concerned about abuse. We did not want it to be a program where you let somebody go and you look like you're rehiring someone. It had to be expanded payroll, so that you're helping employees with more salary or you're actually bringing on new employees. So that's what we tried to do.

We did survey the 1993 program, and in every province the vast majority said it had a positive impact. Across Canada, in terms of the national average, 80% said the New Hires program in 1993 had a positive impact on their hiring plans.

Based on those observations, Mr. Chairman, on page 13, we have the following recommendations leading into the budget, at your committee actually, and also to the Minister of Finance and to the Minister of Human Resources Development.

We thought there should be a significant reduction in EI premiums. We thought the New Hires program should be extended after this year. We thought we should move to a 50-50 split of premiums, because there's over $4 billion that goes to things other than insurance, yet employers pay 1.4 to 1 and we don't think that's appropriate or fair. But we don't think it should be done right away. We think it should be done as you decrease premiums on both employees and employers; we could get it back into line.

We also did recommend a voluntary student premium exemption because, as the CLC pointed out, we did not want to have discrimination against people who may be seniors or other people who may want to work. What we envisioned there is that if someone who earns less than $2,000 and has no intention of claiming EI premiums, they get the money back; employers still have to pay it. We thought if they put up their hand and said that they were not going to be collecting EI—and it had to be voluntary—that should be taken into account.

We're supporting the program, but we have some concerns. One is that they took some of the voluntary student exemption and some of the New Hires program, and they combined it into a program.

• 1935

This leads me to the point I'd like to discuss with the committee. We have some key issues here. We're not sure how this program's going to work or be delivered, and we're prepared to inform people about the program. It's interesting; even when there are huge savings to the business community, it can take up to two years for even the network to understand that it's happening. With the simplified GST, the input tax credit for smaller firms, it still took them two years to understand the program. So it takes awhile to get out there and let people know about it. But we're not sure what to tell our members right now, and we are concerned.

Back to that sector graph, if you look at the primary industries and agriculture, they hire a lot of younger people, yet we now have youth under 18 who are excluded. This could cause a problem. Second, the program has to be simple to understand and it has to be simple to administer. We're still awaiting the design, and they have to be told about it. The example of telling people what was going to happen with CPP a couple of weeks beforehand is not a good model to follow.

If the New Hires program disappears, we think.... We wouldn't be here right now if the New Hires program was extended, because then it would cover everybody.

Fourthly, what about the problems with establishing eligibility? Our concern here is how can a business owner determine if they are hiring an employee between the ages of 18 and 24; how is that going to be implemented? This is a challenge I put to this committee, because an employer does not and should not have the right to ask a person's age when they're hiring somebody, so how can they determine? It's in human rights legislation, and provincial legislation, and correct me if I'm wrong. So how do we, then, determine that this person is between 18 and 24?

First, I want to put on record that we will not be telling our members just to employ 18- to 24 year-olds to get a rebate. We still say hire the best person. But in our youth employment studies, we're saying that co-op education is critical and very important.

These are some of the challenges we all have and that I'm putting forward to this committee. I think we should all work together to try to figure out the answers to these questions.

Thank you very much.

The Chairman: Thank you, Mr. Whyte. I want to pick up on some points, but I guess I'll do it later.

We're going to move to the question area. Mr. Solberg, do you have a question?

Mr. Monte Solberg: Yes, thank you very much, Mr. Chairman, and thank you to the presenters.

This is an interesting debate and it seems to go on and on. The first question I have is that there seems to be a contradiction between the presentation we've heard from labour and the one we've heard from business, and that is the impact of dropping payroll premiums, and I guess in two contexts—one in terms of the New Hires program and the other in terms of just a general drop in premiums overall.

I'm wondering if people on either side would be interested in trying to square this. Maybe I'll put the question to people from the Canadian Labour Congress, who were saying that so far as you can tell, there is no appreciable increase in hiring of young people as a result of the New Hires program. Yet Garth is telling us that, according to their surveys, in fact people are very interested in hiring more young people as a result of this program. How do we square that?

Mr. Dick Martin: Maybe my colleague is supportive, but it's interesting what the federation put forward.... And we're not trying to denounce it, but we are saying that on the basis of the 1993 program, of which $500 million was put forward and they said should create about 320,000, according to government statistics, 58,000 got created, so we don't think that's much of a success. In terms of New Hires, once again there doesn't appear to be an evaluation, so we use the government statistics that come out to put in any brief like this. I'm not saying their figures are wrong; we're from Missouri and we have our doubts.

Mr. Monte Solberg: Right, chances are it could be as much to do with the economy at that time. Certainly the economy now is a lot hotter than it was then, so people are more optimistic. They have more money to go ahead and do these things. Would that make sense?

• 1940

Mr. Dick Martin: Well, in theory it kind of makes sense, but I also look at the graph and try to put myself in the place of business. Obviously it's correct in saying some demand for your product or services is the key element before you do any hiring at all. The second one, of course, according to their graph, is the issue of payroll taxes, of which UI is one.

Do you have anything to add to that?

Mr. Garth Whyte: I do.

Mr. Kevin Hayes (Senior Economist, Technical Services Department, Canadian Labour Congress): The only thing I would like to add is that with respect to the 1993 program, you're quite correct, a whole number of circumstances go around job creation. I think it's outrageous to suggest—as the government did if you look at the budget speech in December 1992, where it was the centrepiece of its job creation strategy—that any business will go out to create jobs because it will get a premium rebate. They go out to create a job because they're going to sell a product or the service.

The bigger worry we have is that it essentially corrupts the whole purpose of unemployment insurance. Premiums are collected to pay UI benefits. Why are we complicating the whole system with all of these bits and pieces? That's what the UI system is for. It's not to create jobs, it's to protect unemployed people and provide special protection for pregnancy, sickness and parental child care. In recent years, it's to provide income support while people are taking training.

Mr. Monte Solberg: Maybe that opens the door to a larger debate, and I don't know whether we have time to get into it right now.

Mr. Garth Whyte: I agree. The EI program is not to create jobs, but it also should not hurt job creation.

Mr. Monte Solberg: Right.

Mr. Garth Whyte: As you saw, the premiums are artificially high. And that money is not going to the fund or to premium reduction, it's being siphoned off into other areas, and we think that's wrong.

The New Hires program, from our position, was a way of alleviating some of the premium burden. Forget about 1993; let's talk about the last two years. Knowing what was going to happen with the Canada Pension Plan premiums...there was an actual net increase in payroll taxes. Every study, and most recently the Mintz study—which has a lot of stuff we disagree with—says payroll taxes hurt job creation. The OECD job study said it hurts job creation. Paul Martin's study came out—I don't know what colour book it was in—and said it hurts job creation.

Our study, not just surveying, says it hurts job creation. The fact that there has been a huge increase in the self-employed again reflects the costs. It's not just employment insurance premiums, it's employment insurance premiums on top of workers compensation premiums, on top of provincial payroll taxes, on top of before-profit municipal and property taxes, on top of CPP. Should I go on?

