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37th PARLIAMENT, 1st SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Tuesday, April 23, 2002

0935

The Chair (Mrs. Sue Barnes (London West, Lib.))

Mr. Thomas d'Aquino (President and Chief Executive Officer, Canadian Council of Chief Executives)

0940

0945

0950

The Chair

Mr. Gilles Taillon (President, Conseil du patronat du Québec)

0955

The Chair

Ms. Nancy Hughes Anthony (President and Chief Executive Officer, Canadian Chamber of Commerce)

1000

1005

1010

The Chair

Mr. André Piché (Director, National Affairs, Canadian Federation of Independent Business)

1015

Mr. Garth Whyte (Executive Vice-President, Canadian Federation of Independent Business)

1020

1025

1030

The Chair

Mr. Jayson Myers (Senior Vice-President and Chief Economist, Canadian Manufacturers and Exporters)

1035

1040

1045

The Chair

Mr. Richard Harris (Prince George--Bulkley Valley, Canadian Alliance)

1055

The Chair

Mr. Thomas d'Aquino

The Chair

Ms. Nancy Hughes Anthony

Mr. Garth Whyte

The Chair

Mr. Garth Whyte

1100

The Chair

Mr. Yvan Loubier (Saint-Hyacinthe--Bagot, BQ)

Mr. Gilles Taillon

Mr. Thomas d'Aquino

1105

The Chair

Ms. Pauline Picard (Drummond, BQ)

Mr. André Piché

The Chair

Mr. Gilles Taillon

The Chair

1110

Mr. Shawn Murphy (Hillsborough, Lib.)

Ms. Nancy Hughes Anthony

Mr. Michael Murphy (Senior Vice-President, Policy, Canadian Chamber of Commerce)

The Chair

Mr. Thomas d'Aquino

1115

The Chair

Mr. Jayson Myers

1120

The Chair

Mr. Pat Martin (Winnipeg Centre, NDP)

Mr. Thomas d'Aquino

1125

Mr. Garth Whyte

Mr. Pat Martin

Mr. Garth Whyte

Mr. Pat Martin

Mr. Garth Whyte

The Chair

Ms. Maria Minna (Beaches--East York, Lib.)

1130

1135

The Chair

Mr. Garth Whyte

The Chair

Mr. Thomas d'Aquino

The Chair

Ms. Maria Minna

The Chair

Ms. Nancy Hughes Anthony

1140

Mr. Michael Murphy

The Chair

Mr. Gilles Taillon

The Chair

Mr. Scott Brison (Kings--Hants, PC)

1145

Mr. Jayson Myers

Mr. Scott Brison

Mr. Jayson Myers

Mr. Sam Boutziouvis (Vice-President for Policy and Senior Economic Adviser, Canadian Council of Chief Executives)

Mr. Scott Brison

1150

Mr. Thomas d'Aquino

The Chair

Mr. Nick Discepola (Vaudreuil--Soulanges, Lib.)

The Chair

Mr. Nick Discepola

1155

Mr. Garth Whyte

Mr. Nick Discepola

Mr. Garth Whyte

Mr. Nick Discepola

The Chair

Mr. Gilles Taillon

Mr. Thomas d'Aquino

1200

The Chair

Mr. Garth Whyte

Mr. Nick Discepola

Mr. Garth Whyte

1205

Mr. Nick Discepola

Mr. Garth Whyte

The Chair

Ms. Nancy Hughes Anthony

The Chair

Mr. Charlie Penson (Peace River, Canadian Alliance)

Mr. Jayson Myers

1210

The Chair

Mr. Gary Pillitteri (Niagara Falls, Lib.)

1215

The Chair

Ms. Albina Guarnieri (Mississauga East, Lib.)

The Chair

Mr. Jayson Myers

Mr. Thomas d'Aquino

1220

The Chair

Mr. Gilles Taillon

The Chair

CANADA

Standing Committee on Finance

NUMBER 091

1st SESSION

37th PARLIAMENT

EVIDENCE

Tuesday, April 23, 2002

[Recorded by Electronic Apparatus]

¿ (0935)

[English]

The Chair (Mrs. Sue Barnes (London West, Lib.)): Good morning, everyone. Bienvenue à tous.

Today, under Standing Order 108(2), we'll begin our pre-budget discussions. I am very happy we have such an excellent panel leading us off today.

We would like to welcome, from the Canadian Council of Chief Executives, Thomas d'Aquino, president and chief executive officer, and Sam Boutziouvis, vice-president for policy and senior economic adviser. From the Conseil du patronat du Quebec we have Monsieur Gilles Taillon, president; from the Canadian Chamber of Commerce, Nancy Hughes Anthony, president and chief executive officer, and Mr. Michael Murphy, senior vice-president, policy; and from the Canadian Federation of Independent Business, Garth Whyte, executive vice-president, and André Piché, director of national affairs. Also, from the Canadian Manufacturers and Exporters we have Jayson Myers, senior vice-president and chief economist.

Thank you very much, all of you, for joining us. You've all been here before. We welcome you, and we'll now kick off discussions that will continue in the fall. We'll start now to get people thinking about next year and about what will come.

I know many of you have brought excellent presentations with you. Colleagues, they're all at your desks.

I would ask that you commence in the order of the agenda. Mr. d'Aquino, you're first, sir.

Mr. Thomas d'Aquino (President and Chief Executive Officer, Canadian Council of Chief Executives): Merci, Madame la présidente.

First of all, let me begin by offering my best wishes to you as you take up the challenge of guiding the important work of this committee. We in the council regard the work of this committee as not only extremely important, but if you look back over your track record, which after all, both parliamentarians and business people are always concerned about, it has been superb. So we wish you well, and we look forward to working with you in the future.

I should also note, Madame Chair, that while the faces before you are familiar, the name of the organization has changed, at least in English. When the Canadian Council of Chief Executives last appeared before the committee, we were the Business Council on National Issues. Juxtaposing the language of Shakespeare and Molière, il reste toujours le Conseil canadien des chefs d'entreprise en français.

At the time we last met, the smoke was still billowing from the rubble of the World Trade Center and it was clear that Canada faced urgent new priorities and tough fiscal choices. There were real fears both for the security of Canadians and for the country's economic prospects. We suggested that to recover from the crisis and forge ahead as rapidly as possible, Canadians would have to work together with prudence and creativity, and certainly a great deal of determination.

Today, Madame Chair, the shadow of the terrible events of September 11 still hangs over us, but a great deal has changed for the better. The federal budget of last December managed to address the need for more effective security measures without either plunging into deficit or giving up any of the hard-won improvements to Canada's tax structure.

The rapid reduction of interest rates by central banks kept consumer confidence high and the economic downturn, mercifully, remarkably short. The governments of Canada and the United States moved with remarkable speed to ensure that our mutual border, to quote the Minister of Finance, is “open for business, but closed to terror”. The result is that this committee can now contemplate a much broader range of measures to enhance the prosperity and quality of life of Canadians than was possible just seven months ago.

The degree of economic uncertainty, however, still, I'm sad to say, remains high. The business sector in both Canada and the United States has begun to recover from the sharp slump in profits. But I have to say that business leaders, certainly in this country, on the whole remain much less optimistic about the near-term prospects than many economists or the Bank of Canada, which has already moved, as you know, to raise interest rates.

Our views are closer to those of the United States Federal Reserve chairman, Alan Greenspan, who said last week that while the odds are strongly in favour of continued economic growth, there is still a danger of what he called “a real slip back”. Continued weakness in business investment, heavily indebted consumers, pinched by rising fuel prices and interest rates, and recent developments in the war on terrorism and in the Middle East all pose significant risks to growth in the near term. With the discussion, Madame Chair, about a likely attack on Iraq and the expanding of military activities in the Middle East, which I personally believe will happen, we have to be extremely prudent.

That having been said, federal finances are in better shape than predicted as recently as the December budget. According to the 11-month fiscal report issued last week, both personal and corporate income tax revenues have been significantly stronger than projected, and the result is likely to be another healthy surplus for 2001-02.

We continue to believe strongly, however, in prudent financial planning. After all, setting aside significant contingency funds really serves two goals, as you know well. First, it prevents a return to the deadly cycle of deficits. And second, by accelerating the reduction of the public debt, it gives future governments more room to meet growing demand for services such as health care.

¿ (0940)

A second principle we emphasized last autumn remains equally important today: the need to have a tight reign on public spending. While much of the additional spending in the December budget was for essential measures to protect the security of Canadians, we clearly cannot sustain spending growth at last year's 9.4 percent pace. While projected spending for this year is somewhat more modest, it is still expected to grow more than twice as fast as either inflation or budgetary revenues.

Canada's foundation for growth remains far stronger today than it was a decade ago, when we were reading in the morning newspapers about the possibility of having to invite in the IMF. It is important to build on that progress and not to fritter away what Canadians have worked so hard to earn. For this we need a tightly focused national effort.

The recently unveiled innovation strategy lays out laudable and ambitious goals, goals that would have a real impact in meeting this committee's desire to raise the standard of living and improve the quality of life of all Canadians. A timid or incremental approach simply will not deliver the results Canadians want or expect. As the government acknowledged in its innovation strategy, if we fail to improve both the substance and the global perceptions of Canada's innovation performance, “...we risk being bypassed in the intense international competition for investment and talent”.

As to the brain drain, Madam Chair--a head office exodus, the hollowing out of corporate Canada, call it what you will--the reality is that either we set out boldly to make Canada a compelling place to do business in the global marketplace or we undermine the growth and prosperity that is essential to delivering a high quality of life. To share success, we have to seize the future.

We are convinced that there is much the government can and should do in the near term. We see room for ambitious initiatives that could make a real difference without the need for substantial new resources. The essence of innovation is, after all, doing better with what you have.

Canada has done a great deal to improve the macroeconomic environment, as I said, over the past decade, but the fact remains that too many Canadian businesses still lag their competitors across a wide range of indicators of innovative behaviour, from productivity and investment in training to the adoption of new technologies and the development of new products for global markets. This leads to the obvious question, given the pressures of global competition, why are Canadian businesses not investing more aggressively? That is a key question.

The regrettable fact is that Canadians trying to build globally competitive enterprises still face a daunting range of impediments that flow from public policy. For their part, Canada's largest companies tend to be relatively small players on the global stage and yet can find their ability to grow hampered by competition policy and other regulatory limits that focus on Canada's modest market. Across a wide range of issues from environmental approvals to corporate mergers, Canadian enterprises are subject to staggering uncertainty and costs through complex and lengthy regulatory processes that cry out for greater transparency and predictability.

Canada's regulatory framework also remains highly fragmented. This is especially damaging in capital markets, imposing unacceptable costs not only on the financial services sector but on companies in all industries as they grow and seek access to capital.

More broadly, much can and must be done to build on the principles embodied in the agreement on internal trade and to ensure that Canadian enterprises are able to function efficiently from coast to coast. We see a thorough and critical review of Canada's business regulatory regimes as perhaps the single most important element in the federal Innovation Strategy. We would suggest, however, that the 2010 deadline for completing this process is far too modest.

In a recent memorandum for the Minister of Industry, Allan Rock--which I would be happy to share with any members of this committee--the council said that the regulations, policies, and programs that are the key federal drivers of innovative behaviour should be reviewed and changed where appropriate no later, Madam Chair, than 2005 rather than 2010. We can't possibly put this kind of initiative off that long. Remember that many hardworking and competitive labour forces and industries in other countries are passing us by.

¿ (0945)

We suggested four areas in particular that will be examined in more detail by our council's national policy committee as we prepare for the government's national summit on innovation this autumn: the adoption of a national framework for the commercialization of intellectual property created with federal support; the improvement of access to venture capital through pension funds and carrying out a critical review of the effectiveness of labour-sponsored venture capital corporations; the review of all business subsidies, maintaining only those that have a transparent and demonstrable impact in encouraging innovative behaviour and increasing productivity; and finally, the reform of the employment insurance system to remove the incentives to both employers and governments to maintain the existing patterns of low-skill or seasonal work at the expense of investments in new technologies that create more highly skilled and better-paid jobs.

Now, even ambitious initiatives to encourage innovation need not and should not involve net new expenditures. Indeed, one of the conclusions likely to flow from an effective review of federal programs is that the innovation agenda would be served better through changes to the tax system and regulatory regime than through program spending. This brings me to my second to last point, the council's priorities in tax policy.

Last September we suggested that the need to put the security of Canadians first meant deferring any major new tax cuts or non-essential new spending. In light of the uncertainty of September 11, we thought this was the responsible thing to do. Today there is clearly room once more to consider ways of using tax policy to improve Canada's competitiveness and to add to its future prosperity. The economic evidence, Madam Chair, is quite clear on what forms of taxation do the most damage, both to innovative behaviour and to economic growth.

Quite aside from the impact of the overall tax burden, Canada's existing tax structure discourages innovation by leaning more heavily on business capital and on income than on payrolls, and more heavily on personal savings and income than on consumption. No form of taxation is more damaging to innovation than capital taxes, because they penalize directly business investment and assets such as new machinery and equipment. And as its top fiscal priority, the federal government should announce in the next budget that the capital tax will be eliminated no later than 2005 and should encourage provincial governments to follow suit.

Even if slower growth persists, elimination of capital taxes should proceed as part of a broader review of the tax structure at both the federal and provincial levels. There may be room for additional targeted tax cuts in the next budget. However, Madam Chair, the council would prefer not to make specific recommendations until we see more evidence of sustained economic recovery. We would hope to have that opportunity therefore to return before this committee later this year, if we're invited.

In the meantime, the goal of tax policy should be clear. Competitiveness and taxation is not just a matter of playing catch-up with the neighbours. Rather, Canada should be trying to create a meaningful advantage over its major competitors, something leading members of this government have said publicly, to my great pleasure. Canada may not be able to match the United States on personal income taxes, but it already offers lower payroll taxes and is, at least in some provinces, becoming quite competitive in corporate income tax rates.

The focus of tax policy should be on consciously shaping Canada's tax structure to create a real incentive for Canadian and foreign businesses alike to choose this country above all others as their base for serving the North American and global markets.

And this leads me to my final observation, Madam Chair. To attract investment, innovative businesses, and well-paid jobs, Canada needs more than just a welcoming and competitive business environment; it also needs unimpeded access to the North American market.

