FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 25, 1999

• 0937

[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.): I'd like to call the meeting to order and welcome everyone here this morning. As everyone knows, the finance committee has been travelling across the country seeking input as to what the priorities should be for budget 2000.

Today, we have the pleasure of having with us representatives from the following organizations: the Canadian Conference of the Arts, the Business Council on National Issues, the Canadian Chamber of Commerce, the Association of Universities and Colleges of Canada, and the Canadian Labour Congress.

Many of you have already appeared before the finance committee, so you probably know the rules. You have approximately five to seven minutes to make your presentation. Thereafter, we'll engage in a question and answer session.

We will begin with the Canadian Conference of the Arts, Ms. Megan Williams, national director. Welcome.

Ms. Megan Williams (National Director, Canadian Conference of the Arts): Thank you, and good morning.

I have a few remarks to make here. We have submitted a longer written submission to the committee, and the clerk has copies of that if anybody needs a copy.

In the few minutes I have this morning, I am going to address two major thrusts of our written submission, the first being that the Department of Canadian Heritage needs more money.

Your sister committee, the Standing Committee on Canadian Heritage, produced an extremely detailed and important report last June, A Sense of Place, A Sense of Being: The Evolving Role of the Federal Government in Support of Culture in Canada, and we refer to many of its recommendations in our submission. By strange coincidence, this report is being discussed this morning in the Standing Committee on Canadian Heritage. Minister Copps is appearing there later this morning.

When the report was released, the chair, Clifford Lincoln, noted that the cultural sector in Canada is shortchanged when it comes to government support, in marked contrast to the huge amounts of money invested by the Government of Canada in technological centres of excellence and research institutions. Add to this the fact that Statistics Canada has just released data that indicate a decline in government support to culture for the eighth straight year in a row, and you will begin to get the picture of a sector under siege.

Government support for culture is not a frivolous matter. It is the lifeblood of a sector that employs 700,000 people across Canada and contributes in excess of $22 billion to the economy. The sector values not only the financial support it receives from government, but also the policies and regulations that favour artistic and cultural growth in the country.

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Just last week, many recipients of the Governor General's Award for Literature spoke eloquently in support of arts funding. A week earlier, Governor General's Performing Arts Award recipient David Cronenberg attributed his success to public sector support received during his developmental stages as a filmmaker.

Four decades ago, a Canadian travelling abroad might have been greeted with broad smiles and nods and people saying, “Oh yes, Niagara Falls.” Two decades ago, it was likely to be, “Oh yes, Pierre Trudeau.” Today I'm proud to say being Canadian is more likely to invoke a response that includes such names as Margaret Atwood, Atom Egoyan, Karen Kain, Glenn Gould, and Ben Heppner.

Allow me to quote from John Ralston Saul, and it's wonderful to be able to quote from a Canadian writer here without having to explain who he is. This is taken from a paper he wrote in 1996 entitled “Culture and Foreign Policy”:

...Canada's profile abroad is, for the most part, its culture. That is our image. That is what Canada becomes in people's imaginations around the world. When the time comes for non-Canadians to buy, to negotiate, to travel...their attitude towards Canada will already have been determined to a surprising extent by the projection of our culture abroad.

As we speak here today, a delegation from the Canadian Conference of the Arts is preparing to leave for the World Trade Organization millennium round talks in Seattle. The culture sector recognizes the leadership Canadian Heritage has shown in the important struggle to preserve and promote our culture as pressure towards globalization builds. The department is breaking new ground as it links nations and cultural organizations around the world on policy issues related to trade and culture. These issues will require concerted action in the coming months and a significant new investment of funds for the department. So, number one, more money is needed for Canadian Heritage.

The second major focus of our submission is the importance of the regulatory role of government. First, on the subject of individual artists and cultural workers, there are measures the government could implement to improve the financial position of the individual artist, the creator without whom there would be no art, no Governor General's awards, no cultural industries, no need for a national portrait gallery, nothing. Artists are still at the bottom of the heap when it comes to salaries earned and benefits and taxation.

The Mills report on sport in Canada points to a significant discrepancy:

in 1997-98, the average player earned US$1.2 million in the National Hockey League...and US$2.6 million in the National Basketball Association.

The report went on to say those salaries could be expected to double over the next four years. By contrast, Statistics Canada data indicate that the average income in Canada for visual artists was $7,800, for musicians $13,700, and for writers $15,300. There was no expectation of salaries doubling over the next four years or even in the next decade.

Most artists are self-employed individuals. While this has been commonplace in the cultural sector for decades, it's a growing phenomenon in the workforce at large, currently running at 18%.

To quote from Judy Maxwell, president of the Canadian Policy Research Networks:

More and more of the labour force is moving into self-employment - or is being moved by economic factors. This means there is a growing percentage of the labour force without benefits, long-term income security, or opportunities to acquire knowledge or upgrade skills.

We are asking for a re-examination of the tax laws that affect artists, writers, dancers, actors, and visual artists, who are among the lowest paid of the burgeoning ranks of the self-employed. Stating that they already benefit from being allowed to deduct certain expenses indicates a deep misunderstanding of how self-employed income is earned. Stating that they can use RRSP allowances as a means of income averaging shows a woeful ignorance of the situation.

Creative solutions to the taxation of artists exist. In Ireland, for example, income earned by artists, writers, composers, and sculptors from the sale of their works is exempt from tax. In Quebec, the first $20,000 of copyright income is exempt from taxes for those whose total income from that source is less than $30,000.

While we applaud the Standing Committee on Canadian Heritage for its recommendation that the Minister of Canadian Heritage appoint a task force to review self-employment issues in the cultural sector, we note with disappointment that the government's response is that an alternative approach is to be pursued. However, the CCA is willing to assist with whatever processes government decides to follow in examining self-employment issues in the cultural sector.

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There are other regulatory measures that government should examine that pertain to charitable donations and charitable status. The CCA applauds the extension of the tax break for stock donations to charities. We are also pleased to note that there is a new openness to discussing the definition of charitable status and to revamping the 16th century concept now in use. The government's leadership in convening three joint tables to examine a new relationship with the voluntary sector signals that there is potential for new initiatives that will help the cultural sector, among the others in the voluntary sector, to build capacity.

A recent example from the cultural industry side points to the importance of the policy-setting role of government. During the passage of Bill C-55, the Foreign Publishers Advertising Services Act, the magazine industry made it clear that it supported regulation rather than subsidy. However, when Parliament amended the bill to give more market access to American split-run magazines, the government decided to offset the negative impact by offering a new $50-million subsidy program, expected to be announced next week.

We urge the finance committee to be alert to similar issues that might surface in the future and to use regulation rather than subsidy when appropriate, and especially when it is the preferred route of the cultural sector.

Those are the two main thrusts of our written submission. We touched on many other issues: adequate funding for the Canada Council and the CBC; touring of cultural productions and exhibitions; an increase in operational support for Canada's chronically underfunded museums; and tax incentives for modest donations. You have the submission; I won't reiterate it here.

In conclusion, I return to the report, A Sense of Place, A Sense of Being, which states:

One of the key messages we received was the importance Canadians place in the role of their Government in the promotion, protection, and support of our culture and its federal cultural instruments and institutions.

We cannot state this often enough: government has a crucial role to play in the cultural life of this country.

Thank you.

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

Now we'll hear from the Business Council on National Issues, the president and chief executive, Tom d'Aquino.

Welcome.

Mr. Tom d'Aquino (President and Chief Executive, Business Council on National Issues): Mr. Chairman, honourable members, ladies and gentlemen, good morning. Thank you very much for inviting us once again to appear before you and to discuss the recommendations for the year 2000 budget and beyond.

We have submitted to you two documents: One is a memorandum to the Prime Minister, which was signed by the members of the BCNI's executive committee and myself, entitled “Mediocrity versus Excellence: The Choice Facing Canada”; and the second one is a speech I gave recently, outlining the details of the council's Canada global leadership initiative. I commend these two documents to you because they do bring forward a significant amount of detail in how we see the future course of the economy and the country over the next five years.

I'm going to make a very brief statement, if I may, and then offer you any insights or suggestions in response to any questions you may have in the round table.

I'm as delighted as you are to be able to discuss surpluses. For so many years, I've appeared before this committee, and in front of so many of your predecessors as well, to discuss those terrible words “deficits” and “debt”. Not that the debt problem has gone away, but I was very encouraged by the willingness of the Minister of Finance to lay out a multi-year projection as a tool for generating debate. This is something that the Business Council had argued for, for a long time, in order to add certainty and transparency to the debate.

What concerns me is that too much of the debate I've heard so far treats those projections as a zero-sum game, where all the options are equal. What we have to remember is that spending for current consumption is very different from measures that will stimulate growth in the economy and in the tax base.

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As this committee noted in its very good report last summer, Productivity with a Purpose: Improving the Standard of Living of Canadians—and I quote this back to you because I've used these lines so many times, Mr. Chairman; I think it reflects a great deal of wisdom coming out of this committee—“social cohesion results from productivity enhancement and economic growth and does not cause it”. In other words, we must first bake the pie before we cut it up and distribute the slices. The bigger the pie, the more slices we can cut or the larger the slices might be.

Again, I congratulate this committee because in those two sentences there's a great deal of wisdom in terms of the forward direction of this government and of the Canadian economy.

Yet instead of a very constructive discussion about how we could move most effectively forward to make a bigger pie, unfortunately I think we've seen a great deal of public debate that has been marked by devisive rhetoric, misleading statistics and, regrettably, even personal attacks.

I'm very glad to see that my friend Andrew Jackson from the Canadian Labour Congress is here today. I'm sorry his boss is not here, because he's the man I'm really after for calling specifically a press conference, saying D'Aquino and big business want big tax cuts for themselves and $3 for child care workers. That's the kind of irresponsibility in this public debate that I think we can do with much less of.

Now, having got that out of the way, as we noted in our brief to the committee last May, the critical issue going forward is how Canada is really going to pay for the services citizens want in the future. We referred particularly to the inevitable growth in the costs of medical care due to our aging population. We said then, and say again now, if we want to maintain and improve our public health care, as we must certainly do, Canada must focus on policies that will enable more Canadians to earn substantially higher incomes than they do today. Instead, we are seeing policies and attitudes that give our existing small pool of high-income earners all sorts of incentives to leave.

In a knowledge economy, neither workers nor their jobs are tied to any one location, as you know. There has been an assumption by some in the brain-drain debate that Canada does not need to worry as long as the number of skilled immigrants exceeds the number of people leaving. But many of the Canadians who are leaving today are taking their jobs with them. As John Roth said in an excellent interview that was carried on the front page of newspapers throughout this country a couple of weeks ago, it's not just the people who are leaving, it's the positions that go with them, and in some cases entire departments or laboratories. Immigrants, Mr. Chairman, cannot fill those jobs because the jobs themselves are gone.

Now, as a country, we have to figure out what will persuade people with global skills to want to come here and stay, to live here and, very importantly, to build successful enterprises here. If instead Canada insists on making itself unfriendly to excellence and to higher achievers, if we fail to build up a number of high-skilled, better-paid jobs, then who is going to pay the bills for tomorrow's expanded social services?

Let me turn now briefly to another example of the need to move forward with what I call 21st century thinking. As part of our Canada global leadership initiative, we asked Professor Jack Mintz, who is now the president of the C.D. Howe Institute, to update the work he did as chair of the Technical Committee on Business Taxation that reported in 1998. He noted in the resulting paper, which was published by the C.D. Howe Institute, that the rest of the world has discovered there is no better way to attract investment and to boost growth and employment than to cut corporate taxes.

Mr. Chairman, I remind you that the BCNI's position consistently in the tax debate has been to put personal income tax ahead of business cuts. In fact, in our submission to you last time, the vast majority of the cuts and relief in taxation we called for was in personal taxes, and our position has not changed. But we're adding another dimension here because the corporate tax issue goes right to the very heart of how we create more jobs and enterprises.

In the past three years, Canada has moved from middle of the pack to a high-tax country. Indeed, by the year 2000, Canada will have the highest corporate tax rates of any country in the G-7 and among many other industrialized countries, with the exception of Japan. That alone justifies commitment by the Minister of Finance to address the corporate taxation issue early on within his five-year framework.

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But Professor Mintz has also shown that corporate taxation provides a very effective avenue for growth—the growth of small companies, the growth of jobs. Ireland, for example, which for 300 years or more has never been looked at as a model, cut its corporate tax rate for manufacturing and financial services to 10% about a decade ago and has since reported the highest rate of growth in the industrialized world in real GDP per capita, the effective measure of standard of living.

To put that another way, the real standard of living of Ireland's citizens has gone up 18 times faster than that of Canadians in the past decade. Even though Ireland's average corporate tax rate is less than one-third of that of Canada—and this is very important—even though it has one-third the rate of Canada, it collects more corporate income tax revenue as a percentage of GDP than Canada does.