Mr. Yvon Godin (Acadie—Bathurst, NDP): Interest rates from the bank.

Mr. Garth Whyte: Yes, service fees, you name it, but the before-profit stuff really hurts as a barrier.

The final point is—and I think it's a fundamental point for people to understand, including my colleagues—that some people argue that even if you reduce it, you won't get those jobs back. But everybody agrees that if you keep increasing it, it changes people's hiring patterns. It changes people's decisions because it's just not worth it.

So we're trying to abate that through these various programs like the New Hires program. Ideally, we'd like to see the rate in balance and then we wouldn't have this debate. But the New Hires program was targeted at the job creators, which are the self-employed, the small business community.

Mr. Monte Solberg: I'm wondering whether the Canadian Labour Congress takes a position on the CPP premiums. I think Garth has made a good point here about CPP premiums going up dramatically. Does that sway you at all with respect to the need to have some relief on EI premiums?

Mr. Dick Martin: We have some fundamental disagreement about what we're talking about in terms of payroll taxes. We've always said, as we're saying here, the premiums being paid should reflect what benefits are anticipated or what we want them to be. In answer to CPP, we did not object to the rates going up, although we have objected in terms of some of the benefits they're designed to address in future years.

We had a number of recommendations to strengthen the Canada Pension Plan in order to provide once again the pensions we're trying to guarantee to our senior citizens and those who are about to become seniors.

• 1945

But I just want to go back. We agree here that it should be a fund that is solely for unemployment insurance. We don't have any interest in having inflated premiums, because it affects our members, it affects workers, and it affects the employers. We have no interest in harming employers either, obviously, because we have jobs there. But our first concern is that the unemployment insurance system should go back to the days when it addressed people being unemployed. That's number one.

The second thing is if the premiums now do that, then we'll keep the premiums there. If they have a surplus, then reduce the premiums at that point in time. We do agree it's a hidden tax that is being siphoned off to the consolidated revenue fund to be used to address deficit reduction and debt reduction.

Mr. Monte Solberg: Well, there's no question about that. You'll be happy to know the Reform Party agrees with the Canadian Labour Congress and with the Canadian Federation of Independent Business that this should be hived off and should not be a cash cow for the consolidated revenue fund. We all agree with that.

Mr. Dick Martin: That will be a first.

Some hon. members: Oh, oh!

Mr. Monte Solberg: Yes, well, we do agree on something.

Mr. Chairman, I don't want to take up all the time here, but I—

The Chairman: You won't, because I'm going to cut you off.

Mr. Monte Solberg: Oh, okay.

Mr. Yvon Godin: I don't know if he'd agree with that.

Mr. Monte Solberg: I do want to say, though, that a more fundamental question needs to be addressed, and it probably can't be addressed in the short time we have tonight, and that is what is the purpose of the unemployment insurance fund? You've suggested it's for income support, maternity benefits, training, and also, I guess, true cases of unemployment or situations where people lose their jobs through no fault of their own. That's a more fundamental debate and we should have that at some time, but I'm afraid we probably don't have time for it tonight. So I'll leave it at that.

The Chairman: Thank you, Mr. Solberg.

Did anybody want to make comments about his comment?

Mr. Garth Whyte: You're right; it's a long debate.

The Chairman: Mr. Crête.

[Translation]

Mr. Paul Crête: What strikes me, unlike my colleague from the Reform Party, these are the points where your two submissions converge. If I have a dream, it's that you will say, publicly and after careful consideration, at a press conference, what an acceptable premium rate would be, both for the employers' federation and the unions.

I find that, in both your documents, you could reach a shared conclusion quite quickly. The basic reason is that you no longer wish a major share of these premiums to go towards funding regular government operations. Next, what I understand from your two positions is that you want it to be a fund dedicated to employment insurance, and that alone. I think that you could come up with something interesting. Maybe you'd have even greater striking power than political parties sometimes do.

The question I'm going to ask you and which really concerns me is connected with the table on page 7, where we find the factors that would stimulate employment. As far as greater customer demand is concerned, the government as such cannot really have any effect there, except by encouraging exports and so on.

Tax reductions are a major factor. According to my analysis, the reduction contained in the bill, namely a premium holiday for the hiring of a person aged 18 to 24, especially in small businesses, will not be an adequate incentive to encourage anyone's hiring.

How much, in terms of premiums, is a business going to save by hiring someone at a salary of $20,000? Maybe $800? Is an employer going to create a job that costs him $20,000 in wages, plus administrative costs, to get a premium holiday worth $800?

Wouldn't it have been more to the point if we'd found a way of making this holiday greater for the employer so as to make it worthwhile for him to create a job? Furthermore, the submission clearly says that past experiences have not been evaluated.

So I would like to have your opinion on the matter.

I'm going to give you the second part of my question right away. Isn't there something even more dangerous in the current legislation? It's when someone drops out of the system. That is, when people who are no longer eligible for EI drop out of the job scene. They begin to receive welfare. After six months, a year, two or three years, every day that goes by, it gets harder for you to get back into the job network. You lose touch with the job market. Isn't it paradoxical, on the one hand, to offer a premium holiday for hiring young people and, on the other, to encourage their systematic expulsion from the network?

• 1950

[English]

Mr. Dick Martin: Let me address your first statement. We totally agree with you. You'll see in the brief on page 4 that we said the government bragged that a company with 100 full-time employees could be eligible for up to $10,000 in a premium holiday. That's absolute peanuts if you have 100 employees and a payroll of whatever that comes to. And we talked about minimum wage; we didn't talk about $15 or $20 or $25 an hour.

So I am sure, once again putting ourselves in the small employer's footsteps, that's not going to be your guiding thing, whether you're going to create a job. You're going to take a look at what your sales are now, what your future potential sales are, and make your decision. Maybe if it were a hair-thin decision, it might push you over, but I can't imagine.... If you're operating on that kind of margin, I don't think you have a very viable company that's going to make you take a decision that you're going to save $10,000 in premiums by hiring people.

Mr. Garth Whyte: Well, those are three excellent questions that I'd like to address. First, maybe $10,000 is not a lot of money to the Canadian Labour Congress, but trust me, it is a lot of money.

We shouldn't put all our eggs in employment insurance. If you can get $800 here on one program and $800 on the other program with the Quebec government helping small business with their payroll tax, and if you can get it in Ontario with the reduction in their payroll tax, it starts adding up.

But what we have seen is an increase over and over. We did a study between 1989 and 1993, and a 25-employee firm in Ontario saw their payroll taxes increase by $60,000. Now we're starting to talk some jobs. Also, it's hiring decisions and patterns. It was a psychological issue. If they see things going up all the time, it may freeze them, not because of the money but because they're thinking it's just always going to increase.

