FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, April 28, 1998

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[English]

The Acting Chairman (Mr. Paul Szabo (Mississauga South, Lib.)): Good morning, ladies and gentlemen. We're resuming our consideration of Bill C-36, an act to implement certain provisions of the budget tabled in Parliament on February 24, 1998.

This morning we're welcoming witnesses from the

[Translation]

Coalition des anciens leaders du mouvement étudiant québécois, Mr. Charlebois, Ms. Thérien and Mr. Girard.

[English]

A voice: Mr. Chairman, there is no translation.

The Acting Chairman (Mr. Paul Szabo): Okay.

Again, good morning. Thank you for being here today. You'll have about ten minutes to present your comments to the committee. Please proceed.

[Translation]

Mr. Nicolas Girard (Coalition des anciens leaders du mouvement étudiant québécois): First we would like to thank you for giving us the opportunity to express our point of view on Bill C-36 and especially on the Canada Millenium Scholarship Foundation fund.

My name is Nicolas Girard and I am the former general secretary of the University of Montreal Federation of Student Associations. With me are Joanne Thérien, who was vice-president for internal matters and content of the University Student Federation of Quebec in 1994-95, and Serge Charlebois, who was president of the University Student Federation of Quebec from 1992 to 1994. They will be presenting our brief with me.

We are three representatives of the Coalition des anciens leaders du mouvement étudiant québécois, of which Frédéric Lapointe, past vice-president of the University Student Federation of Quebec and past president of the College Student Federation of Quebec, who is also in this room, is a part.

We have decided to put together a coalition of former student leaders following the announcement by the Chrétien government, in the budget speech of February 24, of its project to create the Canada Millennium Scholarship Foundation. At that time, there was a general uproar in Quebec to condemn this Ottawa initiative in an area of provincial jurisdiction, the field of education. A consensus that goes beyond political allegiances has developed to reject this project.

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Under the circumstances, although we have left the student movement a number of years ago, we deemed it essential to renew our activities and to explain our position on this project. We were there in 1994 when Minister Axworthy had proposed his reform. At that time we had condemned the proposed cuts in transfer payments to the provinces.

We do not wish to contradict or repeat what was said by the national student federations, which were quite representative. Our task is more a historical one. We would like to trace the chain of events that lead to the announcement of the millennium scholarships, which, as I said earlier, lead us to intervene publicly.

We believe that Prime Minister Chrétien is right: students have a right to know where the money they are getting is coming from, and it is time people knew the truth, in Quebec as well as elsewhere in Canada. But you know, in reality and contrary to what he believes, many students know what the federal government does for them. Do we have to remind you of the numerous demonstrations by thousands of Quebec students against the social security reforms and the approaches made to Minister Lloyd Axworthy?

We would like to underline to the Chrétien government that the student population has not forgotten that since their arrival in power the federal Liberals have significantly reduced transfer payments for post-secondary education. We also wish to remind you of the effects of federal cuts on higher education and the chain of events that lead the Liberal government to propose the creation of the Canada Millennium Scholarship Foundation. We will also present the reasons that lead us to oppose this project.

In 1994, a new era of federal austerity in the field of education was announced via a social security reform. In its Green Paper, the Liberal government admitted that replacing federal cash transfers risked leading to higher tuition fees. It added, in that same document, that it might be the price to pay for a permanent system of loans and scholarships that would guarantee access to post-secondary education. We therefore see that even at that time the idea of millennium scholarship fund was in the air. Some elements of the reform have been dropped but the cuts have been imposed.

As for the idea of a system that would guarantee access to higher education, we have to recognize that it is the source of the millennium scholarships that were financed through cuts in transfer payments to the provinces. Moreover, these intentions were clearly stated in the Green Paper, where it was stated that instead of passively watching the gradual reduction and the possible elimination of cash transfers from the federal government for post- secondary education, it could move quickly from the funding of educational institutions through the provinces to a more generous system of grants and loans to individuals.

Finally, we would like to talk to you about the domino effect of federal cuts. First, allow us to point out that Quebec, unlike other provinces, chose not to increase tuition fees again, thus avoiding the creation of an additional barrier to higher education accessibility. Despite everything, the cuts imposed by the federal government in this time of struggle against the deficit have had a major impact on CEGEPs and universities.

In fact, in 1996-97, the federal government reduced transfers for education by $145 million, which corresponds to 85 per cent of the cuts imposed by the Quebec government in CEGEPs and universities. In 1997-98, the cuts were of about $106 million, or 61 per cent of the provincial cuts. We can therefore say that the federal cuts created a domino effect.

Last year a working group on university funding was put together. I will read you a quote from the working group about the consequences of these federal cuts in education:

The main effect of previous cuts was to increase the number of students per class, to increase the number of activities by lecturers and to decrease the number of teaching assistants. These latter choices mean a decrease in structured guidance, which is directly related to the quality of teaching.

To give you a specific example, I can tell you that the cuts in Quebec universities have lead directly to the departure of 900 teachers in the Quebec university network, which is the equivalent of the total staff of the Université du Québec à Montréal. That's saying a lot.

In this context, we are also stunned by these federal cuts when we read in the accompanying documents the announcement of the creation of the Canada Millennium Scholarship Foundation. The arguments presented yesterday by student leaders to condemn cuts in education are being used today by the federal government to justify the creation of the foundation.

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Has education become a priority for the government? Does it want to use this foundation to hide the effects of federal cuts in post-secondary education?

We also wanted to talk about accessibility to higher education. As the federal government sets as an objective the promotion of equal opportunity by helping needy students deal with the increases in the cost of education, members of that same government are proposing tuition fee increases to increase the financial resources of institutions of higher learning.

Recently, Minister Lucienne Robillard, former minister of education in Quebec, said in the newspaper Le Nouvelliste of Trois-Rivières that if there were problems in the Quebec educational system it was because the Quebec government had not increased tuition fees. Are we to understand that the federal government is arguing that Canadian provinces, including Quebec, should increase tuition fees and question the principle of accessibility to higher education? One could be lead to believe that from Mrs. Robillard's statement.

I would now like to yield the floor to Serge Charlebois, who will speak briefly about the mechanics of financial assistance in Quebec, which are quite different from those in Canada.

Mr. Serge Charlebois (Coalition des anciens leaders du mouvement étudiant québécois): Good day and thank you. Now that the federal government has balanced the budget and has surpluses, it says it wants to deal with equal opportunity. It announces its intention of creating a $2.5 billion Canada Millenium Scholarship Foundation fund. As it says in the budget, "this investment in the future of our country is the result of our successful battle against the deficit."

The federal government therefore admits that the millenium scholarships will be financed from the savings made by Ottawa's reductions in transfer payments to the provinces. In other words, the Chrétien government, after contributing to the decline in the quality of teaching in colleges and universities, has the audacity to present itself as the defender of accessibility to higher education. That is the basis for our reaction.

I will talk to you about the Quebec financial aid system. Reading the supporting documents to the budget, we find that the Canada Millenium Scholarship Foundation finally answers the recommendations of the Canadian Round Table on Student Aid. I must tell you that Quebec students could not react to this Round Table since Quebec was absent. The issue being dealt with only concerned the rest of Canada, since Quebec had long since had its own system of grants and loans. Since the Canadian system only offered loans, members of the round table pointed out that one way of reducing indebtedness would be to offer financial assistance that had a grant component.

Quebec has been managing its own financial assistance plan since 1964, through which it offers scholarships that, on average, are higher that those planned for under the millenium scholarships. That work had therefore been done for a long time in Quebec, where it has long been understood that accessibility requires a balanced plan of grants and loans, which is a global trend, as can be seen from reading the latest reports on financial assistance.

Since the context is different in Quebec, it is obvious that the real problem of indebtedness requires different solutions adapted to the realities in Quebec, such as lowering the ceiling for loans, therefore increasing the grant portion, and on setting up a debt repayment plan in order to put the emphasis on success without setting forth excellence criteria.

These measures, put forth especially by the University Student Federation of Quebec, can only be applied by the Quebec government, which is solely responsible for the regulations on financial assistance in Quebec.

The federal government is indifferent to recent Quebec reports on financial assistance, including the MacDonald report to which I had the pleasure of contributing. We are talking about seven months of work by a Quebec citizens' committee that took the time to ask all the questions and to challenge the guiding principles of the plan.

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There is also the Montmarquette report, which dealt recently with the more specific question of indebtedness, and which said more or less the same things. Therefore we are still going in the same direction, balancing grants and loans while stopping the increase in loans.

Therefore, indifferent to the Quebec reports on financial assistance, the federal government has decided to solve the student indebtedness problem on its own and in its own way by duplicating structures and by offering scholarships that will be granted to students by adding a merit criteria. Under the federal program, students will have to earn their scholarship.

What does that mean, “earn”? We cannot say that that question has not been debated in Quebec. On the contrary, each time there have been reforms—and I could go back to 1937, but I will mention only those of 1972, 1974, 1990, 1995, 1997—people have proposed the merit criteria for financial assistance, but each time Quebec decided otherwise. Each time, Quebec held the position that the purpose of financial assistance was to remove economic barriers to higher education accessibility and not to counteract the laxness of institutions that encouraged students to stay in them too long.

The plan has obviously been reworked over the years to ensure that it does not favour prolonging studies. But between that and merit criteria there is quite a gap, a gap Quebec has repeatedly decided not to bridge.

As I was telling you, the MacDonald report in 1995 and the Montmarquette report in 1997 go over all these arguments and propose keeping the status quo. We will give you the references.

The idea of a meritocracy for scholarships creates a problem. It is also one of the major irritants in Quebec, in addition to the cuts. I would like to point out that Quebec is not the only one talking about it. First, the Canadian Federation broached this issue, but I will let the students in the rest of Canada achieve their own consensus, as we have in Quebec.

Elsewhere in Canada, the Association of Universities and Colleges of Canada has also stated that scholastic excellence should not be a precondition to be admissible for a millennium scholarship.

That ends my part. I can at least answer questions on the development or the nature of the financial assistance plan and on the issue of merit. I yield the floor to my colleague, Mrs. Thérien, who will present the conclusion of our presentation.

Mrs. Joanne Thérien (Coalition des anciens leaders du mouvement étudiant québécois): Good day. We will now deal with the issue of competence in education.

For our group, as for many people in Quebec, the Canada Millennium Scholarship Foundation is an intrusion in an area of provincial competence, namely education.

We are pleased that in the Mr. Martin budget speech the following fact was finally recognized:

“Education is a matter of provincial jurisdiction. It is the provinces that are responsible for the curriculum, for educational institutions, for quality.”

How was the creation of the Canada Millennium Scholarship Foundation presented? It was done by saying that it did not deal with study programs, that it was not an intrusion into the responsibilities of the institutions, that it was to ensure accessibility to learning.

Well, the Liberal government made a serious error there. One cannot dissociate accessibility, the quality of education and the management of the institutions. It is an interconnected whole. If the government had been responsible for education for many years, it is an error it would never have made.

I will demonstrate the link between accessibility and the quality of education. When we talk about accessibility, we are not talking only about financial assistance. It is an essential component but it is not the only one. We are not speaking only about student indebtedness, which is also an extremely important element. It touches on questions such as structured guidance of students, interest and the extent to which documentation is current. A university that cannot offer these types of resources does not offer true access to knowledge. It is an aspect that it is really important to remind you of.

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It is also important to underline that in Quebec there is a broad consensus in favour of Quebec's right to withdraw from this program. This consensus brings together Quebec Liberals and members of the PQ. Most people in the field of education are also in favour of this right to withdraw. They believe that education is the responsibility of the provinces and that it must remain so. In short, if the federal government continues in this vein, if the Canada Millennium Scholarship Foundation is created—

We would also like to remind you that in Quebec we have had numerous consultations. Serge talked about the consultations regarding financial assistance, but we have also had summit conferences on education. Quebeckers participated in large numbers to say what their priorities were in the field of education.

Now it is proposed that we invest in a Millennium foundation that won't even reach its objective, which is to reduce student indebtedness. In Quebec, we find this attitude contemptuous. It's as though you said that we have had consultations in Quebec but that we are incapable of setting our own priorities. I must admit that's kind of hard to swallow.

I will close by talking about the recommendations you will find at the end of the brief that was distributed to you this morning.

Given that Quebec already offers grants to its students through its grants and loans program;

Given that the problem of Quebec students' indebtedness requires special measures adapted to its own specific situation—

It is true that student indebtedness is a problem. It is also a problem in Quebec but the solutions must be geared more to lowering the ceiling on loans and on debt repayment for people who finish their course of study within given deadlines.

Given that there is also a broad and strong consensus in Quebec about the fact that post-secondary education is strictly a matter for the Quebec government;

Given that there are many other ways of giving back to the federal government the visibility it deserves for its financial contribution to post-secondary education:

We ask the federal government to respect the wishes and the choices of Quebeckers. Concretely, the government should give Quebec its share of the moneys allocated to the millenium scholarships through transfer payments.

I remind you that I have not heard a single dissenting voice in Quebec, whether from practitioners in the field of education or from Mr. Gautrin, who is a Liberal MP. It is truly widely requested.

We also question the relevance of creating a foundation parallel to the Canada Student Loans Program. It doesn't concern us really, but we get the impression that for Canadian students this is a duplication of structures and personnel.

According to the Bill, funds will be allocated for the salaries of foundation staff. Administrative expenses will be reimbursed. That's a lot of money. There will probably be offices somewhere. Each time we spend $3,000 for an administration that duplicates what already exists, that will be $3,000 less for a student and $3,000 more in indebtedness for him. It is totally unacceptable and goes against the basic premises of that foundation.

We therefore recommend that the $2.5 billion that are to be allocated from the Treasury to the foundation be given to the Canada Student Loan Plan, which would finally—and I do mean finally—have a grants component for less well-off students. As for Quebec, we have already said that we would like this money in the form of transfer payments.

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However, if the Liberal government insists on creating the foundation, we would nevertheless have some recommendations to make to it.

At the beginning, Serge talked about the merit criteria. We believe that educational institutions should determine who deserves to continue his or her studies and who does not. We have mechanisms to do that. A student who does not pass is generally excluded from the institution and will therefore not be eligible for the grants and loans program, or just the loans. We also believe that the excellence or merit criteria is simply not relevant in terms of the desire to improve accessibility to post-secondary education. In a nutshell, we recommend that the merit criteria, as outlined in the Bill, be withdrawn.

Therefore, with the givens outlined previously, and given that there are already federal and Quebec organizations that offer scholarships for excellence—I am thinking of the Natural Sciences and Engineering Council, the Quebec FCAR, the Medical Research Council and the Social Sciences and Humanities Research Council, all granting organizations that offer scholarships for excellence—and given that there are many private corporations that already offer scholarships for excellence—we estimate that about $10 million per year are offered to first level students in Quebec universities—we recommend that section 27(2), which authorizes the granting of scholarships solely on the basis of excellence, up to five per cent, be withdrawn. Again, it is a duplication of organizations that already exist. Instead of putting that five per cent in the foundation, it would be better to put it in the NSEC, MRC and SSHRC funds.

We have a concern we wish to share with you. Section 34 states:

34. The Foundation may grant a scholarship on any terms and conditions that it considers appropriate.

We believe that is an opening that could prove dangerous. We fear that the foundation could, perhaps not initially but in maybe 10 years, once the $2.5 billion have been used up and that we will rely mainly on private funds, establish new criteria to give scholarships, criteria that could be linked, for example, to the field being studied or to labour market needs.

That is the presentation we wished to make this morning.

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King— Aurora, Lib.)): Thank you.

[English]

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

[Translation]

Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata— Les Basques, BQ): Thank you for appearing before the committee. I believe you have brought us some very interesting expertise. Given your drive, I understand why the grants and loans system in Quebec has become the best in Canada. It seems you just don't let go easily.

I would like you to remind the committee of what lead to the current system so that we can see exactly how we got there. There were some comments earlier about the debates that have taken place on the issue of merit and other such elements. And while you are talking to us about the past, you could also paint a picture of concrete things that can be done to get an adequate system in the rest of Canada. The steps have been taken in Quebec. There are still things to be improved because it isn't perfect but you could explain to committee members all that has been developed and might be desirable, in all modesty, for the rest of Canada so that the country has a beneficial system for its students.

Mr. Serge Charlebois: I don't know the Canadian system thoroughly. The departmental group in which I participated looked at it on the basis of an economic comparison and on an international basis to examine the evolution of the situation. I'm talking about 1995.

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As for your question about the historical background, in 1937, the provinces, Quebec and the federal government agreed to solve the youth unemployment problem. That is the beginning of a kind of grant and loan program for students. They are loans. In 1940, there is a similar program for needy mothers. That's the term used at the time. It's something we wouldn't say these days.

Typically, these programs gave students a few hundred dollars that had to be paid back. Now, go back to the beginning of the century and look at the following statistic: these loans were repaid the following year. You can therefore imagine the economic conditions these students were in, especially when they finished their studies. They found a job and reimbursed the amount of their loan in their first year of work.

Things changed later on. In 1959-60, a much more elaborate plan was set up that called upon educational institutions to evaluate the cases. The institutions have the competence to evaluate the cases, the financial needs this time. There is no question of merit: the financial needs are addressed.

During the 60s, the Parent Commission reviewed the entire educational system; this lead, in 1964, to the creation of the Ministry of Education. But before that, before the creation of the Ministry, in 1962, there was a student aid service. At that time, therefore, that was an entire part of the government apparatus that helped students.

In 1966, the first financial assistance act was passed. The ministerial authority from which financial aid flowed became more structured. It was put in the framework of a law. The guiding principles came later. After the law was passed, financial aid was modified, but the guiding principles were not abolished.

These guiding principles deal with the back-up and contributory nature of financial assistance, which was confirmed each time. That is the basis of our provincial expertise. It is the basis of the balance. All over the world, when we read the literature on financial aid, we see that people try to link grants and loans, needs and the parents', spouses' and students' ability to pay, and so on.

We started talking about this as early as 1966. In the 70s, the back-up and contributory nature of the plan was not questioned. Each time, the idea of merit was rejected.