Lower rates have led to more companies reporting higher profits, a stronger tax base, and therefore in a stronger tax base more government revenues with which to deal with the priorities that a government that is starved by high debt and a $39 billion to $40 billion interest rate payment cannot afford to contemplate.

Canada has made progress over the decade. Opening up ourselves to the world did pay off, Mr. Chairman. The number of unemployed has dropped by 500,000 over the past six years and the number of Canadians with jobs has grown by 1.8 million.

We have to make sure globalization keeps on paying off for all Canadians. That means not slavishly copying the United States. It means we have to keep working to improve those things we already do better. It means we have to face our weaknesses squarely and have the courage to deal with them.

Canadians have just finished a decade in which all their hard work left them a total of just 5% better off in terms of their real standard of living. I do not think they will reward any government that fails to improve on that dismal showing in the years to come.

I would close by urging the committee, Mr. Chairman, very strongly to keep its focus not on how to split up this year's budget pie.... I realize you have to do that, but the focus should be on how we can be sure the pie keeps on growing substantially bigger year after year for the benefit of all Canadians.

Thank you very much.

The Chairman: Thank you, Mr. d'Aquino.

We'll now hear from the Canadian Chamber of Commerce: the president and chief executive officer, Ms. Nancy Hughes Anthony; and Mr. Dale Orr.

Ms. Nancy Hughes Anthony (President and Chief Executive Officer, Canadian Chamber of Commerce): On behalf of all the members of the Canadian Chamber of Commerce, I'd like to thank you for the opportunity to appear before you today and give you our views. As mentioned, with me today is Dale Orr, who is senior vice-president and chief economist with WEFA Group and a member of our economic policy committee.

[Translation]

The chamber of commerce network includes over 170,000 members, and comprises businesses and activities of all sizes and in all sectors across Canada. Moreover, through our 500 local chambers and offices of commerce, we have partners in all federal ridings.

[English]

Mr. Chair, we keep hearing from our members and from Canadians from every region of this country that they can no longer cope with excessive taxes. In addition, we hear that the country's unacceptably high debt load continues to place an unnecessary drag on future options for Canadians. In July of this year the chamber released a comprehensive strategy for tax reduction. It is supported by our entire membership and was unanimously reinforced at our annual general meeting two months ago in Edmonton.

The committee has before it, Mr. Chair, a detailed prebudget submission that stems directly from our tax reduction strategy and gives specific recommendations focusing on the upcoming year 2000 federal budget.

To summarize in a nutshell, our members are concerned about, first, the high levels of taxation, especially personal taxes and excessive unemployment insurance premiums; second, the unacceptably high level of Canada's debt; and third, the long shopping list of possible spending items that could dramatically increase program spending at the federal level.

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The government certainly has a vital role to play in policy areas that directly assist Canadians in taking full advantage of the new economy. However, if Canada's tax system continues to dampen Canadians' incentives to be more productive, to invest, to take risks, to hire people, and to stay in Canada, then other policy initiatives will become ineffective in achieving their objectives.

Just this past week we noted that the International Monetary Fund stated unequivocally that the chamber's position—i.e., that tax and debt reduction should be Canada's top priorities—was the way to go.

[Translation]

Personal income tax cuts should be the government's top priority, ahead of program spending. If taxes don't go down, Canadians will continue to see their quality of life dropping.

[English]

So, Mr. Chair, we are putting a reduction in personal income tax first, as you can see in our submission. Returning dollars to Canadians must be the priority—not investing in more government programs—in order to improve the standard of living, to boost economic growth, and to enhance overall Canada's productivity and prosperity.

I might say that the chamber has been accused of promoting a very narrow agenda, and nothing could be farther from reality as far as we are concerned. Our members and the members of other chambers—and I'm sure you know them in your communities—are in every riding across this country. They employ millions of people. They understand the realities and the priorities of Canadians. They are parents, and they have parents themselves. They exchange views and concerns daily. They are Canada's grassroots, and they have told me they need a break.

Applying the government's 50-50 formula and committing to further increases in program spending today will seriously put the country's finances at risk in the event of an economic downturn. This is exactly what happened in the late eighties, and I'm sure we agree that we don't want to see this happen again.

I would emphasize that the debate is not about threatening Canadians and pitting the tax-cut people against the program people. I think Canadians need to understand that both objectives must be accomplished within the original budget envelope. It is important to note that the tax cuts the chamber is recommending are coming out of projected fiscal dividends and do not cut into government's planned program spending levels. Those spending levels may require adjustments for inflation and population growth, but we feel that anything above and beyond that would be a misuse of the surplus, given the pressing need for tax cuts.

My members say that the government needs to react to the priorities of Canadians and to reallocate existing budget dollars. Clearly, governing is like managing your own business or your own family budget. It's about setting priorities and making difficult choices, and that's what we expect from the leaders we elect.

After dealing with personal taxes as a priority, the government must undertake a process of comprehensive tax reform of Canada's business tax structure. The strategic goal of tax reform must be to improve Canada's competitiveness in tax policy. Just to be clear, the chamber has put in its submission that business tax reform must be a priority of government. But at the moment it is, if you will, in the back seat of the car, and what is driving the car is the need to make personal tax reduction a priority.

The chamber also fervently believes the employment insurance program requires fundamental reform. EI premiums are too high for employees and employers, and they rob the economy of billions of dollars in consumer spending. I'm sure you know that the government's own actuaries have confirmed that the massive EI surplus is not justifiable. The chamber certainly agrees with that assessment, and for us the surplus being collected represents a direct tax on employment, harming our productivity and competitiveness.

Just before I turn to my colleague Dale Orr for a very brief discussion of our precise recommendations, I'd like to say that we are encouraged by the words the Minister of Finance delivered at his mid-year economic and fiscal update earlier this month. Mr. Martin stated clearly that he agrees with the chamber on the issue of taxes. He believes tax reductions are “essential to strong and sustained economic growth”. He said “After all, Canadians work for that money. It's theirs”. I couldn't agree with him more. The 170,000 members of the Canadian Chamber of Commerce are looking forward with great interest to seeing those words put into concrete action in the next budget.

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Thank you. Mr. Orr will very briefly go through our specific recommendations.

Dr. Dale Orr (Senior Vice-President, WEFA Group; Canadian Chamber of Commerce): Thank you. I'm pleased to provide a bit of detail on the chamber's position.

First, given the importance of tax cuts, the chamber recommends the government cut taxes by about $5 billion in the upcoming budget. Given the current estimates of the fiscal surplus, the government can afford a $5 billion tax cut in fiscal 2000-01. In fact, even after the recent $1 billion cut to EI premiums and the planned increase in program spending for next year of $2 billion, a tax cut of $5 billion still permits a reduction in debt of about $3 billion. I think this is an important point, and it reflects what the BCNI was saying.

It's critical that the tax cuts of the next budget be significant in magnitude. The government does not want to have them dissipate in the minds of Canadians, as have the recent tax cuts.

It's also very important that over the medium term a plan is set that is significant and credible so that two objectives are accomplished. I think these are the two most important objectives for the government with regard to tax cutting in the next budget. The first is that the tax cuts increase the incentive to join the labour market, to work productively, to train, to seek high-paying and productive work, and to stay in Canada. It's very important that the tax cuts focus on those incentives in the labour market.

The second point is that it's very important that the tax cuts increase consumer confidence, that is, they are sufficient so that disposable income is increased and that the expectation is there that disposable income will be increased in the future. Only by doing that and affecting consumer confidence will those tax cuts help to expand the economy and create jobs, which everybody is expecting out of tax cuts.

The chamber recommends that the tax cuts of the next budget focus on a reduction in personal income tax. This is a tough choice, because there are all sorts of good arguments for reductions in business tax. But as a question of priority, it's this year focus on personal income tax and, as soon as it can be afforded, move on the business side.

The tax cuts must benefit all Canadians. They should remove many low-income Canadians from the tax rolls by indexing the lower brackets. As well as indexing tax credits, they should also eliminate the 5% surtax on higher income levels. Every effort should be made to eliminate bracket creep by raising the threshold of all of the tax brackets.

Thanks.

The Chairman: Thank you, Mr. Orr.

We'll now hear from the Association of Universities and Colleges of Canada: Mr. Robert Giroux, president and chief executive officer; and Mr. Robert Best. Welcome. It's nice to see you again.

Mr. Robert J. Giroux (President and Chief Executive Officer, Association of Universities and Colleges of Canada): Thank you, Mr. Chairman and members of the committee, for the opportunity to take part in this dialogue with you. I have with me this morning Robert Best, director of government relations and public affairs.

[Translation]

Several weeks ago, Mr. Chairman, the Minister of Finance appeared before this committee to ask that you engage Canadians in a debate over the priorities that we should collectively pursue in a era of growing surpluses and renewed confidence. But in order to discuss the direction that Canada should be taking into the future, we must first understand the environment in which we find ourselves now, at the dawn of the new millennium.

As the Prime Minister stated in his reply to the Speech from the Throne, today, success in the global economy depends on our human talent, our ability to learn, to adapt quickly to new opportunities, to develop new ideas, and to make new discoveries.

Countries that are not prepared to tackle the challenge of a knowledge-based economy and society are countries that are doomed to fail. As the Finance Minister observed before this committee, the economies that will thrive over the next decade will be those that excel at innovation.

But what choices must a country make in order to excel at innovation? Mr. Chairman, a country must choose to make research the cornerstone of its economic and social development. A country must choose to provide the highest quality post-secondary education possible, and to ensure that it is an education accessible to all qualified individuals, regardless of financial circumstances. A country must choose to expose its youth to international perspectives and develop competencies that will be of absolute necessity in the emerging global village.

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Of course, choosing these priorities necessarily involves strategic public investments. We are pleased that the federal government has already recognized the importance of investing in research and education through its support to the Canada Foundation for Innovation, the Canada Opportunities Strategy, the Canadian Institutes of Health Research, the newly announced 21st Century Research Chairs, and other similar initiatives. These measures are important building blocks in strengthening our knowledge-based economy and society.

However, at a time when our international competitors are pouring ever-greater levels of support into their systems of innovation, Canada cannot afford to rest on its laurels. Greater investment in innovation and higher education should not be viewed as merely one more in a long line of spending requests, but instead as an example of smart spending.

In its 1999 report on Canada's socioeconomic performance, the Conference Board ranks Canada as a poor performer in its commitment to innovation, even though the Conference Board considers building an innovative economy the top priority for future economic growth.

In addition, investing in innovation will have enormous payoffs for the future: higher productivity, higher personal incomes, and a better ability for the federal government to maintain our valued social safety net, including health care—in short, a better quality of life for all Canadians.

And, with the size of the surplus over the coming years, investment in innovation and education does not have to come at the expense of other government priorities, such as tax cuts. Indeed, a balanced approach—similar to that called for by provincial and territorial leaders in August, and more recently by provincial and territorial finance ministers—involving increased transfers for social programs, particularly post-secondary education, and tax cuts, is not only desirable but doable.

Canadians themselves recognize the value of investing in innovation, as evidenced by the fact that education consistently ranks among the highest top-of-mind issues in public opinion polls.

As seen in chart 1—I believe you have a copy of our presentation, Mr. Chairman—Canadians recognize that post-secondary education is essential to their employment prospects.

Recent issues of Maclean's and L'Actualité devoted to the state of our universities reinforced this point. As stated in Maclean's:

[English]

Finally, the light bulb has gone on: in a tough global marketplace, knowledge is the capital on which both companies and countries compete, and Canada cannot afford to outsource knowledge development.

Mr. Chairman, Canadian universities have historically acted as the foundation in supporting research in post-secondary education. They must continue to strengthen their capacity to develop world-class, leading-edge, innovative research, and they must produce graduates who possess the skills for the knowledge-based economy as well as options for lifelong learning. But as governments have severely cut back the core support to universities over the last decade, our institutions have struggled to deliver high-quality, accessible education and pursue world-class research. Furthermore, as universities look forward to the challenges of the next decade, there are ominous warning signs that universities will continue to be hampered in their ability to fulfil key mandates unless governments are prepared to make the necessary investments.

As seen in chart 2, we anticipate that over the next 10 years university enrolment will grow by 20%. This is due to a combination of demographic growth as a result of the baby-boom echo and increasing participation rates caused in part by the growth in occupations that require a university degree, as seen clearly in chart 3. This means that by 2010, 125,000 more students will be enrolled in university than in 1999. The need to build capacity in our universities, both human and physical, is obvious.

The situation with regard to university faculty is particularly troubling. Between 1992 and 1997 there was a 10% reduction in the number of faculty at Canadian universities, while full-time student enrolment rates have remained stable. As demonstrated in chart 4, universities will have to hire more than 12,000 new faculty members over the next 10 years to meet increased enrolment demands, which I spoke of earlier, plus replace those faculty who were cut back through the 1990s. In addition, because of the average age of our faculty, about 20,000 faculty will need to be hired to replace a large cohort of faculty members who will be retiring. These 30,000 new faculty, which Canadian universities will have to compete internationally to attract...it is staggering, considering that there are only 33,000 faculty in Canadian universities at present.