I don't understand the logic. If you keep increasing before-profit taxes and you keep increasing taxes on jobs, I don't know how anybody could argue against the fact that that would hurt job creation. We do talk in terms of one firm, but let's not forget that with the slight rate decrease and the New Hires program, it put $1.4 billion back into the economy.

Also, we think government can make a difference with the increasing consumer demand, because what we're suggesting is not just for us; we're saying reducing rates doesn't hurt the deficit, and it puts money back into the employee's pocket and the employer's pocket.

And yes, we would love to stand publicly with the CLC say yes, we'd like to put money back into our members' pockets without hurting the fund, without hurting the current UI program. We'd love to be able to stand up there with them and say yes, we think it is worth reducing the rate, because you know what? To an individual, $200 or $300 is a lot. I would love to do that, and we will do that if the offer is out there, because we think we should be going after lowering premiums.

For every 10¢ reduction, it's $700 million back into the economy. We're talking about $6 billion being taken out of the economy. Now, that's not fair—it's going elsewhere—but at the same time it's taking out of employees' and employers' pockets. So that $800 saving does mean a lot. It means a lot.

More than that, employers are telling us they want to hire youth. Forget about the premium reduction. They want to provide co-op education. They want to do it. This would just give it a little kick-start. We've also found that youth have a very high opinion of employers. Our public opinion surveying is telling us that in the past, people used to say, as a student, “I want to work for IBM” or “I want to work for the big banks”. Today they're saying, “You know, I wouldn't mind working for a small business”. That's an interesting sea change in what people are saying, and we want to build on that.

• 1955

That's what we try to do with this program in which we're offering some support. Everybody's priority seems to be youth employment. This is one more program that might help that, so we are supporting it. We come back to fundamental questions on how we deliver it, how we can make it better to deliver this thing. There's no knock-out punch on these things, but every little bit helps.

Mr. Dick Martin: Just very quickly, Mr. Whyte says he would like to stand with the Canadian Labour Congress on the issue of premiums. We're all concentrating on how much a drop in premiums would save individuals and employers, but we're losing sight of how much money has been taken out of the economy because of the cuts to unemployment insurance for individuals. When they received the full amount back in the so-called good old days, those individuals put money directly into the economy because they got money from unemployment insurance and spent it in their communities.

It's a well-known fact that those at the bottom of the economic scale don't have any savings. They spend all of their money. How many jobs did that generate at that point in time in terms of employers being able to sell products to people who were receiving better unemployment insurance rates than they are now? Consequently, it's not a case of taking money out and putting it in one place. On the other hand, we would argue that treating people fairly and trying to have them stabilize their incomes doesn't only help them individually, it helps the community and helps employers.

What we're simply arguing is that we don't want excess premiums after the amounts have been paid in a proper way and at a proper level to people who are unemployed. The balance of the fund certainly then can be replaced and can go back to the pockets of employers and employees. That's the fundamental difference. The Canadian Federation of Independent Business, as far as I know, never argued strongly against the cuts to UI or the drastic eligibility requirements that were required. We did, and we continue to do so.

The Chairman: Mr. Whyte, did you want to rebut?

Mr. Garth Whyte: Yes, but we're getting into Mr. Solberg's debate.

We think it's ludicrous to, in a sense, take money out of people's pockets so that you can put it in other people's pockets in order that they can spend it to give it back to us again. We are on record saying that you should help those who are truly in need. We are on record saying that, with those fundamental changes, there's some money that should be used for some transitional measures to help those who experience systemic problems of getting work. But we also said the system should not encourage people to, as the gentleman from the Bloc said, not get a job. They should be there to encourage people to survive, and to find ways to help get a job. We think the number one social program is a job. We're trying to find ways to help those in need and, at the same time, to get a job.

Also, the debate today is about the premiums. This is not to do the things that are being suggested. That would require major changes to the legislation, and will certainly be there again if they want to open up the legislation again. But that debate's gone on. Right now, we're dealing with the premium level.

The Chairman: Thank you, Mr. Whyte.

We're going to go to Mr. Hayes, and then we'll go to a very brief question by Madame Gagnon.

Mr. Kevin Hayes: I think we have to get our arithmetic straight here. When Garth talks about the $6 billion staying out of the economy, it's $8 billion that has been taken out from benefits going to people. When you take $53 million as a very small example, the UI maternity benefits of women who are working part-time and who would have qualified just two years ago but who do not now qualify, that's a hell of a big impact on that family and community. That's not helping the people most in need.

The $53 million is going to go to pay the $100 million premium presumably to hire youths. Well, if we're talking about fairness and balance here, let's look at how we're robbing Peter to pay Paul. What we're doing is robbing these most vulnerable workers in the way the benefit structure has been set to turn around, and we're going to give premium rebates to business. I mean, there's just a gross unfairness to it.

Mr. Garth Whyte: Sorry, but the surplus is $19 billion. You're talking about $50 million. To say that this program is taking from that, I just don't agree.

Mr. Kevin Hayes: But the thing is, if the program is where it should be, if it's covering 70% of the unemployed, it would cost $18 billion a year. That's not what it's costing. It's down to $10 billion this year because of the cuts in benefits over the last six years, starting basically in—

Mr. Garth Whyte: People are also employing now. There are fewer people on unemployment as well.

Mr. Kevin Hayes: Yes, because they're on welfare and at food banks; that's where they are. Increasing child poverty is related to these kinds of cuts to unemployment insurance benefits. It's really the most nasty kind of nickel-and-dime stuff to talk about taking money from essentially the most vulnerable workers to give to business in the form of premium rebates.

• 2000

The Chairman: I'm glad the clerk scheduled your organizations together.

Voices: Oh, oh.

[Translation]

The Chairman: Ms. Gagnon, do you have a question?

Ms. Christiane Gagnon (Québec, BQ): I find it very stimulating to hear what you have to say to us today, particularly since we, from the Bloc Québécois, have worked very hard on the issue of EI. My colleague Paul Crête and I are on the Human Resources Development Committee. We have tabled six bills which converge in some areas with the remarks contained in your two submissions, notably with regard to the relaxing of criteria, the duration of benefits, a different fund, and so on. We also want more transparency on the part of the government and lowered premiums.

So let's go back to the report done on the impact of the new measures taken by the government. We would have liked, and I hope you're going to convince them of it today, to work as part of a committee on this report to be able to analyse its seriousness, especially after one year's application of these new measures.

This report leaves a lot to be desired. For instance, it says there were fewer benefits paid to pregnant women. The report theorizes that there were fewer women pregnant and that, in the spring interruption, people didn't have any trouble managing for two weeks.

Therefore, we are very dissatisfied. However, you've provided us with a few answers, a few things to think about in your papers this morning.

What I'm asking you, and what we have asked in the House, is whether the Minister could have gone any further in his thinking. As far as he's concerned, he still says he's happy, that analyses have to be done, but that he hasn't got quite enough data. Do you think he had enough data to go any further in evaluating the measures taken?

