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STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, November 15, 1999

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[English]

The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'll call the meeting to order and welcome everyone here this afternoon.

We have the pleasure to have with us the Newfoundland and Labrador Federation of Labour, the Nova Scotia Government Employees Union, the Prince Edward Island Federation of Labour, the Federation of New Brunswick Faculty Associations, the Canadian Centre on Substance Abuse, and the Nova Scotia Federation of Labour.

Many of you have already appeared before the committee, so you know you have approximately five minutes to make your introductory remarks. Thereafter, we'll engage in a question and answer session.

We will begin with, from the Newfoundland and Labrador Federation of Labour, the president, Elaine Price. Welcome.

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Ms. Elaine Price (President, Newfoundland and Labrador Federation of Labour): Thank you, Mr. Chairman. My name is Elaine Price, and I'm joined by Wayne Butler, who is the secretary-treasurer of the Newfoundland and Labrador Federation of Labour.

It's clear the federal government will have significant resources to allocate to new spending and/or tax measures in the next budget. Even with $3 billion being held in a contingency reserve, a $5.5 billion surplus is being predicted for the coming fiscal year. Using conservative estimates and setting aside an annual $3 billion contingency reserve, the Minister of Finance is still forecasting a $67 billion surplus over the next five years.

It is in the context of this growing surplus that the right-wing media and many business organizations have been calling for deep income tax cuts. The federal government itself has committed to split any surpluses over the current mandate on a 50-50 basis: 50% for tax and deficit reduction, and 50% for investment in key social and economic priorities.

However, the complaints of the most affluent about their growing tax burden must be put in a wider social and moral context. The Newfoundland and Labrador Federation of Labour believes it is important to remember how the deficit was reduced and who suffered from the pain inflicted by deficit reduction.

We would also point out the importance of recognizing that the campaign for tax cuts is being driven by the corporate community and the well-to-do in society. Couched in terms of job creation and relief for ordinary citizens, this campaign is designed to permanently lower government revenues and further weaken government's ability to deliver social programs, redistribute income, and manage the economy in a way that benefits all of us and not just a privileged few.

During the nineties, the living standards of Canadian families took a big hit from a quadruple whammy of insecure jobs, stagnant wages, cuts to social programs, and rising taxes. Average family after-tax incomes, adjusted for inflation, have fallen about 4% since 1989, and the social wage provided by social programs like medicare and unemployment insurance has been deeply cut back. While only a small minority were unaffected, the impact of a critical shortage of secure well-paid jobs along with spending cuts and tax increases was disproportionately born by middle-income and low-income families.

Governments dealt with the debt and deficit problems of the nineties mainly by cutting important income support programs, which primarily benefit low- to middle-income working families and the poor, particularly unemployment insurance and social assistance. Big cuts were also imposed on medicare, public education, and other public services that working and middle-income families rely on and only the well-to-do can afford to do without. These cuts in turn helped contribute to the huge problem of unemployment and insecure jobs.

While there has been an increase in market income for all Canadians since 1993, the cuts in transfers took away all of the net market income gains for the bottom 20%, and almost half of the market income gains of middle-income families. This deteriorating position of the bottom 20% of families, despite some pick-up in job creation, has translated into continuing very high rates of child poverty and an increased depth of poverty for many families with children, particularly families that rely on unemployment insurance or social assistance for all or part of the year.

There is no question that low-income and middle-income earners need more disposable income, but this cannot be achieved at the expense of vital government programs and services. In fact, unless real wages rise significantly, tax cuts could not improve the relative position of wage earners; only restoration of our social programs can do this.

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The Federation of Labour believes the bias in allocating the surpluses that have been gained through past cuts and economic recovery should be to address the growing gap between the most and the least affluent in society. The 2000 budget must also respond to a wide range of growing social concerns, many of which can be cast within the framework of the children's budget. Poor children live in families that are poor because of the lack of good jobs, and because of inadequate income support for the unemployed.

The Newfoundland and Labrador Federation of Labour joins many others across this country in calling for the introduction of a national not-for-profit early childhood education program. Such a program, which would have to be built in close cooperation with the provinces, should be open to all families with young children, including families where one parent stays at home.

Part of the cost of this program could be provided through the phasing out of the existing child care expense deduction. The critical importance of child care and early childhood education to the development of future generations is increasingly widely recognized, and a launching of a major new national project on the eve of the millennium would be an appropriate centrepiece for the 2000 budget.

Funding for health, post-secondary education, social assistance, and public services must be restored. Less than 40% of unemployed Canadians receive unemployment insurance. Immediate action should be taken to rebuild the unemployment insurance program. This budget should reflect a long-term plan to repay with interest the $26 billion the federal government will have stolen from unemployed people in this country at the end of the year.

Along with the restoration of unemployment insurance benefits, the development of a national income support fund to support decent provincial social assistance programs is also needed as part of any serious effort to deal with child poverty. Increases are also needed to the child tax credits paid to low-income and middle-income families to raise the incomes of the working poor with children. New funds must be provided to kick-start a serious national effort to deal with the scandal of growing homelessness, and the protection and further development of medicare will require new funds beyond those provided last year to develop badly needed elder care programs and a national drug program.

Working people have experienced significant income losses in the 1990s mainly because of high unemployment and the growth of precarious jobs. Hopefully the current economic recovery will continue and working families will begin to make some real income gains through job growth and through real wage gains as justified by rising productivity.

The federal government must be prepared to assist in the continuation of the recovery by reinvesting growing budget surpluses in the economy, including investment in a new national infrastructure program to upgrade deteriorating public infrastructure such as our highways and water treatment facilities, and to deal with global warming and other environmental problems.

As part of a truly balanced approach that would embrace large-scale social reinvestment and fair tax reform, the Newfoundland and Labrador Federation of Labour supports a substantial increase over time in the basic federal tax credit as well as the full indexation of credits and tax threshold to the rate of inflation. The credit is currently paid at 17% of the basic personal amount of $7,131. Any increase would effectively remove more low-income earners from the income tax system and deliver a tax reduction that would apply to all taxpayers but be heavily weighted to low-income and middle-income earners.

Indexing the tax brackets would stop more of the income of ordinary Canadians from being taxed at the 26% rate instead of the 17% rate each year. The vast majority of Canadians take great pride in living in a society that has avoided the extremes of rich and poor to be found in the U.S. Unfortunately, the key foundations of a more secure and equal society—decent jobs at decent wages, a high level of public services, income support programs for the unemployed and the working poor—have all been greatly eroded in recent years. The key goal of the next budget should be to reinvest in social programs in order to help close the growing gap between the most and the least affluent in society.

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Fair taxes are part of the formula for a decent society as well, and targeted tax measures in the context of tax reform can also play a role in closing this gap. Strong federal leadership, federal-provincial cooperation, and strategic planning will be required to ensure national social, economic, and fiscal priorities reflect the values, principles, and priorities of the citizens of Canada.

Political courage, not corporate rhetoric, is required to create a better, more secure future for all citizens of our country. Canadian citizens deserve nothing less from the people they elected to govern on their behalf in a democratic society.

We understand the Nova Scotia Federation of Labour will also be advocating support for a national shipbuilding policy. The Newfoundland and Labrador Federation of Labour strongly supports the introduction of a national shipbuilding policy to protect the shipbuilding industries in this country.

In addition to that, we didn't get into it in our presentation, but the Newfoundland and Labrador Federation of Labour also firmly believes that it is necessary for the federal government to examine the method in which equalization payments are transferred to the provinces. Right now, Newfoundland and Labrador is leading the country in economic growth, yet the method of equalization payment ensures that people in Newfoundland and Labrador never really get to reap the full benefits from that economic growth or the development of our natural resources.

Basically, the formula that is being used to determine equalization payments ensures that citizens in Newfoundland and Labrador will never really have an opportunity to improve their lot and become an equal member of the Canadian federation, because the formula ensures that as we collect money from the development of resources like our offshore oil and eventually gas, then a large portion of the revenue that's been generated goes to the federal government and the benefits are not shared among the people of Newfoundland and Labrador.

The Chair: I'm sure you'll get a question on that particular point. Thank you very much, Ms. Price.

Mr. Holloway, from the Nova Scotia Federation of Labour, I understand you wanted to go second.

Mr. Les Holloway (General Vice-President, Nova Scotia Federation of Labour): Yes. I appreciate that, Mr. Chairman.

First, I'll thank you and the committee for the opportunity to appear before you on behalf of some 55,000 members of the Nova Scotia Federation of Labour. We very much support the presentation Elaine Price has just presented to you as the president of the Newfoundland and Labrador Federation of Labour. As well, our federation fully endorses the Canadian Labour Congress presentation to you, made I think in September or earlier this year.

I'll start with that. I want to speak very briefly to two issues. One is the shipbuilding. But prior to speaking on the issue of the shipbuilding issue and policy, I would like first—

The Chair: Mr. Holloway, I'm going to have to interrupt you. It's been brought to my attention that the signage is disrupting and therefore I think we have to remove them. Members of Parliament have to pay attention to what's being said, and we can't get into the tradition of having signs as a backdrop. You probably understand what that would mean. Every city we go to will have different conventions going on. We're here to listen to the people who are in front of us, who I am sure you would agree have a lot to say that is very important to the budgetary process of this country. So if you can kindly remove that signage, Mr. Holloway, then continue.

Mr. Les Holloway: I'd like to say it's unfortunate that the workers who've taken the time to come down here to express in a way they feel is appropriate to you the need for some action on an issue that is very important to them and has laid off many hundreds and thousands of workers in the shipbuilding industry.... I think it is very appropriate. Nor do I think that child care posters should be offensive. I think maybe you should really focus on them and read them. Maybe instead of looking at the laptops so much, you should start focusing on some of that. That's unfortunate, but I do want to continue my presentation and I'll respect your position as chair.

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I'd like to say that when we start to talk about tax cuts—and I want to specifically touch on that issue—I want to preface my comment by saying that taxes aren't a bad thing. There's a feeling in this country in regard to taxes that, for some reason—and it has been a right-wing wave on this issue of taxes—in some way, if we give back money to individuals, they can in fact do better. I don't think that's what made this country great and made it the country that most in this world aspire to live in.

I think what has made us great is that we recognized very early, as a nation, that a collective sense of things and coming together and ensuring that basic and fundamental needs of every Canadian are met is a much surer way to build a society, a society that would be looked on as being one of the greatest in the world and one that we would, obviously, want others to try to enjoy with us.

I have great problems when I look at some of the comments from the right wing and now from the Liberal Party. I just want to read the press release from Minister Martin. On the last page there's a four-point bullet. It says “Tax reductions must be fair”. That's the first comment he made. The second bullet is “Broad-based tax relief should focus first on personal income taxes”.

The fairest form of taxation we have in the country is the payroll tax system. Taxing an individual based on their income is the fairest form of taxation. I wonder why the minister is not saying things about getting rid of some of the most regressive taxes. Look at the GST, for instance. It's a tax that is very unfair when all Canadians, low and middle income, are faced with paying the same percentage share for purchasing of goods. A lot of those goods are necessary for life itself; they're not luxury items like those people on the higher end of the scale would have.

Because of that, here's what I just wanted to throw into the issue. I think this committee has to look very seriously at the issue of supporting tax breaks for low-income families—to truly help. As we say a lot of times, in rhetoric, when we talk about the issue of wanting to help poor children, we talk about it as if poor children don't come from poor families.

There are poor children that come from shipyard workers' families, not because there's some problem with those shipyard workers but because there are not policies in place to employ those shipyard workers. If there's a child going hungry, you can rest assured that there is a family trying to nurture that child, a family that is in fact going hungry as well. So unless you face and deal with the whole of the issue, I think we will continue to see the perpetuation of poorer children and hungry children.

Now, when we start to talk about the tax cuts as they're being talked about in this document.... As well, as I hear from the right wing when they talk about these cuts to personal income tax, even if we said that was the way to go...I think it is the wrong way to go. For a shipyard worker who isn't working, who doesn't have a job, the tax cut's no good to you anyway, because you're not earning an income and you wouldn't get a tax cut.

I just want to very briefly touch on the shipbuilding issue. For the purposes of the committee and you, Mr. Chairperson, I have requested that our federations.... We have joined up with a fédération de métallurgie in Quebec that is part of the CNTU. We've also joined with the federation on the west coast and have a coalition, and we have been campaigning on the need for the Canadian federal government to put in place a shipbuilding policy that would in fact make some sense and afford us the same opportunities that are afforded to competitor nations.

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The request I made was that, if possible, we could arrange that our three federations could make a presentation. If that was in Ottawa, we would come to Ottawa to make it in order to give more in depth.

I just want to touch very briefly on how very important the shipbuilding industry is to parts of the country such as Atlantic Canada. Right now, as we sit here in this meeting, there are thousands of workers laid off in the shipbuilding industry. Halifax Shipyard is running at a little less than half capacity right now, employing about 500. It should be employing about 1,100, and maybe even 1,200 workers. The Saint John dry dock is employing about 200 workers right now. That's a shipyard that employed over 3,000 workers a couple of years ago. It has no contracts, and it doesn't have the ability to compete because of the lack of a policy. And if we go to Newfoundland, the situation with the Marystown Shipyard is the same. They're employing fewer than 100 shipyard workers right now at a facility that could employ 1,000 or so workers.

So if you really want to talk about financial issues, talk about how to create policies. Handouts and subsidies are not what we're asking for. We have to create policies, and we have to get this federal government to recognize that there are policies that we can put in place that will create an environment in which owners of vessels will in fact build vessels in this country and put those workers to work. Those workers will be paying taxes back to the federal government and will increase the revenue side of the situation.

To show you just how bad it's gotten over the last decade, when the federal Liberal government has been the government in power for the most part, we have seen a drop of over 70% in employment in the shipbuilding industry in this country in the 1990s. You should think about that for a minute, and then we should reflect to see, as Minister Manley has said time and time again, that there are policies in place for the shipbuilding industry. But I think the facts say that's not the case.

And then we continually have the argument and position put forward to us that it's a smokestack industry or a sunset industry. Do you know that over 75% of all goods that move in this world move in ships? That doesn't sound like an industry that's dying, it sounds like an industry that needs a lot of ships. Just a couple of months ago, the Canadian Shipowners Association—the shipping association for the owners of ships—came out supporting our drive for a policy. They said that if there was a policy in place such as what we were asking for, there would be work that would come from owners and from members of their organization. They could cite upwards of seventy vessels that will have to be replaced in this country or be majorly modified. That work could all happen in Canadian shipyards if the environment was created and was right.

We've been saying through this whole issue that what's facing us is the fact that we're not on what we term a level playing field. I said earlier that we don't want subsidies. We haven't asked for subsidies, and we haven't asked for handouts for the shipbuilding industry. As a matter of fact, we've actually gone the opposite way in saying they're not the answer to our problem. We want the long-term solution. We want a meeting of stakeholders to start to talk about the issues that do in fact face us.

Very briefly, let's take a quick look at the Jones Act that they have in the United States. It's grandfathered under the NAFTA, which allows the United States to build ships for Canada but disallows Canada to build ships for the United States. I was told it was a free trade agreement that we signed with the United States. It doesn't sound very free if you're a Canadian shipyard worker.

To give you a case in point as to how that directly affects us, in the Halifax Shipyard right now, they're building two supply vessels that are state of the art. Secunda Marine—a Canadian company profiting not only from our offshore in Nova Scotia, but in Newfoundland as well—built two vessels in a Mississippi shipyard. They accessed what they call title 11 financing—which we're saying we need in this country—and got 87.5% of the vessels paid for over a 25-year period. They brought those vessels in duty-free under NAFTA, and they're working our offshore. That's what we're faced with in this country.

We're saying that a program such as title 11—which has an excellent experience rate, by the way, with almost no default at all, and which has created thousands and thousands of jobs in the American shipbuilding industry—is a program that could very easily, with the right criteria, be put in place here at no cost to Canadian taxpayers, while generating an environment that would in fact employ shipyard workers.

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There are many other things I want to talk about, but I want to end on this note on the issue. I just want to go through some of the organizations that are supporting the call for a shipbuilding policy in this country, and more importantly for a meeting of the stakeholders. That would do two things. Through a meeting or a summit, it would in fact be recognized that there is a major problem in the industry in this country. Once that's recognized, we could then sit down and start to talk about what can be done to come up with a Canadian solution to the problem we face in this industry in Canada. We don't think that's an unreasonable request.

I'll tell you who we have support from in that request. The shipbuilding association in Canada obviously supports us. Those are the owners from coast to coast to coast in this country. They support our call for that. The shipping association, the owners of the ships, say it would be a positive step, and it would secure some of that work I talked about earlier if we in fact had such a policy in place.

At the annual convention the Canadian Chamber of Commerce a couple of months ago, over 250 chambers of commerce were represented, with over 500 delegates in attendance. They overwhelmingly supported the call for a national summit in the shipbuilding industry and the need to put in place a policy that makes sense.

In August 1997, and again at their last meetings in July or August of this year, the Canadian premiers came out saying that the shipbuilding industry is an important part of the economies in coastal and Atlantic regions, and that there should be a policy in place and call to a summit.

I have a document here entitled “Atlantic Canada: Catching Tomorrow's Wave”. It's by a committee of the federal Liberal caucus in Atlantic Canada. They are strongly saying that this government has to put in place a Canadian shipbuilding policy. It's not enough to say Atlantic Canadians should get off their asses and go to work. It is truly about time that the federal government looked at what we can do in Atlantic Canada if the federal government has the will. It's the federal government's responsibility to put policies in place whereby we can create an environment in which we can create jobs and can sustain economic growth in this part of the country. It's not enough to do nothing on this issue.

I've probably talked on this longer than I had intended to talk on it. I'll close my notes by saying that Minister Manley came out of a very brief meeting with National Hockey League teams and National Hockey League players—these are the millionaires on both sides—and at that meeting he called for a summit on the financial woes of hockey. I very much support hockey and I want to see Canadian National Hockey League teams remain in Canada, but I do say to you that if it's good enough to call a meeting to talk about the issues that are important to the National Hockey League, then it's damn well important enough to call together the stakeholders of a shipbuilding industry that can employ thousands and thousands of workers in this country in some of the toughest regions of this country economically, in order to start to put people to work.

I don't think asking for a summit is too much to ask. What we want to do is to enter into the dialogue of saying that if you say there's nothing we can do for the industry and we say there is something, we don't want handouts, we don't want subsidies, we want a policy that makes sense. Based on that, I think wanting a summit to talk about that is not too much to ask. That would be something I think this committee should in fact report in a positive way, based on the workers I represent and the support I just listed to you that is there.

I thank the committee again for the opportunity to appear before you. We would be willing to come to Ottawa to give a more in-depth presentation with our friends from the 250,000-member organization in Quebec, as well as our national union, which is the Canadian Auto Workers, the Marine Workers Federation on the east coast, and our friends on the west coast. They would all be willing to meet to sit down and to give a more in-depth analysis as to just exactly what it is that we are saying is needed to fix this problem.

The Chair: Thank you very much, Mr. Holloway.

We will now hear from the Nova Scotia Government Employees Union, Ian Johnson, a policy analyst researcher. Welcome.

Mr. Ian Johnson (Policy Analyst Researcher, Nova Scotia Government Employees Union): Thank you, Mr. Chairperson. I appreciate the opportunity to be here with you. I'm really here on behalf of Joan Jessome, who is our president and is just coming back into the country after being away.

We appreciate the opportunity to address the committee and to be here with our sisters and brothers as well. We represent 21,000 people across Nova Scotia. We're the single largest union in the province, representing a broad cross-section of public sector employees in health care, community services, justice, education and the provincial government, to name a few of the particular sectors in which our members work.

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As you've noted before, Mr. Chairperson, we ourselves have participated in these meetings, in both written and oral form, for the last four years, and probably almost as consistent as our appearance before the committee has been our disagreement, basically, with the thrust and the details of previous budgets, and even reports of this committee.