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Mr. Chairman, a similar situation with respect to physical resources is also developing. I'm sure you will have heard anecdotal evidence of the state of deteriorating infrastructures on Canadian campuses: exams cancelled because of fear of the roof collapsing; students having no place to live on campus because of inadequate student housing; classes being held in cafeterias due to a lack of space; and so on. The extent of this problem is revealed in a survey by the Canadian Association of University Business Officers, who found that deferred maintenance on Canadian campuses totalled over $3.5 billion and continues to grow.

Mr. Chairman, on the question of international education, as can be seen in chart 5, a recent survey conducted by AUCC of our member institutions revealed that lack of funds or financial support was by far the biggest barrier to having more Canadian students study abroad. Our survey also found that less than 1% of university graduates, undergraduates, and graduate students currently participate in international exchanges.

What is the solution? Mr. Chairman, both the federal and provincial governments have responsibility for the financing of Canadian universities. The severity of the issue facing our universities requires that the two orders of government work cooperatively in addressing the concerns we have raised here today. The federal government needs to be a leader in helping to prepare universities for the challenges they will face over the coming decade. This will require measures that may not be politically visible but essential to achieve the vision expressed by the government.

AUCC has recommended to your committee a package of measures that can help universities turn the government's vision into a reality.

First and foremost, the federal government must restore transfers to the provinces for the support of post-secondary education as a means of making up for the steep declines in university core budgets. We have called for an immediate infusion of $2 billion this year, with staged increases in subsequent years.

Second, the federal government must increase its support for basic research. A number of specific recommendations on how the federal government can do this are contained in our brief. In particular we need to continue increasing the budgets of the granting councils—NSERC, MRC, CIHR, and SSRHC—and allow for larger growth in the SSRHC budget to restore a fair balance. There is also a need to fund the full cost of research.

Third, in order to provide our students with a greater understanding of international perspectives, we are recommending that the federal government establish a program aimed at increasing the number of Canadian students who can access international study opportunities, support for foreign students to study in Canada, and help for Canadian faculty to bring more international content to their teaching.

[Translation]

Mr. Chairman, as we have stated in our brief to this committee, research and education are Canada's main assets for continued prosperity in the new economy. Tomorrow's prosperity and success depend heavily on actions taken today. We cannot overemphasize this point. It is why we are urging this committee to demonstrate strong leadership on the need for increased investment in higher education and research.

Taking such a stand would demonstrate the commitment of this committee to making Canada a global leader in innovation and higher education.

[English]

Thank you for your attention, Mr. Chairman, and members of the committee.

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

We'll now hear from the Canadian Labour Congress, Mr. Andrew Jackson. Welcome.

Mr. Andrew Jackson (Senior Economist, Canadian Labour Congress): Thanks a lot for the opportunity to appear here today. Our president, Ken Georgetti, would have liked to be here; however, he is in Seattle with the International Confederation of Free Trade Unions delegation, who are meeting with governments dealing with workers' rights issues in the WTO. But he would have been delighted, I'm sure, to engage with Mr. d'Aquino—which I may yet do.

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Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): Which you are doing.

Voices: Oh, oh!

Mr. Andrew Jackson: The main question confronting the committee and that Canadians are discussing is, where do we allocate the dividend and what is the appropriate division between reinvestments in programs and tax cuts? That question has to be answered in the context of several questions.

Firstly, the committee members should reflect on who was it who bore the major burden of deficit elimination over the past few years, and look at this as a question of distributional equity for Canadians over a period of time. Then, as the colleagues from business have pointed out, quite appropriately, what mix of measures is best for long-term economic growth? In other words, we should be concerned with both equity goals and economic efficiency goals.

With respect to the equity question, it's undeniable that the burden of deficit reduction in the 1990s, especially through the loss of income from transfers, particularly unemployment insurance and reduction in programs, fell much more heavily on low- and middle-income families.

If you crunch the numbers, over the course of the 1990s, at best only the top 10% of Canadian families have seen an increase in their after-tax income. The proportionate reductions in income have been greater at the bottom of the income distribution, where transfers are most important. And of course the whole issue of the level of wages has been an important part of that whole debate.

It's also really important for the committee to bear in mind that the major cause of deficit elimination, bringing us back to a balanced budget, was the cuts to spending rather than the tax increases. There were tax increases, to be sure, but spending cuts accounted for the elimination of the deficit in a ratio of about 3:1 in their relative impact.

So certainly, in our view, in terms of equity and in terms of fairness, there's a compelling case for now allocating surpluses back into programs that were cut by restoring unemployment insurance benefits and increasing transfers that directly impact on children living in poverty by increased child benefits.

Also, we have to insist on the need to meet new and pressing social needs. Certainly we are strong supporters of a significant government investment now in an early childhood education program, and we also strongly support significant investments in public infrastructure—especially, without going into this in detail, as needed to deal with the very pressing issue of climate change, about which I'm sure others will speak to the committee in great detail.

So I want to make it clear that the basic CLC position—and this will be reflected again in this year's alternative federal budget—is to give a very clear priority to reinvestment in programs, both existing and new programs, with a particular priority to the needs of children and rebuilding public infrastructure.

Others of course argue that the priority should go to tax cuts, particularly personal income tax cuts. It's true that the tax burden has indeed been increasing in recent years. It's also true, though, that measures could and should be taken to improve the fairness of the personal income tax system and other elements of the tax system, but not necessarily by reducing the overall share of taxes as a percentage of the GDP.

In summary, our position is really to give priority to reinvestment, but also we think there is place in the budget to initiate some tax reform measures. It should be possible to say two things at once: to give the priority to reinvestment in programs, but also to engage in the debate about what kinds of tax changes are necessary and appropriate.

We've said, without putting great detail on the numbers, that if there are resources available on the tax side, our priority would be to increase the basic personal tax credit, which would effectively increase the amount of income Canadians could earn free of tax, as indeed was done in the last-but-one budget. That in effect would be an extremely progressive tax cut. There's also certainly room for increasing targeted tax credits, such as the child tax benefit and the GST credit.

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I'll table with the committee our recent analysis of the income tax proposals that were put forward by the Business Council on National Issues. I'll spare you the press release, since that appears to give such offence, but certainly I'll leave you with analysis of the numbers.

We've attempted to look at the impacts of the BCNI tax proposals for earners at different levels. When you crunch those numbers in detail, you find that for key measures in the package of proposals, some of which are certainly supported by the Chamber of Commerce, such as the elimination of the 5% surtax, reduced taxation of capital gains income, and changes to the middle and high tax brackets, the dollars that accrue from those cuts go very heavily to upper-income earners. For example, you can't consider changes to capital gains income separate from the notion that over half of all taxable capital gains go to individuals with incomes of more than $100,000. Taxable capital gains are very heavily concentrated in the hands of high-income earners.

To move to the bottom line, when we crunched their income tax proposals, we found that people making $250,000 and over would receive an average tax cut of almost $11,000. That would be just $280 when you got to $50,000 to $60,000 in taxable income, just $60 for an average worker making $35,000 to $40,000, and precisely zero for anybody who doesn't make it into the middle income tax bracket.

So as a basic fairness point, the committee really has to reflect on what has happened to the incomes of middle- and lower-income Canadians over the past few years; what has happened to the incomes of upper-income Canadians, where admittedly income growth hasn't been stellar, but there has been certainly some income growth for very high-income earners; and where the appropriate place is to address relief.

Of course the argument from business is that their proposals for tax cuts to higher income tax rates to capital gains are justifiable in terms of countering the brain drain and promoting higher economic growth.

As for the brain drain, basically the situation we have now, as the Prime Minister for one has recognized, is we have a bunch of anecdotes in search of any data to back them up. In fact the data do not show any significant increase in Canadian emigration to the U.S., and even where such emigration exists, the contribution of tax rates is extremely problematic.

I want to focus my remarks a bit more on the link between tax measures and economic growth. First of all, when it comes to changes to capital gains income, we had an experiment in Canada a number of years ago under the Conservative government with a lifetime capital gains exemption. That cost a lot of government revenues, most of which accrued as benefits to very high-income earners, and was quite appropriately done away with by this government.

I just want to draw to the attention of the committee that a special issue of Canadian Public Policy was published a number of years ago, edited by Jack Mintz, whom Mr. d'Aquino was quoting, now the president of the C.D. Howe Institute. I'll read to you a few lines of the conclusion from the editor's comments:

The overall conclusion is that the lifetime capital gains exemption failed to stimulate investment in a significant way.

In other words, the evidence for a linkage between easier tax treatment of capital gains and increased real investment in the Canadian economy was lacking, even though there was a large loss of government revenues in the process. I'll have an opportunity next week to appear before the committee in the economists' round table, and I want to speak to this in detail then.

In fairness, when one does survey the literature from the IMF, the OECD, and others, it's undeniable that there is some linkage between lower tax rates and increased investment and economic growth. The key question the committee has to put is, what is the contribution of those kinds of tax changes relative to selective increases in public investments?

There's an awful lot of evidence that, for example, if we take the whole area of investment in post-secondary education, there are very significant returns in terms of increased economic growth. I think similarly when it comes to the case for the early childhood education program, there's a lot of evidence that early childhood education is absolutely essential to the future ability of children to learn to acquire skills. I think the committee should be aware, if we make comparisons between countries based on the overall level of the tax burden, that if we take the 1980s and the 1990s as an entire period there's very little overall difference in growth performance between countries that can in any sense be coherently linked to the tax burden. The growth performance of most countries in western Europe over a 20-year period is at least comparable to that of the United States, despite a lower tax burden. If you look at the United States—and again I'll bring these forward to the committee later—there's a raft of recent studies in the United States that show that there's virtually no impact on investment levels between U.S. states in line with differences with the tax burden between them.

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So I think it would be unwarranted to say there are no impacts at all from tax cuts. There certainly are of a modest variety, but I think the overall burden of evidence is that in economic efficiency terms there's a greater return from well-targeted public investments than there are from across-the-board tax cuts—and, least of all, tax cuts that are specifically aimed to produce capital gains. Again, in terms of some of the programs that are of interest to the committee, public spending measures that support research and development have very high rates of return.

So the key point I really want to leave with the committee—and perhaps on this one point there would be agreement around the table—is that I think the debate is miscast if it's seen as simply one of a growth agenda being put forward by business alone and social groups being solely concerned with an equity agenda, one being about tax cuts, the other about program spending. I think the reality is that if we make intelligent public investments, which are certainly essential to promote our equity objectives, they're also a much better way of achieving our growth objectives. I would hope the committee approaches its discussion of issues in the light of that kind of argument and that kind of evidence rather than a polarized and misleading debate.

Thank you.

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

We'll now hear from the Canadian Council on Social Development: David Hay, vice-president; David Ross, executive director; and Katherine Scott, senior policy associate. Welcome.

Mr. David Ross (Executive Director, Canadian Council on Social Development): Thank you very much, Mr. Chairman. And congratulations to the committee for their perseverance in all these days of hearings. You're holding up very well.

I'd like to introduce Katherine Scott, who's our senior policy associate, and David Hay, who's a board member, vice-president, from British Columbia.

I would like to remind the committee that the CCSD is a national membership organization. We are not a think-tank. I hope you'll find our presentation thoughtful, but we're not a think-tank. We have a 17-member national board, and the kinds of organizations that we represent are United Way, municipal social service departments, family service associations, child welfare agencies, women's centres, community health centres, teachers' federations, university departments and researchers and numerous individuals. So what we're presenting here today are really the kind of views that they are presenting to us. These are people dealing with the issues at the ground level. They have a lot of experience, and we're trying to reflect that today in our brief comments.

The current surplus provides an opportunity to invest in Canada's future, and by this we mean investing in children and families. We want to improve their well-being. Social cohesion and economic prosperity is what we need to be seeking here. It's not an issue getting the economy growing and then spending some money on social cohesion. You don't have an economy if you don't have social cohesion in the first place, and this should be very well known by everybody today.

We've seen in the last couple of days that the press and the media have been full of Campaign 2000 material showing the plight of poor children, the increase in poor children since 1989 when an all-party resolution said they would eradicate child poverty by the year 2000. It's too late now. We only have a month to go. So I suggest that we can make a recommitment now, not a verbal one but a real commitment, to try to get the numbers down to at least what they have in western Europe. I think we have to shift the balance from shareholder value to family value. Just-in-time inventory might be fine in business, but just-in-time parenting doesn't work for families. We have to try to relieve the stress and the guilt of people trying to balance their work lives, their family lives, and their community responsibilities.

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Unfortunately, as we said on our new commitment, the platform on which we have to build healthy children, families, and societies is eroding, and that's our distribution of income. I wish people would pay more attention to the numbers before they start talking about the distribution of income, because they're quite clear, they're published reliably by Statistics Canada every year.