The report dealt with the first year's implementation of these measures. Do you think that, after one year, a much more pointed analysis could have been done of the impact of the new measures? We're very dissatisfied.

This is something that could be observed and whose impact on society we have seen. The impact has been terrible. In my riding, in Quebec City, there is an area of great poverty in which people end up on welfare too quickly.

Could the Minister have gone any further with the data he had on the situation, which can be observed daily? Do you think he had enough information to go any further?

[English]

Mr. Kevin Hayes: Oh, absolutely. They could commission the special surveys by Statistics Canada and so forth. In fact, the Canadian Federation of Independent Business here is doing its own survey. It's an opinion. If somebody is asking people if they want a handout, most people will say yes. And that's the kind of predictable answer you'll get.

But there are ways of getting at the impact of the 1993 program. I think it's outrageous that half a billion dollars was set aside. We don't know how much of that $500 million was spent, who received it or what kinds of jobs were created, and here we're embarking on a third program. Would you do that with the defence program? Would you do that with any other program? But you do it with—

Mr. Monte Solberg: Don't ask that.

Mr. Garth Whyte: I'd like to say something, because I do think it's unfair, particularly of Kevin.... Kevin and I worked together with the Canadian Labour Force Development Board trying to evaluate all the developmental uses training programs, for example, and we agreed to the same principles. We agreed that all programs should be evaluated. We found that with developmental uses, for example, the majority of the programs were not evaluated. So yes, we would say that the New Hires program should be evaluated.

However, we asked the people who use it—that's a good first step—and it was more than a piece of paper. And you know where we stand on handouts. We don't believe in grants to business. But again, I have to say that we're talking about a $6 billion surplus in premiums. We think it should be lower. I think we could evaluate the fishing benefits as well. I think a lot of these programs should be evaluated.

We also agreed on what it takes to ensure someone gets a job. We should look at those principles. Employment insurance—the name was changed, I believe, because it should lead to employment, not unemployment. So is it a social assistance program or is it an insurance program that helps someone who gets blindsided by losing a job stay on their feet so they can get the next job? Then you have other people who have systemic problems in getting jobs, on whom we need to target programs, which can be done out of general revenues as well.

• 2005

Again, I don't want to get into this deep debate that we've spent two years debating, but there are some principles. We think things should be evaluated. We think what isn't necessary to encourage job creation.... We do not think siphoning off $6 billion encourages job creation. CLC is talking about $50 million. We're talking about $6 billion. It seems that you can do two things here.

Mr. Kevin Hayes: No, I'm actually talking about $8 billion of benefits per year that have been taken away. What I gave was a specific example of $33 million in one little program.

Mr. Garth Whyte: Okay. I stand corrected.

I would also like to talk about this program, the fundamentals of how to deliver this program, too.

Mr. Dick Martin: I don't want to take up the member's time. I just want to accentuate...you obviously can see there is a fundamental difference. We're not talking about all of a sudden giving back a whole lot of money to businesses on the very hope that they're going to create some jobs. We're saying there is a surplus in there, and the first thing to be addressed is to roll back the cuts to benefits out there, and after those issues are covered in terms of the training and such, what the original UI was designed for, then we say, sure, but give those premiums back to business and to labour. We think that's the proper use.

It wasn't set up to be a job creation program. It was set up to be—which we agreed on and pushed a long time ago—an unemployment insurance to address the issue of people being unemployed. If you want to use the tax system to change and encourage employers to hire people, then use the tax system. That's been used forever in this country and other countries. That's another argument. But use the unemployment insurance system specifically for the issue of the unemployed and to pay the benefits. And we don't think there's been a national surge of laziness that has descended upon the country to have people rip off the unemployment insurance system. There's been very little evidence of that before or now.

The Chairman: That's true. It's a point well taken. I'm inspired by your questioning. I just want to say to Mr. Martin that while it's true that there have been some cuts made to employment insurance benefits, it's also true that, which you have to admit, in less than a decade the costs for that program were escalating in an unbelievable manner, to the point where I visited many businesses across the country that were actually competing for labour with people who were on unemployment insurance.

Of course, I don't bring the experience that you have in this particular field, but I'm just wondering whether that's a natural thing to happen in the economy. When a government program is actually competing with the marketplace for employees, that, to me, is a distortion.

Mr. Dick Martin: I'm not sure where you're talking about. But as long as I've been around, we've had a problem with unemployment in this country. You could say the good old days were when 6% was full employment or you had 4% full employment, and I still remember people being unemployed and it was hard as heck to get jobs.

The Chairman: When you look at the average industrial wage—and I want to get very specific here—in the relationship between the average industrial wage and the unemployment insurance benefits, the unemployment insurance benefits were going through the roof. I've seen charts that clearly illustrate this, and I'm just asking whether you think—and perhaps, Mr. Hayes, you can jump in if you like—that's beneficial to an economy, whether it makes sense. Quite frankly, I have my doubts, and I'd like to hear your response.

Mr. Dick Martin: Sometimes it's the old statistical thing, where you can argue about what the heck they actually mean.

• 2010

We've just about always been involved when the government was going to take a look at reforming the unemployment insurance system. You heard all these complaints by various people that it was too rich and that there was no incentive for people to look for work. Time after time we talked to our people from coast to coast, and their answer almost always came back unanimously that people would rather have a decent job at decent wages than ever be on unemployment insurance.

The Chairman: I'm not questioning that at all.

Mr. Dick Martin: Okay, but I guess I'm trying to get the answer. You said it was distorted and that the levels were going too high in relation to the—

The Chairman: To the average industrial wage. Mr. Hayes will agree, because I talked to him about this earlier on.

Mr. Kevin Hayes: The major reason that unemployment insurance has gone through the roof is that unemployment has gone through the roof. Since the major cuts in unemployment insurance, in New Brunswick, for example—I'll use 1993 as a threshold, where they cut more than $600 million in that short period—the unemployment rate has actually gotten worse.

So has this pain and torture on the unemployed increased the amount of employment? No, it hasn't. So I don't know where these competitive arguments come in.

Mr. Dick Martin: Look at Newfoundland.

Mr. Kevin Hayes: Newfoundland hasn't improved, yet the benefits have been slashed by hundreds of millions of dollars.

The Chairman: I don't want to belabour this point, but you would have to agree that in relation to the average industrial wage the benefits have gone up quite a bit.

Mr. Kevin Hayes: The benefits were always historically 50% of average earnings. The earnings formula that was used—

The Chairman: That's of the individual. I'm talking about the average right across the economy. That's where it was going up. It was creating a situation—this is what a sector of our society is saying—whereby people were actually in competition with employment insurance benefits to hire workers.

As you may know—

Mr. Kevin Hayes: That's where people wanted to pay very low wages.

Mr. Garth Whyte: I have to jump in. Here are two things that were facts. First, a study by the government, which I don't think anybody refuted, said that up to 40% of claimants had used EI five times—as for the number of times, I forgot the number, because I didn't know we were going to get into this specific debate—or more in a five-year period. So that says a lot there. That says it was a systemic problem and that people were using it.