The aftermath of September 11 has driven home the fact that despite the Canada-United States and North American free trade agreements, which have been hugely successful, such access is not guaranteed. To maintain and enhance the free flow of goods across our mutual border, we must ensure our citizens enjoy the same degree of physical security as our American friends do. An improving security goes hand in hand with enhancing the economic growth.

In addition to setting ambitious goals for Canadian achievement, therefore, we need an overarching vision of how we want to flourish within a highly integrated continental economy. Only by considering Canada's strategies within this larger context can we hope to achieve the degree of prosperity necessary for Canadians to remain relevant as a sovereign nation and continue to make our own choices for our own reasons and for our own interests.

¿ (0950)

Let me conclude by thanking this committee, Madam Chair, for launching these pre-budget consultations earlier than usual. This is not bad. This is good that you're well ahead of the team.

The degree of uncertainty means we will not be able to offer definitive suggestions on fiscal measures until later in the year, but it is always important to lay out the framework and principles first.

This committee has always played an important role in shaping budgetary framework, and I hope that our comments this morning will be helpful to you as you begin this formidable task.

Merci à tous les membres.

[Translation]

The Chair: Thank you very much.

Go ahead, please, Mr. Taillon.

Mr. Gilles Taillon (President, Conseil du patronat du Québec): Thank you, Ms. Barnes.

The Conseil du patronat du Québec thanks the Standing Committee on Finance of the Government of Canada for this opportunity to present its point of view on topics of importance to Quebec's business community.

Now that the economy is picking up, businesses want the federal government's budget and fiscal policy to be an important stimulus for economic growth. To achieve that, Madam Chair, honorable members, we have five specific expectations.

The clerk tells me you have our brief. I will therefore give you a summary rather than read it and will highlight the main points to facilitate our discussion.

Our first expectation pertains to employment insurance contributions. Madam Chair, I think we all know that the federal government has an employment insurance surplus. Those contributions were obviously taken from employers, in large part, and from workers. We think a rate of $1.70 would give the federal government enough of a reserve fund to provide an effective system. We therefore hope the next federal budget contains measures to reduce employment insurance contribution rates so that they reach $1.70 by the year 2005. This would mean gradual reductions of approximately 15¢ per year for that period.

Our second expectation pertains to personal income tax. Despite encouraging announcements and excellent measures to reduce the tax burden for individuals, we think the situation for Canadian tax payers is still extremely painful when compared to that of our neighbouring country and competitor. Even if the tax burden has been reduced, it is still comparable to what it was in 1993-94. So we hope the federal government can pursue its policy to reduce personal income tax.

Attempts should be made to reduce the tax burden of the highest marginal tax bracket, particularly in the upcoming budget. No change has been made in the past few budgets. That rate is obviously high if you compare it to that of our American neighbours, especially for taxable income. So we would like that rate to be gradually reduced, because it is at that income bracket that you get the most savings. Such a measure would stimulate investment here in Canada.

If Canada wants to be competitive with G-7 countries, we want the federal government to adopt a policy that would gradually reduce personal income tax to the average levels of G-7 countries.

Earlier on Tom spoke about the importance of tax on capital, on investments. We agree with what he said. Indeed, it is extremely important to eliminate that tax, which basically burdens investors and discourages investment in our country.

Madam Chair, we would like the federal government to gradually eliminate the tax on capital so that it is eliminated by the year 2005. We are fighting for the same thing in Quebec. We know that the Quebec Finance Minister announced a gradual reduction in tax on capital, but the reduction isn't big enough. We will insist that the tax disappear in Quebec as well and that it do so much sooner than announced in Marois' last budget statement.

¿ (0955)

Madam Chair, I will now introduce our fourth expectation. We would like the federal government to remember to reduce the federal debt. Efforts have been made by the Finance Minister, but if one is careful to keep spending increases at a reasonable level—I will get back to that in a few minutes— we think it is possible to reduce the federal debt, which currently consumes 25¢ of every tax dollar we send to the federal government. We think that is far too high. Those sums could be far better used for services and programs if the federal debt were reimbursed as quickly as possible.

Now for our fifth expectation. It is undeniable, Madam Chair, that achieving sounder federal public finances would not have been possible except by controlling the rate of growth of program spending. Program spending has in fact dropped from 16.4 percent of GDP in 1993-94 to 11.3 percent in 2000-2001. It is expected that the ratio will rise to 12.1 percent in 2003-2004, mainly because of measures designed to enhance the security of individuals and the economy. Just like our colleague Mr. D'Aquino, we consider, in the longer term, that the program spending-to-GDP ratio should not exceed 12 percent. We therefore suggest the federal government maintain a tight control over expenditures and that these do not exceed the rate of inflation.

If all these steps are taken, we think there will be sufficient means to meet the priorities set out in our presentation.

Thank you, Madam Chair.

The Chair: Thank you very much.

Ms. Nancy Hughes Anthony.

Ms. Nancy Hughes Anthony (President and Chief Executive Officer, Canadian Chamber of Commerce): Thank you, Madam Chair.

On behalf of the 170,000 members of the Canadian Chamber of Commerce, I am pleased to present our views on the fiscal priorities the government should have in its next budget. I am also pleased to submit a copy of our background paper which contains details of those priorities. I hope you have it both in English and in French.

[English]

I think many of you, if not all of you, have chambers of commerce in your ridings, so I'm sure you know that the Chamber of Commerce speaks for 170,000 members, and on behalf of these members you have a brief before you. In this brief we outline what we believe to be the key government policies required to grow our economy on a long-term sustainable basis and improve the economic welfare and quality of life of all Canadians. By implementing these policies we'll be able to meet the challenge of improving Canada's productivity performance.

Only by increasing real output per worker and putting more of our population to work can we increase our standard of living, which continues to lag behind that of the United States--our major benchmark--by a wide margin. Having a standard of living significantly below the U.S. level is, in our view, unacceptable. Canadians have fewer resources for personal consumption, but also for education, health, transportation infrastructure, and social services. These are key areas that determine our quality of life.

Having a standard of living below that of the U.S. is also a concern for another reason. We continue to lose many of our most highly educated and skilled workers to the United States, where they are able to enjoy a higher standard of living. Occasionally there's a bright spot, and we see some brain gain coming back the other way, but the fact is we don't want to lose any of the brilliant people we have trained and educated in our country at the taxpayers' expense.

We cannot ignore the policies of other countries, where the reward for risk and the incentive for innovation are much greater. With increased liberalization of trade and investment policies, these competitive pressures will intensify. Governments around the world will be competing, as they are now, to improve opportunities in order to retain and attract individuals, businesses, and capital. So the Government of Canada must continue to respond to this challenge by making strategic and smart policy decisions that create the right business climate.

What are these smart policies? We at the Canadian chamber propose a set of strategic policies that have a direct bearing on productivity, spur economic growth, and enable a higher standard of living and quality of life for all Canadians. These policies include--and I will be speaking more about them--a competitive tax system; a continuing focus on reducing government debt; strategically targeted program spending by the federal government; both domestic and external trade policies geared to the liberalization of goods and services; regulatory policies that ensure our markets operate as efficiently as possible; and very specifically, immigration policies that enhance Canada's chances of attracting and retaining individuals with the kinds of skills we need in our country.

À (1000)

[Translation]

My comments today will be on the role of government and on its handling of the budget policy. The Canadian Chamber of Commerce has prepared a set of proposals on program spending, taxation and debt management. The government should pay particular attention to each of those areas.

As mentioned in our brief, the Chamber continues to advocate cautious budgetary management. In fact, our members are convinced that the priorities for government expenditures should include areas that could directly improve our competitiveness. Of course, prudent investment in physical and human capital as well as basic research and development will help increase productivity and stimulate economic growth.

[English]

Our submission further details how government spending should be controlled. We suggest a kind of disciplinary device, which would be an annual cap reflecting the costs of inflation and population growth and creating a kind of budgetary box, in which the government should organize its expenditures--and, obviously, reallocate from lower priorities.

It certainly is useful, as always, to start with the Auditor General's recommendations. After last week's Auditor General's report, I think there is clear evidence that the government can, and should, find savings. It is frustrating to hear about government waste at any time, but particularly at this time of year when we're all filling in our tax returns.

We suggest that the proposed spending cap of about 3 percent--to accommodate population increases and inflation--be used as a discipline for the federal government. Clearly, the government has been exceeding this limit in previous years. Just to give you an example, in fiscal 2000-01, the overall increase in government spending was close to 7 percent, and in 2001-02 it's expected to rise by over 9 percent. In the view of our members, this size of increase creates a very dangerous spending precedent. If we look at cumulative government spending since the deficit was eliminated--only a few years ago, in 1997-98--the increase is almost 25 percent.

What is worse is the fact that the government has consistently under-forecast its actual spending year after year. If we look at fiscal year 1998-99, for example, total program spending was originally forecast to be in the order of $103.5 billion, and by the time all the bills were passed the government had spent over $111 billion. This has been happening every fiscal year since 1997. Once we see the final numbers for last fiscal year, we predict that program spending will have exceeded the original forecast, probably by over $9 billion.

Not only is this a clear record of poor quality forecasting, but it also means, in the view of our members, that the government has not taken seriously the need to find savings that surely must exist within the system. Overspending, in the view of our members, of course, is not acceptable.

I would echo the views of the other interveners today that a continuing focus should be on reducing government debt. The chamber believes that the federal government should rebuild the contingency reserve and the reserve for economic prudence as soon as possible. We remind the federal government of something that was stated in the budget plan of 1999 regarding the contingency reserve, namely that it is not a source of funding for new policy initiatives. We certainly support this view, and we certainly want to see it ensured in the future. In our view, Canada should strive to reduce its ratio of net federal debt to GDP to about 40 percent in the medium term, and continue to substantially lower it in the longer term.

Just a very brief word on the government's innovation strategy. The chamber applauds the federal government on the release of its innovation strategy, particularly related to skills, learning, research and development. However, I would caution the government that Canada's business community does not see this as an opportunity for the government to make a series of expensive spending announcements. Certainly the strategy makes a rather significant statement on taxes. It recognizes the importance of having a competitive tax regime, which is very critical. What we would like to see from the government are the details of what such a competitive tax regime would look like in the years ahead. We clearly all need a tax system that encourages work, savings, investment, and risk-taking. That is critical to maximizing our economic growth on a sustainable basis.

À (1005)

To conclude, we've identified six fiscal measures that we propose need attention in the short term.This includes eliminating capital taxes, something you're hearing from many of us today. We consider this the most damaging of all taxes for long-term growth prospects. The policy of taxing the capital of corporations is quite contradictory to the federal government's goal of ensuring that Canada is recognized as a leading innovative country, as stated in the innovation strategy. This is certainly our top priority.

The other areas that require attention are increasing money purchase, RPP, and RSP contribution limits; lowering employment insurance premiums; extending the reduction in the general corporate income tax rate to the natural resource sector; and lowering the top margin of the personal income tax rate. The details of our recommendations are in the brief you have in front of you.

Finally, I have to point out one of the very important items in our brief that relates to the recently implemented air security charge, commonly known as the air tax. It's far greater than it need be to provide increased security for air travellers. We have a commitment, as we understand, from the Department of Finance and the minister to look at that tax to make sure the expenditures balance off with the revenues. We do expect that when the government reviews that tax later this year we will see the charge significantly reduced.

[Translation]

In conclusion, I would say that the Canadian Chamber of Commerce believes that implementing these recommendations would ensure the government does it utmost to create strong and sustained economic growth.

[English]

In closing, I would remind the members of the committee that we at the Canadian Chamber of Commerce are looking for the federal government to continually improve its fiscal management. For that reason we applaud and congratulate you on getting organized to have consultations on this very important subject very early in the year. Certainly greater fiscal prudence as well as better targeted spending by the government will create the most competitive business environment in the world, one in which businesses can be more innovative, take greater risks, and continue to be globally competitive. The reward at the end of the day for all of us in the country is a more productive economy, more jobs, and ultimately a higher standard of living.

Thank you very much. We'll certainly be very happy to take your questions later in the presentation.

À (1010)

The Chair: Thank you very much.

The chair recognizes Mr. Piché.

Mr. André Piché (Director, National Affairs, Canadian Federation of Independent Business): Thank you, Madam Chair.

You should have three documents on which we will be speaking in front of you: Help Wanted, an update on the shortage of skilled labour; Business Outlook 2002; and Small Business Outlook and Priorities for 2002.

Our presentation today, Madam Chair, will make use of several graphs and will deal with business expectations and the small-business priorities for the budget. We hope it will help you build your pre-budget agenda. It's not a pre-budget presentation as such but a snapshot of where our members stand today. Of course, we hope to be invited back in the fall to give you an update on the latest numbers we have.

First, CFIB represents 102,000 members across the country. We have members in all areas of the country. We have 21,000 members in Quebec, 40,000 in Ontario, and the rest sprinkled across the country.

As you can see from graph two, on the structure of the Canadian business sector, most businesses in Canada, 75 percent, have fewer than five employees.

The next graph talks represents the employment share occupied by small and medium-sized employers. Twenty five years ago it was about 25 percent. In 1990, according to StatsCan, it was 54 percent. It is now 56 percent. They contribute roughly half the GDP.

[Translation]

Graph number 4 shows that SMEs are creating most of the new jobs in the country. If you would like further information on that, you can consult our website.

The next graph is number 5.

[English]

One of the strengths of CFIB is our ability to keep in touch with our members. We do that through 3,500 face-to-face visits a week with our members. We also do extensive surveys of our members.

Following the terrorist attack on September 11, we surveyed our members almost on a weekly basis. Graph five shows the evolution of their concerns about the impact of September 11. As you can see, as we moved away from September 11, their concerns were somewhat alleviated.

This information was extremely useful to us. We were able to brief government officials, including the Minister of Finance and the bank governor, on the results. One of the strengths of this kind of information is it is based on the opinions of independent business owners. We surveyed them on what they knew best, which were their own businesses.

Graph six shows you the small-business expectations for 2002. You have a copy of this document in front of you. This was based on 7,000 responses. The light blue area on the graph shows you the expectations in the fall, in the wake of September 11. As you can see, it was still relatively optimistic. The darker blue colour shows you the survey that was done between December 2001 and January 2002. Of course, we saw renewed optimism about the economy.