As for the way of changing the Canadian plan, since I don't know it in detail, I cannot tell you, but what is clear is that during the eight years I have worked in the student movement, the relationships I have had with the Canadian student movement, as President of the Quebec Federation, have always indicated the need to introduce grants into the Canada Student Loan Plan to alleviate student indebtedness, which, we must admit, is greater in the rest of Canada.

That is the only thing I would repeat. And it's already in the brief.

[English]

The Chairman: Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC): Thank you for your presentation.

One of the most beneficial parts of this whole exercise, these hearings, recently has been the opportunity for us to learn a lot more about the higher education system in Quebec. I come from Nova Scotia, the cradle of higher education in Canada, but the system is significantly different, especially in terms of student funding.

Yesterday Professor Stager from U of T presented. One of the things he said that struck me was that typically, if we're ingenuous about increasing access to higher education, the best programs are those that offer less money per person but more evenly distributed. The Millennium Scholarship Fund is only positioned to help 7% of students seeking higher education. I'd be interested in your feedback on that specifically.

Also, it strikes me that Quebec has been quite successful over the past 30 years in increasing the level of participation of its young people in higher education. Unfortunately, any issue relative to Quebec becomes a political issue from the sovereignty perspective. That's unfortunate, because in many ways we could look at this purely as an effectiveness issue. Arguably you have a system that is working quite well.

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If we pulled back and we took the politics out of this and looked at it from a purely effectiveness perspective, perhaps the rest of the country could learn a great deal from you in terms of how to improve student participation and that sort of thing. That's just an observation, but I would be interested in your feedback on Stager's statement yesterday.

[Translation]

Mr. Serge Charlebois: It is obvious that Quebec's expertise and success in terms of accessibility are based on it's autonomy in educational matters. That's why we are here. Yes, it is a question that falls in the area of sovereignty. We have no choice because today the federal government is deciding to invest on top of what already exists. We have mentioned only two projects to you.

I could go back to the last page. There are millions of good projects that we haven't been able to implement because of the cutbacks. You know what it's like to run a government. The budget has to balance. Therefore the issue of sovereignty is not an impediment. We don't have a patent on the success of our education in Quebec.

It is compromised today because we are unable to do what we want to help students in terms of their specific problems. That was our success: problems specific to Quebec, solutions specific to Quebec. We therefore created colleges, etc. Today, we just want to continue.

Mr. Nicolas Girard: Duplicating structures when there is already a very efficient system doesn't help the students. Why go through the back door with a second system? That creates duplications, which, in our opinion, are useless. Give the money to the Quebec government instead, which is better equipped to manage it. As you said, we have a system that is envied by many Canadian provinces. Why not take this money to improve the existing system in Quebec instead of duplicating structures that will not serve the students?

Also, how can the federal government now justify sticking to its project when those for whom it was designed, the students of Quebec, don't want it? When Minister Pettigrew is forced to go to the basements of CEGEPS to meet three of four students in secret to explain his project because he doesn't dare address the entire student body, there is a problem. It's supposed to be a project to help students just before the year 2000 and he can't even sell it in colleges and universities. That seems enough for the government to say: "We made a mistake; we withdraw; we sill pick up our marbles and give the money to the Quebec government, which is much more able to improve the Quebec financial assistance system."

Mr. Serge Charlebois: Mr. Chairman, there was a question asked about Mr. Stager's presentation yesterday. I am not familiar with it but Mr. Stager is a scholar well know for his work on economics related to education, especially on loan income contingency repayment plans. That's the English expression I learned. It is clear that all of Mr. Stager's latest studies have essentially been done in the context of Ontario, where there has been a pilot project on repayment proportional to income and where the Ontario government has made enormous cuts in education and essentially put the ball in the students' court in terms of funding their studies.

It is obviously a type of logic we apply in Quebec. We go according to need and we divide the aid according to need, based on a host of criteria. Basically, we give students what is needed, and no more, in order to ensure accessibility. I agree with what Mr. Stager said in terms of better dividing financial assistance and not giving it to only 7 per cent of the students, based on merit.

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[English]

Mr. Scott Brison: I believe I heard somebody say last week that the rate of student debt in Quebec is about half the average student debt around the rest of the country, but the pressure the federal government put on with cuts to transfer payments I'm sure made it very difficult.

In any case, that's interesting. The rate of consumer debt in Quebec is one of the highest in the country, but student debt is one of the lowest. I don't agree with the Government of Quebec on many issues, but one area in which they have definitely made a strong commitment is education.

Thank you.

The Chairman: Thank you, Mr. Brison.

Ms. Redman.

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

I do appreciate the fact that you, former student leaders, have all come with a breath of experience. May I ask what you're currently doing?

Mr. Serge Charlebois: I'm a student of physics at the doctorate level, Ph.D.

Mrs. Karen Redman: So you're still involved in the post-secondary education system.

Mr. Serge Charlebois: I'm a member of the board of the University of Sherbrooke, but I'm not on student financial aid.

Mrs. Karen Redman: I appreciate that. You made it very clear.

May I ask the other two witnesses the same question, please?

[Translation]

Mrs. Joanne Thérien: I am studying for my master's in sociology at the Université de Montréal and I am working on the question of mentoring.

Mr. Nicolas Girard: I am also a master's student at the Université de Montréal, in industrial relations.

[English]

Mrs. Karen Redman: I find it really interesting. I would agree with Mr. Brison that it has been edifying to find out a little bit more about the Quebec system.

One of the things I basically hear you saying is you do not want the money.

[Translation]

Mr. Nicolas Girard: First, we believe that the federal government is in no position to dictate how financial assistance should be given in Quebec, where the current system has proven its efficiency since 1964. We believe the federal government should transfer this money to the Quebec government so that the consensus and the debates that have taken place on the grants and loans system can be used to make changes to that system. This cannot be done if you keep the money and put it in a millennium scholarship system that would duplicate structures and would not solve the specific problems of the Quebec students' indebtedness. We believe this money is ours, especially since the federal government has taken it from the cuts it imposed on CEGEPs and universities.

You talk about the importance of sending a message on the eve of the year 2000 about the importance of higher education. However, by making the cuts you have made in CEGEPs and universities, what message are you sending? It's an important signal that leads us to believe that in the end you don't attach much importance to the quality of training in colleges and universities. Things aren't great in Quebec currently. In the current context, we do not believe we can afford a duplication of structures.

We submit that higher education is a provincial responsibility, and there is a consensus on that in Quebec among the rectors, the university professors, the student associations, the unions and all political parties. You say that despite this consensus, you will impose it anyway and ram it down our throats. We cannot accept that. There is already a system. Give us our money and we will be in a better position to improve our financial aid system. That behaviour is unacceptable.

You say we are a unique society. In that project, how are you telling Quebec that its situation in terms of financial assistance is unique? You are applying a single Canadian solution coast to coast. We want you to recognize that there is a specific set of problems in Quebec and we want you to take it into account. Give Quebec the required money on this issue.

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[English]

Mrs. Karen Redman: I have just one final question, and I don't know whether it's a question as much as a comment.

I would tell you that the funding for education, as much as it is delivered by the province, is shared. You in one breath talk about transfer payments and in the next breath talk about it being purely provincial. By all definitions I've read and come to know, it is a shared partnership.

The Chairman: Are there any comments about that?

[Translation]

Mr. Paul Crête: I have a comment, Mr. Chairman.

[English]

The Chairman: Not you, Mr. Crête, unless you want to appear as a witness.

We'll go to Ms. Torsney for a final question.

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

Building on what Ms. Redman has said, you gave us lots of terrific history about the funding of education in the province of Quebec, but I'm sure you know that the granting councils have been giving researchers money across the country since the twenties. The Canada student loan system has been across the country and has been supporting students. In fact, students from different provinces studying in Quebec are able to get only Canada student loans to participate there.

A system is in place that helps increase accessibility. That's part of the federal government's responsibility in all provinces. This system is not being set up to duplicate, but to increase access for a lot of students.

I'd ask you then to maybe put it to a test. Why don't we put it in place for a couple of years, and if there are no applications from Quebec, not a single application, we can review the situation.

[Translation]

Mr. Nicolas Girard: You are telling me that in the current context for colleges and universities we can afford to use $80 million each year to do a test. In Quebec, there is a crisis in the colleges and universities because of the cuts that have been made. This is not the time to duplicate structures. You are holding the students hostage with this project. There is already a system in Quebec. Why duplicate structures that will not be in our interest?

You say you want to promote accessibility. You aren't going to help us by duplicating the current Quebec structure through this project. We have told you that the best way is to improve Quebec's financial assistance system. That's the solution, not the implementation of another project. We can't afford to use $80 million for testing and find out a few years later that we made a mistake and that we wasted money and then say we are sorry. We don't have the means to do that now in Quebec. Maybe you do in Ottawa, since you have solved the problem of the deficit, but in Quebec, at this time, were are not in that position.

[English]

Ms. Paddy Torsney: Yes. I would remind you that I studied in Quebec. I'm quite aware of the funding arrangements for universities in Quebec, and I'm quite aware Quebec is now the only province that charges students from outside the province more money to attend their schools. It's the only province that does that to students.

[Translation]

Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): I would like to make a brief aside. We will put it right on the table.

The tuition fees for non-Quebecker Canadian students are often far lower than those of universities in the province of origin of those students. Stop your demagoguery about that, saying that we are bad guys in Quebec, that we require higher fees and that we don't want Canadian students. My eye! That's demagoguery, even lying.

[English]

Ms. Paddy Torsney: I'm not sure we're having a debate, Mr. Loubier, but my point is that a student from Ontario attending the University of Western Ontario pays the same amount of money that a student from Quebec pays to attend the University of Western Ontario. A student from Ontario going to McGill University, or Université de Montréal or Université de Sherbrooke, pays more money than a student from Quebec. That's all my point is.

[Translation]

Mr. Paul Crête: Yes, but at Western— We can't let such false information get around; information must be clear and precise, Mr. Chairman.

[English]

Ms. Paddy Torsney: All students can access the Canada student loans currently in place.

[Translation]

Mr. Paul Crête: I let you speak madam. Did I allow you to speak?

[English]

Ms. Paddy Torsney: I didn't know you were recognized.

[Translation]

Mr. Yvan Loubier: Answer. Ignore her.

Mr. Paul Crête: The student who comes—

[English]

The Chairman: As interesting as the points of the committee members may be from time to time, I'm much more interested in listening to the witnesses right now. That's why we're holding these hearings. If there are some disputes about this, it's not a point of debate right now. I just want to get on with the witnesses' final remarks so we can invite the Canadian Chamber of Commerce to the table.

Mr. Charlebois.

[Translation]

Mr. Serge Charlebois: Experimentation on humans is tightly controlled in Canada, madam. There are ethical codes that forbid us to pretend.

• 0950

What is clear in the issue of the Canada Millennium Scholarship Fund—and this is similar to Mr. Brison's concern and about which Mr. Stager spoke—is that we propose to take $3,000 and to give it to students without taking into account any other form of financial aid or plan that exists.

By what right do you say that this student should get $3,000 and this other one shouldn't get $3,000? How could we—and that's where we agree with Mr. Stager—better divide this sum, which should come under Quebec's jurisdiction, which manages its own plan?

On the other hand, I do not know why the federal government, after having accepted this joint-venture since 1964, under which it transfers credits, all of a sudden sticks its nose in a very successful plan. Why not continue in the same vein? The answer was very clear in Mr. Chrétien's speech: so that there will be a maple leaf on the check.

[English]

The Chairman: We'll have one final comment from Ms. Torsney, and then we'll have to conclude.

Ms. Paddy Torsney: I was not building on anything Mr. Brison said in relation to Mr. Stager or anybody else.

The federal government, again, gives Canada student loans to students all over the country, so a system is already in place.

I have to say that I disagree with your basic premise, but it's been great to have your presentation nonetheless.

The Chairman: Thank you, Mr. Girard.

On behalf of the committee I'd like to thank you very much for a very thoughtful presentation, which of course offered a different perspective on this particular issue.

Next we'd like to welcome the representatives from the Canadian Chamber of Commerce. We have with us Sharon Glover, senior vice-president, corporate affairs and membership; and Mr. Dale Orr.

You are not new to the committee process, so you know you have approximately ten minutes to make your presentation and thereafter we'll engage you in a question-and-answer session.

Ms. Sharon Glover (Senior Vice-President, Corporate Affairs and Membership, Canadian Chamber of Commerce): Thank you, Mr. Chair.

On behalf of the members of the Canadian Chamber of Commerce I'd like to thank you for the opportunity to appear before you today and provide our views on Bill C-36, the budget implementation bill, and specifically on the EI premium holiday for employers who increase their payroll for youth.

My name is Sharon Glover. I'm the Canadian Chamber senior vice-president of Corporate Affairs. With me is Dale Orr, the president of Economic Analysis Associates, representing our economic policy committee.

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The chamber is Canada's largest and most representative business association, with members covering the entire spectrum of private enterprise. Our network of 500 community chambers of commerce and boards of trade provides us with affiliate partners in every federal member of Parliament's constituency. The network has a total membership of over 170,000 and includes all sizes of businesses, from all sectors and all locations.

We want to start out, Mr. Chair, by applauding the government and the amendment in the Employment Insurance Act, which provides for a premium holiday for employers who hire youths. However, we must register our dismay that more was not done. We believe in this budget government had an opportunity to reduce premiums by a significant amount, but it chose not to.

My colleague, Dale Orr, who has done a lot of research on EI over the past number of years, will review with you just how far we think the government's opportunity was missed in reducing premiums. I would note that there are two sheets of paper tabled in front of you—one called the “Estimates of the EI Account” and the other called the “Impact of Reduction in EI Premiums”—for you to review and to which Mr. Orr will be referring.

Dale.

Mr. Dale Orr (Economic Policy Committee, Canadian Chamber of Commerce): Thanks, Sharon.

Maybe I'll just make a couple of comments. The first one is about the impact of a reduction in EI premiums.

I've done a calculation for a firm of 100 employees on the implications of moving the EI rate next year down to where it should be, if one were consistent with the stated policy of EI. That would move it down to the $1.80 to $1.85 range for employees.

The reduction to within that range would save the 100 employees of a firm of that size $33,000 and save the employer over $46,000. You'll recognize that the saving to the employer of $46,000 would permit him to hire another employee for $40,000 and cover some of the fringe benefits.

That's just a very simple calculation of what's at stake to employees and employers if and when we were to move the rate down to where we say it should be and where we think is consistent with policy.

Any questions you may have on that, I would be glad to take.

The second comment is about the estimates of the EI account. I think the salient point here is the recession scenario. As you know, the policy for EI is that the premiums should be at a level at which the revenues from EI cover the expenses over the business cycle. At the end of this year, the surplus in EI will be approximately $19 billion. We could have a reasonable recession over the years 1999 and 2000— and I've calculated the impact of that.

Whether we'll have a recession in 1999 and 2000, nobody really knows, but I'm quite struck by the statement:

We are on the brink, I believe, without a shadow of a doubt, of what is going to be one of the longest periods of sustained economic growth and progress this country has seen since the Second World War.

That quote is probably familiar to all of you. It was made by the Minister of Finance, October 1996.

We're certainly not expecting a recession, but if we had one severe enough to move the unemployment rate from where it is today and where we think it's going to stay over the next year or so, 8.6%, up to an 11% average through 1999 and 2000— That's really a very pessimistic outlook, relative to the Minister of Finance's statement, which incidentally is one many people believe is quite accurate. If we were unfortunate enough to have that type of recession, the total drain on EI would be in the order of a deficit over the recession period of about $1.5 billion.

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Now, we will go into 1999 with a surplus of $19 billion, so if we lost $1.5 billion over that two-year recession, at the end of the year 2000 the surplus in EI would still be $18 billion. Most analysts agree with Mr. Martin's position in 1996, when he said the amount of surplus we need in EI to tide us over a reasonable recession is $5 million. I think when he said that in 1996, we agreed with him and we still think it's a pretty good operational statement. The point is we're prepared for a reasonable recession over a two-year period, and we'd still come out of it with $18 billion in the fund.

I guess that's why the chamber has taken a fairly strong position that EI premiums should be reduced to the cyclically stable level, which, for 1999, would be $1.80 to $1.85, relative to the $2.70 of today.

I'll also indicate a couple of things I'll be happy to talk about if you wish.

Some of you may have seen a piece I did, which is in the book, called “The 1997 Federal Budget”. It's a fairly lengthy piece on employment insurance that covers most of the issues in the area that people discuss.

This piece was in the Financial Post a while ago. It's “Excessive EI Premiums: Nothing But A Cash Grab”. I guess the title indicates what's in it.

I think the salient points in that piece are ones that put in perspective the issue of reducing EI premiums to create jobs. This piece says: “There are four good arguments, strong arguments, for reducing EI premiums. Job creation is not one of them.” That's a very important point. Job creation is not one of the more important reasons for reducing EI premiums.

I'll just give you the headlines here. The first is that the government's position right now is completely inconsistent with the stated policy for EI. In fact, the minister justifies his position for not reducing the premiums and says “We will, when our fiscal position permits”. If you go back and read the EI Act, it says premiums should be at a level that has them balanced over the cycle. There is nothing in there that says “permitting our fiscal situation” or “relative to deficit or deficit forecast”.

Holding the EI premiums at a level far above what's required for EI is a particularly perverse form of tax. If you want to know the income distribution impacts—and that's something to discuss—the excessive EI premiums threaten the integrity of the EI program. A lot of the money is not going for EI, and the deficit reduction tax, which it represents, may in fact not be used for deficit reduction at all.

I think those are the four main reasons the premiums should be reduced. When I say job creation is not one of them, I still conclude, after reviewing everything I can find on the issue, including pieces from the Department of Industry, the Department of Finance, and the recent Mintz task force report, there's a reasonable consensus on this that if you were to reduce the EI premiums, there would be a reasonable amount of job creation over the medium term.

A reasonable amount of job creation over the medium term is not going to solve our unemployment problem. There's a consensus amongst economics that with any sort of tax change—this is not unique to EI premiums—there's an adjustment over the period and in the longer term, it comes out having an impact on wage rates rather than employment.