Here's another issue that I didn't bring to the table. The fastest-growing priority of concern among our membership has been the inability to find skilled people. In every province, particularly in Atlantic Canada, they're having a hard time finding some of those jobs. And they're not minimum wage jobs. The problem is that it's hard to find those people.

So yes, we want to focus on youth employment and training. So let's get back to the issue we're here to talk about today, which is the way to kick-start youth employment. I'd be interested to answer some questions on that.

The Chairman: Thank you, Mr. Whyte.

[Translation]

Mr. Godin.

Mr. Yvon Godin: First of all, it's a great pleasure to see you here this evening and to hear the presentations by both groups, the CLC and the Canadian Federation of Independent Business.

It's too bad there are four empty chairs on the side of the party in power. But that's the side where the decisions will be made concerning bill C-36. When we broach the subject of employment insurance, there's nobody there anymore. This isn't the first time I've remarked on this. I know it's not appreciated. I can already see that people are beginning to squirm. Anyway, I call it as I see it.

Mr. Paul Crête: Mr. Chair, I want...

Mr. Yvon Godin: What I would like...

[English]

The Chairman: That's a little different, though, wouldn't you say? In the House, it's a little bit different.

Mr. Yvon Godin: Yes, you're right. When it comes time for a vote, you're all going to be there to say no. I understand that.

[Translation]

I would like to begin with you, Mr. Whyte, and talk to you about businesses where I'm from, in New Brunswick.

• 2015

I met with the Chamber of Commerce two weeks ago. We held a public meeting. I had a meeting with the Chamber of Commerce, where we discussed employment insurance. We discussed the harm these EI cuts had caused them. It's not just because of the reduced amounts received by taxpayers or people on EI. It's also because of people who no longer qualify for EI benefits. That's what's affected them deeply, in the changes made to EI.

If there's $14 billion in the employment insurance fund, some people are saying to themselves it's because someone didn't get his money. Who is it? It's the stores, former insurance agents who no longer have a car for their work. People aren't buying insurance anymore. Others have lost their houses, and are moving into apartments. These are all some of the consequences.

Are you able to observe this, in the surveys you do among your members? Are there any who state that, since the changes made to EI, their business has really suffered?

Also, other employers in my region tell me that if they could make a profit by hiring a young person between the ages of 18 and 24, they would be tempted to fire one of their permanent employees in order to make this profit.

Do you think that the provisions in Part 11 are enough protection from such action? It says that anyone acting thus would have to pay the full amount of the premium in question if he were caught. Do you think we should count on people's honesty and that anyone caught cheating the system should be severely punished?

[English]

Mr. Garth Whyte: Thank you for the questions. I'll start with the last question first.

It's very important to design any program to ensure that there is no abuse of the system. That's why it has to be an expanded payroll. It can't be on juggling positions.

And yes—let's talk about grants rather than UI—if government says free candy, we have 30% of members who will say they want free candy or grants, but the majority say no.

Even in New Brunswick they say there's a systemic problem, and the other way of dealing with this issue is, are people in New Brunswick less entrepreneurial than people in the rest of Canada? We argue vehemently and say no, that they are entrepreneurial and they do want to stand on their own feet. For every person who says this is hurting their business, I can give you two who say “We want to stand on our own; just allow us to keep our money”.

It doesn't mean, though, that they can't...and especially if you talk about Tracadie or other places in New Brunswick, if there are systemic problems, our members support dealing with those systemic problems and the training issue. But should this be an ongoing cycle, or should we focus on trying to get people to...? The ultimate principle should be people getting a job. We concerned about this systemic problem.

We don't think EI premiums should be cut to the bone. We think no one should be hurt. At the same time, we are hurting job creation. In New Brunswick they were one of the biggest supporters of the New Hires program, very big supporters.

And no, we do not advocate moving one person to get a program. As a matter of fact, we have publicly gone out and stated against that, and we don't advocate grants. At the same time, we are strong proponents of job creation and entrepreneurship and new businesses, and we're pretty confident in New Brunswick. I've been there three or four times this year. In some regions, they're starting to pick up and they're starting to go pretty well.

Now, back to the Chamber of Commerce, if you asked me a question about the bank merger, our position on the bank merger question would be different from that of the Chamber of Commerce, because we don't have banks as members. So on different issues, there are different—

Mr. Dick Martin: Neither do we. We agree on that one.

Mr. Paul Crête: Another one.

Mr. Garth Whyte: At the local chamber, a lot of those people are members of ours.

The Chairman: Mr. Godin.

Mr. Yvon Godin: We're talking—and especially you, Mr. Chairman, have made the statement—about people abusing the system of EI—

The Chairman: I never made that statement.

Mr. Yvon Godin: —or something along those lines—

The Chairman: No.

Mr. Yvon Godin: —that they're getting paid too much and they're—

The Chairman: No, I never made that statement.

Mr. Yvon Godin: Well, could you make the statement again, then?

The Chairman: The statement I made has to do with the possible economic distortion that exists when a benefit is indexed at a higher rate than the economy can absorb. It's an issue that I've been dealing with for approximately eight years.

Mr. Yvon Godin: You were talking about the competition, though, the competition between the EI people and—

• 2020

The Chairman: Exactly. There were witnesses across the country, before you got here, who stated that was a problem they faced. I had witnesses in front of me and I think asking their opinions on this issue was a responsible thing for me to do.

Anyway, ask your question.

Mr. Yvon Godin: I want to say that it is known in New Brunswick, for example, that EI has been affecting the people so much in the Atlantic provinces, and because we don't have big industries and this and that, and we have a lot of seasonal work and everything, it hurt the people so much that even the human resources minister said openly, on the news and everything, that it hurt them so much that they had to give people special programs. They call it expérience rurale, or rural experience, and that completely competes against the industry. I don't know if you heard about it.

Mr. Garth Whyte: Yes.

Mr. Yvon Godin: The reason for it is to send people to work for 26 weeks and send them back to EI, because they can't afford—

Mr. Garth Whyte: They're playing the system.

Mr. Yvon Godin: Okay, do you agree with me? Did you hear those statements?

Mr. Garth Whyte: Yes.

Mr. Yvon Godin: Thank you.

The Chairman: I guess we'll go to Ms. Redman—

Some hon. members: Oh, oh.

The Chairman: —who has the rest of the evening now.

Mrs. Karen Redman: Thank you, Mr. Chairman, but I would be willing to share with my colleague. I'd like to ask Mr. Whyte a couple of questions, if I may.

In one of your earlier responses, you talked about hiring patterns, and I've heard other witnesses worry about the age sensitivity to this “holidaying”. You've mentioned it yourself. Do you have other suggestions as to how to target hiring?

I agree: I don't think an EI holiday is going to create jobs. I've said the same thing that your survey bears out, that if there's customer demand, they will, but this may be an incentive to target that age group.