What we've done is look at the distribution of families with children. We looked at 1981, 1989, and 1997, which are three relatively comparable years in terms of peaks in the business cycle. What we find is that the bottom 40% of families with children have lost five percentage points of income of the total earnings in the country. It's earnings I'm talking about; it has nothing to do with taxes and transfers. Earnings have fallen by 5%. The top 40% have gained that 5%, and the middle income have struggled; they've lost slightly less than one percentage point.

So what we've had since 1981 then is reverse redistribution. We've had money, several billion dollars, flowing from the bottom 40% to the top 40%.

After we add in the effect of taxes and transfers—of course people start with their earnings, which is their bedrock—we find that the situation is somewhat better. Fortunately, taxes and transfers do redistribute in the right way, at least in our viewpoint. But the bottom 40% are still receiving relatively less now than they were in 1981. The trend is the same as with earnings. In fact, government is unable to fill the hole being vacated by the earnings. They're on a treadmill.

The cause of this has been fairly simple in the earnings side. We all know about good jobs and bad jobs. We have two economies now. We have an economy where, if people have the skills, they can move in and make a lot of money, a terrible amount of money. Then we have bad jobs: contract jobs, part-time jobs, low-paying jobs that simply can't produce a decent income. Compounding that, we've had mainly a succession of government cutbacks since mid-eighties.

Now, we would ask, shouldn't globalization have fixed this? We went through a period of high expectations with globalization and liberalization of trade, and many people have gone along with this. We thought it was going to elevate all of us, that a rising tide that was going to lift all boats. In fact, what we've discovered is that a hell of a lot of people don't have boats, so they haven't been rising.

What it seems to have created instead is three classes: the top 40%, which has a large and growing share of the country's income; the bottom 40%, which is a small and declining segment in its share of the national income; and a struggling middle class, which is barely holding its own.

We think it's time for the budget to address the bottom 40% and the middle. The polarization is beginning to affect our social cohesion; people are being marginalized. Look in our streets, look in our soup kitchens, the food banks, the community health centres, the waiting rooms at emergency wards. You see it everywhere.

Disregarding our poorest will create a social deficit that will make our fiscal deficit pale in comparison. Many respectable researchers are now documenting the linkage between low income and a whole range of poor outcomes for children. And if we want to continue along this path and to suffer these poor outcomes with children, then we're simply going to end up with a huge social deficit down the road. We're going to end up with a weaker economy, we're going to end up with a society that simply isn't cohesive.

How should the budget begin to address this? There are three areas.

First is employment and earnings. We have to try to change the direction in which the bottom 40% are going in terms of their share of earnings. We propose, among other things, a national community development fund. Let's start with a billion dollars to match the education fund. This is money that would go to community organizations and non-profit organizations. It would create jobs and the services that are needed by children living near the bottom of our income ladder.

There would be literacy programs, there would be immigrant adjustment programs, family resource centres would be set up, there would be training for badly educated people, there would be recreation and cultural activities for low-income children, and there'd be care for seniors, to name a few. That's one strand.

The second strand is government services such as housing. Governments have to get back into social housing. Child care, maternity and parental leave for all, not just for those who are lucky enough to be claiming unemployment insurance.

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Finally, taxes and transfers. We agree that the basic exemption, the basic credit, should be increased, that over time the system should be slowly indexed fully, that there should be higher thresholds for the first and second tax brackets, let's say $37,000 and $74,000, which would bring it back to what they would be if they had never been de-indexed. The child benefit, which the government is going to increase before the end of its mandate, should be increased immediately and the threshold for cutbacks should be increased somewhat, so that the benefits extend further up into middle-income families. We should have a universal child credit, respecting the cost of raising children at all levels, so that families with children and families without children are respected. And we believe that the RSP deduction should be turned into a tax credit.

There are other suggestions, and they're in our brief. I thank you for your time.

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

That was an interesting panel, with different points of view. That's always helpful.

We'll have probably a seven-minute round, with Mr. Solberg.

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

I'd like to try to put the debate in context, if I could, by quoting some dry numbers, but I do think it's important to have these facts on the table. Today in Canada, considering all levels of government, we have never spent more money per capita, through government transfers, than we spend today. We're at record heights of government spending.

The second point is that we also have record-high levels of taxation, partially, I would argue, reflecting the high levels of government spending. And in that envelope of taxation, we see the top 1% of income earners paying about 17% of all the income taxes; the top 10%, who are people who make $50,000 or more, who pay 50% of all taxes. We also see people who earn less than $20,000 a year paying $6 billion a year in taxes, which is shocking. Then finally, of course, we have a debt that is at near record-high levels, $577 billion—that's the net debt. Then of course we have all these unfunded liabilities beyond that, looking down the road into the future: for health care, for the Canada Pension Plan, and of course for pensions in general.

My question is—and I open this up—given these restrictions, if you want to call them that, is the 50-50 plan that the government has proposed still the route we should be following, or is it folly? I'll just leave that open. Maybe I'll go to Ms. Hughes Anthony first.

Ms. Nancy Hughes Anthony: I think it's a very good subject for this committee to discuss. In our view, this 50-50 formula really just handcuffs the government from doing what it needs to do to get the economy going. I think it's also a numbers game, where nobody's quite sure what's 50% of what and what is actually part of the surplus versus that has already gone into the government's budget increases, which they do every year before they declare a surplus. So in my view, the 50-50 may have been an interesting slogan to use, but it really handcuffs the government from making decisions that get the economy going.

The Chairman: Are there further comments? Mr. Jackson.

Mr. Andrew Jackson: I'm curious as to where you get the number you're throwing out that per capita government spending on transfers is at an all-time record level. A huge part of that number is unemployment insurance benefits, which have been clearly falling. Nobody, to my knowledge, would argue that social assistance benefits have been rising. Admittedly, with the aging of the population there's some increase in public pensions, but I would be shocked if per capita government spending on transfers was increasing. There's no doubt at all that overall government spending per capita in Canada has been falling. I think in Mr. Martin's own numbers it's been falling faster than in any industrial country ever in the 1990s. So total program spending certainly has been declining rapidly.

The other comment I would make is on the surplus and projections of the surplus. The calculation of the surplus is based on the assumption that the tax share of GDP will remain unchanged. So basically if we spent every last penny of the surplus on government program spending, we wouldn't be increasing the tax share of GDP. So that thought has to be kept there. And if we spend every last penny of the surplus on program spending, if we take the growth projections, which, again, those calculations of the surplus are based on, then the debt would be falling as a share of GDP.

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I think the underlying notion of calculating what a likely surplus is on the basis of plausible growth projections on the basis of those underlying assumptions is fairly valid. I suspect Dale would agree with that. Or at least it gives us a framework for the debate on how we allocate the moneys on the basis of different areas.

The Chairman: Mr. Giroux.

Mr. Roger Giroux: Thank you. I would just like to make the following comment, not necessarily on the 50-50 but on where the priorities should lie.

Certainly, in our view, the priorities need to lie on making the right kinds of investments. Of course we would argue very strongly for post-secondary education. The government last year made investments in health quite wisely. I think making the right kinds of investments, whether it be in child care or preparing children for the learning they will acquire later on....

But what we're saying is that with what's looming in terms of the projections the Minister of Finance has put forward, this also allows for a balanced approach in terms of tax cuts. The right kind of tax cuts will also strengthen the economy, as well as these kinds of investments.

So we're very much in favour of a balanced approach. We also think there needs to be a contribution to the debt. But we must remember the Minister of Finance, in his projections, has already allocated an amount every year—and his projections are always conservative—to allow that a number would go toward the debt. We must also remember that as our economy grows, the percentage of the debt versus GDP will slowly be falling. At a point in time I think it was close to 75%. Now it's getting to be around 60% to 65%, and this will fall further. So it will be less and less of a problem as we move along.

The Chairman: Thank you, Mr. Solberg.

Mr. Nystrom.

Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP): Yes, I wanted to ask a general question. One thing that's happened in the last while is we see the growing inequality in this country between the wealthier people and the poor. I think an objective of any economy is to create wealth and then have, at least in my opinion, redistribution of the wealth and a more egalitarian society.

The United States has had great wealth production. But they also have the highest poverty rate of any country in the industrial world, increasing poverty in that country.

I also notice in our own country, Mr. Chair, that household debt has been going up. Household indebtedness as a percentage of the GDP has gone to a record high. In 1990 it was 63.3% of gross domestic product, and now it is, in 1997, 70.4%.

These massive cutbacks by Paul Martin in social transfer—health, education, social welfare programs—have transferred a lot of the public debt onto household debt. So I'm just asking the general question, perhaps of Andrew Jackson or Thomas d'Aquino, my comrade on the far side over there, whether or not they would agree we need more social spending in this country in terms of creating more equality.

I represent as part of my riding, I remind you, Mr. d'Aquino, the inner city in Regina, where there are an awful lot of poor people, food banks, single-parent families, high crime rate, a lot of aboriginal people; and there have been tremendous cutbacks along those lines. They need more spending in terms of community policing, in terms of health and education, training, skills. If you want a productive economy, I think what you do first of all is invest in human development, and human development will also give you a consequence of economic development.

We had a statement to the committee the other day that if one invests $5 billion in early childhood development, that will pay dividends down the road of around $10 billion. It seems to me that is wise counsel to follow now that we have a fiscal surplus. The deficit was paid basically by the ordinary people of this country in terms of cutbacks in social programs. So I would advocate that the majority of the money we have now, over 50%, should go back into reinvesting in people and human beings and social programs, building a stronger economy, education, training, skills, housing—all those things that will stimulate the economy and make us a much more productive society in terms of the economy and the human side.

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So maybe Mr. Jackson and Mr. d'Aquino can start this debate. I'm sure by now they will have both agreed with that very wise counsel I've given.

Comrade d'Aquino.

The Chairman: Maybe we'll start with Mr. Jackson, then. Go ahead, Mr. Jackson.

Mr. Andrew Jackson: I'll just make a very short comment.

I guess it always strikes me that when you go back to the 1960s and the early 1970s, the days of the Pearson governments and the later Trudeau governments, we actually had a period when government spending on social programs in particular was rising quite rapidly. In fact, if you crunch the numbers, the taxes as a share of GDP were also increasing over that period.

We didn't have the kind of debate that's going on now, essentially for two reasons. First of all, I think most people saw that deal of paying taxes for the programs they were getting—medicare, pensions, and so on—as a pretty good deal. Second, people's after-tax incomes were actually rising at a fairly rapid pace. People had more money in their pockets and better social programs and public services. So I don't think people really cared what the tax share of GDP was. What really counts to people is public services, social programs, and what they can buy on the market.

All of this is to say, how do we get back to that kind of world? I think it's a bit of a sterile debate to say, what should be the tax share of GDP? In the end it depends on what people think is the appropriate mix of private consumption and services. But I think evidence shows most people desire a high level of public services and social programs and they are prepared to pay for them.

The lesson that comes to me out of the U.S.—and I think indeed over the last two or three years, when one looks at the U.S., one does have to reflect on what it is they're doing so well on. I think a major lesson of the U.S. is that when you really push down on that unemployment rate, far below wherever anybody thought it could go, what you've finally been starting to see in the U.S. over the past two years is that real wages are rising, and for lower-income workers as well you're getting some reversal in the inequality.

So getting growth right is really important. I know it goes beyond the mandate of the committee, but I don't think the Bank of Canada tightening up on interest rates now is a particularly helpful way of getting into that high-growth world we need in Canada.

I think the real lesson in the U.S.... If you go back to the Asian crisis two years ago, I think the U.S. Federal Reserve would have raised interest rates if it hadn't been for the global crisis. Instead they cut them, and what's the result? We get two years of really strong growth, enormously positive impact, I think, in terms of incomes of people at the bottom and inequality. I don't think there's going to be any disagreement between me and the business people on the need for that high-growth context to help resolve these problems.

The Chairman: We'll find out.

Mr. d'Aquino.

Mr. Thomas d'Aquino: [Inaudible—Editor] ...hear such an eloquent defence of the United States success story from Mr. Jackson.

In response to my comrade Mr. Nystrom, the fact of the matter is that unemployment in the United States today is at generational lows, at 4.1%. The total productivity of the U.S. is largely driven by innovation, largely fuelled by a culture that is very different from ours. I'm not suggesting we emulate it in every respect, but in one respect it would be very important to emulate it, and that is that we put aside this culture of envy that one sees in the CLC directives that is really aimed at punishing anybody who really does well. By doing well, I mean those who actually earn a good living and who are terribly successful. We have to rid ourselves of that mentality.