For example, we don't agree with the comment you made in your earlier paper, your background paper, that the 1999 budget marked an important phase in the government's long-term plan to build a strong economy and a secure society with a rising standard of living and an enhanced quality of life.

We say that because if you consider some very specific facts, which we presented in our written submission to you, based on unreleased data from Statistics Canada compiled by Dr. Ronald Coleman of GPI Atlantic, they include things like child poverty in Nova Scotia being up 50% in just seven years, and Nova Scotia having the second highest rate in the country. The poorest 40% of Nova Scotians have lost 24% of their real income and transfers since 1990. More than 70% of single-parent mothers in Nova Scotia live in poverty. Real wages have declined 8% over the last 10 years, and unemployment remains high, especially for young people and in certain parts of the province, particular in Cape Breton. Jobs are more insecure than ever, and stress levels are up.

Those aren't conditions of a strong and growing economy and society. So we question how you can say that the budget is truly balanced or that a new beginning is truly at hand when these are the harsh day-to-day realities of most Nova Scotians, and for that matter, I'm sure—other people here can verify this—most Canadians, and Atlantic Canadians in particular. In our view, the Chrétien government has yet to take seriously its role and its responsibilities for achieving job creation and full employment, eradicating poverty and injustice, rebuilding social programs and public services, and a fair tax system.

We've urged you to consider that, and we're not the only ones. I mentioned Dr. Coleman. He's part of a process that's tied in with Statistics Canada to develop a genuine progress index, or GPI, that would be much more appropriate and reflective of the real social and economic situation in the country based on 20 modules. That project is still under way, and we think you should really look at this if you're going to talk about progress and moving ahead into the future.

You've identified in your paper five themes. I'll briefly try to highlight some of our comments, concerns, and recommendations on those.

One theme is the process of budget-making. As I've said, we've participated in your process for some time, and also at the provincial level. Not taking away from the efforts of the committee, we haven't found this process to be very transparent or open. In fact, we've consistently had the impression that many key decisions are made well before you begin your consultations. To demystify and open up the process to all Canadians, we recommend—and we've been part of the alternative federal budget process, in contrast, to some extent—that there be holding of regional workshops to allow people to better understand and participate in the budget-making process, that there be more background information prepared and in plain language form, and that there be more opportunities for Canadians to participate earlier and throughout the budget-making process, not just when you're doing the round of meetings you're doing now, but for example when your report comes out, if I remember correctly, in December or January, after the budget is released, and when the priority setting for the next round of budget-making and this committee's work gets under way.

So there are a number of things that we think can be done in that area. On tax relief and reform, as other people have already said, we don't see tax relief or tax cuts as the be-all and end-all. We don't think it should be a major thrust in the upcoming budget or in succeeding budgets. In our view, this whole campaign to get tax cuts on the public agenda is really a thinly disguised attempt to cut government spending and public services in the same way that the whole fixation on debt and deficit reduction was when it was taking place.

More specifically, we are very concerned that tax cuts represent fundamentally an attempt to shift our society and government away from a collective responsibility for people in need, a move to major downloading and transfer of the provision and the cost of services to individuals and families, and a significant move to privatization and contracting out of public services.

From all we've seen, tax cuts don't benefit the people who are supposed to benefit. They don't help low-income or middle-income Canadians but are primarily of benefit to the wealthy and the well-to-do. In fact, any initial benefits are more likely to be eliminated by increased user fees and charges, as well as greater property taxes to finance public programs. That has been the experience particularly in Ontario, as I understand. We don't see them as really generating significant economic activity or supposedly improving our competitive position.

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Instead we recommend, and others have as well already, a combination of badly needed reinvestment in social programs, along with targeted tax relief for low-income and middle-income people. The president of the Canadian Labour Congress, Ken Georgetti, recommended earlier to you that the income threshold at which individuals start to pay tax should be raised significantly. This would benefit people that need it the most. The other issue, of course, is the so-called tax creep threshold. That, and the deindexation that has been in place, need to be looked at.

On social infrastructure, we think the most urgent priority is for the next federal budget to rebuild and expand the social infrastructure, in particular, as has been proposed by the alternative federal budget, a series of national social investment funds, separately funded and including national standards, such as a national health care fund, a post-secondary education fund, an income support fund, a child care investment fund, a housing investment fund, and a retirement fund.

As you probably pointed out, the last two budgets did seek to address some pressing concerns in both post-secondary education and health care. However, in our view, neither budget made a significant move to reverse the substantial cutbacks and restructuring that has taken place in both sectors.

In this province, Nova Scotia, as I think you've heard from students and faculty and may hear further today, university tuition fees are steadily increasing, with Nova Scotia having the highest fees in the country and crushing student debt loans of as much as $20,000 to $50,000 per student.

On the health care side, which is something with which I'm personally more familiar, while there may be $11.5 billion in additional federal cash transfers to health care over the next five years, this doesn't address the declining share of federal spending as a share of total spending on health care. That federal level needs to be at least 25% of total spending. That's not my figure; that comes from several other groups and organizations. It really doesn't help either to guarantee that the additional funds the federal government has provided will actually be used for health care. There's no commitment or guarantee. That's the problem with the Canada health and social transfer.

Equally important, it doesn't help to move us forward into establishing a national home care or pharmacare program. These programs are desperately needed, and the federal government could be taking a leadership role, but you're not doing it. You certainly didn't do it under that budget.

In addition, key federal departments, programs, and services are seriously understaffed in this region, such as the coast guard, health protection, and Transport Canada. Those are just a few. These kinds of programs are vital to our region, yet the federal government seems to be committed to deregulation and devolution in the private sector.

There are other needs, as others have already mentioned: a national child care program, including subsidized day care and early childhood education; a national anti-poverty strategy; a national training and employment program, including paid educational or skill-development leave; and a national infrastucture reconstruction and repair program.

Most recently, the Canadian Centre for Policy Alternatives did its own alternative fiscal and economic update shortly after the Minister of Finance did his, and they calculated the size of coming federal surpluses to be sufficient to support both the repair of existing public services and infrastructure and the development of important new ones, such as the one I've just talked about, universal early childhood education, and still leave a significantly smaller federal government than what existed in 1994. This is the kind of direction we want to see in the next and succeeding federal budgets.

You also talk in your paper about the so-called new economy and productivity. In our view, these things are not priorities for us in the next or succeeding federal budgets—not that they're unimportant, but we think they'll be addressed in large part through the rebuilding and enhancing of the social infrastructure in the public sector. We're also concerned that they've been used by the right wing in particular, and other groups, to promote tax cuts and the slashing of public services.

As we've stated to you before, the public sector has a vital and crucial role to play in all areas of education, training, and job creation, whether that covers a whole gamut of needs assessment, monitoring trends, initiating the planning process, developing needed infrastructure, operating quality education, training and employment, economic development and job creation services, and establishing meaningful standards, regulatory frameworks and enforcement capability.

The federal government has a particularly critical role to play in the strengthening of the public sector in terms of preparing for the so-called new economy and improving productivity, but to do so without a significant improvement in the living and working conditions of Canadians by means of a so-called jobless recovery will do little for the future of our country.

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We've appreciated the opportunity to be part of your process. We urge you to remember that federal fiscal policies must be made in such a way that they will generally address the needs of all Canadians, and not the other way around. In our view, the federal government has reached an historic point. Given the rising surplus situation in particular, the federal government must focus on rebuilding and enhancing the public sector and public services and not on embarking on widespread tax cuts, spending cutbacks, and privatization and contracting out.

Thanks very much, and we look forward to participating in the discussion.

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

We will now hear from the Federation of New Brunswick Faculty Associations. We have the president, Dr. Jack Vanderlinde; the vice-president, Dr. Claude Dionne; and the executive director, Mr. Desmond Morley. Welcome.

Mr. Les Holloway: I have to be excused. I have another meeting I have to go to. If there are any questions on some of what I said, Wayne Butler can respond to them. I look forward, hopefully, to being able to meet with you again to express in more detail what we say are solutions for the problems I raised. Thank you again.

The Chair: Thank you, Mr. Holloway. So, Mr. Butler, you have the responsibility of speaking on his behalf.

Go ahead.

Dr. Jack Vanderlinde (President, Federation of New Brunswick Faculty Associations): Thank you very much. The Federation of New Brunswick Faculty Associations represents all of the professors and librarians at various universities in New Brunswick, about 1,200 in number. I'm also the chair of the physics department at the University of New Brunswick. My vice-president, Claude Dionne, is a professor of administration and marketing at the University of Moncton, which is also in New Brunswick.

You will have received our brief. Unfortunately, the appendix was left off the French version. We have copies available here, if anyone would like one. I won't take your time repeating all we've said in our brief. I trust you will read it, but we'll be pleased to answer any questions on it, of course. I'll make my presentation short. Several people have gone over their time, and I think we'll all appreciate some brevity.

Let me start off by saying that I was delighted to hear the finance minister's statement recognizing innovation as the basis for Canada's future well-being. It's an ongoing theme throughout this, and we fully agree with it. I think innovation means in particular thinking outside of the box, and we all know that thinking outside of the box is something you have to learn. It's not something that comes naturally. We believe universities are in fact the best places to learn to think outside of the box. That means not just in the technical areas of universities but also on the liberal arts side of universities.

The main theme I would like to address with the committee is a plea for the restoration of core funding of universities. The federal government has in fact made considerable attempts to shore up funding to universities via its CFI funding, the Canada Foundation for Innovation, and the recently announced funding of supposedly 1,200 chairs in various subjects.

But I would point out that this is a double-edged sword, particularly for the Maritimes. To point out some of the difficulties with it, first of all, the establishment of chairs will make it much easier for Ontario and B.C. to raid our best and brightest faculty and to be subsidized to do so. Second of all, big research funding is useless unless time is made available to do it. Currently, our professors are very overworked, and very few people have the time to do very much on the side. I am working in the vicinity of 60 hours per week, and people who are very active in research are probably working close to 70 or 80.

Furthermore, I would suggest that research money does nothing whatsoever for student fees. In fact, it's still a drain on the university. When I do research, I use the university's resources. It does not in any way put money into the university to provide student services.

Lastly, research money does nothing for libraries. As we've pointed out in our brief, our libraries are in dire need. They are rapidly becoming irrelevant.

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My fundamental request would be that the federal government reinvolve itself in providing core funding for universities that would allow us to rehire professors, whose numbers have been considerably decimated, to restock our libraries with up-to-date journals, and to not have to increase student fees any more.

Thank you.

The Chair: Thank you very much, Dr. Vanderlinde.

We'll now hear from the Canadian Centre on Substance Abuse, Mr. Ed Fitzpatrick. Welcome.

Mr. Ed Fitzpatrick (Member of the Board of Directors, Canadian Centre on Substance Abuse): Good afternoon, Mr. Chairman and members of this committee. I bring greetings from the board of the Canadian Centre on Substance Abuse.

I've been working in the addiction field in Canada for 32 years, and when I retired I was the executive director of the Nova Scotia Commission on Drug Dependency. I'm very pleased to be here, and I certainly thank you all for this opportunity.

I'd like to bring what I hope will be a message that will assist you in your deliberations as you move across the country. There will be more in-depth presentations on behalf of the centre, and these will be made by others at later hearings of this committee.

The Canadian Centre on Substance Abuse was created by an act of Parliament in August 1998, and it's to serve as the national focus for drug and alcohol issues in Canada. It has three broad goals: to promote increased awareness by Canadians of issues related to alcohol and drug abuse, to promote increased participation by Canadians in the reduction of harm associated with alcohol and drug abuse, and to promote the use and effectiveness of programs of excellence relevant to alcohol and drug abuse.

The centre operates as the national clearing house on substance abuse. It collects and disseminates information, compiles and maintains a variety of databases, and coordinates the Canadian substance abuse information network. CCSA also runs the fetal alcohol syndrome information service with financial assistance from Health Canada and the Brewers' Association of Canada. The centre provides free access to substance abuse information and hot links to many other knowledge providers around the world through its site on the World Wide Web. It also publishes a variety of directories, statistical profiles, pamphlets, research and policy papers, and special reports.

The centre is in a unique position to bring a variety of partners together from the public and private sectors to pursue projects that would be impossible to do unilaterally. As well, with the disappearance of all but three independent provincial drug and alcohol agencies in recent years, the centre is being called upon more and more to provide expert advice and counsel to our provincial clients and to coordinate a variety of cross-jurisdictional activities.

Here are some examples that illustrate some of CCSA's accomplishments in joint project initiation and coordination. The Cost of Substance Abuse in Canada is a two-year study of the health, social, and economic costs of substance abuse, which was published in June 1996. It involved the financial and/or in-kind participation of six provinces and two federal departments. Don't worry about it, gentlemen. I'm going to leave it for your research people, and I think they'll find it very helpful in their reporting to you.

Another very important document is The Canadian Profile, which is an annual compilation of statistics on alcohol, tobacco, and illicit drug use developed in partnership with the Centre for Addiction and Mental Health of the province of Ontario with financial assistance from Health Canada. I'll also leave a copy of this report for your research people.

Health and Enforcement is a study of alternative approaches to drug enforcement. This involved the Canadian Association of Chiefs of Police, the RCMP, and the Office of the Solicitor General.

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The use of psychoactive substances entails enormous adverse consequences to the health of Canadians. The misuse of alcohol and illicit drugs is also associated with adverse social consequences, such as crime, violent behaviour, unemployment and poor productivity, family discord, as well as spousal and child abuse. Alcohol continues to exact a heavy toll on the well-being of Canadians, particularly among youth in high-risk populations, such as first nations peoples, pregnant women, the disabled and the elderly. Tobacco use continues to decline within the general population fifteen years and older, but there are indications of a significant increase among adolescents since 1993. Illicit drug use is on the rise for the first time in more than a decade, and the increase is being led by younger Canadians.

Taken together, substance abuse accounted for 21% of total mortality in 1992, and 23% of years of potential lost. Hospitalization due to substance abuse constituted 8% of total hospitalization, and 10% of the total days spent in hospitals for any cause in Canada in 1992. Substance abuse cost the Canadian economy more than $18.4 million in 1992. This represents $649 per capita, or about 2.7% of the total gross domestic product.

What is needed in the next federal budget? The answer is federal leadership and a long-term commitment to address the problem of substance abuse. In the hope that it will reaffirm the need for leadership and commitment by the Government of Canada in this area, we recommend continued investment in prevention, education, and treatment, and funding going to support organizations—that is, the Canadian Centre on Substance Abuse and programs that address both the demand for and supply of drugs. There is a need to address both the domestic and international aspects of substance abuse.

As I said in my opening comments, gentlemen, as far as budgetary requirements are concerned, in terms of things we'd be looking at to improve, and to be able to guarantee the documentation I've shown here in our books—which we've been producing over the last number of years—we certainly are looking forward with the hope that this committee will look favourably upon the requests that are made by our board in the next budget.

Thank you, all.

The Chair: Thank you very much, Mr. Fitzpatrick.

Going to the question and answer session, we'll begin with Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC): Thank you, Mr. Chair.

I appreciate all of the interventions today, but I'll ask my first question to you, Mr. Fitzpatrick.

I participated in a conference a few months ago, and one of the issues was the global issue of drugs. In fact, the conference was on narco-politics and that whole issue. One of the positions presented at the conference was that consumer nations can probably do more to reduce the use of illicit drugs by reinvesting some of the money that we use in enforcement and the judiciary against the use of illicit drugs, in preventive measures instead. There were also some strong cases made relative to the legalization of some of what are referred to as softer drugs. They were talking about using some of those cost savings to try to prevent young people from abusing these drugs. I'd appreciate your position on that, or your thoughts on that.

Mr. Ed Fitzpatrick: Yes, certainly we have reviewed and looked at the legalization of marijuana. I think that's the expression they use. It seems to be the favourite one that we're talking about, in that a lot of young people are being picked up and are serving some prison time for possession or what have you.

• 1420

On our board is a member of the Canadian Police Association, the chief of police from Brockville. The police are looking at possibly the point at which they could issue a simple summary ticket, something like a parking ticket, just to bring it to the attention of the person that marijuana certainly is an intoxicant.

You know, we could spend the rest of the afternoon discussing the pros and cons of total, absolute legalization and what have you, but suffice to say that it is an intoxicant. It does have a mood-altering effect on people. It does cause impairment as far as driving and what have you are concerned. Therefore, our board certainly has never looked at recommending to the Government of Canada that they should totally legalize marijuana.

Now, the other issue associated with marijuana—and we certainly are supporting this—is the legalization for medical purposes. If it's proven through proper checking and what have you that it should be used in lieu of another drug for people suffering from AIDS, cancer, or some other debilitating illness, then we certainly feel it should be supported.

As for the other part of your question on concentrating more efforts on the education about and prevention of all drug use, sir, I unfortunately go back to 1967 in the field of drug dependency. I'm still on the granddaddy of all the drugs that's still causing the greatest problems in this country, as in the United States, and that is old friend John Barleycorn, alcohol. I certainly feel that there are some things that have been adrift in the last while, and that maybe we're losing sight of that. Again, through organizations such as ours, provincial organizations, Mothers Against Drunk Driving, and stuff like that, if we can increase our preventive programs in order to try to cut down on the tremendous use of alcohol in Canada, we would definitely welcome that, from the board's point of view.

Thank you, sir.

Mr. Scott Brison: Thank you, Mr. Fitzpatrick.

A second question is related to the changes in employment insurance programs that have occurred since 1995, and the impact of those changes on seasonal workers. For instance, there has been a concern that it has in fact represented a transfer of responsibility from the federal government to the provincial governments in some ways, in that many of the people who did work seasonally and collected employment insurance to supplement their income are now on the provincial social assistance lists. I would appreciate the feedback of you people on that—Ms. Price, perhaps—and whether or not you have seen that as a factor.

As a second point, I happen to support the notion of a national shipbuilding policy. We've been consistent on that, and the Canadian Chamber of Commerce has also been supportive. But if we're going to denounce everything the Canadian Chamber says when it endorses tax reductions, it's rather difficult to use their endorsement when they endorse a shipbuilding policy. They're the same nefarious people who believe Canadians pay too much in taxes, but they happen to agree with you on the shipbuilding policy. It seems a little unfair to reduce their legitimacy on one issue, yet consider their endorsement important on another.

The Chair: Thank you, Mr. Brison.

Ms. Price.

Ms. Elaine Price: Thank you.

With respect to your question or your statement on unemployment insurance, I can understand what you're saying with respect to the devolution or the transfer of responsibility from the federal government down to the provincial governments, but I think you have to go a step lower. You have to go down to the unemployed worker. The changes to the unemployment insurance program penalize people who work in seasonal industries all across the country, but in Atlantic Canada in particular.

The changes are punitive in nature. In actual fact, I would go as far as saying the changes punish people because of where they live—I'm talking about Atlantic Canada—and what they do, and that means working as seasonal workers. Anyone who is at all familiar with Atlantic Canada is very much aware of the fact that the majority of our industries are seasonal in nature. That doesn't diminish the value of those industries or the contribution that such industries and the people who work in those industries make to our economy.

• 1425

So it's more than just an issue of transferring responsibility from the federal to the provincial government. Actually I would go as far as to suggest it should also be a judicial issue, a criminal issue. The Auditor General started sounding the alarm bells about a month ago. There's a $21 billion cumulative surplus in the unemployment insurance fund. At the end of this year there will be a $26 billion surplus in the unemployment insurance fund. Meanwhile fewer than 40% of the unemployed people in this country qualify for unemployment insurance benefits.

If I were to be entrusted with a fund on behalf of a group of people, and if I used that fund for a purpose other than what it was intended for and other than what the people had paid premiums for, then I would strongly suggest to you that I would find myself not only in court but in jail. There has to be some accountability, because what has occurred with respect to the theft from unemployed people in this country is criminal, and it has to be dealt with.