Graph seven shows you a breakdown by provinces. You'll know that Saskatchewan, Newfoundland, and P.E.I. were less optimistic about the next 12 months, while Manitoba, Ontario, and Nova Scotia were among the more optimistic provinces.

The next graph shows you the breakdown by industry. We see again that financial institutions, real estate, business services, and manufacturing were the most optimistic among our members, while, not surprisingly, primary products came at the bottom.

Graph nine shows you the projected job growth rate for 2002. We have forecasted a national average of 3.6 percent. Nova Scotia, P.E.I., and Quebec are among the areas where we expect the greatest growth, while B.C. and New Brunswick are substantially less than the national average.

What's interesting also about this data is that 80 percent of the job growth is to occur in full-time jobs. So that's another element of optimism about the economy, as we move forward.

Garth.

À (1015)

Mr. Garth Whyte (Executive Vice-President, Canadian Federation of Independent Business): Thank you, André.

Finance Minister Martin and the Governor of the Bank of Canada, David Dodge, are using this information to the point that they want us to do it quarterly. That's because it's another indicator. Instead of just looking at inventory levels or predicting what's going to happen in the future, we've been asking small and medium-sized business owners, entrepreneurs, what they think the future will be for their businesses and their employment plans. We've seen headlines in the paper saying “unexpected economic recovery” or “no one could have predicted this”. We want to say on the record that we predicted it. We predicted it at the last committee presentation when we were here, if you remember. We predicted it because we were meeting with our members day in and day out, and we were hearing this latent optimism.

So we see two economies. We see the stock market economy, which is very important, but we see the non-stock-market economy, which we represent. So for the remainder of the presentation we want to give you what the non-stock-market economy is saying, so you can make some predictions and pick some topics for when you want to develop your pre-budget submission.

In anticipation of this, we did some things very quickly, but we cut off the survey at 11,000 responses. We should get about 22,000 when we're finished. We asked the small-business community what their priorities were. As you can see in graph 10, their first priority--not surprisingly--is the overall tax burden; second is employment insurance; and third is government regulation and paper burden. We agree with the other speakers--Tom d'Aquino and Nancy--that government regulation and paper burden should be one of the major thrusts on the innovation side, on the Industry Canada side of things. They should be looking at it.

Government debt and deficit is always there as a major concern, and we want to comment on the shortage of skilled labour.

The next graph is one we presented to this committee and Finance Minister Martin before the last budget. We asked what the priorities were in the aftermath of September 11. Like everyone else, we put a lot of things on hold. We didn't ask for additional tax cuts. We didn't talk about the EI thrust, which I'll talk about in a moment. They said stick to your tax plan; don't go into deficit; don't give subsidies to business; do not increase spending on EI; and increase spending on security. That's basically the message they gave.

We did a survey and cut it off for your committee in the presentation, if you remember. We finally got over 7,000 responses asking about tax priorities and asking how they should allocate the future surplus. It's another hint, and it's consistent with the messages you've heard. From the perspective of small-business owners, debt reduction should be number one, tax cuts should be number two, and increased spending and targeted increased spending should be number three.

We encourage the finance committee to review the pre-budget submission we gave you. We dropped half of it due to September 11, but I'm going to resubmit it to the clerk. In it are lists of low-cost small-business initiatives that can help small-business growth, but can be targeted to specific sectors like the mechanics' tools deduction, jewelry tax, and computer-aided equipment in the printing industry. There's a bunch of ideas that we'll resubmit. We'll develop them when we hopefully get invited back in the fall.

Following that survey, we asked our members, “What are your tax cuts? What will help your businesses, and where do you think the government should put their priorities in tax cuts?” The tax plan deals with it, but I thought it would be interesting for the committee to see where their tax-cut priorities lie.

They include continuing with the personal income tax cuts, EI premiums, and CPP premiums, and we all know how much they've gone up. You can see the list. We're not against capital taxes. As a matter of fact, we think something should be done. We'd be really disappointed to see the EI surplus being used to reduce capital taxes.

Next, let's talk about EI. How could CFIB be here without talking about EI? These are not our graphs; they are your graphs from the actuary. This is how EI will be spent in 2002. As you can see, about 40 percent goes to regular EI benefits. The remainder goes to funding of other things. And $5.3 billion is going just into general revenues.

À (1020)

One way to control spending is to turn off the tap. Look at the surplus: it's going to be $45 billion by the end of this year. We say the committee has to deal with this. People will argue it's a notional surplus; then let's at least turn off the tap of the notional surplus. I remember the Auditor General made a recommendation that this problem be addressed. We encourage you to continue pursuing this problem and addressing this issue.

I also remember the finance department took over the rate-setting process from the labour and employer commissioners, and that's where it is now. The department said that within two years it would have a consultation process on how to deal with this. Well, it's been a year and a half, and still there is no consultation process. We should be focusing on this.

On the next page of this document we quickly put together for this committee is information we are releasing today, based on 11,000 responses from our members. We asked them if they had any vacancies. One out of four who answered the survey said they currently have a vacant job or are unable to find people with suitable skills. One out of five said that the job had been vacant for the last four months.

Now, what's interesting to me is that when we did this similar survey in 2000, the same number came out. There are 265,000 jobs currently vacant in the small and medium-size sector, and roughly 185,000 of them have been open for the last four months. This is not just our analysis; StatsCan came out with this also. But the pattern seems to be holding true.

Not surprisingly, the sector with the biggest challenges has been the construction sector, and the province with the biggest challenges has been Alberta. But there have also been challenges in Prince Edward Island and in Newfoundland. In the report we submitted you can see by province the number of jobs that present this challenge.

In part of the analysis--which we didn't have time to put together, but we did a quick run--we found that one out of four of our members nationally said that EI policy was a deterrent to finding good people. The shortage of qualified labour and EI policy merge here. If it's seen as a cash cow for putting money into general revenues, then let's call it that. Call it the federal cash cow tax or something like that, not an EI premium.

We need to deal with this and with the shortage of labour. Working with Jane Stewart's department, HRDC, and with her counterparts in every province, we're building a major survey to try to come up with real solutions for the shortage of qualified labour we're all facing. And we need to look at many other policies--those on immigration, education from K to 12, using revenues for development and training, and EI. Many things need to be looked at. But rather than seeing it as a problem, we should see it is a wonderful challenge we need to pursue.

We threw in the next graph because we thought we should talk about the issue of whether municipalities should have the authority to levy their own taxes. Well, wouldn't you know it? This issue is alive and well again today.

There's a lot of good news in the papers today--one item being that the Senators won last night. But the other news item in here is “Let cities tax more, bank says”. Our poll showed that the vote of 13,000 business owners was not to let the municipalities have their own tax with which to tax more.

The last time we submitted a graph like this was to Finance Minister Mike Wilson before the GST. Don't give more tax powers to municipalities. However, we do agree with increased money for infrastructure--water, roads, sewage, things like that, not curling rinks and art galleries.

Last week in the little town of Wakefield the bridge was taken up, and the business owners were outraged. They weren't told that the bridge was going to be ripped up. One woman who had just started a flower shop lost $7,000 worth of flowers because the bridge was ripped down. They asked a government official about it, and were told that yes, the community should have been informed, but the bridge had to be ripped down or the town would have lost the matching infrastructure spending.

We need criteria. We need principles on how to allocate infrastructure spending, whether for the border or customs or municipalities. The right has to be earned, and this is a role for the finance committee.

À (1025)

I know Jay, my colleague, will be talking about this. He's co-chair of the Business Coalition on Cost Recovery, to which we belong. Graph 19 is on external factors that have been affecting the business performance of members during the past 12 months. Historically they have told us customer demand or high tax levels, but this time around it was input prices and government regulations.

We've talked about government regulations. We couldn't agree more that this is a no-brainer and we should sit down and develop a plan for regulatory reform.

As for the other issue of input prices, insurance costs are going up. Prices have been going up on a lot of things that are outside of government control, but government fees, such as the airport fee, are within its control. The most recent one is the increase in MRC fees. MRC is the venue you have to go through on the Internet to access government procurement, $100 billion worth of procurement. It's going up 600 percent without any consultation with stakeholders. We've been through this before. Your committee brought the people. I'm glad to hear you're bringing the minister forward again. We have no appeal process. Here we are collectively trying to encourage small-business owners to get on the web, get into e-business. What better way than procurement? I have an idea--let's increase the fees 600 percent.

That's another issue you should keep pursuing. And this is just exhibit number one, right, Jay? We have a lot, but this is one we have to talk about.

Finally, we have another study we just presented to the senior management of the Canada Customs and Revenue Agency. It's on our website. We did a major report card for them, and they're using it. We did it in 1998 and found a lot of interesting issues. I'm showing you one graph, but we have an entire presentation on it.

Things have improved on many levels, such as the speed and consistency of rulings. The message we gave to the revenue agency is that it was more than just a tax collector. It influences business decisions, both big and small business. If there's a delay in one of its decisions and venture capital comes in, for example, and it still won't give you a decision, it's a real problem.

Another thing we stumbled on is that great things have come out of this committee and been adopted in the budget that were never really pursued or delivered by the agency. I have two quick examples. In 1985 we won the ability to invest RRSP dollars in a mid-size or small firm. Rather than investing in Bre-X or Enron, we think some people should invest in growing small businesses. This has never been delivered. We still can't get a reading from Revenue Canada on how to do it. I challenge the committee to ask Revenue Canada to give us a simplified, one-page version of how people can invest in a small firm using their RRSPs.

The second example was the deferral of corporate taxes that was announced in the last budget. Try to find it on Revenue Canada's website; it is four levels down.

We make announcements and people can't find them, or they're not told how to make them work. So it isn't just getting it done and getting it announced in the budget; it's delivering it within the tax system. I think the revenue agency would also agree that we should all somehow pursue a way of simplifying our tax system. That's a daunting task, but if you want to improve innovation, let's try to deal with it. Tom, you alluded to this.

In conclusion, and as a pitch to be invited back in the fall, we will be doing a survey on the input cost of insurance. We'll be doing a major survey on skills training and the shortage of labour. We'll be doing another survey on the economic outlook in the fall, which will be a lot different from what it is today, and we would like to put forward the budget priorities for 2003.

We'll be doing a health survey with input from the Romanow commission, the provincial health ministers, and help from the Department of Health in building the survey, which will be a four-page questionnaire and a four-page backgrounder going out to 102,000 business owners. We don't see ourselves having a lead role, but we at least will make a contribution. I think the committee will be interested in that.

Again, we would like to thank you, Madam Chair, for inviting us. This committee plays an important role, and it's one of the best committees we present to. Thanks very much for giving us the opportunity.

À (1030)

The Chair: Thank you.

Mr. Myers, please.

[Translation]

Mr. Jayson Myers (Senior Vice-President and Chief Economist, Canadian Manufacturers and Exporters): Thank you, Madam Chair.

I am very pleased to present the views of the Canadian Manufacturers and Exporters on the federal government's budget and fiscal priorities for 2002.

[English]

I'm afraid, like the rest of my colleagues, I'm as guilty as anyone of increasing the paper burden we're imposing upon you. We've submitted a number of reports and a number of studies. My remarks are intended to tie together some of those findings. We certainly intend to submit a much more detailed and comprehensive budgetary plan to this committee at a later date.

As you know, Canadian Manufacturers and Exporters is the largest industry association in Canada. Our members represent all sectors of the manufacturing and exporting community. These are sectors of the economy that are of critical importance for productivity and income growth, employment prospects, and the prosperity of all Canadians. This is all about creating high-value jobs for Canadians. More than 2.2 million Canadians are employed in Canada's manufacturing sector. One in every three jobs depends on exports in this country. Over the past decade manufacturers and exporters have led the rest of the Canadian economy in employment and income growth. In our view, Canada's future prosperity depends very much on maintaining and building an even stronger manufacturing and exporting base.

Canada's economy appears to be back on the road to recovery following a year of very slow growth compounded by the uncertainties and business losses caused by the terrorist attacks of September 11. Consumer spending and construction activity remain relatively strong. Exports and manufacturing production have begun to pick up, driven by stronger demand in our major export market, the United States. I'd like to remind the committee that over 85 percent of our total exports--over 63 percent of the total value of industrial production in this country--is sold into or through the United States.

Employment in Canada is on the rise. We expect at the present time that the Canadian economy will grow by 2.8 percent in real terms in 2002 and by 3.5 percent in 2003. However, I want to point out that forecast depends on a number of factors. The Canadian economic recovery remains extremely fragile. There are a number of risks inherent in any forecasting exercise, risks both in the domestic market here and internationally. While production is increasing, industry selling prices are actually falling. Today, industry selling prices are 2.5 percent lower than they were a year ago. Considering that the value of the dollar has depreciated against the U.S. dollar over that same period of time by about 5 percent, for many exporters that means a real price decline of almost 7 percent.

There aren't many costs of business that have declined over that period of time. In fact, most costs of business are on the rise, and manufacturers and exporters across this country, and many of them are small businesses, are very concerned about the rising costs of business as prices decline. The only way you can respond to those circumstances is to continue to restructure and continue to innovate, but in the short term it means profitability is under extreme pressure.

Business investment will remain weak, particularly in the field of information, telecommunications, and advanced technologies, until there's an improvement in corporate earnings. Weakening profit margins mean that further consolidation, layoffs, and production closures are very likely on the part of major manufacturing and servicing sectors in both the United States and Canada over the year ahead.

Political uncertainties in the Middle East, financial instability, weak equity market performance, and recession in offshore markets like Argentina and Japan are retarding economic recovery around the world and slowing growth prospects here in North America.

The inflation of housing prices in major urban markets in Canada and the United States raises the risk of a significant correction in property values that would severely undermine consumer spending if it occurs.

The widening gap in labour productivity between Canada and the United States points to a long-term erosion of the relative living standards of Canadians and continued downward pressure on the value of the Canadian dollar.

À (1035)

The current and long-term outlook for the Canadian economy should inform the government's priorities for budgetary planning. We believe that the 2002 federal budget must provide for responsible and prudent fiscal management in order to sustain consumer investment and business confidence; a cautious approach to revenue projections and spending commitments that reflects the uncertainties and fragility of Canada's economic recovery; sustained support for measures aimed at strengthening Canadian security, maintaining our defence, supporting overseas development, and improving the trade efficiency of Canada's borders; and a concerted focus on increasing business investment, strengthening innovation, and improving Canada's productivity performance.

