FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, October 29, 2001

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[English]

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

This is meeting 66 of the finance committee for this session of Parliament. Pursuant to Standing Order 83.1, we are looking at pre-budget consultations. Of course, as always, we are very fortunate to have witnesses who give us great insight into what we should be recommending to the Minister of Finance, as he gets ready to prepare his budget.

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The organizations present here today include the Canadian Chamber of Commerce, the Federation of Canadian Municipalities, the Information Technology Association of Canada, Investment Funds Institute of Canada, and the Canadian Council of Professional Engineers.

We will begin in the order in which they appear on our agenda. Therefore we will begin with the president and chief executive officer of the Canadian Chamber of Commerce, Ms. Nancy Hughes Anthony.

Welcome.

Ms. Nancy Hughes Anthony (President and Chief Executive Officer, Canadian Chamber of Commerce): Thank you very much, Mr. Chair. I'm very pleased to be with you here today. I'm also accompanied by my senior vice-president of policy, Mr. Michael Murphy.

I'm sure many of you know, because you have chambers in your ridings, that the Canadian Chamber of Commerce is Canada's largest and most representative business association, with members all across Canada.

[Translation]

On behalf of the members of the Chamber of Commerce, I am pleased to give you a copy of the fiscal plan we propose for the next federal budget. I understand, Mr. Clerk, we have a little problem. This document is being copied. You will have it both in English and in French in a few minutes.

[English]

In this document, the Canadian Chamber of Commerce has produced a set of recommended proposals in the taxation, debt management, and program spending areas that will certainly require serious attention by this committee. However, all of the measures included in the Canadian chamber's submission are based on a fundamental principle that really can be described as “when fiscal conditions permit”. This applies equally to measures proposed for the next budget, or for subsequent action in future years.

The underlying theme of this principle upon which our proposals are built is the continued affirmation of the very hard work of all Canadians, in the past several years, to move the country away from deficit financing at the federal level. This achievement is much too important to abandon now, and all the members of the Canadian chamber urge the government to avoid a return to deficit financing. We believe this can be accomplished, as we set priorities for the country and keep a focus on overall Canadian prosperity.

As you know, the Canadian chamber has applauded the government for its five-year tax reduction proposals, introduced in the last economic statement and budget update. Given current economic conditions, it is imperative to continue the implementation of this tax reduction plan. The January 2001 start of the tax reductions could not have been better timed, and the next phases of the plan are equally important.

Tax relief combined with the substantial monetary stimulus injected into the economy by the Bank of Canada has set the stage for the start of an economic recovery, which we will hopefully see by the spring or summer of next year. Our expectation is for growth in 2002 to equal approximately 1.5%, which is virtually identical to the growth rate expected for this year.

It is the view of the Canadian Chamber of Commerce that it would be ill-timed to add a direct government stimulus package to these monetary and fiscal initiatives. Such potentially large spending packages are not needed at this time, and indeed could be counterproductive in the longer term.

As noted in our submission, the Canadian chamber continues to be mindful of the need for prudent fiscal management. This is particularly acute, given the requirement for an assessment of Canadian needs, with respect to national security brought about by the tragic events of September 11. As we know, such an assessment is leading to increased requirements for spending on Canadian capability to respond to these events, and we understand and support the need to enhance national security.

In terms of other spending priorities, it continues to be the view of the members of the Canadian Chamber of Commerce that these must include only those areas that can have a direct bearing on our competitiveness as a nation. Evidence suggests that successful investment in both physical capital, such as new machinery and equipment, human capital, such as education and training, as well as basic research and development, the seeds for future innovation, are instrumental in raising productivity and overall economic growth. In fact, the Canadian Chamber of Commerce would encourage the federal government not to abandon its innovation agenda, but rather to put it in context with today's fiscal realities.

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The Canadian chamber looks forward to the release of the federal government's innovation agenda, particularly relating to skills, learning, research and development, and other proposals that encourage the continued development of an innovative economy.

In addition, the Canadian chamber urges the government to include, as part of its innovation agenda, a discussion of the optimal business environment to be fostered in Canada. Fiscal and regulatory issues, as well as important framework legislation, and for example, intellectual property and competition law, should be vital components in the development of any comprehensive innovation strategy. In the Canadian chamber's view, the creation of the right business environment must be a cornerstone objective of the innovation strategy.

There's also a need at this time to include in the government's plans a clear focus on issues relating to managing efficiently the Canada-U.S. border. I cannot stress enough how important and critical this issue is for our members, and not just those who reside in border communities, and the economy as a whole. What is at stake here is an ongoing loss of jobs from business and tourist travel to Canada from the United States, but also the potential loss of manufacturing and future investment, if inventories and legitimate business travel cannot proceed across the border with ease.

If Canada does not demonstrate that it is taking every measure possible to help make North America safe, we face the threat of continued and even increased rigorous and slow border crossing procedures by American authorities. The Canadian chamber and other business groups are working with the government to find solutions that will create a secure and trade-efficient border. We acknowledge that the coming budget will contain new expenditures to address these concerns.

Our submission further details the Canadian chamber's recommendation on how spending should be controlled by imposing an annual cap or limitation, and by reallocating from lower priorities. But I would also say that wise choices are just as important on the tax front.

It is the view of the Canadian chamber that the federal government must pursue innovative and bold strategies necessary for Canada and Canadians to prosper. The way forward requires a fiscal policy agenda that includes a competitive tax system that encourages work effort, saving, investment, and risk taking.

While there is much uncertainty regarding the federal government's fiscal position going forward, the Canadian chamber has identified four areas that need attention in the short term. Once again I underline, “fiscal conditions permitting”.

First is capital taxes, which are particularly perverse, in that they are completely profit-insensitive and at total odds with the federal government's objective to be recognized as one of the most innovative countries in the world.

Second, we submit that the general corporate tax reductions that were announced in the last budget should be extended to the oil and gas and mining sectors. That was an unfair move, in our assessment, during the last budget.

Third, we'd like to see increases in money-purchase RPPs and RRSP contribution limits.

Fourth, we'd like to see lower employment insurance premiums.

Specific recommendations are contained in our submission, which I hope will be available soon. The Canadian chamber believes that implementing these recommendations will lead to a stronger and more innovative economy.

[Translation]

We should remain focused on public debt reduction. The Canadian Chamber of Commerce believes that the federal government should continue to allocate the contingency fund, as well as the contingency reserve to debt reduction, if the economic performance is within the projections, as well as any unexpected surplus at the end of the fiscal year. Canada should strive to reduce the net public debt-GDP ratio to 40% in the mid-term and to a much lower level in the longer term.

[English]

You will note our submission makes certain assumptions about the federal government's fiscal position. In the current circumstances, it is recognized that the Minister of Finance is completely reassessing that position. We're very pleased the minister announced that the government intends to table a budget before the end of the year. These are clearly turbulent times, but we would reiterate the need to take actions that serve to strengthen the Canadian economy.

We'd be very pleased to answer any questions you might have. Thank you.

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The Chair: Thank you very much.

We'll now proceed to the Federation of Canadian Municipalities, the president, Mr. Jack Layton.

Welcome.

[Translation]

Mr. Jack Layton (President, Federation of Canadian Municipalities): Good afternoon, Mr. Chairman.

[English]

and committee members. It's good to be here with you, discussing this very important subject. Thank you for the opportunity, by having these hearings that you present to us.

First of all, we've enjoyed a very positive relationship with the Government of Canada at the municipal level for a number of years now. I think it's a relationship that has begun to really flourish. We want to build on that, celebrate the directions that have been taken, and enhance the work we've done in the past.

As I was thinking of this presentation today, I was thinking back to when we crafted these ideas, which of course was prior to September 11. I believe there was a growing sense across the country, in the last number of months prior to that horrible day, that investing in our communities and in our municipal infrastructure, and working with our cities was a very positive direction that was emerging. There was a sense of understanding of the importance of that by virtually everybody in the country—business leaders, the media, and virtually all political parties. There was a kind of emerging consensus.

I would like you to cast your minds back to those days, to some degree, as we talk about this topic. While of course we recognize the very significant change September 11 has brought into all of our lives, our finances, and our economy, as we rebuild we want to have a sense of continuity and build on the ideas that were emerging as strong concepts, as we worked on how to build the quality of life in our communities.

Today I am very pleased to have with me my colleague in municipal government, someone who I'm sure is well known to many of you, Mayor Gilles Vaillancourt of Laval. Despite the exigencies of an election in his own community coming up very soon, he felt it was very important to be here to speak about the issues that our municipal communities are facing.

Our comments today will fall into five main categories. First of all, the mayor will speak about our needs in the area of core infrastructure, building on the very successful initiatives for infrastructure programs that have taken place in the past, and that we have ongoing currently. In addition, he will speak on transportation infrastructure.

I would like to speak about greenhouse gas reduction and how we can work with the federal government to help achieve the Kyoto commitment, which we're all looking forward to signing very soon.

On the agenda for affordable housing, which I know you're well aware of, we want to touch on the continuing importance there, and then a couple of closing elements.

I will refer you to our document, which we urge you to read when you have the time. No doubt some of you have already had a chance to skim through it.

I am emphasizing three numbers with everybody I speak to, and I won't miss the opportunity to mention them here. We've been fortunate in Canada to have had quite a bit of economic growth in the last few years, but I'd like you to reflect on the impact of that growth on government revenues.

Municipal revenues in the last five years have increased by 7.7%. That stands against inflation of 14% and urban growth of 7.5% in population in our cities. Our income has gone up by 7.7%. Provincial incomes, taken together across the country, have risen by 26.2%. Federal revenues have increased by 33.1% in the same timeframe. This is because of our tax structure. Growth-based taxes are not available to municipalities.

We have had great difficulty, in many cases, dealing with downloaded expenses and what have you. In fact, we were a little surprised when we saw the numbers and realized that 1.5% of our revenues municipally used to come from the federal government. We're now down to half of 1%, which is a cut of about $250 million over the last five years.

Some of these numbers are laid out in our presentation. They have to do with the changing nature of program financing over the years. We're not here, frankly, to complain very much about that. But we are here to see if we can begin to build on some of the new partnerships we've begun to create—the infrastructure program, the green municipal funds—and begin to, in a sense, help redress that imbalance.

Most of you are probably noticing that this imbalance is beginning to show in your communities. Whether it's homelessness on our streets, the state of repair of our roads and transit, or even our water systems, these issues are emerging in your discussions with your constituents, and they are also our constituents, of course. So we think we have a lot of common ground, and we think we can help you in some of your dealings to get the provinces to participate with you in meeting some of your priorities.

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With that background information, and recognizing the change in context, clearly, that September 11 has caused for all of us—and we certainly present these ideas in that changed context, and our expectations are adjusted accordingly—I would now ask Mayor Vaillancourt to say some words about infrastructure.

[Translation]

Mr. Gilles Vaillancourt (Mayor of Laval, Federation of Canadian Municipalities): Thank you, Mr. Layton. Thank you, Mr. Chairman.

In order to restore the confidence of Canadians in their economy, we should stimulate and support it even more now. We could easily pave the way to recovery by investing more in such basic infrastructures as water systems, sewers, streets and roads. We need first to accelerate the present program.

I am going to give you an example of what happens in Quebec as far as the availability of funds is concerned. The municipalities which put forward their most urgent projects in extremely focused niches, presented projects for $3 billion whereas the amount available for the next five years is $1.6 billion.

We can already see that, at best, the present program will enable us to spend a little but not to make a sustainable investment in the repair and the correction of the present chronic deficit in basic infrastructures. So we should not only accelerate the program and reduce this five-year period for these $1.6 billion which are earmarked for Quebec municipalities but also increase this amount. In the other Canadian provinces, things look the same. The difficulty we will have is that, at the end of the fiscal year for this first programme, we will discover that we did not make any progress on the road to correcting the chronic deficit in infrastructure.

The second thing I want to bring to your attention is the increasing state of disrepair of highways and roads combined, in urban areas, with the chronic lack of investment in public transit facilities, which is long due.

We believe that, apart from the present infrastructure program, the federal government should start considering investments with the Canadian provinces and territories a bit everywhere, to ensure that they meet the real needs in urban areas.

At the present time, bottlenecks are chronic in all urban areas. Not only are road conditions not satisfying but the state of public transit is not satisfying either. This is now a very big penalty for the economy, which we accept. It is not only a very big penalty but also an environmental penalty which is ineffective. We do not need this environmental penalty. Greenhouse gas and their damages are well known. We should make joint efforts to find integrated multi modal solutions in urban areas. At the present time, we have a piecemeal approach and, in the end, we never have the guarantee that we will reach our objective and that the redevelopment will become sustainable, as it should be.

These are the things I wanted to tell you about those two basic infrastructure projects. I will now let my colleague conclude.

[English]

Mr. Jack Layton: Next, to speak briefly about the greenhouse gas issue, we believe there is a wonderful opportunity to make use of the tool that has been created between the Federation of Canadian Municipalities and the federal government, known as the green municipal enabling funds, to assist you in developing and achieving your program of a 6% reduction in Canada's emissions by the year 2010.

If you have a chance to look at the appendix to our document, which we've sent to Minister of Finance Paul Martin, a plan to achieve 20% of the Kyoto target, I think you'll find it very interesting.

As you know, a series of tables was established to research all the measures that could be taken to deal with a reduction in greenhouse gas emissions. One of the tables was a municipalities table. Others had to do with transport, industry, and buildings. There were some excellent ideas in those reports that haven't really had a chance to be implemented yet. Many of them can be done on a remarkably cost-effective basis. In fact, in many cases, they can promote economic growth and make money for the investors. Those in particular are the ones we want to emphasize.

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But we've put a program together here that we believe will guarantee that you can achieve at least a fifth, and maybe a quarter, of your entire Kyoto target, working through the municipal sector. The due diligence on those recommendations was done by those tables and by your officials throughout.

The key elements include methane reduction from landfills. We have hundreds and hundreds of landfills across the country that are emitting methane, and that methane can be captured economically and turned into energy. This is something that some cities have begun to do, but with some stimulus and some enabling research capability through the green funds, they could enhance dramatically the speed at which they're able to do that.

In addition, recycling programs have a remarkably fabulous effect on greenhouse gas emissions, because the reuse of materials avoids the emissions that were involved in the creation of the material in the first place. We give a number of examples here.

Enhanced recycling turns out to be a very good strategy for greenhouse gas reduction. It usually doesn't require a very large investment to get it started, and we have some leaders in this country that we can use as a basis.

Finally, building retrofitting, which is a fabulous construction job creator, can also reduce greenhouse gas emissions dramatically. Some of you may be familiar with the better buildings partnership program in Toronto that is retrofitting hundreds of buildings there and reducing greenhouse gas emissions, as well as making a return on investment to the revolving funds.

These are the kinds of initiatives that we hope you'll be able to take a look at. We've put some numbers to that program here, which we would urge you to have a look at. We think it can help you to sign off on the Kyoto protocol with confidence in the spring.

Of course, you would expect us to be raising the issue of affordable housing. We've raised it with your committee in the past. We were very pleased to see in the red book, and then again in the Speech from the Throne, the commitment for $680 million over four years for affordable new rental housing construction. I'm pleased to be able to report to you that virtually everybody we've talked to now in Canada is coming on board with this idea, including the letter most recently sent to the minister in Ontario from the Urban Development Institute, which is the largest building group in Ontario, one that has traditionally not supported government intervention of this kind, but they've recognized that there is a segment of Canadians that they can't house, no matter what tax changes and CMHC changes we make—which of course we're advocating as well with them.

So we have a consensus. The money is on the table. We just want to be sure that in this budget that money is recommitted, and in particular that it is focused on low-income Canadians. That consensus is emerging, that is where the money is needed, and hopefully we will see that reiteration. We have no reason to believe it won't be there, but we're here to underline it and to tell you that we are working very hard with all the provincial ministers of housing and of finance to urge them to come to the table with matching money, which then would multiply the effectiveness of the program.

In closing, Mr. Chairman, in our document we also talk a bit about how we'd like to work with you in achieving the connectivity of our communities, particularly smaller, remote, and rural communities. Naturally the municipal sector can be a very useful ally in accomplishing this, as well as with your e-government project, where we think the municipal portals may be very useful to you in achieving your objectives. We're naturally very interested in working with you on those.

Of course we are involved with your international development assistance program, working city to city. We have programs with CIDA in front of you for review and refinancing. Naturally, in these times Canada's role internationally can be very important, and we are looking forward to continuing to work with you on those sorts of projects.

Once again, we'd be happy to take any questions, if you have any, either now or later. We appreciate your having given us the time.

The Chair: Thank you very much, Mr. Layton and Monsieur Vaillancourt.

We'll now move on to the Information Technology Association of Canada, Dr. Gaylen Duncan, president and chief executive officer. Welcome.

Dr. Gaylen Duncan (President and Chief Executive Officer, Information Technology Association of Canada): Thank you, Mr Chairman, and thank you for the opportunity to present some views to this committee. I think this is the sixth time I've appeared before the committee prior to budgets, at different times of the year, but it's a pleasure and an honour to be here.

The IT industry in Canada produces $116 billion in annual revenue. It is both research and export intensive. We export approximately $30 billion worth of goods and services annually, and we are the largest contributor to research and development in the economy, investing nearly $4.5 billion annually in R and D.

I'm not going to read the entire submission, which I believe you all have, but I will highlight some points.

I would point out that this one sector of the economy represents just under 50% of private sector R and D in the entire economy. If the other sectors were investing at the same rate the IT sector is, we would be a world leader in R and D.

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We invest in R and D because we have to. Our industry, perhaps more than any other, is driven by the dictum “innovate or perish.” Everyone in our sector, regardless of whether they produce processors, software, or new tools to enable electronic commerce, knows they are only as good as their next release. We understand the imperatives of a global economy predicated on knowledge and our national capacity to innovate. We have advocated for over a decade now that Canada needs to better prepare itself for the challenges of a new economy.