You know what? Social democrats, Mr. Nystrom, all over the world have rid themselves of that mentality. One of the best examples is that the Chancellor of the Exchequer of the United Kingdom 10 days ago gave a ringing endorsation of cuts in capital gains tax. Here's a social democrat, standing up and cutting capital gains from 40% to 10%, Mr. Nystrom. Why? It's not because he doesn't understand what it means to help people and, in the words of David Ross, give more people boats, because that's the way you give people more boats. But unfortunately for us, they understand that much better in the social democratic paradigm of the United Kingdom than we do here, or in the social democratic party, and in particular, in the most reactionary force in the country, the high ranks of the CLC.

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On the issue of why we cannot not go back to the great days of Pearson, Mr. Chairman, it's very clear why we can't go back to the great days of Pearson. In the great days of Pearson, Canada did not have debt, to speak of. The debt has been run up, Mr. Jackson, in the eighties and nineties.

Today, one of the reasons why we are here struggling with how we're going to divide up this pie around some notional idea that if everything goes well for the next five years we will have a $95 billion surplus.... I remind you that every Minister of Finance I have worked with—in the recession of 1981 with Mr. MacEachen, with Mr. Lalonde in the early 1990s, with Mr. Wilson, and with Mr. Mazankowski—all of them predicted rosy things would happen in three to five years. Then we were dealt the dreaded hand of the business cycle.

The reason we're fighting today—or debating—the reason people are very upset, that there isn't enough money for child care, that there isn't enough money, Mr. Nystrom, to help people in your community who need help, is that we are paying $40 billion of interest on the debt.

Throughout that entire period of time, some of the people on that side of the House—Mr. Jackson's folks, and Mr. Nystrom—argued quite seriously that the deficit didn't matter, that it was a creation of the right-wing conspiracy in this country. Today, $41 billion of interest, largely paid by hard-working taxpayers in this country, goes simply to pay the debt. Are we going to repeat that mistake again?

That's why Mr. Solberg really put his finger on the right issues. We have to be prudent. There has to be a balance. But the balance cannot be a balance, Mr. Chairman, when spending is not going to lead to new jobs, to new growth, to new creation.

Mr. Jackson denies, as they do in the flat earth society, that there's a brain drain. The Prime Minister denies that there's a brain drain. You have Mr. Roth, one of the most responsible chief executives in the country—

Mr. Lorne Nystrom: I wonder—

Mr. Thomas d'Aquino: —whose company is responsible for 25% of the capitalization of the TSE, the company that employs more engineers than any other single company in the country, who says we have a brain drain. But there's outward denial: “We don't believe the numbers” or “I don't think it happens” or, as some people have said, “It's another figment of the right wing in this country”.

We have to wake up. Yes, there has to be a balance. That is why we at the BCNI have consistently argued for spending in health care, spending in education. We've supported those initiatives. Initially, when it came to where the relief should come from, we argued right from the beginning, Mr. Nystrom, that the lowest-income people should get the first cut at the beginning of the surpluses in Canada. That's why we supported the idea of personal income tax cuts above business tax cuts—because we believe in equity.

But I'm appealing to the committee to look at the other side of the equation: Ireland, the Netherlands, Switzerland, Hong Kong, and the United States, all with much better records of job creation, lower levels of unemployment, and better productivity. What unites those countries? It's lower taxes: a recognition that putting more money into the pockets of taxpayers is the way you create opportunities and look after those people in those communities who need that care.

That's where we have to shift our ideas, Mr. Chairman—towards the idea of the new economy.

The Chairman: Thank you.

Mr. Lorne Nystrom: I wonder, Mr. Chair—I still would like an answer to my question about household debt—what world Mr. d'Aquino has been living in. It seems to me that it wasn't the NDP that was in power when the debt was run up. It was a Conservative, one of his friends, Brian Mulroney, who ran up the huge debt.

I always come to Saskatchewan—

Mr. Thomas d'Aquino: Mr. Mulroney was as guilty as you were, Mr. Nystrom, for running up that debt.

Mr. Lorne Nystrom: I'm not very guilty—

Mr. Thomas d'Aquino: The reason we have household debt today is that Mr. Martin's taking most of that money away. Did it occur to you that if he gave some of it back that household debt would fall because then people would have a little more money and wouldn't have to borrow to spend?

Mr. Lorne Nystrom: Mr. d'Aquino, I come from a province where the Conservatives of Grant Devine—again, a friend of yours—ran up a huge debt. It has always been the NDP that has had balanced budgets, since the days of Tommy Douglas, Allan Blakeney and Roy Romanow.

Mr. Thomas d'Aquino: I'm a great admirer of Mr. Romanow.

Mr. Lorne Nystrom: Yes, well, just don't say, then, that it's the left wing that created the debt. I have exactly the opposite experience—

Mr. Thomas d'Aquino: I did not say all NDP. I just referred to some.

Mr. Lorne Nystrom: Well, you were certainly looking across the table at a good Saskatchewan New Democrat.

My question to Mr. d'Aquino was and still is this. Household debt has really gone up and we've been transferring a lot of our public debt and our GDP ratio to the ordinary household in this country. What are we going to do about that in the short term? The ordinary person in the centre of Regina is not going to be fed by payments on the national debt. That person needs something in terms of social programs and needs additional help in terms of community policing, training and skills development, economic development—and needs a job. So what do we do to bring down household debt? That was my question to you.

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Mr. Thomas d'Aquino: My specific answer to you, Mr. Nystrom, is that we bring down household debt first and foremost by giving some of that money back to the people who gave it to the governments, that is, putting money back into their pockets. That's one of the fastest ways to reduce household debt.

Mr. Lorne Nystrom: How do you do that with the poor people? Some of those people pay no income tax or very little income tax. Across-the-board tax cuts are not very helpful.

Mr. Thomas d'Aquino: First off, by dealing with indexation right off the bat, you're going to take a whole bunch of low-income people off the tax rolls.

Mr. Lorne Nystrom: I agree with that.

Mr. Thomas d'Aquino: So why don't we start with that? Do you support indexation?

Mr. Lorne Nystrom: Yes.

Mr. Thomas d'Aquino: You do.

Mr. Lorne Nystrom: I think bracket creep has been a very bad thing for ordinary people in this country.

Mr. Thomas d'Aquino: All right. Very good. That's a very good start right there. You know what? I would think the vast majority of your constituents would applaud you if you made that argument very strongly, because that's what the vast majority of people in Canada are calling for. It's not breaks for the people in the top 5% that we're looking for. It's the broad middle class that deserves a break—and the people who need it most deserve it first.

Mr. Lorne Nystrom: And the GST, Mr. d'Aquino?

Mr. Thomas d'Aquino: Are we debating the GST?

Mr. Lorne Nystrom: In terms of the polling, most people want a cut in the GST before a cut in personal income tax or corporate income tax.

The Chairman: Mr. Nystrom, I also have to cut your time, because we have other people that would like to ask questions. We have Ms. Guarnieri, Mr. Szabo, and Mr. Discepola.

Ms. Albina Guarnieri (Mississauga East, Lib.): It's certainly a stimulating morning.

My question is for Mr. Jackson.

The Canadian Labour Congress must be the single largest representative of middle-class-income workers in Canada—other than Parliament itself, of course.

In your brief, you cite the following:

The central argument is that the next budget should focus upon investment and social programs needed to sustain future well-being, and that any tax relief should be targeted to low- and middle-income earners.

That's almost like an afterthought. I mean, the focus is not on the representatives of your union. I would have thought your presentation would have been more about getting a tax cut that was targeted to your workers, a tax cut that would put the same number of dollars in an automotive worker's pocket as in the pocket of the president of the auto company itself. Clearly, I think, this could be achieved by lowering the middle-income tax rate. I want to be really clear on why you wouldn't really support and emphasize more cash for your members and their families as a top priority of the budget.

The Chairman: Thank you, Ms. Guarnieri.

Mr. Jackson.

Mr. Andrew Jackson: I think you're partly right. If you took unionized workers as a category, we would be overrepresented as you go up the earning distribution, but we stop short of the top 10%. Actually, in the top 10% the unionization rate is very low; that's where you get into the senior management layer. But certainly our members are middle-income earners—and up. So I guess the question is, why do we favour social spending reinvestment and programs?

First of all, a big chunk of union members, unionized workers, work in public services. They are and have been losing their jobs because of the cuts, and they feel they're providing valuable services for the rest of Canadians.

I think the second part of the argument is that for the great majority of our members, paying taxes in order to ensure a continued level of services is still a pretty good proposition, even though it's correct to say that more of our taxes have been going to pay the debt burden, which is a problem.

But crunch the numbers. For example, look at the results from the latest family expenditure survey. The amount of money that middle-income people are having to pay now out of their own pockets for health and education is increasing very rapidly—particularly for Alberta, I would note. From the point of view of an ordinary working family, it's a pretty good deal to pay that money in taxes in order to get your health care services, in order not to feel that you have to send your kids to private schools, or those kinds of propositions...so your kids can go on to higher education without being burdened with a huge debt.

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Thirdly—and I probably started in the wrong order—I think the basic proposition is one of social solidarity. We feel Canada, as a society, has to give the first priority on available resources to those who are being left behind.

I'm going on too long, but the other point that really has to be borne in mind about social programs is that it's not just redistribution to those who are least well-off, important though that is; there's also a very vital security element to it.

If you crunch the numbers, employment insurance benefits go to a pretty wide spectrum of people. That said, the cuts to EI have been a major contributing source for the increase in child poverty. From a recent Statistics Canada study, if you take two-income families, the cuts have been by far the most important cause of the increase in child poverty. But quite aside from that, a lot of working people run the risk of becoming unemployed and depending on those programs, so it's the security that's provided by those programs as well.

Just to repeat what I said, if we get into a world of faster growth, that appropriate balance between taxes and spending isn't something that will have to be carved in stone for all time.

Ms. Albina Guarnieri: You've cited a lot of laudable sentiments about problems we need to address, but I represent a middle-class riding. I'm a labourer's daughter myself, and the argument I keep hearing is that there's an element of arrogance in government when they say “I can spend their money better than they know how to prioritize and spend their own money”. From the exchange earlier, I sensed a lot of wistfulness and nostalgia, sort of in allo tempore, where we should spend our way into oblivion.

For the first time we have a finance minister who has combined economic growth with fiscal sanity. Earlier in your comments you mentioned we needed to establish the appropriate division, and your arguments at that time were that we should reflect on who bore the major burden over several years. You talked about equity and the loss of income, low- and middle-income families, the reduction of income, and the level of wages.

I expect your union members would expect their union representatives to be negotiating on their behalf for greater wages and benefits, first with their employees and then with government. Have you done any polling amongst your members? Is this the scientific way you've come to this conclusion on how to prioritize their money?

Mr. Andrew Jackson: We're not like the Canadian Federation of Independent Business where we just poll our members and then repeat what we get back. I would be frankly dissembling if I pretended that every time you speak to a unionized worker in your riding they're going to carry the CLC line on the budget and use of the surplus. The reality is that the tax cut message appeals to a lot of unionized workers.

Ms. Albina Guarnieri: What is the strong message your workers are giving you? Is is not the same message I hear on a daily basis?

Mr. Andrew Jackson: I think all the polling I've seen shows that people have very mixed feelings on this set of issues. It's no surprise to me at all that middle-income working people, who haven't seen an increase in their incomes for the last decade and are, as Mr. Nystrom says, often up to their eyeballs in debt from mortgages, are desperate for an increase in income from somewhere.

Not a lot is being won at the bargaining table across the board—real wages are still flat or falling. So what drives the demand for tax cuts at that level isn't a huge mystery to me. At the same time, I think people really value those programs and services and want to keep them. People have a concern for social justice.

I also think the National Post kinds of tax cuts and the BCNI tax cuts mean absolutely nothing to ordinary working people. I think there's this general sort of discontent that kind of gets canalized around tax cut proposals that are not going to deliver much to ordinary working people at all.

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Ms. Albina Guarnieri: If the cuts put money in their hands so they could meet their mortgage payments, I would argue we shouldn't dismiss that trickle.

Mr. Andrew Jackson: It depends on what kinds of tax cuts you're going to deliver.

The Chairman: I'm only going to take two—Mr. Boutziouvis and Ms. Hughes Anthony.

Ms. Nancy Hughes Anthony: I'd like to leave a perspective with the members. It occurred to me when Mr. Nystrom was speaking, and it's a perspective my members communicate to me on a frequent basis.

We can't forget that the federal government manages now—from the latest numbers—about $111 billion worth of services. Many of my members are not confident that every single penny of that $111 billion is perfectly managed.

For example—and I'm sorry but I have to say this—when something comes up like the famous $1 billion tunnel under this complex, my phone lights up, and I bet your phones light up. How do we also get to that point that the government must be on a continual program of good fiscal management, and give Canadians the assurance that the programs there—some of which may need to be expanded and enhanced—are also being efficiently run and are effective for the majority of Canadians?

As I said, I get that every time the AG's report comes out, or every time there's some kind of front page news about some government spending—boom. I don't think we can forget that, and I don't think we can say that the job has been done on that front.

I just wanted to add that perspective.

