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[Recorded by Electronic Apparatus]

Thursday, September 27, 2001

• 0934


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

The finance committee is proceeding with its pre-budget consultation. We have the pleasure of having with us representatives from the following organizations: the Association of Fundraising Professionals, the National Council of Women of Canada, the National Task Force to Promote Employer-Provided Tax-Exempt Transit Benefits, and the Canadian Conference of the Arts.

Many of you have appeared in front of this committee before, and you know how it functions. You have approximately five to seven minutes to make your introductory remarks; thereafter we'll engage in a question and answer session. For your convenience, if you want to find out when you will be speaking, please follow the agenda.

• 0935

We'll begin with the Association of Fundraising Professionals, followed of course by the National Council of Women of Canada, the National Task Force to Promote Employer-Provided Tax-Exempt Transit Benefits, and the Canadian Conference of the Arts.


Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): We are having a problem with interpretation.


The translation is not working.

The Chair: We have an option. We could suspend or we could continue. It's entirely up to you.

Mr. Yvan Loubier: To continue is no problem.

The Chair: To continue?

Mr. Yvan Loubier: Yes.

The Chair: What I just said is also found on the agenda. Basically, I was just announcing the names of the individuals and organizations that were present.

We'll begin with the chair of the board of the Hospital for Sick Children, Mr. James Pitblado, and Nicholas Offord, president of the foundation. Welcome, gentlemen.

Mr. Nicholas Offord (President, Mount Sinai Hospital Foundation of Toronto; Association of Fundraising Professionals): Thank you for the invitation to be here again. It's a great honour for us.

As you said, I'm the president of the Mount Sinai Hospital Foundation of Toronto. Today I'm representing the Association of Fundraising Professionals, an association of individuals responsible for generating philanthropic support for a wide variety of charitable causes.

Presenting with me is Mr. Jim Pitblado, former chair of RBC Dominion Securities, currently chair of the board of the Hospital for Sick Children Foundation, and, I should add, a winner of the philanthropist of the year award in the year 2000.

Our subject today is the current capital gains tax on gifts of qualified appreciated securities to charity.

First, I'll provide a bit of background on AFP. We're the largest association of our kind in the world. We have 25,000 members. In Canada there are 2,000 members. We represent every major charity in the country.

I'd like to begin by talking a bit about donors. For many years donors have approached charities wanting to contribute gifts of stock. Usually, though, the capital gains tax they would have had to pay on such transactions made any such gift impractical. In the 1997 budget, thanks in large part to the work of this committee, there was a provision that cut the capital gains tax on such gifts in half. The response to this provision has been tremendous throughout the sector.

However, in just the past two weeks I've received more than 50 letters from across the country from representatives of charities worried about the potential demise of this program and the potential loss of the many beneficial impacts this has had upon their organizations.

Why is this provision so powerful? People give because they want to give. It comes from the heart. But as gifts get bigger and as demands increase upon the charitable sector, research shows that tax incentives play a significant role in increasing the size of charitable contributions at all levels.

As I indicated, this provision is set to expire at the end of this year. We are here to ask, on behalf of charitable fundraisers and charities across the country, not only that the provision be continued but that the capital gains tax on gifts of stock to charity be completely eliminated.

Last year AFP, along with several other philanthropic organizations, retained Deloitte & Touche to perform a study on the effect of the provision on charities across Canada. We previously delivered the study to the finance committee as part of earlier comments, but I do want to make a couple of key points.

First, the study shows that no matter what kind of charity you are, no matter which part of the country you're in, and no matter what issue you work on—libraries, universities, hospitals, family service centres, religious organizations, or aid organizations—the capital gains tax cut has helped increase philanthropy across the board.

• 0940

Second, the study shows that expanding the provision to completely eliminate the capital gains tax on gifts of stock would further increase giving dramatically. Frankly, the study shows impressive giving increases despite the fact that many charities that are primarily volunteer organizations are still getting the message out about this provision. The potential for increased giving is tremendous.

There is clearly a move to make the charitable sector in Canada more independent and self-sustainable. Increased philanthropy, private giving, is a way of accomplishing that. The more charities can rely on gifts from private citizens, the less government has to fund them.

Eliminating the capital gains tax on gifts of stock to charity will accomplish that. The policy is affordable, it's sound, it's proven to work, and as far as we know it has the support of all opposition parties.

Now I'd like to introduce Jim Pitblado.

Mr. James Pitblado (Chair of the Board, Hospital for Sick Children Foundation; Association of Fundraising Professionals): Thank you, Nicholas.

Let me add my voice of congratulations to this committee for the action they took five years ago and the recommendation they made at that time. All I can say is well done.

In appearing before the committee then I made two points and I think they're still valid today. Is it sound public practice to create an impediment to Canadian taxpayers who wish to donate to worthy charitable causes? Is it sound public practice to impose a tax on someone who wants to give away part of his or her assets?

Secondly, is it sound public practice to put Canadian donors at a disadvantage to their counterparts in the United States and subsequently the United Kingdom as well and accordingly to disadvantage worthy charities in the fields of education, health, arts or community service? Is that sound public policy?

I submitted at the time that neither one of those two were sound public policy. This committee agreed, and I make the same arguments today.

Nicholas has referred to the Deloitte study. It was an impartial study done right across the spectrum, and for those of us who deal in numbers it was quite outstanding that in three years the number of gifts of securities increased 22 times. The dollar value increased 19 times, and from representing less than 1% of a charity's donations on average it increased to 11%, 12 times. Those are astonishing numbers. They show that both large and small charities benefited. They show that charities right across the country, national, regional, and local, benefited.

In short, the criteria that were established by the minister on which to judge the effectiveness of the measure were clearly met.

This has occurred with a measure that I characterize as a halfway measure, which I guess is typically Canadian—we'll go halfway. We didn't leave the tax on and we didn't eliminate it. We went to 50%.

So I urge this committee to reinforce the recommendation they made five years ago and build on the successes to date by, one, extending indefinitely the tax treatment of gifts of appreciated securities, and, two, eliminating entirely the existing 50% tax on capital gains. In other words, as my compatriot and friend, Don Johnson says, let's finish the job. I submit that's good public policy.

The record is clear. There have been no abuses of the provision. There aren't any loopholes that have to be closed. It has resulted in significantly more gifts, larger gifts, broadly distributed across charities in all lines of endeavour.

It's vitally important that the community know this government's position shortly. The current provision sunsets in just three months, on December 31. Gifts of assets by donors are often done on a multi-year basis. They're not coming out of current income, they're assets. Significant pledges are outstanding, covering donations next year and in the years beyond. Donors need certainty so that they can do appropriate financial planning.

• 0945

So, as a donor, as a volunteer in the charitable sector and representing a number of recipient charities that have benefited, I urge this committee to recommend extending the provision and eliminating the tax now or extending this provision now and eliminating the tax later in the next budget. The extension of the policy is urgently required and it's imminent.

One thing I can assure you is that if the measure is not extended there will be a dramatic decline in new gifts of securities, with a significant adverse impact on the charitable sector right across this country.

Thank you.

The Chair: Thank you, Mr. Pitblado and Mr. Offord.

We'll now proceed to hear from the National Council of Women of Canada, Shirley Browne, vice president, and Maria Neil, convenor of economics.


Ms. Shirley Browne (Vice-President, National Council of Women of Canada): Thank you, and good morning.

The National Council of Women of Canada appreciates this opportunity to present to the House of Commons Standing Committee on Finance our concerns and priorities for the economic issues affecting women, and directly their children, families, communities, and society.

Founded in 1893, the council is the oldest and largest women's group in Canada. It's a non-profit, non-partisan, federated organization of women's groups representing a large number of citizens of diverse occupation, language, origin, and culture. It's composed of 20 local councils, five provincial councils, two study groups, and 27 nationally organized societies.

They were honoured during their centennial year to receive the citizenship award for education, action, and advocacy during those 100 years.

National council policy originates almost entirely by means of local grassroots council initiatives and convenors. Policy additions and changes are proposed, circulated, and voted upon by the general membership across the country. Council members may speak only on approved policy when contacting government, the media, and the public. Thus, this brief is the united voice of the federated membership of the National Council of Women of Canada.

They enjoy consultative status with the Economic and Social Council of the United Nations, and, in addition, the council is a federated member of the International Council of Women, similarly a non-government organization holding consultative status with ECOSOC. ICW is composed of national councils in 74 countries, bringing together women of many races, creeds, and cultural traditions.

Before I introduce my colleague, Maria Neil, I want to say this brief was prepared before the tragic events of September 11. As no one can be sure of the eventual outcome or the eventual costs that we all may have to bare as a result, NCW still stands by the policy principles of which this brief is based. Further, NCWC wishes to remind the government that gender-based analysis should be used if new directions and measures are necessary in order to ensure that the costs are borne equally by all Canadians and not just on the backs of the poorest people.

In preparation of this brief, the national council has addressed the following three primary themes requested by the Standing Committee on Finance: one, ensure that Canada remains a major player in the new economy; two, provide all Canadians with equal opportunity to succeed; and, three, create an economic and social environment where all Canadians can enjoy the best quality of life and standard of living.