I'm not going to get into the shipbuilding policy, but I just want to make one comment on what you said. You're generalizing. Yes, there are issues, such as tax cuts, that we adamantly disagree with the business community on. However, that doesn't mean we have to disagree with the business community or the Chamber of Commerce on all issues. As a matter of fact, there are some issues where there is common ground, and when we find those issues, we support each other.

Mr. Scott Brison: I have just one final comment, Mr. Chairman.

The Chair: Very quickly.

Mr. Scott Brison: I would argue that in fact if you look at the social democratic parties in the U.K. or Germany or even in Canada, with the New Democrats recently acknowledging that tax reduction is a viable policy alternative, you may be out of touch a little bit, not just with your membership but perhaps with Canadians in general, on the tax issue.

Ms. Elaine Price: I don't understand the question.

The Chair: I think that was a comment.

Ms. Elaine Price: That's what I thought.

The Chair: With that, we'll just move right along to Mr. Lunn, and then we'll go to Mr. Szabo.

Mr. Gary Lunn (Saanich—Gulf Islands, Ref.): Thank you. I'll keep this very brief, Mr. Chairman.

I do share Mr. Brison's views on the tax cuts, but I just want to go back, and I'm only going to take one minute. I want to say this on the record. I won't ask any questions, but with respect to those signs, I feel compelled to make a comment for the future. They've all left now, but I think it was wrong to ask those people to leave, and I'll tell you why.

In London, when we opened the economic statement, we had the Minister of Finance come in with four televisions and pyrotechnics and charts and graphs and everything else. Here we had half a dozen to a dozen shipyard workers who took a couple of hours off their employment to come down here and send us a message, and they held a very tasteful sign at their feet. We should be ashamed of ourselves for asking those people to leave. They did it very tastefully; they held it at their feet. I know there are rules, but for God's sake, I can find you more stupid rules than that in Ottawa. There are lots of them.

So if we have some discretion in the future at these meetings and people come in here.... Yes, they can ask to come before the committee, but they don't have all the resources to get here. So I want to put on the record that in future, when people come here with a few signs like that, that are not disrupting the meeting, that are very tasteful, we should show a little discretion and let their voices be heard.

I just wanted to put that on the record, and for doing that, I'll now defer to my colleagues on the other side.

Thank you, Mr. Chairman.

The Chair: They weren't asking to speak or anything like that. I think their representatives were presenting their views quite eloquently.

Mr. Gary Lunn: Pardon me?

The Chair: They did not ask to speak.

Mr. Gary Lunn: I appreciate that, but they were asked to leave, and I'm saying in the future—

The Chair: They weren't asked to leave.

Mr. Gary Lunn: Well, Mr. Chairman, I'll differ with you on that, because I went out and spoke to them, and they were asked to leave.

The Chair: I never asked them to leave, and I can only be held responsible for what I ask people to do.

Mr. Gary Lunn: Anyway, in future, if they're like that, I think they should be allowed to stay.

The Chair: Okay.

Mr. Gary Lunn: Now I will defer to my colleagues.

The Chair: When you chair the meeting, you'll do what you like.

Go ahead, Mr. Szabo.

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

Thank you, presenters.

Mrs. Price, you talked a little bit about the importance of tax cuts, and you used a couple of different adjectives to refer to it. To put it in context, in 1997 just over 14 million Canadians filed tax returns and paid taxes—14 million. Therefore if you were to give a tax cut or a tax break, put the money in the pockets of the Canadian taxpayers, $100 in each and every one of those pockets would cost you $1.4 billion. Maybe you can help us or give us an idea of what magnitude of tax cuts you are proposing, given that $100 in a person's pocket is $1.4 billion.

• 1430

Ms. Elaine Price: I'm not proposing tax cuts. What I am suggesting is that the priority should be reinvestment in our social programs, our medicare system, our public post-secondary education system, restoration of our unemployment insurance program, improvements to social assistance, and a national early childhood development program—social programs that benefit all citizens. However, I did acknowledge that there is economic growth occurring, and that it is benefiting the country. There may be room, as a result of the economic growth and the surpluses that are accumulating, to look at progressive tax cuts.

I find it really interesting that you can look at $100 in everyone's pocket as costing $1.4 billion and sort of leaving the impression that this may be out of reach, when at the same time we've lost billions of dollars in government revenue and taxpayers' money by giving incentives to corporations in this country. I think you have to look at it in perspective. I think you have to look at the whole taxation system, not just personal income tax. I think we need to redesign our tax system. We need tax reform so that our tax system is fair and progressive. If we had the corporate community and wealthy Canadians paying their fair share of the burden, there would be lots of money left to put a pittance, like $100 a year, into the pockets of poor and middle-income families in this country.

Mr. Paul Szabo: Mr. Chair, I just want to clarify that. I wasn't suggesting that somehow was an indication of achievability. It was a reference point so that we could understand things when you used the words—and I wrote it down in my laptop, so you can tell your friend Mr. Holloway that I use the laptop to record what people say—“broad-based tax relief”. I just was trying to find out what “broad-based” was, but that's what I understand.

I'm going to defer to Mr. Cullen.

The Chair: Mr. Cullen.

Mr. Gary Lunn: Mr. Chair, I just want to correct my comments for the record. I apologize. They weren't asked to leave, they were only asked to take their signs down. That's the point I was trying to make. Sorry about that.

The Chair: Okay, so that's a minor point of clarification.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman, and thank you, panellists.

I have a few questions, but in the interests of time....

Ms. Price, you talked about the EI account and you used pretty strong language. I don't want to get into another debate about it here, but the EI account was in deficit in 1986 or 1988. In fact, the Auditor General said the government should consolidate it with consolidated revenue, so I suppose you could equally argue that the contributors were receiving, if you like, from the Canadian taxpayers as a whole at that time.

I have a question that was actually for Mr. Holloway, but to Mr. Butler, on the national shipbuilding policy, I hear a lot about it. I think I heard Mr. Holloway say he's not looking for subsidies or handouts. Could you paint a picture for me of just some of the key elements of what a national shipbuilding policy might look like? Just sketch a bit of a picture. I can see how the federal government might help the industry market its services internationally, but if there are not subsidies or handouts, just paint me a bit of picture.

Mr. Wayne Butler (Secretary-Treasurer, Newfoundland and Labrador Federation of Labour): To start with, the Liberals had a policy convention there a short while ago and they came out in full support of a national shipbuilding policy. I think we've contended—

Mr. Roy Cullen: Which is what?

Mr. Wayne Butler: Well, I guess if the Liberals came out with—

Mr. Roy Cullen: I'm asking you, sir.

Mr. Wayne Butler: All I know is what I read in the paper, which is that the Liberals came out in full support of a shipbuilding policy at a policy convention. If you talk to Mr. Manley, he'll say we have a policy in place today. Unfortunately, the policy in place today means that 75% of shipyard workers across this country are laid off, so that's not the kind of a policy we're talking about. When you talk about—

Mr. Roy Cullen: What is the policy you're talking about, sir?

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Mr. Wayne Butler: The policy we're talking about is one giving us a level playing field with the rest of the shipping countries in the world. If you look at the Asian countries right now—

Mr. Roy Cullen: By doing what, sir?

Mr. Wayne Butler: If you'll give me time to explain, that's what I'm getting into.

If you look at the Asian countries right now, they're putting in up to a 40% subsidy. If you look at the European countries, they're putting in up to a 10% subsidy. What we're saying is that we're not interested in subsidies. What we're saying is that the federal government should be able to come up with a title 11 clause that's the same as the one United States. Title 11 guarantees that if any shipowner gets a ship built in the United States, the federal government or some lending corporation in the country will lend that shipowner 87.5% over a 25-year period at low interest rates. They're getting it back, plus interest, and they're creating work in the country. If you look at the Jones Act, which guarantees that all domestic trade moved between the American ports is moved in American-built, American-flagged and American-crewed ships. That's what we're talking about.

If we're going to have an industry, then let's put it on a level playing field with the rest of the world. I don't think for one minute that the rest of the world are going to come down to our standards, so what we have to do is try to build our industry up to theirs. If that means concessionary financing, if that means low-interest loans to generate and kick-start our industry, then that's what we're talking about. But unfortunately we continue to get the whole issue clouded with subsidies. We're not talking about subsidies. Give us the same playing field that the other countries have and we'll make an industry in this country that's second to none.

On the issue of the UI and the comment you made about 1988, if you look back, the deficit in the UI fund in 1988 has been since repaid with interest, to the point where we're now in surplus by billions of dollars.

Mr. Roy Cullen: Yes, well this is getting repaid.

Thank you.

The Chair: Thank you, Mr. Cullen.

Mr. Pillitteri.

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

Two weeks ago it was Marine Week in Canada. As a matter of fact, I had meetings with shipbuilders as late as last Friday. There are more shipbuilders outside of the Atlantic provinces—shipbuilders, shipowners, and unions, of course. I found that to be a very good format, because Mr. Holloway mentioned the Jones Act and the protection they have in the U.S.

Also, nobody else has stated that there's a protection on shipbuilding here in Canada. Any built ship coming into Canada has a 15% tax on it. You forgot to mention that.

You spoke of a level playing field. It's 40% from Asia. Of course, leading the pack are South Korea and Japan on those subsidies. Short of subsidies, the best policy for repaying shipowners is here in Canada in terms of writing off a ship. It's eight years, versus 25 years elsewhere.

Following up on Mr. Cullen's question, which part of the shipbuilding industry would you like to see that is not there now? Is it the 40% subsidies or the government guaranteeing those loans for the ship buyers in order to have ships built here in Canada? Those are the only two things that are missing in this country, but they're more preferable to anyone writing off a ship here in Canada than anywhere else in the world.

Mr. Wayne Butler: Because of time constraints, we certainly don't have to time sit down and to debate that those are the only two things needed in a shipbuilding policy in this country. I think that's a very narrowly slated opinion of what's needed for a shipbuilding policy in this country.

We've said from day one that we think we can generate a shipbuilding industry in this country without subsidies from government. We think we can do that through low-interest concessionary financing and low-interest loan guarantees. We think we can do it if we have some protection in legislation that says a Canadian ship is a ship that's built in Canada, is crewed by Canadians and flies the Canadian flag. It's not like Mr. Martin's fleet, which was built in third-world countries, which is crewed by third-world Canadians, and which flies third-world flags. Until we can get on a level playing field with that kind of thing, and until we can get some incentives to have the shipowners build their ships in Canada, then they're going to continue to go overseas to get their ships built.

• 1440

Mr. Gary Pillitteri: Sir, that remark about Mr. Martin was uncalled for.

Mr. Wayne Butler: Sir, I'm going to—

Mr. Gary Pillitteri: If you want a shipbuilding policy, then the three segments together, and not only the union, should make a presentation to the government. It should not only be one, sir, because you'll be further ahead in individuals like me listening to you.

Mr. Wayne Butler: For your information, we have a tripartite committee. We have about five organizations that are now onside with us. And being an unemployed shipyard worker, like I am, someone who's worked in the industry for 25 years and who's trying his damnedest to make a living for his family, if the shoe fits, then I say to Mr. Martin, wear it.

Thank you.

The Chair: Thank you very much, Mr. Pillitteri.

On behalf of the committee, I'd like to thank you all very much. As you know, this is the third session that we've had here in Halifax, and we've certainly benefited from the input given by all the panellists. As I said earlier on this morning, what obviously drives the committee's agenda is a willingness to listen to advice that essentially will create a road map to improve the standard of living for Canadians. The ideas and thoughts you shared with us have certainly added value to the debate, and we thank you very much for it.

Let us suspend for approximately five to ten minutes, and then we'll be back with the next session.

• 1442




• 1459

The Chair: I'd like to call the meeting to order and welcome everyone here this afternoon. This is our second session this afternoon here in Halifax, and we have the pleasure to have with us representatives from the following organizations: the Metropolitan Halifax Chamber of Commerce, the Cape Breton Regional Municipality, the St. John's Board of Trade, the Nova Scotia Cultural Network, Horticulture Nova Scotia, the New Brunswick Healthcare Association, the Municipality of the County of Richmond, and I believe also the Nova Scotia Federation of Agriculture.

Many of you have appeared before a parliamentary standing committee. As you know, you have five minutes to make your comments. Thereafter we'll engage you in a question-and-answer session.

We will begin with the Metropolitan Halifax Chamber of Commerce, represented by Michael Schmid, federal finance chair, and Ian Tramble, member of the federal finance committee. Welcome.

Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Mr. Chairman, before we start, on a point of order, we have the sign people back.

The Chair: I'm sorry; I didn't notice they were back.

• 1500

I think we have established a rule vis-à-vis those signs—not the people, but the signs have to leave. I don't know how the signs are going to get outside, but they'll have to be removed. We will continue, and I'm sure the signs will be removed.

Who will begin, from the Metropolitan Halifax Chamber of Commerce?

Mr. Michael A. Schmid (Federal Finance Chair, Metropolitan Halifax Chamber of Commerce): Michael Schmid will begin.

The Chair: Welcome.

Mr. Michael Schmid: Thank you.

The Metropolitan Halifax Chamber of Commerce is a voluntary not-for-profit organization that represents business interests and provides vital leadership that benefits metro Halifax and the Atlantic region.

There are 1,750 corporate members in the chamber and they employ over 50,000 people, which represents more than one-quarter of metro Halifax's labour force of 194,000. Of the chamber members, 78% are organizations of 25 or fewer employees. The Metropolitan Halifax Chamber of Commerce has the largest membership of any chamber in the Atlantic provinces and is the largest in the country among mid-size Canadian cities.

Since the last federal budget, pressure on the government has been growing to deliver new program spending and immediate tax relief. Our members, however, continue to support the chamber's position that the federal government needs to take a three-step process in managing its finances.

First, we need to control spending and achieve surpluses. With spending under control, we can then bring down the massive federal debt. Having reduced the debt and freed up money currently being spent on interest payments, we can deliver sustainable reductions in personal taxes that will make a meaningful impact on the national economy. Canada is still at step one.

As stated in our response to the 1999 federal budget, we believe that any new program spending should come from existing programs that are scaled back or eliminated. We were disappointed with the amount of new spending contained in the 1999 budget, and are gravely concerned that the recent throne speech clearly indicated that further spending increases will come with this year's budget.

The government must exercise restraint. We recognize that certain incremental growth in program spending, based on population grown and the impact of inflation, is beyond the government's control. Our position is focused on new initiatives. If the government believes that money would be better spent in one area, then they need to reallocate that money from another area that is no longer a priority. The current emphasis must remain on continued reduction in the level of government and government debt.

Our net public debt is approximately $576 billion. In 1998-1999, 27¢ of every $1 of revenue collected was used to pay interest on this debt. The $41.4 billion in interest costs was almost double the $22.8 billion spent on elderly benefits in 1998-1999—the next-largest single expenditure item in the federal budget. If the government was able to maintain the current trend of paying $3 billion against the principal of the debt in every fiscal year, it would take almost two full centuries for Canada to become debt-free.

The federal government must make real gains in limiting the growth of expenditures, so Canada can move to step two and begin to substantially reduce our national debt. Minister Martin has told the chamber that the contingency fund and its conditional availability for debt repayment is the debt repayment plan. In our members' view, a contingent commitment to debt reduction is insufficient, given the size of the debt problem we face.

While we applaud and encourage the fiscally prudent act of budgeting a contingency reserve to balance unexpected fiscal events, we feel that the allocation of the unused portion of the reserve for debt reduction should be done as an addition to a fixed debt repayment figure included in every annual budget. Lower debt means lower debt service costs. Reduced debt service costs means more money is available for debt reduction, tax decreases, education and health expenditures, and investment in needed infrastructure.

Assuming the government can implement better spending controls and continue to focus on meaningful debt reduction, our members recognize that the government will need to take additional actions to place our economy in a strong, competitive position for the future.

Of the respondents to a recent chamber poll, 76% felt that assuming the government were to move forward and cut taxes, the first or second priority had to be a cut in personal taxes. A similar 76% of our poll respondents felt that only a tax cut resulting in a saving of more than $1,000 per family would have a significant impact on the economy. In order to achieve this level of tax relief, real inroads must be made into federal spending and the national debt.

Assuming the government elected to move forward and invest in our country's social infrastucture, 76% of our poll respondents felt that the first or second priority should be an increase in the health transfer to the provinces.

These results indicate that our members remain committed to spending control and debt reduction as a primary method of securing a better economic future. They accept that the government may feel the need to reallocate existing federal spending toward targeted tax relief for individual Canadians, and increased spending on the national health care system and other key pieces of national infrastructure.

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I would now like to briefly address the unacceptable employment insurance surplus. Employment insurance is a social program that contributes to the security of all Canadians, by providing assistance to workers who lose their jobs and helping unemployed people across the country get back to work.

The continued build-up of a massive EI surplus that is then used to fund general program spending is unacceptable, and undermines the intent and integrity of the EI system. The chamber continues to believe that the surplus in the employment insurance account should be capped and EI premiums should be reduced in order to promote child growth.

Our members recognize that the government has made a series of small cuts to EI premiums. We would point out, however, that the EI surplus continues to grow at an alarming rate and other payroll deductions, such as the CPP contribution, continue to rise, effectively eliminating any projected savings for employees and employers.

The EI fund is money that belongs to the employers and employees who have paid into the fund as an insurance policy to support workers in transition. It should not be treated as general revenue by the government. If the government were facing a deficit in the EI account, they would certainly quickly turn to employers and employees to make up the current or projected loss through increased premiums.

In conclusion, government, business, and citizens must be more responsible for their own well-being. Government needs to reduce its dependence on borrowed funds, businesses must achieve economic viability without government subsidies, and individuals must expand their ability to take advantage of new opportunities as they arise.

Thank you for your time.

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

We will now hear from the mayor of the Cape Breton Regional Municipality, Mr. David Muise. Welcome.

Mayor David N. Muise (Cape Breton Regional Municipality): Thank you very much, Mr. Chairman.

With me is Mr. John Whalley, who is an economist employed as the director of economic development for the municipality.

We have presented a brief to the panel, and I apologize for its length. I will attempt, in the time allotted, to quickly summarize the presentation contained therein, and I would recommend it for your consideration.

We sat in on the last session, Mr. Chairman, and your closing comment was that you were here to receive suggestions for the development of a road map for the creation of a better standard of living for Canadians. We are here at the request of the FCM, of which we are a member, to deal with exactly that question.

The Cape Breton Regional Municipality was created in 1995. It's an amalgamation of eight pre-existing municipal units that found themselves, for various reasons, in various degrees of financial trouble. A couple were in good financial shape, but most of them were in serious financial shape. It was felt that an amalgamation would find efficiencies, which I believe are there and are capable of being accomplished. But unfortunately, coincident with the creation of the Cape Breton Regional Municipality is an accelerating collapse of the economy in Cape Breton.

The Cape Breton Regional Municipality covers approximately 2,600 square kilometres and its population is 117,400, making it the third-largest city—if you want to call it that—or municipal unit within Atlantic Canada, following only Halifax and St. John's, Newfoundland.

There appears to be a program—whether it is direct or indirect—by the federal government to withdraw from the economy of the Cape Breton Regional Municipality. We are experiencing a shift from being a resource-based economy to a service-based economy. The rest of the world probably evolved to that over about 20 years; we're expected to make that change in about 12 months. The anniversary of that date is coming up.

We have approached the provincial government and the federal government to make suggestions for the recovery of the economy of Cape Breton. I guess the question we have to ask is whether the federal and provincial governments are interested in saving the economy of Cape Breton, and thereby saving its people.

We are faced with the closure of our resource-based industries within the next year, particularly coal mining, with expected losses and spin-off job losses of about 2,500. We also have a steel mill, where the workforce has been reduced over the last number of years from 5,000 to a current level of about 400 to 500. The future of that industry is seriously in question.

As the Cape Breton Regional Municipality, we feel we are a strong municipal government speaking for the entire region, but unfortunately we are not in a financial position to influence the recovery of the economy. Indeed, it's been argued in many areas that economic development is not within the purview of municipal government, but rather is left with the federal and provincial governments. We feel that the senior government's policy has been, as I said, to withdraw from the economy rather than to help us to stimulate it.