With respect to broader issues of fiscal management, CME urges the government to re-emphasize its commitment to a balanced budget; remain on track in achieving the tax reduction targets it has effectively set out; limit overall increases in real spending to 2.5 percent in real terms in 2003; identify potential opportunities for spending reallocation and reduction in the context of a comprehensive review of all government programs; and reinstitute a contingency reserve of $3 billion, with an economic prudence reserve of $1 billion for 2003 and $2 billion for 2004, which if not drawn upon during the fiscal year should be explicitly allocated to paying down the federal debt.

Canada must also continue to take concrete steps to strengthen both our physical and our economic security in the face of the ongoing war on terrorism. Canadians are risking their lives in Afghanistan and on peacekeeping missions elsewhere.

We must ensure that Canada's military is adequately supported. Significant investments have already been made in our domestic security forces, as well as in the adoption of new security technologies at home. We must ensure that such investments are sufficient to protect Canadians from terrorist threats.

The government is working toward the implementation of its 30-point action plan, agreed on with the United States, for strengthening the security and trade efficiency of the Canada-U.S. border. The elements of that action plan reflect the priorities and recommendations of Canada's business coalition for secure and trade-efficient borders, which is chaired by the CME. Sufficient funds must be made available for the cost-effective implementation of new border measures contained in the plan, and in particular for the increased staffing of border inspection points, new information systems and screening technologies, pre-border clearance and reporting systems, new and improved inspection facilities at border crossings, and for expanding and upgrading transportation infrastructure along our crucial trade corridors.

Security and trade efficiency are important public benefits for all Canadians. In our view, implementation of the joint border plan should be funded primarily from public revenues. While user fees may be considered for certain measures, they should not be relied upon for full cost recovery. There should be clearly defined service standards and private benefits for which fees are paid, and user fees should only be implemented in the context of a fully enforced government-wide cost-recovery policy that incorporates the recommendations of this committee with respect to transparency, accountability, and cost-effective delivery of service standards.

The government has also made a commitment to increase Canada's budget for overseas development assistance. CME views this commitment as an extremely important contribution to the future economic and political stability of the world's least-developed countries, particularly in Central Asia and sub-Saharan Africa. We support the government's goal of increasing its budget for development assistance. CME is working closely with CIDA and other departments in strengthening the engagement of Canada's private sector in international development projects.

We believe that such participation is vital in supporting sustainable development initiatives, but we are also concerned that the lack of capital financing is an impediment to Canadian exporters that would otherwise be involved in such projects. For that reason, CME strongly supports the creation of a publicly capitalized Canadian development finance institution that could facilitate Canadian companies willing to take an equity position in international development projects offering positive, if not commercially competitive, rates of return.

Even as the Canadian economy recovers from the slowdown it experienced in 2001, it still faces some pretty long-term challenges well known to members of this committee. The gap in productivity performance between Canada and the United States continues to grow. Productivity is a measure of the wealth-creating capacity of an economy. It's also a measure of return on investment. Our lagging productivity performance is therefore not only an indication that the real incomes of Canadians are falling in relative terms to those of the United States, but is also a reason why Canada's share of foreign direct and portfolio investment is declining, and why the Canadian dollar, in spite of all efforts aimed at improving fiscal and monetary fundamentals in this country, continues to depreciate against its U.S. counterpart.

Canadian manufacturers and exporters are making significant progress in improving rates of productivity growth. We have many world-class companies in this country whose success we should do more to celebrate. However, in spite of these efforts, Canadian industry as a whole lags behind our competitors and our customers in other leading economies, especially the United States, when it comes to many of the key determinants of productivity performance.

In a world that is characterized today by intense competition, rapid technological change, global access to information, and ever-changing and ever more discriminating customer demands, it's innovation more than any other factor that determines a company's or a country's ability to compete and to continue to create high-value jobs.

Our analysis is summarized in two reports that have been distributed to the committee--The Business Case for Innovation and Canada's Productivity Paradox. It indicates that industry in Canada--small and medium-sized manufacturers in particular--trail significantly behind companies and other countries when it comes to investing in new technologies, skills development, and the research, development, and commercialization of new and improved products and services.

À (1040)

These findings shouldn't be a surprise. They confirm a trend that was identified 20 years ago by the Economic Council of Canada and they're the subject of a March 2002 report from Statistics Canada I would refer you to on advanced technology use and firm performance in Canadian manufacturing in the 1990s.

Canada's failure to keep pace with our customers and our competitors when it comes to productivity improvement, innovation, and investment is a national challenge of the greatest significance. The ability of Canada, as a small market competing for investment in an increasingly integrated North American economy, to sustain the creation of high-value jobs, and ultimately our economic and political sovereignty, depends on our ability to offer investors superior rates of return.

Canada's tax system is an integral part of the challenge. The most recent analysis carried out by Jack Mintz, professor of taxation at the University of Toronto, shows that effective tax rates and capital investment by manufacturers and by other business sectors will remain higher in Canada than in the United States when the government's tax reduction plan is fully implemented in 2004, and far higher than effective tax rates in the United Kingdom, Germany, Italy, Sweden, and Ireland.

Canadian manufacturers and exporters urge the federal government to align its tax policies in support of encouraging investment and innovation. Specifically, we recommend that the government:

--eliminate the large corporations tax, the capital tax that penalizes investment in new technology and innovation;

--accelerate reductions in employment insurance premiums. We recommend the government reduce EI employee premiums to $2 for 2003;

--reduce corporate income tax rates even further than laid out by the government's tax-reduction plan. We'd like to see manufacturers' rates fall to 17 percent by 2004;

--allow for accelerated write-offs of manufacturing and processing equipment over a two-year period. Capital cost allowances applied to manufacturing in Canada trail significantly behind those of the United States. Accelerated CCA treatment has been an actively pursued tax strategy in the United States to attract investment. We think accelerated write-offs here in Canada would help to address that bias.

We urge the government to make further progress in simplifying the application of rules for the scientific research and experimental development tax credit.

The federal government should also take the lead in improving the investment climate in Canada and encouraging the development, adoption, and commercialization of new products and technologies, by launching a comprehensive and meaningful regulatory reform program. Costly, inefficient, inconsistent, substandard, and outdated regulations are not in the interest of Canadians or Canadian business. They impede innovation and investment, make compliance more costly, and erode the effectiveness of regulatory measures. Regulatory reform is a low-cost initiative the government could undertake, with high potential for payback in the form of productivity improvement, revenue growth, and improved health, safety, and environmental conditions.

Specifically, CME urges the government to implement the recommendations of this committee with respect to its cost recovery policy, and second, reject proposed changes to the federal cost recovery policy that would erode the accountability of departments to taxpayers and to Parliament. CME supports the findings of the Business Coalition on Cost Recovery. The Treasury Board's proposed policy stands in direct contrast to the government's objectives to promote innovation and investment. I've tabled a report, Madam Chair, to that effect.

Third, the government should effectively enforce its existing regulatory policy. It should eliminate unnecessary regulations and remove administrative impediments that bar the introduction of new products and investment into the Canadian market. And it should introduce regulatory efficiency measures that would require regulatory standards to be met in as low-cost a way as possible.

Madam Chair, the government's next budget should reflect a continuing commitment to sound fiscal management and make adequate provision for defence, security, and border facilitation. However, it should also be a landmark budget. It should set the stage for revitalizing Canada's economy. Its goal should be to sustain the creation of high-value jobs by encouraging investment, innovation, and productivity growth through new tax-reduction measures and regulatory reforms. It should aim, in our view, at nothing less than to make Canada the preferred location in the world for businesses to locate, invest, manufacture, export, employ, and grow in.

Thank you.

À (1045)

The Chair: Thank you, Mr. Myers, and thank you all.

We'll take the next hour to have questions from our members.

Mr. Harris, you have eight minutes, please.

Mr. Richard Harris (Prince George--Bulkley Valley, Canadian Alliance): Thank you, Madam Chair.

Welcome, ladies and gentlemen. I think this will be my fifth stint on the finance committee. After a little hiatus last year, it's good to be back. I see some familiar faces. Most importantly I hear some familiar pleas. This is what I wanted to make a comment on, and to the other members of the committee.

Once again we have in front of us the best representation of what drives our economy in this country, and that is small, medium-sized, and large businesses. They have appeared before this committee for the last number of years, certainly five years that I know of.

Something gets more troublesome every year, and that is their requests and their advice to the government, to this committee, appears to be more and more familiar every year. Once again we're talking about capital tax reduction or elimination. We're talking about a reduction of EI payroll taxes. We're talking about increasing the RRSPs. We're talking about skilled labour shortages. I want to touch on that last one in a minute.

The message I seem to be getting from them is they believe this government has been, over the last number of budget years, reactive rather than proactive. The government has been reactive in that it's reacting to the political implications of the fallout of their budget rather than being proactive, targeting and acknowledging the economic realities and engaging in long-term planning in expectation of changes that may occur in our economy.

When you talk about capital tax reduction and how that will benefit corporate business in this country, and about payroll taxes, these things are no-brainers. But the government doesn't seem to be getting it. I'm going to invite you to comment on your repeated advice, which appears to be having no significant effect on the government.

Also, I want to touch on something that's a favourite of mine and becoming more and more important as the baby boomers move into their retirement era, which is happening now and will probably continue for about ten years, and that is the area of skilled labour.

It was outlined in a brief, I think it was in the brief of Ms. Hughes Anthony, that in regard to immigration it's important to attract and retain skilled labour. The government, in my opinion, has really missed the boat on the training for young people already here in Canada. There seems to have been precious little effort to ensure there would be a continuing workforce of trained skilled labour replacing people as they retire.

There's enough evidence from other countries in the world that have made an art out of this that we could draw from, countries in Europe that could have a never-ending supply of skilled trades people. I know it's primarily a provincial jurisdiction, labour training, but the government needs to get serious about getting into a partnership of some sort with the provinces as far as funding goes, leaving the jurisdiction of course to the provinces to ensure it is carried out. We are facing, I believe, a serious skilled labour shortage, not only now but increasing over the next ten years.

Maybe some of you could comment on those observations. I would appreciate it.

À (1055)

The Chair: Dr. d'Aquino first of all, then Nancy Hughes Anthony.

Mr. Thomas d'Aquino: Madam Chair, I'll leave to my colleagues any comments on the issue of skills. It's something we're all enormously preoccupied with. But let me address the issue the honourable member has raised about advice over many years, and let me give you the bad news and the good news.

The bad news is that, yes, this advice has been given over and over again, and it is frustrating to know that this is the case whether we're talking about the unemployment insurance surplus or whether we're talking about internal barriers to trade. These are some of the issues we've been talking about, not for five years, but for about ten years, and the fact that we are moving so slowly in some of these areas is deeply frustrating.

The good news is that over the last ten to twelve years the country has made enormous progress. As I've said, if this committee had been meeting, Madam Chair, in 1992 or 1991, we would have looked at soaring debt and soaring deficits. We would have looked at a country still conflicted on whether the free trade agreement was a good idea or not; where there was still a lot of deep resentment on another fundamental structural reform--that is, the GST; and we were still a long way from some of the very important trend-setting tax cuts that were brought into play.

So the fact of the matter is that we are in much better shape today than we were. The good news is that the World Economic Forum, which 12 years ago listed us at 16, is now listing us in the top five almost consistently. So the analogy I would draw is that once upon a time every one of my colleagues around here and ourselves were engaged, to use a railway analogy, on tracks that were going in opposite directions. We've fought over whether the good fight against inflation was a good idea, whether free trade was a good idea, whether tax cuts were a good idea, whether bringing the deficit down as quickly as we did was a good idea. All those debates now on what I would call the grand strategic questions have to a large extent been resolved. I would say that a speech that Alan Rock would give or Paul Martin would give, or virtually any member of this committee would give, would be consistent with a speech that any CEO in the country would give.

The problem we have is that the railway tracks are now parallel with one another but the trains are moving at different speeds. And as my colleague David Stewart Patterson and I tried to point out in a book that we sent to all of you, Northern Edge, How Canadians Can Triumph in the Global Economy, what we have to do is move more quickly. Everything you've heard around here points to, yes, incremental movement that we have seen, but we have to be able to go for the whole enchilada. This is what the Irish have done. This is what the Dutch have done. This is what the Swiss have done. This is what the Finns have done. This is what the people in Singapore and Hong Kong have done.

Our goal, which we set for ourselves in the Canada global leadershipinitiative, is to make this country number one in terms of a place to work, to grow, to live, and to invest. And we're only going to get there if we're prepared to make the quantum leaps forward. So take all the things you've heard today and say yes, you think we're more or less in agreement, and let's just make sure that we're putting more coal or clean fuel into the boiler of the train and let's get it moving more quickly. Because if we don't, all these other countries are going to pass us by.

The Chair: Thank you.

Ms. Anthony, a short comment, and then Mr. Garth Whyte, a short comment, and then we'll move on to the next question.

Ms. Nancy Hughes Anthony: First of all, on the general point of how we are doing, I certainly think the chamber in particular was extremely supportive of the government's five-year tax reduction plan, the plan that was subsequently updated in the fiscal update the following year.

I think the message is that the whole issue of fiscal competitiveness with other countries around the globe is very much an ongoing race. We cannot stop and say we've done a five-year tax plan and we're just fine now. Other countries in the world are moving very aggressively to provide business environments that are going to suck the people and the capital and the businesses into their jurisdictions.

I think the most important thing for us is to ensure that the government is constantly seeking fiscal room to improve, particularly the taxation system. You create fiscal room by considering very carefully government expenditures, by trying to discipline those expenditures and reallocate from lower priorities, and also by paying down debt. I would urge the committee to work very strongly with the concept of creating fiscal room for this continuous improvement.

On the subject of training, I think you've put your finger on a key issue: that the whole demographics of our country are critical to our thinking going forward in the next ten to twenty years. This affects pensions; it affects health care; it affects our tax base. Certainly the provision of skilled labour is a combination of business doing what it needs to do in terms of providing training, governments at all levels pitching in, the education systems also responding in a coordinated manner--and also, hopefully, adding the immigration component, which I think is extremely critical.