If you went to this long-term equilibrium level, in two or three years employment would be 100,000 to 200,000 higher than it otherwise would have been. That's what's at stake on job creation. It's important to everybody, and that's what it is. In the medium term—100,000 to 200,000 against the number of people unemployed today. Let's keep it in perspective, but at least it's a move in the right direction.

With that, I'm over to you.

The Chairman: Okay. We'll start the questioning with Mr. Ritz.

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

Thank you for your presentation this morning. You're basically saying that reductions in EI will have no impact on the job market.

Mr. Dale Orr: No, that is precisely not what I said.

Mr. Gerry Ritz: Okay, good.

Mr. Dale Orr: Do you want me to read it again?

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Mr. Gerry Ritz: No, no. It's just the way you went around in a circle. It led me astray for a second.

When you talk about lowering the EI rates to $1.85, that's the cyclical average.

Mr. Dale Orr: Yes.

Mr. Gerry Ritz: Are you talking about boom we go there right away, or are you talking about a phase-in type of program? What are you thinking?

Mr. Dale Orr: We're thinking they should have gone to the cyclically balanced level for 1997, after that surplus got up to the $5 billion level. The sooner we get down there, the better. Tomorrow would be a good day to do it.

Mr. Gerry Ritz: Can the economy take that type of a— you know, where we drop almost $1?

Mr. Dale Orr: Sure. We're not talking about big numbers relative to the economy. That's why I'm saying if you went right down there next year, for example, two or three years later employment would be 100,000 to 200,000 higher than otherwise. The level of employment in the economy today is 13.7 million, so with 100,000 to 200,000 two or three years out, we're not talking about a momentous issue.

Mr. Gerry Ritz: We're not talking about a big blip. All right.

Have you done any projections on the impact of the EI holiday for 20- to 24-year-olds? What do you expect to see? It kicks in in July of this year, if I remember correctly.

Mr. Dale Orr: I accept as being reasonable what is in the budget plan. It says it will cost the government about $100 million.

Let's put it in perspective. What we're talking about in that holiday is very tiny. The EI surplus, as I mentioned, at the end of this year will be $19 billion. This program proposal is $100 million. That's what they're saying it will save employers in premiums, so it's very small.

Mr. Gerry Ritz: We have another segment of youth out there. I've had representation from some of my constituents. For example, a 16-year-old has a job washing dishes after school or on weekends. He gets his T-4 at the end of the year. He's charged EI, but he's exempt from CPP contributions, which he wouldn't mind making because that's an investment in a program for his future. He's charged EI, and has no access to what EI will do for him.

How do we turn that around? We're talking about an EI holiday for 20- to 24-year-olds. Should we take it right down the gamut to everybody below 24 years?

Mr. Dale Orr: There are certainly problems with singling out that group. What if you're a 25-year-old? In other words, your competition for a job is subsidized and you're not. What if you're a 17-year-old? You face that problem.

For example, a proposal that a lot of economists think makes sense in the recent Mintz task force report—he writes at length on it—is that the reductions in premium on the employer's side should be given on the basis of experience rating, rather than anything else. They should go on the basis of the unemployment insurance record of the particular firm, experienced-based.

Mr. Gerry Ritz: Thank you.

The Chairman: Thank you, Mr. Ritz. I noted the fact that you said 16-year-olds don't mind making CPP contributions, which sound—

Mr. Gerry Ritz: It's an investment in their future. It's something they will get some benefit out of and build on.

The Chairman: That's interesting. It's a very good point.

[Translation]

Mr. Paul Crête: I want to thank you for the clarity of your tables, which vividly demonstrate the opportunity the government is missing in terms of job creation by leaving premiums at their current level. Your document shows that very clearly and precisely.

You said that the budget estimated $100 million for the premium holiday for 18 to 24 year-olds. In light of your experience and that of your members, do you believe that some employers will decide to hire someone because of the premium holiday they will get or will they simply benefit from it based on the circumstances when the people they hire are in that age group? We have to understand that that this measure is probably aimed at getting more people between the ages of 18 and 24 to work, despite all the constraints you described earlier, including the 17 and 25 year olds. I agree with you there. But do you think employers will hire people to benefit from the premium holiday?

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Is the premium holiday sufficient to justify a job? Based on your example, a general decrease would allow us to save much more significant amounts, which could possibly have a real impact on job creation.

[English]

Ms. Sharon Glover: Yes, as we understand the way the holiday works, you don't get to take advantage of the holiday unless you do hire additional youth. So it doesn't matter if you have youth working for you. You have to hire additional youth and your payroll has to go up.

We believe it will actually encourage people to hire youth. People do make decisions on how much it costs them, on what their payroll is. We think employers, if they're looking at who to hire, will look at the ages and will tend towards youth. We do think there will be a positive incentive to hire youth. That's why we were in support of it. If we thought it was going to be useless, we would have said so at the outset. That's one of the reasons we support it—because we think it will work.

[Translation]

Mr. Paul Crête: But the resulting tax savings would be the real element that would lead an employer to hire a young person. Let's take the example of small and medium-sized firms with five to ten employees, where most job creation normally occurs. Is it the premium holiday or these savings that that will prompt these employers to hire someone?

There is a difference in hiring an employee who is between the ages of 18 and 24 because of the premium holiday rather than someone who is 25, 30 or 40 years old, and creating a job specifically because of the premium holiday. In your opinion, is there a difference between the two? Will people hire an employee solely because of the premium holiday they get?

[English]

Ms. Sharon Glover: Personally, I think it's a bit of a stretch to say that someone would create a job because of the premium holiday. I think if you're doing your hiring, the people you will hire will be between 18 and 24 if you're looking in that category anyway, because they will get the exemption. But creating a job because of a premium holiday for a very specific sector—I'm not sure whether anyone would do that. We'll have to see how that will work out.

[Translation]

Mr. Paul Crête: Do you want to add something?

[English]

Mr. Dale Orr: Yes. Just to expand on that a little bit and again put things in perspective, we're talking about a small, small, tiny program relative to the size of the economy. I think there's no doubt that if you make the cost of hiring a group of people lower than otherwise over the whole economy, there will be some increase in hiring. I don't think you can possibly argue against what happens when you lower the price of something. We've had many, many years of experience with that.

However, what's the order of magnitude? It's very, very tiny relative to the economy. You could talk to dozens of small businesses, and they'd say, you know, big deal, I didn't. But if you talked to 1,000 small businesses who maybe would have otherwise hired 1,000 people, maybe they'll hire 1,000 and a couple more. It's that sort of thing. It's certainly there, but it's pretty small, and we're talking about that order of magnitude.

[Translation]

Mr. Paul Crête: On the other hand, if we talked about a more far-reaching solution, or, as indicated in the document you tabled, a significant reduction in premiums, what conditions would allow us to ensure that there would be significant job creation? We can decrease premiums without there necessarily being a direct effect on jobs. An increase in premiums necessarily has a negative effect on jobs, whereas a decrease—and you can comment on that—although it is interesting for the companies, gives no assurance to the government that there will be an impact in terms of job creation. What conditions are necessary for a real impact on job creation? Is it the size of the decrease? In the end, is it necessary to link this premium reduction to job creation? In your opinion, how could we ensure that a decrease in premiums would have a real effect on jobs? Is my question clear?

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[English]

Mr. Dale Orr: Yes.

I think we're talking about the workings of the market system here. If you lower a price people will take more; if you raise a price people will take less. As they say, that's been going on in Canada for lots of years. I certainly don't think you need a big bureaucratic infrastructure to go along and see if people are operating according to the market system. We're talking about numbers that are pretty tiny here. If you put this into effect for a couple of years and then have somebody go back and try to measure the impact of the program, it's pretty tough.

[Translation]

Mr. Paul Crête: Would you be willing to consider the possibility that the premium rate be determined by a social forum that would bring together your Chamber of Commerce, the Canadian Federation of Independent Business, the Canadian Labour Congress and workers? It could tell the government that the relevant premium rate in our society is about $2 or $2.20, provided there was a guarantee of course from the start that the entire fund would be used for unemployment insurance.

Our current problem stems from the fact that a significant part of the fund is used for day-to-day government funding. If that kind of approach was used and the government said it was willing to set a rate agreed on by consensus, don't you think that would be a way of reaching a more balanced rate for society? Currently, the government is garnering money from the premiums that basically should be used for the unemployment insurance plan.

[English]

Mr. Dale Orr: We accept the program as it's defined in the policy, and that is that EI premiums be set at a rate so that revenues cover expenses over the business cycle. We don't have difficulties with that. Our problem is that the government is not sticking to that policy and we wish they would, and I think that's a good way of doing it. I don't think you need any consensus between a whole bunch of interest groups to set the policy.

The Chairman: I just have one question of clarification. When you're dealing with your analysis, you deal in aggregates vis-à-vis job creation, yet we all know that job creation takes place at the individual firm level. How do you reconcile the two things? I'm not so sure that the aggregate argument works itself out in the economy.

You were saying that the employers' savings at 46.4 are more than sufficient to hire an additional employee. First of all, where are the majority of the jobs created? Is it the firms that have 100 employees or more that create most jobs? If that would be the case, then are you saying people wouldn't be hired by a firm? I'm just giving an example to make a point.

Mr. Dale Orr: What I'm saying here is that for the firm that has 100 employees, the savings they would realize would be sufficient to hire an additional employee. Now, would every firm that has 100 employees hire an additional employee? No, they probably wouldn't. But if you took 1,000 firms of about that size, yes, probably they would.

If you take 1,000 firms of that size, there are probably quite a few of them saying maybe they would expand, maybe not, and their accountants are sitting there with a sharp pencil and they're on the verge of hiring more employees. When they see the rate being lower for a certain type of employee, such as in that age group, etc., if you take 1,000 firms of that size, some of them are going to be on the margin. For some of those that are on the margin this is going to make a difference to them. It's that type of a situation.

The Chairman: Given the departmental situation, if they all of a sudden receive orders from their customers and they have to produce x amount of widgets and it requires more people, they'll hire them anyway.

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Mr. Dale Orr: Yes, they'll hire them anyway.

With this program in effect, there may be some of them who, again, if they were looking to hire somebody between the ages of 17 and 30, might say “It will cost me a little bit less to get into this 18 to 24 age range, so why don't I do that?” You might see that sort of thing going on.

The Chairman: Mr. Valeri.

Mr. Tony Valeri (Stoney Creek, Lib.): Thank you, Mr. Chairman.

As an additional point on the premium holiday that's included in this particular bill and a point of clarification, the program that's included in this particular piece of legislation is really one initiative out of four in the Canadian opportunities strategy, which is targeted at youth, because youth often face the challenge of not being able to get a job because of no experience—no experience, no job; no job, no experience. This was a way of trying to encourage some employment opportunities for young people. By no means is that being put out there as the answer to youth unemployment.

I think the Canadian opportunities strategy goes a long way in addressing some of the challenges that youth face, by ensuring that they have the necessary tools in order to compete in the marketplace—that is, the education. So I want to make sure that we are on the same wavelength in terms of the reason behind that particular initiative being included in the Canadian opportunities strategy.

Mr. Dale Orr: Sure.

Mr. Tony Valeri: The other point I'd like to make has to do with the EI account. The point was being made by the chairman that individuals—anyway, I think this is the point you were talking about—

The Chairman: I will clarify it.

Mr. Tony Valeri: I'm sure you will. I was about to say that. Let's disregard that last comment.

What I want to say is companies hire when the market conditions support hiring. We're in a situation today where we have the fundamentals in our economy right. The books are balanced; interest rates are lower than they have been in a long time. Those conditions are really supporting a more vibrant economy, and thereby there has been employment.

Your argument here is that what we should do is reduce the EI premiums for a number of reasons, one of them being job creation. I find it difficult to agree with that, although I want to say that since 1993 the premiums have been coming down. There's a commitment to continue to do that. But now we're in a situation where there are choices that need to be made.

You understand that the EI fund goes to the bottom line; it goes to consolidated revenue. There isn't a separate fund out there that the government goes to, to do the other things, to run government and the operations of government. So when you're asking for a $6 billion reduction in the bottom line, what you're really doing is saying EI premium reduction is a priority over and above personal income taxes, over and above any sort of reinvestment.

I want to make sure that what you're really saying—Mr. Crête disagrees with my understanding of the EI account, but we could have that debate some other day—is that the reduction in the EI premium is the priority for the Chamber of Commerce. At a time when the OECD says that Canada's personal income taxes are higher than other trading nations, the payroll taxes are competitive. Yet I find you coming before the committee saying let's reduce the EI premium.

As a government, we obviously have to make choices and we often look to organizations like yours to provide some of that input. So I appreciate your being here, but I want to understand how it is that you come to that conclusion that EI premium cuts should far supersede any other priority that the government or Canadians may have.

Ms. Sharon Glover: The reason we focus on EI is because currently there is a program called EI, there is something called an EI fund, and we agree and we understand that it's part of general revenues. But the facts are that the Government of Canada pulls in $19 billion a year to run a program that costs $13 billion, which means they're using $6 billion of taxpayers' money not for EI but for other purposes.

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We believe the other purpose is as a deficit reduction tax. The government has become so used to using this $6 billion that we get arguments when we bring up the matter that there is a program, there are rules, and the government, in our opinion, is not going by the rules or the intent of that legislation.

Dale, perhaps you can add to that.

Mr. Dale Orr: Okay, thanks. You've made a lot of interesting, good points there. I have about four answers, and hopefully I can cover them.

First you talked about youth unemployment. I don't know whether anybody has tabled the numbers with you on the extent of youth unemployment relative to the average unemployment rate, but last year it was 2.14 times the average unemployment rate. That's for people aged 15 to 24. It's been around double for the last decade, and last year it was higher than it's been for many years. It's been in the 1.8 range basically since 1990.

So when you were talking about various programs directed at youth, well, there's certainly good empirical support for trying to help them out. It's very tough. That's the order of magnitude: double.

Another point to make is that you of course correctly say if we go down to the cyclically balanced level on EI, then the government's fiscal position won't be as attractive as it otherwise would be. That's right.

A point I'm not sure has received a lot of discussion here, though, is if the government does go down to the cyclically balanced level and reduces EI premiums from $2.70 to $1.85, lots of things will happen in the economy, because you're putting more disposable income in the hands of employees and you're reducing the cost of business to employers. So you get a generation of income, both on the business side as well as from consumer spending.

Mr. Tony Valeri: You're also assuming that a $6 billion cut in the bottom line wouldn't put us back into deficit. You're willing to accept that tradeoff on the basis that you're going to create all these jobs and all this other money's going to flow back into the economy. You also have to answer the question.

If in fact it's going to be a $6 billion cut on the bottom line, and the tradeoff for that is going back into deficit, you're assuming much higher surpluses in money flowing to the coffers, but you're talking about a tradeoff that would put us back into deficit, potentially. I don't know the numbers; the numbers aren't out there. But you're saying that as an association, you're willing to promote the position of, “Give us the EI cut of $6 billion; that will have an impact in the economy”, irrespective of whether one of those fundamentals, i.e. a balanced budget, may be jeopardized.

Mr. Dale Orr: Well, let me continue, because what I'm saying is if you reduce the EI surplus by $6 billion, the amount of the impact on the deficit to the government is not $6 billion. As a matter of fact it would be more in the order of magnitude of $4.5 billion, because the amount of income generated, which in turn generates taxes to the government, would give them a backwash of about 25% of that reduction. So you lose $6 billion from EI, and the impact on the deficit's not $6 billion; it's more like $4.5 billion.

And, yes, we certainly think that would be a very wise thing for the government to do, because if you want to hit a particular fiscal target for any particular reason, this is about the most perverse form of taxation that one could ever think of for doing that. If you want to start from a fiscal target, don't raise taxes this way. This is very perverse, hitting low-income. It would almost make you cry for the people who are hit the most severely by this particular form of tax.

The other thing is it would probably not send the government back into a deficit position; it would probably allow them to about hit that zero target they're talking about. The consensus amongst private forecasts is that there's enough conservatism and contingency funds in the forecasts for the budget that actually the private sector forecasts are for a surplus of about $5 billion for this year, rather than the zero that's forecasted in the budget.

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So sure there's a trade-off. There's no doubt about it. We're talking about an order of magnitude of $4 billion or $5 billion. It's not quite as large as the EI surplus, but it's there, and there are better ways of dealing with that trade-off than a surtax on EI premiums.

Mr. Tony Valeri: Just so I'm absolutely clear on this, the position of the association is that to bring it down by $6 billion, you believe you'll get back $1.5 billion. That would give you $4.5 billion at the bottom line. If that brings us into deficit, we shouldn't worry about it because you really don't believe that will be the case; there will be more and you'll be able to survive that, and there will be a whole bunch of jobs created because the EI premium is now much lower. When we talk about the interest rate or the situation of personal income taxes that are an issue in this country, you're not too concerned about them because you think the rest of these will take care of themselves.

Mr. Dale Orr: It's not a question of not being too concerned—

Mr. Tony Valeri: As a government, though, you unfortunately have a number of priorities, and you have to meet all of these various priorities. You have to at least try to. Yet you're coming forward saying EI is the answer, given the amount of money that you have to spend. You just said the consensus of private sector forecasters is that there may be a $5 billion surplus, and you're willing to spend $4.5 billion of that on an EI reduction. That's fair enough. I don't want to take up the whole time.

Mr. Dale Orr: Yes, and this is a tax, so I'm also saying that if you want to make sure you absolutely hit that zero as your final target, get the money from elsewhere, somewhere where it isn't hitting the particular groups hit here.

Mr. Tony Valeri: Do you have any suggestions on where we might get that money? I'm sure Mr. Crête would be interested in knowing.

Mr. Dale Orr: For example, the chamber has taken the position that there should be certain cuts in program spending. Business subsidies are one of them, and there are probably others.

Mr. Tony Valeri: Do you think we can get $4.5 billion or $5 billion out of business subsidies?

Mr. Dale Orr: You can get $1 billion.

Mr. Tony Valeri: Do you think we can get $4.5 billion or $5 billion?

Mr. Dale Orr: There isn't $4.5 billion there to get, no, but it's—

Mr. Paul Crête: Submarines.