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The presentation contains a couple of items the FCM has asked us to address, including infrastructure projects and standard-of-life projects. We feel that without a strong economy, we won't have to worry too much about those items; there won't be anybody left there.

We made a presentation to the provincial government several months ago, and it contained, among other things, two issues: infrastructure projects, and a system of tax relief for the creation of business.

Cape Breton has a population, as I said, of about 117,000. In the past number of years that population has been declining at a rate of about 1,000 people per year. Those people tend to be in the age range of about sixteen, seventeen, to late twenties. The prime segment of our population is leaving. We're being left with an aging population and a high dependence on transfers from government, be it through Canada Pension, old age security, other kinds of benefits, or social assistance.

So we are faced with a very serious problem. We are losing our job base, our employment base. Our unemployment rate is at about 17% right now. Our participation in the workforce is at about 50%. If you factor in our workforce participation rate and our unemployment rate, it's probably about six times higher than that. Our assessment base is declining. Our ability to generate revenue as a municipality is declining, and that is affecting our ability to deliver services.

There are three approaches to economic development that we have looked at. One is laissez-faire, to just ignore the situation and see what happens. A second is for the government to become involved directly to help establish or boost some community capacity. A third is to provide, through legislation, some kind of an offset for areas that are particularly affected.

In Cape Breton, because of the activities of the federal and provincial governments in economic development over the last 30 years, there is a very small entrepreneurial class or group. We realize that the private sector has been noted in many economic studies to be the driver of any new economy. In Cape Breton, it just does not wash, because of the high dependency on government transfers and the failure to create an entrepreneurial class or a strong enough private sector to drive the economy.

We are asking that the federal government consider the institution of a system of tax credits, which is contained in the brief we have presented. What we are suggesting is that it differ from tax incentives that were tried in the past, that any tax incentive not be upfront money, or grant or subsidization money, but that it simply be tied to success. Should a company create employment or transfer a segment of their business from another part of Canada to Cape Breton, they should be rewarded for job creation through the forgiveness of provincial and federal income tax.

This suggestion has been made to the provincial government. It has been received, although we do not have a commitment from the provincial government other than that they will look at it and work with us in helping to develop the economy of Cape Breton. We have made a presentation to the federal Minister of Finance and to members of Parliament and the Senate, but we have not had a response to date.

In the time available to me I cannot get into details on the program we are suggesting, other than to say it's not an upfront grant system; it's tied to success in job creation. Perhaps we can elaborate a little more when we get into the question and answer period.

I feel the Cape Breton Regional Municipality is a very important segment of Nova Scotia and indeed of Atlantic Canada, and that the programs of the government over the last 30 years have not been successful in creating a new economy or helping to find new direction in Cape Breton. What they've done is probably delayed the decline, or made a bad situation somewhat more tolerable. They've kept people alive until they could transfer them from one basket to another—get them out of the workforce and on to early retirement, pensions, and things like that—with very little planning for the future.

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So as mayor of the Cape Breton Regional Municipality I think it's time that changes, and we are working quite diligently to try to develop a new economy for Cape Breton. But as I stated, our financial resources or our ability to generate revenue is not sufficient to drive a recovery in the economy, and we do need assistance from the senior levels of government.

I thank you very much for this time.

The Chair: Thank you very much for your presentation. I'm sure there'll be questions in the Q and A session. Now, we'll go to the St. John's Board of Trade, Ms. Lori Lee-Oates and Martin Lockyer. Welcome.

Mr. Martin Lockyer (President, St. John's Board of Trade): Thank you, Mr. Chairman. I'm the president of the St. John's Board of Trade, Martin Lockyer, and with me is our manager of policy, Ms. Lori-Lee Oates. Thank you for the opportunity to come here today and present our views.

As you know, earlier this year we presented the committee with a more comprehensive brief. Today I plan to talk about three issues, which we outline more fully in our brief. They are debt reduction, taxation reform, and transfer and equalization payments.

First of all, let me say the St. John's Board of Trade agrees with Minister Martin that Canada has entered a new era of financial flexibility by recording a budgetary surplus two fiscal years in a row. We now understand that the federal government is projecting increased financial surpluses over the next five years. The numbers could grow to close to $100 billion.

For this reason, the board would like the federal government to use a portion of its projected budgetary surplus to more actively address debt reduction than it has in previous budgets. The St. John's Board of Trade has consistently stated that the federal debt is too high and continues to act as a barrier to economic growth and development in this country. As this committee pointed out in its 1998 report, Canada's overall government debt burden still exceeds the G-7 average by a substantial margin and is very much out of line with that in the United States.

Reduction of the national debt is very important if we, as a country, wish to maintain control over our position in the global economy. The board is aware that there is a $3 billion contingency reserve built into the federal budget on an annual basis. The board firmly believes that government should not use this money for program spending. The $3 billion contingency reserve, if unused, should be applied toward debt reduction at the end of the fiscal year. As well, any unanticipated surplus should be applied toward debt reduction at the end of each fiscal year, in addition to the $3 billion. The unanticipated surplus should not be used to increase program spending over and above what government has already projected.

We recognize that the debt-to-GDP ratio has been decreasing. This ratio has been declining as a result of the improved economy and therefore the growing GDP. The board believes the federal government should reduce the debt and not rely solely on the growth in the economy to reduce the debt-to-GDP ratio. The government should continue to target the reduction of the debt-to-GDP ratio until it is at least less than 60%. In fact, government should aim to accomplish this for the 2001-02 budget. As well, the government should thereafter work toward maintaining a sustainable debt-to-GDP level that is between 50% and 60%.

On the issue of taxation reform, the board was pleased with Minister Martin's announcement that the federal government will set out a multi-year tax reduction strategy in 2000-01 budget. We believe this plan should use a portion of the projected budgetary surplus to reduce corporate and personal income tax. However, reductions in taxation should absolutely not be financed with deficit spending.

We also believe it's extremely important to address the issue of increasing productivity in this country. Productivity is the ability to work efficiently. According to the Canadian Chamber of Commerce, Canada has the lowest rate of growth in productivity in the G-7 nations over the last 25 years. The OECD has warned that Canada's per capita GDP is expected to drop from 10% above the OECD average to 15% below within 20 years.

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The board of trade believes that one of the major obstacles to productivity growth in this country is the lack of an internationally competitive tax regime. At present, this country has the highest rate of personal income tax of the G-7 nations when the rate is expressed as a percentage of national GDP. In short, we take more money for government taxes out of the pockets of our citizens than any other country does. Consequently, many of our brightest minds are leaving the country for lower tax jurisdictions.

As you all know, a 5% surtax was previously put in place on individuals with the condition that it was to be temporary until the annual deficit was eliminated. Well, the annual deficit has been eliminated, and the board believes that the elimination of the 5% surtax should happen immediately, in the next budget. This is a good starting point for reducing personal income tax in this country.

On the issue of employment insurance, the government's own chief actuary, responsible for the employment insurance program, has estimated that a steady premium rate of $2.10 per $100 of insurable earnings would allow the federal government to avoid the need to raise premiums in the event of an economic downturn. The board was pleased with the announcement that the federal government will be reducing the rate to $2.40 in 2000-01.

However, while the government is going in the right direction on this issue, we certainly believe that it's still too much. You should be reducing the premiums by another 30¢ per $100 of insurable earnings.

Combining the employment insurance fund with general government revenues is not the way that this fund should be used. It should be segregated; it should be used as an insurance program for those who are in need of it.

Maybe later we might have an opportunity to say something about the seasonal nature of employment, particularly in this region of the country.

Finally, I want to talk about transfer and equalization payments. The 1999-2000 federal budget announced the complete elimination of calculating transfer payments on the basis of historical need. As I'm sure the committee is aware, calculating payments on a per capita basis alone will negatively impact Newfoundland and Labrador, a province with a relatively low population, and indeed, all of the provinces in Atlantic Canada, I'm sure.

The board of trade believes this policy is regressive and fuels the problems of inequality in this country. We therefore believe that the federal government should continue to calculate transfer payments on the basis of historical need and population.

With respect to equalization funding, under the current regime, equalization payments are reduced virtually dollar for dollar as Newfoundland and Labrador receives revenue from its own sources. This issue was raised by Elaine Price, of the Newfoundland and Labrador Federation of Labour, in the earlier session. We certainly agree with the position of the Newfoundland and Labrador Federation of Labour on that point. We've discussed it, and it's another area where business and labour are in agreement.

For example, for every dollar in royalties that the Province of Newfoundland and Labrador will receive from the Hibernia oil project, 85¢ is deducted from its equalization payments from Ottawa. The board of trade believes that equalization payments should be designed to provide for growth in provincial GDP without offsetting reductions in payments.

There is already a precedent for this type of approach in the European Union. Earlier in the year, the board of trade was in Ireland on a business and fact-finding mission. During this mission, the board learned that Ireland has been receiving significant funding from the EU, which is referred to as “structural funding”. Under this regime, the Irish economy has grown dramatically.

However, despite the fact that the Irish economy has recovered rather quickly, the structural funding remains in place. Essentially what they get there is that over a five-year period they know exactly how much money they're going to get in terms of these structural payments, so they can plan. It doesn't matter how their own revenues react in that time period. They can count on that money.

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The board believes that Newfoundland and Labrador should not be losing virtually every dollar for dollar on equalization payments as a result of positive forces in our economy, at least not until our per capita GDP has reached the national average.

New thinking, such as the above-noted changes to equalization, are necessary if the federal government is serious about truly raising the economic status of the poorer provinces.

Another approach to improving the economic situation of the poorer provinces—for good—which we recommend for serious study is the concept of the variable federal tax rates. Provinces where the per capita GDP is lower than the national average should have a federal income tax rate that is lower than other provinces where the GDP is at or higher than the national average. This would have the effect of making those poorer provinces more competitive, with a corresponding increase in their economic output.

Finally, I'd like to thank you for this opportunity, and I'd also like to say that we, as the St. John's Board of Trade, support the national shipbuilding strategy as well. I was in Edmonton when that strategy and resolution were debated and we got support right across the country, not only for shipbuilding but for ship repair, which is very important in British Columbia.

The Chair: Thank you very much.

We'll now hear from the Nova Scotia Cultural Network and the executive director, Mr. Andrew David Terris. Welcome.

Mr. Andrew David Terris (Executive Director, Nova Scotia Cultural Network): I'm a culture guy, not a finance guy. I'm not going to throw a lot of statistics at you.

The Nova Scotia Cultural Network is a service organization. We're an umbrella organization that represents all aspects of the culture sector and everyone who works in culture in Nova Scotia. We're provincially based.

Because I suspect that some of you may not know what I mean when I say “the culture sector”, I'm going to define it for you. We define this sector as including: the arts, which include crafts, literary media, and visual arts; the cultural industries, which include animation, broadcasting, film, video, multimedia, publishing, and sound recording; design, which includes architecture, fashion, and graphic, industrial, interior, and landscape design; heritage, which is archives, libraries and museums; and finally, performing arts, which is dance, music and theatre. As you can see, it's a very broad group that we represent.

When I say “culture” probably most of you think of performing arts and painters and things such as that. One of the messages we're trying to get across is that this is a very diffuse sector, but when you start to talk about things such as cultural economics and cultural statistics—which may seem like oxymorons, but in fact they're not—that's a relatively new area of investigation. In fact, collectively, the culture sector is, I would argue—and I think we have the statistics to prove it—one of the fastest-growing sectors in the Canadian economy, and I'll talk a little about why that is so.

You were talking about standard of living, quality of life. We think that when you talk about things like hospitals and health and schools and education, there's a third factor in the quality of Canadian life, and that's our culture. It tells us who we are as a people and it gives us the confidence to go out and face the world.

Like any good Canadian citizen, we think debt reduction is important and we think tax breaks are important, but we also think that the Canadian government has an extremely important role to play in health, in education, and in culture, so I want to explain a little about what that role is.

The culture sector is an odd mix because it's not just the private sector. The culture sector exists because of an interplay among the private sector, government support, and not-for-profits. We have very strong not-for-profits in the culture sector; that's the area I come from, although I was for 20 years an artist-craftsman-designer-small businessman-entrepreneur-practitioner, so I know the perils of being in business in this country.

The first thing I want to say is that we think the government support for culture is absolutely essential. If we did not have the strong support from federal and provincial governments, this country would be part cultural wasteland and part American cultural branch plant. Our national institutions such as the Canada Council, the National Film Board, Telefilm Canada—and on and on—have been really vital to the creation of Canadian culture.

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Over the past seven years the federal government has made steady cuts to funding for culture. We would like to see that stopped. We would like to see that reversed.

I also think the federal government can play an important role in equalizing the level of support across provinces. Some provinces, such as Quebec, are very supportive of culture. Other provinces are much less supportive, New Brunswick being a case in point. I think it is to the detriment of their economy.

Now, I'm going to get to that. I think the evidence we have.... Well, I'll give you some numbers. I said I wouldn't do statistics, but I will.

In Nova Scotia—and you may be surprised to learn this—roughly 3% of our GDP and 6% of our provincial labour force is involved in culture. But here's the real killer. From 1990 to 1995 the culture sector created jobs faster than any other sector. During that five- or six-year period, the labour force shrunk by 1.3% and the culture sector grew by 20%. You may be shocked to hear this, but it's from Statistics Canada.

One of the really interesting things—and I admit to being prejudiced—is that in the knowledge economy of the future, I think we all realize that intellectual property is going to be incredibly important. The Internet is going to be a major player economically because of e-commerce. I think what you are going to see, and what you are already seeing, in fact, is that cultural content will be one of the major players in e-commerce.

Cultural content, whether it be music, text, film, or television, is all going to come to you through the Internet pipeline. That means cultural content can be produced anywhere and it can be distributed to a world market. So whether you're in the Cape Breton regional municipality or St. John's, Newfoundland, which I think are areas that have very strong and rooted cultures, you have a potential world market there.

I'm not going to go on at great length, but what I'm saying is that we need strategic government investment in the culture sector. Regardless of where you are, particularly in some of the less traditionally advantaged areas, where culture is very strong, there is a real opportunity for strategic government investment to have a significant impact on local economies through investment in culture.

Thank you.

The Chair: Thank you very much, Mr. Terris.

We will now hear from Mr. Greg Webster, both human resources committee chairperson at Horticulture Nova Scotia and president of Webster Farms Ltd. Welcome.

Mr. Greg Webster (Human Resources Committee Chairperson, Horticulture Nova Scotia): Thank you, Mr. Chairman, for the opportunity to present to you this afternoon.

The topic I am going to focus on this afternoon centres around the effects of the 1997 EI legislation on our industry, particularly as it relates to seasonal and harvest worker procurement.

It seems in the last five years our industry has gone from our worst fears to our worst nightmares as it relates to harvest labour. I sat in a setting such as this in December of 1994, presenting on behalf of the Federation of Agriculture to what was then the committee on social reform, which was test-ballooning the EI legislation. We expressed our concerns on that legislation at the time. Today I am here to comment on the realization of our concerns as a result of that legislation.

Horticulture Nova Scotia is an organization that represents the interests of fruit and vegetable producers here in the province. Our agricultural economy directly employs 12,700 Nova Scotians, and another 4,000 are employed in the food industry itself.

I am going to simply highlight my executive summary here. I understand you people should have copies of this as well as the brief that supports it.

Farmers in Nova Scotia have a capital investment of $1.4 billion, which is increasing at a rate of about $60 million per year. The Nova Scotia horticultural industry itself produces in excess of $35 million in farm-gate sales. It's the largest single employer in the agriculture industry, accounting for the 20% to 30% of Nova Scotians directly employed in agriculture.

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Horticulture, then, has experienced considerable growth in becoming a vital part of the Nova Scotia agricultural industry.

With regard to labour shortages and the effects on Atlantic Canadian horticulture, one of the greatest constraints to the achievement of this growth potential is the steadily decreasing availability of agricultural workers, particularly during the critical harvest operations. The Employment Insurance Act changes that came into effect January 1, 1997, have made it increasingly difficult to source and retain adequate quantities of harvest labour.

This is having an economic impact on our rural economy. Because of the labour shortages, crops are being left unharvested in the fields and markets are being lost to other areas.

Many fruit and vegetable farms typically require five to ten times as many people to harvest their crops as they do to produce them and market them. Our industry has the potential to create additional jobs in both full-time and long-term seasonal employment if we have the confidence that our crops can be harvested in a timely fashion.

With regard to industry and partners, we've been working the last year or so with other government agencies, trying to get a grip on the problem and the potential solutions. To that extent, Horticulture Nova Scotia has worked with the provincial agriculture department and the Kings County Economic Development Commission to identify that labour is one of our most serious constraints to growth in the horticultural sector.

We've organized a human resource committee that represents the horticultural industry in Nova Scotia on human resource issues. In the last year, this committee has worked with representatives from Revenue Canada, HRDC, social services within the province, and some of the federal-provincial politicians who have been involved in our committee to try to promote the education of where we see these problems being created and how we may come to solutions for them.

In the past year, the following has been initiated. HRDC locally has developed a poster program to advise new entrants into the labour force that they actually require a social insurance number to go to work. The local human resource centres and our local horticulture organizations have developed an industry-led harvest labour services office to assist in the recruitment and placement of harvest workers.

Regional Nova Scotia community services staff members have developed pilot projects for social assistance recipients aimed at reducing the EI disincentives to individuals on social assistance seeking seasonal agricultural employment.

The following few examples will attempt to illustrate the degree of concern our horticultural sector has with regard to the negative effects of the current EI legislation and its related interactions with Revenue Canada.

First of all, I'll talk about disincentives related to the legislation. One of the first areas of concern is what we call the peripheral, or casual, labour force. One of the disincentives created by the Employment Insurance Act changes is the one affecting the harvest worker who has no permanent attachment to the horticultural labour force. Seemingly small amounts of supplemental earnings generated by participating in crop harvests become taxable income at the individual's highest tax rate.

I can explain more of that in the discussions, if desired.

If unemployed EI claimants could receive a top-up greater than the existing maximum of $50, or 25% of earnings, when they accept harvest employment, then there would be a net savings to the EI system. Less individuals would be seeking to participate in the underground economy as opposed to working on top.

Social assistance recipients cannot be attracted into the harvest labour force when their net benefit from working is equal to, or less than, staying at home on assistance.

Our recommendation is that we should explore the implementation of a horticultural tax credit that could apply to anyone seeking short-term employment in the horticultural harvest operations. This should remove any tax burden imposed by previous earnings, pensions, EI, social assistance, etc. Another possible solution is to redefine the definition of casual labour to include harvest labour, thus allowing for daily payments without deductions.

As well, a possible solution is to allow for an increased EI top-up for people who will participate in harvest work. This would reduce further temptations to participate in the underground economy. Another possible solution is to make harvest workers exempt from all payroll deductions, to reduce the administrative burden on agriculture employers.

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Finally, our suggestions are aimed at seeking solutions that will create jobs for Canadians here in Canada. We don't want to have to rely on a foreign or offshore labour force unnecessarily, if we can work within the Canadian system to employ Canadians.

In summary, whatever the solution to this problem, both Revenue Canada and HRDC must begin to realize that the potential revenue gains from taking EI deductions and income tax on these relatively small amounts of employee income are not significant enough to justify the current application of EI rules as they apply to seasonal harvest workers.

We require that your government give serious attention to these issues and the solutions that are being developed, and our committee is certainly prepared to work with the appropriate departments and individuals to assess what changes can be implemented that will accomplish our common goals of growth and prosperity in the next century.

Thank you.

The Chair: Thank you very much, Mr. Webster.

We'll now hear from the New Brunswick Healthcare Association—the executive director, Mr. Mike Poirier, and the policy analyst, Mr. Kelly Lamrock. Welcome.