I would mention to the members of the committee--some of you may have been involved, but we at the chamber have certainly had comments on the new immigration regulations--we have to get those right if we want to make sure we are bringing in the crème de la crème and skilled workers of all kinds into this country.

It is a key issue, involving not necessarily only the government. I think it's a partnership, which really we need to focus on very closely in the next few years.

Mr. Garth Whyte: It's going to be hard to be brief, but I will.

The Chair: It's in fairness to everyone.

Mr. Garth Whyte: First off, we weathered the storm since the last recession because at least we dealt with the deficit. Inflation is lower. There are a bunch of issues, but I do think there should be a theme. We tend to think “Ah, we've done it”, and I think there should be a theme: “Don't forget about the debt; don't forget about the debt.”

Also, we strongly supported the five-year tax plan, but we're two or three years into that plan. What's next?

I think EI is a major problem that we have to address or it's going to get out of control. It's already out of control.

The key point, though, has been on the non-stock-market economy. The people who are here all the time or are starting up businesses--and I like to think that Bill Gates started as a small business, it's worth pointing that out sometimes--these people don't invest if they're afraid of increasing regulations or increasing taxes. Unless we keep giving confidence that these are going in the right direction, you'll stop, you'll freeze it.

As far as the shortage of labour is concerned, which of course we're living with--and we put this on the table--when we did our last study we found there were multiple roles. There's a role for educators, a role for the provinces, for the federal government, the business community, and individuals. Individuals have to come out with their own plan to be trained.

I think if there's a theme for this committee and the government, it's that you can't do it alone. You have to identify your role. If there's a role with the innovation thrust this time around, it is, one, at least to put it on the table as a national agenda we can work on, and two, that regulatory reform is a no-brainer. This is one where we should be able to work together to start peeling back some regulations.

Finally, whatever you do, let's not introduce programs that exacerbate the problem. We understand the reason why the one-year extension for parental leave was put in place. We're not going to argue against parental leave. However, did anybody think how that may exacerbate or increase the problem with the shortage of qualified labour? Is there a way to merge those two issues?

For example, if someone has to use a replacement worker for a year, can they have an EI offset on training the replacement worker? Is there a way of dovetailing these policy issues? How can we deal with it? I guess government has to identify its role, but it's not just government's problem.

Á (1100)

[Translation]

The Chair: Mr. Loubier, do you have a few questions?

Mr. Yvan Loubier (Saint-Hyacinthe--Bagot, BQ): Thank you, Madam Chair. Welcome to the Finance Committee. I have a question for Mr. Taillon from the Conseil du patronat du Québec, but perhaps also for Mr. d'Aquino. It is a good question, Mr. d'Aquino. I won't be mean to you today. I would like to point out that it is the first time in nine years.

You both said it was important for businesses to be competitive. We are certainly far less competitive than American businesses, but you did not say anything about a very important issue regarding competitiveness and how it can be improved over the coming years: I am referring to the dollar. Let's admit it; the structural reduction in the value of the Canadian dollar over the past 30 years is due to the productivity gap between Canadian businesses and American ones. Of course there are short-term fluctuations, but let's say the downward trend is due to that.

Mr. Taillon and Mr. d'Aquino, some of your members have already said they support amendments to the monetary regime. In fact, the Conseil du patronat recently organized a forum on that. You are quite forward-thinking in your views.

Why did you not raise that important issue, especially since when I went to New York, the business people I met said that was a shortcoming of Mr. Chrétien's speech. He said that the economy was doing well, that the long-term outlook was promising, but he also did not mention the dollar, which is considered to be a critical factor for those who follow the Canadian economy here and elsewhere, and especially for us, members of the Bloc Québécois, who, of course, are calling for changes in monetary policy.

Mr. Gilles Taillon: Thank you, Madam Chair.

We think the weakness of our dollar is somewhat of a reflection of the gap that separates us from our American neighbour in terms of investments and productivity. What we want to suggest... I think that besides implementing various measures, the message we want to send you today—and it is a unanimous message— is that our fiscal policy should not put us in the bottom half, with the consequences that has on our currency; we should be among the leaders. So let's have a better fiscal policy than our neighbour does when we do benchmarking. Then we will be nearly certain that the situation regarding productivity and investment will improve, that people will feel confident in Canada, and that will have an impact on the dollar.

As for whether we should negotiate a common currency, I do not think the Conseil du patronat supports the idea of simply adopting the U.S. currency; it might be interesting to discuss a common currency, but only after we have improved our fiscal position and productivity.

Mr. Thomas d'Aquino: Mr. Loubier, I am very pleased that the question is not too mean. It is a very, very good question, and I fully agree with Gilles Taillon that we must have very ambitious objectives.

Á (1105)

We mustn't settle for matching the Americans in three, four or five years. Our objective should be to surpass them.

[English]

If I may just say something apropos the dollar, which I know is confusing to members of this committee, how many economists have you heard over the last ten years say that if we implement free trade, if we break the back of inflation, if we get rid of the deficit, the dollar will rise. But the dollar has not risen.

The Prime Minister once asked me, why is it that this government is acting on taxes, has eliminated the deficit, the Bank of Canada has broken the back of inflation, and we've brought in privatization, and yet the Canadian dollar continues to be weak? Why has it been in a 23- or 24-year decline? My reply, Madam Chair, was, “Prime Minister, we haven't finished the job. There is this productivity gap. There is an innovation gap.”

We still are sitting, as Garth Whyte pointed out, on one of the largest amounts of public debt among OECD countries. We still, at the personal income tax level, have one of the heaviest tax rates in the OECD. And as Monsieur Taillon has said, the dollar in many respects is the barometer of how a country is doing in a competitive sense by comparing it to other economies.

I will conclude by saying that at our meetings in Montreal two weeks ago--Monsieur Loubier will be interested in this--we had a debate between those who advocated that we should have a common currency and those who were strong supporters of a floating exchange rate. The overwhelming conclusion was that for the time being it would be folly to contemplate a monetary union, or “dollarization” in the sense of adopting the U.S. dollar, because (a), we are very heavily dependent on commodities, even though that dependence has fallen very considerably, and (b), there are still a sufficient number of structural differences between our two economies that a move in this direction now would be folly.

That having been said, 10, 15, or 20 years from now, may there only be three currencies in the world? It's quite possible, but I do not think we should force the issue, because if we do it will be against our best interests--and, I would argue very strongly, against the interests of our friends in Quebec as well.

The Chair: Mr. Loubier, you are giving the one-minute question and the one-minute answer to Madam Picard.

[Translation]

Ms. Pauline Picard (Drummond, BQ): Good morning everyone. Thank you for your presentations which were, in my opinion, most interesting. I would like to ask Mr. Piché a few questions.

I am interested in your research on the shortage of manpower. Mr. Loubier and I live in regions where this is a real problem. Business leaders, chambers of commerce and we, the elected officials, have met several times to try to come up with a solution to the problem. If we were to use the solutions that we found, this would create problems in other regions.

First of all, what is the biggest problem? Is it demographics? Does the problem pertain to skills or training? Are you giving any thought to some concrete action that could be taken in our regions to deal with this problem?

Mr. André Piché: Thank you for your questions, Ms. Picard.

The update of our study on the shortage of manpower, which we distributed to you today, does in fact contain the list of recommendations that we prepared to deal with this issue of manpower shortage. As for the cause of this shortage, I believe that you mentioned many very important factors, but of all the possible causes, the aging population is a very important one. I believe that the solution to this problem lies in the cooperation of every government level and in the cooperation of the private sector with the government. Over the next few months, we are expecting to devote a great deal of time and effort to this issue and to work along with the Department of Human Resources Development to develop practical solutions to the problem. We hope that this will help resolve the problem.

[English]

The Chair: Mr. Taillon, a very short comment.

[Translation]

Mr. Gilles Taillon: In Quebec, we have a special problem in the area of occupational training. We are not training enough young people at the professional and technical levels. Providing more training would, therefore, be one solution.

Secondly, we need to address the issue of taxation in particular because if, as we have just said, our tax system in Canada is non-competitive, it is even less so in Quebec.

[English]

The Chair: Mr. Murphy, please, eight minutes.

Á (1110)

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

First of all, I wanted to thank everyone here for the excellent presentations.

One issue I'd like to throw out to all groups is Canada's worldwide responsibility to reduce greenhouse gas emissions and how that responsibility is going to be shared throughout the regions of Canada. Mr. d'Aquino, Ms. Hughes Anthony, have your groups formulated a position, and do you have any advice in terms of public policy or tax policy as to how these initiatives can be implemented?

Ms. Nancy Hughes Anthony: This whole question, as you know, has been crystallized, obviously, by our working together with government for many years now on the issue of ratifying the Kyoto Protocol. And certainly we at the Chamber of Commerce, and many of the groups here, have worked with government on trying to get analytical models, trying to get working groups that help us understand, very specifically, how to achieve those goals.

In addition, we have the benefit of quite a number of years of experience of industries that have already taken measures to reduce greenhouse gases, obviously in the oil and gas sectors number one, but also in other areas of the economy. So we do have some understanding of what kinds of mechanisms can be put in place and the nature of investments that are required to reduce greenhouse gases.

To comment on ratification of the Kyoto Protocol, I do feel that the chamber wants to see a plan that involves not only major greenhouse gas emitters but a plan that will help all of us who are consumers of fossil fuels, which is really the cause of the emissions, understand how we can create a plan in Canada that really reflects the nature of our specific economy and that includes, obviously, the nature of our geography, the nature of where we are on the planet, and the nature of our exports. We should--almost setting aside Kyoto--be looking at what we can do as a country that is an effective plan to reach the kinds of goals we need to reach without really bankrupting the economy, because I think many of us who have looked at the kinds of initiatives that are required under the credit system that is proposed under the Kyoto Protocol see a lot of wealth transfer going on under that but are not necessarily sure that at the end of the day Canada is going to make the kind of contribution it needs to make to specifically reduce emissions.

Mike Murphy, do you have anything to add to that?

Mr. Michael Murphy (Senior Vice-President, Policy, Canadian Chamber of Commerce): I would mention that I think the issue needs to be separated, as I think Nancy was mentioning. We spent a lot of time this morning talking about competitiveness within a Canadian context, and I think if we're looking at greenhouse gas emissions for Canada, we can look at it from the context of Kyoto. We and other groups have certainly made our views known with respect to that.

Picking up on what Canadian businesses are already doing today to reduce emissions, and we have examples of that right across many industrial sectors, I think what we need to do in terms of solutions from a future standpoint is to take a look at how we do that, make that a good objective, but also how we do that in the context of Canadian competitiveness and also looking at it in a context of our economy from the North American standpoint, particularly given decisions that have been made south of the border in terms of how they want to proceed. So we need to think about that and have groups like ours and others put together some ideas in terms of moving forward.

The Chair: Mr. d'Aquino and then Mr. Myers.

Mr. Thomas d'Aquino: Madam Chair, this is an extremely important question. It is an example of something we've been talking about this morning, something we've been talking about for ten years: when can public policy aid and abet the national interest, and when can it do enormous damage to the national interest?

The problem of the Kyoto Protocol--and this is something we've been deeply involved in now since the initiation of the debate--is that the size of the challenge Canada has notionally signed on to is very clearly insurmountable. No matter what numbers or analysis one looks at, getting to a reduction of 240 megatons is simply not possible. That is a hard reality. I'm very much hoping this committee will aid and abet a lot of the other very good work being done in government right now, which is, with respect, finally realizing just how huge this challenge is.

Also, that Canada would be a signatory to a protocol the United States is not a signatory to, nor any other country in the hemisphere, nor any of the world's largest emitters--the United States, China, Brazil, India; we are 2 percent of the problem--should give us very strong pause.

As well, the fact that our European friends are not even prepared to consider giving recognition and acknowledgment to Canada's contribution as a country that is small in population, large in size, very cold, and extremely energy-intensive makes it a non-starter, in my view.

Most importantly, this committee should tackle the Kyoto issue because it goes after the wrong set of objectives, if we are truly concerned about international development and the environment. Madam Minna is here today. She would know this from her experience in development. The World Bank established in a report earlier this year that the expenditure of $27 billion a year could save eight million lives a year through health measures and other environmental steps. Tens of millions of people are dying every day because they don't have clean water.

I recommend that this committee should say that if we want to meet our social development and environmental objectives, we should start thinking about where the problems really are. When people get into cars in Vancouver and get stuck in traffic, that is an environmental concern. When people can't breath clean air in southern Ontario, that is an environmental concern. But when we are here debating how many angels can dance on the head of a pin--i.e., whether the world's climate will change by 0.05 percent in 50 years--and there are tens of millions of kids dying because they don't have clean water, Canada's priorities are not where they should be.

I appeal to you to look at the economics of Kyoto--which a lot of people are doing right now and recognizing that we can't get there from here--and to try to be much more innovative with our approach to the environment, to talk about urban development strategies and about how we can help the developed world in a very real sense tomorrow, not 50 years from now. That is where I think this committee should be going.

Á (1115)

The Chair: Mr. Myers, please.

Mr. Jayson Myers: To build very briefly on what my colleagues have said, the object here should be to reduce greenhouse gas emissions in Canada in a meaningful way. It seems to me we do that by ensuring new technologies are developed and actually implemented, not only by industry, the one sector of the Canadian economy that has actually achieved greenhouse gas reduction since 1990, but also by consumers. It's in part a behavioural change. We're expecting every Canadian to undertake to use less energy or to become much more energy efficient, but Canadians also need some alternatives to their current lifestyle.

A commitment to invest in modern urban infrastructure is part of establishing those alternatives. It's a commitment to giving consumers the choices so that they can actually use less energy to emit fewer greenhouse gases. That's where we should be going.

This is an innovation issue, and everything we've said about changing the tax system and encouraging investment in new technology applies even more so to what we're trying to achieve on the environmental front. Without those investments, we're not going to get the new capital or the investment in new technology.

Spending money to buy credits to offset our obligations under a protocol that doesn't even fit the timeframe of the development of many of these technologies doesn't make a lot of sense. We should be making sure that we're investing here in Canada in the technologies and alternatives Canadian industry and consumers need to meet our target of greenhouse gas reduction.

Á (1120)

The Chair: Thank you, Mr. Myers and Mr. Murphy.