Mr. Garth Whyte: There are a couple of things I think the committee should discuss. First, we're making a cut-off at 18, so we need to look at the principles of what you're trying to achieve. What about 16- and 17-year-olds? That's one side of the spectrum. With human rights legislation, under both the Canada Labour Code and the provincial codes, when you're hiring someone you can't ask how old that person is, and I don't think you should. You can't ask how old they are, so it's very difficult to implement a program like that. You can for the next year and the year after, because once the person is hired, you have to know their age.

Mrs. Karen Redman: That was going to be my question. I know the ages of all my employees.

Mr. Garth Whyte: You have to know once they're hired, but when you're hiring, you can't assume...if there are two candidates and one is 25 and one's 24 and you hire the 24-year-old, you're in big trouble.

Mr. Dick Martin: The 25-year-old, you mean.

Mr. Garth Whyte: Sorry, you're right. Well, no, you hired the 24-year-old and the 25-year-old says that you hired that 24-year-old for the program—

Ms. Karen Redman: Because you get the—

Mr. Dick Martin: Oh, I see.

Mr. Garth Whyte: So that is a problem we have to fix. Back to our statement, we want a program that's above board, that can't be played by people and that hits the target. I don't really have the full answer for you. I have the question, but—

Mrs. Karen Redman: Do you think there should be any surplus in the EI fund?

Mr. Garth Whyte: We did. I remember meeting with Mr. Martin on several occasions and asking him.... First, during the recession, when the EI fund was below.... Actually, I want to do another graph. If you took the employee premium, you could do a graph of where the surplus and deficit followed those premiums. There would be a deficit around 1992—I forget what it was—and the highest it got was $6 billion. That was the height of it in the old program. And now we have changes to the benefits. The surplus keeps growing now, so we've said it'll be $6 billion to $10 billion. We've passed that. It's now at $19 billion and growing. But the fact is that there is no surplus.

Mrs. Karen Redman: But you would say that a surplus of $6 billion to $10 billion is a comfort zone that is going to protect the people who will be the recipients of this benefit?

Mr. Garth Whyte: No, actually, the benefits are there. They're going to be paid. We're talking about keeping the fund in equilibrium. The actuary said that over a period of time...actually, he was misquoted. Talk to the person, call him in. He was misquoted as saying it should be today, but it was over a period of time that the most we would need would be $10 billion. We're well beyond that now. My question is—

Mrs. Karen Redman: That's not my question. My question is, yes, we should have a surplus—

Mr. Garth Whyte: Yes.

Mrs. Karen Redman: —and you're saying the comfort level from your perspective and what you know is—

Mr. Garth Whyte: It's $10 billion. We said $6 billion, but now you have $19 billion.

• 2025

Mrs. Karen Redman: Looking at the two graphs you supplied us with, the employer EI rate as well as the employee EI rate, do those take into account the kind of surplus that would be a prudent buffer to have for this benefit?

Mr. Garth Whyte: If you dropped to the break-even rate this year, you would still have a $19 billion surplus. You have a surplus now. If the fund were a separate fund, at the end of this year there would be a $19 billion to $20 billion surplus. So now each year we're putting on another....

We can show you the tables. We both have the same information, which makes assumptions by employment levels and what the break-even rate was. Last year the break-even rate was $2. It's going down. So this is aside from the money that's been accumulating the last two years.

Our concern is that eventually the surplus will get so great that there will be a stroke of the pen and it will be moved. There will be nothing. It will just move into general revenues. So our question back to the government is when is it enough? When is there enough surplus? At $19 billion, $25 billion, $30 billion? When is it?

Mrs. Karen Redman: Has your membership looked at the kind of benefit that accrues to the business sector? I would tell you that I would totally agree with everything I've read: small and medium-sized business is definitely the growth sector. Have you tracked the kind of benefits that accrue to those types of enterprises by not having a deficit and by having a balanced budget, one that the economy can—?

Mr. Garth Whyte: Yes, we have. To answer your question, our members are very supportive of a balanced budget and reducing the debt. We're putting out a four-page survey on tax.

But again, our response is to ask a question. Are we saying that the EI premium is no longer an EI premium, but a premium for deficit reduction? I don't think the public knows that. I think they think they're paying their taxes, which are quite high, to deal with the deficit, and the EI premiums are to deal with the EI fund. Now, if there's a policy change that the EI surpluses should be used to reduce the deficit and other things, then we should declare that to the public, because most people don't know that. We are currently surveying our members asking that very question.

Mrs. Karen Redman: You've also talked about the cumulative effect of payroll taxes and CPP. Have you done any surveys as to the benefit of having a CPP plan that's stable and long-lasting?

Mr. Garth Whyte: Yes, we made a presentation to this very committee. We did a survey, again of our members, and we worked with the provinces and the Department of Finance. We did a four-page backgrounder that condensed a 60-page white paper and a four-page questionnaire giving them the choices. Our members were prepared to see a premium increase. We had a split between reducing benefits and increasing premiums, depending on what age they were. So they were just like the public. We did those things.

But again, this is how we deal with things. We deal with them in isolation. At that time CPP was dealt with as a pension issue, not a payroll tax issue. They're not dealt with in tandem. We have this big space here of a surplus, a gap. That could have been offset to CPP premiums. Even the premiers came forward unanimously saying we should lower EI premiums to offset the CPP increases.

So yes, we do have a very strong vote, and we have linked it. I'm a member of the Retirement Income Coalition dealing with pension reform. Again, we're saying look at the full picture, not just CPP. Look at seniors' benefits and RRSPs.

Mrs. Karen Redman: I would agree, and I think the government is taking that tack too, looking at a three-pillar approach to retirement.

Mr. Garth Whyte: We're working with the government.

Mrs. Karen Redman: Can I have more questions?

The Chairman: If you like. You're the last questioner.

Mrs. Karen Redman: I'd like some clarification from Mr. Martin on page 8, on two things actually. Maybe only one of them is on page 8, sorry.

You say victory over the debt and deficit has been proclaimed by the Minister of Finance. I would like a little clarification, because I certainly haven't heard Minister Martin say we've wrestled the debt. As a matter of fact, this government has undertaken to continue to pay down that debt. I just wonder what you're basing that statement on.

Mr. Dick Martin: Mr. Martin has basically said the debt is not a great big problem in terms of growth of the economy and the ratio of the debt to the growth in the economy. He certainly has not hit the panic button at this point in time, as he did with the deficit, saying it has to come down immediately.

I think there has been general—well, some—agreement between some quarters, and we agree with the position, that the debt is not this great big looming emergency. And it seems to us that Finance Minister Martin is along that same line, saying, yes, it has to be reduced, but it's going to get less and less so it's not a real problem any more.

• 2030

Mrs. Karen Redman: But you do feel that the debt needs to be addressed.