Mr. Mike Poirier (Executive Director, New Brunswick Healthcare Association): Thank you.

Mr. Chair, I have a great deal of respect for people who serve in public life, and as I hear the interests that you have to balance when your committee comes up with a report, I just shake my head and say, boy, it's a tremendous challenge. We wish you all the best in your endeavours to do that.

The New Brunswick Healthcare Association represents the eight regional hospital corporations in our province. The NBHA is an active member of the Canadian Healthcare Association, from whom this committee will hear at the end of November. We share with the CHA a vision of a high-quality, sustainable public health care system in Canada. We are aware that this committee will have heard a great deal of advice regarding trade-offs between tax cuts and spending on social infrastructure, such as health care.

We would submit that this is a false dichotomy. The level of taxation and the extent of our public services are both part of a complex package, one that combines the goals of competitiveness and personal freedom with quality of life and the security of a social safety net.

We would say this. A strong public health care system is a vital ingredient to that mix. While health care is an expensive social program, it is an expense that would have to be borne by individual Canadians no matter what. Our public universal health care system maximizes the public benefits of those expenditures, increasing health and wellness of workers, ensuring universal coverage without costly employer premiums, increasing the attractiveness of Canada as a place to live and work, and providing peace of mind to all citizens that their health care needs and those of their families are covered. It also reflects the deeply held values of Canadians and their belief in the public health care system.

We are not here then to advocate spending or tax cuts as ends in themselves. What we hope to communicate from a New Brunswick perspective is what level of investment will be necessary to sustain our health care system at its current level of quality and service. We hope to give the committee a sense of what must be done to keep the health care system we have and to ensure its future.

Even in the wake of the last budget, the health care budget as it became known, there is still uncertainty in the system. In New Brunswick, hospitals ran a cumulative deficit of nearly $30 million in the 1998-99 fiscal year. For the year 1999-2000 that number is projected to exceed $40 million.

Now, there are two reasons to be alarmed at those numbers. The first is the most obvious, that the level of demand governments are asking the health care system to meet is higher than what they have been prepared to spend. The second reason to be concerned about funding shortfalls is that they create instability in the system.

It may well be that Canadians and their government would prefer to adjust demands and expectations down, rather than meet these rising costs. This is legitimate. However, it should flow from a conscious public policy choice rather than inaccurate projections or budgeting. Therefore let us say clearly that challenge number one of sustainability in health care is increased funding to maintain current service levels.

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This is not to say the status quo is the way forward in health care. Indeed, the NBHA has long advocated changes in the delivery of health care to move emphasis away from costly hospital care and lend more resources to community-based care involving preventive medicine, community health services and education, home care, and a better management of chronic conditions. In New Brunswick this shift in priorities has been supported by the new provincial government and work is under way in changing health care for the future.

In the long run these shifts will allow for a more cost-effective and better health care system. These sorts of transitions require two things—financial stability in the system now to create a climate for planning and innovation, and funding to assist in the steps needed to make the transitions for the health care system. The prescription for a sustainable health care system then is financial stability today to allow for planning for tomorrow.

We support the call of the Canadian Healthcare Association for an additional $500 million in the cash floor of the CHST to stabilize the system, and for the inclusion of an escalator in the transfers to allow for long-term planning. We further support the CHA's call for a one-time $1 billion investment to fund home care and prescription drug programs in the transition of the health care system away from costly hospital care and to the types of community-based programs I've mentioned.

As time is short, let us simply add that we support the recommendations made by the CHA and would further issue a call for a national recruitment strategy for physicians and other health care professionals, such strategy to work on such common challenges as competitive remuneration and accessible medical training.

I once again want to conclude with a thank you, Mr. Chair, to you and your committee members for having given us an opportunity to make our presentation today.

The Chair: Thank you very much.

We'll now hear, from the Municipality of the County of Richmond, Mr. Richie Cotton and Ms. Gail Johnson.

Mr. Richie Cotton (Warden, Municipality of the County of Richmond): Thank you, Mr. Chairman. As you say, my name is Richard Cotton. I'm the warden for the County of Richmond. Gail Johnson is a councillor.

I'll give a little bit of background just so you'll know where we are geographically. We're a rural municipality on the western part of Cape Breton. We have the beautiful Bras d'Or Lakes on our northern boundaries and of course the Atlantic Ocean on our southern boundaries. We're home to Stora Enso, one of the biggest corporations, certainly the oldest corporation in the world. It's the main employer for people not only in Richmond County, but right across the strait area. We have the deepest natural port, I guess, with the deepest water in the North American Atlantic seaboard. Also, the NEB has mandated the Point Tupper lateral, which is Point Tupper-Richmond County, and we'll be receiving natural gas. That should all contribute to helping our economy.

Unfortunately, what happens in a rural community is often the focus may well be on what's going well and sometimes we miss a lot of points on areas that we certainly could be promoting. Sometimes because people either in Halifax or Ottawa make decisions, they don't understand some of the difficulties even though they have the best interests of everybody in mind—and that's I guess when you're dealing with the national infrastructure program commitment.

I want to touch base on a couple of those points. Primary and secondary roads—I'm certainly hoping that in this millennium budget that commitment is followed through. One of our biggest industries, not only in our municipality but all across Cape Breton, for that matter all across Nova Scotia, is tourism. But the state of both our primary and our secondary roads certainly acts as a detriment. We try to encourage a lot of RV traffic in our areas, and the reason we do that is we don't have that many fixed rules like Halifax or some other areas may have. By promoting the RVs, it's an avenue by which we can keep them in the area longer so that they'll spend more money.

• 1550

We certainly receive a lot of criticism from people from outside who have to travel that route, particularly from the causeway up to Sydney, where the route is devastating as far as the condition of that road is concerned. We most certainly need a central route, and also some work on the secondary roads.

In addition to that, Richmond certainly has been successful in revitalizing our economy, which took a major hit because of the downturn in the northern cod fishing industry. We've been successful in that, but we ran into some problems along the way. I'd like to give you one example.

Through the efforts of the federal, provincial, and municipal people, and some good development groups, we were able to get a major aquaculture industry to locate in Isle Madame, which has a population of around 4,500. It created about 200 to 300 jobs. That may not seem like much by standards from cities. To put it in its proper perspective, however, when you do that in a community like Isle Madame, it's like creating 4,000 to 6,000 jobs in Halifax. That's the significance of that.

In terms of what has happened, the federal government has put some money into that venture, and so have the province and the entrepreneur. But there was nothing allotted for infrastructure, nor was there any concern. It was just assumed that the infrastructure was in place to handle that sort of a facility. They couldn't discharge into the harbour because that's where their fish were and they would have ended up killing the resource they're trying to process. It overtaxed the village water and sewer lines to the point where they basically weren't functioning. The entrepreneur wasn't able to take the money to do that, so it meant for a lot of restructuring and working with the community, which actually turned to some extent on the entrepreneur who was creating 200 to 300 jobs there. So infrastructure needs are very important when you're looking at economic development.

A lot of times I think we get a bad rap in Cape Breton because the media, being what it is, likes to report bad news. Bad news sells. Generally, we certainly do our share in order to generate some publicity that's not in our best interests. Nevertheless, there are a lot more success stories in Cape Breton than there are negatives, but the negatives get reported more often.

Even if you don't buy that argument, then at least you should buy the argument of investing in infrastructure in allowing the businesses to come in and putting their own money up, but they have to have the infrastructure in place. And it can't just be in cities. There are a lot of initiatives in rural areas all across Canada, not just in Nova Scotia. React to that need, because we do need help. We need help through a national infrastructure program. I know our federal FCM, which is our Federation of Canadian Municipalities, has tabled a quality-of-life infrastructure program with the finance committee.

Again, speaking from a rural perspective, when you have people who have survived in the fishing industry, with not a lot being employed by large companies, what happens is that they don't have pension plans in place. When they retire, they generally have to survive on their Canada pension or they have to survive on OAS. That may get them through their needs as far as putting food on the table and other basics are concerned. When it comes to repairing their homes, keeping themselves in the homes they've had all their lives, and not becoming a burden on anybody in terms of having to move into low-cost housing, though, I think it's important to invest dollars into low-income housing in terms of both capital and repairs, and not only on the basis that it's the humane thing to do, but from the financial point of view. I think that's a good investment in rural areas, because it does keep people in their homes, and I think the committee indeed has to look at that.

Again, I don't know any of the committee members with the exception of Scott, but I would suggest that most people who get involved in a public way of life do have the best interests of everybody at heart, even though they're often not portrayed this way in the public eye. A lot of the time, though, it's just not realizing the difference between an urban community and a rural community and the needs thereof. I'm hoping that by going around as you people are, you'll be able to find out what those needs are, see the differences between urban and rural living, and certainly put some of the dollars into rural Canada, because I think it's important.

• 1555

We hope you'll take FCM's proposal seriously. I can talk on many different areas. I feel strongly about economic development, but I know I was given a five-minute period of time to speak and I've probably exceeded that already. So I'll close by thanking you for coming to Nova Scotia and for hearing our concerns. I'll certainly try to respond to any questions that may be addressed.

Thank you very much.

The Chair: Thank you very much, Mr. Cotton.

We will now hear from the Nova Scotia Federation of Agriculture. Mr. Peter Hill is first vice-president, and Mr. Laurence Nason is executive director. Welcome.

Some hon. members: That's the next section.

Mr. Peter Hill (First Vice-President, Nova Scotia Federation of Agriculture): I think there's some confusion. Our agenda said 2:30 for this session, but I think your agenda has four o'clock. We have another engagement tonight, so I think they've put us in with this illustrious group. So if I may....

The Chair: Well, I decide that, so you may. Maybe one day it will be Mr. Brison, but not this year.

Mr. Peter Hill: Luckily, I have the right name, Peter Hill. I have my name tag here here to avoid any confusion for a minute.

Mr. Scott Brison: Everybody knows Peter.

Mr. Peter Hill: Well, I don't know about that, Scott, but certainly following Mr. Martin's tremendous accomplishment of creating surpluses, agriculture's big concern has been that we wouldn't get a seat at the table. Of course, that just happened.

Voices: Oh, oh!

The Chair: Mr. Hill, just remember who gave it to you.

Mr. Peter Hill: Yes, I will.

I won't bore you with going through the details of our presentation. I believe you all have copies. If you don't, I have some extra ones available.

From an agricultural perspective, we certainly appreciate that you've not only given the Nova Scotia Federation of Agriculture time to make a presentation, but have also allowed Horticulture Nova Scotia to address the human resource issues. I believe Richard Melvin from Horticulture Nova Scotia is also going address the research issues and the water issues, so I won't touch upon them.

In terms of an overview, what I would like to talk about is my first impression of the document that was presented a week ago—and I refer to the economic and fiscal update. In reading that document, there are three references, and three references only, to the fact that we are going to support traditional industries. All three references are left hanging there. We talk about the global economy, we talk about coming efficiencies, and we pay lip service to traditional industries.

Mr. Webster has pointed out that the agriculture industry in Nova Scotia is an extremely important part of the economy, and he's given you the figures. I believe that if you look at the jobs that are related to agriculture, you'll see that three out of every ten Nova Scotians are in some way associated with the industry. But it is an industry that presently is hurting. In many cases, it's hurting through no fault of its own. It's hurting because we've had adverse weather conditions for the last three years. It's hurting because approximately $25 million a year in federal assistance has been clawed back—and clawed back necessarily, perhaps—in order to balance the budget. But now is the time to look for new investment in the industry.

It is also an industry that has a great deal of potential growth. It has the potential to export, but it needs the assistance to be able to compete with other countries that are providing their agricultural producers with the assistance that we do not have. We come away from the world trade talks in agriculture in Canada and we ask how rapidly we can get down to the standards. Other countries come away from the world trade talks asking how they can get around those standards so that they can compete more effectively.

As we look at how we are going to dispose of the surplus, I think we need to look to traditional industries, and we need to say that maybe the vision of the future isn't just a knowledge society. I would point out two things. A hundred years ago, 45% of the Canadian workforce was involved in agriculture. Today that figure is about 3%, yet we are producing far more food than we did a hundred years ago. I would challenge any other industry to come up with the efficiencies that agriculture has achieved in the last hundred years, and will continue to achieve.

• 1600

I'm reminded, however, of the turtle, from when I took calculus in university. The closer it got to the wall, the harder it was to get to the wall. It's going to be difficult to achieve any more efficiencies in agriculture. You have a very vibrant industry nation-wide, and a vibrant one here.

I would also point out that as we look to the global economy, what happens in most developments is that there is also a similar flow of people trying to connect with the past. And I suggest that we need support for some forms of agriculture that existed a hundred years ago. The issues around genetically or transgenetically modified organisms are not going to go away.

When you look at Nova Scotia as a peninsula, as a pristine province in the middle of the ocean, I think we have some dynamic opportunities we can take advantage of, if we have support. I would also conclude by saying that as you exploit that, if you look at the presentation here, you're reminded of today's bits, and today's computer language: it's all in one sentence, then another sentence, and then another sentence.

I was reminded, when I read it, of Thomas Babington Macaulay's essay on history written approximately 150 years ago. The essay begins with an entire first page that is one sentence and one paragraph, but it flows; it has a rhythm to it. Agriculture has that flow and that rhythm, and has that long-term planning, not riding this wave but looking to create your own wave.

As the finance committee deliberates on where the resources should go for the next generation, I suggest we need to put some in that slow-developing, always-around industry called agriculture.

Thank you.

The Chair: Thank you very much, Mr. Hill.

We will now move to the question and answer session and we will begin with Mr. Brison.

Mr. Scott Brison: Thank you, Mr. Chairman.

The Chair: I'm sorry, before you begin....

Mr. Poirier, you may have to leave soon—is that correct?

If you have any questions directed to Mr. Poirier, please place them right away.

Mr. Mike Poirier: Thank you.

Mr. Scott Brison: Thank you, Mr. Chair.

Firstly, I want to thank all the presenters today for their perspectives. It's a good position to be in now where we're discussing the notion of a surplus, but we can all too soon lose that advantage if we're not careful. It's good to understand the priorities from the municipal side, from the agricultural community, and from the boards of trade.

Some of the concerns we're hearing here we're also hearing in other centres. Tomorrow we're in Quebec City, and we've heard some of these in Toronto. So perhaps Canadians across the country share similar concerns on these issues.

Relative to agricultural issues—and it's particularly important to hear from Mr. Hill and also from Mr. Webster—there's a feeling in Ottawa that if it's not grown in the west, it's not agriculture. I think it's very helpful to change that perception.

The first question is in terms of farm support programs and the failure of those programs to actually result in funding being received by the farmers, or by the producers. The AIDA program is based on 70% of the last three years' earnings. Perhaps you can provide the committee some feedback on how well that has met the needs of farmers in Nova Scotia.

Secondly, what is the impact of the centre-of-excellence policy with the federal department on research and development for the fruit growers, for instance, in Nova Scotia?

Thirdly, relative to the horticultural tax credit, how much would that tax credit need to be to have an impact—the impact you're discussing—to eliminate the disincentives for seasonal workers in the horticultural industry?

I put those three questions to you.

Mr. Peter Hill: I'll leave the last one to Greg, if that's okay.

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The AIDA program is a national program, and you're quite correct, what it works on is that if your 1998 income was 70% of what your three previous years' average was, then you're qualified for payment.

The reason for those regulations is that they conform to world trade guidelines. Other countries have looked at—when you have a disaster—declaring it a disaster and just paying a given region. And world trade guidelines, as I understand them, allow for those regional payments. The problem is when you have a national program that you're trying to make equitable, you run into that other one. We might have been better off to have four or five regional programs addressing the specific disasters in each region.

I would say that the recent amendments that allow an Olympic average of your last five years—in other words, you drop the worst and the best—do help some, as does the inclusion of the negative margin. But basically, as long as you have a national program that is a forced fit in all regions, when you get to an area such as Nova Scotia, where the farms tend to be largely of a mixed nature, you're not likely to get that 70% trigger you do with single-commodity producers. What tends to happen in Nova Scotia is that we're slowly dripped to death with the Chinese water torture technique, as opposed to having that drastic decline. I would suggest that could be fixed by better regional programs.

I hope that answers your question, Scott.

Mr. Greg Webster: As far as the horticultural tax credit is concerned, Scott, as an industry, we've been proposing this for probably the last ten years. It's been brought forward through the Canadian Federation of Agriculture and through the Canadian Horticultural Council, and for some reason or another, it seems to fall on deaf ears once it gets to Ottawa.

What we've envisioned is that a tax credit in a range of $2,500 to $5,000 annually could be applied possibly to harvest labour, so that we can actually get the harvest crews from Canadian sources to harvest our crops. As I mentioned in my presentation, the amount of labour we need to harvest is significantly higher than our operating labour. In my own farm operation, I need 150 harvesters to support a year-round employment base of 11 people. So having those people there for a three- to four-week period is very critical to the success or failure of the farm operation.

We can do our best job of producing and our best job of marketing, but if we can't actually harvest it and put it in the containers, we've wasted our year. The harvest labour is our key choke point right now, and the EI regulations seem to be the trigger that's caused that, because people just will not work now that they've found out that's going to be taxable money on top of their other income. That's why we're proposing a tax credit.

Mr. Scott Brison: The changes in the EI program resulted in an awful lot of disincentives for people to work. Marginal incentives to work have been reduced significantly. What has been the impact, for instance, on your crops this last year? What would be the percentage of say your strawberry crop that you lost due to the lack of seasonable workers available?

Mr. Greg Webster: The strawberry crop is the first crop of the season for fruit harvesting, and because of its earliness here in the Atlantic region, for the last two years in a row it's conflicted with school closings. So we basically lost our student labour force, and with the EI rule changes, we're losing our adult labour force. I think each of the last two years we've probably seen anywhere from 15% to 30% losses on most berry farms. Some of it was weather-related, but the majority of it was labour-related, because if the labour force had been there, they could have worked around the weather.

The Acting Chair (Mr. Gary Pillitteri): Thank you very much, Mr. Brison and Mr. Webster.

By the way, I just thought I'd get this in. You have someone sitting at the table who's been making his lifelong living in agriculture, and that's me.

Now we'll go on to Mr. Cullen.

Mr. Roy Cullen: Thank you, Mr. Chairman. I'm going to share my time with Mr. Gallaway, if that's okay, Mr. Chairman.

Thank you, presenters, for the quality of your briefs and presentations.

I had a question for Mayor Muise on his proposal. I congratulate you on the quality of it. I know in Cape Breton you are challenged with an economy in serious transition.

• 1610

I have three questions. There are other parts of Canada that are commodity-based that are facing high levels of unemployment. I can think of a number of areas in northern Ontario and in other parts of Canada—in B.C., in Quebec, all over. Do you think your proposal would be applicable to areas of high unemployment across Canada, or is it specifically targeted to Cape Breton? That's my first question.

Secondly, some would say that businesses make decisions based on a whole range of business factors and tax is only one of those. Convince me that this would cause some businesses to move to areas of high unemployment or to Cape Breton.

Thirdly, you cite the problems with the former Cape Breton investment tax credit, which was implemented in the 1980s. How does this proposal correct those mistakes?

Mr. David Muise: Thank you. I'll just make a couple of quick comments, then I'm going to ask Mr. Whalley to answer. He drafted this presentation; it was his original idea.

The program is not specific to Cape Breton. The program is specific to unemployment rates, and it would apply to any part of the country. A rise in the unemployment rate would trigger the implementation of the program. It's not designed specifically for Cape Breton.

In regard to the incentive to come to Cape Breton, we feel there is a certain quality of life that would be attractive to people who want to locate a business there, but unfortunately we do not have the infrastructure at this time that would encourage people to locate there. So one of the things we're saying is that we need an incentive, some kind of a set-up, to offset those deficiencies.

It is a program that we feel can work anywhere in Canada.

I'm just going to defer to Mr. Whalley now, if I may. He can comment further.

Mr. John Whalley (Economist, Cape Breton Regional Municipality): Thank you.