I would also like to commend the government on its renewed interest in the housing issues following the August conference—especially as they relate to the homeless people across this country.

Thank you.


• 0950

Ms. Maria Neil (Convenor of Economics, National Council of Women of Canada): Thank you, Shirley. And good morning, everybody.

We are concerned of course with the role of globalization in the economy, particularly as it affects our deficit or our benefits, our surplus. Even though we are headed, particularly after the last few weeks, for some degree of lower increase in our surplus, we still expect a surplus, according to the latest figures, showing a growth of 2%, which is certainly not recession as we understand it at the moment. So we still expect some surplus to be distributed.

The Council of Women is very strong on the distribution of whatever surplus there is. We want to see the deficit paid down, because that obviously gives us more money to spend in the future. Also, we do want a good proportion—we like to say a 50-50 split—between paying down the deficit and paying benefits to people who are less fortunate at the lower end.

We live in an era of mobile capital and of massive holdings by corporations. Global firms so often control and coordinate worldwide centres of production for their products. This style of global production and marketing requires governments to play an important role, in the attempt to retain a degree of national sovereignty. Council policy is very strong on this point of retaining national sovereignty. However, we can and do realize that this entails working very closely with the provinces and the territories, and particularly with Quebec, whose programs are often different from the rest of the provincial programs.

Canada's social programs have been suffering from cuts in government spending and from changes caused by deregulation. It is often the transnationals' job to assume the mandates and service deliveries previously funded by government, acting as the taxpayers' agent. We would like as little of this as possible. Our policy is very strong on this: we do not like taxpayers' money going to private corporations. Women fear these changes will threaten their security, especially older women—and we're all getting there.

Women question whether gender-based analysis... As Shirley mentioned, we are quite determined to try to encourage the government, through the finance committee, to establish some gender-based analysis and statistics for whatever new programs are established.

I'm not going to read all this brief. It's far too long. I just wrote it for educational purposes largely. But I will tackle the recommendations.

Globalization affects our programs within Canada as well as our programs abroad—and I'm thinking particularly there of CIDA and IDRC. We would like the moneys given to those institutions retained, as well as those to many other NGOs that are funded through CIDA and other organizations.

We do want to encourage investment in new business through government measures, particularly in small ventures where so much of the growth takes place.

In our brief to comment on Bill C-8 we recommended increasing control over banks both at home and, as much as possible, abroad when their efforts occur within our country. We want to set long-range policy to stimulate the economy and continue to invest in research and development, particularly in technology where we do seem to have some expertise in this country.

We are very strong in wanting protection for health and social programs and environmental programs. We do commend the finance minister on establishing the statistical index for environmental measures within the GDP.

• 0955

I've already covered CIDA and IDRC. Their practices abroad touching labour issues comprise a very big concern of our policy. We work with various groups who are concerned with the labour conditions in other countries—particularly in Latin America—and the way in which many women abroad have to work in what I call sweat shops. We want our own government encouraged to work to retain what we consider in Canada as fair labour practices, not to diminish the level of health and safety here, and to encourage the retention of these measures abroad.

Concerning opportunities to succeed for Canadians, we again want small grants to those on welfare for assistance in job-hunting. If you're already poor and unemployed, it's very difficult to carry out any job searches. You don't have money for transportation or a computer to do searches. You can go to search places—libraries and employment shops—but it is not easy to present yourself for a job interview or even to get that far. So we would like to see some grant mechanism for the unemployed, if they are eager to search for a job. We want training opportunities, of course, for the unemployed.

In our section on poverty, we have a policy to oppose the clawback in certain provinces. The provinces differ considerably in this area across the country; that is all explained in my brief. In that area we recommend that the government make no more cuts in income taxes for upper-income earners, but invest in income maintenance programs for the poor and working poor, and particularly work in conjunction with the provinces and territories.

Whereas in the seventies benefits tended to be called negative income tax, particularly in the U.S.—there were some studies done on this—we tend to use a more positive set of words and call them benefits. We certainly want increased benefits for children and their families living in poverty.

We did look up how we arrived at these almost buzzwords, as they've become—“children in poverty”. Of course it was great to have the child benefits program, but we must be aware that children are poor only if their families are poor. So we want family benefits, and we want the level at which income tax begins raised.

We would like help for mothers in poor families. The paid work of mothers is essential to getting children out of poverty. Of course, this problem goes along with the lack of child care. We do still press for a national child care program.

So we want more of the surplus to go to the plight of poor Canadians, particularly women, and we want further tax cuts and benefits to those who earn very little. We've got the very poor and the working poor, and they both need help.

Homelessness is still a problem despite the recent amounts that have been given. We need money for repairing houses as well as for building new houses. As for education at all levels, the statistics still show us that education is the key to escaping poverty.

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The other aspect of opportunities for Canadians is health. We do want a strong health care system for Canada. We want this retained. We do not want any more taxpayers' money, if any at all, spent for private industry in home care or in hospitals.

That brings me to the final point about gender equality indicators. We would like to see far more emphasis on this be recommended by the finance committee to Mr. Martin. We would like taken into account that very often when pension programs are planned, it is women, and their particular lives, who are not always taken into account. They are still the major caregivers in the home, even if they have partners. There is plenty in the literature, particularly from Status of Women Canada, on how to do this and on the programs that need to be investigated.

So with that, I will expect your questions later. Thank you.

The Chair: Thank you very much, Ms. Neil, Ms. Browne.

We'll now hear from the National Task Force to Promote Employer-Provided Tax-Exempt Transit Benefits, Donna-Lynn Ahee and Amelia Shaw.

Ms. Amelia Shaw (Manager, Public Affairs, Canadian Urban Transit Association; National Task Force to Promote Employer-Provided Tax-Exempt Transit Benefits): I am sure most of the members of this committee are already familiar with the acronym TEI, which we will use when we refer to the tax exempt initiative.

I would like to begin by giving a brief overview of the current status of public transit in Canada, then a description of TEI and the impact that is expected from this initiative. I am particularly pleased with the theme of this year's pre-budget consultation. I believe that TEI fits in very well with this committee's stated objectives, which are to ensure Canada remains a major player in the new economy, to provide Canadians with equal opportunity to succeed, and to create a socio-economic environment where Canadians can enjoy the very best quality of life and standard of living.

Very little changed last year in terms of government support and investment in public transit systems. The result is that public transit is expected to deliver better service without the necessary permanent funding investments or strategies in place to support the system. The good news is that despite suitable funding, public transit across Canada has been experiencing steady growth since 1999. The bad news is that much more needs to be done if public transit is to fulfil its mandate to significantly reduce congestion and improve quality of life in our urban communities. TEI has not yet been implemented despite continued support from many sectors and despite this government's stated support for this initiative.

What is TEI? We are asking this committee to recommend the federal government amend the Income Tax Act to make employer-provided transit benefits income tax exempt. We are asking for this amendment in order to address some of the current inequities that discourage public transit use. Parking and transit benefits are both designated as taxable income, although exemptions exist that allow many employers to give their employees free parking, income tax free. While the Canada Customs and Revenue Agency states it cannot identify the extent to which Canadians avoid paying tax on free parking, surveys show that free or subsidized parking is a common benefit provided to approximately 80% of auto commuters. Employer-provided transit benefits, however, are rare.

Most commuters compare only the operational costs of using a vehicle, that is gas and parking, to the cost of using transit. Employer-provided parking becomes a significant financial incentive to drive. Workers receiving free parking save on average $1,280 per year. This incentive increases to approximately $1,776 annually if income tax is not charged.

One way to compete with free parking is to change the way public transit benefits are taxed. A tax exemption gives employers the financial incentive to offer transit benefits to employees. A transit benefit provides an equitable benefit for non-drivers, as well as a motivation for drivers to switch to a mode of transportation with lower societal costs.

In the United States, where employers are allowed to provide transit benefits to their employees income tax free, TEI has become the single most important transportation demand action, resulting in significant increases in new ridership. Improvements in the 1998 Transportation Equity Act for the 21st century currently allow employers to provide up to $100 per month in non-taxable transit benefits and for employees to purchase these benefits themselves in pre-tax income.

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A continual expansion of employers interested in participating in this program has occurred with ridership growth setting a post world war record in 1999. In the past five years, total transit ridership in the United States has increased by more than 20%.

Conversely, at a Johnson & Johnson factory in Yorkshire, Great Britain, a decision was made to begin taxing existing employer-provided transit benefits. This change in tax policy played a significant role in creating a negative transit use spiral that led to a massive collapse in use by staff.

On the expected impact of TEI, I would just like to spend a minute reflecting on who would benefit if TEI were implemented. TEI is a very important strategy for all levels of government—municipal, provincial, and federal—as well as for individual Canadians and businesses. The increasing numbers of cars on the road and the kilometres these vehicles are driven have overwhelmed technological advances such as cleaner fuels and more efficient engines.

Reducing auto use should be a key strategy of the federal government to improve air quality and to counteract climate change by reducing greenhouse gas emissions. Increased transit use results in decreased traffic congestion. Decreased traffic congestion reduces the amount of smog to which we are subjected. As a preventative health measure, lessening pollution will reduce the incidence of respiratory and cardiac illness, with fewer emergency room and physician visits. This is an especially important benefit to our children and elderly family members, who are much more susceptible to pollution-related illnesses.