This committee has encouraged us with its responsiveness to our recommendations about a tax regime to foster innovation. You have responded to our suggestions about reforms to capital gains tax to encourage investment in start-up enterprises. You have responded to suggestions about adjusting the tax burden on the knowledge workers who fuel our industry and our nation's capacity for innovation. These, among many other substantive reforms, suggest to us that you understand the need for transformation.

The need for transformation has not diminished since September 11. If anything, improving our capacity to innovate is an even greater priority today than it was seven weeks ago. Analyst after analyst has contended that overcoming our opponents in the current conflict will require advanced intelligence-gathering capability, sophisticated surveillance tools, and a superior telecommunications technology. In recent weeks we've seen cabinet ministers making announcements of significant new investments in technology to secure our borders and strengthen security on the ground and in the air.

There is a notion prevailing that the choice between enhanced security and defence and the innovation initiative is binary; we can have one or the other, but not both. ITAC believes the two objectives are complementary and equally urgent. We are pleased to see champions such as Minister of Industry Brian Tobin and Minister of Human Resources Jane Stewart continue to advocate for a balanced approach.

The events of recent weeks have imposed upon this government the twin responsibilities of fulfilling our commitments to the war on terrorism while doing everything it can to strengthen our domestic economy. A strong economic focus is essential to ensure that we continue to create the wealth necessary to fund our role in this conflict and to support a quality of life that vindicates the sacrifices made in that conflict.

Our basic advice involves three broad priorities.

First, as a matter of national urgency, we call upon the Government of Canada to cooperate with our international colleagues in every way possible to restore as quickly as possible confidence in the global economy and in the institutions that make it work. Such actions may include multilateral efforts to combat terrorism, to ensure the efficacy of markets and exchanges, to safeguard the Internet, and to stimulate trade and investment on a global scale.

Secondly, we call on the Government of Canada to accelerate discussions with the United States aimed at creating a truly North American customs and immigration cordon, with an increasingly free flow of goods and skilled people between our nations. In these discussions, we must realize that Canada has much more to lose from security-led U.S. isolationism than does the U.S. from a loss of trade with Canada. Open minds and attention to the end objective will be required going forward.

Thirdly, we call upon the Government of Canada to stimulate the economy and persist in the initiative to make it more innovative. Today, ITAC released a white paper on innovation. In it we recommend a number of steps to strengthen our capacity for innovation.

For example, we believe it is essential that we adopt a more strategic approach to investment in innovation and education. In spite of recent reverses in employment trends, there is still a shortage of highly qualified people the IT industry needs to drive innovation and fuel growth, and in some sectors in the industry it has reached critical proportions. Ironically, these sectors are the very ones where our potential for tremendous growth and world leadership is most profound, such as software and microelectronics.

Above all, we need to take a more hard-nosed approach to our national innovation investments. We need to tie the investments made by Canadian taxpayers back to our priorities. If our objective is to advance from fifteenth to fifth place in terms of commercializable R and D, the beneficiaries of our innovation investment must assume greater accountability for fulfilling that objective.

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There are five specific tax and regulatory proposals. I will simply give the titles of them. If the committee staff wish further information, we would be happy to deal with it off-line. One proposal is capital cost allowance for IT equipment. The second is tax treatment of employee share options. We have a fine program that has come out of the last two budgets. It needs some fine-tuning. Third is pooling of offshore revenues and expenses, encouraging more bilateral tax treaties. Fourth is recognition of revenue and maintenance contracts. And fifth is regulation 105, withholding tax.

I thank you for this opportunity, and I would be happy to take questions at the end.

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

We'll now hear from the Investment Funds Institute of Canada, vice-president, regulation, John Mountain.

Mr. John Mountain (Vice-President, Regulation, Investment Funds Institute of Canada): The Investment Funds Institute of Canada, IFIC, would like to thank the committee for the opportunity, once again, to contribute to the government's pre-budget deliberations.

IFIC's membership is currently made up of 83 fund management companies, sponsoring over 1,800 mutual funds, 144 dealer firms selling mutual funds to the investing public, and 76 affiliated members representing law, accounting, and other professional firms serving the industry. The value of assets under management has increased from $3.5 billion in 1981 to $385 billion 20 years later, making mutual funds an important player in the Canadian financial services industry.

This year IFIC would like to focus its comments on pensions. IFIC believes that pensions are an important factor contributing to one of the government's three budgetary objectives, namely the creation of “an economic and social environment where Canadians can enjoy the best quality of life and standard of living”.

At a time when an exceptionally large percentage of the population is approaching or has just begun retirement and when, thanks to medical science, that group is going to remain in relatively good health for longer than ever, the government has a responsibility to ensure that there is an appropriate range of retirement savings options.

It is generally agreed that for Canadians to maintain the same quality of life and standard of living in retirement that they enjoyed in their middle years, they require an income equivalent to 60% or 70% of their working income. For those Canadians who put in a sufficient number of years with an employer who had a defined benefit pension plan indexed to inflation, maintaining that level will not be a problem. Increasingly, however, this is not the case. Most Canadians, because they are self-employed or have had different employers, or because they have been part of a defined contribution pension plan or simply worked for an employer who does not sponsor a pension plan, have to rely on other more self-directed ways of planning for their retirement.

In order to achieve that desirable standard of living, IFIC believes that the limits individual Canadians can contribute to their registered retirement savings plans need to be increased. IFIC proposes that the current contribution limit be raised from 18% of $75,000 of earned income, or $13,500 annually, to 36% of $75,000, or $27,000 annually, and then indexed accordingly.

Increasing the percentage rate allows Canadians at all income levels to make increased contributions to their RRSPs. It would also bring Canada closer to the contribution limits in countries that are competing with Canada for skilled talent. In the United Kingdom, for example, the contribution limit to their savings plans amounts to the equivalent of $45,000 annually.

RRSPs are often inaccurately characterized as a tax break for the wealthy. The truth is that as RRSPs become registered retirement income funds, or RRIFs, at age 69, they will be fully taxed when they are withdrawn. The larger a person's RRIF, the more tax will be collected on the RRIF withdrawals and the more likely those withdrawals will be taxed at a higher marginal rate. Furthermore, when an RRIF reaches a certain size the government-financed old age security payments are clawed back based on taxable RRIF withdrawals.

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Raising the RRSP limits is essentially a matter of providing Canadian workers with more flexibility in planning for their retirement. For example, many Canadians very reasonably delay making contributions until their children are educated and their mortgages are paid off. Higher limits would help these Canadians catch up.

In the same spirit of providing more flexibility to future retirees, IFIC also recommends that the committee give serious consideration to the creation of another kind of plan called the tax prepaid savings plan, or TPSP. The TPSP complements the RRSP. In contrast to an RRSP, however, a TPSP does not give investors an upfront tax deduction. Like an RRSP, it does allow investment income to grow tax-free, but unlike the holder of an RRIF, a retiree with a TPSP after the age of 69 would be able to withdraw the proceeds without tax consequences.

Depending on their financial situation, Canadian workers would be given the choice in planning to save for their retirement of paying less tax now or when they retire. For many low-income and moderate-income workers, saving by way of an RRSP makes little sense if they are going to encounter higher tax rates in retirement than those they face while working and possibly also suffer benefit clawbacks.

Other workers may want to contribute in both ways. For those who have exhausted their allowable RRSP contributions, TPSPs could offer new and additional contribution room.

TPSPs should be attractive to government. First, they would involve no upfront revenue loss. Secondly, they provide another incentive for Canadians to save and thereby alleviate the crunch on the country's finances that will occur when the baby boomers retire. Finally, for those concerned about the brain drain and how Canada fares in the personal finance category, a tax prepaid savings option would match what the U.S. and the U.K. already offer taxpayers.

We note that our comments are focused on long-term priorities and recognize that there are very important short-term priorities that do need to be addressed by the minister and the government as they create the next budget. We would like to remind you, however, that the retirement planning needs of middle-income Canadians have been consistently short-changed over the last decade for short-term, although important priorities. If dramatic changes in this aspect of retirement planning are not soon enacted, our long-term issue will become a short-term crisis for all Canadians.

In conclusion, IFIC believes that the challenge for the government is not on the public policy front, but on the technical side. How to mesh the contribution limits of both plans in a way that is fair, flexible, and far-reaching is a challenge worth pursuing, as it can contribute quietly, but materially, to our standard of living as Canadians.

Thank you, Mr. Chairman. I would be pleased to answer any questions you may have.

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

We'll now proceed to the Canadian Council of Professional Engineers, the chief executive officer, Marie Lemay, and the president, Pierre Boucher. Welcome.

Mr. Pierre Boucher (President, Canadian Council of Professional Engineers): Good afternoon.

Thank you, Mr. Chairman and committee members, for the opportunity to address you this afternoon.

Today marks the first appearance of the Canadian Council of Professional Engineers before this committee. I therefore feel it's important that we introduce ourselves.

The members of the Canadian Council of Professional Engineers are the twelve associations within the provinces and territories that license and regulate the engineering profession. The council speaks for over 160,000 women and men who are licensed to practice engineering in Canada.

[Translation]

These engineers are responsible for the health and the safety of Canadians in all the areas covered by engineering. So we are pleased to appear today on behalf of the 160 000 engineers of the country to talk about four current issues which are basic to the well-being of the citizens of this country. In our view, these national issues would greatly benefit from the interest and the financial support of the federal government.

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[English]

Our first area of concern is drinking water. As the designers, builders, and maintainers of Canada's drinking water systems, we believe it is vital that the federal government provide national leadership to ensure safe drinking water across the country. The Canadian Council of Professional Engineers recognizes the regulatory authority of provincial and territorial governments for drinking water. But we also recognize the need for national coordination and leadership on an issue so fundamental as safe drinking water.

We therefore propose that the federal government coordinate, develop, finance, and promote a performance-based national drinking water code similar to the national building code. Rather than enforceable national standards, this code would be designed to address the three fundamental components of any drinking water system: safe source of drinking water, safe water treatment, and safe distribution.

A national drinking water code would be appropriately framed so the provinces and territories could accept the provisions of the code as the basis of their own legislation.

The proposed national drinking water code should extend beyond water quality requirements to include the entire water system. It should address the planning, design, construction, and operation of drinking water treatment facilities and distribution systems as well as the protection and risk assessment of the associated water sources.

The national drinking water code should focus on the expected results rather than detailing specific methods or approaches. Infrastructure improvement and technological development are critical parts of the clean water equation. Canada needs a properly funded approach, one that is planned and sustainable and that addresses the full life cycle of the water system. More federal funding for research and development to improve the water system, processes, and infrastructure projects will greatly increase the safety of Canada's drinking water system.

The second issue we want to address today, Mr. Chairman, is Canada's infrastructure as a whole. Infrastructure is not strictly a provincial matter. While the provinces are responsible for drinking water systems, waste disposal, and highways, the federal government is responsible for our transportation, railways, waterways, ports, and telecommunications. All are vital, not just for human comfort and safety, but for economic growth.

In 1999 the cost of putting Canada's infrastructure back into working condition stood at some $60 billion. Mr. Chairman and members of this committee, we have yet to tackle much of that work. Therefore, engineers are asking the federal government to provide much stronger financial backing for infrastructure recovery in this country for both federal and provincial infrastructure. While we applaud the government's support for Canada's infrastructure program, we urge the government to increase infrastructure funding and at the same time develop long-term strategies that will make the best use of our investments.

One of the best ways to resolve infrastructure problems is not only by building more roads or bridges, but by building them better so they last longer and require less maintenance. We need to invest in Canadian innovators, who are renowned for their research and development skills. We strongly encourage the government to look at long-term solutions for infrastructure problems, that is, solutions that are more efficient, more cost-effective, and ultimately safer for both the public and the environment.

Now I would like to ask Marie Lemay to speak about our concern about post-secondary education and research and development.

[Translation]

Marie.

Ms. Marie Lemay (Chief Executive Officer, Canadian Council of Professional Engineers): Thank you, Pierre.

Mr. Chairman, members of the Finance Committee, the Canadian Council of Professional Engineers is responsible for the certification of undergraduate programs in Canada. We are greatly concerned with the situation young Canadians are in now when facing their engineering career.

Students must face high tuition fees and inadequate financial support systems. These two factors are obviously a barrier for some Canadians who hope to make a career in engineering, particularly those who are not so well-off. Socioeconomic exclusion results in a profession which is not really representative of the diversity of Canadian society.

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[English]

On the industry front, we're told that there are not enough engineering programs in the country to meet the demands for engineering graduates. While some positions in Canada are being filled by foreign-trained engineers, we urge that the government help fund Canada's post-secondary education system so all capable young people in this country who so desire have the opportunity to obtain an engineering degree. We also urge the government to increase the capacity of our university engineering programs to help meet industry's demand for highly skilled workers from Canada as well as from abroad.

Turning to our final issue, the Canadian Council of Professional Engineers fully endorses the government's commitment to research and development and innovation spending. We recommend that the government press forward with its efforts to make Canada a world leader in research and development. As engineers, we especially support appropriate research in emerging fields such as biotechnology in order to be able to measure the delicate balance of great promises and great risk inherent to these new technologies.

Thank you.

[Translation]

Mr. Pierre Boucher: Thank you, Marie.

[English]

To summarize, the Canadian Council of Professional Engineers recommends that the federal government give priority to drinking water safety; infrastructure development and maintenance; post-secondary education and research; and finally, development and innovation funding.

Mr. Chairman, the Canadian Council of Professional Engineers thanks the Standing Committee on Finance for allowing us to participate in the pre-budget consultation process. Thank you very much.

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

I will now proceed to a question and answer session. It will be a five-minute round. We'll begin with Mr. Epp.

Mr. Ken Epp (Elk Island, Canadian Alliance): Thank you very much, Mr. Chairman.

I'd like to make these comments in the order in which you made your presentations. Thank you all for being here. Unfortunately, we're really limited in our time. I could talk for half an hour with each of you.

Let me begin with the Chamber of Commerce. I was intrigued with your statement that you have these goals “when fiscal conditions permit”. Are you not afraid, if you put in that phrase, that government—which isn't well disciplined—could perhaps slip into very useless, wasteful spending and lose its focus on some of the big priorities that face our nation at this time?

Ms. Nancy Hughes Anthony: Mr. Chairman, if I could respond to that, I think the major concern of our members is we clearly see the need for the government to respond to issues related to defence and security. We have seen the government bring forward measures over the last couple of weeks that seem to Canadians to be very suitable, very appropriate. Obviously these do have a price tag associated with them. So I think there is good support for increasing Canada's capability to fight terrorism.

On the same side, though, we are hearing from our members in the chamber about their deep concern that, having retrenched as a country over a number of years and dug ourselves out of the deficit hole, we do not go back into deficit financing. That is the message I wanted to bring today from our membership.

This will demand, in my view, some spending control. We have suggested a particular discipline in our brief here that government spending does not increase by more than what it takes to cover inflation and population growth, which is roughly around 3% or so a year. We have seen the government's expenditures go up 7% and 8% in the last couple of years. So I think those are the two counterbalancing factors. Yes, we understand that there needs to be some new spending on issues like defence and security, but how can those be funded perhaps from lesser priorities? The government needs to make those choices.

Mr. Ken Epp: A question to you then, and perhaps also the technology association would comment on this.

Facing the pressure of not going into deficit, reducing the debt—you're suggesting a minimum of $3 billion a year at least on the debt, which we would agree with—stimulating the economy, all of these other things, one of the items the government is now proposing is a new wideband extension of the Internet so all the rural parts of Canada can be on the Internet. The cost is probably going to be in the billions. Is that a high priority? I'd like both of you, and also the technology association, to respond to that please.

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Ms. Nancy Hughes Anthony: I'll start. And if you don't mind, I'll ask my colleague Mr. Murphy to comment on it as well.

In our brief, just to be perfectly clear, we did not say “stimulate the economy.” We feel that the tax reduction package the government has already committed itself to, plus the monetary stimulus we see through the actions of the Bank of Canada, are very appropriate mechanisms under the current circumstances.

Could I just ask Mr. Murphy to respond to the broadband issue?

Mr. Michael Murphy (Senior Vice-President, Policy, Canadian Chamber of Commerce): I'll just add very briefly that a program like that is going to have to be judged like other programs in the current environment in terms of what kind of capacity we have. The chamber's view on it is very clear. Insofar as spending is concerned, if you benchmark it against productivity improvement and competitiveness improvement, that's the starting point for each one of these kinds of assessment.

In the specific case of this particular program—and there's been lots of reference to it from the time the original report came out in June and we've seen different numbers—you've got to take a look at what the private sector has done here already. The carriers and others in Canada who implement facilities have done a very good job. We have a very high level of penetration of telecommunications and other facilities in the country.

It's primarily the private sector's job to do that. Now, if government is going to intervene where the marketplace might not get the job done, then I think it's a case of doing so in the least market-distorting way possible. I would also add that if you're going to make a move in this area in terms of supporting the innovation agenda, you'd also want to think about ensuring that you target a number of stakeholders who are highly relevant here. One of the things we wanted to make sure we got on the table—and our members discussed this at our annual meeting—was the small-business community as a target audience and the benefits that might accrue there through such facilities, often overlooked in this discussion.

The only other point I would make is that building facilities is one side of the equation. The other side is the demand side, which are the applications and uses made by people who can access the facilities. I think that also has to be part of the equation here.

Mr. Ken Epp: Okay, I have a quick question for the municipalities.

The Chair: There was still a question for Dr. Duncan.

Mr. Ken Epp: Oh, I'm sorry.

Dr. Gaylen Duncan: That's okay. I won't take up all the time. I know you have one more to go.

In the report, there are social and economic benefits very clearly listed. Do I believe and does the industry believe that this should be a priority? Yes. Having just returned from the Yukon—which by the way is Canada's most connected province or territory—I can see the value from a social, cultural, and economic point of view of continuing on this. But it's a government decision. We're suggesting that it will change the way Canada lives, the way government works. We believe it's the right thing to do.