In terms of other regions, yes, it's applicable. There are 68 economic regions in Canada. At last count, there were probably somewhere in the vicinity of 10 that had unemployment rates close to or in excess of twice the national average. The idea is that in our region and in other regions of Canada, the greatest public need is employment, not investment in capital, not infrastructure, but private sector investment that can create employment.

The experience with the Cape Breton investment tax credit was that the credit was an upfront credit. Once companies invested in capital equipment, they received a credit. If the capital was mobile, the companies would leave. The region was left with nothing. There was no long-term benefit for that type of measure.

The only way you can get around that shortcoming is to tie the benefit to employment creation and make the benefit or the incentive a reward for employment creation, with the incentive or the reward being greater for companies that stay for a longer time. You allow the company to grow roots and you reward a company for creating employment.

To some extent, the threshold of 25 jobs is arbitrary, but if you don't have an arbitrary threshold...it's like going to school and having the 50% mark as being the standard beyond which you can advance or which you can be below. If you don't have an arbitrary threshold, you get into the internal decision-making of firms and investors and you skew the decision in terms of whether they invest in capital or labour, and that's not something we're choosing to do.

In terms of tax being the only advantage for our region, our region has a lot of advantages. It's within 50 nautical miles of the main trade routes between North America and Europe. We have magnificent harbour facilities, which are completely underutilized. We have a sizeable labour force—in excess of 65,000 people. We have a modern university. We have modern infrastructure in many ways, but the transition that's affecting us, from coal and steel and, to some extent, other primary resource industries, to a new modern age.... They're advantages that are better suited to a larger metropolitan region, which is Halifax and beyond.

What we're trying to do through this policy is to say to private sector investors, take a look at some of these other regions in Canada because they do have advantages. If the policy doesn't work, there's nothing lost because there's no upfront money given out.

• 1615

In one of our experiences in Cape Breton, there was a company that was receiving government support throughout much of the 1980s. The company's name was Micronav. It developed microwave landing systems. It received substantial public sector support for many years because it was a growing company, but just at the point that it seemed it was going to take off and be internationally competitive, their microwave landing technology became obsolete because of satellite technology.

A voice: GPS.

Mr. John Whalley: That's the problem with governments targeting investments in either specific sectors or specific firms. In technology, things are changing so rapidly. Really, what we're trying to suggest is that you want to encourage private sector investment but have as few regulations as possible because bureaucrats aren't capable of making those types of decisions. It's best left to the private market. That's what we're trying to do.

The Acting Chair (Mr. Gary Pillitteri): Thanks, Mr. Gallaway.

Mr. Martin Lockyer: Excuse me, Mr. Chairman, but unfortunately I have to leave. I have another commitment. I apologize. I'm enjoying this very much and I'd like to continue to participate, but I must go. Ms. Oates will talk for me.

The Acting Chair (Mr. Gary Pillitteri): Thank you very much for your presentation.

Mr. Gallaway.

Mr. Roger Gallaway: I have a question for Warden Cotton.

You raised the issue of a roads infrastructure program, which I think is quite interesting. The Canadian truckers' association has noted that there's a deficit of $17 billion in terms of the standard of roads in Canada. I'm wondering if you envision an infrastructure program such as that which existed in 1993-94—the tri-level infrastructure program—or are you looking at something that's exclusively federal?

Mr. Richie Cotton: I can answer the two questions. As far as the roads are concerned, I would imagine that it would be cost sharing between the federal and provincial governments. As far as the national infrastructure program in 1993-94 was concerned, I see it as being a three-way cost sharing among the federal government, the provincial government, and the municipal government.

Mr. Roger Gallaway: I have one final question, and it's for the gentleman from the chamber of commerce. We've heard a lot this morning about an organized lobby or tax cuts in this this country. You represent the voice of business, of small business principally, I assume. What are you hearing from your members in terms of tax cuts versus social programs? Are they looking for a balance or are they looking for one or the other?

Mr. Michael Schmid: We actually polled our members before we prepared this submission. Generally speaking, they were looking for spending control as their first type of priority. Also, our members basically believe that we're not ready for tax cuts, because we won't be able to achieve real tax cuts, sustainable tax cuts, until we have lower levels of debt in Canada.

Mr. Roger Gallaway: All right. So your first priority, then, would be to decrease the debt.

Mr. Michael Schmid: That's correct.

The Chair: Are there any further questions?

Mr. Pillitteri.

Mr. Gary Pillitteri: Thank you, Mr. Chair.

Actually, this is to Mr. Hill and Mr. Webster with reference to seeing it on the table.... Agriculture has many aspects, you know, in all different parts of the country. Some people think it's only in western Canada, but let me remind you that 20% of the total food production in Canada is in southern Ontario. Some people didn't have that understanding. I just wanted to bring that out.

The factor that's interesting me is EI and contributions. I just wonder what the difference for me would be, being in agriculture in southern Ontario or being in agriculture here in Nova Scotia, as to the benefits. We were not able to have a local workforce for the last 20 years. We do have wages above the minimum wage. Not one of my employees works for minimum wage. Everyone is paid above minimum wage, but we're actually not able to attract local individuals to work in the area of agriculture because possibly it's more beneficial to work outside of agriculture.

• 1620

When you talk about harvesting, if it hadn't been for the offshore labour market, there wouldn't be a horticulture industry in Ontario. With strawberries, for instance, it's gone by the wayside. It's not an export market; it's only a local market.

This has occurred in other parts of Canada in the last 20 years. We had large amounts of production and the ability to produce, but because of the shortage of labour, we have had no export market, just the local market. As a matter of fact, the only market we have left in Ontario for horticulture in strawberries is pick-your-own operations. There's the ability to produce immense amounts, but the labour is not there.

Do you really think that by having incentives in that, you would have benefits? We have seen for so many years it's no longer there. Without the offshore labour, there would be no horticulture industry.

Mr. Greg Webster: I'll respond to that. I hope you don't take my comments earlier as being against offshore labour. I realize that if it hadn't been for the availability of offshore labour, Quebec and Ontario would not have horticultural industries. I agree with you.

Presently in Nova Scotia I think there are maybe 45 offshore workers in the vegetable industry, compared to probably 40,000 offshore workers in Quebec and Ontario. I realize it's the lifeblood of your industry.

One of the concerns we have in the Maritimes is that we don't have the number and size of farm operations—the economies of scale—as do some of your producers. We don't have the critical mass to be able to share harvest crews to that same extent, stretch out the season, and make it a meaningful experience for offshore workers in large numbers. Our vegetable industry employs them for a six-month period. So it is realistic that they hire them early in the spring and they have just gone home or are about to go home.

With a lot of the tender fruit crops—strawberries and high-bush blueberries—and the apple crop, there's not enough critical mass to seriously look at offshore labour. We're looking at survival of the industry and whether we want to become strictly you-pick operators, which we don't. On our own farm we harvest for you-pick, processing, fresh sales and export. We also ship to the U.S.

We can see that unless we can get a more reliable labour force for that harvest, we won't be able to do that any more. We will have to rely on Joe Consumer to come in and pick his own fruit. We feel that some of the disincentives that were created by the EI Act should be removed.

The EI Act was well intended to plug loopholes, prevent fraud and so on, but it's gone beyond that. There's not a person in this room who would come out and pick strawberries for me because the money they earn would be taxed above their existing earnings. They're not going to waste their time and get their knees and backs sore doing that. That's why we feel a tax credit or some kind of benefit recognizing the short-term nature—the critical nature—of harvest labour would have some potential merits.

Mr. Gary Pillitteri: Just to finish off, I have a point of information. Most operations in southern Ontario use immigrants, who I still employ—some of them have been with me as long as 20 years—and offshore labour. I pay above the minimum wage—I don't pay anyone in my operation less than $9 an hour, and that is just the seasonal workers. But we still don't have enough people. That's just how critical it's become.

Mr. Greg Webster: The same is true here in Nova Scotia. If you polled Nova Scotia farmers, you would find we are not a minimum-wage industry. The service industries are minimum-wage industries; we are not. But we still have trouble attracting them because of the short-term, seasonal nature of it.

• 1625

Mr. Peter Hill: I think the problems in horticulture are not that dissimilar between Ontario and here. You'll note in the federation's brief that we also ask that support for offshore labour be looked at, as part of any package to assist the agricultural industry.

A bit of the difference we have is that when you're in a region that has 11% unemployment, you feel a social obligation to attempt to set up a system that will utilize those unemployed. I think that's a greater pressure here in Nova Scotia than it is in Ontario.

The other thing is when you have a major metropolitan market like Toronto, you can run a sizeable, economically viable you-pick operation. Many of our industries here need to have some you-pick, as Greg says, but we also need to look at the export market. We have a tremendous advantage in Nova Scotia in agriculture because of our proximity to the New England states, so we need to exploit that.

It's a larger issue than agriculture, really. If you need to look at developing those incentives to have people work, get off social assistance and not use Employment Insurance to the maximum, then changes in that will help the agricultural industry, as well as society. That's what we're really talking about.

Mr. Gary Pillitteri: We could go on discussing this for a long time. A little while ago Mr. Harris, in the province of Ontario, wanted to use the welfare people to work on the farms. I think that was an insult to agriculture, for the simple reason that we have a highly-skilled workforce. It's no longer a menial job. We are high tech, as you stated earlier. Therefore programs can't solve the ills by saying one replaces the other. It's not that simple, as you very well know.

Thank you, Mr. Chair.

The Chair: Thank you, Mr. Pillitteri. Maybe you should exchange cards at lunch one day.

On behalf of the committee, I'd like to thank you very much. As always, the panel has provided us with very important information. The challenge we face, of course, is that even though we have a surplus, when you compare the demands that are being made on that surplus, it's quite limited. We go into our discussions with that in mind all the time. But having said that, your input is extremely valuable and it adds value to the debate. Thank you, again.

We're going to suspend for approximately 10 to 12 minutes. Then we'll be back with the final session here in Halifax. We'll hear from the Information Technology Association of Canada, the Union of Nova Scotia Municipalities, the Town of Lunenburg, Horticulture Nova Scotia, and the Child Care Advocacy Association of Canada.

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• 1639

The Chair: I'll call the meeting to order and welcome everyone. This is the final session of our Halifax visit for the Standing Committee on Finance, and it looks like a very interesting panel.

We have, as I stated earlier, representatives from the Information Technology Association of Canada, and the Union of Nova Scotia Municipalities. We also have some people who are appearing as individuals, the Town of Lunenburg, Horticulture Nova Scotia, and the Child Care Advocacy Association of Canada. To all of you, of course, we express our sincerest gratitude for your attendance and we look forward to your comments.

We will begin with the Information Technology Association of Canada. We have Mr. André Gauthier, chairman of the board, senior executive vice-president, LGS Group. We also have Robert Crow, vice-president, policy; and Gary Blandford, director, president and chief executive officer, ITI Education Corp.

• 1640

As you probably know, you have approximately five minutes to make your presentation, and thereafter we will engage in a question and answer session.

Mr. Gauthier.

Mr. André Gauthier (Chairman of the Board, Information Technology Association of Canada; Senior Executive Vice-President, LGS Group): Thank you very much, Mr. Chairman.

I am the chair of ITAC, and as the chairman mentioned, I also have a full-time day job with LGS Group in Montreal. LGS is a firm I founded with two colleagues 20 years ago now. Today it's one of Canada's leading IT consulting firms, with 2,200 employees and offices in 20 cities in North America and Europe.

Gary Blandford is a director of ITAC and is also a founder of a very successful firm and CEO of a Canadian success story, the ITI Education Corporation, based right here in Halifax. As many of you know, ITI is the North American leader in the field of private, post-graduate IT education. Bob Crow is the very able vice-president of policy for ITAC.

I'd like to begin my remarks today with a quotation:

    Technology is altering every aspect of our lives. Knowledge and creativity are now the driving force in a new economy. All Canadians—every citizen, every government, every business and every community organization—have a part to play. We will build the 21st century together.

Now, ITAC did not write that quote, but we could have. While we did not write the Speech from the Throne, it reflected a view of the world that's fully consistent with our own view.

In one generation, the Canadian IT industry has emerged as a powerhouse in the Canadian economy. We are Canada's fastest growing industry. We employ 500,000 Canadians and account for $100 billion in annual revenue. ITAC members do 70% of that business.

We know what it takes to succeed, and that Canada has the ingenuity and the infrastructure to support success. But Canada is encumbered with policies that will make it difficult to achieve the goals outlined so eloquently in the Speech from the Throne.

Ladies and gentlemen, there are three major problems that must be addressed. First, we are losing our knowledge workers; second, we are losing our enterprises; and third, we are losing our ability to capitalize on Canada's tremendous capacity to innovate.

We all know that debate has swirled furiously around the brain drain. Since the spring, we have thankfully progressed from an absolute denial of its existence to recognition in the Speech from the Throne that it is real and must be addressed.

You know that a junior software designer with five years' experience can earn an income of $65,000 in a Canadian IT company. But this means she is subject, almost from the outset of her career, to this punitive 5% surtax designed to fight a deficit now no longer existent; a deficit now two years in the grave. So why are we arming the forces that try to lure her away from Canada with another selling point? Why are we giving our wealth creators a reason to leave Canada? We really must eliminate the surtax once and for all in 2000.

The knowledge economy is de facto a service economy, yet Canada currently punishes its service companies by levying the highest business income taxes in the world. Why are we doing this? Shouldn't we be creating measures to attract, rather than repel, knowledge-based service companies? We submit that we must immediately put an end to the discriminatory tax treatment of business income earned specifically in the services sector.

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Finally, we need to create an environment that permits innovation to flourish. Having 1,200 new chairs for research excellence in our universities is certainly commendable, but we respectfully submit that university labs aren't the only places where innovation needs to happen. Increasingly in our industry and elsewhere, innovation occurs in the family garage or in rickety start-ups over grocery stores and builds as growing companies move up to converted warehouses and then to modern offices. But all this entrepreneurial innovation requires capital, and it is getting tougher and tougher to find capital in Canada. Some of our best and brightest young innovators don't even try. All too often the innovation, the enterprise, and the workers they employ follow the capital that is south in the U.S. mostly.

What do Java, Microsoft Mail, ACCPAC, and the Canadarm have in common? They're all Canadian innovations that are creating wealth and world-class employment opportunities somewhere else. So we must commit now to a program of tax and capital market reform designed to encourage capital formation, risk-taking, and company-building. The program that was presented to you by the Canadian e-Business Opportunities Roundtable, at which ITAC is an active player, is very solid in this regard.

In conclusion, I would like to state that we very much share the aspiration of Prime Minister Chrétien of a leadership position for Canada in the emerging electronic economy. We are committed to achieving his goals of a 5% share of the world market and $200 billion in e-commerce revenue by the year 2003, but we must first align the fiscal policies of Canada with this new direction if we are to be successful.

Thank you.

The Chair: Thank you very much, Monsieur Gauthier.

We'll now hear from the Union of Nova Scotia Municipalities, Duart MacAulay, president. Welcome.

Mr. Duart MacAulay (President, Union of Nova Scotia Municipalities): Good afternoon. I'm Duart MacAulay, the president of the Union of Nova Scotia Municipalities.

UNSM is the voice of municipal government in Nova Scotia. Each of the province's 55 municipalities actively participate in the work of the union. UNSM was established at the turn of the century, in 1905, by an act of the provincial legislature. It is mandated to represent the interests of local government in the province and support and enhance strong and effective municipal government in Nova Scotia.

UNSM is seeking your support and the recommendation of the federal Standing Committee on Finance for a federal, provincial, and municipal partnership to address infrastructure needs. UNSM is pleased to offer input to your committee in its consultations on the millennium budget.

An explicit commitment was given in the federal Speech from the Throne to negotiate a new national infrastructure program to be launched in 2001, following an agreement among the federal government, the provinces, and the municipalities. We are pleased with this reference and urge action by all three orders of government.

If every municipality in the province of Nova Scotia had the opportunity to attend these hearings, they would each tell you that the state of the municipal infrastructure is taking a toll on our economic well-being and quality of life. I believe earlier you heard reference from the Municipality of the County of Richmond. They were talking on the program too. We strongly believe that now is the time to act.

The previous program, the original Canada-Nova Scotia infrastructure agreement, was signed in January 1994. Under this agreement, federal and provincial governments agreed to contribute $68.8 million each to address the need for priority community infrastructure works. The municipalities' contribution was even greater, at $83.6 million. An agreement to top up the initial phase of the program with a one-year extension was signed in February 1997. The federal and provincial governments each made an additional significant contribution of $14.2 million and $13.8 million respectively. The Nova Scotia municipal contribution was $22.8 million.

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Project funds were allocated to each of Nova Scotia's 18 counties based on population and unemployment statistics. A total of 486 community projects have been approved. By far the vast majority of dollars—70% of the original applications and 80% of the 1997 top-up agreement—went to water and sewer projects.

In addition to addressing core infrastructure needs, the program was expected to create employment, and it did. According to a joint federal-provincial review of the program, 45,000 direct and indirect jobs were created for Nova Scotians.

I would like to tell you about a few of the many infrastructure projects that were approved within the program. In Upper Nappan in Cumberland County homeowners were after clean, safe drinking water. For many years they've been serviced by a pond. In 1995 their water source became polluted and the residents were forced to bring in their own drinking water. Today, thanks to the infrastructure program, $640,000 was spent to connect these homes to the town of Amherst water supplies.

A similar project took place in Digby Cove in the municipality of Clare, where our federal and provincial governments each contributed $200,000 toward the first phase of a new sewer system vital to the protection and preservation of the underground drinking water source.

A high-technology project was undertaken in Kings County, where a new computer-aided dispatch system, Kings County dispatch centre, enabled faster response times and provided better information for volunteer fire departments. This potential life-saving project received $75,000 in funding.

The UNSM fully supports the Federation of Canadian Municipalities' quality-of-life infrastructure program. Most Nova Scotia municipalities are active members in the FCM and fully support the need for a new infrastructure program. The program calls for an additional investment in environmental, transportation, and social infrastructure through a national partnership of municipal, provincial, and federal governments. This would result in increased economic activity in our province. The program would see improved quality of life for Nova Scotians as a result of their investment.

Eligible programs would include water and waste water systems, solid waste management systems, and energy-efficient community-building retrofits, repairs and upgrade of roads and bridges, social housing, heritage preservation, recreation facilities, and downtown revitalization of small communities.

We are pleased the federal government has proposed the development of a five-year plan for infrastructure at the end of the year 2000. We understand the proposed plan will focus on rural and urban communities and will encourage private sector involvement. The benefits for Nova Scotia would be similar to those realized as a result of the highly successful original program and the 1997 top-up. Community economic development will be promoted. Better water and approved transportation networks mean jobs for Nova Scotia, which are badly needed, particularly in rural parts of the province.

The Federation of Canadian Municipalities has estimated that an investment of approximately $13 billion annually for the next 10 years is required to address the deficit in Canada's environmental, social, and transportation infrastructure. Such an investment will result in increased federal and provincial balances through greater economic activity. Obviously, the size of the investment requires a gradual implementation. The federal, provincial, and municipal contributions would be $3 billion. An initial downpayment of $500 million to $1 million should be made in the millennium federal budget. This would be a very positive announcement for Nova Scotia communities.

A partnership for infrastructure work is needed. Municipal tax revenues are based on property value, and we know that being property-rich does not necessarily mean a taxpayer is income-rich. It should also be noted that in several areas of Nova Scotia property values have declined over time, resulting in less local opportunity to address the infrastructure deficit.

There are important roles for each order of government to play in any future infrastructure program. In such a program the federal, provincial, and municipal governments must be full partners, and full partners in both funding and the decision-making.

We see the federal role as identifying the national priorities for infrastructure investments, contributing one-third of the cost of the program, establishing guiding principles for the program, and participating in the development of the criteria and approval process.