The Chairman: Thank you.

Mr. Sam T. Boutziouvis (Vice-President, International Trade and Global Economics, Business Council on National Issues): Thank you, Mr. Chairman.

Before I begin, I'd like to thank Ms. Guarnieri for her very eloquent comments.

In answer to questions from both Andrew and Ms. Guarnieri, we are living in a newer world. It's a world where entrepreneurial spirit and dynamism are very important.

On the issue of lifetime capital gains, I don't think there's any way we can disagree with the conclusions of the Mintz paper, but you have to remember the world we were living in back in the late 1970s and all throughout the 1980s. It was a world of rather high inflation, where the market signals were quite different and people's investment decisions were probably being diverted somewhat more into real estate and investments that weren't being made for the future of the economy—for future economic growth. Therefore, the conclusion by Jack Mintz that not much of the investment made was productive for future economic growth was probably valid.

In today's world, capital gains and the need to be able to invest in companies that are on the cutting edge of technology to spur economic growth are extremely important. We need to catalyze entrepreneurial spirit in this country. Our research, on a preliminary basis, indicates quite clearly that dynamism and growth are key drivers of productivity growth, economic growth and employment growth.

Who are the change agents for economic growth in the U.S. economy and our own? They are the entrepreneurs in our society. They are the people who put ideas into action and take risks because they believe in their products, their services and their ideas. We need to give these people a chance in this country. They have many tools at their disposal because our economy and our society offers many of those tools, but they're being taken back by very high personal income taxes, corporate taxes and taxes on capital income.

At the base of it, technology, capital, and knowledge are the tools of the new economy. They are partially an answer to your question from your press release regarding a new economy. They are not in sufficient quantity and they are not of sufficient quality in our view. We need entrepreneurial spirit; we need a “can do” attitude. That's why we need these critical cuts to income taxes, corporate taxes and capital gains taxes.

The Chairman: Thank you.

We'll go to Mr. Szabo and Mr. Discepola.

Mr. Paul Szabo (Mississauga South, Lib.): Mr. d'Aquino, I note in your appendix there are two specific income tax form changes. One is to increase the threshold on the second rate by $2,000, and the other is to raise the high threshold by $4,000.

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You are also recommending that the middle tax bracket be reduced from 26% to 25%.

I just did some calculations here and ran the model to see what impact it would have at different levels of income. For people making less than $25,000 a year in Canada—they represent 42% of all taxpayers—their benefit from those changes is zero. For people making $25,000 to $30,000 a year—they represent about 11% of taxpayers—their benefit, federal only, would be $37 from those two changes. For anybody in Canada making over $65,000 a year—they represent 10% of all taxpayers—their benefit would be $616. It's 17 times higher for someone making over $65,000 versus someone making $30,000 a year.

We understand progressivity in our tax system, but you made the point about who paid for getting rid of the deficit. I thought all Canadians paid for it, either by not having tax reductions that they deserve...but others had to reduce services and they had to make some cutbacks.

I ask you whether or not you feel that as we enter the new millennium we should say to 42% of Canadians “You get zero” and we say to those top 10% of taxpayers “You're going to get $616 from the federal government”. If you include the provincial tax, it's almost $1,000.

Mr. Thomas d'Aquino: First of all, what you have in your appendix to our memorandum to the Prime Minister is one snapshot in time. It's also a set of preliminary recommendations. I take you back to a vastly more detailed document that was put before this committee about 12 months before that, which outlined our total tax reduction plan. In the memorandum to the Prime Minister, for example, we do not deal with the issue specifically of indexation, which would in fact bring tax relief to lower-income people. We have not made reference to the tax relief that has already been afforded to low-income Canadians in the last three budgets of the finance minister.

So instead of taking a snapshot in time, I ask you to look at the total numbers. We have them here for you, and I'll be pleased to share them with you, in a document that we call “Projected Fiscal Surpluses After Adjustments in Relation to the BCNI Tax Cuts”. In them you will see how we deal with the employment insurance issue. Again, I remind you, on the employment insurance reductions, as the chairman knows and as the Minister of Finance knows so very well, we were among the very few in the business community to argue that personal income tax reductions at the lower end of the range should have the highest priority over significant reductions in employment insurance, even though the benefits of a much larger employment insurance cut would have substantially gone to the benefit of employers.

I would be happy to table with the committee a two-page document that we have here, which lists where our priorities are in relation to the total five-year plan. While the document to the Prime Minister stands on its own, I would ask you to look at those numbers in the context of both past performance and our future projections.

Mr. Paul Szabo: Thank you.

Mr. Sam Boutziouvis: Can I just make a brief comment, Mr. Chairman?

The Chairman: Absolutely.

Mr. Sam Boutziouvis: In our tax plan last year we actually recommended that the spousal exemption be increased by $500 for three successive years, for a total spousal amount increase of $1,500. That would go directly to lower-income Canadians—

Mr. Paul Szabo: [Inaudible—Editor]

Mr. Sam Boutziouvis: Every taxpayer.

The Chairman: Thank you, Mr. Szabo.

Mr. Discepola.

Mr. Nick Discepola: Thank you, Chair. I guess what I retained from—

The Chairman: You would like to make a comment, Mr. Jackson?

Mr. Andrew Jackson: Just very quickly. The analysis we did was based on the memorandum—just so that's clear.

On Mr. Szabo's question, it is important to bear in mind that people's taxable income is lower than their pre-tax income. If you're looking at impacts or proposals by income group, you have to take that into account. So basically, it's people in the top tax bracket—people at $70,000 and above—because there are deductions for various reasons. On average, people's taxable incomes are about 10% lower than the pre-tax income. I'm just saying if you look at the impacts by different income group, you have to take that into account.

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Mr. Paul Szabo: I should just clarify that I ran those numbers through an income-tax software package and got the precise numbers.

Mr. Andrew Jackson: Okay.

Mr. Paul Szabo: I wasn't estimating anything. I got the precise numbers on that.

Mr. Andrew Jackson: I'd be interested in seeing the numbers.

The Chairman: Mr. Discepola.

Mr. Nick Discepola: Thank you, Mr. Chair.

I retain from the Business Council on National Issues that they agree we need a balanced approach, and that any tax relief should be targeted to the lower-income group, which is most in need. That's the premise I understood of our 50-50 approach, and it's also the premise of the Minister of Finance when he repeated that in his economic update.

I wonder why the chamber doesn't seem to understand what 50-50 means. When I hear their comment that it handcuffs government, I'd like them to explain. If I take a look at their proposal, which is $5.45 billion, it's all geared to tax relief. So it's very easy to say they don't understand the 50-50 approach, because they're putting forth a 100-0 approach, which is probably more handcuffing on any Canadian government. I'm just wondering whether they recognize that there are other needs in this country, such as have been evoked around this table, and whether we should not address those needs of the government.

I have a second question for Mr. Ross. Your suggestion on a national community development fund intrigues me a lot, and I would like you to elaborate on it. I come from a province where the provincial members of the national assembly have a discretionary budget of $150,000 to $200,000 that is geared exactly to what you're saying—community initiatives, whether it's volunteer groups, helping soup kitchens, or helping the elderly. I'm just wondering how you would see such a program working. Would we be able to model it after the correct model? Or do you have other ideas in mind?

Have I been brief, Mr. Chair?

The Chairman: You've been just spectacular.

Mr. Nick Discepola: Thank you.

The Chairman: Go ahead.

Dr. Dale Orr: Thanks, I'd be glad to do that, and to have an opportunity to comment on the 50-50. I've described it as non-operational, unwise, and discriminatory. I'll try to be very brief.

It's non-operational because the spending base has not been consistently and clearly defined. At this point in time it's defined as the spending plans in the 1999 budget. So what I think is very important for everybody to understand is that every dollar that goes into program spending out of this surplus, in other words in the 50-50, would be a dollar of program spending after program spending has already been increased to fully account for inflation and population increases.

On the other hand, in the 50% part that would go for tax cuts, every dollar that goes to reduce bracket creep would be counted against the taxpayer as part of that 50% reduction. So it's discriminatory, and it's non-operational.

It's also very unwise, because it can lead to the federal government growing as a fraction of the total economy. I don't think there's anybody, maybe not even Mr. Nystrom, who would want to see the federal government growing more rapidly than the economy overall. In that, it's very important to understand that health and education are very much provincial government responsibilities.

So the 50-50 is non-operational, unwise, and discriminatory.

Back to the chamber and balance, it's very important to understand that the chamber, I think, has a balanced approach. In the proposal that's made by the chamber, program spending would increase to fully cover population increases and inflation, which is about a 3% increase per year. In the proposal we have here, you'd have $2 billion to $3 billion go to program spending, about $5 billion to income tax, and about $3 billion left for debt reduction.

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Mr. Nick Discepola: What you are saying is that you'd want 100% of any projected surplus attributed to debt reduction and tax relief, period.

Dr. Dale Orr: That's because the surplus is defined only as what's left over after program spending is already increasing at 3% per year.

Mr. Nick Discepola: So there's no need to reinvest in education or health care any more. We've done our job with—

Dr. Dale Orr: Well, with a $3-billion increase per year, you have $3 billion more dollars. And the federal government spending is filled with low priorities, which can and should be cut to accommodate new priorities. There's a reasonably generous amount of money there to finance the new and emerging—

Mr. Nick Discepola: So you're saying there is a need for new priorities, but we should look within our own government to reduce more spending to achieve those goals for new priorities.

Dr. Dale Orr: There are two parts to it. The plan we're proposing allows for about a $3-billion increase on net per year and recommends in fact that when new emerging priorities come up, money be taken from low priorities. So there are two ways to finance new emerging priorities.

The Chairman: Mr. Ross.

Mr. David Ross: Very briefly, Mr. Discepola, the point behind the national community development fund would be that there are roughly 75,000 registered charitable service organizations in the country today, and they don't have a reliable funding base. They're providing services, but they don't have a reliable funding base, and they're often government programs that come and then disappear, then they come again and they disappear. They have different guidelines and restrictions.

What we'd like to see put in place is an assurance that we would have continuing funding. And what we would see grosso modo is that we'd have to allocate the money somehow, maybe on some social indicators, on the basis of need in communities across the country, and that money would be very democratically managed in the communities, primarily by the organizations themselves, although some communities may want to have an elected board that would manage the community fund. That fund would be allocated to the greatest needs in that community.

So the communities can deal with the most pressing problems. One of them might be housing, one of them might be child care, one of them might be helping the elderly. We haven't worked out the precise details, because the minute you do that, people start arguing about the details rather than the whole purpose of it, and we're still focusing on the purpose.

I'm aware that in Quebec they are much further along in terms of providing funds at the community level, and that could certainly be a model to be examined. But thanks for the question.

The Chairman: Thank you very much.

We'll now go to Mr. Brison, followed by Mr. Lunn.

Mr. Scott Brison (Kings—Hants, PC): Thank you, Mr. Chairman, and thanks to each of the presenters this morning for their interventions.

My first point or question is for Mr. Jackson. You have often referred to your position that we shouldn't be comparing our tax burden in Canada to that of the U.S., because we have a greater level of social investment in Canada that Canadians value and treasure. I just wanted to bring a couple of things to your attention.

The reason we have higher taxes in Canada has very little to do with levels of social investment. In fact, in the U.S. there's more government money spent on health care on a per capita basis and as a percent of GDP than in Canada. The U.S. has higher levels of defence spending than in Canada. In fact it's not a spending question at all. We spend a lot more in Canada on our debt, because as a percent of GDP our net debt is about 61% in Canada, as opposed to 41% in the U.S.

It occurred to me, when you were speaking earlier with a certain nostalgic glint in your eye about the 1970s and about returning to those periods when Canadians could see a relationship between their taxes and services, that the best way to get there may be to reduce debt and get back to the position that Canadians were in at that time, when government spending had a correlation with taxes. But keep in mind that in 1970 the net debt as a percent of GDP was 11% in Canada and 29% in the U.S.

So the logical corollary of what you've said is that we should really focus on debt reduction and get back to that position where we would have that kind of flexibility again.

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Mr. Andrew Jackson: I'm not sure it's that I'm so much nostalgic for the 1960s and 1970s per se. I would just make the observation that if we look at the whole period of the 1950s, the 1960s, and through to the mid-1970s, we did go through a period of very fast economic growth in Canada, rising incomes for Canadians, and growth of public and social services. We should all agree that we want to get back to that kind of world, in which both private consumption and public consumption can increase. That's all I meant to say.

You're correct. We are at a different starting point as of right now, and the accumulated public debt is consuming a much larger share of current resources than in that earlier period. I would just quickly insert the thought that I would place an enormous share of the blame for that on John Crow and the monetary policy we had at the end of the 1980s. In shorthand, what led to the debt problem wasn't overspending on programs; it was the recession in the real economy and the collapse in growth.