Mr. Ken Epp: We would need to discuss that more, but I don't have time.

I want to talk very quickly about investments. Mr. Mountain, I'm intrigued with your idea of having a prepaid plan in terms of savings. One of the complaints I get as a member of Parliament from seniors is that they can't make ends meet. They skimped and saved. Now when they take their money out of their RRSPs, they get clawback and income tax to the point where their savings are basically cut in half. They're very concerned about this, so the prepaid plan sounds like a good incentive. But meanwhile, we have 25 or 30 years at least to wait before the benefits of that would be accrued. What do we do with people who are having trouble making ends meet right now in terms of our present budget?

Mr. John Mountain: That's an excellent question. Unfortunately, I don't think I have an excellent answer. It's not something we had discussed in terms of this submission. We were very focused on long-term strategies.

I really think that the answer has to look into helping them save in advance of getting to the situation they're in today.

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Mr. Ken Epp: For seniors, who are already past their wage-earning time, it's too late. I think the answer would be to increase the basic exemption. Let them earn more money or take more money out before they have to pay any tax at all or lower that rate even further. I was hoping you would say this all by yourself, but I had to say it for you.

Mr. John Mountain: [Inaudible—Editor]...to make him happy.

Mr. Ken Epp: That would be a good plan. Thank you.

Thank you very much, Mr. Chair.

[Translation]

The Chair: Mr. Loubier.

Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): Thank you, Mr. Chairman.

My first question is for The Canadian Chamber of Commerce. I did read your submission and I listened to you carefully. The general message which you are conveying is that the federal government should not make any new spending, that they should honour their commitments on personal and corporate income taxes, that they should meet their commitments on EI premium rates and that they should continue what they have been doing for five years concerning debt reduction from unexpected surpluses.

I also see that, while saying that, you are also talking about a series of initiatives in your submission. When adding up just the initiatives we can put a number on, because there are as many with no number on them, we obtain a total of $19 billion for new spending or tax spending, which is the sacrifice the federal government should make in terms of fiscal resources to meet your demands.

I will give you a few examples. We are talking about balancing the premiums with the needs of the EI fund. This means $4 or $5 billion less for the federal government this year. We are talking about the $3 billion contingency fund being used just for debt reduction. We are talking about the contingency reserve, which was as high as $4 billion for the last fiscal year. We have now reached $12 billion.

There is also the capital tax elimination, which amounts to $1.4 billion; another reduction of $1 billion in EI premiums; the reduction of marginal tax rates for businesses and individuals which, in my view, should amount to some $4 to $5 billion.

So, when you...

[English]

Mr. Jason Kenney (Calgary Southeast, Canadian Alliance): Capital tax.

[Translation]

Mr. Yvan Loubier: Right! And an income tax reduction too. You also have the capital tax, but without the capital tax, just for the things I have mentioned, we get a figure of $19 billion. It is a lot of money for people who do not want any new spending but who ask for example, for contributions in the form of tax spending.

I would like you to tell me about your vision, which seems conservative and which puts the brakes and the other vision, which derives from what I have just said, and which puts the foot on the accelerator.

Ms. Nancy Hughes Anthony: Mr. Loubier, I refer to the French copy of our submission, on pages 21 and 22, where we talk specifically about four initiatives we propose for the present budget. Our other ideas are longer-term recommendations. Those are things we submit to the thinking of committee members, because I feel that the work on the renewal of the tax system is never completed. It will take quite a few more years.

So we have mentioned four initiatives but we have also mentioned, and this is important, that we should make an effort to limit spending growth to about 3% a year. This is the estimate of the population growth and of the inflation rate for a year. I think that what we propose is reasonable, especially when you think that by limiting government spending, you could hopefully allocate some surplus resources to top priority programs.

As I said, in the present circumstances, all our proposals are based on assumptions which, in our view, are not valid any more. Of course, the government wants to spend more in some areas like defense and security. Unfortunately, the other side of the coin is that revenue will be lower than the projections we used for our presentation. We will have to wait for the next budget of Mr. Martin to understand a little better his assumptions.

• 1635

Mr. Yvan Loubier: Ms. Anthony, what is your assessment of the federal surplus for this financial year? When adding up your supplementary spending, tax spending or direct spending, we obtain these amounts. Before September 11, what was your assessment of federal surpluses? When you listen to what Mr. Martin says, there is no surplus. He says there is no surplus, year after year. Finally, at the end of the year, there are only unassessed surpluses, unexpected surpluses. What is your assessment of these surpluses?

Ms. Nancy Hughes Anthony: Our analysis is in the Appendix which starts on page 25 of our proposal. Table 4 illustrates our projections regarding surpluses for planning purposes. In table 4, we present our projections but before September 11 events, of course.

Mr. Yvan Loubier: You projected only $7 billion for the year 2001-02 before September 11. If I tell you that this figure will be as high as $13 billion after the events of September 11, will you believe me?

Ms. Nancy Hughes Anthony: I must say that I do not have the figures to check...

Mr. Yvan Loubier: Would you be prepared to make a bet with me? I am joking, Ms. Anthony.

I have a few questions to ask to a member of the group representing the Federation of Canadian Municipalities. Do I have time, Mr. Chairman?

First, we are talking about a new partnership between the federal, municipal and provincial governments. I would like you to talk about this, because it is a different partnership from the one we had since 1994, since the first infrastructure projects. So, I would like you to talk about it briefly, because the chairman tells me that I will not have time to ask my two other questions.

Mr. Gilles Vaillancourt: I would say that the governments now have a fantastic opportunity to establish private-public partnerships, namely for the management of drinking water facilities but especially for starting road projects. For example, in the Montreal area, in the East part of Montreal, an important road link is missing between the 25 and the 40. The private sector is able to build it. There is a consensus between the various partners, namely the chambers of commerce, the business sector and the industry, and even people are able to live with this reality.

The environmental studies are completed. It would simply take a direct call to the private sector. It is the same thing for the 30, on the South Shore. Some parts of the 30 could probably be built within public-private partnerships. So, there would be no need for the government to invest taxpayers' money and they would have the needed flexibility to meet other requirements. It would also stimulate the economy. The GST and the payroll tax would be collected immediately.

So I think that the government should also explore public- private partnerships. The municipal and local authorities have a strong hope that those projects are started quickly.

[English]

The Chair: Thank you, Mr. Loubier.

Mr. Cullen.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman, and thank you to all the presenters.

I have a question for Mr. Layton. In your presentation the section on the brownfield redevelopment is well taken. My riding and ridings across Canada have a lot of brownfields, which we're pushing companies to turn into greenfields. I'm sure there's a negative environmental effect of all of that. In your brief you say that municipalities have a number of tools but they haven't been using many of them. I hope we can push and perhaps cooperate federally and provincially.

Before you comment on that, I'd like to mention greenhouse gases. Sometimes we look at areas where it is very tough to reach our objectives, such as carbon and automobiles. We're going to have to do a lot of painful things, I'm sure, but at the municipal level there are a lot of opportunities. I know that you and some of us on this side at the federal level worked hard to get Toronto to move away from landfill and its Rail Cycle North concept, when we have technologies that will convert municipal solid waste to methane and then to electricity.

• 1640

At the bureaucratic level at city hall, there seems to be an inertia or a lack of willingness to move. I think there are many elected people who want to move in those directions. Do you think we can make a lot of progress there? I think there are lots of opportunities.

Mr. Jack Layton: The short answer is yes, there are a lot of opportunities there. It's like anything else. Education, raising awareness, teaching people about the opportunities, and enabling them to take a new direction are really very important, and that's what the green enabling funds are designed to do. They are designed to help our municipalities develop the tools so that they can realize some of these opportunities that are out there.

At the world level it was recognized that the retrofitting of buildings around the world was a fundamentally profitable exercise. That would then lead you to ask the question, why is it not being done? We found that we needed to educate the decision-makers in both the public sector and the investment community to enable them to come together and form these kinds of partnerships.

One way we did it, with the green municipal investment fund, the Toronto atmospheric fund, and others, was to put some money on the table to say we're willing to take the risk for a part of this kind of work. The leverage has been fantastic. For every dollar the investment fund is putting forward, we're getting $10 of private money to match. Not only that, we're not getting any defaults on our loans. It's very exciting.

The same concept is emerging around brownfields. As many studies have shown, there's a real economic return to be realized if you can get those brownfields developed. But you face a whole series of obstacles, such as regulations around liability issues, all kinds of issues around the technologies that might be best to use, etc.

What we're proposing in our document is that we try to enable the municipal sector in the same way we did with the green enabling funds and maybe even use that same vehicle, because it seems to be working well as an engagement between the federal and municipal sectors.

I do want to add in closing, though, that provinces have been joining with us in many of these projects. We've kick-started it in our conversations through the green fund, and then the provinces have come in to be a part of it.

It's really an unrealized economic potential in our communities right now. It also saves us money on the flip side, which is that we have to service the sprawl if we don't redevelop our brownfields, and that's extremely expensive to do.

Mr. Roy Cullen: Absolutely. Thank you.

I know there are members on this side, and indeed around the table, who will want to work with you in the GTA to move that agenda forward and maybe to get some leverage out of our funding of $7 million through TPC and a technology that is already able to do it. They just need some garbage to process from the city of Toronto.

Mr. Jack Layton: We do have some garbage in Toronto.

Mr. Roy Cullen: I know.

Mr. Jack Layton: We're happy to put it anywhere except in a hole in the ground. Our city is moving aggressively on that.

Mr. Roy Cullen: Good.

The Chair: They put all my garbage in Keele Valley. So thank you very much, Toronto.

Mr. Jack Layton: We'll go in and mine it later.

Some hon. members: Oh, oh.

Mr. Roy Cullen: Ms. Hughes Anthony, in the paper this morning there's talk about a survey. It talks about common security rules and a common perimeter. In your brief you talk about a consideration of perimeter clearance. I don't know if those are one and the same thing.

The reason I raise it is that our Prime Minister and the President of the United States, as I understand it, have agreed on some common principles, such as let's keep goods moving and let's have secure borders. But the devil is obviously in the details.

When you talk about a common perimeter, it sounds to me as if there's some meeting of the minds on what the rules should be. In your brief you talk about common security rules. Does that mean there has to be a meeting of the minds in terms of what those rules are? Can you ever envisage that the United States, for example, might have a different set of priorities than the Canadian government and the Canadian people, or do you think this will all be resolved harmoniously? We're all committed to having the free movement of goods, but the devil's in the details. Maybe you could shed some light on your position.

Ms. Nancy Hughes Anthony: I would be very happy to.

I think you have mentioned the two most important things. It's trade efficiency on the one hand, and you can understand how much more important that is for Canada than for the United States, although it is also very important for them. On the other hand it's security, which I also think is an issue that Canadians and Americans are extremely concerned about.

• 1645

When we are looking at a trade-efficient and secure border, I think it is a given that there will have to be some mutual respect or mutual recognition for the other's practices, procedures, regulations. I don't think in any way we are talking about joint forces at every border point or anything. But I think certainly the view of the business community is that there is an opportunity here to cooperate with the American authorities on a wide variety of subjects, including customs, inspection, transportation, and possibly immigration, to ensure we are putting in place practices that are deemed to be acceptable from both sides of the border.

I think the concern is if we in Canada do not work in very close collaboration with the Americans, and there is a perception—and it may just be a perception—that we do not take security seriously, there will be a continuing effort to pile up inspectors and do a 100% inspection at the border. This is hopefully something we will want to move away from.

Some of the ideas and suggestions that are being raised—and they do go under the heading of perimeter clearance or collaborative procedures—include things like pre-clearing people and shipments away from the border, advanced pre-clearance of individuals and goods that is done under standards that are acceptable to both Americans and Canadians, and putting perhaps more resources outside of North America so when goods or individuals actually leave and are coming into North American shores, we know what those goods are and we've already pre-cleared them. As I said, that does suggest either something like mutual recognition or a set of minimum standards that is acceptable to both countries.

That's the tone of it, Mr. Chairman. I'd be happy to answer more questions.

Mr. Roy Cullen: That's helpful. I guess you would agree also that we as a country need to have some confidence in the systems and procedures of the United States, and to know that it's not that there's a bias built in and suddenly Canada is the problem. If you look at the events of September 11, tragic as they are and were, I think all countries need to tighten up on their security. In fact, if you look at pre-clearance, we have a bill before Parliament right now that has pre-clearance and pre-authorization.

Has your organization lobbied the U.S. government and the U.S. customs to get into pre-clearance and pre-authorization? The last time I looked, there were a lot of trucks trying to get from Canada into the United States.

Ms. Nancy Hughes Anthony: Absolutely. It is a collective challenge. It is something that both of our countries need to work on.

What I'm very pleased about is that certainly we hear from several of our ministers who are working in these particular areas and we also hear from our American counterparts. For example, I visited with Ambassador Cellucci in the last week, and he is extremely concerned about this issue. I think what it takes is for both sides to sit down, roll up their sleeves, and look at exactly the detail.

I agree with you, Mr. Cullen. I think Canada gets perhaps an unfair accusation that some of our practices are lax or weak, or something like that, without necessarily understanding what our practices, our legislation, and our regulations are.

Certainly we in the business community are working very hard, particularly through business organizations and our equivalent organizations on the other side of the border, and through chambers of commerce, particularly border chambers of commerce that have good relationships with their business community just on the other side of the border, to try to dispel that myth.

But that said, it is not sustainable to continue for months more under the current circumstance we have at the border, because the uncertainty is meaning that fewer people are crossing, fewer shipments are crossing. There's a psychological barrier here that I fear in the longer term can injure Canada in terms of people making investment decisions and saying they're just not going to go north of the border because it's too difficult and it's too much of a hassle.

• 1650

I think everybody is certainly working on the same objectives. And I think it is extremely complex, because it does involve so many government departments, so many inspectors, so many people who do a variety of things at the border, on two sides. But I think it is something that we do need to show our American counterparts we are taking very seriously, that we're putting resources as need be into it, and we are dedicating the time and energy to try to work with them to solve this problem.

The Chair: Thank you, Mr. Cullen.

Very briefly, Ms. Leung, then Ms. Bennett.

Ms. Sophia Leung (Vancouver Kingsway, Lib.): Thank you, Mr. Chair.

I want to follow up on the border issue. I want to tell you all that this is a good way, and the government and Canada Customs and Revenue Agency have been working very hard. As a matter of fact, they've already passed the new legislation, called Bill S-23, which will really cover all the pre-approved programs or expedite a lot of the low-risk shipments and travellers. In the meantime, we can focus on the high risk.

We have had discussions with our U.S. counterparts. We have a meeting coming up this week with several people, and the minister will be going to Washington. So I would like you to be aware of this, because what we are discussing is really already included.

We recognize the importance for trade and also for the movement of people, not only on the border, but also at airports and seaports. So we already have done this, and last week our bill passed. So perhaps you can pass on this good news.

Thank you.

The Chair: Thank you, Ms. Leung.

Dr. Bennett.

Ms. Carolyn Bennett (St. Paul's, Lib.): Thanks very much.

Firstly, I'd like to welcome the professional engineers. That was a wonderful first visit to the finance committee. We thank you for your input. I think your presentation was very straightforward and I'm sure it was surprising to the FCM.

In terms of the other interaction, maybe the chair will remind me otherwise, but I'll swear that when the board of trade came to our hearings in Toronto, one of their concerns was affordable housing. I notice that's not in your brief. We were concerned that in places like Calgary, where people actually can't have a place to live, that's obviously not good for business. So is there a reason why that's not in your brief?

Ms. Nancy Hughes Anthony: No, except perhaps there's a little bit of a jurisdictional issue. I know affordable housing is something that certainly the federal government is very much involved in through CMHC, but also the other levels of government are extremely involved in it as well. It has been perhaps in the chamber movement brought forward more predominantly certainly by cities and by our provincial chambers.

That said, we have as a foundation in one of our policies definitely a concern about this issue of homelessness, but perhaps we didn't think of it as a fiscal issue here today in front of your committee.

Ms. Carolyn Bennett: I think if you read the FCM presentation, they see it as a federal issue, in terms of what can be done, in terms of incentives separate from actual funding.

My next question was in terms of the interface between Dr. Duncan's presentation and the FCM presentation. I was quite interested in the FCM presentation, to see the electronic infrastructure, but also the idea of the e-government resource site and the establishment of the Canadian institute for e-governance. It seems like a lot of money over five years, but it doesn't seem like a lot of money if we looked at a tiny bit of good we could do with $50 million for just the beginning of a look at this.

I was wondering if our ITAC friends had any view on the public sector use of information technology, not only e-government but e-democracy. Do they have a view on the kind of development there can be in it for people like me, or in terms of the growing disconnect between citizens and their government? And can they tell us of the kind of development of software and the kinds of things we could do to even web-cast our committee here, or e-mail questions for the panellists? There are a lot of things we could be doing. Is ITAC going to help us with that?

• 1655

Dr. Gaylen Duncan: This is about the third year you've set me up, Ms. Bennett.

In our innovation paper, which we tabled this morning—and we'll be happy to provide copies if you wish—we talk about the importance of two initiatives: the broadband, which Mr. Epp referred to, and government online, particularly government online. It's an announced policy of the government. It's already got some funding in the budget profile over the next few years—though not enough, to my mind.

The position we've taken is that setting a target was very important. We've said from day one that at the rate they're currently going, they're not going to make that target. Let's slip the target; let's set a new one, but let's hold to it.

Are there things you could do? I would start by lobbying to be allowed to bring your computer into the House of Commons. I understand that we can have a BlackBerry under the table, but we're not allowed to have a laptop on top of the table.

Ms. Carolyn Bennett: Oh, we can have it. It's just that we run out of batteries, that's all.

Dr. Gaylen Duncan: We've been advocating that it not be just the federal government. I think the issue Mr. Layton was picking up on was that it shouldn't be a case of the federal government online, it should be government online. That has not really been adequately picked up on.