The provincial role will be to participate in the development of the criteria and approval process considering provincial priorities, to administer and coordinate program implementation, and to contribute one-third of the cost of the program.

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The municipal government's role is to participate in the development of the criteria and the approval process that reflect municipal priorities; identify and nominate eligible infrastructure projects and proposed investments; plan, finance, coordinate, and implement infrastructure projects; and contribute one-third to the cost of the program.

In conclusion, in Nova Scotia the success of the original infrastructure program and the 1997 program extension is evident from the jobs created—4,500—and the almost exclusive focus on core infrastructure. In Nova Scotia, 57.7% of the project dollars were spent on sewer and water projects. The demand for program dollars appeared to outstrip the available resources. There were 709 projects, representing $645.6 million of assistance under the original program. What was approved were 339 applications, costing $220.4 million.

Without question, there remains a great need for infrastructure across this province. Municipal property taxes cannot fund most large-scale infrastructure projects. The magnitude of the infrastructure deficit requires the partnership of the federal, provincial, and municipal governments. What is needed is a long-term funding commitment by all orders of government and a commitment in the process of project approvals that reflects the needs of the community. We urge you, this committee, to recommend to the federal Minister of Finance, the Honourable Paul Martin, the establishment of a quality-of-life infrastructure program in the next federal budget.

I want to thank you for your time. I have with me the vice-president of UNSM, Deputy Mayor Anna Allen, and her executive director, who would be more than willing to accept some questions from you. Thank you.

The Chair: Thank you very much, Mr. MacAulay, and of course we thank Ms. Allen and Mr. Simpson as well.

The next presenter will be Mr. John D'Orsay. Welcome.

Mr. John D'Orsay (Individual Presentation): Thank you.

I want to situate my comments closer to the realm of the material you released over the summer on the productivity report, and situate some comments I have over the longer term about the taxation system and its role in promoting productivity. I was quite pleased to review that report and discover near the conclusion, page 42 or so, the multifaceted approach that the finance committee took to productivity, seeing that it was supported by private investments and machinery and equipment, research and development, public investments, infrastructure and education, and individual investments in human capital formation.

I also had a note on my speaking notes to emphasize this question of the access-to-capital issues for small and medium enterprises, new business start-ups and knowledge-based industries. In my examination of that, though, as I believe in this committee, or certainly the task force on financial industries, this is very much a problem of provincial jurisdictions—securities regulations and how they impede well-informed angel capital and private capital. And on the other side of that, I'll say I'm working on that issue at the provincial level and trying to insert it into the policy agenda here to try to improve on that side.

But my bigger concern is one of allocation of resources and how the tax system affects the allocation of resources, and improving the allocation of resources in order to promote change in the economy, in order to promote productivity in the economy. I've appeared in front of this committee before and have argued for and urged that the committee adopt a strategic approach—in particular, that the committee review existing programs and activities and make sure the tax system shifted toward new areas and created opportunities and responded to the new areas of need.

The second part of that was not just to add new areas all the time, but to drop some of the old ones. Unlike Mr. Hill, when I read three references to supporting traditional industries in our preparatory document, I was concerned. I got concerned that it was too many. I was really worried that we were going to continue to waste money on subsidies and continue to create rigidities in our economy. In some of these things I'm actually pleased to hear how much of Mr. Pillitteri is there. It's very obvious there are areas in which agriculture could think of new and better ways of changing their products and this type of thing, rather than calling upon increased subsidies.

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Part of the range I wanted to create in talking about examining the taxation structure then is to talk about financial capital and human capital and to ensure they're treated equally and equitably. That's a little different lens from the lens of thinking about investment income and how you're taxing that and labour income and how you're taxing that, and seeing a need to promote investment. Labour income is in fact income to human capital. The return that people get to their human capital investments is their labour income.

So you have to look at the taxation and how it affects people's decisions about how they invest in the human capital. Payroll taxes are one area that impacts on that. Other presentations I've been to on this subject have emphasized how they impede the creation of jobs, but I keep looking and finding they don't impede the creation of jobs above the caps in the ceilings. They don't impede the creation of people seeking higher-income jobs; they impede lower-income jobs. Maybe we want disincentives to people for lower-income jobs.

A fundamental fact I'm highly concerned about is a human capital deficit we have, compared to the United States in particular. An easily accessible figure is that in the United States 28.5% of the labour force aged 25 to 64 have university degrees. The comparable number for Canada is 19.5%. I will ask you to try to imagine, given the difference in income that's associated with a university degree over a high school education, what would be the difference in per capita incomes in Canada and the United States if the United States were burdened with the educational attainment levels that Canadians have.

We could go through the other levels of educational attainment. In Nova Scotia, which I think was pointed out in the productivity report, Canada has twice the level of people who haven't completed high school as the United States. Investments in education are vitally important in a productivity agenda.

Within that type of framework I very much welcome the recent education measures—the increase in the tuition tax credits, the student credit, and especially the credit for interest on student loans.

I might say that when I came before this committee five years ago I proposed such a measure, on the simple argument of people's investments in human capital development. If they borrow money to invest in human capital investment they ought to get the same tax treatment as people who invest for financial returns. If you borrow money to invest in financial returns you ought to get the same kind of tax treatment for the fact that you're paying interest in order to foster your capital investment. I don't know if I'm the only person in the world who suggested it, but when I suggested it, it was an idea I hadn't expected ever to see implemented. So I'm very pleased to see it happen.

Based on our experience, I've got a major proposal to put before you. It deals with the productivity difficulties, the fact that Canadians in general have less experience and less access to education at the post-employment level. Adult education is lower in Canada. That's emphasized in your productivity report. Put that problem together with the surpluses in the employment insurance program, where we're spending $12 billion to $13 billion per year and bringing in $19 billion to $20 billion.

I'm not a person who wants to see a reduction in employment insurance premiums. I want to see the program expanded to respond to, and create, a human resource development program for people that responds to our needs as a nation in that area.

What we need is a support system for people who take educational leaves, who leave the workforce to upgrade their education. That could be funded through an active program through employment insurance. It's appropriate that it be done with a program that's funded by employees and employers, because both of them have an interest in promoting education and educational attainment.

I know that most of the employment insurance program recipients, being a current one myself, are a result of involuntary separation from employment. But you could have a parental leave program that is different from that, and you could consciously promote that people should take on parenting responsibilities and support them through employment insurance, which is the same with people who seek education.

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Naturally, it's possible to build such a program with qualifications in it, like five years without a claim from employment insurance and then you would be eligible to take a leave and upgrade yourself. And it would meet the education and re-education needs of business employees.

Some smaller areas that I wanted to address, probably not small areas, but they're.... I think it's irresistible that you're going to be urged, and you already were in the previous panel, to increase the Canada health and social transfer floor, the cash transfer floor. I continue to urge that in the design of this program the federal government should put in incentives and build in leverage to direct and to ensure that the moneys are used by provinces to achieve health and education goals, not just to spend on health and education, but to actually improve education and improve health.

Similarly, I suggest that if the purpose of equalization programs is to ensure that all provinces have access to reasonably comparable levels of service, it makes sense to me that in the context of an overall thrust of eliminating subsidies to business with income tax dollars, direct incentives to business, you should build penalties into equalization programs for provinces that engage in subsidy wars with other provinces. It is, after all, a fact that these bidding wars for jobs that are carried on with tax dollars in equalization moneys are wasteful and have no ultimate result.

In our experience in Nova Scotia, we don't see Nova Scotia complaining about losing jobs to Alberta, but we do complain when we get into bidding wars with Manitoba or New Brunswick over who's going to offer the greatest incentives to establish a business here. Those are all provinces receiving equalization payments. We wouldn't need that area.

A third area, a major area, that is really important to deal with in tax reform is that we should go back to some of those programs that responded to the needs of a different era—for instance, with a resource-based economy the resource depletion allowances, the finance and financial capital based needs that were present 25 years ago that with our burgeoning mutual funds aren't present now. That led to things like the dividend tax credit, the physical-based capital needs and incentives that were built in to accelerate depreciation allowances. Those, I suggest, ought to be reviewed, eliminated.

From that I can see funding a substantial portion of the reduction of the 28% business tax rate, to bring the tax rate on the knowledge-based businesses and the service-based businesses where jobs are being created down to the same level as the manufacturing and processing businesses. It's an essential need to give equitable treatment to these different forums of job creation.

Similarly, while you're doing tax reform, you have to look at some of the things you've already done. For example, you've taken the age exemption already and built in a clawback provision based on income. Why don't you recognize that there is no reason to have a tax incentive that's based on...? What are you trying to do, encourage people to grow old? You can't do that with a tax system. But you can respond to people's economic needs and shift the money properly into a better targeted program that relates to people's level of income. And the other thing you're doing when you're doing that is you're building this level playing field for human capital development.

Again, an area I'm still concerned about on that front is eliminating the dividend tax credit, because that's still an incentive for financial capital investment, as opposed to human capital investment.

Finally, one of the areas that is more speculative and requires more research is this issue of the design of the scientific research tax credit. That's focused on people's expenditures on inputs through the innovation process. Is it possible perhaps to redesign it to focus on the outputs of the innovation process, focus on the income that's derived from patents and copyrights, and maybe some part of that income ought to be exempted from income taxation?

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I know Ireland has a program of this sort. I haven't had a chance to look at the relationship to Ireland's program of exempting income for royalties. I know of income from copyrights, for sure, and the impact that has had on their software development industry. But it may be something that works better for developing knowledge-based industries than the type of program we have now. We should consider moving in that area.

That's the majority of what I had to say. Thank you.

The Chair: Thank you.

Now we'll hear from the Child Care Advocacy Association of Canada, Margie Vigneault, Nova Scotia representative; and Carla Bryden, member of Canadian Autoworkers and general vice-president of Nova Scotia Federation of Labour. Welcome.

Ms. Margie Vigneault (Child Care Advocacy Association of Canada): Thank you.

As a Nova Scotia representative of the Child Care Advocacy Association of Canada, I'm happy to have an opportunity today to talk to this committee and say that children must be a top priority right now at the turn of the millennium. Children just can't wait any longer.

A national child care strategy for children and families is really long overdue here in Canada. The Child Care Advocacy Association of Canada's vision of a national child care strategy includes, first of all, in Canada's communities, high-quality and affordable early childhood developmental services, child care, early childhood education, and parenting programs. This strategy, of course, requires substantial federal dollars and provincially and territorially developed services.

Our organization is recommending that the federal government commit to a multi-year early childhood developmental services fund, with the first year allocation of $2 billion to assist provinces and territories in developing and expanding systems of high-quality early childhood services across Canada.

I have listed some key child care points. First and foremost, parents and people who work in child care provide for children and provide good educational opportunities for them because it's the right thing to do. Right now we have an opportunity to do that here in Canada. But since we are spending public dollars, we have to justify it further than that, so I go on to do that.

Every dollar invested in high-quality child care brings a $2 benefit to children, families, and to Canadian communities. Societal benefits include increased workforce participation, higher tax revenues, and lower social spending.

In the area of education, impressive early childhood brain development research has been done by Dr. Fraser Mustard. This research links early brain pattern development with the ability to learn throughout life and shows that this process begins at conception and continues to the age of three. It has also been known for many years that children learn basic social, emotional, and cognitive skills by the age of seven. These facts underline the importance of providing quality child care and early learning programs for children during these early years as well as later in life. These programs are needed for Canada's children. It's not enough to target the programs only to low-income families.

The next point is that high-quality affordable child care services are the cornerstone of a strategy to break the poverty cycle. Child care enables low-income parents to get the education and skills needed to bring more money into the household. The example of learning and employment provides a role model for children to further their education and develop their skills. Quality child care provides many learning opportunities for children as well.

Short-term child care financial assistance that is tied to an employment training program does not provide enough support for a parent to achieve the final goal of gaining employment and bringing more money into the household. Only long-term quality affordable child care will give the necessary support.

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High-quality affordable child care is also an essential part of the strategy for economic development in Canada—I was listening to the previous presenters—in that people need child care to do training programs. They need child care to do many of the jobs being developed in Canada.

Now, stay-at-home parents need child care services as well. This would include drop-ins, parent-tot programs, part-day preschool programs, parent support programs, and child care resource lending libraries.

The next point to make is that a tax deduction does not take the place of a national child care strategy for children and families. For example, even a $2,000-per-annum tax deduction for a family would not pay the cost of child care and would not be the deciding factor in terms of whether to work or stay at home with young children.

I make this point in regard to child care, but it also applies to the cost of both education and medical services.

The cost of quality child care services often deters families who must pay the full cost of child care from having more children. Unregulated child care is a viable alternative for many Canadian families, but here are some points to remember about unregulated child care.

First, unregulated child care is often unaffordable. I say that because people sometimes believe this is an easy out because that will be cheap, but actually many parents can't afford unregulated child care. There is also a concern that such important things as health, nutrition, fire safety, early learning, positive discipline practices, basic first aid, general safety, and appropriateness of the caregiver are not publicly monitored in unregulated child care.

Then we all know about the ideal caregiver that families so often are happy to get, but even the ideal caregiver might no longer be able to provide child care to a family. When this happens, working or studying parents have to scramble to find appropriate child care. Children often suffer due to unstable care situations, and sometimes parents have to give up a job or study program.

Unregulated child care will always be an option for families, but it would not be appropriate to look to unregulated child care as a solution for Canada's need for a comprehensive set of child care services.

The Canadians who work as child caregivers and as early childhood educators have always subsidized our child care programs by their low salaries and lack of adequate employment benefits. This is unfair and inappropriate.

In conclusion, I want to say that, as Canadians, we have promised to provide better child care services for our children and families, and children can't wait. The time for talking has passed. Now it's time to take action.

I thank you very much.

Carla has a few more things to say about child care.

Ms. Carla Bryden (Member, Canadian Auto Workers; General Vice-President, Nova Scotia Federation of Labour): I would like to thank the committee for the opportunity to present as a member of the Canadian Auto Workers, as general vice-president of the Nova Scotia Federation of Labour, representing CAW members in the province, and, not least importantly, as a working mother in the province of Nova Scotia who feels passionately about a national child care program.

I'm here to seek your full support for a national child care program, a program that we hope will be entrenched in the next federal budget. I would like to spend the time I have with you explaining why I'm fully committed to the CAW campaign for a national child care program.

I first began believing we might actually realize this dream back in 1997, when Quebec took the lead and introduced a new family policy that included the following much-improved maternity and paternity leave provisions for parents: 75% of previous earnings for one full year; child care centres providing a range of parent supports, including flexible child care for children zero to four years of age at a cost of only $5 per day to parents; and before- and after-school care for children five to twelve years of age. I figured that if Canadian citizens in Quebec had access to such a great benefit, then why couldn't all Canadians?

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There are several reasons we need to introduce the program now. First, we've experienced the promises. The federal Liberal government promised to create 150,000 new child care spaces in Canada during their 1993 election campaign. None have materialized.

We have the money. The federal government currently enjoys an annual fiscal surplus of about $5 billion. In other words, the federal government takes in $5 billion a year more than it spends. The first-year costs of an early childhood education program would represent less than one-half of the existing federal surplus.

Economists estimate that the federal surplus will grow to about $20 billion per year within the next five years. Even a fully phased-in early childhood education program, with total annual costs of approximately $5 billion to $6 billion, would use up only a quarter of the expected long-run federal surplus.

There is a need. Over 60% of women with children under the age of six are in the workforce, and yet less than 9% of children in need of child care have access to regulated child care spaces. In fact, child care has reached a crisis point in Canada. We have one of the worst systems of support for early childhood education in the industrialized world.

There are many existing models. There is, of course, the Quebec model, which I've just mentioned. It has created 82,000 new child care spaces to date and 11,000 new, decent, well-paid jobs in child care. In fact, in the two years since the program was first introduced, it has become the most popular social program in the province. Imagine—more important to Quebeckers than even medicare.

In France, Spain, and Italy, child care is provided as part of their education system, a system that covers virtually every child. While it's not compulsory, 95% of children three years old and over attend. As well, in Scandinavian countries child care is part of their labour market policy. There the emphasis is on generous maternity parental leaves of up to three years and an extensive network of child care services covering virtually every child from zero to age six.

There are more than enough studies. All of the studies and research show that quality child care has a positive impact on early childhood development. There is growing recognition, based on accumulating evidence, that prenatal and early childhood experiences have a profound impact on a child's future health as well as their intellectual, social, emotional, and economic success.

Between birth and age six, children develop the essential language and intellectual skills required to learn reading and arithmetic. Children who enter elementary school with these skills or enter ready to learn are able to take advantage of the learning opportunities offered at school. Those who do not are at risk of having difficulties in school, leaving before high school graduation, or becoming anti-social and involved in criminal behaviour. Children who do not enter elementary school with ready-to-learn skills also have higher rates of teen pregnancies and are more likely to become addicted to tobacco, alcohol, and other drugs.

There is growing public support. In fact, 75% of Canadians believe government should provide a national child care program financed by a combination of government revenue and parent fees. That comes from 1998 research conducted by Ekos Research and Environics and 1993 and 1996 studies by Insight.

CAW has made child care and support for working parents key issues on our bargaining agenda. We have negotiated paid time off for parental and pregnancy leaves in many workplaces.

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In 1987 we negotiated funding for child care with General Motors, Ford, and Chrysler. In 1989 we opened the CAW child care centre in Windsor, and in 1997 we opened a second centre in Oshawa. We created an exemplary model of care, including provisions to cover shift work. Of course, most recently, at Ford and Chrysler, we bargained a $2,000-per-child annual child care subsidy that CAW members can use to reduce their daily child care costs at licensed centres by up to $10 per day.

We are very proud of our achievements in child care; however, we know we simply cannot bargain sufficient child care services for all our members. Furthermore, we don't think child care should be tied to your employer. The CAW believes child care should be a right for all children. We need the federal and provincial governments to take on a leadership role in developing a comprehensive program to meet the needs of all children in Canadian communities.

Finally, we are asking—and I'm also asking, as a working mother—that your committee support the implementation of a national child care program and speak out publicly on this very crucial issue.

Thank you for your time.

The Chair: Thank you very much.

We'll now move to our question and answer session, and we will begin with Mr. Lunn.

Mr. Gary Lunn: Thank you, Mr. Chairman. I just have a couple of questions, and I'm going to direct them at Mr. D'Orsay and Mr. Gauthier.

I'm going to put forward two schools of thought for you, and I'd like your feedback. I'm from British Columbia, so I spend most of my time out there. I sometimes feel like I end up sounding like a broken record, but when I travel across the country, one of the most prevalent issues is the “brain drain”. I think it's getting to the proportions of an emerging crisis. Statistically speaking, some would argue that it may not be. On the IT side, on the health side and on the engineering side, though, our brightest and our best, the leaders of tomorrow, the entrepreneurs, the people who are going to be the CEOs, the people who are going to create the jobs fifteen or twenty years from now, are all being offered positions south of us, and overseas for that matter, and we're losing many of them. And this is growing. I get those concerns at my office all the time.

I'd like your thoughts on how we can tackle that problem and turn it around. I think it is a crisis, and if we don't deal with it soon, it's the long-term effect that's going to.... We're not going to feel it for ten or fifteen years. That's one school of thought.

And this one I want to just throw out there. A gentleman actually came in to see me on the weekend, and we had this chat. He suggested that you'd have very little difficulty finding anyone anywhere in Canada saying governments should have deficits. Most people would agree with that philosophy. The government shouldn't spend more than it takes in. Of course, we're not in that situation now. But he said it's equally wrong for governments to have surpluses. After chatting with him, it made a lot of sense. We all have a debt management plan, a vision, whether it's for our houses or businesses or whatever. We envision how we're going to pay off our debts.

Our federal budget is $140 billion or so. If we feel we need to pay $10 billion on the debt, then that's what we should budget, and we should collect $150 billion in taxes. In other words, we should be putting our debt management plan into our budget, and that's how much tax we should collect. As we've heard, even from the minister himself, this “surplus”—which I call a taxation surplus—is going to achieve levels of $100 billion cumulative over five years. Things like the child care program, if that's the vision we want to be going towards in this country, should be part of a budget, and it's wrong to collect more. Obviously, there can be contingencies, but not to the magnitude of $100 billion over five years.