Mr. Tony Valeri: Would you like to be a witness?

Mr. Paul Crête: No.

Mr. Tony Valeri: Well, perhaps you could wait for your time to speak.

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Valeri, Mr. Orr. Thank you.

Mr. Paul Crête: You don't like the suggestion of submarines?

Mr. Tony Valeri: I don't see anything wrong with them.

The Chairman: We'll talk about submarines another day.

Mrs. Redman.

Mrs. Karen Redman: Thank you, Mr. Chairman. I would like to ask a question having to do with the holiday premium.

The Canadian Federation of Independent Business was here as a witness group last week. I would certainly agree with one of the points one of the witnesses made about directing employment. I would agree that unless the job is warranted in a business person's estimation, they're not going to run out and hire somebody.

I think the intent of this is that we direct those new hires to young people. One of the questions the independent business association voiced some concern about was how they would ascertain whether or not people fell into this age category. Before you hire somebody, it's not a question you can ask a person. My question to you is whether or not this is something your association is taking a stand on. Has it been discussed in any way?

Ms. Sharon Glover: It hasn't come up, but it's certainly an issue. They're right, you're not allowed to ask how old somebody is. I'm not sure whether it's under provincial laws or federal employment regulations, but it's probably because of provincial laws that you can't ask someone's age. I'm not sure how it's resolved, but they do have a very good point.

The Chairman: Mr. Szabo, did you have a question?

Mr. Paul Szabo: This issue has gone in circles for a long time, and we really need to move on.

If I were to take simply your presentation here, I would have some difficulty supporting it from the standpoint that on the raw numbers you would say you want the government to forgo $6 billion just on this thing here. That's $6 billion worth of revenue to create some jobs, but what does it in fact cost? In the example you gave, that of employee and employer savings for a hundred-person firm, aggregate is almost $80,000. On its face, it says you would create one job at a cost of $80,000. That makes absolutely no sense, considering the alternatives.

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As Mr. Orr correctly points out, businesses are going to get a change in the deductions available. Therefore their taxes are going to go up. Employees are going to get a lower non-refundable tax credit. They're going to have a little more disposable income. I did a quick calculation, and the net impact, in fact, would be about $4.4 billion, excluding the economic spin-off of the additional disposable income.

I could go on a little longer about the ripple effect, but the point I want to make is that your analysis is really very naive in terms of what you— It would have been better to provide all of the considerations and develop the argument.

However, I want to ask you about what Mrs. Glover suggested was the EI fund. You used that phraseology, and of course you and I and everybody else knows there is no fund. In fact, it's a notional account. It's just a side record-keeping over there that sort of keeps the account on money in, money out.

In the Income Tax Act it says that all expenditures incurred directly or indirectly to generate income are deductible. That's the way businesses account for their activities in providing and preparing their tax returns. Any cost that I incur—directly or indirectly—to earn income is deductible. And yet the way the EI notional account operates, simplistically, is that premiums come in as revenue and benefits and administration go out.

On that basis, the circular argument we've had is “look at these surpluses”, and yet you would not disagree that the government has invested substantial amounts of money in job creation and in trying to make an environment that is conducive to job creation. I think of things like the technology partnerships program as an example, where moneys are invested in the first year of the TPC. It has directly or indirectly supported the creation of some 10,000 jobs at a cost of some $413 million.

If not direct, these are certainly indirect costs of creating jobs or providing employment for people who are unemployed as well as for those who are coming on stream.

There are numerous other initiatives that I could list and I won't get into because I want to hear your comments on this.

I think my question or my point to you would be don't you think we should get off this merry-go-round and stop talking about a simple calculation of a notional account and whether or not I can get any money out of it and start talking about a reasonable determination of the value of the funds put in the EI account, what benefit they generate, and whether or not an amendment to the legislation defining the true cost or the true charges to the notional account should be made, so that in fact all costs directly or indirectly associated with protecting employees and providing employment opportunities in the future would be reflected in that legislation?

Ms. Sharon Glover: Mr. Chair, my slip stating that there was an EI fund comes from the fact that there used to be an EI fund, and believe it or not, the chamber has been working long enough on this issue such that we used to come to committee and refer to the EI fund. Now it's an account because it is part of the government's general revenue.

We would never belittle what this government has done, either in terms of deficit reduction or in terms of any other efforts it has made. It has done a lot to try to create jobs. I think everyone has been looking for the magic bullet on how we lower the unemployment rate.

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But the fact remains that there is an account, and there are rules by this account. When this government first came into power Mr. Axworthy led a very major review on social policy reform, and this government made extremely well thought out and good changes to the EI program and we supported this government. But what remains is they chose to keep something called an EI account and chose to keep rules that said this account should be balanced. The premium should be balanced over the business cycle. If they didn't like the rules, they had an opportunity to change them. They weren't changed. So we're saying you set up the rules, you set up the account, now we think you should abide by the rules.

So that's our message. There's $6 billion of Canadian taxpayers' money that's being collected for a program that doesn't need the money. So if you're not going to use it for the program, maybe you should call it something else, but let's not pretend that we all have an EI program that costs $19 billion. That's our message.

Mr. Paul Szabo: You want to treat it in a vacuum apart from everything else that occurs in the fiscal affairs of the country, just because you can get dollars out for your members. Isn't that what it's all about?

Ms. Sharon Glover: We believe that there are rules in law that the government is obliged to follow, and they should follow them.

Mr. Paul Szabo: Thanks.

The Chairman: Just from some of the comments you made, am I to assume that you're saying if this is going to be just the price of doing business in this country, for employers and employees, then just say that? This is a tax like any other tax, like a personal income tax and other taxes. You have a sum of money that is basically to cover whatever. Because whether we lower the deficit, whether that money gets invested in education, whatever, business people and the general public benefit from those expenditures. Let's not kid ourselves. If you have skilled labour, if you have a health care system that works, if you have all these things that work, everybody benefits, because you're going to have a more efficient society and economy.

So I'm trying to get the point here. You'd rather have the government say this is a tax that is basically a tax for doing business in this country, and that would be clear, it would be more transparent. Is that what you're saying?

Mr. Dale Orr: Yes.

In this piece that I wrote, the first reason for reducing it is because of the current inconsistency with economic policy. And if we imagined going back to 1996, when the fund had reached what people considered to be a cyclically balanced level of $5 billion, if Mr. Martin had said “Here's what I'm going to do; I'm going to impose a surtax on EI premiums so that I can hit a particular deficit target. I understand that the people who are going to be most hurt by this deficit reduction surtax I'm imposing are low-income people, which includes disproportionately women, disproportionately lower-wage people, of course, and disproportionately small business. I have chosen this particular form of deficit reduction tax and I'm willing to propose it. Stand up and be counted and let it pass all of the tests and see what happens.”— If he would have done that and been transparent with us, and it had support from Parliament and support from the public, I guess we'd say we would have gone the other way, but there you have it.

So in this piece I wrote, the number one reason is this is a deficit reduction tax by stealth. It snuck up on us and it's there because of what's called the tyranny of the status quo. It's there because it was easy money for the government. It was easier for the government not to reduce EI premiums than it was to reduce program expenditures or to increase another tax. That's why we have it, purely because it was politically easy money relative to the alternatives.

In my view and a lot of people's views, there is no way Mr. Martin would have stood up in 1996 and said “I have a bright idea here, a deficit reduction tax, and where I'm going to levy that is as a surtax on EI premiums.” No way. It's there because of the cheering of the status quo. It sat there. It's easy money not to reduce it. It doesn't make sense from an economic policy point of view, and that's probably the number one reason for our discontent. We're saying let's call a spade a spade and clean it up.

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The Chairman: So you're saying let's have a payroll tax. Let's say this is the price of doing business in this country. This is what you have to do. You have to pay x amount of dollars. You're not arguing the point of the payroll tax. What you're arguing is about the amount that you're paying. But if you believe in payroll tax, then you would accept the fact that to do business, as in any other country, you have payroll taxes and you have to pay your fair share, because you benefit from all sorts of expenditures that we made through general revenue.

Mr. Dale Orr: Yes. First of all, we're saying the government should stand up and be counted, present this thing for what it is and rise or fall by being honest with people.

We feel that if he did this what would happen is that it would not prevail and that EI premiums would go down to their cyclically balanced level. That's what we think would happen. If it were done in a very open and transparent way with the public and with Parliament, and the public and Parliament thought that was just the best thing to do, as I say, we would disagree, but that would be life. We disagree with other things.

Our proposal is that it should be down at the cyclically balanced level. We don't have big problems with the current policy. Sure, there should be EI premiums and they should be at that cyclically balanced level. We don't have difficulties with that.

The Chairman: Is there a final question?

Mrs. Karen Redman: If I may, continuing along this theme, EI is nothing if not a very complex issue, as I think we're all agreeing today, and it seems to me that you're talking about one portion of an equation.

My question would be rather than looking at the logical extension of the fallout of the status quo, which you referred to, if we were to look at changing another part of that equation, say make changes in EI that addressed some of the concerns you talked about, the fallout on women and the working poor, the low-income people, would that satisfy your organization's need for transparency, or are you really looking at just bottom-line dollars?

Ms. Sharon Glover: I think a payroll tax in general is regressive, and it would be extremely difficult to pull out women and low income. You'd end up with a real mess.

What you need is a different type of tax. Payroll taxes, by their nature, are about the worst kind of tax you can levy, because whether or not you're making money, you pay them. People happen to be making money and you don't hear much about them. When they're not making money is when they're at their worst.

Mrs. Karen Redman: There is a benefit, and we call it an EI benefit when people receive it. So my question really is zeroed in— I'm not suggesting that we just isolate those groups, but what I'm saying is if we look at it in a holistic manner rather than saying— We're all agreeing that there is no separate fund at the end of the day. We're all agreeing that it looks like there are moneys there. Rather than just trying to lower that tax, if we looked at using the levels of moneys that are generated by that tax and somehow change the benefit that accrues to the people who are paying into it, does that satisfy your organization's need for transparency?

Ms. Sharon Glover: No, it certainly doesn't.

The Chairman: Paul, do you have any further questions?

[Translation]

Mr. Paul Crête: I have only one comment. We are using this money to fight the deficit and we are limiting the premium to people who earn $35,000 or less. Then people who earn $39,000 or more are not contributing to the fight against the deficit according to you logic.

[English]

The Chairman: On behalf of the committee, I'd like to thank you, Mr. Orr and Ms. Glover. Obviously you've been able to generate enough debate on this issue, judging from the questions, and we thank you very much for your contribution to Bill C-36.

Mr. Dale Orr: Thank you.

The Chairman: I'm going to suspend for one minute.

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• 1055

The Chairman: I call the meeting to order. I would invite committee members to join us at the table.

I'd like to welcome the representative from Campaign 2000, Ms. Laurel Rothman; from First Call, Cindy Carson, the provincial coordinator; and from the National Council of Welfare, Armand Brun, vice-chair, Steve Kerstetter, director, and Joanne Roulston, senior researcher and policy adviser.

You've probably appeared before committees before. You have approximately ten minutes to make a presentation, after which we will get into a question and answer session.

We will also make sure that Mr. Crête gets off the phone, because the meeting is going on now.

Thank you. We will begin with Mr. Brun.

[Translation]

Mr. Armand Brun (Vice-Chairperson, National Council of Welfare): Thank you, Mr. Chairman. Good morning, ladies and gentlemen.

I'm Armand Brun from Shediac, New Brunswick, the vice- chairperson of the National Council of Welfare. With me this morning are Steve Kerstetter, the director of the Council, and Joanne Roulston, the Council researcher.

The National Council of Welfare is a citizens' advisory body to the Minister of Human Resources Development. Its mandate is to advise the Minister on issues of concern to poor people. The Council's advice normally takes the form of reports to the Minister, which are also distributed free of charge to the general public.

Last year we published a report called Child benefits: a Small Step Forward. I'll start by going over some of the recommendations we made in that report.

We said that “provincial and territorial governments should consider passing on the increases in child benefits to families on welfare rather than clawing them back and reinvesting the money saved.”

We are still concerned about improving benefits for families with children who depend on welfare. There are an estimated 1.5 million poor children in Canada. Roughly two-thirds of them - or about a million children - live in families on welfare. Those children will lose their increases to the federal child benefits in clawbacks by the provinces and territories.

When we did these calculations, we were surprised to see how few children will actually benefit from the increases to the Child Tax Benefit. In particular, we were concerned to see that very few of the children of poor single parents will be better off after July 1. About half the poor children who live in two-parent families will be getting increases in benefits. But only about 12 or 13 per cent of poor children who live with single parents will get any help at all. And of course, since most single parents are women, this introduces a gender bias to the program.

We recommended that “provincial and territorial governments which insist on clawing back benefits from welfare families should agree to clear guidelines for reinvesting money in other programs for families with children. They should also provide proof that the money reinvested in these programs is “new” money and not money that would have been spent anyway.”

The guidelines for provincial and territorial reinvestment are very loose and ill-defined: programs are simply supposed to help to prevent and reduce the depth of child poverty and promote attachment to the workforce for people on welfare. From the descriptions we have seen so far, some of the programs announced by the provinces and territories seem acceptable, but some are questionable. The amount of money being reinvested is relatively small, and there is still no system in place to make sure that the money being spent on these programs is the money from the clawbacks.

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The fact is that welfare incomes for all recipients are inadequate everywhere in Canada. Although services and programs for families with children can be helpful, the most important and urgently needed support for poor families is income support.

We recommended that “the federal, provincial and territorial governments should all stop cutting programs for low-income Canadians”.

The council is looking for iron-clad guarantees that the provinces and territories will not use the Child Tax Benefit as an excuse for further cuts in welfare benefits. Just two weeks ago, we learned that Ontario is cutting an allowance for pregnant women on welfare and replacing it with a service. This kind of practice must not be tolerated.

[English]

Our report recommended that the proposed new Canada child tax benefit should be fully indexed to increases in the cost of living. We will discuss this idea further in a minute. We also recommended that both levels of government should open up the discussions on child benefits and other issues of social policy to ordinary Canadians.

We urge the federal government to ensure that the discussions about the second phase of the new child benefit are much more open than the first phase. Fourteen months after the original 1997 budget announcement, we still don't know the precise impact of the new child benefit, and we don't have a complete picture of the provincial and territorial reinvestment plans.

An issue that we didn't raise in our 1997 report but which is equally important is the question of what happens to families whose incomes come from welfare and jobs. Will they get to keep the increase in benefits, or will their benefits be clawed back by the provinces and territories? By the council's estimate, families who combine welfare and earnings are a significant portion of the poor population.

The attached chart shows data that we will publish shortly in Poverty Profile 1996. What you'll see is that about as many poor couples with children were supported by welfare alone as by welfare and earnings—14% each in each case. The portion of poor single mothers who depend on welfare alone is 45%, and on combined work and welfare about 20%. The child tax benefit is supposed to encourage people who are trying to make the transition from welfare into the workforce. For families with children, a full-time job at a low wage may not raise the family off welfare, but it helps. Many people are proud to be able to work, even if they still rely on welfare to make ends meet. The council believes that people who want to work and can find jobs should be encouraged and supported.

Committee members will be aware that people on welfare start having welfare cheques reduced as they get more income from earnings. We have no firm guarantee that families deriving income from both welfare and earnings will not lose the increase to their child benefits to clawbacks. In our opinion, taking the benefit away from these families would be most unfair.

We calculated income for families with work and welfare incomes in several typical scenarios, with typical welfare rates and typical earning exemptions. People on welfare usually go into low-wage and minimum-wage jobs. What we found is that in every scenario the incentive to work is pretty small. This is an issue the council has raised in several reports in the past. What we calculated is that the incentive to work increases if the families are allowed to keep their child benefit increases, but it increases only by the actual amount of the increased child benefit.

For example, the income of a family with one child would go up $50 per month, and a family with two children would get an increase of $84 per month. Although the amount may be small, it makes a big difference on these tight budgets, and the principle of encouraging people to work is very important. But we should point out that even if families keep the increased benefits, parents working in low-wage jobs, even full-time, will continue to need income support programs and will still be well below the poverty line.

The council recommends that parents on welfare who have earnings higher than the exemption levels in the provincial or territorial welfare programs be able to keep the increases to their child tax benefits. Unless we can guarantee this, parents on welfare would be subject to a double whammy that would defeat the very purpose of the new arrangements.

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The last issue want to raise with the committee is how the next $850 million in federal money will be spent.

We see three options. The first is putting all the money into benefits for working families and clawing back the money for welfare families. The council has never supported this idea. Second is indexing the entire federal child tax benefit to provide full protection against increases in the cost of living. This was one of our recommendations in 1997. Third is using all or some of the $850 million to increase the basic benefits—in other words, giving a bit more to all the current recipients, not just the working poor.

In all of this, we would like to see an open and public debate about these options and other possibilities before the federal government decides how to proceed. The council will be meeting again at the end of May, so we'll be able to tell you about our preferences in much more detail after that.

On behalf of the members of the National Council of Welfare, I would like to thank you for the opportunity to discuss these important issues.

This morning I'm pinch-hitting for the president, who is in hospital. I'm not fully familiar with the details of this, so I have two people from the council who will go to bat for me if I can't field all the balls.

The Chairman: You have excellent support, by the way.

Mr. Armand Brun: Thank you.

The Chairman: The next intervention will be made by Laurel Rothman, a board member of the Child Care Advocacy Association of Canada and Ontario Campaign 2000 coordinator.

Ms. Laurel Rothman (Board Member, Child Care Advocacy Association of Canada, and Coordinator, Ontario Campaign 2000): Good morning. I'm representing Campaign 2000 today because Rosemary Popham cannot be here. I'm the Ontario coordinator.

Most of you are probably familiar with us, but I'll quickly remind you that Campaign 2000 is a public education and awareness organization of more than 60 national, provincial, and community partners. We were founded in 1991 to help raise the profile of and keep honourable members diligent with respect to the all-party resolution to end child poverty by the year 2000, and that's coming upon us fairly quickly.