Just to throw out one number, at the end of the 1990s, we're going to be very lucky if we have per capita income growth in Canada that matches the 1930s. It has been by far the lowest decade of economic growth we've had in more than one generation.

Clearly the accumulated public debt is a problem. I will agree with that. In the argument we were putting earlier, we should have perhaps been focusing more on, not that deficits didn't matter, but that deficits were the result of poor economic policies.

The proposition I would make is, on all these projections, if we simply balance the budget, the debt will fall quite significantly as a share of GDP over the coming number of years. And just to be clear, we are not, as the CLC, and we haven't in the alternative budget, been calling for a resort to deficit financing, except as might be justified by a full-blown recession. We're all in the world of talking about how we allocate surpluses. We're certainly not advocating a return to deficit spending. That does mean debt will fall, and it's extremely important that that should happen.

Mr. Scott Brison: Would you advocate the monetary policy we've seen since 1993, which has, in conjunction with the fiscal policy, resulted in a 10¢ loss in the value of our dollar relative to the U.S.? There was a penny loss in the value of our Canadian currency during the Mulroney years, and since 1993 there's been a 10¢ loss. I would remind you of that.

I expect you're probably an economic sovereigntist, and this low dollar policy, which is this monetary policy that is used to compensate for our high tax and high debt policies, is resulting in a deterioration of our economic sovereignty. I would caution you in that regard. John Crow's monetary policies may not be as bad as you're indicating.

Mr. Andrew Jackson: What drives the value of the dollar is Canadian terms of trade and relative inflation rates vis-à-vis the United States. The Bank of Canada will tell you that is basically what drives the dollar. The depreciation was almost entirely due to what happened to commodity prices, and on balance, that was positive for us. So unless anybody's talking about adopting the U.S. dollar, we have a floating exchange rate, and that's what will drive—

The Chairman: Mr. d'Aquino would like to say a few things.

Mr. Thomas d'Aquino: Mr. Brison has put his finger on a very important indicator of what my colleagues and I call the Canada discount. Again, I ask you, I plead with you, to dispatch with the voodoo economics we've just heard from Mr. Jackson.

The fact of the matter is the dollar is weak in Canada today, and it has been in a secular decline for 22 years. That is due to the following. One, there is a linkage with commodities, but there's a linkage with debt, there's a linkage with taxes, and there's a linkage with the uncertainty that has been generated over the unity question. It is related to a variety of factors, including our innovation and productivity gap.

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The more quickly we wake up to the fact that these are gaps that have to be dealt with quickly, the more certain we can be that we're going to stop the alarming erosion of our head office base in Canada. The brain drain, which Mr. Jackson and his colleagues say does not exist, is a matter of great urgency. And Mr. Brison, you're quite correct, the dollar is a very powerful indicator of that illness.

The Chairman: Make this your final question, Mr. Brison.

Mr. Scott Brison: Mr. Jackson, you have indicated that any tax reduction that does not result in increasing the amount of money in the back pocket of an individual Canadian has no other benefits in terms of job creation, economic growth, or any of these other areas. In fact there's a substantive amount of information that indicates that reductions in capital gains tax and reductions in corporate tax rates result in significant levels of economic growth, which in fact results in more people joining the ranks of the employed.

You did acknowledge that the U.S. economy and economic growth is benefiting all Americans at this point and that a rising tide floats all boats. That was encouraging. But why would, for instance in Germany, a Social Democrat government reduce its corporate tax rates last year? We were the third-highest in terms of corporate tax rates in the OECD last year. This year we're second, because Germany has reduced their corporate tax rates. Do you think we can ignore corporate tax reform and reduction, in light of global trends and pressures and employment opportunities lost?

Mr. Andrew Jackson: On the corporate tax side, it's a very complicated set of issues obviously. I want to make two points.

The first point is, when you survey the literature—and I'm trying to pull together a paper on this now—there was a recent survey of the literature that the IMF did in a working paper, and also a recent survey by the OECD, so I'd be happy to pass those around.

Basically the burden of economic evidence shows that if you cut corporate tax rates, you will likely get some positive impacts on real investment, but they're very, very small. What emerges out of the literature is that a much, much stronger determinant of corporate investment is the growth rate in the economy. So I would argue that you simply can't divorce our depressed level of investment in Canada compared to the United States for most of the 1990s—and our rate of business investment has been a lot lower—from the fact that we had a much more slowly growing economy than the U.S. over that period.

The other point I'm trying to flag that emerges from the literature is if you're talking about impact on growth and productivity, high levels of public investment have a stronger impact than changes on the tax side.

Mr. Scott Brison: But if public investment could create more jobs than private economic growth, I would assert that in Atlantic Canada—and I represent a riding from Atlantic Canada—we would have four jobs per person, based on the levels of public investment.

Mr. Andrew Jackson: Let me give you a very concrete example—

Mr. Scott Brison: If we do return to some public investment, what about reinvesting more in health care? What about the national infrastucture that is crumbling, the highway system?

Mr. Andrew Jackson: Yes, sure.

Mr. Scott Brison: What about the farm prices? Some existing programs are being threatened. Before we embark on new investments in—

The Chairman: Mr. Brison, your question is well taken. Mr. Giroux will answer the other question, and then we'll go to Mr. Jackson and then Mr. Lunn.

Mr. Giroux.

Mr. Robert Giroux: I'm quite intrigued by this debate and the comparison with the United States. We seem to forget that when we compare the economic growth of the United States with that of Canada, the investments they have made in research, for example—and quite recently, as a result of many of the decisions of the Congress in terms of the extreme growth in health care research and in research in the humanities and in the sciences and engineering—have contributed quite greatly to the growth in the United States. in terms of post-secondary education only. While our rate of government contribution to post-secondary education in the past five years has been reduced by 10% if my numbers are right—and I think we pointed this out in our brief—in the United States, their contribution to their public institutions, not the private ones, has grown by 20% in terms of both state investments and federal investments.

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So again I want to emphasize that it's not a question of one versus the others, it's a question of a balanced investment in smart spending, or whatever you want to call it. That will provide or contribute to the growth, in addition to the fiscal incentives and to the tax incentives that can be put in place. It's not one or the other, it has to be both.

The Chairman: Mr. Jackson, we'll get your final comment, and then we'll go to Mr. Lunn and Mr. Loubier.

Mr. Andrew Jackson: Very quickly, I agree with the general drift of that, but let me just give a very concrete example of the relative contribution of tax measures and spending measures to growth.

Canada does have the most generous research and development tax credits in the world. I think people would generally concede that. They're certainly of a lot of use to companies like Northern Telecom. I think we could all agree that research and development expenditure is incredibly important, but I think the evidence....

There's a recent Industry Canada publication from Richard Lipsey of the Canadian Institute for Advanced Research, no friend of the Canadian Labour Congress in particular. He argues very strongly that those targeted Industry Canada programs, like Technology Partnerships Canada, have an extremely large impact. On our spending through the National Research Council, post-secondary research is incredibly important in terms of boosting our R and D effort.

There's a problem with tax breaks and tax cuts. If you give a general corporate tax cut, some of it is likely to end up in increased investment, in increased R and D, but some of it might just go to buying back shares, which is what a lot of American companies are doing these days. Some of it might just go to higher dividends. So you get some positive impacts on the tax break side, but the question is what the most intelligent use of a given amount of dollars is. I think there are a lot of publications and research materials from your own government that tell you those kinds of targeted investments make a hell of a lot of sense.

The Chairman: Thank you, Mr. Jackson.

Mr. Lunn.

Mr. Gary Lunn (Saanich—Gulf Islands, Ref.): Thank you, Mr. Chairman. I just have one question, and I would like to direct it to Mr. d'Aquino and also to Ms. Hughes Anthony, if I may.

I'm going to try to quote Mr. d'Aquino's presentation. I may not have it quite exactly, but I think you'll get the gist: We need to keep focus not on how to split the pie, but on how to keep the pie growing. I'm going to throw something else at you that I very passionately believe in: I don't think there should be a pie at all. And I'll focus on that.

You touched on the fact that we talked about an accumulative surplus of $95 billion in the next five years. I've always argued that's not the government's money. That's not our money, so it's not up to us to decide. That's the Canadian taxpayers money. And I've always argued that there should be a debt management plan, a vision, of how we are going to pay down this debt. There needs to be a line item in our budget, whether it's $5 billion or $7 billion a year or whatever it needs to be. If we need to put $3 billion more a year into health care spending or social transfers or whatever, that should be in our budget. If our budget's $145 billion, I don't have a problem with a $2 billion or $3 billion contingency fund. Let's not say we can get to zero.

But having said that, I think it's as wrong for a government to credit deficits each year as it is to create surpluses. There should not be a $95 billion surplus. They're robbing the taxpayers of their money, and they really just want it back. It's not a surplus. I actually get quite frustrated when I hear this word “surplus” all the time.

I appreciate that we're probably asking for the net same result. It's that whole concept of no pie, but a line item in there, and having a vision. It's just like your mortgage and my mortgage. I have a vision that I'm trying to pay my own mortgage down in nine years. Everybody else has a debt management plan personally, but the government doesn't seem to have a vision beyond tomorrow. What are they going to do with the debt? We'll see how much money we have left over, and maybe, just maybe, we'll put a little bit on the debt. I have a huge problem with that philosophy. I think we need a long-term debt management plan and a vision. Those things need to be line items in the budget, and then that's how much money we collect from the taxpayer.

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I would just like your thoughts on that, and also those of Ms. Hughes Anthony. I apologize for not being able to listen to the answer, but I have to go speak in the House. My colleague Mr. Schmidt is going to give me a very detailed briefing of your answers.

Mr. Werner Schmidt (Kelowna, Ref.): I'll also follow up his question.

The Chairman: What's your definition of the pie, Mr. d'Aquino?

Mr. Thomas d'Aquino: I think Mr. Lunn makes a very important point. We really have gotten ourselves into this idea that there is this great big, huge surplus out there.

Mr. Chairman, when I look at the U.S. stock market, which is defying gravity in the most extraordinary of ways, and when I look at a lot of the uncertainty that there continues to be in the global arena and all the euphoria that is surrounding it, I worry enormously about these projections of surplus and trying to build plans now. There are some people who would literally commit most of that on the spending side on the assumption that the $95 billion is there. Surely we have learned in the last 20 to 25 years, when have seen this enormous, disastrous run-up in deficits, which have been enormously costly, that you can't make those projections. Therefore prudence is very important.

So I would say, firstly, that prudence is critical when we are talking about a surplus.

Secondly, Mr. Chairman, a surplus of $95 billion projected against the reality of over $600 billion in debt, by my definition and by my arithmetical equation, is not a surplus at all. It does not exist. It is not there. It is not there to spend. That is the second reason I respond very warmly to this suggestion that we should be careful about the pie.

When I use the analogy of the pie, I'm talking about the total GDP of Canada. Our efforts collectively must be to grow that GDP as fast as we possibly can, not at rates of 1% and 2%, but at rates of 3%, 4% and 5% if we can. That would be by far the most powerful stimulant. That would put in the most amount of water to raise the greatest number of boats.

Finally, the other reason we should not be talking so cavalierly about that surplus as something that belongs to governments is that it belongs to the people of Canada. That money is theirs. They worked hard for it. A lot of them, the vast majority of them, have not seen any—any!—appreciation in their disposable income in the last 10 to 15 years.

So those are four reasons I think a very careful definition of the pie is highly desirable.

The Chairman: Thank you, Mr. d'Aquino.

Ms. Hughes Anthony.

Ms. Nancy Hughes Anthony: Just to add a few points to that, I certainly agree with the comment that has been raised. Obviously the member of Parliament is speaking to chamber of commerce members in his riding. Many of the chamber members just consider the surplus to be overtaxation. They just say you've collected this much money, and you're spending that much. Well, don't spend up to amount, give it back to us. They see it very clearly as overtaxation.

I have to say that the employment insurance surplus—which, as we know, does go into general revenues—continues to be an issue. Many Canadians don't understand why we are overtaxing on employment insurance. This is something that clearly needs to come back into the pockets of Canadians through personal taxes or through reductions in premiums.

But I think it would also echo a point that has been raised. It's very important not to think we have $95 billion in some bag someplace, and that we can give out a whole bunch of programs now because eventually we'll get our taxes returned four or five years down the line. It doesn't exist. So I think your challenge as a committee is to come up with recommendations that are very concrete and that take into consideration things like the fact that 26¢ on every single dollar that we pay as taxpayers goes to the debt. That is an issue that must be dealt with right now.

I would just conclude by saying that we feel the best way to go is to put that debt reduction plan on a very systematic footing, and then return the rest to Canadian taxpayers.

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The Chairman: Ms. Scott.

Ms. Katherine Scott (Senior Policy Associate, Canadian Council on Social Development): Thank you. I just wanted to hop into this question.

I'm really struck by the fact that we've become a nation of taxpayers. We're no longer Canadian citizens who are interested in actually investing in the collectivity and in helping create a society in which people are included, but we're exclusively individual or are individual families or corporations struggling at our meanest and lowest level to try to grub along in some fashion. It's distressing. It's completely distressing.