I'd like your thoughts on both of those, the brain drain and that it's wrong to collect a surplus as well.

Mr. André Gauthier: Perhaps I can commence if Mr. D'Orsay allows me to do so.

Mr. Gary Lunn: Thank you.

Mr. André Gauthier: You're right. On this huge amount of money that is the surplus, we like to call it not a surplus, but excess tax. Most of that should come back to the taxpayers.

Without further ado, I'll ask Robert to expand on this.

Mr. Robert Crow (Vice-President, Policy, Information Technology Association of Canada): Let me go back to your first question, Mr. Lunn. There's no question that we have a shortage of workers in our industry. It's well documented, and HRDC is working on further studies to help us pin that down. We know the numbers that we are losing to the States are in the range of roughly 10,000 to 30,000 a year. Many go on temporary visas, but it's accelerating.

• 1730

In a moment, I'll ask Gary to tell you what his company is doing about that. At the end of the day, though, when you're short of something, you need to create more, you need to lose less and you need to use what you have more efficiently. We're trying to do all three things.

Let me talk about losing less. We talked here about the effects of some of our current tax policies, in terms of pushing people away. We have other proposals in our brief for the better treatment of options and so forth in order to help keep some of those people here. It's levelling the playing field, if you will, or—a novel idea—even tilting it in Canada's favour in some—

Mr. Gary Lunn: That's a wonderfully novel idea.

Mr. Robert Crow: That would be a very novel idea.

We're very good at doing what we do. Gary Blandford is in the business of helping to increase the supply of highly skilled workers. But as we were talking today in preparation—and I'll pass this on to him—we know that even in very fine programs like those run by ITI, we have significant numbers of young people leaving Canada for opportunities in the United States. At the end of the day, what we need to do for those who are leaving is—

Mr. Paul Szabo: Because of salary or taxes?

Mr. Robert Crow: It's salary, tax and opportunity. Although the top-end salaries are competitive here—we released figures this summer on that—

Mr. Gary Lunn: You're going for the net salaries.

Mr. Robert Crow: No, before tax, adjusted for the cost of living appropriately. We do very well with the very best people. But I think the point is to make sure that people do have something to come back to, to make sure our business environment is set right so that we have the right kind of climate and are creating the right kind of high-end opportunities for those people.

Gary, I think your experience is very important in this regard.

Mr. Gary Blandford (Director, Information Technology Association of Canada): There are a couple of things that we're doing.

Many years ago we discovered that a lot of our allied classmates and so forth were moving to the U.S. because jobs weren't being offered to them right out of university any more, like they were in previous years. Today, right now, we've created probably about 3,000 grads across Canada—and we take Canadian dollars at par. In our schools in the U.S., it's $25,000 for nine months. It's also $25,000 for nine months in Canada. Right now, about 40% of our graduates go south of the border, for various reasons. Many of them express an interest in getting four or five years' experience in order to then come back to Canada, because Canadian employers are maybe not as desperate as some of our companies south of the border.

I also think Canada does a disservice to its educational community and its citizens in the sense that these people who come to ITI pay private tuitions. They get loans for them, they pay them back, and we have one of the lowest default rates of all schools in Canada. That's because the actual education is current to employment and a high growth of return. But I still think there's a lot of brain drain going on today in the universities in the country, and especially the high-end universities with engineering degrees. As taxpayers, we end up subsidizing education for American firms. I believe there's lots of room for this government to look at....

We put a school in New Brunswick a number of years ago. It was because of Frank McKenna, not because of the population in New Brunswick. He put a subsidy in because he wanted ITI to be in there. If a person then got a job outside of New Brunswick, that person had to pay the subsidy back. So if you look at engineers from some of the best engineering schools we have in Canada, like Waterloo, for a lot of those graduates we, as taxpayers, help to pay for the real cost of their education. If they go to work in Richmond for Microsoft, I think we should be looking at ways to reclaim those dollars, as we have done in the medical programs for many years in provinces that have funded medical programs. They had to put in five years' service in that province before they could actually leave to go to B.C. or wherever they wanted to live after that.

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If we're going to help fund these products, there are a lot of ways to make sure our students get back in, and it's very easy to get that money back. If the companies in these particular industries want these people badly enough, paying the tuition off is a no-brainer. They do that anyway.

So those are some of my comments on the brain drain. We do have it, but there are ways to curb it. The only other way in which we can do it now for American companies that have filed ITI grads is basically to start graduating American students as fast as we can.

The Chair: Thank you very much, Mr. Lunn.

Mr. John D'Orsay: I just had a couple of things. First, I've always found some irony in the fact that five years ago the shout was to cut government expenditures because all we were going to do was leave a huge debt to our children, and as soon as we got to a surplus position the same people started shouting that we should now cut the taxes and still leave the debt to our children.

I'm from the school that says you ought to build into the budget a debt repayment program. You ought to reduce the proportion of the debt-to-GDP ratio and get it down to 40% in order to create some flexibility and a cushion against adverse economic times in the future.

Mr. Gary Lunn: What kind of number did you say we should be putting into the debt annually, the targets?

Mr. John D'Orsay: My line on that is 0.5% of GDP. I think you exceed that in the second or third year of the current forecast, so I think you're into something like that in this coming year.

I just wanted to comment on the brain drain one as well. There are number of things that have to be done. I happen to have a nephew who is in the ITI program, and we're looking ahead six months to when he's going to move because an opportunity will arise in the United States. He's expecting it to be much easier to find employment there. The person he rented his apartment from was an ITI graduate who went to Atlanta. It's the expectation of many students in the program. He'll tell you that's the discussion of many of them. The opportunities are there.

Part of it is this idea of getting out, getting experience and coming back as an experienced person in order to contribute to the Canadian scene, being able to do these things. These are people at the initial entry level who have that flexibility and mobility. And again, this is one of the things about productivity assumptions. What you learn in this is that, just as financial capital is mobile, so is human capital. The more people have, the more mobile they are. You do have to structure your taxation regime around that mobility, and you have to respond to it.

The Chair: Okay, thank you.

Mr. Cullen.

Mr. Roy Cullen: Thank you, Mr. Chairman, and thank you to all the panellists for your thoughtful presentations today.

I had a question for ITAC's Mr. Gauthier, Mr. Crow, and Mr. Blandford. In your brief, under the discussion of how Canada might reform the tax system to improve its efficiency in equities, you say you're calling for new rules for employee share ownership in order to allow more Canadians to have a direct stake in their employers' businesses, and to provide for more modern forms of compensation. Could you just elaborate on that? How would that meet the objective you referred to? What are some of the details or specifics that you had in mind?

Mr. Robert Crow: One that's being considered in the province of Ontario right now would extend to employees of research-oriented or knowledge-oriented firms—whether they be scientific employees, technical employees, or frankly any kind of employee in that firm—the opportunity to participate more easily in an employee share benefit program.

Probably the best example of a very broadly based program was introduced in Britain in the last British budget. It's very much an across-the-board type of thing. If I take it from a productivity standpoint, from a compensation standpoint and from a work standpoint, it simply makes sense for people to have a long-term financial stake in the business they're involved in.

Currently, with Canadian-controlled private corporations, we have a pretty decent set of rules that are good, that help in the transfer of those small companies from one set of owners to another. Unfortunately, for other kinds of companies or for companies that cease to be Canadian-controlled private corporations, we are very quick to trigger tax events that mean employees often have to sell their shares at a time when a gain is exercised, as opposed to when a gain is actually realized, in order to pay off the notional tax that's liable.

• 1740

We have a couple of briefs on this, and I'd be happy to talk afterwards. We could go on for some time. But at the end of the day, we can take a look at international experience and say if we can encourage this kind of compensation and employment practice, we can meet the objective of broader equity among types of people and among industries.

Mr. Roy Cullen: Mr. Chairman, I'd certainly be interested in those briefs. Maybe we could get a copy through the chair.

Mr. Robert Crow: Sure.

Mr. Roy Cullen: One final quick question. How close is Canada to getting a computer chip plant or a semi-conductor plant, like a big commodity plant, and how important would it be for us to do that?

Mr. Robert Crow: I haven't heard about trying to get one of those for ten years. The fastest-growing portion of business is services, worldwide and in Canada. Services are now 72% to 73% of Canadian business. Frankly, the commodity end of the business is the least interesting from an economic growth point of view: relatively low unemployment; very, very high entry costs; low margins; and a lot of competitors all over the world. I'm not sure that's a direction we see our industry going in.

André and Gary, you're in very different portions of the industry, so....

The Chair: Go really easy on this one, because it's a pet project of Mr. Cullen.

Mr. Robert Crow: Is it? Okay.

Mr. Roy Cullen: You win some, you lose some.

The Chair: I don't want him to leave here depressed, because I have to fly with him all the way to...

Mr. Gauthier, were you going to add anything?

Mr. André Gauthier: Yes, I was going to add that the service as part of the IT industry is certainly a very fast-growing segment. We are becoming very much a services type of industry, a knowledge economy.

Going back to the tax rate, I think it was said earlier by some of the other speakers, we've got to equalize the tax treatment. It doesn't make sense to tax the services industry at a much higher rate than we're taxing everybody else. Now is the time to do this tax reform. We have to do it now. This brain drain problem is extremely critical. Three years ago it wouldn't have mattered as much—so we're losing a few people to the U.S. But today it's extremely detrimental, when you lose some of your best people to U.S. companies.

As we get very global in this industry, it doesn't take much; we could end up losing a significant part of our industry in a few years. At the moment we're 18 months behind the U.S. in things like e-commerce and the really high-tech stuff. In 18 months we could lose a significant portion of the business.

If you will allow a very easy example, some of you use eBay and buy things on the eBay website—books or antiques or whatever. That's an American website, and the only way to get the product is to go to this American website. Unless we very significantly catch up and make up for this 18-month gap, we could end up losing the whole auction industry to the U.S. So this brain drain is extremely problematic and must be fixed relatively soon.

The Chair: Being first on the market in e-commerce is very important.

Mr. André Gauthier: Exactly. And we're not first, we're second in the world, and second is not good enough. We've got to be right there next to the U.S.

The Chair: Thank you, Mr. Cullen. Mr. Szabo.

Mr. Paul Szabo: Mr. Gauthier, you used the example of new software programmers getting up to $65,000 and you mentioned the 5% surtax. I did a quick reference here. I've got some statistics. Ninety-three percent of Canadians make less than $65,000 a year, to put it in perspective. The effective federal rate for someone making $65,000 a year is 19.9%. Combined federal and provincial is 29.1%, and the total 5% surtax on that is $22.60—for somebody making $65,000 a year. So with that as a background, where someone in Ontario, for example, is paying 29% combined federal and provincial, how much is it really going to take to make a difference in terms of the decisions people make to look for opportunities elsewhere in terms of tax? Or are you prepared to concede that taxes alone couldn't possibly make up the differential in the salaries that are being offered?

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Mr. André Gauthier: I think taxes can be very significant. The survey we did this summer indicates.... I'll give you a very poignant example that I received last week when I was in Vancouver. I was talking to a senior person in one of the IT companies we have in Vancouver. Last year she was offered a lateral transfer to the U.S. It wasn't a promotion. She must have been in the $70,000 to $90,000 level, which is standard in this industry. After consideration and looking at all of the taxes—federal and provincial, and state and municipal in the U.S.—she came out 20% ahead by moving to the U.S., and that's after the cost-of-living adjustment. So she had a very gruelling decision to make.

Mr. Paul Szabo: Does that include health care?

Mr. André Gauthier: Yes, health care and education. She looked at everything, and after an exhaustive study decided there was a 20% difference.

Mr. Paul Szabo: We have to eliminate the total tax bill to keep them, then.

Mr. André Gauthier: We're not saying that. We're saying that every bit helps. Fortunately, she decided to stay in Canada for other reasons. People leave for reasons other than tax reasons, but we really do not need this problem in addition. Anything we could do to help the tax situation would help us conserve these people here in Canada.

Mr. John D'Orsay: There's the opportunity for these people to be employed. This is another aspect of your tax system and how you're achieving that—some of the things Anericans do with capital gains taxation on start-up businesses and venture capital things. It's another part of the tax system to look at for creating these opportunities. It's not all in the individual tax rate.

The Chair: The final questioner is Mr. Brison.

Mr. Scott Brison: Thank you, Mr. Chairman. My first question is for the Union of Nova Scotia Municipalities.

Mr. Chair, it's important to recognize that we have Anna Allen here, who is not only the vice-president, but is deputy mayor of the Town of Windsor in my riding. Windsor is the birthplace of hockey. I think it's important for us to recognize Windsor's contribution there.

Now, my question is relative to the infrastructure program and whether we would be better served by a ten-year program. Currently these programs are like a candy toss, designed around four-year electoral cycles. I have a feeling that a lot of the spending is not necessarily on the long-term priorities that it should be, because we're asking municipalities to make rational decisions when presented with an irrational program. I would appreciate your feedback on that.

Mr. Duart MacAulay: Our feeling on this is that right now in Nova Scotia it is critical that we do have some infrastructure funding in the works, Mr. Brison. As I mentioned, in the 1994 program, and the extension in 1997, about 45% of the projects were approved and implemented, and I think maybe somewhere around 35% of the actual dollars were provided. Right now we do need a contribution to offset the deficit in the infrastructure. Yes, if it were a continuous thing over a period of ten years, it would be very beneficial to us all. But right now in Nova Scotia in the immediate future we are looking for a phase-in program of between three and five years. Maybe one of the others would like to mention that.

Ms. Anna Allen (First Vice-President, Union of Nova Scotia Municipalities): Yes, Mr. Chairman. As a municipal rep, I can tell you that if we had a ten-year program in place it certainly would make our planning a lot easier. Right now we have to put off a lot of our projects because we don't have the funds. If we had this program in place, especially a ten-year one, we could do our budgeting for a long-range plan and we could phase in our projects as need be. So ten years certainly would be of great benefit to us.

Mr. John D'Orsay: I just wanted to point out for Mr. Brison that Windsor is also the birthplace of Mr. Shand, who, among his other contributions to physical chemistry and materials, invented Corning ware. He was an example of the brain drain in Nova Scotia in the 1920s. That was the year that 200,000 Nova Scotians left, out of a population of 1.2 million, owing to the collapse of the fishery here.

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The Chair: It takes some time to understand issues, though.

Mr. Scott Brison: Mr. D'Orsay, on the question of tax reduction, I think we're missing the boat if we don't incorporate some significant level of tax reform into that.

A year and a half ago the Mintz report on corporate taxation was presented to the finance minister and subsequently shelved, because at the time it would have created some losers, as any tax reform in a revenue-neutral situation would. If that were combined, however, with tax reduction, it could create a system in which there would be no losers, and we'd effectively have the distortions that currently discriminate against the technology and service sector eliminated without necessarily increasing the tax burden on the resource-based sector. I'd appreciate your feedback on the Mintz report.

Second is the issue of capital gains, particularly in light of the trend to use stock options as compensatory assets. One thing to keep in mind relative to capital gains tax reduction is that we could have an identical personal capital gains tax burden to that of the U.S. and it would cost the treasury about $270 million. It's more of a political question. We're dealing with perception, as opposed to reality, in not addressing that issue. I'd appreciate your feedback on that.

Thirdly, on the issue of salaries being very important in the brain-drain issue, are salaries not a function of corporate tax rates to a certain extent? To say it's not a tax issue is actually not really accurate in a sense, because it's either a corporate or personal tax issue. If companies are taxed less, they can probably afford to pay a little more, and that's maybe part of what we're seeing.

That's it.

Mr. John D'Orsay: Companies only get taxed on the profits they've made, so that happens after they've paid the salaries.

Mr. Scott Brison: But it does affect their abilities to—

Mr. John D'Orsay: People invest and then want a return.

Mr. Scott Brison: That's right.

Mr. Robert Crow: Very quickly, on Jack Mintz and his work, we support that. And I would commend to you—if you haven't seen it—his recent piece from the C.D. Howe Institute. We've had a look at that in preparing. It's extraordinarily sensible, and I think it makes a very compelling case that the tax system needs to be relatively more neutral, and that we have an opportunity, as Canadians, to create competitive advantage with our business tax system and really make our whole economy grow to the benefit of all of us.

Second, in terms of capital gains, yes, we agree with you, it is a very modest cost proposal. It's in the first or second decimal point of some of the things we hear in terms of expenditure proposals that are being made right now. Our view is that it would make a significant move. Many of these, I suppose, are symbolic, but this one would be actually real. The elimination, for instance, as Mr. Szabo mentioned, of the 5% surtax—$22, yes—is an important symbolic thing, so that people are saying their government cares; they care enough to take away the surtax that's no longer required. That's as important to the people we talked to in B.C. as the actual dollar amount—the the notion that someone here cares.

Finally, I agree with what Mr. D'Orsay said. Technically, could they afford to pay more? Well, technically, it is after the salaries are already paid. The more important link is with opportunities. If corporations are taxed less, they will have more to invest and to create the high-end jobs for our very best people, i.e., those very opportunities that we need to keep people here in the first place, or to get them back, as Gary said, once they've gone.

Mr. Gary Blandford: I think if you survey all of our 3,000 Canadians who will graduate across Canada this year, all high-end technology people, you'll find most of them leave to go to the U.S. because of opportunities there. That is an understanding that we're losing a lot of our entrepreneurial spirit and entrepreneurial people, who are going down there, especially in the e-commerce and e-business area. That's because we in this country have a very difficult time getting banks, venture capital, or anything else to look at human resources as assets in a company. And until we do so, as they do in the U.S., we'll suffer, maybe even to the point of annihilation by the U.S. of a lot of our systems we know today, because of the U.S. just totally swallowing a lot of our ability to compete if we don't react soon.

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In fact, I'm involved in the educational industry and had to prove in the U.S. that there is such a thing as an educational industry. By 2005, it is going to be larger than the HMOs in the U.S. We are one of the most educationally backed countries in the world, and we haven't even recognized it as an industry. One of these days we'll recognize it and it will be too late. All can partake in it, private, public, everybody can partake. It's the key of opportunities that lie...to drive that thing forward.

The Chair: Thank you, Mr. Fitzpatrick.

On behalf of the committee I'd like to thank the panellists. You certainly, as I often say, add very important value to our discussion.

I also want to take this opportunity to thank the people of Prince Edward Island, Newfoundland and Labrador, Nova Scotia, and New Brunswick for their input.

As you know, the consultation process doesn't just take place with the finance committee. There are members of Parliament across the country who are holding town-hall meetings and seeking input from Canadians from coast to coast to coast.

Here in Halifax we heard from educators, from individuals who believe in local economic development strategies and in housing, from seniors, youth, and child care advocates, and from people concerned about EI premiums and taxes, both on the corporate side and the personal side.

Of course, the issue of productivity came up this afternoon. We heard earlier from individuals who felt it was very important—actually, as just stated—to enter into long-term infrastructure programs. Some people brought up the issue of rural Canada and the specific needs of individuals. Other individuals talked about cultural industries.

Really, I think the debate is.... I mean, the issue of child care is extremely important, as is the issue of homelessness, whether it's here in Halifax or in Toronto or in other areas of Canada. These are all very important issues that we as a committee want to tackle.

Of course, the challenge we face is which road are we going to take? How are we going to generate the type of wealth that is required to maintain and to enrich programs? Ultimately, I guess, the litmus test of public policy comes down to one essential question: Have we as a committee and we as a government improved the standard of living for Canadians? Have we improved people's quality of life? That's how we are going to be judged historically. We keep that in mind everywhere we go throughout the country. Quite frankly, the debate in this committee will be on which road we take, which path we follow, to generate the wealth required to build the type of society we all want to build.

Thank you, Halifax.