On a monetary level, reduced pollution-related health care leaves our provincial governments with more resources to divert to other pressing health care issues such as home care for our aging population.

Reducing auto use or the rate at which auto use is rising also reduces the need for expanding auto-related infrastructure. Municipalities across Canada are struggling to cope with increased transportation demand. Investing in public transit is a less expensive alternative to building new roads, bridges, and parking facilities. For example, here in Ottawa the transitway carries the equivalent of eight lanes of Queensway traffic each rush hour.

Congestion is a major concern of urban centres. It's impacting the competitiveness of business. Toronto estimates their cost of congestion to be approximately $2 billion annually, yet decreasing auto use by a mere 5% would decrease congestion by 50%.

Increased transit use gives transit properties the flexibility to provide better transit service. This is extremely important to all members of our society. It provides equal access to jobs and educational opportunities. It also relieves some of the pressure on transit properties to reduce subsidized fares to seniors and students.

All these benefits have a positive impact on our economy. As taxpayers, we simply can no longer afford to support unlimited increases in automobile use. As part of the national climate change process, a cost-benefit analysis of TEI was completed. This report by IBI Group on management of technology services estimates transit increases of up to 50% among participating employees, with a resulting decrease in auto commuting of up to 7.5%.

Of particular interest to the federal government should be the estimates of greenhouse gas reductions of up to 4.8%, depending on the type of legislation enacted.

As taxpayers, we are interested in the estimated societal savings of $3 for each dollar invested in TEI. We all represent only one taxpayer, so any initiative that costs money at one level of government but results in overall savings at another level of government is a sound investment.

Support for this initiative continues to grow. This committee has heard submissions supporting TEI from the Pollution Probe Foundation, the Federation of Canadian Municipalities, Physicians for Global Survival, the David Suzuki Foundation, the Canadian Labour Congress, and the Ontario Coalition of Senior Citizens' Organizations. These are but a few examples of the many health, social, labour, transit, political, and environment organizations across Canada that support TEI.

A 1999 Environics poll found that 73% of Canadians are in favour of this change in income tax legislation. Political support for TEI remains high. Many members of this committee participated in the three one-hour debates over Motion 360, a private member's motion brought forward by Nelson Riis, which was overwhelmingly endorsed in the House of Commons by a margin of 240 to 25.

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Finance Minister Paul Martin, in recent meetings with the National Round Table on the Environment and the Economy, has indicated his interest in ecological fiscal reform. TEI is a perfect example of using fiscal reforms to encourage more responsible and sustainable care of our environment.

I would now like to turn this presentation over to my colleague, Donna-Lynn Ahee.

Ms. Donna-Lynn Ahee (Project Manager, National Task Force to Promote Employer-Provided Tax-Exempt Transit Benefits): Good morning.

I'd like to review the impact of TEI on the business community and then discuss some of the concerns still being raised within the finance department.

Businesses to date have been quite supportive of this measure. The Toronto Board of Trade, the Ottawa Board of Trade, and the Saskatoon Chamber of Commerce have all corresponded with the Hon. Paul Martin on several occasions regarding this issue. A survey was done in Vancouver that found that 75% of respondents were in favour of this change to the Income Tax Act. It's interesting to note that as this program has been expanding in the United States, both American Express and the IRS are major participants in providing employer-provided transit benefits.

It makes sense though for businesses to be supportive of this measure. TEI can help Canadian businesses remain competitive by tackling some issues such as parking costs, payroll costs, corporate taxes, and the retention of valued employees.

Parking of course can be a very expensive part of an employer's overhead in urban areas; yet in order for employers to compete for employees, subsidized parking as a benefit has become quite commonplace. Finding or building suitable parking facilities is a key concern of employers looking to expand or relocate their businesses. In areas where parking has become limited, the problem of attracting customers arises.

TEI would provide an incentive for employers to provide transit benefits, which can be cheaper than leasing or maintaining their parking spaces. At the same time the transit benefit is an incentive for employees to choose public transit for commuting purposes, helping businesses to reduce their parking demand.

Offering a tax exemption helps cut payroll costs. For example, giving employees $720 worth of tax-exempt transit benefits annually is equivalent to giving them a $1,000 raise, assuming they're in the very minimum tax brackets. That difference of approximately $280 represents a real savings to either businesses, employees, or a combination of both, depending on how they negotiate the difference.

Corporate taxes as well are used to pay the costs of our unsustainable transportation practices, and costs will escalate if we fail to take action. If we cannot reduce our dependency on automobile use, all our taxes—corporate, personal—will increase at a municipal level, in order to pay for increased infrastructure costs; at a provincial level, to pay for pollution-related health care costs. At the federal level, in order to meet our Kyoto obligations, failure to include incentives such as TEI are going to result in simply more restrictive regulations.

Many business as well are dependent upon transportation systems in order to move their goods or their employees, and traffic congestion can result in significant increases in production costs. For example, time spent in traffic can mean fewer sales meetings per day, less deliveries made per hour, and workers waiting for just-in-time deliveries.

Unfortunately, some criticism remains to date regarding the fairness of TEI, that perhaps it's not equitable between rural and urban citizens, or between transit riders who receive the benefit and those who don't. I must say I find that line of reasoning extremely frustrating, because it hasn't allowed a lot of opportunity to debate the issue.

This benefit, like many other benefits currently considered non-taxable under the Income Tax Act, warrants a tax exemption because of the positive impact it will have on society. There's no other tax-exempt benefit within our Income Tax Act universally provided by all employers to all employees.

If you don't mind my quoting one of your colleagues for a minute, Paul Szabo addressed the issue of fairness very well during his contribution to the debates on Motion 360. He asked the question:

    Does everybody have to be treated exactly the same? Or, is it that we are trying to promote equity or equality of benefits? If you had two children you might give one a book because they are a good reader. You might give the other a chemistry set because [that's where his interest lies]. You treated them equally because they both got something that maybe brought out the best of their talent but you did not treat them the same.

It's important for us not to dismiss TEI simply because it's not universally accessible or relevant to all Canadians. I think we as parliamentarians always want to be as open as possible with regard to the broader implications with issues that Canadians feel are important. So do not tell me why we cannot, but tell me why we can.

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The fact remains that our government does have some choices to make. And no matter what decisions are made, those choices will have consequences. Should TEI be refused because of a perceived inequity? All Canadians will bear the brunt of that decision. Or does the government want to implement this initiative on the basis that it's a good first step toward keeping our Kyoto promises? The consequences then will be quite positive, as we will lessen our congestion costs and save on taxes, and further savings individual families make on transportation costs will be reinvested into our economy.

Implementing TEI is a win-win situation, but the time to act is now. This is a rare opportunity for the federal government to affect public policy at a local level. TEI is one of the very few financial instruments available to support transportation demand management and one of the very easiest to implement.

One of the challenges facing the government when it decides to invest in a program is determining the long-term commitment and effectiveness of their investment. TEI is quite unique in that it only requires an administrative change from the federal government. Marketing and implementing TEI remains the work of the municipalities and transit properties and is usually done is conjunction with the private sector.

It's a very specific form of tax relief that occurs only when an employee accepts the benefit and uses public transit. In other words, there's absolutely no risk to the federal government that it will invest money and have no results. If transit properties are slower than predicted at marketing this initiative, then the potential forgone revenue will be proportionally less.

In conclusion, we believe that TEI is clearly consistent with this year's stated budgetary objectives of the finance committee. I hope TEI will become a recommendation of the finance committee and that the federal government will see fit to include TEI in next year's budget.

Thank you.

The Chair: Thank you very much, Ms. Ahee and Ms. Shaw.

We will now hear from the Canadian Conference of the Arts, Megan Williams, national director, and Philippa Borgal, associate director. Welcome.

Ms. Megan Williams (National Director, Canadian Conference of the Arts): Good morning. The Conference of the Arts is grateful for the opportunity to present our pre-budget submission to the standing committee. We spend considerable time and effort every year preparing our submission and we feel these efforts are worthwhile, even though we don't always achieve the results we're looking for.

I've just returned from a meeting in Lucerne that we organized with artists and their organizations from all over the world. We sat together there to discuss the important roles governments play in promoting the diversity of cultural expression and cultural sovereignty.

I'm even more appreciative of this opportunity to address the committee than I would have been a week ago. It's clear that Canada is a leader in promoting input by civil society organizations into the public policy process. By contrast, our sister organizations in countries like India and the Congo and Korea are a long way from enjoying these privileges.

I want to allay any fears you may have regarding the title we chose for our submission, “On the Edge of a Revolution”. At the time of writing we thought it relatively benign. We were simply referring to the type of tax revolt we believe is needed in Canada.

The cultural community in Canada has achieved significant recognition from both the federal government and the public since our last presentation in 1999. Last May, the Department of Canadian Heritage announced new funding for the sector amounting to about $560 million over three years. This is much needed and long overdue. It's a reflection of the growing recognition within the federal government of the importance of culture to our nation.