I do believe we can approach this in an equitable, humane fashion that is economically sensible. We can balance these measures. If anything is the Canadian way, it's certainly a balanced approach, however we define it. This idea that Canadians are just sitting hovelled in their homes and awaiting their tax cheques to come is appalling.

I really strongly urge the committee to look at a variety of measures that would include tax relief for low-income Canadians, and tax reform and greater progressivity that would inspire financial growth and would reflect key investments, particularly in children and families who have struggled through this past decade. Kids can't wait any more. It's not like the business cycle's going to turn around and the kids who were living in poverty for two years and had lousy food for two years are going to suddenly recant and make back that time. This is the responsibility of government. Step up to the plate.

I'm sorry, I feel I had to say something. I thought this whole discussion was being driven or collapsed down into some bizarre, sterile assessment of who's getting what tax rebate. It's offensive to Canadian citizens. That's what we're here to talk about: citizens.

The Chairman: Thank you.

Mr. d'Aquino.

Mr. Thomas d'Aquino: Mr. Chairman, this is just a very quick comment, because I think Katherine Scott has her finger on an issue that is so important, but which I think is also the source of the great divide in the country.

I have always argued that the whole purpose of economic development is obviously to generate a better standard of living for all Canadians. If you start from that premise, it is very important that we have growth to do that. It is very important that we have innovation to do that. It is very important that we have all those elements of growth that in fact allow not just Canadians as a humane society but any society to be able to generate a better standard of living. That should be the cornerstone. There should be no doubt in our minds of what we're talking about here.

The issues of economic growth and social equity are inextricably linked. There should be no question in anybody's mind about that fact. What is really being debated here is whether or not we are prepared to give to those whom we elect unbridled discretion—which they have to a large extent in a parliamentary system—to spend moneys in any way they choose if the allocation of those moneys leads to a poorer social climate rather than a better one?

I suggest to her and to you that $41 billion in interest on debt is the greatest, most catastrophic blow against equity in this country that we've ever seen. And who did that? The citizens? The taxpayers? No, it was governments that did that. That is why we have to be very careful in this definition.

The Chairman: Mr. Loubier.

[Translation]

Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): Mr. Chairman, I would like Mr. d'Aquino to be a little more specific about his intentions. Every year, when he appears before the committee, we get the feeling that he is keeping back from the ongoing debate, that he is seeing it from the outside, as it were. His suggestions apply to everyone, except the people he represents. This is demonstrated by the comments he made just now about the fall of the Canadian dollar. He mentioned the uncertainty generated by those evil separatists in Quebec.

I would like to give him a lecture on basic economics. The Canadian dollar has been losing a cent a year for the past 30 years. If he looked in his own backyard rather than debating things that have nothing to do with reality, he would have seen that the drop is primarily caused by the productivity gap between Canadian businesses and the businesses in other countries, particularly the U.S.. For 30 years, the people he represents have been making no effort to increase their productivity. We should perhaps question that. And there is something else we should mention: when the Canadian dollar lost several cents in just a few days two years ago, that drop was caused by 10 major world speculators, none of which were Quebec separatists.

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There is another point I would like you to comment on, another point on which I feel you may be divorced from reality. You talk about the debt, the deficit we used to have and the problem of servicing the debt, which currently stands at $45 billion. Yet you fail to mention one problem raised by many other people for years now: your members' indefinitely deferred taxes. Major, highly profitable corporations owe the federal government approximately $45 billion—about the same as the interest on the debt taxpayers have to fork out.

So when you defer your taxes indefinitely—and some of your members have gone so far as to publicly state they will never pay them—other taxpayers and individuals have to dig into their own pockets to compensate for that loss of revenue. I would to hear your comments on this.

I would particularly like you to state the real facts about the drop in the Canadian dollar, and about your members' failure to pay their taxes. Those are things I would really enjoy hearing.

The Chairman: Mr. d'Aquino.

Mr. Thomas d'Aquino: I will answer Mr. Loubier's question, Mr. Chairman. I know he is an economist, and am therefore somewhat surprised by the analysis he is putting forward here.

[English]

Mr. Loubier, first of all, “evil separatists” were your words, not mine. I did not refer to the separatists as evil. They may be misguided, but not evil.

When I made mention of the Canada discount, I said there were a number of contributing factors: the commodity cycle, deficits, debt, high levels of taxation, and I also mentioned the uncertainty that members of your party and the Government of Quebec have injected into the national debate in this country for quite some time now, despite the repeated preferences of both the people of Quebec and the people of Canada otherwise. That is a reality. It is undeniable.

There are times when it is a bigger issue and times when it is a lesser issue, but in all the work we do, it is demonstrably clear that the issue of uncertainty because of the indépendantiste desires and aspirations of a minority of Quebeckers is a factor. That's the first point.

Secondly, I'm amazed that an individual such as you, who knows that Quebec is the home to some of the most productive corporations in Canada—I name Bombardier for starters, Alcan, Nortel, and one can continue down the list of some very profitable and very productive corporations—should say that the productivity record of particularly the people I represent is poor. I would suggest to you that the productivity record of the leading companies in Canada, the largest companies in Canada, is in fact the best in the country and among the best in the world. As an economist, you should know that.

Thirdly, on the issue of deferred taxes, you should also know as an economist that Canada is no different from most other countries in allowing corporations that lose money to be able to carry those losses forward. What are you suggesting they do, pay taxes in years they lose money? Obviously not. The idea of being able to carry tax losses forward—

[Translation]

Mr. Yvan Loubier: Forgive me, Mr. d'Aquino, but you said something I find quite unacceptable. We now have the list of corporations that deferred their taxes, and have owed taxes for several years now: 80% of them are major, highly profitable corporations who have been paying almost no taxes for many years. We are not talking about carrying tax losses forward. Under the current tax laws, we can defer taxes annually when we invest, we can carry them forward for a number of years. That policy, in conjunction with accelerated write-off provisions, makes it possible to go for 12, 15 or even 20 years without paying any taxes. At present, corporations like those you represent owe the federal government some $40 to $45 billion, or about the same amount it takes to service the debt.

If you deny these facts, there is a problem somewhere. In any case, I can provide you with a list of these corporations. If you don't have this information, I would be very happy to provide it.

Mr. Thomas d'Aquino: Mr. Chairman, I will be very happy to have that list.

Mr. Yvan Loubier: I will be sure to send it.

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[English]

Mr. Thomas d'Aquino: I can tell you this quite clearly. We live in a country where.... These were your words; you said there are companies that will not pay their taxes. Well, I'd like to know which companies those are, because in this country—

[Translation]

Mr. Yvan Loubier: I will give you the names of these companies.

[English]

Mr. Thomas d'Aquino: Mr. Loubier, in this country in which we live, my understanding and my experience is that if there are taxes owing and you don't pay them, you can go to jail.

Again, with respect, you're confusing the issue. When you talk about companies that are profitable, you're talking about companies that may be profitable this year, but what about the losses they may have had seven or eight years in a row prior to that? What you have to do is average these forward, and that is something for which the system allows. The alternative to that is to put companies out of business and to create even higher unemployment, which I'm sure is something you would not want.

[Translation]

Mr. Yvan Loubier: Shouldn't these companies be paying their taxes, just like the individuals who have had a crushing tax burden since 1993, and who have also been affected by bracket creep? First, pay your taxes like everyone else, then talk about allocating surpluses and giving everyone tax cuts. At this point, other taxpayers are making up the shortfall because you are not paying your taxes. That is all I'm saying.

I will gladly send you the list, which I will table right here at the Finance Committee.

[English]

The Chairman: Thank you.

Mr. Pillitteri.

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

After so much debate, I don't think much is left to ask in questions, but I do have a question.

Ms. Scott mentioned a while ago that this is not the Canadian way, that we should be looking at returns to taxpayers, how much they want to get back. Let me ask a question, if this is not the Canadian way.

In Canada we have equalization payments and transfer payments. As I understand, in the last couple of years the growth in the Canadian economy has basically been in the province of Ontario, at some 5% to 6%, and in the province of Alberta, in the same amount. If we take a look at the population sector, at what Ontario has and what Alberta has and the growth that has occurred, it leaves no room in any other provinces that haven't had any growth.... Isn't this a Canadian way, that these provinces have done better economically and have spread the wealth into the rest of the country?

That's one question I would like to ask you, if this isn't a Canadian way. If we take a look at economic growth, where has economic growth occurred to split this pie? It has occurred only in certain regions. Where we benefit is through the gross domestic product and surpluses with our trading partner, the United States. There have been five or six sectors—the automotive sector, the telecommunications industry, Bombardier, and others. All the rest of the economy has not grown in Canada. So that's one part.

To Mr. Loubier—and I just want to get in to Mr. d'Aquino here that I have the blessing that I'm neither an economist nor hugely representing big businesses—when I file my income tax, being a small businessman, I ask my accountant, what is a tax deferral? He tells me, simply, you have to pay, let's say, $1,000 income tax, but if you invest this in a company or back in your company, create more wealth, create more jobs, it's called a tax deferral. I want to know, in which other way do you mean these companies don't pay taxes? This is how it was explained to me, that a tax deferral is an investment through an economic factor where one grows and one is able to provide more jobs.

The Chairman: I guess that was a comment.

Mr. Gary Pillitteri: And there's a question.

The Chairman: Ms. Scott, there was a question.

Ms. Katherine Scott: I'm sorry, I'm not particularly sure.... Was the question whether it wasn't the Canadian way to redistribute the economic gains of certain parts of the country to other parts of the country?

Mr. Gary Pillitteri: It's redistributed throughout the country.

Ms. Katherine Scott: Oh, absolutely. Equalization has been a long feature of the Canadian federation, and certainly we don't not support equalization and those sorts of things. In fact—correct me if I'm wrong—it's entrenched in the Constitution. So we certainly don't argue that there shouldn't be equalization payments.

It's a historical fact that the Canadian economy has developed the way it has and that key areas have key historical advantages within them. I completely agree that growth is concentrated in very particular sectors, such as autos and the like. Historically, the growth in Alberta has certainly been predicated on commodity extraction and refinement. I'm not disagreeing. I do believe we should be involved in redistributive efforts to make sure all Canadians enjoy the same network of services and transfers and that they aspire to and can achieve a similar standard of living wherever they live in the country.

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Mr. Gary Pillitteri: Mr. Chairman, maybe I didn't make myself very clear. Those individuals who create that wealth, don't you think they should have a tax cut? That's the only thing I forgot to say in my equation.

Ms. Katherine Scott: I'd have to say that the individuals in Canada who create wealth certainly do enjoy the benefits of their wealth, and I would hope that wealth is reinvested in Canada. My point is that we all live in communities, and people aren't individually extracting wealth themselves. They're part of a business or what not that is located in communities that have workers, families, and the like. I don't think it's ever coming down to the fact that one individual is extracting wealth and should exclusively enjoy the benefits of that. I believe that type of wealth should be shared with the community.

I'm not against the regulatory rules that say the limit of foreign content of RRSPs is 20%, but that's the same type of principle. One would assume that if you're going to authorize a tax expenditure of that magnitude—and we are talking about the largest tax expenditure program in the country—it's not untoward for the Government of Canada, which is providing that massive tax expenditure to selected taxpayers, to require that they contribute those types of benefits to the communities within which they live and work. I think that's perfectly equitable.

Mr. Gary Pillitteri: Just to be clear, the $5 billion in tax cuts they were asking for only amounts to $400 per tax filer in Canada.

Dr. Dale Orr: It's under $200 per person.

Mr. Gary Pillitteri: It's $400 per tax filer.

The Chairman: We went overtime with this particular panel because it was, I think, a very interesting one. They will not be taxed for overtime, by the way, so don't worry about it.

I want to express to you our sincerest gratitude. You've all come at this from different perspectives, but I think there is common ground, and that is that all of you want to improve the standard of living for Canadians. You may express yourselves in different ways, but I think that's the bottom line.

That's also the bottom line of this particular committee. We're going to strive to make the types of recommendations that will generate the economic growth required to sustain the types of programs that are in fact helping people.

One thing I do want to tell you as chair of the committee is that we're going to have to make recommendations based on a five-year plan. Quite frankly, we simply can't be guided by the 50-50 split, because things have changed quite a bit. I think it's not the 50-50 split that should guide our recommendations. What should guide our recommendations is what makes sense to the people of Canada. What is going to be the best public policy for the people of Canada that they will benefit from? Of course I will discuss this with the committee members, but I think we should not be tied down to any formula. As a matter of fact, the debate should be as open as possible and should entertain as many alternatives as possible, keeping in mind that we do have to generate the type of economic growth that will speak to improving the standard of living for Canadians.

I think you've added great value to this debate, and on behalf of the committee, I want to thank you.

The meeting is adjourned.