I'd like to respond to a small technical point in the bill that was recently introduced, and to some associated issues. I also want to refer to one of our earlier publications. In 1996 we determined that it was important both to raise awareness on the issue and to propose policy solutions. This wasn't our first proposal, but one of our most recent. In Crossroads for Canada we identified measures that we feel are needed for what we call a life-cycle approach to child poverty. We're challenging Canadian governments—and by that we mean both senior levels of government—to develop the will to invest in a life-cycle set of initiatives through children and families that has a scope and framework similar to the programs and services developed for seniors that began about three decades ago.

As we speak, I think we're looking at significant public investments, and on the horizon hopefully the ability to do that. The major initiatives that we looked at and suggested included a comprehensive child benefit, which would remove children from poverty and help to prevent poverty and bolster the living standards of modest and median-income families. I think we're in support of much of what the National Council of Welfare said.

To put it very simply, we do not think that the welfare wall is the main barrier. Many families go back and forth between the low-wage workforce and social assistance, and some straddle both frequently. So we recognize that modest-income families, social assistance families and the working poor need income security, but we're arguing that there are other options. I will briefly raise them.

We also put forth a suggestion for an advanced maintenance payment system, similar to what exists in a number of western European countries, which would advance half of the child support payments to modest and low-income custodial parents, ususally mothers, and the federal government would be the body responsible for recovering the full amount from the non-custodial parent.

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The third initiative was a national envelope to develop comprehensive early childhood care and education. We recognize the complexities of that commitment, but we also want to emphasize that basic development requirements of young children do not vary by region in this country, and we think there is an important role for the federal government in this area.

Our fourth initiative was a national youth education endowment fund that assured each academically qualified young person of financial access to a first post-secondary program. We looked at a figure of a public investment of up to $20,000 for four years for a full-time program. At the time we wrote that, it was closer to 70% or 75% of the cost, but now it's maybe half the cost.

We subsequently refined some of our ideas in “Mission for the Millennium”, our 1997 paper, and your government subsequently announced the National Children's Agenda, a process that is under way among the federal, provincial, and territorial governments. I think that creates an important opportunity to collaborate on priorities for children and families.

First, I'd like to talk about the Canada child tax benefit. I would like to make a specific comment on one of the technical amendments as I understand it, and that's with regard to the privacy issue.

It was difficult to get specific information from the officials on this measure of the bill. It took a lot of calling around. I confess to perhaps not being fully informed, but it was my understanding that the change will result in a flow of information through tax returns of all families receiving the child tax benefit, not only from revenue department to revenue department, but also to the social services departments.

If that is correct, and I have to underline that I'm not sure I have the full information, we would have serious problems around that. Obviously we would want to protect the confidentiality of personal income data and we believe that it should remain with revenue departments and not go any further. I think that's our point on that.

Getting to the tax benefit itself, I think our position would be similar to that of the National Council of Welfare. While the enhancement of the child tax benefit is a small beginning step, it gives the appearance of reducing poverty but is more accurately described as a welfare reduction measure. The current structure of the plan appears to extend additional benefits to the working poor. I should it does extend additional benefits, seemingly at the expense of those receiving social assistance. We're aware of the commitment that no one on social assistance should receive a lower payment than previously, but I think we're concerned about the climate created in which some poor people are perceived as being less worthy than other groups, and the false dichotomy created that does not foster what we see as the goal of social cohesion.

It's also not clear to us, and it would be useful to clarify that today, what happens to the many low-income families—you gave some statistics, and it's been hard to get that statistic as well—that receive varying levels of social assistance yet are in the labour force and may go back and forth between those sources of family income yet still fall below the poverty line.

So we're making several recommendations, and one is that the basic benefit be increased so that social assistance recipients and modest-income families benefit. From our perspective, we think they need to do more number-crunching, and we know you're quite capable of doing that.

We look forward to seeing a multi-year commitment, beginning in the 1998 budget, of funds additional to the $850 million announced in 1998. I want to remind people that at the premiers meeting last August there was an interest on their part. They said they needed $2.5 billion to begin to make a dent. We'd like to see a commitment from the federal government that would allow the child tax benefit to be increased to $4,000 per child within the near future.

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We'd also like to see a serious commitment to indexing, as we know was discussed most recently. At least the concept was raised in the House for a vote. I just want to remind you that certainly that commitment to some level of indexing exists in current and, as I understand it, proposed seniors' benefits. It's not a new idea but we think it's an important one. Our estimates are that it's not exorbitant in cost. My understanding is that it would be somewhere between $115 million and $200 million per year.

Certainly the basic block of a life cycle approach remains the enhanced income security, but we're also saying that the lack of high quality early childhood care and education is a significant barrier for families wanting to move into the labour force and training while also moving out of poverty.

I have to add that the reinvestment strategies as we've seen announced most recently in the March communiqué from the federal, provincial, and territorial ministers do not indicate any significant policy or funding change or addition that will lead to enhanced services.

Some of you may think Ontario's commitment to invest in a child care tax credit is going in that direction. We would have some serious concerns. That's an unaccountable use of funds. It will only be about $400 a year, and we have no assurance as to the quality of the care that limited amount of funding will buy. We're quite disturbed that only one province has in fact committed to reinvesting in high-quality early childhood care and education.

We're also saying that we hope in your preparation for next year's budget you'll begin to develop a policy framework for early childhood care and education and that the 1999 federal budget will contain a specific allocation for such.

Another recent report out of the Status of Women directorate has shown that we're losing on child care. It's beginning to deteriorate in many regions of the country and we can't afford to have that happen.

Our life cycle approach also includes active measures and labour market strategies and housing. I'll try to be short and just say that the reason we want to highlight that is that a recent review of annual wages shows that 25% of all jobs in the labour market pay below $10 an hour, and more than 36% of single mothers are trying to support families on wages of less than $10 per hour.

As you probably know, $10 per hour for a 35-hour week is about $18,000 a year. Many of those people don't get subsidized child care. They often can't access affordable housing and they often can't use the child care expense deduction because they can't get a receipt for their informal care. So they're really caught. In a sense they might have moved from social assistance poverty to labour market poverty.

I'm going to give you one more quick example, because my time's probably up. We only have to look at what's happened in Wisconsin, which is often cited as a model of workfare. In fact caseloads went down 20%, but at the same time the level of child poverty increased. Wisconsin moved from having the fifth lowest rate of child poverty in the States to the twenty-second lowest.

Some of you may have also seen the recent series on workfare on New York State. We can maybe talk about that in the discussion. There's also concern there.

I think we need public initiatives to create a basic wage floor that will allow parents to earn an adequate income with which to support a family and a return to a mixed economy where there is direct government creation of community employment opportunities. We also hope to see a review of the status of housing for disadvantaged families and urge that there's a commitment for social investment in that area.

I'll stop there.

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

We'll now proceed to Cindy Carson, provincial coordinator of First Call. Welcome.

Ms. Cindy Carson (Provincial Coordinator, First Call): Thank you very much.

First Call is the coalition in British Columbia of 40 provincial organizations and hundreds of community groups that promote legislation, policy, and practice that will enable children and youth to achieve their full potential and to participate in making a better world. We believe children and youth need a first call on society's resources.

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Thank you for the invitation to speak to you today on Bill C-36, part 9.

The government has stated that the child tax benefit will help all children who are living in poverty. We applaud this concept, and acknowledge that the government has allocated $850 million and promised another $850 million.

We also recognize that the CCTB is a more effective way of targeting benefits for low-income families than other relief measures. For example, general income tax always benefits the rich most. Cuts in income tax would provide the wealthiest families with 22 times the volume of benefits over the poorest families.

I'd like to talk about some issues that we have with respect to Bill C-36, part 9, because this legislation has little to do with helping children in poverty. It is mostly a bill that enables the provincial governments to deduct the supplement portion from the CCTB from families on income assistance.

The first part of the bill is a complicated formula that takes the old child benefit and adds it to the old working income supplement. Such a complicated formula will make it difficult for families to know whether or not they are getting what they are entitled to. They will be dependent on others to figure it out for them. A complicated formula will also be more prone to mistakes, and will involve appeals.

Using the system to calculate benefits also presents a lag problem. Families whose circumstances change could have to wait up to one and a half years before they get what they are due. For example, take a two-income family with an income above the allowable level. At the end of December, one of them loses her job. They are now struggling on one low income, and would qualify—in fact they would desperately need the benefits—but they will not get them until 18 months later. What about the children who will suffer because of this system?

We have been told that in focus groups low-income people have said that the risk of being in this position is better than the intrusiveness of having to report income monthly, that it would be too much like the punitive welfare system. Thus, it is concluded that the lag problem is acceptable.

But there can be another interpretation. One could learn from these focus groups that welfare is too punitive a system. There are better ways to ensure help for children in poverty that are not punitive and could be much simpler, such as payments being made to all families with children within a progressive tax system.

The other part of this bill, part 9, clause 97, is about the loss of privacy rights. We have been led to believe that this legislation will enable Revenue Canada to provide the provinces with taxpayer information on all low-income families who receive the CCTB. This would be on the expectation that the provinces would only use this information to calculate how much to deduct from income assistance.

If we're going to be so free with taxpayer information of these people, why do we not also provide taxpayer information in other cases, such as information regarding doctors who have been accused of overbilling the medical services plan?

Not only do families on income assistance not benefit from the CCTB, but they lose their privacy rights, as well.

This legislation discriminates against families, based on the source of their parents' income. It gives the right to the provinces to deduct, dollar for dollar, the increase in the benefit from families on social assistance. It is a way for the provinces to recoup some of the moneys lost in the elimination of the Canada Assistance Plan.

The provinces are expected to use the money for programs for the working poor. We understand that one of the results is that only 13% of single parents will benefit. This is taking money from the poorest group of children to benefit the next poorest group of children. First Call feels that this discrimination is unacceptable.

Given our concerns, First Call recently sent a petition to the premier of B.C. asking him to let families on social assistance keep the whole CCTB. We had planned to collect 2,000 signatures, but were surprised to collect 3,800 signatures from people in 96 communities around B.C. People can see the inherent unfairness in this legislation.

The rationale we have heard for this discrimination is that a welfare wall is making it more attractive for families to be on welfare than to work. This is a fallacy. We know that the majority of families on welfare are off within one year, and that high unemployment rates and the decline in full-time, adequately waged jobs is the biggest factor causing poverty.

A major criticism of part 9 is on what is not being said. It does not address the fact that the allocations are too low and that there is no long-range commitment to making a real impact on child poverty. Nor does it mention the lack of indexation.

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The additional benefits are so low that a family with one child will only see an additional maximum benefit of $105 a year. If the goal of the CCTB is to address child poverty, and it should be, then we need to develop a comprehensive child benefit system such as that proposed by Campaign 2000.

Such a system will cost an additional $12.8 billion, which, when added to the current basic benefit, would represent a total cost of $18.2 billion.

To put this in perspective, this would still cost less than the $24.5 billion projected for the new seniors benefit in the year 2001. The seniors benefit demonstrates that as a nation we can be serious about commitments to fighting poverty. We need to be serious about child poverty.

We were most disappointed in the results of the recent vote on indexation. Our thanks to all of you who voted for it. The CCTB claims that no family on income assistance will be any worse off. Yet the value of their benefit will decrease yearly with inflation, as will the benefit for all children.

How can you say, on the one hand, that you want to fight child poverty, and, on the other, give a piece of the pie that will get smaller yearly? Even the so-called new money, of the $1.7 billion, is hardly making up for the losses through inflation since the 1980s.

Some have argued that the CCTB is a way to get all children off welfare. It is estimated that children on welfare get $2,500 a year. As the benefit increases to that level, there is a transfer from provinces to the federal government for income support of children in need.

However, we should not confuse getting children off welfare with getting them out of poverty. Until benefits are over $2,500, children on welfare will be no better off and will continue to live in debilitating poverty.

We are also forgetting that children live in families. If we are to ensure that children grow up not in poverty, we must ensure that families are not in poverty.

In conclusion, an effective, efficient, and simple way of eliminating the problems in this legislation would be to replace it with regular, significant, monthly benefits to all families with children, and then to tax back appropriately within a progressive tax system. Such monthly benefits would be non-stigmatizing, easy to administer, and effective in helping children in low-income families.

Further, to fully address poverty, we need a dynamic shift in policies towards a full-employment economy with full-time, adequately waged jobs and to a social safety net that is not punitive but ensures that the total family income is adequate.

If the CCTB continues, First Call recommends that the federal government raise the base CCTB to a maximum of $4,200 per child per year to low-income families; that it index the benefits; that it not allow provinces to deduct the benefit from families on social assistance; that it address the loss of the transfer payment to the provinces, but not on the backs of our poorest children; and that it set targets and specific plans to reach the goal of eliminating child poverty.

We need you now to start working on next year's budget to ensure that children are truly made a priority and are able to live without poverty.

Thank you.

The Chairman: Thank you very much, Ms. Carson. You raised some very important points in this presentation. I'm sure it will inspire some questions.

We will begin with Mr. Ritz.

Mr. Gerry Ritz: Thank you, Mr. Chairman.

I enjoyed your presentations this morning. Thank you for them. The underlying theme that runs through the three that we've heard is that the most important and urgently needed support for poor families is income support.

Now that's a short-term fix. In the long term, we're going to need education and training to get off the merry-go-round. So I'd like your comments on that aspect.

In addition, given that these programs have two levels of government working in them, how do we simplify the system and make it more user-friendly? In other words, how do we get the dollars to where they should go?

Mr. Steve Kerstetter (Director, National Council of Welfare): Mr. Ritz, it's a question that's actually a lot more complicated than it sounds.

Mr. Gerry Ritz: Definitely.

Mr. Steve Kerstetter: I suppose, though, that when you step back and look at the current proposals in Bill C-36, you're going to make the system even more complicated by having a system where the benefits are going to be paid out by a federal government and in some cases clawed back by provincial or territorial governments.

So if you're interested in simplicity—

Mr. Gerry Ritz: That's part of my point.

Mr. Steve Kerstetter: —we seem to be going in the wrong direction with this particular proposal.

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Our council has been very critical of the Canada health and social transfer and the replacement by the transfer of the old Canada Assistance Plan. We always saw welfare and poverty issues as the kind of challenges that require efforts by all levels of government.

One of the advantages under the Canada Assistance Plan, for example, was that it was a partnership between the federal government and the provincial and territorial governments to help one segment of society. That's all sort of fallen by the wayside with the transfer of blocked funds and the loss of national standards.

Our council members feel very strongly that from the federal government point of view, the federal government has to provide provinces and territories with reasonable transfer payments to support income security programs in general.

On the provincial and territorial side, we believe there should be minimum national standards that provinces support. We think there should be guaranteed appeals, as there were under CAP.

Beyond that, we would prefer to see provincial and territorial governments base their welfare rates on a market basket of goods and services, rather than just picking a figure out of the air or making an adjustment to an existing figure, because obviously one of the concerns of our groups is people on welfare. As you all know, welfare is a program of last resort for people who have exhausted other means of support. We think it only fair that there be a reasonable living standard. The best way to measure that would be a market basket of goods and services.

I could probably talk for hours on this, but I know you have other questions.

The Chairman: Thank you. Ms. Rothman.

Ms. Laurel Rothman: I just want to add that Campaign 2000 feels quite strongly that we need a multi-focused approach. Yes, income security is step one, but step one won't be leveraged without the other components. In fact, child care is a major one.

Certainly in the areas in which we've seen the most deterioration in parts of the Atlantic provinces and in Ontario, we have— In southern Ontario alone, in the greater Toronto area, there are at least 20,000 children of social assistance recipients who are eligible and waiting for quality child care services.

They won't be able to enter into any of the aspects of training, community service or work, be it workfare or paid employment in the labour force, without adequate support.

So I think if we want to look at the broad spectrum of opportunities for children over time, we need to have a multi-pronged approach. Quite frankly we think there's an important role for the federal government in a way that—

Certainly I would say that Campaign 2000 has similarly been concerned at what I will call the fallout from the CHST and the lack of incentives and initiatives that will lead to the complementary services that have to go with income security.

I'll just repeat what I said earlier: only one of the provinces and territories is investing significantly in early childhood care and education services. That is the kind that will support the range of children whose families may be on social assistance now and who in six months may be interested and able to undertake training or work and who eventually will be in the full-time labour force.

For that first 12 years of children's lives families need some—often varying, but at least some—level of support from early childhood care and services. We're not seeing that; we're seeing deterioration. Of course, there's the cost issue as well.

The Chairman: Ms. Carson.

Ms. Cindy Carson: On income adequacy, it's short term, but it's really important that it be adequate. I can't underline that enough.

I don't know how we can assume that somebody who does not have enough money to get from one end of the month to the other can then be in a position, even in the mind or physically, to go look for work.

When we're talking about children, children are truly suffering because of this system. They don't have enough to be able to develop to their full potential.

So I think that adequacy is a really important issue here. We have to start raising our investment in children.

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In terms of simplifying the system, it would be much simpler if the provinces were not allowed to deduct the money. It would be much simpler if the federal government made a direct transfer to people and people kept that money. That would start helping with the adequacy.

[Translation]

The Chairman: Thank you.

Mrs. Gagnon.

Mrs. Christiane Gagnon (Québec, BQ): Please excuse my tardiness. It is not from lack of interest, but this morning we were tabling a motion by our young BQ MP who wanted a debate on the differential between the rich and the poor in the context of globalization. I will have to leave immediately after my questions because I have to make a speech about that.

I am pleased to listen to you. The various texts being circulated are relatively easy to follow and make us more aware, as well as the government, of the poverty of children and families. As you have said and as we know, there have been cuts in Canadian social transfer payments and restrictions in employment insurance. Only 36 or 38 per cent of people are eligible because of the tightening of the criteria. That has a direct impact on families.

I am in my second term. During my first term, I was responsible for the status of women. I can tell you I follow that closely and that it is an issue that concerns me greatly. If we want our children to have children, there will have to be a real family policy to encourage them. The current context does not encourage young people to have children because having children means becoming poorer.

Much has been asked of the federal government and we know that a Progressive Conservative Party MP has tabled a motion on the indexing of child tax benefits. We know there has been a terrible shortfall for many years even though the government has made an effort. Have you accounted for the costs of not indexing the child tax benefit? How much has the government recovered by not indexing this benefit?