The new funding is added to a base of about $2.8 million spent by the Department of Canadian Heritage in the sector. The sector, for its part, contributes almost ten times that amount to the GDP, some $22 billion. The debate last year around Nelson Riis' motion regarding an income tax exemption for artists' copyright income elicited support from MPs of all parties and raised a parallel discussion on the merits of income averaging as a tool to redress some of the inequalities experienced by Canada's artists and creators.

To mark the millennium, a series of conferences on creativity in the arts and sciences were held across the country, outlining in myriad ways the link between scientific discovery and creative activity, and we are optimistic that a real partnership between the arts and sciences will continue to flow from these conferences.

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Recommendations in the recent report of the Standing Committee on Human Resources Development acknowledged the growing incidence of self-employment in the Canadian labour market and sought to rectify some of the inequalities in the current EI system.

We respectfully point out that these are merely stepping stones, not milestones, and much work remains to be done before Canadian artists achieve equity, acknowledgement, and recognition under the tax laws of the country for the research and development they contribute through the production of their work.

Much is heard today of the new economy. What do we mean by this term? How can the current economic and labour theories adapt to address the new economy? How can one develop a model for the future when the changes are occurring as we speak? The new economy has major implications for labour as a whole. The new workforce for our new economy has a number of clear skill sets. It must be adaptable and flexible, well-educated and committed to lifelong learning, able to communicate in a variety of ways, and able to problem-solve. It must be creative, innovative, and entrepreneurial. These are all terms that apply to the cultural sector, and the CCA believes that the federal government should look to us as a model, a microcosm of the workforce of the future.

New economy workers do not emerge fully trained from the woodwork, and it is fruitless to target education and training too narrowly for an economy that is largely borderless and that is changing at the speed of light. This new economy requires creative thinkers, and all the leading brains in this country and elsewhere believe it does. Why do we allow the education system to stifle creativity from the earliest ages? Surely, what is required is more arts integrated into the curriculum rather than less. We therefore urge that the federal government look to the cultural labour force as a model for the new economy by assisting the cultural sector organizations in the development of human resources strategies and policies.

The CCA believes that Canada's current method of taxation is a major obstacle to providing Canadians with equal opportunities to succeed in society. Our taxation model remains a carry-over from the industrial era, and there appears to be little inclination within the Department of Finance to put its energies and resources into restructuring it to better reflect the changing realities of our new economy's workforce.

Self-employment as a percentage of the total labour force increased steadily through the seventies and eighties and by leaps and bounds in the nineties, yet our taxation system has by and large not only ignored this fact but it has actually removed one of the only measures, income averaging, by which self-employed individuals could receive some small measure of fair treatment. We believe general averaging mechanisms should be available for farmers, athletes, software designers, and indeed all self-employed individuals.

Surely our federal government, operating as it does in this new economy with sophisticated information technology capabilities, should be able to cope with the design and administration of such a system. To quote from Canadian Tax News, put out by PricewaterhouseCoopers, the answer is not to say that income averaging is too hard to administer; rather, the challenge is to develop a system that is administratively feasible. We call on the government to take up the challenge of developing an income averaging system for self-employed workers in every sector of the economy.

Our third recommendation regarding equal opportunities for success is a tax exemption for copyright income. There are a few points I would highlight here. The cultural labour force, numbering some 700,000 workers, has been the fastest-growing sector in the economy for the past few years. Artists and creators are among the lowest-paid workers in Canada and among the most highly educated. They rank below taxi drivers, front-desk clerks in hotels, hair stylists, and farmers. The cultural industries, which employ thousands of workers, are built around a core of primary creators who often earn much less than those who survive on their creativity.

The CCA believes there are sound reasons for an exemption of a certain amount of income tax based on copyright income and income from the sale of copyrighted work. This is not a revolutionary idea. The Province of Quebec introduced a successful system in 1995 and recently increased the upper exemption limit to $60,000. Ireland, which is frequently held up by economists as the country to emulate, has a tax exemption that applies to all income earned through the sale of original and creative work.

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Being on the cutting edge in any sector requires taking risks. In the arts, all creation includes a research and development component with no assurance that there will be any remuneration upon completion of the work. The CCA believes that the type of copyright income exemption outlined in our submission would go a small way towards recognizing the investment that artists make in R and D.

The final criterion set by the standing committee for these presentations was how best to create a socio-economic environment where Canadians can enjoy the best quality of life and standard of living. Arts and culture are generally accepted as being one of the standards by which a country's quality of life is measured. We contend that cultural expression takes on a special importance in troubled times like these. Citizens look to the arts for solace when under psychological strain.

The government's role in subsidizing the arts through its various agencies, in maintaining a favourable climate for growth through a sensitive regulatory framework, and in ensuring domestic ownership of cultural industries are all essential to maintaining the vitality of the sector. We urge the government not to siphon off funding for the arts for other purposes but to maintain or augment current levels of support, including the new funding announced last spring.

The final element I want to draw to your attention is the legislation governing Canada's charities, based on the Statute of Elizabeth in British common law and set out in 1601. This is where our submission to you joins a bit with the one made by the fundraising professionals. We support your recommendation to extend indefinitely the provision for the donation of appreciated securities. However, only organizations that are registered charities can benefit from this measure. Therefore, we want to look at the definition of charity. It's extremely outdated, and it's causing problems for all non-profit groups, not the least of which are arts groups.

The CCA urges the government to build on the work of the Broadbent panel and the voluntary sector initiative to change and modernize Canadian charity law and to bring the definition into line with the important work of civil society organizations under the reign of the current Queen Elizabeth—only 400 years later.

One of the specific trouble spots is the restriction that's placed on advocacy by charitable organizations. We now understand that advocacy organizations have an important role to play in assisting with public policy development and should not be prevented from gaining charitable status. Nor, once registered, should they be restricted to devoting only 10% of their resources to advocacy work.

I would urge members of this committee to mobilize officials in both CCRA and the Department of Finance to look into the research that is on hand concerning access to tax benefit by non-profit organizations and to promote changes to the current restrictive regulatory system.

In closing, I will quote from our Prime Minister, Jean Chrétien, who put it very well last May when he announced the new funding:

    Cultural participation develops our creativity, enriches our citizenship, feeds the spirit. Arts and culture must be integrated into our lives and our communities.

Thank you very much.

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

We'll now move to the question and answer session. We'll begin with Mr. Epp, and it will be a five-minute round.

Mr. Ken Epp (Elk Island, Canadian Alliance): I thank you, Mr. Chairman, and you, all the presenters today. We have once again enjoyed your thoughts.

Let me go through my list of questions.

First of all, for the fundraising professionals, I have a technical question, one you can probably answer, Mr. Pitblado. The question is with respect to the inclusion rate on capital gains. I'm not aware of this because I'm not on that end of the charity; I'm more on the giving end of it. My question is with respect to the capital gains exemption for appreciated securities. Fifty percent is the inclusion rate now. So when the legislation rate says you have to pay tax on 50%, does that mean 25% for donors? Is that how it works?

Mr. James Pitblado: For an outright sale of a security, the inclusion rate would be 50%, and for a gift of the security it would be half the rate, i.e., 50% of 50, which is 25%. That is correct.

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Mr. Ken Epp: Okay. I know that when the half was first brought in, the inclusion rate was 75%. So it went from 37.5% down to 25%.

Mr. James Pitblado: Yes, it went down in two steps, from 75% to 66 2/3% to 50%, and then half of that.

Mr. Ken Epp: Okay. I just didn't know that technical end of it.

So there is still a substantial advantage to people who are considering donating a security, in terms of the tax payable. You'd like to see that tax removed entirely. Is that correct?

Mr. James Pitblado: That is correct.

The advantage has not changed since 1997. It has been half the capital gains tax rate on an outright sale. The relationship has stayed the same, at 50% through the piece, so there is an advantage vis-à-vis an outright sale. But the individual doesn't have to sell the security. He can continue to hold it and pay no tax; that's his option. If he wants to give it, he has to pay a tax. To give away something, he has to pay a tax.

We are suggesting that impediment should be removed, and that should put Canadian donors and charities on the same playing field as their counterparts in the United States. In the last two years, Britain has also gone to zero tax.

Mr. Ken Epp: Okay.

I have another question. In the event that the taxation on a gift went to zero, I think that would be a huge incentive for people, who have the means, to give their securities, properties, and real estate to charities. Could charities then run the risk of being bogged down with managing a whole bunch of assets, portfolios, and real estate, and lose sight of what they were originally for?

Mr. James Pitblado: One, I don't think so. Two, that would be a nice problem to have.

Some hon. members: Oh, oh!

Mr. James Pitblado: Today most charities are well staffed. They have professional people working for them. They would be just delighted to receive an influx of gifts of appreciated securities.

Mr. Ken Epp: Okay.

I want to go to the National Council of Women of Canada. I have a few questions for you.

In reading your brief and in listening to your words today, there are a number of phrases you use that give me some question marks. First of all, I would like to have you explain specifically what you mean when you say “gender-based analysis”. Could you be very precise in what you mean by that?

Ms. Maria Neil: Sure.

It means taking women's lives into account when you plan programs of any sort within government. That means being aware that many women stay home to look after the elderly and the young. They do not have pension plans.