Mr. Martin, please, your questions, eight minutes, including the answers.

Mr. Pat Martin (Winnipeg Centre, NDP): Thank you very much.

With only eight minutes, I wonder if I could raise about three different issues and then ask any of you to answer. I'll try to be very brief and to the point in my questions.

More than one of you raised the business investment climate. I've even read and I've heard from institutional investors that there's somewhat of a crisis of confidence stemming from the Enron scandal. We can't go one day in the House or in the newspapers without hearing about Enron.

Would you agree that the question of the independence of the financial auditors was an issue at Enron? And would you support either having companies divulge their shareholders, whether or not they're engaged in the practice of hiring the same accounting firm to provide audit and non-audit services, or even to further regulate their ability to do so? That's one issue--the independence of auditors.

With taxation, all of you pretty much unanimously wanted further and deeper tax cuts. But would you agree on one specific issue, namely, that it's wrong for businesses to be able to write off fines and penalties and levies as a tax deduction, as is the case today? Would you see the problem there?

The third thing is the EI surplus, and I want to thank the CFIB especially for raising that. The CFIB always does very good research. I'm always impressed at the size of the universe that you survey and poll. But when you raise the $45 billion surplus, would you not agree that some, if not all, of that should go back into benefits, given that workers now have a less than 40% chance of receiving any EI benefit, even though it's mandatory that they pay into the program? It's a little like a house insurance policy, where you're forced to pay in, and if your house burns down, you have a less than 40% chance of receiving any. Would you not agree that some of that surplus should be improving benefits?

If I could leave it at those three.

The Chair: Okay, and answers from....

Mr. Pat Martin: Anyone to begin.

The Chair: Who would like to start?

Mr. Pat Martin: Maybe the Business Council on National Issues on the independence of auditors.

Mr. Thomas d'Aquino: Madam Chair, the Enron issue has hugely preoccupied certainly the chief executives who are members of my organization. Indeed, when I was making reference earlier to meetings that we had in Montreal, in addition to a debate on the future of the currency, we also had a debate on how we can improve corporate governance to ensure that we don't have Enron scandals in Canada, or for that matter that we would not see Enron scandals anywhere where the democratic capitalist enterprise system is working.

The issue of the independence of the auditor is absolutely crucial, and I know that was seriously in question on the case of Enron. The issue, Mr. Martin, is how do you achieve that. In my view, it should not really be left to a best efforts basis or it should not really be left to the common principle that an auditor.... When I was at law school, I was always taught that a judge could never be a judge in his own cause. The same principle should apply to an auditor. An auditor should be in fact at arm's length. We all know that, even from doing our own income tax returns or whatever the case may be.

So, yes, independence, but I don't think it should simply be left to the board. I think that the securities commissions here, in the United States, and virtually in all parts of the world, where incidentally the issue of accountability is a much bigger issue, should make it very very clear that it is an essential requirement, and when that requirement is....

Mr. Pat Martin: What about a legislative change?

Mr. Thomas d'Aquino: A legislative change, yes.

Mr. Pat Martin: Under the Business Corporations Act.

Mr. Thomas d'Aquino: Absolutely. And where that is not met, obviously very heavy fines should be applied.

That having been said, remember we could build the most perfect law-bound system in the world, and you're always going to have crooks. We used to have a death penalty. Some countries still have death penalties. Yet people still murder.

My point is that the solution to the Enron issue is not a solution through even tighter regulation. It's through good corporate governance. It's through a whole variety of things that teach people responsibility. If you don't have that, you're always going to have somebody who's doing the wrong thing. But when they're caught and if they're caught, they should be punished very severely.

Á (1125)

Mr. Garth Whyte: I'm going to try to answer all three questions.

Quickly, I agree with what Tom just said regarding the independent auditor. But I also would add one more suggestion: practise what you preach. Shouldn't Canada Post be audited by an independent auditor? Many people have recommended that the AG should be auditing Canada Post. Canada Post is within the purview of the federal government and it's audited by people who we believe have conflict of interest. That's my first comment.

The second question is on taxation. Is it wrong to write off penalties? We just presented to the revenue agency yesterday. The biggest issue, the biggest gap, if you saw on the graph--I forget which one it is--was penalties. Why? Because if you're two days late, you get hit with a 10 percent fee. Is that fair? You get a 10 percent....

Mr. Pat Martin: Under the current rules, the only fine that you can't write off as a legitimate business reduction is a fine imposed under the Income Tax Act. Anything else... If you dump PCBs into a river, you can write that fine off. If somebody is killed on the job, the workplace safety and health are fined; you can write that off.

Mr. Garth Whyte: I guess we're obsessed with the Department of Revenue, so I want to throw that on the table back to you and say this. Is that fair? Our members don't think so, especially when they're not informed that an employee may have missed a deadline, and all of a sudden they get dinged. It's really becoming a huge issue, which I encourage you to look at.

On the EI surplus, I'd like to go back to graph 14. I'd like to show that 60 percent are going to non-EI purposes. You could say fisher benefits are...well, we have never fought that one, but let's explain that one. Maternity benefits are going to the employee; we don't argue with that.

If we could prove that they're being allocated for the right reasons, to help people who are blindsided, to help people get back to meaningful employment, we would be onside. My question, though, is this. Why should employers be paying 60 percent of the premiums when over 60 percent go to non-EI uses? I think that's wrong.

Mr. Pat Martin: Many of you have raised the issue of labour market training. I'm a journeyman carpenter by trade. It's a very sensitive issue. I don't think it should have been devolved to the provinces at all, because we lack a national strategy.

Laurie Pollard of Pollard Booknote is a businessman in my province. He said “Give me a new hire who has learned how to learn, and I'll do the rest”. In other words, you really can't expect government or community colleges or anybody to crank out the perfectly trained employee in such a constantly changing business climate.

So doesn't business have more of an obligation to put more allocation and more resources into training, rather than to just criticize government for not doing enough?

Mr. Garth Whyte: I couldn't agree more in terms of business having a role, and we've been making suggestions like co-op education, a very strong program where you match the employee. On the other side, about developmental uses of the training dollars, the big criticism, whether it is here in the federal government or in the provincial government, is we don't track it. We track how much money we spend on training, but we don't track whether or not it leads to meaningful long-term employment. So people get on a cycle and it doesn't deal with the systemic problem, just on the EI side.

On education, we don't track how we do as people go through, and I think other organizations do. When a person comes out of the education system, some of them don't even have basic training. That's a problem.

There's a myriad of issues. I think if you look at our youth employment study, we have made a point of not pointing fingers at governments or at anyone. I think this is a problem we all have to step up the work on, but at least let's go in the same direction.

The Chair: Thank you, Mr. Martin.

Ms. Minna.

Ms. Maria Minna (Beaches--East York, Lib.): Thank you, Madam Chair. I have just a couple of comments.

Going back to Mr. d'Aquino's comments on the Irish success, I think it's important to point out that Ireland received a ton of money from the EU, and their university tuition is free, which has done a heck of a lot more to help them put tax revenues into whatever they want than the effect of the actual tax cuts. Our education system is quite a different story.

And the other point is I'm sure he will want to support increasing international development aid, since that's the key to the environment and our security, among other things. I'm hoping that's what his comments on development meant.

There are a lot of issues, and I wish I had a day to go through them with you, but I want to go back to focus on about two or three. One of them is the area of training and brain drain. It has come up before, and I've done a great deal of work in that area. I was on the HRDC committee when we did the social security review back in 1994 and did a lot of studies then. In my experience, things haven't changed that much. The fact of the matter is that business does not do a tremendous amount of training in this country. It never has done, and that's a major problem--unless you can tell me otherwise, that it really has changed a lot since the documents that I saw in 1994 and 1995. If that's the case, that's great, and I appreciate it.

The other problem is that within our own country, as people have mentioned, we've devolved responsibilities to the provinces. Mr. Harris was saying earlier that we should just give the provinces more money. Well, Ontario does not have a very good structure of training. It never has had good skills training programs as a province, in terms of its department and what it does. So I don't know why you just transfer dollars. We've been doing that in health care, and it doesn't work well there either.

I think we need some sense of accountability. If we're going to have any real success in these areas, we need to have some national standards or objectives, because we can't keep taking a piecemeal approach. So I'd like to hear some views from your perspective as to how we might address that.

The other issue is brain drain, which is all tied into the same thing. Since 1983 I've been dealing with immigrants who cannot practise their trade when they come to this country because companies say they want Canadian experience. So I'd like to know, what are you doing about it?

I can tell you about the people I've seen in the last month who are leaving Canada desperately. They've come here--using up their savings from Bangladesh, in one case--desperate to get a job and saying they are going to move south because their colleagues who've emigrated to the United States don't have the same problem, they get jobs with no trouble at all.

So I'd like to know what industry is doing about this issue. We keep saying that it's a provincial issue because all of the associations, whether accounting or engineering or what have you, are provincial. Or we keep saying that it's an immigration issue. Well, maybe it's a bit of a joint responsibility: we should all be looking at how to address the issue. I'd like to hear from you on how we address not only the issue of brain drain, but also the issue of brain waste in this country, which I think is quite serious.

Then just one other question, which I'll leave up to you to answer. I heard a great deal about tax cuts and about reducing spending. Ms. Hughes Anthony talked about reducing spending as well. But then in her paper she talks about increasing RRSPs and RPPs. Well, at the same time, I hear from the CFIB about reducing CPP premiums. RRSPs are tax expenditures, so it means that we are increasing tax expenditures, which is a revenue loss to the treasury. I don't know how that is consistent with reducing spending, because it is an expense. At the same time, the average Canadian does not benefit from increasing the higher end of RRSPs. I don't see how that's going to help us. On reducing CPP, I don't see that as a tax. I see it as something that helps the average Canadian at retirement time.

Á (1130)

I could go into a lot more. It is very difficult to go into all of the aspects of things, but maybe I'll leave those two with you.

I have one final word. Nobody has addressed the issue of poverty here in the GATT. This is my third question. In Toronto a recent study has come out that shows poverty has deepened tremendously in that city. These are people who are working, by the way. We're not talking about people who are on welfare; we're talking about people who are working. Despite the improved economy, the poverty gap is widening and deepening. The Toronto study is quite daunting. I'd like to hear how you would address that issue and how you would see the government address that issue.

Á (1135)

The Chair: Mr. Whyte, Ms. Hughes Anthony, Mr. d'Aquino, Mr. Myers, and Mr. Taillon, a very short--one minute or two minutes each--response, because we have to go on.

Colleagues, you have to leave time for the answers.

Ms. Maria Minna: There's so much--I'm sorry.

The Chair: That's why we'll probably see these people again.

Mr. Garth Whyte: We're all pitching for that.

First off, the ace in the hole, if you go to countries around the world, is 40 percent. In Canada, and in many countries, the same theme is that 40 percent of entrepreneurs are first or second generation Canadians. When the power structure keeps them out, they start up their own business. It's the ace in the hole. I would make a pitch, and I only have a minute: support to small business helps support that agenda. That's number one.

Number two: I couldn't agree more that we need a national set of standards or national strategy to deal with the shortage of labour. We think we can help broker that. All of us can. We're going to be meeting with the provinces, meeting with the federal government, and also surveying individuals and serving our members trying to find ways we can work together to solve that issue.

I was involved in 1994 with the HRDC review. I think you may remember. We were involved before then and we looked at just the EI side of developmental uses. They couldn't track the programs and how effective they were.

When it comes to the issue of business not training, they only measured formal training. Yet if you know about training, informal training is about one of the highest levels of training. If you look at people in your own offices, I'd like to know how many times you sent them off to formal courses and I'd like to ask you whether they learned anything. They learned a lot. That's not recognized. Especially in 1994, it wasn't recognized when we did a survey.

I have to cite the OECD studies on training. They showed Canada way down the list. I thought, how come? They picked up a few studies--I don't want to mention them. One was out of Industry Canada. One was from another private group. They did a study on how we ranked compared to other countries around the world. We were much lower. Then we saw the sample size for Pacific region was six. The sample size for Europe was 12. The sample size for business with fewer than 350 employees was 15. Based on that research, it was determined that we are not training. Let's get the research right. That's why people are now saying there is some training happening.

But on pointing fingers, as you pointed out, we shouldn't point at you and you shouldn't point at us. It's better to have your facts straight first. We've been really working on the facts now and asking our members. Today we announced that there are 265,000 positions--today--because they can't find skilled people. In Newfoundland they can't find skilled people. When we asked them where one of the problems was, 85% said the EI system was discouraging people. We have a challenge there to figure out how we can do it. That's just one example, but there are many different solutions in different parts of the country. EI happened to be the challenge in Newfoundland.

Anyway, I'm willing to meet with you for a day.

The Chair: We'll go to Mr. d'Aquino for a point and then Ms. Hughes Anthony.

Mr. Thomas d'Aquino: I have one minute, and Madam Minna has raised so many points. Let me very quickly give a response to the Irish miracle, because that is so important in our collective and our partnership efforts to make Canada number one.

Yes, Ireland did receive subsidies, but so has Newfoundland, so has Africa, so have many other parts of the world that have had very low levels of growth or no levels of growth. The main reasons for the Irish miracle were large amounts of foreign direct investment, low corporate taxes, labour and business solidarity--good partnership there--a massive brain gain, and education. That in fact is the template for success.

That's what we have to look at. We cannot just assume that people pull themselves up by their bootstraps because they throw money at them. The evidence for the last fifty years, as now our governments and our Prime Minister on his tour to Africa as he is preparing for Kananaskis.... Everybody is now saying the same thing: development, as you knew it, does not work; what you have to do is provide aid and assistance with improvements in governance that allow people to take whatever assistance they're getting and then pull themselves up by the bootstraps; you don't do it by pouring it down a dark hole.

The Chair: Ms. Minna.

Ms. Maria Minna: I wouldn't leave it as “development, as you knew it, does not work”, because, with respect, you and I could have a very long discussion about what works in development and what doesn't. I don't think you can make a blanket statement quite like that.

The Chair: I would like to give the people who have indicated a chance to briefly say something.

Ms. Nancy Hughes Anthony and then Mr. Taillon, I think you indicated, and then I'm going to go to our next questioner, Mr. Brison.

Ms. Nancy Hughes Anthony: I have to rush to the defence of my members when you say business doesn't train enough. There is an awful lot of training that does not get captured in these formal statistics. Can we do more? Of course we can.