Mr. Dick Martin: No, we don't think it has to be addressed at this point in time, because we agree with those sources that say the debt-to-GDP ratio is going to be reducing and it is not a serious problem because as long as it keeps going in that way you don't have to take massive amounts of tax money and throw it at reducing the debt.

Mrs. Karen Redman: One final question, if I could.

The Chairman: Absolutely.

Mrs. Karen Redman: You mention on page 5 the reduction of investment in training and education, and it's something Mr. Whyte mentioned as well. I would like to ask what's the role you see for labour, if any, in that whole process.

Mr. Dick Martin: I'm sorry, in what process?

Mrs. Karen Redman: The investment in training and education. We keep hearing about the shortage of skilled labour, and in your referencing here the investment of the government, I'm asking you what you see as the role for labour in that.

Mr. Dick Martin: We certainly see ourselves as hoping to be invited to the table in terms of the design of some of these programs and in fact in some cases delivery of the programs. For example, we've been strong advocates on the apprenticeship program and it seems to go all over the place, although we are involved in some training programs and trying to set it up at this point in time through a government grant. But we see ourselves bringing a lot of knowledge, in particular from our affiliates who have knowledge of the jobs in terms of training and also the apprenticeship programs. Also, of course, we represent all the community college teachers, who would love to have some input and participation in the design and, once again, the delivery of these programs.

We have a lot of people now in the elementary and secondary schools sector—I'm talking teachers now—who, once again, feel in many cases they're frozen out of the system and are simply dictated to as to what's going to be taught, how it's going to be delivered and the design of it. So we don't feel as much involved as we should. In fact, we're a long way from being as involved as we should in the design and delivery of these programs.

Maybe Mr. Hayes has something to add to that.

Mr. Kevin Hayes: Our concern, as expressed during the brief, is the cut in investment and training, particularly the income support for unemployed workers to retrain. A billion dollars is a lot of money per year to take in income support for training, and at $4 billion that's going to be approaching twice the millennium fund and it's only in the endowment. Remember the millennium fund's only paying out, as I understand it, $300 million a year for 100,000 scholarships.

The big issue here is what about the training of unemployed workers? The whole EI thing is predicated to some extent on the basis that more money could be put into training, and that's not what's happening. They cut that too. So $4 billion is going to be added to the UI surplus.

Mrs. Karen Redman: But there's no role. When I said “investment”, I meant monetarily. The labour sector doesn't see or feel the need to do any kind of tangible investment? You talk about having a role in it, and I agree, and I've seen some really wonderful programs involving sectoral interest. But there's no sort of financial role that fits your—

Mr. Kevin Hayes: There is a financial role in the sense that in the auto industry we negotiated recently a big training fund, and we've done that in a number of sectors. Steel, as you point in sectoral initiatives, a number of.... But at the end of the day, the money has to come from really two sources: the employer and the taxation. We have advocated a training tax, and I know the CFIB doesn't like that one.

A training tax is really needed because we're not having the investment in training we need, and the scary part is that the part that was there for unemployed workers is not there now. And since devolution is under way, the provinces obviously don't have the bucks. The training is dropping. Tuition is skyrocketing in community colleges. Private colleges are growing hand over fist and are charging enormous tuition fees. So not only are we going to have unemployed workers under the skills, loans and grants...but they are going to have to take out a loan to get training.

• 2035

Mr. Dick Martin: We do agree with the CFIB that there is a lack of training, and we do know employers are yelling about not finding people with the proper training. That is absolutely correct. We do agree with that.

Perhaps the disagreement is how you go about doing it. But we have to get into training in a much more serious way, pinpointing trades, technical, and in some cases professional....

Mrs. Karen Redman: Thank you.

The Chairman: Mr. Valeri.

Mr. Tony Valeri (Stoney Creek, Lib.): Thank you, Mr. Chairman. I'll be relatively brief, considering that the clock is ticking and it's just beyond 8.30 p.m.

I certainly want to state for the record that the issue on the debt is to be debated with respect to the debt-to-GDP ratio, since that is the measure that most countries use with respect to their debt burden and that's how the markets look at it as well. But I would not in any way characterize the finance minister's view on the debt as being not a priority or anything along those lines. The debt is certainly a priority and the debt-to-GDP ratio is certainly a priority for this government as part of the fiscal plan, and we want to ensure that the debt-to-GDP ratio continues to decline and that we are relatively competitive with other trading nations.

That aside, Mr. Whyte, on page 5, “SME youth employment by sector”...it's approximately 60% when I put together the retail, the hospitality, personal, and other services sectors.

How do you view part 11 of this particular bill, the premium holiday with respect to employers for youth? How do you see that premium holiday affecting those two particular sectors, given that the total is about 60% of youth employment?

Mr. Garth Whyte: It will help. One of the reasons I put this in, Mr. Valeri, is because a lot of these people hire 16- and 17-year-olds as well. It's a challenge for all of us to figure out what to do with that. It would be nice to push that program out a bit. Again, we've looked at this at the Canadian Labour Force Development Board on training issues. It's an ongoing thing. You don't just wait until they're 18 to get them into that type of training position. We've got to get them at 16 and 17. One of the thrusts we'll be pushing is co-op education. You don't do that to save a buck. You do that to train your workforce down the line.

When you look at agriculture, retail, and the hospitality services, often those are students.... We're wondering how this program will impact on that.

Mr. Tony Valeri: I think it's also important to bring some context to what I would call the fourth initiative of the Canadian opportunities strategy.

The intent of this particular initiative was to provide further access to job opportunities and job experience for youth, defined as 18 to 24. Most youths who go out for a job for the first time are faced with no experience, no job; no job, no experience. This was meant to be part of that overall strategy. It was not meant to be out there on its own as the answer to the youth challenge.

Mr. Garth Whyte: I guess that's how we're looking at this program too.

I would like to add that we will use this program to try to heighten people's awareness, employers' awareness, of the importance of continuing and expanding their hiring of youth. We will do that. We'll use those 3,000 visits a week we do to put the program out there.

I guess our challenge is the implementation side of it, which still needs to be worked out. That's what we're kind of worrying about. But I agree. There's no knock-out program here, but it's another push towards youth employment. When people were looking at this a year ago or whatever, that target group was really being heard and there was higher unemployment there. We were concerned that we're putting a lot of time and resources into this issue. So we do see this as one program at least trying to lead the way in that area.

Mr. Tony Valeri: Just another short comment with respect to your chart on page 11, where you talk about an EI fund. It should be a separate fund. I just wonder whether in your surveys or in your consultations with your membership you talk about the fact that the Auditor General was really the individual responsible for moving this fund into consolidated revenue. At a time when you had deficits, it was a way to push off deficits and, perhaps in his opinion, not reflect the true picture of government. Now we have a situation where the fund does flow to consolidated revenues.

• 2040

Earlier in your testimony you indicated that a 10% drop is several hundred million dollars. So anything we do.... When you talk about that $6 billion you would like to put back into the economy through a reduction in EI premiums, you're really talking about taking $6 billion out of the bottom line of government revenues and putting it back into the economy. That is because there is no separate fund. I think everybody is in agreement with that. Everybody understands that there is no separate fund here, that it flows to the bottom line, and anything you do there affects the bottom line.