We would like to see some sort of guaranteed income, as a result of staying at home. We don't take into account child care very much. The child care tax benefits benefit those with higher incomes more than those with lower incomes.

Does that explain some of it?

Mr. Ken Epp: That is part of it.

Of course, I might as well tell you that in our family we are in that group. My wife has worked very hard—probably as hard as I. I believe now that I'm a member of Parliament, she makes a bigger sacrifice than I do since she... Is it a reward or a punishment to be separated from me? I don't know.

Some hon. members: Oh, oh!

Mr. Ken Epp: But she's alone a lot, etc.

Ms. Maria Neil: It would depend on the day, perhaps.

Mr. Ken Epp: Yes.

An error was made when she had small part-time employment, at one time. They deducted Canada pension from her. Her Canada pension fund sits at 97¢ and the government, every five years or so, sends her a statement telling her that. The postage on that costs 55¢ or whatever it is.

So we're in that group, and I sympathize with what you're saying about those who have not been able to build up the credits that people who have been working in paid employment get. They make very valuable contributions to our society, beyond a shadow of a doubt.

You also say you would like to see increased control over banks. What on earth do you mean by that?

Ms. Maria Neil: I should have brought my brief on Bill C-8 with me.

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We are concerned about bank mergers and the colossal profits banks make. We feel that a lot of leeway could be given to people at the lower end. We have a policy that asks for disclosure by banks of their loans. For instance, we would like to know which loans are granted and which loans are not, and why. We would like to know the figures on those things.

As much as I hate to praise American banking too heavily, this is a part of the American requirements within their banking system. Each bank has to declare monthly its statistics on loans—loans requested, loans granted, the circumstances of each, and of course the repayment. So the banks are more accountable there, and we would like that. That's just one example.

Mr. Ken Epp: I don't have any more questions for you, but I have one question for the transit people. This is sort of funny, actually. You started out your comments by saying TEI was a good thing. It's an acronym for something, but what, precisely? I was sure you would say it, and you never did. Then I saw, “What is TEI?” in great big bold letters, right on the first page. So I looked to see what TEI stood for, and throughout your whole brief I couldn't find it. What precisely does TEI mean?

Ms. Amelia Shaw: It means tax-exempt initiative.

Mr. Ken Epp: Initiative. Oh. I was wondering how you got transportation out of that. I thought it was transportation exempt something. Okay. That was my question. Now I know.

I would like to ask whether you have any information on other countries where they have this particular provision in their income tax act. What effect does it have on the use people make of it, in order to go to work, etc.?

Ms. Amelia Shaw: It's been available in the United States since 1984. As the years have progressed, they've gone from $21 per month to now $100 per month. It's actually considered the number one incentive for individuals to now use public transit and leave behind their single-occupancy vehicles. We've seen that anywhere from 30% to 50% of those who are actually offered the incentive take it. It does work. It works extremely well in the United States. It's one of those nice private-public partners. It has been extremely successful, which is why we undertook this in the first place. We knew it was an incentive that worked.

Mr. Ken Epp: Is there a danger that if the government were to provide a ceiling of $100 per month as a tax-exempt benefit, the transit systems in the different cities would then set their monthly passes at exactly that amount? Would it have the effect of being inflationary?

Ms. Amelia Shaw: I would suggest that your politicians at the municipal level battle with fares on a fairly continuous basis. There are so many more initiatives or things that go into setting fares. I would say no. There is a range right now. I think in Saskatoon it's approximately $40. It certainly goes up to more than that with GO Transit, TTC, or in Vancouver. The range is quite considerable now, and it's mainly as a result of the decisions that are undertaken at the municipal level. My immediate response to you is that I don't believe that would happen.

Mr. Ken Epp: Okay. Then I have one last question. How do you answer people, like myself, who live where there is no transit and drive a bicycle or motorbike to work, as I did? I got a 100-miles-per-gallon motorbike, so I reduced pollution way more than guys who used cars. I put much less pollution into the air than a bus, cut the costs, etc. I would get nothing from this, yet I would be doing more.

Ms. Donna-Lynn Ahee: I think that can be answered in two parts. First, there are people in Canada, obviously, who don't have public transit available to them and can't use a public transit system. Are there things those people can do to be more sustainable in their transportation choices? Yes, there are. Those types of things should be looked at by various levels of government, as well.

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But when you look at the problems facing urban areas today—and urban areas account for 80% of our population—congestion does have to be dealt with. I think we have to start looking at transportation as a whole instead of little pieces, the bike-riders, walkers, bus-riders, and car drivers. We have to start looking at it as a whole system.

So when we look at, say, the taxes I put into your roads at a provincial level or at a federal level, some of my taxes go towards paying for those roads. I actually live in a rural area as well, and I do half-driving into town and use the bus for the remainder of my trip. But I certainly could not afford to pay for the road in front of my house when there are five people on it. I don't think you could afford to pay for your road either, the taxpayers and your constituents. So that's spread out among the people in your province, and it's spread out among the income federally and the money that's derived from the federal government.

So we're asking for the same types of treatment to be made here for urban residents. Unfortunately, when it comes to transit, right now transit is really focused on being funded from the property tax basis. This is a way for the federal government to be involved in encouraging public transit.

I think the second half of the equation is that you also pay as a rural resident. You pay for the impacts of people not using public transit. So if we need to expand the Queensway here in Ottawa, your taxes through the federal government are going to pay for part of that highway infrastructure program.

On a provincial level, your taxes are going to be paying for the health care of children who are having asthmatic attacks every time there's a smog day in your city. So if you can reduce some of that burden by reducing some of the problems associated with congestion, then even though you might be a rural taxpayer living in a rural area, you still benefit from the tax-exempt initiative.

Mr. Ken Epp: Okay, thank you.

Mr. Chairman, could I ask one really fast question of the arts people?

The Chair: You don't want anyone else in the committee to ask a question, Mr. Epp?

Mr. Ken Epp: There will be time. This is really quick.

The Chair: Okay.

Mr. Ken Epp: You didn't mention in your brief, nor in your words—at least I didn't hear it—anything about the new rule that all of us who buy tape or CD discs pay this penalty on the presumption that we're going to break a copyright law, whether we do or not. That money is supposed to go back to artists. Is that working? Is it successful? Do you have any report on that?

Ms. Megan Williams: Yes. Thank you for asking.

The levy on blank recording tapes is a provision that came into effect after the last round of copyright revision. It's an enlightened regulation. There aren't very many countries that have it yet, and it is compensating artists for the private copying that goes on of their work. We're very supportive of it.

The copyright collectives, which distribute this benefit to artists, are functioning well, and we're hoping to see this kind of regulation expanded in the new round of copyright reform that is actually now underway. We're presenting our comments to the Departments of Industry and Canadian Heritage, which are now looking at copyright in digital media. So I think we can congratulate ourselves as a country for being forward-looking in this regard and finding a way to support artists through the blank tape levy.

Mr. Ken Epp: Okay, thank you, Mr. Chairman.

The Chair: Thank you, Mr. Epp.

Monsieur Loubier.


Mr. Yvan Loubier: Thank you, Mr. Chairman.

I have a question for the representatives of the Canadian Conference of the Arts.

You described how the Irish system deals with tax exemptions. You state that, in Ireland, the tax exemption applies to all income earned through the sale of original work, but further on, you state that such works must be generally recognized as having cultural or artistic merit. How does Ireland assess whether a work is original and creative, and whether it is generally recognized for its cultural or artistic merit? Have the Irish established standards? This is very subjective.

Ms. Megan Williams: Allow me to answer in English; copyright terminology is somewhat complex.

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The Irish system recognizes that it is not just the sale of copyright that artists do, because when artists sell, for example, a work in visual art, they don't sell the copyright. They retain the moral rights in the work. So it's a bit larger as a concept.

They have a system of panels and juries similar to perhaps the type of jury that they would have with an arts council, which evaluates the works that have been sold and ensures that they are indeed works of art. So it's done by a system of juries, and that's actually the model that we would recommend because it embraces the work of visual artists as well.

I want to add that when you're talking about copyright income, we get a lot of support in this argument from the software sector and the computer sector, because industries are recognizing now that the sale of copyright is an important part of overall income.


Mr. Yvan Loubier: Thank you. We agree with your recommendation that self-employed workers be covered by the employment insurance system, and will be putting that recommendation forward. For the past two or three years, we have ourselves been fighting to have the employment insurance system amended to eliminate inequities for self-employed people, whose numbers are constantly growing.

Ms. Megan Williams: Yes, and we are extremely grateful to the Bloc Québécois for its support in this process.

Mr. Yvan Loubier: Thank you, Ms. Williams.

Ms. Pauline Picard (Drummond, BQ): I have two questions, Mr. Chairman.

Ms. Shaw, why not go further than a tax exemption for the employer's contribution to public transit? A Bloc Québécois colleague has just tabled a private member's bill requiring a tax credit for public transit users. Why focus only on the employer?


Ms. Amelia Shaw: I'm well aware of Bill C-209, and I certainly commend the Bloc Québécois on moving this forward.