Often it's a case of the municipal delivery of provincial funds that were originally allocated by the federal government. I have to tell you, citizens don't understand that. They understand it's from the government, period. So we would lobby for being actively involved in anything that begins to bring about that coalition of federal, provincial, and municipal governments. I'm not mentioning regional.

Ms. Carolyn Bennett: Would you do me a favour, though? Will you make sure that there's a difference between the transactional nature of e-government and the actual representative nature of e-democracy?

Dr. Gaylen Duncan: Reg Alcock has been taking the lead in this country in terms of raising the issues of e-democracy. The debate isn't properly engaged yet, although looking at his plan over the next two years, I think we are beginning to engage the debate. We certainly have some of the right questions in place now. E-democracy is going to change things, and we can't guarantee what it's going to look like when it's over.

Ms. Carolyn Bennett: Thank you.

The Chair: Thank you.

Mr. Nystrom.

Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP): Thank you very much, Mr. Chair.

I want to welcome everybody here this afternoon.

I want to direct a couple of questions to Jack Layton, the president of the Federation of Canadian Municipalities. I find your brief is very comprehensive and extremely useful on many fronts, and I just wanted to ask you a couple of very general questions.

The infrastructure idea interests me, and I raised that question with Paul Martin in the House today. How do we compare with other countries in terms of infrastructure funding from the federal government? I'm thinking of a federation like the United States, Germany, or Australia and even some of the unitary states in Europe like France and Britain. How do we compare in terms of some of the other major countries in the world?

Mr. Jack Layton: I would refer you to a document we produced a few months ago called Early Warnings: Can Canadian Cities Compete? We asked ourselves exactly that same question and thought, let's go and get some hard data and try to answer it. We did find some surprising things. This document is on our FCM website; it's cogent and brief and I think is very instructive.

One thing we found, for example, was that the federal government in the U.S.A. contributes about $55 U.S. per capita per year to municipal budgets, whereas in Canada it's about $10.

Mr. Lorne Nystrom: Canadian?

Mr. Jack Layton: No, $10 American. It's $10.22, to be precise, not that I'm counting pennies.

Part of that is accounted for by the fact that the provinces here are more engaged than the states are in the U.S.A. We factored that into our analysis and still determined that in the United States, transfers to municipal budgets from federal and state governments from the various taxes they have available to them was dramatically higher than in Canada. Moreover, it was increasing over time, whereas in our case, in Canada, it has been falling.

It's interesting, because years ago we were the cities the Americans looked to as models, both for our governance and for our public investment. But that's changed, and in life this happens sometimes. It's perhaps changed without our noticing it in a certain way. We've begun to document it, and we've decided not to come back and just simply say, well, give us everything we used to have in days of old.

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We've tried instead to think about new ways of doing things. For example, when it comes to water infrastructure, we are recommending that we get started with an infusion of about $500 million. Our total budget is larger, but we're hoping to ramp up to that. We're hoping to approach the U.S. levels eventually. I think we have to if we're going to compete with them. We can't expect to feed our economic athletes, our cities, less and have them do as well in the competition.

Maybe we can learn from some of what they've done. For example, they've created revolving funds because many of the water infrastructure upgrades can be financed from water rates. The problem is that you need to inject something up front to get it started, something pretty much similar to the green municipal investment fund except on a larger scale. Our friends from the engineering associations are very familiar now with some of these new models of financing this kind of infrastructure upgrade out of the revenues you can attract.

On the other hand, some small communities will never sell enough water to be able to upgrade their systems to make the water safe for their communities. In the States they've recognized this by allowing for grant programs to the smaller communities. They have quite a sophisticated system of revolving funds, grants, various interest rate incentives, and so on and so forth. Let's learn from them. I think this is perhaps the direction to go.

In Europe the support for infrastructure in cities is even greater still. We're competing with them as well, so we're trying to use their models. For example, in Europe community energy systems are very important. They've figured out that absolutely every building doesn't have to have its own heating and cooling system, drawing electricity from somewhere else. Rather, you can make a lot of headway if you begin to integrate these in a more sensible fashion, using combined heat and power plants and community energy systems. You can make your cities more efficient, and you can also achieve environmental benefits. So we've included in our greenhouse gas initiatives some moves towards more community energy systems, combining heat and power, and so on.

It doesn't take much to get these projects going. Again, it's mostly a question of passing some enabling legislation and putting a bit of investment money on the table; then you can watch the thing begin to happen. It's that kind of catalytic approach we're really hoping to take here.

Mr. Lorne Nystrom: I have one or two more questions.

In terms of rapid transit, how do we compare with some of the other cities? About four weeks ago, Mr. Layton, I was invited to speak in Peterborough. I landed at Pearson Airport and saw it was 150 kilometres away. That's an hour and a half on a 401-type multi-lane highway—or drive Saskatchewan style, and you can do it in less than an hour and a half. Anyway, four hours later I was pulling into Peterborough, and I didn't even stop for a coffee break. It's just amazing how many pollutants we spew into the atmosphere because of the internal combustion engine and because of the lack of priority given to rapid transit in our country. How do we compare to other countries?

I have a last question, before the chairman cuts me off. Do we need to rearrange on a more permanent basis through statutes—I hope not the Constitution, but statutes—the status of big cities in this country in terms of more powers? Your tax base is shrinking proportionally, yet your expectation of services is increasing as we urbanize as a society. We have two levels of government, the federal and provincial, that have considerable powers, constitutional and other. What recommendations do you have for us in terms of the powers this big city should have or cities in general should have?

Mr. Jack Layton: I'm going to answer the last question first—and briefly, because this is the finance committee. We can have and would love to have further discussion with all of you on that last question. The short answer is yes, we do need to rearrange and open up some opportunities for more flexibility for action by our cities. We will be working with the Judy Sgro task force and with anyone else who wants to talk with us about how this might be done, because that's the straitjacket we're dealing with.

Mr. Lorne Nystrom: That's right.

Mr. Jack Layton: Cities in the States and in Europe do not have these straitjackets, which again makes them more successful in this athletic competition I was referring to before.

When it comes to transit, first I do want to say that many of the 1,000 municipalities that are members of FCM across the country don't have public transit systems. Transportation for them means better planning of their communities to minimize transportation distances in the first place, as well as some investment in road infrastructure. I don't want to say that it's not the case. Certainly in our big cities transit has to be the major thrust, because clearly we can't keep throwing more and more roads at the increasing demand. They fill up very quickly.

Transit has been shortchanged, really, by all of us for the last 20 years. Now, naturally we look with a certain degree of envy at the gas tax, which is collected by our friends in Ottawa, because it's generated on our roads. We ask ourselves the question, how much of that gas tax, which seems to relate to the transportation on our roads, is coming back to transportation needs in our cities? When we did that research it didn't take long, because we found there really wasn't any.

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That's something that is probably going to have to change. We've urged that it be considered. I know the finance department is reluctant when it comes to dedicated taxes, and we can understand that and we don't need to be that rigid. In fact, what we've suggested here is that something approaching the equivalent of three cents from the gas tax should be devoted to transportation infrastructure in the cities, which hopefully would go primarily to transit.

We don't want to be absolutely rigid. You have to have an integrated approach. You still have to be able to get to the bus station, and the bus still needs roads to drive on. But if we don't start shifting the split of trips to transit, then the smog that made its way all the way from Toronto to Ottawa last summer is going to become more and more a permanent feature. That's a huge health issue, and we know many people are talking about the importance of investing in health. Investing in public transit is probably one of the better investments one could make in health, because it avoids having to send our kids to the hospital with asthma, as Dr. Bennett, who's not in the room, knows. She's my kid's doctor. She knows we've sat in that emergency room and watched my son, blue in the face because of smog, on his third oxygen mask. Believe me, these issues really strike close to home.

Our transit system is in free fall, and the result is people are switching more and more to longer and longer trips. We're prepared to roll up our sleeves and say if you're going to help us with this, we will impose, with you, discipline on ourselves about our urban planning techniques so that we don't keep sprawling in all directions.

The GVRD is an excellent example of how that has been done. They've brought in new planning approaches, and at the same time diverted gas tax revenue to the community. That is perhaps a very interesting model that we could adopt here, and we urge you to take a look at it.

We know it will be a ramping-up situation. We'd like you to get started, maybe using the green funds for some of the more innovative transportation initiatives. Believe me, we have so many terrific projects that have come forward for these green funds. That's really the reason we're here, asking you to top them up and help us respond to those demands.

The Chair: Thank you, Mr. Layton and Mr. Nystrom.

The final questioner will be Mr. Kenney.

Mr. Jason Kenney: Thank you, Mr. Chairman.

I'd like to begin by commending the Canadian Chamber of Commerce for what I think is one the best submissions we've received as a committee, because it deals with the macro fiscal situation and recognizes, as have many presentations we've received, some of the very difficult trade-offs that the government is facing. So often we hear special pleading for important projects and causes, but yours is one of the first submissions that recognizes that there has to be some restraint on the spending side if we are going to meet our objectives in terms of economic competitiveness, the new security envelope, and as well, further tax reductions.

I have a question for you. First of all, you say at page 19 that you're recommending certain short-term immediate tax changes for budget 2002. Was that written prior to the last couple of weeks?

Ms. Nancy Hughes Anthony: Yes, Mr. Kenney. I'm not sure, but did you hear my opening remarks?

Mr. Jason Kenney: I'm sorry, I was out with Mr. Nystrom at a TV studio.

Ms. Nancy Hughes Anthony: I think that is reflected a bit in our covering letter as well to the chair of the committee, that it was written prior to September 11, and we fully understand now that some of these things—

Mr. Jason Kenney: But are you talking about the next budget, or the budget two years from now?

Ms. Nancy Hughes Anthony: We don't know, because we need to understand from the point of view of the Minister of Finance what kind of fiscal room he has. The assumptions we used are in the back of our brief.

Mr. Jason Kenney: You mean the budget for the fiscal year 2002-03, then.

Ms. Nancy Hughes Anthony: What we have tried to outline are our priorities for the next budget, the one the minister will deliver in December.

Mr. Jason Kenney: Okay, then, in your revenue projections on table 4, on page 24, did you include the roughly $2.2 billion in forgone revenue associated with the immediate additional tax cuts that you're recommending, or are you assuming no tax changes, no elimination of the capital tax and no EI reduction, in your projections?

Mr. Michael Murphy: That's right. What you see here is a projection before that.

Mr. Jason Kenney: Okay, so that was before your recommendations.

Mr. Michael Murphy: Absolutely. We took those projections and then looked at what looked like the possible—

Mr. Jason Kenney: On the spending side, are you just looking at the normal slope—which, I agree with you, has been far too high—or are you pricing in an estimate for increased security spending?

Mr. Michael Murphy: We haven't done that.

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Mr. Jason Kenney: You haven't. Okay.

You're talking about reducing EI premiums and a matching employer-employee.... Have you considered or are you in favour of the submission from several service sector organizations to introduce a yearly exemption of $3,000 on the EI?

Ms. Nancy Hughes Anthony: Would you answer that, Mike?

Mr. Michael Murphy: Yes, sure.

No. I'm certainly well aware of the proposal. Obviously, from a cost standpoint, when you look at an exemption, I think a $1,000 exemption runs you somewhere close to $800 million.

Mr. Jason Kenney: So your preference to that is what you're recommending, matching and lowering the rate.

Mr. Michael Murphy: Absolutely. We've been on a course here, and in terms of our continuation proposal, which we have in our document and we've highlighted here, it's very much our preference at this stage.

Mr. Jason Kenney: I have just two more quick questions, because the chairman is on me for time.

In terms of the corporate tax changes that you recommend in the long term, would you also be willing, as part of future corporate tax relief, to see the government fully implement the recommendations of the Mintz committee, which include the elimination of a further roughly $2 billion in so-called corporate tax expenditures? That is, are you willing to trade off lower rates for base-broadening, as Mintz recommended?

Ms. Nancy Hughes Anthony: Mike, do you have a view on that?

Mr. Michael Murphy: Yes.

I think it's interesting that the report came out from the technical committee several years ago, and a lot of people criticized it at the time, but we're starting to play catch-up here, and we're getting to the point where we're going to continue to implement a number of these measures. Certainly the chamber has been supportive of that.

In terms of going forward here, we haven't yet taken a position specifically on what elements of tax reform on the corporate side we are going to want to put together, but what we have indicated is where we are for now.

Mr. Jason Kenney: I'd like to pursue that with your organization, but I have one last question.

I'm glad, again, that you've recognized the need for spending restraint. I wonder if you could comment, from what you know of the government's plans with respect to its innovation program—not yet fully announced, but, like me, you read the newspapers—do you think the $6 billion spending envelope, additional spending, in HRD and industry is high priority enough to crowd out other spending and tax relief at this time?

I have an associated question for Dr. Duncan. You said the $1 billion plus on high-speed broadband Internet hookup for the north and rural Canada is a very important priority. I understand it is for your industry. If you were a parliamentarian, would you think it as important as the demands for increased security spending, health care transfers, and innovation-oriented tax relief? When you actually have to do trade-offs, can you make a case that it's that important?

Dr. Gaylen Duncan: The $1.5 billion or $1 billion plus that we're looking at, over five years, for government expenditures to finish the broadband expansion translates into something in the order of $300 million a year by three levels of government, translates into something in the order of magnitude, assuming major federal involvement versus provincial and municipal, of maybe $200 million. Do I believe $200 million ranks with the kinds of billion-dollar transfers we're talking about in health and other areas? Yes, I do.

I don't believe it's important for my industry. We're growing at double digits again this year, as a total IT sector. We have problems in telecommunications manufacturing, absolutely; that's a global issue. I believe it's important for the rest of the industries in this country, for the rest of the governments in this country, and for the citizens of this country. In all the studies we have shown, the more you invest as a company, as a sector, as an economy, the more you invest in IT, the more your productivity goes up, the more you compete globally.

I appreciate that it sounds self-serving, but that's why we went out and got independent economists to look at both the Canadian and the U.S. data, and the answer is clear. The U.S. is over-investing, and their productivity numbers are beating us.

So do I believe it's a priority? Yes. Does it outrank? No. Our key point was it's not an either/or. It's not like we're going to close the universities because we have to pour all that money into security. The answer is we may not have all the money we want for universities or health care; we need some for security, an appropriate amount, over the years, and we need some for the technology investments.

The Chair: Go ahead, Ms. Nancy Hughes Anthony.

Ms. Nancy Hughes Anthony: I must say, your $6 billion figure set me back, because once again I—

Mr. Jason Kenney: It was in the Globe and Mail on Saturday.

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Ms. Nancy Hughes Anthony: From the point of view of our members, I think they do recognize the need to take the measures that are being taken now in strengthening security. They fully understand that, and as I mentioned also in my presentation, they want to see things like border security increased, and they're quite prepared to see those kinds of expenses take a front seat at this particular time.

That said, we don't advocate that the government, first of all, go into deficit with additional expenses such as the ones that you have talked about. We'd like to see the government continue on the innovation agenda. We'd like to see appropriate investments that lead to innovation. I think the question we still have in our mind is that we would like to understand particularly the Minister of Finance's revenue projections. That is going to have a huge impact on how much flexibility the Canadian government has in terms of any kind of expenditures. But we don't want to see the government purposefully budget itself into deficit.

Secondly, we want to make sure that the stimulative things, like the five-year tax reduction program that has already been put in place, are honoured and go forward, which I understand is certainly going to be the case. Plus, we want to see some of these measures such as security and border management enhanced.

What's going to be left over and what is the context in which the government will deal with its innovation agenda? I think that's what we're going to see when the minister brings forward his budget.

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

So that we're clear, because clarity is very important when we make recommendations to the Minister of Finance, I've participated in every single meeting that this committee has held throughout the country, and I can tell you that Canadians, from coast to coast, want us to support a national security package. That was a very clear priority. They absolutely do not want us to return to a deficit position, because they understand the negative impact it would have on consumer and business confidence, and hence, economic growth. They also want us to remain committed to the federal transfer to the provinces as it relates to health care and education. Of course, they worked very hard to earn the $100 billion tax cut, and they expect that this committee and the government will honour that commitment. That is the base on which we're going to operate, and thereafter we will build with many of the things you've talked about.

But I don't like misleading people. That is the base on which we're operating, and anything above and beyond that will be stated very clearly in a priority format.

As always, you're excellent at what you do. You provide us with great insight, and it makes our job as members of Parliament a lot easier and the work of the committee very insightful. Thank you very much.

We're going to suspend for five minutes so that we can get ready for the second panel.

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• 1728

The Chair: I'd like to call the meeting to order and welcome everyone here for the second panel of the afternoon.

We have the following witnesses: the Canadian Federation of Independent Business, the Canadian Trucking Alliance, the Cement Association of Canada, the Canadian Automobile Association, the National Association of Women and the Law, and the Canadian Alliance on Mental Illness and Mental Health.

We'll begin in the order in which the witnesses appear on the agenda. We'll start with the president and chief executive officer of the Canadian Federation of Independent Business, Ms. Catherine Swift, and also Garth Whyte and Richard Fahey.

Welcome. As you know, you have five to seven minutes to make your presentation.

Ms. Catherine Swift (President and Chief Executive Officer, Canadian Federation of Independent Business): Thank you very much, Mr. Chairman. I noticed the clock has been destroyed in this room, so we were wondering how strict that time limit was. But we'll try to adhere to it as best we can.

The Chair: It's between five and seven minutes, and I know it's going to turn out to be nine.

Ms. Catherine Swift: Thanks very much. It's a pleasure to appear before this committee, as always.

We have some—we hope—interesting data to convey to you today. As you know, our organization bases all of our positions exclusively on the feedback from our over 100,000 small and medium-sized business members across Canada. Today, given our very challenging circumstances following the events of September 11, coupled with an already slowing economy, we're happy to be coming actually bearing some fairly good news from the small-business sector.

• 1730

Looking historically, it's interesting to note how small and medium-sized business has over the years through business cycles provided a pretty consistent shock absorber role for our economy, and that's very much what it appears to be doing today.