Mr. Armand Brun: Madam mentioned earlier that there was a variance of a few hundred million dollars. I don't know if that is accurate. I heard her speak. She mentioned that there was one province that was making a special effort and I think it is Quebec. I congratulate you because you are taking the bull by the horns. I congratulated an interviewer about this the other day, on television in Montréal. I am thinking of day care at $5; that's already a start.

Mrs. Christiane Gagnon: We know that the cuts in Canadian social transfers have prevented Quebec from adopting a stronger policy. The current government has social concerns—social democracy—and wants the redistribution of wealth to be done as equitably as possible. Federal cutbacks are hurting us. There are provinces that have not implemented all these measures and perhaps we should help them.

We understand that elsewhere in Canada there are provinces where measures must come from the federal government because these provinces, at various levels, have not implemented all these measures to help families and children. The federal government has been able to save billions of dollars by not indexing the Child Tax Benefit, the tax tables and salaries.

I have done some research that I am currently analyzing. It is on the amount the government has saved by not indexing the Child Tax Benefit and the personal income tax tables. It's many billions of dollars. There is some manoeuvring room there; it's small but it's there. When one is an MP, one is close to the people, and I believe that we have weathered the crisis. Even when we have a salary, we always have that insecurity. I feel it, as do many of my colleagues. I don't know if you have that data.

[English]

Mr. Steve Kerstetter: May I respond to that. I read the remarks of Richard Shillington before the committee last week. I thought his remarks on indexation were fairly definitive. I'll take a look at his figures, but I have every confidence that his figures are correct.

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Our council certainly supports full indexation of child benefits, both in terms of the annual increases and in terms of indexing the threshold, so that the number of people eligible for the full benefit rises at the same time as the benefit itself rises.

As Armand said in his remarks, we think indexation would be a prime topic for this committee and other parliamentarians to talk about when it comes to the second $850 million. We really hope there's going to be a full-fledged debate on indexing and other options for the use of that money.

We hope we'll be able to come back and see you next year, or later on this year, and present more detailed proposals for the best use of that $850 million.

We realize that maybe everyone is not going to agree with us at the end of the day. But we think there should be a public debate, and the option should be explored publicly before the government decides how it's going to spend that second $850-million instalment.

The Chairman: Thank you very much. I draw your attention to the pre-budget consultation report, Keeping the Balance, that we published last December. It does address the issue of indexation and it makes some recommendations in reference to that issue.

Mr. Szabo.

Mr. Paul Szabo: Thank you very much.

I really liked what you were all saying. I think it's terrific. As a matter of fact, I've been working on a speech I'm giving on Thursday night. I wanted to read the last paragraph, because I think you'll like it. I hope you'll like it.

It says:

For all of these reasons

—after I've given all these lovely reasons—

I strongly encourage the Government of Canada to make investing in children a principal theme in its next federal budget. Within that envelope, consideration should be given to initiatives to address, among other things, parenting education, prenatal nutrition, fetal alcohol syndrome, early childhood development, community-based child programs, and taxation of families with children. These are but a few elements of a pro-child policy that will help ensure not only the development of healthy children, but also a healthy country.

I also wrote a little booklet on why I felt strong families make a strong country. It is an issue that really gets me going, because I know how important children are, and they should be put first in our lives.

I want to say to you that I think you've raised some interesting points with regard to the child tax benefit. Obviously the most important thing is to see that whatever dollars are available are getting down to where they're needed most.

I think you can be assured that people are going to be looking very carefully at the mechanics to make sure there's nothing frustrated by other interests.

However, I wanted to ask you for your comments about child poverty. I really feel strongly that if we're going to make much more progress on child poverty, we have to stop calling it child poverty. It's a political term that evokes sympathy. We're really talking about family poverty.

If we continue on the road on which we're going, where we just keep putting dollars toward people in need because of their situation, if we carry it to its logical extension, ultimately we get to a situation of guaranteed annual income. There comes a point at which there is a disincentive, and all kinds of problems occur.

On top of that, none of you mentioned the fact that lone parents— Mr. Brun, you kept saying single parents, but I think you meant lone parents—

Mr. Armand Brun: Lone parents, sure.

Mr. Paul Szabo: —who account for about 12% of all families in Canada. They also account for about 46% of all children living in poverty, if we are using LICO as our definition.

It seems to me that the credibility of the efforts has to make sure we cover all substantive areas of the source of the problem. The breakdown of the family, a 30% divorce rate for married persons, over 1 million common-law relationships that break down about 50% more often than married relationships—these are adding far more to the numbers you're talking about than more fundamental or basic causes of poverty in our society.

I'm wondering why you haven't included that, maybe not so much today because that's not why you're here, but just generally in the literature.

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I always read Campaign 2000 stuff. It's helpful and it stimulates me, but I don't see very much about investing in the family. I think it deserves some attention. What do you think?

Ms. Laurel Rothman: First, I would say that we frequently speak of child and family poverty, but I think the emphasis on child poverty is to ensure that in fact we do raise the emotional temperature to that period of life when investment probably has the best bang for the buck.

Although I don't like to choose those terms, I know they're important ones in convincing a broad swath of the public and elected members.

I would say that our life-cycle approach does indeed talk about issues that relate to families. The advance maintenance payment system—

I'm going to stop and say I think there is also an acknowledgement in the late 1990s that in, let's call it, western society far beyond Canada and North America, there is a tremendous range of families and a tremendous range of lifestyles.

In fact, I remember as an undergraduate that there was talk of the death of the family. Well, there has been no death of the family, but there has been a differentiation of the family. In the evolution of values in society, that's what we have, that's what we deal with, and that's what we respond to.

Certainly Campaign 2000 recognizes that our responsibility is to respond to the range of family situations that are out there. That's what we're doing.

We hope that by taking a life-cycle approach that talks about whether you're a two-parent, low-income or modest-income family just over the low-income cut-off, which we really use as an eyeball figure— Whether you're $1,000 below or $1,000 above it, you're still in difficult circumstances this year or next year.

With the life-cycle approach we strive to say that it's more than income security, and it's more than a small window in time. There needs to be a range of services and a mix of services.

About a week or two ago Canadian Policy Research Networks came out with a study talking about the best mix for children and families. It talks about the need for the range of initiatives we've talked about.

So some of us are certainly talking about the implications of child poverty for families, and we continually say that children are poor because their parents are poor. We need a number of mechanisms put in place to avoid that, and it will improve the situation.

The Chairman: Thank you, Mr. Szabo. Thank you, Ms. Rothman.

Ms. Torsney.

Ms. Paddy Torsney: Thank you. Monsieur Brun, you are from New Brunswick. I wonder if you could tell us roughly what the welfare cheque in New Brunswick is right now.

Mr. Armand Brun: We have those figures now. I know we used to be the lowest in Canada. Now they've gone up a little.

A couple of weeks ago I read in the papers that a gentleman in Moncton had a cheque of $480 a month. His rent was about $420, so he was a patron of the soup kitchen there.

In 1996 in New Brunswick, for a single employable person, the total is $3,331 for the year. For a disabled person, it is $6,698. A single parent with one child receives $11,258.

I just did the income tax for my daughter at $13,300. She can't live in Montreal with that. So I can see why. For a couple with two children the amount is $13,359, so it's just above $1,000 a month.

Ms. Paddy Torsney: When we talk about these amounts I think it's important that people actually realize what people are living on—even for all of us who think about what we can spend in a week, let alone a month—and what that adds up to in an actual cheque per month, and surviving on that with rent and what have you.

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I noted, Ms. Carson, that on the third page of your presentation you stated that children on welfare get $2,500 a year. That's $208.40 a month on average across the country?

Ms. Cindy Carson: I got those figures from a report of the Caledon Institute. It's extremely low, and it's within the context of an extremely low family income. Children are really suffering when they're trying to survive on welfare.

Ms. Paddy Torsney: The other thing I wanted to ask, and maybe— These stats here have been done— primary sources of income for couples under 65 with children and lone-parent mothers under 65. Aren't the numbers quite a bit different for those who are under 35 or under 30? Isn't there a group that's quite young, are parents, and are taking care of children with even smaller resources?

Mr. Steve Kerstetter: I'm not sure about that. The figures you see in the pie charts were generated for us to our specifications by Statistics Canada.

Once you break them down into these particular slices and family types, the sample sizes are too small to get an age component in there as well.

So I can't really answer that part of the question. These are for all single parents under 65 who were poor in 1996.

What we do know from some of the welfare profile stuff that we've done—

Mr. Armand Brun: We have the ranges, too. The range from 16 to 20, for example, we had that single parents—

Mr. Steve Kerstetter: Yes, we can give you numbers of people on welfare by age group.

But basically when you're talking about families with kids, what you find is what you would expect. You find that because the child-bearing years are the 20s and 30s and the child-rearing years are the 30s and 40s, most poor people, or most people with children, are in the 20s, 30s, 40s age groups.

Ms. Paddy Torsney: Well, the reason I'm asking about it is certainly because we're dealing with younger Canadians and their children. Often there's a poor attachment to the workforce, there are limited educational skills, and what have you.

Last week we had some presenters—this does lead to you, Ms. Rothman—who suggested that child care really wasn't where we should be going. Outside of the family home what we really should be doing is making sure more children stay at home with their parents until they're five. In fact they suggested that there were long-term implications from the detachment of children from their parents for more than twenty hours a week when they were under the age of five.

I think it's an important message that needs to get out about the value of child care and shoring up the resources of families, making sure children have the best quality education, and that this mélange is really important for their future.

I'll ask you to comment, if the chair will let me. I really thank you for coming here and putting some of the numbers on the table so we can all have that little jolt.

Please understand, a lot of us are trying to see what we can do to try to work the numbers and see what we can do. Children really are our greatest resource, so we're going to have to put our money where our mouth is.

The Chairman: Please go ahead and make your comments.

Ms. Laurel Rothman: I'd just like to say in response to, let's call it, the value of early childhood education, that a new study came out about six weeks ago. It was a Canadian study that did a benefit-and-cost analysis of investing in early childhood services. If you want a copy, I can get you one.

It found that based on a number of long-range projections, including a look at success in school, mothers' attachment to the labour force, tax revenues, and a number of other balancing factors, we have a 2:1 ratio of investing in the early years.

In those years, to be specific, they looked at the ages of 2 1/2 to 5. These are the years in which most western European countries do provide a fairly high coverage of services, usually for all the population that wants to use it.

So we have a lot of valuable information about the importance of investing in early childhood services. This helps children, as well as supporting families, to be self-sustaining.

Ms. Paddy Torsney: Thank you.

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

On behalf of the committee, I'd like to thank you all. Some of you have taken a long trip to get to Ottawa, but we certainly benefited from your input.

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May I also take this opportunity to invite anyone who's here for a brief lunch. We're going to come back around 12:15.

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The Chairman: I'd like to call this meeting back to order.

I'd like to welcome the representatives from the North-South Institute—the president, Mr. Roy Culpeper. Welcome. As you know, you have approximately ten minutes to make your presentation, and thereafter we will have a question and answer session. Would you kindly also introduce your colleague?

Mr. Roy Culpeper (President, North-South Institute): Thank you, Mr. Chairman. I am pleased to be here today with my colleague, Kerry Max, who has joined our institute. We work together on issues of international finance and development.

• 1215

I'd like to thank you, Mr. Chairman, for inviting us to appear before the committee. I want to get right down to it by saying that the part of Bill C-36 that we're focusing on today is part 13, which amends two acts of Parliament, namely the International Development (Financial Institutions) Assistance Act and the Bretton Woods and Related Agreements Act, although I just wanted to touch quite lightly on those and raise some bigger issues that the legislation raises.

In particular, the amendment to the Bretton Woods and Related Agreements Act provides for two things—first, something like a 50% increase in our quotas at the IMF, and second, a provision whereby Canada can support the IMF in emergency financing operations when there are international financial crises, up to the tune of $5 billion U.S.

It's my opinion that neither of these provisions nor the amendment to the International Development (Financial Institutions) Assistance Act have budgetary implications, even though they may involve cash expenditures. The cash expenditures up to the $5 billion U.S. would be on market terms. In other words, they'd be loans; they'd be money that would be repaid to the Canadian treasury.

This does raise the question of what the IMF is doing in response to financial crises such as the ongoing Asian financial crisis and what Canada's policy is on the issue of crisis prevention and crisis intervention. That's what I'd really like to get at—the whole question of the bigger picture. In the limited time available, since it's a very complex issue, I won't be able to do more than just touch on a few points.

I would like to point out that we're in the process of publishing a report on the Asian financial crisis that will be coming out in the middle of May. With your permission, Mr. Chairman, we would like to make that available to the committee so that it may be included in the evidence that your committee considers in filing its report.

Let me begin on this bigger picture by saying that what we're looking at in the Asian financial crisis is a systemic crisis of global capitalism. These aren't my words or the words of the North-South Institute; we're not given to using such inflammatory language. They're actually the words of Paul Volcker. Paul Volcker, as you will recall, was the former chairman of the U.S. Federal Reserve Board, and he's quoted in today's report on business in the Globe and Mail from a speech he made yesterday in Hong Kong, in which he said that the financial system is “out of whack with fundamentals”.

If you look at what has happened to exchange rates in East Asia, including the exchange rate movement of Japanese yen, but also more notably the exchange rate depreciations suffered by Indonesia, Korea, Malaysia, the Philippines, and Thailand, they're completely out of whack with how much exchange rate depreciation these countries actually required to get back into equilibrium.

What's interesting about this almost alarmist view of Paul Volcker is that it's actually shared by several what I'd call mainstream economists—people like Professor Jeffrey Sachs at Harvard University; Professor Martin Feldstein, a colleague of his at Harvard; and Dr. Joe Stiglitz, the chief economist of the World Bank.

• 1220

We're hearing from these very noted authorities and very responsible people that the international financial system is out of whack and things are not operating as they should in order to avoid crises in the future or deal with financial crisis when it does occur.

The three points I would like to make touch on the highlights of our report, which I mentioned will be coming out in a month.

Why is the financial system out of whack with the fundamentals? First of all, my contention is—and this is shared by many others—that the international rules of the game for the international economy are wrong and they're going in the wrong direction.

What do I mean by that? In particular, I mean that the International Monetary Fund, the G-7 countries, and the major industrial powers are all advocating a program of liberalization of the capital account—in other words, facilitating capital movements across borders—in a way we've never seen, not since the 1920s. In fact even as we speak, there's still a discussion at the IMF around an amendment of the IMF Articles of Agreement that would make capital account liberalization one of the fundamental purposes of the International Monetary Fund.

In my view, this proposal to liberalize capital accounts and to make it a fundamental purpose of the international monetary system is fundamentally misguided. It's misguided on the grounds that liberalizing capital movements is not the same as liberalizing trade in goods and services. There are very good economic arguments for having liberal rules and encouraging international trade in goods and services, but capital markets are not the same as goods and services markets. They are fundamentally different. And they're prone to massive capital market failures that in fact compromise the way the international markets and goods and services operate.

It's for that reason that if you go back to 1944, the IMF, when it was created, actually was created with a provision that enabled member countries to control capital markets. That was based on the experience of the 1930s, when, because of capital market turmoil, because of debt repudiations and debt defaults, countries got into a cycle of competitive devaluations, and this really undermined the free trade between countries. Countries, in response to competitive devaluations, threw up trade barriers.

So the whole system was created on the very correct premise that capital movements are destabilizing and should not be encouraged to be liberalized any further.

The second point I would make is that when crisis erupts, as it has in Asia recently, the IMF and its partners are actually pushing the wrong kinds of remedial programs. In particular they've asked the Asian countries that have gotten into crisis to adopt fiscal compression, cutting government expenditures, even though they were in surplus before, and to adopt extremely high interest rates—which drives the really productive sector into bankruptcy—in order to restore the confidence of the financial markets. This particular approach to trying to rectify the problem is also fundamentally misguided, and in fact it has served to make the problem for the crisis countries worse rather than better.

The final point I'd like to make, Mr. Chairman, is that the other thing that's gone wrong in the current crisis, as it has in past financial crises, is that the private creditors, who've actually been much to blame for the outbreak of the crisis, the international banks in particular, have not shouldered their part of the burden. They have basically been bailed out by the IMF, by the industrial countries, and ultimately by the countries that are in crisis, because the kind of support that the IMF gives these countries and that Canada will give these countries under C-36, part 13, aren't gifts or grants. These are loans that those countries will have to pay back. Ultimately the burden of bailout is borne not by the IMF or by Canadian taxpayers but by citizens of the developing countries that are experiencing crisis.

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Therefore, in my view it's time we looked at the rules of the game and ensured that when crisis erupts in future, private creditors do in fact participate in their share of the costs of adjustment, by taking write-offs and write-downs on the loans they have made available to the developing country.

If we don't send the signal to private creditors and banks, there is a real problem of moral hazard. In other words, the money that private creditors know is available through the IMF and through Canada, or the $5 billion U.S. that we are talking about in the bill today, will serve as a signal to those creditors that in fact if worst comes to worst they will be bailed out, and their exposure, their lines of credit, will actually be picked up by the IMF and the industrial countries.

Let me just leave it at that for now, Mr. Chairman. I welcome your comments and questions.

The Chairman: Thank you very much. We will begin with Mr. Ritz.

Mr. Gerry Ritz: Thank you, Mr. Chairman.

I enjoyed your presentation, sir. With respect to your technical terms like “system out of whack”, that is my kind of language.

You talked about Canada needing to redefine its role in international affairs and make it more preventative rather than one of crisis management after the horse is out of the barn. I wonder if you would care to comment on that a little further. What would we do?

Mr. Roy Culpeper: I don't think this is something that Canada can do on its own single-handedly. This is inherently a collective problem. It's a global problem experienced by all the members of the global economy, and therefore what we need are global solutions.

In other words, with our partners in the G-7 and through the IMF, we need to try to move those players in the right direction. My perception is that we are not really playing that role in those fora in the G-7 and the IMF. We instead have tended to buy the prevailing line that whatever the IMF does must be correct because they know better. I don't accept that at all.