When we originally talked about this initiative, we were certainly looking for something that had been done before, that had a success rate. In some of our initial meetings with various members of Parliament suggesting that we needed to go for bigger, it was said, well, why don't you go for something smaller, ensure that it can be done, know exactly what your success rate is going to be, and then branch out to something bigger? So this was initially why we did go the employer-provided tax-exempt transit benefit, or TEI, route.

The other thing is that we very much wanted to get businesses on board. This is very much a transportation demand management initiative, where we would work with employers to really encourage employees to start using public transit.

Certainly, Bill C-209 is very much going to everybody. It's commendable, and certainly we're very supportive. But we had some very specific aims with this, to really encourage, get out there and work with the employers, and really hit the peak periods as well. So I'm well aware of it, and I certainly commend it being brought forward.


Ms. Pauline Picard: Thank you, Ms. Shaw. I would also have a question for Ms. Williams.

Ms. Williams, in your brief, you ask: “What do we mean by the New Economy?” You also state: “A search through the Internet brought more definitions than there are people in Canada.” I fully agree with you, because I don't know what “the new economy” means either.

In your brief, you state:

    We believe the federal government should look to the cultural sector as a model, a microcosm, of the workforce of the future.

What do you mean by that? What model are you proposing in your brief?


Ms. Megan Williams: We believe the cultural sector is a very highly educated and a very largely self-employed one, and we think this is a reflection of the workforce of the future as a whole.

Therefore, our suggestion is that in looking at the kind of regulatory reform that would benefit the self-employed sector, the government start by looking at the cultural sector and developing the type of legislation that we're talking about, the copyright benefits, the access to lifelong learning, and that sort of thing, and income averaging as well, and model the legislation on the needs of the cultural sector and then expand it into the larger self-employed sector.

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We realize that in Quebec and among the members of the Bloc Québécois a lot of thought has been given to this, and we hope it will be a recommendation that will be acceptable.

The Chair: Thank you, Madame Picard.

Mr. McCallum, followed by Mr. Cullen.

Mr. John McCallum (Markham, Lib.): Thank you.

I enjoyed all the presentations. I'll limit myself to two questions on the transit subsidy and the tax treatment of donations.

I come from Markham. In Markham, probably the number one issue is traffic gridlock, and so I certainly favour some form of support to public transit, for both environmental and traffic reasons. And I don't think one can, as Mr. Epp suggested, only do things that have identical benefits to rural and urban people because they have different lives. If you had that rule, you couldn't give any support to agriculture, for example. So you'd end up doing practically nothing, which is perhaps what his party would like the government to do.

Mr. Ken Epp: Except everybody eats, John.

Mr. John McCallum: I think you have to have overall equity, but you can't expect identical benefits for everything the government does for rural and urban residents because their lives are so different from each other.

My only question to you is a very simple one. I read through your brief and was listening to you, and you kept saying “TEI”, and here it's T-E-I, and you never told us what that means. Or did you?

Ms. Amelia Shaw: I did. It's tax-exempt initiative.

The Chair: I believe that was the same question Mr. Epp asked.

Mr. John McCallum: I'm sorry.

The Chair: You weren't riveted to Mr. Epp's question.

Mr. John McCallum: I guess I found his discussion less than riveting.

I have a second and final question. I'm very sympathetic, perhaps because of my previous role in university fundraising, to your proposal on fundraising, so I would support it as an individual. I'm thinking of what the counter arguments might be. This wouldn't affect my support, but is it true that one counter argument would be that the more you make the tax treatment for charitable contributions favourable, the more, in effect, you have the government making the contribution, rather than the individual, through forgone taxes.

So if you went to your proposal, where the person not only got a tax write-off for the contribution itself, but also the receiving entity didn't have to pay tax on the capital gains, in effect, would you have, through forgone taxes, the government making 66¢ on the dollar or 70¢ on the dollar of the contribution? What would be the number—do you know—assuming the person giving the money is in the highest tax bracket, which is a fair assumption?

Mr. Nicholas Offord: Jim can comment on the technical aspects and perhaps I could first make a comment on this objection departmental officials have. It is the only objection, because, as far as we know, the only opposition to this is within the department. Our case, apart from the fact that we think putting the money that's now captured in stock markets—and even though today the markets are down, they will come back... We believe it gets money into the hands of important public policy and community projects today, as opposed to government coffers tomorrow. As you know, many organizations that we deal with are dealing with huge challenges today.

The second thing is that we believe these sorts of gifts encourage an environment of philanthropy and have important leveraging effects to other donors in the community. We say in fundraising that example isn't the main thing, it's the only thing. Fundraising and philanthropy is a growing industry in this country, as government retreats from taking control, at least through spending. So it is arguably forgone revenues down the road, but it's putting money to work today and leveraging up.

Mr. James Pitblado: May I just add that it's not just giving. What happens is donors tend to relate to causes that they feel strongly about, whether they're in social causes, whether they're in the artistic community, education or health care. Personally, as a donor, I can relate to each and every one of those.

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So it's not only giving something away; it's that the donor becomes involved to a degree with that organization, that institution. I think you build a fabric in society of people who become caring and supportive of their fellow citizens.

The only objection will come, in my view, from Finance, who will say, look at all these tax returns; look at all this revenue we lost. However, the question is, if this measure had not been in effect, how much of that revenue would have been captured? Donors, and in particular those who make larger gifts, are not necessarily going to create that income today. So even trying to look at forgone revenue, I submit, is misleading.

That's the only area in which I can see people having an objection. It's supported, basically, everywhere. The hidden benefit, I say the social benefit, of getting people involved in charitable causes and worthy causes and letting them make the individual decision of where do they want to get involved, encouraging self-initiative, self-reliance... I think that will help part of your policy today.

The Chair: Thank you.

Ms. Williams.

Ms. Megan Williams: I wonder if I might contribute a bit to the answer even though the question wasn't posed to me.

The work of the voluntary sector initiative tends to show that there is a certain amount of money that's given to charities in Canada and that it won't necessarily increase, although this particular measure might serve to increase it. It might redistribute the way it's being donated.

But the other aspect to this is that the government is downloading some of its program work to civil society organizations, and therefore, if in fact there is some forgone tax revenue, I think it will be offset by the fact that a lot of organizations are increasing their capacity to help the government deliver its public policy objectives. So there's a trade-off there.

I wonder if I may ask the indulgence of the committee a little bit more to say that I'm very curious to know whether any of the parliamentarians here today have on their legislative agenda the idea of looking at the problem of the definition of charity in Canada and the difficulties that non-profit organizations have in doing advocacy work. I want to note that in Quebec the government recently recognized the importance of advocacy organizations, which are termed


organizations that defend collective rights.


The Quebec government acknowledged their important work and is devoting considerable resources to the support of these organizations within the province.

So I want to put out that question because I'm curious to know whether any of the members of Parliament here have this as one of their priorities.

The Chair: We ask the questions. Let's be clear on this. But we'll get back to you on it.

Mr. Cullen.

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

I must say I follow my radar, but it's not for lack of interest. It's just that as an MP there are so many issues coming at you that you have to be focused and selective. So that's my contribution to your question.

First of all, with respect to the fundraising professionals, I certainly support the extension, personally, of the other provision on the inclusion rate and not sunsetting it. About expanding the provisions at this time, given some of the challenges on our plate, I'm not so sure, but certainly not sunsetting is something I would support.

I had a couple of questions in regard to the urban transit initiative. You mention in your brief that the Department of Finance objections are focused on equity. Wouldn't it also be fair to say there's an issue with respect to efficiency? In other words, the argument is that the ridership increase would be in the vicinity of—the numbers go back and forth—let's say 15% to 30%. So for a cost that is quite high, the cost per additional rider would be quite high, and therefore the argument is also in terms of its cost benefit. Would you agree that this has been cited as an argument, and if so, how would you counter that?

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Ms. Donna-Lynn Ahee: That was originally cited as an argument in some of the original correspondence that was going back and forth between different members supporting TEI and the finance department. That having been said, we haven't heard that as an argument for a while. However, I would like to address it as well.

Number one, when the finance department was originally doing a cost-benefit analysis of it, they looked at a report and based their estimate of revenue loss on a 25% increase in transit ridership, based on a much larger amount of money than what was being recorded in the report. So they used as a base that if you gave people $60 a month, you'd have a 25% increase in ridership. But the report from the States showed that if you gave $15 to $21, you would have that 25% increase in ridership, and then it went on to state that as the United States increased the amount of money that could be allotted tax free as a benefit, the ridership increases made tremendous gains as well.

So we're not looking at ridership increases of 15% to 25%, unless you want to cap the amount of benefit allowable at a very small rate of, say, $15 to $20 a month. If you want to start off more in line with the United States, at anywhere between $60 and $100 a month, then you're looking at much larger ridership increases, and you're looking at a range of anywhere from 37% to 68%.

As far as that goes, I think a couple of things that aren't captured as well are the importance of transit ridership and the transitory nature of transit riders. So when you have a benefit that you're giving out, it was originally proposed that if you give the benefit to somebody who already uses public transit, then that's a wasted benefit because they were already using it. I would like to suggest to you that public transit ridership is extremely transient. It has a turnover rate of approximately 30% to 50%, depending on what studies you're looking at. So anything you can do to help out people who are riding public transit right now and to keep them riding public transit is also of great value.