I do tend to agree that Minister Stewart has initiated a process with her skills and learning agenda that we all have to support, because the fact of the matter is that having decentralized that training function to the provinces, we have to be able to get everybody around the table and talk about this in a coordinated manner. I would say this should involve the federal government, provincial and territorial governments, the business community, and the educational community. I think that is definitely job one, and one the government has initiated, and I support it.

In terms of the other components we need to consider, I go back to this immigration issue where we have to get our immigration regulations right. I would also say that we have to do a better job in recognizing foreign credentials. Very often that goes into professional associations and those kinds of things. I think this is a component of Minister Stewart's plan as well.

The fact of the matter is we do have this demographic problem. We do have an issue where I think very often in communities the supply and demand situation can work where a business community talks to the community college and where you have a situation where an employer very specifically can deal with inputs at a local level.

I support Garth Whyte's point that employment insurance and the disincentives built into employment insurance have definitely to be examined. You have to examine that, because we do have members who want to hire people, and people don't want to lose certain periods of time under employment insurance regulations so they don't take the jobs. So I think this is really an important issue.

Can we have 30 seconds on the RRSPs, since Ms. Minna raised that?

Mike, you can comment.

Á (1140)

Mr. Michael Murphy: Madam Chair, I'll just mention three words in terms of the motivating factors for wanting to include some specific proposals here.

The first issue is the demographics and the requirement that we're going to have to look seriously in the country and have the right kind of debate in terms of making proposals for our retirement system planning driven by the demographics. If you look at the Canada Pension Plan and the unfunded liabilities that we could be facing as the boomers move through the system, there's a big issue there.

The second issue would be competitiveness. It's also part of what makes the opportunity here. When we compare ourselves with the United States, we don't compare very favourably in terms of looking at the attractiveness of dealing with employees who are already here and attracting others here. So I think there's a competitiveness part of this.

The last one I would mention very briefly is an equity issue between those who will benefit from defined pension plan benefits versus others. If you're on your own, right now you're at a disadvantage today. There is an equity issue here.

I'll stop there.

[Translation]

The Chair: Mr. Taillon, please.

Mr. Gilles Taillon: I would like to make a small clarification on what Ms. Anthony said.

In Quebec, businesses must provide a minimum amount of training: this is what we refer to as the 1 percent rule. In the case of corporations, which I represent, more than 2 percent of their payroll is spent on training. So it's a bit rash to say that we don't do anything.

Moreover, our education systems, those systems which are responsible for providing initial training, are public and work in a monopoly situation. So it may be appropriate to ask ourselves some questions about that issue.

Finally, as regards the Irish model, I would say that in the constitutional states—I'm referring to states that assume their regulatory role— the highest growth rates are found in those countries with low taxation, minimum regulations and public spending that does not exceed 30 percent of the collective wealth, explaining somewhat why we made the suggestions that we did. In Canada, our taxation rate is sitting at around 40 percent. So if you want to have a growth rate that results in a higher standard of living and reduces poverty, you will find the recipe for happiness in the three aspects that I provided to you.

[English]

The Chair: Mr. Brison.

Mr. Scott Brison (Kings--Hants, PC): First of all, I want to welcome all of you here today and thank you. This particular round has been a pleasure, given the quality of your interventions.

My first question is about your views on the wisdom of the recent Bank of Canada 25 basis point increase. Some predictions are that we could see as high as a 100 basis point increase over the next several months. I have some real concerns about that, given the degree to which the recent signs of recovery have been largely based on consumer spending, which has been based to a considerable extent on rising housing costs and increased mortgage debt. So my first question is my concern that a tighter monetary policy now could have a significantly deleterious impact on consumer spending due to a pullback on mortgage liquidity. I would appreciate your feedback on that.

Á (1145)

Mr. Jayson Myers: Maybe I could kick off on that.

I don't think the decision to increase interest rates was made lightly. There are concerns about not only consumer spending, as you've rightly pointed out, but also business investment. The key weakness of this economic recovery is the lack of earnings strength there, which is a real drag on business investment. Higher interest rates will certainly cool off both the investment side and the consumer spending side.

On the inflation front, although, as I mentioned before, selling prices in industry are actually falling, consumer prices remain fairly weak. We are seeing inflation, particularly in asset prices related to the housing market.

So I don't think that decision was taken lightly. It will have an effect on cooling off the economy, but it also reflects a real concern about the impact of higher energy costs on consumer prices, and particularly the impact an escalation in property values might have on the entire economy if that bubble breaks. That happened in 1991, and set the economy on its ear for three or four years.

I hope we won't see continued escalation in interest rates until we really are on a firmer road to recovery.

Mr. Scott Brison: Do you agree that higher rates could actually trigger the bursting of that property value bubble?

Mr. Jayson Myers: I hope it will make consumers a little more cautious and won't trigger that bursting.

Mr. Sam Boutziouvis (Vice-President for Policy and Senior Economic Adviser, Canadian Council of Chief Executives): Thank you, Mr. Brison, for the question.

I don't think 25 basis points will make that much of a difference. In fact, they won't make any difference, given how low the interest rates are now.

You're quite right that consumer debt is high. Corporate debt remains high, so it remains to be seen how much business investment will take place. We have to return to sustainable levels of profitability in the corporate sector, in order to make the business investments necessary to sustain growth.

There are other issues. There are security issues internationally and uncertainties that will possibly impact on oil prices and cause vulnerabilities on the consumption side, in both households and corporations.

Internationally, the U.S. seems to be growing. However, over the past month we have witnessed a pause in that growth, precisely because consumer debt levels have reached the levels they have.

Who will lead the world to global growth recovery? The IMF have said they narrowly averted a recession globally, but who actually helped to alleviate that particular outcome of a recession? In fact, China and India outgrew everybody in 2001. Will China and India be able to be the growth leaders in the coming year? Will the U.S. be able to pull out, in the face of a pretty major current account deficit and an overvalued currency? These are risks to the global outlook that will obviously affect Canada and monetary policy.

Mr. Scott Brison: I have a question or a point, and I would like feedback.

Some of you have spoken of the innovation agenda of the government. The innovation agenda has really not done anything substantive in the areas of tax and regulatory reform. There's some indication of potential tinkering, but nothing substantive approaching those two very serious impediments in terms of creating growth and innovation. It seems counterintuitive to have an innovation agenda that doesn't talk about tax and regulatory reform, based on the weight of evidence you've presented this morning on the impact of the tax burden and the regulatory burden on innovation. So I'd appreciate your feedback on that.

Further to that, about two years ago the federal government announced the Atlantic Innovation Fund. As an Atlantic Canadian MP, I waited with bated breath for Brian Tobin to descend on Halifax that day, a few weeks before an election, to drop that pile of cash on the lineups of people in front of the World Trade Centre in Halifax, just hoping to grab $2 or $3, or a couple of loonies. It was astounding. The fact is that to date, there really hasn't been a delivery mechanism to actually deliver any of that money.

Further on Mr. d'Aquino's point, I think we have to take a serious look at the degree to which these subsidy programs and regional economic development strategies don't work any more. They may have worked in the old economy, but I don't think they're working now.

I'll give you an example of one idea that I think might be able to work, or at least provide you with food for thought. Considering that $380 million per year is the federal budget for ACOA, and that federal corporate taxes for all of Atlantic Canada are $360 million per year, we have right there the ingredients for an Ireland type of approach, where we could actually eliminate federal corporate taxes in a region using transfers, as Ireland did. I realize there are some complications to that kind of strategy, but if the Irish had allowed potential complications to prevent that great leap into the future, Ireland would have remained a fiscal basket case as opposed to a leader in Europe.

I would appreciate your feedback on that kind of thinking and whether we should be utilizing tax-based strategies, as opposed to 20-year-old economic development strategies that don't seem to be working.

Á (1150)

Mr. Thomas d'Aquino: Mr. Brison has made some very good points. Fellow colleagues from the Atlantic, including colleagues of another political stripe, like Frank McKenna, have made very similar arguments with regard to the utility of--

A voice: He's a Tory, isn't he?

Mr. Thomas d'Aquino: Yes.

Some voices: Oh, oh!

Mr. Thomas d'Aquino: On the issue of regulatory reform, I would just take seven seconds to say that if there was one recommendation.... I know there will be many by the time you come forward with your report, just as there were what I would call real trend-setting recommendations in previous reports of this committee, which we strongly lauded and I think all Canadians lauded.

But the one recommendation would be to say, “Mr. Rock, Government of Canada, as part of your innovation strategy, if you really want to make us an Ireland, or if you really want to take that leap forward, forget about that 2010 deadline”. Nobody these days thinks in terms of 10-year deadlines any more. People measure things in terms of months, weeks, and maybe, if you're compelled, a year or two or three. Take it from 2010 to no later than 2005 to be able to carry out that fundamental reform of the so-called regulatory burden, and let's really do something about it. If we do, as every single one of my colleagues pointed out today, that will make a huge difference to investment and to confidence and to the creation of jobs.

The Chair: Thank you.

I also have one question from Mr. Penson and one from Mr. Pilliterri, but Mr. Discepola will finish this round.

Mr. Nick Discepola (Vaudreuil--Soulanges, Lib.): Thank you, Madam Chair. How much time do I have?

The Chair: You have eight minutes, and then I'll do questions from each, and then we'll be finished.

Mr. Nick Discepola: I'll try to be concise in my questioning so that the guests have enough time.

In general, I agree with most of your recommendations, although I do have my druthers and doubts on some of the recommendations in the way they might be implemented. I would like to be specific, though, because we have to make recommendations, as we always do.

On the question of program spending, some presenters have stated specific targets. I would like to understand, more or less, if you would be amenable to just CPI plus growth, demographics taken into account, as a concrete...if that would satisfy many of you.

The other question I have is on debt versus GDP. If Mr. d'Aquino or Mr. Taillon say we've been harping on it for ten years, it's because it seems that each year you come back because you always seem to think it's not enough.

If you take a look at the economic growth forecast and the efforts the government has made--and Mr. d'Aquino, I'm glad you pointed out that over the past 10 or 12 years we've made tremendous strides--I think we can get the GDP down to a reasonable level, maybe not to the 40 percent that Mr. Taillon is saying, but, my God, what level do we have to get it down to so that you don't have to recommend it every year?

The other question I have is on EI, and this is a little bit of a knock at Mr. Whyte, because if we're going to have a debate on EI, then we have to use common terminology and we have to be up front with Canadians.

So the first suggestion I would propose is that you change the heading of your slide 15. Instead of “EI surplus”, put down “EI accumulated surplus”.

Á (1155)

Mr. Garth Whyte: Sure.

Mr. Nick Discepola: Good, because you give the impression that there's $45.4 billion sitting around somewhere that the government has stolen, as the Bloc Québécois would have us say, from the pockets of the workers. You and I both know, as you say in graph 14, that each surplus each year has gone into general consolidated revenue, and therefore it has been spent.

Mr. Garth Whyte: So stop doing it, then.

Mr. Nick Discepola: Well, let's stop doing it, but then you have to tell me, how do I tell the Minister of Finance that we're going reduce the level of EI so that there's no surplus, so now we have to go and cut $5.3 billion from somewhere else? No one ever says that. So can we agree that the best we should do on EI is maybe take the recommendation of Mr. Taillon, of $1.70 to 2005 or $2 to 2003, but then let's stop harping on saying we have to reform EI? Technically, what we should be doing is just calling it a tax.

Mr. Garth Whyte: Yes.

Mr. Nick Discepola: Okay.

That leads me into some of the recommendations for tax. One recommendation you've all made is that we should eliminate capital tax, and this committee agrees with that. We've recommended it several times. But, Mr. Whyte, on your graph 13 it seems to be the furthest priority from your small businesses. So I'd like you to reconcile that, because I can't go along with Mr. Taillon's recommendation to reduce the top of marginal tax rate from 29 percent to something. I think the successes of the past budgets have been, whether it was the 1995 budget or another, that we all shared in the pain and it was accepted throughout Canada. Now we all have to share in the gain, and if we are talking about reducing the high marginal tax rate for those in Canada who make over $100,000 net revenue, I have a political hard sell that's not going to work.

So I believe if we're going to make recommendations, we have to target the tax cuts to those who are most in need. Again, we announced a five-year rolling target of $100 billion, and again you seem to think that's not enough. But I am concerned over one crucial area--call it productivity gap, call it standard of living, call it whatever you wish. There seems to be an underlying gap that's affecting Canadians' ability to compete.

The thrust that I get from all of you is that we can probably solve it through tax policy, because that's what you seem to be relying on. So if you're saying we have a standard of living issue, what are the key areas this committee should be recommending to address that gap in the future? Because it's only going to get wider.

The Chair: Thank you.

Mr. Taillon, Mr. d'Aquino, Mr. Whyte, and Ms. Hughes Anthony all want short input into this, and we'll take that time.

[Translation]

Mr. Gilles Taillon: Thank you very much, Madam Chair. I'd like to intervene briefly on four points.

First of all, I'm very pleased that Mr. Discepola agrees with our recommendation. I hope that he will be able to exert some good influence on Mr. Martin in this respect.

As for the matter of the debt, I think that we need to recognize that the federal government has made some steps in the right direction over the past few years, but we need to go faster. We need to accelerate the pace.

As regards employment insurance, we would be very pleased if the rate were set at $1.70 and the rest was forgotten. If I understood you correctly, you agree with me.

As for the high marginal tax rates, you need to understand our recommendation. Yes, we are in favour of a progressive tax rate, but we do not want this to discourage our manpower to the point where people leave Canada and Quebec. So we have to pay close attention to this progressivity. If you take a look at the high marginal tax rates in Canada and in the United States, you will see that there is an incredible gap between the two, which may explain why our young people, particularly those working in the new economy, tend to go to the United States in search of better salaries and a higher disposable income.

[English]

Mr. Thomas d'Aquino: Madam Chair, I'll speak very quickly to the honourable member's first and last point, because others want to speak to the others.

On debt, it is true we've come back not for seven or eight years, but probably for fifteen years, arguing the debt was too high. You all know the huge ravages we've all paid for the debt. One of the reasons we don't have enough money for development, enough money for health care, enough money for the environment is because of something called debt, which we all collectively contributed to.