Mr. Gerry Ritz: So are you saying there were measures we should have or could have taken two or three years ago to offset the Asian crisis we are seeing now?

Mr. Roy Culpeper: Well, with hindsight, of course, everyone knows better what should have been done.

A lot of the discussion that has come out in the last six months has put the emphasis on inadequate financial supervision and regulation. In other words, the Asian countries should have better bank supervisors and should be in better control of the information and the data in the banking sector.

I think that's true as far as it goes, but it doesn't go very far, because you can have the best banking supervision in the world and yet these countries can be overwhelmed by huge surges of capital inflow.

Going back to Paul Volcker's comment yesterday, he was saying that the whole banking system in countries like Indonesia and Thailand and Argentina is equal to one medium-sized regional bank in the United States. That gives you an idea of the order of magnitude.

So when you have several regional banks, not to mention huge megabanks, moving capital, then of course these countries are going to get overwhelmed, no matter how good their supervision systems are.

Mr. Gerry Ritz: So you are saying there needs to be more regulation on the movement of capital?

Mr. Roy Culpeper: That is correct.

Mr. Gerry Ritz: Like a Tobin tax or something like that?

Mr. Roy Culpeper: A lot of people think of the Tobin tax as a panacea. I don't particularly share the optimism that a Tobin tax can be implemented in the short term, because it would involve a great deal of political agreement to make that happen. I don't see that happening.

The examples of controlling capital movements that do seem to work and are attracting increasing attention include, for example, what countries like Chile and Colombia have done by imposing a 30% tax on all foreign borrowings that have maturities of up to one year. So if you are borrowing for short-term speculative purposes, you have to, in effect, pay a 30% upfront tax, and it discourages that type of activity.

• 1230

I think there's starting to be a consensus that those kinds of policies enacted by individual countries do in fact have an important impact on controlling capital surges into the country.

The Chairman: Thank you very much.

[Translation]

You have a question?

[English]

Ms. Torsney.

Ms. Paddy Torsney: First of all, thank you very much for coming today, because I really think it's important that some of these discussions do take place at the finance committee as well as at the foreign affairs and other committees. The crossover is really important when you're trying to develop policy. But one of the things I'm left with following your presentation is, what about this bill? What do you want us to do?

Mr. Roy Culpeper: I think you should support the bill. I think at the end of the day the IMF is an extremely important international financial institution. If it didn't exist, we would have to invent it.

But I guess the reason I'm appearing here today is that when parliamentarians do support legislation like this, they shouldn't do it uncritically. They should ask questions such as: What is this institution actually doing with the resources that we place at their disposal? Are they actually making the right decisions? You can't disentangle those two aspects.

Ms. Paddy Torsney: I think that's why it's particularly good that you are here, because all too often people as members of Parliament get sort of slotted into one area, and the cross-pollination doesn't happen as much, particularly for the new members, when you haven't had a chance to grapple with all the big issues of the world.

But what I want to tell you as well is that one of the things we debated as parliamentarians recently was the whole issue of third world indebtedness and the process by which IMFs or other institutions come in and sort of close down your country or close down the important parts.

There was a big discussion about making sure those countries are not crippled to the point of not being part of the whole globalization process. There was a heavy emphasis on the fact that when their economies do well, it's the creditor countries who benefit, because the goods they purchase are coming from there. We really had to go further in ensuring that IMF and other organizations protected the human rights, health, education, and the society and what it had developed, and in making sure that, whatever changes are being imposed on them, there has been some development of those systems from those countries themselves, because they best know how to reorganize if that is necessary. But there was a good debate about it, and Canadians did participate in a manner I think you would be appreciative of—at least I hope so.

The Chairman: That was a comment?

Ms. Paddy Torsney: That was a comment. But the only last question is, how can we get that message out about moral hazard and ensure that at least when Canadians are investing abroad they appreciate their moral obligations?

Mr. Roy Culpeper: That's actually an interesting question. I think the onus is really on the banking community.

My sense of individual investors who, for example, bought mutual funds or are investing through their RRSP into Asian mutual funds is they've taken quite a hit in the sense that those stocks have come down in value quite a bit. So in a sense they've taken their share of the adjustment cost.

The real problem is with the lenders, the people who write contracts and want 100 cents on the dollar back on every loan they agree to with borrowers, particularly when they're lending into a risky situation.

Domestically there's a long tradition when banks lend to companies that go bankrupt. There are procedures. In fact they will not get back 100 cents on the dollar. There is a debate between borrowers and lenders as to who should owe how much to whom.

We don't have that at the international level yet. There's this presumption that because you're lending internationally, someone should protect your interests and pay you back 100 cents on the dollar, and I think that's highly questionable.

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What we're missing is the institutional rules of the game, the infrastructure to do two things: first, inform creditors that in fact they also must be prepared to risk some loss on their loans; and second, enforce that when in fact a crisis breaks out. It's not as though this has not happened.

In the 1980s there was the Latin American debt crisis, and it took seven years, but by 1989 there was agreement even by the bank creditors that they should write off some of the debts that were owing to them by the Latin American country. It was the so-called Brady plan that the Republican administration brought in.

What I'm talking about is not without precedent, but what you need to do is not go through this long waiting period of seven years in order to fix a problem that should be fixed at the front end.

Ms. Paddy Torsney: Of course, the Canadian government has written off some of the debt in sub-Saharan Africa because it was extraordinary, it would never be paid back, and it was crippling those economies. But is there not an opportunity to get more development of these discussions around some of the ethical funds that are out there? It is not just about the investment on the front end; it's also that should there be a problem, how do they deal with it appropriately? It could be an opportunity for the North-South Institute to somehow either endorse or set up a process for those ethical funds on those issues. I think they're an emerging market. A lot of people are interested, and some of the funds are doing quite well.

Mr. Roy Culpeper: It's interesting you should say that. We're about to bring out our flagship annual report, “The Canadian Development Report”, which is on Canadian corporate social responsibility in developing countries. Among other things, it discusses Canadian banks and financial markets.

Actually, it's interesting that you should mention ethical funds. You're right, they do perform well and they're attracting greater interest. But they tend to actually represent the banks very significantly in their portfolios, on the grounds that the Canadian banks are good employers, that they're good corporate citizens, and so forth. However, the ethical funds don't take into account some of the arguments I've just been making about international loans. By buying ethical funds you might well be supporting banks to a greater degree than would be justifiable, if you accept my line of argument.

Ms. Paddy Torsney: That advanced the debate.

Mr. Paul Szabo: I just wanted to ask your thoughts on a particular situation. The impact on Taiwan of the Asian crisis was relatively modest. Therefore we have an example of where there is insulation by virtue of their circumstances. I suspect there's going to be a lot written about this Asian financial crisis, about what happened and why it happened. How is this going to shake out? Why don't you tell us what the end result will be before they write it?

Mr. Roy Culpeper: Where's the Asian crisis going?

Mr. Paul Szabo: No, what's going to come out of it. Given the fact that we now have had this experience, what is it going to tell us about what we should change or be alerted to? Obviously, the ultimate objective is to avoid a future similar crisis.

Mr. Roy Culpeper: I think it's very much up in the air, and it's because of the debate I've been referring to on capital account liberalization. There are those who feel the countries that got into crisis didn't liberalize enough, and in order for them to restore confidence they need to go even further down the road. Then there's the other side of the debate that says this is part of the problem.

It's very interesting that you should mention Taiwan. Not only Taiwan but the People's Republic of China have both avoided financial crisis simply because they have not opened their capital markets to the extent that Indonesia, Korea, and Thailand did. To me, there's prima facie evidence right there in this fact that if you open your capital markets, you're inviting trouble if you don't have any controls at all.

The other example on the other side of the coin is Hong Kong. Hong Kong is one of the most conservative countries in the world vis-à-vis its macroeconomic policies, exchange rate policies, and so forth. Yet look what happened. The Hong Kong dollar came under attack in late 1997 simply because of a report written by Morgan Stanley that set off a run against the Hong Kong dollar.

Another country is India. India is still a very closed capital market and yet the Indian rupee has not come under speculative attack for that very reason.

• 1240

The other comment I might make on this is that even though China's capital market isn't open to the same extent as say, Thailand's, it has not exactly suffered for want of foreign investors investing. In fact, China is the number one destination for foreign direct investment—multinationals and western companies putting plant and equipment into China. So it's not an all or nothing proposition. Countries do have the wherewithal to determine the terms upon which they deal with foreign investors.

Mr. Paul Szabo: Thank you, Mr. Chairman.

The Chairman: Thank you very much, and thank you for your very helpful presentation. You certainly raised some very interesting points in reference to Bill C-36, although I found we had to extrapolate to see the impact. We also look forward to hearing from you again on our pre-budget consultations.

Mr. Roy Culpeper: I'll make available our report as soon as it's published.

The Chairman: Did you say it could be this month?

Mr. Roy Culpeper: It will be the middle of May.

The Chairman: Wonderful.

Mr. Roy Culpeper: We can provide it in both languages, and in fact we can give you a pre-publication copy.

The Chairman: Thank you.

We'll suspend for two minutes.

• 1241

• 1243

[Translation]

The Vice-Chair (Mrs. Paddy Torsney): We will now hear form Mr. Roch Denis, President of the Fédération québécoise des professeures et professeurs du Québec. Welcome. You have 10 minutes to make your presentation, after which there will be a question period.

Mr. Roch Denis (President, Fédération québécoise des professeures et professeurs d'université du Québec): Thank, you, Madam Chairman. I would like to clarify something. I am not president of the Fédération des professeurs du Québec, but of the Fédération des professeurs d'université. My mandate would be much broader if it covered all teachers.

The Vice-Chair (Mrs. Paddy Torsney): But you are president of the Federation, are you not?

Mr. Roch Denis: Yes.

The Vice-Chair (Mrs. Paddy Torsney): OK.

Mr. Roch Denis: But of the university professors of Quebec.

The Vice-Chair (Mrs. Paddy Torsney): OK.

Mr. Roch Denis: Our organization includes 20 associations and unions from all universities in Quebec, without exception, in other words about 8,000 university teachers.

Personally, I have been teaching for 27 years in the Department of Political Science of l'Université du Québec à Montréal and am president of the Federation, as you have just mentioned.

During the last few months, our organization has associated itself with the initiatives and positions taken by the Coalition québécoise pour l'éducation, an ad hoc group of organizations representing many levels of education. In this context, we have made known, on many occasions, our opposition to the project of creating a Canada Millennium Scholarship Foundation as outlined in bill C-36.

• 1245

Having been invited here today to present our position on this issue, for which I thank you, I would like, speaking for our federation, to summarize its salient features, both on the constitutional level—and I don't think what I have to say about that will surprise you—and on the basic orientation of the federal project.

Since education in general and post-secondary education specifically come under provincial jurisdiction, the FQPPU is opposed to the Canada Millennium Scholarship Foundation because it Constitutes interference by the federal government in an area that is not within its constitutional jurisdiction. Our federation calls for the respect of provincial prerogatives in this area and considers that the federal government, in accordance with mechanisms already used in the past, should recognize the right of the Quebec government, and of any other provincial government that wishes to do so, to withdraw unconditionally, with full financial compensation, from the Canada Millennium Scholarship Foundation if the federal government intends to go ahead with it.

When the project was presented in the House of Commons in February, Prime Minister Jean Chrétien said he did not want to interfere in an area of provincial responsibility; he said the scholarship project was to improve access to higher education and did not affect the content of education. He made that distinction. However, if there is one critical dimension in any policy regarding higher education, it is certainly that of accessibility. Thus, since 1960, in Quebec especially, accessibility has been central to higher education policy and the very concept was broadened to cover not only removing economic and social obstacles for individuals, but also to creating a vast public collegiate network, the CEGEPs, and developing the components of the Université du Québec network, which expanded, completed and strengthened the Quebec university network.

A societal choice was made at that time, as it must be today, and that is why, for example, when there is public debate in one province or another on tuition fees or the level of public funding of colleges and universities, that debate touches the heart of society's educational mission.

Another aspect of the federal project's constitutional consequences needs to be underlined. For many years the federal government has made drastic cuts in transfer payments to the provinces. This policy has had a direct impact on provincial post- secondary education budgets.

While recognizing that many provincial governments, including Quebec's, have also adopted a policy of public spending cuts to fight the deficit, the fact still remains that the shock waves of the federal choices have been severe. At this time, the most positive action the federal government could take, to end this orientation, would be to give back to the provinces their fair shares of the money to which they have a right so that they can once again assume responsibility for higher education.

The option we are defending here for Quebec, it seems to us, is similar to the expectations formulated by other Canadian provinces. As show in an Angus Reid survey in early February for The Globe and Mail and published on February 7, a majority of Canadians believe that, among the options for using the federal surpluses, increased transfer payments to the provinces for health, education and social security should be the federal government's number one priority.

During the meeting requested with Premier Lucien Bouchard, last February 13th , the spokespeople for the Coalition de l'éducation severely criticized that government's policy of budget cuts and its effects on all levels of education. The Coalition, armed with facts and figures, told the Premier that the deterioration of the entire public education service was well under way. The federal Canada Millennium Scholarship Foundation project, far from improving the situation in this regard, will only tend, in our view, to worsen the contradictions.

How can we imagine that hundreds of millions of dollars in federal funds will suddenly be available for scholarships when the institutions of higher learning will continue to suffer major cuts that have already had deleterious effects on the number of teachers, on teacher-student ratios, on the quality of libraries, and scientific equipment and I could go on. Separating the issue of accessibility from that of public funding for institutions would lead to inconsistencies.

• 1250

In contrast, if new efforts must undeniably be made to improve access to higher education, action to immediately correct the level of funding of institutions is just as important. Instead of ignoring it, the federal government should, in our opinion, give back to the provinces the amounts it took away and thus contribute to a real recovery in higher education. At the request of the Coalition québécoise de l'éducation, the Premier of Quebec has committed himself to allotting the recovered moneys to post- secondary education, both to strengthen accessibility and to rectify the level of funding for those institutions.

This commitment is crucial and is an essential focal point in our demand that the federal government give Quebec the monies to which its jurisdiction entitles it.

I will not discuss the Quebec financial assistance plan for students. Many witnesses have emphasized repeatedly that the federal project, as outlined, would only pave the way to senseless and costly duplication. Given the plan that has existed in Quebec for many decades, here again we believe that instead of interfering in an area of provincial jurisdiction, the federal government should respect it via transfer payments.

In conclusion, I would like to deal with an aspect that is specific to university teachers, an aspect that is critical of the federal project.

The entire Canada Millennium Scholarship Foundation is part of the Canadian Opportunities Strategy for equal access. It focusses on the struggle for prosperity, economic growth and job creation. The government states that scholarships must allow millions of Canadians to prepare for the jobs of tomorrow. The project also foresees the creation of an independent foundation managed by a board composed of people from the private sector. We are highly critical of these two aspects.

The project's orientation derives from a particular vision of the role and mission of institutions of higher learning, especially universities. It is a very utilitarian vision of post-secondary education based primarily on preparation for the job market. This vision is reductionist and would, if followed, cause universities and institution of higher learning to gradually abandon their specific responsibilities. Far from becoming an appendix to the labour market, the fundamental, essential and specific mission of universities is to help people develop, as the former president emeritus of Cornell University, the famous professor Frank Rhodes, reminded us at the North-American Meeting on Higher Education in Toronto last April 16.

The contribution of universities to society is first and foremost at that level and, in economic matters, as Frank Rhodes also said, it can only be indirect. It is only insofar as they are free to do so and have the necessary means that universities can best serve the collective interests, including those of work and employment.

As opposed to a vision of post-secondary education whose role is essential to cultural, social and democratic development and the higher education of more and more citizens, the federal foundation project reduces it to a job market perspective. If implemented, the project would ultimately contribute to diverting the institutions from their mission in terms of research and development and basic training programs to programs focussed primarily on the development of "skills" for certain trades and professions. This pressure is already making itself felt even if it is criticized and fought, and instead of distancing itself from this pressure, the federal government is throwing all its weight behind it.

The foundation's status is based on the same philosophy and in a way derives from it. The government will allocate hundreds of millions of dollars to an independent foundation made up of unaccountable private sector administrators to manage of an enormous scholarship program. But this is a public responsibility, even if we only consider the source of the funds. But since post- secondary education is also a public service institution, it is important that this character be preserved in everything that pertains to the definition of its role, objectives and management. The federal project turns its back on this requirement by giving private sector agents responsibilities that are in the public domain, such as student financial assistance plans. Significantly, the government states that the millenium scholarships will help students deal with tuition fee increases. So instead of really improving access, would its program not in fact serve to a large extent to counterbalance the impact of tuition fee increases that it would have contributed to bringing about? Thus the millennium scholarships, far from helping solve the crisis in public funding of post-secondary education, are instead the continuation of a policy of reduced public spending and increased private funding.

• 1255

Finally, institutional independence and the principle of peer group management, which are at the heart of higher education, are themselves questioned in this context, which, in our eyes, only increases the unacceptability of the federal initiative.

Ladies and gentlemen, the federation I represent brings together the unions and teachers' associations of Quebec. As such, we have come before you today to plead the specific cause of the higher education system in our province. However, we are deeply convinced that the federal Canada Millennium Scholarship Foundation project is inappropriate in its current form and content, not only for Quebec but also for all provinces, both on constitutional grounds and on those of its underlying principles. If it were simply a question of visibility, the issue would be easy to deal with, but it raises fundamental objections. It is our heartfelt hope that all academics and their representative associations will unite and speak with one voice to oppose its implementation and criticize the project. We are also counting on our voices being heard by parliamentarians and governments so that the ideal of promoting higher education will be defended while respecting constitutional agreements and the fundamental values of our institutions.

Lastly, I want to formulate a wish: that the negotiations now under way between the federal government and the representative of the Quebec government lead to a positive result as we see it and as I have indicated in the presentation of this brief. Thank you for having listened to me.

The Vice-Chair (Mrs. Paddy Torsney): Thank you very much.

Mr. Ritz.

[English]

Mr. Gerry Ritz: Thank you, Madam Chair.