In terms of the value of the actual cost of it, the federal government did requisition a report from IBI, which did a cost-benefit analysis and determined that there would be cost savings. So I don't really understand why there would be so much focus on a cost per transit rider if they're ultimately going to produce greater amounts of money in savings.

Mr. Roy Cullen: I don't know how you generate those savings, but I really have to move on now.

Ms. Neil and Ms. Browne, in one of your recommendations you say

    ...provide the greatest benefit to low and modest income earners by setting an even higher threshold below which low income people pay no tax.

Immediately one thinks of the basic personal exemption. One of the challenges of the increase in the basic personal exemption is its huge cost and the fact that it ripples right up through the system. It affects all taxpayers. All taxpayers receive that benefit. Did you have something else in mind, or some kind of a trigger mechanism? What did you have in mind specifically with that recommendation?

Ms. Maria Neil: We're concerned not only about the very poor, but the low-income people, the working poor. So any tax to them costs them a great deal more than the same level of tax to a higher-income earner. We would like to see the working poor have some encouragement. We also have a policy to try to get them some help with transportation, for instance, just as you were saying.

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Mr. Roy Cullen: If I could just interject there—

Ms. Maria Neil: It's very costly to get to work.

Mr. Roy Cullen: Yes.

On the basic personal exemption, the thing is that if you increase the basic personal exemption—and of course, this government has and has taken something like 750,000 people off the tax rolls—it doesn't discriminate between high-income Canadians and low-income Canadians.

Ms. Maria Neil: That's right.

Mr. Roy Cullen: You seem to want to focus it and target it at low and modest income earners, so then presumably you'd have to look at something other than the basic personal exemption or you'd have to have some trigger mechanism.

Ms. Maria Neil: True. Well, it can affect just the lower end. It doesn't have to affect the top end of the bottom scale or any of the other scales higher up.

Mr. Roy Cullen: Maybe you could think that through and, through the chair, give us a specific proposal in writing, because I'm not sure how you'd do that without it rippling through the whole system.

Ms. Maria Neil: All right. And we're grateful for Mr. Martin's moves on that last October. That was quite beneficial.

Mr. Roy Cullen: Thank you.

The Chair: Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC/DR): Thank you, Mr. Chairman, and thank you all for your interventions.

Firstly, I will answer Ms. Williams' question, and I agree with you that we need a strategy, and governments, provincially and federally, need a strategy on how to more effectively engage the volunteer sector. With government cutbacks, the volunteer sector has played a greater role, and I think it can be demonstrated effectively that the volunteer sector probably does an even better job at identifying and ultimately addressing some societal needs in a cost-effective way than government agencies are doing.

So my first question would be for you people, now that I've answered your question. Would you be able to provide to us—and this is particularly important for the fundraising professionals—some quantitative or quantifiable information on that leveraging? I think that would help even in terms of Finance, because I think Finance has a very myopic view of this currently.

Before you answer that, I do support and have supported consistently, and our party has, the notion of eliminating the capital gains tax completely on gifts of securities, based on what we believe to be self-evident, which is that leveraging on those gifts would be significantly more than the loss to government revenue.

Mr. Nicholas Offord: Most organizations raise money both on an annual basis and in the form of organized fundraising campaigns. Often those campaigns are driven by leadership giving, and a lot of that leadership giving is done through gifts of securities.

I'll give you a specific example relating to my own institution. We embarked upon a campaign five years ago with a goal of $75 million. The provision allowed us to secure a number of leadership commitments that meant that over the five years we actually were able to raise in excess of $150 million to support capital projects and research infrastructure at the hospital, yet the gifts of stock constituted roughly 22% of the total giving. We feel strongly that it was the leadership gifts and the bigger gifts that certain donors were able to make through accessing capital wealth in the stock market that allowed us to do that. We feel strongly about that.

I should also add that—and I can only comment on the GTA, because that's the only jurisdiction for which I have any meaningful statistics—currently if you look at the capital campaigns projected over the next five years, including universities, hospitals, and major arts organizations, we're looking at approximately $2.6 billion to be raised from that community alone. That won't happen without this provision.

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Mr. James Pitblado: It is my understanding that the committee was provided with the Deloitte & Touche study that was commissioned by a number of organizations in the community. That went directly to your question of leverage, and those were the comments I made, that the number of gifts had gone up 22 times and the dollar value 19 times—just incredible leverage. That study surveyed close to 500 organizations that were spread across the country and through each of the disciplines.

Mr. Scott Brison: Also, reducing capital gains tax in any form unlocks an awful lot of capital that might not otherwise make its way into charities or other... Any reduction in capital gains would help in this way and would clearly direct an awful lot of locked up capital.

On engagement of the volunteer sector in a general sense, in the U.S. there's recently been a proposal from President Bush that would lead to a greater engagement in the volunteer sector. It was based primarily on churches and Christian organizations.

I'd like to have some feedback at some point from your groups, in terms of whether we could find a way to take some of the positive aspects of that, but not necessarily make it a church or religious-based initiative. I think there might be some positive aspects of that that we could draw into public policy in Canada, again without having to necessarily restrict it to churches. We could make it a charitable or volunteer-sector initiative, as opposed to a purely religious one. That's just food for thought.

I have a quick question for Ms. Neil. You stated that your organization would be opposed to public services, or to public services being delivered by private entities. If it could be demonstrated to you in a quantifiable way that those services could be delivered for less taxpayers' money, resulting in a larger surplus for spending, for instance, maybe on social spending and social investment, would that change your mind, potentially?

Ms. Maria Neil: Thank you, Scott. Yes, it would certainly, but I have grave doubts. For instance, training programs are run by—I'm thinking particularly now of health care delivery—so many private organizations. Many of them are from the U.S., so they're not even Canadian companies. They come up here to work, and they have contracts with our local community care associations.

Their training programs are not what one would expect from the old system that was previously run by the VON. On their maintenance of staff, they pay so little—quite naturally because that's what the provincial and hence the federal government allots for their salaries—and they don't stay very long, so there's very little continuity for either the staff or the patients who receive their labour. There are all sorts of other sections of health care being delivered by the private sector now. They might well make some profits and some savings, but at what cost?

Mr. Scott Brison: I should heed that response. My sister is a VON nurse, so I should be careful.

Ms. Maria Neil: The VON no longer gets contracts solely on just a simple VON application. They have to have partners in the private sector now.

Mr. Scott Brison: My final question is on income averaging. I support that, not just for people involved in the arts, but on a broader level. There will probably be a lot of stock brokers this year who would like to have income averaging.

I'll give you an example of how it applies in a more broadly based way. A constituent approached me a couple of years ago. He had been out of work for several years. He could not work because of an injury. He was a labourer who had been injured on the job. He had never made more than $20,000 per year. After many years of fighting with the Workers' Compensation Board, he received a lump sum payment of $90,000. In the year he received the lump sum payment, after years of not working, he was taxed at the highest marginal tax rate.

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So I think income averaging, from a fairness and equity perspective, makes an awful lot of sense across the board, from your perspective and your sectoral perspective certainly, but also in a broader-based way. I think it's something we ought to consider.

Ms. Megan Williams: May I just say there are examples in many sectors of the economy, but in our work with officials at the Department of Finance there is a very deep-seated aversion to even discussing income averaging, so that's why we are taking this opportunity to bring it up with parliamentarians.

The Chair: Thank you.

Mr. Nystrom.

[Editor's Note: Inaudible]

Mr. Ken Epp:

Ms. Megan Williams: The officials in the Department of Finance have a deep-seated aversion to even discussing it.

Mr. Ken Epp: Thank you for clarifying that.

The Chair: It would defeat our entire purpose.

Mr. Ken Epp: Yes, it would.

The Chair: Yes, that was very clear.

Go ahead, Mr. Nystrom.

Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP): I have just a couple of questions.

First of all, thank you to Ruth Shaw and her reference to Nelson Riis, who was a member of this committee for a long time and did the private member's motion on your issue. I think he would appreciate the comments you made on that. Nelson is, of course, no longer with us in the House or on the committee.

Ms. Shaw, can you give the committee your estimate of what the cost would be to the federal government if we were to implement the proposal you made? I obviously support it and voted for it in the House. Do you have any more you can add, in terms of the direct cost to the treasury? I think it would be a net benefit, of course, if we could get more people riding public transit. There would be fewer problems with the environment and all the other things you mentioned here today. What would the direct costs likely be?

Ms. Amelia Shaw: The cost would always be dependent on how many individuals took it up, but when we originally did this we looked at the cost of potentially $15 million to $20 million in the first several years, on the expectation that many individuals would have the opportunity to take it up and would take advantage of this. The money would go back into the hands of the taxpayer. It would be forgone revenue.

I'd also like to comment that the social benefits of this, whether they be health, environment, or equity, need to be taken into consideration. It has always been said that it would be 3:1, so if one dollar were forgone, there would be three dollars coming back in benefits. But this program would be very dependent on who took it up. If they took it up, we would know that they were using public transit and that the benefits were accrued.

Mr. Lorne Nystrom: I have a question for Maria Neil. I found your comments on globalization interesting, and I support the general direction you were going. Is there anything more you can add, in terms of the gender impact of globalization and how it might affect women more than men? I'm sure you've done some research on this, in terms of the council.