Your other chart is interesting, and I just wanted to point something out. When you see some of the reports—and I'm sure Mr. Solberg might agree with this...well, I'm not sure—of the OECD countries, Canada is competitive when it comes to payroll taxes. This is in comparison with other countries. But personal income taxes puts us in a uncompetitive position. So in the last budget we as a government started to do something about personal income taxes. We committed ourselves to do more.

I'm interested in whether you feel that, given that information—and if we want to talk about employment—we should be focusing on a reduction in employment premiums or we should be dealing with some other type of initiative in order to create employment opportunities.

At this committee the other day, Mr. Harris, a member of the Reform Party, indicated that individuals will hire when they need someone. Market conditions being what they are, and demand being there, they will go out and hire someone. A reduction in EI is not going to be the issue that causes them to hire someone.

So I would put it to you that in a world now of trade-offs and choices, where you say that EI reduction would be the area to look at, and given the fact that, according to studies, we're competitive in the payroll tax area, should that be the area where we continue to reduce?

Mr. Garth Whyte: Mr. Chairman, could I have five minutes—

Voices: Oh, oh.

Mr. Garth Whyte: —to answer the question?

The Chairman: Yes.

Mr. Garth Whyte: Let's start with your first question on a separate fund—

Mr. Dick Martin: Do I have five minutes to retort?

Mr. Garth Whyte: No, I promise I'm not going after...because this is a good debate.

Mr. Yvon Godin: You're going after the CLC, then....

[Editor's Note: Inaudible]

Mr. Garth Whyte: The Auditor General said that when it was a $6 billion deficit. So to put it in context, he never envisioned the $19 billion surplus growing over and over again.

If you talk to the auditor at HRDC, he said that a good, solid fund would be up to $10 billion over some years.

Mr. Tony Valeri: I'm not talking about the actual amount of the surplus. I'm talking about whether there is an understanding that there is no separate fund.

Mr. Garth Whyte: There is no separate fund. However, the public believes that they are paying their premiums for EI, just like they pay CPP for CPP. It just so happens that EI is in a grey area, and I guess we're trying to say, define that area. Again, this could protect you in deficit time, so it won't be part of the deficit. Make the fund itself—

Mr. Tony Valeri: I don't think we want to do that. I think we want to be as transparent as possible.

Voices: Oh, oh.

Mr. Garth Whyte: Well, that is a great thing. Let's start with that policy. Let's be transparent.

Mr. Tony Valeri: My question was whether in your discussion with your membership, you talked about the fact that there was no separate—

Mr. Garth Whyte: We have, and actually we are asking our members in a four-page survey..and I will get to on the payroll tax side.

But yes, we do believe it should be transparent. Even if it's part of general revenues, there should be a dotted line saying that this is dedicated to employment insurance. We should be transparent and say that this is not dedicated to other tax things like the Mintz committee, say, linking it to the small business rate, or whatever.

The second point has to do with the OECD. The Mintz study was done by the Department of Finance. A couple of years ago Jack Mintz said that payroll taxes are lower in Canada than they are in other places. I think this is an important point. His study has come out, and it said that payroll taxes on employers are higher. We put more emphasis on employer payroll taxes. You see, when they talk about payroll taxes, they're talking about employee/employer payroll taxes. Payroll taxes on employers are higher.

Mr. Tony Valeri: Yes.

Mr. Garth Whyte: It was the rate of increase of payroll taxes. Just before you came in, I made the point that the OECD job study, the Department of Finance study, and our studies have said that payroll taxes hurt job creation.

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Now, I agree. There can be debate. If you lower payroll taxes, will they come back into jobs? But no one disagrees that if you increase payroll taxes, it does have an impact on job creation.

CPP has been increasing, and it's going up significantly. We were saying that you have an opportunity to offset it.

Then the finance minister challenged us on that very question. He said, if your members had to pick personal income taxes or payroll taxes, what would they choose?

Well, I guess I'm scooping myself. We have a strong survey, and it's not completed, but we have about 9,000 responses back already. We're very surprised that they've picked payroll tax/EI decreases over personal income taxes. That's a significant observation from our membership.

So the final thing is that if you buy into both our positions, that the fund is for employment insurance, this debate about which tax we should cut should be dealt with in terms of employment insurance. PIT should be dealt with in terms of the overall tax burden.

We're mixing them together, and that's where we have a problem.

Mr. Tony Valeri: Have you asked the Auditor General whether he would reconsider moving it to a separate fund?

Mr. Garth Whyte: We're going to do that. I don't think the Auditor General has really focused on this. I don't mean to be disrespectful.

I think we should sit down and talk about this whole thing.

[Translation]

Mr. Paul Crête: The Auditor General made a recommendation to the government completely in keeping with this. In his latest report, he made exactly the same recommendation, namely that there should be a separate fund.

Personally, I asked the Minister of Finance that question in the House. I asked him whether he was prepared to follow up the Auditor General's recommendation by creating a separate fund. I was told what you said earlier, namely that there was not a separate fund.

The Chairman: All right. Thank you.

[English]

Is there a further question?

Mr. Tony Valeri: You're saying that the Auditor General has said that there should be a separate EI fund?

Mr. Paul Crête: Yes.

[Translation]

Ms. Christiane Gagnon: Oh, yes!

[English]

Mr. Paul Crête: We will send you the recommendation with pleasure.

Mr. Tony Valeri: Please do.

Mr. Dick Martin: Mr. Chairman, it seems to me that whether he has done that or not, isn't it the government's job to ask the Auditor General to do that, rather than people or institutions coming before the committee?

Mr. Tony Valeri: No, my point was whether as a particular group they had had any conversation with the Auditor General. The job of the Auditor General is to review whatever he would like to review, and, quite frankly, not be directed by the government. So if the Auditor General decides to review the EI account, and decides to say that it should be a separate fund, then it's incumbent upon the government to respond to that.

Mr. Garth Whyte: There is another way of asking this question. We're currently asking it. We are sending it to our members, who will number 90,000 very soon. We're asking them, how should the EI surplus be used? So with respect to whether it should be a separate fund, we're asking them, should it be used for deficit reduction? Should it be used for premium reduction, and by how much? So we will come back and be able to tell you that.

Mr. Tony Valeri: I look forward to that.

The Chairman: Thank you, Mr. Valeri, and thank you, Mr. Whyte, Mr. Hayes, and Mr. Martin. Thank you very much for your presentation. You have obviously started some healthy debate.

Mr. Godin, thank you very much for coming this evening. We would love to see you here more; it's a very exciting committee.

Mr. Yvon Godin: Well, I try to do my best.

The Chairman: The meeting is adjourned. The meeting tomorrow morning will be at 9 a.m. in the same place, 362 East Block.