You're talking about the negotiations going on between the province of Quebec and the federal government in regard to the millennium fund. Are you looking at a direct cash value, a portion of the $2.5 billion, or are you looking at a portion of the annual $250 million allotment that's being talked about?

[Translation]

Mr. Roch Denis: It is the entire Canada Millennium Scholarship Foundation project that is at issue. Whether it is up over 10 years or one year, what we want as a formula, quite simply, is that Quebec, and the other provinces also, if they want, receive their proportionally fair share of this federal project.

We believe this would be the best compromise given the circumstances since in our view the federal government should not get involved in a program that deals with education.

[English]

Mr. Gerry Ritz: You mentioned a proportional value to the provinces, and I wonder, how do you establish that proportional value? What would be the criteria?

[Translation]

Mr. Roch Denis: It's through transfer payments, using the classic mechanism of distributing the funds among provinces, based on their size, number of taxpayers, etc.

[English]

Mr. Gerry Ritz: Okay, so you wouldn't base it on the students of the province or anything like that?

[Translation]

Mr. Roch Denis: The number of students in terms of the population of Canada is always related to the relative size of each province. Quebec has about 256,000 university students. The federal millennium scholarship would be directly applicable to these students, but our criticism of this project is that it separates the question of scholarships and the amount allocated to individuals from the greater problem of public funding for universities and colleges.

• 1300

Therefore, as we stated in this coalition we have formed, if Quebec recovers its share of the money, which does not cover only scholarship since it has its own scholarship program, it will allocate this money according to its programs and priorities. It will certainly not allocate the funds only to improve its current student grants and loan program, but also to correct the level of funding of the institutions.

How are we to give students better access to universities in this country if we leave the institutions in the dilapidated state where they have been in for much too long? My position is the same as that of the rector of the University of Toronto, Mr. Prichard, and of Bernard Shapiro of McGill or the rectors or chancellors of universities in Quebec and elsewhere in the country. It is ours.

You cannot continue hitting university institutions with cuts and then simply wave a beautiful scholarship program. Action must be taken simultaneously on both fronts. One of the great weaknesses of the federal program is that it does not address this issue.

The Vice-Chair (Mrs. Paddy Torsney): Mr. Perron, five minutes.

Mr. Gilles-A. Perron (Saint-Eustache—Sainte-Thérèse, BQ): Good day. Thank you for coming, Mr. Denis.

In your brief, you talk about cuts in federal transfer payments to the provinces for health, education and social services. You say we should go back to the basic premises.

I would like you to give examples of how these cuts in transfer payments for the educational system have affected your area to date. What have been the effects?

Mr. Roch Denis: The effects have been indirect if I may say so. I will give you concrete examples. Firstly, the effects are indirect because the transfer payment mechanism to the provinces, especially for Quebec, does not allocate sums specifically for health, education or post-secondary education.

We have a new element today, the commitment of the current Quebec government to allocate to post-secondary education the share of the funds that would be recovered from the federal government for the Canada Millennium Scholarship Foundation. We asked the government for a formal commitment; it was made in our presence.

For many years now, the governments, and not only that of Quebec, have had their budgets squeezed by the drastic cuts in transfer payments and this has had all kinds of consequences in education, as well as in health care because the source of available public funds has progressively dried up.

In terms of higher education, that means that in Quebec alone a half-billion dollars have been cut from the budget for universities; more than $450 million. The cutback program will be maintained at that level at least until the year 2000. Imagine what that means, a half-billion dollars in cuts. It means we have lost many hundreds of university teachers—over a thousand actually— through early retirement, hiring freezes, and positions left vacant.

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We have also had to deal with the reduction in teaching assistants. Universities have also had to cut back on support staff. Another common effect, not only in Quebec universities but across the country, is the dramatic decrease in research funds and the struggle for these rarer funds has increased. Scientific research in universities requires cooperation and, because of progressive cuts in public funding, we have seen an increase in often-phony competition, using public funds by the way.

Thus, we have seen deterioration in both teaching conditions and student learning conditions. One oft-cited example is the teacher-student ratios. Because of cuts, there are fewer teachers for so many students, putting the quality of the educational framework in universities in doubt. Budgets allocated to libraries have decreased and scientific equipment is deficient in the science and biomedical sectors as well as the social sciences in general.

Just because the federal government has brought the funding level of granting organizations back to their 1994-95 levels in its last budget, that doesn't mean that the problem of research funding and the public funding of university research has been solved, far from it. Those are examples.

Mr. Gilles Perron: You have given us a summary evaluation of the situation in Quebec. Have you made comparisons with the rest of Canada. Is it the same scenario everywhere?

Mr. Roch Denis: The Smith Committee, which was mandated to study higher education in Ontario, claimed last year, with supporting data, and a renewed strong plea to the government to declare a moratorium on the effect of the budget cuts—yet tuition fees are higher there, which shows they have not solved the financial crisis of the institutions—that the quality of higher education was already challenged and that the process of deterioration would accelerate if the Harris government did not declare a moratorium on budget cuts. That's the situation in Ontario.

I am sure that my colleagues from the Canadian Association of University Teachers, who are scheduled to appear before you shortly, will also give you numerous examples of the effects of budget cuts on higher education in our country.

Mr. Gilles Perron: Thank you, Madam.

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

Mrs. Redman, you have five minutes.

[English]

Mrs. Karen Redman: Thank you, Madam Chairman. I have a couple of questions.

I just want to be clear about one of your comments. The millennium fund will not increase access to post-secondary education until the year 2000. One of the comments I heard you make was about the transfer cuts in the CHST and the tightness on post-secondary education now. But you realize it doesn't kick in until the year 2000, right?

[Translation]

Mr. Roch Denis: I'm not sure I understand your question.

[English]

Mrs. Karen Redman: The millennium fund will begin providing access to post-secondary education in the year 2000. Some of your comments were about current restrictions in post-secondary education, so I'm just clarifying that we all know the timing.

You also talked about a myriad of things that have to do with post-secondary education, such as research funds and the commitment the Quebec government has made.

• 1310

When we travelled across Canada for our pre-budget hearings, we heard from several provinces of a real suspicion of just adding money into the CHST, because there is no colour-coding and they were not convinced that moneys were going both to health care and to post-secondary education, which is where they would have liked to see it be done.

Having said all of that, there's an obvious intent in the millennium fund specifically to provide access for students. One of the things we have heard over the past few days about the millennium fund is that there is a system that seems to work very well in Quebec that is agreed on by both the people in Quebec and those outside Quebec.

One of the comments that has been made by the people who represent Quebec is the need for no duplication. One of the aspects of the millennium fund is that it would specifically go to undergraduate students and that there would be funding for part-time students.

My understanding is that the kind of funding and granting that would be available to the millennium fund to part-time students is quite different from what exists in Quebec right now. So to my way of thinking, that is not a duplication. I'm just wondering if you would comment on that.

You talked about funding going to research and development. I think the finance department and this committee have been quite supportive of that. You see evidence of that in the budget that just came out this year. But that really wasn't the intent of these funds. It was to add accessibility to undergraduate students. I realize you are talking about this project on a very broad basis, but to me, that's not exactly the intent of the millennium fund.

[Translation]

Mr. Roch Denis: Certainly, because it's another aspect that, given the time constraints, I have not emphasized. The existing Quebec program includes grants and a financial assistance plan not only for the first level, but also for the masters and doctoral levels. It's another reason we believe that it is not advisable to implement this program in Quebec because all measures taken in terms of student financial aid must be thought out in a coherent manner in an integrated system.

If you ask the question about part-time students, I would answer that it is the same as for the entire student financial aid system in Quebec. Let the federal government give Quebec the amounts that will allow it to improve its own plan, as we have stated, according to its programs and priorities.

You say that the federal government wants to help and not duplicate existing agreements or programs. The intention is laudable, but the best way to do that is to not put in place mechanisms that would duplicate Quebec's. Why not allow Quebec, through the allocation of funds, to decide freely, as it has done for more than 30 years, the details of these student financial aid programs? Those are priorities that can change over time, that can be refocussed.

I believe it is a question of principle. Either education is an area of shared jurisdiction or it is an area of provincial jurisdiction. In my opinion, we should not, until further notice, change this basic rule unless there is significant constitutional reform.

[English]

Mrs. Karen Redman: I have a couple of other points of clarification. As for the undertaking that the Quebec government took to funnel all of these moneys into education, was it post-secondary education or was it just education?

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[Translation]

Mr. Roch Denis: As for the Canada Millennium Scholarship Foundation, which is the reason for my visit here today, since we are talking about federal funds that come from the taxpayers and are allocated to post-secondary education, the commitment that we have received from Premier is that that those monies will be reallocated to higher education. He has made a formal commitment, and believe me we will be very vigilant in ensuring that it will be so. Canada Millennium Scholarship Foundation funds are not allocated for education as a whole, but to higher education.

Since we are discussing all of the transfer payments, including those for health and other fields, of course some of the monies recovered will go to other fields, including other levels of education in Quebec, from elementary to high school especially, since college education, as you know, is part of higher education in Quebec.

The government of Quebec has committed itself to allocating the Canada Millennium Scholarship Foundation funds to post- secondary education, not just to grants, but also to ending the cuts and to recovering the level of public funding for universities. We insist on that because we don't want the money to be used solely to improve students' ability to fight off indebtedness, we want coherent and convergent action that will allow us to improve the financial situation of institutions and thus the quality of the teaching offered. What is the use of giving access to higher education to thousands of students if the quality of the education and the diplomas granted isn't there?

[English]

Mrs. Karen Redman: If I can, I have two other short questions.

You've been highly critical of the proposed make-up of the board for the millennium fund. My question to you would be, who would you think would be appropriate to be on that board?

[Translation]

Mr. Roch Denis: We believe that, as has been the case traditionally, instead of being managed by a private foundation, these public funds should be managed within the framework of a national public commission, for example, that would ensure collegiality and the accountability of different public participants in education, and also the presence and accountability of the university community and institutions.

Look at how the Quebec student financial aid system works now. It is managed by public organizations of the Ministry of Education, but in concert with the university institutions themselves and the Conference of Rectors.

We do not like this very pronounced current political trend that also showed up in the Canadian Foundation for Innovation. We do not like this trend of giving public funds to uncontrolled private bodies. We believe that in some ways this policy removes the use of public funds from public control.

For the university community, the peer group management system has always been an absolutely determining factor.

That is how, for example, the granting organizations, which predate these new political arrangements by many decades, are managers of public funds but comply with, in their structure and their accountability, the mechanisms specific to the university community in Canadian higher education.

[English]

Mrs. Karen Redman: Thank you.

A lot of the witnesses we've had specifically about the millennium fund have talked about the suggestion that it be based on merit and need.

My final question is this. Having been a professor for 27 years, can you comment from your perspective, if you see that as being valid, as something that should have two prongs to it as we look to—

One of the witnesses put it as a choice between selecting the poorest of the best or the best of the poorest.

• 1320

[Translation]

Mr. Roch Denis: First, I will say that merit evaluation should not be in the hands of a private independent foundation. The evaluation of merit is a highly academic process and activity. It is the responsibility of the teachers and the higher education institutions that receive from society, largely through public funding, the mandate to educate the citizens of tomorrow and give them the best education possible.

So this orientation in virtue of which merit would be decided and evaluated according to criteria established by a private foundation is very much open to criticism.

Further, merit cannot be separated from the conditions under which students will be called upon to study in our institutions of higher education: the quality of the structured guidance, the quality of the libraries, the number of teachers and the quality of the scientific equipment. I repeat, efforts in this regard must be collective efforts. It is not a question of rewarding the minority of those who, despite worsening conditions, manage to succeed.

In a way, merit should be brought home to the academic world as the prerogative of institutions of higher education and those who work in them. The Canada Millennium Scholarship Foundation project, if it were acceptable, should in any case consider only the issue of students' financial needs and not merit.

The Vice-Chair (Mrs. Paddy Torsney): Professor Denis, how much does it cost now for one year at l'Université de Montréal?

Mr. Roch Denis: For a student?

The Vice-Chair (Mrs. Paddy Torsney): Yes.

Mr. Roch Denis: Tuition fees are about $1,600 or $1,700. I am excluding particular arrangements in areas such as medicine, for example. If you average things out, they are about $1,700, plus related fees such as access to certain equipment, plus books. But if you are asking for the floor price, I would say it is about $1,700.

[English]

The Vice-Chair (Ms. Paddy Torsney): You're a political science professor. Have you ever had a social sciences and humanities grant, for research?

[Translation]

Mr. Roch Denis: Of course, for my doctoral studies at l'Institut d'études politiques de Paris.

[English]

The Vice-Chair (Ms. Paddy Torsney): That's direct federal government money that went to you specifically so that you could—

[Translation]

Mr. Roch Denis: No, not at all.

The Vice-Chair (Mrs. Paddy Torsney): Not at all.

[English]

You got a SSHRC grant, but it wasn't from the federal government?

[Translation]

Mr. Roch Denis: It was a scholarship I obtained through a joint program of the French and Quebec governments.

[English]

The Vice-Chair (Ms. Paddy Torsney): Oh, then you misunderstood my question.

I asked, did you get a federal government SSHRC grant? That is Social Sciences and Humanities Research Council funds. There's NSERC, MRC, SSHRC—the granting councils.

[Translation]

Mr. Roch Denis: Yes, in the context of my research, through the granting councils. But the foundation that is proposed here is not analogous to those granting systems. It is of another nature, it has a different status. That's what you wanted me to highlight?

The Vice-Chair (Mrs. Paddy Torsney): No, but there is a direct relationship because it is money that the federal government gives to an individual. The federal government gives money to students in all provinces of the country.

• 1325

Mr. Roch Denis: Yes, there is a precedent, but it's not because there is a precedent, unless we change the constitutional order of things, that we should also create—why not—A federal Department of Education. Why don't you propose a federal Department of Education?

Education comes under provincial jurisdiction. Under previous agreements, for research, federal funds have been allocated to granting councils that academics can influence through peer management via competitions. I understand that they are federal funds.

[English]

The Vice-Chair (Ms. Paddy Torsney): So in your mind then we're really debating how to set up the model for this funding. If you agree that we can give money as a federal government to the granting councils, as we will with the millennium foundation— Private sector money could enter into that stream as well, as with the millennium scholarship fund. There's an advisory board that would include people from business, from academia, perhaps from students, and from other places. This would be a similar model. The federal government currently funds students directly in all provinces.

If you're not advocating that on this one, then are you suggesting that MRC and the Natural Sciences and Engineering Research Council and the SSHRC grants should all be apportioned to the number of people who might be studying in any of those fields in the province of Quebec, that the money should go to the provincial government, and that they may or may not get the funding out of that?

[Translation]

Mr. Roch Denis: I believe your argument about granting councils is already outmoded. First, the federal government has applied the same policy of budget cuts to granting councils. On the other hand, the Canadian Foundation for Innovation changes things in terms of the management of funds. Regarding the Canadian Foundation for Innovation, what you consider direct action vis-à-vis individuals, there is an organization, also private in nature, which will manage the allocation of funds for research infrastructure outside the responsibility and public control of research institutions and teams.

[English]

The Vice-Chair (Ms. Paddy Torsney): I'm not sure I understood your point, but I can tell you that I was at the awards yesterday where individual researchers right across this country were given money by NSERC to do research. I'd suggest to you that is money that was given to those councils from the federal government, money that has increased in fact in the last budget.

All I'm saying to your constitutional argument is that we don't have any place giving money to undergraduate students so that they can get access to university. We already do that in other ways. We do it through the Canada student loans program. We do it through the granting councils. This is an extension of that and it's intended to increase accessibility. Through this foundation it will also leverage private funds to help ensure that additional students have access.

The alternative is to give the money to the provinces, as you've suggested. In each province they have made different decisions about the funding of education. In Quebec they held tuition fees very low and then had different funding levels for different faculties in the universities. In Ontario they've jacked tuition fees up. In B.C. they're even higher. We don't have a process that ensures, as Ms. Redman has suggested— The money isn't colour-coded and doesn't directly follow through the stream once it's given to the provinces.

We've heard from students across this country that they need to reduce their debt loads and they need access to university. We even had a suggestion during some of the discussions that there could be an opportunity for this fund to actually encourage more students to go to university than currently go to university in certain provinces, such as British Columbia. I'm not sure of the numbers in Quebec, but certainly Quebec has a terribly high dropout rate from high school and university. We need to do something about that to ensure that they remain competitive with the rest of the nation.

Maybe there's another way to do things and maybe we are not outside of our constitutional jurisdiction.

• 1330

[Translation]

Mr. Roch Denis: Mrs. Torsney, you make a plea for diversity, for the recognition of various situations. In that case, if there is a consensus among Quebec organizations in the field of education, why not allow Quebec to exercise the right to withdraw from federal projects so that it can organize its priorities and programs as it sees fit in the field of education? You are convincing when you say the situations are quite different from one area to another. Why not allow us, as in 1964, to withdraw unconditionally and with financial compensation? That worked very, very well. The Quebec financial assistance program—

The Vice-Chair (Mrs. Paddy Torsney): Professor Denis, are you now willing to leave the granting councils system?

Mr. Roch Denis: But of course.

The Vice-Chair (Mrs. Paddy Torsney): Oh!

Mr. Roch Denis: But of course, if—

The Vice-Chair (Mrs. Paddy Torsney): That's the position of—

Mr. Roch Denis: No, you are asking me the question. Quebec researchers who have discussed this issue have always said: “A bird in the hand is worth two in the bush”. If a program that is just as solid, as well-established, that respects the academic community were to be set up, it could well be developed using the funds of the government or the State of the province of Quebec. Just so. But researchers aren't fools. Understand us well: a bird in the hand is worth two in the bush. We will not shut down access to the existing granting organizations to find ourselves in a situation where the granting organizations in Quebec wouldn't be there. But if the financial means were there, we would be ready to consider a redesign, including at that level.

[English]

The Vice-Chair (Ms. Paddy Torsney): Okay. We thank you very much.

[Translation]

Thank you very much for your presentation.

[English]

I will now adjourn this committee until 3.30 p.m., same room, same place.