Ms. Maria Neil: The Council of Women does very little research; we use other people's. In fact, we do almost none, as we don't have the funding for such things. However, there are plenty of studies, particularly the ones done by Status of Women Canada and by Jill Vickers at Carleton University.

We don't really know. There are so many aspects of labour that are affected by globalization, the need for higher profits, and the need seen by the transnational companies, so the working conditions are lessened. We are fearful that trade agreements will affect our own laws in Canada, our working conditions, and our health and safety conditions. So many women are affected by those. So many of the things we consider part of our social safety net in Canada are considered subsidies by trade agreements, yet we are signatories to all the international conventions, such as Cairo, Vienna, and Beijing. Our government has signed all those agreements to take account of women's lives, inasmuch as they will include them in the statistics that are published.

Does that answer your quandary?

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Mr. Lorne Nystrom: I also had a question regarding the charitable contributions. You said there was a dramatic increase in contributions when the change was made four and a half years ago. What is your anticipation as to what the increase would be if a further change was made? I assume it wouldn't be quite as dramatic. But do you have any idea how to project that?

We've seen a change in the law in Britain, as you said, and the United States has already had it for a number of years. Do you have any guesstimate—I'm not even asking for an estimate—as to what this would be for charities in terms of the increase to make the final change?

Mr. Nicholas Offord: It is pretty hard to predict.

Mr. Lorne Nystrom: How do the British do it? Do the British do it in steps or at one time?

Mr. James Pitblado: No, all the way.

Mr. Nicholas Offord: Yes, the British have a complete exemption so there's no taxation on any disposition of an asset to a charity.

We estimated the initial cost to be in the range of about 1% of the predicted budgetary surplus for this year. As to how much further it would grow after that... Presumably soft markets restrain the program significantly. Obviously people sell stock when they perceive it to be high. So it's unlikely that we'll be unleashing the floodgates if we had this program today. However, one assumes that the market will come back and that there will be steady growth in the program, but we're not really quite sure.

The British policy is only two years old so they do not yet have statistics. In fact, Revenue Canada has barely just collected statistics on our own program, and we haven't seen those numbers yet from Revenue Canada. We only have the numbers that our own study provides.

The Chair: Thank you, Mr. Nystrom.

I also have a couple of questions.

These are indeed challenging times because we're going to have to of course make some trade-offs. As a result of the September 11 tragedy, there are going to be some economic impacts brought upon the global economy. We're going to have to make some decisions, and I'd like to hear from you what the priority should be.

On the issue of the deficit, how important is it to your organizations and to you as Canadians that we not return to a deficit environment?

On the issue of the $100 billion tax cut, how important is it to you that we not backtrack on that particular issue?

And on the issue of major economic spending as a way to stimulate the economy, what are your thoughts on that?

First, I think there is already consensus on the need for a major investment in the area of national security. I think there's general agreement amongst Canadians that this is absolutely necessary. Can you comment on those three elements?

Who would like to start?

Mr. James Pitblado: I'll start speaking to some extent personally because I'm representing a narrower constituency than some of the others.

In terms of the deficit, I strongly encourage the government not to go back down that slippery slope again and get into a deficit position. We've seen what can happen. I'd be 100% supportive of not getting into a deficit financing situation.

Secondly, the existing tax cut that's in place I think will take time, but it should be allowed to work. What tends to happen is people expect instantaneous reactions. As Dr. McCallum and others know, that just isn't the way things happen. Reactions are delayed. I think the tax cut is positive and in place at this time.

Thirdly, I would be very cautious about embarking upon other very significant fiscal stimulus as a knee-jerk reaction at this time. We've seen monetary policy very accommodative. You already have significant fiscal stimuli in place, and I think any further initiatives should be selective and should be very cautiously thought out so that we don't get back into the slippery slope deficits.

The Chair: Does everybody agree?

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Ms. Megan Williams: I just wanted to add that one of the members of the CCA, the writer Myrna Kostash, just released a book where she interviewed many, many young Canadians all across the country. These young Canadians are tremendously loyal to our country. They recognize the importance of the social safety net here, and they're not particularly interested in tax cuts, so that's a remark from one level of society.

We also think it's very important for the government to operate in a deficit-free environment and to maintain the funding commitments it has made.

I just want to say that in the times we're in, peace and democracy and the ability of citizens to express themselves and to project that expression worldwide are very important. The meeting I referred to that I just returned from in Lucerne, which regrouped cultural NGOs from all over the world, was held in parallel with a meeting of culture ministers that was led by Sheila Copps. Our NGO meeting was able to go in and address the ministerial meeting and to call for a global cultural pact that would recognize the importance of cultural sovereignty in each country around the world and to some extent counteract the negative impact of globalization on cultural expression. We can look back to 1999 here, when the magazine legislation was watered down and the protection for Canadian magazines was diluted.

I'm just saying that the regulatory environment is very important and that the ability of Canadian expression—Canadian films and books—to penetrate world markets is very important, because we talk about democracy and we talk about peace and we talk about this kind of government we have that encourages the voice of the non-profit sector.

I'm saying a number of things that aren't directly to the point—

The Chair: No, no.

Ms. Megan Williams: —but I think they need to be said in this environment.

The Chair: I'm really interested in the comment you made about young people not caring about tax cuts, but I'm sure they care about the fact that they're carrying the biggest debt burden and the highest tax burden ever.

Ms. Philippa Borgal (Associate Director, Canadian Conference of the Arts): If I can add a point to that, Maclean's magazine also had a big article on a conference of young people that was held recently—I think it was called Northern Magnet—and they too said tax cuts were not what they were interested in. They were interested in the social safety net, social programs, and the fact that Canada runs a true democracy.

The Chair: Are these young people paying taxes?

Ms. Philippa Borgal: Not only are they paying taxes, some of them are paying taxes in very high brackets. They were very, very bright graduates from across the country, and some of them, while Canadian-born, were working in other countries.

The Chair: I'm just trying to get what you're trying to say about the answer vis-à-vis the $100 billion tax cut. Should we proceed with it or not? That's not very clear to me. You're not sure?

Ms. Megan Williams: Right.

Ms. Amelia Shaw: I wonder if I'm allowed a personal reflection. We've just received tax cuts in Ontario in the amount of approximately $200 we received back. My children go to Canterbury, the high school of fine arts here in the city of Ottawa. I have three teen-age girls. I am now expected to pay $600 for them to attend that school. If you were to ask them personally whether they benefited from that $200 tax cut, they would absolutely tell you not. They would also talk to you about the educational system. I know it's not your purview, but you asked a very broad question and I took an opportunity to respond.

I would concur that, if you listen to the students of today, they really respect what we currently have in place. They enjoy our health care system. They enjoy our educational system. They enjoy the fine arts.

I'm speaking on behalf of them and, I suppose, as a mother as well. I'm not necessarily sure. I certainly didn't see any benefit. In fact, it's—

The Chair: I'm in total agreement. That's why I believe those young people would also be happy with the fact that we're saving $2.5 billion every year now because we have lowered the national debt, and they would benefit from that as well. That's also part of the equation, I believe.

Mr. Offord.

Mr. Nicholas Offord: I agree with the consensus that appears to be present regarding deficit spending and reduced taxation.

I will say this, though. While I'm here with a specific agenda, health care is going to continue to be an increasingly large challenge. It is a very large issue. All sectors of the health care system are struggling, and a lot of questions are being raised about the federal government's partnership with the provinces with respect to adequate funding levels.

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I don't profess to be an expert on those subjects, but it appears to be that more and more the burden of health care is being placed on the provinces, and there isn't enough money in the system right now to deliver the levels of service we'd like to provide.

On a related issue, if in fact choices are being made, we do wish to encourage an environment where citizens take responsibility for issues in their community, and this kind of provision we're asking for would be an enabling piece of legislation. It would set a good example, saying that government can't be everywhere all the time and that each individual citizen has a responsibility to invest in their community.

Just in closing, with 96 days left to go before year-end, there are a lot of people with a lot of plans anxiously waiting for some direction from Finance on this.

The Chair: Thank you, Mr. Offord.

Ms. Neil.

Ms. Maria Neil: Yes. The Council of Women definitely favours the extra income to the country from having to pay less on the debt. We are very much in favour of paying down the debt. We are not in favour of deficit. We would like a balanced budget.

At the same time, as to the national security that you asked for, there are so many layers within national security. We have a very strong policy against spending money on the ballistic defence missile program, and we do support the treaty Mr. Bush is eager to get rid of.

Now, as to security spending against things like the recent attacks on New York and Washington, we obviously support some spending for that. However, it's obvious that a deterrent to terrorists is not going to be achieved through the anti-ballistic missile program, so our policy stays on that, although we do obviously have to spend more on our anti-terrorism measures.

The Chair: Thank you very much for your input.

As always, as members of the committee, we're very grateful for the insight panellists provide. Of course that makes our work a little easier in the sense that we can always count on expert advice. Today has been yet another example of the valuable input Canadians are giving us here in the pre-budget consultation process. Thank you very much.

The meeting is adjourned.

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