We're going to divide our presentation today into three sections. We would like to talk about our survey data on economic growth and job creation expectations of our small and medium-sized business members. We've been surveying them weekly since September 11, so we have some very current data on that. We would also like to speak to major budget priorities of our members, and to talk to several specific low-cost but effective budget initiatives that we believe will help to maintain the confidence of the small-business sector, and therefore promote job creation.

I might note—just reminding everybody once again—that small and medium-sized firms represent over 97% of all businesses in Canada. Generally speaking, the small-business sector represents half the economy and over 80% of the new job creation on average over time.

We like to refer to the sector we represent as the non-stock-market sector. I think we all see the gyrations of the stock market these days, and it can be pretty daunting at times. But I think we should keep in perspective the fact that half the economy is not directly dependent on the stock market, and therefore there is a balancing effect from that sector as a result.

We've included in your package what we refer to as our business barometer update. The most recent data we have is for last week. It was actually covered October 15 to 22. We have there weekly data over a three-week period. As you can see, there are some pretty consistent views of the small and medium-sized business community on things such as their business expectations, what they expect to be happening in terms of their own businesses, job creation, and so on. To date we've gone through three surveys and cumulatively we have over 4,000 responses. As I mentioned, we're continuing this survey weekly, because we feel that given the current rather extraordinary economic environment, it's worth finding out what this important segment of the economy is viewing over time.

We certainly have seen, since last summer, a decline in the economic expectations of the small-business sector. Nevertheless, since the events of September 11, we've seen quite a stabilization in the outlook of small firms across the country, and indeed the sector remains more optimistic than pessimistic.

We see, for example, compared to last year that over half of respondents expect either a stronger remainder of 2001 or the same, compared to the previous year, and about 46% expect a weaker performance. In terms of job creation, we see over 80% of our members expecting to either retain the same number of staff they currently have or actually increase staff. So we have less than 20% feeling that they're actually going to be laying off people. So those should be, I would think, quite positive results. We see overall our members having a pretty steady-as-you-go reaction to the current economic environment.

I'd like to ask Garth if he can speak to some of our budget priorities.

Mr. Garth Whyte (Senior Vice-President, National Affairs, Canadian Federation of Independent Business): Thanks Catherine, and thanks, Mr. Chairman.

One major priority for the upcoming federal budget must be to support and not hinder economic growth and the job creation potential of the small-business sector. The budget is critically important to boost the confidence of Canadian consumers and SMEs. Small-business owners have sent a clear and strong message to the federal government: stay the course; continue with the five-year tax plan and do not go into deficit spending.

If you look on the next page—and I'm now back onto our submission—if you look at figure 1 you can see in the graph that it is clear that small-business owners do not want the federal government to increase spending or launch major new spending initiatives. Like most Canadians, our members support increased spending on security, but they recommend that the money needed to support this should be taken from lesser priority spending initiatives.

Two-thirds of our respondents do not favour subsidies to business, while only one in five would agree to do it. In other words, we're walking the talk. We're saying don't give grants to business. Even fewer firms think it would be appropriate to increase spending on welfare or EI programs as a result of the current economic circumstances.

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We're also doing a survey, which we sent out to our 102,000 members. We're expecting full responses by mid-November. We did a quick run because the first two questions of the survey are important to this committee. On the first two questions we got about 1,200 responses, and we're providing a summation to the committee today.

The first question was on how the surplus should be allocated. Figure 2 shows the responses. You can see the priorities, which validate what was in figure 1 in a different survey: 53% said debt reduction; 32% said tax cuts; then the next-favourite choice would be spending increases. Those spending increases would of course be on health and education.

That's the mix. It's consistent with what they said in 1998 when we did the question we reported to the committee the last time.

Our members were very supportive of the federal government's action to pay down over $17 billion in debt in 2000-2001. We recommend the federal government introduce legislation on tax and expenditure limitation or balanced budget legislation similar to what many other provincial and state governments have in place. This would go a long way towards instilling confidence in the small-business sector that the federal government does not intend to go back into deficit spending.

As you can see, figure 3 shows small-business priorities for future federal tax cuts. Again as you look in figure 3, as with the overall tax plan you can see that personal income tax is the number one priority. Payroll tax reductions, which relate to EI and CPP and Quebec Pension Plan, are number two. GST and HST was the fourth, and corporate income taxes were the fifth.

The customs import duties are important to importers and exporters. The fuel excise taxes are important, and you'll hear, I'm sure, from our colleagues from the trucking industry.

Capital tax is the lowest priority for small and medium-sized enterprises, although we recognize it's a high priority for larger businesses.

Now more than ever it's vital that the federal government stick to its tax plan. The plan focuses on many of the tax priorities identified for years by small business, namely to reduce personal income taxes, lower EI premiums, and decrease corporate taxes. Small business will be watching closely, not only announcements in the upcoming budget, but also the anticipated 2002 EI rate, which must be announced this fall.

The $100 billion federal tax plan includes a 10¢ EI premium cut for 2002. A lower rate cut will signal to employers and employees that the government is prepared to move off its tax reduction plan.

This committee is well aware of the high priority CFIB and its members place on the need to significantly reduce EI costs. Over the past several months many members of Parliament have received dozens—and in some cases some of you received hundreds—of EI letters from small-business owners across the country asking them to support several recommendations to lower EI costs on employers and their employees. We conservatively estimate that you have received between 6,000 and 8,000 letters and faxes individually addressed and sent by our members.

Committee members have before them a copy of the EI presentation to the HRDC committee given earlier this year. I'm not going to go into it in detail, but we encourage you to look at it, because there are some recommendations that do not cost a lot of money, such as reintroducing the “new hires” program, introducing a voluntary premium for additional training costs to deal with replacing employees who go on extended parental leave, and also granting a voluntary premium exemption for those working less than 15 hours. These initiatives would complement the EI premium reduction.

More than a year ago the federal government said it would be reviewing the EI premium rate-setting process. The ratepayers—employers and employees—have yet to be involved in this very important review that will have to grapple with the problem of the EI surplus, which is expected to reach almost $40 billion by year's end.

If major changes are to be made, the government should consider strategies such as moving to a 50-50 split of premiums for employers and employees and introducing a yearly basic exemption similar to what is used in the Quebec and Canada pension plans.

Before I move on, there are two other major concerns. You were just talking to the Federation of Canadian Municipalities, and we have to give you a sentence or two on where we stand on some of their recommendations, which have been recommended by other groups.

The Federation of Canadian Municipalities has stated at its conference and is demanding “that growth-based taxation revenue be available to municipal governments as in the United States”. This includes the sharing of sales and income tax revenues and direct taxes administered locally.

Our members support funding to municipalities for infrastructure spending. However, we are strongly opposed to the federal government giving municipalities the ability to charge their own municipal sales and income taxes. Now is not the time to introduce a municipal GST or another income tax.

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Second, some other groups have recommended the elimination of the $500,000 capital gains exemption for farmers and small-business owners. This tax exemption provides an incentive for small-business growth and expansion. The loss of it would be devastating to our members, who also view it as a retirement vehicle. When it comes to fair retirement, our members feel short-changed, especially when they see the retirement packages afforded to other public and private sector groups. Over 92% of the 22,000 respondents to a CFIB survey said that RSPs were important to their retirement plans.

CFIB is the chair of the RSP Alliance, which consists of 12 national organizations representing close to 600,000 members. Last year we presented to this committee our report, “Pension Parity to End Disparity Between RSPs and Registered Pension Plans”. The report offers five recommendations, which the committee should consider.

I'll pass on to Richard for a quick conclusion.

Mr. Richard Fahey (Vice-President, Quebec, Canadian Federation of Independent Business): There are two small measures for SMEs that do not cost much, and I'm going to give you those in French, if you don't mind.

[Translation]

The first one would be a regulatory reform concerning all the paperwork a SME may have to do for the government. More than two thirds of our 23 000 members who responded to a recent survey told us that it was their priority, that the paper burden should be reduced, with the burden of all those forms.

The OECD is making a study on red tape in Canada. I think that it would be a good idea, in the next budget, to implement an approach, as recommended by your committee recently, to cut the red tape. A red tape commission, une commission sur la déréglementation, would certainly be good news for SMEs.

Secondly, in your recent report Challenge for Change, you proposed a cost recovery program. It would be important that the government lists in its annual budget all its costs and all the fees it imposes on the various businesses or entities in order to identify those which are efficient and those which are not, their administrative costs being too high, in order to drop them.

Finally, Mr. Whyte talked about the new hires program. On this subject, I would like to tell you about micro breweries. At the present time, the governments of several countries, namely Germany, Belgium and France, have a reduced excise tax for micro breweries, for small breweries. This measure was introduced in several provinces, namely in Ontario, in British Columbia, in Quebec and in Saskatchewan and, more recently, in Alberta. It would be important to reduce the 60% excise tax on the first 75 000 hectoliters. The cost of the measure, in the order of $10 million, would certainly contribute to maintain more than 3 000 existing jobs in the traditional breweries sector.

Finally we are going to talk about the jewelry tax, and old tax dating back to the First World War, levied to finance the war effort. Most excise taxes of this type have disappeared with the GST. Perhaps it would be time to become a little more modern and to eliminate this tax.

In conclusion, Mr. Chairman, we should build on the optimism among SMEs, which are going to enable us to get through these rather difficult times. In our survey, we asked the following question: “What should governments do, in your view?“ You have been given 192 recommendations made by SMEs across Canada on what should be adopted by governments.

I will conclude with a quote from one of our members:

[English]

I think we just have to move forward: business as usual, both in our business and in our personal lives. There's not much I can do as an individual or as a small business, except move forward, do what I do best. And since I think governments at any level should also be treated as and act as a business, they too should move forward: plan for the best and prepare for the worst. But standing still should not be an option.

We need to intervene and help small business create the jobs, create the growth in our economy.

Thank you.

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The Chair: Are there any final comments?

We'll hear now from the Canadian Trucking Alliance, Mr. Ron Lennox, vice-president, regulatory affairs. Welcome.

Mr. David Bradley (Chief Executive Officer, Canadian Trucking Alliance): It's actually David Bradley, CEO of the alliance.

The Chair: Okay.

Mr. David Bradley: Thanks.

First a bit about CTA. We represent 4,500 trucking companies across Canada through our provincial trucking associations. Trucks haul 90% of all consumer products and foodstuffs in Canada, and they move 70% of Canada's trade with the United States. The vast majority of our members are small, Canadian-owned enterprises. We have no more than four or five companies that would have any shares publicly traded. To put it into some sort of perspective, the top three U.S. trucking firms are the size of the entire Canadian trucking industry. This gives you some sense of the economies of scale we're up against.

We are a derived-demand industry. As a result, because we reflect economic activity, sometimes we're a pretty good leading indicator. But the first question we had to ask ourselves, in coming here today, was how relevant the submission was that we made to you back in August. At that time we weren't even sure whether there would be a budget this year, and of course nobody could foresee the events of September 11. They have, in many ways, created a new reality.

In the immediate aftermath of September 11, there no doubt was a major toll on several industries—including the trucking industry, with mega-hour border delays and the like. But that has not stopped our trade with the United States. While I wouldn't say we've returned to normal times, certainly the kinds of delays we've been experiencing at the border are closer to normal delays. We are seeing truck shipments down, but not drastically. They're about 10% lower on average than they were prior to September 11, while car traffic is down 40% to 50%. Clearly some sectors have been more impacted than others in that regard.

We'd categorize the situation at the border today as fragile. But, again, the economy was slowing before September 11, and we're not sure if this new sluggishness—the further 10%—is a reflection of September 11 or just of the general malaise that seemed to be enveloping the U.S. economy in the months prior.

In addition, there were problems at the border prior to September 11. What September 11 has done is create a pall of uncertainty over economic prospects, and particularly over the medium-to-long-term outlook for direct investment in Canada. Reliability of supply is now a big question mark hanging over many of our manufacturers and therefore our transportation-distribution system.

Sectors like automotive, which account for so much of our trade with the United States and rely on just-in-time inventory systems built around the truck, have taken on 5% higher inventories. That's a hard cost, which at some point the people who make the decisions on investment—in that sector, at least—and who are almost wholly in the United States will have to factor into future investment decisions. I would say to you that when the current supply contracts come due, they will be taking into consideration the reliability of supply and the impact the border is having on it. And a 64-cent dollar won't be enough, perhaps, to bail us out this time around.

In this way September 11 has exposed and brought long-overdue attention to longstanding border concerns, and it has finally—and in a morbid way—underscored the importance of transportation to Canada. Prior to September 11 these problems were essentially the truckers' problem.

It has also highlighted Canada's unique position in terms of access to the U.S. market, a clear advantage we have over many other countries. At the same time it has underscored Canada's vulnerability to changing trade patterns or disruption to trade. Perhaps no G-7 country is as vulnerable as Canada, in terms of our reliance upon trade, and particularly trade with the United States.

What does this mean for the next budget? What action should Canada be taking?

• 1750

In our view, we must restore the confidence of our major trading partner and all Canadians in our national and international security while at the same time ensuring that low-risk people and goods continue to move across the 49th parallel efficiently. We believe Canada has something to offer in this regard. I'm not sure we have to spend all kinds of money.

One area where Canada has excelled is in terms of the automation of our customs processes. One of the members was speaking earlier about it. We've done a very good job making it easier for U.S. imports to get into Canada.

We need to work with our American partners. Their security concerns are not new. If we weren't aware of them before, we certainly are aware of them now. On an urgent basis and in an unambiguous fashion, we need to sit down in bilateral discussions with them to develop the customs systems to go forward. Again, I think Canada has something to offer.

As someone mentioned earlier, Bill C-23 talks about electronic pre-clearance. It talks about registration electronically of drivers, companies, and importers. It sounds like security to me. Perhaps we need to repackage it and bring it to our American trading partners.

Most importantly, we need a bilateral approach. We're starting to see some of it now, but so far many of the initiatives, many good ones, have been more or less unilateral. We have to get face to face with our partners. We need to ensure that our economy is as productive and as competitive as it can be. It was true before September 11, it's even more true today.

We need to ensure we have efficient trade corridors. Our rivers of trade in this century are our highways. Obviously, we need to do it in a fiscally and environmentally responsible manner. As I said, no country is as dependent as Canada is on trade. This transportation mode is not asking for a bailout. There are many regulatory things that could be done to help with our productivity and competitiveness that wouldn't cost the Government of Canada one penny.

As we're here to talk about a budget and fiscal measures, I remind you what our submission states. I think it is still relevant.

We're asking for some of our tax dollars, specifically the taxes we pay on diesel fuel and gasoline that presently serve no policy purpose whatsoever. They were introduced at a time when Canada had a major fiscal imbalance. There was no discussion, no questioning as to what it was for. It was simply to help alleviate the fiscal imbalance. Now it must be invested, in our view, in highway infrastructure. Canada remains the only major industrialized country on the planet not to have a national highway policy.

The Americans, our competitors, are spending $300 billion Canadian over the next five years on their highway infrastructure. We're not expecting those kinds of dollars to fall out of the sky tomorrow. Like the group speaking previously, we don't want to see a return to the fiscal imbalances of yesteryear, but we do need to have a plan. We have no plan and no policy.

We need to look at the remaining taxes on business inputs. The GST didn't look after all of it. The jewellery excise tax was one that was mentioned. The fuel taxes are another.

Until and unless some of our fuel tax dollars are actually invested in highway infrastructure, in our view, the committee should revisit the report of the technical committee on business taxation that Jack Mintz chaired. It looked at the tax, its impacts on our competitiveness, and how it should be broadened and the incidence reduced in terms of specific industries like the transportation sector.

We need to review our approach to tax incentives to encourage investment. Our CCA rates, capital consumption allowance rates, particularly as they relate to trucking, are simply not competitive. We believe all sectors should be provided with incentives to accelerate the switch to newer, more productive, safer, and environmentally friendly equipment, not just industries associated with the latest trend or buzzword.

As I said at the outset, trucking is a drive-demand industry. If our customers' businesses are not competitive, there will be no reason for our industry to exist. Transportation can no longer be looked at as a necessary evil. It can no longer be viewed in isolation from manufacturing processes and continental logistic systems. This country was built on transportation and the need to transport people and goods efficiently. It is as true today as it was 150 years ago.

Thank you.

• 1755

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

For the information of members, I'm going to extend this panel to seven o'clock to let everyone complete their presentations. Then we'll engage in a question and answer session.

From the Cement Association of Canada, I believe it's François Lacroix who is going to speak. Is that correct?

Mr. François Lacroix (President, Cement Association of Canada—Ottawa): Thank you for the opportunity to make a presentation to the Standing Committee on Finance, as part of this year's pre-budget consultation.

Our regional offices have already introduced you to our industry, and to some of the public policy interests the cement industry has in different parts of the country. The presentation looks at the issues from a national perspective.

I believe you all have copies of the written brief we tabled with the committee. However, in the interest of brevity, I would like to speak to the slides we distributed. I believe you should all have some copies.

I'm the president of the Cement Association of Canada. I'm joined today by Mr. Patrick Dolberg. He is the chairman of our association, and president and CEO of the St. Lawrence Cement Group.

Our association represents 100% of Canada's cement manufacturers. We have offices in Ottawa, Toronto, Montreal, Vancouver, Calgary, and Halifax. There are 16 cement plants across Canada, British Columbia, Alberta, Ontario, Quebec, and Nova Scotia, and cement distribution centres all across Canada. As well, there are cement-related operations in virtually every community in Canada.

There is a concrete economic contribution by our industry. Together the cement and concrete industries generate revenues in excess of $4 billion, and provide jobs for over 22,000 Canadians from coast to coast. This figure does not account for the thousands of ancillary jobs generated by the industries.

The cement industry exports a significant amount of products across the Canada-U.S. border. It is therefore heavily reliant on an efficient transportation system. As such, we closely monitor policy initiatives that may impact the competitiveness of our industry.

I would like Mr. Dolberg to put to you the policy context.