Now, the Government of Canada has done yeoman's service in getting the debt down, a huge improvement over ten years ago. But what should be our target so you will never hear from me again on it? Ideally, it should be about 25 percent to 30 percent.

The U.S. debt-to-GDP ratio today is 32 percent. If we got to 32 percent, I'd be happy. You probably wouldn't hear from me for a while. But let's keep one thing in mind: the greatest impediment to Canadian sovereignty is not the threat of the U.S.; it is not the threat of God knows what; it is that thing, that yoke over our necks, called debt. That has been the greatest threat to Canadian sovereignty for the last 15 to 20 years, bar none, above everything else. This is not just something that's good for business; it's essential for Canadians.

On the last point, concerning productivity, I would never want to leave you with the impression that somehow, by cutting taxes, we solve our productivity problem. Everything we have said and worked on for the last 15 to 20 years has said it has to be a combination of good public policy, right attitudes, good regulatory policy, smart business practices, aggressive business managers; it's a collective effort. We will never close the gap just by saying “Well, let's cut a few more points on tax. Let's get a few more points down on debt.” It has to be a collective effort. And the countries that have truly succeeded in the world, whether it's Ireland, the Netherlands, Finland--whatever the case may be--are those where they have got it all together.

That has meant working in partnership. You don't have people saying, “Well, if you're arguing for debt reduction, it has to be good for business”; or “If you're arguing for cuts in taxes, it has to be...”. It's an openness to a realization that the only way you're going to get there is by having the best workers, the best business practices, and the best public policy. We can only do that together.

Now that the tracks are running parallel with each other, although the trains aren't moving at the speed we want, we have the best chance we've ever had, in my view, in 25 years to achieve those goals. But there's still a lot of work to be done.

Â (1200)

The Chair: Mr. Whyte.

Mr. Garth Whyte: Thank you.

I think they're excellent questions--except the one on EI. I'm just kidding; I'll talk to you in a moment.

I think we need to set targets. It's interesting you're bringing back our targets. We fought for a debt-to-GDP link, to at least link it and start bringing it down. We fought for the five-year plan, so we're supportive of it. I think people now are saying, “Okay, what's the next step? If the GDP grows, your debt-to-GDP ratio decreases, without even dealing with the debt.”

Mr. Nick Discepola: Exactly.

Mr. Garth Whyte: Well, we want to see real cuts off the debt, too. We're concerned when you get these surpluses that all of a sudden we'll hear, “Oh, let's increase--”

Mr. Nick Discepola: Why? Why? Isn't it like a mortgage. If I can afford a $500,000 mortgage because I'm bringing in the revenues, why do I have to decrease my mortgage?

Mr. Garth Whyte: Because you're taking out $45 billion in interest payments a year, and we could use that money. When you brought down debt, you're now getting, what, $2 billion a year extra--

Mr. Nick Discepola: A lot more.

Mr. Garth Whyte: --which is quite nice, isn't it?

Mr. Nick Discepola: Yes.

Mr. Garth Whyte: Wouldn't it be worth doing that track? If you have your spending targets, as you suggest--I don't know what level it would be--then, yes, maybe we can work on some ratios. We're open to that.

As far as EI is concerned, I know every one of you had faxes from our members prior to September 11. I was prepared to bring in a thick pile of faxes of concerns on EI. Why? Because I see the premiums as inherently unfair and as a tax on payroll. You can make zero profits, but you still have to pay these EI premiums.

We supported the CPP. We worked with you very closely on CPP. We're not saying reduce the contributions. It's just that when you position CPP to go up sharply and EI goes down a little bit, the net increase in payroll tax deduction is going up every year.

Why do people get mad in January when they look at their pay cheque? They say, “I thought EI was going down. Oh, but CPP's going up significantly; that's why.” We had an opportunity to offset that.

We've said to the finance minister and the HRDC minister that we want to work with you to find solutions out of the EI box. We want to find solutions to the $600 million in overcontributions employers pay. It has nothing to do with premiums; they overpay $600 million a year because of part-time work, or people get rebates back on EI but employers don't. We want to talk about the EI accumulated surplus.

Finance Minister Martin said--back, I believe, in 1995--that we only needed a $10-billion to $15-billion surplus; that's all we need. Now we're hearing, “The money is gone; four to five billion--it's gone”. Okay, let's turn off the tap. Let's get down to a certain level so we don't keep bringing it up, because we're becoming dependent on it. The Auditor General may disagree with you. They may start saying you're breaking the law. That's why we have to look at it.

Â (1205)

Mr. Nick Discepola: We're only following the Auditor General's recommendations and the law, which say we should include it in the consolidated revenues.

Mr. Garth Whyte: No, it's supposed to be with EI. It's not for general revenues.

The Chair: Ms. Hughes Anthony, please, and the last point on this area.

Ms. Nancy Hughes Anthony: To respond very directly to your questions, yes, population and inflation combined, I think, is a very good guidance for the federal government to use as a discipline for a spending envelope. It's something the chamber has proposed for a number of years. I think it's a sensible proposal.

On debt, although there's no ideal level of debt-to-GDP ratio, certainly if we can move to see it go quickly to around 40 percent, I tend to agree with Tom that somewhere around the 30 percent mark is where it would be internationally acceptable. And think of all the fiscal room we would create if we could get it down to that level.

I would perhaps disagree with you a little about this issue of taxes and having to go to a generic tax decrease, as opposed to specifically targeting a sector.

As you can see, our recommendations did talk very specifically, in the short term, about lowering the top marginal PIT tax rate. And that is very specifically looking at competitiveness, particularly with respect to this whole issue of skilled labour, of attracting people into this country. It's very much connected. If we want to bring in very skilled people, graduates from universities, chances are they're in this upper income bracket, and we compare very unfavourably with the United States in that regard.

So I think this is a top priority. As you can see, some of our tax reduction proposals.... As you go out further in time, we realize we have to reform in other levels of the tax bracket, but at the moment, the pain that we see is in the upper tax bracket.

The Chair: Thank you very much.

I'm going to allow one question from Mr. Penson and one question from Mr. Pillitteri, because they've waited patiently. We will be out of here by 12:15, because you have been most gracious with your answers with us and with our time.

Go ahead.

Mr. Charlie Penson (Peace River, Canadian Alliance): Basically, it's an observation. I'd like to thank the panel, first of all, for coming and making a presentation today. You've identified a lot of issues, but what I take from this is that the issues you've identified are basically interrelated. We have to be a competitive country, especially when 87 percent of our exports go to the United States, when 70 percent of our imports come from the United States.

These issues about productivity and about debt service charges are all part of the problem that needs to be resolved. When Canada has 40 percent of our GDP in debt, that takes $40 billion this year in debt service charges, and a certain percentage of our income tax has to go to pay that. It makes us uncompetitive in many areas.

So it seems to me what the panel is telling us today is that in order to increase our productivity--which is a reflection of our living standards--for Canada to be competitive, there are a number of ways we can resolve that, and I believe they're all interrelated. You've identified a lot of areas we need to look at as a finance committee. I take from that that there's work to do and we can improve our productivity and our living standard by taking some of those solutions.

Madam Chair, I don't know if anybody wants to respond, but that's my observation.

The Chair: Mr. Myers, I'll give you a point, because I know you want to speak later.

Mr. Jayson Myers: Thank you, Madam Chair.

I agree with you. A number of the recommendations we made are addressing this issue of competitiveness and the importance of innovation for that. I would say, though, that there can be a strategic approach to this. I don't think we're going to get anywhere in terms of trying to stabilize the Canadian dollar or to push up the value of the Canadian dollar. We're not going to get anywhere in terms of our long-term growth potential unless we're not only solving the productivity issue but also understanding what that issue is all about.

The finance minister often asks how many companies will say they're not as productive or as efficient as their American counterpart. When I look around our businesses, very few representatives of a company would ever put up their hand, especially in front of the finance minister. But there is a point here, and it's that many companies are very efficient in the way they do business and they're probably even better than their American customers and competitors. Often this is the issue. I can be extremely inefficient in the way I use a calculator and you can be very inefficient in the way you use a computer, but at the end of the day you'll produce more and probably something of higher value than I would be able to do with a calculator.

One of the key problems in our economy is our tendency to lag behind in investment in technology. This, I think, is where a part of the strategic thinking has to start getting back to issues around capital taxation, around depreciation within the tax system. I think this is a real priority, because that's what drives the productivity improvement in other sectors of the economy and that's what drives the efficiency improvement we're seeing.

Thank you, Madam Chair.

Â (1210)

The Chair: Thank you.

Mr. Pillitteri, the final question.

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

For me it's been nine years, and of course I've listened to the recommendations brought forward year after year, but I think it's taken a different trend now. And by the way, I want to give ten seconds to Ms. Guarnieri if I can, after I finish this.

Let me go back into this thing that is coming on about the purchasing power of Canadians, this claim that we have less income, that the gap is widening between us and the United States in terms of per capita income. Yes, we have a lower per capita income, but I take exception when you're saying that we have a lower per capita income and standard of living than that of the United States. Would you suggest by this that we have less money for a cleaner environment or we have less money for recreation because we have higher standards? Do we have less money for education, for health, and for social services?

None of those issues were put in there. Yes, per capita we have lower income, but surely I know that I live in a cleaner environment, I have more recreation, I know I have a better education system, I know I have a better health system in Canada, and also I know that we have better social services. But, as the businessman I am, let me also go into another part that I think you should bring forward when you're coming in the fall, and that is, yes, in the United States they have a higher payroll tax; it's a tax on business. They have a higher corporate tax. They also have higher postage fees to do business.

They also have what we call a health care system where if we take, Mr. Garth, business and the private sector, you have almost 90 percent of people in the United States who have to buy their own insurance, their own medicare system.

So within this standard of living we have to put all of these cost factors into it before making the comparison. And then let's go on and say what we have in terms of the standard of living we have in our homes, per se. So you have higher property tax and market value assessment in the United States. And you have higher insurance, and that is only the comprehensive--I'm not talking about wind insurance or flood insurance. You have higher car insurance; they only sell for six months, not twelve months. There are higher water rates that are almost unacceptable, almost unaffordable. And of course when you go into the tourist area you have room tax and so on. We have none of that in Canada.

Then also I want to bring to the agenda what we call a deferred tax, and that is through RRSPs, RESPs. And finally we have to put in there the old age pension, please; put in there the supplementary old age pension, please; and then put the CPP in there, please.

When you have accounted for all of that, then you tell me and this committee where you come up with this lower per capita income where we aren't comparable to the United States.

I didn't touch education because in Canada most provinces have the public sector and of course we have the private sector. In the United States you have to pay, where in Canada you have the separate board and the public board. In Canada you don't have to pay for either one.

And last I come to the issue, which you talked about in your presentation, Mr. Myers, of the border. There are some directors who use their power to slow down trade. The Americans are doing this quite well. This is happening on our borders. In some of these agreements we have made with the United States, would you inform your exporters, in terms of pre-clearance and so on, that we need to expedite, because they're practically closing that border down.

Â (1215)

The Chair: Thank you. You can see that we're at the beginning of this.

Could you be very quick, Albina?

Ms. Albina Guarnieri (Mississauga East, Lib.): I have a very quick request.

The Chair: All right, a quick request, Albina, because I don't want to--

Ms. Albina Guarnieri: Mr. d'Aquino graciously offered to make available to us his memorandum responding to the federal innovation strategy. I would be very grateful for the insights, as I'm sure all of us would.

The Chair: You can send that to the clerk, and we'll have it copied and distributed. Thank you very much.

We'll go to Mr. Myers and Mr. d'Aquino.

Mr. Jayson Myers: I have two very quick responses to Mr. Pillitteri's comments.

Number one, I totally agree that we should be looking at the entire public subsidy as well as the tax rates. I refer the committee to the study Professor Mintz just published on effective personal and business tax rates, because that's exactly what he does: he shows that Canada's effective rate is still higher than that of the United States, even when the public benefits are included in terms of health, and he includes education as well. So I just refer that analysis to the committee.

Number two, on the border issues, we've made significant progress around pre-clearance and trying to improve the efficiency of border management. I think the fact that we have struck that border agreement and are making progress is a reflection of the lead the Canadian government has taken, and I think it should be commended for that. I totally agree.

The one thing that really can snarl up the border is having exporters arrive without their paperwork being in place. They don't know what the new regulations are, and they don't have the security clearances in place. I couldn't agree more. It's certainly a major concern of ours, and we are trying to help our members better understand those requirements.

Mr. Thomas d'Aquino: In the face of this barrage from my friend reminding us why we are fortunate to live in this country, I don't think anyone at this end of the table would say we would want to substitute on a wholesale scale the wonderful advantages and virtues he talked about with things American.

However, having said that, the one thing I remind you of is that when Canada came out of the Second World War, Canada and the United States were miles ahead of every country in the world, bar none, in terms of per capita wealth. I'm asking you now to put your historical hat on. The World Economic Forum has said that in the last 15 years we've gone from number two to number seven, and there are some projections that we may go to number eight, nine, or ten. That's out of 180 countries, which is pretty damn good.

What we're really talking about here is whether we are prepared to be complacent and to watch a constant erosion. Do you want your grandchildren to say one day, “My grandfather was a member of the House of Commons at a time when Canada was number two, and now we're down to fifteen”?

What we're really talking about is going the other way, and the only way we can go the other way is not by saying, well, it's not so bad, but by making us the best country in the world. With all the huge advantages we have, some of which you have listed, if we get that right combination of policies, we should be the very best once again.

Some friends of mine, particularly those on the left, say to me, as long as we're living quite well, who cares whether we're the best? We owe it to our children, our grandchildren, and future generations to use the huge assets we have to be number one in the world. So that's what we're really talking about. It's not that we've dropped to number 55, but rather going that way as opposed to that way.

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The Chair: Mr. Taillon, I'll give the last word to you.

Mr. Gilles Taillon: You forgot in your long list the unemployment rate. Count on it.

The Chair: That leaves me with thanking you for your input. As you can see, it's the start of an important process. You've done a tremendous job for us in giving us materials we can look at. Do not be afraid to contact this committee if you would like to add something later on in the process. As you know, we're working toward a late-November report. It is important that you gave your input today, and all of the committee members thank you for that. Thank you.

We are adjourned.