Mr. Patrick Dolberg (President and Chief Executive Officer of the St. Lawrence Cement Group; Chairman, Cement Association of Canada—Ottawa): Thank you for the invitation to speak to your committee.

In terms of policy context, the primary focus of our submission is sustainable infrastructure, sustainable in the sense of sustainable development and its environmental aspects. We define infrastructure broadly, while focusing on three areas of concern to our industry, transportation infrastructure, housing, especially in the context of energy efficiency, and waste management.

Provincial highway ministers often quote Canada's highway deficit as being at $17 billion. Others, such as the Federation of Canadian Municipalities, argue that when all infrastructure is considered together, this deficit stands closer to $100 billion. The cement industry indeed agrees there is an infrastructure deficit in Canada today. However, we also have concrete solutions for addressing this deficit in an economically and environmentally sustainable way. It is what we are going to focus on in our brief of presentations.

This leads me to four recommendations, in three groups on different subjects, we would like to make in front of this committee. The first one relates to transportation infrastructure.

As has often been mentioned today, there is a deficit. The 2000 federal budget committed $600 million to highways and a bit more than $2 billion for infrastructure. When we compare this to the Transportation Equity Act's funding in the United States of $218 billion over the next six years for transportation infrastructure, Canada's infrastructure deficit seems overwhelming.

As an exporting industry, we know how important the state of our highway is for the free movement of goods. Right now, Canada's strategic trade corridors are under tremendous pressure. We also know how important investment in infrastructure, and particularly in transportation infrastructure, is for the economic competitiveness and the productivity of this country. This is why we urge the federal government to commit more resources to infrastructure renewal.

• 1800

More specifically, because highways are investments, not merely an expenditure, our association urges the government to adopt a life-cycle cost analysis model that includes economic, social, and environmental criteria as a tool for determining how and when to finance highway projects. If we use this model, concrete is more economical and practical, especially for high-traffic highways. Concrete highways are a better choice for high-volume roads, particularly because of all the cost savings due to less maintenance and fewer repairs. Also, less time is lost in congestion due to these repairs, emissions are reduced, which has been proven by scientific studies in terms of driving on these highways, and safety is increased.

Given that addressing environmental concerns is a government priority, we recommend provinces be compensated for marginally higher upfront costs of concrete highways as a trade-off for associated benefits. Our brief is a little more specific in our recommendation in terms of dedicating a specific two cents per litre of fuel, which is about $1 billion, for this support to the provincial budgets and allowing them to face these higher upfront costs, which I mentioned.

Recommendation 2 relates to sustainable agriculture waste management. Due to the increased size of industrial farms and the fallout from drinking water contamination in Walkerton and North Battleford, it seems everyone is concerned about the management of agricultural waste.

The cement industry, in cooperation with strategic partners such as farmers, utility companies, and environmental technology companies, has been exploring the potential of a concrete solution to address the critical public health, agricultural, and environmental challenge. This is thanks to the emerging technology that may offer economically viable and environmentally sound products, while eliminating odour, and most importantly, reduce greenhouse gas emissions and provide farmers with a better manure management system.

This is just one example of how positive results can be derived from an innovative industry committed to research and development. This government has a strong record for developing and promoting private-public partnerships. The Cement Association suggests that the federal government increase support for such R and D initiatives by helping to finance initial capital costs of demonstration projects.

Our third recommendation is about higher energy efficiency in residential homes. If Canada is to meet international priorities for reducing carbon dioxide emissions, all Canadians, including government, industry, and individual citizens, will have to be involved. Increasing domestic efficiency, insulating concrete form houses uses 40% less operating energy than traditional wood-framed homes, exceeding R-2000 standards.

If, by 2010, 12% of all new housing construction used that insulating concrete form technology, greenhouse gas emissions would drop 7 to 11 megatons, which is equal to the annual exhaust from about 1.4 million cars. Therefore, our association suggests that the federal government work with the housing industry and utility companies to encourage energy efficiency housing equivalent to R-2000 standards.

In summary, the cement industry wants to work in cooperation with the government to address current priorities, including financing strategic highway construction, building sustainable highways that are economically and environmentally beneficial, addressing health and environmental concerns related to agricultural waste management, and encouraging Canadians to consider energy-efficient sustainable insulating concrete form houses that are 40% more fuel efficient than traditional wood-frame housing.

Finally, I would like to thank the committee for the opportunity to present the recommendations, and I welcome any questions later.

The Chair: Thank you very much, Mr. Dolberg and Mr. Lacroix.

We will now proceed to hear from the Canadian Automobile Association, and the vice-president of public affairs and communications, Elly Meister. Welcome.

Ms. Elly Meister (Vice-President, Public Affairs and Communications, Canadian Automobile Association): Thank you very much, Mr. Chair, and good evening, ladies and gentlemen.

Significant events have occurred since August, when the Canadian Automobile Association submitted its brief to the Standing Committee on Finance. In light of September 11 and the current economic downturn, CAA recognizes that the federal government will be challenged in the upcoming budget to adjust spending priorities, balance the need for new security spending with other priorities, and bolster Canadians' confidence during uncertain economic times.

• 1805

CAA's four million members have much at stake in the federal budget, as do all Canadians, but now more than ever the federal budget must reflect the importance of Canada's transportation infrastructure, not just from a security viewpoint but also recognizing that transportation is a key underpinning of Canada's economic and social well-being.

Canada's transportation system connects us from coast to coast and opens the door to the world. An investment in our transportation system should be viewed as a high priority that complements federal funding of essential priorities such as health care and education.

Our nation's transportation system facilitates the flow of personal travel, international trade and commerce. Canada's ability to move people and goods is fundamental to our prosperity, continued growth, and way of life. A strong and viable national transportation infrastructure is needed to sustain economic growth and competitiveness.

Improvements will lead to enhanced quality of life for Canadians through greater productivity, trade opportunities, job creation, and tourism. Investments in our roads specifically will result in reduced injuries, improved travel time, reduced pollution, increased economic growth and productivity. Improved mobility and accessibility contribute to the quality of life by expanding the choice of work and leisure opportunities.

We are concerned with the federal government's continued reluctance to provide adequate funding for our transportation infrastructure—most specifically our roads. CAA urges the federal government to place heightened priority on funding for our roads, which are now in a serious state of disrepair.

As mentioned earlier, the financial support given to roads in the past has fallen short of the $17.4 billion necessary to bring our roads up to standard. This is also jeopardizing the safety of Canadians. Reduced congestion and improved highway standards could reduce the number of fatalities on our nation's roads by as many as 247 and injuries by up to 16,000 each year.

In July this year the Canada Transportation Act review panel identified that roads and the cars, trucks, and buses that use them are the core of the transportation system and they are likely to remain so for the foreseeable future. With Canada's dimensions and dispersible activities, aircraft, urban transit, trains, and ships play crucial roles in carrying passengers and freight, but roads continue to carry most of the traffic.

Most passenger travel is entirely by road, using private vehicles, or, much less frequently, bus service. Of all freight traffic, over 50% makes its entire journey by truck, and most of the remainder that is hauled by train, ship, or aircraft relies on truck transport using roads at one or both ends of its trip.

The review panel further noted that governments are clearly collecting more road-related revenue than they are spending directly on roads. The federal government receives the largest part of the excess revenue with revenues from road fuel taxes at $4 billion or more, but only spends approximately $300 million, on average, each year. The 2000 federal budget actually was less. It contained a provision of only $600 million over four years for upgrades to the national highway system, approximately $150 million per year.

The CAA has long called on the federal government to put a more significant and fairer share of what it collects back into the road system. We have also asked for a national highway policy that provides for establishment of a national primary highways network, strategically planned improvements, and expansion of the network to meet regional and national needs.

• 1810

Funding provisions established as part of the policy should recognize the economic importance to the entire country of an efficient road system and the need to ease the inequitable tax burden currently applied to road users.

CAA has called for the development of a national transportation plan and welcomed Transport Minister David Collenette's recent announcement of a plan to develop a transportation blueprint for the next decade and beyond.

In May, CAA and senior officials representing Canada's transportation users and service providers met to discuss the critical need to invest in our nation's transportation infrastructure as part of any master transportation plan for Canada. These were, namely, the Air Transport Association of Canada, the Canadian Trucking Alliance, the Federation of Canadian Municipalities, the Canadian Shipowners Association, and the Railway Association of Canada.

In a jointly signed letter to the transport minister. we highlighted the importance of developing a national transportation plan with stable, long-term funding to develop and sustain an integrated, multimodal transportation system for Canada. Provision for such funding is critical as the federal government develops its upcoming budget.

Much of this funding could come from the $4 billion in gasoline tax revenues already collected. Twenty-five percent of this revenue, or 2.5¢ per litre of gasoline, would generate approximately $13 billion over 10 years.

In the interest of fairness, CAA also asks for the removal of the 1.5 cent increase to the excise tax, introduced in 1995 to help Canada fight the deficit. Over the years, motorists have contributed almost half a million dollars annually, for a total of $3 billion directly toward deficit reduction. Now that the past deficit has been reduced, it's time to eliminate this portion of the excise tax.

We also urge the federal government to reform its current practice of applying GST charges as a tax on tax at the gas pumps. In fairness to Canadians, the GST should be applied to the ex-tax or pre-tax price of gasoline.

As one of Canada's largest leisure travel providers, CAA also recommends that the application of GST on airline tickets for transborder travel to the United States be discontinued. We feel that this is a very unfair taxation policy.

In summary, we recognize that the federal government will likely focus significant attention on stimulating the Canadian economy in its upcoming budget and giving Canadians a more secure future.

Our transportation infrastructure is the engine of economic strength and wealth creation. It helps to ensure Canada's position as a nation of choice for business and travel. It contributes to our national prosperity and has the ability to keep contributing as long as it has long-term support and financial commitment from the federal government.

CAA believes that the next federal budget must reflect the importance of Canada's transportation infrastructure and bottom-line contributions to economic security and fiscal stability.

In closing, I'd like to offer a statement that was attributed to John F. Kennedy: “It wasn't wealth that built our roads, but roads that built our wealth”.

Thank you very much.

The Chair: Thank you very much.

Now we'll move to the National Association of Women and the Law, the executive director, Bonnie Diamond, and member of the fiscal policies working group, Ms. Kim Brooks.

Ms. Kim Brooks (Member, Fiscal Policies Working Group, National Association of Women and the Law): As with the other groups here, I want to thank the committee for hearing from us today.

I intend to speak only for a few minutes. I hope this will leave time for more questions at the end. To the extent that you do not find our recommendations compelling, I hope you'll appreciate that they're short.

The National Association of Women and the Law is a national non-profit feminist organization that promotes the achievement of social justice and equality for Canadian women through legal education and law reform.

We've been before this committee a few times over the last several years, and we always look forward to the opportunity of meeting with you.

Our focus has always been on the impact of various fiscal policy choices on women's lives. As reflected in our submission to the committee, we have one key message: good fiscal policy-making must take gender into account.

• 1815

In our brief, we provide two examples of how taking gender seriously—or even taking gender into account—may have resulted in the implementation of different fiscal policies. Our first example relates to the cuts to personal income taxes announced in the last two years. The second relates to the caregiver credit introduced in 1998. I assume that you all have much leisure at this point, so I'll leave you with the brief to review.

At this time, I just want to raise one example of how gender-sensitive budgeting may affect policy decisions in the current climate. I think it was mentioned earlier today when I sitting here that the Globe and Mail reported on the weekend that the Liberal government is facing a $1 billion bill this year alone for increased defence and security as a result of the September 11 terrorist attacks on New York and Washington. The paper reported that Finance Minister Paul Martin has warned there is now little room for new spending in a host of areas that featured in a Liberal election platform.

We'd like to make a suggestion. The government promised personal and corporate tax cuts in their February 2000 budget and in the October statement. The government also promised spending on health, education, the environment, research and development, and first nations equality issues in the recent election campaign. We know that if the government perceives a financial crunch in the next years, these will be competing promises. This seems apparent from the discussions here today.

We appreciate that the September 11 events have altered the current economic and political climates. The government will have to make choices. In 1995, government choices resulted in significant cuts to spending. Canada's deficit was eliminated and the debt was reduced on the backs of those who rely on various expenditures to ameliorate their living conditions. If women's equality were taken seriously and a gender-sensitive approach to budgeting were adopted, the government would not choose in these difficult times to cut expenditures again. Women and other disadvantaged groups have already paid a hefty price this decade.

Registering that this is a dissent from this announced approach today, we suggest that the government might consider slowing or reversing some of its announced tax cuts. Certainly no new tax cuts should be announced. Our submission highlights how these cuts disproportionately assist men and exacerbate women's inequality. In previous submissions, we have emphasized the important effect of spending programs for women.

That's all we'll say at this point, and we're happy to take questions.

The Chair: Thank you very much.

We'll now hear from the final group, the Canadian Alliance on Mental Illness and Mental Health, the chair, Phil Upshall. Welcome.

Mr. Phil Upshall (Chair, Canadian Alliance on Mental Illness and Mental Health): Thank you, Chairman, and good evening, members. I'm the last, and I think probably the best.

The Chair: Hopefully so.

Mr. Phil Upshall: My name's Phil Upshall. I have the honour to be the chair of the Canadian Alliance on Mental Illness and Mental Health. I'm the president of the Mood Disorders Association of Canada. I'm the lay member for the Institute Advisory Board for the Institute of Neurosciences, Mental Health and Addiction—part of the Canadian Institutes of Health Research—and I'm a member of the Mental Health Implementation Task Force in Ontario.

I'm also a consumer. Just to divert from my notes for a moment, I was asked earlier what a consumer is. A consumer is a person who's been there, done that. In the mental health field, we call ourselves consumers, as opposed to patients or clients.

Prior to 1991 I was a lawyer, a Queen's counsel, a registered lobbyist at the federal level, a member of the blue ribbon panel on the North American automotive industry under the free trade agreement, active in my community, and generally speaking a normal individual. In 1991 I ran into a huge wall called bipolar mental illness. It was a crash that resulted in a maelstrom for me, my family, my community, and everyone I had contact with for the 30 years in which I had been practising law in my community. It took well over five years to get out of that maelstrom and start to look down the line again.

For the last few years I've been involved on a volunteer basis working on behalf of those issues—mental health and the larger issues that are so important to all of us in Canada. In the last couple of years I've had the great honour of having a number of appointments to expert panels and providing advice, which I think can overcome a lot of the stigma and the lack of knowledge on the part of many, many Canadians about mental illness and mental health.

So that's what a consumer is.

• 1820

My notes are before you there. My letter of August 9, which requested this opportunity to appear before you, sets out the kinds of recommendations we would like to make. I would like to make just one minor addendum to that letter. I had mentioned that the United States was considering an increase in the health research funding in the amount, I believe, of $2.5 billion. In fact, on September 18—after September 11—the United States Congress committed an increase of $2.8 billion to the National Institutes of Health's budget for health research. Congress—the House of Representatives and the Senate—acknowledged the fact that there was absolutely nothing more important to the citizens of the United States, notwithstanding the events of September 11, than their health and the research that the National Institutes of Health conducted.

You will all recall that it was just last year that the Government of Canada instituted the Canadian Institutes of Health Research. It's had an incredibly positive impact on the scientific community in Canada, on the academic community in Canada, on the non-governmental agencies and voluntary groups. We've had a reverse brain drain in many scientific areas. Dr. Quirion will tell you, when he makes his comments, of a number of the terrific advances we're working on.

I think it's really quite important for us to just take a minute and look at what was said in the Speech from the Throne in January. I had the honour to be in the Red Chamber when the Governor General made the speech. I would just highlight some items I've put in my speech notes:

The Government of Canada, for its part, will focus on: building a world-leading economy driven by innovation, ideas, and talent.... An innovative economy is essential to creating opportunity for Canadians. An innovative economy is driven by research and development.... We must strive for Canada to become one of the top five countries for research and development performance by 2010.... As its contribution, the Government will at least double the current federal investment in research and development by 2010.

The Government will also champion community-based health promotion and disease prevention measures.... The Government will also provide a further major increase in funding to the Canadian Institutes of Health Research. The new funding will enable the Institutes to enhance their research into disease prevention and treatment, the determinants of health, and health systems effectiveness.

And finally,

Our Canadian citizenship has been built over time through the experiences we have shared—...

...when we come together to help each other in tough times. And when millions of Canadians volunteer their time and energy to make their communities a better place.

Terrific words then, terrific words now. A terrific commitment in January to increasing health research funding—and, I submit, a commitment that must be honoured to maintain the sense of progress, not only for Canada but to keep Canadians in the forefront of health research. It's not just the United States that is increasing its funding of health research. Japan, the United Kingdom, other countries are also increasing their commitments to health research, and that's in light of the activities of September 11.

I just have a couple of quick comments to make. September 11 no doubt impacted us substantially, but there are some other things I'd like you to bear in mind. Over the last three months, 41 homeless persons have died in Toronto alone, probably over 200 in Canada. At least half of them had mental illnesses that went untreated, unrecognized, and uncared for. At least 3,000 Canadians, most of them are treasured assets, have committed suicide since January 1 of this year—3,000. Dementia will be developed by 109,000 Canadians 65 years of age and older. The costs to our health care system are astronomical. We have to find some way to treat and enhance the quality of their lives.

• 1825

This is a remarkable statistic. Autism and pervasive development disorders have increased to an incident rate today of one in 500, from a rate of one in 10,000 only 20 years ago, an incredible 20-fold increase. Again, the cost impact that the health care system provincially and federally has to bear as a result of this is beyond belief. We need the research funds to find the answers. Ten thousand new brain tumours are diagnosed every year in Canadians, and 14,000 new cases of epilepsy will be diagnosed this year. Schizophrenia affects at least 1% of our population. The total cost is $2.3 billion. Research can knock that back.

I think everyone now knows that depression, according to everyone's estimate, will be the largest disabling cost to the Canadian economy by the year 2015. The World Health Organization says it, and everybody else says it. It's a huge issue that needs to be looked at very carefully, and we must have answers before it becomes a crippling aspect of our economy.

Part of the Institute of Neurosciences, Mental Health and Addiction deals with blindness and hearing loss. There are 600,000 Canadians with visual impairment, retinal problems impact another 100,000 Canadians, and up to 3 million Canadians have some form of a hearing problem.

I won't go on any longer because I know I've overstayed my welcome, but I would draw your attention to the two recommendations my notes contain. I'd be happy to answer any questions you may have.

I'd like to introduce at this time Dr. Rémi Quirion. He is sort of the Clark Kent and Superman of our scientific community. This mild-mannered gentleman has a CV well in excess of 100 pages, setting out a remarkable career in science at McGill University and at the Douglas Hospital in Montreal. He's having a major impact on our research communities across Canada with his leadership. I don't have anything nicer to say about him. As well, Dr. Quirion is one of the greatest mentors of our young scientists in Canada today

[Translation]

Dr. Rémi Quirion (Director, Scientific Division, Douglas Hospital Research Centre): Thank you very much.

[English]

As I'm speaking after the last speaker, I'll try to be very brief and hopefully somewhat entertaining.

[Translation]

First, your government created the Canadian Institutes of Health Research.

[English]

It's a great experiment. It's true innovation. Something unique in the world was created just over a year ago. Scientific directors, 13 of us, were appointed less than a year ago, on January 5, 2001. The 13 institutes have worked together to come up with a blueprint for medical research in Canada for the next five years. So we have that. We'll give that to the governing council of CIHR on November 8.

We have worked very closely with non-governmental organizations. At our institute, for example, we had a joint meeting in June with NGOs interested in mental health, addiction, and neurological disorders. It was great. The report is on the website of the institute if you want to look at it. It was the first time you had people in the same room who suffer from spinal cord injury, blindness, Alzheimer's, brain tumours, depression, schizophrenia, etc. They were sharing their problems, as we are today in relation to the budget of Canada. They were able to say that to be blind is not necessarily better than to have Alzheimer's. All these diseases are bad. You need to do research to find the real cures for these diseases.

As Phil mentioned, it's even truer today than it was a few weeks ago, before the tragedy of September 11. All governments, including Japan, France, England, and the States, as Phil mentioned, decided to increase their medical research budget even more after the events of September 11. In the case of the NIH in the States, it was $2.8 billion.

A recent poll of the Canadian population demonstrated that health is still a top priority after September 11. They are very concerned about safety issues. They have fear and they are anxious. That's part of my institute.

• 1830

Your government created CFI, the Canada Foundation for Innovation. There are 2,000 chairs across Canada, along with Genome Canada. Now it's time to invest even more into CIHR. Why? CIHR put people into this infrastructure. If I can give an analogy, CFI will be like building the school, the infrastructure. The chair will be the teacher. But now we have no kids. What's the point of having the school and the teacher if there are no kids? So CIHR put people into the infrastructure, the next generation of Canadian scientists. We're ready and anxious to do that.

The challenge is huge for all of us. It's huge for my institute, the only one in the world where we put together everything related to the brain—i.e., neuroscience, mental health, and addiction. At least 25% of Canadians will suffer from a mental illness during their lifetime, so in this room there's quite a few of us who will suffer from a mental illness. We're not talking about neurological disease or addiction. But we're ready. Canadian neuroscientists are very strong. We are second in the world. So we need to build on these strengths, and we don't have to reinvent the wheel.

With regard to the type of thing we'll focus on over the next four or five years, nicotine addiction was established as a top priority for my institute at a meeting at the end of September. Why? Because we have to stop thinking too much about cancer and heart disease related to nicotine addiction and tobacco abuse. We have to try to understand how the brain works when you become addicted to nicotine. We can reduce costs related to that one.

Another critical one is post-traumatic stress disorder. Of course, it's very current, following the events of September 11. It's very nice to buy some pill to try to get rid of anthrax, smallpox, or whatever, but we also need to understand how the brain works. There will be a lot of anxiety and depression related to the September 11 events. We have specialists in Canada, including in Toronto and at McGill University, UBC, and Dalhousie, who can work on post-traumatic stress disorder right away.

I received two proposals on fetal alcohol syndrome. This is a preventable disease. The incidence is very high in first nations and poor populations across Canada. We must do research to prevent that. We have excellent scientists at Queen's University.

Phil already talked about suicide. We have some of the finest scientists working on suicide in Canada. We have a chair on suicide research at the University of Toronto, the only one in the world.

There is also the impact of violence in society on the well-being of Canadians. This is critical. We're talking about women's health and kids. We have to do proper research on that, and we have Canadians such as Duncan Pedersen at McGill University doing great research on that topic.

So I think that we at the institute are ready to take the challenge to move forward and to find real cures for these diseases. We're committed. We just need your help.

We'll be willing to answer your questions.

The Chair: Thank you very much. Those were all very interesting presentations.

We'll now move to the question and answer session. We'll see how that goes. We'll start with Mr. Epp for five minutes.

Mr. Ken Epp: Thank you very much, Mr. Chairman.

Thank you all for your interesting and stimulating presentations this afternoon.

I'd like to begin with the Canadian Federation of Independent Business. I noticed that you said to support the new hires program. I'm just picking this one because it struck me. I thought that, generally, you were more interested in reducing taxes and the involvement of government in subsidizing business and putting money in directly. Yet you have a call here to support the new hires program. If there's an advantage for employers to hire new people, does that not increase the probability that they will fire those who are already there in order to take advantage of the new hires?

Mr. Garth Whyte: May I respond?

The Chair: Yes.

• 1835

Mr. Garth Whyte: The new hires program was set in place in a way that there wouldn't be abuse. In other words, you had to have expanded payroll, so you couldn't revolve people through. That wasn't the purpose. If you fired someone and then hired someone else, you didn't get the program.

Second, we were trying to come up with low-cost initiatives to work with this committee and with the government, knowing there are not a lot of resources. This was a low-cost program that rewarded the job creators for hiring youth, for hiring women, for expanding their payroll. It was, from our members' perspective, a very successful program, which has lapsed now.

It was originally the youth hires program to help youth employment. When EI was brought in place, it used to be that the first 15 hours weren't under employment insurance. Then it moved to first-dollar coverage, and a lot of those people were hired. Youth, and people who worked less than 15 hours a week, or a certain number of hours, can get their money back; employers don't. So this is another strategy to lower the EI cost burden on employers.

Mr. Ken Epp: Okay, thank you.

You indicated you'd like to see EI premiums cut. That's been a constant theme. We know that over the last number of years the government has put less money toward debt reduction than what they have taken in from employers and employees with the over-taxation in the EI fund. That's okay, but you also said don't spend more on EI or welfare. I wonder whether that's realistic.

Right now we're in an economic downturn. It means the people who have been paying into EI—and it is supposed be an insurance fund—now have, rightfully, a claim on the fund they've been paying into. It's a fund that's supposed to tide them over if they suddenly find themselves unemployed. How can you say, then, don't spend more on it? We are undoubtedly going to spend more on EI this year than we did last year, due to that change in our economy.

The Chair: Ms. Swift.

Ms. Catherine Swift: First of all, on the balance between debt reduction and all these different segments of the revenue pie, our members support having a truly separate EI fund, and not having an excess. The EI fund still takes in $5 billion to $6 billion a year more than it actually pays out, at least under current realities. We don't believe there should be moneys flying around. We think it should be transparent. If you're collecting it for EI, it should either go to EI or it should go back to premium payers—employers and employees. That's one aspect of it.

When you mention not spending more on EI, what our members are talking about is not expanding the plan beyond what it is now. You're right, in business cycles, you will have more drawers on EI, presumably, in a slower economic period. That's logical.

But we've heard a lot of proposals coming from different business entities saying if they have to downsize, maybe they should have a four-day work week and have EI cover the fifth day. That's a different use from what the EI system is structured for now. What our members are saying is don't change the system. Sure, it ebbs and flows with the business cycle, but don't change the system to cover new things that it doesn't cover now.

Mr. Ken Epp: Okay, that explains it very well. I sort of suspected that's what you were talking about—don't fiddle with the system. Keep it going, but don't spend more money if there's a demand on it.

Ms. Catherine Swift: Right.

Mr. Ken Epp: Thank you.

I'd like to talk to the truckers' representative here. I used to drive truck, so I can relate to the field out there.

I have a question with respect to crossing the border. I've heard rumours that in some cases truckers sit at the border for nine hours, from the time they arrive until they move through. That is a colossal waste of both the drivers' time and the equipment time, even before you get to the issue of not getting the load delivered on time.

My question to you is, what happens to the truckers if they sit in their trucks? They're not making any money. Is this going to put truckers out of business?

Mr. David Bradley: First, the nine hours you speak of is the kind of thing we were experiencing in the four or five days immediately following September 11. We're not seeing those nine-hour delays now, thankfully.

• 1840

Clearly, that kind of unproductive time places a great toll on our industry. In fact, we've calculated that if you were to slow the system down by an hour across the board, in transportation costs alone it would cost the Canadian economy about $1 million an hour.

Were truckers put out of business during that period? I think anecdotally we'll have to wait until the bankruptcy numbers come in. But we had a number of the smallest entities, the one-man, one-truck operations—many of them were hanging by a thread to begin with—who I suspect would have been pushed to the wall if they had not been generating any revenue during that period, or if they had been generating the same revenue but their costs had increased from sitting in the lineups and those kinds of things.

Mr. Ken Epp: I have one quick follow-up, and then I'll have to pass it on to the next questioner, Mr. Chairman.

You said you had nine-hour waits in the immediate aftermath. What is that time now? What can we realistically expect it to be? Could this problem be solved simply by substantially increasing the number of lanes and the number of personnel available there, or do we need to change the procedures?

Mr. David Bradley: It's not a case so much of “we”. We talk a lot of what Revenue Canada can do, and certainly they play a role, but the problem is what the Americans can do, or what we can convince the Americans to do.

The lineups were much worse southbound than northbound. It's always been that way, because the U.S. customs service has not been able to appropriate the funds needed to update its systems anywhere near to the degree we have in Canada.

It's still, as I indicated in my remarks, a fragile situation. We're still at high alert at the border, so it could change at any second, but at present we're seeing normal clearance times of a matter of minutes to maybe an hour to two hours, depending on the number of inspections they're doing and whether the people crossing the border have the appropriate paperwork and whatnot. That often is the cause of a delay.

While at present we need more enforcement people on the U.S. side in order to do the high-level inspection they're doing, I do not feel that over the longer term that is the solution. They cannot, nor should they, continue to check everything. What they have to do is move more to a Canadian model, where we're able to identify high-risk versus low-risk goods, companies, drivers, importers, and exporters. In the short term, however, we do need to get those additional enforcement resources to the northern border as quickly as possible.

But it's essential, as I said in my remarks, that the Government of Canada, on an urgent basis, get down to Washington, start seeing those people across the table and start coming up with a bilateral approach to the border. Throwing more people at it just means more inspections, and inevitably, more delays.

Mr. Ken Epp: Thank you.

The Chair: Thank you.

We'll go to Mr. Brison next.

Mr. Scott Brison (Kings—Hants, PC/DR): Thank you, Mr. Chairman. I appreciate this from the other committee members.

I just spent a weekend at a conference in Munich, so I'm on Munich time. I guess I could say I understand Mr. Fahey's suggestion relative to tax-advantaged beer production from having spent a weekend in Bavaria during Octoberfest, but I was actually in meetings, so it wasn't that....

The Chair: We'll wait for your question.

Mr. Scott Brison: My first question is to the CFIB on capital taxes. You said it didn't rank as a priority with your members.

I just wanted to make a point relative to productivity. Canada faces a productivity crisis and lagging productivity growth levels, compared, in particular, to the U.S. over the last several years.

In terms of economic cost, there's no tax that has a greater economic cost or a more deleterious impact on productivity growth than the capital tax. In fact, for every dollar collected by the government, there's a $1.50 cost in terms of economic efficiency, productivity, etc.

• 1845

I would appreciate your feedback on that, because I think we ought to be dealing with these profit-insensitive taxes like payroll taxes, which are in lockstep with capital taxes.

Ms. Catherine Swift: There's no question that capital taxes are very inefficient taxes. They penalize the acquisition of capital, which is investment, etc., and this is a pretty perverse way to tax.

Of course, in this country a good chunk of capital taxes comes from tax levied on banks. We at CFIB aren't usually known to defend banks, but frankly it is pure political opportunism to whack the banks—or any given sector. It is easy to do so to score political points because everybody dislikes banks.

Nevertheless, there's no doubt we have an excessive capital tax load in this country, and we don't question that for a minute. But our data is based on our small and medium-sized business members' response to a survey. Most capital taxes in this country, not all but most, do not fall on the small and medium-sized business sector.

So while not questioning this for a moment from a tax policy standpoint, I'd say capital taxes are like shooting yourself in the brain. It is not a small-business priority because the other ones are viewed as more punitive to the small-business sector.

I would also say that while I'm not questioning the inefficiency of capital taxes, what we're looking for is a balance. On the one hand, it's the large firms that are laying off lots of people right now, and they're the ones that are advocating reduction of capital taxes. From a theoretical standpoint I don't disagree with them, but it is the small-business sector that is doing the retention and creation of jobs. You have to at least achieve a balance between attracting investment, which means keeping capital taxes internationally competitive, and at the same time encouraging measures that promote job creation, which are the ones our members tend to favour. Keeping a balance there is what's important.

Mr. Scott Brison: Most of the economists who have presented to the group have felt that reducing the GST would probably not be the most advantageous tax reform measure from a productivity perspective. In fact, some economists have recommended to this committee that we shift even further towards a consumption-base tax and away from income-based tax. Again, I'm curious about the notion of reducing the GST, because that would be heading in the opposite direction.

Ms. Catherine Swift: Our members obviously did not rank reducing the GST in the top three or so, but it was up there in the top four or five as a measure. Of course consumption taxes are regressive. People who make lower income pay a higher proportion of their income in the form of—

Mr. Scott Brison: There is a credit system.

Ms. Catherine Swift: There is a credit system, yes. Nevertheless, they still constitute a regressive tax system; they're levied at the provincial level as well, and so on.

Again, I think it's a question of a balancing act and a case of what you want to promote at any given time. There has already been a commitment made under our current economic situation different from what it was a couple of months ago. We know there have been commitments made for a roughly $100 billion tax reduction strategy that didn't include sales taxes. It was primarily focused on personal and some corporate income tax.

From the surveying we're doing, what our members seem to be advocating is to continue on with that plan. We would never say don't reduce a tax, whether it be GST or anything else, but right now it certainly isn't the top priority of our members.

The Chair: Mr. Whyte.

Mr. Garth Whyte: I just want to add, history is worth reviewing.

If you remember, we were going into one of the major recessions when we introduced the GST, and it couldn't have happened at a worse time. It made it deeper, longer, and harder. At least this gives some indication that we should not be raising the GST or introducing a new GST.

Now, it sounds ludicrous for me to say this, but I wish I had been here when the Federation of Canadian Municipalities were sitting here suggesting that cities should have their own sales tax and their own revenue tax. It's right there on their website, where they say they want more revenues. That's what they're asking for. We call that a municipal GST. For the record, we want it written down that it couldn't be a worse time to introduce another GST.

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

We're going to go to Mr. Murphy and then Ms. Picard. Is that okay? Then we'll go back to Mr. Cullen and Mr. Nystrom.

• 1850

Mr. Shawn Murphy (Hillsborough, Lib.): Thank you very much, Mr. Chairman.

I just have one question for Ms. Swift, and that goes back to a topic Ken Epp raised on the EI program.

We've heard a number of submissions here regarding the yearly basic exemption, and I understand this has been supported by the Hotel Association of Canada, the Canadian Tourism Association, the Canadian Restaurant and Foodservices Association, and, I believe, the Retail Council of Canada. A lot of those groups, I assume, would have parallel membership in your organization. Whoever you talk to...for some people it's a $2,000 basic exemption and for other people it's a $3,000 basic exemption. I'm sure that you're very familiar with the concept and the cost and how it works or doesn't work.

Does the Canadian Federation of Independent Business have a position on this proposal?

Mr. Garth Whyte: We do, but we have downplayed it because since September 11 we have said that it's difficult to introduce the yearly basic exemption because it would cost about $2 billion. We've given you a report. We shared it with you, our presentation to the human resources committee, and it gives a whole host of recommendations. The yearly basic exemption, YBE, is one of them, but there are also a whole bunch of other recommendations designed to alleviate the cost burden on EI.

What we're trying to pitch to the committee right now is let's get together with the finance department and all the different players to try to work out a strategy in dealing with the overall cost burden that's happening with EI. The yearly basic exemption is one example, and we do support it, but it's more for the long term. Now, with this budget we think that first off we shouldn't let go of the premium reduction, yet I think even the premium reduction might be at risk. We'd rather see the premium reduction put in place first in order to start bringing down the costs.

Mr. Shawn Murphy: If I may, I'll follow up with a self-serving question. I agree with you 100% that there's no way we're going to get both premium reduction and a YBE. Do I understand correctly from what you're saying that you would want to stick with the premium reduction over the YBE?

Mr. Garth Whyte: If we were forced to, I think that's what we would say at this time, because the 10-cent reduction is part of the tax plan. At least, we'd stick to the tax plan without introducing new things. We've always been supportive of the YBE, but we've been supportive of a whole bunch of initiatives. For example, there should be some way to recognize training, that is, there should be a premium holiday for small firms that are training people to replace employees who are on parental leave. Then let's look at overcontributions. Employers yearly pay half a billion dollars in overcontributions to EI. That should be dealt with.

There's a whole list of issues. We have to look at them, but in the post-September 11 context we changed our presentation because of the sheer cost of all those things.

Mr. Shawn Murphy: Thank you, Mr. Whyte.

The Chair: Thank you, Mr. Murphy.

[Translation]

Ms. Picard.

Ms. Pauline Picard (Drummond, BQ): Thank you, Mr. Chairman.

My question is for the Canadian Federation of Independent Business. My party, the Bloc Québécois, suggested to the government a few weeks ago a number of measures to support the economy. Given the impact of September 11 on SMEs and considering that the EI fund has been accumulating surpluses for a few years now—something in the order of $40 billion I understand—, we proposed first a EI premium holiday and secondly a postponement of income tax instalments.

I would like to have your views on these measures. Would you agree with that?

Mr. Richard Fahey: Regarding instalments, it is a strategy which has been adopted by the Quebec government. We applauded to it in a letter to Mr. Chrétien signed by Ms. Swift. We said that this measure was effective in Quebec and that it left $175 in the Quebec economy, and we repeated that to Mr. Chrétien. Up to date the government has not yet taken a position on this. So we still have expectations on this.

As far as the last two months holiday is concerned, the measure can be interesting. It should be analyzed. It is often said that it is in the details that we understand. Our concern is that, although such a measure can be of benefit to the economy, the administrative costs would be too high. At this time, we are not saying that it is not a good idea or that it is a good idea. We wonder how it will be implemented and also if the implementation costs would not be too high comparatively to the benefits of this measure for SMEs.

• 1855

Ms. Pauline Picard: Ms. Swift, you talked about the optimism of your members, even after the September 11 events. How comes that your members are not more concerned than this about the economy and the measures which could harm it? At this time, there is the loss of jobs and all this slowing economy. I do not understand this optimism. Could you tell us more about it? Are your businesses being creative to support their operations? What happens?

Ms. Catherine Swift: SMEs are traditionally very optimistic. It is a tradition among SMEs. Our surveys indicate the views of the individual businesses; this is not about the economy as a whole but from the experience of entrepreneurs in their businesses. Of course, they do not have very serious problems linked to the changes in the economy and they do not have negative plans for their employees. We have had such weekly surveys since September 11 and our results are very similar from week to week. I do not know exactly why but this is the experience of each individual business.

Ms. Pauline Picard: Thank you.

[English]

Mr. Garth Whyte: If I may, I'll just add one thing. We do have certain pockets that are hurting. Those businesses that are in the border towns are hurting. Those businesses that are in travel or in certain other sectors have been hurting.

I really encourage the committee to read these responses. There are 192 one-liners from people. We have a member who maintains crop-dusting planes. You can't have a worse business to be in right now, but his chin was still up and he was still in there. You have to read the responses to understand. If there's a message, it's that there's a resiliency. It's not optimism, it's resiliency, and it's in every community.

We have people in the prairie region, in Atlantic Canada, and in Quebec who suffered tough times before September 11. They're resilient because they've been through a lot of this already.

We're going to give this to you, Mr. Chairperson, and I urge you to read them because there are some really uplifting comments here.

The Chair: Mr. Cullen, and then we'll go to Mr. Nystrom.

Mr. Roy Cullen: Thank you, Mr. Chairman.

Thank you, witnesses, for some very good briefs and presentations.

The time is late, so I'm going to move to just two areas. One is border issues, and then I'd like to talk, if I have time, on a couple of specific proposals from the CFIB.

Mr. Bradley and Miss Meister, I'd like to talk about the question of the border. There was a time when we talked mostly about infrastructure, that the problems were about infrastructure. We needed more infrastructure built at our borders, whether it was access into the north-south corridors, just equipment, or whatever. Now we hear more about policies and procedure, this question of getting more streamlined procedures. It's about the Canadian side but more particularly about the U.S. side.

In terms of infrastructure, is it fair to say that if you had to choose priorities in terms of highways, you'd go north-south instead of east-west? I'm sure you'd like the federal government to do everything, but what would you do if you had to make a choice? What we're hearing mostly on the committee is that the north-south corridors should be a priority. Could you comment on that? Could you give me a sense of what the mix is in terms of streamlining processes at the border versus investing in infrastructure?

Mr. David Bradley: First, Mr. Cullen, I always thought you guys—and I mean government—were talking about infrastructure at the border because you didn't want to talk about the infrastructure needed to get to the border. I'll just make that comment first.

• 1900

You asked a lot of questions. Clearly, over the last ten years, since the first free trade agreement with the United States, there's been a shift of freight traffic from east-west to north-south. However, there are still important east-west routes that feed into that north-south system, and we can't forget about this. I think what we have to do, though, is to be strategic. I don't think we should be necessarily paving or four-laning every bit of highway across Canada. I think we have to look at where the bottlenecks in the system are and spend that money strategically. Even if we could get a program from the federal government to do such a thing, that will be difficult, because highways are often built for political reasons and have had little to do with strategic investments. So that will have to change.

In terms of do we favour infrastructure investment over policies and procedures at the border, I don't think you can separate them. You can have a bottleneck 100 miles from Windsor that's going to impact the border, and vice versa. So you have to have an integrated system. It not only has to be integrated on our side of the border, but, and I can't say this enough, we have to have a bilateral approach to this. We have had some coordination between Canada customs and U.S. customs, INS and the Department of Immigration on our side, but we have certainly had different focuses. The focus in Canada has always been trade facilitation, and that's good. The focus in the United States, for obvious reasons now, has been more on national security. That too is good. But we somehow have to marry the two, and we're not going to be able to do it unilaterally.

Coming back to your primary question, strategic investment in infrastructure and the highways is part of the border scenario. In fact, I called our highways our rivers of trade, and the borders are simply the portage.

Mr. Roy Cullen: Ms. Meister.

Ms. Elly Meister: Thank you.

Mr. Bradley and I share a number of common points on this one, but I want to add to David's coverage of the question. Just as you would not develop a business without a full business plan—and we have the organization that knows that on behalf of theirs—we feel that our highways and our infrastructure program for Canada has to start off with a plan not to throw the money away.

We see right now where governments over 10 to 15 years have put pockets of money maybe not where it was needed the most. Right now maybe there are some more needs for certain north-south corridors, but I believe there has to be, under Transport Canada, under this blueprint, a national plan for Canada's infrastructure, all modes, and then to look within that at what is needed for highway access, what is needed for local roads, and indeed, what is needed for border crossings. We have to leave the old ad hoc way of building our infrastructure.

Thank you.

Mr. Roy Cullen: Thank you.

I have two questions to the CFIB on your two proposals. On the excise tax reduction for micro-breweries, I've heard from them as well, and they present it as a competitiveness issue. And if the U.S. states have reduced it for the small breweries, presumably that is a competitiveness issue. I wonder if you could elaborate on that.

I'm going to throw in my second question because I know my chairman is going to cut me off. It's unrelated. It's related to the new hires program. In my riding I have a lot of hotels and restaurants, so I've been a supporter of the yearly basic exemption, although I know it is costly. But is there a way with the new hires program to bridge that into a yearly basic exemption type of concept—

Mr. Garth Whyte: Yes.

Mr. Roy Cullen: Or do you see them as separate and distinct?

Mr. Garth Whyte: To answer the first one very quickly, I believe there is. I see them all connected, and the ultimate goal is to try to lower costs and encourage employment. So, yes.

Mr. Richard Fahey: As for the breweries, we compared the situation of a brewery sitting in Quebec and one brewery sitting in Massachusetts and the difference between the taxes the brewery would pay. In the U.S. it pays $2.3 million per year. In Canada, in Quebec, it pays $7 million per year. So if this is not a competitive issue, I don't know what is.

• 1905

Mr. Roy Cullen: Is that translating itself, though, into greater market share, or are some breweries at risk in Canada?

Mr. Richard Fahey: They are at risk, definitely. Obviously, when you have somebody right next to you who has a 60% excise tax reduction, or if you set your plant in Plattsburgh, for that matter, yes, it is a competitiveness issue, and obviously there could be relocation of plants, or at least the location of a new plant somewhere else, to benefit from this reduction in excise tax.

Again, some people have raised the point that it might be a GATT issue. GATT looked at it on the U.S. side, and obviously the U.S. is still doing it. And France is doing it and Belgium is doing it. Obviously it's a measure that would help our brewery industry here in Canada.

Lastly, Mr. Chairman, because obviously I did not go through all the measures there are in the briefs, I would invite you to look at the appendices, where there's a description and a recommendation on all those measures we're proposing.

Thank you.

The Chair: Mr. Pillitteri.

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

Congratulations. A lot of the presentations have been well presented. But more than anyone else, I must congratulate the Canadian Federation of Indepentent Business. After so many years of sitting on the committee, I find this is one of your best presentations in which you outlined your priorities. To make it an almost perfect presentation, in your recommendations the only thing you missed was the cost factor there would have been in reintroducing some of these factors. That's one part.

In the other part, where you say this is almost up to date and that small business is optimistic, I'd like to say I'm a small-business person myself. We are optimistic now for the first time since September 11, because it was almost a dead zone, if I may call it that, and we've seen a trickle of improvements within the last month. Still, it is in no way where we were last year or where we want to be, especially in the borders towns such as the one I represent, Niagara Falls. It's still devastating, but I'm optimistic because it's increasing from week to week to week.

On another question, in your presentation you refer to micro-breweries and micro-wineries. Would you consider the taxing of home brews? Because they also supply a lot of the liquids, and people actually are selling.... Not only do people brew their own stuff at these places, but also they sell some products.

Mr. Garth Whyte: The answer is yes.

In terms of your first and third question, we were trying to come up with a list of low-cost issues that we've come across. We can cost them out, or at least we would like the finance department to cost them out. We have had costs in the past of how much each of those things would cost. We want to build on that list. The trucking association has said some things we took note of. We want to add to that. We were trying to come out with, rather than a big tax issue, the little areas that we can target. That's what we were trying to achieve. So yes, we would consider some of those other home-based areas or things that you were talking about.

Mr. Gary Pillitteri: I have one more thing, which is also maybe a point of information. The taxation of micro-breweries or breweries per litre or wineries varies in all different states. For instance, the United States treats wines as food, so there's no excise tax actually, or a very low excise tax, whereas in Canada we're at the highest level, some 52¢ a litre, in excise tax.

Mr. Garth Whyte: Yes.

Ms. Catherine Swift: Many people would agree that wine is food. I think the last I saw is 80% of a bottle of most kinds of wine or whatever is tax in Canada, and that's truly outrageous.

• 1910

I don't know in this particular time whether that is a priority item, mind you. Nevertheless, it is an inequity that—if it hasn't already—eventually will seriously damage our industry.

Mr. Gary Pillitteri: Thank you.

The Chair: Thank you.

Mr. Nystrom.

Mr. Lorne Nystrom: Yes, thank you very much, Mr. Chair.

Because of the time, I'll be very brief, with maybe a question to Catherine Swift first of all.

Someone has told me, if I remember correctly, that about 80% of new jobs are now created by small business, and about 80% of small businesses have revenues—or sales, rather—of less than $1 million. Is that accurate?

Ms. Catherine Swift: That's probably pretty close, yes, according to current data.

Mr. Lorne Nystrom: So small business is really very important, then, for the economy of this country.

Ms. Catherine Swift: Yes.

Mr. Lorne Nystrom: I don't think a lot of people realize that. Compared with the large corporation or company, in creating jobs and building the economy small business is really where it's all at today.

How has that trend been going over the last 10 or 15 years? Is small business's proportion as a job creator increasing, Catherine, or is it shrinking, or is it very stable?

Ms. Catherine Swift: It's increasing lots, actually. In about the mid-1970s, the small-business sector represented about a quarter of the Canadian economy. Now it's about half. So it has doubled in roughly a 25-year period. In terms of net new job creation, yes, its share is on average 80% year to year of the net new jobs. The incremental new jobs are coming from the small and medium-sized business sector.

Mr. Lorne Nystrom: And from the research you're doing at your federation, does it appear to be increasing as time goes on, or has it reached a plateau?

Ms. Catherine Swift: I would say that through the 1980s and 1990s.... It does ebb and flow a little, but it tends to be business-cycle-related, as most things are. It's been at a pretty constant pace. We don't really see it abating in terms of proportional growth. Recently, it seems to be moving on.

There are many reasons for it. The service sector is expanding in the economy. Our service sector has a lot more small businesses than some other sectors of the economy. Larger firms, of course, are downsizing in terms of the total employment they represent. So there are many trends happening that tend to favour the small and medium-sized business sector.

Mr. Lorne Nystrom: Yes.

My last question is for Women and the Law. I'm sorry, I can't read your name down here, and I notice Ms. Brooks has gone.

You were talking about being very aware that we have a sort of gender screen or look at gender factors in our fiscal policies in the country. Can you give us some examples of where that has happened—that we discriminate against women—and what things we should be looking for in this present budget and budgets in the future?

Ms. Bonnie Diamond (Executive Director, National Association of Women and the Law): Yes. In our written submission, which I hope you have, we've worked through a couple of examples in recent fiscal policy that have severely disadvantaged women and have advantaged men.

Particularly—without getting too complicated, because the data are in our submission—women tend to be much poorer. When you deal through the tax system, you're dealing through a system that almost universally will disadvantage on the basis of gender. Tax reductions or any measures that move from public policy into privatization disadvantage women a great deal. So if you're looking at tax measures that reduce tax, if you're looking at incentives to use private pension plans, and that sort of thing, then you are going to disadvantage women.

In the two areas we've pointed out in our brief, we have specifically done an analysis of the caretaker—the caregiver credit—and the disadvantage toward women in that. We have also looked at the recent tax-cutting strategies of the government and have very specifically shown the differential impact between women and men in it.

Mr. Lorne Nystrom: Are we getting worse or are we getting better? This is similar to the question I asked Ms. Swift in terms of small business.

Ms. Bonnie Diamond: Actually, the equality deficit is deepening.

Mr. Lorne Nystrom: It's deepening?

Ms. Bonnie Diamond: Yes, it is.

I think these are very difficult times to come forward with the types of ideas we're advancing. But there's a whole other side to the September 11 story. It has much to do with post-traumatic stress; it has to do with increase in violence.

• 1915

We know that additional stressors on the family are not the root cause of violence against women, but we do know that family incidents of violence are exacerbated by the types of stressors current in society right now.

We're dealing with a type of terrorism. We can't afford to ignore the softer side in terms of our government equipping Canada and Canadians to deal with the types of dangers that are clear and present in Canadian lives. And it's a time we have to make sure, in fact, that our health care systems, including those services to women and children that will keep their mental health intact, are not abandoned in favour of artillery.

Both are important. You can only make sure the entire envelope is accorded to if you do a gender analysis and you look at the impacts on all individuals within the society.

Mr. Lorne Nystrom: I have one more quick question to the Canadian Automobile Association or the truckers.

There's a great debate about spending more money in rail transport and the dangers of the internal combustion engine and the environmental problems and so on in terms of cars and trucks, and more and more trucks. How do you answer that question in terms of public policy? Would you be opposed at all to more and more money going into rail transit and more and more rail like the European countries have done? I'm a member of the CAA as well, so I'm asking my organization how they respond to that.

When you see Toronto and the smog, and the pollution drifting toward Ottawa and you see the big cities and all the congestion and so on, I agree we should have a national transportation policy, a national highways policy. We should also have a lot of money going into rail and moving more and more goods by rail and taking them off the roads.

Ms. Elly Meister: It's unfair to speculate which mode over the other. We've worked with the Railway Association, as a matter of fact, and the Trucking Alliance. A group of us were all in one room forming this intermodal transportation plan and calling on that. It's gone beyond that.

I won't speak on behalf of the Canadian Trucking Alliance, but the Trucking Alliance and the railways do work together on some short-haul areas. There are opportunities for that.

So yes, we do believe in an intermodal system. Our urban areas are becoming quite congested. In some areas the Canadian Automobile Association does in fact support efforts in urban transit. We have supported in highly congested areas, in Vancouver, for example, a portion of the gas taxes going toward transit to ease that congestion. So we do recognize the importance of that.

We've also worked very closely with the transportation table on the issue of climate change and we have looked at that as a major issue facing us. We have looked at how the Canadian government can look at better fuel economy, working in harmonization with the United States on better CAFC standards.

So there's a whole other aspect to the environment, which we don't really have time to go into, but, yes, we believe that can be achieved.

I'll turn it over to the Canadian Trucking Alliance.

Mr. Ron Lennox (Vice-President, Regulatory Affairs, Canadian Trucking Alliance): I think you'll find too that more and more we're getting information out of the federal government and other independent bodies pointing to the fairly significant strides made in terms of the environmental performance of the trucking industry.

Clearly, I'm not going to stand here and say that we don't pollute. There have been major steps forward in NOx and PM and on greenhouse gases through improvements in fuel economy and so forth. And there are some fairly significant ones on the horizon as well. Certainly the U.S. Environmental Protection Agency has in fact passed some very strict new regulations. They're going to start to kick in in 2004. And we expect that Environment Canada is going to follow suit. They've told us they will, and we fully expect they will. And we've been supportive of what they're doing.

I would echo what Elly said. We certainly work with the railways. We talk about intermodal transportation. The truckers are their biggest clients, and that's been a growing business. Ultimately, it should be up to the shipper to decide what mode of transportation they want to choose. We specialize in just-in-time, very fast shipments. Rail obviously competes to a degree in the middle on their intermodal shipments. We can't compete with them on the longer hauls.

This committee has talked a lot around the table today about priorities. And the proposal you referred to was a fairly significant amount of money. I believe it was $2 billion. I would ask you whether or not that is a priority right now to provide that money to a profitable company.

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Mr. Patrick Dolberg: I have a comment that is a little self-serving. If you speak about the environment, in our brief we explain that you can also do things to make roads more efficient in terms of fewer repairs, less congestion, and definitely less consumption if you make them in concrete. So there are other ways to address the issue.

The Chair: Thank you very much, Mr. Dolberg. Thank you, Mr. Nystrom.

On behalf of the committee, I want to thank all the panellists for their input. We always count on your expertise to give us guidance to help us write the report, which, by the way, we'll be writing in the next couple of weeks. As you all know, the Minister of Finance has decided to have his budget during the month of December.

The meeting is adjourned.